U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to ____________
Commission file number 0-19049
- -----
American Gaming & Entertainment, Ltd.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 74-2504501
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Bayport One, Yacht Club Drive, Suite 300, West Atlantic City, New Jersey 08232
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(609) 272-9099
--------------
(Issuer's telephone number)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
Class Outstanding at August 12, 1996
----- ------------------------------
Common Stock, $.01 par value 12,532,102 shares
Exhibit Index on Page 27
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 181,000 $ 487,000
Prepaid expenses 278,000 97,000
Investments in gaming projects - deposit - 1,027,000
Inventories and other current assets 245,000 25,000
----------- -----------
Total current assets 704,000 1,636,000
Casino barge and improvements, net of accumulated depreciation of
$2,864,000 - 1996 and $2,384,000 - 1995 13,649,000 14,128,000
Furniture, fixtures and equipment, net of accumulated depreciation
of $76,000 - 1996 and $112,000 - 1995 52,000 152,000
Equipment under operating leases, net of accumulated depreciation of
$1,470,000- 1995 - 851,000
Investments in gaming projects 2,181,000 2,152,000
Deferred financing fees 2,086,000 2,275,000
Other non-current assets 857,000 41,000
=========== ===========
$19,529,000 $21,235,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities Amounts due to related parties:
Accrued interest $ 8,409,000 $ 6,036,000
Dividends payable 1,053,000 778,000
Accrual for unutilized lease costs 3,825,000 4,463,000
Current portion of long term debt 38,441,000 39,072,000
------------ ------------
51,728,000 50,349,000
Accounts payable 192,000 420,000
Accrued payroll and related expenses 23,000 48,000
Accrued expenses and other current liabilities 1,242,000 1,933,000
Current portion of mortgage note payable 26,000 24,000
------------ ------------
Total current liabilities 53,211,000 52,774,000
Long term portion of estimated net liabilities for subsidiaries in
bankruptcy 2,500,000 2,250,000
Long term portion of mortgage note payable 111,000 126,000
------------ ------------
55,822,000 55,150,000
------------ ------------
Commitments and Contingencies
Stockholders' Deficiency
Preferred stock, 1,000,000 shares authorized:
Series A preferred stock, par value $.01 per share, 55,983 shares 1,000 1,000
issued
Series C and D cumulative preferred stock, and Series E preferred
stock, par value $.01 per share, 4,000 shares authorized and issued 12,702,000 12,102,000
for each series
Common stock, par value $.01 per share; 50,000,000 shares authorized
12,532,102 shares issued and 12,508,067 outstanding 126,000 126,000
Additional paid-in capital 46,088,000 46,963,000
Cost of shares held in treasury (25,000) (25,000)
Deferred financing and commitment fees (1,418,000) (1,547,000)
Accumulated deficit (93,767,000) (91,535,000)
------------ ------------
(36,293,000) (33,915,000)
------------ ------------
$ 19,529,000 $ 21,235,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Consulting services and other revenues $ 982,000 $ 519,000 $ 2,166,000 $ 767,000
------------ ------------ ------------ ------------
Costs and expenses
Direct operating and cost of sales - 79,000 65,000 153,000
Selling, general and administrative 926,000 966,000 1,311,000 1,925,000
Casino project development costs including
accrual for unutilized lease costs 95,000 926,000 233,000 1,598,000
Depreciation and amortization 258,000 722,000 668,000 1,330,000
Writedown of impaired assets 19,000 2,530,000 19,000 2,530,000
Equity in losses of subsidiaries in bankruptcy 250,000 2,863,000 250,000 4,407,000
----------- ------------ ------------ ------------
Total costs and expenses 1,548,000 8,086,000 2,546,000 11,943,000
----------- ------------ ------------ ------------
Operating loss (566,000) (7,567,000) (380,000) (11,176,000)
------------ ------------ ------------ ------------
Other income (expense)
Interest income 24,000 18,000 28,000 45,000
Interest expense (1,401,000) (1,311,000) (2,828,000) (2,579,000)
Net gain on sale of keno operations - - 948,000 -
------------ ------------ ------------ ------------
Total other income (expense) (1,377,000) (1,293,000) (1,852,000) (2,534,000)
------------ ------------ ------------ ------------
Net loss (1,943,000) (8,860,000) (2,232,000) (13,710,000)
Dividends and accretion on preferred stock 467,000 408,000 875,000 758,000
------------ ------------ ------------ ------------
Net loss for common stockholders $ (2,410,000) $ (9,268,000) $ (3,107,000) $(14,468,000)
============ ============ ============ ============
Net loss per common share $ (0.19) $ (0.75) $ (0.25) $ (1.17)
============ ============ ============ ============
Weighted average number of common shares
outstanding 12,532,102 12,363,173 12,532,102 12,355,155
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Operating Activities
Net loss $(2,232,000) $(13,710,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 668,000 1,330,000
Amortization of deferred financing costs 318,000 318,000
Stock option compensation expense - 183,000
Writedown of impaired assets 19,000 2,530,000
Equity in losses of subsidiaries in bankruptcy - 2,657,000
Changes in operating assets and liabilities, net of
effect from business combination:
Inventories and other current assets (1,115,000) 912,000
Other non-current assets 54,000 183,000
Accounts payable, accrued expenses and other current liabilities 1,810,000 2,950,000
----------- ------------
Net cash used in operating activities (478,000) (2,647,000)
----------- ------------
Investing activities
Proceeds from sale of keno operations 500,000 -
Capital expenditures - (250,000)
Investments in gaming activities 999,000 (1,238,000)
Amounts received under financing agreement 87,000 104,000
Net cash provided by (used in) investing activities 1,586,000 (1,384,000)
----------- ------------
Financing Activities
Proceeds from notes payable and other long-term obligations - 3,077,000
Interest payments on accrued interest (132,000) -
Principal payments on notes payable (1,282,000) (18,000)
----------- ------------
Net cash (used in) provided by financing activities (1,414,000) 3,059,000
----------- ------------
Decrease in cash (306,000) (972,000)
Cash at beginning of quarter 487,000 1,605,000
----------- ------------
Cash at end of quarter $ 181,000 $ 633,000
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. The consolidated interim financial statements include the
accounts of American Gaming & Entertainment, Ltd. and its subsidiaries (the
"Company"). The unaudited consolidated interim financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments (including normal recurring accruals) and disclosures
(including events occurring subsequent to June 30, 1996) considered necessary
for a fair presentation have been included. Operating results for the three and
six month periods ended June 30, 1996 may not be indicative of the results that
may be expected for the year ending December 31, 1996. For further information,
reference is also made to the consolidated financial statements contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
The accompanying unaudited consolidated interim financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. As further described in Note 2, the Company has sustained recurring
operating losses since its inception. The Company has also had a history of
insufficient liquidity and has been dependent upon its largest stockholder,
Shamrock Holdings Group, Inc., formerly known as Bennett Holdings, Inc.
("Shamrock Holdings"), and certain related entities (The Bennett Funding Group,
Inc. ("Bennett Funding") and Bennett Management and Development Corp. ("Bennett
Management")) for both working capital and project related financing. As a
result, the Company's recurring losses, negative working capital, stockholders'
deficiency, defaults under its debt agreements, uncertainties relating to the
ability to consummate the liquidation of certain of its subsidiaries (see Notes
2 and 3) and uncertainties relating to the bankruptcy of, and charges relating
to, Bennett Funding and Bennett Management (see Note 2) raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans concerning these matters are discussed in Note 2. The accompanying
unaudited consolidated interim financial statements do not include any
additional adjustments that might result from the outcome of these
uncertainties.
As a result of the bankruptcy proceedings under Chapter 11 of the U.S.
Bankruptcy Code (the "Code") involving two of the Company's wholly owned
subsidiaries, AMGAM Associates, a Mississippi partnership ("AMGAM"), and
American Gaming and Resorts of Mississippi, Inc., a Mississippi corporation
("AGRM"), and the expected liquidation of these subsidiaries in the near future,
the Company's control of these entities is likely to be temporary. In accordance
with generally accepted accounting principles, the Company elected, effective
beginning the year ended December 31, 1995, to deconsolidate AMGAM and AGRM and
present the results of operations for AMGAM and AGRM on the equity basis of
accounting as a single line item in the Consolidated Statement of Operations for
financial reporting purposes.
Certain reclassifications have been made to the 1995 amounts in order to conform
to the classifications used in 1996.
NOTE 2: LIQUIDITY AND CONTINUATION OF BUSINESS
The Company has sustained recurring operating losses since its inception,
including significant losses related to the Gold Shore Casino, as more fully set
forth below. The Company also has had a history of insufficient liquidity and
has been dependent upon Shamrock Holdings, Bennett Funding and Bennett
Management for both working capital and project related financing. However, as a
result of the bankruptcy filings of Bennett Funding and Bennett Management on
March 29, 1996 and the filing by the U.S. Securities and Exchange Commission
(the "Commission") of securities fraud charges against Bennett Funding and
Bennett Management on March 28, 1996, the Company does not anticipate receiving
any additional funds from the Bennett entities. As of June 30, 1996, the Company
owes approximately $50,675,000 to Shamrock Holdings (see Note 4), which amount
includes approximately $2,205,000 under a 66-month operating lease between the
Company and Bennett Management (the "SCS Lease") with respect to the "Sioux City
Sue" riverboat vessel and its supporting barge (the "Vessels") which, as
discussed below, Shamrock Holdings has orally represented to the Company that
Bennett Management, prior to its bankruptcy filing, assigned to Shamrock
Holdings.
As more fully discussed below, in the bankruptcy proceeding before the United
States Bankruptcy Court, Southern District of Mississippi (the "Bankruptcy
Court") of AMGAM, the committee for unsecured creditors in the bankruptcy
proceeding of AMGAM (the "AMGAM Committee") has filed an adversary complaint
(the "Complaint") challenging the transfers of the ownership interests in the
Gold Coast Casino barge (the "Gold Coast Barge") by AGRM and AMGAM to the
Company and the transfer of the leasehold interest in the Gold Coast Barge by
AMGAM to the Company as fraudulent transfers or voidable preferences under the
Code, and seeking, among other things, that all rental payments from President
Mississippi Charter Corporation ("PMCC") under an agreement (the "Charter
Agreement") between the Company and PMCC whereby PMCC is leasing from the
Company the Gold Coast Barge and certain related equipment including certain
identified gaming equipment (collectively, the "Leased Assets") which the
Company owns and on which the Company had previously operated the Gold Shore
Casino, be deposited into an escrow account for the benefit of the creditors of
AMGAM and AGRM (see Note 5).
On April 29, 1996, a preliminary injunction (the "Preliminary Injunction"),
which was agreed upon by the AMGAM Committee and the committee for unsecured
creditors in the bankruptcy proceeding of AGRM (collectively with the AMGAM
Committee, the "Committees") and the Company, was entered by the Bankruptcy
Court (i) to require the May 1996 through July 1996 rental payments
(approximately $329,000 per month) from PMCC under the Charter Agreement be
deposited into an escrow account (the "AMGAM/AGRM Escrow Account") for the
benefit of the creditors of AMGAM and AGRM pending confirmation of a proposed
joint plan of liquidation and (ii) to allow a monthly payment from such escrow
account to the Company in the amount of $304,000 for its monthly operating
expenses.
The Preliminary Injunction was revised and extended by the Bankruptcy Court
effective August 1, 1996 (i) to require rental payments (approximately $329,000
per month) from PMCC under the Charter Agreement, from August 1996 to the end of
the Injunction Term (as defined in the last sentence of this paragraph), be
deposited into such escrow account for the benefit of the creditors of AMGAM and
AGRM pending confirmation of a proposed joint plan of liquidation and (ii) to
allow a monthly payment from such escrow account to the Company in the amount of
$282,000 for its monthly operating expenses. Such payments are the Company's
only present significant source of net cash flow and liquidity. The Preliminary
Injunction will remain in effect until the agreement by the Company and the
Committees on a joint plan of liquidation of the AMGAM and AGRM estates or upon
further order of the Bankruptcy Court (the "Injunction Term").
The Company, AMGAM, AGRM and the Committees are currently negotiating a proposed
joint plan of liquidation (the "Plan"), more fully described below, pursuant to
which the payments by PMCC under the Charter Agreement (the "PMCC Payments") and
with respect to certain slot machines acquired by PMCC from AMGAM formerly used
in the operation of the Gold Shore Casino would be deemed assets of the
bankruptcy estates of AMGAM and AGRM and the Company would receive a portion of
such aggregate payments, if any. There can be no assurance that the Plan as
currently being discussed will be implemented or that the Company will receive
any payments from the AMGAM or AGRM bankruptcy cases.
If (i) the Company, AMGAM, AGRM and the Committees can not agree on a joint
consensual plan of liquidation for AMGAM and AGRM or any such plan is agreed
upon but not approved by the creditors in the AMGAM and AGRM bankruptcy
proceedings in accordance with the provisions of the Code or thereafter
confirmed by the Bankruptcy Court and (ii) a motion filed by the AMGAM Committee
with the Bankruptcy Court seeking the substantive consolidation of the AMGAM and
AGRM bankruptcy proceedings (the "Motion"), resulting in a combination of the
assets and liabilities of AMGAM and AGRM into one bankruptcy estate, is granted
by the Bankruptcy Court and the AMGAM Committee prevails on the Complaint, the
Company would not be able to meet its obligations as they come due.
Additionally, if the Company and the Committees can not agree on a joint
consensual plan of liquidation for AMGAM and AGRM, resulting in the Court (i)
terminating the Preliminary Injunction and (ii) not allowing payment to the
Company for its monthly operating expenses from the rental payments from the
PMCC Payments, the Company would not be able to meet its obligations as they
come due. In either such case, the Company would then need to pursue a formal
plan of reorganization or liquidation which would generally result in the sale
of the Company's assets to satisfy outstanding obligations. There can be no
assurance that if either action is required to be pursued that all such
obligations would be completely satisfied. Further, in the event of either
action, it is unlikely that stockholders of the Company will recover any of
their investment in the Company. Even if the Plan is confirmed in the AMGAM and
AGRM bankruptcies, and the Company receives all of the PMCC Payments, such
payments would not be sufficient to satisfy the Company's currently anticipated
operating needs and its obligations to Shamrock Holdings and Bennett Management.
As discussed below, the Company is seeking the modification or termination of
certain agreements (but excluding Shamrock Holdings' assumption of the
obligation related to a first preferred ship mortgage (the "Ship Mortgage") on
the Gold Coast Barge of approximately $2,278,000, which assumption has been
consummated) executed between the Company, Shamrock Holdings and Bennett
Management whereby the Company agreed to assign all its rights and interests in
the Charter Agreement, including the rights to all PMCC Payments, and the Leased
Assets to Shamrock Holdings and Bennett Management, respectively, for
cancellation of approximately $22,722,000 in debt due Shamrock Holdings with
respect to the Gold Shore Casino (the "Leased Asset Debt") and Shamrock
Holdings' assumption of the Ship Mortgage (collectively, the "Bennett Debt
Exchange") and a restructuring of all other obligations due from the Company to
Shamrock Holdings because (i) if all or a significant portion of the PMCC
Payments were required to be paid to Shamrock Holdings, the Company would not be
able to meet all of its obligations as they come due and (ii) the Company is
otherwise unable to service the debt or repay the principal due to Shamrock
Holdings under all other such obligations.
Shamrock Holdings has orally represented to the Company that Bennett Management,
prior to its bankruptcy filing, assigned to Shamrock Holdings all of Bennett
Management's rights and obligations under all agreements previously executed by
and between the Company and Bennett Management including, without limitation,
(i) agreements constituting the Bennett Debt Exchange, (ii) a security agreement
whereby the Company granted to Bennett Management a security interest in all of
the Company's accounts receivable and all bank accounts in the State of New
Jersey to secure all obligations owing by the Company to Bennett Management and
its affiliates and to obtain the agreement of Shamrock Holdings to enter into
the Bennett Debt Exchange (the "Security Agreement") and (iii) the SCS Lease.
However, the Company has not been provided with written evidence of such
assignment and, as the result of the bankruptcy filing of Bennett Management,
any such assignment might be challenged as a fraudulent transfer or voidable
preference under the Code. There can be no assurance that such assignment was
entered into between Shamrock Holdings and Bennett Management or, if entered
into, that it will not be voided as a fraudulent transfer or voidable preference
in the bankruptcy proceeding of Bennett Management or otherwise voided on other
grounds if any such assignment became effective within one year prior to the
bankruptcy filing of Bennett Management.
If Shamrock Holdings and, to the extent an assignment to Shamrock Holdings of
Bennett Management's interest in the agreements constituting the Bennett Debt
Exchange never took place or is voided as a fraudulent transfer, voidable
preference or otherwise in the bankruptcy proceeding of Bennett Management,
Bennett Management, agree to a termination of the Bennett Debt Exchange as of
the respective dates of the agreements comprising the Bennett Debt Exchange
(excluding Shamrock Holdings' assumption of the Ship Mortgage) and agree to
continue to let the Company utilize the PMCC Payments (subject in all cases to
the Preliminary Injunction), (i) the Company would recognize as revenue amounts
previously recorded as indebtedness to Shamrock Holdings arising out of the PMCC
Payments received by the Company from July 21, 1995, the scheduled effective
date of the Bennett Debt Exchange (the "BDE Date"), through December 31, 1995
(the "PMCC/Bennett Debt") as of the date of such termination and (ii) the
Company would reverse interest expense on the PMCC/Bennett Debt recognized from
the BDE Date through December 31, 1995. Based upon (i) a verbal understanding
which the Company believes it has with Shamrock Holdings to allow the Company to
utilize and retain the PMCC Payments while the Company and Shamrock Holdings
have been negotiating the terms of a comprehensive restructuring and (ii) the
course of conduct of Shamrock Holdings since January 1, 1996, the Company has
utilized, retained and recorded as revenues the PMCC Payments received by the
Company since January 1, 1996. If the Company's understanding is determined to
be incorrect or a restructuring of the Company's obligations to Shamrock
Holdings and, if necessary, Bennett Management is not consummated, the Company
would (i) reverse as revenue the PMCC Payments since January 1, 1996, (ii)
record such payments as additional PMCC/Bennett Debt and (iii) record interest
expense on such PMCC/Bennett Debt. There can be no assurance that Shamrock
Holdings or, if necessary, Bennett Management will agree to modify or terminate
the Bennett Debt Exchange or restructure all other obligations due from the
Company to Shamrock Holdings and, if applicable, Bennett Management or that the
verbal understanding which the Company believes it has with Shamrock Holdings to
allow the Company to utilize and retain the PMCC Payments while the Company and
Shamrock Holdings have been negotiating a comprehensive restructuring is
correct. Failure to obtain such modification, termination or restructuring would
have a material adverse effect on the Company and the Company would need to
pursue a formal plan of reorganization or liquidation. Any action to be taken by
Bennett Management in connection with modifying or terminating the Bennett Debt
Exchange would probably require the approval of the bankruptcy court before
which the Bennett Management bankruptcy proceeding is being heard.
The Company is delinquent in the payment of interest due on its various
obligations to Shamrock Holdings totaling approximately $8,409,000 as of June
30, 1996 and is therefore in default with respect to such payments under the
Company's various loan agreements with Shamrock Holdings. If Shamrock Holdings
takes any action with respect to its rights and remedies in connection with such
defaults, it would have a material adverse effect on the Company's business and
financial condition and the Company would need to pursue a formal plan of
reorganization or liquidation. The Company is also delinquent in the payment of
rent totaling approximately $2,205,000 as of June 30, 1996 under the SCS Lease.
