<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CASINO RESOURCE CORPORATION
(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 7922 41-0950482
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation) classification code number) Identification
Number)
</TABLE>
707 BIENVILLE BOULEVARD, OCEAN SPRINGS, MS 39564
(228) 872-5558
(Address and Telephone Number of Principal Executive Offices)
MAURICE P. GAUDET, CHIEF FINANCIAL OFFICER
CASINO RESOURCE CORPORATION, 707 BIENVILLE BOULEVARD, OCEAN SPRINGS, MS 39564
TELEPHONE: (228) 872-5558
(Name, Address, and Telephone Number of Agent for Service)
------------------------
Copies to:
GIRARD P. MILLER, ESQ.
DOHERTY, RUMBLE & BUTLER, P.A.
3500 FIFTH STREET TOWERS
150 SOUTH FIFTH ST.
MINNEAPOLIS, MN 55402-4235
TELEPHONE: (612) 340-5555 TELEFAX: (612) 340-5584
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement as determined by market conditions
and other factors.
If any of the securities being registered on this form are being offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock......................... 1,075,500 shares $1.8125 $1,949,343.75 $590.71
($.01 par value)
underlying Stock Options
</TABLE>
(1) Estimated solely based for purposes of computing the registration fee. In
accordance with Rule 457(c) and (h)(1), the price used is the average of the
bid and asked price of the Common Stock on the over-the-counter market as of
October 2, 1997.
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<PAGE>
SUBJECT TO COMPLETION, OCTOBER 6, 1997
PROSPECTUS
1,075,500 SHARES
CASINO RESOURCE CORPORATION
COMMON STOCK
------------------
This Prospectus relates to the resale of up to 1,075,500 shares of Common
Stock, $.01 par value per share (the "Common Stock") of Casino Resource
Corporation, a Minnesota corporation (the "Company"), issued to certain
investors (the "Selling Shareholders") pursuant to registration rights
agreements with the Selling Shareholders. See "Selling Shareholders."
The resale of the securities covered by this Prospectus may be sold from
time to time by the Selling Shareholders, and such resales may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Shareholders.
The Selling Shareholders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Shareholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. The Company's Common Stock is traded on the Nasdaq
National Market ("NasdaqNM") under the symbol CSNR.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE, INVOLVE A HIGH DEGREE
OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company can
by inspected and copied at the public reference facilities of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as
well as at the following Regional Offices: 7 World Trade Center, Suite 1300, New
York, New York 10048 and Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies can be obtained from the
Commission by mail at prescribed rates. Requests should be directed to the
Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549.
The Commission maintains a web site that contains registration statements,
reports, proxy statements and other materials that are filed electronically with
the Commission. This web site can be accessed at HTTP://WWW.SEC.GOV.
The Company has filed with Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock offered hereby. This Prospectus, does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and to the exhibits
filed therewith. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement. The Registration Statement,
together with the exhibits thereto, may be inspected without charge at the
offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 upon the payment of the fees prescribed by the
Commission.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Casino Resource
Corporation (the "Company") are incorporated herein by reference:
(a) The Company's Annual Report on Forms 10-KSB and 10-KSB/A for the fiscal year
ended September 30, 1996.
(b) The Company's Quarterly Reports on Forms 10-QSB and 10-QSB/A for the periods
ended December 31, 1996, March 31, 1997 and June 30, 1997 and the Company's
Current Reports on Forms 8-K and 8-K/A dated October 30, 1996, February 2,
1997, February 24, 1997, April 2, 1997, September 12, 1997 and October 3,
1997.
(c) The Company's annual Proxy Statement pursuant to Regulation 14A of the
Exchange Act for the annual stockholder meeting held April 3, 1997.
(d) The description of the Company's securities contained in the Company's
Registration Statement under Section 12 of the Exchange Act, and any and all
amendments and reports filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14, and 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering of the Shares hereby
offered shall be deemed to be incorporated by reference into this Prospectus and
to be a part of this Prospectus from the date of filing such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this
2
<PAGE>
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge to each person, including any
beneficial owner, to whom a prospectus is delivered, upon written or oral
request of such person, a copy of any and all information that has been
incorporated by reference (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Requests for such
documents should be addressed to Maurice P. Gaudet, Chief Financial Officer, 707
Bienville Boulevard, Ocean Springs, MS 39564, telephone number (228) 872-5558.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. The Company has five active wholly owned
subsidiaries, namely, Casino Building Corporation, Inc., CRC of Branson, Inc.,
Country Tonite Enterprises, Inc., Casino Resource Corporation of Tennessee, Inc.
(which holds a 60% in CTT, LLC), and Casino Resource Corporation Tunisia, S.A.
Where the context requires, references in this Prospectus to the "Company"
include all or one of such subsidiaries, as the case may be. Investors should
carefully consider the information set forth under the caption "Risk Factors."
THE COMPANY
Between 1987 and 1991 the Company's primary business was owning and managing
recreational vehicle resorts, and providing direct marketing services related
thereto. The Company sold its capital-intensive camp resort properties during
the period 1988-1991 and began offering its direct marketing services to the
recreational real estate industry, primarily focusing on time share and camp
resort developments and, eventually, to the casino industry. The Company sold
its direct marketing business that provided services to the time-share and camp
resort industry in May 1994 but retained the capacity to provide marketing
services to the casino industry.
The Company believes that the expansion of gaming into emerging markets,
including riverboat and dockside gaming, state-sponsored video lotteries, small
stakes casino gaming and gaming on Indian land, reflects the increasing
popularity and acceptability of gaming activities, generally, in the United
States. The past year has seen continued growth in gaming facilities and the
acceptance of gaming as a recreational pastime, although several states have
rejected attempts to expand the nature of the gaming activities within their
border. Additionally, and as a result of the Indian Gaming Regulatory Act of
1988, 25 U.S.C. Section 2701 et seq. ("IGRA"), Indian casino gaming has become a
rapidly growing part of the casino gaming industry. The Company's strategy is to
develop alliances and formulate joint ventures with gaming operators or other
participants in the gaming industry and to explore opportunities for the Company
to develop its own wholly-owned gaming operations and provide support amenities
to the game industry. These opportunities would require the raising of
additional debt or equity. The Company plans to open a casino and 500-seat
theatre in October 1997 in Sousse, Tunisia.
The Company intends also to seek opportunities with respect to the
development, ownership and management of hospitality and entertainment
facilities. In May 1994, the Company completed construction of a 1,872-seat "Las
Vegas-style" show theater adjacent to the Grand Casino Biloxi, on the Gulf Coast
of Mississippi, and a 154-room hotel near the Grand Casino Hinckley, in
Minnesota. Subsequently, the Company sold the theater in September 1994 to Grand
Casinos, Inc. ("Grand Casinos"). In addition, the Company purchased the former
Ray Stevens Theatre in Branson, Missouri in March 1994, and was reopened for
business in May 1994. This facility was renamed the "Country Tonite Theatre." In
March 1994, the Company purchased a musical production company that provides
entertainment at the Aladdin Hotel in Las Vegas, Nevada, as well as the
Company's theaters in Branson and Pigeon Forge. In 1996 the Company entered into
a joint venture to operate another "Country Tonite Theatre" in Pigeon Forge,
Tennessee which opened in March 1997. Casino Resource Corporation of Tennessee,
Inc. holds the majority interest in this joint venture (CTT, LLC.)
The Company was organized in 1969. In 1987, the Company merged into an
inactive public corporation and the surviving Company's name was changed to
Rubidell Recreation, Inc., which was changed in 1993 to Casino Resource
Corporation. Prior to 1987, the Company engaged in various business activities
unrelated to its current proposed businesses. The Company is incorporated under
the laws of the State of Minnesota. The Company's principal office is located at
707 Bienville Boulevard, Ocean Springs, Mississippi 39564. Its telephone number
is (228) 872-5558.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........................................ None
Common Stock offered by Selling Shareholders............................... 1,075,500
shares
NasdaqNM Symbols Common Stock.............................................. CSNR
</TABLE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby is highly
speculative, involves a high degree of risk and should only be purchased by
persons who can afford to lose their entire investment. See "Risk Factors" for a
discussion of risk factors that should be considered in connection with an
investment in the shares of Common Stock offered hereby.
SUMMARY CONSOLIDATED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years ended September 30, 1996 and 1995, have been derived from the
financial statements of the Company, which financial statements have been
audited by independent certified public accountants. The consolidated financial
statements as of September 30, 1996, and for each of the years in the two-year
period ended September 30, 1996, and the reports thereon, are included elsewhere
in this Prospectus. The selected financial data presented below for the nine
months ended June 30, 1997 and 1996, are from the unaudited financial statements
of the Company included elsewhere in this Prospectus or incorporated by
reference. In the opinion of the Company's management, such unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for the periods represented. The results of operations for
the nine months ended June 30, 1997 are not necessarily indicative of the
results to be expected for the year ending September 30, 1997. The selected
financial data should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus and Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
1996 1995 1997 1996
------------ ------------ ------------- ------------
(AS RESTATED)
(AS RESTATED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue................................................. $ 12,906 $ 10,408 $ 10,504 $ 8,759
Loss from continuing operations......................... (527) (123) (37) (1,366)
Income from discontinued operations..................... -- 162 -- --
Net income (loss)....................................... (527) 39 (37) (1,366)
Loss per share from continuing operations............... (0.05) (0.01) (.00) (.16)
Net Income (loss) per share............................. (0.05) 0.01 (.00) (.16)
Weighted average number of shares of Common Stock
outstanding........................................... 8,980,105 7,609,076 10,006,609 8,724,345
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1995 1997
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................................................... $ 21,785 $ 20,951 $ 23,000
Long-term liabilities............................................................ 10,302 10,487 11,029
Total liabilities................................................................ 13,560 14,917 14,397
Stockholders' equity............................................................. 8,225 6,034 8,538
</TABLE>
- ------------------------
(1) See the consolidated financial statements of the Company and related notes
included elsewhere in this Prospectus.
5
<PAGE>
RISK FACTORS
The Common Stock offered hereby is highly speculative and involves a high
degree of risk and, accordingly, is not an appropriate investment for persons
who cannot afford the loss of their entire investment. Prospective investors
should be aware of the following risk factors and should review carefully the
financial and other information provided or incorporated herein. Capitalized
terms used in this section and not previously defined are defined under
"Business" or "Description of Capital Stock."
NO ASSURANCE OF PROFITABILITY; ACCUMULATED DEFICIT AND NEGATIVE WORKING
CAPITAL. The company has previously suffered significant losses from
operations, resulting in an accumulated deficit at June 30, 1997 of $13.3
million. Such losses relate principally to the discontinued operation and sale
of the Biloxi Star Theatre in fiscal 1994. Although the Company was marginally
profitable overall before gaming project losses and financing charges for fiscal
1995 and 1996, there can be no assurance of future profits from operations. Such
profits will be necessary for the Company to continue operations. In addition,
the Company had a working capital deficit of approximately $552,000 at June 30,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," and the Consolidated
Financial Statements.
SIGNIFICANT LEVERAGE AND DEBT REPAYMENT OBLIGATIONS. At June 30, 1997, the
Company had an aggregate of approximately $12.6 million of long-term
indebtedness outstanding, requiring monthly payments of principal and interest
aggregating approximately $155,000. In addition to such monthly payments, the
Company is obligated to repay indebtedness of approximately $7.1 million in
April 1999. Although management believes, based on current business levels, that
cash flows are and will continue to be sufficient to support the Company's
monthly debt service obligations, if there is a material downturn in the
performance of any of its businesses, the Company may be unable to make such
payments on a timely basis. In addition, the Company will require funding beyond
its operating cash flows to make the principal repayment due in 1999, the
availability of which cannot be assured. The ability of the Company to satisfy
its debt service and repayment obligations may also be affected by the level of
funds expended by the Company in development activities. In the event the
Company fails to make interest or principal payments when due, it could lose
ownership of the Grand Hinckley Inn or the County Tonite Theatre in Branson,
each of which is pledged as collateral security for certain of the Company's
long-term indebtedness. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements.
DEPENDENCE OF GRAND HINCKLEY INN ON ADJACENT CASINO. The Grand Hinckley Inn
is dependent upon the adjacent Grand Casino Hinckley, the customers of which
constitute the large majority of the hotel's patrons. As a result, any
significant decrease in the level of customer traffic at the Grand Casino
Hinckley would be expected to adversely affect the Grand Hinckley Inn. Customer
volumes at the Grand Casino Hinckley could be adversely impacted by, among other
business factors, increased competition, whether from other Indian-owned casinos
or from other forms of gaming, including forms of gaming which are not now but
may later be legalized in Minnesota or neighboring states. In addition, because
the Company's hotel revenues include a fee paid to it under a marketing
enhancement agreement with Grand Casinos and the Corporate Commission of the
Mille Lacs Band of Ojibwe Indians (the "Corporate Commission"), of $20 for each
occupied room, any reduction in occupancy levels resulting from a decrease in
the number of gaming visitors would result in reduced fee income as well as
reduced room rental income. Also, a 285-room hotel project is being built by the
Commission adjacent to the Grand Casino Hinckley and the Grand Hinckley Inn,
will thus be in competition with such new hotel. Such competition could
adversely affect the Grand Hinckley Inn. The new hotel is presently scheduled
for completion in late 1997.
In addition to the marketing enhancement agreement, the success of the Grand
Hinckley Inn depends on other agreements entered into with Grand Casinos, most
importantly a ground lease for the real property underlying the hotel at a
nominal rental rate (subsequently assigned to the Corporate Commission.) The
Company's agreements with Grand Casinos expire in May 2004, although the Company
may
6
<PAGE>
renew the ground lease, at its option, up to four times, each for an additional
10-year term. However, because the existing Management Agreement between Grand
Casinos and the Corporate Commission expires in May 1999 and there is no
assurance that it will be renewed or extended, the Company may be required at a
future date to work directly with the Corporate Commission or establish a
relationship with another manager of the casino. No assurance can be given that
the Company would be able to do so on terms as beneficial to it as are currently
in effect. Similarly, there is no assurance that the current relationship
between the Company and Grand Casinos will continue to be successful. See
"Business-- Existing Operations--Grand Hinckley Inn."
ANTICIPATED DECREASE IN OPERATING INCOME AT GRAND HINCKLEY INN. Under the
marketing enhancement agreement, the Company is required to pay to the Corporate
Commission a windfall profits fee equal to 50% of its gross room revenues
(including marketing enhancement fees) above a defined annual cumulative
threshold up to the amount of the marketing enhancement fees received by the
Grand Hinckley Inn from the Grand Casino Hinckley. The threshold amount is based
on an 80% hotel occupancy rate. The threshold was increased on a one-time basis,
however, by an aggregate of $900,000 to reflect increases in the Company's cost
of constructing the hotel, and such one-time increase was fully utilized by June
1995. The threshold amount increases for subsequent years to the extent
operating costs increase from year to year. As a result of higher levels of
profit sharing and higher real estate taxes the Grand Hinckley Inn's operating
income decreased from 1995 to 1996 and is expected to remain at a lower level
due to the impact of profit sharing. In addition, operating income may be
adversely impacted by the opening of a 285-room hotel adjacent to the casino in
late 1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations" and "Business--Existing
Operations-- Grand Hinckley Inn."
MILLE LACS PURCHASE OPTION. The Corporate Commission may, at its option,
purchase the Grand Hinckley Inn as early as May 2001 at a price equal to the
Company's cost of developing the property plus the depreciated cost of equipment
and other property within the hotel. If this option were to be exercised, the
Company would be required to sell, and would no longer receive revenues from the
hotel, currently its only hospitality asset. In addition, the Company believes
that the purchase price under the option is currently significantly less than
the fair market value of the hotel, although no appraisal or other valuation has
been conducted.
DEPENDENCE OF ENTERTAINMENT BUSINESS ON BRANSON MARKET AND ALADDIN CONTRACT;
LACK OF PROFITABILITY OF PIGEON FORGE THEATRE. The Country Tonite Theatre is
dependent upon the success of the Branson, Missouri tourism industry and any
contraction of such industry will likely adversely affect the theater's
performance and prospects. The Country Tonite Show has been playing at the
Aladdin Hotel & Casino in Las Vegas, Nevada since 1992. The Aladdin has
announced that it will close for remodeling in November 1997. The Company
received notice that its contract with the Aladdin Hotel & Casino was cancelled,
effective November 15, 1997. The Company's management is attempting to locate a
new venue for The Country Tonite show in Las Vegas. Failure to locate a new
venue could have a material adverse effect on the Company's consolidated
operating income.
The Company's new theater in Pigeon Forge, Tennessee, a 60% owned joint
venture, is currently unprofitable. There is no assurance that the Pigeon Forge
theater can ever be operated at a profitable level. Under terms of the lease and
operating agreements, the Company may be liable for a $30,000 monthly payment
for a term of up to five years if the joint venture is unable to meet its lease
obligations. In addition the Company has guaranteed certain leases of the joint
venture. In addition the success of the Pigeon Forge theater is dependent on the
Pigeon Forge area tourism market. A decline in the number of visitors could
adversely affect the revenues of the Pigeon Forge theater. See
"Business--Existing Operations--Country Tonite Theatre" and--"Country Tonite
Production Show" and "Marketing and Competition--Branson, Missouri Market--Las
Vegas, Nevada Market."
7
<PAGE>
COMPETITION IN THE HOSPITALITY AND ENTERTAINMENT INDUSTRY. The Company
believes that the Grand Hinckley Inn may face increasing competition from new
properties, including possible competition from Grand Casinos, the Mille Lacs
Band or others operating under agreements similar to those entered into between
the Company and Grand Casinos. The Company is subject generally to competition
from other developers of hotel and entertainment projects, many of which are
better capitalized and are more experienced than the Company in the hospitality
and entertainment industry. There can be no assurance that the Company will be
successful in maintaining or expanding its hospitality and entertainment
activities. In addition operating income may be adversely impacted by the
opening of a 285-room hotel adjacent to the casino in late 1997. See
"Business--Existing Operations--Marketing and Competition."
DEVELOPMENT OF POKAGON BAND INDIAN CASINO NOT ASSURED. The development,
construction and opening of a casino on Indian land will require, among other
things, that a compact is entered into by the Pokagon Band with the State of
Indiana or Michigan, all required licenses from and approvals of the National
Indian Gaming Commission (the "NIGC") and other applicable regulatory
authorities are obtained, a site is acquired and, if required, necessary
financing is made available by Harrah's. The satisfaction of these and other
requirements cannot be assured, and, in any event, the opening of a casino by
the Pokagon Band is not anticipated to occur before the end of 1998. In
addition, no assurance can be given that any such casino would be successful
and, accordingly, the level of fees received through the proposed Technical
Assistance and Consulting Agreement with Harrah's may be significantly less than
anticipated. See "Business--Development Activities--Pokagon Consulting
Agreement."
RISK ASSOCIATED WITH INTERNATIONAL OPERATION; CURRENCY RISKS. The Company's
first gaming venture will carry on its operations outside the United States
("U.S."), and will be located in Sousse, Tunisia. Operations outside the U.S.
are subject to inherent risks, including without limitation, fluctuations in the
value of the U.S. dollar relative to foreign currencies, tariffs, quotas, taxes
and other market barriers, political and economic instability, currency
restrictions, difficulty in staffing and managing international operations,
language barriers, difficulty in obtaining work permits for employees,
limitations on technology transfers, potential adverse tax consequences, and
difficulties in operating in a different cultural and legal system. There can be
no assurance that any of the aforementioned or any unforeseen factors will not
adversely impact the Company's Tunisian operations.
NEED FOR ADDITIONAL CAPITAL TO PURSUE GROWTH STRATEGY. Additional capital
would be required for the Company to pursue the development or acquisition of
any new sizable project, whether in the hospitality and entertainment industry
or the gaming business. There can be no assurance that any such additional
capital will be available when required or, if available, that the same would be
on terms acceptable to the Company. Further, in order to obtain any necessary
additional financing, the Company may be required to pledge a portion of its
future revenues or to dilute the equity investment of its then current
shareholders. If required financing is unavailable for any reason, the Company
may be forced to curtail or delay its marketing, operating and development
plans. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LACK OF EXPERIENCE IN GAMING INDUSTRY. Neither the Company nor any member
of management has any prior direct operating experience in the gaming industry.
The Company has hired experienced gaming management for the Tunisian casino.
However, there is no assurance that the Company will be able to successfully
manage the Tunisian casino operation, or that such operation will be profitable.
REGULATION; NO ASSURANCE OF LICENSING. The ownership and operations of
casinos in Tunisia and other gaming jurisdictions are highly regulated. The
Company's casino in Tunisia is scheduled to open in October 1997. The Company is
attempting to secure its operating and gaming licenses. The failure of the
Company or any one of the foregoing persons to obtain or maintain any required
licenses will have a material adverse effect on the Company. Further, changes in
Tunisian law or regulations may limit or otherwise materially affect the types
of gaming that may be conducted.
8
<PAGE>
COMPETITION AND OTHER FACTORS AFFECTING GAMING INDUSTRY. The gaming
industry is highly competitive and many operators have extensive experience, are
larger and have significantly greater financial and other resources than the
Company. In addition, many gaming jurisdictions limit the number of licenses for
gaming facilities. There can be no assurance that the Company will be able to
compete with more experienced and stronger operators. In addition, there can be
no assurance that the Company will be able to compete effectively for
experienced gaming management and other key operating personnel. See
"Business--Marketing and Competition" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
In addition to competitive factors, adverse changes in general and local and
foreign economic conditions may adversely impact investments in gaming
enterprises, similar to other entertainment investments. These conditions and
other factors beyond the Company's control include: (i) changes in regional and
local population and disposable income levels; (ii) the need for renovations,
refurbishment and improvements; (iii) unanticipated increases in operating
costs; (iv) changes in foreign, federal, state, local and tribal laws and
regulations, including those relating to taxation; (v) restrictive changes in
zoning and similar land use laws and regulations, or in health, safety and
environmental laws and regulations; (vi) the inability to secure sufficient
property and liability insurance to protect against all losses or to obtain such
insurance at reasonable costs; and (vii) changes in travel patterns or
preferences which may be affected by increases in travel costs, changes in
airline schedules, strikes, weather patterns and construction of highways, among
other factors.
POTENTIAL ADVERSE EFFECT OF SECURITIES ELIGIBLE FOR FUTURE SALE. The sale,
or availability for sale, of substantial amounts of Common Stock in the public
market may adversely affect the prevailing market price of the Common Stock and
may impair the Company's ability to raise additional capital through the sale of
its equity securities. The Company currently has 10,043,364 shares of Common
Stock outstanding. In addition to the shares registered hereby, 8,368,496 shares
are currently held by the public and are freely tradable and 1,674,868 shares
are currently eligible for resale under Rule 144. The Company also has
outstanding Class A Warrants exercisable for an aggregate of 2,760,000 shares of
Common Stock at an exercise price of $6.75 per share; such shares, if issued,
would be freely tradable. Finally, the authorized and unissued capital stock of
the Company includes additional Common Stock, as well as undesignated preferred
shares which the Board of Directors, without any action by the Company's
shareholders, is authorized to designate and issue in such classes or series,
and with such rights, preferences and privileges, as it deems appropriate. No
shares of preferred stock or other senior equity securities are currently
designated, and there is no current plan to designate or issue any such
securities.
TRANSACTIONS WITH OFFICERS AND SHAREHOLDERS. The Company is involved in
various transactions with its principal shareholders, John J. Pilger and Kevin
M. Kean. The Company has current outstanding loans to Mr. Pilger and Mr. Kean.
The failure of Mr. Pilger and Mr. Kean to repay such loans could have a material
adverse effect on the Company.
CONTROL BY EXISTING MANAGEMENT. The Company's executive officers, directors
and their affiliates own, or have the right to vote, an aggregate of
approximately 16.7% of the outstanding Common Stock. Accordingly, the Company,
its directors and officers maintain significant voting influence in connection
with the election of the directors of the Company and control the Company's
business and affairs. Grand Casinos has the right to designate two
representatives for election to the Company's Board of Directors, but to date
has not exercised this right. See "Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
personal efforts and abilities of its Chief Executive Officer, John J. Pilger.
The loss of Mr. Pilger's services could have a material adverse effect on the
Company. The Company has entered into a three-year employment agreement with Mr.
Pilger commencing on May 20, 1996 and has obtained key-person life insurance in
the amount of $1 million on his life, with the proceeds of such insurance
payable to the Company.
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ABSENCE OF CASH DIVIDENDS. The Company has not declared or paid any cash
dividends on its capital stock since its incorporation and does not intend to
pay any cash dividends in the foreseeable future.
STOCK PRICE VOLATILITY. As a result of potential fluctuations in the
Company's operating results, and other factors, including the general condition
of the economy, stock market conditions, passage or defeat of legislation or
announcements by the Company or its competitors, the market price of the Common
Stock offered hereby may be highly volatile.
FLUCTUATING OPERATING RESULTS. Due in part to the seasonality of the Grand
Hinckley Inn and the Company's theaters, and the expected seasonality of the
Tunisian casino the Company's future operating results are expected to continue
to vary substantially from quarter to quarter. Because a high percentage of the
Company's operating expenses are fixed, a reduction of revenue could cause
significant fluctuations in the Company's operating results and cash flows from
quarter to quarter. See "--Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality."
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER PROVISIONS AND MINNESOTA
LAW. The Company's Articles and Bylaws and the Minnesota Business Corporation
Act contain requirements and limitations that may have the effect of
discouraging unsolicited takeover bids from third parties. These include advance
notice requirements for shareholder proposals and director nominations,
limitations on shareholder action by written consent, voting requirements for
amendment of certain provisions of the charter documents, a classified board of
directors, and change of control provisions. See "Description of Capital Stock--
Regulatory Provisions" and "--Classified Board and Related Provisions." As of
this date, the Company is not aware of any current or planned effort on the part
of any party to acquire control over the Company by means of a merger, tender
offer, solicitation in opposition to management or otherwise, or to change the
Company's Board of Directors or management.
RESTRICTIONS ON STOCK OWNERSHIP. The Articles provide that no investor may
become either a holder of 5% or more of the Company's stock or one of the 10
largest shareholders of the Company without first agreeing to consent to a
background investigation, provide a financial statement and respond to questions
from gaming authorities. Furthermore, all shares of the Company's capital stock
held by a beneficial owner will be subject to redemption if (a) such beneficial
owner refuses upon request of the Board of any gaming authority having
jurisdiction over the Company, to provide any of the foregoing or (b) such
beneficial holder's holdings of capital stock either alone or together with the
capital stock holdings of any other beneficial holder of the Company's capital
stock may, in the judgment of the Board of Directors, result in (i) the
disapproval, modification or non-renewal of any gaming management contract
(whether solely or by shared management) or (ii) the disapproval, loss,
modification, non-renewal or non-reinstatement of any license, franchise,
approval or consent from a gaming authority or other governmental agency with
respect to the conduct of any portion of the business of the Company, where such
license, franchise, approval or consent is conditioned upon holders of capital
stock meeting certain criteria. See "Description of Capital Stock--Regulatory
Provisions." These restrictions may require large institutional investors to
provide information to gaming authorities. As a consequence, those unwilling to
comply may be required to sell their shares or may be unwilling to buy more, or
to invest at all in the Company, thereby resulting in a possible decline in the
price of the Common Stock, which could be material, and having a possible anti-
takeover effect. Additionally, these restrictions could require the Company to
redeem shares of its Common Stock for cash, which could adversely affect its
liquidity. As a result of such restrictions, current or future state or federal
gaming rules or regulations may materially restrict or prohibit certain persons
from owning the Company's securities. Such restrictions could also have the
effect of causing certain holders to liquidate their holdings of the Company's
securities at a time when market conditions are not favorable to such holders,
or at a cost that is not favorable to such holders. In addition, at the election
of the Company, such shareholder may receive redemption securities wholly or
partially in lieu of a cash payment. "Redemption securities" means any debt or
equity securities of the Company, any subsidiary, or any other corporation, or
any combination thereof, having terms and conditions as approved by the Board
10
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of Directors which, together with a cash payment, if any, equals the fair market
value of the securities to be redeemed on the date the notice of redemption is
given, as determined by a nationally recognized investment banking firm selected
by the Board of Directors. Furthermore, such redemption securities may be
securities, which have not been registered under the Securities Act and
therefore may not be eligible for trading in the public market, with a
consequent result of illiquidity to the holder. See "Description of Capital
Stock--Regulatory Provisions" and "Business--Regulation and Licensing of Gaming
Activity."
ENVIRONMENTAL RISKS. Ownership or operation of real estate exposes the
Company to the related risks of compliance with environmental laws, and clean-up
costs and related expenses (which would not be covered by insurance
reimbursement) in the event of environmental contamination, even if such
contamination were not caused by or known to the Company.
INSURANCE, CALAMITIES AND CONDEMNATION. The Company maintains insurance
coverage for the Grand Hinckley Inn, the Country Tonite Theatre in Branson and
Pigeon Forge and for its casino in Tunisia, but such coverage is limited. For
example, the Company does not have insurance for losses due to hurricanes, wind,
floods, earthquakes and other catastrophic events because such coverages are
either not available or are cost-prohibitive. In addition, the Company's
properties, or a part thereof, could be taken by governmental authorities acting
under their power of eminent domain. If an uninsured disaster should occur, or
should the actual loss sustained exceed the amount of insurance proceeds, or
should the property be taken by eminent domain, the Company (and, consequently,
its investors) could suffer a material loss.
LITIGATION. The Company is party to certain litigation which if adversely
determined could have a material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This document contains
forward-looking statements regarding, among other items, the Company's growth
strategy and anticipated trends in the Company's business. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described under "Risk Factors" and
elsewhere herein, including, among others, economic influences. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained herein will in fact transpire or prove to
be accurate.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Common Stock
offered hereby.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company opened the Country Tonite Theatre in Branson, Missouri in March
1994 and the Grand Hinckley Inn in Hinckley, Minnesota in May 1994. The Company
had previously purchased the Country Tonite production show in March 1994. In
October 1996 the Company entered into a joint venture to operate another Country
Tonite Theatre in Pigeon Forge, Tennessee which opened in March 1997.
RESULTS OF OPERATIONS. The following financial data presented below has
been derived from the Company's Consolidated Financial Statements for the fiscal
years ended September 30, 1996 and 1995 (audited) and for the nine months ended
June 30, 1996 and 1997 (unaudited).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER NINE MONTHS ENDED JUNE
30, 30,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1996 1995 1997 1996
------------ --------- --------- ------------
<CAPTION>
(AS (AS
RESTATED) (IN THOUSANDS) RESTATED)
<S> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS:
Entertainment revenues........................................... $ 8,938 $ 6,750 $ 7,722 $ 5,983
Hospitality revenues............................................. 3,968 3,658 2,782 2,776
Operating costs--entertainment................................... 6,215 5,743 6,188 4,485
Operating costs--hospitality..................................... 2,660 2,032 1,925 1,730
General and administrative expense............................... 2,190 2,006 1,452 1,685
Other income (expense)*.......................................... (2,368) (750) (976) (2,225)
------------ --------- --------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS........................... (527) (123) (37) (1,366)
DISCONTINUED OPERATIONS:
Income from discontinued operations net of applicable taxes...... -- 162 -- --
------------ --------- --------- ------------
NET INCOME (LOSS).................................................. $ (527) $ 39 $ (37) $ (1,366)
------------ --------- --------- ------------
------------ --------- --------- ------------
</TABLE>
- ------------------------
* Including loss on gaming projects for 1996 and losses on gaming projects and
minority interest in operations of subsidiary and gain on litigation
settlement for 1997.
Following is management's discussion and analysis of significant factors
which have affected the Company's financial position and operating results
during the periods reflected in the accompanying consolidated financial
statements.
FISCAL 1996 COMPARED TO FISCAL 1995
CONSOLIDATED
The Company's revenues from continuing operations were $12,905,949, an
increase of $2,498,076 or 24%, from the $10,407,873 recorded in fiscal 1995. Of
the increase $2,188,241 or 88%, was provided by the entertainment segment with
the hospitality segment accounting for the remaining increase of $309,835.
ENTERTAINMENT
COUNTRY TONITE PRODUCTION SHOW
Country Tonite Production show revenues totaled $2,192,360 in fiscal 1996, a
decline of $173,762, from fiscal 1995 revenues of $2,366,122. The decline was
due principally to a lower contractual rate with the Aladdin Hotel in calendar
1996. Despite the decline in revenues, operating income increased $205,300 or
85%, to $446,271 in fiscal 1996 from $240,971 in fiscal 1995. Management
successfully reduced operating costs (including project, general and
administrative costs and depreciation) from $2,125,152 in
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<PAGE>
fiscal 1995 to $1,746,089 in fiscal 1996, a savings of $379,063 or 18%,
principally through a concerted effort to reduce general and administrative
expenses.
COUNTRY TONITE THEATRE
With paid attendance at the Branson Theatre reaching 40% of capacity in
fiscal 1996, up from 29% in fiscal 1995, and average ticket prices increasing
from $14.87 in fiscal 1995 to $15.57 in fiscal 1996, revenues increased
$2,362,003 or 54%, from the fiscal 1995 total of $4,383,934 to $6,745,937 in
fiscal 1996. Operating expenses (including project, general and administrative
costs and depreciation) rose at a lower pace by $850,376 or 24%, to $4,468,470
in fiscal 1996 from $3,618,094 in fiscal 1995. The economies of scale evident at
the 40% paid occupancy level provided an increase in operating income of
$1,511,627 or 197% to $2,277,467 in fiscal 1996 from $765,840 in fiscal 1995.
The marketing efforts at the Country Tonite Theatre and its acceptance in the
market have resulted in significant year to year increases in attendance and
revenues from the initial 1994 period.
HOSPITALITY
GRAND HINCKLEY INN
In fiscal 1996, the Grand Hinckley Inn continued its historical high
occupancy rates, achieving an average occupancy of 86% and average daily rate of
$54.85 compared to an average occupancy rate of 82% and an average daily rate of
$56.63 in fiscal 1995. Revenues for fiscal 1996 increased $309,835 or 8%, to
$3,967,652 in fiscal 1996 from $3,657,817 in fiscal 1995. Operating income fell
$318,199 or 20%, from $1,625,585 in fiscal 1995 to $1,307,386 in fiscal 1996.
Operating expenses (including project, general and administrative costs and
depreciation) rose $628,034 or 31%, to $2,660,266 in fiscal 1996 from $2,032,232
in fiscal 1995. The increase in operating expenses and resulting decrease in
operating income were principally the result of higher property taxes and profit
sharing expenses. Profit sharing with the Enterprise totaled $786,000 in fiscal
1996 compared to $361,000 in fiscal 1995, as hotel revenues exceeded the
cumulative threshold during fiscal 1995.
In addition operating income may be adversely impacted by the opening of a
285-room hotel adjacent to the casino in late 1997.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $2,190,154 in
fiscal 1996 compared to $2,006,272 for fiscal 1995. The increase resulted
primarily from higher legal and professional fees.
GAMING
Loss on gaming projects of $742,000 for fiscal 1996 consists principally of
the loss on abandonment of the Palace Casino acquisition in January 1996 of
$727,000. Although the Company reached an agreement as part of a joint venture
to again acquire the Palace Casino in September 1996, generally accepted
accounting principles do not allow reversal of the abandonment loss.
Loss on gaming projects for fiscal 1995 consists of $250,000 of fee income
received upon signing of a gaming contract, $600,000 of fee income in exchange
for the relinquishment of rights to gaming contracts, offset by $944,248 of
abandonment costs related principally to the Hoh, Cherokee and Louisiana gaming
projects.
OTHER
Other income for 1995 includes $403,000 from the reversal of excess reserves
principally related to the closing of the Biloxi Star Theatre.
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<PAGE>
During fiscal 1994, management elected to discontinue its recreational
property marketing efforts, and revenue and expenses from those activities were
categorized as discontinued operations. A gain of $162,217 from discontinued
operations during fiscal 1995 resulted from final revenues being received, and
from the reversal of excess reserves related to closing the Company's Wisconsin
offices.
Interest expense totaled $1,828,052 for fiscal 1996 compared to $1,193,403
for fiscal 1995. The increase from 1995 was due principally to a $550,000 charge
from the discount upon conversation of subordinated debentures.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $693,000 to $1,656,000 at June 30, 1997
from $963,000 at March 31, 1997. The Company's principal source of funds during
the three months ended June 30, 1997 were funds provided by operations,
$1,013,000 from the sale of its minority interest in New Palace Casino, LLC
received May 1997 and $525,000 of equipment financing in June, 1997.
The Company's principal use of funds during the third quarter of fiscal 1997
consisted of additions to deferred development costs of $123,000, payments of
notes payable and long-term debt totaling $316,000 and capital expenditures of
$638,000.
Collection of notes receivable totaling $1,232,000 related to the warrant
exercise originally due in January and December 1996 was extended by written
agreement to December, 1997. The due date is subject to acceleration if the
Company stock price exceeds certain levels. Litigation filed to collect monies
due under the original agreement was dropped. In addition a note receivable in
the amount of $50,000 due from Willard Smith in May 1997 has not been collected
to date. Mr. Smith also owes the Company approximately $12,400 related to rent,
property taxes, and additional notes receivable.
On September 10, 1997, the Company completed a private placement of $800,000
($707,000 net proceeds) of 13% convertible debentures. The debentures are
convertible into common stock after 90 days at 83% of the average closing bid
price for the preceding five trading days with mandatory conversion at the end
of one year. The debentures can also be redeemed by the Company at 120.48% of
face value.
In addition, the Company completed two debt transactions totalling
$1,800,000. The first note ($800,000) has a one year maturity with interest
payable monthly at the greater of 20% per annum or the equivalent of 5% of the
gross gaming win, as defined, of the Company's Tunisian casino. This loan is
secured by a pledge of the stock of Casino Building Corporation, a wholly owned
subsidiary of the Company.
The second note ($1,000,000) matures in nine years with interest payable
monthly equivalent to 10% of the EBIDTA of the Company's Tunisian casino, as
defined. This debt can be converted by the noteholders into a 10% equity
interest in the Company's Tunisian casino subject to regulatory approvals.
Proceeds from the three transactions totaling $2,307,000 will be utilized to
complete the Tunisian casino project and for general working capital purposes.
All three transactions represent debt of the parent company.
Barring any unforeseen circumstances, cash flow from operations plus
proceeds from the three recent financing transactions, should provide sufficient
working capital to meet the immediate needs of the Company's operations
including the Tunisian Casino.
The Company's contract with the Aladdin Hotel and Casino is being cancelled
effective November 15, 1997. Annual revenues from the Aladdin contract total
approximately $2.1 million. The inability of the Company's management to timely
locate a new venue for the Country Tonite Show could have a material adverse
effect on cash flow from operations.
14
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures for the Company were $718,000 for the nine months ended
June 30, 1997 compared to $188,000 for the comparable period of 1996. Capital
expenditures for 1997 period consisted principally of equipment purchases for
the Tunisian Casino project. Project expenditures (including preopening costs
and prepaid rent) to open the Tunisian Casino are anticipated to exceed
$4,000,000
SEASONALITY
The Company expects its hotel operations will be affected by seasonal
factors, including holidays, weather and travel conditions. The theater
operations in Branson, Missouri and Pigeon Forge, Tennessee will also be
affected by seasonal factors and in addition will be closed annually from
January through mid-March, a period when theaters normally close in those areas.
The tourist season in Tunisia typically is from May 15 through October.
IMPACT OF INFLATION
Management of the Company does not believe that inflation has had any
significant adverse impact on the Company's financial condition or results of
operations for the periods presented. However, an increase in the rate of
inflation could adversely affect the Company's future operations and expansion
plans.
FOREIGN CURRENCY TRANSACTIONS
The Company's transactions with respect to the planned casino venture in
Tunisia will be in dinars. As such, there are all the risks pertaining to
fluctuations in foreign exchange rates and potential restrictions or costs
associated with the transfer of funds to the United States.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". The new standard simplifies the method for computing
earnings per share and requires the presentation of two new amounts, basic and
diluted earnings per share. The Company will be required to adopt SFAS No. 128,
in the quarter ending December 31, 1997. Earlier adoption is not allowed.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". The new standard discusses how to report and
display comprehensive income and its components. The standard is effective for
years beginning after December 15, 1997. When the Company adopts this statement,
it is not expected to have a material impact on the Company.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
standard requires enterprises to report certain information about operating
segments, their products and services, geographic areas, and major customers.
