UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-22242
CASINO RESOURCE CORPORATION
(Name of the small business issuer in its charter)
MINNESOTA 41-0950482
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
(Address of principal executive offices)
Issuer's telephone number (228) 872-5558
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Name of each exchange on which registered: N/A
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock and Class A Warrants
Check whether the company (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No__.
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. /X/
The Company's revenues for the fiscal year ended September 30, 1998
were $3,305,396.
As of December 29, 1998, 9,482,349 shares of Common Stock were
outstanding, and the aggregate market value of such Common Stock (based upon the
last reported sale price on the NASDAQ National Market), excluding outstanding
shares beneficially owned by affiliates was approximately $4,551,573.
Transitional Small Business Disclosure Format (Check one):
Yes ____; No _X_
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PART I
ITEM 1. BUSINESS
Recent Developments
During fiscal 1998, the Company in a continuing effort to fulfill its
long term strategy to increase shareholder value, determined that the best way
to meet this goal was to change the focus of the Company's business. As part of
this effort, the Company took a number of actions. First, the Company sold the
Grand Hinckley Inn in June 1998, to the Mille Lacs Band of the Ojibwe Indians.
The selling price was $5.4 million.
Second, the Company entered into an asset purchase agreement (the
"Agreement") with On Stage Entertainment, Inc. ("On Stage"), to sell
substantially all of the Company's assets relating to the Country Tonite Theater
in Branson, Missouri, and the production show, Country Tonite. The purchase
price is $13.8 million, of which $12.5 million is payable in cash and the
balance payable by 9.5% subordinated note. The Agreement is subject to, among
other things, On Stage's obtaining financing of the purchase price and approval
of the sales transaction by a majority of the shareholders of On Stage and the
Company.
Third, the Company and Burkhart Venture, LLC entered into an agreement,
whereby Burkhart Venture, LLC would acquire the Company's 60% ownership in
Country Tonite Theatre, LLC for $20,000. Because of these transactions the
entertainment segment and hospitality segment have been considered discontinued
operations in the consolidated financial statements. See "Item 7. Financial
Statements and Supplementary Data."
Fourth, and finally, the Company entered into a Letter of Intent with a
standstill component, with Mark McKenny, an Arkansas business man, to build a
state of the art spring water bottling plant. If the transaction is completed,
the Company will receive 60% of the equity for a minimum investment of $5
million. The parties expect to spend $27 million on the facility. The agreement
is contingent upon, among other things, (i) completion by the Company of a full
legal and business due diligence examination; and (ii) the Company's obtaining
debt and equity financing in the amount of not less than $25 million.
Upon the sale of the entertainment division assets, the Company will
still have its casino in Tunisia, North Africa, however the Company will have no
other entertainment assets. The following information provides historic
background information on the Company's businesses prior to the sale of the
Grand Hinckley Inn and the proposed sale of the entertainment segment.
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
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vehicle resorts, and providing related direct marketing services. The Company
sold its capital-intensive camp resort properties from 1988 through 1991, and
began offering direct marketing services to the recreational real estate
industry. The marketing services provided were primarily focused toward
timeshare and camp resort developments and, eventually, to the casino industry.
The Company sold its timeshare 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 five businesses. In March 1994, the Company purchased a
musical production company, which staged an award-winning show at the Aladdin
Hotel in Las Vegas, Nevada, but which closed on November 15, 1997, with the
closing of the Aladdin Hotel. Also in March 1994, the Company purchased its
"Country Tonite Theatre" in Branson, Missouri. In May 1994, the Company
completed construction of and opened its 154 room hotel, "Grand Hinckley Inn,"
on 7.5 acres of leased land in northern Minnesota adjacent to the Grand Casino
Hinckley, an Indian gaming facility currently operated by Grand Casinos, Inc.
("Grand Casinos"). This facility was sold to the Mille Lacs Band of the Ojibwe
Indians in June 1998. Also, in May 1994, the Company opened the Biloxi Star
Theatre, a 1,900 seat deluxe theater in Biloxi, Mississippi, which 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 (CTT), a joint venture between the Company and Burkhart
Ventures, LLC, presents the Country Tonite Show in a 1,500-seat,
state-of-the-art theatre in Pigeon Forge, Tennessee. The Company's operating
manager was the 60% owner of the joint venture. The Company's 60% interest was
sold to Burkhart Ventures, LLC, effective December 31, 1998. In April 1997, the
Branson Theatre added a second show "The Golden Girls," in a joint venture with
Greg Thompson Productions, and on October 18, 1997, the Company, through its 85%
owned subsidiary, CRC of Tunisie, Inc., opened its casino (Casino Caraibe) in a
leased facility in Sousse, Tunisia, North Africa. Additionally, the Country
Tonite Show appeared for three weeks at the Sahara Hotel and Casino, in Las
Vegas, Nevada, in December 1997.
The Company had previously entered into a Technical Assistance and
Consulting Agreement with Harrah's Entertainment, Inc. ("Harrah's") which
provided that, upon the receipt of a compact and regulatory approval, Harrah's
was 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 would have received, upon commencement of operations 21.6%
of Harrah's management fee, but was not required to provide any development
capital. The Management Agreement between Harrah's and the Band was canceled
during fiscal year 1998. The Company asserts that it maintains a Right of First
Refusal to develop a casino or casinos with the Pokagon Band of Potawatomi
Indians (the "Band"), even though the Band announced that the agreement to
develop and manage one or more casinos, to be funded by Harrah's in northern
Indiana and southwestern Michigan was terminated.
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Hospitality & Entertainment 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 (the "tribe") and operated
by Grand Casinos near Hinckley, Minnesota. Grand Hinckley Inn was sold to the
Mille Lacs Band of Ojibwe Indians, who was lessor of the hotel site, on June 29,
1998, for $5.4 million.
Country Tonite Theatre (Branson, MO)
The Company purchased the former Ray Stevens Theatre, now the Country
Tonite Theatre (the "Theatre") located at 4080 W. Highway 76, Branson, Missouri
65616 in March 1994, for a purchase price of $10 million. In May 1994, the
2,000-seat theatre began running two 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 Theatre
features 38,000 square feet on two floors with an auditorium, a stage area,
control booths, dressing rooms, offices, a lounge, a gift shop which offers a
wide variety of souvenirs with the Country Tonite theme, and two concession
stands. In addition, the Theatre parking lot accommodates 600 cars and 30 buses.
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. Branson is located approximately 250 miles from St. Louis and 40 miles
from Springfield. Its population is approximately 3,000. The city includes over
40 theaters featuring music stars such as Andy Williams, Bobby Vinton and the
Osmond family and provides a wide range of family entertainment for all ages. In
addition to approximately 20,000 hotel rooms, Branson offers diverse eating,
shopping and recreational activities to its approximately 6 million annual
visitors (according to Branson Chamber of Commerce), 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 during the summer months and they are drawn to
Branson not only by the country music, but also 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 Theatre for $2 million in cash and a
promissory note collateralized by the Theatre for $8 million in principal. The
note, with a principal balance of $7,225,037 at September 30, 1998, bears
interest at the prime rate plus 1%, with a floor of 7% and a ceiling of 10%
(9.5% at September 30, 1998), and matures on October 1, 1999. The note is
payable in monthly installments of principal and interest of $74,002, with a
final payment of approximately $7 million. If the Company retires the mortgage
on or before May 1, 1999, the Company will be given a $300,000 discount.
The Theatre 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). The number of
competing theaters and number of shows could attract ticket buyers away from the
Company's theatre. Also, other area tourist attractions could limit the growth
or even
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decrease ticket sales. In addition, other geographic areas 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 theatre, while having won major awards could be
duplicated by a competing theatre with possible adverse consequences to the
Company.
The Company entered into the Agreement to sell substantially all of the
Company's assets relating to the Country Tonite Theatre in Branson, Missouri,
and the production show Country Tonite to On Stage Entertainment, Inc., a Nevada
corporation (NASDAQ: ONST), ("On Stage"), for $13.8 million, of which $12.5
million is payable in cash, and the balance of which is payable by delivery of a
two year subordinated 9.5% note in the amount of $1.3 million. Included in the
assets subject to the Agreement is the Branson Theatre. A portion of the
proceeds from the proposed sale will be used to retire the mortgage on the
Theatre. Consummation of the sale is subject to, among other things, On Stage's
obtaining acceptable financing of the purchase price and approval of the sales
transaction by a majority of the shareholders of On Stage and the Company.
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 (the "Show"), and played at the 1,100 room Aladdin Hotel and
Casino ("Aladdin") located on the "strip" in Las Vegas from 1992 until November
15, 1997, when the Aladdin Hotel closed for renovations. CTE, which produces the
Show, received the CMAA award as well as "Best Television Program in Nevada,"
"Electronic Media Award 1994," and "Recording of the Year." In 1997, the Show
was awarded the "International Country Music Live Show of the Year," and Jack
Pilger, the Company's Chief Executive Officer, was awarded "International
Producer of the Year," and inducted into the Country Music Organizations of
America Hall of Fame. Casts of the Country Tonite show perform at the Country
Tonite Theatre in Branson, Missouri and Pigeon Forge, Tennessee.
While the Company has been provided opportunities to present the
Country Tonite Show in Las Vegas, it has been unsuccessful in securing an
attractive financial arrangement to offset the cost to produce show in Las Vegas
since January 1998. The production show is included in assets which are subject
to the Agreement.
Country Tonite Theatre (Pigeon Forge)
CRCT, a wholly owned subsidiary of the Company and Burkhart Ventures,
LLC formed a joint venture to present the Country Tonite Show in a 1,500-seat
state-of-the-art theatre located in Pigeon Forge, Tennessee, which opened on
March 21, 1997. CRCT owns 60% of the joint venture and manages the theater.
Under the terms of the Operating Agreement, the members contributed $500,000 of
operating capital and have advanced $1,416,710 to CTT (the Company's portion of
which was $850,000). Theatre revenues increased 52% for fiscal 1998, over fiscal
1997, as 1997 reflects only a six-month seasonal period of operations as
compared to a full season's operation during 1998.
This was a new market for the Company's award-winning Country Tonite
Show, and CTT has sustained operating losses its first and second years of
operation. There is no assurance that CTT
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will ever become profitable. Currently, there are approximately nine family
oriented musical show theaters operating in the Pigeon Forge area. It is likely
that additional theaters will open in the future, and although the Pigeon Forge
area draws approximately 12 million tourists annually (according to Pigeon Forge
Department of Tourism), there are no assurances that the Pigeon Forge show will
ultimately duplicate the success of the Branson show. The theatre competes for
the tourist dollar against other theatre venues and other forms of family
entertainment in the Pigeon Forge area.
The Company and Burkhart Venture, LLC entered into an agreement
executed November 4, 1998, which terminates the Company's 60% ownership of CTT
effective December 31, 1998. Under the terms of the agreement, CRC will continue
to manage CTT for a fee of $2,000 per week in season and $1,000 per week during
the off-season beginning January 1, 1999, but will have no vested ownership
interest in or financial obligation to CTT after December 31, 1998. Burkhart
Venture, LLC, representing 100% of the interest of CTT, has contracted with CTE
to produce shows for the 1999 calendar season for a fee of $36,000 per week.
Gaming Operations
Tunisia Casino
The Company, through its 85% owned subsidiary, CRC of Tunisie, S.A.,
leases and operates a casino in Sousse, Tunisia. The 42,000 square foot casino
resort, which opened October 18, 1997, has over 10,000 square feet of gaming
space with approximately 281 slot machines and 21 table games. Capital
expenditures and pre-opening costs to open the Tunisia Casino totaled
approximately $4,500,000 through September 1998.
The entertainment complex/casino is a freestanding building, which is
located on a triangular piece of property in front of the 425-room Hotel Samara,
one of three hotels that Samara Casinos Company ("Samara") controls in Sousse.
The two other hotels contain 400 total rooms. The site is located on the main
street of Sousse in the heart of the tourist center and directly off the beach.
The site is approximately 1.5 acres in size. The casino is the first of its kind
in the city of Sousse. Three other casinos are open in other Tunisian
municipalities at distances of approximately fifty to three hundred miles from
Sousse.
CRC of Tunisie also operates a gourmet restaurant, gift shop and
additional food and bar service on the property. The remaining 15% ownership
interest in CRC of Tunisie, S.A. is held by Samara who acquired it for nominal
consideration as part of the development transaction.
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 Sea, 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 known for its beaches. The city of Sousse borders the
Mediterranean. Casinos are a new attraction for the tourist trade in Tunisia.
According to the Ministry of Tourism, the number of tourists visiting
Tunisia is estimated to be 4.5 million per year, and the average length of stay
for tourists is approximately 6 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. According to the Ministry of Tourism, during
this
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time, the hotel rooms are historically, on average, 80% occupied and the average
occupancy rate year-round is 53%. The closest airport to Sousse is approximately
30 minutes away. Tourists are typically bused from the airport to Sousse. The
Casino sustained an operating loss its first year of operation which was
exacerbated by amortization of pre-opening and start-up expenses. Due to minimal
spending per casino patron, gaming revenues were significantly below the
Company's expectations.
Pokagon Consulting Agreement
The Pokagon Band of Potawatomi Indians domiciled in northern Indiana
and southwestern Michigan do not have a designated reservation but have been
assigned certain service areas in northern Indiana and southwestern Michigan.
The Pokagon Band has the right to construct one or more casinos subject to the
approval of various regulatory authorities. In May 1996, the Pokagon Band
announced the selection of a site in 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 until December 1998.
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, which could provide substantial competition to the Pokagon casino(s).
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. The
Company thus acquired 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, which included a Right of First
Refusal on any Pokagon Gaming opportunity.
Also in January 1995, the Company executed a Memorandum of
Understanding with the Promus Companies Incorporated, now known as Harrah's
Entertainment, Inc. ("Harrah's"), 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 called for Harrah's
to provide or cause to be provided loans to finance the construction of one or
more casinos in the Pokagon band's service area. The Band was to be responsible
for repaying the loans and paying Harrah's a management fee, for each Pokagon
casino. On October 18, 1998, the Pokagon Band announced that it had terminated
its contract with Harrah's. The Company has asserted that it has a Right of
First Refusal in regards to a gaming management contract, separate and apart
from the gaming management contract which was the subject of the agreement
between the Company and Harrah's, and in turn Harrah's and the Pokagon Band. The
Company maintains that while the Harrah's-Pokagon contract may have been
terminated, the Right of First Refusal that the Company maintained separately
from the agreement with Harrah's reverted back to the Company and with it the
right to participate in a gaming management contract with the Pokagon Band.
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Under the Technical Assistance and Consulting Agreement with Harrah's,
the Company would have received 21.6% of Harrah's management fee as consulting
fees over the term of Harrah's management contract with the Pokagon Band. The
Company would have had 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 would reimburse Harrah's for the Company's share
(21.6%) of specified development and licensing costs incurred by Harrah's. Under
the Technical Assistance and Consulting Agreement, Harrah's paid the Company a
one-time fee of $250,000 (recorded in fiscal 1995 and collected in fiscal 1996)
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 was payable over five years, commencing with the
opening of the first Pokagon casino. In turn, the Company agreed to pay
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.
The Company must, in any event, reconfirm its Right of First Refusal
with the Tribe relative to the Company securing its right to participate in a
gaming management contract. There are no assurances that the National Indian
Gaming Commission ("NIGC") will approve the agreement which is the subject of
the Company's asserted Right of First Refusal, nor is there any guarantee that
even if NIGC approves the agreement that the Company will be able to find the
appropriate partner to help finance the endeavor, although the Company has
opened a dialog with a casino operator in an effort to do so.
The Company filed suit against Harrah's on September 4, 1998, alleging
that Harrah's breached its agreements with the Company and tortuously interfered
with the Company's contractual and prospective economic advantage associated
with the Pokagon Band of Potawatomi Indians. The suit further alleges that
Harrah's withheld vital business information from the Company. Harrah's has
moved the court for Summary Judgment against the Company. The Company responded
to the motion and plans to vigorously pursue its claim. See "Item 3. Legal
Proceedings."
Bottled Water Business
The Company has entered into a Letter of Intent with a standstill
component with Mark McKinney, a Bentonville, Arkansas, businessman, to build a
state of the art spring water bottling plant in Bentonville, Arkansas. If the
transaction is completed, the Company will receive 60% of the equity in the
Bottling Venture in consideration for investing a minimum of $5 million in the
bottling plant. The parties expect to spend $27 million on the facility. The
agreement is contingent on (i) completion by the Company of a full legal and
business due diligence examination; and (ii) obtaining debt and equity financing
of not less than $25 million. While the Company is actively attempting to secure
the financing needed, no commitment has been obtained at this time.
The business will lend $1.3 million to Mark McKinney, which will be
returned over a 5-year period commencing one year after the first month the
Bottling Venture produces water for sale. The principal and interest payments
shall not exceed more than 20% of Mark McKinney's cash flow from the Bottling
Venture with any deficits being added back to principal. The loan will be
secured by Mark McKinney's interest in the venture. During the two years
following the closing, Mark
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McKinney will only be required to contribute cash to the extent that he has
received distributions from the business. The agreement has been amended to
reflect an extension of the closing date to April 1999.
The bottled water management team is comprised of individuals who
possess extensive experience in the bottling industry. Mark McKinney, is an
entrepreneur with extensive experience dealing in the retail industry with such
retailers as Wal-Mart and Certified Grocers. Kevin Talbot slated to be the
President of the company came from the Pierre Group of America and has just
finished running the largest bottled water plant in the U.S. He was responsible
for executing $63 million in capital investments for the Pierre Group. Tom Smith
slated to be the Vice President of Operations, has 13 years experience in the
bottling industry and was formerly with the Pierre Group of America as a head
plant engineer and was responsible for the installation and start up of seven
production facilities during his career.
According to Beverage Industry Statistics, the bottled water business
has experienced explosive growth over the last three years; however there is no
assurance that this kind of growth can be sustained. Entry into the market at
this time with a private label as well as a brand name strategy would allow the
business to capitalize on what management believes are bottled water shortages,
higher pricing, and an increasing demand by the public for bottled natural
spring water. Nevertheless, there are many competitors in the bottled water
market, almost all of which have established brand names, and which are better
capitalized than the proposed bottling venture. The top ten brands make up
approximately 40% of the US market and include Poland Spring, Arrowhead and
Evian.
The water source is from a natural spring, which is located in
Bentonville, Arkansas. Water testing to date exceeds EPA and FDA requirements.
The water source is protected by impermeable clay. The spring water extraction
method is by use of a borehole, which protects the purity of the spring water.
Monthly testing has been done on the spring for the past four years and to date
there are no indication of contaminates infiltrating the spring source. While
consultants have done substantial due diligence on the quality, capacity, and
purity of the water source, there are no assurances that the source will provide
the volume needed or quality desired.
Employees
At September 30, 1998, the Company had 13 employees at its headquarters
in Ocean Springs, Mississippi; 105 employees at the Country Tonite Theatre in
Branson, Missouri (reduced to approximately 6 employees during the off season);
94 employees at the Country Tonite Theatre in Pigeon Forge (reduced to
approximately 6 employees during the off season). The entertainers are
contracted for the subsequent season between December and February each year as
well as 115 employees at Casino Caraibe in Tunisia. The Company has entered into
an employment agreement with its CEO, which expires in 1999. See "Item 11.
Security Ownership of certain Beneficial Owners and Management." The total cost
of the agreement is approximately $375,000. None of the Company's employees is
represented by a union, and management considers its labor relations to be good.
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Regulation
Regulation and Licensing of Gaming Activity
The ownership and operation of casinos in the U.S., Tunisia and other
gaming jurisdictions is highly regulated. The Company obtained its operating and
gaming license in Tunisia and opened the casino on October 18, 1997.
By the Company's pursuing a management agreement with the Pokagon Band
or entering a partnership with another gaming operator to build one or more
casinos, the Company will be required to apply for and obtain gaming license
applications with the National Gaming Indian Commission ("NIGC"). To date the
Company's Chief Executive Officer and Chairman, Mr. Pilger, has been found
suitable to hold a gaming license in the State of Mississippi and in Tunisia,
North Africa.
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 Pokagon Band
received a signed compact by the Governor in September of 1995, and the state
legislature ratified the compact and certain amendments in December 1998.
The IGRA provides that before tribes can engage in Class III gaming (a
residual category of gaming which includes casino style gaming) in a particular
state, the tribe must negotiate a "tribal/state compact" with that state to
regulate such gaming.
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
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suitability review. 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
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.
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.
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Tunisia Gaming Regulation
The Company's first gaming venture is carried on in Sousse, Tunisia,
and is subject to Tunisian laws and regulations affecting the ownership and
operation of the casino. Tunisian nationalists are prohibited from gaming in
Tunisia. Casino guests are required to present a passport or valid
identification for entry into the Casino. Operations outside the U.S. are
subject to inherent risks, including 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 working permits for employees, limitations on technology transfers,
potential adverse tax consequences, and difficulties in operating in a different
cultural and legal system. The Casino opened October 18, 1997, and to date has
not generated a profit nor can the Company make any assurances that it will
generate a profit in the future.
The Company is required to pay a gaming tax, which is a sliding
variable tax with a minimal base of 10% on all revenue derived from tables
games. Additionally, the country of Tunisia imposes labor taxes, including
social securities and benefits tax; a value-added tax; an entertainment tax; as
well as import taxes.
ITEM 2. PROPERTIES
The Company's owned or leased properties include principally; the
casino and theatre complex in Sousse, Tunisia; the Country Tonite Theatres in
Branson, Missouri and Pigeon Forge, Tennessee; the Company's executive office in
Ocean Springs, Mississippi and a residential property in Ocean Springs,
Mississippi. The 2,000-seat Country Tonite Theatre in Branson, Missouri is owned
by the Company, including underlying real estate of 10.7 acres. The Branson
theatre is included in the assets subject to the Agreement. The 1,500-seat
County Tonite Theatre in Pigeon Forge, Tennessee is leased by CTT of which the
Company was the majority partner by virtue of its 60% investment (although the
interest in CTT and therefore in the Pigeon Forge Theatre was transferred in
December 1998). 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
rented to a principal of Monarch at a below-market rate. The lease is in
default. See "Item 3. Legal Proceedings."
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 an adjusted base rent of 480,000 dinars, which is approximately $436,360 at
the current exchange rate, plus value added taxes. (In addition, a scaled
variable rental fee is incurred when gross gaming revenues exceed 125,000 dinars
monthly.) The Company also pays rent on the Casino Theatre at the rate of two
dinars (equivalent to $1.80 US) per paying customer.
Finally, 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.
All of the assets of Grand Hinckley Inn were sold to the Mille Lacs
Band of Ojibwe Indians on June 29, 1998 for $5,400,000.
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The Company had guaranteed rent payments to the minority member of CTT,
who is lessor of the Pigeon Forge Theatre facility. Rent guarantees terminated
December 31, 1998, under a sale agreement entered into between the Company and
Burkhart Ventures, LLC on November 4, 1998.
ITEM 3. LEGAL PROCEEDINGS
In 1995, a suit was brought against the Company in the 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) asserted it had a contract with the Company to provide eight
professional boxing events at the Company's former Biloxi Star Theatre. The
complaint was thereafter amended by plaintiff to reflect additional allegations
that defendant tortuously harmed plaintiff's business reputation and maliciously
interfered with existing and prospective economic relationships. Settlement was
reached with the plaintiff in December 1997, for $100,000 plus attorney's fees
and expenses, totaling $81,726.24 which was satisfied in November 1998, and all
claims were dismissed with prejudice.
The Company commenced an arbitration action in November 1994, with the
Arbitration Association in Minneapolis, Minnesota, against Cunningham Hamilton
Quiter, P.A. (CHQ), the architect the Company retained in connection with the
construction of the Biloxi theater. On December 30, 1994, the architectural firm
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
approximately $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 the previously escrowed
$321,000. The decision resulted in a gain to the Company of approximately
$122,000 in fiscal 1997.
The Company has received notice that the action of CHQ against John J.
Pilger (CEO of the Company) in Jackson County Circuit Court, Mississippi
originally set in abeyance pending completion of arbitration proceeding, is now
reconstituted. Cunningham alleges that Mr. Pilger and the Company owes CHQ
approximately $40,000 for services rendered in 1994. The Company and Mr. Pilger
deny these charges and plan to vigorously defend themselves in this matter.
James Barnes 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. The Barnes have alleged the Company breached their contracts based on the
termination of the Barnes employment; intentional misrepresentation; and a
breach of contract based on the untimely registration of their stock. No
specific amount of damages has been claimed, however the plaintiffs have
informally indicated 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 in 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
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in connection with the Pokagon Indian Gaming Award. The suit was dismissed with
prejudice and a judgment of dismissal entered on September 1, 1998 in the Fourth
District Court, State of Minnesota.
On December 31, 1997, the Company's former chairman, Kevin Kean,
defaulted on repaying the $1,232,000 (principal) of notes receivable due the
Company. The Company held 150,000 shares of the Company's stock as collateral
for the notes. On January 15, 1998, the Company signed an agreement with Mr.
Kean, under which 220,000 additional shares of the Company's stock owned by Mr.
Kean were canceled along with the 150,000 collateral shares held (at the market
price of $1.19 per share) and the notes could be reduced by $252,570 in the
aggregate. Additionally, the Company and Mr. Kean entered into a new note
agreement. The new note of $1,196,885, including approximately $143,000 of
previously reserved interest, bears interest at 7%, and matures on January 15,
2001. The note is collateralized by a security interest in Mr. Kean's 5%
interest in the Company's Pokagon management fee. Solely at the Company's
discretion, at any time prior to maturity, the Company can take the collateral
as payment in full for the note. Because Mr. Kean's ability to pay the note is
not known, the Company has provided an impairment reserve for $791,900, which
represents the remaining principal balance after stock cancellations.
The Company initiated a civil suit against Harrah's on September 4,
1998, in Federal District Court for the District of Minnesota. The Company
alleges that Harrah's breached the Technical Assistance and Consulting Agreement
and tortuously interfered with the Company's contractual and prospective
economic advantage associated with the Pokagon Band of Potowatomi Indians. The
suit further alleges that Harrah's withheld vital business information from the
Company. Harrah's has filed a motion to dismiss based on denial that Harrah's is
a proper party to the lawsuit and that the Technical Assistance and Consulting
Agreements do not create a partnership or Joint Venture relationship with the
Company. The Company filed its response to Harrah's Motion for Summary Judgment
in late December 1998. The Company plans to vigorously pursue its claims and
seeks a judgment against Harrah's plus interest and legal fees.
The Company initiated a civil suit against Willard Smith and Monarch
Casino, Inc., (Monarch) on December 19, 1998, in the Circuit Court of Jackson,
Mississippi. The Company alleges that Mr. Smith and Monarch have breached the
terms of the Memorandum of Understanding, Amendment and Modification Agreement,
and Consulting Agreement by failing to provide the services required under the
terms of the agreements, breaching their obligations of good faith to the
Company, and by attempting to secure the termination of the Company's interest
in the Pokagon project. The suit further alleges that Mr. Smith has defaulted on
his obligations to pay rent and maintain the up-keep of the Company's
residential property located at 303 LaSalle Street, Ocean Springs, Mississippi.
The Company seeks a judgment against Monarch Casino, Inc. and Willard Smith,
plus interest and attorneys' fees for notes due and material breach of
agreements; removal of Mr. Smith from the rental property and punitive damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended September 30, 1998.
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PART II
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded on the NASDAQ National Market
System under the symbol "CSNR." In addition to the common stock, the Company has
publicly traded warrants, each entitling the holder to purchase one share of
common stock at an exercise price of $6.75 (the "Warrants"). The Warrants expire
on September 15, 1999. The Warrants trade under the symbol "CSNRW." The
following table sets forth, for the fiscal periods indicated, the high and low
closing prices per share and per warrant as reported by NASDAQ:
Common Stock Warrants
High Low High Low
FISCAL 1998
First Quarter $2.00 $1.06 $0.41 $0.09
Second Quarter 1.38 0.81 0.19 0.06
Third Quarter 1.19 0.69 0.13 0.06
Fourth Quarter 1.13 0.50 0.09 0.03
FISCAL 1997
First Quarter $2.23 $1.31 $0.28 $0.13
Second Quarter 2.45 1.38 0.25 0.13
Third Quarter 1.97 1.25 0.22 0.09
Fourth Quarter 2.19 1.19 0.44 0.06
The Warrants are subject to redemption by the Company for $.05 per
Warrant if the closing price of the common stock exceeds $8.50 per share for 20
consecutive trading days, subject to adjustment.
The Company has received two letters from NASD warning that if the
Company does not achieve minimum maintenance requirements under NASD rules the
Company's common stock will be delisted from the National Market System. Among
other things, the rules require that the publicly held shares have an aggregate
market capitalization of at least $5 million, and a minimum bid price per share
of $1. The Company satisfies neither requirement. The Company intends to request
a NASD hearing, and is actively planning and working to attain the minimum
maintenance standards. If the Company's Common Stock is delisted the Warrants
will also be delisted. Delisting of securities could have an adverse effect on
the common stock or the Warrants. If the Company's common stock is delisted from
the NASDAQ National Market System, the Company can seek listing
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on the NASDAQ "Small Cap" market; however, the Company's common stock must also
maintain a minimum bid price of $1 to satisfy the listing requirements for the
Small Cap market. If the $1 minimum bid price cannot be maintained, the
Company's common stock can trade on the OTC Bulletin Board. Such an occurrence
could significantly affect the marketability of the Company's common stock, and
subject it to additional requirements under the "Penny Stock" rules of the
Securities Exchange Act of 1934.
Holders
On November 1, 1998, there were approximately 308 record holders of the
common stock, and 83 record holders of the warrants. The Company estimates that
there are an additional 2,750 shareholders and 400 Warrant holders who own
shares or Warrants, respectively, in nominee or street name, at that date.
Sale of Unregistered Securities
On September 9, 1997, the Company sold $800,000 principal amount of 13%
convertible subordinated debentures. The Company redeemed $400,000 principal
($497,000 cash) on December 12, 1997, and $171,674 principal ($250,000 cash)
August 11, 1998. The balance of $228,326 will be paid in cash or stock in four
equal installments in January through April 1999.
Dividends
The Company has not declared or paid any cash dividend during the
reporting period and is unlikely to do so in foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
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.
CONSOLIDATED
The Company's revenues from operations were $3,305,396. Because the
Company carries its hospitality and entertainment assets as discontinued
operations, all of these revenues are attributable to the Company's gaming
operations; and because the Tunisia casino was not in operation in fiscal year
1997, there were no comparable revenues in that fiscal year.
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Continuing Operations
GAMING, TUNISIA
Revenue generated from October 18, 1997, the date of the Casino
opening, was $3,305,396 while operating expenses totaled $7,299,695 including a
corporate charge of $424,977, resulting in an operating loss of $3,994,299. The
loss was predominantly related to extensive write downs of pre-opening and
start-up expenses, which approximated $1.5 million, and significant operating
overhead expense incurred during post casino grand opening operations.
Management has implemented cost containment measures to decrease general and
administrative expenses as an overall percent of revenue. As a result, the
Company has reduced its labor expense by 23% from the first quarter compared to
the fourth quarter of fiscal 1998 and obtained a 20% reduction in rent expense
beginning November 1998.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $2,606,544
in fiscal 1998 (not including a corporate charge to the gaming segment of
$424,977) compared to $2,158,811 in fiscal 1997. There were no such allocations
in 1997 as the two operating segments have been reflected as discontinued
operations. In total general and administrative expenses increased by $872,710.
The increase is primarily related to increased professional expenses relating to
the casino opening; consulting expenses and higher legal and accounting charges.
INTEREST EXPENSE
Interest expense totaled $703,677 for fiscal 1998, compared to $242,290
for fiscal 1997. The increase of $461,387 is primarily due to the following:
$144,110 of interest expense on the $800,000 debenture repaid in June 1998
issued in September 1997; $215,872 of interest expense relating to the 13%
subordinated convertible debentures issued in September 1997 and $48,595 of
interest expense on the Palace Note as the debt was outstanding for all of 1998
as compared to 8 months in 1997.
OTHER
Interest income as of September 30, 1997 was $195,886 compared to
$206,195 for the same period in 1998.
The Company accumulated $1.9 million dollars in deferred expenses
associated with its consulting relationship with Harrah's under its Technical
Assistance Agreement. Harrah's had entered into a Management Agreement with the
Pokagon Band of Potawatomi to build one or more casinos and under the Technical
Assistance Agreement, the Company would have received, upon commencement of
operations, approximately 21.6% of Harrah's management fee for its consulting
services. The Band announced it had terminated its Management Agreement with
Harrah's and therefore the Company has set up an impairment reserve for the
entire $1.9 million dollars.
The loss on gaming projects of $438,321 for fiscal 1997 consists
principally of the loss on the sale of the Company's interest in the Palace
Casino. The $791,900 impairment reserve represents
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the outstanding principal on a note receivable due the Company from its former
chairman. The individual's ability to pay is not known and accordingly, the
Company provided an impairment reserve on the principal balance.
INCOME TAX BENEFIT
The Company recognized a $2,000,000 income tax benefit in fiscal 1998.
The benefit relates to the adjustment of the valuation allowance as it is now
more likely than not, that the Company will realize the deferred tax asset upon
the sale of its entertainment segment in fiscal 1999.
Discontinued Operations
ENTERTAINMENT
Country Tonite Theatre LLC
The Country Tonite Show in Pigeon Forge opened on March 21, 1997.
Revenues for fiscal 1998 totaled $3,330,777. Operating expenses including
project, general and administrative costs and depreciation totaled $4,033,185
(including $1,762,971 eliminated in consolidation) resulting in an operating
loss of $702,408 before the minority interest share of the loss ($280,963).
While CTT ticket sales increased from 21.9% of capacity in 1997, to 22.4% of
capacity in 1998, the average ticket price decreased from $16.67 in 1997 to
$15.57 in 1998, as a result of strong promotional sales at discounted ticket
prices. The Company is the operating manager and owns 60% of the CTT, LLC Joint
Venture, which has been sold to Burkhart Ventures effective December 31, 1998.
Country Tonite Production Show
Country Tonite Production show revenues totaled $2,037,669 in fiscal
1998, (including $1,762,971 eliminated in consolidation). Operating income
decreased to $238,184 in fiscal 1998, from $936,099 in fiscal l997. Operating
expenses (including project, general and administrative costs and depreciation)
decreased from $2,934,785 in fiscal 1997, to $1,799,485 in fiscal 1998, or
38.7%, principally as a result of the closing of the Aladdin Hotel in November
1997.
Country Tonite Theatre
Fiscal 1998 revenue of $6,129,966 decreased $712,983 or 10.4%, from
fiscal 1997, revenues of $6,842,949. Paid attendance for the Country Tonite show
totaled 31% of capacity in 1998, compared to 38% of capacity in fiscal 1997.
Average ticket prices totaled $17.52 in fiscal 1998, compared to $15.43 in
fiscal 1997. While the average increased $2.09, the decrease in overall
occupancy resulted in a decline in revenues for Country Tonite Theatre. Through
cost containment efforts by Company management, operating expenses (including
project, general and administrative costs and depreciation) fell $231,203 or
5.2% to $4,195,850 in fiscal 1998, from $4,427,053 in fiscal 1997, which was the
result of cut backs in the Golden Girls schedule. Operating income decreased
$481,780 or 19.9% to $1,934,116 in fiscal 1998, from $2,415,896 in fiscal 1997.
The Company entered into an Asset Purchase Agreement to sell
substantially all of the assets used in connection with the operation of the
Country Tonite Show to On Stage Entertainment, Inc.
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The closing is subject to, among other things, On Stage's obtaining acceptable
financing of the purchase price and approval of the sales transaction by a
majority of the shareholders of On Stage and the Company. See "Item I. BUSINESS
- - Recent Developments"
HOSPITALITY
Grand Hinckley Inn
Revenues for fiscal 1998 total $2,255,037. Operating income decreased
to $809,601 in fiscal 1998 from $1,432,662 in fiscal 1997. The Company reported
a 12-month business operation in fiscal 1997 versus a 9-month business operation
in 1998 due to sale of the hotel on June 29, 1998 for $5.4 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $2,254,295 at September 30,
1997 to $1,151,925 at September 30, 1998. During fiscal 1998, the Company sold
its Grand Hinckley Inn for $5.4 million. In addition to funds used for expenses
incurred during business operations during fiscal 1998, the Company satisfied
$1.7 million in debt payments, paid for retirement of 184,050 shares of its
common stock and incurred one time pre-opening and start-up expenditures to
complete the Casino Caraibe project. Cash and cash equivalents does not reflect
any funds from the anticipated sale of the entertainment division.
On January 2, 1998, the Company's Board of Directors authorized a stock
buyback program providing for purchase by the Company of up to 400,000 shares of
its common stock. The Company subsequently revised its January 2, 1998
resolution to reflect the purchase of up to 1.4 million shares of the Company's
common stock after the closing of the Grand Hinckley Inn purchase, of which it
has purchased 188,050 shares through October 30, 1998, for $190,859.48.
In the 13-month period ending October 31, 1999, the Company will be
required to repay or refinance obligations aggregating approximately $8,894,786
in principal amount (plus interest and premium). Three of the obligations,
aggregating approximately $1,669,749 in principal amount may be repaid by the
Company in cash or common stock. The largest obligation, approximating $7.2
million in principal amount, is secured by a mortgage on the Company's property
in Branson, Missouri. If the Company closes its sale transaction for certain of
its entertainment division assets with On Stage, it will have the cash resources
to repay from the cash proceeds of the sale, the mortgage loan on the Branson
property. However, if the sale is not consummated, the Company will be obliged
to try to refinance the mortgage obligation. If the Company retires the mortgage
on or before May 1, 1999, the Company will be given a $300,000 discount.
Subject to the foregoing, the Company expects that available cash from
future operations will be sufficient to meet the capital expenditures, debt
service and working capital requirements of its existing businesses for the next
fiscal year.
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Capital expenditures by the Company were $1,026,081 for the year ended
September 30, 1998 compared to $2,106,353 for the 1997 fiscal year. Capital
expenditures for 1998 consisted principally of purchases and expenditures for
the casino operations.
The Company has entered a Letter of Intent Agreement with a standstill
component to build a state of the art spring water bottling plant in
Bentonville, Arkansas. The agreement is comprised of the Company and Mark
McKinney, an entrepreneur. The Company retains a 60% interest in consideration
for investing $5 million in the bottling plant. The business will spend an
estimated $27 million on the facility, which will be equipped with
state-of-the-art bottle blow molding equipment, to be competitive with the
larger bottled water companies. The Company intends to produce and distribute
premium natural spring water taking advantage of location, efficiency, and
capacity of a natural spring source. At the same time the Company expects to
fill a void by meeting the demand for bottled water and at the lowest price in
the market today. Completion of the water bottling plant is contingent upon the
Company procuring $25 million in acceptable debt and equity financing.
SEASONALITY
The casino in Tunisia will be affected by seasonal factors, as the
primary tourist season in Tunisia ranges from May through October each year.
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 its casino venture in
Tunisia will be in dinars. As such, there are all the risks that pertain to
fluctuations in foreign exchange rates and potential restrictions or costs
associated with the transfer of funds to the United States. The Company
currently does not hedge, nor has it purchased any foreign currency as a hedge,
and therefore is subject to currency exchange fluctuation risk.
YEAR 2000 UPDATE
The "Year 2000 Issue" is whether the Company's computer systems will
properly recognize date sensitive information when the year changes to 2000, or
"00". Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company has conducted preliminary
reviews of its computer systems and its purchased software programs (including
accounting software) and does not believe the Year 2000 Issue will pose any
significant operational problems for its systems or software.
In addition, the Company intends to make similar reviews of the systems
of potential acquisition candidates for any financial or operational impact the
Year 2000 Issue may pose.
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Management does not believe that any of its Company's information
systems will be impacted by transition Year 2000. The Company has reviewed its
accounting software; project information systems; including its Easy Ticket
Reservation System software (a system for automated ticket reservation); Point
of Sale system; and telecommunication system. All software that is not Year 2000
compliant, where available from supplier, will be replaced. Vendor software
replacement and upgrades are scheduled to be complete by September 30, 1999. The
Company has completed a thorough inspection of its systems at the Branson,
Missouri Theatre conducted by Easy Computer Systems, Inc. (provider of ticket
reservations software and support to theatres) and has determined 15 personal
computers will require upgrade for Year 2000 compliant components. The
approximate cost for the upgrade is estimated to be $6,800.00. Additionally,
Shopline Computer Services evaluated the Pigeon Forge Theatre and determined 24
personal computers will require upgrade for Year 2000 compliant components. The
approximately cost for the upgrade is estimated to be $5,760.00.
The Company is in the process of identifying and prioritizing critical
suppliers and customers at the direct interface level with plans of
communication about their progress in addressing Year 2000 problems.
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on Company's
operation. The Company believes, at this time, that there should be minimal
interruptions in its normal operations due to Year 2000. The Company is
currently reviewing Year 2000 problems that may arise with its operations in
Tunisia. At this time a contingency plan to handle the Year 2000 problem has not
been established, however the Company does intend to establish one, prior to the
end of 1999.
Readers are cautioned that forward looking statements contained in the
Year 2000 update should be read in conjunction with Company's disclosures under
the heading.
NEW ACCOUNTING PRONOUNCEMENTS
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. Comprehensive income is
defined to include all changes in equity except those resulting from investments
by owners and distributions to owners. 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's financial statements.
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,
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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's financial statements.
In April 1998, the Accounting Standard Executive Committee issued
Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-up
Activities." The SOP requires that all costs of start-up activities should be
expensed as incurred. The SOP is effective for years beginning after December
15, 1998. When the Company adopts this SOP, it is not expected to have a
material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standard Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." This
standard established accounting and reporting standards for derivatives and for
hedging contracts. This standard is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. When the Company adopts this
statement, it is not expected to have a material impact on the Company's
financial statements or their presentation.
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 as it pertains
to development and start up of the Bottled Water business; failure by On Stage
to obtain satisfactory financing underlying the purchase of CTE and CRC of
Branson; changes in travel patterns which could affect demand for the Company's
theatres or casinos; changes in development and operating costs, including
labor, construction, land, equipment, and capital costs; general business and
economic conditions; political unrest in Tunisia or the region; 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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements appears at page F-1 hereof, the
Report of Registrant's Independent Accountants appears at page F-2 hereof, and
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements of the Registrant appear beginning at page F-3 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
"Not applicable"
22
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information as of September 30, 1998, regarding the
directors and executive officers of the Company, including information as to
their principal occupations for the last five years, certain other directorships
held by them, and their ages as of the date hereof.
John J. Pilger, age 52, has been the Chief Executive Officer and a
director of the Company since 1984, and served as President from 1984 to 1993.
Mr. Pilger was previously Chairman of the Board until July 1994, and resumed
such role in April 1995. Mr. Pilger oversees all Company activities including
operations, acquisitions, development and construction.
John W. Steiner, age 56, has been a director of the Company since
January 1994. Since 1990, he has served as Chairman of the Board of the Ace
Worldwide Group of Companies, a leading provider of moving, trucking,
warehousing and overall logistics services. Mr. Steiner also serves on the Board
of Directors and Executive Committee of Atlas World Group, Inc. Mr. Steiner is
President of the Associate Board of the Milwaukee County Zoological Society, a
Board member of the Metropolitan Milwaukee Association of Commerce and the
Better Business Bureau of Wisconsin.
Dr. Timothy Murphy, age 38, was elected to serve as a director on March
17, 1997. Dr. Murphy resides on the Mississippi coast and is a Chiropractic
doctor maintaining his own practice. Dr. Murphy serves as a trustee on the Board
of Parker College, as well as being its finance chairman. Additionally, Dr.
Murphy is a member of the American Chiropractic Association and serves on the
Council of Diagnostic Imaging and Council on Sports Injury. Dr. Murphy serves as
team Chiropractor to Mercy Cross High School, D'Iberville High School and
Mississippi Sea Wolves Professional Hockey Team.
Dennis Evans, age 52, was elected to serve as a director on March 17,
1997. Mr. Evans brings 30 years of sales and marketing business experience to
the Board. Mr. Evans is an entrepreneur who has acted as President of several
large sales and marketing firms, as well as consultant to several mid-western
development companies. Mr. Evans has acted as a marketing consultant to the
Country Tonite Theatres in Branson, Pigeon Forge and the Company's casino
development in Tunisia, North Africa.
Noreen Pollman, age 50, has served as Secretary to the Company since
March 1995, and as a director since March 1995, and from 1987 to 1993. Ms.
