UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2003
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________________ to __________________.
Commission file number: 1-12522
EMPIRE RESORTS, INC
(Name of small business issuer as specified in its charter)
DELAWARE 13-4141279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ROUTE 17B PO BOX 5013 MONTICELLO, NY 12701
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (845) 794-4100
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $ .01 par value Nasdaq Small-Cap Market
Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
State issuer's revenue for its most recent year. None.
As of March 22, 2004, the estimated aggregate market value of the voting
common equity held by non-affiliates was approximately $33,000,000.
As of March 22, 2004, 25,898,468 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE The information required by Items 9 through
12 and 14 of this Annual Report on Form 10-KSB is incorporated by reference from
the issuer's definitive proxy materials for its next Annual Meeting of
Stockholders, which proxy materials are to be filed with the Securities and
Exchange Commission not later than April 29, 2004.
Transitional small business disclosure format (check one): Yes |_| No |X|
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Empire Resorts, Inc ("Empire" or the "Company") was organized as a
Delaware corporation on March 19, 1993, and since that time has served as a
holding company for various subsidiaries engaged in the ownership, development
and operation of gaming facilities. We were incorporated under the name Alpha
Hospitality Corporation and changed our name to Empire in May, 2003.
During the past three years, we have concentrated most of our efforts on
developing gaming operations in Monticello, New York. As part of this effort we
have disposed of various ancillary interests and terminated certain unprofitable
operations. In March 2002 we sold our interests in a casino project in
Greenville, Mississippi, and in June 2003 we sold our ownership in Casino
Ventures, LLC.
The Company had no operating revenue during the fiscal years ended
December 31, 2003 and 2002. On January 30, 2004, the Company closed a private
sale of 4,050,000 shares of common stock, to multiple investors, at a price of
$7.50 per share. This sale, net of closing expenses, increased by approximately
$30 million our funds for development and operations.
During the past three years we also increased and restructured our
economic interest in Catskill Development, LLC ("CDL"). CDL is a New York
limited liability company that was formed in 1995 and owned Monticello Raceway,
a harness horse racing facility located on 229 acres in Monticello, New York,
approximately 90 miles northwest of New York City in the Catskill Mountains. In
March 2002 we entered into an agreement with Watertone Holdings, LP, a member of
CDL that is controlled by Robert Berman, our chief executive officer, and Scott
Kaniewski, our chief financial officer, whereby Watertone Holdings, LP
transferred 47.5% of its economic interest in CDL's racetrack and casino
businesses to us in exchange for 575,874 shares of our common stock. Then, in
December 2002, we once again increased our ownership interest in CDL by issuing
1,394,200 shares of Series E Preferred Stock to Bryanston Group, Inc. (the
"Bryanston Group"), the Company's former controlling shareholder controlled by
certain prior members of our senior management, in exchange for all of Bryanston
Group interest in CDL. Finally, in July 2003, we agreed to acquire 100% of CDL's
operating and development entities. These entities, Monticello Raceway
Management, Inc. ("Monticello Raceway Management"), Monticello Casino
Management, LLC ("Monticello Casino Management"), Monticello Raceway Development
Company, LLC ("Monticello Raceway Development") and Mohawk Management, LLC
("Mohawk Management"), were acquired for 80.25% of the Company's common stock,
or 18,219,075 shares, calculated on a post-merger, fully diluted basis.
The acquisition was completed on January 12, 2004. Future reporting of the
new operations will be accounted for as a reverse merger and as if the merger
occurred on January 1, 2004, because there were no significant operations during
that period. Monticello Raceway Management was a wholly owned subsidiary of CDL.
Each of Monticello Casino Management and Mohawk Management was 60% owned by CDL
and 40% owned indirectly by the Company and Monticello Raceway Development. The
Company previously did not own any direct interest in Monticello Raceway
Development.
MONTICELLO RACEWAY MANAGEMENT. Monticello Raceway Management is a New York
corporation that operates Monticello Raceway, a harness horse racing facility
located in Monticello, New York, and holds a leasehold interest in 200 of the
229 acres of land. Monticello Raceway Management reported its financial results
with CDL on a consolidated basis through December 31, 2003.
MONTICELLO CASINO MANAGEMENT. Monticello Casino Management is a New York
limited liability company that has the exclusive right to manage, on behalf of
the Cayuga Nation of New York, any Class III Gaming operations and related
activities that may occur on 29 of the 229 acres of land at the Monticello
Raceway in Monticello, New York. Currently, Monticello Casino Management has no
operations, employees or assets other than its gaming management rights. Since
inception, Monticello Casino Management has had no reportable revenue, net
income or losses.
1
MONTICELLO RACEWAY DEVELOPMENT. Monticello Raceway Development is a New
York limited liability company with the exclusive right to design, engineer,
develop, construct, and furnish a Class III Gaming facility that is being
developed on 29 of the 229 acres of land at the Monticello Raceway in
Monticello, New York. Monticello Raceway Development also has the exclusive
right to develop the remaining 200 acres of land to provide for activities
supportive of gaming, such as lodging, food service and retail. Currently,
Monticello Raceway Development has no operations, employees or assets other than
its development rights. Monticello Raceway Development has had no reportable
revenue, net income or losses.
MOHAWK MANAGEMENT. Mohawk Management is a New York limited liability
company originally formed to operate, in conjunction with the St. Regis Mohawk
Tribe, a Class III Gaming facility on 29 of the 229 acres of land at the
Monticello Raceway in Monticello, New York. The agreements with respect to these
facilities have expired. Currently, Mohawk Management has no operations,
employees or assets. Since inception, Mohawk Management has had no reportable
revenue, net income or losses.
RACETRACK OPERATIONS
Monticello Raceway began operation in 1958. It is currently operated by
Monticello Raceway Management and offers pari-mutuel wagering on live harness
racing throughout the year, along with year round simulcasting from various
harness and thoroughbred racetracks across the country. Monticello Raceway
derives its revenue principally from (i) wagering at Monticello Raceway on live
races run at Monticello; (ii) fees from wagering at out-of-state locations on
races run at Monticello Raceway using export simulcasting; (iii) revenue
allocations, as prescribed by law, from betting activity at New York City,
Nassau and Catskill Off Track Betting facilities (certain of such revenues are
shared with Yonkers Raceway based on a pro rata market share calculation updated
monthly); (iv) wagering at Monticello Raceway on races broadcast from
out-of-state racetracks using import simulcasting; and (v) admission fees,
program and racing form sales, the sale of food and beverages and certain other
ancillary activities.
SIMULCASTING. Over the past several years, import and, particularly,
export simulcast racing has become an increasingly vital part of Monticello
Raceway's revenue stream. Simulcasting is the process by which live horse races
held at one facility (the "host track") are transmitted simultaneously to other
locations that allow patrons at each receiving off track betting location (the
"OTB") to place wagers on the race being broadcast. Monies are collected at the
OTB and the information with respect to the total amount wagered is
electronically transmitted to the host track. In effect, all of the amounts
wagered at the OTBs are combined into the appropriate pools at the host track
with the final odds and payouts determined based upon all the monies in the
pools.
With the exception of a few holidays, Monticello Raceway offers its
patrons simulcast racing from several race tracks year round, including such
tracks as Churchill Downs, Hollywood Park, Santa Anita, Gulfstream Park,
Aqueduct, Belmont Park and Saratoga Racecourse. In addition, races of national
interest, such as the Kentucky Derby, Preakness Stakes and Breeders' Cup
supplement the regular simulcast program.
PAR-MUTUEL WAGERING AND TRACK EARNINGS. All of Monticello Raceway's gaming
revenue is derived from pari-mutuel wagering and the aforementioned legislated
revenue allocations from certain of New York State operated OTBs. In pari-mutuel
wagering, patrons bet against each other rather than against the operator of the
facility or with pre-set odds. The dollars wagered form a pool of funds from
which winnings are paid based on odds determined solely by the wagering
activity. The racetrack acts as a stakeholder for the wagering patrons and
deducts from the amounts wagered a "take-out" or gross commission, from which
the racetrack pays state and county taxes and racing purses. Monticello
Raceway's pari-mutuel commission rates are fixed as a percentage of the total
handle or amounts wagered. With respect to Monticello Raceway's live racing
operations, such percentage is fixed by New York law at four levels, 17%, 19%,
25% and 36%, depending on the complexity of the wager. The lower rate applies to
wagering pools involving only win, place and show wagers while the higher rates
apply to pools involving wagers on more complex on-track bets. With respect to
import simulcast-racing operations, Monticello Raceway generally applies the
commission rates imposed by the jurisdictions of the host racetracks, and
approved by the New York State Racing and Wagering Board. Such rates may vary
with each jurisdiction and are considerably less favorable than the on-track
live racing commission rates. With respect to export simulcast racing
operations, "guest" tracks and off-track wagering outlets pay "host" fees to
Monticello Raceway that average 3% of the handle wagered on Monticello Raceway's
live races of which a portion is allocated to the Raceway's purse account.
Casinos and off-track wagering facilities in Nevada and Connecticut currently
receive Monticello Raceway's live race signal from a disseminator to whom
Monticello Raceway pays a fee.
2
The racing industry in New York, inclusive of Monticello Raceway, has
experienced a decline in business over many years. Attendance and the amounts
being wagered on live races are down from past years. Several developments have
contributed to this overall decline in attendance in the racing industry. One
has been the rapid growth of what is known as account wagering. Account wagering
allows an individual to place a wager on a horserace while at home by telephone
or over the Internet using an account established with an OTB or Internet
entity. Commissions received by the racetrack from account wagering are
significantly less than if the person places a wager at the racetrack, thus
causing a decline in the racetrack's revenue. Another factor adversely affecting
the New York racing industry has been an overall increase of gaming competition
in the surrounding region. The existing gaming industry in the northeastern
United States is highly competitive, as full service casinos are now available
in Connecticut, New Jersey and Western New York, where patrons are offered the
opportunity to wager on table games and slot machines and, in certain locations,
horseracing. Moreover, there are numerous publicly owned off-track betting
facilities throughout the State of New York, which further impacts negatively on
on-track attendance (SEE ITEM 1. BUSINESS - COMPETITION). In addition,
attendance at Monticello Raceway has been adversely affected by overall economic
conditions in the Catskills region.
VIDEO GAMING MACHINES
A video gaming machine (VGM) is an electronic gaming device. It allows a
patron to play electronic versions of various lottery games of chance and is
similar in appearance to a traditional slot machine. During the past decade, the
operation of these gaming devices at racetracks in several states outside New
York has been authorized, with a portion of the revenues dedicated to increasing
purses. The results have been uniformly successful at significantly enhancing
state lottery revenues and improving the economics of the racetrack's
operations.
On October 31, 2001, the State of New York enacted a bill designating
seven racetracks across the state, including Monticello Raceway, as approved
locations for the New York State Lottery to install and operate video gaming
machines, The program provided for the racetrack operators to serve as agents
for the Lottery. However, as originally designed none of the racetracks
authorized to participate in the program found the terms conducive to the level
of investment required to participate in the program. On May 15, 2003, New York
State enacted legislation to enhance the incentives for racetracks in New York
State to participate in the program. These included extending the initial term
of the program to 10-years from the date that the first facility is placed in
service and permitting year round operations. Approximately 29% of the net
revenue of the program is to be distributed to the tracks and their horsemen/
breeders associations, including funds to provide gradually increasing purses
for the horsemen and for a breeding fund, thus improving the quality of racing
at the tracks.
During the initial eighteen months of the program, the New York State
Lottery has the ability to approve the opening of temporary facilities, until
more comprehensive construction can take place. Under the program, the New York
State Lottery has made an in initial allocation of 1,800 VGM's to Monticello
Raceway. If market conditions permit, additional machines may be added without
the need for additional legislation. Participation in this program will require
additional approvals by the New York State Lottery, including satisfactory
completion of construction of the facilities at Monticello Raceway, and staffing
and training. Construction contracts for these facilities were signed and work
on the necessary improvements began in February 2004. While the construction and
staffing activities have proceeded on schedule to date, due to the nature of
such activities, no assurance can be given that successful implementation will
be achieved by the current anticipated commencement target of early July, 2004.
CASINO DEVELOPMENT
In 1988, Congress passed the Indian Gaming Regulatory Act, which permits a
Native American tribe to petition the Governor of its host state for a
tribal-state compact permitting casino gaming on such tribe's reservation and/or
on lands to be acquired and held in trust by the Unites States Government for
the benefit of such tribe. As part of the 2001 legislation that permitted the
installation of video gaming machines at racetracks, the New York State
legislature also granted the governor the right to negotiate with Native
American tribes and enter into compacts permitting three resort style casinos in
the Catskills and three in the Buffalo-Niagara Falls area. This legislation only
permits the governor to approve tribal-state compacts with federally recognized
tribes that are located in New York.
3
Since 1995, CDL has been working to develop a 29 acre parcel of land at
the racetrack into a full service resort-style casino in conjunction with a
recognized Native American Nation. A 29 acre site was identified to be deeded to
the United States Government in trust for the use and benefit of a Native
American tribe and for the tribe to conduct gaming activities on the site. This
site was originally planned to be used for a casino to be owned and operated by
the St Regis Mohawk Tribe, and CDL incurred considerable expenditures in
connection with the effort. However, after extensive local, state and federal
reviews had been conducted, the St. Regis Mohawk Tribe elected to pursue the
development of another location in the Catskills with another gaming company,
Caesar's Entertainment, Inc. ("CZR"), formerly Park Place Entertainment. See
"Other Business Activities and Past Developments - LITIGATION CONCERNING
RELATIONS WITH THE ST. REGIS MOHAWK TRIBE" below.
On April 3, 2003, the Cayuga Nation of New York, a federally recognized
Indian Nation (the "Cayuga Nation"), CDL and certain of CDL's affiliates,
including a subsidiary of the Company, entered into a series of agreements which
provide for the development of a trust land casino adjacent to the Raceway. In
furtherance of these transactions, on April 10, 2003, the Cayuga Nation and the
Company and its affiliate, CDL, officially filed with the Eastern Regional
Office of the Bureau of Indian Affairs, an application requesting that the
Secretary of the Interior acquire in trust on behalf of the Cayuga Nation a 29
acre parcel of land in Monticello, New York to be used for gaming purposes. As a
result of the Company's recent consolidation transaction with CDL, all of these
contracts were assigned to Empire and the Company now owns 100% of all the
related entities.
OTHER BUSINESS ACTIVITIES AND PAST DEVELOPMENTS
THE BAYOU CADDY'S JUBILEE CASINO
The Bayou Caddy's Jubilee Casino began its operation in Greenville,
Mississippi in November 1995 and was the second casino operating in a very
discrete market. The operations were meeting or exceeding all of management's
expectations. In early 1997 a third casino opened in Greenville and it became
clear that the market would not expand sufficiently to accommodate the
additional capacity. After considerable deliberation, management took the
decision to exit the Greenville market and on March 2, 1998, we sold our
interest in the Greenville Inn & Suites and the Bayou Caddy's Jubilee Casino to
Greenville Casino Partners, L.P., an entity in which we held a 25% (subsequently
reduced to approximately 19% for capital call adjustments) interest, and with
which we entered into a hotel management contract. In March 2002, Greenville
Casino Partners, L.P. sold all of the entity's operations and assets to JMBS
Casino LLC. The Company's proceeds from the sale were $2.8 million. Prior to the
sale we assigned our related hotel management contract to Greenville C.P., Inc.
for an additional $510,000. An additional $1 million was held in escrow for 18
months pending any claims the purchaser may have against Greenville Casino
Partners, L.P. In April 2003 we received $135,000 in full settlement of the
escrow and have no further interest is held in the entity.
THE JUBILATION CASINO VESSEL
On July 8, 1999, we, through our subsidiary, Jubilation Lakeshore, Inc.,
contributed our inactive gaming vessel, Bayou Caddy's Jubilation Casino
("Jubilation"), to Casino Ventures, LLC, in exchange for $150,000 in cash and a
note of approximately $1.4 million, plus a non-managing membership interest in
Casino Ventures.
In December 2002, we recognized a $3 million impairment loss reflecting a
casualty loss on the Jubilation vessel.
Effective June 30, 2003, the Company and PDS Special Situations, LLC
("PDS"), a Nevada limited liability company, entered into an agreement for PDS
to purchase the Company's membership interest in Casino Ventures, LLC and all of
the Company's former debt agreements. The Company sold 75% of its issued and
outstanding equity interests in Casino Ventures, LLC in exchange for $10,000,
with the remaining interest owned by the Company, which totaled 18% then being
sold and transferred for an additional $40,000 upon the procurement from the
other 7% interest holders' membership interests. The Company recorded $10,000 of
proceeds from the sale of its interest and will record the additional $40,000
proceeds upon the receipt of the final payment. The net effect of the sale in
the 2003 consolidated financial statements was a loss of approximately $30,000.
4
LITIGATION CONCERNING RELATIONS WITH THE ST. REGIS MOHAWK TRIBE
Since its formation in October 1995, CDL has pursued the development of
Monticello Raceway as three distinct lines of business: a) operation of
Monticello Raceway, including pari-mutuel and potential future video gaming
machines; b) casino development activities; and c) real estate development and
related activities. CDL's plan was to contract with the St. Regis Mohawk Tribe
and to secure the necessary state and federal approvals for the construction and
operation of a casino.
By letter dated April 6, 2000, addressed to Governor George Pataki, Kevin
Gover, Assistant Secretary of the Department of the Interior, advised and
notified the Governor of New York that the proposed casino project had been
approved and specifically requested that the Governor concur. However, on April
22, 2000, the Company became aware of a letter agreement between the Mohawk
Tribe and CZR. Such agreement provided for CZR to have the exclusive rights to
develop and manage any casino development the Mohawk Tribe might have in the
State of New York.
On November 13, 2000, CDL and related entities, including our subsidiary,
Alpha Monticello, Inc. (the "Plaintiffs"), joined in a suit filed in United
States District Court, Southern District of New York against CZR, alleging
entitlement to substantial damages as a consequence of, among other things, its
wrongful interference with several agreements between CDL and the St. Regis
Mohawk Tribe pertaining to the proposed Native American casino project.
On August 22, 2002, U.S. District Court Judge Colleen McMahon granted
CZR's motion for summary judgment on the Plaintiffs' claim for interference with
business relationships and dismissed the Plaintiffs' contractual interference
and other claims. Initially, the Plaintiffs pursued an appeal of this judgment.
However, on March 14, 2003, attorneys for the plaintiffs filed a motion
requesting the District Court to vacate this judgment on the ground that new
evidence had been found. In October 2003, the earlier judgment was vacated in
order to allow the Court to consider the effect of the new evidence following a
brief period of additional discovery. Briefs on this issue were filed in
December, 2003.
As of January 12, 2004, in order to better focus on the development of a
video gaming machine program at Monticello Raceway and current business
arrangements with the Cayuga Nation of New York and as a condition to the
consolidation transaction with CDL, all interests of the plaintiffs, including
any interest of Empire, with respect to the claims in such litigation were
transferred to a liquidating litigation trust (the "Litigation Trust"). Two
members of the Company's board of directors, Paul A. deBary, and Joseph E.
Bernstein, serve as co-trustees for the Litigation Trust. For these services,
Messrs. deBary and Bernstein will each receive $60,000 per year and 1% and 4%,
respectively, of any proceeds that the Litigation Trust receives from the
ongoing litigation, or any future litigation that may be brought by the
Litigation Trust. In connection with the organization of the trust, the
Company's common stockholders of record immediately before the merger are to
receive Empire's interest in the trust as a liquidating dividend. The Company
also issued an irrevocable line of credit for $2.5 Million to the trust to cover
future expenses. Pursuant to the terms of the Declaration of Trust establishing
the trust, in the event of a recovery in the litigation, the Company is to
receive payments to reimburse it for prior litigation expenses of $7.5 Million
and to repay any draws on the line of credit. After such payments and
reimbursements and the payment of all fees and expenses of the trust, any
remaining amount recovered is to be distributed pro rata to the Litigation
Trust's beneficiaries. Except for these arrangements, the Company has no further
interest in, or control over, the related litigation. A registration statement
concerning this distribution on Form S-1 was filed with the Securities and
Exchange Commission by the Litigation Trust and became effective on March 5,
2004.
COMPETITION
Generally, Monticello Raceway does not compete directly with other harness
racing tracks in New York State for live racing patrons. However, Monticello
Raceway does face intense competition for off-track wagering at numerous gaming
sites within the State of New York and the surrounding region. The inability to
provide larger purses for the races at Monticello Raceway is a significant
limitation on its ability to compete for off-track wagering revenues.
THE NEW YORK LOTTERY'S VIDEO GAMING PROGRAM. The New York State Lottery's
video gaming facility at Monticello Raceway will be one of seven such facilities
authorized in the State. Of these, two have recently commenced operations. The
New York State Lottery recently reported that New York State's first two VGM
racetracks, Saratoga Gaming and Raceway and Finger Lakes, reported a combined
$8.8 million in revenues through March 1, 2004. Saratoga opened on January 28th
and reported approximately $6.3 million in revenues or $139 per machine per day
5
for its first 34 days. Finger Lakes opened on February 18th and, during the
first 13 days, reported revenues of approximately $2.5 million or $190 per
machine per day. These figures are for short duration and there are significant
differences in the market areas as compared with Monticello Raceway. However,
the results are in line with the New York State Lottery's expectations for the
program. Additional facilities at Vernon Downs, near Syracuse, New York, and
Buffalo Downs, near Buffalo, New York, are also expected to open this year.
The primary competition for the Monticello Raceway facility for this
program is expected to be from two racetracks located within the New York
metropolitan area, Yonkers Raceway and Aqueduct Raceway. Both have announced
plans to proceed with the program and construction of facilities was commenced
at Aqueduct. However, the development program for Yonkers has yet to be
finalized and construction at Aqueduct has been suspended pending the resolution
of certain legal issues. In addition, proposals have been made for the
implementation of a similar program in New Jersey, which would include a
facility at the Meadowlands racetrack. Implementation of this program and a
similar one being considered in Pennsylvania will require legislation to be
enacted.
COMPETING NATIVE AMERICAN CASINOS. In April 2000, the St. Regis Mohawk
Tribe announced that they and CZR plan to build and manage a $500 million tribal
casino and resort in the Catskill Mountains. In May 2000, CZR obtained an option
to purchase Kutsher's Resort Hotel and Country Club in Monticello, New York, as
the site for this casino. As currently announced, CZR plans on turning this
facility, located approximately 5 miles from Monticello Raceway, into a 750 room
hotel with a 130,000 square foot casino, 15,000 square foot meeting hall,
numerous restaurants and a luxury spa.
Of the tribes that have submitted applications to the U.S. Department of
the Interior to acquire land in the Catskills for gaming purposes, the St. Regis
Mohawk Tribe is the only applicant, other than the Cayugas, that clearly meets
the conditions contained in the 2001 authorizing legislation with respect to
being both federally recognized and located in New York State. Another federally
recognized tribe, the Stockbridge Munsee Band of Mohegans, asserting aboriginal
roots in New York State, has also applied for approval to develop a Catskills
casino. Their partners, Trading Cove Associates, developers of the successful
Mohegan Sun in Connecticut, have purchased an option on 300 acres to build a
$600 million casino hotel on a site approximately five miles east of Monticello
Raceway.
The St. Regis Mohawks and the Stockbridge-Munsee Band of Mohicans have
recently held scoping meetings for the purposes of preparing a Federal
Environmental Impact Statement. Neither applicant completed the State
Environmental Review. Accordingly, we do not believe that federal approval of
their applications is imminent at this time or that any federal land to trust
application for the Catskill's region is closer to approval than the application
of the Cayuga Nation for the proposed Cayuga-Monticello Casino at Monticello
Raceway. We cannot predict, however, whether or when such approvals might be
obtained. Moreover, even following such an approval, the Cayuga Nation and the
Company will need to secure additional approvals from the State of New York and
the National Indian Gaming Commission, and the proposed casino will need to be
financed and constructed, before the Company can generate revenues from the
project.
Other New York based federally recognized Native American tribes or tribes
with historical ties to New York have expressed an interest in operating casinos
in the Catskill's area, but have not yet submitted applications. Two of these,
the Oneida Nation and the Seneca Nation, have already been active in the
development of casinos in Western New York. In July 1993, the Oneida Nation
opened "Turning Stone," a casino featuring 24-hour table gaming and electronic
gaming machines with approximately 90,000 square feet of gaming space, near
Syracuse, New York. In October 1997, the facility was expanded to include a
hotel, expanded gaming facilities, a golf course and a convention center. There
are also plans for a further expansion consisting of 50,000 square feet of
gaming space, 300 additional hotel rooms and a water park. The Seneca Nation
completed their negotiations with New York State and on January 1, 2003 opened a
casino in Niagara Falls, New York. The casino offers full Las Vegas style
gambling with slot machines and table games. Although the Oneida Nation and the
Seneca Nation have expressed an interest in operating a casino in the Catskills
and have been actively engaged in preliminary development work, they have not
yet publicly identified a site or submitted federal applications. In addition,
two out of state tribes, the Wisconsin Oneidas, and the Cayuga-Seneca's have
each expressed interest in submitting applications but neither has done so.
In February 1992, the Mashantucket Pequot Nation opened Foxwoods Resorts
Casino ("Foxwoods"), a casino hotel facility in Ledyard, Connecticut (located in
the far eastern portion of such state), an approximately three-hour drive from
New York City and an approximately two and one-half hour drive from Boston,
Massachusetts, which currently offers 24-hour gaming and contains approximately
6,412 slot machines, 350 table games and over 1,400 rooms and suites, 24
restaurants, 17 retails stores, entertainment and a year-round golf course.
Also, a high-speed ferry operates seasonally between New York City and Foxwoods.
The Mashantucket Pequot Nation has also announced plans for a high-speed train
linking Foxwoods to the interstate highway and an airport outside Providence,
Rhode Island.
6
In October 1996, the Mohegan Nation opened the Mohegan Sun Casino Resort
("Mohegan Sun") in Uncasville, Connecticut, located 10 miles from Foxwoods.
Developed by Sun International Hotels, Ltd., Mohegan Sun has approximately 6,100
slot machines and 282 tables, off-track horse betting, bingo, 32 food and
beverage outlets, and retail stores and completed the first phase of an
expansion project that included a 115,000 square foot casino, a 10,000 seat
arena, 40 retail shops, dining venues and two additional parking garages,
accommodating up to 5,000 cars, in September 2001. The second phase included a
1,200 hotel guest room 34 story tower with convention facilities and a spa and
was opened in the summer of 2002.
A number of groups are seeking recognition as federally-recognized Indian
tribes in the hopes of operating casinos near the New York metropolitan area. A
State designated Indian reservation exists for the Schaghticoke Tribe in the
Berkshire mountain area in Northwestern Connecticut. The Schaghticokes have
recently received Federal recognition; however, the State of Connecticut has
appealed the BIA's decision. There have been periodic proposals for locating a
Native American casino in the City of Bridgeport, Connecticut. Should a
federally-recognized tribe be successful in doing so, it would no doubt have an
economic impact on any casinos in the Catskills since Bridgeport is somewhat
closer to a large portion of the New York metropolitan area. In addition, the
Shinnecock tribe, which has a state reservation in Eastern Long Island, has
applied for Federal recognition. If they are successful, they could also apply
for a compact to locate a casino on the current reservation close to
Southampton, New York and approximately 90 miles from New York City, although
there is currently no legislative authorization for the Governor to approve such
a compact. However, should the Shinnecock tribe be successful in obtaining the
required federal and state approvals and proceeds to build a gaming facility on
their reservation, it would also be expected to have some level of economic
impact on any casinos which might then exist in the Catskills.
In Atlantic City there are currently 12 casino hotels. Moreover,
substantial new expansion and development activity has recently been completed,
is under construction, or has been announced in Atlantic City, including the
summer of 2003 opening of the Borgata Casino developed by MGM and Boyd Gaming
and the expansions at Harrah's, Tropicana and Showboat.
NEW STATE LEGISLATION
Legislation permitting other forms of casino gaming has been proposed,
from time to time, in various states, including those bordering the State of New
York. Six states have legalized riverboat gambling while others are considering
its approval. Several states are also considering, or have approved, large-scale
land-based racinos based at their state's racetracks. The business and
operations of Monticello Raceway could be adversely affected by such
competition, particularly if casino and/or racino gaming was permitted in
jurisdictions nearer New York City. Currently, casino gaming, other than Native
American gaming, is not allowed in New York, Connecticut, Pennsylvania or in
areas of New Jersey outside of Atlantic City. However, proposals have been
introduced to expand legalized gaming in those locations. Management is unable
to predict whether any such legislation will be enacted or whether, if passed,
it would have a material adverse impact on its proposed casino or Monticello
Raceway's video gaming machine operations.
GOVERNMENT REGULATION - MONTICELLO RACEWAY
As the owner and operator of a harness horse racing facility in New York
State, the Company's subsidiary, Monticello Raceway Management, is subject to
various regulatory requirements. The operation of a video gaming venue as an
agent of the New York Lottery also involves continuing compliance with detailed
licensing requirements. Since we completed our planned acquisition of CDL's
assets, including Monticello Raceway Management, we are also subject to many of
these requirements, including background checks of and licensing of our
executive officers, all VGM employees and significant stockholders. Monticello
Raceway Management received its harness racing license for 2004 subsequent to a
review of its acquisition by the Company. In addition, Monticello Raceway
Management and the Company have received temporary Video Gaming Agent Licenses,
pending further background checks by the New York State Police.
7
All horse racing and pari-mutuel wagering, both on-track and off-track, in
the State of New York is overseen by the New York State Racing and Wagering
Board (the "Board") and subject to the rules and regulations provided under the
Racing, Pari-mutuel Wagering and Breeding Law of 1983, as amended (the "Racing
and Wagering Law").
HARNESS RACING LICENSES. The Racing and Wagering Law requires the Company
to have Monticello Raceway Management's racetrack operating license renewed on
an annual basis. In this regard, the Board has the right to deny such a renewal
should any of Monticello Raceway Management's officers, directors or
stockholders, or any party owning stock or a share of the profits, or
participating in the management of Monticello Raceway Management, including the
Company (i) is convicted of a crime involving moral turpitude, (ii) engage in
bookmaking or other forms of illegal gambling, (iii) is found guilty of any
fraud or misrepresentation in connection with racing or breeding, (iv) violates
or attempts to violate any law, rule or regulation of any racing jurisdiction
for which suspension from racing might be imposed in such jurisdiction, (v)
violates any rule, regulation or order of the Board, or (vi) is found to have
experience, character or general fitness inconsistent with the best interests of
racing generally. The Board also has the right to deny license renewal for a
failure, in the opinion of the Board, to properly maintain Monticello Raceway.
As certain of these standards depend upon the subjective determination of the
Board, the Company's continued ability to operate Monticello Raceway cannot be
assured. Furthermore, under the Racing and Wagering Law, no more than eight
corporations or associations may be licensed by the Board in any one year to
conduct a pari-mutuel meet or meets of harness racing. While Monticello Raceway
Management has always been able to secure such a license in the past, there can
be no assurance of its ability to do so in the future should new harness
racetracks open up in the State of New York.
Certain of the Company's and Monticello Raceway Management's employees and
stockholders are also subject to New York State licensing requirements. These
individuals can be denied a license or have theirs revoked should they commit
any of the acts described above which would jeopardize the Monticello Raceway
Management's license renewal.
RESTRICTIONS ON STOCK OWNERSHIP. Since the Company is now the sole owner
of Monticello Raceway, whenever a stockholder of the Company that holds 25% or
more of the Company's outstanding stock decides to transfer any shares of his
stock, the Racing and Wagering Law requires that the transferee must file an
affidavit with the Board stating that he will be the sole beneficial owner of
such transferred stock, and whether or not he (i) has been convicted of a crime
involving moral turpitude, (ii) has been engaged in bookmaking or other forms of
illegal gambling, (iii) has been found guilty of any fraud or misrepresentation
in connection with racing or breeding, (iv) has been guilty of any violation or
attempt to violate any law, rule or regulation of any racing jurisdiction for
which suspension from racing might be imposed in such jurisdiction, or (v) has
violated any rule, regulation or order of the Board. If the transferee is not,
or will not be, the sole beneficial owner of the transferred stock, then he must
annex to his affidavit the terms of the agreement or understanding pursuant to
which he will hold the stock, including a detailed statement of any other
party's interest in such stock. Upon submission of this affidavit, should the
Board determine that it is inconsistent with the public interest, convenience or
necessity, or with the best interests of racing generally, for such transferee
to be a stockholder of record, or the beneficial owner of any interest in Empire
or a party that owns 25% or more of its stock, the Board has the right to order
such transferee to dispose of his stock or interest within a specified period of
time. Furthermore, any stock certificate denoting an equity interest in Empire
is required to bear a legend that states: "This certificate of stock is
transferable only subject to the provisions of section three hundred three of
the racing, pari-mutuel wagering and breeding law."
In addition to the restrictions described above, the Racing and Wagering
Law requires that any stockholder of Empire must be required, upon the written
demand of the Company, to sell his stock to the Company, at a price to be fixed
in the manner otherwise provided by law, provided such demand is made pursuant
to the written direction of the Board; and from and after the date of the making
of such demand, prohibiting the transfer of such certificate of stock, except to
the Company. Upon completion of our acquisition of Monticello Raceway
Management, our stock ownership automatically became subject to these
restrictions. Moreover, these transfer restrictions and the possibility of state
mandated divestiture could impair the marketability of our stock and cause it to
trade at a discount.
RACING RIGHTS. As a licensed harness horse racetrack, Monticello Raceway
is entitled to hold one or more harness horse race meetings each year from
January 1 through December 31, exclusive of December 25, when live racing in the
State of New York is prohibited. Of the amounts wagered on its live races,
Monticello Raceway is allowed to retain 17% of Regular Bets (a single bet or
wager on one horse), 19% of Multiple Bets (a single bet or wager on two horses
such as an "exacta"), 25% of Exotic Bets (a single bet or wager on three or more
horses such as a "trifecta"), 36% of Super Exotic Bets (a single bet or wager on
six or more horses such as a "pick six") and the breaks. Of the amounts
retained, Monticello Raceway normally must pay a tax of between 1%-7%, depending
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on the type of wager. Furthermore, of the net amount retained by Monticello
Raceway from its live races, 6%-15% must be dedicated to racetrack purses,
depending on the type of wager, in addition to that amount of retained earnings
that must be allocated to track purses as provided in its agreement with the
track's representative horsemen's association.
BOND POSTING. Each year, Monticello Raceway Management is required to
execute and file with the State Comptroller a bond to be fixed by the state tax
commission not exceeding $250,000, with sureties approved by the attorney
general, that it will keep its books and records and make reports as required by
the Racing and Wagering Law, that it will pay to the state all taxes imposed by
the Racing and Wagering Law, that it will distribute to the patrons of
pari-mutuel pools conducted by it all sums due upon presentation of winning
tickets held by them, and that it will otherwise comply with all of the
provisions of the Racing and Wagering Law and with the rules and regulations
prescribed by the Board and the state tax commission. Should Monticello Raceway
Management or the Company fail to post such a bond, each of us would be subject
to fines or having our racing licenses suspended, thus causing a material
adverse effect on our businesses.
BOOKS AND RECORDS. Throughout the year, Monticello Raceway Management must
maintain its books and records so as to clearly show by a separate record the
total amount of money contributed to every pari-mutuel pool including daily
double pools, if any. Furthermore, the state tax commission must, at all
reasonable times, be given access to the Monticello Raceway Management `s books
and records for the purpose of examining and checking the same and ascertaining
whether or not the proper amount or amounts due New York State are being paid.
LICENSES FOR SIMULCAST FACILITIES. In order for Monticello Raceway to
display and accept pari-mutuel wagers on the simulcast of horse races from
outside racetracks, it must first obtain a license from the Board, in addition
to the license required of it to carry out live harness horse racing. To obtain
such a license, an applicant is required to submit a "plan of operation" to the
Board, which should contain, among other things, a feasibility study denoting
the revenue earnings expected from the simulcast facility and the costs expected
to operate such facility; the security measures to be employed to protect the
transmission of wagering data to effectuate common wagering pools; and a
description of the management groups responsible for the operation of the
simulcast facility. Even though an applicant's plan may be acceptable to the
Board, the Board still has the right to deny a simulcast license should it
determine that simulcast wagering may cause any reduction of the total number of
racing events conducted on an annual or daily basis at the receiving track, or
should the receiving track applying for such license fail to enter into a
written agreement with the sending track. As with its live harness horse racing
license, there can be no assurance of the Company's ability following our
acquisition of Monticello Raceway, to continue to secure this license, the loss
of which would result in a material adverse effect on each of our businesses.
IN-STATE SIMULCASTING RESTRICTIONS. Absent special permission from the
Board, Monticello Raceway may only transmit its signal to a receiving track in
New York so long as that track is not also conducting a harness race meeting
during the same time and the signal from Monticello Raceway has been made
available to all authorized receiving tracks in the State of New York. The
amount retained by Monticello Raceway from the total deposits in pools wagered
on in-state simulcast racing events must be equal to the retained percentages
applicable to the in-state sending track. Of this retained amount, generally 50%
is required to be dedicated to increasing local purses.
SIMULCASTING OF OUT-OF-STATE THOROUGHBRED RACES. Monticello Raceway's
ability to simulcast thoroughbred races from racetracks outside of New York
State is subject to the reaching of an agreement with its representative
horsemen's association and a number of limitations under the Racing and Wagering
Law. Specifically, the Racing and Wagering Law provides that except during the
period in which live thoroughbred racing is conducted at Saratoga Race Course
(July 21 to September 1, 2003), Monticello Raceway may accept wagers and display
the live full-card simulcast signal from up to two (or three between January
15-April 15) thoroughbred tracks located in another state. How much of these
wagers that Monticello Raceway is able to retain depends on how it collects the
bets. If wagers from an out-of-state race are combined with those placed in
other states in order to create a single uniform pari-mutuel pool, the
percentage of wagers collected by Monticello Raceway that it can retain is
subject to the laws of the jurisdiction in which the sending track is located.
If, however, pools are only being shared within the State of New York,
Monticello Raceway is allowed to retain 18% of Regular Bets, 21% of Multiple
Bets, 26% of Exotic Bets, 36% of Super Exotic Bets and the breaks. Of the sum
retained by Monticello Raceway from these races, approximately 1%-5% must be
paid to either state taxing authorities or non-profit organizations, depending
on the day the race is held and the type of wager. Also, of the net amount
retained by Monticello Raceway from these simulcast activities, normally 50%
must be dedicated to racetrack purses.
9
While thoroughbred races are being run at Saratoga Race Course, Monticello
Raceway may only accept wagers and display the live simulcast signal from up to
two thoroughbred tracks located in another state, and only so long as Monticello
Raceway also accepts wagers on all thoroughbred races then being run in the
State of New York.
SIMULCASTING OF RACES RUN BY OUT-OF-STATE HARNESS TRACKS. Subject to a
written agreement with Monticello Raceway's representative horsemen's
association, Monticello Raceway may accept wagers and display the signal of up
to five out-of-state harness tracks. However, Monticello Raceway may not accept
wagers or display the simulcast signal from an out-of-state harness track on
more than four days in any week unless in the immediately preceding calendar
month an average of four or more live racing programs per week were conducted,
nor may Monticello Raceway accept wagers on more than five days in any week
unless in the immediately preceding calendar month an average of five or more
live harness racing programs per week were conducted at Monticello Raceway. If
wagers from a race from an out-of-state track are combined with those placed in
other states in order to create a single uniform pari-mutuel pool, the
percentage of wagers collected by Monticello Raceway that it can retain is
subject to the laws of the jurisdiction in which the sending track is located.
If, however, pools are only being shared within the State of New York,
Monticello Raceway is allowed to retain 19% of Regular Bets, 21% of Multiple
Bets, 27% of Exotic Bets, 36% of Super Exotic Bets and the breaks. Distribution
of the amounts retained by Monticello Raceway must be consistent with how
retained wagers are distributed from its live events.
NEW YORK STATE LOTTERY REGULATION OF VIDEO GAMING OPERATIONS
All video gaming activities in the State of New York are overseen by the
New York State Division of the Lottery (the "Division") and subject to the rules
and regulations governing video lottery gaming issued under and pursuant to the
authority of Part C, Chapter 383, Laws of New York 2001 as amended by Chapter 85
of the Laws of New York 2002, as amended by Chapter 63 of the Laws of New York
2003 known as the "video lottery gaming law," which incorporate, among other
things, the following requirements:
VIDEO GAMING AGENT LICENSE. The video lottery gaming law requires the
Company and Monticello Raceway Management to apply for and obtain a video
lottery gaming agent license. The Company and Monticello Raceway Management
applied for video lottery gaming agent licenses on December 12, 2003 and
received temporary video lottery gaming agent licenses on January 14, 2004. The
Division has the right to deny a permanent video lottery gaming license to the
Company or Monticello Raceway on the basis of any of the following criteria: (i)
the failure of either company to prove by clear and convincing evidence that it
is suitable for licensure in accordance with the regulations; (ii) the failure
of either company to provide information, documentation and assurances required
by the Act or regulations, or requested by the Division, or failure of either
company to reveal any fact material to suitability, or the supplying of
information which is untrue or misleading as to a material fact pertaining to
the suitability criteria; (iii) the conviction of either company, or of any
principal thereof, of any felony offense, as such is defined by New York Penal
Law Section 10.00(5), a misdemeanor under Article 225 of the New York Penal Law
as amended and supplemented or equivalent offense, or a misdemeanor under
Section 180.35, 180.40, 180.45, 180.50, 180.51, 180.52 or 180.53 of the Penal
law or equivalent offense; (iv) the Company or Monticello Raceway Management has
otherwise been determined by the Division to be a person whose prior activities,
criminal record, if any, or reputation, habits and associations pose a threat to
the effective regulation of video lottery gaming or create or enhance the
chances of unfair or illegal practices, methods, and activities in the conduct
of the video lottery gaming or has failed to provide any information reasonably
required to investigate either company for a license or to reveal any fact
material to such application, or has furnished any information which is untrue
or misleading in connection with such application; (v) current prosecution or
pending charges in any jurisdiction of the Company or Monticello Raceway
Management or of any person who is required to be qualified under these
regulations as a condition of a video lottery gaming licensure, for any of the
offenses enumerated in (iii) above; provided, however, that at the request of
either company or the person charged, the Division shall defer decision upon
such application during the pendency of such charge; (vi) the pursuit by the
Company or Monticello Raceway Management or any person who is required to be
licensed under the regulations as a condition of a video lottery gaming license
of economic gain in an occupational manner or context which is in violation of
the criminal or civil public policies of New York State, if such pursuit creates
an appearance of or a reasonable belief that the participation of such person in
video lottery gaming operations would be inimical to the policies of the Act or
to video lottery gaming in New York State; and (vii) the commission by the
Company or Monticello Raceway Management or any person who is required to be
licensed under the regulations of any act or acts which would constitute any
offense under (iii) above, even if such conduct has not been or may not be
prosecuted under the criminal laws of New York State or any other jurisdiction
or has been prosecuted under the criminal laws of New York State or any other
jurisdiction and such prosecution has been terminated in a manner other than
with a conviction.
10
Certain of the Company's and Monticello Raceway Management's employees and
stockholders are also subject to New York State licensing requirements. These
individuals can be denied a license or have theirs revoked should they commit
any of the acts described above which would jeopardize the Company's or
Monticello Raceway Management's license.
BONDING OF VIDEO LOTTERY GAMING AGENTS. The Division requires a bond or
other surety agreement to be obtained by Monticello Raceway Management prior to
conducting video lottery gaming operations, including but not limited to a
letter of credit, issued by a surety company or bank authorized to transact
business in New York and approved by the New York State Insurance Department or
New York State Banking Department as to solvency and responsibility, from any
licensed video lottery gaming agent in such amount as the Division may
determine, based on an established formula, so as to avoid monetary loss to New
York State because of video lottery gaming agent's activities or those of a
third party. The surety shall cover, at a minimum, seventy-one (71%) percent of
the total of four (4) days of estimated average daily sales. The figure for
estimated sales will be established for each video lottery gaming agent at
commencement of the game and may be adjusted from time to time thereafter by the
Division. The bond or other surety agreement shall name as beneficiaries the
Division and the State of New York.
FINANCIAL STABILITY OF VIDEO LOTTERY GAMING AGENTS. The Company and
Monticello Raceway Management must assure the financial integrity of video
lottery gaming operations by the maintenance of a video lottery gaming bankroll,
or equivalent provisions, adequate to pay prizes to video lottery gaming patrons
when due. At startup, Monticello Raceway Management shall be required to
maintain a daily video lottery gaming bankroll at least equal to: $500.00 per
terminal plus the single highest available progressive or non-progressive
jackpot at the facility.
CONTINUING ASSESSMENT OF FINANCIAL CONDITION. Neither the Company or
Monticello Raceway Management shall consummate a material debt transaction
without the prior written approval of the Division which approval shall not be
unreasonably withheld.
Neither the Company or Monticello Raceway Management shall guarantee the
debt of another, whether by co-signature or otherwise, or assume the debt of
another; or enter into any agreement to place an encumbrance on its facility to
secure the debts of another without the prior written approval of the Division
which approval shall not be unreasonably withheld.
FAILURE TO DEMONSTRATE FINANCIAL STABILITY. In the event that the Company
or Monticello Raceway Management fails to demonstrate financial stability, the
Division may take such action as is necessary to fulfill the purposes of the
video lottery gaming law and to protect the public interest, including, but not
limited to: issuing conditional licenses, approvals or determinations;
establishing an appropriate cure period; imposing reporting requirements in
excess of those otherwise mandated by these regulations; placing such
restrictions on the transfer of cash or the assumption of liabilities as is
necessary to insure future compliance with the financial stability standards;
requiring the maintenance of reasonable reserves or the establishment of
dedicated or trust accounts to insure future compliance with the financial
stability standards; requiring a special audit, with such plan to be approved by
the Division and conducted by an independent accounting firm at the expense of
the Company or Monticello Raceway Management; charging interest on any
outstanding amount of sales due the Division; or suspending, revoking or denying
licensure.
SUBMISSION AND REVIEW OF THE VIDEO LOTTERY GAMING SYSTEMS OF INTERNAL
CONTROL. The procedures of the system of internal control are designed to ensure
all of the following: (i) that assets of the Company, Monticello Raceway
Management and the Division are safeguarded, (ii) that the financial records of
the Company and Monticello Raceway Management are accurate and reliable, (iii)
that the transactions of the Company and Monticello Raceway Management's
operation are performed only as authorized by the Act, the video lottery gaming
law and the rules and regulations promulgated thereunder, (iv) that
accountability for assets is maintained in accordance with generally accepted
accounting principles, (v) that only authorized personnel have access to assets,
(vi) that recorded accountability for assets is compared with actual assets at
reasonable intervals and appropriate action is taken with respect to any
discrepancies, (vii) that the functions, duties, and responsibilities are
appropriately segregated and performed in accordance with sound practices by
competent, qualified, licensed personnel and that no employee of the Company or
Monticello Raceway Management is in a position to perpetuate and conceal errors
or irregularities in the normal course of the employee's duties, (viii) that
gaming is conducted with integrity and in accordance with the Act, the video
lottery gaming law and the rules and regulations promulgated thereunder, and
(ix) that the Company and Monticello Raceway Management comply with all federal,
state, and local tax laws, codes, and reporting requirements. Monticello Raceway
Management has received approval from the Division of its proposed internal
control processes for its video gaming operations.
The Division may require, at its option, that the Company or Monticello
Raceway Management provide an annual report, to be included in its annual
11
financial report, of an independent certified public accountant licensed to
practice in New York, that the Company or Monticello Raceway Management has, in
all respects, followed its approved internal control plan, which report shall
not, in case of a dispute between the Company and Monticello Raceway Management
and the Division, be binding upon the Division.
CONDUCT OF BUSINESS WITH NON-GAMING VENDORS; AGENT RESPONSIBILITIES. It is
the responsibility of the Company and Monticello Raceway Management to ensure
that all qualifying non-gaming vendors with which it seeks to conduct business
have first obtained from the Division a non-gaming vendor identification number
or, as necessary, a license.
NOTIFICATION OF ANTICIPATED OR ACTUAL CHANGES IN DIRECTORS, OFFICERS OR
EQUIVALENT LICENSEES OF VIDEO LOTTERY GAMING AGENTS AND HOLDING COMPANIES. The
Company and Monticello Raceway Management must immediately notify the Division,
in writing, as soon as is practicable, of the proposed appointment, appointment,
proposed nomination, nomination, election, intended resignation, resignation,
incapacitation or death of any member of, or partner in, its board of directors
or partnership, as applicable, or of any officer or other person required to be
licensed as a principal or key employee. The Division will undertake any review
of the license necessitated by the change.
NOTIFICATION CONCERNING CERTAIN NEW PRINCIPALS OF PUBLICLY TRADED HOLDING
COMPANIES. The Company or Monticello Raceway Management must immediately notify
the Division in writing if either company becomes aware that, with regard to the
Company, any person has acquired: (i) five (5) percent or more of any class of
equity securities, (ii) the ability to control the holding company, or (iii) the
ability to elect one or more directors of the Company. If the Company either
files or is served with any Schedule 13D, Schedule 13G or Section 13F filing
under the Securities Exchange Act of 1934, copies of any such filing shall be
immediately submitted to the Division by the Company.
NATIVE AMERICAN CASINOS
If the Company succeeds in developing a casino with a recognized Native
American tribe or nation, such casino operation would be subject to special
federal and state laws applicable to the gaming industry generally and to the
distribution of gaming equipment.
The operation of casinos, and of all gaming on Native American land, is
subject to the Indian Gaming Regulatory Act of 1988, as amended, which is
administered by the National Indian Gaming Commission, an independent agency
within the United States Department of the Interior, which exercises primary
federal regulatory responsibility over Native American gaming. The National
Indian Gaming Commission has exclusive authority to issue regulations governing
tribal gaming activities, approve tribal ordinances for regulating Class II and
Class III Gaming (as described below), approve management agreements for gaming
facilities, conduct investigations and generally monitor tribal gaming. Certain
responsibilities under the Indian Gaming Regulatory Act of 1988, as amended,
(such as the approval of per capita distribution plans to tribal members and the
approval of transfer of lands into trust status for gaming) are retained by the
Bureau of Indian Affairs. The Bureau of Indian Affairs also has responsibility
to review and approve land leases and other agreements relating to Native
American lands. Criminal enforcement is the exclusive responsibility of the
United States Department of Justice, except to the extent such enforcement
responsibility is shared with the state in which the tribal land is located
under the tribal-state compact and under the federal law that recognizes the
tribe.
The National Indian Gaming Commission is empowered to inspect and audit
all Native American gaming facilities, to conduct background checks on all
persons associated with Class II Gaming, to hold hearings, issue subpoenas, take
depositions, adopt regulations and assess fees and impose civil penalties for
violations of the Indian Gaming Regulatory Act of 1988, as amended. The Indian
Gaming Regulatory Act of 1988, as amended, also prohibits illegal gaming on
Native American land and theft from Native American gaming facilities. The
National Indian Gaming Commission has adopted rules implementing specific
provisions of the Indian Gaming Regulatory Act of 1988, as amended, which
govern, among other things, the submission and approval of tribal gaming
ordinances or resolutions and require a Native American tribe to have the sole
proprietary interest in and responsibility for the conduct of any gaming. Tribes
are required to issue gaming licenses only under articulated standards, to
conduct or commission financial audits of their gaming enterprises, to perform
or commission background investigations for primary management officials and key
employees and to maintain their facilities in a manner that adequately protects
the environment and the public health and safety. These rules also set out
review and reporting procedures for tribal licensing of gaming operation
employees.
12
Additionally, the National Indian Gaming Commission established the
Minimum Internal Control Standards, or MICS, that require each tribe or its
designated tribal government body or agency to establish and implement tribal
MICS by February 4, 2000.
Under the Indian Gaming Regulatory Act of 1988, as amended, except to the
extent otherwise provided in a tribal-state compact, Native American tribal
governments have primary regulatory authority over Class III Gaming on land
within a tribe's jurisdiction. However, the National Indian Gaming Commission
has the right to review tribal gaming ordinances and to approve such ordinances
only if they meet specific requirements relating to (1) the ownership, security,
personnel background, record keeping and auditing of a tribe's gaming
enterprises; (2) the use of the revenues from such gaming; and (3) the
protection of the environment and the public health and safety.
The Indian Gaming Regulatory Act of 1988, as amended, classifies games
that may be conducted on Native American lands into three categories. "Class I
Gaming" includes social games solely for prizes of minimal value or traditional
forms of Native American gaming engaged in by individuals as part of, or in
connection with, tribal ceremonies or celebrations. "Class II Gaming" includes
bingo, pull-tabs, lotto, punch boards, tip jars, certain non-banked card games
(if such games are played legally elsewhere in the state), instant bingo and
other games similar to bingo, if those games are played at the same location
where bingo is played. "Class III Gaming" includes all other forms of gaming,
such as slot machines, video casino games (e.g., video blackjack and video
poker), so-called "table games" (e.g., blackjack, craps and roulette) and other
commercial gaming (e.g., sports betting and pari-mutuel wagering).
Class I Gaming on Native American lands is within the exclusive
jurisdiction of Native American tribes and is not subject to the Indian Gaming
Regulatory Act of 1988, as amended. Class II Gaming is permitted on Native
American lands if (1) the state in which the Native American lands lie permits
such gaming for any purpose by any person, organization or entity; (2) the
gaming is not otherwise specifically prohibited on Native American lands by
federal law; (3) the gaming is conducted in accordance with a tribal ordinance
or resolution which has been approved by the National Indian Gaming Commission;
(4) a Native American tribe has sole proprietary interest and responsibility for
the conduct of gaming; (5) the primary management officials and key employees
are tribally licensed; and (6) several other requirements are met. Class III
Gaming is permitted on Native American lands if the conditions applicable to
Class II Gaming are met and, in addition, the gaming is conducted in conformance
with the terms of a tribal-state compact (a written agreement between the tribal
government and the government of the state within whose boundaries the tribe's
lands lie).
Tribal-State Compacts. The Indian Gaming Regulatory Act of 1988, as
amended, requires states to negotiate in good faith with Native American tribes
that seek to enter into tribal-state compacts for the conduct of Class III
Gaming. Such tribal-state compacts may include provisions for the allocation of
criminal and civil jurisdiction between the state and the Native American tribe
necessary for the enforcement of such laws and regulations, taxation by the
Native American tribe of gaming activities in amounts comparable to those
amounts assessed by the state for comparable activities, remedies for breach of
compacts, standards for the operation of gaming and maintenance of the gaming
facility, including licensing and any other subjects that are directly related
to the operation of gaming activities. While the terms of tribal-state compacts
vary from state to state, compacts within one state tend to be substantially
similar. Tribal-state compacts usually specify the types of permitted games,
establish technical standards for gaming, set maximum and minimum machine payout
percentages, entitle the state to inspect casinos, require background
investigations and licensing of casino employees and may require the tribe to
pay a portion of the state's expenses for establishing and maintaining
regulatory agencies. Some tribal-state compacts are for set terms, while others
are for indefinite duration.