This standard is effective for years beginning after December 15, 1997. When the
Company adopts this statement, it is not expected to have a material impact on
the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts are based on
current expectations. These statements are forward looking in nature and involve
a number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the Company's
business plan on terms satisfactory to the Company; competitive factors, such as
the introduction of new hotels or renovation of existing hotels in the same
markets; changes in travel patterns which could affect demand for the Company's
hotel, theatres or casino; changes in development and operating costs, including
labor, construction, land,
15
<PAGE>
equipment, and capital costs; general business and economic conditions; currency
fluctuations, and other risk factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such forward
looking statements, which statements are made pursuant to the Private Securities
Litigation Reform Act of 1995, and as such, speak only as to the date made.
FUTURE OPERATIONS
The Company is currently evaluating new venues for its Country Tonite
production in such high-tourist areas as Myrtle Beach, South Carolina; Reno,
Nevada; and Laughlin, Nevada.
Potential new hospitality opportunities continue to be explored as well.
The Grand Hinckley Inn has been profitable since inception and management is
presently exploring potential new hospitality endeavors.
The Country Tonite production, is presently playing at the Aladdin Hotel and
Casino in Las Vegas until November 15, 1997. The Company is seeking to obtain a
new venue for the Country Tonite Show in Las Vegas. CTE Production is pursuing
new endeavors.
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
CONSOLIDATED
The Company's revenues for the nine months ended June 30, 1997 were
$10,504,000, an increase of $1,745,000 or 20% from $8,759,000 in the prior year
period. The entertainment segment accounted for $1,739,000 or substantially all
of the increase.
ENTERTAINMENT
COUNTRY TONITE PRODUCTION SHOW
Country Tonite Production Show revenues totaled $2,562,000 for the nine
months ended June 30, 1997 (including $623,000 eliminated in consolidation), an
increase of $920,000 from the comparable fiscal 1996 period revenues of
$1,642,000. The increase in revenues is due principally to the Country Tonite
Show appearing at the Biloxi Grand Theatre from late December, 1996 to early
March, 1997, and the contract to produce the Country Tonite Show for the
Company's 60% owned joint venture in Pigeon Forge beginning in March, 1997.
Operating income increased to $573,000 for the nine months ended June 30, 1997
(including $623,000 eliminated in consolidation) from $322,000 in the comparable
prior year period due to the aforementioned new venues. Operating expenses
(including project, general and administrative costs) increased to $1,989,000
for the nine months ended June 30, 1997 from $1,320,000 in the prior year period
due principally to the Pigeon Forge and Biloxi show production expenses.
COUNTRY TONITE THEATRE--BRANSON
The Country Tonite Theatre in Branson reopened on March 8, 1997, the
beginning of the Branson tourist season. Paid attendance for the Country Tonite
Show totaled 38% at an average ticket price of $16.87 for the nine months ended
June 30, 1997 compared to paid attendance of 39% at an average ticket price of
$15.24 for the comparable prior year period. The decline in attendance occurred
principally in the third quarter. The Company has refocused its marketing
efforts in order to reverse the decline in attendance. Despite the decline in
attendance, the increase in average ticket price and revenue from a morning show
added in April 1997 resulted in revenues increasing $368,000 or 8% from the
fiscal 1996 nine month total of $4,341,000 to $4,709,000 for the comparable 1997
period. Operating expenses (including project, general and administrative
expenses) increased $166,000 or 5% to $3,311,000 for the first nine months of
fiscal 1997 from $3,165,000 in the first nine months of fiscal 1996 principally
as a result
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<PAGE>
of the new morning show. Operating income increased by $222,000 or 19% to
$1,398,000 in the first nine months of fiscal 1997 from $1,176,000 in the first
nine months of fiscal 1996.
COUNTRY TONITE THEATRE--PIGEON FORGE
The Country Tonite Theatre in Pigeon Forge opened for business on March 21,
1997. Revenues for the nine months ended June 30, 1997 totaled $1,074,000.
Operating expenses for the periods totaled $1,511,000 (including $623,000
eliminated in consolidation) generating an operating loss of $438,000 before a
minority interest allocation of $175,000. The Company anticipated an operating
loss during this start-up period.
HOSPITALITY
GRAND HINCKLEY INN
For the nine months ended June 30, 1997, revenues for the Grand Hinckley Inn
totaled $2,782,000, an increase of $6,000 from revenues of $2,776,000 for the
nine months ended June 30, 1996. Average occupancy rate totaled 81% in the first
nine months of fiscal 1997 compared to 84% in the first nine months of fiscal
1996. The decrease in occupancy was more than offset by an increase in the
average daily room rate from $52 in the first nine months of fiscal 1996 to $55
in the first nine months of fiscal 1997. Operating costs totaled $1,925,000 for
the nine months ended June 30, 1997 compared to $1,730,000 for the comparable
1996 period, an increase of $195,000. The increase in operating expenses was due
principally to higher real estate taxes and higher levels of profit sharing with
Grand Casino Hinckley.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $1,452,000 for
the nine months ended June 30, 1997 compared to $1,685,000 for the comparable
1996 period. The overall decrease was due principally to lower legal and
professional costs partially offset by additional costs related to the Company's
new ventures.
GAMING
On February 5, 1997, the Company sold its interest in the Palace Casino back
to its joint venture partner. A combination of events including cash commitments
to other projects under development and the fact that the Company could not
manage the facility until its corporate officers and board members were found
suitable, a process which could have taken several additional months,
contributed to the Company's decision to sell its interest in the Palace Casino.
In connection with the sale, the Company's escrow deposit of $400,000 was
refunded and, in addition, the Company has received proceeds of $1,000,000 for
the $1,500,000 debenture (issued at closing of the purchase) which was payable
upon transfer of the ownership interest (received May, 1997) and the remaining
$250,000 payable is due without interest in two years. The $250,000 receivable
was discounted to an effective interest rate of 10%. A loss of approximately
$404,000 was recorded in the nine months ended June 30, 1997 relating to the
sale of the Company's interest in the Palace.
The loss of $771,000 for the nine months ended June 30, 1996 relates to the
Company's abandonment of its first attempt to acquire the Palace Casino in
February, 1996.
OTHER
Interest expense totaled $836,000 for the nine months ended June 30, 1997
compared to $1,429,000 for the 1996 period. The increase was due to a lower
level of indebtedness and a $550,000 charge in the nine months ended June 30,
1996 representing the discount upon conversion of subordinated debentures.
17
<PAGE>
BUSINESS
GENERAL
The Company was organized in 1969. In 1987, the Company merged into an
inactive public corporation, and in 1993, it changed its name to Casino Resource
Corporation. Prior to 1987, the Company engaged in various business activities
unrelated to its current or proposed businesses. Between 1987 and 1991, the
Company's primary business was owning and managing recreational vehicle resorts,
and providing related direct marketing services. The Company sold its
capital-intensive camp resort properties during 1988 through 1991 and began
offering its direct marketing services to the recreational real estate industry,
primarily focusing on time share and camp resort developments and, eventually,
to the casino industry. The Company sold its time-share and camp resort direct
marketing business in May 1994, and directed its focus to the hospitality and
entertainment industry in both gaming and high-tourist areas, and to the
emerging gaming industry.
The Company entered the hospitality and entertainment industries by
acquiring or developing four businesses, one of which has been sold. In March
1994, the Company purchased a musical production company which stages an
award-winning show at the Aladdin Hotel in Las Vegas, Nevada. Also in March
1994, the Company purchased its "Country Tonite Theatre" in Branson, Missouri,
which was reopened for business in May 1994. In May 1994, the Company completed
construction of and opened its 154-room hotel, the "Grand Hinckley Inn," on 7.5
acres of leased land in northern Minnesota adjacent to the Grand Casino
Hinckley, an Indian gaming facility operated by Grand Casinos, Inc. ("Grand
Casinos"). Also, in May 1994, the Company completed construction of the
1,872-seat "Biloxi Star Theatre" adjacent to the Grand Casino Biloxi on the Gulf
Coast of Mississippi. This facility was subsequently sold to Grand Casinos in
September 1994. In March 1997, a third venue for the Country Tonite Show opened
in Pigeon Forge, Tennessee. The Country Tonite Theatre, LLC, a joint venture
between CRC of Tennessee, Inc., a wholly owned subsidiary and Burkhart Ventures,
LLC, presents the show in a 1,500-seat, state-of-the-art theatre in Pigeon
Forge, Tennessee, formerly the home of country star T.G. Sheppard. CRC of
Tennessee is the manager and owns 60% of the joint venture. In April 1997, the
Branson theatre added a second show, "The Golden Girls", in a joint venture with
Greg Thompson Productions. The Company plans to increase its hospitality and
entertainment businesses as opportunities arise.
In addition, the Company, through a wholly owned subsidiary, Casino Resource
Corporation Tunisia, S.A., will lease and operate a casino and theater in
Sousse, Tunisia. The casino component will have over 10,000 square feet of
gaming space, with present plans for up to 350 slot machines and 25 table games.
The casino is located on a site of approximately 1.5 acres in size. The facility
is currently under construction and is scheduled to open in October 1997. The
casino is being leased and operated pursuant to an agreement with Samara Casino
Company.
The Company had previously entered into a Technical Assistance and
Consulting Agreement with Harrah's Entertainment, Inc. ("Harrah's") who is to
develop and manage one or more casinos to be funded by Harrah's for the Pokagon
Band of Potawatomi Indians in northern Indiana and southwestern Michigan. The
Company will, upon commencement of operations, receive 21.6% of Harrah's
management fee, but is not required to provide any development capital.
EXISTING OPERATIONS
GRAND HINCKLEY INN (HINCKLEY, MN)
In May 1994, the Company opened its Grand Hinckley Inn on 7.5 acres of
leased land located adjacent to the Grand Casino Hinckley, a 46,000 square-foot
casino owned by the Mille Lacs Band of Ojibwe Indians and operated by Grand
Casinos near Hinckley, Minnesota. The casino attracts approximately four million
patrons per year. The 154-room hotel is largely occupied by casino patrons.
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The hotel is located approximately 90 miles north of Minneapolis near the
intersection of Interstate 35 and State Highway 48. The intersection contains
approximately 250 hotel or motel rooms plus an additional 285 rooms under
construction, together with food and retail establishments. The Commission is
the lessor of the Grand Hinckley Inn site.
The hotel is a luxury facility featuring 138 standard rooms and 16 suites.
Amenities include a swimming pool, a whirlpool and sauna, a video arcade, cable
television with video programming and games, and surface parking for 189
vehicles. The hotel features a spacious lobby and library, vaulted fireplace
sitting areas, a conference room, and guest laundry facilities. The hotel
provides complimentary continental breakfasts to all guests and free 24-hour
shuttle service to and from the casino seven days a week.
The hotel has achieved an average occupancy rate of approximately 86% for
the fiscal year ended September 30, 1996, and generally reaches full capacity on
weekends. For the fiscal year ended September 30, 1996, the hotel had an average
room rate of $54.85.
The Company has entered into several beneficial arrangements with Grand
Casinos and the tribe regarding the hotel. The Company leases the land on which
the hotel is situated from the Tribal Commission at the rate of $1 per annum;
the casino arranges room reservations at the hotel for its preferred customers;
and each business highlights the other in its marketing efforts. In addition,
under a Marketing Enhancement Agreement, the Company receives a $20 fee per
night per occupied room from the "Enterprise," (a combination of Grand Casinos
and the Mille Lacs Band of Ojibwe). In return for the marketing enhancement fee,
the hotel has entered into a revenue sharing plan with the Enterprise which
requires that 50% of all room revenues above a defined cumulative threshold be
paid to the Enterprise up to the amount of the marketing enhancement fees
received by the hotel. During the fiscal year ended September 30, 1995, hotel
revenues exceeded the cumulative threshold and the Company was required to pay
approximately $361,000 back to the Enterprise. Payments due to the Enterprise
under this "windfall profit sharing arrangement" for fiscal 1996 totaled
$786,000. Payments in the future will vary based on revenues and increases, if
any, in the hotel's annual operating cost threshold.
The Company and the Tribal Commission of the Mille Lacs Band have entered
into an agreement regarding future ownership of the hotel. The Tribal Commission
has the unilateral right to purchase the hotel on the anniversary date of its
initial occupancy (May 1994) in each of years 2001 through 2006 at a cost
equivalent to the original development cost of the hotel plus the depreciated
cost of personal property and all inventories. Conversely, in the event that the
Tribal Commission allows the construction of more than 500 hotel or equivalent
rooms on property owned by the Tribal Commission or Grand Casinos, the Company
has the right to require the Tribal Commission to purchase the hotel at the cost
stated above.
The Company obtained mortgage financing in the amount of $3.3 million for
the development of the hotel in 1994. This debt is collateralized by the hotel,
as well as by certain stock pledged by Grand Casinos. The mortgage note matures
on May 1, 2004 and bears interest at an annual rate equal to the prime rate plus
2%, up to a maximum of 11%. The note is payable in monthly installments of
principal and interest of $44,283. Approximately $2.5 million in principal
amount was outstanding at August 31, 1997. In addition to the mortgage, the
Company secured $900,000 of equipment financing collateralized by the hotel's
furniture, fixtures and equipment and guaranteed by Grand Casinos. This debt was
repaid in full in August 1996. A $1,289,000 line of credit extended by Grand
Casinos to the Company for working capital purposes secured by a second mortgage
on the hotel was paid in full in August, 1997. The stock of Casino Building
Corporation is pledged as collateral for a $800,000 loan obtained by the Company
in September 1997.
COUNTRY TONITE THEATRE (BRANSON, MO)
The Company purchased the former Ray Stevens Theatre, now the Country Tonite
Theatre (the "Theatre"), in Branson, Missouri in March 1994. In May 1994, the
2,000-seat theater began running two
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shows daily, featuring dancers, singers, comics and other variety acts. The show
is produced by the Company's Las Vegas-based subsidiary, Country Tonite
Enterprises, Inc. ("CTE"). The theater includes 38,000 square feet on two floors
with an auditorium, a stage area, control booths, dressing rooms, upstairs
offices, a lounge, a gift shop which offers a wide variety of souvenirs with the
Country Tonite theme, and a concession stand. In addition, the theater parking
lot accommodates 600 cars and 30 buses.
The Country Tonite show has been voted "Best Live Country Music Show in
America" by the Country Music Associations of America for three consecutive
years through 1995. In November 1995, the show was voted "Show of the Year" by
the 1995 Branson Entertainment Awards. Theater revenues increased 54% for fiscal
1996 compared to fiscal 1995, due in part to an increased marketing effort, an
increase in group ticket sales, and product recognition attributable to the
show's quality and longevity. The theater has achieved 40% of capacity during
the fiscal year ended September 1996, with an average ticket price of $15.57,
which is competitive with the average ticket price at other theaters in Branson.
In April, 1997 the Company opened a morning show, "Golden Girls", in the
Branson theater. The show is a joint venture with Greg Thompson Productions. The
Company presented two shows a day, six days a week through June, and reopened on
August 29th.
Branson, Missouri is a popular resort destination for country music lovers
from across the nation. Branson is located at the intersection of U. S. Highway
76 and Interstate Highway 65, which connects Branson and Springfield, Missouri.
With a population of approximately 3,000, Branson is home to over 30 theaters
featuring music stars such as Wayne Newton, Charley Pride and the Osmond family.
In addition to roughly 20,000 hotel rooms, Branson offers diverse eating,
shopping and recreational activities to its approximately 6 million annual
visitors, most of whom visit between the months of March and December. Typical
visitors to Branson are senior citizens participating in bus tours through
Missouri. Families also comprise a large part of Branson's visitors and they are
drawn to Branson not only by the country music, but by the additional activities
offered in the summer months by the many lakes in the Branson area and the
Arkansas Ozarks, another popular tourist destination area only 50 miles from
Branson.
The Company purchased the theater for $2 million in cash and a promissory
note collateralized by the theater for $8 million in principal amount. The note,
with a principal balance of $7.4 million at August 31, 1997, bears interest at
the prime rate plus 1%, with a floor of 7% and a ceiling of 10%, and matures on
April 1, 1999. The note is payable in monthly installments of principal and
interest of $73,035, with a final payment due at maturity of $7,077,978.
COUNTRY TONITE PRODUCTION SHOW (LAS VEGAS, NV)
CTE, the Company's musical production subsidiary based in Las Vegas, Nevada,
was acquired in March 1994. The production show involves a country and western
theme, and has played at the Aladdin Hotel and Casino (Aladdin) in Las Vegas
since 1992. The show is under contract at the Aladdin through November 15, 1997.
The Company is presently looking for a new Las Vegas venue for the show. In
addition to the CMAA award mentioned above, other awards received by the show
include "Best Television Program in Nevada", "Electronic Media Award 1994",
"Recording of the Year--Karen Nelson Bell/ Country Tonite Live!", and a host of
individual awards. A second cast of the Country Tonite show performs at the
Country Tonite Theatre in Branson, Missouri. A third cast performs at the
Country Tonite Theatre in Pigeon Forge Tennessee.
COUNTRY TONITE THEATRE (PIGEON FORGE)
CRC of Tennessee, Inc. ("CRCT"), a wholly owned subsidiary of the Company
and Burkhart Ventures, LLC formed a joint venture, Country Tonite Theatre, LLC
to present the Country Tonite Show in a 1,500-seat state-of-the-art theater
located in the heart of Pigeon Forge, Tennessee began in March, 1997. CRCT owns
60% of the joint venture and manages the theater. Burkhart Ventures, LLC owns
the remaining 40% of the joint venture and owns the theater. The joint venture
executed a five year lease for
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the theater beginning on March 1, 1997 with base rent of $30,000 per month in
year one, $40,000 per month in year two and $70,000 per month for the remaining
term. The Company has guaranteed $30,000 per month of the rental amount due over
the five year term. The joint venture also signed an agreement with Country
Tonite Enterprises, Inc., a wholly owned subsidiary of the Company to provide
the Country Tonite Show to the joint venture for a weekly fee of $42,500. The
weekly fee is subject to an annual cost of living escalation in March of each
year.
There are currently eight comparable theaters operating in the Pigeon Forge
area. Pigeon Forge is considered an emerging area for theater based
entertainment. The joint venture is currently unprofitable.
Pigeon Forge, located at the base of the Smoky Mountains, enjoys twice as
many visitors each year as Branson, Missouri, drawing over 12 million tourists
annually in contrast to the Branson marketplace, which hosts approximately 6
million visitors per year. Country Tonite Enterprises will produces and performs
its Country Tonite Show in the Pigeon Forge Theater.
DEVELOPMENT ACTIVITIES
POKAGON CONSULTING AGREEMENT
In January 1995, the Company and Monarch Casinos, Inc. ("Monarch") executed
a Memorandum of Understanding (which was modified in December 1995) whereby the
Company acquired Monarch's rights to potential Indian gaming contracts in
exchange for shares of the Company's Common Stock, certain financial assistance
and a consulting agreement, all as described below. In addition to the Hoh
Indian gaming contract, which was executed by the Company and subsequently
abandoned during the fiscal year ended September 30, 1995, the Company assumed
Monarch's rights with respect to the potential award of a gaming management
contract by the Pokagon Band of Potawatomi Indians, domiciled in northern
Indiana and southwestern Michigan.
Also in January 1995, the Company executed a Memorandum of Understanding
with the Promus Companies Incorporated (now Harrah's Entertainment, Inc.),
whereby Harrah's would act on behalf of itself, and the Company in seeking the
Pokagon award. A Management and Development Agreement was awarded by the Pokagon
band to a subsidiary of Harrah's in September 1995, and final agreements between
Harrah's and the Pokagon band were entered into in November and December 1995.
The agreements call for Harrah's to provide or cause to be provided one or more
loans to finance the construction of one or more casinos in the Pokagon band's
service area of northern Indiana and southwestern Michigan. The band will then
be responsible for repaying the loans and paying to Harrah's a management fee,
as defined for each Pokagon casino.
Under the Technical Assistance and Consulting Agreement with Harrah's, the
Company will receive 21.6% of Harrah's management fee as consulting fees over
the five-year term of Harrah's management contract (and any extensions thereof)
with the Pokagon band. The Company has, in turn, agreed to pay to two
consultants to the Company who assisted in the acquisition of rights from
Monarch (including Kevin M. Kean, a principal stockholder of the Company), an
aggregate of 10% (5% each) of its consulting fee income less the Company's
related direct operating costs, subject to certain limits in the case of Mr.
Kean. (Similar fees may also be payable to Mr. Kean out of revenues, if any,
received by the Company from other Indian businesses, including gaming.)
The Company will have no obligation to provide Harrah's or the Pokagon band
with any funding. However, to the extent not recouped by Harrah's from the
Pokagon band, the Company will reimburse Harrah's for the Company's share
(21.6%) of specified development and licensing costs incurred by Harrah's. The
Management and Development Agreement and related agreements between Harrah's and
the Pokagon band cannot take effect until approved by the National Indian Gaming
Commission ("NIGC"). The Company's obligation to reimburse Harrah's will be
payable in equal installments over 24 months without interest, and will be
subject to reduction for payments due the Company from Harrah's.
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Under the Technical Assistance and Consulting Agreement, Harrah's has agreed to
pay to the Company a one-time fee of $250,000 (recognized in fiscal 1995) in
connection with the signing of the Management and Development Agreement with the
Pokagon Band, and a one-time fee of $600,000 as consideration for the
relinquishment of any rights or claims to any other business venture of Harrah's
and its affiliates, which is payable over five years, commencing with the
opening of the first Pokagon casino. In turn, the Company has agreed to pay to
Harrah's, $5,000 per month for a period of 40 months for the administration of
the Pokagon contract, commencing with the opening of the first Pokagon casino.
In consideration for the rights acquired from Monarch, the Company issued to
Monarch 100,000 shares of the Company's common stock in May 1995, and has agreed
to issue to Monarch an additional 400,000 shares of common stock upon the ground
breaking for the first Pokagon casino and 1,500,000 shares of common stock upon
commencement of operations of the first Pokagon casino. Additionally, the
Company has agreed to assume up to $179,000 of Monarch's accounts payable, to
make certain cash advances to Monarch or its principals and to reimburse
Monarch's executives for travel and business development costs related to
certain gaming opportunities. The Company has also executed a Consulting
Agreement with Monarch, which was subsequently assigned by Monarch to Willard E.
Smith, requiring the Company to (i) pay monthly fees commencing (retroactively)
January 1995 at various rates of from $3,000 to $14,250 per month; (ii) loan an
aggregate of $250,000 (all of which has been advanced), which may be forgiven in
part or in whole upon the occurrence of certain events; (iii) reimburse travel
expenses, and (iv) lease to Mr. Smith the Company's Ocean Springs, Mississippi
residence at a below-market lease rate. The Consulting Agreement was cancelled
on September 17, 1997 due to nonperformance.
TUNISIAN CASINO
The Company, through its wholly owned subsidiary, CRC of Tunisia, has signed
a definitive agreement in July 1996 with the Samara Casino Company to lease and
operate a casino, and a 500-seat theatre in Sousse, Tunisia. The Company has
signed a three-year lease (with two, three-year renewal options) providing for
base rent of $560,000, plus the value added tax (with a 10% yearly escalation
thereafter plus a scaled percentage rental based on gross gaming revenues of the
casino). The 42,000 square foot casino resort will have over 10,000 square feet
of gaming space with present plans to include up to 350 slot machines and 25
table games, and is scheduled to open in October 1997, subject to regulatory
approval, which is the end of the tourist season in Tunisia. Project
expenditures to open the Tunisia Casino are anticipated to exceed $4,000,000.
The Company has agreed to pay a broker's fee in connection with the consummation
of the Tunisian casino lease agreement. The fee consists of a one-time fixed
portion totalling $200,000 (with $100,000 payable upon opening of the casino and
$100,000 due at the one year anniversary) and an annual variable portion
consisting of 3.5% of the net income of the casino. The Company has signed a
consulting agreement with an individual for a one year period (with eight
renewable options based on the performance of gaming operations.) Consulting
fees are based on the excess cash flow of CRC Tunisia S.A., as defined, with a
minimum payment of $175,000 in the first year, and $25,000 for each of the
remaining years.
The entertainment complex/casino will be constructed as a freestanding
building which will be located on a triangular piece of property in front of the
Hotel Samara. The site is located on the main street through Sousse in the heart
of the tourist center and directly off the beach. The site is approximately 1.5
acres in size. The casino will be the first in the City of Sousse. No comparable
casinos are currently open in Tunisia, however, at least two other casinos are
under development in other Tunisian municipalities at distances of approximately
50 to 100 miles from Sousse.
Samara Casino Company will operate a gourmet restaurant, gift shop and
additional food and bar service on the property. The casino is going to be
situated in front of the 425-room Hotel Samara, one of three hotels that Samara
controls. The two other hotels have 125 and 275 rooms respectively.
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The Republic of Tunisia is a small country in the northern most part of
North Africa and is bordered on the north and east by the Mediterranean, on the
southeast by Libya, and on the west by Algeria. It is approximately 62,608
square miles in size or relatively the same size as Illinois. Tunisia is a
destination resort for Europeans and known for its beaches. The City of Sousse
borders the Mediterranean. Casinos are a new attraction for the tourist trade in
Tunisia.
The total number of annual tourists visiting Tunisia is estimated to be 4.5
million. The average length of stay for tourists is approximately six days.
There are approximately 20,000 hotel rooms to rent in the City of Sousse with
many more in the outlying areas. The tourist season is May 15 through October.
During this time the hotel rooms are historically, on average, 80% occupied. The
average occupancy rate year-round is 53%. The closest airport to Sousse is
approximately 30 minutes away. Tourists take a bus from the airport to Sousse.
MARKETING AND COMPETITION
The entertainment and hospitality businesses of the Company rely on the
attraction of the Grand Casino Hinckley, in the case of the Grand Hinckley Inn;
the national reputation of Las Vegas, Nevada, in the case of the Company's stage
show which is presently located at the Aladdin Hotel in Las Vegas (until
November 15, 1997); and the tourist attractions of Branson, Missouri and Pigeon
Forge, Tennessee, in the case of the Country Tonite Theatre shows in such
venues.
HINCKLEY, MINNESOTA MARKET
The Grand Hinckley Inn is located near the intersection of Interstate
Highway 35 and Minnesota State Highway 48, adjacent to Hinckley, Minnesota.
Hinckley is within ninety miles of Hayward, Wisconsin, and the Minnesota cities
of Minneapolis/St. Paul, Duluth, St. Cloud and Brainerd. Interstate Highway 35
links Minneapolis/St. Paul and Duluth, which are Minnesota's two largest
population centers, and the Highway 48 intersection is a traditional rest stop
for travelers. The intersection contains approximately 250 hotel or motel rooms
plus a number of restaurants and retail outlets. In addition, Grand Casinos owns
or has developed approximately 400 acres of land adjacent to Grand Casino
Hinckley. The Grand Hinckley Inn depends substantially on patronage by visitors
to the neighboring Grand Casino Hinckley, as well as on enhancement payments by
Grand Casinos.
Although the Grand Hinckley Inn has maintained occupancy levels exceeding
82% since opening in May 1994, there is no assurance that the adjacent casino
will continue to attract its historically high levels of patronage. The
Enterprise has begun construction of a 285 room hotel adjacent to the Grand
Casino which is anticipated to open in late 1997. This hotel will directly
compete with the Grand Hinckley Inn and could adversely impact both the
occupancy and room rates. A decrease in casino business or an additional
increase in the number of guestrooms could also adversely impact present
occupancy and room rate levels. The hotel's success has, to a large part, been
attributable to co-marketing activities conducted by both the Company and Grand
Casinos, as operator of the adjacent casino. The hotel has benefited from
referral reservations from the casino; from the purchase by the casino of rooms
to satisfy its obligations under frequent-player programs; joint advertising
themes and programs; and the marketing enhancement fee paid by the casino for
each daily occupied room. Should any of these factors change in a material
manner, the Company's success at the hotel could be adversely impacted.
BRANSON, MISSOURI MARKET
Branson, Missouri is a nationally known destination for country music
lovers. Approximately 6 million tourists visit Branson, Missouri each year,
lured by its attractive geography and climate, as well as by its substantial
number of family-oriented musical and show theaters. The area contains
approximately 33 theaters providing a wide range of family entertainment for all
ages.
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The Company attracts "walk up" patrons (approximately 85% of total sales),
both through local media advertising and "word-of-mouth", and markets to
pre-arranged bus tours (approximately 15% of total sales). Although monthly
revenues in fiscal 1996 have increased significantly over comparable periods in
fiscal 1995, the number of competing theaters and number of shows could at some
point attract ticket buyers away from the Company's theater. Also, other area
tourist attractions could limit the growth or even decrease ticket sales. In
addition, other geographic areas such as Myrtle Beach, South Carolina and
Gatlinburg, Tennessee are currently actively seeking to increase their tourist
bases, which could, at some point, negatively impact the number of annual
visitors to Branson. The Country Tonite Show playing at the Company's theater,
while having won major awards could be duplicated by a competing theater with
possible adverse consequences to the Company. Finally, there is no assurance
that the morning show, "Golden Girls", will be successful.
LAS VEGAS, NEVADA MARKET
The Company's Country Tonite stage show presently plays at the Aladdin
Hotel. The Company believes that the show competes effectively in its highly
competitive environment with other similar entertainment in Las Vegas on the
basis of its quality and the popularity of its country theme. To some extent,
the level of show patronage also depends on business levels at the Aladdin. The
Company has received notice that, effective November 15, 1997, the Country
Tonite Show's contract with the Aladdin Hotel has been cancelled due to the
rehabilitation of the Aladdin Hotel. The Company is seeking to obtain a new
venue for the Country Tonite Show in Las Vegas. Failure to locate such a new
venue could have a material adverse effect on the Company's consolidated
operating income. Numerous individual and group acts and production casts
operate in Las Vegas, competing for tourist expenditures.
PIGEON FORGE, TENNESSEE MARKET
The Company's Country Tonite Show added a venue in Pigeon Forge, Tennessee,
in March 1997. This is a new market for the Company's award winning Country
Tonite Show. Currently, eight family oriented musical and show theaters are
operating in the Pigeon Forge area. It is likely that additional theaters will
open in the future. Although the Pigeon Forge area draws approximately twice the
number of tourists (approximately 12 million annually) as the Branson, Missouri
area, there are no assurances that the Pigeon Forge show will duplicate the
success of the Las Vegas and Branson shows. The theater will compete for the
tourist dollar against other theater venues and other forms of family
entertainment in the Pigeon Forge area.
POKAGON TRIBAL AREA MARKET
The Pokagon Indian tribe does not have a designated reservation but has been
assigned certain service areas in northern Indiana and southwestern Michigan
within which one or more casinos may be constructed subject to the approval of
various regulatory authorities. In May 1996, the Pokagon Band announced the
selection of a site in the New Buffalo township for its proposed Michigan
service area. Although the Governor of Michigan signed a compact with the
Pokagon Tribe in September 1995, the Michigan legislature failed to approve the
compact as of August 1997. The compact is expected to be resubmitted for
legislative approval in the fall of 1997. Until the compact is approved, no
timetable for development is determinable. The Company expects eventual approval
of the compact as Michigan already has Class III gaming with seven other tribes.
Although 13 million people reside within 150 miles of the service areas, the
planned casino(s) could encounter significant competition from existing
riverboat casinos now operating in Illinois and Indiana. Likewise, there is a
possibility that other Native American land-based casinos could be developed,
and which could provide substantial competition to the Pokagon casino(s). In
either event, while the Company will have only a minimal capital investment and
related risk in the Pokagon venture, significant competition could severely
reduce the Company's anticipated future management fee income.
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EMPLOYEES
As of August 31, 1997, the Company employed 17 employees at its headquarters
in Ocean Springs, Mississippi; 65 employees at the Grand Hinckley Inn; 104
employees at the Country Tonite Theatre; 40 employees at the Country Tonite
production show in Las Vegas and 94 in Pigeon Forge. None of the Company's
employees are represented by a union, and management considers its labor
relations to be good.
REGULATION AND LICENSING OF GAMING ACTIVITY
The Company is not actively engaged in gaming and is not currently subject
to gaming regulations and licensing. However, the Company has the right to
receive fees based on the casino management fees paid to Harrah's by the Pokagon
Band, and a wholly owned subsidiary, Casino Resource Corporation Tunisia, S.A.,
has signed an agreement to lease and operate a casino in Sousse, Tunisia with an
anticipated opening date in October 1997. The Company will be required to apply
for and obtain gaming licensing applications with the National Indian Gaming
Commission ("NIGC") in connection with the Pokagon project. To date, preliminary
background information has been submitted to the NIGC. The Company is presently
seeking to obtain all required Tunisian licenses.
INDIAN GAMING REGULATION
INDIAN GAMING REGULATORY ACT AND TRIBAL/STATE COMPACTS. Gaming on Indian
lands within the United States is authorized by the Indian Gaming Regulatory Act
(the "IGRA"), a federal statute enacted in 1988. The IGRA provides for three
classes of gaming. Class I gaming consists of non-commercial social games played
solely for prizes of minimal value or traditional forms of Indian gaming, and is
subject to the exclusive jurisdiction of the applicable Indian tribe. Class II
gaming includes bingo, pulltabs and non-banking card games that are already
permitted in a state, and is subject to the concurrent jurisdiction of the
applicable Indian tribe. Class III gaming is a residual category composed of all
forms of gaming that are not Class I or Class II gaming, including casino style
gaming.
The IGRA provides that before tribes can engage in Class III gaming in a
particular state, the tribe must negotiate a "tribal/state compact" with that
state to regulate such gaming. Under the IGRA, the scope of Class III gaming in
which tribes can engage in a particular state depends on the state's "public
policy" towards such gaming. The courts have developed a shorthand test to
determine a state's public policy, which is expressly incorporated in the IGRA.
If a state permits Class III gaming by any person, organization or entity in the
state, whether or not such gaming is subject to restrictive regulations, then
the state's public policy toward such gaming is deemed permissive and the state
must negotiate a compact with an Indian tribe in good faith at the request of
the tribe. If it does not, the tribe would have the right to file a "bad faith
lawsuit" and ultimately, if the court found that the state had refused to
negotiate in good faith and a compact still could not be negotiated, the
Secretary of the Interior could authorize procedures to conduct Class III gaming
in that state without a state-negotiated compact.
The terms of the tribal/state compacts negotiated pursuant to the IGRA vary
from state to state, and may vary from tribe to tribe within a state. At least
23 states (Arizona, California, Colorado, Connecticut, Idaho, Iowa, Kansas,
Louisiana, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New
Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Dakota,
Washington and Wisconsin) have signed tribal/state compacts with Indian tribes
that permit certain types of Class III gaming on Indian land. (A compact has
been reached by the Pokagon Band with the Governor of Michigan, but such compact
has not received the necessary ratification of the State's legislature.) Changes
in state gaming laws may limit the types of gaming that are eligible for
tribal/state compacts. Certain states have resisted entering into or
renegotiating existing tribal/state compacts, and tribal/state compacts have
been the subject of litigation in several states, including Alabama, California,
Florida, Kansas, Louisiana, Michigan, Minnesota, Mississippi, New York, North
Carolina, Rhode Island, Texas, Washington and Wisconsin. The Eleventh Circuit
Court of Appeals and several federal courts have held that the Eleventh
Amendment to the United States Constitution immunizes states from suit by Indian
tribes in federal court
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without the state's consent. Therefore, in these jurisdictions, Indian tribes
may not have a forum to compel a state to negotiate a tribal/state compact.
Several other Circuit Courts have, however, held otherwise. The United States
Supreme Court has agreed to review the decision of the Eleventh Circuit Court of
Appeals and will likely render a decision in 1997. The outcome of such decision,
and its effect on the Company, is uncertain.
In addition, because portions of the IGRA have been the subject of
controversy between the Indian tribes and governors in a number of states, the
Senate Committee of Native American Affairs proposed amendments to the IGRA in
1994. Those amendments, however, were rejected by tribal leaders and others. In
response, the Senate Committee proposed new amendments to the IGRA in March
1995. In addition, several bills to amend the IGRA have been introduced in the
House. It is unknown whether or when these proposed amendments will be proposed
or enacted and, if enacted, their effects on such activities. Even where tribes
and states have negotiated a compact, any changes in the IGRA may have a
material effect on how gaming on tribal lands will be conducted.
MANAGEMENT CONTRACTS. The NIGC has adopted regulations pursuant to the IGRA
that govern the submission requirements for and content of management contracts
with Indian tribes. A management contract has no legal effect until it is
approved by the Chairman of the NIGC. The NIGC regulations provide detailed
requirements as to certain provisions which must be included in management
contracts, including a term not to exceed five years, except that upon request
of a tribe, a term of seven years may be allowed by the NIGC Chairman, if the
Chairman is satisfied that the capital investment and income projections for the
gaming facility require the additional time. Further, the fee received by the
manager of a gaming facility may not exceed 30% of the net revenues, except that
a fee in excess of 30% and up to of 40% of net revenues may be approved, if the
NIGC Chairman is satisfied that the capital investment and income projections
for the gaming facility require the additional fee. The NIGC has the power to
require contract modifications under certain circumstances or to void a contract
if the management company fails to comply with applicable laws and regulations.
In addition to ensuring that a management contract contains certain terms,
the Chairman of the NIGC may disapprove a management contract if it is
determined that the management contractor's prior activities, criminal record,
if any, or reputation, habits and associations pose a threat to the public
interest or create a danger of illegal practices, or that such contractor has
interfered with or unduly influenced the tribal governmental decision-making
process. The NIGC also requires that certain information pertaining to persons
and entities with a financial interest in, or having management responsibility
for, a management contract be disclosed for purposes of a suitability review.
This is expected to include the Company by virtue of its percentage consulting
fee. The NIGC regulations provide that each of the 10 persons who have the
greatest direct or indirect financial interest in the management contract must
be found suitable in order for the management contract to be approved by the
NIGC. The NIGC regulations provide that any entity with a financial interest in
a contract must be found suitable, as must the directors and 10 largest
shareholders (or owners of 5% or more of issued and outstanding stock) of such
entities in the case of a corporate entity, or the 10 largest holders of
interest in the case of a trust or partnership. The Chairman of the NIGC may
reduce the scope of information to be provided by institutional investors.
Specifically, the Company, its directors, persons with management
responsibilities and certain of the Company's owners, must provide background
information and be investigated by the NIGC and be found suitable to be
affiliated with a gaming operation in order for the management contract to be
approved by the NIGC. At any time, the NIGC has the power to investigate and
require the finding of suitability of any person with a direct or indirect
interest in a management contract, as determined by the NIGC. The Company must
pay all fees associated with background investigations by the NIGC. The NIGC is
responsible for conducting the requisite background investigation on the
foregoing individuals and entities in the case of Class II gaming operations;
the applicable state gaming agency and tribe are responsible for conducting the
background investigation with respect to Class III gaming operations and then
providing its findings to the NIGC. Generally, the applicable tribal/state
compact will delineate responsibilities and issues relating to background checks
for Class III operations.
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<PAGE>
The NIGC regulations require that background information as described above
must be submitted for approval within 10 days of any proposed change in
financial interest in a management contract. The NIGC regulations do not address
any specialized procedures for investigations and suitability findings in the
context of publicly held corporations. If, subsequent to the approval of a
management contract, the NIGC determines that any of its requirements pertaining
to the management contract have been violated, it may require the management
contract to be modified or voided, subject to rights of appeal. In addition, any
amendments to the management contract must be approved by the NIGC.
The NIGC regulations provide that the management contract must be
disapproved if the NIGC determines that: (a) any person with a direct or
indirect financial interest in, or having management responsibility for, a
management contract (i) has been convicted of a felony or any misdemeanor gaming
offense; (ii) if the person's prior activities make them unsuitable to be
connected with gaming; (iii) is an elected member of the governing body of a
tribe that is party to the management contract; or (iv) has knowingly provided
materially false statements to the NIGC or a tribe or has refused to respond to
questions from the NIGC; (b) the management contractor has attempted to unduly
interfere with or influence tribal decisions relating to the gaming operation or
has deliberately or substantially failed to follow the management contract and
applicable tribal ordinances; or (c) a trustee would not approve the management
contract.