Pollman was Vice President of Operations for each of the Company's operating
businesses with responsibility for the development and implementation of
operating budgets to February 1998, and now serves as a consultant to the
Company.
Robert J. Allen, age 38, was named Vice President of Entertainment of
the Company on August 1, 1994. He has served as a director of the Company since
March 1995, and from 1987 to 1993. Mr. Allen served as Executive Vice President
and Chief Marketing Officer of the Company's former subsidiary Recreational
Property Management, Inc. from 1986 to 1987. He also previously served as Vice
President of Telecommunications.
23
<PAGE>
Officers serve at the discretion of the Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation earned by John J. Pilger, Noreen Pollman, and Robert J.
Allen, the Named Executive Officers (as defined) for services rendered in all
capacities to the Company for the fiscal years ended September 30, 1998, 1997
and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Restricted Securities
Annual Stock Underlying All Other
Fiscal Salary Bonus Comp. Awards Options Compensation
Name and Principal Position (1) Year ($) ($) ($) ($) (#) ($)
- ------------------------------- ---- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Pilger (5) . . . . . . . . 1998 464,747(2) -0- -0- -0- -0- -0-
Chief Executive Officer 1997 255,763(4) -0- -0- -0- 195,000 -0-
1996 203,435(3) -0- -0- -0- 20,000 -0-
Noreen Pollman . . . . . . . . . . 1998 126,233 81,530 -0- -0- -0- -0-
Executive Vice President, 1997 128,583 20,000 -0- -0- 90,000 -0-
Operations 1996 129,055(6) -0- -0- -0- 20,000 -0-
Robert J. Allen . . . . . . . . . 1998 119,412 -0- -0- -0- -0- -0-
Executive Vice President, 1997 116,583 -0- -0- -0- 90,000 -0-
Entertainment 1996 116,507(7) -0- -0- -0- 20,000 -0-
<FN>
- -------------------------
1) Under Securities and Exchange Commission rules, the "Named Executive
Officers" include (i) each person who served as Chief Executive Officer
during fiscal 1998, (ii) each person who (a) served as an executive officer
at September 30, 1998, (b) was among the four most highly paid executive
officers of the Company, not including the Chief Executive Officer, during
fiscal 1998, and (c) earned total annual salary and bonus compensation in
fiscal 1998, in excess of $100,000, and (iii) up to two persons who would
be included under clause (ii) above had they served as an executive officer
at September 30, 1998.
2) Includes contractual compensation and $125,000 fee paid for services
rendered for CRC Tunisia.
3) Includes $17,308 in unused vacation time and $16,636 in wages earned prior
to fiscal 1996, not paid until fiscal 1996.
4) Includes $12,942 in unused vacation time.
5) During fiscal 1998, 1997 and 1996, Mr. Pilger received personal benefits,
the aggregate amounts of which did not exceed the lesser of $50,000 or 10%
of the total of the annual salary and bonus reported for Mr. Pilger in such
years.
24
<PAGE>
6) Includes $5,499 of wages earned in 1995 paid in 1996.
7) Includes $5,001 of wages earned in 1995 paid in 1996.
</FN>
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1998, certain
information with respect to each shareholder known to the Company to be the
beneficial owner of more than 5% of its Common Stock, each director, each Named
Executive Officer, and all directors and officers of the Company as a group.
Unless otherwise indicated, each person named in the table has sole voting and
investment power as to the Common Stock shown. All Officers and Directors have
an address of 707 Bienville Boulevard, Ocean Springs, Mississippi 39564.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address of Beneficial Owner Beneficially Owned (1) (10) Outstanding Shares
- ------------------------------------ --------------------------- ------------------
<S> <C> <C>
John J. Pilger ............................................ 1,026,768(2) 10.60%
Noreen Pollman ............................................ 125,000(3) 1.30%
John W. Steiner ........................................... 76,000(4) 0.80%
Dr. Timothy Murphy ........................................ 15,781(5) 0.17%
Dennis Evans .............................................. 50,100(6) 0.53%
Robert J. Allen ........................................... 125,000(7) 1.30%
John Ferrucci ............................................. 40,000(8) 0.42%
Kevin M. Kean ............................................. 1,400,944(9) 14.65%
All Directors and Executive Officers as a group (8 Persons) 1,458,649 14.53%
<FN>
- -------------------------
1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days upon
exercise of options or warrants are treated as outstanding only when
determining the amount and percent owned by such person or group.
2) Includes 170,000 shares deemed beneficially owned pursuant to options,
which are immediately exercisable. In addition, Mr. Pilger holds proxies to
vote 1,330,944 shares owned by Kevin M. Kean and 175,000 shares owned by
Richard A. Howarth, Jr., a former officer of the Company. See Note 9 below.
With such shares, Mr. Pilger has the right to vote a total of 2,362,712
outstanding shares or 24.9% of the shares outstanding. Of the shares
reflected above 11,000 are owned by Mr. Pilger's wife and 11,000 shares are
owned by minor children of Mr. Pilger. The above table does not reflect an
additional 65,000 options which were originally granted April 5, 1997, but
do not vest until April 7, 1999.
3) Includes 119,000 shares deemed beneficially owned pursuant to options,
which are immediately exercisable. The above table does not reflect an
additional 30,000 options which were originally granted April 3, 1997, but
do not best until April 7, 1999.
25
<PAGE>
4) Includes 70,000 shares deemed beneficially owned pursuant to options, which
are immediately exercisable.
5) Includes 10,000 shares deemed beneficially owned pursuant to options, which
are immediately exercisable.
6) Includes 20,000 shares deemed beneficially owned pursuant to options, which
are immediately exercisable.
7) Includes 119,000 shares deemed beneficially owned pursuant to options,
which are immediately exercisable. The above table does not reflect an
additional 30,000 options which were originally granted April 3, 1997, but
do not vest until April 7, 1999.
8) Includes 40,000 shares deemed beneficially owned pursuant to options, which
is immediately exercisable.
9) Includes 70,000 shares of Common Stock deemed beneficially owned pursuant
to an option which is immediately exercisable. Mr. Kean has granted an
irrevocable proxy with respect to 1,330,944 shares of the Company's common
stock to John J. Pilger. Mr. Kean's address is 2644 E. Lakeshore Drive,
Baton Rouge, Louisiana 70808.
10) The stock table does not reflect shares of stock owned by Officers who
participated in the Company 401(k) plan which began July 1, 1997. Matching
contributions of Company stock issued by the Company under the plan to its
Officers through September 30, 1998, total 6,093 shares.
</FN>
</TABLE>
OPTION GRANTS AND EXERCISES
The following table sets forth information with respect to stock
options originally granted to the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1998(1)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES PRICE EXPIRATION
NAME OPTIONS GRANTED (#) IN FISCAL 1998 ($/SHARE) DATE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John J. Pilger 195,000(1) 46.4% 1.03 4/7/2008
Noreen Pollman 90,000(1) 21.4% .9375 4/7/2008
Robert J. Allen 90,000(1) 21.4% .9375 4/7/2008
<FN>
1) The Executives' options were originally granted under the Company's 1997
Long-Term Incentive and Stock Option Plan and implemented on April 3, 1997,
but options were cancelled and reissued this April 7, 1998 with 2/3 options
vesting immediately and the balance to vest April 7, 1999.
</FN>
</TABLE>
26
<PAGE>
The following Table sets forth with respect to the Named Executive Officers
Information concerning the exercise of stock options during fiscal 1998, and
unexercised options held as of the end of fiscal 1998. The Company has never
granted stock appreciation rights.
AGGREGATED OPTION EXERCISES
AND FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 9/30/98 (#) OPTIONS AT 9/30/98 ($)
ON VALUE -----------------------------------------------------------------------------
EXERCISE REALIZED
NAME (#) ($) UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John J. Pilger -0- -0- 65,000 170,000 -0- -0-
Noreen Pollman -0- -0- 30,000 119,000 -0- -0-
Robert J. Allen -0- -0- 30,000 119,000 -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with John J. Pilger on
May 20, 1996, providing for an annual salary of $225,000, subject to annual cost
of living adjustments. The agreement also provides for use of an automobile and
payment of insurance premiums, the value of which does not exceed 10% of his
annual salary. The agreement also provides for bonuses if certain financial
performance guidelines are met. This agreement was amended April 3, 1998, to
extend the expiration date from July 19, 1999, to September 30, 1999, to
correspond to the Company's fiscal year. Additionally, the agreement provides
that if either party wishes to terminate the agreement a written notice of
intent must be delivered to the other party one year prior to the employment
expiration date and in the absence of such notice the agreement renews
automatically from year to year.
The Company entered into a Supplementary Employment Agreement with John
J. Pilger which provides Mr. Pilger certain benefits upon a Change of Control
Event, which is defined therein as: (a) the acquisition after the date of this
agreement by an individual, entity or group (within the meaning of Section 13(d)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended, (a "Person") of
beneficial ownership of 20% or more of either (i) the issued and outstanding
shares of common stock of the Company or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors; or (b) if any two or more members within a class of
the staggered Board of seven or more directors, as constituted on the date
hereof, are removed without the express approval or consent of the CEO and
Chairman of the Board, of if two or more members of the Board assume office
within any period of eighteen months after one or more contested elections; or
(c) A hostile reorganization, merger or consolidation which results from either
an actual or threatened election contest or actual or threatened solicitation of
proxies; or (d) A complete liquidation or dissolution of the Company, or the
sale or other disposition of all or substantially all of the assets of the
Company, which liquidation, sale or dissolution occurs as a result of either
actual or threatened solicitation of proxies or consents by or on behalf of
persons other than the incumbent Board. The benefits which inure to Mr. Pilger
upon a voluntary termination under a Change of Control include: 2.99 times his
annual average salary and bonuses plus all taxes, including income taxes and any
excise tax which may be imposed.
27
<PAGE>
The Company entered into an agreement with Robert J. Allen where upon a
Change of Control Event, which is substantially similar to that defined in Mr.
Pilger's Supplementary Employment Agreement and set out above, Mr. Allen has the
right to receive upon termination 2.99 times his average annual salary including
bonuses payable within 30 days plus other benefits.
Other
On October 16, 1997, John J. Pilger received a $150,000 payment from
the Company for services rendered to CRC Tunisia during fiscal 1998, and
$125,000 in October 1998, for services to be rendered in Fiscal 1999. Under a
Board approved resolution Mr. Pilger will receive an additional $125,000
compensation for fiscal 2000. Under Tunisian law, John J. Pilger is required to
sign, in his personal capacity, all documents necessary for the Company to
conduct operations in Tunisia. These payments are in consideration for the
additional risk of personal liability assumed by Mr. Pilger under Tunisian law.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors, and certain shareholders to file
reports of ownership and changes in ownership of the Common Stock with the
Securities and Exchange Commission. To the Company's knowledge, based on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the Company's fiscal
year ended September 30, 1998, all Section 16(a) filing requirements were
complied with and filed in a timely fashion.
The Company issued a convertible debenture for $1.5 million, which is
due January 31, 1999, payable in cash or common stock, at Company's discretion.
If the Company elects to satisfy the debenture with common stock at the then
current fair market value, such issuance may constitute, if over 20% of the
Company's total shares outstanding, a change of control which would require
shareholder consent. Additionally, the Company may elect, at its discretion, to
satisfy the balance of outstanding debenture, in cash or common stock, which
totals $228,326 in four equal installment January through April 1999. Using the
five day trailing average closing bid price for the Company common stock as of
January 4, 1999, with a 17% discount would result in a stock issuance of 611,067
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At September 30, 1998, John J. Pilger was indebted to the Company in
the amount of $449,461 including principal and interest. Such obligations accrue
interest at rates between 7% and 9.5% per year, mature from December 31, 1998,
to December 31, 2001. Mr. Pilger is current on his obligations to the Company.
The original loans include $150,000 advanced for the purchase by Mr. Pilger of a
Mississippi residence in 1994 and $299,461 in other advances made to Mr. Pilger
from 1994 to present. These notes receivable will be retired ratably over three
years beginning January 1, 1999.
As of September 30, 1998, Noreen Pollman has paid the Company in full
for a loan which had an outstanding balance of $83,278 by applying a prorata
share of money earned under terms of a Consulting Agreement during fiscal 1998,
to satisfy the debt in full.
28
<PAGE>
Through September 30, 1998, the Company has advanced $10,677 including
interest to Robert J. Allen, which note maintains an outstanding balance of
$7,500 plus interest as of September 30, 1998.
On December 31, 1997, the Company's former chairman (Kevin Kean)
defaulted on repaying $1,232,000 plus interest due the Company. The Company
filed suit against Mr. Kean which resulted in a settlement agreement. Under the
agreement, 220,000 shares of the Company's common stock has been cancelled along
with the 150,000 shares currently pledged to the Company, at the market price of
$1.19 per share. The Company and Mr. Kean entered into a new note agreement. The
new note in the amount of $1,196,885 bears interest at 7% per annum and matures
on January 15, 2001. The note is collateralized by Mr. Kean's 5% interest in the
Company's Pokagon management fee. Solely at the Company's discretion, at any
time prior to maturity, the Company can take the collateral as payment in full
for the note. Mr. Kean has also granted the Chairman of the Company an
irrevocable proxy for 1,330,944 shares of the Company's common stock owned by
Mr. Kean, but pledged to a commercial bank.
In April 1994, the Company purchased a residential property in Ocean
Springs from Mr. Pilger, paying him $137,000 in cash. This residence has been
leased at a below market rate since June 1995 to a principal of Monarch Casinos,
Inc. The Company has provided the tenant the opportunity to purchase this
residence contingent upon the tenant, Mr. Smith, fulfilling certain obligations
due the Company. The Company has initiated a legal action against Mr. Smith for
non-performance of his obligations and breaches of his contractual obligations
as set out in under agreements with the Company. See "Item 3. Legal
Proceedings."
The Board of Directors authorized the Company to acquire from Mr.
Pilger two lots which are contiguous to residence at 303 LaSalle Court, Ocean
Springs, Mississippi, an asset of the Company, on August 11, 1998. In
consideration for Mr. Pilger's transfer of ownership, he was given consideration
equal to the land value of $86,000, of which $43,000 was paid in cash and
$43,000 was applied to Mr. Pilger's loans due to the Company.
Preferred Stock Conversion
By resolution dated December 24, 1992, the Company agreed to purchase
all of the 300,000 then outstanding shares of its 8% Cumulative Preferred Stock
from Mr. Pilger. In consideration for the Preferred Stock, the Company issued
909,091 shares of Common Stock using a conversion value for the Common Stock of
$1.32 per share. (The last five trades of the Common Stock recorded on the OTC
Bulletin Board prior to December 24, 1992, averaged $1.50 per share). In
connection with the conversion, the Company assumed from Mr. Pilger certain
opportunities to develop casino-related entertainment and hotel facilities. Mr.
Pilger also waived rights to an aggregate of $240,000 in accrued dividends.
Prior to the time of conversion, the Company was not in either the hospitality
or the entertainment business. No registration rights were granted with respect
to the Common Stock issued in this transaction.
29
<PAGE>
A total of 150,000 of such shares of Common Stock were personally owned
by Mr. Howarth, who in connection with the conversion, transferred them to Mr.
Pilger in consideration for Mr. Pilger's assignment of the development
opportunities, and also to effect a repositioning of the stock ownership
interests between Messrs. Pilger and Howarth, reflecting a new allocation of
responsibilities between them. In consideration therefor, Mr. Pilger agreed to
pay Mr. Howarth $1.50 per share, payable at such time as Mr. Pilger sells such
stock to an unrelated third party. The agreement was amended, effective November
30, 1994, to provide for the transfer by Mr. Pilger to Mr. Howarth of 175,000
shares of Common Stock and the release of Mr. Pilger from the obligation to pay
to Mr. Howarth the $1.50 per share after Mr. Pilger sells and/or transfers 18%
of his Common Stock of the Company. In other words, if Mr. Pilger sells 100
shares Mr. Howarth is paid (18% x 100) or $1.50 on 18 shares. In addition,
pursuant to such agreement, Mr. Howarth granted to Mr. Pilger an irrevocable
proxy to vote such 175,000 shares until such Common Stock is sold or transferred
to an unrelated third party by Mr. Howarth.
All of the share and share price numbers referred to above have been
adjusted to reflect a June 1993 one-for-two reverse split of the Company's then
outstanding capital stock.
Relationship with Consultants
The Company has agreed to pay two consultants to the Company, who
assisted in the acquisition of certain development rights (including Kevin M.
Kean, a principal shareholder of the Company), an aggregate of 10% of any
consulting fee income (less related direct operating costs), received by the
Company from its agreements relating to the Pokagon Indians, 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. Mr. Kean has partially collateralized his $1,196,885 note to
the Company with his right to 5% of such consulting fee income.
The Company has executed a Consulting Agreement with Monarch Casinos,
Inc. ("Monarch") which was subsequently assigned to Willard E. Smith, requiring
the Company to: (i) pay monthly fees commencing (retroactively) January 1995, at
various rates from $3,000 to $14,250 per month; (ii) loan an aggregate of
$250,000 (all of which has been advanced as of September 30, 1997), which may be
forgiven in part or in whole upon the occurrence of certain events; (iii)
reimburse pre-approved travel expenses; and (iv) lease to Mr. Smith the
Company's Ocean Springs, Mississippi residence at a below market lease rate. The
Consulting Agreement extends for the duration of the Management and Development
Agreement between the Pokagon Indians and an affiliate of Harrah's Casinos,
unless canceled earlier based on certain non-performance provisions. In
addition, the Company issued an aggregate of 100,000 registered shares of Common
Stock during fiscal 1995, which were subsequently sold. An additional 400,000
shares of Common Stock may be granted upon the groundbreaking for the first
Pokagon casino, subject to certain conditions, and 1,500,000 shares of Common
Stock may be granted upon the opening of a Pokagon casino. Monarch has granted
John J. Pilger an irrevocable proxy with regard to all shares owned by Monarch.
Pilger has assigned this proxy to the Company's Board of Directors. The Company
cancelled Willard Smith's Consulting Agreement as per contract due to certain
criteria set out in contract not being met by September 1997. No additional fees
were paid to Mr. Smith during Fiscal 1998. The Company initiated a suit against
Mr. Smith in December 1998, for breach of contract,
30
<PAGE>
default of rental payment and for collection of note due to the Company by Mr.
Smith and Monarch Casinos, Inc. See "Item 3. Legal Proceedings."
Ms. Pollman terminated her employment relationship in February 1998,
and entered into a Consulting Agreement for a two-year term to provide business
and consulting services to the Company. Ms. Pollman will continue to act as
Secretary of Company with responsibility for maintaining the Company's books and
records. The Consulting Agreement anticipates Ms. Pollman will work
approximately 25 hours per week at an hourly rate of $67.00, thus reducing the
Company's long term out-of-pocket expenses associated with Ms. Pollman's salary.
The Board approved agreement features Change of Control provisions where upon
termination of this agreement Ms. Pollman will receive 2.99 times her average
annual compensation which moneys will be payable in thirty days. Additionally,
this agreement provides for a one-time bonus of up to $156,000 in stock or cash
payable in full no later than December 31, 1999.
The Company has a consulting relationship with Dennis Evans, who serves
on the Board of Directors. Mr. Evans acts as a marketing consultant to Casino
Caraibe, and he has agreed to live in Tunisia from August 1997, through April
1999, in order to develop and initiate marketing programs and group junket
business for the benefit of Casino Caraibe. Mr. Evans receives $10,000 monthly
and 2,973 Tunisian dinars ($2,703 US dollar equivalent) monthly during his
consulting term. Mr. Evans is provided housing accommodations by the Company
while in Tunisia.
Indemnification of Directors and Officers
Under Section 302A.521 of the Minnesota Statues, 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.
As permitted under the Minnesota Statues, the Restated Articles of
Incorporation of the Company provide that directors shall have no personal
liability to the Company or to its shareholders for monetary damages arising
from breach of the Directors' duty of loyalty to the Company or with respect to
certain enumerated matters, excluding payment of illegal dividends, acts not in
good faith, and acts resulting in an improper personal benefit to the director.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits to this Report are listed on pages 33 through 40 hereof.
(b) Current Reports on Form 8-K for the quarter ended September 30,
1998:
1) Form 8-K filed on July 16, 1998, Financial Statements.
Reference sale of Grand Hinckley Inn on June 30, 1998.
31
<PAGE>
2) Form 8-K filed on August 24, 1998, 1998, Other Events. The
Company accepted the resignation of the Chief Financial
Officer, effective August 17, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATE SIGNATURE AND TITLE
January 13, 1999 s/ John J. Pilger
- -------------------------- ----------------------------------------
John J. Pilger, Chief Executive Officer,
President and Chairman of the Board of
Directors and Chief Accounting Officer
January 13, 1999 s/ Noreen Pollman
- -------------------------- ----------------------------------------
Noreen Pollman, Secretary
January 13, 1999 s/ Robert J. Allen
- -------------------------- ----------------------------------------
Robert J. Allen, Vice President of
Entertainment and Director
January 13, 1999 s/ Dr. Timothy Murphy
- -------------------------- ----------------------------------------
Dr. Timothy Murphy, Director
January 13, 1999 s/ Dennis Evans
- -------------------------- ----------------------------------------
Dennis Evans, Director
January 13, 1999 s/ John W. Steiner
- -------------------------- ----------------------------------------
John W. Steiner, Director
January 13, 1999 s/ John Ferrucci
- -------------------------- ----------------------------------------
John Ferrucci, Director
32
<PAGE>
Sequentially
Exhibit No. Description of Exhibit Numbered Pages
- --------------------------------------------------------------------------------
2.1 Palace Casino Asset Acquisition Agreement (6)
3.1 Restated Articles of Incorporation of the Company, as amended (2)
3.2 Bylaws of the Company, as amended (3)
4.1 Form of $300,000 Convertible Debenture between the Company and G.P.S.
Fund, Ltd., due September 10, 1998 (7)
4.2 Form of $500,000 Convertible Debenture, between the Company and Gifford
Fund, Ltd., due September 9, 1998 (7)
4.3 Form of Registration Rights Agreement, between the Company and Investor,
dated August 29, 1997 (7)
4.4 Form of Debenture Subscription Agreement, between the Company and
Subscriber, dated August 29, 1997 (7)
4.5 Common Stock Purchase Warrant (The Gifford Fund, Ltd.), between the
Company and Gifford Fund, Ltd., dated September 1997 (7)
4.6 Common Stock Purchase Warrant (G.P.S. Fund, Ltd.), between the Company
and G.P.S. Fund, Ltd. (7)
4.7 Common Stock Purchase Warrant (Joseph B. LaRocco), between the Company
and Joseph B. LaRocca, dated September, 1997 (7)
4.8 Common Stock Purchase Warrant (International Holding Company, Ltd.),
between the Company and International Holding Company, Ltd., dated
September 1997 (7)
4.9 $1,500,000 6% Cumulative Convertible Debenture, between the Company and
Maritime Group, Ltd., dated January 31, 1997 (8)
4.10 Amendment to 13% Convertible Debentures Due September 9, 1998, and
September 10, 1998, between the Company, G.P.S. Fund, Ltd., and Gifford
Fund, Ltd. (8)
10.1 Employment Agreement dated May 20,1996 between the Company and John J.
Pilger (6)
10.2 Ground Lease dated as of August 11,1993, as amended by the Amendment to
Ground Lease dated as of April 5, 1995, between Casino Building
Corporation and Grand Casinos, Inc. relating to the site for the Grand
Hinckley Inn (5)
33
<PAGE>
10.3 Hotel Development Agreement dated July 23,1993, between the Company and
Grand Casinos, Inc. relating to the development of the Grand Hinckley
Inn (1)
10.4 Marketing Enhancement and Purchase/Put Option Agreement dated as of
August 11, 1993, between the Company, the Corporate Commission and Grand
Casinos, Inc. relating to the Grand Hinckley Inn (1)
10.5 Form of Warrant Agreement between the Company and Norwest Bank
Minnesota, N. A., as Warrant Agent, dated September 15, 1993 (1)
10.6 Promissory Note dated as of September 15,1993, made by John J. Pilger in
favor of the Company (3)
10.7 Contract to Produce Show dated December 28, 1995, between JMJ, Inc.,
d/b/a Aladdin Hotel & Casino and Country Tonite Enterprises, Inc.
relating to the Las Vegas production show (2)
10.8 Agreement for Purchase and Sale of Theatre dated March11, 1994, among
the Company, CRC of Branson, Inc. and Ahab of the Ozarks, Inc. relating
to the acquisition of the Country Tonite Theatre (2)
10.9 Construction and Term Loan Agreement dated as of April 1,1994, as
amended by the Amendment to Construction and Term Loan Agreement dated
as of May 1,1994, between Casino Building Corporation and Miller &
Schroeder Investments Corporation relating to the construction and
financing of the Grand Hinckley Inn (5)
10.10 Promissory Note dated April 5, 1994, made by Casino Building Corporation
in favor of Miller & Schroeder Investments Corporation in the amount of
$3,300,000 (5)
10.11 Mortgage, Security Agreement and Financing Statement dated as of April
1, 1994, between Casino Building Corporation and Miller & Schroeder
Investments Corporation (5)
10.12 Guaranty Agreement dated April 1, 1994, by the Company in favor of
Miller & Schroeder Investments Corporation (5)
10.13 Assignment of Rents and Leases dated as of April 1,1994, as amended by
the Amendment to of Rents and Leases dated as of May 1,1994, between
Casino Building Corporation and Miller & Schroeder Investments
Corporation (5)
10.14 Subordination Agreement dated as of April 1,1994, among the Company,
Casino Building Corporation and Miller & Schroeder Investments
34
<PAGE>
Corporation (5)
10.15 Loan Purchase Agreement dated April 1, 1994, among the Company, Casino
Building Corporation and Miller & Schroeder Investments Corporation (5)
10.16 Assignment dated as of April 1,1994, between Casino Building Corporation
and Miller & Schroeder Investments Corporation relating to the
assignment of the Marketing Enhancement and Purchase/Put Option
Agreement (5)
10.17 Common Stock Purchase Warrant dated April 5, 1994, granted to Grand
Casino, Inc. by the Company with respect to 98,130 shares (5)
10.18 Common Stock Purchase Warrant dated April 19, 1994, granted to Grand
Casino Inc. by the Company with respect to 151,870 shares (5)
10.19 Promissory Note dated March 29, 1994, made by Casino Building
Corporation for $939,739.50 in favor of PDS Financial Corporation
relating to the financing of furniture, fixtures and equipment for the
Grand Hinckley Hotel (5)
10.20 Security Agreement dated March 29, 1994, between Casino Building
Corporation and PDS Financial Corporation (5)
10.21 Guaranty dated March 29, 1994, made by the Company in favor of PDS
Financial Corporation (5)
10.22 Debt Subordination Agreement dated March 29,1994, among Casino Building
Corporation, the Company and PDS Financial Corporation (5)
10.23 Assignment dated March 29, 1994, among Casino Building Corporation, the
Company and PDS Financial Corporation (5)
10.24 Biloxi Star Theater Asset Purchase Agreement dated August 18, 1994,
among Grand Casinos, Inc., Grand Casinos of Mississippi, Inc.-Biloxi,
the Company and Casino Building Corporation of Mississippi, Inc. (2)
10.25 Assignment and Assumption of Ground Sublease and Related Documents dated
September 30, 1994, between Casino Building Corporation of Mississippi,
Inc. and Grand Casinos Biloxi Theater, Inc. (2)
10.26 Bill of Sale date September 30,1994, between Casino Building Corporation
of Mississippi, Inc. and Grand Casinos Biloxi Theater, Inc. (2)
10.27 Assignment of Warranties, Permits, Licenses, Contracts, Service
35
<PAGE>
Agreements and other Intangible Rights dated September 30, 1994, between
Casino Building Corporation of Mississippi, Inc, and Grand Casinos
Biloxi Theater, Inc. (2)
10.28 Indemnification Agreement dated September 30, 1994, among the Company,
Casino Building Corporation of Mississippi, Inc., Grand Casinos, Inc.,
Grand Casinos, of Mississippi, Inc.-Biloxi, and Grand Casinos Biloxi
Theater, Inc. (2)
10.29 Non-Compete Agreement dated September 30, 1994, among the Company,
Casino Building Corporation of Mississippi, Inc., Grand Casinos, Inc.,
Grand Casinos Biloxi Theater, Inc. and John J. Pilger (2)
10.30 Termination Agreement dated as of September 30, 1994, among the Company,
Casino Building Corporation of Mississippi, Inc., Grand Casinos, Inc.,
Grand Casinos of Mississippi, Inc.-Biloxi (2)
10.31 Registration Rights Agreement dated as of September 30, 1994, between
the Company and Grand Casinos, Inc. (2)
10.32 Term Loan Agreement dated as of August 18, 1994, between Casino Building
Corporation and Grand Casinos, Inc. relating to the line of credit (2)
10.33 Term Note dated as of September 23, 1994, between Casino Building
Corporation and Grand Casinos, Inc. (2)
10.34 Mortgage, Security Agreement, Fixture Financing Statement and Assignment
of Leases and Rents, dated as of September 23, 1994, made by Casino
Building Corporation to Grand Casinos, Inc., securing $1,750,000 Term
Note (2)
10.35 Continuing Guaranty (Unlimited) made by the Company in favor of Grand
Casinos, Inc. dated as of September 23, 1994, relating to the $1,750,000
Term Note (2)
10.36 Third Party Pledge Agreement dated as of September 23, 1994, made by the
Company in favor of Grand Casinos, Inc. and relating to the Term Loan
(2)
10.37 Warrant to Purchase Common Stock dated as of September 27, 1994, granted
to Grand Casinos, Inc. (2)
10.38 Rights of First Refusal Agreement dated as of September 23,1994, between
the Company and Grand Casinos, Inc., with respect to the sale of the
Grand Hinckley Inn. (2)
36
<PAGE>
10.39 Stock Purchase Agreement, dated as of December 18, 1992, between Mr.
Pilger and Mr. Howarth(1) as amended by First Amendment dated June 2,
1993(5), Second Amendment dated July 2,1993(5), and Third Amendment
dated November 30, 1994 (4)
10.40 Settlement Agreement dated as of September, 1994, between the Company
and Gerald North (2)
10.41 Settlement Agreement dated December 8, 1994 between the Company and
Resource Financial Services (2)
10.42 Agreement dated as of October 15, 1993, between the Company and Kevin
Kean Company, Inc.(3) as amended by the Amendment dated as of December
15, 1994, relating to Cherokee gaming project (5)
10.43 Management Agreement dated February 1995 between CRC West, Inc. and Hoh
Indian Tribe (5)
10.44 Mutual Release dated August 31, 1995, between CRC West, Inc. and Hoh
Indian Tribe (5)
10.45 Memorandum of Understanding dated January 10, 1995, between The Promus
Companies Incorporated and the Company with respect to the development
of certain gaming projects (3)
10.46 Memorandum of Understanding dated January 18, 1995, between Monarch
Casinos, Inc. and the Company with respect to the development of certain
gaming projects (3)
10.47 Memorandum of Understanding dated March 10, 1995, between the Company,
the Kevin Kean Company, Inc. and James E. Barnes with respect to the
development of certain gaming projects (5)
10.48 Agreement dated May 8, 1995, between Monarch Casinos, Inc. an the
Company with respect to the January 18, 1995, Memorandum of
Understanding (5)
10.49 Lease Modification Agreement dated August 7, 1995, with respect to the
Elkhorn Wisconsin Lease (3)
10.50 Settlement Agreement dated August 7, 1995, between the Company, John J.
Pilger and Richard A. Howarth, Jr. (3)
10.51 Letter Agreement dated August 22, 1995, relating to extension of
maturity date for September 23, 1994 Term Note (3)
10.52 Agreement dated December 1, 1995, between the Company and Kevin M. Kean
(5)
37
<PAGE>
10.53 Warrant Purchase Agreement and Cherokee Dispute Resolution dated
December 1, 1995, between the Company and Kevin M. Kean (5)
10.54 Promissory Notes dated December 1, 1995, made to Kevin M. Kean in favor
of the Company (5)
10.55 Promissory Note dated December 31, 1994, between the Company and John J.
Pilger (6)
10.56 Promissory Note dated October 25, 1995, between the Company and John J.
Pilger (6)
10.57 Promissory Note dated April 8, 1996 between the Company and John J.
Pilger (6)
10.58 Non-Circumvention and Non-Disclosure Agreement dated July 26, 1996,
between the Company and Huong "Henry" Le (6)
10.59 Consulting Agreement dated December 6, 1995, between the Company and
Monarch Casinos (6)
10.60 Technical Assistance and Consulting Agreement dated June 10,1996,
between the Company and Harrah's Southwest Michigan Casino Corporation
(6)
10.61 Lease Agreement dated September 4, 1996, between J. MacDonald Burkhart,
M.D. and Country Tonite Theatre L.L.C (6)
10.62 Operating Agreement of Country Tonite Theatre, L.L.C. dated September
24, 1996 (6)
10.63 Limited Liability Company Operating Agreement of New Palace Casino,
L.L.C. (6)
10.64 Lease Contract dated June, 1996 between the Company and Samara Casino
Company (6)
10.65 Consulting Agreement between the Company and Mondhor Ben Hamida (6)
10.66 $800,000 Lyle Berman Family General Partnership Loan Agreement (7)
10.67 $800,000 Promissory Note, between the Company and Lyle Berman Family
General Partnership, dated August 29, 1997 (7)
10.68 Stock Pledge Agreement, between the Company and the Lyle Berman Family
General Partnership, dated August 29, 1997 (7)
38
<PAGE>
10.69 Mutual Release Agreement, between the Company, Casino Building
Corporation, and the Lyle Berman Family General Partnership, dated
August 29, 1997 (7)
10.70 $1,000,000 SeaMar Ventures, LLC Loan Agreement, between the Company and
SeaMar Ventures LLC, dated August 29, 1997 (7)
10.71 $1,000,000 Term Note, between the Company and SeaMar Ventures LLC, dated
August 29, 1997 (7)
10.72 Guaranty Agreement, between the Company and SeaMar Ventures LLC, dated
August 29, 1997 (7)
10.73 Matt Walker Consulting Agreement, between the Company and Matt Walker,
dated September 29, 1997 (7)
10.74 Tunisia Casino License (7)
10.75 Agreement with Robert and Lawana Low (8)
10.76 Lease for 707 Bienville (8)
10.77 Kevin Kean Settlement Agreement (8)
10.91 Employment Agreement (9)
10.92 Amendment to Employment Agreement (9)
10.93 Asset Purchase Agreement by and among On Stage Entertainment, Inc.,
Casino Resource Corporation, Country Tonite Enterprises, Inc., and CRC
of Branson, Inc., dated September 21, 1998, relating to the sale of
certain of the assets of the entertainment division of Casino Resource
Corporation, including the theatre in Branson Missouri, and the Country
Tonite Show. (10)
10.94 Asset Purchase Agreement by and among Corporate Commission of the Mille
Lacs Band of Ojibwe Indians and Casino Resource Corporation and Casino
Building Corporation, dated June 29, 1998 relating to the sale of Grand
Hinckley Inn hotel property to the Mille Lacs Band of Ojibwe Indians for
$5.4 million dollars. (10)
10.95 Burkhart Agreement by and among Burkhart Ventures, LLC and Casino
Resource Corporation and Casino Resource Corporation of Tennessee
executed this agreement November 4, 1998, which terminated the Company's
60% Joint Venture ownership interest in CTT, LLC December 31, 1998. (10)
10.96 Extension of Promissory Note Maturity Date between Ahab of the Ozarks,
Inc. and Casino Resource Corporation and CRC of Branson, Inc. dated
December 22, 1998 extending maturity date of note with outstanding
principal balance of approximately $7.1 million dollars from April 1,
1999 to October 1, 1999. (10)
39
<PAGE>
10.97 Consulting Agreement, between the Company and Noreen Pollman, dated
February 15, 1998 (10)
10.98 Robert J. Allen Agreement, between the Company and Robert J. Allen,
dated April 3, 1998 (10)
10.99 John J. Pilger Executive Employment Agreement Golden Parachute, between
the Company and John J. Pilger, dated March 9, 1998 (10)
10.100 Amendment to Employment Agreement, between the Company and John J.
Pilger, dated April 3, 1998 (10)
21.1 List of Subsidiaries of Registrant (8)
27.1 Financial Data Schedule (10)
1) Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 33-66504, declared effective September 15, 1993.
2) Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended September 30, 1994, filed on January 12, 1995.
3) Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 33-90114, originally declared effective May 5,1995.
4) Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended September 30, 1995, filed on January 16, 1996.
5) Incorporated by reference to the Company's Registration Form S-3, File No.
33-31534, originally declared effective February 29,1996.
6) Incorporated by reference to the Company's Form 10-KSB, as amended for the
fiscal year ended September 30, 1996, filed on June 9, 1997.
7) Incorporated by reference to the Company's Registration Statement on Form
S-3, as amended, File 333-37267, filed on November 19, 1997.
8) Incorporated by reference to the Company's 10-KSB, as amended for fiscal
year ended September 30, 1997, filed on January 20, 1998.
9) Incorporated by reference to the Company's 10-QSB, filed on May 15, 1998.
10) Filed Herewith
40
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheets F-3 - F-4
Statements of Operations F-5
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Casino Resource Corporation
and Subsidiaries
Ocean Springs, Mississippi
We have audited the accompanying consolidated balance sheets of Casino Resource
Corporation and Subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, an a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully discussed in Note 2, during 1998, the Company discontinued its
hospitality and entertainment segments and has sold or plans to sell the assets
related thereto. Historically, assets and operations of the hospitality and
entertainment segments have represented a substantial portion of the Company's
total assets and results of operations.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Casino
Resource Corporation and Subsidiaries at September 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Chicago, Illinois
December 17, 1998
F-2
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,151,925 $ 2,254,295
Accounts receivable - trade and other 108,183 73,228
Inventory 36,431 12,152
Prepaid expenses (Note 3) 59,013 804,899
Deferred tax asset (Note 12) 2,000,000 --
Net assets held for sale - entertainment (Note 2) 2,384,615 3,812,250
Net assets held for sale - hospitality (Note 2) -- 3,070,662
- ----------------------------------------------------------------------------------------------------------------------
Total Current Assets 5,740,167 10,027,486
- ----------------------------------------------------------------------------------------------------------------------
Property and Equipment, less accumulated depreciation and 2,663,107 2,279,716
amortization (Note 5)
- ----------------------------------------------------------------------------------------------------------------------
Noncurrent Assets
Deferred development costs (Note 6) -- 1,229,959
Notes and advances receivable - related parties, net of allowance 473,891 753,988
for uncollectibles of $239,414 in 1998 and $189,121 in 1997 (Note 4)
Note receivable, Palace Casino 242,766 221,073
Preopening costs, less accumulated amortization of $1,568,954 in -- 1,164,458
1998 and $0 in 1997 (Note 1)
Other assets - net (Note 7) 24,201 831,162
- ----------------------------------------------------------------------------------------------------------------------
Total Noncurrent Assets 740,858 4,200,640
- ----------------------------------------------------------------------------------------------------------------------
$ 9,144,132 $16,507,842
======================================================================================================================
</TABLE>
F-3
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 732,984 $ 1,125,534
Subordinated convertible debentures (Note 9) -- 321,735
Current maturities of long-term debt (Note 10) 188,344 374,329
Accrued expenses and other liabilities (Note 8) 1,412,407 1,220,155
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,333,735 3,041,753
- ----------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Long-term debt, less current maturities (Note 10) 2,481,405 3,379,204
Subordinated convertible debentures (Note 9) 228,326 321,735
Deferred rent (Note 11) -- 178,620
- ----------------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 2,709,731 3,879,559
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,043,466 6,921,312
- ----------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 1, 11, 16, 17, 18 and 19)
Stockholders' Equity (Notes 13, 14 and 15)
Preferred stock, 8% cumulative; $.01 par value; authorized -- --
5,000,000 shares; none issued
Common stock, $.01 par value; authorized 30,000,000 shares; 94,893 96,734
9,489,314 and 9,673,364 shares issued and outstanding in 1998 and 1997,
respectively
Additional paid-in capital 22,630,909 22,793,110
Cumulative translation adjustment (310,000) --
Deficit (18,315,136) (13,303,314)
- ----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 4,100,666 9,586,530
- ----------------------------------------------------------------------------------------------------------------------------
$ 9,144,132 $ 16,507,842
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue
Gaming $ 3,305,396 $ --
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Operating costs - gaming 7,299,695 --
General and administrative 2,606,544 2,158,811
Other income -- (156,196)
Interest expense - net of interest income of $206,195 and $195,886 497,482 46,404
in 1998 and 1997, respectively
Allowance for impaired asset (Note 6) 1,909,959 --
Loss on abandonment of gaming projects - net (Note 1) -- 438,321
Allowance for impaired receivable (Note 19) -- 791,900
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 12,313,680 3,279,240
- -------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income tax benefit (9,008,284) (3,279,240)
Income tax benefit (Note 12) 2,000,000 --
- -------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (7,008,284) (3,279,240)
Income from discontinued operations - entertainment (Note 2) 824,794 2,132,876
Income from discontinued operations - hospitality (Note 2) 623,493 1,155,296
Gain on sale of discontinued operations - hospitality (Note 2) 548,175 --
- -------------------------------------------------------------------------------------------------------------------
Net (Loss) Income $ (5,011,822) $ 8,932
===================================================================================================================
Basic and Fully Diluted Income (Loss) Per Common and Common
Share
Continuing operations $ (0.73) $ (0.33)
Discontinued operations 0.21 0.33
- -------------------------------------------------------------------------------------------------------------------
Net (Loss) Income $ (0.52) $ 0.00
===================================================================================================================
Weighted Average Number of Common Shares Outstanding 9,616,155 10,015,873
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Cumulative Notes
Common Stock Paid-in Translation Receivable -
Shares Amount Capital Adjustment Common Stock Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 9,761,803 $97,618 $22,671,175 $ -- $(1,232,000) $(13,312,246)
Issuance of common stock - conversion
of debentures and payment of accrued interest 281,561 2,816 352,299 -- -- --
Cancellation of common stock and receivable
impairment reserve (Note 19) (370,000) (3,700) (436,400) -- 1,232,000 --
Debt discount relating to 13% convertible
debentures -- -- 206,036 -- -- --
Net income -- -- -- -- -- 8,932
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 9,673,364 96,734 22,793,110 -- -- (13,303,314)
Repurchase and cancellation of common stock (184,050) (1,841) (166,701) -- -- --
Cumulative translation adjustment -- -- -- (310,000) -- --
Other -- -- 4,500 -- -- --
Net loss -- -- -- -- -- (5,011,822)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 9,489,314 $94,893 $22,630,909 $(310,000) $ -- $(18,315,136)
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(7,008,284) $(3,279,240)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 642,690 44,774
Amortization 1,771,678 5,351
Minority interest in net loss of a consolidated subsidiary (280,963) (341,206)
Deferred tax asset (2,000,000) --
Abandonment cost - gaming ventures -- 438,321
Discount upon conversion of convertible debentures 212,315 243,226
Reserve for impaired asset 1,909,959 791,900
Gain on sale of The Hinckley Hotel (548,175) --
Accretion of note receivable interest (21,693) (14,461)
Changes in assets and liabilities
Accounts receivable - trade and other (34,955) 52,617
Inventory (24,279) (12,152)
Prepaid expenses 745,886 (268,883)
Other assets 4,237 11,030
Accounts payable (392,550) (47,915)
Accrued expenses and other liabilities 192,252 278,253
Deferred rent (178,620) 178,620
- ---------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,010,502) (1,919,765)
- ---------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of the Hinckley Hotel 2,029,241 --
Proceeds from sale of Palace Casino -- 829,381
Decrease in restricted cash -- 338,602
Increase in deferred development costs -- (202,722)
Refund of deferred development costs -- 405,655
Purchase of property and equipment (1,026,081) (2,106,353)
Decrease (increase) in due from related parties 200,097 (197,093)
Increase in preopening costs and other (404,496) (1,077,128)
Proceeds from minority interest in a consolidated subsidiary -- 280,000
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 798,761 (1,729,658)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C>
Cash Flows From Financing Activities
Payments on line-of-credit borrowings $ -- $ (589,410)
Proceeds from long-term debt -- 2,959,470
Payments on long-term debt (1,711,243) (95,714)
Payment of loan costs -- (93,000)
Repurchase of common stock (168,542) --
Warrant expense 4,500 --
- ------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (1,875,285) 2,181,346
- ------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (29,037) --
Cash Provided by Discontinued Operations - Entertainment 2,252,429 1,785,196
Cash Provided by Discontinued Operations - Hospitality 2,761,264 1,206,798
- ------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,102,370) 1,523,917
Cash and Cash Equivalents, at beginning of year 2,254,295 730,378
- ------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of year $ 1,151,925 $ 2,254,295
============================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the year for
Interest $ 632,783 $ 172,769
Income taxes (8,047) 25,908
Supplemental Disclosures of Noncash Investing and Financing
Activities
Conversion of subordinated convertible debentures and payment of $ -- $ 355,115
accrued interest
Note received from sale of interest in the Palace Casino -- 206,612
Debenture issued in connection with the Company's interest in the --
Palace Casino 1,388,430
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Casino Resource Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Casino Resource Corporation and Subsidiaries (the "Company") is
primarily engaged in the gaming business. The Company leases and
operates a casino in Tunisia, which opened on October 18, 1997,
through its 85% owned subsidiary (CRC of Tunisia S.A.).