Any Native American casino that the Company hopes to help jointly develop
therefore would be subject to the requirements and restrictions contained in the
compact its Native American partner is able to reach with the State of New York.
As compacts in each state tend to be substantially similar, the Company's casino
could expect to be subject to a compact much the same as the compact that
governs the operation of the Seneca Niagara Falls Casino between the Seneca
Nation of Indians and the State of New York.
The following is a summary of the material terms of the compact between
the Seneca Nation of Indians (the "Tribe") and the State of New York, dated
April 12, 2002 (the "Compact"):
(1) The Tribe is authorized to conduct on its reservation those Class III
gaming activities specifically enumerated in the Compact or amendments thereto.
13
The forms of Class III gaming authorized under the Compact include baccarat,
bang, beat the dealer, best poker hand, blackjack, Caribbean stud poker,
chuck-a-luck, craps, gaming devices, hazard, joker seven, keno, let it ride
poker, minibaccarat, pai gow poker, red dog, roulette, sic bo, super pan, under
and over seven, wheel games, casino war, Spanish blackjack, multiple action
blackjack and three card poker.
(2) All gaming employees must obtain and maintain a gaming employee
license issued by the Tribe in accordance with the terms set forth in the
Compact.
(3) All non-gaming employees must obtain and maintain a non-gaming
employee license issued by the Tribe in accordance with the terms set forth in
the Compact.
(4) Any enterprise or individual providing gaming services or gaming
equipment to the Tribe is required to hold a valid, current gaming enterprise
license issued by the Tribe in accordance with the terms set forth in the
Compact.
(5) Upon request, the Tribe is required to submit to the State of New York
copies of all reports, letters and other documents relating to its Class III
gaming activities filed with the National Indian Gaming Commission.
(6) Each year, the Tribe is required to submit audited financial
statements to the State of New York.
(7) The Tribe must reimburse the State of New York for certain of its
costs associated with the oversight of the Compact.
(8) The term of the Compact shall be for 14 years, with an automatic 7
year renewal unless one of the parties objects within 120 days of the Compact's
expiration.
(9) The Tribe waives any defense which it may have by virtue of sovereign
immunity with respect to any action brought in United States District Court to
enforce an arbitration award under the Compact.
EMPLOYEES
As of December 31, 2004, the Company had 9 full-time employees, including
our Chief Executive Officer.
ITEM 2. DESCRIPTION OF PROPERTIES.
We lease approximately 140 square feet of office space in a building
located at 707 Skokie Boulevard, Suite 600, Northbrook, Illinois, 60062 on a
monthly basis. The monthly rent for this office space is approximately $2,000.
Through one of our subsidiaries, we also lease a warehouse in Greenville,
Mississippi. The rent is $850 monthly.
Our primary asset is our leased property in Monticello, New York. The
Company's principal place of business is at Monticello Raceway, a 229 acre
property located on Route 17B in Monticello, New York. Facilities at the site
include the racetrack, which includes an enclosed grandstand with a capacity of
4,500, a clubhouse restaurant facility with a capacity for 200 customers,
pari-mutuel wagering facilities (including simulcasting), a paddock, exterior
barns, and related facilities for the horses, drivers, and trainers. In
addition, a parking area with approximately 5,000 spaces is provided for
customers.
On October 29, 2003, CDL and Monticello Raceway Management entered into a
48 year ground lease (the "Ground Lease") with respect to 200 acres of land in
Monticello, New York and all buildings and improvements allocated on such land
owned by CDL that are not subject to the Land Purchase Agreement (the "Leased
Property"). Under the terms of the Ground Lease, Monticello Raceway Management
will pay CDL $1.8 million per year. The first year's payment is due on October
28, 2004, the subsequent payments are subject to annual adjustments consistent
with the consumer price index, payable in equal monthly installments. However,
Monticello Raceway Management has the right, at its option, to defer its monthly
rental payments for up to 12 months after the first year, with such deferred
rent accruing interest at the rate of 4.5% per annum. Pursuant to the terms of
the merger of the Company and CDL on January 12, 2004, the former members of CDL
retained their interest in the leasehold obligation, independent of the assets
transferred in the combination. Satisfaction of this obligation by the Company
does not represent a discriminatory distribution or a dividend of any kind
between the Company and CDL.
14
During the first three years of the Ground Lease, Monticello Raceway
Management may, at its option, purchase the Leased Property for a purchase price
equal to the sum of (x) the rent payable for the year in which Monticello
Raceway Management exercises this purchase option divided by 5% (which would
equal $36 million in the first year of the Ground Lease) and (y) an amount equal
to all transfer taxes and closing costs incurred by CDL as seller. Monticello
Raceway Management may not assign its rights under the Ground Lease, sublet any
part of the Leased Property, nor enter into a transaction or series of
transactions that would result in a change of control of Monticello Raceway
Management without the consent of CDL. However, in the event that CDL withholds
its consent to such assignment of the Ground Lease or the subletting of all or
part of the Leased Property, Monticello Raceway Management may exercise its
option to purchase the Leased Property even after the first three years of the
Ground Lease have expired.
Under the terms of the Ground Lease, absent CDL's prior written consent,
Monticello Raceway Management is required to use the Leased Property solely for
racing, gaming, entertainment, retail, lodging, food service, any other use
related to so-called "tourism" and other ancillary and related activities.
ITEM 3. LEGAL PROCEEDINGS.
LITIGATION CHALLENGING NEW YORK GAMING LEGISLATION
Our ability to participate in New York's VGM program or to help develop
and manage a Native American casino in conjunction with the Cayuga Nation of New
York could be hampered by the outcome of two pending lawsuits, DALTON V. PATAKI
and KARR V. PATAKI, that seek to enjoin the State of New York from proceeding
with the VGM program or permitting the construction of any new Native American
casinos within the State of New York's borders. While the trial court dismissed
both of these cases in May of 2003, the plaintiffs have filed an appeal. Briefs
have been submitted in the appeal and oral arguments were heard in December of
2003, but a decision on the appeal has not been rendered. Should the appellate
court overrule the trial court and reinstate these lawsuits, and should the
plaintiffs ultimately prevail on all or part of their claims, our business
strategy could be seriously adversely affected. Moreover, a reinstatement of
these lawsuits, even prior to a definitive ruling on the merits of the cases,
would hamper fundraising efforts for the Cayuga Monticello Resort and otherwise
adversely affect the implementation of our business plan, as investors might be
reluctant to invest given the uncertainty that such a holding would create.
CLAIMS AGAINST CAESAR'S ENTERTAINMENT
As more fully described above in Item 1 under "Other Business Activities
and Past Developments," on November 13, 2000, CDL and certain affiliates filed
an action against CZR in the United States District Court for the Southern
District of New York alleging that CZR tortuously interfered with our contract
and prospective business relationships with the St. Regis Mohawk Tribe, engaged
in unfairly competitive behavior and had violated certain state imposed
anti-trust protections. On August 22, 2002, U.S. District Court Judge Colleen
McMahon granted CZR's motion for summary judgment on the Plaintiffs' claim for
interference with business relationships and dismissed or confirmed the
dismissal of the Plaintiffs' contractual interference and other claims. On March
14, 2003, attorneys for the plaintiffs filed a motion requesting the District
Court to vacate this judgment on the ground that new evidence had been found. In
October 2003, the earlier judgment was vacated in order to allow the Court to
consider the effect of the new evidence following a brief period of additional
discovery. Briefs on this issue were filed in December, 2003. There is no
assurance that the new evidence will provide a basis for a decision favorable to
the plaintiffs, result in a different judgment or even permit the additional
evidence to be available for purposes of the record in an appeal. The interests
of the plaintiffs with respect to the claims in such litigation were transferred
to a grantor trust in connection with the consolidation transaction with CDL,
and the Company's indirect interests in connection with such claims were
converted into units of ownership of the trust and distributed to its
shareholders of record prior to the consolidation as a dividend liquidating
those interests. A registration statement concerning this distribution on Form
S-1 was filed with the Securities and Exchange Commission by the Catskill
Litigation Trust and became effective on March 5, 2004.
15
CLAIMS BY THE HORSEMEN'S ASSOCIATION AGAINST MONTICELLO RACEWAY MANAGEMENT, INC.
The Monticello Horsemen's Association has filed a number of suits against
Monticello Raceway Management Inc. and Cliff Ehrlich, as its President. One
action, seeking money damages of approximately $500,000, claims (i) that certain
monies (approximately $80,000), which should have been used solely for
"overnight purses," were expended by the raceway for a special racing series
known as the William Sullivan Series, (ii) that management has not increased
purses to the horsemen for overnight racing as requested by the horsemen and
(iii) that management is improperly holding up approximately $400,000 in an
account balance that is earmarked for payment of purses at such time as
management deems it appropriate. A second action seeks approximately $2 million
in damages claiming that management has withheld various simulcasting and OTB
revenues from the horsemen's purse account and deducted various unauthorized
simulcasting expenses. Management has responded vigorously to this litigation
and at the same time will seek, if possible, to resolve these cases in the
context of contract negotiations with the Horsemen's Association that began in
March of 2004.
Should the litigation proceed, however, counsel has advised the Company
that, (i) with regard to the $80,000 expended for the William Sullivan Pacing
Series, management was within its contract rights to apply that money towards
the racing series since the racing series met the definition of "overnight
purses," (ii) the $400,000 sought in accelerated purses will not have to be paid
in the manner that the Horsemen seek, but that eventually, those monies will be
required to be paid out in additional purses, and (iii) that there will be a
favorable outcome on the causes of action seeking damages for failure to
properly account for the OTB revenues as well as the issue of the deduction of
expenses for simulcasting. There are sharp disputed issues of fact with regard
to the cause of action seeking a greater share of the simulcasting revenue, and
at this time, no estimate can be given of the outcome of this cause of action or
the amount of potential loss.
Another action by the Horsemen's Association sought an injunction
preventing the management from consolidating the barn area by removing
approximately 50% of the barns and moving horsemen to different barns and also
seeks money damages for such conduct. A temporary restraining order at the
inception of the case was vacated after a hearing and the decision of management
to consolidate the barn area and deny stall space to certain horsemen was upheld
by the Court on the injunction motion. Management responded vigorously to this
litigation as it challenged the management's rights clause in the contract.
There is further discovery pending. However, in the opinion of counsel to the
Company, there will be no monetary loss as a result of this litigation.
OPERATING ENVIRONMENT
We and our subsidiaries are subject to various other legal actions which
may arise in the normal course of business. In the opinion of our management,
except as described above, the resolution of these other matters will not have a
material and adverse effect on the consolidated financial position, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None to be reported.
16
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET PRICES
Our common stock trades on the Nasdaq Small-Cap Market System and the
Boston Stock Exchange under the symbols NYNY and NYN, respectively. The
following table sets forth the range of high and low close prices for our common
stock as reported by the Nasdaq System. These quotations represent prices
between dealers and do not reflect retail mark-ups, mark-downs or commissions.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
FISCAL 2003
High $10.69 $10.65 $16.74 $14.76
Low 1.94 8.11 9.31 8.21
FISCAL 2002
High $13.50 $13.20 $ 8.20 $ 2.27
Low 10.52 5.70 1.50 1.39
As of March 22, 2004, 25,898,468 shares of our common stock were issued
and outstanding.
DIVIDENDS COMMON STOCK
We have never declared or paid cash dividends on our common stock. We
intend to retain all future earnings to finance future growth and, therefore, do
not anticipate paying any cash dividends in the foreseeable future. In
connection with the organization of the litigation trust, the Company's common
stockholders of record immediately before the merger are to receive the
Company's interest in the trust as a liquidating dividend.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2003 regarding
compensation plans (including individual compensation arrangements) under which
equity securities of the Company are authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities remaining
Number of securities to be available for future issuance
issued upon exercise of Weighted average exercise under equity compensation plans
outstanding options, price of outstanding options, (excluding securities reflected
Plan Category warrants and rights warrants and rights in column (a))
------------- -------------------------- ---------------------------- -------------------------------
(a) (b) (c)
Equity compensation plans approved
by security holders 821,228 2.67 88,400
Equity compensation plans not
approved by security holders 0 0 0
-------- ----- -------
Total
821,228 2.67 88,400
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SALE AND EXCHANGE OF UNREGISTERED SECURITIES
Under a special letter agreement among the Company, Catskill, and the
Cayuga Nation, the parties are to work exclusively with each other to develop a
casino, and as an inducement to enter into the transaction, the Cayuga Nation is
to receive 300,000 shares of the Company's common stock vesting over a twelve
month period. On April 9 and October 9, 2003, the Company issued to the Cayuga
Nation an aggregate of 200,000 shares of common stock at a market value of
$10.56 and $13.84 per share, respectively. An additional 100,000 shares vest,
and the expense will be recognized, on April 9, 2004.
From April 15, 2003 through September 2003, the Company sold 579,149
shares of common stock having an aggregate purchase price of approximately $4.6
million. Such purchasers could be entitled to have the aggregate purchase price
of such shares refunded by the Company, plus interest.
On January 30, 2004 the Company closed a private sale of 4,050,000 shares
of common stock, to multiple investors, at a price of $7.50 per share. This
sale, net of expenses, increased by approximately $30 million our funds for
development and operations.
On January 30, 2004 in connection with the private placement, Jefferies &
Company, Inc, was issued warrants to purchase 250,000 shares of our common stock
at $7.50 per-share for general financial advisory services rendered in
connection with the consummation of the private placement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Much of the information contained in this report is historical. However,
other matters discussed in this report, including statements in this Item and
under Item 1 contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. We believe that, in making any such forward looking statements, our
expectations have been based on reasonable assumptions, but any statement about
future events may be influenced by factors that could cause actual outcomes and
results to be materially different from those projected.
These forward-looking statements include statements relating to our
anticipated financial performance and business prospects and/or statements
preceded by, followed by or that include the words "believe," "anticipate,"
"intend," "estimate," "expect," "project," "could," "plans," "seeks" and similar
expressions. These forward-looking statements speak only as of their date. We do
not undertake any obligation to update or revise publicly any of these
forward-looking statements, whether as a result of new information, future
events or otherwise, even if experience or future events make it clear that any
expected results expressed or implied by these forward-looking statements will
not be realized. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, these expectations may not prove to
be correct or we may not achieve the anticipated financial results, savings or
other benefits. These forward-looking statements are necessarily estimates
reflecting the best judgment of our senior management and involve a number of
risks and uncertainties, some of which may be beyond our control that could
cause actual results to differ materially from those suggested.
OVERVIEW
During the past three years, the Company has concentrated most of its
efforts on developing gaming operations in Monticello, New York. As part of this
effort, the Company has disposed various ancillary interests and terminated
certain unprofitable operations. For instance, in March 2002, the Company sold
its interests in a casino project in Greenville, Mississippi, and in June 2003
the Company sold its ownership in Casino Ventures, LLC.
Our ability to develop a successful business is therefore largely
dependent on the success or failure of our ability to develop our interests in
Monticello, New York, and our financial results in the future will be based on
different activities than those from our prior fiscal years.
18
The Company had no operating revenue during the fiscal years ended
December 31, 2003 and 2002. On January 30, 2004, the Company closed a private
sale of 4,050,000 shares of common stock, to multiple investors, at a $7.50
sales price. This sale increased our current cash assets, net of expenses, by
approximately $30 million for development and operating costs.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. The risk
factors listed below are those that we consider to be material to an investment
in our common stock and those which, if realized, could have material adverse
effects on our business, financial condition or results of operations as
specifically discussed below. If such an adverse event occurs, the trading price
of our common stock could decline, and you could lose all or part of your
investment.
AS A HOLDING COMPANY, THE COMPANY IS DEPENDENT ON THE OPERATIONS OF
MONTICELLO RACEWAY MANAGEMENT, MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY
DEVELOPMENT AND MOHAWK MANAGEMENT, AND THEIR ABILITY TO PAY DIVIDENDS OR MAKE
DISTRIBUTIONS, IN ORDER TO GENERATE INTERNAL CASH FLOW. Empire Resorts is a
holding company, owning all the capital stock or membership interests, as the
case may be, of Monticello Raceway Management, Monticello Casino Management,
Monticello Raceway Development and Mohawk Management. Empire Resorts is
therefore dependent on these companies to pay dividends or make distributions in
order to generate internal cash flow and to satisfy its obligations. There can
be no assurance, however, that these subsidiaries will generate enough revenue
to pay cash dividends or make cash distributions. In addition, these
subsidiaries may enter into contracts that limit or prohibit their ability to
pay dividends or make distributions.
THE ABILITY OF THE COMPANY TO SUCCESSFULLY MANAGE AND DEVELOP A NATIVE
AMERICAN CASINO IS UNCERTAIN GIVEN EMPIRE RESORTS' LACK OF EXPERIENCE WITH
NATIVE AMERICAN CASINOS. The Company has no experience in managing or developing
Native American casinos. Native American casinos are unique gaming ventures that
require highly skilled and knowledgeable managers given the complexity of
regulation governing their operation. In addition, as the respective interests
of the Native American tribe and the casino's management company are not always
aligned, avoiding disputes can sometimes prove difficult. As a result of these
special features, several companies with gaming experience that have tried to
become involved in the management and/or development of Native American casinos
have been unsuccessful. No assurance can be given that the Company, given its
lack of Native American gaming experience, will be able to avoid the pitfalls
that have befallen other companies in order to create a successful gaming
enterprise in conjunction with the Cayuga Nation of New York.
GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR RESULTS. The business
operations of Monticello Raceway Management are affected by economic conditions.
A recession or downturn in the general economy, or in the Catskills region,
could result in fewer customers visiting Monticello Raceway or wagering on its
races at an off-track location, which would consequently adversely affect our
results as well.
19
THE CONTINUING DECLINE IN THE POPULARITY OF HORSE RACING AND INCREASING
COMPETITION IN SIMULCASTING COULD ADVERSELY IMPACT THE BUSINESS OF THE
RACETRACK. There has been a general decline in the number of people attending
and wagering at live horse races at North American racetracks due to a number of
factors, including increased competition from other forms of gaming,
unwillingness of customers to travel a significant distance to racetracks and
the increasing availability of off-track wagering. The declining attendance at
live horse racing events has prompted racetracks to rely increasingly on
revenues from inter-track, off-track and account wagering markets. The
industry-wide focus on inter-track, off-track and account wagering markets has
increased competition among racetracks for outlets to simulcast their live
races. A continued decrease in attendance at live events and in on-track
wagering, as well as increased competition in the inter-track, off-track and
account wagering markets, could lead to a decrease in the amount wagered at
Monticello Raceway. The Company's business plan anticipates the possibility of
Monticello Raceway attracting new customers to its racetrack wagering operations
through potential casino development or video gaming operations in order to
offset the general decline in raceway attendance. However, even if the numerous
arrangements, approvals and legislative changes necessary for casino development
or video gaming operations occur, Monticello Raceway may not be able to maintain
profitable operations. Public tastes are unpredictable and subject to change.
Any decline in interest in horse racing or any change in public tastes may
adversely affect Monticello Raceway's revenues and, therefore, limit its ability
to make a positive contribution to our results.
GAMING ACTIVITIES ARE DEPENDENT ON GOVERNMENTAL REGULATION AND APPROVALS.
CHANGES IN SUCH REGULATION OR THE FAILURE TO OBTAIN OR MAINTAIN SUCH APPROVALS
COULD ADVERSELY AFFECT US. The current or future gaming operations of the
Company are contingent upon continued governmental approval of these operations
as forms of legalized gaming and are subject to extensive governmental
regulation and could be subjected at any time to additional or more restrictive
regulation, or banned entirely. We may be unable to obtain, maintain or renew
all governmental licenses, registrations, permits and approvals necessary for
the operation of our pari-mutuel wagering and other gaming facilities. Licenses
to conduct live horse racing and simulcast wagering by the Company must be
obtained annually from New York State's regulatory authority. A significant
change to current racing law, or the loss, or non-renewal, of licenses,
registrations, permits or approvals may materially impact on our revenue share
allocations, limit the number of races it can conduct or the form or types of
pari-mutuel wagering it offers, and could have a material adverse effect on its
business. In addition, we currently devote significant financial and management
resources to complying with the various governmental regulations to which our
operations are subject. Any significant increase in governmental regulation
would increase the amount of our resources devoted to governmental compliance,
could substantially restrict our business, and could consequently materially
adversely affect our results.
THE GAMING INDUSTRY IN THE NORTHEASTERN UNITED STATES IS HIGHLY
COMPETITIVE, WITH MANY OF OUR COMPETITORS BETTER KNOWN AND BETTER FINANCED THAN
US. The gaming industry in the Northeastern United States is highly competitive
and increasingly run by multinational corporations that enjoy widespread name
recognition, established brand loyalty, decades of casino operation experience
and a diverse portfolio of gaming assets. This is particularly true in Atlantic
City. In contrast, the Company has limited financial resources and is currently
limited to the operation of a harness horse racetrack in Monticello, New York.
Moreover, even if we are successful in installing video gaming machines at
Monticello Raceway and/or developing a Native American casino on our property,
we would still face competitive disadvantages if Caesar's Entertainment
Corporation, the world's largest gaming conglomerate, and/or Trading Cove
Associates, the developers of the hugely successful Mohegan Sun casino in
Connecticut, are successful in building a Native American casino on neighboring
properties.
WE, AND CERTAIN OF OUR AFFILIATES, ARE REQUIRED TO BE APPROVED BY VARIOUS
GOVERNMENTAL AGENCIES IN ORDER TO OWN AN INTEREST, OR PARTICIPATE IN, GAMING
ACTIVITIES. As part of gaming regulation, we and our affiliates are generally
required to be licensed or otherwise approved in each jurisdiction, which
generally involves a determination of suitability with respect to us and our
affiliates, and our and their officers, directors and significant investors. For
example, the New York Racing & Wagering Board upon a determination that it is
inconsistent with the public interest, convenience or necessity or with the best
interests of racing generally that any person continue to be a shareholder (of
record or beneficially) in any entity that is licensed to engage in racing
activities or that owns 25% or more of such licensed entity, may direct such
shareholder to dispose of its interest in such entity.
IF WE DO NOT MEET CERTAIN REGULATORY SUITABILITY REQUIREMENTS, WE MAY BE
FORCED TO SELL OUR OWNERSHIP INTEREST IN CERTAIN GAMING ACTIVITIES AT A
DISCOUNT. The Company is required to be licensed or otherwise approved in each
20
jurisdiction where a gaming entity in which it has a significant ownership
interest operates. Obtaining such a license normally involves receiving a
determination of "suitability." Consequently, should we ever be found to be
unsuitable by the State of New York to participate in gaming operations, we
would be forced to liquidate all of our interests in Monticello Raceway
Management, Monticello Casino Management, and Monticello Raceway Development in
a prescribed period of time, as each of these entities is either involved in, or
plans to be involved in, gaming activities in the State of New York. Moreover,
should we ever be ordered by the State of New York to sell all of our interests
in Monticello Raceway Management, Monticello Casino Management, and Monticello
Raceway Development within a relatively short period of time, we would likely be
forced to sell these interests at a discount, thus causing the value of the
stock to diminish.
SEVERAL OF THE COMPANY'S FORMER OFFICERS AND DIRECTORS HAVE BEEN INDICTED
OR CONVICTED ON FRAUD CHARGES, AND THE COMPANY'S SUITABILITY DETERMINATION TO
PARTICIPATE IN GAMING ACTIVITIES COULD ACCORDINGLY BE ADVERSELY AFFECTED. During
2002, certain affiliates of Bryanston Group, our former largest stockholder, and
six of our former officers and directors were indicted for various counts of tax
and bank fraud. Moreover, on September 5, 2003, one of these former directors
who is also an affiliate of Bryanston Group, Brett Tollman, pleaded guilty to
felony tax fraud. On February 4, 2004, four more of these former officers and
directors were convicted of tax and bank fraud. In December 2002, we entered
into an agreement with Bryanston Group and certain of these individuals pursuant
to which we acquired a three year option to repurchase their common stock in the
Company. This option was exercised on January 9, 2004 by issuing a note to
Bryanston Group in exchange for their common stock. While none of the acts these
individuals have been charged with relate to their former positions with or
ownership interests in the Company, there can be no assurance that none of the
various governmental agencies that now, or in the future may, regulate and
license our gaming related activities will factor in these indictments in
evaluating our suitability. Should a regulatory agency fail to acknowledge that
these indictments are not related to our operations, we could lose our gaming
licenses or be forced to liquidate certain or all of our gaming interests.
AS A RESULT OF THE RECENT MERGER TRANSACTION THE COMPANY REDEEMED
2,392,857 SHARES OF ITS COMMON STOCK, CAUSING THE ASSUMPTION OF LIABILITIES. One
of the conditions to the closing of our recent merger was to redeem from
Bryanston Group and Beatrice Tollman an aggregate of 2,392,857 shares of common
stock at $2.12 per share. The total cost of this redemption was approximately $5
million, which the Company paid by issuing a note. The terms of this note
require approximately 13% of the principal to be paid on the first anniversary
of issuance and for the whole note to be repaid within three years. No assurance
can be given that the Company will have enough revenue or cash on hand to repay
this indebtedness when it becomes due.
AS A RESULT OF THE RECENT MERGER TRANSACTION, THE COMPANY'S USE FOR
FEDERAL INCOME TAX PURPOSES OF ITS ACCUMULATED NET OPERATING LOSSES TO OFFSET
FUTURE INCOME WILL BE LIMITED. As of December 31, 2003, the Company had net
operating loss carry-forwards of approximately $67 million set to expire between
2008 and 2023. Our recent merger, however, triggered certain provisions of the
Internal Revenue Code that will limit the future use of the Company's net
operating loss carry-forwards to offset its future federal taxable income.
Generally speaking, following the merger, we will only be permitted to use that
portion of our net operating loss carry-forwards per year (subject to certain
carry-forward rules) equal to the fair market value of our stock immediately
prior to the merger, multiplied by the federal long-term tax exempt rate on such
date (4.58% for the month of February, 2004).
FEDERALLY RECOGNIZED NATIVE AMERICAN TRIBES ALSO GENERALLY ENJOY SOVEREIGN
IMMUNITY FROM LITIGATION SIMILAR TO THAT OF A STATE AND THE UNITED STATES
FEDERAL GOVERNMENT. In order to sue a Native American tribe (or an agency or
instrumentality of a Native American tribe), the Native American tribe must have
effectively waived its sovereign immunity with respect to the matter in dispute.
There can be no assurance that any Native American tribe that we attempt to
jointly develop a casino with will be willing to waive its rights to sovereign
immunity, thus undermining our ability to enforce our rights under any contract
with such tribe. Moreover, even if a Native American tribe effectively waives
its sovereign immunity, there exists an issue as to the forum in which a lawsuit
can be brought against the tribe. Federal courts are courts of limited
jurisdiction and generally do not have jurisdiction to hear civil cases relating
to matters concerning Native American lands or the internal affairs of Native
American governments. Federal courts may have jurisdiction if a federal question
is raised by the lawsuit, but that is unlikely in a typical contract dispute.
Diversity of citizenship, another common basis for federal court jurisdiction,
is not generally present in a suit against a tribe because a Native American
tribe is not considered a citizen of any state. Accordingly, in most commercial
disputes with tribes, the jurisdiction of the federal courts, may be difficult
or impossible to obtain.
21
WE COULD FAIL TO COMPLETE THE VGM OPERATION ON TIME AND WITHIN BUDGET.
There can be no assurance that we will complete all portions of the VGM
operation on time or within budget. Construction projects such as the
construction of the VGM operation are subject to significant development and
construction risks, any of which could cause unanticipated cost increases and
delays.
These include the following:
o shortages of energy, material and skilled labor;
o delays in obtaining or inability to obtain necessary permits,
licenses and approvals;
o changes in law applicable to VGM projects;
o changes to the plans or specifications;
o weather interferences or delays;
o engineering problems;
o labor disputes and work stoppages;
o disputes with contractors;
o environmental and real property issues;
o fire, earthquake and other natural disasters; and
o change in political, financial or economic conditions, including as
a result of international conflict.
The casino portion of the VGM operation is scheduled to be completed and
opened in July 2004. However, opening the operation by this date assumes that
there are no unforeseen difficulties or delays. The construction design
documents for the VGM operation will be subject to revisions during the
construction of the facility. Such revisions could result in inefficiencies or
modifications to the design documents that could cause actual construction costs
to exceed budgeted amounts. For example, certain items may need to be modified
or replaced after they have been purchased, constructed or installed in order to
conform with the final design documents or building code requirements. There can
be no assurance that changes in the scope of the project will not be required,
even though they are not part of the general contractor's guaranteed maximum
price. The total remaining cost to design, develop, construct, equip and open
the VGM operation is expected to be approximately $23.4 million.
MONTICELLO CASINO MANAGEMENT AND MONTICELLO RACEWAY DEVELOPMENT HAVE
ENTERED INTO AGREEMENTS WITH THE CAYUGA NATION OF NEW YORK WHICH MAY NOT BE
FINANCEABLE UNTIL SOME OF THEM ARE APPROVED BY THE NATIONAL INDIAN GAMING
COMMISSION AND/OR THE BUREAU OF INDIAN AFFAIRS. Monticello Casino Management and
Monticello Raceway Development have entered into a management and development
agreement with the Cayuga Nation of New York, giving Monticello Casino
Management and Monticello Raceway Development exclusive management and
development rights over any gaming enterprise on 29 acres of land adjacent to
Monticello Raceway that is developed by the Cayuga Nation of New York. In order
for Monticello Casino Management and Monticello Raceway Development to carry out
their obligations under these agreements, the Company will likely need to raise
financing from outside investors. However, such financing is not likely to be
available on reasonable terms, or at all, until the management agreement has
been approved by the National Indian Gaming Commission and the Bureau of Indian
Affairs has approved the transfer of those 29 acres of land to the United States
of America in trust for the Cayuga Nation of New York. Obtaining such approvals,
however, can take several years and no assurance can be given that these
approvals will be obtained at all. While the Company expects these agreements to
receive an expedited review from the National Indian Gaming Commission and
Bureau of Indian Affairs, as the Bureau of Indian Affairs has previously
approved a similar arrangement with respect to the same site, prompt approval
cannot be assured.
CDL AND/OR MONTICELLO RACEWAY MANAGEMENT MAY NOT BE ABLE TO TRANSFER LAND
TO THE UNITED STATES OF AMERICA IN TRUST FOR THE CAYUGA NATION OF NEW YORK FOR
THE PURPOSE OF DEVELOPING A NATIVE AMERICAN CASINO. The Indian Gaming Regulatory
Act provides that all "off-reservation" gambling projects on lands to be
transferred and held in trust by the United States of America for the benefit of
a Native American tribe must be expressly authorized by the Bureau of Indian
Affairs. Specifically, the statute states that gaming may not be conducted on
lands acquired by the United States of America in trust for the benefit of a
Native American tribe after October 17, 1988, unless the Bureau of Indian
22
Affairs, after consultation with the tribe and appropriate state and local
officials, determines that a gaming establishment on newly acquired lands would
be in the best interest of the tribe and its members, would not be detrimental
to the surrounding community, and the governor of the state in which the gaming
activity is to be conducted concurs with the Bureau of Indian Affair's
determination. While in 2000 the Bureau of Indian Affairs approved an
application to transfer the same 29 acres of land subject to the Land Purchase
Agreement to the United States of America in trust for the benefit of the St.
Regis Mohawk Tribe, no assurance can be given that the Bureau of Indian Affairs
will again approve such a transfer. Absent this approval, it would be very
difficult for the Company to execute its current business plan of jointly
developing a Native American casino with the Cayuga Nation of New York.
PENDING LAWSUITS COULD THREATEN THE VIABILITY OF OUR BUSINESS PLAN. The
Company's ability to help develop and manage a Native American casino in
conjunction with the Cayuga Nation of New York could be hampered by the outcome
of two pending lawsuits that seek to enjoin the State of New York from
permitting the construction of any new Native American casinos within the State
of New York's borders. While the trial court recently dismissed both of these
cases, the plaintiffs have appealed this decision. Should an appellate court
overrule the trial court and reinstate these lawsuits, and should the plaintiffs
ultimately prevail, the Company's business would be restricted to the operation
of Monticello Raceway and video gaming machines. Moreover, a reinstatement of
these lawsuits, even prior to a definitive ruling on the merits of the cases,
would hamper fundraising efforts and adversely affect the implementation of
Empire Resorts' business plan, as the Cayuga Nation of New York and investors
might abandon the Native American casino project or be reluctant to invest given
the uncertainty that such a holding would create.
CERTAIN STOCKHOLDERS OF THE COMPANY MAY BE ENTITLED TO CERTAIN RESCISSION
RIGHTS. There is a possibility that the company may have offered and sold
certain shares of common stock in violation of Section 5 of the Securities Act
of 1933, as amended. As a result, the purchasers of such shares may be entitled
to a number of remedies, including a one year rescission right with respect to
any shares of common stock which have been improperly sold to them.
Specifically, the transactions in question relate to the sale of 579,149 shares
of common stock from April 15, 2003 through September 2003, having an aggregate
purchase price of approximately $4.6 million. Such purchasers could be entitled
to have the aggregate purchase price of such shares refunded by the Company,
plus interest. The Company cannot assure investors that it has, or will be able
to obtain, capital sufficient to fund any such repurchases, if required.
Currently, the Company has reported this risk of rescission as a contingency in
the notes to its financial statement. However, if it becomes likely that a
rescission offer will have to be made, the Company will have to adjust its
financial statements to reclassify up to approximately $4.6 million from
stockholders' equity to a liability.
WE DEPEND ON OUR KEY PERSONNEL AND THE LOSS OF THEIR SERVICES WOULD
ADVERSELY AFFECT OUR OPERATIONS. If we are unable to maintain our key personnel
and attract new employees, the execution of our business strategy may be
hindered and our growth limited. We believe that our success is largely
dependent on the continued employment of our senior management and other key
personnel. If one or more of these individuals were unable or unwilling to
continue in their present positions, our business could be seriously harmed.
IF WE ARE UNABLE TO ATTRACT AND RETAIN A SUFFICIENT NUMBER OF QUALIFIED
EMPLOYEES OR ARE REQUIRED TO SUBSTANTIALLY INCREASE OUR LABOR COSTS, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE MATERIALLY
ADVERSELY AFFECTED. The operation of business requires qualified executives,
managers and skilled employees with gaming industry experience and
qualifications to obtain the requisite licenses. We may have difficulty
attracting and retaining a sufficient number of qualified employees and may be
required to pay a higher level of compensation that we have estimated in order
to do so. If we are unable to attract and retain a sufficient number of
qualified employees or are required to substantially increase our labor costs,
our business, results of operations and financial condition will be materially
adversely affected.
FUTURE SALES OF OUR COMMON STOCK MAY ADVERSELY AFFECT ITS PRICE. Recently
18,219,075 shares of our common stock were issued pursuant to our merger with
CDL, of which 204,965 of such shares may be resold in the public markets without
restriction and 18,014,110 of such shares may be sold in the public markets
pursuant to volume restrictions of Rule 144 of the Rules and Regulations of the
Securities Act of 1933, as amended. We also recently issued 4,050,000 shares of
our common stock to multiple investors in a private placement. In addition, we
are obligated to issue an additional 100,000 shares of common stock to the
Cayuga Nation of New York under the Special Letter Agreement discussed above. If
the holders of these shares were to attempt to sell a substantial amount of
their holdings at once, the market price of our common stock would likely
decline. We also have outstanding options to purchase an aggregate of 821,228
shares of common stock at an average exercise price of $2.66 per share and
250,000 warrants at an exercise price of $7.50 per warrant. As the exercise
price for many of these options and warrants are well below the current market
23
price of our common stock, these options are likely to be exercised, causing
existing stockholders to experience substantial dilution, and, most likely, a
consequential drop in the common stock's market price. Moreover, the perceived
risk of this potential dilution could cause stockholders to attempt to sell
their shares and investors to "short" the stock, a practice in which an investor
sells shares that he or she does not own at prevailing market prices, hoping to
purchase shares later at a lower price to cover the sale. As each of these
events would cause the number of shares of our common stock being offered for
sale to increase, the common stock's market price would likely further decline.
All of these events could combine to make it very difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE, LEADING TO THE
POSSIBILITY OF ITS VALUE BEING DEPRESSED AT A TIME WHEN STOCKHOLDERS WANT TO
SELL THEIR HOLDINGS. The market price of our common stock has in the past been,
and may in the future continue to be, volatile. For instance, between January 1,
2002 and March 15, 2004, the closing price of our common stock has ranged
between $1.39 and $16.74. A variety of events may cause the market price of our
common stock to fluctuate significantly, including but not necessarily limited
to:
o quarter to quarter variations in operating results;
o adverse news announcements; and
o market conditions for the gaming industry.
In addition, the stock market in recent years has experienced significant
price and volume fluctuations for reasons unrelated to operating performance.
These market fluctuations may adversely affect the price of our common stock at
a time when an investor wants to sell its interest in us.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BYLAWS DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS AND COULD PREVENT YOU FROM
REALIZING A PREMIUM RETURN ON YOUR INVESTMENT IN THE COMPANY'S COMMON STOCK.
Concurrently with the closing of the merger, the Company amended its certificate
of incorporation and bylaws in order to divide its board of directors into three
classes of directors, with each class constituting one-third of the total number
of directors and the members of each class serving staggered three-year terms.
The classification of the board of directors will make it more difficult for
stockholders to change the composition of the board of directors because only a
minority of the directors can be elected at once. The classification provisions
could also discourage a third party from accumulating the Company's stock or
attempting to obtain control of the Company, even though this attempt might be
beneficial to the Company and some, or a majority, of its stockholders.
Accordingly, under certain circumstances the Company's stockholders could be
deprived of opportunities to sell their shares of common stock at a higher price
than might otherwise be available. In addition, pursuant to the Company's
certificate of incorporation, the Company's board of directors has the
authority, without further action by the stockholders, to issue up to 3,269,304
shares of preferred stock on such terms and with such rights, preferences and
designations, including, without limitation, restricting dividends on the
Company's common stock, dilution of the common stock's voting power and
impairing the liquidation rights of the holders of the Company's common stock,
as its board of directors may determine. Issuance of such preferred stock,
depending upon its rights, preferences and designations, may also have the
effect of delaying, deterring or preventing a change in control.
OUR LARGE AMOUNT OF UN-ISSUED PREFERRED STOCK MAY DETER POTENTIAL
ACQUIRERS. Our board of directors has the authority, without further action by
the stockholders, to issue up to 3,269,304 shares of preferred stock on such
terms and with such rights, preferences and designations, including, without
limitation, restricting dividends on our common stock, dilution of the common
stock's voting power and impairing the liquidation rights of the holders of our
common stock, as our Board of Directors may determine without any vote of the
stockholders. Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof, may have the effect of delaying, deterring
or preventing a change in control. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of stockholders to authorize a merger, business combination
or change of control. Failure to consummate such a proposed merger, business
combination or change in control could result in investors missing an
opportunity to sell their interests in us at a significant premium over the
market price.
24
RESULTS OF OPERATIONS
The Company had no operating revenue during the fiscal years ended
December 31, 2003 and 2002.
Net loss was approximately $8 million for the year ended December 31, 2003
which compares with a net loss of approximately $9.5 million for the same period
of 2002. After providing for dividends on preferred stock, the net loss
applicable to common shares was approximately $9.6 million or $1.74 per share in
2003 compared to a net loss of approximately $9.7 million or $2.10 per share in
2002.
MISSISSIPPI
THE BAYOU CADDY'S JUBILEE CASINO
The Bayou Caddy's Jubilee Casino began its operation in Greenville in
November 1995 and was the second casino operating in a very discrete market. The
operations were meeting or exceeding all of management's expectations. In early
1997 a third casino opened in Greenville and it became clear that the market
would not expand sufficiently to accommodate the additional capacity. After
considerable deliberation, management took the decision to exit the Greenville
market and on March 2, 1998, we sold our interest in the Greenville Inn & Suites
and the Bayou Caddy's Jubilee Casino to Greenville Casino Partners, L.P., an
entity in which we held a 25% (subsequently reduced to approximately 19% for
capital call adjustments) interest, and with which we entered into a hotel
management contract. In March 2002, Greenville Casino Partners, L.P. sold all of
the entity's operations and assets to JMBS Casino LLC. Our proceeds from the
sale were approximately $2.8 million. Prior to the sale we assigned our related
hotel management contract to Greenville C.P., Inc. for an additional $510,000.
An additional $1 million was held in escrow for 18 months pending any claims the
purchaser may have against Greenville Casino Partners, L.P. In April 2003 we
received $135,000 in full settlement of the escrow and have no further interest
in the entity.
THE JUBILATION CASINO VESSEL
On July 8, 1999, the Company through our subsidiary, Jubilation Lakeshore,
Inc., contributed our inactive gaming vessel, Bayou Caddy's Jubilation Casino
("Jubilation"), to Casino Ventures, LLC, in exchange for $150,000 in cash, a
promissory note of approximately $1.4 million plus a non-managing membership
interest in Casino Ventures.
In December 2002, we recognized a $3 million impairment loss reflecting a
casualty loss on the Jubilation vessel.
Effective June 30, 2003, the Company and PDS Special Situations, LLC
("PDS"), a Nevada limited liability company, entered into an agreement for PDS
to purchase the Company's membership interest in Casino Ventures, LLC and all of
the Company's former debt agreements. The Company sold 75% of its issued and
outstanding equity interests in Casino Ventures, LLC in exchange for $10,000,
with the remaining interest owned by the Company, which totaled 18% then being
sold and transferred for an additional $40,000 upon the procurement from the
other 7% interest holders' membership interests. The Company recorded $10,000 of
proceeds from the sale of its interest and will record the additional $40,000
proceeds upon the receipt of the final payment. The net effect of the sale in
the 2003 consolidated financial statements was a loss of approximately $30,000.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2003, the Company had net cash used in
operating activities of $3.3 million. The uses were the result of a net loss of
approximately $8 million includes gain on sale of investment and management
contract of $135,000, equity in loss of affiliate of approximately $1.6 million,
and stock based compensation to employees and affiliates of approximately $3
million.
Cash used in investing activities of approximately $409,000 consisted of
$145,000 of proceeds from the sale of investments and related management
contract, offset by approximately $455,000 of additional investments and
advances in CDL and approximately $113,000 used in the purchase of property and
equipment.
25
Cash provided by financing activities of approximately $3.5 million was
substantially attributable to approximately $4.7 million in proceeds from the
sale of stock which was used to repay approximately $1.5 million of a note
payable. There is a possibility that the Company may have offered and sold
certain shares of common stock in violation of Section 5 of the Securities Act
of 1933, as amended. As a result, the purchasers of such shares may be entitled
to a number of remedies including a one year rescission right with respect to
any shares of common stock which were improperly sold to them. Specifically, the
transactions in question relate to the sale of 579,149 shares of common stock
from April 15, 2003 through September 2003 that had an aggregate purchase price
of approximately $4.6 million. Such purchasers could be entitled to have the
aggregate purchase price of such shares refunded by the Company, plus interest.
The Company cannot assure investors that it has, or will be able to obtain,
capital sufficient to fund any such repurchases, if required.
The Company was indebted to Societe Generale for a $1.6 million note due
in installments plus accrued interest at 16% per annum. Installment payments in
the amount of $400,000 each plus accrued interest were due in both February and
March 2003, respectively, with the balance due in June 2003. On February 28,
2003, the Company entered into an amendment to extend the February and March
2003 payments until April 15, 2003. On April 15, 2003, the Company entered into
a second amendment to the agreement was entered into requiring principal
payments of $150,000 in cash and $100,000 plus accrued interest of $89,000
through the issuance of common stock. The balance of approximately $1.4 million
due on June 15, 2003 plus accrued interest was paid in full on June 20, 2003
after entering into an additional five day extension agreement with the lender.
The Company had no operations in the past two years. It has incurred an
accumulated deficit and current net losses of approximately $119 million and
$110 million as of December 31, 2003 and 2002, respectively. In March 2002, the
Company sold its investment in Greenville Casino Partners, LP ("GCP") along with
its related supervisory management contract for an aggregate amount of
approximately $3.3 million in cash. In April of 2003, the final proceeds of
$135,000 were received.
On October 29, 2003, Monticello Raceway Management, Inc. consummated a
$3.5 million loan agreement with The Berkshire Bank. The loan is secured by a
leasehold mortgage, a pledge of raceway revenues and security interests in
certain equipment. The leasehold mortgage loan bears interest at 8.75% and
matures in two years, with monthly principal and interest payments based on a 48
month amortization schedule. This obligation was paid in full on February 4,
2004.
Although the Company is subject to continuing litigation, the ultimate
outcome of which cannot presently be determined, management believes any
additional liabilities that may result from pending litigation in excess of
insurance coverage will not be in an amount that will materially increase the
liabilities of the Company as presented in the attached consolidated financial
statements.
OFF-BALANCE SHEET ARRANGEMENTS
It is not the Company's usual business practice to enter into off-balance
sheet arrangements such as guarantees on loans and financial commitments,
indemnification arrangements, and retained interests in asset transferred to an
unconsolidated entity for securitization purposes. Notwithstanding the
foregoing, on October 29, 2003, the Company entered into a surety agreement in
favor of the Berkshire Bank to guarantee a $3.5 million loan made to Monticello
Raceway Management, Inc. This loan was subsequently repaid in February, 2004. On
January 12, 2004, the Company also entered into an agreement with the Litigation
Trust pursuant to which the Company will provide the Litigation Trust with a
$2.5 million line of credit to finance the litigation. This agreement is not
expected to have a material current or future effect on its financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Management periodically reviews the carrying value of its investment and
advancement in CDL and deferred development cost in relation to historical
results, as well as management's best estimate of future trends, events and
26
overall business climate. If such reviews indicate that the carrying value of
such assets may not be recoverable, we would then estimate the future cash flows
(undiscounted and without interest charges). If such future cash flows are
insufficient to recover the carrying amount of the assets, then impairment is
triggered and the carrying value of any impaired assets would then be reduced to
fair value.
RECENT ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS. The FASB issued FIN 46, "Consolidation
of Variable Interest Entities," in January 2003, and subsequently modified it in
December 2003. This Interpretation provides guidance on the identification of
entities for which control is achieved through means other than through voting
rights, so called variable interest entities (VIEs), and how to determine when
and which business enterprises should consolidate variable interest entities. If
an entity is identified as the variable interest entity's primary beneficiary,
the entity is required to consolidate the variable interest entity. In December
2003, the FASB issued FIN 46R with respect to variable interest entities created
before January 31, 2003, which among other things, revised the implementation
date to the first fiscal year or interim period ending after March 15, 2004,
with the exception of Special Purpose Entities. The Company is currently
evaluating the potential impact the adoption of this interpretation will have on
its consolidated financial statements.
In May 2003, FASB issued Statement of Financial Accounting Standards
(SFAS) No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS No. 150 changes the
accounting for certain financial instruments, which under previous guidance
could be classified as equity or mezzanine equity, by now requiring those
instruments to be classified as liabilities (or assets in some circumstances) in
the statement of financial position. The company has determined that SFAS No.
150 will not affect its financial position or results of operations.
In December 2003, the Securities Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 104,"Revenue Recognition." SAB No. 104 updates
portions of the interpretive guidance included in Topic 13 of the codification
of Staff Accounting Bulletins in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The company believes it is following the guidance of SAB
No. 104.
STOCK OPTIONS. Effective January 1, 2003, the Company adopted the fair
value provisions of Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (SFAS 123) on a prospective basis.
Awards granted under the Company's three stock option plans and awards granted
to non-employees have been included in loss from operations for the year ended
December 31, 2003. Net loss for the year ended December 31, 2002 is less than
that which would have been recognized if the fair value based method had been
applied to all awards since the original effective date of SFAS 123.
The following table illustrates the effect on operation and loss per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period:
Year Ended
December 31, 2003 December 31, 2002
(in thousands except per share data)
Loss as reported:
Applicable to common shares .............. $ (9,579) $ (9,674)
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards granted modified or
settled during each period, net of related
tax effects .............................. -- (80)
Pro forma net loss:
Applicable to common shares ............. (9,579) (9,754)
Loss, basic as reported ................. (1.74) (2.10)
Basic, pro forma ........................ (1.74) (2.11)
Diluted as reported ..................... (1.74) (2.10)
Diluted, pro forma ....................... $ (1.74) $ (2.11)
27
SUBSEQUENT EVENTS
INVESTMENT IN MONTICELLO, NEW YORK
The acquisition of Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development Company, and Mohawk Management for
80.25% of the Company's common stock, or 18,219,075 shares, calculated on a
post-merger, fully diluted basis was completed January 12, 2004.
ASSIGNMENT OF LITIGATION CLAIMS
On January 12, 2004 in order to better focus on the implementation of the
New York State Lottery's video gaming machine program and the development of
other gaming operations at Monticello Raceway and as a condition to the closing
of the consolidation with CDL, all claims relating to certain litigation against
parties alleged to have interfered with CDL's relations with the St. Regis
Mohawk Tribe, along with the rights to any proceeds from any judgment or
settlement that may arise from such litigation, were transferred to a grantor
trust in which the Company's common stockholders of record immediately before
the merger's closing (but following the redemption of the common stock held by
Bryanston Group and Beatrice Tollman) will have a 19.75% interest, with the
members of CDL and Monticello Raceway Development immediately before the
merger's closing owning the remaining 80.25%. The Company will separately enter
into an agreement with the Litigation Trust pursuant to which the Company will
provide the trust with a $2.5 million line of credit to finance the litigation.
However, aside from performing its obligations under this line of credit,
neither the Company nor any of its post-merger subsidiaries will have any future
involvement with the ongoing litigation or any future suits that may arise. Paul
A. deBary, a member of the Company's board of directors, and Joseph E.
Bernstein, a member of the Company's board of directors and a managing director
of Americas Tower Partners, have agreed to serve as co-trustees for the
Litigation Trust. For these services, Messrs. deBary and Bernstein will each
receive $60,000 per year and 1% and 4%, respectively, of any proceeds that the
Litigation Trust receives from the ongoing litigation, or any future litigation
that may be brought by the Litigation Trust. Moreover, any proceeds received by
the Litigation Trust shall first be applied to pay the expenses of the
Litigation Trust, including compensation of the trustees, second, to provide for
a reserve, if necessary, for future expenses of the Litigation Trust, third, to
repay the Company, in addition to any amounts borrowed under the line of credit,
up to $7.5 million to compensate the Company for other previously incurred
expenses in connection with the litigations, with the remaining amount to be
distributed pro rata to the Litigation Trust's beneficiaries. A registration
statement concerning this distribution on Form S-1 was filed with the Securities
and Exchange Commission by the Catskill Litigation Trust and became effective on
March 5, 2004.
STOCK REDEMPTION
On December 10, 2002, the Company entered into a recapitalization
agreement with Stanley Tollman, Beatrice Tollman (Stanley Tollman's wife), Monty
Hundley, Bryanston Group and Alpha Monticello, a wholly owned subsidiary of the
Company. Under this agreement, each of Bryanston Group and Beatrice Tollman
granted the Company a three year option to redeem from them up to 2,326,857 and
66,000 shares of the Company's common stock, respectively, at a redemption price
of $2.12 per share, payable in cash or by promissory note. Bryanston Group and
Beatrice Tollman also granted Robert A. Berman, the Company's chief executive
officer, an irrevocable three year proxy to vote these shares of common stock at
his discretion.
On January 9, 2004 prior to the closing of the merger with CDL, in
accordance with the terms of the restated contribution agreement, the Company
redeemed all of the shares of the Company's common stock that were subject to
the recapitalization agreement and that were held by Bryanston Group and
Beatrice Tollman. In order to consummate this redemption, the Company issued a
promissory note in the sum of approximately $5.1 million to Bryanston Group and
Beatrice Tollman in exchange for their shares. The note is payable over three
years pursuant to the following schedule:
28
Date Amount
---- ------
(1 Year Anniversary of Note) (13.33% of the Note Amount)
(18 Month Anniversary of Note) (17.78% of the Note Amount)
(2 Year Anniversary of Note) (22.22% of the Note Amount)
(30 Month Anniversary of Note) (26.67% of the Note Amount)
(3 Year Anniversary of Note) (20.00% of the Note Amount)
In addition, under the terms of the note, interest would accrue on the
outstanding principal amount at the rate of 7% per annum, and upon each
principal amount payment, the Company will also be required to pay all unpaid
accrued interest with respect to such principal amount payment.
PRIVATE PLACEMENT
On January 30, 2004 the Company closed a private sale of 4,050,000 shares
of common stock, to multiple investors, at a price of $7.50 per share. This
sale, net of expenses, increased by approximately $30 million our funds for
development and operations.
ITEM 7. FINANCIAL STATEMENTS.
See Index to Financial Statements attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the
Company's disclosure controls and procedures. Based on that evaluation, the CEO
and CFO have concluded that as of the end of the period covered by this report,
the Company's disclosure controls and procedures are effective to provide
reasonable assurance that the information required to be disclosed by the
Company in reports that it files or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and timely reported as provided in the
Securities and Exchange Commission rules and forms. The Company periodically
reviews the design and effectiveness of our internal controls over financial
reporting, including compliance with various laws and regulations that apply to
the Company's operations. The Company makes modifications to improve the design
and effectiveness of its internal control structure and may take other
corrective action if the Company's reviews identify deficiencies or weaknesses
in its controls. No changes occurred during the year ended December 31, 2003 in
the Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required to be set forth in this Item will be incorporated
by reference from the Company's proxy statement to be filed no later than April
29, 2004 pursuant to Regulation 14A of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
ITEM 10. EXECUTIVE COMPENSATION
The information required to be set forth in this Item will be incorporated
by reference from the Company's proxy statement to be filed no later than April
29, 2004 pursuant to Regulation 14A of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
29
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required to be set forth in this Item will be incorporated
by reference from the Company's proxy statement to be filed no later than April
29, 2004 pursuant to Regulation 14A of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth in this Item will be incorporated
by reference from the Company's proxy statement to be filed no later than April
29, 2004 pursuant to Regulation 14A of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
The following documents are filed or part of this report:
1. FINANCIAL REPORTS
EMPIRE RESORTS, INC.
