<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1999.
REGISTRATION NO. 333-77737
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
---------------------
LEISURE TIME CASINOS & RESORTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7980 34-1763271
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
4258 COMMUNICATIONS DRIVE
NORCROSS, GEORGIA 30093
(770) 923-9900
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
ALAN N. JOHNSON
4258 COMMUNICATIONS DRIVE
NORCROSS, GEORGIA 30093
(770) 923-9900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With Copies to:
<TABLE>
<S> <C>
THOMAS S. SMITH, ESQ. ROBERT W. WALTER, ESQ.
KEVIN J. KANOUFF, ESQ. BERLINER ZISSER WALTER & GALLEGOS, P.C.
SMITH MCCULLOUGH, P.C. 1700 LINCOLN STREET
4643 SOUTH ULSTER STREET, SUITE 900 SUITE 4700
DENVER, COLORADO 80237 DENVER, COLORADO 80203
(303) 221-6000 (303) 830-1700
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
following the date on which the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock............................... 1,265,000 shares(2) $13.00 $16,445,000 $4,572.00
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Representative's Warrants(3)............... 1 Warrant $ -- $ 100 $ 1.00
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Common Stock Underlying Representative's
Warrants................................. 110,000 shares(4)(5) $15.60 $ 1,716,000 $ 478.00
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Total............................. $18,161,100 $5,050.00
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</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.
(2) Includes 165,000 shares that the underwriters have the option to purchase
from the registrant to cover over allotments, if any.
(3) To be issued to the representative of the underwriters.
(4) In accordance with Rule 416 under the Securities Act of 1933, as amended, a
presently indeterminable number of shares of common stock are registered
hereunder which may be issued in the event provisions preventing dilution
become operative, as provided in the representative's warrants. No
additional registration fee has been paid for these shares of common stock.
(5) Issuable upon exercise of the representative's warrants for the purchase of
common stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
Leisure Time will amend and complete the information in this prospectus.
Although Leisure Time is permitted by US federal securities laws to offer these
securities using this prospectus, Leisure Time may not sell them or accept an
offer to buy them until the registration statement filed with the Commission
relating to these securities has been declared effective by the Commission. This
prospectus is not an offer to sell these securities or Leisure Time's
solicitation of an offer to buy these securities in any jurisdiction where that
would not be permitted or legal.
SUBJECT TO COMPLETION, DATED JULY 22, 1999
PROSPECTUS
1,100,000 SHARES OF COMMON STOCK
[LEISURE TIME LOGO]
This is an initial public offering of shares of common stock of Leisure
Time Casinos & Resorts, Inc. Leisure Time expects that the public offering price
of the common stock will be between $11.00 and $13.00 per share.
Leisure Time principally develops, manufactures and sells programmable
touchscreen video gaming machines. In addition, Leisure Time operates an
offshore gaming vessel and a gaming machine route and is renovating a hotel
property that Leisure Time anticipates will include space where Leisure Time
will be able to display its video pulltab and bingo machines for marketing to
charities. Leisure Time plans to list the common stock on the Nasdaq National
Market(R) under the symbol "LTCR."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
<TABLE>
<CAPTION>
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PER SHARE TOTAL
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<S> <C> <C>
Public offering price................................ $ $
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Underwriting discounts............................... $ $
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Proceeds to Leisure Time............................. $ $
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</TABLE>
The underwriters have a 45 day option to purchase up to an additional
165,000 shares from Leisure Time to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The underwriters expect to deliver the common stock on .
SCHNEIDER SECURITIES, INC.
, 1999
<PAGE> 3
INSIDE FRONT COVER
Excellence
in
gaming software development
Leisure Time Casinos & Resorts(TM) takes pride in our imagination and state of
the art technology.
These factors enable us to design software that pushes our competition to the
edge.
[PHOTOS OF GAMES AND LOGOS]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Forward Looking Statements.................................. 13
Use of Proceeds............................................. 13
Dividend Policy............................................. 14
Dilution.................................................... 14
Capitalization.............................................. 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 29
Management.................................................. 63
Security Ownership of Certain Beneficial Owners and
Management................................................ 73
Description of Securities................................... 75
Shares Eligible for Future Sale............................. 76
Underwriting................................................ 77
Legal Matters............................................... 78
Experts..................................................... 79
Index to Financial Statements............................... F-1
</TABLE>
UNLESS OTHERWISE STATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE OVERALLOTMENT OPTION BY THE UNDERWRITERS.
<PAGE> 5
PROSPECTUS SUMMARY
Please refer to the Business section for a diagram that will help you
better understand Leisure Time and its related companies. This summary
highlights information contained elsewhere in this prospectus. This summary does
not contain all of the information that you should consider before investing in
the common stock.
Leisure Time. Leisure Time principally develops, manufactures and sells
programmable touch screen video gaming machines that offer players a choice of
up to 12 different games of chance on one machine. Leisure Time's proprietary
software features various well known games such as:
- poker;
- blackjack;
- keno;
- slots; and
- bingo
as well as other games developed by Leisure Time. Each machine is programmed by
Leisure Time prior to delivery with from one to 12 games selected by the
location operator from a menu of approximately 50 games with multiple payout
options. Since its acquisition of its video gaming machine manufacturing
operations in September 1996, Leisure Time has:
- successfully expanded its installed base of video gaming machines;
- introduced software upgrades designed to enhance player appeal and
engender operator loyalty; and
- increased recurring revenue through the sale of new and upgraded game
software.
The video gaming machines manufactured by Leisure Time are used in:
- retail locations such as taverns, restaurants, supermarkets, drug stores
and convenience stores;
- small and medium sized casinos operated by Native American tribes;
- smaller casinos with limited floor space; and
- gaming arcades and bingo halls.
In addition to seeking recurring revenue from software upgrades on a
growing base of installed video gaming machines, Leisure Time has recently
implemented strategies designed to enhance recurring revenue through:
- the sale of video pulltab machines and the refillable, replaceable
pulltab cartridges used in the machines;
- purchase and operation of a "cruise to nowhere" vessel out of Gloucester,
Massachusetts that offers a range of gaming activities in international
waters, including Leisure Time's video gaming machines, table games and
traditional "slot" games;
- acquisition of a multiple retail location base of video gaming machines
that Leisure Time will own and operate or provide to third parties on a
revenue sharing basis, known as a gaming route;
- acquisition of a hotel now undergoing renovation that is next to Lake
Erie in Cleveland, Ohio and that Leisure Time plans will include space
where Leisure Time will be able to display its video pulltab and bingo
machines for marketing to charities; and
- acquisition of a finance company to finance purchases of video gaming
machines from Leisure Time.
1
<PAGE> 6
Strategy. Leisure Time's objectives are to be a leading provider of video
gaming, pulltab and bingo products and related software and to expand its gaming
operations to increase recurring revenue. Key strategies to achieve Leisure
Time's objectives include to:
- increase the installed base of Pot O Gold and Pulltab Gold product lines;
- leverage growth in installed products to increase recurring revenue from
software sales;
- continue to identify and develop new touchscreen video games and game
enhancements;
- increase revenue through addition of gaming vessels and passengers;
- expand gaming machine route operations;
- promote acceptance and use of video pulltab and bingo products; and
- selectively explore domestic acquisition opportunities and international
expansion.
Factors that could impact Leisure Time attaining its objectives include:
- the possible discontinuance of gaming in South Carolina;
- a decrease in popularity of Leisure Time's video gaming machines;
- technological innovations in video gaming machines;
- competition;
- increased regulation of the gaming industry;
- availability of financing; and
- adverse outcome of pending lawsuits.
2
<PAGE> 7
Financial Performance. The following tables represent total revenue, total
gross profit, net income (loss) before income taxes, and the net income (loss)
for Leisure Time Technology (predecessor) for the years ended June 30, 1994,
1995 and 1996. In September 1996 Leisure Time commenced operations by acquiring
Leisure Time Technology. The same information is presented for Leisure Time for
the fiscal years ended June 30, 1997 and 1998 and for the nine months ended
March 31, 1999:
[TOTAL REVENUE GRAPH] [TOTAL GROSS PROFIT GRAPH]
This bar graph shows Leisure Time's This bar graph shows Leisure Time's
total revenues by year and for the total gross profit by year and for
nine months. The figures range from the nine months. The figures range
$15.5 million to $45.1 million. from $6.8 million to $22.6 million.
[NET INCOME BEFORE INCOME TAXES [NET INCOME (LOSS) GRAPH]
GRAPH]
This bar graph shows Leisure Time's This bar graph shows Leisure Time's
net income from operations before net income (loss) by year and for
income taxes by year and for the nine the nine months. The figures range
months. The figures range from from $.2 million to $3.2 million
$.3 million to $5.2 million except for except for 1998 which shows a loss
1998 which shows a loss of $1.4 million. of $1.1 million.
Leisure Time's principal executive offices are located at 4258
Communications Drive, Norcross, Georgia 30093. Leisure Time's telephone number
is (770) 923-9900 and its facsimile number is (770) 923-3344.
Leisure Time has a website on the World Wide Web at www.leisuretime
casinos.com. Leisure Time's website is not intended to be and should not be
considered a part of this prospectus.
THE OFFERING
Securities offered......... 1,100,000 shares of common stock
Shares of common stock to
be outstanding after the
offering................. 6,271,829 shares
In addition to the 6,271,829 shares of common stock outstanding after the
offering, Leisure Time may issue 5,536,423 shares of common stock on exercise of
currently outstanding options and warrants.
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for Leisure Time's
business for the years ended June 30, 1997 and 1998, and for the nine months
ended March 31, 1998 and 1999. As Leisure Time Technology is considered a
predecessor, similar information is presented for Leisure Time Technology for
the years ending June 30, 1994, 1995 and 1996 and for the period July 1, 1996 to
September 13, 1996. Leisure Time Technology was acquired on September 13, 1996.
Leisure Time Financial was not acquired until April 1, 1999. Florida Casino
Cruises was not acquired until May 4, 1999.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LEISURE TIME TECHNOLOGY
(F/K/A U.S. GAMES, INC.)(1)
-------------------------------------------------
JULY 1, 1996
FOR THE YEAR ENDED JUNE 30, TO
------------------------------ SEPTEMBER 13,
1994 1995 1996 1996
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Revenue.................... $ 15,494 $ 22,393 $ 28,291 $ 2,671
Cost of goods sold......... 8,657 12,429 15,677 1,300
Gross profit............... 6,837 9,964 12,614 1,371
Operating expenses......... 4,612 6,322 9,158 2,997
Net income (loss) before
income taxes............. 2,225 3,642 3,456 (1,626)
Income tax benefit
(expense)................ (811) (1,343) (1,293) 554
-------- -------- -------- --------
Net income (loss).......... $ 1,414 $ 2,299 $ 2,163 $ (1,072)
======== ======== ======== ========
Earnings (loss) per common
share -- basic........... $ 2.05 $ 3.34 $ 3.14 $ (1.56)
======== ======== ======== ========
Earnings (loss) per common
share -- diluted......... $ 2.05 $ 3.34 $ 3.14 $ (1.56)
======== ======== ======== ========
Weighted average number of
common shares
outstanding -- basic..... 688,850 688,850 688,850 688,850
======== ======== ======== ========
Weighted average number of
common shares
outstanding -- diluted... 688,850 688,850 688,850 688,850
======== ======== ======== ========
<CAPTION>
LEISURE TIME
CASINOS & RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------------
FOR THE FOR THE
YEAR YEAR FOR THE NINE MONTHS
ENDED ENDED ENDED MARCH 31,
JUNE 30, JUNE 30, -----------------------
1997 1998 1998 1999
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenue.................... $ 29,838 $ 28,643 $ 22,268 $ 45,056
Cost of goods sold......... 16,616 16,517 12,377 22,475
Gross profit............... 13,222 12,126 9,891 22,581
Operating expenses......... 6,796 13,252 8,459 17,369
Net income (loss) before
income taxes............. 6,426 (1,126) 1,432 5,212
Income tax benefit
(expense)................ (1,738) 197 (629) (1,975)
---------- ---------- ---------- ----------
Net income (loss).......... $ 4,688 $ (929) $ 803 $ 3,237
========== ========== ========== ==========
Earnings (loss) per common
share -- basic........... $ 1.08 $ (.21) $ .18 $ .69
========== ========== ========== ==========
Earnings (loss) per common
share -- diluted......... $ .65 $ (.21) $ .08 $ .42
========== ========== ========== ==========
Weighted average number of
common shares
outstanding -- basic..... 4,343,397 4,516,528 4,505,380 4,663,648
========== ========== ========== ==========
Weighted average number of
common shares
outstanding -- diluted... 7,664,903 4,516,528 9,839,303 7,726,386
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Represents the financial results of U.S. Games, Inc. a "Predecessor" to the
Company acquired by Leisure Time Casinos on September 13, 1996.
The following table sets forth a summary of Leisure Time's balance sheet as
of March 31, 1999.
The as adjusted column reflects:
- Leisure Time's receipt of the estimated net proceeds from the sale of
1,100,000 shares of common stock at an assumed initial public offering
price of $12.00 per share, after deducting underwriting discounts and
estimated underwriting expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
JUNE 30, 1998 ACTUAL AS ADJUSTED
------------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 888 $ 2,540 $13,788
Working capital (deficit).................................. (3,891) (313) 10,935
Total assets............................................... 22,413 29,840 41,088
Long-term liabilities...................................... 9,186 11,226 11,226
Total stockholders' equity................................. 3,706 8,611 19,859
Total liabilities and stockholders' equity................. 22,413 29,840 41,088
</TABLE>
4
<PAGE> 9
The foregoing table does not give effect to:
- 200,000 shares of common stock and warrants to purchase 400,000 shares of
common stock issued after March 31, 1999, upon the conversion of $250,000
of debt;
- 6,998 shares of common stock issued after March 31, 1999, upon the
conversion of approximately $17,500 of debt;
- 49,996 shares of common stock issued for approximately $265,000 after
March 31, 1999, upon the exercises of an option and warrants;
- 2,000 shares of common stock and warrants issued after March 31, 1999,
for $20,000;
- 100,000 shares of common stock and an option issued after March 31, 1999,
in connection with the acquisition of Leisure Time Financial;
- 80,000 shares of common stock and warrants issued after March 31, 1999,
in connection with the acquisition of Florida Casino Cruises;
- 5,536,423 shares of common stock issuable on exercise of outstanding
options and warrants; and
- 110,000 shares of common stock issuable on exercise of the
representative's warrants.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER
DATA:
Cash flow (used in) provided by operating
activities..................................... $ (629) $ 7,379 $ 2,592 $ 3,684 $ 5,710
Cash flow used by investing activities........... (292) (6,862) (3,097) (3,585) (4,024)
Cash flow provided by (used in) financing
activities..................................... 904 570 304 302 (34)
EBITDA (loss).................................... (1,329) 8,523 1,578 3,257 8,793
</TABLE>
"EBITDA" reflects net income or loss plus depreciation, amortization and
net interest expense, income taxes and stock based compensation expense, if any.
EBITDA is a measure used by analysts and investors as an indicator of operating
cash flow because it excludes the impact of movements in working capital items,
non-cash charges and financing costs. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered a substitute for other measures of performance. EBITDA as
calculated by Leisure Time may not be comparable to EBITDA as calculated and
reported by other companies.
5
<PAGE> 10
RISK FACTORS
You should carefully consider the following risks before you decide to buy
Leisure Time's common stock. The risks and uncertainties described below are not
the only ones facing Leisure Time. Additional risks and uncertainties not
presently known to Leisure Time or that Leisure Time currently deems immaterial
may also impair Leisure Time's business.
If any of the events described in the following risks actually occur,
Leisure Time's business, financial condition and results of operations could be
materially adversely affected. In such case, the trading price of Leisure Time's
common stock could decline and you could lose all or part of your investment.
LEISURE TIME'S HISTORICAL SALES ARE CONCENTRATED IN ONE GEOGRAPHIC MARKET THAT
MAY BECOME SATURATED CAUSING A REDUCTION OF LEISURE TIME'S SALES IN THAT STATE
AND A REDUCTION IN THE VALUE OF YOUR INVESTMENT
The majority of Leisure Time's sales of video gaming machines over the past
few years has been in South Carolina. Leisure Time believes that the market for
its video gaming machines in South Carolina may level off over the next two
years as a result of factors including:
- court interpretations limiting the maximum payout on video gaming
machines in South Carolina;
- increased regulation;
- market saturation;
- competition; and
- general economic conditions in South Carolina.
Leisure Time has marketed and been less successful in selling its video gaming
machines in the Native American markets in Kansas, Michigan, Minnesota, New
Mexico, New York, North Carolina and Wisconsin. Leisure Time plans to market its
video gaming machines in other jurisdictions. A decline in sales of video gaming
machines in South Carolina combined with the failure of Leisure Time to sell
video gaming machines in other jurisdictions would materially adversely affect
Leisure Time's financial condition and operating results.
A REFERENDUM IN NOVEMBER 1999 COULD MAKE GAMING ILLEGAL IN SOUTH CAROLINA IN
JUNE 2000; UNTIL THE REFERENDUM IS HELD, LEISURE TIME EXPECTS REDUCED SALES OF
LEISURE TIME'S VIDEO GAMING MACHINES IN SOUTH CAROLINA, WHICH WOULD MATERIALLY
ADVERSELY AFFECT LEISURE TIME'S REVENUE AND BUSINESS
On November 2, 1999, South Carolina is to have a referendum which could
make gaming illegal in South Carolina after June 30, 2000. Leisure Time's sales
in South Carolina likely will diminish until the referendum is held. If the
referendum makes gaming illegal in South Carolina after June 30, 2000, Leisure
Time's sales in South Carolina will further decline after November 2, 1999 and
sales of video gaming machines and revenue from gaming route operations will
terminate by June 30, 2000, causing an adverse impact on Leisure Time's
business.
COURT INTERPRETATIONS LIMITING THE PAYOUT OF VIDEO GAMING MACHINES IN SOUTH
CAROLINA HAS DECREASED AND MAY CONTINUE TO DECREASE LEISURE TIME'S SALES IN
SOUTH CAROLINA
Courts in South Carolina have interpreted a South Carolina statute to limit
to $125 per day per machine the total amount of cash that can be paid to any
individual at the conclusion of play by that individual on that machine. The
interpretations have decreased Leisure Time's sales of video gaming machines in
South Carolina and likely will decrease further Leisure Time's video gaming
machine sales in South Carolina unless the interpretations are overturned on
appeal or the South Carolina referendum is adopted that amends the statute.
6
<PAGE> 11
A DECREASE IN THE POPULARITY OF THE PRODUCT LINE OF VIDEO GAMING MACHINES FROM
WHICH LEISURE TIME HAS RECEIVED SUBSTANTIALLY ALL OF ITS REVENUE COULD
MATERIALLY ADVERSELY AFFECT LEISURE TIME AND DECREASE THE VALUE OF YOUR
INVESTMENT
Substantially all of Leisure Time's revenue has resulted from the sale of
the Pot O Gold product line of video gaming machines. A decrease in the
popularity of the Pot O Gold product line of video gaming machines with gaming
patrons could materially adversely affect Leisure Time's business, financial
condition and operating results. The popularity of the Pot O Gold may decrease
because of the introduction by competitors of other, more popular video gaming
machines.
LEISURE TIME FACES SIGNIFICANT COMPETITION IN THE SALE OF VIDEO GAMING MACHINES
WHICH COULD MATERIALLY ADVERSELY AFFECT LEISURE TIME
The video gaming machine industry in which Leisure Time competes is
characterized by intense competition. The competition is based on the following:
- the ability of a video gaming machine to generate wins because players
want to play the video gaming machine;
- the ease of use, ease of service and support of video gaming machines;
and
- training, distribution, name recognition and price of video gaming
machines.
International Game Technology, Inc. is the largest manufacturer of gaming
machines and is a significant competitor of Leisure Time. IGT has, and other
competitors may have, greater financial and technical resources than Leisure
Time and IGT has, and other competitors may have, larger customer bases and
wider distribution channels than Leisure Time that may enable them to move
rapidly into Leisure Time's market and acquire significant market share.
Competition from IGT or another competitor would likely result in:
- reductions in the price Leisure Time charges for video gaming machines;
- reduced operating margins; and
- loss of market share.
Increased competition from IGT or another competitor will likely materially
adversely affect Leisure Time's financial condition and operating results.
LEISURE TIME'S BUSINESS COULD BE ADVERSELY AFFECTED IF LEISURE TIME FAILS TO
MAINTAIN ITS EXISTING LICENSES OR OBTAIN NEW LICENSES
Leisure Time must maintain its existing licenses and approvals to sell
video gaming machines in its current markets. Leisure Time must also obtain
necessary licenses in all additional jurisdictions in which it intends to
distribute its video gaming machines. The loss of a license in a particular
jurisdiction will prohibit Leisure Time from distributing in that jurisdiction
and may prohibit Leisure Time from selling its video gaming machines in other
jurisdictions. The loss of one or more licenses held by Leisure Time could have
a material adverse effect on its financial condition and operating results.
The licensing and approval processes can involve extensive investigation
into Leisure Time and its:
- officers;
- directors;
- principal stockholders; and
- products.
The licensing and approval process can require significant expenditures of
time and resources by Leisure Time. Leisure Time must comply with all applicable
regulations for its activities in any international
7
<PAGE> 12
jurisdictions into which it expands. Leisure Time may not receive licensing
approvals in the jurisdictions in which it is currently seeking such approvals.
ADOPTION OR CHANGES IN GAMING LAWS OR REGULATIONS COULD ADVERSELY AFFECT LEISURE
TIME
Gaming laws and regulations, including the imposition of gaming taxes,
could be adopted or changed which could materially adversely affect Leisure
Time.
A FAILURE OF ADDITIONAL JURISDICTIONS TO LEGALIZE GAMING COULD CAUSE LOWER
DEMAND FOR LEISURE TIME'S VIDEO GAMING MACHINES AND A REDUCTION IN LEISURE
TIME'S REVENUE
If new jurisdictions do not legalize gaming, Leisure Time believes that the
demand for video gaming machines could decline and Leisure Time's financial
condition and operating results will be materially adversely affected.
ENACTMENT INTO LAW OF RECOMMENDATIONS BY THE NATIONAL GAMBLING IMPACT AND POLICY
COMMISSION COULD ADVERSELY AFFECT LEISURE TIME'S BUSINESS
In 1997, Congress created the National Gambling Impact and Policy
Commission to conduct a comprehensive study of all matters relating to the
economic and social impact of gaming in the United States. The commission issued
a report on June 18, 1999. The report contained recommendations for legislative,
regulatory and administrative action with respect to the expansion of legalized
gaming, the nature of such legalized gaming, the study and treatment of
compulsive gambling and the regulation of Native American tribal gaming. The
commission recommended:
- that it was "time to consider a pause in the expansion of gambling";
- that states should not authorize any further convenience gambling
operations and should cease or rollback existing operations of this type;
- that jurisdictions considering the introduction of new forms of gaming or
the significant expansion of existing gaming operations should sponsor
comprehensive gambling impact statements;
- that "cruises to nowhere" should be prohibited unless the state from
which the cruise originates adopts legislation specifically legalizing
such cruises consistent with existing law; and
- that states adopt restrictions on political contributions from entities,
corporate, private or tribal, that have applied for or have been granted
the privilege of operating gambling facilities.
Any such recommendations, if enacted into law, could adversely affect the gaming
industry and have a material adverse effect on Leisure Time's business,
financial condition and operating results.
THE VIDEO GAMING MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE WHICH
COULD LEAD TO VIDEO GAMING MACHINES THAT ARE TECHNOLOGICALLY SUPERIOR AND MORE
POPULAR THAN LEISURE TIME'S MACHINES WHICH COULD DECREASE LEISURE TIME'S SALES
The video gaming industry is characterized by rapid technological change
and frequent new product announcements and enhancements. The emergence of video
gaming machines that are technologically superior to Leisure Time's video gaming
machines or that achieve higher levels of player acceptance would materially
adversely affect Leisure Time's financial condition and operating results.
Leisure Time's future success depends to a large extent upon Leisure Time's
ability to design, manufacture and market video gaming machines that take full
advantage of state-of-the-art hardware and software and that achieve high levels
of player acceptance.
LEISURE TIME HAS INCURRED AND MAY CONTINUE TO INCUR LOSSES IN OPERATING ITS
OFFSHORE GAMING VESSEL
Leisure Time has incurred losses in operating its first offshore gaming
vessel in Massachusetts and the prior owner incurred losses in operating the
vessel in Florida. Leisure Time has plans to operate additional
8
<PAGE> 13
offshore gaming vessels. If Leisure Time is unable to generate sufficient
revenue to cover expenses incurred in operating offshore gaming vessels, its
financial condition and operating results will be materially adversely affected.
THERE ARE LIMITATIONS ON EXPANSION OF OFFSHORE GAMING VESSEL OPERATIONS WHICH
COULD AFFECT LEISURE TIME'S PLANS FOR ADDING GAMING VESSELS
Leisure Time plans to expand its offshore gaming vessel operations to other
United States ports. The availability of desirable ports is affected by:
- the population base of the area surrounding the port;
- existence or absence of intense competition;
- the presence of the port in an established vacation market;
- availability of suitable docking facilities and water depth;
- the refusal of jurisdictions to permit offshore gaming vessels to dock at
ports in the jurisdiction;
- ability to comply with federal, state and local laws;
- favorable weather and sea conditions; and
- proximity to international waters.
If Leisure Time is unable to expand its offshore gaming vessel operations into
additional ports, its financial condition and operating results might be
materially adversely affected.
LEISURE TIME'S OFFSHORE GAMING VESSEL IS AFFECTED BY ADVERSE WEATHER WHICH COULD
DECREASE THE NUMBER OF CUSTOMERS TAKING CRUISES
The number of customers taking cruises on Leisure Time's gaming vessel
decreases significantly immediately before and after poor weather and high seas
are encountered. Leisure Time's offshore gaming vessel operations and resulting
revenue are and will be adversely affected by adverse weather and sea
conditions.
LEISURE TIME'S OFFSHORE GAMING VESSEL AND GAMING ROUTE OPERATIONS FACE
COMPETITION FROM OTHER ENTERTAINMENT ACTIVITIES WHICH COULD ADVERSELY AFFECT THE
NUMBER OF CUSTOMERS TAKING CRUISES
Leisure Time competes with a variety of other entertainment activities in
the areas where Leisure Time operates its offshore gaming vessel and has its
gaming route operations. Such entertainment activities include land based
gaming, resort attractions, sporting events and other recreational activities.
Any increase in the popularity of these other activities could materially
adversely affect Leisure Time's financial condition and operating results.
LEISURE TIME COULD INCUR UNINSURED LOSSES FROM OFFSHORE GAMING VESSEL OPERATIONS
IN EXCESS OF INSURANCE COVERAGE RESULTING IN MATERIAL LOSSES TO LEISURE TIME
Leisure Time maintains $15,000,000 of liability and property insurance
related to its offshore gaming vessel operations. Leisure Time could suffer
uninsured losses as a result of an accident or catastrophic event affecting
Leisure Time's offshore gaming vessel operations. Any uninsured loss could
materially adversely affect Leisure Time's financial condition and operating
results.
9
<PAGE> 14
LEISURE TIME MAY NOT BE ABLE TO RECOUP ITS HOTEL INVESTMENT WHICH COULD CAUSE A
FINANCIAL LOSS TO LEISURE TIME AND REDUCE THE VALUE OF YOUR INVESTMENT
Leisure Time plans to make a significant investment renovating a hotel.
Leisure Time has no experience in operating a hotel. Leisure Time may not be
able to recoup its investment in the hotel. This could materially adversely
affect Leisure Time's financial condition and operating results.
THERE IS COMPETITION FOR LEISURE TIME'S HOTEL WHICH COULD AFFECT LEISURE TIME'S
ABILITY TO GENERATE REVENUE FROM THE HOTEL
The hotel that Leisure Time is renovating will encounter significant
competition from several other lodging facilities in the area. The hotel was
vacant and was not operated for approximately seven years prior to Leisure Time
purchasing the hotel. The previous failure and closing of the hotel may be an
indication that the hotel will not succeed in generating sufficient revenue
after it is renovated and reopened by Leisure Time. This may materially
adversely affect Leisure Time's financial condition and operating results.
LEISURE TIME COULD ENCOUNTER SIGNIFICANT COMPETITION IN GAMING ROUTE OPERATIONS
WHICH COULD REDUCE LEISURE TIME'S REVENUE AND ABILITY TO ADD ADDITIONAL GAMING
ROUTE OPERATIONS
Leisure Time currently has a gaming route in South Carolina in which
Leisure Time shares, with the proprietors of the establishments where the video
gaming machines are located, a percentage of the revenue from the video gaming
machines. Numerous others have gaming routes in South Carolina and many are
adding locations to their gaming routes. The establishment of gaming routes by
others could reduce the revenue from Leisure Time's gaming route locations and
limit Leisure Time's ability to open or acquire additional gaming route
locations on terms acceptable to Leisure Time.
LEISURE TIME MAY NOT BE ABLE TO RECOUP ITS INVESTMENT IN GAMING ROUTE OPERATIONS
WHICH COULD CAUSE LEISURE TIME TO REDUCE OR WRITE OFF THE VALUE OF ITS
INVESTMENT
Leisure Time plans to operate and acquire additional gaming route
locations. A lack of play on video gaming machines on Leisure Time's gaming
routes because of the unpopularity of the machines or their placement in an
undesirable location could result in Leisure Time not being able to recoup the
cost of the video gaming machines Leisure Time places in additional locations.
For the same reasons, Leisure Time may not be able to recoup the investment it
makes if it acquires additional gaming route locations. A failure to recoup
Leisure Time's investment could require Leisure Time to reduce or write off the
value of its investment, thereby materially adversely affecting Leisure Time's
financial condition and operating results.
THE ADOPTION OF LAWS RESTRUCTURING OR PROHIBITING GAMING ROUTE OPERATIONS BY
STATES IN ADDITION TO SOUTH CAROLINA COULD ADVERSELY AFFECT LEISURE TIME'S
BUSINESS
In addition to South Carolina, other states could adopt laws that restrict
or prohibit gaming route operations. In the event such laws are adopted, Leisure
Time's financial condition and operating results would be materially adversely
affected.
LEISURE TIME HAS MINIMAL WORKING CAPITAL AND SUBSTANTIAL DEBT WHICH COULD LIMIT
LEISURE TIME'S ABILITY TO BORROW ADDITIONAL AMOUNTS OR RESULT IN A FORECLOSURE
ON LEISURE TIME'S ASSETS
As of March 31, 1999, Leisure Time had working capital of approximately
$313,000 and at June 30, 1999, had approximately $15.2 million in debt with
interest rates ranging from 6.64% to 10.25% that is due between January 2000 and
November 2003. Leisure Time may not be able to service its debt if Leisure Time
experiences a decrease in cash flow. The significant level of debt may increase
Leisure Time's vulnerability to general adverse economic and industry
conditions, including increases in interest rates, and may limit Leisure Time's
ability to borrow additional funds. Leisure Time's debt is secured by a
significant portion of Leisure Time's assets. If Leisure Time is unable to
service its debt and the lenders foreclose upon its assets, Leisure Time's
financial condition and operating results would be materially adversely
affected.
10
<PAGE> 15
LEISURE TIME'S FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY CURRENT
LITIGATION WHICH COULD RESULT IN MATERIAL JUDGMENTS AGAINST LEISURE TIME
ADVERSELY AFFECTING LEISURE TIME'S FINANCIAL CONDITION
Leisure Time recently paid a judgment of approximately $3.3 million
including interest against Leisure Time resulting from litigation with one of
its former video gaming machine distributors. Leisure Time has filed a lawsuit
against the same distributor alleging the distributor failed to complete a
purchase order. The distributor has counterclaimed against Leisure Time and has
filed another lawsuit against Leisure Time alleging similar claims to those the
distributor alleged in the lawsuit in which it was awarded the judgment. Any
additional judgment awarded the distributor could have an adverse effect upon
Leisure Time's financial condition.
In addition, Leisure Time is currently involved in a lawsuit filed by a
former officer of a subsidiary of Leisure Time that alleges Leisure Time failed
to issue to him options to purchase 200,000 shares of Leisure Time's common
stock at a price of $1.00 per share and claims unspecified damages as a result
of the failure. Any such issuance could potentially cause dilution to shares of
common stock that you purchase and result in Leisure Time incurring compensation
expense. Any judgment awarded the former officer for damages could have an
adverse effect on Leisure Time's financial condition. Leisure Time is unable to
predict the outcome of this litigation.
DISPUTE WITH FORMER HOLDERS OF CONVERTIBLE PROMISSORY NOTES COULD CAUSE ISSUANCE
OF ADDITIONAL SECURITIES WHICH COULD DILUTE YOUR INVESTMENT
In January 1999, Leisure Time paid in full the remaining balance of 11%
convertible promissory notes after the notes were accelerated as a result of a
default in payment by Leisure Time. The notes were convertible into units
consisting of 920,000 shares of Leisure Time's common stock and warrants to
purchase 920,000 shares of Leisure Time's common stock at a price of $1.75 and
920,000 shares of Leisure Time's common stock at a price equal to 120% of the
offering price of an initial public offering by Leisure Time. The former holders
of the notes have claimed that they reserved their respective rights to convert
their notes even though they accepted full payment of the notes. Leisure Time
believes that the conversion features of the notes have expired. It is possible
that the holders of the notes could bring an action to attempt to exercise their
conversion rights. Leisure Time cannot predict the outcome of any such
litigation. Leisure Time may attempt to settle this matter by issuing shares of
Leisure Time's common stock and warrants to purchase shares of Leisure Time's
common stock. Any adverse judgment against Leisure Time as a result of this
matter or any issuance of Leisure Time's common stock or warrants as a result of
this matter could dilute your investment.
EFFECTIVELY MANAGING LEISURE TIME'S GROWTH MAY BE DIFFICULT CAUSING AN ADVERSE
IMPACT ON LEISURE TIME'S OPERATING RESULTS AND REDUCING THE VALUE OF YOUR
INVESTMENT
Leisure Time has recently experienced significant growth and expects to
continue to grow rapidly by pursuing strategies intended to expand its business
domestically and internationally. This growth is likely to place a significant
strain on Leisure Time's financial, managerial and other resources. To manage
its growth, Leisure Time must continue to implement effective systems and hire
additional employees. Leisure Time's ability to manage its growth effectively
will depend on Leisure Time's ability to continue to improve its operational,
financial and management information systems and to attract, motivate and train
key employees. Leisure Time's business, operating results and financial
condition will be materially adversely affected if Leisure Time is unable to
effectively manage its growth.
LEISURE TIME NEEDS ADDITIONAL CAPITAL FOR ITS LONG-TERM GROWTH WITHOUT WHICH ITS
GROWTH WILL BE LIMITED
Leisure Time will need additional capital after this offering in order to
implement its long-term growth strategy. Leisure Time may be unable to obtain
such additional capital when needed. Leisure Time may have to scale back its
long-term growth strategy if it is not successful in raising additional capital.
11
<PAGE> 16
ALL OF LEISURE TIME'S OUTSTANDING SHARES OF COMMON STOCK ARE RESTRICTED FROM
IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS COULD
CAUSE THE MARKET PRICE OF LEISURE TIME'S COMMON STOCK TO DROP SIGNIFICANTLY,
EVEN IF LEISURE TIME'S BUSINESS IS DOING WELL
After this offering, Leisure Time will have outstanding 6,271,829 shares of
common stock. This includes the 1,100,000 shares Leisure Time is selling in this
offering, which may be resold in the public market immediately. The remaining
approximately 84% or 5,271,829 shares, of Leisure Time's outstanding shares of
common stock will become available for resale in the public market 180 days to
one year after the date of this prospectus due to an agreement these
shareholders have with the representative of the underwriters. However, the
representative of the underwriters can waive this restriction and allow these
shareholders to sell their shares at any time. As restrictions on resale end,
the market price could drop significantly if the holders of these restricted
shares sell them or are perceived by the market as intending to sell them.
EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL AFTER THE
OFFERING TO THE POSSIBLE DETRIMENT OF PURCHASERS IN THIS OFFERING
After the offering, the existing stockholders of Leisure Time will own
approximately 82% of Leisure Time's outstanding common stock. Alan N. Johnson
will own approximately 35% of Leisure Time's outstanding common stock. The
existing stockholders will be able to control all matters requiring stockholder
approval and Alan N. Johnson will be able to influence most matters presented to
stockholders for approval.
LEISURE TIME MAY BE UNABLE TO MAKE ATTRACTIVE ACQUISITIONS OR INTEGRATE ACQUIRED
COMPANIES INTO LEISURE TIME, LIMITING LEISURE TIME'S GROWTH OR DISRUPTING ITS
OPERATIONS
One of Leisure Time's strategies is to selectively explore domestic
acquisition opportunities. Leisure Time may not be able to make attractive
acquisitions or integrate the acquired companies into Leisure Time. The failure
of Leisure Time to make attractive acquisitions could impede Leisure Time's
planned growth. Leisure Time's inability to successfully integrate an acquired
company into Leisure Time could disrupt Leisure Time's operations.
ANTI-TAKEOVER PROVISIONS AND THE RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD PARTY ACQUISITION OF LEISURE TIME DIFFICULT DEPRIVING STOCKHOLDERS OF THE
ABILITY TO TAKE ADVANTAGE OF AN ATTRACTIVE BID
Leisure Time's articles of incorporation provide that its board of
directors may issue preferred stock without stockholder approval. In addition,
Leisure Time's articles of incorporation provide that:
- directors will be elected for three-year terms, with approximately
one-third of the board of directors standing for election each year;
- the affirmative vote of stockholders holding not less than two-thirds of
the votes entitled to be cast in the election of directors is required to
alter or repeal the staggered board provision;
- directors may only be removed for cause; and
- directors may be removed for cause only by the affirmative vote of
stockholders holding not less than two-thirds of all stock entitled to
vote.
The issuance of preferred stock and the existence of anti-takeover provisions in
Leisure Time's articles of incorporation might discourage third party bids to
acquire Leisure Time. As a result, Leisure Time's stockholders may not be able
to take advantage of an attractive bid that might increase the value of their
investment.
ANTI-TAKEOVER PROVISIONS IN EMPLOYMENT AGREEMENTS WILL LIKELY INHIBIT A THIRD
PARTY ACQUISITION OF LEISURE TIME DEPRIVING STOCKHOLDERS OF THE ABILITY TO TAKE
ADVANTAGE OF AN ATTRACTIVE BID
Leisure Time has employment agreements with its executive officers and an
employee pursuant to which they can require Leisure Time to repurchase their
common stock upon the occurrence of a change in control
12
<PAGE> 17
of Leisure Time. Leisure Time also is required to issue low priced options to
replace their current options upon the occurrence of a change in control of
Leisure Time. If enforceable, these provisions will likely inhibit a third party
from acquiring Leisure Time without the consent of these persons. As a result,
Leisure Time's stockholders may not be able to take advantage of an attractive
bid that might increase the value of their investment.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" are forward-looking. They
include statements that involve risks and uncertainties that might materially
adversely affect Leisure Time's operating results in the future. Such risks and
uncertainties include:
- the possible discontinuance of gaming in South Carolina;
- a decrease in popularity of Leisure Time's video gaming machines;
- technological innovations in video gaming machines;
- competition;
- regulation of the gaming industry;
- availability of financing; and
- adverse outcome of pending lawsuits.
Most of these risks are beyond Leisure Time's control. Actual results may differ
materially from those suggested by the forward-looking statements for various
reasons, including those discussed above.
USE OF PROCEEDS
Based on an assumed initial public offering price of $12.00 per share, the
net proceeds from the sale of the shares of common stock are estimated to be
approximately $11.0 million.
Leisure Time intends to use the net proceeds as follows:
- approximately $4.0 million for acquisitions;
- approximately $3.0 million as working capital, including the payment of
accounts payable;
- approximately $2.0 million to develop a new Pot O Gold line of video
gaming machines and to develop new software; and
- approximately $2.0 million to expand manufacturing and research and
development facilities.
Leisure Time currently has proposed the acquisition of Best Amusement,
Inc., a company that has a gaming route operation in South Carolina. Except for
such proposal, Leisure Time has no agreements, arrangements or understandings
with respect to any acquisitions of additional gaming routes or any other gaming
or other businesses or assets. Any net proceeds realized from the exercise of
the underwriters' over-allotment option will be used as working capital.
Leisure Time reserves the right to change the uses of the proceeds if
market conditions or unexpected changes in operating conditions or results of
operations occur. The amounts actually expended for each use may vary
significantly depending upon a number of factors including, but not limited to,
future growth, the amount expended for acquisitions and the amount of cash
generated by Leisure Time's operations. If the board of directors determines
that the proposed uses of proceeds are not in the best interests of Leisure
Time, the board of directors will decide how the proceeds will be used. Net
proceeds not immediately required to be used will be invested principally in
investment grade, interest-bearing securities.
13
<PAGE> 18
DIVIDEND POLICY
Leisure Time has never declared nor paid any dividends on its common stock.
Leisure Time currently anticipates that all earnings will be retained for use in
Leisure Time's business and that no cash dividends will be paid to stockholders.
One of Leisure Time's loan agreements prohibits Leisure Time from paying, in any
fiscal year, dividends in excess of Leisure Time's net income for such fiscal
year. Another of Leisure Time's loan agreements prohibits Leisure Time from
paying dividends if Leisure Time is in default on the loan. Leisure Time is
currently in compliance with all material terms of its loan agreements. Any
payment of cash dividends in the future on the common stock will depend on
Leisure Time's:
- financial condition;
- results of operations;
- current and anticipated cash requirements;
- plans for expansion;
- existing or future debt obligations and any restrictions imposed by such
obligations; and
other factors deemed relevant by the board of directors.
DILUTION
Leisure Time's net tangible book value as of March 31, 1999 was $227,000,
or approximately $.05 per share.
Net tangible book value per share represents Leisure Time's tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to the sale
of the 1,100,000 shares of common stock offered hereby at an assumed initial
public offering price of $12.00 per share, the net tangible book value of
Leisure Time as of March 31, 1999, would have been $11,475,000 or $1.97 per
share of common stock. This amount represents an immediate increase in net
tangible book value of $1.92 per share of common stock to the existing holders
of common stock and an immediate dilution of $10.03 per share of common stock to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of common
stock..................................................... $12.00
Net tangible book value per share of common stock as of
March 31, 1999......................................... $ .05
Increase in net tangible book value per share of common
stock attributable to new investors.................... 1.92
Net tangible book value per share of common stock after the
offering.................................................. 1.97
------
Dilution in net tangible book value per share of common
stock to new
investors................................................. $10.03
======
</TABLE>
The following table sets forth as of March 31, 1999, the number of shares
of common stock acquired, the total cash consideration paid and the average cash
price per share of common stock paid to Leisure Time by Leisure Time's
stockholders and by new investors at an assumed initial public offering price of
$12.00 per share before deducting underwriting discounts and other estimated
offering expenses payable by Leisure Time.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 4,732,835 81.1% $ 5,152,000 28.1% $ 1.09
New investors........................... 1,100,000 18.9% 13,200,000 71.9% $12.00
--------- ----- ----------- -----
Total......................... 100.0% $18,352,000 100.0%
===== =========== =====
</TABLE>
14
<PAGE> 19
The foregoing table excludes:
- 200,000 shares of common stock and warrants to purchase 400,000 shares of
common stock issued after March 31, 1999, upon the conversion of $250,000
of debt;
- 6,998 shares of common stock issued after March 31, 1999, upon the
conversion of approximately $17,500 of debt;
- 49,996 shares of common stock issued for approximately $265,000 after
March 31, 1999, upon the exercises of an option and warrants;
- 2,000 shares of common stock and warrants issued after March 31, 1999,
for $20,000;
- 100,000 shares of common stock and an option issued after March 31, 1999,
in connection with the acquisition of Leisure Time Financial;
- 80,000 shares of common stock and warrants issued after March 31, 1999,
in connection with the acquisition of Florida Casino Cruises;
- 5,536,423 shares of common stock issuable on exercise of outstanding
options and warrants; and
- 110,000 shares of common stock issuable on exercise of the
representative's warrants.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of Leisure Time as of
March 31, 1999. Leisure Time's capitalization is presented:
- on an actual basis; and
- on an as adjusted basis to reflect:
- Leisure Time's receipt of the estimated net proceeds from the sale of
1,100,000 shares of common stock at an assumed initial public offering
price of $12.00 per share, after deducting underwriting discounts and
other estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long term debt (net of current portion)..................... $11,226 $11,226
======= =======
Stockholders' equity:
Preferred Stock, par value $0.001 per share; 5,000,000
shares authorized; no shares issued or outstanding..... $ -- $ --
Common Stock, par value $0.001 per share; 45,000,000
shares authorized; 4,732,835 shares issued and
outstanding, and 5,832,835 shares issued and
outstanding, as adjusted............................... 5 6
Additional paid-in capital................................ 5,147 16,394
Retained earnings......................................... 3,459 3,459
------- -------
Total stockholders' equity........................ $ 8,611 $19,859
======= =======
Total capitalization.............................. $19,837 $31,085
======= =======
</TABLE>
The foregoing table does not give effect to:
- 200,000 shares of common stock and warrants to purchase 400,000 shares of
common stock issued after March 31, 1999, upon the conversion of $250,000
of debt;
- 6,998 shares of common stock issued after March 31, 1999, upon the
conversion of approximately $17,500 of debt;
- 49,996 shares of common stock issued for approximately $265,000 after
March 31, 1999, upon the exercises of an option and warrants;
- 2,000 shares of common stock and warrants issued after March 31, 1999,
for $20,000;
- 100,000 shares of common stock and an option issued after March 31, 1999,
in connection with the acquisition of Leisure Time Financial;
- 80,000 shares of common stock and warrants issued after March 31, 1999,
in connection with the acquisition of Florida Casino Cruises;
- 5,536,423 shares of common stock issuable on exercise of outstanding
options and warrants; and
- 110,000 shares of common stock issuable on exercise of the
representative's warrants.
16
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and are qualified by reference to the financial
statements and notes beginning on page F-1. The unaudited data at and for the
nine months ended March 31, 1999 include, in the opinion of Leisure Time, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of Leisure Time's financial position at that date and results
of operations for that period. The results of operations for the nine months
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full fiscal year or future periods.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LEISURE TIME TECHNOLOGY
(F/K/A U.S. GAMES, INC.)(1)
-------------------------------------------------
JULY 1, 1996
FOR THE YEAR ENDED JUNE 30, TO
------------------------------ SEPTEMBER 13,
1994 1995 1996 1996
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Revenue Manufacturing.................. $ 15,494 $ 22,393 $ 28,291 $ 2,671
Gaming............................... -- -- -- --
Other................................ -- -- -- --
-------- -------- -------- --------
Total revenue.................. 15,494 22,393 28,291 2,671
-------- -------- -------- --------
Cost of goods sold Manufacturing....... 8,657 12,429 15,677 1,300
Gaming............................... -- -- -- --
Other................................ -- -- -- --
-------- -------- -------- --------
Total cost of goods sold....... 8,657 12,429 15,677 1,300
-------- -------- -------- --------
Gross profit Manufacturing............. 6,837 9,964 12,614 1,371
Gaming............................... -- -- -- --
Other................................ -- -- -- --
-------- -------- -------- --------
Total gross profit............. 6,837 9,964 12,614 1,371
-------- -------- -------- --------
Selling, general and administrative
expenses............................. 3,696 5,023 8,284 2,856
Research and development costs......... 778 1,134 800 132
Stock based compensation............... -- -- -- --
Interest, net.......................... 138 165 74 9
Litigation............................. -- -- -- --
-------- -------- -------- --------
Total operating expenses....... 4,612 6,322 9,158 2,997
-------- -------- -------- --------
Net (loss) income before income tax
benefit (expense).................... 2,225 3,642 3,456 (1,626)
Income tax benefit (expense)........... (811) (1,343) (1,293) 554
-------- -------- -------- --------
Net income (loss)...................... $ 1,414 $ 2,299 $ 2,163 $ (1,072)
======== ======== ======== ========
Earnings (loss) per common
share -- basic....................... $ 2.05 $ 3.34 $ 3.14 $ (1.56)
======== ======== ======== ========
Earnings (loss) per common
share -- diluted..................... $ 2.05 $ 3.34 $ 3.14 $ (1.56)
======== ======== ======== ========
Weighted average number of common
shares outstanding -- basic.......... 688,850 688,850 688,850 688,850
======== ======== ======== ========
Weighted average number of common
shares outstanding -- diluted........ 688,850 688,850 688,850 688,850
======== ======== ======== ========
<CAPTION>
LEISURE TIME
CASINOS & RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------------
FOR THE FOR THE
YEAR YEAR FOR THE NINE MONTHS
ENDED ENDED ENDED MARCH 31,
JUNE 30, JUNE 30, -----------------------
1997 1998 1998 1999
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenue Manufacturing.................. $ 29,838 $ 28,643 $ 22,268 $ 41,037
Gaming............................... -- -- -- 3,738
Other................................ -- -- -- 281
---------- ---------- ---------- ----------
Total revenue.................. 29,838 28,643 22,268 45,056
---------- ---------- ---------- ----------
Cost of goods sold Manufacturing....... 16,616 16,517 12,377 21,796
Gaming............................... -- -- -- 400
Other................................ -- -- -- 279
---------- ---------- ---------- ----------
Total cost of goods sold....... 16,616 16,517 12,377 22,475
---------- ---------- ---------- ----------
Gross profit Manufacturing............. 13,222 12,126 9,891 19,241
Gaming............................... -- -- -- 3,338
Other................................ -- -- -- 2
---------- ---------- ---------- ----------
Total gross profit............. 13,222 12,126 9,891 22,581
---------- ---------- ---------- ----------
Selling, general and administrative
expenses............................. 5,615 8,727 4,243 14,908
Research and development costs......... 469 642 462 174
Stock based compensation............... -- -- -- 1,400
Interest, net.......................... 712 840 748 887
Litigation............................. -- 3,043 3,006 --
---------- ---------- ---------- ----------
Total operating expenses....... 6,796 13,252 8,459 17,369
---------- ---------- ---------- ----------
Net (loss) income before income tax
benefit (expense).................... 6,426 (1,126) 1,432 5,212
Income tax benefit (expense)........... (1,738) 197 (629) (1,975)
---------- ---------- ---------- ----------
Net income (loss)...................... $ 4,688 $ (929) $ 803 $ 3,237
========== ========== ========== ==========
Earnings (loss) per common
share -- basic....................... $ 1.08 $ (.21) $ .18 $ .69
========== ========== ========== ==========
Earnings (loss) per common
share -- diluted..................... $ .65 $ (.21) $ .08 $ .42
========== ========== ========== ==========
Weighted average number of common
shares outstanding -- basic.......... 4,343,397 4,516,528 4,505,380 4,663,648
========== ========== ========== ==========
Weighted average number of common
shares outstanding -- diluted........ 7,664,903 4,516,528 9,839,303 7,726,386
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Represents the financial results of U.S. Games, Inc. a "Predecessor" to the
Company acquired by Leisure Time Casinos on September 13, 1996.
17
<PAGE> 22
The following table sets forth a summary of Leisure Time's balance sheet as
of March 31, 1999.
The as adjusted column reflects:
- Leisure Time's receipt of the estimated net proceeds from the sale of
1,100,000 shares of common stock at an assumed initial public offering
price of $12.00 per share, after deducting underwriting discounts and
estimated underwriting expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
JUNE 30, 1998 ACTUAL AS ADJUSTED
------------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 888 $ 2,540 $13,788
Working capital (deficit).................................. (3,891) (313) 10,935
Total assets............................................... 22,413 29,840 41,088
Long-term liabilities...................................... 9,186 11,226 11,226
Total stockholders' equity................................. 3,706 8,611 19,859
Total liabilities and stockholders' equity................. 22,413 29,840 41,088
</TABLE>
The foregoing table does not give effect to:
- 200,000 shares of common stock and warrants to purchase 400,000 shares of
common stock issued after March 31, 1999, upon the conversion of $250,000
of debt;
- 6,998 shares of common stock issued after March 31, 1999, upon the
conversion of approximately $17,500 of debt;
- 49,996 shares of common stock issued for approximately $265,000 after
March 31, 1999, upon the exercises of an option and warrants;
- 2,000 shares of common stock and warrants issued after March 31, 1999,
for $20,000;
- 100,000 shares of common stock and an option issued after March 31, 1999,
in connection with the acquisition of Leisure Time Financial;
- 80,000 shares of common stock and warrants issued after March 31, 1999,
in connection with the acquisition of Florida Casino Cruises;
- 5,536,423 shares of common stock issuable on exercise of outstanding
options and warrants; and
- 110,000 shares of common stock issuable on exercise of the
representative's warrants.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER DATA:
Cash flow (used in) provided by operating activities... $ (629) $ 7,379 $ 2,592 $ 3,684 $ 5,710
Cash flow used by investing activities................. (292) (6,862) (3,097) (3,585) (4,024)
Cash flow provided by financing activities............. 904 570 304 302 (34)
EBITDA (loss).......................................... (1,329) 8,523 1,578 3,257 8,793
</TABLE>
"EBITDA" reflects net income or loss plus depreciation, amortization and
net interest expense, income taxes and stock based compensation expense, if any.
EBITDA is a measure used by analysts and investors as an indicator of operating
cash flow because it excludes the impact of movements in working capital items,
non-cash charges and financing costs. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered a substitute for other measures of performance. EBITDA as
calculated by Leisure Time may not be comparable to EBITDA as calculated and
reported by other companies.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto and the other financial information included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Leisure Time's actual results
could differ materially from those anticipated in these forward looking
statements as a result of any number of factors, including those set forth under
"risk factors" and elsewhere in this prospectus.
OVERVIEW
Leisure Time's manufacturing and gaming operations are the segments of
Leisure Time's business that generated revenue during the nine months ended
March 31, 1999. The following chart provides revenue, cost of goods sold and
gross profit information for these two segments and for corporate operations as
a percentage of total revenue, cost of goods sold and gross profit for Leisure
Time for the nine months ended March 31, 1999.
<TABLE>
<CAPTION>
ITEM MANUFACTURING GAMING CORPORATE AND OTHER
- ---- ------------- ------ -------------------
<S> <C> <C> <C>
Revenue....................................... 91% 8% 1%
Cost of goods sold............................ 97 2 1
Gross profit.................................. 85 15 --
</TABLE>
MANUFACTURING
Description. Leisure Time's largest business segment is the manufacture and
sale of video gaming and pulltab machines. The Pot O Gold product line comprises
Leisure Time's principal product line. Since September 1996, Leisure Time has
sold the Pot O Gold product line of video gaming machines in 10 states in the
United States and in Argentina, Brazil and Norway. In 1998, Leisure Time
completed its first video pulltab machine called the Pulltab Gold. A major
component of the Pulltab Gold machine is the replaceable cartridge that contains
encrypted electronic pulltabs. Each cartridge has a finite number of pulltabs
and, when they are depleted, the cartridge must be returned to Leisure Time to
be refilled. Additionally, Leisure Time is currently developing a video bingo
machine that Leisure Time expects to introduce in the fourth quarter of 1999.
Historically, Leisure Time has sold software as a part of its video machine
manufacturing operations. Leisure Time plans to expand its software sales
through sales of new games, chip upgrades and new operating boards. One time
software sales relate to changes in the operating software that are necessary to
comply with technological or regulatory changes, such as the year 2000 issue and
South Carolina regulations. Leisure Time has completed the software revisions
necessary for its video gaming machines to be year 2000 compliant and is selling
the software to the current owners of the Pot O Gold product line of machines.
South Carolina has required that all owners of video gaming machines comply with
new requirements that each video gaming machine be electronically connected
through a data communication device with a state centralized processing center
by February 1, 2000. By December 1, 1999, the owners must have in place
contracts to purchase the data communication device. Leisure Time has developed
a data communication device that will enable South Carolina operators of Leisure
Time video gaming machines to comply with these provisions. To date, all
expenses related to the development of software and software upgrades have been
expensed as incurred.
Analysis and Trends. For the nine months ended March 31, 1999, Leisure
Time's manufacturing segment accounted for 97% of Leisure Time's total revenue
and 85% of gross profit. Approximately 95% of revenue and 94% of gross profit
generated by the manufacturing segment resulted from sales of the Pot O Gold
product line. The remaining 5% of revenue and 6% of gross profit generated by
the manufacturing segment related to the sale of software.
During the last calendar quarter of 1998, the formal distribution
agreements with two customers that collectively accounted for 65% of Leisure
Time's total sales for the six months ended December 31, 1998, were terminated
or not renewed by Leisure Time in accordance with the provisions of the
agreements. Thereafter,
19
<PAGE> 24
Leisure Time directly began distributing its video gaming machines in South
Carolina. In addition, the two distributors continued to purchase Leisure Time's
video gaming machines for distribution in South Carolina. For the three months
ended March 31, 1999, the two distributors accounted for approximately 18% and
8%, respectively, of Leisure Time's sales in South Carolina. As the purchases of
Leisure Time's video gaming machines by the two distributors declined, Leisure
Time has increased its direct sales of video gaming machines in South Carolina.
Accordingly, Leisure Time does not anticipate that the termination of the
distribution agreements with the two distributors will materially adversely
affect Leisure Time's sales in South Carolina.
Leisure Time's profit margin on the sale of video gaming machines in South
Carolina has improved as a result of eliminating use of third party distributors
in South Carolina in the fourth calendar quarter of 1998.
Leisure Time plans to continue to expand its market for the Pot O Gold
product line of video gaming machines through the development of new video
gaming machines and game software, additional marketing and obtaining licenses
in states in which it is not currently licensed. One such state is California.
Leisure Time understands that the office of the Governor of California is
currently negotiating gaming compacts with California-based Native American
tribes. If compacts are concluded, Leisure Time anticipates selling its Pot O
Gold product line of video gaming machines in California in the third or fourth
quarter of calendar 1999. Leisure Time believes that sales to the various Native
American tribes in California could have a material positive effect on its
revenue.
Leisure Time anticipates increasing sales of its Pulltab Gold machines as
more operators and regulators discover the benefits that video pulltab
technology provides to charitable organizations that sponsor pulltab and bingo
games. Leisure Time believes that the primary benefit that video pulltab
technology provides to charitable organizations that sponsor pulltab and bingo
games are:
- enhanced tracking and accountability through data collection devices
incorporated in each machine;
- extended hours of operation, thus increasing opportunities for revenue
generation; and
- improved earnings potential through enhancing the speed of play.
As the number of Pulltab Gold machines sold increases, so will the number
of cartridges that will need to be refilled and replaced by Leisure Time.
Leisure Time realizes a higher profit margin on cartridge sales than on machine
sales. The frequency of cartridges that need to be refilled depends upon how
quickly they are used. Leisure Time's experience to date is that the cartridge
in each Pulltab Gold machine is replaced approximately every two weeks.
Leisure Time acquired an equipment financing company in April 1999 to
provide financing to persons who purchase Leisure Time's video gaming, pulltab
and bingo machines. Financing in South Carolina had previously been provided by
Leisure Time's distributors.
If the referendum is passed in South Carolina in November 1999, video
gaming machine operators will be required to purchase software that will enable
their machines to gather data and communicate with a statewide central computer
system. Operators that fail to comply with these regulations may have their
games confiscated. Of the approximately 17,000 Pot O Gold product line of video
gaming machines in South Carolina, Leisure Time believes that approximately
15,000 will require upgrading to include a data communication device.
Leisure Time expects that its data communication device will be approved
before December 1, 1999. Therefore, if the referendum is passed, by December 1,
1999 the South Carolina operators who own video gaming machines will be required
to enter into a contract to purchase a data communication device from Leisure
Time or IGT if the operators intend to continue to operate their video gaming
machines in South Carolina after January 31, 2000. Leisure Time currently
estimates that it will receive revenue of approximately $5.1 million from the
sale of the data communication device in South Carolina by January 31, 2000.
Leisure Time can provide no assurances that its data communication device will
be approved or that the sales will occur or by what date they will occur.
20
<PAGE> 25
Factors that could adversely impact Leisure Time's manufacturing revenue
and associated income include:
- failure of Leisure Time's data communication device to be approved in
South Carolina;
- the discontinuance of gaming in South Carolina;
- decreasing demand for video machines in South Carolina and elsewhere;
- failure of new jurisdictions to permit gaming or video games operated by
charitable organizations;
- increasing competition that could affect the number of video machines
sold and decrease Leisure Time's gross margin; and
- regulatory changes or the belief that regulatory changes could be
implemented that limit gaming in jurisdictions where Leisure Time sells
its machines.
GAMING
Offshore Gaming Cruises
Description. Leisure Time's second largest revenue generating segment for
the nine months ended March 31, 1999, was offshore gaming cruises. Leisure Time
currently has two offshore gaming vessels. The first vessel, the Vegas Express,
was chartered under a long term arrangement in March 1998 from an independent
third party. Through June 1998, Leisure Time completed significant renovations
to the vessel and in July 1998 the vessel commenced offshore gaming cruises from
Gloucester, Massachusetts. Florida Casino Cruises owns the Vegas Express and was
purchased by Leisure Time in May 1999. Leisure Time's second vessel is the
Leisure Lady, which was purchased in January 1997 and since that time has
undergone repairs and renovations. Until Leisure Time locates a port for the
Leisure Lady, Leisure Time cannot predict when the Leisure Lady will commence
offshore gaming cruises. Leisure Time also owns the Biloxi Belle, a dockside
gaming vessel located on the Mississippi River that Leisure Time plans to
renovate when a site is located for the vessel.
Analysis and Trends. For the nine months ended March 31, 1999, Leisure
Time's offshore gaming cruise segment accounted for 8% of Leisure Time's total
revenue and 15% of gross profit. All of the revenue and gross profit were
derived from the operations of the Vegas Express.
Leisure Time anticipates that the passenger count on the Vegas Express will
increase over the upcoming summer season because of a longer operating season
and as a result of the public exposure that the Vegas Express has received since
commencing operations in July 1998. Leisure Time believes that at least five
offshore gaming vessels are necessary to adequately service the New England area
and to allow Leisure Time to achieve certain anticipated operating efficiencies.
Leisure Time currently is investigating the possible acquisition of additional
vessels for this and other areas. It is planned that the Biloxi Belle will
commence dockside gaming during the third or fourth quarters of the fiscal year
ending June 30, 2000.
Factors that could adversely impact Leisure Time's results from operating
offshore gaming cruises include:
- a failure to recoup startup and continuing costs of operating one or more
offshore gaming vessels;
- a failure to locate a port for the Leisure Lady;
- increased competition;
- adverse weather; and
- uninsured losses.
Gaming Route Operations
Description. Leisure Time's third segment of business is gaming route
operations. Gaming route operations involve the installation, operation and
servicing of video gaming machines under various types of
21
<PAGE> 26
revenue participation agreements. Leisure Time first realized revenue from this
segment in February 1999, when Leisure Time acquired a small number of gaming
route locations in South Carolina.
Analysis and Trends. Through March 1999, Leisure Time has received nominal
revenue from its gaming route operations. Leisure Time anticipates that
significant revenue can be generated from gaming route operations if Leisure
Time acquires or establishes a significant base of gaming route locations.
Leisure Time anticipates building this base through the acquisition or
establishment of gaming route operations. Leisure Time plans to acquire or
establish additional gaming routes in South Carolina if the voters of South
Carolina do not vote in November 1999 to eliminate gaming in South Carolina.
Additional states that Leisure Time has identified as potential markets for
gaming route operations include Louisiana, Montana and New Mexico. Leisure Time
is investigating several gaming route operations for acquisition and has
proposed the acquisition of one company that has gaming route operations in
South Carolina. However, Leisure Time has not finalized any agreements,
understandings or arrangements with respect to any acquisitions of additional
gaming routes.
Factors that could adversely impact Leisure Time's results of gaming route
operations include:
- changes in competitive or other conditions that cause location owners to
seek an increased share of revenue under revenue sharing arrangements;
- inability to acquire new routes or expand existing routes such that
Leisure Time can realize operating efficiencies associated with larger
route operations;
- a failure to realize sufficient revenue such that the cost of route
acquisitions exceeds Leisure Time's expected return on invested capital;
and
- adoption of laws that make gaming illegal or otherwise that adversely
affect gaming.
HOSPITALITY
Description. Leisure Time's fourth segment consists of a hotel overlooking
Lake Erie in the Cleveland, Ohio metropolitan area. Leisure Time is currently
renovating the hotel.
Analysis and Trends. When renovations of the hotel are complete, it is
expected to have approximately 210 rooms, a conference center, enclosed swimming
pool and other amenities. Leisure Time anticipates that the hotel will be open
in early 2000. Leisure Time plans that a portion of the space in the hotel will
be used by Leisure Time as a showcase to market Leisure Time's Pulltab Gold and
bingo machines to charitable organizations in Ohio.
Factors related to the hotel that could adversely impact Leisure Time's
operating results and financial condition include:
- a failure to borrow sufficient funds to complete the renovation of the
hotel;
- a failure to recoup the significant investment in the hotel;
- a failure to obtain an experienced manager of the hotel; and
- losses incurred in operating the hotel.
REVENUE RECOGNITION
Leisure Time's accounting policy is to recognize manufacturing revenue as
the product is shipped.
Offshore gaming cruise revenue is the net win from gaming activities, which
is the difference between gaming wins and losses. Gaming revenue also includes
ticket sales and food and beverage revenue generated from each offshore gaming
cruise. Gaming revenue does not include the retail amount of tickets and food
and beverages provided gratuitously to customers, which if material, reduces
revenue as promotional allowances.
Revenue from gaming route operations is recognized at the time the play
activity takes place and is based upon the terms of the individual revenue
participation agreement.
22
<PAGE> 27
No revenue has been generated from the hotel and no revenue was generated
from equipment financing until after March 31, 1999.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages of
total revenue of those items included in Leisure Time's consolidated statements
of operations.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenue............................................... 100% 100% 100% 100% 100%
Cost of goods sold.......................................... 56 56 58 56 50
Gross profit................................................ 44 44 42 44 50
Selling, general and administrative expenses................ 29 19 30 19 33
Research and development costs.............................. 3 2 2 2 --
Stock based compensation.................................... -- -- -- -- 3
Interest expense, net....................................... -- 2 3 3 2
Litigation.................................................. -- -- 11 14 --
Total operating expenses.......................... 32 23 46 38 39
Income (loss) before income taxes........................... 12 21 (4) 6 11
Income tax benefit (expense)................................ 5 (6) 1 (3) (4)
Net income (loss)................................. 7% 15% 3% 3% 7%
</TABLE>
As indicated on page 30, information for 1996 represents the results of
operations for Leisure Time Technology (f/k/a U.S. Games, Inc.), a predecessor
to Leisure Time. No separate presentation or discussion is provided for these
statements because adjustments due to the acquisition make the results of
operations not comparable. The information for the fiscal year ended June 30,
1997 is for the period from September 13, 1996, the date Leisure Time acquired
Leisure Time Technology, to June 30, 1997.
23
<PAGE> 28
The following chart provides information as to material changes in Leisure
Time's historical statements of operations for the nine months ended March 31,
1999 as compared to the nine months ended March 31, 1998:
<TABLE>
<CAPTION>
STATEMENTS OF INCREASE PERCENTAGE
OPERATIONS ITEM (DECREASE) CHANGE REASON FOR CHANGE
- --------------- -------------- ---------- -----------------
<S> <C> <C> <C>
Manufacturing revenue $18.8 Million 84% Increased sales in South
Carolina due to a favorable
resolution of uncertainties
regarding the continued legality
of gaming in November 1998
Offshore gaming cruise revenue $ 3.7 Million N/A Commenced offshore gaming
cruises in July 1998
Cost of manufacturing revenue $ 9.4 Million 76% Increased sales in South
Carolina
Cost of offshore gaming cruise $ 0.4 Million N/A Direct costs incurred in
revenue connection with commencement of
offshore gaming cruises in July
1998
Selling, general and $10.7 Million 251% $6.0 million related to costs
administrative expenses associated with the Vegas
Express, including startup and
low season maintenance, payroll
and establishing a reservations
system; $4.0 million related to
increased manufacturing
overhead; $0.7 million related
to renovation of the Leisure
Lady
Research and development costs $ (.3 Million) (62%) Reduced research and development
Stock based compensation $ 1.4 Million N/A No comparable amount in prior
period
Interest expense, net $ 0.1 Million 19% Increased borrowings principally
related to refinancing of
Leisure Lady and acquisition of
Biloxi Belle
Litigation $(3.0 Million) N/A Judgment recorded in fiscal 1998
with no comparable amount in
fiscal 1999
Total operating expenses $ 8.9 Million 105%
Income taxes $ 1.3 Million 214% Increase in income in fiscal six
months correlates to increase in
taxes payable
Net income $ 2.4 Million 303%
</TABLE>
24
<PAGE> 29
The following chart provides information as to material changes in Leisure
Time's historical statements of operations for the fiscal year ended June 30,
1998, as compared to the fiscal year ended June 30, 1997:
<TABLE>
<CAPTION>
STATEMENTS OF INCREASE PERCENTAGE
OPERATIONS ITEM (DECREASE) CHANGE REASON FOR CHANGE
--------------- -------------- ---------- -----------------
<S> <C> <C> <C>
Manufacturing revenue $(1.2 Million) (4%) Decreased sales in South
Carolina due to uncertainties
regarding the continued legality
of gaming
Cost of manufacturing revenue $(0.1 Million) (0.6%) Decreased sales in South
Carolina
Gross profit $(1.1 Million) (8%) Higher labor and material costs
and higher facility costs as a
result of a move of facilities
Selling, general and $ 3.1 Million 55% Increased activities, including
administrative expenses an increase of $.7 million in
salaries; $.5 million due to
increased costs associated with
the amortization for a full year
of the covenant not to compete
related to the purchase of
Leisure Time Technology in
September 1996; new corporate
facilities which resulted in
depreciation and amortization
costs of $.5 million; costs of
$.5 million associated with the
startup operations of the Vegas
Express; a $.2 million increase
in rent; and $.7 million due to
increased marketing and
investigation of other product
lines
Research and development costs $ 0.2 Million 37% Increased research and
development related to video
pulltab machines and to video
gaming machines for use in
foreign countries
Interest expense, net $ 0.1 Million 18% Increased borrowings primarily
related to refinancing of
Leisure Lady
Litigation $ 3.0 Million N/A Judgment recorded in fiscal 1998
Total operating expenses $ 6.5 Million 95%
Income taxes $(1.9 Million) (111%) Effective tax rate of tax
benefit in fiscal 1998 is less
than effective tax rate in
fiscal 1997 due to nondeductible
goodwill amortization
Net income $(5.6 Million) (120%)
</TABLE>
As discussed elsewhere in this prospectus, Leisure Time acquired Leisure
Time Technology in September 1996. Prior to the acquisition, Leisure Time was in
the development stage. Leisure Time Technology (f/k/a U.S. Games, Inc.) is
considered a predecessor to Leisure Time. The following chart provides
information as to material changes in Leisure Time's historical sales and cost
of sales for the combined year ended June 30, 1997, as compared to the fiscal
year ended June 30, 1996, for Leisure Time Technology. The combined year ended
June 30, 1997 includes the period from July 1, 1996 through
25
<PAGE> 30
September 13, 1996 (prior to the acquisition) and September 14, 1996 through
June 30, 1997 (after the acquisition). No other comparisons will be made due to
the differences created by the acquisition.
<TABLE>
<CAPTION>
STATEMENTS OF INCREASE PERCENTAGE
OPERATIONS ITEM (DECREASE) CHANGE REASON FOR CHANGE
--------------- ------------ ---------- -----------------
<S> <C> <C> <C>
Manufacturing revenue $4.2 Million 15% Increased sales in South Carolina
and to Native American tribes
Cost of manufacturing revenue $2.2 Million 14% Increased sales in South Carolina
and to Native American tribes
Gross profit $2.0 Million 16%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since the acquisition of Leisure Time Technology in September 1996, Leisure
Time has funded its operations primarily through revenue generated by the sale
of video gaming machines. Leisure Time has acquired its assets, such as the
Vegas Express and the Leisure Lady offshore gaming vessels and its hotel
property, through long term debt and cash available from operations. As of March
31, 1999, Leisure Time had a working capital deficit of approximately $313,000.
The following information relates to Leisure Time's sources and uses of
cash during the nine months ended March 31, 1999.
Leisure Time generated $5.7 million of cash from operations that resulted
primarily from:
- net income of $3.2 million;
- $1.4 million in stock based compensation
- $1.3 million in depreciation;
- a $1.2 million increase in accounts payable; and
- a $1.9 million increase in income taxes payable.
Leisure Time utilized $4.0 million in cash in investing activities related
primarily to the purchase of:
- the Biloxi Belle for $1.5 million;
- the hotel for approximately $1.0 million; and
- approximately $1.7 million of equipment for the manufacturing and gaming
segment.
Leisure Time received cash from financing activities that consisted of:
- receipt of proceeds of approximately $5.3 million of long term debt.
Leisure Time used this cash as follows:
- approximately $2.8 million to refinance the debt on the Leisure Lady;
- approximately $1.5 million to finance the purchase of the Biloxi Belle;
and
- approximately $1.0 million to finance the purchase of the hotel.
Leisure Time paid approximately $5.4 million of the following debt:
- approximately $3.0 million to refinance the Vegas Express; and
- approximately $2.4 million to pay other debt at maturity.
26
<PAGE> 31
Leisure Time's current financial plan requires capital to be used during
the next 12 months as follows:
- approximately $4.0 million for acquisition;
- approximately $2.0 million to develop a new Pot O Gold line of video
gaming machines and to develop new software;
- approximately $2.0 million to expand manufacturing and research and
development;
- approximately $9.5 million to renovate the hotel; and
- approximately $1.0 million as capital for the equipment financing
business.
Leisure Time believes that the proceeds from the offering together with
cash flow and additional debt financing it may obtain will be sufficient for it
to satisfy its short term capital needs.
Leisure Time has a $1.0 million working capital credit facility. As of June
30, 1999, Leisure Time had borrowed all $1.0 million under the credit facility.
Leisure Time has obtained additional financing in the amount of $3.4 million by
financing a judgment it paid in May 1999. The amount financed must be repaid in
installments of approximately $308,000 each month for twelve months commencing
July 18, 1999.
Leisure Time's long term liquidity needs will consist primarily of working
capital to pay for receivables and inventory as Leisure Time grows and to pay
for long term investments. These investments could include vessels used for
gaming operations, businesses that Leisure Time acquires, such as gaming routes,
and facilities in which to operate its business. Future profits retained in the
business as well as bank debt or additional equity financing will be necessary
to pay for these needs. To date, Leisure Time has obtained debt financing from
various financial institutions. There can be no assurances that Leisure Time
will obtain long term liquidity for the future from these or any other sources.
If unable to obtain its long term liquidity, then Leisure Time may have to scale
back its long-term growth strategy.
Leisure Time expects to secure bank or other institutional financing to
complete the planned hotel renovations. If Leisure Time is unsuccessful in
obtaining this financing at all or at competitive rates, Leisure Time may elect
to extend its renovation schedule or to sell the hotel.
In January 1999, Leisure Time entered into an agreement with an
unaffiliated financing company to guarantee loans made to third parties to
purchase Leisure Time's video gaming machines. At May 31, 1999, such guarantees
totaled approximately $860,000. If Leisure Time is required to perform under
such guarantees with respect to a material principal amount, its liquidity could
be adversely affected.
INFLATION
Although Leisure Time cannot accurately anticipate the effect of inflation
on its operations, Leisure Time does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its financial
condition or operating results.
YEAR 2000 COMPLIANCE
Leisure Time is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000" problem
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information when
1999 changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail.
All of Leisure Time's material internal information technology and
non-information technology systems are year 2000 compliant. Leisure Time
expended approximately $75,000 in making all of its internal IT and non-IT
systems year 2000 compliant.
Leisure Time is in the process of verifying whether or not its primary
suppliers are year 2000 compliant. Leisure Time has completed year 2000
compliance warranty language to be included in all of its purchase
27
<PAGE> 32
orders placed with its suppliers for the last two quarters of 1999. Further,
Leisure Time has obtained and is obtaining suppliers' notices of compliance as
they recognize their preparedness. Leisure Time has not yet completed its full
assessment of the potential effect a failure of one or more of its primary
suppliers to be year 2000 compliant will have on Leisure Time's operations. As a
contingency plan, Leisure Time will work with suppliers in reviewing and
correcting identified problems. If ascertained that a supplier will be unable to
supply Leisure Time with needed inventory, Leisure Time will divert purchases to
alternate suppliers. Currently, Leisure Time is defining and refining the list
of approved alternate suppliers as a precaution against a present supplier's
inability to fulfill orders, thereby minimizing, if not eliminating, disruptions
to manufacturing. In the unlikely event no approved alternate supplier can be
identified, inventory levels of the specific product will be reviewed with the
present supplier and raised to provide a buffer against potential outages.
Leisure Time will continue to monitor the lead-times of products and the market
to ensure availability of supplies.
INTRODUCTION OF THE EURO
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and a new currency called the "Euro." These countries agreed to adopt the Euro
as their common legal currency on that date. The Euro trades on currency
exchanges and is available for non-cash transactions. The existing sovereign
currencies will remain legal tender in these countries until January 1, 2002. On
that date the Euro is scheduled to replace the sovereign legal currencies of the
member countries.
Leisure Time plans to sell its video gaming machines in countries that have
adopted the Euro. Leisure Time will evaluate the impact the implementation of
the Euro will have on its business operations, but does not expect the Euro to
have a material effect on its competitive position. Leisure Time can provide no
assurance that the implementation of the Euro will not have a material adverse
effect on its financial condition and operating results. In addition, Leisure
Time cannot accurately predict the impact the Euro will have on currency
exchange rates or its currency exchange risk. Leisure Time has historically
priced its foreign sales in dollars and, as a result, Leisure Time has had no
material need to hedge any foreign currency exposure. If competitive conditions
require Leisure Time to sell its products for the Euro or other currencies, it
may engage in currency hedging to manage this exposure in the future if
appropriate for it to do so.
ACCOUNTING STANDARDS NOT YET ADOPTED BY LEISURE TIME
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." Statement 132 revises employers'
disclosures about pension and other postretirement benefit plans. Statement 132
does not change the measurement or recognition of those plans, but requires
additional information on changes in benefit obligations and fair values of plan
assets and eliminates certain disclosures previously required by SFAS Nos. 87,
88 and 106. Statement 132 is effective for financial statements with fiscal
years beginning after December 15, 1997.
During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement 133 establishes new
standards by which derivative financial instruments must be recognized in an
entity's financial statements. Besides requiring derivatives to be included on
balance sheets at fair value, Statement 133 generally requires that gains and
losses from later changes in a derivative's fair value be recognized currently
in earnings. Statement 133 also unifies qualifying criteria for hedges involving
all kinds of derivatives, requiring that a company document, designate and
assess the effectiveness of its hedges. Statement 133 is required to be adopted
by Leisure Time in 2000.
Leisure Time has not determined what additional disclosures, if any, may be
required by the provisions of Statements 132, and 133 but does not expect
adoption of these statements to have a material effect on its results of
operations.
During April 1998, Statement of Position 98-5, "Reporting the Costs of
Start-Up Activities" was issued. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is required to be
adopted by Leisure Time in 1999. Upon adoption, Leisure Time does not anticipate
SOP 98-5 will have a material impact on its financial statement presentation,
financial position or results of operations.
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<PAGE> 33
BUSINESS
Leisure Time:
- manufactures and distributes video gaming and video pulltab machines,
related software and replacement cartridges for video pulltab machines;
- owns and operates one and owns and plans to operate another offshore
gaming vessel and one dockside gaming vessel;
- owns and operates video gaming machines; and
- owns and is renovating a hotel which Leisure Time plans will feature
video pulltab and bingo machines operated by charities.
The chart below should help you understand Leisure Time's structure.
<TABLE>
<S> <C>
LEISURE TIME CASINOS & RESORTS, INC. is a Colorado corporation formed on
LOGO February 4, 1993. Leisure Time principally develops, manufactures and
sells programmable video gaming machines and related software.
LEISURE TIME TECHNOLOGY, INC. was acquired by Leisure Time in September
1996 and it develops, manufactures and sells programmable video gaming
machines and related software.
SOLUTIA GAMING SYSTEMS is developing new video games and new video game
software.
LEISURE TIME CRUISE CORPORATION conducts offshore gaming cruises on the
"Vegas Express" and plans to conduct offshore gaming cruises on the
"Leisure Lady."
LEISURE EXPRESS CRUISE, LLC owns Florida Casino Cruises, Inc.
FLORIDA CASINO CRUISES, INC. owns the "Vegas Express" offshore gaming
vessel.
LEISURE BELLE CRUISE, LLC owns and is refurbishing the "Biloxi Belle," a
dockside gaming vessel for use in Mississippi.
LEISURE TIME GAMING, INC. owns One Eyed Jacks Gaming, Inc. and
distributes video gaming machines in South Carolina.
ONE EYED JACKS GAMING, INC. operates a video gaming route in which it
shares the revenue with location operators.
LEISURE TIME HOSPITALITY, INC. is renovating a hotel property that it
anticipates will include space where Leisure Time will be able to display
its video pulltab and bingo machines for marketing to charities.
LEISURE TIME FINANCIAL CORP. provides equipment financing for purchas-
ers of Leisure Time's products and other equipment.
LEISURE TIME INTERNATIONAL, LTD. operates as a foreign international
sales corporation.
</TABLE>
All of the entities are wholly-owned by Leisure Time Casinos & Resorts,
Inc.
