UNITED STATES
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, 1997 Commission File Number 0-21566
LS CAPITAL 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,
(281) 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 30, 1997 was $5,150,000. The number of shares
outstanding of the registrant's Common Stock, $.01 par value, as of September
30, 1997 was 12,207,776.
Portions of the registrant's definitive Proxy Statement for its 1997 annual
meeting of stockholders (which has not been filed as of the date of this filing)
are incorporated by reference into Part III.
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INDEX Page Number
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PART I.
Items 1. & 2. Business and Properties. 3
Item 3. Legal Proceedings. 25
Item 4. Submission of Matters to a Vote of Security Holders. 28
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 28
Item 6. Selected Financial Data. 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 29
Item 8. Financial Statements and Supplementary Data. 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 34
PART III.
Item 10. Directors and Executive Officers of the Registrant. 35
Item 11. Executive Compensation. 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management. 35
Item 13. Certain Relationships and Related Transactions. 35
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 36
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ITEMS 1 and 2. BUSINESS AND PROPERTIES.
INTRODUCTION
LS Capital Corporation f/k/a "Lone Star Casino Corporation" ("Company")
was organized in 1992 to develop, own and operate casinos and related resort
facilities. During fiscal 1997, the Company adopted a significant change in its
corporate direction. It decided to focus its efforts on developing precious
metals mining prospects, with each project undertaken in a separate corporate
subsidiary. Currently, the Company has three partially-owned precious
metals/mining subsidiaries in which the Company holds a significant interest
(separately, a "Subsidiary" and collectively, the Subsidiaries"). The
Subsidiaries are Griffin Gold Group, Inc. ("Griffin"), Desert Minerals, Inc.
("DMI") and Shoshone Mining Co. ("Shoshone"), each of which is a Delaware
corporation having received rights in certain mining claims and having available
to it the ability to use certain proprietary mineral extraction technology. The
Subsidiaries are in the developmental stage and are expected to require minimal
capital. To implement the Company's new strategy and to finance the
Subsidiaries' respective projects, the Company intends to establish a public
trading market in the shares of each Subsidiary, via an initial public offering
and/or a "spin-off" of the Subsidiaries' shares to the Company's stockholders in
fiscal 1998. If and as this strategy is implemented, the Company may become a
holding company owning large shareholdings in each Subsidiary.
From its inception and until shortly after the start of fiscal 1996,
the Company was exclusively in the gaming industry and had generally adhered to
an aggressive policy of pursuing attractive gaming opportunities. As a
consequence of this policy, the Company acquired interests in or control over a
number of gaming 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" (a limited stakes gaming casino located in
Central City, Colorado), 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 (currently, the Company's only
gaming operation). On April 23, 1997, the indirect majority-owned subsidiary
that owns and operates Papone's Palace filed for bankruptcy under Chapter 11 of
the federal bankruptcy laws. This subsidiary has filed a plan of reorganization,
and approval of the plan is currently pending. The Company's largest creditor
has filed a motion to dismiss the bankruptcy proceeding, and the outcome of this
proceeding can not now be determined. Depending on the results of the bankruptcy
proceeding, the Company is currently considering establishing a public trading
market in the shares of this subsidiary via a "spin-off" of the subsidiary's
shares to the Company's stockholders.
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 Company adopted its current corporate name in June 1996 as a result
of the change in its corporate direction as described above.
The principal executive offices of the Company are located at 15915
Katy Freeway, Suite 250, Houston, Texas 77094, and its telephone number is (281)
398-5588. The Company has three employees
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at its corporate headquarters, in addition to those employed by the
Subsidiaries. The term "Company" as used herein refers to LS Capital Corporation
and all of its subsidiaries unless the context otherwise requires.
RISK FACTORS
In addition to the other information in this Annual Report, the
following risk factors, among others, should be considered carefully in
evaluating the Company and its business.
History of Losses; Uncertainty of Future Financial Results
The Company has incurred net losses since its inception and had an
accumulated deficit of approximately $25.6 million as of June 30, 1997. Most of
these losses are attributable to the Company's effort to become a major
competitor in the gaming industry, an industry in which the Company has
abandoned future efforts. There can be no assurance that the Company will become
profitable or that the Company will be able to raise additional capital if its
capital resources become exhausted by losses or expenditures.
Limited Operating History
The Company has only a limited operating history in the precious
mineral exploration and extraction business, the industry in which the Company
intends to focus its future business efforts. Accordingly, the Company is
subject to all risks inherent in a developing business enterprise. The
likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those specific to
the mineral exploration and extraction businesses and the competitive and
regulatory environment in which the Company will operate.
Lack of Mineral Extraction Experience by Management
No members of the Company's management have ever had any direct
experience in the management or operation of any business engaged in the mineral
extraction or exploration industry, although members of management have
extensive prior experience in the natural resource industry. This lack of
experience may make the Company more vulnerable than others to certain risks,
and it may also cause the Company to be more vulnerable to business risks
associated with errors in judgement that could have been prevented by more
experienced management. Management's lack of previous experience in the mineral
extraction or exploration industry could have a material adverse effect on the
future operations and prospects of the Company.
Industry Risks
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Mineral exploration and extraction (particularly for gold) is highly
speculative in nature, frequently is nonproductive, and involves many risks,
including, without limitation, unforeseen geological formations, cave-ins,
environmental concerns and personal injury. Such risks can be considerable and
may add unexpected expenditures or delays to the Company's plans. Moreover, an
extended period of time may be needed to develop the Company's mineral
properties. Because the market prices of any minerals produced are subject to
fluctuation, the economic feasibility of production may change during this
period of time of development. Another factor is that the Company will use the
evaluation work of professional geologists, geophysicists, and engineers for
estimates in determining whether to commence or continue extraction work. These
estimates generally rely on scientific estimates and economic assumptions, which
in some instances may not be correct, and could result in the expenditure of
substantial amounts of money on a property before it can be determined whether
or not the property contains economically recoverable mineralization. The
Company is not able to determine at present whether or not, or the extent to
which, such risks may adversely affect the Company's strategy and business
plans. There can be no assurance that the Company's mineral extraction
activities will be successful or profitable.
Lack of Proven or Probable Mineral Reserves
The economic viability of a mineral property cannot be determined until
extensive exploration and development have been conducted and a comprehensive
feasibility study performed. Although the Company has conducted surface sampling
on its mineral properties indicating that precious minerals exist on these
properties, the Company has not confirmed the level of existing precious
minerals, and the Company has not had any independent testing undertaken to
confirm the results of the Company's internal sampling. As a result, the Company
has not completed sufficient geological testing to establish proven or probable
mineral reserves for its mineral properties. Consequently, the Company has been
unable to ascertain with certainty whether adequate minerals reserves sufficient
for profitable operations exist. Nonetheless, the Company is continuing with
on-going internal testing and is planning on obtaining independent third-party
testing as soon as funds are available therefor. Notwithstanding the preceding,
management believes that the Company's surface sampling indicates the existence
of sufficient mineralization to warrant continued development of the Company's
mineral properties. However, there can be no assurance that proven or probable
ore reserves will ultimately be established.
Technological Risk Factor
The ultimate realization of the Company's investment in its mineral
properties depends upon the commercial feasibility of the proprietary technology
that the Company intends to use in the Company's mineral extraction process.
This technology is new and has been determined to be capable of extracting
precious minerals in a laboratory setting. However, the technology must prove
capable of producing precious minerals on a larger scale at cost levels that
will enable production to occur profitably. There can be no assurance that the
technology will prove capable of producing precious minerals at this scale and
at these cost levels. The failure of the technology to produce precious minerals
at the foregoing scale and cost levels would most likely materially and
adversely affect the Company's ability to pursue its business objectives.
Title Matters
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Title to mining properties in the western United States involves
certain inherent risks due to the impossibility of determining the validity of
unpatented claims from real estate records, as well as the potential for
problems arising from the frequently ambiguous conveyancing history
characteristic of many mining properties. Although the Company believes it
conducted reasonable investigations (in accordance with standard mining industry
practice) of the validity of ownership of and the ability of certain holders of
certain mining claims to transfer to the Company certain rights and other
interests therein, there can be no assurance that it holds good and marketable
title to all of its U.S. properties. The Company has conducted limited reviews
of title and obtained representations regarding ownership from holders of
mineral rights. The Company's practice will be, if possible, to obtain title
insurance with respect to its major mineral properties when a decision is made
to proceed with large scale mining. This insurance however may not be sufficient
to cover loss of investment or of future profits.
Competition
The precious minerals exploration and extraction business is intensely
competitive for resources, equipment and personnel. Many of the Company's
principal competitors are substantially larger, have substantially greater
resources, and expend considerably larger sums of capital than the Company for
exploration, rehabilitation and development. In addition, the gaming industry is
intensely competitive. In particular, Papone's Palace (the Company's limited
gaming facility located in Central City, Colorado) is engaged in intense direct
competition with other limited gaming facilities in neighboring Black Hawk,
Cripple Creek and on Native American Reservations in the Southwest part of
Colorado.
Limited Diversification
The Company currently has rights, and for the foreseeable future will
have rights, in only a limited number of mineral properties, although the
Company intends to acquire additional mineral properties in the future. At the
present, the success of the Company depends entirely upon the Company's ability
to extract minerals from its current properties on a profitable basis. This
limited diversification may make the results of the Company's operations more
volatile than they would be if the Company owned or controlled more mineral
properties. In addition, the Company currently owns, and for the foreseeable
future will own, an interest in only one gaming facility. Again, this limited
diversification in the gaming industry may make the results of the Company's
operations more volatile than they would be if the Company owned and operated
more gaming facilities.
Volatile Market Prices for Gold
The price of gold will have a material effect on the Company's
financial operations. Following deregulation, the market price for gold has been
highly speculative and volatile. Since the end of 1987 the price of gold has
declined from a high of approximately $500 per ounce to approximately $320 per
ounce in September, 1997. Instability in the price of gold may affect the
profitability of the Company's operations. No assurances can be given that the
Company has or will discover gold mineralization in commercial quantities or, if
such mineralization in commercial quantities has been or is hereafter
discovered, that gold could be produced at a profit given the recent market
price range for gold.
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Proposed Changes to Mining Laws
Legislation has been introduced in prior sessions of the U.S. Congress
to make significant revisions to the U.S. General Mining Law of 1872, which
would affect the Company's unpatented mining claims on federal lands. Part of
the proposed legislation would impose a royalty on gold production. It cannot be
predicted if these proposals will become law, However, if a gross royalty
becomes law, it would affect the profitability of the Company's precious mineral
extraction activities. The current estimates are that a five-percent net profit
interest could be the rate of royalty if and when the related legislation is
passed.
Insurance Coverage and Uninsured Losses
The Company has procured insurance covering personal injury, workers'
compensation and damage to property and equipment. There can be no assurance
that the Company will be successful in maintaining such insurance at rates
acceptable to the Company or that such insurance will prove adequate. Moreover,
in view of recent trends in damage awards in personal injury lawsuits, insurance
apparently adequate at the time of its procurement may prove insufficient to
satisfy large losses or judgments against that may subsequently be obtained
against the Company. Furthermore, certain types of insurance coverage (generally
against losses caused by natural disasters and Acts of God) are either
unattainable or prohibitively expensive. Substantial damage awards against the
Company or substantial damages not covered by insurance could affect the
Company's ability to continue as a going concern and may force the Company to
seek protection under the federal bankruptcy laws.
Liquidity
As of June 30, 1997, the Company had a working capital deficiency of
approximately $2.4 million and cash and cash equivalents of $5,000, and funds
held in attorneys' trust accounts available for immediate withdrawal of $73,000.
The Company has no constant and continual flow of revenues. During the past
several years, the Company has been able to continue meeting cash requirements
by renegotiating its existing debt obligations, issuing new debt, selling
certain non-revenue producing assets, reducing overhead expenses, and issuing
equity securities. While the Company's need for additional capital can not now
be precisely ascertained because of the indefiniteness of the ultimate size and
scope of the Company's mineral extraction activity, management believes that the
Company's future capital needs will exceed the Company's current financial
position. The Company expects to finance its operations for fiscal 1998 through
cash flow from operations, the possible placement of the Company's equity
securities, and joint venture arrangements (including project financing), The
Company is looking for sources of additional capital, but there can be no
assurance that such sources can be found or that, if found, the terms of such
capital will be commercially acceptable to the Company. Because of the Company's
need for additional capital, the lack of consistent revenues or the inability to
obtain necessary capital or both could prove to be detrimental factors in the
development of the Company's business.
Leverage and Debt Service
As of June 30, 1997, the Company had claims subject to comprise of
$2.3 million, including $1.2 million due on the Secured Convertible Senior
Debenture and $410,000 due on a note. Such claims were
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attributable to the Company's casino operations which were in Chapter 11. The
Company has filed a Plan of Reorganization with the bankruptcy court whereby,
subject to court approval, the Debenture will be paid down, partially or in
total by the transfer of certain assets, with the remaining balance of the above
two obligations to be amortized over twenty years at 7.5% interest with the
entire amount due in seven years. The Company has significant interest expense
in relation to its revenues. The Company's ability to satisfy its obligations is
dependent upon it future performance, which will be subject to prevailing
economic conditions and to financial, business and other factors, including
factors beyond the control of the Company, affecting the business operations of
the Company.
Litigation
The Company is a plaintiff in two major lawsuits and has been named as
a defendant in a number of lawsuits. For further information regarding these
lawsuits, see "ITEM 3. LEGAL PROCEEDINGS." The Company generally intends to
vigorously defend itself in the lawsuits where it is a defendant. A single
lawsuit seeking the return of a $100,000 deposit, in the opinion of management,
may have a possible adverse effect on the Company.
Bankruptcy of Papone's and Default on Debenture
The Company's indirect subsidiary, Papone's Palace LLC, filed for
bankruptcy under Chapter 11 of the federal bankruptcy laws on April 23, 1997.
Such filing was necessitated by a judgment and imminent foreclosure resulting
from a default under a settlement agreement restructuring Papone's indebtedness
of approximately $1.1 million to a private investor. Such default was, in turn,
brought about by the minority owner's contention that such settlement agreement
was executed without authority and Papone's failure to meet a 120 day deadline
for resolution of this issue by the courts. Papone's has filed a Plan of
Reorganization with the bankruptcy court proposing, among other things, a
transfer of assets to the investor in partial or full payment of the related
debt and a restructuring of the remaining debt, if any, as well as the other
principal creditor's note. There can be no assurance that the Plan will be
approved with terms and conditions satisfactory to the Company. Moreover,
Papone's largest creditor has filed a motion to dismiss the bankruptcy
proceeding. If this creditor's motion is granted, such creditor would presumably
be able to proceed to foreclose on Papone's Palace, the casino that constitutes
Papone's principal asset. As a result of the foregoing matters, the outcome of
the bankruptcy proceeding can not now be determined. For further information
regarding the bankruptcy and default, see "Gaming Operations".
Regulatory Matters - Precious Minerals Extraction
The Company's mining facilities and operations are subject to
substantial government regulation, including federal, state and local laws
concerning mine safety, land use and environmental protection. The Company must
comply with local, state and federal requirements regarding exploration
operations, public safety, employee health and safety, use of explosives, air
quality, water pollution, noxious odor, noise and dust controls, reclamation,
solid waste, hazardous waste and wildlife as well as laws protecting the rights
of other property owners and the public. Although the Company believes that it
is in substantial compliance with such regulations, laws and requirements with
respect to its mineral properties, failure to comply could have a material
adverse effect on the Company, including substantial penalties, fees and
expenses, significant delays in the Company's operations and the potential
shutdown of the Company's
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operations. The Company must also obtain and comply with local, state and
federal permits, including waste discharge requirements, other environmental
permits, use permits, plans of operation and other authorizations. Obtaining
these permits can be very costly and take significant amounts of time. Although
the Company foresees no material problems or delays, no assurances can be given
that the Company can obtain the necessary permits or commence mining operations,
or that, if permits are obtained, there will be no delay in the Company
operations or the Company can maintain economic production in compliance with
the necessary permits.
Regulatory Matters - Gaming
The Company's gaming business is subject to extensive regulation,
principally by state and local authorities. This regulation may result in
increases in the cost of the Company's business, interference with the Company's
operations, or other adverse effects on the Company. Although the Company
believes that it materially complies with all applicable gaming regulations,
material non-compliance by the Company could have a material detrimental effect
upon the Company's operations. In addition, the Company is unable to predict
what additional regulations (if any) may be adopted in the future effecting the
Company's gaming business or what effect such regulations would have on the
Company.
Dependence on Key Personnel and Limited Management Resources
The Company is substantially dependent upon the efforts and skills of
Paul Montle, the Company's Chairman of the Board and Chief Executive Officer,
and Richard W. Lancaster, the President of the Company's mining Subsidiaries.
The loss of the services of either Mr. Montle or Mr. Lancaster, or the inability
of either of them to devote sufficient attention to the operations of the
Company, would have a materially adverse effect on the Company's operations. The
Company does not maintain key man life insurance on Mr. Lancaster, but does
maintain key man insurance in the amount of $3 million on Mr. Montle. In
addition, there can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform, or that the Company would be able to hire additional,
qualified management personnel to perform such responsibilities in view of tight
employment market and financial constraints. Mr. Montle has not entered into an
employment agreement, and neither Mr. Lancaster nor Mr. Montle has entered into
a covenant not to compete agreement with the Company. The Company's success may
depend, in large part, on its ability to retain and attract highly qualified
personnel. The Company's success in attracting additional qualified personnel
will depend on many factors, including its ability to provide them with
competitive compensation arrangements, equity participation and other benefits.
There is no assurance that the Company will be successful in attracting highly
qualified individuals in key management positions.
Control
Management and directors of the Company currently own approximately 55%
of the outstanding shares of the Company's common stock. Cumulative voting in
the election of Directors is not provided for. Accordingly, the holders of a
majority of the shares of the Company's common stock, present in person or by
proxy, are able to elect all of the Company's Board of Directors.
Problems Resulting from Partially-Owned Subsidiaries
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The Company does not own all of the outstanding stock in its mining
Subsidiaries, but instead has one or more venture partners in each Subsidiary.
For each Subsidiary, the one or more venture partners own as much or slightly
more stock in such Subsidiary than the Company does. The Company has not entered
into customary agreements with such venture partners to resolve disputes or
terminate the Company's and such venture partners' relationship with each other
with respect to the Subsidiaries. If any deadlock or dissension were to arise
between the Company and one or more of its venture partners in the Subsidiaries,
the business of the related Subsidiary could be materially adversely affected.
Management believes that no contractual arrangement could assure that a
Subsidiary would not be materially adversely affected by deadlock or dissension
and that customary agreements might themselves materially adversely affect a
Subsidiary in certain circumstances. However, additional protection might be
afforded by greater contractual protection than the Company now has.
Dilution
Future sales of substantial amounts of the Company's common stock in
the public market could adversely affect the market price of the Company's
common stock and could result in material dilution of existing stockholders.
Particularly, the Company has relied heavily on the issuance of the Company's
common stock to meet liquidity requirements and to outside consultants to
procure needed services. Unless cash flows from the Company's limited operations
increase or alternative sources of financing are secured, the Company will
likely be required to seek additional cash through the issuance of additional
shares of the Company's common stock or preferred stock or both. There are no
preemptive rights in connection with the Company's common stock. As a result of
the foregoing matters, there is a risk of a material increase in the number of
shares of the Company's common stock outstanding which may result in material
dilution of existing stockholders.
Possible Lack of Liquidity; Volatile Price
Shares of the Company's common stock are currently traded only on the
OTC Bulletin Board. Occasionally trading volume in the Company's common stock is
fairly low. As a consequence, investors may have a more difficult time selling
their shares than they would, and the prices for such shares may be more erratic
than it would be, if the shares of the Company's common stock were listed on a
stock exchange or included for quotation in NASDAQ and were traded in a more
active market. Shares of the Company's common stock were previously included for
quotation in NASDAQ, and the Company intends to seek such inclusion as soon as
the Company's common stock and the Company meet the requirements for inclusion.
There can be no assurance that the Company's common stock and the Company will
ever meet these requirements. In any event, the price of the Company's common
stock (like any publicly traded stock) could be subject to general market
volatility and declines, which in many cases would be unrelated to the operating
performance of, or announcements relating to, the Company.
Achievement of Corporate Strategy
As discussed herein, the Company is currently considering the
declaration of dividends consisting of portions of the outstanding stock in
certain of its subsidiaries, including certain of its mining Subsidiaries. The
shares of stock comprising the dividends would be registered with the U.S.
Securities and Exchange Commission (the "Commission"). The result of the
dividends would be that the
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subsidiaries whose stock comprised the dividends would become separate publicly
traded entities, and the Company would essentially become a holding company
owning large blocks of stock in each subsidiary. The Company has hired a
consultant to evaluate the best structure to manage such activity and maximize
value for its stockholders. The Company has not received the report from the
consultant but the Company has been advised that such report may include a
recommendation that the Company convert to closed-end non-diversified investment
holding company status. There can be no assurance that the Company will
undertake this strategy, or that if such strategy is undertaken, the Company
will be successful in achieving this strategy or such strategy will enhance
stockholder values.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Annual Report under the captions
"ITEMS 1 and 2. BUSINESS AND PROPERTIES" regarding beliefs as to the
mineralization present on the Company's mineral properties, the capability of
the technology to be used by the Company, the ability to market the Company's
production, the Company's regulatory compliance, the adequacy of insurance, the
availability of trucking services, the ability of the Company to attract and
retain competent personnel, proposed changes to laws, the Company's plan to
declare in-kind dividends of stock in certain of the Company's subsidiaries, the
outcome and future developments with regard to the Company's gaming subsidiary
currently in bankruptcy (including, without limitation, the ability of such
subsidiary to reobtain required permits and to reopen, and the possible increase
in business resulting from the completion of a new road to such subsidiary's
casino), the outcome of certain litigation, and other statements contained
herein regarding matters that are not historical facts, are forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forwardlooking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." As a result, these forward-looking statements represent the Company's
judgment as of the date of this filing. The Company does not express any intent
or obligation to update these forward-looking statements.
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PRECIOUS METALS EXTRACTION OPERATIONS
Introduction
During fiscal 1997, the Company formed the Subsidiaries for the purpose
of engaging in efforts to extract (by means of proprietary technology) precious
minerals believed to be located on certain tracts of land over which the
Subsidiaries separately acquired control in fiscal 1997. The Subsidiaries'
proposed principal products are a condensate and dore bars both containing
precious minerals. Both of these products will be sold to third parties for
further refining. The Subsidiaries have only limited operating histories and
involve all the risks associated with companies with limited operating
histories.
Operations
Extraction.
The base material for the Subsidiaries' extraction process will consist
of ore procured from the Subsidiaries' respective mineral properties through
standard open-cast mining operations. Open-cast mining resembles open-pit
mining, except that in the case of open-cast mining unused portions of the mined
materials are not transported to waste piles for disposal but instead are cast
or hauled directly into adjacent mined-out panel. Thus, reclamation immediately
follows mining.
A large component of the mined ore will be zeolites. Zeolites are a
large family of complex hydrous sodium, calcium, and aluminum silicates whose
structures allow them to trap other ions and atoms. Because of the nature of
zeolites, microscopic precious metal particles can become ionically bound in
metal salt complexes trapped in the zeolite.
To extract the minerals believed to be contained in the zeolite, the
Subsidiaries intend to use a certain proprietary, low-toxicity microfine
precious metals extraction technology (the "Technology"). (For a description of
the Subsidiaries' rights with respect to the Technology, see "BUSINESS
Intellectual Property.") Using the Technology, ore mined from the Subsidiaries'
respective mineral properties will be treated such that trapped precious
minerals will be separated from the zeolite. The result of the treatment will be
a condensate. The Subsidiaries can then either sell the condensate or treat it
further. If a Subsidiary elects to treat the condensate further, the Subsidiary
will electroplate the condensate to produce dore. (Dore is a molten mixture
containing unseparated precious metals.) The dore is then further treated in an
induction furnace. After this treatment, the dore is poured to produced dore
bars, which are then sold to metal refiners and smelters for the ultimate
production of precious metals.
Of the Subsidiaries, only DMI has facilities to extract precious
minerals from mined ore. Griffin and Shoshone intend to rely upon DMI to extract
their precious minerals. DMI has entered into two-year agreements with Griffin
and Shoshone to process their respective ore on a limited basis in connection
with the testing of DMI's "pilot" plant and technology, both discussed below. In
consideration of DMI's processing such ore, Griffin and Shoshone agreed to pay
to DMI the amount of DMI's direct costs involved in the processing plus an
additional amount equal to 10% of such direct costs. In the event that DMI's
technology proves successful, DMI has agreed to negotiate in good faith with
each of Griffin and
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Shoshone with a view to the execution and delivery of an agreement pertaining to
the proposed larger processing plant discussed below.
DMI currently has in operation only a "pilot" plant for testing the
extraction process described above. The pilot plant is a 50'x100' facility
consisting of a processing area, a laboratory building and two mobile homes to
serve as living quarters for personnel. The pilot plant is located in Amargosa
Valley, Nevada, near Griffin's Tecopa mineral property. The Company intends to
commence its extraction business by trucking ore from Griffin's Tecopa mineral
property to the pilot plant. Trucking will initially be done by outside trucking
firms providing service and rates that management believe will be adequate and
acceptable.
Construction of DMI's pilot plant commenced in the summer of 1997 and
was completed in September, 1997. The pilot plant is currently testing ore at a
rate of one to three tons per day ("TPD"). Thus far, the pilot plant has been
able to produce gold in a small-scale laboratory setting. The ultimate goal of
the pilot plant is to produce gold on a larger scale at a commercially feasible
cost. DMI has been conducting on-going tests to determine whether the pilot
plant will be able to produce gold on this scale and at this cost level. While
such tests have heretofore been encouraging, such tests have not yet determined
that the pilot plant will be able or unable to produce gold on a larger scale at
a commercially feasible cost.
Griffin has invested approximately $250,000 in the pilot plant, and
previous thereto Zeotech Industries, Inc., one of the major minority
shareholders, had invested approximately $100,000. The pilot plant's facility
and equipment are new and are in good operating condition and repair. It has an
ample supply of on-site well water for undertaking its extraction processing.
Waste water is recycled on-site and will be used for irrigation. Electrical
power for the pilot plant comes from an on-site, 35-kilowatt three-phase
generator owned by DMI and three-phase power generated off-site by Valley
Electric, the local utility company.
If production and operations at the pilot plant satisfy management's
expectations, the Company will exercise its right to receive a sublicense on the
Technology. The Company will then attempt to proceed with the construction of a
larger processing plant at a site to be selected in the future and to be owned
by one of the Subsidiaries or a newly-formed subsidiary. The Company currently
expects that this larger plant would be capable of processing ore at a minimum
rate of 1,000 TPD. The Company currently expects that this larger plant (if
undertaken) will be finished in 1998 at a cost of between $2.5 and $5.0 million
dollars. The construction of the larger plant is contingent on procuring the
necessary financing.
Mining Claims
Each Subsidiary has rights in separate mining claims (these claims are
referred to hereinafter as the "Claims"). (For additional information about the
land covered by the Claims, see "ITEMS 1 and 2. BUSINESS AND PROPERTIES -
Precious Metals Extraction Operations - Properties.") To acquire its rights to
its Claims, each Subsidiary entered into an Exploration Agreement and Option to
Lease (a "Exploration/Option Agreement") with a group of individuals who hold
the Claims. For minimal cash payments, each Exploration/Option Agreement permits
the related Subsidiary to enter onto the land
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covered by the Claims for purposes of exploring, investigating, sampling,
examining and testing for any precious metals located on such land. The initial
term of each Exploration/Option Agreement is for five years, and each Subsidiary
has the right to extend its Exploration/Option Agreement for two additional
five-year extension terms. Depending on the results of a Subsidiary's
exploration effort and for a minimal cash payment, each Subsidiary has the
option under its Exploration/Option Agreement to enter into a lease of the
related Claims pursuant to the terms, provisions and conditions of a mining
lease agreement attached as an exhibit to each Exploration/Option Agreement (a
"Mining Lease").
Each Mining Lease permits the related Subsidiary to exploit the
minerals covered by the related Claims. The term of each Mining Lease is for 20
years and for so long as the related Subsidiary is processing ore on properties
located within a five-mile radius of any of the Claims covered by the Mining
Lease. Each Mining Lease obligates the related Subsidiary to pay a production
royalty for all minerals mined, removed and sold from the Claims covered by the
Mining Lease equal to 2.5% of the Smelter Returns. Each Mining Lease defines
"Smelter Returns" as the gross amount received from the sale of valuable
minerals after recovery of all exploration, development and capital costs and
less all taxes levied, incurred or imposed on the sale, severance or production
of such minerals and less costs of extraction, mining, milling, treating,
transportation to the smelter and/or refinery, smelting and refining charges and
costs of sale. Each Mining Lease obligates the related Subsidiary to pay minimal
advanced royalties, which are credited to the production royalty described
immediately above. Each Mining Lease can be terminated by the lessors thereunder
upon the occurrence of certain customary events of default, and by the related
Subsidiary upon three-months notice. Under each Mining Lease, the related
Subsidiary has a right of first refusal to purchase the Claims covered by the
Mining Lease if the lessors under the Mining Lease propose to transfer such
Claims.
Intellectual Property.
The technology that the Subsidiaries propose to use in their respective
precious mineral extraction efforts (the "Technology") has been and is still in
the process of being developed by Douglas Schmitt ("Schmitt"), an independent
consultant to the Subsidiaries. DMI and Schmitt entered into a letter agreement
dated March 27, 1997 (the "Technology Agreement") regarding the Technology. The
Technology Agreement stipulated certain criteria that Schmitt must meet to
perform satisfactorily under the Technology Agreement. First, Schmitt must
deliver to DMI all formulae, process designs and systems engineering necessary
to implement and repeat the recovery process comprising the Technology on a
consistent, large-scale basis. Second, either (a) the Technology must be
demonstrated to and audited by an independent third party mining engineering
firm of international repute that is willing (after the demonstration) to allow
its name to used publicly to verify that the Technology can consistently extract
gold and other precious metals from desert sands on a large-scale commercial
basis, or (b) commercially salable quantities of precious metals must be
produced from Griffin's Tecopa mineral property in a form acceptable to a
reputable refiner and at production costs not greater than 75% of sale proceeds.
Once Schmitt is determined to have satisfactorily performed, DMI is obligated to
pay to him the amount of $90,000, and the Company and DMI, on the one hand, will
be equal owners of the Technology with Schmitt, on the other hand. The Company
and DMI will then have the right to assign and license the Technology to their
subsidiaries and affiliates. In addition, the Company and DMI have a right of
first refusal regarding all projects in which Schmitt proposes to use the
Technology, and if the Company and
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DMI decline to pursue any proposed project, Schmitt is obligated to take
appropriate measures to maintain the integrity and security of the Technology.
In consideration of the creation of the Company's and DMI's interests
in the Technology, the Technology Agreement provides in favor of Schmitt a
five-percent royalty of gross proceeds from the related refiner minus direct
production costs (but not including any general overhead or administrative
costs) on all precious minerals extracted or produced in marketable form
utilizing the Technology. The royalty can be paid in cash or in kind. The
Company and DMI have the right to discontinue the use of the Technology at any
time (a) in favor of either technology provided by another source that the
Company and DMI believe is more attractive or cost effective or (b) upon the
abandonment of DMI's desert sands project. In either case, all royalty
obligations to Schmitt cease so long as the Company and DMI are not using the
Technology. The Company and DMI will forfeit their interests in the Technology
if they fail to construct an operating plant capable of processing sand at a
rate of 1,000 TPD within three years from the date of the Technology Agreement;
provided, however, that if negotiations or design work on such a plant are
underway at the time that the Company's and DMI's interests would otherwise be
forfeited, the Company and DMI may extend the forfeiture date for up to 12
months by the payment of $25,000.
In addition to the preceding, the Technology Agreement provides that
Schmitt will receive weekly payments of $1,500 for on-going consulting services
and a $10,000 sign-on bonus, which has already been paid. Moreover, Schmitt
received 125,000 shares of common stock in Griffin in connection with the
execution and delivery of the Technology Agreement.
Market and Marketing.
Precious metals have two main categories of use -- product fabrication
and bullion investment. Fabricated precious metals have a wide variety of end
uses, including industrial and technology uses. Purchasers of official coins and
high-karat jewelry frequently are motivated by investment considerations, so
that net private bullion purchases alone do not necessarily represent the total
investment activity in precious metals.
The profitability of the Subsidiaries' respective current and proposed
operations are significantly affected by changes in the market price of precious
metals. The market prices of precious metals can fluctuate widely and are
affected by numerous factors beyond the Subsidiaries' control, including
industrial and jewelry demand, expectations with respect to the rate of
inflation, the strength of the U.S. dollar and of other currencies, interest
rates, central bank sales, forward sales by producers, global or regional
political or economic events, and production and cost levels in major
mineral-producing regions such as South Africa. In addition, the prices of
precious metals sometimes are subject to rapid short-term changes because of
speculative activities. The current demand for and supply of precious metals
affect precious metals prices, but not necessarily in the same manner as current
supply and demand affect the prices of other commodities. The supply of precious
metals consists of a combination of new mine production and existing stocks of
bullion and fabricated precious metals held by governments, public and private
financial institutions, industrial organizations and private individuals. As the
amounts produced in any single year constitute a very small portion of the total
potential supply of precious metals, normal variations in current production do
not necessarily have a significant impact on the supply of precious
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metals or on their prices. If a Subsidiary's revenue from precious metals sales
falls for a substantial period below its cost of production at any or all of its
operations, the Subsidiary could determine that it is not economically feasible
to continue commercial production at any or all of its operations or to continue
the development of some or all of its projects. In summary, the markets for
precious metals generally are characterized by volatile prices.
Because of the availability of a sufficient number of refiners and
smelters and the competitive nature of the gold market, management believes that
the Subsidiaries will be able to sell all gold produced by them separately at
then current market rates. Due to the more restrictive and less competitive
nature of the platinum market, management believes that the Subsidiaries will be
less able to sell all platinum and related minerals produced by them separately.
Management does not foresee that other minerals that are likely to be produced
on the Subsidiaries' respective mineral properties will be of any significant
consequence. The Subsidiaries' current policies is to sell their separate
production at current prices and not enter into hedging or other arrangements
which would establish a price for the sale of their separate future production.
Competition.
The mining industry is very competitive. There is a high degree of
competition to obtain favorable mining properties and suitable mining prospects
for drilling, exploration, development and mining operations. The Subsidiaries
will encounter significant competition from firms currently engaged in the
mining industry. In general, all of these companies are substantially larger
than the Subsidiaries, and have substantially greater resources and operating
histories. Accordingly, there can be no assurance that the Subsidiaries will be
successful in competing with existing and emerging companies in the mining
industry.
Government Regulation and Environmental Concerns.
The mining and mineral extraction operations of the Company will be
subject to extensive federal, state and local laws and regulations governing
exploration development and production. In addition, such operations will be
subject to inspection and regulation by the Mining, Safety and Health
Administration of the Department of Labor under provisions of the Federal Mine
Safety and Health Act of 1977, which is designed to ensure operational safety
and employee health and safety. The United States government also regulates the
environmental impact of the mining industry through the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act of 1976 and the Federal Land Policy and Management Act of 1976. In
addition to imposing air quality standards and other pollution controls, the
most significant provisions of the above legislation deal with mineral land
reclamation and waste discharges from mines, mills and further processing
operations. The Company is also subject to extensive health and safety
regulations at the state level, as well as legislation and regulation with
respect to the environmental impact of its mining operations in the State of
California. Due to the nature of the Company's mineral extraction process, the
Company believes that its processing operations will have a modest effect on the
environment.
The Company generally will be required to mitigate long-term
environmental impacts by stabilizing, contouring, reshaping and revegetating
various portions of a site once mining and processing
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are completed. Reclamation efforts will be conducted in accordance with detailed
plans which will have been reviewed and approved by the appropriate regulatory
agencies. The Company plans for reclamation to be conducted concurrently with
mining. Management believes that reclamation expenditures will not be material,
although there can be no certainty in this regard.
Compliance with the foregoing laws and regulations increases the costs
of planning, designing, drilling, developing, constructing, operating and
closing mining operations. It is possible that the costs and delays associated
with compliance with such laws and regulations could become such that the
Company would not proceed with the development of a project or continue to
operate a mine.
Though the Company believes that its mining operations will be
conducted in compliance with all present health, safety and environmental rules
and regulations, there is always some uncertainty associated with such due to
the complexity and application of such rules and regulations. The Company does
not anticipate that compliance with existing environmental laws and regulations
will have a material impact on its earnings in the foreseeable future; however,
possible future health, safety and environmental legislation, regulations and
actions could cause additional expense, capital expenditures, restrictions and
delays in the activities of the Company, the extent of which cannot be
predicted.
The Company's unpatented mining claims on federal lands are currently
subject to procedures established by the U.S. General Mining Law of 1872.
Legislation has been introduced in prior and current sessions of the U.S.
Congress to make significant revisions to the U.S. Mining Laws including strict
new environmental protection standards and conditions, additional reclamation
requirements and extensive new procedural steps which would likely result in
delays in permitting and which could have a material adverse effect on the
Company's ability to develop minerals on federal lands. The proposed revisions
would also impose royalties on gold production from unpatented mining claims.
Although legislation has not been enacted, attempts to amend these laws can be
expected to continue. The extent of the changes that actually will be enacted
and their potential impact on the Company cannot be predicted.
Seasonability.
The Subsidiaries' separate businesses are not generally expected to be
seasonal in nature.
Employees.
The mining subsidiaries have a total of six employees. None of these
employees are covered by a collective bargaining agreement and relations with
them are considered to be good. The Company expects that the mining subsidiaries
may have as many as 25-30 employees within the next year. The Company does not
now foresee problems in hiring additional qualified employees to meet its labor
needs.
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Properties
General.
Except as noted herein, the Subsidiaries' respective properties are
located in the Lake Tecopa and Amargosa River Valley.
Lake Tecopa is a dried-up lake bed located near Tecopa, California
about 60 miles west of Las Vegas. The lake deposits in the Lake Tecopa consist
chiefly of mudstone and interbedded rhyolotic vitric tuffs that interfinger
marginward with coarser clastic sediments. The deposits of Lake Tecopa extend
about 14 miles in a north-south direction and about 11 miles in an east-west
direction. The towns of Shoshone and Tecopa lie near the north and south ends
respectively of the lake deposits.
The ash beds (tuff) within the lake deposits of Lake Tecopa on the
western half of the area are delineated by mapping. During diagenesis, zeolites,
potassium feldspar and other authigenic silicate minerals formed the tuffs. The
zeolites are mainly phillipsite, clinoptilolite, erionite and minor amounts of
analcime and chabazite. A study of the Lake Tecopa deposits indicates that the
fresh-glass facies is along the lake margin and is succeeded basinward by the
zeolite facies and then by the potassium feldspar in the central part of the
basin. During the study two marker tuffs were used to delineate the extent and
general configuration of the tuff beds. These marker tuffs contain unaltered
tuff zeolite facies, and potassium feldspar facies.
The general configuration of the zeolite-bearing tuff beds is that of a
horseshoe with the closed end to the north and located about a mile south of
Shoshone. According to a previous study, tuffs of the fresh-glass facies are
typically pale gray and friable; shards have a distinct vitreous luster. Altered
tuffs generally are white or pastel shades of green, yellow, orange, or brown,
relatively hard, and dull or earthy. Unlike tuffs of the fresh-glass facies,
altered tuffs are resistant and ledge-forming. Samples of altered tuff were
collected from a number of sites including the Pfizer zeolite pit near the
southwestern end of the lake deposits. Phillipsite and clinoptilolite were the
only zeolite minerals identified in the samples.
The tuff beds are nearly flat-lying or dip at a low angle toward the
center of the basin. Contortion of the beds by slumping during consolidation of
the ash is common. Swirls of green zeolitized tuff in unaltered tuff were noted
at several locations.
Across the entire southern end of Amargosa Range and Basins, the
Garlock Fault separates them from the Broad Mojave Desert. Along this east-west
fault between the El Paso's and Avawitz mountains, is a broken sequence of low
peaks and ridges that have provided a most effective barrier to any escape of
precipitation from the Basin and Range area. The Amargosa River, which is
underground and does not surface at any point, is the most dramatic example of
this. Rising northeast of Death Valley in the Bullfrog Hills, it flows south
through the Amargosa Desert east of the Greenwater Range, past Death Valley
Junction, Shoshone and Tecopa, then, encountering the highlands of the Avawitz
Mountains it turns west and north to enter Death Valley below Saratoga Springs.
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Volcanic activity is evident in nearly all portions of this area.
Numerous lava flow formations are found in the lower Owens Valley near Little
Lake. Explosive type volcanic action has left cinder cones, obsidian domes,
craters, and ridges such as those in the Mammoth Mountain-Mono Crater region
south of Mono Lake. In Death Valley, Ubenhebe Crater provides an unusual example
of explosive action.
The inter-connecting depressions between the ranges were, during the
Ice Age, filled to great depths with fresh water lakes. Then as the glaciers
receded, the lowest places became the collection basins for the salts, nitrates,
and borates in depths of more than a 1000 feet.
The Subsidiaries have conducted surface sampling on their respective
mineral properties. The sampling indicates that land underlying these properties
may contain gold, platinum, iridium, palladium, rhodium and ruthenium. However,
the Subsidiaries have not confirmed the level of existing precious minerals, and
the Subsidiaries have has not had any independent testing undertaken to confirm
the results of their internal sampling. As a result, the Subsidiaries have not
completed sufficient geological testing to establish proven or probable mineral
reserves for their respective mineral properties. The Subsidiaries currently
intend to undertake only some subsurface exploration at some unspecified point
in time during the next two year. Notwithstanding the preceding, management
believes that the Subsidiaries' surface sampling indicates the existence of
sufficient mineralization to warrant continued development of their respective
mineral properties. However, there can be no assurance that proven or probable
ore reserves will ultimately be established.
Griffin.
The Company owns 50% of the outstanding stock of Griffin. Griffin
currently holds rights to Claims covering two properties located in the Armagosa
Valley in the upper Mojave Desert in California. One of these properties
comprising 1,600 acres is located near Tecopa, California, while the other
comprising 1,920 acres is located about 25 miles east of Barstow, California in
the dried-up Mojave River bed. These two properties have a combined total of
about 5.5 square miles in surface land. Sands from a small portion of the
1,600-acre tract will be used in connection with the testing of DMI's pilot
plant. Access to the general vicinity of Griffin's mineral properties is by
means of state highways. Once in the general vicinity of the claims, easy access
to the claims is possible over dry, stable sands.
DMI
The Company owns 47% of the outstanding stock of DMI. DMI currently
holds rights to Claims covering a property comprised of 2,560 acres located near
Tecopa, California. This property has a total of four square miles. Since
production on this property will require the construction of both a processing
plant and a 2.5 mile long road, this property will be held for future expansion
after the year 2000.
Shoshone
The Company owns 50% of the outstanding stock of Shoshone. Shoshone
currently holds rights to Claims covering three properties. Two of these
properties, one comprising 3,840 acres and the other comprising 800 acres, are
located near Tecopa, California. The third property comprising 2,560 acres
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is located about 25 miles east of Barstow, California. These three properties
have a combined total of about 11.25 square miles in surface land.
GAMING OPERATIONS
Background
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
restrictions. 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. 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.
The Company owns a 75.5% indirect interest in Papone's Palace. Papone's
Palace is a limited stakes gaming casino situated in a 6,000 square foot,
two-story Victorian building located in Central City. Papone's Palace is not
currently operating nor did its stockholders apply to renew it for 1997.
Papone's Palace Ltd. Liability Company (the "Limited Liability
Company") directly owns and operates Papone's Palace. The Limited Liability
Company was formed by the Hill Family Trust in January, 1992. In January 1992,
the Hill Family Trust sold a 49% interest in the Limited Liability Company to
Earl Neudecker ("Neudecker") and Randall Gose ("Gose"). Neudecker and Gose paid
some cash to the Hill Family Trust and executed a promissory note payable to the
Hill Family Trust in the principal amount of $1,450,000 due and payable on
January 14, 1997 (the "Neudecker Note"). The Neudecker Note was secured by a
deed of trust on their 49% interest in the building in and real estate on which
Papone's Palace was operated (collectively the "Property"). Papone's Palace
opened for business on July 1, 1992.
On or about November 30, 1992, a number of events transpired:
1. The Hill Family Trust granted an option in favor of American
Pacific Management Corporation, a Texas corporation ("APMC"),
to acquire its 51% interest in the Limited Liability Company
as well as the Neudecker Note;
2. Gose granted an option in favor of APMC to acquire his 24.5%
interest in the Limited Liability Company in exchange for a
$500,000 note from Papone's Palace Acquisition Corporation, a
Colorado corporation ("PPAC") wholly-owned by the Company,
secured by a deed of trust against the Property (the "Gose
Option Note") and a release from his obligations with respect
to the Neudecker Note; and
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3. APMC assigned to VTS its options to acquire the interests in
the Limited Liability Company and the Neudecker Note.
On or about December 31, 1992, VTS assigned to PPAC its options to
acquire the interests in the Limited Liability Company described above (subject
to the approval of Colorado gaming authorities) and the Neudecker Note. On June
10, 1993, the Colorado gaming authorities approved the transfer of the foregoing
interests to PPAC, and the consummation of the acquisition of such interests and
the Neudecker Note occurred shortly thereafter.
Since its acquisition in June 1993, Papone's Palace had failed to
operate at a profit and had experienced continuing losses. Management believes
that the continuing losses of Papone's Palace were due in a large part to the
intense competition from the neighboring community of Black Hawk through which
potential patrons must drive to reach Central City. Because of the continuing
losses, the deferred payments on the Neudecker Note due to the Hill Family Trust
were reduced on at least two occasions. Eventually, a dispute arose between
Neudecker and the Hill family over the note payments, construction costs and
profitability of Papone's Palace, which resulted in Neudecker filing a civil
action against certain Hill family members in the Jefferson County District
Court, Division TW, in Colorado (case no. 93CV775). The Limited Liability
Company was named as a defendant in an Amended Complaint filed in January 1994.
That Amended Complaint was dismissed, and the case was refiled a third time by
Neudecker by means of a Second Amended Complaint. The Company and the other
defendants have yet to file an Answer to the Second Amended Complaint, and the
Court continues to consider various motions to dismiss the case at this time.
To meet a serious cash flow deficiency, in October 1994 the Company, PPAC
and the Limited Liability Company received a loan of $1 million (the "Loan")
from a private investor ("Investor"), assigned the first deed of trust on the
Property to the Investor, and granted a third deed of trust on the Property as
well. The proceeds of the Loan were used to pay operating deficiencies and to
repay the Company for operating loans it had previously funded to the Limited
Liability Company. Over time, Alexander made additional advances with respect to
Papone's Palace, obtained a personal guaranty for $50,000 of the Loan from Paul
J. Montle, CEO of the Company and President of PPAC, and obtained an assignment
of the Company's 7% Membership interest in Manning Real Estate Associates, LLC,
a California limited liability company ("Manning"). Manning owned a card club in
Fowler, California, which essentially operated a casino with non-bank card
games.
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 believed
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 believed responsible for the decline in patronage.
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As of May 16, 1996, certain payments of principal and interest on the
Loan had not been timely made, and the Loan was thereby in default. As a
consequence of this default, the Investor commenced a public trustee foreclosure
proceeding with respect to the Property in the Gilpin County District Court,
Division G, in Colorado (case no. 96CV73) (the "Foreclosure Proceeding"). While
the Foreclosure Proceeding was pending, Papone's Palace was reopened for the
summer of 1996 during which it achieved a slight positive cash flow though
failing to achieve profits. Eventually, the Company, PPAC and the Limited
Liability Company, on the one hand, and the Investor, on the other hand, entered
into a settlement agreement with respect to the aforementioned default (the
"Settlement Agreement").
The Settlement Agreement was expressly subject to PPAC'S obtaining a
court determination within 120 days after the date of the Settlement Agreement
that PPAC had the authority to enter into the Settlement Agreement since
Neudecker had alleged otherwise. An action was commenced to obtain the required
declaratory relief in September 1996 in Gilpin County District Court (the
"Declaratory Relief Action"). Neudecker responded to the Declaratory Relief
Action alleging that the Loan was improperly incurred and that amounts due under
the Neudecker Note to PPAC were in dispute. Neudecker requested and was granted
authority to file a third party complaint against Paul J. Montle, the Limited
Liability Company, the Company, PPAC and the Investor. The Declaratory Relief
Action is currently pending.
After operating for the summer of 1996, Papone's Palace closed for the
1996-1997 winter season with the expectation that it would reopen for the summer
of 1997. At the time that it ceased operations at the end of the summer of 1996,
Papone's Palace had 53 gaming devices and one blackjack table game, limited food
and beverage service was available, Papone's Palace had no separate parking
facilities, and access to both Papone's Palace and Central City was limited.
On January 14, 1997, the Neudecker Note (acquired by PPAC in June 1993)
matured. The balance then due on the Neudecker Note, including principal,
interest and Neudecker's member share of operating losses, was $1,752,881.
Neudecker did not pay such note when it came due, and PPAC commenced an action
in the Denver County District Court (case no. 97CV1021) in January, 1997 to
collect the note. Neudecker filed an answer and Third Party Complaint against,
among others, Papone's Palace and the Investor. The Investor has intervened in
the case, and has asserted claims against Neudecker, PPAC and George and Delores
Hill based on the Neudecker Note, which was conditionally assigned from PPAC as
collateral security for the loan. As a result of the effort to collect the
Neudecker Note, Neudecker refused to sign the application to renew the Company's
gaming license, which was issued on a year-by-year basis. Consequently, such
license expired in June 1997, and the Company was not able to reopen Papone's
Palace for the summer of 1997 as was originally expected.
Bankruptcy Filing
Because of Neudecker's actions with respect to the Declaratory Relief
Action, PPAC was not able to obtain timely the judicial determination required
by the Settlement Agreement. Such failure constituted an event of default with
respect to the Loan under the terms of the Settlement Agreement. As a result, on
February 21, 1997, a judgment was entered in the Foreclosure Proceeding awarding
to the Investor the principal amount of $1,101,337, together with interest and
costs, and decreeing a foreclosure on the Property. This development required
the Limited Liability Company to file for bankruptcy under Chapter
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11 of the federal bankruptcy laws on April 23, 1997. In connection with this
bankruptcy proceeding, the Limited Liability Company has filed a plan of
reorganization (the "Plan"), and approval of the Plan is currently pending.
There can be no assurance that the Plan will be approved with terms and
conditions satisfactory to the Company. Moreover, the Investor has filed a
motion to dismiss the bankruptcy proceeding. If this motion is granted, the
Investor would presumably be able to proceed and would proceed to foreclose on
Papone's Palace. As a result of the foregoing matters, the outcome of the
bankruptcy proceeding can not now be determined.
Under the terms of the Plan as initially filed (if approved), the
following events will occur:
1. The amount of the Loan would be allowed in an amount determined by the
bankruptcy court. On the effective date of the Plan, PPAC would assign to the
Investor all of its rights under the Neudecker Note and the deed of trust
securing it, and the outstanding balance of the Loan would be reduced by value
that such note and deed of trust are determined to have. Any remaining balance
on the Loan would bear interest at a rate or 7.5% per annum or such other
interest rate determined by the bankruptcy court upon the Investor's objection
or agreed to by the Investor, and would be payable in equal monthly installments
at a rate amortized over a 20-year period. Any balance on the Loan remaining
unpaid on the seventh anniversary of the effective date of the Plan would be due
and payable in a final balloon payment. Any guaranties of the Loan would be
stayed. As of the bankruptcy filing of the Limited Liability Company, PPAC owed
the Limited Liability Company approximately $211,000.
2 The amount of the Gose Option Note would be allowed in an amount
determined by the bankruptcy court. The balance on the Gose Option Note would
bear interest at a rate or 7.5% per annum, and would be payable in equal monthly
installments at a rate amortized over a 20-year period. Any balance on the Gose
Option Note remaining unpaid on the seventh anniversary of the effective date of
the Plan would be due and payable in a final balloon payment. Gose would also
retain all liens securing the Gose Option Note. Any guaranties of the Gose
Option Note would be stayed. 3. As of the bankruptcy filing of the Limited
Liability Company, the Limited Liability Company owed the Company approximately
$750,000. In connection with such bankruptcy filing, the Company advanced to the
Limited Liability Company $10,000, and a request to advance the Limited
Liability Company an additional $20,000 is pending. Under the Plan, the Company
would release all claims for the foregoing amounts, and the Company would
guarantee up to $200,000 of the Limited Liability Company's payments under the
Plan. 4. Unsecured creditors with allowed claims (other than the Company) would
receive a pro rata distribution of the $50,000 to be provided by the Company.
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<PAGE>
5. All outstanding membership interests in the Limited Liability Company
would be extinguished. However, new membership interests in the Limited
Liability Company constituting 100% of such membership interests would be issued
to PPAC and the Company. PPAC would be issued its membership interest in
consideration of PPAC's assigning the Neudecker Note and the deed of trust
securing it as described above, and the Company would be issued its membership
interest in consideration of the Company's release and guarantee described
above. The specific percentage of the Limited Liability Company membership
interests that PPAC and the Company would receive would depend on the relative
value of PPAC's and the Company's respective consideration described in the
preceding sentence, as determined by the bankruptcy court.