Independent Auditors' Report...................................... F-1
Consolidated Balance Sheet........................................ F-2
Consolidated Statements of Operations............................. F-3
Consolidated Statements of Stockholders' Equity................... F-4
Consolidated Statements of Cash Flows............................. F-5
Notes to Consolidated Financial Statements........................ F-7
CATSKILL DEVELOPMENT, LLC
Independent Auditors' Report .................................... F-28
Consolidated Balance Sheet ...................................... F-29
Consolidated Statements of Operations ........................... F-30
Consolidated Statements of Stockholders' Equity ................. F-31
Consolidated Statements of Cash Flow ............................ F-32
Notes to Consolidated Financial Statements ....................... F-34
2. EXHIBITS
3.1 Certificate of Incorporation, dated March 19, 1993. (1)
3.2 Certificate of Amendment of Certificate of Incorporation, dated
August 15, 1993. (1)
3.3 Certificate of Amendment of Certificate of Incorporation, dated
December 18, 1996. (1)
3.4 Certificate of Amendment of Certificate of Incorporation, dated
September 22, 1999. (1)
3.5 Certificate of Amendment of the Certificate of Incorporation, dated
June 13, 2001. (1)
3.6 Certificate of Amendment to the Certificate of Incorporation, dated
May 15, 2003. (1)
3.7 Certificate of Amendment to the Certificate of Incorporation,
January 12, 2004. (1)
3.8 Second Amended and Restated By-Laws, as of Feb. 12, 2002. (1)
3.9 Amendment No. 1 to the Second Amended and Restated By-Laws, dated
November 11, 2003. (1)
4.1 Form of Common Stock Certificate, incorporated by reference to the
Company's Proxy Statement, filed with the Securities and Exchange
Commission (the "SEC") on May 8, 2002.
4.2 Certificate of Designations, Preferences and Rights of Preferred
Stock, Series B, dated July 31, 1996. (1)
4.3 Certificate of Designation setting forth the Preferences, Rights and
Limitations of Series B Preferred Stock and Series C Preferred
Stock, dated May 29, 1998. (1)
4.4 Certificate of Amendment to the Certificate of Designation setting
forth the Preferences, Rights and Limitations of Series B Preferred
Stock and Series C Preferred Stock, dated June 13, 2001. (1)
4.5 Certificate of the Designations, Powers, Preferences and Rights of
the Series E Preferred Stock, dated December 10, 2002. (1)
30
4.6 Certificate of Amendment of Certificate of the Designations, Powers,
Preferences and Other Rights and Qualifications of the Series E
Preferred Stock, dated January 12, 2004. (1)
10.1 Form of Indemnification Agreement between the Company and directors
and executive officers of the Company. (2)
10.2 1993 Stock Option Plan. (2)
10.3 1998 Stock Option Plan. (3)
10.4 Form of Amended and Restated Contribution Agreement (with exhibits)
between the Company and Watertone Holdings, LP, dated as of February
8, 2002. (4)
10.5 Form of Stock Option Agreement by and between the Company and Robert
Berman. (4)
10.6 Form of Stock Option Agreement by and between the Company and Scott
Kaniewski. (4)
10.7 Irrevocable Proxy and Voting Agreement granted by Bryanston Group,
Inc. to Robert Berman for a duration of three years, dated April 30,
2002, incorporated by reference to the Company's Current Report on
Form 8-K, filed with the SEC on May 1, 2002.
10.8 Recapitalization Agreement, dated December 10, 2002, by and between
Alpha Hospitality Corporation, Alpha Monticello, Inc., Bryanston
Group, Inc., Stanly Tollman, Beatrice Tollman and Monty Hundley,
incorporated by reference to the Company's Current Report on Form
8-K/A, filed with the SEC on February 10, 2003.
10.9 Land Purchase Agreement and Shared Facilities Agreement between the
Cayuga Catskill Gaming Authority and Catskill Development, L.L.C.
(5)
10.10 Gaming Facility Management Agreement among the Cayuga Nation, the
Cayuga Catskill Gaming Authority and Monticello Casino Management,
LLC. (5)
10.11 Gaming Facility Development and Construction Agreement among the
Cayuga Nation, the Cayuga Catskill Gaming Authority and Monticello
Raceway Development Company, LLC. (5)
10.12 Letter Agreement among Empire Resorts, Inc. (fka Alpha Hospitality
Corporation), Catskill Development, LLC and the Cayuga Nation. (5)
10.13 Securities Contribution Agreement, dated July 3, 2003, by and among
Empire Resorts, Inc., Catskill Development, L.L.C., Americas Tower
Partners and BKB, L.L.C., incorporated by reference to the Company's
Current Report on Form 8-K, filed with the SEC on July 10, 2003.
10.14 Surety Agreement, dated October 29, 2003, made by the Company in
favor of The Berkshire Bank, incorporated by reference to the
Company's Current Report on Form 8-K, filed with the SEC on October
31, 2003.
10.15 Amended and Restated Securities Contribution Agreement, dated
December 12, 2003, by and among Empire Resorts, Inc., Catskill
Development, L.L.C., and members of both Catskill Development and
Monticello Raceway Development, incorporated by reference to the
Company's Current Report on Form 8-K, filed with the SEC on January
13, 2004.
10.16 Form of Securities Purchase Agreement, dated as of January 26, 2004,
among the Company and the purchasers identified on the signature
pages thereto. (1)
10.17 Form of Registration Rights Agreement, dated as of January 26, 2004,
by and among the Company and the investors signatory thereto. (1)
10.18 Five Year Warrant issued to Jefferies & Company, Inc., dated January
30, 2004, to purchase 250,000 shares of Common Stock at an exercise
price of $7.50 per share. (1)
10.19 Registration Rights Agreement, dated as of January 30, 2004, by and
among the Company and Jefferies & Company, Inc. (1)
10.20 Amended and Restated Employment Agreement by and between the Company
and Robert A. Berman, dated as of January 12, 2004.(1)
10.21 Amended and Restated Employment Agreement by and between the Company
and Scott A. Kaniewski, dated as of January 12, 2004. (1)
14.1 Code of Ethics. (1)
21.1 List of Subsidiaries. (1)
23.1 Consent of Independent Certified Public Accountants. (1)
23.2 Consent of Independent Certified Public Accountants. (1)
31.1 Section 302 Certification of Principal Executive Officer. (1)
31.2 Section 302 Certification of Principal Financial Officer. (1)
32.1 Section 906 Certification of Principal Executive Officer. (1)
32.2 Section 906 Certification of Principal Financial Officer. (1)
----------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-64236), filed with the SEC on June 10, 1993 and as
amended on September 30, 1993, October 25, 1993, November 2, 1993 and
November 4, 1993, which Registration Statement became effective November
5, 1993. Such Registration Statement was further amended by Post Effective
Amendment filed on August 20, 1999.
(3) Incorporated by reference to the Company's Proxy Statement, filed with the
SEC on August 25, 1999.
(4) Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the SEC on February 26, 2002.
(5) Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the SEC on November 3, 2003.
31
(b) Reports on Form 8-K in the last quarter covered by this report.
Current Report on Form 8-K
Date filed - October 8, 2003
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits
Current Report on Form 8-K
Date filed - October 31, 2003
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits
Amendment to Current Report on Form 8-K
Date filed - November 3, 2003
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required to be set forth in this Item will be incorporated
by reference from the Company's proxy statement to be filed no later than April
29, 2004 pursuant to Regulation 14A of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on the 26th day of March 2004.
EMPIRE RESORTS, INC
By: /s/ Robert A. Berman
----------------------------------
Robert A. Berman
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below hereby constitutes and appoints Robert A. Berman and Scott A. Kaniewski
his true and lawful attorney-in-fact and agent, with full power of substitution
and re-substitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-KSB and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
Signature Title Date
/s/ David Matheson Chairman of the Board and Director March 26, 2004
--------------------------
David Matheson
/s/ Robert A. Berman Chief Executive Officer and March 26, 2004
-------------------------- Director (Principal Executive
Robert A. Berman Officer)
/s/ Scott A. Kaniewski Chief Financial Officer (Principal March 26, 2004
-------------------------- Accounting and Financial Officer)
Scott A. Kaniewski
/s/ David P. Hanlon Vice Chairman of the Board and March 26, 2004
-------------------------- Director
David P. Hanlon
/s/ Morad Tahbaz President and Director March 26, 2004
--------------------------
Morad Tahbaz
/s/ Paul deBary Director March 26, 2004
--------------------------
Paul deBary
/s/ John Sharpe Director March 26, 2004
--------------------------
John Sharpe
33
Signature Title Date
/s/ Ralph J. Bernstein Director March 26, 2004
--------------------------
Ralph J. Bernstein
/s/ Arthur I. Sonnenblick Director March 26, 2004
--------------------------
Arthur I. Sonnenblick
/s/ Joseph Bernstein Director March 26, 2004
--------------------------
Joseph Bernstein
34
FRIEDMAN
ALPREN & 1700 BROADWAY
GREEN LLP NEW YORK, NY 10019
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 212-842-7000
FAX 212-842-7001
www.nyccpas.com
INDEPENDENT AUDITORS' REPORT
----------------------------
TO THE STOCKHOLDERS OF EMPIRE RESORTS, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of EMPIRE
RESORTS, INC. AND SUBSIDIARIES as of December 31, 2003, and the related
consolidated statements of operations, changes in cash flows and stockholders'
equity for the years ended December 31, 2003 and 2002. 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 auditing standards generally
accepted in the United States of America. 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 EMPIRE RESORTS, INC. AND
SUBSIDIARIES as of December 31, 2003, and the results of its operations and its
cash flows for the years ended December 31, 2003 and 2002 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Friedman Alpren & Green LLP
-----------------------------------
Friedman Alpren & Green LLP
New York, New York
March 5, 2004
F-1
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash $ 18
Other current assets 17
---------
Total current assets 35
INVESTMENT AND ADVANCES IN AFFILIATE 5,542
DEFERRED DEVELOPMENT COSTS 2,440
---------
TOTAL ASSETS $ 8,017
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,489
Accrued payroll and related liabilities 35
---------
Total current liabilities 1,524
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,75,000 shares
authorized, 5,987 issued 60
Preferred stock, 5,000 shares authorized
$.01 par value;
Series B, 44 issued and outstanding --
Series E, $10.00 Redemption Value, 1,731
issued and outstanding 6,855
Capital in excess of par value 118,218
Accumulated deficit (118,640)
---------
Total stockholders' equity 6,493
---------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 8,017
=========
See accompanying notes to consolidated financial statements.
F-2
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2003 2002
---- ----
REVENUES: $ -- $ --
------- -------
COSTS AND EXPENSES:
Selling, general and administrative 6,865 2,627
Interest 556 459
Depreciation -- 77
Pre-opening and development costs -- 24
------- -------
Total costs and expenses 7,421 3,187
------- -------
OTHER LOSS
Equity in loss of affiliate (1,631) --
Impairment loss on investment (6,934)
Impairment loss - Casino Ventures -- (3,000)
Gain on sale of investments and related
management contract 135 3,277
Recovery of insurance proceeds 500 --
Gain on extinguishment of debt 389 326
------- -------
Total other loss (607) (6,331)
------- -------
LOSS FROM OPERATIONS BEFORE
MINORITY INTEREST (8,028) (9,518)
MINORITY INTEREST -- 18
------- -------
NET LOSS (8,028) (9,500)
======= =======
CUMULATIVE UNDECLARED DIVIDENDS
ON PREFERRED STOCK (1,551) (174)
------- -------
LOSS APPLICABLE TO COMMON SHARES (9,579) (9,674)
======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, basic and diluted 5,501 4,615
======= =======
LOSS PER COMMON SHARE, basic and diluted $ (1.74) $ (2.10)
======= =======
See accompanying notes to consolidated financial statements.
F-3
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Preferred Stock Preferred Stock Preferred Stock
Series B Series C Series D
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------
Balances, December 31, 2001 ................. 821 $ 8 135 $ 1 1 $ 0
===========================================================================
Preferred stock dividend
payable in common stock ..................
Stock compensation to employees .............
Preferred stock converted to debt ........... (1)
Common stock issued from
exercise of stock options ................
Preferred stock converted to
common stock ............................. (777) (8) (135) (1)
Long term debt converted to
common stock .............................
Common Stock issued to acquire interest in
Catskill Development, LLC ("CDL") ........
Preferred stock issued in settlement
of debt & to acquire additional
interest in CDL ..........................
Purchase of Treasury Shares .................
Net loss ....................................
---------------------------------------------------------------------------
Balances, December 31, 2002 ................. 44 $ 0 0 $ 0 0 $ 0
===========================================================================
Declared and paid Preferred dividends .......
Stock based compensation ....................
Common stock issued from
exercise of stock options and warrants ...
Common stock issued in settlement
of liabilities ...........................
Common stock issued for payment
of interest ..............................
Retirement of Treasury Shares ...............
Common stock issued thru private
placement sales ..........................
Common stock issued for investment CDL ......
Common stock issued for deferred
development cost .........................
Net loss ....................................
---------------------------------------------------------------------------
Balances, December 31, 2003 ................. 44 $ 0 0 $ 0 0 $ 0
===========================================================================
Preferred Stock Capital in
Series E Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
-----------------------------------------------------------------------------------
Balances, December 31, 2001 ................. 0 0 2,629 $ 26 $92,196 $ (95,173)
===================================================================================
Preferred stock dividend
payable in common stock .................. 415 4 5,768 (5,772)
Stock compensation to employees ............. 5 0 39
Preferred stock converted to debt ........... (1,079)
Common stock issued from
exercise of stock options ................ 8 1 32
Preferred stock converted to
common stock ............................. 946 10 2,489
Long term debt converted to
common stock ............................. 324 3 372
Common Stock issued to acquire interest in
Catskill Development, LLC ("CDL") ........ 576 5 6,929
Preferred stock issued in settlement
of debt & to acquire additional
interest in CDL .......................... 1,731 6,855
Purchase of Treasury Shares ................. (5) 0 (35)
Net loss .................................... (9,500)
-----------------------------------------------------------------------------------
Balances, December 31, 2002 ................. 1,731 $6,855 4,898 $ 49 $106,711 $(110,445)
===================================================================================
Declared and paid Preferred dividends ....... 41 1 166 (167)
Stock based compensation .................... 25 0 3,012
Common stock issued from
exercise of stock options and warrants ... 120 1 229
Common stock issued in settlement
of liabilities ........................... 46 1 414
Common stock issued for payment
of interest .............................. 21 0 320
Retirement of Treasury Shares ............... 0 (35)
Common stock issued thru private
placement sales .......................... 605 6 4,682
Common stock issued for investment CDL ...... 31 0 281
Common stock issued for deferred
development cost ......................... 200 2 2,438
Net loss .................................... (8,028)
-----------------------------------------------------------------------------------
Balances, December 31, 2003 ................. 1,731 $6,855 5,987 $ 60 $118,218 $(118,640)
===================================================================================
See accompanying notes to consolidated financial statements.
F-4
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 AND 2002
(IN THOUSANDS)
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $(8,028) $(9,500)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of investment and related
management contract ............................. (135) (3,277)
Gain on extinguishments of debt ................... (389) (326)
Equity in loss of affiliate ....................... 1,631 --
Impairment loss on investment ..................... -- (6,934)
Impairment loss - Casino Ventures ................. -- 3,000
Minority interest ................................. -- (18)
Depreciation ...................................... -- 77
Stock based compensation .......................... 3,012 44
Interest settled with common stock ................ 320 --
Interest amortized on loan discount ............... -- 73
Changes in operating assets and liabilities:
Other current assets .............................. 29 9
Other non-current assets .......................... -- 207
Accounts payable and accrued expenses ............. 675 1,173
Accrued payroll and related liabilities ........... (409) 215
------- -------
NET CASH USED IN OPERATING ACTIVITIES ............................... (3,294) (1,389)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment and related management contract 145 3,277
Investments and advances in affiliate .......................... (455) --
Purchases of property and equipment ............................ (113) (694)
Decrease in other assets ....................................... 14 --
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................. (409) 2,583
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock .................................... 4,688 --
Proceeds from exercise of stock options and warrants ........... 230 33
Repayment of note payable ...................................... (1,500) --
Repayment of related party long-term debt ...................... -- (1,751)
Proceeds from related party long-term debt- Casino Ventures .... 129 678
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .......................................... 3,547 (1,040)
------- -------
NET INCREASE (DECREASE) IN CASH ..................................... (156) 154
CASH, beginning of year ............................................. 174 20
------- -------
CASH, end of year ................................................... $ 18 $ 174
======= =======
See accompanying notes to consolidated financial statements.
F-5
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
2003 2002
---------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 250 $ 129
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued in conversion of long-term debt and
accrued interest $ -- $ 375
======== ========
Common stock issued in settlement of preferred stock dividends $ 167 $ 5,772
======== ========
Common stock issued for investment in affiliate $ 281 $ 6,934
======== ========
Common stock issued in conversion of preferred stock $ -- $ 2,499
======== ========
Common stock in Treasury for retirement $ -- $ 35
======== ========
Retirement of treasury stock $ 35 $ --
======== ========
Common stock issued in settlement of liabilities to Bryanston $ -- $ 1,904
======== ========
Common stock issued for deferred development costs $ 2,440 $ --
======== ========
Common stock issued in settlement of liabilities $ 415 $ --
======== ========
See accompanying notes to consolidated financial statements.
F-6
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS
Empire Resorts, Inc ("Empire" or the "Company") was organized as a
Delaware corporation on March 19, 1993, and since that time has served as a
holding company for various subsidiaries engaged in the ownership, development
and operation of gaming facilities. We were incorporated under the name Alpha
Hospitality Corporation and changed our name to Empire in May, 2003.
During the past three years, we have concentrated most of our efforts on
developing gaming operations in Monticello, New York. As part of this effort we
have disposed of various ancillary interests and terminated certain unprofitable
operations. In March 2002, we sold our interests in a casino project in
Greenville, Mississippi, and in June 2003 we sold our ownership in Casino
Ventures, LLC.
During that time we also increased our economic interest in Catskill
Development, LLC (CDL) that was formed in 1995 and before the ratification of
our merger, controlled Monticello Raceway, a harness horse racing facility
located on 229 acres in Monticello, New York, approximately 90 miles northwest
of New York City in the Catskill Mountains. In March 2002 we entered into an
agreement with Watertone Holdings, LP, a member of CDL that is controlled by
Robert Berman, our chief executive officer, and Scott Kaniewski, our chief
financial officer, whereby Watertone Holdings, LP transferred 47.5% of its
economic interest in CDL's racetrack and casino businesses to us in exchange for
575,874 shares of our common stock. In December 2002, we again increased our
ownership interest in CDL by issuing 1.3 million shares of Series E Preferred
Stock to Bryanston Group, Inc. ("Byranston Group"), a corporation controlled by
certain prior members of our senior management, in exchange for all of Bryanston
Group's interest in CDL, and in July 2003 we proposed the acquisition of
Monticello Raceway Management, Inc. ("Monticello Raceway Management"),
Monticello Casino Management, LLC ("Monticello Casino Management"), Monticello
Raceway Development Company, LLC ("Monticello Raceway Development") and Mohawk
Management, LLC ("Mohawk Management") for 80.25%, or 18,219,075 shares, of the
Company's common stock, calculated on a post-merger, fully diluted basis.
The merger was completed January 12, 2004 (see note 13). Future reporting
of the new operations will be accounted for as a reverse merger and as if the
transaction occurred on January 1, 2004, because there were no significant
operations during that period. Monticello Raceway Management was a wholly owned
subsidiary of CDL and each of Monticello Casino Management and Mohawk Management
was 60% owned by CDL and 40% owned indirectly by the Company and Monticello
Raceway Development. The Company previously did not own any direct interest in
Monticello Raceway Development.
MONTICELLO RACEWAY MANAGEMENT. Monticello Raceway Management is a New York
corporation that operates Monticello Raceway, a harness horse racing facility
located in Monticello, New York, and holds a leasehold interest in most of the
property where the Monticello Raceway is located in Monticello, New York.
Monticello Raceway Management reported its financial results with CDL on a
consolidated basis through December 31, 2003,
MONTICELLO CASINO MANAGEMENT. Monticello Casino Management is a New York
limited liability company with the exclusive right to manage, on behalf of the
Cayuga Nation of New York, any Class III Gaming operations and related
activities that may occur on the land to be placed in trust where the Monticello
Raceway is located in Monticello, New York. Currently, Monticello Casino
Management has no operations, employees or assets other than its gaming
management rights. Since inception, Monticello Casino Management has had no
reportable revenue, net income or losses.
MONTICELLO RACEWAY DEVELOPMENT COMPANY. Monticello Raceway Development is
a New York limited liability company with the exclusive right to design,
engineer, develop, construct, and furnish a Class III Gaming facility that is
being developed on the land to be placed in trust where the Monticello Raceway
is located in Monticello, New York. Monticello Raceway Development also has the
exclusive right to develop the remaining acres of land to provide for activities
supportive of gaming, such as lodging, food service and retail. Currently,
Monticello Raceway Development has no operations, employees or assets other than
its development rights. Monticello Raceway Development has had no reportable
revenue, net income or losses.
F-7
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MOHAWK MANAGEMENT. Mohawk Management is a New York limited liability
company originally formed to operate, in conjunction with the St. Regis Mohawk
Tribe, a Class III Gaming facility in Monticello, New York. Currently, Mohawk
Management has no operations, employees or assets. Since inception, Mohawk
Management has had no reportable revenue, net income or losses.
On November 19, 2002, the Company received a letter from NASDAQ stating
that it had fallen below the minimum stockholders' equity requirement of $2.5
million as of the Company's fiscal quarter ended September 30, 2002. As a result
of our recapitalization, the Company issued 1,730,696 shares of Series E
Preferred Stock with a $10 redemption value per share, which increased the
Company's stockholders' equity over $6 million, well in excess of the minimum
stockholder equity requirement. On January 16, 2003, the Company filed a Current
Report on Form 8-K demonstrating compliance. On January 17, 2003, the Company
received a letter from NASDAQ stating that based on the 8-K filing, it had
determined the Company complies with the minimum stockholders' equity
requirement and the matter was closed.
During 2002, six former officers or directors of the Company were charged
or convicted in indictments alleging certain criminal activities. These
included: Monty Hundley, who resigned in March 1995, Howard Zukerman, who
resigned in April 1997, Sanford Freedman, who resigned in March 1998, Stanley
Tollman, who resigned as Chairman, President and Chief Operating Officer in
February 2002, James Cutler, who resigned in February 2002 and Brett Tollman
(son of Stanley Tollman), who resigned in June 2002. Stanley Tollman is
currently a resident of London, England and has not returned to the United
States to answer these charges. None of the acts these individuals are charged
with relate to their roles or activities with the Company and the Company is not
charged with any wrongdoing. However, ownership of Bryanston Group, Inc.
("Bryanston Group"), our former principal shareholder, can be associated with
Monty Hundley and/or Stanley Tollman through their relationships with its
beneficial owners and was managed by Brett Tollman. In December 2002, the
Company entered into to an agreement with Bryanston Group and with certain of
these officers and other related parties in an effort to remove Bryanston Group
from a position to control the Company or to participate in the results of any
gaming activities. On September 5, 2003, Brett Tollman, pled guilty to felony
tax fraud. On February 4, 2004, Monty Hundley, Howard Zuckerman, Sanford
Freedman and James Cutler, each a former officer or director of the Company,
were convicted of tax and bank fraud.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. We recognize our revenues according to the type of
contract or activity that generates the proceeds. The Company has not had
operations to generate revenue in the past two years.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned and majority-owned
subsidiaries. All significant inter-company balances and transactions have been
eliminated in consolidation.
CASH. The Company at December 31, 2003 maintained its cash in one bank,
which, at times, may have exceeded federally insured limits. The Company has not
incurred any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.
CASH EQUIVALENTS. We consider all highly liquid instruments purchased with
a maturity of three months or less at date of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provided for depreciation
and amortization on property and equipment by applying the straight-line method
over the estimated useful lives.
F-8
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFERRED DEVELOPMENT COSTS. Deferred development costs are stated at cost.
The Company capitalizes certain costs directly related to an agreement with a
Native American Tribe to obtain a gaming license. These capitalized costs are
periodically reviewed for impairment.
GOODWILL AND OTHER INTANGIBLES. On January 1 2002 the Company adopted SFAS
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the
amortization of goodwill and indefinite-lived intangible assets and initiates an
annual review for impairment.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. In June 2002, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (FAS) 146, "Accounting for Costs Associated with Exit or
Disposal Activities," which supercedes Emerging Issues Task Force (EITF) Issue
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." The provisions of this Statement are effective for exit and
disposal activities initiated after December 31, 2002. FAS 146 requires
recognition of a liability for costs associated with an exit or disposal
activity when the liability is incurred, rather than when the entity commits to
an exit plan under EITF Issue 94-3. The Company evaluated the amounts that would
be recovered from assets and required to settle liabilities of certain inactive
operations. As a result of this evaluation the Company recognized a gain of
approximately $389,000 during the year ended December 31, 2003.
DISCLOSURE REQUIREMENTS FOR GUARANTEES. In November 2002, the FASB issued
Financial Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 sets forth the disclosures required to be made by a guarantor in
its financial statements about its obligations under certain guarantees that it
has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company was a surety on a loan for a
subsidiary of CDL at December 31, 2003 that was subsequently paid off in
February of 2004. On January 12, 2004 the Company also entered into an agreement
with the Litigation Trust pursuant to which the Company will provide the trust
with a $2.5 million line of credit to finance the litigation. The adoption of
FIN 45 is not expected to have a material effect on the Company's financial
position or results of its operations
INVESTMENTS. The Company accounted for its investment in CDL under the
cost method until December 12, 2002, at which time we adopted the equity method.
On December 12, 2002, the Company acquired Bryanston Group's voting and certain
economic interests in CDL. The Company's investment of 25% in the operating
results of CDL for the year ended December 31, 2003 are included in the
financial statements using the equity method.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company periodically reviews the
carrying value of its long-lived assets in relation to historical results, as
well as management's best estimate of future trends, events and overall business
climate. If such reviews indicate that the carrying value of such assets may not
be recoverable, we would then estimate the future cash flows (undiscounted and
without interest charges). If such future cash flows are insufficient to recover
the carrying amount of the assets, then impairment is triggered and the carrying
value of any impaired assets would then be reduced to fair value.
EARNINGS (LOSS) PER COMMON SHARE. The Company complies with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
requires dual presentation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted-average common shares outstanding for the year.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Since the effect of outstanding options and
warrants is antidilutive, they have been excluded from the Company's computation
of loss per common share. Therefore, basic and diluted loss per common share for
the years ended December 31, 2003 and 2002 were the same.
F-9
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES. The Company applies the asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed for differences between the financial statement and
tax bases of assets and liabilities that will result in future taxable or
deductible amounts, based on enacted tax laws and rates for the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS. The FASB issued FIN 46, "Consolidation
of Variable Interest Entities," in January 2003, and subsequently modified it in
December 2003. This Interpretation provides guidance on the identification of
entities for which control is achieved through means other than through voting
rights, so called variable interest entities (VIEs), and how to determine when
and which business enterprises should consolidate variable interest entities. If
an entity is identified as the variable interest entity's primary beneficiary,
the entity is required to consolidate the variable interest entity. In December
2003, the FASB issued FIN 46R with respect to variable interest entities created
before January 31, 2003, which among other things, revised the implementation
date to the first fiscal year or interim period ending after March 15, 2004,
with the exception of Special Purpose Entities. The Company is currently
evaluating the potential impact the adoption of this interpretation will have on
its consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
Company adopted SFAS No. 150 on July 1, 2003 and does not expect this statement
to materially impact the Company's financial statements.
In December 2003, the Securities Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 104,"Revenue Recognition." SAB 104 updates
portions of the interpretive guidance included in Topic 13 of the codification
of Staff Accounting Bulletins in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The Company believes it is following the guidance of SAB
104.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No. 148 "Accounting for Stock-Based Compensation--Transition and
Disclosure--an amendment of FASB Statement No. 123, This Statement amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. Effective January 1, 2003 the Company adopted
this standard and will report the provisions on a prospective basis. The Company
in 2003 recognized stock based compensation of approximately $3 million.
The following table illustrates the effect on operation and loss per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period:
Year Ended
December 31, 2003 December 31, 2002
(in thousands except per share data)
Loss as reported:
Applicable to common shares .............. $ (9,579) $ (9,674)
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards granted modified or
settled during each period, net of related
tax effects .............................. $ -- $ (80)
Pro forma net loss:
applicable to common shares .............. $ (9,579) $ (9,754)
Loss, basic as reported ....................... $ (1.74) $ (2.10)
Basic, pro forma ......................... $ (1.74) $ (2.11)
Diluted as reported ...................... $ (1.74) $ (2.10)
Diluted, pro forma ....................... $ (1.74) $ (2.11)
F-10
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the 2002 presentation.
NOTE 3. INVESTMENT IN GREENVILLE CASINO PARTNERS
The Bayou Caddy's Jubilee Casino began its operation in Greenville in
November 1995 and was the second casino operating in a very discrete market. The
operations were meeting or exceeding all of management's expectations. In early
1997 a third casino opened in Greenville and it became clear that the market
would not expand sufficiently to accommodate the additional capacity. After
considerable deliberation, management made the decision to exit the Greenville
market and on March 2, 1998, we sold our interest in the Greenville Inn & Suites
and the Bayou Caddy's Jubilee Casino to Greenville Casino Partners, L.P., an
entity in which we held a 25% (subsequently reduced to approximately 19% for
capital call adjustments) interest, and with which we entered into a hotel
management contract. In March 2002, Greenville Casino Partners, L.P. sold all of
the entity's operations and assets to JMBS Casino LLC. Our proceeds were
approximately $2.8 million. Prior to the sale we assigned our related hotel
management contract to Greenville C.P., Inc. for an additional $510,000. An
additional $1 million was held in escrow for 18 months pending any claims the
purchaser may have against Greenville Casino Partners, L.P. In April 2003 the
Company received $135,000 in full settlement of the escrow and has no further
interest in the entity.
On March 31, 2003, the Company settled an action it brought in the Circuit
Court of Washington County, Mississippi against Investors Insurance Company of
America, Tanenbaum Harber Co. Inc. and Aon Risk Services, Inc. of Pennsylvania
for breach of contract concerning the breakaway of the Company's Bayou Caddy's
Jubilee Casino in 1998. The Company accepted a total settlement of $500,000 from
all parties involved and received the money in the second quarter of 2003.
NOTE 4. DEFERRED DEVELOPMENT COSTS
On April 3, 2003, the Cayuga Nation of New York, a federally recognized
Indian Nation (the "Cayuga Nation"), CDL and certain of CDL's affiliates,
including a subsidiary of the Company, entered into a series of agreements which
provide for the development of a casino adjacent to the Monticello Raceway, on
Trust Land. In furtherance of these transactions, on April 10, 2003, the Cayuga
Nation, the Company and its affiliate, CDL, officially filed with the Eastern
Regional Office of the Bureau of Indian Affairs, an application requesting that
the Secretary of the Interior acquire in trust on behalf of the Cayuga Nation a
29 acre parcel of land in Monticello, New York to be used for gaming purposes.
Under a special letter agreement among the Company, CDL, and the Cayuga
Nation, the parties are to work exclusively with each other to develop a casino.
In order to assist the Cayuga Nation in the development process the Company
agreed to issued 300,000 shares of common stock to the Cayuga Nation that vest
over a twelve month period. On April 9 and October 9, 2003, the Company issued
an aggregate of 200,000 shares of common stock at a market value of $10.56 and
$13.84 per share, respectively. An additional 100,000 shares vest and will be
issued on April 9, 2004. The agreement also provides for the Company to fund
development costs of the Cayuga Nation on a monthly basis and for the Cayuga
Nation to participate in the ownership of a to-be-developed hotel within five
miles of the Casino by the Company and its other affiliates. This hotel will be
designated as the preferred
F-11
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provider to the proposed casino by the Cayuga Nation. The letter agreement
further provides for a reciprocal ten-year option to acquire up to a 33.33%
ownership interest in other lodging, entertainment, sports and/or retail
facilities, which may be developed or operated within a 15 mile radius of the
casino. The special letter agreement will terminate on April 30, 2004, unless
the trust land application of the Cayuga Nation, and the casino management
agreement have received the required federal approvals. When operations of the
casino commence the deferred development costs will be systematically recognized
over a determinable period.
NOTE 5. INVESTMENT AND ADVANCES IN AFFILIATES
The Company's principal asset at December 31, 2003 was its 25% interest in
Monticello Raceway. The Company's investment and advances in CDL at December 31,
2003 and 2002 was approximately $5.5 million and $6.4 million, respectively.
ASSIGNMENT OF LITIGATION CLAIMS
In July 1996, CDL entered into a series of agreements with the St. Regis
Mohawk Tribe related to the development and management of the proposed Native
American Casino, subject to federal, state and local approvals.
By letter dated April 6, 2000, the Assistant Secretary of the Department of
the Interior advised and notified the Governor of New York that the proposed
Casino Project had been approved and specifically requested that the Governor
concur. However, on April 22, 2000, the Company became aware of a letter
agreement between the Mohawk Tribe and Caesar's Entertainment, Inc. ("CZR")
formerly Park Place Entertainment, which gave CZR the exclusive rights to
develop and manage any casino development the St. Regis Mohawk Tribe might have
in the State of New York.
On November 13, 2000, CDL and related entities, including Alpha Monticello,
Inc. ("AMI"), a wholly-owned subsidiary of the Company (the "Plaintiffs"),
joined in a suit filed in United States District Court, Southern District of New
York against CZR, alleging entitlement to substantial damages as a consequence
of, among other things, its wrongful interference with several agreements
between CDL and the St. Regis Mohawk Tribe pertaining to the proposed Native
American Casino Project.
On August 22, 2002, U.S. District Court Judge Colleen McMahon granted CZR's
motion for summary judgment on the Plaintiffs' claim for interference with
business relationships and dismissed or confirmed the dismissal of the
Plaintiffs' contractual interference and other claims.
On March 14, 2003, attorneys for the plaintiffs filed a motion requesting
the District Court to vacate this judgment on the ground that new evidence had
been found. In October 2003, the earlier judgment was vacated in order to allow
the Court to consider the effect of the new evidence following a brief period of
additional discovery. Briefs on this issue were filed in December, 2003. There
is no assurance that the new evidence will provide a basis for a decision
favorable to the plaintiffs, result in a different judgment or even permit the
additional evidence to be available for purposes of the record in an appeal.
On January 12, 2004 in order to better focus on the implementation of the
New York State Lottery's video gaming machine program and the development of
other gaming operations at Monticello Raceway and as a condition to the closing
of the consolidation with CDL, all claims relating to certain litigation against
parties alleged to have interfered with CDL's relations with the St. Regis
Mohawk Tribe, along with the rights to any proceeds from any judgment or
settlement that may arise from such litigation, were transferred to a grantor
trust in which the Company's common stockholders of record immediately before
the merger's closing (but following the redemption of the common stock held by
Bryanston Group and Beatrice Tollman) will have a 19.75% interest, with the
members of CDL and Monticello Raceway Development immediately before the
merger's closing owning the remaining 80.25%. The Company will separately enter
into an agreement with the Litigation Trust pursuant to which the Company will
provide the trust with a $2.5 million line of credit to finance the litigation.
However, aside from performing its obligations under this line of credit,
neither the Company nor any of its post-merger subsidiaries will have any future
F-12
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
involvement with the ongoing litigation or any future suits that may arise. Paul
A. deBary, a member of the Company's board of directors, and Joseph E.
Bernstein, a member of the Company's board of directors and a managing director
of Americas Tower Partners, have agreed to serve as co-trustees for the
Litigation Trust. For these services, Messrs. deBary and Bernstein will each
receive $60,000 per year and 1% and 4%, respectively, of any proceeds that the
Litigation Trust receives from the ongoing litigation, or any future litigation
that may be brought by the Litigation Trust. Moreover, any proceeds received by
the Litigation Trust shall first be applied to pay the expenses of the
Litigation Trust, including compensation of the trustees, second, to provide for
a reserve, if necessary, for future expenses of the Litigation Trust, third, to
repay the Company, in addition to any amounts borrowed under the line of credit,
up to $7.5 million to compensate the Company for other previously incurred
expenses in connection with the litigations, with the remaining amount to be
distributed pro rata to the Litigation Trust's beneficiaries. A registration
statement concerning this distribution on Form S-1 was filed with the Securities
and Exchange Commission by the Catskill Litigation Trust and became effective on
March 5, 2004.
NEW YORK STATE LOTTERY VIDEO GAMING MACHINES
On October 31, 2001, the State of New York enacted a bill granting seven
racetracks across the state, including Monticello Raceway, the right for the New
York State Lottery to install video gaming machines on their premises. The video
gaming machines (VGM) operation will be conducted by the New York State Lottery
with the racetracks functioning as agents for the Lottery. Ownership and
maintenance of the VGM system is borne by the State Lottery.
On May 15, 2003, New York State enacted legislation to enhance the
incentives for racetracks in the state to participate in the state's Video
Gaming program. Although legislation had authorized the program earlier, none of
the racetracks authorized to participate in the program had found the terms
sufficiently attractive to justify the investment required to participate in the
program. Under the newly enacted legislative amendments, the initial term of the
program has been extended to 10-years from the date of inception and permits
year round operations. Approximately 29% of total VGM net revenue received is to
be distributed to the tracks and their horsemen/breeders associations. A
percentage of VGM revenues are to be made available to provide gradually
increasing purses for the horsemen and for a breeding fund, thus improving the
quality of racing at the track. During the initial eighteen months of the
program, the NY State Lottery has the ability to approve the opening of
temporary VGM structures while more comprehensive construction takes place.
Pursuant to the original legislation, the New York State Lottery made an
allocation of 1,800 VGMs to Monticello Raceway. If market conditions permit,
additional machines may be added without the need for additional legislation.
Participation in this program will require additional approvals by the New York
State Lottery and the construction of additional facilities at Monticello
Raceway, which is currently underway. Although work on the implementation of
these items is proceeding, no assurance can be given that successful
implementation will be achieved.
ADDITIONAL SUBSIDIARY OWNERSHIP
On July 3, 2003, the Company signed an agreement to merge its interests and
rights in CDL and certain of its affiliates into the Company. The agreement
provides for the Company to acquire through Monticello Raceway Management a 48
year ground lease on the Monticello Raceway site and contiguous properties,
together with all of CDL's development and management rights with respect to the
site and related gaming activities, as well as the raceway operations, in
exchange for 80.25% of our outstanding common stock on a post-transaction, fully
diluted basis. Prior to consummation of the transaction, the claims in certain
litigation by CDL were to be assigned to a trust.
On January 12, 2004, 18,219,075 shares of common stock were issued and all
requirements were finalized (see note 13). As a result, CDL transferred to the
Company all of its operations at the Monticello Raceway and all development and
management rights with respect to Native American gaming, video gaming machines
and real estate development activities, including all rights and obligations of
CDL under any agreement with respect to the development, construction and
operation of the proposed Native American casino. As a result of this
transaction, the Company acquired Monticello Raceway Management, Monticello
Raceway Development, Mohawk Management and all of the equity of Monticello
Casino Management that the Company did not own.
On October 29, 2003, CDL and Monticello Raceway Management entered into a
48 year operating ground lease (the "Ground Lease") with respect to 200 acres of
land in Monticello, New York and all buildings and improvements allocated on
F-13
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such land owned by CDL that are not subject to the Land Purchase Agreement (the
"Leased Property"). Under the terms of the Ground Lease, Monticello Raceway
Management will pay CDL $1.8 million per year. The first year's payment is due
on October 28, 2004 and the subsequent payments are subject to annual
adjustments consistent with the consumer price index, payable in equal monthly
installments. However, Monticello Raceway Management has the right, at its
option, to defer its monthly rental payments for up to 12 months after the first
year, with such deferred rent accruing interest at the rate of 4.5% per annum.
Pursuant to the terms of the merger of the Company and CDL on January 12, 2004,
the former members of CDL retained their interest in the leasehold obligation,
independent of the assets transferred in the combination. Satisfaction of this
obligation by the Company does not represent a discriminatory distribution or a
dividend of any kind between the Company and CDL.
NATIVE AMERICAN CASINO DEVELOPMENT
In 1988, Congress passed the Indian Gaming Regulatory Act, which permits a
Native American tribe to petition the Governor of its host state for a "compact"
permitting casino gaming on such tribe's reservation and/or on lands to be
acquired and held in trust by the United States Government for the benefit of
such tribe. As part of the October 2001 legislation permitting the installation
of video gaming machines at certain racetracks in the State of New York, the New
York State legislature granted the governor the right to negotiate with Native
American tribes and approve up to six resort-style casinos. Specifically, the
legislation permits three tribal resort style casinos in the Catskills and three
in the Buffalo-Niagara Falls area.
Since 1995, CDL had been attempting to develop a 29 acre parcel of land at
the racetrack into a full service resort-style casino in conjunction with a
recognized Native American nation. It is the Company's intent to obtain all the
requisite federal and state approvals for the 29 acre site to be deeded to the
United States Government in trust for the use and benefit of a Native American
tribe and for the tribe to conduct gaming activities on the site. This site was
originally planned to be used for a casino to be owned and operated by the St.
Regis Mohawk Tribe, and CDL incurred considerable expenditures in connection
with the effort. However, after extensive local, state and federal reviews had
been conducted, the St. Regis Mohawk Tribe elected to pursue the development of
another location in the Catskills with CZR. During the last two quarters of
2002, CDL retained CIBC World Markets Corporation to evaluate its strategic
alternatives and began negotiations with a federally recognized Native American
Tribe in New York and various casino management and development entities with
respect to the site and its properties generally
On April 3, 2003, the Cayuga Nation, CDL and certain of CDL's affiliates,
including Alpha Monticello, Inc., a subsidiary of the Company, entered into a
series of agreements which provide for the development of a trust land casino
adjacent to the Raceway. In furtherance of these transactions, on April 10,
2003, the Cayuga Nation, the Company and its affiliate, CDL, officially filed
with the Eastern Regional Office of the Bureau of Indian Affairs, an application
requesting that the Secretary of the Interior acquire in trust on behalf of the
Cayuga Nation a 29 acre parcel of land in Monticello, New York to be used for
gaming purposes.
OPERATING RESULTS CDL
The Company accounts for its investment in CDL using the equity method. A
loss of approximately $6.5 million and $1.9 million was recognized by CDL for
the years ended December 31, 2003 and 2002 respectively. The loss in 2003 was
mostly due to the write-off of assets relating to the development of a business
relationship with the St. Regis Mohawk Tribe. The Company's 25% interest
resulted in a loss of approximately $1.6 million, which is reflected in the
Company's financial statements at December 31, 2003 as a reduction of investment
on the balance sheet and in the other loss on the statement of operations.
Presented below is a summary of the audited consolidated Balance Sheet and
audited Statement of Operations of CDL for the year ended December 31, 2003 and
2002:
F-14
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
BALANCE SHEET 2003 2002
Total assets $ 13,825 $ 13,980
Total liabilities 15,487 9,407
-------- --------
Members' equity (deficit) $ (1,662) $ 4,573
======== ========
STATEMENT OF OPERATIONS 2003 2002
Revenues $ 9,735 $ 11,359
Costs and expenses (12,021) (13,299)
Other Income 5 7
Development costs write-off (4,243) --
-------- --------
Loss for period $ (6,524) $ (1,933)
======== ========
25% Share recorded by Empire $ (1,631) $ --
======== ========
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro-forma balance sheet and statement of
operations presents information as if the merger took place at the beginning of
Empire's fiscal year. The pro-forma amounts include certain adjustments
primarily to present certain expenses which result from the transaction and do
not reflect the economics, if any, which might be achieved from combining the
companies.
The unaudited pro forma financial statements should be read together with
the financial statements and notes of Empire and the consolidated financial
statements of CDL for the year ended December 31, 2003.
The pro forma financial statements that represent the consolidated
financial position of CDL and Empire are based on estimates and historical cost.
These estimates could and most likely will vary, possibly substantially, from
the actual results that will be reported in a future reporting period after the
date of the merger. The possibility of approvals, regulations, ratification of
contracts, certified appraisals and general operational transactions could
impact on a reader's ability to evaluate the transaction, possibly differently
than the information the pro-forma portrays.
PRO FORMA CONSOLIDATED BALANCE SHEET OF MERGED CDL AND EMPIRE UNAUDITED
December 31, 2003
(in thousands)
Total assets ............................................... $10,772
Total liabilities .......................................... 10,625
-------
Stockholders/Members
Equity (deficit) ........................................... $ 147
=======
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS OF MERGED CDL AND EMPIRE
December 31, 2003
(in thousands except per share data)
Revenues ................................... $ 9,735
Costs and expenses ......................... (20,260)
Other income or (loss) ..................... (602)
Development costs write-off ................ (4,243)
--------
Net Loss ................................... (15,370)
Cumulative undeclared dividends
on preferred stock ...................... (1,551)
Loss Applicable to
Common Shares .............................. $(16,921)
========
Loss per Share basic and
diluted, 21,813 shares outstanding ...... (.78)
F-15
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BERKSHIRE BANK OBLIGATION
On October 29, 2003, Monticello Raceway Management, Inc. consummated a
$3.5 million loan agreement with The Berkshire Bank. Pursuant to the terms of
the merger with CDL on January 12, 2004, Monticello Raceway Management is now a
wholly owned subsidiary of the Company. The loan was secured by a leasehold
mortgage, a pledge of raceway revenues and security interests in certain
equipment. The leasehold mortgage loan bore interest at 8.75% and matured in two
years, with monthly principal and interest payments based on a 48 month
amortization schedule. Pursuant to the terms of the merger with CDL obligations
under these commitments were transferred to the Company through the subsidiary
at the closing on January 12, 2004. This obligation was paid in full on February
4, 2004.
NOTE 6. INVESTMENT IN CASINO VENTURES, L.L.C.
On July 8, 1999, we, through our subsidiary, Jubilation Lakeshore, Inc.,
contributed our inactive gaming vessel, Bayou Caddy's Jubilation Casino
("Jubilation"), to Casino Ventures, LLC, in exchange for $150,000 in cash, a
promissory note of approximately $1.4 million plus a non-managing membership
interest in Casino Ventures.
In December 2002, the Company recognized a $3 million impairment loss
reflecting a casualty loss on the Jubilation vessel following a severe storm.
Effective June 30, 2003, the Company and PDS Special Situations, LLC
("PDS"), a Nevada limtied liability company, entered into an agreement for PDS
to purchase the Company's membership interest in Casino Ventures, LLC and all of
the Company's former debt agreements. The Company sold 75% of its issued and
outstanding equity interests in Casino Ventures, LLC in exchange for $10,000,
with the remaining interest owned by the Company, which totaled 18% then being
sold and transferred for an additional $40,000 upon the procurement from the
other 7% interest holders' membership interests. The Company recorded $10,000 of
proceeds from the sale of its interest and will record the additional $40,000
proceeds upon the receipt of the final payment. The net effect of the sale in
the 2003 consolidated financial statements was a loss of approximately $30,000.
NOTE 7. PROPERTY AND EQUIPMENT
At the end of December 31, 2003 the Company did not directly own any
property or equipment.
NOTE 8. LONG-TERM DEBT
On July 31, 2000, the Company received a $1.2 million loan from the holder
of the Company's Series D Preferred Stock, Societe Generale. Simultaneously with
the closing of that loan, the lender also received 12,000 warrants exercisable
at a price of $24.00 per share, which expired in July 2003. Relative to the $1.2
million principal amount of the loan and warrants issued, the Company allocated
approximately $213,000 as the estimated value of the warrants issued with the
loan. This amount was amortized as additional interest expense and an increase
to notes payable over the life of the loan using the effective interest method
until the loan was repaid in December 2002. The balance of $944,000 plus accrued
interest was exchanged for a $1.6 million note due with installments plus 16%
interest of $400,000 due in both February and March and the balance of $800,000
in June 2003.
In June, 2003, the Company settled all of its notes payable to Societe
Generale.
F-16
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 10, 2002, the Company entered into a recapitalization
agreement with Stanley Tollman, Beatrice Tollman (Stanley Tollman's wife), Monty
Hundley, Bryanston Group and Alpha Monticello, a wholly owned subsidiary of the
Company. Under this agreement, both Bryanston Group and Beatrice Tollman granted
the Company a three year option to redeem from them up to 2,326,857 and 66,000
shares of the Company's common stock, respectively, at a redemption price of
$2.12 per share, payable in cash or by promissory note. Bryanston Group and
Beatrice Tollman also granted Robert A. Berman, the Company's Chief Executive
Officer, an irrevocable three year proxy to vote these shares of common stock at
his discretion.
On January 9, 2004 prior to the closing of the merger with CDL, in
accordance with the terms of the restated contribution agreement, the Company
redeemed all of the shares of the Company's common stock that were subject to
the recapitalization agreement and that were held by Bryanston Group and
Beatrice Tollman. In order to consummate this redemption, the Company will need
to pay these parties by issuance of a promissory note in the sum of
approximately $5.1 million. The promissory note is payable over three years
pursuant to the following schedule:
Date Amount
---- ------
(1 Year Anniversary of Note) (13.33% of the Note Amount)
(18 Month Anniversary of Note) (17.78% of the Note Amount)
(2 Year Anniversary of Note) (22.22% of the Note Amount)
(30 Month Anniversary of Note) (26.67% of the Note Amount)
(3 Year Anniversary of Note) (20.00% of the Note Amount)
In addition, under the terms of the note, interest will accrue on the
outstanding principal amount at the rate of 7% per annum, and upon each
principal amount payment, the Company would also be required to pay all unpaid
accrued interest with respect to such principal amount payment.
Interest expenses on related party debt totaled approximately $459,000 for
the year ended December 31, 2002.
NOTE 9. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
At December 31, 2003 the Company's primary asset was our ownership
interest in various operations of CDL, which owns the raceway and property in
Monticello, New York. The Company's principal place of business is at Monticello
Raceway, a 229 acre property located on Route 17B in Monticello, New York.
Facilities at the site include the racetrack, which includes an enclosed
grandstand with a capacity of 4,500, a clubhouse restaurant facility with a
capacity for 200 customers, pari-mutuel wagering facilities (including
simulcasting), a paddock, exterior barns, and related facilities for the horses,
drivers, and trainers. In addition, a parking area with approximately 5,000
spaces is provided for customers.
On October 29, 2003, CDL and Monticello Raceway Management entered into a
48 year operating ground lease (the "Ground Lease") with respect to 200 acres of
land in Monticello, New York and all buildings and improvements allocated on
such land owned by CDL that are not subject to the Land Purchase Agreement (the
"Leased Property"). Under the terms of the Ground Lease, Monticello Raceway
Management will pay CDL $1.8 million per year. The first year's payment is due
on October 28, 2004 and the subsequent payments are subject to annual
adjustments consistent with the consumer price index, payable in equal monthly
installments. However, Monticello Raceway Management has the right, at its
option, to defer its monthly rental payments for up to 12 months after the first
year, with such deferred rent accruing interest at the rate of 4.5% per annum.
Pursuant to the terms of the merger of the Company and CDL on January 12, 2004,
the former members of CDL retained their interest in the leasehold obligation,
independent of the assets transferred in the combination. Satisfaction of this
obligation by the Company does not represent a discriminatory distribution or a
dividend of any kind between the Company and CDL.
During the first three years of the Ground Lease, Monticello Raceway
Management may, at its option, purchase the leased property for a purchase price
F-17
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equal to the sum of (x) the rent payable for the year in which Monticello
Raceway Management exercises this purchase option divided by 5% (which would
equal $36 million in the first year of the Ground Lease) and (y) an amount equal
to all transfer taxes and closing costs incurred by CDL as seller. Monticello
Raceway Management may not assign its rights under the Ground Lease, sublet any
part of the Leased Property, nor enter into a transaction or series of
transactions that would result in a change of control of Monticello Raceway
Management without the consent of CDL. However, in the event that CDL withholds
its consent to such assignment of the Ground Lease or the subletting of all or
part of the Leased Property, Monticello Raceway Management may exercise its
option to purchase the Leased Property even after the first three years of the
Ground Lease have expired.
Under the terms of the Ground Lease, absent CDL's prior written consent,
Monticello Raceway Management is required to use the Leased Property solely for
racing, gaming, entertainment, retail, lodging, food service, any other use
related to so-called "tourism" and other ancillary and related activities.
Paul deBary, a director of the Company, provided consulting and
restructuring advice to the Company during 2002. The Company issued to him
25,000 shares at a market price of $2.12 per share in January 2003.
All current transactions between the Company and its officers, directors
and principal stockholders or any affiliates thereof are, and in the future such
transactions will be, on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
LITIGATION
In March 2002 the Company settled an action brought by Global Trading
Group, Inc. in the U. S. District Court for the Northern District of
Mississippi. The plaintiff alleged entitlement to a finder's fee arising out of
the sale of the Jubilee Casino and was seeking contractual and compensatory
damages. The Company reached, and recorded on its books, a settlement on this
case for approximately $118,000 of which $53,000 was settled through the
issuance of 5,000 shares of common stock.
On November 6, 2002, we, and several of our affiliates were named as
defendants in an action brought by D.F.S., LLC and Fedele Scutti in United
States District Court for the Western District Court of New York. This suit was
discontinued on merits by the plaintiff on August 8, 2003 and the Company has
received the Court's final order.
The Company is a party to various other legal actions that have arisen in
the normal course of business. In the opinion of the Company's management, the
resolution of these other matters will not have a material and adverse effect on
the consolidated financial position, results of operations or cash flows of the
Company.
LITIGATION ACQUIRED IN 2004 MERGER
The Monticello Horsemen's Association has filed a number of suits against
Monticello Raceway Management Inc. and Cliff Ehrlich, as its President. One
action, seeking money damages of approximately $500,000, claims that certain
monies (approximately $80,000), which should have been used solely for
"overnight purses," were expended by the raceway for a special racing series
known as the William Sullivan Series, that management has not increased purses
to the horsemen for overnight racing as requested by the horsemen and that
management is improperly holding up approximately $400,000 in an account balance
that is earmarked for payment of purses at such time as management deems it
appropriate. A second action seeks approximately $2 million in damages claiming
that management has withheld various simulcasting and OTB revenues from the
horsemen's purse account and deducted various unauthorized simulcasting
expenses. Management has responded vigorously to this litigation and at the same
time will seek, if possible, to resolve these cases in the context of contract
negotiations with the Horsemen's Association that began in March of 2004.
Should the litigation proceed, however, counsel has advised the Company
that, (i) with regard to the $80,000 expended for the William Sullivan Pacing
Series, management was within its contract rights to apply that money towards
the racing series since the racing series met the definition of "overnight
purses," (ii) the $400,000 sought in accelerated purses will not have to be paid
in the manner that the Horsemen seek, but that eventually, those monies will be
F-18
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
required to be paid out in additional purses, and (iii) that there will be a
favorable outcome on the causes of action seeking damages for failure to
properly account for the OTB revenues as well as the issue of the deduction of
expenses for simulcasting. There are sharp disputed issues of fact with regard
to the cause of action seeking a greater share of the simulcasting revenue and,
at this time, no estimate can be given of the outcome of this cause of action or
the amount of potential loss.