Prior to 1998, the Company operated in two other business
segments: hospitality and entertainment. During 1998, these
operations were discontinued as described below and in Note 2.
Plans were adopted to discontinue the entertainment segment. The
Company entered into an asset purchase agreement to sell
substantially all the assets used in connection with the
operations and production of the Country Tonite Theater in
Branson, Missouri and the production show, Country Tonite
Enterprises.
Also the Company sold its 60% interest in the joint venture,
Country Tonite Theater, LLC in Pigeon Forge, Tennessee for
$20,000 to the 40% owner. The sale is effective as of December
31, 1998.
In addition to the gaming operations, the Company made plans to
enter the spring water bottling business. To that end, the
Company entered into a Letter of Intent with a standstill
component with an individual to build a state of the art spring
water bottling plant. If the transaction is completed, the
Company will receive 60% of the equity in the venture in
consideration for investing a minimum of $5 million. The parties
expect to spend $27 million on the facility. The agreement is
contingent on (i) completion by the Company of a full legal and
business due diligence examination and (ii) obtaining debt
financing in the amount of not less than $25 million.
BASIS OF
PRESENTATION
The accompanying consolidated financial statements include the
accounts of Casino Resource Corporation and its majority and
wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH
EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash
equivalents consist of short-term investments having an original
maturity of three months or less. Carrying amounts approximate
fair value because of the short-term maturity of the investments.
F-9
<PAGE>
CONCENTRATIONS
OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash instruments and accounts receivable. The Company maintains
cash and cash equivalents with various financial institutions.
The Company provides credit in the normal course of business. The
Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses, if necessary.
ADVERTISING
Advertising expenditures are generally charged to operations in
the year incurred and totaled $88,134 in 1998 and $1,106 in 1997.
INVENTORY
Inventory, consisting principally of merchandise and concessions,
is stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND
EQUIPMENT
Property and equipment are stated at cost. For financial
reporting purposes depreciation and amortization are computed
over the estimated useful lives of the assets (or the lease term,
if shorter) by the straight-line method over the following lives:
Land improvements 20 - 25 years
Buildings 35 - 40 years
Leasehold improvements 3 - 15 years
Office equipment 5 - 6 years
Other 5 years
COST IN EXCESS
OF FAIR VALUE OF
ASSETS ACQUIRED
Cost in excess of fair value of assets acquired is amortized
using the straight-line method over fifteen years.
DEFERRED
DEVELOPMENT
COSTS
Deferred development costs consist of external costs incurred in
the evaluation of potential ventures. The costs are expensed if a
determination is made to abandon the project. Losses related to
impairment and abandonment totaled $1,909,959 and $438,321 in the
years ended September 30, 1998 and 1997, respectively.
PREOPENING
COSTS
Preopening costs consist primarily of costs incurred to establish
operations at the casino in Tunisia. The preopening costs of the
casino were amortized over a one-year period beginning in October
1997 and are fully amortized at September 30, 1998.
DEFERRED
CHARGES
Deferred charges consist of loan and convertible debt origination
fees and organization expenses. The deferred charges are
amortized on the straight-line method over the estimated useful
lives and are fully amortized at September 30, 1998.
F-10
<PAGE>
LONG-LIVED
ASSETS
The Company assesses the realizability of its long-lived assets
in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairments of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."
TAXES ON INCOME
Income taxes are accounted for under the asset and liability
method. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis
of assets and liabilities and their financial reporting amounts
at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount more likely than not to be realized. Income tax expense is
the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
NET LOSS PER
SHARE
In fiscal 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128 "Earnings Per Share".
Statement No. 128 replaces the previously reported primary and
fully-diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options and convertible
securities. Diluted earnings per share is computed similarly to
fully diluted earnings per share.
Basis and diluted net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding.
Outstanding common stock options, warrants and shares of common
stock issuable upon the conversion of debt have been excluded
from the computation as their effect would be anti-dilutive.
TRANSLATION
OF FOREIGN
CURRENCIES
The Company follows the translation policy as provided by
Statement of Financial Accounting Standards Board No. 52 "Foreign
Currency Translation." The functional currency is the Tunisian
dinar. Accordingly, assets and liabilities are translated at the
exchange rate at the balance sheet date. Income and expense items
are translated at the average exchange rate prevailing throughout
the year. Gains and losses from foreign currency transactions
included in operations are not material.
RECENT
ACCOUNTING
PRONOUNCEMENTS
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. Comprehensive income is defined to include all
changes in equity except those resulting from investments by
owners and distributions to owners. 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 presentation of the Company's financial statements.
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 information about operating segments, their products and
services, geographic areas, and major customers. This standard is
effective for years beginning after December 15,
F-11
<PAGE>
1997. When the Company adopts this statement, it not expected to
have a material impact on the presentation of the Company's
financial statements.
In April 1998, the Accounting Standards Executive Committee
issued Statement of Position ("SOP") 98-5 "Reporting on the Costs
of Start-up Activities." The SOP requires that all costs of
start-up activities should be expensed as incurred. The SOP is
effective for years beginning after December 15, 1998. When the
Company adopts this SOP, it is not expected to have a material
impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This standard establishes accounting and reporting
standards for derivative instruments and for hedging contracts.
This standard is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. When the Company adopts this
statement, it is not expected to have a material impact on the
Company's financial statements or their presentation.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously
reported 1997 financial statements to conform with the 1998
presentation.
2. DISCONTINUED
OPERATIONS
The Company has sold or plans to sell the assets related to the
(a) hospitality segment and (b) entertainment segment.
(a) On June 29, 1998, the Company sold the Hinckley Hotel (The
Grand Hinckley Inn) for $5.4 million. Accordingly, operating
results have been reclassified and reported as discontinued
operations - hospitality. Management used the proceeds to
the hotel debt and the note payable collateralized by the
stock of the subsidiary that owns the Grand Hinckley Inn.
Operating results of the discontinued operations exclusive
of corporate charges are as follows:
1998 1997
- ---------------------------------------------------------------------------
Revenues $ 2,255,037 $ 3,965,710
===========================================================================
Net income $ 623,493 $ 1,155,296
===========================================================================
Interest on the mortgage payable charged to discontinued
operations totaled $186,108 and $277,366 for the years ended
September 30, 1998 and 1997, respectively.
Assets and liabilities of the discontinued operations are as
follows at September 30:
F-12
<PAGE>
1997
- ---------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 219,304
Accounts receivable - trade and other 175,467
Inventory 11,725
Prepaid expenses 88,819
- ---------------------------------------------------------------------------
$ 495,315
===========================================================================
Noncurrent assets
Property and equipment, at cost $ 6,370,478
Less accumulated depreciation and amortization (1,299,441)
Other assets 22,333
- ---------------------------------------------------------------------------
$ 5,093,370
===========================================================================
Long-term debt $ 2,518,023
===========================================================================
Net assets held for sale $ 3,070,662
===========================================================================
(b) The Company entered into an Asset Purchase Agreement to sell
substantially all of the assets used in connection with
operations of the Country Tonite Theater and the Country
Tonite Enterprises to On Stage Entertainment, Inc., a Nevada
corporation ("On Stage"), for $13.8 million, of which $12.5
million is payable in cash, and the balance of which is
payable by delivery of a two year subordinated 9.5% note in
the amount of $1.3 million. A portion of the proceeds from
the proposed sale will be used to retire the mortgage on the
Theater. Consummation of the sale is subject to, among other
things, On Stage's obtaining acceptable financing of the
purchase price and approval of the sales transaction by a
majority of the shareholders of On Stage and the Company. It
is anticipated that the gain on sale will be approximately
$5,000,000.
The Company and Burkhart Venture, LLC entered into an
agreement dated November 3, 1998, which terminates the
Company's 60% ownership of the Country Tonite Theater, LLC
in Pigeon Forge, Tennessee ("CTT, LLC") effective December
31, 1998. Under the terms of the agreement, the Company will
continue to manage CTT, LLC for a fee of $2,000 per week in
season and $1,000 per week during the off-season beginning
January 1, 1999, but will have no vested ownership interest
in or financial obligation to CTT, LLC after December 31,
1998. Burkhart Venture, LLC, representing 100% of the
interest of CTT, LLC has contracted with the Company to
produce shows for the 1999 calendar season for a fee of
$36,000 per week.
Operating results of the discontinued operations exclusive
of corporate charges are as follows:
F-13
<PAGE>
1998 1997
------------------------------------------------------------------------------
Revenues $ 9,735,443 $ 11,734,554
==============================================================================
Net income $ 824,794 $ 2,132,876
==============================================================================
Interest on the mortgage payable charged to discontinued
operations totaled $687,324 and $696,998 for the years ended
September 30, 1998 and 1997, respectively.
1998 1997
- -------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 361,107 $ 623,568
Accounts receivable - trade and 208,253 282,320
other
Inventory 224,466 274,028
Prepaid expenses 104,724 229,887
- -------------------------------------------------------------------------------
$ 898,550 $ 1,409,803
==============================================================================
Noncurrent assets
Property and equipment at cost $ 11,150,546 $ 11,150,546
Less accumulated depreciation (2,947,245) (2,270,416)
and amortization
Cost in excess of fair market 723,742 723,742
value
Less accumulated amortizated (221,144) (172,894)
Preopening costs 548,309 548,309
Less accumulated amortization (548,309) (211,842)
Other assets 35,453 57,414
Less accumulated amortization (30,250) (3,216)
- -------------------------------------------------------------------------------
$ 8,711,102 $ 9,821,643
==============================================================================
Long-term debt $ 7,225,037 $ 7,419,196
==============================================================================
Net assets held for sale $ 2,384,615 $ 3,812,250
==============================================================================
F-14
<PAGE>
3. PREPAID EXPENSES Prepaid expenses consist of the following:
September 30, 1998 1997
- --------------------------------------------------------------------------------
Insurance $ 34,798 $ 32,523
Rent -- 560,030
Consulting fees -- 206,848
Miscellaneous 24,215 5,498
- --------------------------------------------------------------------------------
$ 59,013 $804,899
================================================================================
Included in consulting fees is $200,000 advanced under a
consulting agreement to the managing member of the entity
that lent the Company $1,000,000 in September 1997 (see Note
10). These fees were expensed during the year ended
September 30, 1998.
4. RELATED PARTIES
Notes and advances receivable include notes and related
interest due from officers and stockholders totaling
$473,891 and $753,988 at September 30, 1998 and 1997,
respectively, at interest rates ranging from 6% to 11%. The
notes mature from October 1, 1998 to December 31, 2001.
Interest income from these notes was $136,924 and $130,307
in 1998 and 1997, respectively.
Notes receivable of $449,461 will be retired ratably over
three years beginning January 1, 1999.
5. PROPERTY AND
EQUIPMENT
Property and equipment consist of the following:
September 30, 1998 1997
- --------------------------------------------------------------------------------
Land and improvements $ 83,000 $ --
Buildings 137,000 137,000
Leasehold improvements 1,106,802 688,541
Furniture, fixtures and equipment 2,079,407 1,554,587
- --------------------------------------------------------------------------------
3,406,209 2,380,128
Less accumulated depreciation (743,102) (100,412)
and amortization
- --------------------------------------------------------------------------------
Net property and equipment $ 2,663,107 $ 2,279,716
================================================================================
6. DEFERRED
EVELOPMENT
COSTS
The Company purchased in 1995 from Monarch Casino, Inc. the
rights to the Pokagon Indian gaming contract. The Company,
in turn, entered into an agreement with Harrah's
Entertainment, Inc., ("Harrah's") whereby the Company's
rights to the Pokagon contract were assigned to Harrah's in
return for a share of Harrah's future management fee from
operations of
F-15
<PAGE>
planned Pokagon Tribal casinos. In addition to the
agreement, Harrah's agreed to reimburse the Company $600,000
for costs associated with the venture related to the Eastern
Band of Cherokee Indians.
On October 18, 1998, the Pokagon Band announced that it had
terminated its development and management contract with
Harrah's. The Company believes that the right of first
refusal reverts to the Company with the termination of the
agreement. Due to the uncertainty of the project, the
Company has provided an impairment reserve of $1,909,959
against the deferred project costs, the $600,000 Harrah's
reimbursement and the advance to the Company's former
chairman. The Company has also initiated lawsuits against
Harrah's and Monarch Casinos, Inc. (see Note 18).
7. OTHER ASSETS Other assets consist of the following:
September 30, 1998 1997
- --------------------------------------------------------------------------------
Deposits and miscellaneous $ 24,201 $ 28,438
Due from Harrah's (Note 6) -- 600,000
Organization costs, less amortization of -- 115,075
$115,075 and $0
Loan origination costs, less amortization of -- 87,649
$93,000 and $5,351
- --------------------------------------------------------------------------------
$ 24,201 $831,162
================================================================================
8. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the
following:
September 30, 1998 1997
- --------------------------------------------------------------------------------
Professional fees $ 308,813 $ 83,188
Payroll and payroll taxes 261,291 297,455
Interest 207,633 159,102
Gaming taxes 158,736 --
Deferred income 120,239 55,123
Sales tax 94,888 89,098
Insurance 67,275 112,497
Other 193,532 423,692
- --------------------------------------------------------------------------------
$1,412,407 $1,220,155
================================================================================
F-16
<PAGE>
9. SUBORDINATED
CONVERTIBLE
DEBENTURES
In September 1997, the Company completed a placement of
$800,000, 13% subordinated convertible debentures (with net
proceeds of $707,000). The debentures have a one-year
maturity with conversion into shares of common stock on or
before the anniversary date at a price equal to 83% market
value based on the then current trading prices. At the
issuance date, the Company recorded a debt discount of
$206,036 with a corresponding credit to additional paid-in
capital. The discount is being amortized over 90 days, which
represents the required holding period of the debentures. On
December 12, 1997, $400,000 principal amount of debentures
plus interest was redeemed in cash. In August 1998, $171,674
principal amount of debentures plus interest was redeemed in
cash. The remaining $228,326 of debenture principal was
restructured to permit the conversion of 25% of the
debentures into common stock each month beginning on January
1, 1999 with a final conversion date of April 1, 1999.
In February 1996, the Company completed a private placement
of $1,650,000, 8% subordinated convertible debentures (with
net proceeds of $1,493,000). The debentures have a one-year
maturity with conversion into shares of common stock on or
prior to the anniversary date at a price equal to 75% of
market value based on the then current trading prices. At
the issuance date, the Company recorded a debt discount of
$550,000 with a corresponding credit to additional paid-in
capital. The discount was amortized over 90 days, which
represents the required holding period of the debentures.
During 1997, the remaining $350,000 of the principal amount
of the debentures were converted into 281,561 common shares,
respectively.
10. LONG-TERM
DEBT
Long-term debt consists of the following:
September 30, 1998 1997
- --------------------------------------------------------------------------------
Debenture, interest at 6%, $1,500,000 principal
amount, discounted to an effective interest
rate of 10%. Principal and accrued interest are
due on January 31, 1999, payable in cash or at
the Company's discretion, in common stock (a). $1,481,405 $1,425,620
Notepayable with interest at 10% of operating
income, as defined, of the subsidiary that
operates the Tunisian casino, due August 2022.
The note is convertible solely at the lender's
discretion into the Company's subsidiary's
common stock, subject to regulatory approvals. 1,000,000 1,000,000
F-17
<PAGE>
Notepayable, interest at prime plus 3%,
collateralized by gaming equipment, payable in
monthly installments of $30,800 including
interest through December 1998. $96,872 $431,713
Note payable, interest at 9.5%, collateralized by
real estate, payable in monthly installments of
$1,139 through April 1999 with a final payment
of $88,497 due in May 1999. 91,472 96,200
Note payable, interest at the greater of 20% per
annum or 5% of the gross gaming win of the
casino in Tunisia for its first year of
operations, collateralized by the stock of the
Company's subsidiary that owns the Grand
Hinckley Inn, paid off on June 29, 1998. (See
Note 2.) -- 800,000
- --------------------------------------------------------------------------------
2,669,749 3,753,533
Less current maturities (188,344) (374,329)
- --------------------------------------------------------------------------------
Total long-term debt $2,481,405 $3,379,204
================================================================================
Maturities of long-term debt exclusive of the debt to be
repaid through the issuance of common stock are as follows:
Year ending September 30,
- --------------------------------------------------------------------------------
1999 $ 188,344
2000 --
2001 --
2002 --
2003 --
Thereafter 1,000,000
- --------------------------------------------------------------------------------
$ 1,188,344
================================================================================
(a) The Company intends to satisfy the liability by the issuance of stock at
the maturity date, January 31, 1999. Accordingly, the debt has been
excluded from current maturities.
F-18
<PAGE>
11. LEASE
COMMITMENTS
The Company leases various equipment and facilities under
operating leases from related and unrelated parties. These
leases require that the Company pay maintenance, utilities,
insurance and taxes.
Total rent expense under operating leases included in
continuing operations was $885,229 and $89,549 for the years
ended September 30, 1998 and 1997, respectively.
Minimum annual rental commitments of continuing operations
of noncancelable operating leases covering facilities and
equipment at September 30, 1998 are approximately:
Year ending September 30,
- --------------------------------------------------------------------------------
1999 $ 625,000
2000 620,000
2001 606,000
2002 581,000
2003 531,000
- --------------------------------------------------------------------------------
$ 2,963,000
- --------------------------------------------------------------------------------
The Company's lease agreement in Tennessee is with the 40%
joint venture partner of Country Tonite Theater, LLC.
Subsequent to year end, the Company sold their interest in
the joint venture and amended the lease agreement to
month-to-month terms. The previously recorded deferred rent
was reversed.
The annual rent for the Tunisian casino is 600,000 dinars
which is approximately $486,000 at the current exchange
rate. The rent is payable in semi-annual installments. In
addition, the agreement requires the Company to pay a
variable percentage of the casino's gross income, as
defined, as additional rent. The variable rent was $147,126
for the year ended September 30, 1998.
F-19
<PAGE>
12. TAXES ON
INCOME (BENEFIT)
The composition of taxes on income (benefit) is as follows:
1998 1997
- --------------------------------------------------------------------------------
Current
Federal $ -- $ 360,000
Utilization of net operating loss -- (360,000)
carryforward
Adjustment of valuation allowance (2,000,000) --
- --------------------------------------------------------------------------------
Total taxes on income (benefit) $(2,000,000) $ --
================================================================================
The Company and its subsidiaries file a consolidated federal
income tax return.
Deferred income taxes consist of the following:
September 30, 1998 1997
- --------------------------------------------------------------------------------
Total deferred tax assets, relating $ 4,926,000 $ 4,200,000
principally to net operating loss
carryforwards
Deferred tax liabilities -- --
- --------------------------------------------------------------------------------
4,926,000 4,200,000
Less valuation allowance (2,926,000) (4,200,000)
- --------------------------------------------------------------------------------
Total net deferred tax asset $ 2,000,000 $ --
================================================================================
The Company has realized a net deferred tax asset of
$2,000,000 as it is more likely than not that this amount
will be realized upon the sale of the Company's
entertainment segment. The Company has recorded a valuation
allowance equaling the remaining deferred tax asset due to
the uncertainty of its realization in the future. At
September 30, 1998, the Company has U.S. federal net
operating loss carryforwards available to offset future
taxable income of approximately $10,365,000, which expire in
various years through 2018.
13. CAPITAL STOCK
In November 1995, the Company's former Chairman of the Board
exercised warrants to acquire 1,143,444 shares of common
stock. For financial reporting purposes, the Company
recorded proceeds of $2,150,000 or $1.88 per share,
consisting of a payment of $650,000 cash and execution of
promissory notes due January 31, 1996 ($500,000) and
December 31, 1996 ($1.0 million). The notes were extended at
their initial due dates and were scheduled to mature
December 31, 1997. (See Note 19).
Through September 30, 1998, 281,561 shares were issued upon
conversion of subordinated convertible debentures. (See Note
9.)
F-20
<PAGE>
14. WARRANTS
As part of the public offering in September and October
1993, the Company issued Class A Warrants, the IPO Warrants,
expiring, after a one-year extension, on September 15, 1999,
for the purchase of 2,760,000 common shares at $6.75 per
share. None of these warrants have been exercised to date.
The managing underwriter of the public offering received
warrants to acquire 240,000 shares at $8.25 per share
expiring on September 18, 1998. The warrants are exercisable
at $6.75 per share. These warrants have not been exercised
to date.
In connection with the 13% convertible debentures issued in
September 1997, the Company issued 25,000 warrants to the
broker. The warrants are exercisable through September 2000
at an exercise price of 120% of the September 1997 closing
price as defined by the agreement. The value assigned to
these warrants increased deferred costs and was amortized
over one year. The warrants have not been exercised to date.
15. OPTIONS AND
AWARDS
Certain financial consultants to the Company received
options in December 1992 and in January 1993 to acquire
87,500 shares of common stock as consideration for services
rendered. These options are fully vested and are exercisable
at $2.375 per share (17,500 shares) and at $.75 per share
(70,000 shares). None of these options have been exercised
to date.
A former company executive was granted options in September
1995, as part of an employment termination arrangement, to
acquire 50,000 shares of common stock at $2.50 each (as to
25,000 shares) and $6.80 each (as to 25,000 shares). The
aggregate options expire in September 2003 and none of the
options have been exercised to date.
During 1997, certain individuals received 30,500 options as
a condition of employment and a consultant received 20,000
options.
The Company has two stock incentive plans, both of which are
active. In July 1993, the Company adopted a stock option
plan (the "1993 Plan") which was amended in 1995, and in
April 1997 the Company's stockholders approved a separate
stock option plan (the "1997 Plan"). Both plans provide for
the issuance of incentive stock options at a purchase price
approximating the fair market value of the Company's common
shares at the date of the grant (or 110% of such fair market
value in the case of substantial stockholders). The 1993 and
1997 Plans also authorize the Company to grant nonqualified
options, stock appreciation rights, restricted stock and
deferred stock awards. A total of 1,000,000 shares of the
Company's common stock has been reserved pursuant to the
1993 and 1997 Plans. As of September 30, 1998, there were
395,300 options with respect to shares of common stock
outstanding under the 1993 Plan and there were options with
respect to 65,700 shares available for grant under such
plan; there were 478,833 options with respect to shares of
common stock outstanding under the 1997 Plan and there were
options with respect to 21,167 shares available for grant
under such plan.
The following table summarizes the options granted,
exercised and outstanding under the plans.
F-21
<PAGE>
<TABLE>
<CAPTION>
Shares Exercise Weighted
Price Average
Per Share Exercise
Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, September 30, 1996 391,400 $ 1.60 - 3.75 $2.15
Granted 512,000 1.34 - 1.56 1.43
Exercised - - -
Canceled and expired (6,600) 1.56 - 3.13 1.94
- ------------------------------------------------------------------------------------
Outstanding, September 30, 1997 896,800 1.34 - 3.75 1.71
Granted 420,000 0.94 - 1.88 1.00
Exercised 10,000 3.31 3.31
Canceled and expired (432,667) 1.34 - 3.13 1.45
- ------------------------------------------------------------------------------------
Outstanding, September 30, 1998 874,133 $ 0.94 - 3.75 $1.48
====================================================================================
Options exercisable at
September 30, 1998 716,633 $ 0.94 - 3.75 $1.55
- ------------------------------------------------------------------------------------
Options available for future grant 86,867
====================================================================================
</TABLE>
The Company applies APB No. 25, "Accounting for Stock Issued
to Employees", and related interpretations, in accounting
for options. Under APB Opinion 25, because the exercise
price of the options equals the market price of the
underlying stock on the measurement date, no compensation
expense is recognized.
The weighted-average, grant-date fair value of stock options
granted to employees during the year, and the
weighted-average significant assumptions used to determine
those fair values, using a modified Black-Sholes option
pricing model, and the pro forma effect on earnings of the
fair value accounting for stock options under Statement of
Financial Accounting Standards No. 123, are as follows:
F-22
<PAGE>
1998 1997
- -------------------------------------------------------------------------------
Weighted average fair value per
options granted $ 0.68 $ 1.16
Significant assumptions (weighted-
average)
Risk-free interest rate at grant
date 5.55% 6.76%
Expected stock price volatility 0.56 0.85
Expected dividend payout -- --
Expected option life (years) (a) 10.0 9.51
Loss from continuing operations
As reported $(7,008,284) $(3,279,240)
Pro forma (7,293,334) (3,875,030)
Loss per share from continuing
operations
As reported $ (0.73) $ (0.33)
Pro forma (0.76) (0.39)
(a) The expected option life considers historical option exercise patterns and
future changes to those exercise patterns anticipated at the date of grant.
The following table summarizes information about stock
options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -----------------------
Range of Number Weighted- Weighted- Number Weighted-
Exercise Outstanding Average Average Exercisable Average
Prices at 9/30/98 Remaining Exercise at Exercise
Contractual Price 9/30/98 Price
Life
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.94 - 1.94 709,833 8.7 yrs. $1.29 557,333 $1.34
$2.00 - 2.13 127,000 6.2 yrs. 2.03 127,000 2.03
$3.13 - 3.75 37,300 6.2 yrs. 3.18 32,300 3.18
--------------------------------------------------------------------
874,133 8.2 yrs. $1.48 716,633 $1.55
===================================================================
</TABLE>
16. DEFINED
CONTRIBUTION
PLAN
Effective July 1, 1997, the Company adopted a defined
contribution 401(k) plan (the "Plan") covering substantially
all of its U.S. employees. Eligible employees may contribute
up to 15% of compensation, as defined in the Plan. The
Company has an optional matching program (approved annually
by the Board of Directors) where the Company matches a
percentage of the employee's contribution (currently 50% of
the first 6% of contribution). Company-matched
contributions, currently made in common stock of the
F-23
<PAGE>
Company, vest in full after seven years of an employee's
credited service to the Company. The Company also has an
option to make additional profit sharing plan contributions
(none in fiscal 1997). Defined contribution expense totaled
$20,528 in the year ended September 30, 1998.
17. FOREIGN
OPERATIONS
The Company leases and operates a casino in Tunisia.
Specified financial information of the foreign operation is
as follows:
Year ended September 30, 1998 1997
- -------------------------------------------------------------------
Revenue $ 3,305,396 $ --
===================================================================
Operating loss $(3,994,299) $ --
===================================================================
Identifiable assets $ 2,842,005 $ 4,164,685
===================================================================
18. COMMITMENTS AND
CONTINGENCIES
(a) 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 the Company to
provide eight professional boxing events at the Company's
former Biloxi Star Theater. The complaint was thereafter
amended by plaintiff to reflect additional allegations that
defendant tortuously harmed plaintiff's business reputation
and maliciously interfered with existing and prospective
economic relationships. Settlement was reached with Gelb in
December 1997 for $100,000, plus attorney fees and expenses.
All claims were dismissed with prejudice in November 1998.
(b) The Company commenced an arbitration action in November 1994
with the Arbitration Association in Minneapolis, Minnesota,
against Cunningham, Hamilton, Quiter, P.A. ("CHQ"), the
architect it retained in connection with the construction of
the Biloxi theater. On December 30, 1994, the architectural
firm 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 approximately $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 $122,000.
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
F-24
<PAGE>
pending completion of arbitration proceeding, 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.
(c) James Barnes and Prudence Barnes, two former officers of a
subsidiary of the Company, have brought suit in the 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 that they would
entertain a settlement offer of between $250,000 and
$350,000. The Company intends to vigorously defend itself in
this matter.
(d) In March 1996, PDC, a Minnesota limited liability company,
and two of its officers filed suit against the Company and
Harrah's Entertainment and Monarch Casinos, in the Fourth
Judicial District Court of Minnesota, and in 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, the
plaintiffs are claiming a right to treble damages. The
plaintiff seeks compensatory damages and has not claimed a
specific amount of damages, but claims such damages exceed
$50,000. The plaintiff also seeks recovery of their
attorneys' fees. The suit was dismissed with prejudice and a
judgment of dismissal was entered on September 1, 1998 in
the fourth District Court, State of Minnesota.
(e) The Company initiated a civil suit against Harrah's on
September 4, 1998, in Federal District Court for the
District of Minnesota. The Company alleges that Harrah's
breached the Technical Assistance and Consulting Agreement
and tortuously interfered with the Company's contractual and
prospective economic advantage associated with the Pokagon
Band of Potowatomi Indians. The suit further alleges that
Harrah's withheld vital business information from the
Company. Harrah's has filed a motion to dismiss based on
denial that Harrah's is a proper party to the lawsuit and
that the Technical Assistance and Consulting Agreements do
not create a partnership or Joint Venture relationship with
the Company. The Company filed its response to Harrah's
Motion for Summary Judgment in late December 1998. The
Company plans to vigorously pursue its claims and seeks a
judgment against Harrah's plus interest and legal fees.
(f) The Company initiated a civil suit against Willard Smith and
Monarch Casino, Inc., ("Monarch") on December 19, 1998, in
the Circuit Court of Jackson, Mississippi. The Company
alleges that Mr. Smith and Monarch have breached the terms
of the Memorandum of Understanding, Amendment and
Modification Agreement, and Consulting Agreement by failing
to provide the services required under
F-25
<PAGE>
the terms of the agreements, breaching their obligations of
good faith to the Company, and by attempting to secure the
termination of the Company's interest in the Pokagon
project. The suit further alleges that Mr. Smith has
defaulted on his obligations to pay rent and maintain the
upkeep of the Company's residential property located at 303
LaSalle Street, Ocean Springs, Mississippi. Company seeks a
judgment of and against Monarch Casino, Inc. and Willard
Smith, plus interest and attorneys fees for notes due and
material breach of agreements; removal of Mr. Smith from the
rental property and punitive damages.
19. ALLOWANCE FOR
IMPAIRED
RECEIVABLE
On December 31, 1997, the Company's former chairman
defaulted on repaying the $1,232,000 (principal) of notes
receivable due the Company. The Company filed suit against
the individual on January 2, 1998. The Company holds 150,000
shares of the Company's stock as collateral. On January 15,
1998, the Company signed an agreement with the individual.
Under the agreement, 220,000 additional shares of the
Company's stock will be canceled along with the 150,000
shares held at the market price of $1.19 per share.
Additionally, the Company and the individual entered into a
new note agreement. The new note of $1,196,885, including
approximately $143,000 of previously reserved interest,
bears interest at 7%, payable on maturity on January 15,
2001. The note is collateralized by the individual's 5%
interest in the Company's Pokagon management fee. Solely at
the Company's discretion, at any time prior to maturity, the
Company can take the collateral as payment in full for the
note. Since the individual's ability to pay the note is not
known, the Company has provided an impairment reserve for
$791,900 which represents the remaining principal balance
after stock cancellations.
F-26
EXECUTION COPY
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
ON STAGE ENTERTAINMENT, INC.
(a Nevada corporation),
CASINO RESOURCE CORPORATION
(a Minnesota corporation)
COUNTRY TONITE ENTERPRISES, INC.
(a Nevada corporation),
and
CRC OF BRANSON, INC.
(a Missouri corporation)
- --------------------------------------------------------------------------------
<PAGE>
Section Page
1. Definitions.........................................................1
2. Purchase and Sale of the Business and Assets........................7
2.1 The Purchased Assets.......................................7
2.2 Excluded Assets............................................8
2.3 Assumed Liabilities........................................8
2.4 Excluded Liabilities.......................................9
2.5 Consent of Third Parties...................................9
2.6 Purchase Price.............................................9
2.7 Allocation of the Purchase Price..........................11
3. Closing............................................................11
3.1 Location; Date............................................11
3.2 Closing Deliveries........................................11
4. Representations and Warranties of the Selling Entities.............12
4.1 Corporate Status..........................................12
4.2 Authorization.............................................12
4.3 Consents and Approvals....................................12
4.4 Financial Statements......................................13
4.5 Title to Assets and Related Matters.......................13
4.6 Real Property.............................................14
4.7 Certain Personal Property.................................14
4.8 Personal Property Leases..................................15
4.9 Inventory.................................................15
4.10 Product Warranties and Price Guarantees...................15
4.11 Liabilities...............................................15
4.12 Taxes.....................................................15
4.13 Subsidiaries..............................................16
4.14 Legal Proceedings and Compliance with Law.................16
4.15 Contracts.................................................17
4.16 No Selling Entity is in Default under any Contract........19
4.17 Insurance.................................................19
4.18 Intellectual Property.....................................19
4.19 Employee Relations........................................20
4.20 ERISA.....................................................21
4.21 Absence of Certain Changes................................23
4.22 Customers.................................................24
4.23 Finder's Fees.............................................24
4.24 Additional Information....................................24
4.25 Transactions with Affiliates..............................24
4.26 Full Disclosure...........................................24
<PAGE>
5. Representations and Warranties of On Stage.........................25
5.1 Corporate Status..........................................25
5.2 Authorization.............................................25
5.3 Consents and Approvals....................................25
5.4 Capital Stock Ownership...................................25
5.5 Finder's Fees.............................................25
5.6 Proxy Statement...........................................25
6. Certain Agreements.................................................26
6.1 Access....................................................26
6.2 Shareholder Vote; Proxy Statement.........................26
6.3 No Solicitation...........................................27
6.4 Update Schedules..........................................29
6.5 Financial Information.....................................29
6.6 Restrictive Covenants.....................................29
6.7 Required Consents, Regulatory and other Approvals.........31
6.8 Publicity.................................................31
6.9 Satisfaction of Liabilities...............................32
6.10 Employee Benefit Matters..................................32
6.11 Financing.................................................32
6.12 Business Financial Statements.............................32
6.13 Right of First Negotiation................................32
6.14 Employment and Employment Benefits........................33
7. Conduct of the Business Prior to the Closing.......................33
7.1 Operation in Ordinary Course..............................33
7.2 Business Organization.....................................34
7.3 Corporate Organization....................................34
7.4 Business Restrictions.....................................34
8. Conditions Precedent to Obligations of On Stage....................35
8.1 Representations and Warranties............................35
8.2 Agreements, Conditions and Covenants......................35
8.3 CRC Shareholder Approval..................................35
8.4 Officers' Certificate.....................................35
8.5 Required Consents and Approvals...........................35
8.6 Third Party Consents......................................35
8.7 Legality..................................................36
8.8 Financing.................................................36
8.9 Title Insurance...........................................36
8.10 Real Property Leases......................................37
8.11 Performance Contract......................................37
8.12 Karen Nelson Bell Employment Agreement....................37
8.13 Opinion of Counsel........................................37
8.14 Utility Agreement.........................................38
<PAGE>
8.15 Collateral Agreements.....................................38
9. Conditions Precedent to Obligations of the Selling Entities........38
9.1 Representations and Warranties............................38
9.2 Agreements, Conditions and Covenants......................38
9.3 Officer's Certificate.....................................38
9.4 CRC Shareholder Approval..................................38
9.5 Legality..................................................38
9.6 Performance Contract......................................38
9.7 Opinion of Counsel........................................38
9.8 Collateral Agreements.....................................39
10. Indemnification....................................................39
10.1 Indemnification by the Selling Entities...................39
10.2 Indemnification by On Stage...............................40
10.3 Limitations on Liability..................................40
10.4 Survival..................................................40
10.5 Indemnification Procedure.................................41
10.6 Exception to Limitations..................................42
10.7 Payment of Indemnification Obligations....................42
10.8 Right to Set Off..........................................43
11. Termination........................................................43
11.1 Grounds for Termination...................................43
11.2 Effect of Termination.....................................45
12. Payment of Expenses; Bulk Sales Act; Sales and Transfer Taxes......46
13. Contents of Agreement..............................................46
14. Amendment; Parties in Interest; Assignment; Etc....................46
15. Interpretation.....................................................46
16. Remedies...........................................................47
17. Notices............................................................47
18. Governing Law......................................................48
19. Consent to Jurisdiction; Service of Process; Etc...................48
20. Further Assurances.................................................48
21. Exhibits; Schedules................................................48
22. No Benefit to Others...............................................49
23. Counterparts.......................................................49
<PAGE>
Exhibits
A Employment Agreement
B Form of $1,300,000 Subordinated Promissory Note
C Form of Performance Contract
Schedules
2.1 Permitted Encumbrances
2.1(a) Real Property Owned
2.1(b) Real Property Leased
2.1(c) Equipment and Other Tangible Personal Property
2.1(d) Contracts of the Business
2.1(f) Permits
2.1(g) Intellectual Property
2.1(j) Prepaid Expenses
2.1(k)(i) Software
2.1(k)(ii) Third Party Software Licenses
2.1(l) Other Intangible Assets
2.2 Excluded Assets
2.3 Assumed Contracts and Permits
4.3 Consents and Approvals
4.4 Financial Statements
4.5 Title to Assets and Related Matters
4.6 Real Property
4.7 Certain Personal Property
4.8 Personal Property Leases
4.10 Product Warranties and Price Guarantees
4.11 Liabilities
4.12 Taxes
4.13 Subsidiaries
4.14 Legal Proceedings and Compliance with Law
4.15 Contracts
4.17 Insurance
4.18 Intellectual Property
4.19 Employee Relations
4.20 ERISA
4.22 Customers
4.24 Additional Information
4.25 Transactions with Affiliates
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of the 21st day of September,
1998, by and among On Stage Entertainment, Inc., a Nevada corporation ("On
Stage"), Casino Resource Corporation, a Minnesota corporation ("CRC"), Country
Tonite Enterprises, Inc., a Nevada corporation ("CTE"), and CRC of Branson,
Inc., a Missouri corporation ("CRC of Branson", and together with CRC and CTE,
the "Selling Entities", and each individually, a "Selling Entity").
Certain other terms are used herein as defined below in Section 1 or
elsewhere in this Agreement.
Background
The Selling Entities desire to transfer to On Stage the Purchased
Assets (as defined herein) in exchange for the assumption by On Stage of the
Assumed Liabilities (as defined herein) and the payment by On Stage of the
Purchase Price (as defined herein) in accordance with the terms and conditions
set forth in this Agreement. On Stage desires to acquire the Purchased Assets
and assume the Assumed Liabilities. To induce On Stage to enter into this
Agreement, John J. Pilger, the principal shareholder of CRC, has agreed to
support, and granted an irrevocable proxy to On Stage to vote his shares in
favor of, this Agreement and the Transactions contemplated hereby.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Definitions. For convenience, certain terms used in more than one part of
this Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"$1,300,000 Subordinated Note" means the 9.5% Subordinated Note in the
principal amount of $1,300,000.00 (subject to reduction, as set forth therein,
in the event the Country Tonight Theater in Branson, Missouri does not produce
$6 million total gross revenue for calendar year 1998) payable by On Stage to
CRC in the form of Exhibit "B" hereto.
"Affiliates" means, with respect to a particular party, Persons
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned Persons of that party and of its
other Affiliates. For purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest of a
person shall be deemed to constitute control.
<PAGE>
"Agreement" means this Agreement, including the Schedules and Exhibits
attached hereto.
"Assets" means all of the assets, properties and rights of every kind
and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by a Selling Entity and relate
primarily to the Business.
"Assumed Liabilities" is defined in Section 2.3.
"Audited Financial Statements" is defined in Section 4.6.
"Balance Sheet" is defined in Section 4.6.
"Balance Sheet Date" is defined in Section 4.6.
"Benefit Plans" means all employee benefit plans of any Selling Entity
relating to the Business (including plans within the meaning of Section 3(3) of
ERISA) and any related or separate Contracts, plans, trusts, programs, policies,
arrangements, practices, customs and understandings, in each case whether formal
or informal, that provide benefits to any present or former employee of the
Business, or present or former beneficiary, dependent or assignee of any such
employee or former employee, including all incentive, bonus, deferred
compensation, vacation, holiday, medical, disability, share purchase or other
similar plans, policies, programs, practices or arrangements.
"BDO Seidman" means BDO Seidman, LLP, a certified independent
accounting firm.
"Business" means collectively the business of the Selling Entities
conducted under the "Country Tonite" name, including the ownership and operation
of the Country Tonight Theater in Branson, Missouri, the ownership and operation
of the Country Tonight production show based in Las Vegas, Nevada and the
operation of the Country Tonight Theater in Pigeon Forge, Tennessee.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 3.1.
"Closing Date" means the date of the Closing.
"Closing Statement" is defined in Section 2.8(a).
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agreements" means the $1,300,000 Subordinated Note, and
such subordination agreement, pledge agreement and security agreement as the
parties hereto shall enter into prior to the closing.
"Commission" means the United States Securities and Exchange
Commission.
"Commitments" is defined in Section 8.11.
"Confidential Information" means any confidential information or trade
secrets of the Business, including information and knowledge pertaining to
products and services offered, innovations, designs, ideas, plans, trade
secrets, proprietary information, know-how and other technical information,
advertising, marketing plans and systems, distribution and sales methods and
systems, sales and profit figures, customer and client lists, and relationships
with dealers, distributors, wholesalers, customers, clients, suppliers and
others who have business dealings with the Business.
"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is binding on any Person or its property under applicable
law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling
of any Federal, state, local or foreign court or governmental or regulatory body
or arbitrator or authority that is binding on any Person or its property under
applicable law.
"Customers" is defined in Section 4.22.
"Default" means (a) a breach, default or violation, (b) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or cause an Encumbrance to
arise or (c) with respect to any Contract, the occurrence of an event that with
or without the passage of time or the giving of notice, or both, would give rise
to a right of termination, renegotiation or acceleration or a right to receive
damages or a payment of penalties.
"Employment Agreement" means the Employment Agreement between On Stage
and Karen Nelson Bell (or another producer acceptable to On Stage) in the form
of Exhibit "A" hereto.
3
<PAGE>
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 4.14(b).
"Environmental Law" is defined in Section 4.14(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.4.
"Financial Statements" is defined in Section 4.6.
"GAAP" means generally accepted accounting principles.
"Hazardous Substances" means (i) any "hazardous substances" as defined
by the federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss.ss. 9601 et seq., (ii) any "extremely hazardous substance,"
"hazardous chemical" or "toxic chemical" as those terms are defined by the
federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. ss.ss.
11001 et seq., (iii) any "hazardous waste" as defined under the federal Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq., (iv) any "pollutant" as defined under the federal
Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., as any of such laws
in clauses (i) through (iv) may be amended from time to time, and (v) any
regulated substance or waste under any Laws or Court Orders that currently exist
or that may be enacted, promulgated or issued in the future by any Federal,
state or local governmental authorities concerning protection of the
environment.
"Indemnified Party" is defined in Section 10.1.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, trade secrets, franchises, know-how and
formulae, inventions, designs, processes, drawings, specifications, patterns and
other intellectual property owned by or licensed to a Selling Entity relating
primarily to the Business.
"Inventory" means any inventory, including raw materials, supplies,
work in process and finished goods.
4
<PAGE>
"Knowledge of a Selling Entity" means the actual knowledge of a
director, officer or other employee of a Selling Entity.
"Law" means any statute, law, ordinance, regulation, order or rule of
any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, record keeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, claim, action, dispute, investigation,
arbitration, inquiry, administrative or other proceeding or prosecution.
"Material Adverse Effect" means a material adverse effect on the
Business or the Purchased Assets, in each case taken as a whole, or the
financial condition or the results of operations of the Business, and when used
with respect to representations, warranties or conditions, means the individual
effect of the situation to which it relates and also the aggregate effect of all
similar situations unless the context indicates otherwise.
"Non-Assignable Contract" is defined in Section 2.5.
"Ordinary Course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
"Patents" means all patents and patent applications.
"Performance Contract" means the Performance Contract to be entered
into at the Closing between Country Tonite Theatre, L.L.C. (an Affiliate of CRC)
and On Stage Theaters, Inc. (an Affiliate of On Stage) in the form of Exhibit
"C" hereto.