Future Expectations
Although the operating history of Papone's Palace has involved at worst
continuing losses and at best a break-even performance, management is cautiously
optimistic about the future of Papone's Palace, if the Plan is approved with
terms and conditions satisfactory to the Company. Central City has historically
been accessible only by means of a narrow, winding mountain road that first
passed through Black Hawk. Because of this limited access, inclement weather and
competition from Black Hawk are believed to have caused a materially adverse
affect on revenues from Papone's Palace. Recently, bonds have been approved to
finance, and preliminary work has begun on, the construction of a new road to
Central City (the "New Road"). The New Road will be approximately five and
one-half miles long, will have three lanes featuring one lane going each way and
an additional passing/turning lane, and will connect Central City to Interstate
40. The New Road will be superior to the current road to Central City, and
management believes that the New Road should become the preferred road to casino
patrons because it will one-half the distance and will be perceived to be much
safer. Casino patrons driving on the New Road will pass through Central City
before Black Hawk, which is the opposite from what they now do on the current
road. Management believes that the New Road will alleviate if not solve the main
problems affecting the profitability of Papone's Palace. If the Plan is approved
with terms and conditions satisfactory to the Company and the new road is
completed on schedule, management expects that it will be able to reactivate in
a timely manner the gaming license for Papone's Palace and that Papone's Palace
will be opened for the summers of 1998, 1999 and 2000, will close for the
winters of 1998-1999, 1999- 2000 and 2000-2001, and will open year-round
starting in the summer of 2001.
Management believes that the Company's precious mineral extraction
business and its gaming business are very distinct businesses. Management also
believes that the Company does not realize any economies or other benefits from
conducting these distinct business under common ownership and control. Moreover,
management believes that conducting these distinct business under common
ownership and control may have adverse effects on the Company, including
diminished market valuation of and appreciation for the Company's common stock.
As a result, management presently intends (if and shortly after the Plan is
approved with terms and conditions satisfactory to the Company) to register with
the Commission approximately 80% of the outstanding equity interests in the
Limited Liability Company or a newly-created successor entity. The registered
equity interests would then be distributed to the Company's stockholders so that
the Limited Liability Company (or its successor) would become a separate
publicly traded entity as a result thereof. Such distribution would enable each
of the Company with its
24
<PAGE>
remaining precious metals extraction business, on the one hand, and the Limited
Liability Company (or its successor), on the other hand, to (i) adopt strategies
and pursue objectives appropriate to its specific business and industry, (ii)
better enable itself to make acquisitions using its capital stock as
consideration, (iii) better enable itself to obtain financing with respect to
its particular business and projects from lenders possibly unwilling to lend to
companies in the other's business, (iv) be recognized by the financial community
as a distinct business, with the expectation that stockholder value will be
enhanced, and (v) implement more focused incentive compensation arrangements
that are tied more directly to results of its operations. Because there can be
no assurance that the Plan will be approved with terms and conditions
satisfactory to the Company, there can be no assurance that the distribution of
the outstanding equity interests in the Limited Liability Company (or its
successor) will occur.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is a party 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. All
defendants have been served. Aspen Marine Group, Inc., Ella Boutwell Chestnut,
Steven T. Dorrough, George D. Fowler, Paul A. Herman, C. Randolph Coleman, R
obert J. Baker, Joseph C.F. Chow, and Corporate Stock Transfer, Inc. have filed
special appearances to contest personal jurisdiction and were all non- suited.
No other defendant has answered. On January 10, 1994, the court entered an
interlocutory default judgment in the amount of $2,307,500 plus post-judgment
interest against Cambridge Financial Corporation, Leslie S. Greyling, and Daniel
M. Boyar. The court severed the lawsuit against Cambridge Financial Corporation,
Leslie S. Greyling and Daniel M. Boyar, and final judgment in favor of the
Company was entered against these defendants in January 1994. The remaining
defendants are Claude Kirk, Jose Esquivel and Jorge Galvez, against whom the
Company is trying to obtain a summary judgment.
The Company is a defendant in litigation filed in fiscal 1994 in the
Supreme Court of the State of New York, County of New York, styled Nemsa
Establishment, S.A. v. Viral Testing Systems Corporation et al. (Index No.
94112917). The plaintiff has sued to collect principal and interest under a
promissory note issued to it and has alleged that it is entitled to recover
damages based on various torts alleged to have been committed by the defendants.
The plaintiff seeks damages in excess of $1,000,000 (including the amount
allegedly owed under the promissory note), plus attorney's fees and prejudgment
interest. The litigation had been in the discovery stage at the time VTS filed
for bankruptcy protection. This lawsuit has been stayed since that filing.
Should this lawsuit continue, the Company intends to defend it vigorously
because the Company believes the lawsuit is without merit and the Company
believes that is was named as a defendant for harassment purposes.
In fiscal 1995, TPM Financial, Inc. ("TPM") filed a lawsuit against the
Company, regarding a lease for a hotel property in Las Vegas, Nevada and a lease
for an adjacent casino property, both entered into in 1994 with TPM as landlord
and the Company as tenant. The Company had entered into a short-term
25
<PAGE>
sublease of the hotel property effective April 1, 1995. In June 1995, the
subtenant defaulted on its payments to the Company, which in turn defaulted on
its payments to TPM. TPM is seeking a judgment against the Company for allegedly
delinquent rents in the approximate amount of $125,000, while the Company is
seeking damages from its subtenant. The Company filed a counter-claim against
TPM, claiming that TPM conspired with the subtenant to reduce, and eventually
stop, payments under the sublease, thereby causing the Company to default under
the leases with TPM. The subtenant filed a counterclaim against the Company
citing misrepresentation of certain facts concerning the property, the Company's
inability to perform as sublandlord, breach of the sublease, breach of implied
covenant of good faith and fair dealing, and fraud. This lawsuit had been in the
discovery phase, and TPM had offered to settle. However, in fiscal 1997, TPM
filed for bankruptcy protection, and this lawsuit has been stayed since that
filing. The Company has not yet decided whether it will continue to pursue its
claims in view of TPM's bankruptcy filing, and thus the ultimate outcome of this
matter can not now be determined.
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 could not be
used as a legal casino site. The $100,000 had been released to the Company, and
the Company retained the $100,000 on the basis that MVII interfered with the
negotiation of the amended lease and its timely execution. MVII alleged breach
of the implied covenant of good faith and fair dealing, and breach of fiduciary
duty, and the Company denied all causes actions. Due to an unexpected
resignation of the Company's counsel, the Company defaulted on this lawsuit in
fiscal 1997. However, the plaintiff has never had a default judgment entered
against the Company. As a consequence, the Company can not now perfect an appeal
of the judgment, which the Company intends to do if and when a default judgment
is entered. The Company intends to continue to vigorously defend against this
judgment if it is entered. However, the ultimate outcome of this lawsuit can not
now be determined.
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 C.A. No.
A-2402-95-0142 in the Second Judicial District, Circuit Court, Harrison County,
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
26
<PAGE>
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 an appeal with the
Mississippi Supreme Court, No. 96-T.S.-1360. The plaintiff's brief of appellant
was filed on October 17, 1996. In February, 1997, the Supreme Court referred the
appeal to the Mississippi Intermediate Court of Appeals, which by the statute
which created it, is supposed to render a decision within 270 days. On August
20, 1997, oral arguments were heard. The Company presently intends to continue
to vigorously pursue this litigation, although it is not now in a position to
determine the likelihood of its prevailing on appeal or in any subsequent trial
on the merits.
In fiscal 1997, Oriental Crystal (Holding) Ltd. ("Oriental") brought a
lawsuit against the Company and the subsidiary formerly pursuing the Company's
Tinian gaming business. The lawsuit was brought in the Superior Court of the
Commonwealth of the Northern Marianas Islands (C.A. 96-173) seeking a
declaratory judgment that an agreement previously made by Oriental not to
compete with the Company on Tinian was a restraint of trade and was therefore
unenforceable. The attorney representing Oriental attempted to serve the Company
at its 1994 business address in Houston and when it was not possible to obtain
service on the Company at that address, a default judgment granting the
declaratory judgment was entered in June 1996. The Company is seeking to have
this judgment set aside on the basis that service was not properly made and the
default judgment was improperly entered. If the Company is successful in its
appeal to overturn the default judgment, it intends to file an action to enforce
its non-circumvention and non-compete agreement with Oriental by seeking damages
and/or an ownership interest in a 300 room hotel casino that Oriental is
building on Tinian, construction of which is supposed to be complete in late
1997 or early 1998. The ultimate outcome of this lawsuit cannot be determined at
this time.
On June 30, 1997, the Company settled that certain lawsuit styled GFL
Ultra Fund, Ltd. v. Lone Star Casino Corporation, cause no. H-96-1423, pending
in the United States District Court for the Southern District of Texas, Houston
Division. GFL Ultra Fund originally instituted this lawsuit against the Company
on February 14, 1996 in a court in the state of Washington, but this lawsuit was
subsequently transferred to Houston. The lawsuit alleged that the Company
refused to convert certain shares of preferred stock in the Company owned by GFL
Ultra Fund into shares of the Company's common stock in accordance with the
terms of the preferred stock. Under the terms of the settlement, the Company is
to pay to GFL Ultra Fund a total of $100,000, $25,000 which was paid on or
before July 15, 1997, $25,000 which is due on or before September 30, 1997, and
$50,000 which is due on or before December 31, 1997. In connection with the
settlement, the Company also issued into escrow a total of 600,000 shares of the
Company's common stock, represented by 25 stock certificates in 24,000-share
denominations. For each of the 25 months after the settlement, GFL Ultra Fund
will be entitled to sell out of escrow 24,000 shares issued in connection with
the settlement. Notwithstanding the preceding, GFL Ultra Fund has agreed that
once GFL Ultra Fund has realized $600,000 in net proceeds from the sale of these
shares, the escrow agent will return any remaining shares to the Company. The
Company and GFL Ultra Fund also gave to each other mutual releases of claims
that they have or might have against the other pertaining to the lawsuit.
During September, 1996, the Company settled that certain lawsuit style
Glenville Properties Incorporated v. RMS Titanic, Inc. et. al., cause no.
127087/94, pending in the Supreme Court of the
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<PAGE>
State of New York, County of New York. The Company was not an original party to
this proceeding, but was named as a third party defendant. This lawsuit involved
a dispute over the payment of a secured promissory note made payable by RMS
Titanic to Glenville Properties, an affiliate of the Company. The terms of the
settlement require RMS Titanic to pay to the Company a total of $154,272 in 12
equal installments; provided, however, that this payment schedule will be
accelerated if RMS Titanic's revenues achieve certain levels. The settlement
also required RMS Titanic to issue to an escrow agent 15,000 restricted shares
of common stock in RMS Titanic. All or a portion of these shares will be
delivered to the Company if RMS Titanic's revenues fail to achieve certain
levels, and all or a portion of these shares will be returned to RMS Titanic if
RMS Titanic's revenues achieve certain levels. In addition, RMS Titanic was
required to issue to the Company outright 40,000 restricted shares of common
stock in RMS Titanic. In connection with the settlement, the parties gave to
each other mutual releases of claims that they have or might have against the
other pertaining to the lawsuit, the promissory note comprising the subject
matter of the lawsuit was return fully paid and marked canceled, and the
collateral securing the promissory note was released.
In fiscal 1995, Truman L. Susman filed a lawsuit against the Company in the
U.S. District Court for the District of Delaware, (C.A. No. 94-210), alleging
that the Company participated in or induced VTS' management to commit acts of
mismanagement and breach of fiduciary duties against VTS, its subsidiary, and
its shareholders, in addition to inducing VTS to breach its contractual
obligations to the plaintiff. The court in this lawsuit has entered a summary
judgment against the plaintiff for failure to state a claim. The plaintiff has
filed a motion for leave to amend his complaint. However, the court has not yet
ruled on this motion. The Company believes this lawsuit is without merit, and
the Company intends to vigorously defend against this lawsuit if the motion for
leave to amend is granted.
For a discussion of the Limited Liability Company's bankruptcy
proceeding and the proceedings involving Earl Neudecker, on the one hand and the
Company or one of its subsidiaries, on the other hand, see "ITEMS 1 and 2.
BUSINESS AND PROPERTIES."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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 "CHIP". As of June 30, 1997, the Company had 1,736 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, 1997.
<TABLE>
<CAPTION>
High (1) Low (1)
---- ---
<S> <C> <C>
Fiscal year ended June 30, 1996:
First Quarter $0.563 $0.250
Second Quarter 0.250 0.100
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<PAGE>
Third Quarter 0.150 0.015
Fourth Quarter 0.040 0.015
Fiscal year ended June 30, 1997:
First Quarter $1.310 $0.125
Second Quarter 1.380 0.070
Third Quarter 2.090 0.720
Fourth Quarter 1.875 0.530
</TABLE>
(1) Prices after July 1, 1996 reflect the 1-for-25 reverse stock split.
The Company has never paid cash dividends, and has no intentions of paying
cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated selected financial data should be read in
conjunction with the consolidated financial statements and related notes
appearing elsewhere herein (amounts shown for 1993 are for the period from May
4, 1993 to June 30, 1993) - in thousands, except per share data:
<TABLE>
<CAPTION>
Years (period) ended June 30
----------------------------
1997 1996 1995 1994 1993
---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 238 $1,340 $ 2,816 $ 1,831 $ 0
Net loss (72) (4,727) (12,084) (8,143) (567)
Net loss per share (0.01) (4.00) (17.16) (17.73) 0
Total assets 3,105 2,809 7,239 16,501 10,534
Long-term obligations 0 0 230 526 2,703
Redeemable preferred stock 0 0 759 1,970 0
Cash dividends declared per
common share $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of operations,
and should be read in conjunction with the selected financial data in Item 6
above and the consolidated financial statements and related notes appearing
elsewhere herein
Significant Events
During fiscal 1997, the Company adopted a significant change in its
corporate direction. It decided to focus its efforts on developing precious
metals mining prospects, with each project undertaken in a separate corporate
entity. Currently, the Company has an ownership share of three corporations
(Griffin
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<PAGE>
Gold Group, Inc., Desert Minerals, Inc. and Shoshone Mining Co.), formed to
exploit certain adjacent mining claims in eastern California. Each of these
corporations has received assignments of mining claims and non-exclusive
licenses to use proprietary mineral extraction technology. These operations are
in the developmental stage and will require minimal capital. To implement this
strategy and finance these projects, the Company intends to establish a public
trading market in the shares of each gold mining corporation, via an initial
public offering and/or a "spin-off" of their shares to the Company's
shareholders in fiscal year 1998 so they can do their own financing with their
own shares. As this strategy is implemented, the Company will essentially become
a holding company owning large share holdings in each gold mining corporation.
The Company has retained a consultant to evaluate the best structure to manage
such activity and maximize value for its shareholders. The Company has not
received the report from the consultant but such report may recommend conversion
to closed-end non-diversified investment holding company status.
As a result of the above decision, the Company also decided to dispose
of all its non-essential assets and sold the Clutch Games business for $260,000
in November, 1996.
RESULTS OF OPERATIONS
Years ended June 30, 1997 and 1996
Overview
Operations for fiscal 1997 are not comparable to the operations for
fiscal 1996 because the Tinian casino was closed in December, 1995 and the
Papone's Palace casino was open for three months in fiscal 1997 compared to
eight months in fiscal 1996. The Company incurred a net loss of $72,000 for
fiscal 1997 on revenues of $238,000 compared to a net loss of $4,727,000 on
revenues of $1,340,000 for fiscal 1996. The decrease in net loss is largely
attributable to a lower costs and expenses in the casino operations in fiscal
1997 compared to fiscal 1996, non-recurring write-downs and losses on sale of
property in fiscal 1996, release of liability from the sale of two inactive
subsidiaries and a gain on the transfer of ownership in a card club to Papone's
principal creditor.
Operating Revenues
Gaming revenues decreased by approximately $990,000 in fiscal 1997
compared to fiscal 1996 due primarily to the closing of Tinian casino in fiscal
1996 and the shorter opening months of the Papone's Palace casino in fiscal 1997
compared to fiscal 1996. Food and beverage revenues decreased by approximately
$112,000 attributable to the same factors.
Operating Expenses
The decrease in gaming expenses in fiscal 1997 as compared to fiscal
1996 of approximately $1,873,000 is directly attributable to the closing of the
Tinian casino ($1,475,000) and the shorter season at Papone's Palace casino
($398,000). Likewise, the decrease in the cost of food and beverage is directly
attributable to the same factors. In addition, losses of $929,000 principally
from asset writedowns at the Tinian casino and losses from asset sales at the
Papone's Palace casino of $320,000, both in fiscal 1996 were
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<PAGE>
non-recurring in fiscal 1997. General and administrative expenses in fiscal 1997
decreased approximately $660,000 compared with fiscal 1996, due primarily to the
closing of the Tinian casino and lower consulting and professional expenses in
fiscal 1997 compared to fiscal 1996. Depreciation expense declined $353,000 in
fiscal 1997 compared to fiscal 1996 due principally to the closing of the Tinian
casino in fiscal 1996 and a shorter season at Papone's in fiscal 1997 compared
to fiscal 1996.
Other Income (Expense)
Other income (expense) improved in fiscal 1997 compared to fiscal
1996 primarily due to the following: (1) gain on sale of two inactive
subsidiaries (Pacific American Casinos, Inc. [Tinian] and Lone Star Casino
Corporation of Nevada) of $1,013,000 in fiscal 1997, (2) non-recurring minority
interest in net loss of subsidiary of $203,000 in fiscal 1996, (3) non-recurring
gains from debt forgiveness and other of $239,000 in fiscal 1996, (4) lower
interest expense in fiscal 1997 of $175,000 compared to fiscal 1996 due to the
non-default periods on its Secured Convertible Senior Debenture and (5) a gain
of $590,000 on the transfer of card club partnership interest to the holder of
Papone's Secured Convertible Senior Debenture. The partnership interest was
valued at $590,000 (carried on the books at $0) and was applied as a reduction
in accrued interest.
.
Discontinued Business
The Company discontinued its board game project, Clutch Games, Inc., in
fiscal 1997 realizing a gain of $203,000, while incurring a loss from operations
of $68,000.
Years ended June 30, 1996 and 1995
Overview
Operations for fiscal 1996 are not entirely comparable to operations for fiscal
1995 because several projects were discontinued in fiscal 1995 which created (or
caused) charges for discontinued or abandoned projects. The Company incurred a
net loss of $4,727,000 for fiscal 1996 on revenues of $1,340,000 compared to a
net loss of $12,084,000 on revenues of $2,816,000 for fiscal 1995. This decrease
in the net loss is largely attributable to a substantial decrease in write-downs
and write-offs and general and administrative expenses in fiscal 1996 compared
to fiscal 1995.
Operating Revenues
Gaming revenues decreased by approximately $300,000 in fiscal 1996 compared with
fiscal 1995. Food and beverage revenues decreased by approximately $284,000 or
about 69% due primarily to the closing of the Tinian casino in December, 1995.
Hotel and other revenues declined $891,000 due to the closing of the Desert Inn
Road Hotel Property in fiscal 1995.
Operating Expenses
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<PAGE>
Gaming expenses increased approximately $593,000 or about 30% with the Tinian
casino experiencing an increase of approximately $852,000 offset by a decrease
of approximately $259,000 in the Papone's Palace casino gaming expenses. The
decreases in the cost of food and beverage and other expenses is directly
attributable to the closing of the Desert Inn Road Hotel Property and the Tinian
casino. General and administrative expenses in fiscal 1996 decreased
approximately $3,460,000 or about 65% compared to fiscal 1995. The decrease is
mainly due to the closing of the Las Vegas administrative office and the
termination of a number of management positions in fiscal 1996, together with
decreases in legal and professional fees related to acquisition transactions,
legal and professional fees associated with project financing, and decreases in
corporate travel costs. In fiscal 1995, the Company incurred non-recurring
expenses of approximately $5,009,000, as a result of site development costs,
loss on the sale of certain of the Company's properties and the write-down of
certain receivables. In fiscal 1996, the Company incurred non-recurring expenses
approximating $1,249,000 as a result of closing the Tinian casino, sale of slot
machines by Papone's Palace casino and write-offs of other assets. Also in
fiscal 1995, the Tinian casino incurred non-recurring pre-opening expenses of
approximately $599,000. Also included in operating expenses in fiscal 1995, is a
write-off of approximately $349,000 representing the remaining balance of the
goodwill from the purchase of the Papone's Palace casino.
Other Income (Expense)
Interest expense in fiscal 1996 reflects an increase of approximately
$238,000 due to the accrual of interest at the default rate of 46% on Papone's
Secured Convertible Senior Debenture. Other income for fiscal 1995 included a
one-time fee from proposed joint venture partner.
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of June 30, 1997, the Company had a working capital deficiency of
$2,360,000. This amount was approximately equal to the amount of claims subject
to comprise of $2,313,000 related to Papone's Palace, which is in bankruptcy.
See "Business - Gaming Operations - Bankruptcy Filing". Throughout fiscal 1997,
the Company has been able to continue meeting cash requirements by selling
assets, renegotiating existing debt obligations, issuing new debt, paying for
services with stock, issuing common stock through private placements and capital
contributions by subsidiary minority shareholders. The ability of the Company to
continue to pursue its business objectives throughout fiscal 1998 and beyond
will depend on the Company's ability to continue to meet its cash requirements
by the means mentioned above and ultimately to achieve profitability with
respect to its business operations. There can be no assurance that the Company
will sustain this ability or achieve this goal.
Current Assets and Current Liabilities
During fiscal 1997, current assets increased approximately $35,000 due
primarily a reduction in receivables from unaffiliated parties of $146,000 and
lower cash balances of $134,000, offset by an increase in receivables from
affiliated parties of $308,000. Current liabilities decreased by $1,992,000 in
fiscal 1997 compared to fiscal 1996. Four factors contributed to the decrease:
(1) claims subject to
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<PAGE>
compromise decreased $116,000, (2) notes and advances to related parties
decreased by $361,000 during fiscal 1997 as a result of conversion of debt to
common stock and retirements, (3) accounts payable and accrued expenses
decreased by $1,107,000 in fiscal 1997 compared to fiscal 1996, primarily due to
the sale of two inactive subsidiaries and (4) the redemption payable on the
redeemable preferred stock decreased by $440,000 due to a settlement reached in
fiscal 1997.
Claims subject to comprise of $2,313,000 at June 30, 1997 consisted of
the following indebtedness of Papone's Palace casino now in Chapter 11:
$1,196,000 due on the $1,000,000 Secured Convertible Senior Debenture, (2)
$410,000 due in connection with Papone's acquisition and (3) accounts payable
and accrued expenses of $707,000. The $1,000,000 Secured Convertible Senior
Debenture was restructured in August, 1996 whereby the Company transferred a
partnership interest to the holder valued at $590,000 (carried on the books a
$0) and recorded a gain in fiscal 1997 with a corresponding reduction in accrued
interest. The holder notified the Company in December, 1996 that foreclosure had
been posted on Papone's Palace casino due to a default under the terms of the
restructuring. The default arose in that the Company was unable to secure a
declaratory judgment within 120 days of August 5, 1996 in the lawsuit by the
minority partner of Papone's Palace who was challenging the Company's authority
to execute the restructuring agreement. As a result, a sheriff's sale of the
related collateral was scheduled to be held on April 25, 1997. In order to
forestall the sale, Papone's Palace filed for protection under Chapter 11 of the
United States Bankruptcy Code on April 23, 1997 in the Bankruptcy Court of the
District of Colorado. Papone's Palace filed a Disclosure Statement and Plan of
Reorganization with the court in July, 1997. The Company anticipates being able
to implement a Reorganization Plan to allow Papone's Palace (which is presently
closed) to reopen for the summer of 1998. Presently, the Company, through its
attorneys, has begun early discussions of its Plan with the two debt holders and
is attempting to subpoena information regarding the valuation of certain assets
which may be a part of any settlement. The Company anticipates no writedown in
the value of the gaming industry assets in connection with the Chapter 11
filing.
In January, 1995, certain stockholders and an officer of the Company loaned the
Company $250,000 to be used for payment of the Tinian Gaming License. The
promissory notes evidencing the loans bear interest at 10% per annum and became
due on July 19, 1995. During fiscal 1996, a note of $150,000 was paid in full
and an additional $100,000 was advanced. During fiscal 1996, the remaining
balance of $200,000 was retired by cash payment and through the issuance of the
Company's common stock.
Stock Sales
During fiscal 1997 and 1996, the Company issued 543,000 and 2,494,500 shares,
respectively, of its common stock outside the United States at gross prices per
share of between $.10 and$1.00 during fiscal 1997 and $.05 and $0.32 during
fiscal year 1996. The Company received net proceeds of $128,000 during fiscal
1997 and $597,000 during fiscal 1996.
Also during fiscal 1997, the Company issued 1,578,000 shares of its common stock
in connection with the acquisition of gold mining ventures. The Company's
interest in such ventures have
33
<PAGE>
been value in the consolidated balance sheet at $321,000, net of cash
reimbursements of $109,000. In addition, the Company issued 50,000 shares in
fiscal 1997 in connection with the purchase of an investment in gold mining
securities.
During fiscal 1997, the Company issued an additional 6,069,000 shares in
retirement of debt to officers and directors of $285,000 (including loans to the
Company and its subsidiaries, accrued interest and salaries) at a price of $.045
per share. The Company has issued 735,000 and 600,000 shares in fiscal 1997 and
1996, respectively, to certain consultants in payment of approximately $578,000
and $1,038,000 in services rendered.
The Company issued 800,000 shares to an affiliate under warrants issued
in fiscal 1997 to purchase common stock of the Company at $.375 per share.
Proceeds were substantially collected in July , August and September, 1997. In
addition, the Company issued 600,000 shares of common stock in the settlement of
litigation in June, 1997 regarding the redemption payable under the Company's
redeemable preferred stock of $505,000. All of the 600,000 shares were placed in
escrow and the remaining shares are subject to return and cancellation when
proceeds of $600,000 have been realized from the sale of some of the shares.
Also, the Company issued 54,400 shares of common stock in settlement of claims
regarding a land lease under a proposed casino.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The reports of Company's Independent Auditors appear at Page F-1 hereof,
and the Consolidated Financial Statements of the Company appear at Page F-2
through F-16 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
34
<PAGE>
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.
35
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this report:
1. Consolidated Financial Statements:
<TABLE>
<S> <C>
Reports of Independent Auditors ........................... F-1 & F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996... F-3
Consolidated Statements of Income for the
years ended June 30, 1997, 1996, and 1995 ............... F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996, and 1995 ............... F-5
Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1996, and 1995 .............. F-6
Notes to Consolidated Financial Statements................. F-7
</TABLE>
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
3. Exhibits:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
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.
36
<PAGE>
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 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, 1996, Part IV, Item 14(c), Exhibit 4.06.
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.
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-Trustees, George B. Hill,
37
<PAGE>
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.
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
38
<PAGE>
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 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 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 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.
10.27 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.
39
<PAGE>
10.28 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.
10.29 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.
10.30 Settlement Agreement dated August 5, 1996 by and among the Company,
Leslie Alexander, Papone's Palace Acquisition
Corporation and Papone's Palace Ltd., Liability
Co. 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, 1996, Part
IV, Item 14(c), Exhibit 10.31.
10.31 Absolute Assignment of Membership Interest dated August 20, 1996
executed by the Company in favor of Les Alexander 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, 1996, Part IV, Item 14(c),
Exhibit 10.32.
10.32 Agreement dated October 30, 1996 among Zeotech Industries, Inc., Ed
Hemsted, W.D. Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
10.33 The Company's 1997 Consultant Compensation Plan is incorporated herein
by reference from the Company's (SEC File No. 333-17373) Registration
Statement on Form S-8 filed December 6, 1996, Exhibit 4.2.
10.34 Warrant Purchase Agreement dated June 30, 1997 between Keith J.
McKenzie and the Company
10.35 Agreement dated February 28, 1997 among Tanye Capital Group, Shoshone
Mining Co., and the Company.
10.36 Services Agreement dated March 1, 1997 between Griffin Gold Group, Inc.
and Desert Minerals, Inc.
10.37 Services Agreement dated March 1, 1997 between Shoshone Mining Co.
and Desert Minerals, Inc.
10.38 Release and Partial Termination Agreement among W.D. Groves, Zeotech
Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie, Kent
E. Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
10.39 First Amendment to Agreement dated October 30, 1996 among Zeotech
Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.
McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the
Company.
10.40 Second Amendment to Agreement dated October 30, 1996 among
Zeotech Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp.,
Keith J. McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the
Company.
10.41 Letter Employment Agreement dated March 27, 1997 between Griffin Gold
Group, Inc. and Richard W. Lancaster
40
<PAGE>
10.42 Letter Agreement dated March 27, 1997 among the Company, Griffin Gold
Group, Inc., Desert Minerals, Inc., Douglas Schmitt, Zeotech Industries,
Inc. and Ed Hemsted.
10.43 Bankruptcy petition filed by Papone's Palace Ltd. Liability Company in the
United States Bankruptcy Court for the District of Colorado, No. 97-15695-
SBB.
10.44 Stipulation filed in the Supreme Court of the State of New York, County of
New York (Index No. 127087-94, by Glenville Properties Incorporated,
RMS Titanic, Inc., Arnie Geller, Allan H. Carlin, William S. Gasparrini,
the Company, Paul J. Montle, Paul V. Culotta, and Roger W. Cope.
10.45 Amendment to Stipulation filed in the Supreme Court of the State of New
York, County of New York (Index No. 127087-94, by Glenville Properties
Incorporated, RMS Titanic, Inc., Arnie Geller, Allan H. Carlin, William S.
Gasparrini, the Company, Paul J. Montle, Paul V. Culotta, and Roger W.
Cope.
10.46 Settlement Agreement dated June 30, 1997 between GFL Ultra Fund, Ltd.
and the Company.
10.47 Exploration Agreement and Option to Lease dated June 5, 1997 among
Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick
Jackson, Mara Jackson, Paul Jackson, Jared Jackson, and Griffin Gold
Group, Inc.
10.48 Exploration Agreement and Option to Lease dated June 13, 1997 among
Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick
Jackson, Mara Jackson, Paul Jackson, Jared Jackson, and Desert Minerals,
Inc.
10.49 Exploration Agreement and Option to Lease dated June 10, 1997 among
Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick
Jackson, Mara Jackson, Paul Jackson, Jared Jackson, and Shoshone Mining
Co.
10.50 The Company's 1998 Consultant Compensation Plan is incorporated herein
by reference from the Company's (SEC File No. 333-31963) Registration
Statement on Form S-8 filed July 24, 1997, Exhibit 4.2.
21.01 Subsidiaries of Registrant.
23.02 Consent of KPMG Peat Marwick, LLP
25.01 Power of Attorney (included on the signature page hereto).
27 Financial Data Schedule
99.1 Plan of Reorganization filed by Papone's Palace Ltd. Liability Company in the
in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB
99.2 Disclosure Statement filed by Papone's Palace Ltd. Liability Company in the
in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB
</TABLE>
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated April 1, 1996,
reporting on the Registrant's 1-for-25 reverse stock split and the
change in the Registrant's corporate name, the abandonment of the
Registrant's Tinian casino, the restructuring of certain of the
Registrant's debt, the bankruptcy filing of one of the Registrant's
subsidiaries, and the engagement of the Registrant's new auditors.
41
<PAGE>
The Registrant filed a report on Form 8-K dated December 17,
1996, reporting on the issuance and sales of 800,000 shares of the
Registrant's common stock pursuant to the exemption provided for by
Regulation S under the Securities Act of 1933, as amended.
The Registrant filed a report on Form 8-K dated March 27, 1997,
reporting on the issuance and sales of 150,000 shares of the
Registrant's common stock pursuant to the exemption provided for by
Regulation S under the Securities Act of 1933, as amended.
42
<PAGE>
September 8, 1997
Independent Auditors' Report
To the Board of Directors and Stockholders
LS Capital Corporation
Houston, Texas
We have audited the accompanying consolidated balance sheets of LS Capital
Corporation as of June 30, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. In connection with our audits of the financial statements, we have also
audited the financial statement schedule as listed in the Index at Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LS Capital
Corporation as of June 30, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
MALONE & BAILEY, PLLC
F-1
<PAGE>
Independents Auditors' Report
The Board of Directors and Stockholders
LS Capital Corporation and Subsidiaries
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of LS Capital Corporation and Subsidiaries
for the year ended June 30, 1995. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement
schedule for the year ended June 30, 1995 as listed in the Index at Item 14(a).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of LS
Capital Corporation and Subsidiaries for the year ended June 30, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the year ended June 30, 1995, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a working capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
October 6, 1995
F-2
<PAGE>
LS CAPITAL CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
- - As of June 30, - -
(in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash - Notes 3 and 4 $ 5 $ 139
Funds held in law firm trust accounts 73 102
Marketable equity securities 15
Receivable from affiliated parties, less allowance
for losses of $800,000 - Note 3 561 253
Receivables from unaffiliated parties - Note 4 181 289
Other 8 25
------------ -----------
Total Current Assets 843 808
Property and equipment, net of depreciation 1,877 1,929
Equity investment in gold mining ventures 371 -
Other assets 14 72
----------- -----------
TOTAL ASSETS $ 3,105 $ 2,809
======== ========
LIABILITIES
Current Liabilities
Claims subject to compromise $ 2,313 $ 2,429
Notes and advances payable to related parties - Note 9 36 397
Accounts payable and accrued expenses 754 1,806
Redemption payable - redeemable preferred stock 100 540
---------- ----------
Total Current Liabilities 3,203 5,172
--------- ---------
Series 1994-1 redeemable convertible preferred stock, par value $.01 per share;
authorized 220 shares, no shares issued and outstanding
Stockholders' Equity
12%senior cumulative convertible preferred stock, par value $.01 per share,
authorized 500,000 shares, no shares issued and outstanding
Preferred stock, par value $.01 per share, authorized
10,000,000 shares, no shares issued and outstanding
Common stock, par value $.01 per share, authorized
50,000,000 shares, issued and outstanding 12,150,000
shares (1997) and 1,721,000 shares (1996) 121 17
Additional paid-in capital 25,374
23,141
Accumulated deficit (25,593) (25,521)
-------- --------
Total Stockholders' Equity ( 98) ( 2,363)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,105 $ 2,809
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
LS CAPITAL CORPORATION
Income Statements
<TABLE>
<CAPTION>
- - - - Year Ended June 30, - - - -
(in thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Gaming $ 225 $ 1,215 $ 1,516
Hotel 891
Food and beverage 13 125 409
----------- ---------- ----------
238 1,340 2,816
---------- --------- ---------
OPERATING EXPENSES
Gaming 139 2,012 1,419
Hotel 917
Food and beverage 29 211 482
Write-down of mining venture investment 20
General and administrative 1,214 1,874 5,334
Loss on sale of casino equipment 18 320
Loss on sale of property and other
site development costs 929 4,259
Provision for loss on notes receivable 750
Adjustment to carrying value of cost
in excess of net assets acquired 349
Pre-opening expenses 599
Depreciation and amortization 71 424 463
----------- ---------- ----------
1,491 5,770 14,572
--------- --------- --------
OPERATING LOSS ( 1,253) (4,505) (11,756)
--------- -------- --------
OTHER INCOME (EXPENSE)
Gain on sale of two inactive subsidiaries 1,013
Gain on sale of card club interest 590
Minority interest in net loss of subsidiary 203
Other, net ( 68) 239 98
Interest expense ( 489) ( 664) ( 426)
---------- --------- ----------
LOSS FROM CONTINUING OPERATIONS ( 207) (4,727) (12,084)
---------- -------- --------
DISCONTINUED BUSINESS - Clutch Games, Inc.
Loss from operations ( 68)
Gain on sale 203
---------- -------- --------
NET LOSS $( 72) $( 4,727) $(12,084)
========== ======== ========
NET INCOME (LOSS) PER COMMON SHARE
Continuing operations $(0.03) $(4.00) $(17.02)
Discontinued operations 0.02
Weighted average common shares outstanding 7,177,000 1,183,000 710,000
</TABLE>
See accompanying notes.
F-4
<PAGE>
LS CAPITAL CORPORATION
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Paid in Accum.
(in thousands) Shares Amount Capital Deficit Totals
<S> <C> <C> <C> <C> <C>
Balances, July 1, 1994 564 $ 141 $15,940 $( 8,710) $ 7,371
Shares issued for cash 289 72 3,437 3,509
Shares issued for services 40 10 589 599
Shares issued in connection with
- conversion of preferred stock 67 17 1,272 1,289
- renegotiation of property lease 4 1 44 45
Dividends on preferred stock ( 88) ( 88)
Net (loss) (12,084) (12,084)
----------- ----------- ------------- --------- --------
Balances, June 30, 1995 964 241 21,194 (20,794) 641
Shares issued for cash 100 25 379 404
Shares issued for services 441 110 614 724
Shares issued in connection with
- prepaid legal expenses 159 40 274 314
- conversion of preferred stock 44 11 238 249
- sale of rights to repurchase note 13 3 6 9
Reverse split of common stock (413) 413
Dividends on preferred stock ( 32) ( 32)
Preferred dividend adjustment 55 55
Net (loss) ( 4,727) ( 4,727)
----------- ----------- ------------- ---------- ---------
Balances, June 30, 1996 1,721 17 23,141 (25,521) ( 2,363)
Shares issued for cash 543 5 122 127
Shares issued for services 735 7 571 578
Shares issued in connection with
- debt forgiveness by related parties 6,069 61 224 285
- acquisition of gold mining ventures 1,578 15 436 451
- purchase of investment in gold
mining company securities 50 1 49 50
- share subscriptions 800 8 300 308
- redeemable preferred stock payable 600 6 499 505
- lawsuit settlement 54 1 32 33
Net income ( 72) ( 72)
----------- ----------- ------------- ------------ ------------
Balances, June 30, 1997 12,150 $ 121 $25,374 $(25,593) $( 98)
====== ======= ======= ======== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
LS CAPITAL CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
- - - - Year Ended June 30, - - - -
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $( 72) $( 4,727) $(12,084)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation and amortization 71 424 463
(Gain) loss on sale of Tinian ( 732) 656
(Gain) on sale of Chaparral ( 282)
(Gain) on sale of card club interest ( 590)
(Gain) on sale of Clutch Games ( 203)
Writedown of mining venture investment 21
Loss on marketable securities 148 125
Provision for loss on note receivable 750
Loss on sale of equipment 320 129
Loss applicable to minority interest ( 203)
Preferred stock accretion 30
Net gain from reduction in dividend payable 23
Other current asset writeoffs 171
Loss on sale of property and site
development costs 4,259
Writedown of goodwill 349
Other asset writeoffs 235
Stock issued for services 479 420
Stock issued in settlement of litigation 33
Changes in
Accounts receivable 209 ( 171)
Other current assets 16 308 ( 175)
Claims subject to compromise 234 36
Payables to related parties ( 76) 137
Accounts payable and accrued expenses 267 223 1,843
----------- ----------- ----------
( 625) ( 1,799) ( 4,512)
----------- ---------- ----------
Cash Flows from Investing Activities
Proceeds from sale of Clutch Games 138
Proceeds from sale of note receivable 500
Proceeds from sale of Cotton Exchange property 906 239
(Acquisition) sale of property and equipment 15 ( 21) ( 750)
Deposits on agreements to purchase land ( 325)
Organization costs and other assets ( 1,133)
-------------- -------------- ----------
153 1,385 ( 1,969)
----------- ---------- ----------
</TABLE>
(continued)
F-6
<PAGE>
LS CAPITAL CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
- - - - Year Ended June 30, - - - -
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Financing Activities
Proceeds from issuance of notes payable $ 71 $ 1,500
Repayment of notes payable ( 452) ( 1,131)
Sales of stock $ 128 597 3,508
Repayment of notes payable to related parties 250
Reimbursements by attorneys of excess fees
paid in S-8 stock 102
Reimbursements by affiliates of their
expenses paid in parent S-8 stock 108
-----------
338 216 4,127
----------- ----------- ----------
Net increase (decrease) in cash ( 134) ( 198) ( 2,354)
Cash at beginning of year 139 337 2,691
----------- ----------- ----------
Cash at end of year $ 5 $ 139 $ 337
============ ========== ==========
Supplemental Cash Flow Information
Redeemable preferred stock
Conversion into common stock $ 440 $ 238 $ 1,299
Reclassified into current liabilities ( 440) 540
Common stock issued for
Services 479
Prepaid services 98 245
Reduction of related party payables 285
Reduction of accounts payable 189 643
Reduction of notes payable 51
Gold mining ventures 451
Purchase of investment in securities of
gold mining company 50
Stock subscriptions receivable 308
Lawsuit settlement 33
Accrued dividends on former preferred stock 65
Sale of land through retirement of debt ( 3,525)
Retirement of debt through disposition of
subsidiaries 1,013
Gain on transfer of investment securities in
exchange for debt reduction 590
Interest paid 54 251
</TABLE>
See accompanying notes.
F-7
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business. LS Capital Corporation (the "Company"), is a Delaware corporation
formed December 30, 1992 to develop and operate casinos and related resort
facilities. During the past two years, the Company began the marketing of a
sports game and casino poker chips, and began acquiring interests in gold mining
claims and exploration and development of those claims.
Basis of Presentation. The consolidated financial statements include (1) a 75.5%
interest in Papone's Palace, a 6,000 square foot casino in Central City,
Colorado, (2) unconsolidated 45 - 50% ownership interests in three gold mining
Nevada corporations, accounted for using the equity method, (3) a 100% ownership
of Clutch Games, Inc., formed to market a sports game, and (4) 100% ownership in
three other inactive subsidiaries as of June 30, 1997. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates. The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management with consideration given to
materiality. Actual results could differ from those estimates.
Cash includes demand deposit bank accounts and casino vault cash. Company policy
includes any highly liquid investments with original maturities of three months
or less.
Funds held in law firm trust accounts represents cash held by law firms from
receivables collections and from excess advance payments for legal fees, all of
which is returned to the Company subsequent to year end.
Marketable Securities are shown at market value.
Receivables are written down, where appropriate, to the estimated collectible
amount in the opinion of management.
Depreciation is calculated using the straight-line method over the useful lives
of property and equipment.
Equity Investment in Gold Mining Ventures includes the Company's approximate 50%
ownership share of the net book value of each of three different corporations
formed to exploit certain adjacent mining claims in eastern California. Costs
incurred procuring mining claims are considered exploration and development
costs and are capitalized until the claims are producing or are written off as
unproductive.
F-8
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Reverse Stock split of 25 for 1 occurred on June 30, 1996. All prior year share
and per share amounts have been restated.
Income taxes are not due since the Company has had substantial losses since
inception.
Earnings (Loss) Per Share calculations include the dilutive effect of common
stock equivalents, principally stock options, in years with net income.
Reclassifications of certain prior year amounts were made to conform with the
current year presentation.
NOTE 2 - GOING CONCERN
Since inception, the Company has incurred substantial recurring operating losses
resulting in cash flow problems. In addition, the Company's principal operating
subsidiary and sole casino operation, Papone's Casino, entered federal Chapter
11 bankruptcy proceedings in April, 1997. See Note 7.
The Company sold the sports game concept for net proceeds of $203,000. The poker
chip sales concept was shut down. Because the ultimate success of the gold
mining ventures is unknown at this time, the Company's ability to continue as a
going concern is still in doubt.
The Company plans to continue raising needed working capital through stock
sales. There can be no assurance that the proceeds from stock sales and cash
flow from the mining ventures, if any, will be sufficient to support working
capital needs in the future. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE 3 - RECEIVABLES FROM AFFILIATED PARTIES
These consist of the following:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Stock sale subscription receivable from
mining companies stockholder $ 308
Note receivable from 24.5% partner of Papone's
Casino, net of $800,000 allowance 253 $ 253
------- ------
Total $ 561 $ 253
====== ======
</TABLE>
F-9
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 3 - RECEIVABLES FROM AFFILIATED PARTIES (continued)
The stock sale subscription receivable is for 800,000 shares at $.385, or
$308,000. Collections through September 8, 1997 total $208,000, and the balance
is expected in September, 1997. See Note 7 for discussion of the note receivable
from Papone's 24.5% partner.
NOTE 4 - RECEIVABLES FROM UNAFFILIATED PARTIES
These consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Note receivable - RMS Titanic, Inc. $ 90 $ 185
Amount due from sale of sports game 65
Prepaid legal fees 104
Other 25
--------- ------
181 289
Less: current portion ( 181) ( 251)
-------- --------
Long-term portion $ 0 $ 38
========= ========
</TABLE>
Legal disputes concerning the RMS Titanic, Inc. receivable were resolved in
January, 1997. Collections on the RMS Titanic, Inc. note receivable totaled
$95,000 in fiscal 1997. Management expects to collect the remaining $90,000
during fiscal 1998.
The $65,000 receivable from the sale of the sports game was collected in July,
1997.
NOTE 5 - PROPERTY AND EQUIPMENT
Depreciation of property and equipment is calculated using the straight-line
method over their estimated useful lives as follows:
<TABLE>
<CAPTION>
Life 1997 1996
---------- ------- ------
<S> <C> <C> <C> <C>
Papone's Casino
Land $1,200 $1,200
Buildings 30 years 652 652
Gaming equipment 5 - 7 " 137 137
Furniture and equipment 5 " 223 223
Other 5 " 5 28
---------- ---------
2,217 2,240
Less: accumulated depreciation ( 340) ( 311)
-------- --------
$1,877 $1,929
====== ======
</TABLE>
F-10
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 6 - GOLD MINING VENTURES
In late 1996 and early 1997, the Company made investments in three related
corporations formed to pursue the extraction of gold and other precious metals
from ore mined in the desert in southeastern California. These three
corporations have substantially the same stockholders, including one officer of
the Company. Funds invested in one of the companies by other stockholders were
used to purchase land and equipment at a cost of $321,000. The Company used its
common stock to pay for services performed for these ventures of $451,000 during
fiscal 1997. The Company received net cash reimbursements of $109,000, leaving a
net investment from these ventures of $342,000, which has been written down by
$21,000 to the net book value of the ventures of $321,000, which equals the
gross asset value.
Components of this amount are as follows:
<TABLE>
<S> <C>
Intangible mining claims $ 59
Land and buildings 21
Equipment 241
-----
$321
</TABLE>
NOTE 7 - CLAIMS SUBJECT TO COMPROMISE - SUBSIDIARY BANKRUPTCY
Papone's Casino was closed on September 30, 1996 and has not reopened because of
a dispute between the Company and the Papone's 24.5% minority shareholder. In
August, 1997, Papone's filed a Plan of Reorganization in which it proposes that
the Company acquire 100% ownership and eventually repay all creditors, including
its largest secured creditor who would have to accept a disputed receivable due
from the 24.5% owner. This receivable is carried on the Company's books at
$253,000, but is valued at $1,753,000. The Plan proposes this receivable will be
tendered as partial or full consideration for the disputed outstanding amount
owed, currently recorded at $1,196,000. The Company, currently a 75.5% owner,
has proposed a cash contribution of $50,000 in exchange for 100% ownership of
the casino when it emerges from bankruptcy protection.
This bankruptcy followed the failed restructuring of the repayment terms of the
principal secured creditor of Papone's, who is currently owed $1,196,000. This
amount was restructured in the fall of 1996, with an ownership interest in a
California card club being transferred at an agreed-upon value of $590,000 as a
reduction in accrued interest due this creditor. Because this asset was carried
on the Company's books at no value, the Company recorded a gain of $590,000,
representing the difference between the carried
F-11
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 7 - CLAIMS SUBJECT TO COMPROMISE - SUBSIDIARY BANKRUPTCY
(continued)
amount and the fair market value on the date of transfer. Shortly after the
transfer, the card club filed for bankruptcy protection, and the Papone's
creditor has sought to reverse the transfer. Settlement of this debt and all
related matters are within the jurisdiction of the Denver federal bankruptcy
court.
Total liabilities whose payment terms are expected to be affected by the
bankruptcy action are grouped under the balance sheet caption "claims subject to
compromise" for both years presented. All such liabilities are being carried at
their face values. Related costs of the bankruptcy include legal fees of $10,300
in fiscal 1997, and are expensed as incurred.
The Company expects to resume operations of Papone's Casino in May, 1998. The
financial statements do not include any adjustments from the bankruptcy
reorganization, as none have yet occurred.
NOTE 8 - STOCK FOR DEBT SWAP WITH RELATED PARTIES
On October 1, 1996, under a plan approved by stockholders in the annual meeting
held June 17, 1996, the Company authorized the issuance of 6,069,000 shares to
the Company's three officers and directors to satisfy $289,000 in debts and
accrued salaries owed.
NOTE 9 - NOTES AND ADVANCES PAYABLE TO RELATED PARTIES
These consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Notes payable to officers and directors $ 200
Accrued officer salaries $ 36 137
Advance payable to 24.5% owner of Papone's 60
----------- ---------
$ 36 $ 397
======== =======
</TABLE>
NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
These consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Accounts payable $ 674 $1,466
Accrued expenses 57 340
--------- --------
$ 731 $1,806
======= ======
</TABLE>
F-12
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 11 - INCOME TAXES
Net operating losses of approximately $350,000 are available as of June 30, 1997
to offset future taxable income, but about $260,000 is restricted to about
$15,000 per year, due to the Internal Revenue Code Section 382 limitation, which
occurred in October, 1996 (see Note 8).
NOTE 12 - REDEEMABLE PREFERRED STOCK
In June, 1994 the Company issued 220 shares of Series 1994-1 Convertible
Preferred Stock for $1,970,000. During the 1995 and 1996 fiscal years, 140 and
26 shares, respectively, were converted into 67,000 and 18,000 common shares,
valued at $200,000 and $1,400,000. On June 30, 1997, the 54 remaining shares
were converted into 600,000 common shares valued at $504,800, plus $100,000
payable in 3 installments due on or before December 31, 1997. The $25,000
payment due by July 15, 1997 was timely made.
NOTE 13 - SALE OF TWO INACTIVE SUBSIDIARIES
In June, 1997, the Company transferred ownership of Lone Star Casino Corporation
of Nevada and Pacific American Casinos, Inc. (the Tinian casino) to two
individuals for nominal consideration. There has been no operating activity in
either entity since 1995. Lone Star Casino Corporation of Nevada had previously
filed a federal bankruptcy Chapter 7 liquidation petition in August, 1996.
Management considers the chance of eventual liability on pending litigation
related to the prior activities of these two entities as remote. Related
continuing legal costs are considered insignificant. Related debts of $1,013,000
are shown as a gain on the sale.
NOTE 14 - SALE OF ASSETS OF CLUTCH GAMES, INC.
In June, 1996, the Company entered into a license agreement to produce and
market various sports board games. In November, 1996, the Company sold their
entire interest in these games for a net gain of $203,000, after incurring
$68,000 in development and marketing expenses.
F-13
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 15 - STOCK OPTIONS AND WARRANTS
Beginning with the current year, the Company has adopted the disclosure
requirements of FASB Statement 123, Accounting for Stock Based Compensation
Plans. The Company's 1993 and 1995 Stock Option Plans provide for the grant of
incentive stock options qualifying under the Internal Revenue Code to officers
and other employees of the Company, the grant of non-qualified options to
directors, employees and consultants of the Company, and opportunities for
directors, officers, employees and consultants of the Company to make purchases
of stock in the Company. In addition, the Company issues stock warrants from
time to time to employees, consultants, stockholders and creditors as additional
financial incentives. The plans and warrants issuance are administered by a
committee of the Board of Directors of the Company, who have substantial
discretion to determine which persons, amounts, time, price, exercise terms, and
restrictions, if any. Both options and warrants carry certain anti-dilution
provisions concerning stock dividends or splits, mergers and reorganizations.
Options differ from warrants in that most of the options awards have employment
termination restrictions, vesting periods and are non-transferable. In contrast,
all warrants issued are immediately exercisable and are assignable.
The Company uses the intrinsic value method of calculating compensation expense,
as described and recommended by APB Opinion 25, and allowed by FASB Statement
123. During the years ended June 30, 1997, 1996 and 1995, no compensation
expense was recognized for the issuance of these options and warrants, because
no option prices were below market prices at the date of grant. In addition, no
options or warrants have been exercised during these periods. As of June 30,
1997, almost all outstanding warrants are payments for consulting and
professional services. Summary information on each are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
average average
Options Share Price Warrants Share Price
<S> <C> <C>
Year ended June 30, 1995:
Outstanding at June 30, 1994 52,780 $ 99.99 41,200 $ 98.07
Granted 48,160 15.63 76,800 74.50
Expired ( 21,220) 100.00 ( 12,000) 78.13
---------- ------- ---------- --------
Outstanding at June 30, 1995 79,720 58.22 106,000 83.25
Year ended June 30, 1996:
Forfeited ( 45,320) 45.44
---------- --------
Outstanding at June 30, 1996 34,400 75.06 106,000 83.25
Year ended June 30, 1997:
Granted 800,000 .63 376,000 1.73
Expired ( 9,200) 135.87
Forfeited ( 16,200) 25.00
---------- --------
Outstanding at June 30, 1997 818,200 $ 1.63 472,800 $ 16.15
========= ======== ========= =======
</TABLE>
F-14
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 15 - STOCK OPTIONS AND WARRANTS (continued)
Additional disclosures as of June 30, 1997 are:
<TABLE>
<CAPTION>
Options Options Options at
at $0.63 at $2.03 $15 - $122
<S> <C> <C> <C>
Total options
Number of shares 800,000 2,000 16,200
Weighted average exercise price $0.63 $2.03 $100.26
Weighted average remaining life 4 years 8 years 6 years
Currently exercisable options
Number of shares 160,000 600 7,360
Weighted average exercise price $0.63 $2.03 $99.69
Warrants at Warrants at Warrants at
$.40 - $.95 $2 - $5 $28 - $150
Total warrants
Number of shares 146,000 230,000 96,800
Weighted average exercise price $0.68 $2.39 $78.25
Weighted average remaining life 3 years 3 years 2 years
Currently exercisable warrants
Number of shares 146,000 230,000 96,800
Weighted average exercise price $0.68 $2.39 $78.25
</TABLE>
The above tables do not include the stock sale subscriptions described in Note
3.
Had compensation cost for the Company's two stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the Black-Scholes option-pricing model suggested by FASB
Statement 123, the Company's net losses and loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Net loss - As reported $( 72) $( 4,727)
- Pro forma ( 343) ( 5,365)
Net loss per share - As reported $(0.01) $(4.00)
- Pro forma (0.05) (4.54)
</TABLE>
Variables used in the Black-Scholes option-pricing model include (1) a 6%
risk-free interest rate, (2) expected option life is the actual remaining life
of the options as of each year end, (3) expected volatility is the actual
historical stock price fluctuation volatility and (4) zero expected dividends.