Shamrock Holdings has a security interest in certain assets of the Company
including the Gold Coast Barge and therefore because of such defaults could
foreclose on such assets in the amount of such defaults. Shamrock Holdings or
Bennett Management, to the extent an assignment to Shamrock Holdings of Bennett
Management's interest in the Security Agreement never took place or is voided as
a fraudulent transfer, voidable preference or otherwise in the bankruptcy
proceeding of Bennett Management, has a security interest in all of the
Company's accounts receivable and bank accounts located in the State of New
Jersey and therefore because of such defaults could foreclose on such assets in
the amount of such defaults. There can be no assurance that Shamrock Holdings
and, if necessary, Bennett Management will agree on and execute an agreement
restructuring the Company's obligations to Shamrock Holdings and, if applicable,
Bennett Management. Additionally, any action required to be taken by Bennett
Management would probably require the approval of the bankruptcy court before
which the Bennett Management bankruptcy proceeding is being heard. Since the
announcement of securities fraud charges against, and the filing of bankruptcy
petitions by, certain Bennett entities, including Bennett Funding and Bennett
Management, and the transfer by Mr. Michael Bennett, the sole owner of Shamrock
Holdings, of all of the outstanding stock of Shamrock Holdings to the Trustee
(the "Trustee") for Bennett Funding and Bennett Management under Chapter 11 of
the Code (see Note 7), the Company has had preliminary negotiations with the
Trustee on a restructuring of the Company's obligations to Shamrock Holdings
and, if applicable, Bennett Management. Even if the Plan is confirmed, and such
a restructuring is consummated, there can be no assurance that the Company would
receive payments pursuant to the Plan sufficient to satisfy the Company's
currently anticipated operating needs and its obligations to Shamrock Holdings
and, if applicable, Bennett Management, as restructured.
The Company has not experienced any success in raising debt or equity financing
from sources independent of Shamrock Holdings, Bennett Funding or Bennett
Management and has no present commitments or other alternatives for such
financing. Given the Company's historical operating losses and present liquidity
position and the legal problems described above relating to certain Bennett
entities it is unlikely that the Company will achieve any success in its attempt
to raise additional equity, working capital or long-term project related
financing.
Given the Company's present financial and liquidity position, the legal problems
described above relating to certain Bennett entities and the Company's own
litigation described below (see Note 5), the business of the Company is unlikely
to continue to be the ownership of equity interests in casino gaming ventures.
Additionally, the Company's ability to continue in business is dependent upon
its ability (i) to obtain Shamrock Holdings' and, if necessary, Bennett
Management's agreement to modify on terms acceptable to the Company or terminate
the Bennett Debt Exchange (excluding Shamrock Holdings' assumption of the Ship
Mortgage) and restructure all other obligations due from the Company to Shamrock
Holdings and, if applicable, Bennett Management, (ii) to consummate the
liquidations under Chapter 11 of the Code of AMGAM and AGRM under plans
acceptable to the Company, resulting in a liquidation of the various trade and
debt obligations of those entities, and (iii) to satisfactorily resolve the
legal proceedings filed against the Company (see Note 5). However, there can be
no assurance the Company will be successful in obtaining Shamrock Holdings' and,
if necessary, Bennett Management's agreement to modify on terms acceptable to
the Company or terminate the Bennett Debt Exchange (excluding Shamrock Holdings'
assumption of the Ship Mortgage) and restructure all other obligations due from
the Company to Shamrock Holdings and possibly Bennett Management, consummating
the liquidations of AMGAM and AGRM under Chapter 11 of the Code under plans
acceptable to the Company or satisfactorily resolving the legal proceedings
filed against the Company. If the Company is unsuccessful in these efforts, the
Company would then need to pursue a formal plan of reorganization or liquidation
of the Company. Either such action would generally result in the sale of the
Company's assets to satisfy outstanding obligations. There can be no assurance
that if either action is required to be pursued that all such obligations would
be completely satisfied. Further, in the event of either action, it is unlikely
that the stockholders of the Company will recover any of their investment in the
Company.
NOTE 3: SIGNIFICANT DEVELOPMENTS WITH RESPECT TO INVESTMENTS IN GAMING PROJECTS
Mississippi
- -----------
The Company, AMGAM, AGRM and the Committees are currently negotiating the terms
of the Plan. Pursuant to the Plan as currently proposed by the Committees, (i)
each administrative and priority claim, as defined in the Code, incurred in
connection with the bankruptcy proceedings of AMGAM and AGRM would be paid in
full from the respective estates of AMGAM and AGRM in accordance with statutory
priorities pursuant to the Code, (ii) each secured claim would be paid in full
from the sale of the related collateral, (iii) each unsecured claim, excluding
any claims of the Company would be paid on a pro rata basis (a) from the assets
of the respective estates of AMGAM and AGRM, including all payments made from
October 1, 1995 through October 1, 1997 by PMCC with respect to certain slot
machines acquired by PMCC from AMGAM formerly used in the operation of the Gold
Shore Casino and the funds remaining in the escrow account established pursuant
to the Preliminary Injunction, (b) from a monthly payment in the aggregate
amount of approximately $74,700 from the PMCC Payments (approximately $329,000
per month) from the date the Plan is confirmed (the "Confirmation Date") through
the end of the initial term of the Charter Agreement and the renewal term, if
any, and (c) from 22.7% percent of the net proceeds of a sale of the Gold Coast
Barge, if any, and (iv) the Company's unsecured claims (in the claimed amount of
at least $32,000,000) would be paid from the balance of (a) the monthly payments
(approximately $254,000) made by PMCC pursuant to the Charter Agreement from the
Confirmation Date and (b) the net proceeds of a sale of the Gold Coast Barge, if
any. The amounts to be paid to creditors would be subject to the claim allowance
process in the AMGAM and AGRM bankruptcies, pursuant to which all allowed claim
amounts, including those of the Company in the order set forth above, would be
fixed for purposes of distributions under the Plan. The Bankruptcy Court set May
17, 1996 as the final date for filing proofs of claim or interest in both the
AMGAM and AGRM bankruptcy cases, except with respect to Bennett Management and
related entities, for which the Bankruptcy Court has extended such date until
August 19, 1996. Additionally, pursuant to the Plan, the Committees would agree
to stay all litigation, including the Complaint, until the Confirmation Date, at
which time the Committees would dismiss the Complaint and all other litigation
brought against the Company with prejudice, that is, the Committees would be
precluded from filing any action against the Company based on the alleged causes
of action set forth in the Complaint or any such other litigation.
There can be no assurance that the Company, AMGAM, AGRM and the Committees will
agree on a joint plan of liquidation for AMGAM and AGRM with terms and
conditions substantially equivalent to the Plan, that the creditors in the AMGAM
and AGRM bankruptcy proceedings will approve any such plan in accordance with
the provisions of the Code or that any such plan will thereafter be confirmed by
the Bankruptcy Court.
As previously described, the Bankruptcy Court has entered and extended the
Preliminary Injunction (See Note 2).
In 1996, the Company reevaluated the useful life of the Gold Coast Barge based
on the Company's current plans for the use of such barge and determined that it
has a useful life of 25 years, which is the industry average for such type of
barge. Previously, the Gold Coast Barge was being depreciated over a useful life
of 10 years based on its previous utilization by AMGAM. For the three months and
six months ended June 30, 1996 the change in such estimated useful life reduced
depreciation and amortization expense by approximately $159,000 and $318,000,
respectively, and reduced net loss per common share by approximately $.01 and
$.02, respectively.
Harolds Club Casino
- -------------------
Pursuant to an agreement between Shamrock Holdings and the Company (the "HC
Purchase Agreement") under which Shamrock Holdings provided the necessary funds
to the Company to close the purchase of the Harolds Club casino in Reno, Nevada,
the Company transferred to Shamrock Holdings title to the land and the building
related to the Harolds Club, Shamrock Holdings canceled $650,000 of the
Company's then outstanding indebtedness to Shamrock Holdings and caused Bennett
Funding to cancel $500,000 of the Company's then outstanding indebtedness to
Bennett Funding, and the Company agreed to transfer to Shamrock Holdings all of
the Company's rights, title and interest in certain land leases related to the
Harolds Club by July 30, 1995. The Company is in breach of the latter provision
because such transfer has not been completed pending the negotiation by the
Company with Shamrock Holdings relating to possible future development or sale
of the Harolds Club. The HC Purchase Agreement does not give Shamrock Holdings
any particular rights with respect to such breach by the Company. Although the
Company is obligated until such transfer to make all lease payments under such
leases and notwithstanding that such leases have not yet been assigned to
Shamrock Holdings, since July 30, 1995 Shamrock Holdings has assumed
responsibility for all carrying costs of the Harolds Club property including,
but not limited to, such lease payments, taxes, insurance and utilities.
However, even if the Company transfers to Shamrock Holdings all of the Company's
rights, title and interest in such leases, the Company could still be ultimately
obligated under such leases, pursuant to certain guaranties of lease executed by
the Company. The Company has been informed by Shamrock Holdings and the lessors
under such leases that Shamrock Holdings has not made any lease payments from
April 1996 through August 1996 due under such leases or quarterly property taxes
due under such leases, collectively totaling approximately $329,000. The lessors
have, among other rights, the right to terminate the respective leases and hold
the Company responsible for all obligations under such leases though the
respective lease terms. Such leases require aggregate annual lease payments of
approximately $620,000, $584,000 and $548,000 for 1996, 1997 and 1998, subject
to increase based upon increases in the Consumer Price Index, and have terms
ranging from June 1997 to October 2022. The Company has recorded the unpaid
lease payments and property taxes from April 1996 through June 1996 totaling
approximately $221,000 (the "Unpaid Harolds Obligations") as current liabilities
as of June 30, 1996. The Company has also recorded the amount of the Unpaid
Harolds Obligations as a receivable due from Shamrock Holdings as of June 30,
1996, but, as a result of the Company's determination as of June 30, 1996 that
there is a substantial likelihood that such amount will be uncollectible,
wrote-off such amount as of June 30, 1996.
The five lessors of the Harolds Club property have filed suit against, among
others, the Company seeking, among other relief, payment of all unpaid lease
payments and property taxes (see Note 5).
Indiana
- -------
As requested by the Indiana Gaming Commission (the "IGC"), the Company responded
to a series of questions relating to the Company's suitability for licensure as
an equity riverboat owner in connection with the development of a riverboat
gaming and entertainment complex in the City of Rising Sun, Indiana (the "Rising
Sun Project"). Such questions related to the relationships between the Company
and various Bennett entities and the Company's ability to continue as a going
concern. The Executive Director of the IGC has advised the Company that he
intends to recommend to the IGC that the Company be found unsuitable for
licensure based on the financial condition of the Company. However, the final
determination of the Company's suitability will be determined by the IGC, which
is expected to met to vote on this matter, among others, on August 19 and 20,
1996. The Company has advised the IGC that the Company intends to transfer its
4.9% interest in the Rising Sun Project to a trust established for the purpose
of disposing of such interest to avoid concerns that the IGC has regarding the
suitability of the Company for licensure. However, if the Company is found
unsuitable and the trust is not acceptable to the IGC or is otherwise not
effective in preventing a loss of license, the Company's immediate partners in
the Rising Sun Project have the right to purchase the Company's interest in the
Rising Sun Project at an appraised fair market value. If the Company's immediate
partners in the Rising Sun Project do not exercise such right, Indiana RBG,
L.P., the partner of the Company and the Company's immediate partners in the
Rising Sun Project, has the right to purchase the entire interests of both the
Company and its immediate partners in the Rising Sun Project at seventy-five
percent of an appraised fair market value.
If the IGC determines that the Company is unsuitable for licensure, such a
determination could result in the gaming authorities in other jurisdictions in
which the Company has, or has applied for, licenses (Nebraska, Connecticut, Iowa
and New Jersey) determining that the Company is unsuitable for licensure in
those respective jurisdictions. A determination by the gaming authorities in
those jurisdictions that the Company is unsuitable for licensure could result in
the Company being prohibited from (i) performing the obligations under the
maintenance and servicing agreements with the licensed operators for stations
and locations at which the Company's computerized keno system is utilized (the
"Keno Maintenance Agreements") pending the issuance to American Heartland
Corporation ("AHC"), the purchaser of the Company's keno assets, of the
temporary licenses, permanent licenses or other gaming approvals or
authorizations or other evidence of non-disapproval necessary to enable AHC to
lawfully perform the obligations assumed by AHC under the Keno Maintenance
Agreements or, (ii) under certain circumstances, retaining certain Keno
Maintenance Agreements.
NOTE 4: LONG TERM DEBT AND ACCRUAL FOR UNUTILIZED LEASE COSTS
As discussed above, the Company is delinquent in the payment of (i) interest due
under the Company's various loan agreements with Shamrock Holdings and (ii) rent
under the SCS Lease (see Note 2) and therefore has classified all indebtedness
due to Shamrock Holdings as current liabilities in the accompanying unaudited
consolidated interim financial statements. At June 30, 1996 and December 31,
1995, the Company had outstanding amounts due Shamrock Holdings approximating
$50,675,000 and $45,108,000, respectively, including accrued interest of
approximately $8,409,000 and $6,036,000, respectively. Such amounts due Shamrock
Holdings also include approximately $2,205,000 and $1,567,000, respectively,
under the SCS Lease which Shamrock Holdings has orally represented to the
Company that Bennett Management, prior to its bankruptcy filing, assigned to
Shamrock Holdings (see Note 2). As a result of the Company's determination as of
December 31, 1995 that there is a substantial likelihood that the Company will
not record any revenues from the Vessels through the end of the SCS Lease term
to offset the remaining lease payments due Shamrock Holdings thereunder, the
portion of such lease payments for the period from July 1, 1996 through the end
of the SCS Lease term totaling approximately $3,825,000 have been recorded as a
liability under accrual for unutilized lease costs as of June 30, 1996.
Additionally, the amount due Shamrock Holdings as of December 31, 1995 includes
approximately $562,000 under a line of credit from Bennett Funding to the
Company which Shamrock Holdings has orally represented to the Company that
Bennett Funding, prior to its bankruptcy filing, assigned to Shamrock Holdings.
All borrowings under such line of credit were repaid by the Company to Bennett
Funding in the first quarter of 1996.
In addition to the Company's indebtedness to Shamrock Holdings, at June 30, 1996
and December 31, 1995, the Company owed approximately $137,000 and $150,000,
respectively, under a mortgage note payable.
NOTE 5: CONTINGENCIES
As previously disclosed in the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1996, the AMGAM Committee has filed the Motion which
would result in a combination of the assets and liabilities of AMGAM and AGRM
into one bankruptcy estate. The Bankruptcy Court had scheduled a hearing on the
Motion on June 19 and 20, 1996; the Bankruptcy Court postponed the hearing, but
has not scheduled a new hearing date. AMGAM, AGRM and the Company presently
intend to oppose the Motion on the basis, among others, that AMGAM, AGRM and the
Company were separate entities with separate ownership at the time most
liabilities of AMGAM and AGRM were incurred.
As previously disclosed in the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1996, the AMGAM Committee has also filed the Complaint
seeking that (i) the transfer of the ownership interests in the Gold Coast Barge
by AGRM and AMGAM to the Company be declared null and void, (ii) the transfer of
the leasehold interest in the Gold Coast Barge by AMGAM to the Company be
declared null and void, (iii) the Company and Shamrock Holdings be required to
deliver to AGRM and AMGAM their respective interests in both the ownership and
leasehold in the Gold Coast Barge, (iv) the Company and Shamrock Holdings
disgorge and return to the respective AMGAM and AGRM estates all amounts
received from PMCC or its affiliates pursuant to the Charter Agreement, such
funds to be deposited in an escrow account and not expended without further
order of the Bankruptcy Court, and (v) PMCC be ordered and directed to
immediately deposit all rental payments under the Charter Agreement into an
escrow account for the benefit of the creditors of AMGAM and AGRM, such funds
not to be expended without further order of the Bankruptcy Court. The Bankruptcy
Court had scheduled a hearing on the Complaint on June 19 and 20, 1996; the
Bankruptcy Court postponed the hearing, but has not scheduled a new hearing
date. AMGAM, AGRM and the Company presently intend to oppose the Complaint on
the bases, among others, that the transfer of the Gold Coast Barge from AGRM to
the Company involved contemporaneous exchanges of value and that the Company and
Shamrock Holdings were not insiders of AMGAM or AGRM at the time such entities
granted the Company and Shamrock Holdings security interests in their assets,
including the Gold Coast Barge.
As discussed in Note 2, pursuant to the Plan, as it is currently proposed, the
Committees would agree to stay all litigation, including the Complaint, until
the Confirmation Date, at which time the Committees would dismiss the Complaint
and all other litigation brought against the Company with prejudice, that is,
the Committees would be precluded from filing any action against the Company
based on the alleged causes of action set forth in the Complaint or any such
other litigation. The Motion would be rendered moot because the Plan is a joint
plan of liquidation.
If (i) the Company, AMGAM, AGRM and the Committees can not agree on a joint
consensual plan of liquidation for AMGAM and AGRM or any such plan is agreed
upon but not approved by the creditors in the AMGAM and AGRM bankruptcy
proceedings in accordance with the provisions of the Code or thereafter
confirmed by the Bankruptcy Court and (ii) the Motion is granted by the
Bankruptcy Court and the AMGAM Committee prevails on the Complaint, the Company
would not be able to meet its obligations as they come due. Additionally, if the
Company and the Committees can not agree on a joint consensual plan of
liquidation for AMGAM and AGRM, resulting in the Bankruptcy Court (i)
terminating the Preliminary Injunction and (ii) not allowing payment to the
Company for its monthly operating expenses from the rental payments from PMCC
under the Charter Agreement, the Company would not be able to meet its
obligations as they come due. In either such case, the Company would then need
to pursue a formal plan of reorganization or liquidation which would generally
result in the sale of the Company's assets to satisfy outstanding obligations.
There can be no assurance that if either action is required to be pursued that
all such obligations would be completely satisfied. Further, in the event of
either action, it is unlikely that stockholders of the Company will recover any
of their investment in the Company.
As previously described, the Bankruptcy Court has entered the Preliminary
Injunction (See Note 2). The Preliminary Injunction was sought by the Committees
and the Company in connection with their negotiations involving the Plan, but it
is independent of the Complaint which seeks, among other things, similar relief.
On May 3, 1996, a class action was filed in the United States District Court,
Northern District of New York (Case No. 96-CV-712) against various Bennett
entities for using fraudulent representations and omissions of material facts to
offer and sell over $570,000,000 of purported assignments of equipment leases
and promissory notes issued by Bennett Funding or its subsidiaries and seeking
recession of such assignments and compensatory, recessionary and statutory
treble damages. The Company was named as a defendant in such lawsuit based on
allegations that certain Bennett entities allegedly used funds acquired from the
sale of such purported assignments to loan money to the Company and based on the
ownership interest in and alleged control of the Company by certain Bennett
entities. As discovery and depositions have not yet commenced, Company counsel,
due to the limited facts available on this matter, is unable to predict the
outcome of this lawsuit. However, should the plaintiffs prevail, this litigation
would have a material adverse effect on the Company's business and financial
condition. The Company would then need to pursue a formal plan of reorganization
or liquidation which would generally result in the sale of the Company's assets
to satisfy outstanding obligations. There can be no assurance that if either
action is required to be pursued that all such obligations would be completely
satisfied. Further, in the event of either action, it is unlikely that
stockholders of the Company will recover any of their investment in the Company.
In November 1995, the Company filed a complaint in the Superior Court of New
Jersey, Law Division, Atlantic County (Docket No. ATL-L-3866-95) against AMI
Mortgage Banking Division ("AMI") for using fraudulent representations to induce
the Company to enter into a letter of intent (the "L/C") concerning AMI's intent
to issue a standby forward commitment and a standby letter of credit to provide
financing for the Company's operations in Biloxi, Mississippi and seeking, among
other relief, compensatory damages in the amount of $125,000, representing the
amount of an initial payment made to AMI for arranging such financing. In June
1996, AMI filed a counterclaim in the amount of $1,250,000, representing the
balance of the commitment fee allegedly owed by the Company to AMI under the
L/C. As discovery and depositions have not yet commenced, Company counsel, due
to the limited facts available on this matter, is unable to predict the outcome
of this lawsuit. However, should AMI prevail, this litigation would have a
material adverse effect on the Company's business and financial condition. The
Company would then need to pursue a formal plan of reorganization or liquidation
which would generally result in the sale of the Company's assets to satisfy
outstanding obligations. There can be no assurance that if either action is
required to be pursued that all such obligations would be completely satisfied.
Further, in the event of either action, it is unlikely that stockholders of the
Company will recover any of their investment in the Company.
