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, 1997
[ ] 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.
(Exact name of small business issuer in its charter)
DELAWARE 94-3123854
- ------------------------------------ -----------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1801 Century Park East, 23rd Floor
Los Angeles, California 90067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 551-0011
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.001 par value
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: -0-
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $6,164,702 computed on the basis of the average bid and
asked prices of the Common Stock of $0.18 per share as reported by NASDAQ on
January 16, 1998.
Number of common shares outstanding of the issuer's classes of Common
Stock as of January 16, 1998: 34,898,349
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
Item 1. DESCRIPTION OF BUSINESS
General
Background and Business and Basis of Presentation
Las Vegas Entertainment Network, Inc. ("LVEN" or the "Company") was
incorporated in October 1990, and is engaged in the business of acquiring,
developing and operating media and gaming facilities and businesses. The Company
is also developing technology for the delivery of television and video
programming, Internet access, and telephony to be owned by the Company's
majority owned subsidiary, Electric Media Company Inc. The Company is also
investigating other potential businesses for acquisition in the entertainment,
gaming, lodging, and communications industries.
The Company initially 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 in Las Vegas, Nevada (the "El Rancho" or the "Property") for
$36,500,000. However, on January 22, 1996, the Company sold the El Rancho to
International Thoroughbred Breeders, Inc. ("ITB") for $43,500,000, consisting of
cash, notes and assumption of debt. As part of the January 22, 1996 sale
agreement with ITB (the "ITB Sales Agreement"), as subsequently amended, once
the Property is opened and invested amounts have been recouped by ITB and the
Company, which the Company can provide no assurance can be achieved, the Company
will receive as additional consideration for entering into the ITB Sale
Agreement 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 ITB 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, which if implemented, will provide for minimum annual fees of
$800,000 plus additional commissions.
On May 22, 1997, LVEN converted the $10.5 Million receivable
remaining from the sale of the El Rancho together with accrued interest thereon
of $1.1 Million into 2,093,868 shares of restricted ITB common Stock. On May 22,
1997, LVEN and ITB also agreed, subject to approval of the Boards of Directors
of both companies, that as soon as practicable, ITB would acquire LVEN's
continuing interest in the adjusted cumulative cash flow (as defined) of the El
Rancho (the "El Rancho Cash Flow Interest"), in consideration of which ITB would
issue to LVEN that number of shares of ITB common stock equal to (i) the fair
market value of the El Rancho Cash Flow Interest, as determined in a fairness
opinion to be obtained from a nationally recognized investment banking firm,
divided by (ii) the average bid price for ITB Stock during the 20 trading days
prior to the closing date. The shares are subject to certain restrictions as
described below (see "Casino Operations, Investment in ITB"). On or about
September 10, 1997, certain former or current directors of ITB filed an action
against ITB and its other directors, the Company, the Company's Chairman and
certain other individuals in the Delaware Court of Chancery, alleging, among
other things, that the Company acted improperly in connection with various
transactions with ITB. The plaintiffs are seeking, among other things, the
recision of the issuance of the 2,093,068 shares of ITB common stock to LVEN on
May 22, 1997, and further seek to block the issuance to LVEN of additional
shares of ITB stock in exchange for LVEN's El Rancho Cash Flow Interest (See
Legal Proceedings).
The Company's current activities as discussed below include the
development of certain casino and gaming operations and investments, and the
development of certain media and entertainment technologies and properties.
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Casino and Gaming Operations
The casino and gaming activities of the Company include (i)ownership of
2,093,868 shares of common stock of ITB received in exchange for the Company's
$10.5 Million note due from ITB, (ii) managing the El Rancho site, including
assisting ITB in developing construction and architectural plans for the
renovation and expansion of the hotel and arranging for potential financing,
equity or joint ventures to develop and renovate the Property, and (iii)
ownership of an option to purchase an 80% interest in Nordic Gaming Corporation,
a Canadian corporation ("Nordic"), that owns the Fort Erie Racetrack in Fort
Erie, Ontario, Canada, and provision of a $1.3 Million line of credit to Nordic.
Investment in ITB . On November 24, 1993, the Company acquired the El
Rancho Hotel and Casino property in Las Vegas, Nevada. The Property was closed
prior to its acquisition by the Company and has never been operated by the
Company. On January 22, 1996, the Company sold the assets and liabilities of the
El Rancho to ITB for consideration of $43,500,000, consisting of (i) $12,500,000
paid at closing in cash; (ii) the issuance of an 8% unsecured promissory note in
the principal amount of $6,500,000 (the " A-Note") which A-Note was paid in full
on March 15, 1996; (iii) the issuance of an 8% promissory note in the principal
amount of $10,500,000 (the "B-Note") and (iv) assumption of existing mortgage
indebtedness and accrued interest of $14,000,000. In addition, once the Property
was developed, the Company was entitled to share in a percentage of the ongoing
adjusted cumulative cash flow from the operation of the Property up to
$160,000,000, as provided in the ITB Sale Agreement.
On May 22, 1997, LVEN converted the $10.5 Million receivable evidenced
by the B-Note, together with accrued interest thereon of $1.1 Million, into
2,093,868 restricted shares ITB common stock (the "Conversion Shares"). On May
22, 1997, LVEN and ITB also agreed, subject to approval of their respective
Boards of Directors, that as soon as practicable, ITB would acquire LVEN's El
Rancho Cash Flow Interest. In order to effect such transaction, ITB is required
to issue to LVEN that number of shares of ITB common stock (the "Acquisition
Shares") equal to (i) the fair market value of the El Rancho Cash Flow Interest,
as determined in a fairness opinion to be obtained from a nationally recognized
investment banking firm, divided by (ii) the average bid price for ITB Stock
during the 20 trading days prior to the closing. Both the Conversion shares and
the Acquisition shares are subject to certain restrictions as described below.
Management in the future may consider distributing all or a portion of these
shares to the shareholders of the Company as a dividend. On or about October 10,
1997, certain former or current directors of ITB filed an action against ITB and
its other directors, the Company, the Company's Chairman and certain other
individuals in the Delaware Court of Chancery, alleging, among other things,
that the Company acted improperly in connection with various transactions with
ITB. The plaintiffs are seeking, among other things, the recision of the
issuance of the 2,093,068 shares of ITB common stock to LVEN on May 22, 1997,
and further seek to block the issuance to LVEN of additional shares of ITB stock
in exchange for LVEN's El Rancho Cash Flow Interest (See Legal Proceedings). In
addition, no person may hold or acquire, directly or indirectly, beneficial
ownership of more than 5% of the voting securities of ITB without the approval
of the New Jersey Racing Commission. LVEN is in the process of obtaining this
approval (See "Government Regulation").
ITB has also agreed that the $55 Million of financing provided
to it by Credit Suisse First Boston Mortgage Capital L.L.C. ("CSFB") on May 22,
1997 the ("CSFB Loan") was arranged by LVEN's subsidiary, CasinoCo Corporation,
as the "Alternative Financing" contemplated by, pursuant to, and in satisfactory
of, the provisions of ITB Sale Agreement. ITB has informed the Company that it
will begin the renovation and redevelopment of the El Rancho Property as a
country-western themed destination resort to be known as "CountryLand. "
However, it is not expected that funds from the CSFB financing will be
sufficient to begin the construction and the renovation of the Property, and
additional funding will be required. Any such additional funding would be
subject to the execution of a definitive loan agreement between ITB and any
potential lenders, which the Company can give no assurance will occur.
Prior to the funding of the CSFB Loan, ITB had announced that
they had received a $100 Million funding proposal, the proceeds of which were to
be used, in part, for the renovation and opening of the El Rancho. This proposed
funding was not implemented. Prior to funding the CFSB Loan, ITB, under
management of a different Board of Directors, had announced that it intended to
develop the El Rancho as a multi-casino project with as many as six partners and
a total cost of $1 Billion. ITB did not engage any partners for its "Starship
Orion" theme development, and has now announced it may develop the Property
under the more modest "CountryLand" theme.
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As a condition precedent to the issuance of the Acquisition
Shares for LVEN's Cash Flow Interest, LVEN is required to have received one or
more valuation opinions from one or more investment banking firms satisfactory
to LVEN respecting the fair market value of the El Rancho Cash Flow Interest. If
LVEN is unsatisfied with the highest fair market value of the El Rancho Cash
Flow Interest as established by the valuation opinions, then it shall have the
right, within 180 days of the date thereof, to make a secured first mortgage
loan to ITB, and ITB must then repay the CSFB Loan in full. If LVEN were to make
such a loan to ITB, the loan would mature on the date that the CSFB Loan is
scheduled to mature and would bear interest at the rate applicable to CSFB Loan,
and LVEN would have the right to develop the property.
The Company has executed an irrevocable proxy in respect of
the Conversion Shares, and has agreed to execute such an instrument in respect
of the Acquisition Shares, in each case in favor of Mr. Nunzio P. DeSantis,
Chairman of the Board of ITB, which proxies shall be irrevocable until the
earlier of (I) the date on which the CSFB Loan and all of the other obligations
of ITB owing to CSFB under the CFSB Loan have been repaid in full, (ii) the date
on which LVEN distributes the Acquisition Shares to its shareholders generally,
(iii) the date on which LVEN sells the Conversion Shares or Acquisition Shares
to, or LVEN is acquired by, or merged with or into, a person or entity that is
not affiliated with LVEN or Mr. Joseph A. Corazzi, Chairman of the Board of
LVEN, and (iv) the date on which Mr. DeSantis dies or becomes mentally
incompetent. LVEN and ITB have agreed to enter into a registration rights
agreement respecting the Conversion Shares and the Acquisition Shares and
providing for demand rights, unlimited piggyback rights, and other customary
provisions.
As provided in the ITB Sale Agreement, if by October 25, 1996
(i) ITB had not closed on or received permanent financing and obtained the
required lease commitments to develop the Property under the "Starship Orion"
theme, and (ii) 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 ITB
and LVEN, or (ii) arrange on behalf of ITB, 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 establishing the referenced escrow account. On
October 28, 1996, ITB announced that LVEN had forfeited its rights under the ITB
Sale Agreement because of the alleged failure to satisfy certain contractual
preconditions and LVEN advised ITB that it strongly disputed and would
vigorously contest ITB's stated 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". If the Property is not so
developed, or if the additional funding is not completed, the Company believes
that it retains its rights as described above.
Nordic Gaming (Fort Erie Racing Operations)
During 1997, the Company was granted an option to acquire from Mr.
Nunzio P. DeSantis, the Chief Operating Officer of ITB, his eighty percent (80%)
of the voting equity of Nordic Gaming Corporation, a Canadian corporation
("Nordic"). The Company's Chairman of the Board, Mr. Joseph A. Corazzi, as a
bonus for services rendered in negotiating the potential acquisition of the
operations of Nordic, may be allocated a portion of the ownership as agreed to
by Mr. DeSantis and LVEN's Board of Directors. The remaining 20% of Nordic is
owned by Canadian citizens not affiliated with the Company. On August 23, 1997,
Nordic acquired certain real property and assets known as the "Fort Erie
Racetrack" which is situated on 143 acres in Fort Erie, Ontario, Canada. The
Fort Eric Racetrack currently offers live, as well as simulcast, thoroughbred
horse racing. Additionally, the racetrack has been notified by the Ontario
Lottery Corporation that it is eligible to receive 621 video lottery terminals
("VLTs") and may receive an additional 130 VLTs or more based upon performance.
However, before any of these VLTs are received, the racetrack and the Provincial
Government of Ontario, Canada have to come to an agreement as to the percentage
of the net revenues from the VLTs that can be kept by the race track.
Furthermore, the Company and Nordic would have to obtain the necessary gaming
licenses.
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In consideration for receiving the option, which expires June 1, 1998,
the Company; (i) paid to Nordic $182,000 that was used as the advance deposit
used to acquire the racetrack, (ii) agreed to provide Nordic a working capital
line of credit as described below, and (iii) agreed to the issuance to Mr.
Nunzio P. DeSantis of 1,000,000 shares of a new Series A Preferred Stock that
entitles Mr. DeSantis to certain voting rights in a ratio of 20 votes for each
share of preferred stock on matters of stock splits and certain other matters to
be designated by the Board of Directors. In addition to the deposit above, the
Company has expended $134,548 for financing and legal costs in connection with
the proposed acquisition.
The exercise price of the option, subject to further evaluation and
appraisal, is (i) payable $1,000,000 cash at closing, and (ii) $2,600,000
payable in equal monthly installments of $100,000 commencing on the last date of
the month on which the closing occurs, and (iii) upon exercise, the entire
issuance of the Series A Preferred Stock shall be converted into that number of
restricted shares of LVEN common stock equal to (i) the positive difference
between (a) eighty percent (80%) of the fair value of the Fort Erie Racetrack as
set forth in a fairness opinion prepared by an investment banking firm and (b)
$3,600,000 divided by (c) the average closing price of LVEN Common Stock for the
twenty trading days preceding the giving of the notice of exercise. However, it
is the intention of LVEN to only exercise its option based upon its due
diligence, a valuation of the ongoing operations of the property, the valuation
of potential revenue from the addition of VLTs, and the availability of
financing. If the Company does exercise its option to acquire the 80% interest
in Nordic, of which there can be no assurance, and if it decides to maintain
full racing operations, it would be responsible for maintaining operations at
the track through the end of the 1998 racing season which is currently projected
at a cash flow deficit of approximately $2,000,000 for a seventy five day racing
schedule, excluding any additional revenues that may be generated by the
introduction of the VLTs.
As of October 31, 1997, the Company had advanced $1,046,548, to Nordic
pursuant to a Line of Credit Agreement dated as of August 27, 1997, providing
for advances of up to $1,300,000. Such advances, which are due and payable on
August 27, 1998, bear interest at a rate of 10% per annum, are secured by a
first mortgage lien on and a security interest in the real and personal property
assets comprising the Fort Erie Racetrack. Subsequent to October 31, 1997, the
Company advanced an additional $200,000 to Nordic. The Company will use its best
efforts to engage an investment banking firm to raise up to $35 Million (which
the Company can give no assurance will be achieved), in order to develop the
Fort Erie Racetrack property over a twenty-four month period into an
entertainment destination that would supplement any introduction of video
lottery or other gaming activities. The Company has subsequently notified Nordic
that it will not furnish additional advances under the line.
Other - The Company is actively seeking other investments and
acquisitions in the communications, 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 communication
companies, 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.
Governmental Regulation
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The ownership and operation of race track operations and
casino gaming facilities in Nevada, New Jersey and Ontario Canada are subject to
the laws of each State or Province and the regulations promulgated thereunder
and to licensing and regulatory control by the respective gaming authorities.
The laws, regulations and supervisory procedures of the 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 gaming authorities, (v) fair operation of games, and (vi) the
raising of revenues through taxation and licensing fees. Pursuant to various
inquiries the Company and certain officers have provided information to various
states and to Canada in connection with their inquiry into the financing,
business transactions and financial reporting.
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ITB's operations through certain of its subsidiaries at Garden
State Park and Freehold Raceway in New Jersey are subject to regulation by the
New Jersey Racing Commission (the "Racing Commission" ) under the Racing Act of
1940, as amended and supplemented (the "Racing Act") and the rules and
regulations of the Racing Commission, and by the New Jersey Casino Control
Commission (the "CCC"). Under the Racing Act, no person may hold or acquire,
directly or indirectly, beneficial ownership of more than 5% of the voting
securities of ITB without the approval of the Racing Commission. The issuance by
ITB to the Company of 2,093,868 shares of ITB's Common Stock required Racing
Commission approval as it exceeded the 5% threshold ( See "Casino and Gaming
Operations, ITB" for a description of such stock issuance transaction). In
reliance on prior management of ITB, neither ITB nor LVEN sought the prior
approval of the Racing Commission for the issuance of the shares to LVEN and
accordingly, both are in violation of the Racing Act.
Because ITB simulcasts certain thoroughbred racing events to Atlantic
City casinos, ITB, among other things, is required to be approved and licensed
by the CCC as a non-gaming related casino service industry. Certain of ITB's
employees and its directors and significant stockholders, including LVEN, are
also required to be approved by the CCC.
The Company, or its subsidiaries, and ITB intend to apply for the
necessary governmental licenses, permits and approvals for the ownership
and operation of a casino and race track facilities. 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, Entertainment and Communications
The Company is active in the development of media related
opportunities, and is developing technology for the delivery of television and
video programming, Internet access, and telephony to be owned by the Company's
majority owned subsidiary, Electric Media Company Inc. 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" 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 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.
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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 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"
theme or another theme, the Company's LVCC subsidiary has the exclusive right to
manage all aspects of the El Rancho's entertainment activities. 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 Property's advertising needs, and (iii) managing all
other entertainment venues at the Property. 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, if
implemented, which the Company can give no assurance will occur, 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, and (iii) booking fee equal to ten percent (10%) of gross compensation
paid to talent.
Electronic Media Delivery
The Company has formed a new subsidiary, Electric Media
Company Inc. ("EMC"), which is developing technology, that if successful, of
which the Company can give no assurance , will allow delivery of video voice
and/or data communications over electric power lines or other forms of
transmission including cable, telephone and microwave. EMC is 75% owned by the
Company and 25% owned by Mr. Nunzio DeSantis, Chairman of the Board of ITB.
EMC has entered into two agreements for the development of
this technology with two joint venture partners/developers. The agreements are
for a term of 25 years, and can be extended to successive 25-year terms at the
election of EMC. The first agreement calls for the development of video, voice
and data communication over existing power lines. Field testing of this
technology will occur during 1997. Upon successful completion of all field
tests, 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. In accordance with the joint venture agreement,
EMC is committed to deliver to the
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joint venture partner/developer; (i) 500,000 restricted shares of LVEN common
stock upon successful completion of the field test, (ii) monthly renumeration of
$25,000 upon successful completion of the field test (iii) an additional 500,000
restricted shares of LVEN common stock each time the sale of these units
generates $10,000,000 of net after tax profits to LVEN, up to a maximum of
2,500,000 shares, and (iv) 20% of the net profits once EMC has recouped all its
costs, plus a return of 6% thereon.
The second agreement calls for the development of a communications network in
Guatemala and Central America for the provision of telephone, video, voice
and/or data communications. Field testing of this technology will occur during
1998. In accordance with the joint venture agreement, if EMC proceeds, it will
deliver to the joint venture partner/developer; (i) up to $500,000 for general
start up and market costs, (ii) 500,000 restricted shares of LVEN common stock
upon successful completion of the field test and demonstration of its economic
viability, (iii) monthly renumeration of $15,000 upon successful completion of
the field test and demonstration of its economic viability, (iv) an additional
500,000 restricted shares of LVEN common stock for each 150,000 telephones
installed, up to a maximum of 2,500,000 shares, and (v) 20% of the net profits
once EMC has recouped all its costs, plus a return of 6% thereon. The Company
intends to engage an investment banking firm to raise $15 million, for which it
can give no assurance can be achieved, for the full implementation of this
project.
To date, the company has expended $1,031,247 in developing this technology. Such
amounts have been reflected as research and development costs for year ended
October 31, 1997.
Competition.
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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 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
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The Company currently has 2 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, communications, 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.
If the Company exercises its option to acquire Nordic Gaming, it would
additionally employ approximately 15 full employees, and 100 part time employees
that are employed over the racing season. None of the Company's current
employees are represented by unions, and the Company believes that its employee
relations are good.
8
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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.
Item 3. LEGAL PROCEEDINGS
On or about September 10, 1997, two actions were filed in the
Delaware Court of Chancery, each of which named the Company and its Chairman as
a defendant. The first such action, captioned Robert J. Quigley, Frank A. Leo
and The Family Investment Trust (Henry Brennan as Trustee) v. Nunzio P.
DeSantis, Michael Abraham, Anthony Coelho, Kenneth W. Scholl, Joseph Zapalla,
Joseph A. Corazzi, Las Vegas Entertainment Network, Inc. and International
thoroughbred Breeders, Inc., C.A. No. 15919-NC, ("Quigley") is a derivative suit
brought by two former directors of ITB and an investment trust which alleges,
among other things, that certain ITB directors have breached their fiduciary
duties to ITB. The Quigley complaint seeks: (i) a declaratory judgment that (a)
the share of ITB's common stock held by NPD may not be voted at any
stockholders' meeting; (b) all actions taken by the current board of ITB are
null and void; and (c) certain purported "super-majority" voting provisions in
ITB's By-laws remain in full force and effect, and (ii) rescission of certain
actions taken by ITB's Board, including but not limited to certain contractual
rights or entitlements that involve the Company.
Specifically, with respect to the Company, the Quigley
Complaint alleges that the Company and its Chairman were part of a concerted
effort to divert the stock and assets of ITB to the Company, its Chairman and
Messrs. DeSantis and Coelho, and seeks to (i) rescind the issuance of 2,093,868
shares of ITB stock to the Company, (ii) invalidate certain rights presently
existing in favor of the Company relative to the El Rancho Cash Flow Interest,
and (iii) rescind certain agreements entered into between or among the Company,
ITB and/or CSFB in connection with CSFB's refinancing of the El Rancho project.
On November 7, 1997, the Company filed an Answer to the
Quigley Complaint, in which the Company denied the substantive claims asserted
against or with respect to the Company. Discovery in the Quigley action is
ongoing. The Company believes that the claims against it are without merit and
is vigorously defending itself in this action.
The second action, captioned James Rekulak v. Nunzio P. DeSantis, Michael
Abraham, Anthony Coelho, Kenneth W. Scholl, Joseph Zappala, Las Vegas
Entertainment Network, Inc., Joseph A. Corazzi and International Thoroughbred
Breeders, Inc., C.A. No. 15920-NC ("Rekulak") is a derivative suit which repeats
the allegations in the Quigley Complaint verbatim and seeks the identical
relief. The Company is taking the same positions with regards to the Rekulak
action as it is taking with respect to the Quigley action.
The Company and its Chairman are named as defendants in an
action filed on November 30, 1997 by Robert William Green ("Green"), a
stockholder of ITB, captioned Robert William Green v. Nunzio DeSantis, Joseph
Corazzi, Anthony Coelho, Las Vegas Entertainment Network, Inc. and NPD, Inc.,
C.A. 97-5359(JHR) ("Green"), in the United States District Court for the
District of New Jersey. The Green complaint alleges, among other things, that
the defendants have usurped certain corporate opportunities at the expense of
ITB, have diluted Green's interest in ITB through the issuance of shares of
stock and have conspired to deprive him of certain rights under an option
granted to him by NPD, which, subject to regulatory approval, grants Green the
right to purchase approximately 50% of the shares of ITB's common stock held by
NPD. The Company believes that the claims against it are without merit and
intends to vigorously defend itself.
In all of the above actions, the Company is contemplating
several alternatives to settling all outstanding litigation as it relates to the
transactions with ITB.
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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. This case was settled for $100,000 during
fiscal 1997. Additionally, the Company has commenced action against the owners
of Patmor 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, 1997.
10
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PART II
Item 5. MARKET 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, 1995 to October 31, 1997.
High Low
---- ---
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
Fiscal 1996
Quarter ended January 31, 1997 $0.56 $0.18
Quarter ended April 30, 1997 $0.81 $0.37
Quarter ended July 31, 1997 $0.59 $0.25
Quarter ended October 31, 1997 $0.40 $0.21
The number of record holders of Common Stock as of January 16, 1998 was
approximately 795. On January 16, 1998, the high and low bid asked prices for
the Common Stock were $0.18 and $0.18 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.
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.
11
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Results of Operations
- ---------------------
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996
Revenues for the year ended October 31, 1996 consisted of $225,000 of
fees earned under an interim entertainment management agreement with ITB and
$66,200 earned in connection with renting out the parking facilities while the
Company owned the El Rancho. The Company did not recognize any revenues during
the year ended October 31, 1997. The Company had previously reported revenues of
$225,000 for the nine months ended July 31, 1997 relating to fees earned under
the interim management agreement with ITB, but ITB has disputed that these fees
are due. As a result, the Company provided a reserve for the previously recorded
amount as of October 31, 1997.
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, decreased $625,061 to $180,000 during the year ended October
31, 1997 as compared to $805,061 in the corresponding period in 1996.
Research and Development expenses relate to the development of voice,
video and data communication technology by the Company's EMC subsidiary, and
were $1,031,247 for the year ended October 31, 1997. There were no such costs
incurred in the corresponding period in 1996.
Loss on Investments for the year ended October 31, 1997 consists of; a
$167,800 charge to reflect the estimated carrying value of the note receivable
from Tee One Up; a $805,061 charge to reflect the estimated carrying value of
the Lake Tropicanna notes receivable, and a $417,356 charge to reflect the
estimated carrying value of the note receivable from Malbec (See "Notes
Receivable").
General and Administrative expenses increased $816,476 to $4,019,368
during the year ended October 31, 1997 as compared to $3,202,893 in the
corresponding period in 1996. The increase relates to an increase of; (i) legal
and professional fees of $168,000 to $798,000 for the year ended October 31,
1997 as compared to $629,000 for the corresponding period in 1996, which related
mostly to the payment of a $150,000 investment banking fee, and; (ii) an
increase in travel and entertainment costs of $800,000 to $1,046,000 for the
year ended October 31, 1997 as compared to $246,000 for the corresponding period
in 1996. The majority of the increase related to costs incurred by the Company
for the use of charter aircraft. Certain of these aircraft costs were incurred
in connection with developing its EMC project which did not exist in 1996. These
increases were offset by a decrease in wages and salary costs of $304,000 to
$1,396,000 for the year ended October 31, 1997 as compared to $246,000 for the
corresponding period in 1996. Significant general and administrative expenses
are expected to continue while the Company seeks new acquisitions and projects.
Other Income and Charges for the year ended October 31, 1997 consists
of a $165,000 charge to reflect the value of options granted to Mr. Nunzio
DeSantis, now the Chief Operating Officer of ITB, to acquire 1,500,000 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; $100,000 settlement agreement entered into with a third
party (See "Legal Proceedings"); $75,000 reserve for management fees earned in
prior years under the Company's management agreement with ITB, and; $45,784 loss
on the sale and disposal of certain fixed assets.
Interest Income and Expense. Interest income earned on cash balances
and marketable securities decreased $67,297 to $428,053 for the year ended
October 31, 1997 as compared to $495,350 for the corresponding period in 1996.
The decrease is consistent with the decrease in the average cash and marketable
securities outstanding during the year ended October 31, 1997 as compared to the
corresponding period in 1996. Interest expense and finance costs decreased
$347,573 to $189,508 for the year ended October 31, 1997 as compared to $537,081
for the corresponding period in 1996. Finance costs, which consisted of loan
fees and stand-by financing fees, decreased $221,729 to $110,000 for the year
ended October 31, 1997 as compared to $331,729 the corresponding period in 1996.
Interest expense decreased $125,844 to $79,508 for the year ended October 31,
1997 as compared to $205,352 for the corresponding period in 1996. The decrease
in interest expense is consistent with the decrease in the average indebtedness
outstanding during the year ended October 31, 1997 as compared to the
corresponding period in 1996.
12
<PAGE>
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995
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 ITB (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.
Loss on Investments for the year ending October 31, 1996 is 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.
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, 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.
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 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; $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.
13
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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 ITB's
settlement of the certain refinance obligations.
Liquidity and Capital Resources
The Company has experienced operating losses since its inception. For
the fiscal years ended October 31, 1997 and 1996, the Company experienced net
losses of $6,752,405 and $4,740,459, respectively. The Company anticipates that
it will continue to experience losses as it continues working on its development
plans, including the development of a technology for the delivery of television
and video programming, Internet access, and telephony. Even after the Company's
development plans are completed, there can be no assurance that the Company will
be profitable. 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.
Cash Requirements The Company's current monthly operating cash
requirements are approximately $250,000, composed of general and administrative
expenses, salary and consulting fees, legal and professional fees, marketing and
travel costs. The Company is also responsible for managing and paying the
operating costs of the Property, but is reimbursed by ITB on a monthly basis for
these costs in amounts sufficient to cover the company's cash outlay, which
currently approximates $30,000 per month but may increase to a greater amount if
renovation of this property begins. In addition to the above, (i) the Company is
evaluating funding $500,000 of general start up costs for its EMC projects, and
may be required to fund additional amounts if the field tests prove successful,
and (ii) if the Company elects to exercise its option to acquire Nordic Gaming
and elects to maintain current track operations the at Fort Erie Racetrack, the
track would operate at a projected annual cash flow deficit of approximately
$2,000,000, excluding any cost saving measures that maybe implemented by the
Company. As of October 31, 1997, the Company had advanced $1,046,548 to Nordic
pursuant to a Line of Credit Agreement dated as of August 27, 1997, providing
for advances of up to $1,300,000. Such advances, which are due and payable on
August 27, 1998, bear interest at a rate of 10% per annum, are secured by a
first mortgage lien on and a security interest in the real and personal property
assets comprising the Fort Erie Racetrack. Subsequent to October 31, 1997, the
Company made $200,000 of additional advances under this credit facility. If the
Company exercises its option, the Company will use its best efforts to engage an
investment banking firm to raise up to $35 Million (which the Company can give
no assurance will be achieved) in order to develop the Fort Erie Racetrack
property over a twenty-four month period into an entertainment destination that
would supplement any introduction of video lottery or other gaming activities.
As of January 16, 1998, the Company had approximately $2,300,000 in
cash and marketable securities and believes that its current cash and
receivables, including the expected repayment of all advances made to Nordic
Gaming by August 1998, 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
16, 1998. However, Nordic currently does not have the current source of cash to
repay its obligations to LVEN, and any repayment of this advance would have to
come from future operations, or from additional financing Nordic may obtain. The
Company may, if necessary to meet its cash requirements over the next 12 months,
liquidate certain of its investments, including its current and potential future
holdings of shares of ITB common stock. The Company may require additional
capital to acquire the 80% interest in Nordic Gaming Corporation and to develop
the technology to be owned by the Company's majority owned subsidiary, Electric
Media Company Inc. There can be no assurance that additional financing will be
available to the Company on acceptable terms, or at all. In addition, the
Company does not currently meet the new listing standards for maintenance of the
Company's securities on Nasdaq's SmallCap Market, which new standards become
effective in late February 1998. Although the Company intends to seek to comply
with the new maintenance criteria for continued listing, if the Company should
be unable to meet these criteria, it is possible that its securities could be
de-listed from the Nasdaq SmallCap Market, which might result in the Company
having difficulty in placing its securities with prospective investors.
14
<PAGE>
Notes Receivable. As of October 31, 1997, the Company has the following
outstanding notes receivable;
As of October 31, 1997, the Company had advanced $1,0460,548 to Nordic
Gaming Corporation pursuant to a Line of Credit Agreement dated as of August 27,
1997, providing for advances of up to $1,300,000. Such advances, which are due
and payable on August 27, 1998, bear interest at a rate of 10% per annum, are
secured by a first mortgage lien on and a security interest in the real and
personal property assets comprising the Fort Erie Racetrack. Subsequent to
October 31, 1997, the Company has made an additional $200,000 of advances under
this credit facility.
As of October 31, 1997, the Company has provided to Nordic Gaming
Corporation a $600,000 certificate of deposit as collateral for an irrevocable
letter of credit in favor of an aircraft leasing company. The certificate of
deposit shall be returned to the Company upon the earlier of; (i) receipt of any
permanent financing relating to the Fort Erie Racetrack, (ii) any other capital
infusion of $1,000,000 or more, or (iii) at the expiration of the aircraft
leasing agreement which expires in September 2004. In the event of default or
other foreclosure, the entire amount of the cash collateral shall be deemed to
have been loaned to Nordic Gaming upon the terms and conditions of the existing
credit facility with them, and secured by the assets of the Fort Erie Racetrack.
As of October 31, 1997, the Company provided a certificate of deposit
of $778,000 as security for a letter of credit issued on behalf of Stan Irwin
Enterprises, Inc. that was used to acquire a 12 1/2% undivided interest in an
aircraft. The Company provided the certificate of deposit on behalf of Stan
Irwin Enterprises to enable Mr. Joseph Corazzi, the Company's Chairman of the
Board, the personal use of up to fifty hours of private air travel service at a
cost to Mr. Corazzi of approximately $1,200 per hour. The Company may also use
the plane up to twenty five hours per year. The certificate of deposit at all
times remains the property of the Company and will earn interest to the benefit
of the Company. At the end of two years from the date of purchase, Stan Irwin
Enterprises, Inc. has the obligation of returning the aircraft to the seller and
receive the fair market value price. It is anticipated that the certificate of
deposit and all accrued interest ($11,894 at October 31, 1997) will be returned
to the Company at that time.
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. The loan was secured by the assets of Tee One Up. Principal and
interest at a rate of 17% per annum are payable in monthly installments of
$14,832 until maturity, November 1, 1998. In March 1997, Tee One Up became
delinquent in making its monthly payments. As of October 31, 1997 the principal
balance due under this note receivable was $267,000, for which the Company has
fully reserved.
As of October 31, 1997, 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 had previously announced that it had
reorganized its debt position, and with such financing, was anticipated to have
the funds to commence development and sale of the time share units. However, as
of October 31, 1997, as there has been no significant development of the time
share project the Company provided an additional reserve of $806,489 to fully
reserve the remaining receivable from MPTV.
On January 15, 1997, the Company 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 of 2,904,016 shares of the common stock of International
Thoroughbred Breeders, 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 loan to NPD and
all accrued interest due, was repaid to the Company on June 22, 1997.
15
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As of October 31, 1997, the Company has made accumulated advances to
Malbec, Inc., an unaffiliated company, of $912,606 for the purpose of developing
and operating a hotel project in Miami Beach, Florida. As of October 31, 1997,
$46,678 of such advances have been returned to the Company The advances accrued
interest at the rate of 8% per annum, and were due July 31, 1997. Due to
difficulties in finalizing a purchase agreement, and on going litigation
involving the hotel property, the Company and Malbec Inc. have discontinued any
attempt at further development of this property. The Company's advances were
secured by an interest in a escrow account (which was a balance of $300,000 as
of October 31, 1997) and a $600,000 lien against the subject property. The
Company 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 also
been informed that the owners of the property have a tentative buyer for the
hotel property, which would require the Company's lien be paid off before such a
sale could be consummated. During the year, the Company has provided a $812,606
allowance against this advance, for a net investment of $100,000 as of October
31, 1997.
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.
16
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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 48 Chairman of the Board, President,Chief Executive
Officer and Director of the Company
Carl A. Sambus 47 Chief Financial Officer, Chief Operating Officer
Secretary, Treasurer and Director of the Company
Paul Whitford 56 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 shaping and translating media and entertainment into business
opportunities, In 1974, he founded a communications company, which became one of
the first suppliers of hotel/motel satellite video entertainment, using master
antenna TV systems and satellite earth station technology. Mr. Corazzi pioneered
the first installation of 24 hour satellite television entertainment for hotel
customers. Mr. Corazzi also owned and operated cable television and pay
television systems throughout the southwest. In 1985, Mr. Corazzi created
Country Music Television ("CMT"), the first all-country, all-music video
programming service. 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. Mr. Corazzi is also President of Communication
Associates, a wholly-owned company by Mr. Corazzi that provides services to
the Company and various other entertainment, communication and gaming companies.
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' 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.
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.
18
<PAGE>
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)
Name and Other Annual Awards Payouts All
Principal Position Year Salary(1) Bonus Compensation Other
------------------ ---- --------- ----- ------------ -----
Restricted Optional LTIP (3)
Stock ($SARs(#) Payouts ($)
----- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Corazzi, CEO 1997 $550,000 -0- -0- $520,000 4,000,000 - $124,000
President and Chairman(5)
1996 $550,000 -0- -0- -0- -0- -0- $124,000
1995 $500,000 -0- -0- -0- -0- -0- $115,000
Carl A. Sambus, CEO, 1997 $101,000 -0- -0- -0- -0- -0- -0-
Chief Financial Officer
and Secretary 1996 $96,667 -0- -0- -0- -0- -0- -0-
1995 $80,000 -0- -0- -0- -0- -0- -0-
Ken Scholl, (6) 1997 $120,000 -0- -0- -0- -0- -0- -0-
President, Casino-Co
1996 $120,000 -0- -0- -0- -0- -0- -0-
1995 $120,000 0- -0- -0- -0- -0- -0-
All executive officers
as a group (3 Persons) 1997 $770,0000 -0- -0- $520,000 4,000,000 -0- $124,000
1996 $766,667 -0- -0- -0- -0- -0- $124,000
1995 $700,000 -0- -0- -0- -0- -0- $115,000
</TABLE>
The Company paid to Mr. Paul Whitford, director fees of $36,500 and $13,500
during the years ended October 31, 1997 and 1996, respectively. 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. There were no other directors fees
paid during the years ended October 31, 1997 or 1996.
(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.
(5) Whereas Mr. Corazzi is non-exclusive to the Company, some renumeration
was paid to Mr. Corazzi's wholly -owned corporation in return for that
corporation providing Mr. Corazzi's services to the Company.
(6) Mr. Scholl resigned as President of Casino-Co effective May, 1997.
<PAGE>
The following table contains information concerning the grant of stock
options and employment related warrants to the named executive officers:
Percentage of
Total Options
Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date
Options Granted in Fiscal 1997
Joseph Corazzi 4,000,000* 100% $1 per share Sept. 30, 2002
Options Granted in Fiscal 1996
None
* These options are not part of the Company's stock option plan
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, 1997 by the named executive officers:
Options Exercises and Year-end Value Table
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Options & Warrants at October 31, 1997
Acquired ---------------------------- ----------------
On Value Exercisable Non-exercisable Exercisable(2)
Name Exercise Realized(1)
<S> <C> <C> <C> <C> <C>
Joseph Corazzi -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.
</TABLE>
(2) The average of the closing bid and ask prices of the Common Stock at October
31, 1997 was $.23 Value equals the difference between market value and
exercise price.
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 provided for an annual aggregate salary of
$550,000. During 1995, Mr. Corazzi assigned these agreements to his wholly-owned
corporation. During 1996, Mr. Corazzi was paid at various times for his accrued
compensation and furnished with a form 1099. During calender year 1997, Mr.