F-15
<PAGE>
LS CAPITAL CORPORATION
Notes to Financial Statements
NOTE 16 - SITE DEVELOPMENT COSTS
From inception, the Company has acquired interests in or control over a number
of opportunities in the gaming industry. Due to lack of funding, zoning, and
other problems, investments in the following properties failed, and the related
purchased properties were sold and options to acquire, if any, have expired. A
summary of related sale losses and costs written off are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- ------
<S> <C> <C>
Las Vegas sites:
Chaparral Hotel $ 519
Former Granada Inn and
Malibu restaurant 288
Mississippi sites:
Biloxi 2,618
Pine Hills and Bay St. Louis 485
Tinian casino $ 656
Other 273
----------- -------- ------
$ 0 $ 929 $4,259
========= ======= ======
</TABLE>
NOTE 17 - COMMITMENTS AND CONTINGENCIES
As a result of the casino development efforts described above, and other
business investment transactions, the Company and / or its subsidiaries have
been sued by a number of entities during the past few years. Several of the
lawsuits have been settled without significant cost to the Company in fiscal
1996 and 1997. The single lawsuit which management believes may have a possible
adverse effect on the Company and has not been settled as of September 8, 1997
is a lawsuit filed by Mississippi Ventures II pertaining to the Mississippi Pine
Hills site, and seeking the return of a $100,000 deposit. The Company has
accrued no loss on this lawsuit. Management believes the likelihood of
significant losses on any other lawsuits is remote, and that any possible future
losses in aggregate are not significant.
NOTE 18 - FOREIGN OPERATIONS
Revenue from the Company's Tinian casino located in the Marianas Islands,
totaled approximately $784,000 and $508,000 in fiscal 1996 and 1995,
respectively. Net operating losses from this operation totaled $2,098,000 and
$1,316,000 in fiscal 1996 and 1995, respectively. The casino was closed
permanently in December, 1995. The Company recognized an additional writeoff in
1996 of $656,000 and a gain on disposal in 1997 of $732,000.
F-16
<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: October 10, 1997 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 October 10, 1997
- --------------------- the Board
Paul J. Montle
/s/ Roger W. Cope Director October 10, 1997
- -------------------
Roger W. Cope
/s/ C. Thomas Cutter Director October 10, 1997
- --------------------
C. Thomas Cutter
/s/ Kent E. Lovelace, Jr. Director October 10, 1997
- -------------------------
Kent E. Lovelace, Jr.
43
<PAGE>
SCHEDULE II
LS CAPITAL CORPORATION AND SUBSIDIARIES
Years ended June 30, 1997, 1996 and 1995
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and at end of
of period expenses Deductions period
<S> <C> <C> <C> <C>
1997 Fiscal Year
Note receivable from 24.5%
minority shareholder of
Papone's $800,000 $800,000
======== ========
1996 Fiscal Year
Note receivable from 24.5%
minority shareholder of
Papone's $800,000 $800,000
Note receivable from landlord
of proposed site 750,000 $750,000 (1) 0
--------- -------- --------
$1,550,000 $750,000 $800,000
========== ======== ========
1995 Fiscal Year
Note receivable from 24.5%
minority shareholder of
Papone's $800,000 $ 800,000
Note receivable from landlord
of proposed site 0 $750,000 750,000
----------- -------- ----------
$ 800,000 $750,000 $1,550,000
=========== ======== ==========
</TABLE>
(1) Amounts were written off during year
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
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 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, 1996, Part IV, Item 14(c),
Exhibit 4.06.
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
<PAGE>
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-Trustees, 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
<PAGE>
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 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 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 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)
<PAGE>
Report on Form 10-Q for the period ended March 31,
1995, Item 6, Exhibit 10.01.
10.27 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.
10.28 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.
10.29 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.
10.30 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. 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, 1996, Part IV,
Item 14(c), Exhibit 10.31.
10.31 Absolute Assignment of Membership Interest dated
August 20, 1996 executed by the Company in favor of
Les Alexander 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, 1996, Part IV,
Item 14(c), Exhibit 10.32.
10.32 Agreement dated October 30, 1996 among Zeotech Industries, Inc., Ed
Hemsted, W.D. Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
10.33 The Company's 1997 Consultant Compensation Plan is
incorporated herein by reference from the Company's
(SEC File No. 333-17373) Registration Statement on
Form S-8 filed December 6, 1996, Exhibit 4.2.
10.34 Warrant Purchase Agreement dated June 30, 1997 between Keith J.
McKenzie and the Company
10.35 Agreement dated February 28, 1997 among Tanye Capital Group, Shoshone
Mining Co., and the Company.
10.36 Services Agreement dated March 1, 1997 between Griffin Gold Group, Inc.
and Desert Minerals, Inc.
10.37 Services Agreement dated March 1, 1997 between Shoshone Mining Co. and
Desert Minerals, Inc.
10.38 Release and Partial Termination Agreement among W.D. Groves, Zeotech
Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
10.39 First Amendment to Agreement dated October 30, 1996 among Zeotech
Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.
McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
10.40 Second Amendment to Agreement dated October 30, 1996 among Zeotech
Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.
<PAGE>
McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
10.41 Letter Employment Agreement dated March 27, 1997 between Griffin Gold
Group, Inc. and Richard W. Lancaster
10.42 Letter Agreement dated March 27, 1997 among the
Company, Griffin Gold Group, Inc., Desert Minerals,
Inc., Douglas Schmitt, Zeotech Industries, Inc.
and Ed Hemsted.
10.43 Bankruptcy petition filed by Papone's Palace Ltd. Liability Company in the
United States Bankruptcy Court for the District of Colorado, No. 97-15695-
SBB.
10.44 Stipulation filed in the Supreme Court of the State of New York, County of
New York (Index No. 127087-94, by Glenville Properties Incorporated, RMS
Titanic, Inc., Arnie Geller, Allan H. Carlin, William S. Gasparrini, the
Company, Paul J. Montle, Paul V. Culotta, and Roger W. Cope.
10.45 Amendment to Stipulation filed in the Supreme Court of the State of New
York, County of New York (Index No. 127087-94, by Glenville Properties
Incorporated, RMS Titanic, Inc., Arnie Geller, Allan H. Carlin, William S.
Gasparrini, the Company, Paul J. Montle, Paul V. Culotta, and Roger W.
Cope.
10.46 Settlement Agreement dated June 30, 1997 between GFL Ultra Fund, Ltd. and
the Company.
10.47 Exploration Agreement and Option to Lease dated June
5, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Griffin Gold
Group, Inc.
10.48 Exploration Agreement and Option to Lease dated June
13, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Desert
Minerals, Inc.
10.49 Exploration Agreement and Option to Lease dated June
10, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Shoshone
Mining Co.
10.50 The Company's 1998 Consultant Compensation Plan is
incorporated herein by reference from the Company's
(SEC File No. 333-31963) Registration Statement on
Form S-8 filed July 24, 1997, Exhibit 4.2.
21.01 Subsidiaries of Registrant.
23.02 Consent of KPMG Peat Marwick, LLP
25.01 Power of Attorney (included on the signature page hereto).
27 Financial Data Schedule
99.1 Plan of Reorganization filed by Papone's Palace Ltd. Liability Company in the
in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB
99.2 Disclosure Statement filed by Papone's Palace Ltd. Liability Company in the
in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB
</TABLE>
EXHIBIT 10.32
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this the
30th day of October, 1996 by and among (a) Zeotech Industries, Inc. ("Zeotech"),
Ed Hemsted ("Hemsted"), W.D. Groves ("Groves"), KJM Capital Corp. ("KJM"),
Keith J. McKenzie ("McKenzie"), and Kent E. Lovelace, Jr. ("Lovelace"), (b) LS
Capital Corporation, a Delaware corporation ("LS Capital"), and (c) Griffin Gold
Group, Inc., a Delaware corporation and a wholly-owned subsidiary of LS Capital
prior to the consummation of the transactions provided for by this Agreement
("Griffin"). For purposes of this Agreement, in certain cases, Zeotech and
Hemsted (acting separately or collectively) are referred to collectively as
"Zeotech/Hemsted", and KJM and McKenzie (acting separately or collectively)
are referred to collectively as "KJM/McKenzie."
Recitals
WHEREAS, Zeotech/Hemsted, Groves, KJM/McKenzie and Lovelace (such persons
are referred to separately as a "Contributor" and collectively as the
"Contributors") separately own certain mining claims, namely the Amanda Claims
and that portion of the Barstow claims that are not committed, such claims being
more fully described on Exhibit A hereto applicable to the Amanda Claims and
Exhibit B hereto applicable to the Barstow Claim (such claims are referred to
separately as a "Claim" and collectively as the "Claims");
WHEREAS, the Contributors are willing to contribute the Claims to Griffin
in exchange for shares of common stock in Griffin (the "Griffin Shares") and
shares of common stock in LS Capital (the "LS Capital Shares"), all upon the
terms, provisions and conditions set forth hereinafter; and
WHEREAS, Griffin is willing to receive a contribution of the Claims in
exchange for the issuance of Griffin Shares, all upon the terms, provisions and
conditions set forth hereinafter, and LS Capital is willing for Griffin to
receive a contribution of the Claims in exchange for the issuance of LS Capital
Shares, all upon the terms, provisions and conditions set forth hereinafter;
Agreement
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, $10.00 and other good and valuable consideration (the receipt, adequacy
and sufficiency of which are hereby acknowledged by each of the parties hereto),
each of the parties mentioned above hereby agrees as follows:
1. General Representations and Warranties.
(a) Each of Zeotech, Hemsted, Groves, KJM, McKenzie, and Lovelace
(referred to hereinafter separately as a "Representor" and collectively as the
"Representors"), severally but
<PAGE>
not jointly, hereby represents and warrants to LS Capital and Griffin that such
Representor has full right, power and authority to execute and deliver this
Agreement and all other agreements, documents and instruments to be executed in
connection herewith and perform such Representor's obligation hereunder and
thereunder; each corporate Representor has been duly organized, is validly
existing and is in good standing in the jurisdiction in which it was
incorporated; the execution and delivery by a corporate Representor of this
Agreement and all other agreements, documents and instruments to be executed by
such Representor in connection herewith have been authorized by all necessary
corporate action by such Representor; when this Agreement and all other
agreements, documents and instruments to be executed by such Representor in
connection herewith are executed by such Representor and delivered to LS Capital
and Griffin, this Agreement and such other agreements, documents and instruments
will constitute the valid and binding agreements of such Representor enforceable
against such Representor in accordance with their respective terms; neither the
execution and delivery of this Agreement or any other agreements, documents and
instruments to be executed in connection herewith nor the consummation of the
transactions contemplated hereby or thereby will (i) violate, conflict with or
result in the breach or termination of, or otherwise give any other contracting
party the right to terminate, or constitute a default (by way of substitution,
novation or otherwise) under the terms of, any contract to which such
Representor is a party or by which such Representor is bound or by which any of
the assets of such Representor is bound or affected, (ii) violate any judgment
against, or binding upon, such Representor or upon the assets of such
Representor, (iii) result in the creation of any lien, charge or encumbrance
upon any assets of such Representor pursuant to the terms of any such contract,
or (iv) violate any provision in the charter documents, bylaws or any other
agreement affecting the governance and control of any corporate Representor;
there are no actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or threatened against, involving or
affecting any of the assets of such Representor, this Agreement, or the
transactions contemplated hereby, and there are no outstanding orders, writs,
injunctions or decrees of any court, governmental agency or arbitration tribunal
against, involving or affecting any assets of such Representor, this Agreement,
or the transactions contemplated hereby; no consent or approval from any person
is required in connection with the execution and delivery of this Agreement
other than board of director approval of each corporate Representor, which has
already been obtained; and the representations and warranties made immediately
above and elsewhere herein are material to LS Capital and Griffin and are being
relied upon by LS Capital and Griffin in connection with their decisions to
enter into the transactions provided for by this Agreement.
(b) Each of LS Capital and Griffin, severally but not jointly, hereby
represents and warrants to each Representor that it has full right, power and
authority to execute and deliver this Agreement and all other agreements,
documents and instruments to be executed by it in connection herewith and
perform its obligation hereunder and thereunder; it has been duly organized, is
validly existing and is in good standing in the jurisdiction in which it was
incorporated; the execution and delivery by it of this Agreement and all other
agreements, documents and instruments to be executed by it in connection
herewith have been authorized by all necessary corporate action; when this
Agreement and all other agreements, documents and instruments to be executed by
it in connection herewith are executed by it and delivered to
<PAGE>
the Representors, this Agreement and such other agreements, documents and
instruments will constitute the valid and binding agreements of it enforceable
against it in accordance with their respective terms; neither the execution and
delivery of this Agreement or any other agreements, documents and instruments to
be executed in connection herewith nor the consummation of the transactions
contemplated hereby or thereby will (i) violate, conflict with or result in the
breach or termination of, or otherwise give any other contracting party the
right to terminate, or constitute a default (by way of substitution, novation or
otherwise) under the terms of, any contract to which it is a party or by which
it is bound or by which any of the assets of it is bound or affected, (ii)
violate any judgment against, or binding upon, it or upon its assets, (iii)
result in the creation of any lien, charge or encumbrance upon any of its assets
pursuant to the terms of any such contract, or (iv) violate any provision in the
charter documents, bylaws or any other agreement affecting the governance and
control of it; there are no actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending or threatened against,
involving or affecting any of its assets, this Agreement, or the transactions
contemplated hereby, and there are no outstanding orders, writs, injunctions or
decrees of any court, governmental agency or arbitration tribunal against,
involving or affecting any of its assets, this Agreement, or the transactions
contemplated hereby; no consent or approval from any person is required in
connection with the execution and delivery of this Agreement; the outstanding
capital stock of Griffin consists of 5,000,000 Griffin Shares, all of which are
owned by LS Capital; the Griffin Shares and the LS Capital Shares to be issued
to the Contributors pursuant to this Agreement shall be duly authorized, validly
issued, fully paid and non-assessable at the time that they are issued; and the
representations and warranties made immediately above and elsewhere herein are
material to each Representor and are being relied upon by each Representor in
connection with such Representor's decision to enter into the transactions
provided for by this Agreement.
2. Contribution of Claims and Issuance of Griffin Shares.
(a) Each Contributor agrees to contribute as soon as possible after the
date of this Agreement, by means of customary assignment documents reasonably
selected by LS Capital and Griffin and reasonably approved by the Contributors
(the "Assignments"), full right, title and interest in and to each Claim held by
such Contributor, free and clear of all liens, mortgages, security interests,
encumbrances, claims and restrictions on the transfer thereof. Each Contributor
hereby agrees that he will execute and deliver, or cause to be executed and
delivered, from time to time after the date hereof, upon the request of LS
Capital or Griffin, such other instruments of assignment, transfer and
conveyance and will take such other action as LS Capital or Griffin may
reasonably require to effectuate and/or evidence the contribution provided for
herein. Each Contributor hereby represents and warrants to LS Capital and
Griffin that the execution by such Contributor and delivery to Griffin of the
Assignment respecting the Claims to be contributed to Griffin by such
Contributor will vest in Griffin full right, title and interest in and to such
Claims, free and clear of any and all encumbrances, security interests, liens,
charges, claims, restrictions or limitations, whatsoever, by any person of any
kind, including those on the transfer thereof, whether known or unknown.
(b) In consideration of the contribution by the Contributors of the Claims
to Griffin, each
<PAGE>
Contributor shall be issued Griffin Shares; provided, however, pending Griffin's
receipt of the full amount of the Additional Capital Contribution (as defined
herein) the stock certificates representing the Griffin Shares issued to the
Contributors shall be held by Griffin and released to the Contributors only upon
Griffin's receipt of the full amount of the Additional Capital Contribution. The
number of Griffin Shares to issued to each Contributor is indicated in the table
below.
<TABLE>
<CAPTION>
Number of Griffin Shares
<S> <C> <C>
Zeotech/Hemsted 1,250,000
Groves 1,250,000
KJM/McKenzie 1,375,000
Lovelace 1,125,000
</TABLE>
(c) (i) If any Contributor or LS Capital (referred to in this Section 2(c)
as the "Transferring Stockholder") desires to dispose of its Griffin Shares now
owned or hereafter acquired, the Transferring Stockholder shall first offer, in
writing in the manner provided for in Section 10(g) hereof, to sell its Griffin
Shares to Griffin, at a purchase price and on such terms as the Transferring
Stockholder intends in good faith to sell to a bona fide third party. The
written offer shall contain the identity of the proposed transferee and the
purchase price and terms upon which the transfer is proposed to occur. Following
the receipt of the written offer provided for hereinabove, Griffin shall have an
option, exercisable for thirty (30) days, to purchase all or any portion of the
Griffin Shares proposed to be sold at the price and on the terms set forth in
the notice. If Griffin fails to exercise its option with respect to all of the
Griffin Shares proposed to be transferred, then Griffin shall notify immediately
each of its stockholders of its failure to fully exercise its option. The
Griffin stockholders shall then have concurrent options, exercisable for fifteen
(15) days commencing on the date of Griffin's notice, to purchase all or any
portion of the Griffin Shares not purchased by Griffin, on a basis proportionate
to their respective stock ownership. If one or more of the Griffin stockholders
elects to purchase such stockholders' full proportionate shares and one or more
others do not, the Griffin stockholders who exercised their options to purchase
their full proportionate shares shall have concurrent options to purchase all of
the remaining Griffin Shares subject to the options, on a basis proportionate to
their respective stock ownership, exercisable for a period of five (5) days from
the expiration of the Griffin stockholders' initial concurrent options. The
foregoing procedure shall be repeated until each Griffin stockholder has had an
opportunity to purchase as many of the Griffin Shares subject to the options as
such stockholder desires, subject to the right of the other Griffin stockholders
to purchase their full proportionate shares. Notwithstanding anything else
contained in this Section 2(c), neither Griffin nor the Griffin stockholders
shall have any rights to purchase any Griffin Shares proposed to be transferred
by the Transferring Stockholder unless Griffin and/or the Griffin stockholders,
separately or
<PAGE>
collectively, exercise the options provided for in this Section 2(c) with
respect to all, and not less than all, of the Griffin Shares proposed to be
transferred.
(ii) In the event that all of the Griffin Shares proposed to be sold
by the Transferring Stockholder are not purchased in accordance with this
Section 2(c) before the expiration of the time periods established in this
Section 2(c) therefor, all of the Griffin Shares may be sold to the transferee
identified in the written notice to Griffin at a price no lower and upon terms
no more favorable than the price and terms that the Griffin Shares could have
been purchased pursuant to the options to which it was subject. Such sale shall
be free and clear of the terms of this Section 2(c) during the three-month
period beginning on the date that the last option period in this Section 2(c)
terminates, but thereafter any Griffin Shares not so sold shall again be subject
to the terms and conditions of this Section 2(c). Any attempted disposition in
contravention of the provisions of this Section 2(c) shall be null and void and
of no force and effect and, therefore, shall not preclude the exercise of the
options provided for in this Section 2(c).
(iii) The closing of the sale and purchase of any Griffin Shares
pursuant to this Section 2(c) shall occur within fifteen (15) days after the
last option exercised is exercised in accordance with this Section 2(c). At the
closing, (a) the Transferring Stockholder shall deliver the appropriate stock
certificates, properly endorsed or accom- panied by a properly prepared and
executed stock power, and (b) the purchasers shall deliver the consideration
required by this Section 2(c). Each of the parties hereby grants to the other
the right of specific performance with respect to this Section 2(c) in
recognition of the uniqueness of the subject matter hereof.
(iv) All certificates representing Griffin Shares now owned or that
may hereafter be acquired by a Contributor or LS Capital shall have a legend on
the back thereof substantially as follows:
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL AGREEMENT WHICH PROVIDES SIGNIFICANT RESTRICTIONS ON THE
TRANSFERABILITY OF THE SHARES REPRESENTED HEREBY.
Such certificates shall state on the front thereof substantially as
follows:
SEE RESTRICTIONS ON TRANSFER HEREOF ON REVERSE SIDE.
(v) The agreements contained in this Section 2(c) may be terminated
by an instrument in writing signed by all Contributors and LS Capital. The
agreements contained in this Section 2(c) shall automatically terminate whenever
the Griffin Shares or any securities received with respect to the Griffin Shares
becomes registered under the Act.
3. Issuance of LS Capital Shares. In further consideration of the
contribution by Zeotech/Hemsted, Groves and KJM/McKenzie of their respective
Claims to Griffin,
<PAGE>
Zeotech/Hemsted, Groves and KJM/McKenzie shall be issued LS Capital Shares. The
number of LS Capital Shares to issued to Zeotech/Hemsted, Groves and
KJM/McKenzie is indicated in the table below.
<TABLE>
<CAPTION>
Number of LS Capital Shares
<S> <C> <C>
Zeotech/Hemsted 166,666
Groves 166,666
KJM/McKenzie 166,667
</TABLE>
4. Additional Capital Contribution. From time to time but on or before
April 30, 1997, Zeotech/Hemsted, Groves and KJM/McKenzie shall make an
additional capital contribution (the "Additional Capital Contribution") to
Griffin in the aggregate amount of $500,000 for which Zeotech/Hemsted, Groves
and KJM/McKenzie shall receive no additional Griffin Shares, LS Capital Shares
or any other item. Each of Zeotech/Hemsted, Groves and KJM/McKenzie grants to LS
Capital a pledge of and security interest in and agrees and acknowledges that LS
Capital has and shall continue to have a pledge of and security interest each
and every one of the Griffin Shares issued to them separately pursuant to
Section 2 above, to secure their obligations to make the Additional Capital
Contribution on or before April 30, 1997; and if they fail to fulfill such
obligations timely LS Capital shall have all rights and remedies of a secured
party with respect to such Griffin Shares.
5. Securities Representations and Warranties.
(a) Each Contributor (other than Lovelace), severally but not jointly,
hereby represents and warrants to LS Capital and Griffin that such Contributor
is not a "U.S. Person" as that term in defined in Regulation S under Securities
Act of 1933 (the "Act"); at the time the buy order originated for any Griffin
Shares or LS Capital Shares and the date of this Agreement, such Contributor was
and will be outside of the United States of America (the "U.S."); such
Contributor is acquiring the Griffin Shares and the LS Capital Shares for its
own account and not on behalf of any U.S. Person, and a sale has not been
prearranged with a U.S. Person or a purchaser in the U.S.; such Contributor
agrees that all offers and sales of the Griffin Shares and the LS Capital Shares
prior to the expiration of a period commencing on the date of the issuance
thereof and ending 40 days thereafter shall only be made in compliance with the
safe harbor contained in Regulation S, or pursuant to the registration thereof
or an exemption from registration (and in all cases in accordance with Section
2(c) hereof), and that all offers and sales in the U.S. after expiration of the
40- day period shall be made only pursuant to the registration thereof or an
exemption from registration (and in all cases in accordance with Section 2(c)
hereof); all offering documents received by such Contributor have included
statements, and all stock certificates that such Contributor shall receive
representing Griffin Shares or LS Capital Shares shall feature legends, to the
effect that the Griffin Shares and the LS Capital Shares have not been
registered under the Act and may not be offered or sold in the U.S. or to U.S.
Persons prior to the expiration of a period commencing on the date of the
<PAGE>
issuance thereof and ending 40 days thereafter and all offers and sales shall
only be made in compliance with the safe harbor contained in Regulation S, or
pursuant to the registration thereof or an exemption from registration; such
Contributor has been furnished with LS Capital's most recent Annual Report on
Form 10-K and any subsequent Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K; such Contributor is familiar with the business and financial
condition, properties, operations and prospects of LS Capital and Griffin, and
has been given full access to all material information concerning the condition,
properties, operations and prospects of LS Capital and Griffin; such Contributor
has had an opportunity to ask such questions of, and to receive such information
from, LS Capital and Griffin as such Contributor has desired and to obtain any
additional information necessary to verify the accuracy of the information and
data received; and such Contributor is satisfied that there is no material
information concerning the condition, properties, operations and prospects of LS
Capital and Griffin, of which such Contributor is unaware.
(b) Lovelace hereby represents and warrants to LS Capital and Griffin that
he is a director of LS Capital and that as such he is familiar with the business
and financial condition, properties, operations and prospects of LS Capital and
Griffin, he has been given full access to all material information concerning
the condition, properties, operations and prospects of LS Capital and Griffin,
he has had an opportunity to ask such questions of, and to receive such
information from, LS Capital and Griffin as he has desired and to obtain any
additional information necessary to verify the accuracy of the information and
data received, and he is satisfied that there is no material information
concerning the condition, properties, operations and prospects of LS Capital and
Griffin, of which he is unaware; he has such knowledge, skill and experience in
business, financial and investment matters so that he is capable of evaluating
the merits and risks of an acquisition of the Griffin Shares; he has reviewed
its or his financial condition and commitments and that, based on such review,
he is satisfied that he (a) has adequate means of providing for contingencies,
(b) has no present or contemplated future need to dispose of all or any of the
Griffin Shares to satisfy existing or contemplated undertakings, needs or
indebtedness, (c) is capable of bearing the economic risk of the ownership of
the Griffin Shares for the indefinite future, and (d) has assets or sources of
income which, taken together, are more than sufficient so that he could bear the
loss of the entire value of the Griffin Shares; he is acquiring the Griffin
Shares solely for his own beneficial account, for investment purposes, and not
with a view to, or for resale in connection with, any distribution of the
Griffin Shares; he understands that the Griffin Shares have not been registered
under the Act or any state securities laws and therefore the Griffin Shares are
"restricted" under such laws; and he has not offered or sold any portion of the
Griffin Shares and has no present intention of reselling or otherwise disposing
of any portion of the Griffin Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance.
6. Securities Registration. Griffin may at the option of its Board of
Directors register with the United States Securities and Exchange Commission
(the "Commission") an in-kind dividend to the stockholders of LS Capital
consisting of 1,000,000 Griffin Shares owned by LS Capital, which shares equal
10% of the total number of outstanding Griffin Shares. In the event of such
registration, Griffin shall use its best efforts to qualify such Griffin Shares
under
<PAGE>
the securities laws for each state for which an exemption is not available and
qualification is required, unless the cost and expense of such qualification
outweighs the benefit of qualification. In connection with any registration
undertaken pursuant to this Section 6, each Contributor shall use reasonable
efforts to cooperate with Griffin and LS Capital and will furnish to Griffin and
LS Capital in writing such information, as shall be reasonably necessary in
order to assure compliance with federal and applicable state securities laws
pertaining to disclosure and otherwise, with respect to the Claims, the gold
mining industry and the micro-fine leach recovery technology, know-how, trade
secrets and inventions developed by Groves (as described in United States Patent
No. 5,405,430 or any substitutes, revisions, continuations,
continuations-in-part, renewals, reissues, re-examinations, extensions, and
divisions thereof, or any other Letters Patent therefore in the United States or
any countries foreign to the United States), as well as any subsequent
improvements, modifications, variations, additions, substitutions, or
enhancements of such technology, know-how, trade secrets and inventions.
Moreover, each Contributor shall, upon the request of Griffin, review drafts of
the registration statement to be filed the Commission and any and all amendments
thereto and furnish Griffin with such Contributor's comments upon and approval
of or reasons for declining to approve such portions of the drafts for which
Griffin has requested comments and approval. Any such portions with respect to
which a Contributor has not expressly disapproved in writing shall be deemed
approved by such Contributor. Griffin shall pay all registration expenses in
connection with any registration undertaken pursuant to this Section 6.
7. Spin-Off. As soon as possible after the registration statement filed in
connection with any registration undertaken pursuant to Section 6 above is
declared effective, LS Capital shall declare and effect to its stockholders a
pro-rata, in-kind dividend of the Griffin Shares registered. In this connection,
LS Capital shall deliver to each of its stockholders receiving the registered
Griffin Shares an unlegended stock certificate representing the Griffin Shares
that such stockholder is to receive as well as a copy of the prospectus
comprising part of the registration statement declared effective during the
course of any registration undertaken pursuant to Section 6.
8. Termination. If Zeotech/Hemsted, Groves and KJM/McKenzie fails to make
the full $500,000 Additional Capital Contribution on or before April 30, 1997,
this Agreement shall, except as hereafter provided, become null and void, the
parties hereto shall be relieved of any further duties, obligations and
responsibilities with respect to this Agreement, and the parties shall cooperate
in good faith in unwinding all actions taken in reliance on this Agreement.
Notwithstanding the preceding, the following actions shall occur upon the
termination of this Agreement pursuant to the preceding:
(a) Each Contributor shall deliver to LS Capital and Griffin (as the case
may be) all stock certificates representing Griffin Shares and LS Capital Shares
not theretofore sold, and such stock certificates shall be cancelled;
(b) LS Capital may exercise the rights of a secured creditor to realize
the portion of the Additional Capital Contribution not made in accordance with
Section 4 above;
<PAGE>
(c) Griffin shall reconvey to each Contributor each Claim contributed by
such Contributor to Griffin, such reconveyance being by means of a document in
substantially the form of the Assignment contributing such Claim to Griffin; and
(d) The indemnification provisions of Section 9 shall remain in full force
and effect for two years after the date of termination.
9. General Indemnification.
(a) All representations and warranties made herein by a party hereto shall
survive all transactions provided for or contemplated herein, including, without
limitation, the contribution of the Claims to Griffin, the issuance and sale of
the Griffin Shares and the LS Capital Shares, the Additional Capital
Contribution, any registration of the Griffin Shares permitted in Section 6
hereof, any spin-off of the Griffin Shares provided for in Section 7 hereof, or
the termination of this Agreement.
(b) Each of Zeotech, Hemsted, Groves, KJM, McKenzie, and Lovelace,
severally but not jointly, shall protect, indemnify and hold LS Capital and
Griffin harmless from any and all demands, claims, actions, causes of actions,
lawsuits, proceedings, judgments, losses, damages, injuries, liabilities,
obligations, expenses and costs (including costs of litigation and attorneys'
fees), arising from any breach of any agreement, representation or warranty made
by such indemnifying party in this Agreement.
(c) Each of LS Capital and Griffin, severally but not jointly, shall
protect, indemnify and hold each of Zeotech, Hemsted, Groves, KJM, McKenzie, and
Lovelace harmless from any and all demands, claims, actions, causes of actions,
lawsuits, proceedings, judgments, losses, damages, injuries, liabilities,
obligations, expenses and costs (including costs of litigation and attorneys'
fees), arising from any breach of any agreement, representation or warranty made
by it in this Agreement.
10. Securities Indemnification.
(a) Each of Zeotech, Hemsted, Groves, KJM, McKenzie, and Lovelace,
severally but not jointly, shall protect, indemnify and hold LS Capital and
Griffin harmless from any and all demands, claims, actions, causes of actions,
lawsuits, proceedings, investigations, judgments, losses, damages, injuries,
liabilities, obligations, expenses and costs (including costs of litigation and
attorneys' fees), arising out of or based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in or incorporated by
reference into the registration statement under which the Griffin Shares are
registered pursuant to Section 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, (b) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (c) any material
violation by the indemnifying party of any rule or regulation promulgated under
the Act applicable to the indemnifying party and relating to action or inaction
by the indemnifying party in connection with any such registration; provided,
however, that the indemnifying party
<PAGE>
shall be liable in the case of (a) and (b) above only if and to the extent that
the event giving rise to indemnification arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in conformity with information furnished by the indemnifying party in
writing specifically for use in the registration statement or prospectus or
information contained in a writing that has been expressly approved or deemed
approved by the indemnifying party.
(b) Each of LS Capital and Griffin, severally but not jointly, shall
protect, indemnify and hold each of Zeotech, Hemsted, Groves, KJM, McKenzie, and
Lovelace harmless from any and all demands, claims, actions, causes of actions,
lawsuits, proceedings, investigations, judgments, losses, damages, injuries,
liabilities, obligations, expenses and costs (including costs of litigation and
attorneys' fees), arising out of or based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in or incorporated by
reference into the registration statement under which the Griffin Shares are
registered pursuant to Section 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, (b) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (c) any material
violation by Griffin or LS Capital of any rule or regulation promulgated under
Act applicable to Griffin or LS Capital and relating to action or inaction by
Griffin in connection with any such registration; provided, however, that
Griffin and LS Capital will not be liable in the case of (a) and (b) above if
and to the extent that the event otherwise giving rise to indemnification arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in conformity with information furnished by a
person otherwise indemnified hereby in writing specifically for use in the
registration statement or prospectus or information contained in a writing that
has been expressly approved or deemed approved by the otherwise indemnified
party.
(c) Promptly after receipt by an indemnified party under this Section 10
of notice of the threat or commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
hereunder, notify each such indemnifying party in writing thereof, but the
omission so to notify an indemnifying party shall not relieve it from any
liability which it may have to any indemnified party to the extent that the
indemnifying party is not prejudice as a result thereof. In case any such action
shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 10 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so elected; provided,
however, that, if the defendants in any such action include both an indemnified
party and an indemnifying party and the related indemnified party shall have
reasonably concluded that there may be reasonable defenses available to it which
are different from or additional to those available to the indemnifying party or
if the interests of the indemnified party reasonably
<PAGE>
may be believed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred. No
indemnifying party will be subject to any liability for any settlement made
without consent which shall not be unreasonably withheld. No indemnifying party
will consent to the entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability with respect
to such claim or litigation.
11. General.
(a) THIS AGREEMENT AND ALL QUESTIONS RELATING TO ITS VALIDITY,
INTERPRETATION, PERFORMANCE, AND ENFORCEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Mandatory venue for any controversy arising out of or relating to this
Agreement or any modification or extension thereof, including any claims for
breach, for damages, and/or for recision or reformation, shall be in a court of
competent jurisdiction located in Harris County, Texas.
(c) This Agreement contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, inducements, or conditions,
express or implied, oral or written, except as herein contained. This Agreement
may not be modified or amended other than by an agreement in writing signed by
all parties affected.
(d) The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
The section headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together constitute one and
the same instrument.
(f) The parties hereto hereby agree that time is of the essence for all
purposes of this Agreement.
(g) Any notices to be given hereunder by any party to the other parties
may be effected either by personal delivery in writing, or by mail, registered
or certified, postage prepaid with return receipt requested, addressed to the
one or more parties to be notified at the addresses set forth beneath such
parties' respective signatures below.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed their names hereto as
of the first date written above.
ZEOTECH INDUSTRIES, INC.
By: /S/ Ed Hemsted /S/ Ed Hemsted
Ed Hemsted
Name Printed: Ed Hemsted
Title: President
Address: 155 Harwood St #1003 Address: 155 Harwood St #1003
--------------------------------- ---------------------
Vancouver B.C V6E 1S1 Vancouver B.C V6E 1S1
KJM CAPITAL CORP.
By:/S/ K.J. McKenzie /S/ K.J. McKenzie
Keith J. McKenzie
Name Printed: Keith J. McKenzie
Title: President
Address: 1400 355 Burrand St. Address: 1400 355 Burrand St.
--------------------------------- ---------------------
Vancouver, British Columbia Vancouver, British Columbia
CANADA V6C 2G8 CANADA V6C 2G8
/S/Kent E. Lovelace, Jr. /S/W.D. Groves, PhD., P.Eng.
Kent E. Lovelace, Jr. W.D. Groves, PhD., P.Eng.
Address: 3300 West Beach Blvd., Suite 202 Address: 901 Jervis St. #501
--------------------------------- --------------------
Gulfport, Mississippi 39502 Vancouver, British Columbia
CANADA V6E 1S1
LS CAPITAL CORPORATION GRIFFIN GOLD GROUP, INC.
By: /S/ Paul J. Montle By: /S/Randall W. Heinrich
Name Printed: Paul J Montle Name Printed:Randall W. Heinrich
Title: President Title: Secretary
Address: 15915 Katy Freeway, Suite 250 Address: 3300 West Beach Blvd.,
Suite 202
Houston, Texas 77094 Gulfport, Mississippi 39502
<PAGE>
CERTIFICATE
Each of the undersigned hereby certifies and acknowledges that the
undersigned has signed and executed the foregoing agreement with multiple
original signature pages at separate locations to be effective immediately upon
signing and that the transmission of a telecopier facsimile of their respective
signatures, each to the other, shall be sufficient to cause the mutual delivery
of this executed agreement in order to bind the parties and make the agreement
effective upon the date of signing. It is further certified, acknowledged and
agreed that the original signature pages are to be circulated hereafter but that
the failure of any party to obtain the original signature pages hereafter shall
not affect the validity and effectiveness of this agreement which is effective
from and after the execution by all parties and the transmission by telecopier
facsimile of the signature of all parties, each to the other.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto as
of the first date written above.
ZEOTECH INDUSTRIES, INC.
By: /S/ Ed Hemsted /S/ Ed Hemsted
Ed Hemsted
Name Printed: Ed Hemsted
Title: President
KJM CAPITAL CORP.
By:/S/ K.J. McKenzie /S/ K.J. McKenzie
Keith J. McKenzie
Name Printed: Keith J. McKenzie
Title: President
/S/Kent E. Lovelace, Jr. /S/W.D. Groves, PhD., P.Eng.
Kent E.Lovelace, Jr. W.D. Groves, PhD., P.Eng.
LS CAPITAL CORPORATION GRIFFIN GOLD GROUP, INC.
By: /S/ Paul J. Montle By: /S/Randall W. Heinrich
Name Printed: Paul J Montle Name Printed:Randall W. Heinrich
Title: Secretary
EXHIBIT 10.34
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT ("Agreement") is made and entered into
this 30th day of June, 1997 by and between Keith J. McKenzie ("Purchaser") and
LS Capital Corporation, a Delaware corporation (the "Company").
RECITALS:
WHEREAS, the Company desires to sell to Purchaser from time to time, and
Purchaser is willing to purchase from the Company from time to time, warrants
("Warrants") to acquire shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), in each case upon the terms, provisions and
conditions hereof; and
WHEREAS, each of the Company and Purchaser desires to memorialize in
writing the terms, provisions and conditions of the Company's sale and
Purchaser's purchase of the Warrants and certain other matters relating thereto;
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises, covenants,
agreements, representations and warranties set forth hereinafter, $10.00 and
other good and valuable consideration (the receipt, adequacy and sufficiency of
which each of the Company and Purchaser hereby acknowledges) and subject to the
terms, provisions and conditions hereof, each of the Company and Purchaser
hereby agrees as follows:
1. Term. The term of this Agreement (the "Term") shall commence
on the date hereof and shall continue for two years thereafter.
2. General Representations and Warranties.
(a) Purchaser hereby represents and warrants to the Company that
Purchaser has full right, power and authority to execute and deliver this
Agreement and all other agreements, documents and instruments to be executed in
connection herewith and perform Purchaser's obligation hereunder and thereunder;
when this Agreement and all other agreements, documents and instruments to be
executed by Purchaser in connection herewith are executed by Purchaser and
delivered to the Company, this Agreement and such other agreements, documents
and instruments will constitute the valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their respective terms; neither
the execution and delivery of this Agreement or any other agreements, documents
and instruments to be executed in connection herewith nor the consummation of
the transactions contemplated hereby or thereby will (i) violate, conflict with
or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a default (by way of
substitution, novation or otherwise) under the terms of, any contract to which
Purchaser is a party or by which Purchaser is bound or by which any of the
assets of Purchaser is bound or affected, (ii) violate any judgment against, or
binding upon, Purchaser or the assets of Purchaser, or (iii) result in the
creation of any lien, charge or encumbrance upon any assets of Purchaser
pursuant to the terms of any contract referred to in (i) of this Section 2(a);
there are no actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or threatened against, involving or
affecting any of the assets of Purchaser, this
<PAGE>
Agreement, or the transactions contemplated hereby, and there are no outstanding
orders, writs, injunctions or decrees of any court, governmental agency or
arbitration tribunal against, involving or affecting any assets of Purchaser,
this Agreement, or the transactions contemplated hereby; no consent or approval
from any person is required in connection with the execution and delivery of
this Agreement or any of the other agreements, documents and instruments to be
executed by Purchaser in connection herewith; and the representations and
warranties made immediately above and elsewhere herein are material to the
Company and are being relied upon by the Company in connection with its decision
to enter into the transactions provided for by this Agreement.
(b) The Company hereby represents and warrants to Purchaser that it has
full right, power and authority to execute and deliver this Agreement and all
other agreements, documents and instruments to be executed by it in connection
herewith and perform its obligation hereunder and thereunder; it has been duly
organized, is validly existing and is in good standing in the jurisdiction in
which it was incorporated; the execution and delivery by it of this Agreement
and all other agreements, documents and instruments to be executed by it in
connection herewith have been authorized by all necessary corporate action; when
this Agreement and all other agreements, documents and instruments to be
executed by it in connection herewith are executed by it and delivered to the
Purchaser, this Agreement and such other agreements, documents and instruments
will constitute the valid and binding agreements of it enforceable against it in
accordance with their respective terms; neither the execution and delivery of
this Agreement or any other agreements, documents and instruments to be executed
in connection herewith nor the consummation of the transactions contemplated
hereby or thereby will (i) violate, conflict with or result in the breach or
termination of, or otherwise give any other contracting party the right to
terminate, or constitute a default (by way of substitution, novation or
otherwise) under the terms of, any contract to which it is a party or by which
it is bound or by which any of the assets of it is bound or affected, (ii)
violate any judgment against, or binding upon, it or upon its assets, (iii)
result in the creation of any lien, charge or encumbrance upon any of its assets
pursuant to the terms of any contract referred to in (i) of this Section 2(b),
or (iv) violate any provision in the charter documents, bylaws or any other
agreement affecting the governance and control of it; there are no actions,
suits, claims or legal, administrative or arbitration proceedings or
investigations pending or threatened against, involving or affecting any of its
assets, this Agreement, or the transactions contemplated hereby (other than as
reflected in the Company's filings with the Securities and Exchange Commission),
and there are no outstanding orders, writs, injunctions or decrees of any court,
governmental agency or arbitration tribunal against, involving or affecting any
of its assets, this Agreement, or the transactions contemplated hereby; no
consent or approval from any person is required in connection with the execution
and delivery of this Agreement or any of the other agreements, documents and
instruments to be executed by it in connection herewith; the shares of Common
Stock to be issued to Purchaser pursuant to the exercise of the Warrants shall
be duly authorized, validly issued, fully paid and non-assessable at the time
that they are issued; and the representations and warranties made immediately
above are material to Purchaser and are being relied upon by Purchaser in
connection with Purchaser's decision to enter into the transactions provided for
by this Agreement.
3. Securities Representations and Warranties.
Purchaser hereby represents and warrants to the Company that Purchaser
is not a "U.S.
<PAGE>
Person" as that term in defined in Regulation S under the Act; at the time the
buy order originated for the Warrants and the date of this Agreement, Purchaser
was and will be outside of the United States of America (the "U.S."); Purchaser
is acquiring the Warrants for Purchaser's own account and not on behalf of any
U.S. Person, and a sale has not been prearranged with a U.S. Person or a
purchaser in the U.S.; Purchaser agrees that all offers and sales of the
Warrants prior to the expiration of a period commencing on the date of the
issuance thereof and ending 40 days thereafter shall only be made in compliance
with the safe harbor contained in Regulation S, or pursuant to the registration
thereof or an exemption from registration, and that all offers and sales in the
U.S. after expiration of the 40-day period shall be made only pursuant to the
registration thereof or an exemption from registration; all offering documents
received by Purchaser have included statements, and all certificates that
Purchaser shall receive representing the Warrants shall feature legends to the
effect that the Warrants have not been registered under the Act and may not be
offered or sold in the U.S. or to U.S. Persons prior to the expiration of a
period commencing on the date of the issuance thereof and ending 40 days
thereafter and all offers and sales shall only be made in compliance with the
safe harbor contained in Regulation S, or pursuant to the registration thereof
or an exemption from registration; Purchaser has been furnished with the
Company's most recent Annual Report on Form 10-K and any subsequent Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K; Purchaser is familiar with
the business and financial condition, properties, operations and prospects of
the Company, and has been given full access to all material information
concerning the condition, properties, operations and prospects of the Company;
Purchaser has had an opportunity to ask such questions of, and to receive such
information from, the Company as Purchaser has desired and to obtain any
additional information necessary to verify the accuracy of the information and
data received; and Purchaser is satisfied that there is no material information
concerning the condition, properties, operations and prospects of the Company,
of which Purchaser is unaware.
4. Purchase of Warrants.
(a) At any time and from time to time during the Term and upon notice from
the Company (a "Warrant Purchase Notice"), Purchaser hereby agrees to purchase
Warrants from the Company at Closings (as defined herein) in transactions exempt
from the securities offering registration requirements of federal and state
securities laws, upon the terms, provisions and conditions contained herein and
in accordance with the related Warrant Purchase Notice. Each Warrant Purchase
Notice shall contain the amount of funds (the "Warrant Purchase Price") that the
Company desires Purchaser to expend in connection with the purchase of the
related Warrant; provided, however, that to limit the amount of Purchaser's
investment in the Company and its subsidiaries, Purchaser shall never be
required to have expended a cumulative Warrant Purchase Price pursuant to this
Agreement exceeding the amount of net proceeds that Purchaser has received from
any sales of the 300,000 shares of Common Stock (the "300,000 Shares") that
Purchaser received from the Company in connection with Purchaser's contribution
of mining claims to Desert Minerals, Inc., a Delaware subsidiary corporation of
the Company. In connection with the foregoing limitation on Purchaser's
obligation to purchase Warrants pursuant to this Agreement, Purchaser shall (i)
maintain complete records with respect to the sale of the 300,000 Shares, (ii)
give notice to the Company upon the sale of any of the 300,000 Shares and the
amount of net proceeds received in connection therewith, and (iii) extend to the
Company the right to receive copies of and
<PAGE>
examine the records of Purchaser to the extent they pertain to the sale of the
300,000 Shares. With respect to the purchase of any Warrant, the number of
shares that may purchased pursuant to an exercise of the Warrant shall equal the
product obtained by multiplying (i) the quotient obtain by dividing the Warrant
Purchase Price for the Warrant, by the closing sales price of the Common Stock
on the date preceding the date of the Warrant Purchase Notice (or the sales
price of the most recent sale if there is no closing price on such date), by
(ii) 1.33, and then rounding to the closest whole number of shares. Moreover,
with respect to the purchase of any Warrant, the term during which the Warrant
may be exercised shall be two years from the date of issuance, and the per-share
purchase price for shares acquired pursuant to an exercise of the Warrant shall
be $.01. Each Warrant shall be represented by the form of warrant attached
hereto as an exhibit, with the number of shares determined in accordance with
the preceding sentence as well as the dates for the issuance and expiration of
the Warrant being reflected in the form of warrant.
(b) Subject to Section 4(c) below, the closing (the "Closing") of each
sale and purchase of a Warrant pursuant to this Agreement shall occur on such
date as the Company has specified in the related Warrant Purchase Notice, which
date shall be between five and ten days after the giving of such notice. A
Closing need not be one in which the Company and Purchaser are physically
present but may be one in which all documents, instruments and other items
necessary to close the sale and purchase of a Warrant are transmitted between
the parties by means of ordinary or express mails and wire-transfers. At each
Closing, Purchaser shall deliver the Warrant Purchase Price for the related
Warrant in immediately available funds and the certificates required of
Purchaser as provided in Section 4(c) below, and the Company shall deliver the
Warrant in the form of warrant attached hereto as Exhibit A and as otherwise
provided herein and the certificates required of the Company as provided in
Section 4(c) below.
(c) The obligations of Purchaser at a Closing are subject, at
Purchaser's election, to the satisfaction on or prior to Closing of each of the
following conditions: (i) each of the representations and warranties of Seller
contained in this Agreement shall be true and correct in all respects at and as
of the Closing as if each such representation and warranty was made at and as of
the Closing, Seller shall have performed in all respects all agreements and
covenants required by this Agreement to be performed by it prior to or at the
Closing, and at the Closing there shall be delivered to Purchaser customary
bring-down certificates (each dated as of the Closing, signed by Seller) to the
foregoing effects; and (ii) no suit or other proceeding by any third party shall
be pending before any court or governmental agency seeking to restrain, prohibit
or declare illegal, or seeking substantial damages from Purchaser in connection
with, the transactions contemplated by this Agreement. The obligations of Seller
at a Closing are subject, at Seller's election, to the satisfaction on or prior
to Closing of each of the following conditions: (x) each of the representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all respects at and as of the Closing as if each such representation
and warranty was made at and as of the Closing, Purchaser shall have performed
in all respects all agreements and covenants required by this Agreement to be
performed by it prior to or at the Closing, and at the Closing there shall be
delivered to Seller customary bring-down certificates (each dated as of the
Closing, signed by Purchaser) to the foregoing effect; (y) Purchaser shall have
delivered to Seller a certificate signed by Purchaser containing such other
representations and warranties of Purchaser as the Company shall believe
<PAGE>
necessary or advisable to determine that the issuance of the related Warrant is
exempt from federal and state securities offering registration requirements; and
(z) no suit or other proceeding by any third party shall be pending before any
court or governmental agency seeking to restrain, prohibit or declare illegal,
or seeking substantial damages from Seller in connection with, the transactions
contemplated by this Agreement. In addition to the preceding, Purchaser agrees
to furnish to the Company any other information required by the Company in order
for the Company to determine that the issuance of a Warrant will not violate
federal or state securities laws. If the Company believes that the issuance of a
Warrant will violate such laws, then the date of the related Closing shall be
extended until all action believed by the Company to be necessary in order to
avoid violating such laws can be taken.
5. Indemnification.
(a) All representations and warranties made herein by a party hereto
shall survive all transactions provided for or contemplated herein, including,
without limitation, the issuances and sales of the Warrants and the issuances of
shares of Common Stock pursuant to exercises of the Warrants.
(b) Purchaser shall protect, indemnify and hold the Company harmless
from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by Purchaser
in this Agreement.
(c) The Company shall protect, indemnify and hold Purchaser harmless
from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by it in this
Agreement.
6. General.
(a) THIS AGREEMENT AND ALL QUESTIONS RELATING TO ITS
VALIDITY, INTERPRETATION, PERFORMANCE, AND ENFORCEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
(b) Mandatory venue for any controversy arising out of or relating to
this Agreement or any modification or extension thereof, including any claims
for breach, for damages, and/or for recision or reformation, shall be in a court
of competent jurisdiction located in Harris County, Texas.
(c) This Agreement contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, inducements, or conditions,
express or implied, oral or written, except as herein contained. This Agreement
may not be modified or amended other than by an agreement in writing signed by
all parties affected.
<PAGE>
(d) The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
The section headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together constitute one and
the same instrument.
(f) The parties hereto hereby agree that time is of the essence for all
purposes of this Agreement.
(g) Any notices to be given hereunder by any party to the other party
may be effected either by personal delivery in writing, or by mail, registered
or certified, postage prepaid with return receipt requested, addressed to the
party to be notified at the address set forth beneath such party's signature
below.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto
as of the first date written above.
"COMPANY"
LS CAPITAL CORPORATION
By:_________________________________
Paul J. Montle, President
Address: 15915 Katy Freeway, Suite 250
Houston, Texas 77094
"PURCHASER"
- ------------------------------------
Keith J. McKenzie
Address: 1400 355 Burrand St.
Vancouver, British Columbia
CANADA V6C 2G8
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK THAT MAY BE PURCHASED ON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS WARRANT IS BEING OFFERED
AND SOLD IN RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED FOR BY
REGULATION S UNDER THE ACT. CONSEQUENTLY, IT MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (OTHER THAN DISTRIBUTORS) EXCEPT AFTER THE
EXPIRATION OF A 40-DAY PERIOD COMMENCING ON THE ISSUANCE OF THIS WARRANT, UNLESS
THIS WARRANT IS REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE. FURTHERMORE, THIS WARRANT MAY NOT BE
TRANSFERRED EXCEPT AS PROVIDED IN SECTION 7(b) HEREOF. THE SHARES OF COMMON
STOCK ISSUED OR ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT.
LS CAPITAL CORPORATION
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK OF
LS CAPITAL CORPORATION
(A Delaware Corporation)
_________________ _____, 199___
VOID AFTER 5:00 P.M., CENTRAL STANDARD TIME,
ON _________________ _____, 199___
(being two years after the date hereof)
LS Capital Corporation, a Delaware corporation (the "Company"), hereby
certifies that Keith J. McKenzie (together with his permitted assigns, the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after
___________________ _____, 199___ (being the date hereof) and on or before of
___________________ _____, 199___ (being two years after the date hereof) at not
later than 5:00 p.m. (Central Standard Time), _______________ shares of Common
Stock, $.01 par value, of the Company ("Common Stock"), at a per-share purchase
price equal to $.01. The shares purchasable upon exercise of this Warrant, and
the per-share purchase price, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Stock"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or
in part, by surrendering this Warrant, with the Purchase Form appended hereto as
Exhibit A duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, by bank or certified check in lawful money of
the United States, of the Purchase Price payable in respect
<PAGE>
of the number of shares of Warrant Stock purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Stock shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within ten (10) days thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, as the Registered Holder
(upon payment by the Registered Holder of any applicable transfer taxes) may
direct:
(i) a certificate or certificates for the number of full
shares of Warrant Stock to which such Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in subsection 1(a) above.
2. Adjustments.
(a) If the outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) If there shall occur any capital reorganization or reclassification
of the Company's Common Stock (other than a change in par value or a subdivision
or combination as provided for in subsection 2(a) above), or any consolidation
or merger of the Company with or into another corporation, or a transfer of all
or substantially all of the assets of the
<PAGE>
Company, or the payment of a liquidating distribution then, as part of any such
reorganization, reclassification, consolidation, merger, sale or liquidating
distribution, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
(to the extent, if any, still exercisable) the kind and amount of shares of
stock or other securities or property which such Registered Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of the Registered
Holder of this Warrant such that the provisions set forth in this Section 2
(including provisions with respect to adjustment of the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) In any case in which this Section 2 shall require that any
adjustment in the number of shares of Warrant Stock or other property for which
this Warrant may be exercised be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Registered Holder the amount of Warrant Stock and other
property, if any, issuable upon exercise of this Warrant after such record date
that is over and above the Warrant Stock and other property, if any, issuable
upon exercise of this Warrant as in effect prior to such adjustment; provided
that upon request the Company shall deliver to the Registered Holder a due bill
or other appropriate instrument evidencing the Registered Holder's right to
receive such additional shares or property upon the occurrence of the event
requiring such adjustment.
