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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1996 Commission File Number 0-21566
LS CAPITAL CORPORATION f/k/a "Lone Star Casino Corporation"
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
84-1219819
(I.R.S. Employer Identification No.)
15915 Katy Freeway, Suite 250, Houston, Texas 77094, (713) 398-5588
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock, $.01 Par Value
Indicate by check mark whether registrant (1) has filed all reports 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on September 25, 1996 was $482,926. The number of shares
outstanding of the registrant's Common Stock, $.01 par value, as of September
25, 1996 was 2,061,865.
Portions of the registrant's definitive Proxy Statement for its 1996 annual
meeting of stockholders (which has not been filed as of the date of this
filing) are incorporated by reference into Part III.
Registrant is filing a Form 12b-25 with respect to Item 6, Item 7 and Item 8
of this Form 10-K, and each such Item has been omitted in this Form 10-K.
Total number of pages contained in the Form and Exhibits: 47.
Exhibit Index is located on sequentially numbered page 21.
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INDEX
PAGE
NUMBER
PART I.
Item 1. Business. 3
Item 2. Properties. 10
Item 3. Legal Proceedings. 10
Item 4. Submission of Matters to a Vote of Security Holders. 12
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 13
Item 6. Selected Financial Data. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 14
Item 8. Financial Statements and Supplementary Data. 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 15
PART III.
Item 10. Directors and Executive Officers of the Registrant. 15
Item 11. Executive Compensation. 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management. 15
Item 13. Certain Relationships and Related Transactions. 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 19
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PART I
INTRODUCTORY
The Item numbers and letters appearing in this Annual Report correspond
with those used in Securities and Exchange Commission Form 10-K (and, to the
extent it is incorporated into Form 10-K, the letters used in the
Commission's Regulation S-K) as effective on the date hereof, which specifies
the information required to be included in Annual Reports to the Commission.
"EXECUTIVE OFFICERS OF THE COMPANY" has been included by the Company in
accordance with General Instruction G(3) of Form 10-K and Instruction 3 Item
401(b) of Regulation S-K. The information contained in this Annual Report
is, unless indicated to be given as of a specified date or for a specified
period, given as of the date of this Report, which is September 30, 1996.
ITEM 1. BUSINESS.
INTRODUCTION
LS Capital Corporation f/k/a "Lone Star Casino Corporation" ("Company")
was organized to develop, own and operate casinos and related resort facilities.
The Company, through Papone's Palace Acquisition Corporation, owns an indirect
75.5% interest in and operates "Papone's Palace" (referred to hereinafter as the
"Papone's Palace"), a 6,000 square foot limited stakes casino in Central City,
Colorado. Currently, Papone's Palace is the only gaming opportunity in which the
Company owns an operating interest. The Company is also considering other
business opportunities related directly and indirectly to the gaming industry.
See "OTHER BUSINESS OPPORTUNITIES."
The Company was formed under the laws of the State of Delaware on
December 30, 1992 under the name "Lone Star Casino Corporation." Prior to
May 3, 1993, the Company was a wholly-owned subsidiary of Viral Testing
Systems Corporation ("VTS"), a publicly traded company. The Company became
publicly-held through the distribution of its common stock to the
stockholders of VTS on May 3, 1993.
The principal executive offices of the Company are located at 15915 Katy
Freeway, Suite 250, Houston, Texas 77094, and its telephone number is (713)
398-5588. The Company has three employees at its corporate headquarters, in
addition to those at Papone's Palace. The term "Company" as used herein
refers to LS Capital Corporation and its subsidiaries unless the context
otherwise requires.
OPERATIONS
CENTRAL CITY, COLORADO
GENERAL
In November 1990, the State of Colorado passed a constitutional
amendment allowing the three Colorado cities of Central City, Black Hawk, and
Cripple Creek to permit "limited stakes gaming" within their city limits,
subjects to the restrictions of the constitutional amendment. In October
1991, the city of Central City approved limited stakes gaming subject to the
foregoing
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restrictions. By law, limited stakes gaming is restricted to a $5.00 maximum
bet and to facilities located in commercially zoned districts of a city at
which no more than specified percentages of the total square footage of the
facility and the square footage of any single floor are used for gaming
purposes.
Papone's Palace Ltd. Liability Company (the "Limited Liability Company")
owns and operates Papone's Palace. On November 30, 1992, VTS acquired the
right to purchase a 75.5% interest in the Limited Liability Company, subject
to the approval of Colorado gaming authorities. VTS subsequently assigned to
Papone's Palace Acquisition Corporation, a wholly owned subsidiary of the
Company, VTS's rights to purchase the 75.5% interest in the Limited Liability
Company. On June 10, 1993, the Colorado gaming authorities approved the
transfer of the foregoing interest to the Company, and the consummation of
the acquisition of such interest occurred shortly thereafter.
Papone's Palace is a limited stakes gaming casino situated in a 6,000
square foot, two-story Victorian building, which opened for business on July
1, 1992. Papone's Palace currently has 53 gaming devices and one blackjack
table game, all of which have a maximum $5.00 betting limit imposed by the
Colorado limited stakes gaming law. Limited food and beverage service is
also available. Papone's Palace has no separate parking facilities and
access to both Papone's Palace and Central City is limited.
Since its acquisition in June 1993, Papone's Palace had failed to operate
at a profit and had experienced continuing losses. In late 1995, the Company
took steps to reduce the costs and expenses relating to Papone's Palace. As
a result of these steps, the losses of Papone's Palace were curtailed, and
the facility began to operate on a break-even basis. However, the weather in
Central City, Colorado and surrounding areas was especially severe during the
1995-1996 winter season, and the volume of patrons to Papone's Palace
declined significantly in January 1996. Management believes that this decline
resulted from the perception created by the severe weather that travel to
Central City had become precarious. In view of the decline in the number of
patrons, management decided to close Papone's Palace from February 1, 1996
until such time as more favorable weather could be expected to alleviate the
circumstances leading to the decline in patronage. Papone's Palace was
reopened on June 12, 1996. No significant operational or staffing problems
were experienced in recommencing operations at Papone's Palace. Since
reopening, week-to-week comparisons show 1996 revenues approximately 20%
below 1995 revenues.
MARKETS AND MARKETING
Central City is a historic mining town located on the eastern edge of the
Rocky Mountains, approximately 40 miles west of the Denver metropolitan area.
Limited stakes gaming became the primary industry of Central City after the
city legalized gaming in October 1991.
Papone's Palace targets its customers from the Denver metropolitan area
and surrounding communities. Papone's Palace has experienced increased
competition from the neighboring community of Black Hawk through which
potential patrons must pass to reach Central City. Papone's Palace has also
experienced a significant decrease in the revenues during the winter months
due to the hazards of winter travel in the Colorado mountains.
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Management has attempted to somewhat mitigate the effects of Black Hawk
and winter travel by marketing bus charters to various groups in the Denver
Metropolitan area and intends to utilize these charters as the primary means
for delivering patrons to Papone's Palace. While management expects an
increase in patron visits and revenues will result from the marketing of bus
charters, no assurance can be given that such marketing will increase patron
visits and revenues or make the operations of Papone's Palace profitable.
REGULATION AND LICENSING
Because Papone's Palace is a limited stakes gaming facility in Colorado,
its ownership and operation are subject to extensive Colorado state and local
regulation. Such regulation especially affects the licensing of gaming
facilities and their employees. For example, the licenses held by the
Company are not transferable, and must be renewed on an annual basis. The
Company is currently operating under a license that expires in June 1997. A
hearing regarding the renewal of such license for one year is set for a few
weeks before the current license expires. Management foresees no problem in
having the license renewed, but there can be no assurance that such licensed
will be renewed. In addition to the licensing regulations, no interest in a
licensee may be alienated in any fashion without the prior approval of the
Colorado gaming authorities, except as provided below. In addition, no
person or entity may have an interest in more than three retail gaming
licenses.
The Colorado gaming regulations also govern inspection of records and
facilities of licensees and persons associated with licensees; seizure of
gaming devices for regulatory violations; record retention; minimum
operating, security and payoff procedures; regulatory compliance audits;
inclusion of certain provisions in the chartering documents of a licensee;
and reporting to the Colorado gaming authorities upon the acquisition of
certain percentage ownership interests in a licensee by certain persons.
Finally, because the Company is a public company, it must comply with
specific rules relating to public companies involved in limited gaming.
As suggested above, the Colorado gaming authorities have the power and
authority to pass on the suitability of all persons, places and practices
connected with limited stakes gaming, especially licensees and any person
having a material relationship to or material involvement with a licensee,
such as persons owning an interest in a licensee, persons associated with or
employed by such licensees, and creditors of a licensee. In this connection,
the burden of suitability is always on the person whose suitability is in
question to prove his suitability by clear and convincing evidence. Some
persons are automatically deemed unsuitable because of prior violations and
convictions. Any person found unsuitable by the Colorado gaming authorities
may not hold directly or indirectly the beneficial ownership of any voting
security of a publicly traded corporation, and must be removed immediately
from any position as a director, officer or employee of such publicly traded
corporation.
Because of the regulations described above and similar regulations in
other states, the Twelfth Article of the Company's Certificate of
Incorporation contains provisions prohibiting the issuance or transfer of
stock except in accordance with applicable gaming laws and regulations of
each and every jurisdiction in which the Company engages in the gaming
business. The Twelfth Article also requires stockholder determined by a
state gaming authority to be unsuitable to sell his stock in the Company to
the Company within 60 days after such determination for a purchase
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price equal to the lesser of the actual purchase price paid by such
stockholder or the then current fair market value of the stock, except that
if the related stockholder fails to present reasonable proof of the actual
purchase price paid by him for his stock, the purchase price shall be the
lowest bid price quoted for the stock within the last 12 months (or $.10 per
share if there has not been such a bid price) unless the related stockholder
transfers his stock to a suitable person within 60 days after the
unsuitability determination. Moreover, the Twelfth Article bars a
stockholder determined to be unsuitable from the benefits of stock ownership
in the Company, including voting and dividend rights, pending such
stockholder's sale of his stock.
While the Company anticipates that the current language of the Twelfth
Article will be found to be acceptable in all jurisdictions in which the
Company engages in the gaming business, there can be no assurance that future
modifications may not be required. Any amendments to the Company's
Certificate of Incorporation will require the approval of a majority of its
stockholders at that time, and it is uncertain whether such amendments would
ultimately by approved by the requisite number of stockholders. The failure
of the Company's stockholders to adopt changes to its Certificate of
Incorporation as may be mandated by the gaming authorities of jurisdictions
in which it transacts business could have a material adverse effect on its
business and operations.
There are specific reporting procedures and approval requirements for
transfers of interests and other involvement with publicly traded
corporations directly or indirectly involved in limited gaming in the State
of Colorado. For example, each public company involved in the gaming
business and proposing a public offering of its securities is required to
make full disclosure of all material facts relating thereto to the Colorado
gaming authorities. Furthermore, each such public company is required to
send to the Colorado gaming authorities copies of all material documents
filed with the Securities and Exchange Commission as well as other corporate
information, including the disposition of the company's securities by an
officer, director or controlling person.
The Colorado gaming authorities and local municipalities also have the
power to levy substantial taxes with respect to gaming revenues and with
respect to gaming devices. The constitutional amendment legalizing gaming in
Colorado gave to the State the power to tax up to forty percent (40%) of the
adjusted gross proceeds ("AGP") received by a licensee from limited gaming.
The tax rates for the gaming year of October 1, 1995 to September 30, 1996
were, and for the gaming year of October 1, 1996 to September 30, 1997 will
be, 2% for AGP up to $2,000,000, 8% for AGP between $2,000,001 to $4,000,000,
15% for AGP between $4,000,001 to $5,000,000, and 18% for AGP $5,000,001 and
over. For the same gaming year, the state gaming device fee was $75 per
gaming device for the year. In addition, local monthly device fees,
currently at a rate of $105.41 per device, are assessed by Central City.
COMPETITION
Papone's Palace competes with other limited stakes gaming establishments
in Central City, neighboring Black Hawk, Cripple Creek and on Native American
reservations in the Southwest part of Colorado. Competition for gaming
revenue in Colorado is intense. As a result, the number of Colorado limited
stakes gaming establishments has decreased from a peak of 75 in November 1992
to 58 in July 1996. An additional increase in the availability of other
gaming opportunities such as local casinos, lotteries and other forms of
gaming, particularly in areas close to Papone's Palace, could further
adversely affect the financial performance of Papone's Palace. Moreover,
while
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gaming has become more accepted in the United States in recent years, the
gaming industry is subject to shifting consumer preferences and perceptions.
A dramatic shift in consumer acceptance or interest in gaming could further
adversely affect Papone's Palace. Management believes an increasing level of
competition will continue to adversely impact the casino's operating results.
SEASONALITY
Central City is accessible only via a narrow, winding mountain road.
Accordingly, inclement weather will have an adverse affect on revenues.
Because of unusually severe weather, the Company decided to close Papone's
Palace on February 1, 1996. Papone's Palace reopened on June 12, 1996. The
Company intends to operate Papone's Palace until September 30, 1996 and close
again for the winter of 1996-1997. The Company anticipates that a
disproportionate amount of revenues from Papone's Palace will be received
during the summer months.
EMPLOYEES
Papone's Palace employs 29 persons. The employees at Papone's Palace are
not covered by a collective bargaining agreement and relations with them are
considered to be good.