In July 1996 and August 1996, in separate actions filed in the Second Judicial
District Court of the State of Nevada in and for the County of Washoe (Case Nos.
CV9604947, CV9604933, CV9604939, CV9604997 and CV9604692), the five lessors of
the Harolds Club property have filed suit against, among others, the Company and
Shamrock Holdings seeking, variously, among other relief, (i) payment of all
unpaid lease payments and property taxes, (ii) a court order voiding the
transfer of the title to the land and the building related to the Harolds Club
from the Company to Shamrock Holdings to the extent necessary to satisfy the
claims of creditors of the Company, (iii) a court order prohibiting and
enjoining Shamrock Holdings from transferring the title to the land and the
building related to the Harolds Club during the pendency of the actions, (iv)
temporary and permanent court orders mandating that the Company protect the
grandfathered right of nonlicensed gaming on the leaseholds by locating a
suitable gaming sub-tenant and (v) reasonable attorneys fees and costs of suit.
As discovery and depositions have not yet commenced, Company counsel, due to the
limited facts available on this matter, is unable to predict the outcome of this
lawsuit. However, should the plaintiffs prevail, this litigation would have a
material adverse effect on the Company's business and financial condition. The
Company would then need to pursue a formal plan of reorganization or liquidation
which would generally result in the sale of the Company's assets to satisfy
outstanding obligations. There can be no assurance that if either action is
required to be pursued that all such obligations would be completely satisfied.
Further, in the event of either action, it is unlikely that stockholders of the
Company will recover any of their investment in the Company.
NOTE 6: DECONSOLIDATION OF AMGAM AND AGRM
The Company has determined that, because of the filings of AMGAM and
AGRM under the Code and the expected liquidation in the near future of AMGAM and
AGRM, such entities should be deconsolidated for financial statement purposes. A
combined unaudited condensed balance sheet of these entities as of June 30, 1996
and December 31, 1995, is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
- ------
Current Assets and Other $ 3,741,000 $ 3,024,000
Property and Equipment, Net 41,000 5,706,000
Land - 10,000,000
------------ ------------
Total Assets $ 3,782,000 $ 18,730,000
============ ============
Liabilities and Stockholders' Deficiency
- ----------------------------------------
Current Liabilities $ 23,437,000 $ 22,740,000
Amounts Due to Parent 12,147,000 30,138,000
Stockholders' Deficiency (31,802,000) (34,148,000)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 3,782,000 $ 18,730,000
============ ============
</TABLE>
NOTE 7: RECENT RELATED PARTY AND MANAGEMENT DEVELOPMENTS
The Company has been informed by the Trustee that on May 17, 1996, Mr. Michael
Bennett, the sole owner of Shamrock Holdings, transferred of all of the
outstanding stock of Shamrock Holdings to the Trustee. Shamrock Holdings owns
(i) 4,423,454 common shares of the Company, (ii) warrants to purchase 12,500
common shares of the Company at $4.00 per share and (iii) all of the Company's
outstanding Series A Preferred Stock, convertible into, and voting as, 1,399,565
shares of common stock. Additionally, the Trustee has filed a lawsuit against
Mutual Investors Funding Corporation ("MIFCO"), among other entities, seeking,
among other relief, that MIFCO turnover to the Bennett estates all of the
Company's stock owned by MIFCO. If the Trustee is successful in such action, the
Bennett estates would own (i) an additional 1,500,000 shares of common stock of
the Company and (ii) all of the Company's outstanding Series C Cumulative
Preferred Stock, Series D Cumulative Preferred Stock and Series E Preferred
Stock, convertible as of July 31, 1996 into approximately 185,000,000 shares of
common stock of the Company. The Company does not have a sufficient number of
authorized shares of Common Stock to enable the conversion of all of the Series
C Preferred Stock, the Series D Preferred Stock and the Series E Preferred
Stock. On April 1, 1996 the Board of Directors voted to request the stockholders
of the Company to approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common Stock to
500,000,000 shares no later than the next annual meeting of the Company's
stockholders. Assuming the Trustee is successful in his action against MIFCO and
converted as of July 31, 1996 that number of shares of the Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock equal to the total
number of the Company's presently authorized but unissued shares of Common Stock
(i.e. 37,467,898 shares), the Trustee, on behalf of the Bennett estates and
Shamrock Holdings, would own approximately 86.8% of the total outstanding shares
of Common Stock and approximately 87.1% of the total voting power represented by
the total outstanding voting securities of the Company. Assuming the Company's
stockholders approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common Stock to
500,000,000 shares, and the Trustee converted as of June 30, 1996 all of the
Series C Preferred Stock, Series D Preferred Stock and the Series E Preferred
Stock (i.e. resulting in a total of approximately 185,000,000 shares of Common
Stock being issued to the Trustee as of such date), the Trustee, on behalf of
the Bennett estates and Shamrock Holdings, would own approximately 96.7% of both
the total outstanding shares of Common Stock and the total voting power
represented by the total outstanding voting securities of the Company. As of
August 8, 1996, MIFCO has not asserted any rights they may have against the
Company for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock to enable the conversion of all of the Series C Preferred
Stock, Series D Preferred Stock and the Series E Preferred Stock.
William I. Fasy resigned on July 3, 1996 as the Company's Chairman,
President and Chief Executive Officer to pursue other career opportunities. Mr.
Fasy continued to be employed by the Company until August 1, 1996. The Board of
Directors elected J. Douglas Wellington, the Company's General Counsel,
Secretary and Controller, as the Interim President and Chief Operating Officer
on July 10, 1996. The Board of Directors has not elected anyone to the Board to
fill the vacancy left by Mr. Fasy.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations: Comparison of the three month periods ended
June 30, 1996 and June 30, 1995
- ------------------------------------------------------------------
Revenues
- --------
Consulting service and other revenues for the three months ended June 30, 1996
amounted to approximately $982,000, an increase of approximately $467,000 or
approximately 90% compared to the three months ended June 30, 1995. The increase
is primarily attributable to revenues for the three months ended June 30, 1996
from the Charter Agreement with PMCC in the amount of approximately $986,000,
partially offset by decreases for the three months ended June 30, 1996 of
approximately $392,000 and $116,000 attributable to keno revenues and revenues
from a video lottery management contract, respectively. The Charter Agreement
became effective on June 18, 1995 but no revenues from PMCC Payments were
recorded during the three months ended June 30, 1995 due to concerns regarding
the collectibility of such payments resulting from disagreements with PMCC
regarding the amount of expenses which PMCC was offsetting against the PMCC
Payments. The Company's keno assets and operations were sold on March 28, 1996
and such video lottery management contract terminated on June 30, 1995,
therefore no keno revenues or revenues from such video lottery management
contract were generated during the three months ended June 30, 1996.
Costs and Expenses
- ------------------
The Company incurred no direct operating expenses and cost of sales for the
three months ended June 30, 1996 compared to direct operating expenses and cost
of sales for the three months ended June 30, 1995 of approximately $79,000. The
decrease was attributable to the expenses and cost related to sales of keno
systems sold during the three months ended June 30, 1995. No such expenses or
costs were incurred for the three months ended June 30, 1996.
Selling, general and administrative expenses were approximately $926,000 for the
three months ended June 30, 1996, representing a decrease of approximately
$40,000 or approximately 4% when compared to the three months ended June 30,
1995. The decrease in selling, general, and administrative expenses was
primarily due to a decrease of approximately $91,000 related to the Company's
keno operations, which were sold on March 28, 1996, and a decrease of
approximately $260,000 due to the resignation or termination effective December
15, 1995 of all but five of the Company's non-keno employees, partially offset
by the write-off of the Unpaid Harolds Obligations in the amount of
approximately $221,000 as of June 30, 1996 and an increase of approximately
$74,000 in legal expenses associated with the Company's restructuring efforts.
Casino project development costs for the three months ended June 30, 1996 were
approximately $95,000, representing a decrease of approximately $831,000 or
approximately 90% when compared to the three months ended June 30, 1995. Such
decrease was primarily due to decreases of approximately $302,000, $34,000 and
$25,000 in personnel, travel & entertainment and consulting expenses,
respectively, associated with the Company's change in business direction from
the development of gaming projects to the management of its equity interests in
gaming projects, a decrease in licensing fees of approximately $115,000
attributable to the receipt by the Company during the three months ended June
30, 1996 of previously expensed licensing fees, and a decrease of $425,000
related to SCS Lease expense of the Company, partially offset by an increase of
approximately $60,000 relating to maintenance expenses of the Vessels. The SCS
Lease payments from January 1, 1996 through the end of the lease term were
recognized as an expense as of December 31, 1995 and therefore no such SCS
Lease expenses were recorded in 1996.
Depreciation and amortization costs were approximately $258,000 for the three
months ended June 30, 1996, representing a decrease of approximately $464,000 or
approximately 64% when compared to the three months ended June 30, 1995. The
decrease in depreciation and amortization expense was principally due to a
decrease of approximately $266,000 as a result of the transfer of certain assets
to PMCC in September 1995 and the change in the estimated useful life of certain
depreciable or amortizable assets from 10 years to 25 years and a decrease of
approximately $206,000 related to the Company's keno assets which were sold on
March 28, 1996.
Equity in losses of subsidiaries in bankruptcy related to the results of
operations for AMGAM and AGRM for the three months ended June 30, 1996 were
approximately $2,863,000, representing a decrease of approximately $2,613,000 or
approximately 91% when compared to the three months ended June 30, 1995. The
Company wrote off its investments in AMGAM and AGRM as of December 31, 1995 and
therefore no operating costs were incurred for the three months ended June 30,
1996, although the Company accrued $250,000 during the three months ended June
30, 1996 as management's estimate of additional settlement liabilities to be
paid out of the PMCC Payments ($3,000,000 for such liabilities was accrued in
1995).
Net interest expense for the three months ended June 30, 1996 was approximately
$1,377,000, an increase of approximately $84,000 or approximately 6% compared to
the three months ended June 30, 1995. Interest expense increased approximately
$90,000 during the three months ended June 30, 1996, while interest income
increased approximately $6,000 during the three months ended June 30, 1996. The
reason for the increase in interest expense of approximately $90,000 was due to
a net increase in average debt outstanding due to Shamrock Holdings, Bennett
Funding and Bennett Management of approximately $766,000 primarily attributable
to the assumption in June 1995 by Shamrock Holdings of the Ship Mortgage, the
PMCC/Bennett Debt due to Shamrock Holdings recorded by the Company from the BDE
Date through December 31, 1995 and the repayment of approximately $1,375,000 due
to Shamrock Holdings and Bennett Funding in the first quarter of 1996.
Results of Operations: Comparison of the six month periods ended
June 30, 1996 and June 30, 1995
- ----------------------------------------------------------------
Revenues
- --------
Consulting service and other revenues for the six months ended June 30, 1996
amounted to approximately $2,166,000, an increase of approximately $1,399,000 or
approximately 182% compared to the six months ended June 30, 1995. The increase
is primarily attributable to revenues for the six months ended June 30, 1996
from the Charter Agreement with PMCC in the amount of approximately $1,972,000,
partially offset by decreases for the six months ended June 30, 1996 of
approximately $334,000 and $204,000 attributable to keno revenues and revenues
from a video lottery management contract, respectively. The Charter Agreement
became effective on June 18, 1995 but no revenues from PMCC Payments were
recorded during the six months ended June 30, 1995 due to concerns regarding
the collectibility of such payments resulting from disagreements with PMCC
regarding the amount of expenses which PMCC was offsetting against the PMCC
Payments. The Company's keno assets and operations were sold on March 28, 1996
and such video lottery management contract terminated on June 30, 1995,
therefore keno revenues significantly decreased for the six months ended June
30, 1996 and no revenues from such video lottery management contract were
generated during the six months ended June 30, 1996.
Costs and Expenses
- ------------------
Direct operating expenses and cost of sales were approximately $65,000 for the
six months ended June 30, 1996, representing a decrease of approximately $88,000
or 58% when compared to the six months ended June 30, 1995. The decrease was
attributable to the expenses and costs related to sales of keno systems sold
during the six months ended June 30, 1995. The Company's keno assets and
operations were sold on March 28, 1996 and therefore such expenses and costs
significantly decreased for the six months ended June 30, 1996.
Selling, general and administrative expenses were approximately $1,311,000 for
the six months ended June 30, 1996, representing a decrease of approximately
$614,000 or approximately 32% when compared to the six months ended June 30,
1995. The decrease in selling, general, and administrative expenses was
primarily due to a decrease of $86,000 related to the Company's keno operations,
which were sold on March 28, 1996, a decrease of approximately $603,000 due to
the resignation or termination effective December 15, 1995 of all but five of
the Company's non-keno employees and a decrease of approximately $93,000 in
legal expenses for the six months ended June 30, 1996, partially offset by the
write-off of the Unpaid Harolds Obligations in the amount of approximately
$221,000 as of June 30, 1996.
Casino project development costs for the six months ended June 30, 1996 were
approximately $233,000, representing a decrease of approximately $1,365,000 or
approximately 85% when compared to the six months ended June 30, 1995. Such
decrease was primarily due to decreases of approximately $675,000, $69,000,
$64,000 and $47,000 in personnel, travel & entertainment, legal and consulting
expenses, respectively, associated with the Company's change in business
direction discussed above, decrease in licensing fees of approximately $115,000
attributable to the receipt by the Company during the six months ended June 30,
1996 of previously expensed licensing fees, and a decrease of $425,000 related
to SCS Lease expense of the Company, partially offset by an increase of
approximately $97,000 relating to maintenance expenses of the Vessels. The SCS
Lease payments from January 1, 1996 through the end of the lease term were
recognized as an expense as of December 31, 1995 and therefore no such SCS
Lease expenses were recorded in 1996.
Depreciation and amortization costs were approximately $668,000 for the six
months ended June 30, 1996, representing a decrease of approximately $662,000 or
approximately 50% when compared to the six months ended June 30, 1995. The
decrease in depreciation and amortization expense was principally due to a
decrease of approximately $442,000 as a result of the transfer of certain assets
to PMCC in September 1995 and the change in the estimated useful life of certain
depreciable or amortizable assets from 10 years to 25 years and a decrease of
approximately $244,000 related to the Company's keno assets which were sold on
March 28, 1996.
Equity in losses of subsidiaries in bankruptcy related to the results of
operations for AMGAM and AGRM for the six months ended June 30, 1996 of
approximately $4,407,000, representing a decrease of approximately $4,157,000 or
approximately 94% when compared to the six months ended June 30, 1995. The
Company wrote off its investments in AMGAM and AGRM as of December 31, 1995 and
therefore no operating costs were incurred for the six months ended June 30,
1996, although the Company accrued $250,000 during the six months ended June 30,
1996 as management's estimate of additional settlement liabilities to be paid
out of the PMCC Payments.
Net interest expense for the six months ended June 30, 1996 was approximately
$2,800,000, an increase of approximately $266,000 or approximately 10% compared
to the six months ended June 30, 1995. Interest expense increased approximately
$249,000 during the six months ended June 30, 1996, while interest income
decreased approximately $17,000 during the six months ended June 30, 1996. The
reason for the increase in interest expense of approximately $249,000 was due to
an increase in average debt outstanding due to Shamrock Holdings, Bennett
Funding and Bennett Management of approximately $2,203,000 primarily
attributable to the assumption in June 1995 by Shamrock Holdings of the Ship
Mortgage, the PMCC/Bennett Debt due to Shamrock Holdings recorded by the Company
from the BDE Date through December 31, 1995 and the repayment of approximately
$1,375,000 due to Shamrock Holdings and Bennett Funding in the first quarter of
1996.
The Company recorded a net gain of approximately $948,000 on the sale of keno
operations for the six months ended June 30, 1996 (see Note 3). No such income
was recorded during the six months ended June 30, 1995.
Changes in Financial Condition, Liquidity and Capital Resources
- ---------------------------------------------------------------
As of June 30, 1996, the Company had no committed financing arrangements and a
working capital deficiency of $52,507,000. For a discussion of liquidity and
capital resources, see Note 2.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 5 to the Consolidated Financial
Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
For a discussion of defaults with respect to the Company's indebtedness due to
Shamrock Holdings, see Notes 2 and 4.
The Company has accrued and declared, but has not paid as of August 12, 1996,
dividends totaling approximately $152,000 which were due and payable on the
outstanding shares of its Series C Cumulative Preferred Stock as of December 31,
1994. The Company has accrued and declared, but has not paid as of August 12,
1996, dividends totaling approximately $152,000 which were due and payable on
the outstanding shares of its Series D Cumulative Preferred Stock as of December
31, 1994.
Additionally, the Company has accrued, but has not declared or paid as of August
12, 1996, dividends totaling approximately $577,000 which were due and payable
on the outstanding shares of its Series C Cumulative Preferred Stock from
January 1, 1995 through June 30, 1996. The Company has accrued, but has not
declared or paid as of August 12, 1996, dividends totaling approximately
$477,000 which were due and payable on the outstanding shares of its Series D
Cumulative Preferred Stock from January 1, 1995 through June 30, 1996. Although
such dividends do not constitute actual liabilities of the Company until
declared, the Company has accrued for such dividends because, under the terms of
the Series C Cumulative Preferred Stock and the Series D Cumulative Preferred
Stock, dividends are cumulative whether or not declared and the Company is
prohibited from paying dividends on, purchasing or redeeming any of its Series A
Preferred Stock or Common Stock so long as any such cumulated dividends are
unpaid. The Company is prohibited under the General Corporation Law of Delaware
from declaring such dividends unless the Company has (i) capital surplus or (ii)
net profits in the fiscal year in which such dividends are declared and/or the
preceding fiscal year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
10.2 Amended and Restated Operating Agreement for RSR, LLC dated
as of February 26, 1996
10.71 Employment Agreement dated June 1, 1996 by and between the
Company and J. Douglas Wellington
11 Computation of Earnings Per Share.
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the second quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
American Gaming & Entertainment, Ltd.
Date: 8/14/96 By: /s/ J. Douglas Wellington
------- --------------------------------------
J. Douglas Wellington
President and Chief Operating Officer,
and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
10.2 Amended and Restated Operating Agreement for RSR, 28
LLC dated as of February 26, 1996
10.71 Employment Agreement dated June 1, 1996 by and 73
between the Company and J. Douglas Wellington
11 Computation of Earnings Per Share. 81
27 Financial Data Schedule 82
AMENDED AND RESTATED
OPERATING AGREEMENT
FOR
RSR, LLC
This Operating Agreement is made as of February 26, 1996 by and among
Paul R. Partridge, American Gaming & Entertainment, Ltd., Patrick F. Daly, and
James A. Everatt as Members (hereinafter referred to collectively as the
"Members" and individually as a "Member") and Charles E. Reisert, Jr. and Eric
C. Jackson (hereinafter referred to collectively as the "Limited Members" and
individually as a "Limited Member").
WHEREAS, the parties have formed a limited liability company and have
filed Articles of Organization with the Indiana Secretary of State for that
purpose in accordance with the Indiana Business Flexibility Act;
WHEREAS, the Members have previously adopted an Operating Agreement
which they now desire to amend and restate in its entirety by this Agreement:
NOW THEREFORE, the parties hereto, in consideration of the mutual
covenants and benefits herein contained do hereby agree to the following
operating agreement for RSR ("Company") pursuant to the provisions of the laws
of the State of Indiana upon the terms hereinafter set forth:
ARTICLE I
Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01. "Act" shall mean the Indiana Business Flexibility Act of the
State of Indiana, as amended from time to time.
1.02. "Affiliate" shall mean, as to any Member (or as to any other
Person the affiliates of whom are relevant for purposes of any of the provisions
of this Agreement) any corporation, partnership, joint venture, limited
liability company, trust or individual controlled by, under common control with,
or which controls, directly or indirectly, such Member or other Person. The term
"control" for these purposes means the ability, whether by direct or indirect
ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to elect a majority of the
managers of a limited liability company, to select the managing partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity, and, in the case of a limited partnership, shall mean the sole general
partner thereof, all of the general partners thereof which have or share
management control or authority, or the managing general partner or managing
general partners thereof, as appropriate (and in any event shall mean the
ownership and control [that is, the right to vote] of fifty percent (50%) or
more of the residual equity interests in an entity). The term "Affiliate" shall
also mean and include (i) a trust of which the Member, or other applicable
Person, or a direct or indirect shareholder of such Member or other Person, is a
trustee, or which has as its principal income or residual beneficiaries, such
Member or other Person, or any direct or indirect shareholder of such Member or
other Person, or members of the immediate family of such Member, direct or
indirect shareholder or other Person, and (ii) any members of such Member's or
other Person's immediate family, or a member of the immediate family of any
direct or indirect shareholder of such Member or other Person. For purposes
hereof, shares or other ownership interests held by a trust shall be deemed to
be owned pro rata by the income and residuary beneficiaries of such trust.