Another action by the Horsemen's Association sought an injunction
preventing the management from consolidating the barn area by removing
approximately 50% of the barns and moving horsemen to different barns and also
sought money damages for such conduct. A temporary restraining order at the
inception of the case was vacated after a hearing and the decision of management
to consolidate the barn area and deny stall space to certain horsemen was upheld
by the Court on the injunction motion. Management responded vigorously to this
litigation as it challenged the management's rights clause in the contract.
There is further discovery pending. However, in the opinion of counsel to the
Company, there will be no monetary loss as a result of this litigation.
Our ability to participate in New York's VGM program or to help develop
and manage a Native American casino in conjunction with the Cayuga Nation of New
York could be hampered by the outcome of two pending lawsuits, DALTON V. PATAKI
and KARR V. PATAKI, that seek to enjoin the State of New York from proceeding
with the VGM program or permitting the construction of any new Native American
casinos within the State of New York's borders. While the trial court dismissed
both of these cases in May of 2003, the plaintiffs have filed an appeal. Briefs
have been submitted in the appeal and oral arguments were heard in December of
2003, but a decision on the appeal has not been rendered. Should an appellate
court overrule the trial court and reinstate these lawsuits, and should the
plaintiffs ultimately prevail on all or part of their claims, our business
strategy could be seriously adversely affected. Moreover, a reinstatement of
these lawsuits, even prior to a definitive ruling on the merits of the cases,
could hamper fundraising efforts for the Cayuga Monticello Resort and otherwise
adversely affect the implementation of our business plan, as investors might be
reluctant to invest given the uncertainty that such a holding would create.
NOTE 10. STOCKHOLDERS' EQUITY
COMMON STOCK
On June 13, 2001, the Company authorized the satisfaction of liabilities
to Bryanston Group aggregating $1,904,000 by agreeing to issue approximately
238,000 shares of its common stock at a price of $8 per share, which was the
closing market price on that date. Such shares were issued in January 2002.
In the first quarter of 2002, the Company issued approximately 415,000
shares of the Company's common stock in connection with dividends on the Series
B and C Preferred Stock.
In January 2002, the Company issued approximately 622,000 and 324,000
shares of common stock (a total of approximately 946,000 shares) for
approximately 777,000 shares of Series B Preferred Stock and all of the Series C
Preferred Stock, respectively.
In February of 2002, the Company issued approximately 576,000 shares of
the Company's common stock in connection with the Company increasing its
investment in the future revenue stream of CDL by acquiring 47.5% of Watertone
Holdings, LP's economic interest in certain CDL business components.
In the year ending December 31, 2002, the Company issued approximately
56,000 shares of the Company's common stock in connection with the conversion of
the Societe Generale convertible debt. In December 2002, the Company exchanged
the remainder of the convertible debt and other equities held by Societe
Generale in exchange for a $1.6 million note due June 2003.
F-19
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 10, 2002, the Company entered into an agreement with the
holder of the Company's Series D Preferred Stock and a Note due July 2003, which
had an aggregate outstanding balance of approximately $2.4 million. The
agreement provided for the cancellation of such Preferred Stock and Note
instruments and the issuance of a new Note under a restructuring agreement. The
new Note was settled in 2003.
On December 12, 2002, the Company announced an agreement with Bryanston
Group and certain other affiliates regarding certain obligations due from and
claims against the Company's. The Company's remaining indebtedness to Bryanston
Group was $1.5 million. The Company also owed Stanley Tollman approximately $1.5
million and Monty Hundley approximately $267,000 in deferred compensation. The
parties agreed to release the Company from all claims in exchange for
distribution to them of equity in the Company in the form of shares in a special
class of the Company's Series E Preferred Stock having a total aggregate
liquidation amount of approximately $3.3 million. This Series E Preferred Stock
is non-convertible, has no fixed date of redemption or liquidation, and provides
for cumulative dividends at 8% per annum. Dividends to holders of the Company's
common stock and other uses of the Company's net cash flow are subject to
priorities for the benefit of the Series E Preferred Stock. The Series E
Preferred Stock is subject to redemption at the option of the Company at any
time at a price equal to its liquidation value plus accrued dividends to the
date of redemption.
In addition to ensuring compliance with all NASDAQ regulations, the
Company carried out the Recapitalization in order to maintain its NASDAQ
listing. On November 19, 2002, the Company received a letter from NASDAQ stating
that it had fallen below the minimum stockholders' equity requirement of $2.5
million as of the Company's fiscal quarter ended September 30, 2002. As a result
of the Recapitalization discussed above, the Company issued 1,700,000 shares of
Series E Preferred Stock with a redemption value of $10, which increased the
Company's stockholders' equity to in excess of $6 million. On January 10, 2003,
the Company received an extension from NASDAQ until January 17, 2003 to file
with the SEC a public document demonstrating compliance. On January 16, 2003,
the Company filed a Current Report on Form 8-K demonstrating compliance with the
minimum stockholders' equity requirement. On January 17, 2003, the Company
received a letter from NASDAQ stating that based on the 8-K filing, it had
determined the Company complies with the minimum stockholders' equity
requirement and the matter was closed.
PRIVATE PLACEMENTS
From April 15, 2003 through September 2003, the Company sold 579,149
shares of common stock , that had an aggregate purchase price of approximately
$4.6 million. There is a possiblity that such purchasers could be entitled to
have the aggregate purchase price of such shares refunded by the Company, plus
interest.
PREFERRED STOCK AND DIVIDENDS
The Company's Series B Preferred Stock, 44,258 shares outstanding, has
voting rights of .8 votes per preferred share, is convertible to .8 shares of
common stock for each share of preferred stock and carries a liquidation value
of $29 per share, a cumulative dividend of $2.90 per share, payable quarterly,
which increases to $3.77 per share if the cash dividend is not paid within 30
days of the end of each quarter. In the event the dividend is not paid by
January 30 following the year for which such dividend has accrued, the dividend
will be payable in common stock. In January 2003, the Company declared and
issued dividends on the Series B Preferred Stock for the 2002 year amounting to
40,498 shares of the Company's common stock. After the January 2003 common stock
issuance, there were no dividends in arrears.
The Company has undeclared dividends on Series B Preferred Stock of
approximately $166,000 at December 31, 2003 which will be recorded when
declared.
The Series D Preferred Stock was retired after the recapitalization of
December 2002.
In December of 2002, the Company issued 1,730,696 shares of Series E
Preferred Stock to Bryanston Group with an option in favor of the Company to
reacquire, at any time, or from time to time, and without prior notice, up to
that number of shares of Preferred Stock adjusted for any subsequent dividend
for the purchase price of $10.00 per share. The Preferred Purchase Option shall
be
F-20
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exercised by delivery to the Stockholder of a written notice signed by an
officer or director of the Company. The Company shall pay for the Preferred
Option Shares it has elected to repurchase by cash or, in its sole discretion,
delivery to the Stockholder of a Note.
This special class of preferred stock is non-voting and non-convertible,
has no fixed date of redemption or liquidation, and provides for cumulative
dividends at 8% per annum based upon the liquidation value. Dividends to holders
of the Company's common stock and other uses of the Company's net cash flow are
subject to priorities for the benefit of this preferred stock.
The Company has undeclared dividends on Series E Preferred Stock of
approximately $1.4 million at December 31, 2003 which will be recorded when
declared.
NOTE 11. STOCK OPTIONS AND WARRANTS
2002, 1998 AND 1993 STOCK OPTION PLANS
In May 1998 and June 1993, the Company's Board of Directors adopted the
1998 and 1993 Stock Option Plans providing for incentive stock options ("ISO")
and non-qualified stock options ("NQSO"). The Company has reserved 400,000 and
90,000 shares of common stock for issuance upon the exercise of options to be
granted under the 1998 and 1993 Stock Option Plans, respectively. The exercise
price of an ISO or NQSO will not be less than 100% of the fair market value of
the Company's common stock at the date of the grant. The maximum term of each
option granted under each plan is ten years; however, options granted to an
employee owning greater than 10% of the Company's common stock will have a
maximum term of five years. On June 3, 2003 the 1993 Stock Option Plan expired.
In 2001 and 2000, the Company re-priced certain stock options, which,
under Financial Accounting Standards Board Interpretation Number 44 ("FIN44"),
requires them to be accounted for under variable plan accounting. The
application of FIN 44, which was effective July 1, 2000, resulted in non-cash
compensation expense of approximately $44,000 during the year ended December 31,
2002.
In April 2002, Robert Berman received a proxy from the Company's largest
shareholder granting him the right to use the votes of that shareholder to
appoint four of the seven members of the Company's board of directors. Messrs.
Berman and Kaniewski at that time were issued approximately 591,000 options
under the 2002 Stock Option Plan to purchase common shares at $17.49 per share.
On January 9, 2003, the Company cancelled all of its options outstanding
except for 5,500. On that day the Company awarded options to purchase
approximately 854,000 shares of its common stock at $2.12 per share. Included in
the award were approximately 829,000 options, which were exercisable immediately
and approximately 25,000 options to employees of affiliated companies, which
vested on July 9, 2003.
On August 5, 2003, an additional 90,000 options were granted to new board
members to purchase common stock at $7.00 per share. These options were
immediately vested and expire in ten years. Total stock compensation expense, of
approximately $3 million was included in the results of operations for the year
ended December 31, 2003.
During the year ended December 31, 2002 options to purchase approximately
154,000 of the Company's common stock at exercise prices of $4.40 were cancelled
due to the removal of responsibilities, resignation and termination of former
affiliates. The option expiration rules are defined in the 1993 and 1998 stock
option agreements.
The following table sets forth each grant on the day of the grant using
the Black Scholes option pricing model weighted average assumptions used for
such grants:
2003 2002
---- ----
Weighted Average Fair Value of Options Granted $ 2.59 $17.49
Dividend Yeild 0% 0%
Expected Volitility 271.8 123.82
Risk-free Interest Rate 3.05% 4.75%
Expected Life 5-10 years 5-10 years
F-21
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes approximate stock option activity,
excluding the simultaneous cancellations and re-issuances in 2003 and 2002, as
noted above:
Weighted
Average
Range of Exercise
Number of Exercise Price Per
Shares Price Share
------------------------------------------------------------------------------------------------
Options outstanding at January 1, 2002 238,000 $4.40 $4.40
Granted in 2002 591,000 $17.49 $17.49
Exercised in 2002 (8,000) $4.40 $4.40
Cancelled in 2002 (154,000) $4.40 $4.40
---------
Options outstanding at
December 31, 2002 667,000 $4.40-17.49 $16.01
Granted in 2003 943,000 $2.12-7.00 $2.59
Exercised or expired in 2003 (127,000) $2.12 $2.12
Cancelled in 2003 (662,000) $4.40-17.49 $16.09
---------
Options outstanding at
December 31, 2003 821,000
=========
The following table summarizes information regarding stock options
outstanding at December 31, 2003:
Options Outstanding Options Exercisable
------------------------------ ------------------------------
Weighted
Number Average Number Weighted
Range of Outstanding Remaining Exercisable Average
Exercise at Contractual at Exercise
Prices Dec 31, 2003 Life in Years Dec 31, 2003 Price
2.12 725,500 9.0 725,500 2.12
4.40 5,500 6.5 5,500 4.40
7.00 90,000 9.5 90,000 7.00
------- -------
821,000 821,000
======= =======
NOTE 12. INCOME TAXES
The Company and all of its subsidiaries file a consolidated federal income
tax return. At December 31, 2003, the estimated Company's deferred income tax
asset was comprised of the tax benefit associated with the following items based
on the statutory tax rates currently in effect:
2003
(in thousands)
Net operating loss
Carry forwards .............................. $ 67,000
--------
Deferred income tax asset ...................... 26,800
Valuation allowance ......................... (26,800)
--------
Deferred income tax asset, net ................. $ --
========
F-22
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our merger with CDL will limit our ability to use our current net
operating loss carry forwards, potentially increasing our future tax liability.
As of December 31, 2003, the Company had net operating loss carry forwards of
approximately $67 million that expire between 2008 and 2023. The Internal
Revenue Code allows the offset of these net operating loss carry forwards
against income earned in future years, thus reducing the tax liability in future
years. The merger of our operations with CDL, however, will not permit us to use
the entire amount of the net operating losses due to the change in control of
the Company. A limited amount of the net loss carry-forward may be applied in
future years based upon the change of control and existing income tax laws.
NOTE 13. SUBSEQUENT EVENTS
ACQUISITION OF CDL ENTITIES AND DEVELOPMENT RIGHTS
On January 12, 2004, the Company concluded its acquisition of 100% of the
ownership interest in CDL operating and development entities in exchange for
80.25% of the Company's outstanding common stock, or 18,219,075 shares
calculated on a post-merger, fully diluted basis (the merger). Although Empire
is the legal survivor in the merger and remains the registrant with the
Securities and Exchange Commission, under accounting principles generally
accepted in The United States of America, the merger was accounted for as a
reverse acquisition, whereby CDL is considered the acquirer of Empire for
financial reporting. This requires Empire to present in all financial statements
and other public fillings after completion of the merger, prior historical
financials and other information of CDL and requires a retroactive restatement
of CDL historical shareholders investment for the equivalent number of shares of
common stock received in the merger.
ASSIGNMENT OF LITIGATION CLAIMS
On January 12, 2004, in order to better focus on the development of a VGM
program at Monticello Raceway and current business arrangements with the Cayuga
Nation of New York, while at the same time not abandoning the interests of their
stakeholders in the claims against CZR, Gary Melius, Ivan Kaufman and Walter
Horn, the parties made it a condition to the merger closing that CDL, Monticello
Raceway Development and Mohawk Management assign all of their claims emanating
from the above described actions against CZR, Gary Melius, Ivan Kaufman and
Walter Horn, along with their rights to any proceeds from any judgment or
settlement that may arise from any litigation relating to such subject matter,
to a grantor trust in which the Company's common stockholders of record
immediately before the merger's closing (but following the redemption of the
common stock held by Bryanston Group and Beatrice Tollman) will have a 19.75%
indirect interest, with the members of CDL and Monticello Raceway Development
immediately before the merger's closing owning the remaining 80.25%. The Company
will separately enter into an agreement with the Litigation Trust pursuant to
which the Company will provide the trust with a $2.5 million line of credit to
finance the litigation. However, aside from performing its obligations under
this line of credit, neither the Company nor any of its post-merger subsidiaries
will have any future involvement with the ongoing litigation or any future suits
that may arise. Paul A. deBary, a member of the Company's board of directors,
and Joseph E. Bernstein, a member of the Company's board of directors and a
managing director of Americas Tower Partners, have agreed to serve as
co-trustees for the Litigation Trust. For these services, Messrs. deBary and
Bernstein will each receive $60,000 per year and 1% and 4%, respectively, of any
proceeds that the Litigation Trust receives from the ongoing litigation, or any
future litigation that may be brought by the Litigation Trust. Moreover, any
proceeds received by the Litigation Trust shall first be applied to pay the
expenses of the Litigation Trust, including compensation of the trustees,
second, to provide for a reserve, if necessary, for future expenses of the
Litigation Trust, third to repay the Company, in addition to any amounts
borrowed under the line of credit, up to $7.5 million to compensate the Company
F-23
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for other previously incurred expenses in connection with the CZR, Gary Melius,
Ivan Kaufman and Walter Horn litigations, and then for the remaining amount to
be distributed pro rata to the Litigation Trust's beneficiaries. A registration
statement concerning this distribution on Form S-1 was filed with the Securities
and Exchange Commission by the Catskill Litigation Trust and became effective on
March 5, 2004.
BERKSHIRE BANK OBLIGATION
On October 29, 2003, Monticello Raceway Management, Inc. consummated a
$3.5 million loan agreement with The Berkshire Bank. This obligation was paid in
full on February 4, 2004.
PRIVATE PLACEMENT
On January 30, 2004 the Company closed a private sale of approximately 4
million shares of common stock, to multiple investors, at a price of $7.50 per
share. This sale, net of expenses, increased by approximately $30 million our
funds for development and operations.
In connection with the above private placement, Jefferies & Company, Inc.
was issued warrants to purchase 250,000 shares of our common stock at $7.50 per
share for general financial advisory services rendered relating to the
consummation of the private placement.
STOCK REDEMPTION
One of the conditions to the closing of our recent merger was to redeem
from Bryanston Group and Beatrice Tollman an aggregate of 2.3 million shares of
common stock at $2.12 per share. The total cost of this redemption was
approximately $5 million which the Company paid by issuing a note. The terms of
this note require approximately 13% of the principal to be paid on the first
anniversary of issuance and for the whole note to be repaid within three years.
No assurance can be given that the Company will have enough revenue or cash on
hand to repay this indebtedness when it becomes due.
VGM IMPROVEMENTS
Construction began in February 2004 on the leasehold improvements at
Monticello Raceway necessary to begin operating 1,800 VGM's authorized by the
State of New York. The proceeds from the private sale of stock will be used to
fund these improvements. The total remaining costs to design, develop,
construct, equip and open the VGM operation is expected to be approximately
$23.4 Million.
DIRECTOR CONVICTIONS FEBRUARY 4, 2004
On February 4, 2004, four former officers or directors of the Company were
convicted of tax and bank fraud. These four individuals were Monty Hundley,
Howard Zuckerman, Sanford Freedman and James Cutler. None of the acts that led
to the conviction of these individuals for tax and bank fraud were related to
their roles or activities with the Company and the Company has not been, nor
will be, charged with any wrongdoing.
F-24
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. UNAUDITED QUARTERLY DATA (IN THOUSANDS)
First Second Third Fourth
Quarter Quarter Quarter Quarter
2003
Total revenue ............ $ -- $ -- $ -- $ --
Net loss ................. (1,493) (1,638) (2,251) (2,646)
Net loss applicable
to common shares ..... (1,880) (2,030) (2,642) (3,027)
Net loss per common
Share, basic and diluted $ (.38) $ (.38) $ (.46) $ (.51)
2002
Total revenue ............ $ 0 $ 0 $ 0 $ 0
Net income (loss) ........ 2,495 (856) (7,543) (3,596)
Net income (loss) applicable
to common shares ..... 2,105 (924) (7,611) (3,244)
Net income (loss) per common
Share, basic ......... 0.54 (0.19) (1.56) (0.73)
diluted ....... $ 0.45 $ (0.19) $ (1.56) $ (0.73)
F-25
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 AND 2002
AND
INDEPENDENT AUDITORS' REPORT
F-26
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 AND 2002
TABLE OF CONTENTS
Independent Auditors' Report F-28
Consolidated Financial Statements
Balance Sheet F-29
Statement of Operations F-30
Statement of Changes in Members' Equity (Deficiency) F-31
Statement of Cash Flows F-32
Notes to Consolidated Financial Statements F-34
F-27
FRIEDMAN
ALPREN & 1700 BROADWAY
GREEN LLP NEW YORK, NY 10019
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 212-842-7000
FAX 212-842-7001
www.nyccpas.com
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of CATSKILL
DEVELOPMENT, LLC AND SUBSIDIARIES as of December 31, 2003, and the related
consolidated statements of operations, changes in members' equity (deficiency)
and cash flows for the year 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 audit. The financial
statements of CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES as of December 31, 2002
were audited by other auditors, whose report dated June 25, 2003 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2003 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES as of December 31, 2003, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Friedman Alpren & Green LLP
February 16, 2004
F-28
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
---- ----
Current assets
Cash and cash equivalents $ 1,354,150 $ 643,864
Restricted cash 122,346 42,376
Accounts receivable 758,281 1,033,565
Prepaid expenses and other current assets 237,152 335,227
------------ ------------
Total current assets 2,471,929 2,055,032
Property and equipment - at cost, less accumulated
depreciation 6,558,447 5,856,246
Deferred loan costs - at cost, less accumulated
amortization of $22,179 in 2003 243,964 --
Advances - Cayuga Nation 385,000 --
Gaming license and development costs 4,166,026 6,068,469
------------ ------------
$ 13,825,366 $ 13,979,747
============ ============
LIABILITIES AND MEMBERS' EQUITY (DEFICIENCY)
Current liabilities
Note payable, bank $ 3,469,652 $ --
Accounts payable 3,859,269 2,470,060
Accrued expenses and other current liabilities 654,528 115,849
------------ ------------
Total current liabilities 7,983,449 2,585,909
Notes payable, members 7,503,513 6,821,375
Commitments -- --
Members' equity (deficiency) (1,661,596) 4,572,463
------------ ------------
$ 13,825,366 $ 13,979,747
============ ============
F-29
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
Racetrack revenues
Gross wagering and simulcasting $ 9,565,972 $ 11,147,184
Nonwagering 169,100 211,975
------------ ------------
9,735,072 11,359,159
------------ ------------
Racetrack costs and expenses
Purses, awards and other 3,299,815 3,932,168
Operating costs 2,277,846 2,297,216
General and administrative 3,484,537 2,974,895
Interest expense 53,373 --
Depreciation and amortization 725,351 755,601
------------ ------------
9,840,922 9,959,880
------------ ------------
Income (loss) from racing operations (105,850) 1,399,279
------------ ------------
Gaming license and development expenses
General and administrative 200,565 74,412
Legal 1,296,836 2,644,369
Interest 682,691 620,704
------------ ------------
Total gaming license and development expenses 2,180,092 3,339,485
------------ ------------
Development costs 4,243,475 --
------------ ------------
Interest income 5,496 7,282
------------ ------------
Net loss $ (6,523,921) $ (1,932,924)
============ ============
F-30
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 2003 AND 2002
Total
Preferred Other Members'
Capital Capital Accumulated Equity
Contributions Contributions Deficit (Deficiency)
------------- ------------- ------------ ------------
Balance, December 31, 2001 $ 16,728,693 $ 400 $(10,223,706) $ 6,505,387
Capital adjustment (3,900) -- 3,900 --
Net loss -- -- (1,932,924) (1,932,924)
------------ ------------ ------------ ------------
Balance, December 31, 2002 16,724,793 400 (12,152,730) 4,572,463
Capital contributions 735,297 -- -- 735,297
Capital acquisition costs (445,435) -- -- (445,435)
Net loss -- -- (6,523,921) (6,523,921)
------------ ------------ ------------ ------------
Balance, December 31, 2003 $ 17,014,655 $ 400 $(18,676,651) $ (1,661,596)
============ ============ ============ ============
F-31
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
Cash flows from operating activities
Net loss $(6,523,921) $(1,932,924)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 725,351 755,601
Development costs 4,243,475 --
Loss on disposal of property and equipment -- 2,819
Accrued interest on notes payable, members 682,138 620,125
Interest paid with proceeds from note payable, bank 2,552 --
Changes in assets and liabilities
Restricted cash (79,970) 35,694
Accounts receivable 275,284 (382,384)
Prepaid expenses and other current assets 98,075 (180,102)
Accounts payable 1,574,567 1,033,089
Accrued expenses and other current liabilities (179,787) (167,407)
----------- -----------
Net cash provided by (used in) operating activities 817,764 (215,489)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (1,382,068) (171,246)
Advances - Cayuga Nation (385,000) --
Gaming license and development costs (2,001,306) (327,870)
----------- -----------
Net cash used in investing activities (3,768,374) (499,116)
----------- -----------
Cash flows from financing activities
Proceeds from note payable, bank 3,379,264 --
Repayment of note payable, bank (30,348) --
Loan costs (52,520) --
Capital acquisition costs (90,000) --
Members' capital contributions 454,500 --
----------- -----------
Net cash provided by financing activities 3,660,896 --
----------- -----------
Net increase (decrease) in cash 710,286 (714,605)
Cash and cash equivalents, beginning of year 643,864 1,358,469
----------- -----------
Cash and cash equivalents, end of year $ 1,354,150 $ 643,864
=========== ===========
F-32
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003
2003 2002
---- ----
Supplemental cash flow disclosures
Interest paid $ 28,626 $ 579
Noncash investing and financing activities
Deferred loan costs paid with loan proceeds 118,184 --
Accrued deferred loan costs 95,439 --
Noncash additions to leasehold improvements 23,305 --
Noncash additions to gaming license and
development costs 339,726 --
Accrued capital acquisition costs 355,435 --
Settlement of accounts payable by minority owner 280,797 --
F-33
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
General
In October 1995, Catskill Development, LLC (the "Company"), a New
York limited liability company, was formed to pursue the development of a
proposed Native American casino in Monticello, New York (the "Casino
Project"). The Company's business plan envisioned three distinct lines of
business: (a) casino activities; (b) real estate related activities; and
(c) the gaming operations related to Monticello Raceway (the "Raceway"),
including pari-mutuel and future Video Lottery Terminal ("VLT")
operations. Monticello Raceway Management Inc. ("MRMI"), a New York
corporation, was a wholly owned subsidiary and was formed to hold the
pari-mutuel license. Mohawk Management, LLC, a New York limited liability
company, was 60% owned by the Company and was formed to manage the St.
Regis Mohawk Casino. Monticello Casino Management, LLC, a New York limited
liability company, was 60% owned by the Company and was formed to manage
any other Native American casino at the Raceway. Both Mohawk Management,
LLC and Monticello Casino Management, LLC were inactive at December 31,
2003 and 2002.
The Company conducted pari-mutuel wagering on live race meetings for
standardbred horses and participated in intrastate and interstate
simulcast wagering at the Raceway in Monticello, New York. The Company's
operations were subject to regulation by the New York State Racing and
Wagering Board.
Empire Merger
On July 3, 2003, the Company entered into a Definitive Agreement
with Empire Resorts, Inc. ("Empire"), its partner in developing gaming
activities at the Raceway and other related entities. The agreement
provided for the Company's members to exchange all of the Company's assets
and obligations, except for the ownership of the 230-acre Raceway property
and the senior obligation which was settled as part of the merger, as well
as its development and management rights with respect to the site and
related gaming activities, for an 80.25% position in Empire's common
stock.
The assets transferred include all rights and obligations associated
with the litigation discussed in Note 7. The Company will also transfer
all of its interest in MRMI, Mohawk Management, LLC, and Monticello Casino
Management, LLC to Empire. Empire will account for this exchange as a
reverse merger.
(Continued)
F-34
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company will retain the land and buildings of the Raceway and
contiguous properties. On October 29, 2003, the Company and MRMI entered
into a 48-year ground lease ("Ground Lease") with respect to 200 acres of
the Raceway property and improvements located on such land that are not
subject to the Land Purchase Agreement. Pursuant to the terms of the
consolidation with Empire, MRMI will become a wholly owned subsidiary of
Empire. The covenants of the agreement of the land lease to MRMI will
still be fulfilled. Under the terms of the Ground Lease, MRMI will pay the
Company $1,800,000 per year, due on October 28, 2004 for the first year.
The subsequent payments are payable in equal monthly installments, subject
to annual adjustments consistent with the Consumer Price Index. During the
second year of the lease, MRMI has the right, at its option, to defer its
monthly rental payments for up to 12 months, with such deferred rent
accruing interest at the rate of 4.5% a year.
During the first three years of the Ground Lease, MRMI may, at its
option, purchase the Leased Property for a purchase price equal to the sum
of the rent payable for the year in which MRMI exercises this purchase
option, divided by 5% (which would equal $36,000,000 in the first year of
the Ground Lease), and an amount equal to all transfer taxes and closing
costs incurred by the Company as seller. MRMI may not assign its rights
under the Ground Lease, sublet any part of the Leased Property, nor enter
into a transaction or series of transactions that would result in a change
of control of MRMI without the consent of the Company. However, in the
event that the Company withholds its consent to such assignment of the
Ground Lease or the subletting of all or part of the Leased Property, MRMI
may exercise its option to purchase the Leased Property even after the
first three years of the Ground Lease have expired.
Under the terms of the Ground Lease, absent the Company's prior
written consent, MRMI is required to use the Leased Property solely for
racing, gaming, entertainment, retail, lodging, food service, any other
use related to so-called "tourism", and other ancillary and related
activities.
On January 12, 2004, the acquisition was completed and all aspects
of the agreement satisfied. Future reporting of the new operations of the
Company will be accounted for as if the consolidation occurred on January
1, 2004, because there was no significant operations during that period..
(Continued)
F-35
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Video Gaming Machines
In October 2001, the New York State Legislature passed a bill that
expanded the nature and scope of gaming in the state ("VGM Legislation").
The bill was signed by the Governor on October 31, 2001.
The Company received a letter from the Lottery, dated March 21,
2002, advising the Raceway that the Lottery has completed its initial
review of the Raceway's business plan for the operation of VGM's at the
Raceway during the initial three-year trial period approved by the State
Legislature. Based on such review, the Lottery has made an initial
allocation of 1,800 VGM's to the Raceway.
Construction began in February 2004 on Monticello Raceway
Management's leasehold improvements at Monticello Raceway necessary to
begin operating 1,800 VGM's authorized by the State of New York.
Casino Development
On April 3, 2003, the Cayuga Nation, a New York State-based
Federally-recognized Indian Nation (the "Cayuga Nation"), the Company and
certain of the Company affiliates, including a subsidiary of the Company,
entered into a series of agreements which provide for the development of a
trust land casino adjacent to the Raceway. At December 31, 2003, the
Company is awaiting approval from the Bureau of Indian Affairs and the
State of New York to proceed with the Casino project.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the subsidiaries in which the Company has more than a 50%
interest and include Monticello Raceway Management Inc., Mohawk
Management, LLC and Monticello Casino Management, LLC. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Significant
assumptions are employed in determining the recoverability of gaming
license and development costs.
(Continued)
F-36
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
The Company maintains significant cash balances with financial
institutions in excess of the insurance provided by the Federal Deposit
Insurance Corporation ("FDIC").
Cash and Cash Equivalents
Cash and cash equivalents include cash on account, demand deposits
and certificates of deposit with original maturities of three months or
less at acquisition.
Restricted Cash
Under New York States Racing, Pari-Mutuel Wagering and Breeding Law,
the track is obliged to withhold a certain percentage of certain types of
wagers towards the establishment of a pool of money, the use of which is
restricted to the funding of approved capital improvements, repairs and/or
certain advertising expenses. Periodically during the year, the track
petitions the Racing and Wagering Board to certify that the noted
expenditures are eligible for re-imbursement from the capital improvement
fund. The unexpended balance is shown as restricted cash on the balance
sheet.
Accounts Receivable
Accounts receivable are reported at the amount outstanding.
Management expects to collect the entire amount and, accordingly, has
determined that no allowance is required at December 31, 2003 and 2002.
The Company, in the normal course of business, settled wagers for
other racetracks and is potentially exposed to credit risk. These wagers
are included in accounts receivable.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
calculated using the straight-line basis over the estimated useful lives
of the related assets as follows: 15 years for grandstands and buildings,
5 to 7 years for equipment, and 7 years for furniture and fixtures.
Leasehold improvements are amortized over the term of the lease on a
straight-line basis.
(Continued)
F-37
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gaming License and Development Costs
In connection with its gaming and development activities, the
Company capitalizes certain legal, architectural, engineering and
environmental study fees, as well as other costs directly related to the
gaming license and development of the real estate.
Long-Lived Assets
The Company tests its long-lived assets whenever events or changes
in circumstances indicate that the carrying value of such assets may not
be recoverable. In such cases, the Company would estimate the future net
undiscounted cash flows generated by those assets. If such future cash
flows are insufficient to recover the carrying amount of the assets, the
Company would recognize an impairment loss and reduce the carrying value
of any impaired assets to fair value.
Deferred Loan Costs
Deferred loan costs are amortized on the straight-line method over
the term of the note.
Revenue Recognition
Wagering revenues are recognized at gross, before deductions of such
related expenses as purses, stakes and awards. The costs relating to these
amounts are shown as "Purses, awards and other" in the accompanying
consolidated statement of operations.
Advertising
The Company expenses the costs of general advertising, promotion and
marketing programs at the time the costs are incurred. For the years ended
December 31, 2003 and 2002, total costs incurred were $50,471 and $17,842,
respectively.
Income Taxes
The Company was formed as a limited liability company and elected to
be treated as a partnership for tax purposes, and thus no income tax
expense is recorded in the statements. Income of the Company is taxed to
the members in their respective returns. All income from Monticello
Raceway Management Inc. was passed to the Company because of a management
contract between the companies. Therefore no tax accrual is needed on the
subsidiary's records.
(Continued)
F-38
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
2 - PROPERTY AND EQUIPMENT
2003 2002
---- ----
Land $ 770,000 $ 770,000
Buildings and improvements 8,781,079 8,517,724
Leasehold improvements in progress 1,030,881 --
Furniture, fixtures and equipment 1,364,439 1,253,302
----------- -----------
11,946,399 10,541,026
Less - Accumulated depreciation 5,387,952 4,684,780
----------- -----------
$ 6,558,447 $ 5,856,246
=========== ===========
Depreciation expense was $703,172 and $755,601 as of December 31,
2003 and 2002, respectively. The above land and buildings are security for
the mortgage described in Note 6.
3 - ADVANCES TO CAYUGA NATION OF NEW YORK
The Company has made payments to the Cayuga Nation of New York to
help cover development costs for the proposed gaming facility and other
development projects. These advances are refundable under certain
circumstances and are noninterest-bearing. A balance of $385,000 was paid
during the year ended December 31, 2003.
(Continued)
F-39
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 - GAMING LICENSE AND DEVELOPMENT COSTS
In connection with the development of real estate for additional
gaming activities, the Company has incurred various costs. As of December
31, 2002, the Company had capitalized $6,068,409. During the year ended
December 31, 2003, the Company incurred an additional $2,341,032.
During the fourth quarter of 2003, negotiations with the St. Regis
Mohawks, one of the Nations that the Company was in discussions with to
develop gaming facilities, ended. Pursuant to its policy of assessing the
recoverability of its long-lived assets, the Company wrote off those
development costs directly related to the project involving the St. Regis
Mohawks. Accordingly, the Company recognized as a loss previously
capitalized costs totaling approximately $4,243,000. The Company is
currently working with the Cayuga Nation to develop these gaming
facilities.
5 - NOTE PAYABLE, BANK
On October 29, 2003, MRMI consummated a $3,500,000 note with The
Berkshire Bank. The note is secured by a leasehold on the property, a
pledge of raceway revenues and security interests in certain equipment.
The note bears interest at 8.75% and matures on November 1, 2005, with
monthly principal and interest payments based on a 48-month amortization
schedule. Empire entered into a surety agreement with The Berkshire Bank
to guarantee the note. Included in cash and cash equivalents are a cash
collateral reserve and a payment reserve totaling $125,000 and 55,869,
respectively. Interest expense for the year ended December 31, 2003 was
$53,373. The note was subsequently satisfied in February 2004.
6 - MEMBERS' EQUITY (DEFICIENCY) AND SENIOR OBLIGATION
The members of the Company have contributed various equity and debt
to the Company to fund the purchase of the Raceway and the pursuit of the
approval and development of a Native American Casino on a portion of the
Raceway property. At December 31, 2003 and 2002, the aggregate amount
needed to satisfy the preferred capital contributions (with priority
returns of 10%) was $33,815,495 and $34,717,799, respectively.
(Continued)
F-40
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 - MEMBERS' EQUITY (DEFICIENCY) AND SENIOR OBLIGATION (Continued)
These preferred capital balances were subordinate to a mortgage,
payable to two members (the "Senior Obligation"), which at December 31,
2003 and 2002 was $7,503,513 and $6,821,375, respectively, including
accrued interest at 10% a year.
As part of the Empire merger, the members agreed to exchange their
preferred capital contributions and senior obligations for Empire common
stock without any premium.
The Company was formed as a limited liability company; therefore,
its members' individual liability is limited under the appropriate laws of
the State of New York. The Company will cease to exist on July 1, 2025.
The Company's distinct lines of business: (A) casino development; (B) real
estate-related activities; and (C) the gaming operations were owned at
December 31, 2003, as follows:
Real
Casino Estate Racing
------ ------ ------
Voting Members
Alpha Monticello, Inc. 48.310% 25.000% 36.870%
Americas Tower Partners 20.000 25.000 25.000
Monticello Realty, LLC 20.000 22.500 22.500
Watertone Holdings, LP 9.190 25.000 13.130
Non-Voting Members
Cliff Ehrlich 1.375 1.375 1.375
Fox-Hollow Lane, LLC 1.000 1.000 1.000
Shamrock Strategies, Inc. 0.125 0.125 0.125
Pursuant to the terms of the merger with Empire, Alpha Monticello
and all the non-voting members are no longer members of the Company. The
remaining members of the company are as follows:
Real
Estate
------
Voting Members
Americas Tower Partners 33.34
Monticello Realty, LLC 33.33
Watertone Holdings, LP 33.33
(Continued)
F-41
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 - COMMITMENTS AND CONTINGENCIES
Leases
At December 31, 2003, the Company had commitments under operating
leases which end in 2006 for various pieces of equipment requiring annual
lease payments for the twelve months ending December 31 as follows:
2004 $ 142,621
2005 18,034
2006 8,814
---------
$ 169,469
=========
Lease expense was $156,721 and $165,721 for the years ended December
31, 2003 and 2002,respectively.
Legal Proceedings
The Monticello Harness Horsemen's Association, Inc. ("Horsemen's
Association") has brought actions against Monticello Raceway Management,
Inc. and one of the members of the Company. One of the actions seeks the
sum of $1,562,803, to be credited to the horsemen's purse account, and an
additional $4,000,000 in punitive damages. Another case is questioning a
racing series that purportedly violated the contract with MRMI. Management
has responded vigorously to contest the cases after attempts at an
out-of-court settlement proved fruitless.
The Horsemen's Association has filed a number of suits against
Monticello Raceway Management Inc. and Cliff Ehrlich, as its President.
One action, seeking money damages of approximately $500,000, claims that
certain monies (approximately $80,000) which should have been used solely
for "overnight purses" were expended by the raceway for a special racing
series known as the William Sullivan Pacing Series, that management has
not increased purses to the horsemen for overnight racing as requested by
the horsemen, and that management is improperly holding up approximately
$400,000 in an account that is earmarked for payment of purses at such
time as management deems it appropriate. A second action seeks
approximately $2,000,000 in damages, claiming that management has withheld
various simulcasting and OTB revenues from the horsemen's purse account
and deducted various unauthorized simulcasting expenses. Management has
responded vigorously to this litigation, and at the same time will seek,
if possible, to resolve these issues in the context of contract
negotiations with the Horsemen's Association that are scheduled to begin
in March 2004.
(Continued)
F-42
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 - COMMITMENTS AND CONTINGENCIES (Continued)
Legal Proceedings (Continued)
Should the litigation proceed, however, counsel has advised the
Company that, (i) with regard to the $80,000 expended for the William
Sullivan Pacing Series, management was within its contract rights to apply
that money towards the racing series since the racing series met the
definition of "overnight purses", (ii) the $400,000 sought in accelerated
purses will not have to be paid in the manner that the Horsemen's
Association seeks, but eventually those monies will be required to be paid
out in additional purses, and (iii) there will be a favorable outcome on
the causes of action seeking damages for failure to properly account for
the OTB revenues as well as the issue of the deduction of expenses for
simulcasting. There are sharply disputed issues of fact with regard to the
cause of action seeking a greater share of the simulcasting revenue and,
at this time, no estimate can be given of the outcome of this cause of
action or the amount of potential loss.
Another action by the Horsemen's Association sought an injunction
preventing management from consolidating the barn area by removing
approximately 50% of the barns and moving horsemen to different barns and
also seeks money damages for such conduct. A temporary restraining order
at the inception of the case was vacated after a hearing, and the decision
of management to consolidate the barn area and deny stall space to certain
horsemen was upheld by the Court on the injunction motion. Management
responded vigorously to this litigation as it challenged management's
rights clause in the contract. There is further discovery pending.
However, in the opinion of counsel to the Company, there will be no
monetary loss as a result of this litigation.
The Company's ability to participate in New York's VGM program or to
help develop and manage a Native American casino in conjunction with the
Cayuga Nation of New York could be hampered by the outcome of two pending
lawsuits, Dalton v. Pataki and Karr v. Pataki, that seek to enjoin the
State of New York from proceeding with the VGM program or permitting the
construction of any new Native American casinos within the State of New
York's borders. While the trial court dismissed both of these cases in May
2003, the plaintiffs have filed an appeal. Briefs have been submitted in
the appeal and oral arguments were heard in December 2003, but a decision
on the appeal has not been rendered. Should an appellate court overrule
the trial court and reinstate these lawsuits, and should the plaintiffs
ultimately prevail on all or part of their claims, the Company's business
strategy could be seriously adversely affected. Moreover, a reinstatement
of these lawsuits, even prior to a definitive ruling on the merits of the
cases, could hamper fundraising efforts for the Cayuga Monticello Resort
and otherwise adversely affect the implementation of the Company's
business plan, as investors might be reluctant to invest given the
uncertainty that such a holding would create.
(Continued)
F-43
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 - COMMITMENTS AND CONTINGENCIES (Continued)
In July 1996, the Company and its members entered into a series of
agreements with the St. Regis Mohawk Tribe, related to the development of
a casino on land adjacent to the Monticello Raceway in Monticello, New
York. Since 2000, the Company has been engaged in litigation with Caesars
Entertainment, Inc. ("CZR"), formerly Park Place Entertainment ("PPE"),
alleging tortious interference with contract and business relationships in
regard to the Company's agreements with the St. Regis Mohawk Tribe.
The Company was also a party to various nonenvironmental legal
proceedings and administrative actions, all arising from the ordinary
course of business. Although it is impossible to predict the outcome of
any legal proceeding, the Company believes any liability that may finally
be determined with respect to such legal proceedings should not have a
material effect on the Company's consolidated financial position, results
of operations or cash flows.
8 - RELATED PARTY TRANSACTIONS
Under the terms of the Ground Lease, MRMI will pay the Company
$1,800,000 per year, due on October 28, 2004 for the first year. The
subsequent payments are payable in equal monthly installments, subject to
annual adjustments consistent with the Consumer Price Index. During the
second year of the lease, MRMI has the right, at its option, to defer its
monthly rental payments for up to 12 months, with such deferred rent
accruing interest at the rate of 4.5% a year.
9 - SUBSEQUENT EVENTS
Merger with Empire
In July 2003, Empire proposed the acquisition of MRMI, Monticello
Casino Management, Monticello Raceway Development and Mohawk Management
for 80.25% of Empire's common stock. The merger was completed on January
12, 2004.
(Continued)
F-44
CATSKILL DEVELOPMENT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9 - SUBSEQUENT EVENTS (Continued)
Assignment of Litigation Claims
On January 12, 2004, the parties made it a condition to the
acquisition closing that the Company, Empire, Monticello Raceway
Development and Mohawk Management assign all of their claims emanating
from the actions against various parties, along with their rights to any
proceeds from any judgment or settlement that may arise from any
litigation relating to such subject matter, to a grantor trust in which
Empire common stockholders of record, immediately before the
consolidation's closing, will have a 19.75% indirect interest, and with
the members of the Company and Monticello Raceway Development, immediately
before the consolidation's closing, owning the remaining 80.25%. Neither
the Company nor any of its subsidiaries will have any future involvement
with the ongoing litigation or any future suits that may arise.
F-45
EXHIBIT 3.1
Certificate of Incorporation
of
Alpha Hospitality Corporation
FIRST: The name of the Corporation is: Alpha Hospitality Corporation
(the "Corporation").
SECOND: The registered office of the corporation and registered
agent in the State of Delaware is to be located at 32 Loockerman Square, Suite
L-100 in the City of Dover, County of Kent. The name of its registered agent is
The Prentice-Mall Corporation System, Inc.
THIRD: The nature of the business, and the objects and purposes
proposed to be transacted, promoted and carried on, are to do any and all things
herein mentioned, as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz:
To do any lawful act or thing for which a corporation may be
organized under the General Corporation Law of the State of Delaware (the
"GCL").
FOURTH: The aggregate number of shares of stock which the
corporation shall have authority to issue is Six Million (6,000,000) with a par
value of one cent ($.01) per share, all of which shall be designated "Common
Stock".
FIFTH: Thw name and mailing address of the Incorporator is:
Spencer McAdams
c/o Olshan Grundman Frome & Rosenzweig
505 Park Avenue
New York, New York 10022
SIXTH: A. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
directors' duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which this director derived an improper personal benefit. If
the GCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended. Any repeal or modification of this Paragraph A by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to events occurring
prior to the time of such repeal or modification.
B. (1) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit, or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation, as a
director, officer or employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall bo indemnified and held harmless by the Corporation to the fullest
extent authorized by the GCL as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys fees,) judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employoyee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (2) of this Paragraph B with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Paragraph B shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the GCL requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity) in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Paragraph B or otherwise.
-2-
(2) If a claim under paragraph (1) of this Paragraph B is not paid
in full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
succesful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that he
claimant has not met the standards of conduct which make it permissible under
the act for the Corporation to indemnify the claimant for the amount claimed but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the GCL, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(3) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Paragraph B shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the certificate of
incorporation, By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the GCL.
(5) The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and rights to
be paid by the Corporation for the expenses incurred in defending any proceeding
in advance of its final disposition, to any agent of the Corporation to the
fullest extent of the provisions of this Paragraph B with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Corporation.
-3-
SEVENTH: In addition to any other considerations which the
Board of Directors may lawfully take into account, in determining whether to take
or to refrain from taking corporate action on any matter, including proposing
any matter to the stockholders of the Corporation, the Board of Directors may
take into account the long-term as well as short-term interests of the
Corporation and its stockholders (including the possibility that these interests
may be best served by the continued independence of the Corporation), the
interests of creditors, customers, employees and other constituencies of the
Corporation and its subsidiaries and the effect upon communities in which the
Corporation and its subsidiaries do business.
EIGHTH: In furtherance and not in limitation of the powers
conferred by law or in this Certificate of Incorporation, the Board of Directors
(and any committee of the Board of Directors) is expressly authorized, to the
extent permitted by law, to take such action or actions as the Board or such
committee may determine to be reasonably necessary or desirable to (A) encourage
any person to enter into negotiations with the Board of Directors and management
of the Corporation with respect to any transaction which may result in a change
in control of the Corporation which is proposed or initiated by such person or
(B) contest or oppose any such transaction which the Board of Directors or such
committee determines to be unfair, abusive or otherwise undesirable with respect
to the Corporation and its business, assets or properties or the stockholders of
the Corporation, including, without limitation, the adoption of plans or the
issuance of rights, options, capital stock, notes, debentures or other evidences
of indebtedness or other securities of the Corporation, which rights, options,
capital stock, notes, evidences of indebtedness and other securities (i) may be
exchangeable for or convertible into cash or other securities on such terms and
conditions as may be determined by the Board or such Committee and (ii) may
provide for the treatment of any holder or class of holders thereof designated
by the Board of Directors or any such committee in respect of the terms,
conditions, provisions and rights of such securities which is different from,
and unequal to, the terms, conditions, provisions and rights applicable to all
other holders thereof,
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, and any
other provisions authorized by the laws of the state of Delaware at the time in
force may be added or inserted, subject to the limitations set forth in this
Certificate of Incorporation and in the manner now or hereafter provided herein
by statute, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by
-4-
and pursuant to this certificate of incrporation in its present form or as
amended are granted subject to the rights reserved in this Article NINTH.
IN WITNES WHEREOF, I have hereunto set my hand this 19th day of
March, 1993.
/s/ Spencer McAdams
--------------------------------
Spencer McAdams
Sole Incorporator
EXHIBIT 3.2
Certificate of Amendment
of
Certificate of Incorporation
of
ALPHA HOSPITALITY CORPORATION
(Pursuant to Sections 228 and 242 of the General Corporation
Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Alpha Hospitality Corporation.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article FOURTH thereof and by substituting in lieu
of said Article the following new Article FOURTH, as follows:
"FOURTH: The total number of shares of stock
that the Corporation shall have the authority to
issue is eighteen million (18,000,000), consisting of
seventeen million (17,000,000) shares of Common
Stock, each such share having a par value of $.01,
and one million (1,000,000) shares of Preferred
Stock, each such share having a par value of $.01.
The Board of Directors is expressly authorized to
issue Preferred Stock, without stockholder approval,
in one or more series, and to fix for each such
series such voting powers, full or limited, and such
designations, preferences and relative,
participating, optional or special rights and such
qualifications, limitations or restrictions thereof
as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors
providing for the issue of such series and as may be
permitted by the GCL."
3. The Certificate of Incorporation of the Corporation is hereby
amended by adding a new Article TENTH, as follows:
"TENTH: The stock or securities of the
Corporation shall be held, and the transfer thereof
shall be, subject to the provisions, conditions and
requirements of the Mississippi Gaming Control Act
and the Regulations promulgated thereunder until such
time as the Corporation and its subsidiaries shall
cease to be subject to the jurisdiction of the
Mississippi Gaming Commission."
4. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 15th day of August, 1993.
/s/ Monty D. Hundley
---------------------------
Monty D. Hundley, President
ATTEST:
/s/ Sanford Freedman
---------------------------
Sanford Freedman, Secretary
-2-
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALPHA HOSPITALITY CORPORATION
* * * * *
Alpha Hospitality Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Alpha
Hospitality Corporation ("Corporation"), resolutions were duly adopted setting
forth a proposed amendment to the Amended Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and calling an annual
meeting of the stockholders of the Corporation for consideration of, among other
things, said amendment. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that it being in the best interests of the
Corporation, the Board of Directors hereby approves,
ratifies and confirms that the Corporation's Certificate
of Incorporation be amended by deleting the Fourth article
of the Certificate of Incorporation in its entirety and
substituting in lieu thereof the following:
"FOURTH: The total number of shares of
stock that the Corporation shall have the
authority to issue is twenty-six million
(26,000,000), consisting of twenty-five
million (25,000,000) shares of Common
Stock, each such share having a par value
of $.01, and one million (1,000,000) shares
of Preferred Stock, each share having a par
value of $.01. The Board of Directors is
expressly authorized to issue Preferred
Stock, without stockholder approval, in one
or more series, and to fix for each such
series such voting powers, full or limited,
and such designations, preferences and
relative, participating, optional or
special rights and such qualifications,
limitations or restrictions thereof as
shall be stated and expressed in the
resolution or resolutions adopted by the
Board of Directors providing for the issue
of such series and as may be permitted by
the GCL."
RESOLVED, that except as expressly amended, the
Fourth Article of the Restated Certificate of
Incorporation of the Corporation shall hereby remain in
effect as heretofore set forth and shall be unchanged in
any respect by any provision thereof.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Corporation shall not be reduced
under or by reason of said amendment.
2
IN WITNESS WHEREOF, the Corporation has caused this certlflcate to
be signed by Stanley S. Tollman, its Chief Executive Officer and President and
attested to by Sanford Freedman, its Secretary, this 18th day of December, 1996
By: /s/ Stanley S. Tollman
-------------------------------------
Stanley S. Tollman
Chief Executive Officer and President
ATTEST:
By: /s/ Sanford Freedman
------------------------
Sanford Freedman
Secretary
3
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALPHA HOSPITALITY CORPORATION
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is ALPHA HOSPITALITY CORPORATION.
SECOND: The corporation hereby amends its Certificate of
Incorporation as follows; Article FOURTH of the Certificate of Incorporation is
hereby amended to read as follows:
"FOURTH: The total number of shares of stock
that the Corporation shall have the authority to
issue is eighty million (80,000,000), consisting of
seventy-five million. (75,000,000) shares of Common
Stock, each such share having a par value of $.01,
and five million (5,000,000) shares of Preferred
Stock, each such share having a par value of $.01.
The Board of Directors is expressly authorized to
issue Preferred Stock without stockholder approval,
in one or more series, and to fix for each such
series such voting powers, full or limited, and such
designations, preferences and relative,
participating, optional or special rights and such
qualifications, limitations or restrictions thereof
as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors
providing for the issue of such series and as may be
permitted by the Delaware General Corporation Law."
Article ELEVENTH of the Certificate of Incorporation is hereby
amended to read as follows:
"ELEVENTH: The Corporation's Board of
Directors (by a majority vote thereof) shall have the
right, power and authority to adopt any new by-law
and/or amend or repeal any then-existing by-law;
provided, however, that the Corporation's Board of
Directors may not amend or repeal any by-law that, by
its very terms, is not subject to amendment or repeal
except by or upon approval of the Corporation's
stockholders or any class, series or other group or
portion thereof."
THIRD: The amendments effected herein were authorized by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon at a special meeting of the stockholders of the corporation
which was duly called and held, upon notice in accordance with Sections 222 and
242 of the General Corporation Law of the State of Delaware.
FOURTH: The undersigned hereby acknowledges that the capital of said
corporation shall not be reduced under or by reason of the amendments effected
herein.
IN WTTNESS WHEREOF, I hereunto sign my name and affirm that the
statements made herein are true under the penalties of perjury, this 22nd day of
September, 1999.
/s/ Thomas W. Aro
--------------------------------------
THOMAS W. ARO, Secretary
2
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF ALPHA HOSPITALITY CORPORATION
--------------------------------------------------------------------------------
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
ALPHA HOSPITALITY CORPORATION, (the "Corporation"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law (the
"DGCL"), does hereby certify as follows:
FIRST: By unanimous written consent, the Board of Directors of the Corporation
adopted resolutions setting forth a proposed amendment to the Corporation's
Certificate of Incorporation, declaring such amendment to be advisable and
calling a meeting of the stockholders of the Corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that immediately following the close of business
on June 26, 2001, a reverse stock split (the "Reverse
Stock Split") of the Corporation's common stock, (the "Old
Common Stock") par value $.01 per share, shall take place
without any further action on the part of the holders
thereof, whereby each ten (10) shares of Old Common Stock
shall be combined into one validly issued share of new
common stock (the "New Common Stock"), the par value of
which shall remain unchanged. Fractional shares will be
rounded up to the nearest whole number.
SECOND: That thereafter, pursuant to resolution of the Board of Directors of the
Corporation, an annual meeting of the stockholder of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of votes as required by statute was cast in
favor of the amendment.
THIRD: That this Amendment was duly adopted in accordance with the provisions of
Section 2.42 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment
of the Certificate of Incorporation on the 13th day of June, 2001 and affirms
that the statements contained herein are true under the penalty of perjury.
ALPHA HOSPITALITY CORPORATION
By: /s/ Stanley S. Tollman
------------------------------
Stanley S. Tollman
Chairman and President
ATTEST:
By: /s/ Thomas W. Aro
--------------------
Thomas W. Aro
Secretary
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ALPHA HOSPITALITY CORPORATION
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------------------
ALPHA HOSPITALITY CORPORATION (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
1. The name of the corporation is Alpha Hospitality
Corporation.
2. Paragraph First of the Certificate of Incorporation
of the Corporation is hereby amended in its entirety to read as
follows:
"FIRST: The name of the corporation is Empire
Resorts, Inc. (the "Corporation")"
3. This Amendment to the Certificate of Incorporation
shall be effective as of May 21, 2003.
