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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended October
31, 1996
or
[] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
__________ to _______________
Commission file number 0-21270
LAS VEGAS ENTERTAINMENT NETWORK, INC.
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(Exact name of small business issuer in its charter)
DELAWARE 94-3123854
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(State of Incorporation) (IRS Employer Identification No.)
1801 Century Park East, 23rd Floor
Los Angeles, California 90067
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(Address of principal executive offices) (Zip Code)
(310) 551-0011
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X ]
State issuer's revenues for its most recent fiscal year: - $291,200
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $15,016,090 computed on the basis of the average bid and
asked prices of the Common Stock of $0.44 per share as reported by NASDAQ on
January 31, 1997.
Number of common shares outstanding of the issuer's classes of Common Stock
as of January 31, 1997: 34,898,349
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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1
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PART I
Item 1.DESCRIPTION OF BUSINESS
General
Background and Business and Basis of Presentation
Las Vegas Entertainment Network ("LVEN", "the Company") is engaged in the
business of acquiring, developing and operating media and gaming facilities and
businesses. The Company's primary project to date was the renovation, expansion
and redevelopment of the El Rancho Hotel (the "El Rancho" or the "Property"), a
1,006 room hotel and casino located on 20.86 acres in Las Vegas, Nevada which
was acquired on November 24, 1993, and subsequently sold on January 22, 1996.
The Company is also active in the development of media related opportunities,
including formulating a business plan to develop, produce, market and distribute
television and video programming. The Company is also investigating other
potential businesses for acquisition in the gaming, entertainment, lodging or
communications industry.
The Company, as formed in October 1990, developed, produced and
distributed television programming featuring entertainment in Las Vegas, Nevada.
The Company changed its focus to the gaming industry in 1993 with the
acquisition of the El Rancho Hotel and Casino for $36,500,000. However, on
January 22, 1996, the Company sold the El Rancho to Orion Casino Corporation
("Orion"), a subsidiary of International Thoroughbred Breeders, Inc. ("ITB") for
$43,500,000 of cash, notes and assumption of debt. It is the current intention
of the new owners of the El Rancho to develop and open the Property as an
international country music attraction called "CountryLand, USA", a major hotel
and casino destination. As part of the sale agreement, once the Property is
opened and invested amounts have been recouped by Orion and the Company, which
the Company can provide no assurance can be achieved, the Company will receive
as additional consideration for entering into the sale agreement (but not as
part of the Purchase Price for the assets) a fifty percent (50%) interest in the
adjusted cumulative cash flow (as defined) from the operation of the Property as
so developed for a period of six (6) years following the opening of the Property
and the commencement of operations, and thereafter a twenty-five percent (25%)
interest in adjusted cash flow from operations until such time as it has
received an aggregate of One Hundred Sixty Million Dollars ($160,000,000), but
only after Orion and the Company first receive 100% of the adjusted cash flow
until all invested amounts have been recouped.
In addition, commencing with the development of the Property, the Company's Las
Vegas Communications Corporation subsidiary ("LVCC") was granted an exclusive
contract for up to twenty (20) years to provide entertainment at the Property
site which will provide for minimum annual fees of $800,000 plus additional
commissions.
The Company presently has two (2) operating subsidiaries: Casino-Co, which
in connection with the sale of the El Rancho will maintain the continuing
interest in the adjusted cash flow of the property; and, LVCC, which in
connection with the sale of the El Rancho, will maintain the entertainment
contracts on the Property, and will also continue to develop, produce, market
and distribute television and video programming.
Casino and Gaming Operations
On November 24, 1993, the Company acquired the El Rancho Hotel and
Casino property in Las Vegas, Nevada. The Property had been closed before
its acquisition by the Company and was never operated by the Company. The
casino and gaming activities of the Company to date had been limited to
managing the El Rancho property site, developing site construction and
architectural plans for the renovation and expansion of the hotel as well
as obtaining the necessary permits and approvals, and arranging for
potential financing, equity or joint ventures to further develop and
renovate the property.
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On January 22, 1996, the Company sold the assets and liabilities of
the El Rancho to Orion Casino Corporation, a wholly-owned subsidiary of
International Thoroughbred Breeders, Inc., for consideration of $43,500,000. The
Purchase Price was paid as follows: (i) $12,500,000 paid at closing in cash;
(ii) issuance of an 8% unsecured promissory note in the principal amount of
$6,500,000 which was paid in full on March 15, 1996; (iii) issuance of an 8%
promissory note in the principal amount of $10,500,000, co-signed by Orion and
ITB (see "Item 6 Management's Discussion and Analysis - Notes Receivable"), and
(iv) assumption of existing mortgage indebtedness and accrued interest of
$14,000,000, (the "Refinance Obligation"). In addition, once the property has
been developed, of which the Company can provide no assurance can be achieved,
the Company will share in a percentage of the on-going adjusted cumulative cash
flow from the operation of the property up to $160,000,000)as defined above.
On January 15, 1997 ITB announced that they had received a
$100,000,000 funding proposal, the proceeds of which will be used, in
part, for the renovation and opening of the former El Rancho Hotel and
Casino site as an international country music attraction called
"CountryLand USA", a major destination hotel and casino. The proposed
funding is subject to the execution of a definitive loan agreement between
ITB and the proposed lender, which the Company can give no assurance will
be made. The proceeds of this loan are anticipated to be sufficient to
renovate and reopen the Property site, as well as repay the Company's
remaining outstanding note receivable. ITB had previously announced that
it intended to develop the El Rancho property under a "Starship Orion"
multiple-casino theme. It was estimated that the total cost of completion
would be approximately 1 billion dollars and that ITB intended to develop
the property with up to as many as six partners. ITB had not engaged any
partners for its "Starship Orion" theme development, and will now develop
the property under a more modest "CountryLand, USA" theme.
In accordance with the initial sale agreement, if by October 25, 1996
(i) Orion had not closed on or received permanent financing and obtained the
required lease commitments to develop the "Starship Orion", and (ii) and had not
closed or received a firm commitment for alternative financing to develop the
Property, and if the Company had arranged for the refinancing and also placed
into an escrow account amounts sufficient to cover the financing and carrying
costs of the property for either a six month or year period (the "option
period"), LVEN may either (i) appoint and authorize a reputable commercial real
estate broker to sell the property at an amount, after expenses, in excess of
the underlying mortgage and invested amounts of both Orion and LVEN, or (ii)
arrange on behalf of Orion, in conformity with prevailing financing terms and
conditions for a major Las Vegas hotel/casino project, alternative financing of
not less than fifty-five million dollars ($55,000,000). On October 25, 1996,
LVEN advised that it was asserting its rights afforded during the Option Period
by arranging the prescribed escrow account. On October 28, 1996, ITB announced
that LVEN forfeited its rights with respect to the purchase agreement because
they believed LVEN failed to satisfy certain contractual preconditions. LVEN
advised ITB that it contested its position. On February 2, 1997, the Company and
ITB announced that they had settled their disagreement. As described above, and
with the assistance of the Company, ITB has announced its plans for the
development of the Property as "CountryLand, USA", and had received a proposal
for $100 Million of financing which will be used, in part, for such development.
If the Property is not developed, or if the expected funding is not completed,
the Company believes it still maintains the rights under the option period
described above. In connection therewith, the Company has engaged an investment
banking firm, Standard Capital Group Inc., to seek funding necessary to provide
the alternative financing described above.
The Company is actively seeking other investments and acquisitions in
the gaming and lodging industries, and currently has several projects under
consideration, subject to further due-diligence and analysis. These investments
may include acquiring interests in casinos, hotels or other ancillary businesses
in the gaming industry. The Company can give no assurance that any of these
contemplated transactions will close or occur as the successful closing of any
of the contemplated transactions is subject to many variable factors, a
significant number of which are outside the control of the Company. The Company
will also continue to manage its cash flow interest as described above in the
former El Rancho Property site.
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Las Vegas Gaming Market and Marketing
Although there are various segments to the Las Vegas gaming market, the
largest segment in terms of revenue and the one in which the hotel to be
developed on the El Rancho site will compete is comprised of the hotel casinos
located in the heart of Las Vegas on Las Vegas Boulevard South, also known as
the Las Vegas Strip. Some of the newer hotel casinos on the Strip have attempted
to broaden their appeal to families and repeat visitors by adoption of a
theme-park atmosphere.
Competition
The gaming industry in the United States and Canada has experienced rapid
growth in recent years, and has not been limited to the traditional areas of
Nevada and Atlantic City, New Jersey. Casino gaming is currently permitted in a
number of states, including Colorado, Illinois, Indiana, Iowa, Louisiana,
Mississippi, Missouri, Montana, Nevada, New Jersey, South Dakota, and in
Windsor, Ontario, Canada, as well as on Indian lands in certain states. Other
jurisdictions may legalize gaming in the near future. New or expanded operations
by other persons can be expected to increase competition for the Company's
proposed gaming operations and could result in the saturation of gaming markets.
In particular, casinos and other gaming businesses in Las Vegas, Nevada compete
directly with those in Laughlin and Henderson, Nevada, which are rapidly
expanding markets. In addition, several jurisdictions in various states have
received proposals to permit Indian tribes to designate Indian land for the
purpose of building gaming facilities. As new gaming opportunities arise, new or
expanded operations by others can be expected to increase competition for the
Company, and any other gaming operations which the Company may develop or
acquire could result in the saturation of gaming markets. The gaming industry is
highly fragmented and characterized by a high degree of competition among a
large number of participants, many of whom may have greater financial,
management and other resources than the Company.
Broadly, the Company will compete with all hotel casinos in the Las Vegas
area and in other cities in Nevada for its gaming and hotel customers, including
several which have recently opened or have undergone or are undergoing major
expansions. Competition in the Las Vegas hotel casino industry is based on
location, price, ambience, quality of accommodations and facilities, and
ancillary attractions such as shows or amusement facilities. As of December 31,
1996, there were approximately 99,000 hotel rooms in Las Vegas, with
approximately 11,200 rooms being added in 1997. The Property's most direct
competition will be with other major hotel casinos in Las Vegas, namely the MGM
Grand, Treasure Island, The Mirage, The Riviera Hotel & Casino, Caesars Palace,
Luxor, Excalibur Hotel & Casino, Tropicana Resort & Casino, Circus Circus,
Sahara Hotel & Casino, Frontier, Stardust Resort & Casino, Aladdin Hotel, Desert
Inn, Sands Hotel & Casino, Flamingo Hilton Las Vegas, Bally's Casino Resort Las
Vegas, Hacienda Resort Hotel & Casino, Imperial Palace Hotel & Casino, and
Harrah's Las Vegas. As compared to these hotel casinos, the Hotel developed on
the El Rancho site will have slightly fewer rooms than the average, and will be
more highly leveraged and less well financed and established than some of its
competitors. Several large hotel casinos have recently opened or will soon open
in Las Vegas, and the effect of such openings and the increased number of hotel
rooms will increase competition.
Governmental Regulation - Nevada Gaming
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder and to licensing and regulatory control by the Nevada Gaming
Authorities. The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy which are
concerned with, among other things, (i) the character of persons having any
direct or indirect involvement with gaming, (ii) application of appropriate
accounting practices and procedures, (iii) maintenance of effective control over
the financial practices and financial stability of licensees, including
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, (iv) record keeping and reporting to the Nevada Gaming Authorities,
(v) fair operation of games, and (vi) the raising of revenues through taxation
and licensing fees.
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The Company must register with the Nevada Gaming Commission and be
found suitable and be granted all requisite licenses under the terms of the
Nevada Act to conduct a nonrestricted gaming operation in Nevada. The sale of
alcoholic beverages and the operation of a gaming establishment by the Company
in Las Vegas is subject to licensing, control and regulation by the applicable
local authorities. All licenses are revocable and not transferrable. The
agencies have the full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action could (and revocations would) have a
material adverse effect upon the operations of the Company.
The Company, or its subsidiaries, and Orion intend to apply for the
necessary governmental licenses, permits and approvals for the ownership and
operation of a casino. However, there can be no assurances that any licenses,
permits or approvals that may be required will be given or that once received,
they will not be suspended or revoked.
Media and Entertainment
The Company is active in the development of media related
opportunities, and is formulating a business plan to develop, produce, market
and distribute television and video programming. It is the current intention of
the Company to develop programming and technology that will respond to the new
business opportunities resulting from the current evolution of electronic
program delivery systems. The Company has also obtained a management contract to
manage all aspects of the entertainment activities at the proposed "CountryLand,
USA" Hotel and Casino, and will seek to manage entertainment activities at other
Las Vegas hotels, casinos, and venues.
Television and Video Programming
Revolutionary changes in program delivery, including fiber optic
cabling which will enable telephone and utility companies to become television
programming providers, direct broadcast satellite services, the Internet and
world wide web, and the expansion of foreign television channels and markets
have created an unprecedented demand for programming. The Company intends
specifically to act upon this increased need for television programming by
creating and packaging new program services and developing distribution
strategies based upon current industry dynamics and trends. To accomplish these
objectives, the Company has assembled a group of executives with vast experience
in program origination, production, and distribution operation and technologies.
It is the Company's intention to develop and provide programing to a
targeted group of these emerging electronic delivery systems that will be unique
in its scope and content. The majority of the Company's proposed program
channels may be dedicated to pay-per-view programming featuring primarily new
video movie releases. The Company intends to design a unique scheduling and
channel design for pay-per-view service that may approach desired "video on
demand" ("VOD") status for the most popular movie titles. The ability to offer a
selection of top video titles on almost a VOD basis is a feature greatly valued
in the electronic delivery industry due to resulting higher buy-rates which
translate directly into increased revenues. In addition to developing its near
VOD pay-per-view program service, the Company may package existing program
channels and distribution, currently in the early stages of development,
together with channels it may create independently or in partnership with
others.
The Company also intends to capitalize on the evolution of Las Vegas
into one of the world's premier entertainment centers by providing television
programming with fast-paced music and entertainment programming, featuring
excerpts from performances in Las Vegas, as well as throughout the United
States, interviews with personalities, information on Las Vegas gaming and
non-gaming attractions and related topics. This entertainment programming will
include segments dedicated to the merchandising of such goods and services as
Las Vegas travel packages, concert tickets, memorabilia and audio and video
recordings featuring entertainers that appear in the programming as well as
other entertainers. The Company intends to produce this programming primarily
using its own creative staff and third party crews on location in Las Vegas and
other remote locations as well as at production studios. The Company will be
required to obtain rights to use excerpts from Las Vegas shows and to contract
with performers directly for their services. No arrangements have been made to
obtain such rights or contracts with performers. The Company will also use stock
footage and segments of a program originally produced by LVEN for a television
show entitled "Las Vegas Tonight." The Company intends to use portions of this
program inventory to create certain segments. The Company intends to market to a
national audience and syndicate its programming utilizing the services and
contacts in the television industry of the Company's officers and other
employees. The Company ultimately plans to distribute its programming nationally
by satellite to various broadcast and cable television outlets by providing
programming seven days per week.
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The Company has not signed any formal agreements with television
stations for broadcast time and the Company does not expect to air programming
until at least three months after the completion of an offering to raise the
needed capital. The Company also has not signed any agreements for the
acquisition of any film rights. Inasmuch as the Company intends to increase its
level of activities it television and video production, it will be required to
make significant expenditures in connection with production and distribution of
its programming. The Company anticipates that it will need additional funds to
commence production of its programming and that losses will occur until such
time, if ever, as revenues generated are sufficient to offset the Company's
operating costs. There can be no assurance that the Company will be able to
raise additional funds and/or produce and distribute its programming or achieve
significant levels of revenue or profitable operations or that the Company will
be able to achieve any of its goals.
The primary sources of revenue are expected to be from service
subscription fees and advertisements on and commercial sponsorships of the
intended television programming, or from the sale and licensing to third parties
of any television or video programming developed. To date, no advertising or
sponsorship commitments, or film distribution contracts, have been obtained and
no assurances can be given that such commitments will be obtained in the future.
Live Entertainment Management
In connection with the sale of the El Rancho, and once the project has
been developed, completed and opened either under the "CountryLand, USA" theme
or another theme, the Company's LVCC subsidiary has the exclusive right to
manage all aspects of Orion's entertainment activities (including "CountryLand,
USA"). This would include; (i) responsibility for management and oversight of
booking all acts, performers, entertainers, movies, virtual reality rides and
other non-gaming attractions of any kind or nature at the property site, (ii)
arranging all advertising for all of Orion's advertising needs, and (iii)
managing all other entertainment venues for Orion. The term of the agreement is
for ten (10) years commencing on the date which is six (6) months prior to the
projected opening date of the property, and LVCC shall have the option to renew
the agreement for two (2) consecutive five year terms. The agreement provides
the Company with an annual fee of $800,000 subject to annual increases. LVCC
will also receive an additional (i) twenty-five percent (25%) of profits from
entertainment activities, (ii) ten percent (10%) of the cost of all advertising
placed by Orion, and (iii) booking fee equal to ten percent (10%) of gross
compensation paid to talent. The Company has agreed with Orion that at all times
during the term of the agreement, it will make available the services of Joseph
A. Corazzi, the Company's Chairman of the Board.
Electronic Media Delivery
The Company entered into an agreement on January 31, 1997 whereby it
acquired a 5% equity interest in Electric Media Co. Inc. (EMC) and a continuing
royalty in certain of its operations, for $400,000 plus the contingent issuance
of up to 5,500,000 shares of LVEN common stock as described below. EMC, along
with a joint venture partner/developer, is developing technology that if
successful, of which the Company can give no assurance, will allow delivery of
media, Internet and telecommunication services to customers all over the world,
utilizing existing power utility infrastructures. Field testing of this
technology will occur during 1997, and in connection therewith, the Company has
agreed to provide a guarantee up to $1,500,000 for the financing of certain
equipment necessary for the field tests. The equipment is returnable to the
vendor, without cost to the Company, should the test not be satisfactory. Upon a
successful field test of this technology, the Company is committed to deliver
500,000 restricted shares of its common stock to the developer of this
technology.
If the field tests are successful, EMC will begin worldwide marketing of this
technology, including the sale and distribution of addressable receiver boxes
that are necessary to receive the data communication. The Company will receive,
in perpetuity, a $25 per unit royalty for each receiver box sold, if any. Each
time the sale of these units generates $10,000,000 of net after tax profits, the
Company will deliver the developer an additional 500,000 restricted shares of
the Company's common stock, up to a maximum of 5,000,000 restricted shares. The
Company may terminate the agreement at its sole discretion, and have no further
liability to EMC or the developer.
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Competition.
Competition in the areas of television programming and live
entertainment is intense and the Company will face intense competition in all
areas of its media and entertainment operations. The Company's television
programming will compete not only against other television entertainment
sources, such as existing cable channels, but also against other television
programming in general and other forms of leisure time entertainment, such as
videocassette, radio and live entertainment. The Company will compete with major
companies in the television industry as well as with numerous smaller companies
for the services of performing artists and other creative and technical
personnel and creative material.
The Company's programming will compete with other first run
programming, network reruns and programs produced by local television stations.
The Company will face competition from companies that have been acquiring,
producing and distributing programs for several years, and many of these
companies have greater financial resources than those of the Company. The
Company also will compete with other companies for sale of television
advertising time and merchandising of goods and services. Should the Company's
programming and marketing efforts find wide public acceptance, it is likely that
one or more of such competitors will seek to emulate the Company's programming.
The Company will also face intense competition in the development of live
Las Vegas entertainment. The Company will face completion from long established
hotel casinos such as Caesars, The Mirage, Bally's, and The MGM Grand who have
been staging headline Las Vegas shows for years, as well as newer casinos such
as New York, New York, the Luxor and Treasure Island. These casinos are large,
well financed, known to the public as providing quality headline acts, and have
large venues. The Company will be competing against these casinos not only for
customers, but for headline talent, producers, and directors necessary to make a
successful show.
Employees
The Company currently has 3 officers and 5 other full-time secretarial and
administrative employees involved in corporate administration, accounting and
marketing and development. The Company also employs various employees and
consultants for gaming, financing, architectural and security and maintenance
matters who are engaged to work on either a consulting or part-time basis. If
the Company develops its television programming and live entertainment as
described above, it intends to employ 5 additional full-time employees, and up
to seven persons on a part time basis. Additional personnel will be hired as
needed, or on a project by project basis. None of the Company's employees are
represented by unions, and the Company believes that its employee relations are
good.
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Item 2.DESCRIPTION OF PROPERTY
The Company's headquarters are located at 1801 Century Park East, Suite
2300, Los Angeles, California 90067 and consists of 7,000 square feet of office
space, which it leases on a month-to-month basis from an unaffiliated party for
$8,500 per month. The Company also leases, on a month-to-month basis, certain
other office and storage facilities at an aggregate rental of $4,500 per month.
The Company sold on January 22, 1996, the assets and liabilities of the El
Rancho Hotel and Casino. The El Rancho consisted of a 1,006 room hotel, a 90,000
square foot casino and ancillary areas, a 52-lane bowling alley, a swimming pool
and a parking garage and was encumbered by a $12 million purchase-money deed of
trust as of October 31, 1995. The El Rancho is located in Las Vegas, Nevada at
2755 Las Vegas Boulevard South (also known as the Las Vegas Strip) on 20.86
acres on a quadrilateral parcel of land bounded by Las Vegas Boulevard South on
the west, Riviera Boulevard on the south, a vacant lot on the east, and the "Wet
and Wild" attraction on the north. The El Rancho was one of the first large
scale hotel-casinos built in Las Vegas, and was operated on a western theme by
its former owners.
Item 3.LEGAL PROCEEDINGS
On October 18, 1996, an unaffiliated third party filed a complaint
against the company in California Superior Court, County of Los Angeles, seeking
damages of $1,800,000, plus attorney fees, for breach of contract, breach of
implied contract, and certain damages the individual claims are due him under
terms of a 1992 retainer agreement. The Company believes there are no funds due,
and that the case is without merit. Management intends to vigorously defend the
lawsuit. Additionally, the Company has commenced action against the owners of
Patmore Broadcasting relating to an option to acquire a radio station in Las
Vegas, and intends to aggressively pursue the Company's position that it still
has a valid option to purchase the radio station.
The Company is not involved in, or a party to, any other material legal
proceedings at this time. At various times, the Company and its subsidiaries are
involved in various matters of litigation, including matters involving
settlement of fees and outstanding invoices, and consider these legal
proceedings not to be material and in the ordinary course of business.
Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of the year ended October 31, 1996.
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PART II
Item 5MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded on NASDAQ Stock Market since
February 20, 1992 under the symbol LVEN. The following table shows the range of
high and low bid quotations reported by NASDAQ in each fiscal quarter from
November 1, 1994 to December 31, 1996.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1995
Quarter ended January 31, 1995 $1.94 $0.97
Quarter ended April 30, 1995 $1.81 $0.63
Quarter ended July 31, 1995 $1.59 $0.81
Quarter ended October 31, 1995 $1.44 $0.66
Fiscal 1996
Quarter ended January 31, 1996 $1.25 $0.50
Quarter ended April 30, 1996 $0.84 $0.46
Quarter ended July 31, 1996 $0.75 $0.37
Quarter ended October 31, 1996 $0.43 $0.21
</TABLE>
The number of record holders of Common Stock as of January 31, 1997 was
approximately 786. On January 31, 1997, the high and low bid asked prices for
the Common Stock were $0.47 and $0.44 respectively.
Holders of Common Stock are entitled to receive dividends as may be
declared by the Company's Board of Directors. No contractual restrictions exist
on the payment of dividends. No dividends on the Common Stock have been paid by
the Company, nor does the Company anticipate that dividends will be paid in the
foreseeable future. Further, there can be no assurance that the proposed
operations of the Company will generate the revenues and cash flow needed to
declare a cash dividend or that the Company will have legally available funds to
pay dividends.
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Item 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Important Factors Relating to Forward Looking Statements. - In connection
with certain forward- looking statements contained in this Form 10-KSB and those
that may be made in the future by or on behalf of the Company which are
identified as forward-looking, the Company notes that there are various factors
that could cause actual results to differ materially form those set forth in any
such forward-looking statements. The forward-looking statements contained in
this Form 10-KSB were prepared by management and are qualified by, and subject
to, significant business, economic, competitive, regulatory and other
uncertainties and contingencies, all of which are difficult or impossible to
predict and many of which are beyond the control of the Company. Accordingly,
there can be no assurance that the forward-looking statements contained in this
Form 10-KSB will be realized or the actual results will not be significantly
higher or lower. These forward looking statements have not been audited by,
examined by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Form 10-KSB should consider these facts in
evaluating the information contained herein. In addition, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this Form
10- KSB. The inclusion for the forward-looking statements contained in this Form
10-KSB should not be regarded as a representation by the Company or any other
person that the forward-looking statements contained in this Form 10- KSB will
be achieved. In light of the foregoing, readers of this Form 10-KSB are
cautioned not to place undue reliance on the forward-looking statements
contained herein.
General
Background. The Company was formed in October 1990 to develop, produce
and distribute television programming utilizing Las Vegas themes. Upon receipt
of $4,657,241 of net proceeds from its initial public offering in February 1992,
LVEN commenced the development and production of the Las Vegas Tonight Show. The
first programming developed, called "Las Vegas Tonight," featured excerpts from
Las Vegas shows and was sold outside the United States. In connection with the
development of "Las Vegas Tonight" Management became aware that, while the
casino hotels on the Las Vegas Strip had adopted various themes, such as
Egyptian (at the Luxor), medieval (at the Excalibur Hotel & Casino) and Roman
(at Caesars Palace), there was no hotel-casino on the Las Vegas Strip with a
country music theme. In light of the popularity of country music and based on
management's experience in that genre and in the Las Vegas marketplace (acquired
in connection with developing "Las Vegas Tonight"), management believed that a
hotel casino utilizing a country music theme could be successful.
On November 24, 1993, the Company acquired the El Rancho, a 1,006-room
hotel with 90,000 square feet of casino and ancillary space and a 52-lane
bowling alley, located on the Las Vegas Strip. The purchase price for the El
Rancho was $36.5 million, including cash of $21.5 million, an 8% promissory note
(the "El Rancho Note") in the face amount of up to $12 million purchase money
mortgage secured by a deed of trust on the Property, and 2.3 million shares of
LVEN common stock valued at $3 million to a third party finder. On January 22,
1996, the Company sold the El Rancho to Orion Casino Corporation, a subsidiary
of International Thoroughbred Breeders, Inc. for $43,500,000 of cash, notes and
assumption of debt. It is the current intention of the new owners of the El
Rancho (the "Property") to develop and open the Property as "CountryLand, USA",
a major hotel and casino destination. As part of the sale agreement, once the
Property is opened and invested amounts have been recouped by Orion and the
Company, of which there can be no assurance will be achieved, the Company will
also receive a continuing fifty percent (50%) interest in the adjusted
cumulative cash flow as defined from the operation of the Property as so
developed for a period of six (6) years following the opening of the first
casino on the Property, and thereafter a twenty-five percent (25%) interest in
adjusted cash flow until such time as the Company has received an aggregate of
$160,000,000. In addition, commencing with the development of the Property, the
Company's LVCC subsidiary was granted an exclusive contract for up to twenty
(20) years to provide entertainment at the Property site which will provide for
minimum annual fees of $800,000 plus additional fees ( See "Item 1 - Description
of Business - General").
