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, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
.
Check if 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 30,1999 were
$8,228,220.
As of January 7, 2000, 12,161,258 shares of Common Stock were outstanding,
and the aggregate market value of such Common Stock (based upon the last
reported sale price on the OTCBB), excluding outstanding shares beneficially
owned by affiliates was approximately $6,055,410.
Transitional Small Business Disclosure Format (Check one): Yes _____; No X
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PART I
ITEM 1. BUSINESS
Recent Developments:
Effective December 31, 1999 the Company purchased all of the assets of
RawData, Inc., a privately held company headquartered in Fresno, California.
RawData, Inc. is a one-year old company focused on the development, sales and
distribution of e-commerce business solutions geared toward direct advertising
of mini-CDs (sometimes referred to as "buzz cards") used by consumers and
businesses alike to link potential customers to web sites and e-commerce
centers.
Under the terms of the agreement, the Company paid a purchase price of
$150,000; $85,000 at closing and a non-interest bearing note for $65,000 payment
of which is contingent on the new multi-media company reaching $8 million in
revenue, on a cumulative basis, within two years from the date of the closing.
The Company may need to borrow additional funds to implement the business plan
for the new multi-media subsidiary, which business operation is expected to
require a minimum of $500,000 and, thereafter, up to an additional $1.5 million
in capital. Additionally, the principals of the seller will receive 20% of the
common stock of the new multi-media company. Options to purchase a maximum of
1,000,000 shares of the Company's common stock at an exercise price of seventeen
cents per share, the market price on the date of the agreement, have been
granted to the principals and employees of the acquired company. The options are
subject to a three-year vesting period contingent upon, among other things,
achieving specific revenue targets over a specified period of time. Upon
acquisition, the new multi-media company changed its name to
BounceBackMedia.com, Inc., which subsidiary will be domiciled in Nevada and
plans to move its operating headquarters to the Silicon Valley region so as to
have access to an experienced pool of employees and in order to keep abreast of
the emerging internet technologies. The Company has entered into two employment
agreements with multi-media professionals. Roger Birks will act as CEO and
Ricardo Gonzalez will hold the position of Executive Vice President of
Technology, respectively, for BounceBackMedia.com, Inc.
Mr. Birks has enjoyed a successful business career for over 25 years in
management with NYSE companies as well as in an entrepreneurial capacity. Mr.
Birks has been involved in business start-ups, some of which has been in the
computer information systems industry.
Mr. Gonzalez is a graduate of the University of California at Berkley and
received a Masters Degree in Interactive Computing and Multimedia from Columbia
University. Mr. Gonzalez comes to the Company from IBM where he most recently
lead a team of visual designers, technical writers, and human factors engineers
to develop world wide web applications for IBM, whose products generate over a
billion dollars per year in revenue. Mr. Gonzalez is a specialist in multimedia
design and software engineering.
During 1998, management decided to restructure the Company's business by
liquidating certain Company assets and redeploying the resulting cash into other
businesses. Given the current economy, the Company placed an emphasis on
business opportunities in the e-commerce industry.
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Specifically, the Company focused on marketing and sales applications within the
e-commerce industry, where the Company would be able to utilize its marketing
and sales expertise by providing services to a new media marketplace that is
experiencing strong growth trends.
With the acquisition of all of the assets of RawData, Inc. the Company has
positioned itself to provide cutting edge marketing and sales applications via
the multi-media industry. Serving e-commerce, BounceBackMedia.com, Inc. was
formed in response to new media technologies whereby interactive presented
promotional messages are delivered digitally through various storage media
including CD ROMs and the Internet. Internet technology and advances with CD ROM
technology are dramatically changing the fundamentals of business operations.
Management believes the Company is well positioned to capitalize on two markets,
the emerging mini-CD industry and the interactive/new media product industry.
The Company will control both CD-ROM storage media and new media production
talent. The Company's business model positions the Company to take advantage of
the wave of Internet centric marketing communications spending.
On January 4, 2000 the Company changed its name to
BounceBackTechnologies.com, Inc. to communicate its intent to focus on its new
media business in e-commerce.
The Company's corporate offices in Ocean Springs, Mississippi will provide
administrative and accounting support services to BounceBackMedia.com, Inc. as
well as sales and marketing support services.
The Company is currently negotiating a sale of its Tunisian Casino, located
in North Africa. Additionally, the Company intends to offer for sale Country
Tonite Enterprises, which produces a country western variety show in Branson,
Missouri and Pigeon Forge, Tennessee. In doing so, it will have sufficient
capital resources to fund its recently acquired business and focus its
management resources on its new e-commerce business endeavors.
Roy Anderson Corporation was the holder of a Company debenture in the
principal amount of $1.5 million, which was due January 31, 1999. The Company
and the debenture holder agreed to exchange the existing debenture for an
Amended and Restated Debenture which contains the following material terms:
accrued interest of $360,000 as of January 31, 1999 was paid by the delivery of
352,250 shares of common stock; interest on the debenture (at 6% per year) from
February 1, 1999, to and including May 31, 1999 was capitalized and added to the
principal balance of the debenture; principal and interest (at 6% per year) was
amortized in 18 equal monthly installments beginning June 1, 1999, in an amount
of $88,652 which could be paid at the Company's option, 50% cash ($44,326) and
50% stock (96,360 shares of common stock, which was valued at the average of the
closing prices on the last 10 trading days in May, 1999 or $.46 per share).
Pursuant to the terms of the debenture 600,000 shares of stock were delivered to
the debenture holder between June 1, 1999 and December 31, 1999.
On December 31, 1999 the Company and Roy Anderson Holding Corp. (the
current debenture holder) agreed to amend and restate the debenture. The
agreement separates the remaining outstanding balance of the original debenture
as of December 31, 1999 in the amount of $1,028,553 into two debentures. The
first debenture calls for the Company to pay $342,655 along with simple interest
fixed at 6% per annum. This debenture is paid with in monthly installments of
$44,238 beginning April 2000 with the last payment due November 2000. The second
debenture calls for the Company to pay $685,897 along with simple interest fixed
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at 6% per annum. This debenture is payable in one lump sum at its maturity on
December 31, 2002. In addition, the second debenture provides for mandatory
prepayments if certain conditions should arise. These most notably relate to the
Company's completion of the sale of its discontinued operations, sale or other
disposition of its existing business operations or assets, collection of any
proceeds from litigation and the collection of any payments from the Lakes
Gaming agreement. Upon Company's satisfaction in full of all outstanding amounts
due under the debentures 1,100,000 shares of common stock held in escrow shall
be cancelled. In connection with the restructuring of the debt, the Company has
granted Roy Anderson Holding Corp. options to purchase 300,000 shares of the
Company's common stock at an exercise price of $.17 per share. The option
expires on December 31, 2002.
Historical Developments:
Casino Resource Corporation and subsidiaries (the "Company") has been
engaged in the entertainment and gaming industry. The following are highlighted
events which occurred during fiscal 1999.
The Company operates and manages the Country Tonite Theatre in Branson,
Missouri. The Company owns and operates a musical production company, Country
Tonite Enterprises ("CTE"), which provides Country and Western musical
entertainment to the Country Tonite Theatre, LLC, ("CTT, LLC") in Pigeon Forge,
Tennessee, and to the theatre in Branson, Missouri. Additionally, the Company
leases and operates a casino in Tunisia, North Africa, through its 85% owned
subsidiary, CRC of Tunisia, S.A., which opened in 1997 and is being held for
sale.
In September 1998, the Company entered into an Asset Purchase Agreement to
sell substantially all of the assets used in connection with operations of the
Country Tonite Theatre and Country Tonite Enterprises to On Stage Entertainment,
Inc. ("On Stage"), for $13.8 million. However, in April 1999, the Agreement
between the Company and On Stage was terminated. The consummation of the sale
was contingent on On Stage's obtaining financing of the purchase price, which On
Stage was unable to obtain. The Company maintained a full business operation of
Country Tonite Theatre and the Country Tonite Show throughout this proposed
transaction. The operating results of CTT, LLC and CTE, previously reported as
discontinued operations in fiscal 1998, have been reclassified and reported as
"continuing operations" for fiscal 1999.
The Company sold it's 60% interest in CTT, LLC for $20,000 to its 40% Joint
Venture partner, Burkhart Ventures, LLC, effective December 31, 1998. As a
result, the Company has recognized a gain on the sale of its Joint Venture
interest in the amount of $78,566. The Company's Country Tonite Show continues
to perform at the Pigeon Forge Theatre.
In December 1998, the Company entered into a Memorandum of Understanding to
form a joint venture with Lakes Gaming, Inc. (NASDAQ: LACO) for the purpose of
pursuing a management and development agreement to develop one or more casinos
on behalf of the Pokagon Band of Potawatomi Indians (the "Pokagon Tribe") in
southwestern Michigan and northern Indiana. In May 1999, the Company and Lakes
Gaming entered into an agreement to terminate the Memorandum of Understanding,
in the event that the Pokagon Tribe chose to enter into management and
development agreements solely with Lakes Gaming. In June 1999, Lakes Gaming was
selected by the Pokagon Tribe to negotiate a management and development
agreement. On August 31, 1999, the newly elected tribal council of the Pokagon
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Tribe ratified the Management and Development Agreement with Lakes Gaming and
the Company's Revised Conditional Release and Termination Agreement with Lakes
Gaming became effective. The terms of the Revised Conditional Release and
Termination Agreement call for the payment by Lakes Gaming, Inc. to the Company
of an aggregate maximum sum of $16.1 million, which includes a $2 million cash
down payment. The balance of $14.1 million is payable if certain events occur
relative to the location of the Tribe's casino, the opening of the casino and
Lakes Gaming manages the casino. The Company received the $2 million down
payment on August 31, 1999. The agreement calls for the Company to repay the $2
million if after five years the casino has not opened. Further, $2.5 million of
the $16.1 million payment is due only if the Tribe builds a casino in Indiana
and Lakes Gaming is the manager.
The Company's subsidiary, CRC of Branson, was indebted to Ahab of the
Ozarks ("Ahab"), the mortgage holder of the Country Tonite Theatre, in the
principal amount of $7 million. This obligation matured October 1, 1999. In
September of 1999, the Company entered into an agreement, which was finalized in
October 1999 with Ahab whereby the Theatre asset (with an appraisal value of
approximately $7 million) was transferred to Ahab and the Company's $7 million
mortgage obligation to Ahab was canceled. In addition, Ahab entered into a
two-year triple net lease with CRC of Branson, guaranteed by the Company, for a
rental payment of $70,000 per month. CRC of Branson has five one-year options to
renew the lease at that rent, plus a cost of living index increase not to exceed
3% per year. The Company has agreed to make approximately $100,000 in capital
improvements to the Theatre. The Company has negotiated an option to purchase
the Theatre from Ahab of the Ozarks for $6.5 million over the next two years and
has a right of first refusal during the five year renewal term. The transaction
required the Company to recognize a loss of $536,000 in its 1999 Income
Statement. The transaction, however, removed $7 million in debt and $6.5 million
in assets from the Company's balance sheet and reduced its monthly obligation by
approximately $5,000.
The Company has decided to sell its interest in the Tunisian Casino and to
leave the gaming industry. Accordingly, the Tunisian operation is reported on
the financial statements of the Company as a "discontinued operation." The
Company has commenced negotiations to sell its 85% interest in CRC Tunisie, S.A.
to Samara Casino Company ("Samara"), the mortgage holder of the Casino Caraibe
property. The discussions have not been finalized and there is no assurance that
the Company will in fact conclude a transaction with Samara.
The Company terminated its Agreement with Mark McKinney to build a spring
water bottling plant in Bentonville, Arkansas. The Agreement was contingent on
the Company's procuring $25 million in debt and equity financing. The Company
depended upon the sale of the Company's Country Tonite Theatre and Country
Tonite Enterprises to On Stage to provide a portion of its capital for this
investment. On Stage's termination of the purchase transaction was instrumental
in the Company's inability to complete its financing of the water bottling
plant. See Item 3. Legal Proceedings.
General
The Company was organized in 1969. In 1987, the company merged into an
inactive public corporation, and in 1993, 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
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Company's primary business was owning and managing recreational vehicle resorts,
and providing related direct marketing services. The Company sold its
capital-intensive camp resort properties during 1988 through 1991 and began
offering its direct marketing services to the recreational real estate industry.
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 four 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, 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 and opened its 154 room hotel, the "Grand Hinckley Inn," on 7.5
acres of leased land in northern Minnesota adjacent to the Grand Casino
Hinckley, an Indian gaming facility currently operated by Grand Casinos, Inc.
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, Inc. in September 1994. In March 1997, a third venue for the Country
Tonite Show opened in Pigeon Forge, Tennessee. CTT, LLC, formerly a joint
venture between the Company and Burkhart Ventures, LLC, presents the Country
Tonite Show in a 1,500-seat theater in Pigeon Forge, Tennessee. The Company was
the operating manager and owned 60% of the joint venture. Effective December 31,
1998, the Company sold its 60% interest in CTT, LLC to its minority partner,
Burkhart Ventures, LLC. The Company's Country Tonite show continues to perform
at the Pigeon Forge Theatre, with its contract renewed for the year 2000. On
October 18, 1997, the Company, through its 85% owned subsidiary CRC of Tunisia,
Inc., opened Casino Caraibe in a leased facility in Sousse, Tunisia, North
Africa. The Company anticipates the sale of the Casino business in January 2000,
subject to successful negotiation of a sales agreement with the tentative
purchaser, Samara Casino Company.
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 Tribe. 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 filed suit against Harrah's
Entertainment, Inc. 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
Tribe. The Court dismissed the suit May 24, 1999. The Company filed an appeal
September 16, 1999. See Item 3 Legal Proceedings.
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Continuing Operations
Country Tonite Theatre (Branson, MO)
The Company entered into an agreement to purchase the former Ray Stevens
Theatre, renamed the Country Tonite Theatre (the "Theatre") located at 4080 W.
Highway 76, Branson, Missouri 65616 in March 1994, for a purchase of $10
million. In May 1994, the 2,000-seat theater began running two Country Tonite
shows daily, featuring dancers, singers, comics and other variety acts. The show
is produced by the Company's Las Vegas-based subsidiary, "CTE". The Theatre
includes 38,000 square feet on two floors with an auditorium, a stage area,
control booths, dressing rooms, upstairs offices, a lounge, a gift shop, which
offers a wide variety of souvenirs with the Country Tonite theme, and 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. Branson's population is approximately 3,000. The city includes over
30 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 6.3 million annual
visitors (according to the 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 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 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 large number of
competing theaters and the number of shows could attract ticket buyers away from
the Company's theatre. Also, other area tourist attractions could limit the
growth or even decrease ticket sales. In addition, other geographic areas are
currently actively seeking to increase their tourist bases, which could, at some
point, negatively affect the number of annual visitors to Branson. The Country
Tonite Show, although having won major awards, could provide the format to a
similar show developed by a competing theatre with possible adverse consequences
to the Company. In October 1999, the Country Tonite Theatre received the Branson
1999 Show of the Year Award.
The Company maintained its Country Tonite Theatre business operation during
1999, as the sale to On Stage was terminated April 1999, it became necessary for
the Company to negotiate a satisfactory resolution to the $7 million interest
bearing mortgage note on the Theatre which fell due October 1, 1999.
As indicated above, in October 1999 the Company reconveyed the Theatre to
the Lender in exchange for a release of the Company's mortgage of the property.
The balance of the mortgage and the value of the Theatre were approximately
equal.
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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"). CTE, which produces the Show, received the CMOA
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 Chairman and CEO, was awarded "International Producer of the Year" and
inducted into the Country Music Organizations of America Hall of Fame in 1997.
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 various venues across the country, other than Branson, MO and
Pigeon Forge, TN, it has been unsuccessful to date in securing an attractive
financial arrangement to offset the cost to produce the Show in these
alternative venues.
Country Tonite Theatre - Pigeon Forge
CRC of Tennessee, Inc. ("CRCT"), a wholly owned subsidiary of the Company
and Burkhart Ventures, LLC formed a joint venture, CTT, LLC, to present the
Country Tonite Show in a 1,500-seat theatre located in Pigeon Forge, Tennessee,
which opened on March 21, 1997. CRCT owned 60% of the joint venture and managed
the theater. The Company and Burkhart Ventures, LLC, entered into an agreement,
which terminated the Company's 60% ownership of CTT, LLC effective December 31,
1998 for a purchase price of $20,000 (the "Purchase Price"). The Purchase Price
was payable on September 30, 1999, subject to ticket sales at the Theatre
between January 1, 1999 and September 30, 1999 increasing 10% over the
comparable period for 1998 or the Purchase Price would be discounted to $10,000.
As of September 30, 1999, average ticket sales were 13% higher than ticket sales
for the same period 1998. Therefore, the Company received $20,000 on October 6,
1999 as payment in full for its 60% interest in CTT, LLC. Termination of the
Company's 60% Joint Venture interest with CTT, LLC has reduced the Company's net
out-of-pocket expenditures by $337,000 for the nine month period in 1999 versus
the same period in 1998 related to the Company's 60% contribution to fund CTT,
LLC operating losses. Further, under the terms of the Agreement, the Company
manages CTT, LLC for a fee of $2,000 per week in season and $1,000 per week
during the off season for the period January 1, 1999 through December 31, 1999.
The Company has had no vested ownership interest in or financial obligation to
CTT, LLC after December 31, 1998. Burkhart Ventures, LLC, representing 100% of
the interest of CTT, LLC as of January 1, 1999, contracted with CTE to produce
shows for the 1999 calendar season for a fee of $36,750 per 12 show week.
Burkhart Ventures, LLC, gave notice to CTE that it wishes to extend the contact
term for the 2000 show season.
Discontinued Operations
Tunisia Casino
The Company, through its 85% owned subsidiary, CRC of Tunisie, S.A., leases
and operates a casino and 500-seat theatre in Sousse, Tunisia, North Africa. 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.
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The entertainment complex and 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 controls in Sousse. The two other hotels have
125 and 275 rooms, respectively. 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. Two other casinos are open in other Tunisian municipalities at
distances of approximately fifty to three hundred miles from Sousse. CRC of
Tunisia also operates a gourmet restaurant, gift shop and additional food and
bar service on the property. The remaining 15% ownership interest in CRC of
Tunisia is held by Samara, which acquired it for nominal consideration as part
of the development transaction.
The Republic of Tunisia is a small country in the most northern 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 recent attraction for the tourist trade in Tunisia.
According to the Ministry of Tourism, the number of annual 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 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 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 Company has decided to sell its interest in the Tunisian Casino and to
leave the gaming industry. Accordingly, the Tunisian operation is reported in
the financial statements of the Company as a "discontinued operation." The
Company has commenced negotiations to sell its 85% interest in CRC Tunisie, S.A.
to Samara, the mortgage holder of the Casino Caraibe property. The discussions
have not been finalized and there is no assurance that the Company will in fact
conclude a transaction with Samara.
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.
The Company's gaming venture is subject to Tunisian laws and regulations
affecting the ownership and operation of the casino. Tunisian nationals 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 has not generated a profit.
Nor can the Company make any assurances that it will generate a profit in the
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future. Therefore, the Company has entered into negotiations which may lead to
the sale of its 85% of its interest in CRC of Tunisie, S.A. and underlying stock
to Samara Casino Company.
Employees
At September 30, 1999, the Company had 10 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);
25 CTE employees at Pigeon Forge, Tennessee; and 110 employees in Sousse,
Tunisia. The entertainers are contracted for the subsequent season between
December and February each year.
The Company maintains an employment agreement with its CEO. See Item 10,
"Executive Compensation." None of the Company's employees are represented by a
union, and management considers its labor relations to be good.
ITEM 2. PROPERTIES
The Company's leased properties include principally: the Country Tonite
Theatre in Branson, Missouri; the casino and theatre complex in Sousse, Tunisia,
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 leased by CRC
of Branson for an initial two year triple net lease, guaranteed by the Company,
for rental of $70,000 per month and the Company has five one-year options to
renew the lease at that rent, plus a cost of living index increase, not to
exceed three percent (3%) per year. The Company has an option to purchase the
theatre for $6.5 million over the next two years and has a right of first
refusal during the ensuing five years.
The Company leases, pursuant to a five-year lease, expiring in 2002,
executive office space in Ocean Springs, Mississippi at a rate of $67,500 per
annum.
The 42,000 square foot casino resort in Tunisia is leased pursuant to a
three-year lease (with two, three-year renewal options) providing for an
adjusted annual base rent of 480,000 dinars, which is approximately $407,125 US
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 10% of
revenue with a minimum of one dinar (currently worth approximately $.85 US) per
paying customer. The Company's lease obligation to Samara Casino Co. will
terminate if the Casino is sold to Samara.
The Company had guaranteed the rent payments of CTT, LLC to the minority
partner of CTT, LLC, who is lessor of the Pigeon Forge Theatre facility. These
guarantees terminated under the sale agreement which became effective December
31, 1998.
The Company owns a residence in Ocean Springs, Mississippi, which is rented
to a principal of Monarch Casinos, Inc. at a below-market rate. The lease is in
default. See Item 3, "Legal Proceedings."
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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. Additionally, the Company owns two parcels of land
in Ocean Springs, MS.
ITEM 3. LEGAL PROCEEDINGS
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 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 between $250,000 and
$350,000. A trial date is set for January 2000. The Company intends to
vigorously defend itself in this matter.
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. On January 15,
1998, the Company signed a subsequent agreement with Mr. Kean. Under this
agreement, 220,000 additional shares of the Company's stock owned by Mr. Kean
were canceled along with the 150,000 collateral shares held (valued at the
market price of $1.19 per share). Additionally, the Company and Mr. Kean entered
into a new note agreement. The new 7% interest bearing note of $1,196,885,
including approximately $143,000 of previously reserved interest is scheduled to
mature 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. Generally accepted accounting principles do not permit the
recording of contingent assets until realized and as Mr. Kean's ability to pay
the note is not known, the Company at September 30, 1998 provided an impairment
reserve for the $791,900 which represents the notes remaining principal balance
after stock cancellations. Under the terms of the Loan and Settlement Agreement,
". . .In the event that CRC shall sell, assign or transfer its interest in the
Pokagon Project, in whole or in part, to any other party, by way of sale, loan,
settlement, fee, or otherwise for consideration in an amount in excess of $1
million, Kean's obligation under the Renewal Note shall be fully discharged and
satisfied and CRC shall mark the Renewal Note "Paid" and return it to Kean. . ."
The Company initiated a civil suit against Harrah's on September 4, 1998 in
United States District Court for 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 Potawatomi Indians' Management
Agreement. The suit further alleges that Harrah's withheld vital business
information from the Company. The Court granted Harrah's motion for Summary
Judgment and the Company's complaint was dismissed with prejudice on May 24,
1999. The Company filed an appeal in the Eighth Circuit United States Court of
Appeals on September 16, 1999. The Company asserts that it has the right to
resolve the dispute with Harrah's in some forum and the trial court erred by
dismissing the Company's complaint without granting the Company leave to file an
amended complaint which would include a claim for an accounting and damages
11
<PAGE>
under the Uniform Partnership Act. The Company plans to vigorously pursue the
claim and seeks a judgment against Harrah's plus interest and legal fees.
The Company initiated a civil suit against Willard Smith and Monarch
Casinos, Inc. on December 19, 1998 in the Circuit Court of Jackson, Mississippi.
The Company alleges that Mr. Smith and Monarch Casinos, Inc. 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 Mr. Smith has defaulted on his
obligations to pay rent and maintain the up-keep of the Company residential
property located at 303 LaSalle Street, Ocean Springs, Mississippi and defaulted
on repayment of loans from the Company in excess of $300,000.
The Company seeks a judgment against Monarch Casinos, Inc. and Willard
Smith plus interest and attorneys fees for notes due and material breach of
agreements; removal of Smith from the rental property and punitive damages. Mr.
Willard Smith filed a counter claim on February 16, 1999, alleging breach of
contract; breach of duty of fair dealing; tortuous interference with prospective
business advantage; specific performance of contract to purchase real property
and fraud. The Company plans to vigorously defend itself in this counterclaim
and is asking the court to dismiss the matter.
Norm D. Holm, and N.D. H. Inc., ("NDH"), a Minnesota corporation, brought
suit in the Tenth Judicial District Court, county of Sherburne, Minnesota,
against the Company on August 11, 1998. NHD alleges that the Company entered
into an indemnification and hold harmless agreement to indemnify and hold NDH
harmless from loss of claims, etc., incurred as a result of services provided to
real property known as "Pintail Woods", which claim purportedly totals $158,000.
These claims were brought before the American Arbitration Association ("AAA") in
December 1992, which originally ruled that the arbitration was not appropriate
at that time. On July 7, 1998, the Tenth Judicial District Court, county of
Sherburne, Minnesota, ordered this matter be submitted to arbitration. The
Company plans to vigorously defend itself in this matter and is asking the court
to dismiss the suit based on a statue of limitations defense because the event
at issue took place over eight years ago.
The Company initiated suit against Mark McKinney, personally, and Mana
Corporation, on March 12, 1999, in the Circuit Court of Benton County, Arkansas.
The Company alleges that Mr. McKinney and Mana Corporation breached the terms of
the Letter of Intent and the Extension Agreement dated December 4, 1998, by
prematurely terminating the agreement before April 30, 1999, and failure to
repay a short term loan made to Mark McKinney, personally. The Company seeks a
judgment against Mark McKinney and Mana Corporation in the amount of $150,000
plus interest and attorney's fees. Due to the uncertainty of Mr. McKinney's
ability to make payment, $75,000 of this receivable has been reserved. Mr.
McKinney and Mana Corporation filed a counterclaim April 5, 1999, alleging Mana
Corporation incurred additional expenses associated with the due diligence with
the Company and is asking for a judgment against the Company for $51,997 in
addition to prejudgment and post judgment interest and attorney's fees.
12
<PAGE>
In November 1999, Mana Corporation petitioned an Arkansas Court for
reorganization under Chapter 11 of the Bankruptcy Code; therefore the balance of
the receivable was reserved in November 1999.
Concurrent with the Company's negotiations with Samara Casino Co. for sale
of 85% interest of CRC of Tunisia, S.A., the Company entered into negotiations
with Seamar Group, holder of a $1 million long term note with the Company. The
Company satisfactorily concluded negotiations and entered into an agreement with
Seamar whereby the Company paid $150,000 to Seamar Group in November 1999 and
received a $330,000 discount on the Seamar note. The balance of $525,000 due
Seamar Group is payable over eighteen months beginning December 1999 without
interest.
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, 1999.
13
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock (symbol "CSNR") and its Class A warrants (symbol
"CSNRW") were formerly traded on the NASDAQ National Market System. On May 24,
1999, the Company was notified by NASD that the Company had not met the net
tangible asset listing requirement of NASDAQ and, therefore, the Company's
common stock and its warrants would be moved to the OTCBB effective at the
opening of trading on May 25, 1999. Each warrant entitled the holder to purchase
one share of common stock at an exercise price of $6.75. The warrants expired on
September 15, 1999. The following table sets forth, for the fiscal periods
indicated, the high and low sales prices of the common stock and Class A
warrants as reported by NASDAQ from October 1, 1997 through May 24, 1999, and
the high and low bid prices of such securities as reported by NASDAQ since May
24, 1999. Quotations price May 24, 1999 reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions:
<TABLE>
<CAPTION>
Common Stock Warrants
High Low High Low
<S> <C> <C> <C> <C>
FISCAL 1999
First Quarter $ 0.97 $ 0.31 $ 0.03 $ 0.11
Second Quarter $ 0.75 $ 0.25 $ 0.03 $ 0.13
Third Quarter $ 0.84 $ 0.25 $ 0.01 $ 0.08
Fourth Quarter $ 0.59 $ 0.20 $ 0.03 $ 0.001
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
</TABLE>
14
<PAGE>
Holders
On December 2, 1999 there were approximately 333 record holders of the
common stock. The Company estimates that there are an additional 2,750
shareholders in nominee or street name at that date.
Sale of Unregistered Securities
In September 1997, the Company completed a placement of $800,000, 13%
subordinated convertible debentures (with net proceeds of $707,000). The
debentures had a one-year maturity with the holder's ability to convert into
shares of common stock on or before the anniversary date at a price equal to 83%
of the then current trading prices of common stock. At the issuance date, the
Company recorded a debt discount of $206,036 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. 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. During 1999, $107,000 of the principal amount of the debentures were
converted into 311,093 common shares. The remaining balance $121,325 plus
interest ($164,000 total) was settled in full by a cash payment of $100,000 in
October 1999.