4. The Amendment to the Certificate of Incorporation of
the Corporation effected by this Certificate was duly authorized by
the Board of Directors of the Corporation in accordance with the
provisions of Section 242 of the General Corporation Law of the
State of Delaware, and by the affirmative vote of the holders of all
of the Corporation's outstanding capital stock entitled to vote
thereon by written consent in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and acknowledged by its Chief Financial Officer on this
15th day of May, 2003.
ALPHA HOSPITALITY CORPORATION
By: /s/ Scott Kaniewski
-----------------------------------
Scott Kaniewski
Chief Financial Officer
2
EXHIBIT 3.7
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
EMPIRE RESORTS, INC.
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
------------------------------------------------
EMPIRE RESORTS, INC. (the "CORPORATION"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The name of the corporation is Empire Resorts, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by adding a new Article TWELFTH, as follows:
TWELFTH: A. NUMBER OF DIRECTORS. Subject to the rights, if
any, of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances,
the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of
directors which the Corporation would have if there were
no vacancies (the "Whole Board").
B. ELECTION AND TERMS OF DIRECTORS. Directors shall be
elected by a plurality of votes cast, and the directors of
this Corporation shall be divided into three classes, with
respect to the time that they severally hold office, as
nearly equal in number as possible, with the initial term
of office of the first class of directors to expire at the
2004 annual meeting of stockholders of the Corporation and
until their respective successors are elected and
qualified, the initial term of office of the second class
of directors to expire at the 2005 annual meeting of
stockholders of the Corporation and until their respective
successors are elected and qualified and the initial term
of office of the third class of directors to expire at the
2006 annual meeting of stockholders of the Corporation and
until their respective successors are elected and
qualified. Commencing with the 2004 annual meeting of
stockholders of the Corporation, directors elected to
succeed those directors whose terms have thereupon expired
shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders of the
Corporation after their election and until their
respective successors are elected and qualified
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
(1) If the number of directors is changed, any
increase or decrease shall be apportioned among the
classes so as to maintain or attain, if possible, the
equality of the number of directors in each class,
but in no case will a decrease in the number of
directors shorten the term of any incumbent director.
If such equality is not possible, the increase or
decrease shall be apportioned among the classes in
such a way that the difference in the number of
directors in any two classes shall not exceed one.
(2) Subject to the rights of the holders of
any series of Preferred Stock, newly created
directorships resulting from any increase in the
authorized number of directors or any vacancies on
the Board of Directors resulting from death,
resignation, retirement, disqualification, removal
from office or other cause (other than a vacancy
resulting from removal by the stockholders, in which
case such vacancy shall be filled by the
stockholders) shall be filled only by a majority vote
of the directors then in office, though less than a
quorum, and a director so chosen shall hold office
for the unexpired portion of the term of the class in
which such director was chosen to serve and until his
successor is elected and qualified. No decrease in
the number of authorized directors constituting the
entire Board of Directors shall shorten the term of
any incumbent director.
D. AMENDMENTS TO ARTICLE TWELFTH SECTION 12(B) AND
12(C)(1). The affirmative vote of the holders of
eighty percent (80%) of the voting power of all of
the then outstanding shares of the capital stock of
the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), voting
together as a single class, shall be required to
amend or repeal, or to adopt any provision
inconsistent with Article Twelfth Sections 12(B) and
12(C)(1) unless approved by at least seventy-five
percent (75%) of the Whole Board. In the event that
at least seventy-five percent (75%) of the Whole
Board approves any such provision, then the
affirmative vote of the holders of outstanding stock
representing at least a majority of the voting power
of all of the then outstanding shares of Voting
Stock, voting together as a single class, shall be
required to amend or repeal, or to adopt any
provision inconsistent with Article Twelfth Sections
12(B) and 12(C)(1).
E. REMOVAL. Subject to the rights of the holders of
Preferred Stock, and unless this Certificate of
Incorporation otherwise provides, where the Board of
Directors is classified as provided in GCL Section
141(d), any director or the entire Board of Directors
may be removed by stockholders only for cause, and
the affirmative vote of eighty percent (80%) of the
voting power of all of the then outstanding shares of
Voting Stock, voting together as a single class, or
the affirmative vote of at least a majority of the
Whole Board, shall be required to effect such
removal."
3. The Amendment to the Certificate of Incorporation of the
Corporation effected by this Certificate was duly authorized by the Board
of Directors of the Corporation in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware, and
by the affirmative vote of the holders of a majority of the Corporation's
outstanding capital stock entitled to vote thereon by written consent in
accordance with the provisions of Section 228 of the General Corporation
Law of the State of Delaware.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and acknowledged by its Chief Financial Officer on this
12th day of January, 2004.
EMPIRE RESORTS, INC.
By: /s/ Scott A. Kaniewski
--------------------------
Name: Scott A. Kaniewski
Title: CFO
EXHIBIT 3.8
As of February 12, 2002
AMENDED AND RESTATED BY-LAWS
OF
ALPHA HOSPITALITY CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1.1. ANNUAL MEETINGS. An annual meeting of stockholders to
elect directors and transact such other business as may properly be presented to
the meeting shall be held at such place as the Board of Directors may from time
to time fix, if that day shall be a legal holiday in the jurisdiction in which
the meeting is to be held, then on the next day not a legal holiday or as soon
thereafter as may be practical, determined by the Board of Directors.
SECTION 1.2. SPECIAL MEETINGS. A special meeting of stockholders may
be called at any time by the Board of Directors or the Chairman and shall be
called by any of them or by the Secretary upon receipt of a written request to
do so specifying the matter or matters, appropriate for action at such a
meeting, proposed to be presented at the meeting and signed by holders of record
of a majority of the shares of stock that would be entitled to be voted on such
matter or matters if the meeting were held on the day such request is received
and the record date for such meeting were the close of business on the preceding
day. Any such meeting shall be held at such time and at such place, within or
without the State of Delaware, as shall be determined by the body or person
calling such meeting and as shall be stated in the notice of such meeting.
SECTION 1.3. NOTICE OF MEETING. For each meeting of stockholders
written notice shall be given stating the place, date and hour and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
Except as otherwise provided by Delaware law, the written notice of any meeting
shall be given not less than 10 or more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation.
SECTION 1.4. QUORUM. Except as otherwise required by Delaware law or
the Certificate of Incorporation, the holders of record of a majority of the
shares of stock entitled to be voted present in person or represented by proxy
at a meeting shall constitute a quorum for the transaction of business at the
meeting, but in the absence of a quorum the holders of record present or
represented by proxy at such meeting may vote to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is obtained. At any such adjourned session of the meeting at which there shall
be present or represented the holders of record of the requisite number of
shares, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 1.5. CHAIRMAN AND SECRETARY AT MEETING. At each meeting of
stockholders the Chairman, or in his absence the person designated in writing by
the Chairman, or if no person is so designated, then a person designated by the
Board of Directors, shall preside as chairman of the meeting; if no person is so
designated, then the meeting shall choose a chairman by plurality vote. The
Secretary, or in his absence a person designated by the chairman of the meeting,
shall act as secretary of the meeting.
SECTION 1.6. VOTING; PROXIES. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to the provisions
of Section 1.10:
(a) Each stockholder shall at every meeting of the stockholders
be entitled to one vote for each share of capital stock held by him.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
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(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors, properly
presented to any meeting shall be decided by a majority of the votes cast on the
matter.
(e) Election of directors and the vote on any other matter
presented to a meeting shall be by written ballot only if so ordered by the
chairman of the meeting or if so requested by any stockholder present or
represented by proxy at the meeting entitled to vote in such election or on such
matter, as the case may be.
SECTION 1.7. ADJOURNED MEETINGS. A meeting of stockholders may be
adjourned to another time or place as provided in Section 1.4. Unless the Board
of Directors fixes a new record date, stockholders of record for an adjourned
meeting shall be as originally determined for the meeting from which the
adjournment was taken. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote. At the adjourned meeting any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 1.8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
3
SECTION 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least 10 days
before every meeting of stockholders a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared and shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place within
the city where the meeting is to be held. Such list shall be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 1.10. FIXING OF RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 or less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; and the record date for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE II
DIRECTORS
SECTION 2.1. NUMBER; TERM OF OFFICE; QUALIFICATIONS: VACANCIES. The
number of directors that shall constitute the whole Board of Directors shall be
seven, which number may be changed from time to time as determined by action of
the Board of Directors taken by the affirmative vote of a majority of the whole
Board of Directors. Directors shall be elected at the annual meeting of
stockholders to hold office, subject to Sections 2.2 and 2.3 below, until the
next annual meeting of stockholders and until their respective successors are
qualified and elected. Vacancies and newly created directorships resulting from
any resignation or (pursuant to Section 2.3 below) removal of any director or
directors or any increase in the authorized number of directors may be filled by
a majority vote of the directors then in office, although less than a quorum, or
by the sole remaining director. The directors so chosen shall hold office,
subject to Sections 2.2 and 2.3 below, until the next annual meeting of
stockholders and until their respective successors are qualified and elected.
Any individual appointed or elected to serve on, or nominated as a candidate for
election to, the Board of Directors shall have (a) at least ten (1) years' prior
business or legal experience or (b) served as a senior executive or board member
of a corporation for at least five (5) years or (c) comparable experience in
management, operation, finance, legal and/or accounting. Any individual
appointed to serve on, or nominated as a candidate for election to the Board of
Directors shall attest in writing that he or she is not of (if he or she were
then serving as a member of the Board of Directors) would not be, at the time of
appointment or nomination, subject to removal pursuant to Section 2.3 below.
Notwithstanding anything contained in these By-Laws to the contrary, this
section 2.1 may not be amended except by vote of the stockholders of the
Corporation or by unanimous vote of the entire Board of Directors.
SECTION 2.2. RESIGNATION. Any director of the Corporation may resign
at any time by giving written notice of such resignation to the Board of
Directors, the Chairman or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective. When one or more
directors shall resign from the Board of Directors effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in these By-Laws in the filling
of other vacancies.
SECTION 2.3. REMOVAL. Any one or more directors may be removed, with
or without cause, by the vote or written consent of the holders of a shares of
capital stock entitled to vote cast a majority of the votes that could be cast
at an election of directors; provided, however, that, upon a majority vote of
all other directors then serving, any director may be removed from the Board of
Directors upon the occurrence of any of the following events or conditions: (a)
such directors is under indictment with respect to, or has been convicted of,
any criminal offense that constitutes a felony or otherwise constitutes a crimes
of moral turpitude; (b) a non-appealable finding or determination is issued or
rendered in an judicial action or arbitration proceeding that states that such
director is or has been engaged in legally prohibited discrimination or
harassment with respect to an employee, agent or representative of the
Corporation or any of its affiliates; (c) a non-appealable finding or
4
determination is issued or rendered in any judicial action or arbitration
proceeding that states that such director is guilty of willful misconduct, gross
negligence or substance abuse that has or has had a materially adverse effect on
the Corporation or any of its affiliates (including, without limitation, upon
the reputation thereof) or on the performance of his duties as a director; of
(d) any finding or determination has been made by any governmental agency or
regulatory authority that states that such director is not qualified or suitable
to serve as a director of the Corporation or any of its affiliates or such
director is subject to any other legal prohibition against serving as a director
of the Corporation or any of its affiliates. Notwithstanding anything contained
in these By-Laws to the contrary, this Section 2.3 may not be amended except by
the vote of the stockholders of the Corporation or by unanimous vote of the
entire Board of Directors.
SECTION 2.4. REGULAR AND ANNUAL MEETINGS; NOTICE. Regular meetings
of the Board of Directors shall be held at such time and at such place, within
or without the State of Delaware, as the Board of Directors may from time to
time prescribe. No notice need be given of any regular meeting, and a notice, if
given, need not specify the purposes thereof. A meeting of the Board of
Directors may be held without notice immediately after an annual meeting of
stockholders at the same place as that at which such meeting was held.
5
SECTION 2.5. SPECIAL MEETINGS: NOTICE. A special meeting of the
Board of Directors may be called at any time by the Board of Directors, its
Chairman, the Executive Committee, the President or any person acting in the
place of the President and shall be called by any one of them or by the
Secretary upon receipt of a written request to do so specifying the matter or
matters, appropriate for action at such a meeting, proposed to be presented at
the meeting and signed by at least two directors. Any such meeting shall be held
at such time and at such place, within or without the State of Delaware, as
shall be determined by the body or person calling such meeting. Notice of such
meeting stating the time and place thereof shall be given (a) by deposit of the
notice in the United States mail, first class, postage prepaid, at least two
days before the day fixed for the meeting addressed to each director at his
address as it appears on the Corporation's records or at such other address as
the director may have furnished the Corporation for that purpose, or (b) by
delivery of the notice similarly addressed for dispatch by telegraph, cable or
radio or by delivery of the notice by telephone or in person, in each case at
least 24 hours before the time fixed for the meeting.
6
SECTION 2.6. CHAIRMAN OF THE BOARD: PRESIDING OFFICER AND SECRETARY
AT MEETINGS. The Board of Directors may elect one of its members to serve at its
pleasure as Chairman of the Board. Each meeting of the Board of Directors shall
be presided over by the Chairman of the Board or in his absence by the
President, if a director, or if neither is present by such member of the Board
of Directors as shall be chosen at the meeting. The Secretary, or in his absence
an Assistant Secretary, shall act as secretary of the meeting, or if no such
officer is present, a secretary of the meeting shall be designated by the person
presiding over the meeting.
SECTION 2.7. QUORUM. A majority of the whole Board of Directors
shall constitute a quorum for the transaction of business, but in the absence of
a quorum a majority of those present (or if only one be present, then that one)
may adjourn the meeting, without notice other than announcement at the meeting,
until such time as a quorum is present. Except as otherwise required by the
Certificate of Incorporation or the By-Laws, the vote 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 2.8. MEETING BY TELEPHONE. Members of the Board of Directors
or of any committee thereof may participate in meetings of the Board of
Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 2.9. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board of Directors or of such
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
of such committee.
7
SECTION 2.10. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors
may, by resolution passed by a majority of the whole Board of Directors,
designate an Executive Committee and one or more other committees, each such
committee to consist of one or more directors as the Board of Directors may from
time to time determine. Any such committee, to the extent provided in such
resolution or resolutions, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it but no such
committee shall have such power of authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By--Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Each such
committee other than the Executive Committee shall have such name as may be
determined from time to time by the Board of Directors.
SECTION 2.11. COMPENSATION. Any individual who serves as a director
shall be entitled to receive such salary and other compensation (including stock
options pursuant to a stock option plan approved by the stockholders of the
Corporation or otherwise) for his or her services as a director or as a member
of any committee of the Board of Directors as may, from time to time, be
determined by the Board of Directors (or any duly delegated committee thereof),
without any separate consent or approval by the stockholders of the Corporation.
8
ARTICLE III
OFFICERS
SECTION 3.1. ELECTION; QUALIFICATION. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be selected by the
Board of Directors. The Board of Directors may elect a Controller, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers and such other officers as it may from time to time determine. Two
or more offices may be held by the same person.
SECTION 3.2. TERM OF OFFICE. Each officer shall hold office from the
time of his election and qualification to the time at which his successor is
elected and qualified, unless he shall die or resign or shall be removed
pursuant to Section 3.4 at any time sooner.
SECTION 3.3. RESIGNATION. Any officer of the Corporation may resign
at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.4. REMOVAL. Any officer may be removed at any time, with
or without cause, by the vote of two directors if there are three directors or
less, or the vote of a majority of the whole Board of Directors if there are
more than three directors.
SECTION 3.5. VACANCIES. Any vacancy however caused in any office of
the Corporation may be filled by the Board of Directors.
SECTION 3.6. COMPENSATION. The compensation of each officer shall be
such as the Board of Directors may from time to time determine.
9
SECTION 3.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
be the co-chief executive officer of the Corporation and the chairman of all
meetings of the Board of Directors. He shall keep in close touch with the
administration of the affairs of the Corporation and supervise its general
policies. He shall see that the acts of the executive officers conform to the
policies of the Corporation as determined by the Board and shall perform such
other duties as may from time to time be designated to him by the Board.
SECTION 3.8. PRESIDENT. The President shall be the co-chief
executive officer of the Corporation and shall have general charge of the
business and affairs of the Corporation, subject however to the right of the
Board of Directors to confer specified powers on officers and subject generally
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 3.9. VICE PRESIDENT. Each Vice President shall have such
powers and duties as generally pertain to the office of Vice President and as
the Board of Directors or the President may from time to time prescribe. During
the absence of the president or his inability to act, the Vice President, or if
there shall be more than one Vice President, then that one designated by the
Board of Directors, shall exercise the powers and shall perform the duties of
the President, subject to the direction of the Board of Directors and the
Executive Committee, if any.
SECTION 3.10. SECRETARY. The Secretary shall keep the minutes of all
meetings of stockholders and of the Board of Directors. He shall be custodian of
the corporate seal and shall affix it or cause it to be affixed to such
instruments as require such seal and attest the same and shall exercise the
powers and shall perform the duties incident to the office of Secretary, subject
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 3.11. OTHER OFFICERS. Each other officer of the Corporation
shall exercise the powers and shall perform the duties incident to his office,
subject to the direction of the Board of Directors and the Executive Committee,
if any.
10
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. STOCK CERTIFICATES. The interest of each holder of
stock of the Corporation shall be evidenced by a certificate or certificates in
such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the
Chairman, the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary. Any of or all the
signatures appearing on such certificate or certificates may be a facsimile. If
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 4.2. TRANSFER OF STOCK. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe.
SECTION 4.3. HOLDERS OF RECORD. Prior to due presentment for
registration of transfer the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 4.4. LOST. STOLEN. DESTROYED OR MUTILATED CERTIFICATES. The
Corporation shall issue a new certificate of stock to replace a certificate
theretofore issued by it alleged to have been lost, destroyed or wrongfully
taken, if the owner or his legal representative (i) requests replacement, before
the Corporation has notice that the stock certificate has been acquired by a
bona fide purchaser; (ii) files with the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such stock certificate or the
issuance of any such new stock certificate; and (iii) satisfies such other terms
and conditions as the Board of Directors may from time to time prescribe.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. INDEMNITY. (a) The Corporation shall indemnify, subject
to the requirements of subsection (d) of this Section, 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 (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
11
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation, or a person serving in any other enterprise at the request
of the Corporation, has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsection (a) and (b) of this
Section, or in defense of any claim, issue or matter therein, the Corporation
shall indemnify him against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
Section (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this Section. Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors, or (3) by independent
legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses incurred by a director, officer, employee or agent
in defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section.
(f) The indemnification and advancement of expenses provided by
or granted pursuant to, the other subsections of this Section shall not limit
the Corporation from providing any other indemnification or advancement of
expenses permitted by law nor shall it be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
(g) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Section.
(h) The indemnification and advancement of expenses provided
by, or granted pursuant to this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(i) For the purposes of this Section, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
12
(j) This Section 5.1 shall be construed to give the Corporation
the broadest power permissible by the Delaware General Corporation Law, as it
now stands and as heretofore amended.
SECTION 5.2. WAIVER OF NOTICE. Whenever notice is required by the
Certificate of Incorporation, the By-Laws or any provision of the General
Corporation Law of the State of Delaware, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time required for
such notice, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice.
SECTION 5.3. FISCAL YEAR. The fiscal year of the Corporation shall
start on such date as the Board of Directors shall from time to time prescribe.
SECTION 5.4. CORPORATE SEAL. The corporate seal shall be in such
form as the Board of Directors may from time to time prescribe, and the same may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
ARTICLE VI
AMENDMENT OF BY-LAWS
SECTION 6.1. AMENDMENT. The By-Laws may be altered, amended or
repealed by the stockholders or by the Board of Directors by a majority vote.
13
EXHIBIT 3.9
AMENDMENT NO. 1
TO THE
SECOND AMENDED AND RESTATED BY-LAWS
OF
EMPIRE RESORTS, INC.
DATED NOVEMBER 11, 2003
The By-laws are hereby amended as follows:
That ARTICLE II of the By-laws is hereby deleted in its entirety and
replaced with the following:
"ARTICLE II
DIRECTORS
SECTION 2.1. NUMBER. The number of directors that shall
constitute the whole Board of Directors shall initially be nine,
which number may be changed from time to time as determined by
action of the Board of Directors taken by the affirmative vote of a
majority of the whole Board of Directors.
SECTION 2.2 ELECTION AND TERM OF DIRECTOR. The directors of
this Corporation shall be divided into three classes, with respect
to the time that they severally hold office, as nearly equal in
number as possible, with the initial term of office of the first
class of directors to expire at the 2004 annual meeting of
stockholders of the Corporation and until their respective
successors are elected and qualified, the initial term of office of
the second class of directors to expire at the 2005 annual meeting
of stockholders of the Corporation and until their respective
successors are elected and qualified and the initial term of office
of the third class of directors to expire at the 2006 annual meeting
of stockholders of the Corporation and until their respective
successors are elected and qualified. Commencing with the 2004
annual meeting of stockholders of the Corporation, directors elected
to succeed those directors whose terms have thereupon expired shall
be elected for a term of office to expire at the third succeeding
annual meeting of stockholders of the Corporation after their
election and until their respective successors are elected and
qualified.
SECTION 2.3 NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
(a) If the number of directors is changed, any increase
or decrease shall be apportioned among the classes so as to maintain
or attain, if possible, the equality of the number of directors in
each class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. If such
equality is not possible, the increase or decrease shall be
apportioned among the classes in such a way that the difference in
the number of directors in any two classes shall not exceed one.
(b) Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be
filled only by a majority of the directors then in office, although
less than a quorum, and a director so chosen shall hold office,
subject to Sections 2.4 and 2.5, for the unexpired portion of the
term of the class in which such director was chosen to serve and
until his successor is elected and qualified.
SECTION 2.4. RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice of such resignation to
the Board of Directors, the Chairman or the Secretary of the
Corporation. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon receipt thereof
by the Board of Directors or one of the above-named officers; and,
unless specified therein, the acceptance of such resignation shall
not be necessary to make it effective. When one or more directors
shall resign from the Board of Directors effective at a future date,
a majority of the directors then in office, including those who have
so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold
office as provided in these By-Laws in the filling of other
vacancies.
SECTION 2.5. REMOVAL. Unless these By-Laws or the Certificate
of Incorporation otherwise provides, where the Board of Directors is
classified as provided in Section 141(d) the Delaware General
Corporation Law, any director or the entire Board of Directors may
be removed by stockholders only for cause, and the affirmative vote
of eighty percent (80%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a
single class, or the affirmative vote of at least a majority of the
Whole Board, shall be required to effect such removal.
SECTION 2.6. REGULAR AND ANNUAL MEETINGS; NOTICE. Regular
meetings of the Board of Directors shall be held at such time and at
such place, within or without the State of Delaware, as the Board of
Directors may from time to time prescribe. No notice need be given
of any regular meeting, and a notice, if given, need not specify the
purposes thereof. A meeting of the Board of Directors may be held
without notice immediately after an annual meeting of stockholders
at the same place as that at which such meeting was held.
2
SECTION 2.7. SPECIAL MEETINGS: NOTICE. A special meeting of
the Board of Directors may be called at any time by the Board of
Directors, its Chairman, the Executive Committee, the President or
any person acting in the place of the President and shall be called
by any one of them or by the Secretary upon receipt of a written
request to do so specifying the matter or matters, appropriate for
action at such a meeting, proposed to be presented at the meeting
and signed by at least two directors. Any such meeting shall be held
at such time and at such place, within or without the State of
Delaware, as shall be determined by the body or person calling such
meeting. Notice of such meeting stating the time and place thereof
shall be given (a) by deposit of the notice in the United States
mail, first class, postage prepaid, at least two days before the day
fixed for the meeting addressed to each director at his address as
it appears on the Corporation's records or at such other address as
the director may have furnished the Corporation for that purpose, or
(b) by delivery of the notice similarly addressed for dispatch by
telegraph, cable or radio or by delivery of the notice by telephone
or in person, in each case at least 24 hours before the time fixed
for the meeting.
SECTION 2.8. CHAIRMAN OF THE BOARD: PRESIDING OFFICER AND
SECRETARY AT MEETINGS. The Board of Directors may elect one of its
members to serve at its pleasure as Chairman of the Board. Each
meeting of the Board of Directors shall be presided over by the
Chairman of the Board or in his absence by the President, if a
director, or if neither is present by such member of the Board of
Directors as shall be chosen at the meeting. The Secretary, or in
his absence an Assistant Secretary, shall act as secretary of the
meeting, or if no such officer is present, a secretary of the
meeting shall be designated by the person presiding over the
meeting.
SECTION 2.9. QUORUM. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of business,
but in the absence of a quorum a majority of those present (or if
only one be present, then that one) may adjourn the meeting, without
notice other than announcement at the meeting, until such time as a
quorum is present. Except as otherwise required by the Certificate
of Incorporation or the By-Laws, the vote 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 2.10. MEETING BY TELEPHONE. Members of the Board of
Directors or of any committee thereof may participate in meetings of
the Board of Directors or of such committee by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 2.11. ACTION WITHOUT MEETING. Unless otherwise
restricted by the Certificate of Incorporation, any action required
or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all
3
members of the Board of Directors or of such committee, as the case
may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or
of such committee.
SECTION 2.12. EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors may, by resolution passed by a majority of the whole Board
of Directors, designate an Executive Committee and one or more other
committees, each such committee to consist of one or more directors
as the Board of Directors may from time to time determine. Any such
committee, to the extent provided in such resolution or resolutions,
shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of
the Corporation, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it but no
such committee shall have such power of authority in reference to
amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution
of the Corporation or a revocation of a dissolution, or amending the
By-Laws; and unless the resolution shall expressly so provide, no
such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. In the absence or
disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Each
such committee other than the Executive Committee shall have such
name as may be determined from time to time by the Board of
Directors.
SECTION 2.13. COMPENSATION. Any individual who serves as a
director shall be entitled to receive such salary and other
compensation (including stock options pursuant to a stock option
plan approved by the stockholders of the Corporation or otherwise)
for his or her services as a director or as a member of any
committee of the Board of Directors as may, from time to time, be
determined by the Board of Directors (or any duly delegated
committee thereof), without any separate consent or approval by the
stockholders of the Corporation."
4
EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF PREFERRED STOCK OF
ALPHA HOSPITALITY CORPORATION
Alpha Hospitality Corporation (the "Corporation"), a corporation
organized and existing under the General Corporation Law of Delaware, and whose
Certificate of Incorporation was filed in the office of the Secretary of State
of Delaware on March 19, 1993,
DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation, as amended, of the Corporation, and pursuant
to the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said
Board of Directors adopted as resolution providing for the issuance of a series
of 625,222 shares of preferred stock of the Corporation ("Series A"), which
resolutions are as follows:
RESOLVED, that there be created a series of Preferred
Stock, to be designated as Series A, the number of shares
of such series to be 625,222, which the Corporation may
issue, and which (1) shall have a dividend rate of 2% per
annum payable quarterly if, as and when declared before
any dividend may be declared on the Common Stock, but
otherwise be non-cumulative; (2) be non-redeemable; (3)
shall not be entitled to the benefits of any sinking fund;
and (4) shall be entitled to any conversion into two
shares of Common stock for each share of Preferred Stock,
at any time, at the option of the holder and (5) have a
preferential liquidation right of $.10 per share.
That the said resolution of the Board of Directors, and creation and
authorization of issuance thereby of said Series A of Preferred Stock and the
determination of the terms and conditions thereof in accordance with the
designation of such terms aforesaid were duly made by the Board of Directors
pursuant to authority as aforesaid and in accordance with section 151 of the
General Corporation Law of the State of Delaware.
1
IN WITNESS WHEREOF, that Alpha Hospitality Corporation has caused
this certificate to be signed by Stanley S. Tollman in his capacity as Chairman
of the Corporation, this 31st day of July, 1996.
ALPHA HOSPITALITY CORPORATION
By: /s/ Stanley S. Tollman
---------------------------------------
Title: Chairman and Chief Executive Officer
CERTIFICATE OF ELIMINATION OF SHARES DESIGNATED
AS SERIES A PREFERRED STOCK OF
ALPHA HOSPITALITY CORPORATION
Alpha Hospitality Corporation (the "Corporation"), a corporation
organized and existing under the General Corporation Law of Delaware, and whose
Certificate of Incorporation was filed in the office of the Secretary of State
of Delaware on March 19. 1993,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent of its members, filed with the minutes of the Board duly
adopted resolutions setting forth the proposed elimination of the Series A
Preferred Stock as set forth herein:
RESOLVED, that no shares of the Series A Preferred Stock
are outstanding and none will be issued, and it is further
RESOLVED, that a Certifcate of Elimination be executed,
which shall have the effect when filed and recorded in
Delaware of eliminating from the Certificate of
Incorporation all matters set forth in the Certificate of
Designation with respect to the Series A Preferred Stock.
SECOND: None of the authorized shares of the Series A Preferred
Stock are outstanding and none will be issued.
THIRD: In accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation is hereby amended to eliminate all reference to the Series A
Preferred Stock.
1
IN WITNESS WHEREOF, the Alpha Hospitality Corporation has caused
this certificate to be signed by Stanley S. Tollman, in his capacity as Chairman
of the Corporation, this 31st day of July, 1996,
ALPHA HOSPITALITY CORPORATION
/s/ Stanley S. Tollman
--------------------------------------------
By: Stanley S. Tollman
Title: Chairman and Chief Executive Officer
2
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF PREFERRED STOCK OF
ALPHA HOSPITALITY CORPORATION
Alpha Hospitality Corporation (the "Corporation"), a corporation
organized and existing under the General Corporation Law of Delaware, and whose
Certificate of Incorporation was filed in the office of the Secretary of State
of Delaware on March 19, 1993,
DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation, as amended, of the Corporation, and pursuant
to the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said
Board of Directors adopted as resolution providing for the issuance of a series
of 738,163 shares of preferred stock of the Corporation ("Series B"), which
resolutions are as follows:
RESOLVED, that there be created a series of Preferred
Stock, to be designated as Series B, the number of shares
of such series to be 738,163, which the Corporation may
issue, and each share of which (1) shall entitle the
holder to one vote; (ii) has a liquidation value of each
share of $29.00 per share which shall be paid prior to any
distribution in liquidation being made on the Common
Stock; (iii) has a cash dividend rate of 10% of
liquidation value, which dividend shall be paid prior to
any dividend being paid on the Common Stock, which
increases to 13% of liquidation value if the cash
dividend is not paid within 30 days of the end of each
fiscal year and in such event is payable in Common Stock
valued at the then market price; and (iv) is convertible
into eight shares of Common Stock.
That the said resolution of the Board of Directors, and creation and
authorization of issuance thereby of said Series B of Preferred Stock and the
determination of the terms and conditions thereof in accordance with the
designation of such terms aforesaid were duly made by the Board of Directors
1
pursuant to authority as aforesaid and in accordance with section 151 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, that Alpha Hospitality Corporation has caused
this certificate to be signed by Stanley S. Tollman, in his capacity as Chairman
of the Corporation, this 31st day of July, 1996.
ALPHA HOSPITALITY CORPORATION
By: /s/ Stanley S. Tollman
----------------------------------------
Title: Chairman and Chief Executive Officer
2
EXHIBIT 4.3
CERTIFICATE OF DESIGNATION
SETTING FORTH THE PREFERENCES, RIGHTS
AND LIMITATIONS OF SERIES B PREFERRED STOCK
AND SERIES C PREFERRED STOCK
OF ALPHA HOSPITALITY CORPORATION
ALPHA HOSPITALITY CORPORATION, a Delaware Corporation (the
"Corporation"), certifies that, pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolutions creating
a series of its preferred stock, to be designated "Series C Preferred Stock",
and clarifying the preferences, rights and limitations of the Corporation's
existing Series B Preferred Stock originally established by a resolution of the
Board of Directors as contained in a Certificate of Designations, Preferences
and Rights of Preferred Stock filed with the Secretary of State on July 31, 1996
and to correct the number of shares so designated ("Series B Preferred Stock").
WHEREAS, the Corporation desires to create a new series of its
Preferred Stock to be designated as "Series C Preferred Stock" which is
contemplated to be issued for new consideration to the holder of all of the
outstanding shares of the Corporation's existing Series B Preferred Stock (the
"Holder"); and
WHEREAS, the Corporation and the Holder deem it appropriate to amend
and restate the preferences and rights of the Series B Preferred Stock so as to
conform the provisions relating thereto to the provisions of the newly created
Series C Preferred Stock and so as to correct an error in the Certificate of
Designations, Preferences and Rights of Preferred Stock filed with the Secretary
of State on July 31, 1996 so as to state the correct number of Series B shares
designated by the Board of Directors and to provide that each share of Series B
Preferred Stock shall have voting rights equal to the voting rights of the
shares of common stock into which such Series B Preferred Stock is convertible;
NOW THEREFORE, it is hereby
RESOLVED, that the amount, the voting powers, preferences and
relative, participating optional and other special rights of the shares of
Series B Preferred Stock, and the qualifications, limitations and restrictions
thereof shall be amended and restated in their entirety, effective upon the
filing with the Secretary of State of this Certificate of Designation, as set
forth in Section A below; and it is further
RESOLVED, that a new series of the class of authorized preferred
stock of the Corporation be hereby created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof shall be as set forth in Section B below:
A. AMENDMENT AND RESTATEMENT OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES B
PREFERRED STOCK
Section 1. DESIGNATION AND AMOUNT: PAR VALUE.
The shares of such series shall be designated as "Series B Preferred
Stock" (the "Series B Preferred Stock") and the number of shares constituting
such series shall be 821,496. The par value of each share of the series shall be
$.O1.
Section 2. DIVIDENDS ON SERIES B PREFERRED STOCK
2.1 GENERAL DIVIDEND OBBGATIONS. The Corporation shall pay to the
holders of the Series B Preferred Stock out of the assets of the Corporation, at
any time available for the payment of dividends under the provisions of the
General Corporation Law of the State of Delaware, preferential dividends at the
times and in the amounts provided for in this Section 2.
2.2 ACCRUAL OF DIVIDENDS. Dividends on each share of Series B
Preferred Stock shall be cumulative from the date of issuance of such share of
Series B Preferred Stock, whether or not at the time such dividend shall accrue
or become due or at any other time there shall be profits, surplus or other
funds of the Corporation legally available for the payment of dividends.
Dividends shall accrue on each share of Series B Preferred Stock (at the rate
and in the manner prescribed by this Section 2.2 and Section 2.3 hereof) from
and including the date of issuance of such share to and including the date on
which such share shall be converted into shares of Common Stock, as set forth in
Section 4 hereof. For purposes of this Section 2.2. the date on which the
Corporation shall initially issue any share of Series B Preferred Stock shall be
deemed to be the "date of issuance" of such share regardless of how many times
transfer of such share shall be made on stock records maintained by or for the
Corporation and regardless of the number of certificates which may be issued to
evidence such share (whether by reason of transfers of such share or for any
other reason).
2.3 PAYMENT OF DIVIDENDS. Dividends shall accrue on each share of
Series B Preferred Stock (computed on a daily basis on the basis of a 360 day
year) at the rate of 10% per annum of the Liquidation Value (as defined in
Section 5.1 hereof). Dividends shall be payable on Series B Preferred Stock
quarterly on the first day of each January, April, July and October, and each
such day is herein called a "Dividend Payment Date". On each Dividend Payment
Date all dividends which shall have accrued on each share of Series B Preferred
Stock then outstanding during the quarter year ending upon the day immediately
preceding such Dividend Payment Date shall be damned to became "due" for all
purposes of this Section regardless of whether the Corporation shall be able or
legally permitted to pay such dividend on such Dividend Payment Date. If any
dividend on any share shall for any reason not be paid at the time such dividend
shall become due, such dividend in arrears shall be paid as soon as payments of
same shall be permissible under the provisions of the General Corporation Law of
the State of Delaware.
2.4 PAYMENT OF DIVIDEND IN SHARES OF COMMON STOCK. Notwithstanding
the provisions of Section 2.3 hereof any dividend payment which is not made by
the Corporation on or before January 30 of the following calendar year shall be
payable in the form of shares of Common Stock, in such number of shares as shall
be determined by dividing (A) the product of (x) the amount of the unpaid
dividend multiplied by (y) 1.3, by (B) the Fair Market Value of the Common
Stock. Fair Market Value shall mean, with respect to the Common Stock, the daily
closing prices for the Common Stock of the Corporation for the twenty (20)
consecutive trading days preceding the applicable January 30 date, with the
closing price for each day being the closing price reported on the principal
securities exchange upon which the Common Stock of the Corporation is traded or,
if it is not so traded, then the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers Automated Quotation
System or if not quoted thereon, in the interdealer market on the "Pink Sheets"
of the National Quotation Bureau (excluding the highest and lowest bids on each
day that there are four (4) or more market makers).
2
2.5 DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. If at any time the
Corporation shall pay less than the total amount of dividends due on outstanding
Series B Preferred Stock, at the time of such payment, such payment shall be
distributed among the holders of Series B Preferred Stock so that an equal
amount shall be paid with respect to each outstanding share of Series B
Preferred Stock.
Section 3. Intentionally Omitted
Section 4. CONVERSION
4.1 RIGHT TO CONVERT.
(a) At any time from and after the date hereof the shares of
Series B Preferred Stock, at the option of the respective holders thereof, may
at any time, and from time to time, be converted into fully paid and
nonassessable shares of Common Stock of the Corporation at the "Conversion Rate"
provided for in subsection 4.1(g) below.
(b) So long as any shares of Series B Preferred Stock shall be
outstanding the Corporation will not make any share distribution on its shares
of Common Stock unless the Corporation, by proper legal action, shall have
authorized and reserved an amount of shares equal to the amount thereof which
would have been declared upon the shares of Common Stock into which such shares
of Series B Preferred Stock might have been converted, and the Corporation
shall, out of such additional shares so authorized and reserved on account of
such share distribution, upon the conversion of any shares of Series B Preferred
Stock deliver with any shares of Common Stock into which shares of Series B
Preferred Stock are converted, but without additional consideration therefor,
such number of shares of Common Stock as would have been deliverable to the
holders of the Common Stock into which such shares of Series B Preferred Stock
had been so converted had such shares of Common Stock been outstanding at the
time of such share distribution. For the purpose of this Section 4.1, a share
distribution shall be a dividend payable only in shares of Common Stock of the
Corporation of the same class as the present authorized shares of Common Stock.
This shall not limit the right of the Corporation, however, to declare and pay
any dividends whether in cash, shares, or otherwise, except as specifically
otherwise provided herein.
(c) In case of any combination or change of the shares of Series
B Preferred Stock or of the shares of Common Stock into a different number of
shares of the same or any other class or classes, or in case of any
consolidation or merger of the Corporation with or into another corporation, or
in case of any sale or conveyance to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, the Conversion Rate
shall be appropriately adjusted so that the rights of the holders of shares of
Series B Preferred Stock will not be diluted as a result of such combination,
change, consolidation, merger, sale or conveyance. Adjustments in the rate of
conversion shall be calculated to the nearest one-tenth of a share.
(d) So long as any shares of Series B Preferred Stock are
outstanding the Corporation shall reserve and keep available out of its duly
authorized but unissued shares for the purpose of effecting the conversion of
the shares of Series B Preferred Stock such number of its duly authorized shares
of Common Stock and other securities as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series B Preferred Stock.
(e) Any dividends accrued on any shares of Series B Preferred
Stock from the preceding Dividend Payment Date to the date of conversion shall
be payable to the holder of record of such shares immediately prior to its
conversion. In the event that any dividends on the outstanding shares of Common
Stock shall have been declared prior to, and shall be payable subsequent to, the
conversion of such shares of Series B Preferred Stock, such dividends shall not
be payable on any shares of Common Stock into which such shares of Series B
Preferred Stock shall have been converted.
3
(f) In the event that the Corporation shall at any time or from
time to time offer to the holders of the shares of Common Stock any rights to
subscribe for shares or any other securities of the Corporation each holder of
record of the shares of Series B Preferred Stock at the time at which the record
is taken of the holders of shares of Common Stock entitled to receive such
rights shall be entitled to subscribe for and purchase, at the same price at
which such shares or other securities are offered to the holders of the shares
of Common Stock, and on the same terms, the number of such shares or the amount
of such other securities for which such holder would have been entitled to
subscribe if he had been the holder of record at that time of the number of
shares of Common Stock into which his shares of Series B Preferred Stock were
convertible (pursuant to the provisions hereof) at such record time.
(g) The initial "Conversion Rate", subject to adjustment as
provided above, shall be 8 shares of Common Stock for each share of Series B
Preferred Stock,
4.2 SURRENDER OF CERTFICATES. Any holder of shares of Series B
Preferred Stock desiring to exercise the right of conversion herein provided
shall surrender to the Corporation at one of its share transfer agencies, or in
the event that at that time there is no such agency, then at the principal
office of the Corporation, the certificate or certificates representing the
shares of Series B Preferred Stock so to be converted, duly endorsed in blank
for transfer or accompanied by properly executed instruments for the transfer
thereof, together with a written request for the conversion thereof. The
Corporation shall execute and deliver, at the Corporation's expense, a new
certificate or certificates representing the shares of Common Stock into which
the shares of Series B Preferred Stock have been converted and, if applicable, a
new certificate or certificates representing the balance of the shares of Series
B Preferred Stock formerly represented by the surrendered certificate or
certificates which, at the holder's request, shall not have been converted into
shares of Common Stock.
Section 5. LITIGATION
5.1 RIGHTS OF HOLDERS OF SERIES B PREFERRED STOCK. In the event of
any voluntary or involuntary liquidation (whether complete or partial),
dissolution or winding up of the Corporation, the holders of Series B Preferred
stock shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus or
earnings, an amount in cash equal to the sum of $29 per share (the "Liquidation
Value"), plus all unpaid dividends accrued thereon to the date of final
distribution. No distribution shall be made on any Junior Securities (as defined
in Section 6.1) by reason of any voluntary or involuntary liquidation (whether
complete or partial), dissolution or winding up of the Corporation unless each
holder of any share of Series B Preferred Stock shall have received all amounts
to which such holder shall be entitled under this Section 5.1.
5.2 ALLOCATION OF LIQUIDATION PAYMENTS AMONG HOLDERS OF SERIES B
PREFERRED STOCK. If upon any dissolution, liquidation (whether complete or
partial), or winding up of the Corporation, the assets of the Corporation
available for distribution to holders of Series B Preferred Stock (hereinafter
in this Section 5.2 called the "Total Amount Available") shall be insufficient
to pay the holders of outstanding Series B Preferred Stock the full amounts to
which they shall be entitled under Section 5.1, each holder of Series B
Preferred Stock shall be entitled to receive an amount equal to the product
derived by multiplying the Total Amount Available by a fraction, the numerator
of which shall be the number of shares of Series B Preferred Stock held by such
holder and the denominator of which shall be the total number of shares of
Series B Preferred Stock then outstanding.
Section 6. ADDITIONAL PROVISIONS GOVERNING SERIES B PREFERRED STOCK
6.1 SENIORITY OVER JUNIOR SECURITIES. No dividend shall be paid on
any Junior Securities, no distribution of cash or property of any kind (other
than Junior Securities) shall be made for any reason (Including but not limited
to any voluntary or involuntary dissolution, winding up, or complete or partial
liquidation of the Corporation) by the Corporation or any subsidiary with
respect to any Junior Securities, and no redemption or other acquisition of any
Junior Securities shall be made directly or indirectly by the Corporation if,
4
when the payment of any such dividends, distribution, redemption or acquisition
is to be made: (a) any dividend which shall have become due on any share of
Series B Preferred Stock shall remain unpaid (except unpaid dividends added to
the Liquidation Value of Series B Preferred Stock pursuant to Section 3.4), or
(b) any other payment or distribution on or with respect to any shares of Series
B Preferred Stock under the terms hereof which shall have been due from the
Corporation at such time shall not have been made in full. The term "Junior
Securities" shall mean any equity security of any kind which the Corporation
shall at any time issue or be authorized to issue other than Series B Preferred
Stock.
6.2 VOTING RIGHTS. The holders of Series B Preferred Stock shall be
entitled to notice of all stockholders' meetings in accordance with the By-laws
of the Corporation and to vote on all matters submitted to the vote of the
holders of Common Stock provided, that each share of Series B Preferred Stock
shall represent such number of votes as shall equal the number of shares of
Common Stock into which such share is convertible at such time in accordance
with the provisions of Section 4, hereof.
6.3 METHOD OF PAYMENTS. Any payment at any time due with respect to
any share of Series B Preferred Stock (including but not limited to any payment
of any dividend due on such share, the payment of the Redemption Price for such
share, and any payment due on such share under Section 5) shall be made by means
of a check to the order of the record holder shown on the Corporation's records,
mailed by first class mail.
6.4 AMENDMENT AND WAIVER. No change affecting any interests of the
holders of shares of Series B Preferred Stock, including without limitation the
amendment of any rights or preferences of the Series B Preferred Stock or the
establishment of any class of stock ranking as to distribution of assets prior
to the Series B Preferred Stock, shall be binding or effectve unless such change
shall have been approved in writing by the holders of at least 51 % of the
shares of Series B Preferred Stock outstanding at the time such change shall be
made.
6.5 REGISTRATION OF TRANSFER OF SERIES B PREFERRED STOCK. The
Corporation will keep at one of its share transfer agencies, or in the event
that at that time there is no such agency, then in its principal office, a
register for the registration of the Series B Preferred Stock. Upon the
surrender of any certificate representing shares of Series B Preferred Stock at
such agency or the Corporation's principal office, the Corporation will at the
request of the registered holder of such certificate, execute and deliver, at
the Corporation's expense, a new certificate or certificates in exchange
representing the number of shares of Series B Preferred Stock represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall be substantially identical in form to the surrendered
certificate, and the shares of Series B Preferred Stock represented by such new
certificate shall earn cumulative dividends from the date to which dividends
shall have been paid on the shares represented by the surrendered certificate or
certificates.
6.6 REPLACEMENT. Upon receipt by the Corporation of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate evidencing one or more shares of
Series B Preferred Stock (an affidavit of the registered holder without bond
being satisfactory for this purpose) the Corporation, at its expense, will
execute and deliver in lieu of such certificate, a new certificate of like kind,
representing the number of shares of Series B Preferred Stock which shall have
been represented by such lost, stolen, destroyed or mutilated certificate, dated
and earning cumulative dividends from the date to which dividends shall have
been paid on such lost, stolen, destroyed or mutilated certificate.
B. ESTABLISHMENT OF SERIES C PREFERRED STOCK
Section 1. DESIGNATION AND AMOUNT; PAR VALUE.
5
The shares of such series shall be designated as "Series C Preferred
Stock" (the "Series C Preferred Stock") and the number of shares constituting
such series shall be 137,889. The par value of each share of the series shall be
$.01.
Section 2. DIVIDENDS ON SERIES C PREFERRED STOCK
2.1 GENERAL DIVIDEND OBLIGATIONS. The Corporation shall pay to the
holders of the Series C Preferred Stock out of the assets of the Corporation, at
any time available for the payment of dividends under the provisions of the
General Corporation Law of the State of Delaware, preferential dividends at the
times and in the amounts provided for in this Section 2.
2.2 ACCRUAL OF DIVIDENDS. Dividends on each share of Series C
Preferred Stock shall be cumulative from the date of issuance of such share of
Series C Preferred Stock, whether or not at the time such dividend shall accrue
or become due or at any other time there shall be profits, surplus or other
funds of the Corporation legally available for the payment of dividends.
Dividends shall accrue on each share of Series C Preferred Stock (at the rate
and in the manner prescribed by this Section 2.2 and Sections 2.3 and 3.4
hereof) from and including the date of issuance of such share to and including
the date on which either (a) payment equal to the Redemption Price of such share
(as defined in Section 3.4 hereof) shall have been paid in the manner prescribed
in Section 6.3 hereof or (b) such share shall be converted into shares of Common
Stock, as set forth in Section 4 hereof. For purposes of this Section 2.2, the
date on which the Corporation shall initially issue any share of Series C
Preferred Stock shall be deemed to be the "date of issuance" of such share
regardless of how many times transfer of such share shall be made on stock
records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share (whether by reason of
transfers of such share or for any other reason).
2.3 PAYMENT OF DIVIDENDS. Dividends shall accrue on each share of
Series C Preferred Stock (computed on a daily basis on the basis of a 360 day
year) at the rate of 8% per annum of the Liquidation Value (as defined in
Section 5.1 hereof). Dividends shall be payable on Series C Preferred Stock
quarterly on the first day of each January, April, July and October, and each
such day is herein called a "Dividend Payment Date". On each Divided Payment
Date all dividends which shall have accrued on each share of Series C Preferred
Stock then outstanding during the quarter year ending upon the day immediately
preceding such Dividend Payment Date shall be deemed to become "due" for all
purposes of this Section regardless of whether the Corporation shall be able or
legally permitted to pay such dividend on such Dividend Payment Date. If any
dividend on any share shall for any reason not be paid at the time such dividend
shall become due, such dividend in arrears shall be paid as soon as payments of
same shall be permissible under the provisions of the General Corporation Law of
the State of Delaware. Until such dividend in arrears is paid, dividends shall
continue to accrue on shares of Series C Preferred Stock but the percentage rate
expressed herein shall be applied to the Liquidation Value thereof plus all
dividends in arrears thereon (including dividends computed pursuant to this
sentence).
2.4 DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. If at any time the
Corporation shall pay less than the total amount of dividends due on outstanding
Series C Preferred Stock, at the time of such payment, such payment shall be
distributed among the holders of Series C Preferred Stock so that an equal
amount shall be paid with respect to each outstanding share of Series C
Preferred Stock.
Section 3. OPTIONAL REDEMPTION
3.1 TIME OF ELECTION. The Corporation may, within 120 days of the
occurrence of a "Capital Event", as defined below, elect by written notice (the
"Redemption Notice") to the holders of the Series C Preferred Stock to redeem
all or a portion of the outstanding shares of Series C Preferred Stock. A
"Capital Event" shall be defined as a sale of assets of the Corporation which
results in the excess of cash proceeds received by the Corporation in
consideration for such assets exceeds the Corporations basis in such assets by
at lease
6
$55,000,000. The Redemption Notice shall set forth the number of shares of
Series C Preferred Stock to be redeemed, the date upon which such redemption
will be effected, and the procedure for payment of the Redemption Price and the
surrender of Certificates representing the redeemed Series C Preferred Stock.
3.2 REDEEMED SERIES C PREFERRED STOCK TO BE CANCELLED. The
Corporation shall cancel each share of Series C Preferred Stock which it shall
redeem or for any other reason acquire, and no shares of Series C Preferred
Stock which shall be redeemed or otherwise acquired by the Corporation shall
thereafter be reissued, sold or transferred by the Corporation to any person.
The number of shares of Series C Preferred Stock which the Corporation shall be
authorized to issue shall be deemed to be reduced by the number of shares of
Series C Preferred Stock which the Corporation shall redeem or otherwise
acquire.
3.3 DETERMINATION OF NUMBER OF EACH HOLDER'S SHARES TO BE REDEEMED.
If the Corporation does not redeem all of the outstanding shares of Series C
Preferred Stock on the Redemption Date, the number of shares of Series C
Preferred Stock to be redeemed from each holder thereof shall be determined by
multiplying the total number of shares of Series C Preferred Stock to be
redeemed by a fraction, the numerator of which shall be the total number of
shares of Series C Preferred Stock held by such holder and the denominator of
which shall be the total number of shares of Series C Preferred Stock
outstanding except that in situations to which Section 3.4(b) hereof applies,
the Corporation shall not, as set forth in such Section, repurchase the last
share of Series C Preferred Stock held by any holder.
3.4 REDEMPTION PRICE.
(a) For each share of Series C Preferred Stock which shall be
redeemed by the Corporation pursuant to this Section 3, the Corporation shall be
obligated to pay to the holder of such share an amount (herein called the
"Redemption Price") for such share equal to $72 per share. The Corporation shall
be obligated to pay on any Redemption Date both the Redemption Price for each
share and all dividends which shall have accrued (computed on a daily basis) on
each share to and including the Redemption Date and which shall not previously
have been paid. Such payments which the Corporation shall be obligated to make
on any Redemption Date shall be deemed to become "due" for all purposes of this
Section 3 regardless of whether paid on such Redemption Date.
(b) If for any reason the Corporation is prohibited from paying
accrued unpaid dividends on shares of Series C Preferred Stock being redeemed
from any holder, then such accrued unpaid dividends shall be added in equal
amounts per share to the Liquidation Value of the shares of Series C Preferred
Stock remaining outstanding in the hands of such holder, provided, that in no
event shall the Corporation redeem the last share of Series C Preferred Stock
(the "Last Share") held by any holder until the Corporation shall have paid to
such holder all accrued unpaid dividends on all Series C Preferred Stock held by
such holder at any time. The shares of Series C Preferred Stock remaining
outstanding after any redemption (including the Last Share), and including the
accrued unpaid dividends thereon, shall continue to earn cumulative dividends at
the rate and in the manner prescribed in Section 2.3 hereof.
(c) Each holder of Series C Preferred Stock shall be entitled to
receive on or at any time after any Redemption Date the full Redemption Price,
plus accrued unpaid dividends, for each share of Series C Referred Stock held by
such holder which the Corporation shall be obligated to redeem on the Redemption
Date upon surrender by such holder to the Corporation of the certificate
representing such share of Series C Preferred Stock duly endorsed in blank or
accompanied by an appropriate form of assignment duly endorsed in blank. The
holder shall surrender such certificate at one of its share transfer agencies,
or in the event that at that time there is no such agency, then at the
Corporation's principal office. After the payment by the Corporation in the
manner required by Section 6.3 hereof of the full Redemption Price for any
Series C Preferred Stock, plus accrued unpaid dividends except as otherwise
provided in Section 3.4(b) hereof, all rights of the holder of such stock shall
7
(whether or not the certificate representing such share of Series C Preferred
Stock shall have been surrendered for cancellation) cease and terminate with
respect to such share of Series C Preferred Stock.
Section 4. CONVERSION.
4.1 RIGHT TO CONVERT.
(a) At any time from and after the filing by the Corporation of
a Certificate of Amendment to its Certificate of Incorporation which increases
the number of authorized shares of Common Stock of the Corporation by at least
5,000,000 shares (the "Certificate of Amendment"), the shares of Series C
Preferred Stock, at the option of the respective holders thereof, may at any
time, and from time to time, be converted into fully paid and nonassessable
shares of Common Stock of the Corporation at the "Conversion Rate" provided for
in subsection 4.1(g) below. The Corporation shall, within 365 days after the
date hereof, submit to the stockholders of the Corporation a proposal to
increase the number of authorized shares of Common Stock by at least 5,000,000
shares.