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The Company presently has two (2) operating subsidiaries: Casino-Co,
which in connection with the sale of the Property will maintain the continuing
interest in the cumulative adjusted cash flow as defined from operations of the
property, and; LVCC, which will maintain the entertainment contracts on the
Property and also continue to develop, produce, market and distribute television
and video programming.
Cash Requirements. The Company's current monthly operating cash
requirements are approximately $250,000, composed of general and administrative
expenses, salary and consulting fees and interest payments on existing debt. The
Company is also responsible for managing and paying the operating costs of the
Property, but is reimbursed by Orion on a monthly basis for these costs in
amounts sufficient to cover the company's cash outlay, which currently
approximates $60,000 per month but may increase to a greater amount as Orion
begins the renovation of this property. The Company may also incur other
consulting and professional fees in the development and financing of its
business activities. During the year ended October 31, 1996, the Company made
$1,476,000 in advances and deposits to certain businesses, individuals or others
to secure potential acquisitions or investments. Subsequent to October 31, 1996,
the Company has made an additional $500,000 of such advances. The Company is
currently in the process of evaluating these potential acquisitions or
investments for future development. The Company will continue to make deposits
or advances as it deems necessary to secure potential investments or business
acquisitions.
Subsequent to October 31, 1996, the Company's Casino-Co subsidiary made a
90-day secured loan of $2,900,000 to NPD Inc., an unaffiliated third party (See
"Liquidity and Capital Resources - Notes Receivable"). This loan, which bears
interest at 10% per annum, is due on April 15, 1997. Additionally subsequent to
October 31, 1996, the Company paid to Mr. Nunzio DeSantis, now the Chief
Operating Officer of ITB, $110,000 of loan fees and also granted to him options
to acquire 1,500,000 shares of the Company's Common Stock at an exercise price
of $1 per share, as consideration for providing a $6,000,000 standby funding
commitment for replacement financing on the Property (See "Item 1. Description
of Business; Casino and Gaming Operations").
As of January 31, 1997, the Company had approximately $9,200,000 in cash
and current notes receivable and believes that its current cash and receivables
(including funds expected to be received by April 15, 1997 by repayment of the
NPD Note Receivable) will be sufficient to meet its cash requirements for the
next 12 months, as well as the repayment of existing debt of $781,248 at January
31, 1997. However, these sources of cash may not be sufficient to enable the
Company to fund the expansion and commencement of operations of its planned
television programming. The Company may obtain such funds, if required, from a
public offering. If a public offering is not successful, the Company will be
required to seek other sources of funding. There can be no assurance such other
funding will be available on terms satisfactory to the Company or at all.
Results of Operations
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995 -
Continuing Operations
Revenues for the year ended October 31, 1996 increased by $85,228 to
$291,200 as compared to $205,972 for the corresponding period in 1995. Revenues
for the year ended October 31, 1996 consisted of $225,000 of fees earned under
an interim entertainment management agreement with Orion (such agreement did not
exist in 1995), and $66,000 earned in connection with renting out the parking
facilities while the Company owned the El Rancho property. Revenues for year
ended October 31, 1995 consisted of $151,000 earned in connection with renting
out the parking facilities at the El Rancho Hotel property site and
approximately $54,000 in fees earned from miscellaneous program sources.
Programming costs, which relate to write-downs made to the Company's
television programming library to reflect management's estimate of its net
realizable value, increased $82,561 to $805,061 during the year ended October
31, 1996 as compared to $722,500 in the corresponding period in 1995.
General and Administrative expenses decreased $3,642,581 to $3,202,893
during the year ended October 31, 1996 as compared to $6,774,448 in the
corresponding period in 1995. The majority of the decrease relates in part to
legal, accounting and professional fees previously incurred in connection with
investigating and negotiating various alternatives to developing the El Rancho
and various other business opportunities during the year ended October 31,
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1995. In connection therewith, professional and consulting fees decreased
$2,378,000 to $570,000 during the year ended October 31, 1996 as compared to
$2,948,000 for the corresponding period in 1995. Professional advisory and
investment banking fees also decreased $970,000 to $59,000 during the year ended
October 31, 1996 as compared to $1,029,000 in the corresponding period in 1995.
The majority of the decrease relates to 1995 fees that were incurred in
preparation of certain intended underwritings, a proposed spin-off of the
Company's LVCC subsidiary and public registration of its shares, and a potential
spin-off of the CountryLand USA subsidiary. These offerings were terminated
during 1996 and 1995 given the sale of the El Rancho. General and administrative
costs relating to the El Rancho decreased by $251,000 for the year ended October
31, 1996 as compared to 1995 due to the cessation of operating costs when the
Property was sold on January 22, 1996.
Significant general and administrative expenses are expected to continue
while the Company seeks new acquisitions and projects.
Interest Income and Expense. Interest income increased $374,183 to $495,350
for the year ended October 31, 1996 as compared to $121,167 for corresponding
period in 1995. The majority of the increase relates to (i) an increase in
interest earned on cash balances of $335,00 to $420,000 for the year ended
October 31, 1996 as compared to $85,000 in the comparable period in 1995,
and.(ii) interest of $75,000 earned on the Company's receivables due from Orion
during the year ended October 31, 1996, for which there was none in the
comparable period in 1995. The increase in interest income is consistent with
the increase in the average cash outstanding during the year ended October 31,
1996 as compared to the corresponding period in 1995. Interest expense and
finance costs decreased $144,504 to $537,081 for the year ended October 31, 1996
as compared to $681,585 for the corresponding period in 1995. The majority of
decrease related to a $137,000 decrease in interest expense to $205,000 for the
year ended October 31, 1996 as compared to $343,000 for the comparable period in
1995. The decrease in interest expense is consistent with the decrease in the
average indebtedness outstanding during the year ended October 31, 1996 as
compared to the corresponding period in 1995. Finance costs, which consist of
loan fees and stand-by financing fees, approximated $335,000 in each of the
years ended October 31, 1996 and 1995.
Other Income and Charges - Included in other income and charges for the
year ending October 31, 1996 is $625,000 which represents cash and the value of
800,000 restricted shares of the Company's Common Stock and 167,000 shares of
Common Stock of Satellite Networks Inc. paid in connection with settling claims
arising from arranging certain financing in connection with the initial
acquisition of the El Rancho Property site; a valuation allowance of $450,000
relating to advances made to Malbec, Inc. an unaffiliated third party, in
connection with the development of certain hotel properties in Miami Beach,
Fla.; $295,000 related to an adjustment to reflect the value of certain shares
of common stock previously issued for services; and $150,000 issued in
settlement of an outstanding loan and stock purchase agreement.
Reserve on disposal of El Rancho Hotel and Casino. On January 22 , 1996,
the Company sold the assets and certain liabilities of the El Rancho to Orion
Casino Corporation for consideration of $43,500,000 of cash, notes and
assumption of existing indebtedness. The Company previously reflected the
effects of the above transaction and provided an allowance of $9,000,000 as of
October 31, 1995. This allowance was reduced by $576,677 during the year ended
October 31, 1996 to reflect the actual settlement of all charges, relating
mainly to $611,000 of escrow funds that were returned to the Company upon
Orion's settlement of the Refinance Obligations (see "Liquidity and Capital
Resources, Refinance Obligations" )
Year Ended October 31, 1995 Compared to Year Ended October 31, 1994 -
Continuing Operations
Revenues for 1995 represented principally receipts earned in connection
with renting out the parking facilities at the El Rancho Hotel property site.
There were no corresponding revenues for the year ended October 31, 1994.
Programming costs, which relate to write-downs made to the Company's
television programming library to reflect management's estimate of its net
realizable value, increased $442,500 to $722,500 during the year ended October
31, 1995 as compared to $300,000 in the corresponding period in 1994.
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General and Administrative expenses increased $4,163,543 to $6,774,448
during the year ended October 31, 1995 as compared to $2,610,905 in the
corresponding period in 1994. The major reason for the increase was the expenses
related to investigating and negotiating various alternatives to developing the
El Rancho and various other business opportunities. In connection therewith,
professional advisory and investment banking fees increased $2,457,000 to
$2,513,000 from $56,000, accounting and legal fees increased $302,000 to
$427,000 from $125,000 and travel costs increased $384,000 to $408,000 from
$24,000 during the year ended October 31, 1995 as compared to the corresponding
period in 1994. Additionally, costs incurred in preparation of certain intended
underwritings increased $629,000 to $1,029,000 during the year ended October 31,
1995 as compared to $400,000 in the corresponding period in 1994. The increase
was due to legal, accounting and professional fees incurred in connection with
the intended spin-off of LVCC and public registration of its shares, and the
potential spin-off of CLND, and also includes a write-off of $542,000 of
offering costs previously deferred as of October 31, 1994.
Management salaries and consulting costs increased $851,000 to $1,513,000
during the year ending October 31, 1995 as compared to $662,000 in the
corresponding period in 1994. The increase is due to an increase in officers'
salary of $288,000 and consulting costs of $344,000 incurred in connection with
developing the operations of LVCC and CLND properties, and for the accrual of
$115,000 in retirement benefits under a plan which did not exist in 1994.
Interest Income and Expense. Interest income decreased $124,000 to $121,000
for the fiscal year ended October 31, 1995 as compared to $245,000 for fiscal
year 1994. The majority of the decrease related to the interest accrued on the
Lake Tropicana note receivable of $1,868,463. Interest of $37,000 was accrued on
this note in 1995 as compared to $118,000 of interest which was accrued in 1994.
Interest expense increased $151,000 to $343,000 for the fiscal year ended
October 31, 1995 as compared to $192,000 for fiscal year 1994. Approximately
$100,000 of the increase was directly attributable to the increase in the amount
of outstanding convertible debt during the period, and $44,000 was attributable
to interest accrued on $1,500,000 note to UK Foods which did not exist in 1994.
Additionally in the year ended October 31, 1995, the Company incurred
approximately $338,500 of loan fees and other financing costs as compared to
only $15,000 of such costs in 1994.
Other Income and Charges. Included in other charges as of October 31, 1995
is $500,000 allowance for reduction to market value of 4,000,000 shares of
common stock of Sky Scientific Inc; $33,000 loss on the sale of 25,000 shares of
American Network Group, Inc. common stock ; $72,850 for an additional allowance
against the Company's investment in Patmore Radio Broadcasting; $107,000
additional allowance against existing notes receivable, and $70,000 loss
relating to investments no longer pursued.
Reserve on disposal of El Rancho Hotel and Casino. On January 22 , 1996,
the Company sold the assets and certain liabilities of the El Rancho Hotel and
Casino to Orion Casino Corporation for consideration of $43,500,000 of cash,
notes and assumption of existing indebtedness. The Company has reflected the
effects of the above transaction as if it had occurred as of October 31, 1995
and accordingly provided an allowance of $9,000,000 for accounting purposes
reflecting an adjustment to the net realizable value of the El Rancho Property.
Liquidity and Capital Resources
The Company's cash requirements to date have been funded from proceeds
received in connection with the sale of shares of its common stock, warrants and
short-term borrowings. The Company's cash has been used for selling, general and
administrative expenses, and for investments and advances made to third paries.
Issuance of debt and equity. The Company sold 3,034,294 shares of its
Common Stock in a series of private placements made to non-U.S. (foreign)
purchasers, under the exemption of Regulation S of the Securities Act of 1933
during the year ended October 31, 1996 (all during the first quarter of fiscal
1996). The Company received net proceeds of $1,242,500 in 1996 from these
issuances. The Company also issued 604,651 shares of its common stock to
extinguish $252,500 of outstanding convertible bridge notes payable and accrued
interest during the year ended October 31, 1996. Also during the year ended
October 31, 1996 (during the first and second quarters), the Company issued
2,752,588 shares of its Common Stock valued at $1,369,135 for services provided
and to settle accounts payable.
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As of October 31, 1996, the Company had outstanding $1,056,444 of notes and
loans payable which are currently due and payable. Subsequent to October 31,
1996, $275,000 of this debt has been repaid. The Company intends to repay the
remaining outstanding notes, along with all accrued interest, during the current
year from its current cash balances. Also subsequent to year end, the Company
agreed to guarantee up to $1,500,000 of equipment financing in connection with
an investment it made in Electronic Media Corp.(See "Item 1, Media and
Entertainment, Electronic Media Delivery")
Refinance Obligations. In connection with the sale of El Rancho, the
Company refinanced the existing El Rancho indebtedness with a $14,000,000 13%
first mortgage note due SunAmerica Life Insurance Company on December 20, 1996.
In connection therewith, the Company issued to SunAmerica 1,912,588 shares of
its Common Stock. Orion assumed the Company's obligations under the refinance
note concurrent with the sale transaction (the "Refinance Obligations"). As part
of the sale agreement, the Company agreed to co-guarantee the assumed note for a
certain amount of time. The SunAmerica note was refinanced and retired by Orion
on June 4, 1996, and in accordance with the agreement, 500,000 shares of the
Company's Common Stock have been returned, and the co-guarantee of the note by
LVEN has been released. In addition to the above, the Company initially agreed
to be responsible for one-half (1/2) of the interest on the Refinance
Obligations, limited to its original stated maturity of one year at 13% interest
per annum. Such funds, aggregating $950,000, were escrowed at closing of the
sale of the El Rancho. Concurrent with the refinancing of the SunAmerica loan by
Orion on June 4, 1996, $339,000 of this escrow amount was paid to SunAmerica,
and the remaining $611,000 was returned to LVEN.
Notes Receivable. In connection with the sale of the El Rancho, the Company
received two promissory notes due from Orion and ITB as co-makers under the
notes. The first note was an 8% unsecured promissory note co-signed by Orion and
ITB in the principal amount of $6,500,000 which was paid in full March 15, 1996.
The second note is an 8% promissory note in the principal amount of $10,500,000,
secured by a subordinated junior position in the deed of trust on the El Rancho
Hotel and Casino Property. This note is due upon the successful raising of
financing to develop the Property by Orion, or upon the ultimate sale of the
Property. The Company expects that this note receivable should be collected from
the proceeds from Orion's $100,000,000 funding proposal; however, the Company
can give no assurance the closing of such funding will actually occur ( see Item
1, General " Casino and Gaming Operations").
If the Property is sold through foreclosure or other forced sale or based
upon mutual decision of Orion and the Company, the proceeds of such sale shall
be paid in the following order of priority: (i) first, to pay in full all
principal, interest and costs owing under the Refinancing Loan or any
substitution or additional mortgage refinancing thereof; (ii) second, to repay
Orion for its investment in the property or any additions thereto in the amount
of all cash payments comprising a part of the purchase price plus $2,000,000 and
any and all reasonable documented costs, expenses and any additional investment
in, or debt incurred in furtherance of the development of, the Property,
together with an accrued return thereon in the amount of eight percent (8%) per
annum; (iii) third, to pay the Company the outstanding balance of principal and
accrued interest owing under the Note, plus an additional $4,000,000, together
with an accrued return thereon in the amount of eight percent (8%) per annum.
Any excess will then be allocated fifty percent (50%) to Orion and fifty percent
(50%) to the Company.
As of October 31, 1996, the Company has outstanding two (2) separate notes
receivable of $1,868,000 ($3,736,000 in total) from MPTV, Inc. arising from the
sale of the Company's Lake Tropicana investment. The first note bears interest
at a rate of 8% per annum, is payable monthly, and is secured by a fifth
position in a deed of trust on the underlying time-share project. The first
interest payment is due one month after the borrower has completed certain
refinancing currently in process. The second note is unsecured and non-interest
bearing. Principal payments for both notes will be at a rate of $205 ($410 for
both notes) as each time-share interval is sold until August 1, 1998, when any
remaining outstanding principal is due in full. The notes contain a
cross-default provision so that a default under one note shall also be deemed a
default on the other. The joint venture has reorganized its debt position, and
with such financing, is anticipated to have the funds to commence development
and sale of the time share units. As a result of such reorganization, the
Company's secured note receivable moved up to a second position. As of October
31, 1996, the Company has provided an allowance of $2,929,511 against these
notes (including an allowance for imputed interest on the non-interest bearing
note).
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As of October 31, 1996, the Company had made advances of $912,606 to
Malbec, Inc., an unaffiliated company, for the purpose of developing and
operating a hotel project in Miami Beach, Florida. The advances accrue interest
at the rate of 10% per annum, are due July 31, 1997, and are secured by a first
security interest in a cash escrow account, after payment of all expenses (which
has a balance of $667,000 as of January 31, 1997). The Company has reevaluated
this project and has decided not to pursue development, and expects the escrow
account to be liquidated with the net amounts, after payment of all expenses, to
be returned to the Company. The Company has provided a $450,000 allowance
against this advance, for a net investment of $462,606 as of October 31, 1996.
On September 4, 1996, the Company loaned $300,000 to Tee One Up, Inc., an
unaffiliated company
developing television footage of actual golf "hole in ones" at selected golf
courses. Principal and interest at a rate of 17% per annum are payable in
monthly installments of $14,832 until maturity, November 1, 1998. In connection
with making this loan, the Company received a 3% equity interest in the common
shares of Tee One Up. The Company has given no value this investment for
financial statement purposes.
On January 15, 1997, the Company, through it's wholly-owned Nevada
subsidiary Casino-Co, made a 90-day secured loan of $2,900,000 to NPD, Inc,
("NPD"), in order to enable NPD to close the acquisition from Robert Brennan
("the Seller") of 2,904,016 shares (the "Shares") of the common stock of
International Thoroughbred Breeders, Inc. ("ITB"), representing twenty-five
percent (25%) of the outstanding stock of ITB. At the closing of such purchase
and sale, the shareholders of NPD, Nunzio DeSantis and Anthony Coelho, became
the Chairman of the Board and Chief Executive Officer, respectively, of ITB. The
sale of the Shares was instrumental to LVEN, as it will allow ITB to (i) meet
the requirements of a $100 Million funding proposal that would be used, in part,
for the renovation and opening by ITB of ITB's 21-acre Strip property in Las
Vegas, Nevada, formerly know as the El Ranch Hotel and Casino, in which the
Company has a continuing cash flow interest, and (ii) meet the requirements of
The New Jersey Racing Commission and Division of Gaming Enforcement for
continued racing licencing at ITB's New Jersey facilities. The Company believes
that the sale of the Shares will also facilitate ITB's application for Nevada
Gaming Licencing.
The loan to NPD is evidenced by a 10% Secured Promissory Note due on April
15, 1997 (the "NPD Note"). The NPD Note is secured by a security interest in and
to certain rights of NPD in and to the Shares, subject to a purchase money lien
in favor of the Seller for the balance of the purchase price owing to him in
respect of the sale of the Shares. In addition, 1,452,088 of the Shares are
subject to an existing purchase option in favor of a third party, and would
likely cease to provide collateral to the Company upon the exercise of such
option. The NPD Note is personally guaranteed by Mr. DeSantis.
Upon a default by NPD under its payment obligations to the Seller in
respect of the balance of the purchase price for the Shares, the Seller would be
free to exercise certain creditor's rights under a Pledge Agreement between the
Seller and ITB in respect of the Shares (the "Pledge Agreement"). Such actions
could have the effect of modifying the Company's security interest in such
collateral, which at all times is subordinated to and secondary to the rights of
the Seller. In the event that the Seller elects to foreclose on the Shares, the
Company will be obligated to execute all documents requested by the Seller to
reflect the discharge of the Company's security interest therein. In the event
of a sale by the Seller after a default, the Company's right in such
circumstance shall be limited to the right to receive any proceeds from such
sale over and above the amounts due the Seller under the Pledge Agreement. Upon
satisfaction of NPD's purchase money obligation to the Seller during the term of
the NPD Note, the Company would then have a first priority security interest in
the Shares.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required to be
included in Item 7 are set forth in the Index to Financial Statements..
Item 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
Item 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT.
The members of the Board of Directors of the Company serve until the next
annual meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors. The directors and
executive officers of the Company are set forth in the table below.
Name Age Position
Joseph A. Corazzi 47 Chairman of the Board, President, Chief Executive
Officer and Director of the Company; proposed Chairman
of the Board of LVCC
Carl Sambus 46 Executive Vice President, Chief Financial Officer,
Chief Operating Officer, Secretary, Treasurer and
Director of the Company; proposed Chairman of the
Board, Chief Executive Officer, Chief Financial
Officer and Director of CountryLand; and Chief
Financial Officer and Director of LVCC
Ken Scholl 59 President, Casino-Co.
Paul Whitford 55 Director of the Company.
Joseph A. Corazzi has been an executive officer and director of the Company
since October 1990 and of LVCC since May 1994. He has extensive experience in
the entertainment and marketing industry. In 1974, he founded Communications
Associates, Inc., which became one of the first suppliers of hotel/motel video
entertainment, using master antenna television systems to carry movies from 3/4"
videotape machines into hotel guest rooms. In connection with this business, Mr.
Corazzi pioneered the usage of 1/2" videotape machines, followed by the first
installation of 24 hour satellite transmission in lieu of videotape machines.
From 1981 to 1985, Mr. Corazzi was President and Chief Operating Officer, and
from 1985 to February 1989 he was Vice-Chairman of the Board, of Telstar
Corporation, and an executive officer of Telstar Satellite Corporation of
America ("Telstar"), which was engaged in the business of satellite programming
and distribution to cable television systems and to motel, hotel and other
private cable systems. From 1975 to 1982, Mr. Corazzi owned and operated several
cable television and private cable television systems throughout the southwest
United States. In 1985, Mr. Corazzi created Country Music Television ("CMT"),
the first all-country, all-music video programming service. CMT is currently
distributed to more than 20 million homes nationwide. From January 1987 to
December 1990, Mr. Corazzi was Chairman of SelecTV of California, Inc.
("SelecTV"), a wireless cable television operator in Los Angeles. From 1989 to
the present, Mr. Corazzi engages in the business of advising financially
troubled companies with respect to their reorganization under the U.S.
Bankruptcy Code. Bankruptcy petitions for both Telstar and SelecTV were filed
under Chapter 11 of the U.S. Bankruptcy Code in 1989. The plan of reorganization
for each of these companies was confirmed by the bankruptcy court in November
1992. Mr. Corazzi graduated from the University of New Mexico and completed
course work for his master's degree in communications at the University of
Wisconsin, Madison.
Carl A. Sambus has been an executive officer of the Company since October
1990, and of the Company's CountryLand subsidiary since November 1993 and of
LVCC since May 1994. Mr. Sambus has spent most of his professional career in the
cable industry, pay-per-view, pay television and satellite entertainment
industries in the United States. One year after joining Viacom International
("Viacom") in 1972, Mr. Sambus was placed in charge of Suffolk Cablevision, in
which capacity he conducted a test for the nation's first one-way addressable
pay-per-view system. In late 1977, Mr. Sambus was one of the five originators of
Viacom's adaption of its private pay television network into ShowtimeTM,
pioneering the cable delivery of movie entertainment on pay television. In that
capacity, he also helped negotiate Showtime'sTM merger with The Movie ChannelTM
to form the nation's second largest satellite pay television service. As
Showtime/The Movie Channel's Vice President of Business Development from 1977 to
1986, Mr. Sambus was in charge of finance and planning and supervising Viacom's
entrance into a host of ancillary markets, including SMATV, hotel and motel,
private cable and direct broadcast satellite markets. Since 1986, Mr. Sambus has
been an active partner in CLR Associates, a family investment and consulting
partnership specializing in logistical management and marketing services. CLR
Associates maintains an equity interest in various business'
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interests and its partners serve as officers and directors of several
private corporations. Mr. Sambus is a graduate of Marietta College with a BA in
Finance and Accounting.
Ken Scholl has been a President of the Company's Casino-Co Corporation
subsidiary since January 23, 1996. Since 1984, Mr. Scholl has been President of
Stanford Company, in Las Vegas, Nevada and from November 1992 until February
1993 he was an independent contractor with Minami Development, Inc. in
connection with the closing of the Dunes Hotel and Casino in Las Vegas, Nevada.
From July 1990 until June 1962, Mr. Scholl was the President and a Management
Consultant for the Peabody Hotel Group in Memphis, Tennessee, and from 1986
until 1996 he was the President and a partner in the Aristocrat Hotels, Inc. and
Aristocrat Hotels of Nevada, Inc. which operated the Sands Hotel in Las Vegas,
Nevada. Mr. Scholl was President and CEO of Princess Hotels International and
employed from November 1967 through 1978. Mr. Scholl held a Nevada State Gaming
License, and is a Licensed Nevada Real Estate Broker. Mr. Scholl is also a
director of International Thoroughbred Breeders Inc.
Paul Whitford has been a director of the Company since March 1, 1996. Mr.
Whitford is in private legal practice, concentrating in entertainment, taxation
and bankruptcy law. He has been a member of the Bar of the State of California
since 1978. Mr. Whitford received his Bachelor of Business Administration degree
from the University of North Texas and his Juris Doctor from San Fernando Valley
College of Law (now University of La Verne). Mr. Whitford has also been a
Certified Public Accountant since 1968, and is currently licensed in Texas.
Compliance with Section 16(a)
There were no corresponding transactions..
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Item 10. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to
present executive officers and as to all persons as a group who were executive
officers of the Company at any time during the year ended October 31, 1996. No
director receives any compensation for acting as such.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION(2)
- -------------------------------------------------------------------------------------------------
Awards Payouts All
------------------------- Other
Name and Other Annual Restricted Optional LTIP (3)
Principal Position Year Salary(1) Bonus Compensation Stock SARs(#) Payouts($)
- ------------------ ---- --------- ----- ------------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Corazzi, 1996 $550,000 -0- -0- -0- -0- -0- $124,000
President and Chairman 1995 $500,000 -0- -0- -0- 4,000,000 -0- $115,000
1994 $267,151 -0- -0- -0- 130,000(4) -0- -0-
Executive Vice 1996 $96,667 -0- -0- -0- -0- -0- -0-
President, Chief 1995 $80,000 -0- -0- -0- -0- -0- -0-
Financial Officer 1994 $73,863 -0- -0- -0- 250,000 -0- -0-
and Secretary
Ken Scholl, 1996 $120,000 -0- -0- -0- -0- -0- -0-
President, Casino-Co 1995 $120,000 -0- -0- -0- -0- -0- -0-
1994 $100,000 -0- -0- -0- -0 -0- -0-
All executive officers
as a group (3 Persons) 1996 $766,667 -0- -0- -0- -0- -0- $124,000
1995 $700,000 -0- -0- -0- 4,100,000 -0 $115,000
1994 $441,014 -0- -0- -0- 380,000 -0- -0-
</TABLE>
The company issued 200,000 shares of its Common Stock, valued at $125,000, to
James Sargent, a former director of its CountryLand Properties Inc. subsidiary,
for consulting fees during the year ended October 31, 1996. The Company paid to
Mr. Paul Whitford, director fees of $13,500. There were no other directors fees
(other than stated above) paid during the years ended October 31, 1996 or 1995.