Roy Anderson Corporation was the holder of a Company debenture in the
principal amount of $1.5 million, which was due January 31, 1999. Company and
the debenture holder agreed to exchange the existing debenture for an Amended
and Restated Debenture which contains the follow in material terms: accrued
interest of $360,000 as of January 31, 1999 was paid by the delivery of 352,250
shares of common stock; interest on the debenture (at 6% per year) from February
1, 1999, to and including May 31, 1999 was capitalized and added to the
principal balance of the debenture; principal and interest (at 6% per year) was
amortized in 18 equal monthly installments beginning June 1, 1999, in an amount
of $88,652 which could be paid at the Company's option, 50% cash ($44,326) and
50% stock (96,360 shares of common stock, which was valued at the average of the
closing prices on the last 10 trading days in May, 1999 or $.46 per share).
Pursuant to the terms of the debenture 600,000 shares of stock were delivered to
the debenture holder between June 1, 1999 and December 31, 1999.
On December 31, 1999 the Company and Roy Anderson Holding Corp. (the
current debenture holder) agreed to amend and restate the debenture. The
agreement separates the remaining outstanding balance of the original debenture
as of December 31, 1999 in the amount of $1,028,553 into two debentures. The
first debenture calls for the Company to pay $342,655 along with simple interest
fixed at 6% per annum. This debenture is paid in monthly installments of $44,238
beginning April 2000 with the last payment due November 2000. The second
debenture calls for the Company to pay $685,897 along with simple interest fixed
at 6% per annum. This debenture is payable in one lump sum at its maturity on
December 31, 2002. In addition, the second debenture provides for mandatory
prepayments if certain conditions should arise. These most notably relate to the
Company's completion of the sale of its discontinued operations, sale or other
disposition of its existing business operations or assets, collection of any
proceeds from litigation and the collection of any payments from the Lakes
Gaming agreement. Upon Company's satisfaction in full of all outstanding amounts
due under the debentures 1,100,000 shares of common stock held in escrow shall
be cancelled. In connection with the restructuring of the debt, the Company has
granted Roy Anderson Holding Corp. an option to purchase 300,000 shares of the
Company's common stock at an exercise price of $.17 per share. The option
expires December 31, 2002.
15
<PAGE>
Mr. Pilger agreed to purchase 852,250 shares of Company common stock held
by Roy Anderson Holding Corp. on December 31, 1999 for a purchase price of $.10
per share.
Dividends
No dividends have been declared or paid during the reporting period.
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 continuing operations were $8,228,220 a
decrease of $3,270,193 or 28% from the $11,498,413 in fiscal 1998. The decrease
in revenue in 1999 from 1998 relates to 1998 operating results which reflect
nine months of revenue from Grand Hinckley Inn, which was sold in June 1998.
Additionally, 1998 operating results include 12 months revenue from the Country
Tonite Theatre, LLC versus three months revenue in fiscal 1999 as the Company's
60% Joint Venture interest was sold to the LLC's minority partner December 31,
1998.
CONTINUING OPERATIONS
ENTERTAINMENT
Country Tonite Theatre - Branson, MO
The Country Tonite Theatre in Branson, Missouri, had Fiscal 1999 revenue of
$5,857,760, a decrease of $272,207 or 4% from the fiscal 1998 total of
$6,129,967. Paid attendance for the Country Tonite show was 30% of capacity in
1999 compared to 31% of capacity in fiscal 1998. Average ticket price was $17.33
in fiscal 1999 compared to $17.00 in fiscal 1998. Although average ticket price
increased, the increase was offset by the decrease in overall occupancy. Through
cost containment efforts by Company management, operating expenses before the
loss on the sale/lease-back transaction, including project, general and
administrative costs and depreciation, fell $206,912 or 5% to $3,988,938 in
fiscal 1999 from $4,195,850 in fiscal 1998. Operating income, excluding the
sale/lease-back transaction, decreased $37,233 or 3% to $1,209,559 in fiscal
1999 from $1,246,792 in fiscal 1998. This decrease is due to a decline in
revenue and gross profit which was only partially offset by the cost reductions
in operating expenses.
16
<PAGE>
Country Tonite Theatre L.L.C.
The Company sold its 60% interest in the CTT, LLC effective December 31,
1998. As a result, the Company has recognized a gain on the sale in the amount
of $78,566. Revenues for the period of October 1, 1998 through December 31, 1998
totaled $1,336,174. Operating expenses, including project, general and
administrative costs and depreciation, totaled $1,457,517 (including $597,058
eliminated in consolidation) resulting in an operating loss of $121,343 before
the minority interest share of the loss.
Country Tonite Production Show
Country Tonite Production show revenues totaled $1,563,058 in fiscal 1999,
a decrease of $474,611 from revenues of $2,037,669 for fiscal 1998. This
decrease is due to the closing of the Aladdin show in November 1997 ($275,000)
and a decrease in the fee paid to the Country Tonite production company by CTT,
LLC in Pigeon Forge ($200,000). Operating expenses (including project, general
and administrative costs and depreciation) decreased from $1,799,485 in fiscal
1998 to $1,417,930 in fiscal 1999 or 21%, principally as a result of not having
any Aladdin show payroll in 1999 ($311,000). Operating income decreased to
$145,628 in fiscal 1999 from $238,184 in fiscal l998.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $2,846,860 in
fiscal 1999 compared to $3,029,925 for fiscal 1998, a decrease of $183,662 due
primarily to a reduction in professional fees ($321,000) and legal fees
($46,000), offset by an increase in bad debt expense ($148,000).
DISCONTINUED OPERATIONS
GAMING, TUNISIA
Revenue for fiscal 1999 totaled $2,526,193 compared to $3,305,396 for 1998,
a decrease of $779,203 or 24%. Operating expenses, including project, general
and administrative cost and depreciation, decreased $2,520,870 from $6,874,718
in 1998 to $4,353,842 in 1999 resulting in an operating loss of $1,587,648.
INTEREST EXPENSE
Interest expense totaled $774,507 for fiscal 1999 compared to $1,311,743
for fiscal 1998. The decrease from 1998 was due principally to nine months of
interest in 1998 on the note payable for the building at Grand Hinckley Inn and
a corporate note payable which was paid in full in June 1998.
OTHER
Interest income as of September 30, 1999 was $160,099 compared to $206,195
for the same period in 1998, a decrease of $46,096 or 22%. This is primarily due
to maintaining lower interest bearing cash balances through out the year in 1999
versus 1998.
17
<PAGE>
LAKES GAMING AGREEMENT
See third paragraph of Note 7 to the Financial Statements and discussion
under Item 1. "Business".
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from $1,123,732 at September 30, 1998
to $1,658,435 at September 30, 1999. The Company's principal source of funds
during the period ended September 30, 1999, were revenues from Country Tonite
Branson, the show fee from Pigeon Forge and the $2 million received from Lakes
Gaming. The Company's principal use of funds other than operations consisted of
debt repayments totaling $401,296 and capital expenditures. In June of 1999, the
Company began making payments on a $1.5 million debenture to Roy Anderson
Holding Corp. The total monthly payment of $88,652 was required to be paid at
least 50% cash and the balance in cash or Company common stock, at the Company's
option. As of December 31, 1999, $188,000 had been paid in cash and $165,000 in
stock. The restatement of the debenture obligation on December 31, 1999 (see
Item 1, Business) is not anticipated to have any material effect on the
Company's liquidity in the current fiscal year or the next two fiscal years
because the monthly cash payments required on the debenture maturing on November
1, 2000 are approximately the same as the required cash payment under the former
debenture. However, the Company will be required to repay in cash rather than in
Company common stock the debenture maturing on December 31, 2002 (or sooner if
certain events occur). The Company anticipates obtaining the cash needed to
satisfy the December 31, 2002 obligation through receipts from Lakes Gaming,
Inc.
The Company expects that cash on hand and cash from future operations will
be sufficient to meet the capital expenditures, debt service and working capital
requirements of its existing business for the next fiscal year. In addition, the
Company has executed a Revised Conditional Release and Termination Agreement
with Lakes Gaming for an aggregate maximum sum of $16.1 million, including a $2
million cash down payment. The down payment was received in August 1999. In as
much as the Company may be required to pay back the down payment if a casino is
not opened within five years, the $2 million has been reflected as deferred
revenue at September 30, 1999. Payment of the remaining balance of $14.1 million
is contingent upon several events occurring in the future. Therefore, none of
this amount has been realized at September 30, 1999.
The Company will need to raised additional equity or debt capital to fund
its new multi-media subsidiary. The minimum amount of working capital to be
funded, per agreement, through December 31, 2000 is $500,000. As a result, the
Company will be offering for sale its entertainment segment. The entertainment
segment will be reflected as discontinued operations beginning with first
quarter of fiscal 2000.
Capital expenditures by the Company, net of disposals, were $71,926 for the
year ended September 30, 1999 compared to $95,000 for the 1998 fiscal year.
Capital expenditures for 1999 consisted principally of purchases and
expenditures for Y2K compliance software and hardware ($33,000); office
equipment ($4,500); new telephone system ($36,000); new sound console for the
Branson theatre ($57,000); and miscellaneous equipment ($18,500).
18
<PAGE>
SEASONALITY
The theatre operations in Branson, Missouri and Pigeon Forge, Tennessee are
affected by seasonal factors and, in addition, will be closed from mid-December
through mid-March. This period is historically when theatres like the Company's
normally close in Branson and Pigeon Forge. The casino in Tunisia is also
subject to seasonal factors as the period from October to April is considered
the slow tourist season.
IMPACT OF INFLATION
Management of the Company does not believe that inflation has had any
significant effect 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.
YEAR 2000 UPDATE
The Company has continued to evaluate its Y2K readiness. The Company's
financial institutions have provided written assurances that all of their
systems are Y2K compliant. These statements will be kept on file. ADP, the
Company's payroll vendor, has verified its readiness for the year 2000 and
confirmed that the software the Company is currently using (which is the latest
version) is Y2K compliant. All vendors used by the Company have been sent a
letter requesting a response as to their Y2K readiness. The response from
vendors have been minimal.
The Company has completed its review for the purpose of upgrading its
accounting system to meet Y2K compliance. All vendor software replacements and
upgrades are complete and are running parallel to the existing system through
December 31, 1999 to ensure the integrity of the new system.
As of September 30, 1999, the Company had spent $33,000 for the accounting
hardware and software. It is estimated that the total replacement of necessary
accounting hardware and software and the related costs of conversion and
transmission will approximate $40,000. In August, the Company began converting
its accounting software from a DOS based software package to a sequel server
data base. At the time of conversion, all general ledger and accounts payable
balances were reconciled back to the DOS based system. The new system is
currently in operation; however, the old data base will be maintained through
December 31, 1999 to ensure the integrity of the new system.
The Company has established the following contingency plan for the year
2000. On December 31, 1999 all companies will print a hard copy of all reports
at the close of the business day. A complete set of detail financial reports
will be printed by the corporate office. In the event that any program is unable
19
<PAGE>
to function in the early hours of the year 2000, the Company and all of its
subsidiaries will switch over to a manual system. The accounting software that
was purchased in 1999 is Y2K certified. The vendor has assured the Company that
it will have technical support available to ensure the integrity of the
financial data in the event that something does go wrong.
As of January 7, 2000, the Company has experienced no Y2K related computer
problems.
NEW ACCOUNTING PRONOUNCEMENTS
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, 2000. 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; changes in travel patterns which could affect demand for the
Company's theatres or casino; 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.
20
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information as of September 30, 1999 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 53, 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 57, 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 39, has been a director since 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 its finance chairman. Additionally, Dr. Murphy is a member of the
American Chiropractic Association; 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 53, has been a director since March 17, 1997. Mr. Evans
brings more than 30 years of sales and marketing business experience to the
Board. Mr. Evans 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 and Pigeon Forge and to the Company's casino development in Tunisia,
North Africa. Mr. Evans is currently employed by the Company as Vice President
of Marketing.
Noreen Pollman, age 51, has served as Secretary to the Company since March
1995 and as a director since March 1995 and from 1987 to 1993. Since 1984, 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. Ms. Pollman currently serves as a consultant
to the Company.
Robert J. Allen, age 39, 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.
21
<PAGE>
John Ferrucci, resigned effective September 30, 1999 for personal reasons
to pursue other business opportunities.
Officers serve at the discretion of the Board of Directors.
OTHER MATTERS
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, 1999 all Section 16(a) filing requirements were complied with and filed in a
timely fashion.
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, 1999, 1998
and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(2)
Other Restricted Securities All Other
Annual Stock Underlying
Fiscal Salary Bonus Comp. Awards Options Compensation
Name and Principal Position (1) Year ($) ($) ($) ($) (#) ($)
- ------------------------------- ---- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Pilger (7) ............ 1999 486,396(3) 161,000(4) -0- -0- -0- -0-
Chief Executive Officer ....... 1998 464,747(5) -0- -0- -0- -0- -0-
1997 255,763(6) -0- -0- -0- 195,000
Noreen Pollman ................ 1999 110,844(8) 97,500(4)(9) -0- -0- -0- -0-
Consultant and former Executive 1998 126,233 -0- -0- -0- -0- -0-
Vice President, Operations .... 1997 128,583 20,000 -0- -0- 90,000 -0-
Robert J. Allen ............... 1999 130,777 41,434(4)(10) -0- -0- -0- -0-
Executive Vice President, ..... 1998 119,412 -0- -0- -0- -0- -0-
Entertainment ................ 1997 116,583 -0- -0- -0- 90,000 -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 1999, (ii) each person who (a) served as an executive officer
at September 30, 1999, (b) was among the four most highly paid executive
officers of the Company, not including the Chief Executive Officer, during
22
<PAGE>
fiscal 1999 and (c) earned total annual salary and bonus compensation in
fiscal 1999 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, 1999.
2) The Executives' options were granted under the Company's 1997 Long-Term
Incentive and Stock Option Plan. The grants were originally implemented on
April 3, 1997. The reissued grant vested 2/3 options prior to 1999 with
balance vested April 7, 1999.
3) Includes salary of $237,417 of which $11,050 was paid in stock; and
contractual compensation of $125,000 which was paid for services rendered
for CRC of Tunisia. An additional $123,979 of non-cash compensation is
reflected, which was used to reduce Mr. Pilger's loan payable to CRC.
4) A one time discretionary bonus was approved via Board Resolution in
conjunction with the successful completion of the Lakes Gaming contract for
$16.1 million. This bonus was issued in August 1999. As a result, Mr.
Pilger was awarded $161,000; Ms. Pollman was awarded $45,000; and Mr. Allen
was awarded $37,500 for their instrumental efforts in securing this
contract.
5) Includes contractual compensation and a $150,000 fee paid for services
rendered for CRC Tunisia.
6) Includes $12,942 in unused vacation time.
7) During fiscal 1999, 1998 and 1997, 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.
8) Includes professional fees of $98,344 and Directors fees of $12,500.
9) Includes payment of 1997 bonus balance due in the amount of $50,000, a
Christmas bonus of $2,500 and the discretionary bonus discussed in (4).
10) Includes payment of a Christmas bonus of $3,934 and the discretionary bonus
discussed in (4).
</FN>
</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, 1999 to
extend the annual expiration date from July 19 to September 30 annually with
cost-of-living adjustments to be calculated at that time so to correspond with
the Company's fiscal year end. Additionally, the Agreement provides that if
either party wishes to terminate the Agreement a written notice of intent must
23
<PAGE>
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 for a three
year term.
In 1998, 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 and all taxes, including income taxes and any excise
tax which may be imposed.
Further, in 1998 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.
BounceBackMedia.com, Inc. entered into a two year employment agreement with
Roger Birks on January 3, 2000. Mr. Birks will serve as Chief Executive Officer
of BounceBackMedia.com., Inc. Under the agreement, Mr. Birks will receive an
annual base salary of $100,000. Additionally Mr. Birks, upon establishing a
residence in Silicon Valley, shall receive a living allowance of $2,500 per
month. Further, the Company has granted Mr. Birks and other managers
collectively an option to purchase an aggregate of 1 million shares of Company's
common stock at an exercise price of $.17 per share. Mr. Birks will issue
options to employees of BounceBackMedia.com, Inc. with up to 825,000 options of
the 1,000,000 options available to Mr. Birks personally. Options vest and are
exercisable based on BounceBackMedia.com achieving specific predetermined
revenue targets.
BounceBackMedia.com, Inc. entered into a one year employment Agreement with
Ricardo Gonzalez on January 3, 2000 to serve as Vice President of Technology of
BounceBackMedia.com. Mr. Gonzalez shall receive a base salary of $80,000
annually. Options to purchase 50,000 of the 1.0 million shares referred to above
were issued to Mr. Gonzalez. Options vest and are exercisable based on
BounceBackMedia.com achieving specific revenue targets.
24
<PAGE>
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 was to receive an additional $125,000 compensation for
fiscal 2000, however Mr. Pilger declined this $125,000.
For a description of Mr. Pilger's purchase of shares for Roy Anderson
Holding Corp. see Item 5. "Market for Common Equity and Related Stockholder
Matters."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 7, 2000, 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.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address of Beneficial Owner Beneficially Owned (1) Outstanding
Shares
<S> <C> <C>
John J. Pilger ........................ 1,964,018 (2)(11) 14.4%
Noreen Pollman ..................... 155,000 (3) 1.2%
John W. Steiner .................... 101,975 (4) *%
Dr. Timothy Murphy .............. 41,756 (5) *%
Dennis Evans ........................ 95,100 (6) *%
Robert J. Allen ..................... 170,338 (7) 1.3%
Kevin M. Kean ..................... 1,400,944 (8) 10.8%
Roy Anderson Holding Corp..... 1,100,000 (9) 9.0%
All Directors and Executive Officers as a group (6 Persons) 2,528,187 (10)(12) 15.2%
<FN>
- -------------------------
*Less than 1%
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 235,000 Shares deemed beneficially owned pursuant to options,
which are immediately exercisable or which will be exercisable within 60
days. 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. In addition to
the number of shares reflected in the table, Mr. Pilger holds proxies to
vote 1,330,944 shares owned by Kevin M. Kean (see Note 8 below), 175,000
shares owned by Richard A. Howarth, Jr., (a former officer of the Company)
and 1,100,000 Shares (as of January 1, 2000) held in escrow as collateral
under the Restated Debenture Agreement dated December 31, 1999 (see Note 9
below). Mr. Pilger, his wife and children have the right to vote a total of
4,569,962 outstanding shares or 35.7% of the shares outstanding.
25
<PAGE>
3) Includes 149,000 shares deemed beneficially owned pursuant to options,
which are immediately exercisable or which will be exercisable within 60
days.
4) Includes 80,000 shares deemed beneficially owned pursuant to options, which
are immediately exercisable.
5) Includes 20,000 shares deemed beneficially owned pursuant to options, which
are immediately exercisable.
6) Includes 45,000 shares deemed beneficially owned pursuant to options, which
are immediately exercisable.
7) Includes 149,000 shares deemed beneficially owned pursuant to options,
which are immediately exercisable or which will be exercisable within 60
days.
8) 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 until such time as Mr. Kean sells or transfer such
Shares to an unaffiliated third party in a bona fide transaction. Mr.
Kean's address is 2644 E. Lakeshore Drive, Baton Rouge, Louisiana 70808.
9) Includes 1.1 million shares being held in escrow as collateral to satisfy
certain obligations of the Company under Debentures dated as of December
31, 1999. Mr. Pilger or Mr. Allen holds a proxy for these Shares until
Company has satisfied its obligations in full to Roy Anderson Holding Corp.
Upon full satisfaction of debt the stock will be cancelled. Roy Anderson
Holding Corp's, address is: P.O. Box 2, Gulfport, Mississippi 39502.
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, 1999 total 14,264 shares.
11) Includes 852,250 shares of Company common stock purchased by Mr. Pilger
from Roy Anderson Holding Corp. on December 31, 1999.
12) See Notes 2,3,4,5,6, 7, 10 and 11.
</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 1999.
26
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1999(1)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES PRICE EXPIRATION
NAME OPTIONS GRANTED (#) IN FISCAL 1999 ($/SHARE) DATE
- ----------------------------- ---------------------------- ------------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
John J. Pilger 195,000(1) N/A .44 4/7/2008
Noreen Pollman 90,000(1) N/A .40 4/7/2008
Robert J. Allen 90,000(1) N/A .40 4/7/2008
<FN>
1) The Executives' options were granted under the Company's 1997 Long-Term
Incentive and Stock Option Plan. The grants were originally granted on
April 3, 1997. The new options were fully vested on April 7, 1999.
</FN>
</TABLE>
The following Table sets forth with respect to the Named Executive Officers
Information concerning the exercise of stock options during fiscal 1999 and
unexercised options held as of the end of fiscal 1999. The Company has never
granted stock appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES
AND FISCAL 1999 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT 9/30/99 (#) OPTIONS AT 9/30/99 ($)
------------------------------------- --------------------------------------
EXERCISE REALIZED
NAME (#) ($) UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------- ------------------ ------------- -------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John J. Pilger -0- -0- 0 235,000 -0- -0-
Noreen Pollman -0- -0- 0 149,000 -0- -0-
Robert J. Allen -0- -0- 0 149,000 -0- -0-
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock Transaction
Mr. Pilger agreed to purchase 852,250 shares of Company common stock held
by Roy Anderson Holding Corp. on December 31, 1999 for a purchase price of $.10
per share.
Company Loans
At September 30, 1999, John J. Pilger was indebted to the Company in the
amount of $385,935 including principal and interest. Such obligations accrued
interest at rates between 7% and 9.5% per year. During 1999, the Board approved
a $137,479 bonus to Mr. Pilger that was applied toward these obligations. For
tax purposes, Mr. Pilger will recognize $123,979 as income. The Company
27
<PAGE>
fulfilled its total loan obligation of $35,500 to Mr. Pilger, paying $22,000 in
cash and apply the balance of $13,500 was applied to his outstanding loan
obligations.
The Company has advanced $10,677 including interest to Robert J. Allen,
which note was paid in full by Mr. Allen as of September 30, 1999.
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 owned by Mr. Kean were cancelled
along with the 150,000 collateral shares held (valued at the market price of
$1.19 per share). Additionally, the Company and Mr. Kean entered into a new note
agreement. The new 7% interest bearing note of $1,196,885, including
approximately $143,000 of previously reserved interest, is scheduled to mature
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. Under the terms of the Loan and Settlement Agreement, ". . . In
the event that CRC shall sell, assign or transfer its interest in the Pokagon
Project, in whole or in part, to any other party, by way of sale, loan,
settlement, fee or otherwise for consideration in an amount in excess of $1
million, Kean's obligation under the Renewal Note shall be fully discharged and
satisfied and CRC shall mark the Renewal Note "Paid" and return it to Kean. . ."
Mississippi Residence and Adjacent Land
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 Mr. Smith, a principal of
Monarch Casinos, Inc. The Company has initiated a legal action against Mr. Smith
for default of his obligations under agreements between he and the Company for
nonperformance of Smith's financial contracted obligations.
The Board of Directors authorized the Company to acquire two lots, from Mr.
Pilger, owner of the lots, which are contiguous to the 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, a portion which was paid in
cash and a portion which was applied to Mr. Pilger's loans due 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.
28
<PAGE>
A total of 150,000 of such shares of Common Stock were 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 therefore, 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 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 had 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. Under the terms of the Loan and
Settlement Agreement, ". . . In the event that CRC shall sell, assign or
transfer its interest in the Pokagon Project, in whole or in part, to any other
party, by way of sale, loan, settlement, fee or otherwise for consideration in
an amount in excess of $1 million, Kean's obligation under the Renewal Note
shall be fully discharged and satisfied and CRC shall mark the Renewal Note
"Paid" and return it to Kean. . . ."
The Company has executed a Consulting Agreement with Monarch Casinos, Inc.
("Monarch") which was subsequently assigned to Mr. 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
extended 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
would have been granted upon the groundbreaking for the first Pokagon casino,
subject to certain conditions, and 1,500,000 shares of Common Stock would have
been granted upon the opening of a Pokagon casino. Monarch granted Mr. Pilger an
29
<PAGE>
irrevocable proxy with regard to all shares owned by Monarch. Mr. Pilger
assigned this proxy to the Company's Board of Directors. The Company cancelled
Mr. Smith's Consulting Agreement, as per the terms of the contract. due to
certain criterion set out in contract not being met by September 1997. No
additional fees were paid to Mr. Smith during Fiscal 1998 or Fiscal 1999. The
Company initiated a suit against Mr. Smith in December 1998 for breach of
contract, default of rental payment and for collection of note due Company by
Mr. Smith and Monarch Casinos, Inc.
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 Company anticipates it will reduce its long term out-of-pocket
expenses associated with Ms. Pollman's employment. 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. $100,000 of the bonus was utilized to pay down $86,000 loan
plus interest due the Company on September 1998. Ms. Pollman's consulting
agreement has been extended for a two-year period and the rate per hour
increased from $67.00 to $85.00 per hour this September 1999.
The Company had a consulting relationship with Dennis Evans, who serves on
the Board of Directors. Mr. Evans acted as a marketing consultant to Casino
Caraibe, and lived 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 received $10,000 monthly and 2,973 Tunisian
dinars ($2,527 US dollar equivalent) monthly during his consulting term. Mr.
Evans is currently employed by CRC as its Vice President of Corporate Marketing.
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.
30
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 Articles of Merger of the Company (11)
3.3 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)
31
<PAGE>
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)
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
Corporation (5)
32
<PAGE>
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
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)
33
<PAGE>
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)
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)
34
<PAGE>
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)
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)
35
<PAGE>
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)
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 Blvd., Ocean Springs, MS (8)
10.77 Kevin Kean Settlement Agreement (8)
36
<PAGE>
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)
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)
10.101 Agreement by and among the Company, CRC of Branson, Inc. and Ahab of
the Ozarks, Inc., dated September 30, 1999 (12)
10.102 Lease Agreement by and between CRC of Branson, Inc. and Ahab of the
Ozarks, Inc., dated September 30, 1999 (12)
10.103 Termination Agreement by and among the Company, Casino Resource
Corporation of Tunisie, S.A., and SeaMar Ventures, LLC dated November
5, 1999 (11)
37
<PAGE>
10.104 Promissory Note made by Casino Resource Corporation of Tunisie, S.A.
in favor of SeaMar Ventures, LLC dated November 5, 1999 (11)
10.105 Guaranty given by the Company in favor of SeaMar Ventures, LLC dated
November 5, 1999 (11)
10.106 Agreement to Amend and Restate Debenture by and between the Company
and Roy Anderson Holding Corp. Dated December 31, 1999 (11)
10.107 Asset Purchase Agreement by and among the Company,
BounceBackMedia.com,Inc., Digital Development & Distribution, LLC and
Roger Birks, dated December 31, 1999 (11)
10.108 Employment Agreement by and among the Company,
BounceBackMedia.com,Inc., Digital Development & Distribution, LLC and
Roger Birks, dated December 31, 1999 (11)
10.109 Employment Agreement by and among the Company,
BounceBackMedia.com,Inc., Digital Development & Distribution, LLC and
Ricardo Gonzalez, dated December 31, 1999 (11)
21.1 List of Subsidiaries of Registrant (12)
23.1 Consent of Independent Certified Public Accountants (11)
27.1 Financial Data Schedule (11)
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 Annual Report on 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 Annual Report on 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 Annual Report on 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 Annual Report on 10-KSB, as
amended for fiscal year ended September 30, 1997, filed on January 20,
1998.
38
<PAGE>
9) Incorporated by reference to the Company's Quarterly Report on 10-QSB, for
the fiscal quarter ended March 31, 1998 filed on May 15, 1998.
10) Incorporated by reference to the Company's Annual Report on Form 10-KSB,
for the fiscal year ended September 30, 1998 filed on January 13, 1999.
11) Filed herewith.
12) To be filed by amendment.