(d) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property for which
this Warrant shall be exercisable following the occurrence of any of the events
specified in subsection 2(a) or 2(b) above.
3. Fractional Shares.
The Company shall not be required upon the exercise of this Warrant to
issue any fractional shares, but shall make an adjustment therefor in cash on
the basis of the closing sales price of the Warrant Stock on the date preceding
the date that the related Purchase Form is given by the Registered Holder (or
the sales price of the most recent sale if there is no closing price on such
date)
4. Limitation on Sales.
(a) The Registered Holder, and each subsequent holder of this Warrant,
if any, acknowledges that this Warrant and the Warrant Stock have not been
registered under the Securities Act of 1933, as now in force or hereafter
amended, or any successor legislation (the "Act"), and agrees not to sell,
pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an
effective
<PAGE>
registration statement under the Act as to this Warrant or such Warrant Stock
and registration or qualification of this Warrant or such Warrant Stock under
any applicable blue sky or state securities law then in effect, or (ii) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. Without limiting the generality of the
foregoing, unless the offering and sale of the Warrant Stock to be issued upon
the particular exercise of this Warrant shall have been effectively registered
under the Act, the Company shall be under no obligation to issue the shares
covered by such exercise unless and until the Registered Holder shall have
executed an investment letter in form and substance satisfactory to the Company,
including a warranty at the time of such exercise that it is acquiring such
shares for its own account, for investment and not with a view to, or for sale
in connection with, the distribution of any such shares, in which event the
Registered Holder shall be bound by the provisions of a legend to such effect on
the certificate(s) representing the Warrant Stock. In addition, without limiting
the generality of the foregoing, the Company may delay issuance of the Warrant
Stock until completion of any action or obtaining of any consent, which the
Company believes necessary or advisable under any applicable law (including
without limitation state securities or "blue sky" laws).
(b) The Registered Holder agrees, and each other holder of Warrant
Stock agrees, if requested by the Company and/or the representative of the
underwriters underwriting an offering of Common Stock (or other securities of
the Company) from time to time, not to sell or otherwise transfer or dispose of
any Warrant Stock then held by the Registered Holder and/or such other holder
during such period of time following the effective date of any registration
statement of the Company filed under the Act for the period of time with respect
to which a majority of the executive officers of the Company agree not to sell
shares of Common Stock (or other securities of the Company). Such agreement
shall be in writing in a form satisfactory to the Company and such
representative. The Company may impose stop-transfer instructions with respect
to the Warrant Stock subject to the foregoing restriction until the end of such
period.
5. Reservation of Stock.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant, such shares of Warrant
Stock and other stock, securities and property, as from time to time shall be
issuable upon the exercise of this Warrant.
6. Replacement of Warrants.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if
reasonably required) in an amount reasonably satisfactory to the Company, or (in
the case of mutilation) upon surrender and cancellation of this Warrant, the
Company will issue, in lieu thereof, a new Warrant of like tenor.
7. Transfers. etc.
<PAGE>
Subject to Section 4 above:
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. The Registered Holder may
change its address as shown on the warrant register by written notice to the
Company requesting such change.
(b) This Warrant shall not be transferable by the Registered Holder and
shall be exercisable only by the Registered Holder; provided that this Warrant
may be transferred to, and may be exercisable by, any company that directly, or
indirectly through one or more intermediaries, is controlled by, or is under
common control with, the Registered Holder. Subject to the foregoing, this
Warrant shall not be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process without the prior written consent of the Company. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
this Warrant or of any rights granted hereunder contrary to the provisions of
this Section 7, or the levy of any attachment or similar process upon this
Warrant or such rights, shall be null and void.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
8. Mailing of Notices, etc.
All notices and other communications from the Company to the Registered
Holder of this Warrant shall be mailed by first-class certified or registered
mail, postage prepaid, to the address furnished to the Company in writing by the
last Registered Holder of this Warrant who shall have furnished an address to
the Company in writing. All notices and other communications from the Registered
Holder of this Warrant or in connection herewith to the Company shall be mailed
by first-class certified or registered mail, postage prepaid, to the Company at
its offices at 15915 Katy Freeway, Suite 250, Houston, Texas 77094, or such
other address as the Company shall so notify the Registered Holder.
9. No Rights as Stockholder.
Until the exercise of this Warrant, the Registered Holder of this
Warrant shall not have or exercise any rights by virtue hereof as a stockholder
of the Company.
10. Change or Waiver.
Any term of this Warrant may be changed or waived only by an instrument
in writing signed by the party against which enforcement of the change or waiver
is sought.
11. Headings.
The headings in this Warrant are for purposes of reference only and
shall not limit or
<PAGE>
otherwise affect the meaning of any provision of this Warrant.
12. Governing Law.
THIS WARRANT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
LS CAPITAL CORPORATION
By:______________________________
Paul J. Montle,
President
<PAGE>
EXHIBIT A
PURCHASE FORM
To: LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, Texas 77094
The undersigned pursuant to the provisions set forth in the attached
Warrant hereby irrevocably elects to purchase _________ shares of the Common
Stock (the "Common Stock") covered by such Warrant and herewith makes payment of
$_____________, representing the full purchase price for such shares at the
per-share price provided for in such Warrant.
The undersigned understands and acknowledges the terms and restrictions
on the right to transfer or dispose of the Common Stock set forth in Section 4
of the attached Warrant, which the undersigned has carefully reviewed. The
undersigned consents to the placing of a legend on its certificate for the
Common Stock referring to such restrictions and the placing of stop transfer
orders until the Common Stock may be transferred in accordance with the terms of
such restrictions.
By:_________________________________
Name:______________________________
Title:_______________________________
Dated:______________________________
EXHIBIT 10.35
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this
the 28th day of February, 1997 by and among (a) Tanye Capital Group
("Contributor"), (b) Shoshone Mining Co., a Delaware corporation (the
"Company"), and (c) LS Capital Corporation, a Delaware corporation and the
parent corporation of the Company ("LS Capital").
Recitals
WHEREAS, Contributor desires to become a stockholder of the Company
promptly after its formation and organization by making a capital contribution
to the Company and receiving in consideration thereof shares of common stock in
the Company (referred to hereinafter as the "Company Shares") and shares of
common stock in LS Capital (referred to hereinafter as the "LS Capital Shares");
WHEREAS, the parties hereto desire to set forth in writing the terms,
provisions and
<PAGE>
conditions of their becoming stockholders in the Company:
Agreement
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, $10.00 and other good and valuable consideration (the receipt, adequacy
and sufficiency of which are hereby acknowledged by each of the parties hereto),
each of the parties mentioned above hereby agrees as follows:
1. General Representations and Warranties.
(a) Contributor hereby represents and warrants to the Company and LS
Capital that Contributor (if a corporation) has been duly organized, is validly
existing and is in good standing in the jurisdiction in which it was
incorporated; Contributor has full right, power and authority to execute and
deliver this Agreement and all other agreements, documents and instruments to be
executed in connection herewith and perform Contributor's obligation hereunder
and thereunder; the execution and delivery by Contributor (if a corporation) of
this Agreement and all other agreements, documents and instruments to be
executed by Contributor in connection herewith have been authorized by all
necessary corporate action by Contributor; when this Agreement and all other
agreements, documents and instruments to be executed by Contributor in
connection herewith are executed by Contributor and delivered to the Company,
this Agreement and such other agreements, documents and instruments will
constitute the valid and binding agreements of Contributor enforceable against
Contributor in accordance with their respective terms; neither the execution and
delivery of this Agreement or any other agreements, documents and instruments to
be executed in connection herewith nor the consummation of the transactions
contemplated hereby or thereby will (i) violate, conflict with or result in the
breach or termination of, or otherwise give any other contracting party the
right to terminate, or constitute a default (by way of substitution, novation or
otherwise) under the terms of, any contract to which Contributor is a party or
by which Contributor is bound or by which any of the assets of Contributor is
bound or affected, (ii) violate any judgment against, or binding upon,
Contributor or upon the assets of Contributor, (iii) result in the creation of
any lien, charge or encumbrance upon any assets of Contributor pursuant to the
terms of any such contract, or (iv) violate any provision in the charter
documents, bylaws or any other agreement affecting the governance and control of
Contributor (if a corporation); there are no actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or
threatened against, involving or affecting any of the assets of Contributor,
this Agreement, or the transactions contemplated hereby, and there are no
outstanding orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against, involving or affecting any assets of
Contributor, this Agreement, or the transactions contemplated hereby; no consent
or approval from any person is required in connection with the execution and
delivery of this Agreement other than board of director approval of Contributor
(if a corporation), which has already been obtained; and the representations and
warranties made immediately above and elsewhere herein are material to the
Company and are being relied upon by the Company in connection with its decision
to issue Company Shares, and by LS Capital in connection with its decision to
issue LS Capital Shares, to Contributor pursuant to Section 2 of this Agreement.
<PAGE>
(b) Each of the Company and LS Capital hereby represents and warrants,
severally but not jointly, to Contributor that (in all cases, upon the Company's
organization) it has full right, power and authority to execute and deliver this
Agreement and all other agreements, documents and instruments to be executed by
it in connection herewith and perform its obligation hereunder and thereunder;
it will be duly organized, validly existing and in good standing in the
jurisdiction in which it was incorporated; the execution and delivery by it of
this Agreement and all other agreements, documents and instruments to be
executed by it in connection herewith will be authorized by all necessary
corporate action; when this Agreement and all other agreements, documents and
instruments to be executed by it in connection herewith are executed by it and
delivered to Contributor, this Agreement and such other agreements, documents
and instruments will constitute the valid and binding agreements of it
enforceable against it in accordance with their respective terms; neither the
execution and delivery of this Agreement or any other agreements, documents and
instruments to be executed in connection herewith nor the consummation of the
transactions contemplated hereby or thereby will (i) violate, conflict with or
result in the breach or termination of, or otherwise give any other contracting
party the right to terminate, or constitute a default (by way of substitution,
novation or otherwise) under the terms of, any contract to which it is a party
or by which it is bound or by which any of the assets of it is bound or
affected, (ii) violate any judgment against, or binding upon, it or upon its
assets, (iii) result in the creation of any lien, charge or encumbrance upon any
of its assets pursuant to the terms of any such contract, or (iv) violate any
provision in the charter documents, bylaws or any other agreement affecting the
governance and control of it; there are no actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or
threatened against, involving or affecting any of its assets, this Agreement, or
the transactions contemplated hereby, and there are no outstanding orders,
writs, injunctions or decrees of any court, governmental agency or arbitration
tribunal against, involving or affecting any of its assets, this Agreement, or
the transactions contemplated hereby; no consent or approval from any person is
required in connection with the execution and delivery of this Agreement other
than board of director approval, which will be obtained upon organization; the
Company Shares and the LS Capital Shares to be issued to Contributor pursuant to
this Agreement shall be duly authorized, validly issued, fully paid and
non-assessable at the time that they are issued; and the representations and
warranties made immediately above and elsewhere herein are material to
Contributor and are being relied upon by Contributor in connection with
Contributor's decision to make the capital contributions to the Company pursuant
to Section 2 of the Agreement.
2. Subscription for Shares.
(a) Contributor hereby agrees to contribute to the Company at the
Closing (as defined herein), by means of customary assignment documents
reasonably selected by the Company and reasonably approved by Contributor (the
"Assignments"), full right, title and interest in and to each of the Claims
acquired and held by it, free and clear of all liens, mortgages, security
interests, encumbrances, claims and restrictions on the transfer thereof.
"Claims" shall mean those certain mining claims described on Exhibit A hereto as
Exhibit A is amended from time to time hereafter. Contributor hereby represents
and warrants to the Company that the execution by Contributor and delivery to
the Company of the Assignment respecting the Claims will vest in the Company
full right, title and interest in and to the Claims, free and clear of any and
all encumbrances, security interests, liens, charges, claims,
<PAGE>
restrictions or limitations, whatsoever, by any person of any kind, including
those on the transfer thereof, whether known or unknown. Contributor hereby
agrees that it will execute and deliver, or cause to be executed and delivered,
from time to time after the date hereof, upon the request of the Company, such
other instruments of assignment, transfer and conveyance and will take such
other action as the Company may reasonably require to effectuate and/or evidence
the contribution provided for herein. In consideration of its capital
contribution, Contributor shall receive 5,000,000 Company Shares and 150,000 LS
Capital Shares.
(b) In consideration of the contribution made hereby, the Company agree
to be the operator of the Tecopa project, and will be required (to the extent
that financing is available therefore) to expend $250,000.00 of the initial
exploration and development of the project in its first 24 months.
3. Securities Representations and Warranties. Contributor hereby
represents and warrants to the Company that it is not a "U.S. Person" as that
term in defined in Regulation S under Securities Act of 1933 (the "Act"); at the
time the buy order originated for any Company Shares and the date of this
Agreement, it was outside of the United States of America (the "U.S."); it is
acquiring the Company Shares for its own account and not on behalf of any U.S.
Person, and a sale has not been prearranged with a U.S. Person or a purchaser in
the U.S.; it agrees that all offers and sales of the Company Shares prior to the
expiration of a period commencing on the date of the issuance thereof and ending
40 days thereafter shall only be made in compliance with the safe harbor
contained in Regulation S, or pursuant to the registration thereof or an
exemption from registration, and that all offers and sales in the U.S. after
expiration of the 40-day period shall be made only pursuant to the registration
thereof or an exemption from registration; all offering documents received by it
have included statements, and all stock certificates that it shall receive
representing Company Shares shall feature legends, to the effect that the
Company Shares have not been registered under the Act and may not be offered or
sold in the U.S. or to U.S. Persons prior to the expiration of a period
commencing on the date of the issuance thereof and ending 40 days thereafter and
all offers and sales shall only be made in compliance with the safe harbor
contained in Regulation S, or pursuant to the registration thereof or an
exemption from registration; it has been furnished with the Company's most
recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form
10-Q and Current Reports on Form 8-K; it is familiar with the business and
financial condition, properties, operations and prospects of the Company, and
has been given full access to all material information concerning the condition,
properties, operations and prospects of the Company; it has had an opportunity
to ask such questions of, and to receive such information from, the Company as
it has desired and to obtain any additional information necessary to verify the
accuracy of the information and data received; and it is satisfied that there is
no material information concerning the condition, properties, operations and
prospects of the Company, of which it is unaware.
4. Closing. Each of Contributor, the Company and LS Capital hereby
acknowledges that not all mining claims that the parties contemplate will be
contributed to the Company pursuant hereto have been acquired by Contributor as
of the date hereof. Contributor hereby agrees to use its best efforts to acquire
all mining claims that the parties contemplate will be contributed to the
Company pursuant hereto. As soon as such a mining
<PAGE>
claim is acquired by Contributor, the parties shall amend Exhibit A and attached
the amended Exhibit A hereto. The closing (the "Closing") of the transactions
provided for in or contemplated by this Agreement shall occur as soon as
possible after the execution of this Agreement and the acquisition of such
mining claims as the parties desire to be contributed to the Company. The
Closing may occur at such place and time and in such manner as the parties
hereto may agree to. The Closing need not be one in which every party hereto is
physically present but may be one in which all documents and instrument
necessary to close the transactions provided for in or contemplated by this
Agreement are transmitted among the parties by means of ordinary or express
mails.
5. Securities Registration. Within 12 months after the Closing or
within six months after the first production with respect to the Claims, the
Company may at the option of its Board of Directors register with the United
States Securities and Exchange Commission (the "Commission") an in-kind dividend
to the stockholders of LS Capital consisting of 1,000,000 Company Shares owned
by LS Capital. In the event of such registration, the Company shall use its best
efforts to qualify such Company Shares under the securities laws for each state
for which an exemption is not available and qualification is required, unless
the cost and expense of such qualification outweighs the benefit of
qualification. In connection with any registration undertaken pursuant to this
Section 5, Contributor shall use reasonable efforts to cooperate with the
Company and LS Capital and will furnish to the Company and LS Capital in writing
such information, as shall be reasonably necessary in order to assure compliance
with federal and applicable state securities laws pertaining to disclosure and
otherwise, with respect to the Claims and the business heretofore conducted by
Contributor. Moreover, Contributor shall, upon the request of the Company,
review drafts of the registration statement to be filed the Commission and any
and all amendments thereto and furnish the Company with Contributor's comments
upon and approval of or reasons for declining to approve such portions of the
drafts for which the Company has requested comments and approval. Any such
portions with respect to which a Contributor has not expressly disapproved in
writing shall be deemed approved by Contributor. The Company shall pay all
registration expenses in connection with any registration undertaken pursuant to
this Section 5.
6. Spin-Off. As soon as possible after the registration statement filed
in connection with any registration undertaken pursuant to Section 5 above is
declared effective, LS Capital shall declare and effect to its stockholders a
pro-rata, in-kind dividend of the Company Shares registered. In this connection,
LS Capital shall deliver to each of its stockholders receiving the registered
Company Shares an unlegended stock certificate representing the Company Shares
that such stockholder is to receive as well as a copy of the prospectus
comprising part of the registration statement declared effective during the
course of any registration undertaken pursuant to Section 5.
7. Indemnification.
(a) All representations and warranties made herein by a party hereto
shall survive all transactions provided for or contemplated herein, including,
without limitation, the making of the capital contributions to the Company by
Contributor pursuant to Section 2 and the issuance of the Company Shares by the
Company, and the issuance of LS Capital Shares to Contributor by LS Capital,
pursuant to Section 2.
<PAGE>
(b) Contributor shall protect, indemnify and hold the Company harmless
from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by it in this
Agreement.
(c) The Company shall protect, indemnify and hold Contributor harmless
from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by it in this
Agreement.
(d) LS Capital shall protect, indemnify and hold Contributor harmless
from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by it in this
Agreement.
<PAGE>
8. Right of First Refusal.
(a) If after the completion of the transactions provided for in or
contemplated by Section 2, Contributor desires to dispose of its Company Shares
now owned or hereafter acquired, Contributor shall first offer, in writing in
the manner provided for in Section 9(g) hereof, to sell its the Company Shares
to LS Capital at a purchase price and on such terms as Contributor intends in
good faith to sell to a bona fide third party. The written offer shall contain
the identity of the proposed transferee and the purchase price and terms upon
which the transfer is proposed to occur. Following the receipt of the written
offer provided for hereinabove, LS Capital shall have an option, exercisable for
thirty (30) days, to purchase all or any portion of the Company Shares proposed
to be sold at the price and on the terms set forth in the notice. If LS Capital
fails to exercise its option with respect to all of the Company Shares proposed
to be transferred, then LS Capital shall notify immediately the Company of its
failure to fully exercise its option. The Company shall then have an option,
exercisable for fifteen (15) days commencing on the date of LS Capital's notice,
to purchase all or any portion of the Company Shares not purchased by LS
Capital. Notwithstanding anything else contained in this Section 8, neither LS
Capital nor the Company shall have any rights to purchase any Company Shares
proposed to be transferred by Contributor unless the Company and/or the Company
stockholders, separately or collectively, exercise the options provided for in
this Section 8 with respect to all, and not less than all, of the Company Shares
proposed to be transferred.
(b) In the event that all of the Company Shares proposed to be sold by
Contributor are not purchased in accordance with this Section 8 before the
expiration of the time periods established in this Section 8 therefor, all of
the Company Shares may be sold to the transferee identified in the written
notice to the Company at a price no lower and upon terms no more favorable than
the price and terms that the Company Shares could have been purchased pursuant
to the options to which they were subject. Such sale shall be free and clear of
the terms of this Section 8 during the three-month period beginning on the date
that the last option period in this Section 8 terminates, but thereafter any the
Company Shares not so sold shall again be subject to the terms and conditions of
this Section 8. Any attempted disposition in contravention of the provisions of
this Section 8 shall be null and void and of no force and effect and, therefore,
shall not preclude the exercise of the options provided for in this Section 8.
(c) The closing of the sale and purchase of any the Company Shares
pursuant to this Section 8 shall occur within fifteen (15) days after the last
option exercised is exercised in accordance with this Section 8. At the closing,
(a) Contributor shall deliver the appropriate stock certificates, properly
endorsed or accompanied by a properly prepared and executed stock power, and (b)
the purchasers shall deliver the consideration required by this Section 8. Each
of the parties hereby grants to the other the right of specific performance with
respect to this Section 8 in recognition of the uniqueness of the subject matter
hereof.
(d) All certificates representing the Company Shares now owned or that
may hereafter be acquired by any party to this Agreement shall have a legend on
the back thereof substantially as follows:
<PAGE>
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL AGREEMENT WHICH PROVIDES
SIGNIFICANT RESTRICTIONS ON THE TRANSFERABILITY OF THE
SHARES REPRESENTED HEREBY.
Such certificates shall state on the front thereof substantially as
follows:
SEE RESTRICTIONS ON TRANSFER HEREOF ON REVERSE SIDE.
(e) The agreements contained in this Section 8 may be terminated by an
instrument in writing signed by all parties hereto. The agreements contained in
this Section 8 shall automatically terminate whenever the Company Shares or any
securities received with respect to the Company Shares becomes registered under
the Act.
9. General.
(a) THIS AGREEMENT AND ALL QUESTIONS RELATING TO ITS
VALIDITY, INTERPRETATION, PERFORMANCE, AND ENFORCEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS.
(b) Any controversy arising out of or relating to this Agreement or any
modification or extension thereof, including any claims for breach, for damages,
and/or for recision or reformation, shall be settled by binding arbitration in
Harris County, Texas according to the rules and regulations of the American
Arbitration Association, Commercial Arbitration Rules.
(c) This Agreement contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, inducements, or conditions,
express or implied, oral or written, except as herein contained. This Agreement
may not be modified or amended other than by an agreement in writing signed by
all parties affected.
(d) The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
The section headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together constitute one and
the same instrument.
(f) The parties hereto hereby agree that time is of the essence for all
purposes of this Agreement.
(g) Any notices to be given hereunder by any party to the other parties
may be effected either by personal delivery in writing, or by mail, registered
or certified, postage prepaid with return receipt requested, addressed to the
one or more parties to be notified at the addresses set forth beneath such
parties' respective signatures below.
<PAGE>
(h) All obligations of the Company and all agreements made herein for
the benefit of the Company shall become effective immediately upon the formation
and organization of the Company. The person signing this Agreement on behalf of
the Company shall use reasonable efforts to cause the Company to be formed. Upon
the formation of the Company, such person shall have no further obligations or
liability pertaining to the Company or this Agreement except as is expressly
agreed to by such person in writing.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto
as of the first date written above.
TANYE CAPITAL GROUP SHOSHONE MINING CO.
a ________________ _________________ a Delaware corporation
By:/S/ K.J. McKenzie By: /S/ Paul J. Montle
Name Printed: Keith J. McKenzie Name Printed: Paul J. Montle
Title: President Title: Vice President
Address: 1400 355 Burrand St. Address: 15915 Katy Freeway,
Suite 250
- ------------------------------------ ------------------------------
Vancouver, British Columbia Houston, Texas 77094
CANADA V6C 2G8
LS CAPITAL CORPORATION
a Delaware corporation
By: /S/ Paul J. Montle
Paul J. Montle,
Chief Executive Officer
Address: 15915 Katy Freeway, Suite 250
Houston, Texas 77094
The undersigned joins herein for the limited purpose of agreeing to use
his best efforts to assist Contributor in acquiring all mining claims that the
parties contemplate will be contributed to the Company pursuant hereto.
------------------------------------
Ed Hemstead
CERTIFICATE
Each of the undersigned hereby certifies and acknowledges that the
undersigned has signed and executed the foregoing agreement with multiple
original signature pages at separate locations to be effective immediately upon
signing and that the transmission of a telecopier facsimile of their respective
signatures, each to the other, shall be sufficient to cause the
<PAGE>
mutual delivery of this executed agreement in order to bind the parties and make
the agreement effective upon the date of signing. It is further certified,
acknowledged and agreed that the original signature pages are to be circulated
hereafter but that the failure of any party to obtain the original signature
pages hereafter shall not affect the validity and effectiveness of this
agreement which is effective from and after the execution by all parties and the
transmission by telecopier facsimile of the signature of all parties, each to
the other.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto
as of the first date written above.
TANYE CAPITAL GROUP SHOSHONE MINING CO.
a ________________ _________________ a Delaware corporation
By:/S/ K.J. McKenzie By: /S/ Paul J. Montle
Name Printed: Keith J. McKenzie Name Printed: Paul J. Montle
Title: President Title: Vice President
LS CAPITAL CORPORATION
a Delaware corporation
By: /S/ Paul J. Montle
Paul J. Montle,
Chief Executive Officer
EXHIBIT 10.36
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made and entered into
effective as of the 1st day of March, 1997 by and between Griffin Gold Group,
Inc., a Delaware corporation ("Griffin"), and Desert Minerals, Inc., a Delaware
corporation ("DMI").
RECITALS:
WHEREAS, Griffin controls certain tracts of land located in the
Armagosa Valley in the upper Mohave Desert in California (the "Tracts"); and
WHEREAS, the sands located on the Tracts are believed to contain
precious minerals, and Griffin is interesting in confirming whether or not such
sands contain precious minerals and if so, whether or not such precious minerals
can be extracted from such sands; and
WHEREAS, DMI has rights to a certain proprietary, low-toxicity
microfine precious metals extraction technology (the "Technology") and a "pilot"
plant capable of utilizing the Technology (the "Pilot Plant"), and the
Technology and the Pilot Plant are believed to be capable of separating any
precious minerals contained in the sands mined from the Tracts from such sands;
and
WHEREAS, both the Technology and the Pilot Plant are in a developmental
stage, and
<PAGE>
both the Technology and the Pilot Plant will require additional financing and
will involve additional costs and expenses; and
WHEREAS, if the Technology and the Pilot Plant are successfully
developed, DMI intends to construct a much larger plant for commercially
exploiting the Technology (the "Definitive Plant"); and
WHEREAS, Griffin desires to engage DMI to utilize the Technology and
the Pilot Plant in an effort to confirm whether or not precious minerals
contained in the sands located on the Tracts can be separated from such sands,
and Griffin desires to engage DMI to utilize the Technology and the Definitive
Plant to commercially exploit the precious minerals contained in the sands
located on the Tracts, if precious minerals are confirmed to be contained in the
sands located on the Tracts, the Technology and the Pilot Plant are successfully
developed and are capable of extracting precious metals from such sands, and the
Definitive Plant is constructed; and
WHEREAS, Griffin is willing to provide a portion of the additional
financing and to bear a portion of the costs and expenses in connection with the
development of the Technology and the Pilot Plant; and
WHEREAS, DMI is willing to be engaged by Griffin to utilize the
Technology and the Pilot Plant in an effort to confirm whether or not any
precious mineral contained in the sands located on the Tracts can be extracted
from such sands, and DMI is willing to be engaged by Griffin to utilize the
Technology and the Definitive Plant to commercially exploit the precious
minerals contained in the sands located on the Tracts, if Griffin so desires and
once the Technology and the Pilot Plant are successfully developed and are
proven capable of extracting precious metals from such sands, and the Definitive
Plant is constructed; and
WHEREAS, Griffin and DMI are willing to undertake all of the foregoing
upon the terms, provisions and conditions set forth hereinafter;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
AGREEMENTS:
l. Engagement. Subject to the terms, provisions and conditions
hereinafter stated, Griffin hereby engages DMI to utilize the Technology and the
Pilot Plant in an effort to confirm whether or not any precious mineral
contained in the sands located on the Tracts can be extracted from such sands,
and DMI hereby accepts such engagement. The preceding engagement shall be
subject to the following terms and conditions, in addition to all other terms,
provisions and conditions set forth herein:
(a) In DMI's efforts to confirm whether or not any precious mineral contained in
the sands located on the Tracts can be extracted from such sands, DMI shall be
obligated to process such sand at the Pilot Plant but only in such quantities as
are reasonable in view
<PAGE>
of the capacity of the Pilot Plant and DMI's
obligations to its other customers and other persons with whom it has
contracted. (b) Upon receipt at the Pilot Plant from Griffin of a quantity of
sand complying with the restriction set forth above, DMI shall proceed as
promptly as is reasonably possible to process such sand using the Technology to
confirm whether or not any precious mineral contained in the sands located on
the Tracts can be extracted from such sands. In this connection, as soon as is
reasonably possible after such sand is received at the Pilot Plant, DMI shall
inform Griffin as to date by which the related processing is expected to be
completed. If at any time DMI realizes that it will not be able to complete the
processing by the date previously indicated to Griffin, DMI shall immediately
notify Griffin, and DMI and Griffin shall reasonably discuss the possibility of
extending the date for completion if legitimate reasons for the delay exist.
(c) As promptly as is reasonably possible after the
completion of the
processing of any sand pursuant to this Agreement, DMI shall deliver its report
as to whether or not any precious mineral contained in the sands located on the
Tracts can be extracted from such sands. Such report shall be in such form and
containing such information as Griffin shall reasonably request. Griffin shall
have the right for 10 days to review the report and communicate to DMI its
tentative comments on any matter in which it regards the report or the
processing to be deficient in its reasonable discretion. DMI and Griffin shall
then reasonably cooperate with each other in an effort to cure any such
deficiencies and to modify the report or the processing. Notwithstanding the
preceding, DMI shall endeavor to cure any matter in which Griffin believes the
initial report or processing to be deficient within a reasonable period of time
after Griffin has communicated to DMI such deficiencies. Once DMI believes that
the deficiencies have been cure, it shall notify Griffin to such effect, and
Griffin shall have the right to review the modified report and processing. If
the modified report or processing is still deficient to Griffin in its
reasonable discretion, Griffin shall have the right to notify DMI as to the
remaining deficiencies and to permit DMI the opportunity to cure such
deficiencies to the reasonable satisfaction of Griffin within a reasonable
period of time. This procedure of notice, review, report of deficiencies and
attempt to cure shall be followed until an acceptable report or processing or
both are finalized. If either DMI or Griffin believes that they will be unable
to agree upon the final report and processing, then either DMI or Griffin shall
be entitled to submit the issue to arbitration in accordance with Section 18
hereof.
<PAGE>
2. Non-Exclusivity. Griffin hereby recognizes that during the term of
this Agreement, DMI will be engaged by persons other than Griffin in much the
same capacity in which Griffin is engaging DMI hereunder. Furthermore, Griffin
hereby consents to DMI's engagement by all such other persons, and Griffin
hereby recognizes that DMI's engagement hereunder is not exclusive.
3 Standard of Performance. In providing services pursuant to this
Agreement, DMI shall use reasonable and its best efforts, shall render such
services in a competent manner of the highest caliber, and cooperate with
Griffin and to take all suggestions of Griffin under serious considerations.
However, Griffin hereby acknowledges that the Technology and the Pilot Plant are
new and unproven. Accordingly, Griffin hereby acknowledges that DMI is not
making any representation, warranty or guarantee as to the results of the
Technology and the Pilot Plant or any other matter relating to this Agreement.
4. Payment for Services. In consideration of the services to be
provided by DMI to Griffin hereunder, Griffin agrees to pay to DMI a fee equal
to the sum of (a) all direct costs incurred by DMI during the course of
processing Griffin's sands (without any allocation for any overhead amounts),
plus (b) 10% of the amount of (a) immediately preceding. All fees that become
due to DMI pursuant to this Agreement for any services rendered by DMI shall be
due and payable to DMI within 30 days after the final report of the related
services is approved and accepted by Griffin pursuant to the above, such
approval and acceptance being deemed given and made for purposes of this Section
4 only on the 10th day after the initial report of the related services is
delivered unless Griffin has communicated to DMI its deficiency comments on any
tentative results prior to such 10th day, in which case only actual approval and
acceptance shall commence the aforementioned 30-day period. Moreover, Griffin
may, at DMI's discretion, pay for the fee provided for by this Section 4 through
the payment of costs, expenses or capital expenditures incurred by DMI, and if
Griffin pays any fee through this method, the fee owed by Griffin shall be
credited with the amount of the DMI costs, expenses or capital expenditures paid
by Griffin.
5. Term. The term of this Agreement shall begin on the effective date
hereof and shall continue for two years thereafter unless this Agreement is
terminated earlier in accordance with the provisions of Section 6 below.
6. Termination Upon Certain Events. (a) Notwithstanding anything else contained
herein, Griffin may terminate this Agreement and be relieved of any further
liability hereunder (except for obligations provided for in Section 4(a) above
concerning accrued but unpaid fees and the obligations provided for in Section 7
below) at any time after notice is given to DMI after and regarding the
following events: (i) DMI's failure to provide the services required of it
hereunder up to the standards set forth in Section 3 hereof, provided, however,
that DMI has failed to cure such failure within 30 days after the notice
required by this Section 6(a) has been given; or <PAGE> (ii) DMI's other
material breach of this Agreement, provided, however, that DMI has failed to
cure such breach within 30 days after the notice required by this Section 6(a)
has been given. (b) Notwithstanding anything else contained herein, DMI may
terminate this Agreement and be relieved of any further liability hereunder
(except obligations provided for in Sections 7 and 8 below) at any time after
notice is given to Griffin after and regarding the following events: (i)
Griffin's failure to pay amounts that become due under Section 4(a), provided,
however, that Griffin has failed to cure such failure within 30 days after the
notice required by this Section 6(b) has been given; or (ii) Griffin's other
material breach of this Agreement, provided, however, that Griffin has failed to
cure such breach within 30 days after the notice required by this Section 6(b)
has been given. (c) Notwithstanding anything else contained herein, either party
may immediately terminate this Agreement and be relieved of any further
liability hereunder (except for obligations provided for in Section 4(a) above
concerning accrued but unpaid fees and the obligations provided for in Sections
7 and 8 below) at any time after notice is given to the other party after the
other party's dissolution, insolvency, filing of a voluntary bankruptcy
petition, filing against it an involuntary bankruptcy petition, rendering of a
material judgment against it, assignment for the benefit of creditors, or
admission in writing of its inability to pay its debts as they become due. (d)
This Agreement shall automatically terminate upon the execution and delivery of
an agreement pertaining to the Definitive Plant by DMI and Griffin.
7. Confidentiality.
Each party hereto (the "Recipient" for purposes of this Section 7)
hereby recognizes and acknowledges that it will receive information from, or
will develop information on the behalf of, the other party hereto (the
"Disclosing Party" for purposes of this Section 7) pertaining to the Disclosing
Party and its business or its properties that is confidential and proprietary.
All such information is referred to hereinafter as the "Information". Each party
as the Recipient hereby agrees to maintain on a confidential basis all
Information, and each party as the Recipient hereby agrees that it will not,
without the prior express written consent of the other party as the Disclosing
Party, use for its or anyone else's benefit or disclose to any other person any
Information, except in connection with such Recipient's work on behalf of such
Disclosing Party. Each party as the Recipient hereby acknowledges that, as
between the other party as the Disclosing Party and such Recipient, such
Disclosing Party has the complete, sole and full right, title and interest in
and to the Information, and that such
<PAGE>
Recipient has no rights, expressed or implied, with respect to the foregoing
other than those expressly provided for to the contrary in a writing signed by
both such Disclosing Party and such Recipient. Each party as the Recipient
further agrees that it will, immediately upon the request of the other party as
the Disclosing Party, return to such Disclosing Party all written Information
and all writings regarding oral Information whether such writings were
authorized or not. Each party as the Recipient hereby agrees that the
confidentiality agreement provided for hereby shall last with respect to any
Information for ten years after such Information is disclosed by the other party
as the Disclosing Party to such Recipient or developed by such Recipient on
behalf of such Disclosing Party, as the case may be.
8. Property of Griffin. DMI acknowledges that the services to be
provided by it pursuant to this Agreement are on a "for hire" basis.
Accordingly, DMI acknowledges that all right, title, interest and ownership in
and to all tangible or intangible property created by DMI pursuant to this
Agreement shall vest in Griffin, and DMI hereby assigns and conveys to Griffin
all right, title, interest and ownership in and to all such tangible or
intangible property. DMI agrees to take such further action as Griffin may
reasonably request with regard to the perfection of its ownership in such
tangible or intangible property. DMI agrees that, upon the termination of DMI's
engagement with Griffin, DMI shall immediately surrender to Griffin all
property, equipment, funds, lists, books, records, and other materials of
Griffin or any affiliate thereof in the possession of or provided to DMI.
9. Definitive Plant. In the event that the Technology meets Griffin's
expectations, Griffin and DMI each agree to negotiate in good faith the form,
terms, provisions and conditions of an agreement pertaining to the Definitive
Plant with a view to the execution and delivery of the same.
10. Law Governing. THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF
TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
11. Notices. Any notice or request herein required or permitted to be
given to any party hereunder shall be given in writing and shall be personally
delivered or sent to such party by prepaid mail at the address set forth below
the signature of such party hereto or at such other address as such party may
designate by written communication to the other party to this Agreement. Each
notice given in accordance with this paragraph shall be deemed to have been
given, if personally delivered, on the date personally delivered, or, if mailed,
on the third day following the day on which it is deposited in the United States
mail, certified or registered mail, return receipt requested, with postage
prepaid.
12. Headings. The headings of the paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
modify any of the terms or provisions hereof.
13. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this
<PAGE>
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
14. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, whether written or
oral, relating to the subject matter hereof.
15. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of each party hereto and its successors and assigns, but
neither this Agreement nor any rights hereunder may be assigned by any party
hereto without the consent in writing of the other party.
16. Remedies. No remedy conferred by any of the specific provisions of
this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise. The election of any one or more remedies by any party hereto shall
not constitute a waiver of the right to pursue other available remedies.
17. Independent Contractor. DMI and Griffin are independent contracting
parties, and nothing in this Agreement shall make either party the agent or
legal representative of the other for any purpose whatsoever, nor does it grant
either party any authority to assume or to create any obligations on behalf of
or in the name of the other.
18. Arbitration. All disputes arising out of this Agreement shall be
submitted by either party hereto to arbitration in Houston, Texas pursuant to
the rules of the American Arbitration Association, Commercial Division, as such
party's sole remedy in this regard.
IN WITNESS WHEREOF, the undersigned have set their hands hereunto as of
the first date written above.
"GRIFFIN""
GRIFFIN GOLD GROUP, INC.
BY:_________________________________
NAME:_______________________________
TITLE:______________________________
ADDRESS:____________________________
<PAGE>
"DMI"
DESERT MINERALS, INC.
BY:_________________________________
NAME:_______________________________
TITLE:______________________________
ADDRESS:____________________________
------------------------------------
EXHIBIT 10.37
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made and entered into
effective as of the 1st day of March, 1997 by and between Shoshone Mining Co., a
Delaware corporation ("Shoshone"), and Desert Minerals, Inc., a Delaware
corporation ("DMI").
RECITALS:
WHEREAS, Shoshone controls certain tracts of land (the "Tracts"); and
WHEREAS, the sands located on the Tracts are believed to contain
precious minerals, and Shoshone is interesting in confirming whether or not such
sands contain precious minerals and if so, whether or not such precious minerals
can be extracted from such sands; and
WHEREAS, DMI has rights to a certain proprietary, low-toxicity
microfine precious metals extraction technology (the "Technology") and a "pilot"
plant capable of utilizing the Technology (the "Pilot Plant"), and the
Technology and the Pilot Plant are believed to be capable of separating any
precious minerals contained in the sands mined from the Tracts from such sands;
and
WHEREAS, both the Technology and the Pilot Plant are in a developmental
stage, and both the Technology and the Pilot Plant will require additional
financing and will involve additional costs and expenses; and
WHEREAS, if the Technology and the Pilot Plant are successfully
developed, DMI intends to construct a much larger plant for commercially
exploiting the Technology (the "Definitive Plant"); and
WHEREAS, Shoshone desires to engage DMI to utilize the Technology
and the Pilot
<PAGE>
Plant in an effort to confirm whether or not precious minerals contained in the
sands located on the Tracts can be separated from such sands, and Shoshone
desires to engage DMI to utilize the Technology and the Definitive Plant to
commercially exploit the precious minerals contained in the sands located on the
Tracts, if precious minerals are confirmed to be contained in the sands located
on the Tracts, the Technology and the Pilot Plant are successfully developed and
are capable of extracting precious metals from such sands, and the Definitive
Plant is constructed; and
WHEREAS, Shoshone is willing to provide a portion of the additional
financing and to bear a portion of the costs and expenses in connection with the
development of the Technology and the Pilot Plant; and
WHEREAS, DMI is willing to be engaged by Shoshone to utilize the
Technology and the Pilot Plant in an effort to confirm whether or not any
precious mineral contained in the sands located on the Tracts can be extracted
from such sands, and DMI is willing to be engaged by Shoshone to utilize the
Technology and the Definitive Plant to commercially exploit the precious
minerals contained in the sands located on the Tracts, if Shoshone so desires
and once the Technology and the Pilot Plant are successfully developed and are
proven capable of extracting precious metals from such sands, and the Definitive
Plant is constructed; and
WHEREAS, Shoshone and DMI are willing to undertake all of the foregoing
upon the terms, provisions and conditions set forth hereinafter;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
AGREEMENTS:
l. Engagement. Subject to the terms, provisions and conditions
hereinafter stated, Shoshone hereby engages DMI to utilize the Technology and
the Pilot Plant in an effort to confirm whether or not any precious mineral
contained in the sands located on the Tracts can be extracted from such sands,
and DMI hereby accepts such engagement. The preceding engagement shall be
subject to the following terms and conditions, in addition to all other terms,
provisions and conditions set forth herein:
(a) In DMI's efforts to confirm whether or not any precious mineral contained in
the sands located on the Tracts can be extracted from such sands, DMI shall be
obligated to process such sand at the Pilot Plant but only in such quantities as
are reasonable in view of the capacity of the Pilot Plant and DMI's obligations
to its other customers and other persons with whom it has contracted. (b) Upon
receipt at the Pilot Plant from Shoshone of a quantity of sand complying with
the restriction set forth above, DMI shall proceed as promptly as is reasonably
possible to process such sand using the Technology to confirm whether or not any
<PAGE>
precious mineral contained in the sands located on the Tracts can be
extracted from such sands. In this connection, as soon as is reasonably possible
after such sand is received at the Pilot Plant, DMI shall inform Shoshone as to
date by which the related processing is expected to be completed. If at any time
DMI realizes that it will not be able to complete the processing by the date
previously indicated to Shoshone, DMI shall immediately notify Shoshone, and DMI
and Shoshone shall reasonably discuss the possibility of extending the date for
completion if legitimate reasons for the delay exist. (c) As promptly as is
reasonably possible after the completion of the processing of any sand pursuant
to this Agreement, DMI shall deliver its report as to whether or not any
precious mineral contained in the sands located on the Tracts can be extracted
from such sands. Such report shall be in such form and containing such
information as Shoshone shall reasonably request. Shoshone shall have the right
for 10 days to review the report and communicate to DMI its tentative comments
on any matter in which it regards the report or the processing to be deficient
in its reasonable discretion. DMI and Shoshone shall then reasonably cooperate
with each other in an effort to cure any such deficiencies and to modify the
report or the processing. Notwithstanding the preceding, DMI shall endeavor to
cure any matter in which Shoshone believes the initial report or processing to
be deficient within a reasonable period of time after Shoshone has communicated
to DMI such deficiencies. Once DMI believes that the deficiencies have been
cure, it shall notify Shoshone to such effect, and Shoshone shall have the right
to review the modified report and processing. If the modified report or
processing is still deficient to Shoshone in its reasonable discretion, Shoshone
shall have the right to notify DMI as to the remaining deficiencies and to
permit DMI the opportunity to cure such deficiencies to the reasonable
satisfaction of Shoshone within a reasonable period of time. This procedure of
notice, review, report of deficiencies and attempt to cure shall be followed
until an acceptable report or processing or both are finalized. If either DMI or
Shoshone believes that they will be unable to agree upon the final report and
processing, then either DMI or Shoshone shall be entitled to submit the issue to
arbitration in accordance with Section 18 hereof.
2. Non-Exclusivity. Shoshone hereby recognizes that during the term of
this Agreement, DMI will be engaged by persons other than Shoshone in much the
same capacity in which Shoshone is engaging DMI hereunder. Furthermore, Shoshone
hereby consents to DMI's engagement by all such other persons, and Shoshone
hereby recognizes that DMI's engagement hereunder is not exclusive.
<PAGE>
3 Standard of Performance. In providing services pursuant to this
Agreement, DMI shall use reasonable and its best efforts, shall render such
services in a competent manner of the highest caliber, and cooperate with
Shoshone and to take all suggestions of Shoshone under serious considerations.
However, Shoshone hereby acknowledges that the Technology and the Pilot Plant
are new and unproven. Accordingly, Shoshone hereby acknowledges that DMI is not
making any representation, warranty or guarantee as to the results of the
Technology and the Pilot Plant or any other matter relating to this Agreement.
4. Payment for Services. In consideration of the services to be
provided by DMI to Shoshone hereunder, Shoshone agrees to pay to DMI a fee equal
to the sum of (a) all direct costs incurred by DMI during the course of
processing Shoshone's sands (without any allocation for any overhead amounts),
plus (b) 10% of the amount of (a) immediately preceding. All fees that become
due to DMI pursuant to this Agreement for any services rendered by DMI shall be
due and payable to DMI within 30 days after the final report of the related
services is approved and accepted by Shoshone pursuant to the above, such
approval and acceptance being deemed given and made for purposes of this Section
4 only on the 10th day after the initial report of the related services is
delivered unless Shoshone has communicated to DMI its deficiency comments on any
tentative results prior to such 10th day, in which case only actual approval and
acceptance shall commence the aforementioned 30-day period. Moreover, Shoshone
may, at DMI's discretion, pay for the fee provided for by this Section 4 through
the payment of costs, expenses or capital expenditures incurred by DMI, and if
Shoshone pays any fee through this method, the fee owed by Shoshone shall be
credited with the amount of the DMI costs, expenses or capital expenditures paid
by Shoshone.
5. Term. The term of this Agreement shall begin on the effective date
hereof and shall continue for two years thereafter unless this Agreement is
terminated earlier in accordance with the provisions of Section 6 below.
6. Termination Upon Certain Events. (a) Notwithstanding anything else contained
herein, Shoshone may terminate this Agreement and be relieved of any further
liability hereunder (except for obligations provided for in Section 4(a) above
concerning accrued but unpaid fees and the obligations provided for in Section 7
below) at any time after notice is given to DMI after and regarding the
following events: (i) DMI's failure to provide the services required of it
hereunder up to the standards set forth in Section 3 hereof, provided, however,
that DMI has failed to cure such failure within 30 days after the notice
required by this Section 6(a) has been given; or (ii) DMI's other material
breach of this Agreement, provided, however, that DMI has failed to cure such
breach within 30 days after the notice required by this Section 6(a) has been
given. (b) Notwithstanding anything else contained herein, DMI may terminate
this Agreement and be relieved of any further liability hereunder (except
obligations provided for in Sections 7 and 8 below) at any time after
<PAGE>
notice is given to Shoshone after and regarding the following events: (i)
Shoshone's failure to pay amounts that become due under Section 4(a), provided,
however, that Shoshone has failed to cure such failure within 30 days after the
notice required by this Section 6(b) has been given; or (ii) Shoshone's other
material breach of this Agreement, provided, however, that Shoshone has failed
to cure such breach within 30 days after the notice required by this Section
6(b) has been given. (c) Notwithstanding anything else contained herein, either
party may immediately terminate this Agreement and be relieved of any further
liability hereunder (except for obligations provided for in Section 4(a) above
concerning accrued but unpaid fees and the obligations provided for in Sections
7 and 8 below) at any time after notice is given to the other party after the
other party's dissolution, insolvency, filing of a voluntary bankruptcy
petition, filing against it an involuntary bankruptcy petition, rendering of a
material judgment against it, assignment for the benefit of creditors, or
admission in writing of its inability to pay its debts as they become due. (d)
This Agreement shall automatically terminate upon the execution and delivery of
an agreement pertaining to the Definitive Plant by DMI and Shoshone.
7. Confidentiality.
Each party hereto (the "Recipient" for purposes of this Section 7)
hereby recognizes and acknowledges that it will receive information from, or
will develop information on the behalf of, the other party hereto (the
"Disclosing Party" for purposes of this Section 7) pertaining to the Disclosing
Party and its business or its properties that is confidential and proprietary.
All such information is referred to hereinafter as the "Information". Each party
as the Recipient hereby agrees to maintain on a confidential basis all
Information, and each party as the Recipient hereby agrees that it will not,
without the prior express written consent of the other party as the Disclosing
Party, use for its or anyone else's benefit or disclose to any other person any
Information, except in connection with such Recipient's work on behalf of such
Disclosing Party. Each party as the Recipient hereby acknowledges that, as
between the other party as the Disclosing Party and such Recipient, such
Disclosing Party has the complete, sole and full right, title and interest in
and to the Information, and that such Recipient has no rights, expressed or
implied, with respect to the foregoing other than those expressly provided for
to the contrary in a writing signed by both such Disclosing Party and such
Recipient. Each party as the Recipient further agrees that it will, immediately
upon the request of the other party as the Disclosing Party, return to such
Disclosing Party all written Information and all writings regarding oral
Information whether such writings were authorized or not. Each party as the
Recipient hereby agrees that the confidentiality agreement provided for hereby
shall last with respect to any Information for ten years after such Information
is
<PAGE>
disclosed by the other party as the Disclosing Party to such Recipient or
developed by such Recipient on behalf of such Disclosing Party, as the case may
be.
8. Property of Shoshone. DMI acknowledges that the services to be
provided by it pursuant to this Agreement are on a "for hire" basis.
Accordingly, DMI acknowledges that all right, title, interest and ownership in
and to all tangible or intangible property created by DMI pursuant to this
Agreement shall vest in Shoshone, and DMI hereby assigns and conveys to Shoshone
all right, title, interest and ownership in and to all such tangible or
intangible property. DMI agrees to take such further action as Shoshone may
reasonably request with regard to the perfection of its ownership in such
tangible or intangible property. DMI agrees that, upon the termination of DMI's
engagement with Shoshone, DMI shall immediately surrender to Shoshone all
property, equipment, funds, lists, books, records, and other materials of
Shoshone or any affiliate thereof in the possession of or provided to DMI.
9. Definitive Plant. In the event that the Technology meets Shoshone's
expectations, Shoshone and DMI each agree to negotiate in good faith the form,
terms, provisions and conditions of an agreement pertaining to the Definitive
Plant with a view to the execution and delivery of the same.
10. Law Governing. THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF
TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
11. Notices. Any notice or request herein required or permitted to be
given to any party hereunder shall be given in writing and shall be personally
delivered or sent to such party by prepaid mail at the address set forth below
the signature of such party hereto or at such other address as such party may
designate by written communication to the other party to this Agreement. Each
notice given in accordance with this paragraph shall be deemed to have been
given, if personally delivered, on the date personally delivered, or, if mailed,
on the third day following the day on which it is deposited in the United States
mail, certified or registered mail, return receipt requested, with postage
prepaid.
12. Headings. The headings of the paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
modify any of the terms or provisions hereof.
13. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
14. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and
<PAGE>
supersede all prior agreements and understandings, whether written or oral,
relating to the subject matter hereof.
15. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of each party hereto and its successors and assigns, but
neither this Agreement nor any rights hereunder may be assigned by any party
hereto without the consent in writing of the other party.
16. Remedies. No remedy conferred by any of the specific provisions of
this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise. The election of any one or more remedies by any party hereto shall
not constitute a waiver of the right to pursue other available remedies.
17. Independent Contractor. DMI and Shoshone are independent
contracting parties, and nothing in this Agreement shall make either party the
agent or legal representative of the other for any purpose whatsoever, nor does
it grant either party any authority to assume or to create any obligations on
behalf of or in the name of the other.
18. Arbitration. All disputes arising out of this Agreement shall be
submitted by either party hereto to arbitration in Houston, Texas pursuant to
the rules of the American Arbitration Association, Commercial Division, as such
party's sole remedy in this regard.
IN WITNESS WHEREOF, the undersigned have set their hands hereunto as of
the first date written above.
"SHOSHONE""
SHOSHONE MINING CO.
BY:_________________________________
NAME:_______________________________
TITLE:______________________________
ADDRESS:____________________________
------------------------------------
<PAGE>
"DMI"
DESERT MINERALS, INC.
BY:_________________________________
NAME:_______________________________
TITLE:______________________________
ADDRESS:____________________________
------------------------------------
EXHIBIT 10.38
RELEASE AND PARTIAL TERMINATION AGREEMENT
THIS RELEASE AND PARTIAL TERMINATION AGREEMENT (the "Release") is made and
entered into this the 22nd day of April, 1997 by and among W.D. Groves
("Groves"), on the one hand, and Zeotech Industries, Inc. ("Zeotech"), Ed
Hemsted ("Hemsted"), KJM Capital Corp. ("KJM"), Keith J. McKenzie ("McKenzie"),
Kent E. Lovelace, Jr. ("Lovelace"), LS Capital Corporation, a Delaware
corporation ("LS Capital"), and Griffin Gold Group, Inc., a Delaware corporation
("Griffin"), on the other hand. For purposes of this Agreement, Zeotech,
Hemsted, KJM, McKenzie, Lovelace, LS Capital and Griffin are referred to
hereinafter singly as a "Remaining Party" and collectively as the "Remaining
Parties."