"Permit" means any governmental permit, license, registration,
certificate of occupancy, approval and other authorization.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Personal Property Leases" is defined in Section 4.10.
"Prorations" is defined in Section 2.6.
5
<PAGE>
"Proxy Statement" is defined in Section 4.30.
"Purchase Price" is defined in Section 2.6.
"Purchased Assets" is defined in Section 2.1.
"Real Estate Leases" is defined in Section 4.8.
"Real Property" is defined in Section 4.8.
"Representatives" is defined in Section 6.3(a).
"Restricted Business " is defined in Section 6.6(a).
"Required Consents" is defined in Section 4.3.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Entities" is defined above in the preamble.
"Shareholders Meeting" is defined in Section 4.30.
"Software" means any computer software of any nature whatsoever,
including all systems software, all applications software, whether for general
business usage (e.g., accounting, finance, word processing, graphics,
spreadsheet analysis, etc.) or specific, unique-to-the-Business usage (e.g.,
telephone call processing, etc.) and all computer operating, security or
programming software, that is owned by or licensed to a Selling Entity and
relates primarily to the Business, or has been developed or designed for, or is
in the process of being developed or designed primarily for the Business, and
any and all documentation and object and source codes related thereto.
"Superior Proposal" is defined in Section 6.3(a).
"Taxes" is defined in Section 4.12.
"Termination Fee" is defined in Section 11.2(b).
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications, unregistered trademarks and service
marks and brand names, service marks and logos.
"Transaction Documents" means this Agreement, the Employment Agreement,
the Performance Contract and the Collateral Agreements.
6
<PAGE>
"Transactions" means the purchase and sale of the Purchased Assets and
the consummation of the other transactions contemplated by the Transaction
Documents.
"Transferred Employees " is defined in Section 6.14(a).
2. Purchase and Sale of the Business and Assets.
2.1 The Purchased Assets. Subject to the terms and conditions of this
Agreement, at the Closing, the Selling Entities shall grant, sell, assign,
transfer, convey and deliver to On Stage, free and clear of all Encumbrances
whatsoever, other than the permitted Encumbrances set forth on Schedule 2.1 (the
"Permitted Encumbrances"), and On Stage shall purchase from the Selling
Entities, the Business as a going concern, and all right, title and interest of
the Selling Entities in and to all of the Assets other than the Excluded Assets
(collectively, the "Purchased Assets") as the same shall exist on the Closing
Date including the following:
(a) Real Property Owned. The real property owned by each
Selling Entity described on Schedule 2.1(a), together with the
buildings, structures, improvements and fixtures located thereon, and
all rights, privileges, easements, licenses, hereditaments and other
appurtenances relating thereto;
(b) Real Property Leased. Each Selling Entity's interest, as a
lessee, in the real property leased by such Selling Entity described on
Schedule 2.1(b), and any easements, deposits or other rights pertaining
thereto;
(c) Equipment and Other Tangible Personal Property. All
equipment, leasehold improvements, automobiles, supplies, office
furniture and office equipment, computers and telecommunications
equipment and other items of personal property that are owned by each
Selling Entity relating primarily to the Business, including those
described on Schedule 2.1(c);
(d) Contracts of the Business. All of the interest of each
Selling Entity in all Contracts, leases of equipment and other personal
property, sale orders, purchase orders, commitments, instruments and
all other agreements primarily relating to the Business, including
those listed on Schedule 2.1(d);
(e) Customer Records, Sales and Marketing Materials. All
customer records, including principal contacts, address and telephone
number, purchasing history, payment information and any other
information with respect to the customers of the Business, sales data,
catalogs, brochures, suppliers' names, mailing lists, art work,
photographs and advertising material relating primarily to the
Business, whether in electronic form or otherwise;
7
<PAGE>
(f) Permits. All rights under Permits relating to the
Business, including those listed on Schedule 2.1(f), to the extent such
Permits are transferable to On Stage;
(g) Intellectual Property. All Intellectual Property,
including the Intellectual Property described in Schedule 2.1(g) and
exclusive rights to the name "Country Tonite Enterprises, Inc." and to
the trademark "Country Tonite", and all goodwill associated therewith;
(h) Property, Personnel and Accounting Records. All other
records of the Selling Entities relating primarily to the Business,
including property records and records relating to employees (provided
that the Selling Entities shall be entitled to retain copies of the
foregoing);
(i) Inventory. All Inventory relating primarily to the
Business on the Closing Date;
(j) Prepaid Expenses. All rights relating to any prepaid
expenses of or arising primarily in connection with the Business at the
Closing Date, including those described on Schedule 2.1(j);
(k) Software. All Software, including the Software described
in Schedule 2.1(k)(i), and all documentation related thereto; provided,
however, that all third party licensed Software included in the
Purchased Assets shall be transferred to On Stage subject to the terms
and conditions of the third party licenses listed in Schedule
2.1(k)(ii) under which the particular Selling Entity acquired such
licensed Software; and
(l) Other Intangible Assets. All other assets (including all
causes of action, rights of action, contract rights and warranty and
product liability claims against third parties) relating primarily to
the Purchased Assets or the Business, including those described on
Schedule 2.1(l).
2.2 Excluded Assets. The corporate seal, Charter Documents, bylaws,
minute book and other corporate records of each Selling Entity, those assets of
each Selling Entity described in Schedule 2.2, insurance Contracts, cash,
accounts receivable and (for the avoidance of doubt) CRC of Tennessee's 60%
joint venture interest in Country Tonite Theater, L.L.C. (collectively, the
"Excluded Assets") shall not be included in the Purchased Assets in any event.
2.3 Assumed Liabilities. At the Closing, and subject to Section 2.4, On
Stage shall assume the following obligations (the "Assumed Liabilities"):
(a) all obligations that come into existence after the Closing
(and do not relate to the period prior to or at the Closing) under all
Contracts and Permits listed on
8
<PAGE>
Schedule 2.3 that are conveyed to On Stage as Purchased Assets pursuant
to the terms and conditions hereof; and
(b) all advance deposits (including interest accrued thereon)
and pre-paid ticket sales (and ticket or amusement taxes pertaining
thereto) of the Business as of the Closing Date, but only to the extent
of the amount of the advance deposits (including interest accrued
thereon) and pre-paid ticket sales applied as a reduction in the
Purchase Price at Closing pursuant to Section 2.6(c).
2.4 Excluded Liabilities. Except as expressly set forth in Section 2.3,
On Stage shall not, by virtue of its purchase of the Purchased Assets or
otherwise in connection with the Transactions, assume or become responsible for
any Liabilities (the "Excluded Liabilities") of any Selling Entity of any nature
whatsoever, including (a) Liabilities relating to or arising out of any Selling
Entity, the Purchased Assets, the Business (including any event, condition,
occurrence, action, inaction or transaction relating to any of the foregoing) or
the actions of any Selling Entity's officers, employees, representatives or
agents prior to or at the Closing, (b) Liabilities for any Taxes (other than
what is provided in Section 2.3(b)), (c) Liabilities relating to any claims for
health care or other welfare benefits, (d) Liabilities relating to any violation
of any Law, (e) tort Liabilities, (f) Liabilities from claims arising under any
Contract or Permit not assumed by On Stage pursuant hereto or included in any
arrangement set forth in Section 2.5; (g) Liabilities for claims arising under
any Contract or Permit to the extent such claim is based on events, conditions,
acts or omissions of any Person which occurred prior to or at the Closing; (h)
contingent Liabilities unknown to the Selling Entities at the Closing; and (i)
Liabilities for any accounts payable or indebtedness for money borrowed.
2.5 Consent of Third Parties. Nothing in this Agreement shall be
construed as an attempt by any Selling Entity to assign to On Stage any Contract
or Permit included in the Purchased Assets that is by its terms or by Law
nonassignable without the consent of any other party or parties, unless such
consent or approval shall have been given, or as to which all the remedies for
the enforcement thereof available to the Selling Entities would not by Law pass
to On Stage as an incident of the assignments provided for by this Agreement (a
"Non-Assignable Contract"). To the extent that any such consent or approval in
respect of, or a novation of, a Non-Assignable Contract shall not have been
obtained on or before the Closing Date, the appropriate Selling Entity shall
continue to use reasonable efforts to obtain any such consent, approval or
novation after the Closing Date until such time as it shall have been obtained,
and shall cooperate with On Stage in any economically feasible arrangement to
provide that On Stage shall receive the benefits of the relevant Selling Entity
under such Non-Assignable Contract, provided that On Stage shall undertake to
pay or satisfy the corresponding Liabilities under the terms of such
Non-Assignable Contract to the extent that it would have been responsible
therefor if such consent, approval or novation had been obtained.
2.6 Purchase Price. In addition to assuming the Assumed Liabilities,
the aggregate price to be paid by On Stage to the Selling Entities (the
"Purchase Price") for the purchase of the
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Purchased Assets shall be equal to the following (which calculation shall be
made as of the Closing Date and set forth in a certificate of On Stage and CRC
delivered at the Closing):
(a) $13,800,000,
(b) plus, the lesser of (i) $120,000 or (ii) the value at
the Selling Entities' cost of Inventory located at
the Branson gift shop included in the Purchased
Assets, plus 30% of the cost of the Inventory bearing
the "Country Tonite" name or logo located at the
Pigeon Forge gift shop, which amount shall be paid
from time to time as the parties agree;
(c) minus, the amount of all advance deposits (including
interest accrued thereon) and pre-paid ticket sales
(and ticket or amusement taxes pertaining thereto) of
the Business included in the Assumed Liabilities,
(d) minus the following, to the extent such amounts
relate primarily to the Purchased Assets or the
Business, are unpaid as of the date of Closing and
have not been paid by the Selling Entities prior to
or at the Closing:
(i) the prorated amount for the period prior to the
Closing Date of all real estate taxes and
assessments, both general and special, water charges
and sewer rents, whether or not then due or payable,
and all other normally proratable items, based upon
the latest assessments or actual invoices available
(should any such proration be inaccurate based upon
the actual tax bill or assessment when received, any
party hereto may demand and shall be entitled to
receive on demand, a payment from the other
correcting such inaccuracy);
(ii) any fees, taxes, impact fees, assessments,
delinquent or otherwise, attributable to a period
prior to the Closing Date;
(iii) any other land use charges attributable to any
period prior to the Closing Date;
(iv) one-half of all necessary State of Missouri,
county and municipal transfer, document stamp and/or
recording taxes incident to the transaction
contemplated in this Agreement normally attributable
to the grantor;
(v) one-half of the cost of any escrow fee and
charges of any escrow agent, regardless of whether or
not such escrow agent is also counsel for any party
hereto, the issuer of the Commitments or the agent of
such issuer; and
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(vi) the cost in excess of $5,000 of any endorsement
to or affirmative insurance obtained in connection
with the title insurance policies to be issued
pursuant to the Commitments (as defined in Section
8.9 of this Agreement), if such endorsement or
affirmative insurance is required in order for the
title insurance company issuing such policies to
delete any exception from coverage relating to any
encroachment onto and/or violation of an existing
easement and/or setback requirement.
On Stage shall pay the Purchase Price at Closing as follows: (x) $1,300,000
shall be paid by delivery of the $1,300,000 Subordinated Promissory Note and (y)
the remainder of the Purchase Price shall be paid by wire transfer of
immediately available funds pursuant to written wire instructions provided by
CRC no later than three business days prior to the Closing Date.
2.7 Allocation of the Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets as On Stage and the Selling Entities (in
consultation with BDO Seidman) shall agree in writing prior to the Closing. The
Selling Entities and On Stage shall prepare their respective Federal, state and
local tax returns employing such agreed allocation and shall not take a position
in any tax proceeding or otherwise that is inconsistent with such allocation.
The Selling Entities and On Stage shall give prompt notice to each other of the
commencement of any tax audit or the assertion of any proposed deficiency or
adjustment by any taxing authority or agency which challenges such allocation.
3. Closing.
3.1 Location; Date. The closing of the Transactions (the "Closing")
shall take place at the offices of Morgan, Lewis and Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 at 10:00 A.M. local time on the later of October
29, 1998 or the third business day after the date on which the conditions set
forth in Sections 8 and 9 to be satisfied prior to the Closing have been
satisfied (or waived by the party entitled to the benefit thereof), or at such
other place, time or date as On Stage and CRC may agree.
3.2 Closing Deliveries. In connection with the completion of the
Transactions contemplated in Section 2, at the Closing;
(a) On Stage shall deliver or cause to be delivered to the
Selling Entities:
(i) the cash portion of the Purchase Price; and
(ii) such assumption agreements and other agreements,
documents and instruments as may be contemplated by this
Agreement and such other items as may be reasonably requested
by the Selling Entities to consummate the transactions
contemplated by this Agreement, each in form and substance
reasonably satisfactory to the Selling Entities.
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(b) The Selling Entities shall deliver or cause to be
delivered to On Stage:
(i) such bills of sale and assignment, deeds and
assumption agreements as may be required to transfer each
Selling Entity's right, title and interest in and to the
Purchased Assets in form and substance reasonably satisfactory
to On Stage; and
(ii) such other agreements, documents and instruments
as may be con templated by this Agreement and such other items
as may be reasonably requested by On Stage to consummate the
transactions contemplated by this Agreement, each in form and
substance reasonably satisfactory to On Stage.
(c) On Stage shall deliver to the Selling Entities, and the
Selling Entities shall deliver to On Stage, the certificates, instruments and
agreements referred to in Section 9 and Section 8, respectively.
4. Representations and Warranties of the Selling Entities. The Selling Entities,
jointly and severally, hereby represent and warrant to On Stage as follows:
4.1 Corporate Status. Each Selling Entity is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and each is qualified to do business as
a foreign corporation and is in good standing in each jurisdiction where it is
required to be so qualified, except where the failure to be so qualified would
not have a Material Adverse Effect.
4.2 Authorization. Each Selling Entity has the requisite power and
authority to own its property and carry on the Business as currently conducted,
and to execute and deliver the Transaction Documents to which it is a party and
(subject only to the approval of the shareholders of CRC) to perform the
Transactions to be performed by it. Such execution, delivery and performance by
each Selling Entity has been duly authorized by all necessary action, except for
the approval of the shareholders of CRC. Each Transaction Document executed and
delivered by the Selling Entities as of the date hereof has been duly executed
and delivered by each Selling Entity and constitutes a valid and binding
obligation of each Selling Entity, enforceable against each Selling Entity in
accordance with its terms. Each Transaction Document to be executed and
delivered by a Selling Entity after the date hereof will have been duly executed
and delivered by the relevant Selling Entity and will constitute a valid and
binding obligation of such Selling Entity, enforceable against it in accordance
with its terms.
4.3 Consents and Approvals. Except for the consents specified in
Schedule 4.3 (together with the filing and approval set forth in clauses (i) and
(ii) below, the "Required Consents"), neither the execution nor delivery by each
Selling Entity of any Transaction Document to which it is a party, nor the
performance of the Transactions to be performed by it
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thereunder, will require any filing, consent or approval, constitute a Default
or cause any payment obligation to arise under (a) any Law or Court Order to
which any Selling Entity is subject, (b) the Charter Documents or bylaws of any
Selling Entity or (c) any Contract, Permit or other document to which each
Selling Entity is a party or by which the Business or Purchased Assets may be
subject, except for (i) the filing by CRC of the Proxy Statement (as hereinafter
defined) and related proxy materials with the Commission in accordance with the
Exchange Act and the rules and regulations thereunder and (ii) the approval of
the shareholders of CRC.
4.4 Financial Statements. Schedule 4.4 includes correct and complete
copies of audited financial statements consisting of the balance sheets of the
Business as of September 30, 1996 and 1997 and the related statement of income
for the years then ended, all of which are audited by BDO Seidman (collectively,
the "Audited Financial Statements") and unaudited financial statements
consisting of the balance sheet of the Business as of June 30, 1998 and the
related statement of income for the nine-month period then ended, both of which
are reviewed by BDO Seidman (collectively, the "Interim Financial Statements"
and together with the Audited Financial Statements, the "Financial Statements").
The Financial Statements are in all material respects consistent with the books
and records of the Business and there are no material transactions required by
GAAP, applied on a consistent basis, to be recorded in accounting records that
have not been recorded in the accounting records underlying such Financial
Statements. The Financial Statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial position and assets and
liabilities of the Business as of the dates thereof and the results of its
operations for the periods then ended, subject to normal year-end adjustments
and the absence of notes in the case of the Interim Financial Statements. There
is an allocation of costs to the Business from the Selling Entities, or from the
Business to the Selling Entities in the Audited Financial Statements. The
allocation of costs is reflected as a management fee in the statement of
operations and deficit. The Selling Entities warrant that there is no other
allocation of cost to the Business from the Selling Entities, or from the
Business to the Selling Entities. The balance sheet as of September 30, 1997
that is included in the Financial Statements is referred to herein as the
"Balance Sheet" and the date thereof is referred to as the "Balance Sheet Date."
The balance sheet as of June 30, 1998 that is included in the Financial
Statements is referred to herein as the "Interim Balance Sheet" and the date
thereof is referred to as the "Interim Balance Sheet Date." The Country Tonight
Theater in Branson, Missouri will produce $6 million total gross revenue for
calendar year 1998.
4.5 Title to Assets and Related Matters. The Selling Entities
collectively own and will transfer to On Stage at the Closing good, marketable
and indefeasible title to, or with respect to leased assets included in the
Purchased Assets, a valid leasehold interest in, subject to the terms and
conditions of such leases, all of the Purchased Assets, free and clear of all
Encumbrances other than Permitted Encumbrances. The use of the Purchased Assets
is not subject to any Encumbrances (other than Permitted Encumbrances), and such
use does not materially encroach on the property or rights of any other Person.
All Purchased Assets are in the possession or under the control of one or more
of the Selling Entities and consist of all of the Assets necessary to operate
the Business as currently, and since September 30, 1997, operated
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and which generated the revenues reflected in the Financial Statements. Except
as set forth on Schedule 4.5, all of the tangible personal property included in
the Purchased Assets (a) is in good working condition and repair, subject to
normal wear and tear, (b) is usable in the ordinary course of business and (c)
conforms in all material respects with all applicable Laws relating to its
construction, use and operation. Except for those items subject to the Personal
Property Leases, no Person other than the Selling Entities owns any vehicles,
equipment or other tangible assets located on the Real Property that are used by
the Selling Entities in the Business (other than immaterial items of personal
property owned by the employees of the Selling Entities) or that are necessary
for the operation of the Business as currently, and since September 30, 1997,
operated.
4.6 Real Property. Schedule 4.6 sets forth the complete legal
description of all real estate (including a description of how such real estate
is zoned) used in the operation of the Business as well as any other real estate
that is in the possession of or leased by each Selling Entity and the
improvements (including buildings and other structures) located on such real
estate (collectively, the "Real Property"), identifies which Real Property is
owned and which is leased, and lists any leases under which any such Real
Property is possessed by each Selling Entity or leased by each Selling Entity to
others (the "Real Estate Leases"). All of the buildings and structures included
in the Real Property are structurally sound, and all of the heating,
ventilating, air conditioning, plumbing, sprinkler, fire alarm, electrical and
drainage systems, elevators and roofs, and all other fixtures, equipment and
systems at or serving such Real Property are in good condition, repair and
working order (subject to normal wear and tear) and constitute all of the
systems, elevators, roofs, fixtures and equipment utilized by the Selling
Entities in the operation of the Business as currently, and since September 30,
1997, operated, and there is no condition that will result in the termination of
the present access from the Real Property to such utility services and other
facilities. No Selling Entity has received any written (or to the Knowledge of
any Selling Entity oral) notices, and no Selling Entity has reason to believe,
that any governmental body having jurisdiction over any Real Property intends to
exercise the power of expropriation or eminent domain or a similar power with
respect to all or any part of the Real Property. No Selling Entity has received
any written (or to the Knowledge of any Selling Entity oral) notices, from any
governmental body, and no Selling Entity has reason to believe, that any of the
Real Property or any improvements erected or situated thereon, or the uses
conducted thereon or therein, violate any Laws of any governmental body having
jurisdiction over such Real Property. No Selling Entity has received any written
(or to the Knowledge of any Selling Entity oral) notice from the holder of any
mortgage, from any insurance company which has issued a policy with respect to
any of the Real Property or from any board of fire underwriters (or other body
exercising similar functions) claiming any defects or deficiencies in any of the
Real Property or suggesting or requesting the performance of any repairs,
alterations or other work to any of the Real Property.
4.7 Certain Personal Property. The Selling Entities have delivered to
On Stage a complete fixed asset schedule, describing and specifying the location
of all items of tangible personal property that are included in the Interim
Balance Sheet. Except as listed on Schedule
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4.7, since the Interim Balance Sheet Date, no Selling Entity has (a) acquired
any items of tangible personal property that has, in any case, a carrying value
in excess of $10,000, or an aggregate carrying value in excess of $25,000 or (b)
disposed of (other than in the ordinary course of business) any items of
tangible personal property (other than Inventory) that have, in any case, an
initial carrying value in excess of $10,000, or an initial aggregate carrying
value in excess of $25,000.
4.8 Personal Property Leases. Schedule 4.8 lists all assets and
property (other than Real Property) that have been used in the operation of the
Business and that are possessed by a Selling Entity under an existing lease,
including all trucks, automobiles, machinery, equipment, office equipment,
furniture and computers, except for any lease under which the aggregate annual
payments are less than $1,000 (each, an "Immaterial Lease"). Schedule 4.8 also
lists the leases under which such assets and property listed on Schedule 4.8 are
possessed. All of such leases (excluding "Immaterial Leases") are referred to
herein as the "Personal Property Leases."
4.9 Inventory. All Inventory of each Selling Entity consists of items
useable or saleable in the ordinary course and is valued on each Selling
Entity's books and records at the lower of cost or fair market value. The
inventory records for the Selling Entities that have been delivered to On Stage
or made available for inspection by On Stage are materially accurate with
respect to the data contained therein.
4.10 Product Warranties and Price Guarantees. Schedule 4.10 sets forth
any outstanding warranties or price guarantees made by each Selling Entity.
4.11 Liabilities. Except as specified on Schedule 4.11, no Selling
Entity has any Liabilities with respect to the Business, and none of the
Purchased Assets are subject to any Liabilities, except (a) as specifically
disclosed on the Interim Balance Sheet, (b) Liabilities incurred in the ordinary
course since the Interim Balance Sheet Date, and (c) Liabilities under any
Contracts specifically disclosed (or not required to be disclosed because of the
term or amount involved) that were not required under GAAP to have been
specifically disclosed or reserved for in the Financial Statements.
4.12 Taxes. With respect to each Selling Entity and each member of any
affiliated group of a Selling Entity, within the meaning of section 1504 of the
Code, of which a Selling Entity is or has been a member (the Selling Entities
and each such other company referred to in this Section 4.12 as the "Company")
(a) except as described in Schedule 4.12, all reports, returns, statements
(including estimated reports, returns, or statements), and other similar filings
required to be filed on or before the Closing Date by the Company (the "Tax
Returns") with respect to any Taxes (as defined below) have been timely filed
with the appropriate governmental agencies in all jurisdictions in which such
Tax Returns are required to be filed, and all such Tax Returns correctly reflect
the liability of the Company for Taxes for the periods, properties, or events
covered thereby; (b) except as described in Schedule 4.12, all Taxes payable
with respect to the Tax Returns referred to in the preceding clause, and all
Taxes
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accruable or otherwise attributable to events occurring prior to the Closing
Date, whether disputed or not, whether or not shown on any Tax Return, and
whether or not currently due or payable, will have been paid in full prior to
the Closing Date, or an adequate accrual in accordance with generally accepted
accounting principles has been provided with respect thereto on the Interim
Balance Sheet; (c) except as described in Schedule 4.12, the Company has no
knowledge of any unassessed Tax deficiencies or of any audits or investigations
pending or threatened against the Company with respect to any Taxes; (d) except
as described in Schedule 4.12, no Tax Returns of the Company have been examined
by the Internal Revenue Service, and any assessments with respect to such
returns have been fully paid; (e) except as described in Schedule 4.12, there is
in effect no extension for the filing of any Tax Return and the Company has not
extended or waived the application of any statute of limitations of any
jurisdiction regarding the assessment or collection of any Tax; (f) since
January 1, 1994, no claim has been made by any Tax authority in a jurisdiction
in which the Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction; (g) there are no liens for Taxes upon any asset
of the Company except for liens for current Taxes not yet due; (h) the Company
has timely made all deposits required by law to be made with respect to
employees' withholding and other payroll, employment, or other withholding
taxes, including the portions of such taxes imposed upon the Company.
For purposes of this Agreement, "Taxes" means any taxes,
duties, assessments, fees, levies, or similar governmental charges, together
with any interest, penalties, and additions to tax, imposed by any taxing
authority, wherever located (i.e., whether federal, state, local, municipal, or
foreign), including all net income, gross income, gross receipts, net receipts,
sales, use, transfer, franchise, privilege, profits, social security,
disability, withholding, payroll, unemployment, employment, excise, severance,
property, windfall profits, value added, ad valorem, occupation, or any other
similar governmental charge or imposition.
4.13 Subsidiaries. Except as disclosed on Schedule 4.13, no Selling
Entity owns in relation to the Business, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, business,
trust, joint venture or other legal entity.
4.14 Legal Proceedings and Compliance with Law.
(a) Except as disclosed on Schedule 4.14(a), there is no
Litigation that is pending or, to the Knowledge of a Selling Entity,
threatened against or related to a Selling Entity with respect to the
Business or the Purchased Assets. There has been no Default under any
Law applicable to the Purchased Assets or the Business, including any
Law relating to protection or quality of the environment, except for
any Defaults that have been cured, and no Selling Entity has received
any notices from any governmental entity regarding any alleged Default
or investigation under any written order, instruction or direction
pursuant to any Law except those that have been cured. Since January 1,
1994, there has been no Default with respect to any Court Order
applicable to a Selling Entity.
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(b) Without limiting the generality of Section 4.14(a), except
as described on Schedule 4.14(b), to the Knowledge of the Selling
Entities there has not been any Environmental Condition (i) at any
premises at which the Business is currently conducted, (ii) at any
property owned, leased or operated at any time by a Selling Entity (or
any predecessor of a Selling Entity) or any Person controlled by any
Affiliate of a Selling Entity, or (iii) at any property at which wastes
have been deposited or disposed by or at the behest or direction of a
Selling Entity (or any predecessor of a Selling Entity) or any Person
controlled by any Affiliate of a Selling Entity, nor has any Selling
Entity received written notice of any such Environmental Condition or
any investigation, to determine whether any such Environmental
Condition exists. "Environmental Condition" means any condition or
circumstance, including the presence of Hazardous Substances, whether
created by a Selling Entity (or any predecessor of a Selling Entity) or
any third party, at or relating to any such property or premises that
would (x) require abatement or correction under an Environmental Law,
(y) give rise to any civil or criminal liability under an Environmental
Law or (z) create a public or private nuisance. "Environmental Law"
means all Laws and Court Orders relating to protection or quality of
the environment as well as any principles of common law under which a
Person may be held liable for the release or discharge of any materials
into the environment.
(c) Each Selling Entity has delivered to On Stage correct and
complete copies of all written reports, studies or assessments in the
possession or control of any Selling Entity that relate to any
Environmental Condition. No Selling Entity has Knowledge of any other
written reports, studies or assessments, whether in the possession or
control of a Selling Entity, that relate to any Environmental
Condition.
(d) Except in those cases where the failure would not have a
Material Adverse Effect, (i) each Selling Entity has obtained and is in
substantial compliance with all Permits, all of which are listed on
Schedule 4.14(d) along with their respective expiration dates, that are
required for the ownership of the Purchased Assets or operation of the
Business as currently operated, (ii) all of the Permits are currently
valid and in full force and (iii) each Selling Entity has filed such
timely and complete renewal applications as may be required with
respect to its respective Permits. No Selling Entity has Knowledge of
any threatened revocation, cancellation or withdrawal of a Permit.
4.15 Contracts. Schedule 4.15 lists each Contract of the following
types to which each Selling Entity is a party or by which it is bound relating
primarily to the Business or the Purchased Assets:
(a) Contracts with any present or former 5% stockholder,
director, officer, employee or consultant or with any Affiliate of a
Selling Entity;
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(b) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third party,
in excess of $10,000 with respect to any one supplier or other party;
(c) Contracts to sell or supply products, Inventory or other
property to, or to perform services for, a third party, that involve an
amount in excess of $10,000 with respect to any one customer or other
party;
(d) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(e) Contracts limiting or restraining any Selling Entity from
engaging or competing in any lines or business with any Person;
(f) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(g) Contracts to lease to, or to operate for, any other party
any asset that involves an amount in excess of $5,000 in any individual
case (other than Real Estate Leases and Personal Property Leases
identified on a Schedule);
(h) Any notes, debenture, bonds, conditional sale agreements,
equipment trust sale and lease-back and leasing agreements, letter of
credit agreements, reimbursement agreements, loan agreements or other
Contracts for the borrowing or lending of money (including loans to or
from officers, directors, shareholders or Affiliates of any Selling
Entity), or agreements or arrangements for a line of credit or for a
guarantee of, or other undertaking in connection with, the indebtedness
of any other Person;
(i) Contracts creating or recognizing any Encumbrances with
respect to any Assets;
(j) Contracts with distributors, manufacturers' sales
representatives or other sales agents;
(k) Contracts that relate in whole or in part to any Software,
technical assistance or other know-how or other Intellectual Property
right;
(l) Contracts for any capital expenditure or leasehold
improvement in excess of $5,000; and
(m) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and those
described in any of (a) through (l) above)
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not made in the ordinary course of business or which are material to
the Business or the Assets.
4.16 No Selling Entity is in Default under any Contract. To the
Knowledge of the Selling Entities, no Selling Entity is in Default under any
Contract relating primarily to the Business or has received any communication
from, or given any communication to, any other party indicating that a Selling
Entity or such other party, as the case may be, is in Default under any such
Contract. To the Knowledge of the Selling Entities, none of the other parties to
any such Contract to which a Selling Entity is a party is in Default thereunder.
4.17 Insurance. Schedule 4.17 lists all policies or binders of
insurance held by or on behalf of each Selling Entity or relating to the
Business or any of the Purchased Assets, specifying with respect to each policy
the insurer, the type of insurance, the amount of the coverage, the insured, the
expiration date, the policy number and any pending claims thereunder.
4.18 Intellectual Property.
(a) Schedule 4.18 sets forth a correct and complete list and
description of all Intellectual Property and all Software owned by or
licensed to any Selling Entity and used, in whole or in part, directly
or indirectly in, and material to the Business, and indicates whether
such Intellectual Property and Software is owned or licensed by such
Selling Entity.
(b) Except as disclosed on Schedule 4.18: (i) the Selling
Entities own or possess adequate licenses or other valid rights to use
(without the making of any payment to others or the obligation to grant
rights to others in exchange) all of such Intellectual Property and
Software; (ii) the Intellectual Property and Software included in the
Purchased Assets constitute all such rights and property necessary to
conduct the Business in accordance with past practice and the rights to
which are being transferred to On Stage together with the other
Purchased Assets; (iii) no Selling Entity is in Default under any
Contract with respect to any of such Intellectual Property or Software;
(iv) the validity of such Intellectual Property and the rights of any
Selling Entity therein and to the Software has not been questioned in
any Litigation to which a Selling Entity is or was a party or in any
other written notice to a Selling Entity, nor, to the Knowledge of each
Selling Entity, is any such Litigation threatened; and (v) to the
Knowledge of each Selling Entity, the conduct of the Business does not
materially conflict with patent rights, licenses, trademark rights,
trade name rights, copyrights or other intellectual property rights of
others.
(c) Except as disclosed on Schedule 4.18, to the Knowledge of
each Selling Entity, no material use of any Intellectual Property or
Software included within the Purchased Assets has heretofore been, or
is now being, made by any Person other than a Selling Entity, except
for Software licensed to a Selling Entity under a third party license
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agreement listed on Schedule 4.18. Except as disclosed on Schedule
4.18, to the Knowledge of each Selling Entity, there is no current, and
there has not since January 1, 1994 been any, infringement of any such
Intellectual Property or Software owned or licensed by a Selling Entity
or used in the Business. Except for interests being transferred
pursuant to this Agreement, no present or former director, officer,
employee or consultant of a Selling Entity or any Affiliate of a
Selling Entity has any interest, direct or indirect, in any of the
Intellectual Property or Software.
(d) To the Knowledge of each Selling Entity, (i) no
Confidential Information of a Selling Entity has been used, divulged or
appropriated for the benefit of any Person other than the Selling
Entities or otherwise to the detriment of any Selling Entity and (ii)
no employee or consultant of a Selling Entity is, or is currently
expected to be, in Default under any term of any employment Contract,
agreement or arrangement relating to the Intellectual Property, or any
confidentiality agreement or any other Contract or any restrictive
covenant relating to the Intellectual Property, or to the development
or exploitation thereof.
4.19 Employee Relations.
(a) Except as described on Schedule 4.19, no Selling Entity is
in relation to the Business (i) a party to or otherwise bound by any
collective bargaining or other type of union agreement, (ii) a party
to, involved in or, to the Knowledge of any Selling Entity, threatened
by, any labor dispute or unfair labor practice charge, or (iii)
currently negotiating any collective bargaining agreement, and no
Selling Entity has experienced any work stoppage during the last three
years in the operation of the Business as a result of a labor dispute.
Schedule 4.19 sets forth the names and current annual salary rates or
current hourly wages of all present employees of the Business.
(b) Each Selling Entity in the operation of the Business is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and is not engaged in any unfair labor practice. There are no
outstanding written claims against any Selling Entity (whether under
Law, contract, policy, or otherwise) asserted by or on behalf of any
present or former employee or job applicant of the Business on account
of or for (i) overtime pay, other than overtime pay for work done in
the current payroll period, (ii) wages or salary for any period other
than the current payroll period, (iii) any amount of vacation pay or
pay in lieu of vacation time off, other than vacation time off or pay
in lieu thereof earned in or in respect of the current fiscal year,
(iv) any amount of severance pay or similar benefits, (v) unemployment
insurance benefits, (vi) workers' compensation or disability benefits,
(vii) any violation of any statute, ordinance, order, rule or
regulation relating to plant closings, employment terminations or
layoffs, including employee retraining, (viii) any violation of any
statute, ordinance, order, rule or regulations relating to employee
"whistleblower" or "right-to-know" rights and protection, (ix) any
violation
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of any statute, ordinance, order, rule or regulations relating to the
employment obligations of federal contractors or subcontractors or (x)
any violation of any Law relating to minimum wages or maximum hours of
work, and to the Knowledge of each Selling Entity no such claims have
been asserted. Since January 1, 1994, no Person (including any
governmental body) has asserted or threatened any claims against any
Selling Entity relating to the Business under or arising out of any Law
relating to discrimination or occupational safety in employment or
employment practices.
4.20 ERISA.
(a) Schedule 4.20(a) contains a complete list of all Benefit
Plans sponsored or maintained by the Selling Entities, or under which
the Selling Entities may be obligated. The Selling Entities do not have
any current or contingent liability with respect to any Benefit Plan
other than those listed on Schedule 4.20(a). For purposes of this
Section 4.20 and Section 6.10, the term "Selling Entity" shall include
any partnership or corporation that is a member of any controlled group
of partnerships or corporations (as defined in Section 414(b) of the
Code) that includes the Selling Entities, any trade or business
(whether or not incorporated) that is under common control (as defined
in Section 414(c) of the Code) with any Selling Entity, any
organization (whether or not incorporated) that is a member of an
affiliated service group (as defined in Section 414(m) of the Code)
that includes each Selling Entity and any other entity required to be
aggregated with any Selling Entity pursuant to the regulations issued
under Section 414(o) of the Code. Each Benefit Plan providing benefits
that are funded through a policy of insurance is indicated by the word
"insured" placed by the listing of the Benefit Plan on Schedule
4.20(a).
(b) The Selling Entities have delivered to On Stage, to the
extent applicable, (i) accurate and complete copies of all Benefit Plan
documents and all other documents relating thereto, including all
summary plan descriptions, summary annual reports and insurance
contracts, (ii) accurate and complete detailed summaries of all
unwritten Benefit Plans, (iii) accurate and complete copies of the most
recent financial statements and actuarial reports with respect to all
Benefit Plans for which financial statements or actuarial reports are
required or have been prepared and (iv) accurate and complete copies of
all annual reports for all Benefit Plans (for which annual reports are
required) prepared within the last three years.
(c) All Benefit Plans conform (and for the past six years have
conformed) to, and are being administered and operated (and for the
past six years have been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all applicable
Laws. All returns, reports and disclosure statements required to be
made under ERISA and the Code with respect to all Benefit Plans have
been timely filed or delivered or an extension for the delayed filing
has been obtained from the Internal Revenue Service or the U.S.
Department of Labor. To the Knowledge of the
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Selling Entities, there has not been any "prohibited transaction," as
such term is defined in Section 4975 of the Code or Section 406 of
ERISA involving any of the Benefit Plans, that could subject the
Selling Entities to any penalty or tax imposed under the Code or ERISA.
(d) Any Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of
the Code has been determined by the Internal Revenue Service to be so
qualified or an application for determination has been timely filed
(and is still pending) with the Internal Revenue Service, and such
determination remains in effect and has not been revoked. Copies of the
most recent Internal Revenue Service determination letters, if any,
applicable to the Benefit Plans have been delivered to On Stage.
Nothing has occurred since the date of any such determination (if
received) that would adversely affect such qualification or exemption.
(e) No Selling Entity sponsors or contributes to, and has not
at any time sponsored or contributed to, a defined benefit plan subject
to Title IV of ERISA, and no Selling Entity has incurred any liability
under Title IV of ERISA. No Selling Entity has a current or contingent
obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA), nor has any Selling Entity ever had any
obligation to contribute to a multiemployer plan.
(f) There are no pending or, to the Knowledge of each Selling
Entity, threatened claims by or on behalf of any Benefit Plans, or by
or on behalf of any participants or beneficiaries of any Benefit Plans
or other persons, alleging any breach of fiduciary duty on the part of
any Selling Entity or any of its officers, directors or employees under
ERISA or any applicable Law, or claiming benefit payments other than
those made in the ordinary operation of such plans, nor is there, to
the Knowledge of each Selling Entity, any basis for any such claim. To
the Knowledge of each Selling Entity, the Benefit Plans are not the
subject of any investigation, audit or action by the Internal Revenue
Service, the U.S. Department of Labor or the Pension Benefit Guaranty
Corporation ("PBGC"). Except as disclosed on Schedule 4.20(f), no
Selling Entity has made a plan or commitment, whether or not legally
binding, to create any additional Benefit Plan or to modify or change
any existing Benefit Plan.
(g) Each Selling Entity has made all required contributions
under its Benefit Plan on a timely basis, or such contributions are
properly accrued on the Financial Statements.
(h) There have been no accumulated funding deficiencies (as
defined in Section 412 of the Code or Section 302 of ERISA) with
respect to any Benefit Plan and no request for a waiver from the
Internal Revenue Service with respect to any minimum funding
requirement under Section 412 of the Code. No Selling Entity has
incurred any liability for any excise, income or other taxes or
penalties with respect to any Benefit
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Plan, and no event has occurred and no circumstance exists or has
existed that could give rise to any such liability.
(i) The execution of and performance of the transactions
contemplated by this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) result in any
payment, severance compensation, acceleration, vesting or increase in
benefits with respect to any employee or former employee of a Selling
Entity, and no compensation or benefits to be provided to such
employees or former employees under any Benefit Plan or other agreement
in effect as of the Closing will be considered an "excess parachute
payment" under Section 280G of the Code.
(j) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a
"Welfare Plan"), (i) each Welfare Plan for which contributions are
claimed as deductions under any provision of the Code is in compliance
with all applicable requirements pertaining to such deduction, (ii)
with respect to any welfare benefit fund (within the meaning of Section
419 of the Code) related to a Welfare Plan, there is no disqualified
benefit (within the meaning of Section 4976(b) of the Code) that would
result in the imposition of a tax under Section 4976(a) of the Code,
(iii) any Benefit Plan that is a group health plan (within the meaning
of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act, the
applicable provisions of the Social Security Act and other applicable
laws, (iv) all Welfare Plans may be amended or terminated by a Selling
Entity at any time on or after the Closing, and (v) no Welfare Plan
provides health or other benefits after an employee's or former
employee's retirement or other termination of employment except as
required by Section 4980B of the Code.
(k) All persons classified by a Selling Entity as independent
contractors satisfy and have satisfied the requirements of applicable
law to be so classified, each Selling Entity has fully and accurately
reported their compensation on IRS Forms 1099 when required to do so,
and no Selling Entity has any obligations to provide benefits with
respect to such persons under Benefit Plans or otherwise.
4.21 Absence of Certain Changes. Except as contemplated by this
Agreement, since the Interim Balance Sheet Date, except as mutually agreed, the
Business has been conducted in the ordinary course and there has not been with
respect to any Selling Entity:
(a) any material adverse change in the Business or its assets
or liabilities;
(b) any increase in the compensation payable or to become
payable to any employee or agent of the Business, except for increases
for non-officer employees made in the ordinary course of business, nor
any other change in any employment or consulting arrangement of the
Business;
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(c) any sale, assignment or transfer of any material assets of
the Business, or any additions to or transactions involving any
material assets of the Business, other than those made in the ordinary
course of business;
(d) any change in the accounting policies followed with
respect to the Business or the method of applying such principles;
(e) any capital expenditure commitment of the Business
involving in any individual case, or series of related cases, more than
(i) $10,000 or (ii) an amount that would cause the sum of all such
capital expenditure commitments to exceed $25,000; or
(f) any other transaction involving a development affecting
the Business or the Purchased Assets outside the ordinary course of
business consistent with past practice.
4.22 Customers. Each Selling Entity has used its reasonable business
efforts to maintain and does currently maintain, good working relationships with
all of its tour operators and ticketing receptives (collectively, "Customers").
Schedule 4.22 contains a list of the names of each of the five Customers that,
for the six months ended June 30, 1998 were the largest dollar volume Customers
of each Selling Entity. Except as specified on Schedule 4.22, none of such
Customers has given any Selling Entity written (or to the Knowledge of any
Selling Entity oral) notice terminating, canceling or threatening to terminate
or cancel any Contract or relationship with a Selling Entity.
4.23 Finder's Fees. No Person has been retained by the Selling Entities
that is or will be entitled to any commission or finder's or similar fee in
connection with the Transactions.
4.24 Additional Information. Schedule 4.24 accurately sets forth all
names under which each Selling Entity has conducted any business or which it has
otherwise used at any time during the past five years.
4.25 Transactions with Affiliates. Except as set forth on Schedule
4.25, no Affiliate of any Selling Entity owns or has a controlling ownership
interest in any corporation or other entity (other than another Selling Entity)
that is a party to any Contract with respect to the Purchased Assets or the
Business.
4.26 Full Disclosure. There are and will be no materially misleading
statements in any of the representations and warranties made by each Selling
Entity in this Agreement (including the Schedules and Exhibits attached hereto)
or any other Transaction Document or in any of the documents, certificates and
instruments delivered or to be delivered by each Selling Entity pursuant to this
Agreement and no Selling Entity has omitted to state any fact necessary to make
statements made herein or therein not materially misleading. There is no fact
known to any Selling Entity that has specific application to the Business (other
than general economic or
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industry conditions) and that materially adversely affects or, as far as the
Selling Entities reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Business that
has not been set forth in this Agreement or the Schedules hereto.
5. Representations and Warranties of On Stage. On Stage hereby represents and
warrants to each Selling Entity as follows:
5.1 Corporate Status. On Stage is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. On Stage
has the requisite power and authority to execute and deliver the Transaction
Documents to which it is a party and to perform the Transactions to be performed
by it thereunder, and such execution, delivery and performance by it have been
duly authorized by all necessary corporate action.
5.2 Authorization. On Stage has the requisite power and authority to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by On Stage has been duly authorized by all necessary action. Each
Transaction Document executed and delivered by On Stage as of the date hereof
has been duly executed and delivered by On Stage and constitutes a valid and
binding obligation of On Stage, enforceable against On Stage in accordance with
its terms. Each Transaction Document to be executed and delivered by On Stage
after the date hereof will have been duly executed and delivered by On Stage and
will constitute a valid and binding obligation of On Stage, enforceable against
it in accordance with its terms.
5.3 Consents and Approvals. Neither the execution and delivery by On
Stage of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Law or Court Order to
which it is subject, (b) its Charter Documents or bylaws or (c) any Contract,
Permit or other document to which it is a party or by which its properties or
other assets may be subject.
