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, 1998
[ ] 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
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1801 Century Park East, 23rd Floor
Los Angeles, California 90067
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(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-KB
or any amendment to this Form 10-KB. [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 $3,142,559 computed on the basis of the average bid and asked
prices of the Common Stock of $1.75 per share as reported by NASDAQ on January
31, 1999.
Number of common shares outstanding of the issuer's classes of Common Stock
as of January 31, 1999: 1,831,167
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
Item 1. BUSINESS
Development of Business
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 including real estate
redevelopment. 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 was opened and all invested
amounts had been recouped by ITB and the Company, which the Company
provided no assurance could be achieved, the Company was to 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 received 100% of the adjusted cash flow until all
invested amounts had 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, would have provided 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 were subject to certain restrictions. 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.
The plaintiffs sought, 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 sought to block the issuance to LVEN of additional shares of ITB
stock in exchange for LVEN's El Rancho Cash Flow Interest. This litigation
was settled and dismissed on January 29, 1999 commensurate with receipt of
the final approval of a compromise and settlement with all such parties
(see Item I, "Description of Current Business, Investment in ITB").
Upon the effectiveness of the Settlement as to LVEN, all prior
agreements between or among LVEN and ITB, including without limitation,
that certain Bi-Lateral Agreement, and that certain Tri-Party Agreement
pursuant to which ITB issued to LVEN 2,093,868 shares of ITB Common Stock,
were terminated and the Company returned all such shares to ITB for
cancellation. In return, the Company has the right to market and sell the
El Rancho Property and may retain such net cash proceeds from that sale
over and above $44.6 Million, if any, or it has the right to provide
financinig or a joint venture partner to redevelop the Property (see Item
I, "Description of Current Business, Investment in ITB").
The Company has also identified a major business opportunity to be
developed in Brazil, when if implemented, for which there can be no
assurance, will substantially alter the direction of the Company (See Item
I, "Description of Current Business, Development of Electronic Bingo
Machines Business in Brazil").
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Description of Current Business
Investment in ITB .
On January 22, 1996, the Company sold the assets and liabilities of the El
Rancho Hotel and Casino in Las Vegas, Nevada (the "El Rancho" or "the Property")
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) the assumption by ITB 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").
On May 22, 1997, the Company, ITB and Credit Suisse First Boston Mortgage
entered into a certain Bi- lateral agreement and a certain Tri-lateral agreement
whereby 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 the El Rancho Cash
Flow Interest. In order to effect such transaction, ITB was 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.
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 sought, 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 sought to block the issuance to LVEN of additional
shares of ITB stock in exchange for LVEN's El Rancho Cash Flow Interest. On
January 29, 1999, all such parties gave their final approval a Stipulation and
Agreement of Compromise (described below) and all such litigation has been
settled and dismissed
On July 2, 1998, the Company entered into a Stipulation and Agreement of
Compromise with all such parties. Pursuant to the Settlement Stipulation as
finally approved by the Delaware Court in October, 1998; (i) the Company was
granted the exclusive right to market and sell the El Rancho for a 120-day
period, which period expired on November 20, 1998; (ii) from November 20, 1998
until April 19, 1999, the Company has a right, coextensive with ITB, to market
and sell the El Rancho Property site, (iii) if the Company closes a sale of the
El Rancho prior to April 19, 1999, then the Company receives the proceeds of
such sale in excess of $44.2 million; (iv) in order to exercise its coextensive
rights, ITB must close a sale of the El Rancho prior to April 19, 1999 for at
least $56.2, out of which amount approximately $10 million would be paid to the
Company, (v) if, on or before April 17, 1999, the Company consummates a
refinancing of the El Rancho that results in loan proceeds of at least $44.2
million, then the Company may continue to market the El Rancho for an additional
period that is 50% of the period of the refinancing loan. In exchange for the
foregoing rights, the Company is obligated to; (i) release all claims against
the parties to the litigation, CSFB and the certain law firms; (ii) return to
ITB for cancellation the 2,093, 868 shares of ITB common stock that were
previously issued to Casino-Co Corporation, a subsidiary of the Company, in
consideration for the prior cancellation of a $10.5 million promissory note from
ITB to the Company; (iii) release any interest in certain shares of ITB stock
held by NPD, Inc. which shares are to be repurchased by ITB; (iv) pay 50% of the
carrying cost on the El Rancho during a portion of the period for which the
Company has the right to market and sell the El Rancho (presently estimated to
be $50,000 per month); and (v) consent to the cancellation of all contracts
between ITB and the Company, including those involving future
profit-participation rights in the El Rancho as well as the Company's
entertainment management contract for the El Rancho Property Site. All parties
agreed to the terms of this settlement agreement on January 29, 1999.
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Upon the effectiveness of the Settlement as to LVEN, all prior agreements
between or among LVEN and ITB, including without limitation, that certain
Bi-Lateral Agreement, and that certain Tri-Party Agreement pursuant to which ITB
issued to LVEN 2,093,868 shares of ITB Common Stock, were terminated and the
Company returned all such shares to ITB for cancellation.
Pursuant to the Company's rights under the settlement, the Company has
developed three alternatives of which there can be no assurance any can be
achieved. The first alternative is to repurchase and resell the Property. The
remaining two alternatives are redevelopments under which the Company would
receive a similar participation as described in the initial ITB transaction.
Each redevelopment plan requires the potential partners to finance either the
construction and redevelopment of additional rooms and gaming and entertainment
attractions and/or the remodeling of the existing facilities which consist of
approximately 20 acres, 100 hotel rooms, a 52-lane bowling alley, a parking
structure for 600 cars and approximately 100,000 square feet of gaming and
retail space. The Company expects to finalize a partnership plan or an outright
sale of the Property by the end of the second fiscal quarter, however no
assurance can be made that such plan or outright sale can be made.
Development of Electronic Bingo Machine Business in Brazil
On May 25, 1998, the Company's Casino-Co subsidiary entered into an
agreement with MG Entertainment, a Brazilian Company ("MG"), to provide Bingo
Machines to MG. The opportunity to provide bingo machines to Brazil was created
when the Brazilian government legalized their use in limited quantities for
existing bingo halls. MG is currently operating bingo halls and therefore
qualifies for the deployment of machines under this law. MG is located in Porta
Alagre, Brazil and has planned developments for multiple locations in which they
will commence deployment of the machines.
Under terms of the agreement, Casino-Co will sell and deliver to MG 10,000
electronic bingo machines to be delivered at approximately 1,000 machines per
month over a twelve month period. The schedule and number of machines may vary
according to development and successful implementation of the plan. The
agreement provides that the Company will be the exclusive provider to MG of the
machines, or any other gaming machines, through 2008. The total expected cash
payment for each machine will be $141,317 which shall be made by MG in 120
monthly installments as follows; four consecutive monthly installments of $1,307
starting 30 days after each machine is delivered, and thereafter, 116 monthly
installments as follows; 25 monthly installments of $932, then 25 monthly
installments of $1,065; and the remainder in monthly installments $1,331. For
financial statement purposes, if the contract and business plan goes forward,
the Company will reflect a sales price of approximately $81,000 for each machine
(based upon an imputed interest rate of 10%) with $64,317 to be reflected as
interest income over the life of the contract.
The Company does not have a formal agreement for the purchase and financing
of the Bingo machines, but has entered into discussions with several companies
for the purchase of up to 10,000 of these machines. The Company anticipates that
the cost to the Company for each machine will approximate $12,000, which cost
may vary depending on the style and accessories provided. The Company is
currently seeking financing for the purchase of these machines and is
currently negotiating the final terms of such a financing arrangement. Under
the terms of one agreement, the potential lender has committed on a firm
basis to the financing of a minimum of 3,600 machines over a twelve month
period to be financed in traunches of a minimum of 300 units, dependent upon
the receipt of all necessary credit insurance. Under the potential agreement,
the Company will receive net proceeds of $2,500 per machine after all costs (in
traunches of 300 machines). If the Company completes this financing, which
there can be no assurance, the lender would receive a 10% interest in Casino-Co.
However the Company can give no assurance that any funding will ultimately be
obtained, that the Company can ultimately enter into an acquisition agreement
for the machines, that the machines will ultimately be installed, or that any
revenue will be received from MG.
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Nordic Gaming (Fort Erie Racing Operations)
During 1997, the Company was granted an option to acquire from Mr. Nunzio
P. DeSantis, formerly the Chairman of the Board of ITB, his eighty percent (80%)
of the voting equity of Nordic Gaming Corporation, a Canadian corporation
("Nordic"). The remaining 20% of Nordic was 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 offers live, as
well as simulcast, thoroughbred horse racing. Additionally, the racetrack was
notified by the Ontario Lottery Corporation that it was 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 were to be received,
the racetrack and the Provincial Government of Ontario, Canada had 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.
In consideration for receiving the option, which expired 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 entitled 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 expended $134,548 for financing and legal costs in connection with the
proposed acquisition.
The Company advanced $1,300,000 to Nordic pursuant to a Line of Credit
Agreement dated as of August 27, 1997. Such advances, which were due and payable
on August 27, 1998, were to bear interest at a rate of 10% per annum, and were
secured by a first mortgage lien on and a security interest in the real and
personal property assets comprising the Fort Erie Racetrack. On August 27, 1998
the Company assigned its debt, mortgage and all other security in the Fort Erie
Racetrack to an Ontario, Canada Limited Corporation. The Company also waived its
option to acquire the 80% interest in Nordic Gaming. The consideration for the
assignment and waiver was $1,025,000 in cash and the assumption of $100,000 of
debt. The Company has reflected a charge of $168,000 on the assignment of this
debt during the year ended October 31, 1998. Concurrent with the assignment of
the debt, and the waiver by the Company to acquire the 80% interest in Nordic
Gaming, the Company canceled the 1,000,000 shares of Series A Preferred Stock
issued to Mr. DeSantis.
Electronic Media Delivery
The Company formed a subsidiary, Electric Media Company Inc. ("EMC"), to
develop 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, formerly Chairman of the Board of ITB.
In prior years, EMC entered into agreements for the development of this
technology with two joint venture partners/developers. The first agreement
called for the development of video, voice and data communication over existing
power lines. This project has been abandoned by the Company. The second
agreement called for the development of a communications network in Guatemala
and Central America for the provision of telephone, video, voice and/or data
communications. In accordance with the joint venture agreement, if EMC proceeds,
the Company was to 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. As of October 31, 1998, all operational contracts have now been voided,
and this project has been put on hold by the Company, pending final development
of the Company's other gaming projects.
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For the years ended October 31, 1998 and 1997, the company expended
$503,000 and $1,031,000, respectively in developing this technology. Such
amounts have been reflected in the accompanying financial statements as research
and development costs,.
Live Entertainment Management
As part of the sale of the El Rancho Property to ITB in 1996, the Company
obtained a contract to manage all aspects of the entertainment activities at the
proposed "CountryLand" Hotel and Casino. Concurrent with the ITB settlement and
stipulation agreement entered into on July 2, 1998, this agreement has been
canceled.
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 has entered into an investment banking agreement to raise additional
working capital for its wholly-owned Casino-Co subsidiary and its Brazilian
gaming machine project. Pursuant to a proposed offering, the Company may
distribute shares of Casino-Co to current shareholders. 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 and Licensing
The ownership and operation of casino gaming facilities are subject to the
laws of each local territory, state or Country 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, provinces and Countries in connection with their
inquiry into the financing, business transactions and financial reporting.
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 Item I, "Description of Current Business,
Investment in ITB"). 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. As a
result of this, the Company was assessed a $40,000 penalty by the New Jersey
Gaming Commission which is payable by the Company by March 1, 1999.
The Company, or its subsidiaries, may 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.
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Employees
The Company currently has 2 officers and 2 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. Additional personnel may be hired as needed, or on a project by
project basis. None of the Company's current employees are represented by
unions, and the Company believes that its employee relations are good.
Year 2000 Disclosure
The Company has developed a plan to ensure its systems are compliant with
the requirements to process transactions in the year 2000. The majority of the
Company's internal information systems have been upgraded or are in the process
of being upgraded or replaced with fully compliant new systems. The total cost
of the software and implementation will be insignificant and is expected to be
completed by July 31, 1999. The Company is in the process of making the
necessary updates to this equipment to ensure it will be effective in the year
2000. The Company is also working with its processing banks and network
providers to ensure their systems are year 2000 compliant. All of these costs
will be or have been borne by the processors and network companies. Should the
Company, its vendors or the processing banks fail to resolve year 2000 issues,
the Company may lose certain financial and operating data. The Company is in the
process of developing a contingency plan, which it expects to be completed by
October 31, 1999.
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 2,000 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 $2,500 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 President, Joseph A.
Corazzi, as defendants. 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
Zappala, Joseph A. Corazzi and Las Vegas Entertainment Network, Inc. and
International Thoroughbred Breeders, Inc., C.A. No. 15919-NC, ("Quigley") was a
derivative suit brought by two former directors of International Thoroughbred
Breeders, Inc. ("ITB") and an investment trust which alleged, among other
things, that certain ITB directors beached their fiduciary duties to ITB. The
Quigley complaint sought (i) a declaratory judgment that (a) the shares of ITB's
common stock held by a company named NPD, Inc. could not be voted at any
stockholders' meeting; (b) all actions taken by the current board of ITB were
null and void; and c) certain purported "super-majority" voting provisions in
ITB's by-laws remained 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 involved the Company.
Specifically, with respect to the Company, the Quigley Complaint sought to
(i) rescind the issuance of 2,093,868 shares of ITB stock to the Company, (ii)
invalidate certain contingent profit participation rights that existed in favor
of the Company relative to the El Rancho Hotel and Casino project (the "El
Rancho"), and (ii) rescind certain agreements entered into between or among the
Company, ITB and/or Credit Suisse First Boston Mortgage Capital LLC ("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. Thereafter, the parties engaged in limited discovery in
the Quigley action. While the Company believed it had meritorious defenses to
this action and had been
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vigorously defending itself, the Company entered into an out-of-court
settlement as discussed below involving all of the parties to the Quigley
action, and on January 29, 1999 all such claims were dismissed.
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) was a derivative suit which
repeated the allegations in the Quigley Complaint verbatim and sought the
identical relief. The Company entered into an out-of-court settlement in the
Rekulak action, and on January 29, 1999 all such claims were dismissed.
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
has also entered into an out-of-court settlement on this matter as discussed
below, and on January 29, 1999 all such claims were dismissed.
On July 2, 1998, Las Vegas Entertainment Network, Inc., certain of its
subsidiaries, CountryLand Properties, Inc., Casino-Co Corporation, and LVCC and
the Company's Chairman and CEO, entered into a Stipulation and Agreement of
Compromise, Settlement and Release (the "Stipulation and Agreement") by and
among the Company and such affiliates, on the one hand, and Frank A. Leo, Robert
J. Quigley, Francis W. Murray, Charles R. Dees, Jr., The Family Investment Trust
(Henry Brennan, Trustee), NPD, Inc. ("NPD"), Nunzio P. DeSantis, Anthony Coelho,
Michael Abraham, Joseph Zappala, Joseph A. Corazzi, Kenneth S. Scholl,
International Thoroughbred Breeders, Inc. ("ITB"), D&C Gaming Corporation, James
J. Murray, John Mariucci, Frank Koenemund, Robert W. Green, Robert E. Brennan
and Orion Casino Corporation, on the other hand, to resolve the pending
stockholder derivative litigation brought in the name of ITB in the Delaware
Court of Chancery. The effectiveness of the settlement described in the
Stipulation and Agreement (the "Settlement"), as it relates to the Company and
its affiliates, was subject, among other things, to Delaware Chancery Court
approval of all of the terms and conditions of the Settlement following notice
to ITB's stockholders, the consent of ITB's primary lender (the "ITB Lender
Approval), and LVEN's approval of the terms and conditions of the ITB Lender
Approval.
Pursuant to the Settlement Stipulation as finally approved by the Delaware
Court in October, 1998; (i) the Company was granted the exclusive right to
market and sell the El Rancho for a 120-day period, which period expired on
November 20, 1998; (ii) from November 20, 1998 until April 19, 1999, the Company
has a right, coextensive with ITB, to market and sell the El Rancho Property
site, iii) if the Company closes a sale of the El Rancho prior to April 19,
1999, then the Company receives the proceeds of such sale in excess of $44.2
million; (iv) in order to exercise its coextensive rights, ITB must close a sale
of the El Rancho prior to April 19, 1999 for at least $56.2, out of which amount
approximately $10 million would be paid to the Company, (v) if, on or before
April 17, 1999, the Company consummates a refinancing of the El Rancho that
results in loan proceeds of at least $44.2 Million, then the Company may
continue to market the El Rancho for an additional period that is 50% of the
period of the refinancing loan. In exchange for the foregoing rights, the
Company is obligated to; (i) release all claims against the parties to the
litigation, CSFB and the certain law firms; (ii) return to ITB for cancellation
the 2,093, 868 shares of ITB common stock that were previously issued to
Casino-Co Corporation, a subsidiary of the Company, in consideration for the
prior cancellation of a $10.5 million promissory note from ITB to the Company;
(iii) release any interest in certain shares of ITB stock held by NPD, Inc.
which shares are to be repurchased by ITB; (iv) pay 50% of the carrying cost on
the El Rancho during a portion of the period for which the Company has the right
to market and sell the El Rancho (presently estimated to be $50,000 per month);
and (v) consent to the cancellation of all contracts between ITB and the
Company, including those involving future profit-participation rights in the El
Rancho as well as the Company's entertainment management contract for the El
Rancho Property Site. All parties agreed to the terms of this settlement
agreement on January 29, 1999.
8
<PAGE>
An objecting to the Settlement was filed by an individual with the
Delaware Court of Chancery in August 1998. The individual claims to be a
stockholder of LVEN, and in his Brief, he outlines what he characterizes as
"potentially meritorious claims" which the Company, or a stockholder suing
derivatively on behalf of the Company or individually and on behalf of a class
could assert, including claims for breach of fiduciary in selling the El Rancho
Property to ITB; for breach of fiduciary duty in converting the $10.5 million
ITB note into ITB stock; for breach of fiduciary duty, waste of assets, and
usurpation of corporate opportunity in various dealings with Nunzio P. DeSantis;
for breach of fiduciary duty in entering into the Settlement for allegedly no
consideration or grossly inadequate or illusory consideration; and other
possible claims arising out of assertedly questionable money losing transactions
which the Company has engaged in over the past several years. The Company
believes these claims are without merit and intends to vigorously defend itself.
The Company has filed an action against American Pastime West ("APW")
seeking among other things to collect advance deposits it made to APW, and
seeking clarification of any APW rights pertaining to the Stipulation Agreement
and the sale of the El Rancho. This matter is still pending and the Company
intends to vigourously pursue its rights.
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
During the last quarter of the year ended October 31, 1998, shareholders of
the Company approved a 1 for 20 reverse stock split of the shares of the
Company's common stock.
9
<PAGE>
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, 1996 to October 31, 1998.
High Low
---- ---
Fiscal 1997
Quarter ended January 31, 1997 $11.20 $3.60
Quarter ended April 30, 1997 $16.20 $7.40
Quarter ended July 31, 1997 $11.80 $5.00
Quarter ended October 31, 1997 $ 8.00 $ 4.20
Fiscal 1998
Quarter ended January 31, 1998 $ 5.00 $1.25
Quarter ended April 30, 1998 $ 4.36 $1.88
Quarter ended July 31, 1998 $ 6.25 $1.25
Quarter ended October 31, 1998 $ 5.63 $1.88
The number of record holders of Common Stock as of January 31, 1999 was
approximately 764. On January 31, 1999, the high and low bid asked prices for
the Common Stock were $1.75 and $1.375 respectively.
On October 16, 1998, the stockholders of the Company ratified a one for
twenty reverse stock split of the shares of the Company's Common Stock. All
disclosures and applicable per share data have been retroactively restated to
reflect this reverse split.
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.
10
<PAGE>
Results of Operations
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Research and Development expenses which relate to the development of voice,
video and data communication technology increased $528,059 to $503,187 during
the year ended October 31, 1998 as compared to $1,031,246 for the corresponding
period in 1997. The majority of the costs related to the payment of consulting
fees paid to individuals developing technology to be used in the Company's
intended telephone operations in Brazil. The Company has temporarily put on hold
further development of this project.
Write-Downs and Reserves for the year ended October 31, 1998 consists of a
charge of $126,000 on the sale of the Nordic Gaming Line of Credit and an
allowance of $57,000 relating to advances made to ITB, Inc. Write-Downs and
Reserves for the year ended October 31, 1997 consisted of a charge of $417,356
to reflect the estimated carrying value of the note receivable from Malbec Inc;
a charge of $167,800 to reflect the estimated carrying value of a note
receivable from Tee One Up , and; a charge of $805,061 to reflect the estimated
carrying value of notes receivable from Lake Tropicana.
Programming costs, which related to write-downs made to the Company's
television programming library to reflect management's estimate of its net
realizable value, were $180,000 during the year ended October 31, 1997. There
were no such costs in the corresponding period in 1997.
General and Administrative expenses decreased $975,747 to $3,043,621 during
the year ended October 31, 1998 as compared to $4,019,368 in the corresponding
period in 1997. The majority of the decrease related to travel and entertainment
costs which decreased $724,000 to $321,000 for the year ended October 31, 1998
as compared to $1,045,000 for the corresponding period in 1997. Wages and
Salaries decreased $170,000 to $1,226,000 during the during the year ended
October 31, 1998 as compared to $1,396,000 in the corresponding period in 1997.
These decreases were offset by an increase in legal and professional costs of
$101,000 to $899,000 for the year ended October 31, 1998 as compared to $798,000
in the comparable period in 1997. The increase related mostly to costs incurred
in connection with the actions filed by certain former and current directors of
ITB (see "Litigation") as well as legal and professional costs incurred in
developing certain of the Company's projects in Brazil. 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, 1998 consists of a
charge of $496,000 on the default of the Nordic Gaming Aircraft lease; a charge
of $195,000 on the liquidation of a certificate of deposit used to secure an
aircraft purchase by Stan Irwin Enterprises, and; a charge of $200,000 for a
finders fee incurred on a potential sale of the El Rancho Hotel and Casino.
Interest Income and Expense. Interest income earned on cash balances and
marketable securities decreased $292,054 to $135,999 for the year ended October
31, 1998 as compared to $428,053 for the corresponding period in 1997. The
decrease is consistent with the decrease in the average cash and marketable
securities outstanding during the year ended October 31, 1998 as compared to the
corresponding period in 1997. The Company incurred realized and unrealized
losses from marketable securities of $140,109 during the year ended October 31,
1998 compared to a gain of $15,666 in the comparable period in 1997. Interest
expense and finance costs decreased $107,535 to $81,973 for the year ended
October 31, 1998 as compared to $189,508 for the corresponding period in 1997.
Finance costs for the year ended October 31, 1997 included a $110,000 stand-by
financing fee. There was no such cost for the corresponding period in 1998.
Interest Expense for the for the year ended October 31, 1998 remained consistent
with the corresponding period in 1997 as the average indebtedness outstanding
during the year ended October 31, 1998 was consistent with the corresponding
period in 1997.
11
<PAGE>
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.
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.
Write-Down and Reserves 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 Tropicana notes receivable, and a $417,356 charge to reflect the
estimated carrying value of the note receivable from Malbec Inc.