(1)The amounts shown do not include the value of certain personal benefits
received in addition to cash compensation. The aggregate value of such
personal benefits received was less than ten percent (10%) of the total
cash compensation payable.
(2)The officers and directors have not participated in the Company's 1992 Stock
Option Plan and have no stock options or other long-term compensation
except as stated below.
(3)Represents amount accrued on Mr. Corazzi's retirement plan which entitles him
to an annual retirement benefit starting with the calendar month after his
retirement or termination, equal to fifty percent of his average annual
Company salary and bonus received in the twenty-four (24) month period
prior to his termination (the retirement plan becomes effective once Mr.
Corazzi has been employed 10 years, including any time pre-dating these
agreements)
(4)Does not include options to purchase 1,500,000 shares, which options were
canceled in fiscal 1995.
<PAGE>
The following table contains information concerning the grant of stock
options and employment related warrants to the named executive officers:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percentage of
Total Options
Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date
- ---- ------- ---------- ----- ----
Options Granted in Fiscal 1996;
None
Options Granted in Fiscal 1995;
Joseph Corazz 4,000,000 98% $1.00 June 1997
Dean Homayoun 100,000 2% $1.00 June 1997(1)
(1) These options have lapsed as a result of Mr. Homayouni's resignation in
September 1995.
</TABLE>
The following table contains information concerning the exercise of stock
options and employment related options and information in unexercised stock
options held as of October 31, 1995 by the named executive officers:
Options Exercises and Year-end Value Table
<TABLE>
<CAPTION>
Value of Unexercised
Number of unexercized In-the-Money Options
Options 7 Warrants at October 31, 1995
------------------ -------------------
Shares
Acquired On Value
Name Exercize Realized(1) Exercisable Non-Exercisable Exercisable(2)
- ---- -------- ----------- ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Joseph Corazz -0- -0- 4,130,000 -0 - - 0-
Carl Sambus -0- -0- 250,000 -0 -0-
- --------------------------------------------------------
(1)Market Value at time of exercise less exercise price.
(2)The average of the closing bid and ask prices of the Common Stock at October
31, 1996 was $.40 Value equals the difference between market value and
exercise price.
</TABLE>
The Company entered into a one year employment agreement on February 20, 1992
with Joseph Corazzi, the Chairman of the Board of the Company, providing for
annual salary of $80,000. The annual salary for Mr. Corazzi was increased to
$350,000 as of March 1, 1994. On March 1, 1995, the Company and its subsidiary,
LVCC, entered into two (2) separate five year employment agreements with Mr.
Corazzi, which provide for an annual aggregate salary of $550,000. The
agreements may be renewed by mutual agreement of the parties for successive
terms of one year and are subject to annual increases and bonuses at the
discretion of the Board of Directors. The agreements also entitle Mr. Corazzi to
participate in any employee benefit plans which may be offered in the future,
such as group life, health, hospitalization and life insurance, and prohibits
him from engaging in a business competitive with the Company during the term of
the agreement. Under the agreements, Mr. Corazzi's employment terminates upon
death or disability and may be terminated by the Company for "cause," which is
defined as the willful failure to perform duties, malfeasance, commission of a
felony, gross negligence, or breach of the employee's covenant not to compete or
maintain confidential certain information. Termination by the Company for any
other reason entitles the employee to receive his salary for the remaining term
of the agreements.
The employment agreements with Mr. Corazzi also provide for the following;
(i) a lump sum payment of $2,000,000 upon the consummation of a definitive
agreement by the Company and any potential purchaser providing for a change of
control, (ii), an annual retirement benefit starting with the calender month
after his retirement or termination, equal to fifty percent of his average
annual LVEN salary and bonus received in the twenty-four (24) month period prior
to his termination (plan becomes effective once Mr. Corazzi has been employed 10
years, including any time pre-dating the
19
<PAGE>
agreements), and (iii) an annual lump sum cash payment equal to 5% of earnings
before income taxes, depreciation and amortization of the LVCC subsidiary.
The Company entered into a one year employment agreement on February 20, 1992
with Mr. Sambus providing for an annual salary of $60,000. The annual salary of
Mr. Sambus increased as of March 1, 1994 to $80,000, and $100,000 as of January
1, 1996. The agreement with Mr. Sambus was renewed until February 8, 1997, and
may be renewed by mutual agreement of the parties for successive terms of one
year. All the agreements are subject to annual salary increases and bonuses at
the discretion of the Board of Directors. The employment agreements also entitle
these individuals to participate in any employee benefit plans which may be
offered in the future, such as group and life insurance.
The Company has no pension or other plans pursuant to which cash or non-cash
compensation was paid or distributed during the fiscal years ended October 31,
1996 or 1995 other than as described above for Mr. Corazzi.
In connection with the Company's initial public offering in February 1992,
Mr. Byron Lasky and Messrs. Corazzi and Sambus and Communications Associates
Partnership ("CAP"), a partnership of which Mr. Corazzi was the general partner,
escrowed with American Stock Transfer & Trust Company, New York, New York, as
depositary, an aggregate of 750,000 shares of Common Stock held by them (the
"Escrow Shares"). On March 2, 1994, Messrs. Lasky, Corazzi and Sambus
surrendered their rights to receive all Escrow Shares. Subsequently, the Company
issued five-year options under the Stock Option Plan to purchase 250,000 shares
of Common Stock granted to each of Messrs. Lasky and Sambus and options to
purchase 130,000 shares were granted to Mr. Corazzi. All such options are fully
vested and have an exercise price of $1.00 per share. A five-year option (not
under the Stock Option Plan) to purchase 1,500,000 shares was also granted to
Mr. Corazzi. On March 1, 1995, the Company canceled Mr. Corazzi's option to
acquire 1,500,000 shares. Mr. Corazzi was subsequently issued options to
purchase 4,000,000 shares of common stock of CountryLand Properties Inc. which
are transferrable to any new subsidiary formed to operate the gaming assets of
the Company, including Casino-Co. The 4,000,000 CountryLand Properties Inc.
warrants are fully transferable and convertible into options to purchase LVEN
Common Stock at $1.00 per share. These shares are not issuable in connection
with the "Stock Option Plan" described below.
Subsequent to October 31, 1996, Mr. Nunzio DeSantis, now the Chief Operating
Officer of ITB, was granted 1,500,000 options to acquire shares of the Company's
Common Stock at an exercise price of $1 per share. The options were issued as
part of the consideration for providing a $6,000,000 standby funding commitment
for replacement financing on the El Rancho Property Site (See "Item 1, Casino
and Gaming Operations"). These shares are not issuable in connection with the
Stock Option Plan described below.
The Delaware General Corporation Law permits a corporation, in its
Certificate of Incorporation, to exonerate its directors from personal liability
to the corporation or its stockholders for monetary damages for breach of the
duty of care as a director, with certain exceptions. The exceptions include
breach of the director's duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law, improper
declarations of dividends, and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation exonerates
its directors, acting in such capacity, from monetary liability to the extent so
permitted. This limitation of liability does not eliminate a stockholder's right
to seek non-monetary, equitable remedies such as an injunction or recision to
redress an action taken by directors. However, as a practical matter, equitable
remedies may not be available in all situations, and there may be instances in
which no effective remedy is available.
Stock Option Plan
The Company adopted the 1993 Stock Option Plan in February 1993. The Stock
Option Plan enables the Company to offer an incentive based compensation system
to key employees, officers, directors, consultants and to employees of companies
who do business with the Company. In the discretion of a committee comprised of
non-employee directors (the "Committee"), directors, officers and key employees
of the Company and its Subsidiaries or employees of companies with which the
Company does business become participants in the Stock Option Plan upon
receiving grants of stock options or awards of restricted stock or stock
appreciation rights.
20
<PAGE>
A total of 1,000,000 shares are reserved for issuance under the Stock Option
Plan, of which 150,000 shares are issuable under an option which has been
granted to an employee at $1.50 per share, and 770,000 shares under options
granted to officers and directors (see "Item 10 - Executive Compensation"), all
with an exercise price of $1.00 per share. The Company may increase the number
of shares reserved for issuance under the Stock Option Plan or may make other
material modifications to the Stock Option Plan without shareholder approval.
However, no amendment may change the existing rights of any option or award
holder. Any shares which are subject to an option but are not used because the
terms and conditions of the option are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option, may again
be used for options or awards under the Stock Option Plan. However, shares with
respect to which a stock appreciation right has been exercised may not again be
made subject to an option or award.
Stock options may be granted as non-qualified stock options or incentive
stock options, but incentive stock options may not be granted at a price less
than 100% of the fair market value of the stock as of the date of grant (110% as
to any 10% shareholder at the time of grant) and non-qualified stock options may
not be granted at a price less than 85% of fair market value of the stock as of
the date of grant. Restricted stock may not be awarded under the Stock Option
Plan in connection with incentive stock options. Incentive stock options may
only be issued to directors, officers and employees of the Company. Stock
options may be exercised during a period of time fixed by the Committee except
that no stock option may be exercised more than ten years after the date of
grant or three years after death or disability of the option holder, whichever
is later. In the discretion of the Committee, payment of the purchase price for
the stock acquired through the exercise of a stock option may be made in cash,
shares of Common Stock or delivery of recourse promissory notes or a combination
thereof.
Stock options granted under the Stock Option Plan may include the right to
acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option
grant contains the AO feature and if a participant pays all or part of the
purchase price of the option with stock, then upon exercise of the option the
participant is granted an AO to purchase, at the fair market value as of the
date of the AO grant, the number of shares of stock equal to the sum of the
number of whole shares used by the participant in payment of the purchase price
and the number of whole shares, if any, withheld by the Company as payment for
withholding taxes. An AO may be exercised between the date of grant and the date
of expiration, which will be the same as the date of expiration of the option to
which the AO is related. All of the 880,000 stock options granted to date have
included the AO feature.
Except as described above, stock appreciation rights and/or restricted stock
may be awarded in conjunction with, or may be unrelated to, stock options. A
stock appreciation right entitles a participant to receive a payment, in cash or
stock or a combination thereof, in an amount equal to the excess of the fair
market value of the stock at the time of exercise over the fair market value as
of the date of grant. Stock appreciation rights may be exercised during a period
of time fixed by the Committee not to exceed ten years after the date of grant
or three years after death or disability of the award holder, whichever is
later. Restricted stock requires the recipient to continue in service as an
officer, director, employee or consultant for a fixed period of time for
ownership of the shares to vest. If restricted shares or stock appreciation
rights are issued in tandem with options, the restricted stock or stock
appreciation right is canceled upon exercise of the option and the option will
likewise terminate upon vesting of the restricted shares.
21
<PAGE>
Item 1SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 31, 1997, the stock ownership
of all persons known to own beneficially five percent or more of the Company's
Common Stock and all directors and executive officers of the Company,
individually and as a group. Each person has sole voting and investment power
over the shares indicated, except as noted.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares
of Common Stock
Beneficially
Names and Addresses Owned Percent
- ------------------------------------------------------------------
Joseph A. Corazzi(1) 4,795,872 12.3.%
505 Marquette
Albuquerque, New Mexico 87102
Carl A. Sambus(2) 292,500 *
88 10th Street
Garden City, NY 11530
Ken Scholl 12,500 *
2805 Ashworth Circle
Las Vegas, Nevada 89107
Paul Whitford
1208 Cochise Drive
Arlington, Texas 76012 - *
All Directors and Executive Officers 5,100,872 13.0%
as a Group (4 persons)(3)
* Less than 1%
</TABLE>
(1) Includes 665,872 shares owned by Mr. Corazzi; 130,000 shares issuable
pursuant to an option granted to Mr. Corazzi under the Company's Stock Option
Plan, and 4,000,000 shares issuable under options not granted under the Stock
Option Plan. See "Certain Transactions."
(2) Includes options to purchase 250,000 shares of Common Stock granted to
Mr. Sambus.
(3) Includes options to purchase 250,000 shares of Common Stock granted to
Mr. Sambus, and options to purchase 4,130,000 shares granted to Mr. Corazzi.
By virtue of their share ownership and/or management positions, Messrs.
Sambus and Corazzi may be deemed "promoters" and "parents" of the Company as
those terms are defined in the rules and regulations under the Securities Act.
22
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 2, 1994, Messrs. Lasky, Corazzi and Sambus surrendered their
rights to receive 20,000 Escrow Shares each in exchange for (i) an increase in
the annual salaries payable to them under their employment agreements described
above, (ii) five-year options under the Stock Option Plan to purchase 250,000
shares of Common Stock granted to each of Messrs. Lasky and Sambus and to
purchase 130,000 shares granted to Mr. Corazzi and (iii) a five-year option (not
under the Stock Option Plan) to purchase 1,500,000 shares granted to Mr.
Corazzi. On March 1, 1995, the Company canceled the five year option Mr. Corazzi
had to acquire the 1,500,000 shares and instead granted Mr. Corazzi 4,000,000
options to purchase Common Stock of CountryLand Properties Inc. (transferable to
any new subsidiary that may be formed to operate the gaming assets of the
Company, including Casino-Co.). The 4,000,000 CountryLand Properties Inc.
warrants are fully transferable and convertible into options to purchase LVEN
Common Stock at $1.00 per share. These shares are not issuable in connection
with the Company's Stock Option Plan. All such options are fully vested and have
an exercise price of $1.00.
Salary and benefits due Joseph A. Corazzi amounting to $645,622 and
$701,739 has been accrued as of October 31, 1996 and 1995, respectively. This
amount includes an accrual for $124,00 and $115,000 for amounts due Mr. Corazzi
under his retirement plan as of October 31, 1996 and 1995, respectively. The
Company paid and reimbursed Mr. Corazzi $730,177 and $283,360 for accrued and
current salary during the years ended October 31, 1996 and 1995, respectively.
Such sums were due Mr. Corazzi from inception of the Company to October 31,
1996.
The company issued 200,000 shares of its Common Stock, valued at $125,000,
to James Sargent, a former director of its CountryLand Properties Inc.
subsidiary, for consulting fees during the year ended October 31, 1996. The
Company paid to Mr. Paul Whitford, director fees of $13,500. There were no other
directors fees (other than stated above) paid during the years ended October 31,
1996 or 1995.
On December 11,1996, Mr. Nunzio DeSantis, Chief Operating Officer of ITB,
was granted 1,500,000 options to acquire shares of the Company's Common Stock at
an exercise price of $1 per share. The options were issued as part of the
consideration for providing a $6,000,000 standby funding commitment for
replacement financing on the El Rancho Property. These shares are not issuable
in connection with the Stock Option Plan described below.
Ken Scholl, President of the Company's Casino-Co subsidiary, was named a
director of ITB on January 15, 1997.
23
<PAGE>
PART IV
Item 13EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits. The following exhibits of the Company are included herein.
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Agreement of Purchase and Sale by and between BRT, Inc. and the
Company for the El Rancho Hotel & Casino(9) 2.3 Letter Agreement,
dated as of January 22, 1996, between the Company, CountryLand
Properties, Inc., International Thoroughbred Breeders, Inc., and Orion
Casino Corporation, with respect to sale of El Rancho Hotel & Casino
(10)
3. Certificate of Incorporation and Bylaws
3.1 Certificate of Incorporation(1)
3.2 Bylaws(1)
3.3 Amendment to Certificate of Incorporation(5)
3.4 Adopted Amendment to Certificate of Incorporation regarding
preferred stock(9)
4. Instruments Defining the Rights of Security Holders
4.1 Form of Amended Warrant Agreement(5)
4.2 Form of Amended Unit Purchase Option(5)
4.3 Form of Amended Stock Escrow Agreement(2)
10.Material Contracts
10.1 Compensatory Plan for Directors and Officers, with schedule of
details(1)
10.2 Employment Agreement with Stan Irwin(1)
10.4 Employment Agreement with Carl A. Sambus(1)
10.11 1993 Stock Option Plan(7)
10.12 Stock Compensation Plan(7)
10.13 Employment Agreement with Joseph A.Corazzi(7)
10.15 Form of Mergers and Acquisitions Agreement with D.H. Blair
Investment Banking Corp.(formerly Exhibit 4.4)(1)
10.16 Finders Agreement with Anker Bank(9)
10.17 Joint Venture Agreement between the Registrant, through Pacific DNS,
Inc. and Consolidated Resort Enterprises, Inc.(9)
10.18 Form of Mergers and Acquisitions Agreement with D.H. Blair
Investment Banking Corp.(formerly Exhibit 4.4)(1)
10.19 Settlement Agreement with Winner's Entertainment, Inc.(9)
10.20 Loan Agreements between the Company and BP Group-$375,000 loan(9)
10.21 Loan Agreements between the Company and BP Group, Ltd.--$1,150,000
loan(9)
10.22 Loan Agreements between the Company and Duneden, Ltd.(9)
10.23 Agreement for Purchase and Sale of Joint Venture between Pacific
DNS, Inc. (a wholly Owned subsidiary of the Company), MPTV, Inc.
and Consolidated Resort Enterprises,Inc.(9)
10.24 Securities Purchase Agreement dated as of January 22, 1996 between
the Company, CountryLand Properties, Inc. and SunAmerica Life
Insurance Company, with exhibits(10)
10.25 Subordination Agreement dated as of January 22, 1996 between the
Company,CountryLand Properties, International Thoroughbred Breeders,
Inc., Orion Casino Corporation and SunAmerica Life
Insurance Company(10)
24
<PAGE>
10.26 Assignment and Assumption Agreement between CountryLand Properties,
Inc. and Orion Casino Corporation and acknowledged and agreed to
by SunAmerica Life Insurance Company(10)
10.27 Loan Agreement between NPD and Casino-Co Corporation dated January
15, 1997 with related Secured Promissory Note, and Security
Agreement, and Pledge Agreement.(11)
10.28 Guaranty of Nunzio DeSantis in favor of Casino-Co Corporation.(11)
10.29 Option of NPD, in favor of Casino-Co Corporation.(11)
10.30 Loan Agreement between LVEN and Malbec Inc. dated March 20, 1996
with related Secured Promissory Note and Security Agreement. (12)
10.31 Loan Agreement between Pacific DNS and Tee One Up Inc. dated
September 4, 1996 with related Secured Promissory Note and
Security Agreement. (12)
10.32 Joint Venture Agreement between Electronic Media Inc., Texas
Information Development Commission and William Luke Stewart. (12)
21.Subsidiaries(10)
(1) Filed with original filing of the Registration Statement on Form S-1,
File No. 33-39047 (the "1992 S-1)
(2) Filed with Amendment No. 3 to the 1992 S-1
(3) Filed with Amendment No. 4 to the 1992 S-1
(4) Filed with amendment No. 5 to the 1992 S-1
(5) Filed with Amendment No. 6 to the 1992 S-1
(6) Incorporated by reference to the Company's annual Report on Form 10-KSB
for the year ended October 31, 1992
(7) Filed with Post Effective Amendment No. 1 to the 1992 S-1, filed on
Form SB-2
(8) Filed with Registration Statement on Form S-1, File No. 33-72980, filed on
December 15, 1993
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October 31, 1994
(10)Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended October 31, 1995.
(11)Incorporated by reference to the Company's Current Report on Form 8-K dated
January 15, 1997.
(12)Filed herewith
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on February 6, 1997.
LAS VEGAS ENTERTAINMENT NETWORK, INC.
\s\ Joseph A. Corazzi
---------------------
Joseph A. Corazzi
Chairman
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on February 6, 1997.
Signature
\s\ Joseph A. Corazzi Chairman of the Board, President, Chief
- ------------------------
Joseph A. Corazzi Executive Officer and Director
(principal executive officer)
\s\ Carl A. Sambus
- ------------------------
Carl A. Sambus Executive Vice President, hief Financial
OfficerSecretary and Director (principal
accounting and financial officer)
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors........................................F-1
Consolidated Balance Sheets as of October 31, 1996 and
October 31, 1995 ..................................................F-2
Consolidated Statements of Operations for the
Years Ended October 31, 1996 and 1995.............................F-3
Consolidated Statement of Stockholders' Equity for the Years Ended
October 31, 1996 and 1995..........................................F-4
Consolidated Statements of Cash Flows for the
Years Ended October 31, 1996 and 1995............................. F-5
Notes to Consolidated Financial Statements............................F-6
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Las Vegas Entertainment Network, Inc.
We have audited the consolidated balance sheets of Las Vegas Entertainment
Network, Inc. and Subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Las Vegas
Entertainment Network, Inc. and Subsidiaries as of October 31, 1996 and 1995 and
the consolidated results of its operations, stockholders' equity and cash flows
for the two years then ended, in conformity with generally accepted accounting
principles.
HOLLANDER, GILBERT & CO.
Los Angeles, California
January 26, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
1996 1995
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS
$ 10,385,292 $ 789,338
------------ ------------
TOTAL CURRENT ASSETS 10,385,292 789,338
ASSETS HELD FOR SALE, net of associated
liabilities and allowances - Note 2 - 20,700,415
LONG TERM NOTE RECEIVABLE - Note 2 5,900,000 -
INVESTMENTS & ADVANCES - Note 3 1,024,312 370,150
NOTES RECEIVABLE - LAKE TROPICANA - Note 4 806,489 806,489
PROGRAMING AND FILM COSTS, Net of
amortization 180,000 805,061
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $180,981 (1996) and $78,370 (1995) 171,397 260,421
OTHER ASSETS 10,770 10,770
------------ ------------
$ 18,478,260 $ 23,742,644
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 144,650 $ 638,631
NOTES PAYABLE - Note 5 1,056,444 3,612,968
ACCRUED INTEREST PAYABLE 102,346 312,834
ACCRUED OFFICER'S SALARIES & BENEFITS 645,622 701,739
- NOTE 8
PATMORE DEPOSIT - Note 3 -- 327,150
------------ ------------
TOTAL CURRENT LIABILITIES 1,949,062 5,593,322
COMMITMENTS AND CONTINGENCIES - Note 8
STOCKHOLDERS' EQUITY: - Note 6
PREFERRED STOCK - SERIES A, AUTHORIZED
30,000,000 SHARES, ISSUED AND
OUTSTANDING - NONE - -
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING 34,898,349 (1996) AND
28,506,816 (1995) 34,895 28,503
ADDITIONAL PAID-IN CAPITAL 47,280,080 44,166,137
DEFICIT (30,785,777) (26,045,318)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,529,198 18,149,322
------------ ------------
$ 18,478,260 $ 23,742,644
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996 AND 1995
1996 1995
---- ----
<S> <C> <C>
REVENUES S 291,200 $ 205,972
COSTS AND EXPENSES
Programming 805,061 722,500
Selling - 9,585
General & Administrative 3,202,893 6,774,448
------------ ------------
TOTAL COSTS AND EXPENSES 4,007,954 7,506,533
LOSS BEFORE OTHER
INCOME AND (CHARGES) AND
PROVISION FOR DISPOSAL OF ASSETS
HELD FOR SALE (3,716,754) (7,300,561)
OTHER INCOME AND (CHARGES):
Interest Income 495,350 121,167
Other Charges - Note 7 (1,558,651) (800,447)
Interest and Finance Costs (537,081) (681,585)
------------ ------------
TOTAL OTHER INCOME AND (CHARGES) (1,600,382) (1,360,865)
------------ ------------
LOSS BEFORE PROVISION FOR
DISPOSAL OF ASSETS HELD FOR SALE (5,317,136) (8,661,426)
GAIN ON (PROVISION FOR) DISPOSAL
OF ASSETS HELD FOR SALE - Note 2 576,677 (9,000,000)
------------ ------------
NET LOSS $ (4,740,459) $(17,661,426)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 33,238,660 21,468,037
============ ============
LOSS PER SHARE OF COMMON STOCK $ (0.14) $ (0.82)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996 AND 1995
Common
Stock
------ Additional
Number Paid-in
of Shares Amount Capital Deficit Total
---------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, November 1, 1994 18,887,600 $18,888 $36,872,417 $(8,383,892) $28,507,413
Issuance of Common Stock
for Services 3,081,500 3,081 3,006,508 3,009,589
Sales of Common Stock 592,858 593 399,409 400,002
Conversion of Debt 5,944,858 5,941 3,887,803 3,893,744
Net Loss for the Year
Ended October 31, 1995 (17,661,426) (17,661,426)
---------- ------ ---------- ----------- ------------
BALANCE - October 31, 1995 28,506,816 28,503 44,166,137 (26,045,318) 18,149,322
Issuance of Common Stock
for Services 2,752,588 2,753 1,366,382 1,369,135
Sales of Common Stock 3,034,294 3,034 1,239,466 1,242,500
Conversion of Debt 604,651 605 251,895 252,500
Issuance of Warrants 256,200 256,200
Net Loss for the Year
Ended October 31, 1996 (4,740,459) (4,740,459)
-- --------- -------- ----------- ----------- ----------
BALANCE, October 31, 1996 34,898,349 $34,895 $47,280,080 $(30,785,777) $16,529,198
=========== ======= =========== ============= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996 AND 1995
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,740,459) $(17,661,426)
(Gain) Loss on Assets Held for Sale (576,677) 9,000,000
Depreciation 102,611 40,000
Amortization of Program Inventory 805,061 700,000
Adjustments to reconcile net loss
to net cash used in operating activities:
(Increase) Decrease in;
Program Inventory (180,000)
Other Assets 77,975
Increase (Decrease) in;
Accounts Payable (493,979) (199,162)
Accrued Officer's Salaries (56,117) 216,739
------------ ------------
CASH USED IN OPERATING ACTIVITIES (5,139,560) (7,825,874)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments & Advances (981,312) (43,000)
Increase in El Rancho Capitalized Costs (3,599,858)
Sale of El Rancho and Capitalized Costs 35,371,987
Lark Landing 72,850
Proceeds from sale of securities 151,952
Loss on securities held for sale 533,048
Acquisition of Property and Equipment (13,588) (26,533)
------------ ------------
CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 34,377,087 (2,911,541)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Notes Payable 850,000 5,028,000
Repayment of Notes Payable (3,156,524) (2,986)
Issuances and Sales of Common Stock 2,604,135 3,344,091
Issuances of Warrants 256,200
Decrease in Deferred Offering Costs 542,019
Issuance of Notes and Loans Receivable (12,400,000)
Collections on Notes and Loans Receivable 6,500,000
Loans and interest payable - El Rancho (14,094,895) 1,681,145
Interest Payable (200,489) 333,934
------------ ------------
CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES (19,641,573) 10,926,203
INCREASE IN CASH 9,595,954 188,788
CASH BALANCE - BEGINNING 789,338 600,550
------------ ------------
CASH BALANCE - ENDING $10,385,292 $ 789,338
============ ============
NON-CASH TRANSACTIONS
- ---------------------
Conversion of Notes Payable and
Accrued Interest to Equity $260,000 $3,959,244
Accrued Interest and Fees - El Rancho 695,832 413,750
Reclassification of Patmore Deposit 327,100 -
Reclassification of investment in 403,244
Lake Tropicana to Notes Receivable
Settlement of Accounts Receivable 500,000
and Payable - Investment
CASH PAID FOR
- -------------
Interest $405,847 $434,601
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Background and Business and Basis of Presentation - Las Vegas Entertainment
Network, Inc. ("The Company") was incorporated in October 1990, and is
engaged in the business of acquiring, developing and operating media and
gaming facilities and businesses. In prior years, the Company had been in the
development stage. The Company's primary project to date was the renovation,
expansion and redevelopment of the El Rancho Hotel & Casino (the "El Rancho"
or the "Property"), which was acquired on November 24, 1993, and is located
in Las Vegas, Nevada. On January 22, 1996, the Company sold the El Rancho to
a third party for $43,500,000 of cash, notes and assumption of debt, and will
also receive a continuing interest in the adjusted cash flow up to
$160,000,000 from the Property once it has been developed by the new owners
(see Note 2). In connection with the sale, the Company's Las Vegas
Communications Corporation subsidiary was granted the exclusive contract to
provide entertainment at the Property site, and accordingly will begin
developing Las Vegas style entertainment shows once the Property site has
been developed.