Recitals
WHEREAS, Groves and each Remaining Party entered into an Agreement (the
"Agreement") dated October 31, 1996 regarding the contribution of certain mining
claims to Griffin, the issuance of certain shares of stock in Griffin, the
issuance of certain shares of stock in LS Capital, additional capital
contributions to Griffin, the registration with the United States Securities and
Exchange Commission of certain shares of stock in Griffin owned by LS Capital,
the declaration by LS Capital of an in-kind dividend to its stockholders of the
shares so registered, and various additional matters; and
WHEREAS, Groves and each Remaining Party want to terminate Groves'
status as a party to the Agreement and his rights and obligations thereunder,
but leave unaltered the Remaining Parties' status as parties to the Agreement
and their respective rights and obligations thereunder;
Agreement
<PAGE>
NOW, THEREFORE, in consideration of (a) the mutual promises and
agreements herein contained, (b) $10.00 and (c) other good and valuable
consideration (the receipt, sufficiency and adequacy of the consideration
recited in (a), (b) and (c) immediately preceding are hereby acknowledged and
confessed by each party hereto), each party hereto hereby agrees as follows:
1. Groves hereby acknowledges that he received 166,666 shares of the
common stock of LS Capital pursuant to the Agreement. Groves does hereby assign,
transfer and convey to Hemsted, without any further deed or act, full right,
title and interest in and to the foregoing 166,666 shares of the common stock of
LS Capital, free and clear of all liens, mortgages, security interests,
encumbrances, claims and restrictions on the transfer thereof. Groves hereby
further acknowledges that the Agreement provided that he was to receive
1,250,000 shares of the common stock of Griffin, although Groves has not yet
been issued such shares. Notwithstanding any other provisions contained herein,
Groves does hereby assign, transfer and convey to Douglas Schmitt and Hemsted,
without any further deed or act, full right, title and interest in and to 90%
and 10%, respectively, of the shares of the common stock of Griffin that he was
to receive pursuant to the term, provisions and conditions of the Agreement,
free and clear of all liens, mortgages, security interests, encumbrances, claims
and restrictions on the transfer thereof. Groves hereby agrees that he will
execute and deliver, or cause to be executed and delivered, from time to time
after the date hereof, upon the request of Hemsted or Schmitt (as the case may
be), such other instruments of assignment, transfer and conveyance and will take
such other action as Hemsted or Schmitt (as the case may be) may reasonably
require to effectuate and/or evidence the assignments, transfers and conveyances
provided for herein. Groves hereby represents and warrants to Hemsted and
Schmitt that the execution by Groves and delivery to Hemsted and Schmitt of this
Release and related documentation will vest in Hemsted and Schmitt full right,
title and interest in and to the shares of common stock purported to be
assigned, transferred and conveyed to them above, free and clear of any and all
encumbrances, security interests, liens, charges, claims, restrictions or
limitations, whatsoever, by any person of any kind, including those on the
transfer thereof, whether known or unknown.
2. Groves' status as a party to the Agreement be and hereby is
terminated effective upon the execution and delivery of this Release, and
henceforth Groves shall have no further rights, liabilities, obligations, duties
or responsibilities with respect to the Agreement. Notwithstanding the preceding
or anything else contained herein, the Remaining Parties' status as parties to
the Agreement, and their respective rights, liabilities, obligations, duties and
responsibilities with respect thereto, remain unaffected by this Release.
3. By execution of this Release, Groves represents and warrants to each
of the Remaining Parties that he has not conveyed, assigned, or in any manner
transferred, in whole or in part, to any third party any right, title or
interest that he has heretofore held under the Agreement. Groves expressly
represents and warrants to the Remaining Parties that he has full authority to
enter into this Release and to terminate his status as a party to the Agreement
and his rights, liabilities, obligations, duties and responsibilities with
respect thereto.
4. Groves (and each of Groves' heirs, beneficiaries, legal
representatives, affiliates, agents, successors and assigns) has this day
released and by these presents does
<PAGE>
release, acquit and forever discharge each of the Remaining Parties (and their
respective heirs, beneficiaries, legal representatives, affiliates,
shareholders, directors, officers, employees, agents, successors and assigns)
from any and all Claims. For purposes of this Release, "Claims" means all
demands, complaints, claims, rights, actions, causes of actions, suits,
proceedings, damages, judgments, costs, expenses, compensation, promises,
agreements, debts, liabilities and obligations of any kind whatsoever, at common
law, by statute, contract, or otherwise, which a releasing party now has or
might have, or in the part had or might have had, against a released party,
known or unknown, directly or indirectly relating to the Agreement.
5. By execution of this Release, Groves represents and warrants to each
of the Remaining Parties that no Claim that he now has or might have, or in the
part had or might have had, against any person released hereby, has previously
been conveyed, assigned, or in any manner transferred, in whole or in part, to
any third party. Groves expressly represents and warrants to each of the
Remaining Parties that he has full authority to enter into this Release and to
release any and all Claims he now has or might have, or in the part had or might
have had, against each person released hereby.
6. THIS RELEASE SHALL BE GOVERNED BY, CONSTRUED UNDER, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
7. It is expressly understood and agreed that the terms of this Release
are contractual and not merely recitations.
8. It is further understood and agreed that this Release contains the
entire agreement between Groves and each Remaining Party pertaining to the
subject matter hereof and supersedes any and all prior agreements, arrangements,
or understandings between Groves and each Remaining Party pertaining to the
subject matter hereof. No oral understandings, statements, promises, or
inducements contrary to the terms of this Release exist. This Release cannot be
changed or terminated except in writing signed by all parties hereto.
9. Should any court, by judgment or decree, determine that this Release
does not fully and finally discharge all Claims which a releasing party now has
or might have, or in the part had or might have had, against a released party,
prior to the date of this Release, then each releasing party hereby agrees to
reform this document to release any such Claims not hereby released.
IN WITNESS WHEREOF, the undersigned have set their hands hereunto
effective as of the first date written above.
"GROVES"
/S/W.D. Groves, PhD., P.Eng.
W.D. Groves, PhD., P.Eng.
"REMAINING PARTIES"
ZEOTECH INDUSTRIES, INC.
By: /S/ Ed Hemsted, by power of attorney /S/ Ed Hemsted
Ed Hemsted
Name Printed: Ed Hemsted
Title: President
<PAGE>
KJM CAPITAL CORP.
By:/S/ K.J. McKenzie /S/ K.J. McKenzie
Keith J. McKenzie
Name Printed: Keith J. McKenzie
Title: President
GRIFFIN GOLD GROUP, INC.
By: /S/ Paul J. Montle /S/Kent E. Lovelace, Jr.
Kent E. Lovelace, Jr.
Name Printed: Paul J Montle
Title: Vice President
LS CAPITAL CORPORATION
By: /S/ Paul J. Montle
Name Printed: Paul J Montle
Title: President
<PAGE>
CERTIFICATE
Each of the undersigned hereby certifies and acknowledges that the
undersigned has signed and executed the foregoing agreement with multiple
original signature pages at separate locations to be effective immediately upon
signing and that the transmission of a telecopier facsimile of their respective
signatures, each to the other, shall be sufficient to cause the mutual delivery
of this executed agreement in order to bind the parties and make the agreement
effective upon the date of signing. It is further certified, acknowledged and
agreed that the original signature pages are to be circulated hereafter but that
the failure of any party to obtain the original signature pages hereafter shall
not affect the validity and effectiveness of this agreement which is effective
from and after the execution by all parties and the transmission by telecopier
facsimile of the signature of all parties, each to the other.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto
as of the first date written above.
/S/ Ed Hemsted, by power of attorney
W.D. Groves, PhD., P.Eng.
ZEOTECH INDUSTRIES, INC.
By: /S/ Ed Hemsted /S/ Ed Hemsted
Ed Hemsted
Name Printed: Ed Hemsted
Title: President
KJM CAPITAL CORP.
By:/S/ K.J. McKenzie /S/ K.J. McKenzie
Keith J. McKenzie
Name Printed: Keith J. McKenzie
Title: President
GRIFFIN GOLD GROUP, INC.
By: /S/ Paul J. Montle /S/Kent E. Lovelace, Jr.
Kent E. Lovelace, Jr.
Name Printed: Paul J Montle
Title: Vice President
LS CAPITAL CORPORATION
By: /S/ Paul J. Montle
Name Printed: Paul J Montle
Title: President
EXHIBIT 10.39
FIRST AMENDMENT TO AGREEMENT
THIS FIRST AMENDMENT TO AGREEMENT (the "First Amendment") is made and
entered into as of this the 22nd day of April, 1997 by and among Zeotech
Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., LS Capital Corporation, a Delaware corporation ("LS Capital"),
Griffin Gold Group, Inc., also a Delaware corporation ("Griffin"), and Douglas
Schmitt ("Schmitt"). For all purposes hereof, the preceding parties (other than
Schmitt) are referred to hereinafter as the "Remaining Parties."
Recitals
WHEREAS, W.D. Groves ("Groves") and the Remaining Parties entered into
an Agreement (the "Agreement") dated October 31, 1996 regarding the contribution
of certain mining claims to Griffin, the issuance of certain shares of stock in
Griffin, the issuance of certain shares of stock in LS Capital, additional
capital contributions to Griffin, the registration with the United States
Securities and Exchange Commission of certain shares of stock in Griffin owned
by LS Capital, the declaration by LS Capital of an in-kind dividend to its
stockholders of the shares so registered, and various additional matters;
WHEREAS, during April 1997, Groves executed a Release and Partial
Termination Agreement pursuant to which he terminated his status as a party to
the Agreement and all of his rights, liabilities, obligations, duties or
responsibilities with respect thereto;
WHEREAS, Schmitt will receive shares of common stock in Griffin upon
the satisfaction of certain performance standards set forth in a separate
agreement, and the Remaining Parties require Schmitt to become a party to the
Agreement for certain matters, and Schmitt is willing to become a party to the
Agreement for certain matters; and
WHEREAS, all of the parties named above desire to amend the Agreement
upon the terms, provisions and conditions set forth hereinafter;
Agreement
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the undersigned parties to amend the Agreement, the undersigned parties agree
as follows (all undefined, capitalized terms used herein shall have the meanings
assigned to such terms in the Agreement):
1. Amendments to the Agreement.
a. The Agreement is hereby amended in all relevant
respects so that all
<PAGE>
references to Grove be and hereby are deleted.
b. The Agreement is hereby amended so that the two references
to "April 30, 1997" in Section 4 of the Agreement and the one reference to
"April 30, 1997" in Section 8 of the Agreement shall refer to "July 31, 1997."
c. The Agreement is hereby amended in the following respects
with respect to Schmitt, effective immediately upon Schmitt's acquiring any
shares of common stock in Griffin:
(i) Schmitt shall be a "Contributor" for purposes of,
and shall be subject to all terms, provisions and conditions of,
Section 2(c) of the Agreement for all purposes whatsoever;
(ii) Schmitt shall be deemed to have made all the
representations and warranties contained in Section 5(a) (if Schmitt is
a non-U.S. resident) or all the representations and warranties
contained in Section 5(b) (if Schmitt is a U.S. resident);
(iii) Schmitt shall be subject to all of the
consequences of termination of the Agreement as set forth in the
introductory language of Section 8 and in Section 8(a) and Section
8(d);
(iv) Schmitt shall be subject to the terms and
provisions of Section 9(a) with regard to survival of representations
and warranties and to the terms, provisions and conditions of Section
9(b) as an indemnifying party and Section 9(c) as an indemnified party;
(v) Schmitt shall be subject to terms, provisions and
conditions of Section 10(a) as an indemnifying party, Section 10(b) as
an indemnified party, and the procedure set forth in Section 10(c); and
(vi) Schmitt shall be subject to general terms,
provisions and conditions of Section 11.
2. Miscellaneous. Except as otherwise expressly provided herein, the
Agreement is not amended, modified or affected by this First Amendment. Except
as expressly set forth herein, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the Agreement are herein
ratified and confirmed and shall remain in full force and effect. On and after
the date on which this First Amendment becomes effective, the terms,
"Agreement," "hereof," "herein," "hereunder" and terms of like import, when used
herein or in the Agreement shall, except where the context otherwise requires,
refer to the Agreement, as amended by this First Amendment. This First Amendment
may be executed into one or more counterparts, and it shall not be necessary
that the signatures of all parties hereto be contained on any one counterpart
hereof; each counterpart shall be deemed an original, but all of which together
shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have set their hands hereunto
effective as of the first date written above.
ZEOTECH INDUSTRIES, INC.
By: /S/ Ed Hemsted, by power of attorney /S/ Ed Hemsted
Ed Hemsted
Name Printed: Ed Hemsted
Title: President
KJM CAPITAL CORP.
By:/S/ K.J. McKenzie /S/ K.J. McKenzie
Keith J. McKenzie
Name Printed: Keith J. McKenzie
Title: President
GRIFFIN GOLD GROUP, INC.
By: /S/ Paul J. Montle /S/Kent E. Lovelace, Jr.
Kent E. Lovelace, Jr.
Name Printed: Paul J Montle
Title: Vice President
LS CAPITAL CORPORATION
By: /S/ Paul J. Montle /S/ Douglas Schmitt
Douglas Schmitt
Name Printed: Paul J Montle
Title: President
<PAGE>
CERTIFICATE
Each of the undersigned hereby certifies and acknowledges that the
undersigned has signed and executed the foregoing agreement with multiple
original signature pages at separate locations to be effective immediately upon
signing and that the transmission of a telecopier facsimile of their respective
signatures, each to the other, shall be sufficient to cause the mutual delivery
of this executed agreement in order to bind the parties and make the agreement
effective upon the date of signing. It is further certified, acknowledged and
agreed that the original signature pages are to be circulated hereafter but that
the failure of any party to obtain the original signature pages hereafter shall
not affect the validity and effectiveness of this agreement which is effective
from and after the execution by all parties and the transmission by telecopier
facsimile of the signature of all parties, each to the other.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto
as of the first date written above.
ZEOTECH INDUSTRIES, INC.
By: /S/ Ed Hemsted, by power of attorney /S/ Ed Hemsted
Ed Hemsted
Name Printed: Ed Hemsted
Title: President
KJM CAPITAL CORP.
By:/S/ K.J. McKenzie /S/ K.J. McKenzie
Keith J. McKenzie
Name Printed: Keith J. McKenzie
Title: President
GRIFFIN GOLD GROUP, INC.
By: /S/ Paul J. Montle /S/Kent E. Lovelace, Jr.
Kent E. Lovelace, Jr.
Name Printed: Paul J Montle
Title: Vice President
LS CAPITAL CORPORATION
By: /S/ Paul J. Montle /S/ Douglas Schmitt
Douglas Schmitt
<PAGE>
Name Printed: Paul J Montle
Title: President
EXHIBIT 10.40
SECOND AMENDMENT TO AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT (the "Second Amendment") is made and
entered into as of this the 29th day of July, 1997 by and among Zeotech
Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., LS Capital Corporation, a Delaware corporation ("LS Capital"),
and Griffin Gold Group, Inc., also a Delaware corporation ("Griffin").
Recitals
WHEREAS, the parties to this Second Amendment, entered into an
Agreement (the "Agreement") dated October 31, 1996, together with W.D. Groves
who is no longer a party to the Agreement, regarding the contribution of certain
mining claims to Griffin, the issuance of certain shares of stock in Griffin,
the issuance of certain shares of stock in LS Capital, additional capital
contributions to Griffin, the registration with the United States Securities and
Exchange Commission of certain shares of stock in Griffin owned by LS Capital,
the declaration by LS Capital of an in-kind dividend to its stockholders of the
shares so registered, and various additional matters; and
WHEREAS, the Amendment was amended by a First Amendment to Agreement
(the "First Amendment") in April 1997; and
WHEREAS, all of the parties named above desire to amend the Agreement a
second time upon the terms, provisions and conditions set forth hereinafter;
Agreement
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the undersigned parties to amend the Agreement, the undersigned parties agree
as follows (all undefined, capitalized terms used herein shall have the meanings
assigned to such terms in the Agreement):
1. Amendments to the Agreement. The Agreement is hereby amended so that
the two references to "April 30, 1997" in Section 4 of the Agreement (changed to
July 31, 1997 by the First Amendment) and the one reference to "April 30, 1997"
in Section 8 of the Agreement (changed to July 31, 1997 by the First Amendment)
shall refer to "November 30, 1997."
2. Miscellaneous. Except as otherwise expressly provided herein, the
Agreement is not amended, modified or affected by this Second Amendment. Except
as expressly set forth herein, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the Agreement are herein
ratified and confirmed and shall remain in full force and effect. On and after
the date on which this Second Amendment becomes effective, the terms,
"Agreement," "hereof," "herein," "hereunder" and terms of like import, when used
<PAGE>
herein or in the Agreement shall, except where the context otherwise requires,
refer to the Agreement, as amended by this Second Amendment. This Second
Amendment may be executed into one or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any one
counterpart hereof; each counterpart shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have set their hands hereunto
effective as of the first date written above.
ZEOTECH INDUSTRIES, INC.
By:_________________________________ ____________________________________
Ed Hemsted
Name Printed:_______________________
Title:______________________________
KJM CAPITAL CORP.
By:_________________________________ ____________________________________
Keith J. McKenzie
Name Printed:_______________________
Title:______________________________
GRIFFIN GOLD GROUP, INC.
By:_________________________________ ____________________________________
Kent E. Lovelace, Jr.
Name Printed:_______________________
Title:______________________________
LS CAPITAL CORPORATION
By:_________________________________ ____________________________________
Douglas Schmitt
Name Printed:_______________________
Title:______________________________
<PAGE>
CERTIFICATE
Each of the undersigned hereby certifies and acknowledges that the
undersigned has signed and executed the foregoing agreement with multiple
original signature pages at separate locations to be effective immediately upon
signing and that the transmission of a telecopier facsimile of their respective
signatures, each to the other, shall be sufficient to cause the mutual delivery
of this executed agreement in order to bind the parties and make the agreement
effective upon the date of signing. It is further certified, acknowledged and
agreed that the original signature pages are to be circulated hereafter but that
the failure of any party to obtain the original signature pages hereafter shall
not affect the validity and effectiveness of this agreement which is effective
from and after the execution by all parties and the transmission by telecopier
facsimile of the signature of all parties, each to the other.
IN WITNESS WHEREOF, the parties hereto have signed their names hereto
as of the first date written above.
ZEOTECH INDUSTRIES, INC.
By:_________________________________ _________________________________
Ed Hemsted
Name Printed:_______________________
Title:______________________________
KJM CAPITAL CORP.
By:_________________________________ ___________________
Keith J. McKenzie
Name Printed:_______________________
Title:______________________________
GRIFFIN GOLD GROUP, INC.
By:_________________________________ __________________________
Kent E. Lovelace, Jr.
Name Printed:_______________________
Title:______________________________
LS CAPITAL CORPORATION
<PAGE>
By:_________________________________
Name Printed:_______________________
Title:______________________________
EXHIBIT 10.41
Griffin Gold Group, Inc.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
March 27, 1997
Mr. Richard W. Lancaster
c/o Remediation Services, Inc.
1225 Neosho Dr.
Baton Rouge, LA 70802
Dear Dick:
On behalf of the Board of Directors of Griffin Gold Group, Inc. (GGGI),
it is my pleasure to extend you an officer of employment at will, to join our
team as President and Chief Operating Officer of our gold mining subsidiaries
and affiliates according to the terms and conditions outlined below:
1. Function - You will be a member of the Management Committee and
will report to the Chief Executive Officer of LS Capital and be
responsible for the profit (or loss) of our mining operations.
2. You will be a consultant for April and May 1997 and will receive
50,000 shares of freely tradable LS Capital stock as a consulting
fee for that period.
3. Salary - Initially $72,000 U.S. per annum paid semi-monthly
commencing June 1, 1997, with annual reviews beginning in January
1998 by the Compensation Committee of the Board of Directors of LS
.
4. Options - You will receive two (2) option grants effective with
commencement of your two month consulting period, (April - May,
1997):
Grant A. Options on 250,000 shares at an option price of
--------
$1.00 vested 50,000 every 90 days commencing
June 24, 1997.
<PAGE>
Page 2
Grant B. Options on 200,000 shares at a price of $2.00, but
--------
vesting 50,000 shares every 90 days commencing
September 24, 1998. In the event of a sale or a
merger of the Company which is defined in the
option plan as a "Change of Control", all options
will vest 100% immediately.
5. Benefits - Beginning June 1 you will be included in all executive
health, disability, life insurance and pension plans as are
created for the officers of the Company. For the time being we
will include everyone under the GGGI plan.
6. Termination - In the event you are terminated except for cause,
-----------
defined as insubordination, unjustified absence, failure to carry
out the duties assigned you and disclosure of confidential
information, by the Company, you will be paid your base salary for
three months, or commencement of your new employment, whichever is
sooner. If you are terminated by the Company, one half of the
current period's unvested options (i.e. 20,000) will be vested. In
the event you decide to leave you will give the Company at least
two months written notice. All unvested options will be canceled
as of the date of your notice of termination in that case.
7. Commencement Date - As we discussed, we need you on board as soon
as possible. We understand that you would like to give your notice
soon and start full-time no later than June 1, but sooner would be
preferable.
Very truly yours,
/s/ Paul J. Montle
---------------------
Paul J. Montle
<PAGE>
Vice President
CONFIRMED AND ACCEPTED:
By: /s/ Richard W. Lancaster
-------------------------------
Richard W. Lancaster
cc: Kent E. Lovelace, Jr.
EXHIBIT 10.42
Desert Minerals, Inc.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
Thursday March 27, 1997
Mr. Douglas Schmitt
c/o Zeotech Industries, Inc.
P.O. Box 387
Tecopa, CA 92389-0387
Dear Doug,
Desert Minerals, Inc. (DMI) appreciates your fine efforts on its behalf
since January 14, 1997 while working at our Tecopa facility as a consultant for
DMI employed by Zeotech Industries, Inc. of Vancouver.
To formalize our ongoing arrangement for your services and our joint
rights (50/50) to use the technology you brought to Tecopa and are tailoring to
suit DMI's deposits at our expense we propose the following:
1. Salary - Your weekly consulting fee payable by Zeotech
will be increased from US $750 weekly to US $1,500 weekly
effective March 1, 1997 ;
2. Bonus - Upon execution of this letter agreement you will
be paid a bonus of US $10,000 against a total bonus of US
$100,000 as follows:
<PAGE>
2.1 The balance of US $90,000 will be paid
upon delivery, as defined in sec. 2.3 below,
of the technology, for recovering micro fine
gold and other precious metals from desert
sands;
2.2 Prior to payment of the US $90,000 such
technology will be demonstrated to and
audited by an independent third party mining
engineering firm of international repute
which is willing, after you have
demonstrated the process to them, to allow
its name to be used publicly to verify that
DMI has successfully "cracked the code" to
consistently extract gold and other PMs from
desert sands on a large - scale commercial
basis. Alternately, however, the production
of commercially salable quantities of
precious metals from DMI's Tecopa area
deposit in a form acceptable to a reputable
refiner, with production costs not greater
than 75% of sale proceeds, will also satisfy
the requirements of this sec 2.2;
2.3 Prior to payment of the US $90,000 you
will deliver to DMI a process manual which
will include all formulae, process designs
and systems engineering necessary to
implement and repeat the recovery process on
a consistent, large scale, basis;
2.4 Upon payment of the US $90,000 the
recovery process technology and any
enhancements subsequently developed will be
the joint property of you (50%), LS Capital,
and DMI (50%) and such subsidiaries or
affiliates as they may, from time to time,
assign or license the technology to, with
the proviso, however, that should you
present to LS/DMI a project which would
utilize the technology to extract gold
and/or precious metals, and LS/DMI declines
in writing to pursue that project, then you
shall have the right to utilize the
technology to extract minerals from that
project, as long as appropriate measures are
taken to maintain the integrity and security
of the technology.
3. Royalty - As full and total compensation for the use of the
technology by LS/DMI and their affiliates, they shall pay to
you a royalty of 5% (five percent), of gross sale proceeds
from the refiner minus direct production costs, but not
including any general overhead or administrative costs, on all
precious minerals extracted and produced in marketable form
utilizing the process, payable in cash or in kind, as long as
you are in compliance with the provisions of sec. 2.4 above.
It is understood by you that LS/DMI expressly reserves the
right to discontinue the use of the technology you developed
for us at any time in favor of either the a) utilization of
technology provided by another source which LS/DMI believes is
more attractive or cost effective, or b) abandonment of the
desert sands project. In either case all royalty payment
obligations to you will cease as long as none of our 50 - 50
jointly owned technology is being utilized thereafter;
4. Equity - LS Capital/DMI and Griffin Gold hereby give their
consent to the transfer to you of 90% of the shares of Griffin
Gold Group, Inc. and Desert Minerals, Inc. which were reserved
for Dr. W.D. Groves. The obligation to transfer these
interests is the sole responsibility of Ed Hemsted, and is
subject to the satisfactory completion of secs.
2.2 and 2.3 above;
5. Security - LS, DMI and you will take such measures as are
necessary to secure and protect the secrecy of the technology,
including effecting such intellectual property filings with
the appropriate international bodies as may be advised by
counsel;
6. Performance - Failure of LS/DMI to commission construction
of an operating plant of at least one thousand (1,000) tons
per day within three (3) years from the date of this agreement
constitutes automatic recission of LS/DMI 50% interest in the
technology and process back to you. Provided however that, if
negotiations and/or design work to commission an operating
plant of that size are underway the preceding deadline May be
extended by up to twelve (12) months by payment of US $25,000
to you;
7. Confidentiality - The parties to this agreement agree that
it is confidential and highly sensitive and no disclosure of
its terms can be made without the consent of both parties,
except as may be required by government agencies such as tax
or securities authorities.
This letter agreement is entered into as of the date first written
above.
LS Capital Corporation
s/s Paul J.Montle
by ____________________________
Paul J. Montle, President
Page 4
Griffin Gold Group, Inc.
s/s Paul J. Montle
by ____________________________
Paul J. Montle, Vice President
Desert Minerals, Inc.
s/s Paul J. Montle
by_____________________________
Paul J. Montle, Vice President
s/s Douglas Schmitt
by ____________________________
Douglas Schmitt
Zeotech Industries, Inc.
s/s Ed Hemsted
by_____________________________
Ed Hemsted
s/s Ed Hemsted
by ____________________________
<PAGE>
Ed Hemsted, individually
EXHIBIT 10.43
UNITED STATES BANKRUPTCY COURT VOLUNTARY PETITION
District of Colorado NO. 97 15695 SBB
IN RE: PAPONE'S PALACE LLC
TAX I.D. NO.: 84-1204410
STREET ADDRESS OF DEBTOR:
118 MAIN STREET
CENTRAL CITY, COLORADO 80427
VENUE
Debtor has been domiciled or
has a principal place of
business or principal assets
in this District for 180 days
immediately preceding the date
of this petition
TYPE OF DEBTOR CHAPTER OF
Limited Liability Company BANKRUPTCY CODE
[X] Chapter 11
NATURE OF DEBT FILING FEE
[X] Business [X] Filing fee attached
NATURE OF BUSINESS NAME & ADDRESS OF LAW
Casino, not operating as of petition FIRM
date Rubner & Kutner, P.C.
303 E. 17th Street
Suite 500
Denver, CO 80203
Tel. No: 303/832-2400
NAME OF ATTORNEY
Lee M. Kutner 10966
[X] Debtor estimates that funds will be available for distribution to unsecured
creditors
FILING OF PLAN
<PAGE>
[X] Debtor intends to file a plan within the time allowed by statute, or order
of the court
PRIOR BANKRUPTCY CASE FILED WITHIN LAST 6 YEARS
None
PENDING BANKRUPTCY CASE FILED BY PARTNER OR AFFILIATE OF
THE DEBTOR
None
SIGNATURES
s/s Lee M. Kutner April 21, 1997
CORPORATE OR PARTNERSHIP DEBTOR
I declare under penalty of perjury
that the information provided in
this petition is true and correct
and that I have been authorized to
file this petition on behalf of the
debtor.
s/s Paul J. Montle
Paul J. Montle
Manager of LLC
<PAGE>
UNITED STATES BANKRUPTCY COURT
District of Colorado
RE: Papone's Palace LLC Case No. 97 15695 SBB
Chapter 11
List of Creditors Holding 20 Largest Unsecured Claims
<TABLE>
<CAPTION>
Name & Complete Mailing Address Nature of Claim Contingent, Amount
& Telephone No. Unliquidated,
Disputed or
Sub. to Setoff
<S> <C> <C> <C>
LS Capital Corporation Loans 752,882.00
15915 Katy Freeway, Suite 250
Houston, TX 77094
281/398-5588
Papone's Palace Acquisition Corp. Loans 211,696.00
15915 Katy Freeway, Suite 250
Houston, TX 77094
281/398-5588
Earl Neudecker Loans DISPUTED 59,560.00
POB 280
Bayard, NM 88023
303/841-0877
AFCO Financial Financing 10,653.00
C/o Goodson Insurance Agencies insurance
5600 South Quebec, Suite 200C
Greenwood, CO 80111
303/796-7436
Black Hawk/Central Sanitation Sanitation 4,706.46
Sanitation District
POB 362
Black Hawk, CO 80422
303/582-3422
Kaiser Permanente Health Insurance Trade 2,217.46
Dept. 57
Denver, CO 80281-0057
303/861-3434
Amtech Elevator Service Trade 1,917.76
1500 W. Hampton Ave. # 4B
Englewood, CO 80110
303/761-3131
Colorado Quartermania Fund Trade 1,566.57
Dept. 144
Denver, CO 80271-0144
Public Service Company of Colorado Trade 1,566.32
Bankruptcy Desk, Level 1
990 Bannock St.
Denver, CO 80204
303/623-1234
U.S. West Trade 1,475.06
Rocky Mountain Branch
7200 South Alton Highway, Bldg. 1A1
Englewood, CO 80112
Rocky Mountain News Trade 1,190.28
440 West Colifax
Denver, CO 80202
303/892-6397
<PAGE>
Universal Distributing of Nevada Trade 723.23
745 Grier Drive
Las Vegas, NV 89119
Coors Beer Trade 719.39
1280 W. 47th St.
Denver, CO 80211
303/433-6541
Charles Schayer & Co. Trade 688.82
3839 Newport
Denver, CO 80207
303/399-5160
BFI Industries Trade 594.00
P.O. Box 5455
Denver, CO 80217
303/287-8043
Steve Chalket Trade 408.00
3656 Timberglen, Suite 308
Dallas, TX 75287
Nationwide Storage Trade 342.52
16845 Mt. Vernon Road
Golden, CO 80401
303/277-1658
Equal Wats Trade 321.59
P.O. Box 441085
Houston, TX 77244-1085
City of Central City Water Department 198.00
Box 249
Central City, CO 80427
303/582-1550
</TABLE>
Dated: April 23, 1997 Respectfully submitted,
RUBNER & KUTNER, P.C.
By: s/s Lee M. Kutner
--------------------
Lee M. Kutner # 10966
303 East 17th Avenue, Suite 500
Denver, CO 80203
Telephone: (303) 832-2400
ATTORNEYS FOR PAPONE'S PALACE
LLC
EXHIBIT 10.44
I
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------------------------------------
- ----------
GLENVILLE PROPERTIES INCORPORATED,
Index No. 127087/94
Plaintiff,
-against-
RMS TITANIC, INC., ARNIE GELLER, ALLAN H. CARLIN and WILLIAM S.
GASPARRINI,
Defendants
- ------------------------------------------------------------------------------
- ------------
RMS TITANIC, INC.,
Third Party Plaintiff,
-against-
LONE STAR CASINO CORPORATION, PAUL J.
MONTLE, PAUL V. CULOTTA and ROGER W. COPE,
Third Partly Defendants
- ------------------------------------------------------------------------------
- ------------
STIPULATION
IT IS HEREBY STIPULATED by and between the parties hereto and their
respective attorneys as follows:
1. This action and third-party action, and all causes of action,
counterclaims and third-party claims asserted therein, will be
dismissed as to all parties with prejudice and without costs or
disbursements to any party thereto.
2. RMS Titanic, Inc. ("RMST") shall pay to LS Capital Corporation, formerly
known as Lone Star Casino Corporation ("LS") the sum of $154,272 in twelve (12)
equal monthly installments of $12,855.97 each commencing on September 15, 1996,
subject, however, to acceleration if RMST's Gross Revenues, as defined below
(the "Gross Revenues"), as reported on its Quarterly Report on Form 10-Q or its
Annual Report on From 10-K, as filed with the US Securities and Exchange
Commission (the "SEC"), amounts to the following: (a) in the event RMST reports
Gross Revenues of' $750,000, the, sum of $50,000 will be advanced against the
first $50,000 due under the payout; (b) in the event that RMST reports Gross
Revenues of $1,250.000, an additional sum of $50,000 pursuant (over and above
the $50,000 advanced pursuant to subdivision (a) above) will be advanced against
the next $50,000 due under the payout; and (C) in the event RMST reports Gross
Revenues of $1,750,000 or more, the sum of $54,272 (over and above the
<PAGE>
payments advanced pursuant to subdivisions (a) and (b) above) will be advanced
against the balance due under the payout. The foregoing advances, if any, are to
be paid within fifteen (15) days of RMST's Filing of reports on Form 10-Q and
Form 10-K, as may be applicable. If any such advance payment is made late as a
result of RMST' failure to timely file a report, daily interest at the. annual
rate of eight (8%) percent shall be added to the advance payment due for each
day payment is late. For purposes of the foregoing, the term "Gross Revenues"
shall mean Gross Revenues reflected on RMST's Statement of Operations included
within its Form 10-Q and Form 10-K filings with the SEC, less the sum of Eight
Hundred Twenty Thousand Dollars ($820,000), commencing with the Form 10-Q filing
for the quarter ended August 3 1, 1996. Each of the foregoing payments shall be
made payable to "Storch & Brenner, In Trust for LS Capital Corporation," and
shall be made by wire transfer, certified check or cashier's check.
3. Within fifteen (15) days from the date hereof, RMST shall authorize the
issuance of Fifteen Thousand (15,000) shares of' its unregistered Common Stock
to Allan H. Carlin, Esq., as escrow agent (the "Escrow Agent"), with such shares
(the"Escrow Shares") to be held by the Escrow Agent subject to the terms and
conditions of the Escrow Agreement annexed hereto. In the event that RMST's
Gross Revenues are less than $750,000 for its quarter ending October 31, 1996,
Five Thousand (5,000) of the Escrow Shares shall be transferred by the Escrow
Agent to Lone Star's counsel, Storch & Brenner, in trust, registered to "LS
Capital Corporation," within fifteen (15) days of the filing of the Form 10-Q
for such quarter ending October 31 , 1996. In the event that RMST's Gross
Revenues are less than $1,250,000 for its six months ending February 28, 1997,
Five Thousand (5,000) of the Escrow Shares shall be transferred by the Escrow
Agent to Lone Star's counsel, Storch & Brenner, in trust, registered to "LS
Capital Corporation," within fifteen (15) days of the filing of the Form 10-K
for its fiscal year ended February 28, 1996. In the event RMST's Gross Revenues
are $1,250,000 or more for its six months ending February 29, 1997, FiveThousand
(5,000) of Escrow Shares shall be transferred by Escrow Agent to RMST for
cancellation by RMST within fifteen (15) days of the filing of RMST's Form 10-K
for its fiscal year ended February 28, 1996 . In the event that RMST's Gross
Revenues are less than $1,750,000 for its nine months ended May 31 , 1997, Five
Thousand (5,000) of the Escrow Shares shall be transferred by the Escrow Agent
to Lone Star's counsel, Storch & Brenner, in trust, registered to "LS Capital
Corporation," within fifteen (15) days of the filing of RMST's Form 10-Q for its
quarter ended May 31, 1997. In the event that RMST's Gross Revenues are
$1,750,000 or more for its nine months ended May 31, 1997, Five Thousand (5,000)
of the Escrow Shares shall be transferred by the Escrow Agent to RMST for
cancellation by RMST within fifteen (15) days of the filing of RMST's Form 10-Q
for its quarter ended May 31, 1997. If any such transfer of shares to RMST is
made late as a result RMST's failure to timely file a report, the number of
shares to be transferred in each instance shall be increased by an amount equal
to the number of shares originally to be transferred multiplied by the average
of the high bid and low ask of RMST stock, on the transfer originally was to be
have been made if RMST's reports had been timely filed, multiplied by eight
percent (8%), and further multiplied by a fraction, the numerator of which shall
be the number of days the transfer was late and the denominator of which shall
be 360.
4. LS and Glenville Properties Incorporated ("Glenville") hereby represent and
acknowledge that: (a) a certain promissory note dated May 4, 1993 in the
principal amount of $500,000 by RMST in favor of Lone Star is hereby satisfied
and is returned to RMST simultaneously herewith the endorsement"Canceled";
(b)the security interest
<PAGE>
granted by RMST to Lone Star in 537 coins recovered from the Titanic wreck site
(the "Coins") pursuant to a certain Pledge Agreement dated May 4, 1993 is
terminated and canceled; (c) Allan H. Carlin, Esq,. as Bailee under a certain
Bailment and Agency Agreement dated May 4, 1993, is hereby instructed and
authorized to deliver the Coins to RMST without further notice.
5. In consideration of the satisfaction of liabilities previously owed by REST
to Travis Partners ("Travis") in the amount of $20,845.29 and Viral Testing
Systems Corp.. ("VS") in the amount of $19,194.56, RMST shall immediately issue
Forty Thousand (40,000) shares of its unregistered Common Stock to Lone Star and
deliver such shares to Lone Star's counsel, Scorch & Brunner, in trust. L.S.
hereby represents that it has paid the foregoing amounts to Travis and V.S., and
Travis hereby represents that it has received payment from L.S. for the
foregoing obligation owed by RMST.
6. L-S's sale, transfer or other disposition of the Escrow Shares and the 40,000
unregistered shares to be issued pursuant to paragraph 5 hereof (collectively
the "Shares") shall be subject to the resale provisions, limitations and other
requirements under Regulation S or Rule 144 promulgated by the SEC under the
Securities Act of 1933, as amended, (the "Act"), including, but not limited to,
any applicable holding period, volume and other limitations, and the requirement
for the filing of Form 144, it applicable. L.S. will provide to RMST one or more
opinions of Messrs. Scorch & Brenner, or such other counsel as RMST, in its sole
and absolute discretion, deems acceptable, as to the free tradeability the
Shares transferred by L.S. without registration and specifying the specific
exemption from registration relied upon. All such opinions shall be reasonably
satisfactory in form and substance. to RMST.
7. L.S. represents and warrants that it is acquiring the Shares to issued and
transferred to it pursuant to this Stipulations (the"Settlement Shares") for
investment and with not a view to the distribution thereof. L.S. will not engage
in any hedging transactions in the United States with respect in any of the
Settlement Shares, such as short selling "against the box" before such
Settlement Shares become freely transferrable as aforesaid. L.S. will obtain
from any foreign person to whom it transfers any Settlement Shares substantially
the same representations, warranties and agreements as those made by L.S. with
respect to such Settlement Shares pursuant to this Stipulation, and such other
representations, warranties and agreements as may be required under the Act so
as to permit the transfer of any such Settlement Shares to such foreign person.
L.S. further acknowledges that a legend shall be endorsed on the certificates
evidencing the Settlement Shares to the effect that the sale, assignment or
other transfer or disposition thereof is prohibited except in accordance with
the provisions of Regulation S or Rule 144 or other available exemption from
registration under the Act.
8. Glenvil1e, L.S., Travis, Paul J. Montle ("Montle"), Paul V. Culotta
("Culotta") and
Roger W. Cope ("Cope") shall each execute and deliver to Allan H. Carlin, Esq.,
counsel for REST, general releases in duplicate in the form and annexed to this
Stipulation as Exhibit A in favor of each of REST, Arnie Geller, William S.
Gasparrini and Allan H. Carlin. REST, Arnie Geller, William S. Gasparrini and
Allan H. Carlin shall execute and deliver to Scorch & Brunner, counsel for L.S.,
general releases in duplicate in the form annexed to this Stipulation in favor
of each of Glenville, L.S., Travis, Montle, Culotta and Cope.
<PAGE>
9. Each party to this Stipulations represents and warrants to the
others that: (a)This Stipulation has been duly executed and delivered by him or
it and constitutes his or its
legal, valid and binding obligations, enforceable in accordance with its terms;
(b) No consents or approval of, or notices to or filings with, any person are
required in connection with party's execution, delivery and performance of this
Stipulation; (C) The parties have each received independent legal advice from
attorneys of their choice with respect to the advisability of making the
settlement and the releases provided for herein, and with respect to the
advisability of entering into this Stipulation; (d) Except as expressly set
forth in this Stipulation, the defendants have made no statements,
representations or warranties to the plaintiff, third party-defendants or
Travis, and the plaintiff, third-party defendants, or Travis have made no
statements, representations or warranties to the defendants, regarding any fact
relied upon by that party in entering into this Stipulation, and (ii) the
plaintiff, third-part-defendants, and Travis specifically do not rely upon any
statement, representation, warranty or promise of any defendant, and the
defendants specifically do not rely upon any statement, representation, warranty
or promise of the plaintiff, third-party defendants, and Travis in entering into
this Stipulation or in making the settlement and releases provided for herein;
(e) each party has made such investigation of the facts pertaining to this
Stipulation, and of all the matters pertaining hereto, as each deems necessary;
(f) Nothing in this Stipulation constitutes an admission of breach of any
agreement or violation of the law.
10. This Stipulation contains the entire agreement between the parties thereto,
and supersedes and replaces all prior negotiations and proposed agreements,
written or oral, regarding the settlement of the controversies herein.
11. This Stipulation shall be construed in accordance with the substantive law
of the State of New York.
12. The exclusive forum for resolution of any controversies arising out of or
relating to this Stipulation will be the Supreme Court of the State of New York,
County of New York, which will retain jurisdiction for the purposes of resolving
any such controversies.
13. This Stipulation may be executed in multiple counterparts.
GLENVILLE PROPERTIES, INCORPORATED
By:
- -------------------------------------
LS CAPITAL CORPORATION
By: s/s Paul J. Montle
- ----------------------------------------
TRAVIS PARTNERS
By: s/s Paul J. Montle
RMS TITANIC, INC.
By: s/s Allan H. Carlin
- -------------------------------------------
s/s Paul J. Montle
- -----------------------------------------
s/s Paul V. Culotta
- -------------------------------------------
s/s Roger W. Cope
- ---------------------------------------------
s/s Arnie Geller
- ----------------------------------------
s/s William S. Gasparrini
- --------------------------------------------
s/s Allan H. Carlin
- ---------------------------------------------
Storch & Brenner
Attorneys for Plaintiff and Third-Party Defendants
By: s/s Richard S. Kraut
- -------------------------------------------
s/s Allan H. Carlin
- ---------------------------------------------------
Allan H. Carlin
Altorney for Defendants and Third-Party Plaintiff
EXHIBIT 10.45
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ------------------------------------------------------------------------------
- ---------
GLENVILLE PROPERTIES INCORPORATED,
Index No. 127087/94
Plaintiff,
-against-
<PAGE>
RMS TITANIC, INC., ARNIE GELLER,
ALLAN H. CARLIN and WILLIAM S.
GASPARRINI,
Defendants.
- -----------------------------------------------------------------
RMS TITANIC, INC.
Third Party Plaintiff,
-against-
LONE STAR CASINO CORPORATION, PAUL J.
MONTLE, PAUL V. CULOTTA and ROGER W.
COPE,
Third Party Defendants.
- ----------------------------------------------------------------------------
AMENDMENT TO STIPULATION
The Stipulation by and between the parties hereto and their respective
attorneys, dated as of January 15, 1997, hereby is amended as follows:
1 . Each of the payments to be made by RMS Titanic, Inc. pursuant to
paragraph 2 of the Stipulation shall be made payable to "Commissioner of
Finance, City of New York" and shall be made by wire transfer, certified check
or cashier's check. Upon receipt of each such payment the Commissioner of
Finance, City of New York shall remit one-half of each such aforementioned
payment to LS Capital Corporation and one-half of each such aforementioned
payment to Storch & Brenner, counsel for LS Capital Corporation, by draft, until
such time as the balance due by LS Capital Corporation to Storch & Brenner has
been paid in full, whereupon Storch & Brenner shall give written notice to the
Commissioner of Finance and to LS Capital Corporation that such balance has been
paid in full, and thereafter the Commissioner of Finance shall pay to LS Capital
Corporation any remaining balances or amounts paid to him by RMS Titanic, Inc.
Payments previously made to Storch & Brenner, in trust for LS Capital
Corporation, aggregating $65,256.95, shall be remitted forthwith by Storch &
Brenner to the Commissioner of Finance, City of New York by wire transfer or
draft. Upon receipt of the aforementioned sum of $65,256.95, the Commissioner of
Finance, City of New York forthwith shall remit $32,628.48 to LS Capital
Corporation and $32,628.47 to Storch & Brenner by draft.
2. The stock certificate representing forty thousand (40,000) shares of common
stock of RMS Titanic, Inc., Certificate No. 1029, registered in the name of LS
Capital Corporation and presently held by Storch & Brenner in trust for LS
Capital Corporation, shall be delivered forthwith to the Commissioner of
Finance, City of New York, who shall, in turn, deliver forthwith the stock
certificate to LS Capital Corporation.
3. In all other respects, the Stipulation shall remain unchanged.
4. This Amendment to Stipulation may be executed in multiple couuterparts.
Dated as of July _, 1997.
<PAGE>
GLENVILLE PROPERTIES, INC.
By:___________________________
LS CAPITAL CORPORATION
By: s/s Paul J. Montle
- ---------------------------
TRAVIS PARTNERS
By: s/s Paul J. Montle
- ---------------------------
Paul J. Montle
RMS TITANIC, INC,
By: s/s Allan H. Carlin
- ----------------------------
Allan H. Carlin
s/s Paul J. Montle
- -------------------------------
Paul J. Montle
/s/ Paul V. Cullota
- -------------------------------
Paul V. Culotta
s/s Roger W. Cope
- -------------------------------
Roger W. Cope
s/s Arnie Geller
- ----------------------------------
Arnie Geller
s/s William S. Gasparrini
- ----------------------------------
William S. Gasparrini
s/s Allan H. Carlin
- ----------------------------------
Allan H. Carlin
s/s Richard S. Kraut
- -----------------------------
Storch & Brenner
Attorneys for Plaintiff and Third-Party Defendants
s/s Allan H. Carlin
- -----------------------------------
Allan H. Carlin
Attorney for Defendant and Third-Party Plaintiff
EXHIBIT 10.46
AGREEMENT
THIS AGREEMENT is dated this 30th day of June, 1997, by and between GFL
Ultra Fund, Ltd. ("Ultra"), a British Virgin Islands corporation, and
LS Capital Corporation ("LS"), a Delaware corporation.
I.
PURPOSE OF AGREEMENT
The purpose of this Agreement is (1) to settle and resolve all disputes
between the parties, including but not limited to, those allegations
raised in the litigation entitled GFL Ultra Fund v. Lone Star Casino
Corporation, Cause No. H-96-1423 presently pending in the United States
District Court for the Southern District of Texas, Houston Division
(the "Litigation") and (2) to establish a procedure by which Ultra will
convert the preferred shares it presently holds in LS.
II.
SETTLEMENT OF LITIGATION
LS agrees to pay Ultra $100,000, $25,000 of which is to be paid on or before
July 15, 1997, $50,000 of which is to be paid on or before September 30, 1997,
and $25,000 of which is to be paid on or before December 31, 1997. If all
payments are made on or before the described date, there will be no interest
owed on the payments. The payments will be secured by an Agreed Judgment, a copy
of which is attached hereto as Exhibit A, which LS will execute at the time of
the signing of this Agreement. Ultra hereby covenants not to execute on the
Agreed Judgment so long as payments are made timely. If any payment is
not
made timely, GFL will immediately execute on the Agreed Judgment after giving
5-days' notice to L-S. Notice shall be sent to 15915 Katy Freeway #250, Houston,
Texas 77084 and shall be deemed received by LS 3 days after said notice was
deposited by Ultra in the U.S. mails, first class, postage prepaid. Any
execution on the Agreed Judgment entered shall give credit for all amounts paid
by LS prior to the entry of the Agreed Judgment. However, Ultra shall be
entitled to its costs and attorneys' fees in the event execution on the Agreed
Judgment becomes necessary, as well as interest at the rate of 18% per annum on
any late payments.
<PAGE>
III.
CONVERSION PROCEDURE
3.1 Simultaneously with the execution of this Agreement, Ultra agrees
to provide a legal opinion to the Escrow Agent and LS that the Escrowed
Shares can be resold under the securities laws of the United States.
The parties hereby agree that at the time of execution of
this Agreement, Ultra will convert its remaining Preferred shares in return for
600,000 shares of common stock of LS, which shall be deposited in escrow with an
escrow agent mutually agreed to by the parties (the "Escrowed Shares"). Escrow
fees shall be borne by Ultra. Attached hereto as Exhibit B are the form of
Escrow Instructions which will be provided to the Escrow Agent regarding the
Escrowed Shares. On or before June 30, 1997, LS shall prepare and execute any
and all other documents necessary to effectuate the transfer of the common
shares to Ultra, including but not limited to the following document Letter of
Instruction. The common shares deposited shall be in 25 certificates of 24,000
shares each for a total of 600,000 shares. Ultra shall be entitled to sell the
remaining shares, 24,000 per month for the next 24 months. All shares shall be
unlegended and shall not be subject to any stop-transfer restriction.
3.2 Dividend and Shares: if LS distributes shares of any other publicly
traded company to its shareholders, the shares received by Ultra shall be held
by the Escrow Agent and can only be sold in monthly amounts equal to the total
number of shares received divided by the number of months remaining on this
Agreement.
3.3 Ultra agrees to provide the Escrow Agent and LS with
confirmations of sales of the Escrowed Shares at least once
each month. Once Ultra receives $600,000 in proceeds net of
commissions from the sale of the Escrowed Shares, the escrow
agent shall return the balance of the Escrowed Shares to LS.
IV.
MUTUAL RELEASES
With the exception of the obligations undertaken in this
Agreement and in the document necessary to effectuate the
transfer of the common shares to Ultra, the parties agree to
release and discharge the other from any and all claims,
demands or suits, known or unknown, fixed or contingent,
liquidated or unliquidated, whether or not asserted in this
Litigation, as of this date, arising from or relating to the
events and transactions which are the subject matter to the
Litigation. This Mutual Release runs to the benefit of all
attorneys, agents, employees, officers, directors,
shareholders, parents, affiliates, and partners of the
parties. Ultra acknowledges that LS is not guaranteeing that
Ultra will receive $600,000 for the sale of the 600,000
shares,
<PAGE>
V.
MISCELLANEOUS
5.1 Each party agrees that the terms of this settlement are to be held
confidential and not to be disclosed to any third party unless the
other party hereto consent in writing or unless ordered to do so by a
court of competent jurisdiction.
5.2 Each signatory hereto warrants and represents that he or
she has authority to bind the party for whom that signature
purports to act and that the claims, suits, right and/or
interest which are the subject matter hereto are owned by the
party asserting same, have not been assigned, transferred or
sold, and are free of encumbrance.
5.3 This agreement is made and performable in Harris
County, Texas and shall be construed in accordance with the
laws of the State of Texas as they presently exist.
5.4 Each Signatory to this settlement has entered
into the same freely without duress, having consulted with
professionals of his/her choice.
5.5 The parties agree that this Agreement is made pursuant to Section 154-071 of
the Civil Practice and Remedies Code and is not subject to revocation.
5.6 This Agreement represents the entire agreement of the par-ties hereto and
may not be changed orally, but only in writing,
LS CAPITAL CORPORATION
By: s/s Paul J. Montle
- ---------------------------
Paul J. Montle, President
GFL ULTRA FUND. LTD,
By: s/s A.P. deGroot
- ---------------------------
A.P. deGroot, President
EXHIBIT 10.47
EXPLORATION AGREEMENT AND OPTION TO LEASE
This Agreement is made and effective as of the ___ day of
_______________, 19__, by and between CHARLES JACKSON, MARIE UNRUH, JAMES
HOPKINS, SR., TRACY HOPKINS, RICK JACKSON, MARA JACKSON, PAUL JACKSON and JARED
JACKSON (hereinafter referred to as "LICENSOR") and GRIFFIN GOLD GROUP, INC., a
Delaware corporation, (hereinafter referred to as "LICENSEE"), agree as follows:
1. Description of Property/Grant of Exploration Rights.
LICENSOR is the owner of all or part of the unpatented placer mining
claims described in EXHIBIT "A" attached hereto. LICENSOR grants to LICENSEE the
exclusive right to explore LICENSOR's ownership interest in the property set
forth in EXHIBIT "A" (LICENSOR's interest is hereinafter referred to as the
"PREMISES").
2. Term.
The term of this Agreement shall be five (5) years, unless terminated
earlier or extended. LICENSEE shall have the right to extend for two additional
five (5) year terms upon the payment of Five Hundred Dollars ($500.00) for each
such extension.
3. Consideration.
In consideration for the granting of the exploration rights set forth
herein, LICENSEE agrees to pay to LICENSOR each year in which this Agreement is
in effect on or before the anniversary date, the sum of Five Hundred Dollars
($500.00). Upon execution of this Agreement, LICENSEE shall pay the sum of One
Thousand Dollars ($1,000.00) which shall be full consideration for the first and
second year's payments. LICENSORS authorize Rick Jackson to receive such
payments for them, for their benefit, as follows:
Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
4. Conduct of Operations.
During the term of this Agreement, LICENSEE shall have possession of,
and free and unrestricted access to, the PREMISES and shall have the right to
explore, investigate, measure, sample (including bulk sample), examine, test,
work, use, manage, control and develop the PREMISES. LICENSOR shall receive an
accounting and production royalty, pursuant to the terms of the Mining Lease
attached hereto as EXHIBIT "B", for all ores, minerals and concentrates removed
and sold from the PREMISES. LICENSEE may trench or drill any part of the
PREMISES, may
<PAGE>
rehabilitate existing mine workings, construct new workings, and may erect,
construct, use, and maintain on the PREMISES such roads, building structures,
equipment and machinery as in its sole discretion it may deem necessary to its
operations.