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,
formerly the Chairman of the Board of ITB, to acquire 75,000 shares of the
Company's Common Stock at an exercise price of $20 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; $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>
Liquidity and Capital Resources
The Company's financial statements have been prepared on a going concern
basis which, which contemplates the realization of assets and liabilities in the
normal course of business. For the fiscal years ended October 31, 1998 and 1997,
the Company experienced net losses of $4,754,530 and $6,752,405, respectively,
and has experienced operating losses since its inception. The Company
anticipates that it will continue to experience significant losses and cash flow
needs as it continues working on its development plans. Even after the Company's
development plans are completed, there can be no assurance that the Company will
be profitable. The Company's capital requirements have been and will continue to
be significant. As a result, and until financing arrangements have been
finalized, the Company's independent auditors have expressed substantial doubt
about the Company's ability to continue as a going concern.
Cash Requirements. The Company's capital requirements have been and will
continue to be significant. 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. At October 31, 1998, the
Company had cash and cash equivalents of $553,000 and trading securities of
$106,000. The Company's current monthly operating cash requirements are
approximately $150,000, consisting of general and administrative expenses,
salary and consulting fees, El Rancho carrying costs, legal and professional
fees, marketing and travel costs. As of February 1, 1999, the Company became
responsible for managing and paying one half of the operating costs of the El
Rancho Hotel and Casino which currently approximates $50,000 per month but may
increase to a greater amount if renovation of the property begins (see Item I,
"Description of Current Business, Investment in ITB"). In addition, the Company
may be required to fund, or obtain financing for, the acquisition of up to 1,000
electronic bingo machines per month (up to 10,000 machines in total) that cost
approximately $12,000 each to meet delivery requirements to MG Entertainment
under the Company's agreement with them. In order to preserve working capital,
the Company has reduced the number of its employees, deferred compensation to
certain of its officers, deferred or delayed the payment of certain accounts
payable, and reduced operating and capital expenditures. The Chairman of the
Board has indicated, if necessary, he would secure up to $200,000 of working
capital to fund operations up through the second quarter of 1999, at which time
the Company believes that the financing for MG contracts will be in place.
However, at this time Management feels that these funds are not necessary
pending the closing of certain financing agreements.
The Company's sources and uses for financing during 1999 and beyond will
vary based upon a number of factors, some of which are outside the control of
the Company. These factors include; the success of the Company in meeting its
delivery requirements to MG Entertainment for the sale of up to 10,000 bingo
machines (See Item I, "Description of Current Business, Development of
Electronic Bingo Machine Business in Brazil"); the potential sale of the El
Rancho Property and receipt of proceeds therefrom (see Item I, "Description of
Current Business, Investment in ITB" ); the ultimate realization of other LVEN
assets; and potential legal and political issues. In addition, the Company's
business plans may change based on changes in technology, new developments in
the marketplace or unforseen events which could require the Company to raise
additional funds. The unavailability of additional funds under acceptable terms
and conditions when needed could have a material adverse effect on the Company.
Notes Receivable.
As of October 31, 1998, the Company 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, 1998,
$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 has previously
provided a $812,606 allowance against this advance, for a net investment of
$100,000 as of October 31, 1998.
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.
13
<PAGE>
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.
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
None
14
<PAGE>
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 49 Chairman of the Board, President, Chief
Executive Officer and Director of the
Company
Carl A. Sambus 48 Chief Financial Officer, Chief
Operating Officer, Secretary, Treasurer
and Director of the Company
Paul Whitford 57 Director of the Company
Jefferson Simmons 55 Director of the Company
Joseph A. Corazzi has been an executive officer and director of the Company
since October 1990 and of LVCC since May 1994. He has extensive experience in
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 various other entertainment, communications
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.
Jefferson Simmons - Jefferson Simmons has been a Director since February
20th, 1998. He is a creator of television and film productions and founded
Interstar, a feature film financing and distribution company which he sold to
Westinghouse Broadcasting. Previously, he was President of Golden West
Television Productions and also a partner
15
<PAGE>
in Consolidated Theaters in Charlotte, North Caroline. His business career
began when he developed All-American Sports, which televised prime-time sporting
events across the country. Since October 1, 1994 through January 31, 1998, Mr.
Simmons and his company, Zephyr Consulting, provided the company with
entertainment consulting services.
Compliance with Section 16(a)
There were no corresponding transactions.
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, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION(2)
Other Annual Awards Payouts
Name and
Principal Position Year Salary(1) Bonus Compensation Restricted Optional LTIP All
Stock ($) SARs(#) Payouts ($) Other (3)
Joseph A. Corazzi, CEO 1998 $550,000 -0- -0- -0- -0- -0- $124,000
President and Chairman(5)
1997 $550,000 -0- -0- $520,000 200,000 0- $124,000
1996 $500,000 -0- -0- -0- -0- -0 $124,000
Carl A. Sambus, Executive Vice1998 127,0000 , -0- -0- -0- -0- -0- -0-
President, Chief Financial Officer
and Secretary 1997 $101,000 -0- -0- -0- -0- -0- -0-
1996 $96,667 -0- -0- -0- -0- -0- -0-
All executive officers
as a group (2 Persons) 1998 $677,000 -0- -0- -0- -0- -0- $124,000
1997 $651,000 -0- -0- $520,000 200,000 -0- $124,000
1996 $646,667 -0- -0- -0- -0- -0- $124,000
</TABLE>
The Company also paid or accrued to Mr. Paul Whitford, director fees of
$52,500 and $36,500 during the years ended October 31, 1998 and 1997,
respectively. The Company paid to Zephyr Consulting Inc., a company 100% owned
by Mr. Jeffrey Simmons, directors fees of $35,000 during the year ended October
31, 1998. Mr. Simmons became a director of the Company in February of 1998.
Prior to becoming a director, Mr. Simmons was paid entertainment consulting fees
of $25,000 during the year ended October 31, 1998.
(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
(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 75,000 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.
16
<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
Options to Granted mployees Exercise Expiration
Name Granted Fiscal Year Price Date
---- ------- ----------- ----- ----
Options Granted in Fiscal 1998
None
Options Granted in Fiscal 1997
Joseph Corazzi 200,000* 100% $20 per share Sept. 30, 2002
* 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, 1998 by the named executive officers:
Options Exercises and Year-end Value Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options & Warrants at October 31, 1998
Shares
Acquired On Value
Name Exercise Realized(1) Exercisable Non-exercisable Exercisable(2)
- ---- -------- ----------- ----------- --------------- --------------
Joseph Corazzi -0- -0- 206,500 -0- - 0-
Carl Sambus -0- -0- 12,500 -0- -0-
________________________________________________________
</TABLE>
(1) Market Value at time of exercise less exercise price.
(2) The average of the closing bid and ask prices of the Common Stock at
October 31, 1998 was $1.87. 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, and payments relating
to accrued compensation from prior years was reported on Form 1099. 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. As of January 1, 1999, Mr. Corazzi has suspended payments of
any salary amounts due him, but will continue to accrue such amounts until such
time further funding has been received by the Company.
17
<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. As of October 31, 1998, Mr. Corazzi agreed
to terminate any past or future amounts due him under his retirement benefit in
exchange for cash payment of $192,000 and the 85,000 shares of common stock of
the Company yet to be issued and to be registered.
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, 1999, 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, 1998 or 1997 other than as described above for Mr. Corazzi.
On March 1, 1995, Mr. Corazzi was issued options to purchase 200,000 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 200,000 CountryLand Properties Inc. warrants are fully
transferable and convertible into options to purchase LVEN Common Stock at
$20.00 per share. On October 1, 1997 the Company canceled this option and
granted to Mr. Corazzi an option to purchase up to 200,000 shares of the
presently authorized but unissued shares of the Company's common stock at $20.00
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.
On December 11, 1996, Mr. Nunzio DeSantis, formerly the Chairman of the
Board of ITB, was granted 75,000 options to acquire shares of the Company's
Common Stock at an exercise price of $20 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. 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.
A total of 50,000 shares are reserved for issuance under the Stock Option
Plan, of which 4,500 shares are issuable under options which have been granted
to employees, and 36,500 shares under options granted to officers and directors,
all with an exercise price of $14. 20 to $20.00 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
18
<PAGE>
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 41,000 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.
19
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 31, 1999, 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) 239,794 11.8.%
505 Marquette
Albuquerque, New Mexico 87102
Carl A. Sambus(2) 14,625 *
88 10th Street
Garden City, NY 11530
Jefferson Simmons - *
Paul Whitford
1208 Cochise Drive
Arlington, Texas 76012 - *
All Directors and Executive Officers 254,419 11.8%
as a Group (4 persons)(3)
* Less than 1%
(1) Includes 33,294 shares owned by Mr. Corazzi; 6,500 shares issuable pursuant
to an option granted to Mr. Corazzi under the Company's Stock Option Plan, and
200,000 shares issuable under options not granted under the Stock Option Plan.
See "Executive Compensation."
(2) Includes options to purchase 12,500 shares of Common Stock granted to Mr.
Sambus.
(3) Includes options to purchase 12,500 shares of Common Stock granted to Mr.
Sambus, and options to purchase 206,500 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.
20
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Compensation due Joseph A. Corazzi amounting to $518,134 was accrued as of
October 31, 1997. The Company has also accrued $294,379 and $363,000 for amounts
due Mr. Corazzi under his retirement plan which is reflected as accrued officers
benefits as of October 31, 1998 and 1997. The Company paid and reimbursed Mr.
Corazzi $1,070,658 and $438,488 for accrued and current compensation during the
years ended October 31, 1998 and 1997, respectively. Such sums were due Mr.
Corazzi from inception of the Company to October 31, 1998. In addition, the
Company also paid to Mr. Corazzi $192,000 to terminate his retirement plan.
Ken Scholl, former President of the Company's Casino-Co subsidiary, was
named a director of ITB on January 15, 1997.
The Company paid or accrued to Mr. Paul Whitford, director fees of $52,500
and $36,500 during the years ended October 31, 1998 and 1997, respectively.
During the year ended October 31, 1998 and 1997, the Company paid $35,000 to
Zephyr Consulting Inc., a company 100% owned by Jeffrey Simmons. Mr. Simmons
became a director of the Company in February of 1998. Prior to becoming a
director, the Company paid entertainment consulting fees of $25,000 and $60,000
during the years ended October 31, 1998 and 1997, respectively, to Mr. Simmons
or his affiliated company.
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 his expense. 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. On August 8, 1998, the seller repurchased
the aircraft for net sales proceeds of $577,491. Such funds were paid to the
bank and the certificate of deposit was extinguished, and the remaining funds
were returned to the Company. The Company reflected a charge of $195,000 related
to the above during the year ended October 31 1998.
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 was the chairman of the Board of International Thoroughbred
Breeders Inc. at time these transactions were concluded. These transactions
included:
On December 11,1996, Mr. Nunzio DeSantis, was granted 75,000 options to
acquire shares of the Company's Common Stock at an exercise price of $20 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.
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
21
<PAGE>
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
CFS 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 July 2, 1998, as part of
settlement agreement, all prior agreements between or among LVEN and ITB,
including without limitation, that certain Bi-Lateral Agreement, and that
certain Tri-Party Agreement pursuant to which ITB issued to LVEN 2,093,868
shares of ITB Common Stock, were terminated and the Company returned all such
shares to ITB for cancellation. In return, the Company has the right to market
and sell the El Rancho Property and may retain such net cash proceeds from that
sale over and above $44.6 Million, if any, or it has the right to provide
financinig or a joint venture partner to redevelop the Property (see Item I,
"Description of Current Business, Investment in ITB").
On June 30, 1997, the Company was granted an option to acquire from Mr.
Nunzio P. DeSantis, formerly the Chairman of the Board of ITB, his Eighty
percent (80%) of the voting equity of Nordic Gaming Corporation, a Canadian
corporation. In consideration for receiving the option, which expired 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 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. On August 27, 1998, the Company assigned its interest in the line
of credit to a Canadian Company realizing a $126,000 charge. The Company also
waived its option to acquire Nordic. Concurrently, the Company canceled the
1,000,000 shares of Preferred Stock issued to Mr. DeSantis.
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 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)
22
<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 Amendment to Certificate of Incorporation for
reverse Stock Split (14)
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, nc.(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 the Company and Duneden, Ltd.(9)
10.23 Agreement for Purchase and Sale of Joint Venture between
Pacific DNS, Inc. (a wholly
owned subsidiary of the Company), MPTV, Inc. and
Consolidated Resort Enterprises,
Inc.(9)
10.24 Securities Purchase Agreement dated as of January 22
1996 between the Company, CountryLand Properties, Inc.
and SunAmerica Life Insurance Company, with exhibits(10)
23
<PAGE>
10.25 Subordination Agreement dated as of January 22, 1996
between the Company,
CountryLand Properties, International Thoroughbred
Breeders, Inc., Orion Casino
Corporation and SunAmerica Life Insurance Company(10)
10.26 Assignment and Assumption Agreement between CountryLand
Properties, Inc. and Orion
Casino Corporation and acknowledged and agreed to by
SunAmerica Life Insurance Company(10)
10.27 Loan Agreement between NPD and Casino-Co Corporation
dated January 15, 1997 with
related Secured Promissory Note, and Security Agreement,
and Pledge Agreement.(11)
10.28 Guaranty of Nunzio DeSantis in favor of Casino-Co
Corporation.(11)
10.29 Option of NPD, in favor of Casino-Co Corporation.(11)
10.30 Loan Agreement between LVEN and Malbec Inc. dated
March 20, 1996 with related
Secured Promissory Note and Security Agreement. (12)
10.31 Loan Agreement between Pacific DNS and Tee One Up Inc.
dated September 4, 1996 with
related Secured Promissory Note and Security
Agreement. (12)
10.32 Joint Venture Agreement between Electronic Media Inc.,
Texas Information Development
Commission and William Luke Stewart. (12)
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. 132)
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)
10.44 Stipulation and Agreement of Compromise, Settlement and
Release between LVEN,
International Thoroughbred Breeders Inc, Robert Quigley,
etc. dated July 2, 1998 (14))
21. Subsidiaries(10)
(1) Filed with original filing of the Registration Statement on
Form S-1, File No. 33-39047 (the "1992 S-1)
(2) Filed with Amendment No. 3 to the 1992 S-1
(3) Filed with Amendment No. 4 to the 1992 S-1
(4) Filed with amendment No. 5 to the 1992 S-1
(5) Filed with Amendment No. 6 to the 1992 S-1
(6) Incorporated by reference to the Company's annual Report on Form 10-KSB
for the year ended October
31, 1992
(7) Filed with Post Effective Amendment No. 1 to the 1992 S-1, filed on
Form SB-2
(8) Filed with Registration Statement on Form S-1, File No. 33-72980,
filed on December 15, 1993
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October
31, 1994
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October 31, 1995.
24
<PAGE>
(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) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October 31, 1997
(14) Filed herewith
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on February 12, 1999.
LAS VEGAS ENTERTAINMENT NETWORK, INC.
\s\ 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 12, 1999.
Signature
\s\Joseph A. Corazzi
Chairman of the Board, President, Chief executive
Officer and Director (principal executive officer)
\s\Carl A. Sambus
Executive Vice President, Chief Financial Officer,
Secretary and Director (principal accounting and
financial officer)
\s\ Paul Whitford
Director
\s\Jefferson Simmons
Director
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors..................................F-1
Consolidated Balance Sheets as of October 31, 1998 and
October 31, 1997 ..........................................F-2
Consolidated Statements of Operations for the
Years Ended October 31, 1998 and 1997........... .........F-3
Consolidated Statement of Stockholders' Equity for the Years
Ended October 31, 1998 and 1997........ ..................F-4
Consolidated Statements of Cash Flows for the
Years Ended October 31, 1998 and 1997.. .......... ...... .F-5
Notes to Consolidated Financial Statements.................... .F-6
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Las Vegas Entertainment Network, Inc.
We have audited the accompanying consolidated balance sheets of Las Vegas
Entertainment Network, Inc. and Subsidiaries as of October 31, 1998 and 1997 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, 1998 and 1997 and
the consolidated results of its operations, stockholders' equity and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, under existing circumstances, there is
substantial doubt about the ability of the Company to continue as a going
concern at October 31, 1998. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
HOLLANDER, LUMER & CO. LLP
Los Angeles, California
February 8, 1999
F-1
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 553,525 $ 2,399,491
TRADING SECURITIES 106,199 1,087,890
----------- -----------
TOTAL CURRENT ASSETS 659,724 3,487,381
INVESTMENT IN & ADVANCES TO INTERNATIONAL
THOROUGHBRED BREEDERS INC. - Note 3 3,500,000 3,604,564
INVESTMENT IN AND ADVANCES TO NORDIC
GAMING - Note 4 -- 1,047,548
OTHER INVESTMENTS & ADVANCES 100,000 100,000
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $259,547 (1998) and $192,509
(1997) 89,404 141,536
DEPOSITS AND OTHER - Note 5 56,652 1,389,893
----------- -----------
$4,405,780 $9,770,922
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 308,181 $ 452,137
NOTES PAYABLE - Note 6 -- 775,753
ACCRUED INTEREST PAYABLE - Note 6 -- 154,354
ACCRUED OFFICER'S SALARY -- 482,885
----------- -----------
TOTAL CURRENT LIABILITIES
308,181 1,865,129
ACCRUED OFFICER'S BENEFITS
294,379 363,000
STOCKHOLDERS' EQUITY - Note 7
PREFERRED STOCK - SERIES A, AUTHORIZED
30,000,000 SHARES, $.001 PAR VALUE;
ISSUED AND OUTSTANDING, -0- SHARES (1998)
AND 1,000,000 SHARES (1997)
SHARES -- 1,000
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING - 1,831,167 SHARES (1998) 36,620 34,895
1,744,917 (1997)
ADDITIONAL PAID-IN CAPITAL 48,459,312 47,445,080
LONG TERM INVESTMENT RESERVE (2,400,000) (2,400,000)
DEFICIT (42,292,712) (37,538,182)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,803,220 7,542,793
----------- -----------
$ 4,405,780 $ 9,770,922
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----- ----
REVENUES $ - $
---------- -----------
COSTS AND EXPENSES
Research & Development - Note 8 503,187 1,031,246
Write-off and Reserves - Note 9 180,318 1,390,217
Programming 180,000
General & Administrative 3,043,958 4,019,368
---------- -----------
TOTAL COSTS AND EXPENSES 3,727,463 6,620,831
---------- -----------
LOSS BEFORE OTHER
INCOME AND (CHARGES) (3,727,463) (6,620,831)
OTHER INCOME AND (CHARGES):
Interest Income 135,999 428,053
Gain (Loss) on Trading Securities (140,109) 15,666
Other Charges - Note 10 (940,983) (385,785)
Interest and Finance Costs (81,974) (189,508)
----------- -----------
(1,027,067) (131,574)
----------- -----------
NET LOSS (4,754,530) (6,752,405)
============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 1,746,055 1,744,917
============ ===========
BASIC AND DILUTED LOSS PER SHARE
OF COMMON STOCK $ (2.72) $ (3.87)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Unrealized
Additional Loss on
Number Number Paid-in Long-Term
of Shares Amount of Shares Amount Capital Investment Deficit Total
--------- ------ --------- ------ ------- ---------- ------- -----
BALANCE - November 1, 1996 $ 1,744,917 $34,895 $47,280,080 $ $(30,785,777 $16,529,198
Issuance of Options- Note 7 165,000 165,000
Issuance of Preferred Stock - Note 7 1,000,000 1,000 1,000
Market value adjustment to ITB Stock (2,400,000) (2,400,000)
Net Loss for the Year Ended
October 31, 1997 (6,752,405) (6,752,405)
--------- ----- ---------- ------ ---------- ---------- ----------- -----------
BALANCE - October 31, 1997 1,000,000 1,000 1,744,917 34,895 47,445,080 (2,400,000) (37,538,182) 7,542,793
Issuance of shares for conversion of debt 85,000 1,700 1,006,757 1,008,457
Issuance of shares for services -
Note 7 1,250 25 7,475 7,500
ancellation of Preferred Stock -
Note 7 (1,000,000)(1,000) (1,000)
Net Loss for the year ended
October 31, 1998 (4,754,530) (4,754,530)
--------- ----- ---------- ------ ---------- ---------- ------------ -----------
BALANCE - October 31, 1998 - $ - 1,831,167 $36,620 $48,459,312 $(2,400,000) $(42,292,712) $3,803,220
========= ===== ========= ======= =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(4,754,530) (6,752,405)
Loss (Gain) from Marketable Securities 138,908 (87,890)
Loss on Investments 180,319 1,390,216
Loss on Other Asset 691,731
Issuance of Common Stock for Services 7,500
Depreciation 67,038 73,887
Amortization of Program Inventory 180,000
Adjustments to reconcile net loss to net cash
used in operating activities:
(Increase) in Other Assets 10,770
Increase (Decrease) in;
Accounts Payable (144,955) 307,486
Interest Payable 79,103 52,008
Accrued Officer's Salaries (482,884) 76,262
Accrued Officer's Benefits (68,621) 124,000
----------- -----------
CASH USED IN OPERATING ACTIVITIES (4,286,391) (4,625,666)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Trading Securities (423,129) (1,000,000)
Sale of Trading Securities 1,265,912
Advances to Nordic Gaming (200,000) (881,547)
Proceeds from Assignment of Advances
to Nordic Gaming 1,121,548
Collections from ITB Inc. 50,245 157,142
Investments & Advances - Other 78,879
Advances on Airplane Deposits (39,558) (1,389,893)
Collections on Airplane Deposits 681,068
Acquisition of Property and Equipment (14,908) (44,025)
----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,441,178 (3,079,444)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Notes Payable (753) (280,691)
----------- -----------
CASH USED IN FINANCING ACTIVITIES (753) (280,691)
----------- -----------
DECREASE IN CASH (1,845,966) (7,985,801)
CASH BALANCE - BEGINNING 2,399,491 10,385,292
----------- -----------
CASH BALANCE - ENDING 553,525 2,399,491
=========== ==========
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 (Cancellation) of Preferred Stock for
Option to acquireNordic Gaming $ (1,000) $ 1,000
Issuance of Common Stock for cancellation of debt $1,008,457
Issuance of Common Stock for services $ 7,500
CASH PAID FOR
Interest $ 27,500
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND GOING CONCERN
Business - 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 including real estate
redevelopment. The Company has also identified a major business opportunity for
the distribution of bingo machines in Brazil, when if implemented, for which
there can be no assurance, will substantially alter the direction of the
Company. The Company is also investigating other potential businesses for
acquisition in the entertainment, gaming, lodging, and communications
industries.
Going Concern - The accompanying financial statements have been prepared on
a going concern basis which contemplates the realization of assets and
liabilities in the normal course of business. For the fiscal years ended October
31, 1998 and 1997, the Company experienced net losses of $4,754,530 and
$6,752,405, respectively, and has experienced operating losses since its
inception. The Company anticipates that it will continue to experience
significant losses and cash flow needs as it continues working on its
development plans.
The Company's capital requirements have been and will continue to be
significant. 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. At October 31, 1998, the Company had cash
and cash equivalents of $553,000 and trading securities of $106,00. The
Company's current monthly operating cash requirements are approximately
$150,000, composed of general and administrative expenses, salary and consulting
fees, legal and professional fees, marketing and travel costs. As of February 1,
1999, the Company became responsible to for managing and paying one half of the
operating costs of the El Rancho Hotel and Casino (see Note 3) which currently
approximates $50,000 per month but may increase to a greater amount if
renovation of the property begins. In addition, the Company may be required to
fund, or obtain financing for, the acquisition of up to 1,000 electronic bingo
machines per month (up to 10,000 machines in total) that cost approximately
$12,000 each to meet delivery requirements to MG Entertainment under the
Company's agreement with them. In order to preserve working capital, the Company
has reduced the number of its employees, deferred compensation to certain of its
officers, deferred or delayed the payment of certain accounts payable, and
reduced operating and capital expenditures. The Chairman of theBoard has
indicated, if necessary, he would secure up to $200,000 of working capital to
fund operations up through the second quarter of 1999, at which time the Company
believes that the financing for MG contracts will be in place. However, at this
time Management feels that these funds are not necessary pending the closing of
certain financial agreements.