The Company is also active in the development of media related opportunities,
including formulating a business plan to develop, produce, market and
distribute television and video programming. The Company is also
investigating other potential businesses for acquisition in the
entertainment, lodging, or communications industry.
Principles of Consolidation - The accompanying financial statements include
the accounts of Las Vegas Entertainment Network Inc. (LVEN), and its
wholly-owned subsidiaries; CountryLand Properties, Inc. (CLND), Las Vegas
Communications Corp. ("LVCC"), Las Vegas Development Corporation, Casino-Co
Inc. and Pacific DNS, Inc; and its majority owned subsidiary, Satellite
Networks Inc. (SNI). All significant intercompany transactions and balances
have been eliminated.
Programming and film costs- Programming and film costs include all the
acquisition, production and exploitation costs incurred in the development of
the Company's television and video programming, and are stated at the lower
of unamortized cost or estimated net realizable value. Such costs are
amortized in the proportion that revenue recognized during the year for each
program or film bears to estimated total revenue to be received from all
sources in accordance with the individual film forecast method. Estimated
total revenues and costs are reviewed on a periodic basis and are revised, if
warranted, based upon management's appraisal of current market conditions.
When necessary, unamortized program and film costs are written down to net
realizable value based upon this assessment, where applicable.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is provided primarily on a straight line basis over the
estimated useful lives of the related assets.
Revenues - Revenues are recognized when earned, and consist of fees earned
under the Company's interim entertainment management agreement (see Note 2),
and fees earned from renting out the parking facilities at the El Rancho
Property site.
Earnings (Loss) Per Share - Earnings (loss) per common share is based upon
the weighted average number of common and common equivalent shares
outstanding during the period. For all periods presented, all outstanding
warrants, options and other common stock equivalents were anti-dilutive, and
accordingly, were not included in the per share calculation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
F-6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk - As of October 31, 1996, financial instruments
which potentially subject the Company to concentrations of credit risk are
cash and cash equivalents, which are mostly comprised of over night
repurchase agreements with high credit quality financial institutions, The
amount of cash and cash equivalents on deposit in any one institution that
exceeds federally insured limits is subject to credit risk. At October 31,
1996, the Company had approximately $10,000,000 on deposit in two
institutions that was subject to such risk. The Company has also made certain
advances to unaffiliated third parties where the company believes it has
obtained sufficient underlying collateral.
Accounting for Stock Based Compensation - In October 1995, the Financial
Accounting Standards Board (the "FASB") issued SFAS 123, "Accounting for
Stock Based Compensation," which is effective for fiscal years beginning
after December 15, 1995. Under SFAS 123, companies can elect, but are not
required, to recognize compensation expense for all stock-based awards to
employees, using a fair value methodology. The Company will implement the
disclosure only provisions of the fair value method for awards to employees
in the fiscal year beginning November 1, 1996, as permitted by SFAS 123. The
Company will continue to account for stock-based awards to employees under
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees." SFAS 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. Adoption on November 1, 1996 of the above is not expected to have
a significant effect on the Company.
Accounting for Impairment of Long Lived Assets - The Company adopted
Financial Accounting Standards ("SFAS") No. 121 "Accounting for Impairment of
Long Lived Assets to be disposed of" on November 1, 1995. SFAS No. 121
established accounting standards that require that long-lived assets and
certain identifiable intangibles held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Adoption of SFAS No.
121 had no significant impact on the Company.
Re-classifications - Certain 1995 amounts have been re-classified to
conform with 1996 presentation.
2. ASSETS HELD FOR SALE
On January 22, 1996 the Company sold the assets and certain liabilities of
the former El Rancho Hotel and Casino to Orion Casino Corporation ("Orion"),
a wholly-owned subsidiary of International Thoroughbred Breeders Inc.
("ITB"), for consideration of $43,500,000. The Company also received a
continuing interest in the future adjusted cumulative cash flow of the
property as defined, if any, of up to $160,000,000 as described below. The
purchase price was paid as follows: $12,500,000 paid at closing in cash; (ii)
an 8% unsecured promissory note in the principal amount of $6,500,000 which
was paid in full on March 15, 1996; (iii) an 8% promissory note in the
principal amount of $10,500,000, secured by a subordinated junior position in
assets of the El Rancho Hotel and Casino (which may be further subordinated
if additional borrowing is made against the property), and is due upon the
successful raising of financing to develop the Property (see "Development
Plans" below), or upon the ultimate sale of the Property, and (iv) assumption
of existing mortgage indebtedness and accrued interest of $14,000,000. As of
October 31, 1996, the Company has provided an allowance of $4,600,000 against
the remaining note.
Once the Property has been developed by Orion (see "Development Plans"
below), of which there can be no assurance will be achieved, the Company will
receive as additional consideration for entering into the sale agreement (but
not as part of the Purchase Price for the assets) a fifty percent (50%)
interest in the adjusted cumulative cash flow (as defined) from the operation
of the Property as so developed for a period of six (6) years following the
opening of the casino on the Property and the commencement of operations, and
thereafter a twenty-five percent (25%) interest in adjusted cash flow from
operations until such time as it has received an aggregate of $160,000,000,
but only after Orion and the Company first receive 100% of the adjusted cash
flow
F-7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
until all invested amounts, plus $8,000,000, have been recouped, plus any
other additional costs incurred, together with interest thereon at the rate
of eight percent (8%) per annum from the closing date.
Additionally, commencing with the development of the Property, the Company's
LVCC subsidiary was granted an exclusive contract to provide entertainment at
the Property site, subject to meeting certain profitability criteria. This
would include; (i) responsibility for management and oversight of booking all
acts, performers, entertainers, movies, virtual reality rides, and other
non-gaming attractions, of any kind or nature at the property site, (ii)
arranging all advertising for all of the properties needs, and (iii),
managing all other entertainment venues for Orion. The term of the agreement
is for ten (10) years commencing on the date which is six (6) months prior to
the opening date of the property, and LVCC shall have the option to renew the
agreement for two consecutive five year terms. The agreement provides LVCC
with an annual fees of $800,000 subject to annual increases. LVCC will also
receive an additional; (i) twenty- five percent (25%) of profits from
entertainment activities, (ii) ten percent (10%) of the cost of all
advertising placed by Orion, and (iii) booking fee equal to ten percent (10%)
of gross compensation paid to talent.
For October 31, 1995 Financial Statement purposes, the net assets of the El
Rancho Hotel and Casino were segregated on the Balance Sheet as "Assets Held
for Sale" as follows;
<TABLE>
<CAPTION>
<S> <C>
Hotel and Casino Assets;
------------------------
Original purchase price (1) $36,500,000
Other purchase related costs 3,847,450
Capitalized interest 3,447,860
-----------
Total Assets 43,795,310
-----------
Hotel and Casino Liabilities;
-----------------------------
Loan payable 13,350,000
Accrued Interest 413,751
Assessment Payable 331,144
Provision for loss on disposal 9,000,000
----------
Total Liabilities 23,094,895
----------
Net Assets $20,700,415
===========
</TABLE>
(1) On November 24, 1993, the Company acquired the El Rancho Hotel and
Casino, a 1,006-room hotel with 90,000 square feet of casino and ancillary
space and a 52-lane bowling alley, which is located in Las Vegas, Nevada, on
the Las Vegas Strip at 2755 Las Vegas Boulevard South. The purchase price
for the El Rancho was $36.5 million, including a cash payment of $21.5
million, issuance of a promissory note in the face amount of $12 million and
the issuance of 2,300,000 shares of Company common stock to a third party
valued at $3 million.
(2) The El Rancho property had been encumbered by a first mortgage
promissory note in the face amount of $12,000,000, which was initially due
November 24, 1994, and was secured by the real and personal property assets
comprising the former El Rancho Hotel & Casino. On January 22, 1996, the
Company replaced this loan with a one year, 13%, $14,000,000 mortgage note,
secured by a first deed of trust on the El Rancho Property, due SunAmerica
Life Insurance Company. In connection therewith, the Company issued to
SunAmerica 1,912,588 shares of its Common Stock. This note was assumed by
Orion as part of the El Rancho sale agreement. As part of the sale
agreement, the Company agreed to co-guarantee the assumed note for a certain
amount of time. The SunAmerica note was refinanced and retired by Orion on
June 4, 1996, and in accordance with the agreement, 500,000 shares of the
Company's Common Stock have been returned, and the co-guarantee of the note
by the Company has been released. In addition to the above, the Company
initially
F-8
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreed to be responsible for one-half (1/2) of the interest on the Refinance
loan, limited to its original stated maturity of one year at 13% interest
per annum. Such funds, aggregating $950,000, were escrowed at closing of the
sale of the El Rancho. Concurrent with the refinancing of the SunAmerica
loan by Orion on June 4, 1996, $339,000 of this escrow amount was paid to
SunAmerica, and the remaining $611,000 of was returned to the Company.
(3) Assessments payable represent amounts due the city of Las Vegas for
general roadway improvements made during the year ended October 31, 1995.
This assessment was assumed by Orion as part of the El Rancho sale.
The Company previously recorded an allowance of $9,000,000 as of October 31,
1995 to reflect the net realizable value of the El Rancho Hotel and Casino
based on the January 22, 1996 sale. This allowance was reduced by $576,677
during the year ended October 31, 1996 to reflect the actual settlement of
all charges.
Development Plans
On January 15, 1997 ITB announced that they had received a $100,000,000
funding proposal, the proceeds of which will be used, in part, for the
renovation and opening of the former El Rancho Hotel and Casino site as an
international country music attraction called "CountryLand USA", a major
destination hotel and casino. The proposed funding is subject to the
execution of a definitive loan agreement between ITB and the proposed
lender, which the Company can give no assurance will be made. The proceeds
of this loan are anticipated to be sufficient to renovate and reopen the
Property site, as well as repay the Company's remaining outstanding note
receivable. ITB had previously announced that it intended to develop the El
Rancho property under a "Starship Orion" multiple-casino theme. It was
estimated that the total cost of completion would be approximately 1 billion
dollars and that ITB intended to develop the property with up to as many as
six partners. ITB had not engaged any partners for its "Starship Orion"
theme development, and will now develop the property under a more modest
"CountryLand, USA" theme.
In accordance with the initial sale agreement, if by October 25, 1996 (i)
Orion had not closed on or received permanent financing and obtained the
required lease commitments to develop the "Starship Orion" , and (ii) and
has not closed or received a firm commitment for the alternative financing,
and if CLND has arranged for the refinancing of the refinance loan and
places into an escrow account amounts sufficient to cover the financing and
carrying costs of the refinance loan and the operating costs of the property
for either a six month or year period (the "option period"), LVEN may either
(i) appoint and authorize a reputable commercial real estate broker to sell
the property at an amount, after expenses, in excess of the underlying
mortgage and invested amounts of both Orion and LVEN, or (ii) arrange on
behalf of Orion, in conformity with prevailing financing terms and
conditions fro major Las Vegas hotel/casino projects, alternative financing
of not less than $55,000,000. On October 25, 1996, LVEN advised that it was
asserting its rights afforded during the Option Period by arranging the
prescribed escrow account. On October 28, 1996, ITB announced that LVEN
forfeited its rights with respect to the purchase agreement because they
believed LVEN failed to satisfy certain contractual pre-conditions. LVEN
advised ITB that it contested its position. On February 2, 1997, the Company
and ITB settled their disagreement. As described above, and with the
assistance of the Company, ITB has announced its plans for the financing and
development of the El Rancho site as "CountryLand, USA" and had received a
proposal of $100,000,000 of financing which, if funded, will be used, in
part, for such development. If the Property is not developed, or if the
expected funding is not completed, the Company believes it still maintains
the rights under the option period described above. In connection therewith,
the Company has engaged an investment banking firm to seek funding necessary
to provide the alternative financing described above.
If Orion, with the consent of the Company, sells the Property prior to the
commencement of casino operations or if the Property is sold through
foreclosure or other forced sale, the proceeds of such sale shall be paid in
the following order of priority: (i) first, to pay in full all principal,
interest and costs owing under the current $14,000,000 mortgage refinancing;
(ii) second, to repay Orion for its investment in the property or any
F-9
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
additions thereto in the amount of all cash payments comprising a part of
the Purchase price plus $2,000,000 and any and all reasonable documented
costs, expenses and any additional investment in, or debt incurred in
furtherance of the development of, the Property, together with an accrued
return thereon in the amount of eight percent (8%) per annum; (iii) third,
to pay the Company the outstanding balance of principal and accrued interest
owing under the remaining note, plus $4,000,000 and any documented costs,
expenses and any additional investment in, or debt incurred in furtherance
of the development of, the Property, together with an accrued return thereon
in the amount of eight percent (8%) per annum from closing; (iv) fourth, to
pay Orion $2,000,000 together with an accrued return thereon in the amount
of eight percent (8%) per annum from closing and (v) fifth, any excess to be
divided fifty percent (50%) to Orion and fifty percent (50%) to the Company,
provided however, that if the property is sold after January 25, 2001, in
order for the Company to receive its fifty percent (50%) share from and
after such date, the Company must pay on an ongoing basis fifty percent
(50%) of the carrying costs of the property, including interest, taxes,
maintenance, and insurance.
3. INVESTMENT AND ADVANCES
Investments and advances consist of the following as of October 31, 1996
and 1995;
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
(A) Malbec, Inc. $ 462,606 $ 43,000
(B) Tee One Up, Inc 300,000 -
(C) Orion Inc. 261,706 -
(D) Patmore Broad - 327,150
----------- ----------
$1,024,312 $370,150
=========== ==========
</TABLE>
(A) During 1996, the Company made advances of $912,606 to Malbec, Inc., an
unaffiliated company, for the purpose of developing and operating a hotel
project in Miami Beach, Florida. The advances accrue interest at the rate of
8% per annum, are due July 31, 1997, and are secured by a first security
interest in a cash escrow account (which has a balance of $667,000 as of
January 31, 1997). The Company has re-evaluated this project and has decided
not to pursue development, and expects the escrow account to be liquidated
with the net amounts, after payment of all expenses, to be returned to the
Company. The Company has provided a $450,000 allowance against this advance,
for a net investment of $462,606 as of October 31, 1996.
(B) On September 4, 1996, the Company loaned $300,000 to Tee One Up, Inc., an
unaffiliated company developing television footage of actual golf "hole in
ones" at selected golf courses. Principal and interest at a rate of 17% per
annum are payable in monthly installments of $14,832 until maturity,
November 1, 1998. In connection with making this loan, the Company received
a 3% equity interest in the common shares of Tee One Up. The Company has
given no value to this investment for financial statement purposes.
(C) Advances to Orion Inc. represent amounts currently due the Company for
monthly entertainment management fees, and for the reimbursement for certain
operational advances made for the El Rancho Property.
(D) The Company acquired an option to acquire Patmore Radio Broadcasting for
$515,258 during the year ended October 31, 1993. Notice of exercise of the
option by LVEN was given in September 1993, with the closing originally
scheduled to occur by March 31, 1994. Patmore alleges that the purchase
option expired in March 1994, and informed the Company they considered the
purchase option as terminated. The Company received $327,150 of unsolicited
funds from Patmore in 1994 in an effort by Patmore to terminate LVEN's right
to purchase the radio station. Management reflected the $327,150 as a
liability on the balance sheet at October 31, 1995. The Company recorded a
reserve of $188,108 against its investment resulting in a net investment of
$327,150 at October 31, 1995.
F-10
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management became aware that Patmore attempted to sell the Station to
Compass Communications on November 7, 1995, and obtained a temporary
restraining order to block the sale of the station on February 23, 1996.
However, on March 6, 1996 the restraining order was dissolved, allowing
Patmore the ability to proceed with its sale. As of October 31, 1996, the
Company has applied the $327,150 liability as an offset to its investment in
Patmore. Management still considers its purchase option as valid, and
continues to investigate and pursue various options.
4. NOTES RECEIVABLE - LAKE TROPICANA
Notes receivable - Lake Tropicana consist of the following as of October
31, 1996 and 1995;
1996 1995
Lake Tropicana $3,736,000 $3,736,000
Less allowances for valuation
and imputed interest 2,929,511 2,929,511
---------- ----------
$806,489 $806,489
========== ==========
On July 24, 1993, the Company acquired for $806,488 a 45% interest in a
venture which owns a 184 unit apartment complex in Las Vegas, Nevada. The
complex is being converted into vacation interval ownership (time-share)
project. During 1994, the managing general partner of the joint venture, a
subsidiary of MPTV, Inc., agreed to purchase one-half of the Company's
interest (22.5%) for $1,868,643. The purchase price was payable by a
promissory note bearing interest at a rate of 8% per annum, secured by a
deed of trust on the property. During 1994 the managing general partner
filed for bankruptcy protection, and management recorded an allowance of
$1,584,172 against the $1,987,417 receivable (principal of $1,868,643 and
interest receivable of $118,774) for a net receivable of $403,245 at October
31, 1994.
During 1995, the project emerged from bankruptcy protection and reorganized
its debt with its creditors. As part of the reorganization, the Company
replaced its original $1,868,000 principal note with a new note of the same
amount dated March 22, 1995, and sold to MPTV its remaining 22.5% interest
in the project for an additional note of $1,868,000. Accordingly, as of
October 31, 1996 and 1995, Notes Receivable - Lake Tropicana represent two
(2) separate notes payable to the Company of $1,868,000 each. The first note
bears interest at a rate of 8% per annum, payable monthly, and is secured by
a fifth position in a deed of trust. The first interest payment is due one
month after the borrower has completed certain refinancing currently in
process. The second note is unsecured and non-interest bearing. Principal
payments for both notes will be at a rate of $205 ($410 for both notes) as
each time-share interval sold until August 1, 1998, when any remaining
outstanding principal is due in full. The notes contain a cross-default
provision so that a default under one note shall also be deemed a default on
the other. As of January 15, 1997, the joint venture had reorganized its
debt position, and with such financing, anticipates it will have the funds
to commence development and sale of the time share units. Concurrent with
such reorganization, the Company's secured note receivable moved up to a
second position.
F-11
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consist of the following as of October 31, 1996 and 1995;
<S> <C> <C>
1996 1995
----------- --------
(A) Convertible Bridge Loans $1,050,249 $ 778,000
(B) BP Group - 1,325,000
(C) UK Foods - 1,500,000
Other 6,195 9,968
--------- ---------
Total $1,056,444 $3,612,968
========== ==========
</TABLE>
(A) Convertible bridge loans consist of five (5) one-year unsecured notes.
The notes, which are currently due and payable, accrue interest at a rate
of 8% per annum until the principal and accrued interest are paid. The
notes and any accrued interest are convertible, at the lender's option,
into shares of the Company's common stock at a price of $1.25 per share, or
approximately 90% of the market price, whichever is less, at any time prior
to the repayment by the Company. Subsequent to October 31, 1996, $275,000
of these notes were repaid.
(B) The BP Group note consisted of a $1,325,000, 8% unsecured bridge loan.
The note and all outstanding interest was repaid in full on February 20,
1996.
(C) The UK Foods note consisted of a $1,500,000, 8% unsecured bridge loan.
The note and all outstanding interest was repaid on January 31, 1996.
Consolidated interest expense for the years ended October 31, 1996 and
1995, excluding any interest capitalized, was $205,352 and $343,085,
respectively. Interest expense of $2,548,351 was capitalized during the
year ended October 31, 1995.
6. STOCKHOLDERS' EQUITY
Description of securities - The Company's authorized capital stock consists
of 50,000,000 shares of Common Stock, at $.001 per share par value, of which
34,898,349 and 28,506,816 shares of common stock were issued and outstanding
as of October 31, 1996 and 1995, respectively. The Company has also
authorized 30,000,000 shares of Preferred Stock, par value $.001 per share,
none of which was outstanding during the years ended October 31, 1996 and
1995. The Board of Directors of the Company is authorized to determine the
number and designation of one or more series of Preferred Stock and the
voting powers, rights, preferences, qualifications, limitations or
restrictions and the shares of any such series.
Issuances of common stock - The Company has made the following issuances of
common stock during the years ended October 31, 1996 and 1995;
Shares Issued for Services - The Company issued 2,752,588 shares of its
Common Stock for services provided and to settle accounts payable during
the year ended October 31, 1996 (during the first and second quarters of
fiscal 1996) and 3,081,500 shares of its Common Stock for services provided
and to settle accounts payable during the year ended October 31, and 1995.
The shares were valued at $1,369,135 and $3,009,589, respectively, for the
years ended October 31, 1996 and 1995. The shares were issued at prices
ranging from $.40 to $.63 per share during 1996 and from $.70 to $1.50 per
share in 1995. The shares were valued at the average bid market price for
the shares 10 days prior to issuance or the estimated selling price. Since
inception, the Company has issued 5,230,885 shares valued at $5,860,677 at
an average price ranging from $.40 to $5.63 per share.
F-12
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in the 1996 issuance of the Company's common shares described
above were 1,412,588 shares of common stock issued to SunAmerica Insurance
Company in connection with arranging the financing of the sale of the El
Rancho Hotel and Casino described in Note 2. The Company initially issued
1,912,588 shares to Sun America, however in accordance with the refinance
agreement, 500,000 of these common shares were returned to the Company
during 1996 as the buyer subsequently prepaid this obligation.
Sales of Common Stock - The Company sold 3,034,294 shares of its Common
Stock during the year ended October 31, 1996 (all during the first quarter
) and 592,858 shares of its Common Stock during the year ended October 31,
1995, respectively, in a series of private placements made to non-U.S.
(foreign) purchasers, under the exemption of Regulation S of the Securities
Act of 1933. The Company received net proceeds of $1,242,500 in 1996 and
$400,002 in 1995 from these sales. The sales prices per share ranged from
$.50 to $.55 per share in 1996, and from $.60 to $.80 per share in 1995.
Shares issued in lieu of Notes Payable and Accrued Interest - The Company
issued 604,651 and 5,944,858 shares of its common stock to extinguish
$252,500 and $3,893,744 of outstanding convertible bridge notes payable and
accrued interest during the years ended October 31, 1996 and 1995,
respectively.
Outstanding Warrants - The Company has issued and outstanding 1,600,385
Class A warrants and 1,263,115 Class B warrants as of October 31, 1996 and
1995. The holder of each Class A Warrant is entitled to purchase one share
of Common Stock of the Company and one Class B Warrant at an exercise price
of $4.00. The holder of each Class B Warrant is entitled to purchase one
share of Common Stock at an exercise price of $6.60. The exercise dates of
both the Class A and Class B warrants, initially at any time until February
20, 1997, have been extended until June 1, 1997.
The Class A Warrants are subject to redemption commencing on February 20,
1996, on not less than thirty days' notice, at a price of $.05 per Warrant,
at any time after the average closing price of the Common Stock shall have
exceeded $4.00 per share with respect to the Class A Warrants and $6.60 per
share with respect to the Class B Warrants for any 30 consecutive business
days ending within 15 days of the date on which the notice of redemption is
given. Holders of the Warrants will automatically forfeit their rights to
purchase the shares of Common Stock issuable upon exercise of such Warrants
unless the Warrants are exercised before they are redeemed. All of the
outstanding Warrants of a class, except for those underlying the Unit
Purchase Option, must be redeemed if any of that class are redeemed. The
Company shall not be able to call the Warrants unless a registration
statement covering the securities issuable upon exercise of the Warrants is,
and remains, current throughout the period fixed for redemption.
On January 22, 1996, in connection with arranging the financing of the sale
of the El Rancho Hotel and Casino described in Note 2, the Company issued
warrants valued at $256,200, based on the current market price at the date
of the grant, to a third party to purchase 600,000 shares of its Common
Stock at $.10 per share.
Stock Options- Outstanding stock options consist of the following;
Chairman of the Board - On March 1, 1995, Mr. Joseph Corazzi, Chairman of
the Board, was granted 4,000,000 options to purchase Common Stock of
CountryLand Properties Inc., which is transferable to any new subsidiary
formed to operate the gaming assets of the Company, including Casino-Co.
The 4,000,000 CountryLand Properties Inc. warrants are fully transferable
and convertible into options to purchase LVEN Common Stock at $1.00 per
share. These shares are not issuable in connection with the Stock Option
Plan described below.
F-13
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other - Subsequent to October 31, 1996, Mr. Nunzio DeSantis, now the Chief
Operating Officer of ITB, was granted 1,500,000 options to acquire shares of
the Company's Common Stock at an exercise price of $1 per share, which
expire in December 1999. The options were issued as part of the
consideration for providing a $6,000,000 standby funding commitment for
replacement financing on the El Rancho Property Site (See Note 2). These
shares are not issuable in connection with the Stock Option Plan described
below.
Stock Option Plan - The Company adopted a Stock Option Plan in July 1994.
The Stock Option Plan enables the Company to offer an incentive based
compensation system to key employees, officers, directors, consultants and
to employees of companies who do business with the Company. A total of
1,000,000 shares are reserved for issuance under the Stock Option Plan, of
which 190,000 shares are issuable under options which have been granted to
employees, and 730,000 shares under options granted to officers and
directors, all with an exercise price of $. 71 to $1.50 per share. The
Company may increase the number of shares reserved for issuance under the
Stock Option Plan or may make other material modifications to the Stock
Option Plan without stockholder approval. However, no amendment may change
the existing rights of any option or award holder. The following table
summarizes option transactions through October 31, 1996;
<TABLE>
<CAPTION>
Shares Share
------ -----
<S> <C> <C>
Balance, November 1, 1994 - -
Granted 880,000 $ 1.00
------- -------
Balance, October 31, 1995 880,000 $ 1.00
Canceled (100,000) $ 1.00
Granted 40,000 $ 0.71
-------- -------
Balance, October 31, 1996 820,000 $0.71 - $1.00
======== ==============
</TABLE>
7.OTHER CHARGES
Included in other charges for the year ended October 31, 1996 is $625,000
which represents cash and the value of 800,000 restricted shares of the
Company's Common Stock and 167,000 shares of Common Stock of Satellite
Networks Inc. paid in connection with settling claims arising from arranging
certain financing in connection with the initial acquisition of the El
Rancho Property site; an allowance of $450,000 relating to advances made to
Malbec, Inc., an unaffiliated third party, in connection with the
development of certain hotel properties in Miami Beach, Fla.; $295,000
related to an adjustment to reflect the value of certain shares of common
stock previously issued for services; and $150,000 to settle an outstanding
loan and stock purchase agreement.