OTHER BUSINESS OPPORTUNITIES
CLUTCH GAMES, INC.
In June 1996, the Company formed Clutch Games, Inc. ("CGI") as a
wholly-owned subsidiary. CGI acquired all the rights to a series of card and
board games called "Clutch Football", "Clutch Basketball", "Clutch Baseball",
"Clutch Soccer" and "Clutch Hockey" from their inventor. CGI also acquired
inventory of about 45,000 Clutch Football games from an unaffiliated party.
CGI is currently test marketing Clutch Football through direct response
television advertisements featuring Joe Theismann, former Notre Dame and
Washington Redskins quarterback, as the celebrity host. Initial test results
to date have been inconclusive, as the Company buys so-called pre-emptible
television time at a very large discount from regular advertising rates, and
many of its scheduled appearances have been "pre-empted" by advertisers who
pay higher rates. The Company currently intends to continue the tests and to
attempt to interest one or more of the shop-at-home networks to test the
product. At the present time, it is impossible to predict the success of
this Venture.
COLLECTIBLE CASINO CHIPS
Subsequent to the decision to close the Company's Tinian Casino, the
Company was advised by the manufacturer of the Company's chips or "cheques"
that such chips have a substantial value to collectors. The Company and the
manufacturer have agreed to market the chips to collectors through the
Internet, magazine advertisements and collector shows. As of this date, chip
sales have not been significant. Magazine advertisements for the chips will
begin in October 1996. If the Tinian chip sales are successful, the
Company may decide to design and market additional chip designs based on
historical events in the western Pacific area.
DISCONTINUED GAMING OPPORTUNITIES
GENERAL
From its inception and until shortly after the start of fiscal 1996, the
Company had generally adhered to an aggressive policy of pursuing attractive
opportunities in the gaming industry. As a consequence of this policy, the
Company acquired interests in or control over a number of such opportunities.
Early in fiscal 1996, the Company modified this policy, and adopted a policy
of focusing more exclusively on the development of the operations of Papone's
Palace (the Company's only current operation), while pursuing other gaming
opportunities to a much lesser extent. As a result of this new policy, the
Company sold, relinquished or divested all of the gaming opportunities in
which it owned an interest or over which it had control, other than Papone's
Palace. The following is a discussion of the gaming opportunities that the
Company has sold, relinquished or divested in fiscal 1996.
TINIAN
On April 27, 1995, the Company opened its Lone Star Casino (the
"Company's Tinian Casino") on the Island of Tinian, in the United States
Commonwealth of the Northern Marianas Islands. The Company's Tinian Casino
was closed in December 1995 for a variety of seasonal and operational
reasons, but was expected to reopen on January 5, 1996. However, the
casino's permit to operate in its facility expired on December 31, 1995, and
the Company was not able to negotiate an extension of the permit by the time
of its expiration. While the casino was closed, the Company tried to
renegotiate the terms and requirements of the casino's license due to the
burdensome fees that it has had to pay pursuant to such license, which
consumed over 80% of revenues during the eight months it was open. When
these renegotiations proved unsuccessful, the Company decided in April 1996
that the future prospects of the casino did not warrant the financial risks
the fees
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imposed on the Company and that the casino should not be reopened. The
Company has written off its remaining investment in the Tinian Casino as of
June 30, 1996.
TROPICANA PROPERTY
On March 3, 1994, a wholly-owned subsidiary of the Company entered into
a lease with SW Holding Corp. covering the former Granada Inn located on East
Tropicana Avenue, Las Vegas, Nevada (the "Tropicana Property"). Initially,
the Company operated a limited menu restaurant, with slot machines installed
and operated by a slot route operator, to preserve grandfathered gaming
rights at the site until Clark County, Nevada designated the site as a
Resort-Hotel based upon arrangements with the lessee of the 310-unit motel on
the same parcel. Following that designation, operations were terminated
pending the Company's receipt of final licensing approvals from the Nevada
gaming authorities. Subsequent to June 30, 1995, the Company sold its
interest in a note receivable secured by a third deed of trust on the
Tropicana Property at a discount from the outstanding principal amount of the
note receivable. The note receivable had a principal balance of $1,250,000
and was sold for $500,000. The Company retained an option to repurchase the
note receivable and sold this option to the new purchaser of the note
receivable for $100,000 in March 1996. Accordingly, the Company made
provision for the loss on the note receivable in the amount of $750,000. The
$100,000 option payment was recorded as income in the third quarter of fiscal
1996. In connection with its decision not to pursue gaming in this location,
the Company also wrote off its accumulated costs in the project amounting to
approximately $719,000. Under the terms of the lease on the property, the
landlord was to repay the foregoing amount, and the Company has filed a lien
on the property in the amount of $719,000.
PROPOSED DESERT INN ROAD CASINO PROPERTY
A wholly-owned subsidiary of the Company entered into a lease with TPM
Financial, Inc., a Nevada corporation ("TPM"), effective October 25, 1994,
regarding a building containing approximately 60,000 square feet of
unimproved space located on East Desert Inn Road, Las Vegas, Nevada (the
"Desert Inn Road Casino Property"). On December 29, 1994, the same
wholly-owned subsidiary of the Company entered into a 55-year lease with TPM
regarding a 310-room hotel (the "Desert Inn Road Hotel Property") adjacent to
the Desert Inn Road Casino Property. Effective April 1, 1995, the Company
entered into a short-term sublease agreement with a company to sublease the
Desert Inn Road Hotel Property on substantially the same terms governing the
Company's lease of such property. In September 1996, TPM was successful in
terminating the two leases, citing numerous defaults which resulted in the
eviction from the property of the Company and its subtenant. The Company is
currently pursuing legal recourse against TPM in this connection. See "LEGAL
PROCEEDINGS." The Company's accumulated investment of approximately $522,000
was written off as of June 30, 1995. The wholly-owned subsidiary filed for
liquidation pursuant to Chapter 7 of the Bankruptcy Code on August 15, 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITIONS
---- --- ---------
Paul J. Montle 49 Chairman of the Board and
Chief Executive Officer
C. Thomas Cutter 56 Director
Kent E. Lovelace, Jr. 60 Director
Roger W. Cope 55 Director
Paul J. Montle has served as the Chairman of the Board and Chief
Executive Officer of the Company since 1992. From 1991 to October 15, 1994,
Mr. Montle served as President and Chief Executive Officer of Viral Testing
Systems Corporation ("VTS"), a distributor of a FDA-licensed AIDS test and
other medical diagnostic products, and from 1991 to 1992, he also served as
Chairman of the Board of such company. VTS filed for protection under
Chapter 11 of the Bankruptcy Code on January 4, 1995. On September 9, 1996,
the case was converted to a Chapter 7 proceeding. Since 1987, Mr. Montle has
been a Managing Director of Montle International Incorporated, a
privately-held merchant banking firm.
C. Thomas Cutter has served as a Director of the Company since December
1992. Since 1968, he has served as President, Director and sole shareholder
of Cutter Fire Brick Co., Inc., which is engaged in the repair and
maintenance of industrial heat enclosures. Since 1975, Mr. Cutter has served
as President, Director and sole shareholder of both Cutter Ceramics, Inc., a
manufacturer and distributor of art clay, and ADC Supply Corp., a distributor
of industrial insulation materials. Since 1985, Mr. Cutter has served as
President, Director and sole shareholder of Cutter Northern Refractories,
Inc., which is engaged in the repair and maintenance of industrial heat
enclosures.
Kent E. Lovelace, Jr. has served as a Director of the Company since
August 1993. Since 1975, he has served as President and Chief Executive
Officer of Equitrust Mortgage Corporation, formerly Hancock Mortgage
Corporation.
Roger W. Cope has served as a Director of the Company since 1993. He now
serves as Vice President - Business Development of Lamb Technicon Machining
Systems. From January 30, 1993 until January 16, 1996, Mr. Cope served as
President of the Company and Manager of Papone's Palace, Ltd. Liability Co.
During 1991 and 1992, he served as Director of Strategic Planning for the
Applied Technology Division of Litton Systems, Inc., a provider of electronic
warfare products to the defense industry. From 1986 to 1991, Mr. Cope served
as President of Cope Development Corp., a privately-held consulting firm. He
also serves as a Director of Waste Recovery, Inc., a publicly-held
corporation engaged in specialized resource recovery.
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Each officer holds office until the first meeting of the Board of
Directors following the annual meeting of stockholders and until his
successor shall have been duly elected and qualified, or until he shall have
resigned or been removed as provided by the By-Laws. There are no
understandings or agreements relating to any person's service or prospective
service as an executive officer of the Company. No family relationship
exists between any of the above listed executive officers or between any such
executive officer and any Director of the Company.
ITEM 2. PROPERTIES
The following table sets forth information regarding the Company's
properties:
ANNUAL RENTALS
IF LEASED
LOCATION USE OWN/LEASE SQ. FT. (IN 000'S)
- -------_ --- --------- ------- --------------
Central City, CO Casino (Papone's) Owned 6,000 N/A
Houston, TX Executive Offices Lease 1,600 $ 14
The Company's gaming operation in Central City, Colorado is owned by
Papone's Palace Ltd. Liability Company, which is a 75.5% owned subsidiary of
Papone's Palace Acquisition Corporation, a wholly owned subsidiary of the
Company.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is a plaintiff in litigation in the 281st Judicial
District of Harris County, Texas entitled Lone Star Casino Corporation and
Hallmark Trading Co. Ltd. v. Cambridge Financial Corporation, Leslie S.
Greyling, Daniel M. Boyar, Claude Kirk, Jose Esquivel, Thomas Mahood, Jorge
Galvez, Gregory Martini, Aspen Marine Group, Inc., Ella Boutwell Chestnut,
Steven T. Dorrough, George D. Fowler, Paul A. Herman, C. Randolph Coleman,
Robert J. Baker, Joseph C.F. Chow, and Corporate Stock Transfer, Inc.,"
(Civil Action No. 93-041789), which seeks damages for the non-payment of a
$500,000 promissory note and for the loss of profits arising out of the
non-payment of other consideration and for damages caused by fraud and other
claims. In January 1994, the Company received a judgment in an amount
exceeding $2.3 million plus post-judgment interest against Cambridge
Financial Corporation, Leslie S. Greyling and Daniel M. Boyar. The Company
is currently attempting to collect this judgment. The remaining defendants
are Claude Kirk, Jose Esquivel and Jorge Galvez, against whom the Company is
trying to obtain a summary judgment.
Papone's Palace Ltd. Liability Company was named as one of the defendants
in an Amended Complaint filed in January 1994 on behalf of Earl Neudecker, a
24.5% owner of the Company. The case was filed in Jefferson County,
Colorado, Colorado District Court Case No. 93CV775, Division TW. That
Amended Complaint was dismissed and the case was refiled a third time by the
plaintiff with a Second Amended Complaint. The allegations primarily involve
acts or omissions of management and owners prior to June 10, 1993, the date
the Colorado Commission approved Papone s Palace Acquisition Corporation as a
new owner. A trial for this case was originally set for December 2, 1996.
However, after receipt of the opinion of the Company's
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expert, counsel for the plaintiff requested and was granted an indefinite
continuance of the case on the basis that he was not ready for the trial.
The Company is a defendant in litigation in the Supreme Court of the
State of New York, County of New York, entitled Nemsa Establishment, S.A. v.
Viral Testing Systems Corporation et al." (Index No. 94112917), and in the
U.S. District Court for the District of Delaware, entitled Truman L. Susman
v. Viral Testing Systems Corporation, et al. (C.A. No. 94-210). Viral
Testing Systems Corporation ("VTS"), a company currently in a Chapter 7
proceeding under the federal Bankruptcy Code, is the principal defendant in
these proceedings. VTS recently received a favorable partial jury verdict in
the Susman litigation. The Company believes that it was named as a defendant
in these proceedings merely by virtue of its prior ownership by VTS. Neither
of the plaintiffs in these proceedings has asserted any specific claim
against the Company, and neither has directed any discovery to the Company.
The Company believes these suits to be without merit and intends to defend
vigorously itself against these lawsuits.
On December 14, 1994, the Company filed a lawsuit in Harris County,
Texas against Full House Resorts, Inc. ("Full House"), Allen E. Paulson,
Donaldson, Lufkin & Jenrette Securities Corporation and My Dang to enforce
the terms of a preliminary agreement executed on September 8, 1994 between
the Company and Full House to jointly acquire and relocate the Palace Casino
to the Company's site in Biloxi, Mississippi. On December 16, 1994, Full
House filed a lawsuit in Mississippi seeking a declaratory judgment against
the Company regarding the same preliminary agreement. On January 24, 1995,
the Company counterclaimed in the Mississippi suit restating essentially all
of the claims against the defendants in the Texas suit. By agreement of the
parties, the suit in Texas was non-suited so that the litigation would
continue in Mississippi. Discovery was taken in late 1995, and the
defendants filed various motions for summary judgement. In February 1996,
the Company allowed both of its counsel to withdraw without substituting new
counsel, pending entry of a new scheduling order to accommodate the Company's
new counsel. The judge refused to issue a new scheduling order to allow the
Company's new counsel to prepare, thus leaving the Company without the
benefit of counsel. The judge scheduled a hearing on the defendants' motions
for summary judgement on March 15, 1996, at a time when the Company's only
corporate officer who could appear PRO SE on behalf of the Company was to be
in Delaware attending another trial. Despite affidavits submitted to the
judge affirming the foregoing absence, the judge granted the defendants'
motion because the Company was not represented at the hearing. The Company's
new counsel immediately filed an appearance and notice of appeal with the
Mississippi Supreme Court, which will probably not be decided until 1997.