5. Notice.
Any notices required or permitted to be given to LICENSOR or LICENSEE
hereunder shall be given in the manner provided herein and be considered as
delivered and received when the same are delivered in person or received by the
addressee following deposit in the United States mail by registered mail, return
receipt requested, with postage prepaid. All notices given hereunder shall be
addressed to the persons and addresses given below or such other persons or
addresses as the parties may designate from time to time. Any change in the
names and/or addresses of the persons listed below shall be effective thirty
(30) days from the giving of the notice to the other party as provided herein.
LICENSEE: Griffin Gold Group, Inc.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
LICENSOR: Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
6. Termination.
Upon termination or surrender under the terms of this License, all
rights of LICENSEE under this Agreement, except as provided in Paragraph 11.,
shall terminate and all payments heretofore made under this Agreement shall be
retained by LICENSOR as full compensation, as rental, for the use and occupancy
of said PREMISES and as consideration for which this Agreement is given.
7. Insurance.
LICENSEE shall, at its sole expense, cause to be issued and
maintained during the term of this Agreement, or any extension thereof,
workmen's compensation insurance coverage in accordance with the provisions of
California law.
<PAGE>
8. Indemnity.
LICENSEE shall protect and indemnify and hold LICENSOR harmless from
and against any and all claims, actions or causes of action, including, without
limitation, employees of LICENSEE, contractors and employees of contractors of
LICENSEE, for injury to or death of persons or damage to property arising out of
or in connection with LICENSEE's exploration activities.
9. Compliance With Laws.
LICENSEE shall conduct all exploration activities in full compliance
with the applicable laws and regulations of the State of California and the
United States of America including, but not limited to, the provisions of the
Federal Land Management and Policy Act of 1976 and the regulations promulgated
pursuant thereto.
10. Option to Lease.
During the term of this Agreement, or during the term of any
extension hereof, LICENSEE may exercise an option to lease the PREMISES pursuant
to the terms and conditions set forth in the Mining Lease attached hereto as
EXHIBIT "B" and made a part hereof as though set forth in its entirety. The
option to lease shall be deemed exercised when LICENSOR has received a certified
check in the amount of Five Thousand Dollars ($5,000.00), together with two (2)
copies of EXHIBIT "B" that have been executed by LICENSEE. LICENSOR shall sign
one copy and return it promptly to LICENSEE. If LICENSOR is the owner at the
date of exercise of this option of less than one hundred percent (100%) of the
title to the PREMISES, LICENSOR shall receive an amount equal to LICENSOR's
percentage ownership multiplied by Five Thousand Dollars ($5,000.00) pursuant to
this paragraph.
11. Removal of Property.
LICENSEE shall have, and it is hereby given and granted, ninety (90)
days after a valid forfeiture, surrender, or other termination of this
Agreement, to remove from the PREMISES all machinery, equipment, personal
property and improvements erected or placed in or upon the said property by
<PAGE>
it. If not so removed by LICENSEE within said ninety (90) day period, titles to
unremoved property will then vest in LICENSOR.
12. Information.
12.1
If the Option to Lease contained in Paragraph 10 is not exercised and
this Agreement is terminated, LICENSOR may, within ninety (90) days, request,
and if requested, LICENSEE shall supply LICENSOR copies of all Information as
defined below. As used in this Agreement, "Information" shall mean all
geological, geophysical and geochemical data, maps and reports, whether
acquired, generated or compiled by or for LICENSEE. LICENSEE warrants that all
information supplied to LICENSOR pursuant to the terms of this provision shall
be true and accurate copies of the Information acquired, generated or compiled
by or for LICENSEE; provided, however, that LICENSEE does not warrant that the
data contained therein is an accurate interpretation of the geology described
therein.
12.2
Any and all data, information, reports and samples provided by
LICENSEE to LICENSOR under the terms of this Agreement shall be treated and held
confidential for the term of this Agreement, and for the term of the Mining
Lease attached as EXHIBIT "B", if LICENSEE should exercise its Option to Lease.
13. Default and Termination.
13.1
Default.
The occurrence of any of the following events shall constitute
an event of default on the part of LICENSEE:
13.1.1 Breach of Covenants.
Failure (i) to perform any of LICENSEE's covenants hereunder,
including, but not
<PAGE>
limited to the failure to make a payment under Paragraph 3 herein, and (ii) to
remedy such failure within ninety (90) days after written demand is made
therefor.
13.1.2 Assignments.
The making of a general assignment by LICENSEE for the benefit
of creditors.
13.1.3 Bankruptcy.
The filing of any form of voluntary petition in bankruptcy by
LICENSEE, or the filing of an involuntary petition by LICENSEE's creditors,
if such petition remains undischarged for a period of thirty (30) days.
13.1.4 Receivership.
The appointment of a receiver to take possession of
substantially all of LICENSEE's assets or of the interest held by LICENSEE
under this Agreement, if such receivership remains undissolved for a period of
thirty (30) days.
13.1.5 Attachment.
The attachment or other judicial seizure of substantially all
of LICENSEE's assets or of the interest held under this Agreement, if such
attachment or other seizure remains un dismissed or undischarged for a
period of thirty (30) days after the levy thereof.
13.2 Remedies.
In the event of the occurrence of any event of default
mentioned in Paragraph 13.1 hereof, LICENSOR shall have the right, so long as
default continues, to immediately terminate this Agreement by giving LICENSEE
written notice of such termination.
14. Inurement.
All covenants, conditions, limitations and provisions herein contained
apply and are binding upon the parties hereto and their heirs, devisees,
successors and assigns.
15. Force Majeure.
If, because of force majeure, LICENSEE is unable to carry out any of
its obligations under this
<PAGE>
Agreement, the obligation of LICENSEE shall be excused to the extent made
necessary by such force majeure and this Agreement shall be extended by a length
of time equal to its continuance not to exceed maximum term permitted by law.
The term "force majeure" as used herein shall include, but not be limited to,
acts of God, acts of civil or military authority, acts of war or the public
enemy, legislation, acts or orders of any court, acts or failure to act of
regulatory agencies or administrative bodies having jurisdiction with respect to
the performance of this Agreement, insurrections, riots, strikes, boycotts or
other labor disturbances, fire, flood, windstorm, explosion and other causes not
within the reasonable control of the parties directly affected and claiming
suspension of its obligation whether or not like or similar to the causes or
occurrences specifically enumerated above.
16. Title.
Each LICENSOR covenants that said LICENSOR now owns and is in actual
possession of an undivided one-eighth interest in the PREMISES free and clear
from all former grants, sales, liens, or encumbrances of any kind, and that
there are no delinquent taxes; and agrees to furnish LICENSEE upon request such
abstracts, deeds, or other evidence of title as may be in LICENSOR's possession
and control. LICENSEE may elect to correct any defects it determines exist in
title to the PREMISES, including, but not limited to, amendment, relinquishment,
relocation of existing claims and location of additional claims over fractions
within the PREMISES.
17. Counterparts.
This Agreement may be signed in counterparts and shall be deemed
effective when all parties have executed this Agreement or any counterpart
thereof.
18. Complete Agreement.
This Agreement and all the terms and covenants contained herein are
deemed to be the complete and unequivocal written agreement of the parties and
no other agreements, either written or oral,
<PAGE>
are contemplated with respect to said PREMISES.
19. Recordation.
This Agreement shall not be recorded, however, the Memorandum of
Exploration Agreement with Option to Lease attached hereto as EXHIBIT "C" shall
be executed and recorded promptly following the execution of this Agreement.
LICENSOR:
-----------------------------------
CHARLES JACKSON
-----------------------------------
MARIE UNRUH
-----------------------------------
JAMES HOPKINS, SR.
-----------------------------------
TRACY HOPKINS
-----------------------------------
RICK JACKSON
-----------------------------------
MARA JACKSON
-----------------------------------
PAUL JACKSON
-----------------------------------
JARED JACKSON
LICENSEE:
GRIFFIN GOLD GROUP, INC.
By ____________________________________
Paul J. Montle
Its Vice-President
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
Table of Contents
1. Description of Property/Grant of Exploration Rights................ 1
2. Term............................................................... 1
----
3. Consideration....................................................... 1
-------------
4. Conduct of Operations............................................... 2
---------------------
5. Notice.............................................................. 2
------
6. Termination......................................................... 3
-----------
7. Insurance........................................................... 3
---------
8. Indemnity........................................................... 3
---------
9. Compliance With Laws................................................ 3
--------------------
10. Option to Lease..................................................... 4
---------------
11. Removal of Property................................................. 4
-------------------
12. Information......................................................... 4
-----------
13. Default and Termination............................................. 5
-----------------------
13.1 Default............................................................. 5
-------
13.1.1 Breach of Covenants................................................ 5
-------------------
13.1.2 Assignments............................................ 5
-----------
13.1.3 Bankruptcy............................................ 5
----------
13.1.4 Receivership.......................................... 6
------------
13.1.5 Attachment............................................ 6
----------
13.2 Remedies.......................................................... 6
--------
14. Inurement......................................................... 6
---------
15. Force Majeure..................................................... 6
-------------
16. Title.............................................................. 6
17. Counterparts...................................................... 7
------------
18. Complete Agreement................................................ 7
------------------
19. Recordation...................................................... 8
-----------
<PAGE>
EXHIBIT "A"
UNPATENTED PLACER MINING CLAIMS
Located in Inyo County, California
<TABLE>
<CAPTION>
Inyo County
Township/Range Date of Document
Claim Name Section SBB&M Location Number
CAMC
<S> <C> <C> <C> <C>
Amanda #7 6 20 N./7 E. 5-4-96 96-2325
269230
Amanda #8 6 20 N./7 E. 5-4-96 96-2326
269231
Amanda #9 6 20 N./7 E. 5-5-96 96-2327
269232
Amanda #10 5 20 N./7 E. 5-5-96 96-2328
269233
Amanda #11 6 20 N./7 E. 5-5-96 96-2329
269234
Amanda #12 7 20 N./7 E. 5-5-96 96-2330
269235
Amanda #13 7 20 N./7 E. 5-5-96 96-2331
269236
Amanda #15 8 20 N./7 E. 5-5-96 96-2332
269237
Amanda #19 9 20 N./7 E. 5-6-96 96-2333
269238
Amanda #20 4 20 N./7 E. 5-6-96 96-2334
269239
</TABLE>
<PAGE>
EXHIBIT "A"
UNPATENTED PLACER MINING CLAIMS
Located in San Bernardino County, California
<TABLE>
<CAPTION>
San Bernardino County
Township/Range Date of Document
Claim Name Section SBB&M Location Number
CAMC
<S> <C> <C> <C> <C>
Kurtise #1 35 11 N./4 E. 6-16-96 1996-0260770
269295
Kurtise #2 35 11 N./4 E. 6-16-96 1996-0260773
269296
Kurtise #3 35 11 N./4 E. 6-16-96 1996-0260775
269297
Kurtise #4 35 11 N./4 E. 6-16-96 1996-0260778
269298
Kurtise #9 2 10 N./4 E. 6-16-96 1996-0260781
269299
Kurtise #10 2 10 N./4 E. 6-16-96 1996-0260780
269300
Kurtise #11 2 10 N./4 E. 6-17-96 1996-0260783
269301
Kurtise #12 2 10 N./4 E. 6-17-96 1996-0260784
269302
Kurtise #13 11 10 N./4 E. 6-17-96 1996-0260786
269303
Kurtise #14 11 10 N./4 E. 6-17-96 1996-0260787
269304
Kurtise #15 11 10 N./4 E. 6-18-96 1996-0260788
269305
Kurtise #16 11 10 N./4 E. 6-18-96 1996-0260790
269306
</TABLE>
<PAGE>
EXHIBIT "B"
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
MINING LEASE
This Agreement is made and effective as of the ___ day of_________, 19__, by and
between CHARLES JACKSON, MARIE UNRUH, JAMES HOPKINS, SR., TRACY HOPKINS, RICK
JACKSON, MARA JACKSON, PAUL JACKSON and JARED JACKSON (hereafter referred to as
"LESSOR"), and GRIFFIN GOLD GROUP, INC., a Delaware corporation, (hereafter
"LESSEE").
1. DESCRIPTION OF PROPERTY.
LESSOR is the owner of all or part of the unpatented placer mining claims
described on EXHIBIT "A" attached hereto.
2. GRANT OF LEASE.
2.1 LESSOR hereby leases
exclusively to LESSEE, subject to the terms and conditions hereinafter
expressed,
LESSOR's interest in the property set forth in EXHIBIT "A" attached hereto
(LESSOR's interest is hereafter referred to as "LEASED PROPERTY").
2.2 This lease is granted for the purpose of the exploration, development, and
mining of the LEASED PROPERTY for minerals as may be found therein (hereinafter
referred to as the "Leased Minerals"). LESSEE is hereby granted the exclusive
right to enter into possession of the LEASED PROPERTY, and during the term of
this lease, to remain in possession thereof, and to develop, mine, operate and
use the property and any surface or underground rights, including but not
limited to access, and water or water rights, and to mine, extract and remove
from the LEASED PROPERTY the Leased Minerals and to treat, mill, ship, sell or
otherwise dispose of the same and receive the full proceeds thereof (subject to
the obligation of royalty payment as specified below); and to construct, use and
operate thereon and therein structures, excavations, roads, equipment
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
and other improvements or facilities which LESSEE shall deem reasonably required
for, or in connection with, the full enjoyment of the rights and interests
granted to LESSEE by this lease.
3. TERM OF LEASE.
The term of this Mining Lease shall be for twenty (20) years from and after the
date of this lease and for so long thereafter as LESSEE is in production on
properties located within a five (5) mile radius of the nearest LEASED PROPERTY.
For purposes of this paragraph, production shall be defined as the processing of
ore. LESSEE may terminate this lease at any time by delivery to LESSOR of a
quitclaim deed to the LEASED PROPERTY, provided that LESSEE is not then in
default under the terms of this lease.
4. ROYALTIES AND CONSIDERATION.
4.1 Advance Minimum Royalty.
LESSEE shall pay to LESSOR advance minimum royalties
as follows:
a) Upon execution of this agreement $1,000.00
b) On or before the anniversary date
and each anniversary date thereafter $1,000.00
4.2 Production Royalties.
4.2.1A production royalty for all minerals mined, removed, and sold from the
property set forth in EXHIBIT "A" equal to 2.5 percent (2.5%) of the Smelter
Returns shall be calculated. LESSOR, as defined in this Agreement, shall receive
a percentage of the production royalty calculated equal to LESSOR's actual
ownership interest of the property described in EXHIBIT "A".
4.2.2The term "Smelter Returns" shall be defined to be the gross amount received
from the
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
sale of valuable minerals after recovery of all exploration, development, and
capital costs and less all taxes levied, incurred or imposed on the sale,
severance or production of such minerals and less costs of extraction, mining,
milling, treating, transportation to the smelter and/or refinery, smelting and
refining charges and costs of sale.
4.3 Manner of Payment.
4.3.1All
minerals mined, removed and extracted from the LEASED PROPERTY shall be sold
under the name of
LESSEE and a royalty settlement sheet accounting for such transactions shall be
furnished to LESSOR on or before the twenty-fifth (25th) day of the next
succeeding calendar month for all sales made and received during the preceding
calendar quarter. All production royalty payments, accompanied by a settlement
sheet required by this lease, shall be made to LESSOR at the address set forth
in Paragraph 12.1 below, or such other person or address as LESSOR shall
designate by written notice pursuant to the provisions of Paragraph 8 by mail or
personal delivery. LESSEE shall receive a cumulative credit against production
royalties for all minimum royalties paid pursuant to this lease agreement
regardless of the year in which said minimum royalties are paid and production
royalties shall not be payable until the production royalty set forth in
Paragraph 4.2 exceeds the cumulative sums paid by LESSEE pursuant to Paragraph
4.1. If the Leased Minerals are sold to, or processed by, a smelter or refinery
owned, operated, affiliated with or controlled by LESSEE, in no event shall the
royalties computed herein be less than would have been paid had the ore been
sold to or processed by a major smelter or refinery not owned, operated,
affiliated with, or controlled by LESSEE.
5. CONDUCT OF MINING OPERATIONS.
5.1 General.
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
LESSEE shall conduct, and cause all mining activities to be conducted in a
prudent, workmanlike, miner-like manner in accordance with established mining
practices.
5.2 Commingling of Ore.
LESSEE may commingle ore from the LEASED PROPERTY with ore from
other properties, either before or after concentration or beneficiation,
provided that the method and procedures LESSEE uses to commingle the ore and to
determine the weight and grade of the ore removed from the LEASED PROPERTY and
of the ore with which it is commingled shall be a method recognized by the
mining industry and conducted in accordance with generally accepted accounting
principles. LESSEE shall use that method to determine weight and grade and to
allocate net returns from the commingled ore between the LEASED PROPERTY and the
other properties from which the other commingled ore was removed and to assure
that the share of production received by LESSOR is representative of the ore
that was produced from the LEASED PROPERTY. All such weight, grade and
allocation calculations by LESSEE shall be done in accordance with generally
accepted accounting principles and in a manner recognized by the mining industry
as practical and sufficient at that time. If it is impractical to determine
which por tions of any of the costs and expenses described in Paragraph 4.2.2
above are directly attributable to ore removed from the LEASED PROPERTY, such
costs and expenses shall be allocated on a straight-line, per-ton basis among
all ores that give rise to those expenses, in accordance with acceptable
accounting standards.
5.3 Cross-Mining Rights.
LESSEE is hereby granted the right, if it so desires, to mine or remove from the
LEASED PROPERTY any ores, waste, water and other materials existing therein or
thereon or in any part thereof, through or
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
by means of shafts, openings or pits which may be sunk or made upon other
property owned, controlled, or operated by or for LESSEE (hereinafter "Other
Property"). LESSEE also may stockpile any ores, waste, or other materials and/or
concentrated products of ores or materials (collectively "Products") from the
LEASED PROPERTY, or any part thereof, upon stockpile grounds situated upon such
Other Property. In the event LESSEE stockpiles Products from the LEASED PROPERTY
on Other Properties, LESSEE shall execute or cause to be executed such
instruments as LESSOR may reasonably request in writing to evidence LESSOR's
royalty interest in the Products so stockpiled. Any such instrument executed by
LESSEE, however, expressly shall acknowledge LESSEE's right to sell the
stockpiled Products. LESSEE also, if it so desires, may use the LEASED PROPERTY
and any shafts, openings, pits and stockpile grounds sunk or made for the
mining, removal and/or stockpiling of any Products from the LEASED PROPERTY
and/or from the Other Property, or for any purpose or purposes connected
therewith, provided, however, that such use of the LEASED PROPERTY does not
prevent or interfere with the mining or removal of ore from the LEASED PROPERTY.
6. RECORDS AND BOOKS OF ACCOUNT.
6.1 Books of Account.
LESSEE shall keep complete, true and proper books and
records of account showing all minerals mined and
removed from the LEASED PROPERTY and recording all sales, transfers, conveyances
or other dispositions of ores, minerals or other materials taken from the LEASED
PROPERTY in accordance with generally accepted accounting principles. Said books
and records shall be open to examination by LESSOR or its duly authorized
representative during regular business hours and shall include any and all
documents necessary to establish a gross selling price of the ores, minerals
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
or other materials taken from the Leased Premises. LESSOR is hereby granted the
right at LESSOR's expense to examine and make a copy or copies of said books or
records or any portion thereof.
6.2 Inspection.
LESSOR or its duly authorized agents shall have, following advanced notice,
the right at reasonable times under reasonable circumstances to enter upon the
LEASED PROPERTY for the purpose of inspecting operations and work being
performed by LESSEE pursuant to this lease. Such entry shall be at LESSOR's risk
and LESSEE shall not be liable for injury to LESSOR unless such injury is caused
by the willful or grossly negligent conduct of LESSEE.
7. PROTECTING FROM LIENS AND TAXES.
7.1 LESSEE shall keep the
subject premises and every part thereof free and clear of any and all liens and
encumbrances for work performed upon the subject premises, or for materials
furnished to it while this agreement remains in force and effect.
7.2 LESSEE shall pay not later
than ten (10) days before due, one hundred percent (100%) of all taxes and
assessments that may be levied or assessed against the premises, including all
taxes that may be levied or assessed as a direct or indirect result of LESSEE's
mining activities, and including, but not limited to, taxes on the mineral
estate, real property improvements and personal property and possessory interest
taxes. LESSOR shall forward to LESSEE, upon receipt, all notices of taxes and
assessments due. LESSOR shall be responsible for payment of all taxes or
assessments due as a result of its activities.
8. NOTICE.
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
Any notices required or permitted to be given to LESSOR or LESSEE hereunder
shall be considered as delivered when received by the parties to whom they shall
be directed. Notice shall be given by personal delivery or by registered mail,
postage prepaid and return receipt requested, addressed to the persons and
addresses given below or to such other person or address as the parties may
designate by written notice from time to time.
LICENSEE: Griffin Gold Group, Inc.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
LICENSOR: Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
Changes in the above names and addresses shall be effected by sending notice as
set forth herein and said change shall be effective fifteen (15) days from
receipt thereof.
9. WASTE AND REFUSE.
LESSEE agrees to dispose of refuse from all mining activities conducted pursuant
to this lease in accordance with good mining practice and in accordance with the
provisions of applicable ordinances, laws and regulations.
10. INSURANCE.
LESSEE shall, at its sole cost and expense, cause to be issued and maintained
during the term of this lease or any extension thereof workers' compensation
insurance coverage in accordance with the provisions of California law.
11. COMPLIANCE WITH LAWS.
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
LESSEE shall conduct and cause to be conducted all mining activities in full
compliance with the applicable laws of the State of California and the United
States of America.
12. TITLE.
12.1Each LESSOR warrants that
said LESSOR is the owner of an undivided 1/8th interest in the LEASED
PROPERTY and that there are no defects in LESSOR's title which would affect
LESSEE's right to possession and use pursuant to the terms of this lease.
LESSORS authorize Rick Jackson to receive all payments
for them, for their benefit, as follows:
Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
12.2 In the event that any
defect in LESSOR's title is determined to exist, LESSOR shall, at its sole cost
and
expense, take such steps as may be required, including, but not limited to, the
commencement of litigation, the location of additional claims, relinquishment,
amendment or relocation of existing claims held by LESSOR. In the event LESSOR
fails or refuses to take or complete appropriate steps to correct any defect in
LESSOR's title, LESSEE may elect to correct such defect and deduct the cost of
such correction, including attorneys fees, from the payment obligations
contained in this lease. LESSEE also may make such deductions for costs or
corrections to title to the LEASED PROPERTY incurred by LESSEE prior to the date
of this Lease.
12.3In the event it is
determined that LESSOR owns less than one hundred percent (100%) of the LEASED
PROPERTY, then LESSOR's rights under this Agreement shall be adjusted so as to
reflect the actual interest owned. It is the intention of the parties that the
full ownership of LESSOR be included in this Mining Lease.
13. DEFAULT AND TERMINATION.
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
13.1 Default.
The occurrence of any of the following events shall constitute an event of
default on the part of LESSEE:
13.1.1 Breach of Covenants.
Failure (i) to perform any of LESSEE's covenants hereunder, and (ii) to
remedy such failure within ninety (90) days after written demand is made
therefore.
13.1.2 Assignments.
The making of a general assignment by LESSEE for the benefit of creditors
13.1.3 Bankruptcy.
The filing of any form of voluntary petition in bankruptcy by LESSEE, or
the filing of an involuntary petition by LESSEE's creditors, if such
petition remains undischarged for a period of thirty (30) days.
13.1.4 Receivership.
The appointment of a receiver to take possession of substantially all of
LESSEE's assets or of the interest held by LESSEE under this lease, if
such receivership remains undissolved for a period of thirty (30) days.
13.1.5 Attachment.
The attachment or other judicial seizure of substantially all of LESSEE's
assets or of the interest held under this lease, if such attachment
or other seizure remains undismissed or undischarged for a period of
thirty (30) days after the levy thereof.
13.2 Remedies.
13.2.1 Termination.
In the event of the occurrence of any event of default mentioned in
Paragraph 13.1
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
hereof, LESSOR, shall have the right, so long as default continues, to
immediately terminate this lease by giving LESSEE written notice of such
termination.
13.2.2 Eviction.
In the event of any such termination of this lease, LESSOR may then or at any
time thereafter, re-enter the LEASED PROPERTY, or any part thereof, and
expel or remove therefrom LESSEE and any other person occupying the same,
using such force as may be necessary so to do, and again repossess and enjoy
the LEASED PROPERTY, without prejudice to any other remedies that LESSOR may
have under this lease, or at law or equity, by reason of LESSEE's default
or of such termination.
13.2.3 Damages.
In the event of any such termination of this lease, LESSOR shall have all of the
rights and remedies of a landlord provided by Section 1951.2 of the Civil Code
of the State of California.
13.2.4 Remedies of LESSOR.
In the event LESSEE breaches this lease and abandons the LEASED PROPERTY,
LESSOR shall have all of the remedies of a landlord provided by the Civil Code
of the State of California.
13.2.5 Default by Landlord.
In the event of default by LESSOR, LESSEE shall have all of the remedies of a
tenant provided by the laws of the State of California.
13.3 Termination by LESSEE.
This agreement may be terminated by LESSEE at any time by the giving of three(3)
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
months written notice.
13.4 Information.
Upon termination of this Agreement LESSEE shall (upon the
request of LESSOR made within 60 days of termination) provide LESSOR with copies
of all Information as defined below. As used in this Agreement, "Information"
shall mean all geological, geophysical and geochemical data, all laboratory
testing results, maps and reports, whether acquired, generated or compiled by or
for LESSEE. LESSEE warrants that all Information supplied to LESSOR pursuant to
the terms of this provision shall be true and accurate copies of the Information
acquired, generated or com piled by or for LESSEE; provided, however, that
LESSEE does not warrant that the data contained therein is an accurate
interpretation of the geology described therein.
13.4.1 Upon execution of this Agreement, LESSOR shall
provide LESSEE access
to all geologic, geophysical and geochemical data concerning the LEASED PROPERTY
which has been acquired, generated, or compiled by LESSOR.
13.4.2 Any and all data, information, reports and samples provided by LESSEE to
LESSOR under the terms of this Agreement shall be treated and held confidential
for the term of this Agreement.
14. FORCE MAJEURE.
The failure to perform or comply with any of the covenants or
conditions hereof on the part of LESSEE (including, but not limited to,
production requirements set forth in Paragraph 3 above) will not be grounds for
cancellation, penalty, termination or forfeiture hereof, during such time as
failure to perform is caused or compliance is prevented by severe weather,
explosion, unusual mining casualty, mill shutdowns, damage to or destruction of
mill or mill plant facility, fire, flood,
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
civil or military authority, insurrection, strikes, riots, inability after
diligent effort to obtain competent workmen or material or necessary permits,
fuel shortages, inadequate or shortages of transportation facilities not due to
the negligence or lack of diligence by LESSEE, governmental actions or policies
which substantially restrict the legality or profitability of extracting and
selling any of the valuable minerals produced under the Mining Lease, acts of
God, or any circumstances or conditions beyond the control of LESSEE, and in
such an event, LESSEE shall be excused from, and not held liable for, such
failure to perform or comply.
15. INUREMENT.
This lease shall inure to the benefit of and be binding upon their
respective heirs, trustees, conservators, successors and assigns of the parties.
16. RECORDATION.
This agreement is not to be recorded. LESSEE may, however, prepare and
submit to LESSOR for signature, a memorandum of this agreement for recordation.
17. ASSIGNMENT.
17.1 Assignment by LESSOR.
LESSOR agrees that it shall give notice to LESSEE of its
intention to sell or otherwise assign the Lease or LEASED PROPERTY. Upon receipt
of a bona fide offer to purchase the Lease or LEASED PROPERTY, the LESSOR shall
forthwith give notice, to be accompanied by a true copy of such offer to
purchase attached thereto, to LESSEE, and LESSEE shall have ninety (90) days in
which to present to LESSOR a written counter offer, such counter offer to be for
greater consideration than the offer, expressed in cash or marketable
securities. Upon receipt of such counter offer, LESSOR will have thirty (30)
days to sell to LESSEE or to give notice to
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
LESSEE of receipt of a further counter offer for greater consideration than
LESSEE's counter offer. In the event of a further counter offer being presented,
LESSEE will have fifteen (15) days from receipt of notice to raise its offer,
and the offers and counter offers shall thereafter be limited to a response time
of fifteen (15) days from receipt of notice.
17.2 Assignment by LESSEE.
LESSEE may assign this Lease without the prior written consent
of LESSOR provided LESSEE guarantees the obligations of the assignee; otherwise,
this Lease shall not be assigned by LESSEE without the prior written consent of
LESSOR which consent shall not be unreasonably withheld.
18. REMOVAL OF EQUIPMENT.
At the termination of this lease, LESSEE may remove any and all
equipment it placed on the property during the term of this lease, or any
extension thereof, provided said removal is com pleted within one (1) year of
the termination date.
19. COUNTERPARTS.
This agreement may be signed in counterparts and shall be deemed
effective when all parties have executed this agreement or any counterpart
thereof.
20. COMPLETE AGREEMENT.
This writing and all terms and covenants contained herein are deemed to
be the complete and unequivocal written agreement of the parties, and no other
agreements, either written or oral, are contemplated with respect to said
property.
21. CALIFORNIA LAW.
This lease shall be governed by and construed and interpreted under the
internal laws of the State
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
of California.
22. SEVERABILITY.
If any term, covenant, condition or provision of this agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
23. TITLE HEADINGS.
The headings of the respective paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to be a part of this
Agreement and considered in construing this Agreement.
LESSEE:
GRIFFIN GOLD GROUP, INC.
By ____________________________________
Its______________________________
By ____________________________________
Its______________________________
LESSOR:
- -----------------------------------
CHARLES JACKSON
- -----------------------------------
MARIE UNRUH
- -----------------------------------
JAMES HOPKINS, SR.
- -----------------------------------
TRACY HOPKINS
- -----------------------------------
RICK JACKSON
- -----------------------------------
MARA JACKSON
- -----------------------------------
PAUL JACKSON
- -----------------------------------
JARED JACKSON
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
MINING LEASE
Table of Contents
1. DESCRIPTION OF PROPERTY............................................ 1
-----------------------
2. GRANT OF LEASE..................................................... 1
--------------
3. TERM OF LEASE...................................................... 2
-------------
4. ROYALTIES AND CONSIDERATION........................................ 2
---------------------------
4.1 Advance Minimum Royalty................................... 2
-----------------------
4.2 Production Royalties...................................... 2
--------------------
4.3 Manner of Payment......................................... 3
-----------------
5. CONDUCT OF MINING OPERATIONS....................................... 4
----------------------------
5.1 General................................................... 4
-------
5.2 Commingling of Ore........................................ 4
------------------
5.3 Cross-Mining Rights....................................... 5
-------------------
6. RECORDS AND BOOKS OF ACCOUNT....................................... 5
----------------------------
6.1 Books of Account.......................................... 5
----------------
6.2 Inspection................................................ 6
----------
7. PROTECTING FROM LIENS AND TAXES.................................... 6
-------------------------------
8. NOTICE............................................................. 7
------
9. WASTE AND REFUSE.................................................. 7
----------------
10. INSURANCE......................................................... 8
---------
11. COMPLIANCE WITH LAWS.............................................. 8
--------------------
12. TITLE............................................................. 8
-----
13. DEFAULT AND TERMINATION........................................... 9
-----------------------
13.1 Default.................................................. 9
-------
13.1.1 Breach of Covenants............................. 9
-------------------
13.1.2 Assignments..................................... 9
-----------
13.1.3 Bankruptcy...................................... 9
----------
<PAGE>
GRIFFIN GOLD GROUP, INC./CHARLES JACKSON, et al.
MINING LEASE
Table of Contents (con't)
13.1.4 Receivership..................................... 10
------------
13.1.5 Attachment....................................... 10
----------
13.2 Remedies.................................................. 10
--------
13.2.1 Termination...................................... 10
-----------
13.2.2 Eviction......................................... 10
--------
13.2.3 Damages.......................................... 11
-------
13.2.4 Remedies of LESSOR............................... 11
------------------
13.2.5 Default by Landlord.............................. 11
-------------------
13.3 Termination by LESSEE..................................... 11
---------------------
13.4 Information............................................... 11
-----------
14. FORCE MAJEURE...................................................... 12
-------------
15. INUREMENT.......................................................... 13
---------
16. RECORDATION........................................................ 13
-----------
17. ASSIGNMENT......................................................... 13
----------
17.1 Assignment by LESSOR...................................... 13
--------------------
17.2 Assignment by LESSEE...................................... 14
--------------------
18. REMOVAL OF EQUIPMENT............................................... 14
--------------------
19. COUNTERPARTS....................................................... 14
------------
20. COMPLETE AGREEMENT................................................. 14
------------------
21. CALIFORNIA LAW..................................................... 14
--------------
22. SEVERABILITY....................................................... 14
------------
23. TITLE HEADINGS..................................................... 15
--------------
EXHIBIT 10.48
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
Table of Contents
1. Description of Property/Grant of Exploration Rights................ 1
---------------------------------------------------
2. Term.............................................................. 1
----
3. Consideration..................................................... 1
-------------
4. Conduct of Operations............................................. 2
---------------------
5. Notice............................................................ 2
------
6. Termination....................................................... 3
-----------
7. Insurance......................................................... 3
---------
8. Indemnity......................................................... 3
---------
9. Compliance With Laws.............................................. 3
--------------------
10. Option to Lease................................................... 4
---------------
11. Removal of Property............................................... 4
-------------------
12. Information....................................................... 4
-----------
13. Default and Termination........................................... 5
-----------------------
13.1 Default.................................................. 5
-------
13.1.1 Breach of Covenants............................. 5
-------------------
13.1.2 Assignments..................................... 5
-----------
13.1.3 Bankruptcy...................................... 5
----------
13.1.4 Receivership.................................... 6
------------
13.1.5 Attachment...................................... 6
----------
13.2 Remedies................................................. 6
--------
14. Inurement......................................................... 6
---------
15. Force Majeure..................................................... 6
-------------
16. Title............................................................. 7
-----
17. Counterparts...................................................... 7
------------
18. Complete Agreement................................................. 7
------------------
19. Recordation........................................................ 8
-----------
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
This Agreement is made and effective as of the ___ day of
_______________, 19__, by and between CHARLES JACKSON, MARIE UNRUH, JAMES
HOPKINS, SR., TRACY HOPKINS, RICK JACKSON, MARA JACKSON, PAUL JACKSON and JARED
JACKSON (hereinafter referred to as "LICENSOR") and DESERT MINERALS, INC., a
Delaware corporation, (hereinafter referred to as "LICENSEE"), agree as follows:
20. Description of Property/Grant of Exploration Rights.
LICENSOR is the owner of all or part of the unpatented placer mining
claims described in EXHIBIT "A" attached hereto. LICENSOR grants to LICENSEE the
exclusive right to explore LICENSOR's ownership interest in the property set
forth in EXHIBIT "A" (LICENSOR's interest is hereinafter referred to as the
"PREMISES").
21. Term.
The term of this Agreement shall be five (5) years, unless terminated
earlier or extended. LICENSEE shall have the right to extend for two additional
five (5) year terms upon the payment of Five Hundred Dollars ($500.00) for each
such extension.
22. Consideration.
In consideration for the granting of the exploration rights set forth
herein, LICENSEE agrees to pay to LICENSOR each year in which this Agreement is
in effect on or before the anniversary date, the sum of Five Hundred Dollars
($500.00). Upon execution of this Agreement, LICENSEE shall pay the sum of One
Thousand Dollars ($1,000.00) which shall be full consideration for the
Page 1 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
first and second year's payments. LICENSORS authorize Rick Jackson to receive
such payments for them, for their benefit, as follows:
Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
23. Conduct of Operations.
During the term of this Agreement, LICENSEE shall have possession of,
and free and unrestricted access to, the PREMISES and shall have the right to
explore, investigate, measure, sample (including bulk sample), examine, test,
work, use, manage, control and develop the PREMISES. LICENSOR shall receive an
accounting and production royalty, pursuant to the terms of the Mining Lease
attached hereto as EXHIBIT "B", for all ores, minerals and concentrates removed
and sold from the PREMISES. LICENSEE may trench or drill any part of the
PREMISES, may rehabilitate existing mine workings, construct new workings, and
may erect, construct, use, and maintain on the PREMISES such roads, building
structures, equipment and machinery as in its sole discretion it may deem
necessary to its operations.
24. Notice.
Any notices required or permitted to be given to LICENSOR or LICENSEE
hereunder shall be given in the manner provided herein and be considered as
delivered and received when the same are delivered in person or received by the
addressee following deposit in the United States mail by registered mail, return
receipt requested, with postage prepaid. All notices given hereunder shall be
addressed to the persons and addresses given below or such other persons or
addresses as the parties may designate from time to time. Any change in the
names and/or addresses of the persons
Page 2 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
listed below shall be effective thirty (30) days from the giving of the notice
to the other party as provided herein.
LICENSEE: Desert Minerals, Inc.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
LICENSOR: Rick Jackson
- --------
P.O. Box 874
Jacksonville, OR 97530
25. Termination.
Upon termination or surrender under the terms of this License, all
rights of LICENSEE under this Agreement, except as provided in Paragraph 11.,
shall terminate and all payments heretofore made under this Agreement shall be
retained by LICENSOR as full compensation, as rental, for the use and occupancy
of said PREMISES and as consideration for which this Agreement is given.
26. Insurance.
LICENSEE shall, at its sole expense, cause to be issued and maintained
during the term of this Agreement, or any extension thereof, workmen's
compensation insurance coverage in accordance with the provisions of California
law.
27. Indemnity.
LICENSEE shall protect and indemnify and hold LICENSOR harmless from
and against any and all claims, actions or causes of action, including, without
limitation, employees of LICENSEE, contractors and employees of contractors of
LICENSEE, for injury to or death of persons or damage to property arising out of
or in connection with LICENSEE's exploration activities.
Page 3 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
28. Compliance With Laws.
LICENSEE shall conduct all exploration activities in full compliance
with the applicable laws and regulations of the State of California and the
United States of America including, but not limited to, the provisions of the
Federal Land Management and Policy Act of 1976 and the regulations promulgated
pursuant thereto.
29. Option to Lease.
During the term of this Agreement, or during the term of any extension
hereof, LICENSEE may exercise an option to lease the PREMISES pursuant to the
terms and conditions set forth in the Mining Lease attached hereto as EXHIBIT
"B" and made a part hereof as though set forth in its entirety. The option to
lease shall be deemed exercised when LICENSOR has received a certified check in
the amount of Five Thousand Dollars ($5,000.00), together with two (2) copies of
EXHIBIT "B" that have been executed by LICENSEE. LICENSOR shall sign one copy
and return it promptly to LICENSEE. If LICENSOR is the owner at the date of
exercise of this option of less than one hundred percent (100%) of the title to
the PREMISES, LICENSOR shall receive an amount equal to LICENSOR's percentage
ownership multiplied by Five Thousand Dollars ($5,000.00) pursuant to this
paragraph.
30. Removal of Property.
LICENSEE shall have, and it is hereby given and granted, ninety (90)
days after a valid forfeiture, surrender, or other termination of this
Agreement, to remove from the PREMISES all machinery, equipment, personal
property and improvements erected or placed in or upon the said property by
Page 4 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
it. If not so removed by LICENSEE within said ninety (90) day period, titles to
unremoved property will then vest in LICENSOR.
31. Information.
31.1 If the Option to Lease contained in Paragraph 10 is not
exercised and this Agreement is terminated, LICENSOR may, within ninety (90)
days, request, and if requested, LICENSEE shall supply LICENSOR copies of all
Information as defined below. As used in this Agreement, "Information" shall
mean all geological, geophysical and geochemical data, maps and reports, whether
acquired, generated or compiled by or for LICENSEE. LICENSEE warrants that all
information supplied to LICENSOR pursuant to the terms of this provision shall
be true and accurate copies of the Information acquired, generated or compiled
by or for LICENSEE; provided, however, that LICENSEE does not warrant that the
data contained therein is an accurate interpretation of the geology described
therein.
31.2 Any and all data, information, reports and samples
provided by LICENSEE to LICENSOR under the terms of this Agreement shall be
treated and held confidential for the term of this Agreement, and for the term
of the Mining Lease attached as EXHIBIT "B", if LICENSEE should exercise its
Option to Lease.
32. Default and Termination.
32.1 Default.
The occurrence of any of the following events shall constitute
an event of default on the part of LICENSEE:
32.1.1 Breach of Covenants.
Page 5 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
Failure (i) to perform any of LICENSEE's covenants hereunder, including, but not
limited to the failure to make a payment under Paragraph 3 herein, and (ii) to
remedy such failure within ninety (90) days after written demand is made
therefor. 32.1.2 Assignments. The making of a general assignment by LICENSEE for
the benefit of creditors. 32.1.3 Bankruptcy. The filing of any form of voluntary
petition in bankruptcy by LICENSEE, or the filing of an involuntary petition by
LICENSEE's creditors, if such petition remains undischarged for a period of
thirty (30) days. 32.1.4 Receivership. The appointment of a receiver to take
possession of substantially all of LICENSEE's assets or of the interest held by
LICENSEE under this Agreement, if such receivership remains undissolved for a
period of thirty (30) days. 32.1.5 Attachment. The attachment or other judicial
seizure of substantially all of LICENSEE's assets or of the interest held under
this Agreement, if such attachment or other seizure remains un dismissed or
undischarged for a period of thirty (30) days after the levy thereof. 32.2
Remedies. In the event of the occurrence of any event of default mentioned in
Paragraph 13.1 hereof, LICENSOR shall have the right, so long as default
continues, to immediately terminate this Agreement by giving LICENSEE written
notice of such termination.
Page 6 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
33. Inurement.
All covenants, conditions, limitations and provisions herein contained
apply and are binding upon the parties hereto and their heirs, devisees,
successors and assigns.
34. Force Majeure.
If, because of force majeure, LICENSEE is unable to carry out any of
its obligations under this Agreement, the obligation of LICENSEE shall be
excused to the extent made necessary by such force majeure and this Agreement
shall be extended by a length of time equal to its continuance not to exceed
maximum term permitted by law. The term "force majeure" as used herein shall
include, but not be limited to, acts of God, acts of civil or military
authority, acts of war or the public enemy, legislation, acts or orders of any
court, acts or failure to act of regulatory agencies or administrative bodies
having jurisdiction with respect to the performance of this Agreement,
insurrections, riots, strikes, boycotts or other labor disturbances, fire,
flood, windstorm, explosion and other causes not within the reasonable control
of the parties directly affected and claiming suspension of its obligation
whether or not like or similar to the causes or occurrences specifically
enumerated above.
35. Title.
Each LICENSOR covenants that said LICENSOR now owns and is in actual
possession of an undivided one-eighth interest in the PREMISES free and clear
from all former grants, sales, liens, or encumbrances of any kind, and that
there are no delinquent taxes; and agrees to furnish LICENSEE upon request such
abstracts, deeds, or other evidence of title as may be in LICENSOR's possession
and control. LICENSEE may elect to correct any defects it determines
Page 7 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
exist in title to the PREMISES, including, but not limited to, amendment,
relinquishment, relocation of existing claims and location of additional claims
over fractions within the PREMISES.
36. Counterparts.
This Agreement may be signed in counterparts and shall be deemed
effective when all parties have executed this Agreement or any counterpart
thereof.
37. Complete Agreement.
This Agreement and all the terms and covenants contained herein are
deemed to be the complete and unequivocal written agreement of the parties and
no other agreements, either written or oral, are contemplated with respect to
said PREMISES.
38. Recordation.
This Agreement shall not be recorded, however, the Memorandum of
Exploration Agreement with Option to Lease attached hereto as EXHIBIT "C" shall
be executed and recorded promptly following the execution of this Agreement.
LICENSOR:
- -----------------------------------
CHARLES JACKSON
- -----------------------------------
MARIE UNRUH
- -----------------------------------
JAMES HOPKINS, SR.
- -----------------------------------
TRACY HOPKINS
Page 8 of 8
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
- -----------------------------------
RICK JACKSON
- -----------------------------------
MARA JACKSON
- -----------------------------------
PAUL JACKSON
- -----------------------------------
JARED JACKSON
LICENSEE:
DESERT MINERALS, INC.
By ____________________________________
Paul J. Montle
Its Vice-President
Page 9 of 8
<PAGE>
EXHIBIT "A"
UNPATENTED PLACER MINING CLAIMS
Located in Inyo County, California
<TABLE>
<CAPTION>
Inyo County
Township/Range Date of Document
Claim Name Section SBB&M Location Number CAMC
<S> <C> <C> <C> <C>
OBOE #66 10 21 N./7 E. 4-30-95 95-1475 265730
Amended 97-1702
OBOE #67 10 21 N./7 E. 4-30-95 95-1476 265731
Amended 97-1703
OBOE #68 10 21 N./7 E. 4-30-95 95-1477 265732
Amended 97-1704
OBOE #69 10 21 N./7 E. 4-30-95 95-1478 265733
Amended 97-1705
OBOE #70 15 21 N./7 E. 4-30-95 95-1479 265734
Amended 97-1706
OBOE #71 15 21 N./7 E. 4-30-95 95-1480 265735
Amended 97-1707
OBOE #72 15 21 N./7 E. 4-30-95 95-1481 265736
Amended 97-1708
OBOE #73 15 21 N./7 E. 4-30-95 95-1482 265737
Amended 97-1709
OBOE #74 22 21 N./7 E. 4-30-95 95-1483 265738
Amended 97-1710
OBOE #75 22 21 N./7 E. 4-30-95 95-1484 265739
Amended 97-1711
OBOE #76 22 21 N./7 E. 4-30-95 95-1485 265740
Amended 97-1712
OBOE #77 22 21 N./7 E. 4-30-95 95-1486 265741
Amended 97-1713
Page 10 of 8
10
<PAGE>
OBOE #82 16 21 N./7 E. 2-26-96 96-0978 268344
Amended 96-3080
OBOE #83 21 21 N./7 E. 2-26-96 96-0979 268345
Amended 96-3081
OBOE #84 24 21 N./6 E. 2-26-96 96-0980 268346
Amended 96-3082
Amended 97-1714
OBOE #85 24 21 N./6 E. 2-26-96 96-0981 268347
Amended 96-3083
Amended 97-1715
</TABLE>
<PAGE>
EXHIBIT "B"
MINING LEASE
This Agreement is made and effective as of the ___ day of _______________,
19__, by and between CHARLES JACKSON, MARIE UNRUH, JAMES HOPKINS, SR., TRACY
HOPKINS, RICK JACKSON, MARA JACKSON, PAUL JACKSON and JARED JACKSON (hereafter
referred to as "LESSOR"), and DESERT MINERALS, INC., a Delaware corporation,
(hereafter "LESSEE").
1. DESCRIPTION OF PROPERTY.
LESSOR is the owner of all or part of the unpatented placer mining claims
described on EXHIBIT "A" attached hereto.
2. GRANT OF LEASE.
2.1 LESSOR hereby leases exclusively to LESSEE,
subject to the terms and conditions hereinafter expressed,
LESSOR's interest in the property set forth in EXHIBIT "A" attached hereto
(LESSOR's interest is hereafter referred to as "LEASED PROPERTY").
2.2 This lease is granted for the purpose of the
exploration, development, and mining of the LEASED PROPERTY
for minerals as may be found therein (hereinafter referred to as the "Leased
Minerals"). LESSEE is hereby
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11
<PAGE>
granted the exclusive right to enter into possession of the LEASED PROPERTY, and
during the term of this lease, to remain in possession thereof, and to develop,
mine, operate and use the property and any surface or underground rights,
including but not limited to access, and water or water rights, and to mine,
extract and remove from the LEASED PROPERTY the Leased Minerals and to treat,
mill, ship, sell or otherwise dispose of the same and receive the full proceeds
thereof (subject to the obligation of royalty payment as specified below); and
to construct, use and operate thereon and therein structures, excavations,
roads, equipment and other im provements or facilities which LESSEE shall deem
reasonably required for, or in connection with, the full enjoyment of the rights
and interests granted to LESSEE by this lease.
3. TERM OF LEASE.
The term of this Mining Lease shall be for twenty (20) years from and
after the date of this lease and for so long thereafter as LESSEE is in
production on properties located within a five (5) mile radius of the nearest
LEASED PROPERTY. For purposes of this paragraph, production shall be defined as
the processing of ore. LESSEE may terminate this lease at any time by delivery
to LESSOR of a quitclaim deed to the LEASED PROPERTY, provided that LESSEE is
not then in default under the terms of this lease.
4. ROYALTIES AND CONSIDERATION.
4.1 Advance Minimum Royalty.
LESSEE shall pay to LESSOR advance minimum royalties as follows:
a) Upon execution of this agreement $1,000.00
b) On or before the anniversary date
and each anniversary date thereafter $1,000.00
4.2 Production Royalties.
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12
<PAGE>
4.2.1A production royalty for all minerals mined, removed, and sold from the
property set forth in EXHIBIT "A" equal to 2.5 percent (2.5%) of the Smelter
Returns shall be calculated. LESSOR, as defined in this Agreement, shall receive
a percentage of the production royalty calculated equal to LESSOR's actual
ownership interest of the property described in EXHIBIT "A". 4.2.2The term
"Smelter Returns" shall be defined to be the gross amount received from the sale
of valuable minerals after recovery of all exploration, development, and capital
costs and less all taxes levied, incurred or imposed on the sale, severance or
production of such minerals and less costs of extraction, mining, milling,
treating, transportation to the smelter and/or refinery, smelting and refining
charges and costs of sale. 4.3 Manner of Payment. 4.3.1All minerals mined,
removed and extracted from the LEASED PROPERTY shall be sold under the name of
LESSEE and a royalty settlement sheet accounting for such transactions shall be
furnished to LESSOR on or before the twenty-fifth (25th) day of the next
succeeding calendar month for all sales made and received during the preceding
calendar quarter. All production royalty payments, accompanied by a settlement
sheet required by this lease, shall be made to LESSOR at the address set forth
in Paragraph 12.1 below, or such other person or address as LESSOR shall
designate by written notice pursuant to the provisions of Paragraph 8 by mail or
personal delivery. LESSEE shall receive a cumulative credit against production
royalties for all minimum royalties paid pursuant to this lease agreement
regardless of the year in which said minimum royalties are paid and production
royalties shall not be payable until the production royalty set forth in
Paragraph 4.2 exceeds the cumulative sums paid by LESSEE pursuant to Paragraph
4.1. If the Leased Minerals are sold to, or processed by, a smelter or refinery
owned, operated, affiliated with or controlled by LESSEE, in no event shall the
royalties computed herein be less than would have been paid had the ore been
sold to or processed by a major smelter or refinery not owned, operated,
affiliated with, or controlled by LESSEE. Page 13 of 8
13
<PAGE>
5. CONDUCT OF MINING OPERATIONS.
5.1 General.
LESSEE shall conduct, and cause all mining activities
to be conducted in a prudent,
workmanlike, miner-like manner in accordance with established mining practices.
5.2 Commingling of Ore.
LESSEE may commingle ore from the LEASED PROPERTY with ore from other
properties, either before or after concentration or beneficiation, provided that
the method and procedures LESSEE uses to commingle the ore and to determine the
weight and grade of the ore removed from the LEASED PROPERTY and of the ore with
which it is commingled shall be a method recognized by the mining industry and
conducted in accordance with generally accepted accounting principles. LESSEE
shall use that method to determine weight and grade and to allocate net returns
from the commingled ore between the LEASED PROPERTY and the other properties
from which the other commingled ore was removed and to assure that the share of
production received by LESSOR is representative of the ore that was produced
from the LEASED PROPERTY. All such weight, grade and allocation calculations by
LESSEE shall be done in accordance with generally accepted accounting principles
and in a manner recognized by the mining industry as practical and sufficient at
that time. If it is impractical to determine which portions of any of the costs
and expenses described in Paragraph 4.2.2 above are directly attributable to ore
removed from the LEASED PROPERTY, such costs and expenses shall be allocated on
a straight-line, per-ton basis among all ores that give rise to those expenses,
in accordance with acceptable accounting standards.
5.3 Cross-Mining Rights.
LESSEE is hereby granted the right, if it so desires, to mine or remove
from the LEASED PROPERTY any ores, waste, water and other materials existing
therein or thereon or in any part thereof, through or by means of shafts,
Page 14 of 8
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<PAGE>
openings or pits which may be sunk or made upon other property owned,
controlled, or operated by or for LESSEE (hereinafter "Other Property"). LESSEE
also may stockpile any ores, waste, or other materials and/or concentrated
products of ores or materials (collectively "Products") from the LEASED
PROPERTY, or any part thereof, upon stockpile grounds situated upon such Other
Property. In the event LESSEE stockpiles Products from the LEASED PROPERTY on
Other Properties, LESSEE shall execute or cause to be executed such instruments
as LESSOR may reasonably request in writing to evidence LESSOR's royalty
interest in the Products so stockpiled. Any such instrument executed by LESSEE,
however, expressly shall acknowledge LESSEE's right to sell the stockpiled
Products. LESSEE also, if it so desires, may use the LEASED PROPERTY and any
shafts, openings, pits and stockpile grounds sunk or made for the mining,
removal and/or stockpiling of any Products from the LEASED PROPERTY and/or from
the Other Property, or for any purpose or purposes connected therewith,
provided, however, that such use of the LEASED PROPERTY does not prevent or
interfere with the mining or removal of ore from the LEASED PROPERTY.
6. RECORDS AND BOOKS OF ACCOUNT.
6.1 Books of Account.
LESSEE shall keep complete, true and proper books and records of account
showing all minerals mined and removed from the LEASED PROPERTY and recording
all sales, transfers, conveyances or other dispositions of ores, minerals or
other materials taken from the LEASED PROPERTY in accordance with generally
accepted accounting principles. Said books and records shall be open to
examination by LESSOR or its duly authorized representative during regular
business hours and shall include any and all documents necessary to establish a
gross selling price of the ores, minerals or other materials taken from the
Leased Premises. LESSOR is hereby granted the right at LESSOR's expense to
examine and make a copy or copies of said books or records or any portion
thereof.