In addition to requirements governing management contracts and submissions,
the regulations require each tribe to enact an ordinance authorizing and setting
out standards for the conduct of gaming on its lands, which must be approved by
the NIGC. The ordinance must mandate the tribe to conduct background
investigations and issue licenses to key employees and primary management
officials employed by the gaming enterprise, submit annual independent audits to
the NIGC, and pay a variable user fee to the NIGC. The NIGC also has extensive
access, investigatory monitoring, compliance and enforcement powers to ensure
that the management contractor, the tribe and the gaming enterprise comply with
its regulations.
The NIGC has only recently been provided the regulatory authority to approve
management contracts. It is not yet clear how this authority interacts with the
statutory rights of approval of the Bureau of Indian Affairs (the "BIA") for
contracts between Indian tribes and non-Indians. Pursuant to BIA regulations,
contracts between non-Indians and Indian tribes, which do not adhere to certain
statutory requirements, are void. At present, it is unclear as to whether and
how the BIA intends to assert jurisdiction to approve collateral agreements
related to management contracts (such as promissory notes) or whether the NIGC
will have approval authority over such collateral agreements. Pursuant to
current procedures, all such documents are to be submitted to the NIGC, which
will then determine whether review and approval resides with the NIGC or the
BIA.
TUNISIA GAMING REGULATION
The Company's proposed casino venture in Tunisia is subject to laws and
regulations affecting the ownership and operation of casinos in that country. As
is inherent in international operations, the Company's proposed venture is
subject to the risks of unpredictable and inconsistent regulatory requirements,
political and economic changes and disruptions, tariffs or other restrictions on
trade, transportation and communication delays, currency fluctuations and
staffing difficulties.
PROPERTIES
The Company's owned or leased properties include principally the Grand
Hinckley Inn, the Country Tonite Theatres in Branson and Pigeon Forge, the
Company's executive offices and a residential property. The Grand Hinckley Inn
is a 154-room, upscale hotel owned by the Company adjacent to the Grand Casino
Hinckley near Hinckley, Minnesota. It is situated on 7.5 acres of real estate
leased at a cost of $1 per annum from Grand Casinos. The 2,000-seat Country
Tonite Theatre in Branson, Missouri is owned by the Company, including
underlying real estate of 10.7 acres. The 1,500-seat Country Tonite Theatre in
Pigeon Forge, Tennessee is leased by the LLC of which the Company is the
majority partner by virtue of to
27
<PAGE>
its 60% investment. The Company leases, pursuant to a five-year lease, executive
office space in Ocean Springs, Mississippi at a rate of $73,500 per annum. The
Company owns a residence in Ocean Springs, Mississippi which is leased to a
principal of Monarch at a below-market rate. The Company leases a 42,000 square
foot casino resort in Tunisia pursuant to a three-year lease (with two,
three-year renewal options) providing for base rent of $560,000 plus value added
taxes (with a 10% yearly escalation plus a scaled percentage rental based on
gross gaming revenues of the casino).
In addition, the Company owns several small lots and real estate parcels in
Wisconsin, which it is attempting to sell. Proceeds, if any, from the sale are
not expected to be material.
Under a Marketing Enhancement Agreement, entered into with the Tribal
Commission of the Mille Lacs Band of Ojibwe Indians (owners of the Grand Casino
Hinckley) and Grand Casinos, the Company receives a $20 fee per night per
occupied room. The Company recognized approximately $982,000 and $925,000 from
the marketing subsidy in 1996 and 1995, respectively. In return for the
marketing enhancement fee, the hotel has entered into a revenue-sharing plan
with the casino, which requires that 50% of all room revenues above a defined
cumulative threshold (up to the amount of marketing subsidy paid to the hotel)
be paid to the casino. The cumulative threshold was exceeded in fiscal 1995.
Payments due under the revenue-sharing plan totaled $786,000 and $361,000 in
1996 and 1995, respectively. Payments to Grand under this windfall profit
sharing agreement for fiscal 1997 will vary based on revenues and the change, if
any, in the operating cost threshold. The Company and the Tribal Commission of
the Mille Lacs Band have entered into an agreement regarding future ownership of
the hotel. The Tribal Commission has the unilateral right to purchase the hotel
on the anniversary date of its initial occupancy (May 1994) in each of years
2001 through 2006 at a cost equivalent to the original development cost of the
hotel plus the depreciated cost of personal property and all inventories less
$450,000. Conversely, in the event that the Tribal Commission allows the
construction of more than 500 hotel or equivalent rooms on property owned by the
Tribal Commission or Grand, the Company has the right to require the Tribal
Commission to purchase the hotel at the cost stated above.
The Company has guaranteed rent payments, totaling $360,000 per year for up
to five years, of its 60% owned joint venture, Country Tonite Theatre, L.L.C.,
commencing March 1, 1997.
LEGAL PROCEEDINGS
The Company is party to various legal proceedings as described in its Annual
Report on Form 10-KSB for the year ended September 30, 1996. There have been no
further developments regarding such proceedings during the nine months ended
June 30, 1997, except as described below.
The Company commenced an arbitration action with the Arbitration Association
in Minneapolis, Minnesota against Cunningham, Hamilton and Quiter, PA (CHQ), the
architect it retained in connection with construction of the Biloxi Star
Theater. On December 30, 1994, the architect firm CHQ commenced a suit in a
Mississippi State Court seeking a foreclosure on a mechanics lien it had filed
on the Biloxi Theater project in the amount of $321,000 which sum the Company
escrowed. On December 26, 1996, the Arbitration Association announced the
Company was entitled to an award of approximately $142,000, which sum was a
portion of previously escrowed $321,000. The decision resulted in a gain to the
Company of approximately $117,000.
In 1995, a suit was brought against the Company in Federal District Court of
New Jersey, which venue was later transferred to the Federal District Court for
Southern Mississippi. Plaintiff (Gelb Productions, Inc, a New Jersey
corporation) asserts it had a contract with Company to provide eight
professional boxing events at the Company's former Biloxi Star Theater. The
complaint was thereafter amended by plaintiff to reflect additionally
allegations that defendant tortuously harmed plaintiff's business reputation and
maliciously interfered with existing and prospective economic relationships. The
total claims asserted are for $500,000 in compensatory damages, punitive
damages, and attorney's fees and additional costs and other relief the court may
deem just and proper. The Company's general liability insurance carrier has
taken up the partial defense of the Company.
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<PAGE>
James and Prudence Barnes, two former officers of a subsidiary of the
Company have brought suit in State District Court, Clark County, Nevada against
the Company in connection with their employment termination in June 1995. No
specific amount of damages has been claimed, however the plaintiffs have
informally indicated recently that they would entertain a settlement offer of
between $250,000 and $350,000. The Company intends to vigorously defend itself
in this matter.
In March 1996, PDC, a Minnesota limited liability company, and two of its
officers filed suit against the Company, Harrah's Entertainment and Monarch
Casinos, in the Fourth Judicial District Court of Minnesota and Michigan, which
venue was later dropped, alleging defamation, violation of the Lanham Act,
violation of the Michigan Consumer Protection Act, tortuous interference with
its business relations and prospective economic advantage, as well as false
light invasion of privacy in connection with the Pokagon Indian Gaming Award.
Under the Lanham Act, Plaintiffs are claiming a right to treble damages. The
plaintiff seeks compensatory damages and has not claimed a specific amount of
damages, but claim such damages exceed $50,000. The plaintiff also seeks
recovery of their attorney's fees. The Company's general liability carrier has
taken up the defense of the Company. The Company intends to vigorously defend
itself in this matter.
On November 13, 1995, Casino Resorts, Inc., a Minnesota Corporation,
commended an action in the State District Court for the Fourth Judicial District
of Minnesota against Monarch and the Company alleging breach of contract against
Monarch and tortuous interference with a contractual business relationship
against the Company. The plaintiff seeks compensatory damages and has not
claimed a specific amount of damages, but claim such damages exceed $50,000. The
plaintiff also seeks reimbursement of costs and expenses. This matter came
before the Fourth Judicial District Court of Minnesota, on December 9, 1996, for
hearing on motions by the Company and Monarch for summary judgment. On January
22, 1997, the Company's motion for summary judgment on plaintiff's claim of
tortuous interference was granted and plaintiff's claim against the Company was
dismissed. Additionally, Monarch's motion of summary judgment on plaintiff's
claim for breach of contract was granted and plaintiff's claim against it was
dismissed. Casino Resorts, Inc. filed an appeal with the Minnesota Court of
Appeals on May 7, 1997 claiming that there are factual issues, which must be
resolved by a jury. The Company intends to vigorously defend itself in this
matter.
The Company has received notice that the action of Cunningham, Hamilton,
Quiter, P.A. against John J. Pilger (CEO of the Company) in Jackson County
Circuit Court, Mississippi originally set in abeyance pending completion of
arbitration proceedings, is now reconstituted. Cunningham alleges that the
Company owes CHQ approximately $40,000 for services rendered in 1994. The
Company denies these charges and plans to vigorously defend itself in this
matter.
SECURITIES ELIGIBLE FOR FUTURE SALE
There are 10,043,364 shares of Common Stock issued and outstanding as of the
date hereof, of which, in addition to the 1,075,500 shares registered hereby,
8,368,496 shares are currently held by the public and are freely tradable and
1,674,868 shares are currently eligible for resale under Rule 144. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the then prevailing market price.
Holders of restricted securities must comply with the requirements of Rule
144 in order to sell their shares in the open market. In general, under Rule
144, as currently in effect, any person (or persons whose sales are aggregated)
who has beneficially owned his or her restricted shares of Common Stock for at
least one year (as of the date of this Prospectus) would be entitled to sell in
the open market, within any three-month period, a number of shares that does not
exceed the greater of (i) 1 % of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume reported on the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain limitations on manner of sale, notice
requirements and availability of current public information about the Company.
Such volume and other limitations also apply to shares held by affiliates,
whether restricted shares or not. Non-affiliates who have held their restricted
shares for two years are entitled to
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<PAGE>
sell their shares under Rule 144(R) without regard to any of the above
limitations, provided they have not been affiliates for the three months
preceding such sale.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 35,000,000 shares of capital stock,
including 30,000,000 shares of Common Stock, of which 10,043,364 shares are
outstanding as of the date hereof and 5,000,000 shares of Preferred Stock, of
which no shares are outstanding as of the date hereof.
Holders of Common Stock are entitled to receive such dividends as are
declared by the Board of Directors of the Company out of funds legally available
therefor. The Company has not declared or paid any cash dividends on its capital
stock since its incorporation and does not intend to pay any cash dividends in
the foreseeable future. In the event of any liquidation, dissolution or
winding-up of the Company, the holders of shares of Common Stock would be
entitled to receive a PRO RATA share of the net assets of the Company remaining
after payment, or provision for payment, of the debts and other liabilities of
the Company. There is no assurance, however, that under such circumstances there
would be any net assets of the Company remaining for such a PRO RATA
distribution to holders of shares of the Common Stock after the payment, or
provision for payment, of the debts and other liabilities of the Company.
Holders of shares of the Common Stock are entitled to one vote per share in
all matters to be voted upon by shareholders. Because there is no cumulative
voting for the election of directors, the holders of shares entitled to exercise
more than 50% of the voting rights in an election of directors are able to elect
all of the directors. Holders of shares of the Common Stock have no preemptive
rights to subscribe for or to purchase any additional shares of Common Stock, or
other obligations convertible into shares of Common Stock, which may hereafter
be issued by the Company.
Federal and various state gaming authorities require certain shareholders of
a company seeking a gaming license to be investigated and to have such
shareholder's suitability determined by the gaming authority. If a gaming
authority has reason to believe that such ownership may be inconsistent with
declared policy of the state, it may deny an application for a license. By way
of illustration, in the State of Nevada, a corporation could be subject to
disciplinary action by the Nevada Gaming Commission if, after it receives notice
that a person is unsuitable to be a shareholder, it (i) pays the unsuitable
person any dividends or interest, (ii) recognizes the exercise, directly or
indirectly, of any voting rights in its securities by the unsuitable person,
(iii) pays the unsuitable person any remuneration in any form for services
rendered or (iv) fails to pursue all lawful efforts to require the unsuitable
person to divest the voting securities, including, if necessary, the immediate
purchase of voting securities for cash at fair market value.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock, $.01
par value, in one or more classes or series. The Board of Directors has the
authority to determine the designation and number of shares in each class or
series, to fix the dividend, redemption, liquidation, retirement, conversion and
voting rights, if any, of each class or series, and to set any other rights and
preferences thereof. No shares of Preferred Stock have been issued by the
Company. If issued, shares of Preferred Stock may (i) have disproportionately
high voting rights or class voting rights compared to shares of Common Stock,
(ii) be convertible into shares of Common Stock and (iii) rank prior to shares
of Common Stock as to the payment of dividends and the distribution of assets
upon liquidation or dissolution. Furthermore, the issuance of Preferred Stock
could have any one or more of the following effects: (i) entrenching the
Company's Board of Directors, (ii) depriving the then current shareholders of a
tender offer to purchase their shares of Common Stock at a premium over the
Common Stock's market price, or (iii) encouraging an attempt, through the
acquisition of a substantial number of shares of Common Stock, to acquire
control of the Company with a view to effecting a merger, sale, exchange of
assets or similar transaction. The
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<PAGE>
Board of Directors, without shareholder approval, may also issue shares of
Preferred Stock with voting or conversion rights, which could adversely affect
the voting power of the Common Stock.
REGULATORY PROVISIONS
The Company's Restated Articles of Incorporation, as amended (the
"Articles"), provide that no investor may become either a holder of 5% or more
of the Company's stock or one of the 10 largest shareholders of the Company
without first agreeing to consent to a background investigation, provide a
financial statement and respond to questions from gaming authorities.
Furthermore, all shares of the Company's capital stock held by a beneficial
owner will be subject to redemption if (a) such beneficial owner refuses, upon
request of the Board or any gaming authority having jurisdiction over the
Company, to provide any of the foregoing or a) such beneficial holder's holdings
of capital stock either alone or together with the capital stock holdings of any
other beneficial holder of the Company's capital stock may, in the judgment of
the Board of Directors, result in (i) the disapproval, modification or
non-renewal of any gaming management contract (whether solely or by shared
management) or (ii) the disapproval, loss, modification, non-renewal or
non-reinstatement of any license, franchise, approval or consent from a gaming
authority or other governmental agency with respect to the conduct of any
portion of the business of the Company where such license, franchise approval or
consent is conditioned upon holders of capital stock meeting certain criteria.
The restrictions described immediately above on certain holders of the
Company's Common Stock may discourage the acquisition of large blocks of the
Company's securities, may depress the price of the Common Stock and have an
anti-takeover effect. The Company is not aware of any current or planned effort
on the part of any party to acquire control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise, or to
change the Company's Board of Directors or management. Similar to the
anti-takeover effect described above, it is possible that certain large
institutional investors may be opposed to investing in the Company's stock if
any such investment would subject them to requirements to provide information to
gaming authorities.
Any required redemption by the Company of shares of its Common Stock held by
a shareholder who violates the foregoing restrictions on ownership may require a
cash payment to such shareholder, which payment may have a negative effect on
the liquidity of the Company. Furthermore, such redemption requirement could (i)
cause current or future state or federal gaming authorities to materially
restrict or prohibit certain persons from owning the Company's securities; (ii)
require certain holders of the Company's securities to liquidate their holdings
at a time when market conditions are not favorable or at a cost that is not
favorable, to such holders; or (iii) due to the potential volume of such
dispositions, materially depress the market value of the Company's securities.
In addition, at the election of the Company, any shareholder who is required
to redeem its securities may receive redemption securities wholly or partially
in lieu of a cash payment. "Redemption Securities" are any debt or equity
securities of the Company, any subsidiary, any other corporation or any
combination thereof, having terms and conditions approved by the Board of
Directors which, together with any cash payment to be paid as part thereof,
equal the fair market value of the securities to be redeemed on the date the
notice of redemption is given, as determined by a nationally recognized
investment banking firm selected by the Board of Directors. Such redemption
securities may be securities, which have not been registered under the
Securities Act and therefore may not be eligible for trading in the public
market. See "Risk Factors--Potential Anti-Takeover Effects of Charter Provisions
and Minnesota Law" and "--Restrictions on Stock Ownership" and
"Business--Regulation and Licensing of Gaming Activity."
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<PAGE>
CLASSIFIED BOARD AND RELATED PROVISIONS
The Articles and Bylaws contain provisions which divide the Board of
Directors into three classes and provide certain procedures for the removal of
directors, the filling of vacancies on the Board and amending the Articles and
Bylaws.
The Articles provide that the Board of Directors be divided into three
classes of directors serving staggered three-year terms, with each class being
as nearly equal in number as possible. As a result, approximately one-third of
the members of the Board of Directors will be elected each year. Initially,
members of all three classes were elected at the annual meeting of shareholders
in 1996. Commencing with the election of directors at the annual meeting of
shareholders in April, 1997, each class of directors will be elected to a
three-year term.
The Articles also provide that directors may be removed for cause by vote of
the holders of a majority of the outstanding shares entitled to vote or, other
than for cause, by an 80% shareholder vote. Generally, Minnesota law provides
that, unless otherwise provided in a corporation's articles of incorporation or
bylaws, directors may be removed, with or without cause by the vote of the
holders of the proportion or number of outstanding shares that would be
sufficient to elect them. In addition, Minnesota law provides that a director
may be removed, with or without cause, by vote of the majority of the remaining
directors present.
Under the Articles and Bylaws, a director elected to fill a vacancy on the
Board of Directors shall serve until a successor is elected at the next
regularly scheduled election for the class of directors in which the vacancy
occurred. Vacancies on the Board of Directors may not be both created and filled
by shareholder action at the same shareholder meeting and no decrease in the
number of directors shall shorten the term of any incumbent director.
Finally, an 80% shareholder vote is required to amend, alter or adopt any
provision inconsistent with, or repeal, the classified board and related
provisions.
While the classified board and related provisions may discourage or make
more difficult a proxy contest, the removal of an incumbent board or the
assumption of control of the Company by tender offer or otherwise by a third
party, even under circumstances when such action might be beneficial to the
Company and its shareholders, the Board believes that protecting its ability to
negotiate with the proponent of an unfriendly or unsolicited attempt to gain
management control of the Company outweighs the disadvantages of discouraging
such overtures. See "Risk Factors--Potential Anti-Takeover Effects of Charter
Provisions and Minnesota Law."
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and 302A.673
of the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless voting rights are approved in a prescribed manner. A
"control share acquisition" is an acquisition, directly or indirectly, of
beneficial ownership of shares that would, when added to all other shares
beneficially owned by the acquiring person, entitle the acquiring person to have
voting power of 20% or more in the election of directors. In general, Section
302A. 673 prohibits a publicly held Minnesota corporation from engaging in a
"business combination" with an "interested shareholder" for a period of four
years after the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's voting stock.
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TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. is the transfer agent and registrar for the
Common Stock.
INDEMNIFICATION AND WAIVER OF DIRECTOR LIABILITY
The Minnesota Business Corporation Act provides that officers and directors
of the Company have the right to indemnification by the Company for liability
arising out of certain actions. Such indemnification may be available for
liabilities arising in connection with this Offering. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company, pursuant to such indemnification
provisions, the Company has been advised that, in the opinion of the Commission,
such indemnification is against public policy, as expressed in the Acts, and is
therefore, unenforceable.
The Company has adopted in its Articles a provision which limits personal
liability for breach of the fiduciary duty of its directors, to the extent
provided by Section 302A.521 of the Minnesota Business Corporation Act. Such
provision eliminates the personal liability of directors for damages occasioned
by breach of fiduciary duty, except based on the director's duty of loyalty to
the Company, liability for acts or omissions not made in good faith, liability
for acts or omissions involving intentional misconduct, liability based on
payments of improper dividends, liability based on violations of state
securities laws and liability for acts occurring prior to the date such
provision was added.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to each
Selling Shareholder for whom the Company is registering shares of Common Stock
for resale to the public. Except as indicated, no material relationships exist
between any of the Selling Shareholders and the Company nor have any such
material relationships existed within the past three years, except as set forth
below.
The sale of the Selling Shareholders' Common Stock may be effected from time
to time in transactions (which may include block transactions by or for the
account of the Selling Shareholders) in the over-the-counter market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed at market prices
prevailing at the time of sale or at negotiated prices.
<TABLE>
<CAPTION>
NUMBER
OF PERCENTAGE
SHARES(1) OF CLASS(2)
----------- -----------
<S> <C> <C>
The Gifford Fund, Ltd.(3)....................... 626,250 *
GPS Fund, Ltd.(3)............................... 383,750 *
MIT Fund Management, Ltd........................ 7,500 *
Joseph B. LaRocco............................... 7,500 *
John N. Ferrucci................................ 30,000 *
Alan R. Woinski................................. 20,000 *
Robert L. Finical............................... 500 *
-----------
Total Shares to Register........................ 1,075,500
-----------
-----------
</TABLE>
- ------------------------
* less than 1%.
(1) The share amounts set forth reflect shares owned prior to the Offering. For
purposes hereof, unless otherwise noted, it is assumed that the Selling
Shareholders will sell all the stock described in this table. However, there
is no assurance that any of the Selling Shareholders will offer for sale or
sell any or all of the Common Stock listed.
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<PAGE>
(2) Represents the percentage of the outstanding Common Stock owned before the
Offering. As noted above, it is assumed that all of such stock will be sold
by the Selling Shareholders, and as a result, each Selling Shareholder will
hold 0% of the outstanding Common Stock after the Offering.
(3) This represents an estimate of the number of shares which may be obtained by
the selling shareholder pursuant to the conversion terms of the respective
convertible debentures of such selling shareholders.
Selling Shareholders may effect such transactions by selling their Common
Stock directly to purchasers, through broker/dealers acting as agents for the
Selling Shareholders or to broker/dealers who may purchase Common Stock as
principals and thereafter resell the Common Stock from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker/dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
for whom such broker/dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker/dealer may
exceed customary commissions).
The Selling Shareholders and broker/dealers, if any, acting in connection
with such sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission received by them or any
profit on the resale of the Common Stock might be deemed to be underwriting
discounts and commissions under the Securities Act.
PLAN OF DISTRIBUTION
The shares offered by the Selling Shareholders may be sold from time to time
by the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest of the Selling Shareholders, at their sole discretion.
Such sales may be made in the over-the-counter market or otherwise at prices and
at terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The shares of Common Stock offered by the Selling
Shareholders are not being underwritten. The Company will not receive any
proceeds from the sale of any Common Stock by the Selling Shareholders. In
general, the shares may be sold by one or more of the following means: (a) a
block trade in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) an exchange distribution in accordance with the rules of such
exchange (if the securities are then listed on an exchange); and (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, broker or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Selling Shareholders in amounts to be
negotiated immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In addition, any
securities covered by this Prospectus, which qualify for sale pursuant to Rule
144 may be sold under Rule 144 rather than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Doherty Rumble & Butler, P. A., Minneapolis, Minnesota.
EXPERTS
The Consolidated Financial Statements of the Company incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report thereon incorporated herein by reference. The financial statements
are incorporated in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 12
Business.................................................................. 18
Securities Eligible for Future Sale....................................... 29
Description of Securities................................................. 30
Selling Shareholders...................................................... 33
Plan of Distribution...................................................... 34
Legal Matters............................................................. 34
Experts................................................................... 34
</TABLE>
CASINO RESOURCE CORPORATION
1,075,000 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
OCTOBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The expenses of the offering, which are to be borne by the Company, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 590.71
NASD registration fee........................................... 605.20
Legal services.................................................. 10,000
Accounting services............................................. 5,000
Blue Sky fees and expenses...................................... 500.00
Transfer Agent Fees............................................. --
Printing........................................................ 5,000
Miscellaneous................................................... 3,304.09
---------
Total....................................................... $25,000.00
---------
---------
</TABLE>
- ------------------------
* All of the above expenses except the registration fee are estimated.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 302A.521, Minnesota Statutes, the Company is required to
indemnify its directors, officers, employees and agents against liability under
certain circumstances, including liability under the Securities Act of 1933, as
amended (the "Act"). Section 3.02 of the Company's Articles of Incorporation
contains substantially similar provisions. The general effect of such provisions
is to relieve the directors and officers of the Company from personal liability
which may be imposed for certain acts performed in their capacity as directors
or officers of the Company, except where such persons have not acted in good
faith.
As permitted under Minnesota Statutes, the Articles of Incorporation of the
Company provide that directors shall have no personal liability to the Company
or its shareholders for monetary damages arising from breach of the director's
duty of care in the affairs of the Company. Minnesota Statutes do not permit
elimination of liability for breach of a director's duty of loyalty to the
Company or with respect to certain enumerated matters, including payment of
illegal dividends, acts not in good faith and acts resulting in an improper
personal benefit to the director.
II-1
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
4.1 $300,000 Convertible Debenture...............................................................
4.2 $500,000 Convertible Debenture...............................................................
4.3 Form of Registration Rights Agreement........................................................
4.4 Form of Debenture Subscription Agreement.....................................................
4.5 Common Stock Purchase Warrant (The Gifford Fund, Ltd.).......................................
4.6 Common Stock Purchase Warrant (G.P.S. Fund, Ltd.)............................................
4.7 Common Stock Purchase Warrant (Joseph B. LaRocco)............................................
4.8 Common Stock Purchase Warrant (Intercontinental Holding Company, Ltd.).......................
5.1 Opinion and Consent of Counsel...............................................................
10.1 $800,000 Lyle Berman Family General Partnership Loan Agreement...............................
10.2 $800,000 Promissory Note.....................................................................
10.3 Stock Pledge Agreement.......................................................................
10.4 Mutual Release Agreement.....................................................................
10.5 $1,000,000 SeuMar Ventures, L.L.C. Loan Agreement............................................
10.6 $1,000,000 Term Note.........................................................................
10.7 Guaranty Agreement...........................................................................
10.8 Matt Walker Consulting Agreement.............................................................
23.1 Consent of BDO Seidman, LLP..................................................................
23.2 Consent of Counsel (contained in Exhibit 5.1)................................................
24 Power of Attorney (included in the signature page to this Registration Statement)............
</TABLE>
II-2
<PAGE>
UNDERTAKINGS
(a) RULE 415 OFFERING.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration or any material
change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in the post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints John J. Pilger and Maurice P. Gaudet, each or
either of them, his or her true and lawful attorney-in-fact and agents, with
full power of substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same with all exhibits thereto, and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Ocean Springs, State of Mississippi on October ,
1997.
<TABLE>
<S> <C> <C>
CASINO RESOURCE CORPORATION
Date: October , 1997 By: /s/ JOHN J. PILGER
-------------------------------------------
John J. Pilger, Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE
------------------------------------------------------
<S> <C>
/s/ JOHN J. PILGER
-------------------------------------------
John J. Pilger, Chief Executive Officer, President
and Chairman of the Board of Directors
/s/ MAURICE GAUDET
-------------------------------------------
Maurice Gaudet, Chief Financial Officer and Chief
Accounting Officer
/s/ NOREEN POLLMAN
-------------------------------------------
Noreen Pollman, Vice President of Operations and
Director
/s/ ROBERT J. ALLEN
-------------------------------------------
Robert J. Allen, Vice President of Entertainment and
Director
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE AND TITLE
------------------------------------------------------
<S> <C>
/s/ WILLIAM S. LUND
-------------------------------------------
William S. Lund, Director
/s/ JOHN W. STEINER
-------------------------------------------
John W. Steiner, Director
/s/ DENNIS EVANS
-------------------------------------------
Dennis Evans, Director
/s/ DR. TIMOTHY MURPHY
-------------------------------------------
Dr. Timothy Murphy, Director
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
TO FORM S-3
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1 $300,000 Convertible Debenture
4.2 $500,000 Convertible Debenture
4.3 Form of Registration Rights Agreement
4.4 Form of Debenture Subscription Agreement
4.5 Common Stock Purchase Warrant (The Gifford Fund, Ltd.)
4.6 Common Stock Purchase Warrant (G.P.S. Fund, Ltd.)
4.7 Common Stock Purchase Warrant (Joseph B. LaRocco)
4.8 Common Stock Purchase Warrant (Intercontinental Holding Company, Ltd.)
5.1 Opinion and Consent of Counsel
10.1 $800,000 Lyle Berman Family General Partnership Loan Agreement
10.2 $800,000 Promissory Note
10.3 Stock Pledge Agreement
10.4 Mutual Release Agreement
10.5 $1,000,000 SeuMar Ventures, L.L.C. Loan Agreement
10.6 $1,000,000 Term Note
10.7 Guaranty Agreement
10.8 Matt Walker Consulting Agreement
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Counsel (contained in Exhibit 5.1)
24 Power of Attorney (included in the signature page to this Registration Statement)
</TABLE>
<PAGE>
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH
LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
CONVERTIBLE DEBENTURE DUE September 10,1998
September 10,1997
$300,000
Number SEPT-1997-102
FOR VALUE RECEIVED, CASINO RESOURCE CORPORATION, a Minnesota corporation
(the "Company"), hereby promises to pay to G.P.S. FUND. LTD. or
registered assigns (the "Holder") on September 10, 1998, (the "Maturity
Date"), the principal amount of THREE HUNDRED THOUSAND Dollars ($300,000)
U.S., and to pay interest on the principal amount hereof, in such
amounts, at such times and on such terms and conditions as are specified
herein.
Article 1. INTEREST
The Company shall pay interest commencing on the Closing Date (defined
hereinafter) on the unpaid principal amount of this Debenture (the
"Debenture") at the rate of Thirteen Percent (13.0%) per year, payable at the
time of each conversion until the principal amount hereof is paid in full or
has been converted. Interest shall be computed on the basis of a 360 day year
of 12, 30 day months. Each payment shall be paid in cash or in freely trading
Common Stock of the Company, at the Company's option. If paid in Common
Stock, the number of shares of the Company's Common Stock to be received
shall be determined by dividing the dollar amount of the interest by the then
applicable Market Price as of the interest payment date. "Market Price" shall
mean 83% of
1
<PAGE>
the average of the 5 day closing bid prices, as reported by Nasdaq, or
whatever primary exchange the Company's Common Stock may be traded on, for
the 5 trading days immediately preceding the date of conversion. If the
interest is to be paid in cash, the Company shall make such payment within 5
business days of the date of conversion. If the interest is to be paid in
Common Stock, said Common Stock shall be delivered to the Holder, or per
Holder's instructions, within 8 business days of the date of conversion. The
Debentures are subject to automatic conversion at the end of one year from
the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2. The
closing shall be deemed to have occurred on the date the funds are received
by the Company or its Counsel (the "Closing Date").
Article 2. METHOD OF PAYMENT
This Debenture must be surrendered to the Company in order for the Holder
to receive payment of the principal amount hereof. The Company shall have the
option of paying the interest on this Debenture in United States dollars or
in common stock upon conversion pursuant to Article 1 hereof. The Company may
draw a check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the Register (as
defined in Section 7.2 below). Interest and principal payments shall be
subject to withholding under applicable United States Federal Internal
Revenue Service Regulations.
Article 3. CONVERSION
Section 3.1. CONVERSION PRIVILEGE
(a) The Holder of this Debenture shall have the right, at its option, to
convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time which is before the close of business on
the Maturity Date, except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest
whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in
part, except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains outstanding on
the first anniversary of the date hereof, the unconverted portion of such
2
<PAGE>
Debenture will automatically be converted into shares of Common Stock on such
date in the manner set forth in Section 3.2.
Section 3.2. CONVERSION PROCEDURE.
(a) DEBENTURES. Upon the Company's receipt of a facsimile or original of
Holder's signed Notice of Conversion and the original Debenture to be
converted, the Company shall instruct its transfer agent to issue one or more
Certificates representing that number of shares of Common Stock into which
the Debenture, or portion thereof is convertible in accordance with the
provisions regarding conversion set forth in the conversion notice. The
Company shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) CONVERSION DATE. This Debenture may be converted at anytime 90 days
after the "Closing Date" as defined below. Such conversion shall be
effectuated by surrendering to the Company this Debenture to be converted
together with a facsimile or original of the signed Notice of Conversion
which evidences Purchaser's intention to convert the Debenture indicated. The
date on which the Notice of Conversion is effective ("Conversion Date") shall
be deemed to be the date on which the Holder has delivered to the Company a
facsimile or original of the signed Notice of Conversion, as long as the
original Debentures to be converted are received by the Company within 5
business days thereafter. As long as the Debentures to be converted are
received by the Company within 5 business days after it receives a facsimile
or original of the signed Notice of Conversion, the Company shall deliver to
the Holder, or per the Holder's instructions, the shares of Common Stock
within 8 business days of receipt of the facsimile Conversion Notice. The
"Closing Date" shall mean the day the funds are received by the Company.
(c) ISSUANCE OF COMMON STOCK. Upon the conversion of any Debentures and
upon receipt by the Company of a facsimile or original of Holder's signed
conversion notice Company shall instruct Company's transfer agent to issue
Stock Certificates with restrictive legend(s) as set forth in the
Subscription Agreement in the name of Holder (or its nominee) and in such
denominations to be specified at conversion representing the number of shares
of Common Stock issuable upon such conversion, as applicable. Company
warrants that no instructions, other than these instructions, have been given
or will be given to the transfer agent and that the Common Stock shall
otherwise be freely transferable on the books and records of Company.
(d) CONVERSION RATE. Purchaser is entitled, at its option to convert this
Debenture, plus accrued interest, at anytime 90 days after the Closing Date, at
83% of the 5 day average closing bid price, as reported by Nasdaq, or whatever
primary exchange the Company's Common Stock may be traded on, for the 5 trading
days immediately preceding the applicable Conversion Date (the "Conversion
Price"). No fractional shares or scrip representing fractions
3
<PAGE>
of shares will be issued on conversion, but the number of shares issuable
shall be rounded up or down, as the case may be, to the nearest whole share.
The Debentures are subject to a mandatory, 12 month conversion feature at
the end of which all Debentures outstanding will be automatically converted,
upon the terms set forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Company at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law
and such excess shall be returned with reasonable promptness by the Holder to
the Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock
as provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as
a shareholder of record on and after the conversion date. Upon surrender of
any Debentures that are to be converted in part, the Company shall issue to
the Holder a new Debenture equal to the unconverted amount, if so requested
in writing by Holder.
(g) Within the time period referred to above in Section 3.2(b), the
Company shall deliver a certificate for the number of shares of Common Stock
issuable upon the conversion. It shall be the Company's responsibility to
take all necessary actions and to bear all such costs to issue the Common
Stock as provided herein, including the cost for delivery of an opinion
letter to the transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 8 business days after the Conversion Date, then
in such event the Company shall pay to Holder an amount, in cash in
accordance with the following schedule, wherein "No. Business Days Late" is
defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
</TABLE>
4
<PAGE>
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized
but unissued shares of Common Stock, the provisions of this Section 3.2(g)
shall not apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall pay any amounts incurred under this Section 3.2(g) in
immediately available funds within five (5) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a
Holder's right to pursue actual damages for the Company's failure to issue
and deliver Common Stock to the Holder within 8 business days after the
Conversion Date.
(h) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Debentures by all Holders
of the entire amount of Debentures then outstanding. If, at any time Holder
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such
default being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Holder all of the shares of Common Stock which
are available, and the Notice of Conversion as to any Debentures requested
to be converted but not converted (the "Unconverted Debentures"), upon
Holder's sole option, may be deemed null and void. The Company shall provide
notice of such Conversion Default ("Notice of Conversion Default") to all
existing Holders of outstanding Debentures, by facsimile, within three (3)
business day of such default (with the original delivered by overnight or
two day courier), and the Holder shall give notice to the Company by
facsimile within five business days of receipt of the original Notice of
Conversion Default (with the original delivered by overnight or two day
courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the
amount of (N/365) x (.24) x the initial issuance price of the outstanding
and/or tendered but not converted Debentures held by each Holder where N = the
number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of
shares of Common Stock to effect conversion of all remaining Debentures. The
Company shall send notice ("Authorization Notice") to each Holder of
outstanding Debentures that
5
<PAGE>
additional shares of Common Stock have been authorized, the Authorization
Date and the amount of Holder's accrued Conversion Default Payments. The
accrued Conversion Default shall be paid in cash or shall be convertible into
Common Stock at the Conversion Rate, at the Holder's option, payable as
follows: (i) in the event Holder elects to take such payment in cash, cash
payments shall be made to such Holder of outstanding Debentures by the fifth
day of the following calendar month, or (ii) in the event Holder elects to
take such payment in stock, the Holder may convert such payment amount into
Common Stock at the conversion rate set forth in Section 3.2(d) at anytime
after the 5th day of the calendar month following the month in which the
Authorization Notice was received, until the expiration of the mandatory 36
month conversion period.
Nothing herein shall limit the Holder's right to pursue actual damages for
the Company's failure to maintain a sufficient number of authorized shares of
Common Stock.
(i) The Company shall furnish to Holder such number of prospectuses
and other documents incidental to the registration of the shares of Common
Stock underlying the Debentures, including any amendment of or supplements
thereto.
(j) The Holder is limited in the amount of this Debenture it may
convert and own. Other than the Mandatory Conversion provisions contained in
this Debenture which are not limited by the following, in no other event
shall the Holder be entitled to convert any amount of Debentures in excess of
that amount upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debenture), and (2) the number of
shares of Common Stock issuable upon the conversion of the Debentures with
respect to which the determination of this provision is being made, would
result in beneficial ownership by the Holder and its affliates of more than
4.9% of the outstanding shares of Common Stock of the Company. For purposes
of this provision to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (1) of such provision.
(k) REDEMPTION. (i) Mandatory- Upon demand from the Holder, the
Company must redeem the unconverted amount of Debenture at 120.48% of the
balance of the principal amount of the Debenture plus accrued interest if (i)
the Company fails to maintain its listing for its common stock on a major
United States stock exchange or (ii) the registration statement does not go
effective within 180 days from the Closing Date. The cash redemption must be
paid by the Company within 5 business days of receipt of written notice by
the Holder. (ii) Discretionary -
6
<PAGE>
The Company shall have the right to redeem the Debentures in whole or in part
as follows: (i) the Company may redeem at anytime at 120.48% of the balance
remaining of the principal amount of the Debenture plus any and all accrued
interest (ii) upon notice of its right to redeem the Debenture the Company
shall wire transfer the appropriate amount of funds into an escrow account
mutually agreed upon by both Company and Holder within 3 business days of
such notice. After the escrow agent is in receipt of such funds, he shall
notify the Holder to surrender the appropriate amount of Debentures. If
after 3 business days from the date the notice of redemption is received by
the Holder the funds have not been received by the escrow agent then, the
Holder shall again have the right to convert the Debenture and the Company
shall have the right to redeem the Debenture but only upon simultaneously
sending the notice of redemption to the Holder and wire transferring the
appropriate amount of funds.
Section 3.3. FRACTIONAL SHARES. The Company shall not issue
fractional shares of Common Stock, or scrip representing fractions of such
shares, upon the conversion of this Debenture. Instead, the Company shall
round up or down, as the case may be, to the nearest whole share.
Section 3.4. TAXES ON CONVERSION. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of
shares of Common Stock upon the conversion of this Debenture. However, the
Holder shall pay any such tax which is due because the shares are issued in
a name other than its name.
Section 3.5. COMPANY TO RESERVE STOCK. The Company shall reserve
the number of shares of Common Stock required pursuant to and upon the terms
set forth in Section 3(a) of the Subscription Agreement dated September of
1997, to permit the conversion of this Debenture. All shares of Common Stock
which may be issued upon the conversion hereof shall upon issuance be
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issuance thereof.
Section 3.6. RESTRICTIONS ON TRANSFER. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon
the conversion thereof may only be offered or sold pursuant to registration
under or an exemption from the Act.
Section 3.7. MERGERS, ETC. If the Company merges or consolidates
with another corporation or sells or transfers all or substantially all of
its assets to another person and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of or in
exchange for Common Stock, then as a condition of such merger,
consolidation, sale or transfer, the Company and any such successor,
purchaser or transferee shall amend this Debenture to provide that it may
thereafter be converted on the terms and subject to the
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<PAGE>
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture
might have been converted immediately before such merger, consolidation, sale
or transfer, subject to adjustments which shall be as nearly equivalent as
may be practicable to adjustments provided for in this Article 3.
Article 4. MERGERS
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assume in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to
the Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5. REPORTS
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that
it gives to its shareholders generally at the time such report or statement
is sent to shareholders.