(b) So long as any shares of Series C Preferred Stock shall be
outstanding, the Corporation will not make any share distribution on its shares
of Common Stock unless the Corporation, by proper legal action, shall have
authorized and reserved an amount of shares equal to the amount thereof which
would have been declared upon the shares of Common Stock into which such shares
of Series C Preferred Stock might have been converted, and the Corporation
shall, out of such additional shares so authorized and reserved on account of
such share distribution, upon the conversion of any shares of Series C Preferred
Stock, deliver with any shares of Common Stock into which shares of Series C
Preferred Stock are converted, but without additional consideration therefor,
such number of shares of Common Stock as would have been deliverable to the
holders of the Common Stock into which such shares of Series C Preferred Stock
had been so converted had such shares of Common Stock been outstanding at the
time of such share distribution. For the purpose of this Section 4.1, a share
distribution shall be a dividend payable only in shares of Common Stock of the
Corporation of the same class as the present authorized shares of Common Stock.
This shall not limit the right of the Corporation, however, to declare and pay
any dividends whether in cash, shares, or otherwise, except as specifically
otherwise provided herein.
(c) In case of any combination or change of the shares of Series
C Preferred Stock or of the shares of Common Stock into a different number of
shares of the same or any other class or classes, or in case of any
consolidation or merger of the Corporation with or into another corporation, or
in case of any sale or conveyance to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, the Conversion Rate
shall be appropriately adjusted so that the rights of the holders of shares of
Series C Preferred Stock will not be diluted as a result of such combination,
change, consolidation, merger, sale or conveyance. Adjustments in the rate of
conversion shall be calculated to the nearest one-tenth of a share.
(d) From and after the filing of a Certificate of Amendment and
so long as any shares of Series C Preferred Stock are outstanding, the
Corporation shall reserve and keep available out of its duly authorized but
unissued shares for the purpose of effecting the conversion of the shares of
Series C Preferred Stock such number of its duly authorized shares of Common
Stock and other securities as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series C Preferred Stock.
(e) Any dividends accrued on any shares of Series C Preferred
Stock from the preceding Dividend Payment Date to the date of conversion shall
be payable to the holder of record of such shares immediately prior to its
conversion. In the event that any dividends on the outstanding shares of Common
Stock shall have been declared prior to, and shall be payable subsequent to, the
conversion of such shares of Series C Preferred Stock, such dividends shall not
be payable on any shares of Common Stock into which such shares of Series C
Preferred Stock shall have been converted.
8
(f) In the event that the Corporation shall at any time or from
time to time offer to the holders of the shares of Common Stock any rights to
subscribe for shares or any other securities of the Corporation, each holder
of record of the shares of Series C Preferred Stock at the time at which the
record is taken of the holders of shares of Common Stock entitled to receive
such rights shall be entitled to subscribe for and purchase, at the same price
at which such shares or other securities are offered to the holders of the
shares of Common Stock and on the same terms, the number of such shares or the
amount of such other securities for which such holder would have been entitled
to subscribe if he had been the holder of record at that time of the number of
shares of Common Stock into which his shares of Series C Preferred Stock were
convertible (pursuant to the provisions hereof) at such record time.
(g) The initial "Conversion Rate", subject to adjustment as
provided above, shall be 24 shares of Common Stock for each share of Series C
Preferred Stock.
4.2 SURRENDER OF CERTIFICATES. Any holder of shares of Series C
Preferred Stock desiring to exercise the right of conversion herein provided
shall surrender to the Corporation at one of its share transfer agencies, or in
the event that at that time there is no such agency, then at the principal
office of the Corporation, the certificate or certificates representing the
shares of Series C Preferred Stock so to be converted, duly endorsed in blank
for transfer or accompanied by properly executed instruments for the transfer
thereof, together with a written request for the conversion thereof. The
Corporation shall execute and deliver, at the Corporation's expense, a new
certificate or certificates representing the shares of Common Stock into which
the shares of Series C Preferred Stock have been converted and, if applicable, a
new certificate or certificates representing the balance of the shares of Series
C Preferred Stock formerly represented by the surrendered certificate or
certificates which, at the holder's request, shall not have been converted into
shares of Common Stock.
Section 5. LIQUIDATION
5.1 RIGHTS OF HOLDERS OF SERIES C PREFERRED STOCK. In the event of
any voluntary or involuntary liquidation (whether complete or partial),
dissolution or winding up of the Corporation, the holders of Series C Preferred
Stock shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus or
earnings, an amount in cash equal to the sum of $72 per share plus any amounts
payable pursuant to Section 3.4(b) (the "Liquidation Value"), plus all unpaid
dividends accrued thereon to the date of final distribution. No distribution
shall be made on any Junior Securities (as defined in Section 6.1) by reason of
any voluntary or involuntary liquidation (whether complete or partial),
dissolution or winding up of the Corporation unless each holder of any share of
Series C Preferred Stock shall have received all amounts to which such holder
shall be entitled under this Section 5.1.
5.2 ALLOCATION OF LIQUIDATION PAYMENTS AMONG HOLDERS OF SERIES C
PREFERRED STOCK. If upon any dissolution, liquidation (whether complete or
partial), or winding up of the Corporation, the assets of the Corporation
available for distribution to holders of Series C Preferred Stock (hereinafter
in this Section 5.2 called the "Total Amount Available") shall be insufficient
to pay the holders of outstanding Series C Preferred Stock the full amounts to
which they shall be entitled under Section 5.1, each holder of Series C
Preferred Stock shall be entitled to receive an amount equal to the product
derived by multiplying the Total Amount Available by a fraction, the numerator
of which shall be the number of shares of Series C Preferred Stock held by such
holder and the denominator of which shall be the total number of shares of
Series C Preferred Stock then outstanding.
Section 6. ADDITIONAL PROVISIONS GOVERNING SERIES C PREFERRED STOCK
6.1. SENIORITY OVER JUNIOR SECURITIES. No dividend shall be paid on
any Junior Securities, no distribution of cash or property of any kind (other
than Junior Securities) shall be made for any reason (Including but not limited
to any voluntary or involuntary dissolution, winding up, or complete or partial
liquidation of the Corporation) by the Corporation or any subadiary with respect
9
to any Junior Securities, and no redemption or other acquisition of any Junior
Securities shall be made directly or indirectly by the Corporation if, when the
payment of any such dividends, distribution, redemption or acquisition is to be
made: (a) any dividend which shall have become due on any share of Series C
Preferred Stock shall remain unpaid (except unpaid dividends added to the
Liquidation Value of Series C Preferred Stock pursuant to Section 3.4), or (b)
any other payment or distribution on or with respect to any shares of Series C
Preferred Stock under the terms hereof which shall have been due from the
Corporation at such time shall not have been made in full. The term "Junior
Securities" shall mean any equity security of any kind which the Corporation
shall at any time issue or be authorized to issue other than Series C Preferred
Stock and Series B Preferred Stock that the Corporation heretofore authorized.
6.2 VOTING RIGHTS. The holders of Series C Preferred Stock shall be
entitled to notice of all stockholders' meetings in accordance with the By-laws
of the Corporation and to vote on all matters submitted to the vote of the
holders of Common Stock provided that each share of Series C Preferred Stock
shall represent such number of votes as shall equal the number of shares of
Common Stock into which such share is convertible at such time in accordance
with the provisions of Section 4, hereof.
6.3 METHOD OF PAYMENTS. Any payment at any time due with respect to
any share of Series C Preferred Stock (including but not limited to any payment
of any dividend due on such share, the payment of the Redemption Price for such
share, and any payment due on such share under Section 5) shall be made by means
of a check to the order of the record holder shown on the Corporation's records,
mailed by first class mail.
6.4 AMENDMENT AND WAIVER. No change affecting any interests of the
holders of shares of Series C Preferred Stock, including without limitation the
amendment of any rights or preferences of the Series C Preferred Stock or the
establishment of any class of stock ranking as to distribution of assets prior
to the Series C Preferred Stock, shall be binding or effective unless such
change shall have been approved in writing by the holders of at least 51% of the
shares of Series C Preferred Stock outstanding at the time such change shall be
made.
6.5 REGISTRATION OF TRANSFER OF SERIES C PREFERRED STOCK. The
Corporation will keep at one of its share transfer agencies, or in the event
that at that time there is no such agency, then in its principal office, a
register for the registration of the Series C Preferred Stock. Upon the
surrender of any certificate representing shares of Series C Preferred Stock at
such agency or the Corporation's principal office, the Corporation will, at the
request of the registered holder of such certificate, execute and deliver, at
the Corporation's expense, a new certificate or certificates in exchange
representing the number of shares of Series C Preferred Stock represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall be substantially identical in form to the surrendered
certificate, and the shares of Series C Preferred Stock represented by such new
certificate shall earn cumulative dividends from the date to which dividends
shall have been paid on the shares represented by the surrendered certificate or
certificates.
6.6 REPLACEMENT. Upon receipt by the Corporation of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate evidencing one or more shares of
Series C Preferred Stock (an affidavit of the registered holder without bond
being satisfactory for this purpose) the Corporation, at its expense, will
execute and deliver in lieu of such certificate, a new certificate of like kind,
representing the number of shares of Series C Preferred Stock which shall have
been represented by such lost, stolen, destroyed or mutilated certificate, dated
and earning cumulative dividends from the date to which dividends shall have
been paid on such lost stolen, destroyed or mutilated certificate.
10
IN WITNESS WHEREOF, ALPHA HOSPITALITY CORPORATION has caused this
Certificate of Designation to be executed by its President and attested to by
its Secretary this 29th day of May, 1998.
ALPHA HOSPITALITY CORPORATION
/s/ Stanley S. Tollman
------------------------------------------
Stanley S. Tollman, Chairman and President
ATTEST:
/s/ Herbert F. Kozlov
-----------------------------
Herbert F. Kozlov, Secretary
EXHIBIT 4.4
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF DESIGNATION
SETTING FORTH THE PREFERENCES, RIGHTS
AND LIMITATIONS OF SERIES B PREFERRED STOCK
AND SERIES C PREFERRED STOCK
OF ALPHA HOSPITALITY CORPORATION
ALPHA HOSPITALITY CORPORATION (the "Corporation"), a Delaware
corporation, certifies that, pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law (the "GCL") of the
State of Delaware, its Board of Directors has adopted the following preambles
and resolutions, which the stockholders have approved at a duly called and held
meeting, upon notice in accordance with Section 222 of the GCL, at which meeting
the necessary number of votes as required by statute were cast in favor of the
amendment, amending and clarifying the preferences, rights and limitations of
the Corporation's existing Series C Preferred Stock, originally established by a
Certificate of Designation Setting Forth the Preferences, Rights and Limitations
of Series B Preferred Stock and Series C Preferred Stock of Alpha Hospitality
Corporation (the "Certificate of Designation"), filed with the Secretary of
State on July 24, 1998.
WHEREAS, the Corporation desires to have the option to pay dividends
for the Series C Preferred Stock with sharers of Common Stock in lieu of cash;
and
WHEREAS, the Corporation deems it appropriate to amend the
preferences and rights of the Series C Preferred Stock to include a provision
whereby the Corporation can issue shares of Common Stock in lieu of the cash
dividend accrued on its Series C Preferred Stock and
NOW THEREFORE, it is hereby
RESOLVED, that Part B of the Certificate of Designation be amended
to include a new Section 2.4, setting forth the terms and conditions for payment
of dividends of Series C Preferred Stock in shares of Common Stock, effective
upon the filing of an appropriate amendment to the Certificate of Designation
with the Secretary of State, to read as set forth below, and the original
Section 2.4 be renumbered to Section 2.5:
2.4 PAYMENT OF DIVIDEND IN SHARES OF COMMON STOCK. Notwithstanding
the provisions of Section 2.3 hereof, commencing in the year 2002,
any dividend payment that is not made by the Corporation on or
before January 30 of the calendar year following the calendar year
for which such dividend accrued may, at the option of the
Corporation's Board of Directors, be payable in the form of shares
of Common Stock, in such number of shares as shall be determined by
dividing (A) the product of (x) the amount of the unpaid dividend
multiplied by (y) 1.3 by (B) the Fair Market Value of the Common
Stock. For this purpose, "Fair Market Value" shall mean, with
respect to the Common Stock, the average of the daily closing prices
for the Common Stock of the Corporation for the twenty (20)
consecutive trading days preceding the applicable January 30 date,
with the closing price for each day being the closing price reported
on the principal securities exchange upon which the Common Stock of
the Corporation is traded or, if it is not so traded, then the
average of the closing bid and asked prices as reported by the
National Association of Securities Dealers Automated Quotation
System or, if not quoted thereon, in the interdealer market on the
"Pink Sheets" of the National Quotation Bureau (excluding the
highest and lowest bids on each day that there are four (4) or more
market makers).
IN WITNESS WHEREOF, ALPHA HOSPITALITY CORPORATION has caused this
Certificate of Amendment to the Certificate of Designation to be executed by its
President and attested to by its Secretay this 13th day of June, 2001.
ALPHA HOSPITALITY CORPORATION
/s/ Stanley S. Tollman
-----------------------------------
Stanley S. Tollman, Chairman and
President
ATTEST:
/s/ Thomas W. Aro
--------------------------
Thomas W. Aro, Secretary
EXHIBIT 4.5
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES E PREFERRED STOCK
($.01 PAR VALUE PER SHARE)
OF
ALPHA HOSPITALITY CORPORATION
A DELAWARE CORPORATION
----------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
----------
ALPHA HOSPITALITY CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of said Corporation, and pursuant to the provisions of Section 151 of the
Delaware General Corporation Law, there hereby is created, out of the 5,000,000
shares of Preferred Stock of the Corporation authorized in Article FOURTH of the
Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred
stock consisting of 1,730,697 shares, $.01 par value per share, to be designated
"Series E Preferred Stock," and to that end the Board adopted a resolution
providing for the designations, powers, preferences and rights, and the
qualifications, limitations and restrictions, of the Series E Preferred Stock,
which resolution is as follows:
RESOLVED, that the Certificate of the
Designations, Powers, Preferences and Rights of the Series
E Preferred Stock ("Certificate of Designation") be and is
hereby authorized and approved, which Certificate of
Designation shall be filed with the Delaware Secretary of
State in the form as follows:
1. DESIGNATIONS AND AMOUNT. One Million Seven Hundred Thirty
Thousand Six Hundred Ninety Seven (1,730,697) shares of the Preferred Stock of
the Corporation, $.01 par value per share, shall constitute a class of Preferred
Stock designated as "Series E Preferred Stock" (the "Series E Preferred Stock").
2. DIVIDENDS.
(a) The holders of shares of Series E Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation (the "Board") out of assets of the Corporation legally available for
payment, a cash dividend at the rate of 8% of the Liquidation Value (or $.80)
per annum per share of Series E Preferred Stock (the "Preferred Dividend"),
payable only as provided in Section 2(b) hereof. The Preferred Dividend shall
accrue and shall be cumulative from the date of initial issuance of such share
of Series E Preferred Stock. The amount of the Preferred Dividend that shall
accrue for the initial dividend period and for any period shorter than a full
dividend period shall be computed on the basis of a 360-day year of twelve
30-day months.
(b) The Preferred Dividend shall be payable (whether or not
declared by the Board) upon the effective date of the earliest of a (i)
redemption of the Series E Preferred Stock in accordance with Section 6 hereof
or (ii) Liquidation (as hereinafter defined).
3. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP, ETC. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation (each, a "Liquidation"), no distribution shall all be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the holders of the Series E Preferred
Stock unless, prior thereto, the holders of such shares of Series E Preferred
Stock shall have received $10.00 per share (the "Liquidation Value"), plus an
amount equal to all accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment. For purposes of this
Certificate of Designation, each of (1) the sale, conveyance, exchange or
transfer of all or substantially all of the property and assets of the
Corporation or (2) the consolidation or merger of the Corporation with or into
any other corporation, in which the stockholders of the Corporation immediately
prior to such event do not own a majority of the outstanding shares of the
surviving corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation.
4. RANK. The Series E Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, senior to all series of
any other class of the Corporation's Preferred Stock.
5. VOTING RIGHTS. The holders of Series E Preferred Stock shall not
be entitled to vote on any matter except as required by law.
6. REDEMPTION. The Corporation, at the option of the Board, may
redeem the whole or any part of the Series E Preferred Stock at any time
outstanding, at any time or from time to time, by paying the redemption price of
$10.00 per share, plus accrued dividends, in cash or, in its sole discretion, by
delivery of a Note in the form attached hereto as Exhibit A, for each share of
Series E Preferred Stock so to be redeemed plus dividends accrued thereon at the
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date fixed for redemption. In the case of the redemption of only a part of the
Series E Preferred Stock at the time outstanding, the Corporation shall select
by lot or in such other manner as the Board may determine the shares to be
redeemed. The Board shall have full power and authority, subject to the
limitations and provisions contained herein, to prescribe the manner in which
and the terms and conditions upon which the Series E Preferred Stock shall be
redeemed from time to time. If the Board has elected to redeem such Series E
Preferred Stock by paying cash and on or before the date fixed by the Board for
redemption the funds necessary for such redemption shall have been set apart so
as to be and continue to be available therefor, then, notwithstanding that any
certificates for the shares of Series E Preferred Stock so called for redemption
shall not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding, the right to receive dividends thereon
shall cease to accrue from and after the date of redemption so fixed, and all
rights with respect to such shares of Series E Preferred Stock so called for
redemption shall immediately on such redemption date cease and terminate, except
only the right of the holders thereof to receive the redemption price therefor,
but without interest. None of the Series E Preferred Stock acquired by the
Corporation by redemption or otherwise shall be reissued or disposed of but
shall from time to time be retired in the manner provided by law.
7. NO PRE-EMPTIVE RIGHTS. No holder of shares of Series E Preferred
Stock will possess any preemptive rights to subscribe for or acquire any
unissued shares of capital stock of the Corporation (whether now or hereafter
authorized) or securities of the Corporation convertible into or carrying a
right to subscribe to or acquire shares of capital stock of the Corporation.
IN WITNESS WHEREOF, Alpha Hospitality Corporation has caused this
Certificate of Designation to be executed this 10th day of December, 2002.
ALPHA HOSPITALITY CORPORATION
By: /s/ Scott Kaniewski
------------------------------------------
Name: Scott Kaniewski
Title: CFO
EXHIBIT 4.6
EMPIRE RESORTS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND OTHER RIGHTS AND QUALIFICATIONS
OF THE
SERIES E PREFERRED STOCK
Empire Resorts, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware, hereby certifies as follows:
I. NAME. The name of the corporation is:
Empire Resorts, Inc.
II. RESOLUTION TO ADOPT CERTIFICATE OF AMENDMENT OF CERTIFICATE OF
DESIGNATIONS OF SERIES E PREFERRED STOCK. The Board of Directors of the
Corporation has duly adopted a resolution proposing the approval and adoption by
the Corporation of this Certificate of Amendment of Certificate of the
Designations, Powers, Preferences and Other Rights and Qualifications of the
Series E Preferred Stock (this "CERTIFICATE"), declaring the adoption of this
Certificate to be advisable, and directing that this Certificate be submitted
for approval by the stockholders of the corporation in accordance with the
requirements of the General Corporation Law of the State of Delaware and this
Certificate and the resolution set forth herein has been duly adopted in
accordance with the provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware. The resolution setting forth the
proposed amendment is as follows:
WHEREAS, Section 303 of the New York Racing, Pari-Mutuel Wagering
and Breeding Law provides that if the New York Racing and Wagering Board, which
licenses Monticello Raceway Management, Inc. ("MRMI") to operate Monticello
Raceway, determines that it is inconsistent with the public interest,
convenience or necessity, or with the best interests of racing generally, that
any person continue to be a stockholder of record or the beneficial owner of any
association or corporation licensed to conduct pari-mutuel wagering and harness
horse racing in New York, or which owns 25% or more of the stock of such
licensee, the board may order or direct each such stockholder or beneficial
owner, irrespective of the time when such stockholder or beneficial owner
acquired his stock or beneficial interest, to dispose of such stock or interest
within a prescribed period of time to be specified by the Board;
WHEREAS, as the Corporation will own 100% of MRMI pursuant to that
certain Amended and Restated Securities Contribution Agreement, dated as of
December 12, 2003, by and among the Corporation, Alpha Monticello, Inc., a
Delaware corporation, Catskill Development, L.L.C., a New York limited liability
company, Monticello Realty L.L.C., a Delaware limited liability company,
Americas Tower Partners, a New York general partnership, Watertone Holdings, LP,
a Delaware limited partnership, New York Gaming, LLC, a Georgia limited
liability company, Fox-Hollow Lane, LLC, a New York limited liability company,
Shamrock Strategies, Inc., a Delaware corporation, Kaniewski Family Limited
Partnership, a Georgia limited partnership, KFP Trust, an Illinois Trust, BKB,
LLC, a New York limited liability company, Clifford A. Ehrlich, Robert A.
Berman, Philip B. Berman and Scott A. Kaniewski (together, the "CONSOLIDATION"),
Section 303 of the New York Racing, Pari-Mutuel Wagering and Breeding Law will
be applicable to the Corporation's stockholders upon the Consolidation's
closing;
WHEREAS, there are presently 1,730,697 shares of non-voting Series E
Preferred Stock of the Corporation issued and outstanding, 1,704,030 of which
are owned by Stanley Tollman and The Bryanston Group, Inc.;
WHEREAS, in April 2002, each of Stanley Tollman, Brett Tollman and
Monty Hundley were indicted by a federal grand jury on 44 counts of tax fraud
and bank fraud, and on September 5, 2003, Brett Tollman pleaded guilty to tax
fraud and admitted failing to report $2.7 million in income to the Internal
Revenue Service;
WHEREAS, each of Stanley Tollman, Brett Tollman and Monty Hundley is
an affiliate of The Bryanston Group, Inc.;
WHEREAS, these events may have increased the likelihood, however
small, that the New York Racing and Wagering Board may deem both Stanley Tollman
and The Bryanston Group, Inc. to be unsuitable stockholders of the Corporation
and demand that they immediately liquidate their interests in the Corporation;
WHEREAS, the board of directors believes that as the Series E
Preferred Stock currently has no voting rights, liquidation of these equity
interests would be difficult, and that an inability of Stanley Tollman or The
Bryanston Group, Inc. to liquidate their respective holdings of Series E
Preferred Stock would place MRMI's gaming license in jeopardy; and
WHEREAS, the board of directors believes that by attaching certain
voting rights to the Series E Preferred Stock, the Series E Preferred Stock
would be more marketable in the event of a forced liquidation.
NOW, THEREFORE, BE IT:
RESOLVED, an amendment of the Series E Certificate of Designations
be and hereby is authorized and approved, and a certificate embodying such
amendment relating to the series of preferred stock of the Corporation
designated as "Series E Preferred Stock" is hereby approved and, upon approval
thereof in accordance with the General Corporation Law of the State of Delaware,
is directed to be filed with the Delaware Secretary of State, as follows:
1. Section 5 is hereby amended and restated in its entirety to read
as follows:
"5. VOTING RIGHTS. The holders of shares of Series E Preferred
Stock shall be entitled to vote on all matters on which holders of Common Stock
shall be entitled to vote, casting such number of votes equal to a fraction, the
numerator of which is the number of shares of Series E Preferred Stock then
held, and the denominator of which is four (4), voting together as one class
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with, and in the same manner and with the same effect as, such holders of Common
Stock."
2. CONTINUED EFFECTIVENESS. The Series E Certificate of
Designations is not amended hereby except as set forth herein and, as so
amended, continues in full force and effect.
[Signature appears on the following page.]
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THE UNDERSIGNED, a duly authorized officer of the Corporation, in
accordance with the provisions of the General Corporation Law of the State of
Delaware, does make this certificate, and declare and certify that it is the act
and deed of the Corporation and the facts herein stated are true, and signs this
Certificate this 12th day of January, 2004.
EMPIRE RESORTS, INC.
By: /s/ Scott A. Kaniewski
-------------------------------
Name: Scott A. Kaniewski
Title: CFO
-4-
EXHIBIT 10.16
EMPIRE RESORTS, INC.
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
January 26, 2004, among Empire Resorts, Inc., a Delaware corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each a
"PURCHASER" and collectively the "PURCHASERS"); and
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company in the aggregate, $30,375,000 of Common Stock on the
Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained
in this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"ACTION" shall have the meaning ascribed to such term in Section
3.1(j).
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed
under Rule 144.
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by
law or other governmental action to close.
"CLOSING" means the closing of the purchase and sale of the
Common Stock pursuant to Section 2.1.
"CLOSING DATE" means the date of the Closing, which shall be the
date hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, $0.01 par
value per share, and any securities into which such common stock may
hereafter be reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that
is at any time convertible into or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Olshan Grundman Frome Rosenzweig &
Wolosky LLP, counsel to the Company.
"DISCLOSURE SCHEDULES" means the Disclosure Schedules attached
hereto.
"EFFECTIVE DATE" means the date that the Registration Statement
is first declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
such term in Section 3.1(o).
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal or other restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to such
term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term
in Section 3.1(m).
"PER SHARE PURCHASE PRICE" equals $7.50, subject to adjustment
for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"REGISTRATION STATEMENT" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company
and each Purchaser, in the form of Exhibit A hereto.
"RULE 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECURITIES" means the Shares.
2
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Common Stock issued or issuable to
each Purchaser pursuant to this Agreement.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amounts
set forth below such Purchaser's signature block on the signature
page hereto, in United States dollars and in immediately available
funds.
"SUBSIDIARY" means any "significant subsidiary" as defined in
Rule 1-02(w) of Regulation S-X promulgated by the Commission under
the Exchange Act.
"TRADING DAY" means (i) a day on which the Common Stock is traded
on a Trading Market, or (ii) if the Common Stock is not listed on a
Trading Market, a day on which the Common Stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or
(iii) if the Common Stock is not quoted on the OTC Bulletin Board, a
day on which the Common Stock is quoted in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding its functions of
reporting prices); provided, that in the event that the Common Stock
is not listed or quoted as set forth in (i), (ii) and (iii) hereof,
then Trading Day shall mean a Business Day.
"TRADING MARKET" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market.
"TRANSACTION DOCUMENTS" means this Agreement and the Registration
Rights Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Purchasers shall purchase, severally and not
jointly, and the Company shall issue and sell, in the aggregate, 4,050,000
shares of Common Stock, with each such share being purchased at the Per Share
Purchase Price. Each Purchaser shall purchase from the Company, and the Company
shall issue and sell to each Purchaser, a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase Price as
determined pursuant to Section 2.2(a). As soon as practicable following
satisfaction of the conditions set forth in Section 2.2 and Article VI, the
Closing shall occur at the offices of Mayer, Brown, Rowe & Maw LLP, 1675
Broadway, New York, New York 10019, or such other location as the parties shall
mutually agree.
2.2 CLOSING DELIVERIES.
(a) At the Closing the Company shall deliver or cause to be
delivered to each Purchaser the following:
3
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares equal to
such Purchaser's Subscription Amount divided by the Per Share
Purchase Price, registered in the name of such Purchaser;
(iii) the Registration Rights Agreement duly executed by the
Company; and
(iv) the legal opinion(s) of Company Counsel, executed by
such counsel and delivered to the Purchasers, in form and substance
reasonably satisfactory to all Purchasers.
(b) At the Closing each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount as to such Closing
by wire transfer to the account designated in writing by the
Company;
(iii) the Registration Rights Agreement duly executed by
such Purchaser; and
(iv) completed Investor Questionnaires, in the form attached
as Exhibit B hereto, duly executed by such Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
7.4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth in the SEC Reports or under the corresponding section of the Disclosure
Schedules delivered concurrently herewith, the Company hereby makes the
following representations and warranties as of the date hereof and as of the
Closing Date to each Purchaser:
(a) SUBSIDIARIES. The Company owns, directly or indirectly, all
of the capital stock of each Subsidiary free and clear of any lien,
charge, security interest, encumbrance, right of first refusal or other
restriction (collectively, "Liens"), and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and
each Subsidiary is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational
or charter documents. Each of the Company and the Subsidiaries is duly
qualified or licensed to conduct business and is in good standing as a
4
foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, would not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business or financial
condition of the Company and the Subsidiaries, taken as a whole, or (iii)
adversely impair the Company's ability to perform in any material respect
on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT").
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to execute and deliver each of the
Transaction documents and to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is party and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents to which it is a party by
the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company or its
stockholders in connection therewith. Each Transaction Document including
this Agreement has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents to which it is a party by the Company and the
consummation by the Company of the transactions contemplated thereby do
not and will not (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) conflict with, or result in or constitute any
violation of, any award, decision, judgment, decree, injunction, writ,
order, subpoena, ruling, verdict or arbitration award entered, issued,
made or rendered by any federal, state, local or foreign government or any
other Governmental Entity (each an "ORDER"), or any Law, applicable to the
Company or any of its subsidiaries, or to any of their respective
properties or assets, or to any Securities; (a) result in the creation or
imposition of (or the obligation to create or impose) any Lien on any of
the properties or assets of the Company or any of its subsidiaries, or on
any of the Securities; or (b) conflict with, or result in or constitute
5
any violation of, or result in the termination, suspension or revocation
of, any Authorization applicable to the Company or any of its
subsidiaries, or to any of their respective properties or assets, or to
any of the Securities, or result in any other impairment of the rights of
the holder of any such Authorization; except in the case of each of
clauses (ii) and (iii), such as would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
(e) FILINGS, CONSENTS AND APPROVALS. Assuming the accuracy of
the representation of each Purchaser set forth in Section 3.2 hereof, no
registration (including any registration under the Securities Act) or
filing with, or any notification to, or any approval, permission, consent,
ratification, waiver, authorization, order, finding of suitability,
permit, license, franchise, exemption, certification or similar instrument
or document (each, an "AUTHORIZATION") of or from, any court, arbitral
tribunal, arbitrator, administrative or regulatory agency or commission or
other governmental or regulatory authority, agency or governing body,
domestic or foreign, including without limitation any Indian tribe or
gaming commission, authority or control board (each, a "GOVERNMENTAL
ENTITY"), or any other person, or under any statute, law, ordinance, rule,
regulation or agency requirement of any Governmental Entity, including
without limitation any gaming regulation or regulatory requirement (each,
a "LAW"), on the part of the Company or any of its subsidiaries is
required in connection with the execution or delivery by the Company of
the Transaction Documents or the performance by the Company of its
obligations under each of the Transaction Documents except as would not
have a material effect on the Company or its performance of its
obligations under the Transaction Documents.
(f) ISSUANCE OF THE SECURITIES. The Securities have been duly
authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, except for such restrictions
on transfer or ownership imposed by applicable federal or state securities
laws or applicable gaming laws. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to this Agreement.
(g) CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of 80,000,000 shares, 75,000,000
shares of which are common stock, $0.01 par value per share and 5,000,000
shares of which are preferred stock, $0.01 par value per share. As of
January 12, 2004, after giving effect to the consolidation described in
the Form S-4/A filed by the Company with the Commission on December 18,
2003, there were 21,912,868 shares of common stock issued and outstanding
and 1,774,954 shares of preferred stock issued and outstanding. Other than
as contemplated in this Agreement, the Company has not issued any capital
stock since the filing of the Form S-4/A on December 18, 2003 other than
pursuant to the exercise of employee stock options under the Company's
stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents. No Person
has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by
the Transaction Documents. Except as disclosed in SECTION 3.1(g) of the
Disclosure Schedule, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
6
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is
or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock; provided, however, that the Company will issue warrants to
Jefferies & Company, Inc as of the Closing Date as contemplated in the
immediately following sentence. The issue and sale of the Securities will
not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the shares of Common Stock being
issued to the Purchasers hereunder and warrants exercisable for 250,000
shares of Common Stock, at an exercise price of $7.50 per share, to be
issued as of the Closing to Jefferies & Company, Inc.) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the "SEC REPORTS" and, together with the Disclosure Schedules to
this Agreement, the "DISCLOSURE MATERIALS") on a timely basis or has
timely filed a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. The
Company has informed each Purchaser prior to the date hereof of any filing
by the Company of any SEC Reports within the 10 days preceding the date
hereof. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of
and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to
normal, immaterial, year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as disclosed
in the SEC Reports, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities that would not be required to be reflected in
the Company's financial statements pursuant to GAAP or that would not be
7
required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information.
(j) LITIGATION. Except as disclosed in the SEC Reports, there
are no actions, suits, inquiries, notices of violation, proceedings or
investigations pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "ACTION") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or
any current or former director or officer of the Company. The Commission
has not issued any stop order or other order suspending the effectiveness
of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result in a
Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, could result
in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is bound
or affected (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental
body, or (iii) to the Company's knowledge, is or has been in violation of
any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws relating to
taxes, environmental protection, occupational health and safety, product
quality and safety and employment, labor matters and gaming matters,
except in each case as would not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect. The
Company is in compliance with the applicable requirements of the
Sarbanes-Oxley Act of 2002 and the rules and regulations thereunder
promulgated by the Commission, except where such noncompliance would not
have or reasonably be expected to result in a Material Adverse Effect.
8
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits would not have
or reasonably be expected to result in a Material Adverse Effect
("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that
is material to their respective businesses and good and marketable title
in all personal property owned by them that is material to their
respective businesses, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property, do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and, in each case, would not,
individually or in the aggregate, reasonably be expected to have or result
in a Material Adverse Effect. To the Company's knowledge, any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance except,
in each case, as would not reasonably be expected to result in a Material
Adverse Effect.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
own (and are the record owner of) or possess adequate licenses to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses, confidential information,
technology and other similar rights (and all goodwill associated
therewith) that are necessary or that are used in connection with their
respective businesses as described in the SEC Reports and which the
failure to so own or have would, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect
(collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company
nor any Subsidiary has received a written notice that any of the
Intellectual Property Rights violates or infringes upon or conflicts with
the rights of any Person. Except as set forth in the SEC Reports, or as
would not reasonably be expected to result in a Material Adverse Effect,
to the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any
of the Intellectual Property Rights.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in the SEC Reports, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the Company
is presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
9
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (a) for payment of salary or consulting fees for
services rendered, (b) reimbursement for expenses incurred on behalf of
the Company and (c) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information
relating to the Company, including its subsidiaries, is made known to the
certifying officers by others within those entities, particularly during
the period in which the Company's Form 10-K or 10-Q, as the case may be,
is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of a date within
90 days prior to the filing date of the Form 10-Q for the quarter ended
September 30, 2003 (such date, the "EVALUATION DATE"). The Company
presented in its most recently filed Form 10-K or Form 10-Q the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in
Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
knowledge, in other factors that could significantly affect the Company's
internal controls.
(s) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date (and assuming that the Closing shall have
occurred), (i) the Company's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of
the business conducted by the Company, and projected capital requirements
and capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in respect
of its debt when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they
10
mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt).
(t) CERTAIN FEES. Other than fees paid to Jefferies & Company,
Inc., no brokerage or finder's fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchasers shall have
no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated
by this Agreement.
(u) CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section
3.2(b)-(e), no registration under the Securities Act is required for the
offer and sale of the Shares by the Company to the Purchasers under the
Transaction Documents. The Company is eligible to register the resale of
its Common Stock for resale by the Purchasers under Form S-3 promulgated
under the Securities Act.
(v) REGISTRATION RIGHTS. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. Except as specified
in the SEC Reports, the Company has not, in the twenty-four months
preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements. The Company
is in compliance with the listing and maintenance requirements for
continued listing of the Common Stock on the Nasdaq National Market.
(x) INVESTMENT COMPANY. The Company is not, and after giving
effect to the sale of the Securities and the application of the net
proceeds therefrom, will not be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or an Affiliate
of an "investment company."
(y) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation or any agreement to which the Company is a party that is or
could become applicable to the Purchasers as a result of the Purchasers
and the Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation the
Company's issuance of the Securities and the Purchasers' ownership of the
Securities.
11
(z) NO ADDITIONAL AGREEMENTS. The Company does not have any
agreement or understanding with any Purchaser with respect to the
transactions contemplated by the Transaction Documents other than as
specified in this Agreement.
(aa) DISCLOSURE. The Company confirms that, neither the Company
nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished by
or on behalf of the Company are true and correct and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(bb) REGULATION D. None of the Company or any affiliate (as
defined in Rule 501(b) of Regulation D ("REGULATION D") under the
Securities Act) of the Company has directly, or through any agent
(provided that no representation is made as to the Agent or its affiliates
or any person acting on its behalf), (a) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of any security (as
defined in the Securities Act) which is or will be integrated with the
sale of the Securities in a manner that would require the registration of
the Securities under the Securities Act or; (b) engaged in or used any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the sale of the Securities, including
articles, notices or other communications published in any newspaper,
magazine or similar medium or broadcast over television or radio, or any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(cc) CLOSING OF MERGER. The Company has consummated its
acquisition of Monticello Raceway Management, Inc., Monticello Casino
Management, LLC, Monticello Raceway Development Company, LLC and Mohawk
Management, LLC, on the terms and conditions described in Amendment No. 4
to Form S-4, as filed by the Company with the Commission on December 18,
2003.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and
otherwise to carry out its obligations thereunder. The execution, delivery
and performance by such Purchaser of the transactions contemplated by this
Agreement has been duly authorized by all necessary corporate or, if such
Purchaser is not a corporation, such partnership, limited liability
company or other applicable like action, on the part of such Purchaser.
Each of this Agreement and the Registration Rights Agreement has been duly
12
executed by such Purchaser, and when delivered by such Purchaser in
accordance with terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling such Securities or
any part thereof, without prejudice, however, to such Purchaser's right,
subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act or under an
exemption from such registration and otherwise in compliance with
applicable federal and state securities laws. Subject to the immediately
preceding sentence, nothing contained herein shall be deemed a
representation or warranty by such Purchaser to hold the Securities for
any period of time. Such Purchaser is acquiring the Securities hereunder
in the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) REGISTRATION REQUIRED. Such Purchaser hereby covenants with
the Company not to make any sale of the Shares without complying with the
provisions hereof and of the Registration Rights Agreement, and without
effectively causing the prospectus delivery requirement under the
Securities Act to be satisfied (unless such Purchaser is selling such
Shares in a transaction not subject to the prospectus delivery
requirement), and such Purchaser acknowledges that the certificates
evidencing the Shares will be imprinted with a legend that prohibits their
transfer except in accordance therewith.
(g) ACCESS TO INFORMATION. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Shares and the merits and risks of
investing in the Securities; (ii) access to information about the Company
13
and the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect
such Purchaser's right to rely on the truth, accuracy and completeness of
the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(h) CERTAIN FEES. Except for the fees that will be payable by
the Company under Section 3.1(t), such Purchaser has not entered into any
agreement or arrangement that would entitle any broker or finder to
compensation by the Company in connection with the sale of the Company
Securities to such Purchaser
(i) NO TAX, LEGAL OR INVESTMENT ADVICE. Such Purchaser
understands that nothing in the Transaction Documents or any other
materials presented to such Purchaser in connection with the purchase and
sale of the Securities constitutes tax, legal, or investment advice. Such
Purchaser has consulted such tax, legal, and investment advisors as it, in
its sole discretion, has deemed necessary or appropriate in connection
with its purchase of Securities.
(j) Such Purchaser represents and warrants that it is aware of
the following Telephone Interpretation in the SEC Manual of Publicly
Available Telephone Interpretations (July 1997):
A.65. Section 5
An issuer filed a Form S-3 registration statement for
a secondary offering of common stock which is not yet
effective. One of the selling shareholders wanted to
do a short sale of common stock "against the box" and
cover the short sale with registered shares after the
effective date. The issuer was advised that the short
sale could not be made before the registration
statement becomes effective, because the shares
underlying the short sale are deemed to be sold at
the time such sale is made. There would, therefore,
be a violation of Section 5 if the shares were
effectively sold prior to the effective date.
(k) Such Purchaser represents and warrants that, in connection
with its purchase of the Securities, it has complied with all applicable
provisions of the Act, the rules and regulations promulgated by the SEC
thereunder, including Regulation M, and applicable state securities laws.
The Company acknowledges and agrees that each Purchaser does not
make or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.
14
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws, including pursuant to an exemption
therefrom. In connection with any transfer of the Securities other than
pursuant to an effective registration statement, pursuant to paragraph (k)
of Rule 144, to the Company, to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities in
the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge and/or grant a security interest pursuant to a bona
fide margin agreement in a bona fide margin account and, if required under
the terms of such arrangement, agreement or account, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. However, at the
discretion of the Company, such legal opinion may be required in
connection with a subsequent transfer following default by the Purchaser
transferee of the pledge. No notice shall be required of such pledge. At
15
the appropriate Purchaser's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities
may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing
of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Shares shall not contain any
legend (including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii)
following any sale of such Shares pursuant to Rule 144, or (iii) if such
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is
not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff
of the Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective Date
if required by the Company's transfer agent to effect the removal of the
legend hereunder. The Company agrees that following the Effective Date or
at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery
by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Shares, as the case may be, issue with a
restrictive legend (such date, the "LEGEND REMOVAL DATE"), deliver or
cause to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. The
Company may not make any notation on its records or give instructions to
any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section.
(d) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns the
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any such holder of Securities, the Company
shall deliver to such holder a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.3 INTEGRATION. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
16
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.
4.4 FURTHER ISSUANCES. Except as otherwise contemplated herein, the
Company will not issue, sell, offer or agree to sell, or otherwise dispose of,
directly or indirectly, securities of the Company that are substantially similar
to the Common Stock or any securities convertible into, or exercisable, or
exchangeable for, Common Stock; or publicly announce an intention to effect any
such transaction, during the period beginning as of the Closing and ending on
the date which is the later to occur of (a) 120 days following the Closing Date
and (b) the Effective Date (as defined in the Registration Rights Agreement);
provided, however, that the Company may (i) issue Common Stock pursuant to any
stock option plan, stock option agreement, stock ownership plan or dividend
reinvestment plan of the Company that is currently in effect and is disclosed in
the SEC Reports or in SECTION 4.4 of the Disclosure Schedules; (ii) issue
options to purchase Common Stock pursuant to any stock option plan that is
currently in effect and is disclosed in the SEC Reports or in SECTION 4.4 of the
Disclosure Schedules; (iii) issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Closing; (iv) issue
Common Stock or any other security substantially similar to the Common Stock to
a seller in connection with an acquisition transaction, and (v) engage in such
other transactions, if any, agreed in writing by the Lead Purchaser.
4.5 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by
8:30 a.m. Eastern time on the Business Day following the date of this Agreement,
issue a press release or file a Current Report on Form 8-K, in each case
reasonably acceptable to each Purchaser disclosing the transactions contemplated
hereby and make such other filings and notices in the manner and time required
by the Commission. The Company and each Purchaser shall consult with each other
in issuing any press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release or otherwise make any such public statement without the prior consent of
the Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii). Subject to the foregoing, neither the Company nor any Purchaser
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Purchaser, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case
17
of clause (i) each Purchaser shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
4.6 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by
the Company or any other Person that any Purchaser is an "Acquiring Person"
under any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.
4.7 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.8 USE OF PROCEEDS. Except as set forth in SECTION 4.8 of the
Disclosure Schedules, the Company shall use the net proceeds from the sale of
the Securities hereunder for the development of a video lottery terminal (VLT)
facility in the existing grandstand at Monticello Raceway, pre-development
expenses for a Native American casino, fees and expenses related to the
transactions contemplated by this Agreement and the Registration Rights
Agreement and for working capital and general corporate purposes, provided that
such net proceeds shall not be used to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation. In
addition, the Company may use a portion of the proceeds to repay outstanding
indebtedness, including but not limited to indebtedness under (i) the Loan and
Security Agreement between Monticello Raceway Management, Inc. and The Berkshire
Bank, dated as of October 29, 2003, in the aggregate principal amount of
$3,500,000, which unpaid principal balance bears interest at a per annum rate of
8.75%, will mature on November 1, 2005 and is subject to a prepayment penalty of
2.5% and (ii) the 7% subordinated promissory notes, in the aggregate principal
amount of $5,072,856.84 issued to The Bryanston Group and Beatrice Tollman on
January 9, 2004, which notes mature in six-month increments (varying in amount
from 13.33% to 26.67% of the note amount) beginning on January 9, 2005 and
ending on January 9, 2007.
4.9 REIMBURSEMENT. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
18
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.10 INDEMNIFICATION OF PURCHASERS. The Company will indemnify and
hold the Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a "PURCHASER PARTY") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to: (a) any
misrepresentation, breach or inaccuracy, of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents; or (b) any cause of action, suit or claim
brought or made against such Purchaser Party and arising solely out of or solely
resulting from the execution, delivery, performance or enforcement of this
Agreement or any of the other Transaction Documents and without causation by any
other activity, obligation, condition or liability pertaining to such Purchaser.
The Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.
4.11 RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement.
4.12 LISTING OF COMMON STOCK. The Company hereby agrees to use
commercially reasonably efforts to maintain the listing of the Common Stock on
the Trading Market, and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to list all of the Shares on the Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Shares, and will take such other action as is necessary or desirable in the
opinion of the Purchasers to cause the Shares to be listed on such other Trading
Market as promptly as possible. The Company will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Trading Market.
ARTICLE V.
MISCELLANEOUS
5.1 FEES AND EXPENSES. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the sale of the Securities.
19
5.2 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 6:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the second Trading Day following the date of mailing, if
sent by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.5 CONSTRUCTION. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.
5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
20
5.8 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, New York for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto (including its affiliates,
agents, officers, directors and employees) hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.9 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and delivery of the Shares.
5.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
21
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.15 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser was introduced to the Company by Jefferies & Company,
Inc., which has acted solely as placement agent for the Company and not for any
Purchaser. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, certain Purchasers and their respective counsel
have chosen to communicate with the Company through Jefferies & Company, Inc.
and its counsel. Counsel to Jefferies & Company, Inc. does not represent the
Purchasers or the Company but only Jefferies & Company, Inc. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
22
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO CLOSING OF THE PURCHASERS. Each Purchaser's
obligation to purchase the Securities at the Closing is subject to the
satisfaction, or waiver by such Purchaser, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct as of the date of this Agreement and shall be true and correct in
all material respects (except for those qualified as to materiality or a
Material Adverse Effect, which shall be true and correct) as of the
Closing Date (except to the extent that such representation or warranty
speaks of an earlier date, in which case such representation or warranty
shall be true and correct in all material respects (or if qualified as to
materiality or a Material Adverse Effect, true and correct) as of such
date) as though made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF COMPANY. The Company shall
have performed in all material respects all agreements and covenants
required to be performed by it under this Agreement on or prior to the
Closing Date.
(c) REGULATORY APPROVALS. The Company and each Purchaser shall
have received all requisite approvals (including all required findings of
suitability).
(d) NASD FILING. The Company shall have filed with the National
Association of Securities Dealers, a Notification Form: Listing of
Additional Shares with respect to the Shares.
(e) NO SUSPENSION OF TRADING. From the date hereof to the
Closing Date, trading in the Common Stock shall not have been suspended by
the Commission (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to
the Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on
any Trading Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities.
(f) LOCK-UP AGREEMENTS. The "lock-up" agreements, each
substantially in the form of EXHIBIT C hereto, between the Purchasers and
each of the executive officers, directors and Affiliates of the Company
relating to sales and certain other dispositions of shares of Common Stock
or certain other securities, shall have been executed and copies shall
have been delivered to the Purchasers and such agreements shall be in full
force and effect on the Closing Date.
6.2 CONDITIONS TO CLOSING OF THE COMPANY. The Company's obligation
to issue and sell the Securities at the Closing is subject to the satisfaction,
or waiver by the Company, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser set forth in this Agreement shall be true and
correct as of the date of this Agreement and shall be true and correct in
23
all material respects as of the Closing Date (except to the extent that
such representation or warranty speaks of an earlier date, in which case
such representation or warranty shall be true and correct in all material
respects as of such date) as though made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF THE PURCHASERS. Each of the
Purchasers shall have performed in all material respects all agreements
and covenants required to be performed by it under this Agreement on or
prior to the Closing Date.
(c) REGULATORY APPROVALS. The Company and each Purchaser shall
have received all requisite approvals (including all required findings of
suitability).
(d) NASD FILING. The Company shall have filed with the National
Association of Securities Dealers, a Notification Form: Listing of
Additional Shares with respect to the Shares.
(Signature Page Follows)
2
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
EMPIRE RESORTS, INC. Address for Notice:
------------------
By:_____________________________________
Name: Attn:
Title: Tel:
Fax:
With copy to (which shall not constitute notice):
Attn:
Tel:
Fax:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
25
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
_____________________________ Address for Notice:
[Print Name of Purchaser] ------------------
By: __________________________
Name:
Title:
Subscription Amount: $_________________
Shares:_____________________
[SIGNATURE PAGE CONTINUED]
26
Exhibit C
FORM OF LOCK-UP AGREEMENT
January 23, 2004
[PURCHASERS]
[ ]
[ ]
Re: Empire Resorts, Inc.
Ladies and Gentlemen:
The undersigned understands that certain purchasers have entered
into a Securities Purchase Agreement (the "PURCHASE AGREEMENT") with Empire
Resorts, Inc., a Delaware corporation (the "COMPANY") providing for the offering
(the "OFFERING") by the several Purchasers of certain shares of Common Stock of
the Company ("COMMON STOCK"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Purchase Agreement.
In consideration of the Purchasers' agreement to purchase the
Shares, and for other good and valuable consideration receipt of which is hereby
acknowledged, the undersigned hereby agrees that, without the prior written
consent of Purchasers representing at least 66.67% in interest of all
Purchasers, the undersigned will not, during the period from the date of this
Agreement through (and including) the later to occur of (a) the date 120 days
after the Closing under the Purchase Agreement (the "Closing") and (b) the
Effective Date (as defined in the Registration Rights Agreement dated the date
of the Purchase Agreement, between the Purchaser and the Company), (1) offer,
pledge, announce the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (including without
limitation, Common Stock which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities and
Exchange Commission and securities which may be issued upon exercise of a stock
option or warrant) or (2) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, the undersigned agrees that, without the prior written
consent of Purchasers representing at least 66.67% in interest of all
Purchasers, it will not, during the period from the date of this Agreement
through (and including) the date 180 days after the date of the Closing, make
B-1
any demand for or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
In furtherance of the foregoing, the Company, and any duly appointed
transfer agent for the registration or transfer of the securities described
herein, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Letter Agreement.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to enter into this Letter Agreement. All authority
herein conferred or agreed to be conferred and any obligations of the
undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.
Whether or not the Closing actually occurs depends on a number of
factors, including but not limited to certain conditions outside the control of
the Company and the Purchasers.
The undersigned understands that, if the Purchase Agreement does not
become effective, or if the Purchase Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Common Stock to be sold thereunder, the
undersigned shall be released from all obligations under this Letter Agreement
The undersigned understands that the Purchasers are entering into
the Purchase Agreement in reliance upon this Letter Agreement.
This lock-up agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws principles thereof.
Very truly yours,
[NAME OF STOCKHOLDER]
By: _______________________
Name:
Title:
EXHIBIT 10.17
REGISTRATION RIGHTS AGREEMENT
EMPIRE RESORTS, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of January 26, 2004, by and among Empire Resorts, Inc., a
Delaware corporation (the "COMPANY"), and the investors signatory hereto (each a
"PURCHASER" and collectively, the "PURCHASERS").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the Purchasers
(the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement shall have the meanings given
such terms in the Purchase Agreement. As used in this Agreement, the following
terms shall have the respective meanings set forth in this Section 1:
"EFFECTIVE DATE" means the date that the Registration Statement
filed pursuant to Section 2(a) is first declared effective by the Commission.
"EFFECTIVENESS DATE" means the earlier of (a) the 120th calendar
day following the Closing Date and (b) the fifth Trading Day following the date
on which the Company is notified by the Commission that the Registration
Statement will not be reviewed or is no longer subject to further review and
comments.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means the 60th calendar day following the Closing
Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities who has awarded such
Registrable Securities from a Purchaser or a permitted successor or assignee of
such Purchaser pursuant to Section 5.5 of the Securities Purchase Agreement.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section
6(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section
6(c).
"LOSSES" shall have the meaning set forth in Section 6(a).
"PROCEEDING" means an action, demand, claim, litigation, suit,
investigation, arbitration or proceeding (including, without limitation, a
partial proceeding, such as a deposition), whether pending or threatened.
"PROSPECTUS" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"REGISTRABLE SECURITIES" means all of the Shares.
"REGISTRATION STATEMENT" means the registration statement or
statements required to be filed hereunder, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 424" means Rule 424 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Common Stock issued to the
Purchasers pursuant to the Purchase Agreement.
"SPECIAL COUNSEL" means the counsel selected to act as special
counsel hereunder by Purchasers representing at least 66.67% in interest of all
Purchasers, the name and contact information of which has been provided to the
Company.
"TRADING DAY" means (i) a day on which the Company's common
stock is traded on a Trading Market, or (ii) if the common stock is not listed
on a Trading Market, a day on which the common stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
common stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, that in the event that the common
stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day (as defined in the Purchase Agreement).
2
"TRADING MARKET" means the following markets or exchanges on
which the Company's common stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the New York Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap Market.
2. REGISTRATION.
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form for such purpose) and shall contain (except if otherwise required pursuant
to written comments received from the Commission upon a review of such
Registration Statement) the "Plan of Distribution" attached hereto as Annex A.
The Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as soon as possible but, in any
event, no later than the Effectiveness Date, and shall use its best efforts to
keep the Registration Statement continuously effective under the Securities Act
until the earlier of (i) the date that all Registrable Securities covered by
such Registration Statement have been sold, (ii) the second anniversary of the
Closing Date or (iii) such earlier date when all Registrable Securities covered
by the Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent and the affected Holders (the "EFFECTIVENESS
PERIOD").
(b) If: (i) a Registration Statement is not filed on or prior to
its Filing Date, or (ii) a Registration Statement is not declared effective by
the Commission on or prior to the required Effectiveness Date, or (iii) after
the Effective Date, such Registration Statement ceases to be effective and
available to the Holders as to all Registrable Securities to which it is
required to cover at any time prior to the expiration of its Effectiveness
Period, (any such failure or breach being referred to as an "EVENT," and for
purposes of clauses (i), (ii) or (iii) the date on which such Event occurs,
being referred to as "EVENT DATE"), then, in addition to any other rights
available to the Holders: (x) on each such Event Date the Company shall issue to
each Holder, as liquidated damages and not as a penalty, 0.25 shares of its
common stock for every Share purchased by that Purchaser pursuant to the
Purchase Agreement (rounded up to the nearest whole share taking into account
all Shares purchased by such Purchaser); and (y) on each monthly anniversary of
each such Event Date thereof (if the applicable Event shall not have been cured
by such date) until the applicable Event is cured, the Company shall issue to
each Holder 0.10 shares of its common stock for every Share purchased pursuant
to the Purchase Agreement (rounded up to the nearest whole share taking into
account all Shares purchased by such Purchaser). The liquidated damages pursuant
to the terms hereof shall apply on a pro rata basis for any portion of a month
prior to the cure of an Event rounded up to the nearest whole share.