Further, the members of the immediate family of any Member or other Person shall
include all collateral relatives of such Member or other person having a common
linear ancestor with such Member or other Person, and the spouse or any former
spouse of such Member or other Person or any of such collateral relatives.
1.03. "Agreement" shall mean this Operating Agreement as originally
executed and as amended, modified, supplemented or restated from time to time,
as the context requires.
1.04. "Bankrupt Member" shall mean any Member (a) that (i) makes a
general assignment for the benefit of creditors; (ii) files a voluntary
bankruptcy petition; (iii) becomes the subject of an order for relief or is
declared insolvent in any federal or state bankruptcy or insolvency proceedings;
(iv) files a petition or answer seeking for the Member a reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any law, (v) files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against the Member in a
proceeding of the type described in subclauses (i) through (iv) of this clause
(a); or (vi) seeks, consents to, or acquiesces in the appointment of a trustee,
receiver, or liquidator of the Member's or of all or any substantial part of the
Member's properties; or (b) against which a proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any law has been commenced and 120 days have expired without
dismissal thereof or with respect to which, without the Member's consent or
acquiescence, a trustee, receiver, or liquidator of the Member or of all or any
substantial part of the Member's properties has been appointed and 90 days have
expired without the appointment's having been vacated or stayed, or 90 days have
expired after the date of expiration of a stay, if the appointment has not
previously been vacated.
1.05. "Capital Contribution" shall mean any contribution of cash or
other property which is required to be made to the Company pursuant to the
provisions of Sections 3.01 and 3.02 hereof.
1.06. "Capital Call" shall mean a Rising Sun LLC Capital Call or an
Operating Expense Capital Call.
1.07. "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time unless otherwise indicated.
1.08. "Commission" shall mean the Indiana Gaming Commission.
1.09. "Committee" shall mean the Executive Committee of the Company
established under Article VI of this Agreement.
1.10. "Company" shall mean the limited liability company formed
pursuant to the terms of this Agreement and the provisions of the Act, as such
company may from time to time be constituted.
1.11. "Company Interest" shall mean the percentage Interest of the
Company of each Member from time to time as set forth on Schedule A attached
hereto (which Schedule A shall be amended from time to time to reflect any
adjustments in the Company Interest of each Member).
1.12. "Fair Market Value" means, with respect to an Company Interest,
the fair market value thereof, taking into account associated liabilities and
minority and liquidity discounts (if any) as appropriate determined as provided
in Section 9.05(b) hereof.
1.13. "Financial Accommodation" means any guarantee, assumption,
stop-loss, letter of credit or other similar agreement to any governmental
agency, creditor providing financing to the Company or other party pursuant to
which liability is several and not joint between the Members.
1.14. "Fiscal Year" shall mean the calendar year or such other fiscal
year of the Company as may be determined by the Members for federal income tax
reporting purposes. Such term shall also refer to any short taxable year of the
Company.
1.15. "Funding Date" shall mean the date on which a Capital Call is
due.
1.16. "Gain From a Disposition" shall mean any net gain determined in
accordance with the Code included in the Company's Net Profit or Net Loss for
any fiscal year resulting from (a) the sale, foreclosure, exchange or other
disposition of all or a substantial portion of any asset of the Company and (b)
the condemnation or taking of or casualty to all or a substantial portion of any
asset of the Company.
1.17. "Interest" shall mean the entire ownership interest of a Member
in the Company at any particular time, including the right of such Member to any
and all benefits to which he may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all the terms and
provisions of this Agreement.
1.18. "License" shall mean any license, permit, authorization, consent
or approval issued by any governmental agency, authority, board, bureau,
commission, department or instrumentality, and required in order to conduct a
gaming business, either alone or in combination with any one or more other
businesses, including any such license, permit, authorization, consent or
approval issued by the State of Indiana or any local governmental authority in
connection with the operation of the business of the Company or Rising Sun LLC,
or by any other jurisdiction, domestic or foreign, necessary in order to conduct
the business of any Member or any of the Affiliates of any Member, in any such
other jurisdiction. Without limiting the generality of the foregoing, for
purposes of this definition "gaming business" shall include thoroughbred horse
racing with pari-mutuel betting.
1.19. "Limited Member" shall mean Charles E. Reisert, Jr. and Eric C.
Jackson, who shall be included as Members solely for the purposes of allocations
of Net Profit and Net Loss, distributions to Members and Article IX of this
Agreement, but who shall not be subject to Capital Calls and shall have no
voting rights on any matter upon which Members are entitled to vote.
1.20. "Loss of License" shall mean any denial, revocation, suspension
(for a period in excess of three (3) days), or non-renewal of any License,
whether resulting from any judicial or administrative proceeding, or otherwise,
and which results, directly or indirectly, from any act or omission of, or
ineligibility to hold a License by any Member, or any Affiliate of a Member
(including, for this purpose, the partners, shareholders, employees, agents,
officers, members or directors of any of the Members, or their respective
partners or equity participants or any person or entity with whom such party has
had business or other dealings), including, without limitation, the commission
of any crime or other act deemed inconsistent with the holding of a License, or
the association or affiliation with unsuitable persons or entities, whether or
not the allegations with respect thereto are true in fact. No Loss of License
shall be deemed to have occurred so long as proceedings with respect thereto are
being contested with due diligence and in good faith by the Company or Rising
Sun LLC, or the person or entity affected thereby, provided that, during the
pendency of such proceedings, the Company or Rising Sun LLC is able to continue
gaming operations on an uninterrupted basis and without additional restrictions
with respect thereto. A Loss of License, however, shall be deemed to have
occurred notwithstanding that additional rights of appeal or contest may be
available if, as a result of any such action, gaming operations by the Company
or Rising Sun LLC are prohibited or materially restrained, limited or
restricted.
1.21. "Loss From a Disposition" shall mean any net loss determined in
accordance with the Code included in the Company's Net Profit or Net Loss for
any Fiscal Year resulting from (a) the sale, foreclosure, exchange or other
disposition of all or a substantial portion of any asset of the Company and (b)
the condemnation or taking of or casualty to all or a substantial portion of any
asset of the Company.
1.22. "Majority in Interest" shall mean the affirmative vote, approval
or consent of the Members with aggregate Company Interests of more than fifty
percent (50%).
1.23. "Members" shall include those persons listed as Members in the
first paragraph of this Agreement, except that such term shall also include
Limited Members on matters pertaining to allocations of Net Profit and Net Loss,
distributions to Members and Article IX of this Agreement.
1.24. "Member's Commitment Percentage" shall mean the Company Interest
of each Member or Limited Member, as the case may be.
1.25. "Net Cash Flow" shall mean, with respect to any fiscal period,
the sum of all cash receipts of the Company from fees for services, and any and
all other sources (excluding, however, capital contributions and transactions
the proceeds from which are included for purposes of determining Net Proceeds of
any Sale or Net Proceeds of Financings) less the sum of the following
expenditures paid out of such cash receipts:
(i) payments of salaries, advertising and promotion, rental,
insurance, management expenses, utilities, repairs and
maintenance, accounting services, equipment, supplies, and any
and all other items which are customarily considered to be
"operating expenses";
(ii) payments of interest, principal and other charges with respect
to any and all loans or other indebtedness of the Company,
including loans or other indebtedness of the Company to any
Member incurred in accordance with the provisions of this
Agreement;
(iii) payments made in connection with the organization of the
Company;
(iv) payments of any and all amounts of compensation to Members and
Affiliates;
(v) any and all other cash expenditures of the Company, except
distributions to Members pursuant to Articles V, IX or X hereof;
and
(vi) amounts set aside as additions to reasonable reserves
established by the Members for working capital, contingent
liabilities or as otherwise deemed by the Members as reasonably
necessary to meet the current and anticipated future
liabilities, obligations and operating and capital expenditures
of the Company.
1.26. "Net Loss" shall mean, with respect to any Fiscal Year, the net
"book" loss of the Company, if any, for such year as determined for federal
income tax accounting purposes consistent with the requirements of Section
704(b) of the Code and applicable regulations thereunder.
1.27. "Net Proceeds of Any Sale" shall mean the gross proceeds arising
from a sale, exchange, or other disposition of all or a substantial portion of
any property of the Company, or from any other transaction giving rise to Gain
from a Disposition or Loss from a Disposition less the sum of:
(i) the amount of funds disbursed or to be disbursed (including
amounts deducted for adjustments) in connection with or as an
expense of such Sale, including without limitation all broker's
fees and attorneys' fees;
(ii) the amount necessary for the payment of all debts and
obligations of the Company arising from or otherwise related to
such Sale or to which the property is subject and which are then
to be paid; and
(iii) any amounts set aside by the Members for the reserves described
in paragraph (vi) of Section 1.25 hereof arising from or
otherwise relating to such Sale.
1.28. "Net Proceeds of Financing" shall mean the gross proceeds of any
borrowings by the Company, less the sum of:
(i) any amounts used to repay then existing indebtedness of the
Company or to pay or provide for any and all liabilities and
obligations of the Company then due:
(ii) all expenses of such borrowings including, without limitation,
all commitment fees, broker's commissions and attorneys' fees;
(iii) any amounts paid to acquire or in connection with the
acquisition of any real or personal property of the Company;
(iv) any amounts used for any purpose in order to satisfy conditions
to or established in connection with such borrowings; and
(v) any amounts set aside by the Members for the reserves described
in paragraph (vi) of Section 1.25 hereof arising from or
otherwise relating to such borrowings.
1.29. "Net Profit" shall mean, with respect to any Fiscal Year, the net
"book" income of the Company, if any, for such year as determined for federal
income tax accounting purposes consistent with the requirements of Section
704(b) of the Code and applicable regulations thereunder.
1.30. "Operating Expense Capital Call" shall mean a notice from the
Company to the Members requesting additional Capital Contributions pursuant to
this Agreement to pay the operating expenses of the Company setting forth (i)
the amount of funds required by the Company, (ii) the Funding Date not sooner
than twenty-five (25) days from date of delivery of the Capital Call.
1.31. "Partner Minimum Gain Chargeback Allocations" means the
allocation required by Sections 1.704-2(i)(4) and 1.704-2(k) of the Treasury
Regulations.
1.32. "Partner Nonrecourse Deduction Allocations" means the allocations
required by Section 1.704-2(i)(1) of the Treasury Regulations.
1.33. "Partnership Minimum Gain Chargeback Allocations" means the
allocations required by Sections 1.704-2(f) and 1.704(k) of the Treasury
Allocations.
1.34. "Person" shall mean and include an individual, partnership,
limited partnership, limited liability company, foreign limited liability
company, trust, estate, corporation, custodian, trustee, executor,
administrator, nominee or entity in a representative capacity (as defined in
article 1.02(A)(4) of the Act).
1.35. "Project" shall mean the riverboat casino and related operations
as defined under the Operating Agreement for Rising Sun LLC.
1.36. "RSR Commitment Date" shall mean the date for electing the
percentage interest of the Company in Rising Sun LLC as that date is defined in
the Operating Agreement for Rising Sun LLC.
1.37. "Rising Sun LLC" shall mean Rising Sun Riverboat Casino and
Resort, LLC, an Indiana limited liability company.
1.38. "Rising Sun LLC Capital Call" shall mean a notice from the
Company to the Members requesting additional Capital Contributions pursuant to
this Agreement setting forth (i) the amount of funds and/or the amount and terms
of any Financial Accommodations required by the Company, (ii) the Funding Date
not sooner than twenty-five (25) days from date of delivery of the Capital Call;
provided, however that the first Funding Date may not occur until 55 days after
the RSR Commitment Date, and (iii) each Member's share of the required amount of
funds and/or Financial Accommodations.
1.39. "Sale" shall mean the sale, exchange, condemnation, foreclosure
or other disposition of all or any substantial part of the assets and properties
of the Company in a non-recurring transaction outside the regular course of
business of the Company, and shall include, without limitation, any
condemnation, easement sale, casualty or other form of disposition of property,
and any other transaction (other than a capital contribution or loan
transaction) wherein the proceeds to the Company are, under generally accepted
accounting principles, considered capital in nature. The occasional sale,
trade-in or depreciation of furniture, furnishings, fixtures and equipment which
become worn out, obsolete or surplus is, for purposes hereof, a transaction
occurring in the regular course of business and therefore not a Sale.
1.40. "Treasury Regulations" means the income tax regulations
promulgated under the Code as in effect on the date of this Agreement, or as
hereinafter amended or supplemented (including corresponding provisions of such
succeeding regulations.
ARTICLE II
General Provisions
------------------
2.01. Name of the Company. The name of the Company shall be RSR, LLC or
such other name as the Members may from time to time determine. The Members
shall cause to be filed on behalf of the Company such assumed or fictitious name
certificate or certificates as may from time to time be required by law.
2.02. Purposes of the Company.
(a) Business. The business of the Company shall to the extent
permitted by law be (1) to acquire, and to finance the acquisition, of
interests in other entities, including Rising Sun LLC, which have
interests in gaming and resort operations; (2) to own, rehabilitate,
renovate, improve, finance, refinance, lease, operate, manage and sell
or otherwise deal with the real and personal property in the operation
of a riverboat gaming and resort business under the terms and
conditions hereinafter set forth; (3) to have and exercise all the
powers necessary or convenient in connection with its business and
purposes; and (4) to engage in any lawful business, whether or not
related or incidental to any of the foregoing activities or any
activities related thereto. The Company may directly carry on any such
activities or may do so as a joint venturer or partner with any other
Person or Persons.
(b) Authorized Activities. In carrying out the purposes of the
Company, but subject to all other provisions of this Agreement, and
without limitation, the Company is authorized to:
(i) Acquire, hold, rent, lease and otherwise manage, operate,
construct, reconstruct, improve, renovate, rehabilitate,
maintain, finance, sell, transfer, convey, exchange, assign,
mortgage or otherwise deal with or dispose of any real or
personal property or interests therein that may be necessary,
convenient, or incidental to the accomplishment of the purposes
of the Company;
(ii) Borrow money and issue evidences of indebtedness in furtherance
of any or all of the purposes of the Company, and to extend,
repay, and renegotiate the terms of any such indebtedness, and
to secure the same by mortgage, assignment, pledge, or grant of
other security interest on assets of the Company;
(iii) Enter into, perform, and carry out contracts and agreements of
any kind, including contracts with the Members or any of them or
any of their Affiliates, necessary or convenient or incidental
to the accomplishment of the purposes of the Company;
(iv) Bring and defend actions at law or in equity;
(v) Make prudent interim investments, including, without limitation,
obligations of federal, state and local governments or their
agencies, mutual funds, commercial paper, money-market funds,
and bank certificates of deposit; and
(vi) Engage in any kind of lawful activity, and perform and carry out
contracts of any kind and execute, acknowledge, and deliver
instruments of any kind that are necessary or convenient and
permitted by the Act in connection with the accomplishment of
the purposes of the Company.
2.03. Agent for Service of Process. Timothy M. Harden shall be the
Company's agent for service of process within the State of Indiana and for such
purpose the address of Mr. Harden shall be One Indiana Square, Suite 2800,
Indianapolis, Indiana 46204.
2.04. Place of Business of the Company. The principal place of business
of the Company shall be located at 206 Main Street, Rising Sun, Indiana 47040.
The Committee may, at any time and from time to time, change the location of the
Company's principal place of business, and may establish such additional place
or places of business of the Company as it may from time to time determine.
2.05. Duration of the Company. The duration of the Company shall be
until December 31, 2068, unless sooner terminated in accordance with Article X
hereof, or as otherwise provided by law.
2.06. Members' Names and Addresses. The names and addresses of the
Members are set forth on Schedule A attached hereto.
2.07. Title to Company Property. All property owned by the Company,
whether real or personal, tangible or intangible, shall be deemed to be owned by
the Company as an entity, and no Member, individually, shall have any ownership
of such property. The Company may hold any of its assets in its own name or in
the name of a nominee, which nominee may be one or more individuals, companies,
corporations, trusts and other entities.
2.08. Relationship of Members. Except as otherwise expressly provided
in or as authorized pursuant to this Agreement, (a) nothing contained herein
shall render any Member liable for any debts or obligations incurred by the
other Members, (b) no Member shall be constituted an agent of the other Members,
(c) nothing contained herein shall create any interest on the part of any Member
in the business or other assets of the other Members, (d) nothing contained
herein shall be deemed to restrict or limit in any way the carrying on of
separate businesses or activities by any Member now or in the future and (e) no
Member shall have any authority to act for, or to assume any obligation on
behalf of, the other Members.
ARTICLE III
Capital Contributions, Member Loans, Capital Accounts
-----------------------------------------------------
3.01. Initial Capital Contributions. The Members have made or shall make
contributions to the capital of the Company in the amounts, at the agreed values
and at the times set forth opposite their respective names on Schedule 3.01
attached hereto and incorporated herein by reference. No interest shall accrue
on any contributions to the capital of the Company, and no Member shall have the
right to withdraw or to be repaid any capital contributed by it, except as
specifically provided in this Agreement. No Member shall be required to make any
additional contributions to the capital of the Company except as set forth in
this Section 3.01 or in Section 3.02 hereof.
3.02. Additional Capital Contributions.
(a) Financing or Equity Commitment.
(1) Election. Prior to the RSR Commitment Date, the Committee shall
explore commitments for equity or for financing the Company's share of
the Project as a member of Rising Sun LLC. In the event that
satisfactory financing or equity commitments are found, the Committee
shall present the terms and conditions of such proposal to the Members
for a vote in accordance with the Members' Company Interests. At least
five days prior to the RSR Commitment Date, the Committee shall cause a
meeting of Members to be held for the purpose of discussing the status
of the financing or equity and the level of participation of the Company
as a member of Rising Sun LLC. In the event that suitable financing or
equity commitments are not found and approved by the Members prior to
the RSR Commitment Date, the Company shall deliver its election to
Rising Sun LLC that its interest in Rising Sun LLC shall be reduced to
twenty percent (20%), subject to further reduction if Community
Participants are admitted to Rising Sun LLC. In the event that one or
more of the Members are able to supply the funds necessary for the
Company to maintain more than a twenty percent (20%) interest in Rising
Sun LLC, such proposal shall be approved and the Company Interests shall
be adjusted pursuant to Section 3.02(a)(2) below.
(2) Adjustment of Company Interests. Each of the Members shall have the
right to provide the funds necessary for the Company to maintain a seven
and one-half percent interest in Rising Sun LLC and shall receive an
additional Company Interest of two times the amount of Rising Sun LLC
interest maintained, with a prorata adjustment of Company Interests for
the remaining Members. In the event that fewer than all of the Members
provides all of the funds necessary for the Company to maintain more
than a twenty percent (20%) interest in Rising Sun LLC, then the Company
Interests shall be adjusted in accordance with Schedule B. In addition
to the funds necessary for the Company to maintain more than a twenty
percent (20%) interest in Rising Sun LLC, the contributing Member or
Members shall also make a Capital Contribution to the Company in the
amount of the estimated taxes which would otherwise be payable by the
other Members of the Company based on the projection of income allocated
to such Members as shown on Schedule C for the first year of operations
of Rising Sun LLC, such Capital Contribution to be distributed to such
non-contributing Members and using for this purpose an assumed tax rate
of the greater of (i) 40% and (ii) the highest combined U.S. federal or
Canadian and Indiana marginal income tax rate applicable to individuals
for the tax year in question (reduced for any tax credit received by
Canadian Members). Such contributing Member or Members shall also
indemnify and hold harmless any other Member from any out-of-pocket
expenses incurred by such Member as a result of the contributing
Member's contribution to Rising Sun LLC. In the event that fewer than
all of the Members commits to provide all of the funds necessary for the
Company to maintain more than a twenty percent (20%) interest in Rising
Sun LLC and the interest of the Company in Rising Sun LLC is sold prior
to the time that the funds are actually contributed, the Gain from the
Disposition resulting from such Sale shall be allocated under the
Company Interests as adjusted in the manner provided on Schedule B
assuming that the contributing Member or Members have already received a
full recovery of its capital, plus a sixteen percent (16%) preferred
return; provided, however, that such contributing Member or Members
shall first receive a full reimbursement of its out-of-pocket expenses
incurred in obtaining the commitments for such funds.