Article 6. DEFAULTS AND REMEDIES
Section 6.1. EVENTS OF DEFAULT. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b)
the Company does not make a payment, other than a payment of principal, for a
period of 5 business days thereafter, (c) the Company fails to comply with
any of its other agreements in this Debenture and such failure continues for
the period and after the notice specified below, (d) the Company pursuant to
or within the meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the appointment of a
Custodian (as hereinafter defined) of it or for all or substantially all of
its property or (iv) makes a general assignment for the benefit of its
creditors or (v) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (A) is for relief against the Company in an
involuntary case; (B) appoints a Custodian of the Company or for ail or
substantially all of its property or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 60 days,
(e) the Company's Common Stock is no longer listed on any recognized exchange
including electronic over-the-counter bulletin board. As used in this Section
6.1, the term "Bankruptcy Law" means Title 11 of the United States Code or
any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law. A default under clause (c) above is not an
Event of Default until the holders of at least 25% of the aggregate principal
amount of the Debentures outstanding notify the Company of such default and
the Company
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<PAGE>
does not cure it within five (5) business days after the receipt of such
notice, which must specify the default, demand that it be remedied and state
that it is a "Notice of Default".
SECTION 6.2. ACCELERATION. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration, the remaining principal amount shall be due and payable
immediately.
ARTICLE 7. REGISTERED DEBENTURES
SECTION 7.1. SERIES. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order
to comply with the Securities Act of 1933 and the regulations of the
Securities and Exchange Commission promulgated thereunder. Such Debentures
are referred to herein collectively as the "Debentures". The Debentures shall
be issued in whole multiples of $5,000.
SECTION 7.2. RECORD OWNERSHIP. The Company shall maintain a register of
the holders of the Debentures (the "Register") showing their names and
addresses and the serial numbers and principal amounts of Debentures issued
to or transferred of record by them from time to time. The Register may be
maintained in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Debenture in the Register as
the sole owner of this Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this Debenture,
receive notifications with respect to this Debenture, convert it into Common
Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. REGISTRATION OF TRANSFER. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose
pursuant to Section 7.2 above (i.e., the Register). Transfers shall be
registered when this Debenture is presented to the Company with a request to
register the transfer hereof and the Debenture is duly endorsed by the
appropriate person, reasonable assurances are given that the endorsements are
genuine and effective, and the Company has received evidence satisfactory to
it that such transfer is rightful and in compliance with all applicable laws,
including tax laws and state and federal securities laws. When this Debenture
is presented for transfer and duly transferred hereunder, it shall be
canceled and a new Debenture showing the name of the transferee as the record
holder thereof shall be issued in lieu hereof. When this Debenture is
presented to the Company with a reasonable request to exchange it for an
equal principal amount of Debentures of other denominations, the Company
shall make such exchange and shall cancel this Debenture and issue in lieu
thereof Debentures having a total principal amount equal to this Debenture in
such denominations as agreed to by the Company and Holder.
Section 7.4. WORN OR LOST DEBENTURES. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or
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<PAGE>
its agent may issue a new Debenture in lieu hereof upon its surrender. Where
the Holder of this Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice
to the Company actually received by the Company before it is notified that
the Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or
verification as the Company may request.
ARTICLE 8. NOTICES
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of
the Debenture at its address as it appears on the Register or if to the
Company to its principal executive offices. The time when such notice is
sent shall be the time of the giving of the notice.
ARTICLE 9. TIME
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance
of a condition or obligation within, before or after a period of time
computed from a certain date, and such period of time ends on a Saturday or
a Sunday or a public holiday, such payment may be made or condition or
obligation performed on the next succeeding business day, and if the period
ends at a specified hour, such payment may be made or condition performed,
at or before the same hour of such next succeeding business day, with the
same force and effect as if made or performed in accordance with the terms
of this Debenture. A "business day" shall mean a day on which the banks in
New York are not required or allowed to be closed.
ARTICLE 10. WAIVERS
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion
into Common Stock.
ARTICLE 11. RULES OF CONSTRUCTION
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular,
and words of the masculine gender include the feminine and the neuter, and
when the sense so indicates, words of the neuter gender may refer to any
gender. The numbers and titles of sections contained in the Debenture are
inserted for convenience of reference only, and they neither form a part of
this Debenture nor are they to be used in the construction or interpretation
hereof. Wherever, in this Debenture, a determination of the Company is
required or allowed, such determination shall be made by a majority of the
Board of Directors of the
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<PAGE>
Company and if it is made in good faith, it shall be conclusive and
binding upon the Company and the Holder of this Debenture.
ARTICLE 12. GOVERNING LAW
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance
with the laws of the State of New York applicable to agreements that are
negotiated, executed, delivered and performed solely in the State of New York.
ARTICLE 13. ARBITRATION
The parties shall resolve any dispute arising hereunder before a panel
of three arbitrators selected pursuant to and run in accordance with the
Commercial Arbitration rules of the American Arbitration Association as such
rules may be modified or as otherwise agreed by the parties in controversy.
The arbitration shall be held in New York, New York. Each party shall bear
their own attorney's fees and costs of such arbitration. Disputes under this
Agreement as well as all of the terms and conditions of this Agreement shall
be governed in accordance with and by the laws of the State of New York. Any
judgment or award rendered by arbitration may be entered in any Court having
jurisdiction. The parties acknowledge that, in addition to any and all
damages deemed fair by the arbitrators, the award may be expanded to include,
but not be limited to, any and all court or arbitration costs, reasonable
attorney fees and any other costs or charges reasonably necessary to the
adjudication of the controversy. Nothing contained herein shall deprive any
party of the right to obtain injunctive or other equitable relief. Remedy at
law for any breach or threatened breach of this agreement being inadequate,
either party hereto is entitled to enforce the specific performance of this
agreement and to seek temporary or permanent injunctive relief without the
necessity of providing actual damages outside of the terms of this agreement.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
CASINO RESOURCE CORPORATION
By /s/ John J. Pilger
------------------------
Name: John J. Pilger
Title: Chief Executive Officer
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<PAGE>
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debentures.)
The undersigned hereby irrevocably elects, as of ____________, 199__ to
convert $ __________ of the Debentures into Shares of Common Stock
(the "Shares") of CASINO RESOURCE CORPORATION (the "Company") according
to the conditions set forth in the Subscription Agreement dated
September ____, 1997.
Date of Conversion _____________________________________________
Applicable Conversion Price_____________________________________
Number of Shares Issuable upon this conversion__________________
Signature_______________________________________________________
[Name]
Address_________________________________________________________
Phone_________________________Fax_______________________________
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<PAGE>
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
__________________________________________________________________________
(name, address and SSN or EIN of assignee)
____________________________________ Dollars ($_____________ )____________
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date:__________ Signed:_________________________________________
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
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<PAGE>
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH
LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
CONVERTIBLE DEBENTURE DUE September 9, 1998
September 9, 1997
$500,000
Number SEPT-1997-101
FOR VALUE RECEIVED, CASINO RESOURCE CORPORATION, a Minnesota corporation
(the "Company"), hereby promises to pay to THE GIFFORD FUND, LTD. or
registered assigns (the "Holder") on September 9, 1998, (the "Maturity
Date"), the principal amount of FIVE HUNDRED THOUSAND dollars ($500,000)
U.S., and to pay interest on the principal amount hereof, in such amounts,
at such times and on such terms and conditions as are specified herein.
Article 1. INTEREST
The Company shall pay interest commencing on the Closing Date (defined
hereinafter) on the unpaid principal amount of this Debenture (the
"Debenture") at the rate of Thirteen Percent (13.0%) per year, payable at the
time of each conversion until the principal amount hereof is paid in full or
has been converted. Interest shall be computed on the basis of a 360 day year
of 12, 30 day months. Each payment shall be paid in cash or in freely
trading Common Stock of the Company, at the Company's option. If paid in
Common Stock, the number of shares of the Company's Common Stock to be
received shall be determined by dividing the dollar amount of the interest by
the then applicable Market Price as of the interest payment date. "Market
Price" shall mean 83% of
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<PAGE>
the average of the 5 day closing bid prices, as reported by Nasdaq, or
whatever primary exchange the Company's Common Stock may be traded on, for
the 5 trading days immediately preceding the date of conversion. If the
interest is to be paid in cash, the Company shall make such payment within 5
business days of the date of conversion. If the interest is to be paid in
Common Stock, said Common Stock shall be delivered to the Holder, or per
Holder's instructions, within 8 business days of the date of conversion. The
Debentures are subject to automatic conversion at the end of one year from
the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2. The
closing shall be deemed to have occurred on the date the funds are received
by the Company or its Counsel (the "Closing Date").
Article 2. METHOD OF PAYMENT
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall
have the option of paying the interest on this Debenture in United States
dollars or in common stock upon conversion pursuant to Article 1 hereof. The
Company may draw a check for the payment of interest to the order of the
Holder of this Debenture and mail it to the Holder's address as shown on the
Register (as defined in Section 7.2 below). Interest and principal payments
shall be subject to withholding under applicable United States Federal
Internal Revenue Service Regulations.
Article 3. CONVERSION
Section 3.1. CONVERSION PRIVILEGE
(a) The Holder of this Debenture shall have the right, at its option,
to convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time which is before the close of business on
the Maturity Date, except as set forth in Section 3.1(c) below. The number
of shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest
whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in
part, except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains
outstanding on the first anniversary of the date hereof, the unconverted
portion of such
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Debenture will automatically be converted into shares of Common Stock on such
date in the manner set forth in Section 3.2.
Section 3.2. CONVERSION PROCEDURE.
(a) DEBENTURES. Upon the Company's receipt of a facsimile or original
of Holder's signed Notice of Conversion and the original Debenture to be
converted, the Company shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock into
which the Debenture, or portion thereof is convertible in accordance with the
provisions regarding conversion set forth in the conversion notice. The
Company shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) CONVERSION DATE. This Debenture may be converted at anytime 90
days after the "Closing Date" as defined below. Such conversion shall be
effectuated by surrendering to the Company this Debenture to be converted
together with a facsimile or original of the signed Notice of Conversion
which evidences Purchaser's intention to convert the Debenture indicated.
The date on which the Notice of Conversion is effective ("Conversion Date")
shall be deemed to be the date on which the Holder has delivered to the
Company a facsimile or original of the signed Notice of Conversion, as long
as the original Debentures to be converted are received by the Company within
5 business days thereafter. As long as the Debentures to be converted are
received by the Company within 5 business days after it receives a facsimile
or original of the signed Notice of Conversion, the Company shall deliver to
the Holder, or per the Holder's instructions, the shares of Common Stock
within 8 business days of receipt of the facsimile Conversion Notice. The
"Closing Date" shall mean the day the funds are received by the Company.
(c) ISSUANCE OF COMMON STOCK. Upon the conversion of any Debentures and
upon receipt by the Company of a facsimile or original of Holder's signed
conversion notice Company shall instruct Company's transfer agent to issue
Stock Certificates with restrictive legend(s) as set forth in the
Subscription Agreement in the name of Holder (or its nominee) and in such
denominations to be specified at conversion representing the number of shares
of Common Stock issuable upon such conversion, as applicable. Company
warrants that no instructions, other than these instructions, have been given
or will be given to the transfer agent and that the Common Stock shall
otherwise be freely transferable on the books and records of Company.
(d) CONVERSION RATE. Purchaser is entitled, at its option to convert
this Debenture, plus accrued interest, at anytime 90 days after the Closing
Date, at 83% of the 5 day average closing bid price, as reported by Nasdaq,
or whatever primary exchange the Company's Common Stock may be traded on, for
the 5 trading days immediately preceding the applicable Conversion Date (the
"Conversion Price"). No fractional shares or scrip representing fractions
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<PAGE>
of shares will be issued on conversion, but the number of shares issuable
shall be rounded up or down, as the case may be, to the nearest whole share.
The Debentures are subject to a mandatory, 12 month conversion feature
at the end of which all Debentures outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(e) Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Company at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law
and such excess shall be returned with reasonable promptness by the Holder to
the Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock
as provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as
a shareholder of record on and after the conversion date. Upon surrender of
any Debentures that are to be converted in part, the Company shall issue to
the Holder a new Debenture equal to the unconverted amount, if so requested
in writing by Holder.
(g) Within the time period referred to above in Section 3.2(b), the
Company shall deliver a certificate for the number of shares of Common Stock
issuable upon the conversion. It shall be the Company's responsibility to
take all necessary actions and to bear all such costs to issue the Common
Stock as provided herein, including the cost for delivery of an opinion
letter to the transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
In the event the Company does not make delivery of the Common Stock,
as instructed by Holder, within 8 business days after the Conversion Date,
then in such event the Company shall pay to Holder an amount, in cash in
accordance with the following schedule, wherein "No. Business Days Late" is
defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
</TABLE>
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<PAGE>
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized
but unissued shares of Common Stock, the provisions of this Section 3.2(g)
shall not apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall pay any amounts incurred under this Section 3.2(g) in
immediately available funds within five (5) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a
Holder's right to pursue actual damages for the Company's failure to issue
and deliver Common Stock to the Holder within 8 business days after the
Conversion Date.
(h) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Debentures by all Holders of
the entire amount of Debentures then outstanding. If, at any time Holder
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect, in full,
a conversion of the Debentures (a "Conversion Default", the date of such
default being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Holder all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures"), upon Holder's
sole option, may be deemed null and void. The Company shall provide notice
of such Conversion Default ("Notice of Conversion Default") to all existing
Holders of outstanding Debentures, by facsimile, within three (3) business
day of such default (with the original delivered by overnight or two day
courier), and the Holder shall give notice to the Company by facsimile within
five business days of receipt of the original Notice of Conversion Default
(with the original delivered by overnight or two day courier) of its election
to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the
amount of (N/365) x (.24) x the initial issuance price of the outstanding
and/or tendered but not converted Debentures held by each Holder where N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of
shares of Common Stock to effect conversion of all remaining Debentures. The
Company shall send notice ("Authorization Notice") to each Holder of
outstanding Debentures that
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<PAGE>
additional shares of Common Stock have been authorized, the Authorization
Date and the amount of Holder's accrued Conversion Default Payments. The
accrued Conversion Default shall be paid in cash or shall be convertible into
Common Stock at the Conversion Rate, at the Holder's option, payable as
follows: (i) in the event Holder elects to take such payment in cash, cash
payments shall be made to such Holder of outstanding Debentures by the fifth
day of the following calendar month, or (ii) in the event Holder elects to
take such payment in stock, the Holder may convert such payment amount into
Common Stock at the conversion rate set forth in Section 3.2(d) at anytime
after the 5th day of the calendar month following the month in which the
Authorization Notice was received, until the expiration of the mandatory 36
month conversion period.
Nothing herein shall limit the Holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock.
(i) The Company shall furnish to Holder such number of
prospectuses and other documents incidental to the registration of the shares
of Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
(j) The Holder is limited in the amount of this Debenture it may
convert and own. Other than the Mandatory Conversion provisions contained in
this Debenture which are not limited by the following, in no other event
shall the Holder be entitled to convert any amount of Debentures in excess of
that amount upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debenture), and (2) the number of
shares of Common Stock issuable upon the conversion of the Debentures with
respect to which the determination of this provision is being made, would
result in beneficial ownership by the Holder and its affiliates of more than
4.9% of the outstanding shares of Common Stock of the Company. For purposes
of this provision to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (1) of such provision.
(k) REDEMPTION. (i) Mandatory - Upon demand from the Holder, the
Company must redeem the unconverted amount of Debenture at 120.48% of the
balance of the principal amount of the Debenture plus accrued interest if (i)
the Company fails to maintain its listing for its common stock on a major
United States stock exchange or (ii) the registration statement does not go
effective within 180 days from the Closing Date. The cash redemption must be
paid by the Company within 5 business days of receipt of written notice by
the Holder. (ii) Discretionary -
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<PAGE>
The Company shall have the right to redeem the Debentures in whole or in part
as follows: (i) the Company may redeem at anytime at 120.48% of the balance
remaining of the principal amount of the Debenture plus any and all accrued
interest (ii) upon notice of its right to redeem the Debenture the Company
shall wire transfer the appropriate amount of funds into an escrow account
mutually agreed upon by both Company and Holder within 3 business days of
such notice. After the escrow agent is in receipt of such funds, he shall
notify the Holder to surrender the appropriate amount of Debentures. If
after 3 business days from the date the notice of redemption is received by
the Holder the funds have not been received by the escrow agent then, the
Holder shall again have the right to convert the Debenture and the Company
shall have the right to redeem the Debenture but only upon simultaneously
sending the notice of redemption to the Holder and wire transferring the
appropriate amount of funds.
Section 3.3. FRACTIONAL SHARES. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon
the conversion of this Debenture. Instead, the Company shall round up or
down, as the case may be, to the nearest whole share.
Section 3.4. TAXES ON CONVERSION. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of
shares of Common Stock upon the conversion of this Debenture. However, the
Holder shall pay any such tax which is due because the shares are issued in a
name other than its name.
Section 3.5. COMPANY TO RESERVE STOCK. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in Section 3(a) of the Subscription Agreement dated September of 1997,
to permit the conversion of this Debenture. All shares of Common Stock which
may be issued upon the conversion hereof shall upon issuance be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
Section 3.6. RESTRICTIONS ON TRANSFER. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon
the conversion thereof may only be offered or sold pursuant to registration
under or an exemption from the Act.
Section 3.7. MERGERS, ETC. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its
assets to another person and the holders of the Common Stock are entitled to
receive stock, securities or property in respect of or in exchange for Common
Stock, then as a condition of such merger, consolidation, sale or transfer,
the Company and any such successor, purchaser or transferee shall amend this
Debenture to provide that it may thereafter be converted on the terms and
subject to the
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conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
Article 4. MERGERS
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assume in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to
the Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5. REPORTS
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that
it gives to its shareholders generally at the time such report or statement
is sent to shareholders.
Article 6. DEFAULTS AND REMEDIES
Section 6.1. EVENTS OF DEFAULT. An "Event of Default" occurs if (a)
the Company does not make the payment of the principal of this Debenture when
the same becomes due and payable at maturity, upon redemption or otherwise,
(b) the Company does not make a payment, other than a payment of principal,
for a period of 5 business days thereafter, (c) the Company fails to comply
with any of its other agreements in this Debenture and such failure continues
for the period and after the notice specified below, (d) the Company pursuant
to or within the meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the appointment of a
Custodian (as hereinafter defined) of it or for all or substantially all of
its property or (iv) makes a general assignment for the benefit of its
creditors or (v) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (A) is for relief against the Company in an
involuntary case; (B) appoints a Custodian of the Company or for all or
substantially all of its property or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 60 days,
(e) the Company's Common Stock is no longer listed on any recognized exchange
including electronic over-the-counter bulletin board. As used in this
Section 6.1, the term "Bankruptcy Law" means Title 11 of the United States
Code or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law. A default under clause (c) above is not
an Event of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures outstanding notify the Company of such
default and the Company
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does not cure it within five (5) business days after the receipt of such
notice, which must specify the default, demand that it be remedied and state
that it is a "Notice of Default".
Section 6.2. ACCELERATION. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon
such declaration, the remaining principal amount shall be due and payable
immediately.
Article 7. REGISTERED DEBENTURES
Section 7.1. SERIES. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order
to comply with the Securities Act of 1933 and the regulations of the
Securities and Exchange Commission promulgated thereunder. Such Debentures
are referred to herein collectively as the "Debentures". The Debentures
shall be issued in whole multiples of $5,000.
Section 7.2. RECORD OWNERSHIP. The Company shall maintain a register
of the holders of the Debentures (the "Register") showing their names and
addresses and the serial numbers and principal amounts of Debentures issued
to or transferred of record by them from time to time. The Register may be
maintained in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Debenture in the Register as
the sole owner of this Debenture. The Holder of this Debenture is the
person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it
into Common Stock and otherwise exercise all of the rights and powers as the
absolute owner hereof.
Section 7.3. REGISTRATION OF TRANSFER. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose
pursuant to Section 7.2 above (i.e., the Register). Transfers shall be
registered when this Debenture is presented to the Company with a request to
register the transfer hereof and the Debenture is duly endorsed by the
appropriate person, reasonable assurances are given that the endorsements are
genuine and effective, and the Company has received evidence satisfactory to
it that such transfer is rightful and in compliance with all applicable laws,
including tax laws and state and federal securities laws. When this
Debenture is presented for transfer and duly transferred hereunder, it shall
be canceled and a new Debenture showing the name of the transferee as the
record holder thereof shall be issued in lieu hereof. When this Debenture is
presented to the Company with a reasonable request to exchange it for an
equal principal amount of Debentures of other denominations, the Company
shall make such exchange and shall cancel this Debenture and issue in lieu
thereof Debentures having a total principal amount equal to this Debenture in
such denominations as agreed to by the Company and Holder.
Section 7.4. WORN OR LOST DEBENTURES. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or
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its agent may issue a new Debenture in lieu hereof upon its surrender. Where
the Holder of this Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice
to the Company actually received by the Company before it is notified that
the Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or
verification as the Company may request.
Article 8. NOTICES
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company
to its principal executive offices. The time when such notice is sent shall
be the time of the giving of the notice.
Article 9. TIME
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of
a condition or obligation within, before or after a period of time computed
from a certain date, and such period of time ends on a Saturday or a Sunday
or a public holiday, such payment may be made or condition or obligation
performed on the next succeeding business day, and if the period ends at a
specified hour, such payment may be made or condition performed, at or before
the same hour of such next succeeding business day, with the same force and
effect as if made or performed in accordance with the terms of this
Debenture. A "business day" shall mean a day on which the banks in New York
are not required or allowed to be closed.
Article 10. WAIVERS
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion
into Common Stock.
Article 11. RULES OF CONSTRUCTION
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular,
and words of the masculine gender include the feminine and the neuter, and
when the sense so indicates, words of the neuter gender may refer to any
gender. The numbers and titles of sections contained in the Debenture are
inserted for convenience of reference only, and they neither form a part of
this Debenture nor are they to be used in the construction or interpretation
hereof. Wherever, in this Debenture, a determination of the Company is
required or allowed, such determination shall be made by a majority of
the Board of Directors of the
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Company and if it is made in good faith, it shall be conclusive and binding
upon the Company and the Holder of this Debenture.
Article 12. GOVERNING LAW
The validity, terms, performance and enforcement of this Debenture shall
be governed and construed by the provisions hereof and in accordance with the
laws of the State of Minnesota applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Minnesota.
Article 13. ARBITRATION
The parties shall resolve any dispute arising hereunder before a panel
of three arbitrators selected pursuant to and run in accordance with the
Commercial Arbitration rules of the American Arbitration Association as such
rules may be modified or as otherwise agreed by the parties in controversy.
The arbitration shall be held in New York, New York. Each party shall bear
their own attorney's fees and costs of such arbitration. Disputes under this
Agreement as well as all of the terms and conditions of this Agreement shall
be governed in accordance with and by the laws of the State of Minnesota. Any
judgment or award rendered by arbitration may be entered in any Court having
jurisdiction. The parties acknowledge that, in addition to any and all
damages deemed fair by the arbitrators, the award may be expanded to include,
but not be limited to, any and all court or arbitration costs, reasonable
attorney fees and any other costs or charges reasonably necessary to the
adjudication of the controversy. Nothing contained herein shall deprive any
party of the right to obtain injunctive or other equitable relief. Remedy at
law for any breach or threatened breach of this agreement being inadequate,
either party hereto is entitled to enforce the specific performance of this
agreement and to seek temporary or permanent injunctive relief without the
necessity of providing actual damages outside of the terms of this agreement.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
CASINO RESOURCE CORPORATION
By /s/ John J. Pilger
--------------------------------
Name: John J. Pilger
Title: Chief Executive Officer
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Exhibit A
NOTICE OF CONVERSION
--------------------
(To be Executed by the Registered Holder in order to Convert the Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_ to
convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of CASINO RESOURCE CORPORATION (the "Company") according to the
conditions set forth in the Subscription Agreement dated September ____, 1997.
Date of Conversion__________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
____________________________________________________________
Phone______________________ Fax___________________________
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Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
- -------------------------------------------------------------------------------
(name, address and SSN or EIN of assignee)
Dollars ($ )
- -------------------------------------------------------------------------------
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date:_________________________ Signed:_______________________________________
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
13
CSRND./DEB D/22
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 29, 1997, ("this
Agreement"), is made by and between CASINO RESOURCE CORPORATION a Minnesota
corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Subscription Agreement, dated as of August 29, 1997, between the Initial
Investor and the Company (the "Subscription Agreement"), the Company has
agreed to issue and sell to the Initial Investor 13% Convertible Debentures
of the Company (the "Debentures") and ("Warrants"), which will be convertible
and exercisable into shares of the common stock, $.01 par value (the "Common
Stock"), of the Company (the "Conversion Shares") upon the terms and subject
to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the "Securities Act"), and applicable state securities laws
with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
I. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date the funds are received by the Company.
(ii) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
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(iii)"Register." "Registered." and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Initial Investor (as defined above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities pursuant to Section 9 of
this Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC, no later than thirty (30) days after the Closing Date, a Registration
Statement on Form S-3 covering a sufficient number of shares of Common Stock
for the Initial Investors (or any other available form), but in no event less
than 1,000,000 shares of Common Stock into which the $800,000 of Debentures
and 10,000 Warrants in the total offering would be convertible. Such
Registration Statement shall state that, in accordance with the Securities
Act, it also covers such indeterminate number of additional shares of Common
Stock as may become issuable to prevent dilution resulting from Stock splits,
or stock dividends). If at any time the number of shares of Common Stock
into which the Debenture may be converted exceeds the aggregate number of
shares of Common Stock then registered, the Company shall, within ten (10)
business days after receipt of written notice from any Investor, either (i)
amend the Registration Statement filed by the Company pursuant to the
preceding sentence, if such Registration Statement has not been declared
effective by the SEC at that time, to register all shares of Common Stock
into which the Debenture may be converted, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file with the
SEC an additional Registration Statement on Form S-3 to register the shares
of Common Stock into
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which the Debenture may be converted that exceed the aggregate number of
shares of Common Stock already registered. In connection with this S-3
registration, the Company shall cause to be registered the shares of Common
Stock issuable upon the exercise of a Warrant in favor of Intercontinental
Holding Co., Ltd. for the purchase of 7,500 shares of Common Stock and the
shares of Common Stock issuable upon the exercise of a Warrant in favor of
Joseph B. LaRocco for the purchase of 7,500 shares of Common Stock.
(b) UNDERWRITTEN OFFERING. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
the Investors acting by majority in interest of the Registrable Securities
subject to such underwritten offering shall have the right to select one
legal counsel to represent their interests, and an investment banker or
bankers and manager or managers to administer the offering, which investment
banker or bankers or manager or managers shall be reasonably satisfactory to
the Company. The Investors who hold the Registrable Securities to be
included in such underwriting shall pay all underwriting discounts and
commissions and other fees and expenses of such investment banker or bankers
and manager or managers so selected in accordance with this Section 2(b)
(other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) CERTAIN FEES. The Company shall pay cash liquidated damages of
3.0% of the principal amount of the Debenture for each 30 day period or
portion thereof after which the following obligations of the Company remain
unsatisfied:
(i) if the registration ceases to remain effective during the
"Registration Period" as defined in Section 3(a);
(ii) if the S-3 is not filed within 30 days from the Closing Date;
and
(iii) if the registration is not declared effective within 90 days of
the Closing Date.
The above damages shall continue until the obligation is fulfilled, subject
to a maximum of 12 months and shall be paid within 5 business days after each
30 day period. Failure of the Company to make payment within said 5 business
days shall be considered a default.
3. OBLIGATION OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
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(a) Prepare promptly, and file with the SEC within thirty (30) days of
the Closing Date, a Registration Statement with respect to not less than the
number of Registrable Securities provided in Section 2(a), above, and
thereafter use its best efforts to cause each Registration Statement relating
to Registrable Securities to become effective the earlier of (i) five
business days after notice from the Securities and Exchange Commission that
the Registration Statement may be declared effective, or (b) ninety (90) days
after the Closing Date, and keep the Registration Statement effective at all
times until the earliest of (i) the date that is one year after the Closing
Date or (ii) the date when the Investors may sell all Registrable Securities
under Rule 144 or (iii) the date the Investors no longer own any of the
Registrable Securities (items (i), (ii) and (iii) cumulatively being referred
to as the "Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed,
filed with the SEC, or received by the Company, one (1) copy of the
Registration Statement, each preliminary prospectus and prospectus, and each
amendment or supplement thereto, and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities
or
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<PAGE>
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and
in which significant volumes of shares of Common Stock are traded, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at
all times during the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualification in effect
at all times during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions: PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (A) qualify to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (B) subject itself to general taxation in
any such jurisdiction, (C) file a general consent to service of process in
any such jurisdiction, (D) provide any undertakings that cause more than
nominal expense or burden to the Company or (E) make any change in its
articles of incorporation or by-laws or any then existing contracts, which in
each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and uses its best efforts promptly to
prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the SEC to correct such untrue statement or omission,
and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance
by the SEC of any notice of effectiveness or any stop order or other
suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to
be listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is
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then permitted under the rules of such exchange, or (ii) secure designation
of all the Registrable Securities covered by the Registration Statement on
the National Association of Securities Dealers Automated Quotations System
("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on the NASDAQ National Market System;
or if, despite the Company's commercially reasonable efforts to satisfy the
preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on
either the SmallCap Market or the over-the-counter bulletin board and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later
than the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates for the Registrable Securities to be
in such denominations or amounts as the case may be, as the Investors may
reasonably request and registration in such names as the Investors may
request; and, within five (5) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies
to the Investors whose Registrable Securities are included in such
Registration /statement) an appropriate instruction and opinion of such
counsel; and
(j) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations;
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall
timely furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
the Registrable
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Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If at least
two (2) business days prior to the filing date the Company has not received
the Requested Information from an Investor (a "Non-Responsive Investor"),
then the Company may file the Registration Statement without including
Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and,
if so directed by the Company, such investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of
receipt of such notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company, shall be borne by the Company. Counsel fees and accounting fees of
the Investor, if any, shall be borne by the Investor.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
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(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors,
if any, of such Investor, the officers, if any, of such Investor, each
person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against
any losses, claims, damages, liabilities or expenses (joint or several)
incurred (collectively, "Claims") to which any of them may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations of the Registration Statement or any
post-effective amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or 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, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus
if used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company
shall reimburse the Investors, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply
to a Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company
by or on behalf of any Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made available
by the Company pursuant to Section 3(b) hereof; (ii) with respect to any
preliminary prospectus, inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any person controlling such person)
if the
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untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented,
if such prospectus was timely made available by the Company pursuant to
Section 3(b) hereof; (iii) be available to the extent such Claim is based on
a failure of the Investor to deliver or cause to be delivered the prospectus
made available by the Company; or (iv) apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Each Investor
will indemnify the Company, its officers, directors, agents and Counsel (each
an "Indemnified Party") against any claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions as are applicable to
the Indemnification provided by the Company to this Section 6. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed, to
assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party,
as the case may be; PROVIDED, HOWEVER, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the
reasonable fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding. In such
event, the Company shall pay for only one separate legal counsel for the
Investors; such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of
any liability to the
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Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend
such action. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 6 to the fullest extent permitted
by law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of
Registrable Securities guilty or fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation; and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to use its reasonable best
efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule
144 without registration.
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<PAGE>
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of
fifty (50%) percent or more of the Registrable Securities (or all or any
portion of any Debenture of the Company which is convertible into such
securities) only if: (a) the Investor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee
or assignee and (ii) the securities with respect to which such registration
rights are being transferred or assigned, (c) immediately following such
transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment,
the Company shall not be liable for any damages arising from such delay, or
the payments set forth in Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and investors who hold a majority in
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. ARBITRATION.
The parties shall resolve any dispute arising hereunder before a panel
of three arbitrators selected pursuant to and run in accordance with the
Commercial Arbitration rules of the American Arbitration Association as such
rules may be modified or as otherwise agreed by the parties in controversy.
The arbitration shall be held in New York, New York. Each party shall bear
their own attorney's fees and costs of such arbitration. Disputes under this
Agreement as well as all of the terms and conditions of this Agreement shall
be governed in accordance with and by the laws of the State of Minnesota. Any
judgment or award rendered by arbitration may be entered in any Court having
jurisdiction. The parties acknowledge that, in addition to any and all
damages deemed fair by the arbitrators, the award may be expanded to include,
but not be limited to, any and all
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<PAGE>
court or arbitration costs, reasonable attorney fees and any other costs or
charges reasonably necessary to the adjudication of the controversy. Nothing
contained herein shall deprive any party of the right to obtain injunctive or
other equitable relief. Remedy at law for any breach or threatened breach of
this agreement being inadequate, either party hereto is entitled to enforce
the specific performance of this agreement and to seek temporary or permanent
injunctive relief without the necessity of providing actual damages outside
of the terms of this agreement.
12. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company received conflicting instructions, notices or
elections
from two or more persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, 707 Bienville Boulevard, Ocean Springs, Mississippi 39564; (ii) if
to the Initial Investor, at the address set forth under its name in the
Subscription Agreement, with a copy to its designated attorney and (iii) if
to any other Investor, at such address as such Investor shall have provided
in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 12(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by the interpreted in accordance
with the laws of the State of Minnesota. A facsimile transmission of this
signed Agreement shall be legal and binding on all parties hereto. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. If any
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<PAGE>
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not effect the
validity or enforceability of the remainder of this Agreement or the validity
or enforceability of this Agreement in any other jurisdiction. This Agreement
may be amended only by an instrument in writing signed by the party to be
charged with enforcement.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred
to herein. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns
of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CASINO RESOURCE CORPORATION
By: ____________________________________
Name: John J. Pilger
Title: Chief Executive Officer
_______________________________________
(Name of Initial Investor)
By: ____________________________________
Name:
Title:
CSRND.REG D/22 14
<PAGE>
-------------------------------------------
CASINO RESOURCE CORPORATION
-------------------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH
LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE
NOT BE APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
Maximum Offering: $800,000
This offering consists of $800,000 of Convertible Debentures of
Casino Resource Corporation and a Warrant to
purchase 10,000 shares of the Company's Common Stock.
--------------------
SUBSCRIPTION AGREEMENT
--------------------
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<PAGE>
SUBSCRIPTION PROCEDURES
Convertible Debentures of CASINO RESOURCE CORPORATION, (the "Company")
are being offered in an aggregate amount not to exceed $800,000. In addition
to the Debentures an investor shall receive a warrant (the "Warrant" or
"Warrants") to purchase 5,000 shares of the Company's Common Stock, per
$400,000 of Debentures purchased. The Debentures and Warrants will be
transferable to the extent that any such transfer is permitted by law. This
offering is being made in accordance with the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Act") and
Rule 506 of Regulation D promulgated under the Act (the "Regulation D
Offering").
The Investor Questionnaire is designed to enable the Investor to
demonstrate the minimum legal requirements under federal and state
securities laws to purchase the Debentures and Warrants. The Signature
Page for the Investor Questionnaire and the Subscription Agreement
contain representations relating to the subscription.
Also included is an Internal Revenue Service Form W-9: "Request
for Taxpayer Identification Number and Certification" for U.S.
citizens or residents of the U.S. for U.S. federal income tax
purposes only. (Foreign investors should consult their tax
advisors regarding the need to complete Internal Revenue Service
Form W-9 and any other forms that may be required).
If you are a foreign person or foreign entity, you may be
subject to a withholding tax equal to 30% of any dividends paid by
the Company. In order to eliminate or reduce such withholding tax
you may submit a properly executed I.R.S. Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct
of a Trade or Business in the United States) or I.R.S. Form 1001
(Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in
the form of a lower rate of withholding tax on interest or
dividends.
2
<PAGE>
Payment must be made by wire transfer as provided below:
Immediately available funds should be sent via wire transfer to the
escrow account stated below and the completed subscription
documents should be forwarded to the Escrow Attorney. Your
subscription funds will be deposited into a non-interest bearing
escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at First
Union Bank of Connecticut, Stamford, Connecticut. In the event of
a termination of the Regulation D Offering or the rejection of this
subscription, all subscription funds will be returned without
interest. The wire instructions are as follows:
First Union Bank of Connecticut
Executive Office
300 Main Street, P. O. Box 700
Stamford, CT 06904-0700
ABA #: 021101108
Swift #: FUNBUS33
Account #: 20000-2072298-4
Acct.Name: Joseph B. LaRocco, Esq. Trustee Account
3
<PAGE>
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH
LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE
NOT BE APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
To: CASINO RESOURCE CORPORATION
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
This Subscription Agreement is made between Casino Resource
Corporation, ("Company" or "Seller") a Minnesota corporation, and the
undersigned prospective purchaser ("Purchaser") who is subscribing hereby for
the Company's Convertible Debentures (the "Debentures"). In addition to the
Debentures, the Purchaser shall receive a warrant (the "Warrant" or
"Warrants") to purchase 5,000 shares of the Company's Common Stock, per
$400,000 invested. The Debentures and Warrants being offered will be
separately transferable, to the extent that any such transfer is permitted by
law. The conversion terms of the Debentures are set forth in Section 4.
This subscription is submitted to you in accordance with and subject to the
terms and conditions described in this Subscription Agreement dated August
29, 1997, together with any Exhibits thereto, relating to an offering (the
"Offering") of up to $800,000 of Debentures. This Offering is comprised of
an offering of the Debentures to accredited investors (the "Regulation D
Offering") in accordance with the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Act"), and Rule 506 of
Regulation D promulgated under the Act ("Regulation D").
4
<PAGE>
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $500,000 of the Company's Debentures and 6,250 of the Company's
Warrants. The Debentures shall pay a 13% cumulative interest payable, in
cash or in Common Stock of the Company subject to a currently effective
resale registration statement, at the Company's option, at the time of each
conversion. If paid in Common Stock, the number of shares of the Company's
Common Stock to be received shall be determined by dividing the dollar amount
of the dividend by the then applicable Market Price, as of the interest
payment date. "Market Price" shall mean 83% of the average of the 5 day
closing bid prices, as reported by Nasdaq, or whatever primary exchange the
Company's Common Stock may be traded on, for the five trading days
immediately preceding the date of conversion. If the interest is to be paid
in cash, the Company shall make such payment within 5 business days of the
date of conversion. If the interest is to be paid in Common Stock, said
Common Stock shall be delivered to the Purchaser, or per Purchaser's
instructions, within 5 business days of the date of conversion. The
Debentures are subject to automatic conversion at the end of one year from
the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 4(c).
The closing shall be deemed to have occurred on the date the funds are
received by the Company (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by
the Escrow Attorney to the Purchaser and the name of such Purchaser will be
registered on the Debenture transfer books of the Company as the record owner
of such Debentures.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully
read the applicable form of Debenture annexed hereto as Exhibit A, the
form of Registration Rights Agreement annexed hereto as Exhibit B (the
"Registration Rights Agreement") and the form of Warrant annexed hereto
as Exhibit C, AND is familiar with and understands the terms of the
Offering. With respect to tax and other economic considerations
involved in his investment, the undersigned is not relying on the
Company. The
5
<PAGE>
undersigned has carefully considered and has, to the extent the
undersigned believes such discussion necessary, discussed with the
undersigned's professional legal, tax, accounting and financial advisors
the suitability of an investment in the Company, by purchasing the
Debentures, for the undersigned's particular tax and financial situation
and has determined that the investment being made by the undersigned is
a suitable investment for the undersigned.
(b) The undersigned acknowledges that all documents, records, and
books pertaining to this investment which the undersigned has requested
including Form 10-KSB for the fiscal year ended September 30, 1996 and
Forms 10-QSB for the quarters ended December 31, 1996, March 31, 1997
and June 30, 1997, ( the "Disclosure Documents") have been made
available for inspection by the undersigned.
(c) The undersigned has had a reasonable opportunity to ask
questions of and receive answers from a person or persons acting on
behalf of the Company concerning the Offering and all such questions
have been answered to the full satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the
Debentures or Warrants without registration under the Act or applicable
state securities laws or an exemption therefrom. The Debentures and
Warrants have not been registered under the Act or under the securities
laws of any states. The Common Stock underlying the Debentures and
Warrants is to be registered by the Company pursuant to the terms of the
Registration Rights Agreement attached hereto as Exhibit B and
incorporated herein and made a part hereof. Without limiting the right
to convert the Debentures and sell the Common Stock pursuant to the
Registration Rights Agreement, the undersigned represents that the
undersigned is purchasing the Debentures and Warrants for the
undersigned's own account, for investment and not with a view to resale
or distribution except in compliance with the Act. The undersigned has
not offered or sold any portion of the Debentures or Warrants being
acquired nor does the undersigned have any present intention of dividing
the Debentures or Warrants with others or of selling, distributing or
otherwise disposing of any portion of the Debentures and Warrants 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 in violation of the Act. Except as provided in the
Registration Rights Agreement, the Company has no obligation to register
6
<PAGE>
the Common Stock issuable upon conversion of the Debentures and exercise
of the Warrants.