The Company presently intends to continue to pursue this litigation. The
Company has recently been advised by its attorneys in this lawsuit that there
was a great likelihood of a favorable outcome in the appeal, although the
Company is not now in a position to predict with certainty its prevailing on
appeal or any subsequent trial on the merits.
The Company is a defendant in a lawsuit filed by TPM Financial, Inc.
("TPM"), the landlord of the Company's previously leased Desert Inn Road
properties from which the Company and its subtenant were evicted in September
1995 after the subtenant defaulted on its payments to the Company which in
turn defaulted on their payments to the TPM. TPM is seeking a judgement
against the Company for rents owed of approximately $325,000. Also, the
subtenant filed a counter-claim against the Company citing misrepresentation
of certain facts concerning the property, the Company's inability to perform
as landlord, breach of the sublease, breach of implied
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covenant of good faith and fair dealing, and fraud. The Company filed a
counter-claim claiming that TPM conspired with their subtenant to make
reduced payments and eventually stop making payments under the sublease
thereby causing the Company to default under the lease with TPM. The
litigation is in the discovery phase. The Company is also seeking damages
from its subtenant. The subtenant has offered to settle with TPM for
approximately $35,000. The Company expects that a settlement is likely to be
reached with TPM and the subtenant. The Company intends to aggressively
pursue its claims against both TPM and the subtenant if the Company is unable
to reach a settlement on terms satisfactory to it.
The Company is a defendant in a lawsuit filed by Mississippi Ventures II
("MVII") on August 7, 1995 regarding a proposed joint venture between the
Company and MVII. The Company had a lease on certain property located in
Mississippi and had intended on developing a casino site with MVII. MVII had
required that the lease be amended in order to provide for a joint venture
and MVII agreed to place $100,000 in an escrow account to be used for rents
owed. Before the lease was amended and the escrow deposit released to the
landlord, the Mississippi Supreme Court declared the original leased site as
not a legal casino site. The $100,000 has been released to the Company, and
the Company is retaining the $100,000 on the basis that MVII interfered with
the negotiation of the amended lease and its timely execution. MVII has
alleged breach of the implied covenant of good faith and fair dealing, and
breach of fiduciary duty. The Company has denied all causes actions. The
Company is involved in settlement discussions with MVII. However, the
outcome of these discussions and the lawsuit is not now determinable. The
Company intends to defend vigorously the case if the Company is unable to
reach a settlement on terms satisfactory to it.
The Company is a defendant in a lawsuit filed by GFL Ultra Fund, Ltd. on
February 14, 1996 regarding the Company's alleged refusal to convert certain
shares of preferred stock in the Company owned by Ultra into shares of Common
Stock. The plaintiffs in this cause are seeking specific performance of the
Company's alleged obligation to convert such stock and a monetary recovery of
an unspecified amount representing any losses suffered by them as a result of
the alleged wrongful refusal to convert. The Company has denied all causes
actions and believes that it has meritorious affirmative defenses. The suit
is in preliminary stages and the final outcome is not determinable; however,
the Company intends to defend vigorously the case. The Company has filed
motions to dismiss this lawsuit for lack of jurisdiction, improper venue and
failure to state a claim upon which relief can be granted. After these
motions were filed, GFL Ultra Fund, Ltd. consented to move the venue of the
lawsuit to Texas. The parties have agreed to mediate their dispute by April
1997. The outcome of the mediation is not determinable at this time. The
Company intends to defend vigorously the case if the Company is unable to
reach a settlement on terms satisfactory to it during the course of the
mediation or otherwise.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 17, 1996, the Company held a special meeting of its stockholders
for purposes of considering and acting upon three proposals. Each of the
proposals was approved by the Company's stockholders. The first of these
proposals authorized the change of the Company's corporate name to "LS
Capital Corporation" (the "Name Change"). The second of these proposals
authorized a 1-for-25 reverse stock split of the Company's common stock (the
"Reverse Stock Split"). The third of these proposals authorized issuances of
the Company's common stock, in the
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<PAGE>
discretion of the Board of Directors of the Company, to creditors of the
Company (including officers and directors of the Company) in satisfaction of
amounts owed by the Company (the "Discretionary Issuances"). The following
table sets forth certain information about the voting on the three proposals.
<TABLE>
VOTES VOTES VOTES BROKER
FOR AGAINST WITHHELD ABSTENTIONS NONVOTES
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Name Change 35,878,159 1,501,608 85,242
Reverse Stock Split 34,259,500 2,012,800 65,962 1,126,740
Discretionary Issuances 11,363,958 2,418,262 772,370 22,910,419
</TABLE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the OTC Bulletin Board under the
symbol "LONE". As of September 25, 1996, the Company had 1,668 holders of
record. Presented below are the high and low closing bid prices of the
Company's common stock for the two years ended June 30, 1996.
HIGH LOW
------ ------
Fiscal year ended June 30, 1995:
First Quarter $3.500 $1.250
Second Quarter 1.500 0.563
Third Quarter 1.113 0.406
Fourth Quarter 1.313 0.469
Fiscal year ended June 30, 1996:
First Quarter $0.563 $0.250
Second Quarter 0.250 0.100
Third Quarter 0.150 0.015
Fourth Quarter 0.380 0.015
The Company has never paid cash dividends, and has no intentions of
paying cash dividends in the foreseeable future. Certain of the Company's
agreements governing its debt restrict the ability of the Company to pay
dividends.
ITEM 6. SELECTED FINANCIAL DATA.
Because of the unavailability of certain accounting records pertaining
to the Company's former Tinian Casino, which records were in transit from
such casino on the date that this Annual
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<PAGE>
Report was filed with the Securities and Exchange Commission, the examination
of the Company's consolidated financial statements for fiscal 1996 was not
completed by the date by which this report was required to be filed with the
Securities and Exchange Commission. A Form 12b-25 with respect to this and
certain other portions of the Annual Report will be filed with the Securities
and Exchange Commission in connection with the filing of this Annual Report.
The Form 12b-25 should have the effect of extending the filing date for the
portions of this Annual Report covered thereby until October 15, 1996, by
which time the Company expects to have filed, by means of an amendment to
this Annual Report, the information required by this Item and the materials
required by the other Items covered by the Form 12b-25. In the interim,
information required by this Item with respect to the Company's 1995 and 1994
fiscal years and the stub-year ended June 30, 1993 can be obtained by a review
of the Company's 1995 Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Because of the unavailability of certain accounting records pertaining
to the Company's former Tinian Casino, which records were in transit from
such casino on the date that this Annual Report was filed with the Securities
and Exchange Commission, the examination of the Company's consolidated
financial statements for fiscal 1996 was not completed by the date by which
this report was required to be filed with the Securities and Exchange
Commission. A Form 12b-25 with respect to this and certain other portions of
the Annual Report will be filed with the Securities and Exchange Commission
in connection with the filing of this Annual Report. The Form 12b-25 should
have the effect of extending the filing date for the portions of this Annual
Report covered thereby until October 15, 1996, by which time the Company
expects to have filed, by means of an amendment to this Annual Report, the
discussion required by this Item and the materials required by the other Items
covered by the Form 12b-25. In the interim, the discussion required by this
Item with respect to the Company's 1995 and 1994 fiscal years and the stub-year
ended June 30, 1993 can be obtained by a review of the Company's 1995 Annual
Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Because of the unavailability of certain accounting records pertaining
to the Company's former Tinian Casino, which records were in transit from
such casino on the date that this Annual Report was filed with the Securities
and Exchange Commission, the examination of the Company's consolidated
financial statements for fiscal 1996 was not completed by the date by which
this report was required to be filed with the Securities and Exchange
Commission. A Form 12b-25 with respect to this and certain other portions of
the Annual Report will be filed with the Securities and Exchange Commission
in connection with the filing of this Annual Report. The Form 12b-25 should
have the effect of extending the filing date for the portions of this Annual
Report covered thereby until October 15, 1996, by which time the Company
expects to have filed, by means of an amendment to this Annual Report, the
financial statements required by this Item and the materials required by
the other Items covered by the Form 12b-25. In the interim, the financial
statements required by this Item with respect to the Company's 1995 and 1994
fiscal years and the stub-year ended June 30, 1993 can be obtained by a review
of the Company's 1995 Annual Report on Form 10-K.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On September 3, 1996, the Company engaged Malone & Bailey, PLLC,
independent certified public accountants, Houston, Texas, as its auditors for
the fiscal year ended June 30, 1996.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under the captions
"Election of Directors -- Information Concerning the Nominees" and "--
Directors and Executive Officers" in the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission and is incorporated
herein by this reference as if set forth in full.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the caption
"Executive Compensation" in the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission and is incorporated herein
by this reference as if set forth in full.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the captions
"Election of Directors -- Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission and is incorporated herein by this
reference as if set forth in full.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the caption
"Certain Transactions" in the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission and is incorporated herein
by this reference as if set forth in full.
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<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Exhibits:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.01 Certificate of Incorporation of the Company filed December 30,
1992 is incorporated herein by reference from the Company's
(SEC File No. 33-57998-D) Form SB-2 Registration Statement
filed April 29, 1993, Item 27(a), Exhibit 3.1.
4.02 Bylaws of the Company are incorporated herein by reference from
the Company's (SEC File No. 33-57998-D) Form SB-2 Registration
Statement filed April 29, 1993, Item 27(a), Exhibit 3.2.
4.03 Certificate of Amendment of Certificate of Incorporation of the
Company is incorporated herein by reference from the Company's
(SEC File No. 33-57998-D) Form SB-2 Registration Statement
filed April 29, 1993, Item 27(a), Exhibit 3.5.
4.04 Amendment to Certificate of Incorporation filed February 2,
1995 is incorporated herein by reference from the Company's
(SEC File No. 0-21566) Report on Form 10-Q for the period ended
December 31, 1994, Item 6, Exhibit 3.01
4.05 Certificate of Designation, Preferences, Rights and Limitations of
12% Senior Convertible Preferred Stock of the Company filed January
25, 1993, is incorporated herein by reference from the Company's
(SEC File No. 33-57998-D) Form SB-2 Registration Statement filed
April 29, Item 27(a), Exhibit 4.1.
4.06 Certificate of Amendment of Certificate of Incorporation of the
Company filed June 26, 1996.
10.01 Assignment Agreement dated as of December 31, 1992 between Papone's
Palace Acquisition Corporation and the Company is incorporated
herein by reference from the Company's (SEC File No. 33-57998-D)
Form SB-2 Registration Statement filed April 29, 1993, Item 27(a),
Exhibit 10.1.
10.02 Purchase Agreement dated effective November 30, 1992 between
American Pacific Management Corporation and George B. Hill and
Dolores J. Hill, Trustees of the Hill Family Trust and Papone's
Palace Ltd. Liability Company is incorporated herein by reference
from the Company's (SEC File No. 33-57998-D) Form SB-2 Registration
Statement filed April 29, 1993, Item 27(a), Exhibit 10.4.
10.03 Letter Agreement dated November 30, 1992 between American Pacific
Management Corporation and Randall Gose is incorporated herein by
reference from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a), Exhibit 10.5.
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<PAGE>
10.04 Lease and Option dated November 30, 1992 between George B. Hill and
Dolores J. Hill and American Pacific Management Corporation is
incorporated herein by reference from the Company's (SEC File No.
33-57998-D) Form SB-2 Registration Statement filed April 29, 1993,
Item 27(a), Exhibit 10.6.
10.05 The Company's 1993 Stock Option Plan is incorporated herein by
reference from the Company's (SEC File No. 33-57998-D ) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a), Exhibit 10.8.
10.06 Amendment to the Company 1993 Stock Option Plan is incorporated
herein by reference from the Company's (SEC File No. 0-21566)
Report on Form 10-Q for the period ended September 30, 1994, Item
6, Exhibit 10.8.
10.07 Operating Agreement of Papone's Palace is incorporated herein by
reference from the Company's (SEC File No. 33-57998-D ) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a), Exhibit 10.9.
10.08 Settlement Agreement dated March 15, 1993 by and among the Hill
Family Trust, George B. Hill and Dolores J. Hill, Co-Trustess,
George B. Hill, individually, Timothy B. Hill, individually,
American Pacific Management Corporation, Papone's Palace
Acquisition Corporation, Viral Testing Systems Corporation, the
Company, Paul J. Montle and Paul V. Culotta is incorporated herein
by reference from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a), Exhibit
10.10.
10.09 Assignment Agreement dated as of December 31, 1992 between Papone's
Palace Acquisition Corporation and the Company is incorporated
herein by reference from the Company's (SEC File No. 33-57998-D)
Form SB-2 Registration Statement filed April 29, 1993, Item 27(a),
Exhibit 10.12.
10.10 Letter from the State of Colorado regarding the transfer of
ownership to Papone's Palace Acquisition Corporation is
incorporated herein by reference from the Company's (SEC File No.
0-21566) Current Report on Form 8-K dated June 10, 1993, Item 7,
Exhibit (a).
10.11 Promissory Note in the principal amount of $500,000 dated as of
June 10, 1993 in favor of Randal Gose is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Annual Report
on Form 10-K for the year ended June 30, 1993, Part IV, Item
14(c), Exhibit 10.16.