Included in other charges for the year ended October 31, 1995 is $500,000
allowance for reduction to market value of 4,000,000 shares of common stock
of Sky Scientific Inc; $33,000 loss on the sale of 25,000 shares of American
Network Group, Inc. common stock ; $72,850 for an additional allowance
against the Company's investment in Patmore Radio Broadcasting; $107,000
additional allowance against existing note receivables, and; $70,000 loss
relating to investments no longer pursued.
8.COMMITMENTS AND CONTINGENCIES
Leases - The Company leases on a month-to-month basis 7,000 square feet in
Los Angeles, California for $8,500 per month. The Company also leases, on a
month-to-month basis, certain other facilities at an aggregate rental of
$4,500 per month. Consolidated rent expense for the years ended October 31,
1996 and 1995 was $257,590 and $205,434 respectively.
F-14
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employment Agreements - On March 1, 1995, the Company and its LVCC
subsidiary entered into two (2) separate five-year employment agreements
with Joseph Corazzi, the Chairman of the Board of the Company, which provide
for an annual aggregate salary of $550,000. The agreements may be renewed by
mutual agreement of the parties for successive terms of one year. The
employment agreements are subject to annual increases and bonuses at the
discretion of the Board of Directors. The agreements also entitle Mr.
Corazzi to participate in any employee benefit plans which may be offered in
the future, such as group life, health, hospitalization and life insurance,
and prohibits him from engaging in a business competitive with the Company
during the term of the agreement. Under the agreements, Mr. Corazzi's
employment terminates upon death or disability and may be terminated by the
Company for "cause," which is defined as the willful failure to perform
duties, malfeasance, commission of a felony, gross negligence, or breach of
the employee's covenant not to compete or maintain confidential certain
information. Termination by the Company for any other reason entitles the
employee to receive his salary for the remaining term of the agreements.
The employment agreements also provide for the following; (i) a lump sum
payment of $2,000,000 upon the consummation of a definitive agreement by the
Company and potential purchaser providing for a change of control, (ii), an
annual retirement benefit starting with the calendar month after his
retirement or termination, equal to fifty percent of his average annual LVEN
salary and bonus received in the twenty-four (24) month period prior to his
termination (plan becomes effective once Mr. Corazzi has been employed 10
years, including any time pre-dating these agreements), and (iii) an annual
lump sum cash payment equal to 5% of earnings before income taxes,
depreciation and amortization of the LVCC subsidiary.
The Company paid and reimbursed Mr. Corazzi $730,177 and $283,360 during the
years ended October 31, 1996 and 1995, respectively for amounts due him
since inception through October 31, 1996. Amounts due Mr. Corazzi amounting
to $431,739 and $586,739 have been accrued as of October 31, 1996 and 1995,
respectively. The Company has also accrued $239,000 and $115,000 for amounts
due Mr. Corazzi under the retirement plan which is included in accrued
officers salary and benefits as of October 31, 1996 and 1995.
Legal -On October 18, 1996, an unaffiliated third party filed a complaint
against the company in California Superior Court, County of Los Angeles,
seeking damages of $1,800,000, plus interest and attorney fees, for breach
of contract, breach of implied contract, and certain damages the individual
claims are due him under terms of a 1992 retainer agreement. The Company
believes that the individual failed to competently perform all of his duties
under the agreement, that there are no funds due, and that the case is
without merit. Management intends to vigorously defend the lawsuit.
Additionally, the Company has commenced action against the owners of Patmore
Broadcasting relating to an option to acquire a radio station in Las Vegas,
and intends to aggressively pursue the Company's position that it still has
a valid option to purchase the radio station.
The Company is not involved in, or a party to, any other material legal
proceedings at this time. At various times, the Company and its subsidiaries
are involved in various matters of litigation, including matters involving
settlement of fees and outstanding invoices, and consider these legal
proceedings not to be material and in the ordinary course of business.
Other - In connection with its investment in Electronic Media Corp made
subsequent to year end (See Note 10), the Company agreed to guarantee up to
$1,500,000 of equipment financing, and is also committed to issue up to
5,500,00 shares of the Company's stock based on certain performance levels.
F-15
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9.INCOME TAXES
The Company has available unused operating loss carryforwards of
approximately $18,900,000 at October 31, 1996 which may be used against
future taxable income. Certain amounts of the net operating loss
carryforward may be limited due to changes in the Company's stock ownership.
The operating loss carry forwards will expire in various amounts through the
years through 2011. Generally Accepted Accounting Principles require the
establishment of a deferred tax asset for all deductible temporary
differences and operating loss carryforwards. The Company has not provided
for any deferred tax asset due to the doubtfulness of realization due to the
uncertainty that the Company will generate income in the future sufficient
to fully or partially utilize these carryforwards, and because of the more
than 50% change in ownership.
10. SUBSEQUENT EVENTS
Note Receivable - On January 15, 1997, the Company, through its wholly-owned
Nevada subsidiary Casino- Co, made a 90-day secured loan of $2,900,000 to
NPD, Inc, ("NPD"), in order to enable NPD to close the acquisition from
Robert Brennan (" the Seller") of 2,904,016 shares (the "Shares") of the
common stock of International Thoroughbred Breeders, Inc. ("ITB"),
representing twenty-five percent (25%) of the outstanding stock of ITB. At
the closing of such purchase and sale, the shareholders of NPD, Nunzio
DeSantis and Anthony Coelho, became the Chairman of the Board and Chief
Executive Officer, respectively, of ITB. The sale of the Shares was
instrumental to the Company, as it will allow ITB to (i) meet the
requirements of a $100 Million funding proposal that would be used, in part,
for the renovation and opening by ITB of ITB's 21-acre Strip property in Las
Vegas, Nevada, formerly know as the El Ranch Hotel and Casino, in which the
Company has a continuing cash flow interest, and (ii) meet the requirements
of The New Jersey Racing Commission and Division of Gaming Enforcement for
continued racing licencing at ITB's New Jersey facilities. The Company
believes that the sale of the Shares will also facilitate ITB's application
for Nevada Gaming Licencing.
The loan to NPD is evidenced by a 10% Secured Promissory Note due on April
15, 1997 (the "NPD Note"). The NPD Note is secured by a security interest in
and to certain rights of NPD in and to the Shares, subject to a purchase
money lien in favor of the Seller for the balance of the purchase price
owing to him in respect of the sale of the Shares. In addition, 1,452,088 of
the Shares are subject to an existing purchase option in favor of a third
party, and would likely cease to provide collateral to the Company upon the
exercise of such option.
The NPD Note is personally guaranteed by Mr. DeSantis.
Upon a default by NPD under its payment obligations to the Seller in respect
of the balance of the purchase price for the Shares, the Seller would be
free to exercise certain creditor's rights under a Pledge Agreement between
the Seller and ITB in respect of the Shares (the "Pledge Agreement"). Such
actions could have the effect of modifying the Company's security interest
in such collateral, which at all times is subordinated to and secondary to
the rights of the Seller. In the event that the Seller elects to foreclose
on the Shares, the Company will be obligated to execute all documents
requested by the Seller to reflect the discharge of the Company's security
interest therein. In the event of a sale by the Seller after a default, the
Company's right in such circumstance shall be limited to the right to
receive any proceeds from such sale over and above the amounts due the
Seller under the Pledge Agreement. Upon satisfaction of NPD's purchase money
obligation to the Seller during the term of the NPD Note, the Company would
then have a first priority security interest in the Shares.
F-16
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in Electric Media Co. - The Company entered into an agreement on
January 31, 1997 whereby it acquired a 5% equity interest in Electric Media
Co. Inc. (EMC) and a continuing royalty in certain of its operations, for
$400,000 plus the contingent issuance of up to 5,500,000 shares of LVEN
common stock as described below. EMC, along with a joint venture
partner/developer, is developing technology that if successful, of which the
Company can give no assurance, will allow delivery of media, Internet and
telecommunication services to customers all over the world, utilizing
existing power utility infrastructures. Field testing of this technology
will occur during 1997, and in connection therewith, the Company has agreed
to provide a guarantee up to $1,500,000 for the financing of certain
equipment necessary for the field tests. The equipment is returnable to the
vendor, without cost to the Company, should the test not be satisfactory.
Upon a successful field test of this technology, the Company is committed to
deliver 500,000 restricted shares of its common stock to the developer of
this technology.
If the field tests are successful, EMC will begin worldwide marketing of
this technology, including the sale and distribution of addressable receiver
boxes that are necessary to receive the data communication. LVEN will
receive, in perpetuity, a $25 per unit royalty for each receiver box sold,
if any. Each time the sale of these units generates $10,000,000 of net after
tax profits, the Company will deliver the developer an additional 500,000
restricted shares of the Company's common stock, up to a maximum of
5,000,000 restricted shares. The Company may terminate the agreement at its
sole discretion, and have no further liability to EMC or the developer.
Other - Subsequent to October 31, 1996, Mr. Nunzio DeSantis, now the Chief
Operating Officer of ITB, was granted 1,500,000 options to acquire shares of
the Company's Common Stock at an exercise price of $1 per share, which
expire in December 1999 as part of consideration for providing a $6,000,000
standby funding commitment (See Note 6).
F-17
Exhibit 10.30
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered into as of March
20, 1996, by and between Las Vegas Entertainment Network, Inc., a Delaware
corporation ("Lender"), and Malbec (Florida), Inc., a Florida corporation
("Borrower"), with reference
to the following facts anc circumstances:
WHEREAS, Borrower has a business and financial interest in the development
and continuing operation of that certain hotel and recreational facility located
and operating at 455 Ocean Drive, Miami Beach, Florida, and commonly known as
the La Voile Rouge Hotel & Beach Club (the "Facility");
WHEREAS, Borrower, on behalf of P.R.D. Holding Company, Inc., a Florida
corporation and the developer and operator of the Facility ("PRD"), has
previously borrowed from Lender or caused Lender to loan to PRD, and Lender has
loaned to Borrower or PRD, certain funds to further the development of the
Facility; and
WHEREAS, Borrower requires additional funds for the purpose specified in
the foregoing recital, and for the purpose of paying certain legal fees and
costs of Borrower and PRD in connection with the development and operation of
the Facility, and Lender is willing to advance such funds to Borrower upon and
subject to the terms and conditions contained herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Loan. Borrower and Lender hereby confirm that Lender has previously
loaned to Borrower the sum of Forty-Three Thousand Dollars ($43,000) on or about
August 3, 1995, and that such borrowing shall for all purposes constitute a
portion of the funds loaned hereunder and shall be subject to all of the terms
and conditions of this Agreement. If, at any time or from time to time from and
after the date hereof and before December 31, 1996, Borrower shall notify Lender
that Borrower desires to borrow additional loan funds from Lender, up to a
maximum aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000), Lender shall disburse to Borrower (or order) the amount requested,
by wire transfer of immediately available funds to an account or payee
designated by Borrower, as soon as possible, and in any event within ten (10)
days after it receives Borrower's request therefor; provided, however, that
Lender shall have no obligation to disburse such funds unless it agrees to the
use to which Borrower proposes to apply such funds. In order to evidence and
secure its obligation to repay the Loan to Lender after and to the extent that
Loan proceeds are disbursed to Borrower, Borrower has executed and delivered to
Lender (i) Borrower's Secured Promissory Note in the form attached hereto as
Exhibit "A" and incorporated herein by this reference (the "Note"), and (ii) a
Security Agreement by and between Borrower, as debtor, and Lender, as secured
party, in the form attached hereto as Exhibit "B" and incorporated herein by
this reference (the "Security Agreement" and, together with the Note, the "Loan
Documents").
2. General Representations and Warranties. Borrower and
Lender each hereby respectively represents and warrants to the
other (with respect to itself) as follows:
(a) Corporate Action. All corporate or similar action required to be
taken by Borrower or Lender, as the case may be, in connection with the
execution, delivery and performance of this Agreement and the Loan Documents has
been duly taken.
(b) No Conflicts. Neither the execution and delivery of this Agreement
or the Loan Documents by Borrower or Lender, as the case may be, nor the
performance of any of Borrower's or Lender's respective obligations hereunder or
thereunder, will: (i) violate or conflict with the articles or certificate of
incorporation, bylaws, or other charter documents of Lender or Borrower, as
respectively amended to date, which violation or conflict is material to
Borrower or Lender, as the case may be; (ii) conflict with, result in a breach
of, constitute (with notice, lapse of time or both) a default under, or result
in the creation of imposition of any lien, charge, security interest or other
encumbrance upon any of the respective properties of Borrower or Lender pursuant
to the terms of any agreement, instrument or document to which Borrower or
Lender, as the case may be, is a party, by which such party is bound or to which
any of such party's respective properties is subject, which conflict, breach,
default, lien, charge, security interest or encumbrance is material to Borrower
or Lender, as the case may be.
1
<PAGE>
3. Covenants. For so long as the obligation to repay
proceeds of the Loan theretofore actually disbursed by Lender
pursuant to Section 1 hereof and evidenced by the Note is
outstanding, Borrower covenants to Lender that Borrower shall do
the following:
(a) Compliance with Laws. Borrower shall remain in good standing in the
jurisdiction in which it is organized and shall comply in all material respects
with all material laws which are applicable to it or to the conduct of its
business, the breach or violation of which would be material to Borrower.
(b) Financial Statements. Borrower shall deliver to Lender, as soon as is
reasonably practicable after they become available, unaudited quarterly and
annual financial statements of Borrower; provided, however, that although
Borrower shall have no obligation to obtain audited financial statements, if it
does so,it shall provide copies thereof to Lender as soon as reasonably
practicable after they become available.
(c) Other Reports. Borrower shall advise Lender in writing of (i)
developments (including litigation) which Borrower believes to be materially
adverse to Borrower, PRD, their respective businesses (as distinguished from
partnerships, companies and businesses generally) or the Facility, (ii) any
material default by Borrower or PRD under this Agreement or any other material
contract or agreement, and (iii) any material Event of Default (as such term is
defined in the Note).
(d) Sale of Assets to Affiliates. Borrower shall not sell, lease,
transfer or otherwise dispose of (collectively, a "disposition") any substantial
part of the properties or assets of Borrower to an "affiliate" (as such term is
defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of
Borrower, unless the consideration received by Borrower in any such disposition
is equal to the fair market value of the assets or properties disposed of.
(e) Consolidation or Merger. Borrower shall not consolidate with or
merge with or into any other entity or transfer (by lease, assignment, sale or
otherwise) all or substantially all of its properties and assets, as an entirety
or substantially as an entirety to another person or group of affiliated
persons, unless either Borrower shall be the continuing person or the person (if
other than Lender) formed by such consolidation or into which Borrower is merged
or to which the properties and assets of Borrower as an entirety are transferred
or leased, shall expressly assume all the obligations of Borrower under the Loan
Documents and this Agreement.
4. General Provisions.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and any permitted successors and
assigns.
(b) Amendment. No amendment or modification hereto, or waiver of the
terms hereof, shall be valid unless in a writing executed by the parties hereto.
(c) Notices. Any notice or other communication given pursuant to or in
connection with this Agreement shall, except to the extent otherwise provided in
this Agreement, be in writing and shall be given by personal delivery, telex,
telecopy, facsimile (provided that any notices given by telex, telecopy or
facsimile are confirmed by telephone), or by deposit of notice in the United
States mail, postage prepaid, return receipt requested. Notices shall not be
deemed delivered until received. Notice addresses are as follows (or such other
addresses as one party may provide to the other by written notice pursuant to
this Agreement):
To Borrower: Malbec (Florida), Inc.
6210 North Lockwood Ridge Road
Suite 291
Sarasota, Florida 34243
Tel No.: 941.957.0065
Fax No.: 941.955.6586
To Lender: Las Vegas Entertainment
Network, Inc.
1801 Century Park East
Suite 2300
Los Angeles, California
Tel No.: 310.551.0011
Fax No.: 310.551.1942
(d) Severability. If any provision herein, or the application thereof
to any circumstance, is found to be unenforceable, invalid or illegal, such
provision shall be deemed deleted from this Agreement or not applicable to such
circumstance, as the case may be, and the remainder of this Agreement shall not
be affected or impaired thereby.
(e) Attorneys' Fees. If any action should arise among the parties
hereto to enforce or interpret the provisions of this Agreement, the prevailing
party in such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
2
<PAGE>
(f) Integration. This Agreement, together with the Loan Documents,
expresses the entire agreement and understanding of the parties hereto with
respect to the matters set forth herein and supersedes all prior agreements,
arrangements and understandings among the parties hereto with respect to the
matters set forth herein. The terms and provisions of the Loan Documents are
hereby incorporated into this Agreement by this reference.
(g) Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of laws principles thereof. Any actions, suits or proceedings
instituted in connection herewith shall be initiated and maintained exclusively
in the Los Angeles County Superior Court, or in the United States District Court
for the Central District of California. By execution and delivery of this
Agreement, Borrower hereby consents, for itself and in respect of its property,
to the jurisdiction of the aforesaid courts solely for the purpose of
adjudicating its rights or the rights of Lender with respect to this Agreement,
the Loan Documents and any document or instrument related thereto. Borrower
hereby irrevocable designates CT Corporation System, 818 West Seventh Street,
Los Angeles, California, as the designee, appointee and agent of Borrower to
receive, for and on behalf of Borrower, service of process in such jurisdictions
in any legal action or proceeding with respect to this Agreement, the Promissory
Note or any document related thereto. Borrower hereby irrevocable waives, to the
extent permitted by applicable law, any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of any
action or proceeding in such respective jurisdictions in respect of this
Agreement, the Loan Documents or any document related thereto. Nothing herein
shall affect the right of Lender to serve process in any other manner permitted
by law.
(h) Waivers. No waiver of any term, provisions or condition of this
Agreement or of the Promissory Note in any one or more instances, shall be
deemed to be or construed as a further waiver of any such term, provision or
condition or as a waiver of any other term, provision or condition.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(j) Further Assurances. The parties agree to execute any and all such
further agreements, instruments or documents, and to take any and all such
further actions, as may be necessary or desirable to carry into effect the
purposes and intent of this Agreement, including, without limitation, documents
and instruments deemed necessary or advisable to perfect the security interest
granted under the Security.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Malbec (Florida), Inc.,
a Florida corporation
By: \s\David Bednarsh
----------------------
David Bednarsh,
President
Las Vegas Entertainment
Network, Inc.
By: \s\ Joe Corazzi
--------------------
3
<PAGE>
SECURED PROMISSORY NOTE
Up to $1,500,000 March 20, 1996
Los Angeles, California
FOR VALUE RECEIVED, the undersigned, Malbec (Florida), Inc., a Florida
corporation ("Maker"), promises to pay to the order of Las Vegas Entertainment
Network, Inc., a Delaware corporation ("Payee"), at 1801 Century Park East,
Suite 2300, Los Angeles, California 90067, or at such other place as may be
designated by Payee, in legal tender of the United States of America the
principal sum of One Million Five Hundred Thousand Dollars ($1,500,000) or so
much thereof as may be advanced and outstanding hereunder, together with
interest on unpaid principal from time to time outstanding at a rate of interest
equal to eight percent (8%) per annum. All outstanding principal and interest
thereon shall be due and payable on March 31, 1997.
Advances hereunder (including any and all advances made prior to the date
hereof and subject to the terms and conditions of that certain Loan Agreement of
even date herewith (the "Loan Agreement") between Payee, as lender, and Maker,
as borrower) shall be noted from time to time on the grid attached hereto, but
the failure to make such notations shall not affect the validity of Maker's
obligations to pay principal and interest as provided herein on amounts advanced
hereunder.
Any advances hereunder, to the total amount of the principal sum stated
above, shall be conclusively presumed to have been made to, and at the request
and for the benefit of, Maker when deposited to the credit of any account of
Maker or PRD (as defined in the Loan Agreement) with any financial institution
or in the Dade County Court Registry (the "Court Registry"), or disbursed in
accordance with the instruction of Maker or any authorized agent of Maker.
If payment on this Note becomes due and payable on a day other than a
Business day, the maturity thereof shall be extended to the next succeeding
Business Day.
Unless expressly indicated to the contrary herein, all payments received on
account of this Note shall be applied first to accrued interest and then to the
unpaid principal balance hereof.
This Note is secured pursuant to the terms of that certain Security
Agreement of even date herewith, between Maker, as debtor, and Payee, as secured
party (the "Security Agreement". Reference is made to the Security Agreement for
the terms and conditions under which the entire unpaid principal balance hereof,
together with all accrued and unpaid interest hereunder, may become
immediately due and payable in full.
This Note may be, or may be required to be, prepaid in whole or in part as
provided in the Security Agreement.
The Agreement and this Note shall be construed and enforced in accordance
with, and governed by, the laws of the State of California.
Maker intends and believes that each provision of this Note complies with
all applicable local, state and federal laws and judicial decisions. However, if
any provision or provisions, or if any portion of any provision or provisions,
in this Note are found by a court of law to be in violation of any local, state
or federal ordinance, statute, law, administrative or judicial decision or
public policy, and if such court should declare such portion, provision or
provisions of this Note to be illegal, invalid, unlawful, void or unenforceable
as written, then it is the intent of Maker that such portion, provision or
provisions shall be given force to the fullest possible extent that they are
legal, valid and enforceable, that the remainder of this Note shall be construed
as if such illegal, invalid, unlawful, void or unenforceable portion, provision
or provisions were not contained therein, and that the obligations of Maker
under the remainder of this Note shall continue in full force and effect.
The interest payable hereunder shall be the lesser of the amount specified
herein, or the amount permissible by law.
The terms of this Note are subject to amendment only in the manner provided
in the Agreement.
Maker hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the fullest extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
Malbec (Florida), Inc.,
a Florida corporation
By: \s\ David Bednarsh
----------------------
David Bednarsh,
President
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is entered into as of the 20th
day of March, 1996, by and between Las Vegas Entertainment Network, Inc., a
Delaware corporation ("Secured Party"), and Malbec (Florida), Inc., a Florida
corporation ("Debtor"), with reference to the following facts and
circumstances:
WHEREAS, Secured Party has loaned certain sums to Debtor pursuant to that
certain Secured Promissory Note (the "Note") of even date herewith in the
principal amount of up to One Million Five Hundred Thousand Dollars
($1,500,000), and may loan additional funds thereunder pursuant to the Note and
that certain Loan Agreement of even date herewith by and between Debtor, as
borrower, and Secured Party, as lender (the "Loan Agreement"); and
WHEREAS, as security for the repayment of Debtor's obligations evidenced by
the Note and the Loan Agreement, Debtor is entering into this Agreement with
Secured Party.
NOW THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. OBLIGATIONS SECURED. The security interest granted by this Agreement
shall secure payment and performance of all indebtedness, obligations and
liabilities of Debtor to Secured Party (collectively, the "Secured Debt")
arising out of, connected with or related to the Note, the Loan Agreement and
this Agreement.
2. GRANT OF SECURITY INTEREST. Debtor hereby mortgages, pledges, assigns,
transfers, sets over, conveys and delivers to Secured Party and grants to
Secured Party a security interest in and to the collateral described or referred
to in Section 3 to secure the Secured Debt.
3. COLLATERAL. Debtors' collateral (the "Collateral")
subject to the security interest granted hereby shall consist of
all of Debtor's right, title, interest and expectancy in or to
monies held in the Court Registry (as defined in the Note).
4. REPRESENTATIONS AND WARRANTIES OF DEBTOR.
(a) Debtor has good title to the Collateral and has full power and
authority to grant security interests in the Collateral, and to execute, deliver
and perform in accordance with the terms of this Agreement, without the consent
or approval of any other person or entity;
(b) This Agreement constitutes the legal, valid and binding obligation
of Debtor enforceable against Debtor in accordance with its terms and
constitutes a good, valid and subsisting security interest in all of the
Collateral for the full amount of the Secured Debt.
5. COVENANTS OF DEBTOR. Debtor hereby covenants and agrees
that:
(a) Debtor shall do or cause to be done all things necessary to
preserve, renew and keep in full force things necessary to preserve, renew and
keep in full force and effect its corporate existence, rights, license, permits
ad franchises, to the extent necessary for the proper operation of is business,
and to comply with all laws and regulations applicable to it;
(b) Debtor shall, at its own cost and expense, (i) take any and all
actions necessary to preserve, protect and defend the security interest of
Secured Party in the Collateral created hereunder and the priority thereof
against any and all adverse claims;
(c) Debtor shall promptly reimburse Secured Party for any and all sums,
including costs, expenses and attorneys fees, which Secured Party may pay or
incur in defending, protecting or enforcing the security interest of this
Agreement or the priority thereof, or in enforcing or collecting the Secured
Debt, or in discharging any prior to subsequent lien or adverse claim against
the Collateral or any part thereof, or by reason of becoming or being made a
party or intervening in any action or proceeding affecting the Collateral or the
rights of Secured Party therein, all of which actions Secured Party shall have
the right to take;
(d) Debtor shall from time to time make, execute, acknowledge and
deliver all such further documents, instruments and assurances as may be
requested by Secured Party to perfect or preserve the security interest created
by and to carry out the intent of this Agreement, and hereby authorizes Secured
Party to file financing statements and amendments thereto relating to all of
part of the Collateral where desirable in Secured Party's judgment to perfect
the security interest granted herein without the signature of Debtor (where
permitted by law).
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<PAGE>
6. PRESERVATION OF COLLATERAL. In case of any failure of Debtor to keep the
Collateral free from liens or adverse claims, or to pay taxes on or with respect
thereto, or to fully and punctually keep and perform any other covenant hereof,
then Secured Party may (but shall not be required to) pay or contest or settle
such taxes, liens or adverse claims, or any judgments based thereon, or
otherwise make good any other aforesaid failure of Debtor. Debtor covenant to
promptly reimburse to Secured Party (together with costs, expenses and
attorneys' fees) any sums (i) paid or advanced for any such purpose, (ii)
disbursed to protect the Collateral or the security interest created by this
Agreement, and/or (iii) which Debtor have herein covenanted to reimburse to
Secured Party. Such reimbursement shall be with interest, at the maximum rate
permitted by California or other applicable law, and the right to such
reimbursement shall become additional indebtedness secured hereby.
7. EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default by Debtor:
(a) The default in the payment of principal of the Note,
as and when due and payable;
(b) The default in the payment of interest on the Note, or other
amounts payable to Secured Party under this Agreement, as and when due and
payable;
(c) The default in the due observance or performance of the provisions
of any covenant, condition or agreement of Debtor, contained herein, in the
Note, or in the Loan Agreement, which would adversely affect the validity or
perfection of the security interest of Secured Party in the Collateral or the
value of the Collateral;
(d) The default in the due observance or performance of any other
covenant, condition or agreement on the part of Debtor to be observed or
performed pursuant to the terms of this Agreement;
(e) The establishment by any person (other than Secured Party or its
successors or assigns or a person consented to in writing by Secured Party) of a
right in the Collateral which is equal or senior to the security interest of
Secured Party;
(f) If there shall exist or occur, and Secured Party shall notify
Debtor of, any event or condition which in Debtor's good faith business judgment
(exercised in Secured Party sole discretion) is an event of Default or which
would have a material adverse effect on the ability or obligation of Debtor (or
any of them) to perform their respective obligations;
(g) The assignment for the benefit of creditors by Debtor, or the
commencement of a case under Title 11 of the United States Bankruptcy Code by or
against Debtor;
(h) The appointment of a receiver, trustee or custodian for or over
Debtor or any of Debtor's property not vacated within thirty (30) days
thereafter; or
(i) The levy of any writ of execution or other judicial process upon
any of the property of Debtor not released within thirty (30) days thereafter.
8. RIGHTS OF SECURED PARTY UPON DEFAULT. Upon the
occurrence of an event of Default, Secured Party shall have the
following rights and remedies:
(a) All of the rights and remedies of a secured party under the
California Uniform Commercial Code or other applicable law then in effect and,
without limitation, at the option of Secured Party, the right:
(i) to take immediate possession of the Collateral,
or any portion thereof, including any writings evidencing the
Collateral;
(ii)to dispose of the Collateral or any part thereof at public
sale, which may be conducted at the location designated by Secured Party, for
cash or on credit and on such terms as Secured Party may, in its sole
discretion, elect after giving at least five (5) days' notice of the time and
place of sale in the manner provided by law;
(iii) To dispose of the Collateral or any part thereof at private
sale upon like notice for cash or on credit and on such other terms as Secured
Party may in its sole discretion elect; and
(iv)To pursue any other remedy for the enforcement
of the security interest;
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<PAGE>
(b) Out of the proceeds of any disposition, Secured
Party shall:
(i) First, pay all costs, expenses and charges for pursuing,
searching for, taking, removing, keeping, storing, advertising and selling such
Collateral, including, without limitation, reasonable attorneys' fees and costs.
(ii)Second, retain out of the proceeds of sale the
Secured debt; and
(iii) Third, pay the remaining funds, if any, to Debtor or any other
party legally entitled thereto.
(c) If there is a deficiency, Debtor shall forthwith pay
it to Secured Party.
(d) Secured Party may postpone or adjourn any such sale from time to
time by announcement at the time and place of sale stated in the notice of sale,
without being required to give a new notice of sale.
(e) Upon the occurrence of an Event of Default that is not waived in
writing by Secured Party, (i) Debtor does hereby irrevocably make, constitute
and appoint Secured Party or any of its designees, its true and lawful
attorney-in-fact with full power in the name of Debtor to receive, open and
dispose of all mail addressed to Debtor, and to endorse any notes, checks,
drafts, money orders or other evidences of payment relating to the Collateral
that may come into the possession of Debtor with full power and aright to cause
the mail of Debtor to be trans-ferred to Secured Party's own offices or
otherwise, and to do any and all other acts necessary or proper to carry out the
intent of this Agreement, and Debtor hereby ratifies and confirms all that
either of the Secured Party or its substitutes shall properly do by virtue
hereof; (ii) Debtor does hereby further irrevocably make, constitute and appoint
Secured Party or any of its designees its true and lawful attorney-in-fact in
the name of Secured Party or Debtor (A) to enforce all of Debtor's rights under
and pursuant to all agreement with respect to the Collateral, all for the sole
benefit of Secured Party, (B) to enter into and perform such agreements as may
be necessary or desirable in order to carry out the terms, covenants and
conditions of this Agreement which are required to be observe or performed by
Debtor, (C) to execute such other and further mortgages, pledges and assignments
of the Collateral as Secured Party may reasonably require for the purpose of
protecting, maintaining or enforcing the security interest granted to Secured
Party pursuant to this Agreement, and (D) to do any and all other things
necessary or proper to carry out the intention of this Agreement, and Debtor
ratifies and confirms all that Secured Party as such attorney-in-fact or its
substitutes shall properly do by virtue of this power of attorney.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the successors and assigns of Debtor.
10. REMEDIES NOT EXCLUSIVE; NO WAIVERS; FORECLOSURES. No right or
remedy herein is exclusive of any other right or remedy. Each and every right
and remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity, and may be
excised from time to time as often as deemed expedient, separately or
concurrently. The failure or delay of Secured Party to insist in any one or more
instances upon the performance of any of the terms, covenants or conditions of
this Agreement, or to exercise any right, remedy or privilege herein conferred,
shall not impair or be construed as thereafter waiving any such covenants,
remedies, conditions or provisions, but every such terms, condition and covenant
shall continue and remain in full force and effect; nor shall the giving, taking
or enforcement of or execution against any other or additional security,
collateral or guaranty for the payment of the Secured Debt operate to prejudice,
waive or affect any rights, powers or remedies hereunder; nor shall Secured
Party be required to first look to, enforce, exhaust or execute against such
other or additional security or guaranties prior to so acting against the
Collateral. Secured Party may foreclose on or execute against the items of
Collateral in such order as Secured Party may, in its sole discretion,
determine.
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<PAGE>
11. SEVERABILITY. The unenforceability or invalidity of any
provision or provisions of this Agreement shall not render any
other provision or provisions herein contained unenforceable or
invalid.
12. NOTICE. All notices, demands and communications hereunder shall be in
writing and shall be deemed to be duly given upon personal delivery or two days
after deposit in the United States mail by registered or certified mail, postage
prepaid, return receipt requested, addressed to the parties at the addresses
herein set forth, or at such other address as any party shall have furnished to
the other parties in writing:
To Debtor: Malbec (Florida), Inc.
6210 North Lockwood Ridge Road
Suite 291
Sarasota, Florida 34243
To Secured Party: Las Vegas Entertainment
Network, Inc.
1801 Century Park East
Suite 2300
Los Angeles, California
13. CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California
except laws respecting conflicts of law.
14. ATTORNEY'S FEES. Should any party hereto institute any action or
proceeding to enforce this Agreement or any provision hereof or for a
declaration of rights under this Agreement, or for arbitration or any dispute
arising under this Agreement, the prevailing party in any such action,
proceeding or arbitration shall be entitled to receive from the other party all
costs and expenses, including, without limitation, reasonable attorneys' fees,
incurred by the prevailing party in connection with such action, proceeding or
arbitration.
15. TIME IS OF THE ESSENCE. Time is of the essence with
respect to this Agreement.
16. ASSIGNMENT BY SECURED PARTY. Secured Party and each
assignee may assign this Agreement and the obligations made under
it without the consent of Debtor, and each assignee is to be
entitled to all the rights and remedies of Secured Party hereunder.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
covenants, agreements, representations and warranties made herein
and in the certificates delivered pursuant hereto shall survive
Secured Party's execution and delivery of the Note and shall
continue in full force and effect so long as expressly provided
herein and in any event so long as the Note is outstanding and
unpaid.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Agreement to
be duly executed and delivered as of the date first above written.
Malbec (Florida), Inc.,
a Florida corporation
By: \s\ David Bednarsh
----------------------
David Bednarsh,
Presideent
Las Vegas Entertainment
Network, Inc., a Delaware
corporation
By: \s\ Joe Corazzi
-------------------
4
7
Exhibit 10.31
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is dated as of September 4, 1996,
between Tee One Up, Inc., a Nevada corporation ("Borrower"), with an address of
826 North Lake Street, Burbank, California 91502, and Pacific D.N.S., Inc. a
Nevada corporation ("Lender"), with an address at 2805 Ashworth Circle, Las
Vegas, Nevada 89109, with reference to the following facts and circumstances:
WHEREAS, Borrower has requested and Lender has agreed to lend to Borrower
the sum of up to Three Hundred Thousand Dollars ($300,000) (the "Loan"), and
Borrower is executing and delivering a Promissory Note of even date herewith in
the principal amount of up to Three Hundred Thousand Dollars ($300,000) and in
the form of Exhibit "A" attached hereto and incorporated herein by this
reference (the "Note") evidencing the Loan; and
WHEREAS, in order to induce Lender to make the Loan, Borrower is
simultaneously executing and delivering to Lender an Assignment of Contracts and
Security Agreement of even date herewith in the form of Exhibit "B" attached
hereto and incorporated herein by this reference (the "Security Agreement") to
secure the Note (the Note, the Security Agreement and this Agreement,
collectively with any other documents now or hereafter delivered to evidence or
secure the Loan, are hereinafter referred to as the "Loan Documents").
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. Loan.
Upon and subject to the terms and conditions hereof, Lender hereby
lends to Borrower and Borrower agrees to borrow from Lender the sum of up to
Three Hundred Thousand Dollars ($300,000) upon and subject to the terms and
conditions contained herein. Funding(s) of the Loan, if any, shall be made by
delivery to Borrower in Las Vegas, Nevada, of Lender's or a bank check, drawn on
Lender's local Nevada bank, in the amount of the sum(s) thereby advanced.
2. Conditions to the Loan.
Lender shall not be obligated to make the Loan, or any portion thereof,
unless and until Borrower, at its sole cost and expense, has provided each of
the following in form and substance satisfactory to Lender.
(1) duly authorized, executed and delivered originals of (i) Note,
(ii) the Security Agreement, and (iii) any and all other Loan
Documents;
(2) an opinion of Borrower's counsel, such counsel to be acceptable to
Lender, and such opinion to be in form and substance customary in
comparable transactions and otherwise acceptable to Lender, all in
Lender's sole and absolute discretion;
(3) certified copies of all documents relating to the existence, good
standing and qualification of Borrower and the authority for, due
execution and validity of the Loan Documents;
(4) true, correct and complete copies of each of the agreements, both
now and hereafter existing, which will be assigned pursuant to
Section 1(i) of the Security Agreement (the "Contracts");
(5) consents, approvals and/or waivers ("Consents"), in
form and substance acceptable to Lender, in its
sole and absolute discretion, by any third parties
from whom such Consents are required, as determined
by Lender, in its sole and absolute discretion, as
a precondition to any element of the transactions
contemplated hereby, including, without limitation,
the assignment and/or pledge of any Contract or
Collateral (as defined in the Security Agreement);
(6) duly executed appropriate UCC-1 forms for filing
with respect to the Security Agreement;
(7) UCC, judgment, tax, lien and bankruptcy searches
with respect to Borrower;
(8) true, complete and correct copies of the most
recent financial statements of Borrower;
(9) payment at initial funding, by holdback from Loan proceeds, of
Lender's counsel's fees (not to exceed $10,000);
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<PAGE>
(10) an executed agreement, in form and substance acceptable to Lender
and Borrower, pursuant to which Borrower will grant to Lender a
right of first refusal to purchase all or any portion, in Lender's
sole and absolute discretion, of any offering of debt, equity,
convertible or other securities offered by Borrower, subject to
the approval of Windsor Financial Group, as Borrower's investment
banker, which approval shall not be unreasonably withheld; and
(11) such other documents or information deemed necessary or desirable
by Lender to better evidence, secure, evaluate or assure the Loan,
including, without limitation, such documentation as Lender may
require evidencing the irrevocable instruction of Borrower to
California Factors & Finance ("CFF") authorizing and instructing
CFF to pay directly to Lender on a monthly basis from funds
otherwise payable to Borrower not less than the amount of the
monthly payments due under the Note.
Until such time as Borrower is able to provide all of the foregoing items,
Lender may, in Lender's sole and absolute discretion, elect not to fund the Loan
or to fund less than the full amount thereof; provided, however, that the
funding of the all or any portion of the Loan prior to receipt of all of the
foregoing items shall not be deemed a waiver of any of the foregoing nor shall
it indicate that all of the foregoing have been satisfied; and provided,
further, that in the event that all of the foregoing, in form and substance as
provided herein, are not delivered to Lender within ten (10) business days of
the date hereof, then Borrower, not later than the 5:00 p.m., Las Vegas, Nevada,
local time, on the next business day following such tenth (10th) business day,
shall immediately repay to Lender any and all amounts advanced hereunder,
together with interest thereon as provided in the Note, the failure timely to so
repay to constitute a material and irremediable breach under the Note and the
other Loan Documents, entitling Lender to exercise all rights available
thereunder or otherwise at law or in equity.
3. Use of Proceeds.
Borrower shall apply the proceeds of the Loan solely for use in
Borrower's business including for costs, expenses and fees in connection with
the Loan.
4. Loan Fee.
As material inducements to Lender to make, and in the absence of which
Lender would not make, the Loan, upon the initial funding of the Loan, unless
and to the extent waived by Lender, Borrower (a) shall pay to Lender a loan fee
in connection with the Loan consisting of three percent (3%) of the authorized
and outstanding capital stock of Borrower as of the date of this Agreement,
subject to customary (i) piggy-back registration rights (subject to commercially
reasonable underwriter approval), and (ii) anti-dilution protections in the
event of any merger, reorganization, recapitalization, reclassification, stock
dividend, and/or similar occurrences (but not the issuance by Borrower of shares
of its capital stock for fair consideration), and (b) hereby grants to Lender a
royalty-free, exclusive, perpetual worldwide license to all broadcast and video
rights from any "Tee One Up" golf course footage captured during the period the
Loan (or any portion thereof) remains outstanding, excepting therefrom (i)
footage from the Marriott locations, the broadcast and video rights to which
shall be shared between Lender and Marriott, and (ii) footage aired on The Golf
Channel, the revenues from which, net of any amounts paid to The Gold Channel,
shall be shared between Lender and Borrower, each and every element of all of
the foregoing provisions of this Section 4 to be agreed upon and memorialized in
appropriate written agreements by and among Borrower, Lender and/or any
necessary third parties prior to full or partial funding of the Loan, as the
case may be, unless and to the extent waived by Lender.
5. Representations.
In addition to any representations and warranties found elsewhere in
the Loan Documents, Borrower hereby represents and warrants to Lender that:
(a) Borrower is duly organized validly existing and in good standing
under the laws of the State of Nevada and has full power and
authority to execute all documents and instruments required to be
executed by it in connection with the Loan;
(b) The execution, delivery and performance by Borrower of the Loan
Documents and all other documents executed by it in connection
therewith do not contravene any law, rule, regulation, order or
judgment applicable to it or any agreement or contractual
restriction binding on or affecting it or any of its properties;
(c) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by
Borrower of the Loan Documents and all other documents executed by
it in connection therewith, except such as have been obtained;
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<PAGE>
(d) The Loan Documents and all other documents executed
in connection therewith are the legal, valid and
binding obligations of Borrower;
(e) There are no actions, suits or proceedings pending,
or to the knowledge of Borrower threatened, against
or affecting Borrower or the Collateral which could
have a material adverse effect on Borrower or the
Collateral or involving the validity or enforce-
ability of the Loan Documents or the priority of
the liens created or perfected thereby, at law or
in equity, or before or by any governmental
authority, and Borrower is not in default with
respect to any order, writ, judgement, decree or
demand of any court or any governmental authority;
(f) There is no contact or arrangement of any kind the
performance of which by another party thereto would
give rise to a lien on the Collateral or any part
thereof or any interest therein or requiring
Borrower to convey the Collateral or any part
thereof or any estate or interest therein to any
party, and no party other than Borrower has any
legal, beneficial or equitable right, title or
interest in the Collateral;
(g) With Respect to the Contracts, (i) Borrower is the
owner and holder of all of the "TEE ONE UP"
interest under the Contracts, (ii) there are no
assignments (other than as previously disclosed to
Lender or pursuant to the Loan Documents) of the
Contracts or any portion of the income, charges,
issues or profits due and payable or to become due
and payable thereunder (the "Contract Income")
which are presently outstanding, (iii) the
Contracts have not been modified or amended, (iv)
all of the Contracts are in full force and effect,
(v) to the best of Borrower's knowledge, no other
party to any Contract is in default under any
material terms, covenants or provisions thereof and
Borrower knows of no event which, but for the
passage of time or the giving of notice or both,
would constitute an event of default under any of
the Contracts, (vi) neither Borrower nor any other
party to any Contract has commenced any action or
given or served any notice for the purpose of
terminating any of the Contracts, (vii) all
Contract Income due and payable to date under the
Contracts has been paid in full and no such
Contract Income has been paid more than one month
in advance of the due dates thereof, and (viii) to
the best of Borrower's knowledge, there are no
offsets or defenses to the payment of any portion
of the Contract Income;
(h) There are no federal tax claims or liens assessed
or filed against Borrower and there are no
judgments against Borrower unsatisfied of record or
docketed in any court located in the United States,
and no petition in bankruptcy has ever been filed
by or against Borrower or any affiliate of Borrower
and none of them have ever made any assignment for
the benefit of creditors or taken advantage of any
insolvency act or any act for the benefit of
debtors;
(i) There is no Default or Event of Default (as defined) under any of
the Loan Documents and no event has occurred and is continuing
which with notice and/or the passage of time would constitute a
Default or Event of Default under any thereof;
(j) Borrower is not in default, nor to Borrower's knowledge is any
third party in default, under or with respect to any material
contract, agreement lease or other instrument to which Borrower is
a party;
(k) Borrower has no defenses, setoffs or counterclaims with respect to
payment of all amounts owed and the performance of all obligations
to be performed under the Loan Documents;
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(l) The financial statements (including the notes thereto) provided to
Lender by Borrower fully and accurately reflect the financial
condition of Borrower as of the date thereof, and there has been
no material change in the financial condition of Borrower since
the date of such financial statements;
(m) All federal state, local and foreign tax returns,
reports and statements required to be filed by
Borrower will have been filed with the appropriate
governmental agencies, and all charges and other
impositions shown thereon to be due and payable by
Borrower will have been paid prior to the date on
which any fine, penalty, interest or late charge
may be added thereto for nonpayment thereof, or any
such fine, penalty, interest late charge or loss
has been paid;
(n) To the best of Borrower's knowledge, the Contracts and the
business operations conducted by Borrower are in full compliance
with all federal, state and local statutes, laws, ordinances,
codes, rules, regulations, orders or decrees regulating or
relating to such Collateral and/or business operations
("Applicable Laws");
(o) No action or proceeding of any kind is pending or, to the best of
Borrower's knowledge, threatened, nor have any settlements been
reached, by or with any persons alleging a violation of any
Applicable Laws;
(p) Borrower has received no notice of, and has no knowledge of, any
occurrence or circumstance that with or without notice or passage
of time or both would give rise to a claim that Borrower or its
business operations violate or have violated any Applicable Laws.
6. Covenants.
In addition to any covenants found elsewhere in the Loan Documents,
Borrower covenants with Lender as follows:
(a) Borrower shall comply with all laws, ordinances,
order, rules and regulations of all federal, state,
county and municipal governments and appropriate
departments, commissions, boards and officers
thereof which now are or at any time in the future
may be applicable to Borrower or Borrower's
business operations, or any part thereof or the
transactions contemplated hereby (including all
Applicable Laws).
(b) Borrower shall keep proper books of record and
account in accordance with sound accounting
practice, which shall reflect and disclose in
reasonable detail all items of income and expense
from the Collateral and the operation of Borrower's
business. Lender shall have the right to examine
and audit the books of account and the records of
Borrower and the statements furnished by Borrower
pursuant hereto (which books, records and
statements, and the data used as a basis for their
preparation, shall be kept and preserved for at
least five years) and to discuss the affairs,
finances and accounts of Borrower and to be
informed as to the same by Borrower's managing
partner or chief executive officer, all at such
reasonable times and intervals as Lender may
desire, and Borrower shall furnish to Lender
convenient facilities for the examination, audit
and copying of such books, records, statements and
data. Within ten (10) days after request therefor,
Borrower shall furnish to Lender such interim
balance sheets and profit and loss statements and
income and expense reports, and such other
financial information, with respect to Borrower or
any other person liable for payment of any part of
the Loan, as may be reasonably requested by Lender.
Borrower shall deliver to Lender such other
information with respect to the Collateral and
Borrower's operations as Lender may request from
time to time.
4
<PAGE>
(c) Borrower hereby agrees to defend, indemnify and save Lender
harmless from and against all loss, damage, liability and expense
(including) reasonable attorneys' fees and expenses, whether
within or outside the judicial process) that Lender may sustain
on account of any action taken pursuant to any Applicable Laws or
under common law, pertaining to or in any manner arising out of
or related to the Loan, the Collateral, or Borrower's business
operations. The foregoing indemnity shall survive the repayment
in full of the Loan.
(d) Borrower shall, within ten (10) days after receipt, provide Lender
with copies of all notices received by Borrower in connection with
any Applicable Laws.
For purposes of this paragraph, the term "notice" shall mean any
summons, citation, directive, order, claim, pleading, letter,
application, filing, report, findings, declarations or other
materials pertinent to compliance with any Applicable Laws.
(e) Borrower shall do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and shall
not permit the dissolution or termination of Borrower.
(f) Borrower shall nor cancel any claim or debt owing to it except for
reasonable consideration and in the ordinary course of business.
7. Events of Default.
The following shall constitute a Default or Event of Default, as the
case may be, hereunder:
(a) The occurrence of a Default or Event of Default (as defined
therein) under the Note or any other Loan Document.
(b) The failure by Borrower to punctually perform or
observe any covenant or agreement contained in this
Agreement or any other Loan Document, which failure
is not cured within five (5) days after written
notice from Lender of such failure, other than the
obligation to repay the Loan (or portion thereof)
in full pursuant to the last paragraph of Section
2 hereof, which failure shall not be curable.
(c) At any time any representation or warranty made by Borrower herein
or in any other Loan Document delivered by Borrower to Lender in
connection with the Loan is or becomes materially misleading in
any material respect
(d) Borrower shall voluntarily or involuntarily, by operation of law
or otherwise, sell, transfer or dispose of all or any part of the
Collateral or any interest therein, without the prior consent of
Lender, which consent may be granted or withheld in Lender's sole
and absolute discretion. A transfer or disposition of the
Collateral or any part thereof or interest therein shall include,
without limitation, the granting of any option to purchase, right
of first refusal or offer or similar right, or any direct or
indirect sale, assignment, pledge, hypothecation, conveyance,
transfer or other alienation of all or any part of the Collateral
or any interest therein. The following shall also constitute a
transfer of the Collateral, whether made directly or indirectly
through one (1) or more intermediaries, and whether made in a
single transaction or in a series of transactions:
(i) if Borrower or a controlling shareholder of Borrower is a
corporation, a transfer or other disposition (whether by
operation of law or otherwise) of more than forty-nine percent
(49%) of the outstanding voting stock of Borrower or such
shareholder or of the direct or remote parent of Borrower or
such shareholder;
(ii)if a controlling shareholder of Borrower is a partnership, a
transfer or other disposition (whether by operation of law or
otherwise) of any interest of a general partner of such
partnership, except as excepted or permitted herein; or
(iii)if a controlling shareholder of Borrower is a trust or other
entity, a transfer or other disposition (whether by operation
of law or otherwise)) of more than 49% of the beneficial
interest in such trust.
5
<PAGE>
(e) Borrower (i) applies for or consents to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or
liquidator of Borrower or of all or a substantial part of its
property, (ii) admits in writing its inability, or is generally
unable, to pay its debts as such debts become due, (iii) makes a
general assignment for the benefit of its creditors, (iv)
commences a voluntary case under the federal Bankruptcy Code (as
now or hereafter in effect), (v) files a petition seeking to take
advantage of any other law relating to bankruptcy insolvency,
reorganization, winding up or composition or adjustment of debts,
(vi) fails to controvert in a timely and appropriate manner, or
acquiesces in writing to, any petition filed against it in an
involuntary case under such Bankruptcy Code or (vii) takes any
action for the purpose of effecting any of the foregoing.
(f) A proceeding or case is commenced without the
application or consent of Borrower in any court of
competent jurisdiction seeking (i) the liquidation,
reorganization, dissolution, winding up or
composition or readjustment of debts of Borrower,
(ii) the appointment of & trustee, receiver,
custodian, liquidator or the like of Borrower or of
all or any substantial part of its assets or (in)
similar relief in respect of Borrower under any law
relating to bankruptcy, insolvency, reorganization,
winding up or composition or adjustment of debts.
(g) A final judgment or judgments for the payment of money in excess
of $50,000 in the aggregate is rendered against Borrower and is
not discharged or execution thereof stayed within thirty (30) days
from the date of entry thereof.
8. Remedies.
If any Event of Default shall have occurred, Lender may, without
notice, take any or all of the following actions:
(a) declare all or any portion of the Loan and any
other indebtedness evidenced and secured by the
Loan Documents to be forthwith due and payable,
whereupon such indebtedness shall become due and
payable without presentment, demand, protest or
further notice of any kind, all of which are
expressly waived by Borrower provided, however,
that, upon the occurrence of an Event of Default
specified in Section 7(e) or (f), all of such
indebtedness shall become due and payable without
declaration, notice or demand by Lender;
(b) enforce any or all of Lender's rights and remedies
under the Loan Documents or as may be otherwise
available at law or in equity.
9. Application of Payment.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time or times hereafter received by Lender from or on
behalf of Borrower and irrevocably agrees that Lender shall have the continuing
exclusive right to apply any and all such payments against the then due and
payable indebtedness and in repayment of the Loan as Lender may deem
advisable.
10. Miscellaneous.
The following conditions shall be applicable throughout the term of
this Agreement:
(a) Borrower may not assign this Agreement or the
proceeds of the Loan.
(b) Any condition of this Agreement that requires the
submission of evidence of the existence or
nonexistence of a specified fact or facts implies
as a condition the existence or nonexistence, as
the case may be, of such fact or facts and the
Lender shall, at all times, be free independently
to establish to its satisfaction and in its
reasonable discretion such existence or
nonexistence.
(c) All notices, demands, waivers, consents, approvals and other
communications hereunder shall be in writing and shall be deemed
to have been sufficiently given or served for all purposes when
sent in the manner provided for in the Note.
6
<PAGE>
(d) This Agreement shall be construed and enforced in accordance with
the laws of the State of Nevada applicable to contracts entered
into and performed therein.
(e) Lender and Borrower acknowledge and agree that the
only appropriate forums for any legal dispute
arising under or in connection with this Agreement,
and each party hereby irrevocably submits itself to
the personal jurisdiction of, the United States
District Court for the District of Nevada and the
Eighth Judicial District Court of the State of
Nevada, and the parties consent and agree that such
courts shall have sole jurisdiction over any matter
arising under or in connection with this Agreement.
(f) Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by a writing
signed by the party against whom enforcement of the change,
waiver, discharge or termination is sought.