Corazzi's current compensation was reported on a form W-2. On October
1, 1997, the Company and Mr. Corazzi terminated these agreements and replaced
them with (2) separate non-exclusive agreements with Mr. Corazzi which also
provide for an annual aggregate salary of $550,000. The term of the agreement
ends on September 30, 2002, provided, however, that if the Company fails to
notify Mr. Corazzi in writing by October 1, 2001 if its desire to have this
agreement expire at the end of its initial term, the agreement shall
automatically extend for another term ending on the sixth anniversary of the
date upon which Mr. Corazzi received written notification of the Company's
election to terminate the agreement. 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. 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.
20
<PAGE>
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 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 has an employment agreement with Mr. Sambus that expires
providing for an annual salary of $125,000. The agreement with Mr. Sambus was
renewed until February 8, 1998, and may be renewed by mutual agreement of the
parties for successive terms of one year.
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,
1997 or 1996 other than as described above for Mr. Corazzi.
On March 1, 1995, Mr. Corazzi was 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. On October 1, 1997 the Company canceled this option and granted to
Mr. Corazzi an option to purchase up to 4,000,000 shares of the presently
authorized but unissued shares of the Company's common stock at $1.00 per share,
subject to adjustment that may result in future changes in the Company's
outstanding common or other stock, that will preserve the benefit to Mr.
Corazzi. These shares are not issuable in connection with the Stock Option Plan
described below. These shares are not issuable in connection with the "Stock
Option Plan" described below.
On December 11, 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.
21
<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.
22
<PAGE>
Item 11. SECURITY 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.
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%
(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.
23
<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.
Compensation due Joseph A. Corazzi amounting to $ 518,134 and $406,222
has been accrued as of October 31, 1997 and 1996, respectively. The Company has
also accrued $363,000 and $239,000 for amounts due Mr. Corazzi under his
retirement plan which is reflected as accrued officers benefits as of October
31, 1997 and 1996. The Company paid and reimbursed Mr. Corazzi $438,488 and
$730,177 for accrued and current Compensation during the years ended October 31,
1997 and 1996, respectively. Such sums were due Mr. Corazzi from inception of
the Company to October 31, 1997. Subsequent to year end, the Company paid to Mr.
Corazzi $432,000 of the remaining amounts due him.
Ken Scholl, former President of the Company's Casino-Co subsidiary, was
named a director of ITB on January 15, 1997.
The Company paid to Mr. Paul Whitford, director fees of $36,500 and
$13,500 during the years ended October 31, 1997 and 1996, respectively. . 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. There were no other
directors fees paid during the years ended October 31, 1997 or 1996.
Mr. Joseph Zapalla, currently a director of ITB, was paid a consulting
fee by the Company of $100,000 during the year ended October 31, 1997 for
services rendered in connection with the development of the Company's EMC
Project.
The Company provided a certificate of deposit of $778,000 as security
for a letter of credit issued on behalf of Stan Irwin Enterprises, Inc. that was
used to acquire a 12 1/2% undivided interest in an aircraft. The Company
provided the certificate of deposit on behalf of Stan Irwin Enterprises to
enable Mr. Joseph Corazzi, the Company's Chairman of the Board, the personal use
of up to fifty hours of private air travel service at a cost to Mr. Corazzi of
approximately $1,200 per hour. Stan Irwin Enterprises is owned by Mr. Stan
Irwin, a former director of the Company's LVCC subsidiary, an a current
consultant to the Company.
The Company entered into a series of transactions, at a price no more
favorable than any other arms length transactions, with several companies that
were directly owned or controlled by Mr. Nunzio DeSantis or his family members.
Mr. Nunzio DeSantis is the chairman of the Board of International Thoroughbred
Breeders Inc. Those transactions included;
On December 11,1996, Mr. Nunzio DeSantis, 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.
24
<PAGE>
On January 15, 1997, the Company, through it's wholly-owned Nevada
subsidiary Casino-Co, made a secured loan of $2,900,000 to NPD, Inc, ("NPD"), in
order to enable NPD to close the acquisition from Robert Brennan of 2,904,016
shares of common stock 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 loan to NPD and
all accrued interest due, was repaid to the Company on June 22, 1997.
On May 22, 1997, LVEN converted the $10.5 Million note receivable
evidenced by the B-Note, together with accrued interest thereon of $1.1 Million,
into 2,093,868 restricted shares ITB common stock (the "Conversion Shares"). On
May 22, 1997, LVEN and ITB also agreed, subject to approval of their respective
Boards of Directors, that as soon as practicable, ITB would acquire LVEN's El
Rancho Cash Flow Interest. In order to effect such transaction, ITB is required
to issue to LVEN that number of shares of ITB common stock (the "Acquisition
Shares") equal to (i) the fair market value of the El Rancho Cash Flow Interest,
as determined in a fairness opinion to be obtained from a nationally recognized
investment banking firm, divided by (ii) the average bid price for ITB Stock
during the 20 trading days prior to the closing. The Company has executed an
irrevocable proxy in respect of the Conversion Shares, and has agreed to execute
such an instrument in respect of the Acquisition Shares, in each case in favor
of Mr. Nunzio P. DeSantis, Chairman of the Board of ITB, which proxies shall be
irrevocable until the earlier of (i) the date on which the CSFB Loan and all of
the other obligations of ITB owing to CSFB under the CFSB Loan have been repaid
in full, (ii) the date on which LVEN distributes the Acquisition Shares to its
shareholders generally, (iii) the date on which LVEN sells the Conversion Shares
or Acquisition Shares to, or LVEN is acquired by, or merged with or into, a
person or entity that is not affiliated with LVEN or Mr. Joseph A. Corazzi,
Chairman of the Board of LVEN, and (iv) the date on which Mr. DeSantis dies or
becomes mentally incompetent.
On June 30, 1997, the Company was granted an option to acquire from Mr.
Nunzio P. DeSantis, the Chief Operating Officer of ITB, his Eighty percent (80%)
of the voting equity of Nordic Gaming Corporation, a Canadian corporation
("Nordic"). The Company's Chairman of the Board, Mr. Joseph A. Corazzi, as a
bonus for services rendered in negotiating the potential acquisition of the
operations of Nordic may be allocated a portion of the ownership as agreed to by
Mr. DeSantis and LVEN's Board of Directors. The remaining 20% of Nordic is owned
by Canadian citizens not affiliated with the Company. In consideration for
receiving the option, which expires June 1, 1998, the Company; (i) paid to
Nordic $182,000 that was used as the advance deposit used to acquire the
racetrack, (ii) agreed to provide Nordic a working capital line of credit (see
below) and (iii) agreed to the issuance to Mr. Nunzio P. DeSantis of 1,000,000
shares of a new Series A Preferred Stock that entitles Mr. DeSantis to certain
voting rights in a ratio of 20 votes for each share of stock on matters of stock
splits and certain other matters as designated by the Board of Directors. The
exercise price of the option, subject to further evaluation and appraisal is
payable (I) $1,000,000 cash at closing, (ii) $2,600,000 payable in equal monthly
installments of $100,000 commencing on the last date of the month on which the
closing occurs, and (iii) the entire issuance of the Series A Preferred Stock
shall be converted into that number of restricted shares of LVEN common stock
equal to (i) the positive difference between (a) eighty percent (80%) of the
fair value of the Fort Erie Racetrack as set forth in a fairness opinion
prepared by an investment banking firm and (b) $3,600,000 divided by (ii) the
average closing price of LVEN Common Stock for the twenty trading days
proceeding the giving of the notice of exercise.
As of October 31, 1997, the Company had advanced $1,046,548 to Nordic
pursuant to a Line of Credit Agreement dated as of August 27, 1997, providing
for advances of up to $1,300,000. Such advances, which are due and payable on
August 27, 1998, bear interest at a rate of 10% per annum, are secured by a
first mortgage lien on and a security interest in the real and personal property
assets comprising the Fort Erie Racetrack. Subsequent to October 31, 1997, the
Company has made an additional $200,000 of advances under this credit facility.
In addition to the line of credit, the Company has also provided a certificate
of deposit as security for a certain aircraft leasing arrangement.
25
<PAGE>
Mr. Joseph A. Corazzi and Mr. Nunzio P. DeSantis are the sole
stockholders of D&C Gaming Corporation. On July 1, 1997, ITB purchased an
exclusive option to acquire certain leasehold interests relating to two New
Mexico racetracks, the Downs at Albuquerque and Farmington Racetrack from D&C
for a non-refundable deposit of $600,000 which is to be credited towards the
purchase price. In the event that ITB exercises its option, the purchase price
would be determined by an independent appraiser.
During the year ended October 31, 1997, the Company; (i) advanced
$931,247 to its 75% owned EMC subsidiary in developing this project. Mr. Nunzio
DeSantis owns 25% of the stock of EMC (ii) paid Mr. Nunzio DeSantis, or his
designated companies, $110,000 in standby loan fees, and (iii) paid $351,000 to
companies owned or controlled by Mr. DeSantis or his family members for actual
charter aircraft costs.
During the year ended October 31, 1997, ITB reimbursed Autolend Group
Inc.(a company whose Chairman, CEO, and principal shareholder is Nunzio
DeSantis) for $150,000 it paid to Communication Associates Inc. for investment
banking services in connection with the location a potential financing source
for ITB (Communication Associates Inc. is a wholly-owned company of Mr. Joseph
A. Corazzi)
26
<PAGE>
PART IV
Item 13. EXHIBITS 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)
3.5 Designation Statement-Series A Preferred-Filed
as Exhibit 10.38
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,
Ltd.--$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 LVEN 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 Co, with exhibits(10)
10.25 Subordination Agreement dated as of January 22, 1996
between the Company, CountryLand Properties,
International Thoroughbred Breeders, Inc., Orion Casino
27
<PAGE>
Corporation and SunAmerica Life Insurance Company(10)
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.(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)
10.33 Nordic Gaming Option Agreement dated June 30, 1997. (13)
10.34 Loan Agreement between Nordic Gaming and LVEN dated
August 27, 1997 with related Secured Promissory Note,
and Security Agreement, and Pledge Agreement. (13)
10.35 Employment Agreements between LVEN and LVCC with
Joseph A. Corazzi.(13)
10.36 Joint Venture Agreement dated June 6, 1997 between
Electronic Media Company-Nevada and Russ Gerstein. (13)
10.37 Joint Venture Agreement dated June 6, 1997 between
Electronic Media Company-Nevada,
Russ Gerstein, Carlos Lima and Juan Martinez. (13)
10.38 Certificate of Designation of Preferred Stock. (13)
10.39 Tri-Party Agreement dated May 23, 1997 between LVEN and
International Thoroughbred Breeders Inc. and Credit
Suisse First Boston Mortgage Capital.(13)
10.40 Bi-Party Agreement dated May 23, 1997 between LVEN and
International Thoroughbred Breeders Inc.(13)
10.41 Option Agreement between LVEN and Nunzio DeSantis for
1,500,000 shares of LVEN common stock.(13)
10.42 Option Agreement between LVEN and Joseph A. Corazzi
for 4,000,000 shares of LVEN common stock .(13)
10.43 Financial Statements of Fort Erie Racetrack(13)
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-KS
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) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October 31, 1996
(13) Filed herewith
28
<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 12, 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, 1998.
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 Executive Vice President, Chief Financial Officer,
Carl A. Sambus Secretary and Director (principal accounting and
financial officer)
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors............................................F-1
Consolidated Balance Sheets as of October 31, 1997 and
October 31, 1996 ....................................................F-2
Consolidated Statements of Operations for the
Years Ended October 31, 1997 and 1996 ..............................F-3
Consolidated Statement of Stockholders' Equity for the Years Ended
October 31, 1997 and 1996............................................F-4
Consolidated Statements of Cash Flows for the
Years Ended October 31, 1997 and 1996 ...............................F-5
Notes to Consolidated Financial Statements................................F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Las Vegas Entertainment Network, Inc.
We have audited the accompanying consolidated balance sheets of Las Vegas
Entertainment Network, Inc. and Subsidiaries as of October 31, 1997 and 1996
and the related consolidated statements of operations, stockholders' equity and
cash flows for the 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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, 1997 and 1996 and
the consolidated results of its operations, stockholders' equity and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
HOLLANDER, GILBERT & CO.
Los Angeles, California
January 14, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK AND SUSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED OCTOBER 31, 1997 AND 1996
1997 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 2,399,491 $ 10,385,292
TRADING SECURITIES 1,087,890
------------ ------------
TOTAL CURRENT ASSETS 3,487,381 10,385,292
INVESTMENT IN & ADVANCES TO INTERNATIONAL
THOROUGHBRED BREEDERS INC. - Note 2 3,604,564 6,161,706
INVESTMENT IN AND ADVANCES TO NORDIC
GAMING - Note 3 1,047,548
OTHER INVESTMENTS & ADVANCES - Note 4 100,000 762,606
NOTES RECEIVABLE, LAKE TROPICANA - Note 5 -- 806,489
PROGRAMMING AND FILM COSTS, Net of
Amortization -- 180,000
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $192,509 (1997) and $180,981 (1996) 141,536 171,397
DEPOSITS AND OTHER - Note 6 1,389,893 10,770
------------ ------------
$ 9,770,922 $ 18,478,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 452,138 $ 144,650
NOTES PAYABLE - Note 7 775,753 1,056,444
ACCRUED INTEREST PAYABLE 154,354 102,346
ACCRUED OFFICER'S SALARY - Note 12 482,884 406,622
------------ ------------
TOTAL CURRENT LIABILITIES 1,865,129 1,710,062
ACCRUED OFFICER'S BENEFITS - Note 12 363,000 239,000
COMMITMENTS AND CONTINGENCIES - Note 12
STOCKHOLDERS' EQUITY - Note 8
PREFERRED STOCK - SERIES A, AUTHORIZED
30,000,000 SHARES, $.001 PAR VALUE;
ISSUED AND OUTSTANDING - 1,000,000
SHARES (1997) AND NONE (1996) 1,000
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING - 34,898,349 SHARES 34,895 34,895
ADDITIONAL PAID-IN CAPITAL 47,445,080 47,280,080
LONG TERM INVESTMENT RESERVE (2,400,000)
DEFICIT (37,538,182) (30,785,777)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,542,793 16,529,198
------------ ------------
$ 9,770,922 $ 18,478,260
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997 AND 1996
1997 1996
---- ----
REVENUES $ - $ 291,200
------------ -------------
COSTS AND EXPENSES
Research & Development - Note 9 1,031,246 -
Loss on Investments - Note 10 1,390,217 450,000
Programming 180,000 805,061
General & Administrative 4,019,368 3,202,893
------------ -------------
TOTAL COSTS AND EXPENSES 6,620,831 4,457,954
------------ -------------
LOSS BEFORE OTHER
INCOME AND (CHARGES) (6,620,831) (4,166,754)
OTHER INCOME AND (CHARGES):
Interest Income 428,053 495,350
Gain on Trading Securities 15,666 -
Other Charges - Note 11 (385,785) (1,108,651)
Interest and Finance Costs (189,508) (537,081)
------------ -------------
TOTAL OTHER INCOME AND (CHARGES) (131,574) (1,150,382)
------------ -------------
LOSS BEFORE GAIN ON
ASSETS HELD FOR SALE (6,752,405) (5,317,136)
GAIN ON DISPOSAL OF ASSETS HELD
FOR SALE - 576,677
------------ -------------
NET LOSS $(6,752,405) $(4,740,459)
============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 34,898,349 33,238,660
============ =============
LOSS PER SHARE OF COMMON STOCK $ (0.19) $ (0.14)
============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORKS INC.
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Unrealized
PREFERRED SHARES COMMON SHARES Loss
---------------- ------------- Additional On
Number Number Paid-in Long-Term
Of Shares Amount of Shares Amount Capital Investment Deficit Total
--------- ------ --------- ------ ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 1, 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, 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
Issuance of Options- Note 8 165,000 165,000
Issuance of Preferred Stock - Note 8 1,000,000 1,000 1,000
Market value adjustment to ITB Stock (2,400,000) (2,400,000)
Net Loss, Year Ended October 31, 1997 (6,752,405) (6,752,405)
--------- ----- ---------- ------ ---------- ----------- ------------ ------------
BALANCE - October 31, 1997 1,000,000 $1,000 34,898,349 $ 34,895 $47,445,080 $(2,400,000) $(37,538,182) $7,542,793
========= ======= ========== ========= =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997 AND 1996
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(6,752,404) $(4,740,459)
Gain from Assets Held for Sale (576,677)
Gain from Marketable Securities (87,890)
Loss on Investments 1,390,216
Depreciation 73,887 102,611
Issuance of Options and Warrants 165,000 256,200
Amortization of Program Inventory 180,000 805,061
Adjustments to reconcile net loss to net
cash used in operating activities:
(Increase) Decrease in;
Program Inventory - (180,000)
Other Assets 10,770
Increase (Decrease)in;
Accounts Payable 307,486 (493,979)
Interest Payable 52,008 (200,489)
Accrued Officer's Salaries 76,262 (56,117)
Accrued Officer's Benefits 124,000
---------- -----------
CASH USED IN OPERATING ACTIVITIES (4,460,665) (5,083,849)
CASH FLOWS FROM INVESTING ACTIVITIES:
Trading Securities (1,000,000)
Advances to Nordic Gaming (1,046,548)
Advances from ITB 157,142 (261,706)
Investments & Advances - Other 78,879 (719,606)
Advances for Airplane Deposits (1,389,893)
Acquisition of Property and Equipment (44,025) (13,588)
Sale of El Rancho and Capitalized Costs 35,371,987
Issuance of Notes and Loans Receivable (12,400,000)
Collections on Notes and Loans Receivable 6,500,000
---------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,244,445) 28,477,087
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Notes Payable 850,000
Repayment of Notes Payable (280,691) (3,156,524)
Issuance and Sales of Common Stock 2,604,135
Repayment of Loans and Interest Payable -
El Rancho (14,094,895)
---------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (280,691) (13,797,284)
INCREASE (DECREASE) IN CASH (7,985,801) 9,595,954
CASH BALANCE - BEGINNING 10,385,292 789,338
---------- -----------
CASH BALANCE - ENDING $ 2,399,491 $ 10,385,292
========== ===========
NON-CASH TRANSACTIONS
Conversion of Note Receivable to
Investment in Common Stock of ITB $5,900,000
Valuation reserve on ITB Stock $2,400,000
Issuance of Preferred Stock for Option
to acquire Nordic Gaming $ 1,000
Conversion of Notes Payable and Accrued
Interest to Equity $260,000
Accrued Interest and Fees - El Rancho $695,832
CASH PAID FOR
Interest $405,847
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. ("LVEN" or "the Company") was incorporated
in October 1990, and is engaged in the business of acquiring,
developing and operating media and gaming facilities and businesses.
The Company is also developing technology for the delivery of
television and video programming, Internet access, and telephony to be
owned by the Company's majority owned subsidiary, Electric Media
Company Inc. The Company is also investigating other potential
businesses for acquisition in the entertainment, gaming, lodging, and
communications industries.
Significant Operating Losses - The Company has experienced operating
losses since its inception. For the fiscal years ended October 31, 1997
and 1996, the Company experienced net losses of $6,752,405 and
$4,740,459, respectively. The Company anticipates that it will continue
to experience losses as it continues working on its development plans,
including the development of a technology for the delivery of
television and video programming, Internet access, and telephony. Even
after the Company's development plans are completed, there can be no
assurance that the Company will be profitable.
Significant Capital Requirements - The Company's capital requirements
have been and will continue to be significant. At October 31, 1997, the
Company had cash and cash equivalents of $3,487,381. The Company may
require additional capital to acquire the 80% interest in Nordic Gaming
Corporation and to develop the technology to be owned by the Company's
majority owned subsidiary, Electric Media Company Inc. There can be no
assurance that additional financing will be available to the Company on
acceptable terms, or at all. In addition, the Company does not
currently meet the new listing standards for maintenance of the
Company's securities on Nasdaq's SmallCap Market, which new standards
become effective in late February 1998. Although the Company intends to
seek to comply with the new maintenance criteria for continued listing,
if the Company should be unable to meet these criteria, it is possible
that its securities could be de-listed from the Nasdaq SmallCap Market,
which might result in the Company having difficulty in placing its
securities with prospective investors.
Principles of Consolidation -The accompanying financial statements
include the accounts of Las Vegas Entertainment Network Inc. (LVEN),
and its wholly-owned subsidiaries; Las Vegas Communications Corp.
("LVCC"), Casino-Co Inc., CountryLand Properties Inc. and Pacific DNS,
Inc; and its majority owned subsidiaries; Satellite Networks Inc. and
Electric Media Company Inc. (EMC). All significant intercompany
transactions and balances have been eliminated.
Marketable Securities - Marketable securities that are bought and held
principally for the purpose of selling them in the near-term are
classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. Marketable securities
classified as available for sale, which consists mostly of the
Company's investment in the common stock of International Thoroughbred
Breeders Inc. (see Note 2) are reported at fair value, with unrealized
gains and losses excluded from earnings, and reported as a separate
component of stockholder's equity. A decline in the market value of the
security below cost that is deemed to be other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
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, when necessary, unamortized program
and film costs are written down to net realizable value based upon this
assessment.
F-6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Property and equipment
are reviewed for impairment whenever events or circumstances indicate
that the asset's un- discounted expected cash flows are not sufficient
to recover its carrying amount. The Company measures an impairment
loss, if any, by comparing the fair value of the asset to its carrying
amount. Fair value of an asset is calculated as the present value of
expected cash flows.
Revenues - Revenues are recognized when earned, and consist of fees
earned under the Company's interim entertainment management agreement,
and fees earned from renting out the parking facilities at the El
Rancho Property site that was formerly owned by the Company.
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.
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with an original maturity date of three months or
less to be cash equivalents.
Concentrations of Credit Risk - As of October 31, 1997, 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, and marketable securities, which consist of mutual fund
investments with major 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,
1997, the Company had approximately $3,540,000 on deposit in two
institutions that was subject to such risk. The Company has also made
certain advances to Companies where the company believes it has
obtained sufficient underlying collateral.
Fair Value of Financial Instruments - The fair value of the Company's
cash and cash equivalents, marketable securities, accounts payable and
accrued expenses approximate their carrying value due to the relative
short maturities of these instruments. The fair value of the
investments and advances made by the Company approximate the fair value
due to the stated interest rate and the collateral supporting such
advances. The fair value of the notes payable approximate the fair
value of the instruments due to the stated interest rates on such
notes.
Accounting for Stock Based Compensation - Prior to November 1, 1996,
the Company accounted 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." As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price. On November 1, 1996, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock Based Compensation" which
permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma net income per share disclosures for employee stock
option grants made in 1997 and future years as if the fair value based
method described in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure required by SFAS No. 123.
F-7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Standards - In February 1997, the Financial
Accounting Standards Board released Statement of Financial Accounting
Standards ("SFAS)" No. 128, "Earnings Per Share", which requires the
disclosure of basic earnings per share and diluted earnings per share.
The Company expects to adopt SFAS No. 128 during the fiscal year ended
1998, and anticipates that it will not have a material impact on
previously reported loss per share.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS
No. 130 is effective for financial statements issued for periods
beginning after December 15, 1997. Had the Company adopted SFAS No.
130 during the year ended October 31, 1997, the Statement of
Comprehensive Income would be:
Net loss for the year ending October 31, 1997 $(6,752,405)
Other Comprehensive loss, Unrealized loss on investment (2,400,000)
------------
Comprehensive loss, October 31, 1997 $(9,152,405)
===========
In June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which requires the
disclosure of business segments of the Company. SFAS No. 131 is
effective for financial statements issued for periods beginning after
December 15, 1997. The Company expects to adopt SFAS No. 131 during the
fiscal year ended 1998 and anticipates that it will not have any impact
on the Company's segment disclosure.
Re-classifications - Certain 1996 amounts have been re-classified to
conform with the 1997 financial statement presentation.
2. INVESTMENT IN AND ADVANCES TO INTERNATIONAL THOROUGHBRED
BREEDERS INC.
Investments in and advances to ITB consist of the following as of
October 31, 1997 and 1996:
1997 1996
---- ----
(A) Note Receivable, ITB - $5,900,000
(A) Investment in ITB Stock $5,900,000 -
Less Valuation to Market (2,400,000) -
----------- ----------
3,500,000 5,900,000
(B) Advances to ITB 104,564 261,706
----------- -----------
$3,604,564 $6,161,706
=========== ===========
(A) On January 22, 1996, the Company sold the assets and liabilities of
the El Rancho Hotel and Casino (the "El Rancho" or the "Property") to
International Thoroughbred Breeders Inc.("ITB") for consideration of
$43,500,000, consisting of (i) $12,500,000 paid at closing in cash;
(ii) the issuance of an 8% unsecured promissory note in the principal
amount of $6,500,000 the ("A-Note") which A-Note was paid in full on
March 15, 1996; (iii) the issuance of an 8% promissory note in the
principal amount of $10,500,000 (the "B-Note") and (iv) assumption of
existing mortgage indebtedness and accrued interest of $14,000,000. In
addition, once the Property was developed, the Company was entitled to
share in a percentage of the ongoing adjusted cumulative cash flow
from the operation of the Property up to $160,000,000, as provided in
the ITB Sale Agreement (the "El Rancho Cash Flow Interest").
F-8
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 22, 1997, LVEN converted the $10.5 Million receivable evidenced
by the B-Note, together with accrued interest thereon of $1.1 Million,
into 2,093,868 restricted shares of ITB common stock (the "Conversion
Shares"). On May 22, 1997, LVEN and ITB also agreed, subject to
approval of their respective Boards of Directors, that as soon as
practicable, ITB would acquire LVEN's El Rancho Cash Flow Interest. In
order to effect such transaction, ITB is required to issue to LVEN
that number of shares of ITB common stock (the "Acquisition Shares")
equal to (i) the fair market value of the El Rancho Cash Flow
Interest, as determined in a fairness opinion to be obtained from a
nationally recognized investment banking firm, divided by (ii) the
average bid price for ITB Stock during the 20 trading days prior to
the closing. Both the Conversion shares and the Acquisition shares are
subject to certain restrictions as described below. Management in the
future may consider distributing all or a portion of these shares to
the shareholders of the Company as a dividend. In accordance with
certain regulatory and gaming commissions, no person may hold or
acquire, directly or indirectly, beneficial ownership of more than 5%
of the voting securities of ITB without the approval of the New Jersey
Racing Commission. LVEN is in the process of obtaining this approval.
On or about October 10, 1997, certain former or current directors of
ITB filed an action against ITB and its other directors, the Company,
the Company's Chairman and certain other individuals in the Delaware
Court of Chancery, alleging, among other things, that the Company
acted improperly in connection with various transactions with ITB. The
plaintiffs are seeking, among other things, the recision of the
issuance of the 2,093,068 shares of ITB common stock to LVEN on May
22, 1997, and further seek to block the issuance to LVEN of additional
shares of ITB stock in exchange for LVEN's El Rancho Cash Flow
Interest (see Note 12).
ITB has also agreed that the $55 Million of financing provided to it
by Credit Suisse First Boston Mortgage Capital L.L.C. ("CSFB") on May
22, 1997 the ("CSFB Loan") was arranged by LVEN's subsidiary, CasinoCo
Corporation, as the "Alternative Financing" contemplated by, pursuant
to, and in satisfactory of, the provisions of ITB Sale Agreement. ITB
has informed the Company that it will begin the renovation and
redevelopment of the El Rancho Property as a country-western themed
destination resort to be known as "CountryLand". However, it is not
expected that funds from the CSFB financing will be sufficient to
begin the construction and the renovation of the Property, and
additional funding will be required. Any such additional funding would
be subject to the execution of a definitive loan agreement between ITB
and any potential lenders, which the Company can give no assurance
will occur.
As a condition precedent to the issuance of the Acquisition Shares for
LVEN's Cash Flow Interest, LVEN is required to have received one or
more valuation opinions from one or more investment banking firms
satisfactory to LVEN respecting the fair market value of the El Rancho
Cash Flow Interest. If LVEN is unsatisfied with the highest fair
market value of the El Rancho Cash Flow Interest as established by the
valuation opinions, then it shall have the right, within 180 days of
the date thereof, to make a secured first mortgage loan to ITB, and
ITB must then repay the CSFB Loan in full. If LVEN were to make such a
loan to ITB, the loan would mature on the date that the CSFB Loan is
scheduled to mature and would bear interest at the rate applicable to
CSFB Loan, and LVEN would have the right to develop the property.
The Company has executed an irrevocable proxy in respect of the
Conversion Shares, and has agreed to execute such an instrument in
respect of the Acquisition Shares, in each case in favor of Mr. Nunzio
P. DeSantis, Chairman of the Board of ITB, which proxies shall be
irrevocable until the earlier of (i) the date on which the CSFB Loan
and all of the other obligations of ITB owing to CSFB under the CFSB
Loan have been repaid in full, (ii) the date on which LVEN distributes
the Acquisition Shares to its shareholders generally, (iii) the date
on which LVEN sells the Conversion Shares or Acquisition Shares to, or
LVEN is acquired by, or merged with or into, a person or entity that
is not affiliated with LVEN or Mr. Joseph A. Corazzi, Chairman of the
Board of LVEN, and (iv) the date on which Mr. DeSantis dies or becomes
mentally incompetent. LVEN and ITB have agreed to enter into a
registration rights agreement
F-9
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respecting the Conversion Shares and the Acquisition Shares and
providing for demand rights, unlimited piggyback rights, and other
customary provisions.
As provided in the ITB Sale Agreement, if by October 25, 1996 (i) ITB
had not closed on or received permanent financing and obtained the
required lease commitments to develop the Property under the "Starship
Orion" theme, and (ii) 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 ITB and LVEN, or (ii) arrange on behalf of ITB, 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 establishing the referenced escrow account. On October 28,
1996, ITB announced that LVEN had forfeited its rights under the ITB
Sale Agreement because of the alleged failure to satisfy certain
contractual preconditions and LVEN advised ITB that it strongly
disputed and would vigorously contest ITB's stated 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". If the Property is not so developed, or if
the additional funding is not completed, the Company believes that it
retains its rights as described above.
(B) Advances to ITB Inc. represent amounts currently due LVEN for monthly
property management fees, and for the reimbursement for certain
operational and financing advances made for the El Rancho Property.
3. INVESTMENTS AND ADVANCES TO NORDIC GAMING CORPORATION
Investments and advances to Nordic Gaming Corporation consist of the
following as of October 31, 1997:
(A) Purchase Option and related Costs $ 1,000
(B) Advances under line of credit Agreement 1,046,548
-----------
$1,047,548
===========
(A) During 1997, the Company was granted an option to acquire from Mr.
Nunzio P. DeSantis, the Chief Operating Officer of ITB, his eighty
percent (80%) of the voting equity of Nordic Gaming Corporation, a
Canadian corporation ("Nordic"). The Company's Chairman of the Board,
Mr. Joseph A. Corazzi, as a bonus for services rendered in negotiating
the potential acquisition of the operations of Nordic, may be
allocated a portion of the ownership as agreed to by Mr. DeSantis and
LVEN's Board of Directors. The remaining 20% of Nordic is owned by
Canadian citizens not affiliated with the Company. On August 23, 1997,
Nordic acquired certain real property and assets known as the "Fort
Erie Racetrack" which is situated on 143 acres in Fort Erie, Ontario,
Canada. Fort Eric Racetrack currently offers live, as well as
simulcast, thoroughbred horse racing. Additionally, the racetrack has
been notified by the Ontario Lottery Corporation that it is eligible
to receive 621 video lottery terminals ("VLTs") and may receive an
additional 130 VLTs or more based upon performance. However, before
any of these VLTs are received, the racetrack and the Provincial
Government of Ontario, Canada have to come to an agreement as to the
percentage of the net revenues from the VLTs that can be kept by the
race track. Furthermore, the Company and Nordic would have to obtain
the necessary gaming licenses.
F-10
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In consideration for receiving the option, which expires June 1, 1998,
the Company; (i) paid to Nordic $182,000 that was used as the advance
deposit used to acquire the racetrack, (ii) agreed to provide Nordic a
working capital line of credit (see below) and (iii) agreed to the
issuance to Mr. Nunzio P. DeSantis of 1,000,000 shares of a new Series
A Preferred Stock that entitles Mr. DeSantis to certain voting rights
in a ratio of 20 votes for each share of preferred stock on matters of
stock splits and certain other matters to be designated by the Board of
Directors. The shares of been valued at the aggregate par value of
$1,000. In addition to the deposit above, the Company has expended
$134,548 for financing and legal costs in connection with the proposed
acquisition (these costs are included as advances under the line of
credit discussed in "B"below).
The exercise price of the option, subject to further evaluation and
appraisal is payable (i) $1,000,000 cash at closing, (ii) $2,600,000
payable in equal monthly installments of $100,000 commencing on the
last date of the month on which the closing occurs, and (iii) upon
exercise, the entire issuance of the Series A Preferred Stock shall be
converted into that number of restricted shares of LVEN common stock
equal to the positive difference between (a) eighty percent (80%) of
the fair value of the Fort Erie Racetrack as set forth in a fairness
opinion prepared by an investment banking firm and (b) $3,600,000
divided by (c) the average closing price of LVEN Common Stock for the
twenty trading days proceeding the giving of the notice of exercise.
However, it is the intention of LVEN to only exercise its option based
upon its due diligence, a valuation of the ongoing operations of the
property, the valuation of potential revenue from the addition of video
lottery terminals, and the availability of financing. If the Company
does exercise its option to acquire the 80% interest in Nordic, of
which there can be no assurance, and if it decides to maintain full
racing operations, it would be responsible for maintaining operations
at the track through the end of the 1998 racing season which is
currently projected at a cash flow deficit of approximately $2,000,000
for a seventy five day racing schedule, excluding any additional
revenues that may be generated by the introduction of the VLTs.
(B) As of October 31, 1997, the Company had advanced $1,046,548 to Nordic
pursuant to a Line of Credit Agreement dated as of August 27, 1997,
providing for advances of up to $1,300,000. Such advances, which are
due and payable on August 27, 1998, bear interest at a rate of 10% per
annum, and are secured by a first mortgage lien on and a security
interest in the real and personal property assets comprising the Fort
Erie Racetrack. Subsequent to October 31, 1997, the Company has made
an additional $200,000 of advances under this credit facility. The
Company has notified Nordic that it will not fund any additional
advances. In addition to the line of credit, the Company has also
provided to Nordic a certificate of deposit for a certain leasing
arrangement (see Note 6)
4. OTHER INVESTMENTS AND ADVANCES
Other Investments and advances consist of the following as of October
31, 1997 and 1996:
1997 1996
---- ----
(A) Malbec, Inc. $ 100,000 $ 462,606
(B) Tee One Up, Inc 300,000
--------- ---------
$100,000 $ 762,606
======== =========
F-11
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) The Company made accumulated advances to Malbec, Inc., an
unaffiliated company, of $959,284 and $912,606 as of October 31, 1997
and October 31, 1996, respectively, for the purpose of developing and
operating a hotel project in Miami Beach, Florida. $46,678 of such
advances have been returned to the Company as of October 31, 1997. The
advances accrue interest at the rate of 8% per annum, and were due
July 31, 1997. Due to difficulties in finalizing a purchase agreement,
and on going litigation involving the hotel property, the Company and
Malbec Inc. have discontinued any attempt to develop this property.
The Company's advances were secured by an interest in an escrow
account (which had a balance of $300,000 as of October 31, 1997) and a
$600,000 lien against the subject property. The Company expects the
escrow account to be liquidated with the net amounts, after payment of
all expenses, to be returned to the Company. For the years ended
October 31, 1997 and 1996, the Company provided allowances of $812,606
and $450,000, respectively, against this advance, for a net investment
of $100,000 and $462,606 as of October 31, 1997 and 1996,
respectively.
(B) 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. The loan was secured by the assets of Tee One Up. Principal
and interest at a rate of 17% per annum was to be paid in monthly
installments of $14,832 until maturity, November 1, 1998. In March 1997,
Tee One Up became delinquent in making its monthly payments and no
further payments have been received since then. As of October 31, 1997,
the principal balance due under this note was $267,000 for which the
Company has provided a reserve of the same amount.
5. NOTES RECEIVABLE - LAKE TROPICANA
Notes receivable - Lake Tropicana consist of the following as of
October 31, 1997 and 1996;
1997 1996
---- ----
Lake Tropicana $3,736,000 $3,736,000
Less allowances for valuation
and imputed interest 3,736,000 2,929,511
----------- ---------
$ - $ 806,489
=========== ==========
As of October 31, 1997 and 1996, Notes Receivable - Lake Tropicana
represent two (2) separate notes payable to the Company of $1,868,000
each from a venture that owns a 184 unit apartment complex in Las Vegas,
Nevada. The complex is being converted into vacation interval ownership
(time-share) project. The venture has been attempting to develop the
project since 1994. The first note payable to the Company 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.
During the year ended October 31, 1997, the venture had reorganized its
debt position, and with such refinancing, had hoped it would to have the
funds to necessary to commence development and sale of the time share
units. However, as of October 31, 1997 such refinancing did not result in
any significant progress in the conversion of the property into its
intended use as a vacation interval ownership site. Accordingly, the
Company reflected a charge of $806,489 during the year ended October 31,
1997 to fully reserve the remaining receivable.
F-12
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEPOSITS AND OTHER
Deposits and other consist of the following as of October 31, 1997 and
1996;
1997 1996
(A) Deposit on Nordic Gaming Aircraft Lease $ 600,000 $ -
(B) Deposit on Stan Irwin Enterprises Aircraft
Purchase 789,893 -
Other 10,770
-------- --------
$1,389,893 $10,770
========= ========
(A) The Company has provided to Nordic Gaming Corporation a $600,000
certificate of deposit as collateral for an irrevocable letter of
credit in favor of an aircraft leasing company. The certificate of
deposit shall be returned to the Company upon the earlier of; (i)
receipt of any permanent financing relating to the Fort Erie Race
Track, (ii) any other capital infusion of $1,000,000 or more, or (iii)
at the expiration of the aircraft leasing agreement which expires in
September 2004. In the event of default or other foreclosure, the
entire amount of the cash collateral shall be deemed to have been
loaned to Nordic Gaming upon the terms and conditions of the existing
credit facility with them, and secured by the assets of the Fort Erie
Racetrack (see Note 3).