5.4 Capital Stock Ownership. The total authorized capital stock of On
Stage consists of 25,000,000 shares of common stock, par value $.01 per share
(of which approximately 7,397,350 shares were issued and outstanding as of July
1, 1998), and 1,000,000 shares of preferred stock, par value $.01 per share (of
which no shares are outstanding). As of April 21, 1998, On Stage had outstanding
options and warrants to purchase 3,354,820 shares of its common stock and no
shares of its preferred stock.
5.5 Finder's Fees. No Person retained by On Stage is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
5.6 Proxy Statement. The information supplied by On Stage for inclusion
in the Proxy Statement shall not, at the time the Proxy Statement is first
mailed to shareholders, or at
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the time of the Shareholders Meeting or the Closing, contain any statement
which, at such time and in light of the circumstances under which it was made,
is false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Shareholders Meeting which has become false or
misleading. If at any time prior to the Closing any event relating to On Stage
or any Affiliate of On Stage should be discovered by On Stage which should be
set forth in a supplement to the Proxy Statement, On Stage shall promptly inform
CRC.
6. Certain Agreements.
6.1 Access. Between the date of this Agreement and the Closing Date,
the Selling Entities shall (a) give On Stage and any Person who is considering
providing financing to On Stage to finance any portion of the Purchase Price,
and their respective authorized representatives and legal counsel, reasonable
access to all properties, books, Contracts, Assets and records of each Selling
Entity relating to the Business or the Purchased Assets, (b) permit On Stage to
make inspections thereof, and (c) cause its officers and its advisors to furnish
On Stage with such financial and operating data and other information with
respect to the Business of each Selling Entity and to discuss with On Stage and
its authorized representatives and legal counsel the affairs of the Selling
Entities relating to the Business or the Purchased Assets, all as On Stage may
from time to time reasonably request.
6.2 Shareholder Vote; Proxy Statement.
(a) As promptly as practicable after the date hereof, CRC
shall take all action necessary in accordance with Rules 14a-1 et seq.
of the Exchange Act, the Minnesota Business Corporation Act, the rules
of the National Association of Securities Dealers, Inc. and CRC's
Charter Documents to call, give notice of, convene and hold the
Shareholders Meeting as promptly as practicable (unless such date shall
be delayed due to circumstances reasonably beyond the control of CRC)
to consider and vote upon the approval of this Agreement and the
Transactions contemplated hereby and for such other purposes as may be
necessary or desirable. Subject to the fiduciary duties of the Board of
Directors under applicable law, as determined by such directors in good
faith after consultation with and based upon the advice of outside
legal counsel, the Board of Directors of CRC shall use its reasonable
best efforts to solicit and secure from its shareholders such approval
of this Agreement and the Transactions contemplated hereby, which
efforts may include soliciting shareholder proxies therefor and to
advise On Stage upon its request, from time to time, as to the status
of the shareholder vote then tabulated.
(b) As promptly as practicable after the date hereof, CRC
shall prepare and file with the Commission preliminary proxy materials
of CRC under the Exchange Act with respect to this Agreement and the
Transactions contemplated hereby and will
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thereafter use its reasonable best efforts to respond to any comments
of the Commission with respect thereto and to cause the Proxy Statement
and other proxy materials to be mailed to CRC's shareholders as
promptly as practicable in compliance with the rules and regulations
under the Exchange Act. The Proxy Statement shall include the
unqualified recommendation of CRC's Board of Directors that CRC's
shareholders vote in favor of the approval of this Agreement and the
Transactions contemplated hereby, unless otherwise necessary due to the
applicable fiduciary duties of the directors of CRC, as determined by
such directors in good faith after consultation with and based upon the
advice of independent legal counsel.
(c) CRC and On Stage shall cooperate with each other in the
preparation of (and On Stage shall provide to CRC all information
necessary in order to prepare) the Proxy Statement and On Stage shall
provide promptly to CRC any information that On Stage may obtain that
could necessitate amending such document.
(d) CRC will notify On Stage promptly of the receipt of any
comments from the Commission or its staff and of any requests by the
Commission or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply On Stage with
copies of all correspondence between CRC or any of its representatives
on the one hand and the Commission or its staff on the other hand with
respect thereto. If at any time prior to the Closing, any material
event shall occur that is required to be set forth in an amendment of,
or a supplement to, the Proxy Statement, CRC shall promptly prepare and
file such amendment or supplement and distribute such amendment or
supplement as required by applicable law, including mailing such
supplement or amendment to CRC's shareholders.
(e) The information provided and to be provided by CRC and On
Stage for use in the Proxy Statement shall at all times prior to the
Closing be true and correct in all material respects and shall not omit
to state any material fact required to be stated therein or necessary
in order to make such information not materially false or misleading,
and CRC and On Stage each agree to promptly correct any such
information provided by it for use in the Proxy Statement that shall
have become false or misleading. The Proxy Statement, when filed with
the Commission shall comply as to form in all material respects with
all applicable requirements of law.
6.3 No Solicitation.
(a) Without the prior written consent of On Stage, from and
after the date hereof, each Selling Entity will not, and will not
authorize or permit any of its subsidiaries or any officers, directors,
employees, financial advisors, agents or other representatives of any
of the foregoing ("Representatives") to, directly or indirectly, (i)
solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal which
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constitutes or may reasonably be expected to lead to an Acquisition
Proposal (hereinafter defined) from any person; (ii) engage in any
discussion or negotiations relating to any Acquisition Proposal; or
(iii) enter into any agreement with respect to, agree to, approve or
recommend any Acquisition Proposal; provided, however, that
notwithstanding any other provision hereof, CRC may, (A) at any time
prior to the time CRC's shareholders shall have voted to approve this
Agreement and the Transactions contemplated hereby engage in
discussions or negotiations with a third party (and may furnish such
third party information concerning the Business and its properties and
assets) who (without any solicitation, initiation, encouragement,
discussion or negotiation, directly or indirectly, by or with any
Selling Entity or the Representatives after the date hereof) makes an
unsolicited bona fide written Acquisition Proposal if, and only to the
extent that, (1) the third party has first made an Acquisition Proposal
that CRC's Board of Directors reasonably and in good faith believes is
financially superior to the Transactions contemplated by this Agreement
and has demonstrated that the funds necessary for the Acquisition
Proposal are reasonably likely to be available (as determined in good
faith in each case by CRC's Board of Directors after consultation with
its financial advisors) and which Acquisition Proposal accomplishes at
least the same long-term strategic benefits afforded to the Selling
Entities and CRC's shareholders by this Agreement and the Transactions
contemplated hereby (such an Acquisition Proposal, a "Superior
Proposal"), and CRC's Board of Directors shall conclude in good faith,
after considering applicable provisions of state law, on the basis of
advice of outside legal counsel that such action is necessary for the
Board of Directors to act in a manner consistent with its fiduciary
duties under applicable law, and (2) prior to furnishing such
information to or entering into discussions or negotiations with such
person or entity, CRC receives from such person or entity an executed
confidentiality agreement in form and substance identical to that
certain Mutual Nondisclosure Agreement between On Stage and CRC dated
February, 1998, and (3) CRC shall have fully complied with this Section
6.3; (B) comply with Rule 14e-2 promulgated under the Exchange Act with
regard to a tender or exchange offer; and/or (C) accept a Superior
Proposal from a third party, provided CRC terminates this Agreement
pursuant to Section 11.1(i). As used herein, "Acquisition Proposal"
means a proposal or offer for, or other business combination involving,
a substantial portion of the assets of the Business whether directly or
indirectly through a tender or exchange offer, merger, consolidation or
other business combination involving CRC or any other Selling Entity or
any proposal to acquire in any manner a substantial equity interest in,
or a substantial portion of the assets of, CRC or any other Selling
Entity.
(b) Each Selling Entity shall immediately cease and terminate
any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any parties conducted heretofore by any
Selling Entity or their Representatives with respect to the foregoing
and shall promptly request the return of all confidential or
proprietary information of the Business furnished to any of such
parties. CRC shall notify On Stage orally and in writing of any such
inquiries, offers or proposals (including the terms and conditions of
any such proposal and the identity of the person making it), within 24
hours
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of the receipt thereof, shall keep On Stage informed of the status and
details of any such inquiry, offer or proposal, and shall give On Stage
at least two business days prior written notice of (i) any meeting of
the Board of Directors of CRC to take any action with respect to an
Acquisition Proposal or to withdrawing or modifying, in a manner
adverse to On Stage, its recommendation to CRC's shareholders in favor
of approval of this Agreement and the Transactions contemplated hereby,
and (ii) any agreement to be entered into with any person making such
inquiry, offer or proposal.
(c) Prior to acceptance of a Superior Proposal, CRC shall, and
shall cause its financial and legal advisors to, negotiate in good
faith with On Stage, for a period of not less than two business days,
to make such changes to the terms and conditions of this Agreement as
(i) would enable the Selling Entities to proceed with the Transactions
contemplated hereby and (ii) are consistent with the fiduciary duties
of CRC's Board of Directors under applicable law.
(d) During the period from the date of this Agreement through
the Closing, each Selling Entity shall not terminate, amend, modify or
waive any provision of any confidentiality or standstill agreement to
which it is a party. During such period, each Selling Entity shall
enforce, to the fullest extent permitted under applicable law, the
provisions of any such agreement, including by obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the
terms and provisions thereof in any court of the United States of
America or of any state having jurisdiction.
6.4 Update Schedules. Between the date hereof and the Closing Date,
each Selling Entity shall promptly disclose to On Stage in writing any
information set forth in the Schedules that is no longer complete, true or
applicable and any information of the nature of that set forth in the Schedules
that arises after the date hereof and that would have been required to be
included in the Schedules if such information had been obtained on the date of
delivery thereof.
6.5 Financial Information. Until the Closing, the Selling Entities
shall provide On Stage, as soon as practicable but in no event no later than 20
days after the end of each month, with an unaudited consolidated balance sheet
of the Business and the related consolidated statement of income of the Business
as of and for the month then ended, prepared on the same basis as the Interim
Financial Statements referred to in Section 4.4, and certified as such by the
chief financial officer of each Selling Entity.
6.6 Restrictive Covenants.
(a) Each Selling Entity covenants that for the period ending
four years after the Closing Date, it will not, directly or indirectly, own,
manage, operate, join, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as a partner,
principal, agent, representative, consultant or otherwise with or use or permit
its name to be used in connection with, any business or enterprise engaged
directly or indirectly in
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competition with the business conducted by On Stage and its Affiliates,
including any business involving a live stage production or the Business
(together, the "Restricted Business"), within any portion of the United States,
Canada or Western Europe. Nothing in this Section 6.6(a) to the contrary,
however, shall restrict the performance of the Performance Contract in
accordance with the terms thereof. Furthermore, notwithstanding the foregoing,
the Selling Entities may engage in the Restricted Business in casinos owned and
operated by CRC or its Affiliates, provided that the Selling Entities comply
with Section 6.13, that the Restricted Business in such casinos is not similar
to the Country Tonite business and that the Restricted Business in such casinos
is not located within 100 miles of either Pigeon Forge, Tennessee or Branson,
Missouri or any other locations where there is a Country Tonite business. It is
recognized by On Stage, and each Selling Entity, that the Restricted Business is
and is expected to continue to be conducted throughout the United States, Canada
and Western Europe and that a more narrow geographical limitation of any nature
on this non-competition covenant (and the non-solicitation covenant set forth in
Section 6.6(b)) are therefore not appropriate. The foregoing restriction shall
not be construed to prohibit the ownership by any Selling Entity of a passive
investment of not more than five percent (5%) of any class of securities of any
corporation which is engaged in any of the foregoing businesses and which is
listed on a recognized securities exchange.
(b) No Selling Entity shall, during the period ending two
years after the Closing Date, either directly or indirectly, (i) with respect to
the activities prohibited by Section 6.6(a), call on or solicit any Person who
or which within the past two years has been a Customer with respect to the
Restricted Business or (ii) solicit the employment of any Person who is employed
by On Stage or any Affiliate of On Stage during such period on a full or
part-time basis (except after any such Person's employment has been terminated
by On Stage or any such Affiliate).
(c) Each Selling Entity acknowledges that Confidential
Information is a valuable and unique asset and agrees that no Selling Entity
shall disclose any Confidential Information after the Closing Date to any Person
for any reason whatsoever, unless such information (i) is in the public domain
through no wrongful act of any such Person, (ii) has been rightfully received
from a third party without restriction and without breach of this Agreement or
(iii) is required by law to be disclosed.
(d) Each Selling Entity acknowledges that the restrictions
contained in this Section 6.6 are reasonable and necessary to protect the
legitimate interests of On Stage and that any violation will result in
irreparable injury to On Stage. On Stage shall be entitled to preliminary and
permanent injunctive relief, without the necessity of proving actual damages or
posting any bond, as well as an equitable accounting of all earnings, profits
and other benefits arising from any violation of this Section 6.6, which rights
shall be cumulative and in addition to any other rights or remedies to which On
Stage may be entitled. In the event that any of the provisions of this Section
6.6 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such
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provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
(e) On Stage and each Selling Entity intend to and do hereby
confer jurisdiction to enforce the covenants set forth in this Section 6.6 upon
the courts of any jurisdiction within the geographical scope of such covenants.
In addition to Section 14 and not in limitation thereof, if the courts of any
one or more of such jurisdictions hold such covenants unenforceable in whole or
in part, it is the intention of On Stage and each Selling Entity that such
determination not bar or in any way adversely affect the right of On Stage and
its Affiliates to equitable relief and remedies hereunder in courts of any other
jurisdiction as to breaches or violations of this Section 6.6, such covenants
being, for this purpose, severable into diverse and independent covenants.
6.7 Required Consents, Regulatory and other Approvals. Subject to the
fiduciary duties of CRC's Board of Directors, as determined by such directors in
good faith after consultation with and based upon the advice of outside legal
counsel, the Selling Entities shall (a) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts, as promptly as practicable to obtain the
Required Consents, approvals or actions of, to make all filings with and to give
all notices to governmental or regulatory authorities or any other Person
required of the Selling Entities to consummate the transactions contemplated
hereby and by the Transaction Documents, (b) provide such other information and
communications to such governmental or regulatory authorities or other Persons
as On Stage or such governmental or regulatory authorities or other Persons may
reasonably request in connection therewith and (c) cooperate with On Stage as
promptly as practicable in obtaining the Required Consents, approvals or actions
of, making all filings with and giving all notices to governmental or regulatory
authorities or other Persons required of On Stage to consummate the transactions
contemplated hereby and by the Transaction Documents. The Selling Entities will
provide prompt notification to On Stage when any Required Consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise On Stage of any communications
(and, unless precluded by Law, provide copies of any such communications that
are in writing) with any governmental or regulatory authority or other Person
regarding any of the transactions contemplated by this Agreement or any of the
Transaction Documents.
6.8 Publicity. Neither any Selling Entity nor On Stage, nor any
affiliates which they respectively control, shall issue or cause the publication
of any press release or other public statement or announcement with respect to
this Agreement or the Transactions contemplated hereby without the prior
consultation of the other parties hereto, except as may be required by law or by
obligations pursuant to any listing agreement with the Nasdaq SmallCap and the
Nasdaq National Market.
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6.9 Satisfaction of Liabilities. Each Selling Entity shall, in the
ordinary course of business, fully satisfy or cause to be satisfied all third
party Liabilities and obligations of any Selling Entity relating to the Business
which are not Assumed Liabilities.
6.10 Employee Benefit Matters. On Stage shall have no responsibility,
liability or other obligations with respect to any Benefit Plans of the Selling
Entities, and the Selling Entities shall be fully responsible therefor.
6.11 Financing. On Stage will use reasonable commercial efforts to
enter into definitive agreements providing for the financing of On Stage's
acquisition of the Business hereunder, containing terms satisfactory to On Stage
in its sole discretion, and to obtain on the Closing Date the financing
contemplated by such definitive financing agreements. From time to time, upon
CRC's request, On Stage shall advise CRC as to the status of its efforts to
obtain such financing.
6.12 Business Financial Statements.
(a) On Stage and CRC have engaged BDO Seidman to prepare in
accordance with GAAP (i) an audited consolidated balance sheet of the
Business as of December 31, 1996 and 1997 and audited consolidated
income statements and statements of cash flows for the 12-month periods
then ended and (ii) after the Closing, a statement of net Purchased
Assets and the Assumed Liabilities as of the Closing Date. On Stage and
CRC shall each pay BDO Seidman one-half of its fees and expenses in
connection with the preparation of such financial statements.
(b) After the Closing, each Selling Entity shall provide to On
Stage and its accountants and other representatives reasonable access
to accounting and other books and records of the Selling Entities and
personnel at the Selling Entities to permit the preparation of the
interim unaudited 1998 financial statements of the Business required to
be filed by On Stage under the Exchange Act.
6.13 Right of First Negotiation. Within five years of the Closing Date,
CRC shall promptly notify On Stage in writing in the event that CRC or any of
its Affiliates desires to provide live entertainment in any venue owned, leased
or operated by any of the Selling Entities, or any Affiliates thereof. For the
seven days following receipt of such notification by On Stage, the Selling
Entities shall undertake in good faith, exclusively with On Stage, to negotiate
an agreement for On Stage or its Affiliates to provide such live entertainment.
After the expiration of such seven day period, in the event that the material
terms of an agreement for the provision of such live entertainment have not been
agreed to in principle between On Stage or its relevant Affiliate and the
relevant Selling Entity, such Selling Entity shall thereafter be free to engage
in negotiations for the provision of such live entertainment with On Stage or
any third party, or to produce such live entertainment itself.
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6.14 Employment and Employment Benefits.
(a) On Stage shall offer full-time employment to all employees
of any Selling Entity who are employed in the Business on a full-time
basis as of the Closing and (except as required by law) who are not
then absent due to serious bodily injury, long-term sickness or
disability, layoff or leave of absence. Such employment shall be at
will and not at less than the current cash compensation level of each
such employee. Such employees who accept such offered employment are
herein collectively referred to as the "Transferred Employees." On
Stage shall afford to all Transferred Employees credit for all of their
years of employment with any Selling Entity in the determination of
vesting and other rights under On Stage's benefits programs, including
vacation time based on employment through the Closing Date, as
applicable. Each Selling Entity shall be responsible for, and hold On
Stage harmless against, any severance payments or other obligations
(including without limitation any liability for wrongful discharge)
that may be due by reason of termination of employment of any employees
of any Selling Entity who are not Transferred Employees, whether or not
such termination occurred before or after the Closing. On Stage shall
be responsible for, and hold each Selling Entity harmless against, any
severance payments that may be due by reason of termination of
employment of Transferred Employees by On Stage at any time after the
Closing. CRC shall compensate each Transferred Employee on or before
the Closing Date for all 1998 unused vacation time, discretionary time
off and attendance bonuses.
(b) With respect to On Stage's benefit programs, On Stage
agrees to waive for all Transferred Employees and their eligible
dependants (a) any eligibility waiting periods; and (b) any
pre-existing conditions and actively at work exclusions except that On
Stage may require any Transferred Employee or eligible dependent who,
as of the Closing Date, is then in the process of satisfying any
similar exclusions or waiting periods under any Selling Entity's
benefits programs to fully satisfy the balance of the applicable time
period for such exclusions or waiting period under On Stage's benefit
programs.
(c) Nothing contained in the Agreement shall confer any rights
or remedies upon any employees or consultants of any Selling Entity as
a third party beneficiary. On Stage and each Selling Entity expressly
disclaim any and all liability to any such third party arising out of
this Agreement.
7. Conduct of the Business Prior to the Closing.
7.1 Operation in Ordinary Course. Between the date of this Agreement
and the Closing Date, each Selling Entity shall conduct the Business in all
material respects in the ordinary course and use commercially reasonable efforts
to maintain the good will of all current business relationships.
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7.2 Business Organization. Between the date of this Agreement and the
Closing Date, each Selling Entity shall use commercially reasonable efforts to
preserve substantially intact its respective business organization and keep
available the services of each of its present officers and employees.
7.3 Corporate Organization. Between the date of this Agreement and the
Closing Date, no Selling Entity shall amend its Charter Document or bylaws in a
manner that adversely effects any of the Transactions, if applicable, and shall
not:
(a) be party to any merger, consolidation or other business
combination; or
(b) sell, lease, license or otherwise dispose of any of its
Assets (including rights with respect to the Intellectual Property),
except in the ordinary course of business.
7.4 Business Restrictions. Between the date of this Agreement and the
Closing Date, except as mutually agreed, no Selling Entity shall in relation to
the Business, without the prior written consent of On Stage:
(a) acquire or dispose of any of the Assets, other than
Inventory in the ordinary course of business consistent with past
practices;
(b) except in the ordinary course of business, increase in any
manner the compensation of any director or officer or increase in any
manner the compensation of any class of employees;
(c) create or materially modify any bonus, deferred
compensation, pension, profit sharing, retirement, insurance, stock
purchase, stock option, or other fringe benefit plan, arrangement or
practice or any other employee benefit plan;
(d) enter into, amend, modify, terminate (partially or
completely), grant any waiver under or give any consent with respect to
any Contract;
(e) violate, breach or default under, in any material respect,
or take or fail to take any action that (with or without notice or
lapse of time or both) would constitute a material violation or breach
of, or default under any term or provision of any Contract or any
Permit;
(f) engage in any transaction with respect to the Business
with any officer, director, Affiliate or associate of any Selling
Entity or any associate of any such officer, director or Affiliate;
(g) enter into any agreement that materially restricts it from
carrying on the Business;
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(h) cancel any material debts of others or waive any material
claims or rights;
(i) act so as to, or omit from taking any action that would,
cause any of the representations and warranties in Section 4 to be
inaccurate in any material respect; or
(j) enter into any Contract to do or engage in any of the
foregoing.
8. Conditions Precedent to Obligations of On Stage.
All obligations of On Stage to consummate the Transactions are subject
to the satisfaction (or waiver by On Stage) prior thereto of each of the
following conditions:
8.1 Representations and Warranties. The representations and warranties
of the Selling Entities set forth in this Agreement shall be true and correct in
all respects on the date hereof and (except to the extent such representations
and warranties speak as of an earlier date) shall also be true and correct in
all material respects (or, in the case of representations and warranties
qualified by materiality, shall also be true and correct in all respects) on and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date.
8.2 Agreements, Conditions and Covenants. The Selling Entities shall
have performed or complied with all agreements, conditions and covenants
required by this Agreement to be performed or complied with them on or before
the Closing Date.
8.3 CRC Shareholder Approval. The shareholders of CRC shall have
approved this Agreement and the Transactions contemplated hereby.
8.4 Officers' Certificate. On Stage shall have received a certificate
of an officer of each Selling Entity to the effect set forth in Sections 8.2 and
8.3.
8.5 Required Consents and Approvals. All Required Consents, approvals
and actions of, filings with and notices to, any governmental or regulatory
authority necessary to permit On Stage and the Selling Entities to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby and thereby (and to permit On Stage to operate the Business after the
Closing) (a) shall have been duly obtained, made or given, (b) shall be in form
and substance reasonably satisfactory to On Stage, (c) shall not be subject to
the satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any governmental or regulatory authority necessary
for the consummation of the transactions contemplated by this Agreement and the
Transaction Documents shall have occurred.
8.6 Third Party Consents. All consents (or in lieu thereof waivers) to
the performance by On Stage and the Selling Entities of their obligations under
this Agreement or to the consummation of the transaction contemplated hereby as
are required under any Contract to
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which On Stage or the Selling Entities are a party or by which any of their
respective Assets are bound (a) shall have been obtained, (b) shall be in form
and substance reasonably satisfactory to On Stage, (c) shall not be subject to
the satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect, except where the failure to obtain any such
consent (or in lieu thereof waiver) could not reasonably be expected,
individually or in the aggregate with other such failures, to materially
adversely affect On Stage, the Assets, the Assumed Liabilities or the Business
or otherwise result in a material diminution of the benefits of the transactions
contemplated by this Agreement to On Stage.
8.7 Legality. No Law or Court Order shall be pending or threatened that
prevents or that seeks to restrain the consummation, or challenges the validity
or legality, of this Agreement or the Transactions or that would materially
limit or adversely affect On Stage's acquisition of the Purchased Assets.
8.8 Financing. On Stage shall have obtained financing having terms
satisfactory to On Stage and in an amount at least equal to $12.5 million plus
up to $500,000 of the expenses of On Stage incurred in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
8.9 Title Insurance. The Selling Entities shall have obtained and
delivered to On Stage the following title insurance commitments (the cost and
expense of which shall be paid one-half by CRC and one-half by On Stage) issued
by a title insurance company acceptable to On Stage and its lender, if any, each
in their respective sole and absolute discretion: (a) as to the Real Property
owned by any one or more of the Selling Entities, (i) a commitment for issuance
of an ALTA Form B Owner's Policy of Title Insurance with extended coverage
showing all endorsements thereto which On Stage may reasonably request, along
with legible copies of all documents shown as exceptions thereto and (ii) a
commitment for issuance of a 1970 ALTA Form B Mortgagee's Policy of Title
Insurance with extended coverage showing all endorsements thereto which On
Stage's lender may request, along with legible copies of all documents shown as
exceptions thereto; and (b) as to the Real Property leased by any one or more of
the Selling Entities, (i) a commitment for issuance of an ALTA Form B Leasehold
Owner's Policy of Title Insurance with extended coverage showing all
endorsements thereto which On Stage may reasonably request, along with legible
copies of all documents shown as exceptions thereto and (ii) a commitment for
issuance of a 1970 ALTA Form B Leasehold Mortgagee's Policy of Title Insurance
with extended coverage showing all endorsements thereto which On Stage's lender
may request, along with legible copies of all documents shown as exceptions
thereto (all of the foregoing title commitments may hereinafter be referred to
collectively as the "Commitments"). In order to satisfy the provisions of this
Section 8.9, each of the Commitments must (x) be satisfactory, in form and
substance, to On Stage in its reasonable discretion and On Stage's lender, in
such lender's sole and absolute discretion, (y) contain no exceptions to title
or the survey, except for those exceptions approved by On Stage (subject to the
last sentence of this Section 8.9) and On Stage's lender, at any time prior to
Closing, and (z) have the appropriate policies of title insurance issued
pursuant to and in strict accordance with each of the
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Commitments at, or within five business days of their receipt of all documents
recorded in connection with the, Closing, provided that if the title insurance
policies are to be issued within five business days of receipt of all documents
recorded in connection with the Closing, On Stage and its lender shall each
receive at Closing, for each Commitment, a "mark-up" of the Commitment
evidencing the form of the title insurance policy to be issued pursuant to said
Commitment and written evidence that gap coverage will be provided. Anything set
forth in this Agreement to the contrary notwithstanding, On Stage shall have the
right to terminate this Agreement (upon which Section 11.2(a) shall apply) by
delivering notice of such termination to the Selling Entities prior to the
Closing if On Stage in its reasonable discretion determines that any one or more
of the title exceptions or other matters shown on any of the Commitments or the
surveys are not acceptable to On Stage. The Selling Entities hereby covenant
that they shall cure all title exceptions and other matters shown on any of the
Commitments other than the items identified as "Special Exceptions" and numbered
1 (but only with respect to taxes for 1998 and subsequent years), 2 (but only
with respect to items shown on that certain survey prepared by Rozell Survey
Co., W.O.#12693, dated June 19, 1998, as the same may be amended), 3 (but only
as shown on that certain survey prepared by Rozell Survey Co., W.O.#12693, dated
June 19, 1998, as the same may be amended), 4,5,6 (but only as shown on that
certain survey prepared by Rozell Survey Co., W.O.#12693, dated June 19, 1998,
as the same may be amended) on the title report included as part of Schedule 4.6
hereto which may be cured by payment of a sum of money not to exceed $300,000 by
execution of a document requiring the signature of no party other than one or
more of the Selling Entities or any of their respective mortgagees, including
any affidavits which may reasonably be required by the title insurer (including
a standard title insurance company form of owner's affidavit to induce the
deletion from the Commitments of any exception for parties in possession and for
mechanics' or materialmen's liens).
8.10 Real Property Leases. With respect to each of the Real Property
Leases the Selling Entities shall have delivered to On Stage an estoppel
certificate and consent to assignment from the lessor thereunder in form and
substance reasonably satisfactory to On Stage.
8.11 Performance Contract. By no later than September 30, 1998, Country
Tonite Theatre, L.L.C. shall have delivered to On Stage Theaters, Inc. the
Performance Contract, fully executed by both Country Tonite Theatre, L.L.C. and
by Burkhart Ventures, L.L.C.
8.12 Karen Nelson Bell Employment Agreement. Karen Nelson Bell or
another producer acceptable to On Stage will have, by no later than October 20,
1998, entered into an Employment Agreement with On Stage (a copy of which is
attached hereto as Exhibit "A"), the effectiveness of which is conditioned upon
the consummation of the transactions contemplated by this Agreement.
8.13 Opinion of Counsel. On Stage shall have received the opinion of
Mesirov Gelman Jaffe Cramer & Jamieson, LLP, counsel to the Selling Entities, in
a form reasonably acceptable to On Stage.
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8.14 Utility Agreement. On Stage shall have finalized the form and
substance of a written agreement with White River Valley Electric Cooperative,
Inc. respecting the easement located under a portion of the Country Tonite
Theatre, which agreement must be reasonably acceptable to On Stage.
8.15 Collateral Agreements. CRC shall have executed and delivered such
of the Collateral Agreements to which it is a party.
9. Conditions Precedent to Obligations of the Selling Entities.
All obligations of the Selling Entities to consummate the Transactions
are subject to the satisfaction (or waiver by the Selling Entities) prior
thereto of each of the following conditions:
9.1 Representations and Warranties. The representations and warranties
of On Stage set forth in this Agreement shall be true and correct in all
respects on the date hereof and (except to the extent such representations and
warranties speak as of an earlier date) shall also be true and correct in all
material respects (or, in the case of representations and warranties qualified
by materiality, shall also be true and correct in all respects) on and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date.
9.2 Agreements, Conditions and Covenants. On Stage shall have performed
or complied with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by it on or before the Closing Date.
9.3 Officer's Certificate. The Selling Entities shall have received a
certificate of an officer of On Stage to the effects set forth in Sections 9.1
and 9.2
9.4 CRC Shareholder Approval. The shareholders of CRC shall have
approved this Agreement and the Transactions contemplated hereby.
9.5 Legality. No Law or Court Order shall be pending or threatened that
prevents or that seeks to restrain the consummation, or challenges the validity
or legality, of the Transactions.
9.6 Performance Contract. On Stage Theaters, Inc. shall have executed
and delivered to Country Tonite Theatre, L.L.C. the Performance Contract.
9.7 Opinion of Counsel. The Selling Entities shall have received the
opinion of Morgan, Lewis & Bockius LLP, counsel to On Stage, in a form
reasonably acceptable to the Selling Entities.
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9.8 Collateral Agreements. On Stage shall have executed and delivered
such of the Collateral Agreements to which it is a party or signatory.
10. Indemnification.
10.1 Indemnification by the Selling Entities. The Selling Entities,
jointly and severally, shall indemnify and hold harmless On Stage and its
Affiliates (and each of its and their officers, directors, employees, agents,
successors and assigns) (each, an "On Stage Indemnified Party") from, against
and in respect of any and all Liabilities, claims, demands, judgments,
settlement payments, losses, costs, damages, deficiencies, diminution in value
and expenses whatsoever (including reasonable attorneys', consultants' and other
professional fees and disbursements of every kind, nature and description
incurred by such On Stage Indemnified Party in connection therewith)
(collectively, "Damages") that such On Stage Indemnified Party may sustain,
suffer or incur that result from, arise out of or relate to:
(a) any Excluded Liability,
(b) (i) any breach of any representation or warranty of any
Selling Entity contained in this Agreement, including the
representations and warranties of the Selling Entities contained in
Section 4, or (ii) any breach of or any inaccuracy in any
representation or warranty in or omission from any certificate,
schedule, exhibit, statement, document or instrument furnished to On
Stage by a Selling Entity (or any of its representatives or agents)
pursuant hereto or in connection with the negotiation, execution or
performance hereof, and (iii) in each of the foregoing cases without
regard to any knowledge, materiality (including any reference to
Material Adverse Effect) or other similar qualifying provision or
exception that may be included in or applied to any such representation
or warranty;
(c) any breach of any covenant or agreement of any Selling
Entity contained in this Agreement;
(d) any claim by any officer, former officer, employee, former
employee, shareholder or former shareholder of any Selling Entity
relating to the period prior to or at the Closing;
(e) any claim of infringement of any intellectual property
right resulting from On Stage's operation of the Business as presently
operated by the Selling Entities;
(f) any Environmental Condition existing on or prior to the
Closing;
(g) any Liability or obligation of a Selling Entity involving
Taxes, except for any Taxes expressly assumed herein, due and payable
by, or imposed with respect to a
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Selling Entity for any taxable periods ending on or prior to the
Closing Date (whether or not such taxes have been due and payable); or
(h) Barnes v. Country Tonite Enterprises, Inc. et al. (Case
No. A355405; District Court for Clark County, Nevada); and
(i) the enforcement of this Section 10.1.
10.2 Indemnification by On Stage. On Stage shall indemnify and hold
harmless each of the Selling Entities and their Affiliates (and each of their
officers, directors, employees, agents, successors and assigns) (each, a "CRC
Indemnified Party") from, against and in respect of any and all Damages that
such CRC Indemnified Party may sustain, suffer or incur that result from, arise
out of or relate to:
(a) any Assumed Liability;
(b) any breach by On Stage of Section 6.14; or
(c) the operation of the Business after the Closing (to the
extent such Damage is not subject to Section 10.1); and
(d) the enforcement of this Section 10.2.
10.3 Limitations on Liability. Except as otherwise provided in Section
10.6 and except that this limitation shall not apply to any indemnification
claim arising under or with respect to either of Sections 4.5 and 4.23, the
Selling Entities shall not be liable to any On Stage Indemnified Party under
Section 10.1(b) for any misrepresentation or breach of warranty until the
aggregate amount for which they would otherwise (but for this provision) be
liable to any or all On Stage Indemnified Parties for all such
misrepresentations and breaches of warranty exceeds $300,000 (after which the
Selling Entities shall be fully responsible only for any such excess). In
addition, except as otherwise provided in Section 10.6, the Selling Entities
indemnification obligations under Section 10.1 shall not exceed $13,800,000.
10.4 Survival. Except as otherwise provided in Section 10.5, the
representations and warranties given or made by any party in this Agreement or
in any certificate or other writing furnished in connection herewith, and all
rights to assert an indemnification claim under Section 10.1(b), shall survive
the Closing for a period of two years after the Closing Date and shall
thereafter terminate and be of no further force or effect, except that (a) all
representations and warranties relating to Taxes and Tax Returns shall survive
the Closing for the period of the applicable statutes of limitation plus any
extensions or waivers thereof, (b) all representations and warranties set forth
in Sections 4.2, 4.3, 4.5, 4.6, 4.14, 4.20 and 4.23 shall survive the Closing
without limitation and (c) any representation or warranty as to which a claim
(including without limitation a contingent claim) shall have been asserted
during the survival period shall
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continue in effect with respect to such claim until such claim shall have been
finally resolved or settled. Each party shall be entitled to rely upon the
representations and warranties of the other party or parties set forth herein,
notwithstanding any investigation or audit conducted before or after the Closing
Date or the decision of any party to complete the Closing.
10.5 Indemnification Procedure. All claims for indemnification under
Sections 10.1 and 10.2 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which a party
obligated to indemnify (the "Indemnifying Party") would be liable to a
party entitled to indemnification hereunder (the "Indemnified Party")
is asserted against an Indemnified Party by a third party, the
Indemnified Party shall with reasonable promptness notify the
Indemnifying Party of such claim or demand (the "Claim Notice"),
specifying the nature of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate
shall not be conclusive of the final amount of such claim or demand).
The Indemnifying Party shall have 30 days from the receipt of the Claim
Notice (the "Notice Period") to notify the Indemnified Party (i)
whether or not the Indemnifying Party disputes the Indemnifying Party's
liability to the Indemnified Party hereunder with respect to such claim
or demand and (ii) whether or not the Indemnifying Party desires, at
the sole cost and expense of the Indemnifying Party, to defend against
such claim or demand, provided that the Indemnified Party is hereby
authorized (but not obligated) prior to and during the Notice Period to
file any motion, answer or other pleading and to take any other action
which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice
Period that the Indemnifying Party does not dispute the Indemnifying
Party's obligation to indemnify hereunder and desires to defend the
Indemnified Party against such claim or demand and except as
hereinafter provided, the Indemnifying Party shall have the right to
defend (with counsel reasonably satisfactory to the Indemnified Party)
by appropriate proceedings, which proceedings shall be promptly settled
or prosecuted by the Indemnifying Party to a final conclusion; provided
that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release of
the Indemnified Party. If the Indemnified Party desires to participate
in, but not control, any such defense or settlement the Indemnified
Party may do so at its sole cost and expense. If the Indemnifying Party
elects not to defend the Indemnified Party against such claim or
demand, whether by not giving the Indemnified Party timely notice as
provided above or otherwise, then the Indemnified Party, without
waiving any rights against the Indemnifying Party, may settle or defend
against any such claim in the Indemnified Party's sole discretion and,
if it is ultimately determined that the Indemnifying Party is
responsible therefor under this Section 10, then the Indemnified Party
shall be entitled to recover from the Indemnifying Party the amount of
any settlement or judgment and all
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indemnifiable costs and expenses of the Indemnified Party with respect
thereto, including interest from the date such costs and expenses were
incurred.
(b) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Indemnifying Party, any claim or demand referred to in the first
sentence of Section 10.5(a) seeks material prospective relief which
could have a materially adverse effect on the businesses, operations,
assets, properties, prospects or condition (financial or otherwise) of
any Indemnified Party, the Indemnified Party shall have the right to
control or assume (as the case may be) the defense of any such claim or
demand and the amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of the
indemnification obligations of the Indemnifying Party hereunder. If the
Indemnified Party should elect to exercise such right, the Indemnifying
Party shall have the right to participate in, but not control, the
defense of such claim or demand at the sole cost and expense of the
Indemnifying Party.
(c) In the event the Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim
or demand being asserted against or sought to be collected by a third
party, the Indemnified Party shall with reasonable promptness send a
Claim Notice with respect to such claim to the Indemnifying Party. If
the Indemnifying Party does not notify the Indemnified Party within the
Notice Period that the Indemnifying Party disputes such claim, the
amount of such claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder.
(d) Nothing herein shall be deemed to prevent the Indemnified
Party from making (and an Indemnified Party may make) a claim hereunder
for potential or contingent claims or demands provided the Claim Notice
sets forth the specific basis for any such potential or contingent
claim or demand to the extent then feasible and the Indemnified Party
has reasonable grounds to believe that such a claim or demand may be
made. The Indemnified Party's failure to give reasonably prompt notice
to the Indemnifying Party of any actual, threatened or possible claim
or demand which may give rise to a right of indemnification hereunder
shall not relieve the Indemnifying Party of any liability which the
Indemnifying Party may have to the Indemnified Party unless the failure
to give such notice materially and adversely prejudiced the
Indemnifying Party.
10.6 Exception to Limitations. Nothing herein shall be deemed to limit
or restrict in any manner any rights or remedies that any party has, or might
have, at law, in equity or otherwise, against any other party hereto, based on
any willful misrepresentation, willful breach of warranty or willful failure to
fulfill any agreement or covenant.
10.7 Payment of Indemnification Obligations. In the event that any
Indemnifying Party is required to make any payment under this Section 10, such
party shall promptly pay the
42
<PAGE>
Indemnified Party the amount of such indemnity obligation. If there should be a
dispute as to such amount, such Indemnifying Party shall nevertheless pay when
due such portion, if any, of the obligation as shall not be subject to dispute.
The difference, if any, between the amount of the obligation ultimately
determined as properly payable under this Section 10 and the portion, if any,
theretofore paid shall bear interest for the period from the date the amount was
demanded by the Indemnified Party until payment in full, payable on demand, at
the rate of 10% per annum. Notwithstanding anything herein to the contrary, all
indemnification payments to an On Stage Indemnified Party shall be satisfied
first by set-off against the $1,300,000 Subordinated Note pursuant to Section
10.8 until such time as the principal thereof has been fully so reduced or paid.
10.8 Right to Set Off. On Stage shall have the right to pay to any
other Indemnified Party any amount owing or believed by On Stage in good faith
to be owing by an Indemnifying Party to such Indemnified Party under Section
10.1 and to set off the amount of such payment or payments against the payment
obligations of On Stage under the $1,300,000 Subordinated Note. On Stage shall
also have the right to set off any amount owing, or which On Stage believes in
good faith is or may be owing by an Indemnifying Party under Section 10.1,
against the payment obligations of On Stage under the $1,300,000 Subordinated
Note, which amount shall be deposited into escrow on such terms and condition as
the parties shall agree in the event that CRC reasonably and in good faith
disputes such set-off.
11. Termination.
11.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of On Stage and CRC; or
(b) by CRC or by On Stage, if the Closing has not occurred
prior to November 30, 1998; provided, however, that such right to
terminate this Agreement shall not be available to any party (with the
Selling Entities collectively deemed as one party) that has breached
any of its covenants, representations or warranties in this Agreement
in any material respect (which breach has not been cured); or
(c) by CRC or On Stage, if there shall be any Law that makes
consummation of the Transactions illegal or otherwise prohibited or if
any Court Order enjoining the Selling Entities or On Stage from
consummating the Transactions is entered and such Court Order shall
become final and nonappealable; or
(d) by On Stage, if a Selling Entity shall have breached any
of its covenants hereunder in any material respect or if the
representations and
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<PAGE>
warranties of the Selling Entities contained in this Agreement or in
any certificate or other writing delivered by a Selling Entity pursuant
hereto shall not be true and correct in any material respect, except
for such changes as are contemplated by this Agreement, and, in either
event, if such breach is subject to cure, the Selling Entities have not
cured such breach within 10 business days of On Stage's notice of an
intent to terminate; or
(e) by CRC, if On Stage shall have breached any of its
covenants hereunder or if the representations and warranties of On
Stage contained in this Agreement or in any certificate or other
writing delivered by On Stage pursuant hereto shall not be true and
correct, except for such changes as are contemplated by this Agreement,
and, in either event, if such breach is subject to cure, On Stage has
not cured such breach within 10 business days of notice of an intent to
terminate; or
(f) by On Stage after the occurrence of an event which could
reasonably be expected to result in a Material Adverse Effect; or
(g) by On Stage if the Board of Directors of CRC or any
committee of the Board of Directors of CRC (i) shall withdraw or modify
in any adverse manner its approval or recommendation of this Agreement,
(ii) within ten days after On Stage's request, shall fail to reaffirm
such approval or recommendation, (iii) shall approve or recommend any
acquisition of a material portion of its assets or the Business or any
tender offer for shares of its capital stock, in each case, other than
by On Stage or an affiliate thereof, (iv) a tender offer or exchange
offer for any of the outstanding shares of CRC common stock shall have
been commenced or a registration statement with respect thereto shall
have been filed and the Board of Directors of CRC shall have
recommended that the shareholders of CRC tender their shares in such
tender or exchange offer or publicly announced its intention to take no
position with respect to such tender or exchange offer, or (v) shall
resolve to take any of the actions specified in this Section 11.1(g);
or
(h) by either On Stage or CRC if CRC shareholder approval of
this Agreement and the Transactions contemplated hereby shall fail to
have been obtained at the Shareholders Meeting, including any
adjournments thereof; or
(i) by CRC, prior to the approval of this Agreement and the
Transactions contemplated hereby by the shareholders of CRC, upon five
days' prior notice to On Stage, if, as a result of a Superior Proposal
by a party other than On Stage or any of its affiliates, the Board of
Directors of CRC determines in good faith that their fiduciary
obligations under applicable law require that such Superior Proposal be
accepted; provided, however, that CRC has fully complied with its
obligations under Section 6.3
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and with all the applicable requirements of Section 11.2(b), including
the payment of the Termination Fee and the On Stage Expenses (each as
hereinafter defined); or
(j) by either On Stage or CRC on October 20, October 21 or
October 22, 1998 if both (i) On Stage has not waived in a writing
delivered to CRC in accordance with the provisions of Section 17 below
the conditions set forth in Section 8.8 and (ii) On Stage has not
obtained a firm commitment for the financing referred to in Section 8.8
that is acceptable to CRC in its reasonable discretion. The October 23
deadline set forth herein, at the expense of On Stage, may be extended
by CRC in a writing to that effect delivered to On Stage in accordance
with the provisions of Section 17 below. CRC shall consider any such
request made by On Stage in good faith. If neither On Stage nor CRC
exercises the termination rights set forth in this Section 11.1(j): (i)
On Stage shall deposit by October 23, 1998 (or such later date as CRC
may agree pursuant to the preceding sentence) $250,000 into escrow to
be applied to the Purchase Price at the Closing or to be paid to CRC if
Closing does not occur solely as a result of a breach by On Stage of a
covenant or agreement of On Stage set forth in this Agreement, and
otherwise to be held and applied on such terms and conditions as On
Stage and CRC shall reasonably agree; and (ii) the terms and provisions
of Section 8.8 hereof shall terminate and end and cease to be of any
further force or effect.