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<PAGE> 34
INDUSTRY BACKGROUND
U.S. Gaming Machine Market. Bear Stearns & Co. Inc. has estimated in its
1998 Global Gaming Almanac that there were approximately 417,000 gaming machines
installed in the United States at the end of 1998. The estimates in the Almanac
are based on industry data gathered by Bear Stearns. The industry data will
continue to be updated by Bear Stearns. However, after the date of this
prospectus, Leisure Time does not intend to update the estimated Bear Stearns'
information or provide other similar estimated information. In 1997, traditional
slot machines accounted for approximately 64% of the total U.S. gaming machine
market. Video gaming machines, like those manufactured and sold by Leisure Time,
accounted for approximately 32% of the total U.S. gaming machine market. The
following table represents Bear Stearns' estimate of the gaming machines
installed in the U.S.:
<TABLE>
<CAPTION>
1996 1997 1998E 1999E 2000E 2001E 2002E CAGR*
------- ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTALLED BASE (BEGINNING OF PERIOD).... 321,386 367,340 401,516 416,705 445,565 453,740 462,965
New Machines............................ 45,955 34,176 14,545 27,860 9,175 9,225 23,875
Replacement Machines.................... 30,204 31,222 25,068 34,889 38,511 40,093 43,438
INSTALLED BASE (END OF PERIOD).......... 367,340 401,516 416,705 444,565 453,740 462,965 486,840 12.4%
</TABLE>
- ---------------
* Compound annual growth rate.
Source: Bear Stearns & Co. Inc. estimates
The following table represents Bear Stearns' forecast of the demand for new
gaming machines in the U.S.:
<TABLE>
<CAPTION>
1996 1997 1998 1999E 2000E 2001E 2002E CAGR*
------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL MACHINE DEMAND........................... 76,159 65,398 39,613 62,749 47,686 49,318 67,313
New Machines................................... 45,955 34,176 14,545 27,860 9,175 9,225 23,875 5.0%
% of Total..................................... 60.3% 52.3% 36.7% 44.4% 19.2% 18.7% 35.5%
Replacement Machines........................... 30,204 31,222 25,068 34,889 38,511 40,093 43,438 7.4%
% of Total..................................... 39.7% 47.7% 63.3% 55.6% 80.8% 81.3% 64.5%
</TABLE>
- ---------------
* Compound annual growth rate.
Source: Bear Stearns & Co. Inc. estimates
Leisure Time believes that traditional slot machines are currently losing
market share to video gaming machines. Leisure Time believes that the increased
demand for video gaming machines results from:
- legalization of gaming in new jurisdictions;
- casino expansion; and
- replacement of older machines.
Demand for gaming equipment is influenced by the legalization of gaming in
the U.S. The increased legalization and popularity of gaming as a component of
the "leisure time" industry has presented growth opportunities for Leisure Time.
In the last decade, the introduction of riverboat gaming in the Midwest U.S.,
the expansion of Native American casino gaming, the growth in state markets and
government-sponsored gaming have expanded markets for video gaming machines.
While Leisure Time anticipates future growth in the gaming industry, the rate of
growth in the U.S. market has diminished since the substantial growth
experienced in the early 1990's. The further expansion of gaming will continue
to be the subject of public debate with legalization typically requiring a
public referendum or other legislative action.
Leisure Time believes that video gaming machines have a useful life cycle
of approximately seven to ten years. Replacement cycle times are driven by
market preferences and technical advancements and may shorten the typical life
cycle. Leisure Time believes that replacement occurs as a result of
technological advancements, new designs, graphic improvements and improved audio
quality, the development of new games, general wear and tear from use and the
evolving preferences of players. The replacement market has
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<PAGE> 35
also expanded due to increased competition in the industry to provide customers
more entertaining and sophisticated games than traditional slot machines.
Replacement Market. Leisure Time has concentrated its sales and marketing
efforts in South Carolina because it has achieved its greatest success in
selling its video gaming machines in South Carolina. As a result, most of its
video gaming machine revenue is derived from South Carolina. According to the
South Carolina Video Game Machine quarterly report for the 3rd and 4th quarters
of 1997, there were approximately 30,000 video gaming machines in operation in
the state. According to the same report, of these 30,000 video gaming machines,
approximately 17,000 were video gaming machines manufactured by Leisure Time.
This represents a better than 50% market share in video gaming machines for
Leisure Time in South Carolina.
Assuming gaming is not discontinued in South Carolina, Leisure Time
believes that there is a market opportunity as operators in South Carolina and
elsewhere consider replacing their existing video gaming machines. Leisure Time
believes that operators will evaluate available video gaming and other machines
and will, in certain cases, consider new types of machines with the objective of
maximizing revenue. Bear Stearns & Co. Inc. estimates the demand for the
replacement market in the U.S. was approximately 30,000 machines in 1996, and
will grow to approximately 43,000 machines in 2002. Conversely, Bear Stearns
estimates that the demand for new machines (from new properties and expansions)
was approximately 46,000 machines in the U.S. in 1996, declining to
approximately 24,000 machines in 2002. This suggests that the replacement market
will represent a greater proportion of total gaming machine sales in the future.
Demand for replacement products is dependent, in part, upon the willingness of
owners or operators to incur the costs associated with replacing existing gaming
machines with new machines.
The existence of Leisure Time's video gaming machines that operators may
decide to replace in South Carolina and elsewhere, coupled with the Bear
Stearns' estimate that there are 417,000 installed gaming machines in the U.S.,
creates an opportunity for the sale by Leisure Time of new video gaming machines
to replace currently installed machines.
STRATEGY
Leisure Time's objectives are to be a leading provider of video gaming,
pulltab and bingo products and related software and to expand its gaming
operations to increase recurring revenue. Key strategies to achieve Leisure
Time's objectives include:
Increase Installed Base of Pot O Gold, Pulltab Gold and Bingo Product Lines
Leisure Time intends to continue increasing its installed base of video
gaming and pulltab products by:
- continuing to market its Pot O Gold product line to newly established
casinos and route operators both in existing markets and in jurisdictions
in which gaming is legalized, including to Native American tribes;
- expanding the sale of the Pot O Gold product line through marketing
directed at the replacement market;
- placing Pot O Gold, Pulltab Gold and bingo products in locations owned or
operated on a revenue sharing basis by Leisure Time;
- seeking to expand its market for Pulltab Gold and bingo products by
promoting its video pulltab and video bingo machines for use by
charitable organizations;
- providing casino and route customers with equipment financing to
facilitate increased sales; and
- offering a wide variety of interactive touchscreen video games featuring
new designs, graphic improvements, improved audio quality, sophisticated
data communication capabilities, customized formats and features designed
to increase player appeal.
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<PAGE> 36
Leverage Growth in Installed Products to Increase Recurring Revenue From
Software Sales
To date, most of Leisure Time's revenue has been derived from the sale of
video gaming machines. As its installed product base has grown, Leisure Time has
experienced an increase in customers for, and sales of:
- newly developed game software;
- software enhancements for existing games; and
- cartridge replacements for video pulltab machines.
Because software and cartridge sales have a lower associated cost of goods
sold than Leisure Time's other products, Leisure Time believes growth in
software and cartridge sales will have a favorable impact on Leisure Time's
gross profit. In addition, growth in the installed base of machines offers
Leisure Time the opportunity to spread software research and development costs
over a wider base, thereby reducing development costs per machine or game sold.
Leisure Time believes it can leverage its growing installed base of video gaming
machines to expand software and cartridge sales to existing and new customers.
Continue to Identify and Develop New Touchscreen Video Games and Game
Enhancements
Leisure Time intends to continue to pursue the development and introduction
of new and enhanced video games designed to increase player appeal. The
objectives of Leisure Time's continuing research and development activities are
to:
- develop new video games and game enhancements using common platforms,
thereby enhancing manufacturing efficiencies and accelerating development
times;
- identify new games or enhancements with substantial player appeal;
- enhance player entertainment using improved sound and graphics;
- incorporate attractive bonus features and local game preference options;
- increase operator appeal through reliability improvements and use of
sophisticated security and data communication devices; and
- promote early identification of trends in patron preferences.
Leisure Time believes that achievement of these objectives may result in
increased revenue, creation of economies of scale and improved earning power for
Leisure Time's video gaming, video pulltab and video bingo machines.
Increase Revenue Through Addition of Gaming Vessels and Passengers
Leisure Time expects to commence the operation of and to acquire additional
offshore gaming vessels in the near future that are expected to be based in
ports near that of its currently operating offshore gaming vessel. By achieving
density within adjacent markets sharing similar demographic profiles, Leisure
Time will seek to:
- increase its rate of market penetration;
- spread the costs of centralized services such as reservations,
advertising and promotion and management and training over a larger base
of vessels;
- obtain volume pricing discounts for fuel, food and beverage and port
services;
- concentrate its marketing and promotional activities to develop loyalty
among patrons and thereby increase revenue; and
- expand the installed base of Leisure Time video gaming machines to
broaden market awareness of its products.
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<PAGE> 37
As Leisure Time expands its offshore gaming vessel operations, Leisure Time
anticipates increasing its market presence, realizing economies of scale and
utilizing its cumulative experience to achieve operating efficiencies. Subject
to licensing, Leisure Time expects to initiate dockside gaming operations in
Mississippi and may increase additional dockside installations as it gains
operating experience in this market.
Expand Gaming Machine Route Operations
Leisure Time acquired its first gaming machine route in South Carolina in
February 1999. Leisure Time expects to expand its gaming route operations
through:
- acquisition of additional locations in South Carolina if gaming is not
discontinued in South Carolina;
- acquisition or establishment of routes in Louisiana, Montana, New Mexico
and selected other states; and
- addition of route locations in establishments not currently served by
existing route operations.
Leisure Time believes that creation of additional gaming route operations
will offer benefits such as:
- recurring revenue;
- increases in market share for the Pot O Gold product line, thereby
facilitating additional software sales; and
- opportunities for Leisure Time to increase video gaming product sales to
the replacement market.
Promote Acceptance and Use of Video Pulltab and Bingo Products
Leisure Time intends to complete the renovation of its hotel overlooking
Lake Erie in early 2000. Leisure Time anticipates that a portion of the space in
the hotel will be used to showcase Leisure Time's video pulltab and video bingo
machines for marketing to charities. Leisure Time's video pulltab machines
offer, and Leisure Time's video bingo machines will offer, a number of benefits
over traditional paper pulltabs and bingo games, including:
- enhanced tracking and accountability through data collection devices
incorporated in each machine;
- extended hours of operation, thus increasing opportunities for revenue
generation; and
- improved earnings potential through enhancing the speed of play.
Leisure Time will seek to use its hotel facility to demonstrate these
benefits for charitable organizations active in these forms of fundraising,
thereby:
- increasing its market presence;
- increasing revenue from machine sales; and
- increasing recurring revenue from software and cartridge sales.
Selectively Explore Domestic Acquisition and International Expansion
Opportunities
Leisure Time expects to pursue acquisitions of domestic companies engaged
in:
- development and sale of software designed for the gaming market;
- operation or ownership of offshore gaming vessels;
- gaming route operations; and
- purchase, ownership or licensing of rights to proprietary games or
enhancements.
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<PAGE> 38
Leisure Time will selectively evaluate potential international expansion
opportunities as they become available. Although Leisure Time has proposed the
acquisition of a company that has gaming route operations, Leisure Time
currently has no formal agreement for any acquisition. Leisure Time's
acquisition strategy will continue to focus on enhancing video machine sales,
promoting recurring revenue through increased software sales and gaming
operations and offering leading technologies in the video gaming industry.
POT O GOLD PRODUCT LINE
Leisure Time's principal video gaming machine is the Pot O Gold product
line. The retail price for a video gaming machine in the Pot O Gold product line
varies from approximately $5,400 to approximately $9,000 depending on the
features included. This product line offers three video gaming machines, the Pot
O Gold, Shamrock Poker and Keno Gold, which share a common central processing
unit. The common central processing unit contains all of the components of a
single video gaming machine with software and cosmetic variations. Leisure
Time's common central processing unit strategy allows:
- a streamlined manufacturing process with lower inventories;
- the versatility to develop new games through software updates and
cosmetic changes; and
- a synergy between all of the games in the product line where the
improvement of one game is useable to improve other games.
Leisure Time's principal video gaming machine, the Pot O Gold, features a
multi-game video package, including poker, blackjack, keno, slots and bingo,
that can be chosen by the operator from a library of approximately 50 games. The
Pot O Gold is designed to enable the player to have a desirable level of
interactivity without excessively slowing play. Leisure Time believes that the
Pot O Gold provides a balance of player interactivity and game sequence that
results in desired entertainment quality and continuing player interest to
maximize revenue for the operator. The Shamrock Poker and Keno Gold video gaming
machines that are a part of the Pot O Gold product line are similar to the Pot O
Gold with different games and cosmetics.
The current technology in the Pot O Gold product line is designed to offer
the operator game play configurations that Leisure Time believes are unmatched
by other current video gaming machines. The Pot O Gold product line has the
ability to display up to 12 games represented by icons on the video monitor. The
player may choose any one game for individual play from this menu. Each game
program may be set by the operator for up to six different percentages of the
total amount bet that will be paid to the player. This enables the operator to
select the desired percentage payout of each game for the targeted market.
A standard feature of the Pot O Gold product line, usually an option
offered at extra cost by other manufacturers, is a built-in LED display located
above the video monitor which offers a "progressive jackpot." The "progressive
jackpot" is a prize that a player may win by striking a combination of symbols
or cards. The "progressive jackpot" is set at a base amount that varies
according to the value of the coin or token denomination for which the machine
is set. The base amount and the progressive rate of each game is easily
configured by the operator.
Leisure Time believes that the Pot O Gold product line is attractive to
operators because of its:
- large library of approximately 50 games from which the operator may
choose;
- ability to utilize different percentage payouts set by the operator;
- ability to display 12 games from which the player may choose;
- multi-colored LED display and progressive jackpot feature; and
- ability to provide an interactive experience for the player.
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<PAGE> 39
Leisure Time believes the negative attributes of the Pot O Gold product
line as compared with other video gaming machine products are:
- the Pot O Gold has a slightly larger cabinet than most other video gaming
machines which limits the number of Pot O Gold machines that an operator
is able to place in a given location;
- the bill acceptor on the Pot O Gold is currently located on the left side
of the machine whereas the industry standard is to have the bill acceptor
located on the right side and the difference may limit the earning
potential of the machine; and
- the Pot O Gold has one basic cabinet style whereas most manufacturers
offer a variety of cabinet styles and the one cabinet style may limit the
operator in the placement of the machines.
Leisure Time believes that it has developed a successful formula that
creates a higher level of entertainment and video game appeal that generates
player loyalty and revenue for operators. Leisure Time carefully evolves its
product designs to take advantage of the latest technology and materials with a
modern look and play that still retains the critical elements of the Pot O Gold
product line identity.
Leisure Time has implemented a product quality construction and design
improvements program and in the third quarter of 1999 plans to introduce its
current Pot O Gold product line with:
- new graphic art on the machine glass;
- signs that are located above the machines to identify the machines; and
- new game software graphic presentations of the most popular games which
will feature additional variations of game pay-table configurations to
meet new market requirements.
Also, in the third or fourth quarter of 1999, Leisure Time plans to introduce
its current Pot O Gold product line in upgraded and redesigned cabinets. The new
cabinets will include newly designed upright cabinets in the traditional "round
top," "square top" and "no top" versions and will feature two versions of the
front of the machine which will enable the bill acceptor to be placed on the
right or left side of the machines as specified by route operators and by casino
operators. The new designs will be engineered to house the latest industry
standard bill acceptors and other hardware to facilitate the interface and
integration with casino and route operations.
The Pot O Gold product line library of games has been developed to meet
various market and jurisdictional requirements in the United States and
internationally. Leisure Time is designing and developing new game software for
its video gaming machines. The new games will be sold separately to owners of
Leisure Time's video gaming machines.
Leisure Time believes that the experience it has gained from its current
markets will assist it in marketing the Pot O Gold product line in other
jurisdictions.
New Pot O Gold Video Gaming Machine. Leisure Time is currently developing a
new Pot O Gold video gaming machine. Leisure Time anticipates that the new Pot O
Gold video gaming machine will be available in the first quarter of 2000.
Leisure Time's Pot O Gold video gaming machine has historically been based upon
various combinations of poker, blackjack, keno, slots and bingo style video
games that are custom tailored for each gaming jurisdiction according to
regulatory requirements and player preferences. The new video gaming machine
will incorporate this and other desirable features of the current Pot O Gold
video gaming machine. The new video gaming machine will also feature updated
memory and software functions for the latest integrated banknote currencies,
validation acceptors and industry standard required interfaces to all major on
line data systems providers.
Leisure Time plans to incorporate personal computer technology in its next
generation of video gaming machines because personal computer technology:
- expedites the game development process by utilizing commercially
available hardware and software development tools which are readily
available from many different suppliers;
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<PAGE> 40
- is cheaper than custom technology;
- is familiar to operators and players alike; and
- offers increased speed, video resolution and color depth and compact disk
audio quality.
Leisure Time believes that the newly redesigned video gaming machines will
enable it to expand its market, including in traditional casinos and in
jurisdictions where Leisure Time is or plans to be licensed. Most or all of the
jurisdictions where Leisure Time has applied for licenses or plans to apply for
licenses require that all gaming machines meet certain hardware and software
configurations. These requirements are dictated by the computer system installed
in the casino property that links all installed machines to collect data for
security, financial and maintenance information.
PULLTAB GOLD PRODUCT LINE AND PLANNED VIDEO BINGO PRODUCT LINE
Pulltab Gold Product Line. Leisure Time has developed a product line of
video machines that offer the popular game of pulltabs. The Pulltab Gold video
machine is Leisure Time's first pulltab product. The retail price of a Pulltab
Gold video machine will be approximately $3,995. It was designed to address what
Leisure Time believes are the growing concerns of pulltab operators and
regulators. Frequently, paper pulltabs are used in environments that require
integrity and accountability levels that cannot easily be achieved with paper
pulltabs. Pulltabs are often sold by attendants or sales representatives that
receive gratuities. Leisure Time believes that this invites corruption because
the attendants or sales representatives coach patrons to purchase from a
particular box or to avoid a box that has no large winners left. Some pulltab
boxes purchased for resale can be manipulated to pay out less by removing some
of the winners. The winners are often shipped from the factory bound separate
from the losers. Ensuring that the proper funds are received for pulltabs sold
is often another labor-intensive activity, increasing the overhead of the
operation.
Leisure Time's Pulltab Gold video machine provides pulltab cartridges that
cannot be manipulated and automates many of the tasks associated with paper
pulltab operations. Leisure Time believes that the Pulltab Gold video machine
increases not only the integrity of the game, but also the profit potential for
the operator. Leisure Time believes that regulators and operators alike are
realizing that there are no solid arguments against the application of
technology, such as that contained in the Pulltab Gold, to bring heightened
security and play appeal to the game.
The Pulltab Gold video machine is comprised of one or more
touchscreen-based video pulltab dispensers that are used by patrons to play the
game of pulltabs. Each machine has a minimum of a bill acceptor for taking cash
and a printer for either printing pulltabs or vouchers in high security
situations. Instead of using printed pulltabs for determining gameplay outcomes,
the Pulltab Gold system utilizes encrypted electronic pulltabs stored inside
operator-replaceable cartridges. Each cartridge currently contains 40,000
pulltabs. Leisure Time believes that these cartridges add significantly to the
simplicity and security of the Pulltab Gold machine. Cartridges are recyclable
and are filled in random order at Leisure Time's manufacturing facility. No one
knows the sequence of the various winners and losers. Encrypted data is used to
discourage hackers from manipulating the cartridges. Leisure Time sells the
replacement cartridges directly to Pulltab Gold operators. The retail price of a
replacement cartridge is approximately $800, or $0.02 per pulltab.
Each Pulltab Gold video machine can be configured to contain its own set of
cartridges or a number of the Pulltab Gold video machines can be linked into
what is called a bank. Only one of the machines contains the cartridges and is
considered the master machine. The other machines in the bank are called slaves
and receive pulltabs from the master machine. This allows everyone playing the
same game to play out of the same cartridge and to compete for the available
prizes. Leisure Time believes that this is an important aspect of many pulltab
operations, since it puts players in competition with each other, not with the
pulltab operator.
To help ensure a smooth operation, the cartridges in the master machine are
organized as pairs. One cartridge is opened for use and when that cartridge is
emptied the machine automatically opens the other in the pair. This allows the
operator to replace the empty cartridge without disrupting play and without the
players knowing that a new cartridge was opened.
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Since it is common for a pulltab operation to offer many different games,
the Pulltab Gold video machine can accommodate up to eight different games at
one time, meaning that up to sixteen cartridges can be loaded into the master
machine. For added flexibility, the choice of how many games and which games are
available on each machine is separately configurable. Games installed in the
master do not have to be enabled for play on the master. If desired, an
eight-machine bank can be configured to have each machine playing only one game,
with a different game on each machine. Conversely, all eight machines could have
all eight games available. The bank size limit for cartridge-based machines is
32, but Leisure Time recommends that there be no more than 20 machines on a bank
if the master machine is going to be available for play.
There are approximately 30 graphics sets for the Pulltab Gold from which an
operator may choose. Leisure Time can match any of these graphics sets to any of
over 150 lot payables that have been created for various pulltab games. Leisure
Time can also customize pulltab cartridges to a particular jurisdiction's
regulatory requirements.
Video Bingo. Leisure Time is currently developing a video bingo machine. In
1997 Leisure Time believes that there were approximately 37,000 licensed bingo
halls operating in 46 states and the District of Columbia. Most people learn to
play bingo in church basements or at charity fund-raisers. Bingo is one of the
oldest and most popular types of entertainment in the country and provides
revenue for both suppliers and sponsors. Leisure Time believes that bingo is
exciting because it involves risk, reward, and in many cases, big dollar prizes
all housed in a unique social environment that people value. Current laws are
changing to allow bigger prizes and faster games and technology is now capable
of delivering those games.
Traditional bingo is played on a paper bingo card. Players "mark" the card
face with an ink dauber when the bingo number is called. Most skilled paper
bingo players can manage up to 20 paper cards a time. As players are able to
play more cards at one time, their odds of winning greatly improve.
Leisure Time believes that video bingo combines the excitement of
traditional paper bingo with the advanced multimedia and networking capabilities
of the latest computers. With the aid of these computers, called player
stations, video bingo players are capable of playing as many as 600 bingo cards
simultaneously. Leisure Time believes that, because a significant majority of
players who use video bingo player stations also purchase paper cards, the use
of Leisure Time's video bingo player stations will generate additional revenue
for bingo hall operators. Leisure Time is developing the following video bingo
related products:
- Frame Relay Network. Leisure Time has developed and plans to implement a
state-of-the-art telecommunications infrastructure that will be used as
the backbone for Leisure Time's wide area network, progressive jackpot
video bingo games. With this network Leisure Time anticipates being able
to monitor, service and upgrade its products from a single location. The
frame relay network may also be used to deliver other services such as
e-mail, Internet access, video-conferencing, software upgrades and voice
communications.
- Progressive Jackpot Bingo Game. In the third quarter of 1999, Leisure
Time expects to have developed a nationwide, progressive jackpot bingo
game. By linking player stations and progressive jackpot prize pools
locally, regionally and nationally into a single bingo game, Leisure Time
will be able to offer prizes surpassing those offered by single bingo
halls and casinos. Leisure Time expects these progressive jackpots to
enhance player attraction, generate increased revenue for the operator
and promote long-term player participation. All of the development for
the nationwide, progressive jackpot bingo game is completed except for
the development of certain hardware which is in process, the development
of animation software, which is currently in process, and the development
of the data base and accounting software which is in process.
- Network Operations Center. Once the progressive jackpot bingo game is
completed, Leisure Time plans to complete its network operations center.
Leisure Time expects the network operations center to be completed in the
third quarter of 1999. The network operations center will maintain
Leisure Time's frame relay communications network. This network
operations center will also monitor Leisure Time's wide area networked,
progressive jackpot video bingo games.
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- Sit-Down Player Station. Leisure Time anticipates that its video bingo
player station will be available in the third quarter of 1999. The video
bingo player station is simply a hardware modification to the nationwide,
progressive jackpot bingo game. The standard sit-down player station will
use 15" and 17" monitors that will be mounted on a table where players
mark bingo cards. This will give players the ability to play traditional
paper bingo concurrently with video bingo. Leisure Time also plans to
develop a next-generation video bingo sit-down cabinet using three
full-color, 15" touch-screen LCD panels that will be mounted
side-by-side. With this design, Leisure Time will be able to offer 200%
more viewable area than that of a conventional 19" sit-down cabinet. The
casino operator will have control over the "attraction mode graphics."
Instead of manually replacing static attraction graphics, using software,
the operator will be able to display full-motion advertisements on the
LCD panels. Leisure Time believes that this design will offer durability,
longevity, flexibility and esthetic appeal all in a footprint that is
smaller than that of today's existing 19" sit-down cabinets.
- Player Tracking/Cashless Gaming. In the fourth quarter of 1999, Leisure
Time plans to have developed a player tracking system for its video bingo
player stations. The player tracking system will be developed after the
jackpot bingo game is completed. This system will store player account
information, player tracking information and the player's personalized
game preferences. A copy of the player's account information will be
stored in a high-performance database that is updated in real time. Any
time the player is logged into a player station, the database will
automatically update the player's account information including credits,
spendings, winnings and player points. This information will be available
to the player from any player station. The database will be updated,
through Leisure Time's high-speed frame relay network, to all
participating locations. This will allow the player to use the player's
player card to play Leisure Time's video bingo games at any participating
location. The casino operator will be able to use player tracking to
monitor its player base and for marketing and promotions. This system
will be the basis for implementing a cashless gaming environment.
- Enhanced Player Services. In the fourth quarter of 1999, Leisure Time
plans to offer enhanced services to the player. The enhanced player
services is a software feature that will be developed after the
completion of the progressive jackpot bingo game. These services will
enable the player to order food, drinks or merchandise directly from the
player station, monitor the player's point information and make
reservations for future gaming events. Other services may include
Internet access, personalized e-mail accounts and e-commerce capabilities
directly accessed from the player station. The player will be able to
access the services offered and still continue to play without
interruption.
- Handheld Video Bingo Units. In the first quarter of 2000, Leisure Time
plans to have developed a wireless, touch-screen handheld video bingo
player station. The handheld video bingo player station is basically the
progressive jackpot bingo game with fewer features. This station will
give the video bingo player the same advantage over the paper bingo
player as the standard sit down station with the added benefits of
portability and a smaller footprint. The station will be offered with
either a monochrome LCD panel or a full color LCD panel. Leisure Time
anticipates that various video bingo games will be able to be played from
any location within a casino using the handheld unit.
- Continuing Game Development. In the first quarter of 2000 Leisure Time
plans to continue developing new interactive linked video bingo games
with even larger progressive jackpots. These games will operate on
Leisure Time's frame relay network and will be available for play 24
hours a day, 365 days a year. They will include such features as
multi-game and multi-level buy-in, ever-increasing progressive jackpot
prizes, player interaction and fast-paced game play. As facilitator of
these linked games, Leisure Time has the opportunity to enter into
revenue sharing arrangements with each facility operating these games. In
addition to the revenue from the initial sale of games, Leisure Time will
have the opportunity to generate revenue directly proportional to
gameplay for the life of the game. Leisure Time also expects reduced
development cost and time for these games due to the versatility of
Leisure Time's universal gaming platform and Leisure Time's planned
high-speed frame relay network backbone.
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Leisure Time's estimates of the completion dates for the above items are
based upon the various stages of development of each of the above items.
SOFTWARE SALES AND DEVELOPMENT
Leisure Time believes that it will realize material revenue during the
remainder of 1999 through the sale of a data communication device that may be
required to be installed into all video gaming machines in South Carolina and
through the sale of year 2000 software upgrades for its installed video gaming
machines.
Data Communication Device. If a referendum is passed in South Carolina on
November 2, 1999, all gaming devices in South Carolina will be required to be
connected with the state's central computer system. This proposal has required
the development of a data communication device that will collect and forward
accounting information to the system. Leisure Time has responded to this
requirement with its latest product, the N-DAT 1000(TM). The retail price of the
N-DAT 1000(TM) will be approximately $1,895. Leisure Time has worked closely
with an independent testing laboratory for the gaming industry to ensure that
development efforts closely follow regulatory requirements. The laboratory is
testing the N-DAT 1000(TM) and Leisure Time expects approval before December 1,
1999. Of the approximately 30,000 video gaming machines in South Carolina,
approximately 17,000 are Pot-O-Gold product line machines. A data communication
device is required for every five video gaming machines. Further, under the
proposed law, each Pot O Gold will need new software that sets single payout
percentages per machine. The retail price of the software will be approximately
$795. Leisure Time believes that due to its established customer base in the
state, sales of the N-DAT 1000(TM) and new payout software will be a significant
source of revenue. No N-DAT 1000(TM)'s have been sold. If sales commence,
Leisure Time expects revenue of up to approximately $5.1 million from the sale
of the N-DAT 1000(TM) and that most of the revenue will be realized by January
31, 2000. Leisure Time provides no assurances as to the amount of revenue or by
when the revenue will be received.
Year 2000 Software. Leisure Time has developed and is selling software
upgrades for its video gaming machines which enable the machines to operate past
the year 2000. Leisure Time is making this year 2000 software upgrade available
to the owners of its currently installed video gaming machines. The retail price
of the year 2000 software upgrade is approximately $500.
Software Development. In addition to Leisure Time's sales of the data
communication device and year 2000 software, Leisure Time anticipates receiving
recurring revenue from the sale of software upgrades which each currently have a
retail price of approximately $750. Leisure Time believes that it has created
games that are user friendly, entertaining and comfortable to play for extended
periods of time and that instill in the player a desire to return to play again.
Leisure Time plans to incorporate the aspects of its current software into its
future generation of games.
Leisure Time believes that the basis for competition in most gaming markets
is driven by two primary elements: the costs of the gaming equipment and the
potential profit to the location operator. Many of the games developed by
Leisure Time are offered as software upgrades. These software upgrade packages
allow the operator to change existing games and cabinet glass display artwork
without changing the actual video gaming machine. For many operators, this
process can extend the life of the video gaming machine. Leisure Time believes
that as its base of installed video gaming machines increases, its market for
software upgrades will also increase. Leisure Time's software upgrades have a
greater gross margin than sales of its video gaming machines. Software
engineering personnel are being added to help Leisure Time attain its goal of
developing approximately six new games per year for existing video gaming
machines. Leisure Time plans to continue developing new game software to support
its current Pot O Gold product line for approximately 2 to 3 years. After that
time, owners of the current Pot O Gold video gaming machine will have to
purchase a new circuit board from Leisure Time to be able to use new game
software developed by Leisure Time. Leisure Time plans to introduce the next
generation of its Pot O Gold video gaming machine with new systems and games in
the second quarter of 2000.
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RESEARCH AND DEVELOPMENT EXPENSES
During the fiscal years ended June 30, 1996, 1997 and 1998 and during the
nine months ended March 31, 1999, Leisure Time spent $0, $469,000, $642,000 and
$174,000 on research and development, all of which was conducted and paid for by
Leisure Time.
MANUFACTURING AND SERVICING
Leisure Time's manufacturing facility is approximately 40,000 square feet.
In a work week of four ten-hour days with 45 employees and a supervisory staff,
Leisure Time is able to produce up to 400 video gaming machines. Leisure Time
conducts both sub-assembly and final assembly operations. Leisure Time's
manufacturing operation builds the components at the sub-assembly stage and, in
turn, the sub-assemblies are placed in stations where they are incorporated into
a final assembly or cabinet. As the cabinet moves along the production line from
station to station, sub-assembled components, complete components or parts are
built into the cabinet. The completed video gaming machine is then tested to
ensure the software is functioning properly and all operating standards are met.
After testing, the video gaming machine is packaged for shipment to the
customer.
As of June 30, 1999, Leisure Time had a backlog of orders of approximately
$8.4 million that Leisure Time believes is firm. Leisure Time anticipates that
all of the backlog at June 30, 1999, will be filled by August 1999. Leisure Time
believes that backlog may not be a meaningful indicator of revenue expected in
future periods. As of June 30, 1998, Leisure Time had a backlog of orders of
approximately $.3 million.
As of March 31, 1999, Leisure Time had an inventory value of approximately
$4.1 million that Leisure Time maintains to meet the delivery and repair
requirements of its customers. Leisure Time's inventory increases in
anticipation of orders and a significant amount of Leisure Time's current assets
is invested in inventory and accounts receivable until payment is received from
the sale of video machines.
Leisure Time currently services the video gaming machines it sells. Leisure
Time is considering expanding its service operations by becoming an authorized
repair center for manufacturers of items such as bill acceptors and printers so
that Leisure Time can service video gaming machines sold by others. Leisure Time
has not yet been authorized as a repair center by any other manufacturer.
SALES AND MARKETING OF VIDEO MACHINES
Leisure Time believes that the experience it has gained from the markets
where its video gaming machines are currently located will assist its marketing
personnel in developing new markets. In order to achieve these goals, Leisure
Time believes in utilizing experienced gaming industry personnel for its sales
and marketing efforts. These gaming personnel are able to interface, guide and
advise the operator on methods that will contribute to profitability for the
operator.
Leisure Time has developed a customer base for its video gaming machines in
South Carolina, on Native American reservations in several states, in Brazil and
in Norway. Leisure Time plans to continue to expand its customer base in those
areas and is evaluating the marketing of its video gaming machines in other
states and countries.
Leisure Time believes that in order to be successful in expanding the
market for its video gaming machines into new states and jurisdictions, a good
customer relationship needs to be established by a professional and experienced
sales and service organization. Leisure Time is continuing to create such a
sales and service organization to support market opportunities in the various
geographical areas of the United States and in the international market. The
sales organization utilizes a central reporting system linked to Leisure Time's
headquarters that is complemented by sales policies, training, market analysis
and operations meetings held on a regular basis.
As of June 30, 1999, Leisure Time had nine employees engaged in sales and
marketing. Of the nine employees, at least seven have at least five years of
experience in the gaming industry. Leisure Time plans to add additional sales
and marketing people in the near future.
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Leisure Time has appointed Sao Paulo Games Comercial LTDA as the exclusive
distributor of the Pot O Gold product line in Brazil. Sao Paulo purchases the
Pot O Gold machines at a fixed price for resale or for Sao Paulo's use. The
agreement is in effect until December 31, 2000, if Sao Paulo purchases a minimum
number of Pot O Gold machines each calendar quarter. If not, Leisure Time has
the right to terminate the agreement. The agreement will be automatically
renewed for two one-year terms unless either party determines not to renew the
agreement. Leisure Time also has orally agreed that Sao Paulo can test market
the Pot O Gold product line in Argentina. If the test marketing proves
successful, it is contemplated that Sao Paulo would become a distributor for the
Pot O Gold product line in Argentina.
Leisure Time received total revenue of approximately $5.7 million, $3.2
million and $65,833 from sales in foreign countries during Leisure Time's fiscal
years ended June 30, 1999, 1998 and 1997, respectively. The following chart
provides information pertaining to the revenue Leisure Time received from sales
in foreign countries:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30 ARGENTINA BRAZIL NORWAY
- ---------- --------- ---------- --------
<S> <C> <C> <C>
1999................................................ $141,875 $5,232,652 $202,330
1998................................................ -- 3,210,691 --
1997................................................ -- 65,833 --
</TABLE>
Leisure Time did not commence sales in Norway until Leisure Time's fiscal
year ended June 30, 1999. Leisure Time anticipates that Leisure Time will derive
additional revenue from Norway in the future. Leisure Time's Pot O Gold product
line is being test marketed in Argentina. Leisure Time cannot predict whether or
not Leisure Time will ever derive any significant revenue from Argentina in the
future.
Leisure Time has no significant long-lived assets in any foreign country.
In the Native American bingo/casino markets, laws are changing to allow for
games with a higher level of player interaction that will generate more player
interest. Leisure Time believes that these changes will provide an increase in
video bingo revenue and a demand for more video bingo player stations. In some
Native American bingo markets, operators are beginning to replace paper bingo
games with video bingo games.
Laws are changing in the charity bingo markets as well. These changes allow
for wide area networked, progressive jackpot games and games with larger cash
prizes. Leisure Time believes that these changes will facilitate an increase of
the current player base and thus an increased demand for Leisure Time's video
pulltabs and bingo gaming machines. Leisure Time markets and plans to market
sit-down video pulltabs and bingo machines, wireless portable video bingo units
and wide area networked, progressive jackpot units within the charity markets.
Leisure Time's video bingo player stations will be marketed to Native
American bingo/casino venues and charity bingo halls. Leisure Time can sell,
lease or rent video bingo player stations to both markets. Leisure Time plans to
enter into one to three year contracts under which it will receive a portion of
the revenue generated by the player stations where permitted by applicable law
or, to a lesser extent, a fixed rate per bingo session. Although capital
intensive, Leisure Time believes that the "revenue share" agreement is typical
within the bingo industry where permitted by applicable law and has been
profitable for the vendor of the machines.
Leisure Time has sold approximately 70 Pulltab Gold machines in Ohio.
Leisure Time intends to increase its marketing efforts for Pulltab Gold machines
in Ohio and in other jurisdictions where pulltab operations may be conducted.
Leisure Time also plans to enter into distribution agreements and/or
strategic alliances with qualified representatives where jurisdictional and/or
particular market situations make it advantageous to do so. For example, Leisure
Time acted as a nonexclusive agent on a commission basis for the sale to a
casino in Europe of casino signs, electronic progressive meters and animated
technology manufactured by a European company.
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During the fiscal year ended June 30, 1998, Drews Distributing, Inc. and
Collins Entertainment Corp. accounted for approximately 47% and 23% of Leisure
Time's total sales. During the nine months ended March 31, 1999, Drews
Distributing, Inc., Collins Entertainment Corp. and Sao Paulo accounted for
approximately 33%, 11% and 10% of Leisure Time's total sales. Leisure Time's
distributor agreements with Drews Distributing, Inc. and Collins Entertainment
Corp. were terminated or not renewed in November and December, 1998,
respectively. Leisure Time is currently in litigation with both former
distributors. See "-- Litigation."
GAMING VESSELS
Offshore Gaming Cruises. Leisure Time currently owns two offshore gaming
vessels, the Vegas Express and the Leisure Lady, which are or will be in the
"cruise-to-nowhere" business. Federal law allows gaming on a vessel once the
vessel has left state waters. On the East Coast of the United States, state
waters generally extend three miles from land. Each offshore gaming cruise
vessel departs from its respective port and returns to the same port without any
intervening stops, hence the name "cruise-to-nowhere."
The "cruise-to-nowhere" industry began in the mid-1980s in Florida. Until
1992, only foreign flagged vessels could have gaming equipment on board. In
1992, United States flagged vessels were permitted to have gaming equipment on
board. The new law provides that any state could "opt out" and make "cruises-to-
nowhere" illegal in that particular state. To date, only California and Hawaii
have done so.
The Vegas Express operates out of Gloucester, Massachusetts, which is
approximately 35 miles north of Boston, Massachusetts. The Vegas Express began
operations in July 1998. Until Leisure Time locates a port for the Leisure Lady,
Leisure Time cannot predict when the Leisure Lady will commence offshore gaming
cruises. In addition to offering full gaming casinos that include reel and video
slot machines, blackjack, roulette, dice and poker, the cruises offer dining,
dancing and entertainment. The cruises last from four to six hours.
The Vegas Express is a United States flagged vessel. She is approximately
202 feet long and approximately 38 feet wide with a capacity for approximately
426 gaming passengers. In addition, she has approximately 277 positions in which
to place gaming machines.
The Leisure Lady is a United States flagged vessel. She is approximately
137 feet long and approximately 45 feet wide with a capacity for approximately
400 gaming passengers. She has approximately 257 positions in which to place
gaming machines.
The Vegas Express, weather permitting, conducts nine cruises each week
during the winter months and two cruises each day during the summer months. The
current price for a cruise on the Vegas Express is $39.00. The price for a
cruise on the Leisure Lady will depend on the port, the market, the competition
in the market, the day of the week, the time of day, the time of year and
whether or not it is a holiday season. Leisure Time offers various discount
passenger rates to groups, charterers of an entire vessel, and others and offers
various special fares and complimentary fare programs for its rated casino
patrons.
The offshore gaming cruise business is subject to seasonal fluctuations as
a result of adverse weather conditions. The revenue derived from offshore gaming
cruises suffers as a direct result of inclement weather, decreasing both the
number of cruises conducted and passenger counts. In addition, passenger counts
are lower immediately before and immediately after inclement weather conditions.
Other than local, occupational, liquor and food licensing and permitting,
Leisure Time's offshore gaming cruise vessels are not subject to gaming
regulation or licensing. Gaming cruise vessels are regulated by the United
States Coast Guard and are periodically inspected for regulatory compliance.
Both the Vegas Express and the Leisure Lady hold current certificates of
inspection from the United States Coast Guard.
Marketing. Leisure Time focuses and will focus its marketing in areas
primarily within a 50 mile radius of Gloucester. Leisure Time must attract
passengers from both the local and tourist populations to offset to some degree
the seasonal fluctuations that are known to occur in the Massachusetts tourist
industry. Leisure Time focuses its efforts on local markets and on tourists
visiting the local markets on vacation. Leisure Time
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markets its offshore gaming cruises through general advertising, direct
mailings, travel agents and Leisure Time's own sales and reservation personnel.
Dockside Vessel. Leisure Time has acquired the Biloxi Belle, a dockside
gaming vessel that is currently located on the Mississippi River. The Biloxi
Belle is approximately 217 feet long and approximately 40 feet wide with a
capacity for approximately 1,900 passengers. The Biloxi Belle has approximately
780 gaming positions. Leisure Time plans to renovate the Biloxi Belle when a
site is located for the vessel. Leisure Time plans to have the Biloxi Belle
operational during the third or fourth quarters of the fiscal year ending June
30, 2000, provided Leisure Time becomes licensed in Mississippi. Leisure Time
intends to locate the Biloxi Belle as a riverboat operation on the Mississippi
River in Mississippi. The competition for the Biloxi Belle will include the many
other riverboats and dockside gaming vessels and land-based casinos within a 200
mile radius from where the Biloxi Belle is finally located. If Leisure Time does
not become licensed in Mississippi, Leisure Time will attempt to sell the Biloxi
Belle.
Reservations System. Leisure Time is developing a central reservations
system that will link each port to a web site via the Internet. This system also
will enable customers to make their own reservations "on line," monitor their
"frequent traveler" information and purchase Leisure Time merchandise. Leisure
Time believes this centralization will allow it to operate each vessel more
efficiently, control passenger counts and enable guest services to utilize
capacity in each vessel by offering more than one port, time and vessel to the
customer. The system is also expected to allow Leisure Time to verify credit
card information and inform passengers via e-mail of new promotions.
GAMING MACHINE ROUTE OPERATIONS
In February 1999, Leisure Time acquired a gaming machine route operation in
South Carolina. A gaming machine route operation involves the installation,
operation and servicing of video gaming machines under revenue participation
agreements with local retail establishments, such as taverns, restaurants,
supermarkets, drug stores and convenience stores. Leisure Time's route operation
currently has 17 locations containing approximately 78 video gaming machines in
various parts of South Carolina. Leisure Time's agreements for its locations
generally are in the form of revenue sharing agreements and give Leisure Time
the exclusive right to install gaming machines at such locations. The agreements
are generally terminable by either party on 30 days' written notice.
Leisure Time believes that gaming machine route operations will provide
Leisure Time with a long-term, stable revenue source. Accordingly, unless gaming
is discontinued in South Carolina, Leisure Time intends to acquire additional
gaming machine route operations in South Carolina. Leisure Time intends to
either establish or acquire gaming machine route operations in other states with
the initial focus being on Louisiana, Montana and New Mexico. Although Leisure
Time has proposed the acquisition of a company that currently operates gaming
routes, Leisure Time has no formal agreements for the acquisition of any gaming
machine route operations.
Market. Leisure Time believes that the single biggest factor in determining
the success of gaming machine routes is player demand. Based on reported revenue
for the locations, Leisure Time's Pot 0 Gold video gaming machine product line
has been the most popular video gaming machine route product line in South
Carolina. Leisure Time believes that the Pot O Gold product line will continue
to be the game of choice in South Carolina.
Leisure Time attempts to attract and retain gaming machine route patrons
through direct mailings which offer an attractive selection of video gaming
machines. Prior to installing video gaming machines at a location, Leisure Time
studies the market potential and customer base and determines the appropriate
video gaming machine mix for the location. Most of the video gaming machines in
Leisure Time's route operation have progressive jackpots.
In marketing its services to location owners, Leisure Time emphasizes
quality of service. Leisure Time operates and services its video gaming machines
using its own employees, who routinely repair and maintain Leisure Time's video
gaming machines in order to improve reliability and in-service time. Leisure
Time
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believes that its video gaming machines and related equipment in its route
locations are well maintained and in good working condition.
In addition to physically servicing the gaming machines, employees of
Leisure Time may also remove coins and bills from the machines, refill machines
that have exhausted their supply of coins and provide payment of jackpots in
excess of machine limits. The services provided by Leisure Time can vary based
on the terms of its revenue sharing arrangements with location owners.
Possible Acquisition. Leisure Time has proposed the acquisition of Best
Amusement, Inc., a company that has gaming route operations in South Carolina.
The owner of Best Amusement, Inc. has orally indicated to Leisure Time that he
agrees with the proposal. If the acquisition is consummated as proposed, the
owner would receive the following from Leisure Time:
- at the closing, $2 million plus certain machine license renewal fees paid
by Best Amusement, Inc.;
- at the closing, 363,640 shares of Leisure Time's common stock;
- an agreement by Leisure Time to repurchase the 363,640 shares if the
owner is not able to sell them for at least $13.00 per share one year
after the date of closing;
- an additional $2 million 90 days after the closing;
- up to $75,000 in income taxes associated with Best Amusement, Inc.'s
income prior to the closing; and
- a three year consulting agreement that will pay the owner $7,500 per
month plus a commission of 10% of the first $500,000 and 5% of any amount
over $500,000 paid by Best Amusement, Inc. upon acquisition of a gaming
route from the owner of the route.
Best Amusement, Inc. has approximately 65 locations containing
approximately 333 video gaming machines.
There are no assurances Leisure Time and the owner will enter into an
agreement or that the acquisition will occur.
RELATED BUSINESSES
Hotel. In June 1998, Leisure Time acquired a hotel property in the
Cleveland, Ohio area that Leisure Time plans to open in the first quarter of
2000. The hotel has been closed for approximately seven years and was formerly
operated as a Howard Johnson Plaza hotel. Leisure Time is currently renovating
the hotel and, when completed, it is planned that the hotel will have
approximately 210 rooms, all with a view of Lake Erie, a full-service conference
center, an enclosed swimming pool, a fitness center and a restaurant. Leisure
Time has entered into a license agreement with Radisson Hotels International,
Inc. to operate the hotel under the Radisson franchise system. The license
agreement entitles Leisure Time to use the Radisson system and marks and
requires Leisure Time to name the hotel the "Radisson Hotel Lakefront
Cleveland." The license agreement is for a term of 20 years and requires that
the hotel to be open no later than April 30, 2000. Leisure Time paid Radisson an
initial license fee of $35,000 and is required to pay Radisson the following
additional fees:
- a royalty fee of 4% of the daily gross revenue derived from the operation
of the hotel;
- a promotion, marketing and advertising fee of 1 3/4% of the daily gross
room sales;
- a reservation fee of 2 % of the daily gross room sales;
- set fees for reservations through Radisson's global distribution system,
other reservation systems and Radisson's internet website;
- $0.75 per occupied guest room per night for participation in system
advertising and marketing programs; and
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- any other fees and charges incurred with respect to participation in
system advertising and marketing programs and for services rendered by
Radisson for which a fee is charged.
Leisure Time will be required to operate the hotel either directly or through a
management company approved by Radisson. The hotel will be required to be
operated pursuant to Radisson's standards. Most transfers of the hotel will
require the approval of Radisson.
Leisure Time is currently investigating an affiliation with a national
restaurant chain that, if obtained, would result in the hotel restaurant being
operated by an independent third party.
Leisure Time has approximately 70 Pulltab Gold machines that it has sold in
Ohio. Leisure Time plans that a portion of the space in the hotel will be used
to display Leisure Time's Pulltab Gold and video bingo machines for marketing to
charities.
The total cost per room to Leisure Time in renovating the hotel is
approximately $50,000, including real property acquisition costs. Leisure Time
anticipates that approximately $9.5 million will be spent by Leisure Time in
renovating the hotel. Leisure Time plans to finance most of the amount needed
for the renovation with construction financing. Upon execution of Radisson's
standard license agreement and finalization of Radisson build-out
specifications, Leisure Time will seek both construction and permanent financing
for the hotel. Leisure Time has had preliminary discussions with several
mortgage brokers as well as direct lenders who have expressed interest in the
financing. No commitments for financing have been received. If financing is not
obtained, Leisure Time will have to curtail the project.
Finance Company. Leisure Time began its financing operations in April 1999,
when it acquired Leisure Time Financial. Leisure Time Financial was established
in 1989 as a service oriented lessor of diversified types of equipment. Leisure
Time Financial provides equipment financing to qualified applicants in the small
to middle markets in Minnesota and in the surrounding five states. The primary
objective of Leisure Time Financial is to provide financing services to
purchasers of Leisure Time's video gaming, pulltab and bingo machines as well as
to purchasers of other equipment.
Leisure Time believes that having financing available for a vendor's
products enhances the ability of a vendor to market the products. Leisure Time
believes that the financing program will enhance its marketing efforts for its
machines and provide a potential new profit center.
Leisure Time Financial's marketing efforts historically have been directed
at establishing vendor relationships and calling on equipment users primarily in
the printing, construction and machine tool industries. As of June 30, 1999,
Leisure Time Financial had three people engaged in marketing Leisure Time
Financial's financing arrangements.
Leisure Time Financial has acquired a lease accounting operating system to
assure year 2000 compliance and manage the volume of information associated with
originating and servicing of financing arrangements. Leisure Time Financial
expects to upgrade and enhance its administrative and technical capabilities in
order to provide professional service to its customers and accurate reporting
for Leisure Time. Leisure Time Financial's marketing strategy is to increase its
volume of lease originations by:
- maintaining a strong, experienced sales force;
- establishing a network of independent lease brokers;
- structuring relationships with small and medium-sized local accounting
firms; and
- supplying lease programs to rural community banks that do not have
internal leasing capabilities.
Many of these community banks provide funding for Leisure Time Financial's
current lease portfolio.
Leisure Time Financial competes for equipment financing with brokers, major
bank leasing companies and three other small lease companies in the
Minneapolis-St. Paul area that are similar in size to Leisure Time Financial.
Each of these companies is successful in that market.
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Leisure Time Financial had unaudited net income of approximately $74,000
and $19,000 on revenue of approximately $633,000 and $102,000 for the year ended
December 31, 1998, and for the three months ended March 31, 1999, respectively.
COMPETITION
Video Machines. The video gaming machine market is highly competitive and
is dominated by a small number of manufacturers. Leisure Time believes that the
principal competitive factors in this market are the appeal of the machine to
players, knowledge of customer requirements and player preferences, service,
support and training, distribution, name and product recognition and price. The
principal competitors in the video gaming machine market are IGT and WMS
Industries, Inc. IGT may be viewed as a dominant competitor. Leisure Time
estimates that IGT had a market share in video game machines of 70% and that WMS
Industries had a market share of 15% in 1998. Additional competitors or
potential competitors include Acres Gaming, Inc., Atronic Casino Technology,
Inc., Anchor Games, Aristocrat Leisure Limited, Bally Gaming, a subsidiary of
Alliance Gaming Corporation, Casino Data Systems, Innovative Gaming Corporation
of America, Sigma Games, Inc. and Video Lottery Consultants, Inc. Companies in
historically unrelated industries, such as Sega, have technological resources
that could give them a competitive advantage in developing multimedia-based
video gaming machines. There can be no assurance that other companies in the
video gaming or multimedia market will not successfully enter the market for
video gaming machines, nor can there be any assurance that the manufacturers of
traditional slot machines will not develop products that are superior to, or
that achieve greater market acceptance than, Leisure Time's video gaming
machines.
Oasis Gaming, Infinity and Diamond Games are Leisure Time's most
significant competitors in the pulltab video machine industry.
Worldlink Gaming Corporation and Multimedia Games, Inc. are Leisure Time's
significant competitors in the wide area networked, progressive jackpot bingo
industry and GameTech and Bingo King are Leisure Time's significant competitors
in the video bingo industry.
In general, Leisure Time's existing competitors, as well as many potential
new competitors, have significantly greater financial and technical resources
than Leisure Time, as well as more established customer bases and distribution
channels, which may afford them competitive advantages. Increased competition is
likely to result in price reductions, reduced operating margins and loss of
market share, any of which could materially and adversely affect Leisure Time's
business, operating results and financial condition.
Gaming Route Operations. Leisure Time currently has very few locations from
which it shares in the revenue from video gaming machines. All of these
locations are within South Carolina. Competition from other locations having
video gaming machines in South Carolina has increased and, if gaming is not
discontinued in South Carolina, will likely increase in the future. Additional
competition will reduce income from the locations from which Leisure Time
currently, and in the future, may derive revenue. Leisure Time plans to acquire
or establish additional gaming route operations. Leisure Time may be unable to
acquire or establish additional gaming route operations on acceptable terms.
Offshore Gaming Cruises. Competition for Leisure Time's offshore gaming
cruises arises from all forms of entertainment available in the general area in
which the cruises operate. At the present time, there only is one other offshore
gaming cruise operator in the Boston, Massachusetts area and there are no local
land-based casinos. An influx of operators into Massachusetts will place a
premium on new port locations that will make expansion more expensive and cause
greater competition for customers. Once the Leisure Lady commences operations,
Leisure Time will be subject to the same competitive factors within the area of
operations. Any material increase in competition could have an adverse impact
upon Leisure Time's operating results and financial condition.
Leisure Time intends to acquire additional vessels that Leisure Time can
renovate and use as offshore gaming vessels. At this time, however, Leisure Time
has no agreements for the acquisition of any such additional vessels.
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REGULATION
General. The manufacture and distribution of gaming machines and the
operation of gaming facilities are subject to extensive federal, state, local
and foreign regulation. Although the laws and regulations of the various
jurisdictions in which Leisure Time or its subsidiaries operate and into which
Leisure Time or its subsidiaries may expand their gaming and gaming related
operations vary in their technical requirements and are subject to amendment
from time to time, virtually all of these jurisdictions require licenses,
permits, documentation of qualification, including evidence of financial
stability, and other forms of approval for companies engaged in the manufacture
and distribution of gaming devices and the operation of gaming facilities, as
well as for the officers, directors, major shareholders and key personnel of
such operations. Any person who acquires a controlling interest in Leisure Time
would have to meet the requirements of all governmental bodies that regulate
Leisure Time's gaming business.
Leisure Time or its subsidiaries are subject to government regulation in a
number of different jurisdictions related to its operation as a manufacturer and
distributor of gaming devices, operator of offshore and future dockside gaming
vessels, and operator of a video gaming route. Leisure Time or its subsidiaries
are licensed in the following jurisdictions to distribute gaming devices:
Kansas, Michigan, Minnesota, New Mexico (Native American jurisdictions), New
York, North Carolina and Wisconsin. Leisure Time or its subsidiaries have
applied for gaming or gaming device related licenses and approvals in the
following jurisdictions: Montana and Ontario, Canada. Leisure Time or its
subsidiaries intend to apply for licenses to distribute gaming devices in the
following jurisdictions: Arizona, Mississippi, New Mexico (charities and
fraternal organizations) and Nevada. Regulatory investigations and licensing or
other forms of approval may relate to Leisure Time and its key personnel as well
as its subsidiaries and their key personnel. As such, the regulatory process may
be lengthy and expensive.
Although regulatory requirements vary from jurisdiction to jurisdiction,
generally, gaming devices may not be manufactured, distributed or operated
unless appropriate licenses are obtained from appropriate regulatory authorities
in each jurisdiction. Ordinarily, licenses may only be obtained by filing an
application. A regulatory agency within a jurisdiction usually may deny the
application if it believes the applicant did not satisfy the particular
requirements for licensing in that jurisdiction. Furthermore, each such
regulatory agency usually retains jurisdiction with respect to licensees within
its jurisdiction and may take formal or informal disciplinary action, including
but not limited to the suspension or revocation of the license and/or the
imposition of a monetary fine against any licensee it believes failed to operate
in accordance with the laws and regulations of the jurisdiction. Changes in such
laws, regulations and procedures or the initiation of disciplinary action
against Leisure Time or its subsidiaries could have an adverse effect on Leisure
Time's operations.
As indicated above, most of the jurisdictions in which Leisure Time or its
subsidiaries conduct business or intends to conduct business in the future
require various licenses, permits, findings of suitability or other approvals in
connection with the manufacture/distribution of gaming devices. However, some
jurisdictions allow manufacturer/distributors to operate under a temporary
government approval or on a transactional basis during the pendency of a
comprehensive background investigation. Although Leisure Time or its
subsidiaries have been licensed or approved in several jurisdictions, there can
be no assurances that any government approval currently applied for or intended
to be applied for will be given or renewed.
It should be noted that most jurisdictions in which Leisure Time or its
subsidiaries conduct business, or intends to conduct business in the future,
require gaming devices to meet certain standards and specifications established
by each jurisdiction. Moreover, most jurisdictions require gaming devices to be
reviewed and approved either by the regulatory agency or an independent testing
laboratory prior to the gaming device being sold or offered for public play. In
evaluating the suitability of any applicant, the regulatory agency will examine
the prior compliance with laws and regulations in other jurisdictions where
Leisure Time or its subsidiaries have been operating. There can be no assurance
that any approval applied for or required of Leisure Time or its subsidiaries in
this regard will be received. Nor can there be any assurances that any approval
already received by Leisure Time or its subsidiaries will be maintained, or that
additional approvals will not be required.
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Federal Registration. The Federal Gambling Devices Act of 1962 makes it
unlawful for any person to manufacture, deliver or receive gaming machines,
gaming machine devices and components thereof across interstate boundaries
unless that person has first registered with the Attorney General of the United
States. Leisure Time or its subsidiaries that are involved in gaming activities
are required to register annually with the Attorney General of the United States
in connection with the sale, distribution or operation of gaming machines. In
addition, various record keeping and equipment identification requirements are
imposed by the Federal Act. Violation of the Federal Act may result in seizure
or forfeiture of equipment, as well as other penalties.
Native American Gaming. Leisure Time or its subsidiaries distribute gaming
devices to certain gaming operations located on Native American land. Gaming on
Native American lands, including the terms and conditions under which gaming
equipment can be sold or leased to Native American tribes, is or may be subject
to regulation under the laws of the Tribes, the laws of the host states, the
Indian Gaming Regulatory Act of 1988, which is administered by the National
Indian Gaming Commission, and the Secretary of the U.S. Department of Interior
and also may be subject to the provisions of statutes relating to contracts with
Native American tribes, which are administered by the Secretary. As a
precondition to gaming involving gaming devices, the Indian Gaming Regulatory
Act requires that the tribe and the state have entered into a written
tribal-state compact that specifically authorizes such gaming, and that has been
approved by the Secretary, with notice of such approval published in the Federal
Register. Tribal-state compacts vary from state to state. Many require that
equipment suppliers meet ongoing registration and licensing requirements of the
state and/or tribe and some impose background check requirements on the
officers, directors, and shareholders of the gaming equipment suppliers. Some
also require that either tribal regulatory agencies or state regulatory agencies
license the manufacturer or distributor. Leisure Time or its subsidiaries have
received various approvals from a number of tribal regulatory agencies pursuant
to the requirements of the applicable compacts. However, there can be no
assurances that such approvals will be renewed, or that any additional approvals
required, will be obtained. Failure to obtain such renewals or approvals may
have a material adverse impact on the operations of Leisure Time.
Bingo. Bingo is legal in 46 states and the District of Columbia (the
exceptions are Arkansas, Hawaii, Tennessee and Utah). Nonprofit or charity
organizations sponsor bingo games for fund raising purposes, while Native
American tribes, casinos and government-sponsored entities operate bingo games
for profit. Video bingo systems are permitted for use by charitable
organizations in 26 states. Under the Indian Gaming Regulatory Act, video bingo
may be played on Native American reservations in the 46 states where bingo is
legal. Leisure Time believes video bingo is currently played on Native American
reservations in 28 states.
Pulltabs. Leisure Time currently sells the Pulltab Gold machine only in
Ohio where video pulltab machines may be sold to and operated by charitable
organizations. Leisure Time believes that the law relating to the legality of
the sale and use of video pulltabs in many jurisdictions is unclear. Before
Leisure Time sells its Pulltab Gold machines in additional jurisdictions,
Leisure Time will review the applicable law to determine whether or not video
pulltabs may be legally sold in the jurisdictions.
Arizona. It is contemplated that Leisure Time or its subsidiaries will file
an application to be licensed as a manufacturer/distributor in the state of
Arizona. The Arizona Department of Gaming regulates manufacturers/distributors
and their operations on Native American lands. Manufacturers and suppliers of
gaming devices and services must be licensed by the Tribal Gaming Office and
certified by the state gaming agency prior to the sale or lease of any gaming
devices or services. As in other gaming jurisdictions, the burden of proving
suitability to receive a gaming license rests with the applicant. Qualifications
for licensure and suitable methods of operations for licensees are similar to
other state requirements described in various sections above. Upon payment of an
annual fee, a tribal license or state certification is effective for one year
after the date of issuance. Persons who have applied for renewal may continue to
operate under the expired license until the tribal office or state agency take
action on the renewal application. There can be no assurances that any
application filed will be granted. Any denial may have an adverse effect on the
operations and financial condition of Leisure Time.
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Mississippi. Leisure Time plans to apply for a manufacturing and
distributing license in Mississippi. The manufacture and distribution of gaming
and associated equipment as well as the ownership and operation of gaming
facilities in Mississippi are subject to extensive state and local regulation,
primarily the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission.
The Mississippi Gaming Control Act, that legalized dockside casino gaming
in Mississippi, was enacted in June of 1990. Although not identical, the
Mississippi Act is similar to the Nevada Gaming Control Act described below. The
Mississippi Commission has also adopted regulations that are similar to the
Nevada gaming regulations described below.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and the safeguarding of assets and revenue, providing reliable record keeping
and making periodic reports to the Mississippi Commission; (iv) prevent cheating
and fraudulent practices; (v) provide a source of state and local revenue
through taxation and licensing fees; and (vi) ensure that gaming licensees, to
the extent practicable, employ Mississippi residents. The regulations are
subject to amendment and interpretation by the Mississippi Commission. Changes
in Mississippi law or regulations may limit or otherwise materially affect the
types of gaming that may be conducted and could have an adverse effect on
Leisure Time and Leisure Time's proposed operations.
Once Leisure Time or its subsidiaries apply, Leisure Time will be subject
to the licensing and regulatory control of the Mississippi Commission, and will
be required to submit detailed financial and operating reports to the
Mississippi Commission. Leisure Time will also be required to provide any other
information requested by the Mississippi Commission. If Leisure Time is not able
to satisfy the requirements of the Mississippi Act, Leisure Time and its
affiliates will not be able to manufacture or distribute gaming devices in the
state of Mississippi. Leisure Time or its subsidiary must maintain a license
from the Mississippi Commission in order to manufacture and distribute gaming
product in Mississippi. Such licenses are issued by the Mississippi Commission
subject to certain conditions, including continued compliance with all
applicable state laws and regulations.
Gaming and manufacturer/distributor licenses are not transferable, and are
issued for a period of two years. These licenses must be renewed every two years
after initial licensure. No person may become a stockholder of, or receive any
percentage of profits from, a licensed subsidiary of a holding company without
first obtaining licenses and approvals from the Mississippi Commission.
Certain officers and employees of Leisure Time and the officers, directors
and certain key employees of Leisure Time's subsidiaries must also be found
suitable or be licensed by the Mississippi Commission. In addition, any person
having a material relationship or involvement with Leisure Time or its
subsidiaries may be required to be found suitable, in which case those persons
must pay the costs and fees associated with such investigation. The Mississippi
Commission may deny an application for a finding of suitability for any cause it
deems reasonable. Changes in certain licensed positions must be reported to the
Mississippi Commission. In addition to its authority to deny an application for
a finding of suitability, the Mississippi Commission can disapprove a change in
a licensed position. The Mississippi Commission has the power to require Leisure
Time and its registered or licensed subsidiaries to suspend or dismiss officers,
directors and other key employees or sever relationships with other persons who
refuse to file appropriate applications or whom the authorities find unsuitable
to act in such capacities.
Employees associated with gaming, including employees of manufacturers and
distributors of gaming devices within Mississippi whose duties are directly
involved with the manufacture, repair or distribution of gaming devices, must
obtain work permits that are subject to immediate suspension under certain
circumstances. The Mississippi Commission shall refuse to issue a work permit to
a person who has been convicted of a felony, committed certain misdemeanors or
knowingly violated the Mississippi Act and it may refuse to issue a work permit
to a gaming employee for any other reasonable cause.
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The Mississippi Commission may, at any time, investigate and require the
finding of suitability of any record or beneficial stockholder of Leisure Time.
Mississippi law requires any person who acquires more that five percent (5%) of
the common stock of a publicly traded corporation registered with the
Mississippi Commission to report the acquisition to the Mississippi Commission,
and such person may be required to be found suitable. Also, any person who
becomes a beneficial owner of more than ten percent (10%) of the common stock of
the publicly traded corporation, as reported to the SEC, must apply for a
finding of suitability by the Mississippi Commission and must pay the costs and
fees that the Mississippi Commission incurs in conducting the investigation. The
Mississippi Commission has generally exercised its discretion to require a
finding of suitability of any beneficial owner of more than 5% of a public
company's common stock. However, the Mississippi Commission has adopted a policy
that permits certain institutional investors to own beneficially up to 10% of a
registered public company's stock without a finding of suitability. If a
stockholder who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the securities of Leisure
Time beyond such time as the Mississippi Commission prescribes may be guilty of
a misdemeanor. Leisure Time would be subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have any
other relationship with Leisure Time or its licensed subsidiaries, Leisure Time:
(i) paid the unsuitable person any dividend or other distribution on the voting
securities of Leisure Time, (ii) recognized the exercise, directly or
indirectly, of any voting rights conferred by securities held by the unsuitable
person, (iii) paid the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances, or (iv) failed to pursue all lawful efforts to require the
unsuitable person to divest himself of the securities, including, if necessary,
the immediate purchase of the securities for cash at fair market value.
Management believes that compliance with the licensing procedures and regulatory
requirements of the Mississippi Commission will not affect the marketability of
Leisure Time's securities.
Leisure Time may be required to disclose to the Mississippi Commission, on
request, the identities of the holders of any debt securities. In addition,
pursuant to the terms of the Mississippi Act, the Mississippi Commission may, in
its discretion: (i) require holders of debt securities of registered companies
to file applications, (ii) investigate such holders, and (iii) require such
holders to be found suitable to own such debt securities. Although the
Mississippi Commission generally does not require the individual holders of
obligations, such as notes, to be investigated and found suitable, the
Mississippi Commission retains the discretion to do so for many reasons,
including but not limited to, a debt default and the potential that the debt
holder will or does exercise material influence over the gaming operations of
the registered company. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Commission in connection with the investigation.
Leisure Time's licensed subsidiaries will be required to maintain a current
ledger with respect to the ownership of their equity securities in Mississippi
and Leisure Time will be required to maintain a list of stockholders in the
principal office of its licensed subsidiary. The ledger and stockholder lists
must be available for inspection by the Mississippi Commission at any time. If
any securities are held in trust by an agent or nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Mississippi
Commission. A failure to make such a disclosure may be grounds for finding the
stockholder of record unsuitable. Leisure Time would be required to render
maximum assistance to the Mississippi Commission in determining the identity of
any beneficial owner of its stock.
The Mississippi Act requires that the certificates representing securities
of a registered publicly traded corporation bear a legend to the general effect
that such securities are subject to the Mississippi Act and the regulations of
the Mississippi Commission. The Mississippi Commission has the authority to
grant a waiver of this requirement, as well as the power to impose additional
restrictions on the holders of Leisure Time's securities at any time.
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Substantially all loans, leases, sales of securities and similar
transactions by a licensed subsidiary must be reported to or approved by the
Mississippi Commission. A licensed subsidiary may not make a public offering of
its securities, but may pledge or mortgage its assets to secure the obligations
of an affiliate pursuant to a public offering if it obtains the prior approval
of the Mississippi Commission. Registered companies may not make a public
offering of their securities without the prior approval of the Mississippi
Commission if any part of the proceeds of the offering will be used to finance
the construction, acquisition or operation of a gaming facility in Mississippi
or to retire or extend obligations incurred for one or more such purposes. Such
approval, if given, does not constitute a recommendation or approval of the
investment merits of the securities subject to the offering.
Changes in control of registered or licensed companies through merger,
consolidation, acquisition of assets, management or consulting agreements or any
form of takeover and certain recapitalizations and stock repurchases can not
occur without the prior approval of the Mississippi Commission. The Mississippi
Commission may also require controlling stockholders, officers, directors, and
other persons having a material relationship or involvement with the entity
proposing to acquire control to be investigated and licensed as part of the
approval process relating to the transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate licensees in Mississippi and corporations
whose stock is publicly traded that are affiliated with those licensees may be
injurious to stable and productive corporate gaming. The Mississippi Commission
has established a regulatory scheme to ameliorate the potential adverse effects
of these business practices upon Mississippi's gaming industry and to promote
Mississippi's policy to: (i) assure the financial stability of corporate
licensees and their affiliates; (ii) preserve the beneficial aspects of
conducting business in the corporate form; and (iii) promote a neutral
environment for the orderly governance of corporate affairs. Approvals are, in
certain circumstances, required from the Mississippi Commission before a
registered company may make exceptional repurchases of voting securities above
the current market price (commonly called "greenmail") or before a corporate
acquisition opposed by management may be consummated. Mississippi's gaming
regulations also require prior approval by the Mississippi Commission if the
registered company adopts a plan of recapitalization proposed by its board of
directors opposing a tender offer made directly to the stockholders for the
purpose of acquiring control of the registered company.
Neither the registered company nor any licensed subsidiary may engage in
foreign gaming outside of Mississippi without the prior approval of the
Mississippi Commission. The Mississippi Commission distinguishes between gaming
operations, i.e., operating a casino or a wide-area progressive system, and
manufacturing or distributing gaming equipment for foreign gaming approval
purposes, Licensees are not required to obtain prior Mississippi Commission
approval to manufacture or distribute gaming equipment outside Mississippi.
Licensees are required to obtain prior Mississippi Commission approval to
operate a casino outside Mississippi. The Mississippi Commission may require
determinations that, among other things, there are means for the Mississippi
Commission to have access to information concerning the out-of-state gaming
operations of the registered company and its licensed affiliates. The registered
company and its licensed subsidiaries must obtain foreign gaming approval from
the Mississippi Commission prior to engaging in any future gaming operations
outside of Mississippi.
If the Mississippi Commission decides that a licensed subsidiary violated a
gaming law or regulation, the Mississippi Commission could limit, suspend or
revoke the license of the subsidiary. In addition, the licensed subsidiary, the
registered company and the individuals involved could be subject to substantial
fines for each separate violation. Limitation, conditioning, suspension, or
revocation of any license could adversely affect a registered company's
operations in a material manner.
Manufacturers and distributors of gaming devices pay annual license fees as
well as any applicable corporate income and franchise taxes.
Montana. Leisure Time, or one of its subsidiaries, has an application
pending in Montana. All gambling activities in Montana are regulated by the
Department of Justice, Gambling Control Division. All distributors,
manufacturers and route operators must obtain a license from the Department
before engaging in operations.
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The qualifications for licensure are similar to other state requirements of
gaming licenses as described in various sections above. There can be no
assurances that the application filed will be granted. Any denial may have an
adverse effect on the operations and financial condition of Leisure Time.
Nevada. Should Leisure Time or its subsidiaries wish to pursue a license in
Nevada, Leisure Time would be required to be registered with the Nevada Gaming
Commission as a publicly traded company and be found suitable as the sole
shareholder of any subsidiary applying for the license in Nevada. Leisure Time's
subsidiary would apply to be licensed as a manufacture and distributor of gaming
devices. Accordingly it is important to note that the ownership and operation of
gaming facilities in Nevada, as well as the manufacture and distribution of
gaming devices, are subject to extensive state and local regulation. Publicly
traded parent corporations and holding companies of Nevada gaming licensees, as
well as the licensed subsidiaries, are subject to the Nevada Gaming Control Act,
the regulations promulgated pursuant to the Nevada Gaming Control Act and
various local regulations. A registered company and its gaming operations and
companies are subject to the licensing and regulatory control of the Nevada
Commission, the State Gaming Control Board, the Clark County Liquor Gaming
Licensing Board and possibly other local agencies throughout the State of
Nevada, including the City of Las Vegas.
The laws, regulations and supervisory procedures of the Nevada gaming
authorities have their genesis in various declarations of public policy which
are concerned with, among other things: (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with gaming at
any time or in any capacity; (ii) the establishment and maintenance of
responsible accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenue, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada gaming authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) the creation
of a source of state and local revenue through taxation and licensing fees.
Neither gaming licenses nor the registration approvals given to publicly traded
corporations are transferable. Changes in such laws, regulations and procedures
could have an adverse effect on Leisure Time's operation.
Since Leisure Time would be required to be registered with the Nevada
Commission as a publicly traded corporation and be found suitable as the sole
shareholder of any Leisure Time subsidiary applying for a license in Nevada,
Leisure Time would be required to submit, upon application and on a periodic
basis, detailed financial and operating reports to the Nevada Commission and
Nevada Board. Additionally, the actual applicant subsidiary company may be
required to furnish any other information requested by the Nevada Commission. No
person could become a stockholder of, or receive any percentage of profits from
the licensed Nevada operating companies without first obtaining licenses and
approvals from the Nevada gaming authorities.
The Nevada gaming authorities may investigate any individual who has a
material relationship to, or material involvement with, any registered company
or its licensed subsidiary in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of the licensed subsidiary must
file applications with the Nevada gaming authorities and may be required to be
licensed or found suitable by the Nevada gaming authorities. Officers, directors
and key employees of the registered company who are actively and directly
involved in the gaming activities of the licensed subsidiary may be required to
be licensed or found suitable by the Nevada gaming authorities. The Nevada
gaming authorities may deny an application for licensing for any cause deemed
reasonable. A finding of suitability is comparable to licensing, and both
require the submission of detailed personal and financial information followed
by a thorough investigation. An applicant for licensing or for a finding of
suitability must pay all of the costs of the investigation. Changes in licensed
positions with the registered company or its licensed subsidiary must be
reported to the Nevada gaming authorities. In addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada gaming
authorities also have jurisdiction to disapprove a change in a corporate
position.
If the Nevada gaming authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the registered company or its licensed subsidiary, the
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companies involved would be required to sever all relationships with such a
person. Additionally, the Nevada Commission may require the registered company
or its licensed subsidiary to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in Nevada.
Leisure Time and its subsidiary applying for licensure in Nevada would be
required to submit detailed financial and operating reports to the Nevada
Commission. Substantially all loans, leases, sales of securities and similar
financing transactions by Leisure Time and its subsidiary would be required to
be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the licensed
subsidiary or the registered company, the gaming licenses or registration held
by the registered company and its licensed subsidiary could be limited,
conditioned, suspended or revoked subject to compliance with certain statutory
and regulatory procedures. Moreover, at the discretion of the Nevada Commission,
the registered company and its licensed subsidiary and persons involved could be
subject to substantial fines for each separate violation of the Nevada Act.
The beneficial holder of the registered company's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have the holder's suitability as a beneficial
holder of the registered company's voting securities determined if the Nevada
Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. The applicant
must pay all costs of the investigation incurred by the Nevada gaming
authorities in conducting such an investigation. Also, the Clark County Liquor
Gaming Licensing Board and the City of Las Vegas have taken the position that
they have the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming license.
The Nevada Act requires any person who acquires more than five percent (5%)
of the registered company's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
ten percent (10%) of the registered company's voting securities apply to the
Nevada Commission for a finding of suitability within thirty (30) days after the
Chairman of the Nevada Board mails written notice requiring such a filing. Under
certain circumstances, an "institutional investor," as defined in the Nevada
Act, which acquires more than ten percent (10%), but not more than fifteen
percent (15%) of the registered company's voting securities may apply to the
Commission for a waiver of such a finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold the voting securities for
investment purposes only unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the registered company, any change in the
registered company's corporate charter, bylaws, management, policies or
operations of the registered company, or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
the registered company's voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters voted
on by stockholders; (ii) making financial and other inquiries of management of
the type normally made by securities analysts for informational purposes and not
to cause a change in its management, policies or operations; and (iii) such
other activities as the Nevada Commission may determine to be consistent with
such investment intent. If the Nevada Commission grants a waiver to an
"institutional investor" the waiver does not include a waiver or exemption from
the requirement for prior approval to "acquire control" of a registered
corporation. If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty (30) days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board may be found unsuitable. The same
restriction applies to a record owner if the record owner, after request, fails
to identify the beneficial owners. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial
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ownership of the common stock of a registered corporation beyond such period of
time as may be prescribed by the Nevada Commission may be guilty of a criminal
offense. The registered company is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder or to have any
other relationship with the registered company or its subsidiaries, the
registered company (i) pays that person any dividend or interest upon voting
securities of the registered company, (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person, (iii) pays remuneration in any form to that person for services
rendered or otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value.
The Nevada Commission may, in its sole discretion, require the holder of
any debt security of a registered corporation to file applications, be
investigated and be found suitable to own the debt security of the registered
corporation. If the Nevada Commission determines that a person is unsuitable to
own such security, then pursuant to the Nevada Act, the registered corporation
can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The registered company is required to maintain a current stock ledger in
Nevada, which may be examined by the Nevada gaming authorities at any time. If
any securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
gaming authorities. A failure to make such a disclosure may be grounds for
finding the record holder unsuitable. The registered company is also required to
render maximum assistance in determining the identity of the beneficial owner.
The Nevada Commission has the power to require the registered company's stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Act.
If registered in Nevada, Leisure Time would be precluded from making a
public offering of its securities without the prior approval of the Nevada
Commission if the securities or the proceeds therefrom are intended to be used
to construct, acquire or finance gaming facilities in Nevada, or to retire or
extend obligations incurred for such purposes. Any such approval, if given, does
not constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus or the
investment merits of the securities. Any representation to the contrary is
unlawful. A company which is not subject to the jurisdiction of the Nevada
Gaming Commission may make a public offering of its securities without obtaining
the prior approval of the Nevada Commission provided the proceeds are not used
for any of the purposes described above. None of the proceeds from the offering
will be used in Nevada for any of the purposes described.
Application for approval of public offering and the like may be filed
without complete documentation related thereto so long as the documents and
information are supplied to the Nevada Board and Nevada Commission as they
become available in accordance with the normal and customary practice of the
securities industry. Additionally, the Nevada Commission may, either generally
or specifically, exempt any person, security or transaction from application
pursuant to its regulations regarding publicly traded corporations.
Changes in control of the registered company or its subsidiaries through
merger, consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person whereby he obtains control, may
not occur without the prior approval of the Nevada Commission. Entities seeking
to acquire control of a registered corporation must satisfy the Nevada Board and
the Nevada Commission in a variety of stringent standards prior to assuming
control of such registered corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposed to acquire
control, to be investigated and licensed as part of the approval process related
to the transaction.
License fees and taxes, computed in various ways dependent upon the type of
gaming activity involved, are payable to the State of Nevada and to the counties
and cities in which the Nevada licensee's respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable
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either monthly, quarterly or annually and are based upon either: (i) a
percentage of gross revenue received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
connection with the selling of food or refreshments. Nevada licensees that hold
a license as an operator of a slot route, or a manufacturer or distributor's
license, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, or
required to be registered, or is under common control with such person and who
propose to become involved in a gaming venture outside the State of Nevada are
required to deposit with the Nevada Board, and thereafter maintain, a revolving
fund in the amount of $10,000.00 to pay the expenses of investigation by the
Nevada Board of their participation in such foreign gaming. The revolving fund
is subject to increase or decrease in the discretion of the Nevada Commission.
Thereafter, licensees are required to comply with certain reporting requirements
imposed by the Nevada Act. Licensees are also subject to disciplinary action by
the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or employ a person in the foreign operation who has been denied a license or
finding of suitability in Nevada on the basis of personal unsuitability.
It is important to note that the granting of any registrations, amendment
of orders of registration, findings of suitability, approvals or licenses to be
sought is discretionary with the Nevada gaming authorities. The burden of
demonstrating the suitability or desirability of certain business transaction is
at all times upon the applicants. Any licensing or approval process requires the
submission of detailed financial, business and possible personal information,
and the completion or a thorough investigation.
South Carolina. In 1993, South Carolina passed the Video Games Machine Act,
which provides a statutory and regulatory framework for the operation of video
poker. These limitations include a limit of five machines in a single place or
premises; the prohibition of advertising for the playing of these games; the
prohibition of the offering or giving of anything free to encourage people to
play the games; the prohibition of the playing of games on Sunday; and the
prohibition of paying off for the playing of the machines to anyone under 21
years of age.
All video gaming machines in South Carolina are required to connect to the
Department of Revenue central computer monitoring system by July 30, 1999, or
face the possibility of fines and confiscation of the video gaming machines. By
July 30, 1999, operators must have minimum pay out of 80% and each video gaming
machine must have only one payout percentage. Video Gaming machines that are not
capable of being connected to a computer monitoring system may not be licensed.