(b) Additional Funds.
(1) Rising Sun LLC Capital Call. After the RSR Commitment Date,
in the event that Rising Sun LLC shall determine that additional funds
and/or Financial Accommodations are necessary in order to finance the
acquisition, development, construction or operation of the assets and
business of Rising Sun LLC in excess of funds otherwise available to
Rising Sun LLC, including funds available from third party loans, the
Committee shall deliver a Rising Sun LLC Capital Call to the Members of
the Company's share of the amount required by Rising Sun LLC. Each
contributing Member shall be obligated to advance to the Company its pro
rata share of the required additional funding based on its then Member
Commitment Percentage, the amount of which funding shall, except as
provided by Section 3.02(c) hereof, be due, in cash, on the Funding
Date. Any amounts funded pursuant hereto in cash shall be credited to
the capital account of the contributing Member in accordance with the
provisions of Section 3.02(c) hereof. In no event shall a Member be
required to make Capital Contributions under this Section 3.02(b) and
Financial Accommodations under Section 3.02(c) which aggregate more than
such Member's Commitment Percentage.
(2) Operating Expense Capital Call. In the event the Committee
determines that the Company requires additional funds to pay its
operating expenses, the Committee shall deliver an Operating Expense
Capital Call to the Members of the Company. Each Member shall be
obligated to advance to the Company its pro rata share of the required
additional funding based on its then Member Commitment Percentage, the
amount of which funding shall, except as provided by Section 3.02(c)
hereof, be due, in cash, on the Funding Date. Any amounts funded
pursuant hereto in cash shall be credited to the capital account of the
contributing Member in accordance with the provisions of Section 3.02(c)
hereof. In no event shall a Member be required to make Capital
Contributions under this Section 3.02(b) and Financial Accommodations
under Section 3.02(c) which aggregate more than such Member's Commitment
Percentage.
(c) Financial Accommodations. If in the Committee's discretion Financial
Accommodations are required to be delivered by Members to any governmental
agency, lender or other party (an "Accommodation Recipient") in connection with
the Company or Rising Sun LLC's business, the Committee shall provide written
notice thereof (the "Financial Accommodation Notice") to the Members pursuant to
Section 3.02(b)), including the form or terms of the Financial Accommodations,
the aggregate amount thereof (the "Required Aggregate Financial Accommodation
Amount") and the date upon which the Financial Accommodations are required to be
delivered to the Accommodation Recipient (the "Financial Accommodation Requested
Date"), in which event the Members shall provide such Financial Accommodation in
proportion to their respective Member Commitment Percentages. No Financial
Accommodation by a Member shall be required to provide joint and several
liability with another Member or any other party.
(i) (1) No later than 25 days after the Financial Accommodations
Notice is given prior to the completion of the Riverboat Complex
(as defined in the Rising Sun LLC Operating Agreement) or (2) no
later than 55 days after the Financial Accommodation Notice is
given following the completion of the Riverboat Complex, each
Member shall provide to the Accommodation Recipient a Financial
Accommodation issued by or for the account of such Member or an
Affiliate of such Member in the amount equal to the product of
the Required Aggregate Financial Accommodation Amount and the
Commitment Percentage of such Member (the "Required Financial
Accommodation Amount") and otherwise complying with the terms
set forth in the Financial Accommodation Notice.
(ii) If any Member fails to deliver or cause to be delivered its
Financial Accommodation in accordance with the terms of this
Section 3.02(c) or the Accommodation Recipient refuses to accept
such Member's Financial Accommodation, any other Member shall
have the right to advance to the Company funds or provide
additional Financial Accommodations equal to the Company's
Required Financial Accommodation Amount; in which event the
non-complying Member shall be deemed to have failed to make a
Capital Contribution in accordance with Section 3.05 hereof in
the amount of its Required Financial Accommodation Amount.
(iii) If there is a draw on, or any amount otherwise is paid pursuant
to, the Financial Accommodation (the "Drawn Amount") of any
Member (the "Drawn Member"), the other Members shall contribute
to the capital of the Company in cash, no later than ten days
after written notice is given by the Drawn Member of such draw
or other payment, in amount equal to the product of the Drawn
Amount and such other Member's Commitment Percentage, and the
Drawn Account promptly shall be paid by the Company to the Drawn
Member as reimbursement for such draw or other payment.
(d) Contributions for Nondefaulting Members. If any Member is unable or
unwilling to make any or all of his proportionate contribution pursuant to a
Capital Call, then the remaining Members who are able and willing to do so may
make a contribution in excess of their Company Interest, in such amounts as they
may agree among themselves. If they are unable to agree, each Member who is able
and willing to make a contribution shall have the primary right to contribute
that portion of such excess which the proportion of such Member's Company
Interest bears to the aggregate Company Interests of all such Members, and a
secondary right to contribute any remaining portion of such excess which is not
desired to be contributed by any other Member in the exercise of his primary
right. If there is more than one Member desiring to exercise secondary rights,
they shall be entitled to contribute the remaining portion of such excess in the
same proportion as stated above with regard to their primary rights.
(e) Contributions by Nondefaulting Members. Any Member who makes a
contribution to the Company pursuant to paragraph 3.02(d) above as a result of a
Capital Call shall treat the contribution as a loan to the defaulting Member
bearing interest at the rate of eighteen percent (l8%) per annum. Thereafter,
all distributions of cash from the Company payable to the defaulting Member
shall be paid to the Member (or pro rata to the Members) who have elected to
treat the contributions as loans, until such time as the principal and interest
of the loan(s) are paid in full.
3.03. Members' Capital Accounts. The Company shall maintain a separate
capital account for each Member. Each Member's initial capital account balance
shall equal his initial contribution to the capital of the Company as provided
in Section 3.01 of this Agreement. Each Member's capital account shall
thereafter be increased (i) by any cash, or the fair market value of any
property thereafter contributed by such Member (net of liabilities assumed by
the Company and liabilities to which such contributed property is subject), (ii)
by the amount of any Company liabilities that are assumed by such Member,
(excluding liabilities described in clause (iv) of the sentence next following),
and (iii) by such Member's distributive share of the Company's income and gain
(or items thereof). Each Member's capital account shall be decreased (i) by such
Member's distributive share of the Company's loss and deductions (or item
thereof) (except items described in clause (iii) hereinbelow), (ii) by the
amount of such Member's individual liabilities that are assumed by the Company
(excluding liabilities described in clause (i) of the next preceding sentence,
except to the extent, if at all, that such liabilities exceed the fair market
value of the property contributed), (iii) by such Member's share of expenditures
of the Company described in Section 705(a)(2)(B) of the Code, and (iv) by the
amount of cash, or the fair market value of any property distributed by the
Company to such Member (net of liabilities assumed by such Member and
liabilities to which such distributed property is subject). Other appropriate
adjustments to each Member's capital account shall also be made from time to
time, in accordance with the rules set forth in Regulation Section
1.704-1(b)(2)(iv) under Section 704 of the Code or the requirements of any other
applicable final or temporary regulations thereunder. It is the intent of the
Members that the capital accounts shall be determined and maintained in
accordance with Section 704 of the Code and regulations thereunder, and this
Section 3.03 shall be construed in a manner consistent therewith. A Member who
has more than one Interest in the Company shall have a single capital account
that reflects all such Interests. No Member shall be entitled to interest on his
capital account.
3.04. Member Loans. In the event that funds are needed by the Company
for its operations, any Member may loan such funds to the Company under such
terms and conditions as may be agreed to between the Member and the Company.
3.05. Pledge Agreement.
(a) Each Member hereby grants to the Company a first priority security
interest in and to such Member's Company Interest, including, without
limitation, any right to distributions, in liquidation or otherwise, with
respect to such Company Interest, for the purpose of securing the payment to the
Company of the Member's Capital Contribution. Each Member represents and
warrants to the Company that such Member has good and marketable title to its
Interest in the Company and that such Interest is free and clear of all liens,
claims and encumbrances whatsoever having priority over the security interest
granted herein to the Company. The Company shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in the
State of Indiana (the "UCC"). Each Member further agrees to execute and deliver
to the Company such UCC Financing Statements and other documents and instruments
and to take such further actions as may be reasonably necessary or appropriate
in the opinion of counsel to the Company in order to perfect and maintain the
first priority security interest granted hereby. In furtherance thereof, each
Member agrees that the provisions of this paragraph shall constitute a security
agreement and hereby authorizes the Company to execute and file any such UCC
Financing Statements on behalf of such Member, and any and all continuation
statements or amendments thereto as the Committee shall determine to be in the
best interests of the Company. In the event a Member shall fail to make any
payment of its Capital Contribution to the Company by the date required therefor
pursuant to this Agreement, such Member shall be considered to be in default in
respect of such payment obligations and, pursuant to Section 3.05(b) hereof, the
Company may mail a written notice to such defaulting Member of the existence of
such default and demand that such default be cured within the ten (10) day
period specified in such Section 4.16(b), and failing payment in full of such
amount within the ten (10) day cure period, the Company may then exercise any
and all remedies available to it hereunder or at law or in equity. The Company
and any Member shall be entitled to bid for and purchase all or any part of the
Company interest being sold at any sale conducted pursuant to, or as permitted
under, the UCC. In order to realize upon the security interest granted herein,
the Company may sell or otherwise dispose of the Company Interest of a Member
defaulting in the payment of its Capital Contributions hereunder at public sale,
with or without having the Company Interest at the place of sale and upon such
terms and in such manner as the Company may determine. The Company shall give
any such defaulting Member at least ten (10) days prior written notice of the
time and place of any public sale of the Company interest or other intended
disposition thereof. Such notice may be mailed to the defaulting Member at the
address set forth herein, as the same may be amended from time to time.
(b) Prior to instituting any efforts to realize upon the security
interest granted herein, the Company shall mail a notice to the defaulting
Member that a required Capital Contribution has not been made, and such
defaulting Member shall have a period of ten (10) days after the Company mails
such notice (as evidenced by the postmark date of the notice) within which to
cure any such default. If the default has not been cured within such ten (10)
day period, the Company may exercise any and all remedies available to it
hereunder or at law or in equity.
ARTICLE IV
Allocation of Profits or Losses
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4.01. Allocation of General Profits and Losses. Except as otherwise
provided in Sections 4.02 or 4.03 hereof, and subject to the provisions of
Section 9.03 hereof, the Net Profit or Net Loss, as the case may be, as of the
end of any Fiscal Year shall be allocated among the Members in accordance with
the Members' Company Interests.
4.02. Allocation of Gains from Dispositions. Subject to the provisions
of Section 9.03 hereof, any Gain from a Disposition shall be allocated to the
Members in accordance with the Members' Company Interests in effect as of the
date of the consummation of the transaction giving rise to such Gain.
4.03. Allocation of Losses from Dispositions. Subject to the provisions
of Section 10.03 hereof, any Loss from a Disposition shall be allocated in
accordance with the Members' Company Interests in effect as of the date of the
consummation of the transaction giving rise to such Loss.
4.04. Deduction for Receipt of Company Interest. To the extent that the
Company shall be entitled to any deduction for federal income tax purposes as a
result of any Interest acquired by a Member in the Company as a result of an
original acquisition or as a result of an exercise of an option to purchase an
additional Interest in the Company, such deduction shall be allocated to the
Member acquiring such Interest.
4.05. Special Allocations.
(a) The Company shall make the qualified income offset
allocation required by the alternate test for economic effect under Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
(b) In the event any Member has a deficit Capital Account at the
end of any Company fiscal year that is in excess of the amount such Member is
obligated to restore the Company (including amounts the Member is obligated or
deemed to be obligated to restore to the Company pursuant to the alternate test
for economic effect under Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations), each Member shall be specially allocated items of Company income
and gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 4.05(b) shall be made if and only to the
extent that such Member would have a deficit Capital Account in excess of such
amount after all other allocations provided in this Article IV have been
tentatively made as if the qualified income offset allocation required by the
alternate test for economic effect and this Section 4.05(b) were not required by
this Agreement.
(c) Except as otherwise provided in Section 4.05(d) hereof, the
Company shall make all (i) Partner Nonrecourse Deduction Allocations; (ii)
Partner Minimum Gain Chargeback Allocations; and (iii) Partnership Minimum Gain
Chargeback Allocations as required by Section 1.704-2 of the Treasury
Regulations.
(d) The Company shall make all Nonrecourse Deduction Allocations
to the Members in a manner that is reasonably consistent with allocations, which
have substantial economic effect, of some other significant Company item
attributable to the property securing nonrecourse liabilities of the Company (as
determined by the Members).
(e) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations,
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the base of the asset) or loss (if the adjustment decreases
such basis) and such gain or loss shall be specially allocated to the Members in
a manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Treasury Regulations.
4.06. Curative Allocations.
(a) Notwithstanding any other provision of this Agreement, other
than Section 4.05 hereof, the allocations made pursuant to Sections 4.05(a),
4.05(b) and 4.05(e) hereof shall be taken into account in allocating other Net
Profits, Net Losses, and items of income, gain, loss and deduction among the
Members so that, to the extent possible, the net amount of such allocations of
other Net Profits, Net Losses, and other items and the allocation made pursuant
to Sections 4.05(a), 4.05(b) and 4.05(e) hereof to each Member shall be equal to
the net amount that would have been allocated to each such Member if the
allocations made pursuant to Sections 4.05(a), 4.05(b) and 4.05(e) hereof had
not occurred. For purposes of applying the foregoing sentence, allocations
pursuant to this Section 4.06(a) shall only be made with respect to allocations
pursuant to Section 4.05(e) hereof to the extent the Tax Matters Partner
reasonably determines that such allocations will otherwise be inconsistent with
the economic agreement among the parties to this Agreement.
(b) Notwithstanding any other provision of this Agreement, other
than Section 4.05 hereof, the Nonrecourse Deduction Allocations and Partnership
Minimum Gain Chargeback Allocations shall be taken into account in allocating
items of income, gain, loss and deduction among the Members so that, to the
extent possible, the net amount of such allocations of other items and such
Nonrecourse Deduction Allocations and Partnership Minimum Gain Chargeback
Allocations made to each Member shall be equal to the net amount that would have
been allocated to each such Member if the Nonrecourse Deduction Allocations and
Partnership Minimum Gain Chargeback Allocations had not occurred. For purposes
of applying the foregoing sentence (i) allocations pursuant to this Section
4.06(b) shall be made only to the extent necessary to avoid any potential
economic distortions caused by a net decrease in Partnership minimum gain
pursuant to Section 1.704-2(d) and 1.704-2(k) of the Treasury Regulations, and
(ii) allocations pursuant to this Section 4.06(b) shall be deferred with respect
to Nonrecourse Deduction Allocations to the extent the Tax Matters Partner
reasonably determines that such allocations are likely to be offset by
subsequent Partnership Minimum Gain Chargeback Allocations.
(c) Notwithstanding any other provision of this Agreement, other
than Section 4.05 hereof, the Partner Nonrecourse Deduction Allocations and
Partner Minimum Gain Chargeback Allocations shall be taken into account in
allocating items of income, gain, loss and deduction among the Members so that,
to the extent possible, the net amount of such allocations of other items and
the Partner Nonrecourse Deduction Allocations and Partner Minimum Gain
Chargeback Allocations made to each Member shall be equal to the net amount that
would have been allocated to each Member if the Partner Nonrecourse Deduction
Allocations and Partner Minimum Gain Chargeback Allocations had not occurred.
For purposes of applying the foregoing sentence (i) allocations pursuant to this
Section 4.06(c) shall be made only the extent necessary to avoid any economic
distortions caused by a net decrease in Member minimum gain pursuant to Sections
1.704-2(i)(3) and 1.704-2(k) of the Treasury Regulations, and (ii) allocations
pursuant to this Section 4.06(c) shall be deferred with respect to Partner
Nonrecourse Deduction Allocations to the extent the Tax Matters Partner
reasonably determines that such allocations are likely to be offset by
subsequent Partner Minimum Gain Chargeback Allocations.
ARTICLE V
Distributions
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5.01. Distribution of Net Cash Flow. The Managing Member shall cause
distributions to be made at such times and in such amounts as he may determine
of Net Cash Flow, after consideration of the annual budget for the Company
adopted by the Committee. Distribution of Net Cash Flow shall be allocated to
and divided among the Members in the same proportions as Net Profits are
allocated under Article IV.
5.02. Distribution of Net Proceeds of Sales and Financings. Except as
otherwise provided herein, the Net Proceeds of any Sale or the Net Proceeds of
Financing shall be distributed to and allocated in accordance with the Members'
Company Interests in effect as of the date of the consummation of the sale,
exchange, other disposition, or financing, as applicable.
ARTICLE VI
Management of the Company
-------------------------
6.01. Executive Committee.
(a) The management and control of the Company shall be vested in the
Members, who shall exercise their authority through an executive committee (the
"Committee"), which shall be responsible for the establishment of policy and
operating procedures respecting the business affairs of the Company. Subject to
the following paragraph, the Committee shall at all times consist of four (4)
members, one to be appointed by each of the Members entitled to vote. Each
member of the Committee may vote by delivering his proxy to another member of
the Committee or to any other person. Subject to the following paragraph, each
Member shall have the power to remove any member or alternative member of the
Committee appointed by it by delivering written notice of such removal to the
Company and to the other Members. Subject to the following paragraph, vacancies
on the Committee shall be filled by the Member which appointed the Committee
member previously holding the position which is then vacant.
Notwithstanding the foregoing paragraph, during any period when less
than all of the Members have contributed funds to enable the Company to maintain
its fifty percent (50%) interest in Rising Sun LLC and such funds have not been
returned through distributions from the Company to the contributing Members, the
members of the Committee shall be elected by the Members voting in accordance
with their Company Interests at a meeting held pursuant to Article VI(A). During
such period, vacancies on the Committee shall be filled by the remaining members
of the Committee until the next meeting of Members.
(b) Except for situations in which the approval of the Members is
required by this Agreement or by nonwaivable provisions of applicable law, and
subject to the provisions of Section 6.02, (i) the powers of the Company shall
be exercised by or under the authority of, and the business and affairs of the
Company shall be managed under the direction of, the Committee; and (ii) the
Committee may make all decisions and take all actions for the Company not
otherwise provided for in this Agreement, including, without limitation, the
following:
(1) entering into, making, and performing contracts, agreements,
and other undertakings binding the Company that may be necessary,
appropriate, or advisable in furtherance of the purposes of the Company
and making all decisions and waivers thereunder;
(2) opening and maintaining bank and investment accounts and
arrangements, drawing checks and other orders for the payment of money,
and designating individuals with authority to sign or give instructions
with respect to those accounts and arrangements;
(3) maintaining the assets of the Company in good order;
(4) collecting sums due the Company;
(5) to the extnt that funds of the Company are available
therefor, paying debts and obligations of the Company;
(6) acquiring, utilizing for Company purposes, and disposing of
any asset of the Company;
(7) borrowing money or otherwise committing the credit of the
Company for Company activities and voluntary prepayments or extensions
of debt;
(8) selecting, removing, and changing the authority and
responsibility of lawyers, accountants, and other advisors and
consultants;
(9) obtaining insurance for the Company; and
(10) adoption of an annual financial budget for the Company.
(c) Notwithstanding the provisions of Section 6.01(b), the Committee may
not cause the Company to do any of the following without complying with the
applicable requirements set forth below:
(1) sell, lease, exchange or otherwise dispose of (other than by
way of a pledge, mortgage, deed of trust or trust indenture) all or
substantially all of the Company's property and assets (with or without
good will), other than in the usual and regular course of the Company's
business, without complying with the applicable procedures set forth in
the Act;
(2) be a party to (i) a merger, or (ii) an exchange or
acquisition without complying with the applicable procedures set forth
in the Act;
(3) amend or restate the Articles, without complying with the
applicable procedures set forth in the Act; and
(4) anything herein contained to the contrary, borrow money if
the terms of such borrowing require the personal liability of any of the
Members, without the written consent of such Member or Members, except
as provided in Section 3.02(c) hereof.