(e) The undersigned recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and considered
the schedule entitled Pending Litigation matters attached hereto as
Exhibit D.
(f) Legends:
(i) The undersigned acknowledges that each certificate representing
the Debentures and Warrants unless registered pursuant to the
Registration Rights Agreement, shall be stamped or otherwise imprinted
with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE ALSO
SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF THAT
CERTAIN SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT BY
AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, A COPY OF EACH IS ON
FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE.
(ii) The Common Stock issued upon conversion shall contain the
following legend:
7
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE BEEN INCLUDED IN THE COMPANY'S
REGISTRATION STATEMENT INITIALLY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON ____________, 1997, AND MAY BE SOLD IN
ACCORDANCE WITH THE COMPANY'S PROSPECTUS DATED ________, 1997, WHICH
FORMS A PART OF SUCH REGISTRATION STATEMENT, OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
(g) If this Subscription Agreement is executed and delivered on
behalf of a corporation, (i) such corporation has the full legal right and
power and all authority and approval required (a) to execute and deliver,
or authorize execution and delivery of, this Subscription Agreement and
all other instruments (including, without limitation, the Registration
Rights Agreement) executed and delivered by or on behalf of such
corporation in connection with the purchase of the Debentures and (b) to
purchase and hold the Debentures: (ii) the signature of the party signing
on behalf of such corporation is binding upon such corporation; and (iii)
such corporation has not been formed for the specific purpose of acquiring
the Debentures, unless each beneficial owner of such entity is qualified
as an accredited investor within the meaning of Rule 501(a) of Regulation D
and has submitted information substantiating such individual qualification.
(h) The undersigned shall indemnify and hold harmless the Company
and each stockholder, executive, employee, representative, affiliate,
officer, director, agent (including Counsel) or control person of the
Company, who is or may be a party or is or may be threatened to be made a
party to any threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of or arising from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made or
alleged to have been made by the undersigned to the Company or omitted or
alleged to have been omitted by the undersigned, concerning the undersigned
or the undersigned's subscription for and purchase of the Debentures or the
undersigned's authority to invest or financial position in connection with
the Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the undersigned, against
losses, liabilities and expenses for which the Company, or any stockholder,
executive, employee,
8
<PAGE>
representative, affiliate, officer, director, agent (including Counsel) or
control person of the Company has not otherwise been reimbursed (including
attorneys' fees and disbursements, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by the Company, or such
officer, director stockholder, executive, employee, agent (including
Counsel), representative, affiliate or control person in connection with
such action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures and
Warrants as a result of, or pursuant to, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar
or meeting.
(j) The undersigned or the undersigned's representatives, as the case
may be, has such knowledge and experience in financial, tax and business
matters so as to enable the undersigned to utilize the information made
available to the undersigned in connection with the Offering to evaluate the
merits and risks of an investment in the Debentures and Warrants and to make
an informed investment decision with respect thereto.
3. SELLER REPRESENTATIONS.
(a) CONCERNING THE SECURITIES. The issuance, sale and delivery of
the Debentures and Warrants have been duly authorized by all required
corporate action on the part of Seller, and when issued, sold and delivered
in accordance with the terms hereof and thereof for the consideration
expressed herein and therein, will be duly and validly issued and enforceable
in accordance with their terms, subject to the laws of bankruptcy and
creditors' rights generally. 1,000,000 shares of Common Stock issuable upon
conversion of all the Debentures and exercise of all the Warrants issued
pursuant to this offering have been duly and validly reserved for issuance
and, upon issuance shall be duly and validly issued, fully paid, and
non-assessable (the "Reserved Shares"). From time to time, the Company shall
keep such additional shares of Common Stock reserved so as to allow for the
conversion of all the Debentures and exercise of all the Warrants issued
pursuant to this offering.
Prior to conversion of all the Debentures and exercise of all the
Warrants, if at anytime the conversion of all the Debentures and exercise of
all the Warrants outstanding would result in an insufficient number of
authorized shares of
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<PAGE>
Common Stock being available to cover all the conversions, then in such
event, the Company will move to call and hold a shareholder's meeting within
60 days of such event for the sole purpose of authorizing additional shares
of Common Stock to facilitate the conversions. In such an event the Company
shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock . Seller
represents and warrants that under no circumstances will it deny or prevent
Purchaser's right to convert the Debentures and exercise all the Warrants as
permitted under the terms of this Subscription Agreement or the Registration
Rights Agreement. Nothing in this Section shall limit the obligation of the
Company to make the payments set forth in Section 4(h).
(b) AUTHORITY TO ENTER AGREEMENT. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
(c) NON-CONTRAVENTION. The execution and delivery of this Agreement
and the Registration Rights Agreement and the consummation of the issuance of
the Debentures and Warrants, and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Company
of any of the terms or provisions of, or constitute a default under, the
articles of incorporation or by-laws of the Company, or any indenture,
mortgage, deed of trust, or other material agreement or instrument to which
Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule, or regulation of the United
States or any State thereof or any applicable decree, judgment, or order of
any Federal or State court, Federal or State regulatory body, administrative
agency or other United States governmental body having jurisdiction over
Seller or any of its properties or assets.
(d) COMPANY COMPLIANCE. The Company represents and warrants that
the Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or
15(d) of the Securities Exchange Act of 1934; (ii) not in violation of any
term or provision of its Articles of Incorporation or by-laws; (iii) not in
default in the performance or observance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any mortgage, deed of trust, indenture or other instrument
or agreement to which they are a party, either singly or jointly, by which it
or any of its property is bound or subject except at set forth in Exhibit D.
Furthermore, the Company is not aware of any other facts, which it has not
disclosed which could have a material adverse effect on the business,
condition, (financial or otherwise), operations,
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<PAGE>
earnings, performance, properties or prospects of the Company and its
subsidiaries taken as a whole.
(e) PENDING LITIGATION. Except as otherwise disclosed in Exhibit D,
there is (i) no action, suit or proceeding before or by any court, arbitrator
or governmental body now pending or, to the knowledge of the Company,
threatened or contemplated to which the Company or any of its subsidiaries is
or may be a party or to which the business or property of the Company or any
of its subsidiaries is or may be bound or subject, (ii) no law, statute,
rule, regulation, order or ordinance that has been enacted, adopted or issued
by any Governmental Body or that, to the knowledge of the Company, has been
proposed by any Governmental Body adversely affecting the Company or any of
its subsidiaries, (iii) no injunction, restraining order or order of any
nature by a federal, state or foreign court or Governmental Body of competent
jurisdiction to which the Company or any of its subsidiaries is subject
issued that, in the case of clauses (i), (ii) and (iii) above, (x) is
reasonably likely, singly or in the aggregate, to result in a material
adverse effect on the business, condition, (financial or otherwise),
operations, earnings, performance, properties or prospects of the Company,
and its subsidiaries taken as a whole or (y) would interfere with or
adversely affect the issuance of the Debentures and Warrants or would be
reasonably likely to render this Subscription Agreement or the Debentures and
Warrants, or any portion thereof, invalid or unenforceable.
(f) ISSUANCE OF THE DEBENTURES. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body that prevents the issuance of the Debentures
and Warrants or the Common Stock issuable upon conversion or exercise
thereof; no injunction, restraining order or order of any nature by a federal
or state court of competent jurisdiction has been issued that prevents the
issuance of the Debentures and Warrants or the Common Stock issuable upon
conversion or exercise thereof or suspends the sale of the Debentures and
Warrants or the Common Stock issuable upon conversion or exercise thereof in
any jurisdiction; and no action, suit or proceeding is pending against or, to
the best knowledge of the Company, threatened against or affecting, the
Company, any of its subsidiaries or, to the best knowledge of the Company,
before any court or arbitrator or any Governmental Body that, if adversely
determined, would prohibit, materially interfere with or adversely affect the
issuance or marketability of the Debentures and Warrants or the Common Stock
issuable upon conversion or exercise thereof or render the Subscription
Agreement or the Debentures and Warrants, or any portion thereof, invalid or
unenforceable.
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<PAGE>
(g) The Company shall indemnify and hold harmless the Purchaser and
each stockholder, executive, employee, representative, affiliate, officer,
director or control person of the Purchaser, who is or may be a party or is
or may be threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatement of facts or omission to represent
or state facts made or alleged to have been made by the Company to the
Purchaser or omitted or alleged to have been omitted by the Company,
concerning the Purchaser or the Purchaser's subscription for and purchase of
the Debentures and Warrants or the Purchaser's authority to invest or
financial position in connection with the Offering, including, without
limitation, any such misrepresentation, misstatement or omission contained in
this Subscription Agreement, the Questionnaire or any other document
submitted by the Company, against losses, liabilities and expenses for which
the Purchaser, or any stockholder, executive, employee, representative,
affiliate, officer, director or control person of the Purchaser has not
otherwise been reimbursed (including attorneys' fees and disbursements,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred by the Purchaser, or such officer, director, stockholder, executive,
employee, representative, affiliate or control person in connection with such
action, suit or proceeding.
(h) NO CHANGE. Other than filings required by the Blue Sky or federal
securities law, no consent, approval or authorization of or designation,
declaration or filing with any governmental or other regulatory authority on
the part of the Company is required in connection with the valid execution,
delivery and performance of this Agreement. Any required qualification or
notification under applicable federal securities laws and state Blue Sky laws
of the offer, sale and issuance of the Debentures and Warrants, has been
obtained on or before the date hereof or will have been obtained within the
allowable period thereafter, and a copy thereof will be forwarded to Counsel
for the Purchaser.
(i) TRUE STATEMENTS. Neither this Agreement nor any of the "Disclosure
Documents", as hereinafter defined, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
the statements contained herein or therein not misleading in the light of the
circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and
adversely affects the business, properties or assets, or conditions,
financial or otherwise, of the Company, which has not been set forth in this
Subscription Agreement or disclosed in such documents.
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<PAGE>
(j) The Purchaser has been advised that the Company has not retained
any independent professionals to review or comment on this Offering or
otherwise protect the interests of the Purchaser.
(k) There has never been represented, guaranteed, or warranted to the
undersigned by any broker, the Company, its officers, directors or agents, or
employees or any other person, expressly or by implication (i) the percentage
of profits and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of the Company's operations; and (ii) that the
past performance or experience on the part of the management of the Company,
or of any other person, will in any way result in the overall profitable
operations of the Company.
(l) The Purchaser has been advised that the Company has entered into a
consulting agreement with The Intercontinental Holding Company pursuant to
which it will pay a fee of 7% of the gross proceeds of this offering and a
placement fee of $34,000 will be paid to M.I.T Asset Management, Inc. The
Company will be responsible for the payment of $3,000 to the Escrow Agent for
his services.
(m) The Company agrees that it will not raise any additional funding
pursuant to Regulation S or Regulation D for the next 6 months and hereby
agrees to give Purchaser a right of first refusal on any subsequent
financing pursuant to Regulation S or D for the next 6 months.
(n) On August 1, 1997 the Company had 30,000,000 authorized shares of
common stock of which 10,043,364 were issued and outstanding. Also there are
2,760,000 Redeemable Class A Warrants of the Company outstanding.
4. TERMS OF CONVERSION.
(a) DEBENTURES. Upon the Company's receipt of a facsimile or
original of Purchaser's signed Notice of Conversion and the original
Debenture to be converted in whole or in part, the Company shall instruct
its transfer agent to issue one or more Certificates representing that number
of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit E
hereto. The Seller's transfer agent or attorney shall act as Registrar and
shall maintain an appropriate ledger containing the necessary information
with respect to each Debenture.
(b) CONVERSION PROCEDURES. The Debentures may be converted at
anytime 90 days after the "Closing Date" as defined below. Such conversion
shall
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<PAGE>
be effectuated by surrendering to the Company, or its attorney, the
Debentures to be converted together with a facsimile or original of the
signed Notice of Conversion which evidences Purchaser's intention to convert
those Debentures indicated. The date on which the Notice of Conversion is
effective ("Conversion Date") shall be deemed to be the date on which the
Purchaser has delivered to the Company a facsimile or original of the signed
Notice of Conversion, as long as the original Debentures to be converted are
received by the Company or its designated attorney within 5 business days
thereafter. The "Closing Date" shall mean the date the funds are received by
the Company.
(c) ISSUANCE OF COMMON STOCK. Upon the conversion of any
Debentures and upon receipt by the Company of a facsimile or original of
Purchaser's signed Notice of Conversion (see Exhibit E) Seller shall instruct
Seller's transfer agent to issue Stock Certificates with restrictive
legend(s) as set forth in this Agreement in the name of Purchaser (or its
nominee) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Seller warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the books and
records of Seller.
(d) CONVERSION RATE. Purchaser is entitled, at its option to
convert the Debentures, plus accrued interest, at anytime 90 days after the
Closing Date, at 83% of the 5 day average closing bid price, as reported by
Nasdaq, or whatever primary exchange the Company's Common Stock may be traded
on, for the 5 trading days immediately preceding the applicable Conversion
Date (the "Conversion Price"). No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded up or down, as the case may be, to the nearest
whole share.
The Debentures are subject to a mandatory, 12 month conversion
feature at the end of which all Debentures outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(e) Nothing contained in this Subscription Agreement shall be
deemed to establish or require the payment of interest to the Purchaser at a
rate in excess of the maximum rate permitted by governing law. In the event
that the rate of interest required to be paid exceeds the maximum rate
permitted by governing law, the rate of interest required to be paid
thereunder shall be automatically reduced to the maximum rate permitted under
the governing law and such excess shall be returned with reasonable
promptness by the Purchaser to the Company.
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<PAGE>
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Certificate of
Common Stock as provided herein, including the responsibility and cost for
delivery of an opinion letter to the transfer agent, if so required. The
person in whose name the certificate of Common Stock is to be registered
shall be treated as a shareholder of record on and after the conversion date.
Upon surrender of any Debentures that are to be converted in part, the
Company shall issue to the Purchaser a new Debenture equal to the unconverted
amount, if so requested in writing by Purchaser.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 4(b), the Company shall deliver a
certificate, for the number of shares of Common Stock issuable upon the
conversion. It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Common Stock as provided
herein, including the cost for delivery of an opinion letter to the transfer
agent, if so required. The person in whose name the certificate of Common
Stock is to be registered shall be treated as a shareholder of record on and
after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 8 business days after delivery of the
original Debenture, then in such event the Company shall pay to Purchaser an
amount, in cash in accordance with the following schedule, wherein "No.
Business Days Late" is defined as the number of business days beyond the 8
business days delivery period.
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- -----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
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<PAGE>
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 4(g) shall
not apply but instead the provisions of Section 4(h) shall apply.
The Company shall make any payments incurred under this Section 4(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Purchaser's right to pursue
actual damages or cancel the conversion for the Company's failure to issue
and deliver Common Stock to the Holder within 8 business days after the
Conversion Date.
(h) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Debentures by all Purchasers
of the entire amount of Debentures then outstanding. If, at any time
Purchaser submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock available to
effect, in full, a conversion of the Debentures (a "Conversion Default", the
date of such default being referred to herein as the "Conversion Default
Date"), the Company shall issue to the Purchaser all of the shares of Common
Stock which are available, and the Notice of Conversion as to any Debentures
requested to be converted but not converted (the "Unconverted Debentures"),
upon Purchaser's sole option, may be deemed null and void. The Company shall
provide notice of such Conversion Default ("Notice of Conversion Default")
to all existing Purchasers of outstanding Debentures, by facsimile, within
three (3) business day of such default (with the original delivered by
overnight or two day courier), and the Purchaser shall give notice to the
Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Purchasers of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the
amount of (N/365) x (.24) x the initial issuance price of the outstanding
and/or tendered but not converted Debentures held by each Purchaser where N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of
shares of Common Stock to effect conversion of all remaining Debentures. The
Company shall send notice ("Authorization Notice") to each Purchaser of
outstanding Debentures that additional shares of Common Stock have been
authorized, the
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<PAGE>
Authorization Date and the amount of Purchaser's accrued Conversion Default
Payments. The accrued Conversion Default shall be paid in cash or shall be
convertible into Common Stock at the Conversion Rate, at the Purchaser's
option, payable as follows: (i) in the event Purchaser elects to take such
payment in cash, cash payments shall be made to such Purchaser of outstanding
Debentures by the fifth day of the following calendar month, or (ii) in the
event Purchaser elects to take such payment in stock, the Purchaser may
convert such payment amount into Common Stock at the conversion rate set
forth in section 4(d) at anytime after the 5th day of the calendar month
following the month in which the Authorization Notice was received, until the
expiration of the mandatory 12 month conversion period.
Nothing herein shall limit the Purchaser's right to pursue actual
damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock.
(i) The Company shall furnish to Purchaser such number of prospectuses
and other documents incidental to the registration of the shares of Common
Stock underlying the Debentures and Warrants, including any amendment of or
supplements thereto.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Other than the Mandatory Conversion provisions contained in this
Agreement which are not limited by the following, in no other event shall the
Purchaser be entitled to convert that amount of Debentures and Warrants in
excess of that amount upon conversion of which the sum of (1) the number of
shares of Common Stock beneficially owned by the Purchaser and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures and
Warrants), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures and Warrants with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Purchaser and its affiliates of more than 4.9% of the
outstanding shares of Common Stock of the Company. For purposes of this
provision to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13 (d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (1) of such provision.
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<PAGE>
6. DELIVERY INSTRUCTIONS.
On or about the Closing Date the Company shall deliver to the Escrow
Attorney an opinion letter signed by counsel for the Company in the form
attached hereto as Exhibit F. Also, on or about the Closing Date the Company
shall deliver to the Escrow Attorney a signed Registration Rights Agreement
in the form attached hereto as Exhibit B. The Debentures and Warrants being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Attorney, who will hold them in escrow until funds have been wired to the
Company or its Counsel at which time the Escrow Attorney shall then have the
Debentures and Warrants delivered to the Purchaser, per the Purchaser's
instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion at any time before the date set
for closing unless the Company has given notice of acceptance of the
undersigned's subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures and Warrants.
(c) The representations, warranties and agreements of the undersigned
and the Company contained herein and in any other writing delivered in
connection with the transactions contemplated hereby shall be true and
correct in all material respects on and as of the date of the sale of the
Debentures and Warrants, and as of the date of the conversion and exercise
thereof, as if made on and as of such date and shall survive the execution
and delivery of this Subscription Agreement and the purchase of the
Debentures and Warrants.
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<PAGE>
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE,
THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF ANY MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
(e) The Regulation D Offering is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and the provisions of Regulation D thereunder, which is in
part dependent upon the truth, completeness and accuracy of the statements
made by the undersigned herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.
(g) THE DEBENTURES AND WARRANTS MAY NOT BE TRANSFERRED, RESOLD OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
19
<PAGE>
SECURITIES ACT OF 1933 AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY
WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
8. REDEMPTION.
(a) Mandatory - Upon demand from the Purchaser, the Company must
redeem the unconverted amount of Debenture at 120.48% of the balance of the
principal amount of the Debenture plus accrued interest, if (i) the Company
fails to maintain its listing for its common stock on a major United States
stock exchange or (ii) the registration statement does not go effective
within 180 days from the Closing Date. The cash redemption must be paid by
the Company within 5 business days of receipt of written notice by the
Purchaser.
(b) Discretionary - The Company shall have the right to redeem
the Debentures in whole or in part as follows: (i) the Company may redeem at
anytime at 120.48% of the balance remaining of the principal amount of the
Debenture plus any and all accrued interest (ii) upon notice of its right to
redeem the Debenture the Company shall wire transfer the appropriate amount
of funds into an escrow account mutually agreed upon by both Company and
Purchaser within 3 business days of such notice. After the escrow agent is
in receipt of such funds, he shall notify the Purchaser to surrender the
appropriate amount of Debentures. If after 3 business days from the date the
notice of redemption is received by the Purchaser the funds have not been
received by the escrow agent then, the Purchaser shall again have the right
to convert the Debenture and the Company shall have the right to redeem the
Debenture but only upon simultaneously sending the notice of redemption to
the Purchaser and wire transferring the appropriate amount of funds.
9. ARBITRATION.
The parties shall resolve any dispute arising hereunder before a panel
of three arbitrators selected pursuant to and run in accordance with the
Commercial Arbitration rules of the American Arbitration Association as such
rules may be modified or as otherwise agreed by the parties in controversy.
The arbitration shall be held in New York, New York. Each party shall bear
their own attorney's fees and costs of such arbitration. Disputes under this
Agreement as well as all of the terms and conditions of this Agreement shall
be governed in accordance with and by the laws of the State of Minnesota. Any
judgment or award rendered by arbitration may be entered in any Court having
jurisdiction. The parties
20
<PAGE>
acknowledge that, in addition to any and all damages deemed fair by the
arbitrators, the award may be expanded to include, but not be limited to, any
and all court or arbitration costs, reasonable attorney fees and any other
costs or charges reasonably necessary to the adjudication of the controversy.
Nothing contained herein shall deprive any party of the right to obtain
injunctive or other equitable relief. Remedy at law for any breach or
threatened breach of this agreement being inadequate, either party hereto is
entitled to enforce the specific performance of this agreement and to seek
temporary or permanent injunctive relief without the necessity of providing
actual damages outside of the terms of this agreement.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed:
(i) if to the Company, at Casino Resource Corporation, 707 Bienville
Boulevard, Ocean Springs, Mississippi 39564 (ii) if to the undersigned, at
the address for correspondence set forth in the Questionnaire, or at such
other address as may have been specified by written notice given in
accordance with this paragraph 10(c).
(d) This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of
Minnesota, as such laws are applied by Minnesota courts to agreements entered
into, and to be performed in, Minnesota by and between residents of
Minnesota, and shall be binding upon the undersigned, the undersigned's
heirs, estate, legal representatives, successors and assigns and shall inure
to the benefit of the Company, its successors and assigns. If any provision
of this Subscription Agreement is invalid or unenforceable under any
applicable statue or rule of law, then such provisions shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or
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<PAGE>
rule of law. Any provision hereof that may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D, E
and F attached hereto and made a part hereof, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and may
be amended only by a writing executed by both parties hereto. An executed
facsimile copy of the Subscription Agreement shall be effective as an
original.
11. SIGNATURE.
The signature of this Subscription Agreement is contained as part of the
applicable Subscription Package, entitled "Signature Page."
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
CASINO RESOURCE CORPORATION
CORPORATION QUESTIONNAIRE
INVESTOR NAME:
-----------
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be
accepted.
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<PAGE>
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems
appropriate if called upon to establish that the proposed offer and sale of
the Debentures is exempt from registration under the Securities Act of 1933,
as amended. Further, the undersigned CORPORATION understands that the
offering is required to be reported to the Securities and Exchange Commission
and to various state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE CORPORATION.
[ ]
1. The undersigned CORPORATION: (a) has total assets in excess of
$5,000,000; (b) was not formed for the specific purpose of
acquiring the Debentures and (c) has its principal place of
business in ___________.
[ ]
2. Each of the shareholders of the undersigned CORPORATION is able
to certify that such shareholder meets at least one of the
following three conditions:
(a) the shareholder is a natural person whose individual net
worth* or joint net worth with his or her spouse exceeds
$1,000,000; or
(b) the shareholder is a natural person who had an individual income* in
excess of $200,000 in each of 1995 and 1996 and who reasonably expects an
individual income in excess of $200,000 in 1997; or
(c) Each of the shareholders of the undersigned CORPORATION is
able to certify that such shareholder is a natural person who,
together with his or her spouse, has had a joint income in
excess of $300,000 in each of 1995 and 1996 and who reasonably
expects a joint income in excess of $300,000 during 1997; and
the undersigned
23
<PAGE>
CORPORATION has its principal place of business in
_____________________.
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining income, an investor
should add to his or her adjusted gross income any amounts attributable to tax-
exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to IRA or Keogh
retirement plan, alimony payments and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income.
/ /
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the Securities
Act; or
(b) a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; or
(d) an insurance company as defined in Section 2(13) of the
Securities Act; or
(e) An investment company registered under the Investment
Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of the Investment Company Act of
1940; or
(f) a small business investment company licensed by the U.S.
Small Business Administration under Section 301 (c) or (d) of
the Small Business Investment Act of 1958; or
(g) a private business development company as defined in
Section 202(a) (22) of the Investment Advisors Act of 1940.
II. OTHER CERTIFICATIONS.
24
<PAGE>
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely
for the CORPORATION'S own account and not for the account of any other
person or entity; and
(b) that the CORPORATION'S name, address of principal place of
business, place of incorporation and taxpayer identification number as
set forth in this Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business:
-------------------------------------------------
- ------------------------------------------------------------------------------
Address for Correspondence (if different):
------------------------------------
(Number and Street)
- ------------------------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number:
-------------------------------------------------------------
(Area Code) (Number)
Jurisdiction of Incorporation:
-----------------------------------------------
Date of Formation:
------------------------------------------------------------
Taxpayer Identification Number:
-----------------------------------------------
Number of Shareholders:
-------------------------------------------------------
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:
-------------------------------------------------------------------------
25
<PAGE>
Position or Title:
-----------------------------------------------------------
CASINO RESOURCE CORPORATION
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the
agreement by the Purchaser to be bound by the QUESTIONNAIRE and the
SUBSCRIPTION AGREEMENT.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the Purchaser will
notify CASINO RESOURCE CORPORATION immediately if any material change in any
of the information occurs prior to the acceptance of the undersigned
Purchaser's subscription and will promptly send CASINO RESOURCE CORPORATION
written confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he
has read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and
warrants that he has been duly authorized by all requisite action on the part
of the Corporation to acquire the Debentures and sign this Subscription
Agreement on behalf of________________ and, further, that _________________
has all requisite authority to purchase the Debentures and enter into this
Subscription Agreement.
- ------------------------------ --------------------------------------
Amount of Debentures subscribed for Date
--------------------------------------
(Purchaser)
By:
----------------------------------
(Signature)
Name:
---------------------------------
(Please Type or Print)
Title:
--------------------------------
(Please Type or Print)
26
<PAGE>
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT.
COMPANY ACCEPTANCE PAGE
THIS SUBSCRIPTION AGREEMENT ACCEPTED AND AGREED
TO THIS DAY OF AUGUST, 1997
-----
CASINO RESOURCE CORPORATION
BY
------------------------------------------
JOHN J. PILGER ITS CHIEF EXECUTIVE OFFICER
27
<PAGE>
Exhibit E
NOTICE OF CONVERSION
--------------------
(To be Executed by the Registered owner in order to Convert
the Debentures
The undersigned hereby irrevocably elects, as of ______________,
199__ to convert $__________ of Convertible Debentures into Common Stock
of CASINO RESOURCE CORPORATION(the "Company") according to the conditions
set forth in the Subscription Agreement dated August ____, 1997.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
28
<PAGE>
____________________________________________________________
Phone______________________ Fax___________________________
29
<PAGE>
CASINO RESOURCE CORPORATION
COMMON STOCK PURCHASE WARRANT
Casino Resource Corporation, a Minnesota corporation (the "COMPANY"),
hereby agrees that, for value received, THE GIFFORD FUND, LTD., is entitled,
subject to the terms set forth below, to purchase from the Company at any
time or from time to time after September 9, 1997, and before 5:00 P.M.,
Biloxi, Mississippi time, on September 9, 2000, Six Thousand Two Hundred
Fifty (6,250) shares of the $.01 par value Common Stock of the Company (the
"COMMON STOCK"), at an exercise price equal to one hundred twenty percent
(120%) of the average closing bid price of the Common Stock quoted by the
Nasdaq Stock Market for the five (5)-day trading period ending the last
trading day prior to September 9, 1997, subject to adjustment as provided
herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant
shall be exercised (in minimum quantities of 1,000 shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied
by payment, in cash or by cashier's check payable to the order of the
Company, of the purchase price payable in respect of the Common Stock being
purchased. If less than all of the Common Stock purchasable hereunder is
purchased, the Company will, upon such exercise, execute and deliver to the
holder hereof a new Warrant (dated the date hereof) evidencing the number of
shares of Common Stock not so purchased. As soon as practicable after the
exercise of this Warrant and payment of the purchase price, the Company will
cause to be issued in the name of and delivered to the holder hereof, or as
such holder may direct, a certificate or certificates representing the shares
purchased upon such exercise. The Company may require that such certificate
or certificates contain on the face thereof legends substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase Warrant
dated September 2, 1997, issued by Casino Resource Corporation, a
copy of which is available for inspection at the offices of Casino
Resource Corporation Transfer may not be made except in accordance
with the terms of the Common Stock Purchase Warrant. In addition,
no sale, offer to sell or transfer of the shares represented by this
certificate shall be made unless a registration statement under the
Federal Securities Act of 1933, as amended (the "ACT"), with respect
to such shares is then in effect or an exemption from the registration
requirements of the Act is then in fact applicable to such shares.
Notwithstanding the foregoing, such shares are also subject to the
registration rights set forth in each of that certain Subscription
Agreement and Registration Rights Agreement by and between the holder
hereof and the Company, a copy of each is on file at the Company's
principal executive office.
- ------------------------
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH ON PAGE
5 HEREOF.
<PAGE>
The securities represented hereby have been included in the
Company's Registration Statement initially filed with the
Securities and Exchange Commission on __________, 1997, and
may be sold in accordance with, an upon delivery of, a copy of
the Company's Prospectus dated _____________, 1997, which forms a
part of such Registration Statement, or an opinion of counsel or
other evidence acceptable to the Company that such registration is
not required."
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the
following terms, to which each holder hereof consents and agrees:
(a) Until this Warrant is duly transferred on the books of the
Company, the Company may treat the registered holder of this
Warrant as absolute owner hereof for all purposes without
being affected by any notice to the contrary.
(b) Each successive holder of this Warrant, or of any portion of
the rights represented thereby, shall be bound by the terms
and conditions set forth herein.
3. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time
hereafter subdivide or combine its outstanding shares of Common Stock, or
declare a dividend payable in Common Stock, the exercise price in effect
immediately prior to the subdivision, combination or record date for such
dividend payable in Common Stock shall forthwith be proportionately
increased, in the case of combination, or proportionately decreased, in the
case of subdivision or declaration of a dividend payable in Common Stock, and
each share of Common Stock purchasable upon exercise of this Warrant,
immediately preceding such event, shall be changed to the number determined
by dividing the then current exercise price by the exercise price as adjusted
after such subdivision, combination or dividend payable in Common Stock.
No fractional shares of Common Stock are to be issued upon the exercise
of the Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to
the same fraction of the market price per share of Common Stock on the day of
exercise as determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
shares of Common Stock of the Company, or in the case of any consolidation
with or merger of the Company into or with another corporation, or the sale
of all or substantially all of its assets to another corporation, which is
effected in such a manner that the holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a part of such reorganization, reclassification,
consolidation, merger or sale, as the case may be, lawful provision shall be
made so that the holder of the Warrant shall have the right thereafter to
receive, upon the exercise hereof, the kind and amount of shares of stock or
other securities or property which the holder would have been entitled to
receive if, immediately prior to such reorganization, reclassification,
consolidation, merger or sale, the holder had held the number of shares of
Common Stock which were then purchasable upon the exercise of the Warrant.
In any such case, appropriate
2
<PAGE>
adjustment (as determined in good faith 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 interest thereafter of the holder of the
Warrant, to the end that the provisions set forth herein (including
provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
(a) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price; and
(b) cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4. TRANSFERABILITY. Prior to making any disposition of the Warrant or
of any Common Stock purchased upon exercise of the Warrant, the holder will
give written notice to the Company describing briefly the manner of any such
proposed disposition. The holder will not make any such disposition until
(i) the Company has notified him that, in the opinion of its counsel,
registration under the Act is not required with respect to such disposition,
or (ii) a registration statement covering the proposed distribution has been
filed by the Company and has become effective. The holder then will make any
disposition only pursuant to the conditions of such opinion or registration.
The Company agrees that, upon receipt of written notice from the holder
hereof with respect to such proposed distribution, it will use its best
efforts, in consultation with the holder's counsel, to ascertain as promptly
as possible whether or not registration is required, and will advise the
holder promptly with respect thereto, and the holder will cooperate in
providing the Company with information necessary to make such determination.
5. REGISTRATION RIGHTS.
The Common Stock underlying this Warrant is subject to the terms of that
certain Registration Rights Agreement dated as of September 2, 1997, by and
between the Company and The Gifford Fund, Ltd.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at the holder's last known post office address appearing on the
books of the Company, not less than fifteen (l5) days prior to the date on
which (a) a record will be taken for the purpose of determining the holders
of Common Stock entitled to dividends (other than cash dividends) or
subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the holders of
Common Stock entitled to notice of and to vote at a meeting of stockholders
at which any capital reorganization, reclassification of shares of Common
Stock, consolidation, merger, dissolution, liquidation, winding up or sale of
substantially all of the Company's assets shall be considered and acted upon.
3
<PAGE>
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant upon the basis herein
set forth shall at all times be reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or
sale of shares of Common Stock, the term "COMMON STOCK" shall include any
stock of any class of the Company other than preferred stock with a fixed
limit on dividends and a fixed amount payable in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will, at all times in
good faith, assist, insofar as it is able, in the carrying out of all
provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of the holder hereof against
dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names
and addresses of all holders of warrants originally issued under the terms
of, and concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock
Purchase Warrant shall be interpreted under the laws of the State of
Minnesota.
All shares of Common Stock or other securities issued upon the exercise
of the Warrant shall be validly issued, fully paid and non-assessable, and
the Company will pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder (including, no right to vote
on any matters coming before the shareholders and no right to receive any
dividends) of the Company for any purpose whatsoever until and unless this
Warrant is duly exercised and Common Stock issued.
4
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by Casino
Resource Corporation, this _________ day of_______________, 1997.
CASINO RESOURCE CORPORATION
By
----------------------------------------
Title:
-----------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED OR
OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE
MADE BY THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
5
<PAGE>
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________ of the shares of Common Stock of
Casino Resource Corporation to which such Warrant relates and herewith makes
payment of $___________ therefor in cash or by certified check, and requests
that such shares be issued and be delivered to, _________________________,
the address for which is set forth below the signature of the undersigned.
Dated:
----------------------
- ------------------------------ ------------------------------------------
(Taxpayer's I.D. Number) (Signature)
------------------------------------------
------------------------------------------
(Address)
--------------------------------
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares of Common
Stock of Casino Resource Corporation to which the within Warrant relates and
appoints _________________, attorney, to transfer said right on the books of
Casino Resource Corporation with full power of substitution in the premises.
Dated:
----------------------
------------------------------------------
(Signature)
------------------------------------------
------------------------------------------
(Address)
<PAGE>
CASINO RESOURCE CORPORATION
COMMON STOCK PURCHASE WARRANT
Casino Resource Corporation, a Minnesota corporation (the "COMPANY"),
hereby agrees that, for value received, G.P.S. FUND, LTD., is entitled,
subject to the terms set forth below, to purchase from the Company at any
time or from time to time after September 10, 1997, and before 5:00 P.M.,
Biloxi, Mississippi time, on September 10, 2000, Three Thousand Seven Hundred
Fifty (3,750) shares of the $.01 par value Common Stock of the Company (the
"COMMON STOCK"), at an exercise price equal to one hundred twenty percent
(120%) of the average closing bid price of the Common Stock quoted by the
Nasdaq Stock Market for the five (5)-day trading period ending the last
trading day prior to September 10, 1997, subject to adjustment as provided
herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant
shall be exercised (in minimum quantities of 1,000 shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied
by payment, in cash or by cashier's check payable to the order of the
Company, of the purchase price payable in respect of the Common Stock being
purchased. If less than all of the Common Stock purchasable hereunder is
purchased, the Company will, upon such exercise, execute and deliver to the
holder hereof a new Warrant (dated the date hereof) evidencing the number of
shares of Common Stock not so purchased. As soon as practicable after the
exercise of this Warrant and payment of the purchase price, the Company will
cause to be issued in the name of and delivered to the holder hereof, or as
such holder may direct, a certificate or certificates representing the shares
purchased upon such exercise. The Company may require that such certificate
or certificates contain on the face thereof legends substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase Warrant
dated September 2, 1997, issued by Casino Resource Corporation, a
copy of which is available for inspection at the offices of Casino
Resource Corporation Transfer may not be made except in accordance
with the terms of the Common Stock Purchase Warrant. In addition, no
sale, offer to sell or transfer of the shares represented by this
certificate shall be made unless a registration statement under the
Federal Securities Act of 1933, as amended (the "ACT"), with respect
to such shares is then in effect or an exemption from the registration
requirements of the Act is then in fact applicable to such shares.
Notwithstanding the foregoing, such shares are also subject to the
registration rights set forth in each of that certain Subscription
Agreement and Registration Rights Agreement by and between the holder
hereof and the Company, a copy of each is on file at the Company's
principal executive office.
- ------------------------
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH ON PAGE 5
HEREOF.
<PAGE>
The securities represented hereby have been included in the Company's
Registration Statement initially filed with the Securities and
Exchange Commission on _________, 1997, and may be sold in accordance
with, an upon delivery of, a copy of the Company's Prospectus dated
_____________, 1997, which forms a part of such Registration Statement,
or an opinion of counsel or other evidence acceptable to the Company
that such registration is not required."
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the
following terms, to which each holder hereof consents and agrees:
(a) Until this Warrant is duly transferred on the books of the
Company, the Company may treat the registered holder of this
Warrant as absolute owner hereof for all purposes without being
affected by any notice to the contrary.
(b) Each successive holder of this Warrant, or of any portion of
the rights represented thereby, shall be bound by the terms and
conditions set forth herein.
3. Antidilution Adjustments. If the Company shall at any time
hereafter subdivide or combine its outstanding shares of Common Stock, or
declare a dividend payable in Common Stock, the exercise price in effect
immediately prior to the subdivision, combination or record date for such
dividend payable in Common Stock shall forthwith be proportionately
increased, in the case of combination, or proportionately decreased, in the
case of subdivision or declaration of a dividend payable in Common Stock, and
each share of Common Stock purchasable upon exercise of this Warrant,
immediately preceding such event, shall be changed to the number determined
by dividing the then current exercise price by the exercise price as adjusted
after such subdivision, combination or dividend payable in Common Stock.
No fractional shares of Common Stock are to be issued upon the exercise
of the Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to
the same fraction of the market price per share of Common Stock on the day of
exercise as determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
shares of Common Stock of the Company, or in the case of any consolidation
with or merger of the Company into or with another corporation, or the sale
of all or substantially all of its assets to another corporation, which is
effected in such a manner that the holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a part of such reorganization, reclassification,
consolidation, merger or sale, as the case may be, lawful provision shall be
made so that the holder of the Warrant shall have the right thereafter to
receive, upon the exercise hereof, the kind and amount of shares of stock or
other securities or property which the holder would have been entitled to
receive if, immediately prior to such reorganization, reclassification,
consolidation, merger or sale, the holder had held the number of shares of
Common Stock which were then purchasable upon the exercise of the Warrant.
In any such case, appropriate
2
<PAGE>
adjustment (as determined in good faith 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 interest thereafter of the holder of the
Warrant, to the end that the provisions set forth herein (including
provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
(a) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price; and
(b) cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4. TRANSFERABILITY. Prior to making any disposition of the Warrant or
of any Common Stock purchased upon exercise of the Warrant, the holder will
give written notice to the Company describing briefly the manner of any such
proposed disposition. The holder will not make any such disposition until
(i) the Company has notified him that, in the opinion of its counsel,
registration under the Act is not required with respect to such disposition,
or (ii) a registration statement covering the proposed distribution has been
filed by the Company and has become effective. The holder then will make any
disposition only pursuant to the conditions of such opinion or registration.
The Company agrees that, upon receipt of written notice from the holder
hereof with respect to such proposed distribution, it will use its best
efforts, in consultation with the holder's counsel, to ascertain as promptly
as possible whether or not registration is required, and will advise the
holder promptly with respect thereto, and the holder will cooperate in
providing the Company with information necessary to make such determination.