A license fee of $4,000 per video gaming machine must be paid every two
years in South Carolina.
The South Carolina legislature has called for a referendum to be held on
November 2, 1999, pursuant to which South Carolina voters will be asked to vote
on proposals that would amend the Video Game Machine Act to:
- change the $125 limit on the payout per video gaming machine per day per
person to $500 per payout;
- authorize a maximum $3.00 bet;
- authorize a gaming tax; and
- extend the date by which each video gaming machine must be electronically
connected through a data communication device with a state centralized
processing center from July 30, 1999 to February 1, 2000; or
- make all gaming in South Carolina illegal after June 30, 2000.
Ohio. Leisure Time is not required to obtain a gaming license to sell the
Pulltab Gold machines in Ohio. The Pulltab Gold machines in Ohio must be
operated by a charity that is a 501(c)(3) organization as defined
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in the Internal revenue Code of 1986. The Attorney General of Ohio takes the
position that the charity must be a religious, educational, veteran's,
fraternal, service, nonprofit medical, volunteer rescue service, volunteer fire
fighter's, senior citizen's, youth athletic, amateur athletic, or youth athletic
park organization. Further, the charity must receive all proceeds, except for
prizes paid out, from the operation of the machines.
Regulation of Offshore Gaming Cruises. In 1992, the Federal Government
enacted an amendment to the Gambling Devices Act or Johnson Act. This amendment
was designed to make the laws pertaining to gaming activities on United States
flag cruise vessels and foreign flag vessels essentially the same. Prior to
being amended, the Act forbade gaming on United States flagged vessels but
allowed foreign flagged vessels to carry gaming equipment into United States
ports. The 1992 amendment gave United States flagged vessels the same right,
preempting state laws. However, states may elect to "opt out" of the Act by
enacting a statute which would prohibit "cruise-to-nowhere" operations.
In March 1996, a bill was introduced into the Florida State House of
Representatives to ban all "cruises-to-nowhere" originating from Florida. This
bill was not reported out of committee. However, there can be no assurances that
at some time in the future a bill "opting out" will not be introduced by Florida
or another state's legislating body.
A bill has been introduced into the current session of Congress entitled
the "Cruises-to-Nowhere Act of 1999" which would change existing federal law.
This bill, if passed and signed into law, would make "cruises-to-nowhere"
illegal unless an individual state enacts a law to permit such activity. If
enacted, this bill could have a material negative impact on Leisure Time's
"cruises-to-nowhere" operations if Massachusetts or nearby states did not enact
laws permitting these cruises.
The Gambling Ship Act generally prohibits any citizen, resident of the
United States or any other person within the jurisdiction of the United States
from establishing, operating or owning an interest in a gambling ship on the
high seas or otherwise within the jurisdiction of the United States. However,
the Act specifically provides for operations such as those conducted by Leisure
Time's gaming cruise vessels. Any person who violates the Act is subject to a
fine of up to $10,000 or imprisonment of not more than two years and the vessels
used in violation of the Act could be forfeited to the United States government.
If Leisure Time's operations should violate the Gambling Ship Act in the
future, the vessels on which such violation occurred could be forfeited to the
United States without compensation, or Leisure Time could be required to change
its operations. The forfeiture of a vessel or a material change in Leisure
Time's offshore gaming cruise operations could result in a material decrease in
revenue.
Argentina. Leisure Time has orally agreed to allow Sao Paulo Games
Commercial LTDA to test market the Pot O Gold product line in Argentina. These
discussions are preliminary in nature. Leisure Time believes that the operation
of such games in Argentina is permissible because Argentina has not yet
promulgated laws or regulations related to the operation or distribution of the
games. If any laws and regulations are promulgated, Leisure Time intends to
comply with all applicable requirements. There can be no assurances that such
laws and regulations would be favorable to Leisure Time.
Brazil. Leisure Time, as a manufacturer, is not required to be licensed in
Brazil. Only video gaming machines that have bingo or keno are legal in Brazil.
Each video gaming machine must be tested and qualified prior to use in Brazil.
Brazil has authorized the distribution of Leisure Time's Pot O Gold Super Pick
Keno. Sao Paulo Games Commercial LTDA, is the exclusive distributor of the game
in Brazil. Either Leisure Time or its distributor must submit all modifications
or alterations to the approved game program for approval.
Norway. Manufacturers and distributors do not have to be specifically
licensed to sell gaming devices in Norway. Leisure Time Technology is required
to have its hardware and software approved by the Norwegian Department of
Justice before Leisure Time Technology's video gaming machines can be sold in
Norway. To date, the hardware and software for three of Leisure Time
Technology's video gaming machines have been approved for sale in Norway.
A new lottery act, recently proposed in Parliament, would require
manufacturers and distributors to be licensed. The Act would also establish a
regulatory agency to administer all licensing matters. This Act is
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expected to be enacted, and be effective January 1, 2000. It is not anticipated
that any manufacturer or distributor will be required to be licensed until
January 1, 2001. Furthermore, there can be no assurances that the Act will be
favorable to Leisure Time.
Ontario. The manufacture, sale and distribution of gaming devices for use
or play in the Canadian Province of Ontario are subject to the administrative
rules of the Ontario Gaming Commission. Such activities are subject to licensing
and regulatory control of the Ontario Commission. The Ontario gaming regulations
are very similar to state gaming regulations previously described.
Application of Future or Additional Regulatory Requirements. In the future,
Leisure Time Technology intends to seek the necessary registrations, licenses,
approvals and findings of suitability, referred to as licenses for Leisure Time
Technology, its products and its personnel in other states and foreign
jurisdictions in which Leisure Time Technology identifies significant sales
potential for its products. However, there can be no assurance that such
licenses will be obtained and will not be revoked, suspended or conditioned or
that Leisure Time Technology will be able to obtain the necessary approvals for
its future products as they are developed in a timely manner, or at all. If a
license is required by a regulatory authority and Leisure Time Technology fails
to seek or does not receive the necessary license, Leisure Time Technology may
be prohibited from selling its products in the respective jurisdiction or may be
required to sell its products through other licensed entities at a reduced
profit to Leisure Time Technology.
PROPRIETARY RIGHTS
Leisure Time's success depends in part on its proprietary technology.
Leisure Time relies on a combination of:
- copyrights;
- trade secret and trademark law;
- nondisclosure agreements; and
- technical safeguards
to protect its software, documentation and other written materials.
As a part of its confidentiality procedure, Leisure Time generally enters
into nondisclosure agreements with its employees and consultants and limits
access to its software, documentation and other written materials.
Despite Leisure Time's efforts to protect its proprietary rights,
unauthorized third parties may be able to copy its products or to reverse
engineer or obtain and use information that Leisure Time regards as proprietary.
Leisure Time cannot provide assurances that competitors will not independently
develop technology that is substantially equivalent or superior to Leisure
Time's technology. Policing unauthorized use of Leisure Time's products is
difficult. Leisure Time is unable to determine the extent to which software
piracy of its products exists. Software piracy may be a continuing and
persistent problem.
Leisure Time has no patents and has two patent applications pending for a
type of keno game that is not currently being offered by Leisure Time and for a
progressive feature on a video blackjack game in the near future. Leisure Time
may not be issued any patents and any patents issued may not provide Leisure
Time with coverage that will be useful to protect Leisure Time against
infringement by others.
Leisure Time has obtained trademark registration from the United States
Patent and Trademark Office for the names of certain video gaming machine games.
The registrations terminate at various times in 2008. Leisure Time has also
applied to the United States Patent and Trademark Office to register the names
Leisure Time Casinos & Resorts, Leisure Time, Leisure Time Gaming, Inc., Leisure
Time Technology and Leisure Casino Cruises.
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Leisure Time believes that, due to the rapid pace of innovation within its
industry, factors such as the technological and creative skills of its personnel
are more important to establishing and maintaining a technological leadership
position within the industry than are the various legal protections.
HISTORY OF LEISURE TIME'S ACQUISITIONS
Summary of Business Development. Leisure Time was incorporated in February
1993. Until September 1996, Leisure Time was a development stage company seeking
a business opportunity. In September, 1996, Leisure Time acquired Leisure Time
Technology (which was then known as U.S. Games, Inc.). Leisure Time Technology
is engaged in the manufacture and sale of video gaming and pulltab machines.
In February 1997, Leisure Time acquired the Leisure Lady, an offshore
gaming vessel, and in April 1998, Leisure Time chartered the Vegas Express, an
offshore gaming vessel. In May 1999, Leisure Time acquired the corporation that
owns the Vegas Express. The Vegas Express commenced offshore gaming cruises in
July 1998. Until Leisure Time locates a port for the Leisure Lady, Leisure Time
cannot predict when the Leisure Lady will commence offshore gaming cruises.
In September, 1998, Leisure Time acquired the hotel property that Leisure
Time is renovating in the Cleveland, Ohio area.
In February 1999, Leisure Time acquired a gaming route in South Carolina.
Acquisition of Leisure Time Technology. In September 1996, Leisure Time
acquired Leisure Time Technology (which was then known as U.S. Games, Inc.) in a
transaction in which a wholly-owned subsidiary of Leisure Time merged into
Leisure Time Technology. The total consideration that was to be paid by Leisure
Time was approximately $1.7 million in cash at closing, contingent payments
which totaled $2.5 million and $4.1 million in notes payable. The agreements
pertaining to the contingent payments had a provision which entitled Leisure
Time to an early payment discount. Leisure Time exercised the provision and paid
a total of $2.9 million during the year ended June 30, 1997, to extinguish any
further obligations remaining under the contingent payment agreements.
As a part of the transaction, Leisure Time also entered into $1.6 million
of deferred compensation contracts with certain individuals. These contracts
provided for the payment of defined amounts, generally for a period of up to six
years, commencing on a monthly basis in November 1996. As of December 31, 1998,
Leisure Time had paid a total of $1.1 million pursuant to the deferred
compensation agreements.
Also, in connection with the acquisition, Leisure Time entered into a
noncompete agreement with the former stockholder of Leisure Time Technology. The
agreement is payable through September 2006 in 10 annual installments of
$730,000 which includes interest imputed at 6.64%. As of December 31, 1998,
Leisure Time had paid a total of $1.5 million pursuant to the noncompete
agreement.
In order to generate a portion of the cash necessary for the acquisition,
Leisure Time borrowed $1.6 million pursuant to two different series of 11%
convertible promissory notes. The first series of notes aggregating $210,000 was
convertible into units consisting of one share of common stock and a warrant to
purchase one share of common stock at a conversion rate of $2.50 per share.
Through March 31, 1999, these notes were converted into 76,978 shares of common
stock and warrants to purchase 76,978 shares of common stock at $2.50 per share.
The second series of notes aggregating $1.4 million was convertible into units,
at a price of $1.25 per unit, consisting of one share of common stock and a
warrant to purchase shares of Leisure Time's common stock at prices of $1.75 and
120% of the offering price of an initial public offering of common stock by
Leisure Time. The second series of notes contained an anti-dilution provision
that required the issuance of additional warrants upon certain circumstances
after shares and shares issuable on exercise of outstanding options and warrants
exceeded a total of 10,000,000 shares of common stock exclusive of the 120%
warrants. After a default in payment on the original principal amount of the
second series of notes, $1.2 million of the notes in default were called for
acceleration and Leisure Time paid the remaining interest and principal due in
January, 1999. The holders of the notes that were called for acceleration have
asserted that they retained their conversion rights under the notes.
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Acquisition of Vessels. Leisure Time owns the Leisure Lady and the Biloxi
Belle. The Leisure Lady was acquired by Leisure Time in February 1997 for a
total consideration of approximately $2.6 million in cash and 150,000 shares of
Leisure Time's common stock. The Biloxi Belle was acquired in December 1998 for
approximately $1.5 million in cash.
In May 1999, Leisure Time purchased the outstanding stock of the
corporation that owns the Vegas Express. The total consideration was $4.1
million in cash, 80,000 shares of common stock and three year warrants to
purchase 80,000 shares of common stock at $10.00 per share. Leisure Time and the
previous owner also agreed that the previous owner would pay 50% of any of the
disclosed liabilities of the corporation that exceed $1.45 million. As of March
31, 1999, Leisure Time had advanced $2.0 million of the purchase price to the
corporation. Prior to the acquisition of the Vegas Express, Leisure Time had a
bareboat charter agreement for the use of the Vegas Express. The agreement
commenced on April 22, 1998 and was extended through April 21, 1999. Charter
payments were $100,000 per month until January 1999, at which time they
decreased to $50,000 per month. In addition to the charter payments, beginning
in January 1999, Leisure Time paid the owner of the Vegas Express a set fee per
passenger per month in excess of 12,000 passengers. In addition to the monthly
charter payments payable under the bareboat charter agreement, Leisure Time
advanced approximately $50,000 to the owner of the Vegas Express in December
1998. Leisure Time had a third mortgage of approximately $1.7 million on the
Vegas Express which was released when Leisure Time acquired the corporation.
Leisure Time also entered into a three month consulting agreement with the sole
stockholder of the owner of the Vegas Express pursuant to which Leisure Time
paid the sole stockholder $55,000 per month for the months of February and March
1999.
Acquisition of Gaming Route Operation. In February 1999, Leisure Time
acquired a gaming route consisting of 12 locations containing 47 video gaming
machines in South Carolina from Phillip C. Caldwell, the Vice President and
Chief Operating Officer of Leisure Time Gaming. Mr. Caldwell had acquired these
locations and video gaming machines in October 1998, for $70,000. Leisure Time
paid Mr. Caldwell $39,000 for the gaming route operation by forgiving debt owed
by Mr. Caldwell to Leisure Time.
Leisure Time has received unaudited revenue of approximately $35,000 and
$7,000 from its gaming route operations for the months of February and March
1999.
Acquisition of Hotel. Leisure Time acquired the hotel property for
approximately $1 million, of which approximately $500,000 has been paid. The
balance was paid by the execution of a promissory note in the amount of
approximately $545,000 that bears interest at 10% per annum and is due in
September 2003.
Acquisition of Finance Company. In April 1999, Leisure Time acquired all of
the outstanding stock of Leisure Time Financial from David M. Pote in exchange
for 100,000 shares of Leisure Time's common stock and an option to purchase
100,000 shares of common stock at $6.00 per share. The option had a value of
$400,000 based on a value of $10.00 per share of Leisure Time's common stock.
The option vests as to 20,000 shares on each of the first through fifth
anniversaries of the grant date and expires ten years after each respective
vesting date. The option terminates as to any unvested portion if Mr. Pote
ceases to be either a director, officer or employee of Leisure Time or one if
its subsidiaries. In addition, Leisure Time provided additional funding to
Leisure Time Financial and Leisure Time Financial paid Mr. Pote approximately
$153,000 due on a loan from Mr. Pote to Leisure Time Financial. Leisure Time
Financial and Mr. Pote entered into a three-year employment agreement in April
1999 under which Mr. Pote serves as the Senior Vice President of Leisure Time
Financial. Mr. Pote receives a base salary of $125,000 per year plus benefits.
The employment agreement contains a non-competition clause prohibiting Mr. Pote
from competing with Leisure Time during the term of the employment agreement and
for a period of six months thereafter.
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FACILITIES
The following chart provides information pertaining to the facilities
currently leased by Leisure Time:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION USE SQUARE FOOTAGE MONTHLY RENTAL EXPIRATION
- -------- --- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Norcross, GA......... Executive offices and 57,000 $20,663 1/2005
manufacturing
facility
Norcross, GA......... Offices 7,200 $ 3,900 4/2000
Tulsa, OK............ Offices and research 2,500 $ 3,125 2/2002
and development
Spartanburg, SC...... Offices and warehouse 9,000 $ 3,600 12/1999
Gloucester, MA....... Dock and parking N/A $10,300 12/2000
Hyannis, MA.......... Restaurant and 5,000 $16,667 4/2000
apartments plus passenger
Marina N/A fees
Hyannis, MA.......... Office 1,860 $ 2,248 4/2000
Hyannis, MA.......... Employee housing 5,000 $ 2,500 4/2000
Dania, FL............ Dock, ticket booth N/A $ 6,500 plus rent 5/2000
and boarding area based upon number of
passengers
Edina, MN............ Office 1,533 $ 2,107 5/2002
Avon, OH............. Office 1,250 $ 1,500 6/2000
New Orleans, LA...... Condominium/office 4,200 $ 2,500 10/2002
</TABLE>
Leisure Time also owns a hotel property in Cleveland, Ohio, that is
encumbered by a mortgage of approximately $545,000.
EMPLOYEES
As of June 30, 1999, Leisure Time employed 300 persons, 231 of whom were
employed on a full time basis. The approximate number of employees in each
operation follows:
- 37 in manufacturing;
- 28 in engineering and research and development;
- 159 in offshore gaming and related restaurant;
- 11 in gaming routes;
- 10 in renovating the hotel;
- 3 in equipment financing; and
- 9 in sales and marketing.
The balance are management employees and staff that are involved in executive
management and administration of Leisure Time. There are no union or collective
bargaining agreements between Leisure Time and its employees and employee
relations are considered by Leisure Time to be excellent.
LITIGATION
On October 30, 1996, Drews Distributing, Inc. filed a complaint against
Leisure Time Technology, Inc. in the United States District Court for the
District of South Carolina (Case No.: 7 96 3307 13) in which Drews alleged,
among other things, that Leisure Time Technology breached the Exclusive
Distribution Agreement dated November 27, 1995, that was entered into between
Leisure Time Technology (which was then known as U.S. Games, Inc.) and Drews.
After a trial to the Court, the Court found that Leisure Time Technology
breached the agreement by selling the Pot O Gold video game machines to others
in South Carolina. The Court held that, as a direct and proximate result of such
breach, Drews suffered actual damages in the amount
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of approximately $3.1 million. Leisure Time Technology appealed the decision to
the United States Court of Appeals for the Fourth Circuit (Record No. 97-2391)
which affirmed the judgment. Leisure Time Technology has filed a petition for
rehearing by the Fourth Circuit which was denied. Leisure Time Technology paid
the judgment in May 1999.
On October 19, 1998, James J. Oden, the former Vice President, Chief
Operating Officer, Chief Financial Officer, Treasurer and Secretary of Leisure
Time Technology filed a complaint against Leisure Time and Leisure Time
Technology in the United States District Court for the Northern District of
Georgia (Civil Action File No. 1 98-CV-3033) alleging that Leisure Time and
Leisure Time Technology had breached an alleged employment agreement with Mr.
Oden because Leisure Time granted incentive stock options to Mr. Oden for
200,000 shares exercisable at $2.50 per share rather than nonqualified stock
options for 200,000 shares exercisable at $1.00 per share. Further, Mr. Oden
alleges that the stock options he should have received should have been
exercisable without being conditioned upon a particular schedule and should not
have expired upon the termination of his employment. Mr. Oden claims that the
value of Leisure Time's common stock on October 19, 1998, exceeded $15.00 per
share and seeks an unspecified amount of damages. Leisure Time and Leisure Time
Technology have filed an answer denying Mr. Oden's claims and intend to
vigorously defend the lawsuit.
On June 10, 1998, Collins Entertainment Corp. filed a complaint against
Leisure Time Technology in the Court of Common Pleas for the Fifth Judicial
Circuit, Richland County, State of South Carolina. Collins alleges, among other
things, that Leisure Time Technology breached the Sales Distribution Agreement
dated May 13, 1992 that was entered into between Leisure Time Technology (which
was then known as U.S. Games, Inc.) and Collins by not supplying Collins with
Pot O Gold machines for resale in South Carolina. Collins further alleges that
Leisure Time Technology used unfair and/or deceptive means of restraining trade
in violation of the South Carolina Unfair Trade Practices Act by limiting the
supply of Pot O Gold machines in South Carolina. Collins requests that it be
granted damages in an amount to be determined at trial and that the damages be
trebled. In interrogatory responses, Collins alleges that its actual damages are
approximately $1.3 million. Collins also requested that it be granted a
temporary restraining order and preliminary injunction against Leisure Time
Technology.
This litigation follows an earlier lawsuit regarding the same contract
filed by Collins against Leisure Technology in South Carolina District Court on
November 7, 1996 (the "Prior Litigation") which resulted in a jury verdict
returned on October 30, 1997, in favor of Collins in the amount of $0.
Leisure Time Technology had the Collins action removed to the United States
District Court for the District of South Carolina, Anderson Division (Civil
Action No.: 3-98-1887-17). In September 1998, the Court denied Collins' request
for a temporary restraining order and preliminary injunction. Leisure Time
Technology has filed an Answer and Counterclaim in which Leisure Time Technology
denies various allegations, asserts various affirmative defenses and
counterclaims that Collins sold new Pot O Gold games as used games thereby
constituting an unfair and deceptive act in trade or commerce in South Carolina
in violation of the South Carolina Unfair Trade Practices Act. Leisure Time
further alleges that Collins' actions in selling Pot O Gold games in violation
of the terms of the Agreement resulted in a judgment being entered against
Leisure Time in favor of Drews in the amount of approximately $3.1 million and
constituted tortious interference with contract. Leisure Time Technology's
Exclusive Distribution Agreement with Drews allowed Leisure Time Technology to
sell Pot O Gold games directly to Collins for Collins' own use only, but not for
resale by Collins. Leisure Time Technology alleges that Collins agreed to this
limitation. The Court determined that, by continuing to sell the games to
Collins with actual or constructive knowledge that Collins was reselling those
games, Leisure Time breached its Exclusive Distribution Agreement with Drews and
awarded damages based on each of the resales made by Collins. Leisure Time
requests that it be granted damages to be determined at trial and that the
damages be trebled.
On March 24, 1999, the Court struck various of Leisure Time Technology's
answers as being res judicata or collaterally estopped because of the prior
litigation between Collins and Leisure Time and dismissed Leisure Time
Technology's counterclaims mentioned above. Each stricken paragraph contained a
defense the essence of which was that the agreement between Leisure Time
Technology and Collins was either not
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binding or had been modified so as to prohibit Collins from reselling Pot-O-Gold
machines in South Carolina. The order also struck Leisure Time Technology's
counterclaims for violation of the South Carolina Unfair Trade Practices Act,
contractual and common law indemnification, and tortious interference with
contract. Leisure Time Technology filed a motion for reconsideration or in the
alternative, for immediate appeal. On June 29, 1999, the Court denied Leisure
Time Technology's motions and issued an amended order affirming the Court's
March 24, 1999 order.
On December 14, 1998, Leisure Time Technology filed a lawsuit against Drews
in the Superior Court of Gwinnett County, State of Georgia (Civil Action No.:
98-A-97614) in which Leisure Time Technology alleges that Drews breached the
Exclusive Distribution Agreement dated November 27, 1995, by failing to pay
Leisure Time Technology $2.7 million for a portion of the memory board upgrade
kits for Pot O Gold machines that Drews had ordered from Leisure Time Technology
and by failing to pay Leisure Time Technology $5 million for a portion of the
Pot O Gold machines Drews had ordered from Leisure Time Technology. It is also
Leisure Time Technology's position that, in connection with Leisure Time
Technology's development and sale of new T-340+ circuit boards, Drews agreed
that if a South Carolina end user purchased a Pot O Gold machine which contained
the old T-340 circuit board, the end user could purchase the new T-340+ circuit
board from Drews and then return his old T-340 circuit board to Leisure Time
Technology. Drews agreed to arrange for end users to return the replaced T-340
circuit boards to Leisure Time Technology for reuse. It is Leisure Time
Technology's position that the T-340 circuit board and its technology are trade
secrets of Leisure Time Technology and that, by allowing its customers to keep
the old T-340 circuit boards and not return them to Leisure Time Technology,
Drews has indirectly misappropriated Leisure Time Technology's technology and
trade secrets. Leisure Time Technology requests that Leisure Time Technology be
granted damages to be proved at trial, interest and attorneys' fees, specific
performance and an order enjoining the misappropriation.
Drews has filed an answer and counterclaim in this action in which Drews
alleges that Leisure Time Technology has continued to breach the agreement, that
Leisure Time Technology's breach was accompanied by a fraudulent act and that
Leisure Time Technology committed fraudulent nondisclosure of material facts in
connection with the agreement. Drews is claiming actual damages in an amount to
be proved at trial for the loss of sales, for the diminution of the price of
games sold by Drews due to a loss of exclusivity, for the refusal of Leisure
Time Technology to sell games at the contract price and due to the sales by
Collins and other in violation of the agreement. Drews is also requesting
punitive damages. Drews' counterclaims are similar to the claims by Drews in the
case in which Drews recovered a judgment in the amount of approximately $3.1
million. In that case, the Court made no finding of any fraudulent acts by
Leisure Time Technology.
On March 25, 1999, Drews filed a complaint against Leisure Time Technology
and Phillip C. Caldwell in the Court of Common Pleas for the Fifth Judicial
Circuit, Richland County, South Carolina, essentially repeating the allegations
asserted in its counterclaim against Leisure Time Technology in the Gwinnett
County, Georgia action. Specifically, Drews alleges that Leisure Time Technology
breached the Distribution Agreement by continuing to sell Pot-O-Gold machines to
Collins, directly selling machines in South Carolina and "illegally raising the
prices of video games." Drews also alleges claims for breach of contract
accompanied by a fraudulent act, fraudulent nondisclosure of a material fact and
tortious interference with Drews' alleged contracts with Darlington Music
Company and Gold Strike/American Bingo and Gaming. Drews seeks unspecified "past
damages," actual damages, punitive damages and attorneys' fees.
An unfavorable outcome in any of the outstanding lawsuits could have a
material adverse effect on the financial condition of Leisure Time.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Leisure Time has filed a registration statement with the SEC registering
the common stock offered by this prospectus. This prospectus does not contain
all of the information in the registration statement and its exhibits and
schedules. For further information about Leisure Time and its common stock,
please refer to the registration statement and the exhibits and schedules filed
with the SEC.
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<PAGE> 67
A copy of the registration statement and its exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048, and copies of all or any part of the
registration statement may be obtained from such offices upon the payment of the
fees prescribed by the SEC. The SEC maintains a website that contains
registration statements, reports, proxy and other information regarding
registrants that file electronically with the SEC. The address of the website is
http://www.sec.gov.
Leisure Time intends to furnish annual reports to stockholders containing
audited financial statements and will also make available quarterly reports and
such other periodic reports as it may determine to be appropriate or as may be
required by law.
MANAGEMENT
The directors, executive officers, other officers and key employees of
Leisure Time and its subsidiaries are as follows:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS OF LEISURE TIME AGE POSITION
- ------------------------------------------------ --- --------
<S> <C> <C>
Alan N. Johnson............................ 58 Chairman of the Board, President and
Chief Executive Officer
Elden W. Rance............................. 61 Executive Vice President, Chief
Financial Officer, Treasurer,
Assistant Secretary and Director
R. Thomas Klingel.......................... 52 Executive Vice President of
Engineering, Research and Development
and Director
Gerald J. Boyle............................ 68 Vice President, Secretary and Director
Eric R. Dey................................ 40 Vice President of Finance
Richard D. Sly............................. 64 Assistant Secretary and Director
Lester E. Bullock.......................... 46 Director
</TABLE>
<TABLE>
<CAPTION>
OTHER OFFICERS AND KEY EMPLOYEES AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
Phillip C. Caldwell................... 37 Vice President and Chief Operating
Officer of Leisure Time Gaming
Anne M. Ellison....................... 41 Vice President of Human Resources of
Leisure Time
W. Brian Gillespie.................... 31 Vice President and Director of
Programs of Leisure Time
Joseph C. Grunda...................... 47 Vice President of Licensing and
Compliance/General Counsel and
Assistant Secretary of Leisure Time
Kelly J. Macke........................ 33 Vice President of U.S. Sales and
Marketing of Leisure Time
Keko Mottes........................... 48 Vice President of Sales and Marketing
of Leisure Time
Mary J. Olszewski..................... 41 Controller of Leisure Time
John J. Pasierb....................... 52 Vice President of Engineering and
Research and Development of Leisure
Time
David M. Pote......................... 55 Senior Vice President of Leisure Time
Financial
John W. Salter........................ 44 Vice President of Operations of
Leisure Time Technology
Gary W. Watkins....................... 45 President and Director of Solutia
Gaming Systems
</TABLE>
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<PAGE> 68
Leisure Time is amending its Articles of Incorporation so that the
directors will be elected for a three-year term, with approximately one-third of
the board of directors standing for election each year. Each director holds
office until the expiration of the director's term, until the director's
successor has been duly elected and qualified or until the earlier of their
resignation, removal or death. All of Leisure Time's officers and key employees,
except Richard D. Sly, spend substantially all of their time on Leisure Time's
business and affairs.
Alan N. Johnson has been the Chairman of the Board and President of Leisure
Time since 1993 and the Chief Executive Officer of Leisure Time since 1997. Alan
N. Johnson also serves in the following capacity with the following wholly-owned
operating subsidiaries of Leisure Time:
- Leisure Time Technology -- Director, Chairman, President and Chief
Executive Officer;
- Leisure Time Cruise -- Director and President;
- Leisure Express Cruise -- President and Chief Executive Officer;
- Florida Casino Cruises -- Director, President and Chief Executive
Officer;
- Leisure Time Gaming -- Director, President and Chief Executive Officer;
- One Eyed Jacks Gaming -- Director, President and Chief Executive Officer;
- Leisure Time Hospitality -- President;
- Leisure Time Financial -- Director, President and Chief Executive
Officer; and
- Leisure Time International -- Director and President.
Mr. Johnson studied transportation law at Fenn College, Engineering at Case
Western Reserve and hazardous materials removal and control at Georgia Institute
of Technology.
Elden W. Rance has been the Executive Vice President, Chief Financial
Officer, Treasurer and a director of Leisure Time since 1998 and an Assistant
Secretary of Leisure Time since 1999. Elden W. Rance also serves in the
following capacities with the following wholly owned subsidiaries of Leisure
Time:
- Leisure Time Technology -- Director, Executive Vice President, Secretary
and Treasurer;
- Leisure Time Cruise -- Director, Executive Vice President, Treasurer and
Secretary;
- Leisure Express Cruise -- Executive Vice President, Treasurer and
Secretary;
- Florida Casino Cruises -- Director and Secretary;
- Leisure Belle Cruise -- Executive Vice President, Treasurer and
Secretary;
- Leisure Time Gaming -- Director, Executive Vice President, Secretary and
Treasurer;
- One Eyed Jacks Gaming -- Director, Executive Vice President, Secretary
and Treasurer;
- Leisure Time Hospitality -- Director, Secretary and Treasurer;
- Leisure Time Financial -- Director, Executive Vice President, Secretary
and Treasurer; and
- Leisure Time International -- Director, Vice President and Treasurer.
From 1988 to 1998, Mr. Rance was employed as the President of Rance &
Associates, a financial consulting firm that specialized in expert evaluations
for banking litigation, finance acquisition and reorganizations. From 1989 to
1994, Mr. Rance was the Chairman and Chief Executive Officer of RP Capital
Corporation, a full service regional leasing company that Leisure Time acquired
in April 1999. Mr. Rance graduated from the Graduate School of Commercial
Lending of the University of Oklahoma and the Graduate School of Banking of the
University of Colorado.
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R. Thomas Klingel has been the Executive Vice President of Engineering,
Research and Development since 1999 and a director of Leisure Time since 1997.
From 1997 to 1999, Mr. Klingel was Executive Vice President of Marketing, Sales,
Compliance and Licensing of Leisure Time. From 1992 to 1996, Mr. Klingel was
Executive Vice President of U.S. Games, Inc. which is now Leisure Time
Technology, Inc. Mr. Klingel attended Western Michigan University and received a
master of business administration degree in management and international studies
from Georgia State University.
Eric R. Dey has been the Vice President of Finance since July 1999. Mr. Dey
was the Corporate Controller with Excel Communications, Inc., a
telecommunications company, from 1994 to 1999. From 1993 to 1994, Mr. Dey was
the Corporate Controller for Brinks Home Security, a security company that is a
subsidiary of Pittston Corporation. From 1984 to 1993, Mr. Dey was with the
Pepsi Cola Company, a diversified food and beverage company, in various
positions the latest being the Manager of Financial Operations. Mr. Dey is a
Certified Public Accountant. Mr. Dey graduated from Western Michigan University
with a bachelor of science degree in business administration and from The
University of Dallas with a masters degree in business administration.
Gerald J. Boyle has been the Vice President and the Secretary of Leisure
Time since 1997 and a director of Leisure Time since 1994. From 1987 to the
present, Mr. Boyle has been an independent accountant with a concentration in
consulting for small emerging companies. Mr. Boyle graduated with a bachelor of
commerce degree in accounting from Sir George William University.
Richard D. Sly has been an Assistant Secretary of Leisure Time since 1997
and a director of Leisure Time since 1993. Mr. Sly was a Vice President of
Leisure Time from 1993 to 1997 and the Secretary of Leisure Time from 1993 to
1997. Mr. Sly has been employed by Richard Sly Architect, Inc., an architectural
firm owned by him, since 1970. Mr. Sly graduated from Ohio State University with
a bachelor of architecture degree. In addition to providing architectural
services for the hotel for which Mr. Sly is compensated separately, Mr. Sly
provides services as a part time employee of Leisure Time.
Lester E. Bullock has been a director of Leisure Time since 1998 and has
been a Vice President and the Chief Operating Officer of Leisure Time Cruise
Corporation since 1998. From 1994 to 1998, Mr. Bullock was the President and
Chief Executive Officer and a director of Europa Cruise Corporation, a day
cruise operator. From 1992 to 1994, Mr. Bullock was the General Manager and then
the Vice President of Operations of Europa Cruise Corporation. Mr. Bullock
graduated from Arizona State University with a bachelor of science degree in
business administration.
Phillip C. Caldwell has been the Vice President and Chief Operating Officer
of Leisure Time Gaming, Inc. and an employee of Leisure Time since 1998. From
1995 to 1998, Mr. Caldwell was the Vice President and COO of Thunderbird
Carolina Inc., a distributor of gaming machines. From 1982 to 1995, he was the
Vice President of Operations of Drews Distributing Company, a distributor of
gaming machines. Mr. Caldwell attended Richmond Technical Center and Spartanburg
Technical College.
Anne M. Ellison has been the Vice President of Human Resources of Leisure
Time since 1998. From 1997 to 1998, Ms. Ellison was the Human Resources Manager
for Intellisourse, an outsourcing service provider. From 1988 to 1997, Ms.
Ellison was the Human Resources Manager for Oglethorpe Power, a private electric
utility. Ms. Ellison graduated from Georgia State University with a bachelor of
science degree in office administration.
W. Brian Gillespie has been the Vice President and Director of Programs of
Leisure Time since May 1999. Mr. Gillespie was the Director of Programs of
Leisure Time Technology from January 1999 to May 1999. From 1995 to 1999, Mr.
Gillespie was an Account Executive with BABN Technologies (which is now named
Obertheur Gaming), a supplier of lottery tickets and security printers. From
1991 to 1994, Mr. Gillespie was an Imaging Analyst with Scientific Games
International, a supplier of lottery tickets. Mr. Gillespie graduated from Total
Technical College with an associates degree in computer hardware and from North
Georgia College with a bachelor of science degree in biology.
Joseph C. Grunda has been the Vice President of Licensing and
Compliance/General Counsel and an Assistant Secretary of Leisure Time since
1999. From 1981 to 1999, Mr. Grunda was a partner in the law firm
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<PAGE> 70
of Grunda & Grunda. Mr. Grunda graduated from the College of Wooster with a
bachelor of arts degree and from Ohio Northern University with a doctor of
jurisprudence degree.
Kelly J. Macke has been the Vice President of U.S. Sales and Marketing of
Leisure Time since May 1999. Mrs. Macke was an Account Executive with Leisure
Time Technology from January 1997 to May 1999. From 1994 to 1997, Mrs. Macke was
a licensed insurance agent with Sedgwick, an insurance broker. From 1991 to
1994, Mrs. Macke was an Account Executive with Hogg Robinson, an insurance
broker. Mrs. Macke attended Lorain County Community College. Kelly J. Macke is
the daughter of Alan N. Johnson.
Keko Mottes has been the Vice President of Sales and Marketing of Leisure
Time since 1999. From 1998 to 1999, Mr. Mottes was the Vice President of
International Sales and New Market Development of Leisure Time Technology, Inc.
From 1987 to 1998, Mr. Mottes was the Director of International Sales at Bally
Gaming, Inc., a gaming machine manufacturer. Mr. Mottes attended The High
Technical Institute of San Michele, Italy and also holds a Slot and
Coin-Operated Electro Technician Certification from Bally Continental, Ltd. in
Belgium.
Mary J. Olszewski has been the Corporate Controller of Leisure Time since
1998 and was the Controller of Leisure Time Technology from 1994 to 1998. Ms.
Olszewski graduated from Michigan Technological University with a bachelor of
science in business administration.
John J. Pasierb has been the Vice President of Engineering and Research and
Development of Leisure Time since 1999. From 1998 to 1999, Mr. Pasierb was the
Vice President of Engineering and Research and Development of Leisure Time
Technology. From 1994 to 1998, Mr. Pasierb was the President of Acclaim
Coin-Operated Amusement, a wholly-owned subsidiary of Acclaim Entertainment.
From 1992 to 1994, Mr. Pasierb was Vice President of Engineering of American
Laser Games. Mr. Pasierb graduated from Western Michigan University with a
master of science degree in engineering.
David M. Pote has been the Senior Vice President of RP Capital Corporation
since 1999. Mr. Pote was the President, a director and the majority owner of RP
Capital Corporation for over the past five years. Mr. Pote graduated from Le
Moyne College with a bachelors degree in accounting and from the State
University of New York at Buffalo with a masters degree in business
administration.
John W. Salter has been the Vice President of Operations of Leisure Time
Technology since 1999. From 1997 to 1998, when he became employed by Leisure
Time Technology, Mr. Salter was the plant manager for ACCO, NA, a manufacturer
of office storage boxes. Prior to 1996, Mr. Salter was an operations manager for
the Simmons Company, a mattress manufacturer. Mr. Salter graduated from Clemson
University with a bachelor of science degree in administrative management.
Gary W. Watkins has been the President and a director of Solutia Gaming
Systems, Inc. since 1998. From 1996 to 1998, Mr. Watkins was the President of
Worldlink Gaming, Inc., a Class II electronic game developer. From 1994 to 1996,
Mr. Watkins was the Vice President of Research and Development of Multimedia
Games, Inc., a Class II electronic game developer. Mr. Watkins graduated from
the University of Tulsa with a degree in business management.
COMMITTEES OF THE BOARD OF DIRECTORS
Within 90 days after the date of this prospectus, Leisure Time plans to add
at least two non-employee directors. The board of directors will then create and
maintain a compensation committee and an audit committee. The compensation
committee and the audit committee will be composed of at least the two non-
employee directors. The primary functions of the compensation committee will be
to review and make recommendations to the board of directors with respect to the
compensation, including bonuses, of Leisure Time's officers and to administer
the grants under Leisure Time's stock option plan. The functions of the audit
committee will be to review the scope of the audit procedures employed by
Leisure Time's independent auditors, to review with the independent auditors
Leisure Time's accounting practices and policies and recommend to whom reports
should be submitted within Leisure Time, to review with the independent auditors
their final audit reports, to review with Leisure Time's internal and
independent auditors Leisure
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Time's overall accounting and financial controls, to be available to the
independent auditors during the year for consultation, to approve the audit fee
charged by the independent auditors, to report to the board of directors with
respect to such matters and to recommend the selection of the independent
auditors.
COMPENSATION OF DIRECTORS
Leisure Time does not currently pay its directors any cash compensation for
their services as directors. Leisure Time expects to compensate directors in the
future with cash and options to purchase Leisure Time's common stock. Directors
are reimbursed for expenses incurred in connection with meetings of the board of
directors or committees thereof.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, Leisure Time had no compensation committee and all
of the directors of Leisure Time who were officers of Leisure Time during the
fiscal year ended June 30, 1998, participated in deliberations of Leisure Time's
board of directors concerning executive officer compensation.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by Leisure Time for services rendered in all capacities to
Leisure Time and its subsidiaries for the fiscal years ended June 30, 1999,
1998, and 1997 to those persons who were (i) the chief executive officer of
Leisure Time during the fiscal year ended June 30, 1999, and (ii) the other most
highly compensated executive officers of Leisure Time and of Leisure Time's
subsidiaries whose annual salary and bonus paid by Leisure Time exceeded
$100,000 for the fiscal year ended June 30, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
YEAR ANNUAL COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITIONS ENDED ------------------- SECURITIES
AT JUNE 30, 1999 JUNE 30, SALARY BONUS UNDERLYING OPTIONS
- ---------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Alan N. Johnson............................... 1999 $452,797 $102,356 --
Chairman of the Board, President and Chief 1998 357,544 3,847 --
Executive Officer 1997 483,881 -- 206,400
Elden W. Rance................................ 1999 $219,247 $ 55,847 --
Executive Vice President, Chief Financial 1998 26,539 -- 562,500
Officer and Treasurer 1997 -- -- --
R. Thomas Klingel............................. 1999 $212,217 $ 27,185 --
Executive Vice President of Marketing, 1998 177,024 2,597 --
Sales, Compliance and Licensing 1997 370,865 -- 204,300
Gerald J. Boyle............................... 1999 $155,481 $ 32,873 --
Vice President and Secretary 1998 157,500 -- --
1997 145,317 -- --
John J. Pasierb............................... 1999 $120,679 $ 2,404 100,000
Vice President of Engineering and Research 1998 -- -- --
and Development 1997 -- -- --
Timmie A. Godwin.............................. 1999 $144,115 $ 17,924 100,000
Vice President and Chief Operating Officer 1998 100,332 1,731 --
of Leisure Time Technology, Inc. until 1997 99,765 13,502 --
February 1999
</TABLE>
Leisure Time provides Alan N. Johnson, Elden W. Rance, R. Thomas Klingel
and John J. Pasierb with automobiles and pays the related insurance and
maintenance. The total amounts paid by Leisure Time for the
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automobiles, insurance and maintenance for the fiscal years ended June 30, 1999,
1998 and 1997 for each individual did not exceed the lesser of $50,000 or 10% of
the total annual salary and bonus paid to each individual.
No options were granted by Leisure Time to Alan N. Johnson, Elden W. Rance,
R. Thomas Klingel or Gerald J. Boyle during Leisure Time's fiscal year ended
June 30, 1999. The following table provides information with respect to options
granted during Leisure Time's fiscal year ended June 30, 1999, to John J.
Pasierb and Timmie A. Godwin:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANT
NUMBER OF SHARES GRANTED TO EXERCISE EXPIRATION DATE
NAME UNDERLYING OPTION EMPLOYEES PRICE DATE VALUE
- ---- ----------------- --------------- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
John J. Pasierb................... 100,000 8.3% $6.00 11/8/2003-
12/31/2006 $0
Timmie A. Godwin.................. 100,000 8.3% $6.00 Expired $0
5/14/99
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION VALUES
------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Alan N. Johnson............. 0 0 1,060,456/ 0 $11,291,162/$ 0
Elden W. Rance.............. 0 0 562,500/ 0 3,375,000/ 0
R. Thomas Klingel........... 0 0 124,300/80,000 1,179,560/ 760,000
Gerald J. Boyle............. 0 0 50,292/ 0 477,774/ 0
John J. Pasierb............. 0 0 40,000/60,000 240,000/ 360,000
Timmie A. Godwin............ 40,000 $240,000 0/ 0 0/ 0
</TABLE>
The value realized and fiscal year end option values are based on an
assumed initial public offering price of $12.00 per share of the common stock
less the exercise prices of the options.
No options to purchase Leisure Time's common stock were exercised by
Messrs. Johnson, Rance, Klingel, Boyle or Pasierb during Leisure Time's fiscal
year ended June 30, 1999. Leisure Time loaned Timmie A. Godwin $240,000 to
exercise his option for 40,000 shares. The loan bears no interest and is payable
on demand. The loan is secured by the 40,000 shares.
EMPLOYMENT AGREEMENTS
Alan N. Johnson has an employment agreement with Leisure Time that
terminates on June 30, 2003. Elden W. Rance, R. Thomas Klingel, Gerald J. Boyle
and Richard D. Sly have employment agreements with Leisure Time that terminate
on June 30, 2001. Under the employment agreements, the current annual base
salaries of Alan N. Johnson, Elden W. Rance, R. Thomas Klingel, Gerald J. Boyle
and Richard D. Sly are $600,000, $300,000, $150,000, $165,000 and $41,250,
respectively. Each of the employment agreements is renewed automatically after
its termination date for succeeding one year periods unless Leisure Time or the
employee gives written notice of nonrenewal at least 180 days prior to the
expiration of any such renewal date. Each of the employment agreements contains
provisions that the employee will not disclose confidential information and will
not compete with Leisure Time for various periods after termination or
expiration of their employment agreements.
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Each of the employment agreements contains a provision that, at any time
after a "change in control" of Leisure Time, the employee has the option to
cause Leisure Time to repurchase all or any portion of the common stock of
Leisure Time then owned by the employee at the higher of (i) the book value
thereof as of the last day of the month prior to the date of notice, or (ii) the
last sale price of a share of Leisure Time's common stock or the last price at
which the common stock was sold by Leisure Time or by a stockholder of Leisure
Time to any person (other than the employee). Also, upon a change of control of
Leisure Time, each employee is automatically granted options to purchase the
same number of shares of Leisure Time's common stock as are issuable upon
exercise of options to purchase Leisure Time's common stock then owned by the
employee. Such new options will have a ten year exercise period and an exercise
price of $0.01 per share.
A "change in control" is deemed to have occurred if:
- at any time any one person, or more than one person acting as a group,
acquires beneficial ownership of the voting securities of Leisure Time
that together with the voting securities beneficially owned by such
person or group, constitute more than 20% of the total voting power of
Leisure Time's outstanding voting securities;
- the appointment or election of a majority of the members of Leisure
Time's board of directors who are appointed or elected during any 24
month period but are not endorsed in writing by a majority of those
members of Leisure Time's board of directors who were directors prior to
the date of the appointment or election of the first such new directors
comprising a majority of the board of directors; or
- one person or more than one person acting as a group, acquires (or has
acquired during the 12 month period ending on the date of the most recent
acquisition by such person or persons) assets from Leisure Time that have
a total fair market value equal to or greater than one-third of the total
fair market value of all of Leisure Time's assets immediately before the
acquisition or acquisitions.
Bernard C. Johnson, an employee of Leisure Time and the brother of Alan N.
Johnson, has an employment agreement with Leisure Time that terminates on June
30, 2001, and has the same confidentiality, noncompetition and change in control
provisions as the employment agreements discussed above.
Leisure Time has an employment agreement with Eric R. Dey that will
terminate in June 2002. The employment agreement contains provisions that Mr.
Dey will not disclose confidential information and will not compete with Leisure
Time for various periods after termination or expiration of his employment
agreement. Further, Mr. Dey's employment agreement contains a provision that at
any time after a "change in control" of Leisure Time, Mr. Dey, at his option,
will have the right to terminate the employment agreement and Leisure Time will
be required to pay Mr. Dey 299% of Mr. Dey's compensation. In addition, a
"change in control" of Leisure Time will cause Mr. Dey's option to become fully
exercisable.
Joseph C. Grunda has an employment agreement with Leisure Time that
terminates on February 28, 2002. Keko Mottes and John J. Pasierb have employment
agreements with Leisure Time that terminate on January 31, 2002. John W. Salter
has an employment agreement with Leisure Time that terminates on December 7,
2001. David M. Pote, Jr. has an employment agreement with Leisure Time that
terminates on April 1, 2002. Gary W. Watkins has an employment agreement with
Leisure Time that terminates on May 31, 2002. Each of these employment
agreements contains provisions that the employee will not disclose confidential
information and will not compete with Leisure Time for various periods after
termination or expiration of their employment agreements.
CONSULTING AGREEMENT
Effective March 31, 1998, Leisure Time entered into a consulting agreement
with Anthony J. Siciliano, the former Executive Vice President and a former
director of Leisure Time. Pursuant to the consulting agreement, Mr. Siciliano is
required to provide a maximum of ten hours of management consulting per week for
Leisure Time and its subsidiaries. Mr. Siciliano is paid an amount of $5,000 per
month, together with the amount he pays to maintain his current health
insurance, and any out-of-pocket expenses incurred by him in performing his
consulting duties. The consulting agreement automatically terminates on December
31, 2008.
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STOCK OPTION PLAN
Leisure Time has an incentive and nonstatutory stock option plan that
authorizes Leisure Time to grant incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended, and to grant
nonstatutory stock options. The stock option plan currently relates to a total
of 4,500,000 shares of common stock. Leisure Time has agreed with the
representative that all options granted under the plan after the date of this
prospectus until options to purchase a total of 3,000,000 shares have been
granted will be granted at no less than fair market value. Thereafter and until
the next meeting of Leisure Time's stockholders, any options granted relating to
the next 1,500,000 shares only may be granted at no less than the greater of the
fair market value of the common stock on the date of grant or 120% of the public
offering price of the common stock.
Options to purchase 2,182,300 shares of common stock have been granted
under the plan and are outstanding. The options are exercisable at between $2.50
and $12.00 per share, vest over various periods of time and terminate between
2003 and 2008. Of the outstanding options granted under the stock option plan,
executive officers of Leisure Time have been granted options to purchase 823,200
shares of common stock and other employees have been granted options to purchase
1,359,100 shares of common stock. The outstanding options have a weighted
average exercise price of approximately $6.87 per share.
The stock option plan is administered by Leisure Time's board of directors
or a committee thereof which determines the terms of options granted, including
the exercise price, the number of shares of common stock subject to the option,
and the terms and conditions of exercise. No option granted under the stock
option plan is transferable by the optionee other than by will or the laws of
descent and distribution and each option is exercisable during the lifetime of
the optionee only by such optionee. The board of directors currently administers
the stock option plan.
Leisure Time has also granted nonqualified options to purchase 2,587,348
shares of Leisure Time's common stock outside of the stock option plan. Of these
options, executive officers of Leisure Time have been granted options to
purchase 1,147,348 shares of common stock that are exercisable at between $1.00
to $2.50 per share, are fully vested and terminate between 2005 and 2013. These
options have a weighted average exercise price of approximately $1.44 per share.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Colorado Business Corporation Act,
Leisure Time has adopted provisions in its articles of incorporation which
provide that its directors will not be personally liable to Leisure Time or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except that the provisions will not eliminate or limit the directors' liability
as a result of:
- a breach of the director's duty of loyalty to Leisure Time or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- voting for or assenting to a distribution, which, after giving effect to
the distribution, would result in (a) Leisure Time not being able to pay
its debts as they become due in the usual course of business, or (b)
Leisure Time's total assets being less than the sum of its total
liabilities plus amounts needed to satisfy preferential rights upon
dissolution of Leisure Time; or
- any transaction from which the director directly or indirectly derives
any improper personal benefit.
Leisure Time's articles of incorporation state that Leisure Time shall
indemnify, to the maximum extent permitted by law, any person who is or was a
director, officer, agent, fiduciary or employee of Leisure Time against any
claim, liability or expense arising against or incurred by such person made
party to a proceeding because such person served in any of such capacities or
because the person is or was serving another entity as a director, officer,
partner, trustee, employee, fiduciary or agent at Leisure Time's request. The
articles of incorporation also permit Leisure Time to purchase and maintain
insurance providing such indemnification.
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<PAGE> 75
Leisure Time's bylaws also provide for indemnification of such persons and for
the advancement of expenses to such persons.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and control persons of Leisure
Time pursuant to the foregoing provisions, or otherwise, Leisure Time has been
advised that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
CERTAIN TRANSACTIONS
Effective November 1, 1997, Leisure Time entered into a lease with Alan N.
Johnson relating to a condominium/office for Leisure Time located in the New
Orleans, Louisiana area. The lease expires on October 31, 2002, and Leisure Time
pays Alan N. Johnson rent of $2,500 per month plus all association fees related
to the condominium/office. Prior to November 1, 1997, Leisure Time had been
reimbursing Mr. Johnson $1,600 per month for the lease payments and association
fees he paid for another condominium/ office located in the New Orleans,
Louisiana area.
Leisure Time leases approximately 1,250 square feet of office space from
Alan N. Johnson in Avon, Ohio, where the offices of Alan N. Johnson and Gerald
J. Boyle are located. Leisure Time pays $1,500 per month for the office space
pursuant to a lease that will terminate in June 2000.
Leisure Time leases 11 automobiles from J-Way Leasing, Ltd., a company
owned by Alan N. Johnson. The leases are for either 36 months or 48 months and
have various dates of expiration. Leisure Time reimburses J-Way Leasing, Ltd.
for the down payments J-Way Leasing, Ltd. pays on each of the automobiles and
pays J-Way Leasing, Ltd. a monthly payment equivalent to the monthly payments
(plus 5%) that J-Way Leasing, Ltd. pays for each automobile. Leisure Time did
not pay any amount to J-Way Leasing, Ltd. during the fiscal year ended June 30,
1998. The total amount paid by Leisure Time to J-Way Leasing, Ltd. for the nine
months ended March 31, 1999, was $89,000.
In June 1998, Leisure Time became a party to a purchase agreement and
amendment in place of Alan N. Johnson to purchase Leisure Time's hotel property
located in the Cleveland, Ohio area. In connection with the transaction, Leisure
Time reimbursed Alan N. Johnson $40,000 for the deposits he had made in
connection with the purchase agreement and amendment. Mr. Johnson originally
entered into the purchase agreement and amendment relating to the hotel property
in his name because he was concerned that, if Leisure Time was disclosed as the
true purchaser, the seller would increase the purchase price. At the time the
hotel property was purchased by Leisure Time, Alan N. Johnson was required to
guarantee the obligations of Leisure Time to the seller. Mr. Johnson received no
compensation for guaranteeing such obligations.
In September 1997, Leisure Time deposited $300,000 with an attorney to be
used as a deposit against the purchase price of a vessel that was involved in a
bankruptcy proceeding. When the purchase of the vessel did not occur, the
attorney returned the $300,000 to Alan N. Johnson to be held on behalf of
Leisure Time. After the advance, Alan N. Johnson owed Leisure Time a total of
$371,000 which included the $300,000 non-interest bearing advance, a note for
$55,000 and $16,000 of expenses owed by Mr. Johnson to Leisure Time. In 1998,
Leisure Time credited against the $371,000:
- $40,000 of rentals and association fees that were owed to Alan N. Johnson
for the condominium/office in New Orleans, Louisiana that Leisure Time
leases from Alan N. Johnson;
- a deposit of $18,000 that Alan N. Johnson had paid on behalf of Leisure
Time to a potential acquisition candidate of Leisure Time;
- $40,000 that Alan N. Johnson had deposited in connection with the
purchase of Leisure Time's hotel in the Cleveland, Ohio area;
- $135,000 that Alan N. Johnson had paid on an invoice of Leisure Time;
- $84,000 that offset accrued wages payable to Alan N. Johnson;
- $35,000 that offset rent that was payable to Alan N. Johnson;
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<PAGE> 76
- $6,000 that was paid as advances toward car rentals payable to J-Way
Leasing, Ltd.; and
- $13,000 for accrued interest payable to Alan N. Johnson.
In October 1998, Leisure Time Cruise Corporation borrowed $3 million from
Foothill Capital Corporation. The loan is secured by the assets of Leisure Time
Cruise Corporation, including the Leisure Lady, and is guaranteed by Leisure
Time Technology, Leisure Time and Alan N. Johnson. Mr. Johnson received no
compensation for guaranteeing the loan.
Mr. Johnson has also guaranteed a $1 million line of credit that Leisure
Time has with Merrill Lynch Business Financial Services, Inc. The line of credit
is secured by substantially all of the assets of Leisure Time and is guaranteed
by Leisure Time Technology, Leisure Time Cruise Corporation and Alan N. Johnson.
Mr. Johnson received no compensation for guaranteeing the line of credit.
In May 1999, Leisure Express Cruise, LLC and Florida Casino Cruises, Inc.
borrowed a total of $5 million from Foothill Capital Corporation. The loans are
secured by the assets of Leisure Express Cruise, LLC and Florida Casino Cruises,
Inc., including the Vegas Express, and are guaranteed by Leisure Time, Leisure
Time Technology and Leisure Time Cruise Corporation. Alan N. Johnson also
guaranteed $1,000,000 of the loan. Mr. Johnson's guaranty will be extinguished
upon the completion of this offering. Mr. Johnson received no compensation for
guaranteeing the loans.
Alan N. Johnson owns 51% of Leisure Time Europe Ltd., which was formed in
February 1998 and acts as the distributor of Leisure Time's video gaming
machines to charities in Norway. Leisure Time sells the video gaming machines to
Leisure Time Europe, which adds a markup to the price and resells the video
gaming machines to the charities. The markup ranges from $400 to $1,200 per
video gaming machine depending on the number of video gaming machines sold to
the particular charity. Leisure Time Europe also services the video gaming
machines. From its inception through March 31, 1999, Leisure Time Europe has
realized a gross amount of approximately $40,000 from markups on the video
gaming machines sold in Norway. The remaining 49% of Leisure Time Europe is
owned by unaffiliated parties.
Commencing in July 1998, Leisure Time began to use the services of Richard
Sly Architect, Inc. to perform architectural services in connection with Leisure
Time's hotel property. Richard D. Sly is the Assistant Secretary and a director
of Leisure Time and owns Richard Sly Architect, Inc. Richard Sly Architect, Inc.
charges Leisure Time its standard fees for architectural services rendered. The
total amount paid by Leisure Time to Richard Sly Architect, Inc. during the year
ended June 30, 1999 was approximately $42,000.
Between July 1, 1997 and the date Leisure Time Financial was acquired by
Leisure Time, Leisure Time Financial and David M. Pote arranged equipment and
working capital financing for Leisure Time for which they received approximately
$50,000 and $12,500, respectively.
Leisure Time believes that the aforementioned transactions were made on
terms as fair to Leisure Time as those that Leisure Time could have obtained
from unrelated third parties at arms-length negotiations.
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<PAGE> 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Leisure Time's common stock, as of the date of this prospectus, and
as adjusted to reflect the sale of 1,100,000 shares of common stock offered by
this prospectus, by:
- each person who is known by Leisure Time to own beneficially more than 5%
of Leisure Time's outstanding shares of common stock;
- each of Leisure Time's executive officers and directors;
- all executive officers and directors of Leisure Time as a group; and
- each other person listed in the Summary Compensation Table.
Shares of common stock not outstanding but deemed beneficially owned by
virtue of the right of an individual to acquire the shares of common stock
within 60 days are treated as outstanding only when determining the amount and
percentage of common stock owned by such individual. Except as noted, each
person has sole voting and investment power with respect to the shares of common
stock shown.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
PRIOR TO THE OFFERING
NAME AND, IF OVER 5%, ----------------------------- PERCENTAGE OWNED
ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS AFTER THE OFFERING
- --------------------------- --------- ---------------- ------------------
<S> <C> <C> <C>
Alan N. Johnson.................................... 3,202,456(1) 51.4% 43.7%
1284 Miller Road
Avon, Ohio 44011
Elden W. Rance..................................... 562,500(2) 9.8 8.2
4258 Communications Drive
Norcross, Georgia 30093
R. Thomas Klingel.................................. 124,300(3) 2.3 1.9
Gerald J. Boyle.................................... 350,292(4) 6.7 5.5
4258 Communications Drive
Norcross, Georgia 30093
Eric R. Dey........................................ 12,500(5) * *
Richard D. Sly..................................... 325,500(6) 6.2 5.2
13920 West Lake Road
Vermillion, Ohio 44089
Lester E. Bullock.................................. 20,000(7) * *
Directors and Executive Officers as a group (6
persons)......................................... 4,597,548(8) 65.3 56.4
John J. Pasierb.................................... 40,000(9) * *
Timmie A. Godwin................................... 40,000 * *
Anthony J. Siciliano............................... 357,500(10) 7.1 5.8
18 Neil Drive
Smithtown, New York 11787
David K. Vanco..................................... 917,643(11) 15.7 13.2
1 South Piermont Drive
North Barrington, Illinois 60010
</TABLE>
- ---------------
* Less than 1%.
(1) The shares owned by Alan N. Johnson include 1,060,456 shares of common
stock underlying presently exercisable options.
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<PAGE> 78
(2) The shares owned by Elden W. Rance represent 562,500 shares of common stock
underlying a presently exercisable option.
(3) The shares owned by R. Thomas Klingel represent 124,300 shares of common
stock underlying the exercisable portions of options.
(4) The shares owned by Gerald J. Boyle include 50,292 shares of common stock
underlying a presently exercisable option.
(5) The shares owned by Eric R. Dey represent 12,500 shares of common stock
underlying the exercisable portion of an option.
(6) The shares owned by Richard D. Sly include 43,000 shares of common stock
underlying a presently exercisable option.
(7) The shares owned by Lester E. Bullock represent 20,000 shares of common
stock underlying the exercisable portion of an option.
(8) The shares owned by the directors and executive officers includes the
shares set forth above.
(9) The shares owned by John J. Pasierb represent 40,000 shares of common stock
underlying the exercisable portion of an option.
(10) The shares owned by Anthony J. Siciliano include 75,000 shares of common
stock underlying a presently exercisable option and include 141,250 shares
owned by Mr. Siciliano's wife, Mary E. Siciliano.
(11) The shares owned by David K. Vanco include 661,643 shares of common stock
underlying a presently exercisable option and a presently exercisable
warrant and a warrant that will be exercisable at 120% of the offering
price of a share of common stock in this offering.
CUSTODY OF SHARES
The representative has required each of the directors and one nondirector
officer of Leisure Time to deposit their pro rata percentage of a total of
500,000 shares of common stock or options to purchase common stock of Leisure
Time owned by such officers and directors into an custody account pursuant to a
custody agreement with American Securities Transfer & Trust, Inc. The common
stock and options to purchase common stock deposited in the custody account will
be subject to release to the officers and directors of Leisure Time on the
earlier to occur of:
- the approval of the South Carolina referendum on November 2, 1999, that
will permit video gaming machine payouts to continue in South Carolina;
- the Governor of California has entered into a gaming compact with at
least 10 Native American tribes located in California on a date that is
prior to the date that is twelve months from the date of this prospectus;
- the Company has successfully completed a subsequent underwritten public
offering of the Company's Common Stock in a gross amount of at least
$30,000,000 or at a price per share of at least $20;
- the Company attains net income after tax of at least $17.0 million for
the year ended June 30, 2000;
- the Company attains net income after tax of at least $32.0 million for
the year ended June 30, 2001; or
- the Company having been merged or consolidated with another company which
is the survivor to the transaction or having sold all or substantially
all of its assets and the relevant transaction was approved by the
holders of a majority of the Company's outstanding voting securities
exclusive of any such securities held by any party to the custody
agreement.
In the event none of the criteria for release specified above is reached by
the Company, the shares held in custody shall remain in custody until a date
that is seven years from the date of this prospectus.
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<PAGE> 79
DESCRIPTION OF SECURITIES
The following is a summary description of Leisure Time's capital stock. A
complete description is contained in Leisure Time's articles of incorporation
and bylaws.
Leisure Time's authorized capital stock consists of 45,000,000 shares of
common stock and 5,000,000 shares of preferred stock, which Leisure Time may
issue in one or more series as determined by the board of directors. There are
currently 4,971,829 shares of common stock issued and outstanding that are held
of record by approximately 160 stockholders.
COMMON STOCK
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders for their vote.
Cumulative voting in the election of directors is not authorized.
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds,
and, in the event of liquidation, dissolution or winding up of the affairs of
Leisure Time, holders are entitled to receive ratably the net assets of Leisure
Time available to the stockholders. Holders of outstanding shares of common
stock have no preemptive, conversion or redemption rights. All of the issued and
outstanding shares of common stock are, and all unissued common stock when
offered and sold will be, duly authorized, validly issued, fully paid and
nonassessable. To the extent that additional common stock of Leisure Time may be
issued in the future, the relative interests of the then existing stockholders
may be diluted.
PREFERRED STOCK
Leisure Time's board of directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of preferred stock with such dividend,
redemption, conversion, and exchange provisions as may be provided by the board
of directors with regard to such particular series. Any series of preferred
stock may possess voting, dividend, liquidation and redemption rights superior
to those of the common stock. The rights of the holders of common stock will be
subject to and may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future. Issuance of a new series of
preferred stock, or providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or discourage a third party from acquiring, the
outstanding common stock of Leisure Time and make removal of the board of
directors more difficult. No series of preferred stock has been designated, no
shares of preferred stock are currently issued and outstanding and Leisure Time
has no present plans to issue any shares of preferred stock.
ANTI-TAKEOVER PROVISIONS
Leisure Time's articles of incorporation and bylaws contain provisions that
may make it more difficult for a third party to acquire, or may discourage
acquisition bids for, Leisure Time. The board of directors of Leisure Time is
authorized, without action of its stockholders, to issue authorized but
undesignated and unissued preferred stock and authorized but unissued common
stock. The existence of authorized but undesignated and unissued preferred stock
and authorized but unissued common stock might enable Leisure Time to discourage
or make it more difficult to obtain control of Leisure Time by means of a
merger, tender offer, proxy contest or otherwise. The documents provide further
that:
- directors may be elected for three-year terms, with approximately
one-third of the board of directors standing for election each year;
- to alter or repeal the staggered board provision or other measures in the
articles of incorporation relating to the matters listed in this
paragraph, the affirmative vote of the holders of not less than two-
thirds of the votes cast by the holders of all stock entitled to vote in
the election of directors is required;
- directors may only be removed for cause; and
- directors may be removed for cause only by the affirmative vote of
holders of not less than two-thirds of the common stock.
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Leisure Time has employment agreements with certain of its executive
officers under which the officers may require Leisure Time to repurchase their
common stock upon the occurrence of a change in control of Leisure Time. In
addition, Leisure Time will issue low priced options to replace the officers'
current options upon the occurrence of a change in control of Leisure Time. If
enforceable, these provisions will likely inhibit a third party from acquiring
Leisure Time without the consent of these executive officers.
TRANSFER AGENT AND REGISTRAR
Leisure Time has retained American Securities Transfer & Trust, Inc. to
serve as the transfer agent and registrar for the common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Leisure Time will have 6,071,829 shares
of common stock outstanding. If the underwriters' over-allotment option is
exercised in full, 6,236,829 shares of common stock will be outstanding. Of the
6,071,829 shares, the 1,100,000 shares of common stock sold in this offering
(and any shares sold by Leisure Time upon exercise of the underwriters'
over-allotment option) and 1,856,353 shares of common stock that may be sold
pursuant to Rule 144(k) will be freely transferable by persons other than
"affiliates" of Leisure Time without restriction or registration under the
Securities Act of 1933.
The remaining 3,115,476 outstanding shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933 and
may not be sold in the absence of registration unless an exemption from
registration is available, including the exemption contained in Rule 144. Of
such shares, 3,084,090 shares become eligible for sale under Rule 144 commencing
90 days after the date of this prospectus. Pursuant to the terms of the
underwriting agreement, the representative has required that the shares of
common stock owned by officers, directors and the current stockholders may not
be sold until at least 180 days after the date of this prospectus without the
prior written consent of the representative. After 180 days, the current
stockholders of Leisure Time, who are not officers or directors, have the right
to sell up to 20% of the shares of common stock owned by them, up to a maximum
aggregate amount of 150,000 shares. All contractual restrictions on sales of
Leisure Time's common stock lapse 12 months after the date of this prospectus or
upon an earlier underwritten offering by Leisure Time. In the absence of
agreements with the representative, the outstanding restricted common stock
could be sold in accordance with Rule 144.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned shares of common stock for at least one year is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about Leisure Time. Rule 144(k) provides that a stockholder who is
not deemed to be an "affiliate" and who has beneficially owned shares of common
stock for at least two years is entitled to sell such shares at any time under
Rule 144(k) without regard to the limitations described above.
In addition to the shares of common stock that are currently outstanding, a
total of 5,536,423 shares of common stock have been reserved for issuance upon
exercise of outstanding options and warrants to purchase shares of common stock
at exercise prices of between $1.00 and $12.00 per share and upon conversion of
outstanding convertible notes into common stock and warrants and upon the
exercise of the warrants. Approximately six months after the date of this
prospectus, Leisure Time plans to file a registration statement on Form S-8 to
register the shares of common stock that have been reserved for issuance upon
exercise of certain of the outstanding options. Once registered, the shares of
common stock issued upon exercise of such options will be freely tradeable
without restriction under the Securities Act of 1933 except for shares held by
an "affiliate" of Leisure Time, which shares will remain subject to certain
restrictions.
Upon conclusion of this offering, Leisure Time will also issue the
representative warrants to purchase 110,000 shares of common stock at $ per
share.
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<PAGE> 81
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for which Schneider Securities, Inc. is acting as the
underwriters' representative, have severally agreed to purchase from Leisure
Time the shares of common stock set forth opposite their names and will purchase
the shares of common stock at the price to public less underwriting discount set
forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Schneider Securities, Inc...................................
---------
Total............................................. 1,100,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations are
subject to certain conditions precedent and that the underwriters are committed
to purchase all shares of common stock offered in this prospectus (other than
those covered by the over-allotment option described below) if the underwriters
purchase any shares of common stock.
The representative has advised Leisure Time that the underwriters propose
to offer the shares of common stock directly to the public at the price to
public set forth on the cover page of this prospectus, and that they may allow
to certain dealers that are members of the National Association of Securities
Dealers, Inc., concessions not in excess of $ . After the initial
public distribution of the common stock is completed, the price of the common
stock may change as a result of market conditions. No change in such terms will
change the amount of proceeds to be received by Leisure Time as set forth on the
cover page of this prospectus. The representative has further advised Leisure
Time that the underwriters do not intend to confirm sales to any accounts over
which any of them exercises discretionary authority.
Leisure Time has agreed to pay the representative a nonaccountable expense
allowance of 3% of the aggregate public offering price of the shares of common
stock offered by this prospectus, including shares of common stock sold on
exercise of the over-allotment option. Leisure Time has paid $50,000 against the
non-accountable expense allowance to the representative. Leisure Time has also
agreed to pay all expenses in connection with qualifying the shares of common
stock offered hereby for sale under the laws of such states as the
representative may designate.
Leisure Time has granted the underwriters an option, exercisable for 45
days after the date of this prospectus, to purchase up to 165,000 additional
shares of common stock at the same price as the initial shares of common stock
offered. The underwriters may purchase the shares of common stock solely to
cover over-allotments, if any, in connection with the sale of the shares of
common stock offered by this prospectus. If the over-allotment option is
exercised in full, the total public offering price, underwriting discounts,
nonaccountable expense allowance and proceeds to Leisure Time will be
$ , $ , $ and $ , respectively.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which create a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the shares of common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when the shares of common stock originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of such transactions.
Neither Leisure Time nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In
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<PAGE> 82
addition, neither Leisure Time nor any of the underwriters makes any
representation that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The representative has required that the shares of common stock owned by
officers, directors and the current stockholders may not be sold until at least
180 days after the date of this prospectus without the prior written consent of
the representative. After such 180 day period, the current stockholders of
Leisure Time, who are not officers or directors, have the right to sell up to
20% of the shares of common stock owned by them, up to a maximum aggregate
amount of 150,000 shares. Officers or directors may not sell any of the common
stock they own without the prior written consent of the representative until 12
months after the date of this prospectus. Collectively, these periods in which
the common stock of Leisure Time cannot be offered, sold or otherwise disposed
of, are referred to in this prospectus as the "lock-up period." The
representative has no present intention to waive or shorten the lock-up period.
In connection with this offering, Leisure Time will sell to the
representative for a total purchase price of $100, the representative's warrants
for the purchase of common stock entitling the representative or its assigns to
purchase 110,000 shares of common stock at an exercise price of 120% of the
public offering price listed on the cover of this prospectus for five years from
the date of this prospectus. The representative's warrants will contain
customary anti-dilution provisions and provide for the cashless exercise of the
representative's warrants utilizing securities of Leisure Time, which may
include the implicit value of the representative's warrants being surrendered.
Leisure Time will set aside and at all times have available a sufficient number
of shares of common stock to be issued upon exercise of the representative's
warrants. The representative's warrants and underlying shares of common stock
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year after the date of this prospectus, except to officers of the
representative, co-underwriters, selling group members and their officers or
partners. Thereafter, the representative's warrants and underlying shares of
common stock will be transferable provided such transfer is in accordance with
the provisions of the Securities Act of 1933. Subject to certain limitations and
exclusions, Leisure Time has agreed, at the request of the representative, to
register the warrants and the shares of common stock issuable upon exercise of
the representative's warrants under the Securities Act of 1933.
For a period of five years after the date hereof, the representative has
the right to have an observer attend meetings of Leisure Time's board of
directors and receive the compensation (excluding grants of options) and
expenses paid to Leisure Time's directors.
Prior to this offering, there has not been a public market for Leisure
Time's common stock. The public offering price of the common stock has been
determined by arms-length negotiation between Leisure Time and the
representative. There is no direct relation between the offering price of the
common stock and the assets, book value or net worth of Leisure Time. Among the
factors considered by Leisure Time and the representative in pricing the common
stock were the results of operations, the current financial condition and future
prospects of Leisure Time, the experience of management, the amount of ownership
to be retained by present stockholders, the general condition of the economy and
the securities markets and the demand for securities of companies considered
comparable to Leisure Time.
In connection with this offering, Leisure Time and the underwriters have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, and if such indemnification is
unavailable or insufficient, Leisure Time and the underwriters have agreed to
damage contribution arrangements based upon relative benefits received from this
offering and relative fault resulting in such damage.
LEGAL MATTERS
The validity of the common stock being offered by this prospectus has been
passed upon for Leisure Time by Smith McCullough, P.C., Denver, Colorado. Thomas
S. Smith, a stockholder and director of Smith McCullough, P.C., beneficially
owns 50,000 shares of Leisure Time's common stock and an option to purchase
125,000 shares of Leisure Time's common stock. Certain legal matters will be
passed upon for the representative by Berliner Zisser Walter & Gallegos, P.C.
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EXPERTS
The consolidated balance sheets of Leisure Time Casinos & Resorts, Inc. and
subsidiaries at June 30, 1997 and 1998 and the consolidated statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1996, 1997 and 1998 included in this prospectus have been included herein in
reliance on the report of Ehrhardt Keefe Steiner & Hottman PC, independent
certified public accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of Leisure Time Technology, Inc. (f/k/a
U.S. Games, Inc.) at June 30, 1996 and September 13, 1996 and the consolidated
statements of operations, stockholders' equity and cash flows for the year ended
June 30, 1996 and the period from July 1, 1996 to September 13, 1996 included in
this prospectus have been included herein in reliance on the report of Ehrhardt
Keefe Steiner & Hottman PC, independent certified public accountants, given on
the authority of that firm as experts in accounting and auditing.
The consolidated balance sheets of Florida Casino Cruises, Inc. at December
31, 1997 and 1998 and the consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1997 and 1998 included in
this prospectus have been included herein in reliance on the report of Ehrhardt
Keefe Steiner & Hottman PC, independent certified public accountants, given on
the authority of that firm as experts in accounting and auditing.
With respect to the unaudited interim consolidated financial information
for the nine months ended March 31, 1998 and 1999, the independent certified
public accountants have not audited or reviewed such consolidated financial
information and have not expressed an opinion or any other form of assurance
with respect to such consolidated financial information.
The pro forma combined statement of income for the year ended June 30, 1998
and the pro forma combined balance sheet as of March 31, 1999 have not been
audited or reviewed by the independent certified public accountants and they do
not express an opinion or purport to give any other form of assurance on them.
79
<PAGE> 84
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEISURE TIME CASINOS & RESORTS, INC. AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Stockholders' Equity............ F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements.................. F-8
LEISURE TIME TECHNOLOGY, INC. (F/K/A U.S. GAMES, INC.)
Independent Auditors' Report................................ F-33
Financial Statements
Balance Sheets............................................ F-34
Statements of Operations.................................. F-35
Statement of Stockholder's Equity......................... F-36
Statements of Cash Flows.................................. F-37
Notes to Financial Statements............................... F-39
FLORIDA CASINO CRUISES, INC.
Independent Auditors' Report................................ F-43
Financial Statements
Balance Sheets............................................ F-44
Statements of Operations.................................. F-45
Statement of Stockholder's Equity......................... F-46
Statements of Cash Flows.................................. F-47
Notes to Financial Statements............................... F-48
UNAUDITED PRO FORMA INFORMATION
Unaudited Pro Forma Combined Statement of Income (Loss) For
the Year Ended June 30, 1998.............................. F-53
Unaudited Pro Forma Combined Balance Sheet As of March 31,
1999...................................................... F-54
Notes to Unaudited Pro Forma Combined Financial
Statements................................................ F-55
</TABLE>
F-1
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Leisure Time Casinos &
Resorts, Inc. and Subsidiaries
Norcross, Georgia
We have audited the accompanying consolidated balance sheets of Leisure
Time Casinos & Resorts, Inc. and Subsidiaries as of June 30, 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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
Leisure Time Casinos & Resorts, Inc. and Subsidiaries at June 30, 1997 and 1998,
and the consolidated results of their operations and cash flows for each of the
three years in the period ended June 30, 1998 in conformity with generally
accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman
P.C.