6.02. Actions by Committee; Committees; Delegation of Authority and
Duties.
(a) In managing the business and affairs of the Company and
exercising its powers, the Committee shall act (i) collectively through meetings
and written consents consistent as may be provided or limited in other
provisions of this Agreement; (ii) through committees pursuant to Section
6.02(b); and (iii) through officers to whom authority and duties have been
delegated pursuant to Section 6.02(c).
(b) The Committee may, from time to time, designate one or more
committees, each of which shall be comprised of one or more of its members. Any
such committee, to the extent provided in such resolution or in the Articles or
this Agreement, shall have and may exercise all of the authority of the
Committee, subject to the limitations set forth in the Act. At every meeting of
any such committee, the presence of a majority of all the members thereof shall
constitute a quorum, and the affirmative vote of a majority of the members
present shall be necessary for the adoption of any resolution. The Committee may
dissolve any committee at any time, unless otherwise provided in the Articles or
this Agreement.
(c) The Committee may, from time to time, designate one or more
Persons to be officers of the Company who are not members of the Committee. No
officer need be a resident of the State of Indiana or a Member. Any officers so
designated shall have such authority and perform such duties as the Committee
may, from time to time, delegate to them. The Committee may assign titles to
particular officers; provided, however, that the office of President and the
position as Managing Member shall not be held by different Persons. Unless the
Committee decide otherwise, if the title is one commonly used for officers of a
business corporation, the assignment of such title shall constitute the
delegation to such officer of the authority and duties that are normally
associated with that office, subject to (i) any specific delegation of authority
and duties made to such officer by the Committee, or (ii) any delegation of
authority and duties made to one or more members pursuant to Section 6.02(a).
Each officer shall hold office until his successor shall be duly designated and
shall qualify or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided. Any number of offices may be held by
the same Person. The salaries or other compensation, if any, of the officers and
agents of the Company shall be fixed from time to time by the Committee.
Any officer may resign as such at any time. Such resignation shall be
made in writing and shall take effect at the time specified therein, or if no
time be specified, at the time of its receipt by the Committee. The acceptance
of a resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation. Any officer may be removed as such, either with
or without cause, by the Committee whenever in their judgment the best interests
of the Company will be served thereby; provided, however, that such removal
shall be without prejudice to the contract rights, if any, of the Person so
removed. Designation of an officer shall not of itself create contract rights.
Any vacancy occurring in any office of the Company may be filled by the
Committee.
(d) Any Person dealing with the Company, other than a Member,
may rely on the authority of the Managing Member or officer in taking any action
in the name of the Company without inquiry into the provisions of this Agreement
or compliance herewith, regardless of whether that action actually is taken in
accordance with the provisions of this Agreement.
(e) Subject to the provisions of Section 6.03 relating to the
Managing Member, no Member, acting individually, nor any of their respective
Affiliates, has the power or authority to bind the Company or any Member or to
authorize any action to be taken by the Company, or to act as agent for the
Company or any other Member, unless that power or authority has been
specifically delegated or authorized by action of the Committee.
6.03 Managing Member. Patrick F. Daly shall be the initial Managing
Member (such Member so appointed being herein referred to as the "Managing
Member") who shall be responsible, on a day-to-day basis, for the operation of
the business of the Company. The Managing Member shall have only such authority
as shall be delegated to it by the Committee, or as herein expressly provided,
which authority shall be subject to revision, revocation, or alteration from
time to time by action of the Committee, and the Managing Member shall report to
the Committee. Notwithstanding the foregoing, the Managing Member shall have the
authority to break all ties if the vote of the members of the Committee results
in a tie and shall further be the appointee of the Company to the Executive
Committee of Rising Sun LLC. The Managing Member shall be elected by the Members
at their annual meeting in accordance with Article VI(A). In the event of the
resignation, death or disability of the Managing Member, the Committee shall
appoint a successor to serve until the next meeting of Members.
6.04. Number and Term of Office. The number of members of the Committee
shall be four unless changed by resolution of the Committee; provided, however,
that no decrease in the number of Committee members that would have the effect
of shortening the term of an incumbent member of the Committee may be made by
the Committee. Each member of the Committee shall hold office for the term for
which he is elected and thereafter until his successor shall have been elected
and qualified, or until his earlier death, resignation or removal. Unless
otherwise provided in the Articles, members of the Committee need not be Members
or residents of the State of Indiana.
6.05. (reserved)
6.06. Removal. Any and all members of the Committee may be removed,
either for or without cause, at any special meeting of Members by the
affirmative vote of a Majority in Interest entitled to vote at elections of
Members of the Committee. The notice calling such meeting shall give notice of
the intention to act upon such matter.
6.07. Resignations. Any member of the Committee may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified then at the time of its receipt
by the Managing Member. The acceptance of a resignation shall not be necessary
to make it effective, unless expressly so provided in the resignation.
6.08. Vacancies. Except when the members of the Committee were elected
by the Members under the circumstances described in the second paragraph of
Section 6.01(a), any vacancy occurring in the members of the Committee shall be
filled by the Member who designated such member originally. A member of the
Committee elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office.
6.09. Place and Manner of Meetings. Meetings of the Committee, regular
or special, may be held either within or without the State of Indiana. Members
of the Committee may participate in such meetings by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and participation in a meeting
as provided herein shall constitute presence in person at such meeting, except
where a person participates in the meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
6.10. (reserved)
6.11. Regular Meeting of Committee. A regular meeting of the Committee
may be held at such time as shall be determined from time to time by resolution
of the Committee.
6.12. Special Meeting of Committee. The Managing Member shall call a
special meeting of the Committee whenever requested to do so by any two members
of the Committee. Such special meeting shall be held at the time specified in
the notice of meeting. Except as otherwise expressly provided by statute, or by
the Articles, or by this Agreement, neither the business to be transacted at,
nor the purpose of, any special meeting need be specified in a notice or waiver
of notice.
6.13. Notice of Committee Meeting. All meetings of the Committee
(annual, regular or special) shall be held upon five (5) days' written notice
stating the date, place and hour of meeting delivered to each member either
personally or by mail or at the direction of the Managing Member or the officer
or person calling the meeting.
In any case where all of the members of the Committee execute a waiver
of notice of the time and place of meeting, no notice thereof shall be required,
and any such meeting (whether annual, regular or special) shall be held at the
time and at the place (either within or without the State of Indiana) specified
in the waiver of notice. Attendance of members of the Committee at any meeting
shall constitute a waiver of notice of such meeting, except where the members of
the Committee attend a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the Committee need be specified in the
notice or waiver of notice of such meeting.
6.14. Action Without Meeting. Any action required by statute to be taken
at a meeting of the Committee, or any action which may be taken at a meeting of
the Committee, may be taken without a meeting if a consent in writing setting
forth the action so taken, shall be signed by all the members of the Committee.
Such consent shall have the same force and effect as a unanimous vote at a
meeting.
6.15. Quorum; Majority Vote. At all meetings of the Committee a majority
of the number of members of the Committee fixed by this Agreement shall
constitute a quorum for the transaction of business unless a greater number is
required by law or by the Articles. The act of a majority of the members of the
Committee present at any meeting at which a quorum is present shall be the act
of the Committee unless the act of a greater number is required by statute, by
the Articles or by this Agreement. If a quorum shall not be present at any
meeting of the Committee, the members of the Committee present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
6.16. Approval or Ratification of Acts or Contracts by Members. The
Committee in its discretion may submit any act or contract for approval or
ratification at any annual meeting of the Members, or at any special meeting of
the Members called for the purpose of considering any such act or contract and
any act or contract that shall be approved or be ratified by a Majority in
Interest shall be as valid and as binding upon the Company and upon all the
Members as if it shall have been approved or ratified by every Member of the
Company.
6.17. Interested Members of the Committee, Officers and Members.
(a) Interested Members of the Committee. No contract or transaction
between this Company and one or more of its members of the Committee or
officers, or between this Company and any other limited liability company,
corporation, partnership, association, or other organization in which one or
more of its members of the Committee or officers are managers or officers or
have a financial interest, shall be void or voidable solely for this reason,
solely because the member of the Committee or officer is present at or
participates in the meeting of the Committee or of a committee thereof which
authorizes the contract or transaction, or solely because such Committee
member's vote are counted for such purpose if:
(1) The material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to the
Committee or the committee, and the Committee or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested members of the Committee, even though the
disinterested members of the Committee be less than a quorum; or
(2) The material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to the Members
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the Members; or
(3) The contract or transaction is fair as to this Company as of
the time it is authorized, approved, or ratified by the Committee, a
committee thereof, or the Members.
(b) Quorum. Common or interested members of the Committee may be counted
in determining the presence of a quorum at a meeting of the Committee or of a
committee which authorizes the contract or transaction.
(c) Non-Exclusive. This provision shall not be construed to invalidate
any contract or transaction which would be valid in the absence of this
provision.
6.18. Compensation. The members of the Committee shall serve without
compensation from the Company.
6.19. Procedure. The Committee shall keep regular minutes of its
proceedings. The minutes shall be placed in the minute book of the Company.
ARTICLE VI(A)
Meetings of Members
-------------------
6A.01. Place of Meeting; Conference Telephone Meetings. Meetings of
Members of the Company shall be held at such place, within or outside the State
of Indiana, as may from time to time be designated by the Committee, or as may
be specified in the notices or waivers of notice of such meetings. A Member may
participate in a Members' meeting by means of a conference telephone or similar
communications equipment by which all Persons participating in the meeting can
communicate with each other, and participating by these means constitutes
presence in person at the meeting.
6A.02. Annual Meeting. The annual meeting of Members for the report on
the finances of the Company, and for the transaction of such other business as
may properly come before the meeting, shall be held on such day and at such time
within six (6) months following the close of the Company's fiscal year as the
Committee may set by resolution. Failure to hold an annual meeting shall not
work any forfeiture or a dissolution of the Company, and shall not affect
otherwise valid acts.
6A.03. Special Meetings. Special meetings of the Members, for any
purpose or purposes, unless otherwise prescribed by statute or this Agreement,
may be called by the Committee or the Managing Member and shall be called by the
Managing Member at the request in writing of a majority of the Committee, or at
the request of Members owning not less than twenty percent (20%) of the Company
Interests and entitled to vote under the Articles, this Agreement and the Act as
now in effect or as hereafter amended. Such request by Members shall be in
writing, signed by all such Members (or their duly authorized proxies) dated and
delivered to the Managing Member.
6A.04. Notice of Meetings. A written or printed notice, stating the
place, day and hour of the meeting, and in case of a special meeting, or when
required by any other provision of the Act, or the Articles, or this agreement
as now in effect or hereafter amended, the purpose or purposes for which the
meeting is called, shall be delivered or mailed by the Secretary, or by the
Managing Member or persons calling the meeting, to each Member entitled by the
Articles, this Agreement and the Act as now in effect or hereafter amended, at
such address as appears upon the records of the Company, at least ten (10) days
and no more than sixty (60) days before the date of the meeting. Notice of any
such meeting may be waived in writing by any Member, if the waiver sets forth in
reasonable detail the purpose or purposes for which the meeting is called, and
the time and place thereof. Attendance at any such meeting in person, or by
proxy, shall constitute a waiver of notice of such meeting. Each Member, who has
in the manner above provided waived notice of the Members' meeting, or who
personally attends a Members' meeting, or is represented thereat by a proxy
authorized to appear by an instrument of proxy, shall be conclusively presumed
to have been given due notice of such meeting. Notice of any adjourned meeting
of Members shall not be required to be given if the time and place thereof are
announced at the meeting at which the adjournment is taken, except as may be
expressly required by law.
6A.05. Addresses of Members. The address of any Member appearing on the
records of the Company shall be deemed to be the latest address of such Member.
6A.06. Voting at Meetings. (a) Quorum. The Members of record of a
Majority in Interest of the Members entitled to vote at such meeting, present in
person or by proxy, shall constitute a quorum at all meetings of Members for the
transaction of business, except where otherwise provided by law, the Articles,
or this Agreement. In the absence of a quorum, the Managing Member shall have
the power to adjourn the meeting from time to time until a quorum shall be
constituted. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the original
meeting, but only those Members entitled to vote at the original meeting shall
be entitled to vote at any adjournment or adjournments thereof unless a new
record date is fixed by the Committee for the adjourned meeting.
(b) Voting Rights. Except as otherwise provided by law, the Articles, or
this Agreement, every Member shall have the right at every Members' meeting to
vote their percentage of the Company Interests, registered in his name on the
books of the Company on the date for the determination of Members entitled to
vote on all matters coming before the meeting, At any meeting of the Members,
every Member shall be entitled to vote in person, or by proxy executed in
writing by the Member or a duly authorized attorney-in-fact and bearing a date
not more than eleven (11) months prior to its execution, unless a longer time is
expressly provided therein.
(c) Required Vote. When a quorum is present at any meeting, action on a
matter is approved by the affirmative vote of a Majority in Interest of the
Members unless the Act, the Articles or this Agreement require a greater number
of affirmative votes.
(d) Validity of a Vote, Consent, Waiver, or Proxy Appointment. If the
name on a vote, consent, waiver, or proxy appointment corresponds to the name of
a Member, the Company if acting in good faith may accept the vote, consent,
waiver, or proxy appointment and give it effect as the act of the Member. The
Company may reject a vote, consent, waiver, or proxy appointment if the Managing
Member, acting in good faith, has a reasonable basis for doubt about the
validity of the signature, or the signatory's authority. If so accepted or
rejected, the Company and the Managing Member are not liable in damages to the
Member for any consequences of the rejection. Any of the Company's actions based
on an acceptance or rejection of a vote, consent, waiver or proxy appointment
under this Section is valid unless a court of competent jurisdiction determines
otherwise.
6A.07. Voting List. The Managing Member of the Company shall make before
each meeting of Members, a complete list of the Members entitled by the Articles
or this Agreement, as now or hereafter amended, to vote at such meeting,
arranged in alphabetical order, with the address, number of Units, and Company
Interest so entitled to vote held by each Member. Such list shall be produced
and kept open at the time and place of the meeting of Members and subject to the
inspection of any Member during the holding of such meeting.
6A.08. (reserved)
6A.09. Consent Action by Members. Any action required or permitted to be
taken at a Members' meeting may be taken without a meeting, if one (1) or more
written consents describing the action taken are signed by a Majority in
Interest of the Members entitled to vote on the action, and delivered to the
Company for inclusion in the minutes or filing with the Company's records.
Action taken under this Article VI(A) is effective when the last Member entitled
to vote on the action signs the consent, unless the consent specifies a
different, prior or subsequent effective date.
ARTICLE VII
Books, Records and Bank Accounts
--------------------------------
7.01. Books and Records. The Managing Member shall keep at the Company's
principal place of business just and true books of account with respect to the
operation of the Company. All Members, and their duly authorized
representatives, shall at all reasonable times have access to such books. The
books of the Company shall be kept on the cash basis of accounting, or on such
other basis of accounting as the Managing Member may determine, and otherwise in
accordance with accounting methods employed for federal income tax reporting
purposes, and shall be closed and balanced at the end of each Fiscal Year of the
Company and at such other times as the Managing Member may determine is
appropriate.
7.02. Bank Accounts. The Managing Member shall be responsible for
causing one or more accounts to be maintained in a bank (or banks), which
accounts shall be used for the payment of the expenditures incurred in
connection with the business of the Company, and in which shall be deposited any
and all cash receipts. All such amounts shall be and remain the property of the
Company, and shall be received, held and disbursed by the Managing Member for
the purposes specified in this Agreement. There shall not be deposited in any of
said accounts any funds other than funds belonging to the Company, and no other
funds shall in any way be commingled with such funds.
ARTICLE VIII
Tax Returns, Elections, Allocations
-----------------------------------
8.01. Company Tax Returns. The Managing Member shall arrange for the
preparation and filing of all necessary tax returns of the Company.
8.02. Tax Elections; Accounting.
(a) The Company may elect, pursuant to Section 754 of the Code
(or corresponding provisions of succeeding law), to adjust the basis of the
Company's property, in the event of a distribution of Company property as
described in Section 734 of the Code or a transfer by any Member of his Interest
in the Company as described in Section 743 of the Code. Appropriate adjustments
shall be made in the allocations to Members under Section 8.03 hereof in order
to reflect adjustments in the basis of Company property permitted pursuant to
any election under Section 754 of the Code.
(b) The Managing Member shall, from time to time, make such
other tax elections as they deem necessary or desirable in their sole discretion
to carry out the business of the Company or the purposes of this Agreement.
(c) The Company shall be classified and taxed as partnership for
income tax purpose and the Company's United States Partnership Return of Income
shall be prepared on the cash basis of accounting, or on such other permissible
basis of accounting as the Managing Member may determine. The Managing Member
shall select the methods of calculating cost recovery and any other permissible
methods of accounting for purposes of preparing such return. The Company's
taxable year shall be the calendar year.
8.03. Tax Allocations.
(a) For Federal income tax purposes, each Member's distributive
share of income, gain, loss, deduction, credit or tax preference (or item
thereof) for any taxable year of the Company shall be allocated in the same
proportion that the Company's Net Profit or Net Loss (or item thereof) for such
year to which it corresponds, under applicable Federal income tax accounting
rules (including in the case of depreciation, depletion, amortization and gain
or loss with respect to property properly reflected in the Members' capital
accounts at a book value that differs from the adjusted tax basis of such
property, the rules set forth in Regulation Section 1.704-1(b)(4)(i) under
Section 704 of the Code and in Section 704(c) of the Code and regulations
thereunder), is allocated pursuant to Article IV hereof. To the extent not
inconsistent with such rules:
(i) Income, gain, loss and deduction with respect to property
contributed to the Company by a Member shall be shared among
Members so as to take account of the variation between the basis
of the property to the Company and its fair market value at the
time of contribution, as required by Section 704(c) of the Code
and regulations promulgated thereunder.
(ii) If any gain realized with respect to any Company asset shall be
treated as ordinary income under the depreciation recapture
provisions of the Code, then the full amount of such ordinary
income shall be allocated among the Members in the proportions
that the Company deductions from the depreciation giving rise to
such recapture actually were allocated.
(iii) The Members shall bear any recapture of tax credits in the
proportions in which such credits were claimed.
8.04. Tax Matters Partner. The Members hereby agree that Paul R.
Partridge shall serve as the "Tax Matters Partner" as set forth under subchapter
C of Chapter 63 of the Code. Nothing herein shall be construed to restrict the
Company from engaging accountants or other professionals to assist the Tax
Matters Partner in discharging its duties hereunder.
ARTICLE IX
Assignability of Member's Interest - Buy-Sell Provisions
--------------------------------------------------------
9.01. Substituted Member. No transfer of a Member's Interest or any part
thereof and no substitution of a new Member in place of an existing Member shall
be allowed except with the consent of all the Members. If a Member transfers his
Interest with the consent of all the Members, and the transferee executes and
delivers such instruments as are reasonably necessary to effect such
substitution and to confirm the agreement of the transferee to be bound by all
of the terms and provisions of this Agreement, including, without limitation, an
amendment to this Agreement, the transferee shall thereafter be a substituted
Member vested with the powers and duties of a Member to the same extent as
though originally named, and the Company shall continue. To the extent that the
Interest is transferred (including as the result of the death of a Member) to
more than one Person, the percentages applicable to the Interest shall be pro
rated accordingly.
9.02. Allocations Subsequent to Transfer. In the event of the admission
or withdrawal of a Member, or in the event all or any part of an Interest is
validly transferred under the terms of this Article IX, the Net Profits or Net
Losses allocated under Article IV hereof (and each item thereof or corresponding
thereto), and the cash distributions allocated under Article V hereof, shall be
further allocated based upon the ownership or deemed ownership of the respective
Interests prior to and following the effective date of such admission,
withdrawal or transfer in a manner determined by the Members to be consistent
with the requirements of Section 706 of the Code and any final, proposed or
temporary regulations thereunder.