(g) Lender shall have the right to assign the Loan Documents or the
collateral held by Lender hereunder without Borrower's consent,
and allprovisions of this Agreement shall continue to be
applicable and Borrower shall continue to be bound under the
Note, the Security Agreement, this Agreement and any other Loan
Documents. If the Loan is assigned as herein set forth and the
assignee assumes the obligations of Lender under this Agreement,
the assignment and assumption shall be deemed compliance by the
assignor with this Agreement and to have been made pursuant
hereto, and any advances made after the assignment shall continue
to be included in the Note and secured by the lien of the
Security Agreement. The assignor, after delivery of the duplicate
original of the assignee's assumption of Lender's rights and
obligations under this Agreement, shall be relieved of all of its
obligations under this Agreement. Borrower Shall have no
obligation to make any payments to such assignee until Lender or
such assignee gives notice of such assignment to Borrower.
(h) Borrower shall pay to Lender the reasonable fees of
Lender's counsel (at its regular hourly rates for
time spent plus disbursements) and other
consultants incurred by Lender in connection with
making, monitoring, collecting and enforcing the
Loan and the Loan Documents in accordance with the
terms of this Agreement promptly upon receipt of
bills therefor from time to time until the Loan and
all such fees shall have been paid in full; and it
will pay all costs and expenses required to satisfy
the conditions of this Agreement, including,
without limitation, all taxes and recording
expenses, including stamp taxes, if any.
(i) This Agreement sets forth the entire agreement between the parties
hereto with respect to the matter covered hereby. All prior
negotiations, understandings and discussions am merged herein.
(j) Lender shall have the right, in its sole and absolute discretion,
at any time and from time to time to invite participants to
participate in the Loan. Borrower agrees to execute any documents
reasonably requested by Lender in connection with any such
participation.
7
<PAGE>
(k) This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same
document, and any of the parties or signatories hereto may execute
this Agreement by signing any of such counterparts.
(l) The Lender shall at all times and at any time have the right to
waive any of the obligations of Borrower hereunder and such waiver
shall not be deemed a modification of this Agreement.
(m) Unenforceability for any reason of any provision of this Agreement
shall not limit or impair the operation or validity of any other
provision of this Agreement or of any other of the Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
and year first above written.
BORROWER: TEE ONE UP, INC.,
a Nevada corporation
By: /s/ HERMINIO LLEVAT
-------------------------
Name: Herminio Llevat
Title: Chief Financial Officer
LENDER: Pacific D.N.S., Inc.,
a Nevada corporation
By: /s/ JOSEPH A. CORAZZI
--------------------------
Name: Joseph A. Corazzi
Title: President
13
<PAGE>
PROMISSORY NOTE
Up to $300,000 Las Vegas, Nevada
September 4, 1996
FOR VALUE RECEIVED, TEE ONE UP, INC., a Nevada corporation ("Borrower"),
promises to pay to Pacific D.N.S., Inc., a Nevada corporation ("Lender"), or
order, at 2895 Ashworth Circle, Las Vegas, Nevada 89107, or at such other place
as may be designated in writing by Lender, without setoff or deduction, the
principal sum of Three Hundred Thousand Dollars ($300,000) (or such lesser
amounts as may be advanced hereunder), with interest thereon at the rate, in the
amounts and in the manner set forth herein.
The term of this Note shall commence on the date hereof and shall end on
September 3, 1998 (the "Maturity Date"); provided, however, that if at any time
prior to the Maturity Date the Borrower or any majority-owned subsidiary or
affiliate of Borrower receives the proceeds from any public or private debt
and/or equity financing which provides not less than One Million Dollars
($1,000,000) in proceeds to the Borrower (or such subsidiary or affiliate),
Borrower will apply up to thirty percent (30%) of the first One Million Dollars
($1,000,000) of proceeds therefrom in mandatory prepayment of all amounts of
principal and interest then outstanding hereunder. All payments due under this
Note shall be applied first against accrued interest and then against the
outstanding principal amount due hereunder. Borrower shall pay all amounts due
under this Note directly to Lender in lawful money of the United States of
America.
Interest Rate. This Note shall bear interest from and after the date hereof
at the rate of seventeen percent (17%) per annum (the "Interest Rate") from and
after the date hereof, computed on the basis of a 360-day year of twelve (12)
30-day months.
Monthly Payments; Final Payment. Subject to mandatory prepayment as
provided herein, the interest and principal due under this Note shall be paid in
twenty-four (24) equal monthly installments (each, a "Monthly Payment"), due and
payable in arrears commencing on October 1, 1996, with the final such payment
(the "Final Payment") due on the Maturity Date, each such installment to be in
an amount sufficient to fully-amortize the loan evidenced hereby over the stated
term hereof.
Late Charge; Late Rate. Borrower shall make all Monthly Payments by wire
transfer or other payment of immediately available funds received as directed by
Lender not later than the date such payment is due and payable. If any Monthly
Payment due under this Note is not paid within five (5) days of such date,
Borrower shall pay a late charge ("Late Charge") in an amount equal to five
percent (5%) of such delinquent Monthly Payment. Any such payment upon which a
Late Charge is due shall not be deemed to have been paid until Borrower shall
have also paid the Late Charge. Borrower agrees that the Late Charge is paid to
compensate Lender for the additional cost and expense incurred by Lender as a
result of the late payment, and is not a penalty. Such Late Charge represents a
reasonable sum considering all of the circumstances existing on the date of this
Note and represents a fair and reasonable estimate of the costs that will be
sustained by Lender due to the failure of Borrower to make timely payments. The
parties further agree that the proof of actual damages would be costly or
inconvenient. Such Late Charge shall be paid without prejudice to the rights of
Lender to collect any other amounts provided to be paid or to declare a default
under this Note or from exercising any of the other rights and remedies of
Lender.
If the Final Payment is not paid when due, including upon any acceleration
of this Note due to a Default or Event of Default (as defined in the Loan
Agreement) by Borrower, then the outstanding principal balance of this Note
shall bear interest, from such due date until the date of such payment, at a
rate equal to twenty-five percent (25%) per annum (the "Late Rate"). In addition
to the Late Charge, any Monthly Payment not paid within thirty (30) days of the
date due shall also bear interest at the Late Rate, computed from the date such
payment was due.
Prepayment. Borrower shall have the right to prepay all or any portion of
the outstanding principal balance of this Note at any time and from time to
time, without premium or penalty of any kind.
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<PAGE>
Loan Agreement; Security. This Note is made pursuant to a Loan Agreement of
even date herewith between Borrower and Lender (the "Loan Agreement") and is
entitled to the benefits and security contemplated by that certain Assignment of
Contacts and Security Agreement (the "Security Agreement") of even date herewith
and made by Borrower in favor of Lender pursuant to the Loan Agreement, and
certain other rights and security as described in the Loan Agreement. This Note
evidences, and the Security Agreement secures payment of, the indebtedness of
Borrower incurred for moneys borrowed from Lender as well as all other loans,
advances or cost made or incurred by Lender at any time or times hereafter under
the Loan Agreement, and the amount of any such other loan, advance or cost shall
be added to the principal indebtedness hereunder and shall bear interest at the
Interest Rate, provided that if a Default or Event of Default exists and is
continuing, such interest shall be at the Late Rate (whichever rate is in effect
at the time in question is referred to herein as the "Note Rate"). The Loan
Agreement contains provisions for acceleration of the maturity of this Note upon
the occurrence of certain events described therein.
Default. If Borrower fails to pay any amount due under this Note in the
manner and at the time specified herein and Lender shall not have received such
payment within five (5) days after written notice from Lender of such failure is
received by Borrower, or there is a Default or Event of Default under the Loan
Agreement and/or the Security Agreement, then, in any such event, the entire
outstanding principal balance of this Note, additional loans or advances secured
by the Security Agreement and all other sums owed by Borrower to Lender pursuant
to the terms of this Note, the Loan Agreement and/or the Security Agreement,
together with unpaid interest accrued thereon, shall at the option of Lender
become immediately due and payable without further notice or demand, and Lender
may forthwith exercise the remedies available to Lender at law and in equity as
well as those remedies provided for herein and in the Security Agreement and/or
in the Loan Agreement.
Miscellaneous. Except for any notices which are expressly required by the
terms of this Note, Borrower and any endorser of this Note hereby waive
diligence, demand, presentment for payment, notice of nonpayment, protest,
notice of dishonor and notice of protest and specifically consent to and waive
notice of any renewals, modifications or extensions of this Note, whether in
favor of Borrower or any other person or persons, and hereby waive any defense
by reason of extension of time for payment or other indulgence granted by
Leader.
No delay or failure of Lender in exercising any right, remedy or privilege
under this Note or under the Loan Agreement shall affect such right, remedy or
privilege, nor shall any single or partial exercise thereof or any abandonment
or discontinuance of steps to enforce such a right, remedy or privilege preclude
any further exercise thereof or the exercise of any other right, remedy or
privilege. The rights, remedies and privileges of Lender hereunder are
cumulative and not exclusive of any rights, remedies or privileges which Lender
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of Lender of any breach or default under this Note, or of
any provision or condition of this Note, must be in writing and shall be
effective only to the extent specifically set forth in such writing. No notice
to or demand on Borrower shall entitle Borrower to any other or further notice
or demand in other similar circumstances. A waiver on any one occasion shall not
be construed as a waiver or bar to any right, remedy or privilege on any other
occasion.
All notices, demands, requests consents, approvals or other instruments
required or permitted to be given pursuant hereto shall be in writing and shall
be deemed to have been given upon (i) actual receipt, if hand delivered, (ii)
confirmed transmission, if delivered by facsimile transmission, except if such
facsimile is transmitted other then between 8:00 a.m. and 5:00 p.m. on a
business day in the location of the recipient, such facsimile transmission shall
be deemed to have been received the next business day, (iii) the next business
day, if delivered by express delivery service or overnight courier service and
such delivery is confirmed by such service. or (iv) the third business day
following the day of deposit of such notice in registered or certified mail,
postage prepaid, return receipt requested. Notices shall be provided to the
addresses (or facsimile numbers, as applicable) specified below:
If to Borrower: TEE ONE UP, INC.
826 North Lake Street
Burbank, CA 91502
Attention: Michael B. Horrell, President
Telephone: (818) 955-8380
Facsimile: (818) 955-8450
If to Lender: Pacific D.N.S., Inc.
2805 Ashworth Circle
Las Vegas, NV 89107
Telephone: (702) 870-7134
Facsimile: (702) 258-0288
or to such other addresses as are designated by notice pursuant to
this paragraph.
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<PAGE>
Borrower shall pay all costs of collection on demand by Lender, including
without limitation, reasonable attorneys' fees and disbursements, which costs
may be added to the indebtedness hereunder, together with interest thereon at
the Note Rate.
This Note may not be amended or modified except by a written agreement duly
executed by Borrower and Lender, and Lender shall have no obligation to extend
or renew the Loan.
This Note is to be construed and enforced in all inspects in accordance
with the laws of the State of Nevada applicable to contracts made and performed
therein. If any provision hereof is held to be invalid or unenforceable by a
court of competent jurisdiction, the other provisions of his Note shall remain
in full force and effect and shall be liberally construed in favor of Lender.
Borrower acknowledges and agrees that the only appropriate forums for any
legal dispute arising under or in connection with making, enforcing and/or
interpreting of this Note, and such party hereby irrevocably submits itself to
the personal jurisdiction of, the United States District Court for the District
of Nevada and the Eighth Judicial District Court of the State of Nevada, and
such party consents and agrees that such courts shall have sole jurisdiction
over any matter arising under or in connection herewith.
Notwithstanding anything to the contrary contained herein, the obligations
of Borrower to Lender under this Note are subject to the limitation that
payments of interest to Lender shall not be required to the extent that receipt
of any such payment by Lender would be contrary to provisions of applicable law
limiting the maximum rate of interest that may be charged or collected by
Lender. The portion of any such payment received by Lender that is in excess of
the maximum interest permitted by such provisions of law shall be credited to
the principal balance hereof.
Borrower represents and warrants to Lender that the proceeds of the Loan
evidenced by this Note shall be used solely for commercial investment or
business purposes, and not for family, household or personal purposes.
Whenever used herein the words "Borrower" and "Lender" shall be deemed to
include, to the extent applicable, the respective heirs, personal
representatives, successors and assigns of Borrower and of Lender including,
with respect to Lender, any subsequent holder of this Note. If "Borrower" is
made up of more than one person and/or entity, each such person and/or entity
shall be jointly and severally liable on this Note.
This obligation shall bind Borrower and, to the extent applicable, its
heirs, personal representatives, successors and assigns, and the benefits hereof
shall inure to Lender and its successors and assigns.
This Note is and shall be a fully recourse obligation of Borrower, and
Borrower shall be and remain personally liable beyond its interest in any
security given by Borrower pursuant to the Loan Agreement.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
date first written above.
BORROWER: TEE ONE UP, INC.,
a Nevada corporation
By: \s\Herminio Llevat
-------------------------
Name: Herminio Llevat
Title: Chief Financial Officer
3
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of September 4, 1996
between Tee One Up, Inc., a Nevada corporation ("Debtor"), and Pacific D.N.S.
Inc., a Nevada corporation ("Secured Party"). with reference to the following
facts and circumstances:
WHEREAS, in connection with a loan (the "Loan") being made concurrently by
Secured Party to Debtor, Debtor has executed and delivered to Secured Party its
promissory note dated September 4, 1996 (the "Note") in the original principal
amount of Three Hundred Thousand Dollars ($300,000);
WHEREAS, the loan is to be made pursuant to a Loan Agreement dated as of
September 4, 1996 (the "Loan Agreement"), between Debtor and Secured Party;
WHEREAS, Debtor intends to use the proceeds of the Loan in connection with
Debtor's hole-in-one verification system and related activities business, which
business includes, without limitation, the activities described in the
"Contracts" as described in the Loan Agreement ("Debtor's Business"); and
WHEREAS, Debtor wishes to provide collateral for the obligations evidenced
by the Note by entering into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
ARTICLE I
GRANT AND SECURED OBLIGATIONS
Section 1.01. Grant. Debtor hereby grants a security interest to Secured
Party, under and subject to the terms and conditions hereinafter set forth, in
all estate, property, right, title and interest of Debtor, whether now owned or
hereafter acquired, in, to and under the following described property, all of
which may be referred to herein collectively as the "Collateral":
(a) all equipment, machinery, appliances, fixtures, goods, merchandise, and
other personal property, including without limitation computer hardware
and software and all rights thereto, now or hereafter owned or used by
Debtor in Debtor's Business or any part thereof;
(b) all contracts and agreements now or hereafter entered
into by Debtor or any successor, assign or affiliate of
Debtor;
(c) all fees, income, receipts, payments, revenues or compensation, however
denominated, and all deposits and deposit agreements, escrow funds,
insurance proceeds and other funds or receipts earned in, derived from
or otherwise relating to or arising from Debtor's Business or any part
thereof;
(d) all contract rights and benefits, documents, insurance policies,
agreements, contracts and other instruments and general intangibles
relating to the Debtor's Business or any part thereof and all other
contractual arrangements creating a right in Debtor as a result of its
ownership or operation of all or any part of the Debtor's Business,
whether written or verbal;
(e) all permits, plans and specifications, governmental approvals,
certificates, licenses, authorizations, and other rights used or useful
in Debtor's Business or any part thereof and any other consents and
approvals which Debtor may now or hereafter own with respect to or in
connection with the Debtor's Business or any part thereof;
(f) all of Debtor's accounts receivable, rights to payment, accounts,
notes, drafts, acceptances, instruments, documents of title, policies
and certificates of insurance, insurance claims or payments in
connection with any loss or damage to the above-described collateral
whether from insurance or otherwise, general intangibles and chattel
paper, which shall include, without limitation, such thereof as arise
out of the operation of Debtor's Business;
(g) All rights, remedies, powers and privileges of Debtor
with respect to any of the foregoing or following; and
(h) All proceeds, products, revenues, profits and rents of and from any and
all of the foregoing property, in any form whether cash or non-cash in
nature and whether represented by checks, drafts, notes, or other
instruments for the payment of money, invoices, accounts, chattel paper
and other forms of obligations and receivables, or otherwise, and
including without limitation any of same which are received, due or to
become due with respect to any sale, exchange or other disposition of
any or all of the foregoing property.
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Section 1.02. Secured Obligations. This Agreement shall
secure the following indebtedness and obligations:
(a) Payment of the indebtedness evidenced by the Note,
including any and all replacements, renewals, amendments,
extensions, substitutions and modifications thereof;
(b) Payment of all other indebtedness and performance of all other
obligations and covenants of Debtor contained in any Loan Document (as
defined in the Loan Agreement) or otherwise owing from Debtor to
Secured Party at any time.
The indebtedness and the obligations secured by this Agreement as described
above may be referred to herein as the "Secured Obligations." This Agreement and
the security interest in the Collateral as provided herein shall continue until
delivery to Debtor of a termination statement.
ARTICLE II
DEBTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties. Debtor
represents and warrants as follows:
(a) Debtor is and as to Collateral acquired after the date hereof will be
the owner of the Collateral free from any adverse liens, security
interest or encumbrance. Debtor is in exclusive possession of the
Collateral. Debtor shall defend the Collateral against all claims and
demands of all persons.
(b) There is no financing statement now on file covering any of the
Collateral or in which Debtor is named as or signs as a debtor. Without
the prior written consent of secured Party, Debtor will not execute nor
permit the filing of any such financing statement or statements.
Section 2.02. Covenants. Debtor covenants and agrees as
follows:
(a) Debtor will promptly notify Secured Party of any other change of
location of the Collateral or any change of its place of business. All
books and records of Debtor pertaining to Debtor's business shall also
be kept at such location.
(b) Debtor will not sell or dispose of the Collateral or any interest
therein, except in the ordinary course of Debtor's business operations
and in a manner consistent with the covenants and terms of this
Agreement and the other Loan Documents. Upon written notice from
Secured Party, Debtor shall not sell any of the Collateral except on
and under such terms and under such terms andconditions as may
thereafter be authorized in writing by Secured Party.
(c) Debtor will not misuse or conceal Collateral nor use it contrary to the
provisions of any insurance coverage and will at its own expense
properly keep and maintain the Collateral and promptly pay when due all
costs and expenses incurred or accruing in connection with the custody,
care and possession thereof.
(d) Debtor will keep the Collateral in good condition and repair, free from
any liens, security interests or encumbrances (other than those in
favor of Secured Party), and Debtor will not waste or destroy the
Collateral or any part thereof and will not use the Collateral in
violation of any law, statute or ordinance.
(e) To the extent appropriate, Debtor shall keep the Collateral insured
with an insurance company or companies acceptable to Secured Party, at
all times against casualty, loss or damage with "all risk" coverage and
against such other risks as Secured Party may require. Debtor shall
also maintain liability, casualty and other appropriate insurance with
respect to Debtor's Business and the assets and property used therein
in customary and prudent amounts for such a business or as Secured
Party may otherwise from time to time require.
(f) Debtor agrees to pay all expenses, including attorneys' fees, incurred
by Secured Party in the preservation, realization, enforcement and
exercise of the rights, powers and remedies of Secured Party or the
obligations of Debtor hereunder, including without limitation any
expenses of Secured Party pursuant to Section 3.01 hereof; and to
indemnify Secured Party against all losses, claims, demands and
liabilities of every kind caused by the Collateral or the operation of
Debtor's Business.
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(g) Debtor agrees to conduct its business efficiently and without voluntary
interruption; to preserve its rights, privileges and franchises held
and used in its business; to keep its business properties in good
repair; to give Secured Party notice of any litigation which may
adversely affect its business; and to promptly pay when due all taxes,
liens, fees, charges and assessments upon the Collateral and its other
properties.
ARTICLE III
INSPECTION/PROTECTION OF COLLATERAL
Section 3.01. Right to Inspect and Protect Collateral. Secured Party or its
agents may at anytime enter on any lands or premises where any of the Collateral
is located to inspect the same. Secured Party at its option may take possession
of the Collateral or any part thereof in order to care for, maintain, protect or
market the same or any part thereof or to carry out or enforce any of the
provisions of this Agreement if Debtor has failed to do so or if Secured Party
deems that Debtor has failed to do so properly or at the proper time or in the
proper manner. Secured Party make take such means and proceedings and do all
acts and things and advance or pay such amounts as Secured Party deems necessary
or advisable to insure, protect, care for, maintain, transport or market the
Collateral or any part thereof.
Section 3.02. Inspection of Records. Secured Party may at any time inspect,
during reasonable business hours, any of the business locations or premises of
Debtor and the books and records of Debtor relating to the Collateral, as well
as those relating to its general business and financial condition. Debtor agrees
to keep accurate and complete books and records. Debtor further agrees to
furnish from time to time such reports, data and financial statements, in
respect to Debtor's business and financial condition as Secured Party may
reasonably require. Debtor agrees to furnish upon Secured Party's request a
complete list of all Accounts of Debtor showing the name and address of the
person indebted to Debtor and the amount of the indebtedness so that Secured
Party can ascertain the Accounts of Debtor subject to this Agreement.
Section 3.03. Protection of Collateral. Should Debtor fail to do so,
Secured Party may, but shall not be obligated to: obtain insurance required
hereunder; pay taxes, assessments, liens, fees, charges or encumbrances; order
and pay for repairs; or otherwise spend any amounts or do any acts Secured Party
deems necessary to maintain the Collateral in Debtor's exclusive possession and
in good condition. All amounts expended by Secured Party, with interest thereon
at the rate provided by the Note, shall constitute an indebtedness of Debtor to
Secured Party secured by the Collateral and shall be immediately due and
payable. No such act or expenditure by Secured Party shall relieve Debtor from
the consequences of such default. The making of any such payment or the
performance of any such act or obligation by Secured Party shall constitute
prima facie evidence of the necessity therefore and the reasonableness thereof.
Section 3.04. Risk of Loss and Care of Collateral. The risk of loss or
damage to the Collateral at all times is assumed by Debtor who agrees to hold
Secured Party harmless from any loss resulting therefrom.
ARTICLE IV
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section 4.01. Events of Default. Anyone or more of the
following events shall be deemed an Event of Default hereunder:
(a) failure by Debtor to punctually perform or observe any covenant or
agreement contained in this Agreement, which failure is not cured
within five (5) days after written notice from Secured Party of such
failure;
(b) the occurrence of any default or Event of Default (as
defined therein) under any of the other Loan Documents;
or
(c) if a significant portion (determined in the sole discretion of the
Secured Party) of the Collateral is lost, stolen or suffers substantial
damage or destruction.
Section 4.02. Rights and Remedies. Secured Party shall have the rights,
options, duties and remedies of a secured party, and Debtor shall have the
rights and duties of a debtor under the applicable provisions of the uniform
Commercial Code. Upon the occurrence of an Event of Default, Secured Party may,
at Secured Party's sole option exercised in Secured Party's sole discretion,
pursuant to any one or more of the following remedies:
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(a) Declare all or any portion of the Secured Obligations to be due and
payable, and the same shall thereupon become due and payable without
any presentment, demand, protest or notice of any kind except as
otherwise provided herein, and Debtor hereby waives notice of intent to
accelerate or demand payment of the Secured Obligations;
(b) Take immediate possession of all or any portion of the Collateral
without notice or resort to legal process and for such purpose to enter
upon any premises on which the Collateral or any part thereof may be
situated and remove the same therefrom or at its option render the
Collateral immovable. Whether or not any non-judicial proceedings are
brought or commenced by Secured Party, Secured Party shall be entitled
to the appointment of a Receiver to take charge of the Collateral,
collect the rents, issues and profits therefrom care for and repair the
same, improve the same when necessary or desirable, sell, lease or rent
the Collateral or portions thereof (including leases extending beyond
the term of receivership), market
Collateral and otherwise use, utilize and realize upon the Collateral,
and to have such other rights and duties as may be fixed by the Court.
If Secured Party elects not to obtain a receiver and/or pending the
appointment of a receiver, Secured Party may exercise such rights
itself. Debtor specifically agrees that a Receiver may be appointed
without any notice to Debtor whatsoever, and the Court may appoint a
Receiver without reference to the adequacy of the security, the
solvency of the Debtor, or such other matters as might otherwise be
taken into account by Courts in the discretionary appointment of
Receivers, it being the intention of Debtor thereby authorize the
appointment of a Receiver whenever Debtor is in default and Secured
Party has requested the appointment of a Receiver. Debtor hereby agrees
and consents to the appointment of the particular person or firm
designated by Secured Party and hereby waives any right to suggest or
nominate any person or firm as Receiver in opposition to that
designated by Secured Party;
(c) Require Debtor to assemble the Collateral and make it available to
Secured Party at a place, to then be designated by Secured Party, which
is reasonably convenient to both parties;
(d) Retain the Collateral or any portion thereof in satisfaction of the
Secured Obligations or any portion thereof by sending written notice of
such election to Debtor; but unless such written notice is sent by
Secured Party as aforesaid, retention of such Collateral shall not be
in satisfaction of any obligations hereunder;
(e) At any sale or disposition of the Collateral, accept a trade of
property for all or a portion of the sale price and/or credit bid all
or any portion of the Secured Obligations upon the sale price of the
Collateral;
(f) Apply the proceeds realized from the disposition of the Collateral to
payment of collection costs and expenses (including attorneys' fees)
incurred by Secured Party;
(g) Collect from Debtor, and Debtor shall forthwith pay, any deficiency
balance to the Secured Party if the proceeds realized from disposition
of the Collateral shall fail to satisfy all of the obligations of
Debtor to Secured Party; and/or
(h) Exercise any other rights or remedies which may not or hereafter be
available to Secured Party under this Agreement, the other Loan
Documents, and/or pursuant to applicable law or in equity.
Any written notice required to be given Debtor, if given by any means set
forth in Section 5.03 below, shall be deemed reasonable notification to Debtor
for all purposes.
Section 4.03. Remedies Not Exclusive; Delay. No remedy herein conferred
upon or reserved to Secured Party is intended to be exclusive of any other
remedy herein or by law provided or permitted, but each shall be cumulative and
shall be in addition to every other remedy given hereunder or ow or hereafter
existing at law or in equity or by statute. Every power or remedy given by any
of the Loan Documents to Secured Party, or to which it may be otherwise
entitled, may be exercised concurrently or independently, from time to time and
as often as may be deemed expedient by Secured Party, and Secured Party may
pursue inconsistent remedies. No delay by Secured Party in the exercise of any
right or remedy under the Loan Documents shall operate as a waiver thereof or
preclude the exercise thereof during the continuance of any default hereunder.
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Section 4.04. Automatic Relief From Stay. In the event that Debtor
commences a case under the Code or is the subject of an involuntary case that
results in an order for relief under the Code subject to court approval, Secured
party shall thereupon be entitled and Debtor irrevocably consents to relief from
any stay imposed by Section 362 of the Code or against the exercise of the
rights and remedies otherwise available to Secured Party as provided in this
Assignment and Debtor hereby irrevocably waives its rights to object to such
relief. In t he event Debtor shall commence a case under the Code or is the
subject of an involuntary case that results in an order for relief under the
Code, Debtor hereby agrees that no injunctive relief against Secured Party shall
be sought under Section 105 or other provisions of the Code by Debtor or other
person or entity, nor shall any expansion be sought of the stay provided by
Section 362 of the Code.