August 19, 1998
Denver, Colorado
F-2
<PAGE> 86
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................................. $ 1,089 $ 888 $ 2,540
Current portion of notes receivable (Note 5).............. -- 26 4
Trade accounts receivable, less allowance of $31 at June
30, 1997 and 1998 and March 31, 1999.................... 868 1,747 2,749
Receivable -- other....................................... -- 250 1
Inventories, net (Note 2)................................. 2,873 2,445 4,068
Prepaid expenses and other................................ 124 207 267
Deferred tax asset -- current (Note 8).................... 88 67 61
Officer advances (Note 5)................................. 55 -- --
------- ------- -------
Total current assets................................ 5,097 5,630 9,690
------- ------- -------
Property and equipment, net (Notes 3 and 6)................. 3,837 4,216 8,123
Goodwill, net of accumulated amortization of $535 and $1,145
at June 30, 1997 and 1998, respectively, and $1,601
(unaudited) at March 31, 1999............................. 5,563 4,953 4,495
Non-compete agreement, net of accumulated amortization of
$413 and $935 at June 30, 1997 and 1998, respectively, and
$1,325 (unaudited) at March 31, 1999 (Note 7)............. 4,801 4,279 3,889
Other assets, net (Note 3).................................. 173 750 188
Deposits.................................................... 52 1,961 2,339
Deferred tax asset -- long term (Note 8).................... -- 571 1,079
Long-term portion of notes receivable (Note 5).............. -- 53 37
------- ------- -------
Total assets........................................ $19,523 $22,413 $29,840
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line-of-credit (Notes 5 and 10)........................... $ -- $ -- $ 4
Current portion of long-term notes payable (Note 6)....... 1,766 2,127 402
Current portion of capital leases (Note 5)................ 18 39 22
Current portion of other long-term liabilities (Note 7)... 509 539 80
Note payable -- officer (Note 5).......................... 3 -- --
Accounts payable.......................................... 961 1,510 2,713
Accrued expenses (Note 4)................................. 1,392 4,844 4,335
Income taxes payable...................................... 504 462 2,409
Deferred revenue.......................................... -- -- 38
------- ------- -------
Total current liabilities........................... 5,153 9,521 10,003
------- ------- -------
Long-term liabilities
Long-term portion of notes payable (Note 6)............... 4,092 4,243 6,399
Long-term portion of capital leases (Note 5).............. 41 53 150
Deferred income taxes payable (Note 8).................... 507 -- --
Other long-term liabilities (Note 7)...................... 5,457 4,890 4,677
------- ------- -------
Total long-term liabilities......................... 10,097 9,186 11,226
------- ------- -------
Total liabilities................................... 15,250 18,707 21,229
------- ------- -------
Commitments and contingencies (Notes 5, 6, 7, 9, 10 and 16)
Stockholders' equity (Notes 12 and 13) Preferred stock, no
par value; 5,000,000 shares authorized; none issued....... -- -- --
Common stock, $.001 par value; 45,000,000 shares
authorized; 4,505,380 (June 30, 1997), 4,639,154 (June
30, 1998) and 4,732,835 (March 31, 1999 (unaudited))
issued and outstanding.................................. 4 5 5
Additional paid-in capital................................ 3,118 3,479 5,147
Retained earnings......................................... 1,151 222 3,459
------- ------- -------
Total stockholders' equity.......................... 4,273 3,706 8,611
------- ------- -------
Total liabilities and stockholders' equity.......... $19,523 $22,413 $29,840
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 87
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Manufacturing........................................ $ -- $ 29,838 $ 28,643 $ 22,268 $ 41,037
Gaming............................................... -- -- -- -- 3,738
Other................................................ -- -- -- -- 281
---------- ---------- ---------- ---------- ----------
Total revenue.................................. -- 29,838 28,643 22,268 45,056
---------- ---------- ---------- ---------- ----------
Cost of goods sold
Manufacturing........................................ -- 16,616 16,517 12,377 21,796
Gaming............................................... -- -- -- -- 400
Other................................................ -- -- -- -- 279
---------- ---------- ---------- ---------- ----------
Total cost of goods sold....................... -- 16,616 16,517 12,377 22,475
---------- ---------- ---------- ---------- ----------
Gross profit
Manufacturing........................................ -- 13,222 12,126 9,891 19,241
Gaming............................................... -- -- -- -- 3,338
Other................................................ -- -- -- -- 2
---------- ---------- ---------- ---------- ----------
Total gross profit............................. -- 13,222 12,126 9,891 22,581
---------- ---------- ---------- ---------- ----------
Selling, general and administrative expenses (Note
14).................................................. 1,343 5,615 8,727 4,243 14,908
Research and development costs......................... -- 469 642 462 174
Stock based compensation (Note 12)..................... -- -- -- -- 1,400
Interest expense, net.................................. 54 712 840 748 887
Litigation (Note 10)................................... -- -- 3,043 3,006 --
---------- ---------- ---------- ---------- ----------
Total operating expenses....................... 1,397 6,796 13,252 8,459 17,369
---------- ---------- ---------- ---------- ----------
Net income (loss) before income tax benefit
(expense)............................................ (1,397) 6,426 (1,126) 1,432 5,212
Income tax benefit (expense) (Note 8).................. -- (1,738) 197 (629) (1,975)
---------- ---------- ---------- ---------- ----------
Net income (loss)...................................... $ (1,397) $ 4,688 $ (929) $ 803 $ 3,237
========== ========== ========== ========== ==========
Earnings (loss) per common share -- basic (Note 15).... $ (.35) $ 1.08 $ (.21) $ .18 $ .69
========== ========== ========== ========== ==========
Earnings (loss) per common share -- diluted (Note
15).................................................. $ (.35) $ .65 $ (.21) $ .08 $ .42
========== ========== ========== ========== ==========
Weighted average number of common shares outstanding --
basic (Note 15)...................................... 4,010,650 4,343,397 4,516,528 4,505,380 4,663,648
========== ========== ========== ========== ==========
Weighted average number of common shares outstanding --
diluted (Note 15).................................... 4,010,650 7,664,903 4,516,528 9,839,303 7,726,386
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 88
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT/
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance -- June 30, 1995................................... 3,738,208 $ 4 $ 479 $(1,940) $(1,457)
Common stock issued for cash at rates ranging from
$1.00 - $2.50 a share (Note 13).......................... 426,400 -- 870 -- 870
Net loss for the year...................................... -- -- -- (1,397) (1,397)
--------- ---- ------ ------- -------
Balance -- June 30, 1996................................... 4,164,608 4 1,349 (3,337) (1,984)
Common stock issued upon conversion of debt and as
extensions on notes payable at rates ranging from
$1.00 - $2.80 per share (Note 13)........................ 85,292 -- 176 -- 176
Common stock issued for cash at rates ranging from
$.50 - $2.50 a share (Note 13)........................... 167,400 -- 163 -- 163
Stock issued for services valued at $2.50 a share (Note
13)...................................................... 38,080 -- 95 -- 95
Repurchase of common stock at $2.00 a share (Note 13)...... (100,000) -- -- (200) (200)
Issuance of options and warrants with imputed values of
$.45 - $.78 per share (Note 12).......................... -- -- 85 -- 85
Shares issued for acquisition of vessel valued at $2.50 a
share (Note 13).......................................... 150,000 -- 375 -- 375
Forgiveness of accrued officer wages payable (Note 13)..... -- -- 875 -- 875
Net income for the year ended June 30, 1997................ -- -- -- 4,688 4,688
--------- ---- ------ ------- -------
Balance -- June 30, 1997................................... 4,505,380 4 3,118 1,151 4,273
Common stock issued for cash at $2.80 a share (Note 13).... 33,900 1 94 -- 95
Conversion of debt at rates ranging from $2.50 to $2.80 a
share (Note 13).......................................... 99,874 -- 267 -- 267
Net loss for the year ended June 30, 1998.................. -- -- -- (929) (929)
--------- ---- ------ ------- -------
Balance -- June 30, 1998................................... 4,639,154 5 3,479 222 3,706
Common stock issued upon exercise of options (Note 13)
(unaudited).............................................. 100 -- -- -- --
Conversion of debt at $2.50 a share (Note 13)
(unaudited).............................................. 31,491 -- 79 -- 79
Issuance of options with an imputed value of $4.00 a share
(Note 12) (unaudited).................................... -- -- 1,400 -- 1,400
Common stock issued upon exercise of warrants (Note 13)
(unaudited).............................................. 60,090 -- 169 -- 169
Common stock issued for cash at $10.00 a share (Note 13)
(unaudited).............................................. 2,000 -- 20 -- 20
Net income for the nine months ended March 31, 1999
(unaudited).............................................. -- -- -- 3,237 3,237
--------- ---- ------ ------- -------
Balance at March 31, 1999 (unaudited)...................... 4,732,835 $ 5 $5,147 $ 3,459 $ 8,611
========= ==== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 89
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED JUNE 30, MARCH 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss).................................... $(1,397) $ 4,688 $ (929) $ 803 $ 3,237
------- ------- ------- ------- -------
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Write off of acquisition costs..................... 32 -- -- -- --
Net loss on disposal of assets..................... -- 49 96 -- --
Note issued for interest payment................... -- 33 -- -- --
Issuance of stock options.......................... -- 85 -- 1,400
Deferred taxes..................................... -- 1,046 (1,057) (949) (502)
Common stock issued for note extensions............ -- 31 -- -- --
Common stock issued for services................... -- 95 -- -- --
Depreciation and amortization...................... 14 1,385 1,864 1,077 1,294
Changes in certain assets and liabilities
Receivables...................................... -- (496) (879) 24 (753)
Inventories...................................... -- (1,082) 389 12 (1,623)
Prepaids and other assets........................ -- 348 (823) (9) (60)
Employee advances................................ (18) 18 (4) -- --
Officer advances................................. (37) -- 55 55 --
Accounts payable................................. 246 256 549 (690) 1,203
Accrued expenses................................. 531 419 3,452 2,783 (509)
Income taxes payable............................. -- 504 (42) 636 1,947
Notes receivable................................. -- -- (79) (58) 38
Deferred revenue................................. -- -- -- -- 38
------- ------- ------- ------- -------
768 2,691 3,521 2,881 2,473
------- ------- ------- ------- -------
Net cash (used by) provided by operating
activities.................................. (629) 7,379 2,592 3,684 5,710
------- ------- ------- ------- -------
Cash flows from investing activities
Acquisition of business net of cash acquired......... -- (1,329) -- -- --
Purchase of equipment................................ (23) (120) (1,188) (1,009) (1,711)
Purchase of vessel................................... -- (2,873) -- -- (1,500)
Purchase of hotel property and land.................. -- -- -- -- (1,020)
Acquisition costs paid............................... (162) -- -- -- --
Deposits............................................. (107) (45) (1,909) (2,576) 207
Contingent payments.................................. -- (2,495) -- -- --
------- ------- ------- ------- -------
Net cash used by investing activities......... (292) (6,862) (3,097) (3,585) (4,024)
------- ------- ------- ------- -------
Cash flows from financing activities
Proceeds from issuance of common stock............... 870 164 94 -- 189
Repurchase of common stock........................... -- (200) -- -- --
Line-of-credit, net.................................. -- -- -- -- 4
Proceeds from long-term debt......................... 40 1,700 3,000 3,000 5,328
Loan fees............................................ -- -- -- (38)
Payment on long-term debt............................ (6) (1,017) (2,758) (2,684) (5,490)
Payments on capital leases........................... -- -- (29) (11) (27)
Payments on note payable -- officer.................. -- (77) (3) (3) --
------- ------- ------- ------- -------
Net cash provided by financing activities..... 904 570 304 302 (34)
------- ------- ------- ------- -------
Net increase (decrease) in cash........................ (17) 1,087 (201) 401 1,652
Cash and cash equivalents -- beginning of year or
period............................................... 19 2 1,089 1,089 888
------- ------- ------- ------- -------
Cash and cash equivalents -- end of year or period..... $ 2 $ 1,089 $ 888 $ 1,490 $ 2,540
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 90
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Schedule of non-cash investing and financing activities:
During the year ended June 30, 1996, the Company acquired $19 of
certain property by obtaining a loan from the selling company. The asset is
included in vehicles.
During the year ended June 30, 1997, the Company incurred various
noncash transactions related to the acquisition completed in September
1996.
During the year ended June 30, 1997, the Company issued stock toward
the purchase of a vessel ($375) and related to the conversion of debt
($145) (Note 13). Additionally, the Company issued notes payable to reduce
current liabilities in the amount of $56 and incurred long-term debt to
finance the acquisition of vehicles for $82.
During the year ended June 30, 1997, officers of the Company forgave
$875 of accrued wages related to prior years.
During the years ended June 30, 1997 and 1998, and the period ended
March 31, 1999, the Company acquired fixed assets by incurring capital
lease obligations in the amount of $67, $63 and $107 (unaudited),
respectively.
During the year ended June 30, 1998, the Company recorded a $250
receivable for an insurance claim on damaged property with a net book value
of $250.
During the year ended June 30, 1998, and the period ended March 31,
1999, the Company converted $267 and $79 (unaudited), respectively, of debt
to equity by issuing capital stock to the debt holders.
Supplemental disclosure of cash flow information:
Cash paid for interest for the years ended June 30, 1996, 1997 and
1998 and for the nine months ended March 31, 1998 and 1999 was
approximately $28, $551, $1,084, $600 (unaudited) and $841 (unaudited),
respectively.
Cash paid for income taxes for the years ended June 30, 1996, 1997 and
1998 and for the nine months ended March 31, 1998 and 1999 was $1,311,
$189, $982, $768 (unaudited) and $529 (unaudited), respectively.
See notes to consolidated financial statements.
F-7
<PAGE> 91
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Leisure Time Casinos & Resorts, Inc. ("Casinos") was incorporated on
February 4, 1993, and was a development stage enterprise until September 1996.
In September 1996, Casinos acquired U.S. Games, Inc. Leisure Time
Technology, Inc. (f/k/a U.S. Games, Inc.) ("Technology") is incorporated in
Georgia and develops, manufactures and sells video gaming machines (Note 17).
Technology is licensed to sell video gaming machines in Kansas, Michigan,
Minnesota, New Mexico (for gaming on Native American reservations), New York,
North Carolina, Wisconsin and is in compliance with South Carolina regulations
regarding the sale of gaming machines. The Company has applied to become
licensed in Mississippi, Montana and Ontario, Canada and intends to apply to
become licensed in Arizona, New Mexico (for charities and fraternal
organizations) and Nevada.
Leisure Time Cruise Corporation ("Cruises") was incorporated on October 17,
1997, in the state of Colorado and conducts offshore gaming cruises on the
"Vegas Express" gaming vessel. In July 1998, Cruises began operating cruise to
nowhere gaming excursions (Notes 9 and 18). In May 1999, Leisure Express Cruise,
LLC, a Colorado limited liability company, acquired Florida Casino Cruises,
Inc., the corporation that owns the Vegas Express. Leisure Belle Cruise, LLC is
a Colorado limited liability company that owns and is refurbishing a gaming
vessel. Leisure Lady Cruise, LLC is a Colorado limited liability company and
currently has no operations.
Leisure Time Hospitality, Inc. is incorporated in Ohio and owns a hotel
property that is being redeveloped in the Cleveland metropolitan area.
Leisure Time Gaming, Inc. is incorporated in South Carolina and began
operating a gaming route through a subsidiary during March 1999.
Leisure Time International, Ltd. is incorporated in Barbados and currently
operates as a Foreign International Sales Corp. (FISC).
Casinos acquired Leisure Time Financial Corp. (f/k/a RP Capital,
Corporation) in April 1999.
Solutia Gaming Systems, Inc. is incorporated in Oklahoma and is developing
new gaming machines.
Interim Information
The accompanying unaudited consolidated financial statements as of March
31, 1998 and 1999 have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
consolidated operations for the nine month periods ended March 31, 1998 and
1999, (b) the consolidated financial position at March 31, 1999, (c) the
consolidated statements of cash flows for the nine month periods ended March 31,
1998 and 1999 and (d) the consolidated changes in stockholders' equity for the
nine month period ended March 31, 1999 have been made.
The results for the nine month period ended March 31, 1999 are not
necessarily indicative of the results for the entire fiscal year ending June 30,
1999.
F-8
<PAGE> 92
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Principals of Consolidation
The consolidated financial statements include the accounts of Casinos and
its wholly owned subsidiaries, collectively referred to as the Company. All
significant intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, receivables,
prepaid expenses, accounts payable and accrued expenses approximate the fair
values as of June 30, 1997 and 1998 and March 31, 1999 (unaudited) because of
the relatively short maturity of these instruments.
The carrying amounts of notes payable and debt outstanding also approximate
their fair values as of June 30, 1997 and 1998 and March 31, 1999 (unaudited)
because interest rates on these instruments approximate the interest rate on
debt with similar terms available to the Company.
Inventories
Inventories are stated at the lower of cost or market and consist primarily
of raw material, parts manufactured by others, work in process and finished
goods. Work-in-process and finished goods include raw materials, direct labor
and manufacturing overhead. Cost is determined using the first-in, first-out
method for all inventories.
Property and Equipment
Property and equipment are stated at cost. Depreciation on equipment,
vehicles and furniture is calculated using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset.
Product Software Development Costs
The Company capitalizes product software development costs when product
technological feasibility is established and concluding when the product is
ready for its intended use. Software development costs are amortized on the
straight-line method over an expected useful life of three years. As of March
31, 1999, the Company had not incurred any significant software development
costs, as such no amounts had been capitalized.
Organizational Costs
Organizational costs and other start-up related expenditures are expensed
as incurred.
F-9
<PAGE> 93
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Non-Compete Agreement
The Company has a non-compete agreement with the former stockholder of
Technology. The amount shown on the balance sheet represents the present value
of amounts to be paid. The cost is being amortized using the straight-line
method over 10 years, the life of the agreement.
Goodwill
Goodwill, resulting from the acquisition of Technology, is being amortized
using the straight-line method over 10 years.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation of Long-Lived Assets
The Company assesses valuation of long-lived assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of. The
Company periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.
Revenue Recognition
Manufacturing and other revenue is recognized as the product is shipped.
Gaming revenue is the net win from gaming activities, which is the
difference between gaming wins and losses. Gaming revenue also includes ticket
sales and food and beverage revenue generated from each cruise. Gaming revenue
does not include the retail amount of tickets or food and beverages provided
gratuitously to customers, which, if material, reduces revenue as promotional
allowances.
Revenue from gaming route operations is recognized at the time the play
activity takes place and is based upon the terms of the individual revenue
participation agreement.
Deferred revenue, which represents customer cruise deposits, is included in
the balance sheet when received and is recognized as passenger fare revenue upon
completion of the voyage.
Research and Development
All research and development costs are expensed as incurred.
F-10
<PAGE> 94
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Earnings (Loss) Per Share
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", basic earnings per share is
computed by dividing net income by the number of weighted average common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income by the number of weighted average common shares outstanding during
the year, including potential common shares, which for the years ended June 30,
1996, 1997 and 1998, and the periods ended March 31, 1998 and 1999, consisted
solely of convertible debt, stock options and warrants outstanding. The Company
uses the treasury stock method in computing diluted earnings per share, by
recognizing the use of proceeds that could be obtained upon the exercise of
options and warrants to repurchase the Company's stock at the fair market value
(Notes 12 and 15).
ANTIDILUTIVE SECURITIES EXCLUDED FROM DILUTIVE EARNINGS PER SHARE
As of June 30, 1996:
<TABLE>
<CAPTION>
SECURITY PRICE SHARES
-------- ----------- ---------
<S> <C> <C>
Stock options....................................... $1.00-$2.80 1,707,500
Warrants............................................ $2.50-$3.00 405,236
</TABLE>
As of June 30, 1998:
<TABLE>
<CAPTION>
SECURITY PRICE SHARES
-------- ----------- ---------
<S> <C> <C>
Stock options....................................... $ .10-$6.00 3,370,648
Warrants............................................ $1.00-$3.00 429,022
Convertible notes payable........................... $1.25-$2.50 3,214,990
</TABLE>
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of temporary cash investments.
The Company places its cash investments with high credit quality financial
institutions and, by policy, limits the amount of credit exposure to any one
institution. The Company does, however, on occasion exceed the Federal Deposit
Insurance Corporation federally insured limits and the Securities Investors
Protection Corporation insured limits and exceeded these amounts by
approximately $1,691 and $1,251 at June 30, 1997 and 1998 and $2,292 at March
31, 1999 (unaudited), respectively.
Use of Estimates
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended June 30, 1996, 1997 and 1998, were $37, $173 and $69,
respectively, and for the periods ended March 31, 1998 and 1999 were $96
(unaudited) and $576 (unaudited), respectively.
F-11
<PAGE> 95
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Recently Issued Accounting Pronouncements
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" ("Statement 132"), which revises employers' disclosures
about pension and other postretirement benefit plans. Statement 132 does not
change the measurement or recognition of those plans, but requires additional
information on changes in benefit obligations and fair values of plan assets and
eliminated certain disclosures previously required by SFAS Nos. 87, 88 and 106.
Statement 132 is effective for financial statements with fiscal years beginning
after December 15, 1997.
During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Statement 133 establishes new
standards by which derivative financial instruments must be recognized in any
entity's financial statements. Besides requiring derivatives to be included on
balance sheets at fair value, Statement 133 generally requires that gains and
losses from later changes in a derivative's fair value be recognized currently
in earnings. Statement 133 also unifies qualifying criteria for hedges involving
all kinds of derivatives, requiring that a company document, designate and
assess the effectiveness of its hedges. Statement 133 is required to be adopted
by the Company in 2000. Management, however, does not expect the impact from
this statement to have a material impact on the financial statement
presentation, financial position or results of operations.
The Company has not determined what additional disclosures, if any, may be
required by the provisions of Statement 132 and 133 but does not expect adoption
of these statements to have a material effect on its results of operations.
During April 1998, Statement of Position 98-5, "Reporting in the Costs of
Start-Up Activities" was issued. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is required to be
adopted by the Company for the fiscal year ended June 30, 2000. Upon adoption,
the Company does not anticipate this will have a material impact on the
financial statement presentation, financial position or results of operations.
Reclassifications
Certain reclassifications have been made to the June 30, 1996, 1997 and
1998 financial statements in order to conform to the March 31, 1998 (unaudited)
and 1999 (unaudited) presentation.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and parts made by others.................. $1,827 $2,181 $2,622
Work-in-process......................................... 110 -- 517
Finished goods.......................................... 1,046 374 1,039
------ ------ ------
Total......................................... 2,983 2,555 4,178
Inventory reserve....................................... (110) (110) (110)
------ ------ ------
$2,873 $2,445 $4,068
====== ====== ======
</TABLE>
F-12
<PAGE> 96
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 3 -- PROPERTY AND EQUIPMENT AND OTHER ASSETS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment
Vehicles.............................................. $ 120 $ 182 $ 363
Hotel property........................................ -- -- 670
Land.................................................. -- -- 350
Construction in progress.............................. -- -- 311
Vessels............................................... 3,457 3,901 5,620
Furniture and fixtures................................ 170 82 126
Machinery and equipment............................... 603 507 1,607
Leasehold improvements................................ 41 268 307
------ ------ -------
4,391 4,940 9,354
Less accumulated depreciation......................... (554) (724) (1,231)
------ ------ -------
$3,837 $4,216 $ 8,123
====== ====== =======
Other assets consist of the following:
Purchased software.................................... $ 173 $ -- $ --
Capitalized loan fees, net of accumulated amortization
of $23 (unaudited) at March 31, 1999............... -- -- 63
Compensating balance (Note 6)......................... -- 750 125
------ ------ -------
$ 173 $ 750 $ 188
====== ====== =======
</TABLE>
NOTE 4 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Litigation (Note 10).................................... $ 421 $3,200 $3,200
Advanced deposits....................................... -- 666 --
Accrued interest........................................ 394 270 215
Accrued wages, benefits and payroll taxes............... 365 596 329
Miscellaneous taxes..................................... 70 88 171
Other accruals.......................................... 142 24 420
------ ------ ------
$1,392 $4,844 $4,335
====== ====== ======
</TABLE>
F-13
<PAGE> 97
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 5 -- RELATED PARTY
<TABLE>
<CAPTION>
JUNE 30,
----------- MARCH 31,
1997 1998 1999
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable and advances -- officer. Fully repaid during
the year ended June 30, 1998.............................. $58 $ -- $--
=== ==== ===
Notes Receivable
Notes receivable -- related party, interest at 8% per annum
with monthly payments of $2 commencing July 1998 through
July 2001 when all remaining balances are payable in full;
without collateral; including accrued interest of $2 at
June 30, 1998 and $0 (unaudited) at March 31, 1999........ $-- $ 77 $39
Note receivable -- related party............................ -- 2 2
--- ---- ---
-- 79 41
Less current portion...................................... -- (26) (4)
--- ---- ---
Long-term portion......................................... $-- $ 53 $37
=== ==== ===
</TABLE>
Capital Leases
The Company leases vehicles under capital leases with a related company.
The future minimum lease payments due under capital leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1999........................................................ $ 39
2000........................................................ 33
2001........................................................ 24
2002........................................................ 4
----
100
Less amount representing interest........................... (8)
----
Present value of future net minimum lease payments under
capital leases............................................ 92
Less current portion...................................... (39)
----
$ 53
====
</TABLE>
As of June 30, 1997 and 1998, the net book value of equipment under capital
leases was $58 and $87, respectively.
OTHER TRANSACTIONS
The Company leases a condominium/office from the Company's president. The
lease expires on October 31, 2002 and requires rental payments of $3 per month
net/net/net plus all association fees related to the condominium/office.
The Company leases office space in Ohio from the Company's president at a
rate of $2 per month. The term of the lease extends through June 2000. Rent
expense for the years ended June 30, 1997 and 1998, were
F-14
<PAGE> 98
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
$18 and $18, respectively. Accrued rent related to this lease was $76 and $0 at
June 30, 1997 and 1998, respectively.
The Company leases 11 automobiles from J-Way Leasing, Ltd., a company owned
by the Company's president. The leases are for 36 months to 48 months and have
various dates of expiration through November 2001. The Company reimburses J-Way
Leasing, Ltd. for the down payments J-Way Leasing, Ltd. pays on each of the
automobiles and pays J-Way Leasing, Ltd. a monthly payment equivalent to the
monthly payments (plus 5%) that J-Way Leasing, Ltd. pays for each automobile. No
amounts were paid by the Company to J-Way Leasing, Ltd. for the years ended June
30, 1996, 1997, 1998 but for the nine months ended March 31, 1999, $89 was paid.
In September 1997, the Company advanced $300 to the Company's president.
After the advance, he owed the Company a total of $371 which included the $300
advance, a note for $55 and $16 of expenses owed by him to the Company. During
the year ended June 30, 1998, the Company credited against the $371 (i) $40 of
rentals that were owed to the president for the condominium/office, (ii) a
deposit of $18 that he had made on behalf of the Company to a potential
acquisition candidate of the Company, (iii) $40 that he had deposited in
connection with the purchase of the Company's hotel in the Cleveland, Ohio area,
(iv) $135 that he had paid on an invoice of the Company, (v) $84 that offset
accrued wages payable to the president, (vi) $34 that offset rent that was
payable to him, (vii) $7 that was paid as advances toward car rentals payable to
J-Way Leasing, Ltd., and (viii) $13 for accrued interest payable to the
president.
In October 1998, Cruises borrowed $3,000 from Foothill Capital Corporation.
The loan is secured by the assets of Cruises, including the Leisure Lady, and is
guaranteed by Technology, Casinos and the Company's president, none of which
received any compensation for guaranteeing the loan.
The Company's president has also guaranteed a $1,000 line-of-credit that
the Company has with a finance company. The line-of-credit is secured by
substantially all of the assets of Leisure Time and is guaranteed by Technology,
Cruises and the Company's president, none of which received any compensation for
guaranteeing the line-of-credit (Note 10).
The Company's president owns 51% of Leisure Time Europe Ltd. which was
formed in February 1998 and acts as the distributor of Technology's video gaming
machines to charities in Norway. Technology sells the video gaming machines to
Leisure Time Europe which resells the video gaming machines to the charities.
Leisure Time Europe also services the video gaming machines. The remaining 49%
is owned by unaffiliated third parties.
F-15
<PAGE> 99
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 6 -- LONG-TERM DEBT AND LINE-OF-CREDIT
<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
7.80% to 9.99% notes payable -- monthly payments
including interest totaling $3, due from January 2000
through November 2001, collateralized by
automobiles.......................................... $ 36 $ 27 $ 20
11% convertible promissory notes payable to
individuals, principal and interest payable in 24
equal monthly payments commencing September 1997; due
September 1999. Notes are convertible into units, at
$1.25 and $2.50 per unit, consisting of one share of
common stock and warrants allowing the holder to
purchase shares of the Company's common stock at
$2.50 per share...................................... 201 96 76
6.64% promissory notes payable to individuals in
connection with the purchase of U.S. Games, monthly
payments computed based on a percentage of the
previous month's gross sales. Payment is applied
against accrued interest first and then as a
reduction of unpaid principal. Annual payments must
at least equal the accrued and unpaid interest on the
remaining outstanding principal balance. The
Company's obligation is satisfied on the earliest to
occur; (i) the date all accrued and unpaid interest
and principal are paid, (ii) or October 10, 2002..... 3,864 2,874 1,507
Note payable to a finance company, the first six
monthly installments are for accrued and unpaid
interest only. The next forty-eight monthly
installments of $37 include principal and interest at
a fixed rate of 8.90%, unpaid principal and interest
due June 2003. Collateralized by a first preferred
mortgage on a vessel, a first priority security
interest in all non-gaming equipment and other
property used in connection with the operation of the
vessel, all earnings, insurances and requisition
compensation of the vessel and a $125 compensating
balance at March 31, 1999............................ -- -- 1,500
Note payable to a finance company with variable
interest at a rate equal to one (1.0) percentage
point above the reference rate (9% combined rate at
March 31, 1999). Payable in sixty installments of $50
plus interest commencing December 1, 1998 and
continuing until November 1, 2003 when all remaining
principal and interest are due. Collateralized by
certain equipment.................................... -- -- 2,750
Notes payable to a finance company, payable in monthly
installments of $1 to $4 including interest at fixed
rates of 11.73% to 12.25%, due June 2001 to November
2003 Collateralized by security interests in certain
equipment and vessels................................ -- -- 189
</TABLE>
F-16
<PAGE> 100
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a finance company, payable in monthly
installments of $5 including interest at a fixed rate
of 10.25%, due July 2003. Collateralized by a
security interest in certain equipment............... -- -- 214
Note payable to a company collateralized by a mortgage
deed on a hotel with interest at the rate of 10% per
annum. The interest rate is adjusted quarterly
beginning September 15, 1999 to four and 75/100
percentage points (4.75%) above the weekly average
yield on US Treasury securities adjusted to a
constant of one year as made available by the Federal
Reserve Board. This note is payable in one payment of
$100 plus interest on September 15, 1999 and
quarterly payments of principal and interest
beginning December 15, 1999 and amortized over a four
(4) year period ending on September 15, 2003.
However, the Company may pay this note in full by
paying $525 plus interest on the principal sum due on
or before September 14, 1999. The Company must also
pay such additional charges as are set forth in a
certain mortgage deed................................ -- -- 545
11% convertible promissory notes payable to
individuals, paid in full January 1999............... 1,325 773 --
Notes payable -- individuals and law firms. Paid in
full during the year ended June 30, 1998............. 392 -- --
10% note payable -- stockholder. Paid in full during
the period ended March 31, 1999...................... 40 40 --
Note payable to a finance company. Paid in full during
the period ended March 31, 1999...................... -- 2,560 --
------- ------- ------
5,858 6,370 6,801
Less current portion................................... (1,766) (2,127) (402)
------- ------- ------
Total long-term debt................................... $ 4,092 $ 4,243 $6,399
======= ======= ======
</TABLE>
LINE-OF-CREDIT
In January 1999, the Company established a $1,000 line-of-credit with a
finance company that expires on January 31, 2000. Interest is variable at a per
annum rate equal to the sum of 3.25% plus the 30-day Commercial Paper Rate (as
published in The Wall Street Journal), based upon actual days elapsed over a 360
day year (Note 5).
F-17
<PAGE> 101
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 7 -- LONG-TERM LIABILITIES
Deferred Compensation Contracts
The Company assumed $1,644 (undiscounted) of deferred compensation
contracts with certain individuals related to the acquisition of Technology in
September 1996. These contracts provide for the payment of defined amounts,
generally for up to a period of six years on a monthly basis. The amounts are
computed by taking a percentage of the previous month's gross sales. The present
value of the future amounts estimated to be payable is being accrued for
financial reporting purposes at an imputed interest rate of 6.64%, and
originally amounted to $1,354 (discounted). As of March 31, 1999 (unaudited),
approximately $1,268 of deferred compensation payments have been made. Of these
payments, $1,018 has been recorded as a reduction to the liability. The
remaining $250 has been recorded as interest expense.
Noncompete Agreement
In connection with the acquisition of Technology, the Company entered into
a noncompete agreement with the former stockholder of Technology in the amount
of $7,300 (undiscounted). The agreement is payable through September 2006 in 10
annual installments of $730 which include interest imputed at 6.64%. The present
value of the future amounts to be payable is accrued for financial reporting
purposes at the imputed interest rate of 6.64% and originally amounted to
$5,214. The corresponding asset is being amortized over the life of the
agreement, which is 10 years.
A summary of long-term liabilities at June 30, 1997 and 1998 and March 31,
1999 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------------
1997 1998
---------------------------- ----------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
TOTAL PORTION PORTION TOTAL PORTION PORTION
------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deferred compensation contracts........ $ 752 $125 $ 627 $ 599 $130 $ 469
Noncompete agreement................... 5,214 384 4,830 4,830 409 4,421
------ ---- ------ ------ ---- ------
$5,966 $509 $5,457 $5,429 $539 $4,890
====== ==== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------
CURRENT LONG-TERM
TOTAL PORTION PORTION
------ ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deferred compensation contracts........ $ 336 $80 $ 256
Noncompete agreement................... 4,421 -- 4,421
------ --- ------
$4,757 $80 $4,677
====== === ======
</TABLE>
F-18
<PAGE> 102
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
The annual aggregate maturities of long-term debt and long-term liabilities
at June 30, 1998, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING LONG-TERM LONG-TERM
JUNE 30, DEBT LIABILITIES TOTAL
- ----------- --------- ----------- -------
<S> <C> <C> <C>
1999.................................................. $2,127 $ 539 $ 2,666
2000.................................................. 1,450 573 2,023
2001.................................................. 1,505 612 2,117
2002.................................................. 1,038 652 1,690
2003.................................................. 250 560 810
Thereafter............................................ -- 2,493 2,493
------ ------ -------
$6,370 $5,429 $11,799
====== ====== =======
</TABLE>
NOTE 8 -- INCOME TAXES
The Company files a consolidated tax return that includes the operations of
Technology and Cruises.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------ ---------------
1996 1997 1998 1998 1999
----- ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
U.S. Federal............................ $ -- $ 517 $ 780 $1,452 $2,308
State and local......................... -- 175 80 126 169
----- ------ ------- ------ ------
-- 692 860 1,578 2,477
----- ------ ------- ------ ------
Deferred
U.S. Federal............................ (484) 928 (1,008) (906) (491)
State and local......................... (26) 118 (49) (43) (11)
Valuation allowance..................... 510 -- -- -- --
----- ------ ------- ------ ------
-- 1,046 (1,057) (949) (502)
----- ------ ------- ------ ------
$ -- $1,738 $ (197) $ 629 $1,975
===== ====== ======= ====== ======
</TABLE>
F-19
<PAGE> 103
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Rate Reconciliation
The reconciliation of income tax expense (benefit) by applying the Federal
statutory tax rates to the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory rate..................... (34.0)% 34.0% (34.0)% 34.0% 34.0%
State income taxes, net of federal income
tax benefit.............................. -- 1.8 4.7 5.9 2.2
Nondeductible expenses including
nondeductible goodwill................... .5 1.5 12.9 7.2 2.0
Deferred expenses including litigation and
stock based compensation................. (3.0) (10.2) (1.1) (3.2) (.3)
Valuation allowance........................ 36.5 -- -- -- --
----- ----- ----- ----- -----
--% 27.1% (17.5)% 43.9% 37.9%
===== ===== ===== ===== =====
</TABLE>
The net current deferred tax asset and the net long-term deferred tax
(liability) asset in the accompanying consolidated balance sheets consists of
the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------- MARCH 31,
1997 1998 1999
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred taxes
Current deferred tax asset............................ $ 88 $ 67 $ 61
Current deferred tax liability........................ -- -- --
----- ------ ------
Net current deferred tax asset........................ 88 67 61
Long-term deferred taxes
Long-term deferred tax asset.......................... 415 1,398 1,829
Long-term deferred tax liability...................... (922) (827) (750)
----- ------ ------
Net long-term deferred tax (liability) asset.......... (507) 571 1,079
----- ------ ------
$(419) $ 638 $1,140
===== ====== ======
</TABLE>
The principal temporary differences that result in the above deferred tax
assets and liabilities are differences in the methods for calculating
depreciation, amortization, compensation expense related to options and certain
expenses accrued for financial reporting purposes not deductible for tax
purposes until paid.
NOTE 9 -- LEASES
The Company has a noncancellable operating lease for its office space in
Norcross, Georgia that expires January 2005 and requires monthly payments of
$21. Rental expenses for this operating lease were approximately $254 and $252
during the years ended June 30, 1997 and 1998, respectively.
The Company had a Bareboat Charter Agreement for the use of the Vegas
Express. The original agreement commenced on April 22, 1998 and was to expire in
April 1999, as amended. Charter payments were $100 per month until January 22,
1999 at which time they became $50 per month. Additionally,
F-20
<PAGE> 104
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
beginning on January 22, 1999, the Company paid the owner of the Vegas Express
$3.00 per passenger per month in excess of 12,000 passengers. Lease expenses for
this Charter were approximately $0, $0 and $100 during the years ended June 30,
1996, 1997 and 1998, respectively, and $0 and $750 (unaudited) for the nine
months ended March 31, 1998 and 1999, respectively. The Company purchased the
corporation that owned the boat in May 1999 (Note 18).
In addition, the Company has operating leases that expire through May 2002
for various office equipment, office facilities, dock and parking. These leases
require monthly payments totaling $28.
Future minimum lease payments pursuant to these leases are approximately as
follows:
<TABLE>
<CAPTION>
RELATED
YEAR ENDING NON-RELATED PARTY
JUNE 30, PARTY (NOTE 5) TOTAL
- ----------- ----------- -------- ------
<S> <C> <C> <C>
1999................................................... $1,104 $ 30 $1,134
2000................................................... 487 30 517
2001................................................... 356 30 386
2002................................................... 263 30 293
2003................................................... 264 10 274
Thereafter............................................. 431 -- 431
------ ---- ------
$2,905 $130 $3,035
====== ==== ======
</TABLE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Litigation
The Company had an agreement with the first distributor which allowed the
Company to sell machines to a second distributor for its own use. There is a
disagreement between the Company and the first distributor as to whether or not
the agreement set up an exclusive relationship. During the year ended June 30,
1997, the first distributor filed suit against the Company alleging breach of
contract. During the year ended June 30, 1998, the United States District Court
of South Carolina awarded a $3,065 judgement in favor of the first distributor.
As such, the Company has increased the corresponding accrual to that amount plus
interest by recording a charge to income in the amount of $2,779. In April 1999,
the judgment was affirmed on appeal. The judgment was paid in full on May 26,
1999.
On October 19, 1998, the former Vice President, Chief Operating Officer,
Chief Financial Officer, Treasurer and Secretary ("Individual") of Technology
filed a complaint against the Company in the United States District Court for
the Northern District of Georgia alleging that the Company had breached an
alleged employment agreement with the Individual because the Company granted
incentive stock options to the Individual for 200,000 shares exercisable at
$2.50 per share rather than nonqualified stock options for 200,000 shares
exercisable at $1.00 per share. Further, the Individual alleges that the stock
options he should have received should have been exercisable without being
conditioned upon a particular schedule and should not have expired upon the
termination of his employment. The Individual alleges that he has been damaged
in an undetermined amount. The Company has filed an answer denying the claims
and intends to vigorously defend the lawsuit.
On June 10, 1998, the second distributor filed a complaint against the
Company in the Court of Common Pleas for the Fifth Judicial Circuit, Richland
County, State of South Carolina in which the second distributor alleges, among
other things, that the Company breached a sales distribution agreement by not
supplying the second distributor with Pot O Gold machines for resale in South
Carolina and further the Company used
F-21
<PAGE> 105
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
unfair and/or deceptive means of restraining trade in violation of the South
Carolina Unfair Trade Practices Act by limiting the supply of Pot O Gold
machines in South Carolina. The second distributor requests that it be granted
damages in an amount to be determined at trial and that the damages be trebled.
In interrogatory responses, the second distributor has alleged actual damages of
approximately $1,300. At the same time it requested that it be granted a
temporary restraining order and preliminary injunction against the Company.
This litigation follows an earlier lawsuit regarding the same contract
filed by the second distributor against the Company in South Carolina District
Court on November 7, 1996 (the "Prior Litigation") which resulted in a jury
verdict returned on October 30, 1997, in favor of the second distributor in the
amount of $0.
The Company had the lawsuit removed to the United States District Court for
the District Court of South Carolina, Anderson Division. On September 2, 1998,
the Court denied the second request for temporary restraining order and
preliminary injunction. The Company has filed an Answer and Counterclaim in
which it denies various allegations, asserts various affirmative defenses and
counterclaims that the Company sold new Pot O Gold games as used games thereby
constituting an unfair and deceptive act in trade or commerce in South Carolina
in violation of the Unfair Trade Practices Act and that the second distributor's
actions in selling Pot O Gold games in violation of the terms of the Agreement
resulted in a judgment being entered against the Company in favor of the first
distributor in the amount of $3,065. The Company requests that it be granted
damages to be determined at trial and that the damages be trebled.
On March 24, 1999, the Court struck various of the Company's answers as
being res judicata or collaterally estopped because of the prior litigation
between the second distributor and the Company and dismissed their counterclaims
mentioned above. Each stricken paragraph contained a defense the essence of
which was that the agreement between the second distributor and the Company
distributor was either not biding or had been modified so as to prohibit the
second distributor from reselling Pot-O-Gold machines in South Carolina. The
order also struck the Company's counterclaims for violation of the South
Carolina Unfair Trade Practices Act, contractual and common law indemnification,
and tortuous interference with contract. The Company has filed a motion for
reconsideration or in the alternative, for immediate appeal.
On December 14, 1998, the Company filed a lawsuit against the first
distributor in the Superior Court of Gwinnett County, State of Georgia in which
the Company alleges that the first distributor breached the Exclusive
Distribution Agreement dated November 27, 1995, by failing to pay the Company
$2,667 for a portion of the memory board upgrade kits for Pot O Gold machines
that the first distributor had ordered from the Company and by failing to pay
the Company $5,040 for a portion of the Pot O Gold machines the first
distributor had ordered from the Company. The Company also alleges that the
first distributor misappropriated "trade secrets" of the Company and requests
that it be granted damages to be proved at trial, interest and attorneys' fees,
specific performance and an order enjoining the misappropriation.
The first distributor has filed an answer and counterclaim in this action
which the first distributor alleges that Leisure Time Technology has continued
to breach the agreement, that Leisure Time Technology's breach was accompanied
by a fraudulent act and that Leisure Time Technology committed fraudulent
nondisclosure of material facts in connection with the agreement. The first
distributor is claiming actual damages in an amount to be proved at trial for
the loss of sales, for the diminution of the price of games sold by the first
distributor due to a loss of exclusivity, for the refusal of Leisure Time
Technology to sell games at the contract price and due to the sales by Collins
and others in violation of the agreement. The first distributor is also
requesting punitive damages. The first distributor's counterclaims are similar
to the claims by the first distributor in the case in which the first
distributor recovered a judgment in the amount of approximately $3,065. In that
case, the Court made no finding of any fraudulent acts by Leisure Time
Technology.
F-22
<PAGE> 106
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
On March 25, 1999, the first distributor filed a complaint against the
Company and a vice president of one of its subsidiaries in the Court of Common
Pleas for the Fifth Judicial Circuit, Richland County, South Carolina,
essentially repeating the allegations asserted in its counterclaim against the
Company in the Gwinnett County, Georgia action. Specifically, the first
distributor alleges that the Company breached the Distribution Agreement by
continuing to sell Pot-O-Gold machines to the second distributor, directly
selling machines in South Carolina and "illegally raising the prices of video
games." The first distributor also alleges claims for breach of contract
accompanied by a fraudulent act, fraudulent nondisclosure of a material fact and
tortious interference with the first distributors alleged contracts with other
companies. The first distributor seeks unspecified "past damages", actual
damages, punitive damages and attorneys' fees.
Any unfavorable outcome related to any outstanding litigation could have a
material adverse effect on the financial condition of the Company.
Guarantees
In 1999, the Company entered into a series of agreements with a third party
financing source to guarantee loans made to unaffiliated purchasers of gaming
machines from the Company. $1,300 of loans have been guaranteed under these
agreements at April 30, 1999.
In June 1998, the Company entered into a purchase agreement for a hotel,
with consideration approximating $1,020. As of June 30, 1998, the Company had
$85 on deposit towards the purchase price. The remainder was paid as follows;
$50 in July and August 1998, $290 in September 1998 and the balance by the
execution of a promissory note in the amount of $545 bearing interest at 10%
balance due in five years from the closing date.
Employment Agreements
The Company has entered into a five year employment agreement with the
Company's president. The agreement contains an anti-dilutive provision that
requires the issuance of additional options upon a change in control, as defined
in the agreement. Additionally, upon a change in control, the officer has the
option to cause the Company to repurchase all or any portion of the common stock
owned by the officer at a price as defined in the agreement. This agreement is
automatically renewed after the termination date for succeeding one year periods
unless the Company or the officer gives written notice of nonrenewal.
The Company has also entered into three year employment agreements with the
Company's chief financial officer, compliance and licensing director, secretary,
assistant secretary and another employee. The agreements contain anti-dilutive
provisions that require the issuance of additional options upon a change in
control, as defined in the agreement. Additionally, upon a change in control,
the officers have the option to cause the Company to repurchase all or any
portion of the common stock then owned by each officer at a price as defined in
the agreement. These agreements are automatically renewed after the termination
date for succeeding one year periods unless the Company or the officer gives
written notice of nonrenewal.
Nine other employees have employment agreements with the Company or its
subsidiaries that expire at various times through February 2002.
Consulting Agreement
Effective March 1998, the Company entered into a consulting agreement with
the former executive vice president ("Individual") of the Company. Pursuant to
the consulting agreement, the Individual is required to provide a maximum of ten
hours of management consulting per week for the Company and its subsidiaries. He
F-23
<PAGE> 107
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
is to be paid $5 per month, plus an amount to maintain his current health
insurance, and out-of-pocket expenses incurred by him in performing his
consulting duties. This consulting agreement automatically terminates on
December 31, 2008.
NOTE 11 -- BUSINESS AND CREDIT CONCENTRATIONS
For the year ended June 30, 1997, two customers accounted for approximately
18% and 60% of the Company's total sales. As of June 30, 1997, the Company had
approximately $75, or 8%, of total trade accounts receivable due from these two
customers.
For the year ended June 30, 1998, two customers accounted for approximately
23% and 47% of the Company's total sales. As of June 30, 1998, the Company had
approximately $39, or 2%, of total trade accounts receivable due from these two
customers.
For the period ended March 31, 1999 (unaudited), three customers accounted
for approximately 11%, 33% and 10%, respectively, of the Company's total sales.
As of March 31, 1999, the Company had approximately $787, or 29%, of total trade
accounts receivable due from these three customers.
The majority of Leisure Time's sales of video gaming machines over the
years ending June 30, 1997 and 1998 and for the nine months ending March 31,
1999, have been in South Carolina. For the years ending June 30, 1997 and 1998
and the nine months ended March 31, 1999, 78%, 67% and 66%, respectively, of the
Company's sales were derived from South Carolina.
NOTE 12 -- STOCK OPTIONS AND WARRANTS
Stock Option Plan
The Company has a 1997 Incentive and Nonstatutory Stock Option Plan
("Plan") which authorizes the Company to grant incentive stock options within
the meaning of Section 422A of the Internal Revenue Code of 1986, as amended,
and to grant nonstatutory stock options. The Plan allows for a total of
4,500,000 shares of Common Stock to be granted. The Plan is administered by the
Company's Board of Directors or a committee thereof which determines the terms
of options granted, including the exercise price, the number of shares of Common
Stock subject to the option, and the terms and conditions of exercise. No
incentive option granted under the Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each incentive option
is exercisable during the lifetime of the optionee only by such optionee.
Stock Option Activity
During the year ended June 30, 1997, the Company issued 1,100,648 stock
options exercisable at prices ranging from $.10 to $2.80 per share, which
represented fair market value at the respective dates of grant. These options
expire from April 2002 through June 2007. No expense has been recognized for
issuances to employees. However, for 130,000 options issued to non-employees,
$59 of expense has been recognized at imputed values ranging from $.45 to $.48
per option, which approximated fair market value at the time of issuance prior
to the acquisition of U.S. Games.
During the year ended June 30, 1998, the Company issued 562,500 stock
options exercisable at $6.00 per share, which represented fair value at the date
of grant. These options expire June 2008.
In November 1998 (unaudited), the Company issued 500,000 employee stock
options exercisable at $6.00 per share, which approximated fair value. These
options expire through December 2007.
F-24
<PAGE> 108
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
In December 1998 (unaudited), the Company issued 190,000 employee stock
options exercisable at $6.00 per share that expire from December 2003 through
December 2007. $760 of compensation expense was recorded in connection with
these options using a value of $10.00 per share.
In January 1999 (unaudited), the Company issued 110,000 employee stock
options exercisable at $6.00 per share that expire from January 2004 through
January 2008. $440 of compensation expense was recorded in connection with these
options using a value of $10.00 per share.
In March 1999 (unaudited), the Company issued 50,000 employee stock options
exercisable at $6.00 per share that expire from February 2004 through February
2007. $200 of compensation expense was recorded in connection with these options
using a value of $10.00 per share.
In March 1999 (unaudited), the Company issued 330,000 employee stock
options exercisable at $10.00 per share, which approximated fair value. These
options expire from March 2004 through March 2007.
Stock Warrant Activity
During the year ended June 30, 1997, the Company issued 142,413 common
stock warrants in conjunction with various stock issuances. These warrants have
exercise prices ranging from $1.00 to $2.80 per share and expire from June 1999
through May 2005. $26 of expense has been recognized as a result of issuances of
93,321 of common stock warrants to nonemployees in exchange for services
provided. The imputed value of these warrants ranged from $.46 to $ .78 per
warrant, which approximated fair value at the time of issuance prior to the
acquisition of U.S. Games.
During the year ended June 30, 1998, the Company issued 41,988 common stock
warrants in conjunction with various stock issuances. These warrants have
exercise prices of $2.50 per share, which approximated fair value, and expire
from July 1999 through June 2000.
During the period ended March 31, 1999 (unaudited), the Company issued
31,491 common stock warrants in conjunction with various debt conversions. These
warrants have exercise prices of $2.50 per share and expire from July 2000
through March 2001.
During the period ended March 31, 1999 (unaudited), 2,000 units containing
2,000 warrants and 2,000 shares of common stock, were sold for cash at $10.00
per unit. These warrants have exercise prices of $10.00 per share, which
approximates fair value, and expire March 2002 (Note 13).
F-25
<PAGE> 109
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Stock Warrant Activity
The following is a summary of options and warrants granted, exercised and
expired:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE FAIR EXERCISE PRICE
EXERCISE PRICE VALUE OF OF OPTIONS
OF OPTIONS OPTIONS AND CURRENTLY EXERCISABLE AND WARRANTS
AND WARRANTS ---------------------- -- CURRENTLY
OPTIONS WARRANTS WARRANTS GRANTED OPTIONS WARRANTS EXERCISABLE
--------- -------- -------------- ------------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding, June 30,
1995................... 1,687,500 275,307 $1.44 1,687,500 275,307 $1.44
--------- ------- -----
Granted................ 20,000 129,929 .19 .40
--------- ------- -----
Outstanding June 30,
1996................... 1,707,500 405,236 1.53 1,707,500 405,236 1.53
--------- ------- -----
Granted................ 1,100,648 142,413 .84 .88
Exercised.............. -- (32,500) .03
--------- ------- -----
Outstanding June 30,
1997................... 2,808,148 515,149 1.80 2,488,148 515,149 1.74
--------- ------- -----
Granted................ 562,500 41,988 .92 2.34
Exercised.............. -- (91,786) .07
Expired................ -- (36,329) .03
--------- ------- -----
Outstanding June 30,
1998................... 3,370,648 429,022 1.91 3,110,648 429,022 1.74
--------- ------- -----
Granted (unaudited).... 830,000 33,491 .45 2.13
Granted at less than
fair market value
(unaudited).......... 350,000 -- .15 6.09
Exercised
(unaudited).......... (100) (60,090) .13
Expired (unaudited).... (210,000) (62,817) .08
--------- ------- -----
Outstanding March 31,
1999 (unaudited)....... 4,340,548 339,606 $3.56 3,618,548 339,606 $1.17
========= ======= ===== ========= ======= =====
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------------
OPTIONS AND
OPTIONS AND WARRANTS OUTSTANDING WARRANTS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF OPTIONS AND NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
WARRANTS EXERCISE PRICE OUTSTANDING PRICE LIFE EXERCISABLE PRICE
----------------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.10 - $2.80................... 2,935,654 $1.65 6.0 years 2,704,163 $1.58
$6.00 - $10.00................. 1,744,500 6.76 7.0 years 1,253,991 7.06
--------- ----- --------- ---------- -----
4,680,154 $3.56 6.4 years $3,958,154 $1.17
========= ===== ========== =====
</TABLE>
The above table does not include 3,341,000 shares and warrants that may
have originally been required to be issued upon the conversion of the 11%
convertible promissory notes payable to individuals as discussed in Note 6. Upon
conversion, 1,060,000 shares and 80,500 shares of common stock would have to be
issued at $1.25 and $2.50 per share, respectively. Additionally, two sets of
1,060,000 common stock warrants would have been issued allowing the holders to
purchase shares of the Company's common stock at $1.75 a share and 120% of the
offering price of an initial public offering by the Company. In addition, 80,500
common stock warrants allowing the holder to purchase shares at $2.50 per share
would have been issued. In January 1999, the Company paid off the majority of
these convertible promissory notes payable in full. As such, the
F-26
<PAGE> 110
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Company believes that the conversion features that would have entitled the
noteholders the right to acquire up to 3,180,000 shares of the Company's common
stock have expired.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost is recognized for the issuances of stock
options to employees when the exercise price approximates market. Pursuant to
the Accounting Principles Board Opinion No. 25 ("APB 25"), the Company does
recognize compensation expense on issuances of stock options to employees when
the exercise price is less than the fair value, for the difference between the
fair value of the stock and the option exercise price. During the period ended
March 31, 1999, $1,400 of compensation expense was recognized.
Had compensation cost for the Company's issuances of all stock options
during the year ended June 30, 1997 and 1998 and the nine months ended March 31,
1999 (unaudited) been determined based on the fair value at the date of grant
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and earnings (loss) per share for those periods would have been decreased
(increased) to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
JUNE 30,
---------------- MARCH 31,
1997 1998 1999
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net income (loss) -- as reported....................... $4,688 $ (929) $3,237
Net income (loss) -- pro forma......................... 3,700 (1,431) 1,260
Earnings (loss) per share -- diluted -- as reported.... .65 (.21) .42
Earnings (loss) per share -- diluted -- pro forma...... .48 (.32) .16
</TABLE>
The Company utilizes the Black-Scholes option-pricing model to calculate
the fair value of each individual issuance of options or warrants with the
following assumptions used for grants through the nine months ended March 31,
1999: dividend yield of 0.0%; expected average annual volatility of 0.0%;
average annual risk-free interest rate of 5.44%; and expected terms of 3 to 5
years.
NOTE 13 -- STOCKHOLDERS' EQUITY
Preferred Stock
The Company's board of directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of preferred stock with such dividend,
redemption, conversion, and exchange provisions as may be provided by the board
of directors with regard to such particular series. Any series of preferred
stock may possess voting, dividend, liquidation and redemption rights superior
to those of the common stock. The rights of the holders of common stock will be
subject to and may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future. Issuance of a new series of
preferred stock, or providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or discourage a third party from acquiring, the
outstanding common stock of the Company and make removal of the board of
directors more difficult. As of March 31, 1999, no series of preferred stock has
been designated and no shares of preferred stock are currently issued and
outstanding.
Common Stock Activity
During the years ended June 30, 1996, 1997 and 1998, the Company sold
426,400, 167,400 and 33,900 shares of common stock, respectively, for cash at
prices ranging from $.50 and $2.80 per share.
F-27
<PAGE> 111
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
During the period ended March 31, 1999 (unaudited), the Company issued
60,190 shares of common stock in conjunction with the exercise of options and
warrants for cash at prices ranging from $2.80 and $3.00 per share pursuant to
the original agreements.
During the period ended March 31, 1999 (unaudited), 2,000 units containing
2,000 shares of common stock and 2,000 warrants, were sold for cash at $10.00
per unit (Note 12).
During the period ended March 31, 1999 (unaudited), 31,491 shares of common
stock were issued at $2.50 per share in satisfaction of $79 of notes payable and
accrued interest.
During the years ended June 30, 1997 and 1998, the Company issued 85,292
and 99,874 shares of common stock, respectively, as extensions on notes payable
and in conjunction with the conversion of certain notes payable. During the year
ended June 30, 1997, 31,100, shares were issued at a value of $1.00 per share in
connection with the extensions. During the years ended June 30, 1997 and 1998,
54,192 and 99,874 shares, respectively, were issued at rates ranging from $2.50
to $2.80 per share in satisfaction of $145 and $267, respectively, of notes
payable and accrued interest.
During the year ended June 30, 1997, officers of the Company forgave $875
of accrued officer wages related to prior years.
In October 1996, the Company issued 38,080 shares of common stock in
exchange for services provided. These shares were valued at $2.50 per share.
In December 1996, the Company repurchased 100,000 shares of previously
issued common stock at a rate of $2.00 per share.
In June 1997, in connection with the acquisition of a certain vessel, the
Company issued 150,000 shares of common stock valued at $2.50 a share.
NOTE 14 -- BUSINESS SEGMENTS
As of the period ending March 31, 1999, the Company has two reportable
segments: manufacturing and gaming. Prior to the period ended March 31, 1999,
the Company had only one operational segment; therefore, reportable segment
information is being presented only for the period ended March 31, 1999. The
manufacturing segment is responsible for the development, manufacturing and
sales of gaming equipment. The gaming segment operates gaming cruise ships and
gaming routes. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company's
reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires
different technology and marketing strategies.
Operating results and other financial data are presented for the two
reportable segments of the Company for the period ended March 31, 1999. Revenue
includes sales to external customers within that segment. Cost of goods sold
includes costs associated with revenue within the segments. Depreciation and
amortization includes expenses related to depreciation and amortization directly
allocated to the segment. Consolidated income tax expense and deferred tax
assets are included with corporate and other.
F-28
<PAGE> 112
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Identifiable assets are those assets used in segment, corporate and other
operations, which consist primarily of cash, receivables, inventory, prepaid
expenses, machinery, equipment, deposits and intangibles.
<TABLE>
<CAPTION>
CORPORATE
MANUFACTURING GAMING AND OTHER CONSOLIDATED
------------- ------- --------- ------------
<S> <C> <C> <C> <C>
March 31, 1999 (unaudited):
Revenue............................... $41,037 $ 3,738 $ 281 $45,056
Cost of goods sold.................... 21,796 400 279 22,475
Depreciation and amortization......... 893 357 44 1,294
Selling, general and administrative
expenses........................... 5,014 7,362 2,532 14,908
Segment profit (loss)................. 14,553 (3,836) (7,480) 3,237
Identifiable assets................... 14,846 10,964 4,030 29,840
</TABLE>
NOTE 15 -- EARNINGS (LOSS) PER SHARE
The following table sets forth the computation for basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator
Numerator for basic earnings
per share -- net income
(loss)...................... $ (1,397) $ 4,688 $ (929) $ 803 $ 3,237
Effect of interest saved on
assumed conversion of
convertible debt............ (A) 298 (A) 28 2
---------- ---------- ---------- ---------- ----------
Numerator for diluted earnings
per share -- adjusted net
income (loss)............... $ (1,397) $ 4,986 $ (929) $ 831 $ 3,239
========== ========== ========== ========== ==========
Denominator
Denominator for basic earnings
per share -- weighted
average shares.............. 4,010,650 4,343,397 4,516,528 4,505,380 4,663,648
Effect of weighted average
dilutive securities
Options and warrants........ (A) 2,418,609 (A) 4,193,423 3,009,071
Convertible debt............ (A) 902,897 (A) 1,140,500 53,667
---------- ---------- ---------- ---------- ----------
Denominator for diluted
earnings per
share -- adjusted weighted
average shares.............. 4,010,650 7,664,903 4,516,528 9,839,303 7,726,386
========== ========== ========== ========== ==========
Basic earnings (loss) per
share....................... $ (.35) $ 1.08 $ (.21) $ .18 $ .69
========== ========== ========== ========== ==========
Diluted earnings (loss) per
share....................... $ (.35) $ .65 $ (.21) $ .08 $ .42
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(A) Where the inclusion of potential common shares and other adjustments is
antidilutive, such shares are excluded from the computation.
F-29
<PAGE> 113
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 16 -- RETIREMENT SAVINGS PLAN
The Company has a defined contribution retirement savings plan which covers
all employees age 21 or older with 1,000 hours of annual service. The Company
matches 50% of each $1.00 that the employee contributes up to 6% of
compensation. Company contributions vest as follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED
---------------- ------
<S> <C>
1.................................................... 25%
2.................................................... 25%
3.................................................... 25%
4.................................................... 25%
</TABLE>
Contributions for the years ending June 30, 1997 and 1998 were $103 and
$85, respectively, and for the nine months ending March 31, 1998 and 1999 were
$0 and $56, respectively.
NOTE 17 -- BUSINESS ACQUISITION
On September 13, 1996, the Company acquired the outstanding stock of U.S.
Games, Inc. ("Subsidiary"), a Georgia corporation. Total consideration was
approximately $1,700 in cash at closing, contingent payments which totaled
$2,496 and $4,128 in notes payable.
The contingent payments were required based upon sales of Pot-O-Gold(TM)
machines and were satisfied in the year ended June 30, 1997.
In addition to the purchase of stock, the Company assumed deferred
compensation agreements with certain employees of the Subsidiary (Note 7) and
entered into a non compete agreement with the former stockholder of the
Subsidiary (Note 7).
In order to generate a portion of the necessary cash for the acquisition,
the Company borrowed $1,610 pursuant to 11% convertible promissory note payable
agreements due May 30, and September 1, 1999. These notes were convertible into
units, at prices of $1.25 and $2.50 per unit, consisting of one share of common
stock and warrants allowing the holder to purchase shares of the Company's stock
at prices of $1.75, $2.50 and 120% of the offering price of an initial public
offering by the Company. A majority of these notes contained an anti-dilutive
provision that required the issuance of additional warrants upon conversion
under certain circumstances after shares, options and warrants exceed 10,000,000
shares of common stock outstanding exclusive of the 120% warrants. No value was
ascribed to the warrant as the Company was selling stock for cash immediately
prior to the acquisition at prices less than $1.25 per share.
F-30
<PAGE> 114
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
The following details the net assets acquired as of September 13, 1996,
pursuant to the acquisition:
<TABLE>
<S> <C>
Cash........................................................ $ 372
Accounts receivable, net.................................... 371
Inventory................................................... 1,517
Property, plant and equipment, net.......................... 314
Other assets................................................ 1,952
Liabilities................................................. (2,300)
Notes payable sellers....................................... (4,128)
-------
Deficit at date of purchase................................. (1,902)
Total consideration paid for stock.......................... (4,196)
-------
Net goodwill...................................... $ 6,098
=======
</TABLE>
This transfer has been accounted for as a purchase and the results of
operations of the Subsidiary are included from the date of acquisition,
September 13, 1996. Goodwill is being amortized over 10 years.
The following unaudited pro forma data summarizes the results of operations
for the periods indicated as if the acquisition of Leisure Time Technology, Inc.
had been completed as of the beginning of the periods presented. The pro forma
data gives effect to actual operating results prior to the acquisition, adjusted
to include depreciation of fixed assets, amortization of intangibles and
additional interest expense. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained if the
acquisition occurred as of the beginning of the periods presented or that may be
obtained in the future.
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................... $28,292 $32,532
Net income.................................................. 590 4,216
Basic earnings per share.................................... .15 .97
Diluted earnings per share.................................. .15 .55
</TABLE>
NOTE 18 -- SUBSEQUENT EVENTS
Acquisition
In April 1999, Casinos acquired all of the outstanding stock of Leisure
Time Financial Corp. (f/k/a RP Capital Corporation) from David M. Pote in
exchange for 100,000 shares of Casinos' common stock and an option to purchase
100,000 shares of common stock at $6.00 per share with an imputed value of
$400,000 based on a fair value of $10.00 per share. The option vests as to
20,000 shares on each of the first through fifth anniversaries of the grant date
and expires ten years after each respective vesting date. The option terminates
as to any unvested portion if Mr. Pote ceases to be either a director, officer
or employee of Casinos or one of its subsidiaries. In addition, Casinos provided
additional funding to Leisure Time Financial Corp. and Leisure Time Financial
Corp. paid Mr. Pote approximately $153,000 due on a loan from Mr. Pote to
Leisure Time Financial Corp. Leisure Time Financial Corp. and Mr. Pote entered
into a three-year employment agreement in April 1999 under which Mr. Pote serves
as the Senior Vice President of Leisure Time Financial Corp. The employment
agreement contains a non-competition clause prohibiting Mr. Pote from competing
with Casinos during the term of the employment agreement and for a period of six
months thereafter.
F-31
<PAGE> 115
LEISURE TIME CASINOS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
Purchase Agreements
In May 1999, the Company purchased all the issued and outstanding shares of
Florida Casino Cruises, Inc. ("Owner") the corporation that owns the Vegas
Express for total consideration valued at $5,086. The consideration consisted of
$4,169, 80,000 shares of the Company's common stock valued at $10 per share and
warrants to purchase an additional 80,000 shares of the Company's common stock
at a price of $10 per share with an imputed value of $117. These warrants expire
in three years. As of March 31, 1999, the Company had advanced $2,069 of the
purchase price to the Owner which was represented by a third mortgage on the
vessel. Additionally, the Company will assume responsibility for any disclosed
and undisclosed accounts payable relating to the vessel up to $1,450 plus 50% of
any amounts in excess of $1,450 and the assumption of a bank mortgage in the
amount of $1,300. In addition to the monthly charter payments payable under the
Bareboat Charter agreement, the Company has made payments totaling $270 to a
former stockholder of the Owner. In addition, the Company made the monthly
payment for July 1998 related to the second mortgage on the vessel in the amount
of $45.
F-32
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
To the Stockholder
Leisure Time Technology, Inc.
(f/k/a U.S. Games, Inc.)
We have audited the accompanying balance sheets of Leisure Time Technology,
Inc. (f/k/a U.S. Games, Inc.) as of June 30, 1996 and September 13, 1996 and the
related statements of operations, stockholder's equity, and cash flows for the
year then ended and the period from July 1, 1996 to September 13, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, 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 financial statements referred to above present fairly,
in all material respects, the financial position of Leisure Time Technology,
Inc. (f/k/a U.S. Games, Inc.) at June 30, 1996 and September 13, 1996, and the
results of its operations and its cash flows for the year then ended and the
period from July 1, 1996 to September 13, 1996 in conformity with generally
accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
August 15, 1997
Denver, Colorado
F-33
<PAGE> 117
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 13,
1996 1996
-------- -------------
<S> <C> <C>
Current assets
Cash...................................................... $4,158 $ 372
Trade accounts receivable, less allowance for doubtful
accounts of $26 at June 30 and September 13, 1996,
respectively........................................... 219 371
Other receivables......................................... 116 --
Inventories (Note 2)...................................... 1,725 1,517
Income taxes refundable................................... 249 365
Prepaid expenses and other................................ 78 75
Deferred tax asset (Note 5)............................... 188 626
------ ------
Total current assets.............................. 6,733 3,326
------ ------
Property and equipment
Machinery and equipment................................... 681 687
Leasehold improvements.................................... 37 41
------ ------
718 728
Less accumulated depreciation............................. (391) (414)
------ ------
Net property and equipment........................ 327 314
Purchased software, less accumulated amortization of $637
and $724 at June 30, and September 13, 1996, respectively
(Note 4).................................................. 576 489
Debt issuance cost, less accumulated amortization of $293 at
June 30, 1996............................................. 49 --
Other assets................................................ 233 353
------ ------
$7,918 $4,482
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current installments of long-term liabilities (Note 6).... $ -- $ 119
Trade accounts payable.................................... 441 324
Accrued expenses (Note 3)................................. 987 579
------ ------
Total current liabilities......................... 1,428 1,022
Other long-term liabilities (Note 6)........................ -- 1,234
------ ------
Total long-term liabilities....................... -- 1,234
------ ------
Total liabilities................................. 1,428 2,256
------ ------
Commitments and contingencies (Notes 6 and 7)
Stockholder's equity (Note 9)
Common stock, no par value; 5,000,000 shares authorized;
688,850 shares issued.................................. -- --
Paid-in capital........................................... 820 --
Retained earnings......................................... 5,712 2,226
Treasury stock, 350 common shares, at cost................ (42) --
------ ------
Total stockholders' equity........................ 6,490 2,226
------ ------
$7,918 $4,482
====== ======
</TABLE>
See notes to financial statements.
F-34
<PAGE> 118
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED FROM JULY 1, TO
JUNE 30, SEPTEMBER 13,
1996 1996
------------ ---------------
<S> <C> <C>
Revenue..................................................... $28,291 $ 2,671
Cost of goods sold.......................................... 15,677 1,300
------- -------
Gross profit.............................................. 12,614 1,371
------- -------
Selling, general and administrative expenses................ 8,284 1,502
Deferred compensation (Note 6).............................. -- 1,354
Research and development costs.............................. 800 132
Interest expense, net....................................... 74 9
------- -------
Total operating expenses.......................... 9,158 2,997
------- -------
Income (loss) before income taxes........................... 3,456 (1,626)
Income tax expense (Note 5)................................. (1,293) 554
------- -------
Net income (loss)................................. $ 2,163 $(1,072)
======= =======
Earnings (loss) per share -- basic and diluted.............. $ 3.14 $ (1.56)
======= =======
Weighted average number of common shares outstanding --basic
and diluted............................................... 688,850 688,850
======= =======
</TABLE>
See notes to financial statements.
F-35
<PAGE> 119
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
STATEMENT OF STOCKHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- PAID-IN RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
-------- ------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1995.......... 688,850 $ -- $ 343 $ 3,549 $(42) $ 3,850
Income tax benefit related to the
exercise of non-qualified stock
options.......................... -- -- 477 -- -- 477
Net income......................... -- -- -- 2,163 -- 2,163
-------- ----- ----- ------- ---- -------
Balances at June 30, 1996.......... 688,850 -- 820 5,712 (42) 6,490
Exercise of options and warrants at
prices ranging from $.01 to $3.60
(Note 9)......................... 343,998 862 -- -- -- 862
Purchase of common stock recorded
at cost (Note 10)................ (343,998) (862) (820) (2,415) 42 (4,055)
Net loss for period from July 1,
1996 to September 13, 1996....... -- -- -- (1,072) -- (1,072)
-------- ----- ----- ------- ---- -------
Balance at September 13, 1996...... 688,850 $ -- $ -- $ 2,225 $ -- $ 2,225
======== ===== ===== ======= ==== =======
</TABLE>
See notes to financial statements.
F-36
<PAGE> 120
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JULY 1, TO
ENDED JUNE 30, SEPTEMBER 13,
1996 1996
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)......................................... $2,163 $(1,072)
------ -------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 672 77
Deferred compensation agreement........................ -- 1,353
Deferred tax benefit................................... (113) (438)
Changes in assets and liabilities
Trade accounts receivable............................ 2,236 (152)
Inventories.......................................... (108) 208
Income taxes refundable.............................. 227 --
Prepaid expenses..................................... (46) (113)
Other receivables.................................... (115) 116
Trade accounts payable............................... (238) (117)
Accrued expenses..................................... 200 (408)
Income taxes payable................................. (33) --
------ -------
2,682 526
------ -------
Net cash provided by (used in) operating
activities..................................... 4,845 (546)
------ -------
Cash flows from investing activities
Capital expenditures...................................... (112) (64)
Other assets.............................................. (100) 16
Purchase of software...................................... (10) --
------ -------
Net cash used in investing activities............. (222) (48)
------ -------
Cash flows from financing activities
Payments on notes payable................................. (500) --
Payments on long-term debt................................ (150) --
Repurchase of common stock................................ -- (3,192)
------ -------
Net cash used in financing activities............. (650) (3,192)
------ -------
Net increase (decrease) in cash............................. 3,973 (3,786)
Cash at beginning of year................................... 185 4,158
------ -------
Cash at end of year......................................... $4,158 $ 372
====== =======
</TABLE>
See notes to financial statements.
F-37
<PAGE> 121
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Supplemental disclosure of cash flow information
Cash paid during 1996 and the period from July 1, 1996 to September
13, 1996 for interest was $28 and $53, respectively.
Cash paid during 1996 and the period from July 1, 1996 to September
13, 1996 for income taxes was $1,311 and $189, respectively.
Supplemental disclosures of non cash financing and investing activities
During the year ended June 30, 1996, the Company recorded a debt
issuance cost of $342 in exchange for warrants with a fair market value of
$342 in connection with obtaining a line-of-credit.
During the year ended June 30, 1996, the Company recorded a credit to
paid-in-capital in the amount of $477 for the income tax benefit related to
stock options.
See notes to financial statements.
F-38
<PAGE> 122
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Leisure Time Technology, Inc. (f/k/a U.S. Games, Inc.) (the "Company"),
develops, manufactures and sells video amusement games and video gaming
machines. The Company is licensed to sell video gaming machines in Michigan,
Minnesota, New York, North Carolina, and Wisconsin and is in compliance with
South Carolina regulations regarding the sale of gaming machines. The Company is
in the process of becoming licensed in Arizona, Mississippi, Montana, Nevada and
Ontario, and has established relationships for international sales in Europe and
South America.
On September 13, 1996, the Company was acquired by Leisure Time Casinos &
Resorts, Inc. and operates as a wholly owned subsidiary (Note 10).
Inventories
Inventories are stated at the lower of cost or market and consist primarily
of raw material, work in process and finished goods. Work-in-process and
finished goods include raw materials, direct labor and manufacturing overhead.
Cost is determined using the first-in, first-out method for all inventories.
Property and Equipment
Property and equipment are stated at cost. Depreciation on equipment is
calculated using the straight-line method over the estimated lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
Purchased Software
Purchased software is being amortized over a period of three years.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Revenue Recognition
Revenue is recognized as products are shipped.
Research and Development
All research and development costs are expensed as incurred.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of temporary cash investments.
The Company places its cash investments with high credit quality financial
institutions and, by policy limits the amount of credit exposure to any one
institution.
F-39
<PAGE> 123
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1996 financial statements
in order to conform to the September 13, 1996 presentation.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 13,
1996 1996
-------- -------------
<S> <C> <C>
Raw materials............................................... $1,211 $1,023
Work-in-process............................................. 98 144
Finished goods.............................................. 526 460
------ ------
Total............................................. 1,835 1,627
Inventory reserve........................................... (110) (110)
------ ------
$1,725 $1,517
====== ======
</TABLE>
NOTE 3 -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 13,
1996 1996
-------- -------------
<S> <C> <C>
Accrued wages and benefits.................................. $159 $ 74
Deferred compensation....................................... 152 --
Advanced deposits........................................... 116 --
Other accrued expenses...................................... 560 505
---- ----
$987 $579
==== ====
</TABLE>
NOTE 4 -- PURCHASED SOFTWARE
The Company recorded an intangible asset of approximately $1,200 for
software rights and source code. The asset is being amortized over three years
and has net balances of $576 and $489 at June 30, 1996 and September 13, 1996,
respectively. Prior to the purchase of the software and source code, the Company
paid royalties for the use of the software.
NOTE 5 -- INCOME TAXES
Due to the acquisition (Note 10), the Company will be included in the
consolidated tax return with the Parent for the period after the date of
acquisition. The accompanying tax provision has been computed assuming that the
Company files on a separate return basis.
F-40
<PAGE> 124
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) for the year ended June 30, 1996 and the
period from July 1, 1996 to September 13, 1996 consists of:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 13,
1996 1996
-------- -------------
<S> <C> <C>
Current
U.S. Federal.............................................. $1,176 $(109)
State and local........................................... 230 (7)
------ -----
1,406 (116)
------ -----
Deferred
U.S. Federal.............................................. (106) (411)
State and local........................................... (7) (27)
------ -----
(113) (438)
------ -----
$1,293 $(554)
====== =====
</TABLE>
Actual income tax expense differs from expected income tax expense
(computed by applying the U.S. Federal statutory income tax rate of 34% to
income before income taxes), as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 13,
1996 1996
-------- -------------
<S> <C> <C>
Computed expected income tax expense........................ 34.0% 34.0%
Increase (decrease) in income tax expense resulting from
State income taxes, net of federal income tax effect...... 5.2 --
Nondeductible expenses.................................... .5 --
Other..................................................... (2.3) --
---- ----
37.4% 34.0%
==== ====
</TABLE>
The net deferred tax asset liability in the accompanying balance sheets
includes the following deferred tax assets and liabilities:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 13,
1996 1996
-------- -------------
<S> <C> <C>
Current deferred taxes
Current deferred tax asset................................ $ 375 $626
Current deferred tax liability............................ (187) --
----- ----
Net current deferred tax asset.................... $ 188 $626
===== ====
</TABLE>
The principal temporary differences that result in the above deferred tax
assets and liabilities are differences in the methods for calculating
depreciation, amortization and certain expenses accrued for financial reporting
purposes not deductible for tax purposes until paid.
The Company generated net operating loss carryforwards of $328 based upon
operations from July 1, 1996 through September 13, 1996.
NOTE 6 -- LONG-TERM LIABILITIES
Deferred Compensation Contracts
The Company entered into $1,644 (undiscounted) of deferred compensation
contracts with certain individuals. These contracts provide for the payment of
defined amounts, generally for up to a period of six years commencing on a
monthly basis in November 1996. Initially, the payments will be computed based
on the number of Pot-O-Gold(TM) machines sold each month multiplied by the
agreed upon rate for the amount
F-41
<PAGE> 125
LEISURE TIME TECHNOLOGY, INC.
(F/K/A U.S. GAMES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
sold. As of March 1, 1997, the amounts will be computed by taking a percentage
of the previous month's gross sales. The present value of the future amounts
estimated to be payable were accrued for financial reporting purposes at an
imputed interest rate of 6.64%, and originally amounted to $1,353 (discounted).
A summary of long-term liabilities at September 13, 1996 are as follows:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
TOTAL PORTION PORTION
------ ------- ---------
<S> <C> <C> <C>
Deferred compensation contracts........................... $1,353 $119 $1,234
====== ==== ======
</TABLE>
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Leases
The Company has a noncancellable operating lease for its office space that
expires January 31, 1998. Rental expenses for this operating lease were
approximately $234 and $43 during the year ended June 30, 1996 and for the
period from July 1, 1996 to September 13, 1996, respectively.
Future lease payments under the operating lease are approximately $365.
Litigation
The Company has an agreement with a distributor which allowed the Company
to sell machines to a second company for their own use. There is a disagreement
between the Company and its distributor as to whether or not the agreement set
up an exclusive relationship. In the opinion of counsel and management, neither
disagreement will result in material losses in excess of amounts provided for in
the accompanying financial statements.
Profit Sharing
The Company has a profit sharing plan which covers substantially all
employees. Contributions are determined at the sole discretion of management and
are charged to current operations. Contributions were $48 for the year ended
June 30, 1996.
Additionally, the Company has a 401(k) feature. This feature does not
create an obligation for the Company.
In 1996, two customers accounted for approximately 27% and 53% of the
Company's total sales.
For the period July 1, 1996 to September 13, 1996, two customers accounted
for approximately 18% and 60% of the Company's total sales.
NOTE 9 -- STOCKHOLDERS' EQUITY
Prior to the acquisition, options and warrants to acquire 343,998 shares of
the Company's common stock were exercised for $862.
NOTE 10 -- BUSINESS ACQUISITION
On September 13, 1996, the Company was acquired by Leisure Time Casinos and
Resorts, Inc.
In connection with the acquisition, shares which had been issued upon the
exercise of options and warrants were repurchased for $4,055.
F-42
<PAGE> 126
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Florida Casino Cruises, Inc.
Naples, Florida
We have audited the accompanying balance sheet of Florida Casino Cruises,
Inc. as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, 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 financial statements referred to above present fairly,
in all material respects, the financial position of Florida Casino Cruises, Inc.
at December 31, 1997 and 1998, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, at December 31, 1998, the Company had a stockholders'
deficit of $5,599 and a net deficiency in working capital that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 2. The financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.
Ehrhardt Keefe Steiner & Hottman
P.C.
April 8, 1999
Denver, Colorado
F-43
<PAGE> 127
FLORIDA CASINO CRUISES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash...................................................... $ 1 $ -- $ --
Cash -- restricted........................................ -- 207 163
Accounts receivable....................................... 2 2 2
Prepaid expenses.......................................... 15 -- --
------- ------- -------
Total current assets.............................. 18 209 165
------- ------- -------
Property and equipment (Notes 3 and 5)...................... 4,471 4,388 4,757
Less accumulated depreciation............................. (1,933) (2,371) (2,485)
------- ------- -------
Total property and equipment...................... 2,538 2,017 2,272
------- ------- -------
Other assets
Deposits.................................................. 10 1 --
Loan acquisition fee, net of accumulated amortization of
$3 (1997), $6 (1998) and $14 (1999).................... 26 16 15
------- ------- -------
Total other assets................................ 36 17 15
------- ------- -------
Total assets................................................ $ 2,592 $ 2,243 $ 2,452
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable -- stockholder (Note 4)...................... $ 2,341 $ 2,191 $ 2,191
Mortgage payable -- related party (Note 4)................ 700 -- --
Current portion of long-term debt (Note 5)................ 609 855 855
Accounts payable.......................................... 806 646 657
Accrued expenses.......................................... 607 834 874
Accrued interest -- stockholder (Note 4).................. 406 646 646
------- ------- -------
Total current liabilities......................... 5,469 5,172 5,223
Long-term liabilities
Notes payable (Note 5).................................... 1,621 970 834
Other liabilities (Note 9)................................ 357 1,700 2,069
------- ------- -------
Total long-term liabilities....................... 1,978 2,670 2,903
------- ------- -------
Total liabilities........................................... 7,447 7,842 8,126
------- ------- -------
Commitments and contingencies (Note 8)
Stockholders' deficit
Common stock, $1 par value, 130 shares authorized, 79
shares issued and outstanding.......................... -- -- --
Additional paid-in capital................................ 430 430 430
Accumulated deficit....................................... (5,285) (6,029) (6,104)
------- ------- -------
(4,855) (5,599) (5,674)
------- ------- -------
Total liabilities and stockholders' deficit................. $ 2,592 $ 2,243 $ 2,452
======= ======= =======
</TABLE>
See notes to financial statements.
F-44
<PAGE> 128
FLORIDA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------------
1997 1998 1998 1999
--------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales revenue........................................ $ 2,396 $ -- $ 342 $ --
Cost of sales........................................ 1,143 -- 163 --
-------- ------- -------- -------
Gross profit............................... 1,253 -- 179 --
Operating expenses
General and administrative expenses................ 2,761 793 1,566 544
Litigation expenses (Note 8)....................... 527 225 -- --
Loss on abandonment of assets...................... 814 -- 70 4
Interest expense, net.............................. 442 426 327 300
-------- ------- -------- -------
Total operating expenses................... 4,544 1,444 1,963 848
-------- ------- -------- -------
Net loss before other income......................... (3,291) (1,444) (1,784) (848)
Other revenue
Miscellaneous income (expense)..................... -- -- (270) 14
Bareboat charter income (Note 7)................... -- 700 -- 750
-------- ------- -------- -------
Total other revenue........................ -- 700 (270) 764
-------- ------- -------- -------
Net loss............................................. $ (3,291) $ (744) $ (2,054) $ (84)
======== ======= ======== =======
Loss per share -- basic and diluted.................. $(30,757) $(9,418) $(26,000) $(1,063)
======== ======= ======== =======
Weighted average number of common shares
outstanding -- basic and diluted................... 107 79 79 79
======== ======= ======== =======
</TABLE>
See notes to financial statements.
F-45
<PAGE> 129
FLORIDA CASINO CRUISES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT/
--------------- PAID-IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
------ ------ ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1996....................... 121 $ -- $ 680 $ -- $(1,044) $ (364)
Common stock repurchased from stockholder (Note
9)............................................... (42) -- (250) -- (950) (1,200)
Net loss for the year.............................. -- -- -- -- (3,291) (3,291)
----- ----- ----- ----- ------- -------
Balance -- December 31, 1997....................... 79 -- 430 -- (5,285) (4,855)
Net loss for the year.............................. -- -- -- -- (744) (744)
----- ----- ----- ----- ------- -------
Balance -- December 31, 1998....................... 79 -- 430 -- (6,029) (5,599)
Net loss for the three months ended March 31, 1999
(unaudited)...................................... -- -- -- -- (75) (75)
----- ----- ----- ----- ------- -------
Balance -- March 31, 1999 (unaudited).............. 79 $ -- $ 430 $ -- $(6,104) $(5,674)
===== ===== ===== ===== ======= =======
</TABLE>
See notes to financial statements.