10.12 Promissory Note in the principal amount $500,000 executed by First
Response Medical, Inc. in favor of the Company is incorporated
herein by reference from the Company's (SEC File No. 0-21566)
Current Report on Form 8-K dated June 3, 1993, Item 7, Exhibit 10.1.
10.13 Pledge Agreement made and entered into as of May 4, 1993 between
First Response Medical, Inc. and the Company is incorporated herein
by reference from the Company's (SEC File No. 0-21566) Current
Report on Form 8-K dated June 3, 1993, Item 7, Exhibit 10.2.
10.14 Bailment and Agency Agreement entered into as of May 4, 1993
between First Response Medical, Inc., the Company, Pullman & Comley
& Allan H. Carlin is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Current Report on Form 8-K dated
June 3, 1993, Item 7, Exhibit 10.3.
10.15 Restructuring and Amendment Agreement dated September 9, 1993 by
and among the Hill Family Trust, George B. Hill, Trustee, American
Pacific Management Corporation and the Company is incorporated
herein by reference from the Company's (SEC File No. 0-21566)
Annual Report on Form 10-K for year ended June 30, 1993, Part IV,
Item 14(c), Exhibit 10.22.
-17-
<PAGE>
10.16 Agreement dated November 24, 1993 by Coronet Company, Inc. to the
Company is incorporated herein by reference from the Company's (SEC
File No. 0-21566) Annual Report on Form 10-K for the year ended
June 30, 1994, Part IV, Item 14(c), Exhibit 10.30.
10.17 Lease dated October 20, 1994 between Lone Star Casino Corporation
of Nevada, a Nevada corporation, and TPM Financial, Inc. is
incorporated herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended September 30,
1994, Item 6, Exhibit 10.34.
10.18 Amendment Number One to Casino Lease dated February 3, 1995,
between TPM Financial, Inc. and Lone Star Corporation of Nevada is
incorporated herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended December 31,
1994, Item 6, Exhibit 10.01.
10.19 Amendment No. 2 to the the Company 1993 Stock Option Plan is
incorporated herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended December 31,
1994, Item 6, Exhibit 10.02.
10.20 Amendment No. 3 to the the Company 1993 Stock Option Plan is
incorporated herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended December 31,
1994, Item 6, Exhibit 10.03.
10.21 Amendment Number One to Lease Agreement dated February 3, 1995,
between TPM Financial, Inc. and Lone Star Casino Corporation of
Nevada is incorporated herein by reference from the Company's (SEC
File No. 0-21566) Report on Form 10-Q for the period ended December
31, 1994, Item 6, Exhibit 10.04.
10.22 The Company, Papone's Palace Acquisition Corporation and Papone's
Palace Ltd. Liability Company Secured Convertible Senior Debenture
Due January 1, 1995 Debenture No. 1 dated October 5, 1994 in the
original principal amount of $1,000,000 is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Report on Form
10-Q for the period ended December 3, 1994, Item 6, Exhibit 10.05.
10.23 The Company's 1994 Employee Stock Purchase Plan is incorporated
herein by reference from the Company's (SEC File No. 0-21566)
Report on Form 10-Q for the period ended December 3, 1994, Item 6,
Exhibit 10.06.
10.24 The Company's Capital Accumulation Plan is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Report on Form
10-Q for the period ended December 31, 1994, Item 6, Exhibit 10.07.
10.25 The Company's 1994 Stock Option Plan for Non-Employee Directors is
incorporated herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended December 31,
1994, Item 6, Exhibit 10.08.
10.26 The Company's 1994 Consultant Compensation Plan is incorporated
herein by reference from the Company's (SEC File No. 0-21566)
Report on Form 10-Q for the period ended December 31, 1994, Item 6,
Exhibit 10.09.
10.27 Amendment Number Two to Lease Agreement dated December 29, 1994
between Lone Star Casino Corporation of Nevada and TPM Financial,
Inc. is incorporated herein by reference from the Company's (SEC
File No. 0-21566) Report on Form 10-Q for the period ended March
31, 1995, Item 6, Exhibit 10.01.
10.28 Amendment Number One to the Company Papone's Palace Acquisition
Corporation and Papone's Palace Ltd. Liability Company Secured
Convertible Senior Debenture Due January 1, 1995 Debenture No. 1 is
incorporated herein by reference from the Company's (SEC File
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<PAGE>
No. 0-21566) Report on Form 10-Q for the period ended March 31,
1995, Item 6, Exhibit 10.02.
10.29 Sub-Lease Agreement dated March 21, 1995 between the Company and
AirTel, Ltd. is incorporated herein by reference from the Company's
(SEC File No. 0-21566) Report on Form 10-Q for the period ended
March 31, 1995, Item 6, Exhibit 10.03.
10.30 The Company's 1996 Consultant Compensation Plan is incorporated
herein by reference from the Company's (SEC File No. 333-01158)
Registration Statement on Form S-8 filed February 8, 1996, Exhibit
4.2.
10.31 Settlement Agreement dated August 5, 1996 by and among the Company,
Les Alexander, Papone's Palace Acquisition Corporation and Papone's
Palace Ltd., Liability Co.
10.32 Absolute Assignment of Membership Interest dated August 20, 1996
executed by the Company in favor of Les Alexander.
21.01 Subsidiaries of Registrant.
25.01 Power of Attorney (included on the signature page hereto).
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated April 4, 1996,
amended April 18, 1996, reporting on the resignation of KPMG Peat
Marwick LLP, as the Registrant's independent accountants.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, LS Capital Corporation has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: September 30, 1996 LS Capital Corporation
(Registrant)
By: /s/ Paul J. Montle
------------------------------
Paul J. Montle,
Chief Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
/s/ Paul J. Montle Chairman of September 30, 1996
- ------------------------- the Board
Paul J. Montle
/s/ Roger W. Cope September 30, 1996
- ------------------------- Director
Roger W. Cope
/s/ C. Thomas Cutter September 30, 1996
- ------------------------- Director
C. Thomas Cutter
/s/ Kent E. Lovelace, JR. September 30, 1996
- ------------------------- Director
Kent E. Lovelace, Jr.
-20-
<PAGE>
EXHIBITS INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- -----------
4.01 Certificate of Incorporation of the Company filed
December 30, 1992 is incorporated herein by reference
from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a),
Exhibit 3.1.
4.02 Bylaws of the Company are incorporated herein by
reference from the Company's (SEC File No. 33-57998-D)
Form SB-2 Registration Statement filed April 29, 1993,
Item 27(a), Exhibit 3.2.
4.03 Certificate of Amendment of Certificate of Incorporation
of the Company is incorporated herein by reference from
the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a),
Exhibit 3.5.
4.04 Amendment to Certificate of Incorporation filed February
2, 1995 is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Report on Form 10-Q for
the period ended December 31, 1994, Item 6, Exhibit 3.01
4.05 Certificate of Designation, Preferences, Rights and
Limitations of 12% Senior Convertible Preferred Stock of
the Company filed January 25, 1993, is incorporated
herein by reference from the Company's (SEC File No.
33-57998-D) Form SB-2 Registration Statement filed April
29, Item 27(a), Exhibit 4.1.
4.06 Certificate of Amendment of Certificate of Incorporation
of the Company filed June 26, 1996. 25
10.01 Assignment Agreement dated as of December 31, 1992
between Papone's Palace Acquisition Corporation and the
Company is incorporated herein by reference from the
Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a),
Exhibit 10.1.
10.02 Purchase Agreement dated effective November 30, 1992
between American Pacific Management Corporation and
George B. Hill and Dolores J. Hill, Trustees of the Hill
Family Trust and Papone's Palace Ltd. Liability Company
is incorporated herein by reference from the Company's
(SEC File No. 33-57998-D) Form SB-2 Registration
Statement filed April 29, 1993, Item 27(a), Exhibit 10.4.
10.03 Letter Agreement dated November 30, 1992 between American
Pacific Management Corporation and Randall Gose is
incorporated herein by reference from the Company's (SEC
File No. 33-57998-D) Form SB-2 Registration Statement
filed April 29, 1993, Item 27(a), Exhibit 10.5.
10.04 Lease and Option dated November 30, 1992 between George
B. Hill and Dolores J. Hill and American Pacific
Management Corporation is incorporated herein by
reference from the Company's (SEC File No. 33-57998-D)
Form SB-2 Registration Statement filed April 29, 1993,
Item 27(a), Exhibit 10.6.
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10.05 The Company's 1993 Stock Option Plan is incorporated
herein by reference from the Company's (SEC File No.
33-57998-D ) Form SB-2 Registration Statement filed April
29, 1993, Item 27(a), Exhibit 10.8.
10.06 Amendment to the Company 1993 Stock Option Plan is
incorporated herein by reference from the Company's (SEC
File No. 0-21566) Report on Form 10-Q for the period
ended September 30, 1994, Item 6, Exhibit 10.8.
10.07 Operating Agreement of Papone's Palace is incorporated
herein by reference from the Company's (SEC File No.
33-57998-D ) Form SB-2 Registration Statement filed April
29, 1993, Item 27(a), Exhibit 10.9.
10.08 Settlement Agreement dated March 15, 1993 by and among
the Hill Family Trust, George B. Hill and Dolores J.
Hill, Co-Trustess, George B. Hill, individually, Timothy
B. Hill, individually, American Pacific Management
Corporation, Papone's Palace Acquisition Corporation,
Viral Testing Systems Corporation, the Company, Paul J.
Montle and Paul V. Culotta is incorporated herein by
reference from the Company's (SEC File No. 33-57998-D)
Form SB-2 Registration Statement filed April 29, 1993,
Item 27(a), Exhibit 10.10.
10.09 Assignment Agreement dated as of December 31, 1992
between Papone's Palace Acquisition Corporation and the
Company is incorporated herein by reference from the
Company's (SEC File No. 33-57998-D ) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a),
Exhibit 10.12.
10.10 Letter from the State of Colorado regarding the transfer
of ownership to Papone's Palace Acquisition Corporation
is incorporated herein by reference from the Company's
(SEC File No. 0-21566) Current Report on Form 8-K dated
June 10, 1993, Item 7, Exhibit (a).
10.11 Promissory Note in the principal amount of $500,000 dated
as of June 10, 1993 in favor of Randal Gose is
incorporated herein by reference from the Company's (SEC
File No. 0-21566) Annual Report on Form 10-K for the year
ended June 30, 1993, Part IV, Item 14(c), Exhibit 10.16.
10.12 Promissory Note in the principal amount $500,000 executed
by First Response Medical, Inc. in favor of the Company
is incorporated herein by reference from the Company's
(SEC File No. 0-21566) Current Report on Form 8-K dated
June 3, 1993, Item 7, Exhibit 10.1.
10.13 Pledge Agreement made and entered into as of May 4, 1993
between First Response Medical, Inc. and the Company is
incorporated herein by reference from the Company's (SEC
File No. 0-21566) Current Report on Form 8-K dated June
3, 1993, Item 7, Exhibit 10.2.
10.14 Bailment and Agency Agreement entered into as of May 4,
1993 between First Response Medical, Inc., the Company,
Pullman & Comley & Allan H. Carlin is incorporated herein
by reference from the Company's (SEC File No. 0-21566)
Current Report on Form 8-K dated June 3, 1993, Item 7,
Exhibit 10.3.
10.15 Restructuring and Amendment Agreement dated September 9,
1993 by and among the Hill Family Trust, George B. Hill,
Trustee, American
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<PAGE>
Pacific Management Corporation and the Company is
incorporated herein by reference from the Company's (SEC
File No. 0-21566) Annual Report on Form 10-K for year
ended June 30, 1993, Part IV, Item 14(c), Exhibit 10.22.
10.16 Agreement dated November 24, 1993 by Coronet Company,
Inc. to the Company is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual Report
on Form 10-K for the year ended June 30, 1994, Part IV,
Item 14(c), Exhibit 10.30.
10.17 Lease dated October 20, 1994 between Lone Star Casino
Corporation of Nevada, a Nevada corporation, and TPM
Financial, Inc. is incorporated herein by reference from
the Company's (SEC File No. 0-21566) Report on Form 10-Q
for the period ended September 30, 1994, Item 6, Exhibit
10.34.
10.18 Amendment Number One to Casino Lease dated February 3,
1995, between TPM Financial, Inc. and Lone Star
Corporation of Nevada is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Report on Form
10-Q for the period ended December 31, 1994, Item 6,
Exhibit 10.01.
10.19 Amendment No. 2 to the the Company 1993 Stock Option Plan
is incorporated herein by reference from the Company's
(SEC File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.02.
10.20 Amendment No. 3 to the the Company 1993 Stock Option Plan
is incorporated herein by reference from the Company's
(SEC File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.03.
10.21 Amendment Number One to Lease Agreement dated February 3,
1995, between TPM Financial, Inc. and Lone Star Casino
Corporation of Nevada is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Report on Form
10-Q for the period ended December 31, 1994, Item 6,
Exhibit 10.04.
10.22 The Company, Papone's Palace Acquisition Corporation and
Papone's Palace Ltd. Liability Company Secured
Convertible Senior Debenture Due January 1, 1995
Debenture No. 1 dated October 5, 1994 in the original
principal amount of $1,000,000 is incorporated herein by
reference from the Company's (SEC File No. 0-21566)
Report on Form 10-Q for the period ended December 3,
1994, Item 6, Exhibit 10.05.