The Company's sources and uses for financing during 1999 and beyond will
vary based upon a number of factors, some of which are outside the control of
the Company. These factors include; the success of the Company in meeting its
delivery requirements to MG Entertainment for the sale of up to 10,000 bingo
machines; the potential sale of the El Rancho Property and receipt of proceeds
therefrom (as described in Note 3); the ultimate realization of other LVEN
assets, and; potential legal and political issues. In addition, the Company's
business plans may change based on changes in technology, new developments in
the marketplace or unforseen events which could require the Company to raise
additional funds. The unavailability of additional funds under acceptable terms
and conditions when needed could have a material adverse effect on the Company.
The Company's significant operating losses and capital requirements raise
substantial doubt about the Company's ability to continue as a going concern..
The financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of the liabilities
that might be necessary should the Company not be able to continue as a going
concern.
F-6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES
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 includes the
Company's investment in the common stock of International Thoroughbred
Breeders Inc. (see Note 3) 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.
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.
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, 1998, 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
shares of common stock of a publicly traded company. 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, 1998, the Company had approximately $530,000 on deposit 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.
Earnings (Loss) Per Share - During the year ended October 31, 1998,
the Company adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share." As a result, all previously reported loss
per share amounts have been restated. Basic loss per share amounts
have been computed by dividing net loss by the weighted average number
of shares outstanding during the period. Diluted loss per share
amounts have been computed assuming the exercise of stock options and
their related income tax effect. For all periods presented, all
outstanding warrants, options and other common stock equivalents were
anti-dilutive, and accordingly, were excluded from the per share
calculation.
F-7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Split - On October 16, 1998, the stockholders of the Company
ratified a one for twenty reverse stock split of the shares of the
Company's Common Stock. All disclosures and applicable per share data
have been retroactively restated to reflect this reverse split.
Stock-based Compensation - The Company accounts for stock-based awards
to employees using the intrinsic value method based under Accounting
Principles Board ("APB") No. 25, Accounting for Stock Issued to
Employees, and recognizes compensation expense for certain stock based
awards granted to employees. The Company has adopted the disclosure
provisions of SFAS No. 123, Accounting for Stock Based Compensation,
which requires disclosure of certain pro forma information as if the
Company adopted the fair value method of accounting for stock based
compensation prescribed by FASB No. 123 (See Note 7 ).
Recently Issued Accounting Standards - In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the
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. The Company believes adoption of this statement
will not have a material effect on its operations for the year ended
October 31, 1998. 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.
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.
Re-classifications - Certain 1997 amounts have been re-classified to
conform with the 1998 financial statement presentation.
3. INVESTMENT IN AND ADVANCES TO INTERNATIONAL THOROUGHBRED
BREEDERS INC (ITB).
On January 22, 1996, the Company sold the assets and liabilities of
the El Rancho Hotel and Casino in Las Vegas, Nevada (the "El Rancho"
or "the Property") 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) the assumption by ITB 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, the Company, ITB and Credit Suisse First Boston
Mortgage entered into a certain Bi-lateral agreement and a certain
Tri-lateral agreement whereby 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 the El
Rancho Cash Flow Interest. In order to effect such transaction, ITB
was 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.
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 sought, 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 sought to block the issuance to LVEN of additional shares of
ITB stock in exchange for LVEN's El Rancho Cash Flow Interest. On
January 29, 1999, all such parties gave their final approval a
Stipulation and Agreement of Compromise (described below) and all such
litigation has been settled and dismissed
On July 2, 1998, the Company entered into a Stipulation and Agreement
of Compromise with all such parties. Pursuant to the Settlement
Stipulation as finally approved by the Delaware Court in October,
1998; (i) the Company was granted the exclusive right to market and
sell the El Rancho for a 120-day period, which period expired on
November 20, 1998; (ii) from November 20, 1998 until April 19, 1999,
the Company has a right, coextensive with ITB, to market and sell the
El Rancho Property site, iii) if the Company closes a sale of the El
Rancho prior to April 19, 1999, then the Company receives the proceeds
of such sale in excess of $44.2 million; (iv) in order to exercise its
coextensive rights, ITB must close a sale of the El Rancho prior to
April 19, 1999 for at least $56.2, out of which amount approximately
$10 million would be paid to the Company, (v) if, on or before April
17, 1999, the Company consummates a refinancing of the El Rancho that
results in loan proceeds of at least $44.2 Million, then the Company
may continue to market the El Rancho for an additional period that is
50% of the period of the refinancing loan. In exchange for the
foregoing rights, the Company is obligated to; (i) release all claims
against the parties to the litigation, CSFB and the certain law firms;
(ii) return to ITB for cancellation the 2,093, 868 shares of ITB
common stock that were previously issued to Casino-Co Corporation, a
subsidiary of the Company, in consideration for the prior cancellation
of a $10.5 million promissory note from ITB to the Company; (iii)
release any interest in certain shares of ITB stock held by NPD, Inc.
which shares are to be repurchased by ITB; (iv) pay 50% of the
carrying cost on the El Rancho during a portion of the period for
which the Company has the right to market and sell the El Rancho
(presently estimated to be $50,000 per month); and (v) consent to the
cancellation of all contracts between ITB and the Company, including
those involving future profit-participation rights in the El Rancho as
well as the Company's entertainment management contract for the El
Rancho Property Site. All parties agreed to the terms of this
settlement agreement on January 29, 1999.
Upon the effectiveness of the Settlement as to LVEN, all prior
agreements between or among LVEN and ITB, including without
limitation, that certain Bi-Lateral Agreement, and that certain
Tri-Party Agreement pursuant to which ITB issued to LVEN 2,093,868
shares of ITB Common Stock, were terminated and the Company returned
all such shares to ITB for cancellation.
F-9
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Company's rights under the settlement, the Company has
developed three alternatives of which there can be no assurance any can be
achieved. The first alternative is to repurchase and resell the Property.
The remaining two alternatives are redevelopments under which the Company
would receive a similar participation as described in the initial ITB
transaction. Each redevelopment plan requires the potential partners to
finance either the construction and redevelopment of additional rooms and
gaming and entertainment attractions and/or the remodeling of the existing
facilities which consist of approximately 20 acres, 100 hotel rooms, a
52-lane bowling alley, a parking structure for 600 cars and approximately
100,000 square feet of gaming and retail space. The Company expects to
finalize a partnership plan or an outright sale of the Property by the end
of the second fiscal quarter, however no assurance can be made that such
plan or outright sale can be made. As of October, 31, 1998, the Company has
valued its interest in its right to sell the El Rancho Property at its
historical carrying cost, which approximates market value.
4. INVESTMENTS AND ADVANCES TO NORDIC GAMING CORPORATION
During 1997, the Company was granted an option to acquire from Mr.
Nunzio P. DeSantis, the then Chairman of the Board of ITB, eighty
percent (80%) of the voting equity of Nordic Gaming Corporation, a
Canadian corporation ("Nordic"). Nordic owned certain real property
and assets known as the "Fort Erie Racetrack" which is situated on 143
acres in Fort Erie, Ontario, Canada. In consideration for receiving
the option, which expired 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 twenty
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 had been valued at the aggregate par value of $1,000.
The Company advanced $1,300,000 through April 30, 1998 to Nordic
pursuant to a Line of Credit Agreement dated as of August 27, 1997.
Such advances, which were due and payable on August 27, 1998, were to
bear interest at a rate of 10% per annum, and were secured by a first
mortgage lien on and a security interest in the real and personal
property assets comprising the Fort Erie Racetrack. On August 27, 1998
the Company assigned its debt, mortgage and all other security in the
Fort Erie Racetrack to an Ontario, Canada Limited Corporation. The
Company also waived its option to acquire the 80% interest in Nordic
Gaming. The consideration for the assignment and waiver was $975,000
in cash and the assumption of $100,000 of debt. The Company has
reflected a charge of $126,000 on the assignment of this debt which is
reflected in write- offs and reserves during the year ended October
31, 1998. Concurrent with the assignment of the debt, and the waiver
by the Company to acquire the 80% interest in Nordic Gaming, the
company canceled the 1,000,000 shares of Series A Preferred Stock
issued to Mr. DeSantis.
5. DEPOSITS AND OTHER
Deposits and other consist of the following as of October 31;
1998 1997
---- ----
(A) Deposit on Nordic Gaming Aircraft Lease $ - $ 600,000
(B) Deposit on Stan Irwin Enterprises
Aircraft Purchase 56,000 789,893
-------- ---------
$56,000 $1,389,893
======== =========
F-10
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) The Company provided to Nordic Gaming Corporation ( see Note 4) 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 was to 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 in September 2004. However, Nordic Gaming became
delinquent in its lease payments, and the aircraft leasing company
exercised its rights under the lease arrangement and repossessed and sold
the plane because of such default. On April 28, 1998, the Company received
net sales proceeds of $151,000 after all costs and expenses of the
repossession and sale (including the payment of delinquent loan payments)
had been deducted. The Company reflected a charge of $496,000 related to
the above which is included in other charges during the year ended October
31 1998.
(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. 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 his expense. On August 8, 1998, the seller repurchased the
aircraft for net sales proceeds of $577,491. Such funds were paid to the
bank and the certificate of deposit was extinguished, and the remaining
funds were returned to the Company. The Company reflected a charge of
$195,000 related to the above which is included in other charges during the
year ended October 31 1998.
6. NOTES PAYABLE
Notes payable outstanding as of October 31, 1997 consisted of six (6)
one-year unsecured notes payable to two different lenders. The notes
accrued interest at a rate of 8% per annum until the principal and accrued
interest were paid. The notes and any accrued interest were 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 was
less, at any time prior to the repayment by the Company. On October 19,
1998, the Lenders converted all outstanding debt and accrued interest due
under these notes into 85,000 restricted shares of LVEN Common Stock. In
addition, the lenders are to receive, in aggregate, a 6% royalty of the
gross income of the first 3,000 bingo machines the Company sells in the
Brazil market place for a 10 year period; or instead of the royalty,
one-time aggregate payment of $725,000 due and payable on the 6th month of
operation of the first 2,000 bingo machines operated by the Company in
Brazil. The Company has not reflected any accounting effect to the
additional amount that may be payable on the sale of the Bingo machines
until such time that such sale, if any, is consumated.
Consolidated interest expense on these notes for the years ended October
31, 1998 and 1997 was $79,000 and $79,500, respectively.
7. 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 1,831,167 and 1,744,917 shares of common stock were issued and
outstanding as of October 31, 1998 and 1997, 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, in connection with an option acquire an 80% interest in
Nordic Gaming Inc. (see Note 4) the Company issued to Mr. Nunzio P.
DeSantis, formerly the Chairman of the Board of ITB, a new series of
Preferred Stock designated Series A Preferred Stock (the "Series A
Preferred") consisting of One Million shares that entitled Mr. DeSantis to
certain voting rights in a ratio of twenty 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 had been valued at the
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
aggregate par value of $1,000. Concurrent with the waiver by the Company on
August 27, 1998 to acquire the 80% interest of Nordic Gaming, the Company
canceled the 1,000,000 shares of Series A Preferred Stock issued to Mr.
DeSantis.
Shares Issued for Debt - During the year ended October 31, 1998, the
Company issued 85,000 shares of its Common Stock in extinguishment of
$775,000 of notes payable and $233,457 of accrued interest.
Shares Issued for Services - During the year ended October 31, 1998, the
Company issued 1,250 shares of its Common Stock for services provided. The
shares were valued at $7,500 and were issued at price of $6 per share (the
average bid market price for the shares 10 days prior to issuance).
Outstanding Warrants - The Company has issued and outstanding 80,019 Class
A warrants and 63,156 Class B warrants as of October 31, 1998 and 1997. 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
$80.00. The holder of each Class B Warrant is entitled to purchase one
share of Common Stock at an exercise price of $132.00. The exercise dates
of both the Class A and Class B warrants, which expired on February 20,
1999, have been extended until June 1, 1999.
The Class A Warrants are subject to redemption on not less than thirty
days' notice, at a price of $1.00 per Warrant, at any time after the
average closing price of the Common Stock shall have exceeded $80.00 per
share with respect to the Class A Warrants and $132.00 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 30,000 shares of its Common Stock at $2.00 per
share.
Stock Options- Outstanding stock options consist of the following;
Chairman of the Board - On October 1, 1997 the Company granted to Mr.
Corazzi an option to purchase up to 200,000 shares of the presently
authorized but unissued shares of the Company's common stock at $20.00 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 $2.60 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:
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net loss, as reported $(6,752,405)
Net loss, pro forma $(7,272,405)
Loss per share, as reported $(3.87)
Loss per share, pro forma $(4.20)
Other - On December 11, 1996, Mr. Nunzio DeSantis, formerly the Chairman of
the Board of ITB, was granted options to acquire 75,000 shares of the
Company's Common Stock at an exercise price of $20 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, 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.
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
50,000 shares are reserved for issuance under the Stock Option Plan, of
which 4,500 shares are issuable under options which have been granted to
employees, and 36,500 shares under options granted to officers and
directors, all with an exercise price of $14. 20 to $20.00 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 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, 1998;
Number of Price Per
Shares Share
------ -----
November 1, 1996 41,000 $14.20 - $20.00
Canceled -
Granted -
October 31, 1997 41, 000
Canceled -
Granted
---------- ---------------
October 31, 1998 41, 000 $14.20 - $20.00
========== ===============
9. RESEARCH AND DEVELOPMENT
The Company formed a subsidiary, Electric Media Company Inc. ("EMC"), to
develop 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, formerly Chairman of the Board of ITB.
In prior years, EMC entered into agreements for the development of this
technology with two joint venture partners/developers. The first agreement
called for the development of video, voice and data communication over
existing power lines. This project has been abandoned by the Company. The
second agreement called for the development of a communications network in
Guatemala and Central America for the provision of telephone, video, voice
and/or data communications. 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,
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. All former
operational contracts have now been voided, and this project has been put
on hold by the Company as of October 31, 1998, pending final development of
the Company's other gaming projects.
During the years ended October 31, 1998 and 1997, the company expended
$503,000 and $1,031,000, respectively in developing this technology. Such
amounts have been reflected in the accompanying financial statements as
research and development costs,.
9. WRITE-DOWNS AND RESERVES
Write-downs and Reserves for the year ended October 31, 1998 consists of a
charge of $126,000 realized on the sale of the Nordic Gaming Line of Credit
(Note 4) and an allowance of $57,000 relating to advances made to ITB, Inc.
(see Note 3). Write-downs and reserves 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; a charge of $167,800 to reflect the
estimated carrying value of a note receivable from Tee One Up , and; a
charge of $805,061 to reflect the estimated carrying value of notes
receivable from Lake Tropicana.
10. OTHER CHARGES
Other charges for the year ended October 31, 1998 primarily consists of a
charge of $496,000 on the Nordic Gaming Aircraft lease (Note 5); a charge
of $195,000 on the liquidation of a certificate of deposit used to secure
an aircraft purchase by Stan Irwin Enterprises (Note 5); a charge of
$200,000 for a financing fee incurred on a potential sale of the El Rancho
Hotel and Casino (Note 3). 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, formerly the Chief Operating Officer of ITB
(see note 7); 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, and; a charge for $45,785 from the loss on the
sale of certain fixed assets.
11. INCOME TAXES
The Company has available unused operating loss carryforwards of
approximately $30,700,000 at October 31, 1998 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 2013. 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.
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,
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. As of January 1, 1999, Mr. Corazzi has suspended
payments of any salary amounts due him, but will continue to accrue such
amounts until such time further funding has been received by the Company.
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. As of October
31, 1998, Mr. Corazzi agreed to terminate any past or future amounts due
him under his retirement benefit in exchange for cash payment of $192,000
and 85,000 shares of common stock of the Company yet to be issued and to be
registered..
Compensation due Joseph A. Corazzi amounting to $518,134 was accrued as of
October 31, 1997. The Company has also accrued $294,379 and $363,000 for
amounts due Mr. Corazzi under his retirement plan which is reflected as
accrued officers benefits as of October 31, 1998 and 1997. The Company paid
and reimbursed Mr. Corazzi $1,070,658 and $438,488 for accrued and current
compensation during the years ended October 31, 1998 and 1997,
respectively. Such sums were due Mr. Corazzi from inception of the Company
to October 31, 1998. In addition, the Company also paid to Mr. Corazzi
$192,000 to terminate his retirement plan.
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
President, Joseph A. Corazzi, as defendants. 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 Zappala, Joseph A. Corazzi and Las Vegas
Entertainment Network, Inc. and International Thoroughbred Breeders, Inc.,
C.A. No. 15919-NC, ("Quigley") was a derivative suit brought by two former
directors of International Thoroughbred Breeders, Inc. ("ITB") and an
investment trust which alleged, among other things, that certain ITB
directors beached their fiduciary duties to ITB. The Quigley complaint
sought (i) a declaratory judgment that (a) the shares of ITB's common stock
held by a company named NPD, Inc. could not be voted at any stockholders'
meeting; (b) all actions taken by the current board of ITB were null and
void; and c) certain purported "super-majority" voting provisions in ITB's
by-laws remained 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 involved the Company.
Specifically, with respect to the Company, the Quigley Complaint sought to
(i) rescind the issuance of 2,093,868 shares of ITB stock to the Company,
(ii) invalidate certain contingent profit participation rights that existed
in favor of the Company relative to the El Rancho Hotel and Casino project
(the "El Rancho"), and (ii) rescind certain agreements entered into between
or among the Company, ITB and/or Credit Suisse First Boston Mortgage
Capital LLC ("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. Thereafter, the parties engaged in limited
discovery in the Quigley action. While the Company believed it had
meritorious defenses to this action and had been vigorously defending
itself, the Company entered into an out-of-court settlement as discussed
below involving all of the parties to the Quigley action, and on January
29, 1999 all such claims were dismissed.
F-15
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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") was a derivative
suit which repeated the allegations in the Quigley Complaint verbatim and
sought the identical relief. The Company entered into an out-of-court
settlement in the Rekulak action, and on January 29, 1999 all such claims
were dismissed.
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 has also entered into
an out-of-court settlement on this matter as discussed below, and on
January 29, 1999 all such claims were dismissed.
On July 2, 1998, Las Vegas Entertainment Network, Inc., certain of its
subsidiaries, CountryLand Properties, Inc., Casino-Co Corporation, and LVCC
and the Company's Chairman and CEO, entered into a Stipulation and
Agreement of Compromise, Settlement and Release (the "Stipulation and
Agreement") by and among the Company and such affiliates, on the one hand,
and Frank A. Leo, Robert J. Quigley, Francis W. Murray, Charles R. Dees,
Jr., The Family Investment Trust (Henry Brennan, Trustee), NPD, Inc.
("NPD"), Nunzio P. DeSantis, Anthony Coelho, Michael Abraham, Joseph
Zappala, Joseph A. Corazzi, Kenneth S. Scholl, International Thoroughbred
Breeders, Inc. ("ITB"), D&C Gaming Corporation, James J. Murray, John
Mariucci, Frank Koenemund, Robert W. Green, Robert E. Brennan and Orion
Casino Corporation, on the other hand, to resolve the pending stockholder
derivative litigation brought in the name of ITB in the Delaware Court of
Chancery. The effectiveness of the settlement described in the Stipulation
and Agreement (the "Settlement"), as it relates to the Company and its
affiliates, was subject, among other things, to Delaware Chancery Court
approval of all of the terms and conditions of the Settlement following
notice to ITB's stockholders, the consent of ITB's primary lender (the "ITB
Lender Approval"), and LVEN's approval of the terms and conditions of the
ITB Lender Approval.
Pursuant to the Settlement Stipulation as finally approved by the Delaware
Court in October, 1998; (i) the Company was granted the exclusive right to
market and sell the El Rancho for a 120-day period, which period expired on
November 20, 1998; (ii) from November 20, 1998 until April 19, 1999, the
Company has a right, coextensive with ITB, to market and sell the El Rancho
Property site, iii) if the Company closes a sale of the El Rancho prior to
April 19, 1999, then the Company receives the proceeds of such sale in
excess of $44.2 million; (iv) in order to exercise its coextensive rights,
ITB must close a sale of the El Rancho prior to April 19, 1999 for at least
$56.2, out of which amount approximately $10 million would be paid to the
Company, (v) if, on or before April 17, 1999, the Company consummates a
refinancing of the El Rancho that results in loan proceeds of at least
$44.2, then the Company may continue to market the El Rancho for an
additional period that is 50% of the period of the refinancing loan. In
exchange for the foregoing rights, the Company is obligated to; (i) release
all claims against the parties to the litigation, CSFB and the certain law
firms; (ii) return to ITB for cancellation the 2,093, 868 shares of ITB
common stock that were previously issued to Casino-Co Corporation, a
subsidiary of the Company, in consideration for the prior cancellation of a
$10.5 million promissory note from ITB to the Company; (iii) release any
interest in certain shares of ITB stock held by NPD, Inc. which shares are
to be repurchased by ITB; (iv) pay 50% of the carrying cost on the El
Rancho during a portion of the period for which the Company has the right
to market and sell the El Rancho (presently estimated to be $50,000 per
month); and (v) consent to the cancellation of all contracts between ITB
and the Company, including those involving future profit-participation
rights in the El Rancho as well as the Company's entertainment management
contract for the El Rancho Property Site. All parties agreed to the terms
of this settlement agreement on January 29, 1999.
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An objecting to the Settlement was filed by an individual with the
Delaware Court of Chancery in August 1998. The individualclaims to be a
stockholder of LVEN, and in his Brief, he outlines what he characterizes as
"potentially meritorious claims" which the Company, or a stockholder suing
derivatively on behalf of the Company or individually and on behalf of a
class could assert, including claims for breach of fiduciary in selling the
El Rancho Property to ITB; for breach of fiduciary duty in converting the
$10.5 million ITB note into ITB stock; for breach of fiduciary duty, waste
of assets, and usurpation of corporate opportunity in various dealings with
Nunzio P. DeSantis; for breach of fiduciary duty in entering into the
Settlement for allegedly no consideration or grossly inadequate or illusory
consideration; and other possible claims arising out of assertedly
questionable money losing transactions which the Company has engaged in
over the past several years. The Company believes these claims are without
merit and intends to vigorously defend itself.
The Company has filed an action against American Pastime West ("APW")
seeking among other things to collect advance deposits it made to APW, and
seeking clarification of any APW rights pertaining to the Stipulation
Agreement and the sale of the El Rancho. This matter is still pending and
the Company intends to vigourously pursue its rights.
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, 1998 and
1997 was $153,000 and $147,000 respectively.
13. 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 was the Chairman of the Board of International
Thoroughbred Breeders Inc. at the time of these transactions. Those
transactions include:
On December 11,1996, Mr. Nunzio DeSantis, was granted 75,000 options to
acquire shares of the Company's Common Stock at an exercise price of $20
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.
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 of ITB. At the closing of such
purchase and sale, the shareholders of NPD, Nunzio DeSantis and Anthony
Coelho, became the Chairman of the Board and Chief Executive Officer,
respectively, of ITB. The 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
F-17
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 July 2, 1998, as part of settlement agreement, all prior
agreements between or among LVEN and ITB, including without limitation,
that certain Bi-Lateral Agreement, and that certain Tri-Party Agreement
pursuant to which ITB issued to LVEN 2,093,868 shares of ITB Common Stock,
were terminated and the Company returned all such shares to ITB for
cancellation. In return, the Company has the right to market and sell the
El Rancho Property and may retain such net cash proceeds from that sale
over and above $44.6 Million, if any (see Note 3).