9.03. Transfer Restrictions. Notwithstanding anything herein to the
contrary, except for transfers to an Affiliate or to a member of the Member's
immediate family or to a trust for the benefit of the Member or his immediate
family, no Member (including the heirs, assigns, executors, or administrators of
a deceased Member) shall voluntarily or involuntarily sell or assign an Interest
of the Company to any person or persons, firms or other limited liability
company not a Member, without first offering such Interest for sale to the
Company and the other Members in the following manner:
(a) Such Member shall give written notice by registered or
certified mail to the secretary of the Company of his intention to sell
such Interest. Said notice shall specify the portion of Interest to be
sold, the price, and the terms upon which the sale is to be made. The
Company shall have thirty (30) days from the receipt of such notice
within which to exercise its option to purchase all or any portion of
the Interest so offered. Such purchase may be authorized by the
Committee.
(b) In the event that the Company shall fail to purchase all of
such Interest within the said thirty (30) day period, the secretary of
the Company shall, within ten (10) days thereafter, give written notice
to each of the Members of record, stating the portion of Interest
offered for sale but not purchased by the Company, and the price, and
the terms upon which the sale is being made. Such notice shall be sent
by mail addressed to each Member at his last address as it appears on
the books of the Company. Within thirty (30) days after the mailing of
said notices any Member desiring to purchase part or all of such
Interest shall deliver by mail or otherwise to the secretary of the
Company a written offer for the portion of Interest desired by him,
accompanied by the purchase price therefor with authorization to pay
such purchase price against delivery of such Interest.
(c) If the Members offer to purchase more than the total portion
of Interest available for purchase by them, then the Members offering
to purchase shall be entitled to purchase such proportion of said
Interest as the portion of Interest of the Company which he holds bears
to the total portion of Interest held by all Members offering to
purchase. In the event that the proportion of said Interest to which
any Member should be entitled to purchase is more than the portion of
Interest he desires to purchase, each remaining Member desiring to
purchase additional Interest shall be entitled to purchase such
proportion of the overplus as the portion of Interest which he holds
bears to the total portion of Interest held by all Members desiring to
participate.
(d) If none or only a part of the Interest offered for sale if
purchased by the Company or Members, or both, then the Member who
offered the same for sale shall have thereafter the right if all
Members consent to the sale, at any time during the period of sixty
(60) days after the expiration of the thirty (30) day period referred
to in paragraph (b) above, to sell said Interest not so purchased to
such person or persons as he desires; PROVIDED, HOWEVER, that he shall
not sell such Interest at a lower price or on terms more favorable to
the purchaser than those specified in the written notice he gave to the
Company nor shall he sell such Interest after the expiration of the
sixty (60) day period without again giving written notice as
hereinabove required and obtaining the consent of all Members to the
sale.
(e) No Interest shall be sold or transferred on the books of the
Company until these provisions have been complied with, but the
Committee may, in any particular instance, waive the requirements
except the requirement to obtain the consent of the sale by the
remaining Members.
9.04. Buy-Sell Provisions.
(a) Bankruptcy of a Member. Subject to Section 10.01(vi), if any Member
becomes a Bankrupt Member, the Company shall have the option, exercisable by
notice from the Committee to the Bankrupt Member (or its representative) at any
time prior to the 180th day after receipt of notice of the occurrence of the
event causing it to become a Bankrupt Member, to buy, and on the exercise of
this option the Bankrupt Member or its representative shall sell, its Interest.
The purchase price shall be an amount equal to the fair market value thereof
determined by agreement by the Bankrupt Member (or its representative) and the
Committee; however, if those Persons do not agree on the fair market value on or
before the 30th day following the exercise of the option, either such Person, by
notice to the other, may require the determination of fair market value to be
made by an independent appraiser specified in that notice. If the Person
receiving that notice objects on or before the tenth day following receipt to
the independent appraiser designated in that notice, and those Persons otherwise
fail to agree on an independent appraiser, either such Person may petition the
United States District Judge for the Southern District of Indiana then senior in
service to designate an independent appraiser. The determination of the
independent appraiser, however designated, is final and binding on all parties.
The Bankrupt Member and the Company each shall pay one-half of the costs of the
appraisal. The purchaser shall pay the fair market value as so determined in
four equal cash installments, the first due on closing and the remainder
(together with accumulated interest on the amount unpaid at the prime rate of
interest as announced in the Wall Street Journal from time to time) due on each
of the first three anniversaries thereof. The payment to be made to the Bankrupt
Member or its representative pursuant to this section is in complete liquidation
and satisfaction of all the rights and interest of the Bankrupt Member and its
representative (and of all Persons claiming by, through or under the Bankrupt
Member and its representative) in and in respect of the Company, including
without limitation, any Interest, any rights in specific Company property, and
any rights against the Company and (insofar as the affairs of the Company are
concerned) against the Members, and constitutes a compromise to which all
Members have agreed.
(b) Death, Disability, Dissolution, Retirement or Expulsion of a Member.
Subject to Section 10.01(vi), if any Member dies, becomes disabled, is
dissolved, retires from the Company or is expelled from the Company (a
"Terminated Member"), the Company shall have the option, exercisable by notice
from the Committee to the Terminated Member (or its representative) at any time
prior to the 90th day after receipt of notice of the occurrence of the event
causing it to become a Terminated Member, to buy, and on the exercise of this
option the Terminated Member or its representative shall sell, its Interest. The
purchase price shall be an amount equal to the fair market value thereof
determined by agreement by the Terminated Member (or its representative) and the
Committee; however, if those Persons do not agree on the fair market value on or
before the 30th day following the exercise of the option, either such Person, by
notice to the other, may require the determination of fair market value to be
made by an independent appraiser specified in that notice. If the Person
receiving that notice objects on or before the tenth day following receipt to
the independent appraiser designated in that notice, and those Persons otherwise
fail to agree on an independent appraiser, either such Person may petition the
United States District Judge for the Southern District of Indiana then senior in
service to designate an independent appraiser. The determination of the
independent appraiser, however designated, is final and binding on all parties.
The Terminated Member and the Company each shall pay one-half of the costs of
the appraisal. The purchaser shall pay the fair market value as so determined in
four equal cash installments, the first due on closing and the remainder
(together with accumulated interest on the amount unpaid at the prime rate of
interest as announced in the Wall Street Journal from time to time) due on each
of the first three anniversaries thereof. The payment to be made to the
Terminated Member or its representative pursuant to this section is in complete
liquidation and satisfaction of all the rights and interest of the Terminated
Member and its representative (and of all Persons claiming by, through or under
the Terminated Member and its representative) in and in respect of the Company,
including without limitation, any Interest, any rights in specific Company
property, and any rights against the Company and (insofar as the affairs of the
Company are concerned) against the Members, and constitutes a compromise to
which all Members have agreed.
9.05 Loss of License. For purposes of the below provisions of this
Section 9.05, the "Responsible Member" shall mean the Member which is, or whose
Affiliate is, responsible for the Loss of License and the Non-Responsible
Members shall mean all other Members. If the Loss of License results from the
acts or omissions of one or more Affiliates of more than one Member, then each
such Member shall be a Responsible Member with respect to the Affiliate whose
acts or omissions were responsible for the Loss of License, and each other
Member shall also be deemed a Non-Responsible Member with respect to the same
act or omission, and each shall separately have the right to invoke the
provisions hereinafter set forth.
(a) If a Loss of License shall occur or is imminent, the Responsible
Member may transfer its interest in the Company, or such Member's Affiliate, if
applicable, may transfer its interest in the Member, to a trust established for
the purpose of disposing of such interest; provided, however that the terms of
such trust and the identity of the trustee thereof are acceptable to the
Commission and reasonably acceptable to the other Members, the ownership of such
interest by the trust does not impair the ability of the Company or Rising Sun
LLC to continue gaming operations on an uninterrupted basis and without
additional restrictions and such interest transferred to the trust continues to
be subject to the provisions hereof, including, without limitation, Article IX
hereof. If the foregoing transfer is not affected or if thereafter the trust is
not effective in preventing a Loss of License or the trust terminates prior to a
disposition of the interest, then the following provisions shall apply:
(i) The Non-Responsible Members shall have the right, at any time
and for so long as the Loss of License condition shall continue,
to elect the "Buy-Out Right" set forth in Section 9.05(b) below,
such election to be contained in a written notice (the "Buy-Out
Notice") from any Non-Responsible Member to the Responsible
Member. For purposes hereof, any Non-Responsible Member
submitting a Buy-Out Notice shall hereafter be referred to as a
"Purchasing Member."
(ii) Promptly upon delivery of the Buy-Out Notice, and in no event
later than three (3) days thereafter, the Responsible Member
shall have the right, exercisable by written notice to the
Purchasing Members (the "Response Notice") that the Responsible
Member has elected to, and has, caused the withdrawal of the
Affiliate of the Responsible Member responsible for the Loss of
License. Upon the delivery of the Response Notice, the Members
shall advise the appropriate licensing authorities that the
Affiliate responsible for the Loss of License has withdrawn from
its interest in the Company and shall request reinstatement of
the License. If, after such request, the License is reinstated,
then, with respect to the event or circumstance giving rise to
the Loss of License, the Buy-Out Notice shall be deemed to have
been terminated and will be of no further force or effect. If,
however, the licensing authorities fail or refuse to reinstate
the License within five (5) days after request therefor as
hereinabove provided, then the Buy-Out Notice shall remain in
effect and the provisions of Section 9.05(b) shall be
applicable.
(b) Whenever a Buy-Out Notice shall be delivered in accordance with the
provisions of Section 9.05(a), the same shall constitute an agreement on the
part of the Purchasing Members to buy, and the Responsible Member to sell, the
entire Company Interest of the Responsible Member in the Company for a price,
payable in cash at the closing, equal to Fair Market Value.
If there shall be more than one Purchasing Member, each shall purchase a
portion of the Company Interest of the Responsible Member pro rata in accordance
with the respective Company Percentages of the Purchasing Members. The closing
shall take place not later than ten (10) days after the determination of the
purchase price of the Company Interest of the Responsible Member. At the
closing, the Responsible Member shall execute and deliver such instruments,
documents and certificates as the Purchasing Members shall reasonably request in
order to transfer and assign to the Purchasing Members (or to any other party
designated by the Purchasing Members to the Responsible Member in writing at or
prior to the closing) the entire Company Interest of the Responsible Member in
the Company, including, without limitation, the entire interest of the
Responsible Member in all loans, and all interest accrued and unpaid thereon,
and the Non-Responsible Member shall deliver the purchase price in cash (or by
certified or cashier's check made payable to the order of the Responsible
Member). The Purchasing Members shall, prior to and/or after the closing,
substitute Financial Accommodations for any Financial Accommodations in
existence for the Responsible Member and shall use their reasonable efforts to
cause any Financial Accommodation of the Responsible Member to be released. In
the event of any dispute between the Responsible Member and the Purchasing
Members regarding he amount of the purchase price, there shall be paid to the
Responsible Member the amount not in dispute, and the remainder shall be paid
promptly upon the determination thereof by the parties, or, in the event they
shall fail to agree on the amount, by arbitration conducted in Chicago,
Illinois, in accordance with the rules and regulations of the American
Arbitration Association. In order to further secure the performance of the
obligations of the parties hereto, each Member (if it shall be a Responsible
Member at any time hereafter) hereby appoints the Purchasing Members, and each
of their Affiliates, and the officers, directors, shareholders, employees and
agents of the Responsible Member and its Affiliates, as the agent and
attorney-in-fact for and on behalf of each Purchasing Member to execute,
acknowledge and deliver such instruments, documents or certificates as are
herein contemplated in connection with any buy-out.
For purposes of this Section 9.05(b), Fair Market Value of an Company
Interest shall be determined by two independent appraisers, one selected by the
Company and one selected by the Responsible Member. Each such appraiser shall
perform an appraisal at the cost of the respective party. If the appraisers are
within 10% of each other, the Fair Market Value shall be the average of the two.
If the two are not within 10% of each other, a third appraiser will be selected
by the two appraisers who will perform a third appraisal. In such event, the
Fair Market Value of the Company Interest shall be the average of the three
appraisals. The cost of the third appraisal will be split equally between the
parties. All selected appraisers must possess substantial current expertise in
riverboat casino valuations.
9.06. Liquidation of a Member's Interest.
(a) In the event there is a liquidation of any Member's Interest
for purposes of paragraphs (b)(2)(ii)(b) and (b)(2)(ii)(g) of Regulation Section
1.704-1 under Code Section 704 (prior to dissolution or liquidation of the
Company as provided in Article X hereof), liquidating distributions, if any,
shall be made to such Member in the ratio that the positive balance, if any, in
such Member's capital account, after taking into account all capital account
adjustments provided for in Section 3.03 hereof (other than those made as a
result of any such liquidating distributions), bears to the aggregate positive
capital account balances (as so adjusted) of all Members. Such liquidating
distributions shall be made no later than the end of the taxable year during
which such liquidation takes place or, if later, within 90 days after the date
of such liquidation.
(b) Notwithstanding the foregoing, this Section 9.06 shall not
apply if all or part of the Interest of one or more Members is purchased (other
than in connection with the liquidation of the Company) by the Company or by one
or more Members (or one or more persons related, within the meaning of Code
Section 267(b) (without modification by Code Section 267(e)(1) or Code Section
707(b)(1)), to a Member) pursuant to an agreement negotiated at arm's length by
persons who at the time such agreement is entered into have materially adverse
interests and if a principal purpose of such purchase and sale is not to avoid
the principles of the second sentence of paragraph (b)(2)(ii)(a) of Regulation
Section 1.704-1 under Code Section 704.
9.07. Securities Laws. In connection with any sale or other transfer of
a Company Interest, the selling or transferring Member shall effect such
transfer only in compliance with all applicable federal and state securities
laws (to the extent said laws may be applicable to such transaction), and the
transferring Member shall indemnify, protect and defend the Company, and each of
the other Members, from any liabilities, obligations, costs or expenses to which
the Company or any Member may become liable by reason of the application of any
such securities laws in connection with such transfer.
ARTICLE X
Dissolution
-----------
10.01. Dissolution. The Company shall be dissolved upon the earliest to
occur of the following:
(i) The expiration of its term, unless such term is extended by the
unanimous written consent of all the Members;
(ii) The consent of all the Members of the Company;
(iii) The ceasing of the Company to be a going concern;
(iv) The cessation of the carrying on by the Company of any and all
business, financial operations, and ventures of the Company;
(v) The entry of a decree or order by a court of competent
jurisdiction adjudging the Company a bankrupt or insolvent; or
the institution by the Company of any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, liquidation
or similar proceeding under the law of any jurisdiction; or the
institution of any such proceedings against the Company which
shall remain undismissed for a period of 60 days; or the
application for or consent to the appointment of any receiver,
trustee, custodian or similar officer for the Company, or for
all or any substantial part of its property; or the appointment
of any such receiver, trustee, custodian or any similar officer
without the application or consent of the Company, as the case
may be, and such appointment shall continue undischarged for a
period of 60 days;
(vi) The death, retirement, resignation, expulsion, bankruptcy, or
dissolution of one of the Members unless the remaining Members
unanimously consent within 60 days to continue the business of
the Company; or
(vii) The happening of any other event resulting in dissolution under
the Act or any other applicable law of the State of Indiana.
10.02. Distribution Upon Dissolution.
(a) Upon the dissolution of the Company, its affairs shall be wound up
and it shall be liquidated and the proceeds of such liquidation and the
Company's other assets shall be distributed as follows:
(i) All of the Company's ascertained debts and liabilities to
creditors shall be promptly paid and discharged in the order
provided by applicable law.
(ii) A reserve shall be set aside in an amount reasonably required to
provide for contingent or other liabilities.
(iii) The Company's Net Profit or Net Loss (including without
limitation any Gain from a Disposition or Loss from a
Disposition resulting from any sales or other dispositions of
Company property in connection with the liquidation of the
Company) shall be computed and shall be allocated to the Members
in accordance with Article IV hereof, and the Members' capital
accounts shall be adjusted in accordance with Section 3.03
hereof.
(iv) Distribution shall be made to the Members in accordance with
Section 5.01 hereof of any and all Net Cash Flow, and
distribution shall be made to the Members in accordance with
Section 5.02 hereof of any and all Net Proceeds of Sales and
Financings, and the Member's capital accounts shall be adjusted
in accordance with Section 3.03 hereof.
(v) The remainder of the Company's assets shall be distributed, in
liquidation of the Interests of all the Members, to those
Members with positive capital account balances, after taking
into account all capital account adjustments provided for in
Section 3.03 hereof (other than those made as a result of any
such liquidating distributions) in the ratios of such positive
capital account balances, as so adjusted. Each Member shall
receive his share of such remaining assets in cash and/or in
kind, and the portion of such share that is received in cash may
vary from Member to Member, all as the Members may determine.
Notwithstanding the foregoing, if any assets of the Company are
to be distributed in kind, such assets shall be distributed on
the basis of the fair market value thereof and any Member
entitled to any interest in such assets shall receive such
interest therein as a tenant-in-common with all other Members so
entitled. If any asset is to be distributed in kind, the
Members' capital accounts shall be adjusted as provided for in
Section 3.03 hereof (consistent with the requirements of
Regulation Section 1.704-1(b)(2)(iv) under Section 704 of the
Code) before any such distribution is made to reflect the
increases or decreases to said capital accounts which would have
occurred if such asset to be distributed in kind had been sold
for its fair market value by the Company immediately prior to
such distribution. All such liquidating distributions shall be
made by the end of the taxable year of the Company in which
there is a liquidation of the Company for purposes of paragraphs
(b)(2)(ii)(b) and (b)(2)(ii)(g) of Regulation Section 1.704-1
under Code Section 704 or, if later, within 60 days after the
date of such liquidation. Notwithstanding the foregoing, the
Members may, in their discretion, withhold from such
distribution any or all installment obligations owed to the
Company, so long as such withheld amounts are so distributed as
soon as practicable and in the ratios of such positive capital
account balances, as so adjusted.
(vi) As soon as practicable, the remaining balance, if any, of the
reserve established in accordance with Subparagraph (ii) hereof
shall be distributed in the manner set forth in Subparagraph (v)
hereof.
(b) Distribution of cash or property to the Members in accordance with
the provisions of paragraph (a) hereof shall constitute a complete return to the
Members of their respective Interests in the Company assets.
(c) The winding up of the Company's affairs and the liquidation and
distribution of its assets shall, subject to the provisions of the Act, be
conducted by the Members, which are authorized to do any and all acts authorized
by law for these purposes, or by a duly authorized liquidator.
10.03. Liquidation for Tax Purposes. Notwithstanding any other provision
of this Agreement, in the event there is a liquidation of the Company for
purposes of paragraphs (b)(2)(ii)(b) and (b)(2)(ii)(g) of Regulation Section
1.704-1 under Code Section 704 (regardless of whether or not there is a
dissolution of the Company as hereinabove provided), liquidating distributions,
within the meaning of said paragraph (b)(2)(ii)(b), shall in all cases be made
in accordance with the positive capital account balances of the Members, taking
into account all capital account adjustments for the taxable year of the Company
during which such liquidation occurs (other than adjustments made pursuant to
this Section 10.03), by the end of such taxable year or, if later, within 90
days after the date of such liquidation. Such distributions shall otherwise be
made in the manner and in accordance with the provisions of Section 10.02(a)(v)
hereof. Neither the occurrence of such a liquidation nor the making of such
liquidating distributions shall, however, be treated as the occurrence of any
event described in Subparagraph (iii) or (iv) of Section 10.01 hereof, or shall
otherwise result in dissolution of the Company for purposes of Article X hereof.
If such liquidation occurs at a time when there is not also such a dissolution
by reason of the independent occurrence of an event described in said Section
10.01, then (i) the Company shall not be dissolved, (ii) the Members shall,
immediately upon receiving such liquidating distributions, contribute all cash
and properties so received to the Company, (iii) the capital accounts of the
Members shall be adjusted as provided in Section 3.03 hereof and (iv) the
business and affairs of the Company shall be continued without interruption.