(c) Notwithstanding anything in this Agreement to the contrary,
the Company may, by written notice to the Purchasers, suspend the effectiveness
of a Registration Statement after the Effective Date thereof and/or require that
the Purchasers immediately cease the sale of shares of Common Stock pursuant
thereto and/or defer the filing of any subsequent Registration Statement for up
3
to 45 consecutive days (the "Deferral Period") in any 90-day period without
paying liquidated damages, if the Company determines in good faith, by
appropriate resolutions or action by its Board of Directors, that (A) it would
be materially detrimental to the Company (other than as relating solely to the
price of the Common Stock) to file a Registration Statement at such time and (B)
it is in the best interests of the Company to defer proceeding with such
registration at such time; provided, however, that in the event the disclosure
relates to a previously undisclosed proposed or pending material business
transaction, the disclosure of which the Company determines in good faith would
be reasonably likely to impede the Company's ability to consummate such
transaction, the Company may extend a Deferral Period from 45 days to 60 days
without paying liquidated damages pursuant to Section 2(b); provided further,
however, that Deferral Periods (including but not limited to any extended
Deferral Periods under clause (B)) may not total more than 60 days in the
aggregate in any twelve-month period. Upon receipt of such notice, each
Purchaser shall immediately discontinue any sales of Registrable Securities
pursuant to such registration until such Purchaser has received copies of a
supplemented or amended Prospectus or until such Purchaser is advised in writing
by the Company that the then-current Prospectus may be used and has received
copies of any additional or supplemental filings that are incorporated or deemed
incorporated by reference in such Prospectus. In no event, however, shall this
right be exercised to suspend sales beyond the period during which (in the good
faith determination of the Company's Board of Directors) the failure to require
such suspension would be materially detrimental to the Company.
3. CONSENTS.
Prior to filing the Registration Statement, the Company and its
Subsidiaries shall make or obtain all Permits necessary or desirable for the
consummation of the Transactions contemplated hereby.
4. REGISTRATION PROCEDURES
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall furnish to the Holders and the Special Counsel copies
of all such documents proposed to be filed which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to the
reasonable review of such Holders and the Special Counsel. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements (other than periodic reports required under the Exchange Act)
thereto to which the Holders of a majority of the Registrable Securities or the
Special Counsel shall reasonably object in writing within two Trading Days of
receipt.
(b) (i) Subject to Section 2(c), prepare and file with the
Commission such amendments, including post-effective amendments, to each
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement continuously effective as to the
applicable Registrable Securities for its Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
4
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to each Registration Statement or any
amendment thereto and, as promptly as reasonably possible, upon request, provide
the Holders true and complete copies of all correspondence from and to the
Commission relating to such Registration Statement that would not result in the
disclosure to the Holders of material and non-public information concerning the
Company; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the Registration Statements
and the disposition of all Registrable Securities covered by each Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Purchasers thereof set forth in the Registration Statement
as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders and the Special Counsel as promptly as
reasonably possible (and, in the case of (i)(A) below, not less than three
Trading Days prior to such filing) and (if requested by any such Person) confirm
such notice in writing promptly following the day (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the Company
whether there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders and the Special Counsel that pertain to the Holders as a
Selling Stockholder or to the Plan of Distribution, but not information which
the Company believes would constitute material and non-public information); and
(C) with respect to each Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to a
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
5
(e) Furnish to each Holder by email, hand delivery or overnight
courier, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, and all exhibits to the extent requested
by such Person (other than those previously furnished or incorporated by
reference) promptly after the filing of such documents with the Commission.
(f) Promptly deliver to each Holder, without charge, as many
copies of each Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may reasonably request.
The Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto to the extent permitted by federal and state
securities laws and regulations.
(g) Prior to any public offering of Registrable Securities, use
its reasonable best efforts to register or qualify or cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statements; provided, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to material taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject.
(h) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to the Registration Statements, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may request.
(i) Upon the occurrence of any event described in Section
4(c)(v), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the affected Registration Statements or
a supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(j) Comply with all applicable rules and regulations of the
Commission.
(k) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and any controlling person thereof.
6
5. REGISTRATION EXPENSES. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "LOSSES"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (2) in the case of an occurrence of
an event of the type specified in Section 4(c)(ii)-(v), the use by such Holder
of an outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in Section 7(d) or an amended
or supplemented Prospectus, but only if and to the extent that following the
7
receipt of the Advice or the amended or supplemented Prospectus the misstatement
or omission giving rise to such Loss would have been completely corrected by
such Advice or the amended or supplemented Prospectus and the Holder fails to
deliver such Advice or amended or supplemented Prospectus. The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising out of or based upon (x) such Holder's failure to comply with
the prospectus delivery requirements of the Securities Act, if the delivery of
such a prospectus would have cured or prevented the Loss, or (y) any untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising out of or based upon any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent that, (1) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein, or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement (it being understood that the Holder has approved Annex A
hereto for this purpose), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 4(c)(ii)-(v), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of an Advice or an amended or supplemented Prospectus, but only if
and to the extent that following the receipt of the Advice or the amended or
supplemented Prospectus the misstatement or omission giving rise to such Loss
would have been completely corrected by such Advice or the amended or
supplemented Prospectus and the Holder fails to deliver such Advice or amended
or supplemented Prospectus. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
8
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). It being understood, however, that the Indemnifying
Party shall not, in connection with any one such Proceeding be liable for the
fees and expenses of more than one separate firm of attorneys at any time for
all Indemnified Parties, which firm shall be appointed by a majority of the
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All reasonable fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) that are to be paid by the Indemnifying Party
pursuant to this Section shall be paid to the Indemnified Party, as incurred,
within ten Trading Days of written notice thereof to the Indemnifying Party;
provided, that the Indemnifying Party may require such Indemnified Party to
undertake to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
6(a) or 6(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6(c), any reasonable attorneys' or other
9
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder. No Person guilty of fraudulent misrepresentation (within the
meaning of SECTION 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
7. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent
specified in Schedule 7(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
Except as and to the extent specified in Schedule 7(b) hereto, the Company has
not previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person which have not been fully
satisfied.
(c) COMPLIANCE. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
(d) DISCONTINUED DISPOSITION. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Section 4(c)
or (e), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
10
copies of the supplemented Prospectus and/or amended Registration Statement or
until it is advised in writing (in each case, "ADVICE") by the Company that the
use of the applicable Prospectus may be resumed, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to enforce the
provisions of this paragraph.
(e) PIGGY-BACK REGISTRATIONS. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.
(f) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
certain Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates, provided, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(g) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
11
If to the Company: Empire Resorts, Inc.
c/o Monticello Raceway
Route 17B
Monticello, NY 12701
With a copy to: Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attn: Robert H. Friedman
Facsimile No.: (212) 451-2222
If to a Purchaser: To the address set forth under such Purchaser's
name on the signature pages hereto.
If to Special Counsel: to such address as
provided to the Company following the date
hereof by Purchasers representing at least
66.67% in interest of all Purchasers.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in
the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted to a Purchaser under the Purchase
Agreement.
(i) EXECUTION AND COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective Affiliates, employees or agents) shall
12
be commenced exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan (the "NEW YORK COURTS"). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of this Agreement,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its attorney's fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
(k) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(n) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
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SIGNATURE PAGES TO FOLLOW]
14
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
EMPIRE RESORTS, INC.
By:_________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASERS TO FOLLOW]
15
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
--------------------------------------
[Print name of Purchaser]
By:_____________________________________
Name:
Title:
Address for Notice:
Facsimile No.:
Attn:
16
Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, donees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of Common Stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. Subject to compliance with applicable law, the
Selling Stockholders may use any one or more of the following methods when
selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under
the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders may from time to time pledge or grant a
security interest in some or all of the Shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell shares of Common Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
17
other applicable provision of the Securities Act of 1933 amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.
Upon the Company being notified in writing by a Selling Stockholder
that any material arrangement has been entered into with a broker-dealer for the
sale of Common Stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (i) the name of each such Selling
Stockholder and of the participating broker-dealer(s), (ii) the number of shares
involved, (iii) the price at which such the shares of Common Stock were sold,
(iv)the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the transaction.
In addition, upon the Company being notified in writing by a Selling Stockholder
that a donee or pledge intends to sell more than 500 shares of Common Stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.
The Selling Stockholders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholders has
represented and warranted to the Company that it does not have any agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock.
The Company is required to pay all fees and expenses incident to the
registration of the shares. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
18
EXHIBIT 10.18
THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED
UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS THEY HAVE BEEN REGISTERED UNDER SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
January 30, 2004
WARRANT CERTIFICATE TO PURCHASE
cOMMON STOCK OF
EMPIRE RESORTS, INC.
This Warrant Certificate (the "WARRANT CERTIFICATE") is to certify
that Jefferies & Company, Inc. or its registered assigns (the "WARRANTHOLDER")
is entitled at any time after the date hereof but prior to the Expiration Date
(as hereinafter defined), to purchase, at the Exercise Price (as hereinafter
defined) 250,000 shares of common stock (as modified pursuant to SECTION 5, the
"INITIAL EXERCISE AMOUNT") of Empire Resorts, Inc. (the "COMPANY"), par value
$.01 per share (the "COMMON STOCK"). Unless earlier exercised in full and
subject to the conditions set forth herein, this Warrant Certificate shall
expire at 5:00 P.M., New York City time, on January 30, 2009 (the "EXPIRATION
DATE").
1. EXERCISE OF WARRANT.
1.1 This Warrant Certificate is exercisable by the Warrantholder
at the Exercise Price per share of Common Stock issuable hereunder, payable in
cash by wire transfer of immediately available funds, by certified or official
bank check or by surrender of other Securities of the Company whose aggregate
principal amount or stated liquidation value, together with any accrued but
unpaid interest or principal due thereon, is equal to the Exercise Price. In
lieu of payment of the Exercise Price as provided above, the Warrantholder may
elect a cashless net exercise. In the case of such cashless net exercise, the
Warrantholder shall surrender this Warrant Certificate for cancellation and
receive in exchange therefor the full number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock specified, subject to
adjustment in accordance with SECTION 5, less the number of shares of Common
Stock with an aggregate Fair Market Value as of the business day on which the
Warrantholder surrenders this Warrant Certificate to the Company (the "EXERCISE
DATE") equal to the aggregate Exercise Price. Upon surrender of this Warrant
Certificate with the attached Subscription Form duly completed and executed,
together with any required payment of the Exercise Price for the shares of
Common Stock being purchased, at the Company's principal executive offices, the
Warrantholder shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
1.2 The purchase rights represented by this Warrant Certificate
are exercisable at the option of the Warrantholder, in whole or in part (but not
as to fractional shares of Common Stock), at any time and from time to time
prior to the Expiration Date during the period in which this Warrant Certificate
may be exercised as set forth above.
1.3 In the case of the purchase of less than all the shares of
Common Stock purchasable under this Warrant Certificate, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall, as soon as
practicable, execute and deliver to the Warrantholder a new Warrant Certificate
to the Warrantholder of like tenor for the balance of the shares of Common Stock
purchasable hereunder.
2. ISSUANCE OF STOCK CERTIFICATES.
2.1 The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant Certificate shall be made as soon as practicable
thereafter or in any event within five (5) days of such exercise without charge
to the Warrantholder, including, without limitation, any tax that may be payable
in respect thereof, and such certificates shall (subject to the provisions of
this SECTION 2) be issued in the name of, or in such names as may be directed
by, the Warrantholder; provided, however, that the Company shall not be required
to pay any income tax to which the Warrantholder may be subject in connection
with the issuance of this Warrant Certificate or of shares of Common Stock upon
the exercise of this Warrant Certificate; provided, further, that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the Warrantholder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the reasonable satisfaction of the Company
that such tax has been paid.
2.2 All shares of Common Stock issued upon the exercise of this
Warrant Certificate shall be validly issued, fully paid and nonassessable.
2.3 Each person in whose name any such certificate for shares of
Common Stock is issued shall for all purposes be deemed to have become the
holder of record of such shares on the date on which the Warrant Certificate was
surrendered and payment of the Exercise Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
3. RESTRICTIONS ON TRANSFER.
3.1 INVESTMENT REPRESENTATION AND TRANSFER RESTRICTION LEGEND.
The Warrantholder, by acceptance of this Warrant Certificate, represents and
warrants to the Company that it is acquiring this Warrant Certificate and the
shares of Common Stock issued or issuable upon exercise hereof (the "WARRANT
SHARES") for investment purposes only and not with a view towards the resale or
other distribution thereof. Each certificate representing Warrant Shares, unless
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at the same time of exercise such Warrant Shares are registered under the
Securities Act, shall bear a legend in substantially the following form on the
face thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN
EXEMPTION FROM REGISTRATION, UNDER SAID LAWS.
Any certificate issued at any time in exchange or substitution for
any certificate bearing such legend (except a new certificate issued upon
completion of a distribution under a registration statement covering the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel to the Company, the securities represented thereby may be
transferred as contemplated by such Warrantholder without violation of the
registration requirements of the Securities Act.
4. EXERCISE PRICE AND EXERCISE AMOUNT.
4.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise
price of this Warrant Certificate shall be $7.50 per share of Common Stock (the
"INITIAL EXERCISE PRICE"). The Exercise Price may be adjusted from time to time
pursuant to the provisions of SECTION 5 hereof. The term "EXERCISE PRICE" herein
shall mean the Initial Exercise Price if no such adjustment shall have been made
or the Initial Exercise Price as adjusted from time to time in accordance with
such Section.
4.2 EXERCISE AMOUNT. The Exercise Amount may be adjusted from
time to time pursuant to the provisions of SECTION 5 hereof. The term "EXERCISE
AMOUNT" herein shall mean the Initial Exercise Amount if no such adjustment
shall have been made or the Initial Exercise Amount as adjusted from time to
time in accordance with such Section.
5. ADJUSTMENT OF EXERCISE PRICE AND EXERCISE AMOUNT.
5.1 For purposes of this Warrant Certificate, the following
definitions shall apply:
(a) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other Securities directly or indirectly
convertible into or exchangeable for Common Stock.
(b) "FAIR MARKET VALUE" shall mean, with respect to any
Securities, its market price as determined in good faith by the
Company's Board of Directors and with respect to any property or
assets other than cash or Securities, the fair value thereof
determined in good faith by the Company's Board of Directors.
(c) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
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(d) "ORIGINAL ISSUE DATE" shall mean the date this Warrant
Certificate was granted.
(e) "PERSON" shall mean an individual, partnership,
corporation, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
(f) "SECURITIES" shall mean, with respect to any Person, such
Person's "securities" as defined in Section 2(1) of the Securities
Act, or any other debt or equity securities, and includes such
Person's capital stock or other equity interests or any options,
warrants or other securities or rights that are directly or
indirectly convertible into, or exercisable or exchangeable for,
such Person's capital stock or other equity interests.
(g) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares
of Common Stock issued (or, pursuant to SECTION 5.2 below, deemed to
be issued) by the Company after the Original Issue Date, other than
shares of Common Stock issued or issuable:
(i) pursuant to the acquisition of another corporation,
directly or indirectly, by the Company by merger, purchase of all
or substantially all of the assets or other reorganization
whereby the Company shall directly or indirectly become the owner
of 50% or more of the voting power of such corporation;
(ii) in connection with any stock split or stock dividend
of the Company;
(iii) pursuant to any public offering;
(iv) pursuant to the 1993 Stock Option Plan of the
Company, the 1998 Stock Option Plan of the Company and those
stock options listed on Schedule 3.1(g) to the Securities
Purchase Agreement, dated January 26, 2004 among the Company and
the purchasers named therein;
5.2 The Exercise Price specified in SECTION 4 hereof shall be
subject to adjustment from time to time as follows:
(a) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. For purposes of this SECTION 5.2, if the Company at
any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of Securities
entitled to receive any such Options or Convertible Securities, then
the maximum number of shares of Common Stock (as set forth in the
instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of
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the close of business on such record date; provided, that Additional
Shares of Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to SECTION
5.2(c) hereof) of such Additional Shares of Common Stock would be
less than the Fair Market Value of the Common Stock on the date of
and immediately prior to such issue, or such record date, as the
case may be; and provided, further, that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) No further adjustment in the Exercise Price shall be
made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(ii) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Company, or decrease
in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Exercise Price
computed upon the original issue thereof (or upon the occurrence
of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease;
(iii) No readjustment pursuant to clause (ii) above shall
have the effect of adjusting the Exercise Price to an amount
which is less than either (i) the Exercise Price on the original
adjustment date, or (ii) the Exercise Price that would have
resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date;
(iv) Notwithstanding clause (ii) above, upon the
expiration or termination of any unexercised Option or
cancellation of unconverted Convertible Securities, the Exercise
Price shall be readjusted as if such Option or Convertible
Security had not been issued; and
(v) In the event of any increase in the number of shares
of Common Stock issuable upon the exercise, conversion or
exchange of any Option or Convertible Security, including, but
not limited to, an increase resulting from the antidilution
provisions thereof (other than an increase resulting from an
adjustment pursuant to this SECTION 5.2), the Exercise Price then
in effect shall forthwith be readjusted to such Exercise Price as
would have obtained had the adjustment (if any) which was made
upon the issuance of such Option or Convertible Security not
exercised or converted prior to such increase been made upon the
basis of such increased number of shares, but no further
adjustment shall be made for the actual issuance of Common Stock
upon the exercise or conversion of any such Option or Convertible
Security.
(b) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Company shall at any time
after the Original Issue Date issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be
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issued pursuant to SECTION 5.2(a), but excluding shares issued as a
dividend or distribution as provided in SECTION 5.2(e) or upon a
stock split or combination as provided in SECTION 5.2(d)), without
consideration or for a consideration per share less than the Fair
Market Value on the date of and immediately prior to such issue (a
"DILUTIVE ISSUANCE"), then and in such event, the Exercise Price
then in effect shall be adjusted to an Exercise Price obtained by
multiplying the Exercise Price in effect immediately prior to such
issuance by a fraction obtained by dividing (i) an amount equal to
the sum of (w) the total number of shares of Common Stock
outstanding (including the number of shares of Common Stock into
which the outstanding Warrants are then convertible) immediately
prior to such issuance multiplied by the Fair Market Value
immediately prior to such issuance, plus (x) the consideration
received by the Company upon such issuance, by (ii) the product of
(y) the sum of the total number of shares of Common Stock
outstanding (including the number of shares of Common Stock into
which the outstanding Warrants are then convertible) immediately
prior to such issuance plus the Additional Shares of Common Stock
issued and (z) the Fair Market Value immediately prior to such
issuance.
(c) DETERMINATION OF CONSIDERATION. For purposes of this
SECTION 5.2, the consideration received by the Company for the issue
of any Additional Shares of Common Stock shall be computed as
follows:
(i) CASH AND PROPERTY: Such consideration shall:
(x) insofar as it consists of cash, be computed at
the aggregate of cash received by the Company
(y) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the
time of such issue, as determined in good faith by the Board;
and
(z) in the event Additional Shares of Common Stock
are issued together with other shares or Securities or other
assets of the Company for consideration which covers both, be
the proportion of such consideration so received, computed as
provided in clauses (x) and (y) above, as determined in good
faith by the Board.
(ii) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Company for Additional
Shares of Common Stock deemed to have been issued pursuant to
SECTION 5.2(a), relating to Options and Convertible Securities,
shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Company as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or
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the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (y)
the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company shall at any time or from time to time after the Original
Issue Date effect a subdivision of the outstanding Common Stock, the
Exercise Price then in effect immediately before the subdivision
shall be proportionately increased. If the Company shall at any time
or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Exercise Amount then in
effect immediately before the combination shall be proportionately
decreased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event the Company at any time, or from time to time, after the
Original Issue Date shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of
Common Stock, then in each such event the Exercise Price then in
effect shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of
business on such record date, to an amount equal to the amount
determined by multiplying the Exercise Amount then in effect by a
fraction:
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date; and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time or from time to time after the
Original Issue Date shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in Securities of the Company
or any Subsidiary or Affiliate thereof other than shares of Common
Stock, then and in each such event provision shall be made so that
the Warrantholder shall receive upon exercise thereof, in addition
to the number of shares of Common Stock receivable thereupon, the
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amount and type of Securities that it would have received had its
Warrant Certificate been exercised for shares of Common Stock on the
date of such event and had it thereafter, during the period from the
date of such event to and including the actual exercise date,
retained such Securities receivable by it as aforesaid during such
period giving application to all adjustments called for during such
period.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR
SUBSTITUTION. If the Common Stock issuable upon exercise of this
Warrant Certificate shall be changed into the same or a different
number of shares of any class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares of stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the Warrantholder
shall have the right thereafter to exercise this Warrant Certificate
for the kind and amount of shares of stock and other Securities and
property receivable upon such reorganization, reclassification, or
other change, by holders of the number of shares of Common Stock
into which this Warrant Certificate was exercisable immediately
prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of
any consolidation or merger of the Company with or into another
Person or the sale of all or substantially all of the assets of the
Company to another Person, this Warrant Certificate shall thereafter
be exercisable for the kind and amount of shares of stock or other
Securities or property to which a holder of the number of shares of
Common Stock of the Company deliverable upon exercise of this
Warrant Certificate would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board) shall be made
in the application of the provisions in this SECTION 5 with respect
to the rights and interest thereafter of the Warrantholder, to the
end that the provisions set forth in this SECTION 5 (including
provisions with respect to changes in and other adjustments of the
Exercise Amount) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock or other property thereafter
deliverable upon exercise of this Warrant Certificate.
(i) ADJUSTMENT IN EXERCISE AMOUNT. Upon each adjustment in
the Exercise Price pursuant to the provisions of this SECTION 5, the
Exercise Amount then in effect shall be adjusted to an Exercise
Amount obtained by multiplying the Exercise Amount immediately prior
to such adjustment by a fraction, the numerator of which shall be
the Exercise Price immediately prior to such adjustment and the
denominator of which shall be the adjusted Exercise Price.
(j) NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
Securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this
SECTION 5 and in the taking of all such action as may be necessary
-8-
or appropriate in order to protect the exercise rights of the
Warrantholder against impairment.
(k) CERTIFICATE AS TO AMENDMENTS. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this
SECTION 5, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms thereof and
furnish to each Warrantholder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The Company shall,
upon the written request at any time of any Warrantholder, furnish
or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the
Exercise Price and Exercise Amount then in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other
property which then would be received upon exercise of this Warrant
Certificate.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Company declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
Securities of the Company;
(ii) that the Company subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Company into or
with another corporation, or of the sale of all or substantially all
of the assets of the Company; or
(iv) of the inventory or voluntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at its principal office or
at the office of the transfer agent of the Common Stock, and shall
cause to be mailed to the Warrantholder at their last addresses as
shown on the records of the Company or such transfer agent, at least
15 days prior to the record date specified in (A) below or 30 days
before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or
combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for Securities
-9-
or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
6. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATE.
6.1 On surrender for exchange of this Warrant Certificate, or any
Warrant Certificate or Warrant Certificates issued upon subdivision, exercise,
or transfer in whole or in part of this Warrant Certificate, properly endorsed,
to the Company, the Company at its expense will issue and deliver to or on the
order of the holder thereof a new Warrant Certificate or Warrant Certificates of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant Certificate or Warrant Certificates so
surrendered.
6.2 In the event this or any subsequently issued Warrant
Certificate is lost, stolen, mutilated or destroyed, the Company may, upon
receipt or a proper affidavit (and surrender of any mutilated Warrant
Certificate) and an indemnity agreement or security reasonably satisfactory in
form and amount to the Company, in each instance protecting the Company, issue a
new Warrant Certificate of like denomination, tenor and date as the Warrant
Certificate so lost, stolen, mutilated or destroyed. Any such new Warrant
Certificate shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Warrant
Certificate shall be at any time enforceable by anyone.
7. ELIMINATION OF FRACTIONAL INTERESTS.
7.1 The Company shall not issue any fraction of a share in
connection with the exercise of this Warrant Certificate, but in any case where
the Warrantholder would, except for the provisions of this SECTION 7, be
entitled under the terms of this Warrant Certificate to receive a fraction of a
share upon the exercise of this Warrant Certificate, the Company shall, upon the
exercise of the Warrant Certificate for the largest number of full shares then
called for thereby and receipt of the Exercise Price thereof, pay a sum in cash
equal to the Fair Market Value of such fraction of a share on the day preceding
such exercise. The Warrantholder expressly waives its rights to receive any
fraction of a share or a Warrant Certificate representing a fractional share
upon exercise thereof.
7.2 If the taking of any action would cause an adjustment in the
Exercise Price so that the exercise of this Warrant Certificate while such
Exercise Price is in effect would cause shares to be issued at a price below
their then par value, the Company will take such action as may, in the
reasonable opinion of its counsel, be necessary in order that it may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant Certificate.
8. RESERVATION AND LISTING OF SHARES.
The Company will cause to be reserved and kept available out of its
authorized and unissued shares of Common Stock the number of whole shares of
Common Stock sufficient to permit the exercise in full of this Warrant
Certificate.
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9. RIGHTS OF WARRANTHOLDER.
9.1 The Company may deem and treat the person in whose name this
Warrant Certificate is registered with it as the absolute owner for all purposes
whatever (notwithstanding any notation of ownership or other writing thereon
made by anyone other than the Company) and the Company shall not be affected by
any notice to the contrary. The terms "Warrantholder" and "holder of the Warrant
Certificate" and all other similar terms used herein shall mean only such
person(s) in whose name(s) this Warrant Certificate if properly registered on
the Company's books. However, notwithstanding the foregoing, no person, entity
or group may become a Warrantholder other than the Warrantholder unless and
until (a) the provisions of SECTION 3.1 hereof have been complied with, (b) the
Company has received an assignment transferring all right, title and interest in
and to this Warrant Certificate, and (c) such person, entity or group represents
and warrants in writing that it will be the sole legal and beneficial owner
thereof.
10. REGISTRATION RIGHTS.
10.1 The Warrantholder has certain registration rights with
respect to the Warrant Shares as set forth in the Registration Rights Agreement
between the Company and the Warrantholder, dated as of January 30, 2004.
11. NOTICES.
Any notice or demand authorized by this Warrant Certificate to be
given or made by the Warrantholder to or on the Company or to be given or made
by the Company to or on the Warrantholder shall be sufficiently given or made if
sent in writing by first-class mail, postage prepaid, addressed as follows:
(a) If to the Warrantholder, to the address for such holder as
shown on the books of the Company; or
(b) If to the Company, to:
Empire Resorts, Inc.
c/o Monticello Raceway
Route 17 B
P.O. Box 5013
Monticello, New York 12701
or at such other address as the registered holder or the Company may hereafter
have advised the other.
12. SUCCESSORS.
All the covenants, agreements, representations and warranties
contained in this Warrant Certificate shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
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13. HEADINGS.
The Section headings in this Warrant Certificate have been inserted
for purposes of convenience only and shall have no substantive effect.
14. LAW GOVERNING.
This Warrant Certificate is delivered in the State of New York and
shall be construed and enforced in accordance with, and governed by, the laws of
the State of New York (without giving effect to the choice of law principle of
such state), regardless of the jurisdiction of creation or domicile of the
Company or its successors or of the holder at any time hereof.
15. REMEDIES.
The Company stipulates that the remedies at law of the holder of
this Warrant Certificate in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant Certificate are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
12
IN WITNESS WHEREOF, the Company has executed this Warrant
Certificate by its duly authorized officer as of the day and year first above
written.
EMPIRE RESORTS, INC.
By:
----------------------------------------
Name:
Title:
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SUBSCRIPTION FORM
(To Be Executed By The Warrantholder
In Order to Exercise The Warrant Certificate)
The undersigned, pursuant to the provisions set forth in the within
Warrant Certificate, hereby irrevocably elects to exercise the right to purchase
________ shares of Common Stock of Empire Resorts, Inc. covered by such Warrant
Certificate, and herewith tenders _________ having a fair market value of
$________ in full payment of the Exercise Price for such shares (which may
include foregoing receipt of ___ shares of Common Stock as per Section 1.1 of
the Warrant Certificate).
By:
---------------------------------
Signature
---------------------------------
Name
---------------------------------
Address
---------------------------------
Dated: ________________________
EXHIBIT 10.19
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of the
30th day of January, 2004, is by and among Empire Resorts, Inc., a Delaware
corporation (the "COMPANY"), and Jefferies & Company, Inc. (together with its
registered assigns, the "WARRANTHOLDER").
WHEREAS, the Warrantholder owns warrants to purchase 250,000 shares of
the Common Stock, $.01 par value (the "COMMON STOCK"), of the Company (or such
other class of common stock of the Company into which the Common Stock may be
converted or reclassified, and all references herein to the Common Stock shall
mean such other class of common stock, if applicable) (the "WARRANTS"). The
Company and the Warrantholder deem it to be in their respective best interests
to set forth the rights of the Warrantholder in connection with public offerings
and sales of the capital stock of the Company.
ACCORDINGLY, in consideration of the premises and mutual covenants and
obligations hereinafter set forth, the Company and the Warrantholder hereby
agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not otherwise
defined herein shall have the meaning given to them in the Purchase Agreement
(as defined below). As used in this Agreement, the following terms shall have
the following meanings:
"AFFILIATE" shall have the meaning ascribed to it in the Purchase
Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other Governmental Authority at the time administering the Securities Act.
"COMMON STOCK" shall have the meaning ascribed to it in the Preamble.
"DEFERRAL PERIOD" shall have the meaning set forth in Section 7.
"EFFECTIVENESS PERIOD" means, with respect to any Registration
Statement, the period from the date of effectiveness of such Registration
Statement until the earlier of (i) the date two years following such date of
effectiveness; provided, however, that such two-year period shall be extended by
the aggregate number of days, if any, during which the effectiveness of such
Registration Statement was suspended or withdrawn or such Registration Statement
was otherwise unavailable in respect of Registrable Shares and (ii) the date
that all Registrable Shares covered by such Registration Statement have been
sold thereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any domestic or foreign government
or political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including nay agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"OTHER SHARES" shall mean at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
"PERSON" shall be construed as broadly as possible and shall include
an individual person, a partnership (including a limited liability partnership),
a corporation, an association, a joint stock company, a limited liability
company, a trust, a joint venture, an unincorporated organization and a
Governmental Authority.
"PRIMARY SHARES" shall mean, at any time, the authorized but unissued
shares of Common Stock held by the Company in its treasury.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any prospectus subject to completion, and any such
prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Shares and, in
each case, by all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement dated as
of January 26, 2004, between the Company and the Purchasers named therein, as
amended, restated or otherwise modified from time to time.
"REGISTRABLE SHARES" shall mean, at any time, and with respect to the
Warrantholder, the shares of Common Stock issued or issuable upon the exercise
of the Warrants. As to any particular Registrable Shares, once issued, such
Registrable Shares shall cease to be Registrable Shares (A) when such
Registrable Shares have been registered under the Securities Act, the
Registration Statement in connection therewith has been declared effective and
they have been disposed of pursuant to and in the manner described in such
effective Registration Statement, (B) when such Registrable Shares are sold or
distributed pursuant to Rule 144, (C) one year after the date on which the
Warrantholder may first sell such Registrable Shares without volume restrictions
under Rule 144(k) (provided that the Warrantholder is still able, at such time,
to sell such Registrable Shares under Rule 144(k)), as determined by outside
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent and the Warrantholder,
or (D) when such Registrable Shares have ceased to be outstanding.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Registrable Shares, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"REPRESENTATIVE" of a Person shall be construed broadly and shall
include such Person's partners, officers, directors, employees, agents, counsel,
accountants and other representatives.
"RESTRICTED SECURITIES" shall mean, at any time and with respect to
the Warrantholder, the shares of Common Stock issued or issuable upon the
exercise of Warrants, which are held by the Warrantholder and which theretofore
have not been sold to the public pursuant to a Registration Statement or
pursuant to Rule 144.
2
"RULE 144" shall mean Rule 144 promulgated under the Securities Act
or any successor rule thereto.
"SECURITIES ACT" shall mean the Securities Act of 1933 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"TRADING DAY" means (i) a day on which the Company's common stock is
traded on a Trading Market, or (ii) if the common stock is not listed on a
Trading Market, a day on which the common stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
common stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, that in the event that the common
stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day (as defined in the Purchase Agreement).
"WARRANTS" shall have the meaning ascribed to it in the Preamble.
SECTION 2. PIGGYBACK REGISTRATION. If the Company at any time proposes
for any reason to register Primary Shares or Other Shares under the Securities
Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto), it shall promptly give written notice to the
Warrantholder of its intention to so register the Primary Shares or Other Shares
and, upon the written request, given within three (3) Trading Days after
delivery of any such notice by the Company, of the Warrantholder to include in
such registration Registrable Shares (which request shall specify the number of
Registrable Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all Registrable
Shares or Other Shares proposed to be included in such registration would
interfere with the successful marketing (including pricing) of Primary Shares
proposed to be registered by the Company, then the number of Registrable Shares
proposed to be included in such registration shall be subject to customary
cutbacks applicable to all holders of registration rights.
SECTION 3. PREPARATION AND FILING. If and whenever the Company is
under an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Registrable Shares, the Company shall,
as expeditiously as practicable:
(i) Not less than two (2) Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or
supplement thereto, the Company shall furnish to the Warrantholder
copies of all such documents proposed to be filed which documents
(other than those incorporated or deemed to be incorporated by
reference) will be subject to the reasonable review of the
Warrantholder. The Company shall not file a Registration Statement or
any such Prospectus or any amendments or supplements (other than
periodic reports required under the Exchange Act) thereto to which the
Warrantholder of a majority of the Registrable Shares shall reasonably
3
object in writing within one (1) Trading Day of receipt.
(ii) Subject to SECTION 7, prepare and file with the Commission
such amendments, including post-effective amendments, to each
Registration Statement and the Prospectus used in connection therewith
as may be necessary to keep such Registration Statement continuously
effective as to the applicable Registrable Shares for its
Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale
under the Securities Act all of the Registrable Shares; (ii) cause the
related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed
pursuant to Rule 424; (iii) respond as promptly as reasonably possible
to any comments received from the Commission with respect to each
Registration Statement or any amendment thereto and, as promptly as
reasonably possible, upon request, provide the Warrantholder true and
complete copies of all correspondence from and to the Commission
relating to such Registration Statement that would not result in the
disclosure to the Warrantholder of material and non-public information
concerning the Company; and (iv) comply in all material respects with
the provisions of the Securities Act and the Exchange Act with respect
to the Registration Statements and the disposition of all Registrable
Shares covered by each Registration Statement during the applicable
period in accordance with the intended methods of disposition by the
Purchasers thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(iii) Notify the Warrantholder as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than two (2) Trading Days
prior to such filing) and (if requested by any such Person) confirm
such notice in writing promptly following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to
a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in
writing on such Registration Statement (the Company shall provide true
and complete copies thereof and all written responses thereto to each
of the Warrantholder that pertain to the Warrantholder as a selling
stockholder or to the plan of distribution, but not information which
the Company believes would constitute material and non-public
information); and (C) with respect to each Registration Statement or
any post-effective amendment, when the same has become effective; (ii)
of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the
Registrable Shares or the initiation of any proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Shares for sale in any
jurisdiction, or the initiation or threatening of any proceeding for
such purpose; and (v) of the occurrence of any event or passage of
time that makes the financial statements included in a Registration
Statement ineligible for inclusion therein or any statement made in
such Registration Statement or Prospectus or any document incorporated
4
or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to such Registration
Statement, Prospectus or other documents so that, in the case of such
Registration Statement or the Prospectus, as the case may be, it will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
(iv) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the
effectiveness of a Registration Statement, or (ii) any suspension of
the qualification (or exemption from qualification) of any of the
Registrable Shares for sale in any jurisdiction, at the earliest
practicable moment.
(v) Furnish to the Warrantholder by email, hand delivery or
overnight courier, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, and all exhibits to
the extent requested by such Person (other than those previously
furnished or incorporated by reference) promptly after the filing of
such documents with the Commission.
(vi) Promptly deliver to the Warrantholder, without charge, as
many copies of each Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons
may reasonably request. The Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the
selling Warrantholder in connection with the offering and sale of the
Registrable Shares covered by such Prospectus and any amendment or
supplement thereto to the extent permitted by federal and state
securities laws and regulations.
(vii) Prior to any public offering of Registrable Shares, use its
reasonable best efforts to register or qualify or cooperate with the
selling Warrantholder in connection with the registration or
qualification (or exemption from such registration or qualification)
of such Registrable Shares for offer and sale under the securities or
blue sky laws of such jurisdictions within the United States as the
Warrantholder requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Shares covered by the Registration Statements;
provided, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to material taxation in respect of
doing business in any jurisdiction in which it is not otherwise so
subject.
(viii) Cooperate with the Warrantholder to facilitate the timely
preparation and delivery of certificates representing Registrable
Shares to be delivered to a transferee pursuant to the Registration
Statements, which certificates shall be free, to the extent permitted
by the Purchase Agreement, of all restrictive legends, and to enable
such Registrable Shares to be in such denominations and registered in
such names as any the Warrantholder may request.
5
(ix) Upon the occurrence of any event or passage of time that
makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in such
Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions to such Registration Statement,
Prospectus or other documents so that, in the case of such
Registration Statement or the Prospectus, as the case may be, it will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading, as promptly as reasonably possible, prepare
a supplement or amendment, including a post-effective amendment, to
the affected Registration Statements or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, no Registration Statement nor any Prospectus
will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(x) Comply with all applicable rules and regulations of the
Commission.
(xi) The Company may require each selling Warrantholder to
furnish to the Company a certified statement as to the number of
shares of Common Stock beneficially owned by such Warrantholder and
any controlling person thereof.
SECTION 4. EXPENSES. All expenses incurred by the Company in complying
with SECTION 3 with respect to any Registration pursuant to SECTION 2,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), fees and expenses of complying with
securities and blue sky laws, printing expenses and fees and expenses of the
Company's counsel and accountants (the "REGISTRATION EXPENSES"), shall be paid
by the Company.
SECTION 5. INDEMNIFICATION. (a) In connection with any registration of
any Registrable Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless the seller of such Registrable Shares,
each underwriter, broker or any other Person acting on behalf of such seller,
each other Person, if any, who controls any of the foregoing Persons within the
meaning of the Securities Act and each Representative of any of the foregoing
Persons, against any losses, claims, damages or liabilities, joint or several,
to which any of the foregoing Persons may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement under which such Registrable Shares were registered, any preliminary
Prospectus or final Prospectus contained therein, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with respect to any
Prospectus, necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation by the
6
Company of the Securities Act or state securities or blue sky laws applicable to
the Company and relating to action or inaction required of the Company in
connection with such registration or qualification under such state securities
or blue sky laws, and the Company shall promptly reimburse such seller, such
underwriter, such broker, such controlling Person or such Representatives for
any legal or other expenses incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable to any such Person to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said Registration Statement, preliminary Prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
Person, or a Person duly acting on their behalf, specifically for use in the
preparation thereof; provided further, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any untrue
statement, allegedly untrue statement, omission or alleged omission made in any
preliminary Prospectus but eliminated or remedied in the final Prospectus (filed
pursuant to Rule 424 of the Securities Act), such indemnity agreement shall not
inure to the benefit of any indemnified party from whom the Person asserting any
loss, claim, damage, liability or expense purchased the Registrable Shares which
are the subject thereof, if a copy of such final Prospectus had been timely made
available to such Indemnified Person and such final Prospectus was not delivered
to such Person with or prior to the written confirmation of the sale of such
Registrable Shares to such Person.
(b) In connection with any registration of Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the PARAGRAPH (a) of this SECTION 5) the Company, each underwriter
or broker involved in such offering, each other seller of Registrable Shares
under such Registration Statement, each Person who controls any of the foregoing
Persons within the meaning of the Securities Act and any Representative of the
foregoing Persons with respect to any statement or omission from such
Registration Statement, any preliminary Prospectus or final Prospectus contained
therein, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company or such underwriter through an instrument duly executed
by such seller or a Person duly acting on their behalf specifically for use in
connection with the preparation of such Registration Statement, preliminary
Prospectus, final Prospectus, amendment or supplement; provided, however, that
the maximum amount of liability in respect of such indemnification shall be
limited, in the case of each seller of Registrable Shares, to an amount equal to
the net proceeds actually received by such seller from the sale of Registrable
Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this SECTION 5, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action (provided, however, that an indemnified
party's failure to give such notice in a timely manner shall only relieve the
indemnification obligations of an indemnifying party to the extent such
indemnifying party is prejudiced by such failure). In case any such action is
7
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are in addition to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this SECTION 5, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any Person controlling such indemnified party for that portion of the
fees and expenses of any one lead counsel (plus appropriate special and local
counsel) retained by the indemnified party which are reasonably related to the
matters covered by the indemnity agreement provided in this SECTION 5.
(d) If the indemnification provided for in this SECTION 5 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage or liability referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other hand in connection with the
statements or omissions which resulted in such loss, claim, damage or liability
as well as any other relevant equitable considerations; provided, however, that
the maximum amount of liability in respect of such contribution shall be
limited, in the case of each seller of Registrable Shares, to an amount equal to
the net proceeds actually received by such seller from the sale of Registrable
Shares effected pursuant to such registration. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party and will survive the transfer of
securities.
SECTION 6. UNDERWRITING AGREEMENT. (a) Notwithstanding the provisions
of SECTIONS 3 and 5, to the extent that the Warrantholder selling Registrable
Shares in a proposed registration shall enter into an underwriting or similar
agreement, which agreement contains provisions covering one or more issues
addressed in such Sections of this Agreement, the provisions contained in such
Sections of this Agreement addressing such issue or issues shall be of no force
or effect with respect to such registration, but this provision shall not apply
to the Company if the Company is not a party to the underwriting or similar
agreement.
8
(b) The Warrantholder may not participate in any registration
hereunder that is underwritten unless the Warrantholder agrees to sell the
Warrantholder's Registrable Shares proposed to be included therein on the basis
provided in any underwriting arrangements reasonably acceptable to the Company.
SECTION 7. SUSPENSION. Anything contained in this Agreement to the
contrary notwithstanding, the Company may, by notice in writing to each holder
of Registrable Shares to which a Prospectus relates, suspend the effectiveness
of a Registration Statement after the Effective Date thereof and/or require that
such holder immediately cease the sale of shares of Common Stock pursuant
thereto and/or defer the filing of any subsequent Registration Statement for up
to 45 consecutive days (the "DEFERRAL PERIOD") in any 90-day period, if the
Company determines in good faith, by appropriate resolutions or action by its
board of directors, that (A) it would be materially detrimental to the Company
(other than as relating solely to the price of the Common Stock) to file a
Registration Statement at such time and (B) it is in the best interests of the
Company to defer proceeding with such registration at such time; PROVIDED,
HOWEVER, that in the event the disclosure relates to a previously undisclosed
proposed or pending material business transaction, the disclosure of which the
Company determines in good faith would be reasonably likely to impede the
Company's ability to consummate such transaction, the Company may extend a
Deferral Period from 45 days to 60 days; PROVIDED FURTHER, however, that
Deferral Periods (including but not limited to any extended Deferral Periods
under clause (B)) may not total more than 60 days in the aggregate in any
twelve-month period.. The Company may (but shall not be obligated to) withdraw
the effectiveness of any Registration Statement subject to this provision.
SECTION 8. INFORMATION BY WARRANTHOLDER. Each holder of Registrable
Shares to be included in any registration shall furnish to the Company and the
managing underwriter such written information regarding such holder and the
distribution proposed by such holder as the Company or the managing underwriter
may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
SECTION 9. EXCHANGE ACT COMPLIANCE. From and after the Registration
Date or such earlier date as a registration statement filed by the Company
pursuant to the Exchange Act relating to any class of the Company's securities
shall have become effective, the Company shall comply with all of the reporting
requirements of the Exchange Act (whether or not it shall be required to do so)
and shall comply with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Common Stock. The Company shall cooperate with the Warrantholder in
supplying such information as may be necessary for the Warrantholder to complete
and file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of Rule 144.
SECTION 10. NO CONFLICT OF RIGHTS. The Company represents and warrants
to the Warrantholder that the registration rights granted to the Warrantholder
hereby do not conflict with any other registration rights granted by the
Company. The Company shall not, after the date hereof, grant any registration
rights which conflict with or impair, or have any priority over, the
registration rights granted hereby.
9
SECTION 11. TERMINATION. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Securities;
provided, however, that SECTIONS 4 and 5 shall survive the termination of this
Agreement.
SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the Company and the Warrantholder and, subject to
Section 13, their respective successors and assigns.
SECTION 13. ASSIGNMENT. The Warrantholder may assign its rights
hereunder to any Person to whom it transfers any Registrable Shares; provided,
however, that such transferee shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement agreeing to
be treated as a Warrantholder hereunder whereupon such transferee shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement as a Warrantholder.
SECTION 14. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior arrangements or understandings with respect hereto.
SECTION 15. NOTICES. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in Person, by telex, telegram or telecopy, by overnight courier,
or by first class registered or certified mail, postage prepaid, addressed to
such party at the address set forth below or such other address as may hereafter
be designated in writing by the addressee to the sender:
(i) if to the Company, to:
Empire Resorts, Inc.
c/o Monticello Raceway
Route 17B
P.O. Box 5013
Monticello, New York 12701
with a copy to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, NY 10022
Facsimile: (212) 755-1467
Attention: Robert H. Friedman
(ii) if to the Warrantholder, to its address set forth in the
books of the Company;
with a copy to:
10
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York 10019
Telephone: (212) 506-2500
Facsimile: (212) 262-1910
Attention: Ronald S. Brody
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery, telex, telegram or
telecopy, on the date of such delivery, (b) in the case of overnight courier, on
the next business day, and (c) in the case of mailing, on the fifth business day
following such mailing.
SECTION 16. MODIFICATIONS; AMENDMENTS; WAIVERS. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision applicable to the Warrantholder be waived, except pursuant to a
writing signed by the Company and the Warrantholder.
SECTION 17. HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 18. SEVERABILITY. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 19. GOVERNING LAW; ETC. All questions concerning the
construction, interpretation and validity of this Agreement shall be governed by
and construed and enforced in accordance with the domestic laws of the State of
New York, without giving effect to any choice or conflict of law provision or
rule (whether in the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York. In furtherance of the foregoing, the internal law of the State of New
York will control the interpretation and construction of this Agreement, even if
under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
SECTION 20. COUNTERPARTS; VALIDITY. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
taken together shall constitute one and the same agreement, and telecopied
signatures shall be effective. The failure of any Person holding Registrable
Shares to execute this Agreement shall not render this Agreement invalid as
between the Company and any other Person holding Registrable Shares.
11
SECTION 21. ENTIRE AGREEMENT. This Agreement and the other documents,
certificates, instruments, writings and agreements referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to the subject matter hereof and supersede in their entirety any and all
prior agreements and understandings between any of the parties hereto, all of
which are hereby terminated in their entirety and of no further force or effect.
* * * *
12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above-written.
EMPIRE RESORTS, INC.
By:
-------------------------------------
Name:
Title:
JEFFERIES & COMPANY, INC.
By:
-------------------------------------
Name:
Title:
Exhibit 10.20
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BY AND BETWEEN
EMPIRE RESORTS, INC.
AND
ROBERT A. BERMAN
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as
of January 12, 2004, by and between EMPIRE RESORTS, INC. (the "COMPANY"), a
corporation duly organized and existing under the laws of the State of Delaware,
with offices at Monticello Raceway, Route 17B, Monticello, New York 12701, and
ROBERT A. BERMAN (the "EMPLOYEE"), an individual residing at 735 Starlight Road,
Monticello, New York 12701.
WHEREAS, pursuant to that certain Amended and Restated Contribution
Agreement (the "CONTRIBUTION AGREEMENT"), dated as of February 8 , 2002, by and
between the Company and Watertone Holdings, LP ("WATERTONE"), Watertone
transferred and contributed to the New York Gaming LLC (the "LLC") a portion of
Watertone's interest in Catskill Development, L.L.C. ("CATSKILL");
WHEREAS, pursuant to that certain Employment Agreement, dated February 12,
2002, between the Company and the Employee, the Employee has, and continues to
serve as the Company's principal executive officer (the "ORIGINAL AGREEMENT");
and
WHEREAS, the Company and the Employee now desire to amend and restate the
Original Agreement as provided herein.
NOW THEREFORE, in consideration of the respective representations,
warranties, agreements and covenants contained herein, and for such other good
and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties hereto hereby agree that the Original Agreement
is hereby amended and restated in its entirety as follows:
1. EMPLOYMENT; TITLE; DUTIES AND RESPONSIBILITIES.
(a) The Company hereby agrees to employ the Employee, and the Employee
hereby agrees to serve the Company, on the terms and conditions set forth
herein, as the Chief Executive Officer of the Company, with such powers,
authorities, responsibilities and duties as may be assigned to him from time to
time by any Senior Officer (as hereinafter defined) or the Board of Directors of
the Company (the "BOARD").
(b) During the Term (as hereinafter defined), the Employee shall, during
business hours, devote all of his time, energy, skills, expertise, knowledge and
abilities on an exclusive basis to the performance of his duties and obligations
hereunder and shall, consistent with the Company's Policies (as hereinafter
defined) and as directed or requested from time to time by the Board or any
Senior Officer, diligently, conscientiously and in good faith render and perform
such services in such areas and places as are so directed or requested of him to
carry out his duties; PROVIDED, HOWEVER, that the foregoing shall not be deemed
to prohibit the Employee, outside of normal business hours, from engaging in any
other business activities that do not conflict or interfere with his obligations
to the Company or its Affiliates (as hereinafter defined) as set forth in this
Agreement. The Employee, at all times during the Term, shall adhere to and obey
all Company Policies that have been furnished or provided to him or of which he
has otherwise become or been made aware. For purposes of this Agreement,
"COMPANY POLICIES" means, collectively, the practices, rules, procedures and
polices of the Company as in effect from time to time, whether or not set forth
in writing in any Company manual or other directive or as may be imposed on the
Company under applicable law, and "SENIOR OFFICER" means (if other than the
Employee) the Chairman of the Board of the Company. Without limiting the effect
or generality of the foregoing, the Employee shall at all times during the Term:
(1) faithfully, diligently and timely perform such duties, and exercise
such powers, as may from time to time be assigned to, or vested in, him by
the Board or any Senior Officer;
(2) obey all lawful and reasonable directions of the Board or any Senior
Officer;
(3) use his best efforts and endeavors to promote the interests of the
Company and its Affiliates;
(4) keep the Board (or such persons(s) as may have been designated from
time to time by the Board) promptly and fully informed (in writing if so
requested) of his conduct of the business and affairs of the Company and
provide such explanations as the Board may from time to time request;
(5) subject to the proviso in the first sentence of SECTION 1(b) above,
devote all of his professional and business time to the conduct of the
business of the Company (and, if so requested by the Board or any Senior
Officer, one or more of its Affiliates) and to the performance of his
duties hereunder;
(6) except with respect to the Consolidation (as hereinafter defined), not
at any time engage in any self dealing or conflict of interest that is
material to the Company or any of its Affiliates or to any client,
customer, supplier or vendor of the Company or of any of its Affiliates;
and
(7) not at any time make any materially untrue or misleading statement
relating to the Company or any of its Affiliates or to any client,
customer, supplier or vendor of the Company or of any of its Affiliates.
(c) In addition, the Employee shall perform such other functions for the
Company, including taking positions with Affiliates and performing duties on
their behalf, as may be assigned to him from time to time by the Board or any
Senior Officer. As used in this Agreement, "AFFILIATE" of any person means any
entity (1) that such person (directly or indirectly through one or more
subsidiaries or other entities, or by contract or otherwise) controls, (2) that
(directly or indirectly through one or more subsidiaries or other entities, or
by contract, overlapping directors or management or otherwise), controls such
person or is under common control with such person, (3) in which such person
(directly or indirectly through one or more subsidiaries or other entities, or
by contract or otherwise) owns (of record or beneficially) or holds, or
otherwise has the right to vote, at least a five per cent (5%) of the equity
interest thereof or therein, (4) that, individually or with others with which it
is acting as a group or with a common goal, (directly or indirectly through one
or more subsidiaries or other entities, or by contract or otherwise) owns (of
record or beneficially) or holds, or otherwise has the right to vote, at least a
ten per cent (10%) of the equity interest of or in such person, (5) for which
such person, if an individual, is serving or acting as an officer, employee,
sales agent or representative, consultant or adviser or in any similar capacity
or (6) for which such person, if an individual, is acting or serving as a member
2
of its board of directors or other governing body. Notwithstanding anything
contained herein to the contrary, the Employee shall not be obligated hereunder
to devote more time to performing his duties hereunder to the Company and/or its
Affiliates than is generally expected of other executives of the Company.
(d) The Company shall reimburse the Employee for all reasonable expenses
expended by the Employee in connection with the investigation of the Employee
(as an officer or director of the Company) or any finding or determination of
suitability of the Employee (as an officer or director of the Company) by any
Gaming Authority (as defined in the Contribution Agreement).
2. TERM OF EMPLOYMENT.
------------------
This Agreement is terminable at will by either the Employee or the Company
upon 30 days prior written notice, and (b) the amounts then due thereunder from
the date of the closing shall be limited to the amounts due under Sections 4, 5
and 6 of this Agreement (including, without limitation, any and all of the
Employee's salary due hereunder or under the Original Agreement that the
Employee may have agreed to, or in the future agrees to, defer ($9,834.93 though
the date hereof)).
3. TRAVEL.
------
Travel during the Employee's employment shall be in accordance with Company
Policies as in effect from time to time. The Employee shall be entitled to
reimbursement for employment-related travel in accordance with SECTION 5 below.
4. COMPENSATION.
------------
(a) As compensation for his services and in consideration for the
Employee's covenants contained in this Agreement, the Company shall pay to
Employee a salary that on an annualized basis will equal Three Hundred Thousand
Dollars ($300,000). Such annual salary shall be payable in equal installments on
a bi-weekly basis and in accordance with Company Policies and shall be subject
to applicable federal, state and local withholdings and deductions.
(b) The Company shall be entitled to withhold from any payments due
hereunder taxes, FICA, contributory insurance participations and other normal
deductions, all in accordance with Company Policies.
5. EXPENSE REIMBURSEMENT.
---------------------
The Company shall, consistent with Company Policies, reimburse the Employee
for reasonable out-of-pocket business expenses incurred by him in his
performance of services hereunder to or for the Company or any Affiliate of the
Company, upon submission of reasonable documentation therefor.
6. OPTION AWARDS.
-------------
3
All previously granted Company stock options and vesting schedules of the
Employee shall remain in effect. The Company may, from time to time, elect to
grant the Executive additional stock options.
7. OTHER BENEFITS.
--------------
(a) Subject to his qualifying therefor and complying with all relevant
Company Policies, the Employee shall be entitled to participate in all benefit
plans, retirement plans, programs and arrangements of the Company, if any, made
available to its officers or generally to its employees, on a basis at least
equal to that extended to other senior management employees of the Company.