During 1997, the Company was granted an option to acquire from Mr. Nunzio
P. DeSantis, the then Chief Operating Officer of ITB, eighty percent (80%)
of the voting equity of Nordic Gaming Corporation, a Canadian corporation
("Nordic"). Nordic owned certain real property and assets known as the
"Fort Erie Racetrack" which is situated on 143 acres in Fort Erie, Ontario,
Canada. In consideration for receiving the option, which was to expire 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 twenty votes for each share of stock on matters of stock splits
and certain other matters as designated by the Board of Directors. As
described below, the option to acquire Nordic was canceled by the Company,
and the issuance of the preferred shares to Mr. DeSantis has been canceled.
The Company advanced $1,300,000 through April 30, 1998 to Nordic pursuant
to a Line of Credit Agreement dated as of August 27, 1997. Such advances,
which were due and payable on August 27, 1998, were to bear interest at a
rate of 10% per annum, and were secured by a first mortgage lien on and a
security interest in the real and personal property assets comprising the
Fort Erie Racetrack. On August 27, 1998 the Company assigned its debt,
mortgage and all other security in the Fort Erie Racetrack to an Ontario,
Canada Limited Corporation. The Company also waived its option to acquire
the 80% interest in Nordic Gaming. The consideration for the assignment and
waiver was $975,000 in cash and the assumption of $100,000 of debt. The
Company has reflected a charge of $126,000 on the assignment of this debt
which is reflected in write-downs and reserves during the year ended
October 31, 1998. In addition to the line of credit, the Company has also
provided a certificate of deposit as security for a certain aircraft
leasing arrangement. However, Nordic Gaming became delinquent in its lease
payments, and the aircraft leasing company exercised its rights under the
lease arrangement and repossessed and sold the plane because of such
default.. Due to the above, the Company reflected a charge of $496,000
which is included in other charges during the year ended October 31 1998
(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 EMC Project.
F-18
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 at his cost. 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. On August 8, 1998, the seller repurchased the
aircraft for net sales proceeds of $577,491. Such funds were paid to the
bank and the certificate of deposit was extinguished, and the remaining
funds were returned to the Company. The Company reflected a charge of
$195,000 related to the above which is included in other charges during the
year ended October 31 1998. Additionally during the years ended October 31,
1998 and 1997, the Company paid consulting fees of $36,000 and $42,500,
respectively, to Stan Irwin Enterprises.
During the year ended October 31, 1998, the Company paid director fees of
$35,000 to Zephyr Consulting Inc., a company 100% owned by Jeffrey Simmons.
Mr Simmons became a director of the Company in February of 1998. Prior to
becoming a director, the Company paid entertainment consulting fees of
$25,000 and $60,000 during the years ended October 31, 1998 and 1997,
respectively, to Mr. Simmons or his affiliated company.
F-19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000872588
<NAME> LAS VEGAS ENTERTAINMENT NETWORK INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 553,525
<SECURITIES> 106,199
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 659,724
<PP&E> 347,954
<DEPRECIATION> 259,547
<TOTAL-ASSETS> 4,405,780
<CURRENT-LIABILITIES> 308,181
<BONDS> 0
0
0
<COMMON> 36,620
<OTHER-SE> 48,459,312
<TOTAL-LIABILITY-AND-EQUITY> 4,405,780
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,727,463
<OTHER-EXPENSES> 940,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,974
<INCOME-PRETAX> (4,754,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,754,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,754,530)
<EPS-PRIMARY> (2.72)
<EPS-DILUTED> (2.72)
</TABLE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAS VEGAS ENTERTAINMENT NETWORK, INC.
A Delaware corporation
Las Vegas Entertainment Network, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: that a meeting of the Board of Directors of Las Vegas
Entertainment Network, Inc. Resolutions were duly adopted, setting forth a
proposed amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling for a special meeting of
the stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
"RESOLVED that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof number "Fourth" so that, as amended, said
Article shall be and read as follows:
"FOURTH, the total number of shares of Common Stock which the corporation shall
have authority to issue is ____________ shares, and the par value of each such
share is $.02 per share. Each share of Common Stock outstanding immediately
prior to the filing of this Certificate of Amendment shall be reclassified and
changed into one-twentieth (1/20) of one issued and outstanding share, with a
par value of $.02 per share."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said
amendment.
IN WITNESS WHEREOF, Las Vegas Entertainment Network, Inc. has caused this
certificate to be signed by Joseph A. Corazzi, its Chairman, and Carl A. Sambus,
its Secretary, this 19th day of October 1998.
LAS VEGAS ENTERTAINMENT NETWORK, INC
.
By: \s\ Joseph A. Corazzi
Chairman
Attest: \s\ Carl A. Sambus
Secretary
<PAGE>
UNANIMOUS WRITTEN CONSENT
OF
THE BOARD OF DIRECTORS
OF
LAS VEGAS ENTERTAINMENT NETWORK, INC.
The undersigned, being all of the directors of Las Vegas Entertainment
Network, Inc., a Delaware corporation (the "Corporation) do hereby consent to
and adopt the following resolutions by written consent, without a meeting,
pursuant to Section 141(f) of the General Corporation Law of the State of
Delaware and the Bylaws of the Corporation.
WHEREAS, the Board of Directors of the Corporation (the "Board") has
previously authorized a reserve split in the shares of Common Stock of the
Corporation (the "Reverse Split"), the precise split ratio to be determined by
the Board in its discretion, up to one-for-twenty (1-for-2-); and
WHEREAS, the Reserve Split was previously submitted to the stockholders
of the Corporation for their approval and was approved by a majority of the
outstanding shares entitled to vote thereon at a special meeting held on October
16, 1998; and
WHEREAS, the Board deems it advisable and in the best interest of the
Corporation and its stockholders that the Certificate of Incorporation of the
Corporation be amended so as to effect the Reverse Stock Split on a
one-for-twenty (1-for-20) basis and to set a record date therefor;
NOW THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation of
the Corporation be amended by changing the Article thereof numberd ("Fourth") so
that, as amended, said Article shall be and read as follows:
"FOURTH, the total number of shares of Common Stock which the
corporation shall have authority to issue is 2,500,000 (Two
Million, Five Hundred Thousand) shares, $.02 par value per share.
Each share of Common Stock outstanding at theclose of business on
November 2, 1998, shall be reclassified and changed into
one-twentieth (1/20) of one issued and outstanding share, $.02 par
value per share; provided, however, that any fractional shares
resulting from such reclassification shall be converted solely into
the right to receive, upon surrender of the certificates
representing same, an amount in cash equal to the fair value
thereof, determined... (to come)."
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized and directed to execute, ackhnowledge and file with the
Secretary of State of the State of Delaware a Certificate of Amendment to the
Corporation's Certificate of Incorporation, setting forth the foregoing
resolutions, and to make such other filings with any other governmental or
regulatory agencies, and to take such other actions, as they deem necessary or
advisable in order to carry out the intent of the foregoing resolutions;
provided, however, that notwithstanding the authorization of the foregoing
resolutions by the stockholders of the Corporation, the Board may abandon the
proposed amendment at any time prior to the filing thereof with the Secretary of
<PAGE>
State of the State of Delaware without further action or approval by the
stockholders of the
<PAGE>
Corporation; and
FURTHER RESOLVED, that whenever certificates representing shares of
common stock of the corporation outstanding prior to the close of business on
November 2, 1998, shall be submitted to the transfer agent for the Corporation,
the transfer agent shall issue new certificates representing one-twentieth
(1/20) of the number of shares of common stock submitted, in a number in
accordance with the foregoing resolutions.
This Unanimous Written Consent may be executed in any number of
counterparts, all of which together shall be deemed to constitute a single
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous
Written Consent as of this 19th day of October 1998.
By: \s\ Joseph A. Corazzi
By: \s\ Carl A. Sambus
By: \s\ Paul Whitford
By: \s\ Jefferson Simmons
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
ROBERT J. QUIGLEY, FRANK A. )
LEO AND THE FAMILY INVESTMENT )
TRUST (Henry Brennan as Trustee), )
)
Plaintiffs, )
)
v. ) C.A. No. 15919
)
NUNZIO P. DeSANTIS, MICHAEL )
ABRAHAM, ANTHONY COELHO, KENNETH )
W. SCHOLL, JOSEPH ZAPPALA, )
JOSEPH A. CORAZZI, and LAS VEGAS )
ENTERTAINMENT NETWORK, INC., a )
Delaware corporation, )
)
Defendants, )
)
and )
)
INTERNATIONAL THOROUGHBRED )
BREEDERS, INC., a Delaware )
corporation, )
)
Nominal Defendant. )
)
- ------------------------------------------)
)
)
INTERNATIONAL THOROUGHBRED )
BREEDERS, INC., a Delaware )
corporation, )
)
Nominal Defendant and )
Counterclaim Plaintiff, )
)
v. )
)
ROBERT J. QUIGLEY, FRANK A. )
LEO, FRANCIS W. MURRAY and )
CHARLES R. DEES, JR., )
)
Counterclaim Defendants. )
-1-
RLF1-172171-1
<PAGE>
STIPULATION AND AGREEMENT
OF COMPROMISE, SETTLEMENT AND RELEASE
The parties to the above-captioned consolidated civil action,
individually, hereby enter into the following Stipulation and Agreement of
Compromise, Settlement and Release (the "Stipulation") subject to the approval
of the Court:
WHEREAS,
A. International Thoroughbred Breeders, Inc., a Delaware
corporation ("ITB"), was founded in 1980 by Robert E. Brennan ("Brennan"), who
served as ITB's Chairman of the Board and Chief Executive Officer until 1995. By
December 1996, ITB had approximately 11.6 million shares outstanding, which were
owned by approximately 30,000 stockholders and traded on the American Stock
Exchange ("AMEX").
B. In August 1995, Brennan filed a voluntary petition for
bankruptcy protection in the United States Bankruptcy Court for the District of
New Jersey (the "New Jersey Bankruptcy Court"), captioned In the Matter of
Robert E. Brennan, Case No. 95-35502 (KGF) (USBC Dist. NJ) (the "Brennan
Bankruptcy Action"), as a result of a $75 million civil judgment against him in
favor of the Securities and Exchange Commission ("SEC") on a matter unrelated to
ITB. Brennan's bankruptcy estate included 2,904,016 shares of ITB common stock,
representing approximately 25% of ITB's then outstanding common stock.
C. Solely as a result of the SEC civil judgment against
Brennan, in late October 1995, the New Jersey Department of Law and Public
Safety, Division of Gaming Enforcement ("DGE") filed a complaint with the New
Jersey Casino Control Commission ("CCC") seeking to bar ITB's subsidiaries,
Garden State Race Track, Inc. and Freehold Racing Association, from conducting
business with any casino licensee. In response to the DGE complaint, Brennan
resigned from his
-2-
RLF1-172171-1
<PAGE>
positions at ITB and its subsidiaries. Pursuant to a settlement with the DGE,
Brennan agreed to divest his approximately 25% interest in ITB.
D. On December 5, 1996, Brennan entered into a stock purchase
agreement (the "Stock Purchase Agreement") in which he agreed to sell all of his
ITB shares to NPD, Inc. ("NPD"), which is owned 78% by Nunzio P. DeSantis
("DeSantis") and 22% by Anthony Coelho ("Coelho"). The purchase price for
Brennan's ITB shares was $11,616,064 (subject to certain potential post-closing
adjustments), half of which was payable at closing and half in the form of a
note in the amount of $5,808,032, plus interest (the "NPD Note"). The Stock
Purchase Agreement also provided that NPD would establish an unsecured $5
million revolving line of credit in favor of ITB (the "Revolving Line of
Credit"). Pursuant to the Stock Purchase Agreement, NPD pledged the purchased
shares as security for NPD's performance under the NPD Note, which shares are
currently held in escrow by Brennan's counsel, Cole, Schotz, Meisel, Forman &
Leonard, P.C. ("Cole Schotz"). Pursuant to the Stock Purchase Agreement, NPD
granted options to purchase portions of the purchased shares to (i) Robert Green
("Green"), (ii) AutoLend Group, Inc. ("AutoLend"), a publicly traded corporation
in which DeSantis is the chief executive officer and a substantial stockholder
and both DeSantis and Coelho are directors, and (iii) DeSantis.
E. On December 20, 1996, the ITB board of directors (the "ITB
Board") adopted a by-law provision requiring the affirmative vote of not less
than 75% of the entire ITB Board to effectuate certain transactions, including:
(i) a merger; (ii) the purchase or sale of assets for proceeds of at least $1
million; (iii) the issuance of capital stock, options, warrants or securities;
(iv) the execution of any employment, consulting or similar agreements with
officers, directors or key employees; (v) the borrowing of $3 million or more by
ITB; (vi) the filling of any vacancy on the ITB
-3-
RLF1-172171-1
<PAGE>
Board; (vii) the determination of management's nominees for election to the
ITB Board; and (viii) any future amendments by the ITB Board to ITB's by-laws
(the "Supermajority By-law"). F. On January 10, 1997, the New Jersey Bankruptcy
Court approved the first amendment to the Stock Purchase Agreement (the "First
Amendment") and authorized Brennan to sell his ITB shares to NPD in accordance
with the First Amendment. The First Amendment provides for limited guarantees by
DeSantis and AutoLend of NPD's obligations, and for AutoLend to pledge
$2,000,000 in cash collateral to Brennan to secure its guaranty, which
$2,000,000 is being held in escrow by Brennan's counsel, Cole Schotz, in an
interest-bearing account. G. Upon the closing of the Stock Purchase Agreement on
January 15, 1997, defendants DeSantis, Coelho, Kenneth S. Scholl ("Scholl"),
Michael Abraham ("Abraham") and Joseph Zappala ("Zappala") (collectively, the
"Director Defendants") became directors of ITB, representing a majority of the
ITB Board. However, Zappala's appointment to the ITB Board did not become
effective until January 25, 1997. H. The Director Defendants contend that the
ITB Board repealed the Supermajority By-law during March 1997 in connection with
the CSFB Loan Agreement (defined below). I. On September 10, 1997, a verified
complaint was filed in the Delaware Court of Chancery (the "Delaware Court")
captioned John Mariucci, Robert J. Quigley, Charles R. Dees, Jr., James J.
Murray, Francis W. Murray, Frank A. Leo and The Family Investment Trust (Henry
Brennan as Trustee) v. Nunzio P. DeSantis, Michael Abraham, Anthony Coelho,
Kenneth W. Scholl and Joseph Zappala and ITB (nominal defendant), C.A. No. 15918
(the "Section 225 Action"). The complaint in the Section 225 Action sought a
declaration that Frank Koenemund, John Mariucci and James W. Murray are
directors of ITB and that the individual defendants therein were never validly
appointed to the ITB Board. Plaintiffs in the Section 225 Action alleged that
the resignations of
-4-
RLF1-172171-1
<PAGE>
Koenemund, Mariucci and Murray from the ITB Board in January 1997 were
ineffective because NPD failed to lend monies to ITB pursuant to the Revolving
Line of Credit. The Delaware Court dismissed the Section 225 Action on October
14, 1997.
J. On or about September 10, 1997 a verified derivative complaint 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 Zappala, Joseph A. Corazzi and Las Vegas Entertainment Network,
Inc. and International Thoroughbred Breeders, Inc., C.A. No. 15919-NC, was filed
in the Delaware Court, alleging that the defendants therein (collectively, the
"Defendants") acted in contravention of ITB's by-laws, Delaware law and the
individual Defendants' fiduciary duties (the "Quigley Action")
K. The complaint in the Quigley Action challenges certain
actions or transactions which were purportedly undertaken by ITB and various of
the Defendants since January 1997, allegedly at the behest of the Defendants and
purportedly without the requisite vote necessary under the Supermajority By-law,
in contravention of Delaware law and the Director Defendants' fiduciary duties,
including:
(1) A loan agreement (the "CSFB Loan Agreement") in which Credit
Suisse First Boston Mortgage Capital LLC ("CSFB") loaned $55 million to ITB (the
"CSFB Loan") in exchange for (i) a first mortgage on the land and buildings
comprising the former El Rancho Hotel and Casino in Las Vegas, Nevada owned by
Orion Casino Corporation ("Orion"), a wholly-owned subsidiary of International
Thoroughbred Gaming Development Corporation, a wholly-owned subsidiary of ITB,
as described in Schedule K(1) attached hereto and incorporated herein by
reference (the "El Rancho Property"), (ii) a first mortgage on the land and
buildings comprising Garden State Race Track ("Garden State"), and (iii) a third
mortgage on the land and buildings comprising Freehold
-5-
RLF1-172171-1
<PAGE>
Raceway ("Freehold"). In connection with the CSFB Loan Agreement, CSFB was
granted warrants to purchase 546,847 ITB shares immediately, and is entitled to
receive warrants to purchase an additional 497,153 ITB shares upon the provision
of additional funding to ITB.
(2) An agreement (the "Tri-Party Agreement") among ITB, CSFB and Las Vegas
Entertainment Network, Inc. ("LVEN"), of which Defendant Joseph Corazzi
("Corazzi") is an officer and director, pursuant to which ITB issued (i)
2,093,868 ITB shares to Casino-Co Corporation ("Casino-Co"), a subsidiary of
LVEN, purportedly in exchange for the satisfaction and cancellation of a $10.5
million note from ITB to LVEN plus accrued interest and (ii) 232,652 ITB shares
to CSFB in consideration for CSFB's consent to such transaction with LVEN. In
connection with the Tri-Party Agreement, LVEN and Casino-Co granted to DeSantis
a proxy to vote the 2,093,868 ITB shares. The Tri-Party Agreement also obligated
ITB to issue additional ITB shares to LVEN in exchange for the cancellation of
LVEN's contingent, future interest in the profits of the undeveloped El Rancho
Property (the "Future Interest Purchase"), and to issue additional shares of ITB
stock to CSFB in consideration for CSFB's consent to the Future Interest
Purchase. (3) An agreement between ITB and LVEN (the "Bi-Lateral Agreement"),
which allegedly would reduce ITB's recovery on its investment in the El Rancho
Property if the Future Interest Purchase is not completed. (4) A letter
agreement between ITB and D&C Gaming Corporation, a Delaware corporation ("D&C
Gaming"), which is owned by DeSantis and Corazzi, pursuant to which ITB paid D&C
Gaming $600,000 for an option to purchase potential leasehold interests in
certain New Mexico racetracks (the "New Mexico Leases"). (5) The purchase of a
racetrack in Ontario, Canada (the "Ontario Racetrack"), by a company in which
DeSantis holds an 80% interest.
-6-
RLF1-172171-1
<PAGE>
(6) Agreements granting DeSantis, Coelho and Zappala certain compensation
packages, benefits and options to purchase ITB shares, including: (a) An
agreement between ITB and DeSantis granting DeSantis options to purchase 5
million shares of ITB stock, which options are subject to stockholder approval.
(b) An agreement between ITB and Coelho granting Coelho options to purchase 1
million shares of ITB stock, which options are subject to stockholder approval.
(c) An employment agreement obligating ITB to pay DeSantis $450,000 in base
salary per year for ten years, plus bonuses, six weeks paid vacation, $1,500 per
month car allowance and a $5,000 per month "non-accountable expense account."
(d) Consulting contracts obligating ITB to pay each of Zappala and Coelho
$10,000 per month, on a month-to-month basis. L. The complaint in the Quigley
Action alleges, among other things, that the Director Defendants (i) ignored and
continuously violated the requirements of the Supermajority ByLaw; (ii)
improperly and erroneously announced that the Supermajority By-Law had been
repealed; (iii) distorted ITB Board minutes relating to the purported repeal of
the Supermajority By-Law; (iv) caused ITB to approve the Tri-Party Agreement,
the Bi-Lateral Agreement and the CSFB Loan Agreement in contravention of the
Supermajority By-Law, Delaware law, their fiduciary duties and in order to
promote the interests of LVEN, DeSantis and Corazzi; (v) caused ITB to enter
into wasteful compensation, employment and consulting agreements favoring
DeSantis, Coelho and Zappala; (vi) caused ITB to enter into the letter agreement
with D&C Gaming in connection with the New Mexico Leases in order to benefit
DeSantis and Corazzi; (vii) usurped corporate opportunities relating to the New
Mexico Leases and the Ontario Racetrack; and (viii) manipulated ITB Board
processes for their own advantage in contravention of their fiduciary duties.
The Quigley Action seeks a declaratory
-7-
RLF1-172171-1
<PAGE>
judgment that the actions taken by the Director Defendants in alleged
contravention of the Supermajority By-Law, Delaware law and the fiduciary
obligations of the Director Defendants are void and should be rescinded. The
Quigley Action also seeks to recover alleged damages suffered by ITB in
connection with the challenged actions.
M. Defendants in the Quigley Action, except Corazzi (who filed a motion to
dismiss for lack of personal jurisdiction), filed answers to the complaint in
the Quigley Action denying the material allegations of the complaint. Defendant
ITB also asserted counterclaims (the "Counterclaims") against plaintiffs Robert
J. Quigley ("Quigley") and Frank A. Leo ("Leo"), and joined the following
persons as counterclaim-defendants: Francis W. Murray ("Murray") and Charles R.
Dees, Jr. ("Dees") (collectively, the "Counterclaim-Defendants").
N. ITB's Counterclaims challenge certain actions or transactions
purportedly taken by some or all of the Counterclaim-Defendants, in
contravention of Delaware law and the Counterclaim-Defendants' fiduciary duties,
including:
(1) The adoption of the Supermajority By-law by the Counterclaim-
Defendants on December 20, 1996, allegedly without disclosing its adoption (i)
in ITB's January 15, 1997 Information Statement filed with the SEC or in any
other SEC filings, (ii) to NPD, or (iii) to the Director Defendants, who
allegedly did not learn of the existence of the Supermajority By-law until
approximately March 1997. (2) The Counterclaim-Defendants' continued assertions
that the Supermajority By-law was not validly repealed by the ITB Board. (3) The
Counterclaim-Defendants' alleged continued affiliation with Brennan, which has
been the subject of a CCC and DGE investigation.
-8-
RLF1-172171-1
<PAGE>
(4) The Counterclaim-Defendants' alleged interference with ITB's ability to
engage a new independent auditor after ITB's former audit firm, Moore Stephens,
P.C., was terminated by ITB on or about August 6, 1997, in the
Counterclaim-Defendants' belief that a larger national firm would better serve
ITB's needs. ITB was delayed in retaining a new outside audit firm, and as a
result, was unable to comply with certain SEC reporting requirements, thereby
resulting in the suspension of trading in ITB stock on AMEX.
(5) The alleged purchase by Counterclaim-Defendants Murray and Leo of a
Florida cruise ship which is used for gaming.
(6) The alleged use of corporate charge cards and cellular phones belonging
to ITB for non-ITB business by Murray, and the purchase by Murray, at ITB's
expense, of computer and office equipment, which has not yet been returned to
ITB.
(7) The Counterclaim-Defendants' alleged attempts to interfere with the
discharge of duties by ITB employees.
O. ITB's Counterclaims allege that the Counterclaim-Defendants
(i) enacted, asserted the validity of, and opposed the removal of, the
Supermajority By-law purportedly in order to aid Brennan in continuing to
exercise control and influence over the business affairs of ITB; (ii) improperly
interfered with ITB's ability to arrange a second tranche of financing for ITB
from CSFB because of their continued assertion that the Supermajority By-law has
not been repealed; (iii) improperly interfered with ITB's ability to engage
independent auditors, thereby causing ITB to be delinquent in its SEC filings
and causing the suspension of trading in ITB's stock on AMEX; (iv) used
corporate funds for their personal benefit (Murray only); and (v) usurped ITB
corporate opportunities by acquiring interest in a Florida cruise ship used for
gaming (Murray and Leo only). The Counterclaims seek (i) injunctive relief
enjoining the Counterclaim-Defendants from, among other
-9-
RLF1-172171-1
<PAGE>
things, interfering in ITB's day-to-day business operations, (ii) the
establishment of a constructive trust over certain assets purportedly owned or
controlled by Murray and Leo, (iii) a declaratory judgment that the purported
Supermajority By-Law has been repealed, and (iv) money damages.