F-46
<PAGE> 130
FLORIDA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- -----------------
1997 1998 1998 1999
--------- -------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss) income...................................... $(3,291) $ (744) $(2,054) $ (84)
------- ------ ------- -----
Adjustments to reconcile net loss to cash (used by)
provided by operating activities
Write off of start-up costs......................... 76 -- -- --
Loss on disposition of fixed assets................. 860 63 557 40
Depreciation and amortization....................... 666 464 340 331
Changes in certain assets and liabilities --
Accounts receivable............................... 225 -- 113 --
Inventories....................................... 25 -- 13 --
Prepaids.......................................... 122 16 77 1
Other current assets.............................. 10 9 15 1
Accounts payable.................................. 522 (160) 111 (70)
Other accrued expenses............................ 725 467 611 195
------- ------ ------- -----
3,231 859 1,837 498
------- ------ ------- -----
Net cash (used by) provided by operating
activities................................... (60) 115 (217) 414
------- ------ ------- -----
Cash flows from investing activities
Purchase of equipment.................................. (448) -- (448) --
Proceeds from fixed asset sale......................... 5 3 -- --
------- ------ ------- -----
Net cash (used by) provided by investing
activities................................... (443) 3 (448) --
------- ------ ------- -----
Cash flows from financing activities
Proceeds from long-term debt -- stockholder............ 465 (150) 389 (281)
Advances received (Note 10)............................ 881 1,343 1,035 --
Payment on long-term debt.............................. (525) (405) (421) (74)
Payments on note payable -- stockholder................ (500) (700) (400) --
------- ------ ------- -----
Net cash provided by financing activities...... 321 88 603 (355)
------- ------ ------- -----
Net (decrease) increase in cash.......................... (182) 206 (62) 59
Cash and cash equivalents -- beginning of year........... 183 1 91 104
------- ------ ------- -----
Cash and cash equivalents -- end of year................. $ 1 $ 207 $ 29 $ 163
======= ====== ======= =====
</TABLE>
Supplemental disclosures:
Interest paid during December 31, 1997 and 1998 was $50 and $176,
respectively.
Interest paid during the nine months ended March 31, 1998 and 1999 was
$171 and $257, respectively.
Schedule of non-cash investing activities:
During the year ended December 31, 1997, long-term debt was incurred
to finance the acquisition of treasury stock for $1,200.
See notes to financial statements.
F-47
<PAGE> 131
FLORIDA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Florida Casino Cruises, Inc. (the Company), a Georgia corporation, owns and
operates the ship Vegas Express, which operated out of the port of Dania,
Florida in 1997 and operates out of the port of Gloucester Massachusetts in
1998. The Vegas Express makes daily cruises into international water where it
provides its passengers with various "Las Vegas" style gambling and
entertainment. The Company began its operations in 1993.
Restricted Cash
The Company has restricted cash pursuant to the Charter Hire of the vessel.
The monthly charter payment is being deposited in an account titled Leisure
Express Cruise, LLC and monies are used for vessel mortgage and expenses.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the financial statements do not include
a provision for income taxes because the earnings and losses are included in the
stockholders' personal income tax returns and are based on their personal tax
strategies.
Property and Equipment
The ship is depreciated over fifteen years using the straight-line method.
Ship improvements, related equipment and other equipment are recorded at cost
and are depreciated over their estimated useful lives, which range from five to
ten years.
Revenue Recognition
Casino revenue consists of net gaming wins. Food and beverage revenue
include the aggregate amounts generated by those departments.
Casino promotional allowances consist principally of the retail value of
complimentary food and beverages, admissions and entertainment provided to
casino patrons.
Unearned cruise revenue, which represents customer cruise deposits, is
included in the balance sheet when received and is recognized as passenger fare
or food revenue upon completion of the voyage.
Use of Estimates
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Drydock Costs
The Company uses the deferral method to account for major repairs and
maintenance in drydock whereby costs are capitalized when incurred and amortized
over the period to the next drydock.
F-48
<PAGE> 132
FLORIDA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- CONTINUED OPERATIONS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, as shown in the accompanying financial
statements, the Company has an accumulated deficit of $6,029 and a deficit in
stockholders' equity of $5,599 through December 31, 1998. In addition, total
current liabilities exceed total current assets by approximately $4,963.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn are dependent upon the Company's ability to meet its financing requirements
on a continuing basis and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
The Company has entered into an agreement to lease the vessel through April
1999 and the sole shareholder of the Company entered into an agreement to sell
the stock of the Company at the end of the lease (Notes 7 and 10).
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Property and equipment
Casino equipment.......................................... $ 665 $ 595
Ship and related equipment................................ 3,277 3,264
Dock improvements......................................... 437 437
Leasehold improvements.................................... 92 92
------- -------
4,471 4,388
Less accumulated depreciation............................. (1,933) (2,371)
------- -------
$ 2,538 $ 2,017
======= =======
</TABLE>
NOTE 4 -- RELATED PARTY
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
<S> <C> <C>
Note Payable -- Stockholder
Note payable -- stockholder, interest at 10% per annum;
all unpaid principal and interest due on demand;
without collateral. Accrued interest of $406 (1997) and
$646 (1998)............................................ $2,341 $2,191
Mortgage Payable
Mortgage payable -- stockholder, paid in full in 1998..... 700 --
------ ------
$3,041 $2,191
====== ======
</TABLE>
F-49
<PAGE> 133
FLORIDA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
<S> <C> <C>
Note payable -- insurance note, paid in full in 1998........ $ 10 $ --
Note payable -- vendor, paid in full in 1998................ 50 --
Note payable -- bank, interest at prime plus 2%, (which was
10.5% at December 31, 1998) payable in monthly payments of
interest and principal of $45 due November 2007,
collateralized by ship Vegas Express...................... 1,735 1,390
Note payable vendor, interest at 10%, monthly payments of
interest and principal of $17, due May 1999,
collateralized by slot machines........................... 435 435
------ ------
2,230 1,825
Less current portion........................................ (609) (855)
------ ------
Total long-term debt.............................. $1,621 $ 970
====== ======
</TABLE>
The aggregate annual maturities of long-term debt at December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999........................................................ $ 855
2000........................................................ 500
2001........................................................ 470
------
$1,825
======
</TABLE>
NOTE 6 -- LEASES
Prior to entering into the Bareboat Charter agreement (Note 7), the Company
conducted its operations from facilities (boat dock, ticket book, and boarding
area) that are leased under a five-year non-cancelable lease expiring on May 31,
2000 with monthly rent payments of $6,500.
The minimum rental payments required under the above operating lease as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999........................................................ $ 78
2000........................................................ 33
----
$111
====
</TABLE>
Rental expense totaled approximately $39 and $16 in 1997 and 1998,
respectively.
NOTE 7 -- BAREBOAT CHARTER
The Company has a Bareboat Charter agreement that expires April 1999.
Revenue related to this Charter equals $100 a month until December 31, 1998 and
$50 a month until the expiration date (Note 10). Additionally, beginning in
January 1999, the Company receives $3.00 per passenger per month in excess of
12,000 passengers. Lease revenue for this Charter was approximately $700 during
the year ended December 31, 1998.
F-50
<PAGE> 134
FLORIDA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
Various lawsuits, claims and proceedings of a nature considered normal to
its business are pending against the Company. The most significant of these are
described below:
The Company is involved in litigation regarding use taxes. The Florida
Department of Revenue and Sales and Use Tax Division suit is for $290 which
includes $188 of tax. This amount has been accrued in the accompanying financial
statements.
The Company is engaged in litigation with vendors for back payment on goods
and services. The Company has accrued for the back payments and those amounts
are reflected in the balance sheet.
The Company has personal injury claims pending and its insurance company is
engaged in litigation on behalf of the Company. Personal injury judgments were
entered against the Company totaling $225 which are recorded in the accompanying
financial statements. The Company is appealing the judgment for $200.
The state of Georgia has filed a lien against the boat for non-payment of
taxes. The lien was filed in Savannah in the amount of $146 which has been
accrued for and is reflected in the balance sheet.
The state of Florida has brought suit against the Company alleging that the
ship must obtain a watercraft registration permit in the state of Florida to
operate on the state's inner waterways. The Company is vigorously contesting
this issue and a conclusion regarding the outcome has not been reached. The
amount of loss, if any, related to this litigation has not been estimated.
Effective July 1998, the ship operates out of the port in Gloucester,
Massachusetts.
NOTE 9 -- STOCKHOLDERS' EQUITY
During 1997, the Company repurchased 42 shares of common stock for $1,200,
the Company paid $150 into escrow and issued a note for $1,050 payable monthly
with an interest rate of 9%.
NOTE 10 -- SUBSEQUENT EVENT
In May 1999, the sole shareholder of the Company sold all of the Company's
issued and outstanding common stock to the corporation ("Corporation") that
chartered the vessel through the bareboat charter agreement (Note 7). Total
consideration given in exchange for all the issued and outstanding shares of the
Company's common stock was $4,169, 80,000 shares of the Corporation's common
stock valued at $10 per share and warrants to purchase an additional 80,000
shares of the Corporation's common stock at a price of $10 per share. The
warrants expire in three years. Additionally, the Corporation will assume
responsibility for any disclosed accounts payable relating to the vessel up to
$1,450 plus 50% of any amounts in excess of $1,450 and assume a bank mortgage in
the amount of $1,300. As of December 31, 1997 and 1998, the Company had received
advances on the purchase price from the corporation of $357 and $1,700,
respectively, which is represented by a third mortgage on the vessel.
F-51
<PAGE> 135
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The unaudited pro forma combined balance sheet as of March 31, 1999 gives
effect to the business combination of Leisure Time Casinos & Resorts, Inc. and
Subsidiaries and Florida Casino Cruises, Inc. effective March 31, 1999.
The unaudited pro forma combined statements of income (loss) for the year
ended June 30, 1998 gives effect to the business combinations between Leisure
Time Casinos & Resorts, Inc. and Subsidiaries and Florida Casino Cruises, Inc.
effective July 1, 1997.
These financial statements include the related pro forma adjustments
described in the notes thereto. The transactions between Leisure Time Casinos &
Resorts, Inc. and Subsidiaries and Florida Casino Cruises, Inc. have been
accounted for as combinations of companies under the purchase method of
accounting. These pro forma statements are not necessarily indicative of the
results of operations as they might have been had the transactions become
effective on the above mentioned dates.
A separate pro forma combined balance sheet for the acquisition of U.S.
Games, Inc. is not included as the acquisition took place September 14, 1996 and
is included in the historical balance sheet of Leisure Time Casinos & Resorts,
Inc. and Subsidiaries as of June 30, 1998.
The unaudited pro forma combined financial statements should be read in
conjunction with the separate historical financial statements and notes thereto
of Leisure Time Casinos & Resorts, Inc. and Subsidiaries and Florida Casino
Cruises, Inc.
F-52
<PAGE> 136
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
LEISURE TIME ADJUSTMENTS
CASINOS AND ACQUISITION
RESORTS, INC. FLORIDA CASINO ADJUSTMENTS
AND CRUISES, ---------------- PRO FORMA
SUBSIDIARIES INC. TOTAL DEBIT CREDIT COMBINED
------------- -------------- ------- ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Manufacturing...................................... $ 28,643 $ -- $28,643 $ -- $ -- $ 28,643
Gaming............................................. -- -- -- -- -- --
Other.............................................. -- -- -- -- -- --
---------- ----- ------- ----- ---- ----------
Total revenue................................ 28,643 -- 28,643 -- -- 28,643
---------- ----- ------- ----- ---- ----------
Cost of goods sold
Manufacturing...................................... 16,517 -- 16,517 -- -- 16,517
Gaming............................................. -- -- -- -- -- --
Other.............................................. -- -- -- -- -- --
---------- ----- ------- ----- ---- ----------
Total cost of goods sold..................... 16,517 -- 16,517 -- -- 16,517
---------- ----- ------- ----- ---- ----------
Gross profit
Manufacturing...................................... 12,126 -- 12,126 -- -- 12,126
Gaming............................................. -- -- -- -- -- --
Other.............................................. -- -- -- -- -- --
---------- ----- ------- ----- ---- ----------
Total gross profit (loss).................... 12,126 -- 12,126 -- -- 12,126
---------- ----- ------- ----- ---- ----------
Selling, general and administrative expenses......... 8,727 318 9,045(4) 140 -- 9,185
Research and development costs....................... 642 -- 642 -- -- 642
Interest expense, net................................ 840 426 1,266 -- -- 1,266
Litigation........................................... 3,043 -- 3,043 -- -- 3,043
---------- ----- ------- ----- ---- ----------
Total operating (income) expenses............ 13,252 744 13,996 140 -- 14,136
---------- ----- ------- ----- ---- ----------
Net income (loss) before income tax benefit
(expense).......................................... (1,126) (744) (1,870) (140) -- (2,010)
Income tax benefit (expense)......................... 197 -- 197 --(3) 547 744
---------- ----- ------- ----- ---- ----------
Net income (loss).................................... $ (929) $(744) $(1,673) $(140) $547 $ (1,266)
========== ===== ======= ===== ==== ==========
Net income (loss) -- diluted......................... $ (929) $ (1,266)
========== ==========
Net income (loss) per common share -- basic.......... $ (.21) $ (.28)
========== ==========
Net income (loss) per common share --................ $ (.21) $ (.28)
========== ==========
Weighted average number of common shares
outstanding -- basic............................... 4,516,528 4,516,528
========== ==========
Weighted average number of common shares
outstanding -- diluted............................. 4,516,528 4,516,528
========== ==========
</TABLE>
F-53
<PAGE> 137
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
LEISURE TIME FLORIDA CASINO
CASINOS & CRUISES, INC.
RESORTS, INC. FLORIDA CASINO ACQUISITION
AND CRUISES, ------------------ PRO FORMA
SUBSIDIARIES INC. TOTAL DEBIT CREDIT COMBINED
------------- -------------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents........................ $ 2,540 $ 163 $ 2,703 $ --(1) $2,100 $ 603
Current portion of notes receivable.............. 4 -- 4 -- -- 4
Trade accounts receivable........................ 2,749 2 2,751 -- -- 2,751
Receivable -- other.............................. 1 -- 1 -- -- 1
Inventories, net................................. 4,068 -- 4,068 -- -- 4,068
Prepaid expenses and other....................... 267 -- 267 -- -- 267
Deferred tax asset -- current.................... 61 -- 61 -- -- 61
-------- ------- ------- ------ ------ -------
Total current assets....................... 9,690 165 9,855 -- 2,100 7,755
-------- ------- ------- ------ ------ -------
Property and equipment, net........................ 8,123 2,272 10,395(1) 5,357 -- 15,752
Goodwill, net...................................... 4,495 -- 4,495 -- -- 4,495
Non-compete agreement, net......................... 3,889 -- 3,889 -- -- 3,889
Other assets, net.................................. 188 15 203 -- -- 203
Deposits........................................... 2,339 -- 2,339 --(2) 2,069 270
Deferred tax asset -- long term.................... 1,079 -- 1,079 -- -- 1,079
Long-term portion of notes receivable.............. 37 -- 37 -- -- 37
-------- ------- ------- ------ ------ -------
Total assets............................... $ 29,840 $ 2,452 $32,292 $5,357 $4,169 $33,480
======== ======= ======= ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line-of-credit................................... $ 4 $ -- $ 4 $ -- $ -- $ 4
Current portion of long-term notes payable....... 402 855 1,257(1) 392 -- 865
Current portion of capital leases................ 22 -- 22 -- -- 22
Current portion of other long-term liabilities... 80 -- 80 -- -- 80
Notes payable -- stockholder..................... -- 2,837 2,837(1) 2,837 -- --
Accounts payable................................. 2,713 657 3,370 --(1) 195 3,565
Accrued expenses................................. 4,335 874 5,209(1) 225 -- 4,984
Income taxes payable............................. 2,409 -- 2,409 -- -- 2,409
Deferred revenue................................. 38 -- 38 -- -- 38
-------- ------- ------- ------ ------ -------
Total current liabilities.................. 10,003 5,223 15,226 3,454 195 11,967
-------- ------- ------- ------ ------ -------
Long-term liabilities
Long-term portion of notes payable............... 6,399 834 7,233 -- -- 7,233
Long-term portion of capital leases.............. 150 -- 150 -- -- 150
Other long-term liabilities...................... 4,677 2,069 6,746(2) 2,069 -- 4,677
-------- ------- ------- ------ ------ -------
Total long-term liabilities................ 11,226 2,903 14,129 2,069 -- 12,060
-------- ------- ------- ------ ------ -------
Total liabilities.......................... 21,229 8,126 29,355 5,523 195 24,027
-------- ------- ------- ------ ------ -------
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value; 5,000,000 shares
authorized; none issued........................ -- -- -- -- -- --
Common stock, $.001 par value; 45,000,000 shares
authorized; 4,505,380 (1997) and 4,639,154
(1998) issued and outstanding.................. 5 -- 5 -- -- 5
Additional paid-in capital....................... 5,147 430 5,577(1) 430(1) 917 6,064
Retained earnings (accumulated deficit).......... 3,459 (6,104) (2,645) --(1) 6,029 3,384
-------- ------- ------- ------ ------ -------
8,611 (5,674) 2,937 430 6,946 9,453
-------- ------- ------- ------ ------ -------
Total liabilities and stockholders'
equity................................... $ 29,840 $ 2,452 $32,292 $5,953 $7,141 $33,480
======== ======= ======= ====== ====== =======
</TABLE>
F-54
<PAGE> 138
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The acquisition of Florida Casino Cruises, Inc. included the following
assets and liabilities as detailed below for a total purchase price of $5,086.
The Company issued 80,000 shares of common stock valued at $10.00 per share,
warrants to purchase 80,000 shares of common stock at $10.00 per share with an
imputed value of $117 and paid $4,169 in cash for the outstanding stock of
Florida Casino Cruises, Inc. As of March 31, 1999, the Company had advanced
$2,069 to Florida Casino Cruises, Inc. prior to the acquisition. The purchase
price has been allocated as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY VALUATION
-------------- ---------
<S> <C>
Cash........................................................ $ 207
Other assets................................................ 19
Property, plant and equipment, net.......................... 7,743
Liabilities assumed......................................... (2,883)
-------
Total consideration given......................... $ 5,086
=======
</TABLE>
The following adjustments and other information relates to the business
combinations between Leisure Time Casinos & Resorts, Inc. and Subsidiaries and
Florida Casino Cruises, Inc. Such adjustments were made:
1 To record the acquisition of Florida Casino Cruises, Inc. at a
total purchase price of $4,717.
2 To offset the advances made to Florida Casino Cruises, Inc.
3 To recognize pro forma income tax expense (benefit) at a flat 37%
effective rate for fiscal year ending June 30, 1998.
4 To recognize additional depreciation on the vessel acquired in
connection with the acquisition of Florida Casino Cruises, Inc. for the
year ending June 30, 1998. The vessel is depreciated using the straight
line method over 15 years.
The fiscal year end for Florida Casino Cruises, Inc. is December 31. As
such, the pro forma combined statements of income (loss) for the fiscal year
ending June 30, 1998 include the results of operations for Florida Casino
Cruises, Inc. as of December 31, 1998.
F-55
<PAGE> 139
INSIDE BACK COVER PAGE
"Imagineering(TM)"
= Imagination + Engineering!
Leisure Time uses "Imagineering(TM)" to provide our customers with solutions to
their gaming software problems.
[PHOTOS OF GAMES]
4258 Communications Drive Norcross, GA 30093
770.923.9900 Fax 770.923.0097
www.leisuretimecasinos.com
<PAGE> 140
1,100,000 SHARES
[LEISURE TIME LOGO]
COMMON STOCK
------------------------
PROSPECTUS
, 1999
------------------------
SCHNEIDER SECURITIES, INC.
UNTIL , 1999, ALL DEALERS SELLING SHARES OF THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses payable by Leisure Time Casinos & Resorts, Inc. ("Leisure Time")
in connection with the issuance and distribution of the securities being
registered hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 5,050
NASD Filing Fee............................................. $ 2,317
Nasdaq National Market Filing Fee........................... $ 66,875
Accounting Fees and Expenses................................ $120,000*
Legal Fees and Expenses..................................... $150,000*
Blue Sky Fees and Expenses.................................. $ 10,000*
Representatives' Non-Accountable Expense Allowance.......... $396,000**
Printing, Freight and Engraving............................. $140,000*
Miscellaneous............................................... $ 5,758*
--------
Total............................................. $896,000*
========
</TABLE>
- ---------------
* Estimated.
** Estimated based on an assumed offering price of $12.00 per share.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Leisure Time has a $10,000,000 directors and officers liability insurance
policy. This insurance policy insures the past, present and future officers and
directors of Leisure Time, with certain exceptions, from claims arising out of
any error, misstatement, misleading statement, act, omission, neglect, or breach
of duty committed or attempted, or allegedly committed or attempted.
Section 7-109-102 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any person made a party to a proceeding
because the person is or was a director against liability incurred in the
proceeding if such person acted in good faith and, in the case of conduct in an
official capacity with the corporation, that the director's conduct was in the
corporation's best interests and, in all other cases, that the director's
conduct was at least not opposed to the best interests of the corporation or,
with regard to criminal proceedings, the director had no reasonable cause to
believe the director's conduct was unlawful.
Article Fifth of Leisure Time's Articles of Incorporation, as amended,
filed as Exhibit 3.1 to this registration statement provides that a director of
Leisure Time shall not be personally liable to Leisure Time or its stockholders
for monetary damages for breach of fiduciary duty as a director; except that the
provision does not eliminate or limit the liability of a director to Leisure
Time or its stockholders for monetary damages otherwise existing for: (i) any
breach of the director's duty of loyalty to Leisure Time or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law; (iii) acts involving unlawful distributions
as specified in the Colorado Business Corporation Act; or (iv) any transaction
from which the director derived an improper personal benefit. Further, Article
Fifth states that any repeal or modification of the foregoing by the
stockholders of Leisure Time shall not adversely affect any right or protection
of a director of Leisure Time existing at the time of such repeal or
modification.
Article Sixth of Leisure Time's Articles of Incorporation, as amended,
filed as Exhibit 3.1 to this registration statement provides in paragraph 3 that
Leisure Time shall indemnify to the maximum extent permitted by law in effect
from time to time, any person who is or was a director, officer, agent,
fiduciary or employee of Leisure Time against any claim, liability or expense
arising against or incurred by such person made party to a proceeding because
such person is or was a director, officer, agent, fiduciary or employee of
Leisure Time or because such person is or was serving another entity as a
director, officer, partner, trustee, employee, fiduciary or agent at Leisure
Time's request. Article Sixth also provides that Leisure Time shall
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<PAGE> 142
have the authority to the maximum extent permitted by law to purchase and
maintain insurance providing such indemnification.
Article VI of the Bylaws of Leisure Time, filed as Exhibit 3.3 to this
registration statement includes provisions requiring Leisure Time to indemnify
any person acting on behalf of Leisure Time who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
and whether formal or informal, by reason of the fact that such person is or was
a director, officer, employee, fiduciary or agent of Leisure Time, or is or was
serving at the request of Leisure Time as a director, officer, partner, trustee,
employee, fiduciary or agent of any foreign or domestic profit or nonprofit
corporation or of any partnership, joint venture, trust, profit or nonprofit
unincorporated association, limited liability company, or other enterprise or an
employee benefit plan against reasonably incurred expenses (including attorneys'
fees), judgments, penalties, fines (including any excise tax assessed with
respect to an employee benefit plan) and amounts paid in settlement reasonably
incurred by such person in connection with such action, suit or proceeding if it
is determined by disinterested directors that such person conducted himself or
herself in good faith and that such person reasonably believed (i) in the case
of conduct in such person's official capacity with Leisure Time, that such
person's conduct was in Leisure Time's best interest, or (ii) in all other cases
(except criminal cases) that such person's conduct was at least not opposed to
Leisure Time's best interest, or (iii) in the case of any criminal proceeding,
that such person had no reasonable cause to believe such person's conduct was
unlawful. No indemnification shall be made with respect to any claim, issue or
matter in connection with a proceeding by or in the right of Leisure Time in
which the person being indemnified is adjudged liable to Leisure Time or in
connection with any proceeding charging that the person being indemnified
derived an improper personal benefit, whether or not involving action in an
official capacity, in which such person was adjudged liable on the basis that
such person derived an improper personal benefit. Further, indemnification in
connection with a proceeding brought by or in the right of Leisure Time shall be
limited to reasonable expenses, including attorneys' fees, incurred in
connection with the proceeding. Reasonable expenses (including attorneys' fees)
incurred in defending an action, suit or proceeding may be paid by Leisure Time
to any person being indemnified in advance of the final disposition of the
action, suit or proceeding upon receipt of (i) a written affirmation by the
person being indemnified as to such person's good faith and belief that such
person met the standards of conduct described by the Bylaws, (ii) a written
undertaking, executed personally or on behalf of the person being indemnified,
to repay such advances if it is ultimately determined that such person did not
meet the prescribed standards of conduct, and (iii) a determination is made by a
disinterested director of Leisure Time (as described in the Bylaws) that the
facts then known to a disinterested director would not preclude indemnification.
The Bylaws require that Leisure Time report in writing to stockholders with or
before notice of the next meeting of stockholders of any indemnification of or
advance of expenses to any director under the indemnification provisions of the
Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is information as to all securities of Leisure Time sold by
Leisure Time within the past three years which were not registered under the
Securities Act of 1933, as amended ("Securities Act"). Leisure Time does not
consider issuances of options to employees to purchase Leisure Time's common
stock to be sales.
(a) On May 18, 1996, Leisure Time issued a ten year option to David K.
Vanco to purchase 250,000 shares of Leisure Time's common stock at an exercise
price of $2.50 per share as consideration for David K. Vanco acting as a finder
of financing for Leisure Time. Leisure Time issued the option in reliance on the
exemption from registration under Section 4(2) of the Securities Act. Such
person had available to him all material information concerning Leisure Time.
The certificate evidencing the option bears a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
(b) On May 29, 1996, Leisure Time issued to ABCD Associates, Ltd. ("ABCD")
a $100,000 11% Convertible Promissory Note Due May 29, 1999, in consideration
for a ABCD making a $100,000 loan to Leisure Time. The note is convertible into
units each consisting of (i) one share of common stock and (ii) one warrant to
purchase one share of common stock for $2.50. The conversion price for each unit
is $2.50. Beginning on June 29, 1997, and continuing to date, ABCD has converted
each monthly payment due on the
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<PAGE> 143
note into 1,666 shares of common stock and warrants to purchase 1,666 shares of
common stock at an exercise price of $2.50 per share. Leisure Time issued the
note, the shares of common stock and the warrants in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act. Such company
represented to Leisure Time that it acquired the note and the warrants for its
own account and not with a view to distribution and that it had available to it
all material information concerning Leisure Time. The certificates evidencing
the note and the warrants bear a restrictive legend under the Securities Act. No
underwriter was involved in the transaction.
(c) On July 8, 1996, Leisure Time issued to Eileen Lynch 13,301 shares of
common stock and warrants to purchase 13,301 shares of the common stock
exercisable at a price of $2.50 per share in exchange for the conversion of a
$28,000 promissory note plus $5,252.50 of interest. Leisure Time issued the
shares and warrants in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act. Such person represented to Leisure Time that
she acquired the shares and the warrants for her own account and not with a view
to distribution and that she had available to her all material information
concerning Leisure Time. The certificates evidencing the shares of common stock
and the warrants bear a restrictive legend under the Securities Act. No
underwriter was involved in the transaction.
(d) On July 31, 1996, Leisure Time issued to Paul F. Frymark a $110,000 11%
Convertible Promissory Note Due May 30, 1999 as consideration for Paul F.
Frymark making a $110,000 loan to Leisure Time. The note is convertible into
units each consisting of (i) one share of common stock and (ii) one warrant to
purchase one share of common stock for $2.50. The conversion price for each unit
is $2.50. Beginning on June 24, 1997, and continuing to date, such person has
converted each monthly payment on the note into 1,833 shares of common stock and
warrants to purchase 1,833 shares of common stock at an exercise price of $2.50
per share. Leisure Time issued the note, shares of common stock and warrants in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act. Such person represented to Leisure Time that he acquired the
note, the shares of common stock and the warrants for his own account and not
with a view to distribution and that he had available to him all material
information concerning Leisure Time. The certificates evidencing the note, the
shares of common stock and the warrants each bear a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
(e) On August 9, 1996, Leisure Time issued 90,000 shares of its common
stock to Jerry E. Russell for $0.50 per share. Leisure Time issued the shares in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. Such person represented to Leisure Time that he acquired the
shares for his own account and not with a view to distribution and that he had
available to him all material information concerning Leisure Time. The
certificate evidencing the shares bears a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
(f) On August 22, 1996, Leisure Time issued to various investors $1,400,000
principal amount of 11% convertible promissory notes due September 1, 1999. The
notes are convertible into units, each consisting of (i) one share of common
stock, (ii) one warrant to purchase one share of common stock at an exercise
price of $1.75 per share and (iii) one warrant to purchase one share of common
stock at an exercise price equal to 120% of the initial public offering price of
the common stock. Leisure Time issued the notes in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act. Such persons
represented to Leisure Time that they acquired the notes for their own accounts
and not with a view to distribution and that they had available to them all
material information concerning Leisure Time. The certificates evidencing the
notes bear a restrictive legend under the Securities Act. No underwriter was
involved in the transaction.
(g) On August 26, 1996, Leisure Time issued to Lewis J. Thomas 4,892 shares
of Leisure Time's common stock and warrants to purchase 4,892 shares of Leisure
Time's common stock at an exercise price of $2.50 per share in exchange for the
conversion of a $10,080 promissory note plus $2,150 of interest. Leisure Time
issued the shares and warrants in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act. Such person represented to
Leisure Time that he acquired the shares and the warrants for his own account
and not with a view to distribution and that he had available to him all
material information concerning Leisure Time. The certificates evidencing the
shares and the warrants each bear a restrictive legend under the Securities Act.
No underwriter was involved in the transaction.
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<PAGE> 144
(h) On August 30, 1996, Leisure Time issued 50,000 shares of its common
stock to T. D. Reese for $1.00 per share. Leisure Time issued the shares in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act. Such person represented to Leisure Time that he acquired the
shares for his own account and not with a view to distribution and that he had
available to him all material information concerning Leisure Time. The
certificate evidencing the shares bears a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
(i) In September 1996, Leisure Time issued an option to purchase 90,000
shares of its common stock at an exercise price of $0.10 per share to Jerry E.
Russell in connection with a loan of $40,000 made by Jerry E. Russell to Leisure
Time. Leisure Time issued the option in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. Such person
represented to Leisure Time that he acquired the option for his own account and
not with a view to distribution and that he had available to him all material
information concerning Leisure Time. The certificate evidencing the option bears
a restrictive legend under the Securities Act. No underwriter was involved in
the transaction.
(j) On September 12, 1996, Leisure Time issued warrants to Urban Systems
entitling Urban Systems to purchase 8,598 shares of common stock for $2.50 per
share in exchange for the extension of certain accounts payable due to Urban
Systems. Leisure Time issued the warrants in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act. Such company
represented to Leisure Time that it acquired the warrants for its own account
and not with a view to distribution and that it had available to it all material
information concerning Leisure Time. The certificate evidencing the warrants
bears a restrictive legend under the Securities Act. No underwriter was involved
in the transaction.
(k) On October 9, 1996, Leisure Time issued to Mercantile Bank warrants to
purchase 35,000 shares of common stock for $1.00 per share in exchange for
previous services rendered in 1993. Leisure Time issued the warrants in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act. Such company represented to Leisure Time that it acquired the warrants for
its own account and not with a view to distribution and that it had available to
it all material information concerning Leisure Time. The certificate evidencing
the warrants bears a restrictive legend under the Securities Act. No underwriter
was involved in the transaction.
(l) On November 25, 1996, Leisure Time issued to Stephen J. Hendricks an
option to purchase 40,000 shares of Leisure Time's common stock at an exercise
price of $1.00 per share in exchange for previous services rendered from 1993 to
1995. Leisure Time issued the option in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. Such person had
available to him all material information concerning Leisure Time. The
certificate evidencing the option bears a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
(m) On December 31, 1996, Leisure Time issued 18,080 shares of Leisure
Time's common stock and warrants to purchase 38,080 shares of Leisure Time's
common stock at $2.50 per share to Kerry Lee Hoffman as consideration for Kerry
Lee Hoffman acting as a finder of financing for Leisure Time. Leisure Time
issued the shares and the warrants in reliance on the exemption from
registration under Section 4(2) of the Securities Act. Such person represented
to Leisure Time that he acquired the shares and the warrants for his own account
and not with a view to distribution and that he had available to him all
material information concerning Leisure Time. The certificates evidencing the
shares and the warrants bear a restrictive legend under the Securities Act. No
underwriter was involved in the transaction.
(n) On December 31, 1996, Leisure Time issued 20,000 shares of its common
stock to Hoffman Midwest Sales, Inc. in consideration for Hoffman Midwest Sales,
Inc. acting as a finder of financing for Leisure Time. Leisure Time issued the
shares in reliance on the exemption from registration under Section 4(2) of the
Securities Act. Such company represented to Leisure Time that it acquired the
shares for its own account and not with a view to distribution and that it had
available to it all material information concerning Leisure Time. The
certificate evidencing the shares bears a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
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<PAGE> 145
(o) On April 2, 1997, Leisure Time issued to Alan N. Johnson, A. J.
Siciliano, Michael A. Siciliano, Elaine M. Barron, Gerald J. Boyle, Sandra J.
Boepple, Raymond G. Boyle, Howard P. Boyle, Richard D. Sly, Richard E. Sly and
Randi Sly Strittmather options to purchase 41,556, 75,000, 20,000, 20,000,
50,292, 20,000, 20,000, 20,000, 43,000, 20,000 and 20,000 shares of Leisure
Time's common stock, respectively, at an exercise price of $2.50 per share.
Leisure Time issued the options in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act. Such persons had available to
them all material information concerning Leisure Time. The certificates
evidencing the options bear a restrictive legend under the Securities Act. No
underwriter was involved in the transaction.
(p) On June 26, 1997, Leisure Time extended the expiration dates of
warrants issued to various persons to purchase 128,115 shares of Leisure Time's
common stock at a price of $2.50 per share. Leisure Time issued the warrants in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. Such persons represented to Leisure Time that they originally
acquired the warrants for their own account and not with a view to distribution
and that they had available to them all material information concerning Leisure
Time. The certificates evidencing the warrants bear a restrictive legend under
the Securities Act. No underwriter was involved in the transaction.
(q) On June 30, 1997, Leisure Time issued to David K. Vanco warrants to
purchase 11,643 shares of Leisure Time's common stock at an exercise price of
$2.80 per share in exchange for David K. Vanco making a loan to Leisure Time.
Such person had available to him all material information concerning Leisure
Time. The certificate evidencing the warrants bears a restrictive legend under
the Securities Act. No underwriter was involved in the transaction.
(r) On December 12, 1997, Leisure Time extended the expiration dates of
warrants issued to various persons to purchase 122,907 shares of common stock
from March 31, 1998 to March 31, 1999. The extensions were granted due to delays
by Leisure Time in conducting a public offering. Leisure Time originally issued
the warrants in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act. Such persons represented to Leisure Time
that they acquired the warrants for their own account and not with a view to
distribution and that they had available to them all material information
concerning Leisure Time. The certificates evidencing the warrants bear a
restrictive legend under the Securities Act. No underwriter was involved in the
transaction.
(s) Between March 1999 and April 1999, Leisure Time issued 4,000 units
consisting of 4,000 shares of its common stock and three year warrants to
purchase 4,000 shares of its common stock to several persons for $10.00 per
unit. Leisure Time issued the units in reliance upon the exemption from
registration provided by Section 4(2) and Regulation D of the Securities Act.
Such persons represented to Leisure Time that they acquired the units for their
own accounts and not with a view to distribution and that they had available to
them all material information concerning Leisure Time. The certificates
evidencing the shares and warrants bear a restrictive legend under the
Securities Act. No underwriter was involved in the transaction.
(t) On April 1, 1999, Leisure Time issued 100,000 shares of its common
stock and an option to purchase 100,000 shares of its common stock at $6.00 per
share to David M. Pote, Jr. in exchange for all of the outstanding stock of RP
Capital Corporation. Leisure Time issued the shares and option in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act.
Such person represented to Leisure Time that he acquired the shares and option
for his own account and not with a view to distribution and that he had
available to him all material information concerning Leisure Time. The
certificates evidencing the shares and option bear a restrictive legend under
the Securities Act. No underwriter was involved in the transaction.
(u) In March 1999, fourteen persons exercised outstanding warrants to
purchase 60,090 shares of Leisure Time's common stock. Leisure Time issued the
shares in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act. Such persons had available to them all material
information concerning Leisure Time. The certificates evidencing the shares bear
a restrictive legend under the Securities Act. No underwriter was involved in
the transaction.
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<PAGE> 146
(v) On May 4, 1999, Leisure Time issued 80,000 shares of its common stock
and a warrant to purchase 80,000 shares of its common stock at $10.00 per share
to J. Kent Manley as part consideration for all of the outstanding stock of
Florida Casino Cruises, Inc. Leisure Time issued the shares in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act. Such
person represented to Leisure Time that he acquired the shares and warrant for
his own account and not with a view to distribution and that he had available to
him all material information concerning Leisure Time. The certificates
evidencing the shares and warrant bear a restrictive legend under the Securities
Act. No underwriter was involved in the transaction.
(w) In June 1999, Leisure Time issued an option to purchase 50,000 shares
of its common stock at an exercise price of $10.00 per share to Richard A.
Harpootlian in consideration of Richard A. Harpootlian providing services in the
past to assist Leisure Time in having its data communications device approved
for use in the state of South Carolina. Leisure Time issued the option in
reliance upon exemption from registration provided by Section 4(2) of the
Securities Act. The option is nontransferable other than by will or pursuant to
the laws of descent and distribution. Such person had available to him all
material information concerning Leisure Time. The certificate evidencing the
option bears a restrictive legend under the Securities Act. No underwriter was
involved in the transaction.
(x) In June 1999, Leisure Time issued 9,996 shares of its common stock upon
exercise of outstanding warrants that have previously been issued to ABCD as
described in paragraph (b) above. Leisure Time issued the shares in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act. ABCD represented to Leisure Time that it acquired the shares for its own
account and not with a view to distribution and that it had available to it all
material information concerning Leisure Time. The certificate evidencing the
option bears a restrictive legend under the Securities Act. No underwriter was
involved in the transaction.
(y) In June 1999, David K. Vanco converted his $250,000 11% Convertible
Promissory Note Due September 1, 1999, into 200,000 shares of Leisure Time's
common stock, warrants to purchase 200,000 shares of Leisure Time's common stock
at $1.75 per share and warrants to purchase 200,000 shares of Leisure Time's
common stock at 120% of the public offering price per share of Leisure Time's
initial public offering. Leisure Time issued the shares of common stock and
warrants in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act. Such person represented to Leisure Time that he acquired
the shares of common stock and the warrants for his own account and not with a
view to distribution and that he had available to him all material information
concerning Leisure Time. The certificates evidencing the shares of common stock
and the warrants each bear a restrictive legend under the Securities Act. No
underwriter was involved in the transaction.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all exhibits filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
1.0 -- Form of Underwriting Agreement.*
1.1 -- Form of Selected Dealers Agreement.*
2.0 -- Agreement and Plan of Reorganization dated as of August
30, 1996, among U.S. Games, Inc., Leisure Time Casinos &
Resorts, Inc., Leisure Acquisition, Inc. and Certain
Holders of U.S. Games, Inc. Outstanding Stock, Options
and Warrants together with Exhibits C, D, E, F, G, H and
J thereto. The other schedules and exhibits to the
Agreement and Plan of Reorganization are listed therein
and copies thereof will be furnished supplementally to
the United States Securities and Exchange Commission upon
request.*
2.1 -- Amended and Restated Asset Purchase Agreement dated as of
January 31, 1997, between Leisure Time Casinos & Resorts,
Inc. and Star of Cincinnati, Inc.*
</TABLE>
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<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
2.2 -- Accord and Satisfaction and Release of Mortgages
Agreement dated as of February 3, 1997, by Leisure Time
Casinos & Resorts, Inc., Star of Cincinnati, Inc. and
Henry E. Davis Trustee.*
3.0 -- Articles of Incorporation of Leisure Time Casinos &
Resorts, Inc. dated February 4, 1993.*
3.1 -- Articles of Amendment to the Articles of Incorporation of
Leisure Time Casinos & Resorts, Inc. filed on April 3,
1997.*
3.2 -- Articles of Amendment to the Articles of Incorporation of
Leisure Time Casinos & Resorts, Inc. filed on May 12,
1999.
3.3 -- Bylaws of Registrant adopted May 12, 1999.
4.0 -- Form of Representatives Warrant for the Purchase of
Common Stock.*
5.0 -- Opinion of Smith McCullough, P.C. on Legality of Common
Stock.
10.0 -- 1997 Incentive and Nonstatutory Stock Option Plan.*
10.1 -- Amendment No. 1 to 1997 Incentive and Nonstatutory Stock
Option Plan.
10.2 -- Form of 11% Convertible Promissory Note Due September 1,
1999.*
10.3 -- 11% Convertible Promissory Note Due May 29, 1999.*
10.4 -- 11% Convertible Promissory Note Due May 30, 1999.*
10.5 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Alan N.
Johnson, Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Alan N. Johnson and Amendment to
Employment Agreement dated effective February 22, 1999,
between Leisure Time Casinos & Resorts, Inc. and Alan N.
Johnson.*
10.6 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Gerald
J. Boyle and Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Gerald J. Boyle.*
10.7 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Elden W.
Rance, Amendment to Employment Agreement dated effective
September 9, 1998, between Leisure Time Casinos &
Resorts, Inc. and Elden W. Rance and Amendment to
Employment Agreement dated effective February 22, 1999,
between Leisure Time Casinos & Resorts, Inc. and Elden W.
Rance.*
10.8 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and R.
Thomas Klingel and Amendment to Employment Agreement
dated effective September 9, 1998, between Leisure Time
Casinos & Resorts, Inc. and R. Thomas Klingel.*
10.9 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Richard
D. Sly and Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Richard D. Sly.*
10.10 -- Employment Agreement dated effective March 1, 1999,
between Leisure Time Casinos & Resorts, Inc. and Keko
Mottes.*
10.11 -- Employment Agreement dated effective March 1, 1999,
between Leisure Time Casinos & Resorts, Inc. and John J.
Pasierb.*
10.12 -- Employment Agreement dated effective April 20, 1999,
between Leisure Time Casinos & Resorts, Inc. and Joseph
C. Grunda.*
</TABLE>
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<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
10.13 -- Lease Agreement dated December 1, 1997, between Leisure
Time Technology, Inc. and Weeks Realty, L.P.*
10.14 -- Lease Agreement dated October 31, 1997, between Alan N.
Johnson and Leisure Time Casinos & Resorts, Inc.*
10.15 -- Purchase Agreement dated March 23, 1998, between Lisa
Lemon, Inc. and Al Johnson.*
10.16 -- Amendment to Purchase Agreement dated June 26, 1998,
between Lisa Lemon, Inc. and Al Johnson.*
10.17 -- Assignment dated September 11, 1998, from Al Johnson to
Leisure Time Hospitality, Inc.*
10.18 -- Promissory Note dated September 15, 1998, from Leisure
Time Hospitality, Inc. to Lisa Lemon, Inc. and Guaranty
of Alan N. Johnson thereof.*
10.19 -- Mortgage Deed dated September 15, 1998, from Leisure Time
Hospitality, Inc. to Lisa Lemon, Inc.*
10.20 -- Bareboat Charter Party dated as of June 22, 1998, between
Florida Casino Cruises, Inc. and Leisure Express Cruise
LLC.*
10.21 -- Addendum to Bareboat Charter Agreement.*
10.22 -- Purchase Option Agreement dated as of June 22, 1998,
between Florida Casino Cruises, Inc. and Leisure Express
Cruise, LLC.*
10.23 -- $3,000,000 Secured Promissory Note dated October 9, 1998,
from Leisure Time Cruise Corporation to Foothill Capital
Corporation.*
10.24 -- Security Agreement dated October 9, 1998, between
Foothill Capital Corporation and Leisure Time Cruise
Corporation.*
10.25 -- First Preferred Ship Mortgage dated October 9, 1998,
between Leisure Time Cruise Corporation and Foothill
Capital Corporation.*
10.26 -- Equipment Security Agreement dated October 9, 1998,
between Foothill Capital Corporation and Leisure Time
Technology, Inc.*
10.27 -- Continuing Guaranty dated October 9, 1998, from Leisure
Time Technology, Inc. to Foothill Capital Corporation.*
10.28 -- Continuing Guaranty dated October 9, 1998, from Leisure
Time Casinos & Resorts, Inc. to Foothill Capital
Corporation.*
10.29 -- Continuing Guaranty dated October 9, 1998, from Alan N.
Johnson to Foothill Capital Corporation.*
10.30 -- $1,500,000 Promissory Note dated December 17, 1998, from
Leisure Belle Cruise LLC to General Electric Capital
Corporation.*
10.31 -- $1,500,000 Loan and Security Agreement dated December 17,
1998, between Leisure Belle Cruise, LLC and General
Electric Capital Corporation.*
10.32 -- Guaranty Agreement dated December 17, 1998, from Leisure
Time Casinos & Resorts, Inc. to General Electric Capital
Corporation.*
10.33 -- Guaranty Agreement dated December 17, 1998, from Leisure
Time Technologies, Inc. to General Electric Capital
Corporation.*
10.34 -- First Preferred Ship Mortgage dated December 17, 1998,
from Leisure Belle Cruise, LLC in favor of General
Electric Capital Corporation.*
10.35 -- Consulting Agreement dated March 31, 1998 between Leisure
Time Casinos & Resorts, Inc. and A. J. Siciliano.*
</TABLE>
II-8
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
10.36 -- Bareboat Charter Party dated as of January 22, 1999,
between Florida Casino Cruises, Inc. and Leisure Express,
LLC.*
10.37 -- Purchase Option Agreement dated as of January 22, 1999,
between Florida Casino Cruises, Inc. and Leisure Express,
LLC.*
10.38 -- Consulting Agreement dated as of February 1, 1999,
between and Kent Manley and Leisure Time Cruise
Corporation.*
10.39 -- Dockage Agreement and Lease dated as of June 1, 1998,
between Rowe Square Corporation and Leisure Express
Cruise, LLC.*
10.40 -- Distribution Agreement dated January 23, 1998, between
Leisure Time Technology, Inc. and Sao Paulo Games
Comercial LTDA.*
10.41 -- Amendment to the Contract for Distribution dated January
22, 1998, between Leisure Time Technology, Inc. and Sao
Paulo Games Comercial LTDA.*
10.42 -- Stock Purchase Agreement dated April 22, 1999, between J.
Kent Manley and Leisure Express Cruise, LLC.*
10.43 -- $2,100,000 Secured Promissory Note dated April 22, 1999,
from Leisure Express Cruise, LLC to Foothill Capital
Corporation.*
10.44 -- Security Agreement dated April 22, 1999, between Foothill
Capital Corporation and Leisure Express Cruise, LLC.*
10.45 -- $3,225,000 Secured Promissory Note dated April 22, 1999,
from Florida Casino Cruises, Inc. to Foothill Capital
Corporation.*
10.46 -- Security Agreement darted April 22, 1999, between
Foothill Capital Corporation and Florida Casino Cruises,
LLC.*
10.47 -- Continuing Guaranty dated April 22, 1999, from Leisure
Express Cruise, LLC to Foothill Capital Corporation.*
10.48 -- First Preferred Ship Mortgage dated April 22, 1999,
between Florida Casino Cruises, Inc. and Foothill Capital
Corporation.*
10.49 -- Amendment No. 1 to Loan Documents dated April 22, 1999,
between Foothill Capital Corporation and Leisure Time
Cruise Corporation.*
10.50 -- Amendment to and Confirmation of Guaranty dated April 22,
1999, by Leisure Time Technology, Inc. in favor of
Foothill Capital Corporation.*
10.51 -- Amendment to and Confirmation of Guaranty dated April 22,
1999, by Leisure Time Casinos & Resorts, Inc. in favor of
Foothill Capital Corporation.*
10.52 -- Amendment to and Confirmation of Guaranty dated April 22,
1999, by Alan N. Johnson in favor of Foothill Capital
Corporation.*
10.53 -- Second amendment to First Ship Mortgage dated April 22,
1999, between Leisure Time Cruise Corporation and
Foothill Capital Corporation.*
10.54 -- Pledge Agreement dated April 22, 1999, between Leisure
Express Cruise LLC and Foothill Capital Corporation.*
10.55 -- Continuing Guaranty dated April 22, 1999, from Leisure
Time Cruise Corporation in favor of Foothill Capital
Corporation.*
10.56 -- Continuing Guaranty dated April 22, 1999, from Florida
Casino Cruises, Inc. in favor of Foothill Capital
Corporation.*
10.57 -- Continuing Guaranty dated April 22, 1999, from Alan N.
Johnson in favor of Foothill Capital Corporation.*
10.58 -- Master Agreement and Lease between Leisure Express
Cruise, LLC and Shoestring Properties Limited Partnership
dated April 29, 1999.*
</TABLE>
II-9
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
10.59 -- Marina Lease dated April 29, 1999 between Shoestring
Properties Limited Partnership and Leisure Time Cruise
Corporation.*
10.60 -- Dockside Lease dated April 29, 1999 between Shoestring
Properties Limited Partnership and Leisure Time Cruise
Corporation.*
10.61 -- First Amendment to Lease Agreement dated April 9, 1999
between Leisure Time Technology Inc. and Weeks Realty,
LP.*
10.62 -- Form of Unlimited Guaranty in favor of Firestone
Financial Corp.
10.63 -- WCMA Loan and Security Agreement No. 701-07H43 dated
November 16, 1998, between Merrill Lynch Business
Financial Services, Inc. and Leisure Time Casinos &
Resorts, Inc. and Letter Agreement dated February 18,
1999.
10.64 -- Lease dated May 10, 1999, by and between Alan N. Johnson
and Leisure Time Casinos & Resorts, Inc.
10.65 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Bernard
C. Johnson and Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Bernard C. Johnson.
10.66 -- Promissory Note dated June 18, 1999, from Leisure Time
Casinos & Resorts, Inc. to American International
Specialty Lines Insurance Company.
10.67 -- Employment Agreement dated effective July 6, 1999,
between Leisure Time Casinos & Resorts, Inc. and Eric R.
Dey.
10.68 -- License Agreement effective July 12, 1999, between
Radisson Hotels International, Inc. and Leisure Time
Hospitality, Inc.
10.69 -- Form of Custody Agreement.
21 -- Subsidiaries of the Registrant.*
23.0 -- Consent of Ehrhardt Keefe Steiner & Hottman PC.
23.1 -- Consent of Smith McCullough, P.C. (included in Exhibit
5.0).
23.2 -- Consent of Bear Stearns & Co. Inc. dated April 29, 1999.*
24.0 -- Powers of Attorney.*
27.0 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change in such information in the registration
statement.
II-10
<PAGE> 151
(2) That for purposes of determining liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-11
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Avon, State of Ohio on
July 22, 1999.
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ ALAN N. JOHNSON
----------------------------------
Alan N. Johnson, President and
Chief Executive Officer
By: /s/ ELDEN W. RANCE
----------------------------------
Elden W. Rance, Chief Financial
Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <C> <S>
/s/ GERALD J. BOYLE* Director July 22, 1999
- -----------------------------------------------------
Gerald J. Boyle
/s/ LESTER E. BULLOCK* Director July 22, 1999
- -----------------------------------------------------
Lester E. Bullock
/s/ ALAN N. JOHNSON Director July 22, 1999
- -----------------------------------------------------
Alan N. Johnson
/s/ R. THOMAS KLINGEL* Director July 22, 1999
- -----------------------------------------------------
R. Thomas Klingel
/s/ ELDEN W. RANCE Director July 22, 1999
- -----------------------------------------------------
Elden W. Rance
/s/ RICHARD D. SLY* Director July 22, 1999
- -----------------------------------------------------
Richard D. Sly
*By /s/ ALAN N. JOHNSON July 22, 1999
-------------------------------------------------
Alan N. Johnson, Attorney-in-Fact
</TABLE>
II-12
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.0 -- Form of Underwriting Agreement.*
1.1 -- Form of Selected Dealers Agreement.*
2.0 -- Agreement and Plan of Reorganization dated as of August
30, 1996, among U.S. Games, Inc., Leisure Time Casinos &
Resorts, Inc., Leisure Acquisition, Inc. and Certain
Holders of U.S. Games, Inc. Outstanding Stock, Options
and Warrants together with Exhibits C, D, E, F, G, H and
J thereto. The other schedules and exhibits to the
Agreement and Plan of Reorganization are listed therein
and copies thereof will be furnished supplementally to
the United States Securities and Exchange Commission upon
request.*
2.1 -- Amended and Restated Asset Purchase Agreement dated as of
January 31, 1997, between Leisure Time Casinos & Resorts,
Inc. and Star of Cincinnati, Inc.*
2.2 -- Accord and Satisfaction and Release of Mortgages
Agreement dated as of February 3, 1997, by Leisure Time
Casinos & Resorts, Inc., Star of Cincinnati, Inc. and
Henry E. Davis Trustee.*
3.0 -- Articles of Incorporation of Leisure Time Casinos &
Resorts, Inc. dated February 4, 1993.*
3.1 -- Articles of Amendment to the Articles of Incorporation of
Leisure Time Casinos & Resorts, Inc. filed on April 3,
1997.*
3.2 -- Articles of Amendment to the Articles of Incorporation of
Leisure Time Casinos & Resorts, Inc. filed on May 12,
1999.
3.3 -- Bylaws of Registrant adopted May 12, 1999.
4.0 -- Form of Representatives Warrant for the Purchase of
Common Stock.*
5.0 -- Opinion of Smith McCullough, P.C. on Legality of Common
Stock.
10.0 -- 1997 Incentive and Nonstatutory Stock Option Plan.*
10.1 -- Amendment No. 1 to 1997 Incentive and Nonstatutory Stock
Option Plan.
10.2 -- Form of 11% Convertible Promissory Note Due September 1,
1999.*
10.3 -- 11% Convertible Promissory Note Due May 29, 1999.*
10.4 -- 11% Convertible Promissory Note Due May 30, 1999.*
10.5 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Alan N.
Johnson, Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Alan N. Johnson and Amendment to
Employment Agreement dated effective February 22, 1999,
between Leisure Time Casinos & Resorts, Inc. and Alan N.
Johnson.*
10.6 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Gerald
J. Boyle and Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Gerald J. Boyle.*
10.7 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Elden W.
Rance, Amendment to Employment Agreement dated effective
September 9, 1998, between Leisure Time Casinos &
Resorts, Inc. and Elden W. Rance and Amendment to
Employment Agreement dated effective February 22, 1999,
between Leisure Time Casinos & Resorts, Inc. and Elden W.
Rance.*
</TABLE>
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.8 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and R.
Thomas Klingel and Amendment to Employment Agreement
dated effective September 9, 1998, between Leisure Time
Casinos & Resorts, Inc. and R. Thomas Klingel.*
10.9 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Richard
D. Sly and Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Richard D. Sly.*
10.10 -- Employment Agreement dated effective March 1, 1999,
between Leisure Time Casinos & Resorts, Inc. and Keko
Mottes.*
10.11 -- Employment Agreement dated effective March 1, 1999,
between Leisure Time Casinos & Resorts, Inc. and John J.
Pasierb.*
10.12 -- Employment Agreement dated effective April 20, 1999,
between Leisure Time Casinos & Resorts, Inc. and Joseph
C. Grunda.*
10.13 -- Lease Agreement dated December 1, 1997, between Leisure
Time Technology, Inc. and Weeks Realty, L.P.*
10.14 -- Lease Agreement dated October 31, 1997, between Alan N.
Johnson and Leisure Time Casinos & Resorts, Inc.*
10.15 -- Purchase Agreement dated March 23, 1998, between Lisa
Lemon, Inc. and Al Johnson.*
10.16 -- Amendment to Purchase Agreement dated June 26, 1998,
between Lisa Lemon, Inc. and Al Johnson.*
10.17 -- Assignment dated September 11, 1998, from Al Johnson to
Leisure Time Hospitality, Inc.*
10.18 -- Promissory Note dated September 15, 1998, from Leisure
Time Hospitality, Inc. to Lisa Lemon, Inc. and Guaranty
of Alan N. Johnson thereof.*
10.19 -- Mortgage Deed dated September 15, 1998, from Leisure Time
Hospitality, Inc. to Lisa Lemon, Inc.*
10.20 -- Bareboat Charter Party dated as of June 22, 1998, between
Florida Casino Cruises, Inc. and Leisure Express Cruise
LLC.*
10.21 -- Addendum to Bareboat Charter Agreement.*
10.22 -- Purchase Option Agreement dated as of June 22, 1998,
between Florida Casino Cruises, Inc. and Leisure Express
Cruise, LLC.*
10.23 -- $3,000,000 Secured Promissory Note dated October 9, 1998,
from Leisure Time Cruise Corporation to Foothill Capital
Corporation.*
10.24 -- Security Agreement dated October 9, 1998, between
Foothill Capital Corporation and Leisure Time Cruise
Corporation.*
10.25 -- First Preferred Ship Mortgage dated October 9, 1998,
between Leisure Time Cruise Corporation and Foothill
Capital Corporation.*
10.26 -- Equipment Security Agreement dated October 9, 1998,
between Foothill Capital Corporation and Leisure Time
Technology, Inc.*
10.27 -- Continuing Guaranty dated October 9, 1998, from Leisure
Time Technology, Inc. to Foothill Capital Corporation.*
10.28 -- Continuing Guaranty dated October 9, 1998, from Leisure
Time Casinos & Resorts, Inc. to Foothill Capital
Corporation.*
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.29 -- Continuing Guaranty dated October 9, 1998, from Alan N.
Johnson to Foothill Capital Corporation.*
10.30 -- $1,500,000 Promissory Note dated December 17, 1998, from
Leisure Belle Cruise LLC to General Electric Capital
Corporation.*
10.31 -- $1,500,000 Loan and Security Agreement dated December 17,
1998, between Leisure Belle Cruise, LLC and General
Electric Capital Corporation.*
10.32 -- Guaranty Agreement dated December 17, 1998, from Leisure
Time Casinos & Resorts, Inc. to General Electric Capital
Corporation.*
10.33 -- Guaranty Agreement dated December 17, 1998, from Leisure
Time Technologies, Inc. to General Electric Capital
Corporation.*
10.34 -- First Preferred Ship Mortgage dated December 17, 1998,
from Leisure Belle Cruise, LLC in favor of General
Electric Capital Corporation.*
10.35 -- Consulting Agreement dated March 31, 1998 between Leisure
Time Casinos & Resorts, Inc. and A. J. Siciliano.*
10.36 -- Bareboat Charter Party dated as of January 22, 1999,
between Florida Casino Cruises, Inc. and Leisure Express,
LLC.*
10.37 -- Purchase Option Agreement dated as of January 22, 1999,
between Florida Casino Cruises, Inc. and Leisure Express,
LLC.*
10.38 -- Consulting Agreement dated as of February 1, 1999,
between and Kent Manley and Leisure Time Cruise
Corporation.*
10.39 -- Dockage Agreement and Lease dated as of June 1, 1998,
between Rowe Square Corporation and Leisure Express
Cruise, LLC.*
10.40 -- Distribution Agreement dated January 23, 1998, between
Leisure Time Technology, Inc. and Sao Paulo Games
Comercial LTDA.*
10.41 -- Amendment to the Contract for Distribution dated January
22, 1998, between Leisure Time Technology, Inc. and Sao
Paulo Games Comercial LTDA.*
10.42 -- Stock Purchase Agreement dated April 22, 1999, between J.
Kent Manley and Leisure Express Cruise, LLC.*
10.43 -- $2,100,000 Secured Promissory Note dated April 22, 1999,
from Leisure Express Cruise, LLC to Foothill Capital
Corporation.*
10.44 -- Security Agreement dated April 22, 1999, between Foothill
Capital Corporation and Leisure Express Cruise, LLC.*
10.45 -- $3,225,000 Secured Promissory Note dated April 22, 1999,
from Florida Casino Cruises, Inc. to Foothill Capital
Corporation.*
10.46 -- Security Agreement darted April 22, 1999, between
Foothill Capital Corporation and Florida Casino Cruises,
LLC.*
10.47 -- Continuing Guaranty dated April 22, 1999, from Leisure
Express Cruise, LLC to Foothill Capital Corporation.*
10.48 -- First Preferred Ship Mortgage dated April 22, 1999,
between Florida Casino Cruises, Inc. and Foothill Capital
Corporation.*
10.49 -- Amendment No. 1 to Loan Documents dated April 22, 1999,
between Foothill Capital Corporation and Leisure Time
Cruise Corporation.*
10.50 -- Amendment to and Confirmation of Guaranty dated April 22,
1999, by Leisure Time Technology, Inc. in favor of
Foothill Capital Corporation.*
10.51 -- Amendment to and Confirmation of Guaranty dated April 22,
1999, by Leisure Time Casinos & Resorts, Inc. in favor of
Foothill Capital Corporation.*
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.52 -- Amendment to and Confirmation of Guaranty dated April 22,
1999, by Alan N. Johnson in favor of Foothill Capital
Corporation.*
10.53 -- Second amendment to First Ship Mortgage dated April 22,
1999, between Leisure Time Cruise Corporation and
Foothill Capital Corporation.*
10.54 -- Pledge Agreement dated April 22, 1999, between Leisure
Express Cruise LLC and Foothill Capital Corporation.*
10.55 -- Continuing Guaranty dated April 22, 1999, from Leisure
Time Cruise Corporation in favor of Foothill Capital
Corporation.*
10.56 -- Continuing Guaranty dated April 22, 1999, from Florida
Casino Cruises, Inc. in favor of Foothill Capital
Corporation.*
10.57 -- Continuing Guaranty dated April 22, 1999, from Alan N.
Johnson in favor of Foothill Capital Corporation.*
10.58 -- Master Agreement and Lease between Leisure Express
Cruise, LLC and Shoestring Properties Limited Partnership
dated April 29, 1999.*
10.59 -- Marina Lease dated April 29, 1999 between Shoestring
Properties Limited Partnership and Leisure Time Cruise
Corporation.*
10.60 -- Dockside Lease dated April 29, 1999 between Shoestring
Properties Limited Partnership and Leisure Time Cruise
Corporation.*
10.61 -- First Amendment to Lease Agreement dated April 9, 1999
between Leisure Time Technology Inc. and Weeks Realty,
LP.*
10.62 -- Form of Unlimited Guaranty in favor of Firestone
Financial Corp.
10.63 -- WCMA Loan and Security Agreement No. 701-07H43 dated
November 16, 1998, between Merrill Lynch Business
Financial Services, Inc. and Leisure Time Casinos &
Resorts, Inc. and Letter Agreement dated February 18,
1999.
10.64 -- Lease dated May 10, 1999, by and between Alan N. Johnson
and Leisure Time Casinos & Resorts, Inc.
10.65 -- Employment Agreement dated effective July 1, 1998,
between Leisure Time Casinos & Resorts, Inc. and Bernard
C. Johnson and Amendment to Employment Agreement dated
effective September 9, 1998, between Leisure Time Casinos
& Resorts, Inc. and Bernard C. Johnson.
10.66 -- Promissory Note dated June 18, 1999, from Leisure Time
Casinos & Resorts, Inc. to American International
Specialty Lines Insurance Company.
10.67 -- Employment Agreement dated effective July 6, 1999,
between Leisure Time Casinos & Resorts, Inc. and Eric R.
Dey.
10.68 -- License Agreement effective July 12, 1999, between
Radisson Hotels International, Inc. and Leisure Time
Hospitality, Inc.
10.69 -- Form of Custody Agreement.
21 -- Subsidiaries of the Registrant.*
23.0 -- Consent of Ehrhardt Keefe Steiner & Hottman PC.
23.1 -- Consent of Smith McCullough, P.C. (included in Exhibit
5.0).
23.2 -- Consent of Bear Stearns & Co. Inc. dated April 29, 1999.*
24.0 -- Powers of Attorney.*
27.0 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
LEISURE TIME CASINOS & RESORTS, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
the undersigned corporation ("Corporation") adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the Corporation is LEISURE TIME CASINOS & RESORTS,
INC.
SECOND: The following amendments to the Articles of Incorporation were
duly adopted by the directors on April 20, 1999, and by the shareholders on May
10, 1999. The number of votes cast for the amendments by each voting group
entitled to vote separately on the amendments was sufficient for approval by
that voting group:
Paragraph 4 of Article SECOND of the Articles of Incorporation is
amended in its entirety so that as amended it reads as follows:
4. Except as otherwise provided in these Articles of
Incorporation, except as bylaws adopted by the shareholders may provide
for a greater voting requirement and except as is otherwise provided by
the Colorado Business Corporation Act with respect to an action on a
plan of merger or share exchange, on the disposition of substantially
all of the property of the corporation and on the dissolution of the
corporation, action on a matter other than the election of directors is
approved if a quorum exists and if the votes cast favoring the action
exceed the votes cast opposing the action. Any bylaw adding, changing,
or deleting a greater quorum or voting requirement for shareholders
shall meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirements then
in effect or proposed to be adopted, whichever are greater.
Article FOURTH of the Articles of Incorporation is amended by
adding to Article FOURTH the following:
The board of directors shall be divided into three classes,
each class to be as nearly equal in number as possible. The terms of
office of directors of the first class are to expire at the first
annual meeting of shareholders after their election, the terms of
office of directors of the second class are to expire at the second
annual meeting after their election, and the terms of office of
directors of the third class are to expire at the third annual meeting
after their election. Thereafter, each director shall serve for a term
ending on the date of the third annual meeting of shareholders
following the annual meeting at which such director was elected.
Notwithstanding anything contained herein to the contrary, in the event
that there are exactly two directors, then the board of directors shall
be divided into two classes, the term of office of the director of the
first class is to expire at the first annual meeting of shareholders
after his or her election and the term of office of the directors of
the second class is to expire at the second annual meeting after his or
her election. Thereafter, each director shall serve
<PAGE> 2
for a term ending on the date of the second annual meeting of
shareholders following the annual meeting at which such director was
elected. This divided board of directors provision shall not be altered
or repealed without the affirmative vote of holders of at least
two-thirds of the shares entitled to vote in the election of directors.
Directors may not be removed without cause. Directors may be
removed for cause only by the affirmative vote of holders of not less
than two-thirds of the votes entitled to vote in the election of
directors. This provision regarding the votes required to remove a
director for cause shall not be altered or repealed without the
affirmative vote of holders of at least two-thirds of the votes
entitled to vote in the election of directors.
Dated: May 12, 1999.
LEISURE TIME CASINOS & RESORTS, INC.,
a Colorado corporation
By: /s/ Alan N. Johnson
-----------------------------
Alan N. Johnson, President
2
<PAGE> 1
EXHIBIT 3.3
ADOPTED MAY 10, 1999
EFFECTIVE MAY 12, 1999
BYLAWS
OF
LEISURE TIME CASINOS & RESORTS, INC.
ARTICLE I
OFFICES
The principal office of the corporation shall be designated from time
to time by the corporation and may be within or outside of Colorado.
The corporation may have such other offices, either within or outside
Colorado, as the board of directors may designate or as the business of the
corporation may require from time to time.
The registered office of the corporation required by the Colorado
Business Corporation Act to be maintained in Colorado may be, but need not be,
identical with the principal office, and the address of the registered office
may be changed from time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held each year on a date and at a time fixed by the board of directors of the
corporation (or by the chairman of the board, the chief executive officer or the
president in the absence of action by the board of directors), for the purpose
of electing directors and for the transaction of such other business as may come
before the meeting. If the election of directors is not held on the day fixed as
provided herein for any annual meeting of the shareholders, or any adjournment
thereof, the board of directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as it may conveniently be held.
A shareholder may apply to the district court in the county in Colorado
where the corporation's principal office is located or, if the corporation has
no principal office in Colorado, to the district court of the county in which
the corporation's registered office is located to seek an order that a
shareholder meeting be held (i) if an annual meeting was not held within six
months after the close of the corporation's most recently ended fiscal year or
fifteen months after its last annual meeting, whichever is earlier, or (ii) if
the shareholder participated in a proper call of or proper demand for a special
meeting and notice of the special meeting was not given within thirty days after
the date of the call or the date the last of the demands necessary to require
calling of the meeting was received by the corporation, or the special meeting
was not held in accordance with the notice.
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SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute,
special meetings of the shareholders may be called for any purpose by the
chairman of the board, by the chief executive officer, by the president or by
the board of directors. The chief executive officer or the president shall call
a special meeting of the shareholders if the corporation receives one or more
written demands for the meeting, stating the purpose or purposes for which it is
to be held, signed and dated by holders of shares representing at least ten
percent of all the votes entitled to be cast on any issue proposed to be
considered at the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, either within or outside Colorado, as the place for any annual meeting or
any special meeting called by the board of directors. A waiver of notice signed
by all shareholders entitled to vote at a meeting may designate any place,
either within or outside Colorado, as the place for such meeting. If no
designation is made, or if a special meeting is called other than by the board
of directors, the place of meeting shall be the principal office of the
corporation.
SECTION 4. NOTICE OF MEETING. Written notice stating the place, date,
and time of the meeting shall be given not less than ten nor more than sixty
days before the date of the meeting, except that (i) if the number of authorized
shares is to be increased, at least thirty days notice shall be given, or (ii)
any other longer notice period shall be given if required by the Colorado
Business Corporation Act. Notice of a special meeting shall include a
description of the purpose or purposes of the meeting. Notice of an annual
meeting need not include a description of the purpose or purposes of the meeting
except the purpose or purposes shall be stated with respect to (i) an amendment
to the articles of incorporation of the corporation, (ii) a merger or share
exchange in which the corporation is a party and, with respect to a share
exchange, in which the corporation's shares will be acquired, (iii) a sale,
lease, exchange or other disposition, other than in the usual and regular course
of business, of all or substantially all of the property of the corporation or
of another entity which this corporation controls, in each case with or without
the goodwill, (iv) a dissolution of the corporation, or (v) any other purpose
for which a statement of purpose is required by the Colorado Business
Corporation Act. Notice shall be given personally or by mail, private carrier,
telegraph, teletype, electronically transmitted facsimile or other form of wire
or wireless communication by or at the direction of the chief executive officer,
the president, the secretary, or the officer or persons calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed and if in
a comprehensible form, such notice shall be deemed to be given and effective
when deposited in the United States mail, addressed to the shareholder at his
address as it appears in the corporation's current record of shareholders, with
postage prepaid. If notice is given other than by mail, and provided that such
notice is in a comprehensible form, the notice is given and effective on the
date received by the shareholder.
If requested by the person or persons lawfully calling such meeting,
the secretary shall give notice thereof at corporate expense. No notice need be
sent to any shareholder if three successive notices mailed to the last known
address of such shareholder have been returned as undeliverable until such time
as another address for such shareholder is made known to the corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and records.
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When a meeting is adjourned to another date, time or place, notice need
not be given of the new date, time or place if the new date, time or place of
such meeting is announced before adjournment at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business which may have been transacted at the original meeting. If the
adjournment is for more than 120 days, or if a new record date is fixed for the
adjourned meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such shareholder. Such waiver
shall be delivered to the corporation for filing with the corporate records.
Further, by attending a meeting either in person or by proxy, a shareholder
waives objection to lack of notice or defective notice of the meeting unless the
shareholder objects at the beginning of the meeting to the holding of the
meeting or the transaction of business at the meeting because of lack of notice
or defective notice. By attending the meeting, the shareholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to (i) notice of or vote at any meeting of shareholders or
any adjournment thereof, (ii) receive distributions or share dividends, or (iii)
demand a special meeting, or to make a determination of shareholders for any
other proper purpose, the board of directors may fix a future date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy days, and, in case of a meeting of shareholders, not less than
ten days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
board of directors, the record date shall be the date on which notice of the
meeting is mailed to shareholders, or the date on which the resolution of the
board of directors providing for a distribution is adopted, as the case may be.
When a determination of shareholders entitled to vote at any meeting of
shareholders is made as provided in this Section, such determination shall apply
to any adjournment thereof unless the board of directors fixes a new record
date, which it must do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be given
notice of action so taken shall be the date the corporation first receives a
writing upon which the action is taken. The record date for determining
shareholders entitled to demand a special meeting shall be the date of the
earliest of any of the demands pursuant to which the meeting is called.
SECTION 6. VOTING LISTS. The secretary shall make, at the earlier of
ten days before each meeting of shareholders or two business days after notice
of the meeting has been given, a complete list of the shareholders entitled to
be given notice of such meeting or any adjournment thereof. The list shall be
arranged by voting groups and within each voting group by class or series of
shares, shall be in alphabetical order within each class or series, and shall
show the address of and the number of shares of
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each class or series held by each shareholder. For the period beginning the
earlier of ten days prior to the meeting or two business days after notice of
the meeting is given and continuing through the meeting and any adjournment
thereof, this list shall be kept on file at the principal office of the
corporation, or at a place (which shall be identified in the notice) in the city
where the meeting will be held. Such list shall be available for inspection on
written demand by any shareholder (including for the purpose of this Section 6
any holder of voting trust certificates) or his agent or attorney during regular
business hours and during the period available for inspection. The original
stock transfer books shall be prima facie evidence as to the shareholders
entitled to examine such list or to vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular
business hours and during the period it is available for inspection, provided
(i) the shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least five percent of all outstanding shares of
any class of shares as of the date of the demand, (ii) the demand is made in
good faith and for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the records the shareholder desires to inspect,
(iv) the records are directly connected with the described purpose, and (v) the
shareholder pays a reasonable charge covering the costs of labor and material
for such copies, not to exceed the estimated cost of production and
reproduction.
SECTION 7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of
directors may adopt by resolution a procedure whereby a shareholder of the
corporation may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. The resolution may set forth (i) the types of
nominees to which it applies, (ii) the rights or privileges that the corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record date,
the time within which the certification must be received by the corporation, (v)
the period for which the nominee's use of the procedure is effective, and (vi)
such other provisions with respect to the procedure as the board of directors
deems necessary or desirable. Upon receipt by the corporation of a certificate
complying with the procedure established by the board of directors, the persons
specified in the certification shall be deemed, for the purpose or purposes set
forth in the certification, to be the registered holders of the number of shares
specified in place of the shareholder making the certification.
SECTION 8. QUORUM AND MANNER OF ACTING. One third of the votes entitled
to be cast on a matter by a voting group shall constitute a quorum of that
voting group for action on the matter. If less than one third of such votes are
represented at a meeting, a majority of the votes so represented may adjourn the
meeting from time to time without further notice, for a period not to exceed 120
days for any one adjournment. If a quorum is present at such adjourned meeting,
any business may be transacted which might have been transacted at the meeting
as originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, unless the meeting is
adjourned and a new record date is set for the adjourned meeting.
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If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action, unless the vote of a greater number or voting by classes is required
by the Colorado Business Corporation Act or by the corporation's articles of
incorporation.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may also
appoint a proxy by transmitting or authorizing the transmission of a telegram,
teletype, or other electronic transmission providing a written statement of the
appointment to the proxy, a proxy solicitor, proxy support service organization,
or other person duly authorized by the proxy to receive appointments as agent
for the proxy, or to the corporation. The transmitted appointment shall set
forth or be transmitted with written evidence from which it can be determined
that the shareholder transmitted or authorized the transmission of the
appointment. The proxy appointment form or similar writing shall be filed with
the secretary of the corporation before or at the time of the meeting. The
appointment of a proxy is effective when received by the corporation and is
valid for eleven months unless a different period is expressly provided in the
appointment form or similar writing.
Any complete copy, including an electronically transmitted facsimile,
of an appointment of a proxy may be substituted for or used in lieu of the
original appointment for any purpose for which the original appointment could be
used.
Revocation of a proxy does not affect the right of the corporation to
accept the proxy's authority unless (i) the corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment, or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
The corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
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Subject to Section 11 of this Article II and any express limitation on
the proxy's authority appearing on the appointment form, the corporation is
entitled to accept the proxy's vote or other action as that of the shareholder
making the appointment.
SECTION 10. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote, except in the election of directors, and
each fractional share shall be entitled to a corresponding fractional vote on
each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are
extended, limited or denied by the articles of incorporation as permitted by the
Colorado Business Corporation Act. Cumulative voting shall not be permitted in
the election of directors or for any other purpose. Each record holder of stock
shall be entitled to vote in the election of directors and shall have as many
votes for each of the shares owned by him as there are directors to be elected
and for whose election he has the right to vote, except to the extent that the
voting rights of the shares of any class or classes are extended, limited or
denied by the articles of incorporation as permitted by the Colorado Business
Corporation Act.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section would not be violated in the
circumstances presented to the court, the shares of the corporation are not
entitled to be voted if they are owned, directly or indirectly, by a second
corporation, domestic or foreign, and the first corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the
second corporation except to the extent the second corporation holds the shares
in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the shares
has been deposited with a bank, trust company or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares.
SECTION 11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a
vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, proxy appointment or
proxy appointment revocation and give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, proxy appointment or proxy
appointment revocation does not correspond to the name of a shareholder, the
corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment or proxy appointment revocation and to
give it effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity;
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(ii) the name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if
the corporation requests, evidence of fiduciary status acceptable to
the corporation has been presented with respect to the vote, consent,
waiver, proxy appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation has
been presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one
of the co-tenants or fiduciaries, and the person signing appears to be
acting on behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy
appointment or proxy appointment revocation is otherwise proper under
rules established by the corporation that are not inconsistent with
this Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section is
liable in damages for the consequences of the acceptance or rejection.
SECTION 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a written consent (or counterparts thereof) that sets forth the
action so taken is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof and received by the corporation. Such
consent shall have the same force and effect as a unanimous vote of the
shareholders and may be stated as such in any document. Action taken under this
Section 12 is effective as of the date the last writing necessary to effect the
action is received by the corporation, unless all of the writings specify a
different effective date, in which case such specified date shall be the
effective date for such action. If any shareholder revokes his consent as
provided for herein prior to what would otherwise be the effective date, the
action proposed in the consent shall be invalid. The record date for determining
shareholders entitled to take action without a meeting is the date the
corporation first receives a writing upon which the action is taken.
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Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 12 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the corporation before the effectiveness of the action.
SECTION 13. MEETINGS BY TELECOMMUNICATION. Any or all of the
shareholders may participate in an annual or special shareholders' meeting by,
or the meeting may be conducted through the use of, any means of communication
by which all persons participating in the meeting may hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under, the direction of its board of directors, except as otherwise
provided in the Colorado Business Corporation Act or the articles of
incorporation.
SECTION 2. NUMBER, QUALIFICATIONS AND TENURE. The number of directors
of the corporation shall be fixed from time to time by the board of directors. A
director shall be a natural person who is 18 years of age or older. A director
need not be a resident of Colorado or a shareholder of the corporation.
Directors shall be elected at each annual meeting of shareholders.
Directors shall serve for staggered terms as provided in the corporation's
articles of incorporation. Directors shall be removed in the manner provided in
the Colorado Business Corporation Act and in the corporation's articles of
incorporation.
SECTION 3. VACANCIES. Any director may resign at any time by giving
written notice to the corporation. Such resignation shall take effect at the
time the notice is received by the corporation unless the notice specifies a
later effective date. Unless otherwise specified in the notice of resignation,
the corporation's acceptance of such resignation shall not be necessary to make
it effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or the board of directors. If
the directors remaining in office constitute fewer than a quorum of the board of
directors, the directors may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office. If elected by the directors,
the director shall hold office until the next annual shareholders' meeting at
which directors are elected. If elected by the shareholders, the director shall
hold office for the unexpired term of his predecessor in office; except that, if
the director's predecessor was elected by the directors to fill a vacancy, the
director elected by the shareholders shall hold office for the unexpired term of
the last predecessor elected by the shareholders.
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SECTION 4. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without notice immediately after and at the same place
as the annual meeting of shareholders. The board of directors may provide by
resolution the time and place, either within or outside Colorado, for the
holding of additional regular meetings without other notice.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president
or any two directors. The person or persons authorized to call special meetings
of the board of directors may fix any place, either within or outside Colorado,
as the place for holding any special meeting of the board of directors called by
them.
SECTION 6. NOTICE. Notice of any special meeting shall be given at
least two days prior to the meeting by written notice either personally
delivered or mailed to each director at his business address, or by notice
transmitted by telegraph, telex, electronically transmitted facsimile or other
form of wire or wireless communication. If mailed, such notice shall be deemed
to be given and to be effective on the earlier of (i) three days after such
notice is deposited in the United States mail, properly addressed, with postage
prepaid, or (ii) the date shown on the return receipt, if mailed by registered
or certified mail return receipt requested. If notice is given by telex,
electronically transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be effective when
sent, and with respect to a telegram, such notice shall be deemed to be given
and to be effective when the telegram is delivered to the telegraph company. If
a director has designated in writing one or more reasonable addresses or
facsimile numbers for delivery of notice to him, notice sent by mail, telegraph,
telex, electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be.
A director may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such director. Such waiver shall be
delivered to the corporation for filing with the corporate records. Further, a
director's attendance at or participation in a meeting waives any required
notice to him of the meeting unless at the beginning of the meeting, or promptly
upon his later arrival, the director objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by the
board of directors pursuant to Section 2 of this Article III or, if no number is
fixed, a majority of the number in office immediately before the meeting begins,
shall constitute a quorum for the transaction of business at any meeting of the
board of directors.
If less than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice, for a period not to exceed sixty days at any one adjournment.