(b) There have been no current reports on Form 8-K filing during the three
months ended September 30, 1999:
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CASINO RESOURCE CORPORATION
January 11, 2000 By: /s/ John J. Pilger
-----------------------
John J. Pilger,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE
January 11, 2000 /s/ John J. Pilger
-----------------------------------
John J. Pilger, Chief Executive
Officer, President and Chairman of
the Board of Directors
January 11, 2000 /s/John J. Pilger
-----------------------------------
Chief Financial Officer and Chief
Accounting Officer
January 11 2000 /s/Noreen Pollman
-----------------------------------
Noreen Pollman, Director
January 11, 2000 /s/Robert J. Allen
-----------------------------------
Robert J. Allen, Vice President of
Entertainment and Director
January 11, 2000 /s/Timothy Murphy
-----------------------------------
Dr. Timothy Murphy, Director
January 11, 2000 /s/Dennis Evans
-----------------------------------
Dennis Evans, Director
January 11, 2000 /s/John W. Steiner
-----------------------------------
John W. Steiner, Director
40
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheets F3-F4
Statements of Operations F-5
Statements of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F7-F8
Notes to Consolidated Financial Statements F-9-F22
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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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, 1999 and 1998, 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
November 6, 1999, except for the
second paragraph of Note 11(a) and Note 18
which are as of January 3, 2000
F-2
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
September 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash equivalents (Note 7) $ 1,658,435 $ 1,123,732
Accounts receivable - trade and other 272,095 316,436
Inventory 33,834 224,466
Prepaid expenses (Note 4) 180,252 135,278
Deferred tax asset (Note 13) -- 2,000,000
Net assets held for sale - gaming (Note 3) 1,471,234 2,680,729
- ------------------------------------------------------------------------------------------------------------------
Total Current Assets 3,615,850 6,480,641
- ------------------------------------------------------------------------------------------------------------------
Property and Equipment, less accumulated depreciation
and amortization (Note 6) 586,638 8,478,592
- ------------------------------------------------------------------------------------------------------------------
Noncurrent Assets
Cost in excess of Fair Market Value of assets acquired,
less accumulated amortization of $269,393 in 1999 and
$221,144 in 1998
454,349 502,598
Notes and advances receivable - related parties, net of
allowance for uncollectibles of $384,913 in 1999 and
$239,414 in 1998 (Note 5) 410,472 473,891
Note Receivable, Palace Casino -- 242,766
Other assets - net 74,201 29,404
- ------------------------------------------------------------------------------------------------------------------
Total Noncurrent Assets 939,022 1,248,659
- ------------------------------------------------------------------------------------------------------------------
$ 5,141,510 $16,207,892
===================================================================================================================
</TABLE>
F-3
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
September 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Accounts payable $ 393,519 $ 607,093
Subordinated convertible debentures (Note 10) 121,325 --
Current maturities of long-term debt (Note 11) 930,302 362,468
Accrued expenses and other liabilities (Note 8) 1,025,315 1,163,893
- ------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,470,461 2,133,454
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Long-term debt, less current maturities (Note 11) 1,424,378 9,435,446
Subordinated convertible debentures (Note 10) -- 228,326
Deferred revenue (Note 7) 2,000,000 --
- ------------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 3,424,378 9,663,772
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,894,839 11,797,226
- ------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 1, 12, and 17)
Stockholders' (Deficit) Equity (Notes 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;
10,431,880 and 9,489,314 shares issued and outstanding in
1999 and 1998, respectively 104,319 94,893
Additional paid-in capital 22,953,761 22,630,909
Deficit (23,811,409) (18,315,136)
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholders' (Deficit) Equity (753,329) 4,410,666
- ------------------------------------------------------------------------------------------------------------------------
$ 5,141,510 $ 16,207,892
</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, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Entertainment $ 8,228,220 11,498,413
- ------------------------------------------------------------------------------------------------------------------------------
Cost and Expenses
Operating costs - entertainment 6,266,329 10,267,259
General and administrative 2,771,860 3,029,925
Interest expense-net of interest income of $160,099 and $206,195
In 1999 and 1998, respectively 614,408 1,151,644
Loss on sale and leaseback transaction (Note 12) 536,351 --
Gain on sale of joint venture (Note 1) (78,566) --
Allowance for impaired asset (Note 1) 75,000 1,909,959
- ------------------------------------------------------------------------------------------------------------------------------
Total cost and expenses 10,185,382 16,358,787
- ------------------------------------------------------------------------------------------------------------------------------
Loss before minority interest (1,957,162) (4,860,374)
Minority interest in net loss of a consolidated subsidiary 48,537 280,963
- ------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income tax benefit (1,908,625) (4,579,411)
Income tax (expense) benefit (Note 13) (2,000,000) 2,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (3,908,625) (2,579,411)
Income from discontinued operations- gaming (Note 3) (1,587,648) (3,604,079)
Income from discontinued operations - hospitality (Note 3) -- 623,493
Gain on sale of discontinued operations - hospitality (Note 3) -- 548,175
- ------------------------------------------------------------------------------------------------------------------------------
Net Loss $ (5,496,273) $ (5,011,822)
==============================================================================================================================
Basic and Fully Diluted Loss per Common Share
Continuing operations $ (0.40) $ (0.27)
Discontinued operations (0.16) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------
Net Loss $ (0.56) $ (0.52)
==============================================================================================================================
Weighted Average Number of Common Shares Outstanding 9,796,373 9,616,155
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in
Shares Amount Capital Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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) --
Other -- -- 4,500 --
Net Loss -- -- -- (5,011,822)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, at September 30, 1998 9,489,314 94,893 22,630,909 (18,315,136)
Issuance of common stock - conversion of
debentures and payment of accrued interest 776,756 7,768 265,508 --
Issuance of shares in exchange for services rendered 70,000 700 34,300 --
Stock issued to employees 95,810 958 23,044 --
Net loss (5,496,273)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, at September 30, 1999 10,431,880 $ 104,319 $ 22,953,761 $(23,811,409)
====================================================================================================================================
</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, 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $(3,908,625) $(2,579,411)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) operating activities
Depreciation 494,930 725,700
Amortization 48,249 586,420
Minority interest in net loss of a consolidated subsidiary (48,537) (280,963)
Deferred tax asset 2,000,000 (2,000,000)
Gain on sale of joint venture (78,566) --
Loss on sale leaseback transaction 536,351 --
Expenses paid through issuance of common stock 67,983 --
Discount upon conversion of convertible debentures 18,595 212,315
Reserve for impaired asset 75,000 1,909,959
Reserve for uncollectible note receivable - Palace Casino 156,284 --
Gain on sale of the Hinckley Hotel -- (548,175)
Accretion of note receivable interest (7,233) (21,693)
Accrued interest converted to debt 30,000 42,688
Changes in assets and liabilities
Accounts receivable-trade and other (36,146) 60,063
Inventory 179,444 49,563
Prepaid expense (93,453) 392,663
Other assets 5,203 26,198
Account payable (16,286) (384,441)
Accrued expense and other liabilities (44,249) (52,550)
Deferred rent -- (178,620)
Deferred revenue 2,000,000 --
=============================================================================================================
Net cash provided by (used in) operating activities 1,378,944 (2,040,284)
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of Hinckley Hotel -- 2,029,241
Purchase of property and equipment (71,926) (95,386)
Decrease (Increase) in due from related parties 63,419 120,097
Advances to Mana Springs Joint Venture (150,000) --
Proceeds from minority interest in a consolidated subsidiary -- 260,010
Proceeds from note receivable 93,715 --
- -------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities (64,792) 2,313,962
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Casino Resource Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Financing Activities
Payment on long-term debt $ (401,296) $(1,613,247)
Repurchase of common stock -- (168,542)
Warrant expense -- 4,500
- --------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (401,296) (1,777,289)
- --------------------------------------------------------------------------------------------------------------------
Cash Used in Discontinued Operations- Gaming (378,153) (2,689,549)
Cash Provided by Discontinued Operations - Hospitality -- 2,488,775
- --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 534,703 (1,704,385)
Cash and Cash Equivalents, at beginning of year 1,123,732 2,828,117
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of year $ 1,658,435 $ 1,123,732
====================================================================================================================
Supplemental Disclosures of Cash Flow Information Cash paid during the year for:
Interest $ 726,972 $ 1,282,994
Income taxes 62,437 4,321
Supplemental Disclosures of Noncash Investing and Financing Activities
Conversion of subordinated convertible debenture and payment $ 273,276
of accrued interest
Acquisition of property and equipment through capital leases 76,044
Mortgage payable discharged in conjunction with sale 7,009,282
leaseback transaction (Note 12)
====================================================================================================================
</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 entertainment
business. The Company operates a theater in Branson,
Missouri (the Country Tonite Theatre) and a production
company in Las Vegas, Nevada (Country Tonite
Enterprises).
Prior to 1999, the Company also owned a 60% interest in
a joint venture, Country Tonite Theatre, LLC, which
operates a production theatre in Pigeon Forge,
Tennessee. The Company sold its interest in this joint
venture for $20,000 to the 40% minority partner,
Burkhart Ventures, LLC, effective December 31, 1998. As
a result, the Company has recognized a gain on the sale
in the amount of $78,566 for the year ended September
30, 1999.
During 1999, the Company also operated in the gaming
business. The Company leased and operated a casino in
Tunisia through its 85% owned subsidiary (CRC of
Tunisie S.A.). In September 1999, plans were adopted to
discontinue the gaming segment. The Company has entered
into an agreement to sell its 85% interest in CRC of
Tunisia S.A. The sale is expected to close in January
2000. See Note 3.
Prior to 1998, the Company also operated in the
hospitality business. During 1998, this operation was
discontinued as described in Note 3.
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.
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 $394,163 in
1999 and $546,807 in 1998.
Inventory Inventory, consisting principally of merchandise and
concessions, is stated at the lower of cost (first-in,
first-out) or market.
F-9
<PAGE>
Property
& 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 $75,000 and $1,909,959 for the
years ended September 30, 1999 and 1998, respectively.
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
taxes 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
"Earning 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.
Basic 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 for its Tunisian Casino 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 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 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.
F-10
<PAGE>
In June 1998, the 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, 2000. When the Company adopts
this statement, it is not expected to have a material
impact on the Company's financial statements or their
presentation.
Reclassifi-
cations Certain reclassifications have been made to the
previously reported 1998 financial statements to
conform with the 1999 presentation.
2. Entertainment Segment
In September 1998, the Company entered into an Asset Purchase
Agreement to sell substantially all of the assets used in connection
with the operations of the Country Tonite Theatre and Country Tonite
Enterprises to On Stage Entertainment, Inc. ("On Stage") for $13.8
million. The Company also had an agreement to sell its 60% interest in
the Country Tonite Theatre LLC Joint Venture. As a result, the
entertainment segment was presented as discontinued operations at
September 30, 1998. However, in April 1999, the agreement between the
Company and On Stage was terminated. Therefore, operating results for
the year ended September 30, 1998 have been reclassified and reported
as "continuing operations". A gain had been anticipated on the sale of
the entertainment segment and no impairment losses were recorded at
September 30, 1998. As a result, there is no reversal of such amounts
in fiscal 1999.
Operating results and related assets and liabilities of the
entertainment segment for the year in which it was reported as a
discontinued operation, exclusive of corporate charges, are as
follows:
1998
---------------------------------------------------------------
Revenues $9,735,443
---------------------------------------------------------------
Operating income $1,521,792
Assets $9,609,652
---------------------------------------------------------------
Liabilities $7,225,037
===============================================================
3. Discontinued Operations
The Company has sold or plans to sell the assets related to the (a)
hospitality segment and the (b) gaming 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 sale proceeds to
retire the hotel debt and the note payable collateralized by
the stock of the subsidiary that owned the Grand Hinckley
Inn.
Operating results of the discontinued operations exclusive
of corporate charges are as follows:
1999 1998
------------------------------------------------------------
Revenues $ -- $2,225,037
============================================================
Net Income $ -- $ 623,493
============================================================
Interest on the mortgage payable charged to discontinued
operations totaled $186,108 for the year ended September 30,
1998.
F-11
<PAGE>
The Company has adopted a formal plan to sell its 85%
interest in CRC of Tunisia S.A. as of September 30, 1999.
The Company has commenced negotiations to sell its 85%
interest in CRC Tunisie, S.A. to Samara, the mortgage holder
of the Casino Caraibe property. The discussions have not
been finalized and there is no assurance that the Company
will in fact conclude a transaction with Samara.. The
Company anticipates generating a gain on the sale of the
casino.
Operating results and related assets and liabilities of the
gaming segment for the fiscal years ended September 30, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 2,526,193 $ 3,305,396
============================================================================================
Net loss $(1,587,648) $(3,604,079)
============================================================================================
Currents Assets
Cash and cash equivalents $ 205,165 $ 389,300
Accounts receivable 404,708 --
Inventory 19,881 36,431
Prepaid Expenses 64,563 28,459
-------------------------------------------------------------------------------------------
$ 694,317 $ 454,190
============================================================================================
Net property & equipment $ 1,584,491 $ 2,697,815
============================================================================================
Current Liabilities
Accounts payable $ 243,036 $ 125,891
Current debt 61,147 96,871
Accrued expenses 503,391 248,514
-------------------------------------------------------------------------------------------
$ 807,574 $ 471,276
-------------------------------------------------------------------------------------------
Net assets held for sale $ 1,471,234 $ 2,680,729
============================================================================================
</TABLE>
4. Prepaid Expenses
Prepaid expenses consist of the following:
September 30, 1999 1998
------------------------------------------------------------
Insurance $ 98,561 $112,421
Miscellaneous 81,691 22,857
------------------------------------------------------------
$180,252 $135,278
============================================================
F-12
<PAGE>
5. Related Parties
Notes and advances receivable include notes and related interest due
from officers and stockholders totaling $410,472 and $473,891 at
September 30, 1999 and 1998, respectively, at interest rates ranging
from 6% to 11%. The notes matured from October 1, 1999 to December 31,
2001. Interest income from these notes was $132,520 and $136,924 in
1999 and 1998, respectively. These notes receivable of $449,461 are
being retired ratably over three years, which began January 1, 1999.
Approximately $124,000 of this amount was retired during fiscal 1999.
6. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, 1999 1998
--------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 83,000 $ 2,309,724
Buildings 317,000 6,507,629
Furniture, fixtures and equipment 685,483 2,757,766
--------------------------------------------------------------------
Less accumulated depreciation and 1,085,483 11,575,119
amortization (498,845) (3,096,527)
--------------------------------------------------------------------
Net property and equipment $ 586,638 $ 8,478,592
--------------------------------------------------------------------
</TABLE>
7. Deferred Development Costs
The Company purchased in 1995 from Monarch Casinos, 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 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. Due to the
uncertainty of the project, the Company has provided an impairment
reserve of $1,909,959 against the deferred project cost, the $600,000
Harrah's reimbursement and the advance to the Company's former
chairman during fiscal 1998. The Company also initiated lawsuits
against Harrah's and Monarch Casinos, Inc. (see Note 17).
During fiscal 1999, the Company formed a joint venture with Lakes
Gaming for the purpose of pursing a management and development
agreement to develop one or more casinos on behalf of the Pokagon
Tribe. In June 1999, Lakes Gaming was selected by the Pokagon Tribe to
negotiate a management and development agreement. On August 31, 1999,
the newly elected Tribal Council of the Pokagon Band ratified the
Management and Development Agreement with Lakes Gaming and the
Company's Revised Conditional Release and Termination Agreement with
Lakes Gaming became effective. The terms of the Revised Conditional
Release and Termination Agreement called for the payment of an
aggregate maximum sum of $16.1 million, which includes a $2 million
cash down payment. The $2 million will be recorded as deferred revenue
pending the opening of the casino in Michigan. The balance of $14.1
million is payable as certain events unfold relative to the location
of the Tribe's casino, the actual fact that the casino does open, that
Lakes Gaming is the manager when the casino opens, and Lakes Gaming
continues to manage the casino during the five year term of the
agreement, other than a buy-out by the Tribe of the remainder of Lakes
Gaming management term. The agreement also calls for CRC to repay the
F-13
<PAGE>
$2 million if after five years there is no casino open. Further, $2.5
million of the $16.1 payment is due only if the Tribe builds a casino
in Indiana and Lakes Gaming is the manager.
8. Accrued Expenses And Other Liabilities
Accrued expense and other liabilities consist of the following:
September 30, 1999 1998
---------------------------------------------------------------------
Professional fees $ 222,408 $ 308,813
Payroll and payroll taxes 190,481 176,196
Interest 250,667 207,633
Deferred income 64,339 120,239
Sales tax 67,195 90,205
Insurance 63,200 67,275
Other 167,025 193,532
---------------------------------------------------------------------
$1,025,315 $1,163,893
======================================================================
9. Credit Arrangements
The Company has a line-of-credit arrangement with SouthTrust National
Bank, which provides for borrowing up to $200,000 with interest at
prime plus 1%. This line-of-credit is secured by the accounts
receivable of the Company. At September 30, 1999, there were no
advances under the line-of-credit.
10. 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 had a one-year maturity with the ability to convert
into shares of common stock on or before the anniversary date at a
price equal to 83% of the then current trading price. 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. During 1999, $107,000 of the principal amount of the
debentures were converted into 311,093 common shares. The remaining
balance of $121,325 plus interest ($164,000 cash) was settled in full
by a cash payment of $100,000 in October 1999, resulting in an
extraordinary gain which will be recognized in fiscal 2000.
11. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following:
September 30, 1999 1998
---------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Debenture, interest at 6%, $1,530,000 principal
amount, payable in equal monthly installments
of $88,651 through November 2000. 50% of each
installment payment must be made in cash. The
remaining balance of each installment may be
paid in either cash or common stock at the
Company's option. (a) $ 1,195,729 $ 1,481,405
F-14
<PAGE>
Note payable 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.
(b)
1,000,000 1,000,000
Mortgage payable, interest at prime,
collateralized by real estate. Balance was
settled in September 1999 in conjunction with the
sale and leaseback transaction. 0 7,225,037
Note payable, interest at 9.5%, collateralized
by real estate, payable in monthly installments
of $1,139 through May 2000 with a final payment
of $83,506 due in June 2000
87,204 91,472
Other, interest ranging from 9.95% to 10.9%,
collateralized by equipment, payable in monthly
principal and interest installments ranging
from $634 to $1,191 through June 2004
71,747 0
---------------------------------------------------------------------------------------
2,354,680 9,797,914
Less current maturities (930,302) (362,468)
---------------------------------------------------------------------------------------
Total Long Term Debt $ 1,424,378 $ 9,435,446
=======================================================================================
</TABLE>
Maturities of long-term debt are as follows:
Year ending September 30, Amount
------------------------------------------------------------------
2000 $ 930,302
2001 324,548
2003 18,606
2004 701,745
Thereafter 5,479
---------------------------------------------------------------
Total $ 1,980,680
===============================================================
The above schedule reflects the extraordinary gain on the forgiveness
of debt (discussed below) which occurred in fiscal 2000.
(a) During 1999, approximately $165,000 of this debenture was
converted into 389,083 shares of common stock.
On December 31, 1999 the Company and Roy Anderson
Corporation agreed to amend and restate the debenture
agreement. The Company has granted Mr. Anderson an option to
purchase 300,000 shares of common stock of the Company to
modify the original debenture. The restated debenture
agreement separates the remaining balance outstanding of the
original debenture as of December 31, 1999 in the amount of
$1,028,553 into two debentures. The first debenture calls
for the Company to pay $342,655 along with simple interest
fixed at 6% per annum. This debenture is paid with in
monthly installments of $44,326 beginning April 2000 with
the last payment due November 2000. The second debenture
calls for the Company to pay $685,898 along with simple
interest fixed at 6% per
F-15
<PAGE>
annum. This debenture is payable in one lump sum at its
maturity on December 31, 2002. In addition, the second
debenture provides for mandatory prepayments if certain
conditions should arise. These most notably relate to the
Company's completion of the sale of its discontinued
operations, sale or other disposition of its existing
business operations or assets, collection of any proceeds
from litigation and the collection of any payments from the
Lakes Gaming agreement. Currently 1,100,000 shares of
Company common stock are held in escrow as collateral. Upon
Company's satisfaction in full of all outstanding amounts
due under debentures the common stock shall be released to
Company for cancellation.
(b) In October 1999, the Company entered into an agreement to
retire this debt in consideration for a cash payment of
$150,000 to be paid in November 1999 and a
noninterest-bearing note payable in the amount of $512,500.
This note is payable in 18 equal monthly payments of $28,472
each, commencing December 1, 1999. This note will be
discounted to an effective interest rate of 9.5%. This
transaction resulted in an extraordinary gain on the
extinguishment of debt in the amount of $374,000 which will
be recognized in fiscal 2000.
12. 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 $411,986 and $644,528 for the years ended September 30,
1999 and 1998, respectively.
Minimum annual rental commitments of continuing operations of
noncancelable operating leases covering facilities and equipment at
September 30, 1999 are approximately:
YEAR ENDING SEPTEMBER 30, Amount
-----------------------------------------------------------
2000 $964,000
2001 948,000
2002 74,000
2003 21,000
2004 9,000
-----------------------------------------------------------
Total $2,016,000
-----------------------------------------------------------
In September 1999, the Company sold its theater in Branson, Missouri
in exchange for the discharge of the related mortgage payable totaling
$7,009,000. The theater is being leased back from the purchaser for an
initial period of two years at an annual triple net rental fee of
$840,000, as reflected in the above table. Thereafter, the Company has
five one-year options to renew the lease at that rent plus a
cost-of-living index increase, not to exceed 3% per annum. The
resulting lease is being accounted for as an operating lease. A loss
of $536,351 was incurred on this sale and has been recognized in the
Company's statement of operations for the year ended September 30,
1999.
13. Taxes on Income (Benefit)
The composition of taxes on income (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C>
Current
Federal $ - -
Utilization of net operating loss carry forward - -
Adjustment of valuation allowance 2,000,000 (2,000,000)
-------------------------------------------------------------------------------------
Total taxes on income (Benefit) $2,000,000 (2,000,000)
======================================================================================
</TABLE>
F-16
<PAGE>
The Company and its subsidiaries file a consolidated federal income
tax return.
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
September 30, 1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C>
Total deferred tax assets, relating principally
to net operating loss carry forwards $5,626,000 $4,926,000
Deferred tax liabilities
-------------------------------------------------------------------------------------
$5,626,000 $4,926,000
Less valuation allowance (5,626,000) (2,926,000)
-------------------------------------------------------------------------------------
Total net deferred tax asset $ - $ 2,000,000
=====================================================================================
</TABLE>
At September 30, 1998, the Company had realized a net deferred tax
asset of $2,000,000 as it was more likely than not that this amount
would be realized upon the expected sale of the Company's
entertainment segment. The sale of the entertainment segment did not
occur. As a result, due to the uncertainty of future realization, the
Company recorded a valuation allowance for the entire deferred tax
asset as of September 30, 1999. At September 30, 1999, the Company had
U.S. federal net operating loss carryforwards available to offset
future taxable income of approximately $9,000,000 which expire in
various years through 2019.
14. Warrants
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.
During 1999, warrants originally issued in connection with the
Company's initial public offering expired. These warrants were for the
purchase of 2,400,000 common shares at exercise prices ranging from
$6.75 to $8.25 per share. None of these warrants were exercised prior
to expiration.
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 an exercise price of $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,
1999, there were 392,300 options with respect to shares of common
F-17
<PAGE>
stock outstanding under the 1993 Plan and there were options with
respect to 0 shares available for grant under such plan; there were
546,333 options with respect to shares of common stock outstanding
under the 1997 Plan and there were options with respect to 22,367
shares available for grant under such plan.
The following table summaries the options granted, exercised and
outstanding under the plans.
<TABLE>
<CAPTION>
Weighted
Exercise Average
Price Exercise
Shares Per Share Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, September 30, 1997 896,800 $1.34 - 3.75 $1.71
Granted 420,000 $0.94 - 3.75 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
Granted 558,000 $.31-0.63 .41
Exercised - - -
Canceled and expired (493,500) $1.38-3.75 $1.92
-----------------------------------------------------------------------------------------
Outstanding September 30, 1999 938,633 $.0.94-3.75 $1.11
=========================================================================================
Options exercisable at September 30, 1999 911,133 $.31-3.13 $1.13
-----------------------------------------------------------------------------------------
=========================================================================================
Options available for future grant 22,367
=========================================================================================
</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:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------- --------------- --------------
<S> <C> <C>
Weighted-average fair value per options granted $ 0.28 $0.68
Significant assumptions (weighted-average)
Risk-free interest rate at grant date 5.24% 5.55%
Expected stock price volatility 0.86 0.56
Expected dividend payout - -
Expected option life (years) (a) 8.8 10.0
Loss from continuing operations
As reported $(3,908,625) $(2,579,411)
Pro forma (4,065,785) (2,864,461)
Loss from continuing operations per share
As reported $ (0.40) $(0.27)
Pro forma (0.42) (0.30)
F-18
<PAGE>
<FN>
(a) The expected option life considers historical option
exercise patterns and future changes to those exercise
patterns anticipated at the date of grant.
</FN>
</TABLE>
The following table summarizes information about stock options
outstanding at September 30, 1999 under the plans:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 9/30/99 Life Price at 9/30/99 Price
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.31-0.620 475,000 8.53 Years $ 0.42 447,500 $ 0.41
1.00-1.94 312,333 5.96 Years 1.64 312,333 1.64
2.00-2.375 127,000 4.74 Years 2.03 127,000 2.03
3.13-3.75 24,300 3.95 Years 3.13 24,300 3.13
--------------------------------------------------------------------------------------------
938,633 7.05 Years $1.11 911,133 $1.13
============================================================================================
</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). In May 1999, the
Company elected to discontinue this matching program. Company-matched
contributions 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 $14,168 and $44,120 in 1999 and
1998, respectively.
17. Commitments and Contingencies
(a) In 1995, a suit was brought against the Company in United States
District Court of New Jersey, which venue was later transferred to
United States 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 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 Gelb in December 1997 for $100,000, plus
attorney fees and expenses. All claims were dismissed with prejudice
in November 1998.
(b) 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. 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. The trial is scheduled for January 2000.
F-19
<PAGE>
(c) 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. On January 15, 1998, the Company signed a subsequent
agreement with Mr. Kean. Under this agreement, 220,000 additional
shares of the Company's stock owned by Mr. Kean were canceled along
with the 150,000 collateral shares held (valued at the market price of
$1.19 per share). Additionally, the Company and Mr. Kean entered into
a new note agreement. The new 7% note 7% interest bearing note of
$1,196,885, including approximately $143,000 of previously reserved
interest is scheduled to mature 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. Generally accepted accounting principles do not
permit the recording of contingent assets until realized and as Mr.
Kean's ability to pay the note is not known, the Company at September
30, 1998 provided an impairment reserve for the $791,900 which
represents the notes remaining principal balance after stock
cancellations. Under the terms of the Loan and Settlement Agreement,
". . .In the event that CRC shall sell, assign or transfer its
interest in the Pokagon Project, in whole or in part, to any other
party, by way of sale, loan, settlement, fee, or otherwise for
consideration in an amount in excess of $1 million, Kean's obligation
under the Renewal Note shall be fully discharged and satisfied and CRC
shall mark the Renewal Note "Paid" and return it to Kean . . ."
(d) 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 Potawatomi Indians' Management Agreement. 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 property 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 Federal Minnesota District Court granted
Harrah's Motion for Dismissal for Summary Judgment and the Company's
complaint was dismissed with prejudice on May 24, 1999. The Company
filed an appeal in the Eight Circuit US Court of Appeals on September
16, 1999. The Company asserts that it has the right to resolve the
dispute with Harrah's in some forum and the trial court erred by
dismissing the Company's Complaint without granting the Company leave
to file an Amended Complaint which included a claim for an accounting
and damages under the Uniform Partnership Act. The Company plans to
vigorously pursue its claims and seeks a judgement against Harrah's
plus interest and legal fees.
(e) 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 Casinos, Inc. 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 Mr. Smith
has defaulted on his obligations to pay rent and maintain the up-keep
of the Company residential property located at 303
F-20
<PAGE>
LaSalle Street, Ocean Springs, Mississippi and defaulted on the
repayment of loans from the Company in excess of $300,000. The 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. Mr. Willard Smith filed a counter claim on
February 16, 1999, alleging breach of contract; breach of duty of fail
dealing; tortuous interference with prospective business advantage;
specific performance of contract to purchase real property and fraud.
The Company plans to vigorously defend itself in this counterclaim and
is asking the court of dismiss the matter.
(f) Norm D. Holm, and N.D.H., Inc., ("NDH") Norm D. Holm, and N.D. H.
Inc., ("NDH"), a Minnesota Corporation, brought suit in the Tenth
Judicial District Court, country of Sherburne, Minnesota, against the
Company on August 11, 1998. The Company was notified of litigation and
responded on September 24, 1998. However, as the Company had no
information on this matter, the Company was granted a postponement
until February 1999. NHD alleges that the Company entered into an
indemnification and hold harmless agreement to indemnify and hold NDH
harmless from loss of claims, etc., incurred as a result of services
provided to real property known as "Pintail Woods", which claim
purportedly totals $158,000. These claims were brought before the
American Arbitration Association ("AAA") in December 1992, who ruled
that the arbitration was not appropriate at that time. On July 7,
1998, the Tenth Judicial District Court, county of Sherburne,
Minnesota, ordered this matter be submitted to arbitration. The
Company plans to vigorously defend itself in this matter and is asking
the court to dismiss based on a statue of limitations defense as the
event took place over eight years ago.