P. The Counterclaim-Defendants denied all of the
Counterclaims. In further response to the Counterclaims, Murray brought a
counterclaim against ITB (the "Murray Counterclaim") alleging that ITB
wrongfully terminated Murray from his position at ITB and failed to pay certain
compensation to Murray. ITB filed an answer to the Murray Counterclaim denying
all material allegations therein.
Q. On or about September 11, 1997 a separate verified derivative complaint
captioned James Rekulak v. Nunzio P. DeSantis, Michael Abraham, Anthony Coelho,
Kenneth W. Scholl, Joseph Zappala, Joseph A. Corazzi and Las Vegas Entertainment
Network, Inc. and International Thoroughbred Breeders, Inc., C.A. No. 15920-NC,
was commenced in the Delaware Court alleging that the defendants therein acted
in contravention of ITB's by-laws, Delaware law and the Director Defendants'
fiduciary duties (the "Rekulak Action"). The allegations made and the relief
sought in the Rekulak Action are virtually identical to those in the Quigley
Action.
R. On or about October 30, 1997 a separate complaint captioned Robert Wm.
Green v. Nunzio P. DeSantis, Joseph Corazzi, Anthony Coelho, Las Vegas
Entertainment Network, Inc. and NPD, Inc. was filed in the United States
District Court for the District of New Jersey, alleging that the defendants
therein acted in contravention of ITB's by-laws, their fiduciary duties, and
their contractual obligations in connection with Green's interests pertaining to
ITB (the "Green Action").
S. On or about November 17, 1997 a separate complaint captioned NPD, Inc.
v. Robert J. Quigley, Francis W. Murray, Frank A. Leo, Charles R. Dees, Jr.,
John Mariucci, Frank Koenemund and James J. Murray, C.A. No. 97-CV-5657, was
filed in the United States District Court
-10-
RLF1-172171-1
<PAGE>
for the District of New Jersey, alleging fraudulent and conspiratorial conduct
by the defendants therein in connection with the Stock Purchase Agreement (the
"NPD Action").
T. Brennan contends in the Brennan Bankruptcy Action that NPD,
and thereby DeSantis and Coelho, breached their obligations under the Stock
Purchase Agreement to, among other things, fund the Revolving Line of Credit,
and that certain other actions taken by certain of the Defendants and NPD, as
alleged in the complaint in the Quigley Action, purportedly undermined the
ability of Brennan's bankruptcy estate to collect on the NPD Note, diluted and
devalued the ITB shares pledged by NPD pursuant to the Stock Purchase Agreement,
and allegedly interfered with the ability of Brennan's bankruptcy estate to
realize appreciation on the ITB shares (collectively, the "Bankruptcy Claims").
Accordingly, Brennan issued subpoenas in connection with the Brennan Bankruptcy
Action to compel the examination of two ITB officers. In response, a Stipulation
and Order was entered by the New Jersey Bankruptcy Court permitting Brennan, his
trustee in the Brennan Bankruptcy Action, Donald F. Conway (the "Bankruptcy
Trustee"), the unsecured creditors committee in the Brennan Bankruptcy Action
and the SEC to participate in certain discovery in the Quigley Action and the
Rekulak Action.
U. On January 14, 1998, the Quigley Action and the Rekulak Action
(collectively, the "Derivative Action") were consolidated by order of the
Delaware Court. Thereafter, the Delaware Court scheduled trial of the Derivative
Action to commence in late May 1998. "Plaintiffs" hereinafter refers to the
plaintiffs and Counterclaim-Defendants in the Derivative Action.
V. On or about February 24, 1998, a complaint captioned Myron Harris,
derivatively on behalf of International Thoroughbred Breeders, Inc., a Delaware
corporation v. Nunzio P. DeSantis, Anthony Coelho, Kenneth W. Scholl, Michael
Abraham, Joseph Zappala, Frank A. Leo, Robert J. Quigley, Charles R. Dees, Jr.,
and Francis W. Murray, C.A. No. 98-CV-517 (JBS) was
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filed in the United States District Court for the District of New Jersey (the
"Harris Action"). The factual allegations and claims asserted in the Harris
Action are virtually identical to those in the Derivative Action, including the
Counterclaims. The defendants in the Harris Action have collectively moved to
dismiss the complaint on the grounds that the claims are duplicative of those
asserted in the prior pending Delaware Action in the Delaware Court, and that
judicial and party resources would be conserved if all such claims were pursued
in the Derivative Action. The Harris Action and the Actions (as defined below)
are sometimes hereafter collectively referred to as the "Litigations."
W. During the discovery in the Derivative Action, the parties
commenced (but did not complete) the production of documents, commenced the
deposition of Christopher C. Castens (ITB's general counsel), completed the
deposition of James J. Murray (a former ITB director), and commenced the
deposition of Roger A. Tolins (ITB's former outside counsel). As a result of the
parties' settlement agreement (the "Settlement") set forth in this Stipulation,
further discovery in the Derivative Action was discontinued.
X. In January 1998, the parties began negotiations regarding
the possible settlement of the Quigley Action, the Green Action, the NPD Action,
and the Bankruptcy Claims (collectively the "Actions"). Following vigorous and
protracted negotiations regarding the terms of the possible settlement of the
Actions, the parties agreed to the Settlement. The plaintiff in the Rekulak
Action has agreed to dismiss his action with prejudice upon the Delaware Court
Approval (as defined in subsection 2(a) below)
Y. In anticipation of the Settlement and the sale of the El
Rancho Property contemplated thereby, LVEN is negotiating the possible sale of
the El Rancho Property with third parties. In that regard, on March 27, 1998,
LVEN entered into an Acquisition Agreement (the "APW Acquisition Agreement"), by
and between itself and American Pastime West II LLC ("APW") pursuant
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to which the entire El Rancho Property may be sold, subject to various
enumerated terms and conditions and pursuant to and in accordance with the
Settlement. Pursuant to the APW Acquisition Agreement, and subject to the
various conditions, representations and warranties therein, including without
limitation, representations and warranties by LVEN and APW, the El Rancho
Property would be sold for Sixty-Two Million Five Hundred Thousand Dollars
($62,500,000) (the "El Rancho Purchase Price"), which El Rancho Purchase Price
would be distributed in accordance with the following schedule, to the extent
such moneys exist: (i) first, $44.2 million to either CSFB, to be applied in
reduction of the CSFB Loan in accordance with the terms of the CSFB Approval
Agreement (as defined below), or to any Alternative Lender (as defined below) in
accordance with any agreement therewith, as the case may be; (ii) second, to
LVEN's share (as provided in the APW Acquisition Agreement) of the costs of the
closing of the sale of the El Rancho Property; (iii) third, $4.375 million to
Francis A. Zarro, Jr. (a principal of APW); (iv) fourth, $7.1 million to
DeSantis, less any amounts paid to DeSantis or NPD pursuant to the Settlement;
(v) fifth, $1 million to Zappala (of which $200,000 will be paid by Zappala to
ITB pursuant to Section 7 below); and (vi) last, any remaining balance to LVEN.
Z. On April 17, 1998, the ITB Board authorized the exploration
of strategic opportunities for ITB, including a possible merger or sale of all
of the Company's assets, and the possible hiring of a financial advisor to
assist in that activity. In connection with the ITB Board's exploration of
strategic opportunities for ITB, ITB negotiated an asset purchase/lease
agreement with Greenwood New Jersey, Inc. ("Greenwood"), a wholly-owned
subsidiary of Greenwood Racing, Inc. which is the operator of Philadelphia Park.
Subject to the satisfaction of numerous conditions by Greenwood and ITB,
including the receipt of a fairness opinion by the ITB Board and approval of the
transaction by the holders of a majority of ITB's common stock, Greenwood will
purchase all of the
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real property and related assets at Freehold and will lease the real property
and related assets at Garden State (the "Greenwood Transaction"). Greenwood will
purchase Freehold for $33 million cash and a $12 million non-contingent note
payable in full within seven years after closing. ITB also will receive $10
million in contingent notes from Greenwood, including (i) a $5 million note
payable in the event Greenwood receives, within three years of closing, all
approvals necessary to operate an off-track betting facility ("OTB Facility") at
Garden State; (ii) a $3 million note payable in the event New Jersey enacts
legislation within three years of closing that would permit Garden State or
Freehold to own and operate OTB Facilities other than at Garden State; and (iii)
a $2 million note payable in the event New Jersey enacts legislation within
three years of closing that permits Greenwood to engage in New Jersey- based
telephone account pari-mutuel wagering on horse racing and through which
Greenwood opens new accounts from New Jersey residents. Greenwood Racing, Inc.
will guarantee the performance by Greenwood of all obligations under the notes
and the notes will be secured by junior mortgages on Freehold. The purchase
price will be increased as follows: (i) if within five years of closing, New
Jersey enacts legislation permitting the operation of slot machines at Garden
State, Freehold or any OTB Facilities owned and operated by Greenwood as a
result of Greenwood's ownership of either Garden State or Freehold, Greenwood
will pay 10% of the gross wins from the slot machines for ten years; (ii) if
within two years of closing, New Jersey requires a portion of Atlantic City
casino gambling revenues to be paid to New Jersey race tracks, including Garden
State and Freehold, Greenwood will pay 50% of the net cash received for four
years; and (iii) if within two years of closing, New Jersey enacts any subsidy
that would produce direct measurable financial benefit to Garden State and/or
Freehold, Greenwood will pay 50% of net cash received for four years. In
addition, Greenwood will lease Garden State for $100,000 per year for seven
years, renewable for an additional three years. During the lease term, Greenwood
will have the option to purchase a ten acre
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parcel at fair market value, and will have certain rights of first refusal in
the event ITB seeks to sell Garden State. In connection with the Greenwood
lease, ITB may not sell Garden State to any entity during the first year of the
lease, and during the four years after closing, ITB may not sell Garden State to
any entity that will use Garden State for horse racing or gambling. The
foregoing is a summary, and the complete terms of the proposed Greenwood
Transaction will be available in ITB's public filings. The proposed Settlement
of the Actions is not dependent upon the consummation of the Greenwood
Transaction.
AA. In connection with the negotiations regarding the
Settlement of the Actions, and because CSFB would be affected by the terms of
the Settlement and because numerous defaults exist under the CSFB Loan Agreement
which ITB has requested that CSFB waive, the Plaintiffs began negotiations with
CSFB regarding the possible alteration of the CSFB Loan Agreement and the terms
of the CSFB Loan. In order to effectuate and reflect the terms of the
Settlement, CSFB and ITB are negotiating an agreement (the "CSFB Approval
Agreement") to be effective immediately upon the execution thereof by ITB, its
subsidiaries and CSFB following the unanimous approval thereof by the entire ITB
Board (the "CSFB Effective Date"), except with respect to those agreements
contained therein which, by their terms, only become effective upon the LVEN
Effective Date or the NPD Effective Date (each as hereinafter defined), as
applicable. In the event that ITB and CSFB are unable to agree upon the terms of
the CSFB Approval Agreement, ITB expects to complete a financing arrangement
with an alternative lender (the "Alternative Lender"), to be entered into by the
parties thereto and approved by LVEN pursuant to Section 24 below, in order to
pre-pay the CSFB Loan and to proceed with this Settlement (the "Alternative
Financing Agreement").
BB. On May 18, 1998, the New Jersey Bankruptcy Court in the Brennan
Bankruptcy Action issued, ex parte, a temporary restraining order, as amended by
consent on May 27, 1998 (the
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"TRO"), which restrains and enjoins Henry Brennan, as trustee for The Family
Investment Trust, from transferring, hypothecating, lending, distributing,
disposing, concealing, dissipating or otherwise effecting any change in the
legal or beneficial interest in any assets, funds or other property of The
Family Investment Trust and any interest therein. Although The Family Investment
Trust (Henry Brennan as Trustee) has agreed to settle the Actions pursuant to
the terms of this Stipulation, as a result of the TRO Henry Brennan is currently
unable to execute this Stipulation. Henry Brennan is promptly undertaking to
obtain relief from the TRO in order to execute this Stipulation.
CC. The parties to the Actions, through their attorneys, have
conducted extensive investigation and evaluation of the facts and legal
principles underlying their respective claims. In connection with their
investigation and evaluation, the parties' counsel have carefully reviewed
thousands of pages of documents produced in connection with the Section 225
Action and the Derivative Action, conducted factual and legal research
concerning the viability of their claims, conducted several formal and informal
fact interviews with relevant knowledgeable persons, and took certain
depositions.
DD. After considering all of the above, all parties to the
Actions have concluded that: (i) under all of the circumstances, there are
uncertainties as to whether the various parties will prevail on their respective
claims raised in the Actions; (ii) continued prosecution of the Actions will be
costly; (iii) the Settlement as hereinafter described will benefit ITB and its
over 30,000 public stockholders; and (iv) under all of the circumstances
presented, further prosecution of the Actions or of any other actions between or
among the parties based upon the Settled Claims (as defined below) would not be
in the best interests of ITB or its stockholders. All parties to the Actions
therefore consider it desirable and in the best interests of the stockholders of
ITB to resolve finally all matters at issue in the Actions, and to that end, to
settle the Actions upon the terms hereinafter set forth.
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EE. All parties in the Actions have vigorously denied, and
continue to deny, all liability with respect to the claims in the Actions, deny
that they engaged in any wrongdoing, including, without limitation, deny that
they committed any violation of law, deny that they breached any fiduciary
duties, and deny that any of them are subject to any liability whatsoever by
reason of the matters complained of in the Actions. The parties to the Actions
have nevertheless agreed, in the interests of all concerned, including ITB's
public stockholders, to settle and compromise the Actions on terms hereinafter
set forth in order to avoid further substantial expense to the parties, avoid
the inconvenience and distraction of burdensome and protracted litigation, and
in order to put to rest and finally terminate the Settled Claims (as hereinafter
defined).
NOW, THEREFORE, IT IS STIPULATED AND AGREED, subject to the
approval of the Delaware Court pursuant to Rule 23.1 of the Rules of the Court
of Chancery, as follows:
THE SETTLEMENT
1. Upon the execution of this Stipulation by all persons and
entities hereto (the "Signing Date"), the parties shall immediately effect a
standstill of all of their respective proceedings as to the other parties hereto
in the Actions.
2. The Settlement shall be effective with respect to LVEN,
Corazzi, Casino-Co, CountryLand Properties, Inc. and Las Vegas Communications
Corporation (collectively, the "LVEN Parties") and, only to the extent necessary
under Section 4 hereof, to the other parties to this Stipulation, upon the date
on which the last of the following approvals is received and action is taken
(the "LVEN Effective Date"):
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(a) execution of this Stipulation by The Family Investment Trust (Henry
Brennan as Trustee) and the final approval by the Delaware Court of the
Settlement and the expiration of all appeal periods, as set forth in Section 20
below ("Delaware Court Approval"); and (b) full execution of the CSFB Approval
Agreement or the Alternative Financing Agreement, as the case may be, and LVEN's
approval thereof as provided in Section 24 below. 3. The Settlement shall be
effective with respect to all parties other than the LVEN Parties upon the date
on which the last of the following approvals is received and action is taken
(the "NPD Effective Date"): (a) Delaware Court Approval; (b) full execution of
the CSFB Approval Agreement or the Alternative Financing Agreement; (c) approval
by the New Jersey Bankruptcy Court in the Brennan Bankruptcy Action (the
"Brennan Bankruptcy Approval") of (i) the assumption by ITB of the NPD Note in
accordance with the terms of, and following the satisfaction of the conditions
with respect thereto set forth in, the CSFB Approval Agreement or the
Alternative Financing Agreement, as the case may be, (ii) the return of the $2.0
million cash collateral held by Cole Schotz to AutoLend plus all interest
actually accrued thereon in the account(s) in which the same has been
maintained, (iii) the release of claims as provided in Section 15 below and
Exhibit A hereto, (iv) the execution of this Stipulation by Brennan and (v) the
delivery by the Bankruptcy Trustee of releases substantially in the form
attached hereto as Exhibit A to all parties to the Stipulation and to CSFB in
the event the CSFB Approval Agreement is executed by ITB and CSFB (the
"Bankruptcy Trustee Releases");
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(d) approval by the United States Bankruptcy Court for the District of New
Mexico (the "New Mexico Bankruptcy Court") with respect to the AutoLend
bankruptcy (the "AutoLend Bankruptcy Approval") of (i) the termination of
AutoLend's option to purchase the NPD Shares, (ii) the repayment at a discount
of the loan from AutoLend to NPD related to NPD's purchase of the NPD Shares,
and the termination of the related security documents, (iii) the release of
claims as provided in Section 15 below and Exhibit A hereto; and (iv) the
assumption of ITB's office lease in Albuquerque, New Mexico; (e) each of Green,
Casino-Co, LVEN, AutoLend and DeSantis shall immediately and automatically
release any and all of his or its respective interests in and to the NPD Shares
(collectively, the "NPD Pledge Release") and shall, in form reasonably
satisfactory to ITB and NPD, have represented, warranted and certified such
release in writing to ITB and NPD; and (f) the Bankruptcy Trustee shall have
delivered the Bankruptcy Trustee Releases. 4. Upon the LVEN Effective Date, the
parties agree as follows: (a) The Bi-Lateral Agreement and the Tri-Party
Agreement shall be deemed terminated immediately and automatically, and shall be
of no further force or effect. (b) ITB shall: (i) deposit into escrow (the
"Escrow"), with an escrow agent (the "Escrow Agent") to be mutually agreed upon
by the Plaintiffs and Defendants, an executed and otherwise recordable Grant,
Bargain and Sale Deed (the "Deed"), with the "Grantee" name in blank, to the El
Rancho Property, such deed to be held in Escrow, subject to the provisions of
subsection 4(c) below in the event the CSFB Approval Agreement is executed by
ITB and CSFB, for a period commencing on the date of mailing of the Notice of
this Settlement to ITB's stockholders (the "Mailing Date") as required under
Section 21 below and ending on the earlier to occur of (A) the two hundred
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and seventieth (270th) day thereafter, or (B) any earlier date or event provided
for in the CSFB Approval Agreement or the Alternative Financing Agreement, as
the case may be (the "Escrow Period"); (ii) execute appropriate escrow
instructions for the Escrow Agent, in customary form and mutually agreeable to
the parties, incorporating the terms hereof and the applicable terms set forth
on Schedule 4(b), and otherwise specifically granting to LVEN the right to make
a Disposition Sale (as defined in subsection 4(b)(6) below) of the El Rancho
Property in accordance with the terms of the Stipulation, subject, however, to
the rights of either CSFB or the Alternative Lender with respect to the El
Rancho Property as set forth in the CSFB Approval Agreement or the Alternative
Financing Agreement, as the case may be; and (iii) provide appropriate limited
representations and warranties, in the form provided in Schedule 4(b) attached
hereto and incorporated herein by reference, to any purchaser of the El Rancho
Property if required in order to effect a Disposition Sale. During the Escrow
Period, LVEN will have, and is hereby granted, the exclusive right to make a
Disposition Sale of the El Rancho Property, subject, however, to the rights of
either CSFB or the Alternative Lender with respect to the El Rancho Property as
set forth in the CSFB Approval Agreement or the Alternative Financing Agreement,
as the case may be, and the rights of ITB under subsection 4(b)(4) below, upon
the following terms:
(1) ITB will continue to be responsible for all operating costs incurred in
the ordinary course of business (including existing interest and other financing
costs), but expressly excluding all improvements or other capital expenditures
associated with its ownership of the El Rancho Property ("Carrying Costs"),
during the one hundred twenty (120) day period immediately following the Mailing
Date (the "LVEN Exclusive Marketing Period"), plus the Carrying Costs during an
additional period of up to sixty (60) days following the end of the LVEN
Exclusive Marketing Period in the event the LVEN Effective Date has not occurred
(the "Extension Period"). After the
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expiration of the LVEN Exclusive Marketing Period and the Extension Period, if
any, and through the remainder of the Escrow Period, LVEN shall pay ITB on or
before the fifth day of each consecutive calendar month, in advance, 50% of the
Carrying Costs for such calendar month; provided that if LVEN fails timely to
pay its share of the Carrying Costs for any month, the Escrow and the Escrow
Period shall immediately and automatically terminate. If the LVEN Exclusive
Marketing period terminates on other than the first day of a calendar month,
LVEN shall also pay ITB a pro rata portion of its share of Carrying Costs,
determined by the Per Diem Rate (as hereinafter defined), for the period from
and including the first calendar day following the termination of the LVEN
Exclusive Marketing Period and the Extension Period, if any, through the end of
that calendar month, such payment to be made on the first calendar day following
termination of the LVEN Exclusive Marketing Period and the Extension Period, if
any. LVEN's payment of its share of the Carrying Costs shall be in cash (US
dollars) by wire transfer of immediately available funds pursuant to written
wire transfer instructions given by ITB to LVEN from time to time and received
by LVEN at least two (2) business days prior to the date a payment is due. The
parties agree that the Carrying Costs, on a per diem basis, are Three Thousand
One Hundred and Sixty-One Dollars ($3,161.00) (the "Per Diem Rate").
Notwithstanding the foregoing, the parties agree that nothing contained in this
Stipulation, including, without limitation, any agreement by LVEN to pay all or
any portion of the Carrying Costs, shall abrogate, terminate or modify, in any
respect, ITB's obligation to make all payments to CSFB as and when required
under the CSFB Loan Agreement.
(2) LVEN shall provide the Escrow Agent and ITB with prior written
notice of a Disposition Sale no less than five (5) business days prior to
the proposed closing date for such Disposition Sale or such longer period
as may be required by the Escrow Agent. LVEN shall deliver to ITB and the
Escrow Agent, within three (3) business days of the execution thereof, any
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agreement (including any letter of intent) or amendment thereto entered into by
or on behalf of LVEN with respect to a Disposition Sale. LVEN shall immediately
provide ITB with copies of all notices given to or received by or on behalf of
LVEN with respect to any Disposition Sale.
(3) Prior to the expiration of the Escrow Period, the Escrow Agent
shall have the authority and the obligation to transfer title to the El
Rancho Property to any person or entity (including LVEN and its
subsidiaries, affiliates or other designee) designated in writing to the
Escrow Agent and ITB by LVEN, subject, however, to the rights of either
CSFB or the Alternative Lender with respect to the El Rancho Property as
set forth in the CSFB Approval Agreement or the Alternative Financing
Agreement, as the case may be, upon (i) the closing of a Disposition Sale
(the "LVEN Closing"), (ii) the immediate payment by LVEN or the purchaser
upon the LVEN Closing of (A) $44.2 million in immediately available funds,
which shall be paid directly by the purchaser to either CSFB or the
Alternative Lender, as the case may be, to satisfy any and all mortgages of
such parties on the El Rancho Property (the "El Rancho Mortgage"), if
required under either the CSFB Approval Agreement or the Alternative
Financing Agreement, as the case may be, and (B) an amount to ITB, paid in
immediately available funds, equal to the customary transaction costs, if
any, incurred by ITB to effect a Disposition Sale and the Carrying Costs
incurred by ITB (less those Carrying Costs actually received by ITB from
LVEN during that period) during the period from the end of the LVEN
Exclusive Marketing Period and the Extension Period, if any, through the
date of the LVEN Closing and (iii) if the LVEN Closing occurs within the
LVEN Exclusive Marketing Period, then LVEN shall be entitled to an offset
against the payments under clause (ii) above equal to (A) the Per Diem
Rate, multiplied by (B) the number of days remaining in the LVEN Exclusive
Marketing Period following the date of the LVEN Closing. All payments to
ITB, CSFB or the Alternative Lender shall be in immediately available funds
by wire transfer pursuant to wire instructions given by ITB, CSFB or the
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Alternative Lender, respectively. Any obligation of ITB to pay Carrying Costs
shall immediately cease upon the closing of a Disposition Sale.