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SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
SECTION 9. COMPENSATION. By resolution of the board of directors, any
director may be paid any one or more of the following: his expenses, if any, of
attendance at meetings, a fixed sum for attendance at each meeting, a stated
salary as director, or such other compensation as the board of directors and the
director may reasonably agree upon. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 10. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors or committee of the board of
directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless (i) the director objects at the
beginning of the meeting, or promptly upon his later arrival, to the holding of
the meeting or the transaction of business at the meeting and does not
thereafter vote for or assent to any action taken at the meeting, (ii) the
director contemporaneously requests that his dissent or abstention as to any
specific action taken be entered in the minutes of the meeting, or (iii) the
director causes written notice of his dissent or abstention as to any specific
action to be received by the presiding officer of the meeting before its
adjournment or by the corporation promptly after the adjournment of the meeting.
A director may dissent to a specific action at a meeting, while assenting to
others. The right to dissent to a specific action taken at a meeting of the
board of directors or a committee of the board of directors shall not be
available to a director who voted in favor of such action.
SECTION 11. COMMITTEES. By resolution adopted by a majority of all the
directors in office when the action is taken, the board of directors may
designate from among its members an executive committee and one or more other
committees, and appoint one or more members of the board of directors to serve
on them. To the extent provided in the resolution, each committee shall have all
the authority of the board of directors, except that no such committee shall
have the authority to (i) authorize distributions, (ii) approve or propose to
shareholders actions or proposals required by the Colorado Business Corporation
Act to be approved by shareholders, (iii) fill vacancies on the board of
directors or any committee thereof, (iv) amend articles of incorporation, (v)
adopt, amend or repeal the bylaws, (vi) approve a plan of merger not requiring
shareholder approval, (vii) authorize or approve the reacquisition of shares
unless pursuant to a formula or method prescribed by the board of directors, or
(viii) authorize or approve the issuance or sale of shares, or contract for the
sale of shares or determine the designations and relative rights, preferences
and limitations of a class or series of shares, except that the board of
directors may authorize a committee or officer to do so within limits
specifically prescribed by the board of directors. The committee shall then have
full power within the limits set by the board of directors to adopt any final
resolution setting forth all preferences, limitations and relative rights of
such class or series and to authorize an amendment of the articles of
incorporation stating the preferences, limitations and relative rights of a
class or series for filing with the Secretary of State under the Colorado
Business Corporation Act.
Sections 4, 5, 6, 7, 8 and 12 of this Article III, which govern
meetings, notice, waiver of notice, quorum, voting requirements and action
without a meeting of the board of directors, shall apply to committees and their
members appointed under this Section 11.
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Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee pursuant to its
authority shall alone constitute compliance by any member of the board of
directors or a member of the committee in question with his responsibility to
conform to the standard of care set forth in Section 14 of this Article III.
SECTION 12. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the directors or any committee designated
by the board of directors may be taken without a meeting if a written consent
(or counterparts thereof) that sets forth the action so taken is signed by all
of the directors or committee members entitled to vote with respect to the
action taken. Such consent shall have the same force and effect as a unanimous
vote of the directors or committee members and may be stated as such in any
document. Unless the consent specifies a different effective date, action taken
under this Section 12 is effective at the time the last director signs a writing
describing the action taken, unless, before such time, any director has revoked
his consent by a writing signed by the director and received by the president or
the secretary of the corporation.
SECTION 13. TELEPHONIC MEETINGS. The board of directors may permit any
director (or any member of a committee designated by the board of directors) to
participate in a regular or special meeting of the board of directors or a
committee thereof through the use of any means of communication by which all
directors participating in the meeting can hear each other during the meeting. A
director participating in a meeting in this manner is deemed to be present in
person at the meeting.
SECTION 14. STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any committee
of the board of directors, in good faith, in a manner he reasonably believes to
be in the best interests of the corporation, and with the care an ordinarily
prudent person in a like position would exercise under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by the persons herein
designated. However, he shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
to be unwarranted. A director shall not be liable to the corporation or its
shareholders for any action he takes or omits to take as a director if, in
connection with such action or omission, he performs his duties in compliance
with this Section 14.
The designated persons on whom a director is entitled to rely are (i)
one or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent in the matters presented, (ii)
legal counsel, public accountant, or other person as to matters which the
director reasonably believes to be within such person's professional or expert
competence, or (iii) a committee of the board of directors on which the director
does not serve if the director reasonably believes the committee merits
confidence.
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ARTICLE IV
OFFICERS AND AGENTS
SECTION 1. GENERAL. The officers of the corporation shall be a
president, a secretary and a treasurer, each of whom shall be a natural person
eighteen years of age or older. The board of directors or an officer or officers
authorized by the board of directors may appoint such other officers, assistant
officers, committees and agents, assistant secretaries and assistant treasurers,
as they may consider necessary. The board of directors or the officer or
officers authorized by the board of directors shall from time to time determine
the procedure for the appointment of officers, their term of office, their
authority and duties and their compensation. One person may hold more than one
office. In all cases where the duties of any officer, agent or employee are not
prescribed by the bylaws or by the board of directors, such officer, agent or
employee shall follow the orders and instructions of the president of the
corporation.
SECTION 2. APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation shall be appointed by the board of directors at each annual meeting
of the board of directors held after each annual meeting of the shareholders. If
the appointment of officers is not made at such meeting or if an officer or
officers are to be appointed by another officer or officers of the corporation,
such appointments shall be made as soon thereafter as conveniently possible.
Each officer shall hold office until the first of the following occurs: his
successor shall have been duly appointed and qualified, his death, his
resignation, or his removal in the manner provided in Section 3 of this Article
IV.
SECTION 3. RESIGNATION AND REMOVAL. An officer may resign at any time
by giving written notice of resignation to the corporation. The resignation is
effective when the notice is received by the corporation unless the notice
specifies a later effective date.
Any officer or agent may be removed at any time with or without cause
by the board of directors or an officer or officers authorized by the board of
directors or by the shareholders. Such removal does not affect the contract
rights, if any, of the corporation or of the person so removed. The appointment
of an officer or agent shall not in itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office, however occurring, may
be filled by the board of directors, or by the officer or officers authorized by
the board of directors, for the unexpired portion of the officer's term. If an
officer resigns and his resignation is made effective at a later date, the board
of directors, or officer or officers authorized by the board of directors, may
permit the officer to remain in office until the effective date and may fill the
pending vacancy before the effective date if the board of directors or officer
or officers authorized by the board of directors provide that the successor
shall not take office until the effective date. In the alternative, the board of
directors, or officer or officers authorized by the board of directors, may
remove the officer at any time before the effective date and may fill the
resulting vacancy.
SECTION 5. CHAIRMAN OF THE BOARD. The chairman of the board of
directors, if appointed and if available, or if not appointed or not available,
the president, shall preside at all meetings of the stockholders and of the
board of directors.
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SECTION 6. PRESIDENT. Subject to the direction and supervision of the
board of directors, the president shall have general and active control of the
corporation's affairs and business and general supervision of its officers,
agents and employees. Unless otherwise directed by the board of directors, the
president shall attend in person or by substitute appointed by him, or shall
execute on behalf of the corporation written instruments appointing a proxy or
proxies to represent the corporation at, all meetings of the stockholders of any
other corporation in which the corporation holds any stock. On behalf of the
corporation, the president may in person or by substitute or by proxy execute
written waivers of notice and consents with respect to any such meetings. At all
such meetings and otherwise, the president, in person or by substitute or proxy,
may vote the stock held by the corporation, execute written consents and other
instruments with respect to such stock, and exercise any and all rights and
powers incident to the ownership of said stock, subject to the instructions, if
any, of the board of directors. The president shall have custody of the
treasurer's bond, if any.
SECTION 7. VICE PRESIDENTS. If appointed, the vice presidents shall
assist the chairman of the board and the president and shall perform such duties
as may be assigned to them by the chairman of the board and the president or by
the board of directors. In the absence of the chairman of the board and the
president, the vice president, if any (or, if more than one, the vice presidents
in the order designated by the board of directors, or if the board of directors
makes no such designation, then the vice president designated by the chairman of
the board, or by the president, or if neither the board of directors, the
chairman of the board nor the president makes any such designation, the vice
president as determined by first election to that office), shall have the powers
and perform the duties of the chairman of the board and the president.
SECTION 8. SECRETARY. The secretary shall (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
board of directors, a record of all actions taken by the shareholders or board
of directors without a meeting, a record of all actions taken by a committee of
the board of directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notice of meetings of shareholders
and of the board of directors or any committee thereof, (ii) see that all
notices are duly given in accordance with the provisions of these bylaws and as
required by law, (iii) serve as custodian of the corporate records and of the
seal of the corporation and affix the seal to all documents when authorized by
the board of directors, (iv) keep at the corporation's registered office or
principal place of business a record containing the names and addresses of all
shareholders in a form that permits preparation of a list of shareholders
arranged by voting group and by class or series of shares within each voting
group, that is alphabetical within each class or series and that shows the
address of, and the number of shares of each class or series held by, each
shareholder, unless such a record shall be kept at the office of the
corporation's transfer agent or registrar, (v) maintain at the corporation's
principal office the originals or copies of the corporation's articles of
incorporation, bylaws, minutes of all shareholders' meetings and records of all
action taken by shareholders without a meeting for the past three years, all
written communications within the past three years to shareholders as a group or
to the holders of any class or series of shares as a group, a list of the names
and business addresses of the current directors and officers, a copy of the
corporation's most recent corporate report filed with the Secretary of State,
and financial statements showing in reasonable detail the corporation's assets
and liabilities and results of operations for the last three years, (vi) have
general charge of the stock transfer books of the corporation, unless the
corporation has a
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transfer agent, (vii) authenticate records of the corporation, and (viii) in
general, perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the president or by the
board of directors. Assistant secretaries, if any, shall have the same duties
and powers as the secretary, subject to supervision by the secretary. The
directors and/or shareholders may however respectively designate a person other
than the secretary or assistant secretary to keep the minutes of their
respective meetings.
Any books, records, or minutes of the corporation may be in written
form or in any form capable of being converted into written form within a
reasonable time.
SECTION 9. TREASURER. The treasurer shall be the principal financial
officer of the corporation, shall have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the
corporation and shall deposit the same in accordance with the instructions of
the board of directors. He shall receive and give receipts and acquittances for
money paid in on account of the corporation, and shall pay out of the
corporation's funds on hand all bills, payrolls and other just debts of the
corporation of whatever nature upon maturity. He shall perform all other duties
incident to the office of the treasurer and, upon request of the board of
directors, shall make such reports to it as may be required at any time. He
shall, if required by the board of directors, give the corporation a bond in
such sums and with such sureties as shall be satisfactory to the board of
directors, conditioned upon the faithful performance of his duties and for the
restoration to the corporation of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation. He shall have such other powers and perform such other duties
as may from time to time be prescribed by the board of directors or the
president. The assistant treasurers, if any, shall have the same powers and
duties as the treasurer, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all local,
state and federal tax returns, prescribe and maintain an adequate system of
internal audit and prepare and furnish to the chief executive officer, the
president and the board of directors statements of account showing the financial
position of the corporation and the results of its operations.
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ARTICLE V
STOCK
SECTION 1. CERTIFICATES. The board of directors shall be authorized to
issue any of its classes of shares with or without certificates. The fact that
the shares are not represented by certificates shall have no effect on the
rights and obligations of shareholders. If the shares are represented by
certificates, such shares shall be represented by consecutively numbered
certificates signed, either manually or by facsimile, in the name of the
corporation by the president and by the secretary or an assistant secretary or
by one or more other persons designated by the board of directors. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, such certificate may nonetheless be issued by the corporation with the
same effect as if he were such officer at the date of its issue. Certificates of
stock shall be in such form and shall contain such information consistent with
the law as shall be prescribed by the board of directors. If shares are not
represented by certificates, within a reasonable time following the issue or
transfer of such shares, the corporation shall send the shareholder a complete
written statement of all of the information required to be provided to holders
of uncertificated shares by the Colorado Business Corporation Act.
SECTION 2. CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully paid.
The board of directors may authorize the issuance of shares for consideration
consisting of any tangible or intangible property or benefit to the corporation,
including cash, promissory notes, services performed or other securities of the
corporation. Future services shall not constitute payment or partial payment for
shares of the corporation. The promissory note of a subscriber or an affiliate
of a subscriber shall not constitute payment or partial payment for shares of
the corporation unless the note is negotiable and is secured by collateral,
other than the shares being purchased, having a fair market value at least equal
to the principal amount of the note. For purposes of this Section 2, "promissory
note" means a negotiable instrument on which there is an obligation to pay
independent of collateral and does not include a non-recourse note.
SECTION 3. LOST CERTIFICATES. In case of the alleged loss, destruction
or mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the board of directors may prescribe. The board of
directors may in its discretion require an affidavit of lost certificate and/or
a bond in such form and amount and with such surety as it may determine before
issuing a new certificate.
SECTION 4. TRANSFER OF SHARES. Upon surrender to the corporation or to
a transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the stock books of the corporation which shall be kept at
its principal office or by the person and the place designated by the board of
directors.
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Except as otherwise expressly provided in Sections 7 and 11 of Article
II, and except for the assertion of dissenters' rights to the extent provided in
Article 113 of the Colorado Business Corporation Act, the corporation shall be
entitled to treat the registered holder of any shares of the corporation as the
owner thereof for all purposes, and the corporation shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or rights
deriving from such shares on the part of any person other than the registered
holder, including without limitation any purchaser, assignee or transferee of
such shares or rights deriving from such shares, unless and until such other
person becomes the registered holder of such shares, whether or not the
corporation shall have either actual or constructive notice of the claimed
interest of such other person.
SECTION 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board of
directors may at its discretion appoint one or more transfer agents, registrars
and agents for making payment upon any class of stock, bond, debenture or other
security of the corporation. Such agents and registrars may be located either
within or outside Colorado. They shall have such rights and duties and shall be
entitled to such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
SECTION 1. INDEMNIFICATION. For purposes of this Article VI, a "Proper
Person" means any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether formal or
informal, by reason of the fact that he is or was a director, officer, employee,
fiduciary or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee, fiduciary or
agent of any foreign or domestic profit or nonprofit corporation or of any
partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company, or other enterprise or employee benefit
plan. The corporation shall indemnify any Proper Person against reasonably
incurred expenses (including attorneys' fees), judgments, penalties, fines
(including any excise tax assessed with respect to an employee benefit plan) and
amounts paid in settlement reasonably incurred by him in connection with such
action, suit or proceeding if it is determined by the groups set forth in
Section 4 of this Article VI that he conducted himself in good faith and that he
reasonably believed (i) in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests, or (ii)
in all other cases (except criminal cases), that his conduct was at least not
opposed to the corporation's best interests, or (iii) in the case of any
criminal proceeding, that he had no reasonable cause to believe his conduct was
unlawful. A Proper Person will be deemed to be acting in his official capacity
while acting as a director, officer, employee or agent on behalf of this
corporation and not while acting on this corporation's behalf for some other
entity.
No indemnification shall be made under this Article VI to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper Person was
adjudged liable to the corporation or in connection with any proceeding charging
that the Proper Person derived an improper personal benefit, whether or not
involving action in an official capacity, in which he was adjudged liable on the
basis that he derived an
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improper personal benefit. Further, indemnification under this Section in
connection with a proceeding brought by or in the right of the corporation shall
be limited to reasonable expenses, including attorneys' fees, incurred in
connection with the proceeding.
SECTION 2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify
any Proper Person who was wholly successful, on the merits or otherwise, in
defense of any action, suit, or proceeding as to which he was entitled to
indemnification under Section l of this Article VI against expenses (including
attorneys' fees) reasonably incurred by him in connection with the proceeding
without the necessity of any action by the corporation other than the
determination in good faith that the defense has been wholly successful.
SECTION 3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the standards
of conduct described in Section l of this Article VI. Entry of a judgment by
consent as part of a settlement shall not be deemed an adjudication of
liability, as described in Section 2 of this Article VI.
SECTION 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections 1 or 2
of this Article VI or where indemnification is ordered by a court in Section 5
of this Article VI, any indemnification shall be made by the corporation only as
authorized in the specific case upon a determination by a proper group that
indemnification of the Proper Person is permissible under the circumstances
because he has met the applicable standards of conduct set forth in Section l of
this Article VI. This determination shall be made by the board of directors by a
majority vote of those present at a meeting at which a quorum is present, which
quorum shall consist of directors not parties to the proceeding ("Quorum"). If a
Quorum cannot be obtained, the determination shall be made by a majority vote of
a committee of the board of directors designated by the board, which committee
shall consist of two or more directors not parties to the proceeding, except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee. If a Quorum of the board of
directors cannot be obtained and the committee cannot be established, or even if
a Quorum is obtained or the committee is designated and a majority of the
directors constituting such Quorum or committee so directs, the determination
shall be made by (i) independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in this Section 4 or, if a
Quorum of the full board of directors cannot be obtained and a committee cannot
be established, by independent legal counsel selected by a majority vote of the
full board of directors (including directors who are parties to the action) or
(ii) a vote of the shareholders.
SECTION 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply
for indemnification to the court conducting the proceeding or to another court
of competent jurisdiction for mandatory indemnification under Section 2 of this
Article VI, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If the court determines that such Proper Person
is fairly and reasonably entitled to indemnification in view of all the relevant
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circumstances, whether or not he met the standards of conduct set forth in
Section l of this Article VI or was adjudged liable in the proceeding, the court
may order such indemnification as the court deems proper except that if the
Proper Person has been adjudged liable, indemnification shall be limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
SECTION 6. ADVANCE OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred in defending an action, suit or proceeding as
described in Section 1 of this Article VI may be paid by the corporation to any
Proper Person in advance of the final disposition of such action, suit or
proceeding upon receipt of (i) a written affirmation of such Proper Person's
good faith belief that he has met the standards of conduct prescribed by Section
l of this Article VI, (ii) a written undertaking, executed personally or on the
Proper Person's behalf, to repay such advances if it is ultimately determined
that he did not meet the prescribed standards of conduct (the undertaking shall
be an unlimited general obligation of the Proper Person but need not be secured
and may be accepted without reference to financial ability to make repayment),
and (iii) a determination is made by the proper group (as described in Section 4
of this Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
SECTION 7. WITNESS EXPENSES. The sections of this Article VI do not
limit the corporation's authority to pay or reimburse expenses incurred by a
director in connection with an appearance as a witness in a proceeding at a time
when he has not been made a named defendant or respondent in the proceeding.
SECTION 8. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VI, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting. If
the next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
ARTICLE VII
PROVISION OF INSURANCE
By action of the board of directors, notwithstanding any interest of
the directors in the action, the corporation may purchase and maintain
insurance, in such scope and amounts as the board of directors deems
appropriate, on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation, or who, while a director,
officer, employee, fiduciary or agent of the corporation, is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee, fiduciary or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company or other enterprise or employee benefit
plan, against any liability asserted against, or incurred by, him in that
capacity or arising out of his status as such, whether or not the corporation
would have
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the power to indemnify him against such liability under the provisions of
Article VI or applicable law. Any such insurance may be procured from any
insurance company designated by the board of directors of the corporation,
whether such insurance company is formed under the laws of Colorado or any other
jurisdiction of the United States or elsewhere, including any insurance company
in which the corporation has an equity interest or any other interest, through
stock ownership or otherwise.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. SEAL. The corporate seal of the corporation shall be
circular in form and shall contain the name of the corporation and the words,
"Seal, Colorado."
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be as
established by the board of directors.
SECTION 3. AMENDMENTS. The board of directors shall have power, to the
maximum extent permitted by the Colorado Business Corporation Act, to make,
amend and repeal the bylaws of the corporation at any regular or special meeting
of the board of directors unless the shareholders, in making, amending or
repealing a particular bylaw, expressly provide that the directors may not amend
or repeal such bylaw. The shareholders also shall have the power to make, amend
or repeal the bylaws of the corporation at any annual meeting or at any special
meeting called for that purpose.
SECTION 4. GENDER. The masculine gender is used in these bylaws as a
matter of convenience only and shall be interpreted to include the feminine and
neuter genders as the circumstances indicate.
SECTION 5. CONFLICTS. In the event of any irreconcilable conflict
between these bylaws and either the corporation's articles of incorporation or
applicable law, the latter shall control.
SECTION 6. DEFINITIONS. Except as otherwise specifically provided in
these bylaws, all terms used in these bylaws shall have the same definition as
in the Colorado Business Corporation Act.
[END OF BYLAWS]
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EXHIBIT 5.0
July 22, 1999
Leisure Time Casinos & Resorts, Inc.
4258 Communications Drive
Norcross, Georgia 30093
Gentlemen:
You have requested our opinion as to certain matters arising under the
Colorado Business Corporation Act that relate to the issuance of the shares of
$0.001 par value common stock ("Common Stock") of Leisure Time Casinos &
Resorts, Inc. ("Company") that are described on the cover page of Amendment No.
1 to the Company's Registration Statement No. 333-77737 that is to be filed with
the United States Securities and Exchange Commission.
We have reviewed the Articles of Incorporation, as amended, of the
Company, the minutes of the Board of Directors and of the shareholders of the
Company and such other documents that we considered necessary in order to render
this opinion. As a result of our review, we are of the opinion that, assuming
the shares of Common Stock are paid for as described in the Registration
Statement, the shares of Common Stock being registered when issued, will be
validly issued, fully paid and nonassessable under the Colorado Business
Corporation Act.
This opinion is limited to applicability of the Colorado Business
Corporation Act and the common law of Colorado to the issuance of the shares of
Common Stock. This opinion does not cover or in any way relate to the
applicability of, or compliance by the Company with, any other law, including
any federal or state securities laws, any other state common law or any other
federal law.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to you describing this firm as having issued this
opinion in the prospectus that is a part of the Registration Statement.
/s/ SMITH McCULLOUGH, P.C.
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
LEISURE TIME CASINOS & RESORTS, INC.
1997 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
THIS FIRST AMENDMENT ("Amendment") is made as of this 10th day of May,
1999 to the Leisure Time Casinos & Resorts, Inc. ("Company") 1997 Incentive and
Nonstatutory Stock Option Plan ("Plan"). In the event of any conflict between
the terms of this Amendment and the terms of the Plan, the terms of this
Amendment shall control. All capitalized terms not defined in this Amendment
shall have their respective meanings set forth in the Plan.
The Plan shall be amended as follows:
1. STOCK SUBJECT TO THE PLAN. The first sentence of Section 3 of the
Plan is hereby deleted and replaced with the following sentence:
"Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of Shares which may be optioned and sold under the
Plan is 4,500,000 shares of Common Stock."
2. AMENDMENT AND TERMINATION OF THE PLAN. Subsection 13.a.(i) of the
Plan is hereby deleted and replaced with the following:
"(i) An increase in the number of Shares subject to the Plan above
4,500,000 Shares, other than in connection with an adjustment under
Section 11 of the Plan;"
3. RATIFICATION. Except as modified herein, the terms and conditions of
the Plan are hereby ratified by this Amendment.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Amendment effective as of the date first set forth above.
LEISURE TIME CASINOS & RESORTS, INC.,
a Colorado corporation
By: /s/ Alan N. Johnson
---------------------------------------
Alan N. Johnson, President
<PAGE> 1
EXHIBIT 10.62
UNLIMITED GUARANTY
(ALL GUARANTORS)
UNLIMITED GUARANTY, dated as of January, 1999, in favor of FIRESTONE
FINANCIAL CORP., a Massachusetts corporation with its principal office at 38
Glen Avenue, Newton Centre, Massachusetts 02459 ("Firestone"). In consideration
of Firestone's giving, in its discretion from time to time, credit facilities or
accommodations to Darlington Music Company, Inc. together with its successors,
the "Customer"), each of the undersigned (each a "Guarantor"), agrees as
follows:
1. GUARANTY OF PAYMENT AND PERFORMANCE. Each Guarantor, jointly and
severally if more than one, hereby guarantees to Firestone the full and punctual
payment when due (whether at maturity, by acceleration or otherwise), and the
performance, of all liabilities, agreements and other obligations of the
Customer to Firestone, whether direct or indirect, absolute or contingent, due
or to become due, secured or unsecured, now existing or hereafter arising or
acquired, whether by way of discount, lease, loan or otherwise and whether the
Customer may be liable individually or jointly with others (the "Obligations").
This Guaranty is an absolute, unconditional and continuing guaranty of the full
and punctual payment and performance of the Obligations and not of their
collectibility only and is in no way conditioned upon any requirement that
Firestone first attempt to collect any of the Obligations from the Customer or
resort to any security or other means of obtaining their payment. Should the
Customer default in the payment or performance of any of the Obligations, the
obligations of each Guarantor hereunder shall become immediately due and payable
to Firestone, without demand or notice of any nature, all of which are expressly
waived by each Guarantor. Payments by a Guarantor hereunder may be required by
Firestone on any number of occasions.
2. GUARANTOR'S AGREEMENT TO PAY. Each Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to Firestone, on demand,
all costs and expenses (including court costs and reasonable attorney's fees and
expenses) incurred or expended by Firestone in connection with the Obligations,
this Guaranty and the enforcement thereof, together with interest on amounts
recoverable under this Guaranty from the time such amounts become due until
payment in full, at the rate per annum equal to 18%; provided that if such
interest exceeds the maximum amount permitted to be paid under applicable law,
then such interest shall be reduced to such maximum permitted amount.
3. UNLIMITED GUARANTY. The liability of each Guarantor hereunder shall
be unlimited.
4. REPRESENTATIONS AND WARRANTIES. Each Guarantor makes the following
representations and warranties which shall survive the execution and delivery of
this Guaranty:
a. If the Guarantor is a corporation, partnership, limited
liability company, business trust or other organization, the Guarantor
(i) is duly organized and validly existing in good standing under the
laws of the jurisdiction in which it is organized; (ii) has the power
and authority to own its properties and to carry on its business as
being conducted on the date hereof; (iii) is duly qualified to transact
business and is in good standing in every jurisdiction in which the
ownership of property or the nature of the business conducted by it
makes such qualification necessary; (iv) has the power and authority to
execute, deliver and carry out the terms and provisions of this
Guaranty; and (v) has taken all necessary action (including, without
limitation, any consent of stockholders, partners, members or
beneficiaries required by law, by its charter, by-laws or other
organizational agreement or otherwise) to authorize the execution,
delivery and performance hereof and the consummation of the
transactions contemplated hereby.
b. Neither the execution and delivery of this Guaranty, nor
the consummation of any of the transactions contemplated hereby nor
compliance of any of the terms and provisions hereof will conflict
with, or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any lien upon any of the
properties or assets of the Guarantor pursuant to its charter, or
by-laws or any applicable law, statute, rule, regulation or award of
any arbitrator or any agreement, instrument, order, judgement or decree
to which the Guarantor is a party or by which it or its properties are
subject or may be bound.
c. Neither the execution and delivery of this Guaranty, nor
the consummation of any of the transactions contemplated hereby
requires any consent, approval or authorization of, or filing,
recording, registration or qualification with, any court or
governmental or administrative body or authority.
<PAGE> 2
d. There are no actions, suits or proceedings pending, or to
the best of the Guarantor's knowledge after due inquiry with respect
thereto threatened, against or affecting the Guarantor before any court
or before any governmental or administrative body which might result in
any material adverse change in the business, operations, properties,
assets or condition (financial or otherwise) of the Guarantor or in any
material liability on the part of the Guarantor.
e. The Guarantor has, independently and based on such
documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Guaranty. This Guaranty
is not made in reliance on any representation or warranty, express or
implied, by Firestone concerning the financial condition of the
Customer, the nature, value or extent of any security for the
Obligations, or any other matter. The Guarantor warrants that it has
full knowledge of the financial condition of the Customer and agrees
that it will continue to be fully cognizant of the Customer's financial
condition until all Obligations are finally paid in full in cash, and
Firestone has no obligation to advise the Guarantor of any information
relating to the Customer's financial condition or otherwise relating to
the Customer or any Obligation or any security therefor or guaranty
thereof.
f. The Guarantor will receive substantial direct and indirect
benefits from the financial accommodations extended by Firestone to the
Customer, and the waivers set forth in this Guaranty are knowingly made
in contemplation of such benefits.
g. All financial statements of the Guarantor (including any
related schedules and notes) furnished to Firestone are complete and
correct and have been prepared in accordance with generally accepted
accounting principles consistently applied. The balance sheets fairly
present the financial position of the Guarantor as at the date thereof,
and the statements of income and retained earnings and cash flow fairly
present the results of the operations of the Guarantor for the period
indicated. There has been no material adverse change in the business,
operations, properties or assets or in the condition (financial or
otherwise) of the Guarantor since the date of such financial
statements.
5. WAIVERS BY GUARANTOR; FIRESTONE'S FREEDOM TO ACT. Each Guarantor
agrees that the Obligations will be paid and performed strictly in accordance
with their respective terms regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Firestone with respect thereto. Each Guarantor waives presentment,
demand, protest, notice of acceptance, notice of Obligations incurred, notice of
any indulgences or extensions granted to the Customer or to any other person
which may be liable for the Obligations, notice of the occurrence of a default
or an event of default under any Obligation, notice of presentment and all other
notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in effect,
any right to require the marshalling of assets of the Customer, and all
suretyship defenses generally. Without limiting the generality of the foregoing,
each Guarantor agrees to the provisions of any instrument evidencing, securing
or otherwise executed in connection with any Obligation and agrees that the
obligations of the Guarantor hereunder shall not be released or discharged, in
whole or in part, or otherwise affected by (i) the failure of Firestone to
assert any claim or demand or to enforce any right or remedy against the
Customer; (ii) any extensions or renewals of any Obligation; (iii) any
rescissions, waivers, amendments or modifications of any of the terms or
provisions of any agreement evidencing, securing or otherwise executed in
connection with any Obligation; (iv) the substitution or release of any entity
primarily or secondarily liable for any Obligation, including any Guarantor
hereunder; (v) the adequacy of any rights Firestone may have against any
collateral or other means of obtaining repayment of the Obligations; (vi) the
impairment of any collateral securing the Obligations, including without
limitation the failure to perfect or preserve any rights Firestone might have in
such collateral or the substitution, exchange, surrender, release, loss or
destruction of any such collateral; (vii) any change or restructuring of the
organizational structure of the Customer; or (viii) any other act or omission
which might in any manner or to any extent vary the risk of any Guarantor or
otherwise operate as a release or discharge of any Guarantor, all of which may
be done without notice to any Guarantor.
6. UNENFORCEABIL1TY OF OBLIGATIONS AGAINST CUSTOMER. If for any reason
the Customer has no legal existence or is under no legal obligation to discharge
any of the Obligations, or if any of the Obligations have become irrecoverable
from the Customer by operation of law or for any other reason, this Guaranty
shall nevertheless be binding on each Guarantor to the same extent as if each
Guarantor at all times had been the principal obligor on all such Obligations.
In the event that acceleration of the time for payment of the Obligations is
stayed upon the insolvency, bankruptcy or reorganization of the Customer, or for
any other reason, all such amounts otherwise subject to acceleration under the
terms of any agreement evidencing, securing or otherwise executed in connection
with any Obligation shall be immediately due and payable by each Guarantor.
<PAGE> 3
7. SUBROGATION. Until the payment and performance in full of all
Obligations and any and all obligations of the Customer to any affiliate of
Firestone, no Guarantor shall exercise any rights against the Customer arising
as a result of payment by the Guarantor hereunder, by way of subrogation or
otherwise, and will not prove any claim in competition with Firestone or its
affiliates in respect of any payment hereunder in bankruptcy or insolvency
proceedings of any nature; no Guarantor will claim any set-off or counterclaim
against the Customer in respect of any liability of any Guarantor to the
Customer; and each Guarantor waives any benefit of and any right to participate
in any collateral which may be held by Firestone or any such affiliate.
8. SUBORDINATION OF OTHER CUSTOMER DEBT. The payment of any amounts due
with respect to any indebtedness of the Customer now or hereafter held by each
Guarantor is hereby subordinated to the prior payment in full of the
Obligations, provided that so long as no default in the payment or performance
of the Obligations has occurred and is continuing, or no demand for payment of
any of the Obligations has been made that remains unsatisfied, the Customer may
make, and a Guarantor may demand and accept, any scheduled payments of principal
of and interest on such subordinated indebtedness in the amounts, at the rates
and on the dates specified in such instruments, securities or other writings as
shall evidence such subordinated indebtedness. Each Guarantor agrees that after
the occurrence of any default in the payment or performance of the Obligations,
the Guarantor will not demand, sue for or otherwise attempt to collect any such
indebtedness of the Customer to the Guarantor until the Obligations shall have
been paid in full. If, notwithstanding the foregoing sentence, any Guarantor
shall collect, enforce or receive any amounts in respect of such indebtedness,
such amounts shall be collected, enforced and received by such Guarantor as
trustee for Firestone and be paid over to Firestone on account of the
Obligations without affecting in any manner the liability of such Guarantor
under the other provisions of this Guaranty.
9. FURTHER ASSURANCES. Each Guarantor agrees that such Guarantor will,
from time to time at the request of Firestone, provide to Firestone its most
recent audited and unaudited balance sheets and related statements of income and
changes in financial condition (prepared on a consolidated basis with the
Guarantor's subsidiaries, if any) and such other information relating to the
business and affairs of the Guarantor as Firestone may reasonably request. Each
Guarantor also agrees, upon demand after any change in the condition or affairs
(financial or otherwise) of such Guarantor deemed by Firestone to be adverse and
material, to secure the payment and performance of such Guarantor's obligations
hereunder by delivering, assigning or transferring to Firestone or granting
Firestone a security interest in additional collateral of a value and character
satisfactory to Firestone, and authorizes Firestone to file any financing
statement deemed by Firestone to be necessary or desirable to perfect any
security interest granted by such Guarantor to Firestone, and as agent for such
Guarantor, to sign the name of such Guarantor thereto. Each Guarantor also
agrees to do all such things and execute all such documents, including financing
statements, as Firestone may consider necessary or desirable to give full effect
to this Guaranty and to perfect and preserve the rights and powers of Firestone
hereunder. Each Guarantor also agrees that promptly after such Guarantor obtains
knowledge of any default or event or circumstances which with the passage of
time or giving of notice will become a default or event of default by the
Customer on any Obligation, or of any material change in the financial position
or business of the Customer, such Guarantor will immediately notify Firestone of
such default, event, circumstance or change.
10. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full
force and effect with respect to all Guarantors until Firestone is given written
notice of a Guarantor's intention to discontinue this Guaranty, notwithstanding
any intermediate or temporary payment or settlement of the whole or any part of
the Obligations. No such notice shall be effective unless received and
acknowledged by an officer of Firestone. No such notice shall affect any rights
of Firestone with respect to Obligations incurred prior to the receipt of such
notice or with respect to Obligations incurred pursuant to any contract or
commitment in existence prior to such receipt, and all notes, instruments
(negotiable or otherwise) and writings made by or for the account of the
Customer purporting to be dated on or before the date of receipt of such notice,
although presented to or accepted by Firestone after that date, shall form part
of the Obligations. No notice from one Guarantor shall affect the obligations of
any other Guarantor hereunder. This Guaranty shall continue to be effective or
be reinstated, notwithstanding any such notice, if at any time any payment made
or value received with respect to an Obligation is rescinded or must otherwise
be returned by Firestone upon the insolvency, bankruptcy or reorganization of
the Customer, or otherwise, all as though such payment had not been made or
value received.
11. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon each
Guarantor, each Guarantor's successors and assigns, and shall inure to the
benefit of and be enforceable by Firestone and its successors, transferees and
assigns. Without limiting the generality of the foregoing sentence, Firestone
may assign or otherwise transfer any agreement or any note held by it
evidencing, securing or otherwise executed in connection with the Obligations,
or sell participations in any interest therein, to any other person or entity,
and such other person or entity shall thereupon become vested, to the extent set
forth in the agreement evidencing such assignment, transfer or participation,
with all the rights in respect thereof granted to Firestone herein.
<PAGE> 4
12. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by any Guarantor therefrom shall be
effective unless the same shall be in writing and signed by Firestone. No
failure on the part of Firestone to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
13. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class mail postage prepaid or, in the case of notice by facsimile, when
transmitted and receipt is confirmed, addressed as follows: if to a Guarantor,
at the address set forth adjacent to the Guarantor's signature hereto, and if to
Firestone, at 38 Glen Avenue, Newton Centre, Massachusetts 02159, Attention:
President, facsimile no. (617) 332-8032, or at such address as any party may
designate by notice to the others in writing.
14. GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
construed as having been made in The Commonwealth of Massachusetts, and each
Guarantor agrees that, by entering into this Guaranty, each Guarantor transacted
business in Massachusetts. This Guaranty is intended to take effect as a sealed
instrument and shall be governed by, and construed in accordance with, the laws
of The Commonwealth of Massachusetts. Each Guarantor agrees that any suit for
the enforcement of this Guaranty may be brought in the courts of The
Commonwealth of Massachusetts or any Federal Court sitting therein and consents
to the non-exclusive jurisdiction of such court and to service of process in any
such suit being made upon the Guarantor by mail at the address specified in the
above under "Notices". Each Guarantor hereby waives any objection that such
Guarantor may now or hereafter have to the venue of any such suit or any such
court or that such suit was brought in an inconvenient court.
15. JOINT AND SEVERAL LIABILITY. All references to the Guarantor in
this Guaranty refer to each of the undersigned Guarantors. Each Guarantor is
liable for all of the Obligations of the Customer, and the liability of the
Guarantors is joint and several.
16. MISCELLANEOUS. This Guaranty constitutes the entire agreement of
each Guarantor with respect to the matters set forth herein. The rights and
remedies herein provided are cumulative and not exclusive of any remedies
provided by law or any other agreement, and this Guaranty shall be in addition
to any other guaranty of the Obligations. The invalidity or unenforceability of
any one or more sections of this Guaranty shall not affect the validity or
enforceability of its remaining provisions. Captions are for the ease of
reference only and shall not affect the meaning of the relevant provisions. The
meanings of all defined terms used in this Guaranty shall be equally applicable
to the singular and plural forms of the terms defined.
17. JURY WAIVER. FIRESTONE (BY ITS ACCEPTANCE HEREOF) AND EACH
GUARANTOR AGREE THAT NONE OF THEM, INCLUDING ANY ASSIGNEE OR SUCCESSOR, SHALL
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER
LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS GUARANTY, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM. NEITHER FIRESTONE NOR ANY GUARANTOR SHALL SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY
FIRESTONE AND EACH GUARANTOR, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NEITHER FIRESTONE NOR ANY GUARANTOR HAS AGREED WITH OR REPRESENTED
TO ANY OF THE OTHERS THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered by its duly authorized officer, as of the date first
above stated, as a sealed instrument.
GUARANTOR: ADDRESS OF GUARANTOR:
LEISURE TIME CASINOS & RESORTS, INC. 4258 COMMUNICATIONS DRIVE
NORCROSS, GA 30093
By: /s/
-------------------------------
<PAGE> 1
EXHIBIT 10.63
MERRILL LYNCH LOGO WCMA(R) LOAN AND SECURITY AGREEMENT
================================================================================
WCMA LOAN AND SECURITY AGREEMENT NO. 701-07H43 ("Loan Agreement") dated as of
January 5, 1999, between LEISURE TIME CASINOS & RESORTS, INC., a corporation
organized and existing under the laws of the State of Colorado having its
principal office at 4258 Communications Drive, Norcross , GA 30093 ("Customer"),
and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 701-07H43 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
(iv) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (B) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (C) Customer or any Guarantor shall make a general assignment for the
benefit of creditors; or (D) Customer or any Guarantor shall generally fail to
pay or admit in writing its inability to pay its debts as they become due; or
(E) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent.
(v) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(vi) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Investment Property and Financial Assets of Customer,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 9 (b) hereof.
(vii) "Commitment Expiration Date" shall mean February 4, 1998.
(viii) "Default" shall mean an "Event of Default" as defined in Section 8
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(ix) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (A) no Default shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(B) there shall not have occurred and be continuing any material adverse change
in the business or financial condition of Customer or any Guarantor; (C) all
representations and warranties of Customer or any Guarantor herein or in any
Additional Agreements shall then be true and correct in all material respects;
(D) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (E) MLBFS shall
have received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (F) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (G) any additional
conditions specified in the "WCMA Line of Credit Approval" letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.
<PAGE> 2
(x) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(xi) "Initial Maturity Date" shall mean the first date upon which the WCMA Line
of Credit will expire (subject to renewal in accordance with the terms hereof);
to wit: November 30, 1999.
(xii) "Interest Due Date" shall mean the last Business Day of each calendar
month during the term hereof (or, if Customer makes special arrangements with
MLPF&S, the last Friday of each calendar month during the term hereof).
(xiii) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 3.25% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.
(xiv) "Line Fee" shall mean the fee $5,000.00 payable periodically by Customer
to MLBFS in connection with the WCMA Line of Credit, as provided herein.
(xv) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xvi) "Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.
(xvii) "Maximum WCMA Line of Credit" shall mean $500,000.00.
(xviii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.
(xix) "Permitted Liens" shall mean with respect to the Collateral: (A) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (B) liens in
favor of MLBFS; (C) liens which will be discharged with the proceeds of the
initial WCMA Loan; (D) existing liens upon and leases of Equipment and Fixtures,
if any, together with any future purchase money liens upon and leases of
Equipment and Fixtures; and (E) any other liens expressly permitted in writing
by MLBFS.
(xx) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12-month period thereafter.
(xxi) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 701-07H43 and any
successor Working Capital Management Account of Customer with MLPF&S.
(xxii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(xxiii) "WCMA Loan Balance" shall mean an amount equal the aggregate unpaid
principal amount of all WCMA Loans.
(b) OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, or if earlier, on the date of termination
of the WCMA Line of Credit, the WCMA Loan Balance; (b) interest at the Interest
Rate on the outstanding WCMA Loan Balance, from and including the date on which
the initial WCMA Loan is made until the date of payment of all WCMA Loans in
full; and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the periodic Line Fee and any late charges.
Except as otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this WCMA Promissory Note and this
Loan Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of
-2-
<PAGE> 3
the satisfaction of any of the conditions herein set forth, or a waiver of any
of the terms or conditions hereof. Customer hereby authorizes MLBFS to pay out
of and charge to Customer's WCMA Account on the Activation Date any and all
amounts necessary to fully pay off any bank or other financial institution
having a lien upon any of the Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WCMA Line of Credit pursuant to the terms hereof,
and in addition to WCMA Loans automatically made to pay accrued interest, as
hereafter provided: (i) MLBFS will make WCMA Loans to Customer in such amounts
as Customer may from time to time request in accordance with the terms hereof,
up to an aggregate outstanding amount not to exceed the Maximum WCMA Line of
Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any
time, and request a re-borrowing of amounts repaid on a revolving basis.
Customer may request such WCMA Loans by use of WCMA Checks, FTS, Visa(R)
charges, wire transfers, or such other means of access to the WCMA Line of
Credit as may be permitted by MLBFS from time to time; it being understood that
so long as the WCMA Line of Credit shall be in effect, any charge or debit to
the WCMA Account which but for the WCMA Line of Credit would under the terms of
the WCMA Agreement result in an overdraft, shall be deemed a request by Customer
for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(d) LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. (i) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Activation
Date shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof, such interest will be
automatically charged to the WCMA Account on the applicable Interest Due Date,
and, to the extent not paid with free credit balances or the proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by a
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(ii) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (A) Customer shall not be obligated to pay any Excess
Interest; and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be: (1)
applied as a credit against the then unpaid WCMA Loan Balance, (2) refunded to
the payer thereof, or (3) any combination of the foregoing.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
(g) IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Agreement shall be
in effect: (i) to immediately and prior to application for any other purpose pay
to MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (ii) if such available free credit balances are insufficient
to pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
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(h) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(i) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of each WCMA
Loan shall be used by Customer solely for working capital in the ordinary course
of its business, or, with the prior written consent of MLBFS, for other lawful
business purposes of Customer not prohibited hereby. CUSTOMER AGREES THAT UNDER
NO CIRCUMSTANCES WILL FUNDS BORROWED FROM MLBFS THROUGH THE WCMA LINE OF CREDIT
BE USED: (I) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON
WHATSOEVER, OR (II) TO PURCHASE, CARRY OR TRADE IN SECURITIES, OR REPAY DEBT
INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES, WHETHER IN OR IN CONNECTION
WITH THE WCMA ACCOUNT, ANOTHER ACCOUNT OF CUSTOMER WITH MLPF&S OR AN ACCOUNT OF
CUSTOMER AT ANY OTHER BROKER OR DEALER IN SECURITIES.
(j) RENEWAL AT OPTION OF MLBFS; RIGHT OF CUSTOMER TO TERMINATE. MLBFS may at any
time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by a proposed change in the terms of the WCMA Line of
Credit (other than the extension of the Maturity Date), no such renewal shall
require Customer's approval. Customer shall, however, have the right to
terminate the WCMA Line of Credit at any time upon written notice to MLBFS.
(k) LINE FEES. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to the Initial
Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If the Line
Fee has not heretofore been paid by Customer, Customer hereby authorizes MLBFS,
at its option, to either cause the Line Fee to be paid on the Activation Date
with a WCMA Loan, or invoice Customer for such Line Fee (in which event Customer
shall pay said fee within 5 Business Days after receipt of such invoice). No
delay in the Activation Date, howsoever caused, shall entitle Customer to any
rebate or reduction in the Line Fee or to any extension of the Initial Maturity
Date.
(ii) Customer shall pay an additional Line Fee for each Renewal Year. In
connection therewith, Customer hereby authorizes MLBFS, at its option, to either
cause each such additional Line Fee to be paid with a WCMA Loan on or at any
time after the first Business Day of such Renewal Year or invoiced to Customer
at such time (in which event Customer shall pay such Line Fee within 5 Business
Days after receipt of such invoice). Each Line Fee shall be deemed fully earned
by MLBFS on the date payable by Customer, and no termination of the WCMA Line of
Credit, howsoever caused, shall entitle Customer to any rebate or refund of any
portion of such Line Fee; provided, however, that if Customer shall terminate
the WCMA Line of Credit not later than 5 Business Days after the receipt by
Customer of notice from MLBFS of a renewal of the WCMA Line of Credit, Customer
shall be entitled to a refund of any Line Fee charged by MLBFS for the ensuing
Renewal Year.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(A) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Colorado and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(B) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.
(C) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional Agreements to which
it is a party.
(D) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements to
which Customer or any Guarantor is a party are the respective legal, valid and
binding obligations of Customer and such Guarantor, enforceable against it or
them, as the case may be, in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(E) COLLATERAL. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
(F) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject, in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to
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MLBFS of any Guarantor other than a Business Guarantor are true and correct in
all material respects and fairly represent such Guarantor's financial condition
as of the date of such financial statements (subject, in the case of interim
unaudited financial statements of a Business Guarantor, to normal year-end
adjustments), and since the most recent date of such financial statements, there
has been no material adverse change in such financial condition.
(G) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(H) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(I) COLLATERAL LOCATION. All of the tangible Collateral is located at a Location
of Tangible Collateral.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(A) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer, consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.
(B) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) its statement of profit and loss for the fiscal quarter then ended, and (ii)
a balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer.
(C) OTHER INTERIM REPORTS. Within 45 days after the close of each fiscal quarter
of Customer, Customer shall furnish or cause to be furnished to MLBFS an aging
of Accounts and Chattel Paper and an Inventory report for customer as of the end
of such fiscal quarter, all in reasonable detail and certified by its chief
financial officer.
(D) OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer, any Guarantor or the Collateral.
6. OTHER COVENANTS
Customer further covenants and agrees during the term of this Loan Agreement
that:
(A) FINANCIAL RECORDS; INSPECTION. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(B) TAXES. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer or any
Business Guarantor.
(C) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either the liens and
security interests of MLBFS hereunder or under any of the Additional Agreements,
the financial condition of Customer or any Guarantor, or the continued
operations of Customer or any Business Guarantor.
(D) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; and (iii) any information which indicates that any financial
statements of Customer or any Guarantor fail in any material respect to present
fairly the financial condition and results of operations purported to be
presented in such statements. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy such
event or information.
(E) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
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(F) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor, or (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdiction(s) of
establishment and operation; (iii) neither Customer nor any Business Guarantor
shall engage in any material business substantially different from their
respective business in effect as of the date of application by Customer for
credit from MLBFS, or cease operating any such material business; (iv) neither
Customer nor any Business Guarantor shall cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer
or such Business Guarantor; and (v) neither Customer nor any Business Guarantor
shall cause or permit any material change in its controlling ownership.
(G) MINIMUM TANGIBLE NET WORTH. Customer's "tangible net worth" shall at all
times exceed $1,000,000.00. For the purposes hereof, the term "tangible net
worth" shall mean Customer's net worth as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to: (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer.
(H) DISTRIBUTIONS TO SHAREHOLDERS. Except upon the prior written consent of
MLBFS, Customer shall not in any fiscal year directly or indirectly pay any
dividends or make any other distributions on account of its stock to its
shareholders in an aggregate amount exceeding the net after-tax profits of
Customer for said fiscal year.
(I) ACCELERATED DEBT OR PREPAYMENTS. Except upon the prior written consent of
MLBFS, Customer shall not make any prepayments or directly or indirectly cause
or permit the acceleration of any debt of Customer other than debt to MLBFS and
debt secured by Permitted Liens.
7. COLLATERAL
(A) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(B) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(C) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(D) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(E) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(F) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral, as well
as all obligations with respect to any Location of Tangible Collateral, except
for any such obligations being contested by Customer in good faith by
appropriate proceedings.
(G) LOCATION. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(H) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer and each Business Guarantor shall maintain such other
insurance as may be required by law or is customarily maintained by companies in
a similar business or otherwise reasonably required by MLBFS. All such insurance
policies shall provide that MLBFS will receive not less than 10 days prior
written notice of any cancellation, and shall otherwise be in form and amount
and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall
furnish MLBFS with a copy or certificate of each such policy or policies and,
prior to any expiration or cancellation, each renewal or replacement thereof.
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(I) EVENT OF LOSS. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
deposit into the WCMA Account an amount equal to the actual cash value of such
Collateral as determined by either the insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that any such
deposit shall be accompanied by a like permanent reduction in the Maximum WCMA
Line of Credit. Notwithstanding the foregoing, if at the time of occurrence of
such Event of Loss or any time thereafter prior to replacement or line
reduction, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, then MLBFS may at its sole option, exercisable at any time
while such Event of Default shall be continuing, require Customer to either
replace such Collateral or make a deposit into the WCMA Account and reduce the
Maximum WCMA Line of Credit, as aforesaid.
(J) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(K) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. If the WCMA Loan Balance shall at
any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within five (5) Business Days after
written notice thereof shall have been given by MLBFS to Customer.
(b) OTHER FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement, or shall fail to pay when due
any other Obligations, and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(c) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(d) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
(e) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired. The
existence of such a material impairment shall be determined in a manner
consistent with the intent of Section 1-208 of the UCC.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(i) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
9. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
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(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.
(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and each Guarantor remaining jointly and severally liable for
any amount remaining unpaid after such application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) NOTICES. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
-8-
<PAGE> 9
10. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the collection of any sum payable hereunder or under
any of the Additional Agreements not paid when due, the enforcement of this Loan
Agreement or any of the Additional Agreements and the protection of MLBFS'
rights hereunder or thereunder, excluding, however, salaries and normal overhead
attributable to MLBFS' employees. The obligations of Customer under this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
-9-
<PAGE> 10
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.
(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(o) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (I) NO PROMISE OR COMMITMENT
HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES,
AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMA LINE OF CREDIT
OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OF CREDIT, OR
OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; (II) NO
PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMA LINE OF
CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID OR
BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS; AND
(III) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS
OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF
WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION
OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A
PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ /s/
-----------------------------------------------------------------------------
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/
--------------------------------------------------
-10-
<PAGE> 11
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF WCMA LOAN AND SECURITY AGREEMENT NO.
701-07H43 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND LEISURE
TIME CASINOS & RESORTS, INC.
================================================================================
LOCATIONS OF TANGIBLE COLLATERAL:
1284 Miller Road
P.O. Box 276
Avon, OH 44011
6 Rowe Square
Gloucester, MA 01930
<PAGE> 12
MERRILL LYNCH LOGO SECRETARY'S CERTIFICATE
================================================================================
THE UNDERSIGNED HEREBY CERTIFIES TO MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of LEISURE TIME CASINOS & RESORTS, INC., a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado; and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the _______ day of
____________________, 1998 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS"), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof; all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature thereon, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and THE SIGNATURES SET FORTH BELOW ARE THE
TRUE SIGNATURES OF SAID OFFICERS:
President:
-------------------------------------------------------------
Vice President:
--------------------------------------------------------
Treasurer:
-------------------------------------------------------------
Secretary:
-------------------------------------------------------------
:
----------------- ----------------------------------------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this ________ day of _________________, 1998.
(CORPORATE SEAL) /s/
------------------------------------
Secretary
Printed Name:
------------------------------------
<PAGE> 13
MERRILL LYNCH LOGO UNCONDITIONAL GUARANTY
================================================================================
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with LEISURE TIME CASINOS
& RESORTS, INC., a corporation organized and existing under the laws of the
State of Colorado (with any successor in interest, including, without
limitation, any successor by merger or by operation of law, herein collectively
referred to as "Customer") under: (a) that certain WCMA LOAN AND SECURITY
AGREEMENT NO. 701-07H43 between MLBFS and Customer (the "Loan Agreement"), (b)
any "Additional Agreements", as that term is defined in the Loan Agreement, and
(c) all present and future amendments, restatements, supplements and other
evidences of any extensions, increases, renewals, modifications and other
changes of or to the Loan Agreement or Additional Agreements (collectively, the
"Guaranteed Documents"), THE UNDERSIGNED ("Guarantor") HEREBY UNCONDITIONALLY
GUARANTEES TO MLBFS (subject, however, to the limitation of liability
hereinafter set forth): (i) the prompt and full payment when due, by
acceleration or otherwise, of all sums now or any time hereafter due from
Customer to MLBFS under the Guaranteed Documents, (ii) the prompt, full and
faithful performance and discharge by Customer of each and every other covenant
and warranty of Customer set forth in the Guaranteed Documents, and (iii) the
prompt and full payment and performance of all other indebtedness, liabilities
and obligations of Customer to MLBFS, howsoever created or evidenced, and
whether now existing or hereafter arising (collectively, the "Obligations").
Guarantor further agrees to pay all reasonable costs and expenses (including,
but not limited to, court costs and reasonable attorneys' fees) paid or incurred
by MLBFS in endeavoring to collect or enforce performance of any of the
Obligations, or in enforcing this Guaranty. Guarantor acknowledges that MLBFS is
relying on the execution and delivery of this Guaranty in advancing moneys to or
extending or continuing to extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
Event of Default under the Guaranteed Documents, any or all of the indebtedness
hereby guaranteed then existing shall, at the option of MLBFS, become
immediately due and payable from Guarantor (it being understood, however, that
upon the occurrence of any "Bankruptcy Event", as defined in the Guaranteed
Documents, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or releases of any of
the Obligations or any of MLBFS' rights under any of the Guaranteed Documents;
(b) any acceptance by MLBFS of any collateral or security for, or other
guarantees of, any of the Obligations; (c) any failure, neglect or omission on
the part of MLBFS to realize upon or protect any of the Obligations, or any
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor or any other guarantor, unless
and until all of the Obligations shall have been indefeasibly fully paid and
discharged. Guarantor expressly waives presentment, protest, demand, notice of
dishonor or default, notice of acceptance of this Guaranty, notice of
advancement of funds under the Guaranteed Documents and all other notices and
formalities to which Customer or Guarantor might be entitled, by statute or
otherwise, and, so long as there are any Obligations or MLBFS is committed to
extend credit to Customer, Guarantor waives any right to revoke or terminate
this Guaranty without the express written consent of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts, financial
assets, investment property, securities and any other property of Guarantor
which is in transit to or in the possession, custody or control of MLBFS or
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their
respective agents, bailees or affiliates. Guarantor hereby collaterally assigns
and grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the Uniform Commercial Code.
<PAGE> 14
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
Guarantor warrants and agrees that: (a) unless clearly stated or noted, no
material assets shown on any financial statements of Guarantor heretofore or
hereafter furnished to MLBFS are or will be held in an irrevocable trust,
pension trust, retirement trust, IRA or other trust or form of ownership exempt
from execution by creditors of Guarantor; and, (b) except upon the prior written
consent of MLBFS, which consent will not be unreasonably withheld, Guarantor
will not hereafter transfer any material assets of Guarantor to any trust or
third party if the effect thereof will be to cause such assets to be exempt from
execution by creditors of Guarantor (excluding, however, normal and reasonable
contributions to pension plans, retirement plans, etc., and IRA rollovers).
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and Guarantor's heirs and personal
representatives, and shall inure to the benefit of MLBFS and its successors and
assigns.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by Guarantor and an officer of
MLBFS.
Dated as of January 5, 1999.
Guarantor: Address:
/s/ ALAN JOHNSON
- ------------------------------------------
AL JOHNSON
Witness:
----------------------------------
Printed Name:
-----------------------------
<PAGE> 15
MERRILL LYNCH LOGO UNCONDITIONAL GUARANTY
================================================================================
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with LEISURE TIME CASINOS
& RESORTS, INC., a corporation organized and existing under the laws of the
State of Colorado (with any successor in interest, including, without
limitation, any successor by merger or by operation of law, herein collectively
referred to as "Customer") under: (a) that certain WCMA LOAN AND SECURITY
AGREEMENT NO. 701-07H43 between MLBFS and Customer (the "Loan Agreement"), (b)
any "Additional Agreements", as that term is defined in the Loan Agreement, and
(c) all present and future amendments, restatements, supplements and other
evidences of any extensions, increases, renewals, modifications and other
changes of or to the Loan Agreement or any Additional Agreements (collectively,
the "Guaranteed Documents"), and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, THE UNDERSIGNED,
LEISURE TIME TECHNOLOGY, INC., a corporation organized and existing under the
laws of the State of Georgia ("Guarantor"), HEREBY UNCONDITIONALLY GUARANTEES TO
MLBFS: (i) the prompt and full payment when due, by acceleration or otherwise,
of all sums now or any time hereafter due from Customer to MLBFS under the
Guaranteed Documents, (ii) the prompt, full and faithful performance and
discharge by Customer of each and every other covenant and warranty of Customer
set forth in the Guaranteed Documents, and (iii) the prompt and full payment and
performance of all other indebtedness, liabilities and obligations of Customer
to MLBFS, howsoever created or evidenced, and whether now existing or hereafter
arising (collectively, the "Obligations"). Guarantor further agrees to pay all
reasonable costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect
or enforce performance of any of the Obligations, or in enforcing this Guaranty.
Guarantor acknowledges that MLBFS is relying on the execution and delivery of
this Guaranty in advancing moneys to or extending or continuing to extend credit
to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
default or Event of Default under the Guaranteed Documents, any or all of the
indebtedness hereby guaranteed then existing shall, at the option of MLBFS,
become immediately due and payable from Guarantor (it being understood, however,
that upon the occurrence of any "Bankruptcy Event", as defined in the Guaranteed
Documents, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts, financial
assets, investment property, securities and any other property of Guarantor
which is in transit to or in the possession, custody or control of MLBFS or
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their
respective agents, bailees or affiliates. Guarantor hereby collaterally assigns
and grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the UCC.
<PAGE> 16
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
Dated as of January 5, 1999.
LEISURE TIME TECHNOLOGY, INC.
By: /s/ /s/
-----------------------------------------------------------------------------
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Address of Guarantor:
4258 Communications Drive
Norcross, GA 30093
-2-
<PAGE> 17
MERRILL LYNCH LOGO SECRETARY'S CERTIFICATE
================================================================================
(Guaranty by Corporation)
THE UNDERSIGNED HEREBY CERTIFIES TO MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of LEISURE TIME TECHNOLOGY, INC., a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia; and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the _______ day of
____________________, 1998 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit of
this Corporation to guaranty the obligations of LEISURE TIME CASINOS & RESORTS,
INC. ("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS");
and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered for and on behalf of this Corporation
to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the
obligations of Customer, (ii) any other agreements, instruments and documents
required by MLBFS in connection therewith, including, without limitation, any
agreements, instruments and documents evidencing liens or security interests on
any of the property of this Corporation as collateral for said Unconditional
Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or
future amendments to any of the foregoing; all in such form as such officer
shall approve, as evidenced by his signature thereon; and (b) to do and perform
all such acts and things deemed by any such officer to be necessary or advisable
to carry out and perform the undertakings and agreements of this Corporation set
forth therein; and all prior acts of each of said officers in these premises are
hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and THE SIGNATURES SET FORTH BELOW ARE THE
TRUE SIGNATURES OF SAID OFFICERS:
President: /s/
-------------------------------------------------------------
Vice President:
--------------------------------------------------------
Treasurer:
-------------------------------------------------------------
Secretary:
-------------------------------------------------------------
:
----------------- ----------------------------------------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this ________ day of _________________, 1998.
(CORPORATE SEAL)
--------------------------------------------
Secretary
Printed Name:
--------------------------------------------
<PAGE> 18
MERRILL LYNCH LOGO UNCONDITIONAL GUARANTY
================================================================================
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with LEISURE TIME CASINOS
& RESORTS, INC., a corporation organized and existing under the laws of the
State of Colorado (with any successor in interest, including, without
limitation, any successor by merger or by operation of law, herein collectively
referred to as "Customer") under: (a) that certain WCMA LOAN AND SECURITY
AGREEMENT NO. 701-07H43 between MLBFS and Customer (the "Loan Agreement"), (b)
any "Additional Agreements", as that term is defined in the Loan Agreement, and
(c) all present and future amendments, restatements, supplements and other
evidences of any extensions, increases, renewals, modifications and other
changes of or to the Loan Agreement or any Additional Agreements (collectively,
the "Guaranteed Documents"), and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, THE UNDERSIGNED,
LEISURE TIME CRUISE CORPORATION, a corporation organized and existing under the
laws of the State of Colorado ("Guarantor"), HEREBY UNCONDITIONALLY GUARANTEES
TO MLBFS: (i) the prompt and full payment when due, by acceleration or
otherwise, of all sums now or any time hereafter due from Customer to MLBFS
under the Guaranteed Documents, (ii) the prompt, full and faithful performance
and discharge by Customer of each and every other covenant and warranty of
Customer set forth in the Guaranteed Documents, and (iii) the prompt and full
payment and performance of all other indebtedness, liabilities and obligations
of Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantor further agrees
to pay all reasonable costs and expenses (including, but not limited to, court
costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring
to collect or enforce performance of any of the Obligations, or in enforcing
this Guaranty. Guarantor acknowledges that MLBFS is relying on the execution and
delivery of this Guaranty in advancing moneys to or extending or continuing to
extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
default or Event of Default under the Guaranteed Documents, any or all of the
indebtedness hereby guaranteed then existing shall, at the option of MLBFS,
become immediately due and payable from Guarantor (it being understood, however,
that upon the occurrence of any "Bankruptcy Event", as defined in the Guaranteed
Documents, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
investment property, securities and any other property of Guarantor which is in
transit to or in the possession, custody or control of MLBFS or Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective
agents, bailees or affiliates. Guarantor hereby collaterally assigns and grants
to MLBFS a continuing security interest in all such property as additional
security for the Obligations. Upon the occurrence and during the continuance of
an Event of Default, MLBFS shall have all rights in such property available to
collateral assignees and secured parties under all applicable laws, including,
without limitation, the UCC.
<PAGE> 19
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
Dated as of January 5, 1999.
LEISURE TIME CRUISE CORPORATION
By: /s/ /s/
-----------------------------------------------------------------------------
Signature (2) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Address of Guarantor:
4258 Communications Drive
Norcross, GA 30093
-2-
<PAGE> 20
MERRILL LYNCH LOGO SECRETARY'S CERTIFICATE
================================================================================
(Guaranty by Corporation)
THE UNDERSIGNED HEREBY CERTIFIES TO MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of LEISURE TIME CRUISE CORPORATION, a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado; and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the _______ day of
____________________, 1998 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit of
this Corporation to guaranty the obligations of LEISURE TIME CASINOS & RESORTS,
INC. ("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS");
and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered for and on behalf of this Corporation
to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the
obligations of Customer, (ii) any other agreements, instruments and documents
required by MLBFS in connection therewith, including, without limitation, any
agreements, instruments and documents evidencing liens or security interests on
any of the property of this Corporation as collateral for said Unconditional
Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or
future amendments to any of the foregoing; all in such form as such officer
shall approve, as evidenced by his signature thereon; and (b) to do and perform
all such acts and things deemed by any such officer to be necessary or advisable
to carry out and perform the undertakings and agreements of this Corporation set
forth therein; and all prior acts of each of said officers in these premises are
hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and THE SIGNATURES SET FORTH BELOW ARE THE
TRUE SIGNATURES OF SAID OFFICERS:
President:
-------------------------------------------------------------
Vice President:
--------------------------------------------------------
Treasurer:
-------------------------------------------------------------
Secretary:
-------------------------------------------------------------
:
----------------- ----------------------------------------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this ________ day of _________________, 1998.
(CORPORATE SEAL) /s/
--------------------------------------
Secretary
Printed Name:
<PAGE> 21
MERRILL LYNCH LOGO LANDLORD'S SUBORDINATION AGREEMENT
================================================================================
The undersigned LANDLORD is the record owner and lessor to LEISURE TIME CASINOS
& RESORTS, INC. ("Tenant") of the real property commonly known as 4258
Communications Drive, Norcross , GA 30093 (the "Premises");
Landlord has been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") has or is about to lend moneys to, extend or continue to extend credit
to or for the benefit of, or enter into another financial accommodation with,
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant ("MLBFS' Collateral"); to wit:
All equipment, inventory, removable trade fixtures and other tangible
and intangible personal property now and hereafter owned by Tenant.
Among other conditions thereof, MLBFS has required that Landlord execute and
deliver this Agreement. Accordingly, and for valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Landlord hereby agrees as
follows:
1. Landlord hereby subordinates for the benefit of MLBFS, and with respect to
all present and future obligations of or secured by Tenant to MLBFS, any right
or interest in MLBFS' Collateral which, but for this Agreement, would or might
be prior to the rights and/or security interests of MLBFS, as aforesaid; and
Landlord agrees so long as Tenant shall be obligated to MLBFS, it will not,
without the prior consent of MLBFS, exercise any right under local law to levy
or distrain upon any of MLBFS' Collateral.
2. Landlord further agrees that in the event that MLBFS shall at any time seek
to take possession of or remove all or any part of MLBFS' Collateral from the
Premises, Landlord will not hinder the same or interfere or object thereto, and
Landlord hereby consents to MLBFS' entry upon the Premises for such purposes;
provided, however, that: (i) any such removal shall be made during reasonable
business hours; (ii) MLBFS shall not, without the prior written consent of
Landlord, conduct any public or auction sale on the Premises; and (iii) MLBFS
shall promptly at its expense repair any damage to the Premises directly caused
by any such removal by MLBFS or its agents of MLBFS' Collateral from the
Premises.
This Agreement shall be binding upon and shall inure to the benefit of Landlord
and it successors, assigns, heirs and/or personal representatives, as
applicable, and MLBFS and its successors and assigns.
Dated as of January 5, 1999.
LANDLORD:
-----------------------------------------------------------------------
By: /s/ /s/
-----------------------------------------------------------------------------
(Signature 1 (Signature 2)
- --------------------------------------------------------------------------------
(Printed Name) (Printed Name)
- --------------------------------------------------------------------------------
(Title) (Title)
<PAGE> 22
MERRILL LYNCH LOGO LANDLORD'S SUBORDINATION AGREEMENT
================================================================================
The undersigned LANDLORD is the record owner and lessor to LEISURE TIME CASINOS
& RESORTS, INC. ("Tenant") of the real property commonly known as 1284 Miller
Road, Avon, OH 44011 (the "Premises");
Landlord has been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") has or is about to lend moneys to, extend or continue to extend credit
to or for the benefit of, or enter into another financial accommodation with,
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant ("MLBFS' Collateral"); to wit:
All equipment, inventory, removable trade fixtures and other tangible
and intangible personal property now and hereafter owned by Tenant.
Among other conditions thereof, MLBFS has required that Landlord execute and
deliver this Agreement. Accordingly, and for valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Landlord hereby agrees as
follows:
1. Landlord hereby subordinates for the benefit of MLBFS, and with respect to
all present and future obligations of or secured by Tenant to MLBFS, any right
or interest in MLBFS' Collateral which, but for this Agreement, would or might
be prior to the rights and/or security interests of MLBFS, as aforesaid; and
Landlord agrees so long as Tenant shall be obligated to MLBFS, it will not,
without the prior consent of MLBFS, exercise any right under local law to levy
or distrain upon any of MLBFS' Collateral.
2. Landlord further agrees that in the event that MLBFS shall at any time seek
to take possession of or remove all or any part of MLBFS' Collateral from the
Premises, Landlord will not hinder the same or interfere or object thereto, and
Landlord hereby consents to MLBFS' entry upon the Premises for such purposes;
provided, however, that: (i) any such removal shall be made during reasonable
business hours; (ii) MLBFS shall not, without the prior written consent of
Landlord, conduct any public or auction sale on the Premises; and (iii) MLBFS
shall promptly at its expense repair any damage to the Premises directly caused
by any such removal by MLBFS or its agents of MLBFS' Collateral from the
Premises.
This Agreement shall be binding upon and shall inure to the benefit of Landlord
and it successors, assigns, heirs and/or personal representatives, as
applicable, and MLBFS and its successors and assigns.
Dated as of January 5, 1999.
LANDLORD:
-----------------------------------------------------------------------
By: /s/ /s/
-----------------------------------------------------------------------------
(Signature 1 (Signature 2)
- --------------------------------------------------------------------------------
(Printed Name) (Printed Name)
- --------------------------------------------------------------------------------
(Title) (Title)
<PAGE> 23
MERRILL LYNCH LOGO LANDLORD'S SUBORDINATION AGREEMENT
================================================================================
The undersigned LANDLORD is the record owner and lessor to LEISURE TIME CASINOS
& RESORTS, INC. ("Tenant") of the real property commonly known as 6 Rowe Square,
Gloucester, MA 01930 (the "Premises");
Landlord has been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") has or is about to lend moneys to, extend or continue to extend credit
to or for the benefit of, or enter into another financial accommodation with,
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant ("MLBFS' Collateral"); to wit:
All equipment, inventory, removable trade fixtures and other tangible
and intangible personal property now and hereafter owned by Tenant.
Among other conditions thereof, MLBFS has required that Landlord execute and
deliver this Agreement. Accordingly, and for valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Landlord hereby agrees as
follows:
1. Landlord hereby subordinates for the benefit of MLBFS, and with respect to
all present and future obligations of or secured by Tenant to MLBFS, any right
or interest in MLBFS' Collateral which, but for this Agreement, would or might
be prior to the rights and/or security interests of MLBFS, as aforesaid; and
Landlord agrees so long as Tenant shall be obligated to MLBFS, it will not,
without the prior consent of MLBFS, exercise any right under local law to levy
or distrain upon any of MLBFS' Collateral.
2. Landlord further agrees that in the event that MLBFS shall at any time seek
to take possession of or remove all or any part of MLBFS' Collateral from the
Premises, Landlord will not hinder the same or interfere or object thereto, and
Landlord hereby consents to MLBFS' entry upon the Premises for such purposes;
provided, however, that: (i) any such removal shall be made during reasonable
business hours; (ii) MLBFS shall not, without the prior written consent of
Landlord, conduct any public or auction sale on the Premises; and (iii) MLBFS
shall promptly at its expense repair any damage to the Premises directly caused
by any such removal by MLBFS or its agents of MLBFS' Collateral from the
Premises.
This Agreement shall be binding upon and shall inure to the benefit of Landlord
and it successors, assigns, heirs and/or personal representatives, as
applicable, and MLBFS and its successors and assigns.
Dated as of January 5, 1999.
LANDLORD:
-----------------------------------------------------------------------
By: /s/ /s/
-----------------------------------------------------------------------------
(Signature 1 (Signature 2)
- --------------------------------------------------------------------------------
(Printed Name) (Printed Name)
- --------------------------------------------------------------------------------
(Title) (Title)
<PAGE> 24
Private Client Group
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
(312) 269-1366
FAX: (312) 845-9093
MERRILL LYNCH LOGO
January 5, 1999
Mrs. Mary Olszewski
Leisure Time Casinos & Resorts, Inc.
4258 Communications Drive
Norcross , GA 30093
Re: WCMA LINE OF CREDIT APPROVAL
Dear Mrs. Olszewski,
As I believe you know, we have approved the request of Leisure Time Casinos &
Resorts, Inc. ("Customer") for a WCMA Line of Credit upon the terms and
conditions set forth in the enclosed documents ("Loan Documents").
For your information, the following are some of the principal terms of the
approval:
MAXIMUM WCMA LINE OF CREDIT: $500,000.00.
WCMA INTEREST RATE: Variable at a per annum rate equal to the sum of
3.25% plus the 30-Day Commercial Paper Rate (as published in The Wall
Street Journal), based upon actual days elapsed over a 360-day year.
INITIAL EXPIRATION DATE: November 30, 1999 (subject to renewal annually
thereafter).
ANNUAL WCMA LINE FEE: $5,000.00.
Please refer to the Loan Documents for a complete statement of the terms.
In addition to conditions set forth in the Loan Documents, our approval is
subject to:
(a) The valid subscription and continued maintenance by Customer of a Working
Capital Management Account with Merrill Lynch, Pierce, Fenner and Smith
Incorporated for use in connection with the WCMA Line of Credit, which
subscription and maintenance shall be evidenced on Merrill Lynch's computer
system.
(b) Our receipt of all of the Loan Documents together with any additional
documents contemplated thereby or otherwise reasonably required by us, all of
which shall be duly executed and, if applicable, recorded, and all of which
shall be in form and substance satisfactory to us.
(c) Acceptance by us in writing of the executed Loan Documents at our office in
Chicago after review and a final determination by us of the consistency of the
Loan Documents with our original internal credit approval. (Without limiting the
foregoing, it should be understood that prior to such acceptance we are not
bound by any clerical or other errors in or omissions from the Loan Documents.)
<PAGE> 25
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Leisure Time Casinos & Resorts, Inc.
July 19, 1999
Page No. 2
(d) Our continuing satisfaction with the financial condition of Customer and
each guarantor of Customer's obligations to us.
(e) There not occurring any event which under the terms of the Loan Documents
would constitute a Default.
(f) Evidence satisfactory to us of the perfection and priority of any liens
required by us in the Loan Documents.
(g) Our receipt of a Certificate of Insurance satisfactory to us evidencing a
policy or policies of physical damage insurance on the tangible collateral
described in the Loan Documents, and PROVIDING THAT LOSSES SHALL BE PAYABLE TO
US AS OUR INTERESTS MAY APPEAR PURSUANT TO A LENDER'S LOSS PAYABLE ENDORSEMENT,
AND THAT WE SHALL RECEIVE NOT LESS THAN 10 DAYS PRIOR NOTICE OF ANY CANCELLATION
OR MATERIAL AMENDMENT.
IN ADDITION TO THE FOREGOING, OUR APPROVAL IS SUBJECT TO OUR RECEIPT (WHERE
APPLICABLE) AND SATISFACTION WITH THE FOLLOWING:
(1) A COPY OF LAWSUIT SETTLEMENT AGREEMENT AND FINAL DISPOSITION;
(2) A COPY OF THE 1997 PERSONAL TAX RETURM FOR ALAN JOHNSON;
(3) REVIEW OF CBR ON ALAN JOHNSON; AND
(4) A COPY OF CUSTOMER REFERENCE.
Our approval will remain open subject to said conditions until December 19,
1998, after which time it shall be void.
Note that the Loan Documents require an initial WCMA Line Fee of $10,000.00.
This fee will be charged to Customer's WCMA Account after the Loan Documents
have been executed and returned to us. Note further that under the terms of the
Loan Documents Customer is responsible for UCC filing and search fees and
expenses.
To assist you in completing the Loan Documents, we have affixed a "Sign Here"
sticker to each page requiring a signature, and have penciled an "x" in front of
each signature line.
In order to minimize signature requirements, we normally seek only one copy of
each of the Loan Documents. After the WCMA Line of Credit has been activated, we
will return a fully executed duplicate copy for your records.
Although we will endeavor to make the WCMA Line of Credit available as soon as
feasible after the conditions of our approval have been met, there may be system
delays of up to several days until actual availability. Accordingly, we suggest
that you contact us prior to your initial use of the WCMA line.
<PAGE> 26
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Leisure Time Casinos & Resorts, Inc.
July 19, 1999
Page No. 3
If you have any questions about our approval or the structure or terms of the
facility, please call Lisa Malinowski at (312) 269-4482. If you have any
questions about the Loan Documents, please call me at (312) 269-1366.
Very truly yours,
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
By: /s/ Scott J. Driza
--------------------------------------
Scott J. Driza
Loan Administrative Manager
cc: Derek McCool
Lisa Malinowski
<PAGE> 27
Interoffice
Memorandum
To: ACCOUNTING DEPARTMENT
From: ANDRIANA TROMBOUKIS
At: MLBFS CHICAGO
Tele: (312) 269-1366
MERRILL LYNCH LOGO Date:
- --------------------------------------------------------------------------------
RE: $1.00 ACTIVATION
Please $1 activate the following WCMA Line of Credit:
WCMA ACCOUNT NUMBER: 701-07H43
CUSTOMER: LEISURE TIME CASINOS & RESORTS, INC.
See attached WCMA Control Form.
- -----------------------------
Andriana Tromboukis
CC: File
<PAGE> 28
<TABLE>
<S> <C> <C>
====================================================================================================================================
WCMA CONTROL FORM
====================================================================================================================================
CUSTOMER: LEISURE TIME CASINOS & RESORTS, INC. WCMA ACCT #: 701-07H43
- ------------------------------------------------------------------------------------------------------------------------------------
STREET: 4258 COMMUNICATIONS DRIVE FED. TAX ID #:
- ------------------------------------------------------------------------------------------------------------------------------------
CITY/ST/ZIP: NORCROSS , GA 30093 SPECIAL PC PAYOUT: [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
CONTACT: MARY OLSZEWSKI PHONE: (770)923-9900 FM NAME: DEREK MCCOOL
- ------------------------------------------------------------------------------------------------------------------------------------
FC: GREG ROSE FC #: 8859 FC PHONE: (770)390-7348
- ------------------------------------------------------------------------------------------------------------------------------------
FC OFFICE: 701 - ATLANTA, GA
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE: 30-DAY COMMERCIAL PAPER RATE INITIAL MATURITY DATE: NOVEMBER 30, 1999 INITIAL LINE FEE: $5,000.00
PLUS 3.25% [ ] RECEIVED [ ] CHARGE TO WCMA
- ------------------------------------------------------------------------------------------------------------------------------------
MAX. LINE OF CREDIT: $500,000.00 FORMULA BASED: NO COLLATERAL: FIRST ON ALL BUSINESS
ASSETS AND A GENERAL LIEN ON ALL
OTHER ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
THIRD PARTY PAYOFF? NO LOAN COVENANTS (NON-STANDARD):
[ ] YES [ ] NO
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GUARANTOR(S): BUSINESS GUARANTOR(S): TRUST GUARANTOR(S):
AL JOHNSON LEISURE TIME TECHNOLOGY, INC. NONE
LEISURE TIME CRUISE CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER ID: 18582 DEAL NUMBER: 18859 ACCOUNT RATING: [ X ] ACCEPTABLE
[ ] GOOD [ ] PRIME
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INITIAL FUNDING PAYOUT SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
DATE PAID PAYEE AMOUNT CUMULATIVE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FUNDING/PAYOUT APPROVAL
- ------------------------------------------------------------------------------------------------------------------------------------
INITIALS DATE COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOCUMENTATION
DEPARTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGER/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCOUNTING ACTIVATION SIGNOFF
- ------------------------------------------------------------------------------------------------------------------------------------
INITIALS DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SYSTEMS/AUDIT
- ------------------------------------------------------------------------------------------------------------------------------------
SYSTEMS SIGNOFF SYSTEMS AUDIT UCC AUDIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIALS
- ------------------------------------------------------------------------------------------------------------------------------------
DATE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
<TABLE>
====================================================================================================================================
WCMA DOCUMENT CHECKLIST
====================================================================================================================================
CUSTOMER: LEISURE TIME CASINOS & RESORTS, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
DOCUMENT REQ REC P/F WAIV COMMENTS REF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CREDIT APPROVAL X X A
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN AGREEMENT X B
- ------------------------------------------------------------------------------------------------------------------------------------
LETTER OF CREDIT SUPPLEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
CERT. OF SECY./PART./LLC CERT. - LOAN AGREE. X
- ------------------------------------------------------------------------------------------------------------------------------------
EVIDENCE OF GOOD STANDING X
- ------------------------------------------------------------------------------------------------------------------------------------
GUARANTIES - CORPORATION / PARTNERSHIP / LLC X
- ------------------------------------------------------------------------------------------------------------------------------------
CERT. OF SECY. / PARTNER CERT. / LLC - X
GUARANTY
- ------------------------------------------------------------------------------------------------------------------------------------
GUARANTIES - INDIVIDUAL X
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY AGREEMENT - THIRD PARTY
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS SECURITY AGREE.