5. REGISTRATION RIGHTS.
The Common Stock underlying this Warrant is subject to the terms of that
certain Registration Rights Agreement dated as of September 2, 1997, by and
between the Company and G.P.S. Fund, Ltd.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at the holder's last known post office address appearing on the
books of the Company, not less than fifteen (l5) days prior to the date on
which (a) a record will be taken for the purpose of determining the holders
of Common Stock entitled to dividends (other than cash dividends) or
subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the holders of
Common Stock entitled to notice of and to vote at a meeting of stockholders
at which any capital reorganization, reclassification of shares of Common
Stock, consolidation, merger, dissolution, liquidation, winding up or sale of
substantially all of the Company's assets shall be considered and acted upon.
3
<PAGE>
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant upon the basis herein
set forth shall at all times be reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or
sale of shares of Common Stock, the term "COMMON STOCK" shall include any
stock of any class of the Company other than preferred stock with a fixed
limit on dividends and a fixed amount payable in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will, at all times in
good faith, assist, insofar as it is able, in the carrying out of all
provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of the holder hereof against
dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names
and addresses of all holders of warrants originally issued under the terms
of, and concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock
Purchase Warrant shall be interpreted under the laws of the State of
Minnesota.
All shares of Common Stock or other securities issued upon the exercise
of the Warrant shall be validly issued, fully paid and non-assessable, and
the Company will pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder (including, no right to vote
on any matters coming before the shareholders and no right to receive any
dividends) of the Company for any purpose whatsoever until and unless this
Warrant is duly exercised and Common Stock issued.
4
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by Casino
Resource Corporation, this _________ day of_______________, 1997.
CASINO RESOURCE CORPORATION
By
-------------------------------------
Title:
-----------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE
COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION
OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
5
<PAGE>
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________ of the shares of Common Stock of
Casino Resource Corporation to which such Warrant relates and herewith makes
payment of $___________ therefor in cash or by certified check, and requests
that such shares be issued and be delivered to, _________________________,
the address for which is set forth below the signature of the undersigned.
Dated:
----------------------
- ------------------------------ ------------------------------------------
(Taxpayer's I.D. Number) (Signature)
------------------------------------------
------------------------------------------
(Address)
--------------------------------
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares of Common
Stock of Casino Resource Corporation to which the within Warrant relates and
appoints _________________, attorney, to transfer said right on the books of
Casino Resource Corporation with full power of substitution in the premises.
Dated:
----------------------
-------------------------------------------
(Signature)
-------------------------------------------
-------------------------------------------
(Address)
<PAGE>
CASINO RESOURCE CORPORATION
COMMON STOCK PURCHASE WARRANT
Casino Resource Corporation, a Minnesota corporation (the "COMPANY"),
hereby agrees that, for value received, JOSEPH B. LAROCCO, is entitled,
subject to the terms set forth below, to purchase from the Company at any
time or from time to time after September 10, 1997, and before 5:00 P.M.,
Biloxi, Mississippi time, on September 10, 2000, Seven Thousand Five Hundred
(7,500) shares of the $.01 par value Common Stock of the Company (the "COMMON
STOCK"), at an exercise price equal to one hundred twenty percent (120%) of
the average closing bid price of the Common Stock quoted by the Nasdaq Stock
Market for the five (5)-day trading period ending the last trading day prior
to September 10, 1997, subject to adjustment as provided herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant shall
be exercised (in minimum quantities of 1,000 shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied
by payment, in cash or by cashier's check payable to the order of the
Company, of the purchase price payable in respect of the Common Stock being
purchased. If less than all of the Common Stock purchasable hereunder is
purchased, the Company will, upon such exercise, execute and deliver to the
holder hereof a new Warrant (dated the date hereof) evidencing the number of
shares of Common Stock not so purchased. As soon as practicable after the
exercise of this Warrant and payment of the purchase price, the Company will
cause to be issued in the name of and delivered to the holder hereof, or as
such holder may direct, a certificate or certificates representing the shares
purchased upon such exercise. The Company may require that such certificate
or certificates contain on the face thereof legends substantially as follows:
"The transfer of the shares represented by this certificate is restricted
pursuant to the terms of a Common Stock Purchase Warrant dated September
2, 1997, issued by Casino Resource Corporation, a copy of which is
available for inspection at the offices of Casino Resource Corporation
Transfer may not be made except in accordance with the terms of the
Common Stock Purchase Warrant. In addition, no sale, offer to sell or
transfer of the shares represented by this certificate shall be made
unless a registration statement under the Federal Securities Act of
1933, as amended (the "Act"), with respect to such shares is then in
effect or an exemption from the registration requirements of the Act is
then in fact applicable to such shares. Notwithstanding the foregoing,
such shares are also subject to the registration rights set forth in
each of that certain Subscription Agreement and Registration Rights
Agreement by and between the holder hereof and the Company, a copy of
each is on file at the Company's principal executive office.
________________________
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH ON PAGE 5
HEREOF.
<PAGE>
The securities represented hereby have been included in the Company's
Registration Statement initially filed with the Securities and Exchange
Commission on _________, 1997, and may be sold in accordance with, an
upon delivery of, a copy of the Company's Prospectus dated _____________,
1997, which forms a part of such Registration Statement, or an opinion of
counsel or other evidence acceptable to the Company that such registration
is not required."
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the following
terms, to which each holder hereof consents and agrees:
(a) Until this Warrant is duly transferred on the books of the
Company, the Company may treat the registered holder of this
Warrant as absolute owner hereof for all purposes without being
affected by any notice to the contrary.
(b) Each successive holder of this Warrant, or of any portion of the
rights represented thereby, shall be bound by the terms and
conditions set forth herein.
3. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time
hereafter subdivide or combine its outstanding shares of Common Stock, or
declare a dividend payable in Common Stock, the exercise price in effect
immediately prior to the subdivision, combination or record date for such
dividend payable in Common Stock shall forthwith be proportionately
increased, in the case of combination, or proportionately decreased, in the
case of subdivision or declaration of a dividend payable in Common Stock, and
each share of Common Stock purchasable upon exercise of this Warrant,
immediately preceding such event, shall be changed to the number determined
by dividing the then current exercise price by the exercise price as adjusted
after such subdivision, combination or dividend payable in Common Stock.
No fractional shares of Common Stock are to be issued upon the exercise of
the Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to
the same fraction of the market price per share of Common Stock on the day of
exercise as determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
shares of Common Stock of the Company, or in the case of any consolidation
with or merger of the Company into or with another corporation, or the sale
of all or substantially all of its assets to another corporation, which is
effected in such a manner that the holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a part of such reorganization, reclassification,
consolidation, merger or sale, as the case may be, lawful provision shall be
made so that the holder of the Warrant shall have the right thereafter to
receive, upon the exercise hereof, the kind and amount of shares of stock or
other securities or property which the holder would have been entitled to
receive if, immediately prior to such reorganization, reclassification,
consolidation, merger or sale, the holder had held the number of shares of
Common Stock which were then purchasable upon the exercise of the Warrant.
In any such case, appropriate
2
<PAGE>
adjustment (as determined in good faith 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 interest thereafter of the holder of the
Warrant, to the end that the provisions set forth herein (including
provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
(a) prepare and retain on file a statement describing in reasonable detail
the method used in arriving at the new exercise price; and
(b) cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4. TRANSFERABILITY. Prior to making any disposition of the Warrant or of
any Common Stock purchased upon exercise of the Warrant, the holder will give
written notice to the Company describing briefly the manner of any such
proposed disposition. The holder will not make any such disposition until
(i) the Company has notified him that, in the opinion of its counsel,
registration under the Act is not required with respect to such disposition,
or (ii) a registration statement covering the proposed distribution has been
filed by the Company and has become effective. The holder then will make any
disposition only pursuant to the conditions of such opinion or registration.
The Company agrees that, upon receipt of written notice from the holder
hereof with respect to such proposed distribution, it will use its best
efforts, in consultation with the holder's counsel, to ascertain as promptly
as possible whether or not registration is required, and will advise the
holder promptly with respect thereto, and the holder will cooperate in
providing the Company with information necessary to make such determination.
5. REGISTRATION RIGHTS.
The Common Stock underlying this Warrant is subject to the terms of that
certain Registration Rights Agreement dated as of September 2, 1997, by and
between the Company and Joseph B. LaRocco.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at the holder's last known post office address appearing on the
books of the Company, not less than fifteen (l5) days prior to the date on
which (a) a record will be taken for the purpose of determining the holders
of Common Stock entitled to dividends (other than cash dividends) or
subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the holders of
Common Stock entitled to notice of and to vote at a meeting of stockholders
at which any capital reorganization, reclassification of shares of Common
Stock, consolidation, merger, dissolution, liquidation, winding up or sale of
substantially all of the Company's assets shall be considered and acted upon.
3
<PAGE>
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant upon the basis herein
set forth shall at all times be reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the term "COMMON STOCK" shall include any stock of
any class of the Company other than preferred stock with a fixed limit on
dividends and a fixed amount payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will, at all times in
good faith, assist, insofar as it is able, in the carrying out of all
provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of the holder hereof against
dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names
and addresses of all holders of warrants originally issued under the terms
of, and concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock
Purchase Warrant shall be interpreted under the laws of the State of
Minnesota.
All shares of Common Stock or other securities issued upon the exercise of
the Warrant shall be validly issued, fully paid and non-assessable, and the
Company will pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder (including, no right to vote
on any matters coming before the shareholders and no right to receive any
dividends) of the Company for any purpose whatsoever until and unless this
Warrant is duly exercised and Common Stock issued.
4
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by Casino Resource
Corporation, this _________ day of_______________, 1997.
CASINO RESOURCE CORPORATION
By ________________________________
Title: ______________________
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF, AND NO
TRANSFER OF THE SECURITIES WILL BE MADE BY THE COMPANY OR ITS TRANSFER AGENT,
IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
5
<PAGE>
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________ of the shares of Common Stock of
Casino Resource Corporation to which such Warrant relates and herewith makes
payment of $___________ therefor in cash or by certified check, and requests
that such shares be issued and be delivered to, _________________________,
the address for which is set forth below the signature of the undersigned.
Dated: ______________________
______________________________ __________________________________________
(Taxpayer's I.D. Number) (Signature)
__________________________________________
__________________________________________
(Address)
________________________________
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares of Common
Stock of Casino Resource Corporation to which the within Warrant relates and
appoints _________________, attorney, to transfer said right on the books of
Casino Resource Corporation with full power of substitution in the premises.
Dated: ______________________
__________________________________________
(Signature)
__________________________________________
__________________________________________
(Address)
<PAGE>
CASINO RESOURCE CORPORATION
COMMON STOCK PURCHASE WARRANT
Casino Resource Corporation, a Minnesota corporation (the "COMPANY"),
hereby agrees that, for value received, INTERCONTINENTAL HOLDING COMPANY,
LTD., is entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time after September 10, 1997, and before
5:00 P.M., Biloxi, Mississippi time, on September 10, 2000, Seven Thousand
Five Hundred (7,500) shares of the $.01 par value Common Stock of the Company
(the "Common Stock"), at an exercise price equal to one hundred twenty
percent (120%) of the average closing bid price of the Common Stock quoted by
the Nasdaq Stock Market for the five (5)-day trading period ending the last
trading day prior to September 10, 1997, subject to adjustment as provided
herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant shall
be exercised (in minimum quantities of 1,000 shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied
by payment, in cash or by cashier's check payable to the order of the
Company, of the purchase price payable in respect of the Common Stock being
purchased. If less than all of the Common Stock purchasable hereunder is
purchased, the Company will, upon such exercise, execute and deliver to the
holder hereof a new Warrant (dated the date hereof) evidencing the number of
shares of Common Stock not so purchased. As soon as practicable after the
exercise of this Warrant and payment of the purchase price, the Company will
cause to be issued in the name of and delivered to the holder hereof, or as
such holder may direct, a certificate or certificates representing the shares
purchased upon such exercise. The Company may require that such certificate
or certificates contain on the face thereof legends substantially as follows:
"The transfer of the shares represented by this certificate is restricted
pursuant to the terms of a Common Stock Purchase Warrant dated September
2, 1997, issued by Casino Resource Corporation, a copy of which is
available for inspection at the offices of Casino Resource Corporation
Transfer may not be made except in accordance with the terms of the
Common Stock Purchase Warrant. In addition, no sale, offer to sell or
transfer of the shares represented by this certificate shall be made
unless a registration statement under the Federal Securities Act of
1933, as amended (the "Act"), with respect to such shares is then in
effect or an exemption from the registration requirements of the Act is
then in fact applicable to such shares. Notwithstanding the foregoing,
such shares are also subject to the registration rights set forth in
each of that certain Subscription Agreement and Registration Rights
Agreement by and between the holder hereof and the Company, a copy of
each is on file at the Company's principal executive office.
________________________
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH ON PAGE 5
HEREOF.
<PAGE>
The securities represented hereby have been included in the Company's
Registration Statement initially filed with the Securities and Exchange
Commission on _________, 1997, and may be sold in accordance with, an
upon delivery of, a copy of the Company's Prospectus dated _____________,
1997, which forms a part of such Registration Statement,
or an opinion of counsel or other evidence acceptable to the Company
that such registration is not required."
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the following
terms, to which each holder hereof consents and agrees:
(a) Until this Warrant is duly transferred on the books of the
Company, the Company may treat the registered holder of this
Warrant as absolute owner hereof for all purposes without being
affected by any notice to the contrary.
(b) Each successive holder of this Warrant, or of any portion of the
rights represented thereby, shall be bound by the terms and
conditions set forth herein.
3. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare a
dividend payable in Common Stock, the exercise price in effect immediately
prior to the subdivision, combination or record date for such dividend
payable in Common Stock shall forthwith be proportionately increased, in the
case of combination, or proportionately decreased, in the case of subdivision
or declaration of a dividend payable in Common Stock, and each share of
Common Stock purchasable upon exercise of this Warrant, immediately preceding
such event, shall be changed to the number determined by dividing the then
current exercise price by the exercise price as adjusted after such
subdivision, combination or dividend payable in Common Stock.
No fractional shares of Common Stock are to be issued upon the exercise of
the Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to
the same fraction of the market price per share of Common Stock on the day of
exercise as determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
shares of Common Stock of the Company, or in the case of any consolidation
with or merger of the Company into or with another corporation, or the sale
of all or substantially all of its assets to another corporation, which is
effected in such a manner that the holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a part of such reorganization, reclassification,
consolidation, merger or sale, as the case may be, lawful provision shall be
made so that the holder of the Warrant shall have the right thereafter to
receive, upon the exercise hereof, the kind and amount of shares of stock or
other securities or property which the holder would have been entitled to
receive if, immediately prior to such reorganization, reclassification,
consolidation, merger or sale, the holder had held the number of shares of
Common Stock which were then purchasable upon the exercise of the Warrant.
In any such case, appropriate
2
<PAGE>
adjustment (as determined in good faith 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 interest thereafter of the holder of the
Warrant, to the end that the provisions set forth herein (including
provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
(a) prepare and retain on file a statement describing in reasonable detail
the method used in arriving at the new exercise price; and
(b) cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4. TRANSFERABILITY. Prior to making any disposition of the Warrant or of
any Common Stock purchased upon exercise of the Warrant, the holder will give
written notice to the Company describing briefly the manner of any such
proposed disposition. The holder will not make any such disposition until
(i) the Company has notified him that, in the opinion of its counsel,
registration under the Act is not required with respect to such disposition,
or (ii) a registration statement covering the proposed distribution has been
filed by the Company and has become effective. The holder then will make any
disposition only pursuant to the conditions of such opinion or registration.
The Company agrees that, upon receipt of written notice from the holder
hereof with respect to such proposed distribution, it will use its best
efforts, in consultation with the holder's counsel, to ascertain as promptly
as possible whether or not registration is required, and will advise the
holder promptly with respect thereto, and the holder will cooperate in
providing the Company with information necessary to make such determination.
5. REGISTRATION RIGHTS.
The Common Stock underlying this Warrant is subject to the terms of that
certain Registration Rights Agreement dated as of September 2, 1997, by and
between the Company and Intercontinental Holding Company, Ltd.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at the holder's last known post office address appearing on the
books of the Company, not less than fifteen (l5) days prior to the date on
which (a) a record will be taken for the purpose of determining the holders
of Common Stock entitled to dividends (other than cash dividends) or
subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the holders of
Common Stock entitled to notice of and to vote at a meeting of stockholders
at which any capital reorganization, reclassification of shares of Common
Stock, consolidation, merger, dissolution, liquidation, winding up or sale of
substantially all of the Company's assets shall be considered and acted upon.
3
<PAGE>
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant upon the basis herein set
forth shall at all times be reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the term "COMMON STOCK" shall include any stock of
any class of the Company other than preferred stock with a fixed limit on
dividends and a fixed amount payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will, at all times in
good faith, assist, insofar as it is able, in the carrying out of all
provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of the holder hereof against
dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names
and addresses of all holders of warrants originally issued under the terms
of, and concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock
Purchase Warrant shall be interpreted under the laws of the State of
Minnesota.
All shares of Common Stock or other securities issued upon the exercise of
the Warrant shall be validly issued, fully paid and non-assessable, and the
Company will pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder (including, no right to vote
on any matters coming before the shareholders and no right to receive any
dividends) of the Company for any purpose whatsoever until and unless this
Warrant is duly exercised and Common Stock issued.
4
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by Casino Resource
Corporation, this _________ day of_______________, 1997.
CASINO RESOURCE CORPORATION
By ______________________________
Title: ____________________
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE
COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
5
<PAGE>
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________ of the shares of Common Stock of
Casino Resource Corporation to which such Warrant relates and herewith makes
payment of $___________ therefor in cash or by certified check, and requests
that such shares be issued and be delivered to, _________________________,
the address for which is set forth below the signature of the undersigned.
Dated: ______________________
______________________________ ___________________________________
(Taxpayer's I.D. Number) (Signature)
___________________________________
___________________________________
(Address)
________________________________
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares of Common
Stock of Casino Resource Corporation to which the within Warrant relates and
appoints _________________, attorney, to transfer said right on the books of
Casino Resource Corporation with full power of substitution in the premises.
Dated: ______________________
__________________________________________
(Signature)
__________________________________________
__________________________________________
(Address)
<PAGE>
(612) 343-5641
October 6, 1997
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, MS 39564
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted on behalf of Casino Resource Corporation (the "COMPANY")
in connection with a Registration Statement on Form S-3 (the "REGISTRATION
STATEMENT") filed by the Company with the Securities and Exchange Commission
relating to the registration of shares of the Company's $.01 par value Common
Stock (the "COMMON STOCK") with respect to Selling Shareholders in an
aggregate amount of 1,075,500 shares of the Common Stock. Upon examination of
such corporate documents and records as we have deemed necessary or advisable
for the purposes hereof and including and in reliance upon certain
certificates by the Company, it is our opinion that:
1. The Company is a validly existing corporation in good standing
under the laws of the State of Minnesota.
2. The 1,075,500 shares of Common Stock registered in the Registration
Statement, when sold as contemplated in the Registration Statement,
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
DOHERTY, RUMBLE & BUTLER,
PROFESSIONAL ASSOCIATION
By /s/ Girard Miller
-----------------------
Girard P. Miller
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of August 29, 1997, by and between CASINO
RESOURCE CORPORATION, a Minnesota corporation (the "COMPANY"), CASINO BUILDING
CORPORATION, a Minnesota corporation ("CBC") and LYLE BERMAN FAMILY GENERAL
PARTNERSHIP, a Minnesota family general partnership ("BFP").
RECITALS:
A. The Company has requested that BFP lend the Company the principal
amount of Eight Hundred Thousand and 00/100 Dollars ($800,000.00) for operating
capital purposes.
B. BFP has agreed to lend such money on the terms and subject to the
conditions set forth herein.
C. The rights and obligations of the Company and BFP relating to the
transaction contemplated in this Agreement are fully contained in this
Agreement, a note executed by the Company (the "NOTE"), a mutual release
agreement by and between the Company, BFP and CBC and a stock pledge
agreement between the Company and BFP (the "STOCK PLEDGE AGREEMENT"), all of
even date herewith, and collectively referred to as the "LOAN DOCUMENTS".
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
promises set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. TERMS. The terms of lending upon which the parties have agreed
are as follows:
1.01 LOAN. BFP agrees to lend to the Company and the Company agrees to
borrow from BFP the sum of Eight Hundred Thousand and 00/100 Dollars
($800,000.00) (the "Loan") upon the terms and subject to the conditions of
this Agreement and as contained in the Note.
1.02 INTEREST; REPAYMENT. Interest on the unpaid principal balance of
the Note from time to time outstanding (computed on the basis of actual days
elapsed and a year of 365 days) shall accrue and be payable at the rate
stated therein. The Company shall pay interest only payments on a monthly
basis for the period commencing on the date hereof and terminating on the
first annual anniversary of the opening date of the Company's casino located
in Sousse, Tunisia. Monthly installments of interest are due and payable
within ten (10) days of the beginning of each calendar month. Such interest
shall equal the greater of twenty percent (20%) per annum or five percent
(5%) of the Casino's gross gaming win for its first year of operation,
calculated as follows (computed on the basis of the actual number of days
elapsed in a year of 365 days): (i) from the date hereof until the opening
of the Company's casino located in Sousse, Tunisia (the "CASINO") at the rate
of twenty
<PAGE>
percent (20%) per annum; and (ii) from the date of opening of the Casino and
thereafter on a monthly basis, at the higher of an amount equal to twenty
percent (20%) per annum or an amount equal to the equivalent of five percent
(5%) of the gross amount of the Casino's monthly gaming win for the month in
which interest is being calculated; and (iii) following the end of the
Casino's first year of operation, a determination shall be made as to whether
the actual interest payable to BFP under subsections (i) and (ii) equal or
exceed five percent (5%) of the Casino's gross gaming win for such one (1)
year period; if such amounts payable under subsections (i) and (ii) are less
than five percent (5%) of such annual gross gaming win, then the difference
shall be paid to BFP within sixty (60) days following the end of such first
year of operations.
1.03 COLLATERAL AND PLEDGE. This Agreement and the Note are secured by a
pledge by the Company of all the issued and outstanding common stock of CBC
pursuant to the terms of the Stock Pledge Agreement. The sole asset of CBC,
the 154-room hotel located in Hinckley, Minnesota, and related furniture,
fixtures and equipment, are subject to a mortgage dated as of April 1, 1994,
in the original principal amount of Three Million Three Hundred Thousand
Dollars ($3,300,000.00), the current outstanding principal balance of which
is Two Million Five Hundred Forty Thousand Eighty and 00/100 Dollars
($2,540,080.00), in favor of Miller & Schroeder Investments Corporation, as
mortgagee, a One Hundred Thousand and 00/100 Dollar ($100,000.00) line of
credit agreement in favor of Rural American Bank-Hinckley, and CBC will not
incur any other indebtedness, except accounts payable, leasehold financing
and accruals incurred in the ordinary course of business.
1.04 REPLACEMENT COLLATERAL. The Company may, at any time during the
term of this Agreement, choose to substitute $800,000.00 pursuant to the
terms of the Stock Pledge Agreement, as replacement collateral for the
collateral as described in Section 1.03. In the event the Company chooses
this option, BFP shall promptly execute a release of all interest in the CBC
common stock under the Stock Pledge Agreement.
1.05 PAYMENTS. All payments by the Company of principal and of interest
on the Note, and all fees, expenses, and other obligations under this
Agreement payable to BFP shall be made in immediately available funds on the
dates called for under this Agreement at Grand Casinos, Inc., c/o Kenneth W.
Brimmer, 130 Cheshire Lane, Minnetonka, MN 55305 or such other location as
BFP may require. If any payment of principal or of interest on the Note or
any fee payable hereunder becomes due and payable on a day which is not a
business day (any day when federal banks are not open for business), such
payment shall be made on the next succeeding business day and such extension
of time shall in such case be included in the computation of any interest on
such principal payment.
1.06 USE OF PROCEEDS. The proceeds under the Note shall be used by the
Company for operating capital for the Company.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY AND
CBC. The Company and CBC represent, warrant and covenant to BFP that:
2.01 ACCURACY OF INFORMATION. All information, certificates or
statements given to BFP pursuant to this Agreement and the other Loan
Documents will be true and complete when given.
2
<PAGE>
2.02 ORGANIZATION AND AUTHORITY. The Company and CBC are validly
existing corporations in good standing under the laws of its state of
Minnesota, and each has all requisite power and authority, corporate or
otherwise, and possesses all licenses necessary, to conduct its business and
own its properties. The execution, delivery and performance of this
Agreement and the other Loan Documents (i) are within the Company's power;
(ii) have been duly authorized by proper corporate action; (iii) do not
require the approval of any governmental agency; and (iv) will not violate
any law, agreement or restriction by which the Company is bound. This
Agreement and the other Loan Documents are the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms.
2.03 EXISTENCE; BUSINESS ACTIVITIES; ASSETS. Subject to Section 1.04 of
this Agreement, CBC will (i) preserve its corporate existence, rights and
franchises; (ii) carry on its business activities in substantially the manner
such activities are conducted as of the date of this Agreement; (iii) not
liquidate, dissolve, merge or consolidate with or into another entity; and
(iv) not sell, lease, transfer or otherwise dispose of all or substantially
all of its assets.
2.04 COMPLIANCE WITH LAWS. CBC has complied with all laws applicable to
its business and its properties, and has all permits, licenses and approvals
required by such laws.
2.05 RESTRICTION ON INDEBTEDNESS. CBC will not create, incur, assume or
have outstanding any indebtedness for borrowed money (excluding its current
line of credit of One Hundred Thousand and 00/100 ($100,000.00) with Rural
American Bank-Hinckley) except (i) any indebtedness owing to BFP, (ii) any
other indebtedness outstanding on the date hereof, and disclosed to BFP prior
to the date hereof, provided that such other indebtedness shall not be
renewed, extended or increased, and (iii) accounts payable, leasehold
financing and accruals incurred in the ordinary course of business.
2.06 RESTRICTION ON CONTINGENT LIABILITIES. CBC will not guarantee or
become a surety or otherwise contingently liable for any obligations of
others, except pursuant to the deposit and collection of checks and similar
matters in the ordinary course of business.
2.07 INSURANCE. CBC will maintain insurance to such extent, covering
such risks and with such insurers as is usual and customary for businesses
with similar operations, and as is satisfactory to BFP, including insurance
for fire and other risks insured against by extended coverage, public
liability insurance and workers' compensation insurance; and designate BFP as
mortgagee and loss payee with related endorsements on any casualty policies
and take such other action as BFP may reasonably request to ensure that BFP
will receive the insurance proceeds on BFP's collateral.
2.08 TAXES AND OTHER LIABILITIES. CBC will pay and discharge, when due,
all of its taxes, assessments and other liabilities, except when the payment
thereof is being contested in good faith by appropriate procedures which will
avoid foreclosure of liens securing such items, and with adequate reserves
provided therefor.
2.09 NOTIFICATION TO BFP. CBC shall, within five (5) days of the receipt
of notification of the commencement of a foreclosure proceeding against the
hotel described in Section 3.01(b) hereof, notify BFP in writing of the
existence of a foreclosure proceeding.
3
<PAGE>
2.10 NAME; LOCATIONS; TAX IDENTIFICATION NUMBER; SUBSIDIARIES. During
their existence, the Company since (1993) and CBC have done business solely
under their respective corporate names as set forth herein and under such
trade names and such other corporate names as disclosed to BFP in writing
before this Agreement is signed and delivered. The address of the Company's
and CBC's chief executive offices and principal places of business and their
respective federal tax identification numbers are set forth below their
respective signatures to this Agreement. Neither the Company nor CBC has any
subsidiaries except as set forth in Attachment 2.10 hereto.
2.11 FINANCIAL CONDITION; NO ADVERSE CHANGE. Before this Agreement was
signed and delivered, the Company and CBC delivered to BFP certain of their
unaudited financial statements. Those statements fairly present the
Company's and CBC's financial condition as the dates indicated therein and
were prepared in accordance with generally-accepted accounting principles.
Since the date of such financial statements, there has been no material
adverse change in the business, properties or condition (financial or
otherwise) of the Company and CBC.
2.12 REPORTING REQUIREMENTS. The Company and CBC will deliver to BFP
each of the following, in form and substance acceptable to BFP:
(a) as soon as available and in any event within ten (10) days after
the end of each month, a statement of the gross gaming win at the Casino,
certified as correct by an officer of the Company;
(b) as soon as available and in any event within thirty (30) days
after the end of each month, an unaudited/internal balance sheet and
statement of income and retained earnings of each of the Company and CBC as
at the end of and for such month and for the year to date period then ended,
prepared in accordance with GAAP (except for the inclusion of footnotes),
subject to year-end audit adjustments, and certified as correct by an officer
of the Company or CBC, as applicable; and
(c) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Company or CBC or which seek a monetary recovery against
the Company or CBC in excess of One Hundred Thousand and 00/100 Dollars
($100,000.00).
2.13 INSPECTION. Upon BFP's request, the Company and CBC will permit any
agent or accountant for BFP to audit, review, make extracts from or copy any
and all records of CBC and to inspect CBC's hotel, at all times during
ordinary business hours.
2.14 NO LIENS. CBC will keep all its assets free and clear of all security
interests, liens and encumbrances except the security interests existing on the
date hereof and disclosed in writing to BFP and other security interests
approved by BFP in writing.
2.15 NO SALE OR TRANSFER OF SHARES OF COMPANY AND CBC. Other than this
transaction, the Company will not sell, transfer, pledge, or grant a security
interest in, any shares of stock of CBC.
4
<PAGE>
2.16 NO ISSUANCE OF CBC STOCK. The Company and CBC will each cause CBC
not to issue additional stock that is not pledged by the Company pursuant to
the Stock Pledge Agreement.
2.17 PLACE OF BUSINESS; NAME. The Company and CBC will not change the
location of their respective chief executive offices or principal places of
business without prior written notification to BFP. Neither the Company nor
CBC will change its name without prior written notification to BFP.
SECTION 3. EVENTS OF DEFAULT AND REMEDIES.
3.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (an "EVENT OF DEFAULT"):
(a) The Company shall fail to make within ten (10) business days
after the same becomes due, whether by acceleration or otherwise (i) any
payment of principal on the Note or (ii) any payment of interest on the Note
or (iii) any fee or other amount required to be paid to BFP pursuant to this
Agreement; or
(b) The commencement of any foreclosure action against the 154-room
hotel located in Hinckley, Minnesota, which is owned by CBC and which
foreclosure action is not discharged within forty-five (45) days.
3.02 REMEDIES. If any Event of Default shall occur and is not cured by
the Company within the time required herein, then BFP may, in addition to
exercising any and all other remedies it may have, declare the outstanding
principal of the Note, the accrued interest thereon, and all other
obligations of the Company to BFP under this Agreement, to be forthwith due
and payable, whereupon the Note, all accrued interest thereon and all such
obligations shall immediately become due and payable, without presentment,
demand, protest, or other notice of any kind, all of which are hereby
expressly waived, anything in this Agreement or in the Note to the contrary
notwithstanding. In the event of the commencement of a foreclosure action
against the hotel described in Section 3.01(b) hereof, BFP is hereby granted
the right to cure any such default, in the event the Company fails to do so,
which gave rise to such foreclosure proceeding and otherwise take such
action to settle the foreclosure proceeding. Any amounts advanced by BFP in
connection with curing a default, including BFP's expenses and reasonable
attorneys' fees, shall be secured by the Stock Pledge Agreement and shall
accrue interest at the rate of interest as provided in Section 1.02 of this
Agreement.
SECTION 4. MISCELLANEOUS.
4.01 DELAY; CUMULATIVE REMEDIES. No delay on the part of BFP in
exercising any right, power or privilege hereunder or under any of the other
Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein specified are cumulative and are
not exclusive of any rights or remedies which BFP would otherwise have.
5
<PAGE>
4.02 SUCCESSORS. The rights, options, powers and remedies granted in
this Agreement and the other Loan Documents shall extend to BFP and to its
successors and assigns, shall be binding upon the Company and its successors
and assigns and shall be applicable hereto and to all renewals and/or
extensions hereof; provided, however, that notwithstanding the foregoing,
the Company shall not be entitled to assign any of its rights or obligations
under this Agreement or any other document or instrument related hereto
without the prior written consent of BFP, which consent shall not
unreasonably be withheld.
4.03 NOTICES. Although any notice required to be given hereunder or
under any of the other Loan Documents might be accomplished by other means,
notice will always be deemed given when placed in the United States Mail,
with postage prepaid, or sent by overnight delivery service, or sent by
telex or facsimile, in each case to the address set forth below or as
amended:
If to Company: Casino Resource Corporation
707 Bienville Blvd.
Ocean Springs, MS 39564
Attn: Mr. John J. Pilger
with a copy to: Doherty, Rumble & Butler, P.A.
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402-4235
Attn: Mr. Girard P. Miller
If to BFP: Lyle Berman Family General Partnership
Grand Casinos, Inc.
130 Cheshire Lane
Minnetonka, MN 55305
Attn: Mr. Kenneth W. Brimmer
with a copy to: Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Mr. Neil I. Sell
4.04 APPLICABLE LAW AND JURISDICTION; INTERPRETATION; JOINT LIABILITY.
This Agreement and all other Loan Documents shall be governed by and
interpreted in accordance with the laws of the state of Minnesota, except to
the extent superseded by Federal law. Invalidity any provision of this
Agreement shall not affect the validity of any other provision. THE COMPANY
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
SITUATED IN HENNEPIN COUNTY, MINNESOTA OR FEDERAL JURISDICTION WHERE BFP'S
OFFICE WHICH IS DESIGNATED IN THE NOTE AS THE PLACE FOR PAYMENT IS LOCATED
(OR, IN THE ABSENCE OF SUCH DESIGNATION, BFP'S MAIN OFFICE), AND
6
<PAGE>
WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH REGARD TO ANY
ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE
NOTE, THE COLLATERAL, ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS ARISING
THEREFROM, OR ENFORCEMENT AND/OR INTERPRETATION OF ANY OF THE FOREGOING.
Nothing herein shall affect BFP's rights to serve process in any manner
permitted by law, or limit BFP's right to bring proceedings against the
Company in the competent courts of any other jurisdiction or jurisdictions.
This Agreement, the other Loan Documents and any amendments hereto
(regardless of when executed) will be deemed effective and accepted only at
BFP's offices, and only upon BFP's receipt of the executed originals thereof.
4.05 COPIES. The Company hereby acknowledges the receipt of copies of
this Agreement and all other Loan Documents.
4.06 EXPENSES AND ATTORNEYS' FEES. The Company will reimburse BFP for
all reasonable attorneys' fees and all other costs, fees and out-of-pocket
disbursements (including fees and disbursements of counsel) incurred by BFP
in connection with the preparation, execution, delivery, defense and
enforcement of this Agreement or any of the other Loan Documents, including
fees and costs related to any waivers or amendments with respect thereto.
4.07 MODIFICATIONS. Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the consent of the
Company; provided, that no amendment, modification, or waiver of any
provision of this Agreement or any of the other Loan Documents, nor consent
to any departure by the Company therefrom shall in any event be effective
unless the same shall be in writing and signed by BFP, and then such
amendment, modification, waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
4.08 WAIVER. Neither any failure nor any delay on the part of BFP in
exercising any right, power, or privilege hereunder or under the Note shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercises or the exercise of any other right,
power or privilege. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law. No notice to or demand on the
Company in any case shall entitle the Company to any other or further notice
or demand in the same, similar or other circumstances.
4.09 ENTIRE AGREEMENT. This Agreement and the Loan Documents embody
the entire agreement and understanding between BFP and the Company with
respect to the loan of $800,000 to the Company set forth herein.
4.10 CAPTIONS. The captions or headings in this Agreement are for
convenience only and in no way define, limit, or describe the scope or
intent of any provision of this Agreement.
4.11 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as of the signature thereto were upon the
same instrument.
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<PAGE>
4.12 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable shall be ineffective to the extent of such prohibitions or
unenforceability without invalidating the remaining provisions hereof.
4.13 TIME OF ESSENCE. Time is of the essence of this Agreement and every
provision hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date set forth in the first paragraph.
LYLE BERMAN FAMILY GENERAL
PARTNERSHIP
By
-----------------------------
Its
----------------------------
----------------------------
"BFP"
CASINO RESOURCE CORPORATION
By
-----------------------------
John J. Pilger
Its President
707 Bienville Boulevard
Ocean Springs, MS 39564
TID Number: 41-0950482
"COMPANY"
8
<PAGE>
CASINO BUILDING CORPORATION
By
-----------------------------
John J. Pilger
Its President
707 Bienville Boulevard
Ocean Springs, MS 39564
TID Number: 39-1761547
"CBC"
9
<PAGE>
ATTACHMENT 2.10
LIST OF SUBSIDIARIES OF CASINO RESOURCE CORPORATION
CRC of Branson, Inc.
Country Tonite Enterprises, Inc.
Casino Building Corporation
CRC of Tennessee, Inc.
CRC Palace, Inc.
Recreation Property Consultants, Inc.
Casino Entertainment Corporation of America
Country Tonite Theatre, LLC
CRC of Tunisia, S.A.
LIST OF SUBSIDIARIES OF CASINO BUILDING CORPORATION
None
10
<PAGE>
NOTE
$800,000.00 August 29, 1997
Minneapolis, Minnesota
1. FOR VALUE RECEIVED, CASINO RESOURCE CORPORATION, a Minnesota
corporation, (the "COMPANY") hereby promises to pay to the order of LYLE
BERMAN FAMILY GENERAL PARTNERSHIP, a Minnesota general partnership ("BFP"),
at Grand Casinos, Inc., c/o Kenneth W. Brimmer, 130 Cheshire Lane,
Minnetonka, MN 55305, or at such other place as may be specified in writing
by BFP to the Company, in lawful money of the United States of America, in
immediately available funds, the principal sum of EIGHT HUNDRED THOUSAND AND
00/100 DOLLARS ($800,000.00) pursuant to that certain Loan Agreement dated as
of August 29, 1997 by and between the Company, Casino Building Corporation, a
Minnesota corporation ("CBC") and BFP (the "LOAN AGREEMENT"), together with
interest thereon, commencing on September 3, 1997, as set forth in Section
1.02 of the Loan Agreement.
2. The principal balance and any accrued and unpaid interest shall be due
and payable in full on the first annual anniversary date of the opening of
the Casino (the "NOTE DUE DATE"); PROVIDED, HOWEVER, in the event the Casino
has not opened by April 1, 1998, then BFP may immediately accelerate the Note
Due Date.
3. Until the Note Due Date, the Company shall only pay interest on the
unpaid principal balance which shall be payable in monthly installments. The
first monthly installment of interest shall be due and payable October 10,
1997; the remaining monthly installments of interest shall be due and payable
on or before the tenth (10th) day of each succeeding month.
4. This Note is issued pursuant to the terms of the Loan Agreement between
the Company and BFP dated as of the date hereof (the "LOAN AGREEMENT") and is
secured by all the issued and outstanding common stock of CBC pursuant to the
terms of the Stock Pledge Agreement dated as of the date hereof.
5. This Note may not be prepaid, in whole or in part, without the prior
written consent of BFP.
6. Upon the occurrence of an Event of Default or at any time thereafter,
the outstanding principal balance hereof and accrued interest and all other
amounts due hereon shall, at the option of BFP, become immediately due and
payable, without notice or demand.
7. As used herein, the following terms shall have the meaning assigned
thereto in the Loan Agreement: Event of Default and Stock Pledge Agreement.
8. The Company hereby irrevocably submits to the jurisdiction of any
Minnesota state court or federal court over any action or proceeding arising
out of or relating to this Note, the Loan Agreement, the Stock Pledge
Agreement and any instrument, agreement or document related thereto, and the
Company hereby irrevocably agrees that all claims in respect of such action
or proceeding
<PAGE>
may be heard and determined in such Minnesota state or federal court. The
Company hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action
or proceeding. The Company irrevocably consents to the service of copies of
the summons and complaint and any other process which may be served in any
such action or proceeding by the mailing by United States certified mail,
return receipt requested, of copies of such process to the Company's last
known address. The Company agrees that judgment final by appeal, or
expiration of time to appeal without an appeal being taken, in any such
action or proceeding, shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Section shall affect the right of BFP to serve legal process
in any other manner permitted by law or affect the right of BFP to bring any
action or proceeding against the Company or its property in the courts of any
other jurisdiction to the extent permitted by law.