10.23 The Company's 1994 Employee Stock Purchase Plan is
incorporated herein by reference from the Company's (SEC
File No. 0-21566) Report on Form 10-Q for the period
ended December 3, 1994, Item 6, Exhibit 10.06.
10.24 The Company's Capital Accumulation Plan is incorporated
herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended
December 31, 1994, Item 6, Exhibit 10.07.
10.25 The Company's 1994 Stock Option Plan for Non-Employee
Directors is incorporated herein by reference from the
Company's (SEC File No.
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0-21566) Report on Form 10-Q for the period ended
December 31, 1994, Item 6, Exhibit 10.08.
10.26 The Company's 1994 Consultant Compensation Plan is
incorporated herein by reference from the Company's (SEC
File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.09.
10.27 Amendment Number Two to Lease Agreement dated December
29, 1994 between Lone Star Casino Corporation of Nevada
and TPM Financial, Inc. is incorporated herein by
reference from the Company's (SEC File No. 0-21566)
Report on Form 10-Q for the period ended March 31, 1995,
Item 6, Exhibit 10.01.
10.28 Amendment Number One to the Company Papone's Palace
Acquisition Corporation and Papone's Palace Ltd.
Liability Company Secured Convertible Senior Debenture
Due January 1, 1995 Debenture No. 1 is incorporated
herein by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended March
31, 1995, Item 6, Exhibit 10.02.
10.29 Sub-Lease Agreement dated March 21, 1995 between the
Company and AirTel, Ltd. is incorporated herein by
reference from the Company's (SEC File No. 0-21566)
Report on Form 10-Q for the period ended March 31, 1995,
Item 6, Exhibit 10.03.
10.30 The Company's 1996 Consultant Compensation Plan is
incorporated herein by reference from the Company's (SEC
File No. 333-01158) Registration Statement on Form S-8
filed February 8, 1996, Exhibit 4.2.
10.31 Settlement Agreement dated August 5, 1996 by and among
the Company, Les Alexander, Papone's Palace Acquisition
Corporation and Papone's Palace Ltd., Liability Co. 27
10.32 Absolute Assignment of Membership Interest dated August
20, 1996 executed by the Company in favor of Les
Alexander. 44
21.01 Subsidiaries of Registrant. 47
25.01 Power of Attorney (included on the signature page hereto).
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EXHIBIT 4.06
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
LONE STAR CASINO CORPORATION
(CHANGING ITS NAME HEREBY TO "LS CAPITAL CORPORATION")
FIRST: The name of the Corporation is LONE STAR CASINO CORPORATION.
SECOND: Upon the filing hereof, the First Article of the Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows: "The name of the Corporation is LS Capital Corporation."
THIRD: Upon the filing hereof, the Fourth Article of the Certificate of
Incorporation of the Corporation is hereby amended to add a new final
paragraph to such Article, which shall read as follows:
"Upon the effectiveness of the filing with the Secretary of
State of Delaware of Articles of Amendment to the Certificate of
Incorporation adding this paragraph to the Certificate of
Incorporation, each twenty-five (25) shares of Common Stock
issued and outstanding immediately prior to the filing of such
Articles of Amendment as aforesaid shall be combined into one (1)
share of validly issued, fully paid and non-assessable Common
Stock. As soon as practicable after such date, the corporation
shall request holders of the Common Stock to be combined in
accordance with the preceding to surrender certificates
representing their Common Stock to the corporation's authorized
agent, and each such stockholder shall receive upon such
surrender one or more stock certificates to evidence and
represent the number of shares of Common Stock to which such
stockholder is entitled after the combination of shares provided
for herein; provided, however, that this corporation shall not
issue fractional shares of Common Stock in connection with this
combination, but, in lieu thereof, shall make a cash payment
equal to the product of the closing sale price of the Common
Stock on the last trading day prior to the effective date of the
filing of this instrument, multiplied by the number of shares of
Common Stock issued and outstanding immediately prior to the
filing of this instrument that would otherwise comprise the
fractional share of Common Stock."
FOURTH: The amendment set forth hereinabove was duly adopted in
accordance with Section 242 of the Delaware General Corporation Law.
THE UNDERSIGNED, being the President of the Corporation, for the purpose
of amending the Certificate of Incorporation of the Corporation, does make
this Certificate, hereby
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declaring and certifying that this is the act and deed of the Corporation and
the facts herein stated are true, and accordingly have hereunto set his hand
this _____ day of June, 1996.
___________________________________
Paul J. Montle, President
Attested to by:
___________________________________
Angela Howell, Secretary
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BE IT REMEMBERED that on this _____ day of June, 1996, personally came
before me, a Notary Public for the State of Texas, PAUL J. MONTLE, the party
to the foregoing certificate of incorporation, known to me personally to be
such, and acknowledged the said certificate to be the corporation's act and
deed and that the facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
___________________________________
Notary Public in and for
THE STATE OF TEXAS
My Commission Expires:
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EXHIBIT 10.31
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is entered into this 5th day of
August, 1996 by and among LESLIE ALEXANDER ("Alexander"), LS CAPITAL
CORPORATION, formerly known as, LONE STAR CASINO CORPORATION, a Delaware
corporation ("Lone Star"), PAPONE'S PALACE ACQUISITION CORPORATION, a
Colorado corporation ("Acquisition"), PAPONE'S PALACE LTD., LIABILITY CO., a
Colorado limited liability company ("Papone's"), and Paul Montle ("Montle").
Lone Star, Acquisition and Papone's are sometimes hereinafter collectively
referred to as the "Borrowers."
R E C I T A L S:
On October 5, 1994, Alexander loaned Borrowers the principal sum of One
Million Dollars ($1,000,000) (the "Loan"). The Loan is evidenced by that
certain Debenture No. 1 dated as of October 5, 1994 (as amended through the
date hereof, the "Debenture").
The Debenture was initially secured by certain collateral pledged by the
Borrowers under (i) a Pledge Agreement dated as of October 5, 1994 (the
"Pledge Agreement") between Lone Star and Alexander; (ii) that certain
Assignment of Note and Deed of Trust dated as of October 5, 1994 (the
"Assignment of Deed of Trust"), made by Acquisition in favor of Alexander;
and (iii) that certain Deed of Trust and Security Agreement dated as of
October 5, 1994 (the "Deed of Trust"), granted by Papone's for the benefit of
Alexander.
Earl Neudecker ("Neudecker") is the sole remaining maker under that
certain promissory note ("Neudecker Note") dated January 15, 1992 in the
original principal amount of $1,450,000. The right to receive payments under
the Neudecker Note, together with the deed of trust securing repayment of the
Neudecker Note, has been assigned by Acquisition to Alexander pursuant to the
Assignment of Deed of Trust.
Since the date of the Debenture, Alexander has made additional advances
to the Borrowers in the aggregate amount of One Hundred One Thousand Three
Hundred Thirty Seven and 00/100 Dollars ($101,337), which advances have been
added to the principal balance owing under the Debenture and are secured by
the Pledge Agreement, Assignment of Deed of Trust, Deed of Trust and the
"Collateral Assignment" (as hereinafter defined) and are partially secured by
the "Guaranty" (as hereinafter defined).
On February 2, 1996, Alexander, Borrowers and Montle entered into an
Amendment Agreement ("Amendment Agreement") pursuant to which, among other
matters, (i) certain provisions of the Debenture were modified; (ii) Montle
agreed to guarantee the repayment of $50,000 of the advances made by
Alexander to Borrowers, which guarantee is evidenced by that certain
Guarantee dated February 2, 1996 (the "Guaranty"), given by Montle in favor
of Alexander; and (iii) Lone Star collaterally assigned to Alexander,
pursuant to a Collateral Assignment of Membership Interest ("Collateral
Assignment"), all of its right, title and interest in and to its membership
interest (the "Membership Interest") in Manning Real Estate Associates,
L.L.C., a California limited liability company ("Manning"). The Debenture,
the Amendment Agreement,
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the Pledge Agreement, the Assignment of Deed of Trust, the Deed of Trust, the
Collateral Assignment and the Guarantee, are hereinafter collectively
referred to as the "Loan Documents."
As of August 5, 1996, without taking into account this Agreement, the
amount owed by the Borrowers with respect to the Debenture (including accrued
and unpaid interest) is $1,861,103 ("Face Loan Amount"). Interest has been
accruing on the Debenture, since February 1, 1995, and shall continue to
accrue on the Face Loan Amount after the date hereof, at the rate of
forty-five percent (45%) as provided by the terms of the Debenture and C.R.S.
Section 5-12-103 (1973), and the term "Face Loan Amount" shall mean
$1,861,103 plus such interest, any further advances, all reasonable costs of
collection and any other sums (plus interest thereon) incurred by Alexander
after the date hereof less any principal payments made by Borrowers to
Alexander after the date hereof.
Borrowers have failed to pay any of the principal of, or the interest on,
the Debenture and, as a result, the Borrowers are in default under the Loan
Documents.
On May 16, 1996, Alexander commenced a public trustee foreclosure
proceeding with respect to the Deed of Trust with the Gilpin County Public
Trustee (Sale No. 96-04) (the "Foreclosure Proceeding"). The sale under the
Foreclosure Proceeding is currently scheduled to occur on August 22, 1996.
Borrowers have requested that Alexander forbear from exercising his
rights and remedies under the Loan Documents, and Alexander is willing to do
so, but only subject to the terms and conditions set forth herein.
Alexander has agreed to withdraw the Foreclosure Proceeding and, in lieu
thereof, will commence proceedings with the District Court of Gilpin County,
Colorado (the "Court") under the case entitled "Leslie Alexander v. Lone Star
Casino Corporation, Papone's Palace Acquisition Corporation, Papone's Palace
Ltd., Limited Liability Co. and Paul Montle" ("Judicial Proceeding").
In lieu of the time and expense which each of the parties hereunder would
face in connection with the exercise by Alexander of his rights and remedies
under the Loan Documents, and in consideration of the mutual covenants and
agreements contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
by the parties, the parties hereby agree as follows:
ARTICLE I
RECITALS, EXHIBITS, SCHEDULES
The foregoing recitals are true and correct and, together with the
exhibits and schedules referred to hereafter, are hereby incorporated into
this Agreement by this reference.
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ARTICLE II
THE TRANSACTIONS
2.1 RESTRUCTURING OF LOAN. Subject to the terms and conditions of this
Agreement, Alexander agrees that he will forbear from exercising his rights
and remedies with respect to the existing defaults under the Loan Documents
until the earliest to occur of (a) any failure of the Borrowers to make the
timely payments provided for in this Section 2.1; (b) any other Event of
Default (as hereinafter defined) occurs hereunder; or (c) June 5, 1998.
Borrowers, Montle and Alexander hereby agree that the Face Loan Amount will
be immediately due and payable upon any Event of Default hereunder.
Notwithstanding the terms of the Loan Documents, in the event Borrowers
perform all of their obligations under this Agreement (including the timely
payment of all portions of the Restructured Amount, including, but not
limited to, all principal and interest due thereon) and no Event of Default
has occurred hereunder through June 5, 1998, Alexander agrees to forgive
Borrowers for the difference between the Restructured Amount and the Face
Loan Amount and promptly perform the actions set forth in Article VI hereof.
The term "Restructured Amount" shall mean the aggregate of (i) the portion of
the principal amount owing with respect to the Loan of One Million Fifty
Thousand Dollars ($1,050,000); plus (ii) the "Reimbursement Amount" (as
hereinafter defined), which Restructured Amount shall bear interest at the
rate of twenty percent (20%) per annum, commencing as of June 5, 1996.
Payments of interest with respect to the outstanding balance of the
Restructured Amount will be due and payable on October 15, 1996 and quarterly
thereafter. The principal sum of $50,000 of the Restructured Amount shall be
due and payable on October 15, 1996 and the remaining principal balance of
the Restructured Amount together with all accrued and unpaid interest shall
be due and payable in full on June 5, 1998. Upon any Event of Default, the
entire Face Loan Amount shall be immediately due and payable and Article VIII
shall be applicable.
2.2 ABSOLUTE CONVEYANCE OF MEMBERSHIP INTEREST. Simultaneous with the
execution and delivery of this Agreement by the parties, Lone Star shall
execute and deliver to Alexander an absolute assignment with respect to the
Membership Interest, in the form of EXHIBIT A hereto. Lone Star hereby
acknowledges that (a) the conveyance of the Membership Interest to Alexander
pursuant to this Agreement is not intended to be a collateral assignment or
other security device of any kind and (b) after the date hereof, Lone Star
will have no further interest or claims in, to or against the Membership
Interest and in, to or against any proceeds or profits that might be derived
therefrom. Lone Star and Alexander agree that the value of the Membership
Interest is $590,000 ("Agreed Value of the Membership Interest"). Lone Star
shall receive a credit equal to the Agreed Value of the Membership Interest
with respect to the Face Loan Amount (but not the Restructured Amount) on the
date the Membership Interest is transferred to Alexander on the books of
Manning or the date that Alexander receives cash proceeds equal to the Agreed
Value of the Membership Interest due to the exercise of the right of first
refusal under Manning's operating agreement. In addition, Lone Star shall
receive a credit with respect to the Face Loan Amount (but not the
Restructured Amount) equal to any cash proceeds received by Alexander from
distributions made by Manning with respect to the Membership Interest prior
to the date the Membership Interest is transferred to Alexander on the books
of Manning or the date that Alexander receives cash proceeds equal to the
Agreed Value of the Membership Interest due to the exercise of the right of
first refusal under Manning's operating agreement. Lone Star hereby waives
any and all redemption rights Lone Star may have with respect to the
Membership Interest. Lone Star will cooperate with Alexander in providing
Manning and/or Alexander with any and all
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documents, certificates, instruments or any information necessary for
Alexander to become a member of Manning. Alexander agrees to furnish
reasonable information to Manning as may be reasonably required by Manning in
connection with the transfer of the Membership Interest to Alexander. The
assignment of the Membership Interest shall occur whether or not (i) this
Settlement Agreement is approved by the Court; (ii) the Court issues a
declaratory judgment as to Papone's authority to enter into and/or consummate
this Agreement; or (iii) any Event of Default shall occur hereunder.