- ------------------------------------------------------------------------------------------------------------------------------------
SPOUSAL CONSENT
- ------------------------------------------------------------------------------------------------------------------------------------
SUBORDINATION AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
LANDLORD SUBORDINATION X
- ------------------------------------------------------------------------------------------------------------------------------------
PHYSICAL DAMAGE INSURANCE X EXPIRES ON:
- ------------------------------------------------------------------------------------------------------------------------------------
UCC - LIEN SEARCH X
- ------------------------------------------------------------------------------------------------------------------------------------
STATE UCC FILING - X DATE OF FILING:
STATE(S) WHERE REQUIRED:
COLORADO
- ------------------------------------------------------------------------------------------------------------------------------------
LOCAL UCC FILING- DATE OF FILING:
NA
- ------------------------------------------------------------------------------------------------------------------------------------
UCC - TERMINATION/ SUBORDINATION
- ------------------------------------------------------------------------------------------------------------------------------------
BANK PAYOFF LETTER/CUSTOMER AUTHORIZATION
- ------------------------------------------------------------------------------------------------------------------------------------
APPROVAL LETTER X X
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
POST-FUNDING FOLLOW-UP
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM APPROVED BY IN POWER 2 (INITIAL)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Leisure Time Casinos & Resorts, Inc.
July 19, 1999
Page No. 4
Private Client Group
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
33 West Monroe Street
MERRILL LYNCH LOGO 22nd Floor
Chicago, Illinois 60603
(312) 269-4435
FAX: (312) 845-9093
February 18, 1999
Leisure Time Casinos & Resorts, Inc.
4258 Communications Drive
Norcross, GA 30093
RE: TEMPORARY WCMA LINE OF CREDIT INCREASE
Ladies & Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and Leisure Time Casinos & Resorts,
Inc. ("Customer") with respect to: (i) that certain WCMA LOAN AND SECURITY
AGREEMENT NO. 701-07H43 between MLBFS and Customer (including any previous
amendments and extensions thereof), and (ii) all other agreements between MLBFS
and Customer or any party who has guaranteed or provided collateral for
Customer's obligations to MLBFS ("Guarantor") in connection therewith
(collectively, the "Loan Documents"). Capitalized terms used herein and not
defined herein shall have the meaning set forth in the Loan Documents.
Subject to the terms hereof, effective as of the "Effective Date" (as defined
below) the Loan Documents are hereby amended as follows:
1. During the period between the Effective Date and June 30, 1999 (the "Increase
End Date"), the term "Maximum WCMA Line of Credit" shall mean $1,000,000.00.
2. Commencing on the first Business Day immediately following the Increase End
Date, and continuing thereafter to and including the Maturity Date, the "Maximum
WCMA Line of Credit" shall be reduced to $500,000.00. PRIOR TO THE CLOSE OF
BUSINESS ON THE INCREASE END DATE, CUSTOMER SHALL REPAY ANY AMOUNT OUTSTANDING
IN EXCESS OF SUCH REDUCED MAXIMUM WCMA LINE OF CREDIT.
3. In connection with said temporary increase, Customer agrees to pay MLBFS a
fee of $1,667.00. Customer hereby authorizes and directs MLBFS to charge the
said fee to WCMA Account No. 701-07H43 on or at any time after the Effective
Date.
Except as expressly amended hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions.
By their execution of this Letter Agreement, the below-named Guarantors hereby
consent to the foregoing modifications to the Loan Documents, and hereby agree
that the "Obligations" under their Unconditional Guaranty shall extend to and
include the Obligations of Customer under the Loan Documents, as amended hereby.
Customer and said Guarantors acknowledge, warrant and agree, as a primary
inducement to MLBFS to enter into this Agreement, that: (a) no Default or Event
of Default has occurred and is continuing under the Loan Documents; (b) each of
the warranties of Customer in the Loan Documents are true and correct as of the
date hereof and shall be deemed remade as of the date hereof; (c) neither
Customer nor any of said Guarantors have any claim against MLBFS or any of its
affiliates arising out of or in connection with the Loan Documents or any other
matter whatsoever; and (d) neither Customer nor any of said Guarantors have any
defense to payment of any amounts owing, or any right of counterclaim for any
reason under, the Loan Documents.
The obligations of MLBFS under this Letter Agreement are subject to its receipt
(where applicable) and satisfaction with the following:
The current A/R Agings and Inventory Report of Customer.
Provided that no Event of Default, or event which with the giving of notice,
passage of time, or both, would constitute an Event of Default, shall then have
occurred and be continuing under the terms of the Loan Documents, and the
condition specified above shall have been met to our satisfaction, the
amendments and agreements in this Letter Agreement will become effective on the
date (the "Effective Date") upon which: (a)
<PAGE> 31
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Leisure Time Casinos & Resorts, Inc.
July 19, 1999
Page No. 5
Customer and the Guarantors shall have executed and returned the duplicate copy
of this Letter Agreement enclosed herewith; and (b) an officer of MLBFS shall
have reviewed and approved this Letter Agreement as being consistent in all
respects with the original internal authorization hereof.
Notwithstanding the foregoing, if Customer and the Guarantors do not execute and
return the duplicate copy of this Letter Agreement within 14 days from the date
hereof, or if for any other reason (other than the sole fault of MLBFS) the
Effective Date shall not occur within said 14-day period, then all of said
amendments and agreements will, at the sole option of MLBFS, be void.
Very truly yours,
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/
----------------------------------------------
Lisa Childs
Division Documentation Administrator
Accepted:
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------
Approved:
LEISURE TIME TECHNOLOGY, INC.
By: /s/
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------
LEISURE TIME CRUISE CORPORATION
By: /s/
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------
/s/
- -------------------------------------------------
AL JOHNSON
/s/
- -------------------------------------------------
MICHAEL R. PACE
<PAGE> 32
Private Client Group
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
33 West Monroe Street
22nd Floor
MERRILL LYNCH LOGO Chicago, Illinois 60603
(312) 269-4435
FAX: (312) 845-9093
February 18, 1999
Ms. Mary Olszewski
Leisure Time Casinos & Resorts, Inc.
4258 Communications Drive
Norcross, GA 30093
Re: TEMPORARY WCMA LINE OF CREDIT INCREASE
Dear Ms. Olszewski,
I am pleased to advise you that the request of Leisure Time Casinos & Resorts,
Inc. for a temporary increase of its WCMA Line of Credit has been approved upon
the terms set forth in the enclosed Letter Agreement.
Note that, among other conditions in said Letter Agreement, in order for this
temporary increase to become effective, one copy of the enclosed Letter
Agreement must be fully executed and returned to me within 14 days from the date
hereof. Please note further that due to internal processing requirements it may
take a few days after such execution and return before the increased line of
credit is actually available. Accordingly, I recommend that you call me if you
have need to immediately use the increased portion of the line.
If you have such an immediate need or have any questions, please call me at
(312) 269-4435.
Very truly yours,
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/
--------------------------------------------
Lisa Childs
Division Documentation Administrator
cc: Derek McCool
<PAGE> 33
MERRILL LYNCH LOGO
================================================================================
WCMA LINE OF CREDIT TEMPORARY INCREASE AUTHORIZATION
CUSTOMER: LEISURE TIME CASINOS & RESORTS, INC.
WCMA ACCOUNT NUMBER: 701-07H43
MAXIMUM WCMA LINE OF CREDIT: $
----------------------
MATURITY DATE: JANUARY 31, 2000
TEMPORARY INCREASE FEE: $1,667.00
DATE OF TEMPORARY INCREASE:
------------------------------
- --------------------------------------------------------------------------------
TEMPORARY INCREASE APPROVED BY:
- --------------------------------------------
- --------------------------------------------
ENTERED BY ACCOUNTING:
- --------------------------------------------
<PAGE> 34
<TABLE>
====================================================================================================================================
MERRILL LYNCH LOGO TEMPORARY WCMA INCREASE CONTROL FORM
====================================================================================================================================
<S> <C>
CUSTOMER: LEISURE TIME CASINOS & RESORTS, INC.
====================================================================================================================================
WCMA ACCOUNT NO.: 701-07H43
====================================================================================================================================
WCMA LINE OF CREDIT: UNTIL JUNE 30, 1999, $1,000,000.00; AND
AFTER JUNE 30, 1999, UNTIL JANUARY 31, 2000, $500,000.00
====================================================================================================================================
MATURITY DATE: JANUARY 31, 2000
====================================================================================================================================
DATE INCREASE ENDS: JUNE 30, 1999
====================================================================================================================================
FEE FOR INCREASE: $1,667.00
====================================================================================================================================
INTEREST RATE (IF CHANGED):
====================================================================================================================================
OTHER CHANGES IN TERMS:
====================================================================================================================================
SPECIAL CONDITIONS:
====================================================================================================================================
CREDIT SERVICES NOTIFICATION
============================= ===
</TABLE>
<TABLE>
POST-FUNDING FOLLOW-UP:
====================================================================================================================================
ITEM IN POWER 2 (INITIAL)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<TABLE>
APROVALS:
====================================================================================================================================
INITIALS / COMMENTS DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CREDIT/CLIENT SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPORARY INCREASE ENTERED BY:
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPORARY INCREASE AUDITED BY:
====================================================================================================================================
CUST ID: 18582 DEAL NO: 18859
</TABLE>
<PAGE> 1
EXHIBIT 10.64
AVON, OHIO
OFFICE LEASE
1284 MILLER ROAD
THIS INDENTURE OF LEASE made this 10th day of May, 1999 by and
between ALAN N. JOHNSON, hereinafter referred to as "LANDLORD", and having a
mailing address of 1284 Miller Road, Avon, OH 44011, and LEISURE TIME CASINOS &
RESORTS whose mailing address is 4258 Communications Drive, Norcross, Georgia
30093, hereinafter referred to as "TENANT",
HEREBY WITNESSETH:
ARTICLE I
PREMISES:
1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
upon and subject to the terms and provisions of this Lease, a building,
indicated as The Building, located at 1284 Miller Road, Avon, OH 44011,
sometimes hereinafter referred to as the "Demised Premises".
ARTICLE II
TERM OF LEASE
2.01 To have and to hold the Demised Premises unto Tenant, for the term May
10th, 1999 to June 30, 2000, then month to month until notice of termination by
either party.
2.02 Said month to month tenancy may be terminated at any time by either party
hereto, after June 30, 2000, by giving to the other party not less than one full
month's prior notice in writing.
ARTICLE III
RENT
3.01 Tenant shall pay, or cause to be paid, to Landlord without any setoff or
deduction whatsoever (except as may be otherwise herein expressly provided) and
without any prior demand therefore, at the Landlord's place of business
indicated above a monthly rental of One Thousand Five Hundred Dollars
($1500.00), per month, payable monthly in advance on the 1st day of each and
every month.
Such rents are to be paid in advance, on the first day of each calendar month.
If the Lease shall commence on the day other than the first day of a calendar
month, or shall end on a day other than the last day of a calendar month, the
applicable rental installment for such first or last fractional month shall be
such proportion of the monthly installment as the number of days such fractional
month bears to the total number of days in such calendar month.
1
<PAGE> 2
3.02 The Annual Fixed Rent above specified shall be net to Landlord. Tenant
shall be responsible for the payment of all costs and expenses with respect to
the use, occupancy and maintenance of the Premises, except where otherwise
specified herein.
3.03 Landlord acknowledges that it has received from the Tenant the sum of Three
Thousand Dollars ($3000.00), as consideration of First and Last Month Rent for
the payment of rent and the performance and observance of the agreements and
conditions in this Lease contained on the past of Tenant to be performed and
observed. In the event of any default or defaults in such payment, performance
or observance, Landlord may apply said sum or any part thereof towards the
curing of any such default or defaults and/or towards compensating Landlord for
any loss or damage arising from any such default or defaults. Upon the yielding
up of the Demised Premises at the expiration or earlier termination of this
Lease, if Tenant shall not then be in default or otherwise liable to Landlord,
said sum or the then unapplied balance thereof shall be returned to Tenant. In
the event Landlord's interest in the Building shall be transferred or assigned,
the Lessor shall credit or turn over to such transferee or assignee the First
and Last Month Rent or the unpaid balance thereof In such event, the Tenant
agrees to look only to the transferee or assignee, as the case may be, of the
Landlord with respect to the First and Last Month Rent or the unpaid balance
thereof, its application and return Landlord further covenants that it will not
assign or encumber or attempt to assign or encumber the First and Last Month
Rent deposited herein.
ARTICLE IV
UTILITIES
4.01 Tenant shall pay for electricity used for lighting, service outlets and
HVAC of it's premises directly to respective utility companies. including, but
not limited to, gas, water, electricity, sewer charges, and the like, and shall
pay for heating and air conditioning the Demised Premises and for the cost of
installation of separate metering for the foregoing utilities.
4.02 Tenant shall be solely responsible for supplying and maintaining
appropriate fire extinguishers on the premises in sufficient number and of a
type appropriate to the premises, all as may be proscribed by local fire
department regulations.
4.03 Landlord will supply heating and air conditioning units for Tenants needs,
installed, which the Tenant, at his sole expense will maintain and keep in
repair. Landlord shall assign to Tenant all manufacturers and installers
warranties and guarantees with respect to such equipment, as well as any other
equipment or systems provided as part of Landlord's original construction work.
4.04 Tenant shall be responsible for obtaining a service contract with a
reputable HVAC maintenance and repair Company for purposes of preventative
maintenance and service on said HVAC equipment. Tenant shall also be required to
forward a copy of the service contract to the Landlord within thirty (30) days
of the commencement of this Lease.
4.05 Notwithstanding any provisions of this Lease, Tenant covenants and agrees
that it will not assign this Lease or sublet (which term without limitation,
shall include the granting of
2
<PAGE> 3
concessions, licenses, and the like) the whole or any part of the Demised
Premises without in each instance having first received the express written
consent of Landlord, which consent shall not unreasonably be withheld or
delayed, and in any case where the Landlord shall consent to such assignment or
subletting the Tenant named herein shall remain fully liable for the obligations
of Tenant hereunder, including, without limitation, the obligation to pay the
rents and other amounts provided under this Lease. The restrictions of this
Article IV shall not, however, be applicable to an assignment of this Lease by
Tenant to a subsidiary or controlling corporation, or corporation with or into
which Tenant shall merge or consolidate, provided (and it shall be a condition
of the validity of any such assignment) that such subsidiary or controlling
corporation or corporation into which Tenant shall be merged or consolidated,
agrees directly with Landlord to be bound by all the obligations of Tenant
hereunder, including without limitation the obligation to pay the rent and other
amounts provided for under this Lease, and the covenant against further
assignment; but such assignment shall not relieve the Tenant named herein of any
of its obligations hereunder and Tenant shall remain fully liable therefore.
ARTICLE V
PROPERTY OF LANDLORD AND TENANT
5.01 All lighting fixtures, appliances, heating, ventilating, air conditioning,
plumbing and electrical equipment, piping and wiring and other fixtures at or
serving the Leased Premises, and any replacements thereof, whether deemed part
of the Premises or owned by Landlord at the Commencement of the Term of this
Lease, subsequently purchased by the Landlord, or purchased by Tenant in
accordance with the provisions of this Lease, shall be the property of the
Landlord (or part of the common areas and facilities of the Complex) except
furniture, fixtures, machinery and equipment, wall decorations, and other items
of personal property supplied, purchased and used by Tenant which property may
be removed by Tenant at any time during the Term of this Lease under Leasehold
Improvements.
5.02 Tenant shall, at Tenant's expense, cause all Tenant's personal property and
such of Tenant's Special Installations as may be agreed by the Landlord and
Tenant at or prior to installation, to be removed upon termination of the Lease,
and shall repair any damage to the leased premises caused by such removal.
Except reasonable wear and tear.
5.03 All of the personal property of every kind, nature and description of
Tenant and of all persons claiming by, through or under Tenant which, during the
term of any occupancy of the Leased Premises by Tenant or anyone claiming under
Tenant, may be on the Leased Premises, shall be at the sole risk and hazard of
Tenant and if the whole or any part thereof shall be destroyed or damaged by
fire or other casualty, or by the leakage or bursting of pipes, by theft or from
any other cause, including, especially, loss of income, whether actual or
projected, and whether or not covered by Tenant's insurance, no part of said
loss or damage is to be charged to or to be borne by Landlord except such damage
or loss due to the negligence of Landlord or Landlord's agent.
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ARTICLE VI
INDEMNITY AND PUBLIC LIABILITY INSURANCE
6.01 Tenant agrees to indemnify and save harmless Landlord from and against all
claims of whatever nature arising from any act, omission or negligence of the
Tenant, or Tenant's contractors, licensees, agents, servants or employees, or
arising from any accident, injury or damage whatsoever caused to any person, or
to the property of any person occurring from any accident, injury or damage
occurring outside of the Demised Premises where such accident, damage or injury
results from an act or omission on the part of the Tenant or Tenant's agents or
employees. This indemnity and hold harmless agreement shall include indemnity
against all costs, expenses and liabilities incurred in or in connection with
any such claim or proceeding brought thereon, the defense thereof:
6.02 Tenant agrees to maintain in full force during the term hereof a policy of
public liability and property damage under which Landlord (and such other person
as are in privity of estate with Landlord as may be set out in notice from time
to time) and Tenant are named as insureds, and under which the insurer agrees to
indemnity and hold Landlord and those in privity of estate with Landlord
harmless from and against all costs, expense and/or liability arising out of or
based upon any and all claims, accidents, injuries and damages mentioned in
Section 6.01 of this Article VI. Each such policy shall be noncancelable with
respect to the landlord and Landlord's said designees without ten (10) days
written notice to Landlord and a duplicate original of certificate thereof shall
be delivered to Landlord. The minimum limits of liability of such insurance
shall be One Million Dollars ($1,000,000.00) for injury (or death) to any one
`or more persons in a single occurrence and Fifty Thousand Dollars ($50,000.00)
with respect to damage to property.
ARTICLE VII
LANDLORD'S ACCESS TO PREMISES
7.01 Landlord shall have the right to enter upon the Demised Premises at all
reasonable hours for the purpose of inspecting or of making repairs to the same,
or the building of which they are a part. If repairs are required to be made by
Tenant pursuant to the term hereof, Landlord may demand that Tenant make the
same, forthwith, and if Tenant refuses or neglects to commence such repairs and
complete the same with reasonable dispatch, after such written demand, Landlord
may (but shall not be required to do so) make or cause such repairs to be made.
All such repairs shall be made in such a manner as to not unreasonably interfere
with the business of Tenant.
7.02 For a period commencing ninety (90) days prior to the termination of this
Lease, Landlord may have reasonable access to the premises herein demised for
the purpose of exhibiting the same to prospective tenants.
7.03 Tenant covenants and agrees that it will not do or permit anything to be
done in or upon the Demised Premises or bring in anything or keep anything
therein, which shall increase the rate of insurance on the Demised Premises or
the building of which they are a part above the standard rate of said Demised
Premises and building. Tenant further agrees that in the event it shall cause
said rate to increase .as aforesaid, it will promptly pay to Landlord on demand
any such increase, which sum shall be due and payable as additional rent
hereunder.
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7.03.1 Tenant covenants and agrees that no auction, fire or bankruptcy sales may
be conducted within the Demised Premises without the previous written consent of
the Landlord, which consent shall not be unreasonably withheld.
7.03.2 Except as specifically herein otherwise provided, Tenant agrees that,
from and after the date that possession of the Demised Premises is delivered to
Tenant and until the end of the term hereof, it will keep neat and clean and
maintain in good order, condition and repair the Demised Premises and every part
thereof, including, without limitation, the store front and the exterior and
interior portions of all doors, windows, plate glass and showcases surrounding
the Demised Premises, all plumbing and sewage facilities within the Demised
Premises, fixtures and interior walls, floors, ceilings, signs. (including
exterior signs where permitted), and all wiring electrical systems, interior
building appliances and similar equipment, except for any damage to any such
item caused by any act or negligence of Landlord, its employees, agents,
licensees, contractors or servants. Tenant shall keep the Demised Premises in
reasonably clean and neat condition throughout the Term of this Lease. There is
excepted from this Article damage to such portions of the Demised Premises
originally constructe4 by Landlord as are caused by fire loss of other casualty
loss. Tenant further agrees that the Demised Premises shall be kept in a clean,
sanitary and safe condition in accordance with the laws of the State of Ohio and
ordinance of the City of Avon and in accordance with all directions, rules and
regulations of the Health Officer, Fire Marshall, Building Inspector, and other
proper officers of the governmental agencies having jurisdiction thereover.
Tenant shall not permit or commit any waste.
7.04 Tenant agrees to provide for office cleaning service for the Demised
Premises at it's own expense.
ARTICLE VIII
DEFAULT BY TENANT
8.01 If, (i) the Tenant neglects or fails to pay the rent herein reserved or any
part thereof when due and payable, as herein provided, or if the Tenant neglects
or fails to perform or observe any of the other covenants, agreements or
provisions contained in this Lease which, on the Tenant's part, are to be
performed or observed, and such neglect or failure to pay rent shall continue
for fifteen (15) days after written notice from Landlord, or any default in the
observance or performance of the other covenants, agreements or provisions shall
continue for thirty (30) days after written notice from Landlord without, in
either case, Tenant's having commenced diligently to remedy such default, or
(i.) if the leasehold hereby created shall be taken on execution, or by other
process of law, or (iii) if any assignment shall be made of Tenant's property
for the benefit of creditors, or if a receiver, trustee in bankruptcy, or
similar officer shall be appointed to take charge of all or any part of the
Tenants property by a court of competent jurisdiction, or if a petition is filed
by the Tenant seeking an adjudication of itself as bankrupt or insolvent under
any bankruptcy law or if an involuntary petition is filed against the Tenant and
the appointment of such receiver, trustee or similar officer shall not be
vacated or the proceeding in bankruptcy or insolvency shall not be dismissed
within sixty (60) days then, and in any of the said cases, the Landlord lawfully
may immediately, or at any time thereafter, and without demand or notice enter
upon the Leased Premises or any part thereof, in the name of the whole and
repossess the same as of the Landlord's former estate, and expel the Tenant and
those claiming through or
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under the Tenant and remove their effects, forcibly if necessary, without being
deemed liable for any manner of trespass and without prejudice to any remedies
which might otherwise be used for arrears of rent or preceding breach of
covenant, and upon such re-entry and declaration this Lease shall terminate.
8.02 Tenant covenants that, in case of such termination, or in case of
termination under the provisions of statute by reason of the default of the
Tenant, the Tenant will pay to the Landlord as damages on each rent day a sum
equal to one-twelfth of the Annual Fixed Rent for the remainder of the Term (but
not assuming any extension unless so elected) and, when and as due, any sum or
sums which would have accrued and been payable as additional rent under the
terms hereof had this Lease continued in force, less any amounts actually
received by the Landlord as compensation for the use and occupancy or rental of
the Leased Premises, after deducting reasonable costs and expenses incurred in
connection therewith. Landlord shall diligently undertake to relet the Leased
Premises to mitigate any damages payable by Tenant hereunder.
ARTICLE IX
ALTERATIONS OR ADDITIONS
9.01 The Tenant shall make no structural alterations, additions, installations,
changes and improvements to the Leased Premises without the Landlord's prior
written consent having first been obtained, which consent shall not be
unreasonably withheld or delayed. Tenant shall have the right, at its own
expense, without necessity of obtaining Landlord's approval, to make such
nonstructural alterations, additions, installations, changes and improvements to
the Leased Premises as Tenant may deem necessary or desirable for the conduct of
its business. Any alteration, addition, installation, change or improvement by
Tenant shall be performed at the sole risk, cost and expense of Tenant in a good
and workmanlike manner, so as not to weaken or impair the structure of the
Building or otherwise reduce the value of the Leased Premises and Tenant shall
comply with and conform to all requirements, rules, regulations, laws and
ordinances of all legally constituted authorities relating thereto. Such
alterations, additions, installations, changes or other improvements (except to
the extent they are deemed personal property or Special Installations) shall be
and become part of the realty and the sole absolute property of the Landlord and
shall remain upon and be surrendered with the Leased Premises harmless of and
from any and all mechanics liens or claims which may arise as a result of or in
connection with any alteration, addition or improvement constructed or placed
upon the Leased Premises by the Tenant and to cause to be discharged from the
record promptly upon request of the Landlord any notice of contract or mechanics
lien filed by any person furnishing labor or materials in connection therewith.
9.02 In the performance of any work with respect to an alteration, addition or
improvement, Tenant agrees to maintain or cause its contractors to maintain
insurance, including Workman's Compensation, as required for Tenant's work.
ARTICLE X
LANDLORD'S REMEDIES
10.01 It is covenanted and agreed that if the Tenant shall neglect or fail to
perform or observe
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any of the covenants, terms, provisions or conditions contained in these
presents and on its part to be performed or observed within thirty (30) days.
after receipt of written notice of default, or such additional time as is
reasonably required to correct any such default (except for payment of minimum
rent' or the common area maintenance charges, in which case said period of
notice shall be ten (10) days after receipt of written notice of default) or, if
the estate hereby created shall be taken on execution or by other process of
law, or is Tenant shall be judicially declared bankrupt or insolvent according
to law, or if any assignment shall be made or the property of Tenant for the
benefit of creditors, or if a receiver, guardian, conservator, trustee in
involuntary bankruptcy or other similar officer shall be appointed to take
charge of all or any substantial part of Tenant's property by a court of
competent jurisdiction, or if a petition shall be filed for the reorganization
of Tenant under any provisions of the bankruptcy now or hereafter enacted, and
such proceeding is not dismissed within sixty (60) days after it has begun, or
if Tenant shall file a petition of such reorganization, for arrangements under
any provision of the Bankruptcy Act now or hereafter enacted and providing a
plan for the debtor to settle, satisfy or extend the time for the payment of
debts, then, and in any of the said cases, (but only in such of the foregoing as
may occur are not cured within sixty (60) days after receipt of a written notice
from Landlord) notwithstanding any license of any former breach of covenant or
waiver of the benefit thereof or consent in a former instance, Landlord lawfully
may, immediately, or at any time thereafter, and without demand or notice, enter
into or upon the said premises or any part thereof in the name of the whole and
repossess the same as of his former estate, and expel Tenant and those claiming
through or under it and remove its or their effects without being deemed guilty
of any manner of trespass, and without prejudice to any remedies which might
otherwise be used for arrears of rent or preceding' breach of covenant, and upon
entry, as aforesaid, this Lease shall terminate; and `Tenant covenants and
agrees, notwithstanding any entry or reentry by the Landlord whether by summary
proceeding, termination or otherwise, to pay and be liable for, on the days
originally fixed herein for the payment thereof, amounts equal to the several
installments of rent and other charges reserved as they would, under the terms
of this lease, become due if this Lease had not been terminated or if Landlord
had not entered or reentered, as aforesaid; provided that Tenant shall be
entitled to a credit in the net amount of rent received by Landlord in reletting
after deduction of all expenses incurred in reletting the Demised Premises
(including, without limitation, remodeling costs, connection therewith) - As an
alternative at the election of the Landlord, Tenant will upon such termination
pay to Landlord, as damages, such a sum as at the time of such termination
represents the amount of the excess, if any, of the then value of the total rent
and other benefits which would have accrued to Landlord under this Lease for the
remainder of the Lease Term of the Lease, if the Lease Terms had been fully
complied with by Tenant over and above the then cash rental value (in advance)
of the premises for the balance of the term. Notwithstanding any contrary
provision of the foregoing, Tenant shall not be deemed in default hereunder if
Tenant is engaged in proceedings under Chapter X or XI of the Federal Bankruptcy
Act or the reasonable equivalent or any comparable private restructuring of the
debt of tenant provided that Tenant is not otherwise in default hereunder.
10.02 Landlord shall in no event be in default in the performance of any of his
obligations hereunder unless and until the Landlord has failed to perform such
obligations within thirty (30) days or such additional time as. in reasonably
required to correct any such default, after notice by Tenant to Landlord
properly specifying wherein the Landlord has failed to perform any such
obligations. Notwithstanding the foregoing, Landlord shall act prior to the
expiration of said thirty day period if necessary to protect Tenant's property
or business activities on the Demised Premises.
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10.03 No payment by Tenant, or acceptance by Landlord, of a lesser amount than
shall be due from Tenant to Landlord shall be treated otherwise than as a
payment on account. The acceptance by Landlord of a check for a lesser amount
with an endorsement or statement thereon, or upon any letter accompanying such
check, that such lesser amount is payment in full, shall be given no effect, and
Landlord may accept such check without prejudice to any other rights or remedies
which Landlord may against Tenant. Tenant may make any payment "under protest"
reserving any rights Tenant may have to contest the requirement or propriety of
Tenant making the same.
10.04 Any notice from the Landlord to the Tenant relating to the Leased Premises
or the occupancy thereof or the termination of this Lease shall be deemed duly
served if sent by certified registered mail to the address of 4258
Communications Drive, Norcross, GA 30093 or such other address as Tenant may
hereinafter designate in writing. Any notice from the Tenant to the Landlord
shall be deemed `duly served if sent by certified or registered mail to Landlord
at 1284 Miller Road, Avon, OH 44011, or such other address as Landlord may
hereinafter designate in writing.
10.05 MECHANICTS LIENS: Tenant agrees `immediately to discharge (either by
payment or filing of the necessary bond, or otherwise) any mechanic's,
materialman's or other lien against the Demised Premises and/or the Landlord's
interest therein, which liens may arise out of any payment due, for any labor,
services, materials, supplies or equipment alleged to have been furnished to or
for Tenant, in, upon or about the Demised Premises (but excluding any liens
arising out of labor, etc., provided by the Landlord pursuant to this Lease) and
in no event shall permit the existence of such lien for a period in excess of
twenty (20) days beyond the time said lien takes effect.
10.06 WHEN LEASE BECOMES B1ND1NG: Employees or agents of Landlord have no
authority to make or agree to make a lease or any other agreement or undertaking
in connection herewith. Submission of this document for examination and
negotiation does not constitute an offer to lease, or a reservation or option
for, the premises, and this document shall become effective and binding only
upon the execution and deliver hereof by Landlord and Tenant. All negotiations,
consideration representations, and understandings between Landlord and Tenant
are incorporated herein and may be modified or altered only be agreement in
writing between Landlord and Tenant, and no act or commission or any employee or
agent of Landlord shall alter, change or modify any of the provisions hereof.
10.07 RECORDING: Tenant agrees not to record the within Lease, but each party
hereto agrees on request of the other, to execute a Notice of lease in
recordable form and complying with all applicable Ohio laws and reasonably
satisfactory to Landlord's attorneys. In no event shall such document set forth
the rental or other charges payable by Tenant under this Lease; any such
document shall expressly state that it is executed pursuant to the provisions
contained in this Lease, and is not intended to vary the terms and conditions of
this Lease.
10.08 Where Tenant has notified Landlord in writing of the existence of a breach
or alleged breach respecting the Landlord's duties under this Agreement, the
Tenant will permit the Landlord or his assignee at Landlord's election, to enter
the premises to cure said breach, or to otherwise rectify or remedy what may, at
Landlord's election, be appropriate to do so.
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WITNESS the execution hereof, under seal, on this 10th day of May, 1999 in any
number of counterpart copies, each of which counterpart copies shall be deemed
an original for all purposes, as of the day and year first above written.
BY: "Tenant"
LEISURE TIME CASINOS AND RESORTS
/s/ Elden W. Rance
- --------------------------------------------
Elden W. Rance, Executive Vice President
STATE OF GEORGIA
GWINNETT COUNTY, SS.
Then personally appeared _____________________________________, and acknowledged
the foregoing instrument to be his free act and deed on this ______ day of
_________________________, before me:
Notary Public
---------------------------
My Commission expires:
------------------
BY: "Landlord"
ALAN N. JOHNSON
/s/ Alan N. Johnson
- --------------------------------------------
Alan N. Johnson
STATE OF GEORGIA
GWINNETT COUNTY, SS.
Then personally appeared ____________________________________, and acknowledged
the foregoing instrument to be his free act and deed on this _______ day of
___________________, before me:
Notary Public
-----------------------------
My Commission Expires:
--------------------
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EXHIBIT 10.65
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), effective July 1, 1998, by and
between LEISURE TIME CASINOS & RESORTS, INC., a Colorado corporation (the
"Company"), and BERNARD C. JOHNSON (the "Employee"). The Company hereby employs
the Employee and the Employee hereby accepts employment on the terms and
conditions hereinafter set forth.
1. TERM. Subject to the provisions for termination as provided in
Sections 4 and 5 of this Agreement, the term of this Agreement shall commence on
July 1, 1998, and shall terminate on June 30, 2001. Subject to the provisions
for termination as provided in Sections 4 and 5 of this Agreement, this
Agreement shall be renewed automatically after June 30, 2001, for succeeding one
year periods on the same terms and conditions as contained in this Agreement,
unless the Company or Employee shall, at least 180 days prior to the expiration
of any such renewal date, give written notice of nonrenewal of this Agreement.
2. NATURE OF EMPLOYMENT. The Company hereby employs the Employee as the
Special Projects Administrator of the Company to perform such duties and have
such powers as Employee substantially performed for the Company on the date of
this Agreement as well as those additional duties and powers as may be agreed
upon between the Company and the Employee. The Company may not materially change
the Employee's duties or positions without Employee's consent. The Employee
accepts such employment, agrees to abide by the Articles of Incorporation,
Bylaws, Company policies and the provisions of this Agreement, and agrees to
devote his time and best efforts to his employment under this Agreement as is
reasonably required. Employee may carry on outside activities so long as those
activities do not conflict with nor compete with Employee's job responsibilities
and corporate duties. The Employee shall, at all times, faithfully with due
diligence and to the best of Employee's ability, experience and talent, perform
all the duties hereunder. Unless otherwise agreed to in writing by the Employee,
those services shall be rendered in the Atlanta, Georgia, metropolitan area.
3. COMPENSATION, VACATIONS AND EXPENSES.
a. BASIC SALARY. The Company shall pay to the Employee a base
salary during the term of this Agreement in accordance with the amount
set forth on Schedule A hereof. This amount may be increased as
determined by the Company through an amendment to Schedule A.
b. BONUS. In addition to the basic salary, the Employee will
receive a bonus to be set at the discretion of the board of directors
of the Company. Nothing shall obligate the Company, in the future, to
pay any bonus or bonuses to the Employee.
c. VACATIONS, FRINGE BENEFITS, AND LEAVES OF ABSENCE. The
Employee shall be entitled to an annual vacation of at least that
specified on Schedule A, but in no event less than the minimum vacation
time established by the Company for its employees.
<PAGE> 2
The Employee shall further be entitled to participate in and receive
the benefits provided under any employee benefit program which may be
adopted and maintained by the Company (including, without limitation,
those described on Schedule A) and for which the Employee is eligible
by virtue of his employment hereunder, but only as and to the extent
the Employee would otherwise be eligible as provided in any said
program. The Employee shall also bc entitled to leaves of absence as
the Employee deems necessary and the Company, in its sole discretion,
deems reasonable.
d. REIMBURSEMENT OF EXPENSES. The Employee is authorized to
incur reasonable expenses while performing the Employee's duties under
this Agreement, including expenses for entertainment, travel,
automobile, and similar items incurred on behalf of the Company. The
Company will reimburse the Employee upon the presentation by the
employee of itemized accounts of such expenditures. Expenses over
$5,000 in any month must be approved in writing by the Company before
being incurred by the Employee.
4. TERMINATION OF AGREEMENT.
a. TERMINATION OF EMPLOYEE. The Employee may terminate this
Agreement without cause upon 120 days prior written notice to the
Company. In such event, the Employee shall continue to render the
services required under this Agreement and shall be paid on the regular
payment dates the compensation set forth in Schedule A up to the date
of termination.
b. TERMINATION BY THE COMPANY FOR CAUSE. In the event of
Employee's material failure or refusal to observe the provisions of
this Agreement or perform any of the duties required of Employee under
this Agreement, Employee's fraud, misappropriation or embezzlement of
funds, or conviction for any crime punishable as a felony, the Company
may terminate this Agreement upon written notice of such termination to
the Employee and upon payment by the Company to the Employee for all
compensation accrued under this Agreement to the date of termination.
In the event of a termination of Employee's employment for cause in
accordance with this Section 4.b, the Company shall have no further
obligation to the Employee. However, termination of the Employee's
employment for cause shall not terminate or extinguish the Employee's
obligation or liability to pay to the Company or any of its affiliates
any amount owed to them by the Employee, including, but not limited to,
any amounts misappropriated, embezzled or otherwise obtained by the
Employee by reason of any of the occurrences referred in this Section
4.b without prejudice to any other rights or remedies of the Company or
it affiliates at law or in equity.
c. TERMINATION UPON DEATH OF EMPLOYEE. This Agreement shall
automatically terminate in the event of the Employee's death. In such
case, any accrued compensation or benefits shall inure to the estate of
the Employee, and the payment thereof shall be the only liability the
Company shall have to the Employee's estate.
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5. ILLNESS AND DISABILITY.
a. ILLNESS. If the Employee is unable to perform the services
required under this Agreement by reason of illness or physical injury
not amounting to disability as defined in Section 5.b, the compensation
otherwise payable to the Employee under this Agreement shall be
continued in full for a period of 60 days after the date Employee is
unable to perform such services.
b. DEFINITION OF DISABILITY. For purposes of this Agreement,
the terms "totally disabled," "disabled" and "disability" shall mean
continuous disability as defined in and for the period necessary to
qualify for benefits under any disability income insurance policies on
the Employee paid for by the Company. If no disability insurance is in
effect on the Employee, such terms shall mean continuous disability
which prevents the Employee from performing Employee's normal duties
pursuant to this Agreement. The Employee or agent of the Employee shall
notify the Company in writing as to the Employee's inability to perform
those duties or the Company shall so notify the Employee. If they are
not able to agree as to the existence of disability in 30 days after
receipt of said notice, the determination shall be made by medical
doctors, licensed as such in the State of Georgia, one designated by
the Company and the other by the Employee. If these two physicians
cannot agree, they shall appoint a third licensed medical doctor and
the determination of the majority shall be conclusive and binding on
the Company and the Employee. The fees of all medical doctors shall be
paid by the Company and not by the Employee. For the purposes of this
Agreement, adjudicated mental incompetency shall also be a definition
of disability.
c. SALARY CONTINUATION. If the Employee becomes totally
disabled during the term of this Agreement, the Employee's full salary
shall be continued for a period not to exceed 24 consecutive months,
for the period during which the Employee remains totally disabled or
until the next termination date of the Agreement, whichever is shorter.
If the Company pays premiums on a disability income insurance policy on
the Employee, any proceeds paid to the Employee by reason of disability
under such policy shall be offset against salary continuation payments
due from the Company.
6. CHANGE IN CONTROL. A "change in control" of the Company shall be
deemed to have transpired upon the occurrence after the date hereof of any one
of the following events:
a. at any time any one person (other than Employee), or more
than one person acting as a group, acquires beneficial ownership of the
voting securities of the Company that together with voting securities
beneficially held by such person or group, constitute more than 20% of
the total voting power of the Company's outstanding voting securities;
b. the appointment or election of a majority of the members of
the Company's board of directors who are appointed or elected during
any 24 month period but are not
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endorsed in writing by a majority of those members of the Company's
board of directors who were directors prior to the date of the
appointment or election of the first such new director comprising the
majority; or
c. one person, or more than one person acting as a group,
acquires (or has acquired during the 12 month period ending on the date
of the most recent acquisition by such person or persons) assets from
the Company that have a total fair market value equal to or greater
than one third of the total fair market value of all of the Company's
assets immediately before the acquisition or acquisitions.
At any time after a "change in control" of the Company, the Employee,
at the option of the Employee, shall have the right, upon 30 days' prior written
notice by the Employee to the Company, to cause the Company to repurchase all or
any portion of the common stock of the Company then owned by the Employee at the
higher of (i) the book value thereof as determined by the independent certified
public accountants of the Company based upon the financial statements of the
Company as of the last day of the month prior to the date of such notice, (ii)
the last market value of a share of the Company's common stock established by
the board of directors, or the last price at which the common stock was sold be
the Company or by a shareholder of the Company to any person (other than the
Employee); provided, however, or if the common stock is listed on a national
securities exchange, is admitted to unlisted trading privileges on such an
exchange, or is listed for trading on a trading system of the National
Association of Securities Dealers, Inc., such as the Nasdaq National Market, the
Nasdaq SmallCap Market or the OTC Bulletin Board, then the value shall be the
last reported sale price of the common stock on such an exchange or system on
the last business day prior to the date of such notice or if no such sale is
made on such day, the average of the closing bid prices for the common stock for
such day on such exchange or such system shall be used. Within 30 days after
receipt of such notice, the Company shall pay the Employee the full amount for
such shares of common stock upon delivery of the stock certificates representing
such shares of common stock. The payment shall be in the form of a cashiers'
check or by wire transfer. Also, upon a "change in control" of the Company, the
Employee shall automatically be granted options to purchase the same number of
shares of the Company's common stock as then are issuable upon exercise of
options to purchase the Company's common stock then owned by the Employee. Such
new options shall be immediately exercisable and shall remain exercisable for
ten years. The exercise price thereof shall be $0.01 per share of common stock.
Such new options shall not replace any other options to purchase the Company's
remaining stock then owned by Employee.
7. EMPLOYEE ACTIONS.
a. EMPLOYEE SHALL NOT DISCLOSE INFORMATION. The Employee
recognizes and acknowledges that the list of the Company's and its
subsidiaries' and affiliates' customers, as it may exist from time to
time, and any proprietary or confidential information, including, but
not limited to financial information and information pertaining to the
Company's, its subsidiaries' and affiliates' manufacturing, marketing
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<PAGE> 5
and sales operations, and potential acquisitions, used by the Company
in its business are valuable and unique assets of the Company. The
Employee will not during or after the term of his employment, disclose
the list of the Company's, its subsidiaries' or affiliates' customers
or any part thereof or any propriety or confidential information to any
person, firm, corporation, association, or other entity for any reason
or purpose whatsoever without the prior written consent or
authorization of the board of directors of the Company. Upon
termination of the Employee's employment by the Company, its
subsidiaries or its affiliates, the Employee shall neither take nor
retain any papers, customer lists, manuals, files, or other document or
copies thereof belonging to the Company, its subsidiaries or its
affiliates.
b. NON COMPETE. Employee hereby covenants and agrees that
Employee will not, without the prior written consent of the Company,
directly or indirectly, whether individually or through any entity
controlled by Employee, during the term of this Agreement and for a
period of 3 years from the termination of this Agreement, for any
reason, directly or indirectly, on his own behalf or in the service or
on behalf of others, whether or not for compensation, engage in any
business activity, or have any interest in any person, firm,
corporation or business, through a subsidiary or parent entity or other
entity (whether as a shareholder, agent, joint venturer, security
holder, trustee, partner, consultant, creditor lending credit or money
for the purpose of establishing or operating any such business,
partnership or otherwise) which is competitive with the then existing
business of the Company. Notwithstanding the foregoing, Employee may
own shares of competing companies whose securities are publicly traded,
so long as such securities do not constitute five percent or more of
the outstanding securities of any such company.
c. NON-SOLICITATION. Employee further agrees that as long as
this Agreement remains in effect and for a period of 2 years from its
termination, Employee will not divert any business of the Company
and/or its affiliates or any customers or suppliers of the Company
and/or the Company's and/or its affiliates' business to any other
person, entity or competitor, or induce or attempt to induce, directly
or indirectly, any person to leave his or her employment with the
Company.
d. INTELLECTUAL PROPERTY. Employee shall disclose to the
Company all ideas and business plans developed by the Employee during
the term of Employee's employment which relate to the business of the
Company, its subsidiaries or affiliates or any business conducted by
the Company, its subsidiaries or affiliates. All patents, patent
applications, patent licenses, formulas, inventions, processes,
copyrights, know-how, proprietary information, rights, trademarks, or
trade names, or future improvements thereto developed or conceived of
by the Employee during any period of employment with the Company shall
be promptly disclosed to, and all rights with respect thereto shall be
assigned by the Employee to the Company in consideration of the
remuneration paid or payable to the Employee hereunder.
5
<PAGE> 6
e. REMEDIES. Employee acknowledges and agrees that his
obligations provided in this Section 7 are necessary and reasonable in
order to protect Company and its affiliates and their respective
business and Employee expressly agrees that monetary damages would be
inadequate to compensate Company and/or its affiliates for any breach
by Executive of his covenants and agreements set forth herein.
Accordingly, Employee agrees and acknowledges that any such violation
or threatened violation of this Section 7 will cause irreparable injury
to Company and that, in addition to any other remedies that may be
available, in law, in equity or otherwise, Company and its affiliates
shall be entitled to obtain injunctive relief against the prospective
breach of this Section 7 or the continuation of any such breach by
Employee without the necessity of proving actual damages.
f. Construction. In the event that any provision of this
Section 7 should ever be deemed to exceed the time, geographic, or
other limitations permitted by applicable law, then such provision
shall be reformed to the maximum time geographic, or other limitations
permitted by applicable law. The provisions of this Section 7 shall be
applicable for the period indicated and shall survive the termination
of this Agreement
8. GENERAL MATTERS.
a. GOVERNING LAW. This Agreement shall bc governed by the laws
of the State of Georgia and shall be construed in accordance therewith.
b. NO WAIVER. No provision of this Agreement may be waived
except by an Agreement in writing signed by the waiving party. A waiver
of any term or provision shall not be construed as a waiver of any
other term or provision.
c. AMENDMENT. This Agreement may be amended or altered at any
time, in whole or in part, by filing with this Agreement a written
instrument setting forth such changes, signed by all parties.
d. BINDING EFFECT. This Agreement shall be binding upon the
Employee, the Company, and their successors and assigns.
e. CONSTRUCTION. Throughout this Agreement the singular shall
include the plural, the plural shall include the singular, and the
masculine shall include the feminine wherever the context so requires.
f. TEXT TO CONTROL. The headings of Sections are included
solely for convenience of reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
g. SEVERABILITY. If any provision of this Agreement is
declared by any court of competent jurisdiction to be invalid for any
reason, such invalidity shall not affect the
6
<PAGE> 7
remaining provisions which shall be fully severable, and the Agreement
shall be construed and enforced as if such invalid provision had never
been included.
h. ENTIRE AGREEMENT OF THE PARTIES. The parties agree that
this document contains the entire agreement and understanding between
them in relation to the subject matter hereof, and no representations,
warranties, covenants, understandings, or agreements in relation
thereto exist between the parties except as expressly set forth herein.
i. NOTICES. Every notice or other communication to be given by
either party to the other party with respect to this Agreement, shall
be in writing and shall not be effective for any purpose unless the
same shall be served personally or by national air courier service, or
United States certified mail, return receipt requested, postage
prepaid, addressed, if to the Company at 1284 Miller Road, Avon, Ohio
44011, Attention, Secretary, and if to the Employee at 4258
Communications Drive, Norcross, Georgia 30093, or such other address or
addresses as the Company or the Employee may from time to time
designate by notice given as above provided. Every notice or other
communication hereunder shall be deemed to have been given as of the
third business day following the date of such mailing (or as of any
earlier date evidenced by a receipt from such national air courier
service or the United States Postal Service) or immediately if
personally delivered. Notices not sent in accordance with the foregoing
shall be of no force and effect until received by the foregoing parties
as such addresses specified herein.
j. DUPLICATE ORIGINALS. This Agreement may be executed in
several counterparts, each of which shall be an original but all of
which together shall constitute one and the same instrument.
k. ARBITRATION. Any dispute or controversy of or relating to
this Agreement, or any breach of this Agreement, shall be settled by
arbitration to be held in Norcross, Georgia, in accordance with the
rules then in effect of the American Arbitration Association or any
successor thereto. The decision of the arbitrator shall be final,
conclusive, and binding on the parties to the arbitration. Judgment may
be entered on the arbitrator's decision in any court having
jurisdiction, and the parties irrevocably consent to the jurisdiction
of the Georgia state courts for this purpose. The Company shall pay the
costs and expenses of such arbitration.
l. ATTORNEYS' FEES. In the event that the Company or the
Employee retains an attorney or attorneys to enforce performance of
this Agreement by the other party or to obtain damages or other relief
because of violation of the terms of this Agreement by the other party,
then all reasonable attorneys' fees and costs of arbitration or
litigation are to be borne and paid by the party determined to have
failed to perform this Agreement or to be liable for damages or against
which other relief is granted.
7
<PAGE> 8
m. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of the Executive's
employment to the extent necessary to the intended preservation of such
rights and obligations.
n. REMEDIES CUMULATIVE; NO WAIVER. No remedy conferred upon a
party by this Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be
in addition to any other remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by a party in
exercising any right, remedy or power hereunder or existing at law or
in equity shall be construed as a waiver thereof, and any such right,
remedy or power may be exercised by such party from time to time and as
often as may be deemed expedient or necessary by such party in its sole
discretion.
The parties have executed this Agreement to be effective as of the date
first above written.
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ Alan N. Johnson
----------------------------------------
Alan N. Johnson, President
Attest:
/s/ Gerald J. Boyle
- -----------------------------------
Gerald J. Boyle, Secretary
EMPLOYEE:
/s/ Bernard C. Johnson
----------------------------------------
Bernard C. Johnson
8
<PAGE> 9
SCHEDULE A
DESCRIPTION OF DUTIES AND COMPENSATION
EMPLOYEE: Bernard C. Johnson
POSITION WITH COMPANY: Special Projects Administrator
COMPENSATION:
Base Salary: $150,000
Bonus: Paid at the discretion of the board of directors of the
Company
BENEFITS:
Insurance: Medical, dental, disability (long and short term) and
life to the extent available to all employees of the
Company and paid in accordance with Company policy if
elected by Employee
Automobile: The Company shall provide the employee with such
automobile as is approved by the President of the
Company. All expenses for the operation (including
insurance) and maintenance of such automobile shall be
paid by the Company or reimbursed to the Employee by the
Company.
Vacation: Four weeks (20 business days) each calendar year
commencing January 1, 1998. Such vacation time is
available upon approval by the President of the Company.
Such approval will not be unreasonably withheld upon at
least two week notice by Employee. Vacation time will
not accrue from calendar year to calendar year.
401(k) Plan: Available for Employee's election if eligible.
Medical Reimbursement: Available for Employee's election if eligible.
<PAGE> 10
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") effective
September 9, 1998, is by and between LEISURE TIME CASINOS & RESORTS, INC., a
Colorado corporation (the "Company"), and BERNARD C. JOHNSON (the "Employee").
The Company and the Employee previously entered into an Employment Agreement
that was effective July 1, 1998. This Amendment amends the Employment Agreement
as hereinafter set forth.
1. AMENDMENT TO SECTION 7.a. Section 7.a. of the Agreement is amended
so as amended Section 7.a. reads as follows:
"a. EMPLOYEE SHALL NOT DISCLOSE INFORMATION. The Employee
recognizes and acknowledges that the list of the Company's and its
subsidiaries' and affiliates' customers, as it may exist from time to
time, and any proprietary or confidential information, including, but
not limited to financial information and information pertaining to the
Company's, its subsidiaries' and affiliates' manufacturing, marketing
and sales operations, and potential acquisitions, used by the Company
in its business are valuable and unique assets of the Company. Except
as permitted by the next sentence, the Employee will not during or
after the term of his employment, disclose the list of the Company's,
its subsidiaries' or affiliates' customers or any part thereof or any
propriety or confidential information to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever
without the prior written consent or authorization of the board of
directors of the Company. Notwithstanding the prohibitions contained in
the foregoing sentence, the Employee shall be permitted to disclose
such information during the term of his employment to other persons
employed by the Company or its subsidiaries who have a need to know
such information for a proper purpose related to the business of the
Company or its subsidiaries. Upon termination of the Employee's
employment by the Company, its subsidiaries or its affiliates, the
Employee shall neither take nor retain any papers, customer lists,
manuals, files, or other document or copies thereof belonging to the
Company, its subsidiaries or its affiliates."
2. AMENDMENT TO SECTION 2. The last sentence of the Agreement is
amended so as amended the last sentence of Section 2 reads as follows:
"Unless otherwise agreed to in writing by the Employee, those services
shall be rendered in the Ft. Myers, Florida, metropolitan area."
2
<PAGE> 11
3. AMENDMENT TO SECTION 7.b. Section 7.b. of the Agreement is amended
to delete the words "3 years" therefrom and substitute the words "2 years"
therefor.
4. AMENDMENT TO SECTION 7.e. Section 7.e. of the Agreement is amended
to delete the word "Executive" therefrom and substitute the word "Employee"
therefor.
5. AMENDMENT TO SECTION 8.i. The address to which notices to the
Employee should be sent as set forth in Section 8.i is changed to P. O. Box
2447, Bonita Springs, Florida 34133.
Except as amended herein, the Agreement shall remain in full force and
effect without change.
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ Alan N. Johnson
----------------------------------------
Alan N. Johnson, President
Attest:
/s/ Gerald J. Boyle
- -----------------------------------
Gerald J. Boyle, Secretary
EMPLOYEE:
/s/ Bernard C. Johnson
----------------------------------------
Bernard C. Johnson
3
<PAGE> 1
EXHIBIT 10.66
PROMISSORY NOTE
INSURER ADDRESS: American International Specialty Lines Insurance
Company
Harborside Financial Center
401 Plaza Three, 4th Floor
Jersey City, NJ 07311
DATE: June 18, 1999
PRINCIPAL ADDRESS: Leisure Time Casinos & Resorts
1284 Miller Road
Avon, Ohio 44011-1100
PROMISE TO PAY. In return for value I will and expect to receive on or before
June 25, 1999 the amount of $3,400,000 received, I promise to pay $3,550,000,
plus interest on the balance due, at the rate of 7.6% per year, from the above
date until this Note is paid in full. If more than one person signs this Note,
the word "I" shall mean each person who signs this Note. If such $3,400,000
payment is not received this Note shall be null & void.
The payments will be made to the order of:
INSURER (referred to as "You") at:
A.I. Credit Corp.
160 Water Street
New York, New York 10038
PAYMENTS. I promise to pay you $308,153 on the 18th of each month beginning July
18th. I have the right to pay the entire balance due plus interest accrued to
date at that time.
DEFAULT. I must make the payments required by this Note within five (5) days of
the due date; otherwise you may declare that the Note is in default. No notice
of default is required. Upon default, I must immediately pay you the entire
balance and interest due to the date of payment plus all costs of collection,
including reasonable attorney fees. Each person who signs this Note is
separately liable for the full amount.
GOVERNING LAW. This note will be governed by and interpreted under the laws of
the State of New York.
WAIVER OF RIGHTS. I give up my right to require that you do certain things.
These are: (1) to demand payment (called "presentment"); (2) to notify me of
non-payment (called "Notice of Dishonor"); (3) to obtain an official certified
statement showing non-payment (called a
Page 1 of 2
<PAGE> 2
"protest"). These rights are also given up by all others who are liable on this
Note (such as guarantors and endorsers). You do not give up your right to
declare a default due to any previous delay or failure to declare a default.
/s/ Diana L. Arundale /s/ Elden Rance, EVP
- ----------------------------------- -------------------------------------
Corporate
Diana L. Arundale
Notary Public
Commission Expires 7/8/05 -------------------------------------
Notary Individual
- ----------------------------------- -------------------------------------
Notary Individual
Page 2 of 2
<PAGE> 1
EXHIBIT 10.67
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), effective July 6, 1999, by and
between LEISURE TIME CASINOS & RESORTS, INC., a Colorado corporation (the
"Company"), and ERIC R. DEY (the "Employee"). The Company hereby employs the
Employee and the Employee hereby accepts employment with the Company on the
terms and conditions hereinafter set forth.
1. TERM. Subject to the provisions for termination as hereinafter
provided in this Agreement, the term of this Agreement shall commence effective
on July 6, 1999, and shall terminate on June 30, 2002.
2. NATURE OF EMPLOYMENT. The Company hereby employs the Employee as the
Vice President of Finance of the Company to perform such duties as may be
directed by the President or an Executive Vice President of the Company. The
Employee accepts such employment, agrees to abide by the Articles of
Incorporation, Bylaws, Company policies and the provisions of this Agreement and
agrees to devote his full time and best efforts to his employment under this
Agreement as is reasonably required. The Employee may carry on outside
activities so long as those activities neither conflict nor compete with the
Employee's job responsibilities and corporate duties. The Employee shall at all
times, faithfully with due diligence and to the best of the Employee's ability,
experience and talent, perform all the duties hereunder.
3. COMPENSATION, VACATIONS AND EXPENSES.
A. SALARY. The Company shall pay to the Employee a
salary during the term of this Agreement in accordance with the amounts
set forth on Schedule A hereof. The amounts may be increased as
determined by the Company through an amendment to Schedule A.
B. BONUSES. In addition to salary, on July 16, 1999, the
Company will pay the Employee a $20,000 after tax bonus. Any additional
bonuses will be set at the discretion of the board of directors of the
Company. Nothing shall obligate the Company, in the future, to pay any
additional bonus or bonuses to the Employee.
C. VACATIONS AND FRINGE BENEFITS. The Employee shall be
entitled to an annual vacation of at least the minimum vacation time
established by the Company for its employees. The Employee shall
further be entitled to participate in and receive the benefits provided
under any employee benefit program which may be adopted and maintained
by the Company (including, without limitation, those described on
Schedule A) and for which the Employee is eligible by virtue of
Employee's employment hereunder, but only as and to the extent the
Employee would otherwise be eligible as provided in any said program.
D. REIMBURSEMENT OF EXPENSES. The Company will reimburse
Employee for up to $10,000 of expenses Employee incurs in moving from
Plano, Texas, to the
<PAGE> 2
Atlanta, Georgia metropolitan area, and will pay Employee up to $2,000
of closing costs Employee incurs in connection with the sale of
Employee's current house or in connection with the first purchase by
Employee of a house in the Atlanta, Georgia metropolitan area. In
addition, the Company will reimburse Employee for round trip coach
airfare for up to 2 round trips per month between Atlanta, Georgia, and
Dallas, Texas, for the months of July, August and September, 1999, or
until Employee's family relocates to the Atlanta, Georgia metropolitan
area, whichever is earlier. The Employee is authorized to incur
reasonable expenses while performing the Employee's duties under this
Agreement, including expenses for entertainment, travel, automobile and
similar items incurred on behalf of the Company in an amount consistent
with Company policies. The Company will reimburse the Employee upon the
presentation by the Employee of itemized accounts of all of the
aforementioned expenditures.
4. TERMINATION OF AGREEMENT.
A. TERMINATION BY EMPLOYEE. The Employee may terminate
this Agreement without cause upon 120 days prior written notice to the
Company. In such event, the Employee shall continue to render the
services required under this Agreement and shall be paid on the regular
payment dates the compensation set forth in Schedule A up to the date
of termination.
B. TERMINATION BY THE COMPANY. If the Employee
materially fails or refuses to observe the provisions of this Agreement
or if the Company determines in its sole discretion that the Employee
is not satisfactorily performing any of the duties required of the
Employee under this Agreement, the Company shall give the Employee
written notice of such failure or refusal and, if the Employee does not
correct such failure or refusal within five (5) days after the giving
of such notice, this Agreement may be terminated by the Company
immediately upon written notice of such termination to the Employee and
upon payment by the Company to the Employee for all compensation
accrued under this Agreement to the date of termination. In the event
of the Employee's fraud, misappropriation or embezzlement of funds or
conviction for any crime punishable as a felony, the Company may
terminate this Agreement immediately upon written notice of such
termination to the Employee and upon payment by the Company to the
Employee for all compensation accrued under this Agreement to the date
of termination. In the event of a termination of the Employee's
employment for cause in accordance with this Section 4.b, the Company
shall have no further obligation to the Employee. However, termination
of the Employee's employment for cause shall not terminate or
extinguish the Employee's obligation or liability to pay to the Company
or any of its affiliates any amount owed to them by the Employee,
including, but not limited to, any amounts misappropriated, embezzled
or otherwise obtained by the Employee by reason of any of the
occurrences referred to in this Section 4.b without prejudice to any
other rights or remedies of the Company or its affiliates at law or in
equity.
C. TERMINATION UPON DEATH OF EMPLOYEE. This Agreement
shall automatically terminate in the event of the Employee's death. In
such case, any accrued
2
<PAGE> 3
compensation or benefits shall inure to the estate of the Employee and
the payment thereof shall be the only liability the Company shall have
to the Employee's estate.
5. EMPLOYEE ACTIONS.
A. EMPLOYEE SHALL NOT DISCLOSE INFORMATION. The Employee
recognizes and acknowledges that the list of the customers, as it may
exist from time to time, of the Company (which for purposes of this
section 5 includes the Company's subsidiaries and affiliates) and any
other proprietary or confidential information, including, but not
limited to financial information and information pertaining to the
software, manufacturing, marketing and sales operations, product
pricing, financing operations and potential acquisitions (hereinafter
"Confidential Information"), used by the Company in its business are
valuable and unique assets of the Company. Except as permitted by the
next sentence, the Employee will not during or for a period of three
years after the term of his employment, disclose any Confidential
Information to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever without the prior written
consent or authorization of the board of directors of the Company.
Notwithstanding the prohibitions contained in the foregoing sentence,
the Employee shall be permitted to disclose such information during the
term of his employment to other persons employed by the Company who
have a need to know such information for a proper purpose related to
the business of the Company. Upon termination of the Employee's
employment by the Company, the Employee shall neither take nor retain
any papers, customer lists, manuals, files or other documents or copies
thereof belonging to the Company. To the extent any items of
Confidential Information constitute trade secrets under Georgia law,
Employee's obligations of confidentiality and nondisclosure shall
continue to survive after said three year period to the greatest extent
permitted by applicable law. These rights of the Company are in
addition to those the Company has under the common law or applicable
statutes for the protection of trade secrets.
B. NON-COMPETE. The Employee hereby covenants and agrees
that the Employee will not, without the prior written consent of the
Company, directly or indirectly by assisting others, whether
individually or through any entity controlled by the Employee, during
the term of this Agreement and for a period of two years after the
termination of this Agreement for any reason ( the "Restrictive
Period"), occupy a Competitive Position with any person, firm
corporation or business engaged in designing, developing,
manufacturing, leasing, selling or operating electronic gaming machines
which are supplied to any customer or client of the Company, with whom
the Employee has had "material contact," in the "Geographic Territory."
The Geographic Territory means the following geographic area: South and
Southeast which for purposes of this Agreement consists of the States
of Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina,
South Carolina, Tennessee and West Virginia. The Geographic Territory
shall also comprise of California and Montana. Employee acknowledges
and agrees that Employee has discharged or will discharge employment
responsibilities within the Geographic Territory, and has had or will
have within the Geographic area, material contact with parties who have
an actual or perspective business relationship or business dealings
with the Company. A "Competitive
3
<PAGE> 4
Position" means a position wherein Employee performs or has
responsibility for duties that are the same as or substantially similar
to all or part of those duties actually performed by Employee while
employed by the Company. For the purpose of this section, Employee has
had "material contact" with clients and customers of the Company with
whom Employee dealt as part of or in an effort to further a business
relationship with the Company or about whom Employee received or
reviewed financial, pricing, contract, payment and credit, or other
trade secret, confidential and proprietary information within the two
year period immediately preceding Employee's cessation of employment.
C. NON-SOLICITATION OF COMPANY EMPLOYEES. During the
Employee's employment with the Company and for two years thereafter,
Employee shall not solicit or in any manner encourage employees of the
Company to leave the employ of the Company. The foregoing prohibition
applies only to employees with whom the Employee had material contact
pursuant to Employee's duties during Employee's employment term.
"Material contact" means interaction between the Employee and another
employee of the Company: (i) with whom Employee actually dealt; or (ii)
whose employment or dealings with the Company or services for the
Company were handled, coordinated or supervised by the Employee.
D. NON-SOLICITATION OF COMPANY CUSTOMERS. During the
Employee's employment with the Company and for two years immediately
following cessation of Employee's employment with the Company for any
reason, Employee shall not, on Employee's own behalf or on behalf of
any person, partnership, association, corporation or business
organization, entity or enterprise (except the Company), solicit any
customer of the Company or any representative of any such customer with
a view to selling or providing any product, equipment or service
competitive or potentially competitive with any product, equipment or
service sold or provided by the Company during the two year period
immediately preceding cessation of Employee's employment with the
Company, provided that the restrictions set forth herein shall apply
only to customers of the Company or representatives of such customers
with whom Employee had material contact during such two year period.
"Material contact" exists between Employee and each of the existing
customers of the Company: (i) with whom Employee actually dealt; or
(ii) whose dealings with the Company were handled, coordinated or
supervised by Employee.
E. INTELLECTUAL PROPERTY. The Employee shall disclose to
the Company all ideas and business plans developed by the Employee
during the term of the Employee's employment with the Company which
relate to the business conducted by the Company. All patents, patent
applications, patent licenses, formulas, inventions, improvements,
designs, discoveries, processes, software, copyrights, know-how,
proprietary information, rights, trademarks or trade names or future
improvements thereto developed or conceived of by the Employee during
any period of employment with the Company shall be promptly disclosed
to, and all rights with respect thereto shall be assigned by the
Employee to, the Company in consideration of the remuneration paid or
payable to the Employee hereunder and shall be considered work made for
hire for the Company within the meaning of Title 17 of the United
States Code. The Employee acknowledges that "software" as used in this
4
<PAGE> 5
Section 5.e shall include without limitation all ideas, concepts,
know-how, methods, techniques, structures, information and materials
relating to the software including source code, object and load
modules, requirements specifications, design specifications, design
notes, flow charts, decoding sheets, annotations, documentation and the
structures, organization, sequence, designs, formulas and algorithms
which reside in the software and which are not generally known to the
public or within the industries or trades in which the Company
competes.
F. REMEDIES. The Employee acknowledges and agrees that
Employee's obligations provided in this Section 5 are necessary and
reasonable in order to protect the Company and its business and the
Employee expressly agrees that monetary damages would be inadequate to
compensate the Company for any breach by Employee of Employee's
covenants and agreements set forth herein. Accordingly, Employee agrees
and acknowledges that any such violation or threatened violation of
this Section 5 will cause irreparable injury to the Company and that,
in addition to any other remedies that may be available, in law, in
equity or otherwise, the Company may be entitled to obtain injunctive
relief against the prospective breach of this Section 5 or the
continuation of any such breach by the Employee without the necessity
of proving actual damages.
G. CONSTRUCTION. In the event that any provision of this
Section 5 should ever be deemed to exceed the time, geographic, or
other limitations permitted by applicable law, then such provision
shall be reformed to the maximum time geographic, or other limitations
permitted by applicable law. The provisions of this Section 5 shall be
applicable for the period indicated and shall survive the termination
of this Agreement.
6. CHANGE IN CONTROL. A "change in control" of the Company shall
be deemed to have transpired upon the occurrence after the date hereof of any
one of the following events:
a. at any time any one person (other than Employee), or
more than one person acting as a group, acquires beneficial ownership
of the voting securities of the Company that together with voting
securities beneficially held by such person or group, constitute more
than 20% of the total voting power of the Company's outstanding voting
securities. This provision excludes the current majority owner of the
Company, Alan N. Johnson and any potential investors acting as a group
with Alan N. Johnson;
b. the appointment or election of a majority of the
members of the Company's board of directors who are appointed or
elected during any 24 month period but are not endorsed in writing by a
majority of those members of the Company's board of directors who were
directors prior to the date of the appointment or election of the first
such new director comprising the majority; or
c. one person, or more than one person acting as a
group, acquires (or has acquired during the 12 month period ending on
the date of the most recent acquisition by such person or persons)
assets from the Company that have a total fair market value equal to or
greater than one third of the total fair market value of all of the
Company's assets immediately
5
<PAGE> 6
before the acquisition or acquisitions. This provision excludes the
current majority owner Alan N. Johnson and any potential investors
acting as a group with Alan N. Johnson.
At any time after a "change in control" of the Company, the Employee,
at the option of the Employee, shall have the right, upon 30 days' prior written
notice by the Employee to the Company, to terminate this Agreement and the
Company shall pay Employee 299% of Employee's "base amount" of compensation for
the "base period" as those times are defined in Section 280G of the Internal
Revenue Code of 1986, as amended, in effect as of the date of this Agreement.
Such payment shall be made in one lump sum within 30 days after Employee
terminates this Agreement and shall be made after deducting all required
withholdings.
7. GENERAL MATTERS.
A. GOVERNING LAW. This Agreement shall be governed by
the laws of the State of Georgia and shall be construed in accordance
therewith.
B. NO WAIVER. No provision of this Agreement may be
waived except by an Agreement in writing signed by the waiving party. A
waiver of any term or provision shall not be construed as a waiver of
any other term or provision.
C. AMENDMENT. This Agreement may be amended or altered
at any time, in whole or in part, by filing with this Agreement a
written instrument setting forth such changes, signed by all parties.
D. BINDING EFFECT. This Agreement shall be binding upon
the Employee, the Company and their successors and assigns.
E. CONSTRUCTION. Throughout this Agreement the singular
shall include the plural, the plural shall include the singular and the
masculine shall include the feminine wherever the context so requires.
F. TEXT TO CONTROL. The headings of Sections are
included solely for convenience of reference. If any conflict between
any heading and the text of this Agreement exists, the text shall
control.
G. SEVERABILITY. If any provision of this Agreement is
declared by any court of competent jurisdiction to be invalid for any
reason, such invalidity shall not affect the remaining provisions,
which shall be fully severable, and the Agreement shall be construed
and enforced as if such invalid provision had never been included.
H. ENTIRE AGREEMENT OF THE PARTIES. The parties agree
that this document contains the entire agreement and understanding
between them in relation to the subject matter hereof and no
representations, warranties, covenants, understandings or agreements in
relation thereto exist between the parties except as expressly set
forth herein.
6
<PAGE> 7
I. NOTICES. Every notice or other communication to be
given by either party to the other party with respect to this Agreement
shall be in writing and shall not be effective for any purpose unless
the same shall be served personally or by national air courier service
or United States certified mail, return receipt requested, postage
prepaid, addressed, if to the Company at 4258 Communications Drive,
Norcross, Georgia 30093, Attention, President, and if to the Employee
at 4258 Communications Drive, Norcross, Georgia 30093, or such other
address or addresses as the Company or the Employee may from time to
time designate by written notice given as above provided. Every notice
or other communication hereunder shall be deemed to have been given as
of the third business day following the date of such mailing (or as of
any earlier date evidenced by a receipt from such national air courier
service or the United States Postal Service) or immediately if
personally delivered. Notices not sent in accordance with the foregoing
shall be of no force and effect until received by the foregoing parties
as such addresses specified herein.
J. DUPLICATE ORIGINALS. This Agreement may be executed
in several counterparts, each of which shall be an original but all of
which together shall constitute one and the same instrument.
K. ARBITRATION. Any dispute or controversy of or
relating to this Agreement, or any breach of this Agreement, shall be
settled by arbitration to be held in Atlanta, Georgia, in accordance
with the rules then in effect of the American Arbitration Association
or any successor thereto. The decision of the arbitrator shall be
final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court
having jurisdiction and the parties irrevocably consent to the
jurisdiction of the Georgia state courts for this purpose. The Company
shall pay the costs and expenses of such arbitration.
L. ATTORNEYS' FEES. In the event that the Company or the
Employee retains an attorney or attorneys to enforce performance of
this Agreement by the other party or to obtain damages or other relief
because of violation of the terms of this Agreement by the other party,
then all reasonable attorneys' fees and costs of arbitration or
litigation are to be borne and paid by the party determined to have
failed to perform this Agreement or to be liable for damages or against
which other relief is granted.
M. SURVIVORSHIP. The respective rights and obligations
of the parties hereunder shall survive any termination of the
Employee's employment to the extent necessary to the intended
preservation of such rights and obligations.
N. REMEDIES CUMULATIVE; NO WAIVER. No remedy conferred
upon a party by this Agreement is intended to be exclusive of any other
remedy and each and every such remedy shall be cumulative and shall be
in addition to any other remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by a party in
exercising any right, remedy or power hereunder or existing at law or
in equity shall be construed as a waiver thereof and any such right,
remedy or power may be exercised by such party from
7
<PAGE> 8
time to time and as often as may be deemed expedient or necessary by
such party in such party's sole discretion.
The parties have executed this Agreement to be effective as of the date
first above written.
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ Alan N. Johnson
---------------------------------
Alan N. Johnson, President
Attest:
Gerald J. Boyle
- -------------------------------------
Gerald J. Boyle, Secretary
EMPLOYEE:
/s/ Eric R. Dey
------------------------------------
Eric R. Dey
8
<PAGE> 9
SCHEDULE A
DESCRIPTION OF DUTIES AND COMPENSATION
EMPLOYEE: Eric R. Dey
POSITION WITH COMPANY: Vice President of Finance
COMPENSATION:
Salary: Employee's salary shall be $150,000
per annum. The salary will be
payable in accordance with Company
policy and shall be reduced by all
required withholdings and
withholdings authorized by Employee.
Stock Option: 50,000 Shares of the Common Stock of
Leisure Time Casinos & Resorts, Inc.
exercisable at $12.00 per share and
that vest as to 12,500 shares
immediately, 12,500 shares on
July 6, 2000, 12,500 shares on
July 6, 2001, and 12,500 shares on
July 6, 2002, provided that the
option shall be immediately
exercisable in full upon a change in
control as defined in the Employment
Agreement, all as set forth in the
Stock Option Certificate attached
hereto as Exhibit A.
BENEFITS:
Insurance: Medical, dental, disability (long
and short term) and life to the
extent available to all employees of
the Company and paid in accordance
with Company policy if elected by
Employee.
Automobile
Allowance: The Company shall pay Employee an
automobile allowance of $600 per
month. The cost of the automobile
and all expenses for the operation
(including insurance) and
maintenance of the automobile shall
be paid by Employee.
401(k) Plan: Available for Employee's election if
eligible.
Flexible Spending
Account: Available for Employee's election if
eligible.
<PAGE> 10
EXHIBIT A
OPTION TO PURCHASE 50,000
SHARES OF COMMON STOCK
THIS OPTION IS NONTRANSFERABLE OTHER THAN BY WILL OR THE LAWS OF
DESCENT AND DISTRIBUTION AND THE SHARES UNDERLYING THIS OPTION MAY NOT
BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
STOCK OPTION CERTIFICATE
Leisure Time Casinos & Resorts, Inc., a Colorado corporation
("Company"), for good and valuable consideration, including the incentive to the
Optionee to remain as an employee of the Company or of one of the Company's
subsidiaries as a result of Optionee's ownership or increased ownership of the
Company's $0.001 par value common stock ("Common Stock"), the receipt and
sufficiency of which consideration hereby are acknowledged, irrevocably grants
to the Optionee the option ("Option") to purchase the following number of shares
of the Company's Common Stock, which shares shall hereinafter be referred to as
the "Stock":
OPTIONEE'S NAME NUMBER OF SHARES OF STOCK
--------------- -------------------------
Eric R. Dey 50,000
subject to (i) the terms and conditions of the Company's 1997 Incentive and
Nonstatutory Stock Option Plan ("Plan"), (ii) the rules and regulations for the
administration of the Plan which may be adopted from time to time and (iii) the
following terms and conditions:
1. EXERCISE PRICE. The purchase price ("Exercise Price") for Stock
purchased pursuant to this Option is $12.00 per share of Stock which shall be
paid in full at the time of exercise. The Exercise Price shall be paid in cash
at the time of exercise except that the Company's Board of Directors
administering the Plan ("Board") may, in its sole discretion, permit payment to
be made with Common Stock owned by the Optionee or by surrender of all or part
of this Option on terms and conditions determined by the Board. Optionee shall
have no rights with respect to dividends or have any other rights as a
shareholder with respect to the Stock subject to this Option until Optionee has
given written notice of the exercise of the Option and has paid in full for such
Stock.
2. EXERCISE PERIOD. This Option shall be exercisable and shall expire
in accordance with the following schedule:
<PAGE> 11
NUMBER OF SHARES FIRST EXERCISE DATE EXPIRATION DATE
---------------- ------------------- ---------------
12,500 July 6, 1999 July 5, 2004
12,500 July 6, 2000 July 5, 2005
12,500 July 6, 2001 July 5, 2006
12,500 July 6, 2002 July 5, 2007
Notwithstanding the foregoing, the Option shall become exercisable in
full immediately upon a change in control as such term is defined in the
Employment Agreement dated July 6, 1999, between the Company and the Optionee.
3. NUMBER OF SHARES. This Option shall be exercised only for 100 shares
of Stock or a multiple thereof or for the full number of shares of Stock for
which the Option is then exercisable.
4. REPRESENTATION AS TO STOCK OWNERSHIP. Optionee does not own stock
possessing more than 10% of the total combined voting power or value of all
classes of securities of the Company outstanding ("10% Ownership"). If Optionee
has more than 10% Ownership, the purchase price of the Stock upon exercise of
this Option will be adjusted to reflect an exercise price of 110% of the fair
market value of Common Stock at the close of business as of the date of the
grant of this Option. For purposes of calculating such ownership by Optionee,
the attribution rules of ownership set forth in Section 425(d) of the Internal
Revenue Code of 1986, as amended, ("Code") shall apply.
5. LIMITATIONS ON EXERCISE OF OPTION. To be an incentive stock option
under Section 422 of the Code, the fair value of the options which first become
exercisable under this and all other incentive stock options of Optionee during
any one calendar year may not exceed $100,000. Any portion of this Option which
exceeds such amount shall not be an incentive stock option under Section 422 of
the Code. For purposes of this Section 5, the fair market value of the Common
Stock subject to the Plan or any other plan shall be determined as of the date
such options are granted.
6. DEATH OF OPTIONEE. If Optionee dies during Optionee's employment by
the Company or by one of the Company's subsidiaries or within three months after
Optionee's termination of employment as a result of retirement or disability,
this Option shall be exercisable only as to that portion of the Stock that was
exercisable as of the date of death and only within one year after Optionee's
death or the applicable Expiration Date, whichever is earlier, by the personal
representative or administrator of Optionee's estate or by any person who
acquired the right to exercise this Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in continuous status as an employee 12 months
after the date of death.
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<PAGE> 12
7. RETIREMENT OF OPTIONEE. If Optionee's employment with the Company or
with one of the Company's subsidiaries terminates by reason of retirement, this
Option shall be exercisable only within three months after the date of such
termination, but not later than the applicable Expiration Date and then only to
the extent to which the Option was exercisable at the time of such termination
of employment by retirement. However, if Optionee dies within three months,
after termination of Optionee's employment by retirement, this Option, to the
extent it was exercisable at the time of Optionee's death, shall thereafter be
exercisable for one year after the date of Optionee's death, but not later than
the applicable Expiration Date.
8. DISABILITY OF OPTIONEE. In the event the Optionee is unable to
continue Optionee's employment with the Company or with one of the Company's
subsidiaries as a result of Optionee's total and permanent disability (as
defined in the Plan), Optionee may, but only within 12 months from the date of
termination as a result of such disability, exercise this Option to the extent
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise this Option at the date of
termination, or if Optionee does not exercise this Option (which Optionee was
entitled to exercise) within the time specified herein or by the applicable
Expiration Date, whichever is earlier, the Option shall terminate.
9. TERMINATION OF EMPLOYMENT. If Optionee's employment is terminated
for any reason other than death, disability or retirement, this Option, if it is
exercisable at the time of termination, shall terminate on the applicable
Expiration Date or three months after the date Optionee ceases to be an employee
of the Company or of one of the Company's subsidiaries as is determined by the
Board, whichever is earlier.
10. NONTRANSFERABILITY OF OPTION. This Option may not be transferred by
Optionee otherwise than by will or the laws of descent and distribution. During
Optionee's lifetime, this Option will be exercisable only by Optionee.
11. LEAVE OF ABSENCE. For purposes of this Option, (i) a leave of
absence, duly authorized in writing by the Company, for military service or
sickness, or for any other purpose approved by the Company, if the period of
such leave does not exceed 90 days, and (ii) a leave of absence in excess of 90
days, duly authorized in writing by the Company, provided Optionee's right to
reemployment is guaranteed either by statute or by contract, shall not be deemed
a termination of employment.
12. HOLDING PERIOD OF SHARES. To be an incentive stock option as
defined in the Plan, no Stock acquired upon exercise of this Option shall be
sold or otherwise disposed of, within the meaning of Section 424(c) of the Code,
at any time before two years from the date of this Option or one year after the
date of exercise of this Option. However, if the Optionee transfers such Stock
to a trustee, receiver, or other similar fiduciary in any proceeding under Title
11 of the United States Bankruptcy Law or any other similar insolvency
proceeding at a time when the Optionee is insolvent, the Optionee shall not have
been deemed to have made a transfer or disposition for purposes of this Section
12, nor shall one who acquires the Stock from
3
<PAGE> 13
the Company with another person in joint tenancy be deemed to have made a
transfer or disposition.
13. MANNER OF EXERCISE. Subject to the terms and conditions contained
herein and in the Plan, if applicable, this Option may be exercised in whole or
in part at any time and from time to time after the applicable first exercise
date and prior to the applicable Expiration Date by the delivery of written
notice to any officer or director of the Company other than Optionee, together
with full payment for the Stock purchased. The notice (i) shall state the
election to exercise this Option, (ii) shall state the number of shares of Stock
in respect to which the Option is being exercised, (iii) shall state Optionee's
address, (iv) shall state Optionee's social security number, (v) shall contain
such representations and agreements concerning Optionee's investment intent with
respect to such Stock as shall be satisfactory to the Company's counsel, (vi)
shall state that the Certificate evidencing the Stock may be stamped with a
restrictive legend and the Stock evidenced by such Certificate will constitute
"Restricted Securities" as defined in Rule 144 promulgated under the Securities
Act of 1933, and (vii) shall be signed by Optionee. As a further condition to
the exercise of this Option, the Company may require Optionee to make any
representations and warranties to the Company as may be required by any
applicable law or regulation.
14. AMENDMENT AND ADMINISTRATION. The Board shall have the authority,
consistent with the Plan, to interpret the Plan and this Option, to adopt, amend
and rescind rules and regulations for the administration of the Plan and this
Option, and generally to conduct and administer the Plan and to make all
determinations in connection therewith which may be necessary or advisable, and
all such actions of the Board shall be final and conclusive for all purposes and
binding upon Optionee.