9. This Note shall be construed in accordance with the laws of the state
of Minnesota, without giving effect to conflict of laws principles thereof.
Upon the occurrence of an Event of Default hereunder, the undersigned agrees
to pay all costs and expenses of collection incurred by BFP related to such
Event of Default, including reasonable attorneys' fees, whether or not suit
is commenced. The undersigned hereby waives demand, presentment for payment,
notice of nonpayment, protest and notice of protest hereon.
CASINO RESOURCE CORPORATION
By _______________________________________
John J. Pilger
Its President
"COMPANY"
2
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "AGREEMENT") dated as of August 29, 1997
by and between Casino Resource Corporation, a Minnesota corporation (herein
called "PLEDGOR"), in favor of the Lyle Berman Family General Partnership, a
Minnesota general partnership (herein called the "SECURED PARTY"); and
BankWindsor, Minneapolis, Minnesota (the "ESCROW AGENT").
RECITALS:
A. Pledgor has issued to the Secured Party a note dated August 29, 1997
(the "NOTE") evidencing Pledgor's obligation to Eight Hundred Thousand
and 00/100 Dollars ($800,000.00), pursuant to a Loan Agreement dated as
of August 29, 1997 (the "LOAN AGREEMENT").
B. As a condition to entering into, and performing its obligations under,
the Loan Agreement and accepting the Note from Pledgor, the Secured Party has
required that Pledgor provide to the Secured Party the covenants and
agreements set forth herein.
AGREEMENT:
For good and valuable consideration, including but not limited to the
foregoing recitals and the promises and mutual covenants hereinafter set
forth, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound by this Agreement, the Pledgor and the Secured
Party agree to the following:
1. SECURITY INTEREST AND COLLATERAL. To secure the debt, liability and
obligation of Pledgor to the Secured Party evidenced by or rising under the
Note and any amendments, extensions, renewals or replacements thereof (the
"OBLIGATION"), Pledgor hereby pledges, hypothecates, assigns, transfers and
grants to the Secured Party a continuing first lien and security interest
(herein called the "Security Interest") in the following described property:
100 shares of the Common Stock of Casino Building Corporation, a Minnesota
corporation (the "CBC SHARES") to be evidenced by a stock certificate to be
delivered to the Secured Party as soon as practicable (herein referred to as
the "COLLATERAL") and the Substituted Collateral, if any (as defined in
Section 3 hereof). Unless and until an Event of Default (as defined in the
Loan Agreement) shall occur and be continuing, Pledgor shall be entitled to
vote the Common Stock and to receive all dividends due thereunder.
2. RELEASE OF COLLATERAL. Upon satisfaction of the Obligation by Pledgor,
the Collateral shall promptly be released from this pledge, the stock
certificate evidencing the Collateral shall promptly be returned to the
Pledgor, and this Agreement shall be terminated and declared null and void.
Within five (5) days after satisfaction of the Obligation, the Secured Party
shall give written notice to the Escrow Agent of the fact the satisfaction of
the Obligation and shall request the Escrow Agent to promptly deliver any
Collateral in the possession of the Escrow Agent to the Pledgor.
3. SUBSTITUTION OF COLLATERAL. Prior to the due exercise by Secured Party
of any remedies under Section 7 hereof, Pledgor shall have the right to
deposit with the Escrow Agent Eight Hundred Thousand and 00/100 Dollars
($800,000.00) cash in substitution for the CBC Shares (the "SUBSTITUTED
COLLATERAL"). In the event of (and following) such substitution of
Collateral, the
<PAGE>
Secured Party shall promptly deliver the stock certificate evidencing the CBC
Shares to Pledgor, which shall constitute a release of such CBC Shares from
the terms of this Stock Pledge Agreement. The Substituted Collateral shall
be held by the Escrow Agent in an interest-bearing account. Prior to the
existence of an uncured Event of Default, all interest earned on the
Substituted Collateral shall be paid monthly by the Escrow Agent to CRC.
4. POSSESSION AND MAINTENANCE OF SUBSTITUTED COLLATERAL. The Substituted
Collateral shall be at all times in the possession of the Escrow Agent. The
Escrow Agent's duty of care with respect to the Substituted Collateral in its
possession shall be deemed fulfilled if the Escrow Agent exercises reasonable
care in the physical safekeeping thereof.
5. CONTINUING SECURITY INTEREST. The Security Interest granted hereby is
a continuing security interest and no notice of the creation or existence of
any Obligation, or any renewal, extension or modification thereof need by
given by Secured Party to Pledgor.
6. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. The Pledgor hereby
represents and warrants to BFP as follows:
(a) Pledgor has title to and will, at all times, keep the Collateral
free of all liens and encumbrances, except the security interests created
hereby and other security interests that are junior to the lien of the
Secured Party, and has full power and authority to execute this Stock Pledge
Agreement, to perform Pledgor's obligations hereunder and to subject the
Collateral to the security interest created hereby. All costs of keeping the
Collateral free of any liens, encumbrances and security interests prohibited
by this Agreement and removing the same, if they should arise, shall be borne
and paid by Pledgor.
(b) Pledgor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a
separate assignment or other documents of transfer, if required by the
Secured Party, and will, at any time or times hereafter, perform such other
acts as Secured Party may request to establish, maintain, perfect and enforce
Secured Party's security interest in the Collateral and rights under this
Agreement.
(c) Pledgor will, upon receipt, deliver to Secured Party as Collateral
hereunder, all securities distributed on account of the Collateral such as
stock, dividends and securities resulting from stock splits, reorganizations
and recapitalizations. Pledgor represents that there are currently issued
and outstanding, 100 shares of common stock of CBC which represent all of the
issued and outstanding shares of the capital stock of CBC.
(d) Secured Party's duty of care with respect to Collateral in its
possession shall be deemed fulfilled if Secured Party exercises reasonable
care in physically safekeeping such Collateral or, in the case of Collateral
in the custody or possession of a bailee or other third
2
<PAGE>
party, exercises reasonable care in the selection of the bailee or other
third party, and Secured Party need not otherwise preserve, protect, insure
or care for any Collateral. Secured Party shall have no liability or
responsibility to any third party for any action taken or omitted with
respect to the Collateral on the direction of any third party.
(e) Secured Party, in the name of Pledgor or otherwise, following an
uncured Event of Default, shall have the authority, but not be obligated, to
demand, collect, receive and receipt for, compromise, compound, settle,
prosecute and discontinue any suits or proceedings in respect of any and all
of the Collateral; take any action which Secured Party deems necessary or
desirable in order to realize on the Collateral, including, without
limitation, the power to perform any contract, to endorse in the name of
Pledgor any checks, drafts, notes or other documents which are Collateral or
are received in payment or on account of the Collateral; to transfer any of
the Collateral into its name or that of its nominee, and to notify the
obligor on or issuer of any Collateral to Secured Party of any amounts due or
distributable thereon; and to apply any proceeds of any Collateral against
any item or items of the Secured Obligations as Secured Party, in its sole
discretion, may determine, whether the same shall be due or not due.
(f) The occurrence of any Event of Default as defined in the Loan
Agreement shall constitute a default hereunder.
(g) Whenever an uncured Event of Default shall exist, Secured Party
may, at its option without demand or notice, declare all or any part of the
Obligations immediately due and payable and Secured Party may exercise, in
addition to the rights and remedies granted hereby, all rights and remedies
of a secured party under the Uniform Commercial Code or any other applicable
law, including the right to exercise all voting and other rights as a holder
of the Collateral and the right to offer and sell the Collateral privately.
(h) Pledgor agrees, in the event of an occurrence of an Event of
Default, to pay all costs of Secured Party, including reasonable attorneys'
fees, in the collection of any of the Secured Obligations and the enforcement
of Secured Party's rights. If any notification of intended disposition of
any of the Collateral is required by law, such notification shall be deemed
reasonably and properly given if mailed at least ten (10) days before such
disposition, postage prepaid, addressed to Pledgor at the address shown below.
(i) No delay or failure by Secured Party in the exercise of any right
or remedy shall constitute a waiver thereof, and no single or partial
exercise by Secured Party of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy.
7. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default, if such default is not cured within the time period allowed in the
Note and the Loan Agreement, the Secured Party may, in addition to any other
right or remedy available to it under the Uniform Commercial Code in force in
the State of Minnesota, retain the ownership of the Collateral without
3
<PAGE>
the need for any sale of the same. Pledgor acknowledges that such
disposition of the Collateral is commercially reasonable.
The Secured Party shall not have a duty to exercise any such rights and
shall not be responsible for any failure to do so or for any delay in doing
so. The rights and remedies provided herein are cumulative and concurrent
and may be pursued singularly, successively or together.
8. DUTIES OF ESCROW AGENT. The duties of the Escrow Agent, other than
herein specified, shall be to receive and hold the Substituted Collateral
(and invest and pay any applicable interest to CRC as set forth in Section 3
hereof). For purposes of this Stock Pledge Agreement, the Escrow Agent is
not the agent of any of the parties hereto.
The Escrow Agent may conclusively rely upon and shall be protected in
acting upon any statement, certificate, notice, request, consent, order or
other document reasonably believed by it to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent shall
be under no obligation to institute or defend any action, suit or proceeding
in connection with this Escrow Agreement unless first indemnified to its
satisfaction. The Escrow Agent may consult counsel in respect of any
question arising under the Escrow Agreement, and the Escrow Agent shall not
be liable for any action taken or omitted in good faith upon advice of such
counsel. Furthermore, the Escrow Agent's liability hereunder shall be
limited to such damages resulting from, arising out of, or caused by the
negligent acts or omissions of the Escrow Agent. The Substituted Collateral
or cash held by the Escrow Agent pursuant to this Stock Pledge Agreement
shall constitute trust property for the purposes for which they are held and
shall remain the property of the respective party, as the case may be, and
shall not be subject to any liens or charges by the Escrow Agent.
9. FEE. The Escrow Agent shall receive from Pledgor $750 as its fee for
its services performed hereunder; PROVIDED, HOWEVER, if any material
controversy arises hereunder, or the Escrow Agent is made a party to or
justifiably intervenes in any litigation pertaining to this Stock Pledge
Agreement, or the subject matter hereof, the Escrow Agent shall be reasonably
compensated for such extraordinary services and reimbursed for reasonable
costs and expenses, actually incurred, including reasonable attorneys' fees,
necessitated by such controversy or litigation. Such compensation, cost and
fees (other than the initial $750 payment) shall be paid equally by Pledgor
and the Secured Party.
10. NOTICES. All notices, requests, consent and other communications
required or permitted hereunder shall be in writing and shall be personally
delivered, telefaxed (if telefaxed, a copy shall also be sent by another
means of delivery permitted hereby), or sent by national overnight courier or
mailed first-class postage prepaid, registered or certified mail, as follows:
TO PLEDGOR: Casino Resource Corporation
707 Bienville Blvd.
Ocean Springs, MS 39564
Attn: Mr. John J. Pilger
4
<PAGE>
WITH A COPY TO: Doherty, Rumble & Butler, P.A.
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402-4235
Attn: Mr. Girard P. Miller
TO SECURED PARTY: The Berman Family Partnership
c/o Grand Casinos, Inc.
130 Cheshire Lane
Minnetonka, MN 55305
Attn: Mr. Kenneth W. Brimmer
WITH A COPY TO: Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: Mr. Neil I. Sell
TO ESCROW AGENT: BankWindsor
740 Marquette Avenue
Minneapolis, MN 55402
Attn: Mr. Peter E. Dahl
and such notices and other communications shall for all purposes of this
Stock Pledge Agreement be treated as being effective or having been given if
delivered personally, or, if sent by mail or telefax, when received. Such
names of notifying parties, address or telefax numbers may be changed by
written notice to the parties.
11. MISCELLANEOUS. This Stock Pledge Agreement shall be binding upon and
inure to the benefit of Pledgor and the Secured Party and their respective
heirs, representatives, successors and assigns and shall take effect when
signed by Pledgor and delivered to the Secured Party and Pledgor waives
notice of the Secured Party acceptance thereof. This Stock Pledge Agreement
shall be governed by the laws of the State of Minnesota. If any provisions
or application of this agreement is held unlawful or unenforceable in any
respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this agreement shall
be construed as if the unlawful or unenforceable provision or application had
never been contained herein or prescribed hereby. This Stock Pledge
Agreement may be executed in any number of counterparts each of which shall
be deemed an original and together shall be one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date set forth above:
CASINO RESOURCE CORPORATION
By __________________________________
John J. Pilger
Its President
"PLEDGOR"
LYLE BERMAN FAMILY
GENERAL PARTNERSHIP
By __________________________________
Its _______________________________
"SECURED PARTY"
BANKWINDSOR
By __________________________________
Its _______________________________
(An Authorized Signatory)
"ESCROW AGENT"
6
<PAGE>
MUTUAL RELEASE AGREEMENT
THIS AGREEMENT, dated as of August 29, 1997, by and between CASINO
RESOURCE CORPORATION, a Minnesota corporation ("CRC") , CASINO BUILDING
CORPORATION, a Minnesota corporation ("CBC"), and the LYLE BERMAN FAMILY
GENERAL PARTNERSHIP, a Minnesota general partnership ("BFP").
WHEREAS, CRC has borrowed Eight Hundred Thousand and 00/100 Dollars
($800,000.00) from BFP pursuant to a Loan Agreement (the "LOAN AGREEMENT")
and note (the "NOTE") each dated as of the date hereof.
WHEREAS, in connection with the Loan Agreement, CRC and BFP entered into
a stock pledge agreement dated as of the date hereof (the "STOCK PLEDGE
AGREEMENT") whereby CRC pledged all the issued and outstanding common stock
of CBC as the collateral for the Note (the "COLLATERAL").
WHEREAS, CBC is a wholly-owned subsidiary of CRC.
WHEREAS, CRC, CBC and BFP desire to enter into this agreement to reflect
the obligation of CRC and CBC to each other following an Event of Default,
(as defined in the Loan Agreement) whereby such Event of Default was not
timely cured by CRC and BFP obtains ownership of the Collateral pursuant to
the Loan Agreement and the Stock Pledge Agreement.
NOW THEREFORE, in consideration of the foregoing premises, and
further in consideration of the execution of the Loan Agreement, the Stock
Pledge Agreement and the Note, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending
to be legally bound hereby, the parties hereto agree as follows:
1. CRC RELEASE. In the event BFP obtains ownership of the Collateral
pursuant to the terms of the Loan Agreement and the Stock Pledge Agreement
following the occurrence of an uncured Event of Default, CRC agrees to fully
release, acquit and forever discharge all monetary claims CRC may have
against CBC and its successors and assigns as of the date of the uncured
Event of Default excepting, however, any claim CRC may have against CBC, its
officers or directors with respect to any payments that CRC may be called
upon to make with respect to that certain Guaranty Agreement (the "GUARANTY
AGREEMENT") between CRC and Miller & Schroeder Investments Corporation dated
April 1, 1994.
2. CBC RELEASE. In the event BFP obtains ownership of the Collateral
pursuant to the terms of the Loan Agreement and the Stock Pledge Agreement
following the occurrence of an uncured Event of Default, CBC agrees to fully
release, acquit and forever discharge all monetary claims CBC may have
against CRC and its successors and assigns as of the date of the uncured
Event of Default; PROVIDED, HOWEVER, the determination of the existence and
amount of any inter-company transactions between CRC and CBC shall be
according to generally-accepted accounting principles, consistently applied.
<PAGE>
3. HOLD HARMLESS. In the event BFP obtains ownership of the Collateral
pursuant to the terms of the Loan Agreement and the Stock Pledge Agreement,
BFP and CBC agree to indemnify, defend and hold CRC harmless from and against
any claim, loss, cost, expense or damage arising under or pursuant to the
Guaranty Agreement.
4. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, CRC, CBC and BFP have executed and delivered this
Agreement to be effective as of the date and year first above mentioned.
CASINO RESOURCE CORPORATION
By
--------------------------------
John J. Pilger
Chief Executive Officer and President
CASINO BUILDING CORPORATION
By
--------------------------------
John J. Pilger
Chief Executive Officer and President
LYLE BERMAN FAMILY GENERAL
PARTNERSHIP
By
--------------------------------
Its
--------------------------------
--------------------------------
2
<PAGE>
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- ------------------------------------------------------------------------------
LOAN AGREEMENT
Among
CASINO RESOURCE CORPORATION OF TUNISIA, S.A.
as Borrower
CASINO RESOURCE CORPORATION
as Guarantor
and
SEA MAR VENTURES, L L.C
as Lender
----------
$1,000,000 CONVERTIBLE NOTE
----------
Dated as of August 29, 1997
----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), dated as of August 29, 1997 is made
between CASINO RESOURCE CORPORATION OF TUNISIA, S.A., a Tunisian corporation
("CRC Tunisia" or the "Borrower"), CASINO RESOURCE CORPORATION, a Minnesota
corporation ("CRC"), and SEAMAR VENTURES, L.L.C., a Mississippi limited
liability company (the "Lender"), who agree as follows:
(a) WHEREAS, CRC Tunisia intends to establish a casino and entertainment
facility in Sousse, Tunisia, and desires to borrow from the Lender part of the
amounts necessary to fund the casino project (the "Casino Project");
(b) WHEREAS, CRC beneficially owns 100% of the outstanding securities of
CRC Tunisia, and desires to guarantee the obligations of CRC Tunisia to the
Lender hereunder; and
(c) WHEREAS, the Lender desires to lend to CRC Tunisia $1 million subject
to the covenants and conditions set forth herein.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1
GENERAL TERMS
SECTION 1.01 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless they are otherwise
defined or the context otherwise requires:
"Business Day" shall mean a day other than a Saturday, Sunday or
legal holiday for commercial banks in Jackson, Mississippi.
"Change in Control" shall mean (a) any merger or consolidation
involving the Borrower or any merger or consolidation involving CRC
in which CRC is not the surviving entity; (b) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of all or any substantial
part of the assets of the Borrower; (c) the issuance, sale,
exchange, transfer or other disposition by the Borrower or CRC of
any securities of the Borrower; (d) any liquidation, spin off,
split off, split up or dissolution of the Borrower, including any
dissolution caused by the failure of the Borrower to secure an
extension of its lease agreement or gaming license; and/or (e) any
agreement, contract or other arrangement providing for any of the
transactions described in this paragraph.
"Closing Date" shall mean August 29, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Debt" shall mean any and all amounts and/or liabilities owing from
time to time by the Borrower to any Person, including the Lender,
direct or indirect, liquidated or contingent, now existing or
hereafter arising, including without limitation (i) indebtedness
for money borrowed; (ii) unfunded portions of commitments for money
to be borrowed; (iii) the amounts of all standby and commercial
letters of credit and bankers acceptances, matured or unmatured,
issued on behalf of the Borrower; (iv) guaranties of the
obligations of any other Person, whether direct or indirect,
whether by agreement to purchase the indebtedness of any
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<PAGE>
other Person or by agreement for the furnishing of funds to any other
Person through the purchase or lease of goods, supplies or services
(or by way of stock purchase, capital contribution or loan) for the
purpose of paying or discharging the indebtedness of any other
Person, or otherwise; (v) the present value of all obligations for
the payment of rent or hire of property of any kind (real or
personal) under leases or lease agreements required to be
capitalized under generally accepted accounting principles, and
trade payables incurred in the ordinary course of business or
otherwise.
"Default" shall mean the occurrence of any of the events specified
in Article 6 hereof, whether or not any requirement for notice or
lapse of time or other condition precedent has been satisfied.
"Event of Default" shall mean the occurrence of any of the events
specified in Article 6 hereof, provided that any requirement for
notice or lapse of time or any other condition precedent has been
satisfied.
"Guaranty Agreement" shall mean the Guaranty Agreement dated the
date hereof of CRC in favor of the Lender, guaranteeing the
obligations of the Borrower hereunder and under the Note.
"Indebtedness" shall mean the obligations of the Borrower to the
Lender under the Note and the extension of credit contemplated
herein.
"Lien" shall mean any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on jurisprudence, statute or
contract, and including but not limited to the lien or security
interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
servitudes, usufructs, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances
affecting property. For the purposes of this Agreement, the
Borrower shall be deemed to be the owner of any property which it
has accrued or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for
security purposes.
"Loan" shall mean (individually and collectively) the loan
described in Section 2.01 hereof.
"Note" shall mean the promissory note of the Borrower evidencing
the Loan as described in Section 2.01 hereof.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision
thereto or any other form of entity.
SECTION 1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, on a
basis consistent with the most recent financial statements of the Borrower.
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<PAGE>
ARTICLE 2
THE CREDIT
SECTION 2.01 LOAN. (a) Subject to and upon the terms and conditions
contained in this Agreement, tile Lender hereby lends to the Borrower $1
million ($1,000,000.00), as evidenced by the promissory note of Borrower dated
the date hereof, bearing interest at a rate of 10% of the Borrower's EBITDA (as
hereinafter defined), with interest payable in monthly installments and with
the principal of the note maturing on the 25th anniversary of the Note (the
"Loan").
(b) The Loan shall be represented by a promissory note of the Borrower
payable to the Lender as set forth above.
SECTION 2.02 INTEREST RATE. The Loan shall bear interest at the interest
rate described in Section 2.01 above. For purposes of determining the amount of
monthly interest due on the Loan, the Borrower's EBITDA will be calculated as
follows:
(a) The Borrower's gross income will be determined by adding all
non-gaming revenues of the Borrower (including without limitation, any
revenues derived from entertainment facilities managed by the Borrower, any
sales of food, beverages, services or goods by the Borrower, or revenue from
any other business venture of tile Borrower), plus all gross gaming revenues
of the Borrower (calculated as all amounts paid by gaming customers in the
Borrower's casino, less amounts paid out to gaming customers in winnings),
less
(b) A management fee to be paid to CRC which shall not exceed $480,000
per year plus CRC's out-of-pocket costs for telephone services to and from
Ocean Springs, Mississippi and Sousse, Tunisia, travel expenses of CRC's
personnel to and from Ocean Springs and Sousse, Tunisia, and CRC's postage
and freight expenses actually incurred in connection with managing the
business of the Borrower, less
(c) Operating expenses, including gaming taxes, of the Borrower's
business prior to payment of all income taxes, depreciation, amortization and
any interest payments (except for interest paid to parties not affiliated
with the Borrower with respect to tile lease or purchase of gaming equipment
or other equipment located in, and used in the ordinary course of business
of, the Casino Project) and any payments to CRC or any affiliated company of
CRC except for the management fee referred to in clause (b) of this Section
2.02.
SECTION 2.03 PAYMENTS. The Borrower shall make each payment hereunder
and under the Note not later than 3:00 P.M. (Central time) on the thirtieth
Business Day following the end of each month during the term of the Note in
lawful money of the United States of America to the Lender at its office at
606 Western Drive, Mobile, Alabama 36607 or P.O. Box 1444, Mobile, Alabama
36633. The Borrower shall be entitled to withhold that portion of interest
payments due hereunder as required by the laws of the United States of
America or Tunisia, or as provided for in any tax treaty between the United
States of America and the Country of Tunisia.
SECTION 2.04 PREPAYMENTS. (a) The Borrower shall not have the right to
prepay the Note except under the circumstances set forth in paragraph (b) of
this Section 2.04.
(b) The Borrower shall prepay the full amount of principal of the Note,
plus any outstanding interest due on the effective date of a Change in
Control that has not received the prior written approval of the Lender. The
Borrower shall give tile Lender thirty days' notice of any proposed Change in
Control. The Lender shall have thirty days to (i) approve the Change in
Control in writing, and elect to continue to hold the Note; (ii) fail to
approve the Change of Control in writing, and thereby cause the Note to be
prepaid in accordance with this paragraph 2.040(b); or (iii)
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<PAGE>
convert the Note in accordance with Section 2.06 below, and participate as an
equity owner of the Borrower in the transaction that effects the Change in
Control.
SECTION 2.05 USE OF PROCEEDS. The Borrower shall use the proceeds of the
$1,000,000 Loan to complete the construction of the Casino Project and for
general working capital and other corporate purposes related to the Casino
Project.
SECTION 2.06 OPTIONAL CONVERSION. The Lender shall have the right, at any
time and in the Lender's complete discretion, to convert the Note into common
stock or other equity securities of the Borrower (the "Conversion Securities")
that shall be issued in such amounts as necessary to carry the following
rights: (a) the Conversion Securities shall represent 10% of the total voting
power of the Borrower; (b) the Conversion Securities shall represent 10% of the
outstanding economic ownership of the Borrower on a fully-diluted basis, taking
into account any outstanding warrants, convertible securities or other options
to acquire outstanding securities of the Borrower, and shall entitle the holder
to 10% of any distributions by the Borrower to the holders of its securities;
and (c) the Conversion Securities shall entitle the holders thereof to
participate, on a pro rata basis, in any sale of the shares of common stock (or
similar equity securities) of the Borrower that are owned by the majority
shareholder of the Borrower. The Borrower shall have the right to convert the
Loan into the Conversion Securities only if the Borrower, and if appropriate
the equity owners of the Borrower, satisfy all Tunisian laws and gaming
regulations applicable to such conversion.
SECTION 2.07 MANDATORY CONVERSION. If (a) the Borrower shall cease to
operate the Casino Project because, at the end of nine years, the Borrower's
lease or gaming license is not extended, and if the Borrower at that time
operates no other casino project in Sousse, Tunisia, or (b) Tunisian law is
amended to prohibit casino gaming in Tunisia, then the Lender shall convert the
Loan to Conversion Securities, and shall thereafter participate pro rata with
the other shareholder of the Borrower in a dissolution of the Borrower.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the Borrower
and CRC represent warrant to the Lender (which representations and warranties
will survive the extension of credit under this Agreement) that:
SECTION 3.01 EXISTENCE. The Borrower is a corporation duly organized,
legally existing and in good standing under the laws of Tunisia. CRC is a
corporation duly organized, legally existing and in good standing under the
laws of Minnesota, and is duly qualified as a foreign corporation in all
jurisdictions where the property it owns or the business it transacts make such
qualifications necessary. The Borrower and CRC have obtained all permits,
licenses and other governmental permits necessary to own the Casino Project and
to conduct the business of the Casino Project, except for final approval to
open the casino, which the Borrower and CRC expect to receive immediately prior
to opening the Casino Project for business.
SECTION 3.02 POWER AND AUTHORIZATION. The Borrower is duly authorized and
empowered to execute, deliver and perform this Agreement and the Note. All
corporate action on the pan of the Borrower requisite for the due creation and
execution of this Agreement and the Note has been duly and effectively taken.
CRC is duly authorized and empowered to execute, deliver and perform the
Guaranty Agreement. All corporate action on the part of CRC requisite for the
due creation and execution of the Guaranty Agreement has been duly and
effectively taken.
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<PAGE>
SECTION 3.03 BINDING INDEBTEDNESS. This Agreement and the Note Constitute
valid and binding obligations of the Borrower, enforceable in accordance with
their terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights). The Guaranty Agreement constitutes a valid and binding
obligation of CRC, enforceable in accordance with its terms (except that
enforcement may be subject to any applicable bankruptcy, insolvency or similar
laws generally affecting the enforcement of creditors' rights).
SECTION 3.04 NO LEGAL BAR OR RESULTANT LIEN. This Agreement and the Note
do not and will not violate any provisions of the Borrower articles of
organization, will not materially and adversely violate any contract,
agreement, law, regulation, order, injunction, judgment, decree or writ to
which the Borrower is subject, and will not result in the creation or
imposition of any lien upon any property of the Borrower. The Guaranty
Agreement does not and will not violate any provisions of CRC's articles of
incorporation, will not materially and adversely violate any contract,
agreement, law, regulation, order, injunction, judgment, decree or writ to
which CRC is subject, and will not result in the creation or imposition of any
lien upon any property of CRC.
SECTION 3.05 NO CONSENT. The Borrower's execution, delivery and
performance of this Agreement and the Note does not require the consent or
approval of any other Person, including without limitation any regulatory
authority or governmental body of the country of Tunisia or any political
subdivision thereof. CRC s execution, delivery and performance of the Guaranty
Agreement does not require the consent or approval of any other Person,
including without limitation any regulatory authority or governmental body of
the country of Tunisia or of the United States of America or any state or
political subdivision thereof.
SECTION 3.06 FINANCIAL CONDITION OF THE BORROWER. To date, the Borrower
has not engaged in any active business operations and has not made investments
in, advances to or guaranties of the obligations of any Person, except for
operations preliminary to opening the Casino Project for business. The
Borrower's financial condition is substantially as represented on the balance
sheet attached hereto as Exhibit A (the "Balance Sheet"). The Balance Sheet and
all of the materials that the Borrower and CRC have submitted to the Lender
constitute a complete and accurate presentation of all facts known to the
Borrower and CRC to be material to an understanding of the Casino Project.
SECTION 3.07 LITIGATION. There is no litigation, legal or administrative
proceeding, investigation or other action of any nature pending or, to the
knowledge of the Borrower or CRC, threatened against or affecting the Borrower
or CRC which involves the possibility of any judgment or liability not fully
covered by insurance, and which may materially and adversely affect the
business or the property of the Borrower or CRC, or their ability to carry on
the Casino Project.
SECTION 3.08 COMPLIANCE WITH THE LAW. The Borrower (a) is not in
violation of any law, judgment, decree; order, ordinance, or governmental rule
or regulation to which the Borrower or any of its property is subject; and (1)
has not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any of its property or the conduct
of the Casino Project; in each case, which violation or failure could
reasonably be anticipated to materially and adversely affect the business,
prospects, profits property or condition (financial or otherwise) of the
Borrower or the Casino Project.
SECTION 3.09 NO MATERIAL MISSTATEMENTS. No information, exhibit or report
furnished by the Borrower to the Lender in connection with this Agreement or in
the negotiation of this Agreement contained any material misstatement of fact
or omitted to state a material fact necessary to make the statement contained
therein not misleading.
SECTION 3.10 GOVERNMENTAL REQUIREMENTS. The Casino Project is in
compliance with all applicable governmental requirements, including, without
limitation, all current zoning and land use
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regulations, building codes and gaming regulations of the country of Tunisia
and any political subdivision thereof.
SECTION 3.11 CONTINUING ACCURACY. All of the representations and
warranties contained in this Article 3 or elsewhere in this Agreement shall be
true through and until the later of the date on which all obligations of the
Borrower and CRC under this Agreement, the Note and the Guaranty Agreement, and
any other documents executed in connection therewith, are fully satisfied, or
the Borrower and CRC shall promptly notify the Lender of any event that would
render any of said representations and warranties untrue or misleading.
ARTICLE 4
AFFIRMATIVE COVENANTS
Unless the Lender's prior written consent to the contrary is obtained, the
Borrower will at all times comply with the covenants contained in this Article
4, from the date hereof and for so long as any part of the Loan or the
Conversion Securities are outstanding.
SECTION 4.01 FINANCIAL STATEMENTS AND REPORTS. The Borrower will promptly
furnish to the Lender such information regarding the business and affairs and
financial condition of the Borrower as the Lender may reasonably request, and
the Borrower will furnish to the Lender:
(a) ANNUAL FINANCIAL STATEMENTS OF THE BORROWER - as soon as
available and in any event within 120 days after the close of each
fiscal year of the Borrower, the audited balance sheet of the
Borrower as at the end of such year, the [caad 214]audited statement of
income of the Borrower for such year, the audited statement of
reconciliation of capital accounts of the Borrower for such year
and the audited statement of cash flow of the Borrower for such
year, selling forth in each case in comparative form the
corresponding figures for the preceding fiscal year, which
financial statements will be the financial statements upon which
the independent certified public accountants of CRC rely when
preparing CRC's reports under the Securities Exchange Act of 1934,
as amended;
(b) MONTHLY FINANCIAL STATEMENTS AND OTHER REPORTS - as soon as
available but in any event within 20 days after the end of each
month, financial statements of the Borrower for such month and year
to date;
(c) CERTIFICATES OF NO DEFAULT - simultaneously with the
furnishing of the annual financial statements of the Borrower, a
certificate of the president or chief financial officer of the
Borrower certifying that to the best of his or her knowledge no
Default has occurred, or if a Default has occurred, specifying the
nature and extent thereof and the steps that the Borrower proposes
to take to cure such Default; and
(d) OTHER INFORMATION - promptly upon the request of the Lender,
all regular budgets and such other information regarding the
business and affairs and financial condition of the Borrower as the
Lender may reasonably request.
The annual financial statements of the Borrower and the other financial
statements, reports and certificates referred to above shall be in such detail
as the Lender may reasonably request, and shall conform to generally accepted
accounting principles.
SECTION 4.02 TAXES AND OTHER LIENS. The Borrower will file all tax returns
required by law before the due date thereof (as validly extended) and pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its
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property; provided, however, the Borrower shall not be required to pay any
such tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings diligently conducted and if the contesting party shall have set
up reserves there for adequate under generally accepted accounting
principles. If the Borrower contests any such taxes, assessments, charges,
levies or claims in accordance with this Section, the Borrower shall furnish
the Lender with a description of the contested matter and all actions taken
by the Borrower in connection with such contest.
SECTION 4.03 MAINTENANCE OF EXISTENCE, MANAGEMENT AND OWNERSHIP. (a) The
Borrower will (i) maintain its corporate existence in any year following a
rolling eighteen-month period in which the Casino Project realizes positive
EBITDA (as defined in Section 2.02 hereof); (ii) observe and comply (to the
extent necessary so that any failure will not materially and adversely affect
the Casino Project) with all valid laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, certificates,
franchises, permits, licenses, authorizations, directions and requirements
(including without limitation applicable statutes, regulations, orders and
restrictions relating to gaming operations in Tunisia) of all federal, state,
county, municipal and other governments, departments, commissions, boards,
courts, authorities, officials and officers, domestic or foreign; (iii)
maintain its properties (and any property leased by or consigned to it or held
under title retention or conditional sales contracts) in generally good and
workable condition at all times and make all repairs, replacements, additions,
betterments and improvements to its properties to the extent necessary so that
any failure will not materially and adversely affect the Casino Project; and
(iv) conduct the business of the Casino Project in a professional and
appropriate manner.
(b) The Borrower shall provide written notice to the Lender of a change
in the identity of the general manager of the Casino Project.
SECTION 4.04 FURTHER ASSURANCES. The Borrower and CRC will promptly (and
in no event later than 30 days after written notice from the Lender is
received) cure any defects in the creation, execution and delivery of this
Agreement, the Note or the Guaranty Agreement. The Borrower and CRC will
promptly execute and deliver to the Lender upon request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower and CRC in this
Agreement, the Note or in the Guaranty Agreement or to make any recordings, to
file any notices, or obtain any consents as may be necessary or appropriate in
connection with the transactions contemplated by this Agreement.
SECTION 4.05 PERFORMANCE OF INDEBTEDNESS AND GUARANTY. The Borrower will
repay the Loan according to the reading, tenor and effect of the Note and this
Agreement. The Borrower will do and perform every act required of it by this
Agreement and the Note at the time or times and in the manner specified. CRC
will do and perform every act required of it by the Guaranty Agreement at the
time or times and in the manner specified.
SECTION 4.06 REIMBURSEMENT OF EXPENSES. Following 15 days notice to the
Borrower, and the failure of the Borrower to make such payment, the Borrower
will, upon request promptly reimburse the Lender for all payments expended,
advanced or incurred by the Lender to satisfy any obligation of the Borrower
under this Agreement, or to protect the property or business of the Borrower or
to collect the Indebtedness, or to enforce the rights of the Lender under this
Agreement and the Note, which amounts will include all court costs, attorneys'
fees, fees of auditors and accountants, and investigation expenses reasonably
incurred by the Lender in connection with any such matters, together with
interest at 12% per annum on each such amount from the date that the same is
expended, advanced or incurred by the Lender until the date of reimbursement to
the Lender.
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<PAGE>
SECTION 4.07 INSURANCE. The Borrower shall procure and maintain insurance
for the Casino Project insuring against such risks that are commonly insured
against by casino operators and in such amounts as are generally carried by
United States businesses doing business in Tunisia. The Borrower shall
designate the Lender in all of the Borrower's insurance policies as a party to
whom copies of all policies and related correspondence shall be sent.
SECTION 4.08 ACCOUNTS AND RECORDS. The Borrower will keep books of record
and accounts in which true and correct entries will be made as to all material
matters of all dealings or transactions in relation to its business and
activities, in accordance with generally accepted accounting principles.
SECTION 4.09 RIGHT OF INSPECTION. The Borrower will permit the Managing
Member of the Lender, and any attorney, accountant or other consultant of the
Lender, to visit and inspect any of the property of the Borrower, examine the
books of record and accounts of the Borrower, take copies and extracts
therefrom, and discuss the affairs, finances and accounts of the Borrower with
the Borrower's officers, accountants and auditors, all at such reasonable times
and on reasonable notice and as often as the Lender may reasonably desire;
provided, however, that the Borrower may require the Managing Member of the
Lender and any such attorney, accountant or other consultant to execute an
appropriate confidentiality agreement as a condition to such investigation.
SECTION 4.10 NOTICE OF CERTAIN EVENTS. (a) The Borrower shall promptly
notify the Lender if the Borrower learns of the occurrence of any event which
constitutes a Default under this Agreement, together with a detailed statement
by a responsible officer of the Borrower of the steps being taken to cure the
effect of such Default.
(b) The Borrower shall also notify the Lender, within five Business Days,
if the Borrower learns of the occurrence of any event which constitutes a
material default on any other Debt, together with a detailed statement by a
responsible officer of the Borrower of the steps being taken to cure the effect
of such Default.
SECTION 4.11 COMPLIANCE WITH LAWS AND COVENANTS. The Borrower shall
observe and comply with all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, certificates, franchises,
permits, licenses, authorizations, directions and requirements of all federal,
state, county, municipal and other governments, departments, commissions,
boards, courts, authorities, officials and officers domestic or foreign,
applicable to the Borrower or the Casino Project, the failure to comply with
which could reasonably be anticipated to materially affect the business,
prospects, profits, employees, property or condition (financial (or otherwise)
of the Borrower or the Casino Project.
ARTICLE 5
NEGATIVE COVENANTS
Unless the Lender's prior written consent to the contrary is obtained, the
Borrower will at all times comply with the covenants contained in this Article
6, from the date hereof and for so long as any part of the Indebtedness or the
Conversion Shares are outstanding.
SECTION 5.01 NO SUBSIDIARIES. The Borrower will not create any
subsidiaries or invest in the equity of any other business enterprise, however
structured.
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<PAGE>
SECTION 5.02 DEBTS. GUARANTIES AND OTHER INDEBTEDNESS. The Borrower will
not incur, create, assume or in any manner become or be liable in respect of
any Debt, direct or contingent, to incur, create, assume or in any manner
become or be liable in respect of any Debt, direct or contingent, except for:
(a) The Indebtedness to the Lender under this Agreement.
(b) Up to $3 million in equipment leases or equipment purchase contracts.
(c) Trade payables, operating expenses and facility leases from time to
time incurred in the ordinary course of business.
(d) Taxes, assessments or other government charges which are not yet due
or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be
required by generally accepted accounting principles shall have been
made therefor.
SECTION 5.03 LIENS. The Borrower will not create, incur, assume or permit
to exist any Lien on any of its property now owned or hereafter acquired,
except for:
(a) Liens relating to equipment leases or equipment purchase contracts
totaling no more than $3 million.
(b) Liens for taxes, assessments, or other governmental charges not yet
due or which are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by generally accepted accounting principles shall have
been made therefor.
(c) Liens of landlords, vendors, carriers, warehousemen, mechanics,
laborers and materialmen arising by law in the ordinary course of
business for sums either not yet due or being contested in good
faith by appropriate action promptly initiated and diligently
conducted, if such reserve as shall be required by generally
accepted accounting principles shall have been made therefor.
SECTION 5.04 NO LOANS. The Borrower will not make or permit to remain
outstanding any loans or advances to or investments in any Person, except for:
(a) Investments in direct obligations of the United States of America or
any agency thereof.
(b) Investments in either certificates of deposit of maturities less
than one year, issued by a bank with more than $50 million in
otal shareholders' equity.
(c) Routine advances to employees made in the ordinary course of business.