Page 15 of 8
15
<PAGE>
6.2 Inspection.
LESSOR or its duly authorized agents shall have, following advanced notice, the
right at reasonable times under reasonable circumstances to enter upon the
LEASED PROPERTY for the purpose of inspecting operations and work being
performed by LESSEE pursuant to this lease. Such entry shall be at LESSOR's risk
and LESSEE shall not be liable for injury to LESSOR unless such injury is caused
by the willful or grossly negligent conduct of LESSEE. 7. PROTECTING FROM LIENS
AND TAXES. 7.1 LESSEE shall keep the subject premises and every part thereof
free and clear of any and all liens and encumbrances for work performed upon the
subject premises, or for materials furnished to it while this agreement remains
in force and effect. 7.2 LESSEE shall pay not later than ten (10) days before
due, one hundred percent (100%) of all taxes and assessments that may be levied
or assessed against the premises, including all taxes that may be levied or
assessed as a direct or indirect result of LESSEE's mining activities, and
including, but not limited to, taxes on the mineral estate, real property
improvements and personal property and possessory interest taxes. LESSOR shall
forward to LESSEE, upon receipt, all notices of taxes and assessments due.
LESSOR shall be responsible for payment of all taxes or assessments due as a
result of its activities. 8. NOTICE. Any notices required or permitted to be
given to LESSOR or LESSEE hereunder shall be considered as delivered when
received by the parties to whom they shall be directed. Notice shall be given by
personal delivery or by registered mail, postage prepaid and return receipt
requested, addressed to the persons and addresses given below or to such other
person or address as the parties may designate by written notice from time to
time.
Page 16 of 8
16
<PAGE>
LICENSEE: Desert Minerals, Inc.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
LICENSOR: Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
Changes in the above names and addresses shall be effected by sending
notice as set forth herein and said change shall be effective fifteen (15) days
from receipt thereof.
9. WASTE AND REFUSE.
LESSEE agrees to dispose of refuse from all mining activities conducted
pursuant to this lease in accordance with good mining practice and in accordance
with the provisions of applicable ordinances, laws and regulations.
10. INSURANCE.
LESSEE shall, at its sole cost and expense, cause to be issued and
maintained during the term of this lease or any extension thereof workers'
compensation insurance coverage in accordance with the provisions of California
law.
11. COMPLIANCE WITH LAWS.
LESSEE shall conduct and cause to be conducted all mining activities in
full compliance with the applicable laws of the State of California and the
United States of America.
12. TITLE.
12.1Each LESSOR warrants that said LESSOR is the owner
of an undivided 1/8th interest in the LEASED
PROPERTY and that there are no defects in LESSOR's title which would affect
LESSEE's right to possession and use pursuant to the terms of this lease.
LESSORS authorize Rick Jackson to receive all payments for them, for their
benefit, as follows:
Page 17 of 8
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<PAGE>
Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
12.2 In the event that any defect in LESSOR's title is
determined to exist, LESSOR shall, at its sole cost and expense,
take such steps as may be required, including, but not limited to, the
commencement of litigation, the location of additional claims, relinquishment,
amendment or relocation of existing claims held by LESSOR. In the event LESSOR
fails or refuses to take or complete appropriate steps to correct any defect in
LESSOR's title, LESSEE may elect to correct such defect and deduct the cost of
such correction, including attorneys fees, from the payment obligations
contained in this lease. LESSEE also may make such deductions for costs or
corrections to title to the LEASED PROPERTY incurred by LESSEE prior to the date
of this Lease.
12.3In the event it is determined that LESSOR owns less
than one hundred percent (100%) of the LEASED
PROPERTY, then LESSOR's rights under this Agreement shall be adjusted so as to
reflect the actual interest owned. It is the intention of the parties that the
full ownership of LESSOR be included in this Mining Lease.
13. DEFAULT AND TERMINATION.
13.1 Default.
The occurrence of any of the following events shall constitute an event of
default on the part of LESSEE:
13.1.Breach of Covenants. Failure (i) to perform any of LESSEE's covenants
hereunder, and (ii) to remedy such failure within ninety (90) days after written
demand is made therefore. 13.1.2 Assignments. The making of a general assignment
by LESSEE for the benefit of creditors. 13.1.3 Bankruptcy.
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<PAGE>
The filing of any form of voluntary petition in bankruptcy by LESSEE, or the
filing of an involuntary petition by LESSEE's creditors, if such petition
remains undischarged for a period of thirty (30) days. 13.1.4 Receivership. The
appointment of a receiver to take possession of substantially all of LESSEE's
assets or of the interest held by LESSEE under this lease, if such receivership
remains undissolved for a period of thirty (30) days. 13.1.5 Attachment. The
attachment or other judicial seizure of substantially all of LESSEE's assets or
of the interest held under this lease, if such attachment or other seizure
remains undismissed or undischarged for a period of thirty (30) days after the
levy thereof. 13.2 Remedies. 13.2.1 Termination. In the event of the occurrence
of any event of default mentioned in Paragraph 13.1 hereof, LESSOR, shall have
the right, so long as default continues, to immediately terminate this lease by
giving LESSEE written notice of such termination. 13.2.2 Eviction. In the event
of any such termination of this lease, LESSOR may then or at any time
thereafter, re-enter the LEASED PROPERTY, or any part thereof, and expel or
remove therefrom LESSEE and any other person occupying the same, using such
force as may be necessary so to do, and again repossess and enjoy the LEASED
PROPERTY, without prejudice to any other remedies that LESSOR may have under
this lease, or at law or equity, by reason of LESSEE's default or of such
termination.
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13.2.3 Damages. In the event of any such termination of this lease, LESSOR shall
have all of the rights and remedies of a landlord provided by Section 1951.2 of
the Civil Code of the State of California. 13.2.4 Remedies of LESSOR. In the
event LESSEE breaches this lease and abandons the LEASED PROPERTY, LESSOR shall
have all of the remedies of a landlord provided by the Civil Code of the State
of California. 13.2.5 Default by Landlord. In the event of default by LESSOR,
LESSEE shall have all of the remedies of a tenant provided by the laws of the
State of California. 13.3 Termination by LESSEE. This agreement may be
terminated by LESSEE at any time by the giving of three (3) months written
notice. 13.4 Information.
Upon termination of this Agreement LESSEE shall (upon the
request of LESSOR made within 60 days of termination) provide LESSOR with copies
of all Information as defined below. As used in this Agreement, "Information"
shall mean all geological, geophysical and geochemical data, all laboratory
testing results, maps and reports, whether acquired, generated or compiled by or
for LESSEE. LESSEE warrants that all Information supplied to LESSOR pursuant to
the terms of this provision shall be true and accurate copies of the Information
acquired, generated or compiled by or for LESSEE; provided, however, that LESSEE
does not warrant that the data contained therein is an accurate interpretation
of the geology described therein.
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13.4.1 Upon execution of this Agreement, LESSOR shall provide LESSEE access to
all geologic, geophysical and geochemical data concerning the LEASED PROPERTY
which has been acquired, generated, or compiled by LESSOR. 13.4.2 Any and all
data, information, reports and samples provided by LESSEE to LESSOR under the
terms of this Agreement shall be treated and held confidential for the term of
this Agreement.
14. FORCE MAJEURE.
The failure to perform or comply with any of the covenants or
conditions hereof on the part of LESSEE
(including, but not limited to, production requirements set forth in Paragraph 3
above) will not be grounds for cancellation, penalty, termination or forfeiture
hereof, during such time as failure to perform is caused or compliance is
prevented by severe weather, explosion, unusual mining casualty, mill shutdowns,
damage to or destruction of mill or mill plant facility, fire, flood, civil or
military authority, insurrection, strikes, riots, inability after diligent
effort to obtain competent workmen or material or necessary permits, fuel
shortages, inadequate or shortages of transportation facilities not due to the
negligence or lack of diligence by LESSEE, governmental actions or policies
which substantially restrict the legality or profitability of extracting and
selling any of the valuable minerals produced under the Mining Lease, acts of
God, or any circumstances or conditions beyond the control of LESSEE, and in
such an event, LESSEE shall be excused from, and not held liable for, such
failure to perform or comply.
15. INUREMENT.
This lease shall inure to the benefit of and be binding upon their
respective heirs, trustees, conservators, successors and assigns of the parties.
16. RECORDATION.
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This agreement is not to be recorded. LESSEE may, however, prepare and
submit to LESSOR for signature, a memorandum of this agreement for recordation.
17. ASSIGNMENT.
17.1 Assignment by LESSOR.
LESSOR agrees that it shall give notice to LESSEE of its
intention to sell or otherwise assign the Lease or LEASED PROPERTY. Upon receipt
of a bona fide offer to purchase the Lease or LEASED PROPERTY, the LESSOR shall
forthwith give notice, to be accompanied by a true copy of such offer to
purchase attached thereto, to LESSEE, and LESSEE shall have ninety (90) days in
which to present to LESSOR a written counter offer, such counter offer to be for
greater consideration than the offer, expressed in cash or marketable
securities. Upon receipt of such counter offer, LESSOR will have thirty (30)
days to sell to LESSEE or to give notice to LESSEE of receipt of a further
counter offer for greater consideration than LESSEE's counter offer. In the
event of a further counter offer being presented, LESSEE will have fifteen (15)
days from receipt of notice to raise its offer, and the offers and counter
offers shall thereafter be limited to a response time of fifteen (15) days from
receipt of notice.
17.2 Assignment by LESSEE.
LESSEE may assign this Lease without the prior written consent
of LESSOR provided LESSEE guarantees the obligations of the assignee; otherwise,
this Lease shall not be assigned by LESSEE without the prior written consent of
LESSOR which consent shall not be unreasonably withheld.
18. REMOVAL OF EQUIPMENT.
At the termination of this lease, LESSEE may remove any and all
equipment it placed on the property during the term of this lease, or any
extension thereof, provided said removal is completed within one (1) year of the
termination date.
Page 22 of 8
22
<PAGE>
19. COUNTERPARTS.
This agreement may be signed in counterparts and shall be deemed
effective when all parties have executed this agreement or any counterpart
thereof.
20. COMPLETE AGREEMENT.
This writing and all terms and covenants contained herein are deemed to
be the complete and unequivocal written agreement of the parties, and no other
agreements, either written or oral, are contemplated with respect to said
property.
21. CALIFORNIA LAW.
This lease shall be governed by and construed and interpreted under the
internal laws of the State of California.
22. SEVERABILITY.
If any term, covenant, condition or provision of this agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
23. TITLE HEADINGS.
The headings of the respective paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to be a part of this
Agreement and considered in construing this Agreement.
LESSEE:
DESERT MINERALS, INC.
By ____________________________________
Its______________________________
By ____________________________________
Its______________________________
Page 23 of 8
23
<PAGE>
LESSOR:
-----------------------------------
CHARLES JACKSON
-----------------------------------
MARIE UNRUH
-----------------------------------
JAMES HOPKINS, SR.
-----------------------------------
TRACY HOPKINS
-----------------------------------
RICK JACKSON
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
-----------------------------------
MARA JACKSON
-----------------------------------
PAUL JACKSON
-----------------------------------
JARED JACKSON
Page 24 of 8
24
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
MINING LEASE
Table of Contents
1. DESCRIPTION OF PROPERTY............................................ 1
-----------------------
2. GRANT OF LEASE..................................................... 1
--------------
3. TERM OF LEASE...................................................... 2
-------------
4. ROYALTIES AND CONSIDERATION........................................ 2
---------------------------
4.1 Advance Minimum Royalty................................... 2
-----------------------
4.2 Production Royalties...................................... 2
--------------------
4.3 Manner of Payment......................................... 3
-----------------
5. CONDUCT OF MINING OPERATIONS....................................... 4
----------------------------
5.1 General................................................... 4
-------
5.2 Commingling of Ore........................................ 4
------------------
5.3 Cross-Mining Rights....................................... 5
-------------------
6. RECORDS AND BOOKS OF ACCOUNT....................................... 5
----------------------------
6.1 Books of Account.......................................... 5
----------------
6.2 Inspection................................................ 6
----------
7. PROTECTING FROM LIENS AND TAXES.................................... 6
-------------------------------
8. NOTICE............................................................. 7
------
9. WASTE AND REFUSE................................................... 7
----------------
10. INSURANCE.......................................................... 8
---------
11. COMPLIANCE WITH LAWS.................../........................... 8
--------------------
12. TITLE.............................................................. 8
-----
13. DEFAULT AND TERMINATION............................................ 9
-----------------------
13.1 Default................................................... 9
-------
25
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
13.1.1 Breach of Covenants............................. 9
-------------------
13.1.2 Assignments..................................... 9
-----------
13.1.3 Bankruptcy...................................... 9
----------
13.1.4 Receivership..................................... 10
------------
13.1.5 Attachment....................................... 10
----------
13.2 Remedies.................................................. 10
--------
13.2.1 Termination...................................... 10
-----------
13.2.2 Eviction......................................... 10
--------
13.2.3 Damages.......................................... 11
-------
13.2.4 Remedies of LESSOR............................... 11
------------------
13.2.5 Default by Landlord.............................. 11
-------------------
13.3 Termination by LESSEE..................................... 11
---------------------
13.4 Information............................................... 11
-----------
14. FORCE MAJEURE...................................................... 12
-------------
15. INUREMENT.......................................................... 13
---------
16. RECORDATION........................................................ 13
-----------
17. ASSIGNMENT......................................................... 13
----------
17.1 Assignment by LESSOR...................................... 13
--------------------
17.2 Assignment by LESSEE...................................... 14
--------------------
18. REMOVAL OF EQUIPMENT............................................... 14
--------------------
19. COUNTERPARTS....................................................... 14
------------
20. COMPLETE AGREEMENT................................................. 14
------------------
21. CALIFORNIA LAW..................................................... 14
--------------
22. SEVERABILITY....................................................... 14
------------
23. TITLE HEADINGS.................................................. 15
--------------
EXHIBIT 10.49
EXPLORATION AGREEMENT AND OPTION TO LEASE
This Agreement is made and effective as of the ___ day of
_______________, 19__, by and between CHARLES JACKSON, MARIE UNRUH, JAMES
HOPKINS, SR., TRACY HOPKINS, RICK JACKSON, MARA JACKSON, PAUL JACKSON and JARED
JACKSON (hereinafter referred to as "LICENSOR") and SHOSHONE MINING CO., a
Delaware corporation, (hereinafter referred to as "LICENSEE"), agree as follows:
39. Description of Property/Grant of Exploration Rights.
LICENSOR is the owner of all or part of the unpatented placer mining
claims described in EXHIBIT "A" attached hereto. LICENSOR grants to LICENSEE the
exclusive right to explore LICENSOR's ownership interest in the property set
forth in EXHIBIT "A" (LICENSOR's interest is hereinafter referred to as the
"PREMISES").
40. Term.
The term of this Agreement shall be five (5) years, unless terminated
earlier or extended. LICENSEE shall have the right to extend for two additional
five (5) year terms upon the payment of Five Hundred Dollars ($500.00) for each
such extension.
41. Consideration.
In consideration for the granting of the exploration rights set forth
herein, LICENSEE agrees to pay to LICENSOR each year in which this Agreement is
in effect on or before the anniversary date, the sum of Five
27
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
Hundred Dollars ($500.00). Upon execution of this Agreement, LICENSEE shall pay
the sum of One Thousand Dollars ($1,000.00) which shall be full consideration
for the first and second year's payments. LICENSORS authorize Rick Jackson to
receive such payments for them, for their benefit, as follows:
Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
42. Conduct of Operations.
During the term of this Agreement, LICENSEE shall have possession of,
and free and unrestricted access to, the PREMISES and shall have the right to
explore, investigate, measure, sample (including bulk sample), examine, test,
work, use, manage, control and develop the PREMISES. LICENSOR shall receive an
accounting and production royalty, pursuant to the terms of the Mining Lease
attached hereto as EXHIBIT "B", for all ores, minerals and concentrates removed
and sold from the PREMISES. LICENSEE may trench or drill any part of the
PREMISES, may rehabilitate existing mine workings, construct new workings, and
may erect, construct, use, and maintain on the PREMISES such roads, building
structures, equipment and machinery as in its sole discretion it may deem
necessary to its operations.
43. Notice.
Any notices required or permitted to be given to LICENSOR or LICENSEE
hereunder shall be given in the manner provided herein and be considered as
delivered and received when the same are delivered in person or received by the
addressee following deposit in the United States mail by registered mail, return
receipt requested, with postage prepaid. All notices given hereunder shall be
addressed to the persons and addresses given below or such other persons or
addresses as the parties may designate from time to time. Any change in the
names and/or
28
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
addresses of the persons listed below shall be effective thirty (30) days from
the giving of the notice to the other party as provided herein.
LICENSEE: Shoshone Mining Co.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
LICENSOR: Rick Jackson
- --------
P.O. Box 874
Jacksonville, OR 97530
44. Termination.
Upon termination or surrender under the terms of this License, all
rights of LICENSEE under this Agreement, except as provided in Paragraph 11.,
shall terminate and all payments heretofore made under this Agreement shall be
retained by LICENSOR as full compensation, as rental, for the use and occupancy
of said PREMISES and as consideration for which this Agreement is given.
45. Insurance.
LICENSEE shall, at its sole expense, cause to be issued and maintained
during the term of this Agreement, or any extension thereof, workmen's
compensation insurance coverage in accordance with the provisions of California
law.
46. Indemnity.
LICENSEE shall protect and indemnify and hold LICENSOR harmless from
and against any and all claims, actions or causes of action, including, without
limitation, employees of LICENSEE, contractors and employees of contractors of
LICENSEE, for injury to or death of persons or damage to property arising out of
or in connection with LICENSEE's exploration activities.
29
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
47. Compliance With Laws.
LICENSEE shall conduct all exploration activities in full compliance
with the applicable laws and regulations of the State of California and the
United States of America including, but not limited to, the provisions of the
Federal Land Management and Policy Act of 1976 and the regulations promulgated
pursuant thereto.
48. Option to Lease.
During the term of this Agreement, or during the term of any extension
hereof, LICENSEE may exercise an option to lease the PREMISES pursuant to the
terms and conditions set forth in the Mining Lease attached hereto as EXHIBIT
"B" and made a part hereof as though set forth in its entirety. The option to
lease shall be deemed exercised when LICENSOR has received a certified check in
the amount of Five Thousand Dollars ($5,000.00), together with two (2) copies of
EXHIBIT "B" that have been executed by LICENSEE. LICENSOR shall sign one copy
and return it promptly to LICENSEE. If LICENSOR is the owner at the date of
exercise of this option of less than one hundred percent (100%) of the title to
the PREMISES, LICENSOR shall receive an amount equal to LICENSOR's percentage
ownership multiplied by Five Thousand Dollars ($5,000.00) pursuant to this
paragraph.
49. Removal of Property.
LICENSEE shall have, and it is hereby given and granted, ninety (90)
days after a valid forfeiture, surrender, or other termination of this
Agreement, to remove from the PREMISES all machinery, equipment, personal
property and improvements erected or placed in or upon the said property by it.
If not so removed by LICENSEE within said ninety (90) day period, titles to
unremoved property will then vest in LICENSOR.
50. Information.
30
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
50.1 If the Option to Lease contained in Paragraph 10 is not
exercised and this Agreement is terminated, LICENSOR may, within ninety (90)
days, request, and if requested, LICENSEE shall supply LICENSOR copies of all
Information as defined below. As used in this Agreement, "Information" shall
mean all geological, geophysical and geochemical data, maps and reports, whether
acquired, generated or compiled by or for LICENSEE. LICENSEE warrants that all
information supplied to LICENSOR pursuant to the terms of this provision shall
be true and accurate copies of the Information acquired, generated or compiled
by or for LICENSEE; provided, however, that LICENSEE does not warrant that the
data contained therein is an accurate interpretation of the geology described
therein.
50.2 Any and all data, information, reports and samples
provided by LICENSEE to LICENSOR under the terms of this Agreement shall be
treated and held confidential for the term of this Agreement, and for the term
of the Mining Lease attached as EXHIBIT "B", if LICENSEE should exercise its
Option to Lease.
51. Default and Termination. 51.1 Default. The occurrence of any of the
following events shall constitute an event of default on the part of LICENSEE:
51.1.1 Breach of Covenants. Failure (i) to perform any of LICENSEE's covenants
hereunder, including, but not limited to the failure to make a payment under
Paragraph 3 herein, and (ii) to remedy such failure within ninety (90) days
after written demand is made therefor. 51.1.2 Assignments.
31
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
The making of a general assignment by LICENSEE for the benefit of creditors.
51.1.3 Bankruptcy. The filing of any form of voluntary petition in bankruptcy by
LICENSEE, or the filing of an involuntary petition by LICENSEE's creditors, if
such petition remains undischarged for a period of thirty (30) days. 51.1.4
Receivership. The appointment of a receiver to take possession of substantially
all of LICENSEE's assets or of the interest held by LICENSEE under this
Agreement, if such receivership remains undissolved for a period of thirty (30)
days. 51.1.5 Attachment. The attachment or other judicial seizure of
substantially all of LICENSEE's assets or of the interest held under this
Agreement, if such attachment or other seizure remains undismissed or
undischarged for a period of thirty (30) days after the levy thereof. 51.2
Remedies. In the event of the occurrence of any event of default mentioned in
Paragraph 13.1 hereof, LICENSOR shall have the right, so long as default
continues, to immediately terminate this Agreement by giving LICENSEE written
notice of such termination. 52. Inurement. All covenants, conditions,
limitations and provisions herein contained apply and are binding upon the
parties hereto and their heirs, devisees, successors and assigns.
32
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
53. Force Majeure.
If, because of force majeure, LICENSEE is unable to carry out any of
its obligations under this Agreement, the obligation of LICENSEE shall be
excused to the extent made necessary by such force majeure and this Agreement
shall be extended by a length of time equal to its continuance not to exceed
maximum term permitted by law. The term "force majeure" as used herein shall
include, but not be limited to, acts of God, acts of civil or military
authority, acts of war or the public enemy, legislation, acts or orders of any
court, acts or failure to act of regulatory agencies or administrative bodies
having jurisdiction with respect to the performance of this Agreement,
insurrections, riots, strikes, boycotts or other labor disturbances, fire,
flood, windstorm, explosion and other causes not within the reasonable control
of the parties directly affected and claiming suspension of its obligation
whether or not like or similar to the causes or occurrences specifically
enumerated above.
54. Title.
Each LICENSOR covenants that said LICENSOR now owns and is in actual
possession of an undivided one-eighth interest in the PREMISES free and clear
from all former grants, sales, liens, or encumbrances of any kind, and that
there are no delinquent taxes; and agrees to furnish LICENSEE upon request such
abstracts, deeds, or other evidence of title as may be in LICENSOR's possession
and control. LICENSEE may elect to correct any defects it determines exist in
title to the PREMISES, including, but not limited to, amendment, relinquishment,
relocation of existing claims and location of additional claims over fractions
within the PREMISES.
55. Counterparts.
33
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
This Agreement may be signed in counterparts and shall be deemed
effective when all parties have executed this Agreement or any counterpart
thereof.
56. Complete Agreement.
This Agreement and all the terms and covenants contained herein are
deemed to be the complete and unequivocal written agreement of the parties and
no other agreements, either written or oral, are contemplated with respect to
said PREMISES.
57. Recordation.
This Agreement shall not be recorded, however, the Memorandum of
Exploration Agreement with Option to Lease attached hereto as EXHIBIT "C" shall
be executed and recorded promptly following the execution of this Agreement.
LICENSOR:
-----------------------------------
CHARLES JACKSON
-----------------------------------
MARIE UNRUH
-----------------------------------
JAMES HOPKINS, SR.
-----------------------------------
TRACY HOPKINS
-----------------------------------
RICK JACKSON
-----------------------------------
MARA JACKSON
34
<PAGE>
DESERT MINERALS, INC./CHARLES JACKSON, et al.
-----------------------------------
PAUL JACKSON
-----------------------------------
JARED JACKSON
LICENSEE:
SHOSHONE MINING CO.
By ____________________________________
Paul J. Montle
Its Vice-President
35
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
Table of Contents
1. Description of Property/Grant of Exploration Rights................ 1
---------------------------------------------------
2. Term................................................................ 1
----
3. Consideration....................................................... 1
4. Conduct of Operations.............................................. 2
---------------------
5. Notice.............................................................. 2
------
6. Termination........................................................ 3
-----------
7. Insurance.......................................................... 3
---------
8. Indemnity.......................................................... 3
---------
9. Compliance With Laws............................................... 3
--------------------
10. Option to Lease.................................................... 4
---------------
11. Removal of Property................................................ 4
-------------------
12. Information........................................................ 4
-----------
13. Default and Termination............................................ 5
-----------------------
13.1 Default................................................... 5
-------
13.1.1 Breach of Covenants.............................. 5
-------------------
13.1.2 Assignments....................................... 5
-----------
13.1.3 Bankruptcy........................................ 5
----------
13.1.4 Receivership..................................... 6
------------
13.1.5 Attachment........................................ 6
----------
36
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
13.2 Remedies.................................................. 6
--------
LICENSOR:
-----------------------------------
CHARLES JACKSON
-----------------------------------
MARIE UNRUH
-----------------------------------
JAMES HOPKINS, SR.
-----------------------------------
TRACY HOPKINS
-----------------------------------
RICK JACKSON
-----------------------------------
MARA JACKSON
-----------------------------------
PAUL JACKSON
----------------------------------
JARED JACKSON
LICENSEE:
SHOSHONE MINING CO.
37
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
By________________________________
Paul J. Montle
Its Vice-President
38
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of _____________, 19__, before me,
______________________, the undersigned officer, personally appeared CHARLES
JACKSON, known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared MARIE
UNRUH, known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that she executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
39
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared JAMES
HOPKINS, SR., known to me (or satisfactorily proven) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared TRACY
HOPKINS, known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
40
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared RICK
JACKSON, known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared MARA
JACKSON, known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that she executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
41
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared PAUL
JACKSON known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
STATE OF OREGON )
) ss.
COUNTY OF JACKSON )
On this the ___ day of ____________, 19__, before me,
_______________________, the undersigned officer, personally appeared JARED
JACKSON, known to me (or satisfactorily proven) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
42
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
EXPLORATION AGREEMENT AND OPTION TO LEASE
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
On this the ___ day of _____________, 19__, before me,
______________________, the undersigned officer, personally appeared PAUL J.
MONTLE, who acknowledged himself to be the Vice-President of Shoshone Mining
Co., a Delaware corporation, and that he, as such Vice-President, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as Vice-President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ---------------------------------------
- ---------------------------------------
Title of Officer
My Commission Expires: ________________
43
<PAGE>
EXHIBIT "A"
UNPATENTED PLACER MINING CLAIMS
Located in San Bernardino County, California
<TABLE>
<CAPTION>
San Bernardino County
Township/Range Date of Document
Claim Name Section SBB&M Location Number CAMC
<S> <C> <C> <C> <C>
Kurtise #17 12 10 N./4 E. 6-18-96 96-0260792 269307
Kurtise #18 12 10 N./4 E. 6-18-96 96-0260793 269308
Kurtise #19 12 10 N./4 E. 6-18-96 96-0260794 269309
Kurtise #20 12 10 N./4 E. 6-18-96 96-0260795 269310
Kurtise #21 6 10 N./5 E. 6-16-96 96-0260796 269311
Kurtise #22 6 10 N./5 E. 6-16-96 96-0260797 269312
Kurtise #23 6 10 N./5 E. 6-16-96 96-0260798 269313
Kurtise #24 6 10 N./5 E. 6-16-96 96-0260799 269314
Kurtise #25 7 10 N./5 E. 6-18-96 96-0260800 269315
Kurtise #26 7 10 N./5 E. 6-18-96 96-0260801 269316
Kurtise #27 7 10 N./5 E. 6-18-96 96-0260802 269317
Kurtise #28 31 11 N./5 E. 6-20-96 96-0260803 269318
Kurtise #29 8 10 N./5 E. 6-18-96 96-0260804 269319
Kurtise #30 31 11 N./5 E. 6-20-96 96-0260805 269320
Kurtise #31 31 11 N./5 E. 6-20-96 96-0260806 269321
Kurtise #32 31 11 N./5 E. 6-20-96 96-0260807 269322
</TABLE>
<PAGE>
EXHIBIT "A"
UNPATENTED PLACER MINING CLAIMS
Located in Inyo County, California
<TABLE>
<CAPTION>
Inyo County
Township/Range Date of Document
Claim Name Section SBB&M Location Number CAMC
<S> <C> <C> <C> <C>
OBOE #88 25 21 N./6 E. 4-12-97 97-0933 271461
OBOE #90 25 21 N./6 E. 4-12-97 97-0935 271463
OBOE 91 25 21 N./6 E. 3-14-97 97-1208 271530
OBOE 92 25 21 N./6 E. 3-14-97 97-1209 271531
OBOE 93 35 21 N./6 E. 3-14-97 97-1210 271532
OBOE 94 35 21 N./6 E. 3-14-97 97-1211 271533
OBOE 95 35 21 N./6 E. 3-14-97 97-1212 271534
OBOE 96 23 21 N./6 E. 3-15-97 97-1213 271535
OBOE 97 23 21 N./6 E. 3-15-97 97-1214 271536
OBOE 98 14 21 N./6 E. 3-15-97 97-1215 271537
OBOE 99 14 21 N./6 E. 3-15-97 97-1216 271538
OBOE 100 14 21 N./6 E. 3-15-97 97-1217 271539
OBOE 101 14 21 N./6 E. 3-15-97 97-1218 271540
OBOE 102 15 21 N./6 E. 3-15-97 97-1219 271541
OBOE 103 15 21 N./6 E. 3-15-97 97-1220 271542
OBOE 104 15 21 N./6 E. 3-15-97 97-1221 271543
OBOE 105 9 21 N./6 E. 3-15-97 97-1222 271544
OBOE 106 9 21 N./6 E. 3-15-97 97-1223 271545
OBOE 107 9 21 N./6 E. 3-15-97 97-1224 271546
OBOE 108 9 21 N./6 E. 3-15-97 97-1225 271547
OBOE 109 5 21 N./6 E. 3-15-97 97-1226 271548
OBOE 110 5 21 N./6 E. 3-15-97 97-1227 271549
OBOE 111 8 21 N./6 E. 3-15-97 97-1228 271550
OBOE 112 5 21 N./6 E. 3-15-97 97-1229 271551
L.S. #1 2 21 N./7 E. 3-8-97 97-1232 271554
L.S. #2 2 21 N./7 E. 3-8-97 97-1233 271555
L.S. #3 11 21 N./7 E. 3-8-97 97-1234 271556
L.S. #4 11 21 N./7 E. 3-8-97 97-1235 271557
L.S. #5 2 21 N./7 E. 3-9-97 97-1236 271558
L.S. #6 34 22 N./7 E. 3-9-97 97-1237 271559
</TABLE>
<PAGE>
EXHIBIT "B"
MINING LEASE
This Agreement is made and effective as of the ___ day of _______________, 19__,
by and between CHARLES JACKSON, MARIE UNRUH, JAMES HOPKINS, SR., TRACY HOPKINS,
RICK JACKSON, MARA JACKSON, PAUL JACKSON and JARED JACKSON (hereafter referred
to as "LESSOR"), and SHOSHONE MINING CO.., a Delaware corporation,
(hereafter "LESSEE"). 1. DESCRIPTION OF PROPERTY. LESSOR is the owner of all or
part of the unpatented placer mining claims described on EXHIBIT "A" attached
hereto. 2. GRANT OF LEASE. 2.1 LESSOR hereby leases exclusively to LESSEE,
subject to the terms and conditions hereinafter expressed, LESSOR's interest in
the property set forth in EXHIBIT "A" attached hereto (LESSOR's interest is
hereafter referred to as "LEASED PROPERTY"). 2.2 This lease is granted for the
purpose of the exploration, development, and mining of the LEASED PROPERTY for
minerals as may be found therein (hereinafter referred to as the "Leased
Minerals"). LESSEE is hereby granted the exclusive right to enter into
possession of the LEASED PROPERTY, and during the term of this lease, to remain
in possession thereof, and to develop, mine, operate and use the property and
any surface or underground rights, including but not limited to access, and
water or water rights, and to mine, extract and remove from the LEASED PROPERTY
the Leased Minerals and to treat, mill, ship, sell or otherwise dispose of the
same and receive the full proceeds thereof (subject to the obligation of royalty
payment as specified below); and to construct, use and operate thereon and
therein structures, excavations, roads, equipment and other im provements or
facilities which LESSEE shall deem reasonably required for, or in connection
with, the full enjoyment of the rights and interests granted to LESSEE by this
lease. 3. TERM OF LEASE. The term of this Mining Lease shall be for twenty (20)
years from and after the date of this lease and for so long thereafter as LESSEE
is in production on properties located within a five (5) mile radius of the
nearest LEASED PROPERTY. For purposes of this paragraph, production shall be
defined as the processing of ore. LESSEE may terminate this lease at any time by
delivery to LESSOR of a quitclaim deed to the LEASED PROPERTY, provided that
LESSEE is not then in default under the terms of this lease. 4. ROYALTIES AND
CONSIDERATION. 4.1 Advance Minimum Royalty. LESSEE shall pay to LESSOR advance
minimum royalties as follows: a) Upon execution of this agreement$1,000.00 b) On
or before the anniversary date and each anniversary date thereafter$1,000.00 4.2
Production Royalties. 4.2.1A production royalty for all minerals mined, removed,
and sold from the property set forth in EXHIBIT "A" equal to 2.5 percent (2.5%)
of the Smelter Returns shall be calculated. LESSOR, as defined in this
Agreement, shall receive a percentage of the production royalty calculated equal
to LESSOR's actual ownership interest of the property described in EXHIBIT "A".
4.2.2The term "Smelter Returns" shall be defined to be the gross amount received
from the sale of valuable minerals after recovery of all exploration,
development, and capital costs and less all taxes levied, incurred or
<PAGE>
imposed on the sale, severance or production of such minerals and less costs of
extraction, mining, milling, treating, transportation to the smelter and/or
refinery, smelting and refining charges and costs of sale. 4.3 Manner of
Payment. 4.3.1All minerals mined, removed and extracted from the LEASED PROPERTY
shall be sold under the name of LESSEE and a royalty settlement sheet accounting
for such transactions shall be furnished to LESSOR on or before the twenty-fifth
(25th) day of the next succeeding calendar month for all sales made and received
during the preceding calendar quarter. All production royalty payments,
accompanied by a settlement sheet required by this lease, shall be made to
LESSOR at the address set forth in Paragraph 12.1 below, or such other person or
address as LESSOR shall designate by written notice pursuant to the provisions
of Paragraph 8 by mail or personal delivery. LESSEE shall receive a cumulative
credit against production royalties for all minimum royalties paid pursuant to
this lease agreement regardless of the year in which said minimum royalties are
paid and production royalties shall not be payable until the production royalty
set forth in Paragraph 4.2 exceeds the cumulative sums paid by LESSEE pursuant
to Paragraph 4.1. If the Leased Minerals are sold to, or processed by, a smelter
or refinery owned, operated, affiliated with or controlled by LESSEE, in no
event shall the royalties computed herein be less than would have been paid had
the ore been sold to or processed by a major smelter or refinery not owned,
operated, affiliated with, or controlled by LESSEE. 5. CONDUCT OF MINING
OPERATIONS. 5.1 General. LESSEE shall conduct, and cause all mining activities
to be conducted in a prudent, workmanlike, miner-like manner in accordance with
established mining practices. 5.2 Commingling of Ore.
<PAGE>
LESSEE may commingle ore from the LEASED PROPERTY with ore from other
properties, either before or after concentration or beneficiation, provided that
the method and procedures LESSEE uses to commingle the ore and to determine the
weight and grade of the ore removed from the LEASED PROPERTY and of the ore with
which it is commingled shall be a method recognized by the mining industry and
conducted in accordance with generally accepted accounting principles. LESSEE
shall use that method to determine weight and grade and to allocate net returns
from the commingled ore between the LEASED PROPERTY and the other properties
from which the other commingled ore was removed and to assure that the share of
production received by LESSOR is representative of the ore that was produced
from the LEASED PROPERTY. All such weight, grade and allocation calculations by
LESSEE shall be done in accordance with generally accepted accounting principles
and in a manner recognized by the mining industry as practical and sufficient at
that time. If it is impractical to determine which portions of any of the costs
and expenses described in Paragraph 4.2.2 above are directly attributable to ore
removed from the LEASED PROPERTY, such costs and expenses shall be allocated on
a straight-line, per-ton basis among all ores that give rise to those expenses,
in accordance with acceptable accounting standards
5.3 Cross-Mining Rights. LESSEE is hereby granted the right, if it so desires,
to mine or remove from the LEASED PROPERTY any ores, waste, water and other
materials existing therein or thereon or in any part thereof, through or by
means of shafts, openings or pits which may be sunk or made upon other property
owned, controlled, or operated by or for LESSEE (hereinafter "Other Property").
LESSEE also may stockpile any ores, waste, or other materials and/or
concentrated products of ores or materials (collectively "Products") from the
LEASED PROPERTY, or any part thereof, upon stockpile grounds situated upon such
Other Property. In the event LESSEE stockpiles Products from the LEASED PROPERTY
on Other Properties, LESSEE shall execute or cause to be executed such
<PAGE>
instruments as LESSOR may reasonably request in writing to evidence LESSOR's
royalty interest in the Products so stockpiled. Any such instrument executed by
LESSEE, however, expressly shall acknowledge LESSEE's right to sell the
stockpiled Products. LESSEE also, if it so desires, may use the LEASED PROPERTY
and any shafts, openings, pits and stockpile grounds sunk or made for the
mining, removal and/or stockpiling of any Products from the LEASED PROPERTY
and/or from the Other Property, or for any purpose or purposes connected
therewith, provided, however, that such use of the LEASED PROPERTY does not
prevent or interfere with the mining or removal of ore from the LEASED PROPERTY.
6. RECORDS AND BOOKS OF ACCOUNT. 6.1 Books of Account. LESSEE shall keep
complete, true and proper books and records of account showing all minerals
mined and removed from the LEASED PROPERTY and recording all sales, transfers,
conveyances or other dispositions of ores, minerals or other materials taken
from the LEASED PROPERTY in accordance with generally accepted accounting
principles. Said books and records shall be open to examination by LESSOR or its
duly authorized representative during regular business hours and shall include
any and all documents necessary to establish a gross selling price of the ores,
minerals or other materials taken from the Leased Premises. LESSOR is hereby
granted the right at LESSOR's expense to examine and make a copy or copies of
said books or records or any portion thereof. 6.2 Inspection. LESSOR or its duly
authorized agents shall have, following advanced notice, the right at reasonable
times under reasonable circumstances to enter upon the LEASED PROPERTY for the
purpose of inspecting operations and work being performed by LESSEE pursuant to
this lease. Such entry shall be at LESSOR's risk and LESSEE
<PAGE>
shall not be liable for injury to LESSOR unless such injury is caused by the
willful or grossly negligent conduct of LESSEE. 7. PROTECTING FROM LIENS AND
TAXES. 7.1 LESSEE shall keep the subject premises and every part thereof free
and clear of any and all liens and encumbrances for work performed upon the
subject premises, or for materials furnished to it while this agreement remains
in force and effect. 7.2 LESSEE shall pay not later than ten (10) days before
due, one hundred percent (100%) of all taxes and assessments that may be levied
or assessed against the premises, including all taxes that may be levied or
assessed as a direct or indirect result of LESSEE's mining activities, and
including, but not limited to, taxes on the mineral estate, real property
improvements and personal property and possessory interest taxes. LESSOR shall
forward to LESSEE, upon receipt, all notices of taxes and assessments due.
LESSOR shall be responsible for payment of all taxes or assessments due as a
result of its activities. 8. NOTICE. Any notices required or permitted to be
given to LESSOR or LESSEE hereunder shall be considered as delivered when
received by the parties to whom they shall be directed. Notice shall be given by
personal delivery or by registered mail, postage prepaid and return receipt
requested, addressed to the persons and addresses given below or to such other
person or address as the parties may designate by written notice from time to
time.
LICENSEE:Shoshone Mining Co.
c/o LS Capital Corporation
15915 Katy Freeway, Suite 250
Houston, TX 77094
LICENSOR:Rick Jackson
P.O. Box 874
Jacksonville, OR 97530
<PAGE>
Changes in the above names and addresses shall be effected by sending notice as
set forth herein and said change shall be effective fifteen (15) days from
receipt thereof. 9. WASTE AND REFUSE. LESSEE agrees to dispose of refuse from
all mining activities conducted pursuant to this lease in accordance with good
mining practice and in accordance with the provisions of applicable ordinances,
laws and regulations. 10. INSURANCE. LESSEE shall, at its sole cost and expense,
cause to be issued and maintained during the term of this lease or any extension
thereof workers' compensation insurance coverage in accordance with the
provisions of California law. 11. COMPLIANCE WITH LAWS. LESSEE shall conduct and
cause to be conducted all mining activities in full compliance with the
applicable laws of the State of California and the United States of America. 12.
TITLE. 12.1Each LESSOR warrants that said LESSOR is the owner of an undivided
1/8th interest in the LEASED PROPERTY and that there are no defects in LESSOR's
title which would affect LESSEE's right to possession and use pursuant to the
terms of this lease. LESSORS authorize Rick Jackson to receive all payments for
them, for their benefit, as follows: Rick Jackson P.O. Box 874 Jacksonville, OR
97530 12.2 In the event that any defect in LESSOR's title is determined to
exist, LESSOR shall, at its sole cost and expense, take such steps as may be
required, including, but not limited to, the commencement of litigation, the
location of additional claims, relinquishment, amendment or relocation of
existing claims held by LESSOR. In the event LESSOR fails or refuses to take or
complete appropriate steps to correct any defect in LESSOR's title,
<PAGE>
LESSEE may elect to correct such defect and deduct the cost of such correction,
including attorneys fees, from the payment obligations contained in this lease.
LESSEE also may make such deductions for costs or corrections to title to the
LEASED PROPERTY incurred by LESSEE prior to the date of this Lease. 12.3In the
event it is determined that LESSOR owns less than one hundred percent (100%) of
the LEASED PROPERTY, then LESSOR's rights under this Agreement shall be adjusted
so as to reflect the actual interest owned. It is the intention of the parties
that the full ownership of LESSOR be included in this Mining Lease. 13. DEFAULT
AND TERMINATION. 13.1Default. The occurrence of any of the following events
shall constitute an event of default on the part of LESSEE: 13.1.1Breach of
Covenants. Failure (i) to perform any of LESSEE's covenants hereunder, and (ii)
to remedy such failure within ninety (90) days after written demand is made
therefore. 13.1.2Assignments. The making of a general assignment by LESSEE for
the benefit of creditors. 13.1.3Bankruptcy. The filing of any form of voluntary
petition in bankruptcy by LESSEE, or the filing of an involuntary petition by
LESSEE's creditors, if such petition remains undischarged for a period of thirty
(30) days. 13.1.4Receivership. The appointment of a receiver to take possession
of substantially all of LESSEE's assets or of the interest held by LESSEE under
this lease, if such receivership remains undissolved for a period of thirty (30)
days. 13.1.5Attachment.
<PAGE>
The attachment or other judicial seizure of substantially all of LESSEE's assets
or of the interest held under this lease, if such attachment or other seizure
remains undismissed or undischarged for a period of thirty (30) days after the
levy thereof. 13.2Remedies. 13.2.1Termination. In the event of the occurrence of
any event of default mentioned in Paragraph 13.1 hereof, LESSOR, shall have the
right, so long as default continues, to immediately terminate this lease by
giving LESSEE written notice of such termination. 13.2.2Eviction. In the event
of any such termination of this lease, LESSOR may then or at any time
thereafter, re-enter the LEASED PROPERTY, or any part thereof, and expel or
remove therefrom LESSEE and any other person occupying the same, using such
force as may be necessary so to do, and again repossess and enjoy the LEASED
PROPERTY, without prejudice to any other remedies that LESSOR may have under
this lease, or at law or equity, by reason of LESSEE's default or of such
termination. 13.2.3Damages. In the event of any such termination of this lease,
LESSOR shall have all of the rights and remedies of a landlord provided by
Section 1951.2 of the Civil Code of the State of California. 13.2.4Remedies of
LESSOR. In the event LESSEE breaches this lease and abandons the LEASED
PROPERTY, LESSOR shall have all of the remedies of a landlord provided by the
Civil Code of the State of California. 13.2.5Default by Landlord.
<PAGE>
In the event of default by LESSOR, LESSEE shall have all of the remedies of a
tenant provided by the laws of the State of California. 13.3Termination by
LESSEE. This agreement may be terminated by LESSEE at any time by the giving of
three (3) months written notice. 13.4Information. Upon termination of this
Agreement LESSEE shall (upon the request of LESSOR made within 60 days of
termination) provide LESSOR with copies of all Information as defined below. As
used in this Agreement, "Information" shall mean all geological, geophysical and
geochemical data, all laboratory testing results, maps and reports, whether
acquired, generated or compiled by or for LESSEE. LESSEE warrants that all
Information supplied to LESSOR pursuant to the terms of this provision shall be
true and accurate copies of the Information acquired, generated or compiled by
or for LESSEE; provided, however, that LESSEE does not warrant that the data
contained therein is an accurate interpretation of the geology described
therein. 13.4.1Upon execution of this Agreement, LESSOR shall provide LESSEE
access to all geologic, geophysical and geochemical data concerning the LEASED
PROPERTY which has been acquired, generated, or compiled by LESSOR. 13.4.2Any
and all data, information, reports and samples provided by LESSEE to LESSOR
under the terms of this Agreement shall be treated and held confidential for the
term of this Agreement. 14.FORCE MAJEURE. The failure to perform or comply with
any of the covenants or conditions hereof on the part of LESSEE (including, but
not limited to, production requirements set forth in Paragraph 3 above) will not
be grounds for cancellation, penalty, termination or forfeiture hereof, during
such time as failure to perform is caused or compliance is prevented by severe
weather, explosion, unusual mining casualty, mill shutdowns, damage to or
<PAGE>
destruction of mill or mill plant facility, fire, flood, civil or military
authority, insurrection, strikes, riots, inability after diligent effort to
obtain competent workmen or material or necessary permits, fuel shortages,
inadequate or shortages of transportation facilities not due to the negligence
or lack of diligence by LESSEE, governmental actions or policies which
substantially restrict the legality or profitability of extracting and selling
any of the valuable minerals produced under the Mining Lease, acts of God, or
any circumstances or conditions beyond the control of LESSEE, and in such an
event, LESSEE shall be excused from, and not held liable for, such failure to
perform or comply. 15. INUREMENT. This lease shall inure to the benefit of and
be binding upon their respective heirs, trustees, conservators, successors and
assigns of the parties. 16. RECORDATION. This agreement is not to be recorded.
LESSEE may, however, prepare and submit to LESSOR for signature, a memorandum of
this agreement for recordation. 17. ASSIGNMENT. 17.1Assignment by LESSOR. LESSOR
agrees that it shall give notice to LESSEE of its intention to sell or otherwise
assign the Lease or LEASED PROPERTY. Upon receipt of a bona fide offer to
purchase the Lease or LEASED PROPERTY, the LESSOR shall forthwith give notice,
to be accompanied by a true copy of such offer to purchase attached thereto, to
LESSEE, and LESSEE shall have ninety (90) days in which to present to LESSOR a
written counter offer, such counter offer to be for greater consideration than
the offer, expressed in cash or marketable securities. Upon receipt of such
counter offer, LESSOR will have thirty (30) days to sell to LESSEE or to give
notice to LESSEE of receipt of a further counter offer for greater consideration
than LESSEE's counter offer. In the event of a
<PAGE>
further counter offer being presented, LESSEE will have fifteen (15) days
from receipt of notice to raise its offer, and the offers and counter offers
shall thereafter be limited to a response time of fifteen (15) days from
receipt of notice. 17.2Assignment by LESSEE. LESSEE may assign this Lease
without the prior written consent of LESSOR provided LESSEE guarantees the
obligations of the assignee; otherwise, this Lease shall not be assigned by
LESSEE without the prior written consent of LESSOR which consent shall not be
unreasonably withheld. 18. REMOVAL OF EQUIPMENT. Atthe termination of this
lease, LESSEE may remove any and all equipment it placed on the property during
the term of this lease, or any extension thereof, provided said removal is
completed within one (1) year of the termination date. 19. COUNTERPARTS. This
agreement may be signed in counterparts and shall be deemed effective when all
parties have executed this agreement or any counterpart thereof. 20. COMPLETE
AGREEMENT. This writing and all terms and covenants contained herein are deemed
to be the complete and unequivocal written agreement of the parties, and no
other agreements, either written or oral, are contemplated with respect to said
property. 21. CALIFORNIA LAW. This lease shall be governed by and construed and
interpreted under the internal laws of the State of California. 22.
SEVERABILITY.
<PAGE>
If any term, covenant, condition or provision of this agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. 23. TITLE HEADINGS. The
headings of the respective paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to be a part of this Agreement and
considered in construing this Agreement. LESSEE:
SHOSHONE MINING CO.
By ____________________________________
Its______________________________
By ____________________________________
Its______________________________
LESSOR:
-----------------------------------
CHARLES JACKSON
-----------------------------------
MARIE UNRUH
-----------------------------------
JAMES HOPKINS, SR.
-----------------------------------
TRACY HOPKINS
-----------------------------------
RICK JACKSON
-----------------------------------
MARA JACKSON
-----------------------------------
PAUL JACKSON
-----------------------------------
JARED JACKSON
<PAGE>
SHOSHONE MINING CO./CHARLES JACKSON, et al.
MINING LEASE
Table of Contents
1. DESCRIPTION OF PROPERTY........................................... 1
-----------------------
2. GRANT OF LEASE.................................................... 1
--------------
3. TERM OF LEASE..................................................... 2
-------------
4. ROYALTIES AND CONSIDERATION....................................... 2
---------------------------
4.1 Advance Minimum Royalty.................................. 2
-----------------------
4.2 Production Royalties..................................... 2
--------------------
4.3 Manner of Payment........................................ 3
-----------------
5. CONDUCT OF MINING OPERATIONS...................................... 4
----------------------------
5.1 General.................................................. 4
-------
5.2 Commingling of Ore........................................ 4
------------------
5.3 Cross-Mining Rights....................................... 5
-------------------
6. RECORDS AND BOOKS OF ACCOUNT....................................... 5
----------------------------
6.1 Books of Account.......................................... 5
----------------
6.2 Inspection................................................ 6
----------
7. PROTECTING FROM LIENS AND TAXES.................................... 6
-------------------------------
8. NOTICE............................................................. 7
------
9. WASTE AND REFUSE....................................................7
----------------
10. INSURANCE...........................................................8
---------
11. COMPLIANCE WITH LAWS............................................... 8
--------------------
12. TITLE.............................................................. 8
-----
13. DEFAULT AND TERMINATION............................................ 9
-----------------------
13.1 Default................................................... 9
-------
13.1.1 Breach of Covenants...............................9
-------------------
13.1.2 Assignments...................................... 9
-----------
13.1.3 Bankruptcy....................................... 9
----------
<PAGE>
13.1.4 Receivership..................................... 10
------------
13.1.5 Attachment....................................... 10
----------
13.2 Remedies.................................................. 10
--------
13.2.1 Termination...................................... 10
13.2.2 Eviction......................................... 10
--------
13.2.3 Damages.......................................... 11
-------
13.2.4 Remedies of LESSOR............................... 11
------------------
13.2.5 Default by Landlord.............................. 11
-------------------
13.3 Termination by LESSEE..................................... 11
---------------------
13.4 Information............................................... 11
-----------
14. FORCE MAJEURE...................................................... 12
-------------
15. INUREMENT.......................................................... 13
---------
16. RECORDATION........................................................ 13
-----------
17. ASSIGNMENT......................................................... 13
----------
17.1 Assignment by LESSOR...................................... 13
--------------------
17.2 Assignment by LESSEE...................................... 14
--------------------
18. REMOVAL OF EQUIPMENT............................................... 14
--------------------
19. COUNTERPARTS....................................................... 14
------------
20. COMPLETE AGREEMENT................................................. 14
------------------
21. CALIFORNIA LAW..................................................... 14
--------------
22. SEVERABILITY....................................................... 14
------------
23. TITLE HEADINGS..................................................... 15
--------------
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
LS CAPITAL CORPORATION
PACIFIC AMERICAN CASINOS, INC.
LONE STAR CASINO CORPORATION, CNMI
PAPONE'S ACQUISITION CORPORATION
PAPONE'S PALACE LLC (75.5% SUBSIDIARY)
COTTON EXCHANGE CASINO, INC.
LONE STAR CASINO CORPORATION OF NEVADA, INC.
LSCC OF NEVADA, INC.
LONE STAR PINE HILLS, INC.
48
<PAGE>
CLUTCH GAMES, INC.
GRIFFIN GOLD GROUP, INC. (50% OWNED)
DESERT MINERALS, INC. (50% OWNED)
DMI LAND, INC.
SHOSHONE MINING CO. (50% OWNED)
SAM HOUSTON GOLD, INC. (50% OWNED)
LANCASTER SAND & GRAVEL, INC.
The Board of Directors
LS Capital Corporation
We consent to the incorporation by reference in the registration statement (no.