11.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided
in Section 11.1, this Agreement shall forthwith become void and there
shall be no liability on the part of any of the parties, except (i) as
set forth in Sections 6.8, 11.2(b), 12, 18 and 19, and (ii) nothing
herein shall relieve any party from liability for any willful breach
hereof.
(b) If (i) this Agreement (A) is terminated by On Stage
pursuant to Section 11.1(g) or (h) or by CRC pursuant to Section
11.1(h) or (i), or (B) is terminated as a result of any Selling
Entity's breach of Section 6.3 which is not cured within 10 days after
notice thereof to CRC, and (ii) either (1) at the time of such
termination or prior to the Shareholders Meeting there shall have been
an Acquisition Proposal (whether or not such offer shall have been
rejected or shall have been withdrawn prior to the time of such
termination or of the Shareholders Meeting), or (2) within one year
after termination of the Agreement a Selling Entity shall have entered
into an agreement with respect to, or consummated, an Acquisition
Proposal, CRC shall pay to On Stage an amount equal to (i) a cash
termination fee of $690,000 (the "Termination Fee"), and (ii) all
expenses incurred by On Stage in connection with the negotiation,
execution and performance of the transactions contemplated hereby
(including all fees and expenses payable to On Stage's financial
advisors and counsel) not to exceed $250,000 ("On Stage Expenses")
within one business day after such termination or, in the case of
(ii)(2), entering into an agreement with respect to, or consummating an
Acquisition Proposal.
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12. Payment of Expenses; Bulk Sales Act; Sales and Transfer Taxes. Except as set
forth in Section 6.12(a), each party hereto shall pay its own expenses for
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisers with respect to the Transactions. Further, the parties hereby
waive compliance with the bulk sales act or comparable statutory provisions of
each applicable jurisdiction. The Selling Entities jointly and severally shall
indemnify On Stage and its officers, directors, employees, agents and Affiliates
in respect of, and hold each of them harmless from and against, any and all
Damages suffered, occurred or sustained by any of them or to which any of them
becomes subject, resulting from, arising out of or relating to the failure of
the Selling Entities to comply with the terms of any such bulk sales or
comparable provisions applicable to the Transactions. It is further agreed that
the Selling Entities shall pay all federal, state and local sales, documentary
and other transfer taxes, if any, due as a result of the purchase, sale or
transfer of the Purchased Assets in accordance herewith, whether or not imposed
by law on the Selling Entities, and the Selling Entities jointly and severally
shall indemnify, reimburse and hold harmless On Stage in respect of any
liability for payment of or failure to pay any such taxes or the filing of or
failure to file any reports required in connection therewith.
13. Contents of Agreement. This Agreement, together with the other Transaction
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters, including that certain
Letter of Intent dated May 5, 1998 between CRC and On Stage, and those certain
letters dated June 15, 1998 from Robert Allen to Kiranjit Sidhu and August 13,
1998 from John J. Pilger to Kiran Sidhu, respectively.
14. Amendment; Parties in Interest; Assignment; Etc. This Agreement may be
amended, modified or supplemented only by a written instrument duly executed by
On Stage and CRC. If any provision of this Agreement shall for any reason be
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision hereof, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs, legal
representatives, successors and assigns of the parties hereto. Any term or
provision of this Agreement may be waived at any time by the party entitled to
the benefit thereof by a written instrument duly executed by such party. The
parties hereto shall execute and deliver any and all documents and take any and
all other actions that may be deemed reasonably necessary by their respective
counsel to complete the Transactions.
15. Interpretation. Unless the context of this Agreement clearly requires
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or," (c) "including" has the inclusive meaning
frequently identified with the phrase "but not limited to" and (d) all
currencies refer to United States dollars. The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this
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Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
16. Remedies. The remedies provided by Section 10 shall constitute the exclusive
remedies for the matters covered thereby. With respect to any matters not
covered by such Section, any party hereto shall be entitled to such rights and
remedies as such party may have at law or in equity or otherwise for any breach
of this Agreement, including the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or diminished
by the remedies provided hereunder.
17. Notices. All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to On Stage:
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, NV 89103
FAX: 702-253-1122
Attn: Christopher Grobl, Esquire
General Counsel and Corporate Secretary
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attn: James W. McKenzie, Esquire
If to the Selling Entities:
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, MS 39564
Fax: 228-872-7728
Attn: President
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<PAGE>
With a required copy to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103
FAX: 215-994-1111
Attn: Robert Krauss, Esquire
18. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
19. Consent to Jurisdiction; Service of Process; Etc.
(a) Each party hereto irrevocably and unconditionally (i)
agrees that any suit, action or other legal proceeding (collectively,
"Suit") arising out of this Agreement may be brought and adjudicated in
the United States District Court for the Eastern District of
Pennsylvania, if such court does not have jurisdiction or will not
accept jurisdiction, in any court of competent civil jurisdiction in
Philadelphia County, Pennsylvania, (ii) consents and submits to the
non-exclusive jurisdiction of any such court for the purposes of any
such Suit and (iii) waives and agrees not to assert by way of motion,
as a defense or otherwise in any such Suit, any claim that it is not
subject to the jurisdiction of the above courts, that such Suit is
brought in an inconvenient forum or that the venue of such Suit is
improper.
(b) Each party hereto also irrevocably consents to the service
of any process, pleadings, notices or other papers in a manner
permitted by the notice provisions of Section 17 or by any other method
provided or permitted under applicable law. Each party hereto agrees
that final judgment in any Suit (with all right of appeal having either
expired or been waived or exhausted) shall be conclusive and that On
Stage shall be entitled to enforce such judgment in any other
jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and
amount of indebtedness arising from such judgment.
20. Further Assurances. At any time and from time to time after the Closing, the
parties agree to cooperate with each other, to execute and deliver such other
documents, instruments to transfer or assignment, files, books and records and
do all such further acts and things as may be reasonably required to carry out
the intent of the parties hereunder.
21. Exhibits; Schedules. The Exhibits and the Schedules hereto are intended to
be and hereby are specifically made a part of this Agreement.
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22. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto (and, with respect to Section 10 and related provisions of this
Agreement, the other Indemnified Parties) and the heirs, administrators,
personal representatives, successors, assigns, and they shall not be construed
as conferring any rights on any other persons.
23. Counterparts. This Agreement may be executed in counterparts, each of which
shall be binding as of the date first written above, and all of which shall
constitute one and the same instrument. Each such copy shall be deemed to be an
original, and it shall not be necessary in making proof this Agreement to
produce or account for more than one such counterpart.
[remainder of page intentionally blank]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first written above.
ON STAGE ENTERTAINMENT, INC.
By: ________________________________
Name:
Title:
CASINO RESOURCE CORPORATION
By:___________________________
Name:
Title:
COUNTRY TONITE ENTERPRISES, INC.
By:___________________________
Name:
Title:
CRC OF BRANSON, INC.
By:___________________________
Name:
Title:
50
ASSET PURCHASE AGREEMENT
By and Among
CORPORATE COMMISSION OF THE
MILLE LACS BAND OF OJIBWE INDIANS
and
CASINO RESOURCE CORPORATION
and
CASINO BUILDING CORPORATION
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of this 29th day of June, 1998, by and among the CORPORATE COMMISSION OF THE
MILLE LACS BAND OF OJIBWE INDIANS (the "Purchaser"), a corporate body politic of
the Mille Lacs Band of 0jibwe Indians, a federally recognized tribal government,
CASINO RESOURCE CORPORATION, a Minnesota corporation ("CRC"), and CASINO
BUILDING CORPORATION, a Minnesota corporation (together CRC and CBC are referred
to as the "Seller").
RECITALS
A. The Seller is in the business of developing and managing hotels, and on
or about May 20, 1994 completed the construction of the GRAND HINCKLEY INN (the
"Hinckley Hotel") located in Hinckley, Minnesota pursuant to a Hotel Development
Agreement dated July 23, 1993 between Grand Casinos, Inc. ("GCI") and CRC (the
"Hotel Development Agreement"). The Seller currently owns, operates and manages
the Hinckley Hotel (the "Business").
B. The land upon which the Hinckley Hotel is located is currently owned by
Hinckley Holding Company ("HHC") and the Purchaser owns, one hundred percent
(100%) of all of the outstanding shares of the capital stock of HHC. CBC, a
wholly-owned subsidiary of CRC, currently leases from HHC the land on which the
Hinckley Hotel is located pursuant to a Lease dated August 11, 1993 between GCI
and CBC, as amended by that certain Amendment to Ground Lease dated April 5,
1994 (the "Business Lease"). HHC has succeeded to the interests of GCI under the
Business Lease.
C. Also pursuant to the Hotel Development Agreement, the Purchaser, the
Seller and GCI entered into a Marketing Enhancement and Purchase/Put Option
Agreement dated August 11, 1993, as amended by a first amendment executed in
September, 1993 and a second amendment executed in October, 1993 (the "Marketing
Agreement"), for the purpose of enhancing the Purchaser's and GCI's efforts to
advertise, market and promote the Grand Casino Hinckley gaming establishment
owned and operated by the Purchaser and located on property situated near the
Hinckley Hotel (the "Casino").
D. Subject to the terms and conditions contained in this Agreement, the
parties desire that the Purchaser purchase, and the Seller sell, substantially
all of the assets of the Seller related to the Business. In consideration
thereof, the Seller and the Purchaser desire to make the covenants, conditions,
representations, and warranties provided for herein.
E. The parties have recently settled a dispute which arose under the
Marketing Agreement with respect to the amounts of previous and current
"Windfall Payments" (as that term is defined in the Marketing Agreement) the
Seller was required to pay to the Purchaser (the "Dispute"). In settlement of
the Dispute, the Purchaser agreed to accept $100,000 from the Seller in full
satisfaction of the Dispute. In lieu of a $100,000 cash payment, the Purchaser
has agreed to a reduction in the previously agreed purchase price for the assets
of the Hinckley Hotel from $5,500,000 to $5,400,000.
(2)
<PAGE>
NOW, THEREFORE, in consideration and reliance on the representations,
warranties, covenants, and agreements contained herein, and subject to the terms
and conditions set forth in this Agreement, the parties agree as follows:
1. Closing Transactions.
1.1. Transfer of Assets. Concurrently with die assumption of the
liabilities contemplated by Section 2, at the Closing (as defined
below) (i) the Seller shall assign, transfer, and deliver to the
Purchaser, and the Purchaser shall receive from the Seller, all of
the Purchased Assets (as defined below), but not the Retained Assets
(as defined below), which shall be retained by the Seller and not be
transferred or conveyed pursuant to this Agreement; and (ii) the
Purchaser shall deliver the Closing Cash Purchase Price (as defined
below) to the Seller as provided in Section 2.2.
1.2. Purchased Assets. The "Purchased Assets" means all of the assets and
property of the Seller (to the extent such assets and property
exist), real or personal, tangible or intangible, wherever located,
used or useful in connection with the Hinckley Hotel as of the
Closing Date, other than the Retained Assets, including, without
limitation, all of the Seller's right, title, and interest in, to,
and under the following:
(a) all inventory of goods held for resale or used in connection
with the Hinckley Hotel (the "Inventory");
(b) all advance deposits paid relative to the Hinckley Hotel and
all amounts paid for gift certificates purchased for the
Hinckley Hotel for use after noon on the Closing Date;
(c) all real property and leasehold interests, improvements,
buildings, and fixtures thereon and interests therein, any
prepaid, rent, security deposits and options to renew or
purchase thereunder, used or useful in connection with the
Hinckley Hotel, including, without limitation, the real
property and leasehold interests described on Schedule 1.2(c);
(d) to the extent such items are located in,, on or about the
Hinckley Hotel as of the Closing Date, all furniture, fixtures
and equipment ("FF&F") constituting a part of or utilized in
connection with the Hinckley Hotel, including, but not limited
to, all beds, mattresses, color television sets, radios, VCRs,
chairs, tables, carpeting, furnishings, art and decor items,
mirrors, accent pieces, wall coverings, drapes, curtains,
sheets, blankets, towels and other linens, lamps and light
fixtures, vacuums, and other cleaning apparatus, tools,
restaurant, bar and banquet equipment, engineering equipment,
carts, lawn and gardening equipment, material, cargo and
luggage handling equipment, office equipment, computer
hardware and software, telephone systems and telephones, file
cabinets, safes, signs, fittings, machinery, boilers, heating
and cooling systems, chinaware, glassware, utensils, silver,
silverware, uniforms, equipment and furniture in storage,
tools, appliances, wires and pictures, rugs,
(3)
<PAGE>
kitchen equipment, supplies including hotel, restaurant and
bar operating supplies and cleaning supplies and materials
whether in sealed or broken packages, fuel, and all other
hotel service equipment or other personal property not
included in Inventory required for operation of the Hinckley
Hotel and its components, or any portion of the Hinckley Hotel
irrespective of whether any of said items are owned or leased
by Seller all as set forth in Schedule 1.2(d);
(e) all office and other supplies, tools, spare parts,
advertising, and promotional materials used or useful in
connection with the Hinckley Hotel;
(f) all rights of the Seller under or pursuant to all warranties,
representations and guaranties made by suppliers,
manufacturers and contractors in connection with the products
sold to or services provided to the Seller, or affecting any
property heretofore described;
(g) all common law and unregistered trademarks and copyrights,
logos, service marks, trade dress, trade names and
copyrightable marketing and other material used in connection
with the Hinckley Hotel, including, without limitation, all
rights in the name and servicemark "Grand Hinckley Inn" (the
"Trademarks and Copyrights");
(h) all processes, formulae, discoveries, improvements, trade
secrets, technical information and know-how, confidential and
non-confidential, which is used or held for use by or on
behalf of the Seller in connection with the Hinckley Hotel,
including, without limitation, all computer software, software
licenses, patterns, plans, designs, research data, trade
secrets and other proprietary know-how, formulae and
manufacturing, sales, service or other processes, operating
manuals, drawings, technology, equipment and parts lists (with
related descriptions and instructions), manuals, data,
records, procedures, product packaging instructions, product
specifications, analytical methods, sources and specifications
for raw materials, toxicity and general health and safety
information, environmental compliance and regulatory
information, research and development records and reports and
other documents relating to the foregoing, and all licenses,
approvals, authorizations or other rights to use intellectual
property rights of others (collectively, the "Technology");
(i) all rights in and under agreements to which the Seller is a
party relating to the Hinckley Hotel, instruments, leases for
personal property, customer contracts, marketing agreements
and other agreements used or useful in connection with the
Hinckley Hotel, including, without limitation, the agreements
described on Schedule 1.2(i);
(j) all transferable licenses and other governmental
authorizations used or use or in connection with the Hinckley
Hotel, including, without limitation, the licenses and
authorizations described on Schedule 1.2 (j);
(4)
<PAGE>
(k) all manufacturer's, supplier's, contractor's and seller's
warranties made to the Seller in connection with the Hinckley
Hotel, or affecting the property, machinery or equipment used
by the Seller at the Hinckley Hotel;
(l) blueprints, instruction manuals, maintenance manuals, reports
and similar documents used or useful in, connection with the
Hinckley Hotel;
(m) all right, title and interest of the Seller in and to all
business information and related books and records used by the
Seller in the operation of the Hinckley Hotel, including, but
not limited to, unaudited Balance Sheets and Income Statements
prepared for the Hinckley Hotel, all daily revenue activity
reports, all general ledger activity reports, files, computer
data, computer discs and tapes, invoices, credit and sales
records, personnel records (subject to applicable law),
payroll, current and former customer lists (including customer
contracts and agreements), current and former supplier lists
(including supplier cost information), manuals, drawings,
business plans and other plans and specifications, sales
literature, current price lists and discounts, promotional
signs and literature, marketing and sales programs,
manufacturing and quality control records and procedures and
any other files and records relating to the Hinckley Hotel,
whether or nor held by the Seller or a third party
(collectively, the "Business Information"); provided, however,
that the Seller shall not have to provide Purchaser with any
Business Information related to the Hinckley Hotel to the
extent such Business Information has been or is consolidated
in the Seller's records; and provided further, that both
Seller and Purchaser shall have the right. to request from the
other party access to, and the right to copy, any documents
and records held by the other party which relate to the
Hinckley Hotel (whether or not consolidated) if such
requesting party can demonstrate to the party holding such
documents and records a legitimate need to have access to such
documents or records;
(n) all right, title and interest in and to all of the Seller's
permits, licenses, filings, authorizations, approvals or
indicia of authority (and any pending applications therefor),
to operate the Hinckley Hotel as presently operated; and
(o) all goodwill of the Seller arising out of or associated with
the Hinckley Hotel.
1.3. Retained Assets. The "Retained Assets" means (i) the Seller's rights
under this Agreement; and (ii) the credit card machines located on
the premises of the Hinckley Hotel.
2. Assumption of Liabilities: Purchase Price, Allocations.
2.1. Assumption of Liabilities. Only certain specified debts,
liabilities, commitments, and obligations incurred by the Seller in
the ordinary and normal course of business shall be assumed by the
Purchaser as follows:
(5)
<PAGE>
(a) Assumed Liabilities. At the Closing, the Purchaser shall
assume from the Seller only the "Assumed Liabilities," which
shall consist solely of the operating obligations of the
Business listed on Schedule 2.1(a). The Assumed Liabilities
shall at all times specifically exclude, and the Purchaser
shall specifically not assume or in any way be responsible or
liable for and the Purchased Assets shall not be subject to,
all indebtedness for income taxes and borrowed money, or any
debts, liabilities, commitments, and obligations not disclosed
on Schedule 2.1(a).
(b) Liabilities Not Assumed. Except only for those debts,
liabilities, commitments, and obligations of the Seller which
are expressly assumed by the Purchaser as of noon on the
Closing pursuant to Section 2.1(a), the Purchaser shall not
assume, nor shall it be liable or obligated in any way for any
debts, liabilities, commitments, and/or obligations of the
Seller of any kind or nature whatsoever, whether absolute or
contingent, liquidated or unliquidated, and whether or not
accrued, matured, known, or suspected (the "Retained
Liabilities").
2.2. Purchase Price. In full consideration for the Purchased Assets and
all of the covenants, conditions, representations, and warranties of
the Seller, and in addition to the assumption of the Assumed
Liabilities by the Purchaser and the covenants, conditions,
representations, and Warranties of the Purchaser, the Purchaser
shall pay by wire transfer on the Closing Date an aggregate purchase
price (the "Purchase Price") of Five Million Four Hundred Thousand
Dollars ($5,400,000) (the "Closing Cash Purchase Price" or the "Cash
Purchase Price") to Commonwealth Land Title Insurance Company (the
"Escrow Agent") which shall act as an escrow agent for the receipt
and disbursement of the Cash Purchase Price in accordance with
Section 2.3.
2.3. Third Party Payments. Seller and Purchaser each hereby appoint the
Escrow Agent for the purpose of disbursing the Cash Purchase Price
in accordance with the escrow instruction letter attached hereto as
Exhibit 2.3, (the "Escrow Instruction Letter"). Seller and Purchaser
agree that the Cash Purchase Price shall be deposited with the
Escrow Agent: for disbursement to Seller after deduction has been
made for payment to certain third-parties in accordance with the
Escrow Instruction Letter, including, but not limited to the fall
payment of and release of those Mortgages land other liens and
encumbrances set forth in the Escrow Instruction Letter. Seller
shall pay, in accordance with the Escrow Instruction Letter, all ad
valorem taxes and special assessments payable therewith in the year
of the Closing Date, adjusted and prorated as of noon on the Closing
Date on a calendar year basis, such that Seller shall have paid its
prorated share for the period from and after January 1, 1998 through
and including June 29, 1998. The Seller shall no longer be
responsible for any real estate taxes and special assessments due
and payable after noon on the Closing Date.
2.4. Closing Adjustments. The following closing adjustments shall be made
either on the Closing Date or, if the necessary information is not
available on the Closing Date as soon as reasonably possible after
the information necessary to calculate them is known, and the net
amount of the such closing adjustments, unless otherwise set
(6)
<PAGE>
forth in this Section 2.4, shall be paid by the Purchaser by a wire
transfer to the Seller:
(a) Marketing Enhancement Payment. Purchaser shall pay to Seller
the "Marketing Enhancement Payment" (as defined in the
Marketing Agreement) owing through noon on the Closing Date
(that is, the last Marketing Enhancement Payment shall be made
relative to customers of the Hinckley Hotel renting rooms the
night that includes the Closing Date).
(b) Uncollected Revenues. Purchaser shall pay to Seller all
uncollected but earned (i) hotel room revenues through and
including noon on the Closing Date, and (ii) vending machine
remittances through and including noon on the Closing Date.
Schedule 2.4(b) contains a complete and accurate list of all
uncollected and earned revenues related to the Business as of
noon on the Closing Date.
(c) Gift Certificates and Advance Deposits. Seller shall pay to
the Purchaser the total amount of revenue collected for gift
certificates and advance deposits which have not been redeemed
as of noon on the Closing Date.
2.5. Allocations. All parties acknowledge and agree that the assumption
of liabilities and obligations of the Seller pursuant to Section
2.1(a), together with the payment of the Cash Purchase Price
pursuant to Section 2.2, shall be allocated among the Purchased
Assets in accordance with Exhibit 2.5. All parties agree to use the
allocations contained in this Section 2.5 for all purposes,
including preparing and filing any applicable tax returns and forms.
3. The Closing. The parties shall hold the closing of the transactions
contemplated by this Agreement (the "Closing") on or before June 30, 1998
at 9:00 a.m., Minneapolis, Minnesota time, at the offices of Oppenheimer
Wolff & Donnelly LLP, 45 South Seventh Street, Minneapolis, Minnesota
55402 or whatever other time, date or place the parties shall mutually
agree (the "Closing Date"); unless this Agreement is terminated and the
transactions contemplated hereby abandoned pursuant to Section 14 hereof.
At the Closing, the Seller shall execute and deliver to the Purchaser a
bill of sale in the form attached hereto as Exhibit 3.1, (the "Bill of
Sale"), a Lease Termination Agreement between HHC and CBC terminating the
Business Lease in the form attached hereto as Exhibit 3.2, (the "Lease
Termination Agreement"), an Easement Termination Agreement by and among
CBC, GC1 and HHC in the form attached hereto as Exhibit 3.3 (the "Easement
Termination Agreement") and a Mutual Release by and among Seller,
purchaser, GCI and Casino Property Management, Inc. ("CPMI") in the form
attached hereto as Exhibit 3.4 (the "Mutual Release"), together with all
other documents or instruments as may reasonably be deemed necessary or
appropriate by the Purchaser or its counsel in order to effectively
transfer title to the Purchased Assets to the Purchaser in accordance-
with the provisions of this Agreement; the Purchaser shall deliver to the
Seller the Cash Purchase Price, an Assignment and Assumption Agreement in
the form attached hereto as Exhibit 3.5 evidencing the assignment to, and
Purchaser's assumption of, the Assumed Liabilities (the "Assignment and
Assumption Agreement"), the Lease Termination Agreement, and the
(7)
<PAGE>
Mutual Release, together with all other documents or instruments as may
reasonably be deemed necessary or appropriate by the Seller or its counsel
in order to effectuate the assumption of the Assumed Liabilities by the
Purchaser in accordance with the provisions of this Agreement. Upon such
delivery of the foregoing documents (i) all right, title, and interest in
and to, and ownership and possession of, the Purchased Assets shall be
transferred to and shall vest in the Purchaser, and (ii) the Assumed
Liabilities shall be assumed by the Purchaser.
4. Representations and Warranties of the Seller. Except as set forth in the
Disclosure Schedule attached hereto as Schedule 4, the Seller represents,
warrants, and agrees with Purchaser that, at and as of the date of this
Agreement and at and as of the Closing Date, the following statements
shall be true in all respects:
4.1. Ownership and Delivery of Purchased Assets and Execution and Effect
of Agreement. The Seller has the fall right, power, and authority to
enter into and to perform this Agreement and all other agreements,
certificates, and documents executed or delivered, or to be i
executed or delivered, by it in connection with this Agreement
(collectively, with this Agreement, the "Seller's Documents"). On
the date hereof, the Seller has, and on the Closing Date the Seller
will have, the full right, power, and authority to sell, assign,
transfer, and deliver the Purchased Assets, Except as set forth on
the Disclosure Schedule, the Seller will convey to the Purchaser on
the Closing Date lawful, valid, and, in the case of Inventory, FF&E
and other tangible personal property, marketable title, to the
Purchased Assets, free and clear of any and all liens, pledges,
security interests, options, encumbrances, charges, agreements, or
claims of any kind whatsoever ("Claims"). This Agreement has been
duly authorized, executed, and delivered by the Seller, and the
Seller's Documents are (or when executed and delivered will be)
legal, valid, and binding obligations of the Seller enforceable in
accordance with their respective terms, except as enforceability may
be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors rights
generally and to judicial limitations on the remedy of specific
enforcement and other equitable remedies. The authorization,
execution, delivery, and performance of the Seller's Documents and
Seller's consummation of the transactions as contemplated by the
Seller's Documents do not and will not violate, conflict with,
result in the breach of or constitute a default under, require any
notice pr consent under, accelerate the performance required by, or
give rise to a right of termination of any terms or provisions of
any agreement, instrument, or writing of any nature to which the
Seller is a party or is bound and which relates to the Hinckley
Hotel, other than purchase and sales orders entered into by the
Seller in the ordinary course of business.
4.2. Organization, Good Standing, Authority. CRC and CBC are corporations
duly organized, validly existing, and in good standing under the
laws of the State of Minnesota and both have full corporate power
and authority to own and lease their respective assets and
properties !and to conduct their businesses as they are now being
conducted. The copies of the Articles of Incorporation (which
include all amendments thereto and restatements thereof) of CRC and
CBC, respectively, as certified by the Secretary of State of the
State of Minnesota, and the Bylaws of CRC
(8)
<PAGE>
and CBC, respectively, as certified by the Secretary of the Seller,
previously delivered to, the Purchaser are correct and complete.
4.3. Intentionally Left Blank.
4.4. Financial Statements, Closing Financial Condition. Schedule 4.4
contains a true and complete copy of (i) audited consolidated (with
CBC) balance sheets of CRC as of September 30, 1997, 1996, 1995,
1994 and 1993, and the related statements of operations,
stockholders' equity and cash flows for each of the respective
fiscal years then ended, and the report thereon of BDO Seidman, LLP,
the Company's independent certified public accountant (the "Audited
Balance Sheets") (ii) the unaudited consolidated (with CBC) balance
sheets of CRC as of March 31, 1998 (the "Unaudited Balance Sheet");
(iii) the unaudited balance sheet of the Hinckley Hotel as of May
30, 1998; and (iv) the unaudited income statements of the Hinckley
Hotel for the period May 30, 1994 through May 30, 1998. The
aforesaid financial statements and notes (i) are in accordance with
the books and records of Seller and have been prepared on a
consistent basis in all material respects for all periods presented,
and (ii) fairly present the financial condition of CRC (on a
consolidated basis) as of the respective dates thereof, and the
results of operations, changes in stockholders' equity and changes
in cash flow for the periods then ended, all in accordance with
generally accepted accounting principles ("GAAP"), subject, in the
case of the interim financial Statements, to normal recurring year
end adjustments and the absence of a full set of notes. The
financial statements referred to in this Section 4.4 reflect the
consistent application of GAAP throughout the periods involved,
except as disclosed in the notes to such financial statements.
4.5. Liabilities. All known liabilities Of the Seller (whether accrued,
unmatured, contingent, or otherwise, and whether due or. to become
due) relative to the Business are set forth or adequately reserved
against in the Unaudited Balance Sheet to the extent such
liabilities would be required under GAAP to be set forth in the
Unaudited Balance Sheet, except for liabilities incurred since the
date thereof in the ordinary course of business as theretofore
conducted, which are not materially adverse to the operations or
prospects of the Business. The indebtedness and other liabilities of
the Seller relative to the Business have not been guaranteed or
assumed by any other person. Schedule 4.5 accurately identifies and
describes each debt, liability, commitment, and other obligation of
the Seller relative to the Business of the types specified in the
first sentence of Section 2.1 as of the date of this Agreement
(including, without limitation, the name of each creditor, the
amount of each debt, liability, commitment, and obligation, other
than trade payables incurred in the ordinary and normal course of
the Business for which invoices have not been received as of the
date hereof and excluding obligations of the Seller for borrowed
money or income taxes).
4.6. No Material Adverse Change. Since the date of the past Audited
Balance Sheet, the Seller has operated the Business diligently and
only in the ordinary course of business as theretofore conducted,
and there has been no: (i) material adverse change in the business,
properties, assets, liabilities, commitments, earnings, financial
(9)
<PAGE>
condition, or prospects of the Seller; (ii) property damage or
destruction resulting in a loss or cost to the Seller of more than
$50,000 in the aggregate, whether or not covered by insurance; (iii)
notice, inquiry or request for information relating to any alleged
liability or responsibility under, or in violation of any law,
regulation, or rule related to Hazardous Substances, Oils,
Pollutants or Contaminants (as defined below) and none have been
threatened, or (iv) act or omission which, if taken or omitted after
the date of this Agreement and before the Closing would conflict
with Section 6.2, except for matters under 6.2 (v) which are
disclosed in this Agreement or a Schedule to this Agreement. There
is no fact known to the Seller that materially adversely affects, or
in the future will :materially adversely affect, the Purchased
Assets, Assumed Liabilities and the prospect or condition of the
Business.
4.7. Taxes. The Purchaser will not incur or be obligated for, nor will
the Purchased Assets be subject to, any sales, use, or other tax or
excise resulting from the acquisition of the Purchased Assets, and
all of such taxes shall be paid by the Seller. The Seller has not
failed to file any report or return with respect to the Business
that may be required to be filed under any law or regulation of the
United States or any foreign country or political subdivision
thereof. The Seller has duly accrued on its ;books of account and
paid when due all taxes, duties and charges required pursuant to
such reports and returns or assessed against the Business. The
Seller, after the Closing Date and from the Cash Purchase Price,
shall pay any transfer sales, purchase, use or similar taxes under
the laws of any nation, state, county, city, or political
subdivision thereof, payable as a result of the transactions
contemplated hereby.
4.8. Title: Condition of Purchased Assets, Absence of Encumbrances. The
Seller owns, leases or otherwise has the legal right to use and
transfer all of the Purchased Assets. The FF&E, Inventory and other
assets included in, the Purchased Assets are suitable for the uses
in which they are currently employed and are free from any material
defects, subject to ordinary wear and tear. The Seller has good and,
in the case of Inventory, FF&E and other tangible personal property,
marketable title to or, in the case of leases and licenses, valid
and subsisting leasehold interests or licenses in, all of its
properties and assets used in connection with the Hinckley Hotel
(whether real or personal, tangible or intangible), including,
without limitation, the Purchased Assets, in each case free and
clear of any and all liens, mortgages, pledges, security interests,
restrictions, prior assignments, claims, and encumbrances of any
kind whatsoever, except as may be set forth in Schedule 4.8 and
except for liens for current taxes and assessments not yet due and
payable. All assets, properties, and rights relating to the Business
are held by, and all agreements, obligations and transactions
relating to the Business have been entered into, incurred, and
conducted by the Seller rather than any of its affiliates.
4.9. Property. Schedule 1.2(d) contains a complete and correct list of
all personal property owned or leased by the Seller relative to the
Business and all interests therein. All such personal property,
buildings, and structures, and the equipment therein, and the
operations and maintenance thereof, comply with any applicable
agreements and restrictive covenants and conform in all material
respects to all
(10)
<PAGE>
applicable Legal Requirements (as defined in Section 4.20) including
those relating to the environment, health and safety, land use and
zoning, and all work required to be done by the Seller as landlord
or tenant has been duly performed. No condemnation or other
proceeding is pending or, to the knowledge of the Seller threatened,
which would affect in any material manner the use of any such
property by the Seller, or following the Closing, by the Purchaser.
The Seller does not own or lease any vehicles. The Seller's
buildings and other structures, equipment and other assets (whether
leased or owned) relative to the Business are in good operating
condition and repair, subject to ordinary wear and tear, and, to the
Seller's knowledge, are free from all structural and material
defects, with no material maintenance, repair or replacement having
been deferred or neglected, and are suitable for the intended use.
4.10. Patents, Trademarks, and Copyrights. The Seller has no registered
trademarks, service marks, trade names, brands, registered
copyrights, and patents which are presently being used or have been
used in the Business.
4.11. Contracts, Leases and Commitments. The Seller has famished to the
Purchaser true and complete copies of the contracts, leases, and
commitments listed in Schedule 1.2(i), including summaries of the
terms of any unwritten contracts, leases, or commitments. Except as
set forth in the Disclosure Schedule: (1) the Seller and, to the
best of the knowledge of the Seller, the other parties thereto, have
complied in all material respects with such contracts, leases, and
commitments, all of which are valid and enforceable and, to the best
of the knowledge of the Seller, will not be adversely affected by
this acquisition or the transfer in connection therewith to the
Purchaser; (2) such contracts, leases, and commitments are in full
force and effect and there exists no breach by the Seller thereof
which with or without notice or lapse of time would be a default
thereunder, give rise to a right to accelerate or terminate any
provision thereof, or give rise to any lien, claim, encumbrance, or
restriction on any of the assets or properties of the Seller; and
(3) all of such contracts, leases, and commitments have been entered
into on an arm's-length basis, and none materially adversely affects
the Business. The Seller is not a party, nor are any of its assets
relative to the Business subject, to any contract, lease, or
commitment not listed in Schedule 1.2(i) and 4.16 (including,
without limitation, open purchase or sales commitments, financing or
security agreements or guaranties, repurchase agreements, agency
agreements, manufacturers representative agreements, commission
agreements, employment or collective bargaining agreements, pension,
bonus, or profitsharing agreements, group insurance, medical: or
other fringe benefit plans, and leases of real or personal
property), other than (i) contracts terminable without penalty on
not more than 30 days' notice that do not involve, individually or
in the aggregate, the receipt or expenditure of more than $5,000 in
any one year, (ii) purchase orders or commitments of the Seller
entered into in the ordinary course of business that individually do
not involve more than $5,000 or that are cancelable, or (iii) sales
commitments of the Seller entered into in the ordinary course of
business that individually do not involve more than $5,000 or for
which there is no liability for nonshipment. If any of the contracts
listed in Schedule 1.2(i) should provide for expiration or be
subject to termination before the Closing, the. Seller shall use its
(11)
<PAGE>
best efforts to extend such contracts on reasonable terms in
accordance with the Seller's past practice, after consultation with
the Purchaser. Schedule 4.11 contains a list of the ten largest
suppliers of the Seller (measured by dollar volume of purchases).
The Seller is not engaged in. any material dispute with any supplier
relative to the Business. No supplier of the Business has notified
the Seller that it is considering termination, nonrenewal, or any
adverse modification of its arrangements with the Seller, and, to
the knowledge of the Seller, the transactions contemplated by this
Agreement will not have a material adverse affect on the Seller's
relationship, or the Purchaser's possible future relationship, with
any of the suppliers of the Business.
4.12. Inventory and FF& E. The Inventory is in good and marketable
condition, does not and will not include any items which are
obsolete or damaged, is salable in the normal course of business as
currently conducted and is sufficient in quantity to conduct the
Business as it is presently conducted. Each item of the Inventory as
of the date hereof is carried on the Unaudited Balance Sheet at the
lower of cost or market. The FF&E is in good and marketable
condition, subject to ordinary wear and tear.
4.13. Accounts Receivable and Payable. Schedule 4.13 is an aged list of
the Accounts Receivable and Payable of the Seller relative to the
Business as of May 31, 1998. The Accounts Receivable and Payable of
the Seller arose in the ordinary course of business for goods or
services delivered or rendered.
4.14. Permits, Compliance with Laws. The Seller holds the governmental
licenses, permits, and authorizations relative to the Business as
previously listed in Schedule 1.2(j) which are valid and unimpaired,
will be unaffected by a transfer of all of the Purchased Assets to
the Purchaser, and constitute all of the licenses, permits, and
authorizations required of the Seller for the ownership or occupancy
of its properties and assets and the operation of the Business. The
Business has been operated in compliance with all material laws and
regulations (federal, state, local, and foreign) applicable to it,
and all required material reports and filings with governmental
authorities have been properly made. The consummation of the
transactions contemplated by this Agreement will not give rise to
any liability of the Purchaser for severance pay or termination pay.
Within the past four (4) years, the Seller has not entered into any
agreement with, had any material dispute with, or been investigated
by, any governmental authority, community group, or other third
party that could restrict the operation of the Business.
4.15. Employees. Schedule 4.15 contains a list of the names, office
locations, and compensation of all full- and part-time employees of
the Business, and a description of the Seller's severance pay policy
with respect to such employees. To the Seller's knowledge, there
have not been any efforts within the last three years to attempt to
organize the employees of the Business, and no strike or labor
dispute involving the Business has occurred during the last three
years or, is threatened. Except as indicated on Schedule 4.15, no
key employee of the Business has provided the Seller with notice
that he or she is terminating his or her employment. The Seller has
(12)
<PAGE>
complied with applicable wage and hour, equal employment, safety,
and other material legal requirements relating to employees of the
Business.
4.16. Employee Benefit Plans.
(a) Schedule 4.16 lists each employee benefit, incentive
compensation, deferred compensation, equity-based compensation
or perquisite plan, policy or practice covering current or
former employees of Seller or their spouses, dependents or
beneficiaries (a "Plan"). With respect to each Plan, Seller
has made available to Purchaser the current Plan document or a
complete and accurate description of the Plan.
(b) To the Seller's knowledge, the Seller does not and could not
have any liability arising directly or indirectly under
Section 412 of the Internal Revenue Code of 1986, as amended
(the "Code") or Section 302 or Title IV of the Employee
Retirement 1ncorne Security Act of 1974, as amended ("ERISA").
(c) To the Seller's knowledge, the Seller does not and could not
have any liability arising directly or indirectly to or with
respect to any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA.
(d) To the Seller's knowledge, Seller does not and could not have
any, liability arising directly or indirectly in connection
with any failure of Seller or any affiliate of Seller to
comply with Section 4980B of the Code or Part 6 of Subtitle B
of Title I of ERISA.
(e) Nothing has occurred or failed to occur with respect to any
Plan which could result in any liability to Purchaser or any
affiliate of Purchaser other than a liability expressly
assumed, pursuant to this Agreement.
4.17. Insurance. A complete and correct list of all policies of insurance
of any kind or nature covering the Seller with respect to the
Business, including, without limitation, policies of life, fire,
theft, auto, casualty, product liability, workmen's compensation,
business interruption, employee fidelity, and other casualty and
liability insurance, indicating the type of coverage, name of
insured, the insurer, the premium, the expiration date of each
policy and the amount of coverage is contained in Schedule 4.17. All
such policies, except as set forth on the Disclosure Schedule, (i)
are in full force and effect; (ii) are sufficient for compliance
with all requirements of law and of all applicable agreements; (iii)
are valid, outstanding and enforceable policies; (iv) provide full
insurance coverage for the assets and operations of the Seller with
respect to the Hinckley Hotel for all risks normally insured against
by persons carrying on the same business as the Seller with respect
to the Hinckley Hotel, except for the deductibles and co-insurance
provisions set forth in the policies; and (v) will be unaffected by
the transfer thereof to the Purchaser, until the Closing Date.
Complete and correct copies of such policies have been furnished to
the Purchaser. The Seller has maintained in full force and effect
through noon on the Closing Date all such policies of insurance or
comparable insurance coverage. The Seller has not
(13)
<PAGE>
been denied any insurance coverage which it has requested relative
to the Business or made any material reduction in the scope or
change in the nature of its insurance coverage relative to the
Business. The products liability and personal injury insurance,
maintained by the Seller has been on an occurrence basis during the
four-year period prior to the Closing Date.
4.18. Litigation. Except for claims of less than $5,000 in which the
Seller is the plaintiff in an action for goods sold and delivered
and in which there is no counterclaim, Schedule 4.18, contains a
complete and correct list of all actions, suits, proceedings,
claims, or governmental investigations pending or, to the best of
the knowledge of the Seller, threatened against the Seller relative
to the Business or any of the assets of the Business, or, in
connection with the Business, or any of the Seller's officers,
directors, or employees relative to the Business. Except as set
forth on Schedule 4.18, neither the Seller nor, in connection with
the Business, any of the Seller's officers, directors, or employees
is subject or party to any judgment, order, or other direction of or
stipulation with any court or other governmental authority or
tribunal, or in violation of any other Legal Requirements (as
defined below) relative to the Business. The Seller is not award of
any proposed Legal Requirement that might adversely affect in any
material respect the operation or prospects of the Business.
4.19. Environmental Matters.
(a) Since August 11, 1993, the Seller obtained all permits,
licenses and other authorizations required under the
Environmental Laws (as defined below) for the ownership, use
and operation of each location owned, operated or leased by
Seller in connection with the operation of the Business (the
"Property"), all: such permits, licenses and authorizations
are in effect, and no appeal or any other action is pending to
revoke any such permit, license or authorization. The Seller
is in full compliance with all terms and conditions of all
such permits, licenses and authorizations, except for minor
defects, if any, in such permits, licenses and authorizations
which do not affect the operation of the Business. The Seller
has listed all such permits, licenses and other
authorizations, including the expiration dates of such
permits, licenses and authorizations, in Schedule 4.19.
(b) Except for incidental matters, if any, which do not affect the
operation of the Business, the Seller has been, since August
11, 1993 and currently is in compliance with all Environmental
Laws including, without limitation, all applicable
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in
any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(c) The Seller has not made or been furnished with any
environmental studies with respect to the Property, except as
set forth in Schedule 4.19.
(14)
<PAGE>
(d) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter existing or pending, or,
to the knowledge of the Seller, threatened, relating to the
Business, or any Property or facility currently owned,
operated or leased, and to the knowledge of the Seller, with
respect to any Property or facility previously owned, operated
or leased by the Seller for use in the Business relating in
any way to the Environmental Laws or any regulation, code,
plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder.
(e) The Seller has not released, placed, stored, buried or dumped
any "Hazardous Substances, Oils, Pollutants or Contaminants"
(as defined below) or any other wastes produced by, or
resulting from, any business, commercial or industrial
activities, operations or processes, on, beneath or adjacent
to any Property formerly or currently owned, operated or
leased by the Seller and used by or in connection with the
Business, except for inventories of such substances to be
used, and wastes generated therefrom, in the ordinary course
of business (which inventories and wastes, if any, were and
are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no
Release (as defined below) of any such substances into the
environment), and, to the knowledge of the Seller, neither has
any other Person (as defined below).
(f) No Release or Cleanup (as defined below) has occurred since
August 11, 1993 at any Property currently owned or used by the
Seller relating to the Business which would be reasonably
likely to result in the assertion or creation of a lien on the
Property by any governmental body or agency with respect
thereto, nor has any such assertion of a lien been made by any
governmental body or agency with respect thereto, and to the
knowledge of the Seller, no such Release or Cleanup has
occurred since August 11, 1993 at any Property formerly owned
or used by the Seller.
(g) The Seller has received no notice or order from any
governmental agency or private or public entity advising it
that it is responsible for or potentially responsible for
Cleanup or paying for the cost of Cleanup of any Hazardous
Substances, Oils, Pollutants or Contaminants or any other
waste or substance relative to the Business, and the Seller
has not entered into any agreements concerning such Cleanup,
nor is the Seller aware of any facts which might reasonably
give rise to such notice, order or agreement.
(h) From August 11, 1993 to the present, Seller has not placed or
had placed on or in the Property any Q) underground storage
tanks; (ii) asbestos; (iii) equipment using PCB's; (iv)
underground injection wells; or (v) septic tanks in which
process wastewater or any Hazardous, Substances, Oils,
Pollutants, or Contaminants, to the knowledge of the Seller,
have been disposed.