2.3 PAYMENTS WITH RESPECT TO GUARANTEE. Montle agrees that his Guaranty
is modified to the extent required to guarantee the payment of $50,000 of the
principal balance of the Restructured Amount, plus any accrued interest on
such $50,000 from June 5, 1996, on October 15, 1996. Upon the payment of
such $50,000 of principal (and the accrued interest on such amount),
Alexander shall promptly deliver the Guarantee to Montle for cancellation.
In the event such payment is not paid on October 15, 1996, then Montle shall
remain obligated under his Guaranty for Fifty Thousand Dollars ($50,000) of
principal and interest thereon (accruing at the "Default Rate" (as such term
is defined in the Debenture)) from December 15, 1995 plus all costs of
collection, including, but not limited to, attorneys' fees and costs through
all trial and appellate levels.
2.4 SALE OF EQUIPMENT. Borrowers shall sell the machines and other
pieces of equipment listed on SCHEDULE 2.4 hereto ("Equipment") within five
(5) days after the date of written notice to Borrowers advising of the name
of a buyer who is willing to buy the Equipment for Twenty-Eight Thousand
Dollars ($28,000) or more. Borrowers acknowledge and agree that Alexander
currently has a perfected security interest in the Equipment although the
Equipment is being held in the name of PDS for the account of Papone's with
Alexander's security interest thereon. Borrowers agree that they shall sell
the Equipment for a purchase price in excess of $28,000 payable in cash by
the purchaser(s). All proceeds from the sale of the Equipment shall be
directly remitted to Alexander, and the amount of such proceeds will be
credited against the Face Loan Amount (but not the Restructured Amount).
2.5 PAPONE'S AUTHORITY. The parties are executing this Agreement based
on their belief that each of the Borrowers and Montle are duly authorized to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. Borrowers represent to Lender that they are authorized
to enter into this Agreement as more particularly described in Article III of
this Agreement, and although Borrowers believe that they are authorized to
enter into this Agreement and have obtained all necessary approvals to do so
Earl Neudecker, a minority member of Papone's, has alleged that Papone's (one
of the Borrowers) is not authorized to enter into this Agreement ("Neudecker
Allegation"). The Borrowers represent that to the best of their knowledge,
the Neudecker Allegation is inaccurate. The parties hereby agree that within
one hundred twenty (120) days after the date of this Agreement or such later
date as Alexander may (in his sole and absolute discretion) agree to in
writing ("Outside Date"), the Borrowers shall obtain a declaratory judgment
from the Court declaring that the representation set forth in Section 3.2 is
true and correct as to all Borrowers, including, but not limited to, Papone's
("Declaratory Judgment"), together with the Court entering an order
substantially in the form of EXHIBIT B attached hereto and made a part hereof
(the "Order") (the Declaratory Judgment and Order are the "Court Action").
In the event that the Borrowers shall fail to have obtained the Court Action
prior to the Outside Date, Borrowers and Montle shall be in default of this
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Agreement, then (i) Alexander, at his option, shall have all rights and
remedies available at law or in equity to pursue collection of the entire
Face Loan Amount (not the Restructured Amount) (including all accrued
interest thereon, which the parties acknowledge and agree has been and will
continue to accrue interest at the highest non-usurious rate permitted under
the laws of the State of Colorado), which amounts will be reduced by the
Agreed Value of the Membership Interest (only to the extent the Membership
Interest has been transferred to Alexander on Manning's books or Alexander
receives cash proceeds equal to the Agreed Value of the Membership Interest)
plus all other payments received by Alexander from Borrowers and Montle
pursuant to this Agreement from and after the date of this Agreement, (ii)
Alexander shall be entitled to retain the Membership Interest and (iii)
Alexander shall be entitled to all rights and remedies available under the
Loan Documents and under applicable law which rights and remedies are hereby
preserved and shall not be impaired or modified by this Agreement. Alexander
may exercise any other rights and remedies available under the Loan
Documents, which the parties hereby acknowledge and agree remain in full
force and effect through the term of this Agreement, and under applicable law
and shall remain in effect upon any termination of this Agreement without
resistance or interference from any of the Borrowers or Montle. It is the
intent of the parties that the Borrowers are in default of the Loan Documents
as of the date of this Agreement and that to the extent the Court Action is
not obtained prior to the Outside Date, the Loan Documents shall still be in
default immediately entitling Alexander to any and all rights and remedies
available at law or in equity and Alexander shall continue to be entitled to
the absolute assignment of the Membership Interest and Alexander shall no
longer be obligated to agree to accept the Restructured Amount. The parties
hereby acknowledge and agree that the Borrowers and Montle shall be required
to make the payments set forth in Sections 2.1 and 2.3 of this Agreement even
if the Court Approval has not been obtained as of such date and the failure
to do so shall be an Event of Default. In the event the Borrowers and Montle
make any payments set forth in Sections 2.1 and 2.3 and the Court Approval is
not timely obtained, then Alexander agrees that the amount of such payments
will be applied toward a portion of the Face Loan Amount. The Borrowers and
Montle hereby agree to submit to the jurisdiction of the Court and to execute
the "Stipulation" (as hereinafter defined).
2.6 NEUDECKER NOTE. After any default under the Neudecker Note,
Alexander may (at his option) enforce all rights and remedies against the
obligations thereunder.
2.7 WITHDRAWAL OF FORECLOSURE ACTION. Alexander shall promptly
withdraw, without prejudice, the Foreclosure Proceeding.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BORROWERS
Each of the Borrowers hereby, jointly and severally, makes the following
representations and warranties to Alexander, each of which they represent to
be true and correct on the date hereof, and all of which shall survive the
execution and delivery of this Agreement.
3.1 REPRESENTATIONS AND WARRANTIES MADE IN THE DEBENTURE AND THE OTHER
LOAN DOCUMENTS. All of the representations and warranties made by each of
the Borrowers in the Debenture and the other Loan Documents are hereby
restated in their entirety. All such representations and warranties are
incorporated herein by this reference, and Borrowers hereby
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agree that all such representations and warranties are made as of the date of
this Agreement as if such representations and warranties are set out in full
herein.
3.2 AUTHORITY. Each of the Borrowers has the power and authority to
execute and deliver this Agreement and each of the other documents,
instruments and agreements executed in connection herewith and to perform all
of their respective obligations hereunder and thereunder. The execution and
delivery of this Agreement and each of the other documents, instruments and
agreements executed in connection herewith by the Borrowers and the
performance of all the Borrowers' respective obligations hereunder and
thereunder, have been duly authorized and approved by all required corporate
or other action on the part of each of the Borrowers pursuant to all
applicable laws. This Agreement and each of the other documents, instruments
and agreements executed by the Borrowers in connection herewith constitute
the valid and legally binding agreements of such party enforceable against
such party, in accordance with their respective terms except that: (i)
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws of general application affecting
the enforcement of the rights and remedies of creditors; and (ii) the
availability of equitable remedies may be limited by equitable principles.
3.3 NO VIOLATION. The execution, delivery and performance of this
Agreement or any other documents, instruments or agreements executed by the
Borrowers in connection herewith, and the consummation of the transactions
contemplated hereby or thereby, do not and will not: (i) constitute a
violation of or default under (either immediately, upon notice or upon lapse
of time) the Articles or Certificate of Incorporation or Articles of
Organization or Bylaws or Operating Agreement of any of the Borrowers, any
provisions of any written or oral contract, agreement or commitment of any
nature whatsoever, including, without limitation, any lease, sublease,
license agreement, loan agreement, mortgage, security agreement, guarantee,
employment agreement or management contract to which any of the Borrowers is
a party or their respective assets may be bound; any order, writ, injunction
or judgment or any law, statute, rule or regulation of any federal, state or
local governmental or administrative regulatory authority; or (ii) result in
the creation or imposition of any lien, claim or encumbrance upon or give to
any third party any interest in or right to any of the assets of any of the
Borrowers; or (iii) result in the loss or adverse modification of, or the
imposition of any fine or penalty with respect to any permit, license,
approval or authorization held by or for the use of any of the Borrowers.
3.4 CONSENTS AND APPROVALS. No consent, approval, or authorization of,
or declaration, filing, or registration with, any federal, state or local
governmental or regulatory authority or other third party is required in
connection with the execution and delivery of this Agreement and the
consummation of the transaction contemplated hereby.
3.5 COMPLIANCE WITH LAWS. Each of the Borrowers is in compliance, in
all material respects, with all laws, statutes, rules or regulations of any
federal, state or local governmental administrative or regulatory authority
(collectively, "Laws") including, without limitation, any gaming Laws, None
of the transactions contemplated by this Agreement will violate any such Laws
or any permits or licenses granted to any of the Borrowers.
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3.6 DEFAULT UNDER DEBENTURE AND OTHER LOAN DOCUMENTS. Borrowers have
defaulted under the Debenture and the other Loan Documents and none of the
Borrowers has any claim of offset, recoupment, any defenses or any
counterclaim against Alexander or any of his affiliates.
3.7 USE OF PROCEEDS OF LOAN. The proceeds from the Loan were used by
the Borrowers as set forth on SCHEDULE 3.7 hereto and each Borrower received
valid consideration and reasonably equivalent value in exchange for its
execution and delivery of the Debenture.
3.8 AMOUNT OUTSTANDING UNDER DEBENTURE. The amount outstanding under
the Debenture (including principal and all accrued and unpaid interest
thereon) is $1,861,103 as of August 5, 1996. Such amount is a legal and
valid obligation of each Borrower. Borrowers do not have any claim of
offset, any defenses or counterclaims against Alexander or any of his
affiliates with respect to the Loan Documents or otherwise.
3.9 DEFAULTS UNDER LOAN DOCUMENTS. Other than the failure of the
Borrowers to repay Alexander amounts owing under the Debenture, no default or
event, which upon notice or upon lapse of time, would constitute a default
under the Loan Documents has occurred.
3.10 RESTRUCTURING OF GOSE LOAN. Papone's has entered into a written
agreement with Randall Gose with respect to the restructuring of that certain
promissory note dated July 22, 1996 in the original principal amount of
$500,000 ("Gose Note"). A copy of such written agreement is attached hereto
as SCHEDULE 3.10.
3.11 SUBSTANTIALLY EQUIVALENT VALUE. Each of the Borrowers acknowledges
receipt of good and valuable consideration and reasonably equivalent value in
connection with the restructuring of the Borrowers' obligations to Alexander
pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MONTLE
Montle hereby makes the following representations and warranties to
Alexander, each of which he represents to be true and correct on the date
hereof, and all of which shall survive the execution and delivery of this
Agreement.
4.1 AUTHORITY. Montle has the power and authority to execute and
deliver this Agreement and each of the other documents, instruments and
agreements executed in connection herewith and to perform all of his
obligations hereunder and thereunder. This Agreement and each of the other
documents, instruments and agreements executed by Montle in connection
herewith constitute the valid and legally binding agreements of Montle
enforceable against him, in accordance with their respective terms except
that: (i) enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting
the enforcement of the rights and remedies of creditors; and (ii) the
availability of equitable remedies may be limited by equitable principles.
4.2 NO VIOLATION. The execution, delivery and performance of this
Agreement or any other documents, instruments or agreements executed by
Montle in connection herewith, and the consummation of the transactions
contemplated hereby or thereby, do not and will not: (i)
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constitute a violation of or default under (either immediately, upon notice
or upon lapse of time) any provisions of any written or oral contract,
agreement or commitment of any nature whatsoever, including, without
limitation, any lease, sublease, license agreement, loan agreement, mortgage,
security agreement, guarantee, employment agreement or management contract to
which Montle is a party or his assets may be bound; any order, writ,
injunction or judgment or any law, statute, rule or regulation of any
federal, state or local governmental or administrative regulatory authority;
or (ii) result in the creation or imposition of any lien, claim or
encumbrance upon or give to any third party any interest in or right to any
of the assets of Montle.
4.3 EFFECTIVENESS OF GUARANTEE. The Guarantee constitutes the valid and
legally binding agreement of Montle enforceable against him in accordance
with its terms. Montle does not have any claim of offset, any defenses or
any counterclaim against Alexander or any of his affiliates with respect to
the Guarantee or otherwise.
ARTICLE V
AGREEMENTS OF BORROWERS AND MONTLE
Each of the Borrowers and Montle hereby waive any and all, claims, rights
of recoupment, set-offs, defenses or counterclaims to the payments of all
amounts owing to Alexander under the Debenture and the other Loan Documents.