(g) The Company initiated suit again Mark McKinney, personally, and
Mana Corporation, on March 12, 1999, in the Circuit Court of Benton
County, Arkansas. The Company alleges that Mr. McKinney and Mana
Corporation breached the terms of the Letter of Intent and the
Extension Agreement dated December 4, 1998, by prematurely terminating
the agreement before April 30, 1999, and failure to repay a short term
loan made to Mark McKinney, personally. The Company seeks a judgment
against Mark McKinney and Mana Corporation in the amount of $150,000
plus interest and attorney's fees. Due to the uncertainty of Mr.
McKinney's ability to make payment, $75,000 of this receivable has
been reserved. Mark McKinney and Mana Corporation filed a counter
claim April 5, 1999, alleging Mana Corporation incurred additional
expenses associated with the due diligence with the Company and is
asking for a judgment against the Company for $51,997 in addition to
prejudgment and post judgment interest and attorney's fees. In
November 1999, Mana Corporation petitioned an Arkansas Court for
reorganization under Chapter 11 of the Bankruptcy Code, therefore the
balance of the receivable was reserved in November 1999.
18. Subsequent Events
(a) In January 2000, the Company acquired all of the assets of
RawData, Inc. in exchange for cash of $85,000, a note payable in the
amount of $65,000 and an option to purchase 1,000,000 shares of the
Company's common stock, at an exercise price of $0.17 per share. The
option becomes exercisable if BounceBackMedia.com, Inc. reaches
certain revenue targets. RawData Inc, is a one-year old company
involved in the development, sales and distribution of e-commerce
business solutions geared toward direct advertising of mini-CDs used
by consumers and businesses.
F-21
<PAGE>
(b) In January 2000, the Company decided to change its strategy by
shifting all of its operations into the e-commerce industry. As a
result, the Company will be offering for sale its entertainment
segment. The entertainment segment will be reflected as discontinued
operations beginning with first quarter of fiscal 2000.
(c) In January 2000, BounceBackTechnologies.com, Inc., a Delaware
corporation which was a wholly-owned subsidiary of the Company, merged
with and into the Company. In connection with the merger, the Company
changed its name to BounceBackTechnologies.com, Inc. to depict more
appropriately the Company's new business strategy.
F-22
ARTICLES OF MERGER
of
BOUNCEBACKTECHNOLOGIES.COM, INC., a Delaware Corporation
with and into
CASINO RESOURCE CORPORATION, a Minnesota Corporation
Pursuant to the provisions of the Minnesota Business Corporation Act,
the undersigned corporations adopt the following Articles of Merger:
1. A copy of the Plan and Agreement of Merger is attached hereto as Exhibit "A"
and made a part hereof by reference as if fully set forth herein.
2. The Plan and Agreement has been approved by, CASINO RESOURCE CORPORATION, the
parent corporation in this parent-subsidiary merger pursuant to Section 302A.621
of the Minnesota Statutes.
3. (a) BOUNCEBACKTECHNOLOGIES.COM, INC. is a corporation duly organized and
existing under the laws of the State of Delaware, having been incorporated on
January 3, 2000, and, having an authorized capital stock consisting of 200
shares of Common Stock, with a par value of $.01 per share, of which 100 shares
are issued and outstanding and owned by CASINO RESOURCE CORPORATION.
(b) A copy of the Plan and Agreement of Merger was hand delivered to
the sole shareholder of the subsidiary on January 3, 2000.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
4th day of January, 2000.
BOUNCEBACKTECHNOLOGIES.COM, INC.
By:________________________________
John J. Pilger, President
CASINO RESOURCE CORPORATION
By _______________________________
John J. Pilger, President
<PAGE>
EXHIBIT "A"
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER is made as of the 3rd day of January,
2000, and between CASINO RESOURCE CORPORATION., a Minnesota corporation
(hereinafter referred to as "Casino"), and BOUNCEBACKTECHNOLOGIES.COM, INC., a
Delaware corporation (hereinafter referred to as "BounceBack"), the said
corporations being hereinafter sometimes each referred to as a "Corporation" or
collectively referred to as the "Corporations".
W I T N E S S E T H :
WHEREAS, Casino is a corporation duly organized and existing under the
laws of the State of Minnesota, having been incorporated on April 29, 1969, and
having an authorized capital stock consisting of 30,000,000 Shares of Common
Stock, with a par value of $.01 per share, of which 12,177,216 shares are issued
and outstanding and 5,000,000 Shares of 8% Cumulative Preferred Stock, with a
par value of $.01 per share, of which none are outstanding; and
WHEREAS, BounceBack. is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on January 3, 2000,
and having an authorized capital stock consisting of 200 shares of Common Stock,
$.01 par value per share, of which 100 shares are issued and outstanding.
WHEREAS, the Board of Directors and Shareholders of each of the
Corporations have this day determined it to be in the best interests of the
Corporations that they be merged.
<PAGE>
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and conditions herein contained, and for other good and valuable
consideration, receipt of which is hereby acknowledged, and intending to be
legally bound, do hereby agree as follows:
1. Merger. BouncBack shall be merged with and into Casino on the
effective date hereinafter set forth, in accordance with the applicable laws of
the State of Minnesota and the State of Delaware and on the terms and conditions
set forth in this Plan and Agreement of Merger (the "Merger"). From and after
such effective date, Casino shall be the surviving corporation (the "Surviving
Corporation") and shall continue to do business as a corporation organized and
existing under the laws of the State of Minnesota, unaffected and unimpaired by
the Merger, with all rights, privileges, immunities and powers, and subject to
all the duties and liabilities of a corporation organized and existing under the
laws of the State of Minnesota.
2. Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of Casino, upon the effective date of the Merger, shall be the
Articles of Incorporation of the Surviving Corporation and those Articles of
Incorporation shall be amended to read as follows:
"ARTICLE 1. NAME. The name of the corporation is:
BounceBackTechnologies.com, Inc."
3. By-Laws of Surviving Corporation. The By-Laws of Casino in force on
the effective date of the Merger shall be the By-Laws of the Surviving
Corporation until altered or amended or repealed.
4. Directors and Officers.
(a) The Directors of Casino shall be the Directors of the
Surviving Corporation.
(b) The officers of Casino shall be the officers of the Surviving
Corporation.
<PAGE>
5. Shares of Constituent Corporations.
(a) Each share of capital stock of Casino outstanding on the
effective date of the merger shall thereupon, without further action, be and
continue to be one (1) share of the capital stock of the Surviving Corporation.
(b) All of the authorized and outstanding shares of the capital
stock of BounceBack and all rights and respects thereof, shall be canceled
forthwith as of the effective date of the Merger. The Certificates evidencing
the shares of stock shall be surrendered and canceled, without consideration.
6. Effect of Merger. Upon the Merger becoming effective:
(a) The separate corporate existence of BounceBack shall terminate
and Casino shall become the owner, without other transfer or further act or
deed, of all of the rights, privileges, powers, property, franchises, estates
and interests of every kind of BounceBack , as effectually as the property of
the Surviving Corporation as they were of BounceBack; and Casino shall be
subject to all debts and liabilities of BounceBack in the same manner as if
Casino had itself incurred them; and Casino shall be subject to all of the
restrictions, disabilities and duties of all of the Corporations, which shall
not revert or be in any way impaired by reason of this merger; and rights of
creditors and liens upon any property of any of the Corporations shall be
preserved unimpaired.
(b) The assets and liabilities of BounceBack shall be taken up on
the books of Casino in the amounts at which they shall at that time be carried
on the books of BounceBack.
7. Effective Date of Merger. This Plan and Agreement of Merger shall be
effective upon the the filing of the requisite forms of Articles of Merger with
the Minnesota and Delaware Secretaries of State.
<PAGE>
IN WITNESS WHEREOF, each Corporation has caused this Plan and Agreement
of Merger to be executed by its respective duly authorized officers as of the
day and year first above written.
CASINO RESOURCE CORPORATION., a
Minnesota corporation
By: ____________________________
John J. Pilger, President
[Corporate Seal]
BOUNCEBACKTECHNOLOGIES.COM, INC.,
a Delaware corporation
By: ____________________________
John J. Pilger, President
[Corporate Seal]
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT is made this ____ day of November, 1999 by
and among CASINO RESOURCE CORPORATION OF TUNISIE, S.A., a Tunisian corporation
("CRC Tunisia"), CASINO RESOURCE CORPORATION, a Minnesota corporation ("CRC"),
and SEAMAR VENTURES, LLC, a Mississippi limited liability company ("SeaMar").
BACKGROUND:
The parties are parties to that certain Loan Agreement dated as of
August 29, 1997 (the "Loan Agreement");
Pursuant to the terms of the Loan Agreement, CRC Tunisia executed that
certain Term Note dated as of August 29, 1997 in favor of SeaMar (the "Old
Note");
Pursuant to the terms of the Loan Agreement, CRC executed that certain
Guaranty Agreement dated as of August 29, 1997 (the "Old Guaranty");
A dispute has arisen among the parties, which has been amicably
resolved and the parties desire to memorialize such resolution.
NOW, THEREFORE, for and in consideration of the execution of that
certain Note dated the date hereof by CRC Tunisia (the "New Note") and the
execution of that certain Guaranty Agreement dated the date hereof by CRC (the
"New Guaranty"), each in favor of SeaMar, the parties hereby agree as follows:
1. The Old Guaranty be and it hereby is terminated in all respects and
is no longer of any force or effect.
<PAGE>
2. The Loan Agreement be and it hereby is terminated in all respects
and is no longer of any force or effect.
3. The Old Note be and it hereby is terminated in all respects and the
original copy thereof is being returned simultaneously with the execution of
this Termination Agreement to CRC Tunisia, marked "Paid."
4. Upon the reasonable request of any party, each of the other parties
shall, from time to time, promptly and without the payment of any further
consideration, execute and deliver to the requesting party any and all such
further instruments and documents as may be necessary or advisable in the
opinion of the requesting party to carry out the purposes and intention of this
Termination Agreement.
5. Each party represents and warrants to one another that upon
execution and delivery of this Termination Agreement, with the exception of this
Termination Agreement, the New Note and the New Guaranty, there are no
agreements, obligations, or relationships between SeaMar on the one hand, and
either or both of CRC Tunisia or CRC on the other hand which have not been
terminated.
6. This Termination Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
2
<PAGE>
7. This Agreement shall be governed by and construed in accordance with
the substantive laws of the State of Louisiana.
IN WITNESS WHEREOF, the parties hereto have executed this Termination
Agreement the day and year first above written.
CASINO RESOURCE CORPORATION
OF TUNISIE, S.A.
By:________________________________
CASINO RESOURCE CORPORATION
By:________________________________
SEAMAR VENTURES, LLC
By:_______________________________
3
PROMISSORY NOTE
CASINO RESOURCE CORPORATION OF TUNISIE, S.A., promises to pay to the order
of SEAMAR VENTURES, LLC, a Mississippi Limited Liability Company, the sum, of
Five Hundred Twelve Thousand Five Hundred Dollars ($512,500.00) without
interest, and in the manner set out hereinbelow and according to the provisions
and agreements as follows:
1. Payment Schedule: This note is payable in eighteen (18) equal monthly
payments in the amount of Twenty-eight Thousand Four Hundred Seventy-two and
22/100 Dollars ($28,472,22) each, commencing on December 1, 1999, and a like
amount on each first day of the month thereafter until paid in full on May 1,
2001.
2. Default and Cost of Collection: If full payment is not made on said note
in accordance with the aforesaid payment schedule, and if such default shall
continue for a period of ten (10) days after notice thereof, then the Payee or
other holder hereof may, at his option, declare the balance then remaining to be
due and payable. In case of such default, interest at the legal rate of eight
(8%) per cent per annum shall commence on the date of such default and be due
and payable on all sums overdue for payment more than five (5) days, together
with costs of collection, including reasonable attorneys' fees.
3. Place of Payment: All payments hereon shall be made by Federal Express
to the Payee at SeaMar Ventures, c/o Matt Walker, M.A. Norden Paper Company,
6955 Carey Hamilton Road, Theodore, Alabama, 36582, or such other place as the
Payee or its designated successor may specify in writing.
4. Notice: Notice shall be deemed sufficient if sent to any party via
facsimile and United States mail, first class postage prepaid. In case of the
Payee, notice must be sent by Federal Express to SeaMar Ventures, c/o Matt
<PAGE>
Walker, M.A. Norden Paper Company, 6955 Carey Hamilton Road, Theodore, Alabama,
36582, or such other agent as designated in writing by Payee. In the case of the
Promisors, notice must be sent by or sent to (as the case may be) Casino
Resource Corporation of Tunisie, S.A., c/o Mr. John J. Pilger, 707 Bienville
Boulevard, Ocean Springs, Mississippi, 39564.
5. Presentment and Dishonor: Presentment for payment, demand, notice of
dishonor, protest, notice of protest, and any exemption allowed by the
constitution or laws of any state are hereby waived by the undersigned. Failure
by the holder hereof to exercise any option granted hereunder shall not
constitute a waiver of future rights.
WITNESS OUR SIGNATURES on this 5th day of November, 1999.
CASINO RESOURCE CORPORATION
OF TUNISIE, S.A.
BY: /s/ John J. Pilger
--------------------------------
(2)
GUARANTY
In consideration of the execution and delivery of that certain Promissory
Note made at the request of the undersigned by Casino Resource Corporation of
Tunisie, S.A., in the amount of $512,500.00 and dated the date hereof (the
"Note") on the terms and conditions thereof, the undersigned guarantees the
prompt payment of the Note and each installment thereof when due, whether at
stated maturity, acceleration, or otherwise, and in accordance with all of the
terms and conditions thereof, and agrees to all the terms and conditions of the
Note and affirms the waivers and consents contained therein.
The liability of the undersigned under this guaranty shall be direct and
not conditional or contingent on the pursuit of any remedies against any maker
or endorser, or against any collateral held as security for the payment of the
Note.
Notice of acceptance is hereby waived. This shall be a continuing guaranty
extending to any notes given in extension or renewal of this Note,
notwithstanding that the original Note may have been surrendered, provided the
liability of the undersigned shall not be increased over the amount contained in
the original Note,
EXECUTED this the 5th day of November, 1999.
CASINO RESOURCE CORPORATION
BY: /s/ John J. Pilger
---------------------------------
AGREEMENT TO AMEND AND RESTATE DEBENTURE
THIS AGREEMENT TO AMEND AND RESTATE DEBENTURE is entered into
as of the 31st day of December, 1999, by and between CASINO RESOURCE
CORPORATION, a Minnesota corporation (the "Company"), and ROY ANDERSON HOLDING
CORP., a Delaware corporation (the "Holder").
BACKGROUND:
WHEREAS, the Company is the obligor under that certain Amended
and Restated Debenture dated as of February 1, 1999 (the "Existing Debenture")
in favor of Holder in the principal amount of One Million Five Hundred Thirty
Thousand Dollars ($1,530,000);
WHEREAS, the parties have agreed to modify the terms of the
Existing Debenture in certain respects, including, without limitation, to divide
the current balance due on the Existing Debenture into two separate debentures,
one of which will be in the form of Exhibit "A" attached hereto ("Debenture
Number One") and one of which will be in the form of Exhibit "B" attached hereto
("Debenture Number Two");
WHEREAS, this Agreement will have the effect, among other
things, of (a) extending the maturity date of a portion of the balance of the
Existing Debenture to December 31, 2002, (b) providing that principal and
interest will no longer be able to be paid (in part) in the common stock of the
Company, (c) modifying the acceleration and prepayment obligations under the
Existing Debenture, and (d) making certain other changes to the Existing
Debenture; and
WHEREAS, in consideration of the changes, the Company is
willing to grant to Holder an option to purchase Three Hundred Thousand
(300,000) shares of the common stock of the Company.
NOW THEREFORE, for and in consideration of the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the Company and the Holder hereby agree as follows:
1. Agreement to Amend and Restate. The Company and the Holder
hereby agree to amend and restate the Existing Debenture on the terms and
subject to the conditions set forth in this Agreement.
2. Representations and Warranties of Holder. Holder represents
and warrants to the Company that:
(a) It is the holder and owner of the Existing Debenture,
free and clear of all liens, security interests, pledges, claims, and
encumbrances of every kind, nature, and
<PAGE>
description, and it has not assigned, endorsed, or otherwise transferred the
Existing Debenture, or any part thereof or interest therein, to any other person
or entity;
(b) Holder is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has all requisite
corporate power and authority to execute this Agreement and all instruments to
be delivered by it hereunder and to perform its obligations hereunder and
thereunder;
(c) The execution and delivery of this Agreement and the
instruments to be delivered by Holder hereunder, the consummation of the
transactions provided for herein or therein, and the fulfillment of the terms
hereof or thereof by Holder, will not result in a breach of any of the terms and
provisions of or constitute a default under, or conflict with, any agreement or
other instrument by which it is bound, any judgment, decree, order, or award of
any court, governmental body or arbitrator applicable to it, or any applicable
law, rule, or regulation;
(d) This Agreement has been, and all instruments to be
delivered by Holder hereunder will be, executed and delivered by a duly
authorized representative of Holder; this Agreement constitutes, and each
instrument to be delivered by Holder hereunder will upon execution constitute,
the valid and binding obligation of Holder and is or will be enforceable against
it in accordance with its terms; and
(e) The remaining balance of the Existing Debenture,
including all accrued interest to the date of this Agreement is One Million
Twenty Eight Thousand Five Hundred Fifty -Three Dollars and Forty-Three Cents
($1,028,553.43).
3. Representations and Warranties of the Company. The Company
represents and warrants to the Holder that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Minnesota, and has all requisite
corporate power and authority to execute this Agreement and all instruments to
be delivered by it hereunder and to perform its obligations hereunder and
thereunder;
(b) The execution and delivery of this Agreement and the
instruments to be delivered by the Company hereunder, the consummation of the
transactions provided for herein or therein, and the fulfillment of the terms
hereof or thereof by the Company, will not result in a breach of any of the
terms and provisions of or constitute a default under, or conflict with, any
agreement or other instrument by which it is bound, any judgment, decree, order,
or award of any court, governmental body or arbitrator applicable to it, or any
applicable law, rule, or regulation;
(c) This Agreement has been, and all instruments to be
delivered by the Company hereunder will be, executed and delivered by a duly
authorized representative of the Company; this Agreement constitutes, and each
instrument to be delivered by the Company
2
<PAGE>
hereunder will upon execution constitute, the valid and binding obligation of
the Company and is or will be enforceable against it in accordance with its
terms;
(d) The remaining balance of the Existing Debenture,
including all accrued interest to the date of this Agreement, is One Million
Twenty Eight Thousand Five Hundred Fifty -Three Dollars and Forty-Three Cents
($1,028,553.43); and
(e) Between February 1, 1999 and the date hereof, the
Company has fully performed all of its obligations under the Existing Debenture.
4. Conditions Precedent to Holder's Obligation to Close. The
following shall be conditions precedent to the obligation of Holder to close
hereunder, any of which may be waived in whole or in part by Holder:
(a) Each of the representations and warranties made by the
Company contained in this Agreement is now, and at all times after the date of
this Agreement to and including the Closing Date (as defined below) shall be,
true and correct in all material respects; and
(b) John J. Pilger shall have purchased from Holder, or
shall purchase from Holder contemporaneously with the closing of the
transactions contemplated by this Agreement, Nine Hundred Fifty-Two Thousand Two
Hundred Fifty (952,250) shares of the Common Stock of the Company for a purchase
price of Ten Cents ($0.10) per share pursuant to the terms of that certain Stock
Purchase Agreement of even date between Holder and Mr. Pilger.
5. Condition Precedent to Company's Obligations to Close. The
following shall be a condition precedent to the obligation of the Company to
close hereunder, which may be waived, in whole or in part, by the Company: each
of the representations and warranties of Holder contained in this Agreement is
now, and at all times after the date of this Agreement to and including the
Closing Date shall be, true and correct in all material respects.
6. Closing:
(a) Closing Date. The Closing of the transactions provided
for in this Agreement shall take place at such location (or by the exchange of
documentation by courier) and on such date (as promptly after the date hereof as
possible) as shall be agreed upon between the President of the Company and the
President of the Holder. The date and time of Closing is referred to in this
Agreement as the Closing Date.
(b) Deliveries by the Company at Closing. At closing, the
Company shall deliver or cause to be delivered to the Holder each of the
following:
(i) A one-time cash payment by cashiers' check in the
amount of One Hundred Thirty-Two Thousand Nine Hundred Seventy-Six Dollars and
Ninety-Two Cents ($132,976.92);
3
<PAGE>
(ii) Debenture Number One executed by the Company;
(iii) Debenture Number Two executed by the Company;
(iv) A Stock Option Agreement substantially in the form
of Exhibit "C" attached hereto executed by the Company;
(v) That certain Amendment to Escrow Agreement with
respect to that certain Escrow Agreement dated as of February 1, 1999 by and
among the Company, the Holder and Mesirov Gelman Jaffe Cramer & Jamieson, LLP,
as Escrow Agent, substantially in the form of Exhibit "D" attached hereto,
executed by the Company and the Escrow Agent; and
(vi) That certain Pledge Agreement in the form of
Exhibit "E" attached hereto executed by the Company.
(c) Deliveries by Holder at the Closing. At the Closing,
Holder shall deliver or cause to be delivered to the Company each of the
following documents:
(i) The Existing Debenture marked "CANCELED";
(ii) That certain Amendment to Escrow Agreement with
respect to that certain Escrow Agreement dated as of February 1, 1999 by and
among the Company, the Holder and Mesirov Gelman Jaffe Cramer & Jamieson, LLP,
as Escrow Agent, substantially in the form of Exhibit "D" attached hereto,
executed by Holder; and
(iii) That certain Pledge Agreement in the form of
Exhibit "E" attached hereto executed by the Holder.
7. Further Assurances. The Company and the Holder agree to
execute and deliver all such other instruments and to take all such other
actions as either of them may reasonably request from time to time, before or
after the Closing and without payment of further consideration, in order to
effectuate the transactions provided for herein. The parties shall cooperate
fully with one another and with their respective counsel and accountants in
connection with any steps required to be taken as part of their respective
obligations under this Agreement.
8. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on
the part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the State of
Mississippi, notwithstanding any conflict-of-laws doctrines of any jurisdiction
to the contrary, and without the aid of any canon, custom or rule of law
requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by telecopy, by courier service such as FedEx or by other
messenger) against receipt or upon actual receipt of registered or certified
mail, postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
Roy Anderson Holding Corp.
11400 Reichold Road
Gulfport, MS 39503
Attention: Roy Anderson, III
with a copy, given in the manner
prescribed above, to:
Kenneth J. Najder, Esquire
Jones Walker Waechter Poitevent
Carrere & Denegre, LLP
Bank One Center
201 St. Charles Avenue
New Orleans, LA 70170-5100
(ii) If to the Company:
Casino Resource Corporation
707 Beinville Boulevard
Ocean Springs, MS 39564
Attention: John J. Pilger, President
with a copy, given in the manner
prescribed above, to:
Steven B. King, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103
5
<PAGE>
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this subparagraph for the giving of notice.
(d) Exhibits. All Exhibits attached hereto are hereby
incorporated by reference into, and made a part of, this Agreement.
(e) Binding Nature of Agreement; No Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that no party may assign or
transfer its rights nor delegate its obligations under this Agreement without
the prior written consent of the other parties hereto.
(f) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
(g) Provisions Separable. The provisions of this Agreement
are independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other or others of them may be invalid or unenforceable in whole or
in part.
(h) Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(i) Paragraph Headings. The Paragraph and subparagraph
headings in this Agreement have been inserted for convenience of reference only;
they form no part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(k) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and Holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or Holiday, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or Holiday. For
purposes of this Agreement, the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks in the State of Mississippi are
closed.
6
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first above written.
CASINO RESOURCE CORPORATION
By:
Name: John J. Pilger
Title: Chief Executive Officer
ROY ANDERSON HOLDING CORP.
By:
Name: Roy Anderson, III
Title: President, Chief Executive Officer and
Treasurer
7
<PAGE>
EXHIBIT A
Debenture Number One
<PAGE>
DEBENTURE NUMBER ONE
(CASH COMPONENT DEBENTURE)
$342,655.48 December 31, 1999
PROMISE TO PAY. CASINO RESOURCE CORPORATION, a Minnesota corporation (the
"Company"), promises to pay to the order of Roy Anderson Holding Corp., a
Delaware corporation (the "Holder"), Three Hundred Forty-Two Thousand Six
Hundred Fifty Five and 48/100 Dollars ($342,655.48), together with simple
interest at the fixed rate per annum of six percent (6%), with interest being
assessed on the unpaid principal balance of this Debenture as outstanding from
time to time, commencing on January 1, 2000, and continuing until this Debenture
is paid in full.
PAYMENT.
(a) The Company shall pay, in lawful money of the United States of America,
principal and interest on this Debenture in equal monthly installments of
Forty-Four Thousand Two Hundred Thirty Eight Dollars ($44,238) each (each an
"Installment Payment"), commencing on April 1, 2000, and continuing on the first
day of each succeeding month through and including October 1, 2000 (each such
payment date being referred to herein as a "Payment Date"). Any and all unpaid
principal and accrued but unpaid interest and any other amounts due hereunder
shall be due and payable at maturity on November 1, 2000.
(b) All payments due hereunder shall be made to the Holder's address for
notices set forth below or at such other place as the Holder may designate to
the Company in writing.
VOLUNTARY PREPAYMENT. The Company may prepay this Debenture in full or in part
at any time, provided that any such prepayment must be made in cash, unless
otherwise agreed to by the Holder. Early payments under this Debenture shall not
relieve the Company of its obligation to continue to make regularly scheduled
payments as required herein, but shall instead reduce the principal balance due,
and the Company may be required to make fewer payments under this Debenture.
MANDATORY PREPAYMENT.
(a) Upon the sale of the Company's casino located in Tunisia, North Africa
(whether by the sale of stock or assets, by merger or otherwise), if the down
payment (if any) of the purchase price plus all Balloon Payments (as defined
below) together exceed Three Hundred Thousand Dollars ($300,000), then the
Company shall pay the Holder a sum equal to such down payment and Balloon
Payments or the remaining balance due hereunder (including principal, accrued
interest and any other amounts due hereunder), whichever is less. In addition,
if such casino is sold for a cash sale price, the Company shall pay the Holder
such cash sale price or the remaining balance due hereunder, whichever is less.
Such repayment shall be made in cash promptly upon satisfaction of the foregoing
condition. For purposes of this Debenture, the term "Balloon Payment" means (i)
a payment that is at least twice the amount due on a monthly or other periodic
basis, and (ii) any final payment due.
<PAGE>
(b) In the event that the Company receives any one time payment arising out
of (i) a sale or other disposition of assets, (ii) a settlement of pending
claims, (iii) a collection of notes receivable; (iv) proceeds of litigation, (v)
prepayment of any account receivable that arose out of a transaction outside of
the Company's ordinary course of business or (vi) a sale of equity securities to
more than one purchaser in exchange for cash (each an "Extraordinary Payment"),
and the amount of such Extraordinary Payment exceeds the then outstanding
principal balance of this Debenture, then the Company shall repay this Debenture
in full in cash within five (5) business days after receipt of such
Extraordinary Payment. In the event that the Company receives an Extraordinary
Payment in an amount which is less than the then outstanding principal balance
of this Debenture, then the Company shall pay the Holder a sum equal to Fifty
Percent (50%) of the amount of such Extraordinary Payment in cash within five
(5) business days after receipt of such Extraordinary Payment; such payment
shall be applied by the Holder to payment of the Installment Payments due
hereunder in the inverse order of their maturity. Nothing in this Debenture is
intended to create, nor shall it be deemed to create, a security interest in,
lien on, or pledge or assignment of any of the Company's notes or accounts
receivable.
(c) From the date of this Debenture through the date this Debenture is paid
in full, the Company shall furnish to the Holder no later than the second
business day after the receipt by the Company of an Extraordinary Payment a
certificate signed by the Chief Financial Officer of the Company identifying the
nature, source and amount of such Extraordinary Payment and calculating the
amount of prepayment required to be made under the terms of the section of this
Debenture entitled "Mandatory Prepayment."
REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the
Holder as of the date of this Debenture:
(a) Organization. The Company is a corporation which is duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
(b) Authorization. The Company's execution, delivery and performance of
this Debenture has been duly authorized and does not conflict with, and will not
result in a violation of, or constitute or give rise to an event of default
under, the Company's articles of incorporation or bylaws. Furthermore, the
execution, delivery and performance by the Company of this Debenture does not
conflict with, and will not result in a violation of, or constitute or give rise
to an event of default under, any agreement or other instrument which may be
binding upon the Company or under any law or governmental regulation or court
decree or order applicable to the Company and/or its properties. The Company has
the power and authority to enter into the obligations evidenced by this
Debenture. The Company has the power and authority to own and to hold all of its
assets and properties and to carry on its business as presently conducted.
(c) Exchange Act Reports. The Company has duly filed with the Securities
and Exchange Commission (the "SEC") all reports, schedules, forms, statements
and other documents required to be filed by it under the Securities Exchange Act
of 1934 ("Exchange Act Reports") since January 1, 1998. As of their respective
dates, all such Exchange Act Reports filed by the Company since such date
complied in all material respects with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations of the SEC promulgated
thereunder applicable to such Exchange Act Reports, and none of such Exchange
Act Reports
2
<PAGE>
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Binding effect. This Debenture constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and (ii) equitable principles that may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.
The Company agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as this Debenture shall be paid in full. The Company agrees to notify the Holder
immediately of any breach by the Company of any representation, warranty or
agreement of the Company contained herein or should any representation, warranty
or agreement made herein become untrue or false at any time. The Company further
agrees to indemnify and hold the Holder harmless against any breach by the
Company of any representation, warranty or agreement of the Company contained in
this Debenture.
NEGATIVE PLEDGE. As long as the Company owns its gaming casino in Tunisia, North
Africa, the Company shall not create, incur or suffer to exist any lien, pledge,
security interest or other encumbrance of any kind upon any of the slot machines
now or hereafter located at such casino (the "Pledge Property") and the Company
shall not remove any of the Pledge Property from the Company's casino in
Tunisia, North Africa without first notifying the Holder thereof and of the
location to which such Pledge Property will be removed. Except for sales or
other dispositions of obsolete or worn-out items comprising the Pledge Property,
the Company will not sell or otherwise dispose of any of the Pledge Property
without making the prepayment required under subsection (a) of the section above
entitled "Mandatory Prepayment".
MERGER. Notwithstanding any provision herein to the contrary, the Company shall
not consolidate or merge into or with any other person unless such person
expressly assumes all of the obligations of the Company under this Debenture.
DEFAULT. The following actions and/or inactions shall constitute events of
default under this Debenture:
(a) Default Under This Debenture. Should the Company (i) default in the
payment of any Installment Payment when due or within five (5) days of grace
thereafter, (ii) default in the payment of any other payment due under this
Debenture (including any prepayment required to be made under this Debenture) as
and when due or (iii) default in the performance of any other covenant,
condition or agreement contained in this Debenture and such default shall remain
unremedied fifteen (15) days after the occurrence thereof.
(b) Default Under Related Obligations. Should the Company default under any
other written obligation between the Company and the Holder.
3
<PAGE>
(c) Default in Favor of Third Parties. Should the Company default under any
loan, extension of credit, security agreement, purchase or sales agreement or
any other agreement in favor of any other creditor or person that materially
impairs the ability of the Company to perform its obligations hereunder.
(d) Insolvency. Should the suspension, failure or insolvency, however
evidenced, of the Company occur or exist.
(e) Readjustment of Indebtedness. Should proceedings for readjustment of
indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or against the Company, unless, if brought against
the Company, such proceedings are dismissed within sixty (60) days after the
filing thereof.
(f) Assignment for Benefit of Creditors. Should the Company file
proceedings for a respite from or make a general assignment for the benefit of
creditors.
(g) Receivership. Should a receiver of all or any part of the property of
the Company be applied for or appointed.
(h) Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of the Company be commenced.
(i) False Statements. Should any representation, warranty or material
statement of the Company made in writing in connection with the obligations
evidenced by this Debenture prove to be incorrect or misleading in any material
respect when made.
HOLDER'S RIGHTS UPON DEFAULT. Should any one or more events of default occur or
exist under this Debenture as provided above, the Holder shall have the right,
at its sole option, formally to declare this Debenture to be in default and to
accelerate the maturity and insist upon immediate payment in full in cash of the
unpaid principal balance then outstanding under this Debenture, plus accrued
interest, together with reasonable attorneys' fees, costs, expenses and other
fees and charges as provided herein.
WAIVERS. The Company hereby waives presentment for payment, protest, notice of
protest and notice of nonpayment. The Company agrees that the Holder's
acceptance of payment other than in accordance with the terms of this Debenture,
or the Holder's subsequent agreement to extend or modify such repayment terms,
or the Holder's failure or delay in exercising any rights or remedies granted to
the Holder, shall not have the effect of releasing the Company from its
obligations to the Holder. In addition, any failure or delay on the part of the
Holder to exercise any of the rights and remedies granted to the Holder shall
not have the effect of waiving any of the Holder's rights and remedies. Any
partial exercise of any rights and/or remedies granted to the Holder shall
furthermore not be construed as a waiver of any other rights and remedies, it
being the Company's intent and agreement that the Holder's rights and remedies
shall be cumulative in nature. The Company further agrees that, should any event
of default occur or exist under this Debenture, any waiver or forbearance on the
part of the Holder to pursue the rights and remedies available to the Holder
shall be binding upon the Holder only to the extent that the Holder specifically
agrees to any such waiver or forbearance in writing. A waiver or
4
<PAGE>
forbearance on the part of the Holder as to one event of default shall not be
construed as a waiver or forbearance as to any other event of default.
ATTORNEYS' FEES. If the Holder refers this Debenture to an attorney for
collection, or files suit against the Company to collect this Debenture, or if
the Company files for bankruptcy or other relief from creditors, the Company
agrees to pay the Holder's reasonable attorneys' fees in connection with such
action.
NOTICES. Any notice or demand which, by provision of this Debenture, is required
or permitted to be served by one party hereto to or on the other party hereto
shall be deemed to have been sufficiently given and served for all purposes (if
mailed) three (3) calendar days after being deposited, postage prepaid, in the
United States mail, registered or certified mail, or (if delivered by express
courier) one (1) business day after being delivered to such courier, or (if
delivered in person) the same day as delivery, in each case addressed (until
another address is given in writing by one party hereto to the other party
hereto) as follows:
If to the Company:
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
Attn.: Mr. John Pilger
If to the Holder:
Roy Anderson Holding Corp.
11400 Reichold Road
Gulfport, Mississippi 39503
Attn: Mr. Roy Anderson, III
GOVERNING LAW. The Company agrees that this Debenture and the obligations
evidenced hereby shall be governed under the laws of the State of Mississippi.
SUCCESSORS AND ASSIGNS LIABLE. The Company's obligations and agreements under
this Debenture shall be binding upon the Company's successors and permitted
assigns. The rights and remedies granted to the Holder under this Debenture
shall inure to the benefit of the Holder's successors and assigns, as well as to
any subsequent holder or holders of this Debenture.
CAPTION HEADINGS. Caption headings of the sections of this Debenture are for
convenience purposes only and are not to be used to interpret or to define the
provisions. In this Debenture, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Debenture is held to be invalid, illegal
or unenforceable by any court, that provision shall be deleted from this
Debenture and the balance of this Debenture shall be interpreted as if the
deleted provision never existed.
5
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have each duly
executed this Debenture on the ______ day of January 2000, and have agreed that
this Debenture will be effective as of the 31st day of December, 1999.
COMPANY:
CASINO RESOURCE CORPORATION
By:
Name: John J. Pilger
Title: Chief Executive Officer
HOLDER:
ROY ANDERSON HOLDING CORP.
By:
Name: Roy Anderson, III
Title: President, Chief Executive Officer and
Treasurer
6
<PAGE>
EXHIBIT B
Debenture Number Two
<PAGE>
DEBENTURE NUMBER TWO
(STOCK COMPONENT DEBENTURE)
$685,897.95 December 31, 1999
PROMISE TO PAY. CASINO RESOURCE CORPORATION, a Minnesota corporation (the
"Company"), promises to pay to the order of Roy Anderson Holding Corp., a
Delaware corporation (the "Holder"), Six Hundred Eighty Five Thousand Eight
Hundred Ninety Seven and 95/100 Dollars ($685,897.95), together with simple
interest at the fixed rate per annum of six percent (6%), with interest being
assessed on the unpaid principal balance of this Debenture as outstanding from
time to time, commencing on January 1, 2000, and continuing until this Debenture
is paid in full.
PAYMENT.
(a) Any and all unpaid principal and accrued but unpaid interest and any
other amounts due hereunder shall be due and payable in one lump sum at maturity
on December 31, 2002 in lawful money of the United States of America.
(b) All payments due hereunder shall be made to the Holder's address for
notices set forth below or at such other place as the Holder may designate to
the Company in writing.
VOLUNTARY PREPAYMENT. The Company may repay this Debenture in full or in part at
any time, provided that any such prepayment must be made in cash, unless
otherwise agreed to by the Holder. Early payments under this Debenture shall not
relieve the Company of its obligation to continue to make payments as required
under "Mandatory Prepayment", but shall instead reduce the principal balance
due.
MANDATORY PREPAYMENT.
(a) The Company shall pay to Holder, if as and when received by the Company
after the date hereof from Lakes Gaming, Inc. Fifty Percent (50%) of each amount
received by the Company from Lakes Gaming, Inc. under and pursuant to that
certain Conditional Release and Termination Agreement as revised and amended
dated July 1, 1999 to which the Company and Lakes Gaming, Inc. are parties or
the remaining balance due hereunder (including principal, accrued interest and
other amounts due hereunder), whichever is less.
(b) In addition to the foregoing, in the event that the Company receives
any other one time payment arising out of (i) a sale or other disposition of
assets, (ii) a settlement of pending claims, (iii) a collection of notes
receivable; (iv) proceeds of litigation, (v) prepayment of any account
receivable that arose out of a transaction outside of the Company's ordinary
course of business or (vi) a sale of equity securities to more than one
purchaser in exchange for cash (each an "Extraordinary Payment"), and the amount
of such Extraordinary Payment exceeds the then outstanding principal balance of
this Debenture, then the Company shall repay this Debenture in full in cash
within five (5) business days after receipt of such Extraordinary Payment. In
the event that the Company receives an Extraordinary Payment in an amount which
is less than the then outstanding principal balance of this Debenture, then the
Company shall pay the Holder a
<PAGE>
sum equal to Fifty Percent (50%) of the amount of such Extraordinary Payment in
cash within five (5) business days after receipt of such Extraordinary Payment;
such payment shall be applied by the Holder to the payment due under this
Debenture. Nothing in this Debenture is intended to create, nor shall it be
deemed to create, a security interest in, lien on, or pledge or assignment of
any of the Company's notes or accounts receivable.
(c) From the date of this Debenture through the date this Debenture is paid
in full, the Company shall furnish to the Holder no later than the second
business day after the receipt by the Company of an Extraordinary Payment a
certificate signed by the Chief Financial Officer of the Company identifying the
nature, source and amount of such Extraordinary Payment and calculating the
amount of prepayment required to be made under the terms of the section of this
Debenture entitled "Mandatory Prepayment."
REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the
Holder as of the date of this Debenture:
(a) Organization. The Company is a corporation which is duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
(b) Authorization. The Company's execution, delivery and performance of
this Debenture has been duly authorized and does not conflict with, and will not
result in a violation of, or constitute or give rise to an event of default
under, the Company's articles of incorporation or bylaws. Furthermore, the
execution, delivery and performance by the Company of this Debenture does not
conflict with, and will not result in a violation of, or constitute or give rise
to an event of default under, any agreement or other instrument which may be
binding upon the Company or under any law or governmental regulation or court
decree or order applicable to the Company and/or its properties. The Company has
the power and authority to enter into the obligations evidenced by this
Debenture. The Company has the power and authority to own and to hold all of its
assets and properties and to carry on its business as presently conducted.
(c) Exchange Act Reports. The Company has duly filed with the Securities
and Exchange Commission (the "SEC") all reports, schedules, forms, statements
and other documents required to be filed by it under the Securities Exchange Act
of 1934 ("Exchange Act Reports") since January 1, 1998. As of their respective
dates, all such Exchange Act Reports filed by the Company since such date
complied in all material respects with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations of the SEC promulgated
thereunder applicable to such Exchange Act Reports, and none of such Exchange
Act Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) Binding effect. This Debenture constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and (ii) equitable principles that
2
<PAGE>
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
The Company agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as this Debenture shall be paid in full. The Company agrees to notify the Holder
immediately of any breach by the Company of any representation, warranty or
agreement of the Company contained herein or should any representation, warranty
or agreement made herein become untrue or false at any time. The Company further
agrees to indemnify and hold the Holder harmless against any breach by the
Company of any representation, warranty or agreement of the Company contained in
this Debenture.
NEGATIVE PLEDGE. As long as the Company owns its gaming casino in Tunisia, North
America, the Company shall not create, incur or suffer to exist any lien,
pledge, security interest or other encumbrance of any kind upon any of the slot
machines now or hereafter located at such casino (the "Pledge Property"), and
the Company shall not remove any of the Pledge Property from the Company's
casino in Tunisia, North Africa without first notifying the Holder thereof and
of the location to which such Pledge Property will be removed. Except for sales
or other dispositions of obsolete or worn-out items comprising the Pledge
Property, the Company will not sell or otherwise dispose of any of the Pledge
Property without making the prepayment required under subsection (c) of the
section above entitled "Mandatory Prepayment".
MERGER. Notwithstanding any provision herein to the contrary, the Company shall
not consolidate or merge into or with any other person unless such person
expressly assumes all of the obligations of the Company under this Debenture.
DEFAULT. The following actions and/or inactions shall constitute events of
default under this Debenture:
(a) Default Under This Debenture. Should the Company (i) default in the
payment of any amount due under this Debenture (including any prepayment
required to be made under this Debenture) as and when due or within 5 days of
grace thereafter or (ii) default in the performance of any other covenant,
condition or agreement contained in this Debenture and such default shall remain
unremedied fifteen (15) days after the occurrence thereof.
(b) Default Under Related Obligations. Should the Company default under any
other written obligation between the Company and the Holder.
(c) Default in Favor of Third Parties. Should the Company default under any
loan, extension of credit, security agreement, purchase or sales agreement or
any other agreement in favor of any other creditor or person that materially
impairs the ability of the Company to perform its obligations hereunder.
(d) Insolvency. Should the suspension, failure or insolvency, however
evidenced, of the Company occur or exist.
(e) Readjustment of Indebtedness. Should proceedings for readjustment of
indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or
3
<PAGE>
against the Company, unless, if brought against the Company, such proceedings
are dismissed within sixty (60) days after the filing thereof.
(f) Assignment for Benefit of Creditors. Should the Company file
proceedings for a respite from or make a general assignment for the benefit of
creditors.
(g) Receivership. Should a receiver of all or any part of the property of
the Company be applied for or appointed.
(h) Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of the Company be commenced.
(i) False Statements. Should any representation, warranty or material
statement of the Company made in writing in connection with the obligations
evidenced by this Debenture prove to be incorrect or misleading in any material
respect when made.
HOLDER'S RIGHTS UPON DEFAULT. Should any one or more events of default occur or
exist under this Debenture as provided above, the Holder shall have the right,
at its sole option, formally to declare this Debenture to be in default and to
accelerate the maturity and insist upon immediate payment in full in cash of the
unpaid principal balance then outstanding under this Debenture, plus accrued
interest, together with reasonable attorneys' fees, costs, expenses and other
fees and charges as provided herein.
WAIVERS. The Company hereby waives presentment for payment, protest, notice of
protest and notice of nonpayment. The Company agrees that the Holder's
acceptance of payment other than in accordance with the terms of this Debenture,
or the Holder's subsequent agreement to extend or modify such repayment terms,
or the Holder's failure or delay in exercising any rights or remedies granted to
the Holder, shall not have the effect of releasing the Company from its
obligations to the Holder. In addition, any failure or delay on the part of the
Holder to exercise any of the rights and remedies granted to the Holder shall
not have the effect of waiving any of the Holder's rights and remedies. Any
partial exercise of any rights and/or remedies granted to the Holder shall
furthermore not be construed as a waiver of any other rights and remedies, it
being the Company's intent and agreement that the Holder's rights and remedies
shall be cumulative in nature. The Company further agrees that, should any event
of default occur or exist under this Debenture, any waiver or forbearance on the
part of the Holder to pursue the rights and remedies available to the Holder
shall be binding upon the Holder only to the extent that the Holder specifically
agrees to any such waiver or forbearance in writing. A waiver or forbearance on
the part of the Holder as to one event of default shall not be construed as a
waiver or forbearance as to any other event of default.
4
<PAGE>
ATTORNEYS' FEES. If the Holder refers this Debenture to an attorney for
collection, or files suit against the Company to collect this Debenture, or if
the Company files for bankruptcy or other relief from creditors, the Company
agrees to pay the Holder's reasonable attorneys' fees in connection with such
action. In addition, the Company shall reimburse the Holder for all fees and
expenses of the Holder's outside counsel incurred in connection with the
preparation, negotiation, execution and delivery of this Debenture, provided
that the Company shall not be obligated to reimburse the Holder for fees and
expenses in excess of $12,500.00.
NOTICES. Any notice or demand which, by provision of this Debenture, is required
or permitted to be served by one party hereto to or on the other party hereto
shall be deemed to have been sufficiently given and served for all purposes (if
mailed) three (3) calendar days after being deposited, postage prepaid, in the
United States mail, registered or certified mail, or (if delivered by express
courier) one (1) business day after being delivered to such courier, or (if
delivered in person) the same day as delivery, in each case addressed (until
another address is given in writing by one party hereto to the other party
hereto) as follows:
If to the Company:
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
Attn.: Mr. John J. Pilger
If to the Holder:
Roy Anderson Holding Corp.
11400 Reichold Road
Gulfport, Mississippi 39503
Attn: Mr. Roy Anderson, III
GOVERNING LAW. The Company agrees that this Debenture and the obligations
evidenced hereby shall be governed under the laws of the State of Mississippi.
SUCCESSOR AND ASSIGNS LIABLE. The Company's obligations and agreements under
this Debenture shall be binding upon the Company's successors and permitted
assigns. The rights and remedies granted to the Holder under this Debenture
shall inure to the benefit of the Holder's successors and assigns, as well as to
any subsequent holder or holders of this Debenture.
CAPTION HEADINGS. Caption headings of the sections of this Debenture are for
convenience purposes only and are not to be used to interpret or to define the
provisions. In this Debenture, Whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Debenture is held to be invalid, illegal
or unenforceable by any court, that provision shall be deleted from this
Debenture and the balance of this Debenture shall be interpreted as if the
deleted provision never existed.
5
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have each duly
executed this Debenture on the ______ day of January, 2000, and have agreed that
this Debenture will be effective as of the 31st day of December, 1999.
COMPANY:
CASINO RESOURCE CORPORATION
By:
Name: John J. Pilger
Title: Chief Executive Officer
HOLDER:
ROY ANDERSON HOLDING CORP.
By:
Name: Roy Anderson, III
Title: President, Chief Executive Officer
and Treasurer
6
<PAGE>
EXHIBIT C
Stock Option Agreement
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made as of the 4th day of January, 2000
by and between CASINO RESOURCE CORPORATION, a Minnesota corporation (the
"Company") and ROY ANDERSON HOLDING CORP., a Delaware corporation (the
"Optionee").
W I T N E S S E T H:
Company desires to grant to Optionee options to purchase shares of its
common stock, par value $0.01 each ("Shares").
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "Affiliate" shall mean, with respect to an entity, another
person or entity controlling, controlled by, or under common control with the
first entity.
(b) The term "Expiration Date" shall mean 5:00 p.m., local time in
Ocean Springs, Mississippi on December 31, 2002.
(c) The term "Termination Date" shall mean 5:00 p.m. local time in
Ocean Springs, Mississippi on the day the Option terminates in accordance with
the terms of Paragraph 5.
(d) The term "transfer" shall mean any sale, assignment, transfer,
gift, donation, or other disposition, or any pledge, deposit, or placing of an
encumbrance upon.
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(e) The term "Fair Market Value" with respect to a Share on any
particular date shall mean the closing price of a share of Company's common
stock on the day before such date on the national securities exchange (or
NASDAQ, as the case may be) where such shares are traded, or if such shares are
not then traded on a national securities exchange or on NASDAQ, the average of
the closing bid and closing asked prices of such shares on the day before such
date (excluding any such bid or asked prices submitted by the Company or any of
its Affiliates), or if there are no closing such prices, the fair market value
as estimated in good faith by the Chairman of the Company.
2. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase Three Hundred Thousand (300,000) Shares (the
"Option Shares"), on the terms and subject to the conditions hereinafter set
forth in this Agreement. The number of Option Shares to which this Agreement
applies may be adjusted in the manner set forth in Paragraphs 6 and 10.
3. Option Price. The purchase price to be paid, if the Option is
exercised, shall be Seventeen Cents ($0.17) per Share (the "Option Price")
subject to adjustment hereunder, which shall be paid at the Closing (as
hereinafter defined) in the manner provided in this Agreement.
4. Exercise of Option. The following provisions shall apply to exercise
of the Option:
(a) Optionee shall exercise the Option by sending a notice of
election (the "Notice of Election") to the Company in the form attached hereto
and incorporated herein by reference. The Notice of Election shall be in
writing, shall be sent to the Company at the address and in the manner set forth
in subparagraph 13(c) hereof (unless such address has been changed in
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the manner set forth in such subparagraph), and shall contain the information
about the Closing set forth in subparagraph 11(a) hereof.
(b) If exercised, the Option may be exercised as to some or all of
the Option Shares, and if with respect to some of the Option Shares, then the
Option shall continue until the Termination Date with respect to the remaining
Option Shares.
(c) The Option may be exercised at any time prior to the Termination
Date; provided, however, that the date and time of the exercise of the Option
shall be that day and time when the Notice of Election is actually received by
the Company.
(d) Payment for Shares shall be made in cash, by certified check
payable to the order of the Company, or by such other mode of payment
(including, without limitation, transfer of shares of common stock of the
Company) as the Company may approve.
(e) Optionee will become obliged to purchase the Option Shares on
the terms and conditions set forth in this Agreement and the Notice of Election
upon the sending by Optionee of the Notice of Election.
5. Term.
(a) Except as provided in subparagraph (b) of this Paragraph 5, the
Option will terminate at 5:00 p.m. local time in Ocean Springs, Mississippi on
the Expiration Date.
(b) In the event of dissolution or liquidation of the Company or
consummation of any transaction (i) in which the Company is not the surviving or
acquiring entity, (ii) in which the Company becomes an 80% or more owned
subsidiary of another company, or (iii) in which the shareholders of the Company
immediately before such transaction do not own immediately after such
transaction, shares entitling them, in the aggregate, to cast more then a
majority of votes for the
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election of directors of the Company or the surviving company in the case of a
merger, consolidation, reorganization, or similar transaction, then the Option
may be terminated prior to the Expiration Date by action of the Board of
Directors of the Company, or such surviving company, as the case may be,
provided that (A) the Board of Directors selects a Termination Date which is at
least thirty (30) days after the date Optionee is given written notice of such
selection, and (B) if and to the extent that the Option expires on such date
unexercised, the Company shall contemporaneously therewith pay to Optionee with
respect to each Option Share which was not exercised the difference between the
Fair Market Value of a Share on such date and the Option Price.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of capital stock of the
Company shall be changed into or exchanged for a different number or kind of
shares of capital stock of the Company or shall be changed into or exchanged for
a different number or kind of shares of capital stock or other securities of the
Company or of another company (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, or otherwise), then there shall be
substituted for each remaining Option Share (those not acquired by exercise of
the Option prior to the record date for such merger, consolidation,
recapitalization, reclassification, split-up, or otherwise) the number and kind
of shares of capital stock or other securities into which each outstanding share
of capital stock of the Company shall be so changed or for which each such share
of capital stock shall be so exchanged. In the event that there shall be any
such change or exchange, then Optionee shall be entitled to purchase all of such
capital stock and other securities into which each Option Share shall have been
changed or for which it shall have been exchanged for the Option
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Price which would have been required to be paid for such Option Share assuming
there had been no such change or exchange, and otherwise in accordance with the
terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided
into a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Option Price shall be
proportionately decreased or increased, as the case may be, and the number of
remaining Option Shares (those not acquired by exercise of the Option prior to
the record date of such stock dividend, stock split, or combination of shares)
subject to the Option shall be proportionately increased or decreased as the
case may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or combination.
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; or by way of stock options, stock warrants, subscription rights, or
similar issuances authorized by the Board of Directors of the Company.
7. Representations and Warranties of Company. Company hereby makes the
following representations, warranties and agreements to and with Optionee:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota and has an
authorized capital of Thirty Million (30,000,000) shares of common stock, par
value One Cent ($0.01) per Share, and Five Million (5,000,000) shares of
preferred stock, par value One Cent ($0.01) per share, and the Company has the
power and authority to issue the number of Shares required to be so issued upon
the exercise of the Option.
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(b) If the Option is exercised, the Company has the power and
authority to deliver good, marketable, and unencumbered title to such Shares as
to which Optionee shall have exercised the Option, free of all liens, security
interests, pledges, claims, options and rights of others. There are no
restrictions on Company's right to transfer such Shares to Optionee pursuant to
the terms of this Agreement if the Option is exercised, whether under any laws,
any regulations of governmental agencies or self-regulatory bodies, any
agreements with third parties, or otherwise. No transfer of record ownership of,
or beneficial interest in, any of the Shares to be reserved for issuance
hereunder will be made between the date hereof and Closing.
(c) This Agreement constitutes the valid and binding obligation of
Company, and is enforceable against it in accordance with its terms, except to
the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Securities Laws Compliance Procedures. Optionee represents and
acknowledges that (i) it has had the opportunity to acquire all information
concerning the business, affairs, financial condition and prospects of the
Company which it deems relevant to making a fully informed decision regarding
the consummation of the transactions contemplated hereby and (ii) it has been
supplied with copies of the Company's latest annual report on Form 10-KSB, the
Company's latest quarterly report on Form 10-QSB, Company's latest proxy
statement, and Company's latest annual report to shareholders. Without intending
any limitation on the generality of the foregoing, Optionee understands and
acknowledges that neither the Company nor anyone acting on its behalf has made
any representations or warranties other than those contained herein or in the
related Agreement to Amend and Restate Debenture dated as of the date hereof
respecting the
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Company or the future conduct of Company's business, and Optionee has not relied
upon any representations or warranties other than those contained herein or
therein otherwise in the belief that they were made on behalf of the Company.
9. Transfers. The Option is not transferable by Optionee except to an
Affiliate of Optionee or in connection with a sale of substantially all of the
capital stock or assets of Optionee (whether by direct sale, merger or
consolidation). Any attempt at assignment, transfer, pledge or disposition of
the Option contrary to the provisions hereof or the levy of any execution,
attachment or similar process upon the Option shall be null and void and without
force or effect.
10. Optionee's Ability to Reduce Number of Option Shares.
(a) At any time on or before December 31, 2000, Optionee shall have
the right, to be exercised by written notice (the "Relinquishment Notice") sent
to the Company in accordance with the terms of subparagraph 13(c), to reduce the
number of then remaining Option Shares by any number designated in the
Relinquishment Notice (but not more than Fifty Thousand (50,000) Option Shares
nor the remaining number of Option Shares, if fewer).
(b) If a Relinquishment Notice is given in compliance with the terms
of subparagraph (a) of this Paragraph 10, then the Company shall pay Optionee
the sum of One Dollar ($1.00) for each Option Share relinquished (the
"Relinquishment Payment") pursuant thereto. Such payment shall be made by
increasing the then outstanding principal balance of that certain Debenture
Number Two dated as of December 31, 1999 by and between the Company as Obligor
and Optionee as Payee and by executing and delivering a substitute Debenture
Number Two reflecting such increase in principal balance. If such debenture has
been completely repaid at the
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time of the giving of the Relinquishment Notice, then the Relinquishment Payment
shall be made by the Company's execution of a debenture substantially in the
form of Debenture Number Two and which has a maturity date of December 31, 2002
and shall be in the principal amount of the aggregate Relinquishment Payment.