(b) The Employee shall be entitled to twenty (20) days per year paid
vacation and five (5) paid personal days in accordance with the Company Policies
in effect from time to time. Unused vacation and personal days may not be
carried over to a subsequent year, and the Company shall have no obligation to
compensate Employee for any unused vacation or personal days upon the expiration
or earlier termination of this Agreement or Employee's employment hereunder.
8. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. The Employee hereby
represents and warrants to the Company, in order to induce the Company to enter
into this Agreement and employ him hereunder, as follows:
(a) The Employee has not been convicted of any felony or any other criminal
offense that is punishable with or by six (6) months or more imprisonment
(regardless of whether Employee has actually been imprisoned or sentenced to
imprisonment).
(b) The Employee is under no contractual or other impediment to undertake
the offices and/or employment provided or contemplated hereunder or otherwise to
perform hereunder and that, by so doing, he will not be in violation of any
commitment, agreement or obligation to any other person or entity.
9. CONFIDENTIAL/PROPRIETARY INFORMATION; NON-SOLICITATION; NON-COMPETITION.
(a) During the Term and thereafter, Employee shall, and shall cause each
and all of his agents, representatives and Affiliates:
(1) to treat all Confidential Information (as hereinafter defined) in the
strictest confidence;
(2) not to disclose, publish, distribute, disseminate, reproduce, utilize
or make accessible in any manner or in any form any Confidential
Information other than in connection with performing the services required
of the Employee under this Agreement; and
(3) not to reproduce, retain, copy, publish, plagiarize, appropriate or
otherwise utilize (as a model, precedent, form, template or otherwise), or
refer to in way, any of the Company's marketing materials, forms of letters
4
or agreements or other business documents or any part or portion of, or
excerpt from, any of the foregoing.
(b) As used herein, "CONFIDENTIAL INFORMATION" means any proprietary,
confidential and/or other non-public information of, relating to or regarding
the business or interests of the Company or any of its Affiliates, including,
without limitation, (1) any trade secrets, know-how, databases, company
policies, procedures and techniques, correspondence, agreements, negotiations,
offering packages, business descriptions and profiles, business plans, financial
information, product literature and technical projects of, regarding or relating
to the Company or any of its Affiliates or the business, operations, products
and/or services of the Company or any of its Affiliates, (2) any research datum,
result or report regarding the Company or any of its Affiliates or any aspects
of the business, operations, business dealings, prospects or financial condition
or financial results of the Company or any of its Affiliates, (3) any report,
analysis, study, invention, process or other work product developed by, for or
on behalf of the Company or any of its Affiliates, including, without
limitation, that developed by the Employee, whether on the premises of the
Company or elsewhere and whether or not developed during normal business hours
or on normal business days, and (4) any list of customers, clients, vendors,
suppliers or prospects of the Company or any of its Affiliates. Notwithstanding
the foregoing, the provisions of this Agreement shall not apply to any
Confidential Information to the extent, but only to the extent, that the same
is, or has become, publicly known under circumstances involving no breach of
this Agreement or any other agreement of confidentiality or has been disclosed
pursuant to an order or requirement of a court, administrative agency or other
governmental body of competent authority, PROVIDED HOWEVER, that the Company has
been given appropriate and reasonable notice of such proceeding and a reasonable
opportunity to contest such disclosure. Without limiting the generality of the
foregoing, except as consented to in writing by the Board or a Senior Officer,
the Employee shall not in any way or at any time disclose or publish the name(s)
or description(s) of any transaction by the Company or any of its Affiliates,
whether contemplated, pending or completed, or the identity of any party to any
such transaction.
(c) All business, financial, product and technical records, information and
literature relating to the business or operations, or any product or service, of
the Company or any of its Affiliates (all such business, financial, product and
technical records, information and literature being hereinafter referred to
collectively as "BUSINESS RECORDS"), including, without limitation, Confidential
Information, fee agreements, confidentiality agreements, papers, databases,
contact records, documents and correspondence and studies containing information
relating to the Company or any of its Affiliates or any transaction (whether
contemplated, pending or completed) by the Company or any of its Affiliates, in
all cases irrespective of the manner in which such information was obtained or
is kept or stored, made or kept by the Employee or under the Employee's
possession, custody or control or in the possession, custody or control of any
agent and representative of the Employee, shall be and remain the sole and
exclusive property of the Company and shall be surrendered to the Company at the
time of the expiration or earlier termination of this Agreement or Employee's
employment hereunder for any reason whatsoever or, if earlier, upon the request
of the Company. Upon such expiration or termination or earlier request, the
Employee shall not, and shall cause his or her agents, representatives and
Affiliates not to, retain, publish or disclose, or otherwise use, without the
prior written consent of a Senior Officer, any Business Records.
5
(d) Employee hereby assigns, transfers and conveys to the Company all of
his respective right, title and interest in and to any and all Company Property
(as hereinafter defined). If any Company Property is deemed in any way to fall
within the definition of "work for hire" as such term is defined in 17 U.S.C.
ss.101, such Company Property shall be considered "work for hire" and the
Company shall be deemed the author and sole and exclusive owner of any
copyrights and other rights and interests therein. If any of the Company
Property is considered to be work not included in the categories of work covered
by the "work for hire" definition contained in 17 U.S.C. ss.101, such Company
Property shall be owned by the Company or assigned or transferred completely and
exclusively to the Company. The Employee agrees promptly to execute any
instruments, and to do all things, reasonably requested by the Company in order
more fully to vest in the Company all ownership rights in all Company Property.
As used herein, "COMPANY PROPERTY" means each and all of every idea, invention,
writing, composition and/or computer program (whether or not patentable or
protected by copyright and including, without limitation, any Confidential
Information) that relates to the business or affairs of the Company or any of
its Affiliates and either (i) that has been conceived, created, invented or
otherwise developed in whole or in part by the Employee or (ii) with respect to
the conception, creation, invention or development of which Employee may have
aided during the term of his employment by the Company.
(e) In furtherance of the covenants contained herein and as a condition to
the continuation of the Employee's employment hereunder, the Employee shall
execute and deliver to the Company such further agreements and commitments as
the Company may from time to time reasonably request in order more fully to
protect the Company's rights and interests in and to the Confidential
Information, the Business Records and proprietary and other rights and interests
in and with respect to its business prospects.
10. INJUNCTIVE RELIEF; INDEPENDENCE AND SEVERABILITY OF COVENANTS.
(a) The Employee acknowledges and agrees that, in the event of any breach
or likely breach of any of the covenants of SECTION 9 above, the Company and any
relevant Affiliate(s) would be irreparably harmed and could not be made whole
solely by monetary damages. It is accordingly agreed that such Persons, in
addition to any other remedies to which they may be entitled at law or in
equity, shall be entitled to equitable relief (in the form of an injunction or
otherwise) in respect of such breach or likely breach (or any threatened
breach). In the event the Company seeks any equitable relief or remedy with
respect to any such threatened or actual breach, violation or default (1) the
Employee will not seek to oppose or defend against such equitable relief or
remedy on the ground that the Company has an adequate remedy at law or on any
other similar or related ground and (2) no bond or other security shall be
required for, or as a condition to, the seeking or granting of any injunction or
other equitable relief. It is intended to grant full third-party rights under
this provision.
(b) The Employee acknowledges and agrees that the covenants and other
provisions set forth in SECTION 9 above and in this SECTION 10 be enforceable to
the fullest extent possible under applicable law.
6
(c) For the purposes of this SECTION 10, the state and federal courts of
the State of New York will be the proper and exclusive forums for any legal
controversy arising in connection with this Agreement.
11. MISCELLANEOUS.
(A) INDEMNIFICATION.
(1) Each of the parties hereto (an "INDEMNIFYING PARTY") shall
indemnify and hold harmless the other party hereto (and, with respect
to any breach of SECTION 9 above, the Company's Affiliates) (the
"INDEMNIFIED PARTY") from and against, and shall reimburse the
Indemnified Party for, any and all liabilities, losses, damages, costs
and expenses (including, without limitation, reasonable attorneys' fees
and other legal costs, including those related to any appeal, and costs
of any investigation) (all of the foregoing, collectively, "LOSSES")
that have been suffered or incurred by the Indemnified Party and that
have resulted from, or been occasioned by, (a) any breach or violation
by the Indemnifying Party of any of its or his representations,
warranties, covenants and other agreements set forth herein or (b) any
claim asserted by any third party that, if true, would constitute a
breach or violation by the Indemnifying Party of any of its or his
representations, warranties, covenants and other agreements set forth
herein (any such claim, a "THIRD-PARTY CLAIM").
(2) If the Indemnified Party shall receive notice of, or otherwise
become aware of the assertion of, any Third-Party Claim with respect to
which the Indemnified Party intends to seek indemnification under this
SUBSECTION (a), then the Indemnified Party shall give prompt written
notice thereof to the Indemnifying Party, which notice shall include or
be accompanied with a copy of any summons, complaint or other written
evidence of such Third-Party Claim to the extent that such summons,
complaint or other written evidence has been received by such
Indemnified Party or by any attorney or other agent thereof. The
failure of the Indemnified Party to give such notice or to give such
notice promptly shall not relieve the Indemnifying Party of its
obligation to indemnify the Indemnified Party under this SUBSECTION (a)
except to the extent that the failure to give such notice or the delay
in giving such notice has materially prejudiced the Indemnifying Party
in its or his ability to defend against such Third-Party Claim. The
Indemnifying Party shall, with counsel selected by it (which selection
shall be subject to the approval of the Indemnified Party, such
approval not to be unreasonably withheld or delayed), be entitled to
defend against and settle any Third Party Claim; PROVIDED, HOWEVER,
that the Indemnifying Party's right to do so shall be conditioned upon
its or his having confirmed in writing to the Indemnified Party its or
his obligation to indemnify the Indemnified Party with respect to such
Claim (any such confirmation, a "NOTICE TO INDEMNIFY") and, PROVIDED,
further, HOWEVER, that the Indemnifying Party shall not be entitled to
enter into any settlement of any such Claim without the prior written
consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything contained
herein to the contrary, the Indemnifying Party's obligation to
indemnify the Indemnifying Parties against any Third-Party Claim shall
be conditioned upon the Indemnifying Party providing full and timely
cooperation in the defense of such Claim.
(3) Notwithstanding anything contained herein to the contrary, except
as provided in the next following sentence, the Indemnifying Party
shall not be obligated to indemnify the Indemnified Party for, or
otherwise pay, any attorneys' fees or other legal or related costs (or
any costs of any investigation) suffered or incurred by the
Indemnified Party in connection with any Third-Party Claim after the
Indemnified Party receive any Notice to Indemnify with respect to such
Claim; PROVIDED, HOWEVER, that, if, after giving any Notice to
Indemnify, the Indemnifying Party reverses its or his position and
claims that it or he is not required to Indemnify the Indemnified
Party against the Third-Party Claim, then, in the event the
Indemnifying Party is obligated hereunder to indemnify the Indemnified
Party with respect to such Claim, the Indemnifying Party shall bear
and pay the reasonable attorneys' fees and other legal costs,
including those related to any appeal, and costs of any investigation,
incurred by the Indemnified Party after the Indemnifying Party has
reversed its or his position and claimed that it or he is not required
to Indemnify the Indemnified Party against such Claim. Notwithstanding
the foregoing, if there is a legitimate and good faith conflict of
interest between the Indemnifying Party and the Indemnified Party in
connection with the defense of any Third-Party Claim so that one
counsel or law firm could not properly represent both parties in
connection with such defense, then the Indemnified Party, in the event
it or he is obligated hereunder to indemnify the Indemnified Party
with respect to such Claim, shall bear and pay the reasonable
attorneys' fees and other legal costs, including those related to any
appeal, and costs of any investigation, incurred by the Indemnified
Party in connection with such defense, regardless of whether the
Indemnifying Party has given a Notice to Indemnify. Under no
circumstances, however, shall the Indemnifying Party be obligated to
pay for the attorneys' fees or related legal fees of more than one
attorney or law firm.
(b) NOTICES. All notices, demands, requests, consents, approvals or other
communications (each of the foregoing, a "NOTICE") required to be given
hereunder or pursuant hereto to either party hereto shall be in writing and
shall be (a) personally delivered, (b) sent by both registered to certified
mail, postage prepaid and return receipt requested, and regular first class
mail, (b) sent both by facsimile transmission with receipt of transmission
confirmed electronically or by telephone and by regular first class mail or (c)
sent by reputable overnight courier service with charges prepaid and delivery
confirmed, to the intended recipient at its or his respective address as set
forth below; PROVIDED, HOWEVER, that, if a party sending any Notice has received
written notice in accordance with this SUBSECTION (b) of a more recent address
for any intended recipient referred to below, any Notice to such intended
recipient shall be delivered or sent to it or him at the most recent address of
which such party has received such a notice:
if to the Company:
Empire Resorts, Inc.
Route 17B
Monticello, New York 12701
Attn: Chairman of the Board
Facsimile number: (845) 791-1547
8
if to Employee:
Robert Berman
735 Starlight Road
Monticello, New York 12701
Facsimile number: _________
Any Notice delivered or sent as provided above shall be deemed given when so
delivered or sent and shall be deemed received (i) when personally delivered,
(ii) three (3) business days after being mailed as above provided, (iii) when
sent by facsimile transmission as above provided or (iv) one (1) business day
after being sent by courier as above provided; PROVIDED, HOWEVER, that any
Notice specifying a new address to which any Notice shall be sent shall be
deemed received only when actually received.
(c) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein, constitutes the entire agreement of the
parties with respect to such subject matter and supersedes, and merges herein,
all prior and contemporaneous negotiations, discussions, representations,
understandings and agreements between the parties, whether oral or written, with
respect such subject matter. No representation, warranty, restriction, promise,
undertaking or other agreement with respect to such subject matter has been made
or given by either party hereto other than those set forth in this Agreement.
(d) AMENDMENT AND WAIVER. This Agreement may be amended, modified or
supplemented only to the extent expressly set forth in writing that is signed by
the party to be charged therewith and that sets forth therein that its purpose
is to amend, modify or supplement this Agreement or some term, condition or
provision hereof. No waiver of any term, condition or provision of this
Agreement or of any breach or violation of this Agreement or any provision
hereof shall be effective except to the extent expressly set forth in writing
that is signed by the party to be charged therewith. Without limiting the
generality of the foregoing, no conduct (including, without limitation, any
failure or delay in enforcing this Agreement or any provision hereof or any
acceptance or retention of payment) or course of conduct by either party hereto
shall be deemed to constitute a waiver by such party of the breach or violation
of this Agreement or of any provision hereof by the other party hereto. Any
waiver may be made in advance or after the right waived has arisen or the breach
or default waived has occurred, and any waiver may be conditional. No waiver of
any breach or violation of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach or violation thereof nor
of any other agreement or provision herein contained. No waiver or extension of
time for performance of any obligations or acts shall be deemed a waiver or
9
extension of the time for performance of any other obligations or acts.
(e) ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and the
rights, duties and obligations hereunder may not be assigned or delegated by
either party hereto, without the prior written consent of the other party
hereto; PROVIDED that, consistent with the terms hereof, the Company may from
time to time direct that the Employee serve as a director and/or officer of, or
otherwise provide services to or work for, any Affiliate of the Company. Except
as provided in the preceding sentence, any purported assignment or delegation of
rights, duties or obligations hereunder made without the prior written consent
of the other party hereto shall be null and void and of no effect. This
Agreement and the provisions hereof shall be binding upon and enforceable
against each of the parties and their respective executors, heirs, legal
representatives, administrators, successors and assigns and shall inure to the
benefit of and be enforceable by each of the parties and their respective
executors, heirs, legal representatives, administrators, successors and
permitted assigns. Except as contemplated under SECTION 11 above and SUBSECTION
(a) of this SECTION 11, this Agreement is not intended to confer any rights or
benefits on any Persons other than as set forth above.
(f) SEVERABILITY. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. The parties intend that this Agreement and each of the
provisions hereof be enforced to the fullest extent permitted by law.
Accordingly, in lieu of any such invalid or unenforceable term or provision, the
parties hereto intend that there shall be added as a part of this Agreement a
provision as similar in terms to such invalid or unenforceable provision as may
be possible and be valid and enforceable.
(g) FURTHER ASSURANCES. Each party hereto, upon the request of any other
party hereto, shall do all such further acts and execute, acknowledge and
deliver all such further instruments and documents as may be necessary or
desirable to carry out the transactions contemplated by, and the purpose and
intent of, this Agreement.
(h) TITLES AND HEADINGS; RULES OF INTERPRETATION. Titles, captions and
headings of the sections, articles and other subdivisions of this Agreement are
for convenience of reference only and shall not affect the construction or
interpretation of any provision of this Agreement. References to Sections and
Articles refer to sections and articles of this Agreement unless otherwise
stated. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby" and
"hereunder," and words of like import, unless the context requires otherwise,
refer to this Agreement taken as a whole and not to any particular Section,
Article or other provision hereof. As used in this Agreement, the masculine,
feminine and neuter genders shall be deemed to include the others if the context
requires, and if the context requires, the use of the singular shall include the
plural and visa versa. This Agreement is the product of mutual negotiations
between the parties and their respective counsels, and no party shall be deemed
the draftsperson hereof or of any portion or provision hereof. Accordingly, in
the event of any ambiguity or inconsistency in any provision of this Agreement,
the same shall not be interpreted against either party hereto as the party
responsible for drafting such provision.
10
(i) WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. EACH OF THE PARTIES
HERETO EXPRESSLY WAIVES ITS OR HIS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
SUIT, LITIGATION OR OTHER JUDICIAL PROCEEDING RELATING TO THIS AGREEMENT OR ANY
DISPUTE HEREUNDER OR RELATING HERETO.
(j) GOVERNING LAW; JURISDICTION OF COURTS. This Agreement shall be governed
by, interpreted under and construed in accordance with the internal laws of the
State of New York applicable to contracts executed and to be performed in that
State without giving effect to the choice of conflict of laws principles or
provisions thereof. Each of the parties hereto agrees that any dispute under or
with respect to this Agreement shall be determined before the state or federal
courts situated in the City, County and State of New York, which courts shall
have exclusive jurisdiction over and with respect to any such dispute, and each
of the parties hereto hereby irrevocably submits to the jurisdiction of such
courts. Each party hereby agrees not to raise any defense or objection, under
the theory of forum non conviens or otherwise, with respect to the jurisdiction
of any such court. In addition to such other method as may available under
applicable law, each party agrees that any summons, complaint or other papers or
process in connection with any such dispute may be served on it or him in the
same manner in which a Notice may be given to it or him pursuant to SUBSECTION
(b) of this SECTION 11.
(k) COUNTERPARTS. This Agreement may be executed in counterparts and by one
or more of the parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
EMPIRE RESORTS, INC.
/s/ Robert Berman By: /s/ Thomas W. Aro
------------------ ------------------------------------
ROBERT BERMAN Name: Thomas W. Aro
Title: Executive Vice President
11
Exhibit 10.21
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BY AND BETWEEN
EMPIRE RESORTS, INC.
AND
SCOTT A. KANIEWSKI
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as
of January 12, 2004, by and between EMPIRE RESORTS, INC. (the "COMPANY"), a
corporation duly organized and existing under the laws of the State of Delaware,
with offices at Monticello Raceway, Route 17B, Monticello, New York 12701, and
SCOTT A. KANIEWSKI (the "EMPLOYEE"), an individual residing at 2412 Central Park
Ave. Evanston, IL 60201-1812.
WHEREAS, pursuant to that certain Amended and Restated Contribution
Agreement (the "CONTRIBUTION AGREEMENT"), dated as of February 8 , 2002, by and
between the Company and Watertone Holdings, LP ("WATERTONE"), Watertone
transferred and contributed to the New York Gaming LLC (the "LLC") a portion of
Watertone's interest in Catskill Development, L.L.C. ("CATSKILL");
WHEREAS, pursuant to that certain Employment Agreement, dated February 12,
2002, between the Company and the Employee, the Employee has, and continues to
serve as the Company's principal financial officer (the "ORIGINAL AGREEMENT");
and
WHEREAS, the Company and the Employee now desire to amend and restate the
Original Agreement as provided herein.
NOW THEREFORE, in consideration of the respective representations,
warranties, agreements and covenants contained herein, and for such other good
and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties hereto hereby agree that the Original Agreement
is hereby amended and restated in its entirety as follows:
1. EMPLOYMENT; TITLE; DUTIES AND RESPONSIBILITIES.
(a) The Company hereby agrees to employ the Employee, and the Employee
hereby agrees to serve the Company, on the terms and conditions set forth
herein, as the Chief Financial Officer of the Company, with such powers,
authorities, responsibilities and duties as may be assigned to him from time to
time by any Senior Officer (as hereinafter defined) or the Board of Directors of
the Company (the "BOARD").
(b) During the Term (as hereinafter defined), the Employee shall, during
business hours, devote all of his time, energy, skills, expertise, knowledge and
abilities on an exclusive basis to the performance of his duties and obligations
hereunder and shall, consistent with the Company's Policies (as hereinafter
defined) and as directed or requested from time to time by the Board or any
Senior Officer, diligently, conscientiously and in good faith render and perform
such services in such areas and places as are so directed or requested of him to
carry out his duties; PROVIDED, HOWEVER, that the foregoing shall not be deemed
to prohibit the Employee, outside of normal business hours, from engaging in any
other business activities that do not conflict or interfere with his obligations
to the Company or its Affiliates (as hereinafter defined) as set forth in this
Agreement. The Employee, at all times during the Term, shall adhere to and obey
all Company Policies that have been furnished or provided to him or of which he
has otherwise become or been made aware. For purposes of this Agreement,
"COMPANY POLICIES" means, collectively, the practices, rules, procedures and
polices of the Company as in effect from time to time, whether or not set forth
in writing in any Company manual or other directive or as may be imposed on the
2
Company under applicable law, and "SENIOR OFFICER" means (if other than the
Employee) the Chairman of the Board of the Company. Without limiting the effect
or generality of the foregoing, the Employee shall at all times during the Term:
(1) faithfully, diligently and timely perform such duties, and exercise
such powers, as may from time to time be assigned to, or vested in, him by
the Board or any Senior Officer;
(2) obey all lawful and reasonable directions of the Board or any Senior
Officer;
(3) use his best efforts and endeavors to promote the interests of the
Company and its Affiliates;
(4) keep the Board (or such persons(s) as may have been designated from
time to time by the Board) promptly and fully informed (in writing if so
requested) of his conduct of the business and affairs of the Company and
provide such explanations as the Board may from time to time request;
(5) subject to the proviso in the first sentence of SECTION 1(b) above,
devote all of his professional and business time to the conduct of the
business of the Company (and, if so requested by the Board or any Senior
Officer, one or more of its Affiliates) and to the performance of his
duties hereunder;
(6) except with respect to the Consolidation (as hereinafter defined), not
at any time engage in any self dealing or conflict of interest that is
material to the Company or any of its Affiliates or to any client,
customer, supplier or vendor of the Company or of any of its Affiliates;
and
(7) not at any time make any materially untrue or misleading statement
relating to the Company or any of its Affiliates or to any client,
customer, supplier or vendor of the Company or of any of its Affiliates.
(c) In addition, the Employee shall perform such other functions for the
Company, including taking positions with Affiliates and performing duties on
their behalf, as may be assigned to him from time to time by the Board or any
Senior Officer. As used in this Agreement, "AFFILIATE" of any person means any
entity (1) that such person (directly or indirectly through one or more
subsidiaries or other entities, or by contract or otherwise) controls, (2) that
(directly or indirectly through one or more subsidiaries or other entities, or
by contract, overlapping directors or management or otherwise), controls such
person or is under common control with such person, (3) in which such person
(directly or indirectly through one or more subsidiaries or other entities, or
by contract or otherwise) owns (of record or beneficially) or holds, or
otherwise has the right to vote, at least a five per cent (5%) of the equity
interest thereof or therein, (4) that, individually or with others with which it
is acting as a group or with a common goal, (directly or indirectly through one
or more subsidiaries or other entities, or by contract or otherwise) owns (of
record or beneficially) or holds, or otherwise has the right to vote, at least a
ten per cent (10%) of the equity interest of or in such person, (5) for which
such person, if an individual, is serving or acting as an officer, employee,
sales agent or representative, consultant or adviser or in any similar capacity
or (6) for which such person, if an individual, is acting or serving as a member
2
of its board of directors or other governing body. Notwithstanding anything
contained herein to the contrary, the Employee shall not be obligated hereunder
to devote more time to performing his duties hereunder to the Company and/or its
Affiliates than is generally expected of other executives of the Company.
(d) The Company shall reimburse the Employee for all reasonable expenses
expended by the Employee in connection with the investigation of the Employee
(as an officer or director of the Company) or any finding or determination of
suitability of the Employee (as an officer or director of the Company) by any
Gaming Authority (as defined in the Contribution Agreement).
2. TERM OF EMPLOYMENT.
This Agreement is terminable at will by either the Employee or the Company
upon 30 days prior written notice, and (b) the amounts then due thereunder from
the date of the closing shall be limited to the amounts due under Sections 4, 5
and 6 of this Agreement (including, without limitation, any and all of the
Employee's salary due hereunder or under the Original Agreement that the
Employee may have agreed to, or in the future agrees to, defer ($436.95 through
the date hereof)).
3. TRAVEL.
Travel during the Employee's employment shall be in accordance with Company
Policies as in effect from time to time. The Employee shall be entitled to
reimbursement for employment-related travel in accordance with SECTION 5 below.
4. COMPENSATION.
(a) As compensation for his services and in consideration for the
Employee's covenants contained in this Agreement, the Company shall pay to
Employee a salary that on an annualized basis will equal Two Hundred Thousand
Dollars ($200,000). Such annual salary shall be payable in equal installments on
a bi-weekly basis and in accordance with Company Policies and shall be subject
to applicable federal, state and local withholdings and deductions.
(b) The Company shall be entitled to withhold from any payments due
hereunder taxes, FICA, contributory insurance participations and other normal
deductions, all in accordance with Company Policies.
5. EXPENSE REIMBURSEMENT.
The Company shall, consistent with Company Policies, reimburse the Employee
for reasonable out-of-pocket business expenses incurred by him in his
performance of services hereunder to or for the Company or any Affiliate of the
Company, upon submission of reasonable documentation therefor.
6. OPTION AWARDS.
3
All previously granted Company stock options and vesting schedules of the
Employee shall remain in effect. The Company may, from time to time, elect to
grant the Executive additional stock options.
7. OTHER BENEFITS.
(a) Subject to his qualifying therefor and complying with all relevant
Company Policies, the Employee shall be entitled to participate in all benefit
plans, retirement plans, programs and arrangements of the Company, if any, made
available to its officers or generally to its employees, on a basis at least
equal to that extended to other senior management employees of the Company.
(b) The Employee shall be entitled to twenty (20) days per year paid
vacation and five (5) paid personal days in accordance with the Company Policies
in effect from time to time. Unused vacation and personal days may not be
carried over to a subsequent year, and the Company shall have no obligation to
compensate Employee for any unused vacation or personal days upon the expiration
or earlier termination of this Agreement or Employee's employment hereunder.
8. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. The Employee hereby
represents and warrants to the Company, in order to induce the Company to enter
into this Agreement and employ him hereunder, as follows:
(a) The Employee has not been convicted of any felony or any other criminal
offense that is punishable with or by six (6) months or more imprisonment
(regardless of whether Employee has actually been imprisoned or sentenced to
imprisonment).
(b) The Employee is under no contractual or other impediment to undertake
the offices and/or employment provided or contemplated hereunder or otherwise to
perform hereunder and that, by so doing, he will not be in violation of any
commitment, agreement or obligation to any other person or entity.
9. CONFIDENTIAL/PROPRIETARY INFORMATION; NON-SOLICITATION; NON-COMPETITION.
(a) During the Term and thereafter, Employee shall, and shall cause each
and all of his agents, representatives and Affiliates:
(1) to treat all Confidential Information (as hereinafter defined) in the
strictest confidence;
(2) not to disclose, publish, distribute, disseminate, reproduce, utilize
or make accessible in any manner or in any form any Confidential
Information other than in connection with performing the services required
of the Employee under this Agreement; and
(3) not to reproduce, retain, copy, publish, plagiarize, appropriate or
otherwise utilize (as a model, precedent, form, template or otherwise), or
refer to in way, any of the Company's marketing materials, forms of letters
4
or agreements or other business documents or any part or portion of, or
excerpt from, any of the foregoing.
(b) As used herein, "CONFIDENTIAL INFORMATION" means any proprietary,
confidential and/or other non-public information of, relating to or regarding
the business or interests of the Company or any of its Affiliates, including,
without limitation, (1) any trade secrets, know-how, databases, company
policies, procedures and techniques, correspondence, agreements, negotiations,
offering packages, business descriptions and profiles, business plans, financial
information, product literature and technical projects of, regarding or relating
to the Company or any of its Affiliates or the business, operations, products
and/or services of the Company or any of its Affiliates, (2) any research datum,
result or report regarding the Company or any of its Affiliates or any aspects
of the business, operations, business dealings, prospects or financial condition
or financial results of the Company or any of its Affiliates, (3) any report,
analysis, study, invention, process or other work product developed by, for or
on behalf of the Company or any of its Affiliates, including, without
limitation, that developed by the Employee, whether on the premises of the
Company or elsewhere and whether or not developed during normal business hours
or on normal business days, and (4) any list of customers, clients, vendors,
suppliers or prospects of the Company or any of its Affiliates. Notwithstanding
the foregoing, the provisions of this Agreement shall not apply to any
Confidential Information to the extent, but only to the extent, that the same
is, or has become, publicly known under circumstances involving no breach of
this Agreement or any other agreement of confidentiality or has been disclosed
pursuant to an order or requirement of a court, administrative agency or other
governmental body of competent authority, PROVIDED HOWEVER, that the Company has
been given appropriate and reasonable notice of such proceeding and a reasonable
opportunity to contest such disclosure. Without limiting the generality of the
foregoing, except as consented to in writing by the Board or a Senior Officer,
the Employee shall not in any way or at any time disclose or publish the name(s)
or description(s) of any transaction by the Company or any of its Affiliates,
whether contemplated, pending or completed, or the identity of any party to any
such transaction.
(c) All business, financial, product and technical records, information and
literature relating to the business or operations, or any product or service, of
the Company or any of its Affiliates (all such business, financial, product and
technical records, information and literature being hereinafter referred to
collectively as "BUSINESS RECORDS"), including, without limitation, Confidential
Information, fee agreements, confidentiality agreements, papers, databases,
contact records, documents and correspondence and studies containing information
relating to the Company or any of its Affiliates or any transaction (whether
contemplated, pending or completed) by the Company or any of its Affiliates, in
all cases irrespective of the manner in which such information was obtained or
is kept or stored, made or kept by the Employee or under the Employee's
possession, custody or control or in the possession, custody or control of any
agent and representative of the Employee, shall be and remain the sole and
exclusive property of the Company and shall be surrendered to the Company at the
time of the expiration or earlier termination of this Agreement or Employee's
employment hereunder for any reason whatsoever or, if earlier, upon the request
of the Company. Upon such expiration or termination or earlier request, the
Employee shall not, and shall cause his or her agents, representatives and
Affiliates not to, retain, publish or disclose, or otherwise use, without the
prior written consent of a Senior Officer, any Business Records.
5
(d) Employee hereby assigns, transfers and conveys to the Company all of
his respective right, title and interest in and to any and all Company Property
(as hereinafter defined). If any Company Property is deemed in any way to fall
within the definition of "work for hire" as such term is defined in 17 U.S.C.
ss.101, such Company Property shall be considered "work for hire" and the
Company shall be deemed the author and sole and exclusive owner of any
copyrights and other rights and interests therein. If any of the Company
Property is considered to be work not included in the categories of work covered
by the "work for hire" definition contained in 17 U.S.C. ss.101, such Company
Property shall be owned by the Company or assigned or transferred completely and
exclusively to the Company. The Employee agrees promptly to execute any
instruments, and to do all things, reasonably requested by the Company in order
more fully to vest in the Company all ownership rights in all Company Property.
As used herein, "COMPANY PROPERTY" means each and all of every idea, invention,
writing, composition and/or computer program (whether or not patentable or
protected by copyright and including, without limitation, any Confidential
Information) that relates to the business or affairs of the Company or any of
its Affiliates and either (i) that has been conceived, created, invented or
otherwise developed in whole or in part by the Employee or (ii) with respect to
the conception, creation, invention or development of which Employee may have
aided during the term of his employment by the Company.
(e) In furtherance of the covenants contained herein and as a condition to
the continuation of the Employee's employment hereunder, the Employee shall
execute and deliver to the Company such further agreements and commitments as
the Company may from time to time reasonably request in order more fully to
protect the Company's rights and interests in and to the Confidential
Information, the Business Records and proprietary and other rights and interests
in and with respect to its business prospects.
10. INJUNCTIVE RELIEF; INDEPENDENCE AND SEVERABILITY OF COVENANTS.
(a) The Employee acknowledges and agrees that, in the event of any breach
or likely breach of any of the covenants of SECTION 9 above, the Company and any
relevant Affiliate(s) would be irreparably harmed and could not be made whole
solely by monetary damages. It is accordingly agreed that such Persons, in
addition to any other remedies to which they may be entitled at law or in
equity, shall be entitled to equitable relief (in the form of an injunction or
otherwise) in respect of such breach or likely breach (or any threatened
breach). In the event the Company seeks any equitable relief or remedy with
respect to any such threatened or actual breach, violation or default (1) the
Employee will not seek to oppose or defend against such equitable relief or
remedy on the ground that the Company has an adequate remedy at law or on any
other similar or related ground and (2) no bond or other security shall be
required for, or as a condition to, the seeking or granting of any injunction or
other equitable relief. It is intended to grant full third-party rights under
this provision.
(b) The Employee acknowledges and agrees that the covenants and other
provisions set forth in SECTION 9 above and in this SECTION 10 be enforceable to
the fullest extent possible under applicable law.
6
(c) For the purposes of this SECTION 10, the state and federal courts of
the State of New York will be the proper and exclusive forums for any legal
controversy arising in connection with this Agreement.
11. MISCELLANEOUS.
(a) INDEMNIFICATION.
(1) Each of the parties hereto (an "INDEMNIFYING PARTY") shall indemnify
and hold harmless the other party hereto (and, with respect to any breach
of SECTION 9 above, the Company's Affiliates) (the "INDEMNIFIED PARTY")
from and against, and shall reimburse the Indemnified Party for, any and
all liabilities, losses, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and other legal costs, including
those related to any appeal, and costs of any investigation) (all of the
foregoing, collectively, "LOSSES") that have been suffered or incurred by
the Indemnified Party and that have resulted from, or been occasioned by,
(a) any breach or violation by the Indemnifying Party of any of its or his
representations, warranties, covenants and other agreements set forth
herein or (b) any claim asserted by any third party that, if true, would
constitute a breach or violation by the Indemnifying Party of any of its or
his representations, warranties, covenants and other agreements set forth
herein (any such claim, a "THIRD-PARTY CLAIM").
(2) If the Indemnified Party shall receive notice of, or otherwise become
aware of the assertion of, any Third-Party Claim with respect to which the
Indemnified Party intends to seek indemnification under this SUBSECTION
(a), then the Indemnified Party shall give prompt written notice thereof to
the Indemnifying Party, which notice shall include or be accompanied with a
copy of any summons, complaint or other written evidence of such
Third-Party Claim to the extent that such summons, complaint or other
written evidence has been received by such Indemnified Party or by any
attorney or other agent thereof. The failure of the Indemnified Party to
give such notice or to give such notice promptly shall not relieve the
Indemnifying Party of its obligation to indemnify the Indemnified Party
under this SUBSECTION (a) except to the extent that the failure to give
such notice or the delay in giving such notice has materially prejudiced
the Indemnifying Party in its or his ability to defend against such
Third-Party Claim. The Indemnifying Party shall, with counsel selected by
it (which selection shall be subject to the approval of the Indemnified
Party, such approval not to be unreasonably withheld or delayed), be
entitled to defend against and settle any Third Party Claim; PROVIDED,
HOWEVER, that the Indemnifying Party's right to do so shall be conditioned
upon its or his having confirmed in writing to the Indemnified Party its or
his obligation to indemnify the Indemnified Party with respect to such
Claim (any such confirmation, a "NOTICE TO INDEMNIFY") and, PROVIDED,
further, HOWEVER, that the Indemnifying Party shall not be entitled to
enter into any settlement of any such Claim without the prior written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld or delayed. Notwithstanding anything contained herein to the
contrary, the Indemnifying Party's obligation to indemnify the Indemnifying
Parties against any Third-Party Claim shall be conditioned upon the
Indemnifying Party providing full and timely cooperation in the defense of
such Claim.
7
(3) Notwithstanding anything contained herein to the contrary, except as
provided in the next following sentence, the Indemnifying Party shall not
be obligated to indemnify the Indemnified Party for, or otherwise pay, any
attorneys' fees or other legal or related costs (or any costs of any
investigation) suffered or incurred by the Indemnified Party in connection
with any Third-Party Claim after the Indemnified Party receive any Notice
to Indemnify with respect to such Claim; PROVIDED, HOWEVER, that, if, after
giving any Notice to Indemnify, the Indemnifying Party reverses its or his
position and claims that it or he is not required to Indemnify the
Indemnified Party against the Third-Party Claim, then, in the event the
Indemnifying Party is obligated hereunder to indemnify the Indemnified
Party with respect to such Claim, the Indemnifying Party shall bear and pay
the reasonable attorneys' fees and other legal costs, including those
related to any appeal, and costs of any investigation, incurred by the
Indemnified Party after the Indemnifying Party has reversed its or his
position and claimed that it or he is not required to Indemnify the
Indemnified Party against such Claim. Notwithstanding the foregoing, if
there is a legitimate and good faith conflict of interest between the
Indemnifying Party and the Indemnified Party in connection with the defense
of any Third-Party Claim so that one counsel or law firm could not properly
represent both parties in connection with such defense, then the
Indemnified Party, in the event it or he is obligated hereunder to
indemnify the Indemnified Party with respect to such Claim, shall bear and
pay the reasonable attorneys' fees and other legal costs, including those
related to any appeal, and costs of any investigation, incurred by the
Indemnified Party in connection with such defense, regardless of whether
the Indemnifying Party has given a Notice to Indemnify. Under no
circumstances, however, shall the Indemnifying Party be obligated to pay
for the attorneys' fees or related legal fees of more than one attorney or
law firm.
(b) NOTICES. All notices, demands, requests, consents, approvals or other
communications (each of the foregoing, a "NOTICE") required to be given
hereunder or pursuant hereto to either party hereto shall be in writing and
shall be (a) personally delivered, (b) sent by both registered to certified
mail, postage prepaid and return receipt requested, and regular first class
mail, (b) sent both by facsimile transmission with receipt of transmission
confirmed electronically or by telephone and by regular first class mail or (c)
sent by reputable overnight courier service with charges prepaid and delivery
confirmed, to the intended recipient at its or his respective address as set
forth below; PROVIDED, HOWEVER, that, if a party sending any Notice has received
written notice in accordance with this SUBSECTION (b) of a more recent address
for any intended recipient referred to below, any Notice to such intended
recipient shall be delivered or sent to it or him at the most recent address of
which such party has received such a notice:
if to the Company:
Empire Resorts, Inc.
Route 17B
Monticello, New York 12701
Attn: Chairman of the Board
Facsimile number: (845) 791-1547
8
if to Employee:
Scott A. Kaniewski
2412 Central Park Ave.
Evanston, IL 60201-1812
Facsimile number: _________
Any Notice delivered or sent as provided above shall be deemed given when so
delivered or sent and shall be deemed received (i) when personally delivered,
(ii) three (3) business days after being mailed as above provided, (iii) when
sent by facsimile transmission as above provided or (iv) one (1) business day
after being sent by courier as above provided; PROVIDED, HOWEVER, that any
Notice specifying a new address to which any Notice shall be sent shall be
deemed received only when actually received.
(c) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein, constitutes the entire agreement of the
parties with respect to such subject matter and supersedes, and merges herein,
all prior and contemporaneous negotiations, discussions, representations,
understandings and agreements between the parties, whether oral or written, with
respect such subject matter. No representation, warranty, restriction, promise,
undertaking or other agreement with respect to such subject matter has been made
or given by either party hereto other than those set forth in this Agreement.
(d) AMENDMENT AND WAIVER. This Agreement may be amended, modified or
supplemented only to the extent expressly set forth in writing that is signed by
the party to be charged therewith and that sets forth therein that its purpose
is to amend, modify or supplement this Agreement or some term, condition or
provision hereof. No waiver of any term, condition or provision of this
Agreement or of any breach or violation of this Agreement or any provision
hereof shall be effective except to the extent expressly set forth in writing
that is signed by the party to be charged therewith. Without limiting the
generality of the foregoing, no conduct (including, without limitation, any
failure or delay in enforcing this Agreement or any provision hereof or any
acceptance or retention of payment) or course of conduct by either party hereto
shall be deemed to constitute a waiver by such party of the breach or violation
of this Agreement or of any provision hereof by the other party hereto. Any
waiver may be made in advance or after the right waived has arisen or the breach
or default waived has occurred, and any waiver may be conditional. No waiver of
any breach or violation of any agreement or provision herein contained shall be
9
deemed a waiver of any preceding or succeeding breach or violation thereof nor
of any other agreement or provision herein contained. No waiver or extension of
time for performance of any obligations or acts shall be deemed a waiver or
extension of the time for performance of any other obligations or acts.
(e) ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and the
rights, duties and obligations hereunder may not be assigned or delegated by
either party hereto, without the prior written consent of the other party
hereto; PROVIDED that, consistent with the terms hereof, the Company may from
time to time direct that the Employee serve as a director and/or officer of, or
otherwise provide services to or work for, any Affiliate of the Company. Except
as provided in the preceding sentence, any purported assignment or delegation of
rights, duties or obligations hereunder made without the prior written consent
of the other party hereto shall be null and void and of no effect. This
Agreement and the provisions hereof shall be binding upon and enforceable
against each of the parties and their respective executors, heirs, legal
representatives, administrators, successors and assigns and shall inure to the
benefit of and be enforceable by each of the parties and their respective
executors, heirs, legal representatives, administrators, successors and
permitted assigns. Except as contemplated under SECTION 11 above and SUBSECTION
(a) of this SECTION 11, this Agreement is not intended to confer any rights or
benefits on any Persons other than as set forth above.
(f) SEVERABILITY. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. The parties intend that this Agreement and each of the
provisions hereof be enforced to the fullest extent permitted by law.
Accordingly, in lieu of any such invalid or unenforceable term or provision, the
parties hereto intend that there shall be added as a part of this Agreement a
provision as similar in terms to such invalid or unenforceable provision as may
be possible and be valid and enforceable.
(g) FURTHER ASSURANCES. Each party hereto, upon the request of any other
party hereto, shall do all such further acts and execute, acknowledge and
deliver all such further instruments and documents as may be necessary or
desirable to carry out the transactions contemplated by, and the purpose and
intent of, this Agreement.
(h) TITLES AND HEADINGS; RULES OF INTERPRETATION. Titles, captions and
headings of the sections, articles and other subdivisions of this Agreement are
for convenience of reference only and shall not affect the construction or
interpretation of any provision of this Agreement. References to Sections and
Articles refer to sections and articles of this Agreement unless otherwise
stated. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby" and
"hereunder," and words of like import, unless the context requires otherwise,
refer to this Agreement taken as a whole and not to any particular Section,
Article or other provision hereof. As used in this Agreement, the masculine,
feminine and neuter genders shall be deemed to include the others if the context
requires, and if the context requires, the use of the singular shall include the
plural and VISA VERSA. This Agreement is the product of mutual negotiations
between the parties and their respective counsels, and no party shall be deemed
the draftsperson hereof or of any portion or provision hereof. Accordingly, in
the event of any ambiguity or inconsistency in any provision of this Agreement,
the same shall not be interpreted against either party hereto as the party
responsible for drafting such provision.
10
(i) WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. EACH OF THE PARTIES
HERETO EXPRESSLY WAIVES ITS OR HIS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
SUIT, LITIGATION OR OTHER JUDICIAL PROCEEDING RELATING TO THIS AGREEMENT OR ANY
DISPUTE HEREUNDER OR RELATING HERETO.
(j) GOVERNING LAW; JURISDICTION OF COURTS. This Agreement shall be governed
by, interpreted under and construed in accordance with the internal laws of the
State of New York applicable to contracts executed and to be performed in that
State without giving effect to the choice of conflict of laws principles or
provisions thereof. Each of the parties hereto agrees that any dispute under or
with respect to this Agreement shall be determined before the state or federal
courts situated in the City, County and State of New York, which courts shall
have exclusive jurisdiction over and with respect to any such dispute, and each
of the parties hereto hereby irrevocably submits to the jurisdiction of such
courts. Each party hereby agrees not to raise any defense or objection, under
the theory of forum non conviens or otherwise, with respect to the jurisdiction
of any such court. In addition to such other method as may available under
applicable law, each party agrees that any summons, complaint or other papers or
process in connection with any such dispute may be served on it or him in the
same manner in which a Notice may be given to it or him pursuant to SUBSECTION
(b) of this SECTION 11.
(k) COUNTERPARTS. This Agreement may be executed in counterparts and by one
or more of the parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
EMPIRE RESORTS, INC.
/s/ SCOTT A. KANIEWSKI By: /s/ Thomas W. Aro
------------------------ --------------------------------
Scott A. Kaniewski Name: Thomas W. Aro
Title: Executive Vice President
11
Exhibit 14.1
Code of Ethics for Principal Executive Officers and Senior Financial Officers of
Empire Resorts, Inc.
Empire Resorts, Inc. (the "Company") is committed to the highest standards
of ethical business conduct. The Company has adopted this Code of Ethics as a
set of guidelines to govern the conduct of its Principal Executive Officers,
including the Chairman of its Board of Directors and its Chief Executive
Officer, and its Senior Financial Officers, including the Chief Financial
Officer of the Company and the Chairman of the Audit Committee of its Board of
Directors of the Company. The guidelines set forth in this Code shall apply to
all employees of the Company.
It is the policy of the Company that its Senior Financial Officers adhere
to and espouse the following principles governing their professional and ethical
conduct in the fulfillment of their responsibilities:
1. The Principal Executive Officers and Senior Financial Officers of the
Company should act with honesty and integrity in fulfilling their duties
and responsibilities.
2. The Principal Executive Officers and Senior Financial Officers of the
Company should handle in an ethical manner all actual or apparent conflicts
of interest between personal and professional relationships.
In order to avoid conflicts of interest, the Principal Executive Officers
and Senior Financial Officers of the Company must:
o Avoid any personal activity, investment or association that could
appear to interfere with good judgment concerning the Company's
best interests.
o Not exploit the officer's position or relationship with the
Company for personal gain.
o Avoid even the appearance of such a conflict.
For example, there is a likely conflict of interest if a Principal
Executive Officer or Senior Financial Officer:
o Causes the Company to engage in business transactions with
relatives or friends;
o Uses nonpublic Company, customer, or vendor information for
personal gain by the Officer or the Officer's relatives or
friends (including securities transactions based on such
information);
o Has more than a modest financial interest in the Company's
vendors, clients or competitors;
o Receives a loan, or guarantee of obligations, from the Company or
a third party as a result of the Officer's position at the
Company; or
o Competes, or prepares to compete, with the Company while still
employed by the Company.
There are numerous other situations in which a conflict of interest may
arise. If a Principal Executive Officer or Chief Financial Officer has
concerns about any situation, that officer should so advise the persons
designated by the Audit Committee of the Board
of Directors to receive questions regarding compliance and ethics (the
"Audit Committee Designees").
It is essential that each Principal Executive Officer and Senior Financial
Officer avoids any investment, interest or association that interferes,
might interfere, or might appear to interfere, with that officer's
independent exercise of judgment in the Company's best interests.
Engaging in any conduct that represents a conflict of interest is strictly
prohibited.
3. It is responsibility of the Principal Executive Officers and Senior
Financial Officers of the Company to assure that:
o All accounting records, as well as reports produced from those
records, are in accordance with the laws of each applicable
jurisdiction.
o All records fairly and accurately reflect the transactions or
occurrences to which they relate.
o All records fairly and accurately reflect, in reasonable detail,
the Company's assets, liabilities, revenues and expenses.
o The Company's accounting records do not contain any false or
intentionally misleading entries.
o No transactions are intentionally misclassified as to accounts,
departments or accounting periods.
o All transactions are supported by accurate documentation in
reasonable detail and recorded in the proper account and in the
proper accounting period.
o No information is concealed from the internal auditors or the
independent auditors.
o There is full compliance with the Company's system of internal
accounting controls.
4. It is the responsibility of each of the Principal Executive Officers and
Senior Financial Officers of the Company to promptly bring to the attention
of the Audit Committee Designees any material information that officer is
aware of that affects the disclosures made by the Company in its filings
with the Securities and Exchange Commission or in any other public
communications.
5. Each Principal Executive Officer and Senior Financial Officer of the
Company is responsible for promptly bringing to the attention of the Audit
Committee Designees any information that officer may have concerning (i)
significant deficiencies in the design or operation of internal controls
which could adversely affect the Company's ability to record, process,
summarize and report financial data or (b) any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Company's financial reporting, disclosures or
internal controls.
6. Each Principal Executive Officer and Senior Financial Officer, in the
fulfillment of that officer's duties and responsibilities, will endeavor to
comply with, and to cause the Company to comply with, both the letter and
spirit of applicable governmental laws, rules, and regulations, and each
such officer will bring to the attention of the Audit Committee. Designees
any information that officer may have concerning evidence of a violation of
the securities laws or any other laws, rules or regulations applicable to
the Company and the operations of its business, either by the Company or
its agents.
7. Each Principal Executive Officer and Senior Financial Officer will promptly
report to the Audit Committee Designees any information that officer may
have concerning evidence of a violation of this Code.
8. Each Principal Executive Officer and Senior Financial Officer is expected
to adhere to this Code. The Company will determine appropriate actions to
be taken in the event of violations of the Code. Those actions will be
designed to deter wrongdoing and to promote accountability for adherence to
the Code.
9. The provisions of the Code can be waived only by action of the Board of
Directors acting with specific written advice of counsel, which counsel
must represent that it has no conflict of interest in the matter, and,
where appropriate, with the specific written advice of the Company's
outside Auditors, with establishment of an appropriate mechanism for
monitoring the particular situation and reporting back to the Board the
effects of the waiver and whether expectations concerning the waiver have
been properly realized. The Company will promptly and appropriately
disclose any waiver of any provision of this Code.
10. This Code is a statement of corporate policy and is not intended to and
does not constitute part of any employment contract, does not provide any
assurance of continued employment, and does not create rights in any
employee, any shareholder, or any other person or entity.
Exhibit 21.1
List of Subsidiaries at December 31, 2003:
Name State of Incorporation/Formation
Alpha Gulf Coast, Inc. Delaware
Alpha St. Regis, Inc. Delaware
Alpha Missouri, Inc. Delaware
Alpha Monticello, Inc. Delaware
Alpha Rising Sun, Inc. Delaware
Jubilation Lakeshore, Inc. Mississippi
(including its previously 93% owned subsidiary)
Casino Ventures, L.L.C. Mississippi
Alpha Greenville Hotel, Inc. Delaware
Alpha Entertainment, Inc. Delaware
Alpha Florida Entertainment, Inc. Florida
Alpha Peach Tree Corporation Delaware
Alpha Florida Entertainment, L.L.C. Florida
Alpha Casino Management Inc. Delaware
Additional after January 12, 2004
Monticello Casino Management, LLC New York
Mohawk Management, LLC New York
Monticello Raceway Development, LLC New York
Monticello Raceway Management, Inc. New York
[LETTERHEAD OF FRIEDMAN ALPREN & GREEN LLP]
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-96667, 333-104541, 333-110543 and 333-112529) on Form S-3 and in the
Registration Statements (Nos. 333-37293 and 333-90611) on Form S-8 of our report
dated March 5, 2004 on the financial statements of Empire Resorts, Inc. and
its subsidiaries for the years ended December 31, 2003 and 2002, and to the
addition of our firm under the caption "Experts" in the Prospectus, insofar as
it relates to our report on the financial statements of Empire Resorts, Inc. and
its subsidiaries for the two years ended December 31, 2003.
/s/ Friedman Alpren & Green LLP
------------------------------------
Friedman Alpren & Green LLP
New York, New York
March 26, 2004
[LETTERHEAD OF FRIEDMAN ALPREN & GREEN LLP]
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-96667, 333-104541, 333-110543 and 333-112529) on Form S-3 and in the
Registration Statements (Nos. 333-37293 and 333-90611) on Form S-8 of our report
dated February 16, 2004 on the financial statements of Catskill Development, LLC
and its subsidiaries for the year ended December 31, 2003, and to the addition
of our firm under the caption "Experts" in the Prospectus, insofar as it relates
to our report on the financial statements of Catskill Development, LLC and its
subsidiaries for the year ended December 31, 2003.
/s/ Friedman Alpren & Green LLP
------------------------------------
Friedman Alpren & Green LLP
New York, New York
March 26, 2004
EXHIBIT 31.1
302 CERTIFICATION - SMALL BUSINESS
I, Robert A. Berman, certify that:
1. I have reviewed this annual report on Form 10-KSB of Empire Resorts,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the small business issuer as of, and for, the periods
presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors
and the audit committee of the small business issuer's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Date: March 26, 2004 /s/ Robert A. Berman
----------------------------
Robert A. Berman
Chief Executive Officer
EXHIBIT 31.2
302 CERTIFICATION - SMALL BUSINESS
I, Scott A. Kaniewski, certify that:
1. I have reviewed this annual report on Form 10-KSB of Empire Resorts,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the small business issuer as of, and for, the periods
presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors
and the audit committee of the small business issuer's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Date: March 26, 2004 /s/ Scott A. Kaniewski
--------------------------------
Scott A. Kaniewski
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350),
the undersigned, Robert A. Berman, Chairman and Chief Executive Officer of
Empire Resorts, Inc., a Delaware corporation (the "Company"), does hereby
certify, to his knowledge, that:
The Annual Report on Form 10-KSB for the year ended December 31, 2003 of the
Company (the "Report") fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, and the information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
March 26, 2004
By: /s/ Robert A. Berman
-----------------------------
Robert A. Berman
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350),
the undersigned, Scott A. Kaniewski, Chief Financial Officer of Empire Resorts,
Inc., a Delaware corporation (the "Company"), does hereby certify, to his
knowledge, that:
The Annual Report on Form 10-KSB for the year ended December 31, 2003 of the
Company (the "Report") fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, and the information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
March 26, 2004
By: /s/ Scott A. Kaniewski
-----------------------------
Scott A. Kaniewski
Chief Financial Officer