(B) The Company provided a certificate of deposit of $778,000 as security
to a bank for a term loan of $778,000 that was obtained by Stan Irwin
Enterprises Inc. on July 16, 1997 that was used to acquire a 12 1/2%
undivided interest in an aircraft. The Company provided the
certificate of deposit on behalf of Stan Irwin Enterprises to enable
Mr. Joseph Corazzi, the Company's Chairman of the Board, the personal
use of up to fifty hours of private air travel service at a cost to
Mr. Corazzi of approximately $1,200 per hour. The Company may also use
the plane up to twenty five hours per year at cost of approximately
$1,200 hour. The certificate of deposit at all times remains the
property of the Company and will earn interest to the benefit of the
Company. At the end of two years from the date of purchase, Stan Irwin
Enterprises has the option of returning the aircraft to the seller and
receive the fair market value price. It is anticipated that the
certificate of deposit and all accrued interest ($11,894 at October
31, 1997) will be returned to the Company at that time.
7. NOTES PAYABLE
Notes payable consist of the following as of October 31, 1997 and
1996;
1997 1996
Convertible Bridge Loans $ 775,753 $ 1,050,249
Other - 6,195
--------- -----------
Total $ 775,753 $1,056,444
========== ==========
Convertible bridge loans outstanding as of October 31, 1997 and 1996
consist of six (6) 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. Consolidated interest expense
on these notes for the years ended October 31, 1997 and 1996 was
$79,508 and $205,352 respectively.
F-13
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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 shares of common stock were issued and
outstanding as of October 31, 1997 and 1996, respectively. In addition,
the Company has also authorized 30,000,000 shares of Preferred Stock, par
value $.001 per share, 1,000,000 shares of which was outstanding during
the year ended October 31, 1997. 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.
On June 30, 1997, the Company issued to Mr. Nunzio P. DeSantis, Chief
Operating Officer of ITB, a new series of Preferred Stock designated
Series A Preferred Stock (the "Series A Preferred") consisting of One
Million shares. The holder of the Series A Preferred shall be entitled to
twenty (20) votes for each share of the Series A Preferred standing in
the name of the holder on the stock record books of the Corporation on
the record date for the determination of stockholders entitled to notice
of and to vote at any annual or special meeting of the stockholders of
the Corporation, but only as to (i) stock splits (including reverse stock
splits) and repurchase programs, and (ii) any other matter or matters
from time-to-time to be designated by the Company's Board of Directors.
Holders of the Series A Preferred shares shall not be entitled to receive
any dividends or other distributions. In the event that the Corporation
exercises the Option granted to it pursuant to the Option Agreement,
dated as of June 30, 1997, by and between the Corporation and Nunzio P.
DeSantis ( See Note 3 ), each share of the Series A Preferred shall be
converted into the number of shares of Common Stock determined in
accordance with the provisions of the Option Agreement.
Issuances of common stock - The Company has made the following issuances
of common stock during the year ended October 31, 1996;
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. The shares were valued at $1,369,135 and
were issued at prices ranging from $.40 to $.63 per share. 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.
Sales of Common Stock - The Company sold 3,034,294 shares of its Common
Stock during the year ended October 31, 1996 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 from these sales. The sales prices per
share ranged from $.50 to $.55 per share.
Shares issued in lieu of Notes Payable and Accrued Interest - The Company
issued 604,651 shares of its common stock to extinguish $252,500 of
outstanding notes payable and accrued interest during the year ended
October 31, 1996.
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, 1997
and 1996. 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, which expired on
February 20, 1997, have been extended until June 1, 1998.
F-14
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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 was 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 were fully
transferable and convertible into options to purchase LVEN Common Stock
at $1.00 per share. On October 1, 1997 the Company canceled this option
and granted to Mr. Corazzi an option to purchase up to 4,000,000 shares
of the presently authorized but unissued shares of the Company's common
stock at $1.00 per share, subject to adjustment that may result in future
changes in the Company's outstanding common or other stock, that will
preserve the benefit to Mr. Corazzi. These shares are not issuable in
connection with the Stock Option Plan described below. The Option expires
on September 30, 2002
The Corporation has adopted the disclosure only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the stock options. The fair value of the option granted to Mr. Corazzi
has been estimated as of the date of the grant using the Black-Scholes
option pricing model with the following assumptions: risk free interest
rate of 6%, expected life for the option of five years, expected dividend
yield of 0%, and expected volatility of 82%. Under these assumptions, the
fair value of the option was $.13 per share. If the Company had elected
to recognize compensation cost based upon the fair value of the options
granted at the grant date as prescribed by SFAS No. 123, the Company's
net loss and net loss per share would have been as follows:
Net loss, as reported $(6,752,405)
Net loss, pro forma $(7,272,405)
Loss per share, as reported $(.19)
Loss per share, pro forma $(.21)
Other - On December 11, 1996, Mr. Nunzio DeSantis, now the Chief
Operating Officer of ITB, was granted options to acquire 1,500,000 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. The Company valued
these options at $165,000 and, accordingly, has reflected a charge during
the year ending October 31, 1997 for such amount. These shares are not
issuable in connection with the Stock Option Plan described below.
F-15
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 90,000 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, 1997;
Number of Price Per
Shares Share
October 31, 1995 880,000 $1.00
Canceled (100,000) $1.00
Granted 40,000 $0.71
-------- ------
October 31, 1996 820, 000
Canceled -
Granted -
--------- ------
October 31, 1997 820, 000 $0.71 - $1.00
========= ==============
9. RESEARCH AND DEVELOPMENT - EMC
The Company has formed a new subsidiary, Electric Media Company Inc.
("EMC"), which is developing technology, that if successful, of which
the Company can give no assurance, will allow delivery of video voice
and/or data communications over electric power lines or other forms of
transmission including cable, telephone and microwave. EMC is 75% owned
by the Company and 25% owned by Mr. Nunzio DeSantis, Chairman of the
Board of ITB.
EMC has entered into two agreements for the development of this
technology with two joint venture partners/developers. The agreements
are for a term of 25 years, and can be extended to successive 25-year
terms at the election of EMC. The first agreement calls for the
development of video, voice and data communication over existing power
lines. Field testing of this technology will occur during 1998. Upon
successful completion of all field tests, 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. In accordance with the joint
venture agreement, EMC is committed to deliver to the joint venture
partner/developer; (i) 500,000 restricted shares of LVEN common stock
upon successful completion of the field test, (ii) monthly renumeration
of $25,000 upon successful completion of the field test (iii) an
additional 500,000 restricted shares of LVEN common stock each time the
sale of these units generates $10,000,000 of net after tax profits to
LVEN, up to a maximum of 2,500,000 shares, and (iv) 20% of the net
profits once EMC has recouped all its costs, plus a return of 6%
thereon.
The second agreement calls for the development of a communications
network in Guatemala and Central America for the provision of
telephone, video, voice and/or data communications. Field testing of
this technology will occur during 1998. In accordance with the joint
venture agreement, if EMC proceeds, it will deliver to the joint
venture partner/developer; (i) up to $500,000 for general start up and
market costs, (ii) 500,000 restricted shares of LVEN common stock upon
successful completion of the field test and demonstration of its
economic viability, (iii) monthly renumeration of $15,000 upon
successful completion
F-16
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the field test and demonstration of its economic viability, (iv) an
additional 500,000 restricted shares of LVEN common stock for each
150,000 telephones installed, up to a maximum of 2,500,000 shares, and
(v) 20% of the net profits once EMC has recouped all its costs, plus a
return of 6% thereon. The Company has engaged an investment banking
firm to raise $15 million, for which it can give no assurance can be
achieved, for the full implementation of this project.
To date, the company has expended $1,031,246 in developing this
technology. Such amounts have been reflected as research and
development costs for the year ended October 31, 1997.
10. LOSS ON INVESTMENTS
Loss on Investments for the year ended October 31, 1997 consists of a
charge of $417,356 to reflect the estimated carrying value of the note
receivable from Malbec Inc.(see Note 4 ); a charge of $167,800 to reflect
the estimated carrying value of the note receivable from Tee One Up (see
Note 4), and; a charge of $805,061 to reflect the estimated carrying
value of the Lake Tropicanna notes receivable (see Note 5). Loss on
Investments for the year ended October 31, 1996 represents an allowance
of $450,000 relating to advances made to Malbec, Inc. (see Note 4).
11. OTHER CHARGES
Other charges for the year ended October 31, 1997 consists of a charge of
$165,000 to reflect the value of options granted to Mr. Nunzio DeSantis,
now the Chief Operating Officer of ITB, to acquire 1,500,000 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 8); a charge of $75,000
for a reserve for management fees disputed by ITB; a charge of $100,000
on a settlement agreement entered into with a third party (see Note 12),
and; a charge for $45,785 from the loss on the sale of certain fixed
assets. 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; $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.
12. COMMITMENTS AND CONTINGENCIES
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
provided for an annual aggregate salary of $550,000. These agreements
were terminated on October 1, 1997, and replaced with (2) separate
non-exclusive agreements with Mr. Corazzi which also provide for an
annual aggregate salary of $550,000. The term of the agreement ends on
September 30, 2002, provided, however, that if the Company fails to
notify Mr. Corazzi in writing by October 1, 2001 of its desire to have
this agreement expire at the end of its initial term, the agreement shall
automatically extend for another term ending on the sixth anniversary of
the date upon which Mr. Corazzi received written notification of the
Company's election to terminate the agreement. 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.
Under the agreements, Mr. Corazzi's employment terminates upon death or
disability and may be terminated by the Company for cause. Termination by
the Company for any other reason entitles the employee to receive his
salary for the remaining term of the agreements.
F-17
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Compensation due Joseph A. Corazzi amounting to $ 518,134 and $406,222
have been accrued as of October 31, 1997 and 1996, respectively. The
Company has also accrued $363,000 and $239,000 for amounts due Mr.
Corazzi under his retirement plan which is reflected as accrued officers
benefits as of October 31, 1997 and 1996. The Company paid and reimbursed
Mr. Corazzi $438,488 and $730,177 for accrued and current compensation
during the years ended October 31, 1997 and 1996, respectively. Such sums
were due Mr. Corazzi from inception of the Company to October 31, 1997.
Subsequent to year end, the Company paid to Mr. Corazzi $432,000 of the
remaining amounts due him.
Litigation - On or about September 10, 1997, two actions were filed in
the Delaware Court of Chancery, each of which named the Company and its
Chairman as a defendant. The first such action, captioned Robert J.
Quigley, Frank A. Leo and The Family Investment Trust (Henry Brennan as
Trustee) v. Nunzio P. DeSantis, Michael Abraham, Anthony Coelho, Kenneth
W. Scholl, Joseph Zapalla, Joseph A. Corazzi, Las Vegas Entertainment
Network, Inc. and International thoroughbred Breeders, Inc., C.A. No.
15919-NC, ("Quigley") is a derivative suit brought by two former
directors of ITB and an investment trust which alleges, among other
things, that certain ITB directors have breached their fiduciary duties
to ITB. The Quigley complaint seeks: (i) a declaratory judgment that (a)
the share of ITB's common stock held by NPD may not be voted at any
stockholders' meeting; (b) all actions taken by the current board of ITB
are null and void; and (c) certain purported "super-majority" voting
provisions in ITB's By-laws remain in full force and effect, and (ii)
rescission of certain actions taken by ITB's Board, including but not
limited to certain contractual rights or entitlements that involve the
Company.
Specifically, with respect to the Company, the Quigley Complaint alleges
that the Company and its Chairman were part of a concerted effort to
divert the stock and assets of ITB to the Company, its Chairman and
Messrs. DeSantis and Coelho, and seeks to (i) rescind the issuance of
2,093,868 shares of ITB stock to the Company, (ii) invalidate certain
rights presently existing in favor of the Company relative to the El
Rancho Cash Flow Interest, and (iii) rescind certain agreements entered
into between or among the Company, ITB and/or CSFB in connection with
CSFB's refinancing of the El Rancho project.
On November 7, 1997, the Company filed an Answer to the Quigley
Complaint, in which the Company denied the substantive claims asserted
against or with respect to the Company. Discovery in the Quigley action
is ongoing. The Company believes that the claims against it are without
merit and is vigorously defending itself in this action.
The second action, captioned James Rekulak v. Nunzio P. DeSantis, Michael
Abraham, Anthony Coelho, Kenneth W. Scholl, Joseph Zappala, Las Vegas
Entertainment Network, Inc., Joseph A. Corazzi and International
Thoroughbred Breeders, Inc., C.A. No. 15920-NC ("Rekulak") is a derivative
suit which repeats the allegations in the Quigley Complaint verbatim and
seeks the identical relief. The Company is taking the same positions with
regards to the Rekulak action as it is taking with respect to the Quigley
action.
F-18
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company and its Chairman are named as defendants in an action filed
on November 30, 1997 by Robert William Green ("Green"), a stockholder of
ITB, captioned Robert William Green v. Nunzio DeSantis, Joseph Corazzi,
Anthony Coelho, Las Vegas Entertainment Network, Inc. and NPD, Inc., C.A.
97-5359(JHR) ("Green"), in the United States District Court for the
District of New Jersey. The Green complaint alleges, among other things,
that the defendants have usurped certain corporate opportunities at the
expense of ITB, have diluted Green's interest in ITB through the issuance
of shares of stock and have conspired to deprive him of certain rights
under an option granted to him by NPD, which, subject to regulatory
approval, grants Green the right to purchase approximately 50% of the
shares of ITB's common stock held by NPD. The Company believes that the
claims against it are without merit and intends to vigorously defend
itself.
In all of the above actions, the Company is contemplating several
alternatives to settling all outstanding litigation as it relates to the
transactions with ITB.
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. This case
was settled for $100,000 during fiscal 1997. Additionally, the Company
has commenced action against the owners of Patmor 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.
Leases - The Company leases on a month-to-month basis an office 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. Rent expense for the years ended October 31, 1997 and
1996 was $147,897 and $257,590 respectively.
13. INCOME TAXES
The Company has available unused operating loss carryforwards of
approximately $26,000,000 at October 31, 1997 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 2012. 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.
14. RELATED PARTY TRANSACTIONS
The Company entered into a series of transactions with several
companies that were directly owned or controlled by Mr. Nunzio
DeSantis or his family members. Mr. Nunzio DeSantis is the Chairman of
the Board of International Thoroughbred Breeders Inc. Those
transactions include;
F-19
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 11,1996, Mr. Nunzio DeSantis, 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 (see Note 8).
On January 15, 1997, the Company, through it's wholly-owned Nevada
subsidiary Casino-Co, made a secured loan of $2,900,000 to NPD, Inc,
("NPD"), in order to enable NPD to close the acquisition from Robert
Brennan of 2,904,016 shares of common stock 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 loan to NPD and all accrued interest due, was
repaid to the Company on June 22, 1997.
On May 22, 1997, LVEN converted the $10.5 Million receivable evidenced by
the B-Note, together with accrued interest thereon of $1.1 Million, into
2,093,868 restricted shares ITB common stock (the "Conversion Shares").
On May 22, 1997, LVEN and ITB also agreed, subject to approval of their
respective Boards of Directors, that as soon as practicable, ITB would
acquire LVEN's El Rancho Cash Flow Interest. In order to effect such
transaction, ITB is required to issue to LVEN that number of shares of
ITB common stock (the "Acquisition Shares") equal to (i) the fair market
value of the El Rancho Cash Flow Interest, as determined in a fairness
opinion to be obtained from a nationally recognized investment banking
firm, divided by (ii) the average bid price for ITB Stock during the 20
trading days prior to the closing. LVEN has executed an irrevocable proxy
in respect of the Conversion Shares, and has agreed to execute such an
instrument in respect of the Acquisition Shares, in each case in favor of
Mr. Nunzio P. DeSantis, which proxies shall be irrevocable until the
earlier of (I) the date on which the CSFB Loan and all of the other
obligations of ITB owing to CSFB under the CFSB Loan have been repaid in
full, (ii) the date on which LVEN distributes the Acquisition Shares to
its shareholders generally, (iii) the date on which LVEN sells the
Conversion Shares or Acquisition Shares to, or LVEN is acquired by, or
merged with or into, a person or entity that is not affiliated with LVEN
or Mr. Joseph A. Corazzi, Chairman of the Board of LVEN, and (iv) the
date on which Mr. DeSantis dies or becomes mentally incompetent (see Note
2).
On June 30, 1997, the Company was granted an option to acquire from Mr.
Nunzio P. DeSantis, the Chief Operating Officer of ITB, his eighty
percent (80%) of the voting equity of Nordic Gaming Corporation, a
Canadian corporation ("Nordic"). The Company's Chairman of the Board, Mr.
Joseph A. Corazzi, as a bonus for services rendered in negotiating the
potential acquisition of the operations of Nordic may be allocated a
portion of the ownership as agreed to by Mr. DeSantis and LVEN's Board of
Directors. The remaining 20% of Nordic is owned by Canadian citizens not
affiliated with the Company. In consideration for receiving the option,
which expires June 1, 1998, the Company; (i) paid to Nordic $182,000 that
was used as the advance deposit used to acquire the racetrack, (ii)
agreed to provide Nordic a working capital line of credit (see below) and
(iii) agreed to the issuance to Mr. Nunzio P. DeSantis 1,000,000 shares
of a new Series A Preferred Stock that entitles Mr. DeSantis to certain
voting rights in a ratio of 20 votes for each share of stock on matters
of stock splits and certain other matters as designated by the Board of
Directors. The exercise price of the option, subject to further
evaluation and appraisal is payable (i) $1,000,000 cash at closing, (ii)
$2,600,000 payable in equal monthly installments of $100,000 commencing
on the last date of the month on which the closing occurs, and (iii) the
entire issuance of the Series A Preferred Stock shall be converted into
that number of restricted shares of LVEN common stock equal to (i) the
positive difference between (a) eighty percent (80%) of the fair value of
the Fort Erie Racetrack as set forth in a fairness opinion prepared by an
investment banking firm and (b) $3,600,000 divided by (ii) the average
closing price of LVEN Common Stock for the twenty trading days preceding
the giving of the notice of exercise (see Note 3).
As of October 31, 1997, the Company had advanced $1,046,548 to Nordic
pursuant to a Line of Credit Agreement dated as of August 27, 1997,
providing for advances of up to $1,300,000. Such advances,
F-20
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which are due and payable on August 27, 1998, bear interest at a rate of
10% per annum, are secured by a first mortgage lien on and a security
interest in the real and personal property assets comprising the Fort
Erie Racetrack. Subsequent to October 31, 1997, the Company has made an
additional $200,000 of advances under this credit facility (see Note 3).
In addition to the line of credit, the Company has also provided a
certificate of deposit as security for a certain aircraft leasing
arrangement (see Note 6)
Mr. Joseph A. Corazzi and Mr. Nunzio P. DeSantis are the sole
stockholders of D&C Gaming Corporation. On July 1, 1997, ITB purchased an
exclusive option to acquire certain leasehold interests relating to two
New Mexico racetracks, the Downs at Albuquerque and Farmington Racetrack
from D&C for a non-refundable deposit of $600,000 which is to be credited
towards the purchase price. In the event that ITB exercises its option,
the purchase price would be determined by an independent appraiser.
During the year ended October 31, 1997, the Company; (i) advanced
$931,247 to its 75% owned EMC subsidiary, in which Mr. Nunzio DeSantis
owns the remaining 25% interest in EMC (see Note 9), (ii) paid Mr. Nunzio
DeSantis, or his designated companies, $110,000 in standby loan fees, and
(iii) paid $351,000 to companies owned or controlled by Mr. DeSantis or
his family members for actual aircraft costs.
During the year ended October 31, 1997, ITB reimbursed Autolend Group Inc.
(a company whose Chairman, CEO, and principal shareholder is Nunzio
DeSantis) for $150,000 it paid to Communication Associates Inc. for
investment banking services in connection with the location a potential
financing source for ITB (Communication Associates Inc. is a wholly-owned
company of Mr. Joseph A. Corazzi).
Mr. Joseph Zapalla, currently a director of ITB, was paid a consulting
fee by the Company of $100,000 during the year ended October 31, 1997 for
services rendered in connection with the development of the Company's EMC
Project.
The Company provided a certificate of deposit of $778,000 as security to
a bank for a term loan of $778,000 that was obtained by Stan Irwin
Enterprises on July 16, 1997 that was used to acquire a 12 1/2% undivided
interest in an aircraft. The Company provided the certificate of deposit
on behalf of Stan Irwin Enterprises Inc. to enable Mr. Joseph Corazzi,
the Company's Chairman of the Board, the personal use of up to fifty
hours of private air travel service at a cost to Mr. Corazzi of
approximately $1,200 per hour. Stan Irwin Enterprises is owned by Mr.
Stan Irwin, a former director of the Company's LVCC subsidiary, and a
current consultant to the Company (See Note 6). Additionally during the
years ended October 31, 1997, the Company paid consulting fees of $42,500
and $177,000, respectively, to Stan Irwin Enterprises.
F-21
<PAGE>
EXHIBIT 10.33
OPTION AGREEMENT
This Option Agreement (this "Agreement") is made and entered into as of
June 30, 1997, by and between Nunzio P. DeSantis, in Trust ("Optionor"), and Las
Vegas Entertainment Network, Inc., a Delaware corporation ("LVEN"), with
reference to the following facts and circumstances:
WHEREAS, Optionor is the record and beneficial owner of eighty (80)
shares of the capital stock of 1241163 Ontario Inc., an Ontario corporation
d/b/a Northern Gaming Company (the "Company"), representing eighty percent (80%)
of the issued and outstanding shares of capital stock of the Company;
WHEREAS, the Company is a party to that certain Asset Purchase
Agreement, dated June 11, 1997, by and between the Company, as purchaser, and
the Ontario Jockey Club, an Ontario not-for-profit corporation (the "Jockey
Club"), as seller, pursuant to which the Company, on or about July 10, 1997 (the
"Closing"), will purchase and acquire from The Jockey Club certain real and
personal property assets comprising a thoroughbred horse racing facility and
business commonly known as the Fort Erie Racetrack in Fort Erie, Ontario, Canada
(the "Racetrack"); and
WHEREAS, Optionor desires to grant to LVEN, and LVEN desires to
purchase and acquire from Optionor, an option to acquire all of Optionor's
shares in the Company, all upon and subject to the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and further subject to
the timely occurrence of the Closing, the parties agree as follows:
Article I
Grant of Option and Terms
(a) Grant of Option. For and in consideration of:
(i) the prior payment by LVEN to Optionor of the sum One
Hundred Eighty-Two Thousand Dollars ($182,000), which payment was
critical to the Company's successful acquisition of the Racetrack,
(ii) the placement (or arrangement thereof) by LVEN, prior to
the Closing, of a line of credit to the Company of not less than One
Million Five Hundred Thousand Dollars ($1,500,000), such line of credit
to be secured by the lien of a first mortgage and related grant of
security interest on and in the real and personal property assets
comprising the Racetrack, the timely satisfaction of which placement
shall be a condition precedent to the grant and effectiveness of the
Option,
(iii) the issuance to Optionor of One Million (1,000,000)
shares of a new series of preferred stock of LVEN having substantially
the rights, privileges and preferences set forth on the form of
Certificate of Designation, Voting Powers, Preferences and Rights
attached hereto as Exhibit "A" (including the valuation provisions set
forth on Schedule "B" attached hereto and incorporated herein by this
reference) incorporated herein by this reference (the "Preferred
1
<PAGE>
Shares"), the timely satisfaction of which issuance shall be a condition
precedent to the grant and effectiveness of the Option,
and otherwise subject to the terms and conditions of this Agreement, Optionor
hereby grants to LVEN an option (the "Option") to purchase from Optionor all,
but not less than all, of Optionor's eighty (80) shares of the capital stock of
the Company, representing eighty percent (80%) of the issued and outstanding
shares of capital stock of the Company (the "Option Securities") for exercise
consideration consisting of the mandatory conversion of the Preferred Shares
into shares of the common stock, par value $0.001 per share, of LVEN ("LVEN
Common Stock"), as provided in Exhibit "A" (and Schedule "B") hereto.
(b) Term of Option. The Option may be exercised by LVEN in the manner
provided in Article I(c) below at any time on or before the close of business,
Los Angeles time, on February 1, 1998.
(c) Manner of Exercise. The Option may be exercised, in whole but not
in part, by the delivery to Optionor of all of the following prior to the time
the Option becomes unexerciseable pursuant to Article I(b) above:
(i) Notice in writing signed by LVEN stating that the Option
is thereby exercised (the "Exercise Notice").
(ii) Delivery of certificates representing the number of
shares of LVEN Common Stock issuable upon such exercise.
(iii) Such instruments and documents as the parties deem
reasonably necessary or advisable under the circumstances to effect compliance
with all applicable provisions of the Securities Act of 1933, as amended (the
"Act"), and any other applicable securities laws or regulations.
(d) Adjustments in Option.
(i) In the event that Optionor and/or the Company takes any
action the result of which would be Optionor's inability to deliver to LVEN
Option Securities representing at the time of exercise eighty percent (80%) of
the capital stock of the Company, the number of shares issuable upon exercise of
the Option will be increased so that LVEN will have the right to receive upon
exercise shares of capital stock of the Company representing eighty percent
(80%) of the shares of capital stock of the Company then issued and outstanding,
on a fully-diluted basis.
(e) Representations of LVEN and Optionor. Each of LVEN and Optionor
represent to the other that it is purchasing the Option, the Option Securities
the Series A Preferred and the LVEN Common Stock, as the case may be, solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof that
would be in violation of the securities laws of the United States of America,
the Commonwealth of Canada or any state or province thereof. Each of LVEN and
Optionor further represents that it is knowledgeable, sophisticated and
experienced in business and financial matters; that it has previously invested
in securities similar to the securities acquired and to be acquired hereunder,
and fully understands the limitations on transfer described in paragraph (ii)
below; that it is able to bear the economic risk of its investment in such
securities and is presently able to afford the complete loss of such investment;
and that it has been afforded access to information about the other (including
such other's relevant affiliates), and such other's financial
2
<PAGE>
condition, results of operations, businesses, properties, management and
prospects sufficient to enable it to evaluate its investment in such securities.
(ii) If either party desires to sell or otherwise dispose of
all or any part of the securities acquired hereunder (other than pursuant to an
effective registration statement under the Act or a sale or other disposition
made pursuant to Rule 144 promulgated thereunder or any successor rule or
regulation thereto with respect to shares of LVEN Common Stock), such party (a
"Selling Party") shall notify the other (or the Company in the case of the
Option Securities), and if requested will deliver to such other party an opinion
of counsel, reasonably satisfactory in form and substance to such other party,
that an exemption from registration or qualification under the Act or any other
applicable securities law is available.
Article II
Miscellaneous
(a) Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
The parties agree that the parties shall be entitled to an injunction preventing
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof (this being in addition to any other remedy provided
herein or to which they are entitled at law) and each party agrees to waive in
any proceedings for such enforcement the defense that a remedy at law would be
adequate.
(b) Notices. All notices and other communications provided for or
permitted under this Agreement shall be made by hand-delivery, first-class mail,
telex, telecopier or overnight air courier guaranteeing next day delivery.
(i) If to Optionor, at 215 Central NW, Suite 3B, Albuquerque,
New Mexico 87102, facsimile (505) 768-1111;
(ii) If to LVEN, at 1801 Century Park East, Suite 2300, Los
Angeles, California 90067, facsimile (310) 551-1942.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back if telexed; when receipt acknowledged, if telecopied; and the next
business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
(c) Successors and Assigns. This Agreement shall inure o the benefit of
and be binding upon the successors and assigns f each of the parties, including
without limitation and without the need for an express assignment, subsequent
holders of the securities; provided, however, that LVEN may not assign the
Option and neither party may assign its rights hereunder without the prior
written consent of the other.
(d) Amendment and Waiver. This Agreement may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by each Party.
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<PAGE>
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
(h) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and in intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein.
(i) Partial Invalidity. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that all of the parties' rights and privileges
shall be enforceable to the fullest extent permitted by law.
(j) Further Actions. Each party shall cooperate and shall take such
further action and shall execute such further documents as may be reasonably
requested by the other Party in order to carry out the provisions and purposes
of this Agreement.
(k) Pronouns and Number. When the context so requires, the masculine
shall include the feminine and neuter, the singular shall include the plural and
conversely.
(l) Waivers. No waiver of any term, provision or condition of this
Agreement, 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.
(m) Further Transfer Restrictions and Restrictive Legends.
Notwithstanding anything to the contrary contained herein or contained in or
omitted from any other document or instrument contemplated hereby, the Series A
Preferred shall be non-transferable. From and after the date hereof, all
certificates evidencing the securities to be issued and acquired hereunder shall
bear a customary and appropriate restrictive legend referencing this Agreement
and specifying the restrictions contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
/s/NUNZIO P. DeSANTIS
Nunzio P. DeSantis
Las Vegas Entertainment Network, Inc., a Delaware
corporation
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By: /s/JOSEPH A. CORAZZI
Joseph A. Corazzi
5
<PAGE>
CERTIFICATE OF DESIGNATION, VOTING POWERS,
PREFERENCES AND RIGHTS OF THE SERIES OF
THE PREFERRED STOCK OF
LAS VEGAS ENTERTAINMENT NETWORK, INC.
To Be Designated
Series A Preferred Stock
Las Vegas Entertainment Network, Inc., a Delaware corporation (the
"Corporation"), pursuant to its Certificate of Incorporation, as amended to
date, and Section 151 of the General Corporation Law of the State of Delaware,
hereby certifies that the Board of Directors of the Corporation has duly adopted
by unanimous written consent the following resolutions providing for the
issuance by the Corporation of a series of Preferred Stock to be designated
Series A Preferred Stock and to consist of One Million (1,000,000) shares:
"RESOLVED, that the Corporation is authorized to issue a
series of Preferred Stock to be designated Series A Preferred Stock
(the "Series A Preferred") to consist of One Million (1,000,000)
shares; and
RESOLVED, that the powers and designations, preferences and
rights, qualifications, limitations and restrictions on all of the
Series A Preferred shall be as follows:
(a) Issuance. The series of the Preferred Stock
designated "Series A Preferred" shall consist of One Million
(1,000,000) shares. The Series A Preferred may be issued as
partly paid shares in accordance with the provisions of
Section 156 of the Delaware General Corporation Law.
(b) Dividend Rights. The holders of the Series A Preferred shall
not be entitled to receive any dividends or other
distributions.
(c) Voting Rights. Each holder of the Series A
Preferred shall be entitled to twenty (20) votes for each
share of the Series A Preferred standing in the name of the
holder on the stock record books of the Corporation on the
record date for the determination of stockholders entitled to
notice of and to vote at any annual or special meeting of the
stockholders of the Corporation, but only as to (i) stock
splits (including reverse stock splits) and repurchase
programs, and (ii) (ii) any other matter or matters from
time-to-time designated by the Company's Board of Directors.
The holders of shares of the Series A Preferred, the holders
of shares of the Corporation's common stock, par value $0.01
per share ("Common Stock"), and the holders of shares of any
other class of capital stock of the Corporation which possess
voting power shall vote together as a single class upon the
foregoing.
(d) Rights on Liquidation, Dissolution and Winding Up. The
liquidation, dissolution and winding up preference of each
share of the Series A Preferred shall be an
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<PAGE>
amount equal to the consideration actually paid thereon. The
merger or consolidation of the Corporation into or with any
other corporation or of any other corporation into or with the
Corporation (other than a merger or consolidation with or into
one or more wholly-owned subsidiaries), or a sale, transfer of
lease of all or a substantial portion of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this
paragraph (f).
(e) Mandatory Conversation. In the event that the
Corporation exercises the Option granted to it pursuant to
that certain Option Agreement, dated as of __________ ___,
1997, by and between the Corporation and Nunzio P. DeSantis
(the "Option Agreement"), each share of the Series A Preferred
shall be converted into the number of shares of Common Stock
determined in accordance with the provisions of Article
I(a)(iii) of the Option Agreement.
(f) No Dilution or Impairment. The Corporation shall
not amend its Certificate of Incorporation or participate in
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue, or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to
avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will
at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order
to protect the rights of the holders of the Series A Preferred
against dilution or impairment (for which adjustment is not
otherwise provided herein).
IN WITNESS WHEREOF, Las Vegas Entertainment Network, Inc. has
caused this Certificate to be signed by Joseph A. Corazzi,
its President, and Carl A. Sambus, its Secretary, this ___
day of __________, 1997.
Las Vegas Entertainment Network, Inc., a Delaware
corporation
By: _____________________
Joseph A. Corazzi,
President
ATTEST:
- ---------------------
Carl A. Sambus,
Secretary
-ii-
<PAGE>
Schedule "B"
Upon mandatory conversion as provided in the Certificate of
Designation, Voting Powers, Preferences and Rights of the Series A Preferred,
(i) the entire issue of Series A Preferred shall be converted into that number
of restricted shares of LVEN Common Stock equal to (a) eighty percent (80%) of
the amount stated as the "fair" or "market" value of the Racetrack in a
valuation report and/or fairness opinion commissioned by, and acceptable to the
Board of Directors of, LVEN, and to be prepared by Houlihan Lokey & Associates
(or another investment banking firm acceptable to Optionor if such firm for any
reason is unable to prepare such valuation report), divided by (b) the average
per share closing price of LVEN Common Stock over the twenty (20) trading days
preceding the giving of the Exercise Notice, and (ii) LVEN shall pay to Optionor
the sum of One Million Dollars ($1,000,000), and shall undertake the payment to
Optionor of an additional Three Million Six Hundred Thousand Dollars
($3,600,000), payable monthly commencing in the month following such conversion,
without interest accrual, in thirty-six (36) equal installments of One Hundred
Thousand Dollars ($100,000) each.
<PAGE>
FIRST AMENDMENT TO OPTION AGREEMENT
This First Amendment to Option Agreement (this "First Amendment"),
dated as the 15th day of January, 1998, is entered into by and between Nunzio P.
DeSantis, In Trust ("Optionor"), and Las Vegas Entertainment Network, Inc., a
Delaware corporation ("LVEN"), with reference to the following facts and
circumstances:
WHEREAS, Optionor and LVEN are parties to that certain Option
Agreement, dated as of June 30, 1997 (the "Original Option Agreement"); and
WHEREAS, Optionor and LVEN desire to amend and restate certain
provisions of the Original Option Agreement, as provided and all upon and
subject to the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Term of Option. Article I(b) of the Original Option Agreement is
hereby amended by deleting therefrom the date "February 1, 1998"
and substituting therefor the date "June 1, 1998".
2. Schedule "B". The provisions of Schedule "B" to the Original
Option Agreement are hereby amended and restated in their
entirety as follows:
Upon mandatory conversion as provided in the Certificate of
Designation, Voting Powers, Preferences and Rights of the Series A Preferred,
(a) LVEN shall pay to Optionor the sum of Three Million Six Hundred
Thousand Dollars ($3,600,000), payable (i) One Million Dollars ($1,000,000) in
cash upon such conversion, and (ii) the balance of Two Million Six Hundred
Thousand Dollars ($2,600,000) payable monthly commencing in the month following
such conversion, without interest accrual, in Twenty-Six (26) equal monthly
installments of One Hundred Thousand Dollars ($100,000) each, and
(b) the entire issue of Series A Preferred shall be converted into that
number of restricted shares of LVEN Common Stock equal to (i) the positive
difference, if any, between (y) eighty percent (80%) of the amount stated as the
"fair" or "market" value of the Racetrack in a valuation report and/or fairness
opinion commissioned by, and acceptable to the Board of Directors of, LVEN, and
to be prepared by Houlihan Lokey & Associates (or another investment banking
firm acceptable to Optionor if such firm for any reason is unable to prepare
such valuation report), and (z) Three Million Six Hundred Thousand Dollars
($3,600,000), divided by (ii) the average per share closing price of LVEN Common
Stock over the twenty (20) trading days preceding the giving of the Exercise
Notice.
3. Except as specified in this First Amendment, the Original Option
Agreement remains unmodified and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Optionor and LVEN have executed this First
Amendment as of the date first written above.
--------------------------------
Nunzio P. DeSantis, In Trust
Las Vegas Entertainment Network,
Inc., a Delaware corporation
By: ___________________________
<PAGE>
EXHIBIT 10.34
LINE OF CREDIT AGREEMENT
THIS LINE OF CREDIT AGREEMENT (the "Agreement") made and entered
into this 27th day of August, 1997, is by and between LAS VEGAS
ENTERTAINMENT NETWORK, INC., a Delaware
corporation (the "Lender"), and NORDIC GAMING CORPORATION, a
corporation organized and existing under the laws of the
province of Ontario, Canada (the "Borrower").
Background
The Borrower and each of the shareholders of the Borrower are parties
to a Shareholders Agreement dated of even date herewith (the "Shareholders
Agreement"), pursuant to which, among other things, Nunzio P. DeSantis, one of
the shareholders ("DeSantis"), has agreed to make available to the Borrower, or
to cause another party to make available to the Borrower, a loan in the
aggregate maximum principal amount of $1,300,000 (the "Credit Facility") on such
terms and subject to such conditions as are set forth in this Agreement and the
Line of Credit Note (as defined herein). In satisfaction of his obligation as
aforesaid, DeSantis has requested that the Lender extend to the Borrower the
Credit Facility, and the Lender is willing to extend such Credit Facility upon
the terms and subject to the conditions set forth below. All amounts referred to
in this Agreement shall be in United States dollars.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth below, and intending to be legally bound, the
parties agree as follows:
i. ARTICLE CREDIT FACILITY.
a. Extension of Credit Facility. Upon the terms and subject to the conditions of
this Agreement, the Lender is extending to the Borrower a line of credit
facility pursuant to which (from time to time until the Termination Date, as
defined in Section 1.7 below) the Lender will make loans to the Borrower in such
amounts as the Borrower may request up to an aggregate amount at any time
outstanding not in excess of the Maximum Indebtedness under the Credit Facility.