(c) From and after completion of transactions contemplated by
subparagraph (b) of this Paragraph 10, the number of Option Shares as to which
this Stock Option Agreement shall apply shall be the number of Option Shares
which could have been purchased immediately before the giving of the related
Relinquishment Notice reduced by such number of Option Shares set forth in such
Relinquishment Notice.
11. Closing.
(a) The Closing shall be held at a date and time to be selected by
Optionee in the Notice of Election; provided, however, that the date specified
in the Notice of Election shall not be more than forty-five (45) days after the
sending of such Notice of Election.
(b) Closing shall be held at the chief executive offices of the
Company or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered
to Optionee certificates for all of the Option Shares to be purchased by
Optionee pursuant to the Notice of Election issued to and registered in the name
of Optionee, and with all required transfer tax stamps, if any, affixed.
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(d) At Closing Optionee shall pay by certified check or other draft
acceptable to Company the full Option Price required to be paid in cash for all
of the Option Shares to be purchased by Optionee pursuant to the Notice of
Election.
(e) At Closing, at the request of the Company, Optionee shall
deliver to the Company a certificate signed by Optionee certifying to the truth
and correctness as of the date of Closing of each of the representations,
warranties, acknowledgments, agreements, and confirmations set forth in
Paragraph 8 of this Agreement.
(f) At Closing, at the request of Optionee, the Company shall
deliver to Optionee a certificate signed by an officer of the Company certifying
to the truth and correctness as of the date of Closing of each of the
representations, warranties, acknowledgments, agreements and confirmations as
set forth in Paragraph 7 of this Agreement.
12. No Rights As Shareholder Pending Exercise. Optionee shall not have
any rights as a shareholder of the Company as a result of the existence of the
Option until and unless it shall acquire some or all of the Option Shares.
Without intending any limitation on the generality of the foregoing, Optionee
shall not be entitled to vote on any matter presented to the shareholders of the
Company nor to receive any dividends or other distributions made or declared by
the Company, the record date or ex-dividend date of which, respectively,
precedes the date on which some or all of the Option Shares are acquired
pursuant hereto.
13. Covenant to Make Exchange Act Filings. The Company hereby covenants
and agrees that it shall, at all times prior to the Termination Date while any
Option Shares remain subject to this Agreement, make on a timely basis all
filings required to be made by the
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Company under the Securities Exchange Act of 1934, and the rules and regulations
promulgated thereunder.
14. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part
of either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Mississippi,
notwithstanding any conflict-of-laws doctrines of such jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered or
when deposited in the United States mails, registered or certified mail, postage
prepaid, return receipt requested, addressed as set forth below:
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(i) If to Optionee:
Roy Anderson Holding Corp.
11400 Reichold Road
Gulf Port, MS 39503
Attention: Mr. Roy Anderson, III
with a copy, given in the manner prescribed above, to:
Kenneth J. Najder, Esquire
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
Place St. Charles
201 St. Charles Avenue
New Orleans, Louisiana 70170-5100
(ii) If to Company:
John J. Pilger
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, MS 39564
with a copy, given in the manner prescribed above, to:
Steven B. King, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this subparagraph (c) for the giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that
neither party may assign or transfer its rights
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(except as provided in Paragraph 9) nor delegate its obligations under this
Agreement without the prior written consent of the other party hereto.
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(f) Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they form
no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or Holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or Holiday. For
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purposes of this subparagraph (i), the term "Holiday" shall mean a day, other
than a Saturday or Sunday, on which national banks in the State of Mississippi
are closed.
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IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written.
ATTEST:
CASINO RESOURCE CORPORATION
_______________________________ By:_____________________________
Secretary John J. Pilger, President
ATTEST:
ROY ANDERSON HOLDING CORP.
_______________________________ By:_____________________________
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NOTICE OF ELECTION
The undersigned and ____________________ (the "Company") are
parties to that certain Stock Option Agreement dated ________. Pursuant to the
terms thereof, the undersigned hereby exercises its option to purchase
____________ shares of the common stock, (the "Shares") par value $________ per
Share of the Company. Closing hereunder shall be held at the chief executive
offices of the Company at _____ _.m., local time on ____________________ ___,
________.
Please register the Shares in the name of the undersigned and
use the address set forth herein as the registered address of the undersigned.
The undersigned understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act") or under any
state securities law, and the Company is under no obligation to do so. The
undersigned understands that the Shares may not be resold or otherwise
transferred in the absence of such applicable registrations or exemptions from
the registration requirements. The undersigned understands that it may have to
hold the Shares for the indefinite future. The undersigned understands that the
Shares are "restricted securities" within the meaning of Rule 144 promulgated
under the Act.
The undersigned represents and warrants to the Company that it
(a) has been advised and understands that the Shares may not be transferred
without compliance with all applicable Federal and state securities laws; and
(b) has had all material information about the Company's business and financial
condition made available to it prior to exercise of the Option, and that he was
afforded the opportunity to ask questions of and receive answers from the
officers and directors of the Company with respect to the Company's business
affairs and prospects.
The undersigned represents and warrants that it is acquiring
the Shares for its own account as principal for investment and not with a view
to resale or distribution.
The undersigned understands that the Share certificate shall
bear a restrictive legend with respect to the transferability of the Shares
under the Act.
- ------------------------------ ----------------------------------
Name:
Address:
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EXHIBIT D
Amendment to Escrow Agreement
<PAGE>
AMENDMENT TO ESCROW AGREEMENT
This Amendment to Escrow Agreement is made as of the 31st day of
December, 1999, by and among CASINO RESOURCE CORPORATION, a Minnesota
corporation ("the Company"), ROY ANDERSON HOLDING CORP., a Delaware corporation
("Anderson"), and MESIROV GELMAN JAFFE CRAMER & JAMIESON, LLP, as Escrow Agent
(the "Escrow Agent").
RECITALS
A. The parties are parties to that certain Escrow Agreement dated March
3, 1999 growing out of that certain Amended and Restated Debenture dated as of
February 1, 1999, executed by the Company in favor of Anderson (the
"Debenture").
B. In connection with the amendment and restatement of the Debenture as
of the date hereof, the Company issued two new debentures (the "New Debentures")
to Anderson, and the Company and Anderson desire to amend to Escrow Agreement on
the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter contained and subject to conditions hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. From and after the date hereof and in compliance with Section 8-301(2)
of the Uniform Commercial Code, Escrow Agent shall hold all of the Escrowed
Shares (as defined in the Escrow Agreement) currently in its possession as the
agent for Anderson pursuant to the terms of that certain Pledge Agreement by and
between Anderson as Pledgee and the Company as Pledgor dated the date hereof.
Escrow Agent shall not hold any of the Escrowed Shares on behalf of any other
person or entity and hereby releases any current or future security interest,
lien, or other claim which Escrow Agent may now or hereafter have or purport to
have in or on any of the Escrowed Shares. Annex A attached hereto reflects all
Escrowed Shares held by the Escrow Agent as of the date hereof.
2. Upon written acknowledgment by Anderson that the Company has satisfied
all of its obligations to Anderson under the New Debentures, any shares
remaining in escrow shall be returned to the Company by the Escrow Agent for
cancellation. Upon the written direction of Anderson that there has been a
default or an Event of Default under either of the New Debentures, Escrow Agent
shall promptly deliver the Escrowed Shares to Anderson or otherwise comply with
the written directions of Anderson, notwithstanding any contrary instructions
received from the Company.
3. To the extent that the provisions of the Escrow Agreement are
inconsistent with the provisions of this Amendment, the terms of this Amendment
shall govern and be determinative. To the extent that the provisions of the
Escrow Agent are not inconsistent with and to the extent that the provisions of
the Escrow Agent are not modified by the terms of this
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Amendment, the Escrow Agreement shall remain in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
made as of the day and year first above written.
CASINO RESOURCE CORPORATION
BY:_____________________________
John J. Pilger, President
ROY ANDERSON HOLDING CORP.
BY:______________________________
Roy Anderson, III, President,
Chief Executive Officer and
Treasurer
MESIROV GELMAN JAFFE CRAMER & JAMIESON, LLP, Escrow
Agent
BY:______________________________
Steven B. King, Esquire
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ANNEX A
Number of Escrowed
Certificate Number Shares
1. Certificate #: 3173 100,000
2. Certificate #: 3174 100,000
3. Certificate #: 3175 100,000
4. Certificate #: 3176 100,000
5. Certificate #: 3177 100,000
6. Certificate #: 3178 100,000
7. Certificate #: 3179 100,000
8. Certificate #: 3186 50,000
9. Certificate #: 3187 50,000
10. Certificate #: 3188 50,000
11. Certificate #: 3180 25,000
12. Certificate #: 3181 25,000
13. Certificate #: 3182 25,000
14. Certificate #: 3183 25,000
15. Certificate #: 3184 25,000
16. Certificate #: 3185 25,000
17. Certificate #: 3189 5,000
18. Certificate #: 3190 5,000
19. Certificate #: 3191 5,000
20. Certificate #: 3192 5,000
21. Certificate #: 3193 5,000
22. Certificate #: 3194 5,000
23. Certificate #: 3195 5,000
24. Certificate #: 3196 5,000
25. Certificate #: 3197 5,000
26. Certificate #: 3198 5,000
27. Certificate #: 3199 5,000
28. Certificate #: 3200 5,000
29. Certificate #: 3201 5,000
30. Certificate #: 3202 5,000
31. Certificate #: 3203 5,000
32. Certificate #: 3204 5,000
33. Certificate #: 3205 10,000
34. Certificate #: 3206 10,000
------
TOTAL 1,100,000
=========
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EXHIBIT E
Pledge Agreement
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of the 31st day of December, 1999, by
and between Casino Resource Corporation, a Minnesota corporation ("Pledgor"),
and Roy Anderson Holding Corp., a Delaware corporation ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgor is obligated to Pledgee pursuant to that certain
Debenture Number One and that certain Debenture Number Two, each dated the date
hereof in favor of Pledgee (collectively the "Debentures"); and
WHEREAS, Pledgor and Pledgee are parties to that certain Escrow
Agreement dated March 3, 1999 as amended on the date hereof (the "Escrow
Agreement").
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties agree as follows:
1. Security for Liabilities. This Pledge Agreement is made for the
benefit of Pledgee to secure the payment of all amounts due to Pledgee by
Pledgor under the Debentures (collectively, the "Liabilities").
2. Pledge of Collateral.
2.1 Pledge. To secure the prompt payment when due of all of the
Liabilities, and for the other purposes set forth in Section 1 hereof, Pledgor
hereby pledges, assigns, hypothecates, transfers, and delivers to Pledgee a lien
on and security interest in all of the following collateral ("Collateral");
(a) All of the shares of Common Stock of Pledgor held by the
Escrow Agent under the Escrow Agreement;
(b) All securities acquired by Pledgor or Escrow Agent in its
capacity as such by way of stock split, stock dividend, or the like on or with
respect to any shares held by the Escrow Agent pursuant to the terms of the
Escrow Agreement;
(c) All dividends, securities, instruments, or other property
from time to time received, receivable, or otherwise distributed in respect of
or in exchange or substitution for any or all of the shares of common stock held
by the Escrow Agent pursuant to the terms of the Escrow Agreement, and all
certificates and instruments representing the same; and
(d) All proceeds of the foregoing.
<PAGE>
2.2 Delivery of Collateral. The parties hereby agree that the
Collateral shall be deemed to have been delivered by Pledgor to Pledgee and is
being held on behalf of and for the benefit of Pledgee by the Escrow Agent
pursuant to the terms of the Escrow Agreement as amended on the date hereof.
2.3 Security Agreement. This Pledge Agreement shall be and be
deemed to be a Security Agreement under the Code (as hereinafter defined).
3. Voting. Unless and until an Event of Default (as defined in Section
7.1) shall have occurred and be continuing, Pledgee shall not be entitled to
vote any of the Collateral or to give consents, waivers, or ratifications in
respect thereof.
4. Dividends and Other Distributions. Unless and until an Event of
Default shall have occurred and be continuing, all cash dividends payable in
respect of the Collateral shall not be paid to Pledgee but shall be held in
pledge by Escrow Agent as a portion of the Collateral.
5. Representations and Warranties. Pledgor represents and warrants to
Pledgee that Pledgor (i) has good and marketable title to the Collateral free
and clear of all liens, security interests, encumbrances, or adverse claims of
any type except for the security interest in favor of Pledgee created by this
Pledge Agreement and Pledgee's rights under the Escrow Agreement, (ii) no
dispute, right of set-off, counterclaim, or defense exists with respect to all
or any part of the Collateral, (iii) all of the Collateral which consists of
common stock is fully paid and non-assessable, (iv) no financing statement or
other public evidence of a lien covering all or any part of the Collateral is on
file in any recording office except such as may have been filed in favor of
Pledgor relating to this Pledge Agreement, (v) no person or entity other than
Pledgee and Escrow Agent on behalf of Pledgee has control over any portion of
the Collateral, (vi) Pledgor's taxpayer identification number is 41-0950482 and
(vii) Pledgor's chief executive office is located in Jackson County,
Mississippi.
6. Covenants. Pledgor hereby covenants and agrees as follows:
6.1 Negative Pledge Covenant. Pledgor will not assign, sell,
mortgage, lease, transfer, pledge, grant a security interest in, encumber, or
otherwise dispose of any of the Collateral or any other shares of capital stock
owned (now or in the future) by Pledgor without the prior written consent of
Pledgee, and the inclusion of "proceeds" of the Collateral under the security
interest granted herein shall not be deemed a consent by Pledgee to any sale or
other disposition of any part or all of the Collateral except as expressly
permitted herein.
6.2 Pledgor to Pay Taxes. Pledgor shall pay, deposit, or otherwise
provide for the payment when due of all taxes, assessments, or contributions
required by law which may be levied or assessed against Pledgor, whether with
respect to any of the Collateral, to any wages or salaries paid by or to
Pledgor, or otherwise, and will deliver to Pledgee on demand, certificates
attesting thereto; provided, however, that Pledgor may contest any such taxes,
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assessments, or contributions in good faith.
6.3 Financing Statements. Pledgor shall execute and deliver to
Pledgee such Uniform Commercial Code financing statements as are requested by
Pledgee from time to time to evidence and to perfect the security interest
created by this Pledge Agreement. To permit Pledgee to maintain properly filed
financing statements, Pledgor shall not change its name, taxpayer identification
number, corporate structure, or the location of its chief executive office
without three months' prior notice to Pledgee.
7. Events of Default; Remedies.
7.1 Events of Default. Each of the following shall constitute an
event of default ("Event of Default") hereunder:
(a) If Pledgor shall default in the payment when due or within
any applicable period of grace thereafter of any sum payable with respect to, or
in the observance or performance of any of the terms or conditions of either of
the Debentures;
(b) If any representation, warranty, or statement of fact made
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by Pledgor to Pledgee in this Pledge Agreement, or in any other written document
delivered by Pledgor to Pledgee is false, misleading, incorrect, or incomplete
in any material respect when made;
(c) The making of any levy on, seizure of, or garnishment of
any of the Collateral; if Pledgor shall become insolvent (however defined or
evidenced) or make an assignment for the benefit of creditors, or making or
sending of notice of intended bulk transfer, or if there shall be convened a
meeting of the creditors or principal creditors of Pledgor or if a committee of
Pledgor's creditors is created or appointed for any reason; or
(d) If there should be filed by or against Pledgor any
petition for relief under the bankruptcy laws of the United States now or
hereafter in effect or under any insolvency, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity); or any petition or application to any court or
tribunal at law or in equity shall be filed by or against Pledgor for the
appointment of a receiver or trustee for Pledgor or any substantial portion of
Pledgor's property;
7.2 Remedies. In case an Event of Default shall occur and be
continuing,
(a) All of the liabilities of Pledgor shall, at the option of
the Pledgee, without notice, become immediately due and payable and Pledgee
shall thereupon have all rights and remedies provided hereunder and in any other
document between Pledgor or Pledgee or otherwise available at law or in equity;
(b) Pledgee shall have the right immediately, without further
action due by it, to set off against the liabilities any indebtedness,
liabilities or obligations of Pledgee in any capacity to Pledgor whether or not
then due, and Pledgee shall be deemed to have exercised its right of set off and
to have made such a charge against any such indebtedness, liabilities, or
obligations immediately upon the occurrence of such an Event of Default even
though such charge is made or entered on the books of Pledgee subsequent
thereto;
(c) Pledgee shall be entitled to exercise all of the rights,
powers, and remedies, whether vested in it by this Pledge Agreement, another
document, or by law, including without limitation, all rights and remedies of a
secured party of a debtor in default under the Uniform Commercial Code (the
"Code") in effect in the State of Mississippi or under other law for the
protection and enforcement of its rights with respect to the Collateral and the
collection of the liabilities under the Debentures, and Pledgee shall be
entitled without limitation, to exercise the following rights which Pledgor
agrees to be commercially reasonable:
(i) To receive all amounts payable with respect to the
Collateral otherwise payable to Pledgor under Section 4;
(ii) To direct the Escrow Agent under the Escrow Agreement
to transfer all or any part of the Collateral into Pledgee's
name or the name of its nominee or nominees and to deliver the
same forthwith to Pledgee;
(iii) To exercise all voting rights as to all of the
shares of the Collateral and all other corporate rights and
all conversion, exchange, subscription or other rights,
privileges or options pertaining thereto as if it were the
absolute owner thereof, including, without limitation, the
right to exchange any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or
other readjustment of the issuer thereof, or upon the exercise
by such issuer of any right, privilege, or option pertaining
to any of the Collateral and, in connection therewith, to
deliver any of the Collateral to any committee, depository,
transfer agent, registrar or other designated agency upon such
terms and conditions as it may determine, all without
liability except to account for property actually received by
it, and to give all consents, waivers, and ratifications in
respect of the Collateral and otherwise to act with respect
thereto as though it were the outright owner thereof; but
Pledgee shall have no duty to exercise any of the aforesaid
rights, privileges or options and shall not be responsible for
any failure to do so or delay in so doing; and
(iv) At any time, and from time to time, to sell, assign,
and deliver, or to grant options to purchase all or any part
of the Collateral in one or more parcels or any interest
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therein, at any public or private sale, at any exchange,
broker's board, or at any of Pledgee's offices or elsewhere,
upon the giving of at least ten (10) calendar days' actual
notice of such proposed sale to Pledgor, for cash, on credit,
or for other property, for immediate or future delivery
without any assumption of credit risk, and for such price or
prices and on such terms as Pledgee in its absolute discretion
may determine best, free of any right or equity of redemption
in Pledgor which right or equity of redemption is hereby
expressly waived and released. Pledgee shall not be obligated
to make any sale of Collateral regardless of notice of sale
having been given. Pledgee may adjourn any public or private
sale from time to time by announcement at the time and place
fixed therefor, and any such sale may, without any further
notice, be made at the time and place to which it was so
adjourned. At any such sale, unless prohibited by applicable
law, Pledgee may bid for or purchase all or any part of the
collateral..
(d) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, other Federal securities
laws and regulations, and applicable state securities laws and regulations, but
may be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire all or
a part of the Collateral for their own account, for investment, and not with a
view to the distribution or resale thereof. If Pledgee deems it advisable to do
so for the foregoing or for other reasons, Pledgee is authorized to limit the
prospective bidders on or purchasers of any of the Collateral to such a
restricted group of purchasers and may cause to be placed on certificates for
any and all of the Collateral a legend to the effect that the shares represented
by such certificates have not been registered under the Securities Act of 1933,
as amended, and may not be disposed of in violation of the provisions of such
Act, and to impose such other limitations or conditions in connection with any
such sale as Pledgee deems necessary or advisable in order to comply with such
Act or any other securities or other laws. Pledgor acknowledges and agrees that
any private sale so made may be at prices and on other terms less favorable to
the Pledgor than if such Collateral were sold at public sale and that Pledgee
has no obligation to delay the sale of such Collateral for the period of time
necessary to permit the registration of such Collateral for public sale under
any securities laws. Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner. If any consent, approval, or authorization of any Federal,
state, municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Collateral, or any
partial sale or other disposition of the Collateral (other than a registration
under any applicable securities law), Pledgor will execute all applications and
other instruments as may be required in connection with securing any such
consent, approval or authorization and will otherwise use reasonable commercial
efforts to secure same.
7.3 Remedies Cumulative. All of the foregoing rights and remedies
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may be exercised singly, or in combination, and shall be cumulative.
8. Further Assurances. Pledgor agrees that it will join with Pledgee in
executing without delay and without charge to Pledgee such documents as Pledgee
may deem necessary or appropriate to perfect and preserve Pledgee's security
interest in the Collateral, and agrees to do such further acts and things and
promptly to execute and deliver to Pledgee such additional conveyances,
assignments, stock powers, agreements, and instruments which Pledgee may require
or deem advisable to carry into effect the purposes of this Pledge Agreement or
further to assure and confirm unto the Pledgee, its rights, powers, and remedies
hereunder.
9. Termination. Whenever all amounts due under the Debentures have been
irrevocably paid in full, Pledgee shall terminate this Pledge Agreement upon
written notice to Pledgor and the Escrow Agent to terminate the escrow. Prior to
such termination, this Pledge Agreement shall be a continuing agreement in every
respect.
10. Miscellaneous.
10.1 Indulgences, Etc. Neither the failure nor any delay on the
part of Pledgee to exercise any right, remedy, power or privilege under this
Pledge Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
10.2 Controlling Law. This Pledge Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the State of
Mississippi, notwithstanding any conflict-of-laws doctrines of such jurisdiction
to the contrary, and without the aid of any canon, custom or rule of law
requiring construction against the draftsman.
10.3 Notices. All notices required or permitted to be given
hereunder shall be sent by certified mail, return receipt requested, or by a
nationally recognized courier service (such as FedEx), or by fax if promptly
confirmed by first class mail to the following respective addresses:
i) If to Pledgee:
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Roy Anderson Holding Corp.
11400 Reichold Road
Gulfport, MS 39503
Attention: President
Fax No. 228-896-4078
ii) If to Pledgor:
Casino Resource Corporation
707 Bienville Boulevard
Ocean Springs, MS 39564
Attention: President
Fax No. 228-872-7728
In addition, notice by mail shall be given by airmail if posted outside the
continental United States. Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this Section 9.3 for the giving of
notice.
10.4 Binding Nature of Agreement. This Pledge Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
10.5 Execution in Counterparts. This Pledge Agreement may be
executed in counterparts, each of which shall be deemed to be an original as
against either party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Pledge Agreement shall be
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of both of the parties reflected hereon as the
signatories.
10.6 Provisions Separable. The provisions of this Pledge Agreement
are independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other or others of them may be invalid or unenforceable in whole or
in part.
10.7 Entire Agreement. This Pledge Agreement, the Debentures, the
Escrow Agreement, the Stock Option Agreement, Stock Purchase Agreement, and the
Agreement to Amend and Restate Debentures contain the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersede all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
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and therein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Pledge Agreement may not be modified or amended other than by an
agreement in writing.
10.8 Section Headings. The Section and subsection headings in this
Pledge Agreement have been inserted for convenience of reference only; they form
no part of this Pledge Agreement and shall not affect its interpretation.
10.9 Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine; feminine or neuter,
as the context indicates is appropriate.
10.10 Number of Days. In computing the number of days for purposes
of this Pledge Agreement, all days shall be counted, including Saturdays,
Sundays and Holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or Holiday, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or Holiday. For the
purpose of this Pledge Agreement, (i) a "Holiday" shall be deemed to be a day
other than a Saturday or Sunday on which national banks with branches in the
State of Mississippi are closed; and (ii) a "Business Day" shall be deemed to be
a day other than a Saturday, Sunday, or Holiday.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Pledge Agreement on the day and year first above written.
Attest: CASINO RESOURCE CORPORATION
_______________________________ By:_______________________________
John J. Pilger, President
Attest: ROY ANDERSON HOLDING CORP.
_______________________________ By:_______________________________
Secretary Roy Anderson, III, President
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ASSET PURCHASE AGREEMENT entered into as of December 31, 1999, by and
among Casino Resource Corporation, a Minnesota corporation ("CRC"),
BounceBackMedia.com, Inc., a Nevada corporation and wholly owned subsidiary of
CRC ("Buyer"), Digital Development & Distribution, LLC, a California limited
liability company dba Raw Data Corp. ("Seller"), and Roger Birks, an individual
residing in the State of California (hereinafter referred to by his last name or
collectively with Seller as the "Sellers"). The Sellers, Buyer and CRC may
referred to collectively herein as the "Parties" or individually as a "Party."
BACKGROUND
Birks is the sole Manager and the holder of a 67% membership interest
in Seller.
CRC desires to acquire indirectly substantially all of the assets of
Seller, and Sellers desire to sell substantially all of Seller's assets to
Buyer, on and subject to the terms set forth below.
Neither CRC nor Buyer shall assume any of the liabilities of the
Sellers.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of
the assets of the Seller, including all of its (A) tangible personal property
(such as machinery, equipment, inventories of raw materials and supplies,
manufactured and purchased parts, goods in process and finished goods,
furniture, automobiles, trucks, tractors, trailers, tools, jigs, and dies), (B)
Intellectual Property, goodwill associated therewith, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, remedies
against past, present and future infringements thereof, and rights to protection
of interests therein under the laws of all jurisdictions, (C) agreements,
contracts, indentures, mortgages, instruments, Security Interests, guaranties,
other similar arrangements, and rights thereunder, (D) accounts, notes, and
other receivables, (E) securities, (F) claims, deposits, prepayments, refunds,
causes of action, choses in action, rights of recovery, rights of set off, and
rights of recoupment (including any such item relating to the payment of taxes),
(G) franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies, and (H) books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies, reports, and
other printed or written materials; provided, however, that the Acquired Assets
shall not include (i) the articles of organization, taxpayer and other
identification numbers, seals, minute books, and other documents relating to the
organization, maintenance, and existence of the Seller as a limited liability
company; (ii) any of the rights of the Sellers under this Agreement (or under
any side agreement between the Sellers on the one hand and the Buyer on the
other hand entered into on or after the date of this Agreement); (iii) any
leases for real estate or any other leases to which the Sellers are a party; or
(iv) cash and cash equivalents in Seller's checking account at the Closing.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes,
<PAGE>
liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
"Birks" has the meaning set forth in the preface above.
"Buyer" has the meaning set forth in the preface above.
"Buyer Shares" has the meaning set forth in Section 2.2 below.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
"Confidential Information" means any information concerning the
businesses and affairs of CRC or the Buyer that is not already generally
available to the public.
"Financial Statement" has the meaning set forth in Section 3.6 below.
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all domain names, trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
including without limitation the right to sue for past infringements, and (h)
all copies and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge or knowledge that could be
reasonably imputed to the persons who own and actively manage Seller's business.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
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"Positive Cash Flow" means the excess of cash receipts during a
calendar quarter over cash expenditures during such calendar quarter, net of
reserves for cash expenditures reasonably foreseeable for the forty-five days
following the end of such calendar quarter and for amortization of debt.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest.
"Seller(s)" has the meaning set forth in the preface above.
2. Basic Transaction.
2.1 Purchase and Sale of Assets. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell, transfer, convey, and deliver to the Buyer, all of the Acquired
Assets at the Closing for the consideration specified below in this Section 2.
2.2 Consideration. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to, at the Closing, (i) pay to Seller $85,000 in
cash; (ii) deliver to Seller Buyer's promissory note in the principal amount of
$65,000 in the form attached hereto as Exhibit A; (iii) issue, after the
Closing, in the manner and subject to the terms and conditions set forth in
Section 5.7 below, an aggregate of 1,000 shares of the Buyer's common stock (the
"Buyer Shares") to the persons and in the amounts set forth in Section 5.7
below. Neither the Buyer nor CRC shall assume or have any responsibility with
respect to any obligation or liability of the Sellers.
2.3 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such place and on such date (the
"Closing Date") as the parties shall mutually agree, provided that the Closing
Date shall not be later than December 31, 1999.
2.4 Deliveries at the Closing. At the Closing, (i) Birks and Buyer shall
execute and deliver the Employment Agreement between Birks and Buyer; (ii)
Seller will execute and deliver to Buyer a Bill of Sale in the form attached
hereto as Exhibit B; and (iii) Buyer will execute and deliver to the Seller its
promissory note in the form attached hereto as Exhibit A.
2.5 Conditions to the Closing. The Parties' obligations to close shall be
conditioned upon the satisfaction or waiver of the following conditions prior to
the close:
(i) Birks and Buyer shall have executed an employment agreement
in form satisfactory to Birks and Buyer.