-x-
<PAGE>
ARTICLE 6
DEFAULT
SECTION 6.01 EVENTS OF DEFAULT. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) PRINCIPAL AND INTEREST PAYMENTS. The Borrower fails to make
payment when due of any principal or interest installment on the
Indebtedness to the Lender;
(b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made by the Borrower or CRC proves to have been incorrect in any
material respect as of the date thereof; or any representation,
statement (including financial statements), certificate or data
furnished or made by the Borrower or CRC (or any officer,
accountant or attorney of the Borrower or CRC) under this
Agreement, proves to have been untrue in any material respect, as
of the date as of which the facts therein set forth were stated or
certified; or
(c) COVENANTS. The Borrower defaults in the observance or
performance of any of the covenants or agreements contained in this
Agreement or the Note to be kept or performed by the Borrower, and
such default continues unremedied for a period of 30 days after the
earlier of (i) notice thereof being given by the Lender to the
Borrower, or (ii) such default otherwise becoming known to the
president or chief financial officer of the Borrower.
SECTION 6.02 REMEDIES. (a) Upon the happening of any Event of Default
specified in Section 6.01, the Lender may by written notice to the Borrower
declare the entire principal amount of all Indebtedness then outstanding
including interest accrued thereon to be immediately due and payable without
presentment, demand, protest, notice of protest or dishonor or other notice of
default of any kind, all of which are hereby expressly waived by the Borrower.
(b) In addition to the foregoing, the Lender may exercise any of the
rights or remedies under the Guaranty Agreement or provided by applicable law.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01 NOTICES. Any notice or demand which, by provision of this
Agreement, is required or permitted to be given or served shall be deemed to
have been sufficiently given and served for all purposes (if mailed) three
calendar days after being deposited, postage prepaid, in the United States
Mail, registered or certified mail, or (if delivered by express courier) one
Business Day after being delivered to such courier, or (if delivered in person)
the same day as delivery, in each case addressed as follows:
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<PAGE>
If to the Borrower: Casino Resource Corporation of Tunisia, S.A.
c/o Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
Attention: John J. Pilger
If to CRC: Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
Attention: John J. Pilger
If to the Lender: SeaMar Ventures, L.L.C.
c/o Matt Walker
E.B. Walker Lumber Company
P.O. Box 1444
Mobile, Alabama 36633
with a copy to: Virginia Boulet
Phelps Dunbar, L.L.P.
400 Poydras Street
New Orleans, Louisiana 70130
SECTION 7.02 INVALIDITY. If any one or more of the provisions contained in
this Agreement, the Note, or the Guaranty Agreement shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, the Note or the Guaranty Agreement.
SECTION 7.03 SURVIVAL OF AGREEMENTS. All representations and warranties of
the Borrower and CRC herein, and all covenants and agreements herein not fully
performed before the effective date of this Agreement, shall survive such date.
SECTION 7.04 SUCCESSORS AND ASSIGNS. (a) All covenants and agreements
contained by or on behalf of the Borrower and CRC in this Agreement, the Note
and the Guaranty Agreement shall bind their successors and assigns and shall
inure to the benefit of the Lender and its successors and assigns.
(b) This Agreement is for the benefit of the Lender and for such other
Person or Persons as may from time to time become or be the holders of any of
the Indebtedness, and this Agreement shall be transferable and negotiable, with
the same force and effect and to the same extent as the Indebtedness may be
transferable, it being understood that, upon the transfer or assignment by the
Lender of any of the Indebtedness, the legal holder of such Indebtedness shall
have all of the rights granted to the Lender under this Agreement.
SECTION 7.05 WAIVERS. No course of dealing on the part of the Lender, its
officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any of its rights, powers or privileges under
this Agreement, the Note, or the Guaranty Agreement shall operate as a waiver
thereof.
SECTION 7.06 CUMULATIVE RIGHTS. The rights and remedies of the Lender
under this Agreement, the Note and the Guaranty Agreement shall be cumulative,
and the exercise or partial exercise of any such right or remedy shall not
preclude the exercise of any other right or remedy.
-xii-
<PAGE>
SECTION 7.07 SINGULAR AND PLURAL. Words used herein in the singular, where
the context so permits, shall be deemed to include the plural and vice versa.
The definitions of words in the singular herein shall apply to such words when
used in the plural where the context so permits and vice versa.
SECTION 7.08 CONSTRUCTION: CONFLICTING PROVISIONS. This Agreement, the
Note and the Guaranty Agreement are contracts made under and shall be construed
in accordance with and governed by the laws of the United States of America and
the State of Mississippi. In the event of any conflict between the provisions
of this Agreement, the Note or the Guaranty Agreement, the provisions of this
Agreement shall govern.
SECTION 7.09 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles or
headings to articles, sections, subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the
other content of such articles, sections, subsections or other divisions, such
other content being controlling as to the agreement between the parties hereto.
SECTION 7.10 RELATIONSHIP BETWEEN THE PARTIES. The relationship between
the Lender and the Borrower shall be solely that of lender and borrower, and
such relationship shall not, under any circumstances whatsoever, be construed
to be a joint venture, joint adventure, or partnership.
SECTION 7.11 REPRESENTATIVE OF THE LENDER. The Managing Member of the
Lender shall be designated as the representative of the Lender for all purposes
of this Agreement, and the Borrower shall be entitled to rely upon the actions
of the Managing Member. The initial Managing Member of the Lender is Matt
Walker.
SECTION 7.12 AMENDMENT. Neither this Agreement nor any provisions hereof
may be changed, waived, discharged or terminated orally or in any manner other
than by an instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought.
SECTION 7.13 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the Lender, the Borrower and CRC with respect to the Loan, and
supersedes all prior written or oral understandings with respect thereto;
provided, however, that all written and oral representations, warranties and
certifications made by the Borrower and CRC to the Lender with respect to the
Loan and the security therefor shall survive the execution of this Agreement.
SECTION 7.14 TIME OF THE ESSENCE. Time shall be deemed of the essence with
respect to the performance of all of the terms, provisions and conditions on
the part of the Borrower, CRC and the Lender to be performed hereunder.
SECTION 7.15 COUNTERPARTS. This Agreement may be executed in two 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER: CASINO RESOURCE CORPORATION OF TUNISIA, S.A.
By: ___________________________________________
Name: John J. Pilger
Title: President
CASINO RESOURCE CORPORATION
By: ___________________________________________
Name: John J. Pilger
Title: President
LENDER: SEAMAR VENTURES, L.L.C.
By: ___________________________________________
Name: Matt Walker
Title: Managing Member
-xiv-
<PAGE>
EXHIBIT "A"
CRC of Tunisia
Proforma
Balance Sheet at Opening
At Opening
ASSETS
Current Assets
Cash $ 800,000
Prepaid Expenses (Leases) 532,000
----------
Total Current Assets 1,332,000
Capitalized Costs 3,630,000
----------
Total Assets $4,962,000
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Current Liabilities
Current Portion of Long-Term Debt 379,356
----------
Total Current Liabilities 379,356
Long-Term Debt 219,044
STOCKHOLDER'S EQUITY
Common Stock 100
Additional Paid-in Capital 4,363,500
----------
Total Stockholders Equity 4,363,600
----------
$4,962,000
----------
----------
NOTE: The equity structure of CRCT is subject to modification based on tax
considerations. There are also third party employment contracts and
consulting contracts, which will be expensed when paid. The Balance
Sheet presented above is done so on a proforma basis and is subject to
minor variations prior to opening.
<PAGE>
TERM NOTE
Principal Amount: Maturity Date of Note: Date of Note:
$1,000,000.00 August 29, 2022 August 29,1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROMISE TO PAY. CASINO RESOURCE CORPORATION OF TUNISIA, S.A., a Tunisian
company (the "Borrower"), promises to pay to the order of SEAMAR VENTURES,
L.L.C., a Mississippi limited liability company, (the "Lender"), in lawful
money of the United States of America the sum of One Million and 00/100
Dollars (U.S. $51,000.000.00), together with interest assessed at 10% of the
EBITDA of the Borrower commencing on the date hereof and continuing until
this Note is paid in full. The Borrower's EBITDA will be calculated as
follows: (a) The Borrower's gross income will be determined by adding all
non-gaming revenues of the Borrower (including without limitation, any
revenues derived from entertainment facilities managed by the Borrower, any
sales of food, beverages, services or goods by the Borrower, or revenue from
any other business venture of the Borrower), plus all gross gaming revenues
of the Borrower (calculated as all amounts paid by gaming customers in the
Borrower's casino, less amounts paid out to gaming customers in winnings),
less a)) a management fee to be paid to Casino Resource Corporation (the
"Guarantor") which shall not exceed $480,000 per year, plus the Guarantor's
out-of-pocket costs for telephone services to and from Ocean Springs,
Mississippi and Sousse, Tunisia, travel expenses of the Guarantor's personnel
to and from Ocean Springs, Mississippi and Sousse, Tunisia, and the
Guarantor's postage and freight expenses actually incurred in connection with
managing the business of the Borrower, less (c) operating expenses, including
gaming taxes, of the Borrower's business prior to payment of all income
taxes, depreciation, amortization and any interest payments (except for
interest paid to parties not affiliated with the Borrower with respect to the
lease or purchase of gaming or other equipment located in, and used in the
business of, the Borrower's gaming casino in Sousse, Tunisia) and any
payments to any affiliate of the Borrower or the Guarantor (except for the
management fee referred to in clause (b) of this paragraph). During the term
of this Loan, the Borrower shall maintain its assets and continue to conduct
its business as provided in that certain Loan Agreement among the Borrower,
Casino Resource Corporation (as Guarantor) and the Lender dated as of
August 29, 1997 (the "Loan Agreement").
PAYMENT: Borrower will pay monthly payments of interest only on the
thirtieth day following the end of each calendar month, beginning September 1,
1997, and continuing on the thirtieth day following each succeeding month
through August 29, 2022. Unless this Note is convened into equity securities
of the Borrower in accordance with the Loan Agreement, the Borrower will pay
the balance of all outstanding principal and accrued but unpaid interest at
maturity on August 29, 2022, or such earlier date as shall be provided for in
the Loan Agreement. The Borrower will pay the Lender at 606 Western Drive,
Mobile, Alabama 36607 or at such other place as the Lender may designate in
writing. The Borrower shall have the right to withhold that portion of the
interest payments due hereunder to comply with Tunisian law and the laws of
the United States of America, and any applicable tax treaty between the
United States of America and the Country of Tunisia.
PREPAYMENT: The Borrower may not prepay this Note; provided, however, that
this Note is subject to mandatory prepayment under the circumstances set
forth in the Loan Agreement.
CONVERSION: The Lender shall have the right to convert this Note into equity
securities of the Borrower in accordance with the terms and conditions set
forth in the Loan Agreement.
LATE CHARGE: If the Borrower fails to pay any payment under this Note in toll
within 10 days of when due, the Borrower agrees to pay the Lender a late
payment fee in an amount equal to 10% of the delinquent payment due.
LENDER'S RIGHTS UPON DEFAULT. Upon the occurrence of any Event of Default (as
defined in the Loan Agreement), the Lender shall have the rights and remedies
set forth therein and in the Guaranty Agreement (as defined in the Loan
Agreement).
<PAGE>
ATTORNEYS' FEES: If the Lender refers this Note to an attorney for
collection, or files suit against the Borrower to collect this Note, or if
the Borrower files for bankruptcy or other relief from creditors, the
Borrower agrees to pay the Lender's reasonable attorneys' fees.
NSF CHECK CHARGES. If the Borrower makes any payment under this Note by check
and the Borrower's check is returned to the Lender unpaid due to
nonsufficient funds in my deposit account, the Borrower agrees to pay the
Lender an NSF check charge equal to $25.
GOVERNING LAW. The Borrower agrees that this Note and the loan evidenced
hereby shall be governed under the laws of the State of Mississippi.
WAIVERS. The Borrower and the Guarantor of this Note hereby waive presentment
for payment, demand, protest, notice of protest, notice of dishonor and
notice of nonpayment and all benefit of valuation, appraisement and exemption
laws, and severally agree that their obligations and liabilities to Lender
hereunder shall be on a "joint and several" basis. The Borrower and the
Guarantor further severally agree that discharge or release of any party who
is or may be liable to the Lender for the indebtedness represented hereby
shall not have the effect of releasing any other party or parties, who shall
remain liable to the Lender. The Borrower and the Guarantor additionally
agree that the Lender's acceptance of payment other than in accordance with
the terms of this Note, or the Lender's subsequent agreement to extend or
modify such repayment terms, or the Lender's failure or delay in exercising
any rights or remedies granted to the Lender, shall likewise not have the
effect of releasing the Borrower or the Guarantor from their respective
obligations to the Lender. In addition, any failure or delay on the pan of
the Lender to exercise any of the rights and remedies granted to the Lender
shall not have the effect of waiving any of the Lender's rights and remedies.
Any partial exercise of any rights and/or remedies granted to the Lender
shall furthermore not be construed as a waiver of any other rights and
remedies; it being the Borrower's intent and agreement that the Lender's
rights and remedies shall be cumulative in nature. The Borrower and the
Guarantor further agree that, should any event of default occur or exist
under this Note, any waiver or forbearance on the part of the Lender to
pursue the rights and remedies available to the Lender, shall be binding upon
the Lender only to the extent that the Lender specifically agrees to any such
waiver or forbearance in writing. A waiver or forbearance on the part of the
Lender as to one event of default shall not be construed as a waiver or
forbearance as to any other default.
SUCCESSORS AND ASSIGNS LIABLE. The Borrower's and the Guarantor's obligations
and agreements under this Note shall be binding upon the Borrower's and the
Guarantor's respective successors and assigns. The rights and remedies
granted to the Lender under this Note shall inure to the benefit of the
Lender's successors and assigns, as well as to any subsequent holder or
holders of this Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to interpret or to define
their provisions. In this Note, whenever the context so requires, the
singular includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note
and the balance of this Note shall be interpreted as if the deleted provision
never existed.
PRIOR TO SIGNING THIS NOTE, THE BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE PROVISIONS WITH RESPECT TO THE MANNER
IN WHICH INTEREST DUE UNDER THE NOTE WILL BE CALCULATED. THE BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER: CASINO RESOURCE CORPORATION OF TUNISIA, S.A.
By: /s/ John J. Pilger
--------------------------------------------
Name: John J. Pilger
Title: President
<PAGE>
GUARANTY AGREEMENT
BORROWER: LENDER:
Casino Resource Corporation of Tunisia, S.A. SeaMar Ventures, L.L.C.
c/o Casino Resources Corporation 606 Western Drive
707 Bienville Boulevard Mobile, Alabama 36607
Ocean Springs, Mississippi 39564
GUARANTOR:
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
- --------------------------------------------------------------------------------
THIS GUARANTY AGREEMENT (this "Agreement"), dated as of August 29, 1997,
is made by CASINO RESOURCE CORPORATION (the "Guarantor"), in favor of SEAMAR
VENTURES, L.L.C. (the "Lender"), guaranteeing the Indebtedness (as
hereinafter defined) of Casino Resource Corporation of Tunisia, S.A. (the
"Borrower") pursuant to that certain Loan Agreement dated August 29, 1997
among the Guarantor, the Lender and the Borrower (as amended, supplemented or
restated from time to time, the "Loan Agreement").
Section 1. GUARANTY OF THE BORROWER'S INDEBTEDNESS. The Guarantor
absolutely and unconditionally does hereby guarantee the prompt and punctual
payment of all present and future indebtedness, amounts and liabilities of
the Borrower to the Lender incurred pursuant to the Loan Agreement,
liquidated or unliquidated, now existing or hereafter arising, in principal,
interest, deferral and delinquency charges, costs and attorney's fees
(collectively, the "Indebtedness"). The maximum amount of Indebtedness
guaranteed hereby is three million dollars (the `9Amount Guaranteed"). It is
acknowledged by the undersigned that the undersigned will benefit from the
Loan to the Borrower, and in order to induce the Lender to make the Loan to
the Borrower, has agreed to execute and deliver this guaranty with the
understanding that doing so is a condition precedent to the Lender making the
Loan to the Borrower.
Section 2. JOINT AND SEVERAL LIABILITY. The Guarantor further agrees
that its obligations and liabilities for the prompt and punctual payment,
performance and satisfaction or purchase of all of the Borrower's
Indebtedness shall be on a "joint and several" basis with the Borrower to the
same degree and extent as if the Guarantor had been and/or will be a
co-borrower, co-principal obligor and/or co-maker of all of the Borrower 5
Indebtedness, but limited to the amount of the Borrower's Indebtedness
guaranteed hereunder.
Section 3. DURATION. This Agreement and the Guarantor's obligations
and liabilities hereunder shall remain in full force and effect until such
time as all of the Borrower's Indebtedness shall be paid, performed and/or
satisfied in toll, in principal, interest, costs and attorney's fees, or the
Guarantor has paid the Amount Guaranteed, whichever event occurs first.
Section 4. DEFAULT BY THE BORROWER. Should an Event of Default (as
defined in the Loan Agreement) occur, the Guarantor unconditionally and
absolutely agrees to pay the unpaid amount of the Borrower's Indebtedness
guaranteed hereunder. Such payment or payments shall be made immediately
following written demand by the Lender at the Lender's address stated above.
The Guarantor hereby waives notice of acceptance of this Agreement and of any
Indebtedness to which it applies or may apply.
<PAGE>
The Guarantor further waives presentment and demand for payment of Borrower's
Indebtedness, notice of dishonor and of nonpayment, notice of intention to
accelerate, notice of acceleration, protest and notice of protest, collection
or institution of any suit or other action by the Lender in collection
thereof, including any notice of default in payment thereof or other notice
to or demand for payment thereof on any party.
Section 5. THE GUARANTOR'S SUBORDINATION OF RIGHTS. If the Guarantor
should for any reason advance or lend monies to the Borrower (whether or not
such funds are used by the Borrower to make payment(s) under the Borrower's
Indebtedness), make any payment(s) to the Lender or others for and on behalf of
the Borrower under the Borrower's Indebtedness, and/or make any payment to the
Lender in total or partial satisfaction of the Guarantor's obligations and
liabilities under this. Agreement, the Guarantor hereby agrees that any and all
rights that the Guarantor may have or acquire to collect from or to be
reimbursed by the Borrower, whether the Guarantor's rights of collection or
reimbursement arise by way of subrogation to the rights of the Lender or
otherwise, shall in all respects, whether or not the Borrower is presently or
subsequently becomes insolvent, be subordinate, inferior and junior to the
rights of the Lender to collect and enforce payment, performance and
satisfaction of the Borrower's then remaining indebtedness until such time as
the Borrower's Indebtedness is fully paid and satisfied. In the event of the
Borrower's insolvency or consequent liquidation of the Borrower's assets,
through bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation or otherwise, the assets of the Borrower applicable to the payment
of claims of both the Lender and the Guarantor shall be paid to the Lender and
shall be first applied by the Lender to the Borrower's then remaining
indebtedness. The Guarantor hereby assigns to the Lender all claims, which it
may have or acquire against the Lender for full payment of the Borrower's
Indebtedness guaranteed under this Agreement.
Section 6. COVENANTS RELATING TO THE INDEBTEDNESS. The Guarantor
farther agrees that the Lender may, at its sole option, at any time, and from
time to time, without the consent of or notice to the Guarantor, or to any
other party, and without incurring any responsibility to the Guarantor or to
any other party, and without impairing or releasing the obligations of the
Guarantor under this Agreement:
A. Discharge or release any party (including, but not limited to, the
Borrower) who is or may be liable to the Lender for any of the
Borrower's Indebtedness;
B. Change the manner, place or terms of payment, or change or extend the
time of payment of or renew, as often and for such periods as the
Lender may determine, or alter, any of the Borrower's Indebtedness;
C. Settle or compromise any of the Borrower's Indebtedness;
D. Apply any sums paid to any of the Borrower's Indebtedness, with such
payments being applied in such priority or with such preferences as
the Lender may determine in its sole discretion, regardless of what
Indebtedness of the Borrower remain unpaid; provided that the Lender
shall apply sums paid by the Guarantor under this Guaranty to the
Amount Guaranteed;
E. Take or accept any other security or guaranty for any or all of the
Borrower's Indebtedness; and/or
F. Enter into, deliver, modify, amend or waive compliance with, any
instrument or arrangement evidencing, securing or otherwise affecting,
all or any part of the Borrower's Indebtedness.
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In addition, no course of dealing between the Lender and the Borrower, nor
any failure or delay on the part of the Lender to exercise any of the lender's
rights and remedies, or any other agreement or agreements by and between the
Lender and the Borrower shall have the affect of impairing or releasing the
Guarantor's obligations and liabilities to the Lender or of waiving any of the
Lender's rights and remedies. Any partial exercise of any rights and remedies
granted to the Lender shall furthermore not constitute a waiver of any of the
Lender's other rights and remedies, it being the Guarantor's intent and
agreement that the Lender's rights and remedies shall be cumulative in nature.
The Guarantor further agrees that, should the Borrower default under any of the
Borrower's Indebtedness, any waiver or forbearance on the part of the Lender to
pursue the rights and remedies available to the Lender shall be binding upon
the Lender only to the extent that the Lender specifically agrees to such
waiver or forbearance in writing. A waiver or forbearance on the part of the
Lender as to one default shall not constitute a waiver or forbearance as to any
other default.
Section 7. NO RELEASE OF THE GUARANTOR. The Guarantor's obligations
and liabilities under this Agreement shall not be released, impaired, reduced
(except to the extent that the Borrower's indebtedness is reduced or the Amount
Guaranteed hereby is reduced) or otherwise affected by, and shall continue in
full force and effect, notwithstanding the occurrence of any event, including,
without limitation, any one or more of the following events:
A. Insolvency, bankruptcy, arrangement, adjustment, composition,
liquidation, dissolution or lack of authority (whether corporate,
partnership or trust) of the Borrower (or any person acting on the
Borrower's behalf);
B. Partial payment or payments of any amount due and/or outstanding
under any of the Borrower's Indebtedness other than payments by the
Guarantor to the Lender of the Amount Guaranteed hereunder;
C. Any payment by the Borrower or any other party to the Lender is held
to constitute a preferential transfer or a fraudulent conveyance under
any applicable law, or for any reason the Lender is required to refund
such payment or pay such amount to the Borrower or to any other
person; or
D. Any dissolution of the Borrower or any sale, lease or transfer of all
or any part of the Borrower's assets.
This Agreement and the Guarantor's obligations and liabilities hereunder
shall continue to be effective, and/or shall automatically and retroactively
be reinstated if a release or discharge has occurred, as the case may be, if
at any time any payment or part thereof to the Lender with respect to any of
the Borrower's Indebtedness is rescinded or must otherwise be restored by the
Lender pursuant to any insolvency, bankruptcy, reorganization, receivership
or any other debt relief granted to the Borrower or to any other party. If
the Lender must rescind or restore any payment received by the Lender in
satisfaction of the Borrower's Indebtedness, any prior release or discharge
from the terms of this Agreement given to the Guarantor shall be without
effect, and this Agreement and the Guarantor's obligations and liabilities
hereunder shall automatically be renewed or reinstated and shall remain in
full force and effect to the same degree and extent as if such a release or
discharge was never granted. It is the intention of the Lender and the
Guarantor that the Guarantor's obligations and liabilities hereunder shall
not be discharged except by the Borrower's and the Guarantor's full and
complete performance of such obligations and liabilities and then only to the
extent of such performance.
Section 8. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants that the representations and warranties made by the
Borrower and the Guarantor in the Loan Agreement are true and correct.
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Section 9. COVENANTS CONTAINED IN LOAN AGREEMENT. The Guarantor will
cause the Borrower at all times to comply with the affirmative and negative
covenants imposed on the Borrower pursuant to the Loan Agreement.
Section 10. ENFORCEMENT OF THE GUARANTOR'S INDEBTEDNESS AND
LIABILITIES. The Guarantor agrees that following the occurrence of an Event
of Default, should the Lender deem it necessary to file an appropriate
collection action to enforce the Guarantor's obligations and liabilities
under this Agreement, the Lender may commence such a civil action against the
Guarantor without the necessity of first (i) attempting to collect the
Borrower's Indebtedness from the Borrower or from any other guarantor, surety
or endorser, whether through filing of suit or otherwise, or (ii) including
the Borrower as an additional party defendant in such a collection action
against the Guarantor. If the Lender should ever deem it necessary to refer
this Agreement to an attorney-at-law for the purpose of enforcing the
Guarantor's obligations and liabilities hereunder, or of protecting or
preserving the Lender's rights hereunder, the Guarantor agrees to reimburse
the Lender for the reasonable fees of such an attorney. The Guarantor
additionally agrees that the Lender shall not be liable for failure to use
diligence in the collection of any of the Borrower's Indebtedness or in
creating, perfecting or preserving any security for any such Indebtedness.
Section 11. ADDITIONAL DOCUMENTS. Upon the reasonable request of the
Lender, the Guarantor will, at any time and from time to time, duly execute and
deliver to the Lender any and all such further instruments and documents and
supply such additional information as may be necessary or advisable in the
opinion of the Lender to further evidence or perfect this Agreement.
Section 12. CONSTRUCTION. The provisions of this Agreement shall be in
addition to and cumulative of, and not in substitution, novation or discharge
of any and all prior or contemporaneous guaranty or other agreements by the
Guarantor in favor of the Lender or assigned to the Lender by others, all of
which shall be construed as complementing each other. Nothing herein shall
constitute a waiver of any notice requirement in the Borrower's favor, or any
curative right provided in the Loan Agreement.
Section 13. AMENDMENT. No amendment, modification, consent or waiver of
any provision of this Agreement, and no consent to any departure by the
Guarantor therefrom, shall be effective unless the same shall be in writing
signed by a duly authorized officer of the Lender, and then shall be effective
only to the specific instance and for the specific purpose for which given.
Section 14. SUCCESSORS AND ASSIGNS BOUND. The Guarantor's obligations
and liabilities under this Agreement shall be binding upon the Guarantor's
successors and assigns. The rights and remedies granted to the Lender under
this Agreement shall also inure to the benefit of the Lender's successors and
assigns, as well as to any and all subsequent holder or holders of any of the
Borrower's Indebtedness subject to this Agreement.
Section 15. CAPTION HEADINGS. Caption headings of the sections of this
Agreement are for convenience purposes only and are not to be used to interpret
or to define their provisions. In this Agreement, whenever the context so
requires, the singular includes the plural and the plural also includes the
singular.
Section 16. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the substantive laws of the State of Mississippi.
Section 17. 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, this Agreement
shall be construed and enforceable as if the illegal, invalid or unenforceable
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provision had never comprised a part of it, 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
herefrom.
Section 18. NOTICES. Any notice or demand which, by provision of this
Agreement, is required or permitted to be given or served by the Lender to or
on the Guarantor shall be deemed to have been sufficiently given and served for
all purposes (if mailed) three calendar days after being deposited, postage
prepaid, in the United States Mail, registered or certified mail, or (if
delivered by express courier) one business day after being delivered to such
courier, or (if delivered in person) the same day as delivery, in each case
addressed (until another address is given in writing by the Guarantor to the
Lender), at the address set forth above.
Any notice or demand which, by provision of this Agreement, is required or
permitted to be given or served by the Guarantor to or on the Lender shall be
deemed to have been sufficiently given and served for all purposes (if mailed)
three calendar days after being deposited, postage prepaid, in the United
States Mail, registered or certified mail, or (if delivered by express courier)
one business day after being delivered to such courier, or (if delivered in
person) the same day as delivery, in each case addressed (until another address
is given in writing by the Lender to the Guarantor) to the address set forth
above.
Section 19. WAIVER OF JURY TRIAL. THE GUARANTOR AND THE LENDER HEREBY
WAIVE THE RIGHTS TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER AGAINST THE OTHER.
Section 20. ACCEPTANCE. No formal acceptance by the Lender is
necessary to make this Agreement effective.
IN WITNESS WHEREOF, the Guarantor has executed this Agreement in favor of
the Lender on the day, month and year first written above.
GUARANTOR: CASINO RESOURCE CORPORATION
By: /s/ John J. Pilger
-----------------------------
John J. Pilger
President
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CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into this 29th
day of August, 1997, and shall commence on October 1, 1997, by and between
Casino Resource Corporation, a Minnesota corporation with its principal
offices at 707 Bienville Boulevard, Ocean Springs, Mississippi, 39564 ("CRC
or the "Company") and Mall Walker ("Consultant"), an individual residing at
11650 Jeff Hamilton Road, Mobile, Alabama, 36692.
BACKGROUND
The Company is engaged in the business of operating and developing
commercial gaming and related hotel and entertainment activities.
Walker has extensive experience in opening and operating casinos.
NOW, THEREFORE, in consideration of the above premises, and the mutual
covenants, agreements and representations herein made, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, CRC and Consultant, intending to be legally bound, hereby agree
as follows:
1. TERM. One (1) year with eight (8) renewable options based on
performance of the Companies gaming operations (see attached Schedule "A").
2. SERVICES.
(a) During the term of this Agreement, Consultant shall render to the
Company such services of an advisory nature as the Company reasonably and in
good faith may request from time to time so that the Company may have the
benefit of Consultant's knowledge, expertise, skills and experience in the
gaming industry (subject to the limitation described in (c) below, the
"Consulting Services").
(b) Consultant shall be available for advice and counsel to the
officers of the Company and other employees designated by the Company by
telephone, letter, facsimile, or in person, as may be required by the
Company. Consultant shall consider all directions and instructions given by
the Company, but Consultant shall independently determine the time and manner
of the performance of his responsibilities and duties hereunder. All
communications made by the consultant concerning the Consulting Services
shall be made to the Chairman of the Company, or to the employee or officer
of the Company deemed appropriate by the Consultant in dealing with the
matter involved.
(c) The Consulting Services provided hereunder shall initially relate
only to the Casino Caraibe project, but at the Company's request may involve
additional gaming properties.
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(d) The Company recognizes the Consultant shall not devote his fill
business time to the Consulting Services and that the Consultant may continue
to participate in his business interests, and other consulting services,
other than as may be prohibited by or contrary to this Agreement.
(e) The Company and Consultant may, in their respective sole
discretion, agree to enter into additional consulting agreements in
connection with projects other than the Initial Projects (such other
projects, "Additional Projects"), on terms and conditions upon which the
Company and Consultant may mutually agree.
(f) The Company may request and the Consultant agrees to travel to
other gaming opportunities with the costs being paid for by the Company.
4. COMPENSATION. As full compensation for all services rendered
hereunder, Company agrees to pay Consultant as set out in Exhibit "B". All
compensation rendered hereunder shall be paid by CRC, and shall not be
considered an "operating expense" of Casino Resource Corporation of Tunisia,
S.A. for purposes of calculating EBITDA within the meaning of that certain
Loan Agreement, and related Promissory Note, dated August29, 1997, by and
among Casino Resource Corporation of Tunisia, S.A., CRC and Sea Mar Ventures,
L.L.C.
5. REIMBURSEMENT OF EXPENSES AND INDEPENDENT CONTRACTOR BENEFITS. The
Consultant is an independent contractor and as such shall be liable for his
own expenses and taxes of any nature, except that the Company shall supply at
least two (2) business class tickets to Tunisia each year.
6. CONFIDENTIAL INFORMATION. In the course of consulting for Company,
Company may provide Consultant with certain financial and other information
concerning its business. Consultant acknowledges that such information,
whether furnished before or after the date of this Agreement, whether written
or oral, together with any analyses, compilations, studies or other documents
prepared by Company or its agents, representatives, or employees regarding
such information, is the sole property of and is confidential to Company
(hereinafter referred to as "Confidential Information").
7. LIMITATION ON SOLICITATION BY CONSULTANT. Consultant agrees that,
except in good faith compliance with his duties hereunder as requested by the
Company, Consultant shall not, without the prior written approval of the
Chairman of the Company:
(a) Solicit additional information regarding the Company or its
business from or otherwise contact any employees, agents, or representatives
of Company.
(b) Contact any customers, visitors, funding sources or employees of
Company or any governmental agencies, as they concern Company, or any of
their respective representatives, regarding the business of Company, the
existence of this Agreement or the subject matter hereof; or
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(c) During the term of and for a period of three (3) years following
the execution date of this Agreement, solicit for employment or employ or
otherwise contract for the services of any person who is now employed by
Company in an executive or supervisory position.
8. NONDISCLOSURE. Consultant agrees to hold the Confidential Information
in strictest confidence and to use the Confidential Information only for
purposes of rendering his services to Company as set forth in Paragraph 3
above, except as to his role as Manager of Sea Mar Ventures, L.L.C. Without
limiting the generality of the foregoing, Consultant agrees as follows:
(a) Consultant will not, without the prior written consent of the
Chairman of the Company; disclose the Confidential Information to any person,
firm or corporation, other than Sea Mar Ventures, L.L.C.
(b) Consultant shall obligate all person $ who receive, directly or
indirectly, any Confidential Information from Consultant to abide by the
terms and conditions of this Agreement as if they were parties hereto;
(c) Consultant shall, at Company's request, return to Company or
destroy all copies of documents within Consultant's possession or control
containing any of the Confidential Information; and
(d) Consultant will not use any of the Confidential Information for
any commercial purposes or for any purpose which might be competitively
disadvantageous to Company.
9. EXCEPTIONS TO NONDISCLOSURE. The nondisclosure obligations or
Consultant set forth under Paragraph 8 of this Agreement shall not be deemed
to restrict the use and/or disclosure by Consultant of any Confidential
Information which:
(a) Is or becomes publicly known or within the public domain without
the breach of this Agreement by Consultant or persons permitted to receive
such information pursuant to Paragraph 8 above; or
(b) Is disclosed to Consultant by a third person who is not under an
obligation of confidence to Company.
10. TERMINATION. This Consulting Agreement can be canceled if Consultant
is found unsuitable in any gaining jurisdiction with the payment of the
trailing twelve (12) month fees times two (2), in one lump payment or
twenty-four (24) equal monthly payments as Company shall decide in its sole
discretion. If twelve (12) months has not expired then the payment shall be
due after twelve (12) months has expired for which the Consultant will
receive the balance of the first twelve (12) months and the additional twelve
(12) months.
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11. REMEDIES CUMULATIVE; NO WAIVER. No remedy conferred upon the Company
by this Agreement is intended to be exclusive of any other remedy, and each
and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder or now or hereafter exiting at law or in equity.
No delay or omission by the Company in exercising any right remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof; and any such right, remedy or power may be exercised by the Company
from time to time and as often as deemed expedient or necessary by the
Company in its sole discretion.
12. ENFORCEABILITY. If any provision of this Agreement shall be invalid or
unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this
Agreement, as the case may require, and this Agreement shall be construed and
enforced to the maximum extent permitted by law, as if such provision has
been originally incorporated herein as so modified or restricted, or as if
such provision had not been originally incorporated herein, as the case may
be.
13. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth in the first paragraph of this Agreement. Any party
hereto may also give notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but such notice, request, demand, claim, or other communication shall
be deemed to have been duly given only if it is actually received (or if
receipt is refused) by the party for whom it is intended. Any party hereto
may change their address upon written notice.
14. CONTENTS OF AGREEMENT; AMENDMENT AND ASSIGNMENT. This Agreement sets
forth the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes and is instead of all other prior or
contemporaneous, written or oral, arrangements regarding the same subject
matter between the Consultant and the Company. This Agreement cannot be
changed, modified or terminated except upon written amendment duly executed
by the parties hereto. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties
hereto, including any successor to the business of the Company (whether by
merger, consolidation, sale of stock or assets or otherwise) or of any or all
of the Company's interest in any of the Initial Projects; except that the
duties and responsibilities of the Consultant hereunder are of a personal
nature and shall not be assignable in whole or in part by the Consultant.
15. INDEMNIFICATION. Consultant agrees to jointly and severally indemnify
and hold Company and its affiliates, control persons, directors, officers,
employees and agents harmless from and against all losses, claims, damages,
liabilities, costs or expenses, including those resulting from any
threatened or pending investigation, action, proceeding or dispute caused by
an action of
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Consultant. This indemnity shall also include Company's reasonable attorney's
and accountant's fees and out-of-pocket expenses incurred in defending any
such action or threatened action.
16. APPLICABLE LAW. This Agreement shall be interpreted and construed
under the internal laws of the State of Mississippi without regard to the
conflict of laws provision of any state.
17. HEADINGS. The various headings used in this Agreement are inserted for
convenience only and will not in any way affect the meaning or construction
of this Agreement or any provision hereof.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all such
counterparts together will constitute but one agreement.
19. COSTS AND EXPENSES. Each party shall bear their own respective costs
and expenses in connection with this Agreement, including any costs or
expenses as to the enforcement of any provision hereof.
20. ARBITRATION. Any dispute between the Company and Consultant under this
Agreement, other than a dispute relative of paragraphs 7, 8, 9 or 10, will be
submitted to arbitration in Mississippi and such arbitration will be
commenced, conducted and concluded in accordance with the rules, and under
the auspices, of the American Arbitration Association then in effect. The
arbitration panel shall consist of three arbitrators: one selected by
Company, one by Consultant, and the third pursuant to the rules of the
Association. All fees and expenses of the arbitration will be borne equally
by Company and Consultant. The decision of the arbitrators will be final and
binding and both parties hereby forever waive and renounce any right either
party may have to seek review of such decision in any tribunal.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
CASINO RESOURCE CORPORATION
By: /s/ John J. Pilger
----------------------------
John J. Pilger,
Chief Executive Officer
By: /s/ Matt Walker
----------------------------
Matt Walker
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SCHEDULE "A"
1. The Consultant Agreement shall be valid so long as Casino Caraibe is
still open.
2. This Consulting Agreement ceases upon filing of involuntary or
voluntary liquidations of Casino Caraibe, or upon closing of Casino Caraibe
operation for any reason.
3. Consulting agreement may be renewed by consultant on a year to year
basis on the same terms and conditions as long as Casino Caraibe remains in
operation. After initial nine (9) year lease term, agreement may be renewed
where casino lease is extended and Casino Caraibe operates under the same
terms and conditions.
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SCHEDULE "B"
Consulting fees are based on the annual excess cash flow, all as defined
below, of CRC of Tunisia S.A.
Excess cash flow is defined as revenues less expenses, before income taxes
of CRC of Tunisia, S.A., computed in accordance with generally accepted
accounting principles adjusted for the following items:
(a) Depreciation and amortization are not included in the expense
computation.
(b) The deduction for interest expense on debt service is limited to third
party debt service for gaming equipment and other equipment utilized
in the casino and theatre in the ordinary course of business.
(c) Expenses include taxes of an operating nature, including but not
limited to sales, VAT, amusement, gross receipts, excise and payroll
taxes.
(d) Revenues are net of all gaming related taxes.
Casino Caraibe will utilize an October 1st to September 30th fiscal year.
Cumulative fees will be paid monthly based on pro rata performance according
to the cumulative annual fee schedule detailed below. Thirty (30) days after
completion of the annual fiscal audit of CRC. a detailed annual
reconciliation and adjustment will be prepared with the annual cumulative
fees adjusted accordingly.
Year 1 ANNUAL EXCESS CASH FLOW IN $ USD TOTAL ANNUAL CUMULATIVE FEES EARNED
$0-1 million $175,000
1-2 million $225,000
2-3 million $275,000
3-4 million $325,000
4-5 million $375,000
$5+ million $375,000 + 4% of excess over $5.0
million
Thereafter $0-1 million $ 25,000
1-2 million $ 50,000
2-3 million $ 75,000
3-4 million $125,000
4-5 million $175,000
$5+ million $175,000 + 4% of excess over $5.0
million
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The Company will make advances monthly on the annual fees depending on the
month's cash flows, with the right of "catch up."
The Company and Consultant agree that if Casino Caraibe should be sold
prior to the expiration of the Consulting Agreement, Consultant will assist
with the closing of the sale, the wind up of operations, and the transfer to
a third party. For these services Consultant shall be paid a one (1) time fee
of four (4%) percent of the net proceeds of the sale price of the casino.
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CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Casino Resource Corporation and Subsidiaries
Ocean Springs, Mississippi
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
November 5, 1996, except for Note 14 as to which the date is December 26,
1996 and Note 6 as to which the date is May 19, 1997, relating to the
consolidated financial statements of Casino Resource Corporation and
Subsidiaries appearing in the Company's Annual Report on Form 10-KSB and as
amended on Form 10-KSB/A for the year ended September 30, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Chicago, Illinois BDO SEIDMAN, LLP
October 6, 1997