333-31963) on Form S-8 of LS Capital Corporation of our report dated October 6,
1995, relating to the consolidated statements of income, stockholders' equity
and cash flows for the year ended June 30, 1995, and related schedule, which
report appears in the June 30, 1997 annual report on Form 10-K of LS Capital
Corporation. Our report dated October 5, 1995 contains an explanatory paragraph
that states that the Company has suffered recurring losses from operations and
has a working capital deficiency which raise substantial doubt about its ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
October 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
ITEM 8 OF FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000897545
<NAME> LS CAPITAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 5
<SECURITIES> 15
<RECEIVABLES> 1542
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 843
<PP&E> 2217
<DEPRECIATION> 340
<TOTAL-ASSETS> 3105
<CURRENT-LIABILITIES> 3203
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> (219)
<TOTAL-LIABILITY-AND-EQUITY> 3105
<SALES> 238
<TOTAL-REVENUES> 238
<CGS> 168
<TOTAL-COSTS> 168
<OTHER-EXPENSES> 1323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489
<INCOME-PRETAX> (207)
<INCOME-TAX> 0
<INCOME-CONTINUING> (207)
<DISCONTINUED> 135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
EXHIBIT 99.1
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
IN RE: )
) Case No. 97-15695-SBB
<PAGE>
PAPONE'S PALACE LLC )
EIN: 84-1204410 ) Chapter 11
)
Debtor. )
PLAN OF REORGANIZATION DATED JULY 22, 1997
Papone's Palace LLC, Debtor and Debtor-in-Possession pursuant to
Chapter 11, Title 11 of the United States Code, proposes the following Plan of
Reorganization.
ARTICLE I
INTRODUCTION
Papone's Palace LLC ("Debtor" or "Company") is a Colorado limited
liability company. The Company owns a 6,000 square foot casino property in
Central City, Colorado. The Company ceased its casino operation in September
1996.
This Plan provides for the reorganization of the Company as a going
concern under Chapter 11 of the Bankruptcy Code. A more complete history of the
Company, its operations, an explanation of this Plan and a description of the
Company's financial condition and future business activity is contained in the
Disclosure Statement which accompanies this Plan. Reference should be made to
the Disclosure Statement by all creditors and parties who intend to cast a
ballot for or against this Plan.
ARTICLE II
DEFINITIONS
2.01 - Allowed Claim shall mean a claim in respect of which a Proof of
Claim has been filed with the Court within the applicable time period of
limitation fixed by Court Order in this proceeding or scheduled in the list of
creditors prepared and filed with the Court pursuant to Bankruptcy Rule 1007(b)
and not listed as disputed, contingent or unliquidated as to amount, in either
case as to which no timely objection to the allowance thereof has been filed
pursuant to Bankruptcy Rules 3001 and 3007 or as to which any such objection has
been determined by Order or Judgment which is no longer subject to appeal or
certiorari proceeding and as to which no appeal or certiorari proceeding is
pending.
<PAGE>
2.02 - Allowed Secured Claim shall mean an allowed claim secured by a
lien, security interest or other charge against or interest in property in which
the Debtor has an interest, or which is subject to setoff under Section 553 of
the Code, to the extent the value (determined in accordance with Section 506(a)
of the Code) of the interest of the holder of any such allowed claim and the
Debtor's interests in such property or to the extent of the amount subject to
such setoff as the case may be.
2.03 - Claim shall mean any right to payment, or right to any equitable
remedy for breach of performance if such breach gives rise to the right to
payment, against the Debtor in existence on or as of the Petition Date, whether
or not such right to payment or right to an equitable remedy as reduced to
judgment, liquidated, unliquidated, fixed, contingent, natured, unmatured,
disputed, undisputed, legal, secured or unsecured.
2.04 - Class shall mean any class into which allowed claims are
classified pursuant to Article III. 2.05 - Classes 1, 2, 3, 4, 5, 6 and
7 Claims and Interests shall mean the allowed claims and interests so
classified in Article III.
2.06 - Code shall mean the Bankruptcy Code, 11 U.S.C. Section 101 et
seq. and any amendments thereof. 2.07 - Company or Debtor shall mean
the corporation which is a Debtor-in-Possession in Bankruptcy
Case No. 97-15695-SBB.
2.08 - Confirmation Date shall mean the date upon which the Order of
confirmation is entered by the
-----------------
Court.
2.09 - Confirmation Hearing shall mean that hearing held by the Court
pursuant to 11 U.S.C. Section 1128 to confirm the Plan.
2.10 - Court shall mean the United States Bankruptcy Court for the
District of Colorado in which the Debtor's Chapter 11 case, pursuant to which
this Plan is proposed, is pending and any Court having competent jurisdiction to
hear appeal or certiorari proceedings therefrom.
2.11 - Debtor shall mean the Debtor who is proposing this Chapter 11
Plan. 2.12 - Disclosure Statement shall mean the Disclosure Statement
which is approved by the Court
according to 11 U.S.C. Section 1125 to be utilized to solicit votes for this
Plan.
2.13 - Effective Date of the Plan shall mean the date ten (10) days
after entry of the Order of Confirmation, or, if a stay is entered pending
appeal of the Order of Confirmation, the date on which the stay is no longer in
effect.
<PAGE>
2.14 - Neudecker Note shall mean that Promissory Note dated January 15,
1992 in the original principal amount of $1,450,000 made by Earl Neudecker and
Randall Gose payable to George B. Hill and Dolores J. Hill as co-trustees of
Hill Family Trust, which Note is secured by a Deed of Trust dated January 15,
1992 encumbering an undivided 49% interest in and to the Property.
2.15 - Order of Confirmation shall mean the Order entered by the Court
confirming the Plan in accordance with the provisions of Chapter 11 of the Code.
2.16 - PPAC shall mean Papone's Palace Acquisition Corp., a Colorado
corporation which owns a 75.5% member interest in the pre-confirmation Debtor.
2.17 - Petition Date shall mean April 23, 1997, the date on which the
Debtor's order for relief entered. 2.18 - Plan shall mean this Chapter
11 Plan, as amended in accordance with the terms hereof or modified
in accordance with the Code.
2.19 - Property shall mean that real property including improvements
and fixtures located at 118 Main Street, Central City, Colorado and more
particularly described as Lots 22 and 23, Block 3, City of Central, County of
Gilpin, Colorado.
2.20 - Pro Rata shall mean with respect to any holder of Plan debt, in
the same proportion that the amount of such Plan debt bears to the aggregate
amount of the Plan debt.
2.21 - Rules shall mean the Federal Rules of Bankruptcy Procedure and
Local Bankruptcy Rules for the District of Colorado as adopted by the Court.
2.22 - Unclassified Priority Claims shall mean claims pursuant to
Section 507(a)(1) which are administrative expenses allowed under Section 503(b)
of the Code and any fees and charges against the estate under Chapter 123 of
Title 28 of the United States Code and shall further mean allowed unsecured
claims of governmental units to the extent provided for in Section 507(a)(8) of
the Code.
ARTICLE III
DESIGNATION OF CLAIMS AND INTERESTS
The following is a designation of all classes of claims and interests
other than those claims of a kind specified in Sections 507(a)(1), 507(a)(2) or
507(a)(8) of the Code.
Class 1 - All allowed claims specified in Sections 507(a)(3), 507(a)(4)
or 507(a)(5) of the Code as having priority.
<PAGE>
Class 2 - The allowed secured claim of the Gilpin County Treasurer.
Class 3 - The allowed secured claim of Randall F. Gose. Class 4 - The
allowed secured claim of Leslie Alexander. Class 5 - The allowed claims
of unsecured creditors other than those creditors set forth
under Class 6.
Class 6 - The allowed unsecured claim of LS Capital Corp. Class 7 - The
interests held by pre-confirmation members of the Debtor.
ARTICLE IV
SPECIFICATION AND TREATMENT OF UNCLASSIFIED PRIORITY CLAIMS
4.1 - The holders of allowed claims of the type specified in Section
507(a)(1) of the Code, costs and expenses of administration, shall receive cash
equal to the allowed amount of such claim or a lesser amount as may be
acceptable and agreed to by particular holders of such claims. Such claims shall
be paid in full on the Effective Date of the Plan. Section 507(a)(1) claims that
are allowed by the Court after the Effective Date of the Plan shall be paid
within ten (10) days of their allowance.
4.2 - The allowed claims of a type specified in Section 507(a)(8) of
the Code, unsecured claims of governmental taxing authorities, shall receive
cash equal to the allowed amount of their claim over a period not to exceed six
years from the date the taxes were assessed, plus simple interest on the unpaid
balance amortized at the rate of 7.5% per annum until paid in full. Such claims,
which are specified in 11 U.S.C. 507(a)(8) of the Code, will be paid in monthly
installments of principal and interest over the six year period following the
Effective Date, and subsequent payments will be due on the same day of each
successive month.
4.3 - The Debtor will make all payments required to be paid to the U.S.
Trustee pursuant to 28 U.S.C. ss.1930(a)(6) until the case is closed, converted,
or dismissed. All payments due to the U.S. Trustee pursuant to 28 U.S.C.
ss.1930(a)(6) shall be paid on the Effective Date of the Plan, and the U.S.
Trustee shall thereafter be paid fees due on a quarterly basis until the case is
closed, converted, or dismissed.
ARTICLE V
SPECIFICATION AND TREATMENT OF CLASS 1 CLAIMS
<PAGE>
5.1 - The allowed Class 1 claims shall be paid in full on the Effective
Date of the Plan. The Class 1 claims for certain pre-petition wages and employee
claims are more particularly described in Sections 507(a)(3), 507(a)(4), and
507(a)(5) of the Code. Class 1 claimants may agree to be paid on a deferred
basis following the Effective Date of the Plan.
ARTICLE VI
SPECIFICATION AND TREATMENT OF SECURED CREDITOR CLAIMS
6.1 - Gilpin County Treasurer. The Class 2 claim held by the Gilpin
County Treasurer is impaired by this Plan and will be treated as set forth
herein. Class 2 shall receive cash equal to the allowed amount of their claim
over a period not to exceed six years from the date of assessment of the
relevant taxes, plus simple interest on the unpaid balance amortized at the rate
of 7.5% per annum until paid in full. The claim will be paid in monthly
installments of principal and interest, beginning 30 days after the Effective
Date, and subsequent payments will be due on the same day of each successive
month.
6.2 - Randall F. Gose. The Class 3 claim consists of the allowed
secured claim held by Randall F. Gose. The Class 3 claim is secured by the
Property. The Class 3 claim is impaired by this Plan. The Class 3 claim shall be
treated as set forth herein:
a. The principal amount of the Class 3 claim will be
allowed in an amount determined by the Court at the
confirmation hearing or agreed upon by the Debtor and
the Class 3 claimant on or before the confirmation
date.
b. The balance due on the Class 3 claim shall be
amortized over a twenty year period at 7.5% per
annum, and shall be paid in equal monthly
installments of principal and interest.
Notwithstanding the amortization term, the entire
balance of the Class 3 claim shall be due and payable
on the seventh anniversary of the Effective Date of
the Plan.
c. The Class 3 claimant shall retain all liens that
secure his claim as of the petition date.
d. The enforcment of guaranties held by the Class 3
claimant against any insider of the Debtor
shall be stayed, as provided for in herein.
6.3 - Leslie Alexander. The Class 4 claim held by Leslie Alexander
shall be treated and paid as set forth herein. The Class 4 claim is
impaired by this Plan.
<PAGE>
a. The principal amount of the Class 4 claim will be
allowed in an amount determined by the Court at the
Confirmation Hearing or agreed upon by the Debtor and
the Class 4 claimant on or before the Confirmation
Date.
b. On the Effective Date of the Plan, the Debtor will
assign and absolutely transfer to the Class 4
claimant, both the Neudecker Note and the Deed of
Trust which secures the Neudecker Note. The Class 4
claim will be reduced by an amount determined by the
Court at the Confirmation Hearing to equal the value
of the Neudecker Note. As the value of the Neudecker
Note is expected to exceed the amount owing to Class
4, the transfer of the Neudecker Note to Class 4 as
set forth herein is expected to constitute a full
paydown of the Class 4 claim.
c. Any remaining amounts due to Class 4 will bear interest at the rate of:
(i) 7.5% per annum commencing on the Effective Date of the Plan; or (ii) if the
Class 4 claimant objects to such rate in writing and serves a copy of such
objection on the Debtor at least 15 days prior to the commencement of the
Confirmation Hearing, such rate as will be determined by the Court as necessary
to satisfy the requirements of 11 U.S.C. Section 1129(b) of the Code; or (iii)
such other rate as may be agreed to by the Debtor and the Class 4 claimant. If
any amount remains due on the Class 4 claim, after credit for transfer of the
Neudecker Note, said amount shall be amortized over a 20 year period at the
interest rate determined as above stated and paid in equal monthly installments
of principal and interest. Notwithstanding the amortization term, the entire
balance of the Class 4 claim, if any, shall be due and payable on the seventh
anniversary of the Effective Date of the Plan. d. To the extent any amounts
remain owing to the Class 4 claimant, said claim shall retain all liens that
secured its claim as of the petition date. e. The enforcment of any guaranties
held by the Class 4 claimant against any insider of the Debtor shall be stayed,
as provided for herein.
ARTICLE VII
SPECIFICATION AND TREATMENT OF UNSECURED CREDITOR CLASSES
<PAGE>
7.1 - Class 5 consists of those unsecured creditors who hold allowed
claims other than LS Capital Corp. Class 5 claims are estimated to be
$39,361.55, without including the disputed claim of Earl Neudecker for an offset
against the Neudecker Note. Class 5 claimants shall receive the lesser of a: the
total amount of their claims, or b: a pro rate distribution of the total sum of
$50,000, which will be provided by LS Capital, as provided for herein. The
distribution will be made within ten (10) days of the Effective Date of the
Plan. The initial distribution to Class 5 shall be the sole payment which will
be paid to Class 5, which distribution will be made in total satisfaction of the
Class 5 claims.
7.2 - Class 6 consists of the allowed unsecured claim of LS Capital
Corp. On the Effective Date of the Plan, the claim of Class 6 shall be deemed
released, in exchange for issuance of new member interests as provided for in
paragraph 9.3 herein. Class 6 is impaired by this Plan.
ARTICLE VIII
SPECIFICATION AND TREATMENT OF CLASS 7 INTERESTS
8.1 - Class 7 consists of the interests held by the pre-confirmation
members of the Debtor. Class 7 is impaired by this Plan. On the Effective Date
of the Plan, all member interests in the Debtor will be cancelled. Class 7 shall
neither receive nor retain any property or member interests in the Debtor on
account of their Class 7 pre-confirmation member interests.
ARTICLE IX
MEANS FOR IMPLEMENTATION OF A PLAN
9.1 - Operation of Business. The Debtor will retain ownership of the
Property and will proceed to reopen casino operations at the Property following
confirmation of the Plan. The Debtor will operate as a reorganized Debtor
following confirmation.
9.2 - The Debtor will utilize cash on hand in addition to new equity
provided in connection with confirmation of the Plan and the Debtor's issuance
of new member interests for new consideration to fund the Plan.
9.3 - Recapitalization of Company. On the Effective Date of the Plan,
new member interests in the Debtor will be issued for new consideration. The new
member interests will be issued to the following entities in proportion to the
relative value, determined on the Confirmation Date, of their new capital
contributions, for the consideration stated:
<PAGE>
a. LS Capital Corp. - New consideration consisting of: (i) release of its
administrative expense claim; (ii) payment of up to $50,000 in additional funds;
(iii) release of its unsecured Class 6 claim; and (iv) guaranty of up to
$200,000 of payments due under this Plan, which guaranty will be applied to
creditors pari passu with other creditors. Any amounts funded ----------
pursuant to the LS Capital Guaranty will constitute a post-confirmation debt of
the reorganized Debtor. The obligation will be subject to the following terms:
(a) interest at 7.5% per annum; (b) paid in monthly installments, (c) due in
full on the seventh anniversary of the Effective Date of the Plan; (d) LS
Capital shall have the option to convert the obligation to membership interests
in the reorganized Debtor on terms to be determined by LS Capital and the
reorganized Debtor. b. PPAC - New consideration consisting of transfer to the
Debtor on the Effective Date of the Neudecker Note and related Deed of Trust.
The transfer of the Neudecker Note will only be treated as new consideration to
the extent that the Court finds that the Note has a value on the Confirmation
Date of an amount in excess of the account receivable due to the Debtor from
PPAC. If the Court finds that the Neudecker Note has a value less than or equal
to the account receivable, PPAC will not receive any new member interest in the
Debtor.
9.4 - Once the Plan is confirmed and new member interests are issued,
the new members will apply for appropriate licenses from the Colorado Limited
Stakes Gaming Commission to enable the Debtor to reopen its casino.
9.5 - Settlement of Account Receivable. On the Effective Date of the
Plan, PPAC shall assign to the Debtor, all of its right, title and interest in
and to the Neudecker Note and the Deed of Trust which secures the Neudecker
Note. Such assignment shall be made in satisfaction of the account receivable
owed by PPAC to the Debtor. In the event that the Court finds that the Neudecker
Note has a value on the Effective Date in excess of the amount of the account
receivable, the difference shall represent a capital contribution to the Debtor
which will entitle PPAC to receive a new member interest in the Debtor computed
as set forth herein.
9.6 - Disputed Claim Procedure. Distributions to any class of creditor
will only be made on account of Allowed Claims. In the event that distributions
are made at a time that a claim objection is pending before the Court or a
judgment has entered to establish a claim and the judgment is on appeal or
subject to a certiorari
<PAGE>
proceeding, the portion of the distribution that would be paid to the disputed
claimant will be held by the Debtor in an interest bearing Bank account until
the claim is allowed or disallowed. If allowed, the claim will be paid its
appropriate share of the withheld payment with interest. If disallowed, the
withheld distribution will be paid on a pro rata basis to the remaining allowed
claimants.
9.7 - Claims and Litigation. All claim objections and avoidance actions
in the case must be filed no later than 120 days following the Effective Date of
the Plan.
9.8 - All applications for allowance and payment of administrative
expenses, including professional fees, must be filed within 45 days following
the Effective Date of the Plan.
9.9 - Monthly Installments. Whenever the Plan provides for payment in
monthly installments or a payment due in a certain month, the payment shall be
due on the last day of the calendar month in which the payment is due. The
Debtor shall then have a five day grace period within which the monthly payment
must be received by the payee before the Debtor shall be in default.
9.10 - Final Decree. The Debtor will request entry of a final decree
closing the case on or before the later of the date all claim objections and any
pending litigation is concluded or 180 days after the Effective Date of the
Plan.
9.11 - Liquidation Option. In the event the Debtor determines that it
is prudent to close its casino or sell the Property, the Debtor has the right to
do so. The Debtor will provide notice to all remaining creditors as of the date
the decision is made to close the casino or sell the Property.
9.12 - Injunction. Except as expressly provided for in the Plan, all
persons and entities, including, but not limited to, the holders of any and all
charges, debts, liabilities, encumbrances, security interests, Claims, equity
interests, contingent or unliquidated, known or unknown, foreseen or unforeseen,
existing or hereafter arising, (including any claims of successor or successor
liability), shall be precluded and permanently enjoined from asserting against
the Reorganized Debtor, PPAC, LS Capital Corp., the officers, directors, agents
and professionals of either PPAC or LS Capital Corp., their designee and/or
participants, the Debtor, and any successors and assigns of any of the foregoing
and/or the respective assets and property, including the Property, of any of the
foregoing any Claim, charge, debt, liability, encumbrance, security interest, or
lien based on any document, instrument, judgment award, act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date. Such injunction shall also preclude any act, in any manner,
at any place whatsoever, that does not conform to or comply with the provisions
of the Plan. The injunction, discharge and
<PAGE>
releases described in Article VIII of this Plan shall apply regardless of
whether or not a proof of claim or proof of interest based on any Claim, debt,
liability, security interest or equity interests is filed or whether or not a
Claim or equity interest based on such Claim, debt, liability or equity interest
is allowed. Therefore, on the Effective Date of the Plan, a Co-Debtor stay or
Injunction, will be imposed to protect PPAC and LS Capital Crop. from collection
activity from Class 3 and Class 4 claimants. LS Capital Crop. and PPAC, as
parties providing new consideration to facilitate the Plan, are critical to the
success of the Plan. The Co-Debtor stay will be limited in time to five years
following the Effective Date of the Plan. The intent of this provision is to
allow PPAC and LS to participate meaningfully in the Plan, to fund Plan
payments, and to facilitate reorganization of the Debtor. In the event the
Debtor defaults under the terms of the Plan with respect to payments due Class 3
or Class 4, this Injunction will terminate.
ARTICLE X
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
10.1 - The Debtor hereby assumes those executory contracts and
unexpired leases listed in Exhibit A attached hereto and incorporated herein by
reference which have not been assumed by prior Order of the Court prior to the
date of confirmation. On the date of the entry of an Order confirming the Plan,
the Debtor shall be the holder of all right, title and interest to the assumed
leases and contracts and such assumed leases and contracts shall be in full
effect and binding upon the Debtor and the respective lessees. Confirmation of
the Plan shall constitute a determination that the payments to be made to said
creditors pursuant to the Plan satisfy all conditions precedent to assumption
set forth in 11 U.S.C. Section 365(b).
10.2 - On the Effective Date of the Plan, the Debtor will reject all
executory contracts and unexpired leases to which it is a party which are listed
in Exhibit B, attached hereto and incorporated herein by reference which have
not been rejected by prior Order of the Bankruptcy Court prior to the date of
confirmation. Executory contracts and unexpired leases will be rejected pursuant
to the provisions of 11 U.S.C. Section 365.
10.3 - An Order confirming this Plan constitutes approval by the Court
of the assumption or rejection of the executory contracts and unexpired leases
described herein in accordance with the provisions of 11 U.S.C.
Section 365 and the Rules.
ARTICLE XI
<PAGE>
MISCELLANEOUS
11.1 Revestment
The entry of an Order confirming this Plan shall revest in the Debtor
all property of the estate free and clear of all liens except those specifically
set forth in the Plan.
11.2 Retention of Jurisdiction
Notwithstanding confirmation of the Plan, the Court shall retain
jurisdiction for the following purposes:
1. Determination of the allowability of claims upon objection to
such claims by the Debtor-in-Possession or by any other party
in interest;
2. Determination of the request for payment of claims entitled to
priority under 11 U.S.C. Section 507(a)(1), including
compensation of the parties entitled thereto;
3. Resolution of any disputes regarding interpretation of the
Plan, including enforcement of Injunction pursuant to the
Plan;
4. Implementation of the provisions of the Plan and entry of
orders in aid of consummation of the Plan, including without
limitation, appropriate orders to protect the revested Debtor
from action by creditors;
5. Modification of the Plan pursuant to 11 U.S.C. Section 1127;
6. Adjudication of any causes of action, including avoiding
powers actions, brought by the Debtor-in- Possession, by the
representative of the estate or by a Trustee appointed
pursuant to the Code;
7. Adjudication of any cause of action brought by the
Debtor-in-Possession, by the representative of the estate, or
by a Trustee appointed pursuant to the Code, or the revested
Debtor exercising rights and powers as provided in 11 U.S.C.
Sections 542-549. This section shall not be construed to limit
any other power or right which the Debtor may possess under
any section of the Code; and
8. Entry of a final decree. 11.3 Satisfaction of Claims.
The confirmation of this Plan shall constitute a discharge of
the Debtor from all dischargeable debts in accordance with 11
U.S.C. Section 1141(d). Confirmation of the Plan shall
constitute a modification of any note or obligation for which
specification and treatment is provided under the Plan as set
forth in the Plan. Any obligation or note, previously in
default, so modified, shall be cured as of the Confirmation
Date. This
<PAGE>
provision shall be operable regardless of whether the Plan provides for any
obligation to be evidenced by a rewritten loan or security document following
confirmation of the Plan.
11.4 Headings
The headings used in the Plan are for convenience of reference
only and shall not limit or in any manner affect the meaning or interpretation
of the Plan.
11.5 Severability
In the event a Court of competent jurisdiction determines that
any provision in the Plan is unenforceable for any reason, the determination
shall not affect the enforceability of any other provision of the Plan.
<PAGE>
11.6 Notices
All notices, requests, demands, or other communications
required or permitted in this Plan must be given in writing to the party(ies) to
be notified. All communications will be deemed delivered when received at the
following addresses:
a. To the Debtor at:
Papone's Palace LLC
15915 Katy Freeway
Suite 250
Houston, TX 77094
With a copy to:
Lee M. Kutner, Esq.
Rubner & Kutner, P.C.
303 East 17th Avenue
Suite 500
Denver, CO 80203
b. To an allowed claimant, at the addresses set forth in
the allowed Proof of Claim, if filed, other, at the
address set forth for the claimant in the Debtor's
Schedules filed with the Court.
11.7 Successors and Assigns
The Plan will be binding upon the Debtor, any creditor
affected by the Plan and their heirs, successors, assigns and legal
representatives.
11.8 Unclaimed Payments
If a person or entity entitled to receive a payment or
distribution pursuant to this Plan fails to negotiate a check, accept a
distribution or leave a forwarding address in the event notice cannot be
provided as set forth in paragraph 11.6, within one (1) year of the Effective
Date of the Plan, the person or entity is deemed to have released the Debtor and
abandoned any right to payment or distribution under the Plan.
<PAGE>
ARTICLE XII
CONFIRMATION REQUEST
12.1 - The Debtor, as proponent of the Plan, requests confirmation of
the Plan pursuant to 11 U.S.C. Section 1129. The Debtor will solicit acceptance
of the Plan after its Disclosure Statement has been approved by the Court and is
transmitted to the creditors, interest holders and parties in interest. In the
event the Debtor does not obtain the necessary acceptances of its Plan, it may
make application to the Court for confirmation of the Plan pursuant to 11 U.S.C.
Section 1129(b). The Court may confirm the Plan if it does not discriminate
unfairly and is fair and equitable with respect to each class of claims or
interests that is impaired and has not voted to accept the Plan.
DATED: July 23, 1997 PAPONE'S PALACE LLC
By: /s/ Paul Montle
Paul J. Montle, Manager
EXHIBIT 99.2
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
In re: )
) Case No. 97-15695-SBB
) PAPONE'S PALACE LLC
) EIN: 84-1204410
) Chapter 11
) Debtor.
<PAGE>
DISCLOSURE STATEMENT TO ACCOMPANY PLAN OF
REORGANIZATION DATED JULY 22, 1997
INTRODUCTION
This Disclosure Statement has been prepared by Papone's Palace LLC, a
Colorado corporation ("Papone's" or "Debtor") to accompany its Plan of
Reorganization dated July 22, 1997 ("Plan") which has been filed in Papone's
Chapter 11 case. This Disclosure Statement is being provided to all creditors
and interest holders of Papone's. This Disclosure Statement is subject to
approval pursuant to 11 U.S.C. Section 1125 by the United States Bankruptcy
Court for the District of Colorado as containing adequate information to enable
creditors and interest holders to determine whether to accept the Papone's Plan.
The Court's approval of this Disclosure Statement does not constitute a decision
on the merits of the Papone's Plan. Issues related to the merits of the Plan and
its confirmation will be the subject of a confirmation hearing which is
scheduled for ____________________, 1997 AT ________ ___.m. in Courtroom _____,
United States Bankruptcy Court, U.S. Customs House, 721 - 19th Street, Denver,
Colorado.
THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS SIMILARLY NOT
REVIEWED THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT.
This Disclosure Statement is provided to you along with a copy of
Papone's Plan and a Ballot to be used for voting on the Plan. Please complete
the Ballot according to the instructions contained on the Ballot if you intend
to vote for or against Papone's Plan. Each creditor or interest holder may vote
on the Plan by completing the enclosed Ballot and returning it to counsel for
Papone's:
Lee M. Kutner, Esq.
Joan B. Burleson, Esq.
Rubner & Kutner, P.C.
303 East 17th Avenue
Suite 500
Denver, CO 80203
32
<PAGE>
This Ballot must be received by Rubner & Kutner, P.C. no later than
______________, 1997, which date has been set by the Court as the last day to
vote on the Plan. Terms contained in this Disclosure Statement which are defined
in the Plan, have the same meaning as set forth in the definitional section of
the Plan, Article II.
CHAPTER 11 AND PLAN CONFIRMATION
Chapter 11 of the United States Bankruptcy Code is designed to allow
for the rehabilitation and reorganization of financially troubled entities or
individuals. Chapter 11 allows the Debtor to retain its assets during
administration of its Chapter 11 case as a Debtor-in-Possession and following
confirmation of a Plan as a reorganized Debtor or as provided in the Plan. Once
confirmation of a Plan of Reorganization is approved by the Court, the Plan of
Reorganization is the permanent restructuring of the Debtor's financial
obligations. The Plan also provides a means through which the Debtor will
restructure or repay its obligations. The Plan will provide Papone's with an
opportunity to remain in business and satisfy its debts as restructured under
the Plan. Funding for the Plan will be derived from Papone's ongoing operations,
and from infusions of capital from LS Capital Corp.
The Plan of Reorganization divides creditors into classes of similarly
situated creditors. All creditors of the same class are treated in a similar
fashion. All member interests are also classified and treated alike. Each class
of creditors or interest holders is either impaired or unimpaired under the
Plan. A class is unimpaired if the Plan leaves unaltered the legal, equitable
and contractual rights to which each creditor in the class is entitled.
Alternatively, a claimant is unimpaired if the Plan provides for the cure of a
default and reinstatement of the maturity date of the claim as it existed prior
to the default.
The Bankruptcy Court has entered an Order setting a bar date for filing
Proofs of Claim as ________________, 1997. The Plan provides that claims and
interests of all classes shall be allowed only if evidenced by a timely filed
Proof of Claim or Interest or which otherwise appear in the Schedules filed by
Papone's and are not scheduled as disputed, contingent or unliquidated unless
subsequently allowed by the Court. Creditors may check as to whether or not
their claims have been scheduled as disputed, contingent or unliquidated by
reviewing the Schedules filed by Papone's in the Bankruptcy Court for the
District of Colorado.
33
<PAGE>
Alternatively, creditors may contact counsel for Papone's or Papone's directly
in order to determine how they have been scheduled.
Chapter 11 does not require that each holder of a claim against or
interest in Papone's vote in favor of the Plan in order for the Court to confirm
the Plan. The Plan, however, must be accepted by at least one impaired class of
claims by a majority in number and two thirds in amount, without including
insider acceptance, of those claims of such class actually voting on the Plan.
Assuming one impaired class votes to accept the Plan, it may be confirmed over
its rejection by other classes if the Court finds that the Plan does not
discriminate unfairly and is fair and equitable, with respect to each class of
claims or interests that is impaired under and has not accepted the Plan.
The Bankruptcy Code requires that if interest holders retain an
interest or receive anything under the Plan, then the unsecured creditor classes
must either be paid the full value of their claims or vote to accept the Plan.
This provisions is not applicable because, under the Papone's Plan, new member
interests will be issued to LS Capital Corporation (" LS Capital Corp.") and
Papone's Palace Acquisition Corp. ("PPAC") in proportion to the value of new
capital contributed in order to facilitate the Plan. All interests held by
pre-confirmation members of the Debtor will be cancelled. Since the Plan
provides for payment in full to be made to non-insider unsecured creditors who
would likely receive only a portion of their claims, or nothing under a
liquidation, all creditors are urged to vote to accept the Plan.
If all classes of claims and interests vote to accept the Plan, the
Court may confirm the Plan. Section 1129 of the Bankruptcy Code sets forth the
requirements for confirmation. Among other things, Section 1129 requires that
the Plan be in the best interest of the holders of claims and interests and be
feasible through a showing that confirmation will not be followed by the need
for further financial reorganization of the Debtor.
BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING
Papone's was formed to own and operate a small casino in Central City,
Colorado. Papone's was originally started by the Hill Family, long time
residents of Central City, in the early 1990's. The casino was set up as a
limited liability company owned and operated by the Hill Family Trust. In
January, 1992, the Hill Family Trust sold a 49% interest in Papone's to Earl
Neudecker ("Neudecker") and Randall Gose ("Gose"). Neudecker
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and Gose paid some cash to the Hill Family Trust and executed a promissory note
payable to the Hill Family Trust in the principal amount of $1,450,000 due and
payable on January 14, 1997 (the "Neudecker/Gose Note"). The Neudecker/Gose Note
was secured by a Deed of Trust on their 49% interest in the casino building and
real property.
On or about November 30, 1992, a number of events transpired:
1. The Hill Family Trust gave an option to acquire its 51%
interest in Papone's Palace as well as the Neudecker/Gose Note
to American Pacific Management Corporation, a Texas
corporation;
2. Gose gave an option to acquire his 24.5% interest in Papone's
Palace to American Pacific Management Corporation, in exchange
for a $500,000 note from PPAC, secured by a Deed of Trust
against the Property;
3. American Pacific Management Corporation assigned its options
on Papone's Palace and the Neudecker/Gose Note to Virology
Testing Sciences, Inc., a Delaware corporation.
On or about December 31, 1992, Virology Testing Sciences, Inc. assigned
its options to acquire an interest in Papone's Palace and in the Neudecker/Gose
Note to Papone's Palace Acquisition Corporation, a Colorado corporation ("PPAC")
and a wholly owned subsidiary of Lone Star Casino Corporation ("Lone Star").
Lone Star bacame a liscensed casino owner, and as of June 10,1993, the
acquisition of these interests was completed. Thereafter, Papone's Palace LLC
was 75.5% owned by PPAC and 24.5% owned by Neudecker. Paul Montle ("Montle") is
the chairman of PPAC and CEO of Lone Star. Lone Star has since changed its name
to LS Capital Corporation.
From the outset, there were a number of problems experienced by
Papone's. The closing with the Hill Family Trust for the purchase did not
officially take place until the second quarter, 1993. Papone's did not show any
net profits and accordingly the deferred payments on the Neudecker/Gose Note due
to the Hill Family Trust were reduced on at least two occasions. During this
time, a dispute arose between Neudecker and the Hills over the Note payments,
construction costs and profitability of the Casino, which resulted in Neudecker
filing a civil action against the Hills and Papone's in Jefferson County
District Court, Case No 93-CV-775.
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To meet a serious cash flow deficiency, in October, 1994, Lone Star,
PPAC and Papone's borrowed $1 million from Leslie Alexander, assigned the first
deed of trust to Mr. Alexander on the casino and real property, and granted a
third deed of trust on the Property as well. The proceeds of the loan were used
to pay operating deficiencies, and to repay LS Capital for operating loans it
had previously funded to Papone's.
Over time, Alexander made additional advances to Papone's, obtained a
personal guaranty from Montle for $50,000 of the loan, and obtained an
assignment of Lone Star's 7% Membership interest in Manning Real Estate
Associates, LLC ("Manning"). Manning is a California Limited Liability Company
with approximately 35 members. Manning owned a card club in Fowler, California,
which essentially operated a casino, with non-bank card games.
Papone's was unable to repay the Alexander loan when due, and defaulted
on payments thereunder in December of 1995. The parties entered into a
Settlement Agreement dated August 5, 1996. The Settlement Agreement restructured
the Loan, accepted an absolute conveyance of the 7% Manning Membership interest
for a credit to the Loan in the amount of $590,000, thereby reducing the
principal amount of the Loan to approximately $1,126,337.00.
The Settlement Agreement was expressly subject to PPAC obtaining a
court determination that PPAC had the authority to enter into the Settlement
Agreement, since Neudecker had alleged otherwise. An action was commenced in
Gilpin County District Court, Case No 96-CV-80, to obtain the required
declaratory relief in September of 1996. Neudecker responded to the Complaint,
alleging that the Alexander Loan was improperly incurred, and that amounts due
under the Neudecker Note to PPAC were in dispute. Neudecker requested and was
granted authority to file a third party complaint against Montle, Papone's, LS
Capital Corp, Lone Star Acquisition Corporation, and Alexander. That action is
pending at this time.
At the time the Neudecker Note was acquired by PPAC in June, 1993, the
balance due was $725,000. As of its maturity on January 14,1997, the balance
due, including principal of $725,000, accrued interest of $742,395, and
Neudecker's members share of operating losses of $285,486, was $1,752,881.00.
Neudecker did not pay the Note when it came due, and PPAC commenced an action in
Denver County District Court, Action #97-CV-1021 to collect the Note.
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As a result of the effort to collect the Neudecker Note, Neudecker
refused to sign the 1997 liscense renewal, and Papone's was unable to obtain a
renewal of its gaming license from the Colorado Gaming commission. Papone's was
therefore unable to reopen for business in May, 1997 as planned.
EVENTS OCCURRED SINCE FILING OF BANKRUPTCY
Since April 23, 1997 when the within bankruptcy was filed, the Debtor
has filed its Schedules and Statement of Financial Affairs, and employed the
firm of Rubner & Kutner, P.C. as its attorneys. It has further requested and
been granted approval to enter into an insurance premium finance agreement, and
has obtained $10,000 in unsecured debt from LS Capital as an administrative
expense, in order to pay insurance and other administrative costs. No Creditors'
Committee has been formed.
DESCRIPTION OF ASSETS
The Debtor's primary asset consists of a 6,000 square foot building on
Main Street in Central City, Colorado, where Papone's Palace Casino operated
from July 1, 1993 through September 30, 1996 (hereinafter, the "Property"). The
Property is owned in fee simple, but is subject to deeds of trust in favor of
Neudecker, Randall Gose and Alexander. The Debtor also owns furniture, fixtures
and equipment, including casino and restaurant equipment. The Debtor has been
unable to renew its gaming license to date, as a result of the dispute with
Neudecker, as described above.
It is believed that the market value of the property exceeds the amount
of the secured claims against the property, depending on the value given the
Alexander claim, and the value given the personal property.
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DESCRIPTION OF LIABILITIES
The Debtor's pre-petition liabilities include the following:
A. Alexander Loan.
In accordance with the Settlement Agreement dated August 5, 1996, the
Debtor is indebted to Leslie Alexander in the principal amount of $1,126,337.00.
In accordance with the terms of the Alexander Loan, interest has accrued at 45%
per annum. There may be a dispute regarding the amount of an offset contemplated
in the Settlement Agreement, which was credited to outstanding interest on the
loan. This debt is secured by a first deed of trust in the real property.
B. Randall Gose.
Randall Gose holds a promissory note dated June 10, 1993, in the
outstanding amount of approximately $410,000, which is secured by a second deed
of trust in the real property.
C. Wages.
The Debtor owes approximately $4,946 in unsecured priority wage claims.
D. Taxes.
The Debtor owes approximately $16,450 to Gilpin County, Colorado for
1996 taxes, which constitutes a lien against the Property. Taxes for 1997 have
not been calculated at this time.
E. License Fees.
The Debtor owes approximately $303.00 to Central City for license fees.
F. Unsecured Debt.
The Debtor holds approximately $850,000 in unsecured debt, $39,361.55
of which is trade debt incurred prior to the closing of Papone's. Insider debt
is estimated to be $757,773.00, not including disputed advances from Neudecker.
A list of all claims expected to be filed in this case is attached to this
Disclosure Statement as Exhibit A.
DESCRIPTION OF THE PLAN
The Debtor has filed its Plan of Reorganization with the United States
Bankruptcy Court for the District of Colorado herewith. The Plan provides for
the reorganization of the Debtor. Creditors will be paid from cash
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infusions provided by LS Capital Corp, and from an assignment of the Neudecker
Note, which is owned by PPAC.
The Plan provides for the specification and treatment of all creditors
and interest holders. The Plan identifies whether each class is impaired or
unimpaired. A class is unimpaired only if the Plan leaves unaltered the legal,
equitable or contractual obligations between the Debtor and the unimpaired
claimant or interest holder. The following is a brief summary of the Plan. The
actual text of the Plan should be reviewed for more specific detail.
Priority Claims
The holders of claims which are costs and expenses of administration
shall receive cash equal to the allowed amount of the claim on the Effective
Date of the Plan. Any cost and expense of administration claim which is allowed
by the Court after the Effective Date of the Plan will be paid within ten (10)
days of its allowance. The Debtor expects that the following creditors will hold
claims which constitute cost and expense of administration claims as of the
Confirmation Date for the Plan which is estimated to be November 1, 1997.
Claimant Nature of Claim Claim Amount
Rubner & Kutner, P.C. Legal Fees-Bankruptcy Counsel $20,000.00
Office of United States Trustee Fees $ 250.00
At the time the Debtor filed its Chapter 11 bankruptcy case, Rubner &
Kutner, P.C. ("R&K") was paid a pre-petition retainer in the amount of $14,559
from LS Capital Corp. An additional $800 was paid to R&K for the Debtor's filing
fee for this Chapter 11 case. The Debtor and R&K anticipate that the total fees
and costs for the Chapter 11 case will not exceed $20,000. However, the total
amount of fees and costs in the case are dependent upon the amount of litigation
which is undertaken in connection with gaining confirmation of the Plan. The
legal fees and costs could increase substantially should the Debtor encounter
difficulties or engage in substantial litigation to gain approval of its Plan.
The Debtor expects to pay all quarterly fees due to the United States
Trustee's Office pursuant to 28 U.S.C. Section 1930. Any such fees outstanding
as of the Confirmation Date will be paid on the Effective Date
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of the Plan. Additional quarterly fees may be due following confirmation of the
Plan until the case is closed. Such quarterly fees will be paid by the Debtor as
they become due.
The Plan provides that the unsecured claims of governmental taxing
authorities, entitled to priority status, other than the Gilpin County
Treasurer, will be paid on the Effective Date of the Plan. It is expected that
the only priority claims that will exist in this case are the claims of the City
of Central in the amount of $303.00, and two priority wage claimants in the
total amount of $4,946.
Class 2, Gilpin County Treasurer
Class 2 consists of the allowed claim of the Gilpin County Treasurer,
in the approximate amount of $ 16,450.00 for 1996 taxes. This claimant holds a
secured claim against the real property.
Class 3, Randall F. Gose
Class 3 consists of the secured claim held by Randall F. Gose, in the
approximate amount of $410,000. The Class 3 claim is unimpaired. The balance due
on the Class 3 claim shall be amortized over a six year period at the interest
rate contained in the original promissory note of June 10, 1993, or 7.5%, and
shall be paid in equal monthly installments of principal and interest.
Notwithstanding the amortization term, the entire balance of the Class 3 claim
shall be due and payable on the seventh anniversary of the Effective Date of the
Plan. Class 3 shall retain all liens that secure its claim. The enforcement of
any guaranties held by the Class 3 claimant against any insider of the Debtor
shall be stayed during the term of the Plan.
Class 4, Leslie Alexander
The Class 4 claim held by Leslie Alexander is impaired, and will be
treated as follows: The principal amount of the Class 4 claim will be
allowed in an amount determined by the Court at the
confirmation hearing, or agreed upon by the Debtor and the Class 4 claimant on
or before the confirmation date. On the Effective Date of the Plan, PPAC will
assign and transfer to the Class 4 claimant both the Neudecker Note and the Deed
of Trust which secures the Neudecker Note. It is estimated that after crediting
the Class 4 claimant for $590,000 as agreed upon by the parties in the
Settlement Agreement dated August 1, 1996, the value of that
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Note is $1,126,337.00. The Class 4 claim will be reduced by an amount determined
by the Court at the confirmation hearing to reflect the value of the Neudecker
Note, which is estimated to be $1,752,882. After that offset, the Debtor
estimates that no further amount will remain due and owing to Class 4. The
remaining balance due, if any, shall be amortized over a 20 year period, at 7.5%
per annum, and paid in equal monthly installments of principal and interest.
Notwithstanding the amortization term, the entire remaining balance of the Class
4 claim, if any, shall be due and payable on the seventh anniversary of the
Effective Date of the Plan. The Class 4 claimant shall retain any liens that
secure its claim.
Class 5, Unsecured Creditors
Class 5 consists of unsecured creditors with allowed claims. Class 5
shall receive a pro rata distribution of the greater of the full amount of their
claims, or the total sum of $50,000, to be made within ten days of the Effective
Date of the Plan. The pro rata distribution to Class 5 shall be the sole payment
made to the Class 5 creditors, and shall be in total satisfaction of the Class 5
claims.
Class 6, LS Capital Corporation
Class 6 consists of the unsecured claim of LS Capital Corp. On the
Effective Date of the Plan, Class 6 shall be deemed satisfied.
Class 7, Pre-Confirmation Members of the Debtor
Class 7 consists of the interests held by pre-confirmation members of
the Debtor, including LS Capital Corp. and Earl Neudecker. Class 7 is impaired
by the Plan. On the Effective Date of the Plan, all member interests in the
Debtor will be cancelled, and Class 7 claimants shall neither receive nor retain
any property on account of their Class 7 pre-confirmation membership interests.
MEANS FOR IMPLEMENTATION OF A PLAN
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Operation of Business. The Debtor will retain ownership of the Property
and will proceed to reopen casino operations at the Property following
confirmation of the Plan. The Debtor will operate as a reorganized Debtor
following confirmation.
The Debtor will utilize cash on hand, in addition to new equity
provided in connection with confirmation of the Plan and the Debtor's issuance
of new member interests for new consideration, to fund the Plan.
Recapitalization of Company. On the Effective Date of the Plan, new
member interests in the Debtor will be issued for new consideration. The new
member interests will be issued to the following entities in proportion to the
relative value, determined on the Confirmation Date, of their new capital
contributions, for the consideration stated:
a. LS Capital Corp. - New consideration consisting of: (i) release of its
administrative expense claim; (ii) payment of $50,000 in additional funds; (iii)
release of its unsecured Class 6 claim; and (iv) guaranty of up to $200,000 of
payments due under this Plan, which guaranty will be applied to creditors pari
passu with other creditors. Any amounts funded ---------- pursuant to the LS
Capital Corp. guaranty will constitute a post-confirmation debt of the Debtor.
Any such obligation will be subject to the following terms: (a) interest at 7.5%
per annum; (b) paid in monthly installments, (c) due in full on the seventh
anniversary of the Effective Date of the Plan; (d) LS Capital shall have the
option to convert the obligation to membership interests in the reorganized
Debtor on terms to be determined by LS Capital Corp. and the reorganized Debtor.
b. PPAC - New consideration consisting of transfer to the Debtor on the
Effective Date of the Neudecker Note and related Deed of Trust. The transfer of
the Neudecker Note will only be treated as new consideration to the extent that
the Court finds that the Note has a value on the Confirmation Date of an amount
in excess of the account receivable due to the Debtor from PPAC. If the Court
finds that the Neudecker Note has a value less than or equal to the account
receivable, PPAC will not receive any new member interest in the Debtor.
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Once the Plan is confirmed and new member interests are issued, the new
members will apply for appropriate licenses from the Colorado Limited Stakes
Gaming Commission to enable the Debtor to reopen its casino.
Settlement of Account Receivable. On the Effective Date of the Plan,
PPAC shall assign to the Debtor, all of its right, title and interest in and to
the Neudecker Note and the Deed of Trust which secures the Neudecker Note. Such
assignment shall be made in satisfaction of the account receivable owed by PPAC
to the Debtor, which is estimated to be $211,696.00 In the event that the Court
finds that the Neudecker Note has a value on the Effective Date in excess of the
amount of the account receivable, the difference shall represent a capital
contribution to the Debtor which will entitle PPAC to receive a new member
interest in the Debtor computed as set forth herein.
Disputed Claim Procedure. Distributions to any class of creditor will
only be made on account of Allowed Claims. In the event that distributions are
made at a time that a claim objection is pending before the Court or a judgment
has entered to establish a claim and the judgment is on appeal or subject to a
certiorari proceeding, the portion of the distribution that would be paid to the
disputed claimant will be held by the Debtor in an interest bearing Bank account
until the claim is allowed or disallowed. If allowed, the claim will be paid its
appropriate share of the withheld payment with interest. If disallowed, the
withheld distribution will be paid on a pro rata basis to the remaining allowed
claimants.
Claims and Litigation. All claim objections and avoidance actions in
the case must be filed no later than 120 days following the Effective Date of
the Plan.
All applications for allowance and payment of administrative expenses,
including professional fees, must be filed within 45 days following the
Effective Date of the Plan.
Monthly Installments. Whenever the Plan provides for payment in monthly
installments or a payment due in a certain month, the payment shall be due on
the last day of the calendar month in which the payment is due. The Debtor shall
then have a five day grace period within which the monthly payment must be
received by the payee before the Debtor shall be in default.
Final Decree. The Debtor will request entry of a final decree closing
the case on or before the later of the date all claim objections and any pending
litigation is concluded or 180 days after the Effective Date of the Plan.
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Liquidation Option. In the event the Debtor determines that it is
prudent to close its casino or sell the Property, the Debtor has the right to do
so. The Debtor will provide notice to all remaining creditors as of the date the
decision is made to close the casino or sell the Property.
Injunction. Except as expressly provided for in the Plan, all persons
and entities, including, but not limited to, the holders of any and all charges,
debts, liabilities, encumbrances, security interests, Claims, equity interests,
contingent or unliquidated, known or unknown, foreseen or unforeseen, existing
or hereafter arising, (including any claims of successor or successor
liability), shall be precluded and permanently enjoined from asserting against
the Reorganized Debtor, PPAC, LS Capital Corp., the officers, directors, agents
and professionals of either PPAC or LS Capital Corp., their designee and/or
participants, the Debtor, and any successors and assigns of any of the foregoing
and/or the respective assets and property, including the Property, of any of the
foregoing any Claim, charge, debt, liability, encumbrance, security interest, or
lien based on any document, instrument, judgment award, act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date. Such injunction shall also preclude any act, in any manner,
at any place whatsoever, that does not conform to or comply with the provisions
of the Plan. The injunction, discharge and releases described in Article VIII of
this Plan shall apply regardless of whether or not a proof of claim or proof of
interest based on any Claim, debt, liability, security interest or equity
interests is filed or whether or not a Claim or equity interest based on such
Claim, debt, liability or equity interest is allowed. Therefore, on the
Effective Date of the Plan, a Co-Debtor stay, or Injuction, will be imposed to
protect PPAC and LS Capital Corp. from collection activity from Class 3 and
Class 4 claimants. LS Capital Corp. and PPAC, as parties providing new
consideration to facilitate the Plan, are critical to the success of the Plan.
The Co-Debtor stay will be limited in time to five years following the Effective
Date of the Plan. The intent of this provision is to allow PPAC and LS Capital
Corp. to participate meaningfully in the Plan, to fund Plan payments, and to
facilitate reorganization of the Debtor. In the event the Debtor defaults under
the terms of the Plan with respect to payments due Class 3 or Class 4, this
Injunction will terminate. Plan Feasibility
The Debtor believes that the Plan, as proposed, is feasible. In
assessing the feasibility of the Plan, it is important to note two primary
considerations: First, is that the Debtor's ability to fund the Plan at the time
it is
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confirmed is dependent upon the contribution of LS Capital Corp., which will
provide for payment of all administrative and priority claims, as well as the
$50,000 distribution to Class 5 unsecured creditors. Second, is the Debtor's
ability to generate sufficient cash in the future to fund ongoing obligations
under the Plan. Upon issuance of new member interests, the Debtor will be in a
position to regain its gaming license, and to reopen the Papone's Palace Casino.
The Debtor estimates that, upon opening the casino, cash flow will be sufficient
to pay ongoing plan payments.
The Debtor estimates that it will require approximately $50,000 in
liquid assets as of the Effective Date of the Plan to fund the Plan. LS Capital
Corp. has committed to contribute these funds to facilitate confirmation of the
Plan. Attached to this Disclosure Statement as Exhibit B is a cash basis
projection of the Debtor's expected income and expenses for the six year period
following the Effective Date. This exhibit forms the basis for the Debtor's
projections to justify payments to secured creditors over time. Based on the
Debtor's prior performance, as well as the Debtor's expected performance once it
is permitted to reopen the casino, the Debtor believes that it will have
sufficient income with which to fund any required payments to Classes 3 and 4.
LIQUIDATION ANALYSIS UNDER CHAPTER 7
The principal alternative to the Debtor's reorganization under Chapter
11 is a conversion of the case to Chapter 7 of the Bankruptcy Code. Chapter 7
provides for a liquidation of the Debtor's assets by a trustee who is appointed
by the United States Trustee's Office. In a Chapter 7 case, the trustee would
take over control of the assets, they would be liquidated, and proceeds
distributed to creditors in the order of their priority.
The amount of secured claims pending against the real property are
approximately $2.5 million, prior to any offset from contribution of non-estate
assets. The Debtor believes that, although the going concern value of the casino
was approximately $2.2 million based upon a September, 1995 appraisal, in a fire
sale liquidation scenario, the Property would bring no more than $600,000. After
costs of sale, it appears that few if any funds would be available from the sale
of the Property to pay unsecured creditors.
Likewise, in a "fire sale" liquidation of the Debtor's personal
property, it is estimated that furniture, fixtures and equipment would bring
approximately 20% of their current depreciated cost. This would result in a
recovery of approximately $20,000.00 by the trustee. The PPAC account receivable
is deemed to be collectable,
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based upon it's primary asset, the Neudecker Note. This would leave a total of
$231,696.00 available for distribution to unsecured creditors.
Given the alternative under the Chapter 7 scenario, the Debtor's
proposed Chapter 11 Plan provides a substantially better proposition for all
creditors. Under the proposed Plan, the secured creditors will be paid in full
either through assignment of non-estate assets, or over time, and unsecured
creditors will be paid the total amount of their claim, or $50,000, within ten
days following the Effective Date of the Plan.
<TABLE>
<CAPTION>
Liquidation Available
Property Value Encumbrances for Creditors
<S> <C> <C> <C>
Real Property $ 600,000. $2,523,370. $600,000.
Personal Property
FF&E $ 20,000. 0 $ 20,000.
PPAC A/R $211,696. 0 $211,696.
</TABLE>
TAX CONSEQUENCES OF THE PLAN
The tax effects of the proposed Plan upon each creditor must be
determined separately by each creditor for itself. The Debtors make no
representations with respect to the tax aspects of the proposed Plan and it is
suggested that each creditor consult its tax counselor on this matter.
DATED: July 23, 1997.
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PAPONE'S PALACE LLC
By:/s/ Paul Montle
Paul Montle, Manager
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Rubner & Kutner, P.C. ("R&K") has acted as legal counsel to Papone's on
bankruptcy matters during the Chapter 11 case. R&K has prepared this Disclosure
Statement with information provided primarily by Papone's. The information
contained herein has been approved by Papone's. R&K has not made any separate
independent investigation as to the veracity or accuracy of the statements
contained herein.
Counsel to Papone's Palace LLC
Debtor-in-Possession:
RUBNER & KUTNER, P.C.
By:
Lee M. Kutner
Joan B. Burleson
303 East 17th Avenue, Suite 500
Denver, CO 80203
Telephone: (303) 832-2400