(4) Following the expiration of the LVEN Exclusive Marketing Period, ITB
shall have the right to commence marketing and/or negotiations for a sale or
refinancing of the El Rancho Property by ITB pursuant to subsection 4(b)(5)
below or subsection 4(d)(2) below, as applicable, contingent upon the expiration
and termination of the Escrow Period and the non-occurrence of an LVEN Closing
during the Escrow Period.
(5) In the event that an LVEN Closing does not occur within the
LVEN Exclusive Marketing Period, ITB shall have the right to sell (as defined in
subsection 4(d)(3) below) the El Rancho Property prior to the expiration of the
Escrow Period for an amount not less than $56.2 million (which includes $44.2
million to be paid directly by the purchaser to either CSFB or the Alternative
Lender, if required by the CSFB Approval Agreement or the Alternative Financing
Agreement, as the case may be, and $12.0 million to LVEN (out of which $12.0
million to LVEN, LVEN hereby directs that $2.0 million be paid over to NPD));
and all proceeds, in excess of the $44.2 million to be paid to either CSFB or
the Alternative Lender, if required by the CSFB Approval Agreement or the
Alternative Financing Agreement, as the case may be, and the $12.0 million to be
paid to LVEN, shall belong to ITB (subject to payment of such amounts to CSFB
while the CSFB Loan is outstanding); provided that ITB furnishes LVEN with sixty
(60) days prior written notice that ITB is prepared to close a sale of the El
Rancho Property subject only to the expiration of such sixty-day period and the
non-occurrence of an LVEN Closing during such sixty-day period; provided
further, that ITB closes such sale of the El Rancho Property within five (5)
business days following the expiration of such sixty-day notice period. Upon
such sale, the Escrow Period shall be deemed to expire and terminate; and
provided further, that if LVEN withdraws from this Stipulation pursuant to
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Section 24 below, then $2.0 million shall be paid to NPD out of any proceeds
received from a sale of the El Rancho Property in excess of $44.2 million.
(6) For purposes of this subsection 4(b), a "Disposition Sale" shall mean
an all cash sale of the El Rancho Property (i) resulting in net proceeds to CSFB
or the Alternative Lender as provided in subsection 4(b)(3) in immediately
available funds, (ii) under commercially reasonable terms of sale, (iii) with no
indemnities from or post-closing liabilities of ITB to the purchaser, other than
the limited representations and warranties set forth on Schedule 4(b) attached
hereto, (iv) with a transfer of all title to the El Rancho Property and all
items of personal property located thereon and owned by ITB and/or its
affiliates by ITB to the purchaser pursuant to the Deed and appropriate bills of
sale and/or other instruments of transfer as to such items of personal property
and (v) with all excess sale proceeds being paid to LVEN.
(7) LVEN may exercise, only during the last thirty (30) days of the Escrow
Period, the Refinancing Option (as defined in subsection 4(b)(7)(A)) and thereby
extend the period during which LVEN may effect a Disposition Sale for a period
to be determined in accordance with the provisions set forth in subsection
4(b)(7)(B) below (the "Extended Disposition Option Period").
(A) For the purposes of this subsection 4(b)(7), the "Refinancing Option"
shall become exercisable by LVEN in the event LVEN, at its sole expense, obtains
for the sole benefit of ITB a loan from a nationally recognized financial
institution (the "El Rancho Lender") on terms acceptable to LVEN and to ITB,
which loan (the "Refinancing Loan") must (i) be consummated not later than two
days prior to the expiration of the Escrow Period, (ii) be nonrecourse to ITB
and, if required by the El Rancho Lender, secured by a lien on any or all of the
assets of ITB and its subsidiaries, including, without limitation, the El Rancho
Property, Freehold or
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Garden State (if any of such assets are owned by ITB or its subsidiaries at the
time of the closing of the Refinancing Loan), provided that any such lien on
Freehold or Garden State shall be subordinate to any existing mortgage thereon,
(iii) result in the payment of $44.2 million in immediately available funds to
either CSFB or the Alternative Lender, as the case may be, (iv) result in the
immediate and unconditional release of the entire El Rancho Mortgage by CSFB or
the Alternative Lender, as the case may be, and (v) contain such other
commercially reasonable terms and conditions as are deemed necessary or
desirable by either ITB or LVEN. LVEN shall pay all costs and expenses incurred
by LVEN and ITB, or otherwise required to be paid by the borrower of such
Refinancing Loan, with respect to such Refinancing Loan.
(B) Upon closing of such Refinancing Loan, LVEN shall
have the right to effect a Disposition Sale (i) for a period ending on the
earlier of (y) 365 days from the expiration of the Escrow Period or (z) the date
that is the midpoint of the term of the Refinancing Loan and (ii) which results
in the immediate payment upon closing, net of all customary transaction costs
incurred by ITB, of $44.2 million in immediately available funds to ITB.
(C) During the Extended Disposition Option Period, LVEN shall be solely
responsible for all Carrying Costs and, as a precondition to ITB's acceptance of
any Refinancing Loan from the El Rancho Lender, LVEN shall deposit in an escrow
account, on terms approved by LVEN and ITB, an amount equal to the aggregate
Carrying Costs for the term of the Refinancing Loan.
(c) As presently contemplated by ITB, pursuant to the CSFB Approval
Agreement, if executed by ITB and CSFB, CSFB may have certain rights to acquire
the El Rancho Property on the terms set forth therein, which rights become
exercisable on the earlier of (i) the expiration of the Escrow Period, without
reference to any extension period, or (ii) the date on which a voluntary or
involuntary bankruptcy action is commenced with respect to ITB and/or any of its
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subsidiaries. Accordingly, if the CSFB Approval Agreement is executed by ITB and
CSFB, subject to the rights of LVEN pursuant to subsection 4(b)(7), all of the
documents delivered into the Escrow (the "Escrow Documents") shall be held by
the Escrow Agent for the joint benefit of LVEN and CSFB as follows: (A) unless
and until the date on which a voluntary or involuntary bankruptcy action is
commenced with respect to ITB and/or any of its subsidiaries, throughout the
Escrow Period (without reference to any extension thereof), the Escrowed
Documents shall be held for the benefit of LVEN in accordance with the terms of
this Stipulation, (B) from and after the date on which a voluntary or
involuntary bankruptcy action is commenced with respect to ITB and/or any of its
subsidiaries, whether during or after the Escrow Period (without reference to
any extension thereof), the Escrowed Documents shall be held for the benefit of
CSFB in accordance with the terms of the CSFB Approval Agreement, and (C)
following the expiration of the Escrow Period (without reference to any
extension thereof), the Escrowed Documents shall be held for the benefit of CSFB
in accordance with the terms of the CSFB Approval Agreement. Accordingly, if the
CSFB Approval Agreement is executed by ITB and CSFB, the Escrow Agent and the
escrow instructions relating to the Escrow shall be subject to CSFB's reasonable
approval.
(d) If an LVEN Closing does not occur within the Escrow Period or the
Extended Disposition Option Period:
(1) ITB presently contemplates that, if the CSFB Approval
Agreement is executed, the Escrowed Documents shall remain in the Escrow for the
benefit of CSFB as set forth in subsection 4(c) above.
(2) ITB presently contemplates that, if the CSFB Approval Agreement is
executed, and if at any time following the expiration or termination of the
Period, ITB sells (as defined in subsection 4(d)(3) below) or refinances the El
Rancho Property for an amount in excess of the aggregate of $44.2 million to be
paid directly by the purchaser or lender, as applicable, to CSFB plus
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an amount to ITB equal to the Carrying Costs incurred by ITB (less amounts
actually received by ITB from LVEN during the period) from the end of the LVEN
Exclusive Marketing Period and the Extension Period, if any, through the
termination of the Escrow Period, plus the customary transaction costs incurred
by ITB in such sale (the "Threshold Amount"), then LVEN shall receive from such
cash proceeds in excess of the Threshold Amount up to the next $12.0 million of
cash sale proceeds over and above the Threshold Amount (the "LVEN Payment"), out
of which LVEN Payment LVEN hereby directs that the first $2.0 million be paid
over to NPD; provided however, that if LVEN withdraws from the Stipulation
pursuant to Section 24 below, then the first $2.0 million of cash proceeds in
excess of the Threshold Amount shall be paid to NPD (the "NPD Payment"). ITB
shall be entitled to all proceeds in excess of the $44.2 million payment to CSFB
and the LVEN Payment or NPD Payment, as the case may be (subject to payment of
such excess amounts to CSFB while the CSFB Loan is outstanding).
(3) For purposes of subsections 4(b)(5) and 4(d)(2), a "sale" of the El
Rancho Property shall be defined as an all-cash asset transaction, which shall
include for this purpose, but shall not be limited to, a transfer by refinance,
the sale of shares of stock in the entity holding title to the El Rancho
Property, or the merger or consolidation of the entity holding title to the El
Rancho Property with or into another entity. In the event it is proposed that
record or beneficial ownership of the El Rancho Property be transferred in any
other manner, ITB, prior to any such transaction, shall obtain the written
consent of LVEN, which consent will not be unreasonably withheld and which will
be conditioned upon such alternative transaction maintaining LVEN's rights as
provided herein or providing LVEN with economic benefits equivalent to those
provided herein; provided, however, that if the CSFB Approval Agreement is
executed by CSFB and ITB as presently contemplated, no notice to, or consent by,
LVEN shall be required with respect to an acquisition of
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the El Rancho Property by CSFB or its designee in accordance with the terms of
the CSFB Approval Agreement or pursuant to a foreclosure or deed in lieu of
foreclosure following any subsequent default under the CSFB Loan Agreement or
the CSFB Approval Agreement.
(e) LVEN and Casino-Co shall (i) return to ITB for immediate cancellation
the 2,093,868 shares (the "LVEN Shares") of ITB common stock which were
previously issued to Casino-Co in consideration for the prior cancellation of
that certain $10.5 million promissory note from ITB to LVEN (the "LVEN Note"),
plus accrued interest on the LVEN Note, which LVEN Note shall remain cancelled,
and (ii) shall immediately and automatically release any and all of their
interests in and to the NPD Shares. At the time of the return of the LVEN Shares
to ITB, LVEN and Casino-Co shall simultaneously represent, warrant and covenant
to ITB, in a form reasonably satisfactory to ITB (with respect to clause (iv)
below, the representation, warranty and covenant shall also be made in writing
to NPD, in a form reasonably satisfactory to NPD), as follows (collectively, the
"LVEN Shares Warranties"): (i) LVEN and/or Casino-Co is the sole record and
beneficial owner of the LVEN Shares, and the LVEN Shares are free and clear of
any and all claims, liens, encumbrances, charges, pledges, assessments or
interests of third parties of any kind or nature whatsoever; (ii) LVEN and
Casino-Co have full power, right and authority to transfer the LVEN Shares to
ITB, without restriction, and that upon the transfer ITB will acquire good and
valid title to the LVEN Shares free and clear of any and all claims, liens,
encumbrances, charges, pledges, assessments or interests of third parties of any
kind or nature whatsoever, so that after the transfer of the LVEN Shares, ITB
may freely exercise all rights of ownership in and with respect to the LVEN
Shares; (iii) there are no agreements, arrangements or understandings affecting
the transfer, ownership or voting of the LVEN Shares; and (iv) LVEN and
Casino-Co have released any and all of their interests in and to the NPD Shares.
The proxy from LVEN and Casino-Co to DeSantis to vote all or any portion of the
LVEN Shares shall be terminated
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immediately and automatically and shall be of no further force or effect.
Subsequent to the Signing Date, LVEN and Casino-Co shall not transfer any
interest in the LVEN Shares except as necessary to consummate the Settlement,
and LVEN and Casino-Co shall be required to vote the LVEN Shares in favor of any
resolution approved unanimously by the ITB Board.
(f) With the sole exception of this Stipulation, and the further agreements
specified herein and contemplated hereby, any and all employment agreements,
consulting agreements, or other agreements relating to any ITB securities,
options, warrants, loan agreements or notes, entertainment related agreements,
and all other agreements or arrangements of any kind or nature whatsoever
between or among ITB or any of its subsidiaries, on the one hand, and any of the
LVEN Parties, on the other hand, shall be deemed terminated immediately and
automatically, and shall be of no further force and effect.
(g) Any and all ITB shares, warrants to acquire ITB securities, pledges
relating to ITB securities, options to acquire ITB securities, and any and all
other ITB securities held by any of the LVEN Parties shall be deemed terminated
immediately and automatically, and shall be of no further force or effect. 5.
Upon the NPD Effective Date, the parties agree that immediately upon providing
the NPD Share Warranties (as hereinafter defined) and upon the dismissal of the
Litigations with prejudice (in the event the CSFB Approval Agreement is executed
by ITB and CSFB, otherwise upon the dismissal of the Actions and the Rekulak
Action with prejudice), ITB shall purchase from NPD, and NPD shall sell to ITB,
for $4.6 million in immediately available funds and the assumption of the NPD
Note in accordance with subsection 6(a) below, the 2,904,016 shares of ITB
common stock which NPD purchased (the "NPD Shares") for an aggregate purchase
price of $11,616,064 (half of which was paid in cash at closing) from Brennan on
January 15, 1997 (the "NPD Repurchase"). The
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price ITB is to pay for the NPD Shares represents an approximately $2.2 million
discount from the original purchase price paid by NPD, plus interest paid
thereon, in consideration of the settlement of the allegations made against NPD
in the Actions. Following the NPD Repurchase, the NPD Shares shall become
treasury shares of ITB and, if the CSFB Approval Agreement is executed by ITB
and CSFB, such shares shall thereafter be held and dealt with in accordance with
the terms of the CSFB Approval Agreement. Prior to the consummation of the NPD
Repurchase and as a precondition to the NPD Repurchase, NPD, DeSantis and Coelho
shall severally, not jointly, represent, warrant and covenant to ITB, in a form
reasonably satisfactory to ITB, as follows (collectively, the "NPD Share
Warranties"): Except for (i) the pledge of the NPD Shares as security for the
NPD Note and the lien created thereby (the "NPD Share Pledge"), which NPD Note
and obligations will be assumed by ITB immediately upon consummation of the NPD
Repurchase in accordance with the terms of, and following the satisfaction of
the conditions with respect thereto set forth in, the CSFB Approval Agreement if
executed by ITB and CSFB, and (ii) compliance with any restrictions imposed by
any New Jersey regulatory authorities, (1) NPD is the sole beneficial and record
owner of the NPD Shares, and the NPD Shares are free and clear of any and all
other claims, liens, encumbrances, charges, pledges, assessments, options to
purchase or other interests of third parties of any kind or nature whatsoever
(collectively, "Encumbrances"); (2) NPD has full corporate power, right and
authority to sell the NPD Shares to ITB, without further restriction, and at the
closing of the NPD Repurchase, ITB will acquire good and valid title to the NPD
Shares free and clear of any Encumbrances; (3) there are no other agreements,
arrangements or understandings affecting the transfer, ownership or voting of
the NPD Shares; and (4) the NPD Shares are not subject to any Encumbrances by
AutoLend, DeSantis, Casino-Co or any of their affiliates. As between DeSantis
and Coelho, any liability of DeSantis and Coelho with respect to any
misrepresentation of the above representations and warranties shall be
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limited to their proportionate ownership of NPD (as of the Signing Date,
DeSantis owned 78% and Coelho owned 22% of NPD). Subsequent to the Signing Date,
NPD shall not transfer any interest in the NPD Shares except as necessary to
consummate the Settlement and NPD shall be required to vote the NPD Shares in
favor of any resolution approved unanimously by the ITB Board. Notwithstanding
anything in this Stipulation to the contrary, the NPD Repurchase shall be
conditioned upon the prior or simultaneous assumption by ITB of any and all
obligations and rights of NPD pursuant to the NPD Note (as provided in
subsection 6(a) below). The NPD Share Warranties shall survive the NPD
Repurchase.
6. Simultaneous with the NPD Repurchase, the parties agree as follows: (a)
In accordance with the terms of, and following the satisfaction of the
conditions with respect thereto set forth in, the CSFB Approval Agreement if
executed by ITB and CSFB, ITB shall immediately assume any and all obligations
and rights of NPD pursuant to the NPD Note (which has been subsequently assigned
to the Bankruptcy Trustee), upon which NPD shall be deemed fully and finally
released and discharged from any and all obligations thereunder. Prior to ITB's
assumption of any and all obligations and rights of NPD pursuant to the NPD Note
and as a precondition to such assumption, NPD shall represent, warrant and
covenant to ITB as follows (collectively, the "NPD Note Warranties"): (1) NPD is
the sole maker of the NPD Note, and the NPD Note is free and clear of any and
all claims, liens, encumbrances, charges, assessments and interests of third
parties of any kind or nature whatsoever (other than the NPD Share Pledge); and
(2) as to the then outstanding principal balance of the NPD Note, the amount of
all accrued and unpaid interest thereon and the amount of any other sums then
payable in connection therewith. Until ITB's assumption of the NPD Note, NPD
shall continue to pay interest in accordance with the terms of the NPD Note.
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(b) Cole Schotz shall return to AutoLend the $2.0 million pledged by
AutoLend to Brennan to secure the NPD Note, plus all interest actually accrued
thereon in the account(s) in which the same has been maintained (the "$2 Million
Cash Collateral").
(c) The Revolving Line of Credit shall be deemed terminated immediately and
automatically, and shall be of no further force or effect.
(d) Upon the execution of this Stipulation, each of the Director Defendants
shall deliver duly executed unconditional written resignations as directors,
officers, employees and/or consultants of ITB to Young, Conaway, Stargatt &
Taylor, to be held in escrow by such firm, which resignations shall become
effective and be released immediately by such firm upon the completion of the
NPD Repurchase, unless required to be released sooner pursuant to Section 13
below.
(e) All agreements between or among D&C Gaming and ITB or any of its
subsidiaries shall be deemed terminated immediately and automatically, and shall
be of no further force or effect.
(f) With the sole exception of this Stipulation, and the further agreements
specified herein and contemplated hereby, any and all employment agreements,
consulting agreements, or other agreements relating to any ITB securities,
options, warrants, loan agreements or notes, entertainment related agreements,
and all other agreements or arrangements of any kind or nature whatsoever
between or among ITB and any of its subsidiaries, on the one hand, and any of
NPD and/or the Director Defendants, on the other hand, shall be deemed
terminated immediately and automatically, and shall be of no further force and
effect. The Director Defendants shall cause the actions listed on Schedule 6(f)
attached hereto and incorporated herein to occur by the dates specified therein.
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(g) Any and all ITB shares, warrants to acquire ITB securities, pledges
relating to ITB securities, options to acquire ITB securities, and any and all
other ITB securities held by any of the Director Defendants and/or NPD shall be
deemed terminated immediately and automatically, and shall be of no further
force or effect, with the sole exceptions of the NPD Share Pledge and the shares
of ITB common stock purchased by the Director Defendants in the open market as
set forth below:
Name Number of ITB Shares
Michael Abraham 5,000
Kenneth Scholl 1,000
7. Until the NPD Effective Date, the business and affairs of ITB shall be
operated in the ordinary course of business; provided, however, that, except
upon the prior written approval of Coelho and Quigley, ITB and its subsidiaries
will not approve, amend or terminate any agreement, or incur any additional
actual or contingent liabilities, expenses or obligations in excess of $10,000.
Until the NPD Repurchase, ITB and its subsidiaries shall not take any of the
following actions, other than as provided for in this Stipulation or in a
further agreement specified herein, without the prior unanimous approval of the
ITB Board, and in all events subject to the provisions of, and consents required
under, the CSFB Loan Agreement: (a) merge ITB or any ITB subsidiary with any
other corporation (excluding any merger of ITB or any subsidiary with any other
subsidiary of ITB); (b) purchase or sell assets of ITB or any subsidiary for
proceeds of $50,000 or more singly or in the aggregate; (c) except for issuance
of the Class B Preferred Stock (as defined below) (if such class of stock is
authorized and issued pursuant to the CSFB Approval Agreement, if executed by
ITB and CSFB), agree to issue, issue or register any capital stock (common or
preferred), options, warrants or any other securities of ITB or its
subsidiaries; (d) approve, terminate or amend any employment,
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consulting or similar agreements with officers, directors, consultants or key
employees of ITB or any subsidiary; (e) cause ITB or any subsidiary to borrow
$50,000 or more, singly or in the aggregate; (f) except for the director to be
elected by the holder of the Class B Preferred Stock pursuant to the CSFB
Approval Agreement, if executed by ITB and CSFB, fill any vacancy on the ITB
Board; (g) undertake any actions relating to the holding of any meeting of ITB
stockholders; (h) declare or pay any dividend or otherwise make any distribution
to ITB's stockholders; (i) consummate any tender offer, restructuring,
recapitalization or reorganization involving ITB or any of its subsidiaries; or
(j) amend ITB's by-laws. Until the NPD Repurchase and, except as expressly
provided in this Stipulation, without the prior written approval of Coelho and
Quigley, no payments shall be made to any Directors other than those set forth
on the Schedule of Director Payments dated April 20, 1998, which Schedule has
been approved by Quigley, Leo, Murray, Dees and the Director Defendants, and has
been filed with ITB. Zappala agrees to pay to ITB immediately out of any payment
Zappala may receive from either LVEN or the purchaser of the El Rancho Property
in connection with a Disposition Sale, the lesser of $200,000 or 20% of any such
payment he receives, if and only to the extent that Zappala receives any such
payment directly or indirectly. On the date this Stipulation has been approved
by the ITB Board and continuing thereafter at the discretion of the ITB Board,
ITB shall compensate Murray for services to ITB on the terms set forth in the
resolution adopted by the ITB Board on December 20, 1996. Without the prior
written approval of Quigley, Leo, Murray, Dees and the Director Defendants, no
party to this Stipulation shall make any public statement or filing regarding
the Settlement other than in connection with securing the approvals contemplated
by Sections 2 and 3 above.
8. The parties understand that AutoLend is prepared to make an immediate
application to the New Mexico Bankruptcy Court to secure the AutoLend Bankruptcy
Approval (the
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"AutoLend Application"). The parties understand that the participants in the
Brennan Bankruptcy Action are prepared to make an immediate application to the
New Jersey Bankruptcy Court to secure the Brennan Bankruptcy Approval (the
"Brennan Trustee Application"). In the event that the AutoLend Application and
the Brennan Trustee Application are not filed with the respective Bankruptcy
Courts within five (5) business days of the date the Stipulation is filed with
the Delaware Court, in a form reasonably acceptable to the Plaintiffs and the
Director Defendants, the Plaintiffs and the Director Defendants shall have the
right to terminate this Stipulation upon written notice to all parties hereto
and to CSFB; subject, however, to the provisions of the last sentence of Section
24 below.