The Borrower shall use the proceeds of the Credit Facility to fund operating
expenses incurred by the Borrower in excess of operating revenues in the day to
day operation of the Fort Erie Racetrack (the "Racetrack").
a. Maximum Indebtedness. The outstanding principal balance of the Credit
Facility shall at no time exceed $1,300,000.00 (the "Maximum Indebtedness"). The
Borrower covenants and agrees that in event the outstanding principal balance of
the Credit Facility should exceed, at any time and for any reason, the Maximum
Indebtedness, then the full amount of such excess, together with any accrued and
unpaid interest thereon, shall be immediately due and payable. Under no
circumstances shall any principal amount repaid by the Borrower to the Lender be
available for additional borrowings, it being the intention of the parties that
the Credit Facility shall not be a revolving credit facility.
a. Interest. Interest shall accrue on the aggregate unpaid principal balance of
the Credit Facility from time to time outstanding at a fixed annual rate equal
to ten percent (10%); provided, however, that, from and after an Event of
Default (as defined herein) in the payment of interest and or principal when
due, whether at maturity or upon acceleration, interest on any such overdue
amounts shall accrue at a fixed annual rate of twelve percent (12%) until the
same shall be discharged in full. Interest shall accrue and be payable by the
Borrower, together with the principal amount then outstanding, on the Maturity
Date. Interest shall be computed on the basis of the actual number of days in
the calendar year divided by 360.
<PAGE>
a. Annual Equivalent. The parties agree that the principle of deemed
reinvestment of interest shall not apply to any interest calculation under this
Agreement, and the rates of interest stipulated in this Agreement are intended
to be nominal rates and not effective rates or yields. Whenever interest
hereunder is by the terms hereof to be calculated on the basis of a year of 360
days, the rate of interest applicable under this Agreement to such calculation
expressed as an annual rate for the purposes of the Interest Act (Canada) is
equivalent to such rate as so calculated multiplied by the number of days in the
calendar year in which the same is to be ascertained and divided by 360.
a. Maturity Date. The principal amount outstanding on the Credit Facility,
together with accrued and unpaid interest thereon and all other amounts due the
Lender under the Line of Credit Note (defined below) or this Agreement shall be
due and paid in full on the first anniversary of the date of the Line of Credit
Note, (the "Maturity Date").
a. Prepayment. The Borrower shall be entitled to prepay, in whole or in part,
the outstanding principal balance of the Line of Credit Note at any time and
from time to time, without penalty. Any prepayments shall be in multiples of
$10,000 and shall be applied first to accrued and unpaid interest and
thereafter, to the principal balance then outstanding.
a. Line of Credit Note. The obligation of the Borrower to pay the outstanding
balance of the Credit Facility and interest accrued thereon shall be evidenced
by a promissory note, substantially in the form attached to this Agreement as
Exhibit A, issued by the Borrower to the Lender, in the principal amount of
$1,300,000 (the "Line of Credit Note").
a. Termination of Credit Facility. The Credit Facility shall terminate (the
"Termination Date") on the first to occur of: (i) the Permanent Financing Date;
(ii) the VLT Cut-Off Date; (iii) the Maturity Date; or (iv) the occurrence of an
Event of Default under this Agreement. As used in this Agreement, the terms (i)
"Permanent Financing Date" means the date on which the Company first receives
proceeds from a Permanent Financing; (ii) "Permanent Financing" means bank or
similar institutional long-term debt financing of the Borrower (i.e., maturing
beyond twelve months from the date of issue) and secured by the Company's
assets; and (iii) "VLT Cut-Off Date" means the date on which there is installed
at the Racetrack one or more video lottery terminals other than for the benefit
of `a provincially sanctioned charity, gaming club or casino. From and after the
Termination Date, the Lender shall have no further obligation or commitment to
make Advances to the Borrower or to accept Advance Requests pursuant to Section
1.9 hereof, and the Maximum Indebtedness from and after the Termination Date
shall equal the lesser of (A) the principal amount outstanding on the
Termination Date and (2) $1,300,000. The termination of the Credit Facility on
the Termination Date shall not terminate any rights of the Lender unless and
until the indebtedness under the Credit Facility has been paid in full.
a. Method of Requesting Advances. Requests for advances under the Credit
Facility (an "Advance") shall be made in writing; the Lender shall not extend an
Advance in response to an oral request. The Borrower shall deliver to the Lender
a written request for an Advance (an "Advance Request") not less than two (2)
business days prior to the date of such proposed Advance. To be effective, each
Loan Request shall be signed by the President or Chief Financial Officer of the
Borrower, or their designated officer or agent, and shall (A) specify (i) the
amount of the Advance, which shall be made in whole multiples of $10,000, (ii)
the date on which the Borrower requests the Lender to extend such Advance and
(iii) the account to which the proceeds of such Advance are to be wired, and (B)
certify that (i) no Event of Default has occurred or is continuing or will
result from the proposed borrowing and (ii) the Borrower has performed in all
material respects all agreements and satisfied all conditions contained in this
Agreement required to be
<PAGE>
performed by it. Loan Requests received after 12:00 noon Mountain Time shall be
deemed received on the next business day.
a. Disbursement of Advances. The Lender shall disburse the proceeds of each
Advance to the Borrower by wire transfer to the account of the Borrower
designated in the Advance Request. The Lender shall maintain records of all
Advances extended, accrued interest, payments of interest, and payments of
principal. Absent manifest error, the Lender's records of the making of
Advances, the calculation of accrued interest, and payments of interest and
principal shall be conclusive and binding upon the Borrower.
a. Net Payments, etc.
(1) Any and all payments made by the Borrower hereunder shall be made to the
Lender in full, without set-off or counterclaim and free and clear of and
without deduction or withholding for, or on account of, any and all present and
future taxes. If the Borrower is required by law to deduct or withhold any taxes
from or in respect of any sum payable hereunder to the Lender, (i) the sum
payable shall be increased, as may be necessary, so that after making all
required deductions and withholdings (including deductions and withholdings
applicable to additional sums payable under this Section 1.11.1), the Lender
receives an amount equal to the sum that it would have received had no such
deductions or withholdings been made, (ii) the Borrower shall make such
deductions and withholdings, and (iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority in accordance with
applicable laws.
(1) The Borrower shall indemnify the Lender for the full amount of any taxes
(other than Excluded Taxes) imposed by any jurisdiction on amounts payable by
the Borrower under this Article 1 paid or payable by the Lender and any
liability (including penalties, interest and reasonable expenses) arising
therefrom or with respect thereto, whether or not such taxes were correctly or
legally asserted, and any taxes (other than Excluded Taxes) levied or imposed
with respect to any indemnity payment made under this Section 1.11.2. This
indemnification shall be made within thirty (30) days after the date the Lender
makes written demand therefor.
(1) Within thirty (30) days after the date of any payment of taxes withheld by
the Borrower in respect of any payment by the Borrower to the Lender, the
Borrower shall furnish to the Lender, the original or a certified copy of a
receipt issued by the relevant taxing authority evidencing payment by the
Borrower to such taxing authority of any Taxes (other than Excluded Taxes) with
respect to any payment payable to the Lender.
(1) For the purposes of this Section 1.11, "Excluded Taxes" means, in relation
to the Lender, (i) any taxes imposed on the Lender's net income or capital by
Canada or any province thereof as a result of the Lender (a) carrying on a trade
or business therein or having a permanent establishment therein, (b) being
organized under the laws thereof, or (c) being or being deemed to be resident
therein, or (ii) any taxes imposed solely by reason of the failure of the Lender
to comply with a request by the Borrower to comply with any certification,
identification or other reporting requirements imposed by applicable laws with
respect to nationality, residence or other connection with relevant jurisdiction
but, for greater certainty, the taxes payable pursuant to Part XIII of the
Income Tax Act (Canada) shall be deemed not to be Excluded Taxes.
(1) The Borrower's obligations under this Section 1.11 shall survive the
termination of this Agreement and the payment of all amounts payable under this
Agreement.
<PAGE>
1. ARTICLE CONDITIONS OF LENDING.
a. Conditions Precedent to Funding. The Lender's obligation to fund
the Credit Facility is subject to the satisfaction of the
following conditions:
(1) The acquisition of the Racetrack shall have occurred and the Borrower shall
have taken title to the assets conveyed to it free and clear of all liens,
claims, charges, security interests and other encumbrances.
(1) The Borrower shall have executed and delivered to the Lender the following
documents:
(a) This Agreement;
(b) The Line of Credit Note;
(c) The Security Agreement (as defined herein);
(d) The Mortgage (as defined herein); and
(e) Such additional documents or instruments and such
additional approvals and opinions as the Lender may
request.
a. Additional Conditions Precedent. As additional conditions precedent to the
funding by the Lender of each Advance requested by the Borrower under the
Credit Facility:
(1) The representations and warranties made by the Borrower in this Agreement
shall be true and correct on and as of the date of the Advance Request and the
date of the funding of the Advance, with the same effect as though made on and
as of such dates.
(1) No Event of Default shall have occurred or be continuing or shall result
from the funding of the Advance.
(1) No material adverse change, as determined by the Lender in its sole
discretion, shall have occurred in the condition of the Borrower, financial or
otherwise, since the date of this Agreement, other than the incurrence of
operating losses in the ordinary course of business as reflected in the Monthly
Financial Statements.
(1) The Lender shall have received such additional documents or instruments and
such additional approvals and opinions as the Lender may request.
1. ARTICLE SECURED OBLIGATION.
a. Security Interest in Assets of Borrower; Security Agreement and Mortgage. To
secure all of the Borrower's obligations under the Line of Credit Note and under
this Agreement, the Borrower has concurrently herewith granted to the Lender:
(a) a first and prior lien and security interest in and to the Collateral, as
such term is defined in the Security Agreement dated of even date herewith (the
"Security Agreement"), which Security Agreement is hereby confirmed and ratified
as being in full force and effect and incorporated into this Agreement by
reference, and (b) a first and prior lien and mortgage upon the real property
owned by the Borrower as described in and in accordance with a Mortgage dated of
even date herewith (the "Mortgage"), which Mortgage is hereby confirmed and
ratified as being in full force and effect and incorporated into this Agreement
by reference. The security interest in the Collateral and the Mortgage
<PAGE>
on the real property of the Borrower shall be discharged upon payment in full of
the indebtedness of the Borrower to the Lender under the Line of Credit Note and
this Agreement.
1. ARTICLE REPRESENTATIONS AND WARRANTIES.
a. Representations and Warranties of Borrower.
(1) The Borrower is a corporation duly incorporated, validly existing and in
good standing under the laws of the Province of Ontario; has all requisite power
and authority, corporate or otherwise, to conduct its business and to own and
operate its properties; and is duly qualified as a foreign corporation to do
business in, and is in good standing in, all jurisdictions in which the failure
to qualify could have a material adverse affect on the financial condition,
assets, business or results of operations of the Borrower.
(1) The Borrower has all requisite corporate power and corporate authority to
execute and deliver this Agreement, the Line of Credit Note, the Security
Agreement and the Mortgage (collectively, the "Credit Documents") and any other
documents to which it is a party that are required to be executed and delivered
to the Lender in connection with this Agreement, and to perform its obligations
hereunder and thereunder. The execution, delivery and performance by the
Borrower of the Credit Documents and any other documents to which it is a party
and which are executed and delivered to the Lender have been duly authorized by
all necessary corporate action and do not and will not violate any provision of
law or the charter or bylaws of the Borrower or result in a breach of or
constitute a default under any agreement, indenture or instrument to which the
Borrower is a party or by which its properties may be bound or affected and
which is material to the Borrower's business.
(1) The Credit Documents and the other documents to which the Borrower is a
party and which are executed and delivered to the Lender are legal, valid and
binding obligations of the Borrower, enforceable in accordance with their terms.
(1) The Borrower is not in default in the performance of any agreement,
indenture or instrument material to its business to which it may be party or by
which its properties may be bound or with respect to any order, writ, injunction
or decree of any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic (Canadian) or foreign.
(1) No authorization, consent, approval, license, exemption by or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic (Canadian) or foreign, is or will be
necessary for the valid execution, delivery or performance by the Borrower of
the Credit Documents or any other documents to which it is a party and which are
executed and delivered to the Lender.
1. ARTICLE COVENANTS.
a. Covenants. So long as any portion of the Credit Facility is or remains
outstanding and unpaid, the Borrower covenants and agrees that, unless the
Lender otherwise consents in writing:
(1) The Borrower shall preserve and maintain its corporate existence and good
standing in its jurisdiction of incorporation, and qualify and remain qualified
as a foreign corporation in each jurisdiction in which the failure to qualify
could have a material adverse effect on the financial condition, assets,
business or results of operations of the Borrower.
<PAGE>
(2) The Borrower shall comply in all material respects with all federal, state,
provincial and local laws and regulations applicable to it in the operation of
its business (including, without limitation, the laws and regulations of any
governmental entity regulating horse racing, casino and gaming operations) or
with regard to the ownership of its properties and assets, except where the
failure to comply would not materially and adversely affect its financial
condition, assets, business or results of operations, or its ability to perform
its obligations under the Credit Documents.
(1) The Borrower shall observe and comply with all covenants and agreements set
forth in any material agreement, contract, instrument or document.
a. Financial Reporting. The Borrower shall furnish to the Lender within 15 days
from the end of each calendar month an unaudited cash flow statement and income
statement, prepared in accordance with generally accepted accounting principles
consistently applied and certified as true and correct by the Borrower's Chief
Financial Officer, for the calendar month immediately preceding. The Borrower
shall also promptly furnish or cause to be furnished to the Lender such
information and reports as the Lender may from time to time reasonably request,
including, but not limited to, furnishing copies of all reports delivered by the
Borrower to The Ontario Jockey Club (the "OJC") in connection with Loss
Indemnification Proceeds (as defined below).
a. Proceeds from OJC Paid Over to Lender. Concurrently upon the delivery by the
Borrower to the Lender of the first Advance Request, the Borrower shall execute
and deliver to the Lender its Assignment (and shall concurrently deliver the
Assignment to the OJC), pursuant to which the Borrower shall assign to the
Lender all of the Borrower's right, title and interest in and to all monies
required to be paid by the OJC to the Borrower pursuant to Section 9.2.1 of the
Purchase Agreement dated as of June 11, 1997 between the OJC and the Borrower
("Loss Indemnification Proceeds"). The Borrower shall also provide to the Lender
concurrently with the Assignment the written consent of the OJC consenting to
the assignment to the Lender of the Loss Indemnification Proceeds. In the event
that, notwithstanding the execution and delivery of the Assignment as aforesaid,
the Borrower receives any Loss Indemnification Proceeds, the Borrower shall be
deemed to hold such Loss Indemnification Proceeds solely in trust for the
benefit of the Lender and shall forthwith deliver such Loss Indemnification
Proceeds to the Lender by wire transfer to an account designated by the Lender
for the deposit of same. Any Loss Indemnification Proceeds received by the
Lender pursuant to this Section 5.3 shall be deemed a mandatory prepayment by
the Borrower of amounts due under this Agreement and the Line of Credit Note and
shall be applied first to accrued and unpaid interest and thereafter to the
principal balance then outstanding.
a. Proceeds from Permanent Financing to be Paid to Lender. The Borrower hereby
covenants and agrees that all amounts due under the Line of Credit Note and this
Agreement shall be discharged in full from the proceeds of the Permanent
Financing, and only upon such payment in full shall the security interest in the
Collateral and the Mortgage on the real property be discharged.
1. ARTICLE DEFAULTS AND REMEDIES.
a. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default" under this Agreement:
(1) The Borrower fails to pay the principal of or interest on the Line of Credit
Note as and when due, and such failure continues for a period of ten (10) days
after the Lender gives written notice to the Borrower of such failure; or
<PAGE>
(1) The Borrower fails to observe or perform any other agreements, conditions,
undertakings or covenants in this Agreement to be observed or performed by it
and such failure continues for a period of forty-five (45) days after the Lender
gives written notice to the Borrower of such failure; or
(1) Any representation or warranty made in this Agreement by the Borrower or in
an other Credit Document proves to have been false or erroneous in any material
respect when made; or
(1) The Borrower becomes insolvent or unable to pay its debts as they mature, or
files or institutes a voluntary petition or proceeding under any provision of
any applicable bankruptcy, insolvency or other similar statute relating to debt
adjustment or reorganization; or any such petition or proceeding is filed or
instituted against the Borrower and is consented to by Borrower or remains
undismissed for ninety (90) days; or the Borrower makes an assignment for the
benefit of its creditors; or the Borrower applies for or consents to the
appointment of a receiver or custodian for its assets; or any attachment or
garnishment is initiated or filed against the Borrower's properties or assets;
or
(1) The Borrower voluntary ceases to conduct its principal business; a permanent
injunction is issued against any material aspect of the Borrower's operations by
any court of competent jurisdiction, the result of which is to cause a material
impairment in the Borrower's ability to continue in business; the Borrower
voluntary commences dissolution or liquidation proceedings, or such proceedings
are commenced against the Borrower; or the Borrower sells substantially all of
its assets in one or a series of transactions.
(1) An Event of Default occurs and continues under any of the other Credit
Documents (after giving effect to the passage of all applicable grace periods).
a. Remedies. Upon the occurrence of any Event of Default or at any time during
the continuance of any Event of Default, the Lender may: (i) at its election,
declare all or any portion of the Credit Facility to be immediately due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are expressly waived by the Borrower; or (ii) in addition to the rights
specifically granted in this Agreement, exercise the rights and remedies
available to it existing in equity, at law, by virtue of statute or otherwise,
including, without limitation, those arising under the Security Agreement and
the Mortgage, without further stay, any law, usage or custom to the contrary
notwithstanding.
a. Remedies Cumulative; No Waiver. All rights and remedies granted by this
Agreement or otherwise available at law, in equity, by statute, or otherwise,
shall be cumulative and concurrent and may be pursued singly, successively or
together, at the Lender's sole option, and may be exercised from time to time
and as often as occasion therefor shall occur until the indebtedness evidenced
by this Agreement is paid in full. No course of dealing and no failure or delay
by the Lender to exercise any such right or remedy shall in any event be
construed as a waiver or release of same by the Lender or shall affect any other
or future exercise thereof by the Lender. The Lender shall not be deemed, by any
act or omission, to have waived any of its rights or remedies under this
Agreement unless such waiver is in writing and signed by the Lender and then
only to the extent specifically set forth in writing.
a. Costs and Expenses of Collection. If the Lender refers the Line of Credit
Note and this Agreement to counsel because of an Event of Default under such
document, then the Borrower shall reimburse the Lender upon demand for the
reasonable, actual attorneys' fees and costs incurred by the Lender as a result
of the occurrence of such Event of Default or referral.
<PAGE>
1. ARTICLE MISCELLANEOUS.
a. Notice. Any and all notices required or permitted to be given under this
Agreement to be effective shall be in writing and shall be deemed to have been
duly given or made (i) when made or given, if given by hand delivery, (ii) when
sent, if sent by facsimile, provided that if a facsimile is sent after 5:00 p.m.
in the recipient's time zone, then such notice shall be deemed given the next
business day; (iii) three days following its deposit into the United States
Mail, postage prepaid, and sent by certified mail, return receipt requested, if
mailed, or (iv) one business day following its delivery to any nationally
recognized express carrier guaranteeing delivery the next business day, if sent
by overnight mail, and addressed as follows, unless notice of a change of
address shall have been given in accordance with the provisions of this
paragraph:
If to the Lender: Las Vegas Entertainment Network, Inc.
1801 Century Park East
Suite 2300
Los Angeles, CA 90067
telecopy: (310) 551-1942
If to the Borrower: Nordic Gaming Corporation
c/o Blake, Casel & Graydon
Box 25, Commerce Court West
Toronto, Ontario M5L 1A9
Attention: Frank Guarascio
telecopy: (416) 863-2653
a. Interest Savings Clause. This Agreement is subject to the express condition
that at no time shall the Borrower be obligated or required to pay interest on
the unpaid principal amount of the Loan at a rate that could subject the Lender
to civil or criminal liability as a result of being in excess of the maximum
rate that the Borrower is permitted by law to contract to pay. If the Borrower
is at any time required or obligated by the terms of this Agreement to pay
interest on the unpaid principal amount of the Loan at a rate in excess of such
maximum rate, the rate of interest under this Agreement shall be deemed
immediately reduced to such maximum rate, and interest payable under this
Agreement shall be computed at such maximum rate and the portion of all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been payments in reduction of the unpaid principal of this
Agreement.
a. Currency Indemnity. If, for the purposes of obtaining judgment in any court
in any jurisdiction with respect to this Agreement, it becomes necessary to
convert into the currency of any jurisdiction (the "Judgment Currency") any
amount due under this Agreement in any currency other than the Judgment Currency
(the "Currency Due"), then conversion shall be made at the rate of exchange
prevailing on the business day before the day on which judgment is given. For
this purpose "rate of exchange prevailing" means the rate at which the Lender is
able, on the relevant date, to purchase the Currency Due with the Judgment
Currency. In the event that there is a change in the rate of exchange prevailing
between the business day before the day on which the judgment is given and the
date of receipt by the Lender of the amount due, the Borrower will, on the date
of receipt by the Lender, pay such additional amounts, if any, or be entitled to
receive reimbursement of such amount, if any, as may be necessary to ensure that
the amount received by the Lender on such date is the amount in the Judgment
Currency which when converted at the rate of exchange prevailing on the date of
receipt by the Lender is the amount then due under this Agreement in the
Currency Due. If the amount of the Currency Due which the Lender is so able to
purchase is less than the amount of the Currency Due originally due to it, the
Borrower shall indemnify and save the Lender harmless from and against loss and
damage arising as a result of such deficiency. This indemnity shall constitute
an obligation separate and independent from the other obligations contained in
this Agreement, shall give rise to a separate
<PAGE>
and independent cause of action, shall apply irrespective of any indulgence
granted by the Lender from time to time and shall continue in full force and
effect notwithstanding any judgment or order for a liquidated sum in respect of
an amount due under this Agreement or under any judgment or order.
a. No Assignment. The Borrower may not assign its rights, duties or obligations
under this Agreement or the other Credit Documents without the prior written
consent of the Lender, which consent may be withheld for any reason whatsoever.
The Lender may assign its rights, duties or obligations under this Agreement and
the other Credit Documents to another shareholder of the Borrower or to an
affiliate of such shareholder, notwithstanding anything in the Shareholders
Agreement to the contrary.
a. Governing Law. The construction, interpretation and enforcement of this
Agreement, the Note and the other Credit Documents shall be governed by and
construed in accordance with the laws of the State of Nevada. The Lender and the
Borrower acknowledge and agree that the only appropriate forums for any legal
dispute arising under or in connection with this Agreement, the Note and/or the
Other Documents are, and each party hereby irrevocably submits itself to the
personal jurisdiction of, (i) the United States District Court of the District
of Nevada, and the parties consent and agree that such court shall have sole
jurisdiction over any matter arising under or in connection hereunder or
thereunder, or (ii) in the event that such District Court does not have, or will
not assume, jurisdiction over such dispute, the Eighth Judicial District of the
State of Nevada.
a. Waiver of Jury Trial. THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER, OR IN ANY PROCEEDING
IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE LINE OF
CREDIT NOTE OR ANY OTHER DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH OR THEREWITH, WHETHER IN CONTRACT OR TORT, AT LAW OR IN
EQUITY, AND THE BORROWER AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
a. Headings. The headings used in this Agreement are for convenience of
reference only, and shall not control or affect the provisions of this
Agreement.
a. Binding Agreement; Integration. This Agreement shall be binding upon and
operate for the benefit of the Lender and the Borrower, and their respective
successors and permitted assigns. This Agreement contains the complete agreement
of the parties with respect to the subject matter hereof, and shall not be
amended, modified or supplemented except in a writing signed by the parties
hereto.
a. Counterparts. This Agreement may be executed and delivered in of
counterparts, each of which shall constitute an original but all of which
shall constitute one and the same instrument.
a. Time is of the Essence. The Borrower hereby acknowledges and agrees that
the prompt and timely performance by it of its obligations under this
Agreement is of the essence.
a. Provisions Severable. If any provision of this Agreement shall for any reason
be held to be invalid or unenforceable, any such invalidity or unenforceability
shall not effect any other provision hereof, but this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
<PAGE>
Evidence of Indebtedness. The Borrower has executed and
delivered this Agreement, and the Lender has accepted this Agreement, as
evidence of indebtedness only, and not in payment or satisfaction of any
indebtedness or obligation.
IN WITNESS WHEREOF, the parties have caused their duly
authorized representatives to execute and deliver this Line of Credit Agreement
on the date first above written.
LAS VEGAS ENTERTAINMENT NETWORK, INC.
By: ___________________________
NORDIC GAMING CORPORATION
By: /s/Chester Waxman
10522173.04
<PAGE>
LINE OF CREDIT NOTE
U.S. $1,300,000.00 August 27, 1997
FOR VALUE RECEIVED, NORDIC GAMING CORPORATION, a corporation organized and
existing under the laws of the Province of Ontario, Canada (the "Borrower"),
promises to pay to the order of LAS VEGAS ENTERTAINMENT NETWORK, INC., a
Delaware corporation (together with its successors and assigns, being
hereinafter collectively referred to as the "Lender"), in lawful money of the
United States of America, the lesser of (i) the principal sum of ONE MILLION
THREE HUNDRED THOUSAND DOLLARS (U.S. $1,300,000) (or such lesser amounts as may
be advanced hereunder) or (ii) the outstanding balance of the Credit Facility as
of the Termination Date, together with accrued and unpaid interest thereon and
any other sums payable to the Lender under the terms of the Line of Credit
Agreement dated as of the date of this Line of Credit Note, between the Borrower
and the Lender (together with any amendments or supplements thereto, the "Credit
Agreement"). This Line of Credit Note is the Line of Credit Note referred to in,
and is payable in accordance with, the Credit Agreement. Any capitalized term
used herein and not otherwise defined herein shall have the meaning ascribed
thereto in the Credit Agreement.
Interest on the unpaid principal balance due hereunder shall be
computed and shall accrue on the basis of a 360-day year for the actual number
of days elapsed, at a rate per annum determined pursuant to Section 1.3 of the
Credit Agreement. Interest shall accrue on the unpaid principal balance and
shall be payable in full, together with the principal balance then outstanding
and any other amounts owed with respect to the Credit Facility under the Credit
Agreement, on the Maturity Date.
Advances hereunder shall be noted in the books and records of the
Lender and such notation shall be, absent manifest error, conclusive evidence of
the total amount of Advances made under the Credit Agreement. All Advances so
noted and made hereunder shall be conclusively presumed to have been made to and
at the request and for the benefit of the Borrower as provided in the Credit
Agreement.
The Borrower may prepay this Line of Credit Note in accordance with the
terms of the Credit Agreement.
All payments of principal and interest shall be paid in lawful money of
the United States of America in immediately available funds at the office of the
Lender or such other place as the Lender may designate in writing.
The terms, covenants, conditions, provisions, stipulations and agreements of the
Credit Agreement are hereby made a part of this Line of Credit Note to the same
extent and with the same effect as if they were fully set forth herein, and the
Borrower does hereby covenant to abide by and to comply with each and every
term, covenant, provision, stipulation, promise, agreement and condition set
forth in this Line of Credit Note and in the Credit Agreement. The holder of
this Line of Credit Note is entitled to the benefits of the Credit Agreement to
which reference is hereby made for a statement of the terms and conditions under
which this Line of Credit Note is issued. The holder acknowledges and agrees
that the Credit Agreement contains certain provisions which provide, among other
things, for the acceleration of the maturity of this Line of Credit Note upon
the occurrence of certain stated events and also for the prepayment of principal
prior to the Maturity Date upon the terms and conditions specified in the Credit
Agreement.
The Borrower, its permitted successors or assigns, and all persons
liable hereon or for the payment of this Line of Credit Note, waive presentment
for payment, demand, protest, and notice of nonpayment,
<PAGE>
demand and protest, and consent to any and all renewals, extensions or
modifications that might be made by the Lender prior to the time of payment of
this Line of Credit Note from time to time.
This Line of Credit Note shall be governed by the laws of the State of
Nevada.
THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER, OR IN ANY PROCEEDING IN ANY WAY ARISING OUT
OF OR IN CONNECTION WITH, THIS LINE OF CREDIT NOTE OR THE CREDIT AGREEMENT OR
ANY OTHER DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, AND THE BORROWER
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
IN WITNESS WHEREOF, intending to be legally bound, the Borrower has
caused this Line of Credit Note to be duly executed and delivered on the date
first above written.
NORDIC GAMING CORPORATION
By: /S/ Chester Waxman
Name: Chester Waxman
Title: Vice President
10522180.03
xvii.
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into this 27 day of August,
1997, by and among NORDIC GAMING CORPORATION, a corporation organized and
existing under the laws of the province of Ontario, Canada (the "Debtor"), and
LAS VEGAS ENTERTAINMENT NETWORK, INC., a Nevada corporation (the "Secured
Party").
BACKGROUND
A. The Debtor is indebted to the Secured Party under a Line of Credit Note (the
"Note") dated of even date herewith issued to the Secured Party under and
pursuant to a Line of Credit Agreement dated of even date herewith between the
Debtor and the Secured Party (the "Credit Agreement").
A. The Debtor has agreed to grant to the Secured Party security for the Debtor's
current and future obligations to the Secured Party arising under the Note and
Credit Agreement (collectively, the "Credit Documents").
A. The terms of this Security Agreement without definition that are defined in
the Personal Property Security Act, as enacted in the Province of Ontario and in
effect on the date of this Security Agreement (the "Personal Property Security
Act"), shall have the meanings ascribed to them in the Personal Property
Security Act, unless the context requires otherwise.
AGREEMENT
NOW THEREFORE, intending to be legally bound, the Debtor and the
Secured Party hereby agree as follows:
1. Section Creation of Security Interest. The Debtor hereby grants to the
Secured Party a first and prior lien on and security interest in and to the
property hereinafter described, whether now owned or hereafter acquired or
arising and wherever located (the "Collateral"):
All tangible and intangible personal property of the Debtor, including but not
limited to:
(a) all accounts, accounts receivable, rights under contracts, chattel paper,
instruments and all obligations due the Debtor for goods sold or to be sold,
leased or to be leased, or services rendered or to be rendered ("Accounts");
(a) all inventory, whether raw materials, work-in-process, finished goods, parts
or supplies or otherwise; all goods, merchandise and other property held for
sale or lease or to be furnished under any contract of service; all documents of
title covering any goods which are or are to become and any such goods which are
leased or consigned to others ("Inventory"); (b) all leases and rental
agreements for personal property between the Debtor as lessor (whether by
origination or derivation) and any and all persons or parties as lessee(s), and
all rentals, purchase option amounts, and other sums due thereunder; and all
inventory, equipment, goods and property subject to such leases and rental
agreements and all accessions, parts and tools attached thereto and used
therewith and all of the Debtor's residual or reversionary rights therein;
xvii.
<PAGE>
(a) all machinery, equipment, furniture, fixtures, tools, motor vehicles, and
all accessories, parts and equipment now or hereafter affixed thereto or used in
connection therewith, and all other tangible personal property ("Equipment");
(a) all general tangibles, including but not limited to all tax refunds,
patents, trademarks, service marks, trade names, copyrights and other
intellectual property and proprietary rights;
(a) all additions, replacements, attachments, accessions and substitutions to
or for any Inventory or Equipment;
(a) all property of the Debtor, including without limitation, instruments,
chattel paper and documents, which at any time the Secured Party shall have or
have the right to have in its possession, or which is in transit to it (pursuant
to the terms of a letter of credit or otherwise);
(a) all books and records evidencing or relating to the foregoing, including,
without limitation, billing records of every kind and description, customer
lists, data storage and processing media, software and related materia; and
(a) all proceeds, which term shall have the meaning given to it in the Personal
Property Security Act and shall additionally include but not be limited to,
whatever is received upon the use, lease, sale, exchange, collection or other
utilization or any disposition of any of the collateral described in
subparagraphs (a) through (h) above, whether cash or noncash, and including
without limitation, rental or lease payments, accounts, chattel paper,
instruments, documents, contract rights, general intangibles, equipment,
inventory and insurance proceeds; and all such proceeds of the foregoing
("Proceeds").
1. Section Secured Obligations. The security interest created by this Security
Agreement is given as security for the proper payment, performance, satisfaction
and discharge of the payment of any principal, interest and any other
liabilities of the Debtor to the Secured Party under the Credit Documents,
whether thereunder now existing or hereafter created (the "Obligations").
1. Section Representations and Warranties. The Debtor, as of the date hereof
represents and warrants as follows: 3.01 Good Title to Collateral. The
Debtor has good and marketable title to the Collateral, free and clear of
all liens and encumbrances other than the security interests granted to the
Secured Party.
3.02 Location of Books and Records. The Debtor maintains its records concerning
the Collateral at 230 Catherine Street, Fort Erie, Ontario, L2A 5N9 or at
the location(s) hereafter disclosed to the Secured Party pursuant to
Section 8 hereof.
3.03 Chief Executive Office. The chief executive office of the Debtor is 230
----------------------
Catherine Street, Fort Erie, Ontario, L2A 5N9 or at the location(s) hereafter
disclosed to the Secured Party pursuant to Section 8 hereof.
xix.
<PAGE>
3.04 Location of Inventory and Equipment. All Inventory and Equipment of the
Debtor is located at 230 Catherine Street, Fort Erie, Ontario, L2A 5N9 or
at the location(s) hereafter disclosed to the Secured Party pursuant to
Section 8 hereof.
1. Section Collection, Disposition and Use of Collateral.
4.01 Accounts Receivable. So long as there has been no Event of Default
hereunder, the Debtor shall be permitted to collect its accounts receivable
and to spend the proceeds thereof.
4.02 Inventory. So long as there has been no Event of Default hereunder, the
Debtor shall be permitted to process and sell its Inventory, but only to
the extent that such processing and sales are conducted in the ordinary
course of the Debtor's business.
4.03 Equipment. So long as there has been no Event of Default hereunder, the
Debtor shall be permitted to use its Equipment in the ordinary course of
its business.
1. Section Covenants of the Debtor.
5.01 Affirmative Covenants. The Debtor hereby covenants that so long as any of
the Obligations have not been fully satisfied, the Debtor shall comply with the
following affirmative covenants:
(a) The Debtor shall preserve and maintain its existence as an Ontario
corporation, and its good standing in all jurisdictions in which it
conducts business and the validity of all its licenses, permits,
certificates of compliance or grants of authority required in connection
with the conduct of its business, except where the failure to maintain such
validity would not have a material adverse effect on the business,
financial condition or results of operations of the Debtor or on the
Collateral, taken as a whole (a "MAE").
(b) The Debtor shall notify the Secured Party in writing immediately of the
institution of any litigation, the commencement of any administrative
proceedings, the happening of any event or the assertion or threat of any
claim which could materially and adversely affect its business, operations,
prospects or financial condition, or the occurrence of any Event of Default
(as defined in paragraph 6 hereof) hereunder or of an event which, with the
passage of time or the giving of notice or both, would constitute an Event
of Default hereunder.
(c) The Debtor will comply with all material local, provincial and federal laws
and regulations applicable to its business; and the Debtor shall notify the
Secured Party immediately in detail of any actual or alleged breach,
violation, default or failure to comply with or perform under any such
material laws or regulations, or of the occurrence or existence of any
facts or circumstances which, with the passage of time or the giving of
notice or both, could create such a breach, violation, default or failure,
except where such breach, violation, default or failure would not
constitute an MAE.
(d) The Debtor shall promptly notify the Secured Party of (A) any claims,
actions or legal proceedings instituted or threatened against the Debtor,
involving One Hundred Thousand Dollars (U.S. $100,000) or more individually
or in the aggregate; (B) any subpoena, citation, order to show cause, or
other legal process or order directing the Debtor to become a party to or
participate in any proceeding by or before any governmental agency, and it
shall include with such notice a copy of any such subpoena,
xx.
<PAGE>
citation, order to show cause or other legal process or order; or (C) any
dispute or investigation arising between the Debtor and any person which could
have a MAE.
(e) Upon the request of the Secured Party, the Debtor shall warrant and defend
title to the Collateral, subject to the rights of the Secured Party,
against the claims and demands of all persons whomsoever.
(f) The Debtor shall maintain complete and accurate books, accounts and records
in accordance with generally accepted accounting principles consistently
applied.
(g) The Debtor shall promptly notify and provide the Secured Party with a
notice of the opening of any new places of business, the closing of any
existing places of business, the conduct of business by it under any name
or through any entity other than Nordic Gaming Corporation or Fort Erie
Racetrack, and the relocation of any of the Collateral.
(h) The Debtor shall immediately notify the Secured Party if any of
its Accounts arise out of contracts with the Province of Ontario,
with Canada or with any department, agency or instrumentality of
either of them.
(i) The Debtor shall immediately notify the Secured Party in the event that
there ever arises against any of the Collateral any lien, security
interest, encumbrance, or tax or other liability, whether or not entitled
to priority over the Secured Party's security interest hereunder.
5.02 Negative Covenants. The Debtor covenants and agrees that so long as any of
the Obligations have not been fully satisfied, the Debtor shall comply with
the following negative covenants unless otherwise waived by the Secured
Party:
(a) The Debtor shall not transfer, sell, lease, assign, conceal or otherwise
dispose of any of the Collateral, not take the same or attempt to take or
remove the same from the province where it is currently located, without
delivering prior written notice of any such action to the Secured Party;
provided, however, that, notwithstanding anything to the contrary contained
herein, prior to the occurrence of an Event of Default (as defined in
paragraph 6 hereof), the Debtor shall have the right to process and sell
any of its Inventory in the ordinary course of its business.