Montle hereby agrees that, in the event he is a director, officer, manager or
five percent (5%) or greater shareholder of any one of the Borrowers, and any
Borrower makes any claim, defenses or counterclaim against Alexander or
Steven Rittvo in connection with this Agreement or any of the Loan Documents,
he shall indemnify and hold harmless Alexander and Steven Rittvo, jointly and
severally, against any and all such claims and any expenses incurred by
Alexander in connection with any such claim. The parties hereto acknowledge
and agree that nothing contained in this Agreement or the consummation of the
transactions contemplated hereby shall be deemed, except to the extent
provided herein, a waiver by Alexander of any and all rights he may have
under the Debenture or the other Loan Documents and nothing herein shall
prevent or preclude Alexander from exercising any of his rights or remedies
hereunder and under the Loan Documents in the event of the occurrence of an
Event of Default hereunder. In the event any Borrower or Montle should
hereafter be subject to a proceeding under the United States Bankruptcy Code
("Bankruptcy Code") while any indebtedness owed by any of them to Alexander
remains outstanding, it or he hereby waives the benefit of the "automatic
stay" provisions of the Bankruptcy Code as it pertains to any of the
collateral pledged pursuant to any of the Loan Documents, and they each agree
not to contest Alexander's right to such relief from the automatic stay, and
hereby consent to the immediate granting of any relief from the automatic
stay requested by Alexander. Borrowers and Montle acknowledge that the
provisions of this paragraph regarding the waiver of the automatic stay
provisions of the Bankruptcy Code is a material inducement to Alexander to
execute this Agreement and to forbear from exercising his rights and remedies
under the Loan Documents. Each of the Borrowers and Montle (to the extent
that he is an officer, director, manager or five percent (5%) or greater
shareholder of any of the Borrowers) agree to give Alexander immediate
written notice of the occurrence of any Event of Default (other than Events
of Default that exist as of the date of this Agreement that have been
disclosed to and acknowledged by Alexander in writing) under this Agreement.
Montle's liability to Alexander with respect to any breach of his obligations
set forth in the immediately preceding sentence shall be limited to the
$50,000 plus interest on such $50,000
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accruing from June 5, 1996 at the rate of twenty percent (20%) per annum
referred to in Section 2.3 hereof.
Each of the Borrowers and Montle (collectively, "First Party") hereby
remises, releases, acquits, satisfies, and forever discharges Leslie
Alexander, Steven Rittvo and any of their affiliates to the extent such
affiliate have any involvement with the matters relating to the Loan or this
Agreement (collectively, "Second Party") of and from all, and all manner of
action and actions, cause and causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, claims and demands whatsoever, in law or in equity,
which said First Party ever had, now has, or which any personal
representative, successor, heir or assign of said First Party, hereafter can,
shall or may have, against said Second Party as of the date of this
Agreement; provided, however, the Borrower does not release Rittvo of any
alleged liability, Rittvo may have to Lone Star's in connection with the
civil action brought against Full House Resorts, Inc. and DLJ by Lone Star
("Rittvo Claim") and Borrowers acknowledge that Rittvo expressly denies any
liability in connection with the Rittvo Claim. In addition, the Borrowers
and Montle hereby agree that the holders of the Debenture (including
Alexander) shall have no personal liability to any of them in connection with
the transactions contemplated by this Agreement or the Loan Documents, and
the liability of any holder to any of them in connection therewith is limited
to such holder's interest in the Loan.
ARTICLE VI
DISMISSAL OF JUDICIAL PROCEEDING
Alexander agrees that if, and only if, (i) the Court Action has been
approved by the Court prior to the Outside Date; (ii) all payments required
to be made pursuant to this Agreement by the Borrowers are timely made
without default; (iii) any payments required to be made by Montle are timely
made without default; (iv) the Membership Interest is transferred to him (or
he receives cash proceeds in an amount equal to the Agreed Value of the
Membership Interest) within seventy-five (75) days after the date of this
Agreement as such date may be extended in writing by Alexander in the event
Borrower has taken all action required to transfer the Membership Interest to
Alexander and Manning has not responded to whether it will transfer on its
books and records the Membership Interest to Alexander or has not exercised
its right of refusal and paid Five Hundred Ninety Thousand Dollars ($590,000)
to Alexander; (v) the Equipment is sold in accordance with the provisions of
Section 2.4 hereof; and (vi) no Event of Default shall have occurred
hereunder, he shall (a) forgive the Borrowers and Montle for the difference
between the Restructured Amount and the Face Loan Amount; (b) promptly file a
Notice of Dismissal with the Court; (c) return to the Borrowers (1) the
Debenture marked "Paid in Full" for cancellation and (2) the original or a
certified copy of the Deed of Trust; and (d) execute and deliver to the
Borrowers any releases or satisfactions necessary to release the liens
created by the Loan Documents other than with respect to the Membership
Interest.
ARTICLE VII
DOCUMENTS TO BE DELIVERED TO ALEXANDER
Simultaneous with the execution and delivery of this Agreement,
Borrowers and Montle shall deliver to Alexander the following documents:
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1. The Absolute Assignment duly executed and acknowledged by Lone Star.
2. The Borrowers and Montle and their counsel shall execute the Joint
Motion and Stipulation for Settlement of Dispute between Plaintiff and
Defendants in the form of EXHIBIT C attached hereto and made a part hereof
("Stipulation"). The Borrowers and Montle hereby acknowledge that they have
reviewed the Complaint to be filed in connection with the Judicial
Proceedings and that this Agreement is being executed with the intention that
the Judicial proceedings shall be commenced and that the Stipulation shall be
filed immediately after filing such Complaint in an attempt to settle such
Judicial Proceedings as contemplated by this Agreement.
3. Copies of the Certificate or Articles of Incorporation or Articles of
Organization of each Borrower certified by the Secretary of State of the
jurisdiction of such Borrower's organization not more than thirty (30) days
prior to the date of this Agreement, accompanied by good standing
certificates from the Secretary of State of each Borrower's respective State
of organization, dated not more than thirty (30) days prior to the date of
this Agreement.
4. Copies of each Borrower's Bylaws or Operating Agreement, as
applicable, certified as of the date of this Agreement by its respective
corporate secretary.
5. Resolutions or written evidence of authority of each Borrower's Board
of Directors or Managers (or similar body), in form and substance
satisfactory to Alexander, approving and authorizing the execution, delivery
and performance of the Agreement and the other documents, agreements and
instruments executed in connection herewith and the transactions contemplated
hereby and thereby.
6. Originally executed copies of the written opinions from counsel for
the Borrowers and Montle acceptable to Alexander in his sole and absolute
discretion, in the form of EXHIBIT D hereto, dated as of the date of this
Agreement.
7. A copy of the written agreement referred to in Section 3.10 hereof,
duly executed by Papone's and Randall Gose.
8. An officer's certificate from each of the Borrowers stating that all
of the representations and warranties contained in this Agreement are true
and correct in all respects as of the date of this Agreement and that no
lawsuits or proceedings have been instituted or, to the best of such
officer's knowledge, threatened on or before the date of this Agreement by
any person, the result of which did or could prevent or make illegal the
consummation of all or any of the transactions contemplated by this Agreement.
9. UCC-3 financing statements amending existing UCC-1 financing
statements on file against "Lone Star Casino Corporation" to reflect the
change of such corporation's legal name to "LS Capital Corporation." and to
extend all original UCC-1 filings made against Borrowers by Alexander in the
State of Colorado.
10. Such other instruments, certificates and documents as Alexander
deems reasonably required in order to fully effectuate the terms of this
Agreement.
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ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
(a) Failure of any Borrower or Montle to pay any sum due under this
Agreement (including, but not limited to, failure to timely pay any portion
of the Restructured Amount) by Borrowers to Alexander within five (5)
business days after the same became due by the terms of this Agreement;
(b) Any representation or warranty made herein or in any of the
Loan Documents or in any writing delivered pursuant hereto or thereto shall
prove to have been incorrect in any material respect.
(c) Any failure to observe or perform any covenant or condition
required to be kept or performed by any Borrower or Montle pursuant to this
Agreement or any of the Loan Documents (excluding payment of any sums
referred to in Section 8.1(a) hereof) and such failure is not cured within
five (5) business days notice from Alexander to the Borrowers; provided,
however, that with respect to such defaults other than the payment of taxes
and insurance, the parties agree if the nature of such default cannot be
cured within such five (5) business day period, then if Borrower commences
such cure within such five (5) business day period and proceeds with
diligence to complete such cure, then the time to cure shall be extended up
to thirty (30) days to permit such cure. There is no extension of the cure
period with respect to the payment of taxes or maintaining insurance.
(d) The Membership Interest has not been transferred to Alexander
or Alexander has not received cash proceeds in an amount equal to the Agreed
Value of the Membership Interest within seventy-five (75) days from the date
of this Agreement or such later date as may be agreed to in writing by
Alexander in the event Lone Star has taken all action required to transfer
the Membership Interest to Alexander and Manning has not responded to whether
it will transfer on its books and records the Membership Interest to
Alexander or has not exercised its right of refusal and paid Five Hundred
Ninety Thousand Dollars ($590,000) to Alexander.
(e) The Equipment is not sold in accordance with the provisions of
Section 2.4 hereof.
(f) The Court Action has not been approved by the Court prior to
the Outside Date.
(g) Any default or event of default occurs with respect to the Gose
Note or the deed of trust securing the Gose Note that is not cured within
five (5) days of such breach. Additionally, it shall be an Event of Default
if the Borrowers fail to make the Gose Note current and in good standing
within five (5) days of the date of this Agreement.
(h) Any lien, encumbrance, security interest or other claim is
made, placed or filed after the date hereof against the real property or
other assets pledged to Alexander under any of
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the Loan Documents, or any of the assets secured by the Loan Documents are
removed from their current location not cure within five (5) days of such
breach.
(i) Any default or event of default occurs under any of the Loan
Documents (other than the failure of Borrowers to make payments under the
Debenture), which default or event of default is not cured within the grace
period (if any) provided for in the applicable Loan Document.
(j) Any Borrower:
(1) shall make an assignment for the benefit of creditors or
petition or apply to any tribune for the appointment of a
custodian, receiver or trustee for it or a substantial
part of its assets; or
(2) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or
(3) shall have had any such petition or application filed or
any such proceeding commenced against it in which an order
for relief is entered or an adjudication or appointment is
made which is not discharged within sixty (60) days; or
(4) shall indicate, by any act or intentional and purposeful
omission, its consent to, approval of or acquiescence in
any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or
trustee for it or a substantial part of its assets; or
(5) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of sixty
(60) days or more;
(k) Any Borrower shall be liquidated, dissolved, merged,
consolidated, partitioned or terminated, or the organizational documents
including the term of any Borrower, shall expire or be revoked.
(l) The guaranty given by Montle pursuant to the Guarantee for any
reason other than the payment by Montle of the amounts required pursuant to
Section 2.3 hereof, ceases to be in full force and effect or is declared to
be null and void, or Montle denies (in written form or in any judicial
proceedings) that he has any further liability under the Guaranty or gives
notice to such effect.
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8.2 REMEDIES UPON AN EVENT OF DEFAULT.
Upon the occurrence of any Event of Default, Borrowers and Montle
stipulate to judgment being entered against them, to the fullest extent
permitted by applicable law, in the Judicial Proceeding and Alexander shall
have the following rights and remedies:
(a) The Face Loan Amount (not the Restructured Amount) (including
all accrued interest thereon, which the parties acknowledge and agree has
been and will continue to accrue interest at the highest non-usurious rate
permitted under the laws of the State of Colorado) shall become immediately
due and payable, which amounts will be reduced by the Agreed Value of the
Membership Interest (only to the extent the Membership Interest has been
transferred to Alexander on Manning's books or Alexander has received cash
proceeds equal to the Agreed Value of the Membership Interest) plus all other
payments received by Alexander from the Borrowers and Montle pursuant to this
Agreement.
(b) Intentionally Omitted.
(c) Alexander may file an affidavit with the Court certifying that
an Event of Default has occurred under this Agreement and request from the
Court an "Order of Judgment and Decree of Foreclosure" (the "Order of
Foreclosure") (the form of such Order of Foreclosure being attached hereto as
EXHIBIT E) entering judgment against Borrowers for the full amount of the
Face Loan Amount then due, which amount will be set forth on the affidavit
filed with the Court by Alexander, as more particularly described therein,
foreclosing the Deed of Trust and directing the Sheriff of Gilpin County to
sell all of the real and/or personal property encumbered by the Deed of Trust
and other Loan Documents as permitted by existing Colorado law for the
benefit of Alexander. By their signature hereon, Borrowers and Montle hereby
stipulate to, acknowledge and affirm each of the findings, orders and decrees
of the Court set forth in the Order for Foreclosure and specifically direct
the Court, without further proceedings, to execute and enter an Order for
Foreclosure substantially in the same form as that attached hereto in these
proceedings.
(d) All rights and remedies available under any Loan Documents and
under applicable law are hereby preserved and such rights and remedies are
not impaired or modified by this Agreement. Alexander may exercise any other
rights and remedies available under any Loan Document, which the parties
hereto acknowledge and agree remain in full force and effect throughout the
term of this Agreement, irrespective of whether the Declaratory Judgment is
obtained and the Order is entered, and under applicable law without
resistance or interference from any of the Borrowers.