(ii) Each of the members of Seller shall have approved the Seller
and Birks entering into this Agreement and the transactions
described in this Agreement, and the sale of Frank Turner's
membership interest to Birks.
(iii)The Bertolucci Family Trust shall have executed a release
of all claims to equity in Seller, Buyer and/or CRC.
(iv) Each of the members of Seller shall have executed a waiver
of conflict of interest for Emory Wishon to represent the
Seller, Birks and each of the other members in this
transaction or the members shall have waived their right to
counsel or have obtained separate counsel which shall have
approved the form of these agreements.
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3. Representations and Warranties of the Sellers. Each of the Seller and Birks
represents and warrants to the Buyer that the statements contained in this
Section 3 are correct and complete as of the Closing Date, except as set forth
in the disclosure schedule accompanying this Agreement (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in sections corresponding
to the lettered and numbered sections contained in this Section 3.
3.1 Organization and Capitalization of the Seller. The Seller is a limited
liability company duly organized, validly existing, and in good standing under
the laws of California. All of the issued and outstanding membership interests
of the Seller are held of record by the following persons in the following
amounts: (i) Birks holds a 67.0% membership interest; (ii) Frank Turner holds a
20.0% membership interest; (iii) Allen Green holds a 8.0% membership interest;
(iv) Candy Gilbert holds a 2.5% membership interest; and (v) Shawn McGlothlin
holds a 2.5% membership interest. Immediately prior to the Closing, Birks will
purchase the entire 20.0% membership interest held by Frank Turner. As a result
of such purchase, at the Closing, Birks will hold a 87.0% membership interest in
Seller. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Seller to issue, sell, or
otherwise cause to become outstanding any of its membership interests. There are
no voting trusts, proxies, or other agreements or understandings with respect to
the voting of the membership interests of the Seller.
3.2 Authorization of Transaction. The Seller has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of both Seller and Birks, enforceable
in accordance with its terms and conditions.
3.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments referred to in Section 2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Sellers are subject or any provision of the operating agreement
of the Seller or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Sellers are a party or by which they are bound or to which any of Seller's
assets is subject (or result in the imposition of any Security Interest upon any
of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a material adverse effect on Seller's
business or assets or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. The Seller need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement (including the assignments referred
to in Section 2 above), except where the failure to give notice, to file, or to
obtain any authorization, consent, or approval would not have a material adverse
effect on Seller's business or assets or on the ability of the Parties to
consummate the transactions contemplated by this Agreement.
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3.4 Brokers' Fees. The Sellers have no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.5 Title to Assets. The Seller has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown in the Financial Statements or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the
Financial Statements. Without limiting the generality of the foregoing, the
Seller has good and marketable title to all of the Acquired Assets, free and
clear of any Security Interest or restriction on transfer.
3.6 Financial Statements. Attached hereto as Exhibit C are the balance
sheet and statement of income for the Seller as of and for the period beginning
February 1, 1999 and ending December 17, 1999 (collectively the "Financial
Statements"). The Financial Statements (including the notes thereto) are
auditable and present fairly the financial condition of the Seller as of such
date and the results of operations of the Seller for such period.
3.7 Events Subsequent to the Date of the Financial Statements. Since
December 17, 1999, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Seller. Without limiting the generality of the foregoing, since
that date:
3.7.1 Seller has not sold, leased, transferred, or assigned any
material assets, tangible or intangible, outside the Ordinary Course of
Business;
3.7.2 Seller has not entered into any material agreement, contract,
lease, or license outside the Ordinary Course of Business;
3.7.3 no party (including Seller) has accelerated, terminated, made
material modifications to, or canceled any material agreement, contract, lease,
or license to which the Seller is a party or by which it is bound;
3.7.4 Seller has not imposed any Security Interest upon any of its
assets, tangible or intangible;
3.7.5 Seller has not made any material capital expenditures outside the
Ordinary Course of Business;
3.7.6 Seller has not made any material capital investment in, or any
material loan to, any other Person outside the Ordinary Course of Business;
3.7.7 Seller has not created, incurred, assumed, or guaranteed more
than $5,000 in aggregate indebtedness for borrowed money and capitalized lease
obligations;
3.7.8 Seller has not granted any license or sublicense of any material
rights under or with respect to any Intellectual Property;
3.7.9 there has been no change made or authorized in the articles of
organization or the operating agreement of Seller;
3.7.10 Seller has not issued, sold, or otherwise disposed of any of its
membership interests, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
membership interests;
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3.7.11 Seller has not declared, set aside, or paid any dividend or made
any distribution with respect to its membership interests (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its membership
interests;
3.7.12 Seller has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
3.7.13 Seller has not made any loan to, or entered into any other
transaction with, any of its members, managers, officers, and employees outside
the Ordinary Course of Business;
3.7.14 Seller has not entered into any employment contract, written or
oral, or modified the terms of any existing such contract;
3.7.15 Seller has not granted any increase in the base compensation of
any of its members, managers, officers, and employees outside the Ordinary
Course of Business;
3.7.16 Seller has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its members, managers, officers, and
employees;
3.7.17 the Seller has not made any other material change in employment
terms for any of its members, managers, officers, and employees outside the
Ordinary Course of Business; and
3.7.18 Seller has not committed to any of the foregoing.
3.8 Undisclosed Liabilities. Seller has no material liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except for
(i) liabilities set forth on the face of the Financial Statements (rather than
in any notes thereto) and (ii) liabilities which have arisen after the dated of
the Financial Statements in the Ordinary Course of Business.
3.9 Legal Compliance. To Seller's Knowledge, Seller has complied with all
applicable laws (including rules, regulations, codes and plans). Seller has
complied with all applicable injunctions, judgments, orders, decrees, rulings,
and charges thereunder of federal, state, local, and foreign governments (and
all agencies thereof), and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply, except where the failure to
comply would not have a material adverse effect on Seller's business or assets.
3.10 Real Property. The Seller neither owns nor leases any real property.
3.11 Intellectual Property.
3.11.1 To Seller's Knowledge, Seller has not interfered with, infringed
upon, misappropriated, or violated any material Intellectual Property rights of
third parties in any material respect. None of the members, managers or officers
of the Seller has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that Seller must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of any of the
members, managers, officers or employees of the Seller, no third party has
interfered with, infringed upon,
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misappropriated, or violated any material Intellectual Property rights of the
Seller in any material respect.
3.11.2 Section 3.11.2 of the Disclosure Schedule identifies each patent
or registration which has been issued to the Seller with respect to any of its
Intellectual Property, identifies each pending patent application or application
for registration which the Seller has made with respect to any of its
Intellectual Property, and identifies each material license, agreement, or other
permission which the Seller has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date). Section 3.11.2 of the Disclosure Schedule also identifies each
material trade name or unregistered trademark used by the Seller in connection
with any of its businesses. With respect to each item of Intellectual Property
required to be identified in Section 3.11.2 of the Disclosure Schedule:
3.11.2.1 the Seller possesses all right, title, and interest in
and to the item, free and clear of any Security Interest, license, or other
restriction;
3.11.2.2 the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
3.11.2.3 no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of any of
the members, managers, officers or employees of the Seller, is threatened which
challenges the legality, validity, enforceability, use, or ownership of the
item; and
3.11.2.4 the Seller has never agreed to indemnify any Person for
or against any interference, infringement, misappropriation, or other conflict
with respect to the item.
3.11.3 Section 3.11.3 of the Disclosure Schedule identifies each
material item of Intellectual Property that any third party owns and that the
Seller uses pursuant to license, sublicense, agreement, or permission. The
Seller has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). With
respect to each such item of used Intellectual Property required to be
identified in Section 3.11.3 of the Disclosure Schedule:
3.11.3.1 the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect in all material respects;
3.11.3.2 no party to the license, sublicense, agreement, or
permission is in material breach or default, and no event has occurred which
with notice or lapse of time would constitute a material breach or default or
permit termination, modification, or acceleration thereunder;
3.11.3.3 no party to the license, sublicense, agreement, or
permission has repudiated any material provision thereof; and
3.11.3.4 the Seller has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or permission.
3.12 Tangible Assets. The machinery, equipment, and other tangible
assets that the Seller owns and leases are free from material defects (patent
and latent), have been maintained in
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accordance with normal industry practice, and are in good operating condition
and repair (subject to normal wear and tear).
3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the following
contracts and other agreements to which the Seller is a party:
3.13.1 any agreement (or group of related agreements) for the lease of
personal property to or from any Person;
3.13.2 any agreement (or group of related agreements) for the purchase
or sale of supplies, products, or other personal property, or for the furnishing
or receipt of services;
3.13.3 any agreement concerning a partnership or joint venture;
3.13.4 any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation;
3.13.5 any agreement concerning confidentiality or noncompetition;
3.13.6 any agreement involving any of the Seller's members or managers
or their affiliates (other than the Seller);
3.13.7 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of Seller's current or former members, managers,
officers, and employees;
3.13.8 any agreement for the employment of any Person on a full-time,
part-time, consulting, or other basis;
3.13.9 any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees; or
3.13.10 any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 3.13 of the Disclosure Schedule (as amended
to date) and a written summary setting forth the material terms and conditions
of each oral agreement referred to in Section 3.13 of the Disclosure Schedule.
With respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect in all material respects; (B) no party
is in material breach or default, and no event has occurred which with notice or
lapse of time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement; and (C) no
party has repudiated any material provision of the agreement.
3.14 Litigation. Section 3.14 of the Disclosure Schedule sets forth
each instance in which Seller (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of any of the members, managers, officers or employees of the Seller,
is threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
3.15 Product Warranty. Substantially all of the products manufactured,
sold, leased, and delivered by the Seller have conformed in all material
respects with all applicable contractual
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commitments and all express and implied warranties, and of the Seller has no any
material liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due) for replacement or repair
thereof or other damages in connection therewith. Substantially all of the
products manufactured, sold, and delivered by the Seller are subject to standard
terms and conditions of sale. Section 4.15 of the Disclosure Schedule includes
copies of the standard terms and conditions of sale for the Seller (containing
applicable guaranty, warranty, and indemnity provisions).
3.16 Guaranties. Seller is not a guarantor or otherwise is responsible for
any liability or obligation (including indebtedness) of any other Person.
3.17 All Assets Necessary to Conduct Business. The Acquired Assets comprise
all of the assets, properties and rights of every type and description, tangible
and intangible, used by the Seller in, and, in the reasonable opinion of Birks,
necessary to, the conduct of the Seller's business as currently conducted and as
proposed by Birks to be conducted. No member, manager, officer or employee of
the Seller owns any material asset, tangible or intangible, which is used in the
business of the Seller.
3.18 Investment. Each of Seller and Birks (i) understands that the Buyer
Shares have not been, and will not be, registered under the Securities Act, or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
and that the certificate(s) evidencing the Buyer Shares will therefore be
imprinted with restrictive legends, (ii) is acquiring the Buyer Shares (in the
case of Birks, acquiring the Buyer Shares pursuant to a possible liquidation of
the Seller subsequent to the Closing) solely for its or his own account for
investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information concerning the Buyer and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Buyer Shares, (v) is able to
bear the economic risk and lack of liquidity inherent in holding the Buyer
Shares, and (vi) is an "accredited investor" as that term is defined in Rule 501
promulgated under the Securities Act.
3.19 Disclosure. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers that the statements contained in this Section 4 are
correct and complete as of the Closing Date.
4.1 Organization and Capitalization of the Buyer. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of Nevada. Buyer's authorized capital stock consists of 10,000 shares of
common stock, no par value, of which 4,000 shares are issued and outstanding.
Upon the Closing, the Buyer Shares issued in accordance with Sections 2.2 and
5.7 hereof shall constitute 20% of the total amount of Buyer's capital stock
issued and outstanding.
4.2 Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its
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obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments referred to in Section 2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of its charter or bylaws or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject. The Buyer does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to in Section 2 above).
4.4 Brokers' Fees. The Buyer has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which either the Seller or Birks could become
liable or obligated.
5. Covenants. The Parties agree as follows with respect to the period following
the Closing.
5.1 General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 6 below). The Sellers
acknowledge and agree that from and after the Closing the Buyer will be entitled
to possession of all documents, books, records (including tax records),
agreements, and financial data of any sort relating to the Seller.
5.2 Transition. The Sellers shall not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Seller from maintaining the same
business relationships with the Buyer after the Closing as such third party
maintained with the Seller prior to the Closing.
5.3 Confidentiality. Each of the Seller and Birks shall treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession.
5.4 Covenants Not to Compete or Solicit; Injunctive Relief. For a period of
three years from and after the Closing Date, neither the Seller nor Birks will
(A) engage, directly or indirectly, in the design, manufacture, marketing or
distribution of CD cards (or related products or their functional equivalents)
or engage, directly or indirectly, in any other business that the Buyer conducts
as of the date of termination of Birks' employment with the Buyer in any
geographic area in which the Buyer conducts such business as of such termination
date, provided, however, that ownership of less than 1% of the outstanding stock
of any publicly
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traded corporation shall not be deemed a breach of this provision; or (B)
solicit the employment, consulting or other services of any employee of the
Buyer or otherwise induce any of such employees to leave the Buyer's employment
or to breach an employment agreement therewith. If the final judgment of a court
of competent jurisdiction declares that any term or provision of this Section
5.4 is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed. Seller and Birks agree that in
the event of a breach or threatened breach of the covenants contained in this
Section 5.4, the Buyer shall be entitled to injunctive relief restraining such
person, and any and all persons acting for or with him or it, from such breach
or threatened breach.
5.5 CRC Board of Directors. Provided that Birks continues to be employed by
CRC or any affiliate of CRC (including Buyer), CRC shall use its best efforts to
cause the election, no earlier than Spring, 2002, of Birks to the Board of
Directors of CRC as a Class C director, subject to the approval of the
shareholders and the Board of Directors of CRC.
5.6 Funding and Location of Buyer. Following the Closing, CRC shall use its
best efforts to fund the Buyer with a minimum of $2,000,000 in working capital,
with appropriate funding to match an agreed-upon budget. Such budget will be
prepared by Birks with a necessary approval needed by Jack Pilger, CEO of CRC.
The minimum amount of working capital to be provided to the Buyer by CRC will be
$500,000, $100,000 of which shall be funded by February 1, 2000 and the
remaining $400,000 of which shall be funded by December 31, 2000. Such funding
shall be in the form of loans bearing interest at the prime rate. Each loan
shall be repaid by Buyer to CRC in quarterly payments over five years commencing
on the first anniversary of the loan, provided that such payments shall not be
required to exceed 50% of the Buyer's Positive Cash Flow for the preceding
calendar quarter. The parties agree that the corporate offices of the Buyer will
be located in the Silicon Valley area as determined by Birks.
5.7 Issuance of Buyer Shares. As soon as practicable after the Closing, the
aggregate 1,000 Buyer Shares shall be allocated as follows: (i) 870 Buyer Shares
shall be issued to Birks; (ii) 80 Buyer Shares shall be issued to Allen Green;
(iii) 25 Buyer Shares shall be issued to Candy Gilbert; and (iv) 25 Buyer Shares
shall be issued to Shawn McGlothlin (each of Allen Green, Candy Gilbert and
Shawn McGlothlin may hereinafter be referred to as an "Other Seller Member").
None of the Buyer Shares shall be issued to any Other Seller Member unless and
until such Other Seller Member executes and delivers to Buyer an agreement (in a
form reasonably acceptable to Buyer and its counsel) providing for, among other
things, an irrevocable grant of a voting proxy to Birks, an agreement limiting
the remedies for disputes arising out of the Other Seller Member's ownership of
the Buyer Shares to repurchase by Buyer of the Buyer Shares, restrictions on
transfer of the Buyer Shares, a general release of Buyer and CRC, standard
investor representations, and other matters. In the event any Other Seller
Member fails to deliver such an agreement to Buyer prior to January 31, 2000,
Birks shall promptly purchase from such Other Seller Member all of his or her
rights arising hereunder and acquire the right to receive the Buyer Shares that
otherwise were to have been issued to such Other Seller Member. Buyer further
agrees to grant "piggyback" registration rights to the holders of the Buyer
Shares
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in the event Buyer registers any shares of its common stock under the Securities
Act. The terms of such "piggyback" registration rights shall be set forth in a
separate Registration Rights Agreement to be executed and delivered by Buyer
following the Closing.
5.8 Buyout and Registration of Buyer Shares. Promptly following the second
anniversary of the Closing Date, Buyer at its option shall either (i) offer to
purchase all of the Buyer Shares from the holders thereof at an appraised fair
market value; or (ii) subject to applicable law, commence paying to such holders
quarterly payments, due within 30 days of the end of each calendar quarter, in
the aggregate amount of 12% of the Buyer's Positive Cash Flow for the preceding
calendar quarter. Such aggregate quarterly payments shall be allocated among
each holder of the Buyer Shares in the same proportion that such holder's Buyer
Shares bears to the total number of Buyer Shares.
6. Remedies for Breaches of this Agreement.
6.1 Survival of Representations, Warranties and Covenants. All of the
representations, warranties and covenants of the Parties contained in this
Agreement shall survive the Closing (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect forever thereafter (subject to
any applicable statutes of limitations).
6.2 Indemnification Provisions for Benefit of the Buyer and CRC. The Seller
and Birks each agrees to jointly and severally indemnify the Buyer and CRC from
and against the entirety of any Adverse Consequences the Buyer or CRC may suffer
resulting from, arising out of, relating to, in the nature of, or caused by (i)
the breach of any of the representations, warranties, and covenants of the
Sellers contained in this Agreement; or (ii) any liability or obligation of the
Sellers, including without limitation any liability or obligation arising in
connection with Birks' purchase of Frank Turner's membership interest in Seller
or the payment and cancellation by Seller of its $10,000 promissory note dated
November 2, 1999; provided, however, that the Sellers shall not have any
obligation to indemnify the Buyer or CRC from and against any Adverse
Consequences arising out of the breach of any of the representations,
warranties, and covenants of the Sellers until the Buyer and CRC together have
suffered such Adverse Consequences in excess of a $5,000 aggregate deductible
(after which point the Sellers will be obligated only to indemnify the Buyer
from and against further such Adverse Consequences).
6.3 Indemnification Provisions for Benefit of the Sellers. The Buyer and
CRC each agrees to jointly and severally indemnify each of the Seller and Birks
from and against the entirety of any Adverse Consequences the Sellers may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
breach of any of the representations, warranties, and covenants of the Buyer
contained in this Agreement; provided, however, that Buyer and CRC shall not
have any obligation to indemnify the Seller or Birks from and against any
Adverse Consequences arising out of the breach of any of the representations,
warranties, and covenants of the Buyer until the Seller and Birks together have
suffered such Adverse Consequences in excess of a $5,000 aggregate deductible
(after which point the Buyer and CRC will be obligated only to indemnify the
Seller and Birks from and against further such Adverse Consequences).
6.4 Matters Involving Third Parties.
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6.4.1 If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 6, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
6.4.2 Any Indemnifying Party will have the right to assume the defense
of the Third Party Claim with counsel of her, his or its choice reasonably
satisfactory to the Indemnified Party at any time within 15 days after the
Indemnified Party has given notice of the Third Party Claim; provided, however,
that the Indemnifying Party must conduct the defense of the Third Party Claim
actively and diligently thereafter in order to preserve its rights in this
regard; and provided further that the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense of the
Third Party Claim.
6.4.3 So long as the Indemnifying Party has assumed and is conducting
the defense of the Third Party Claim in accordance with Section 6.4.2 above, (i)
the Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably)
unless the judgment or proposed settlement involves only the payment of money
damages by one or more of the Indemnifying Parties and does not impose an
injunction or other equitable relief upon the Indemnified Party and (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably).
6.4.4 In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with Section 6.4.2
above, however, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim in any manner she, he or it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith) and (ii) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this Section 6.
7. Miscellaneous.
7.1 Press Releases and Public Announcements. Neither Seller nor Birks shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior express consent of the Buyer.
7.2 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
7.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings,
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agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.
7.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the relevant other Party(ies); provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
affiliates and (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.7 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
below:
If to the Seller to: Rawdata, LLC
2555 Clovis Avenue
Clovis, CA 93612
With a copy to: A. Emory Wishon III, Esq.
Motschiedler, Michaelides & Wishon LLP
1690 West Shaw Avenue, Suite 200
Fresno, CA 93711
If to Birks to: Mr. Roger Birks
8139 North Orchard
Fresno, CA 93720
With a copy to: A. Emory Wishon III, Esq.
Motschiedler, Michaelides & Wishon LLP
1690 West Shaw Avenue, Suite 200
Fresno, CA 93711
If to the Buyer
or CRC to: Casino Resource Corporation
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707 Bienville Blvd.
Ocean Springs, MS 39564
With a copy to : Robert P. Krauss, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
36th Floor
1735 Market Street
Philadelphia, PA 19103-7598
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
7.8 Governing Law, Arbitration. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Mississippi
without giving effect to any choice or conflict of law provision or rule.
7.9 Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Party to be
charged thereby. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
7.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
7.11 Expenses. CRC shall pay, at or promptly following the Closing, the
Sellers' reasonable attorney's fees and expenses incurred in connection with
this Agreement as set forth on Schedule 7.11 attached hereto.
7.12 Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
7.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement on [as of] the date first above written.
Digital Development & Distribution, LLC BounceBackMedia.com, Inc.
by: _______________________ by: _______________________
Roger Birks, Manager John J. Pilger, President
Casino Resource Corporation
__________________________ by: _______________________
Roger Birks, individually John J. Pilger, President
Exhibit A Form of Promissory Note
Exhibit B Bill of Sale
Exhibit C Financial Statements
Disclosure Schedule
Schedule 7.11 - Seller's attorney's fees and expenses
16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective as of December 31, 1999 by and among
Casino Resource Corporation, a Minnesota corporation ("CRC"),
BounceBackMedia.com, Inc., a Nevada corporation and wholly owned subsidiary of
CRC (the "Company"), and Roger Birks, an individual residing in the State of
California (the "Executive").
WHEREAS, this Agreement is entered into in connection with, and as a
condition precedent to, the purchase by the Company of substantially all of the
assets of Digital Development & Distribution, LLC, a California limited
liability company wholly owned by Executive, all as set forth in that certain
Asset Purchase Agreement dated of even date herewith (the "Asset Purchase
Agreement");
WHEREAS, following such purchase, the Company shall be engaged in the
design, manufacture, marketing and distribution of CD cards and related
products; and
WHEREAS, the Company desires to employ Executive on the terms and
subject to the conditions set forth herein, and Executive is willing to accept
such employment on such terms and conditions;
NOW THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Position and Responsibilities. On the terms and subject to the
conditions set forth in this Agreement, the Company shall employ Executive to
serve as the Chief Executive Officer of the Company. Executive shall perform,
and shall have the requisite authority to perform, all duties customarily
attendant to such position and shall use his best efforts, during reasonable
business hours, to meet the business requirements and goals set by the board of
directors of the Company. Executive shall perform the services hereunder at
Company's offices, which shall be located in the Silicon Valley region of
California, and shall do such traveling as may be reasonably required of him in
the performance of his duties. Executive shall report to the chairman of the
board of directors of the Company.
2. Term. Executive shall be employed for a two-year term commencing on
the effective date hereof ("Commencement Date"), and ending on the second
anniversary of the Commencement Date, unless sooner terminated in accordance
with the provisions of Section 5 below.
3. Compensation.
3.1 As compensation for Executive's services rendered hereunder,
Company shall pay to Executive an annual base salary of one hundred thousand
dollars ($100,000) payable in accordance with the Company's regular payroll
practices in effect from time to time. If at any time hereafter the Company
shall adopt a bonus program, an option program or any other form of equity
participation for senior executives of the Company, Executive shall be eligible
to participate in such program in a manner and capacity commensurate with his
position and duties.
3.2 As additional consideration for Executive's services
hereunder, Executive shall be entitled to the customary fringe benefits which
are afforded generally to executive employees
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of the Company. Executive shall also be entitled to participate in employee
benefit plans now or hereafter provided or made available to employees of the
Company generally, such as group medical, life and disability insurance, and
pension plans.
3.3 Executive shall be entitled to vacation time and holidays as
are provided in general to executive employees of the Company.
3.4 Upon such time that Executive establishes his residence in the
Silicon Valley region of California and for the remaining the term of this
Agreement, the Company shall pay to Executive a living allowance of $2,500 per
month.
3.5 Each payment to Executive under this Agreement shall be
reduced by any amounts required to be withheld by Company from time to time
under applicable laws and regulations then in effect.
4. Expenses. The Company shall reimburse Executive or otherwise provide
for or pay for all reasonable expenses incurred by Executive in furtherance of
or in connection with the business of the Company, as pre-authorized by the
chairman of the board of directors of the Company or pre-approved budget line
item. Executive agrees that he will furnish the Company with adequate records
and other documents for the substantiation of each such business expense.
5. Termination.
5.1 Termination by the Company for Cause. Company shall have the
right to terminate this Agreement "for cause" by giving Executive written notice
to that effect, describing in reasonable detail the reasons for such
termination. For the purpose of this Agreement, "for cause" shall mean (i)
commission by Executive of a willful act of dishonesty in the course of his
duties hereunder, (ii) conviction of Executive of a felony or other serious
crime, (iii) Executive's continued, habitual intoxication or performance under
the influence of controlled substances during working hours; (iv) any fraud,
embezzlement or misappropriation by Executive of any of the assets of the
Company, including the Confidential Information (as defined below); or (v)
significant failure by Executive to perform duties and obligations under this
Agreement (except as a result of disability or death). Termination "for cause"
shall be effective on the date specified in the notice given by the Company,
provided that no termination hereunder shall be effective unless a reasonable
period (not to exceed 30 days) following receipt by Executive of such notice
shall have lapsed and the matters which constitute or give rise to such
termination shall not have been cured or eliminated by Executive. In the event
of termination for cause, the Company shall promptly pay to Executive all
amounts earned and payable as of the effective date of termination and
reimbursement of any unpaid business expenses accrued through that date (upon
presentation of adequate documentation), and the Company shall have no further
obligation hereunder.
5.2 Termination by the Company in the event of Disability or
Death. In the event that Executive is unable by reason of physical or mental
disability from substantially performing his duties hereunder for either one
continuous period of two months or a total of four months out of any twelve
consecutive months, the Company shall have the right to terminate this Agreement
by giving Executive 30 days written notice to that effect, with the effective
date of such termination being on the 30th day following receipt of such notice
by Executive. In the event of
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Executive's death, the Company shall have the right to terminate this Agreement
effective immediately as of the date of death. In the event of termination for
disability or death, the Company shall promptly pay to Executive or his
beneficiaries all amounts earned and payable as of the effective date of
termination and reimbursement of any unpaid business expenses accrued through
that date (upon presentation of adequate documentation), and the Company shall
have no further obligation hereunder.
5.3 Termination by the Company without Cause. The Company shall have
the right to terminate this Agreement for any reason effective upon the 60th day
following delivery to Executive of notice of the Company's intent to terminate.
In the event the Company terminates this Agreement without cause, the Company
shall pay to Executive, within 60 days of the effective date of termination, all
compensation and other benefits payable to Executive under Section 3 above
through the entire remaining term of this Agreement, and shall reimburse
Executive for any unpaid business expenses accrued through the effective date of
termination, (upon presentation of adequate documentation), and the Company
shall have no further obligation hereunder.
5.4 Termination by Executive for Good Reason. Executive shall have the
right to terminate this Agreement for "good reason," by giving the Company
written notice to that effect describing in reasonable detail the reasons for
such termination. For the purpose of this Agreement, "for good reason" shall
mean (i) failure by the Company to pay any compensation by the Company to
Executive or failure to perform any other material obligation under this
Agreement; (ii) filing of any receivership or bankruptcy proceeding, voluntary
or involuntary, the subject of which is the Company; (iii) material diminishment
or alteration of Executive's duties so as to be inconsistent Executive's
position, authority or responsibilities as provided hereunder; (iv) Executive's
salary is materially diminished; or (v) CRC fails to fund the Company with a
minimum of $100,000 in working capital by February 1, 2000 or a cumulative
minimum of $500,000 in working capital by December 31, 2000. Termination "for
good reason" shall be effective on the date specified in the notice given by
Executive, provided that no termination hereunder shall be effective unless a
period of 30 days following receipt by the Company of such notice shall have
lapsed and the matters which constitute or give rise to such termination shall
not have been cured or eliminated by the Company. In the event Executive
terminates this Agreement for good reason, the Company shall pay to Executive,
within 60 days of the effective date of termination, all compensation and other
benefits payable to Executive under Section 3 above through the entire remaining
term of this Agreement, and shall reimburse Executive for any unpaid business
expenses accrued through the effective date of termination (upon presentation of
adequate documentation), and the Company shall have no further obligation
hereunder.