(15)
<PAGE>
(i) The Seller has not entered into any agreement that will
require it to pay to, reimburse, guarantee, pledge, defend,
indemnify or hold harmless any Person for or against any
Environmental. Liabilities and Costs (as defined below)
relating to the Business.
(j) With regard to the Seller's operation of the Business,
beginning as of August 11, 1993 to the present, there are no
events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or
prevent compliance or continued compliance with the
Environmental Laws as in effect on the date hereof or with any
regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or
approved thereunder, or which would be reasonably likely to
give rise to any common law or legal liability under the
Environmental Laws, or otherwise would be reasonably likely to
form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation, study or investigation, based on
or related to the manufacture, generation, processing,
distribution, use, treatment, storage, place of disposal,
transport or handling, or the Release or threatened Release
into the: indoor or outdoor environment by the Seller or a
facility of the Seller while under the Seller's control, of
any Hazardous Substances, Oils, Pollutants or Contaminants.
For purposes of this Section 4.19, the following terms shall have the
following meanings:
(a) "Cleanup" means all actions required to: (i) cleanup, remove,
treat or remediate Hazardous Substances, Oils.; Pollutants or
Contaminants in the indoor or outdoor environment;; (ii)
prevent the Release of Hazardous Substances, Oils, Pollutants
or Contaminants so that they do not migrate, endanger or
threaten to endanger public health or welfare or the indoor or
outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care; or (iv)
respond to any government requests for information or
documents in any way relating to cleanup, removal, treatment
or remediation or potential cleanup, removal, treatment or
remediation of Hazardous Substances, Oils, Pollutants or
Contaminants in the indoor or outdoor environment.
(b) "Environmental Laws" means all federal, state and local laws,
regulations, rules and ordinances applicable to the Seller
relating to pollution or protection of the environment,
including, without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances, Oils, Pollutants
or Contaminants into the indoor or outdoor environment
(including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, Release, transport or handling of
Hazardous Substances, Oils, Pollutants or Contaminants, and
all laws and regulations with regard to record-keeping,
notification, disclosure and reporting requirements
respecting, Hazardous Substances, Oils, Pollutants or
(16)
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Contaminants, and all Jaws relating to endangered or
threatened species of fish, wildlife and, plants.
(c) "Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup,
losses, damages, deficiencies, punitive damages, consequential
damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and
expense of counsel, expert and consulting fees and costs of
investigations and feasibility studies and responding to
government requests for information or documents), fines,
penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent,
past, present or future, resulting from any claim or do
demand, by any Person or entity, whether based in contract,
tort, implied or express warranty, strict liability, joint and
several liability, criminal or civil statute, including any
Environmental Law, or arising from. environmental, health or
safety conditions, the Release or threatened Release of
Hazardous Substances, Oils, Pollutants or Contaminants into
the environment, as a result of past or present ownership,
leasing or operation of the Property.
(d) "Hazardous Substances, Oils, Pollutants or Contaminants" means
all substances defined as such in the National Oil and
Hazardous Substances Pollutants Contingency Plan, 40 C.F.R.
ss. 300.5, or defined as such by, or regulated as such under,
any Environmental Law applicable to the Seller or the
Property.
(e) "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization
or, as applicable, any other entity.
(f) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, ambient air,
surface water, groundwater, and surface or subsurface strata)
or into or out of; any property, including the movement of
Hazardous Substances, Oils, pollutants or Contaminants through
or in the air, soil, surface water, groundwater of property.
4.20. Restrictions. The authorization, execution, delivery, and
performance of the Seller's Documents and the consummation of the
transactions contemplated by the Seller's Documents do not and will
not (1) violate any of the provisions of the Seller's Articles of
Incorporation or Bylaws, as applicable, or (2) violate, or result in
a breach of, conflict with, or require any notice, filing (other
than applicable required tax reporting) or consent under, any
statute, rule, regulation or other provision of law, or any order,
judgment or other direction of a court or other tribunal, or any
other governmental requirement, permit, registration, license or
authorization applicable to the Seller for any of its assets or the
Business (collectively, "Lega1 Requirements"), or (3) result in the
creation of any lien, claim, encumbrance, restriction on any of the
(17)
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assets or properties of the Seller. The Seller is not a party to any
non-compete or similar agreement which in any way restricts the
operation of the Business.
4.21. Transactions with Affiliates. As of the Closing Date, neither the
shareholders of the Seller nor any affiliate, associate or relative
of the Seller's shareholders ("Related Persons") has, any interest
in any property, tangible or intangible, used in or pertaining to
the Business and which has a value in excess of $5,000. As of the
Closing Date, neither the Seller's shareholders nor any Related
Person, has or owns or has owned of record or beneficially an equity
interest or any other financial or profit interest in any person or
entity which has (i) had business dealings or a material financial
interest in any transaction with the Seller involving more than
$5,000, or (ii) engaged in competition with the Seller in any market
presently served by the Seller, except for ownership interests of
less that one percent of the outstanding capital stock of any
competing business which is publicly traded. Schedule 4.21
reasonably describes, as of the Closing Date, the nature and extent
of any products, services, or benefits involving more than $5,000
provided to the Seller by any such Related Person and indicates
whether there was a corresponding charge equal to the fair market
value of such products, services or benefits.
4.22. Books and Records. The books and, records of the Seller relative to
the Business are complete and correct in all material respects and
have been maintained in accordance with the Seller's past business
practices.
4.23. Improper Payments. To the Seller's knowledge, neither the Seller nor
its officers have made any illegal or improper payments to, or
provided any illegal or improper benefit or inducement for, any
governmental official, supplier, customer, or other person, in an
attempt to influence any such person to take or to refrain from
taking any action relating to the Seller.
4.24. Products, Services and Warranties. Each product sold, leased, or
delivered by the Seller relative to the Business, and each service
provided by the Seller relative to the Business, has been in
conformity with all applicable contractual commitments and all
express and implied warranties, and meets or exceeds the standards
required by all laws in effect at the time such product was sold,
leased or delivered by the Seller, and, to the knowledge of the
Seller, there is no pending legislation, ordinance or regulation,
which if adopted, would have a material adverse effect upon such
products and services. To the knowledge of the Seller, the Seller
has no liability (and there is no basis for any present or any
future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any liability)
for replacement or repair of any such product or service or other
damages in connection therewith. No such product or service relative
to the Business is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of
sale, lease or other provision. Schedule 4.24 includes copies of the
standard terms and conditions of sale for the Business (containing
applicable guaranty, warranty, and indemnity provisions).
(18)
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4.25. Product Liability, Auto Liability and Workers' Compensation. To the
knowledge of the Seller, the Seller has no liability relative to the
Business not covered by insurance (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against it giving rise to any
liability) arising out of (a) any injury to individuals or property
as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Seller relative to
the Business or any services provided by the Seller relative to the
Business; or (b) any injury to individuals or property as a result
of the ownership or lease by the Seller of any automobile in
connection with the operation of the Business. There are no open
workers' compensation claims against the Seller relating to the
Business, except for those previously disclosed on Schedule 4.18.
4.26. Disclosure. The Seller has received no notice (written or oral) that
any distributor, sales representative or supplier of the Business
will terminate his, her or its relationship with the Seller or, as
the in case may be, decrease his, her or its business with the
Seller, as a result of the transactions contemplated by this
Agreement or for any other reason. Schedule 4.26 sets forth a list
of all suppliers of the Business as of May 20, 1998.
4.27. Completeness of Schedules and Exhibits. To the best of the knowledge
and belief of the Seller, all schedules and exhibits hereto are
complete and accurate. Originals, or true and complete copies, of
all documents requested by the Purchaser or other written materials
underlying items listed on the schedules and exhibits that have been
requested in writing by the Purchaser have been or will be promptly
delivered to the Purchaser, and such documents have not been
modified and will not be modified prior to the Closing Date with the
Purchaser's prior written consent.
4.28. Disclosure. No representation, warranty, or other statement by the
Seller in this Agreement or in any other of the Seller's Documents
contains or will contain an untrue statement of a material fact o r
omit to state a material fact necessary to make such statements not
misleading.
5. Representations and Warranties of the Purchaser. The Purchaser represents,
warrants to, and agrees with, the Seller that, at and as of the date of
this Agreement and at and as of the Closing Date, the following statements
shall be true in all respects:
5.1. Authority. The Purchaser is a corporate body politic of a federally
recognized tribal government and has full legal power; and
authority, to enter into this Agreement, purchase the Business and
perform all of its other obligations under this Agreement. The
Purchaser has taken all actions and has received all required
consents and approvals which are necessary to be taken to authorize
the Purchaser to execute this Agreement and to perform all of its
obligations under the terms of this Agreement.
5.2. Execution and Effect of Agreement. The Purchaser has the full right,
power, and authority to enter into and perform this Agreement and
all other agreements, certificates and documents executed or
delivered, or to be executed or delivered, by the Purchaser in
connection with this Agreement (collectively, with this Agreement,
(19)
<PAGE>
the "Purchaser's Documents"). The execution, delivery, and
performance by the Purchaser, of the Purchaser's Documents have been
duly authorized by all necessary action of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and
the Purchaser's Documents are (or when executed and delivered by the
Purchaser will be) legal, valid, and binding obligations of the
Purchaser, enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting, the
enforcement of creditor's rights generally and to judicial
limitations on the remedy of specific enforcement and other
equitable remedies.
5.3. Restrictions. The authorization, execution, delivery, and
performance of the Purchaser's Documents and the consummation of the
transactions contemplated by the Purchaser's Documents do not and
will not (1) violate, conflict with, result in a breach of or
constitute a default under, require any notice or consent under,
give rise to a right of termination of, or accelerate the
performance required by, any terms or provisions of any agreement,
instrument or writing of any nature to which the Purchaser is a
party or is bound or any of its assets or business is subject, or
(2) violate, conflict with or result in a breach of, or require any
notice, filing or consent under, any statute, rule, regulation or
other provision of law, or, any order, judgment or other direction
of a court or other tribunal, or any other governmental requirement,
permit, registration license, or authorization applicable to the
Purchaser.
5.4. Insurance. The Purchaser shall have, as of noon on the Closing Date,
all policies of insurance covering the Purchaser with respect to the
Business that the Seller had in force immediately prior to the
Closing, and the Purchaser shall provide the Seller with a
certificate evidencing such insurance coverage.
6. Covenants of the Seller. The Seller covenants and agrees that:
6.1. Access by the Purchaser. The Purchaser and its representatives and
advisers have been provided full and reasonable access during normal
business hours to the Seller's (to the extent that the following
relate to the Hinckley Hotel) assets, premises, books and records,
employees, accountants, consultants attorneys and other
representatives involved in the Business including, but not limited
to, the work papers and files of :the Accountants relating to the
Financials or tax returns of the Seller, and the Seller has
furnished the Purchaser with such information and copies of such
documents as the Purchaser may reasonably have requested; provided,
however, that the information requested will not affect or relieve
the Seller from any obligation, representation, covenant or warranty
contained in this Agreement, nor affect the Purchaser's ability to
rely on such obligations, representations, covenants or warranties.
The Seller shall promptly furnish to the Purchaser all financial
statements of the Seller that are prepared in the ordinary course of
business and relate to the Hinckley Hotel. None of the records
relating in any manner to the Hinckley Hotel retained by the Seller
will be destroyed by the Seller without prior written notice to the
Purchaser, to enable the Purchaser to take possession of or make
copies of such records. As used in this Section 6, the right of
inspection includes the right to make or extract copies.
(20)
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6.2. Conduct of Business. Since April 16, 1998, the Business has been
conducted in the ordinary course, consistent with the past conduct
of the Business, and the Seller has used its best efforts to
maintain, preserve, and protect the assets and goodwill of the
Seller relative to the Business. Between April 16, 1998 and the
Closing, the Seller did not take or commit to take any of following
actions relative to the Business, except with the prior written
consent of the Purchaser: (i) amend its Bylaws or Articles of
Incorporation, (ii) except as specifically contemplated hereby,
incur, or perform, pay, or otherwise discharge, any obligation or
liability (absolute or contingent), except for current obligations
and liabilities incurred in the ordinary course of business
consistent with past practice, (iii) enter into any employment
agreement with, extend any employee agreements with, become liable
for any bonus, profit-sharing or incentive payment to, or increase
the compensation or benefits of, any of its officers, directors, or
employees, except pursuant to presently existing plans,
arrangements, or agreements disclosed in this Agreement or in a
schedule to this Agreement, (iv) sell, transfer, encumber, acquire
or otherwise dispose of, or grant any right with respect to, any
properties or assets, tangible or intangible, other than in the
ordinary course of business, (v) make any material changes in its
customary method of operation, including marketing, selling, and
maintenance of business premises, fixtures, furniture, and
equipment, (vi) modify, amend, or cancel any of its existing leases,
or enter into any contracts, agreements, leases, or understandings
other than in the ordinary course of business or enter into any loan
agreements, (vii) alter or revise the accounting principles,
practices or procedures applicable to the Business unless required
by GAAP, or (viii) take any other action which would cause any of
the representations and warranties made by the Seller in the
Seller's Documents not to be true and correct in all material
respects on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on
and as of the Closing Date.
6.3. Sales and Hospitality Taxes. Seller shall pay and be responsible for
all sales and hospitality taxes owing in connection with the
Business through noon on the Closing Date.
7. Covenants of the Purchaser.
7.1. Representations and Warranties. The Purchaser agrees that between
the date of this Agreement and the Closing it will not take any
action which would cause any of the representations and warranties
made by it in the Purchaser's Documents not to be true and correct
in all material respects on and as of the Closing Date with the same
force and effect as if such representations and warranties had been
made on and as of the Closing Date.
7.2. Personnel Matters. To the extent that current employees of the
Business meet Purchaser's employment criteria, the Purchaser shall
offer employment to all current employees of the Business at
comparable salary and benefit levels as of the Closing Date. All
employment and severance obligations regarding such employees for
all periods prior to the Closing shall remain with the Seller and
the Purchaser shall assume no responsibility for any such
obligations.
(21)
<PAGE>
7.3. Cooperation and Assistance. The Purchaser agrees to assist the
Seller in the defense of any such claims by providing access to
documents and making personnel available in connection with any such
claims. The Purchaser shall also cooperate with the Seller in any
future Internal Revenue Service audits or investigations conducted
by other taxing authorities or with respect to any claims made
against the Seller that related to actions occurring before the
Closing Date, for which the Seller is legally responsible or for
which the Seller is obligated to indemnify the Purchaser under this
Agreement. In connection with any such cooperation under this
Section 7.3, the Purchaser and the Seller shall only be entitled to
recover from the other party hereto its out-of-pocket costs
incurred, such as for travel and copying costs, it being understood
that neither party shall be entitled to any per them consulting fees
for the time involved of any of their personnel.
7.4. Purchaser's Records. After the Closing, the Purchaser shall retain
all financial records which relate to the Business including,
without limitation, books, records, ledgers, files, documents,
correspondence, computer discs, reports and similar documents of the
Seller with respect to all transactions of the Seller relative to
the Business occurring prior to or relating to the Closing, and the
historical financial condition, assets, liabilities, operations and
cash flows of the Business. The Purchaser shall keep such records at
its premises and shall make such financial records available for
inspection by the Seller and the Seller's duly appointed
representatives, upon reasonable notice for reasonable business
purposes at all reasonable times during :normal business hours.
After the Closing Date, none of such records will be destroyed by
the Purchaser without prior written notice to the Seller to enable
the Seller to take possession of or to make copies of such records,
and this obligation of the Purchaser shall continue for as long as
the Seller has any duty of indemnification or liability to the
Purchaser under this Agreement.
7.5. Sales and Hospitality Taxes. The Purchaser shall pay and be
responsible for all sales and hospitality taxes owing in connection
with the Business from and after noon on the Closing Date.
8. Conditions Precedent to Obligations of the Purchaser. The obligations of
the Purchaser to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, at or before the Closing, of
each of the following conditions, any of which may be waived by the
Purchaser in writing, and the Seller shall use its best efforts to cause
such conditions to be fulfilled:
8.1. Representations and Warranties. Each of the representations and
warranties of the Seller in the Seller's Documents shall be true and
correct in all material respects on and as of the Closing Date with
the same force and effect as though made on and as of the Closing
Date.
8.2. Performance of the Seller. The Seller shall have performed and
complied in all material respects with all agreements, covenants,
and conditions required by the Seller's Documents to be performed or
complied with by them at or before the Closing.
(22)
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8.3. Delivery of Bill of Sale. The Seller shall have delivered to the
Purchaser the Bill of Sale as provided in Section 3.
8.4. Delivery of Lease Termination Agreement. The Seller shall have
delivered to the Purchaser the Lease Termination Agreement as
provided in Section 3.
8.5. Opinion of Counsel of the Seller. The Seller shall have delivered to
the Purchaser an opinion of Doherty Rumble & Butler, counsel to the
Seller, dated the Closing Date, in the form attached hereto as
Exhibit 8.5.
8.6. Certificate. The Purchaser shall have received a certificate
executed by the Seller, dated the Closing Date, certifying, in such
detail as the Purchaser may reasonably request, as to the
fulfillment of the conditions set forth in Sections 8.1 and 8.2.
8.7. Certified Resolutions. The Purchaser shall have received copies of
resolutions of the Seller's Board of Directors, certified by the
Secretary of the Seller, authorizing the execution, delivery and
performance of the Agreement and the transactions contemplated
hereby by the Seller and authorizing the signatory officers of the
Seller to execute this Agreement.
8.8. Certificate of Good Standing. The Purchaser shall have received a
Certificate of Good Standing for each CRC and CBC dated not more
than seven (7) days before the Closing Date from the Secretary of
State of the State of Minnesota.
8.9. Consents. The Seller shall have obtained or, to the reasonable
satisfaction of the Purchaser obviated the need to obtain, all
consents, approvals, or waivers from regulatory authorities and
third parties necessary for the execution, delivery, and performance
of the Seller's Documents and the transactions contemplated by the
Seller's Documents, will without cost or other adverse consequences
to the Seller. The Seller shall deliver a certificate, dated the
Closing Date, stating that the Seller has received all
authorizations, material consents, approvals and waivers required by
this Section 8.9.
8.10. Litigation. No action or proceeding shall be Tending or threatened
before any court, tribunal, or governmental body, and, no claim or
demand shall have been made against the Seller, seeking to restrain
or prohibit or to obtain damages or other relief in connection with
the consummation of the transactions contemplated by the Seller's
Documents, or which might materially affect the Business, which in
the reasonably exercised opinion of the Purchaser makes it
inadvisable to consummate such transactions.
8.11. Title Insurance. The Purchaser shall have received a commitment of
title insurance from the Escrow Agent showing that the interests of
Seller being conveyed herein are free from all liens, security
interests, judgments and encumbrances and further showing that
Seller has not nor has allowed to be created any liens, security
interests, judgments or encumbrances on the interest owned by the
Landlord under the Lease. Purchaser shall also have received
assurance from the Escrow Agent that the Escrow Agent will Issue an
Owner's Policy of Title Insurance or an endorsement to the
(23)
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existing Owner's Policy of Title Insurance in favor of the Purchaser
in accordance with this Section 8.11.
8.12. UCC Section. The Purchaser shall have received results reasonably
satisfactory to the Purchaser of a search of the files of the
Secretary of State and/or County of each state in which the Seller
does business showing all filings under the Uniform Commercial Code
(the "UCC') including liens or warrants for delinquent taxes, naming
the Seller as a debtor or otherwise encumbering the Purchased Assets
or the Business.
8.13. Release of Liens. The Purchaser shall have received evidence (the
"Release Evidence"), reasonably satisfactory to the Purchaser, of
the termination of all loan agreements, security agreements and
notes, the termination and release of all liens and security
interests in collateral, and the termination of any UCC financing
statements.
8.14. Purchase Price Allocation. The Purchaser and the Seller shall have
completed the Purchase Price Allocation described in Section 2.5.
8.15. Mutual Release. The Seller and CPMJ shall have executed and
delivered to the Purchaser the Mutual Release dated as of, the
Closing Date as described in Section 3 which mutually releases the
Purchaser, GC1 and the Seller from any obligations, rights, and
claims as described in the Mutual Release arising out of or in
connection with the Hotel Development Agreement, the Marketing
Agreement and any other agreement entered into by the Seller (and
CPMI), Purchaser and/or GCI relating to the Hinckley Hotel.
8.16. Easement Termination Agreement. CBC shall have executed and
delivered to the Purchaser the Easement Termination Agreement as
provided in Section 3.
9. Conditions Precedent to Obligations of the Seller. The obligations of the
Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, at or before the Closing, of each of the
following conditions, any of which may be waived by the Seller in writing,
and the Purchaser shall use its best efforts to cause such conditions to
be fulfilled:
9.1. Representations and Warranties. The representations and warranties
of the Purchaser in the Purchaser's Documents shall be true and
correct in all material respects on and as of the Closing Date with
the same force and effect as though the same had been made on and as
of the Closing Date.
9.2. Performance by the Purchaser. The Purchaser shall have performed and
complied in all material respects with the agreements, covenants,
and conditions required by the Purchaser's Documents to be performed
or complied with by it at or before the Closing.
9.3. Assumption and Liabilities; Purchase Price. The Purchaser shall have
delivered the Assignment and Assumption Agreement as provided in
Section 3 and, if possible,
(24)
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shall have made the net closing adjustment payment required to be
made by the Purchaser pursuant to Section 2.4.
9.4. Opinion of Purchaser's Counsel. The Purchaser shall have delivered
to the Seller an opinion of Oppenheimer Wolff & Donnelly LLP,
counsel to the Purchaser, dated the Closing Date, in the form
attached hereto as Exhibit 9.4.
9.5. Certificate. The Seller shall have received a certificate executed
by the Purchaser, dated the Closing Date, certifying, in such detail
as the Seller may reasonably request, as to the fulfillment of the
conditions set forth in Sections 9.1 and 9.2.
9.6. Certified Resolutions. The Seller shall have received copies of
resolutions of the Purchaser, certified by the Purchaser,
authorizing the execution, delivery and performance of the Agreement
and the transactions contemplated hereby by the Purchaser, and
authorizing the signatory officers of the Purchaser to execute this
Agreement.
9.7. Litigation. No action or proceeding shall be pending or threatened
before any court, tribunal, or governmental body, and no claim or
demand shall have been made against the Purchaser seeking to
restrain or prohibit or to obtain damages or other relief in
connection with the consummation of the transactions contemplated by
the Purchaser's Documents, which in the reasonably exercised opinion
of the Seller makes it inadvisable to consummate such transaction.
9.8. Consents. The Purchaser shall have obtained or, to the reasonable
satisfaction of the Seller obviated the need to obtain, all
consents, approvals or waivers from regulatory authorities and third
parties necessary for the execution, delivery and performance of the
Purchaser's Documents and the transactions contemplated by the
Purchaser's Documents, all without cost or other adverse
consequences to the Seller. The Purchaser shall deliver a
certificate, dated the Closing Date, stating that the Purchaser has
received all necessary authorizations, material consents, approvals
and waivers required by this Section 9.8.
9.9. Mutual Release. The Purchaser shall have executed and delivered to
the Seller the Mutual Release as described in Sections 3 and 8.15
above.
9.10. Easement Termination Agreement. The Purchaser shall deliver the
Easement Termination Agreement as provided in Section 3 executed by
HHC.
10. Closing Deliveries.
10.1. Deliveries of the Seller. At the Closing, the Seller shall deliver,
or shall cause to be delivered, to the Purchaser the following:
(a) The Bill of Sale conveying to the Purchaser the Purchased
Assets free and clear of all claims except as disclosed
hereunder.
(25)
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(b) The Lease Termination Agreement terminating the Business Lease
effective on the date and time of Closing.
(c) The executed opinion of Doherty Rumble & Butler, counsel to
the Seller, referred to in Section 8.5.
(d) The certificate referred to in Section 8.6,1 duly executed by
the Seller.
(e) The certified Board resolutions referred to in Section 8.4.
(f) Good Standing Certificates referred to in Section 8.8.
(g) Copies of the consents, approvals, or waivers referred to in
Section 8.9.
(h) The Release Evidence referred to in Section 8.13.
(i) The Mutual Release referred to in Section 8.15.
(j) The Easement Termination Agreement referred to in Section
8.16.
10.2. The Purchasers Deliveries. At the Closing, the Purchaser shall
deliver or cause to be delivered to the Seller the following:
(a) The Closing Cash Purchase Price and net closing adjustment
payment referred to in Sections 2.2 and 2.4.
(b) The Assignment and Assumption Agreement, referred to in
Section 3, duly executed by the Purchaser.
(c) The executed opinion of Oppenheimer Wolff & Donnelly LLP,
counsel to the Purchaser, referred to in Section 9.4.
(d) The certificate referred to in Section 9.5, duly executed by
the Purchaser.
(e) Certified resolutions of the Purchaser referred to in Section
9.6.
(f) Copies of the consents, approvals or waivers referred to in
Section 9.8.
(g) The Mutual Release referred to in Section 9.9.
(h) The Easement Termination Agreement referred to in Section 9.
10.
(i) The insurance certificate referred to in Section 5.4.
(j) A Resale Certificate for the Inventory.
(26)
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11. Restrictive Covenant.
11.1. Noncompetition. The parties acknowledge that the Seller carries on
the Business within a ten mile radius of Hinckley, Minnesota (the
"Territory"), that a substantial portion of the value of the
Purchased Assets and the Business being purchased is the goodwill
the Seller has built up in the Territory and the ability of the
Purchaser and the Purchaser's other subsidiaries to expand their
operations within the Territory, and that the Purchaser would not be
purchasing the Purchased Assets but for such goodwill and ability to
expand. Accordingly, during the "Restricted Period" (as defined
below), the Seller and its respective affiliates shall not without
the prior written consent of the Purchaser (i) directly or
indirectly, in any part of the Territory, engage or be interested in
or carry on (whether as owner, partner, consultant, employee, agent,
or otherwise) any business, activity, or enterprise which is similar
to or competes with in any aspect of the Business; (ii) directly or
indirectly employ or otherwise engage, or offer to employ or
otherwise engage, any person who is then (or was at any time within
two years prior to the time of such employment, engagement, or offer
thereof) an employee, sales representative, or agent of the Seller
or the Purchaser relative, to the Business (as successor to the
Business of the Seller); or (iii) directly or indirectly induce or
influence any customer, supplier, or other person that has a
business relationship with the Seller or the Purchaser relative to.
the Business to discontinue or reduce the extent of such
relationship with the Purchaser relative to the Business (as
successor to the Business). As used herein, the "Restricted Period"
shall mean the period expiring on the second anniversary of the date
hereof. In addition, the Seller, and its affiliates shall never
divulge to any third parties any trade secrets, customer or supplier
lists, pricing information, marketing arrangements, strategies,
business plans, internal performance statistics, training manuals,
or other information concerning the Business that is competitively
sensitive or confidential, unless such information is required to be
disclosed by law, rule or regulation or by reason of subpoena, court
order or government action; provided, however, that the Seller and
its affiliates shall not disclose such information until they have
given the Purchaser prompt notice of the requirement to disclose and
the Purchaser, should it so desire, has had a reasonable opportunity
to take any action designed to prevent such disclosure.
11.2. Damage. Because a breach, or attempted or threatened breach, of this
restrictive covenant will result in immediately and irreparable
injury to the Purchaser for which the Purchaser will not have an
adequate remedy at law, the Purchaser shall be entitled, in addition
to all other remedies, to a decree of specific performance of this
covenant and to a temporary and permanent injunction enjoining such
breach, without posting bond or furnishing similar security.
11.3. Investment. The provisions of Section 11.1 notwithstanding, the
Seller or any affiliate of the Seller thereof may invest in a
publicly held company, provided that such investment does not
constitute more than five percent (5%) of the issued and outstanding
securities of such company and any such person is strictly a passive
investor without any direct or indirect involvement in the
operations of the company.
(27)
<PAGE>
11.4. Further Assurances. The parties shall cooperate and take such
actions, and execute such other documents, at the Closing or
subsequently, as either may reasonably request in order to carry out
the provisions or purpose of this Agreement.
11.5. The Seller's Employees.
(a) Offer of Employment. Seller's Employees relative to the
Business who accept past service with the Seller for the
purposes of determining their vesting in or eligibility for
any employee plan, hospital, medical, dental or disability
plan, vacation or sick leave, and life insurance benefits of
the Purchaser. No credit shall be allowed for past service
with the Seller relative to the Business in determining the
amount of any financial benefit under such benefit plans
(b) Severance Benefits. The Purchaser shall not have any
obligation to make severance payments to any of the Seller's
employee relative to the Business by virtue of such employees
termination of employment with or by the Seller prior to or as
of the Closing, or termination by the Purchaser subsequent to
the Closing other than as specifically provided for in the
benefit plans adopted by the Purchaser and specifically made
applicable to such employees hired by the Purchaser.
(c) Credit for Service with Seller. If any former employee hired
by the Purchaser is given credit under this Agreement for
service with the Seller, the service credited shall be
determined solely with reference to data provided to the
Purchaser by the Seller.
(d) Seller's Employment Agreements. The Purchaser shall not have
any responsibility or liability under any deferred
compensation agreement or Plan, or any individual written
agreement between the Seller and any of the Seller's employees
relative, to the Business setting forth specific terms of
employment duration or compensation, including, without
limitation, any termination agreement, or any agreement for
parachute payments within the meaning of Code Section 280G.
(e) COBRA Requirements. The Seller shall be responsible for full
compliance with the requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), and
any costs, expenses, Claims, Liabilities, or obligations
related thereto, as required by COBRA.
(f) No Rights to Employment. Nothing, expressed or implied in this
Agreement shall confer upon any of the Seller's, employees,
beneficiaries, dependents, legal representatives or collective
bargaining agents of such employees any right or remedy of any
nature or kind whatsoever under or by reason of this
Agreement, including without limitation any right to
employment or to continued employment for any specified
period, at any specified location or under any specified job
category.
(28)
<PAGE>
12. Brokers and Finders. Each party represents to the other that it has had no
dealings with any broker or finder or similar person in connection with
the transactions contemplated by this Agreement. Should any other claim be
made for a broker's, finder's or similar fee, on account of any actions or
dealings by a party or its agents, such party shall indemnify and hold the
other party harmless from and against any and all liability and expenses,
including reasonable attorneys' fees, incurred by reason of any claim made
by such broker, finder, or similar person.
13. Indemnification.
13.1. Indemnification by the Seller. The Seller shall indemnify, defend,
and hold harmless the Purchaser and its affiliates, promptly upon
demand at any time and from time to time, against any and all
losses, liabilities, claims, actions, damages, and expenses,
including, without limitation, attorneys' fees and disbursements
(collectively, "Losses"), arising out of or in connection with any
of the following: (a) any misrepresentation or breach of any
warranty made by the Seller in any of the Seller's Documents; (b)
the Retained Liabilities; (c) any breach or nonfulfillment of any
covenant or agreement made by the Seller in any of the Seller's
Documents; (d) the claims of any broker, finder, or similar person
engaged bit the Seller; (e) any customer claims for damaged or
defective goods sold or services provided prior to the Closing
except to the extent such goods may be returned, or services
refunded, by the Purchaser to the manufacturer for credit of not
less than 90% of the full purchase price paid to such manufacturer;
(f) any claim by any federal, state or local taxing authority for
taxes, interest, penalties, fees, assessments, duties and other
similar governmental charges which arise from the operation of the
Business by the Seller during any period or periods on or prior to
noon on the Closing Date; (g) any Environmental Liabilities and
Costs (as defined in Section 4.19) that are related in any way to
the Seller's use, control, ownership or operation of the Business or
the Purchased Assets, including, without limitation, any on-site or
off-site activities of the Seller involving Hazardous Substances,
Oils, Pollutants or Contaminants (as defined in Section 4.19), and
that occurred, existed, arose out of conditions or circumstances
that occurred or existed, or were caused, in whole or in part during
the period of time commencing on August 11, 1993 and continuing to
and including noon on the Closing Date, whether or not the pollution
or threat to human health or the environment or violation of any
Environmental Laws (as defined in Section 4.19) is described in the
Disclosure Schedule; and (h) without in any manner limiting the
foregoing, Losses which arise from the operation of the Business, or
from the ownership of the Purchased Assets by the Seller, during the
period of time commencing on August 11, 1993 and continuing to and
including noon on the Closing Date, except for those liabilities
which constitute Assumed Liabilities, or other liabilities expressly
assumed by the Purchaser hereunder.
13.2. Indemnification by the Purchaser. The Purchase shall indemnify,
defend, and hold harmless the Seller, promptly upon demand at any
time and from time to time, against any and all Losses arising out
of or in connection with any of the following: (a) any
misrepresentation or breach of any warranty made by the Purchaser in
any of the Purchaser's Documents; (b) any breach or nonfulfillment
of any covenant or
(29)
<PAGE>
agreement made by the Purchaser in Purchaser's Documents; (c) the
claims of any broker, finder, or similar person engaged by the
Purchaser; (d) any failure to pay the Assumed Liabilities or other
liabilities expressly assumed by the Purchaser hereunder; (e)
without in any manner limiting the foregoing, any liabilities. or
obligations of, or claims or causes of action against the Seller
which arise from the operation of the Business by the Purchaser
during any period or periods after noon on the Closing Date; (0 any
customer claims for damaged or defective goods sold or services
provided by the Purchaser after noon on the Closing Date, except
such goods that were sold by Seller to Purchaser or services that
included the provision of such goods; (g) any claim by any federal,
state or local taxing authority for taxes, interest, penalties,
fees, assessments, duties and other similar governmental charges
which arise from the operation of the Business by the Purchaser
after noon on the Closing Date; and (h) any Environmental
Liabilities and Costs (as defined in Section 4. 19) that are related
in any way to the Purchaser's use, control, ownership or operation
of the Business or the Purchased Assets, including, without
limitation, any on-site or off-site activities of the Purchaser
involving Hazardous Substances, Oils, Pollutants or Contaminants (as
defined in Section 4.19), and that occurred, existed, arose out of
conditions or circumstances that occurred or existed, or were caused
solely after noon on the Closing Date.
13.3. Further Provisions Regarding Indemnification.
(a) Survival. Notwithstanding any examination or investigation
made by or for any party, all representations, warranties,
indemnities, covenants, and agreements made by the Seller in
the Seller's Documents, and made by the Purchaser in the
Purchaser's Documents, shall survive the Closing for a period
of one (1) year from the Closing Date.
(b) Limitations. Notwithstanding the foregoing, neither party
shall be entitled to indemnification for Losses arising out of
matters referred to in Sections 13.1 or 13.2, as applicable,
unless it shall have given written notice to the other party,
setting forth its claim for indemnification in reasonable
detail, within two (2) years after the Closing Date; provided,
however, that the foregoing limitation shall not apply with
respect to the obligations of the Purchaser assumed in Section
2. 1(a), a breach of the representations and warranties
contained in Section 4.1 (other than the last sentence
thereof), 4.2, 4.8 and 4.19, and in Sections 5.1, 5.2 and 5.3,
with respect to which sections respective statutes of
limitation of applicable law shall apply, and with respect to
breaches of the representations and warranties contained in
Section 4.7, such notice shall be given at any time prior to
the expiration of the last federal or state statute of
limitations relating to the tax liability discussed therein.
Notwithstanding the foregoing, no Party shall be entitled to
indemnification for any Losses arising out of matters referred
to in Sections 13.1(a) through (e), 13.1(h), or 13.2(a)
through (f) or 13.2(h), as applicable, unless and only to the
extent that such Losses exceed $30,000 in the aggregate.
(30)
<PAGE>
(c) Defense. If an indemnified party shall receive notice of a
claim asserting Losses for which it is indemnified under this
Agreement, it shall promptly notify the indemnifying party.
The failure to notify the indemnifying party shall not relieve
the indemnifying party from its indemnity obligation, except
to the extent its defense of the action is actually
prejudiced. The indemnifying party may, at its cost and
expense, participate in the defense of such action and may
assume the defense with counsel satisfactory, in the exercise
of reasonable judgment, to the indemnified party. The
indemnifying party may settle, compromise and pay any claim of
or to any third party. If the indemnified party shall
reasonably conclude that its interests in such action are
materially different from those of the indemnifying party or
that it may have defenses that are different from or in
addition to those available to the indemnifying party, the
indemnified party may call such matters to the attention of
the indemnifying party, who shall use its best efforts to
incorporate such concerns into the defense of such action. If
the indemnified party still believes that its interests are
not being protected in such action, it may use separate
counsel to assert such matters, but at its sole cost an4
expense. If the indemnifying party shall assume the defense
with counsel satisfactory to the indemnified party, the
indemnifying party shall not be liable for any legal expenses
subsequently incurred by the indemnified party. If the claim
is one that cannot by its nature be defended solely by the
indemnifying party, the indemnified party shall make available
all information and assistance that the indemnifying party may
reasonably request.
14. Termination.
14.1. Termination Events. This Agreement may, by notice given on or before
the Closing Date, in the manner hereinafter provided, be terminated
and abandoned:
(a) Material Default. By the Purchaser or the Seller if the other
party materially defaults or breaches the Agreement with
respect to the due and timely performance of any of such other
party's covenants and agreements contained herein, or with
respect to due compliance with any of such other party's
representations and warranties contained herein, and such
default shall have not been cured within ten (10) days after
receipt of notice from the party alleging default specifying
such default with particularity, unless the default is of a
type which cannot be cured within ten (10) days after receipt
of notice, in which case such other party shall have a
reasonable time within which to cure such default.
(b) Conditions Not Met. By the Purchaser if all of the conditions
set forth in Section 8 shall not have been satisfied (or are
incapable of being satisfied) on or before Closing or waived,
by the Purchaser on or before such date; or by the Seller, if
all of the conditions set forth in Section 9 shall not have
been satisfied (or are incapable of being satisfied) by
Closing or waived by the Seller on or before such date.
(31)
<PAGE>
(c) Mutual Consent. By mutual consent of the of the Purchaser and
the Seller.
(d) Closing Not Occurred. By either the Purchaser or the Seller if
the Closing shall not have occurred, through no fault of
either party, on or before June 30, 1998 or such later date as
may be agreed upon by the parties.
(e) Effect of Termination. Each party's right of termination
hereunder is in addition to any other rights it may have
hereunder or otherwise. If this Agreement is rightfully
terminated pursuant to this Section 14, all further
obligations of the parties hereunder shall terminate, except
for the obligations set forth in Section 15.6.
(f) Confidentiality. If this Agreement is terminated, the
Purchaser will promptly return (or destroy, if requested by
the Seller) any material which the Seller has furnished to the
Purchaser, and the Purchaser agrees to take all reasonable
steps to protect and maintain the confidential nature of any
such information obtained by the Purchaser in its
investigation of the Seller.
15. Miscellaneous.
15.1. Notices. All notices or other communications in connection with this
Agreement shall be in writing and shall be considered given when
personally delivered or when mailed by registered or certified mail,
postage prepaid, return receipt requested, or when sent via
commercial courier or telecopier, directed, as follows:
If to the Seller:
Casino Resource Corporation
707 Bienville Boulevard Ocean Springs, Mississippi 39564
Attn: Ms. Noreen Pollman
Telephone No.: (228) 872-5558
Facsimile No.: (228) 872-4456
With copies to:
Doherty, Rumble & Butler, Professional Association
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, Minnesota 55402
Attn: Andrew Tataryn, Esq.
Telephone No.: (612) 343-5636
Facsimile No.: (612) 340-5584
If to the Purchaser:
Corporate Commission of the
Mille Lacs Band of Ojibwe Indians
(32)
<PAGE>
HCR 67, Box 194 Onamia, MN 56359
Attn: Commissioner of Corporate Affairs
Telephone No.: (800) 626-5825, Ext. 5776
Facsimile No.: (612) 449-5984
With copies to:
Oppenheimer Wolff & Donnelly LLP
45 South Seventh Street
Suite 3400 Minneapolis, NIN 55402
Attn: James E. Schatz, Esq.
Telephone No.: (612) 607-7433
Facsimile No.: (612) 607-7833
15.2. Entire Agreement. This Agreement (which includes the schedules and
exhibits) sets forth the parties' final and entire agreement with
respect to its subject matter and supersedes any and all prior
understandings and agreements, oral or written, relating thereto.
This Agreement can be amended, supplemented, or changed, and any
provision, of this Agreement can be waived, only by a written
instrument making specific reference to this Agreement signed by the
party against whom enforcement of any such amendment, supplement,
change, or waiver is sought.
15.3. Successors. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective heirs, executors,
administrators, personal representatives, successors, and assigns;
provided, however, that neither this Agreement nor any right or
obligation under this Agreement may be assigned or transferred,
except that Purchaser may assign this Agreement and its rights under
this Agreement to any direct or indirect wholly-owned subsidiary of
the Purchaser and to financial institutions providing the Financing.
15.4. Section Headings. The section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
15.5. Other Discussions. Unless this Agreement shall have been terminated,
the Seller shall not consider or entertain any offers for, or hold
discussions with any person regarding, the acquisition of arty
assets or capital stock of the Seller relative to the Business.
15.6. Fees and Expenses, Sales Taxes. Whether or not the transactions
contemplated by this Agreement are consummated, the parties shall
pay their own respective expenses.
15.7. Severability. If any provision of this Agreement shall be held by
any court of competent jurisdiction to be illegal, invalid, or
unenforceable, such provision shall be construed and enforced as if
it had been more narrowly drawn so as not to be illegal, invalid, or
unenforceable, and such illegality, invalidity, or unenforceability
shall
(33)
<PAGE>
have no effect upon and shall not impair the enforceability of any
other provision of this Agreement.
15.8. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the internal law of the State of
Minnesota (without reference to its rules as to conflicts of law).
15.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
15.10.Bulk Transfers. The parties waive compliance with the requirements
of the bulk sales law of any applicable jurisdiction in connection
with the sale of the Purchased Assets to the Purchaser.
15.11.Waiver, Discharge, Etc. This Agreement may not be released,
discharged, abandoned, changed, or modified in any manner, except by
an instrument in writing signed on behalf of each of the parties by
their duly authorized representatives. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in
no way he construed to waive any such provision, nor in any way to
affect the validity. of this Agreement or any part thereof or the
right of any party thereafter to; enforce each and every such
provision. No waiver of any breach of this Agreement shall be held
to be a waiver of any other or subsequent breach.
15.12.Limited Waiver of Sovereign Immunity. The Purchaser hereby waives
its sovereign immunity from suit to the extent, and only to the
extent, stated in this Section 15.12. During the period that the
Purchaser's obligations under this Agreement are in existence, the
Purchaser consents to be sued, or named a party, by Seller in any
action arising under or related to this Agreement and seeking to
enforce a term or terms of this Agreement or seeking damages for the
Purchaser's violation hereof, brought or pursued in the United
States District Court for the District of Minnesota, the United
States Court of Appeals for the Eighth Circuit and the United States
Supreme Court jointly, the "Courts"); provided, however, that any
award of damages against the Purchaser shall be collectible from or
executable against only the undistributed or future income of the
Purchaser and shall not be collectible from or executable against
any other asset of the Purchaser. The Purchaser hereby agrees to
submit to the jurisdiction of the Courts, waives any objection to
the jurisdiction of the Courts and agrees riot to object to or
contest such jurisdiction. The Seller and the Purchaser hereby agree
to assert and argue that the Courts have jurisdiction over them in
any action under or related to this Agreement. If the Seller in any
way challenges the jurisdiction of the Courts in such an action,
such challenge shall render the limited waiver of sovereign immunity
provided for in this Section 15.12 ineffective with respect to the
action in which the challenge occurs. In addition to the Courts, the
Purchaser may be sued, or named, a party, in any action arising
under or related to this Agreement or related to the Purchaser's
related investment in the Company brought or pursued in the Court of
Central Jurisdiction of the Mille Lacs Band of Qjibwe Indians. The
limited waiver of sovereign immunity by the
(34)
<PAGE>
Purchaser provided for in this Section 15.12 shall not be effective
in any way relative to the Mille Lacs Band of Ojibwe Indians or any
of its assets.
[Remainder of page intentionally left Blank]
(35)
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed tins Asset Purchase
Agreement by their authorized representatives as of the date first above
written.