15. MISCELLANEOUS. This Option shall inure to the benefit of and be
binding upon each successor of the Company. All obligations imposed upon and all
rights granted to the Optionee and all rights reserved by the Company under this
Option shall be binding upon and inure to the benefit of Optionee, Optionee's
heirs, personal representatives, administrators and successors. Unless the
context requires otherwise, words denoting the singular may be construed as
denoting the plural, and words of the plural may be construed as denoting the
singular and words of one gender may be construed as denoting such other gender
as is appropriate.
16. WITHHOLDING TAX. To the extent that the exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, Optionee shall deliver to the Company at the time of such exercise
such amount of money or shares of Common Stock as the Company may require to
meet its obligations under applicable tax laws or regulations, and, if Optionee
fails to do so, the Company is authorized to withhold from any cash or stock
remuneration then or thereafter payable to Optionee any tax required to be
withheld as a result of such compensation income. The Company is further
authorized in its discretion to
4
<PAGE> 14
satisfy such withholding requirement out of any cash or Stock distributable to
Optionee upon such exercise.
Dated: July 6, 1999
LEISURE TIME CASINOS & RESORTS, INC.
By:
---------------------------------
Alan N. Johnson, President
Agreed to:
- ----------------------------------------
Eric R. Dey
5
<PAGE> 1
EXHIBIT 10.68
LICENSE AGREEMENT
This License Agreement ("Agreement") is dated and effective July 12,
1999, and is between RADISSON HOTELS INTERNATIONAL, INC., a Delaware
corporation, 1405 Xenium Lane N., Minneapolis, Minnesota 55441-8204 ("Licensor")
and LEISURE TIME HOSPITALITY, INC., an Ohio corporation, 4258 Communications
Drive, Norcross, Georgia 30093 ("Licensee").
1. Radisson System. Licensor licenses a system of various types of
hotels ("System Hotels") employing a proprietary and distinctive system
("System") described in this Agreement and in the Operating Manual. The System
is identified by the name Radisson(R) and certain other trademarks owned by
Licensor ( "Marks"). The System and Marks as they now exist or may be changed in
the future are collectively referred to as the "Distinguishing Characteristics."
2. The Hotel. The "Hotel" includes the real property and all
improvements located at 5700 South Marginal Road, Cleveland, Ohio 44103 (the
"Licensed Location"). The improvements include all buildings, facilities,
appurtenances, improvements, landscaping, furniture, furnishings, fixtures,
equipment and signs and all entry, exit and parking areas. Licensee represents
that it has fee title or leasehold title to the Licensed Location and the Hotel,
without any restrictions that would interfere with the performance of this
Agreement. The Hotel is a Hotel class System Hotel which has or will contain 208
guest rooms. Licensee shall designate the Hotel as the "Radisson Hotel Lakefront
Cleveland" or other name authorized in writing by Licensor.
Licensed Location and Hotel are synonymous unless stated otherwise.
3. Grant and Term of License. Licensor grants Licensee and Licensee
accepts a non-exclusive license ( "License") to develop, own, operate and manage
("Develop") the Hotel using the System and the appropriate Marks at the Licensed
Location, including the right (i) to identify the Hotel and the services offered
by Licensee at the Hotel, and (ii) to promote, market and advertise the Hotel,
all, only in accordance with this Agreement, the Operating Manual and as
otherwise authorized by Licensor. The License commences on the date on which the
Hotel opens for business as a System Hotel ("Opening Date"). Licensor will
perform its obligations under this Agreement so that the Opening Date will occur
no later than April 30, 2000. The License and this Agreement expire on December
31 of the year in which the 20th anniversary of the Opening Date occurs.
Licensee acknowledges (i) that other System licensees may operate under the same
or different forms of agreement, (ii) that the rights and duties of the parties
to those agreements may or may not vary materially from those contained in this
Agreement, and (iii) that complete uniformity in Licensor's enforcement of this
Agreement and the other agreements under various market circumstances may not
always be possible or desirable. Taking the above into account, Licensor
reserves the right at its discretion to vary System standards or the enforcement
of its rights for various System Hotels based upon local conditions, law or
other circumstances, without obligation to Licensee.
4. Development. Licensee shall design and build, or rebuild or
renovate, the Hotel, as applicable, in accordance with the Project Rider which
is attached to and incorporated into this Agreement as Exhibit A.
5. Fees and Other Amounts Payable.
a. Licensor acknowledges receipt of a non-refundable Initial
License Fee of $35,000. If, at any time, the number of guest rooms in
the Hotel is greater than the number set
<PAGE> 2
forth in Paragraph 2, Licensee shall pay an additional fee of $250 for
each rentable guest room in excess of ten (10) over that number before
Licensee opens the additional guest rooms to the public.
b. For each full or partial month within the term of this
Agreement after the Opening Date, Licensee shall pay (without invoice)
to Licensor on or before the 15th day of the following month a Royalty
Fee in an amount equal to 4% of the daily gross room revenue derived
from the operation of the Hotel ("Gross Room Sales"). Gross Room Sales
is determined in accordance with the "Uniform System of Accounts for
Hotels" (Hotel Association of New York City, Inc., Ninth Revised
Edition, 1996) as revised periodically ("Uniform System") and is
exclusive of sales, use, excise, value added or similar taxes imposed
by governmental authorities having jurisdiction.
c. For each full or partial month within the term of this
Agreement after the Opening Date, Licensee shall pay (without invoice)
to the Radisson Marketing Association ("RMA") on or before the 15th day
of the following month, an amount equal to 1 3/4% of the daily Gross
Room Sales ("RMA Fee "). Licensor shall collect, manage and disburse
RMA Fees collected on behalf of the RMA to promote, market and
advertise the Radisson name and System Hotels, to generate business, to
develop and conduct training programs, to provide reservation services
and to pay administrative and other expenses related to the management
of the RMA Fees and the services provided by Licensor and third
parties, including Licensor's share of joint marketing, sales,
advertising and promotional costs in conjunction with Licensor's
affiliates. Licensor will account for the RMA Fees paid by System
Hotels in separate books of account, and furnish Licensee, upon
request, an unaudited annual statement of receipts and disbursements.
The RMA Fees are not held in a trust or escrow account and Licensor
carries no fiduciary responsibility as to those Fees.
d. For each full or partial month within the term of this
Agreement after the Opening Date, Licensee shall pay (without invoice)
to Licensor on or before the 15th day of the following month, an amount
equal to 2% of the daily Gross Room Sales ("Reservation Fee").
e. License shall pay then current charges for reservations
made through the Global Distribution System ("GDS"), other third party
reservation systems, and Licensor's Internet web site which is a part
of the Reservation System. The charges as of the date of this Agreement
are $3.50 for each reservation delivered through the GDS and $2.50 for
each reservation through Licensor's internet web site. Effective
October 1, 1999, the charge for the GDS reservations will be increased
to $3.90 for each reservation delivered through the GDS.
f. Licensee will not cause Gross Room Sales to be reduced in
order to increase business or revenues from Licensee's or the Hotel's
other activities or operations.
g. In addition to the fees referred to above, Licensee will
pay to Licensor, all other fees and charges incurred with respect to
participation in System advertising and marketing programs and for
services rendered by Licensor for which a fee or charge is imposed,
including the SMART program. For each full or partial month within the
term of this Agreement after the Opening Date, Licensee shall pay
(without invoice) to the RMA a SMART program assessment as determined
periodically by Licensor or RMA. The assessment as of the date of this
Agreement is $0.50 per occupied guest room per night. Effective Janaury
1, 2000, the SMART program assessment will be increased to $0.75 per
occupied guest room per night. Such assessments shall be collected,
managed and disbursed by Licensor on behalf of RMA and Licensee's SMART
Group.
2
<PAGE> 3
h. Licensee shall reimburse Licensor for any gross receipts,
sales, use or other similar tax or assessment imposed on any fees or
other amounts payable by Licensee to Licensor by the jurisdiction in
which the Hotel is located, or, if applicable, pay them directly
without deducting them from any payments to Licensor. Unless stated
otherwise in this Agreement, Licensee shall pay all amounts due to
Licensor or its affiliates within ten days after invoice. Amounts not
paid when due shall bear interest at the lesser of 1 1/2% per month or
the maximum rate of interest permitted by applicable law. Licensor may
also assess a late payment fee of up to $100 for each month an amount
due under this Agreement remains delinquent as reimbursement for
Licensor's administrative expenses. This reimbursement is in addition
to amounts which Licensee may have to pay pursuant to the last
subparagraph of Paragraph 13.
i. If requested by Licensor, at any time during the term of
this Agreement, Licensee will comply with the following:
(1) Pay all or any part of the fees and other amounts earned
by Licensor through the electronic transfer of funds or
otherwise at intervals established by Licensor.
(2) Establish a bank account into which Licensee will deposit
sufficient funds to pay all fees and other amounts earned by
Licensor, at intervals established by Licensor, and provide
Licensor with the authority and ability to withdraw funds from
such account in payment of such fees and other amounts,
directly and without any further permission by Licensee.
6. Licensor's Services. Licensor shall:
a. Consult with Licensee periodically on operating and
marketing issues concerning the Hotel.
b. Inspect the Hotel when Licensor deems it necessary to
determine whether Licensee is operating and maintaining the Hotel in
compliance with this Agreement and the Operating Manual. Licensor will
provide Licensee a written report based on that inspection. Such
inspections shall be for the sole purpose of protecting Licensor's
interest in the Distinguishing Characteristics and shall in no way be
construed as the assumption of any duty to control day-to-day operation
and maintenance of the Hotel.
c. Provide Licensee access to the Reservation System. The
Reservation System is a system for accepting and transmitting
reservations to System Hotels through various media including toll free
numbers, the GDS under the chain code authorized by Licensor,
Licensor's Internet web site and other third party services, which may
be retained from time to time for this purpose. The referral of persons
seeking to make a reservation at the Hotel through the Reservation
System, to hotels operating under a brand name of one of Licensor's
affiliates, under circumstances where such referral does not constitute
a diversion of business from the Hotel does not constitute a breach of
this Agreement. Diversion does not occur in circumstances including (i)
there is no System Hotel in the area where the person wants to stay,
(ii) the System Hotel is fully booked, (iii) the System Hotel doesn't
meet the person's requirements in other respects, or (iv) the person is
not going to make the reservation at a System Hotel, but the
reservation can be secured for the affiliate so that the person's needs
are met.
3
<PAGE> 4
d. Subject to applicable deadlines, include the Hotel in
future printings of Licensor's directories and other appropriate
promotional and advertising materials and programs selected by
Licensor.
e. Solicit group meeting, convention, incentive, and travel
agency business for the Hotel, where applicable.
f. At Licensee's request, assist Licensee with its grand
opening ceremony for the Hotel and provide consultation on public
relations for the Hotel.
g. Provide orientation training at a comparable System Hotel
in System standards, policies and procedures for the Hotel's general
manager and other key employees as designated by Licensor.
h. Offer periodic general meetings and training, either
directly or through third parties, in specialized fields at locations
selected by Licensor.
i. Hold System-wide business conferences, the locations and
times to be determined by Licensor.
j. Loan to Licensee and revise periodically an Operating
Manual covering: operating policies and standards; design standards;
public relations, standards of advertising graphics, promotional
programs; other standards, specifications and procedures and other
matters. Licensor may change the Operating Manual by way of additions,
deletions and revisions from time to time and Licensee agrees to
implement such changes as they are communicated to Licensee.
k. At Licensee's request and to the extent available, furnish
on generally the same basis and generally to the same extent as made
available to other System Hotels:
1) Technical consulting advice with respect to: (i)
front office, food and beverage, housekeeping, telephone and
other operational department supervisory and control services;
(ii) maintenance and engineering services; (iii) accounting
and claim services; (iv) personnel and labor relation
services; and (v) consulting on other matters such as
marketing and advertising.
Licensee agrees to pay Licensor, Licensor's
then-current charges for such services and Licensor's related
travel and living expenses, if any. Licensee has no obligation
to accept any recommendations Licensor makes. The
implementation of any recommendations made by Licensor based
on such consultation is solely at Licensee's discretion.
(2) Programs for purchase on a pooled or group basis
of various operating supplies, equipment, signage, furniture
and furnishings, at prices and on terms established
periodically by Licensor or its affiliates providing such
programs.
7. Licensee's Duties. In all matters relating to the management and
operation of the Hotel, Licensee is an independent contractor and is solely
responsible for the manner and means by which the Hotel is operated. Licensee
shall operate the Hotel to achieve conformity with the System standards, and to
do so Licensee, continuously during the term of this Agreement unless stated
otherwise, shall:
4
<PAGE> 5
a. Equip, furnish, operate and maintain the Hotel as a System
Hotel and use the Distinguishing Characteristics, all (i) in accordance
with this Agreement and the Operating Manual, (ii) in conformity with
the high service, moral and ethical standards of the System, (iii) in
compliance with the requirements of governmental authorities, and (iv)
in accordance with sound business and financial practice.
b. Not (i) use any other name or trademark in connection with
the operation of the Hotel without Licensor's consent, (ii) advertise
or permit the advertising of any other hotel that is not part of the
System on the Hotel premises, or (iii) promote the Hotel in conjunction
with other non-System Hotels or motels.
c. Comply with Licensor's requirements and specifications as
to services and products to be used or offered at the Hotel;
d. Permit inspection of the Hotel by Licensor's
representatives at any reasonable time and provide such representatives
with free room and board at the Hotel during such inspection. Upon
notice by Licensor, Licensee shall promptly take steps necessary to
correct any deficiencies identified during an inspection of the Hotel.
e. Discontinue any use of any Distinguishing Characteristic
which does not comply with Licensor's requirements upon notice from
Licensor.
f. Advertise and promote the Hotel and related facilities on a
local or regional basis, including the use of the System toll free
numbers, GDS chain code and Internet sites, strictly in accordance with
the Operating Manual and standards and specifications set periodically
by Licensor, using only materials and programs authorized by Licensor.
g. Refer guests and customers, whenever possible, only to
other System Hotels; use every reasonable means to encourage use of
System Hotels by the traveling public; display, as required, all
brochures, promotional and other material provided with respect to
System Hotels; and allow advertising and promotion only of System
Hotels on the Hotel premises.
h. Use at and for the Hotel, and for reservations offered by
and from the Hotel to other System Hotels, only the Reservation System
in accordance with the Operating Manual .
i. Not establish Licensee's own web site (or participate in
web sites established by others) on the Internet for the purpose of
accepting reservations for the Hotel or other System Hotels.
j. Honor and give first priority on available rooms to
confirmed reservations referred to the Hotel through the Reservation
System.
k. Prior to the Opening Date, purchase and install from Micros
Fidelio the HARMONY Product Suite, and operate HARMONY in accordance
with the Operating Manual. For the purposes of this Agreement, HARMONY
is the Licensor specified computer system which includes components
such as property and product management, guest information, revenue and
statistical information, yield management and availability controls,
database management, interfaces with Licensor's Reservation System and
its other central knowledge systems. If through
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<PAGE> 6
no fault of Licensee, Licensee is unable to install HARMONY prior to
the Opening Date, Licensee must notify Licensor and request an
extension. If Licensor grants the extension Licensee will purchase and
use a printer and other necessary data processing and
telecommunications devices specified by Licensor for the purpose of
handling reservations through the Reservation System and for updating
the Hotel's database until HARMONY is installed.
(i) Licensee acknowledges that continuing
technological improvements may require Licensor to
periodically improve, modify or replace the Reservation System
and HARMONY ("Systems"). In such event, Licensee will
purchase, install and maintain the equipment required by
Licensor in connection with any such improvements or
modifications to, or replacements of, the Systems. Licensor
will use reasonable efforts to give Licensee as much notice as
reasonably possible under the circumstances to accomplish
this.
(ii) Licensor has no liability whatsoever to Licensee
if the Systems become inoperable or cease to function for any
period of time due to equipment failure or for any other
reason or cause, except as a result of Licensor's gross
negligence or willful misconduct.
l. Honor those credit cards designated periodically in the
Operating Manual, and enter into all necessary credit card arrangements
with the issuers of such cards.
m. Feature in guest rooms and public areas of the Hotel, on
articles specified in the Operating Manual, including the brochure
rack, and in advertising and promotional material, the appropriate
Marks, strictly in accordance with the Operating Manual, including
color, form and content; and provide a guest amenity package prescribed
by Licensor in each guest room.
n. Erect, install and maintain System signage in complete
working order on the exterior of and throughout the interior of the
Hotel in accordance with the Operating Manual, and obtain Licensor's
approval of the plans and specifications for all signage prior to
installation.
o. Identify itself as a licensed independently owned and
operated entity with respect to the ownership and operation of the
Hotel on all purchase orders, invoices and other dealings with
suppliers and persons, to make it clear that Licensee is an independent
entity and that Licensor has no liability for Licensee's debts or
conduct, including:
(i) Displaying the Radisson License Agreement Plaque behind
the front desk in the registration area so as to be visible to
guests checking in.
(ii) Posting a notice visible to Hotel employees on the
employee bulletin board, identifying the correct name of their
employer and clearly stating that neither Radisson Hotels
International, Inc. nor Radisson Hotel Corporation is their
employer.
p. Operate the Hotel continuously, either directly or through
a management company authorized by Licensor.
q. Employ as general manager of the Hotel only such person as
Licensor approves; cause the general manager (and other key employees
designated by Licensor) to attend and successfully complete Licensor's
orientation training program prior to their hire at a place
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<PAGE> 7
designated by Licensor; and pay the wages, travel, lodging, food, and
incidental expenses of such persons attending the orientation training.
r. Require the Hotel's general manager to attend the
System-wide business conference and pay an assessment equal to the
Hotel's pro rata share of the cost of meals, guest speakers and
trainers, media presentations and similar items in connection with such
conference, regardless of whether the general manager attends.
s. Require the appropriate Hotel personnel to attend any other
required periodic general meetings and training in specialized fields
at locations selected by Licensor, and pay wages, travel, lodging, food
and incidental expenses for Licensee's employees who attend, and such
reasonable amounts assessed by Licensor to recover Licensor's costs
with respect to such meetings and training.
t. Make no major structural change or changes in the
appearance of the Hotel without Licensor's consent; rehabilitate the
Hotel periodically in accordance with the Operating Manual; and
periodically modernize and upgrade the Hotel to conform with standards
applicable generally to similar System Hotels.
u. Maintain the Hotel in a clean, safe, attractive and orderly
condition, and provide efficient, courteous and high-quality service to
guests and visitors in accordance with the Operating Manual, including
high quality food and beverage service.
v. Participate in all System, training, marketing and
advertising programs, including the programs adopted for all System
Hotels and for groups of System Hotels having geographic, class or
business orientation interests in common with the Hotel, and pay the
then current assessments related to such programs. The programs are
subject to change by Licensor. The programs and related costs as of the
effective date of the Uniform Franchise Offering Circular delivered to
Licensee prior to the signing of this Agreement, are generally
identified in that document. The programs include, but are not limited
to:
(i) The Radisson 100% Guest Satisfaction Guarantee
which is comprised of the "Yes I Can! Guest Service
at Radisson" training program, the "Yes I Can! Making
It Right" training program and the "100% Guest
Satisfaction Guarantee Overview" training program;
and pay Licensor's then current program charges and
expenses assessed to System Hotels, including an
administrative fee, which, as of the date of this
Agreement, is $75.00 per complaint that Licensor is
required to resolve on behalf of a Hotel.
(ii) The Radisson Corporate Scrip program including
accepting scrip (Room Certificates) in payment for
rooms.
(iii) The SMART program of joint marketing as a
member of a "SMART Group" which consists of other
System Hotels having common geographic, class or
business orientation interests. Before opening for
business as a System Hotel, Licensee may participate
in its SMART Group upon payment of a lump sum,
prorated assessment, as established for the Hotel by
Licensor or the RMA.
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<PAGE> 8
w. Promptly deliver to Licensor a copy of any notice of
default received from any mortgagee, trustee under any deed of trust,
or ground lessor with respect to the Hotel; and, upon request of
Licensor, provide additional information with respect to such alleged
default or any action or proceeding related to it.
x. Keep Licensee's copy of the Operating Manual current and up
to date with contents as provided by Licensor; comply with all
provisions of the Operating Manual as it exists from time to time;
promptly take steps necessary to correct any deficiencies resulting
from non-compliance with the requirements of the Operating Manual or
this Agreement; refrain, even after the term of this Agreement,
absolutely from disclosing to a third party or using any confidential
or proprietary information, or trade secret owned by Licensor and
disclosed to Licensee by Licensor in any form, except to persons who
need access to the information to perform their responsibilities in the
operation of the Hotel; return out-of-date contents of the Operating
Manual as they are replaced; and return the Operating Manual, related
software and other confidential and proprietary information to Licensor
promptly upon termination or expiration of this Agreement, or a
transfer (as defined in Paragraph 11).
y. Not offer Hotel guestrooms for sale or lease as anything
other than hotel guestrooms, including condominium or time share units.
z. Have a card key locking system that has the ability to be
reprogrammed with each new guest, operational on all guest room doors
in the Hotel.
aa. Integrate all computer systems in the Hotel (hardware and
software) and ensure that they will record, store, process and present
data incorporating calendar dates falling on or after January 1, 2000
in the same manner and with the same functionality that all of the
Hotel's systems record, store, process and present data with calendar
dates falling on or before December 31, 1999.
8. Operating Reports; Accounting Standards. Licensee shall record all
sales and revenues and maintain records as required by the Operating Manual.
Licensee shall submit to Licensor by the 15th of each month a statement and
operating report, in form and content designated periodically by Licensor,
showing amounts due to Licensor under Paragraph 5 for the preceding month(s) and
Gross Room Sales, occupancy data and average room rates. The report shall be
certified by either the Controller or Chief Financial Officer of Licensee.
Licensee shall supply to Licensor electronic access to Licensor designated data
stored in HARMONY (when installed), including statistical information, revenues,
guest information, reservations and product information.
Licensee shall prepare on a current basis financial records as required
by the Operating Manual which fully and accurately reflect all aspects of the
operation of the Hotel. Such records shall be kept under the Uniform System and
shall be preserved for not less than three years. Such records shall include
books of account, tax returns, governmental reports, register tapes, daily
reports and complete monthly and annual financial statements.
Licensee shall deliver to Licensor as soon as available, but not later
than 90 days after the end of Licensee's and the Hotel's fiscal years,
respectively, copies of Licensee's and the Hotel's annual financial statements,
certified at Licensee's cost by a Certified Public Accountant. Licensor will
accept the certification of Licensee's Chief Financial Officer if certification
by a Certified Public Accountant is not obtained by Licensee in the ordinary
course of business. During the term of this Agreement and for 3 years afterward,
Licensor or its designees may inspect, copy and audit such records and any other
information required to be kept pursuant to this Agreement (including records of
any tenant, management company or
8
<PAGE> 9
concessionaire of Licensee) during normal business hours where the records are
kept. If an audit discloses a deficiency in any payments due hereunder, Licensee
shall immediately pay the deficiency. If the deficiency is willful or exceeds 5%
of the correct amount, Licensee shall also immediately reimburse Licensor's
entire cost of the audit, including travel, lodging, meals, reasonable
professional fees, salaries and other expenses of the auditing personnel. This
obligation to reimburse is in addition to, and does not affect Licensor's right
to terminate this Agreement when such deficiency is willful.
Licensee will submit to Licensor as soon as available but not later
than 105 days after the end of the Hotel's fiscal year, a statement of the Gross
Room Sales, occupancy and average room rates for such year, certified as correct
by Licensee's Chief Financial Officer.
9. Insurance. Licensee shall secure and maintain commercial general
liability insurance providing coverage for personal injury and bodily injury,
property damage, products liability, liquor liability, contractual liability and
comprehensive automobile liability, with a combined single limit of not less
than $15,000,000 per occurrence, or better, or in such other amounts or coverage
as Licensor periodically may require. The amount of self insured retention or
deductible applicable to any of the coverages must not exceed amounts reasonably
acceptable to Licensor in its sole discretion, provided that the commercial
general liability policy shall have no deductible. Licensee will name Licensor
and its subsidiaries and affiliates in said policy or policies as additional
insureds, and such policy or policies shall stipulate that Licensor shall
receive 30-day written notice of cancellation or material change of the policy.
Licensee also shall secure and maintain:
a. worker's compensation insurance as prescribed by applicable
law, and employer's liability coverage with a limit of not less than
$1,000,000 each accident or disease;
b. dram shop insurance, naming Licensor and Radisson Hotel
Corporation as additional insureds with limits of not less than
$10,000,000 per occurrence;
c. fire insurance with extended coverage in replacement cost
endorsements covering the Hotel and the improvements thereon for not
less than 80% of the full replacement value; and
d. insurance required under any lease, mortgage or deed of
trust covering the Hotel.
Licensor may change the insurance requirements from time to time
including requiring different or additional coverages and minimum limits to
reflect changes in relevant circumstances including changes in standards of
liability and higher damage awards.
Licensee shall mail original certificates of insurance and evidence of
policy renewals 30 days before expiration to Licensor, Attention: Contract
Administration, P.O. Box 59159, Minneapolis, Minnesota 55459-8254. All policies
shall be written by insurance companies having a Best Rating of A-5 or better.
Licensee shall have all policies of insurance provide that the
insurance company will have no right of subrogation against either party hereto
or their respective agents or employees. Licensee assumes all risks in
connection with the adequacy of any insurance or self-insurance program, waives
any claim against Licensor for any liability, costs or expenses arising out of
any claim not adequately insured or self insured, in part or in full, of any
nature whatsoever.
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<PAGE> 10
10. Indemnification. Licensee will indemnify and hold harmless,
Licensor and its affiliates against and from all fines, penalties, taxes,
expenses, claims, causes of action, demands, losses or damages originating: (a)
in or about the Hotel or in connection with the development or operation of the
Hotel; (b) from any occurrence at the Hotel; (c) for any act, omission or
obligation of Licensee, its officers, employees, and agents, or any affiliate or
other entity associated with Licensee related in any way to this Agreement or
transactions contemplated hereunder or the development or operation of the
Hotel; and (d) for all liability and expenses with respect to mechanic's lien
claims for material or labor in connection with the Hotel. Licensee will
reimburse Licensor and its affiliates for any payments, including reasonable
attorney's fees or expenses, by reason of the above or by reason of attorneys'
fees or expenses for pursuing the right to indemnification granted herein.
Licensee will also defend Licensor against the same except Licensor, using its
own counsel1 by notice to Licensee may control any matter in which Licensor is
named or directly affected. The indemnification provided in this Paragraph does
not apply to the direct consequences of Licensor's gross negligence or willful
misconduct, so long as claims or demands are not asserted on the basis of
theories of (i) vicarious liability, including agency, apparent agency or
employment, (ii) negligent failure to compel Licensee's compliance with the
provisions of the Operating Manual or this Agreement. Licensee's obligations
pursuant to this Paragraph 10 shall survive termination or expiration of this
Agreement.
11. Transfer. A Transfer includes the voluntary or compulsory giving to
another, directly or indirectly and by operation of law or otherwise, of all or
any part of that which is being transferred by any means or device, including an
assignment, transfer, conveyance, security interest, encumbrance, divestiture,
sale, disposition, pledge, foreclosure, levy, attachment, execution, trade,
lease, sublease, gift, bequest, inheritance and delegation.
a. Transfers By Licensor. Licensor may Transfer this Agreement
without Licensee's approval. Licensor will provide Licensee
with written notice of any such Transfer upon or after its
effective date. As a condition to the Transfer, the transferee
will be required to assume all of Licensor's obligations.
b. Transfers By Licensee, Generally. Licensor entered into
this Agreement based on negotiations which are specific to the
circumstances and relationship between Licensor and Licensee
as well as those which apply generally to all System Hotels.
As a result, the restrictions imposed on any Transfer are
reasonable and necessary to enable Licensor (i) to protect the
System and the Marks for the benefit of Licensor and other
System Hotels and (ii) to take the relationship with any
transferee into account with respect to (a) the decision
whether to allow the Transfer, (b) the decision whether to
allow the Transfer of this Agreement or require the transferee
to sign a new agreement and (c) the terms of any new license
agreement.
Except as provided otherwise in this Paragraph, Licensee will
not Transfer or permit the Transfer of Licensee's Hotel
business, the Hotel, this Agreement, any Equity Interest2 or
all or substantially all of Licensee's assets (collectively,
"Business Assets") without obtaining Licensor's approval and
only after complying with all of the conditions contained in
this Paragraph with respect to a particular Transfer. An
Equity Interest is any stock membership, partnership or other
ownership interest in Licensee. Licensee shall keep Licensor
fully informed at all times of the identities and percentage
interest of each
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1 and at its own expense,
2 in excess of fifteen percent (15%)
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<PAGE> 11
owner of an Equity Interest, legal and beneficial, ("Owner")
of a 5% or greater of the total Equity Interests.
c. Transfers To Family/Between Owners. There are no
restrictions on Transfers of Business Assets from a natural
person to that person's spouse, children or grandchildren,
trust or estate, or to any other Owner, who was an Owner as of
the date of this Agreement, except that (i) if Licensee is the
transferor, Licensee, while alive, or Licensee's estate (until
the estate is closed), must remain primarily liable under this
Agreement, (ii) no Transfer of the Hotel to a natural person,
trust or estate can take place without a Transfer of this
Agreement to that same person, trust or estate, and (iii)
transferee must enter into a written agreement with and
satisfactory to Licensor, providing that the transferee
assumes the obligations of Licensee under this Agreement. In
all such Transfers, Licensee must notify Licensor immediately
after the Transfer takes place.
d. Transfers To Affiliates. There are no restrictions on
Licensee's Transfer of any of its Business Assets to an
Affiliate except that (i) no Transfer of the Hotel can take
place without a Transfer of this Agreement to that same
Affiliate, (ii) Licensee must notify Licensor immediately
after the Transfer is effective, and (iii) transferee must
enter into a written agreement with and satisfactory to
Licensor, in its sole discretion, providing that the
transferee assumes the obligations of Licensee under this
Agreement. An Affiliate is an entity controlled by,
controlling or under common control with, directly or
indirectly, Licensee. Control means the legal right or
effective ability, directly or indirectly, to direct or cause
the controlled entity to act in accordance with the
controlling entity's instructions.
e. Sale to Public. If Licensee is a corporation and desires to
sell any part of its authorized capital stock to the public
pursuant to either federal or state securities laws, Licensee
will provide Licensor with a copy of the proposed offering
circular or prospectus for its review at least thirty (30)
business days prior to the time that the offering circular or
prospectus is filed with any state securities commission or
the United States Securities and Exchange Commission. At the
same time, Licensee will pay Licensor the then current
non-refundable administrative fee, which as of the date of
this Agreement is1. One or more of the Owners, who were Owners
as of the date of this Agreement or subsequently approved by
Licensor, at all times, must retain direct Control of Licensee
after the offering. Licensor has the right to attend all "due
diligence" meetings held in connection with the offering, and
Licensee will give Licensor at least five (5) business days
prior written notice of all such meetings. Licensee will not
offer its capital stock under any of the Marks or any
deceptively similar names. Licensee must make it clear in the
relevant documents that Licensor is not participating in or
endorsing the offering. In addition, Licensee is obligated to
ensure that the underwriters and all participants in the
offering, including Licensee fully indemnify Licensor with
respect to the offering.
f. Publicly Traded Equity Interests. There are no restrictions
on the Transfer of publicly traded Equity Interests as long as
no person owns or controls directly or indirectly, more than
five percent (5%) of the issued and outstanding voting Equity
Interest in Licensee.
g. Lender's Security. Licensee may Transfer this Agreement by
way of a collateral assignment to a lender in connection with
securing financing for the purchase and
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1 three thousand dollars ($3,000)
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<PAGE> 12
construction/renovation of the Hotel through a mortgage on, or
deed of trust with respect to, the Hotel, with Licensor's
approval, which approval will be evidenced by a written
agreement signed by Licensor, Licensee and the lender, on
terms and conditions satisfactory to Licensor1
i. Transfers of Agreement And Hotel. Except for Transfers
authorized by paragraphs 11(c), (d), (e), (f) and (g),
Licensee will not Transfer this Agreement without, at the same
time, Transferring the Hotel to that same person, which
Transfer is subject to Licensor's approval based on the
following conditions being met as of the date of the Transfer:
(i) Licensee has complied in all respects with the
applicable provisions of this Paragraph 11; and
(ii) All of Licensee's monetary obligations due to
Licensor have been paid in full, and Licensee is not
otherwise in default under this Agreement; and
(iii) The transferee files an application on the form
prescribed by Licensor at least sixty (60) days prior
to the effective date of the Transfer and, within
that time period, demonstrates to Licensor's
satisfaction that transferee meets Licensor's then
current requirements for the granting of a license to
operate a System Hotel; and
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1 and substantially consistent with Exhibit B attached hereto.
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<PAGE> 13
(iv) The transferee, at Licensor's option, signs a
written agreement with and satisfactory to Licensor,
providing that the transferee assumes the obligations
of Licensee under this Agreement, or Licensor's
then-current standard License Agreement for a term
ending with the term of this Agreement, but with fees
and other provisions which may differ materially from
this Agreement; and
(v) Prior to the date of Transfer, if held, or at the
first one scheduled after the Transfer, the general
manager of the Hotel and other key employees
designated by Licensor must attend Licensor's
orientation training; and
(vi) Licensee or transferee taking or agreeing to
take measures to comply with Licensor's requirements
with respect to (a) any construction and other
matters set forth in a Property Improvement Plan
prepared by Licensor; and (b) improvements in the
Operation of the Hotel needed to meet System
standards, regardless of whether Licensor has
required or requested Licensee to take such measures
at any time prior to the request for approval of the
Transfer. Licensor's failure to conduct an inspection
and provide a Property Improvement Plan or list of
operational improvements before the Transfer, whether
with respect to a Transfer or otherwise, does not
constitute a waiver of Licensor's right to enforce
the provisions of this Agreement or the new license
agreement between Licensor and transferee after the
Transfer, as applicable, with respect to the same or
different subject matter; and
(vii) Licensee signing and delivering to Licensor a
general release on terms and conditions acceptable to
Licensor in its sole discretion; and
(viii) Licensee paying a non-refundable transfer fee
in effect as of the date of the Transfer, which, as
of the effective date of this Agreement is the
greater of $15,000 or 50% of the total Initial
License Fee paid pursuant to paragraph 5(a).
12. Third Party Operators. The engagement of third party operators of
the Hotel's restaurants, cocktail lounges or other supplementary departments,
whether through leases, management agreements or otherwise, shall be subject to
Licensor's prior written approval1 In addition, whether by inclusion of
appropriate provisions in applicable documents or otherwise, Licensee shall
require all third party operators of the referenced operations and retail shops
and other facilities open to the public to operate and maintain them in the same
manner as Licensee would be required if Licensee were operating them directly.
13. Default. The following events constitute a default and good cause
for Licensor to terminate the License and this Agreement, immediately upon
written notice to Licensee unless provided otherwise below:
a. Licensee becomes insolvent, or is adjudicated bankrupt, or
files a voluntary petition or pleading under the Federal Bankruptcy
Code or under any other state or federal bankruptcy or insolvency laws;
an involuntary petition is filed with respect to Licensee under the
Code or any such laws; a permanent or temporary conservator, receiver
or trustee is appointed for the Hotel or all or substantially all of
Licensee's assets; a levy, execution or attachment takes place against
the Hotel or all or substantially all of Licensee's assets, subject to
being cured through a
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1 , which approval shall not be unreasonably withheld.
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<PAGE> 14
release, stay or satisfaction within1 days; a final judgment is entered
against Licensee2 subject to being cured by satisfaction, discharge,
vacation, reversal or stay within3 days of entry of the judgment;
Licensee makes an assignment for the benefit of creditors or a written
statement to the effect that Licensee is unable to pay its debts as
they become due.
b. Except as provided in Paragraph 14, Licensee ceases to
operate the Hotel, ceases to operate the Hotel as part of the System,
or loses possession or the right to possession of all or a significant
part of the Hotel through sale or otherwise.
c. A transfer occurs or is attempted in violation of Paragraph
11.
d. Licensee, any Holder or an officer, member, partner,
principal, majority shareholder or director of Licensee is convicted of
a felony or other crime of moral turpitude, which is likely to
adversely affect or reflect upon the Hotel or the parties or to impair
the goodwill associated with the Distinguishing Characteristics.
e. Licensee breaches or fails to comply with this Agreement or
the Operating Manual, and Licensee, subject to cure within 30 days (10
days if the breach or failure to comply involves the non-payment of
money owed to Licensor) after notice from Licensor specifying the
breach4
f. Licensee willfully underreports any information used for
the purpose of calculating any fees or other amounts payable to
Licensor under this Agreement or otherwise.
Licensee acknowledges that the events of default under (a) through (d)
and (f) above are not subject to cure, except as provided. This License and this
Agreement shall immediately terminate automatically (to the extent permitted by
law), effective upon the happening of such event or the specified cure period,
as applicable.
Upon termination or expiration of this Agreement, Licensee immediately
shall cease all use of the System and the Distinguishing Characteristics.
Licensee shall make physical changes to the Hotel to remove the Distinguishing
Characteristics and to preclude a likelihood of confusion by the public as to
the status or affiliation of the Hotel, including removal of all signs
containing the word "Radisson" or any of the other Marks. Licensee authorizes
Licensor to enter the premises of the Hotel to make such changes, at Licensee's
expense, if Licensee fails to complete the changes within 30 days after
termination or expiration.
Upon termination (but not expiration) of this Agreement, Licensee will
immediately pay Licensor5
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1 sixty (60)
2 in excess of $100,000,
3 ninety (90)
4 ("Default Notice"); however, if Licensee's failure to comply with this
Agreement does not involve the non-payment of money owed to Licensor and
Licensee commences to cure such failure during the initial thirty (30) day
period and continuously prosecutes such cure to completion with all due
diligence, then Licensee shall have a total of one hundred and eighty (180) days
after the Default Notice to cure.
5 a premature termination fee, which the parties agree is a reasonable estimate
of damages to which Licensor would be entitled related to early termination
(which are otherwise difficult to determine), and are not a penalty, according
to the following formula: (i) in the first ten (10) years of this Agreement, the
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<PAGE> 15
Upon the termination or expiration of this Agreement, Licensee is not
entitled to any compensation related to the concept of "goodwill" arising out of
Licensee's use of the Distinguishing Characteristics or the operation of the
Hotel.
In addition to any other remedies Licensor may have, upon an event of
default by Licensee, Licensor, at the same time a notice of default is sent,
may, upon fourteen (14) days written notice to Licensee, suspend access to the
Reservation System and any other services to be provided under Paragraph 6 of
this Agreement until the default is cured by Licensee. Suspension of any of such
services does not constitute a constructive termination of this Agreement, and
Licensee shall not seek or be entitled to equitable relief preventing or
curtailing Licensor's rights under this paragraph.
Licensee will pay all costs, expenses and reasonable attorneys' fees
incurred by Licensor in enforcing the terms and conditions of this Agreement.
Licensee's obligations contained in this Paragraph 13 shall survive the
termination or expiration of this Agreement.
14. Condemnation or Casualty. If the Hotel or a substantial part
thereof is taken by or sold under threat of eminent domain, Licensee ceases to
operate the Hotel, and Licensee is otherwise in good standing under the License,
Licensee may either terminate this Agreement without liability for damages
related to early termination, or transfer the License to a new hotel at a
location selected by Licensee (subject to the consent of Licensor) for the
remainder of the term of this Agreement. Licensor will respond to Licensee's
application for such new location within six months of the taking or sale. If
approved, Licensee will construct the new hotel in accordance with this
Agreement, System standards and the Operating Manual, and open the Hotel for
business within two years of its closing.
If the Hotel is damaged or destroyed by fire or other casualty,
Licensee will promptly repair the damage (in accordance with Licensor's
then-current standards). If the casualty requires closing the Hotel, Licensee
shall, within 45 days of such closing, provide Licensor with written notice of
Licensee's election to either (i) repair the damage and reopen the Hotel, or
(ii) terminate this Agreement without liability for damages related to premature
termination. If, within 2 years of Licensee's election to terminate pursuant to
(ii) above, Licensee decides to relocate or repair and reopen the Hotel, this
Agreement shall be deemed to have been terminated for default. This provision
shall survive such termination of this Agreement. If Licensee elects to repair
and reopen pursuant to (i) above, Licensee, within six months after closing the
Hotel, will commence reconstruction of the Hotel upon the premises or a new
location selected by Licensee subject to Licensor's consent and in accordance
with this Agreement, System standards and the Operating Manual. In such event,
the Hotel must reopen for business within two years after closing.
If Licensee elects to terminate this Agreement in either of these
situations, all fees and other amounts due or incurred through the cessation of
operation shall be paid at the time notice of the election is given, and
Licensee shall comply with all other post termination obligations contained in
this Agreement.
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premature termination fee shall be in an amount equal to four percent (4%) of
the Gross Rooms Sales at the Hotel during the twenty four (24) full calendar
months immediately preceding the date of termination. (If the Hotel has been a
Radisson(R) hotel for less than twenty four (24) months, then the termination
fee shall be four percent of the average monthly Gross Room Sales since opening
multiplied by twenty four (24); or (ii) in the second ten (10) years of the term
of this Agreement, the premature termination fee shall be in an amount equal to
four percent (4%) of the Gross Room Sales at the Hotel during the twelve (12)
full calendar months immediately preceding the date of termination.
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<PAGE> 16
Closing of the Hotel due to condemnation or casualty does not extend
the term of the License or this Agreement.
15. Rights to the Distinguishing Characteristics. The contents of the
Operating Manual, including contents which have been replaced, and all other
information marked confidential and proprietary by Licensor, are confidential
and proprietary. Licensee acknowledges and will not contest Licensor's right,
title and interest to the Distinguishing Characteristics or the goodwill derived
from them. Licensee disclaims any right or interest in the Distinguishing
Characteristics beyond the qualified License granted herein. Licensor may change
the Distinguishing Characteristics periodically and Licensee agrees to implement
such changes immediately. All present and future Distinguishing Characteristics,
including any improvements and additions to them, whether by Licensor or
Licensee, shall be Licensor's property and inure to its benefit. Licensee shall
not use or permit others to use any of the same without Licensor's written
consent. Licensee shall not use the name "Radisson" or another element of the
Distinguishing Characteristics in or as its corporate or trade name, but shall
file appropriate notices required under an applicable fictitious or assumed name
law.
Licensor has the sole right to manage and resolve disputes with third
parties concerning the Distinguishing Characteristics. Licensee shall undertake
fully and without any reservation whatsoever to render to Licensor all
assistance in connection with any matter pertaining to the protection of the
Distinguishing Characteristics, and to promptly make available to Licensor, its
representatives, agents and attorneys such of Licensee's files, records and
other information pertaining to the business of Licensee as may be necessary in
providing such assistance.
Licensee agrees to enter into a Registered User Agreement with Licensor
as and when legislation so permits or requires.
Only those Marks listed in Licensor's Uniform Franchise Offering
Circular have been registered in the United States. Licensor is under no
obligation to apply for such registration with respect to any other Marks.
Licensee waives any claims against Licensor which may arise in whole or in part
in connection with or as a result of Licensor's failure to apply for or
inability to obtain such registration or to provide or to protect any rights to
the use of the "RADISSON" Mark or any other Marks.1
The License granted herein is specifically limited to the Licensed
Location and does not confer rights of any kind to any other location, area,
market or territory.2 Licensor reserves for itself and its affiliates, the
absolute right to3 non-hotel businesses, including timeshare, and grant others
the same rights, (i) using the System or the Marks, or both and (ii) using other
brands and systems, at locations as determined in Licensor's discretion, and
without any obligation to grant any such rights to Licensee.
16. Relationship of Parties; Interference with Others. Licensor retains
the right to regulate Licensee's conduct only to the extent necessary to protect
Licensor's interest in the Distinguishing
- --------------
1 Notwithstanding the above, Licensor agrees to defend Licensee against any
third party action or proceeding challenging Licensee's use of the Marks,
provided Licensee's use of the Marks is in compliance with this Agreement.
2 Within the Protected Area, as defined in the First Addendum to License
Agreement attached hereto,
3 own or operate, and license others to own or operate ("Develop")
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<PAGE> 17
Characteristics through promotion of standardization, uniformity of service, and
public goodwill for the benefit of both contracting parties. The power to
regulate the day-to-day operation of the Hotel, including daily maintenance,
safety concerns, working conditions and personnel matters, including sole
responsibility for hiring, discharging and setting the conditions of employment
for employees at the Hotel as well as complying with applicable employment laws,
rules and regulations, are vested solely and exclusively in Licensee. Licensee
is an independent contractor. Neither party is the agent, legal representative,
partner, subsidiary, joint venturer or employee of the other. Neither party
shall obligate the other or represent any right to do so. This Agreement does
not reflect or create a fiduciary relationship or a relationship of special
trust and confidence.
Licensee shall not solicit or employ any person who is employed by
Licensor or another System licensee. Neither party will interfere with
contractual relations of the other.
17. Miscellaneous Provisions. Notwithstanding any laws with respect to
choice of law under which any other law might be applicable, this Agreement and
the relationship between the parties is subject to and governed by the laws
(statutory or otherwise) of the state in which the Hotel is located.
Paragraph headings are for convenience and do not limit or qualify the terms of
this Agreement. Terms used in any number or gender include any other number or
gender where appropriate.
Licensor's consent, authorization or approval of any matter hereunder
is a permission only and not a representation, warranty or assurance. Approvals,
consents and authorizations by Licensor will not be unreasonably withheld1 or
delayed unless Licensor has reserved sole discretion, but will not be effective
unless given in advance, in writing and duly executed on behalf of Licensor,
unless specifically stated otherwise.
This Agreement, including Exhibit A and other documents pertaining to
the Hotel signed at the same time as this Agreement constitute the entire
agreement between the parties and supersede all prior representations,
agreements or understandings with respect to the Hotel. All of Licensor's
internal policies and procedures, whether or not communicated to Licensee, are
intended for Licensor's use only and are not a part of or intended to amend this
Agreement in any way.
Failure to require strict performance or to exercise any right or
remedy contained herein will not preclude any future requirement of strict
performance or the exercise of such right or remedy or any other right or
remedy.
Any right or remedy contained herein is cumulative to other rights or
remedies available pursuant to this Agreement, at law or in equity.
No change in this Agreement will be valid unless signed in writing by
both parties.
Any notices required or permitted shall be in writing and may be
delivered personally, by fax or by reliable expedited delivery companies
including Federal Express and DHL. Notices by fax are deemed delivered and
received upon transmission provided that the original is delivered personally or
sent by expedited delivery within 48 hours of the transmission by fax. Notices
by expedited delivery shall be deemed delivered and received on the fourth day
following the date on which the notice was given to the expedited delivery
company. Information for notices appears on page one of this Agreement, except
that
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1 conditioned
17
<PAGE> 18
notices to Licensor by expedited delivery companies must be addressed to
1405 Xenium Lane N., Plymouth, MN 55441, and the notices must be addressed to
the attention of the Legal Department - Mail Stop 8249. If there is no
information for notices to Licensee on page one, notices to Licensee may be
faxed or sent based on information used in the ordinary course of business
between Licensor and Licensee.
Two copies of this Agreement may be signed, each of which, when signed,
is an original and which, together, constitute one and the same instrument, or
it may be signed in counterparts.
Where Licensee is prohibited by this Agreement from directly taking any
action, or where action by Licensee would constitute a default, Licensee agrees
that it will not encourage, authorize or permit any other person or entity,
directly or indirectly or under its direct or indirect control to take such
action.
Licensor may perform all of its obligations directly or through its
affiliates or third party consultants. Despite this, Licensee's obligations with
respect to such matters shall still run directly to Licensor.
The liability of all Licensees signing this Agreement is joint and
several.
All terms and conditions of this Agreement which, as a matter of logic
or otherwise, need to survive the expiration or termination in order to achieve
an intended or logical result, shall survive despite the absence of specific
survival language with respect to each of them.
The use of the words "including" "includes", "such as", for example"
are not intended to limit the list which follows, but is to be read as if the
words "but not limited to", "without limitation" or other phrase implying the
same meaning, as appropriate, unless otherwise stated.
Photocopies and facsimiles of this Agreement showing signatures are
fully binding and effective for all purposes.
Any right or remedy contained in this Agreement is cumulative to other
rights and remedies available at law or in equity.
If the Hotel is located in any one of the states listed in this
paragraph 17, or if the laws of any such state are otherwise found to be
applicable, then this Agreement is automatically amended to bring the provision
into compliance with the laws of such state to the extent that such compliance
can be achieved. If any provision of this Agreement violates the laws of any
state whose law is found to apply, this Agreement is automatically amended to
bring that provision into conformity with such law.
(A) ILLINOIS. If this Agreement is governed by the laws of the State of
Illinois, then: (1) any consent by Licensee to jurisdiction and venue
in Hennepin County, Minnesota may be inapplicable; provided, however,
that such inapplicability in the State of Illinois will not be
construed to mean that venue in Hennepin County, Minnesota is improper,
or that Licensee, its officers, Directors and shareholders are not
subject to jurisdiction in Hennepin County, Minnesota, or in any other
state; and (2) any acknowledgment made by Licensee in this Agreement
regarding financial performance or earnings information, which has the
effect of forcing Licensee to waive or release certain rights it has
under the Illinois Franchise Disclosure Act, is unenforceable.
(B) INDIANA. If this Agreement is governed by the laws of the State of
Indiana, then: (1) any provision regarding injunctive relief cannot
require Licensee to recognize the inadequacy of any remedy;
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<PAGE> 19
(2) any provision which attempts to limit the period within which
Licensee may commence litigation or arbitration is subject to the
superceding provisions of I.C. 23-2-2.5(30) and I.C. 23-2-2.7(7); (3)
no provision may require or cause Licensee to waive any right under the
Indiana statutes with regard to prior representations made in the
Indiana Uniform Franchise Offering Circular; (4) Licensee's consent to
jurisdiction and venue in Hennepin County, Minnesota is subject to the
provisions of both I.C. 23-2-2.5 and 2.7; (5) a court of competent
jurisdiction will determine whether Radisson will be required to post a
bond or other security, and the amount of such bond or other security,
in any injunctive proceeding, and as provided by I.C. 23-2-2.7-1(10);
(6) Licensee's obligation to indemnify Radisson does not apply to any
liability caused by Licensee's proper reliance on or use of procedures
or materials provided by Radisson or by Radisson's negligence; (7) any
transfers permitted in this Agreement are subject to I.C.
23-2-2.7-1(5); (8) any provision requiring Licensee to pay attorneys'
fees incurred by Radisson in enforcing this Agreement is governed by
I.C. 23-2-2.7-1(10); (9) any provision requiring Licensee to waive the
right to trail by jury is prohibited pursuant to I.C. 23-2-2.7-1 (10);
and (10) pursuant to Ind. Code Section 23-2-2.7-2 (2) and Ind. Code
Section 23-2-2.7-2 (4), if Radisson agrees to a "radius clause" (under
which it agrees not to open or license another System Hotel within a
defined geographic area), Radisson will not operate or manage System
Hotels in that area. If there is no "radius clause", Radisson will
comply with the Indiana law requiring Radisson not to establish System
Hotels which would compete unfairly with Licensee in a reasonable area.
(C) MARYLAND. If this Agreement is governed by the laws of the State of
Maryland, then: (1) any consent by Licensee to jurisdiction and venue
in Hennepin County, Minnesota may be inapplicable, and Licensee may
bring a lawsuit in the State of Maryland for claims arising under the
Maryland Franchise Registration and Disclosure Law; provided, however,
that such inapplicability in the State of Maryland will not be
construed to mean that venue in Hennepin County, Minnesota is improper,
or that Licensee, its officers, Directors and shareholders are not
subject to jurisdiction in Hennepin County, Minnesota, or in any other
state; (2) if a general release is required as a condition of renewal
or transfer, such release may not apply to any liability under the
Maryland Franchise Registration and Disclosure Law; and (3) any
acknowledgments made by Licensee in this Agreement may not be construed
to act as a waiver of Licensee's rights under the Maryland Franchise
Registration and Disclosure Law.
(D) MINNESOTA. If this Agreement is governed by the laws of the State
of Minnesota, then: (1) Radisson may not terminate this Agreement based
on Licensee's default without giving Licensee written notice at least
ninety (90) days prior to the date of such termination, and giving
Licensee sixty (60) days after receipt of such written notice within
which to correct the breach specified in the written notice, subject to
those instances when Radisson may lawfully terminate immediately
without an opportunity to cure; (2) a court of competent jurisdiction
will determine whether Radisson will be required to post a bond or
other security, and the amount of such bond or other security, in any
injunctive proceeding commenced by Radisson against Licensee or
Licensee's shareholders; and (3) to the extent required by Minnesota
law, Radisson will protect Licensee's right to use Radisson's Marks and
indemnify Licensee from any losses, costs or expenses arising out of
any claim, suit or demand regarding the use of Radisson's Marks.
(E) NEW YORK. If this Agreement is governed by the State of New York,
then: (1) any provision of this Agreement regarding revisions to and
maintenance of the Operating Manuals are automatically amended to
provide that such modifications to the Operating Manuals will not
unreasonably increase Licensee's obligations or place an excessive
economic burden on Licensee's operations; (2) any provision of this
Agreement regarding indemnification is automatically amended to require
Licensee to indemnify Radisson against, and will reimburse Radisson
for, any damages resulting from Licensee's breach of this Agreement,
Licensee's negligence or any civil, criminal or other wrong committed
by Licensee during the
19
<PAGE> 20
term of this Agreement; and (3) any provision of this Agreement
regarding transfers is automatically amended to provide that all rights
enjoyed by Licensee, and any causes of action arising in its favor from
the provisions of Article 33 of the General Business Law of the State
of New York and the regulations issued thereunder, shall remain in
force; it being the intent of this provision that the non-waiver
provisions of General Business Law Section 687.4 and Section 687.5 be
satisfied.
(F) NORTH DAKOTA. If this Agreement is governed by the laws of the
State of North Dakota, then: (1) Radisson may not terminate this
Agreement based on Licensee's default without giving Licensee written
notice that Licensee has breached this Agreement, and giving Licensee
thirty (30) days after receipt of such written notice within which to
correct the breach, subject to those instances when Radisson may
lawfully terminate immediately without an opportunity to cure; (2) any
provision requiring the payment of a fixed amount or an amount based on
a specific formula as a measure of damages or for exercising Licensee's
option to terminate without cause may constitute a penalty and may be
unenforceable; and (3) the consent by Licensee to jurisdiction and
venue in Hennepin County, Minnesota may be inapplicable; provided,
however, that such inapplicability in the State of North Dakota will
not be construed to mean that venue in Hennepin County, Minnesota, is
improper, or that the Licensee, its officers, Directors and
shareholders are not subject to jurisdiction in Hennepin County,
Minnesota, or in any other state.
(G) RHODE ISLAND. If this Agreement is governed by the laws of the
State of Rhode Island, then Section 19-28.1-14 of the Rhode Island
Franchise Investment Act provides that a provision in a franchise
agreement restricting jurisdiction or venue to a forum outside of Rhode
Island or requiring the application of the laws of another state is
void with respect to a claim otherwise enforceable under this Act.
(H) SOUTH DAKOTA. If this Agreement is governed by the laws of the
State of South Dakota, then: (1) Radisson may not terminate this
Agreement based on Licensee's default without giving Licensee written
notice that Licensee has breached this Agreement, and giving Licensee
thirty (30) days after receipt of such written notice within which to
correct the breach, subject to those instances when Radisson may
lawfully terminate immediately without an opportunity to cure; (2) any
provision which attempts to limit the period within which Licensee may
commence litigation or arbitration may not be enforceable under South
Dakota law; (3) any provision requiring the payment of a fixed amount
or an amount based on a specific formula as a measure of damages or for
exercising Licensee's option to terminate without cause, may constitute
a penalty and may be unenforceable; (4) any provision of this Agreement
which designates jurisdiction or venue outside of the State of South
Dakota or requires Licensee to agree to jurisdiction or venue in a
forum outside of the State of South Dakota is void with respect to any
cause of action which is otherwise enforceable in the State of South
Dakota; provided, however, that such inapplicability in the State of
South Dakota will not be construed to mean that venue in Hennepin
County, Minnesota is improper, or that Licensee, its officers,
Directors and shareholders are not subject to jurisdiction in Hennepin
County, Minnesota, or in any other state; and (5) pursuant to SDCL
37-5A-86, any acknowledgment provision, disclaimer or integration
clause or other provision having a similar effect in this Agreement
will not negate or act to remove from judicial review any statement,
misrepresentation or action that violates Chapter 37-5A or a rule or
order under Chapter 37-5A.
(I) WASHINGTON. If this Agreement is governed by the laws of the State
of Washington, then: (1) the relationship provisions of R.C.W.
19.100.180 or other requirements of the Washington Franchise Investment
Protection Act (the "Act") will prevail over the inconsistent
provisions of the Franchise Offering Circular and this Agreement with
regard to any franchise sold in Washington;
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<PAGE> 21
(2) a release or waiver of rights executed by Licensee will not include
rights under the Act except when executed pursuant to a negotiated
settlement after this Agreement is in effect and where the parties are
represented by independent counsel; and (3) provisions such as those
which unreasonably restrict or limit the statute of limitations period
for claims under the Act, or rights or remedies under the Act like a
right to a jury trial, may not be enforceable.
(J) WISCONSIN. If this Agreement is governed by the laws of the State
of Wisconsin, then the provisions of the Wisconsin Fair Dealership Law,
Wis. Stat. Chapter 135, will supersede any conflicting terms of this
Agreement.
RADISSON HOTELS INTERNATIONAL, INC. LEISURE TIME HOSPITALITY, INC.
By: /s/ By: /s/
----------------------------------- ---------------------------------
Print Name: T. Peter Blyth Print Name: Elden W. Rance
--------------------------- -------------------------
Its: President - Development Division Its: Executive Vice President
---------------------------------- --------------------------------
21
<PAGE> 22
EXHIBIT A
PROJECT RIDER TO
LICENSE AGREEMENT
1. General. Licensee shall design and build, renovate, rebuild or substantially
alter the Hotel, (the "Project") in accordance with Licensor's requirements as
set forth in the License Agreement, this Rider and any attached Exhibits or
Addenda, the Operating Manual, approved Plans and other System information
issued by Licensor in the ordinary course of business ("Licensor's
Requirements").
2. Cooperation. Licensee will cooperate with Licensor in the exchange of all
information regarding the Project and will ensure the cooperation of others
under its direction or control. At Licensor's request, Licensee and such others
engaged by Licensee on the Project as Licensor may reasonably request, will
attend a Project meeting at Licensor's offices in Minneapolis, Minnesota.
3. Design and Construction Services. The engagement of the architect, engineer,
contractor and other design and construction professionals by Licensee for the
Project after the execution of this Rider is subject to Licensor's approval.
Prior to their engagement, Licensee shall furnish Licensor with information in
such detail as will enable Licensor to evaluate their qualifications and
capabilities. If Licensor does not object to their engagement within thirty (30)
days of the receipt of that information, or such other information as Licensor
may reasonably request, their engagement shall be deemed approved.
4. Approval of Plans. Before starting the Project, Licensee shall submit
proposed preliminary and final plans, specifications, scheme boards and drawings
for the Project, including proposed equipment, furnishings, facilities,
landscaping, and signs with such detail and containing such information as
Licensor may reasonably request (the "Plans"), for Licensor's consent. Licensee
shall not begin the Project unless and until Licensor gives its consent to the
Plans. Thereafter, Licensee shall make no change to the Plans without Licensor's
consent. Licensee shall cause the Hotel to be constructed or renovated according
to the Plans as consented to by Licensor.
5. Scheduling. Licensee shall begin the Project on or before1 by excavation for
footings in the case of new construction or major reconstruction, or initiation
of removal of prior fixtures, equipment and decor in the case of rehabilitation.
Once the Project has begun, Licensee shall diligently pursue the Project to
completion.
6. Inspection; Cooperation. Licensor shall have access to the Hotel and the
Project at all reasonable times to determine whether the Project is proceeding
on schedule, in accordance with the approved Plans and for any other purpose
reasonably related to the exercise of its rights and obligations. Licensee shall
cooperate fully, and require others involved in the Project to cooperate fully,
with Licensor in the exercise of Licensor's rights and obligations hereunder.
7. Acquisition of Equipment, Furnishings and Supplies. Licensee shall acquire
and install all fixtures, equipment, furnishings, furniture, signs and related
equipment, supplies, landscaping, and other items required by the Plans, the
License Agreement and the Operating Manual, and such other equipment,
furnishings and supplies as may be necessary in order to prepare the Hotel to
open for business in accordance with the License Agreement.
- --------------
1 the date of execution of the License Agreement,
<PAGE> 23
8. Opening the Hotel; Prior Consent. Licensee shall not open the Hotel for
business as a System Hotel unless: (a) Licensor has accepted in writing (i)
completion of the Project in accordance with the Plans or, if applicable, all
pre-opening requirements of any attached Exhibit, and (ii) the installation of
all equipment, furniture, furnishings, signs and related equipment, supplies,
landscaping, and other items as required by paragraph 7 and (b) Licensee pays
all amounts due Licensor and its affiliates. Licensee shall give Licensor
written notice that, in Licensee's opinion, Licensee has complied with all of
the terms and conditions of the License Agreement, the Operating Manual and the
Plans, and the Hotel is ready to open for business as a System Hotel. Licensor
shall use its best efforts within 15 days after receipt of such notice to
inspect the Hotel and to determine whether to authorize opening the Hotel for
business as a System Hotel, but Licensor shall not be liable for delays or loss
occasioned by Licensor's inability to complete its investigation and to make
such determination within said 15 days.
9. Cost of Project. Licensee shall bear the entire cost of the Project,
including the Plans, professional fees, licenses and permits, equipment,
furniture, furnishings and supplies.
10. Limitation on Licensor Liability. Licensee is responsible for complying with
the requirements of all governmental authorities, including the Americans With
Disabilities Act , with respect to the design and construction of the Hotel.
Licensee acknowledges that Licensor's right to inspect, review and approve the
Project and the Plans are exercised primarily to determine their compliance with
Licensor's Requirements relating to operational considerations and aesthetic
aspects of the Project such as architectural and interior design, landscaping,
color schemes, sizes, finishes and materials. Notwithstanding the right of
Licensor to consent to or authorize the Plans, the architect, engineer,
contractor and other design and construction professionals and to inspect and
accept the construction or renovation work at the Hotel, Licensor's review and
consent or approval of all or any part of the Project is a permission only, and
not an assurance, representation or warranty of the qualifications,
capabilities, suitability, adequacy, legality or performance of any persons,
design, item, or system, even though the Plans and Licensor's inspections and
consent may relate to architectural, engineering, safety, code compliance or
other matters. Licensor is not responsible for reviewing nor shall its review or
consent to any plan or design be deemed approval of any plan or design from the
standpoint of structural safety or conformance with building or other codes.
Licensor shall have no liability or obligation to Licensee, the architect,
engineer, contractor, subcontractors, suppliers or third parties with respect to
construction or renovation of the Hotel, Licensor's rights being reserved and
exercised solely for the purpose of assuring itself of Licensee's compliance
with the terms and conditions of the License Agreement insofar as they relate to
conformity to System standards.
RADISSON HOTELS INTERNATIONAL, INC. LEISURE TIME HOSPITALITY, INC.
By: /s/ By: /s/
---------------------------------- ---------------------------------
Print Name: T. Peter Blyth Print Name: Elden W. Rance
-------------------------- -------------------------
Its: President - Development Division Its: Executive Vice President
--------------------------------- --------------------------------
<PAGE> 24
ADDENDUM TO LICENSE AGREEMENT
FOR
RADISSON HOTEL LAKEFRONT CLEVELAND
CLEVELAND, OHIO
This Addendum to the License Agreement between Radisson Hotels
International, Inc. ("Licensor") and Leisure Time Hospitality, Inc. ("Licensee")
is dated and effective ______________________________.
1. Licensor agrees to reimburse or cause the RMA to reimburse Licensee for
Qualified Advertising expenses in an amount not to exceed a total of $25,000
during the first twelve (12) full calendar months after the Hotel opens as a
Radisson(R) Hotel and to the extent that Licensee complies with the requirements
of the RMA Local Qualified Advertising Reimbursement Program (the "Program") in
effect at the time the expenditures are made. A copy of the current Program is
attached hereto as Exhibit D and made a part hereof.
Such reimbursement shall be given in the form of a credit memo applied to
Licensee's account payable to Licensor, only after:
(a) The full RMA and Reservation Fee has been paid as and when
due; and
(b) Licensor has examined and approved the advertising and proof
of payment, which Licensee submits in accordance with Program
requirements.
Any credit granted under the Program will be suspended if Licensee fails to
comply with the provisions hereof, is in default of the License Agreement or if
a condition exists which would be a default if notice were given.
2. Subject to Paragraph 15 of the License Agreement, Licensor agrees that during
the term or until the earlier termination of the License Agreement, Licensor
will not own, operate or license another hotel under the name Radisson(R) within
the area as depicted as Exhibit C ("Protected Area"). Outside of the Protected
Area, Licensor reserves for itself and its affiliates, the absolute right to
Develop hotels and other non-hotel businesses, including timeshare, (i) using
the System or the Marks, or both and (ii) using other brands and systems, all
whether in competition with the Hotel or not, at locations as determined in
Licensor's discretion, and without any obligation to grant any rights to
Licensee with respect thereto.
3. Except as amended hereby, all of the other terms and provisions contained in
the License Agreement shall remain in full force and effect and this Addendum
and the License Agreement shall be merged and considered one instrument.
RADISSON HOTELS INTERNATIONAL, INC. LEISURE TIME HOSPITALITY, INC.
By: /s/ By: /s/
---------------------------------- ---------------------------------
Print Name: T. Peter Blyth Print Name: Elden W. Rance
-------------------------- -------------------------
Its: President - Development Division Its: Executive Vice President
-------------------------------- --------------------------------
<PAGE> 1
EXHIBIT 10.69
CUSTODY AGREEMENT
CUSTODY AGREEMENT, effective as of the ____ day of _________, 1999, by
and among certain of the shareholders (the "Shareholders" or "Shareholder") of
LEISURE TIME CASINOS & RESORTS, INC., a Colorado corporation, (the "Company"),
SCHNEIDER SECURITIES, INC. (the "Representative") and AMERICAN SECURITIES
TRANSFER & TRUST, INC. (the ""Custodian").
WHEREAS, the Shareholders are the record and beneficial owners of
certain of the Company's $0.001 par value common stock ("Common Stock") or of
options to purchase shares of Common Stock, all as more fully reflected on
Exhibit A to this Custody Agreement;
WHEREAS, the Company and the Representative of the several underwriters
(the "Underwriters") intend to enter into an underwriting agreement (the
"Underwriting Agreement") pursuant to which the Company will sell in a public
offering pursuant to the registration provisions of the Securities Act of 1933,
as amended (the "1933 Act");
WHEREAS, as a condition to closing the proposed public offering of the
Company (the "Offering"), the Representative has required the Shareholders to
deposit an aggregate of 500,000 shares of Common Stock and/or shares of Common
Stock underlying options to purchase Common Stock owned by such Shareholders in
custody with the Custodian as reflected on Exhibit A (the "Custodial Shares");
and
WHEREAS, the Shareholders wish to deposit the Custodial Shares in
custody in order to fulfill the requirements of the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, terms and conditions hereinafter set forth, the parties to this
Custody Agreement agree as follows:
SECTION 1. DESIGNATION AND DEPOSIT OF CUSTODIAL SHARES.
a. The Custodial Shares to be deposited in custody pursuant to
this Custody Agreement consist of 500,000 shares of Common Stock of the
Company and are owned of record as of the date of this Custody
Agreement by the Shareholders identified on Exhibit A.
b. On or before the date on which the Securities and Exchange
Commission declares the Company's Registration Statement on Form S-1
(Reg. No. 333-77737) effective under the 1933 Act (the "Effective
Date"), the Shareholders shall deliver to the Custodian any and all
certificates representing the Custodial Shares and a stock power
endorsed in blank. Promptly after the Effective Date, the Custodian
shall deliver a receipt therefor and, if requested by a Shareholder, a
new certificate representing each
<PAGE> 2
Shareholder's shares of Common Stock represented by the certificates
delivered but which are not subject to this Custody Agreement.
SECTION 2. TITLE OF ACCOUNT. All certificates representing the
Custodial Shares delivered to the Custodian pursuant to this Agreement shall be
deposited on the Effective Date by the Custodian in an account designated
substantially as follows: "Leisure Time Casinos & Resorts, Inc. Custodial Share
Account" (the "Custody Account").
SECTION 3. TRANSFER OF CUSTODIAL SHARES DURING CUSTODY PERIOD.
a. During the Custody Period (as defined below) none of the
Custodial Shares deposited in the Custody Account shall be sold,
pledged, hypothecated or otherwise transferred or delivered out of the
Custody Account except as follows:
i. transfers by operation of law occasioned by the
death or incapacity of the Shareholder shall be recorded upon
presentation to the Company by the personal representative or
guardian of a deceased or incapacitated Shareholder of
appropriate documents regarding the necessity for transfer and
of which transfer the Company has notified the Custodian and
the Representative; and
ii. transfers of ownership of certificates
representing the Custodial Shares, certificates for which have
been deposited to the Custody Account, shall remain subject to
the restrictions imposed hereby, including those persons, if
any, who become holders, by any means provided herein, of the
Custody Shares during the Custody Period.
SECTION 4. DURATION OF CUSTODY PERIOD.
a. The Custody Period shall commence on the Effective Date and
shall terminate on the earlier of the date on which all Custodial
Shares have been returned to the Shareholders pursuant to Sections
6(a), 6(b), 6(c), 6(d), 6(e), 6(f), or 6(g) below.
b. This Agreement shall be of no force or effect in the event
the Underwriting Agreement is not executed on the Effective Date in
accordance with its terms.
SECTION 5. RECEIPT OF DISTRIBUTIONS AND DIVIDENDS. During the term of
the Custody Period, if the Company issues any distributions, dividends, rights
or other property with respect to the Common Stock, then, in such event, the
Company shall be authorized to send evidence of such distributions, dividends,
rights or other property directly to the Custodian, which is hereby authorized
to hold and retain possession of all such evidences of distributions, dividends,
rights or other property until termination of the Custody Period in accordance
with Section 6 below. In the event the Custodial Shares are distributed to the
Shareholders pursuant to Sections 6(a), 6(b), 6(c), 6(d), 6(e), 6(f) or 6(g)
below, then the Custodian will distribute evidences of such distributions,
dividends, rights, or other property in the form the Custodian received such
2
<PAGE> 3
distributions, dividends, rights or other property from the Company. If the
Company recapitalizes, splits or combines its shares, such shares shall be
substituted, on a pro rata basis for the Custodial Shares.
SECTION 6. RELEASE AND DELIVERY OF CUSTODIAL SHARES.
a. In the event the Custodian receives written advice from the
Representative and the Company confirming the approval of the South
Carolina referendum on November 2, 1999 that will permit video gaming
machine payouts to continue in South Carolina, the Custodian shall
return to each Shareholder his or her pro rata share of the Custodial
Shares. The Custodian shall return the Custodial Shares only to the
person named as the holder of record in Exhibit A to this Custody
Agreement, as modified by any transfers made pursuant to Section 3
above.
b. In the event that on or prior to a date that is twelve
months from the Effective Date the Custodian receives written advice
from the Representative and the Company confirming that the Governor of
California has entered into a gaming compact with at least 10 Native
American tribes located in California, the Custodian shall return to
each Shareholder his or her pro rata share of the Custodial Shares. The
Custodian shall return the Custodial Shares only to the person named as
the holder of record in Exhibit A to this Custody Agreement, as
modified by any transfers made pursuant to Section 3 above.
c. In the event that on or prior to a date that is twelve
months from the Effective Date the Custodian receives written advice
from the Representative and the Company confirming that the Company has
successfully completed a subsequent underwritten public offering of the
Company's Common Stock in a gross amount of at least $30 million or a
price per share of at least $20, the Custodian shall immediately after
the closing of any such public offering return to each Shareholder his
or her pro rata share of the Custodial Shares. The Custodian shall
return the Custodial Shares only to the person named as the holder of
record in Exhibit A to this Custody Agreement, as modified by any
transfers made pursuant to Section 3 above. In the event that the date
is more than twelve months from the Effective Date, the Representative,
in its discretion, may return to each Shareholder his or her pro rata
share of the Custodial Shares.
d. In the event the Custodian receives written advice from the
Representative and the Company confirming the Company had net income
after tax of at least $17 million for the year ended June 30, 2000, the
Custodian shall return to each Shareholder a certificate for his or her
pro rata share of the Custodial Shares. The Custodian shall return each
certificate only to the person named as the holder of record in Exhibit
A hereto, as modified by any transfers made pursuant to Section 3
above.
e. In the event the Custodian receives written advice from the
Representative and the Company confirming the Company had net income
after tax of at least $32 million for the year ended June 30, 2001, the
Custodian shall return to each Shareholder a certificate for his or her
pro rata share of the Custodial Shares. The Custodian shall return each
certificate only to the person named as the holder of record in Exhibit
A hereto, as modified by any transfers made pursuant to Section 3
above.
3
<PAGE> 4
f. In the event the Custodian receives written advice from the
Representative and the Company confirming that the Company has been
merged or consolidated with another company which is the survivor to
the transaction, or that the Company has sold all or substantially all
of its assets and the relevant transaction was approved by the holders
of a majority of the Company's outstanding voting securities exclusive
of any such securities held by any party to this Agreement, the
Custodian shall immediately prior to the closing of any such
transaction return to each Shareholder a certificate for his or her pro
rata share of the Custodial Shares. The Custodian shall return each
certificate only to the person named as the holder of record in Exhibit
A hereto, as modified by any transfers made pursuant to Section 3
above.
g. In the event none of the criteria for release specified in
subparagraphs (a), (b), (c), (d), (e) or (f) above is reached by the
Company, the Custodial Shares shall remain in the Custody Account until
a date that is seven years from the Effective Date. Upon termination of
the Custody Period pursuant to the provisions of this Section 6(g), the
Custodian shall, as promptly as possible, return to each Shareholder a
certificate for his or her pro rata share of the Custodial Shares
remaining in the Custody Account by means of registered mail, return
receipt requested. The Custodian shall return each certificate only to
the person named as the holder of record in Exhibit A hereto, as
modified by any transfers made pursuant to Section 3 above.
h. At such time as the Custodian shall have returned all
Custodial Shares as provided in this Section, the Custodian shall be
discharged completely and released from any and all further liabilities
and responsibilities under this Custody Agreement.
i. The determination of the criteria described above shall be
solely the responsibility of the Company and the Representative, and
the Custodian shall have no liability or responsibility therefor.
SECTION 7. VOTING RIGHTS. During the Custody Period, the Shareholder,
or any transferee receiving all or a portion of the Custody Shares pursuant to
Section 3 of this Custody Agreement, shall have the right to vote the Custodial
Shares (to the extent the Custodial Shares have voting rights) in the Custodial
Account at any and all shareholder meetings without restriction.
SECTION 8. LIMITATION OF LIABILITY OF CUSTODIAN. In acting pursuant to
this Custody Agreement, the Custodian shall be protected fully in every
reasonable exercise of its discretion and shall have no obligation hereunder to
either the Shareholders or to any other party except as expressly set forth
herein. In performing any of its duties hereunder, the Custodian shall not incur
any liability to any person for any damages, losses or expenses, except for
willful default or negligence and it shall, accordingly, not incur any such
liability with respect to (1) any action taken or omitted in good faith upon
advice of its counsel, counsel for the Company or counsel for the Representative
given with respect to any question relating to the duties and responsibilities
of the Custodian under this Agreement, and (2) any action taken or omitted in
reliance upon any
4
<PAGE> 5
instrument, including written notices provided for herein, not only to its due
execution and validity and effectiveness of its provisions, but also to the
truth and accuracy of any information contained therein, which the Custodian
shall in good faith believe to be genuine, to have been signed and presented by
a proper person or persons and to be in compliance with the provisions of this
Agreement.
SECTION 9. INDEMNIFICATION. The Company, the Representative and the
Shareholders shall indemnify and hold harmless the Custodian against any and all
losses, claims, damages, liabilities and expenses, including reasonable costs of
investigation and counsel fees and disbursements, which may be imposed upon the
Custodian or incurred by the Custodian in connection with its acceptance of
appointment as Custodian or the performance of its duties hereunder, including
any litigation arising from this Custody Agreement or involving the subject
matter of this Custody Agreement.
SECTION 10. PAYMENT OF FEES. The Company shall be responsible for all
reasonable fees and expenses of the Custodian incurred by it in the course of
performing under this Custody Agreement.
SECTION 11. CHANGE OF CUSTODIAN. In the event the Custodian notifies
the Company and the Representative that its acceptance of the duties of
Custodian has been terminated by the Custodian, or in the event the Custodian
files for protection under the United States Bankruptcy Code or is liquidated or
ceases operations for any reason, the Company and the Representative shall have
the right to jointly designate a replacement Custodian who shall succeed to the
rights and duties of the Custodian hereunder. Any such replacement Custodian
shall be a trust or stock transfer company experienced in stock transfer, escrow
and related matters and shall have a minimum net worth of $5 million. Upon
appointment of such successor Custodian, the Custodian shall be discharged from
all duties and responsibilities hereunder.
SECTION 12. NOTICES. All notices, demands or requests required or
authorized hereunder shall be deemed given sufficiently if in writing and sent
by registered mail or certified mail, return receipt requested and postage
prepaid and by facsimile or cable:
In the case of the Representative to:
Schneider Securities, Inc.
The Chancery
1120 Lincoln Street, Suite 900
Denver, Colorado 80203
Attention: Thomas J. O'Rourke, President
With a copy to (which shall not constitute notice):
Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
One Norwest Center, Suite 4700
1700 Lincoln Street
Denver, Colorado 80203-4547
5
<PAGE> 6
In the case of the Custodian to:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
In the case of the Company to:
Leisure Time Casinos & Resorts, Inc.
4258 Communications Drive
Norcross, Georgia 30093
With a copy to (which shall not constitute notice):
Thomas S. Smith, Esq.
Smith McCullough, P.C.
4643 South Ulster Street, Suite 900
Denver, Colorado 80237
In the case of the Shareholders to:
Alan N. Johnson
1284 Miller Road
Avon, Ohio 44011
Elden W. Rance
4258 Communications Drive
Norcross, Georgia 30093
R. Thomas Klingel
4258 Communications Drive
Norcross, Georgia 30093
Gerald J. Boyle
1284 Miller Road
Avon, Ohio 44011
Eric R. Dey
4258 Communications Drive
Norcross, Georgia 30093
6
<PAGE> 7
Richard D. Sly
12920 West Lake Road
Vermillion, Ohio 44089
Lester E. Bullock
4258 Communications Drive
Norcross, Georgia 30093
SECTION 13. COUNTERPARTS. This Custody Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Custody Agreement. Facsimile signatures shall
be accepted as original signatures for all purposes.
SECTION 14. GOVERNING LAW. The validity, interpretation and
construction of this Custody Agreement and of each part hereof shall be governed
by the laws of the State of Colorado.
IN WITNESS WHEREOF, the Shareholders, the Company, the Representative
and the Custodian have executed this Custody Agreement to be effective as of the
day and year first above written.
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
---------------------------------------------
Title:
------------------------------------------
LEISURE TIME CASINOS & RESORTS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
SCHNEIDER SECURITIES, INC.
By:
---------------------------------------------
Title:
------------------------------------------
7
<PAGE> 8
THE SHAREHOLDERS:
By:
--------------------------------------------
Alan N. Johnson
By:
--------------------------------------------
Elden W. Rance
By:
--------------------------------------------
R. Thomas Klingel
By:
--------------------------------------------
Gerald J. Boyle
By:
--------------------------------------------
Eric R. Dey
By:
--------------------------------------------
Richard D. Sly
By:
--------------------------------------------
Lester E. Bullock
8
<PAGE> 9
EXHIBIT A
TO CUSTODY AGREEMENT
TOTAL SHARES UNDERLYING
NAME TOTAL SHARES OPTIONS
---- ------------ -----------------------
Alan N. Johnson 348,000
Elden W. Rance 61,150
R. Thomas Klingel 13,500
Gerald J. Boyle 38,100
Eric R. Dey 1,650
Richard D. Sly 35,400
Lester E. Bullock 2,200
9
<PAGE> 1
EXHIBIT 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-77737 of Leisure Time Casinos & Resorts, Inc. of our report dated August 19,
1998 appearing in the Prospectus, which is part of such Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
/s/ Ehrhardt Keefe Steiner & Hottman
PC
Denver, Colorado
July 20, 1999
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,540,000
<SECURITIES> 0
<RECEIVABLES> 2,780,000
<ALLOWANCES> 31,000
<INVENTORY> 4,068,000
<CURRENT-ASSETS> 9,690,000
<PP&E> 9,354,000
<DEPRECIATION> (1,231,000)
<TOTAL-ASSETS> 29,840,000
<CURRENT-LIABILITIES> 10,003,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 8,606,000
<TOTAL-LIABILITY-AND-EQUITY> 29,840,000
<SALES> 45,056,000
<TOTAL-REVENUES> 45,056,000
<CGS> 22,475,000
<TOTAL-COSTS> 22,475,000
<OTHER-EXPENSES> 16,482,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 887,000
<INCOME-PRETAX> 5,212,000
<INCOME-TAX> 1,975,000
<INCOME-CONTINUING> 3,237,000
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