(b) The Debtor shall not mortgage, pledge, grant or permit to exist a
securityinterest in or lien upon any of the Collateral.
(c) The Debtor shall not permit any action to be taken that may
impair the value of any of the Collateral or the security
intended to be afforded hereby.
(d) The Debtor shall not permit the Collateral to become an accession
to other property.
1. Section Event of Default. The occurrence of any one or more of
the following will be an Event of Default hereunder.
6.01 Default by the Debtor. The failure of the Debtor to pay, when
due, any debt or obligation due to any of the Secured Party.
xxi.
<PAGE>
6.02 Failure to Observe Covenants. The failure of the Debtor to keep,
observe or perform any provisions of this Security Agreement or
any of the Credit Documents, which failure is not cured and
remedied within the later to occur of forty-five (45) days after
notice of the failure is given to the Debtor or the passage of
all applicable grace periods provided in such instruments under
which such default has arisen.
6.03 Representations, Warranties. If any representation, warranty or
certificate furnished by the Debtor under or in connection with
the Security Agreement or any of the Credit Documents shall, at
any time, be materially false or incorrect.
6.04 Event of Default under the Note. If there shall occur and be
continuing an Event of Default under the Note.
1. Section Secured Party's Rights Upon Event of Default. Upon the occurrence of
an Event of Default hereunder, or at any time thereafter, the Secured Party may
immediately and without notice do any or all of the following, which rights and
remedies are cumulative, may be exercised from time to time, and are in addition
to any rights and remedies available to the Secured Party.
7.01 Personal Property Security Act Rights. Exercise any and all of
the rights and remedies of a secured party under the Personal
Property Security Act, including the right to require the Debtor
to assemble the Collateral and make it available to the Secured
Party at a place reasonably convenient to the parties.
7.02 Operation of Collateral. Operate, utilize, recondition and/or
refurbish (at the Secured Party's sole option and discretion and
in any manner) any of the Collateral which is Equipment, for the
purpose of enhancing or preserving the value thereof or the value
of any Collateral.
7.03 Payments to Secured Party. Notify all account debtors and direct
them to make all payments in respect to Accounts directly to or
for the account of the Secured Party.
7.04 Appoint Receiver. Appoint by instrument in writing one or more
Receivers (meaning a receiver, a manager or a receiver and
manager) of the Debtor or any or all of the Collateral with such
rights, powers and authority (including any or all of the rights,
powers and authority of the Secured Party under this Agreement)
as may be provided for in the instrument of appointment or any
supplemental instrument, and remove and replace any such Receiver
from time to time. To the extent permitted by applicable law, any
Receiver appointed by the Secured Party will (for purposes
relating to responsibility for the Receiver's acts or omissions)
be considered to be the agent of the Debtor and not of the
Secured Party.
7.05 Court-Appointed Receiver. Apply to a court of competent
jurisdiction for the appointment of a Receiver of the Debtor or
of any or all of the Collateral.
7.06 Consultants. Require the Debtor to engage a consultant of the
Secured Party's choice, or engage a consultant on its own behalf,
such consultant to receive the full cooperation and support of
the Debtor and its employees, including unrestricted access to
the premises, books and records of the Debtor; all reasonable
fees and expenses of such consultant shall be for the account of
the Debtor and the Debtor hereby authorizes any such consultant
to report directly to the Secured party and to disclose to the
Secured Party any and all information obtained in the course of
such consultant's employment.
xxii.
<PAGE>
7.07 Sale of Collateral. Upon five (5) calendar days' prior written
notice to the ------------------ Debtor, which the Debtor hereby
acknowledges to be sufficient, commercially reasonable and
proper, sell, lease or otherwise dispose of any or all of the
Collateral at any time and from time to time at public or private
sale, with or without advertisement thereof and apply the
proceeds of any such sale first to the Secured Party's expenses
in preparing the Collateral for sale (including reasonable
attorneys' fees) and second to the complete satisfaction of the
Obligations. The Debtor waives the benefit of any marshalling
doctrine with respect to the Secured Party's exercise of their
rights hereunder. Effective upon default, the Debtor grants a
royalty-free license to the Secured Party for all patents,
service marks, trademarks, trade names, copyrights, computer
programs and other intellectual property and proprietary rights
sufficient to permit the Secured Party to exercise all rights
granted to the Secured Party under this Section; provided,
however, that such license shall be granted only to the extent
permitted by law, only to the extent not otherwise contractually
prohibited and only to the extent that such license does not
materially impair any benefits granted to any other party
pursuant to any other license or similar grant of use or
application.
7.08 Release of Errors, Etc. The Debtor waives and releases all errors, defects
and imperfections in any proceedings instituted by the Secured Party under
the terms of this Security Agreement, as well as all benefits that might
accrue to it by virtue of any present or future laws exempting Collateral,
or any part of the proceeds arising from any sale of any such Collateral,
from attachment, levy or sale under execution, or providing for any stay of
execution to be issues on any judgment recovered on the Note.
1. Section Financing Statements; Protection and Perfection of Security
Interest.
8.01 Financing Statements. At the request of the Secured Party, the Debtor shall
execute one or more financing statments in form satisfactory to the Secured
Party, and will pay the cost of filing the same in all public offices where
filing is deemed by the Secured Party to be necessary or desirable.
8.02 Certificates of Title. At the request of the Secured Party from
time to time, the Debtor, at its expense, will promptly secure
the necessary certificates of title and take all steps necessary
to cause the interest of the Secured Party to be properly noted
on any certificates of title issued or outstanding with respect
to any item of the Collateral that is now or hereafter subject to
a certificate of title or is required by laws to be.
8.03 Recordations. At the request of the Secured Party from time to
time, Debtor will execute, acknowledge, witness, deliver and file
or record in the proper governmental office, or procure the
execution, acknowledgment, witnessing and delivery and the filing
and recordation in the proper governmental offices of, any
instrument, paper or document satisfactory to the Secured Party,
and shall take or cause to be taken any other action which the
Secured Parties may deem necessary or desirable to create,
preserve, perfect, extend, modify, terminate or otherwise affect
any security interest granted pursuant hereto, or to enable the
Secured Party to exercise or enforce any of its rights hereunder.
8.04 Powers of Attorney. The Debtor hereby irrevocably appoints any
representative of the Secured Party as the attorney-in-fact of
the Debtor to execute all documents, including, without
limitation, financing statements, and to perform all acts on
behalf of the Debtor that the Secured Party reasonably deems
necessary to protect, perfect and keep perfected the security
interest created by this Security Agreement.
xxii.
<PAGE>
1. Section Notices. Any written notices required or permitted by
this Security Agreement shall be effective if delivered in person
or if sent by first-class mail, or if sent by reliable overnight
commercial courier (charges prepaid), to:
If to the Debtor:
Nordic Gaming Corporation
c/o Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario M5L 1A9
Attention: Frank Guarascio
If to the Secured Party:
Las Vegas Entertainment Network, Inc.
1801 Century Park East, Suite 2300
Los Angeles CA 90067
Attention: Chairman
The addresses may be changed only in accordance with the
provisions of this Section 9.
1. Section Miscellaneous.
.01 No Waiver. No delay or omission by the Secured Party in exercising any right
or remedy hereunder shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any exercise
thereof or the exercise of any other right or remedy.
10.02Costs. In the event of a dispute between the parties, the
prevailing party in any litigation shall be paid by the
non-prevailing party in any litigation, upon demand, the
prevailing party's costs and expenses of the litigation,
including reasonable attorneys' fees and costs.
10.03Preservation of Rights. The Secured Party shall have no
obligation or responsibility to take any steps to enforce or
preserve rights against any parties to any Account and such
obligation and responsibility shall be those of the Debtor
exclusively.
10.04Successors. The provisions of this Security Agreement shall
inure to the benefit of and be binding upon the Secured Party and
the Debtor and their respective successors and assigns, provided
that the Debtor's obligations hereunder may not be assigned
without the written consent of the Secured Party.
10.05Amendments. No modification, rescission, waiver, release or
amendment of any provisions of this Security Agreement shall be
effective unless set forth in a written agreement signed by the
Debtor and the Secured Party.
10.06Governing Law. This Security Agreement shall be construed under
the internals laws of the Province of Ontario, Canada without
reference to conflict of law principles.
10.07Severability. If any provision of this Security Agreement shall
be held invalid or unenforceable under applicable law in any
jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of such provision in any
other jurisdiction or the validity or enforceability of any
xxiv.
<PAGE>
other provision of this Security Agreement that can be given effect without such
invalid and unenforceable provision.
10.08Counterparts. 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 but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute and deliver this Security Agreement on the
date first written above.
LAS VEGAS ENTERTAINMENT NEWWORK, INC.
By: /S/ Joseph A. Corazzi
NORDIC GAMING CORPORATION
By:/S/ Henny Muller
xxv.
<PAGE>
EXHIBIT 10.35
LAS VEGAS ENTERTAINMENT NETWORK, INC.
EMPLOYMENT AGREEMENT
WITH
JOSEPH A. CORAZZI
This Employment Agreement (this "Agreement"), by and between
Las Vegas Entertainment Network, Inc., a Delaware corporation (the "Company"),
and Joseph A. Corazzi ("Executive"), effective as of October 1, 1997, was
authorized by the Compensation Committee ("Committee") of the Company's Board of
Directors (the "Board") on October ____, 1997.
RECITALS
A. The Committee desires to provide for the continued
employment of Executive and to make certain changes in Executive's employment
arrangements with the Company which the Committee has determined will reinforce
and encourage the continued attention and dedication of Executive to the
Company's business as a member of the Company's management. Executive is willing
to commit himself to continue to serve the Company on the terms and conditions
herein provided.
B. The Company and Exeuctive previsouly entered into an
Employment Agreement, dated March 1, 1995 (the "Prior
Employment Agreement").
C. The Company and Executive wish to terminate the Prior
Employment Agreement and to enter into this Agreement
pursuant to the terms and conditions stated herein.
D. The Committee fully recognizes that the continuing
possibility of a change in the control of the Company is unsettling to
Executive. Therefore, the arrangements set forth below are being made to help
assure a continuing dedication by Executive to his duties to the Company
notwithstanding the occurrence or potential occurrence of a change in control.
In particular, the Committee believes it important, should the Company receive
proposals from third parties with respect to its future, to enable Executive,
without being influenced by the uncertainties of his own situation, to assess
and advise the Company whether such proposals would be in the best interests of
the Company and its shareholders and to take such other action regarding such
proposals as the Board of Directors might determine to be appropriate.
AGREEMENT
In consideration of the premises and the respective covenants
and agreements of the parties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to continue to employ
Executive, and Executive hereby agrees to continue to serve the
Company, pursuant to the terms and conditions set forth herein.
2. Term. The term of employment of Executive by the Company
pursuant to the terms of this Agreement will commence on October 1, 1997 (the
"Effective Date"), and end on September 30, 2002 (the "Initial Term"); provided,
however, that if the Company fails to notify Executive in writing on or before
October 1, 2001 of its desire to have this Agreement expire at the end of its
Initial Term, this Agreement shall be automatically extended for another term
(the
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"Subsequent Term") ending on the sixth anniversary of the date upon which
Executive receives written notice of the Company's election to terminate this
Agreement. Such notice may be given at anytime during the term of this Agreement
and shall be effective (i) on the fifth anniversary of this Agreement if given
on or before October 1, 2001, or (ii) the sixth anniversary of the date the
termination notice is given to Executive, if given after October 1, 2001. This
Agreement shall terminate at the end of the Initial Term or Subsequent Term, as
applicable (the "Expiration Date"), unless sooner terminated pursuant to Section
7 hereof. The period from the Effective Date to the date this Agreement is
terminated is referred to herein as the "Employment Period."
3. Duties.
(a) The Executive shall be elected Chairman of the Board and
Chief Executive Officer of the Company and, in such
capacity, he shall supervise and direct the entire operation
of the Company and perform such additional duties related to
the business and affairs of the Company as may be delegated
to him from time to time by the Board; provided that
Executive's duties and responsibilities shall be
commensurate with and similar to those generally exercised
and assigned during the 90-day period immediately preceding
the Effective Date.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which Executive is entitled,
Executive shall devote his reasonable attention and time
during normal business hours to the business and affairs of
the Company and use his reasonable best efforts to perform
faithfully, fully, competently and efficiently the duties
and responsibilities assigned to him hereunder. During the
Employment Period, it shall not be a violation of this
Agreement for Executive to (i) serve on corporate, civil or
charitable boards or committees, (ii) manage personal
investments and/or business affairs, or (iii) to engage in
other business or profit oriented ventures or enterprises so
long as such activities do not materially interfere with the
performance of Executive's responsibilities as an employee
of the Company in accordance with this Agreement.
4. Place of Performance. During the Employment Period,
Executive shall be based and his services shall be performed at the Company's
principal executive office. Executive agrees and acknowledges that his services
hereunder may require reasonable travel in connection with the Company's
business to an extent consistent with Executive's present business travel
obligations.
5. Compensation and Related Matters.
(a) Salary. As of the Effective Date, Executive's minimum base
salary ("Salary") shall be Three Hundred Fifty Thousand
Dollars ($350,000) per annum, payable as nearly as possible
in equal monthly or semi-monthly installments in accordance
with the payroll practices of the Company which may be in
effect from time to time and subject to such withholding as
may be required by law. Executive may elect to defer payment
of any portion or all of his Salary or any other
compensation payable hereunder pursuant to the provisions of
any deferred compensation plan that the Company may adopt
from time to time.
(b) Employee Benefit Plans. Executive shall participate in any
incentive compensation plan, pension or profit sharing plan,
stock purchase or stock option plan, group health,
disability, life, dental or hospitalization plans, and other
benefit plans maintained by the Company for its executive
employees in accordance with the terms and conditions
thereof; provided, that Executive shall be eligible to and
shall participate in such benefit plans.
(c) Payment Upon a Change in Control. Upon the consummation
of a definitive agreement by the Company and the
purchaser thereunder providing for a Change of Control,
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the Company shall pay Executive a lump sum cash payment of Two Million Dollars
($2,000,000) (the "Change in Control Payment"), regardless of whether this
Agreement is terminated as a result of the Change in Control. Such payment shall
be in addition to all other compensation payable to Executive under this
Agreement. For the purposes of this Agreement, a "Change of Control" shall mean:
(i) The transfer, either directly or indirectly, or through one or more
intermediaries, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 50% or more of
either the then outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors, or the last of any series of
transfers that results in the transfer of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934) of 50% or more of either the then outstanding shares of common stock
or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or
(ii) Approval by the stockholders of the Company of (A) a merger or
consolidation, with respect to which persons who were the stockholders of
the Company immediately prior to such merger or consolidation do not,
immediately thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the merged or
consolidated company's then outstanding voting securities, or (B) a
liquidation or dissolution of the Company or (C) the sale of all or
substantially all of the assets of the Company; or
(iii)The transfer of more than 50% of the assets of the Company, or the last of
any series of related transfers that results in the transfer of more than
50% of the assets of the Company;
provided in each case the cash paid plus the fair market value of any other
consideration given for the Company's securities or assets, as applicable, when
equated to a per share price for the Company's common stock, exceeds by more
than fifteen percentage points the average price of the Company's common stock
over the 90-day period immediately preceding the event giving rise to the Change
in Control.
(d) Annual Bonus. In addition to the compensation set forth above, the Company
may pay to Executive, for each of the Company's fiscal years ending with or
within the Employment Period, an annual or other periodic bonus (the
"Bonus") in such amounts as the Compensation Committee shall determine in
its sole discretion based on the Company's earnings and performance and
Executive's contributions thereto.
(e) Expenses. During the Employment Period, the Company shall promptly
reimburse Executive for all reasonable expenses incurred by Executive in
performing his services hereunder, including, but not limited to, telephone
and telefax expenses, entertainment expenses, travel expenses, and all
living expenses while away from home on business, provided that all such
expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
(f) Car Allowance. The Company shall furnish Executive with an automobile
during the Employment Period for his exclusive use and shall reimburse
Employee for all expenses incurred by him in operating and maintaining the
automobile during such period.
(g) Retirement Benefit. If Executive has been employed by the Company for at
least ten (10) years on the Date of Termination (as defined in Section
7(g)), including any period of service predating the Effective Date of this
Agreement, and such termination is other
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than by reason of Sections 7(a) (death), or (c) (cause), the Company shall
provide Executive with an annual retirement benefit (payable in monthly or
semi-monthly installments commencing with the calendar month following the date
of his employment termination) equal to fifty percent (50%) of the average
annual Salary and Bonus received by Executive under Sections 5(a) and (d) of
this Agreement for the twenty-four (24) calendar month period immediately
preceding the date of employment termination.
(h) Parking. During the Employment Period, the Company will provide Executive
with free parking for his automobile at the Company's principal executive
office.
6. Directorship. Executive agrees to serve as a director of
the Company and its subsidiaries if requested to do so by the Board. The Company
shall indemnify Executive for any and all liability (including attorneys' fees)
incurred by Executive in connection with serving the Company in any and all such
capacities (including in his capacity as an officer and/or employee of the
Company and/or its subsidiaries), to the maximum extent permitted by applicable
state law. Executive shall be entitled to receive such additional compensation
for serving on the Company's Board of Directors as the Board may approve.
Executive further agrees that, upon termination of his employment for any
reason, he will resign any directorship held with respect to the Company and its
subsidiaries, effective as of the Date of Termination (as defined in Section
7(g)).
7. Termination. Executive's employment hereunder may be terminated without any
breach of this Agreement only under the following circumstances set forth
in Sections 7(a), (b), (c), (d) and (e) below:
(a) Death. Executive's employment hereunder shall terminate upon his death.
(b) Disability. If the Company determines in good faith that the Disability (as
defined below) of Executive has occurred, the Company may give Executive
written notice of its intention to terminate Executive's employment. If the
Company delivers written notice of termination to Executive pursuant to the
preceding sentence, and Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of one-hundred eighty
(180) consecutive days, and within thirty (30) days after written notice of
termination is received by Executive, Executive shall not have returned to
full-time performance of his duties hereunder, then Executive's employment
hereunder shall terminate effective on the 30th day after such notice of
termination is received by Executive. For purposes of this Agreement,
"Disability" means sickness or physical or mental disability which renders
Executive unable to devote his full time and attention to performing his
duties under this Agreement for one hundred eighty (180) or more
consecutive days.
(c) Cause. The Company may terminate Executive's employment hereunder for
Cause. For purposes of this Agreement, "Cause" means (i) the conviction of
Executive of a felony, provided such conviction is a final determination
and not subject to further appeal, or (ii) the willful breach of any
material provision of this Agreement by Executive (other than any such
failure resulting from his incapacity due to physical or mental illness),
and which is not remedied within fifteen (15) days after a notice of
termination is received by Executive that specifically identifies, as
required below, the facts and circumstances leading the Company to believe
that Executive has willfully violated this Agreement. For purposes of this
subsection, no act, or failure to act, on Executive's part shall be
considered "willful" unless done, or omitted to be done, by Executive in
bad faith and without reasonable belief that his action or omission was in
the best interests of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause without (i)
reasonable notice to Executive setting forth the reasons, facts and
circumstances for the Company's intention to terminate for Cause, (ii) an
opportunity for Executive, together with his
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counsel, to be heard before the Board of Directors and (iii) delivery to
Executive of a notice of termination from the Board of Directors finding that in
their good faith opinion Executive was guilty of the conduct set forth above,
and specifying the particulars thereof in reasonable detail.
(d) Termination by Executive for Good Reason. Executive may terminate his
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without Executive's express written consent, the
occurrence (a "Change") of any of the following circumstances:
(i) a significant adverse alteration or diminution in the nature of Executive's
duties or responsibilities from those in effect immediately prior to such
Change, other than insubstantial actions that are fully corrected within
thirty (30) days after receipt of written notice from Executive; or
(ii) any failure by the Company to comply substantially with any of the
provisions of Section 5 of this Agreement, other than insubstantial actions
that are fully corrected within thirty (30) days after receipt of written
notice from Executive; or
(iii)any purported termination by the Company of Executive's employment
otherwise than as expressly permitted by this Agreement, including, but not
limited to, any purported termination which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section 7(f) hereof
(and, if applicable, the requirements of Section 7(c) hereof) (for purposes
of this Agreement, no such purported termination shall be effective); or
(iv) any failure by the Company to comply with any material provision of this
Agreement that has not been cured within thirty (30) days after notice of
such noncompliance has been given by Executive to the Company; or
(v) The Board of Directors shall authorize and direct Executive to cause the
Company to enter into a transaction which would, in Executive's considered
judgment, materially injure the reputation and business standing of the
Company, after Executive has provided to the Board in writing his reasons
why such transaction should not be effected and why it would result in such
material injury.
Executive's right to terminate his employment pursuant to this Section 7(d)
shall not be affected by his incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
(e) Expiration of Term. This Agreement shall terminate upon the Expiration Date
as set forth in Section 2, if not earlier terminated pursuant to the
provisions of this Section 7.
(f) Notice of Termination. Any termination of Executive's employment by the
Company or by Executive (other than a termination pursuant to subsections
(a) and (e) of this Section 7) shall be communicated by written "Notice of
Termination" to the other party. For purposes of this Agreement, a Notice
of Termination shall mean a notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (iii) if the Date of Termination (as defined in Section 7(g)) is other
than the date of receipt of such notice, specifies the termination date
(which date shall not be less than fifteen (15) days after the receipt of
such notice). The failure by Executive or the Company to set forth in the
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Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause, as the case may be, shall not waive any right of Executive
or the Company, as the case may be, hereunder or preclude Executive or the
Company, as the case may be, from asserting such fact or circumstance in
enforcing his or its rights hereunder.
(g) Date of Termination. "Date of Termination" shall mean (i) if Executive's
employment is terminated by his death, the date of his death, (ii) if
Executive's employment is terminated pursuant to subsection (b) hereof
(relating to Disability), thirty (30) days after Notice of Termination is
received by Executive (provided that Executive shall not have returned to
the performance of his duties on a full-time basis during such thirty
(30)-day period), (iii) if Executive's employment is terminated pursuant to
subsection (c) hereof (relating to Cause), fifteen (15) days after Notice
of Termination is received by Executive, (iv) if Executive's employment is
terminated pursuant to subsection (d) hereof (relating to termination for
Good Reason), thirty (30) days after the Notice of Termination is received
by the Company, (v) if Executive's employment is terminated under
subsection (e) hereof on the Expiration Date as set forth in Section 2, and
(vi) if Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination.
8. Compensation Upon Termination.
(a) If Executive's employment is terminated by reason of his death or
Disability pursuant to Section 7(a) or (b), this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement; provided, however, that Executive or his legal representatives
shall receive
(i) all compensation and obligations accrued or earned by Executive through the
Date of Termination (including any payments due under Section 5(c) hereof);
(ii) any accrued vacation pay not yet paid by the Company;
(iii)a lump sum cash payment equal to the amount of Salary that Executive would
have been entitled to receive pursuant to Section 5(a) hereof from the Date
of Termination through and including the Expiration Date if Executive had
been employed by the Company through the Expiration Date (with the
Expiration Date determined by assuming that a Notice of Termination was
given to Executive on the Date of Termination); and
(iv) in the case of a termination under Section 7(b), the Company shall be
obligated to make the payments required under Section 5(g) (if applicable)
for the remainder of Executive's life.
All of the amounts set forth in clauses (i), (ii) and (iii) shall be paid to
Executive, Executive's estate or Executive's beneficiaries, as applicable, in a
lump sum cash payment within ninety (90) days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, Executive or
Executive's family, as the case may be, shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company to families
of disabled or deceased employees of the Company, as the case may be, under such
plans relating to benefits for families of disabled or deceased employees of the
Company, as the case may be, if any, in accordance with the most favorable
practices of the Company in effect at any time during the Employment Period.
(b) If Executive's employment shall be terminated by the Company for Cause, or
by Executive other than for Good Reason, or should this Agreement terminate
pursuant to Section 7(e), the Company shall pay Executive all compensation
and obligations accrued or earned by
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Executive through the Date of Termination and any accrued vacation pay not yet
paid by the Company (the "Accrued Compensation"). All such Accrued Compensation
shall be paid to Executive in a lump sum in cash within ninety (90) days of the
Date of Termination. Other than the payment of such Accrued Compensation, the
Company shall have no further obligation to Executive under this Agreement and
Executive acknowledges and agrees that this Section 8(b) states his entire and
exclusive rights, entitlements and remedies against the Company, its successors,
assigns, affiliates, employees and representatives in connection with the
termination of his employment by the Company for Cause or by Executive other
than for Good Reason.
(c) If (i) in breach of this Agreement, the Company shall terminate Executive's
employment other than pursuant to Section 7(a) (relating to death), Section
7(b) (relating to Disability), or Section 7(c) (relating to Cause) (it
being understood that a purported termination pursuant to Section 7(b) or
7(c) hereof which is disputed and finally determined not to have been
proper shall be a termination by the Company in breach of this Agreement),
or (ii) Executive shall terminate his employment for Good Reason, then
(A) the Company shall make a lump sum payment of cash to Executive equal to the
sum of the amounts set forth in Section 5(c) (if applicable) and Sections
8(a)(i), (ii) and (iii) within ninety (90) days of the Date of Termination;
(B) the Company shall pay Executive the retirement benefit set forth in Section
5(g) (if applicable) for the remainder of his life;
(C) the Company shall pay Executive a lump sum in cash equal to the present
value of all additional accrued benefits, as calculated by an actuary
selected by Executive using reasonable assumptions, so long as the interest
rate assumption is one percentage point less than the "Applicable Interest
Rate" (as defined in Section 411(a)(11)(B) (ii) of the Code), that
Executive would have received under all pension and retirement plans
maintained by the Company, if Executive's employment would have continued
through the Expiration Date (determined by assuming that Executive received
a Notice of Termination on the Date of Termination), disregarding any
limitation imposed by law on an amount payable by a qualified pension plan,
less any amounts which will be paid by such plans; provided, however, that
for purposes of calculating the Company's payment to Executive pursuant to
this subsection (c), Executive shall be deemed to be 100% vested in any and
all applicable employee pension plans as of the last day of the Employment
Period; and provided further, that if any pension plan in which Executive
participates shall be discontinued, for purposes of calculating the
Company's payment to Executive pursuant to this subsection (c), such
discontinued plan shall be deemed to have been in full force and effect
without interruption for the entire Employment Period;
(D) through the Expiration Date, the Company shall continue all other benefits
to Executive and/or Executive's family at least equal to those benefits
which would have been provided to Executive and/or Executive's family in
accordance with the plans, programs, practices and policies referred to in
this Agreement if Executive had been employed by the Company through the
Expiration Date (with the Expiration Date determined by assuming that
Executive received a Notice of Termination on the Date of Termination);
(E) any stock options to purchase stock of the Company held by Executive on the
Date of Termination which are not at such time currently exercisable shall,
as of that date, automatically become exercisable;
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(F) all shares of stock of the Company held by Executive under any restricted
stock plan which are still subject to restrictions on the Date of
Termination shall, as of that date, automatically become free of all
restrictions;
(G) the Company will provide Executive with suitable office space (equivalent
to that occupied by Executive at the time of the Date of Termination and
private secretarial services in Los Angeles away from the Company's offices
for a period of two (2) years following the Date of Termination; and
(H) the Company shall, at Executive's election, either (A) reimburse Executive
for all expenses incurred by him in finding new employment plus the costs
of moving Executive and his family and possessions to a new location; or
(B) pay Executive One Hundred Thousand Dollars ($100,000) in cash within
ninety (90) days of the Date of Termination.
Other than the payment of the amounts set forth above in this
Section 8(c), the Company shall have no further obligations to Executive under
this Agreement and Executive acknowledges and agrees that this Section 8(c)
states his entire and exclusive rights, entitlements and remedies against the
Company, its successors, assigns, affiliates, employees and representatives in
connection with the termination by the Company of his employment under the
circumstances described in Section 8(c)(i) or by Executive for Good Reason under
Section 8(c)(ii).
9. Nondisclosure. Executive agrees not to disclose, either
while in the Company's employ or at any time thereafter, to any person not
employed on a full-time basis by the Company or its affiliates, or not engaged
to render services to the Company or its affiliates, except with the prior
written consent of an officer authorized to act in the matter by the Board, any
confidential information obtained by Executive while in the employ of the
Company, provided, however, that this provision shall not preclude Executive
from the use or disclosure of information known generally to the public or of
information not treated as confidential by the Company or from disclosure
required by law or court order. The agreement made in this Section 9 shall be in
addition to, and not in limitation or derogation of, any obligations otherwise
imposed by law or by separate agreement upon Executive in respect of
confidential information of the Company.
10. Successors; Binding Agreement.
(a) The Company will use its best efforts to require any and all successors to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to terminate his employment for Good
Reason. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 10 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law. Executive agrees and acknowledges
that the provisions of this Section 10 do not apply to a merger in which
the Company is the surviving corporation (it being understood that the
Company's obligations hereunder would be unaffected thereby).
(b) Since this Agreement is based upon the unique abilities of Executive, he
shall have no right to delegate his duties under this Agreement without the
written consent of the Company.
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(c) This Agreement and all rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any
amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's designee or, if
there be no such designee, to Executive's estate.
11. Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
on the day following delivery to a reputable overnight courier, postage prepaid,
addressed as follows:
If to Executive: Mr. Joseph A. Corazzi
505 Marquette
Suite 1608
Albuquerque, New Mexico 87102
If to the Company: Las Vegas Entertainment Network, Inc.
1801 Century Park East, 23rd Floor
Los Angeles, California 90067
Attention: Chief Financial Officer
or to such other address as any party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company's Board of Directors.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. Except as provided in Section 20,
any dispute between the parties shall be submitted to arbitration, the venue for
which shall be Los Angeles, California, unless otherwise agreed to in writing by
the parties. In the event of any proceeding brought to enforce this Agreement,
the prevailing party shall be entitled to costs of suit and attorneys' fees, in
addition to any other remedies available. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles.
14. Validity. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
16. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of any subject matter contained herein and
supersedes all prior severance or other agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral
or written, by any officer, employee or representative of any party hereto,
except for any
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agreements related to Executive's acquisition of, or right to acquire, the
Company's or its subsidiaries' stock and except for the Company's obligation to
pay Executive his accrued or deferred salary for any period ending on or prior
to September 30, 1997, and which shall be paid by the Company to Executive on or
before the earlier of (i) April 15, 1998, or (ii) the termination of this
Agreement, and, except as set forth in the immediately preceding clause, any
prior agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled, including, without limitation, the
Prior Employment Agreement.
17. Expenses. The Company shall reimburse Executive for any legal expenses
incurred in preparing this Agreement and any related agreements.
18. Executive's Representations. Executive represents that, to the best of his
knowledge, there are no events or circumstances in his personal background
or associations with others which would result in any casino or gaming
authority's refusal to grant a casino or gaming license to Executive, the
Company or its subsidiaries.
19. Interest. Any funds not paid to Executive within thirty
(30) days after they are due under this Agreement shall accrue interest at the
prime rate published in the Wall Street Journal from time to time, from the date
such payments were due until the date they are paid by the Company.
20. Arbitration and Litigation. In the event the Company
terminates Executive by reason of his Disability or for Cause and Executive
disputes the accuracy of such assertion of Disability or Cause, or in the event
Executive terminates his employment for Good Reason and the Company disputes the
accuracy of such assertion of Good Reason, the accuracy of such assertion shall
be submitted to arbitration in accordance with the then current commercial
arbitration rules of the American Arbitration Association ("Association") or its
successor, provided Executive or the Company files a written demand for
arbitration at a regional office of the Association within thirty (30) days
following the Date of Termination. During the pendency of the arbitration
proceeding, Executive will continue to be paid his Salary and receive the other
compensation benefits set forth in Section 5. In the event the arbitrator finds
that the termination by the Company was not for Disability or not for Cause, as
applicable, or that the termination by Executive was for Good Reason, Executive
shall not be entitled to reinstatement, but shall be entitled to the benefits of
Section 8(c) and in either case payment of his reasonable legal expenses in such
arbitration.
21. Representation of the Company. The Company represents that
the execution and performance of this Agreement will not result in a breach of
any of the terms and conditions of any employment or other agreement between the
Company and any other person or party.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date indicated on the first page of this Agreement.
LAS VEGAS ENTERTAINMENT NETWORK,
INC. (the "Company")
By:
Title:
xxxv.
<PAGE>
/s/ JOSEPH A. CORAZZI
JOSEPH A. CORAZZI
("Executive")
Approved by the
Company's Compensation Committee
By:
By:
xxxv.
<PAGE>
LAS VEGAS COMMUNICATIONS CORPORATION
EMPLOYMENT AGREEMENT
WITH
JOSEPH A. CORAZZI
This Employment Agreement (this "Agreement"), by and between
Las Vegas Communications Corporation, a Delaware corporation (the "Company"),
and Joseph A. Corazzi ("Executive"), effective as of October 1, 1997, was
authorized by the Compensation Committee ("Committee") of the Company's Board of
Directors (the "Board") on October ___, 1997.
RECITALS
A. The Committee desires to provide for the continued
employment of Executive and to make certain changes in Executive's employment
arrangements with the Company which the Committee has determined will reinforce
and encourage the continued attention and dedication of Executive to the
Company's business as a member of the Company's management. Executive is willing
to commit himself to continue to serve the Company on the terms and conditions
herein provided.
B. The Company and Executive previously entered into an Employment Agreement,
dated March 1, 1995 (the "Prior Employment Agreement").
C. The Company and Executive wish to terminate the Prior Employment Agreement
and to enter into this Agreement pursuant to the terms and conditions
stated herein.
AGREEMENT
In consideration of the premises and the respective covenants
and agreements of the parties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to continue to employ Executive, and
Executive hereby agrees to continue to serve the Company, pursuant to the
terms and conditions set forth herein.
2. Term. The term of employment of Executive by the Company
pursuant to the terms of this Agreement will commence on October 1, 1997 (the
"Effective Date"), and end on September 30, 2002 (the "Initial Term"); provided,
however, that if the Company fails to notify Executive in writing on or before
October 1, 2001 of its desire to have this Agreement expire at the end of its
Initial Term, this Agreement shall be automatically extended for another term
(the "Subsequent Term") ending on the sixth anniversary of the date upon which
Executive receives written notice of the Company's election to terminate this
Agreement. Such notice may be given at anytime during the term of this Agreement
and shall be effective (i) on the fifth anniversary of this Agreement if given
on or before October 1, 2001, or (ii) the sixth anniversary of the date the
termination notice is given to Executive, if given after October 1, 2001. This
Agreement shall terminate at the end of the Initial Term or Subsequent Term, as
applicable (the "Expiration Date"), unless sooner terminated pursuant to Section
7 hereof. The period from the Effective Date to the date this Agreement is
terminated is referred to herein as the "Employment Period."
xxxv.
<PAGE>
3. Duties.
(a) The Executive shall be elected Chairman of the Board and Chief Executive
Officer of the Company and, in such capacity, he shall supervise and direct
the entire operation of the Company and perform such additional duties
related to the business and affairs of the Company as may be delegated to
him from time to time by the Board; provided that Executive's duties and
responsibilities shall be commensurate with and similar to those generally
exercised and assigned during the 90-day period immediately preceding the
Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which Executive is entitled, Executive shall devote his
reasonable attention and time during normal business hours to the business
and affairs of the Company and use his reasonable best efforts to perform
faithfully, fully, competently and efficiently the duties and
responsibilities assigned to him hereunder. During the Employment Period,
it shall not be a violation of this Agreement for Executive to (i) serve on
corporate, civil or charitable boards or committees, (ii) manage personal
investments and/or business affairs, or (iii) to engage in other business
or profit oriented ventures or enterprises so long as such activities do
not materially interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
4. Place of Performance. During the Employment Period,
Executive shall be based and his services shall be performed at the Company's
principal executive office. Executive agrees and acknowledges that his services
hereunder may require reasonable travel in connection with the Company's
business to an extent consistent with Executive's present business travel
obligations.
5. Compensation and Related Matters.
(a) Salary. As of the Effective Date, Executive's minimum base salary
("Salary") shall be Two Hundred Thousand Dollars ($200,000) per annum,
payable as nearly as possible in equal monthly or semi-monthly installments
in accordance with the payroll practices of the Company which may be in
effect from time to time and subject to such withholding as may be required
by law. Executive may elect to defer payment of any portion or all of his
Salary or any other compensation payable hereunder pursuant to the
provisions of any deferred compensation plan that the Company may adopt
from time to time.
(b) Employee Benefit Plans. Executive shall participate in any incentive
compensation plan, pension or profit sharing plan, stock purchase or stock
option plan, group health, disability, life, dental or hospitalization
plans, and other benefit plans maintained by the Company for its executive
employees in accordance with the terms and conditions thereof; provided,
that Executive shall be eligible to and shall participate in such benefit
plans.
(c) Annual Bonus. In addition to the compensation set forth above, the Company
may pay to Executive, for each of the Company's fiscal years ending with or
within the Employment Period, an annual or other periodic bonus (the
"Bonus") in such amounts as the Compensation Committee shall determine in
its sole discretion based on the Company's earnings and performance and
Executive's contributions thereto.
(d) Expenses. During the Employment Period, the Company shall promptly
reimburse Executive for all reasonable expenses incurred by Executive in
performing his services hereunder, including, but not limited to, telephone
and telefax expenses, entertainment expenses, travel expenses, and all
living expenses while away from home on business, provided that
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<PAGE>
all such expenses are incurred and accounted for in accordance with the policies
and procedures established by the Company.
(e) Profit Participation. For each fiscal year of the Company ending with or
within the Employment Period, Executive shall receive a lump sum cash
payment equal to five percent (5%) of the Company's "EBITDA Profits"
reported for such fiscal year. For purposes of this Agreement, EBITDA
Profits shall mean the Company's net earnings for the fiscal year,
determined by excluding any expense associated with interest, income taxes,
depreciation or amortization. Such payment shall be made to Executive by
the Company within thirty (30) days after the date the EBITDA Profits are
finally determined by the Company's auditors and reported to the Company.