PURCHASER: CORPORATE COMMISSION OF THE
MILLE LACS BAND OF OJIWE INDIANS
By: _________________________________________
Its: ________________________________________
Dated: June 29, 1998
SELLER: CASINO RESOURCE CORPORATION
By: _________________________________________
Its: ________________________________________
Dated: June 29, 1998
CASINO BUILDING CORPORATION
By: _________________________________________
Its: ________________________________________
(36)
<PAGE>
SEE ANNEX
FOR EXHIBITS AND SCHEDULES
TO
ASSET PURCHASE AGREEMENT
RESPONSE TO MEMORANDUM DATED OCTOBER 13, 1999
TO: JACK PILGER
FROM DR. BURKHART
- --------------------------------------------------------------------------------
1. CRCT and CRC to convey their 60% interest in the LLC to Burkhart LLC
for $20,000 effective 12/31/98. Price is based on the agreed figure by
both CRCT and CRC and will be due and payable by 9/30/99 with no
interest accrued. Fee will be discontinued by 50% if ticket sales do
not increase by 10% over those of 1998.
2. CRC agrees to pay its 60% of all cash shortages, net of its prorata
share of prepaid advertising, through 12/31/98, which amount as of
10/15/98 is calculated to total $18,285.61 (or $10,971.37 - 60% CRC).
3. Burkhart, LLC to waive any claims against CRC/CRCT under Operating and
Lease Agreement after 12/31/98 and indemnify CRC/CRCT against any
claims against Burkhart LLC after 12/31/98. CRC and CRCT will waive any
claims against Burkhart, LLC or Burkhart and indemnify Burkhart and
Burkhart, LLC against any claims against LLC through 12/31/98.
4. CRC will manage and provide accounting services for the LLC for 1999
for a fee of $2,000 per week during the performing season and $1,000
per week during the non-performing season payable on 9/30/99.
Management fee will be discounted by 50% if the ticket sales have not
increased 10% over that of 1998. Management contract will have a 30-day
cancellation clause to Burkhart, LLC.
5. Burkhart LLC agrees to enter into contract to produce show with On
Stage through calendar 1999, as provided for in the Asset Purchase
Agreement between CRC and On Stage subject to the On Stage deal
actually closing. CRC will agree to assume continued performance of the
show in the event either On Stage closes the deal or CRC continued to
maintain the show.
6. Burkhart LLC guarantees performance of CTE contract (with CTE owned by
CRC or On Stage) and payment for the same through 12/31/99. Contract
for show with CRCT and CRC or On Stage will have a 60-day cancellation
clause to Burkhart, LLC.
7. Burkhart LLC agrees to indemnify CRC/CRCT from Citizen National Bank
against any obligations it may have as tenant as wet out in
Subordination, Non-Disturbance and Attornment Agreement.
8. CRC is no longer responsible for any guarantees and Burkhart LLC agrees
to indemnify CRC and CRCT underlying operating leases: i.e. logo signs
on building and marquee.
<PAGE>
9. CRC will provide and complete all income statements for LLC operation
through 12/31/98 including W-2s, 1099s for calendar 1998.
10. Contract for show will be at a price of $36,000 per 12 show week/$3,000
per show for 1999 and contain three (3) 1-year options available to the
LLC for $36,000 per 12 week, or $3,000 per show plus national cost of
living index increases. Quality for shows and number of performers,
plus or minus 10%, will remain the same as in 1998 at the request of
Burkhart LLC. If shows are limited to one per day or less than 12 per
week then it will be reflected by a decreased payment to CRC or On
Stage of $3,000 per show. In addition, if more than 12 shows per week
are performed then each increased show will be reflected by an increase
of $3,000 per show to CRC or On Stage.
- ----------------------------------- -----------------------------------
CRCT Date CRC Date
CEO, Jack Pilger CEO: Jack Pilger
- ----------------------------------- -----------------------------------
Dr. J. MacDonald Burkhart, Date Dr. J. MacDonald Burkhart Date
Burkhart Ventures, LLC Individually
EXTENSION OF PROMISSORY NOTE MATURITY DATE
This Extension of Promissory Note Maturity Date (this "Extension") is
made effective as of December 22, 1998, and is among Ahab of the Ozarks,. Inc.,
a Missouri corporation ("Ahab"), CRC of Branson, Inc., a Missouri corporation
("CRCB"), and Casino Resource Corporation, a Minnesota corporation ("CRC").
RECITALS
A. CRCB executed a Promissory Note dated March 24, 1994, in the stated
principal amount of $8, 000, 000 (the "Note)') , payable to the order of Ahab.
B. CRC guaranteed all obligations of CRCB under the Note pursuant to a
Guaranty Agreement dated March 24, 1994 (the "Guaranty").
C. The original maturity date of the Note is April 1, 1999 and CRCB and
CRC have requested that the maturity date of the Note be extended and that the
principal balance of the Note be discounted in the event that CRCB and CRC
retire the indebtedness under the note prior to a specified date.
D. Ahab is willing to extend the Note and to agree to a discount in the
outstanding principal balance of the Note subject to the terms and conditions
set forth herein.
TERMS
Now, therefore, in consideration of the payment of Five Thousand and
No/100 Dollars ($5,000.00) to Ahab to offset certain expenses incurred by Ahab
in connection with this matter, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Ahab hereby extends the maturity date of the Note from April 1, 1999
to October 1, 1999.
2. CRCB and CRC hereby reaffirm the Note and the Guaranty, acknowledge
and agree that the outstanding principal balance of the Note as of the date
hereof is Seven Million One Hundred Seventy-Four Thousand Two Hundred
Twenty-Four and 02/100 Dollars ($7,174,224.02) (plus accrued interest since
December 1, 1998) and acknowledge, that there exist no claims, defenses, offsets
or recoupments which CRCB or CRC could assert which could reduce said
outstanding principal balance.
3. Ahab further agrees that it will accept as payment in full of the
Note, an amount equal to the then outstanding principal balance of the Note,
less a Three Hundred Thousand and No/100 Dollars ($300,000.00) discount, plus
all accrued interest and other charges due under the Note (collectively, the
"Payoff Amount") , provided that: (a) CRCB and/or CRC pay to Ahab the Payoff
Amount in immediately available funds on or before May 31, 1999 by wire
transfer, (b ) between now and the date on which the Payoff Amount is received
by Ahab, CRC must; remain current in all payments of principal and interest due
under the Note; and (ii) not be in default of any of its obligations under the
Note, the Deed of Trust with Security Agreement dated March
<PAGE>
24, 1994 (the "Deed of Trust") , the Assignment of Rents and Lease dated March
24, 1994 (the "Assignment of Rentals") , and the Security Agreement dated March.
24, 1994 (the "Security Agreement"); (c) any expenses incurred by Ahab in
connection with the prepayment, including, without limitation, the costs
associated with the preparation and filing of releases, will be paid by CRCB
and/or CRC and (d) if the Payoff Amount is not received by the close of business
on May 31, 1999, this prepayment option will be void and of no further effect.
4. The parties agree that all references in the Deed of Trust,
Assignment of Rents and Security Agreement to the Note shall be deemed to be
references to the Note as modified herein. The Deed of Trust, Assignment of
Rents and Security Agreement shall otherwise remain unmodified and in full force
and effect.
5. No provisions of the Note or the Guaranty, not expressly modified
and amended hereby, shall be affected by this Extension and the Note and
Guaranty shall remain in full force and effect.
6. This Extension may be executed in any number of counterparts, all of
which together shall constitute but one agreement.
IN WITNESS WHEREOF, the parties have executed this Extension as of the
day and year first above written.
AHAB OF THE OZARKS, INC. CASINO RESOURCE CORPORATION
By:____________________________ By:______________________________
Harold R. Ragsdale, John J. Pilger
p/k/a Ray Stevens
Title: President Title:___________________________
CRC OF BRANSON, INC.
By:______________________________
John J. Pilger
Title:___________________________
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into this
15th day of February, 1998, and shall commence on February 15 1998 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 Noreen Pollman ("Consultant"), an individual residing at 963
Riverview Drive, Biloxi, MS 39532.
1. BACKGROUND
The Company is engaged in the business of developing and operating a
gaming enterprise as well as hotel and entertainment businesses.
Consultant has extensive experience in operating CRC businesses;
understands CRC contractual obligations, and was instrumental in development of
ongoing CRC operating businesses up to and including 1998 operating proformas.
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. This Agreement shall be for a two (2) year term renewing for
one-year terms thereafter, if such renewal is mutually agreed upon by
CRC and the Consultant unless Agreement is sooner terminated by written
notice as set out in Paragraph 9, or upon death of Consultant.
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 requires from time to time so
that the Company may have the benefit of Consultant's
knowledge, expertise, skills and experience. Such services may
include: development, review and implementation of operating
budgets for the Company; provide support on analysis of
prospective business acquisitions; maintain corporation and
subsidiary business records; coordinate all legal activities;
coordinate all insurance of Corporation; support HR of
Corporation, (i.e., workers compensation disputes, workers
compensation claims. And unemployment compensation claims);
review of financial performance of Company audit of same for
accuracy; or other services as may be needed of Consultant by
CRC. (Collectively, 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
<PAGE>
shall independently determine the time and manner of the
performance of her responsibilities and duties hereunder,
provided that Consultant commits to provide an average of
twenty-five hours per week of services to the Company, such
hours to be supported by written documentation. Company shall
pay Consultant all compensation due weekly and upon receipt of
written documented statement.
(c) The Company recognizes the Consultant shall not
devote her full business time to the Consulting Services and
that the Consultant may continue to participate in her
business interests, and other consulting services, other than
as may be prohibited by or contrary to this Agreement.
(d) The Company and Consultant may, in their respective
sole discretion, agree to enter into additional agreements
with each other in connection with other projects not set out
in Paragraph 2a. Other Projects shall be on terms and
conditions which the Company and Consultant mutually agree,
i.e. other Projects may include: Director CRC; Director CRC
Tunisia S.A (Whether these be elected or appointed positions.)
(e) The Company may request and the Consultant agrees to
travel with respect to CRC business opportunities. The
documented costs for said travel will be paid by the Company
as set forth in Paragraph 4.
3. Compensation.
a. As full compensation for all Consulting Services
rendered hereunder, Company agrees to pay Consultant $67.00
per hour. Additionally, Consultant shall be paid $10,000
annually as Director CRC, pre-paid quarterly; and $10,000 US
as Director of CRC Tunisia S.A. and if EBITA for Casino is 6%
of revenue or greater any fiscal year Consultant will be paid
an additional $10,000 US no later than November 30 each year.
It is anticipated Consultant will provide Consulting Services
at a rate which will average no more than 25 hours per week.
If work is available and Consultant is able to provide Company
with additional hours weekly, upon Company's request
Consultant will provide services over 25 hours per week and
will be compensated accordingly.
b. Bonus: CRC shall pay Consultant a one time bonus of
up to $156,000 which shall be earned, upon Board approval, as
follows: $15,000 per month, where Consultant provides services
beginning April 1998 through September 30, 1998, payable the
first of each month, which moneys shall first retire the
Consultant's loan obligation including interest due CRC.
Thereafter, Consultant will earn $66,000 October 1, 1998. In
the event of a Change of Control "COC" (as defined herein), on
termination by CRC or Consultant of this agreement, all
remaining unearned bonus moneys will be paid within 10 days of
COC or termination date as a retirement bonus in consideration
of thirteen years of service. All outstanding bonus money due
Consultant October 1, 1998 will be
(2)
<PAGE>
paid, in cash or stock as mutually agreed. Cash and/or stock
bonus will be delivered in full on or before 12/31/99 or upon
COC or termination, whichever event comes first. In order to
determine the shares delivered hereunder the value per share
shall equal the average of the trailing 5 day closing stock
price 10/1/98. Company grants Consultant customary piggy-back
registration rights and demand registration rights with
respect to such shares of stock available in 90 days with
written notice.
c. Provided that this Agreement remains in effect
through April 1, 1999, the parties acknowledge that Consultant
will be vested for her remaining 60,000 options as granted by
CRC Audit Committee April 1997 under shareholders' approved
1997 Employee Stock Option Plan.
4. Reimbursement of Expense and Independent Contractor Benefits. The
Consultant is an independent contractor and as such shall be liable for
her personal office expenses and personal self employment taxes (of any
nature), except that the Company shall reimburse Consultant for all
out-of-pocket pre-approved business travel expenses within five days of
submission of invoice accompanied by receipts.
5. Confidential Information. The Parties hereto acknowledge that 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").
6. Limitation on Solicitation by Consultant. Consultant agrees that except
in good faith compliance with her duties hereunder as requested by the
Company, Consultant shall not, without the prior written approval of
the Chairman of the Board:
a. Solicit additional information regarding the Company
or its business from or otherwise contact any employees,
agents, or representatives of Company for a period of one year
from the termination of this Agreement.
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 for a period of one
year following the termination of this Agreement; or
c. During the term of and for a period of three (3)
years following the termination 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.
(3)
<PAGE>
7. Nondisclosure. Consultant agrees to hold the Confidential Information
in strictest confidence and to use the Confidential Information only
for purposes of rendering her services to Company as set forth in
Paragraph 2 above.
8. Exceptions to Nondisclosure. The nondisclosure obligations of
Consultant set forth under Paragraph 7 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 7
or above; or
b. Is disclosed to Consultant by a third person who is not under
an obligation of confidence to Company.
9. Termination. This Consulting Agreement may be cancelled by CEO or
Chairman of the Board upon the expiration of the initial term of this
Agreement, which expiration date is February 2, 2000, provided that the
CEO or Chairman has provided Consultant 90 days prior written notice of
his intent to terminate the Agreement, or as mutually agreed.
Notwithstanding the foregoing, the Company may terminate the
Consultant's Agreement for "Cause" which shall mean (i) Consultant had
theretofore been convicted by any federal, state or local authority
for, or pleaded guilty to, an act constituting a felony, or (ii) a)
Consultant has committed material acts of fraud, material dishonesty or
gross misconduct; or b) has repeatedly and willfully failured or
refused to perform her material duties as delineated herein. If
termination for Cause by Company is pursued pursuant to clause (ii)(b)
of the preceding sentence, it shall be preceded by written notice to
Consultant describing the specific reasons for termination, and
Consultant shall only be terminated if she fails to cure and correct
problems identified during the 30-day period following the date of
written notice.
Agreement will also terminate upon death of Consultant or if Consultant
is unable to perform functions for any consecutive 120 day period due
to illness. This agreement will terminate upon a "Change of Control
Event." (See 9a.) Change of control is defined as:
a. The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended, (a "Person") of beneficial
ownership of 20% or more of either (i) the outstanding shares
of stock of the Company or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled
to vote generally in the election of directors; or
b. Any two or more members of the staggered Board of seven or
more Directors are removed without the expressed approval or
consent of the CEO and Chairman of the Board, or where two or
more members of the Board assume office as a result of either
(4)
<PAGE>
an actual or threatened election contest or other actual or
threatened solicitation of proxies; or
c. A hostile reorganization, merger or consolidation which
results from either an actual or threatened election contest
or actual or threatened solicitation of proxies; or
d. A complete liquidation or dissolution of the Company, or the
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation; which
liquidation, sale or dissolution occurs as a result of either
actual or threatened solicitation of proxies or consents by or
on behalf of persons other than the incumbent Board.
This Agreement may, at discretion of Consultant be terminated by
Consultant providing written notice to Company upon any Change of
Control Event, which notice will automatically trigger the following
payments:
I. A. Cash payment equal to Consultant's average annual
compensation (calculated over the three years immediately
prior to a Change of Control event, including bonus)
multiplied by 2.9009
B. Such cash payment will be paid in lump sum within 5 days
following termination of this Agreement.
C. Payment described in A shall be "grossed up" to reflect all
of Consultant's income tax liability following receipt of such
payment.
II. Stock: Immediate vesting of all outstanding options which are
held by the Consultant with three year provision maintained
for cash-less exercise
III. Company shall maintain Consultant's health and dental benefits
for a one year term at Consultant's expense.
10. Remedies Cumulative: No Waiver. No remedy conferred upon the Company
and/or Consultant 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 existing at law or in equity. No delay or omission by the
Company and/or Consultant 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 and/or Consultant from time to time and as often as may be
deemed expedient or necessary by the Company and/or Consultant in its
sole discretion.
(5)
<PAGE>
11. 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.
12. 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 and messenger service),
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.
13. 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); except that the duties and
responsibilities of the Consultant hereunder are of a personal nature
and shall be not be assignable in whole or in part by the Consultant.
14. Indemnification. The Company shall indemnify you for Losses if you: (a)
are not indemnified by another organization or employee benefit plan
for the same Losses, or have not otherwise received, or are entitled to
receive, payment under any insurance policy, bylaw or otherwise for the
same Losses; (b) acted in good faith; (c) received no improper personal
benefit; (d) reasonably believed that the conduct was in the best
interest of the Company; and (f) such indemnification is not prohibited
by Section 302A.251, Subd. 4, Minnesota Statues.
(6)
<PAGE>
The term "losses," when use in this Agreement, shall mean:
(a) Expenses, including reasonable attorneys' fees and all other
reasonable costs, expenses and obligations, paid or incurred
by you in connection with defending any civil, criminal or
administrative action (an "Action"), including any appeal
thereof;
(b) Judgments against you in connection with or arising out of an
Action;
(c) Civil fines and penalties imposed on you in connection with or
arising out of an Action, including any appeal thereof; or
(d) Reasonable attorneys fees as a part of settlement or judgement
which are imposed on you in connection with or arising out of
an Action, including any appeal thereof.
15. 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.
16. 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.
17. 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.
18. Legal Costs and Expenses. Company shall bear all costs and expenses in
connection with this Agreement, up to and including any and all costs
to litigate including attorney's fees or other costs and expenses for
enforcement of any provision hereof including enforcement related to
the remittance of payments in the event of termination by Consultant
upon a Change of Control Event.
(7)
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this date first written above.
CASINO RESOURCE CORPORATION
By: ________________________________________
John J. Pilger, Chief Executive Officer
By: ________________________________________
Noreen Pollman
(8)
<PAGE>
2. Exhibit I
Hourly consulting fee was calculated as follows:
$127,500 1997 wages
$ 9,754 .0765 employer's shares
$ 5,000 health insurance cost
These expenditures spread over 48 work weeks (net of DTO) at an average of 45
hours per week equals $67.00 per hour.
---------------
Generally consultant fees for piecework are 20% over wage. This contract gives
CRC the benefit of 1997 rate and does not reflect any increase.
---
(9)
<PAGE>
Exhibit II
(i) Change of Control Events
The Change of Control Events and Golden Parachutes are from Executive
Compensation Reports published by Harcourt in 1995 and updated this January 1,
1998. The COC Events and Golden Parachutes used in this document are an average
for "other executive" classes (non-CEO.) Change of Control protection has been a
critical issue for executives as the merging and acquisition frenzy continues.
Over 50% of corporations studied have Golden Parachutes in place for one or more
executives. The Change of Control Events within this contract reflect those
corporate trends as set out this January 1998 by ECR as gathered from published
corporate proxy statements. Specifically, the average buy-out trigger is 24.3%
of outstanding voting stock. Average severance multiple is 2.8 with a median of
3.0. Fifty-six percent (56%) of companies provide excise tax gross up under
parachutes, which is up from a 45% average reported in 1995. I have provided
pertinent excerpts from ECR compensation report for your review.
(10)
ROBERT J. ALLEN
AGREEMENT
AGREEMENT ("Agreement") by and between Casino Resource Corporation, a
Minnesota corporation with its principal offices at 707 Bienville Boulevard,
Ocean Springs, Mississippi, 39564 (the "Company"), and Robert J. Allen, Vice
President Entertainment, (the "Executive"), dated as of the 3rd of April, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interest of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks which may be created by a pending or threatened Change
of Control, and to encourage the Executive's full attention and dedication to
the Company currently and in the event of any threatened or pending Change of
Control. The Board also believes it is imperative to provide the Executive with
compensation and benefit arrangements upon a Change of Control which ensure the
compensation and benefit expectations of the Executive will be satisfied and are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
a. The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and
if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with
or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the
date immediately prior to the date of such termination of
employment.
b. The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third
anniversary date of such date; provided, however, that
commencing on the date one year after the date hereof and on
each annual anniversary of such date, hereafter referred to as
"Renewal Date," the Change of Control period shall be
automatically extended so as to terminate three years from
such Renewal Date, unless at least sixty (60) days prior to
the Renewal Date, the Executive or corporation shall give
notice of its determination not to extend the Change of
Control Period.
2. Change of Control. For purpose of this Agreement, a "Change of Control"
shall mean:
(1)
<PAGE>
a. The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended, (a "Person") of beneficial
ownership of 20% or more of either (i) the issued and
outstanding shares of common stock of the Company or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors; or
b. If any two or more members within a class of the staggered
Board of seven or more Directors, as constituted on the date
hereof, are removed without the expressed approval or consent
of the CEO and Chairman of the Board, or if two or more
members of the Board assume office as a result of either an
actual or threatened election contest or other actual or
threatened solicitation of proxies; or
c. A hostile reorganization, merger or consolidation which
results from either an actual or threatened election contest
or actual or threatened solicitation of proxies; or
d. A complete liquidation or dissolution of the Company, or the
sale or other disposition of all or substantially all of the
assets of the Company, which liquidation, sale or dissolution
occurs as a result of either actual or threatened solicitation
of proxies or consents by or on behalf of persons other than
the incumbent Board.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with this Agreement and the terms and
provision of this Agreement for a period commencing on the Effective
Date and ending on the third anniversary of such date (the "Employment
Period".)
4. Terms of Employment.
a. Position and Duties.
(i.) During the Employment Period (a) the Executive's position,
authorities, duties and responsibilities of same shall be at
least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective
Date and (b) the Executive's services shall be performed at
the location where the Executive was employed preceding the
Effective Date or at the headquarters of the Company.
(ii.) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote attention and time during
normal business hours to the business and affairs of the
Company and to discharge the responsibilities assigned to the
Executive hereunder.
b. Compensation
(2)
<PAGE>
(i.) Base Salary. During the Employment Period the Executive shall
receive an "Annual Base Salary" of one hundred fifteen
thousand five hundred dollars ($115,500), which is annual
salary currently paid to Executive and which sum shall be paid
on a bi-weekly basis in the same manner as the wage payments
of other Company employees. During the Employment Period, the
Annual Base Salary shall increase each year based on increases
in the Consumer Price Index. Any increase in the annual base
salary shall not serve to limit or reduce any other obligation
to the Executive under this Agreement.
(ii.) Special Bonus. In addition to Annual Base Salary as herein
provided, if Executive remains employed with the Company or
elects to provide consulting services to Company through the
first anniversary of the Effective Date, the Company shall pay
to the Executive a "Special Bonus" in recognition of the
Executive's services during the one year period following the
Change of Control, in cash, a sum equal to Executive's Annual
Base Salary. The Special Bonus shall be paid no later than
thirty days following the first anniversary of the Effective
Date.
(iii.) Incentive Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies
and programs applicable generally to other executives of the
Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the
Executive with incentive opportunities less favorable in the
aggregate than the most favorable of the same provided by the
Company for the Executive in effect at any time during the 90
day period immediately preceding the Effective Date.
(iv.) Welfare Benefit Plans. During the Employment Period the
Executive and/or the Executive's family shall be eligible for
participation in and shall receive benefit plans, practices,
policies and programs provided by the Company and its
affiliates including without limitation; medical,
prescription, dental, disability, salary continuation,
employee life, group life and travel accident insurance to the
extent applicable generally to other peer executives of the
Company.
(v.) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance
with the most favorable policies, practices and programs of
the Company and its affiliates in effect for the Executive at
any time during the 90-day pay period immediately preceding
the Effective Date.
(vi.) Office and Support staff. During the Employment Period the
Executive shall be entitled to an office or offices of the
size and with the furnishings and other appointments and to
exclusive personal secretarial and other assistance, at least
equal to the most favorable of the forgoing provided to the
Executive by the Company at any time during the 90-day period
preceding the Effective Date.
(3)
<PAGE>
(vii.) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the
Company.
5. Termination of Employment.
a. Death or Disability. The Executive's employment shall
terminate automatically upon the death of the Executive during
the Employment Period. For purposes of this Agreement
"Disability" shall mean the absence of the Executive from the
Executive's duties from the Company on a full time basis for
90 consecutive business days as a result of incapacity due to
a mental or physical illness which is determined to be total
and permanent by a physician selected by Company and
acceptable to the Executive or the Executive's legal
representative.
b. Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) Executive had theretofore
been convicted by any federal, state or local authority for,
or pleaded guilty to, an act constituting a felony, or (ii)
Executive's termination was as a result of: a) material acts
of fraud, material dishonesty or gross misconduct by
Executive; or b) repeated and willful failure or refusal by
Executive to perform his material duties as delineated in the
Executive Employment Agreement. If termination for Cause by
Company is pursued pursuant to clause (ii)(b) of the preceding
sentence, it shall be preceded by written notice to Executive
describing the specific reasons for termination in order to
allow Executive the opportunity to cure and correct problems
identified during a 30-day period following the date of
written notice.
c. Without Cause. Executive may terminate his employment
hereunder, without Cause, provided Executive first gives to
Company a written notice of intent to terminate (see (5)(d)).
d. Notice of Termination. Any termination by the Company for
Cause, or by the Executive without any reason shall be
communicated by a "Notice of Termination" to the other party
hereto given in accordance with Section 11(b). For purposes of
this Agreement "Notice of Termination" shall mean a written
notice which indicates the specific termination provision in
this Agreement relied upon.
6. Obligations of the Company.
a. Executive Termination (for other than Cause, Death or
Disability.) If during the Employment Period the Executive
shall terminate employment without reason:
i. The Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination,
the aggregate of the following amounts:
(4)
<PAGE>
A. The sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not therefore paid, (2) the
product of ("x") the Highest Annual Bonus
and ("y") a fraction, the numerator of which
is the number of days in the current fiscal
year through the Date of Termination, and
the denominator of which is 365 and (3) the
Special Bonus, if due to the Executive
pursuant to section 4(b)(iii) to the extent
not theretofore paid and (4) any
compensation previously deferred by the
Executive and any accrued vacation pay, in
each case to the extent not theretofore paid
(the sum of the amounts described in 1, 2, 3
and 4 shall refer to "Accrued Obligations");
and
B. The amount (hereafter referred to as
"Severance Amount") which shall equal the
product of 2.99 multiplied by the sum of the
Executive's Annual Base Salary, which
product shall be reduced by the present
value (determined under Section 280G(d)(4)
of the Internal Revenue Code of 1986 as
amended ("the Code")); and
C. A separate lump sum supplemental retirement
benefit payable under Retirement Plan and
Supplemental Retirement Plan (SERP) of the
Company providing benefits for the Executive
which the Executive would receive if the
Executive's employment continued at the
compensation level provided for in section
4(b)(i) and 4(b)(ii) for the remainder of
the Employment Period, assuming the accrued
benefits are fully vested; and
D. Any payment made to the Executive pursuant
to this Agreement, which shall be disallowed
in whole or in part by the Internal Revenue
Service, shall be reimbursed by the
Executive to the Company to the full extent
of the disallowance.
ii. For the remainder of the Employment Period, or such
longer period as any plan, program, practice or
policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's
family at least equal to those which would have been
provided to them in accordance with the plans,
programs, practices and policies described in Section
4(b)(v). For purposes of determining eligibility of
the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the
Executive shall be considered to have remained
employed until the end of the Employment Period and
to have retired on the last day of such period.
iii. To the extent not theretofore paid or provided; the
Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or
provide or which the Executive is eligible to receive
pursuant to this Agreement and under any plan,
program, practice or policy or contract or agreement
of the Company and its affiliated companies.
(5)
<PAGE>
b. Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations, payable to
Executive's estate in a lump sum in cash within 30 days of
Date of Termination and the timely payment of Welfare Benefit
Continuation and Other Benefits and a lump sum cash payment
within 30 days of termination the Severance Amount and
Supplemental Retirement Amount (SERP).
c. Disability. If the Executive's employment is terminated by
reason of Executive's Disability during the Employment Period,
this Agreement shall terminate without further obligation to
the Executive other than (i) payment of Accrued Obligation
within 30 days of Termination Date and the timely payment of
the Welfare Benefit Continuation and Other Benefits and (ii)
payment to the Executive in cash within 30 days of termination
an amount equal to the greater of a lump sum of Severance
Amount and Supplemental Retirement Amount (SERP).
d. Cause. If the Executive's employment is terminated for Cause
during the Employment Period, this Agreement shall terminate
without further obligation to the Executive other than an
obligation to pay to the Executive Annual Base Salary through
the Date of Termination plus any amount of compensation
previously deferred by the Executive to the extent theretofore
unpaid.
7. Non-exclusivity of Rights. Except as provided in Sections 6(a) (ii),
6(b) and 6(c) nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
8. Full Settlement; Resolution of Disputes.
In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to
the Executive under any of the provisions of this Agreement and, except
as provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company
agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest by the Company or the Executive where
the Company is found at fault.
9. Dispute. In the event of a dispute as to whether a violation of any
provision of the Agreement has occurred, or to enforce any provision of
this Agreement, all such disputes shall be submitted to binding
arbitration before the American Arbitration Association in Mississippi,
in accordance with the commercial rules of the body, and the prevailing
party
(6)
<PAGE>
shall be entitled to reasonable costs and attorneys fees. Judgement on
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
10. Certain Additional Payments by the Company.
Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive ("Payment") would be
subject to the Excise Tax (imposed by Section 4999 of the Code) or any
interest or penalties are incurred by the Executive with respect to
such Excise Tax such total amount paid by the Executive of all taxes
including without limitation income taxes and interest and penalties
thereto and any additional Excise Tax imposed upon the additional
payment under this section, the Executive will be reimbursed in full by
Company an amount equal to Excise Tax and other taxes imposed.
Any payment under this section shall be paid by the Company to the
Executive within 5 days of receipt of a determination by Executive that
a payment is due. If the Company determines that no Excise Tax is
payable by the Executive it shall furnish the Executive with a written
opinion, by an independent Certified Public Accountant, that failure to
report the Excise Tax on the Executive's applicable federal income tax
return would not result in the imposition of a penalty. Any
determination by any taxing authority to the contrary which would
require payment of an Excise Tax or other tax payment will be remitted
in full by Company within 10 business days after Executive has provided
Company with written claim, nature of claim, and date claim is to be
paid.
11. Successors.
a. This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
c. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall
mean, the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous.
(7)
<PAGE>
a. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
b. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: Robert J. Allen
13828 East El Bonito Drive
Ocean Springs, MS 39564
If to the Company: Casino Resource Corporation
707 Bienville Blvd.
Ocean Springs, MS 39564
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communication shall be effective when actually received by the
addressee.
c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
d. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
e. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective
Date, the Executive's employment with the Company terminates,
then the Executive shall have no further rights under this
Agreement.
(8)
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization form its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
___________________________
Robert J. Allen
Casino Resource Corporation
___________________________
By
(9)
JOHN J. PILGER
EXECUTIVE EMPLOYMENT AGREEMENT
GOLDEN PARACHUTE
AGREEMENT ("Agreement") by and between Casino Resource Corporation, a
Minnesota corporation with its principal offices at 707 Bienville Boulevard,
Ocean Springs, Mississippi, 39564 (the "Company"), and John J. Pilger, Chief
Executive Officer, (the "Executive"), dated as of the 9th of March, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interest of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks which may be created by a pending or threatened Change
of Control, and to encourage the Executive's full attention and dedication to
the Company currently and in the event of any threatened or pending Change of
Control. The Board also believes it is imperative to provide the Executive with
compensation and benefit arrangements upon a Change of Control which ensure the
compensation and benefit expectations of the Executive will be satisfied and are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
a. The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and
if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with
or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the
date immediately prior to the date of such termination of
employment.
b. The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third
anniversary date of such date; provided, however, that
commencing on the date one year after the date hereof and on
each annual anniversary of such date, hereafter referred to as
"Renewal Date," the Change of Control period shall be
automatically extended so as to terminate three years from
such Renewal Date, unless at least sixty (60) days prior to
the Renewal Date, the Executive shall give notice of his
determination not to extend the Change of Control Period.
2. Change of Control. For purpose of this Agreement, a "Change of Control"
shall mean:
(1)
<PAGE>
a. The acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended, (a "Person") of beneficial ownership of 20% or more of
either (i) the outstanding shares of stock of the Company or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors; or
b. As of the date hereof, if any two or more members within a class of the
staggered Board of seven or more Directors are removed without the
expressed approval or consent of the CEO and Chairman of the Board, or
where two or more members of the Board assume office as a result of
either an actual or threatened election contest or other actual or
threatened solicitation of proxies; or
c. A hostile reorganization, merger or consolidation which results from
either an actual or threatened election contest or actual or threatened
solicitation of proxies; or
d. A complete liquidation or dissolution of the Company, or the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation; which liquidation, sale or
dissolution occurs as a result of either actual or threatened
solicitation of proxies or consents by or on behalf of persons other
than the incumbent Board.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with this Agreement and the terms and
provision of this Agreement for a period commencing on the effective
date and ending on the third anniversary of such date, (the "Employment
Period".)
4. Terms of Employment.
a. Position and Duties.
(i.) During the Employment Period (a) the Executive's position,
authorities, duties and responsibilities of same shall be at
least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective
Date and (b) the Executive's services shall be performed at
the location where the Executive was employed preceding the
Effective Date or at the headquarters of the Company.
(ii.) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote attention and time during
normal business hours to the business and affairs of the
Company and as defined within his employment contract dated
May 20, 1996 and affixed hereto as Exhibit A and to discharge
the responsibilities assigned to the Executive hereunder.
During the Employment Period it shall not be in violation of
this Agreement for the Executive to (a) serve on corporate,
civic, charitable boards or committees (b) deliver lectures,
fulfill speaking engagements and (c) manage personal
investments so long as
(2)
<PAGE>
such activities do not significantly interfere with the
performance of the Executive's responsibilities to this
Company in accordance with this Agreement.
b. Compensation
(i.) Base Salary. During the Employment Period the Executive shall
receive an "Annual Base Salary" of two hundred twenty-five
thousand dollars ($225,000), as set out within Executive
Employment Agreement attached here as Exhibit A, which shall
be paid on a bi-weekly basis in the same manner as the wage
payments of other CRC employees. Additionally, Executive shall
be paid by CRC Tunisia S.A. the sum of one hundred twenty-five
thousand dollars ($125,000), as unanimously resolved by the
Board of Directors August , 1997, annually which sum shall be
prepaid annually on payment anniversary date. During the
Employment Period, the Annual Base Salary shall increase each
year as determined by any increase in the Consumer Price Index
between January first of the prior year and January first of
the current year (see Executive Employment Agreement). Any
increase in the annual base salary shall not serve to limit or
reduce any other obligation to the Executive under this
Agreement.
(ii.) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded an "Annual Bonus" for each fiscal year ending
during the Employment Period where CRC and its affiliate
subsidiaries generate net income in excess of one million
dollars ($1,000,000) as set forth in CRC's audited
consolidated financial statements. Annual Bonus payable shall
be twenty five thousand dollars ($25,000) per one million
dollars ($1,000,000) net income, per fiscal year.
(iii.) Special Bonus. In addition to Annual Base Salary and any
Annual Bonus payable as here above provided, if Executive
remains employed with the Company or elects to provide
consulting services to Company through the first anniversary
of the Effective Date, the Company shall pay to the Executive
a "Special Bonus" in recognition of the Executive's services
during the crucial one year period following the Change of
Control, in cash, a sum equal to Executive's Annual Base
Salary plus salary from affiliates and Annual Bonus. The
Special Bonus shall be paid no later than thirty days
following the first anniversary of the Effective Date.
(iv.) Incentive Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of
the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the
Executive with incentive opportunities less favorable in the
aggregate than the most favorable provided by the Company for
the Executive in effect at any time during the 90 day period
immediately preceding the Effective Date.
(v.) Welfare Benefit Plans. During the Employment Period the
Executive and/or the Executive's family shall be eligible for
participation in and shall receive benefit
(3)
<PAGE>
plans, practices, policies and programs provided by the
Company and its affiliates including without limitation;
medical, prescription, dental, disability, salary
continuation, employee life, group life and travel accident
insurance to the extent applicable generally to other peer
executives of the Company.
(vi.) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance
with the most favorable policies, practices and programs of
the Company and its affiliates in effect for the Executive at
any time during the 90-day pay period immediately preceding
the Effective Date.
(vii.) Office and Support staff. During the Employment Period the
Executive shall be entitled to an office or offices of the
size and with the furnishings and other appointments and to
exclusive personal secretarial and other assistance, at least
equal to the most favorable of the forgoing provided to the
Executive by the Company at any time during the 90-day period
preceding the Effective Date.
(viii.) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the
Company as in effect for the Executive under his Employment
Contract attached herein as Exhibit A.
5. Termination of Employment.
a. Death or Disability. The Executive's employment shall
terminate automatically upon the death of the Executive during
the Employment Period. For purposes of this Agreement
"Disability" shall mean the absence of the Executive from the
Executive's duties from the Company on a full time basis for
90 consecutive business days as a result of incapacity due to
a mental or physical illness which is determined to be total
and permanent by a physician selected by Company and
acceptable to the Executive or the Executive's legal
representative.
b. Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) Executive had theretofore
been convicted by any federal, state or local authority for,
or pleaded guilty to, an act constituting a felony, or (ii)
Executive's termination was as a result of : a) material acts
of fraud, material dishonesty or gross misconduct by
Executive; or b) repeated and willful failure or refusal by
Executive to perform his material duties as delineated herein
in Exhibit I "Employment Agreement" if termination for Cause
by Company is pursued pursuant to clause (ii)(b) of the
preceding sentence it shall be preceded by written notice to
Executive describing the specific reasons for termination in
order to allow Executive the opportunity to cure and correct
problems identified.
c. Without Cause. Executive may terminate his employment
hereunder, without Cause, provided Executive first gives to
Company a written notice of intent to terminate (see (5)(d)).
(4)
<PAGE>
d. Notice of Termination. Any termination by the Company for
Cause, or by the Executive without any reason shall be
communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b). For purposes of
this Agreement "Notice of Termination" shall mean a written
notice which indicates the specific termination provision in
this Agreement relied upon.
6. Obligations of the Company.
a. Executive Termination (other than Cause, Death or Disability.)
If during the Employment Period the Executive shall terminate
employment without reason:
i. The Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination,
the aggregate of the following amounts:
A. The sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not therefore paid, (2) the
product of ("x") the Highest Annual Bonus
and ("y") a fraction, the numerator of which
is the number of days in the current fiscal
year through the Date of Termination, and
the denominator of which is 365 and (3) the
Special Bonus, if due to the Executive
pursuant to section 4(b)(iii) to the extent
not theretofore paid and (4) any
compensation previously deferred by the
Executive and any accrued vacation pay, in
each case to the extent not theretofore paid
(the sum of the amounts described in 1, 2, 3
and 4 shall refer to "Accrued Obligations");
and
B. The amount (hereafter referred to as
"Severance Amount") which shall equal the
product of 2.99 and the sum of the
Executive's Annual Base Salary and the
highest Annual Bonus, which product shall be
reduced by the present value (determined in
section 280G(d)(4) of the Internal Revenue
Code as amended); and
C. A separate lump sum supplemental retirement
benefit payable under Retirement Plan and
Supplemental Retirement Plan (SERP) of the
Company providing benefits for the Executive
which the Executive would receive if the
Executive's employment continued at the
compensation level provided for in section
4(b)(i) and 4(b)(ii) for the remainder of
the Employment Period, assuming the accrued
benefits are fully vested.
ii. For the remainder of the Employment Period, or such
longer period as any plan, program, practice or
policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's
family at least equal to those which would have been
provided to them in accordance with the plans,
programs, practices and policies described in Section
4(b)(v). For purposes of determining eligibility of
the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the
Executive shall be considered to have remained
(5)
<PAGE>
employed until the end of the Employment Period and
to have retired on the last day of such period.
iii. To the extent not theretofore paid or provided; the
Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or
provide or which the Executive is eligible to receive
pursuant to this Agreement and under any plan,
program, practice or policy or contract or agreement
of the Company and its affiliated companies.
b. Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations, payable to Executive's estate in a lump sum in cash within
30 days of Date of Termination and the timely payment of Welfare
Benefit Continuation and Other Benefits and a lump sum cash payment
within 30 days of termination the Severance Amount and Supplemental
Retirement Amount (SERP).
c. Disability. If the Executive's employment is terminated by reason of
Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligation to the Executive other than
(i) payment of Accrued Obligation within 30 days of Termination Date
and the timely payment of the Welfare Benefit Continuation and Other
Benefits and (ii) payment to the Executive in cash within 30 days of
termination an amount equal to the greater of a lump sum of Severance
Amount and Supplemental Retirement Amount (SERP).
d. Cause. If the Executive's employment is terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligation to the Executive other than an obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus any
amount of compensation previously deferred by the Executive to the
extent theretofore unpaid.
7. Non-exclusivity of Rights. Except as provided in Sections 6(a) (ii),
6(b) and 6(c) nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
8. Full Settlement; Resolution of Disputes.
In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to
the Executive under any of the provisions of this Agreement and, except
as provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company
(6)
<PAGE>
agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest by the Company or the Executive where
the Company is found at fault.
9. Dispute. In the event of a dispute as to whether a violation of any
provision of the Agreement has occurred, or to enforce any provision of
this Agreement, all such disputes shall be submitted to binding
arbitration before the Arbitration Association in Mississippi, in
accordance with the commercial rules of the body, and the prevailing
party shall be entitled to reasonable costs and attorneys fees.
Judgement on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
10. Certain Additional Payments by the Company.
Anything in this Agreement to the contrary not withstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive ("Payment") would be
subject to the Excise Tax (imposed by Section 4999 of the Code) or any
interest or penalties are incurred by the Executive with respect to
such Excise Tax such total amount paid by the Executive of all taxes
including without limitation income taxes and interest and penalties
thereto and any additional Excise Tax imposed upon the gross up
payment, the Executive will be reimbursed in full by Company an amount
of gross up payment equal to Excise Tax and other taxes imposed.
Any Gross Up Payment as determined pursuant to this section shall be
paid by the Company to the Executive within 5 days of receipt of an
accounting determination. If accounting determines no Excise Tax is
payable by the Executive it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition
of a penalty. Any determination to the contrary which would require
payment of an Excise Tax or other tax payment will be remitted in full
by Company within 10 business days after Executive has provided Company
with written claim, nature of claim, and date claim is to be paid.
11. Successors.
a. This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
c. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no
(7)
<PAGE>
such succession had taken place. As used in this Agreement,
"Company" shall mean, the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
a. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
b. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: John J. Pilger
115 Spanish Point
Ocean Springs, MS 39564
If to the Company: Casino Resource Corporation
707 Bienville Blvd.
Ocean Springs, MS 39564
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communication shall be effective when actually received by the
addressee.
c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
d. The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
e. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective
Date, the Executive's employment with the Company terminates,
then the Executive shall have no further rights under this
Agreement.
(8)
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization form its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
___________________________
John J. Pilger
Casino Resource Corporation
___________________________
By
(9)
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT is entered into this 3rd day of
April, 1998 by and between Casino Resource Corporation (the "Company") and John
J. Pilger ("Pilger").
WHEREAS, the Company and Pilger are parties to an Employment Agreement
dated May 20, 1996 (the "Existing Agreement") which provides for an Initial Term
expiring on July 19, 1999 and for automatic year-to-year renewals thereafter in
the absence of notice to the contrary;
WHEREAS, the Company desires to change the Initial Term of the Existing
Agreement to conform to the Company's fiscal year and accounting cycles, and to
refine the renewal provisions of the Existing Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
convenants contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
1. Paragraph III of the Existing Agreement is hereby amended to
read as follows:
This Employment Agreement shall commence on May 20, 1996 and expire on
September 30, 1999 unless sooner terminated as provided in this
Agreement. Unless either party elects to terminate this Agreement by
giving written notice to the other party on or before the Notice of
Termination Date (as defined in the next sentence), the term of this
Employment Agreement shall be deemed to have been automatically
extended for an additional period of one year commencing on the day
after the day when the then current term would have otherwise expired,
and the expiration date of the term of this Employment Agreement shall
be correspondingly changed to the next anniversary of the formerly
prevailing expiration date. For purposes of this Employment Agreement,
the term "Notice of Termination Date" shall mean the date which is one
(1) year before the then prevailing expiration date of this Employment
Agreement.
2. Except as modified by this Amendment, the Existing Agreement
shall remain in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment the day and year first above written.
(1)
<PAGE>
3. ATTEST: CASINO RESOURCE CORPORATION
____________________________________ ___________________________________
Noreen Pollman, Secretary Robert J. Allen, Vice-President
Witness:
SEAL
____________________________________ ___________________________________
John J. Pilger
(2)
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<NAME> CASINO RESOURCE CORPORATION
<S> <C>
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