Prior to distribution of any property pursuant to this Section 10.03, the
Members' capital accounts shall be adjusted as provided for in Section 3.03
hereof (consistent with the requirements of Regulation Section 1.704-1(b)(2)(iv)
under Code Section 704) to reflect the increases or decreases to said capital
accounts which would have occurred if such property had been sold for its fair
market value by the Company immediately prior to such distribution.
10.03 Restoration of Deficit Capital Accounts. Anything herein to the
contrary notwithstanding, no Member shall have any obligation to restore the
amount of any negative balance in its Capital Account whether upon dissolution
or liquidation of the Company or otherwise. The negative balance in any Capital
Account shall in no event be deemed an asset of the Company.
ARTICLE XI
Miscellaneous
-------------
11.01. Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
Member giving such notice, election or demand and shall be delivered personally
or sent by registered or certified mail, return receipt requested, to the other
Member or Members, at its or their address set forth in the Company's records,
or at such other address as may be supplied by written notice given in
conformity with the terms of this Section 11.01. The date of personal delivery
or the date of mailing, as the case may be, shall be the date of such notice.
11.02. Successors and Assigns. Subject to the restrictions on transfer
set forth herein, this Agreement, and each and every provision hereof, shall be
binding upon and shall inure to the benefit of the Members, their respective
successors, successors-in-title, heirs and assigns, and each and every
successor-in-interest by way of gift, purchase, foreclosure, or by any other
method, shall hold such interest subject to all of the terms and provisions of
this Agreement.
11.03. Amendment of Operating Agreement. No amendment of this Agreement
shall become effective unless it has been approved in writing and executed by
all the Members.
11.04. Partition. The Members hereby agree that no Member nor any
successor-in-interest to any Member, shall have the right, while this Agreement
remains in effect, to have the property of the Company partitioned, or to file a
complaint or institute any proceeding at law or in equity to have the property
of the Company partitioned, and each Member, on behalf of himself, his
successors, representatives, heirs and assigns, hereby waives any such right.
11.05. Indemnification. The Members, or any of them, shall be
indemnified by the Company for any loss or liability paid or incurred by such
Member(s), and all fees, costs and expenses associated therewith including,
without limitation, reasonable attorneys' fees, costs and expenses arising out
of or related to any act performed by them within the scope of the authority
conferred upon it by this Agreement; provided, however, such indemnity shall be
payable only if the Member (i) acted in good faith and in a manner it reasonably
believed to be in, or not opposed to, the best interests of the Company and the
Members, and (ii) had no reasonable grounds to believe that its conduct was
negligent or unlawful. No indemnification may be made with respect to any act or
omission of a Member for which it shall have been adjudged to be liable for
gross negligence or willful misconduct in the performance of its duty to the
Company unless, and only to the extent that the court in which such action or
suit was brought determines that in view of all the circumstances of the case,
despite the adjudication of liability for negligence or willful misconduct, the
Member is fairly and reasonably entitled to indemnity for those expenses which
the court deems proper. To the extent not covered by insurance maintained by the
Company, any indemnity under this subsection shall be paid from, and only to the
extent of, Company assets, and no other Member shall have any personal liability
to indemnify the Member or the Company on account thereof.
11.06. No Waiver. The failure of any Member to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such Member's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance of
any obligation hereunder, shall constitute a consent or waiver to or of any
other breach or default in the performance of the same or any other obligation
hereunder.
11.07. Other Businesses. Each party recognizes that the Members, and
their Affiliates, have or may have other business interests, activities and
investments, some of which may now or hereafter be in conflict or competition
with the business of the Company, and that, subject to the provisions
hereinafter in this Section 11.07 set forth, each Member and their respective
Affiliates are entitled to carry on such other business activities, interests
and investments without any accountability therefor to the Company or any other
Member. No Member, and no Affiliate of any Member, shall be obligated to devote
all or any particular part of its time and effort to the Company or its business
affairs except such reasonable amount of time as may be necessary in order to
fulfill their respective duties and obligations hereunder. Except as hereinafter
in this Section 11.07 set forth, each Member, and each Affiliate of each Member,
may engage in or possess an interest in any other business or venture of any
kind, independently or with others, including, without being limited to, owning,
financing, acquiring, leasing, promoting, developing, improving, constructing,
operating or managing other real or personal properties (including real and
personal properties devoted, in whole or in part, to the business of gaming or
which are activities in support of gaming operations) on its own behalf or on
behalf of other entities with which it is affiliated or associated, and any
Member and each Affiliate of any Member may engage in any activities, whether or
not competitive to the Company, without any obligation to offer any interest in
such activities to the Company or to any Member or to any Affiliate of any
Member. Except as may be set forth in any separate agreement which may be
entered into by the Members or any of their Affiliates, neither the Company nor
any Member nor any Affiliate of any Member shall have any right by virtue of
this Agreement or by virtue of the relationship between the Members as partners,
in or to such other activities, or to the income or profits derived therefrom,
and the pursuit of such activities, even if competitive with the business of the
Company, shall not be deemed wrongful or improper or a breach of any joint
venture or fiduciary duties owed by one party to the other, or entitle any party
to any interest in or sharing in the profits or losses from any such other
activities.
11.08. Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof.
11.09. Captions. Titles or captions of Articles or Sections contained in
this Agreement are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof.
11.10. Gender. The use of the masculine personal pronoun shall be deemed
to mean the appropriate pronoun applicable to the number or gender of the person
to whom or which it refers, as the context may require.
11.11. Counterparts. This Agreement may be executed in a number of
counterparts, all of which together shall for all purposes constitute one
agreement.
11.12. Applicable Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted, construed and
enforced in accordance with the laws of the State of Indiana.
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
day and year first above written.
AMERICAN GAMING &
ENTERTAINMENT, LTD., Member
/s/ Paul R. Partridge By: /s/ William I. Fasy
- ------------------------- ------------------------
Paul R. Partridge, Member William I. Fasy, CEO
/s/ Patrick F. Daly /s/ James A. Everatt
- ------------------------- ---------------------------
Patrick F. Daly, Member James A. Everatt, Member
/s/ Charles E. Reisert /s/ Eric C. Jackson
- ------------------------- ---------------------------
Charles E. Reisert, Jr., Eric C. Jackson, Limited Member
Limited Member
<PAGE>
SCHEDULE A
----------
Capital Contributions and Company Interests
-------------------------------------------
<TABLE>
<CAPTION>
Company
Name and Address Social Security Interest
of Member Number or EIN Percentage
--------- ------------- ----------
<S> <C> <C>
Paul R. Partridge 340-767-488 24.5%
52 Chesham Court
London, Ontario N6G 3T4
Canada
American Gaming & Entertainment, Ltd 74-2504501 24.5%
Suite 300
Bayport 1, Yacht Club Drive
West Atlantic City, NJ 08232
Patrick F. Daly ###-##-#### 24.5%
615 North Wabash Avenue
Chicago, Illinois 60611
James A. Everatt N/A 24.5%
R.R. #4
St. Thomas, Ontario N5P 3S8
Canada
Charles E. Reisert, Jr 1%
1302 E. 10th Street
Jeffersonville, Indiana 47130
Eric C. Jackson 1%
407 Ridge Ave
Lawrenceburg, Indiana 47025
</TABLE>
Approved and Accepted by:
Date 2/26/96 /s/ Paul R. Partridge
-------------------
------------------------------------
Paul R. Partridge, Member
AMERICAN GAMING &
ENTERTAINMENT, LTD.
Date ------------------- By: /s/ William I. Fasy
--------------------------------
William I. Fasy, CEO
Date 2/30/96 [sic] /s/ James A. Everatt
-------------------- -------------------------------------
James A. Everatt, Member
Date 2/26/96 /s/ Patrick F. Daly
-------------------- -------------------------------------
Patrick F. Daly, Member
Date 5/12/96 /s/ Charles E. Reisert
-------------------- -------------------------------------
Charles E. Reisert, Jr., Limited Member
Date ------------------- /s/ Eric C. Jackson
-------------------------------------
Eric C. Jackson, Limited Member
<PAGE>
SCHEDULE B
----------
Capital Contributions and Company Interests
-------------------------------------------
The following schedules are examples of the change in Company Interests
in the event that the Company elects to maintain an interest in Rising Sun LLC
above 20%. Each Member shall have the right to contribute the funds necessary to
maintain an additional 7.5% interest in Rising Sun LLC and shall receive an
additional 15% Company Interest in exchange for those funds. If each of the
Members elects to participate fully in such additional interest, such Member
would have a percentage Company Interest of 24.8% and an interest in the overall
project of 12.4%.
If any of the Members contributes more than his share of 7.5%, such
Member shall be entitled to the same percentage as stated in the preceding
paragraph until he has recovered his entire capital contribution plus a sixteen
percent (16%) preferred return and after that has occurred, the non-contributing
Members shall be entitled to an increased percentage of Company Interest at the
rate of .266% for each one percent above the respective Member's incremental
7.5%. The following is a schedule of the Company Interest in the event that only
one Member contributes funds to maintain a 50% interest in Rising Sun LLC:
<TABLE>
<CAPTION>
Prior to the Return of Capital After the Return of Capital
to the Contributing Member to the Contributing Partner
-------------------------- ---------------------------
Percent Percent
Member RSR Percent of Project RSR Percent of Project
- ------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Reisert .4% .2% .56% .28%
Jackson .4% .2% .56% .28%
Daly 9.8% 4.9% 13.72% 6.86%
Partridge 9.8% 4.9% 13.72% 6.86%
Everatt 9.8% 4.9% 13.72% 6.86%
American Gaming
9.8% 4.9% 13.72% 6.86%
Contributing Member 60.0% 30.0% 44% 22.00%
Totals 100% 50.00% 100% 50.00%
</TABLE>
The above schedule assumes that the Company maintains its full 50% interest in
the Project. If less than a 50% interest is maintained, the Schedule above would
be adjusted pro-rata. For example, if the Company elected a 30% interest in
Rising Sun LLC with only one Member contributing the additional funds, then the
excess percent for that Member would be 2.5% (10% minus 7.5%) and then the
Schedule would be as shown on Schedule B-1 as follows:
<PAGE>
SCHEDULE B-1
------------
Capital Contributions and Company Interests
-------------------------------------------
<TABLE>
<CAPTION>
Prior to the Return of Capital After the Return of Capital
to the Contributing Member to the Contributing Partner
-------------------------- ---------------------------
Percent Percent
Member RSR Percent of Project RSR Percent of Project
- ------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Reisert .67% .2% .70% .21%
Jackson .67% .2% .70% .21%
Daly 16.33% 4.9% 17.03% 5.11%
Partridge 16.33% 4.9% 17.03% 5.11%
Everatt 16.33% 4.9% 17.03% 5.11%
American Gaming 16.33% 4.9% 17.03% 5.11%
Contributing Member 33.34% 10.0% 30.48% 9.14%
Totals 100% 30.00% 100% 30.00%
</TABLE>
<PAGE>
SCHEDULE 3.01
-------------
Capital Contributions of Members
--------------------------------
<TABLE>
<CAPTION>
Value of
Contribution
------------
<S> <C>
Paul R. Partridge $ 25,000
Patrick F. Daly $ 25,000
American Gaming & Entertainment, Ltd. $ 25,000
James A. Everatt $ 25,000
--------
Total $100,000
</TABLE>
All capital contributions are of the Member's entire interest in Rising Sun
Riverboat Casino and Resort, LLC
No capital contributions shall be required by Limited Members.
This AGREEMENT, dated as of the 1st day of June, 1996, by and among:
AMERICAN GAMING & ENTERTAINMENT, LTD.
a Delaware corporation with offices at
Suite 300, Yacht Club Drive
W. Atlantic City, New Jersey 08232
(hereinafter referred to as "AGEL"),
and
J. DOUGLAS WELLINGTON,
residing at
51 Beech Road
Glen Rock, New Jersey 07452
(hereinafter referred to as "WELLINGTON"),
WITNESSETH:
-----------
WHEREAS, AGEL is a public corporation engaged in the gaming business;
and
WHEREAS, WELLINGTON currently serves as General Counsel, Secretary and
Controller of AGEL; and
WHEREAS, AGEL considers WELLINGTON's services to be important to the
successful accomplishment of its objectives and desires to secure for itself the
continued availability of his services; and
WHEREAS, WELLINGTON is willing to make his services available to AGEL on
the terms and conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter entered into, and other good and valid consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE FIRST
-------------
The recital clauses set forth above shall be deemed as part of this
Agreement as though set forth verbatim and at length herein.
ARTICLE SECOND
--------------
AGEL agrees to and hereby employs WELLINGTON as General Counsel,
Secretary and Controller of AGEL, and WELLINGTON agrees and accepts employment
with AGEL, upon the terms and conditions hereinafter set forth.
ARTICLE THIRD
-------------
The term of this Agreement shall commence on June 1, 1996, and, subject
to the provisions of Article NINTH hereof, shall continue until May 31, 1998.
Thereafter, this Agreement shall be renewed annually, unless otherwise
terminated as hereinafter provided. If AGEL elects not to renew, it shall give
one hundred twenty (120) days' notice prior to May 31, 1998.
ARTICLE FOURTH
--------------
WELLINGTON shall exert his best efforts to the affairs of AGEL and its
divisions. WELLINGTON's duties shall be to perform all functions generally
appropriate to his position. In the performance of these duties, WELLINGTON
shall make his principal office at Atlantic County, New Jersey.
Travel shall be normal and customary in the Gaming Industry, unless
agreed to by WELLINGTON.
WELLINGTON shall be provided with adequate facilities and resources to
carry out the terms of his employment.
WELLINGTON shall be invited to all AGEL's Board of Directors' meetings
during the term of this Agreement.
WELLINGTON shall report directly to the President and Chief Executive
Officer of AGEL.
ARTICLE FIFTH
-------------
(A) For and in consideration of the performance by WELLINGTON of his
duties to be rendered, AGEL agrees to pay WELLINGTON; an annual salary of ONE
HUNDRED AND TWENTY-FIVE THOUSAND DOLLARS ($125,000.00), payable in accordance
with AGEL's custom which currently is on a bi-weekly basis. In addition, as soon
as administratively possible following the execution of this Agreement,
WELLINGTON shall be paid a lump sum amount equal to the excess of (i) the
cumulative salary payments that would have been paid to him from January 1, 1996
through May 31, 1996 had his salary during such period been $125,000, over (ii)
the actual cumulative salary payments made to him for such period. All such
amounts shall be subject to applicable tax withholdings.
(B) WELLINGTON shall receive such annual bonuses (determined at the end
of each calendar year and payable within thirty (30) days thereafter) as the
Board of Directors of AGEL, in its discretion, deems appropriate.
(C) WELLINGTON shall be granted 150,000 non-qualified stock options
under AGEL's Stock Option Plan as soon as administratively possible following
the execution of this Agreement. 75,000 of such options shall become
exerciseable on January 1, 1997 and the remaining 75,000 of such options shall
become exerciseable on January 1, 1998. In the event that WELLINGTON is no
longer employed by AGEL, any of such options that are not exerciseable at such
time shall be forfieted.
(D) WELLINGTON shall be entitled to all employee fringe benefits
currently provided to WELLINGTON by AGEL. In addition, Health Benefits for
WELLINGTON will continue for an additional six (6) months after May 31, 1998 if
employment is not renewed and WELLINGTON does not find additional employment
with such coverage.
ARTICLE SIXTH
-------------
WELLINGTON is authorized to incur reasonable expenses in the performance
of his duties. Reimbursement, or direct payment to a creditor, as the case may
be, shall be made by AGEL against bills and vouchers submitted to AGEL.
ARTICLE SEVENTH
---------------
WELLINGTON shall be entitled to three (3) weeks annual paid vacation as
is currently the policy of AGEL at such times during the year as may be
determined and agreed upon by WELLINGTON and AGEL's Board of Directors, so as to
cause minimal interference with AGEL's operations.
ARTICLE EIGHTH
--------------
AGEL shall indemnify WELLINGTON and hold him harmless for any acts or
decisions made by him in good faith while performing services for AGEL, and AGEL
shall use its best efforts to obtain coverage for him under any insurance policy
now in force or hereinafter obtained during the term of this Agreement covering
the other officers and directors of AGEL against lawsuit. AGEL will pay all
expenses including attorneys fees, actually and necessarily incurred by
WELLINGTON in connection with the defense of such act, suit or proceeding and in
connection with any appeal thereon, including the cost of court settlement.
Subject to the terms of any applicable insurance policy, AGEL shall confer with
WELLINGTON regarding the selection of counsel in defense of any such suit or
proceeding.
ARTICLE NINTH
-------------
This Agreement shall terminate upon the occurrence of one of the
following causes:
(A) WELLINGTON's Death.
(B) Breach of this Agreement by either party.
(C) By WELLINGTON on thirty (30) days' prior written notice.
ARTICLE TENTH
-------------
WELLINGTON may not assign this Agreement or any of his rights or
obligations hereunder to any person, firm or entity.
ARTICLE ELEVENTH
----------------
This Agreement may be executed in counterparts and each shall be deemed
to be an original. This Agreement expresses the entire agreement between the
parties and may not be changed or modified except in writing executed by all of
the parties. This instrument represents the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof.
ARTICLE TWELFTH
---------------
All matters pertaining to the validity, construction, and effect of this
Agreement shall be governed by the laws of the State of New Jersey. In the event
any provisions of this Agreement are in contravention of any statute or law of
New Jersey, said provision shall be null and void but shall not affect any
provisions in this Agreement.
ARTICLE THIRTEENTH
------------------
When and if notice is required by any of the Articles of this Agreement,
such notice shall be written notice, by certified mail, return receipt
requested, addressed to the party at the address shown above, or at the party's
last known address.
ARTICLE FOURTEENTH
------------------
The parties further agree that no waiver or modification of this
Agreement, or of any covenant, condition, or limitation herein contained, shall
be valid unless in writing and duly executed by the parties to be charged
therewith.
ARTICLE FIFTEENTH
-----------------
In all references to any parties, persons, entities, or corporations,
the use of any particular gender or the plural or singular number is intended to
include the appropriate gender or number as the text of this Agreement may
require.
ARTICLE SIXTEENTH
-----------------
This Agreement shall be binding not only upon the parties hereto, but
also upon their heirs, executors, administrators, successors or assigns; and the
parties hereby agree for themselves and their heirs, executors, administrators
or assigns, to execute any instruments and to perform any acts which may be
necessary or proper to carry out the purposes of this agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto interchangeably set
their hand and seals, and caused this agreement to be signed by its proper
corporate officers and the corporate seal affixed the day and year first above
written.
AMERICAN GAMING & ENTERTAINMENT, LTD.
By: /s/ Paul Patrizio
---------------------------------------------
It's: Director - Chairman of Compensation Committee
/s/ J. Douglas Wellington
--------------------------
J. DOUGLAS WELLINGTON
AMERICAN GAMING & ENTERTAINMENT, LTD.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
PRIMARY AND FULLY-DILUTED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
shares for computation 12,532,102 12,363,173 12,532,102 12,355,155
============ ============ ============ ============
Net loss $ (1,943,000) $ (8,860,000) $ (2,232,000) $(13,710,000)
Dividends and accretion on
preferred stock 467,000 408,000 875,000 758,000
------------ ------------ ------------ ------------
Net loss for common stockholders $ (2,410,000) $ (9,268,000) $ (3,107,000) $(14,468,000)
============ ============ ============ ============
Net loss per common share $ (0.19) $ (0.75) $ (0.25) $ (1.17)
============ ============ ============ ============
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF AMERICAN GAMING &
ENTERTAINMENT, LTD. FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 181,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 704,000
<PP&E> 16,641,000
<DEPRECIATION> 2,940,000
<TOTAL-ASSETS> 19,529,000
<CURRENT-LIABILITIES> 53,211,000
<BONDS> 111,000
0
12,702,000
<COMMON> 126,000
<OTHER-SE> (49,122,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,529,000
<SALES> 0
<TOTAL-REVENUES> 982,000
<CGS> 0
<TOTAL-COSTS> 1,327,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 221,000
<INTEREST-EXPENSE> 1,401,000
<INCOME-PRETAX> (1,943,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,943,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,410,000)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