6. Directorship. Executive agrees to serve as a director of the Company if
requested to do so by the Board. The Company shall indemnify Executive for
any and all liability (including attorneys' fees) incurred by Executive in
connection with serving the Company in any and all such capacities
(including in his capacity as an officer and/or employee of the Company),
to the maximum extent permitted by applicable state law. Executive shall be
entitled to receive such additional compensation for serving on the
Company's Board of Directors as the Board may approve. Executive further
agrees that, upon termination of his employment for any reason, he will
resign any directorship held with respect to the Company, effective as of
the Date of Termination (as defined in Section 7(g)).
7. Termination. Executive's employment hereunder may be terminated without any
breach of this Agreement only under the following circumstances set forth
in Sections 7(a), (b), (c), (d) and (e) below:
(a) Death. Executive's employment hereunder shall terminate upon his death.
(b) Disability. If the Company determines in good faith that the Disability (as
defined below) of Executive has occurred, the Company may give Executive
written notice of its intention to terminate Executive's employment. If the
Company delivers written notice of termination to Executive pursuant to the
preceding sentence, and Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of one-hundred eighty
(180) consecutive days, and within thirty (30) days after written notice of
termination is received by Executive, Executive shall not have returned to
full-time performance of his duties hereunder, then Executive's employment
hereunder shall terminate effective on the 30th day after such notice of
termination is received by Executive. For purposes of this Agreement,
"Disability" means sickness or physical or mental disability which renders
Executive unable to devote his full time and attention to performing his
duties under this Agreement for one hundred eighty (180) or more
consecutive days.
(c) Cause. The Company may terminate Executive's employment hereunder for
Cause. For purposes of this Agreement, "Cause" means (i) the conviction of
Executive of a felony, provided such conviction is a final determination
and not subject to further appeal, or (ii) the willful breach of any
material provision of this Agreement by Executive (other than any such
failure resulting from his incapacity due to physical or mental illness),
and which is not remedied within fifteen (15) days after a notice of
termination is received by Executive that specifically identifies, as
required below, the facts and circumstances leading the Company to believe
that Executive has willfully violated this Agreement. For purposes of this
subsection, no act, or failure to act, on Executive's part shall be
considered "willful" unless done, or omitted to be done, by Executive in
bad faith and without reasonable belief that his action or omission was in
the best interests of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause without (i reasonable
notice to Executive setting forth the reasons, facts and circumstances for
xxxi.
<PAGE>
the Company's intention to terminate for Cause, (ii) an opportunity for
Executive, together with his counsel, to be heard before the Board of Directors
and (iii) delivery to Executive of a notice of termination from the Board of
Directors finding that in their good faith opinion Executive was guilty of the
conduct set forth above, and specifying the particulars thereof in reasonable
detail.
(d) Termination by Executive for Good Reason. Executive may terminate his
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without Executive's express written consent, the
occurrence (a "Change") of any of the following circumstances:
(i) a significant adverse alteration or diminution in the nature of Executive's
duties or responsibilities from those in effect immediately prior to such
Change, other than insubstantial actions that are fully corrected within
thirty (30) days after receipt of written notice from Executive; or
(ii) any failure by the Company to comply substantially with any of the
provisions of Section 5 of this Agreement, other than insubstantial actions
that are fully corrected within thirty (30) days after receipt of written
notice from Executive; or
(iii)any purported termination by the Company of Executive's employment
otherwise than as expressly permitted by this Agreement, including, but not
limited to, any purported termination which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section 7(f) hereof
(and, if applicable, the requirements of Section 7(c) hereof) (for purposes
of this Agreement, no such purported termination shall be effective); or
(iv) any failure by the Company to comply with any material provision of this
Agreement that has not been cured within thirty (30) days after notice of
such noncompliance has been given by Executive to the Company; or
(v) The Board of Directors shall authorize and direct Executive to cause the
Company to enter into a transaction which would, in Executive's considered
judgment, materially injure the reputation and business standing of the
Company, after Executive has provided to the Board in writing his reasons
why such transaction should not be effected and why it would result in such
material injury.
Executive's right to terminate his employment pursuant to this Section 7(d)
shall not be affected by his incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
(e) Expiration of Term. This Agreement shall terminate upon the Expiration Date
as set forth in Section 2, if not earlier terminated pursuant to the
provisions of this Section 7.
(f) Notice of Termination. Any termination of Executive's employment by the
Company or by Executive (other than a termination pursuant to subsections
(a) and (e) of this Section 7) shall be communicated by written "Notice of
Termination" to the other party. For purposes of this Agreement, a Notice
of Termination shall mean a notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the
xxxx.
<PAGE>
provision so indicated, and (iii) if the Date of Termination (as defined in
Section 7(g)) is other than the date of receipt of such notice, specifies the
termination date (which date shall not be less than fifteen (15) days after the
receipt of such notice). The failure by Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause, as the case may be, shall not waive any right
of Executive or the Company, as the case may be, hereunder or preclude Executive
or the Company, as the case may be, from asserting such fact or circumstance in
enforcing his or its rights hereunder.
(g) Date of Termination. "Date of Termination" shall mean (i) if Executive's
employment is terminated by his death, the date of his death, (ii) if
Executive's employment is terminated pursuant to subsection (b) hereof
(relating to Disability), thirty (30) days after Notice of Termination is
received by Executive (provided that Executive shall not have returned to
the performance of his duties on a full-time basis during such thirty
(30)-day period), (iii) if Executive's employment is terminated pursuant to
subsection (c) hereof (relating to Cause), fifteen (15) days after Notice
of Termination is received by Executive, (iv) if Executive's employment is
terminated pursuant to subsection (d) hereof (relating to termination for
Good Reason), thirty (30) days after the Notice of Termination is received
by the Company, (v) if Executive's employment is terminated under
subsection (e) hereof on the Expiration Date as set forth in Section 2, and
(vi) if Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination.
8. Compensation Upon Termination.
(a) If Executive's employment is terminated by reason of his death or
Disability pursuant to Section 7(a) or (b), this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement; provided, however, that Executive or his legal representatives
shall receive
(i) all compensation and obligations accrued or earned by Executive through the
Date of Termination;
(ii) any accrued vacation pay not yet paid by the Company;
(iii)a lump sum cash payment equal to the amount of Salary that Executive would
have been entitled to receive pursuant to Section 5(a) hereof from the Date
of Termination through and including the Expiration Date if Executive had
been employed by the Company through the Expiration Date (with the
Expiration Date determined by assuming that a Notice of Termination was
given to Executive on the Date of Termination); and
(iv) a lump sum cash payment equal to the amount that the Executive would have
received pursuant to Section 5(e) had he been employed as of the end of the
Company's fiscal year which ends immediately following the Date of
Termination resulting from Executive's death or Disability.
All of the amounts set forth in clauses (i), (ii) and (iii) shall be paid to
Executive, Executive's estate or Executive's beneficiaries, as applicable, in a
lump sum cash payment within ninety (90) days of the Date of Termination. The
amount set forth in clause (iv) shall be paid within thirty (30) days of the
date the EBITDA Profits are finally determined. Anything in this Agreement to
the contrary notwithstanding, Executive or Executive's family, as the case may
be, shall be entitled to receive benefits at least equal to the most favorable
benefits provided by the Company to families of disabled or deceased employees
of the Company, as the case may be, under such plans relating to benefits for
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<PAGE>
families of disabled or deceased employees of the Company, as the case may be,
if any, in accordance with the most favorable practices of the Company in effect
at any time during the Employment Period.
(b) If Executive's employment shall be terminated by the Company for Cause, or
by Executive other than for Good Reason, or should this Agreement terminate
pursuant to Section 7(e), the Company shall pay Executive all compensation
and obligations accrued or earned by Executive through the Date of
Termination and any accrued vacation pay not yet paid by the Company (the
"Accrued Compensation"). All such Accrued Compensation shall be paid to
Executive in a lump sum in cash within ninety (90) days of the Date of
Termination. In addition, in the event of a termination under Section 7(e),
Executive shall receive a cash payment equal to the amount specified in
Section 5(e) for the Company's fiscal year ending immediately following the
Date of Termination, prorated by a percentage, the numerator of which is
the number of days during such fiscal year that Executive was employed by
the Company, and the denominator of which is the total number of days in
such fiscal year. Such amount shall be paid within thirty (30) days
following the final determination of the Company's EBITDA Profits for such
fiscal year.
Otherthan the payments set forth in this Section 8(b), the Company shall have
no further obligation to Executive under this Agreement and Executive
acknowledges and agrees that this Section 8(b) states his entire and
exclusive rights, entitlements and remedies against the Company, its
successors, assigns, affiliates, employees and representatives in
connection with the termination of his employment by the Company for Cause
or by Executive other than for Good Reason.
(c) If (i) in breach of this Agreement, the Company shall terminate Executive's
employment other than pursuant to Section 7(a) (relating to death), Section
7(b) (relating to Disability), or Section 7(c) (relating to Cause) (it
being understood that a purported termination pursuant to Section 7(b) or
7(c) hereof which is disputed and finally determined not to have been
proper shall be a termination by the Company in breach of this Agreement),
or (ii) Executive shall terminate his employment for Good Reason, then
(A) the Company shall make a lump sum payment of cash to Executive equal to the
sum of the amounts set forth in Sections 8(a)(i), (ii) and (iii) within
ninety (90) days of the Date of Termination;
(B) the Company shall continue to make the payments required under Section 5(e)
(relating to the Company's EBITDA Profits) for each fiscal year of the
Company ending with or within the period commencing with the Date of
Termination and ending on the Expiration Date (with the Expiration Date
determined by assuming that a Notice of Termination was given to Executive
on the Date of Termination);
(C) through the Expiration Date, the Company shall continue all other benefits
to Executive and/or Executive's family at least equal to those benefits
which would have been provided to Executive and/or Executive's family in
accordance with the plans, programs, practices and policies referred to in
this Agreement if Executive had been employed by the Company through the
Expiration Date (with the Expiration Date determined by assuming that
Executive received a Notice of Termination on the Date of Termination);
(D) any stock options to purchase stock of the Company held by Executive on the
Date of Termination which are not at such time currently exercisable shall,
as of that date, automatically become exercisable; and
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(E) all shares of stock of the Company held by Executive under any restricted
stock plan which are still subject to restrictions on the Date of
Termination shall, as of that date, automatically become free of all
restrictions.
Other than the payment of the amounts set forth above in this
Section 8(c), the Company shall have no further obligations to Executive under
this Agreement and Executive acknowledges and agrees that this Section 8(c)
states his entire and exclusive rights, entitlements and remedies against the
Company, its successors, assigns, affiliates, employees and representatives in
connection with the termination by the Company of his employment under the
circumstances described in Section 8(c)(i) or by Executive for Good Reason under
Section 8(c)(ii).
9. Nondisclosure. Executive agrees not to disclose, either
while in the Company's employ or at any time thereafter, to any person not
employed on a full-time basis by the Company or its affiliates, or not engaged
to render services to the Company or its affiliates, except with the prior
written consent of an officer authorized to act in the matter by the Board, any
confidential information obtained by Executive while in the employ of the
Company, provided, however, that this provision shall not preclude Executive
from the use or disclosure of information known generally to the public or of
information not treated as confidential by the Company or from disclosure
required by law or court order. The agreement made in this Section 9 shall be in
addition to, and not in limitation or derogation of, any obligations otherwise
imposed by law or by separate agreement upon Executive in respect of
confidential information of the Company.
10. Successors; Binding Agreement.
(a) The Company will use its best efforts to require any and all successors to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to terminate his employment for Good
Reason. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 10 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law. Executive agrees and acknowledges
that the provisions of this Section 10 do not apply to a merger in which
the Company is the surviving corporation (it being understood that the
Company's obligations hereunder would be unaffected thereby).
(b) Since this Agreement is based upon the unique abilities of Executive, he
shall have no right to delegate his duties under this Agreement without the
written consent of the Company.
(c) This Agreement and all rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any
amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's designee or, if
there be no such designee, to Executive's estate.
11. Notice. For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been
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duly given when personally delivered or on the day following delivery to a
reputable overnight courier, postage prepaid, addressed as follows:
If to Executive: Mr. Joseph A. Corazzi
505 Marquette
Suite 1608
Albuquerque, New Mexico 87102
If to the Company: Las Vegas Communications Corporation
1801 Century Park East, 23rd Floor
Los Angeles, California 90067
Attention: Chief Financial Officer
or to such other address as any party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company's Board of Directors.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. Except as provided in Section 20,
any dispute between the parties shall be submitted to arbitration, the venue for
which shall be Los Angeles, California, unless otherwise agreed to in writing by
the parties. In the event of any proceeding brought to enforce this Agreement,
the prevailing party shall be entitled to costs of suit and attorneys' fees, in
addition to any other remedies available. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles.
14. Validity. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
16. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of any subject matter contained
herein and supersedes all prior severance or other agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto
and, except as set forth in the immediately preceding clause, any prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled, including, without limitation, the
Prior Employment Agreement.
17. Expenses. The Company shall reimburse Executive for any legal expenses
incurred in preparing this Agreement and any related agreements.
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18. Executive's Representations. Executive represents that, to the best of his
knowledge, there are no events or circumstances in his personal background
or associations with others which would result in any casino or gaming
authority's refusal to grant a casino or gaming license to Executive, the
Company or its subsidiaries.
19. Interest. Any funds not paid to Executive within thirty
(30) days after they are due under this Agreement shall accrue interest at the
prime rate published in the Wall Street Journal from time to time, from the date
such payments were due until the date they are paid by the Company.
20. Arbitration and Litigation. In the event the Company
terminates Executive by reason of his Disability or for Cause and Executive
disputes the accuracy of such assertion of Disability or Cause, or in the event
Executive terminates his employment for Good Reason and the Company disputes the
accuracy of such assertion of Good Reason, the accuracy of such assertion shall
be submitted to arbitration in accordance with the then current commercial
arbitration rules of the American Arbitration Association ("Association") or its
successor, provided Executive or the Company files a written demand for
arbitration at a regional office of the Association within thirty (30) days
following the Date of Termination. During the pendency of the arbitration
proceeding, Executive will continue to be paid his Salary and receive other
compensation benefits set forth in Section 5. In the event the arbitrator finds
that the termination by the Company was not for Disability or not for Cause, as
applicable, or that the termination by Executive was for Good Reason, Executive
shall not be entitled to reinstatement, but shall be entitled to the benefits of
Section 8(c) and in either case payment of his reasonable legal expenses in such
arbitration.
21. Representation of the Company. The Company represents that
the execution and performance of this Agreement will not result in a breach of
any of the terms and conditions of any employment or other agreement between the
Company and any other person or party.
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IN WITNESS WHEREOF, the parties have executed this Agreement
on the date indicated on the first page of this Agreement.
LAS VEGAS COMMUNICATIONS
CORPORATION (the "Company")
By:
Title:
/s/ JOSEPH A. CORAZZI
JOSEPH A. CORAZZI
("Executive")
Approved by the
Company's Compensation Committee
By:
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EXHIBIT 10.36
JOINT VENTURE AGREEMENT
This Joint Venture Agreement ("Agreement") is made this 6th of June,
1997, by and between Electric Media Company-Nevada, Inc. ("EMC"), A Nevada
corporation having its principal place of business at 601 13th street, NW, Suite
500 North, Washington, D.C., Russ Gerstein ("Gerstein"), an individual having
his principal place of business at 1905 North Rancho Road, Las Vegas, Nevada
89106. EMC, Gerstein shall be collectively referred to as the "Parties".
WHEREAS the Parties desire to form a joint venture, (the "Joint Venture
or Venture") to pursue the further development and exploitation of all forms of
technology developed or acquired by Gerstein, their affiliates or partners
relating to (i) any technique for the provision of video, voice, and/or date
communications over electric power lines, or (ii) other forms of transmission of
video, voice, and/or date communications including but not limited to cable,
telephone and microwave (the "Technology");
WHEREAS EMC desires to own the Technology developed or acquired by
Gerstein for all commercial revenue producing purposes worldwide;
WHEREAS, Gerstein desire to provide such know how, trade secrets,
trademarks, copyrights, patents, and other intellectual property related to the
development and exploitation of the Technology now owned or hereinafter acquired
by or developed by them 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, in particular in Guatemala.
Therefore, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Purpose: EMC, Gerstein hereby form the Joint Venture, the business of which
shall be the development and 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.
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2. Disclosure to EMC Experts: No later than June 30, 1997, and as new
developments occur Gerstein shall disclose the Technology then in either of
their possession to the Joint Venture's patent counsel and to such other experts
as EMC may reasonably designate. The qualifications of such experts shall be
disclosed to Gerstein and such experts shall agree in advance to be bound by the
terms of Section 10 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 Gerstein with written notice within ten (10) days of the disclosure.
Provided that there has been no material misrepresentation or breach of any
representation or warranty set forth herein by Gerstein, all funds advanced by
EMC to Gerstein as of the date of termination shall be retained by Gerstein as
liquidated damages and EMC shall have no further obligation to Gerstein.
3. Scope. The Parties intend that the scope of the Joint 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 as soon as practical during
the development stage of the Technology. No later than July 30, 1997 Gerstein
shall demonstrate those items provided for in Attachment B (Field Tests Agenda),
Section A.1, A.2 and A.3. No later than August 30, 1997, Gerstein shall
demonstrate those items provided for in Attachment B, Section A in Guatemala.
Gerstein shall secure such equipment reasonably necessary for the conducting of
the Field Test, which Field Test shall end no later than October 15, 1997. EMC
shall provide Gerstein and their consultants, agents and affiliates with access
to the El Rancho Hotel in Las Vegas to conduct the Field Test and otherwise
perform its obligations as contemplated hereunder or pursuant to agreements
executed in connection herewith. Such right of access shall be evidenced by a
written agreement between EMC and/or the Joint Venture, on the one hand and the
owner of the El Rancho Hotel, on the other, which agreement shall also confirm
to the satisfaction of EMC and ITB that the contemplated occupancy and use of
such premises are permitted by such owner and nay applicable regulation or
regulatory authority. In connection with the field test Gerstein shall provide
EMC and ITB assurances that any and all tests to be conducted at the El Rancho
shall in no way distract or endanger the premises of electrical system and shall
not inhibit ITB's ability to continue construction on the premises.
(ii) Gerstein shall use their best efforts to obtain for the
Joint Venture all necessary government approvals and licenses (including any
licenses required by the Federal Communications Commission and the State of
Nevada), to obtain all necessary rights-of-way, and to satisfy all
interconnection requirements. If Gerstein are unable to obtain any of the above,
they shall promptly notify the Joint Venture before the Field Test begins and
EMC shall have the right to cancel or reschedule the Field Tests.
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(iii) Prior to the commencement of the Field Test and in any
event no later than June 15, 1997, Gerstein shall use their best efforts to
supply such information to Joint Venture as may be required by its counsel to
render an opinion that, to the best knowledge of such counsel, that all such
necessary government approvals, necessary patents, and other licenses, and
rights-of-way have been obtained and all necessary interconnection requirements
satisfied. The Parties agree that the purpose of the Field Test is to verify the
technical and commercial feasibility of the Technology in a non- laboratory,
real-world setting. Success of the Field Test will be determined by EMC at its
sole discretion. If the Technology is not determined to be technically and
commercially acceptable, EMC shall have the option of terminating this Agreement
by providing Gerstein with written notice within 10 days of the conclusion of
the Field Test. Provided that there has been no material misrepresentation or
beach of any representation or warranty set forth herein by Gerstein, all funds
advanced by EMC to Gerstein as of the date of termination shall be retained by
Gerstein as liquidated damages and EMC shall have no further funding or any
other obligation to Gerstein. If there has been a material misrepresentation of
any representation or warranty set forth herein by Gerstein, EMC shall be
entitled to terminate the Joint Venture, to receive reimbursement of all amounts
expended in connection with the Joint Venture, including but not limited to all
funds advanced to Gerstein, 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 Joint
Venture is otherwise not terminated by EMC, the Parties shall use their best
efforts to cooperate with each other in the deployment of the Technology in
Guatemala, except that Gerstein shall be solely responsible (i) to use their
best efforts to obtain for the Joint Venture all necessary government approvals,
licenses and rights-of-way; (ii) to satisfy all interconnection requirements and
(iii) to secure reasonable and customary insurance or reinsurance to protect the
business of the Joint Venture (including but not limited to business
interruption insurance). Prior to the commencement of providing services in
Guatemala utilizing the Technology, Gerstein shall use their best efforts to
supply the Joint Venture with such information as may be required by its counsel
to render its opinion that, to the best knowledge of such counsel, all such
government approvals, licenses, rights-of-way and insurance necessary for the
conduct of the business of the Joint Venture have been obtained and all
interconnection requirements necessary therefore have been satisfied. In
addition, Gerstein shall use their best efforts to modify or cause to modify
such equipment and software as may be necessary to permit the Technology to
operate in Guatemala. During the term of the Joint Venture, neither Gerstein
shall not deploy or exploit the Technology in Guatemala other than on behalf of
or for the benefit of the Joint Venture.
(c) Other Deployment: The Joint Venture shall have the exclusive right to
further develop and exploit the Technology in all markets other than
Guatemala..
(d) Exclusive Services; As an essential part of the consideration for the
formation of the Venture, Gerstein agrees that:
(i) Stockholders and affiliates and their partners, of Gerstein shall consult
with EMC and Joseph A. Corazzi, which consultation shall be exclusive
during the term of the Joint
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Venture, in connection with all telecommunications matters involving the
Technology and development and utilization of the Technology;
(ii) Gerstein shall cooperate with EMC to cause the
incorporation in Guatemala of EMC, S.A., which shall be a wholly owned
subsidiary of EMC, Carlos Arzu and Juan Martinez, shall provide exclusive
consulting services to EMC, S.A. in connection with all telecommunications
matters involving the Technology and development utilization of the Technology,
and any agreements related to such obligations shall be provided to the Joint
Venture;
(iii) the Parties agree that Gerstein's ownership of the
Technology as it currently exists and as it may be developed during the term of
the Joint Venture shall be assigned or otherwise transferred to EMC on a
royalty-free (except for those royalties described in Section II of Attachment
A), exclusive, worldwide basis. The Parties shall execute all necessary
agreements and cooperate in all respects in order to effectuate such assignment
or transfer of ownership; and
(iv) during the term of this Agreement, EMC shall be granted a
right of first refusal for any new business opportunities of Gerstein, or any of
their stockholders, affiliates, or partners, regardless of whether such
opportunities involve the Technology.
4. Financing: EMC shall provide financing to the Joint Venture and Gerstein at
such times and in such amounts as shall reasonably be required for the
operation of the business of the Joint Venture in accordance with the terms
set forth in Attachment A.
5. Compensation: Subject to the compensation due Gerstein pursuant to
Attachment A hereto, after the Joint Venture's expenses (including but not
limited to all business expenses, the cost of manufacturing and deployment of
equipment, taxes, and government licensing fees) have been paid, or satisfactory
provision for such payment has been made, net operating profits (i.e.income from
continuing operations) shall be divided as follows: first to EMC in an amount
equal to its capital contributions plus a return thereon at an annual rate of
6%; and thereafter 80% to EMC and 20% to Gerstein. The 20% of the Joint
Venture's profits paid to Gerstein shall be paid directly by Las Vegas
Entertainment Network, Inc. from its share of EMC's profits.
6. Management of Venture: EMC shall provide the day-to-day management
of the Joint Venture's business, which may be delegated or assigned to a
professional management company selected by EMC. Decisions with regard to the
financing of the business of the Joint Venture shall be made by EMC in
consultation with Gerstein and subject to EMC's fiduciary duty to Gerstein.
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7. 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 Nevada; and 2)
it is authorized and empowered to perform each and all of its obligations
as set forth in this Agreement.
(b) Gerstein: Gerstein represents and warrants that: 1) They
are authorized and empowered to perform each and all of its obligations as set
forth in this Agreement; 2) They own 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, including but not limited to any claims
of Mark Saunders, William "Luke" Stewart, or any other partners or entities in
which either of them exercises a controlling interest, and the Technology will
operate as contemplated in this agreement with being subject to any such claims;
3) 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 secrets and trademark rights, of any other person or
entity but not limited to any claims of Mark Saunders, William "Luke" Stewart,
or any other partners or entities in which either of them exercises a
controlling interest, and the Technology will operate as contemplated in this
agreement with being subject to any such claims; and 5) the Technology is not
designed to and will not be designed to operate in violation of any applicable
law. During the term of the Joint Venture, Gerstein shall secure whatever
patents and licenses at their sole cost as necessary and as determined by the
Joint Venture and its counsel for the Joint Venture to exploit the Technology
worldwide.
(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.
8. Indemnification: (a) 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. (b)
Notwithstanding any other provision to this agreement;
(i) Gerstein each agree to individually indemnify, defend, and
hold harmless, EMC, LVEN and any of their officers, directors, partners,
employees, or affiliates from and against any and all liabilities and losses,
including but not limited to direct or indirect losses, loss of profits, loss of
business, special, exemplary, consequential, or punitive damages or any other
losses of any kind whatsoever (including attorney fees) resulting from
interference from any nature whatsoever with the business contemplated by this
Agreement caused by Mark Saunders, William "Luke" Stewart or any of their
partners or entities in which either of them exercises a controlling interest,
including but not limited to any claims involving know-how, trade secrets,
trademarks, copyrights, patents, or other
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intellectual property rights recognized, granted or protected by the laws of any
country related to the Technology.
(ii) Neither EMC, LVEN nor any of its officers, directors,
partners, employees, or affiliates shall be liable to Gerstein for any of their
liabilities or losses, including by not limited to direct or indirect losses,
loss of profits, loss of business, special, exemplary, consequential, or
punitive damages, or any other losses of any kind whatsoever (including attorney
fees), resulting from interference from any nature whatsoever with the business
contemplated by this Agreement caused by Mark Saunders, William "Luke" Stewart
or any of their partners or entities in which either of them exercises a
controlling interest.
(iii) In the event that any claim should be brought to the
Joint Venture involving any business contemplated by this Agreement by Mark
Saunders, William "Luke" Stewart or any of their partners or entities in which
either of them exercises a controlling interest, upon notice by EMC, or LVEN,
Gerstein shall assume all responsibilities associated with responding to and
defending such action or claim. EMC and LVEN shall cooperate in good faith with
Gerstein in any such response or defense, provided that EMC and LVEN shall be
reimbursed for the attorney fees as provided for in subsection (a) above.
9. 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.
10. Confidentiality: Gerstein agrees to disclose the Technology to the
Joint Venture, which the Joint 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.
11. 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.
12. Termination: The Venture shall be dissolved upon the first of the following
to occur:
(a) the mutual agreement of the Parties to effect such termination;
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(b) the Agreement is terminated pursuant to Section 2, 3 (a) or 11 hereof;
(c) 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 Joint 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, net
operating profits shall be distributed according to the formula set forth
herein.
13. 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
Fax : 310-551-1942
If to Gerstein:
1905 North Rancho Road
Las Vegas, Nevada 89106
Phone: 702-648-8064
14. 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.
15. Miscellaneous:
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(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 all
--------- Parties.
(f) Entire Agreement: This Agreement and any future amendments constitute 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.
By: /S/ Joseph A. Corazzi
Title: President
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Russel Gerstein
By: /S/ Russel Gerstein
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ATTACHMENT A
FINANCING AND COMPENSATION DUE GERSTEIN
I. FINANCING FOR THE FIELD TEST
The Parties hereby acknowledge that EMC has provided or will provide
the Venture or Parties hereto with financing in order to complete the Field Test
of the Technology, as follows: (a) upon signing this agreement and providing EMC
with all copies of contracts $150,000.
(b) upon the successful completion and written acceptance by EMC of Field Test,
A.1, A.2, A.3, $100,000.
(c) upon the successful completion and written acceptance by EMC of the
Guatemala Field Test A, $50,000 (plus additional compensation as described in
section II (a) of this attachment A).
(d) all payments made according made according to the above schedule
shall be made only after EMC receives invoice payment request in the form of
attachment C.
II. FINANCING AND COMPENSATION DUE GERSTEIN AFTER SUCCESSFUL
COMPLETION OF THE FIELD TEST
Upon EMC's acknowledgment of the successful completion of the Field
Test, items listed in section a, on attachment A:
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(a) Gerstein shall receive from EMC 500,000 shares of restricted common stock
in Las Vegas Entertainment Network, Inc. ("LVEN"); and
(b) Upon the successful completion and written acceptance by EMC of all
Field Tests, including Guatemala, Gerstein shall receive $25,000 per month as an
advance against Gerstein'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 all the Field
Tests. All advances to Gerstein, together with interest on such advances
compounded at the rate of six percent (6%) per annum, shall be recouped by EMC
out of their respective share of Venture net profits under section 5 (b)
thereof. The amount of net profits due Gerstein shall be deposited directly by
the Venture to EMC's account, until all such advances, plus accrued interest
shall have been repaid. Once Gerstein's account are in equilibrium (that is,
advances equal earned net profits, plus interest), EMC shall distribute to
Gerstein on a quarterly basis a draw based on their share of net profits.
(c) In addition to the shares of LVEN set forth in (a) above, Gerstein
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
Gerstein's total of restricted common stock of LVEN generated by net revenues
shall not exceed Two Million Five Hundred Thousand (2,500,000) shares. All LVEN
shares issued to Gerstein 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.
(d) In addition to the shares of LVEN, as a bonus, Gerstein shall
jointly receive $6.50 per installed device, which is operating and revenue
producing to EMC. LVEN shall receive $25 per installed device, which is
operating and revenue producing to EMC, plus 75% of the net profits.
(e) Gerstein shall jointly 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 Gerstein.
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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 demonstrated and commercially deployed in
Guatemala.
A. By no later than August 1, 1997, the Technology shall be demonstrated at
the "El Rancho" Hotel and shall deliver:
A.1. A minimum of twelve (12) distinct Devices, (similar to
the attached), receiving and retransmitting video signals on twelve (12)
distinct video channels at 3 DTV (video signals to be supplied by EMC VHS tape,
which shall be transferred by Gerstein);
A.2. All channels delivered by the local satellite system on a
subdivided thirteenth (13th) channel; for purposes of this Agenda, the number of
cable channels is estimated to be twenty-five (25);
A.3. A telephony demonstration, whereby the Devices can place
telephone calls to each other including two-way full-motion video and to any
other telephone number worldwide, and;
A.4 The devices will have ARS 232 connector, a portable
keyboard and access to the Internet. The devices will be able to operate at
approximately 90-105 Mbs;
A.5 Inter Room Gaming as mutually agreed. Exclusive rights to Nevada, New
Jersey and worldwide given to EMC. .
The only connections required by the Devices for any of the testing
described above, shall be to any A/C outlet within the El Rancho Hotel. Within 6
months of the El Rancho test, the surrounding 10 hotels will also be
demonstrated a similar test..
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This Agenda constitutes an initial draft statement of the purposes of
the Field Test and may be modified or added to by EMC, with Gerstein's
reasonable acceptance, by sending written notice to Gerstein at any time
hereafter, but in no event less than twenty (20) days prior to the start of the
El Rancho Field Test.
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EXHIBIT 10.37
JOINT VENTURE AGREEMENT
This Joint Venture Agreement ("Agreement") is made this 6th day of June,
1997, by and between Electric Media Company-Nevada, Inc. ("EMC"), a Nevada
corporation having its principal place of business at 601 13th Street, NW, Suite
500 North, Washington, D.C., Russ Gerstein ("Gerstein") an individual having his
principal place of business at 1905 North Rancho Road, Las Vegas, Nevada 89106,
Carlos Eduardo Arzu Lima, an individual residing at 2A Calle 24-16, Zona 15,
V.H.I., Guatemala, Central America. "Arzu" and Juan Edward Martinez
("Martinez"), an individual residing at 18 Calle 22-45, Zona 10. Guatemala,
Central America. EMC, Gerstein, Arzu and Martinez shall be collectively referred
to as the "Parties".
WHEREAS the Parties form a joint venture, (the "Joint Venture or Venture"),
to pursue the further development of a communications network in Guatemala and
Central America suing fiber optic technology or any other technology or
technique that does not employ the use of the electrical grid in Guatemala for
the provision of telephone, video, voice, and or data communications ("the
Technology");
WHEREAS Gerstein , Arzu and Martinez desire to provide the Technology to
the Joint Venture for all commercial revenue-producing purposes worldwide;
WHEREAS, EMC intends to provide certain financing and management skills to the
Joint;
WHEREAS, Gerstein, Arzu and Martinez desire to provide certain management
skills, knowhow, trade secrets, trademarks, copyrights, patents and other
intellectual property related to the development and exploitation of the
Technology now owned or hereinafter acquired or development by then; and
WHEREAS, the Parties intend to develop a communications network beginning in
Guatemala based on the markets economic viability. Gerstein, Arzu and Martinez
will establish offices and establish strategic banking relations for the
acceptance of telephone
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installation deposits. Upon determination of the economic feasibility of the
market in Guatemala (the "Market"), construction of the system will commence in
Guatemala.
Therefore, in consideration of the mutual covenants and promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Purpose: EMC, Gerstein and Arzu shall form EMC-SA, the business of which
shall be the development and 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.
2. Market Evaluation Provided to EMC: Withing 30 days after the date on EMC SA
has legal standing in Guatemala (registered as "in Formation" status with
Guatemala's Commerce Registry), but in no event any later than July 30,
1997, Gerstein, Arzu and
Martinez shall have funds in escrow in Guatemala, banks for 75,000 orders for
telephone service (at EMC's sole discretion this amount and time may be
modified); and shall provide a complete business plan demonstrating the economic
feasibility of each of the following:
(a) Providing service to 300,000 new telephone lines,
(ii) On going income from the initial 300,000 lines and the future expansion
plans for additional installation; and
(iii) Expansion of the tele communications network in other countries in
Central America. The Parties agree that the purpose of the business plan
described above and through marketing tests described in attachment B is to
verify the technical and commercial feasibility of the Technology in a
real-world setting. Success will be determined by EMC at its sole discretion. If
the market or Technology is not determined to be technically and commercially
acceptable, EMC shall have the option of terminating this agreement by providing
Gerstein, Arzu and Martinez with written notice by August 31, 1997. Provided
that there has been no material misrepresentation or beach in the representation
or warranty set forth herein by Gerstein, Arzu and Martinez, all funds advanced
by EMC to Gerstein, Arzu or Martinez as of the date of termination shall be
retained by Gerstein, Arzu or Martinez as liquidated damages and EMC shall have
no further funding or any other
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obligation to Gerstein, Arzu or Martinez. If there has been material
misrepresentation of any representation or warranty set forth herein by
Gerstein, Arzu or Martinez, EMC shall be entitled to terminate the Joint
Venture,, to receive reimbursement of all amounts expended in connection with
the Joint Venture, including but not limited to all funds advanced to Gerstein,
Arzu or Martinez, as of the date of termination and to pursue all other claims
which it may have available to it.
3.Scope; The Parties intend that the scope of the Joint Venture shall
include the following activities:
(a) Marketability of Service
(i) The demonstration of the Technology and economic viability of the market
shall beginning in Guatemala as soon as practical. No Later than July 30, 1997,
Gerstein, Ar and Martinez shall demonstrate that the market exist by completing
with Attachment B (Marketing Test), Section A.1, A.2. No later than September
30, 1997, Gerstein, Arzu and Martinez shall secure such offices, equipment,
staff and marketing assistance reasonably necessary to support the project
viability. Should Gerstein, Arzu and Martinez be able to prove the commercial
viability sooner, commencement of the infrastructure will begin sooner.
(ii) Gerstein, Arzu and Martinez shall use their best efforts to obtain for the
Joint Venture all necessary government approvals and licenses (including any
licenses required by any Guatemala telecommunications or electric companies) to
obtain all necessary right-of-way and to satisfy all interconnection
requirements. If Gerstein, Arzu or Martinez are unable to obtain any of the
above, they shall promptly notify the Joint Venture before the installation of
infrastructure begins and EMC shall have the right to cancel or reschedule the
start of installation of infrastructure in the even t approvals are not
obtained.
(iii) Prior to the commencement of the installation of infrastructure and in any
event no later than September 30, 1997, Gerstein, Arzu and Martinez shall use
their best efforts to supply such information to the Joint Venture as maybe
required by its counsel to render an opinion that, to the bet knowledge of such
counsel, all such necessary government approvals, necessary patent, or other
licenses or rights-of-way have been obtain and all necessary interconnection
requirements satisfied.
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(b) Guatemalan Deployment:: If the Marketing Test is successful or the
Joint Venture is otherwise not terminated by EMC, the Parties shall use their
best efforts to cooperate with each other in the deployment of the Technology in
Guatemala, except that Gerstein, Arzu and Martinez shall be solely responsible
(i) to use their best efforts to obtain for the Joint Venture all necessary
government approvals, licenses and rights-of-way; (ii) to satisfy all
interconnection requirements;
and
(c) Other Deployment: The Joint Venture shall have the exclusive right further
develop and exploit the Technology in all markets other than Guatemala.