9. The parties agree that, upon the NPD Effective Date, the
Director Defendants shall be indemnified for all counsel fees, costs and
disbursements incurred by them in the Derivative Action, the Section 225 Action,
the Brennan Bankruptcy Action, the Green Action, the NPD Action and the Harris
Action and/or incurred by ITB or its affiliates for services performed by
outside corporate, litigation or regulatory counsel, including Cozen and
O'Connor; Kozlov, Seaton, Romanini, Brooks & Greenberg; Young, Conaway, Stargatt
& Taylor; Ballard, Spahr, Andrews & Ingersoll; Morris, Nichols, Arsht & Tunnell;
Ashby & Geddes; and Tompkins, McGuire & Wachenfeld; and that all such counsel
fees, costs and disbursements incurred by the Director Defendants shall be paid
by ITB for the benefit of the Director Defendants. Subject to the occurrence of
the NPD Effective Date, the parties agree that no claim shall be made against
any of the Director Defendants, ITB or their respective counsel to repay, remit
or reimburse ITB or any other party for counsel fees, costs or disbursements
incurred in the Derivative Action, the Section 225 Action, the Brennan
Bankruptcy Action, the Green Action, the NPD Action, the Harris Action, any
regulatory matter or proceeding, or in the representation of ITB or its
affiliates.
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10. The parties agree that, upon the NPD Effective Date,
Plaintiffs shall be indemnified for all counsel fees, costs and disbursements
incurred by them in the Quigley Action and Counterclaims therein, the Section
225 Action, the NPD Action and the Harris Action, including fees of their
outside litigation counsel including Richards, Layton & Finger; Morris, James,
Hitchens & Williams; Sonnenblick, Parker & Selvers, P.C.; Potter, Anderson &
Corroon; and Riordan & McKinzie; and that all such counsel fees, costs and
disbursements incurred by the Plaintiffs shall be paid by ITB for the benefit of
the Plaintiffs. The parties agree that Robert W. Green, the plaintiff in the
Green Action, shall be reimbursed by ITB for all counsel fees, costs and
disbursements incurred by Green in connection with the Green Action. The parties
also agree that, if the CSFB Approval Agreement is executed by ITB and CSFB, on
the CSFB Effective Date and thereafter in accordance with the CSFB Approval
Agreement, CSFB shall be reimbursed by ITB for all counsel fees, costs and
disbursements incurred by CSFB pursuant to the CSFB Approval Agreement. On or
after the date this Stipulation is approved by the ITB Board, ITB shall make
prompt advances to the Plaintiffs for all counsel fees, costs and disbursements
incurred by them in the Quigley Action and the Counterclaims therein, the
Section 225 Action, the NPD Action and the Harris Action.
11. The parties agree that: (i) for a period of not less than
six (6) years from the NPD Effective Date, ITB shall maintain and continue in
place directors and officers liability insurance coverage with respect to each
individual who is an ITB director as of the Signing Date in an amount not less
than the current aggregate limits of liability of the policies in place on the
date of this Stipulation, provided that the cost of such coverage does not
exceed 125% of the 1997 premium paid by ITB; and (ii) ITB will pursue the
recovery and reimbursement of fees, costs and disbursements to the extent
available under existing or renewal coverages for the benefit of the insureds
under such policies.
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12. ITB shall indemnify each individual who is an ITB director
as of the Signing Date to the fullest extent permitted by ITB's by-laws and
certificate of incorporation as they exist on the date of this Stipulation.
13. (a) Immediately prior to the Mailing Date, all members of
the ITB Board shall execute and deliver to ITB's general counsel a written
consent, which shall be effective on the Mailing Date, amending Article III,
Section 2 of ITB's by-laws to reduce the authorized number of ITB directors to
six. On the Mailing Date, each of Abraham, Scholl, Dees, and Leo shall deliver
to the general counsel of ITB a letter confirming such individual's
unconditional and immediate resignation as a director, officer and consultant of
ITB and all of its subsidiaries. In the event any remaining director of ITB
shall resign, die or become disabled after the Mailing Date and prior to the
date of the NPD Repurchase, ITB and the continuing directors agree to take all
actions as may be required to fill immediately the vacancy on the ITB Board by
electing immediately an individual designated by the Plaintiffs in the event
Murray or Quigley are the departing directors, or designated by the Director
Defendants in the event DeSantis, Coelho or Zappala are the departing directors,
provided that the continuing directors are reasonably satisfied with the
qualifications of any such designee and that the election of the designated
individual to the ITB Board will not violate, conflict with or result in any
material limitation on the ownership or operation of the business or assets of
ITB or any of its subsidiaries under any statute, law, rule, regulation,
ordinance or any final judgment, decree or order of any governmental agency. In
the event of a departure of a remaining director, the continuing directors agree
to take no actions until a new director is elected in accordance with this
Section 13(a).
(b) Subject to the approval and execution of the CSFB Approval Agreement by
ITB and CSFB, as of the CSFB Effective Date, the ITB Board shall authorize a new
class of preferred stock (the "Class B Preferred Stock") entitling the holder
thereof to elect, as a separate class
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by written consent or vote at any meeting of the ITB stockholders, a director
whose consent will be required solely for any "Major Decision" by the ITB Board,
as will be defined in the CSFB Approval Agreement, if executed by ITB and CSFB.
Shares of the Class B Preferred Stock shall be issued, solely upon payment of
the par value thereof, to an independent director selected from a national firm
that provides independent directors. The Class B Preferred Stock shall be
entitled to a dividend in an amount equal to the annual fee of the independent
director. The Class B Preferred Stock shall have no rights other than with
respect to any Major Decision or the limited dividend right. The Class B
Preferred Stock shall expire automatically 367 days after the repayment in full
of ITB's obligations under the CSFB Loan Agreement.
RELEASE OF CLAIMS
14. As of the LVEN Effective Date as to all Settled Claims
directly by or against any of the LVEN Parties and their Parties' Affiliates (as
defined below), and as of the NPD Effective Date as to all Settled Claims
directly by or against any of the Plaintiffs or Director Defendants and their
Parties' Affiliates, and as of the CSFB Effective Date as to all Settled Claims
directly by or against CSFB which refer to, or actually or potentially relate to
CSFB (but only if the CSFB Approval Agreement is executed by ITB and CSFB), all
claims, rights, demands, suits, liabilities, matters, issues, actions, causes of
action, damages, losses, obligations and matters of any kind or nature
whatsoever, asserted or unasserted, known or unknown, contingent or absolute,
suspected or unsuspected, disclosed or undisclosed, hidden or concealed, matured
or unmatured, material or immaterial, which have been, could have been, or in
the future can or might be asserted in the Actions or in any court, tribunal or
proceeding (including, but not limited to, any claims arising under federal or
state law relating to any fraud, breach of any duty or obligation, or otherwise)
(collectively, "Claims") by any parties to the Actions, or ITB (including its
predecessors, successors, assigns and
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any other person claiming by, through, in the right of or on behalf of ITB
whether by subrogation, assignment or otherwise), against any or all of the
parties to the Actions or CSFB (if the CSFB Approval Agreement is executed by
ITB and CSFB), their respective parent entities, affiliates, associates or
subsidiaries, and each of their respective present or former officers,
directors, stockholders, agents, employees, attorneys, representatives,
advisors, investment advisors, investment bankers, commercial bankers, trustees,
general or limited partners, joint ventures, heirs, executors, personal
representatives, estates, administrators, successors and assigns (collectively,
the "Parties' Affiliates"), whether individually, representatively, or
derivatively, or in any other capacity, which have arisen, could have arisen,
arise now, or hereafter arise out of or relate in any manner whatsoever,
directly or indirectly, to the allegations, facts, events, transactions,
occurrences, statements, representations, misrepresentations, omissions, or any
other matter, thing or cause whatsoever, or any series thereof, involved, set
forth, or otherwise referred or related, directly or indirectly, to: (i) the
Litigations; (ii) the Settlement of the Actions; (iii) the Plaintiffs' or
Director Defendants' conduct as officers, directors, consultants, stockholders
and/or employees of ITB; (iv) the Plaintiffs' or Defendants' ownership of ITB
stock; (v) the Plaintiffs' or Defendants' contractual relationships with ITB;
(vi) any other matter involving the business and affairs of ITB; (vii) as to
CSFB only (if the CSFB Approval Agreement is executed by ITB and CSFB), the CSFB
Loan; and (viii) this Stipulation, the Settlement and the CSFB Approval
Agreement (if the CSFB Approval Agreement is executed by ITB and CSFB) and the
respective transactions, indemnifications, and payments contemplated thereby
(collectively, the "Settled Claims"), shall be fully, finally and forever
compromised, extinguished, dismissed, discharged and released with prejudice,
subject only to compliance with the foregoing terms and conditions as set forth
herein; provided, however, that (A) the Settled Claims shall not include any
claim that may exist or in the future be asserted against Standard Capital
Group, Inc. or any of its
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employees, (B) the Settled Claims shall not include any claim that may exist or
in the future be asserted against CSFB or any of its employees unless the CSFB
Approval Agreement is executed by ITB and CSFB, and (C) the Settled Claims shall
not include any claim that may exist or in the future be asserted in connection
with the Greenwood Transaction by, against or among ITB, any of ITB's
subsidiaries, Greenwood Racing, Inc., Greenwood or any of their respective
affiliates.
15. Upon the execution of this Stipulation, all parties to
this Stipulation (other than Brennan, who shall execute and deliver such release
upon receipt of the Brennan Bankruptcy Approval) shall deliver duly executed,
reciprocal releases, substantially in the form attached hereto as Exhibit A, to
Young, Conaway, Stargatt & Taylor and Richards, Layton & Finger to be held
jointly in escrow by such firms, which releases shall become effective and be
released jointly by such counsel as to the LVEN Parties on the LVEN Effective
Date and as to all other Parties upon the NPD Repurchase. Upon the NPD
Repurchase, all parties to this Stipulation (and AutoLend upon receipt of the
AutoLend Bankruptcy Approval) shall deliver a duly executed release to Cole
Schotz, in a form reasonably satisfactory to Cole Schotz, relating to that
firm's release of the $2 Million Cash Collateral to AutoLend. If the CSFB
Approval Agreement is executed by ITB and CSFB, all parties to this Stipulation
(other than Brennan, who shall execute and deliver such release upon receipt of
the Brennan Bankruptcy Approval) shall deliver duly executed releases,
substantially in the form attached hereto as Exhibit A, to CSFB, which releases
shall become effective immediately upon such delivery to CSFB.
16. The releases contemplated by Sections 14 and 15 of this
Stipulation extend to the Settled Claims that the parties hereto and ITB's
stockholders may not know or suspect to exist at the time of the release, which
if known, might have affected the decision to enter into this Stipulation. All
parties hereto and ITB's stockholders shall be deemed to waive any and all
provisions, rights and
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benefits conferred by any law of the United States, including any state or
territory thereof, or principle of common law, which governs or limits a
person's release of unknown claims. All parties hereto acknowledge that they or
ITB's stockholders may discover facts in addition to or different to those that
they now know or believe to be true with respect to the subject matters of this
Stipulation, but that it is their intention to fully, finally and forever settle
and release any and all Settled Claims known or unknown, suspected or
unsuspected, which now exist, or heretofore existed, or may hereafter exist, and
without regard to the subsequent discovery or existence of such additional or
different facts.
17. On the LVEN Effective Date as to all Settled Claims
directly by or against any of the LVEN Parties and all such Parties' Affiliates,
and on the NPD Effective Date as to all Settled Claims directly by or against
any of the Plaintiffs or Director Defendants and all such Parties' Affiliates,
the respective Settled Claims shall be completely and finally compromised,
settled, released, discharged, and dismissed with prejudice upon and subject to
the terms and conditions of this Stipulation, and the Quigley Action, the Green
Action and the NPD Action, or respective portions thereof, shall be dismissed
with prejudice on the merits and without costs to any party (except as may be
set forth herein), and all claims therein shall be completely and finally
compromised, settled, released and discharged. If the CSFB Approval Agreement is
executed by ITB and CSFB, subject to the last sentence of Section 14, then on
the CSFB Effective Date as to all Settled Claims referring to, or actually or
potentially relating to, CSFB, such Settled Claims shall be deemed completely
and finally compromised, settled, released, discharged and dismissed with
prejudice.
SUBMISSION AND APPLICATION TO THE COURT
18. As soon as practicable after this Stipulation has been
executed, the parties shall jointly move the Delaware Court for approval of the
Settlement as provided herein, and for entry by the Court of the scheduling
order in the form attached hereto as Exhibit B (the "Scheduling Order").
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ORDER AND FINAL JUDGMENT
19. If this Stipulation and the Settlement contemplated herein
are approved by the Delaware Court, at or following the Settlement Hearing, the
parties will jointly request the Delaware Court to enter an Order and Final
Judgment in the form attached hereto as Exhibit D (the "Judgment"). Immediately
upon the entry of the Judgment by the Delaware Court, the parties shall
undertake all necessary and desirable actions to secure the immediate dismissals
of the Rekulak Action, the Green Action, the NPD Action and the Harris Action on
the grounds that such actions are barred and the claims therein are released
under the Judgment.
FINALITY OF SETTLEMENT
20. The approval by the Delaware Court of the Settlement shall
be considered final for purposes of this Stipulation upon the later to occur of
the following: (i) the expiration of the time for the filing or noticing of any
appeal or motion for reargument from the Delaware Court's Judgment approving the
Settlement; (ii) the date of final affirmance on any appeal or reargument; (iii)
the expiration of time for petitions for writs of certiorari and, if certiorari
is granted, the date of final affirmance following review pursuant to that
grant; or (iv) the final dismissal of any appeal or proceedings on certiorari.
NOTICE AND SETTLEMENT ADMINISTRATION COSTS
21. Notice of the Settlement and of the hearing for the
consideration of the Settlement by the Delaware Court (the "Settlement
Hearing"), substantially in the form attached hereto as Exhibit C (the
"Notice"), shall be sent to all stockholders of ITB. ITB shall assume the
administrative responsibility of providing the Notice in accordance with the
Scheduling Order, and ITB shall pay all costs and expenses incurred in providing
such Notice to stockholders of ITB. In addition,
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ITB, or its agents, shall use reasonable efforts to provide the Notice to all
beneficial owners of ITB stock by making additional copies of the Notice
available to any record owner of ITB stock who, prior to the Settlement Hearing,
requests the same for purposes of distribution to the beneficial stockholders of
ITB. The parties hereto (other than ITB) shall have no responsibility for any
such costs associated with such Notice regardless of whether the Settlement
becomes effective or is consummated. On or before the date of the Settlement
Hearing, counsel for ITB shall file with the Delaware Court an appropriate
affidavit evidencing compliance with this section regarding the preparation and
mailing of the Notice.
22. Except as provided in this Stipulation or the agreements
contemplated herein, the parties hereto shall bear no other expenses, costs,
damages or fees incurred by any party, or any present or former stockholder of
ITB, or by any attorney, expert, advisor, agent or representative of any of the
foregoing persons in connection with any of the Actions.
STIPULATION NOT AN ADMISSION
23. This Stipulation and all negotiations, statements and
proceedings in connection therewith shall not in any event be construed as, or
deemed to be evidence of, an admission or concession on the part of any of the
parties hereto, any present or former stockholder of ITB, or any other person,
of any liability or wrongdoing by them, or any of them, and shall not be offered
or received in evidence in any action or proceeding, or be used in any way in
any action or proceeding as an admission, concession or evidence of any
liability nor wrongdoing of any nature, and shall not be construed as, or deemed
to be evidence of, an admission or concession that the parties hereto, their
counsel, or any present or former stockholder of ITB, or any other person, has
or has not suffered any damage, as a result of the facts described in the
Actions or herein.
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24. Subject to the last sentence of this Section 24, this
Stipulation shall be null and void and of no further force and effect if it is
determined in good faith by all of the parties hereto that one or more of the
approvals required in Section 2 above is unable to be obtained; provided,
however, that (i) if all of the approvals required in Section 2 above are not
received within 180 days from the date of this Stipulation, then any party may
withdraw from this Stipulation upon written notice to all other parties hereto,
(ii) if LVEN (A) in its sole and absolute discretion, determines that the terms
and/or provisions of the CSFB Approval Agreement or the Alternative Financing
Agreement (if either is executed by ITB and either CSFB or the Alternative
Lender, as the case may be) would modify the Underlying Settlement Transaction
(as hereinafter defined) and adversely affect the rights of LVEN to the extent
that if such terms and/or conditions had been known to LVEN at the time of
execution hereof, LVEN would not have entered into this Stipulation upon the
terms provided herein, or (B) has failed for any reason by the date which is
fifteen (15) days from the date of this Stipulation to enter into an amendment
to the APW Acquisition Agreement in form and substance acceptable to LVEN, then
the LVEN Parties may withdraw from this Stipulation, or (iii) if either the CSFB
Approval Agreement or the Alternative Financing Agreement is not executed within
forty-five (45) days from the date of this Stipulation, then the LVEN Parties
may withdraw from this Stipulation upon written notice to and received by ITB on
or before the forty-eighth (48th) day following the date of this Stipulation. As
used herein, the term "Underlying Settlement Transaction" shall mean and refer
to the entirety of the agreements, procedures, mechanisms, valuations, and other
provisions, rights, obligations, waivers, releases and remedies negotiated and
bargained for by and between ITB and LVEN in this Stipulation, including without
limitation, those set forth in Section 4 above, determined without regard to any
reference herein to particular terms or provisions of the CSFB Approval
Agreement or any Alternative Financing Agreement or the rights of such parties
(all of which references were negotiated by and
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between ITB and CSFB without any involvement of or participation by LVEN). In
the event that any party withdraws from this Stipulation under the
aforementioned circumstances (other than pursuant to clauses (i) and (ii) of the
first sentence of this Section 24), or in the event that the Settlement set
forth herein is not finally approved or does not become effective, then (a) this
Stipulation shall not be deemed to prejudice in any way the respective positions
of the parties hereto with respect to the Derivative Action, Green Action, NPD
Action and Brennan Bankruptcy Action, (b) the parties shall be restored to their
respective positions in the Actions existing immediately prior to the execution
of this Stipulation, without prejudice to any then existing or outstanding
motions, briefs, discovery requests or other positions whatsoever (including
Corazzi's pending motion in the Quigley Action to dismiss for lack of personal
jurisdiction), (c) the existence of this Stipulation, its contents, and the
negotiations relating hereto shall not be admissible in evidence or shall be
referred to for any purpose in the Derivative Action, Green Action, NPD Action
and Brennan Bankruptcy Action, or in any other litigation or proceeding, and (d)
this Stipulation shall become null and void and of no force and effect. In the
event that the LVEN Parties withdraw from this Stipulation pursuant to either
clause (i) or (ii) of the first sentence of this Section 24, then (a) this
Stipulation shall not be deemed to prejudice in any way the respective positions
of the parties hereto with respect to the Derivative Action, Green Action, NPD
Action and Brennan Bankruptcy Action as they relate to the LVEN Parties, (b) the
parties shall be restored to their respective positions in the Actions existing
immediately prior to the execution of this Stipulation solely as they relate to
the LVEN Parties, without prejudice to any then existing or outstanding motions,
briefs, discovery requests or other positions whatsoever (including Corazzi's
pending motion in the Quigley Action to dismiss for lack of personal
jurisdiction), (c) the existence of this Stipulation, its contents, and the
negotiations relating hereto shall not be admissible in evidence or shall be
referred to for any purpose in the Derivative Action, Green Action, NPD Action
and
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Brennan Bankruptcy Action as they relate to the LVEN Parties, or in any other
litigation or proceeding relating to the LVEN Parties, and (d) the provisions of
this Stipulation as they relate to the LVEN Parties shall become null and void
and of no force and effect. If the CSFB Approval Agreement is executed by ITB
and CSFB, then notwithstanding the foregoing or anything else to the contrary
contained herein, the parties expressly acknowledge and agree that upon the CSFB
Effective Date, (a) all agreements set forth in the CSFB Approval Agreement,
other than those which, by their terms, only become effective upon the LVEN
Effective Date or NPD Effective Date, as applicable, and (b) all provisions set
forth in this Stipulation for the benefit of CSFB, including, without
limitation, as set forth in this Section 24 and the applicable provisions of
Sections 4(b), 4(c), 4(d), 7, 10, 13(b), 14, 15, 17, 33, 36, 38 and 39 hereof
(the agreements and provisions described in the foregoing clauses (a) and (b)
being collectively referred to herein as the "CSFB Rights"), shall be and remain
in full force and effect and binding upon the parties thereto and hereto,
respectively, irrespective of whether or not (i) any approval required in
Section 2 or 3 hereof is ever obtained, and/or (ii) this Stipulation shall
become null and void and of no further force and effect in accordance with any
of the terms hereof; it being further expressly acknowledged and agreed by the
parties that all of the CSFB Rights shall survive any termination or
nullification of this Stipulation in accordance with the terms hereof or
otherwise.
25. Subject to the last sentence of Section 24, if applicable,
following the occurrence of the LVEN Effective Date, this Stipulation shall be
null and void and of no further force and effect with respect to all parties
hereto other than the LVEN Parties (the "Remaining Parties") if it is determined
in good faith by all of the Remaining Parties that one or more of the approvals
required in Section 3 above is unable to be obtained; provided, however, that if
the LVEN Effective Date has occurred and all of the approvals required in
Section 3 above are not received within 180 days from the date of this
Stipulation, then any of the Remaining Parties may withdraw from this
Stipulation upon
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<PAGE>
written notice to all other parties hereto. In the event that any Remaining
Party withdraws from this Stipulation, (i) this Stipulation shall not be deemed
to prejudice in any way the respective positions of the Remaining Parties with
respect to the Derivative Action, Green Action, NPD Action and Brennan
Bankruptcy Action which have not become Settled Claims upon the occurrence of
the LVEN Effective Date, (ii) the Remaining Parties shall be restored to their
respective positions in the Actions existing immediately prior to the execution
of this Stipulation, without prejudice to any then existing or outstanding
motions, briefs, discovery requests or other positions whatsoever, (iii) the
existence of this Stipulation, its contents and the negotiations relating hereto
shall not be admissible in evidence or shall be referred to for any purpose in
the Derivative Action, Green Action, NPD Action, and Brennan Bankruptcy Action,
or in any other litigation or proceeding (other than with respect to the
provisions dealing with the LVEN Parties), and (iv) this Stipulation (other than
the provisions dealing with the LVEN Parties) shall become null and void and of
no force and effect; provided that the withdrawal of the Remaining Parties from
this Stipulation shall not affect the continuing effectiveness of this
Stipulation with respect to the LVEN Parties and the provisions of the
Stipulation dealing specifically with the LVEN Parties (including, without
limitation, Sections 2 and 4 hereof in their entirety and the relevant portions
of Sections 14 through 17 hereof) shall remain in full force and effect, shall
not be terminated hereby and shall be binding on all parties hereto.
EXTENSIONS 26. Without further order of the Delaware Court, the parties may
agree to reasonable extensions of time to carry out any of the provisions of
this Stipulation.
ENTIRE AGREEMENT
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27. This Stipulation, including all schedules and exhibits
attached hereto, together with the CSFB Approval Agreement (if executed by ITB
and CSFB), constitutes the entire agreement among the parties with regard to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties with respect to the subject matter hereof.
This Stipulation may not be modified or amended or any of its provisions waived,
except by a writing executed by each of the parties whose interests are affected
by such modification, amendment or waiver.
NO WAIVER
28. Any failure by any party to insist upon the strict
performance by any other party of any of the provisions of this Stipulation
shall not be deemed a waiver of any of the provisions hereof, and such party,
notwithstanding such failure, shall have the right thereafter to insist upon the
strict performance of any and all of the provisions of this Stipulation to be
performed by such other party.
COUNTERPARTS
29. This Stipulation may be executed in any number of actual
or facsimile counterparts, all of which shall be considered one and the same
agreement, and shall become effective when such counterparts have been signed by
each of the parties and delivered to the other parties.