6. Confidential Information.
6.1 Definition. Executive hereby agrees and acknowledges that all
information and materials directly relating to the business and finances of the
Company (collectively, the "Confidential Information"), in whatever form and
whether now existing or developed or created during the period of Executive's
employment with the Company, excepting information and materials already known
or possessed by Executive as of the date hereof or obtained by Executive from
general or public sources, are proprietary to the Company and are highly
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confidential in nature. The Confidential Information includes, but is not
limited to, (i) marketing and development plans, forecasts, forecast
assumptions, forecast volumes, future plans and potential strategies of the
Company; (ii) cost objectives, pricing policies and procedures, quoting policies
and procedures, and unpublished price lists; (iii) licensing policies,
strategies and techniques; (iv) customer lists, names of past, present and
prospective customers and their representatives; (v) data and other business
information about or provided by past, present and prospective customers; (vi)
names of past, present and prospective vendors and their representatives, data
and other information about or provided by past, present and prospective
vendors; (vii) purchasing information, orders, invoices, billings, and payment
of billings; (viii) types of products, supplies, materials and services
purchased, leased, licensed and/or sold by the Company; (ix) past, present and
future research and development arrangements; (x) customer service information;
(xi) information pertaining to joint ventures, mergers and/or acquisitions;
(xii) the Company's personnel policies and procedures, the Company's personnel
files, and the compensation of officers, directors and employees of the Company;
(xiii) all other confidential business records and trade secrets of the Company;
(xiv) any and all Confidential Information not generally known to the public or
within the industries or trades in which the Company competes; and (xv) any and
all information and materials in the Company's possession or under its control
from any other person or entity which the Company is obligated to treat as
confidential or proprietary.
6.2 General Skills and Knowledge. The general skills and
experience gained by Executive during Executive's employment with the Company,
and information publicly available or generally known within the industries or
trades in which the Company competes, is not considered Confidential
Information.
6.3 Executive's Obligations as to Confidential Information.
Executive shall not at any time before or after termination of his employment
hereunder willfully use, disclose or divulge any Confidential Information or
data to any person, except (i) in connection with the discharge of Executive's
duties hereunder; (ii) with the prior written consent of the Company; or (iii)
to the extent necessary to comply with law or the valid order of a court of
competent jurisdiction, in which event Executive shall notify Company as
promptly as practicable (and, if possible, prior to making such disclosure).
Executive shall use his best efforts to prevent any such disclosure by others.
7. Covenants not to Compete or Solicit. In consideration for the
compensation paid to Executive pursuant to Section 3 above, and as a condition
to the performance by the Company of all obligations under this Agreement,
Executive agrees that during the term of this Agreement and for the period of
two years following the date of termination of this Agreement, Executive shall
not (i) within the Territory (as defined below in this Section 7), directly or
indirectly through any other person, firm or corporation compete with or be
engaged in the same business or "participate in" any other business or
organization which during such period competes with or is engaged in the same
business as the Company; (ii) solicit (or attempt to solicit) the employment,
consulting or other services of any other employee of the Company or otherwise
induce (or attempt to induce) any of such employees to leave the Company's
employment or to breach an employment agreement or understanding with the
Company; or (iii) solicit (or attempt to solicit) business patronage from or
call on any existing or prospective customer of the Company or interfere (or
attempt to interfere) with any relationship between the Company
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<PAGE>
and any of its existing or prospective customers. For the purpose of this
Section 7, "existing or prospective customers" of the Company include all
customers (A) who have purchased, or have agreed to purchase, goods or services
from the Company at any time during the two years prior to the date of
termination; or (B) with whom the Company has had discussions regarding a
prospective sale of goods and services by the Company. For the purpose of this
Section 7, the term "participate in" shall mean: directly or indirectly, for
Executive's own benefit or for, with, or through any other person, firm, or
corporation, own, manage, operate, control, loan money to, or participate in the
ownership, management, operation, or control of, or be connected as a director,
officer, employee, partner, consultant, agent, independent contractor, or
otherwise with, or acquiesce in the use of Executive's name. Notwithstanding the
foregoing, it shall not be a breach of the provisions of this Section 7 if,
during or after the term of this Agreement, Executive is a passive investor in
any publicly held entity and Executive owns 1% or less of the equity interests
therein. For the purpose of this Section 7, the "Territory" means the geographic
territory in which the Company has customers or sales during the term of this
Agreement.
7.1 Restrictive Covenants Necessary and Reasonable. Executive
agrees that the provisions of this Section 7 are necessary and reasonable to
protect the Company in the conduct of its business. If any restriction contained
in this Section 7 shall be deemed to be invalid, illegal, or unenforceable by
reason of the extent, duration or geographical scope thereof, or otherwise, then
the court making such determination shall have the right to reduce such extent,
duration, geographical scope, or other provisions hereof and in its reduced form
such restriction shall then be enforceable in the manner contemplated hereby.
7.2 Injunctive Relief. Executive, recognizing that irreparable
injury shall result to the Company in the event of Executive 's breach of the
terms and conditions of this Agreement, agrees that in the event of his breach
or threatened breach, the Company shall be entitled to injunctive relief
restraining Executive, and any and all persons or entities acting for or with
him, from such breach or threatened breach. Nothing herein contained, however,
shall be construed as prohibiting the Company from pursuing any other remedies
available to it by reason of such breach or threatened breach.
8. Ideas and Inventions. Executive agrees that all right, title and
interest in or to any and all Inventions are the property of the Company. For
the purposes of this Agreement, "Inventions" shall mean all ideas, concepts,
know-how, techniques, processes, methods, inventions, discoveries, developments,
innovations and improvements (i) conceived or made by Executive, whether alone
or with others, in the course of Executive's employment by the Company, or (ii)
conceived or made by Executive, whether alone or with others, in the course of
Executive's employment, but which reach fruition within the period from the date
of termination of Executive's employment through the second anniversary of such
date, and which either (A) involve or are reasonably related to the business of
the Company or to the Company's actual or demonstrably anticipated research or
development; or (B) incorporate or are derived from, in whole or in part, any of
the Confidential Information. Executive agrees to promptly disclose all
Inventions to the Company, and to provide all assistance reasonably requested by
the Company in the preservation of its interests in the Inventions, such as by
executing documents, testifying, etc. Executive agrees to execute, acknowledge
and deliver any instruments confirming the complete ownership by the Company of
such Inventions. Such assistance shall be provided at the Company's expense
without any additional compensation to Executive.
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<PAGE>
9. Issuance of Options.
9.1 Issuance. For the purpose of inducing Executive to enter into
this Agreement and the Asset Purchase Agreement, CRC agrees to issue options to
purchase an aggregate of 1,000,000 shares of CRC common stock at an exercise
price of seventeen cents per share (the "Options"). The Options shall be issued
to such employees of the Company as determined by Executive, provided that no
more than 820,000 of the Options shall be issued to Executive. The Options shall
vest and become exercisable as follows: (i) if, as of January 1, 2001, the
Company had revenues for the year ending December 31, 2000 of at least
$2,000,000, then one-third (and only one-third) of the outstanding Options shall
immediately vest and become exercisable; and (ii) if, as of January 1, 2002, the
Company had cumulative revenues for the two years ending December 31, 2001 of at
least $4,000,000, then an additional one-third (and only one-third) of the
outstanding Options shall immediately vest and become exercisable.
Notwithstanding anything herein to the contrary, all unvested Options shall
immediately vest and become exercisable in the event that the Company achieves,
at any time prior to December 31, 2002, cumulative revenues of at least
$8,000,000. Notwithstanding anything herein to the contrary, (A) upon the
termination of this Agreement due to Executive's death, all unvested Options
held by Executive (but not any other holder of the Options) shall immediately
vest and become exercisable; and (B) upon the termination of this Agreement
under Section 5.3 or Section 5.4 above, the unvested Options held by Executive
shall vest and become exercisable (if at all) in accordance with the provisions
set forth above in this Section 9.1. Except as expressly provided otherwise
herein, any unvested Options shall be terminated and canceled upon such time
that the employee to whom such Options were issued ceases to be employed by the
Company. The Options shall be evidenced by separate Option Issuance Agreements,
in the form adopted for such purpose by the Company's board of directors, which
shall be executed and delivered by the Company as soon as practicable following
the date hereof.
9.2 Registration Rights. Within six months following the first
date on which any of the Options shall vest and become exercisable in accordance
with Section 9.1 above, CRC shall, at its own expense, file a registration
statement with the Securities and Exchange Commission (the "SEC") for the
purpose of registering under the Securties Act of 1933 all of the shares of CRC
common stock underlying the vested and unvested Options (the "Option Shares")
and shall use its best efforts to cause such registration statement to be
declared effective by the SEC. CRC's obligation to register the Option Shares
shall be subject to (i) a pending material financing, acquisition or disposition
transaction by CRC and (ii) any such reasonable requirements that CRC's
underwriter may make in connection with a public offering by CRC. The
registration rights described in this Section 9.2 shall be more fully set forth
in separate Registration Rights Agreements, in the form adopted for such purpose
by the Company's board of directors, which shall be executed and delivered by
the Company as soon as practicable following the date hereof.
10. CRC Guarantee. CRC hereby guarantees the Company's performance
pursuant to this Agreement.
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11. Miscellaneous.
11.1 Amendments. No amendment or modification of this Agreement
shall be valid or binding unless made in writing and signed by the party against
whom enforcement thereof is sought.
11.2 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any party hereto by any other party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the party to be notified, or in lieu of such personal
delivery, when confirmed as received if delivered by United States registered or
certified mail, return receipt requested, or when confirmed as received if
delivered by a nationally-recognized overnight courier service, addressed to the
to the party to be notified, at the addresses set forth below. Either of the
parties hereto may at any time and from time to time change the address to which
notice shall be sent hereunder by notice to the other party given under this
Section.
If to Executive to: Mr. Roger Birks
8139 North Orchard
Fresno, CA 93720
With a copy to: A. Emory Wishon III, Esq.
Motschiedler, Michaelides & Wishon LLP
1690 West Shaw Avenue, Suite 200
Fresno, CA 93711
If to the Company or
CRC to: 707 Bienville Blvd.
Ocean Springs, MS 39564
With a copy to : Robert P. Krauss, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103-7598
11.3 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 had 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.
11.4 Waivers. No waiver of any default or breach of this Agreement
shall be deemed a continuing waiver or a waiver of any other breach or default.
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11.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada without regard to
principles of conflicts of law.
11.6 Assignment. Executive may not assign any rights (other than
the right to receive income hereunder and upon death to his estate) under this
Agreement without the prior written consent of Company. If Company, or any
entity resulting from any merger or consolidation with or into Company, is
merged with or consolidated into or with any other entity or entities, or if
substantially all of the assets of any of the aforementioned entities is sold or
otherwise transferred to another entity, the provisions of this Agreement shall
be binding upon and shall inure to the benefit of the continuing entity in, or
the entity resulting from, such merger or consolidation, or the entity to which
such assets are sold or transferred.
11.7 Entire Agreement. This Agreement constitutes the sole and
only agreement of the parties hereto respecting the subject matter hereof. Any
prior agreements, promises, negotiations, or representations concerning its
subject matter not expressly set forth in this Agreement, are of no force or
effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BounceBackMedia.com, Inc. Executive
by: __________________________ __________________________
John J. Pilger, President Roger Birks
Casino Resource Corporation
by: __________________________
John J. Pilger, President
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective as of December 31, 1999 by and among
Casino Resource Corporation, a Minnesota corporation ("CRC"),
BounceBackMedia.com, Inc., a Nevada corporation and wholly owned subsidiary of
CRC (the "Company"), and Ricardo Gonzalez, an individual residing in the State
of California (the "Executive").
WHEREAS, the Company is engaged in the design, manufacture, marketing
and distribution of CD cards and related products; and
WHEREAS, the Company desires to employ Executive on the terms and
subject to the conditions set forth herein, and Executive is willing to accept
such employment on such terms and conditions;
NOW THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Position and Responsibilities. On the terms and subject to the
conditions set forth in this Agreement, the Company shall employ Executive to
serve as the Vice President of Technology of the Company. Executive shall
perform, and shall have the requisite authority to perform, all duties
customarily attendant to such position and shall use his best efforts, during
reasonable business hours, to meet the business requirements and goals set by
the Chief Executive Officer of the Company. Executive shall perform the services
hereunder at Company's offices, which shall be located in the Silicon Valley
region of California, and shall do such traveling as may be reasonably required
of him in the performance of his duties. Executive shall report directly to the
Chief Executive Officer of the Company.
2. Term. Executive shall be employed for a one-year term commencing on
_____________________ ("Commencement Date"), and ending on the first anniversary
of the Commencement Date, unless sooner terminated in accordance with the
provisions of Section 5 below.
3. Compensation.
3.1 As compensation for Executive's services rendered hereunder,
Company shall pay to Executive an annual base salary of eighty thousand dollars
($80,000) payable in accordance with the Company's regular payroll practices in
effect from time to time. If at any time hereafter the Company shall adopt a
bonus program, an option program or any other form of equity participation for
senior executives of the Company, Executive shall be eligible to participate in
such program in a manner and capacity commensurate with his position and duties.
3.2 As additional consideration for Executive's services
hereunder, Executive shall be entitled to participate in employee benefit plans
now or hereafter provided or made available to employees of the Company
generally, such as group medical, life and disability insurance.
3.3 Executive shall be entitled to vacation time and holidays as
are provided in general to executive employees of the Company.
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3.4 Each payment to Executive under this Agreement shall be
reduced by any amounts required to be withheld by Company from time to time
under applicable laws and regulations then in effect.
4. Expenses. The Company shall reimburse Executive or otherwise provide
for or pay for all reasonable expenses incurred by Executive in furtherance of
or in connection with the business of the Company, as pre-authorized by the
Chief Executive Officer of the Company or pre-approved budget line item.
Executive agrees that he will furnish the Company with adequate records and
other documents for the substantiation of each such business expense.
5. Termination.
5.1 Termination by the Company for Cause. Company shall have the
right to terminate this Agreement "for cause" by giving Executive written notice
to that effect, describing in reasonable detail the reasons for such
termination. For the purpose of this Agreement, "for cause" shall mean (i)
commission by Executive of a willful act of dishonesty in the course of his
duties hereunder, (ii) conviction of Executive of a felony or other serious
crime, (iii) Executive's continued, habitual intoxication or performance under
the influence of controlled substances during working hours; (iv) any fraud,
embezzlement or misappropriation by Executive of any of the assets of the
Company, including the Confidential Information (as defined below); or (v)
significant failure by Executive to perform duties and obligations under this
Agreement (except as a result of disability or death). Termination "for cause"
shall be effective on the date specified in the notice given by the Company,
provided that no termination hereunder shall be effective unless a reasonable
period (not to exceed 30 days) following receipt by Executive of such notice
shall have lapsed and the matters which constitute or give rise to such
termination shall not have been cured or eliminated by Executive. In the event
of termination for cause, the Company shall promptly pay to Executive all
amounts earned and payable as of the effective date of termination and
reimbursement of any unpaid business expenses accrued through that date (upon
presentation of adequate documentation), and the Company shall have no further
obligation hereunder.
5.2 Termination by the Company in the event of Disability or
Death. In the event that Executive is unable by reason of physical or mental
disability from substantially performing his duties hereunder for either one
continuous period of one month or a total of three months out of any twelve
consecutive months, the Company shall have the right to terminate this Agreement
by giving Executive 15 days written notice to that effect, with the effective
date of such termination being on the 15th day following receipt of such notice
by Executive. In the event of Executive's death, the Company shall have the
right to terminate this Agreement effective immediately as of the date of death.
In the event of termination for disability or death, the Company shall promptly
pay to Executive or his beneficiaries all amounts earned and payable as of the
effective date of termination and reimbursement of any unpaid business expenses
accrued through that date (upon presentation of adequate documentation), and the
Company shall have no further obligation hereunder.
5.3 Termination by the Company without Cause. The Company shall
have the right to terminate this Agreement for any reason effective upon the
60th day following delivery to Executive of notice of the Company's intent to
terminate. In the event the Company terminates this Agreement without cause, the
Company shall pay to Executive, within 60 days of the
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effective date of termination, all compensation and other benefits payable to
Executive under Section 3 above through the entire remaining term of this
Agreement, and shall reimburse Executive for any unpaid business expenses
accrued through the effective date of termination, (upon presentation of
adequate documentation), and the Company shall have no further obligation
hereunder.
6. Confidential Information.
6.1 Definition. Executive hereby agrees and acknowledges that all
information and materials directly relating to the business and finances of the
Company (collectively, the "Confidential Information"), in whatever form and
whether now existing or developed or created during the period of Executive's
employment with the Company, excepting information and materials already known
or possessed by Executive as of the date hereof or obtained by Executive from
general or public sources, are proprietary to the Company and are highly
confidential in nature. The Confidential Information includes, but is not
limited to, (i) marketing and development plans, forecasts, forecast
assumptions, forecast volumes, future plans and potential strategies of the
Company; (ii) cost objectives, pricing policies and procedures, quoting policies
and procedures, and unpublished price lists; (iii) licensing policies,
strategies and techniques; (iv) customer lists, names of past, present and
prospective customers and their representatives; (v) data and other business
information about or provided by past, present and prospective customers; (vi)
names of past, present and prospective vendors and their representatives, data
and other information about or provided by past, present and prospective
vendors; (vii) purchasing information, orders, invoices, billings, and payment
of billings; (viii) types of products, supplies, materials and services
purchased, leased, licensed and/or sold by the Company; (ix) past, present and
future research and development arrangements; (x) customer service information;
(xi) information pertaining to joint ventures, mergers and/or acquisitions;
(xii) the Company's personnel policies and procedures, the Company's personnel
files, and the compensation of officers, directors and employees of the Company;
(xiii) all other confidential business records and trade secrets of the Company;
(xiv) any and all Confidential Information not generally known to the public or
within the industries or trades in which the Company competes; and (xv) any and
all information and materials in the Company's possession or under its control
from any other person or entity which the Company is obligated to treat as
confidential or proprietary.
6.2 General Skills and Knowledge. The general skills and
experience gained by Executive during Executive's employment with the Company,
and information publicly available or generally known within the industries or
trades in which the Company competes, is not considered Confidential
Information.
6.3 Executive's Obligations as to Confidential Information.
Executive shall not at any time before or after termination of his employment
hereunder willfully use, disclose or divulge any Confidential Information or
data to any person, except (i) in connection with the discharge of Executive's
duties hereunder; (ii) with the prior written consent of the Company; or (iii)
to the extent necessary to comply with law or the valid order of a court of
competent jurisdiction, in which event Executive shall notify Company as
promptly as practicable (and, if possible, prior to making such disclosure).
Executive shall use his best efforts to prevent any such disclosure by others.
3
<PAGE>
7. Covenants not to Compete or Solicit. In consideration for the
compensation paid to Executive pursuant to Section 3 above, and as a condition
to the performance by the Company of all obligations under this Agreement,
Executive agrees that during the term of this Agreement and for the period of
one year following the date of termination of this Agreement, Executive shall
not (i) within the Territory (as defined below in this Section 7), directly or
indirectly through any other person, firm or corporation compete with or be
engaged in the same business or "participate in" any other business or
organization which during such period competes with or is engaged in the same
business as the Company; (ii) solicit (or attempt to solicit) the employment,
consulting or other services of any other employee of the Company or otherwise
induce (or attempt to induce) any of such employees to leave the Company's
employment or to breach an employment agreement or understanding with the
Company; or (iii) solicit (or attempt to solicit) business patronage from or
call on any existing or prospective customer of the Company or interfere (or
attempt to interfere) with any relationship between the Company and any of its
existing or prospective customers. For the purpose of this Section 7, "existing
or prospective customers" of the Company include all customers (A) who have
purchased, or have agreed to purchase, goods or services from the Company at any
time during the two years prior to the date of termination; or (B) with whom the
Company has had discussions regarding a prospective sale of goods and services
by the Company. For the purpose of this Section 7, the term "participate in"
shall mean: directly or indirectly, for Executive's own benefit or for, with, or
through any other person, firm, or corporation, own, manage, operate, control,
loan money to, or participate in the ownership, management, operation, or
control of, or be connected as a director, officer, employee, partner,
consultant, agent, independent contractor, or otherwise with, or acquiesce in
the use of Executive's name. Notwithstanding the foregoing, it shall not be a
breach of the provisions of this Section 7 if, during or after the term of this
Agreement, Executive is a passive investor in any publicly held entity and
Executive owns 1% or less of the equity interests therein. For the purpose of
this Section 7, the "Territory" means the geographic territory in which the
Company has customers or sales during the term of this Agreement.
7.1 Restrictive Covenants Necessary and Reasonable. Executive
agrees that the provisions of this Section 7 are necessary and reasonable to
protect the Company in the conduct of its business. If any restriction contained
in this Section 7 shall be deemed to be invalid, illegal, or unenforceable by
reason of the extent, duration or geographical scope thereof, or otherwise, then
the court making such determination shall have the right to reduce such extent,
duration, geographical scope, or other provisions hereof and in its reduced form
such restriction shall then be enforceable in the manner contemplated hereby.
7.2 Injunctive Relief. Executive, recognizing that irreparable
injury shall result to the Company in the event of Executive 's breach of the
terms and conditions of this Agreement, agrees that in the event of his breach
or threatened breach, the Company shall be entitled to injunctive relief
restraining Executive, and any and all persons or entities acting for or with
him, from such breach or threatened breach. Nothing herein contained, however,
shall be construed as prohibiting the Company from pursuing any other remedies
available to it by reason of such breach or threatened breach.
8. Ideas and Inventions. Executive agrees that all right, title and
interest in or to any and all Inventions are the property of the Company. For
the purposes of this Agreement, "Inventions" shall mean all ideas, concepts,
know-how, techniques, processes, methods,
4
<PAGE>
inventions, discoveries, developments, innovations and improvements (i)
conceived or made by Executive, whether alone or with others, in the course of
Executive's employment by the Company, or (ii) conceived or made by Executive,
whether alone or with others, in the course of Executive's employment, but which
reach fruition within the period from the date of termination of Executive's
employment through the second anniversary of such date, and which either (A)
involve or are reasonably related to the business of the Company or to the
Company's actual or demonstrably anticipated research or development; or (B)
incorporate or are derived from, in whole or in part, any of the Confidential
Information. Executive agrees to promptly disclose all Inventions to the
Company, and to provide all assistance reasonably requested by the Company in
the preservation of its interests in the Inventions, such as by executing
documents, testifying, etc. Executive agrees to execute, acknowledge and deliver
any instruments confirming the complete ownership by the Company of such
Inventions. Such assistance shall be provided at the Company's expense without
any additional compensation to Executive.
9. Issuance of Options.
9.1 Issuance. For the purpose of inducing Executive to enter into
this Agreement, CRC agrees to issue to Executive options to purchase an
aggregate of 50,000 shares of CRC common stock at an exercise price of seventeen
cents per share (the "Options"). The Options shall vest and become exercisable
as follows: (i) if, as of January 1, 2001, the Company had revenues for the year
ending December 31, 2000 of at least $2,000,000, then one-third (and only
one-third) of the outstanding Options shall immediately vest and become
exercisable; and (ii) if, as of January 1, 2002, the Company had cumulative
revenues for the two years ending December 31, 2001 of at least $4,000,000, then
an additional one-third (and only one-third) of the outstanding Options shall
immediately vest and become exercisable. Notwithstanding anything herein to the
contrary, all unvested Options shall immediately vest and become exercisable in
the event that the Company achieves, at any time prior to December 31, 2002,
cumulative revenues of at least $8,000,000. Any unvested Options shall be
terminated and canceled upon such time that Executive ceases to be employed by
the Company. The Options shall be evidenced by separate Option Issuance
Agreements, in the form adopted for such purpose by the Company's board of
directors, which shall be executed and delivered by the Company as soon as
practicable following the date hereof.
9.2 Registration Rights. Within six months following the first
date on which any of the Options shall vest and become exercisable in accordance
with Section 9.1 above, CRC shall, at its own expense, file a registration
statement with the Securities and Exchange Commission (the "SEC") for the
purpose of registering under the Securties Act of 1933 all of the shares of CRC
common stock underlying the vested and unvested Options (the "Option Shares")
and shall use its best efforts to cause such registration statement to be
declared effective by the SEC. CRC's obligation to register the Option Shares
shall be subject to (i) a pending material financing, acquisition or disposition
transaction by CRC and (ii) any such reasonable requirements that CRC's
underwriter may make in connection with a public offering by CRC. The
registration rights described in this Section 9.2 shall be more fully set forth
in separate Registration Rights Agreements, in the form adopted for such purpose
by the Company's board of directors, which shall be executed and delivered by
the Company as soon as practicable following the date hereof.
5
<PAGE>
10. CRC Guarantee. CRC hereby guarantees the Company's performance
pursuant to this Agreement.
11. Miscellaneous.
11.1 Amendments. No amendment or modification of this Agreement
shall be valid or binding unless made in writing and signed by the party against
whom enforcement thereof is sought.
11.2 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any party hereto by any other party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the party to be notified, or in lieu of such personal
delivery, when confirmed as received if delivered by United States registered or
certified mail, return receipt requested, or when confirmed as received if
delivered by a nationally-recognized overnight courier service, addressed to the
to the party to be notified, at the addresses set forth below. Either of the
parties hereto may at any time and from time to time change the address to which
notice shall be sent hereunder by notice to the other party given under this
Section.
If to Executive to: Mr. Ricardo Gonzalez
With a copy to:
If to the Company or
CRC to: 707 Bienville Blvd.
Ocean Springs, MS 39564
With a copy to : Robert P. Krauss, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103-7598
11.3 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 had 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.
11.4 Waivers. No waiver of any default or breach of this Agreement
shall be deemed a continuing waiver or a waiver of any other breach or default.
11.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nevada without regard to principles
of conflicts of law.
6
<PAGE>
11.6 Assignment. Executive may not assign any rights (other than the
right to receive income hereunder and upon death to his estate) under this
Agreement without the prior written consent of Company. If Company, or any
entity resulting from any merger or consolidation with or into Company, is
merged with or consolidated into or with any other entity or entities, or if
substantially all of the assets of any of the aforementioned entities is sold or
otherwise transferred to another entity, the provisions of this Agreement shall
be binding upon and shall inure to the benefit of the continuing entity in, or
the entity resulting from, such merger or consolidation, or the entity to which
such assets are sold or transferred.
11.7 Entire Agreement. This Agreement constitutes the sole and only
agreement of the parties hereto respecting the subject matter hereof. Any prior
agreements, promises, negotiations, or representations concerning its subject
matter not expressly set forth in this Agreement, are of no force or effect.
[ REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK ]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BounceBackMedia.com, Inc. Executive
by: __________________________ __________________________
John J. Pilger, President Ricardo Gonzalez
Casino Resource Corporation
by: __________________________
John J. Pilger, President
8
Consent of Independent
Certified Public Accountants
Casino Resource Corporation
Ocean Springs, Mississippi
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated November
6, 1999, except for the second paragraph of Note 11(a) and Note 18 which are as
of January 3, 2000, relating to the consolidated financial statements of Casino
Resource Corporation appearing in the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Chicago, Illinois BDO SEIDMAN, LLP
January 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000899778
<NAME> CASINO RESOURCE CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,658,435
<SECURITIES> 0
<RECEIVABLES> 272,095
<ALLOWANCES> 0
<INVENTORY> 33,834
<CURRENT-ASSETS> 3,615,850
<PP&E> 1,085,483
<DEPRECIATION> 498,845
<TOTAL-ASSETS> 5,141,510
<CURRENT-LIABILITIES> 2,470,461
<BONDS> 0
0
0
<COMMON> 104,319
<OTHER-SE> (857,648)
<TOTAL-LIABILITY-AND-EQUITY> 5,141,510
<SALES> 8,228,220
<TOTAL-REVENUES> 8,228,220
<CGS> 6,266,329
<TOTAL-COSTS> 9,038,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 532,785
<INTEREST-EXPENSE> 614,408
<INCOME-PRETAX> (1,908,625)
<INCOME-TAX> (2,000,000)
<INCOME-CONTINUING> (3,908,625)
<DISCONTINUED> (1,587,648)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,496,273)
<EPS-BASIC> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