(d) Exclusive Services: As an essential part of the consideration for the
formation of the Venture, Gerstein, Arzu and Martinez agree that:
(i) Gerstein, Arzu and Martinez shall consult with EMC and Joseph A. Corazzi,
which consultation shall be exclusive during the term of the Joint Venture, in
connection with all telecommunications matters involving the Technology and
development and utilization of the Technology; and
(ii) Gerstein, Arzu and Martinez shall cooperate with EMC to cause the
incorporation in
Guatemala of EMC, S.A., which shall be a wholly owned subsidiary of EMC.,
Gerstein, Carlos Arzu and Juan Martinez, shall provide exclusive consulting
services to EMC, S.A. in connection with all telecommunication cations matters
involving the Technology and development and utilization of the Technology, and
any agreements related to such obligation shall be provided to the Joint
Venture;
(iii) the Parties agree that Gerstein's, Martinez's and Arzu's ownership
interest in the Technology as it currently exists and as it may be developed
during the term of the Joint Venture shall be assigned or otherwise transferred
to EMC on a royalty-free (except for those royalties described in Section II of
Attachment A), exclusive, worldwide basis. The Parties shall execute all
necessary agreements and cooperate in all respects in order to effectuate such
assignment or transfer of ownership; and
(iv) during the term of this Agreement, EMC shall be granted a first right of
first refusal for any new business opportunities of Gerstein, Arzu or Martinez,
or any other partners, regardless of whether such opportunities involve the
Technology.
4. Financing: EMC shall provide financing to the Joint Venture and
Gerstein, Martinez or Arzu at such times and in such amounts as shall reasonably
be required for the operation of the business of the Joint Venture in accordance
with the terms set forth in Attachment A.
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5. Compensation: Subject to the compensation due Gerstein, Arzu and Martinez,
pursuant to Attachment A hereto, after the Joint Venture's expenses
(including but not limited to all business expenses, the cost of
manufacturing and deployment of equipment, taxes, and government
licensing fees) have been paid, or satisfactory provision for such payment has
been made, net
operating profit (i.e. income from continuing operations) shall be divided as
follows: first to EMC in an amount equal to its capital contributions plus a
return thereon at an annual rate of 6%; and thereafter 80% to EMC and 20% to
Gerstein, Arzu and Martinez. The 20% of the Joint Venture's profits paid to
Gerstein, Arzu and Martinez shall be paid directly by Las Vegas Entertainment
Network, Inc. from its share of EMC profits.
6. Management of Venture: EMC shall provide the day-to-day management of
the Joint Venture's business, which may be delegated or assigned to a
professional management company selected by EMC. Decisions with regard to the
financing of the business of the Joint Venture shall be made by EMC in
consultation with Gerstein, Arzu and Martinez and subject to EMC's fiduciary
duty to Gerstein, Arzu and Martinez .
7.Representation 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 Nevada; and (2)
it is authorized and empowered to perform each and all of its obligations as set
forth in this Agreement.
(b) Gerstein, Arzu and Martinez: represent and warrant that: (1) they
are authorized and empowered to perform each and all of their respective
obligations as set forth in this Agreement; (2) whatever right, title and
interest in and to the Technology they own rights are not subject to any third
party claims, including but not limited to any claims of Mark Saunders, William
"Luke" Stewart, or any of their partners or entities in which either of them
exercises a controlling interest, and the Technology will operate as
contemplated in this Agreement with being subject to any such claims; (3) 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,
including but not limited to any claims of Mark Saunders, William "Luke"
Stewart, or any of their partners or entities in which either of them exercises
a controlling interest, and the Technology will operate as contemplated in this
Agreement with being subject to any such claims; and (4) the Technology is not
designed to and will not be designed to operate in violation of any applicable
law. During the term of the Joint Venture, Gerstein, Arzu and Martinez shall
secure whatever patents and licenses at their sole cost as necessary and as
determined by the Joint Venture and its counsel for the Joint Venture to exploit
the Technology worldwide.
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(c) Mutual Covenants: Each Party represents and warrants to the others
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.
8. Indemnifications:
(a) Each Party indemnifies the others and agrees to hold them harmless from
and against any claim, damage, loss or liability (including reasonable
attorneys' fees) resulting from the breach of any of its obligations or
warranties or from any misrepresentations under this Agreement.
(b) Notwithstanding any other provision of this Agreement:
(i) Gerstein, Arzu and Martinez each agree to individually indemnify,
defend, and hold harmless EMC, LVEN and any of their officers, directors,
partners, employees, or affiliates from and against any and all
liabilities and losses, including but not Limited to direct or indirect losses,
loss of profits, loss of business, special, exemplary, consequential, or
punitive damages, or any other losses of any kind whatsoever (including
attorneys' fees) resulting from interference of any nature whatsoever with the
business contemplated by this Agreement caused by Mark Saunders, William "Luke"
Stewart, or any of their partners or entities in which either of them exercises
a controlling interest, including but not limited to any claims involving
know-how, trade secrets, trademarks, copyrights, patents, and other intellectual
property rights, as recognized, granted, or protected by the laws of any
country, related to the Technology.
(ii) Neither EMC, LVEN nor any of its officers, directors, partners,
employees, or affiliates shall be liable to Gerstein, Arzu or Martinez for any
of their liabilities and losses, including but not limited to direct or indirect
losses, loss of profits, loss of business, special, exemplary, consequential, or
punitive damages, or any other losses of any kind whatsoever (including
attorneys' fees) resulting from interference of any nature whatsoever with the
business contemplated by this Agreement caused by Mark Saunders, William "Luke"
Stewart, or any of their partners or entities in which either of them exercises
a controlling interest.
(iii) In the event that any claim should be brought against the Joint
Venture involving the business contemplated by this Agreement by Mark Saunders,
William "Luke" Stewart, or any of
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their partners or entities in which either of them exercises a controlling
interest, upon notice by EMC, or LVEN, Gerstein, Arzu and Martinez shall assume
all responsibilities associated with responding to and defending such action or
claim. EMC and LVEN shall cooperate in good faith with Gerstein, Arzu and
Martinez in any such response or defense, provided that EMC and LVEN shall be
reimbursed for its attorneys' fees as provided for in subsection (a) above.
9. 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.
10. Confidentiality: Gerstein , Arzu and Martinez agree to disclose the
Technology to the Joint Venture, and the Joint Venture and EMC each agree to
maintain its confidentiality. Except as provided for in Section 2, the
Technology shall not be disclosed by any 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 public domain, or
(iii) such disclosure is required by law. Any third person 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.
11.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.
12. Termination: The Joint Venture shall be dissolved upon the first of the
following to occur:
(a) the mutual agreement of the Parties to effect such termination; (b) the
Agreement is terminated pursuant to Section 2, 3(a) or 11 hereof;
(b) a Party commits a material breach or defaults in its obligations under this
Agreement, such breach or default is not cured within 30 days of receipt of
written notice thereof by EMC in the case of a breach or default by Gerstein,
Arzu or Martinez or written notice thereof by Gerstein, Arzu or Martinez in the
case of a breach or default by EMC, and the notifying Party thereafter provides
written notice that the Joint Venture will terminate in 30 days. Upon the third
such breach or default, the notifying 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, net
operating profit shall be distributed according to the formula set forth herein.
13. 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 carrier, and by five days following the mailing if delivered by US
first class mail. All notices are to be sent to the following, as the Parties
may from time to time modify by written notice:
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If to EMC:
Arnold P. Lutzker, Esq.
Fish & Richardson, P.C.
601 13th Street, NW
Washington, D.C. 20005
Phone: 310-551-0011
Fax: 310-551- 1942
If to Gerstein:
Russell Gerstein
1905 North Rancho Road
Las Vegas, Nevada 89106
Phone: 702-648-8O64
If to Arzu:
Carlos Eduardo Arzu Lima
2A. Calle 24-16
Zona 15 V.H.I.
Guatemala, Central America
Phone: 011-502-634-1548
If to Martinez:
Juan Edwin Martinez
18 Calle 22-45
Zona 10
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Guatemala, Central America
Phone: 011-502-368-0040
14. 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.
15. Miscellaneous:
(a) Severability: If any provision of this Agreement is adjudged by a
court or other governmental body of competent jurisdiction to be 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, not, war or terrorist act.
(e) Amendment: This Agreement may be amended only by writing executed by all
Parties.
(f) Entire Agreement: This Agreement and any future amendments constitute 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.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date written above.
ELECTRIC MEDIA COMPANY-NEVADA, INC.
By: /S/ Joseph A. Corazzi /S/ Juan Edwin Martinez
/S/Russell Gerstein /S/Carlos Eduardo Arzu L:ima
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ATTACHMENT A
FINANCING AND COMPENSATION DUE GERSTEIN, ARZU AND MARTINEZ
1. FINANCING FOR THE MARKETING TESTS
The Parties hereby acknowledge that EMC has provided or will provide the
Venture or Parties hereto with financing in order to complete the Marketing Test
of the Technology, as follows:
(a) Upon signing this Agreement and providing EMC with copies of all
contracts for the acquisition of office space, etc. up to $500,000 for general
start-up costs, including renting office space, equipment, and other initial
120-day start-up expenses as such costs and expenses are agreed to by the
Parties.
(b) Upon acceptance of the Marketing Test described in Attachment B
or within 30 days hereafter, the Joint Venture shall commence construction of
the infrastructure according to a mutual agreed upon budget.
(c) All payments made according to the above schedule shall he made
only after EMC receives invoice payment requests in the form of Attachment C.
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FINANCING AND COMPENSATION DUE AFTER SUCCESSFUL
COMPLETION OF THE MARKETING TEST
Upon EMC's acknowledgment of the successful completion of the
Marketing Test items listed in Section Bof Attachment B:
(a) Gerstein, Arzu and Martinez shall jointly receive from EMC 500,000 shares
of restricted common stock in Las Vegas Network ("LVEN") as a success fee;:
and
(b) Upon the successful completion and written acceptance by EMC of
all Marketing Test, Gerstein Arzu and Martinez shall jointly receive $15,000 per
month as an advance against their 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 Marketing Test. EMC shall not be obligated to make
any monthly payment until it has acknowledged satisfactory completion of all of
the Marketing Test. All advances to Gerstein, Arzu and Martinez, together with
interest on such advances compounded at the rate of six percent (6%) per annum,
shall be recouped by EMC out of their respective share of Venture net profits
under Section 5 (b) hereof. The amount of net profits due Gerstein, Arzu and
Martinez shall be deposited directly by the Venture to EMC's account, until all
such advances, plus accrued interest shall have been repaid. Once Gerstein's,
Martinez and Arzu's accounts are in equilibrium (that is, advances equal earned
net profits plus interest), LVEN shall distribute to Gerstein, Arzu and
Martinez, on a quarterly basis, a draw based on their share of net profits
(c) In addition to the shares of LVEN set forth in (a) above, Gerstein,
Arzu and Martinez shall jointly receive 500,000 shares of restricted common
stock in LVEN for each 150,000 telephones verified as installed in Guatemala up
to a total of two million five hundred thousand (2,500,000) shares. All LVEN
shares issued to Gerstein, Arzu and Martinez shall be subject to and reduced by
any reverse split or other reclassification of LVEN stock.
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ATTACHMENT B
MARKETING TEST
The Marketing Test shall include, but not exclusive, purpose, the
creastion of live, real-time, tests to demonstrate of the capability and
tgehnology.
A. By no later than July 30, 1997, the commercial marketability shall be
proven in accordance with the following:
A.1. Providing 75,000 orders for new telephone lines with deposits in local
Guatemala banks to cover same;
A.2. Poviding a complete business plan, demonstrating the
eocnomic feasility of the Technology, including anticipated revenues,
expenses, profits, and the details of installation operaitons ("the
Market Feasibility Study"); and
A.3. Five telephone calls initiated from five separate residences to any other
telephone worldwide;
All billing and collection procedures are also to be demonstrated. Wtihint 30
days of acceptence of the Marketing Test decribed in Attachement B,
Gerstein, Arzu and Martinez shall cause the title to the switch, which is
currently located in Guatemala, to be transferred to EMC. The Pacific
serial number and describtion of the switche shall be provided by Gerstin,
Arzu and Martinez to EMC , at least 10 days proir thereto.
This Agenda constitutes an initial draft statement of
the purposes of the Marketing Test and may be modified or added to by
EMC, with Gerstein's, Arzu's and Martinez's reasonable acceptance, by
sending written notice to Gerstein, Arzu and Martinez at any time
hereafter, but in no event not priot to July 15, 1997.
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EXHIBIT 10.38
CERTIFICATE OF DESIGNATION, VOTING POWERS,
PREFERENCES AND RIGHTS OF THE SERIES OF
THE PREFERRED STOCK OF
LAS VEGAS ENTERTAINMENT NETWORK, INC.
To Be Designated
Series A Preferred Stock
Las Vegas Entertainment Network, Inc., a Delaware corporation (the
"Corporation"), pursuant to its Certificate of Incorporation, as amended to
date, and Section 151 of the General Corporation Law of the State of
Delaware, hereby certifies that the Board of Directors of the Corporation
has duly adopted by unanimous written consent the following resolutions
providing for the issuance by the Corporation of a series of Preferred
Stock to be designated Series A Preferred Stock and to consist of One
Million (1,000,000) shares:
"RESOLVED, that the Corporation is authorized to issue a
series of Preferred Stock to be designated Series A Preferred Stock
(the "Series A Preferred") to consist of One Million (1,000,000)
shares; and
RESOLVED, that the powers and designations, preferences and
rights, qualifications, limitations and restrictions on all of the
Series A Preferred shall be as follows:
(a) Issuance. The series of the Preferred Stock
designated "Series A Preferred" shall consist of One Million
(1,000,000) shares. The Series A Preferred may be issued as
partly paid shares in accordance with the provisions of
Section 156 of the Delaware General Corporation Law.
(b) Dividend Rights. The holders of the Series A Preferred shall not be
entitled to receive any dividends or other distributions.
(c) Voting Rights. Each holder of the Series A Preferred shall be entitled to
twenty (20) votes for each share of the Series A Preferred standing in
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the name of the holder on the stock record books of the
Corporation on the record date for the determination of
stockholders entitled to notice of and to vote at any annual
or special meeting of the stockholders of the Corporation, but
only as to (i) stock splits (including reverse stock splits)
and repurchase programs, and (ii) (ii) any other matter or
matters from time-to-time designated by the Company's Board of
Directors. The holders of shares of the Series A Preferred,
the holders of shares of the Corporation's common stock, par
value $0.01 per share ("Common Stock"), and the holders of
shares of any other class of capital stock of the Corporation
which possess voting power shall vote together as a single
class upon the foregoing.
(d) Rights on Liquidation, Dissolution and Winding
Up. The liquidation, dissolution and winding up preference of
each share of the Series A Preferred shall be an amount equal
to the consideration actually paid thereon. The merger or
consolidation of the Corporation into or with any other
corporation or of any other corporation into or with the
Corporation (other than a merger or consolidation with or into
one or more wholly-owned subsidiaries), or a sale, transfer of
lease of all or a substantial portion of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this
paragraph (d).
(e) Mandatory Conversation. In the event that the
Corporation exercises the Option granted to it pursuant to
that certain Option Agreement, dated as of June 30, 1997, by
and between the Corporation and Nunzio P. DeSantis (the
"Option Agreement"), each share of the Series A Preferred
shall be converted into the number of shares of Common Stock
determined in accordance with the provisions of Article
I(a)(iii) of the Option Agreement.
(f) No Dilution or Impairment. The Corporation shall
not amend its Certificate of Incorporation or participate in
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue, or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to
avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will
at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order
to protect the rights of the holders of the Series A Preferred
against dilution or impairment (for which adjustment is not
otherwise provided herein).
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IN WITNESS WHEREOF, Las Vegas Entertainment Network, Inc. has caused this
Certificate to be signed by Joseph A. Corazzi, its President, and Jehu
Hand, its Assistant Secretary, this 15th day of January, 1998.
Las Vegas Entertainment Network,
Inc., a Delaware corporation
By: /s/Joseph A. Corazzi
Joseph A. Corazzi,
President
ATTEST:
/S/ Jehu Hand
Jehu Hand, Assistant
Secretary
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Schedule "B"
Upon mandatory conversion as provided in the Certificate of Designation, Voting
Powers, Preferences and Rights of the Series
A Preferred, (i) the entire issue of Series A Preferred shall be
converted into that number of restricted shares of LVEN Common Stock equal to
(a) eighty percent (80%) of the amount stated as the "fair" or "market" value of
the Racetrack in a valuation report and/or fairness opinion commissioned by, and
acceptable to the Board of Directors of, LVEN, and to be prepared by Houlihan
Lokey & Associates (or another investment banking firm acceptable to Optionor if
such firm for any reason is unable to prepare such valuation report), divided by
(b) the average per share closing price of LVEN Common Stock over the twenty
(20) trading days preceding the giving of the Exercise Notice, and (ii) LVEN
shall pay to Optionor the sum of One Million Dollars ($1,000,000), and shall
undertake the payment to Optionor of an additional Three Million Six Hundred
Thousand Dollars ($3,600,000), payable monthly commencing in the month following
such conversion, without interest accrual, in thirty-six (36) equal installments
of One Hundred Thousand Dollars ($100,000) each.
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EXHIBIT 10.39
TRI-PARTY AGREEMENT
THIS TRI-PARTY AGREEMENT (this "Agreement"), dated as of May 23, 1997,
by and among International Thoroughbred Breeders, Inc. a Delaware corporation
("ITB"), Las Vegas Entertainment Network, Inc., a Delaware corporation ("LVEN"),
and Credit Suisse First Boston Mortgage Capital LLC, a Delaware limited
liability company ("CSFB"), is made with reference to the following:
(a) that certain Loan Agreement, dated as of even date herewith, by and
among ITB, certain of ITB's subsidiaries (together with ITB, the "Borrowers"),
and CSFB (the "Loan Agreement"),
(b) that certain Subordination Agreement, dated as of even date
herewith, by and among LVEN, LVEN's wholly owned subsidiary, Casino-Co
Corporation ("Casino-Co"), LVEN's wholly owned subsidiary, Las Vegas
Communications Corporation, ITB, Orion Casino Corporation ("Orion"), and CSFB
(the "Subordination Agreement"),
(c) that certain Letter Agreement, dated as of January 22, 1996, by and
among LVEN, Countryland Properties, Inc., a Nevada corporation and a direct,
wholly-owned subsidiary of LVEN ("Countryland"), Casino-Co, ITB, and Orion (the
"Letter Agreement"), and
(d) that certain promissory note issued by ITB and Orion to the order
of LVEN's wholly owned subsidiary, Countryland Properties, Inc. ("Countryland")
in the original principal amount of $10,500,000 (the "B Note"), which B Note is
secured by a lien on certain real property of Orion known as the El Rancho Hotel
and Casino (the "El Rancho Property").
In order to induce ITB and CSFB to enter into the Loan Agreement and to
induce LVEN, ITB, Orion, and CSFB to enter into the Subordination Agreement,
LVEN (on its own behalf and on behalf of Casino-Co), ITB, and CSFB each have
agreed to set forth their agreement regarding (i) a transaction whereby the B
Note is converted into shares of common stock of ITB par value $2.00 per share
("ITB Stock"), and (ii) a transaction whereby ITB would acquire Casino-Co. The
parties' agreement is as follows:
1. LVEN represents and warrants to ITB and CSFB that Countryland previously
has assigned all of its right, title, and interest in and to the B Note to
Casino-Co.
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2. LVEN represents and warrants to ITB and CSFB that the outstanding
principal balance of the B Note currently is $10,500,000 and that there is
approximately $1,100,000 of accrued and unpaid interest in respect thereof.
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3. LVEN represents and warrants to ITB and CSFB that there currently
exists an unsecured, intercompany payable (the "Intercompany Payable") owing
from Casino-Co to LVEN in respect of the B Note in the approximate amount of
$11,600,000. In addition, the parties acknowledge that an additional
intercompany amount of $2,910,000, together with interest thereon, is owed by
Casino-Co to LVEN on account of funds loaned by Casino-Co to NPD, Inc. ("NPD"),
which amount, including the interest thereon, (i) does not constitute a part of
the Intercompany Payable and (ii) that prior to the consummation of the
Permitted Acquisition (as herein defined), (y) such amount (including interest)
will either be paid in full by NPD to Casino-Co, with the proceeds to be
distributed as a dividend to LVEN, or (z) the rights to receive such repayment
will be transferred and assigned to LVEN or another affiliate of LVEN.
4. Subject to receiving approval of their respective boards of
directors, each of ITB and LVEN agrees that, as soon as practicable following
the date of the execution and delivery of this Agreement, the B Note (and any
and all interest, penalties, or other amounts accrued and unpaid thereon) shall
be converted into shares of ITB Stock (the "Permitted Debt Conversion"). The
Permitted Debt Conversion shall be effected in whole and not in part. In order
to effect the Permitted Debt Conversion, ITB will be required to issue (A)
2,093,868 shares (the "Conversion Shares") of ITB Stock to Casino-Co in exchange
for the receipt of the B Note marked cancelled, and (B) 232,652 shares (the
"Lender Conversion Shares") of ITB Stock to CSFB in consideration of CSFB's
consent to the Permitted Debt Conversion. LVEN and CSFB agree that ITB shall not
be obligated to pay any other consideration to LVEN, Casino-Co or CSFB in
connection with the Permitted Debt Conversion and none of LVEN, Casino-Co or
CSFB shall have the right to demand or receive any such other consideration, and
ITB agrees with CSFB that it will not pay any additional consideration in
connection with the Permitted Debt Conversion. LVEN agrees to seek approval of
the Permitted Debt Conversion from its board of directors at its next scheduled
board of directors meeting following the date hereof and agrees promptly to
notify ITB and CSFB of its receipt (or disapproval, as applicable) of such
approval. ITB agrees to seek approval of the Permitted Debt Conversion from its
board of directors at its next scheduled board of directors meeting following
the date hereof and agrees promptly to notify ITB and CSFB of its receipt (or
disapproval, as applicable) of such approval. Upon delivery of notices from LVEN
and ITB indicating approval of their respective boards of directors of the
Permitted Debt Conversion, ITB and LVEN agree that the Permitted Debt Conversion
transaction shall be consummated within a period of not more than 10 days.
Within 30 days of this Agreement, LVEN and ITB agree to enter into a
registration rights agreement respecting the Conversion Shares and the
Acquisition Shares (as herein defined) and providing for 2 demand rights,
unlimited piggyback rights, and other customary provisions.
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5. When the Permitted Debt Conversion is consummated, the parties agree
that the deed of trust lien in favor of Casino-Co with respect to the El Rancho
Property shall be released.
6. When the Permitted Debt Conversion is consummated, LVEN agrees
simultaneously to cause Casino-Co to distribute the Conversion Shares to LVEN as
repayment in full of the Intercompany Payable and any and all interest accrued
and unpaid thereon.
7. At the time of the consummation of the Permitted Debt Conversion,
and as a condition precedent to its effectiveness, LVEN agrees to execute and
deliver an irrevocable proxy respecting the Conversion Shares in favor of Mr.
Nunzio P. DeSantis ("Mr. DeSantis"), which proxy shall be irrevocable until the
earlier of (w) the date on which the loan (the "CSFB Loan") and all of the other
obligations of the Borrowers owing to CSFB under the Loan Agreement (and the
related loan documents) have been repaid in full, (x) the date on which LVEN
distributes the Conversion Shares to its shareholders generally, (y) the date on
which LVEN sells the Conversion Shares to or LVEN is acquired by, or merged with
or into, a person or entity that is not affiliated with LVEN or Mr. Joseph A.
Corazzi ("Mr. Corazzi"), and (z) the date on which Mr. DeSantis dies or becomes
mentally incompetent.
8. LVEN represents and warrants to ITB and CSFB that Casino-Co has no
assets or liabilities other than those set forth on Schedule A attached hereto.
9. Irrespective of whether the Permitted Debt Conversion is
consummated, but subject to receiving approval of their respective boards of
directors, each of ITB and LVEN agrees that, as soon as practicable following
the date of the execution and delivery of this letter agreement, ITB shall
acquire Casino-Co (the "Permitted Acquisition"). The Permitted Acquisition may
be accomplished by means of purchase of all of the stock of Casino-Co (the
"Casino-Co Stock"), or a merger of Casino-Co with and into ITB (or a subsidiary
of ITB).
10. As a condition precedent to the consummation of the Permitted
Acquisition, ITB, at its sole cost and expense, shall have received an opinion
from a nationally recognized investment banking firm reasonably satisfactory to
CSFB (it being expressly understood that such investment banking firm may, but
need not, be an affiliate of CSFB) respecting the fair market value of Casino-Co
(the "ITB Fairness Opinion Value") and opining that the proposed consideration
(as set forth in paragraph 15 below) is fair to the shareholders of ITB from a
financial point of view (the "ITB Fairness Opinion").
11. As a condition precedent to the consummation of the Permitted Acquisition,
LVEN, at its sole cost and expense, shall have received one or more
opinions from one
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or more investment banking firms satisfactory to LVEN respecting the
fair market value of Casino-Co (the highest value established by such opinions,
the "LVEN Fairness Opinion Value") and opining that the proposed consideration
(as set forth in paragraph 15 below) is fair to the shareholders of LVEN from a
financial point of view (the "LVEN Fairness Opinion").
12. As a condition precedent to the consummation of the Permitted
Acquisition, CSFB shall have been given reasonable access to the books and
records of Casino-Co in order to determine that Casino-Co has no assets or
liabilities other than those set forth on Schedule A attached hereto and the
same shall remain true up to the date of the consummation of the Permitted
Acquisition.
13. As a condition precedent to the consummation of the Permitted
Acquisition, ITB also shall have been given reasonable access to the books and
records of Casino-Co in order to determine that Casino-Co has no assets or
liabilities other than those set forth on Schedule A attached hereto and the
same shall remain true up to the date of the consummation of the Permitted
Acquisition.
14. LVEN agrees to cause Casino-Co to provide representatives of CSFB
and ITB, upon prior written request, with access during normal business hours,
to the books and records of Casino-Co for the purpose of conducting the audits
contemplated by paragraphs 12 and 13 above.
15. In order to effect the Permitted Acquisition, ITB will be required
to issue shares of ITB Stock (i) to LVEN in an amount equal to the result of (A)
90% times the greater of the ITB Fairness Opinion Value or the LVEN Fairness
Opinion Value, divided by (B) the average bid price for ITB Stock during the 20
trading days prior to the closing date (the "Acquisition Shares") in exchange
for 100% of the shares of Casino-Co Stock (or the consummation of a merger or
asset purchase transaction), and (ii) to CSFB in an amount equal to the result
of (A) 10% times the greater of the ITB Fairness Opinion Value or the LVEN
Fairness Opinion Value, divided by (B) the average bid price for ITB Stock
during the 20 trading days prior to the closing date (the "Lender Consideration
Shares") in consideration for Lender's consent to the Permitted Acquisition.
LVEN and CSFB agree that ITB shall not be obligated to pay any other
consideration to LVEN, Casino- Co, or CSFB in connection with the Permitted
Acquisition and none of LVEN, Casino-Co, or CSFB shall have the right to demand
or receive any such other consideration, and ITB agrees with CSFB that it will
not pay any additional consideration in connection with the Permitted
Acquisition. LVEN agrees to seek approval of the Permitted Acquisition from its
board of directors at its next scheduled board of directors meeting following
the date hereof and agrees promptly to notify ITB and CSFB of its receipt (or
disapproval, as applicable) of such approval. ITB agrees to seek approval of the
Permitted Acquisition from its board of directors at its next scheduled board of
directors meeting following the
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date hereof and agrees promptly to notify ITB and CSFB of its receipt
(or disapproval, as applicable) of such approval. Subject to reasonable
extensions for acts of force majeure, delays occasioned by commercial
complexities that could not reasonably have been foreseen, or delays caused by
compliance with legal or regulatory requirements, and subject to the prior
receipt of the approvals therefor from their respective boards of directors, ITB
and LVEN agree to close the Permitted Acquisition within 90 days of the date
hereof.
16. When the Permitted Acquisition is consummated, ITB agrees that it
shall promptly thereafter cause Casino-Co to release all liens, if any, in favor
of Casino-Co with respect to the El Rancho Property.
17. If the Permitted Conversion is not consummated, but the Permitted
Acquisition is consummated, LVEN agrees that the delivery to it by ITB of the
Acquisition Shares also shall effect repayment in full of the Intercompany
Payable and any and all interest accrued and unpaid thereon.
18. At the time of the consummating of the Permitted Acquisition, and
as a condition precedent to its effectiveness, LVEN agrees to execute and
deliver an irrevocable proxy respecting the Acquisition Shares in favor of Mr.
DeSantis, which proxy shall be irrevocable until the earlier of (w) the date on
which the CSFB Loan and all of the other obligations of the Borrowers owing to
CSFB under the Loan Agreement (and the related loan documents) have been repaid
in full, (x) the date on which LVEN distributes the Acquisition Shares to its
shareholders generally, (y) the date on which LVEN sells the Acquisition Shares
to, or LVEN is acquired by, or merged with or into, a person or entity that is
not affiliated with LVEN or Mr. Corazzi, and (z) the date on which Mr.
DeSantis dies or becomes mentally incompetent.
19. Anything contained in the Loan Agreement (the related loan
documents) or the Subordination Agreement to the contrary notwithstanding, CSFB
agrees that ITB and LVEN can consummate the Permitted Conversion and/or the
Permitted Acquisition so long as they are consummated on the terms and
conditions set forth herein and further agrees that LVEN shall constitute a
"Permitted Holder" under the Loan Agreement; provided, however, anything
contained in this Agreement (including the last sentence of paragraph 15
hereof), the Loan Agreement, or the other loan documents to the contrary
notwithstanding, the failure to consummate both the Permitted Conversion and the
Permitted Acquisition on the terms hereunder within 90 days following the date
hereof, for whatever reason, shall constitute an "Event of Default" under the
Loan Agreement.
20. Anything contained in this Agreement to the contrary
notwithstanding, LVEN and ITB agree amongst themselves that LVEN and ITB shall
not be obligated to complete the Permitted Acquisition if LVEN has repaid the
CSFB Loan (on behalf of ITB and in accordance with the provisions of the Loan
Agreement) in accordance with a separate Bi-
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Lateral Agreement, of even date herewith, between LVEN and ITB. The
foregoing is merely to reflect an agreement between LVEN and ITB and is not
intended to create any rights in favor of, or obligations on the part of, CSFB.
21. The parties hereto agree to execute and deliver such other
documents and to take such actions (including actions in connection with any
required regulatory approvals and actions to consummate the Acquisition on a tax
free basis) as reasonably may be required to carry out the purposes and intent
of this letter agreement.
22. If any legal action or proceeding is brought by any party hereto to
enforce or construe a provision of this Agreement, the unsuccessful party in
such action or proceeding, irrespective of whether such actin or proceeding is
settled or prosecuted to final judgment, shall pay all of the reasonable
attorneys fees and costs incurred by the prevailing party.
23. No amendment, modification, supplement, termination, consent, or
waiver of or to any provision of this Agreement nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by or on behalf of each of the parties hereto.
24. This Agreement is intended by the parties as a final expression of
their agreement and is intended as a complete and integrated statement of the
terms and conditions of their agreement.
25. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, admissible into evidence, and all of
which together shall be deemed to be a single instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be as effective as
delivery of a manually executed counterpart. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver a manually
executed counterpart of this Agreement, but the failure to deliver a manually
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
CREDIT SUISSE FIRST
BOSTON
MORTGAGE CAPITAL LLC
By: /s/Lance J. Graber
Title: Vice President
LAS VEGAS
ENTERTAINMENT
NETWORK, INC.
By: /s/JOSEPH A. CORAZZI
Title: President
INTERNATIONAL
THOROUGHBRED
BREEDERS, INC.
By: /s/Nunzio DeSantis
Title: Chief Executive Officer
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EXHIBIT 10.40
BI-LATERAL AGREEMENT
THIS BI-LATERAL AGREEMENT (this "Agreement"), dated as of May 23, 1997,
by and between International Thoroughbred Breeders, Inc. a Delaware corporation
("ITB"), and Las Vegas Entertainment Network, Inc., a Delaware corporation
("LVEN") with reference to the following:
(a) that certain Loan Agreement, dated as of even date herewith, by and
among ITB, certain of ITB's subsidiaries (together with ITB, the "Borrowers"),
and Credit Suisse First Boston Mortgage Capital LLC ("CSFB") (the "Loan
Agreement"),
(b) that certain Tri-Party Agreement, dated as of even date herewith,
by and among LVEN, ITB, and CSFB (the "Tri-Party Agreement"), and
In order to induce ITB and LVEN to enter into the Tri-Party Agreement,
ITB and LVEN each have agreed to set forth their further agreement as follows:
1. In the event that the Permitted Acquisition (as that term is defined
in the Tri-Party Agreement) is not consummated for any reason the respective
rights and obligations of LVEN, Casino- Co Corporation ("Casino-Co"), ITB, and
Orion Casino Corporation ("Orion") with respect to the profit participation
payable to Casino-Co pursuant to Section 2(c) of that certain Letter Agreement
dated as of January 22, 1996, by and among such parties (the "Letter Agreement")
are hereby confirmed and/or clarified, and restated as follows:
For purposes of computing the Adjusted Cash Flow (as that term is
defined in the Letter Agreement) amounts of which Casino-Co initially will
receive a fifty percent (50%) interest, and thereafter will receive a
twenty-five percent (25%) interest, subject to the other terms and conditions of
the Letter Agreement, (i) the term Adjusted Cash Flow shall mean and refer to
adjusted cash flow from the operation of the Property (as that term is defined
in the Letter Agreement), before any provision for federal or state income
taxes, depreciation and/or amortization, and (ii) without the consent of
Casino-Co, the amount of debt service to be netted against cash flow from
operations of the Property in computing Adjusted Cash Flow shall be limited to a
maximum of $65 Million. At the time of the closing of the $55 Million loan by
CSFB under the Loan Agreement (the "CSFB Loan") the amount of debt service to be
netted against cash flow from operations in computing Adjusted Cash Flow shall
be $27 Million. The parties agree that, as of the date hereof, the amount which
Orion is entitled to recoup pursuant to clause (i) of the third sentence of
Section 2(c) of the Letter Agreement is $35 Million.
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2. ITB agrees that the CSFB Loan has been arranged by Casino-Co as the
"Alternative Financing" contemplated by, pursuant to, and in satisfaction of,
the provisions of Section 2(b)(z) of the Letter Agreement; provided, however,
that LVEN (for itself and on behalf of Casino-Co) acknowledges and agrees that
no fee or commission is payable to anyone in connection therewith.
3. If, within 90 days of the date hereof, ITB has not received the
proceeds of a construction loan of $50 Million, or more, respecting the El
Rancho Property, or has not otherwise arranged alternative financing for the
opening of the hotel and casino at the El Rancho Property, and if and only if
the Permitted Conversion and Permitted Acquisition have not occurred, then LVEN
shall have the right, for a period of 180 days, to make a $30 Million loan to
Orion the proceeds of which would be used to repay a portion of the CSFB Loan.
If it were to make such a $30 Million loan to Orion, the loan would mature on
the date that the CSFB Loan is scheduled to mature and would bear interest at
the rate applicable to the CSFB Loan. ITB agrees with LVEN (for their own
benefit and not for the benefit of CSFB) that, in such circumstances, ITB would
be obligated to prepay the balance of the indebtedness owed to CSFB with respect
to the CSFB Loan (including principal, interest, premium, exit fees, fees,
costs, and expenses). Any financing arranged by ITB for the prepayment of the
CSFB Loan would be entitled to obtain a first lien on ITB's subsidiary's Garden
State Race Track and a second lien (junior to the lien of Mr. Ken Fischer) on
ITB's subsidiary's Freehold Race Track and a second lien (junior to the $30
Million loan made by LVEN) with respect to the El Rancho Property. If LVEN makes
the $30 Million loan to Orion and ITB prepays the balance of the CSFB Loan, the
$30 Million loan by LVEN to Orion would be secured by a first priority lien on
the El Rancho Property, and LVEN would thereafter have the right to oversee the
development of the El Rancho Property (without any change in ownership or
economics).
4. If LVEN is unsatisfied with the fair market value of Casino-Co as
established by the greater of the ITB Value or the LVEN Value, LVEN shall have
the right, within 180 days of the date hereof, to make a loan to ITB in an
amount sufficient to repay in full the CSFB Loan and the proceeds of which would
be used to repay the CSFB Loan in full. If it were to make such a loan to ITB,
the loan would mature on the date that the CSFB Loan is scheduled to mature and
would bear interest at the rate applicable to the CSFB Loan. ITB agrees with
LVEN (for their own benefit and not for the benefit of CSFB) that, in such
circumstances, ITB would be obligated to use such loan proceeds to prepay all of
the indebtedness owed to CSFB with respect to the CSFB Loan (including
principal, interest, premium, exit fees, fees, costs, and expenses). Any such
loan made by LVEN to ITB would be entitled to obtain a first lien on ITB's
subsidiary's Garden State Race Track, a second lien (junior to the lien of Mr.
Ken Fischer) on ITB's subsidiary's Freehold Race Track, and a first lien
(assuming the Conversion has occurred) with respect to the El Rancho Property.
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5. As a result of changes in the development plans for the El Rancho
Property, and as a material inducement to LVEN to enter into this Agreement and
the Subordination Agreement, LVEN and ITB have agreed to cause their
subsidiaries to amend and restate the Entertainment Management Agreement (as
defined in the Letter Agreement) to reflect the scope and nature of such
changes, it being the intention of such parties to effect, upon commercially
reasonable terms and conditions, the leasing by Orion to LVCC of space within
the El Rancho Property of space on or from which all food, beverage and retail
activities will be conducted (exclusive of certain mezzanine space, the rights
to which will be retained by Orion. LVEN and ITB hereby agree to cause their
subsidiaries to embody such modifications in definitive documentation at the
earliest practicable time.
6. If any legal action or proceeding is brought by any party hereto to
enforce or construe a provision of this Agreement, the unsuccessful party in
such action or proceeding, irrespective of whether such actin or proceeding is
settled or prosecuted to final judgment, shall pay all of the reasonable
attorneys fees and costs incurred by the prevailing party.
7. No amendment, modification, supplement, termination, consent, or
waiver of or to any provision of this Agreement nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by or on behalf of each of the parties hereto.
8. This Agreement is intended by the parties as a final expression of
their agreement and is intended as a complete and integrated statement of the
terms and conditions of their agreement.
9. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, admissible into evidence, and all of
which together shall be deemed to be a single instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be as effective as
delivery of a manually executed counterpart. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver a manually
executed counterpart of this Agreement, but the failure to deliver a manually
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
LAS VEGAS
ENTERTAINMENT
NETWORK, INC.
By: /s/JOSEPH A. CORAZZI
Title: Chairman/CEO
INTERNATIONAL
THOROUGHBRED BREEDERS,
INC.
By: /s/Nunzio DeSantis
Title: CEO
<PAGE>
EXHIBIT 10.41
LAS VEGAS ENTERTAINMENT NETWORK, INC.
OPTION AGREEMENT
Dated December 11, 1996
LAS VEGAS ENTERTAINMENT NETWORK, INC., a Delaware corporation (the
"Company") hereby grants to Nunzio P. DeSantis ("Holder") an option (the
"Option") to purchase 1,500,000 shares of the Company's Common Stock (the
"Shares") at a purchase price and on the terms set forth herein.
1. Exercise.
(a) Purchase Price. This Option, or any portion hereof, is exercisable at a
purchase price of $1.00 per Share (the "Purchase Price").
(b) Time of Exercise. Subject to Section 2(c), this Option may
be exercised in whole or in part (but not as to a fractional shares) at the
office of the Company, at any time or from time to time, commencing on the date
first written above, provided, however, that this Option shall expire and be
null and void if not exercised in the manner herein provided, by 5:00 p.m.,
local time, on the ____________ anniversary hereof (the "Expiration Date").
(c) Manner of Exercise. This Option is exercisable at the
Purchase Price, payable, in cash or by check, to the order of the Company,
subject to adjustment as provided in Section 2 hereof. Upon surrender of this
Option, or a portion hereof, with the annexed Subscription Form duly executed,
together with payment of the Purchase Price for the Shares purchased (and any
applicable transfer taxes) at the Company's principal executive offices, the
Holder shall be entitled to receive a certificate or certificates for the Shares
so purchased.
(d) Delivery of Stock Certificates. As soon as practicable,
but not exceeding 30 days, after complete or partial exercise of this Option,
the Company, at its expense, shall cause to be issued in the name of the Holder
(or upon payment by the Holder of any applicable transfer taxes, the Holder's
assigns) a certificate or certificates for the number of fully paid and
non-assessable Shares to which the Holder shall be entitled upon such exercise,
together with such other stock or securities or property or combination thereof
to which the Holder shall be entitled upon such exercise, determined in
accordance with Section 2 hereof.
(e) Record Date of Issuance of Shares. Irrespective of the
date of issuance and delivery of certificates for any stock or securities
issuable upon the exercise of this Option, or any portion hereof, each person
(including a corporation or partnership) in whose name any such certificate is
to be issued shall for all purposes be deemed to have become the holder of
record of the stock or other securities represented thereby immediately prior to
the close of business on the date on which a duly executed Subscription Form
containing notice of exercise of this Option, or any portion hereof, and payment
of the Purchase Price is received by the Company.
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2. Adjustments.
(a) Adjustment for Subdivisions, Combinations or Dividends. In
case the Company shall, at any time or from time to time, subdivide or combine
the outstanding shares of Common Stock or declare a dividend payable in Common
Stock, the exercise price of this Option in effect immediately prior to the
subdivision, combination or record date for such dividend payable in Common
Stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in Common Stock,
and each share of Common Stock purchasable upon exercise of the Option shall be
changed to the number determined by dividing the then current exercise price by
the exercise price as adjusted after the subdivision, combination or dividend
payable in Common Stock.
(b) Adjustment for Certain Dividends and Distributions. In the
event the Company, at any time or from time to time, makes or fixes a record
date for the determination of holders of Common Stock, entitled to receive a
dividend or other distribution payable in securities of the Company, other than
shares of Common Stock, then and in each such event provisions shall be made so
that the Holder shall receive upon exercise of the Option, or any portion
hereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Company which the Holder would have
received had its Option, or any portion hereof, been exercised into Common Stock
on the date of such event and had it thereafter, during the period from the date
of such event to and including the date of exercise, retained such securities
receivable by it as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 2 with respect to
the rights of the Holder of the Option.
(c) Adjustment for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the exercise of the Option, or
any portion hereof, is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets, provided for
elsewhere in this Section 2), then and in any such event the, Holder shall have
the right thereafter, upon exercise of the Option, or any portion hereof, to
receive the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change, in an
amount equal to the amount that the Holder would have been entitled to had the
Holder exercised the Option, or any portion hereof, immediately prior to such
recapitalization, reclassification or other change, but only to the extent the
Option, or any portion hereof, is actually exercised, all subject to further
adjustment as provided herein.
(d) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time there is a capital reorganization of
the Common Stock (other than a subdivision, combination, recapitalization,
reclassification or exchange of the Common Stock provided for elsewhere in this
Section 2) or merger or consolidation of the Company with or into another
corporation, or a sale of all or substantially all of the Company's properties
and assets to any other person then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the Holder shall
thereafter be entitled to receive, upon exercise of the Option, or any portion
hereof, (and only to the extent the Option is exercised), the number of shares
of stock or other securities or property of the Company, or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock, or other securities, deliverable upon the
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exercise of this Option, or any portion hereof, would otherwise have been
entitled on such capital reorganization, merger, consolidation, or sale.
3. Restriction on Transfer.
(a) The Holder, by its acceptance hereof, represents, warrants,
covenants and agrees that (i) the Holder has knowledge of the business and
affairs of the Company, and (ii) this Option and the Shares issuable upon the
exercise of this Option, or any portion hereof, are being acquired for
investment and not with a view to the distribution hereof, and that absent an
effective registration statement under the Securities Act of 1933 ("Act"),
covering the disposition of this Option, or any portion hereof, or the Shares
issued or issuable upon exercise of this Option, or any portion hereof, they
will not be sold, transferred, assigned, hypothecated or otherwise disposed of
without first providing the Company with an opinion of counsel (which may be
counsel for the Company) or other evidence, reasonably acceptable to the
Company, to the effect that such sale, transfer, assignment, hypothecation or
other disposal will be exempt from the registration and prospectus delivery
requirements of the Act. The Holder consents to the making of a notation in the
Company's records or giving to any transfer agent of the Option or the Shares an
order to implement such restriction on transferability.
This Option and the Shares issuable upon the exercise of this Option,
or any portion hereof, shall bear the following legend or a legend of similar
import, provided, however, that such legend shall be removed, or not placed upon
the Option or the certificate or other instrument representing the Shares, as
the case may be, if such legend is no longer necessary to assure compliance with
the Act:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTION 4(2) OF
THE ACT. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
(b) The Company agrees to register the Shares under the Act, at the
Company's cost and expense on a Form S-8 registration statement.
4. Payment of Taxes. All Shares issued upon the exercise of this
Option, or any portion hereof, shall be validly issued, fully paid and
non-assessable and the Company shall pay all taxes and other governmental
charges (other than income tax) that may be imposed in respect of the issue or
delivery thereof. The Company shall not be required, however, to pay any tax or
other charge imposed
<PAGE>
in connection with any transfer involved in the issue of any certificate for
Shares in any name other than that of the Holder surrendered in connection with
the purchase of such Shares, and in such case, the Company shall not be required
to issue or deliver any stock certificate until such tax or other charge has
been paid or it has been established to the Company's satisfaction that no tax
or other charge is due.
5. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Option, or any
portion hereof, such number of shares of Common Stock as shall be issuable upon
the exercise hereof. The Company covenants and agrees that, upon exercise of
this Option, or any portion hereof, and payment of the Purchase Price thereof,
all shares of Common Stock issuable upon such exercise shall be duly and validly
issued, fully paid and non-assessable.
6. Notices to Holder. Nothing contained in this Option shall be
construed as conferring upon the Holder hereof the right to vote or to consent
or to receive notice as a shareholder in respect of any meetings of shareholders
for the election of directors or any other matter or as having any rights
whatsoever as a shareholder of the Company. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to have
been duly made when delivered or mailed by registered or certified mail, postage
prepaid, return receipt requested:
(a) If to the Holder, to the address of such Holder as shown on the books of
the Company; or
(b) If to the Company, to 1801 Century Park East, Suite 2300, Los Angeles,
California 90067.
7. Replacement of Option. Upon receipt of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of this Option and (in case of loss, theft or destruction) upon
delivery of an indemnity agreement in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of the
mutilated Option, the Company will execute and deliver, in lieu thereof, a new
Option of like tenor.
8. Successors. All the covenants, agreements, representations and warranties
contained in this Option shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
9. Change; Waiver. Neither this Option nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
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10. Headings. The section headings in this Option are inserted for purposes of
convenience only and shall have no substantive effect.
11. Law Governing. This Option shall for all purposes be construed and enforced
in accordance with, and governed by, the internal laws of the State of
Delaware, without giving effect to principles of conflict of laws.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officer and this Option to be dated as of the date first
above written.
LAS VEGAS ENTERTAINMENT NETWORK, INC.
By: /S/ Joseph A. Corazzi
President
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be Executed by the Holder
in order to Exercise the Option)
The undersigned hereby irrevocably elects to exercise the right to
purchase ________ of the Shares covered by this Option, according to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
Signature
Name
Address:
Dated: _________________, 19__.
<PAGE>
EXHIBIT 10.42
LAS VEGAS ENTERTAINMENT NETWORK, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
WITH
JOSEPH A. CORAZZI
This Nonqualified Stock Option Agreement (the "Agreement") is made and entered
into as of October 1, 1997 (the "Date of Grant"), between Las Vegas
Entertainment Network, Inc., a Delaware corporation (the "Company"), and
Joseph A. Corazzi (the "Optionee"), with reference to the following facts.
A. Optionee is an employee and director of the Company.
B. Prior to March 1, 1995, Optionee was granted options to
purchase (i) 130,000 shares of the Company's common stock (the "130,000 Share
Option") and (ii) 1,500,000 shares of the Company's common stock (the "1,500,000
Share Option").
C. On or about March 1, 1995 the Compensation Committee of the
Company's Board of Directors (the "Committee") approved the grant to Optionee of
an option to purchase 4,000,000 of the authorized but unissued shares of the
Company's common stock at an exercise price of $1.00 per share (the "1995
Option"). In connection with such grant, the 1,500,000 Share Option was canceled
and Optionee's right to acquire shares of the Company's common stock thereunder
was terminated.
D. On or about March 1, 1995, Optionee was granted an option
to purchase 4,000,000 of the authorized but unissued shares of common stock of
CountryLand Properties, Inc. ("CountryLand"), a Nevada corporation and a
wholly-owned subsidiary of the Company for an exercise price of $1.00 per share
(the "CountryLand Option"), which option was contingent upon the nonexercise of
the 1995 Option.
E. In connection with the liquidation of CountryLand, the
CountryLand Option was terminated and Optionee was granted an option to purchase
4,000,000 shares of the authorized but unissued shares of common stock of
Casino-Co., Inc. ("Casino-Co."), a Nevada corporation and a wholly-owned
subsidiary of the Company, at an exercise price of $1.00 per share (the
"Casino-Co. Option"), which option is contingent upon the nonexercise of the
1995 Option.
F. The exercise of the CountryLand Option and Casino-Co.
Option were contingent, respectively, on CountryLand and Casino-Co. issuing
additional shares of stock to the Company such that, immediately after each
issuance, the total outstanding shares of common stock of CountryLand and
Casino-Co., as the case may be, equaled the total outstanding shares of common
stock of the Company on March 1, 1995 (the effective date of the grant of the
CountryLand Option).
G. Casino-Co. and CountryLand did not issue any additional shares of common
stock and, accordingly, Optionee was not (and currently is not) entitled to
exercise the CountryLand Option or the Casino-Co. Option.
H. The Company has determined that it would be to the
advantage and interest of the Company and its shareholders to grant the option
provided for herein to Optionee as an inducement to remain in the service of the
Company and as an incentive for increased efforts during such service.
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I. In consideration for the grant of the option, Optionee and the Company, for
itself and on behalf of CountryLand and Casino-Co., have agreed to cancel
the Casino-Co. Option.
J. Concurrently with the execution of this Agreement, Optionee is entering
into an employment agreement with the Company (the "Employment Agreement").
In consideration of the foregoing recitals and the covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Option; Certain Terms and Conditions. The Company
hereby grants to Optionee, and Optionee hereby accepts, as of the Date of Grant,
subject to all of the terms and conditions set forth in this Agreement, an
option (the "Option") to purchase all or any part of an aggregate of 4,000,000
shares of the presently authorized but unissued shares of the Company's common
stock, subject to adjustment as set forth in Section 3 hereof (the "Option
Shares"), at an exercise price of One Dollar ($1.00) per share (the "Exercise
Price"), which option shall expire at 5:00 p.m., Los Angeles time, on September
30, 2002 (the "Expiration Date"), unless sooner terminated pursuant to Section 2
below. This Option is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). This Option may be exercisable, in whole or in part, at any time prior
to its termination.
2. Cessation of Employment. The period for exercising this Option will end on
the Expiration Date, subject, however, to the following provisions:
(a) Death, Disability or Termination for Good Reason. Notwithstanding anything
to the contrary in this Agreement, if Optionee's employment with the
Company shall terminate as a result of his death or the termination of the
Employment Agreement as a result of Executive's "Disability" or for "Good
Reason" (as those terms are defined in the Employment Agreement), then the
Option shall terminate on the earlier of the Expiration Date or the first
anniversary of the date of Optionee's death or the termination of his
Employment Agreement by reason of Disability or Good Reason, as applicable.
In the event of death or Disability, the Option may be exercisable by
Optionee's executor or administrator, or by the person or persons to whom
Optionee's rights under this Option shall have passed by will or by the
applicable laws of descent or distribution.
(b) Other Events Causing Termination of Employment. If Optionee ceases to be an
employee of the Company for "Cause" (as defined in the Employment
Agreement) or as a result of Optionee's election to terminate the
Employment Agreement for other than "Good Reason" (as defined in the
Employment Agreement), the Option shall terminate on the earlier of the
Expiration Date or ninety (90) days following the termination of the
Employment Agreement.
3. Adjustments. In the event that the Company's common stock
or any outstanding securities of the class then subject to the Option are
increased, decreased or exchanged for or converted into cash, property and/or a
different number or kind of securities, or cash, property and/or securities are
distributed in respect of such common stock or outstanding securities, in either
case as a result of a reorganization, merger, consolidation, recapitalization,
reclassification, dividend (other than a regular, periodic cash dividend) or
other distribution, stock split, reverse stock split or the like, or in the
event that substantially all of the property and assets of the Company are sold,
then the Committee shall make appropriate and proportionate adjustments in the
number and type of shares or other securities or cash or other property that may
thereafter be acquired upon the exercise of the Option in order to preserve, but
not increase, the benefit to Optionee; provided, however, that any such
adjustments in the Option shall be made without changing the aggregate Exercise
Price of the then unexercised portion of the Option.
er.
-er-
<PAGE>
4. Exercise.
(a) The Option shall be exercisable during Optionee's lifetime only by Optionee
or by his guardian or legal representative, and after Optionee's death or
Disability only by the person or persons designated in Section 2(a). The
Option may only be exercised by the delivery to the Company of a written
notice of such exercise (the "Exercise Notice"), which notice shall specify
the number of Option Shares to be purchased (the "Purchased Shares") and
the aggregate Exercise Price for such shares, together with payment in full
of such aggregate Exercise Price in cash or by check payable to the
Company; provided, however, that payment of such aggregate Exercise Price
may instead be made, in whole or in part, by one or more of the following
means:
(i) by the delivery to the Company of a recourse promissory note in a form and
amount satisfactory to the Committee, provided that the principal amount of
such note shall not exceed the excess of such aggregate Exercise Price over
the aggregate par value of the Purchased Shares; and provided further that
such promissory note shall (i) have a maturity date of not more than five
(5) years from the exercise date, (ii) accrue interest at the "prime rate"
published from time to time in The Wall Street Journal, (iii) provide for
interest payments on each anniversary date of the note, and (iv) require
principal payments either (A) in equal installments over the term of the
note, or (B) upon the note's maturity;
(ii) by the delivery to the Company of a certificate or certificates
representing shares of common stock, duly endorsed or accompanied by a duly
executed stock powers, which delivery effectively transfers to the Company
good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on
the basis of their aggregate fair market value, as reasonably determined by
the Committee, on the date of such exercise); and/or
(iii)by reducing the number of shares of common stock to be delivered to such
Optionee upon exercise of this Option (such reduction to be valued on the
basis of the aggregate fair market value of the additional shares of common
stock on the date of exercise that would otherwise have been delivered to
Optionee upon exercise of the Option, as determined by the Committee in its
reasonable discretion); provided, in each case, that the Company is not
then prohibited from purchasing or acquiring common stock.
(b) As soon as practicable after receipt of an Exercise Notice, the Company
shall, without transfer or issue tax or incidental expenses to Optionee,
deliver to Optionee at the office of the Company, or such other place as
may be mutually acceptable to the Company and Optionee, a certificate or
certificates for such Purchased Shares, which certificate or certificates
may bear such legend or legends with respect to restrictions on transfer
thereof as counsel for the Company deems to be required by applicable
provisions of law and this Agreement; provided, however, that nothing
herein shall be deemed to impose upon the Company any obligation to deliver
any Purchased Shares to Optionee if, in the opinion of counsel for the
Company, doing so would violate any provision of (i) federal or state
securities laws or regulations, including "Blue Sky" laws, (ii) any
applicable listing requirements of any national securities exchange; or
(iii) any other law or regulation applicable to the issuance or transfer of
such shares. In no event shall the Company be required to take any
affirmative action to comply with any of such laws, regulations or
requirements, nor shall the Company be liable for any failure to deliver
Purchased Shares because such Purchased Shares have not been registered or
because a registration statement with respect thereto is not current or
because such delivery would otherwise be in violation of any applicable law
or regulation.
The term "current" when used herein to refer to a registration
statement shall mean a registration statement that has been declared effective
by the Securities and Exchange Commission and, in
er.
-er-
<PAGE>
the opinion of counsel for the Company, does not include any untrue statement of
material fact and includes all material facts required to be stated therein or
that are necessary to make the statements therein not misleading.
(c) Each exercise of the Option shall be deemed to be a reaffirmation to the
Company by Optionee of all Optionee's representations, warranties and
undertakings under Section 6 hereof as if such representations, warranties
and undertakings are made on and as of the date of such exercise.
5. Cancellation of Other Options. As of the Effective Date,
Optionee acknowledges that the 1,500,000 Share Option, the 1995 Option, the
CountryLand Option and the Casino- Co. Option have been canceled and Optionee
has no rights thereunder to purchase the common stock of the Company,
CountryLand or Casino-Co., as applicable.
6. Optionee Representations and Undertakings. Optionee hereby represents,
warrants and undertakes as follows and affirms such representations,
warranties and undertakings as of the Date of Grant and as of the date
hereof:
(a) Optionee and his adviser, if any, have been furnished with and have
reviewed this Agreement and understand the risks of, and other
considerations relating to, Optionee's investment in the Company;
(b) Optionee acknowledges that the offering and sale of this Option and the
Purchased Shares by the Company are intended to be exempt from registration
under the Securities Act of 1933, as amended (the "Act") and any applicable
"Blue Sky" laws, and that the Purchased Shares cannot be sold, assigned,
pledged or otherwise disposed of unless they are subsequently registered or
qualified under the Act and any applicable "Blue Sky" laws and regulations,
or an exemption from such registration or qualification is available.
Optionee also understands that sales, transfers, pledges and other
dispositions of the Purchased Shares are further restricted by the
provisions of the federal and state securities laws;
(c) Optionee represents to the Company that (i) the Purchased Shares will be
acquired for his private personal investment for his own account with no
intention of distributing such Purchased Shares to others, (ii) Optionee
has no contract, undertaking, agreement or arrangement with any person to
sell, transfer or otherwise distribute for him any of the Purchased Shares
or any interest therein, and (iii) Optionee is presently not engaged, nor
does he plan to engage within the presently foreseeable future, in any
discussion with any person relative to such sale, transfer or other
distribution of any of the Purchased Shares or any interest therein;
(d) Optionee (i) either alone or together with his advisers, has such knowledge
and business or financial experience that Optionee is capable of evaluating
the merits of the prospective investment in the Company and making an
investment decision with respect to the Company, and (ii) is and will be
able to bear the economic risk to this investment;
(e) As the Chairman of the Company's Board of Directors and as its Chief
Executive Officer, Optionee is familiar with the Company and all material
matters pertaining to this investment; and
(f) Optionee is not relying on the Company for advice with respect to
individual tax considerations involved in this investment.
7. Payment of Taxes.
er.
-er-
<PAGE>
(a) If the Company becomes obligated to withhold an amount on account of any
tax imposed as a result of the exercise of the Option, including, without
limitation, any federal, state, local or other income tax, or any F.I.C.A.,
state disability insurance tax or other employment tax (the "Withholding
Liability"), then Optionee shall, on the date of exercise and as a
condition to the issuance of the Purchased Shares, pay the Withholding
Liability to the Company in cash or by check payable to the Company (the
first date upon which the Company is so obligated shall be referred to
herein as the "Withholding Date"). Optionee hereby consents to the Company
withholding the full amount of the Withholding Liability from any
compensation or other amounts otherwise payable to Optionee if Optionee
does not pay the Withholding Liability to the Company on the date of
exercise of the Option, and Optionee agrees that the withholding and
payment of any such amount by the Company to the relevant taxing authority
shall constitute full satisfaction of the Company's obligation to pay such
compensation or other amounts to Optionee. Notwithstanding the foregoing,
in the discretion of Optionee, the payment of such amount to the Company
may be made, in whole or in part:
(i) with shares of common stock delivered to the Company by Optionee on the
Withholding Date (such shares to be valued on the basis of their fair
market value on the Withholding Date, as reasonably determined by the
Committee), provided that the Company is not then prohibited from
purchasing or acquiring common stock, and/or
(ii) by reducing the number of shares of common stock to be delivered to such
Optionee upon exercise of this Option (such reduction to be valued on the
basis of the aggregate fair market value of the additional shares of common
stock on the date of exercise that would otherwise have been delivered to
Optionee upon exercise of the Option, as determined by the Committee in its
reasonable discretion), provided that the Company is not then prohibited
from purchasing or acquiring common stock;
provided, in each case, that Optionee shall have made such an election
to have shares of common stock delivered or withheld in accordance herewith at
least thirty (30) days prior to the date on which shares are to be delivered or
withheld.
(b) If any portion of the Withholding Liability remains unpaid as of the
Withholding Date, the Committee may, in its discretion, elect to treat any
portion or all of the unpaid amount as a recourse loan to the Optionee,
payable on such terms as the Committee may determine. Such loan shall be
evidenced by a recourse promissory note executed by Optionee in favor of
the Company, which shall permit Optionee to prepay the loan at anytime
without penalty.
8. Notices. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or within one day following mailing by
overnight courier, postage prepaid, return receipt requested, to the Company at
its principal executive office and marked "Attention: Chief Financial Officer,"
or to Optionee at the address set forth on the signature page to this Agreement.
Any party's address may be changed upon written notification to the other party
in the manner provided in this Section 8.
9. Nontransferability. Neither the Option nor any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution.
10. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same Agreement.
<PAGE>
11. Severability. In the event any one or more provisions of this Agreement is
declared judicially void or otherwise unenforceable, the remainder of this
Agreement shall survive and such provision(s) shall be deemed modified or
amended so as to fulfill the intent of the parties hereto.
12. Governing Law. This Agreement and the Option granted hereunder shall be
governed by and construed and enforced in accordance with the laws of the
State of California.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have duly
executed this Agreement as of the Date of Grant.
LAS VEGAS ENTERTAINMENT
NETWORK, INC.
By: _____________________________
Title: _____________________________
OPTIONEE
/s/Joseph A. Corazzi
----------------------------------
Street Address
----------------------------------
City, State and Zip Code
----------------------------------
EXHIBIT 10.43
FINANCIAL STATEMENTS
FORT ERIE RACETRACK
A Division of The Ontario Jockey Club
December 31, 1996
<PAGE>
AUDITORS' REPORT
To the Directors of
Las Vegas Entertainment Network
We have audited the balance sheet of Fort Erie Racetrack, a Division of The
Ontario Jockey Club, as at December 31, 1996 and the statements of loss and net
assets (liabilities) and cash flows for each of the years ended December 31,
1996 and 1995. These financial statements are the responsibility of The Ontario
Jockey Club's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Racetrack as at December 31, 1996 and
the results of its operations and the changes in its financial position for each
of the years ended December 31, 1996 and 1995 in accordance with accounting
principles generally accepted in Canada.
The Racetrack is a component of The Ontario Jockey Club and has no separate
legal status or existence. Transactions with other divisions of The Ontario
Jockey Club are described in note 5.
Toronto, Canada,
October 10, 1997. Chartered Accountants
Comments by Auditors for U.S. Readers
on Canada-U.S. Reporting Conflict
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph [following the opinion paragraph] when the financial
statements are affected by a going concern uncertainty such as that referred to
in the attached balance sheet as at December 31, 1996 and as described in note 1
to the financial statements. The opinion in our report to the directors of Las
Vegas Entertainment Network dated October 10, 1997 is expressed in accordance
with Canadian reporting standards which do not permit a reference to such an
uncertainty in the auditors' report when the uncertainty is adequately disclosed
in the financial statements.
Toronto, Canada,
October 10, 1997. Chartered Accountants
<PAGE>
NOTICE TO READER
We have compiled the statement of loss of Fort Erie Racetrack for the period
from January 1, 1997 to October 25, 1997 from information provided by
management. We have not audited, reviewed or otherwise attempted to verify the
accuracy or completeness of such information. Readers are cautioned that this
statement may not be appropriate for their purposes.
Toronto, Canada,
February 10, 1998. Chartered Accountants
<PAGE>
Fort Erie Racetrack
A Division of The Ontario Jockey Club - a corporation without share capital
incorporated under the laws of Ontario
BALANCE SHEET
[See method of presentation and going concern uncertainty - note 1]
[expressed in Canadian dollars]
As at December 31
1996
$
- -------------------------------------------------------------------------
ASSETS
Capital assets, net [note 3] 1
Cash 156,512
Accounts receivable 1,736
Prepaid expenses 59,543
Inventories 53,651
- ------------------------------------------------------------------------
271,443
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS (LIABILITIES)
Accounts payable and accrued charges 415,560
Net assets (liabilities) (144,117)
- ------------------------------------------------------------------------
271,443
- ------------------------------------------------------------------------
See accompanying notes
<PAGE>
Fort Erie Racetrack
A Division of The Ontario Jockey Club
STATEMENTS OF LOSS AND NET ASSETS (LIABILITIES) [See
method of presentation and going concern uncertainty - note 1]
[expressed in Canadian dollars]
<TABLE>
<CAPTION>
Period from
January 1, 1997
to Years ended
October 25, December 31,
-------------------
1997 1996 1995
$ $ $
- ------------------------------------------------------------------------------------------
[Unaudited - See
Notice to Reader]
<S> <C> <C> <C>
REVENUES
Gross pari-mutuel wagering
Live 18,167,624 21,321,885 24,387,018
Simulcast 10,251,612 15,652,356 23,933,916
- --------------------------------------------------------------------------------------------
28,419,236 36,974,241 48,320,934
- --------------------------------------------------------------------------------------------
Less
Amounts of winning wagers 21,966,854 27,893,670 36,418,144
Amounts paid to simulcast tracks 299,862 449,454 667,428
- --------------------------------------------------------------------------------------------
22,266,716 28,343,124 37,085,572
- --------------------------------------------------------------------------------------------
Net proceeds from OJC wagering 6,152,520 8,631,117 11,235,362
Commission on remote wagering 2,109,494 2,164,190 2,879,987
Food and beverage 1,199,307 1,359,575 1,553,023
Admissions, programs, parking, other 445,190 718,856 1,036,028
- --------------------------------------------------------------------------------------------
9,906,511 12,873,738 16,704,400
- --------------------------------------------------------------------------------------------
EXPENSES
Salaries, wages and benefits 4,298,655 5,284,759 5,564,878
Other operating expenses [note 5] 3,477,415 4,533,508 4,299,463
Property taxes 247,034 307,059 386,098
Depreciation -- 600,647 572,735
Interest [note 5] 200,000 300,000 195,000
Statutory, contractual distributions and other
Horsepeople
Earned on Fort Erie racing [note 7] 3,404,495 3,357,708 4,499,274
Purse supplement - paid by Prov of Ontario -- 887,382 1,159,703
Purse supplement - OJC purse account [note 8] 682,062 2,671,590 1,309,023
Fort Erie subsidy [note 6] -- -- (1,750,000)
Province of Ontario pari-mutuel tax,
net of purse supplement 142,096 1,627,684 2,416,047
Federal Government levy 227,354 295,794 386,567
Ontario Racing Commission funding 113,677 19,647 --
- --------------------------------------------------------------------------------------------
12,792,788 19,885,778 19,038,788
- --------------------------------------------------------------------------------------------
Loss before the undernoted (2,886,277) (7,012,040) (2,334,388)
Writedown of capital assets [note 3] -- 4,541,587 --
- --------------------------------------------------------------------------------------------
(2,886,277) (11,553,627) (2,334,388)
- ------------------------------------------- ---- ------------- -------------- ------------
Net cash remitted 6,714,931 1,810,722
Net assets, beginning of year 4,694,579 5,218,245
- ------------------------------------------- --- -------------- ------------
Net assets (liabilities), end of year (144,117) 4,694,579
- ------------------------------------------ --- -------------- ------------
</TABLE>
See accompanying notes
<PAGE>
Fort Erie Racetrack
A Division of The Ontario Jockey Club
STATEMENTS OF CASH FLOWS
[See method of presentation and going concern uncertainty - note 1]
[expressed in Canadian dollars]
Years ended December 31
1996 1995
$ $
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the year (11,553,627) (2,334,388)
Add (deduct) items not affecting cash
Depreciation 600,647 572,735
Writedown of capital assets 4,541,587 --
Changes in non-cash working capital
Accounts receivable 1,502 (3,174)
Prepaid expenses 4,114 (3,911)
Inventories 3,862 --
Accounts payable and accrued charges 41,460 101,230
- --------------------------------------------------------------------------------
Cash used in operating activities (6,360,455) (1,667,508)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures for the year (419,495) (148,651)
- --------------------------------------------------------------------------------
Cash used in investing activities (419,495) (148,651)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash advanced by OJC [note 1] 6,714,931 1,810,722
- --------------------------------------------------------------------------------
Cash provided by financing activities 6,714,931 1,810,722
- --------------------------------------------------------------------------------
Net decrease in cash during the year (65,019) (5,437)
Cash, beginning of year 221,531 226,968
- --------------------------------------------------------------------------------
Cash, end of year 156,512 221,531
- --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
- --------------------------------------------------------------------------------
Fort Erie Racetrack
- -------------------------------------------------------------------------------
A Division of The Ontario Jockey Club
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
December 31, 1996
1. BASIS OF PRESENTATION
Method of presentation
Fort Erie Racetrack [the "Racetrack"] is a Division of The Ontario Jockey Club
[the "OJC"], a corporation without share capital. The OJC operates as a
non-profit organization and thus is exempt from income taxes.
Effective August 27, 1997, the Racetrack was sold to 1241163 Ontario Inc.,
Nordic Gaming Inc., [the "Purchaser"] by the OJC pursuant to an Asset Purchase
Agreement [the "Agreement"] dated June 11, 1997. Under the terms and conditions
of the Agreement, the Purchaser purchased certain assets and assumed certain
liabilities [including the related pension assets and liabilities] of the
Racetrack for cash consideration of $10. These financial statements reflect only
those assets and liabilities which are being purchased according to the
Agreement, with the exception of the pension assets and liabilities [note 4].
All activities of the Racetrack have been funded to date by the OJC. In
addition, as the Racetrack is not a separate legal entity, there is no
shareholder's equity.
These financial statements have been prepared in connection with an 8-K filing
with the Securities and Exchange Commission.
Going concern uncertainty
The financial statements have been prepared in accordance with generally
accepted accounting principles in Canada on a going concern basis which presumes
the realization of assets and the discharge of liabilities at current carrying
values in the normal course of business for the foreseeable future.
As a result of losses for the years ended December 31, 1996 and 1995 of
$11,553,627 and $2,334,388, respectively, the Racetrack has been dependent on
continued funding from the OJC. The reason that these financial statements have
been prepared on a going concern basis is directly related to the fact that on
August 27, 1997, the Purchaser purchased certain assets and assumed certain
liabilities [including the related pension assets and liabilities] of the
Racetrack and plans to continue to operate the Racetrack for the foreseeable
future. The continued operation of the Racetrack is dependent on the financial
support of the Purchaser.
These financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that might be necessary should the
Racetrack be unable to continue as a going concern.
<PAGE>
2. ACCOUNTING POLICIES
The financial statements of the Racetrack have been prepared by management in
accordance with accounting principles generally accepted in Canada. As applied
to the Racetrack, there are no significant differences between accounting
principles generally accepted in Canada and those in the United States.
Significant accounting policies are summarized below:
Capital assets and depreciation
Capital assets are recorded at cost, less applicable government assistance, and
are depreciated over their estimated useful lives using the following rates of
depreciation applied on a straight-line basis:
Buildings 4%
Racetracks, roads, parking lots, etc. 5%
Machinery and equipment 10%-20%
Computers 20%
Pension costs and obligations
Pension costs relating to the Racetrack's defined benefit plans are actuarially
determined each year using the projected benefit method prorated on services and
management's best estimate assumptions. The difference between the actuarial
present value of accrued pension obligations and the market value of pension
plan assets as of January 1, 1996 is amortized on a straight-line basis over the
expected average remaining service lives of the respective employee groups.
Allocations and use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts of assets and liabilities and the reported
amounts of revenues and expenses during the period. Actual amounts could differ
from those estimates.
The OJC provides various administrative, insurance and financing services to the
Racetrack. For purposes of these financial statements, management of the OJC has
allocated administrative expenses based on an estimate of corporate salaries and
other expenses attributable to the operations of the Racetrack and has allocated
insurance expense based on a quotation received from its insurance broker in
1993, adjusted for subsequent price increases. In addition, the OJC
<PAGE>
has provided all the required financing in connection with the operation of the
Racetrack. There was no formal agreement with respect to the charging of
interest expense and management of the OJC has allocated interest expense to the
Racetrack based on the following:
the OJC allocated interest expense on its debt to the Racetrack based on
the five year average of the percentage of the cost of the Racetrack's
capital assets [before writedown] to the total cost of the capital assets
of the OJC; and
the OJC allocated interest expense on its debt to the Racetrack based on
the estimated borrowing requirements of the Racetrack to fund its operating
losses, using an interest rate of prime.
In the opinion of the management of the OJC, these methods of allocation are
reasonable. The allocation of the various administrative, insurance and
financing services amounts are not necessarily indicative of the amounts that
would have been incurred had the Racetrack operated as a stand alone entity.
3. CAPITAL ASSETS
During the year, the OJC approved a formal plan of disposition of the Racetrack.
Management assessed the carrying value of the Racetrack's capital assets and
determined that the net realizable value was less than its recorded cost as a
result of the impending sale of the Racetrack [note 1]. The writedown of the
capital assets totalled $4,541,587.
4. PENSION COSTS AND OBLIGATIONS
The OJC maintained contributory and non-contributory defined benefit pension
plans and contributory defined contribution pension plans for employees of the
OJC which included employees of the Racetrack. Approximately 80 employees [the
"transferees"] of the Racetrack were members of the OJC pension plans as at
December 31, 1996.
Under the terms of the Agreement, the OJC will transfer to the Racetrack's
pension plan the assets and liabilities related to the transferees once such
amounts have been determined by a qualified actuary. Until that time, the
estimated present value of the accrued pension benefits attributable to the
transferees' services and the estimated market value of the related pension fund
assets are still to be determined.
<PAGE>
5. RELATED PARTY TRANSACTIONS
Management of the OJC has estimated the costs of administrative, insurance and
financing services related to the operation of the Racetrack as follows:
1996 1995
$ $
- ------------------------------------------------------------
Administrative 250,000 350,000
Insurance 160,000 160,000
Interest 300,000 195,000
- ------------------------------------------------------------
710,000 705,000
- ------------------------------------------------------------
Most of the Trustees of the OJC own horses which participate in races conducted
by the OJC and share, to the extent of their success, in purse monies
distributed by the OJC.
6. FORT ERIE SUBSIDY
In 1995, the Racetrack received a subsidy of $1,750,000 from the Province of
Ontario. This subsidy had been provided annually to the Racetrack for the period
1993 to 1995.
7. CONTRIBUTION FROM HBPA
The Horsemen's Benevolent and Protective Association of Ontario [HBPA]
contributed $600,000 to the Racetrack during each of the years 1996 and 1995.
This contribution has been netted against "Earned on Fort Erie racing" in the
statements of loss and net assets (liabilities).
8. PURSE SUPPLEMENT - OJC PURSE ACCOUNT
The purses paid at the Racetrack were in excess of the purse expense earned on
Fort Erie racing at the Racetrack. As a result, the Racetrack's purse account
was subsidized by a transfer from the OJC's purse account of $2,671,590 [1995 -
$1,309,023]. This transfer has been accounted for as an expense and an offset to
"Net cash remitted from the OJC" in the statements of loss and net assets
(liabilities).
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000872588
<NAME> LAS VEGAS ENTERTAINMENT NETWORK INC.
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<CASH> 2,399,491
<SECURITIES> 1,087,890
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,487,381
<PP&E> 334,045
<DEPRECIATION> 192,509
<TOTAL-ASSETS> 9,770,922
<CURRENT-LIABILITIES> 1,865,129
<BONDS> 0
0
1,000
<COMMON> 34,895
<OTHER-SE> 47,445,080
<TOTAL-LIABILITY-AND-EQUITY> 9,770,922
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 6,620,831
<OTHER-EXPENSES> 385,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,508
<INCOME-PRETAX> (6,752,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,752,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,752,405)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