ARTICLE IX
COURT APPROVAL
Upon the execution of this Agreement by all the parties hereto, counsel
for (i) Borrowers shall promptly submit a motion seeking declaratory relief
of the Court to obtain the Declaratory Judgment; and (ii) Alexander, the
Borrowers and Montle shall submit to the Court the Stipulation requesting the
Court approve and adopt this Agreement as an Order of the Court and to retain
jurisdiction in the Judicial Proceeding to enforce the terms of this
Agreement until either an Event
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of Default occurs under this Agreement or a Notice of Dismissal is filed in
accordance with the provisions of Article VI.
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. All notices, requests and other communications under this
Agreement shall be in writing and shall be personally delivered or sent by
certified mail, postage prepaid, return receipt requested, by telecopy, or by
licensed overnight courier to the appropriate party at the following
addresses:
IF TO BORROWERS OR MONTLE, TO:
LS Capital Corporation
One Riverway, Suite 2550
Houston, Texas 77056
Attention: Paul Montle
WITH A COPY TO:
Robinson, Waters, O'Dorisio and Rapson, P.C.
1099 18th Street, Suite 2600
Denver, Colorado 80202
Attention: John W. O'Dorisio, Jr., Esq.
IF TO ALEXANDER, TO:
Mr. Leslie Alexander
1200 North Federal Highway, #307
Boca Raton, FL 33432
WITH A COPY TO:
Parcel, Mauro, Hultin & Spaanstra, P.C.
Suite 3600
1801 California Street
Denver, Colorado 80202
Attention: Randy Alt, Esq.
and
Ruden, McClosky, Smith, Schuster & Russell, P.A.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Barry E. Somerstein, Esq.
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or at such other address of which such party shall have given notice as
herein provided. Notice shall be deemed given at the time delivered, if
personally delivered, at the time indicated on the duly completed Postal
Service return receipt (whether or not such notice is accepted by the
intended recipient or not), if delivered by certified mail, at the time the
telecopy is transmitted, if delivered by telecopy, or on the next business
day after such notice is sent, if delivered by licensed overnight courier.
10.2 ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors, and assigns.
10.3 EXPENSES. The Restructured Amount shall be increased by an amount
equal to any and all expenses incurred by Alexander in connection with the
preparation of this Agreement (including the fees and expenses of counsel for
Alexander), which amount shall not exceed $25,000 ("Reimbursement Amount").
10.4 AMENDMENT. The parties hereby irrevocably agree that no attempted
amendment, modification, termination, discharge or change (collectively,
"Amendment") of this Agreement shall be valid and effective, unless each of
the Borrowers, Montle and Alexander shall unanimously agree in writing to
such Amendment.
10.5 NO WAIVER. No waiver of any provision of this Agreement shall be
effective, unless it is in writing and signed by the party against whom it is
asserted, and any such written waiver shall only be applicable to specific
instance to which it relates and shall not be deemed to be a continuing
future waiver.
10.6 PUBLIC STATEMENTS. Borrowers and Alexander shall consult with one
another with regard to all press releases and other announcements issued
concerning this Agreement or the transactions contemplated hereby, and,
except as may be required by applicable laws or to obtain required consents,
no party shall issue any such press releases, announcements, or other
publicity without the prior consent of the other parties.
10.7 HEADINGS. The subject headings of the articles and sections
contained in this Agreement are included for purposes of convenience only and
shall not control or affect the meaning, construction, or interpretation of
any provision hereof.
10.8 FURTHER ASSURANCES. Borrowers and Montle hereby agree to
diligently execute and deliver such instruments or other documents and take
such actions as Alexander may reasonably request in order to effect the
transactions and agreements contemplated by this Agreement.
10.9 ENTIRE AGREEMENT. The Loan Documents, this Agreement and the
Schedules and Exhibits hereto constitute the entire agreement among the
parties with respect to the subject matter contained herein and supersede all
prior and contemporaneous agreements, representations, and understandings of
the parties.
10.10 JOINT DRAFTING RESPONSIBILITY. This Agreement is the result of
the joint efforts and negotiations of the parties hereto, with each party
being represented or having the opportunity to
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be represented by legal counsel of its own choice. No single party is the
author or drafter of this Agreement or any of the provisions of it. Each of
the parties assumes joint responsibility for the form and composition of all
of the contents of this Agreement and each party agrees that this Agreement
shall be interpreted as though each of the parties participated equally in
the composition of it and each and every provision and part of it. The
parties agree that the rule of judicial interpretation to the effect that any
ambiguity or uncertainty contained in an agreement is to be construed against
the party who drafted the Agreement shall not be applied in the event of any
disagreement or dispute arising out of this Agreement. If any of the terms
or conditions of this Agreement or the application thereof to any person or
circumstances is held invalid or unenforceable for the remainder of this
Agreement or the application of such terms and conditions to the persons or
circumstances other than those to which it is held invalid or enforceable is
not to be affected hereby and each of the terms and conditions of this
Agreement is to be valid and enforceable to the fullest extent permitted by
law.
10.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Colorado. The parties
hereto agree that the venue for any and all proceedings arising from this
Agreement shall be the District Court of Gilpin County, Colorado.
10.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.
10.13 LITIGATION. If any party hereto is required to engage in
litigation against any other party hereto, either as plaintiff or as
defendant, in order to enforce or defend any of its or his rights under this
Agreement, and such litigation results in a final judgment in favor of such
party ("Prevailing Party"), then the party or parties against whom said final
judgment is obtained shall reimburse the Prevailing Party for all direct,
indirect or incidental expenses incurred by the Prevailing Party in so
enforcing or defending its or his rights hereunder, including, but not
limited to, all reasonable attorneys' fees, paralegals' fees and all sales
tax thereon, and all court costs and other expenses incurred throughout all
negotiations, trials or appeals undertaken in order to enforce the Prevailing
Party's rights hereunder. Notwithstanding anything contained herein to the
contrary, the Borrowers shall not be entitled to attorneys' fees or costs
with regard to the proceedings pertaining to the Declaratory Judgment.
10.14 TIME OF ESSENCE. All of the transactions contemplated by this
Agreement must be completed promptly within the time limitations provided
herein, time being absolutely of the essence.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
WITNESSES:
___________________________ By:______________________________________
LESLIE ALEXANDER
___________________________
LS CAPITAL CORPORATION, formerly known as,
LONE STAR CASINO CORPORATION, a Delaware
corporation
___________________________ By:______________________________________
Name:____________________________________
___________________________ Title:___________________________________
PAPONE'S PALACE ACQUISITION CORPORATION, a
Colorado corporation
___________________________ By:______________________________________
Name:____________________________________
___________________________ Title:___________________________________
PAPONE'S PALACE LTD., LIABILITY CO., a
Colorado limited liability company
___________________________ By:______________________________________
Name:____________________________________
___________________________ Title:___________________________________
___________________________ By:______________________________________
Paul Montle, individually
___________________________
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EXHIBIT 10.32
ABSOLUTE ASSIGNMENT OF MEMBERSHIP INTEREST
THIS ABSOLUTE ASSIGNMENT OF MEMBERSHIP INTEREST ("Assignment") is made as
of the 20th day of August, 1996 by and between LS CAPITAL CORPORATION,
FORMERLY KNOWN AS LONE STAR CASINO CORPORATION, a Delaware corporation
("Assignor"), to LESLIE ALEXANDER ("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor owns a seven percent (7%) Class B Membership Interest
(the "Interest") in Manning Real Estate Associates L.L.C., a California
limited liability company (the "Company") which is governed by that certain
Limited Liability Company Operating Agreement dated as of June 1, 1995
("Operating Agreement"); and
WHEREAS, Assignor, Assignee and the other parties signatory thereto have
entered into that certain Settlement Agreement ("Agreement") of even date
herewith; capitalized terms used herein and not otherwise defined shall have
the meaning ascribed for such term in the Agreement; and
WHEREAS, pursuant to the terms of the Agreement, Assignor has agreed to
grant, bargain, sell, transfer, convey, set over and deliver all of its
right, title and interest in and to the Interest pursuant to the terms and
provisions hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. SALE OF INTEREST.
Assignor, without any further act or deed, hereby sells, transfer,
and conveys to Assignee, and Assignee hereby purchases, acquires and
receives, all of Assignor's right, title and interest in and to the Interest
and all properties, privileges and rights related thereto, including, but not
limited to, voting rights, all surplus and capital, and the accounts thereof,
all rights in specific property of the Company, including all rights,
interest, benefits, proceeds, rents, revenues, receipts, royalties, income,
increase, profits, income, all sums or distributions (whether made in cash,
tangible or intangible property of any kind or character, or otherwise) now
and hereafter accruing thereto and arising in any manner with respect to such
interest in the Company due or to become due to the Assignor. All of the
foregoing interests, properties, privileges and rights hereby assigned and
transferred to Assignee are hereinafter referred to as "Assigned Interests."
Assignor hereby acknowledges and agrees that the conveyance to Assignee of
the Assigned Interests is not intended to be a collateral assignment or other
security device of any kind and is absolute in nature and that after the date
of this Assignment, Assignor shall have no further interest or claims in, to
or against the Assigned Interests.
The parties have allocated a value of $590,000 to the Interest
(which value Assignor and Assignee agree is the fair value of the Interest as
of the date hereof) and Assignor shall receive a credit equal to $590,000
with respect to the Face Loan Amount (but not the Restructured Amount) on the
date the Interest is transferred to Assignee on the books of the Company or
the date that Assignee receives cash proceeds in an amount equal to $590,000
due to the exercise of the right of first refusal under the Operating
Agreement.
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The Assignor acknowledges and agrees that this Assignment shall not
in any way obligate the Assignee or any of his successors and assigns to
perform any of the now existing or hereafter accruing obligations of the
Assignor under the Operating Agreement unless and until Assignee is admitted
as a member of the Company in accordance with the terms of the Operating
Agreement, and the Assignor agrees to perform any and all obligations of the
Assignor under the Operating Agreement, whether heretofore or hereafter
accruing or arising, all with the same effect as though this Assignment had
not been executed or delivered by the Assignor prior to the time the Assigned
Interests are transferred to Assignee in the Company's books and records.
Assignor and Assignee acknowledge that the Interest has heretofore
served as collateral for a loan from Assignee to Assignor. Assignor and
Assignee acknowledge that the assignment of the Interest is a consensual sale
and not an exercise of a secured party's rights and remedies.
Notwithstanding the foregoing acknowledgment and without any effect thereon,
Assignor hereby waives any and all rights it may have to notice of intention
to retain the Interest in its function as collateral and to compel
disposition of the Interest in its function as collateral.
2. REPRESENTATIONS OF ASSIGNOR.
Assignor hereby represents and warrants to Assignee as follows:
(a) the Company is a valid and subsisting limited liability company
and is duly organized and existing under applicable law, that the Operating
Agreement is and remains in full force and effect and a true and correct copy
of such Operating Agreement with all amendments as now in force and effect as
of the date hereof, has been delivered to Assignee.
(b) the Assignor has full right, power and authority to make this
Assignment, and that neither the Assigned Interests nor any moneys
distributable in respect thereof are subject to any lien, encumbrance or
security interest other than the security interest previously granted the
Assignee.
(c) the Assignor is the owner of the Interest, which constitutes a
seven percent (7%) interest in the Company.
(d) the Assignor is not in default of any of its obligations or
agreements under the Operating Agreement.
3. COVENANT OF ASSIGNOR.
Assignor shall not authorize or consent to any amendment, revision
or modification of the Operating Agreement nor waive any right to receive
distributions in respect of the Assigned Interests without the prior written
consent of Assignee.
4. OPERATING AGREEMENT.
Assignor and Assignee acknowledge that the transactions contemplated
by this Assignment are subject to the terms and provisions of the Operating
Agreement.
5. FURTHER ASSURANCES.
Assignor hereby agrees to execute and deliver, from time to time,
any and all further, documents, agreements or other instruments, and to
perform such acts, as Assignee may reasonably request to effect the purposes
of this Assignment.
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6. BINDING EFFECT.
This Assignment shall be binding upon Assignor and its successors
and assigns.
7. INVALIDITY.
In case any one or more of the provisions contained in this
Assignment should be invalid, illegal, or unenforceable or set aside in any
respect, the validity, legality or enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby, and
said provision shall be affected only to the extent of such invalidity,
illegality, unenforceability or setting aside.
8. COUNTERPARTS.
This Assignment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together will constitute
one and the same instrument.
9. GOVERNING LAW.
THIS ASSIGNMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT THE LAWS OF
ANOTHER JURISDICTION MAY APPLY TO THE EXERCISE OF THE ASSIGNEE'S REMEDIES
HEREUNDER.
10. AMENDMENT.
No provision of this Assignment may be amended or modified except in
writing signed by both parties hereto.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed and
delivered this Assignment as of the date first above written.
Signed, sealed and Delivered
in the presence of: ASSIGNOR:
LS CAPITAL CORPORATION, FORMERLY KNOWN AS,
LONE STAR CASINO CORPORATION, a Delaware
corporation
___________________________ By:__________________________________________
___________________________ Name:________________________________________
Title:_______________________________________
ASSIGNEE:
___________________________ _____________________________________________
LESLIE ALEXANDER
___________________________
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<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
Pacific American Casinos, Inc.
Lone Star Casino Corporation, CNMI (100% subsidiary)
Papone's Palace Acquisition Corporation
Papone's Palace Limited Liability Company (75% subsidiary)
Cotton Exchange Casino, Inc.
Lone Star Casino Corporation of Nevada, Inc.
LSCC of Nevada, Inc.
Lone Star Pine Hills Corporation
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