ARTICLE V
MISCELLANEOUS
Section 5.01. Further Assurances. Debtor agrees to execute and deliver such
financing statements, amendments and supplements thereto, or other instruments
as Secured Party may from time to time require in order to comply with the
Uniform Commercial Code and to preserve, protect and enforce the security
interest of Secured Party herein granted. Debtor agrees to pay all cost of
preparing and placing such statements or instruments of recorded, and further
agrees that any true and correct carbon, photographic or other reproductive copy
of this Agreement or the financing statement relating hereto may be filed or
recorded as a financing statement.
Section 5.02. Successors and Assigns; Assignment of Secured Party's
Interest. This Agreement applies to and binds Debtor and inures to the benefit
of Secured Party, it heirs, legatees, devisees, administrators, executors,
successors and assigns. The covenants and agreements of Debtor contained herein
shall apply to and be binding upon any successor owner of the Collateral or any
part thereof (other than a bona fide buyer for value in the normal course of
Debtor's business). the term "Secured Party" shall also mean and include any
successor or successors and any assign or assigns of Secured Party. Debtor
hereby specifically grants unto Secured Party the right and privilege, at
Secured Party's option, to transfer and assign to any one or more third person
all or any part of Secured Party's rights with respect to the Secured
Obligations and/or this Agreement.
Section 5.03. Notices. All notices, demands, requests, consents, approvals
or other instruments required or permitted to be given pursuant hereto shall be
in writing and shall be deemed to have been given upon (i) actual receipt, if
hand delivered, (ii) confirmed transmission if delivered by facsimile
transmission, except if such facsimile is transmitted other than between 8:00
a.m. and 5:00 p.m. on a business day in the location of the recipient, such
facsimile transmission shall be deemed to have been received the next business
day, (iii) the next business day, if delivered by express delivery service or
overnight courier service and such delivery is confirmed by such service, or
(iv) the third business day following the day of deposit of such notice in
registered or certified mail, postage prepaid, return receipt requested. Notices
shall be provided to the addresses (or facsimile numbers, as applicable)
specified below:
If to Debtor: TEE ONE UP, INC.
826 North Lake Street
Burbank, California 91502
Attention: Michael B. Horrell,
President
Telephone: (818) 955-8380
Telecopy: (818) 955-8450
If to Secured
Party: Pacific DNS, Inc.
2805 Ashworth Circle
Las Vegas, Nevada 89109
Telephone: (702) 870-7134
Telecopy: (702) 258-0288
or to such other addresses as are designated by notice pursuant to
this paragraph.
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Section 5.04. General Provisions.
(a) Time of the Essence. Time is of the essence of this
Agreement, and each and all of its terms and conditions.
(b) No Waiver. No delay or omission on the part of Secured Party in
exercising any power, right or remedy hereunder shall operate as a
waiver of any such power or right nor shall any single or partial
exercise of any other power, right or remedy of Secured Party under
this Agreement, or which may be provided by law, it being understood
that any extension or indulgence at any time allowed by Secured Party
to Debtor shall be in reliance upon the understanding that such shall
not affect or prejudice the rights, powers and remedies of Secured
Party.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of
Nevada applicable to contracts entered into and performed
therein.
(d) Jurisdiction and Venue. Debtor and Secured Party acknowledge and agree
that the only appropriate forums for any legal dispute arising under or
in connection with this Agreement, and each party hereby irrevocably
submits itself to the personal jurisdiction of, the United States
District Court for the District of Nevada and the Eighth Judicial
District Court of the State of Nevada, and the parties consent and
agree that such courts shall have sole jurisdiction over any matter
arising under or in connection with this Agreement.
(e)Costs. Debtor agrees to pay all costs and expenses incurred by Secured
Party in the enforcement of this Agreement, including but not limited
to reasonable attorneys' fees and costs.
(f) Construction. The terms and provisions of this Agreement represent the
results of negotiations between the parties, each of which are
financially sophisticated parties and each of which has been
represented by counsel of its own choosing, and none of which have
acted under any duress or compulsion, whether legal, economic or
otherwise. consequently, the terms and provisions of this Agreement
shall be interpreted and construed in accordance with their usual and
customary meanings, and each party hereto waives the application of
any rule of law which would otherwise be applicable in connection with
the interpretation and construction of this Agreement that ambiguous
or conflicting terms or provisions contained in this Agreement shall
be interpreted or construed against the party whose attorney prepared
the executed Agreement or any earlier draft of the same.
(g) Headings. Any headings preceding the text of the several paragraphs
hereof are inserted solely for convenience of reference and shall n to
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
(h) Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, but all of which
together shall constitute but one and the same instrument.
(i) Amendment; Waiver; Entire Agreement. No change or modification of this
Agreement shall be valid unless the same is in writing and signed by
the parties hereto. No waiver of any of the provisions of this
Agreement shall be valid unless in writing and signed by the party
against whom it is sought to be enforced. This Agreement contains the
entire agreement between the parties relating to the subject matter
hereof, and there are no promises, agreements, conditions,
undertakings, warranties or representations, oral or written, express
or implied, between the parties relating to the subject matter hereof
other than as herein set forth.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
and year first above written.
DEBTOR: TEE ONE UP, INC.,
a Nevada corporation
By: \s\ Hermino Llevat
-----------------------
Name:_Herminio Llevat
Title: Chief Financial Officer
SECURED PARTY: Pacific D.N.S. Inc.,
a Nevada corporation
By: \s\ Joesph Corazzi
-----------------------
Name: Joseph Corazzi
Title:Chairman
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SCHEDULE I
LIST OF EXISTING CONTRACTS
Existing agreements between Tee One Up, Inc. and the following:
1. MARRIOTT INTERNATIONAL, INC. as agent for Marriott Hotel
Properties Limited Partnership, d/b/a Marriott's Orlando
World Center.
2. MARRIOTT INTERNATIONAL INC. as agent for Hotel Properties
Limited Partnership, d/b/a Tan-Tar-A Resort, State Road KK, Osage
Beach, Missouri 65065.
3. Marriott Golf d/b/a Chardonnay Golf Club, 2555 Jameson
Canyon Road, P.O. Box 3779, Napa California 94558.
4. MARRIOTT INTERNATIONAL, INC., as agent for Marriott Hotel Properties
Limited Partnership, d/b/a Griffin Gate Resort, 1800 Newtown Pike,
Lexington, Kentucky 40511.
5. Golf Club at Wind Watch, 1717 Vanderbilt Motor Parkway,
Hauppauge, NY 11788.
Exhibit 10.32
Joint Venture Agreement
This Joint Venture Agreement ("Agreement") is made this 31st day of
January, 1997 by and between Electric Media Co., Inc. ("EMC"), a Delaware
corporation having its principal place of business at 601 13th Street, NW, Suite
500 North, Washington, D.C. and William "Luke" Stewart, residing at 1316 New
Hampshire Avenue, N.W., #205, Washington, D.C., Stewart Worldwide Fusion
Technologies Corporation ("SWFT"), a Nevada corporation, having its principal
place of business at 2981 Bel Air Drive, Las Vegas, Nevada; Texas Information
Development Commission, S.A. ("TIDC"), a Guatemalan S.A., having its principal
place of business at 2a Calle 24-16 Zona 15, V.H.II, Guatemala City, Guatemala,
C. A.. William "Luke" Stewart, SWFT and TIDC shall be collectively referred to
as "Stewart," and Stewart and EMC shall be collectively referred to as "the
Parties."
WHEREAS, the Parties intend to jointly pursue the development and
exploitation of all technology developed by Stewart including but not limited to
advanced subcarrier modulation technology for the provision of video, voice,
and/or data communications over electric power lines and all other revenue
producing forms of distribution or exploitation of such technology (the
"Technology");
WHEREAS EMC desires to license the Technology from Stewart for all
commercial revenue producing purposes worldwide;
WHEREAS, EMC desires to provide certain financing and
management skills to the joint venture;
WHEREAS, Stewart desires to provide know-how, trade secrets, trademarks,
copyrights, patents, and other intellectual property related to the development
and exploitation of the Technology; and
WHEREAS, the Parties intend to conduct field tests of the Technology at the
El Rancho Hotel in Las Vegas, and to commercialize the Technology worldwide, and
in particular in Guatemala and with the World Bank.
Therefore, for the consideration of the mutual covenants and promises
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the
<PAGE>
Parties agree as follows:
18. Purpose: EMC and Stewart hereby form a joint venture (the "Venture"),
the business of which shall be the development and the exploitation of the
Technology. The Technology shall include all related know-how, trade secrets,
trademarks, copyrights, patents, and other intellectual property, as recognized,
granted, or protected by the laws of any country, whether such Technology is
currently existing or developed during the course of the Venture.
2. Disclosure to EMC Experts: No later than February 15, 1997, Stewart
shall disclose the Technology to EMC's patent counsel and to experts as EMC may
designate. The qualifications of such experts shall be disclosed to Stewart and
such experts shall agree in advance to be bound by the terms of Section 11
regarding the nondisclosure of confidential information. If, as a result of such
disclosure, EMC believes that the Technology is not technically feasible or
commercially viable, EMC may terminate this Agreement by providing Stewart with
written notice within ten (10) days of the disclosure. Provided that there has
been no misrepresentation of any representation or warranty set forth herein by
Stewart, all funds advanced by EMC to Stewart as of the date of termination
shall be retained by Stewart as liquidated damages and EMC shall have no further
obligation to Stewart.
3. Scope: The Parties intend that the scope of the Venture
shall include the following activities:
(a) Field Test:
(i) A demonstration of the Technology shall be
conducted at the El Rancho Hotel, Las Vegas, Nevada, beginning no
<PAGE>
later than March 15, 1997, pursuant to Attachment B (Field Test Agenda). Stewart
shall secure such equipment reasonably necessary for the conduct of the Field
Test, subject to a maximum expenditure of $1,500,000, the payment which shall be
in the form of a guarantee by LVEN, and shall ensure that such equipment shall
be returnable to the vendor for a full refund, less fees not to exceed ten
percent (10%), if the equipment does not work as expected by EMC. At all times
during such period of guarantee, LVEN shall maintain a minimum of One Million
Five Hundred Thousand Dollars ($1,500,000.00) in cash.
(ii) Stewart shall be solely responsible for obtaining all
necessary government approvals and licenses (including any licenses required by
the Federal Communications Commission and the state of Nevada), obtaining all
necessary rights-of-way, and satisfying all interconnection requirements. In
connection with such approvals and licenses, EMC shall provide Stewart with any
reasonable and necessary information, as requested in writing, so that Stewart
may accomplish the above.
(iii) Prior to the commencement of the Field Test and in any event
no later than February 15, 1997, Stewart shall supply the Venture with an
opinion of qualified legal counsel that all such government approvals, licenses,
and rights-of-way have been obtained and all interconnection requirements
satisfied. The purpose of the Field Test is to verify the technical feasibility
of the Technology in a non-laboratory, real-world setting. Success of the Field
Test will be determined at EMC's sole discretion, with consideration of
compliance with mutually agreeable engineering standards. If the Technology
fails to perform, EMC shall have the option of terminating this Agreement by
providing Stewart with written notice within 10 days of the conclusion of the
Field Test. Provided that there has been no misrepresentation of any
representation or warranty set forth herein by Stewart, all funds advanced by
EMC to Stewart as of the date of termination shall be retained by Stewart as
liquidated damages and EMC shall have no further funding obligation to Stewart.
If there has been a misrepresentation of any representation or warranty set
forth herein by Stewart, EMC shall be entitled to terminate the Venture, to
receive reimbursement of all amounts expended in connection with the project,
including but not limited to all funds advanced to Stewart, as of the date of
termination, and to pursue all other claims which it may have available to it.
(b) Guatemalan Deployment: If the Field Test is successful or the
Venture is otherwise not terminated by EMC, the Parties shall use their best
efforts to jointly cooperate in the deployment of the Technology in Guatemala,
except that Stewart shall be solely responsible for (i) obtaining all necessary
government approvals, licenses and rights-of-way (including but not limited to
receiving full use of dedicated parts of the frequency spectrum and exclusive
use of the Guatemalan power grid); (ii) satisfying all interconnection
requirements (including but not limited to a telephone interconnection agreement
with Comsat); and (iii) securing insurance or reinsurance covering the Venture
from
<PAGE>
"all risks and losses" (including but not limited to work stoppage due to any
cause without exception or force majeure, and for reimbursement of expenses and
lost profits). Prior to the commencement of providing service in Guatemala,
Stewart shall supply the Venture with an opinion of qualified legal counsel that
all such government approvals, licenses, rights-of-way and insurance have been
obtained and all interconnection requirements satisfied. In addition, Stewart
shall modify the equipment and software as necessary to permit the Technology to
operate in Guatemala. During the existence of the Venture, Stewart shall not
deploy or exploit the Technology in Guatemala without EMC.
(c) World Bank Deployment: If the Field Test is successful or the
Venture is otherwise not terminated by EMC, the Parties shall use their best
efforts to jointly cooperate in the deployment of the Technology at the World
Bank in Washington, D.C., or other locations as may be specified by the World
Bank, except that Stewart shall be solely responsible for obtaining all
necessary government approvals and licenses, obtaining all necessary
rights-of-way, satisfying all interconnection requirements and securing
insurance or reinsurance covering the Venture from "all risks and losses,"
including but not limited to work stoppage due to any cause without exception or
force majeure, and for reimbursement of expenses and lost profits. Prior to the
commencement of providing service to the World Bank, Stewart shall supply the
Venture with an opinion of qualified legal counsel that all such government
approvals, licenses, rights-of-way and insurance have been obtained and all
interconnection requirements satisfied. In addition, Stewart shall modify the
equipment and software as necessary to permit the Technology to operate as
required by the World Bank. During the existence of the Venture, Stewart shall
not deploy or exploit the Technology with the World Bank without EMC.
(d) Other Deployment: The Venture shall have the exclusive right to
develop and exploit the Technology in all other markets. Prior to the
commencement of providing service in any other location, Stewart shall supply
the Venture with an opinion of qualified legal counsel that all government
approvals, licenses, rights-of-way and insurance have been obtained, and all
interconnection requirements satisfied. During the existence of the Venture,
Stewart shall not deploy or exploit the Technology anywhere in the world without
EMC. Further, prior to the commencement of any other commercial activity, EMC
shall solicit Stewart's input.
4. Financing: EMC shall provide financing in accordance
with the terms set forth in Attachment A.
5. Compensation: Subject to the compensation due Stewart
pursuant to Attachment A hereto, after the Venture's expenses
(including but not limited to all business expenses, the cost of
manufacturing and deployment of equipment, taxes, and government
licensing fees), net profits shall be divided as follows:
<PAGE>
(a) all capital contributions of EMC shall be repaid, at
an annual rate of interest of 6%; and
(b) after all capital contributions of EMC have been
repaid pursuant to Section 5(a) hereof, all further net profits
shall be divided as follows: 80% to EMC, 20% to Stewart.
6. Management of Venture: EMC shall provide the day-to-day management of
the Venture's business, which may be delegated or assigned to a professional
management company as EMC may deem fit. EMC shall use its best efforts to assist
Stewart in fulfilling its obligations of the Venture. EMC shall also have
control over the finances of the Venture, including but not limited to making
loan arrangements, and over strategic decisions affecting the Venture.
7. Licensing of Technology: The Technology shall hereby be
licensed by Stewart to the Venture on a royalty-free, exclusive,
worldwide basis. Upon termination of the Venture, EMC shall retain
a royalty-free, exclusive, worldwide license to exploit the
Technology.
8. Representations and Warranties:
(a) EMC: EMC represents and warrants that: 1) it is a corporation duly
organized, existing, and in good standing under the laws of Delaware; and 2) it
is authorized and empowered to perform each and all of its obligations as set
forth in this Agreement.
(b) Stewart: Stewart represents and warrants that: 1) all entities
which have any control or proprietary interest in the Technology are Parties to
this Agreement, and are duly organized, existing, and in good standing under all
applicable laws; 2) Stewart is authorized and empowered to perform each and all
of its obligations as set forth in this Agreement; 3) Stewart owns all right,
title and interest in and to the Technology for all purposes contemplated in
this Agreement, and such rights are not subject to any third party claims; 4)
the Technology as it currently exists does not and as it is developed will not
violate the intellectual property rights, including but not limited to patent,
copyright, trade secret and trademark rights, of any other person or entity; and
5) the Technology is not designed to and will not be designed to operate in
violation of any applicable law.
(c) Mutual Covenants: Each Party represents and warrants to the other
that: 1) it is not currently involved in, and has not been threatened with, any
litigation, government enforcement, or other action that would materially affect
its ability to perform its obligations under this Agreement; and 2) performance
of its obligations under this Agreement will not result in the violation of any
law or private agreement that would materially affect its ability to perform.
9. Indemnification: Each Party indemnifies the other and agrees to hold it
harmless from and against any claim, damage, loss, or liability (including
reasonable attorneys' fees) resulting from the breach of any of its obligations,
warranties, or representations under this Agreement.
<PAGE>
10. Resolution of Disputes: The Parties agree to submit any
disputes arising under this Agreement to arbitration under the
rules of the American Arbitration Association in the State of
Nevada, City of Las Vegas.
11. Confidentiality: Stewart agrees to disclose the Technology to the
Venture, which the Venture shall maintain as a confidential and very valuable
business asset. Except as provided for in Section 2, the Technology shall not be
disclosed by either Party to third persons unless (i) the Parties agree that
such disclosure is necessary to effectuate the purposes of the Venture, (ii) the
information disclosed is already in the pubic domain, or (iii) such disclosure
is required by law. Any third persons to whom such disclosure is made shall be
required to execute an appropriate confidentiality agreement. The obligations of
confidentiality shall survive termination of this Agreement.
12. Term: The initial term of this Agreement shall be 25
years. The Agreement may be renewed for successive 25 year terms
at the election of EMC.
13. Termination: The Venture shall be dissolved upon the
first of the following to occur:
(a) the mutual agreement of the Parties;
(b) the Agreement is terminated pursuant to Section 2
hereof;
(c) the Agreement is terminated pursuant to Section 3(a)
hereof;
(d) the Agreement is terminated pursuant to Section 12
hereof; or
(e) a Party commits a material breach or default of its obligations
under this Agreement, such breach or default is not cured within 30 days of
written notice thereof by the other Party, and the other Party thereafter
provides written notice that the Venture will terminate in 30 days. Upon the
third such breach or default, the other Party may terminate the Agreement upon
30 days written notice, without providing for a cure period. If, at the time of
termination, there is any revenue from on-going business, such funds shall be
distributed according to the formula set forth herein and so shall survive such
termination.
14. Notice: All notices under this Agreement shall be deemed
received on the day sent if delivered by facsimile, by the next
business day if delivered by overnight courier, and by five days
following the date of mailing if delivered by U.S. first class
mail. All notices are to be sent to the following, as the Parties
may from time to time modify by written notice:
If to EMC:
Arnold P. Lutzker, Esq.
Fish & Richardson, P.C.
601 13th Street, N.W.
Washington, D.C. 20005
Phone: 310-551-0011
<PAGE>
Fax : 310-551-1942
If to Stewart:
William Luke Stewart
1316 New Hampshire Avenue, N.W.
Washington, D.C.
Phone: _________________
Fax : _________________
15. Further Agreements: The Parties acknowledge that this Agreement
constitutes the initial understanding between them. They are all committed to
working diligently, with their respective counsel, towards the preparation and
execution of such further formal understandings to which they shall agree. Until
such time as these further understandings are formalized and executed, this
Agreement and the terms and conditions hereof shall be binding and in full force
and effect.
16. Miscellaneous:
(a) Severability: If any provision of this Agreement is adjudged by a
court or other governmental body of competent jurisdiction unenforceable or
invalid, the remainder of this Agreement shall continue in full force and effect
to the greatest extent permitted by law.
(b) Governing Law: This Agreement shall be governed by
the laws of the State of Nevada, without regard to conflicts of
laws principles.
(c) No Waiver: Failure by a Party to demand performance
of any obligation of the other Party shall not be deemed a waiver
of such non-performance.
(d) Force Majeure: Failure of a Party to perform any of the obligations
required of it under this Agreement shall not constitute a breach or default of
this Agreement if such failure was caused by an event not within the control of
the Party, including any acts of God, fire, earthquake, strike or other labor
dispute, riot, war, or terrorist act.
(e) Amendment: This Agreement may be amended only by
a writing executed by both Parties.
(f) Entire Agreement: This Agreement constitutes the
entire understanding of the Parties and any and all prior
agreements, understandings, or representations are hereby
terminated.
(g) Counterparts: This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date written above.
ELECTRIC MEDIA COMPANY, INC. WILLIAM "LUKE" STEWART
By: ____________________ By: ____________________
<PAGE>
Title: _________________ Title: _________________
STEWART WORLDWIDE FUSION
TECHNOLOGIES CORPORATION
By: ____________________
Title: _________________
TEXAS INFORMATION
DEVELOPMENT COMMISSION,
S.A.
By: ____________________
Title: _________________
67840.w11
<PAGE>
ATTACHMENT A
FINANCING AND COMPENSATION DUE STEWART
I. FINANCING FOR THE FIELD TEST
The Parties hereby acknowledge that EMC has provided or will provide the
Venture or Parties hereto with $760,000, either partly or fully in cash or as a
line of credit, in order to complete the Field Test of the Technology, as
follows:
(a) December 1, 1996-January 28, 1997:
Travel : $140,000 cash advance to Stewart
Private Air : $80,000
Equipment : $15,000
Legal : $25,000
(b) January 28, 1997 : $150,000 for the Operating Budget
(set forth below and incorporated herein). The cost items set
forth in the Operating Budget are acceptable to EMC and approved by
it.
(c) February 15, 1997 : Up to $150,000. Prior to the disbursal of any
portion of these funds, Stewart shall provide EMC with invoices which to EMC's
satisfaction adequately evidence the expenditure of amounts for approved
budgetary items, not to exceed $100,000. If the documentation supports
expenditures less than $100,000, Stewart may carry the balance to $150,000
forward to the next payment period.
(d) March 6, 1997 : Up to $100,000. Prior to the disbursal of any portion
of these funds, Stewart shall provide EMC with invoices which to EMC's
satisfaction adequately evidence the expenditure of amounts for approved
budgetary items, not to exceed $100,000. If the documentation supports
expenditures less than $100,000, Stewart may carry the balance to $100,000
forward to the next payment period.
(e) March 15, 1997 : Up to $150,000. Prior to the disbursal of any portion
of these funds, Stewart shall provide EMC with invoices which to EMC's
satisfaction adequately evidence the expenditure of amounts for approved
budgetary items, not to exceed $150,000.
II. FINANCING AND COMPENSATION DUE STEWART AFTER SUCCESSFUL
COMPLETION OF THE FIELD TEST
Upon EMC's acknowledgement of the successful completion of the Field Test
under the terms of Section 3(a) above:
<PAGE>
(a) EMC shall arrange for financing to purchase up to
$1,500,000 for equipment for the El Rancho Demonstration. All
equipment shall be financed on an actual cost basis without any
markup;
(b) Stewart shall receive from EMC 500,000 shares of restricted common
stock in Las Vegas Entertainment Network ("LVEN"); and
(c) Stewart shall receive $300,000 per month as an advance against
Stewart's share of future Venture net profits, such advance to be payable on the
fifteenth day of each month and used for accountable developmental expenses as
invoiced in a form acceptable to EMC for or by third party vendors, beginning
with the first full month upon the successful completion of the Field Test. EMC
shall not be obligated to make any monthly payment until it has acknowledged
satisfactory completion of the Field Test. All advances to Stewart, together
with interest on such advances compounded at the rate of six percent (6%) per
annum, shall be recouped by EMC out of Stewart's share of Venture net profits
under Section 5(b) hereof. The amount of net profits due Stewart shall be
deposited directly by the Venture to EMC's account, until all such advances,
plus accrued interest shall have been repaid. Once Stewart's account is in
equilibrium (that is, advances equal earned net profits, plus interest), EMC
shall distribute to Stewart on a quarterly basis a draw based on its share of
net profits.
(d) In addition to the shares of EMC set forth in II (b), Stewart shall
receive 500,000 shares of restricted common stock in LVEN for each $10,000,000
of LVEN net revenue (after expenses and taxes) generated by LVEN's manufacture
and sale of equipment utilizing the Technology (the "Device") and by LVEN's
distributed share of equity of EMC's net profits as defined by generally
accepted principles of accounting consistently applied; provided, however, that
Stewart's total of restricted common stock of LVEN generated by net revenues
shall not exceed Five Million Five Hundred Thousand (5,500,000) shares. All LVEN
shares issued to Stewart shall be subject to and reduced by any reverse split or
other reclassification of LVEN stock and shall be registered in any public
offering as agreed to by the parties and by the participating underwriters.
(e) In addition to the shares of LVEN, as a bonus, Stewart shall receive
$6.50 per installed device, which is operating and revenue producing to EMC.
(f) Stewart shall also be entitled to receive a bonus of one percent (1%)
of such revenue which EMC actually receives as a result of new commercial
revenue producing contracts provided by Stewart.
<PAGE>
OPERATING BUDGET
Scientific/Engineer Group, includes
special housing costs, fees, local
transportation, etc. $90,000
Security, vehicles, project administration and
development for above $55,000
Logistics and support, including lobby and
geographic support and attendant administration $35,000
Consultant fees for above $20,000
G & A, temporary and permanent clerical and support staffing, project overnight,
purchasing, management, information system (MIS) and information services
$100,000
<PAGE>
ATTACHMENT B
FIELD TEST AGENDA
The "El Rancho" Field Test Agenda shall include as its primary, but not
exclusive, purpose, the creation of a live, real-time test using the same
equipment and methods, which will be used in Guatemala to demonstrate the
capability of the El Rancho's and the surrounding ten hotels' power grids to
deliver by means of such power grids the following:
1. A minimum of twelve (12) distinct Devices, receiving and
retransmitting video signals on twelve (12) distinct video channels (video
signals to be supplied by EMC VHS tape);
2. All channels delivered by the local Las Vegas cable system on a
subdivided thirteenth (13th) channel; for purposes of this Agenda, the number of
cable channels is estimated to be fifty-two (52);
3. A telephony demonstration, whereby the Devices can place telephone
calls to each other and to any other telephone number worldwide.
The only connections required by the Devices shall be to any A/C outlet
within the El Rancho Hotel or surrounding ten hotels.
This Agenda constitutes an initial draft statement of the purposes of the
Field Test and may be modified or added to by EMC, with Stewart's reasonable
acceptance, by sending written notice to Stewart at any time hereafter, but in
no event less than five (5) days prior to the start of the El Rancho Field Test.
67840.w11
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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