GOVERNING LAW
30. This Stipulation shall be construed and enforced in accordance with the
laws of the State of Delaware, without regard to the conflict of law provisions
thereof. Any action to enforce, construe or challenge the provisions of this
Stipulation, or otherwise arising out of or
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RLF1-172171-1
<PAGE>
concerning this Stipulation or any of the transactions contemplated hereby,
shall be filed exclusively in the Delaware Court and in no other court, and all
parties hereto consent to personal jurisdiction in the Delaware Court for any
such action and to the service of process by notice to each party's current
legal counsel.
BEST EFFORTS
31. The parties and their attorneys agree to cooperate fully
with one another in seeking approval of the Settlement by the Delaware Court,
the New Jersey Bankruptcy Court and the New Mexico Bankruptcy Court, and to use
their respective good faith best efforts to effectuate, as promptly as
practicable, the consummation of this Stipulation and the Settlement provided
for hereunder (including all related transactions, agreements and approvals
described herein at the earliest possible times, substantially as provided
herein and in accordance with all applicable legal and regulatory requirements).
32. If any claims which are or would be subject to the release
and dismissal contemplated by the Settlement are asserted against any person in
any court prior to the LVEN Effective Date, the NPD Effective Date or the date
of the NPD Repurchase, the parties shall jointly, where possible, seek a
dismissal or stay of such proceedings and shall otherwise use their best efforts
to effect a withdrawal or dismissal of the claims. The parties further agree to
use their respective good faith best efforts to obtain any approvals, releases
or documents required herein. The Plaintiffs and Director Defendants further
agree to exercise their good faith best efforts and to cooperate fully with ITB
in connection with any SEC filings, the resumption of trading of ITB securities
on AMEX, the dismissal of the Rekulak Action and the Harris Action, the AutoLend
Application, the Brennan
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<PAGE>
Bankruptcy Application, the CSFB Approval Agreement or the Alternative Financing
Agreement, and the establishment and implementation of an Escrow Agreement in
accordance with Section 4(b) hereof.
SUCCESSORS AND ASSIGNS
33. This Stipulation shall be binding upon, and inure to the
benefit of, the successors, assigns, heirs and representatives of the parties
hereto; provided, however, that, except as set forth in the last sentence of
this Section 33, no rights hereunder may be assigned and no obligations
hereunder may be delegated without the prior written consent of all of the
parties hereto. Notwithstanding the foregoing prohibition of assignment or
delegation, the parties agree: (i) that LVEN may assign to the person
contracting with LVEN for the purchase of the El Rancho Property under a
Disposition Sale (the "Buyer") LVEN's rights under Section 4(b) of this
Stipulation to effect the Disposition Sale agreed to by LVEN and the Buyer, in
which event the Buyer's rights shall be deemed to include the Buyer's right, if
LVEN is in default of its obligations to such Buyer or under this Stipulation,
to acquire the El Rancho Property from ITB in accordance with this Stipulation,
free of any rights or claims of LVEN under its agreement with the Buyer; and
(ii) that if ITB is required under the terms of this Stipulation to convey title
to the El Rancho Property by a Disposition Sale but fails to do so, such Buyer
shall have the right to pursue an injunction or specific performance action
against ITB to compel the conveyance to such Buyer. To the extent that it is the
record owner of the El Rancho Property, Orion has joined in this Stipulation for
the sole and limited purpose of consenting to the rights of Buyer as aforesaid.
Additionally, if the CSFB Approval Agreement is executed by ITB and CSFB, all of
the CSFB Rights shall inure to the benefit of any successor, assign or
participant of CSFB who acquires any interest in the CSFB Loan, without the need
for notice to, or the consent of, any party hereto with respect to such
succession, assignment or participation.
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DUE AUTHORIZATION
34. Each of the parties hereto represents and warrants that
he, she or it (i) has all requisite power and authority to enter into this
Stipulation and (ii) has been duly authorized and empowered to execute, deliver
and consummate the agreements and transactions contemplated by this Stipulation;
provided, however, that the parties acknowledge that Brennan and the Bankruptcy
Trustee are not authorized to undertake any actions or assume any obligations
hereunder until the Brennan Bankruptcy Approval has been obtained, although they
are obligated to use their best efforts to obtain such approval.
NO ASSIGNMENT
35. Each of the parties hereto warrants and represents that
he, she or it has not assigned, encumbered or in any manner transferred (in
whole or in part) any claim or cause of action (i) referred to in the Derivative
Action, the Green Action, the NPD Action or the Brennan Bankruptcy Action or
(ii) which constitutes a Settled Claim.
NO THIRD PARTY BENEFICIARIES
36. Except as set forth in the proviso at the end of this
Section 36, the terms and provisions of this Stipulation are intended solely for
the benefit of the parties hereto and their respective successors and permitted
assigns, and it is not the intention of the parties to confer third party
beneficiary rights or remedies upon any other person or entity; provided,
however, that if the CSFB Approval Agreement is executed by ITB and CSFB, CSFB
shall become an express third party beneficiary of this Stipulation with respect
to all of the provisions set forth herein for the benefit of CSFB, including,
without limitation, as set forth in this Section 36 and in Sections 4(b), 4(c),
4(d), 7, 10, 13(b), 14, 15, 17, 24, 33, 38 and 39 hereof.
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INTERPRETATION
37. This Stipulation, together with all schedules and exhibits
hereto, shall be deemed to have been mutually prepared by all of the settling
parties and shall be interpreted as if the parties hereto participated in the
drafting and preparation hereof with equal and identical degrees of involvement.
SPECIFIC PERFORMANCE
38. The parties hereto acknowledge that damages would be an
inadequate remedy for any breach of the provisions hereof and agree that all
obligations of the parties hereunder shall be specifically enforceable.
Additionally, subject to the execution of the CSFB Approval Agreement by ITB and
CSFB, the parties hereto acknowledge that damages would be an inadequate remedy
for any breach of any of the CSFB Rights and agree that, at CSFB's election (a)
all of the CSFB Rights shall be specifically enforceable before the Delaware
Court and/or (b) a breach of any of the CSFB Rights shall be treated as an
"Event of Default" under the CSFB Loan Agreement, entitling CSFB to exercise all
of its rights and remedies under the CSFB Loan Agreement and the other documents
evidencing, securing and/or otherwise relating to the CSFB Loan (collectively,
the "CSFB Loan Documents"), except to the extent such CSFB Loan Documents are
modified under or pursuant to the terms of the CSFB Approval Agreement.
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CSFB LOAN DOCUMENTS
39. The parties hereto expressly acknowledge and agree that
nothing contained in this Stipulation or in the CSFB Approval Agreement (if
executed by ITB and CSFB) shall abrogate, terminate, limit or modify any of
CSFB's rights and remedies at law, in equity and/or under the CSFB Loan
Documents, except to the extent such CSFB Loan Documents are modified under or
pursuant to the terms of the CSFB Approval Agreement (if executed by ITB and
CSFB), including, without limitation, CSFB's rights and remedies with respect to
any default under the CSFB Loan Agreement (other than those defaults being
waived pursuant to the CSFB Approval Agreement, if executed by ITB and CSFB),
including ITB's failure to repay the entire CSFB Loan upon the maturity thereof.
Except as expressly modified under or pursuant to the CSFB Approval Agreement
(if executed by ITB and CSFB), the terms of the CSFB Loan, as set forth in the
CSFB Loan Documents, including the payment terms and the maturity thereof, shall
be and remain unmodified and in full force and effect.
ANTI-DISPARAGEMENT
40. Immediately upon the execution of this Stipulation, no
party hereto shall disparage any other party hereto with respect to this
Stipulation or the subject matter of the Settled Claims.
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<PAGE>
/s/ Frank A. Leo
Frank A. Leo
/s/ Robert J. Quigley
Robert J. Quigley
/s/ Francis W. Murray
Francis W. Murray
/s/ Charles R. Dees, Jr.
Charles R. Dees, Jr.
/s/ Henry Brennan
The Family Investment Trust
Henry Brennan, Trustee
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<PAGE>
NPD, INC., a Delaware corporation
By: /s/ Nunzio P. DeSantis
Nunzio P. DeSantis, President
/s/ Nunzio P. DeSantis
Nunzio P. DeSantis
/s/ Anthony Coelho
Anthony Coelho
/s/ Michael Abraham
Michael Abraham
/s/ Joseph Zappala
Joseph Zappala
LAS VEGAS ENTERTAINMENT NETWORK,
INC., a Delaware corporation
By: /s/ Joseph A. Corazzi
Joseph A. Corazzi, President
COUNTRYLAND PROPERTIES, INC., a
Nevada corporation
By: /s/ Joseph A. Corazzi
Joseph A. Corazzi, President
RLF1-172171-1
<PAGE>
CASINO-CO CORPORATION, a Nevada
corporation
By: /s/ Joseph A. Corazzi
Joseph A. Corazzi, President
/s/ Joseph A. Corazzi
Joseph A. Corazzi
/s/ Kenneth S. Scholl
Kenneth S. Scholl
INTERNATIONAL THOROUGHBRED
BREEDERS, INC., a Delaware
corporation
By: /s/ Nunzio P. DeSantis
Nunzio P. DeSantis, President
D&C GAMING CORPORATION, a
Delaware corporation
By: /s/ Nunzio P. DeSantis
Nunzio P. DeSantis
/s/ James J. Murray
James J. Murray
/s/ John Mariucci
John Mariucci
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<PAGE>
/s/ Frank Koenemund
Frank Koenemund
/s/ Robert W. Green
Robert W. Green
/s/ Robert E. Brennan
Robert E. Brennan
ORION CASINO CORPORATION, a
Nevada corporation
By: /s/ Nunzio P. DeSantis
Nunzio P. DeSantis, President
LAS VEGAS COMMUNICATION
CORPORATION, a Nevada corporation
By: /s/ Joseph A. Corazzi
Joseph A. Corazzi, President
July 2, 1998
RLF1-172171-1
<PAGE>
Schedule K-1
All that portion of the Northeast Quarter (NE 1/4) and that portion of
the Southeast Quarter (SE 1/4) of Section 9, Township 21 South, Range 61 East,
M.D.B.&M., more particularly described as Parcel One (1) as shown on Parcel Map
in File 37, Page 44, recorded March 22, 1998, as Document No. 1497782, Book 1538
of Official Records, Clark County, State of Nevada.
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<PAGE>
Schedule 4(b)
Upon, and if required to effect, any Disposition Sale, ITB will provide
to any buyer (the "Buyer") under an asset purchase and sale agreement for a
Disposition Sale (the "Acquisition Agreement") (and/or Buyer's lender)
representations and warranties, and will take certain additional actions,
substantially in accordance with the following:
1. Upon LVEN's reasonable prior request, ITB, by separate instrument in form and
substance reasonably acceptable to Buyer (the "Representation Certificate"),
shall represent, warrant and covenant to the Buyer each of the following matters
set forth in Sections 1 through 9 hereof. Except as expressly provided herein,
the El Rancho Property is being sold by ITB, and purchased by the Buyer, in "as
is" and "where is" condition with all faults, including, without limitation, all
environmental conditions. ITB disclaims all implied warranties (including,
without limitation, those of fitness and merchantability).
a. ITB is a corporation, duly organized and validly existing under the
laws of the State of its formation. ITB has the power and authority to carry on
its present business, to enter into the Representation Certificate and the
Stipulation and, subject to CSFB's rights under the CSFB Approval Agreement, to
sell the El Rancho Property on the terms set forth in the Stipulation. The
execution and delivery of the Acquisition Agreement and of any transfer
documents thereunder, and the performance by ITB in connection with the
transactions contemplated thereunder and under the Stipulation, do not violate
or constitute an event of default under any material terms of material
provisions of any agreement, document, instrument, judgment, order or decree to
which ITB is a party or by which it is bound.
b. The individuals executing the Representation Certificate, the
Stipulation and any transfer documents on behalf of ITB have the legal power,
right and actual authority to bind ITB to the terms and conditions thereof. The
Representation Certificate and the Stipulation are valid and binding obligations
of ITB, enforceable in accordance with their terms, except as the same may be
affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or
equitable principles relating to or limiting the rights of contracting parties
generally.
c. There are with respect to the El Rancho Property, and to ITB's
knowledge, no (1) pending litigation, condemnation or other claim, to ITB's
knowledge, threatened in writing (whether or not asserted), (2) business
operations, and have been no business operations for at least five years in the
El Rancho Property, (3) accounts receivable, (4) accounts payable not current or
which will fail to be current through the date of closing, (5) service contracts
(except for security and microwave relay contracts), (6) leases,
tenants-in-possession or occupancy agreements of any kind, (7) hotel or other
booking arrangements or agreements for the use of all or any portion of the El
Rancho Property of any kind, (8) employees, employment agreements or union or
other labor obligations or (9) equipment leases or, except for the lien of the
CSFB Mortgage, liens on any furniture, fixtures and/or equipment now located at
the El Rancho Property, as of the date hereof and as of closing.
d. To ITB's knowledge, ITB has not received notice from any party,
including, without limitation, from any municipal, state, federal or other
governmental authority, of a violation of any zoning, building, fire, water,
use, health, or other statute, ordinance, code or (including, without
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limitation, any Environmental Laws or The Americans With Disabilities Act, as
amended) bearing on the construction, operation or use of the El Rancho Property
or any part thereof other than as to matters previously cured, or that any
investigation has been commenced or is contemplated respecting any such possible
violation.
e. To ITB's knowledge, there has never been any Hazardous Substances
used, handled, manufactured, generated, produced, stored, treated, processed,
transferred, or disposed of at or on the El Rancho Property, except in
compliance with all applicable Environmental Laws and that no Release or Threat
of Release has occurred at or on the El Rancho Property.
f. Any Records and Plans provided to Buyer by ITB are true, correct and
complete and the same have, to the extent applicable, been compiled in
accordance with generally accepted accounting principles consistently applied.
g. To ITB's knowledge, all improvements are permitted, conforming
structures under applicable zoning and building laws and ordinances in effect
when the improvements were constructed, the present uses thereof are permitted,
conforming uses under applicable zoning and building laws and ordinances and all
water, sewer, gas, electric, telephone, drainage and other utility equipment and
facilities in use at the El Rancho Property are installed and connected pursuant
to valid permits.
h. To ITB's knowledge, the Licenses and Permits delivered by ITB to
Buyer are true, correct and complete. To ITB's knowledge, each of the Licenses
and Permits is in full force and effect as of the date hereof and shall remain
in full force and effect through the closing date and no outstanding notice of
default or violation has been received by ITB with respect to any of the
Licenses and Permits.
i. To ITB's knowledge, there are no agreements or contracts concerning
the general operation and/or management of the El Rancho Property which will be
binding upon Buyer after the closing date of the Disposition Sale.
j. ITB owns good and marketable title to the real property included in the
El Rancho Property.
k. To ITB's knowledge, ITB has not commenced any proceedings which are
pending for the reduction of the assessed value of the real property that is
included in the El Rancho Property.
l. ITB has not entered into any brokerage, commission or other similar
agreements relating to the El Rancho Property which will be binding upon Buyer.
m. The following representations, warranties and covenants are limited
solely to those provisions of the Stipulation that are material to this
Disposition Sale: The Stipulation is in full force and effect and has not been
amended, modified or supplemented. As of the date hereof, ITB has neither
received nor sent any notice with respect to the Stipulation and ITB shall send
to Buyer a copy of any notice sent to ITB by LVEN under the Stipulation. ITB
shall not, without the prior written consent of Buyer, modify, amend or accept a
termination of the Stipulation by LVEN or accept an election or waiver of any
right or privilege thereunder by LVEN.
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n. As used herein, the term "to ITB's knowledge" and its cognates shall
mean and refer to the actual knowledge, without any duty of investigation, of,
or receipt of notice by, the principal executive officer and principal financial
officer of ITB. ITB shall not be requested to provide any other representations,
warranties or covenants than are provided for in this Stipulation.
2. In receiving any of these representations, warranties or covenants, the
Buyer, pursuant to the Disposition Sale, acknowledges and agrees that ITB is not
a party to the Acquisition Agreement for the Disposition Sale and has no
obligations under such agreement.
3. Any request for due diligence materials from ITB shall be limited to
those in its possession. ITB shall have no liability for costs and expenses of
due diligence investigations.
4. Any request by Buyer for a Phase II audit of the El Rancho Property shall be
subject to ITB's prior approval and subject to reasonable restrictions of
confidentiality (so long as such Buyer is not made liable for criminal penalties
thereby), scope and qualifications of persons performing such work as ITB may
reasonably impose.
5. (a) LVEN shall indemnify, protect, defend and hold ITB harmless from and
against any costs, claims or expenses (including actual attorneys' fees and
expenses) arising out of any dealings had by LVEN with any broker, finder or
other middleman in connection with the Acquisition Agreement or the transactions
contemplated thereby or for claims or rights to claim a commission, finders fee
or other brokerage fee by any such broker, finder, middleman or other person in
connection with the Acquisition Agreement or the transactions contemplated
thereby. Any such indemnification shall survive the closing under such
Acquisition Agreement or, if closing does not occur, the termination of such
Acquisition Agreement.
(b) Buyer shall indemnify, protect, defend and hold ITB harmless from
and against any costs, claims or expenses (including actual attorneys' fees and
expenses) arising out of any dealings had by Buyer with any broker, finder or
other middleman claiming to have been engaged by or on behalf of Buyer in
connection with the Acquisition Agreement or the transactions contemplated
thereby or for claims or rights to claim a commission, finders fee or other
brokerage fee by any such broker, finder, middleman or other person in
connection with the Acquisition Agreement or the transactions contemplated
thereby. Any such indemnification shall survive the closing under such
Acquisition Agreement or, if closing does not occur, the termination of such
Acquisition Agreement.
6. In addition to the Grant Deed and other documents necessary to transfer the
El Rancho Property, ITB agrees to deliver to the Escrow Agent any other
incidental documents reasonably required by Buyer or the Escrow Agent to
consummate the purchase and sale of the El Rancho Property, and reasonably
acceptable to ITB, and provided that such additional documents shall not give
rise to any additional cost or liability to ITB and provided ITB is given
written notice by Buyer or Escrow Agent of the requirement for such incidental
documents within a reasonably sufficient time in advance of the scheduled date
of closing.
7. ITB agrees to deliver to Buyer or any title company of Buyer evidence in form
and content reasonably satisfactory to Buyer and such title company that (a) ITB
is duly organized and validly existing under the laws of the state of its
formation, (b) the Stipulation, transfer documents and all other documents
delivered by ITB pursuant to the Disposition Sale have been duly executed and
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<PAGE>
delivered by ITB, (c) the performance by ITB of the transactions contemplated by
the Stipulation for a Disposition Sale have been duly authorized by all
necessary corporate, shareholder or other action of ITB and its shareholders and
(d) ITB acknowledges that ITB will not look to Buyer to be liable to ITB, its
shareholders, the Stipulation and/or litigation identified in the Stipulation
solely as a result of its purchase of the El Rancho Property (and not as a
result of the terms and conditions of the Acquisition Agreement for the
Disposition Sale).
8. Upon delivery of the Representation Certificate, ITB will agree that if any
representation and warranty contained therein is materially untrue when made,
then Buyer shall have the right to pursue specific performance and/or recovery
of monetary damages against ITB in connection with such misrepresentation or
breach of warranty.
9. Capitalized terms used herein shall have the following definitions:
a. Environmental Condition shall mean any condition with respect to
soil, surface waters, groundwater, land, stream sediments, surface or subsurface
strata, ambient air in any environmental medium compromising or surrounding the
real property that is part of the El Rancho Property, which could or does result
in any damage, loss, cost, expense, claim, demand, order or liability to or
against ITB or Buyer by any third party (including, without limitation, any
governmental entity), including, without limitation, any condition resulting
from the operation of ITB's business and/or the operation of the business of any
other property of ITB or operator in the vicinity of the El Rancho Property
and/or any activity or operation formerly conducted by any person or entity on
or off the El Rancho Property.
b. Environmental Laws shall mean all applicable present and future
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises, agreements and
similar items, of or with any and all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial and
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment, including, without limitation (i)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. 9061 et seq.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. 1801, et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. 6901, et seq.; the Federal Water Pollution Control
Act, as amended, 33 U.S.C. 1251, et seq.; and analogous state laws and
regulations; (ii) all requirements, including, but not limited to, those
pertaining to reporting, licensing, permitting, investigation and remediation of
emissions, discharges, releases or threatened releases of Hazardous Substances
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances; and (iii) all requirements
pertaining to the protection of the health and safety of employees or the
public.
c. Hazardous substances shall mean (i) any toxic substance or hazardous
waste, substance or related material, or any pollutant or contaminate, (ii)
radon gas, asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenals in excess of
federal, state or local safety guidelines, whichever are more stringent; (iii)
any substance, gas, vapor, energy, radiation, material or chemical which is or
may be defined as or included in the definition of "hazardous
RLF1-172171-1
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substances", "toxic substances", "hazardous materials", "hazardous wastes" or
words of similar import under any Environmental Law"; and (iv) any other
chemical, material, gas, vapor, energy, radiation or substance, the exposure to
or release of which is or may be prohibited, limited or regulated by any
governmental or quasi governmental entity or authority that asserts or may
assert jurisdiction over the El Rancho Property or the operations or activity of
the El Rancho Property or any chemical, material, gas, vapor, energy, radiation
or substance that does or may pose a hazard to the health and/or safety of the
occupants of the property or the owners and/or occupants of property adjacent to
or surrounding the El Rancho Property.
d. Licenses and permits shall mean all licenses, permits,
registrations, certificates, authorizations and governmental approvals obtained
in connection with the design, construction, rehabilitation, use and/or
operation of the property.
e. Records and plans shall mean all building plans, specifications and
drawings, surveys, tax bills for the El Rancho Property for the last three (3)
tax years and for the current tax year to date, copies of all Licenses and
Permits and other documents related to the use, maintenance, repair, management,
construction and/or operation of the property.
f. Release shall mean any releasing, spilling, leaking, pumping,
pouring, admitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping into soil, surface waters, ground water, land, stream
sediments, surface or subsurface strata, abient air and any environmental medium
comprising or surrounding the El Rancho Property.
g. Threat of Release shall mean a substantial likelihood of a release
which requires action to prevent or mitigate damage to the soil, surface waters,
ground water, land, stream sediments, surface or subsurface strata, ambient air
in any environmental medium comprising or surrounding the property which may
result from such release.
10. If ITB is not the record owner of the El Rancho Property, ITB shall cause
the record owner to provide the representations and warranties and perform the
further actions set forth herein.
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Schedule 6(f)
The following shall occur:
1. ITB's lease for the Albuquerque office space shall be assumed by
AutoLend on or before the NPD Repurchase and the parties shall use
their best efforts to obtain from the landlord a release of ITB from
any liability under the lease upon such assumption. Upon such
assumption, AutoLend shall return to ITB any and all equipment
purchased by ITB for use at the Albuquerque office.
2. Any obligations or agreements for the employment of Jeff Ovington, Lynn
Budagher, Karen Klar and Linda Gonzalas by ITB or any of its
subsidiaries shall be terminated effective two weeks following the
Signing Date, without any obligation on the part of ITB to make
severance or any other payments to such individuals.
3. No payments shall be made by ITB or any of its subsidiaries for the use
or operation of any private airplanes after the Signing Date.
4. After the Signing Date, no expenditures shall be made or obligations
incurred by ITB for the El Rancho Property other than for normal
maintenance and emergency repairs, or payments for services already
provided not to exceed $225,000.
5. All moneys in the ITB bank account in Nevada shall be transferred to
ITB in New Jersey on or before the LVEN Effective Date and all moneys
in the ITB bank account in New Mexico shall be transferred to ITB on or
before the NPD Repurchase. Prior to the transfer of such moneys to ITB
in New Jersey, no disbursements in excess of $2,500 shall be made from
either account without the prior written approval of Coelho and
Quigley.
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RLF1-172171-1
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