SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K
For annual and transition reports
pursuant to sections 13 or 15(d) of the
Securities Exchange Act of 1934
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File No. 0-9624
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-2332039
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
211 Benigno Boulevard, Suite 210, Bellmawr, New Jersey 08031
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(Address of principal executive offices) (Zip Code)
(856) 931-8163
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (b) of the Act: Common Stock, par
value $2.00
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ X ]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of October 15, 2002 was approximately
$1,435,891. Shares of common stock held by each executive officer and director
and by each person who owns 10% or more of our outstanding common stock have
been excluded since such persons may be deemed affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of October 15, 2002, there were 11,480,275 outstanding shares of the
registrant's common stock.
TABLE OF CONTENTS
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 46
PART III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 50
Item 12. Security Ownership of Certain Beneficial Owners and Management 54
Item 13. Certain Relationships and Related Transactions 56
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Report on Form 8-K 58
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Form 10-K, including the
information concerning possible or assumed future results of our operations and
those preceded by, followed by or that include words such as "anticipates,"
"believes," "expects," "intends" or similar expressions. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document, particularly under "Risk Factors," could affect our
future results and could cause those results to differ materially from those
expressed in our forward-looking statements:
o general economic and business conditions;
o competition;
o execution of our new business strategy;
o changes in laws regulating our industry;
o fluctuations in quarterly operating results as a result of seasonal
and weather considerations; and
o events directly or indirectly relating to our business causing our
stock price to be volatile.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
PART I
Item 1. Business.
General
International Thoroughbred Breeders, Inc., a Delaware corporation, was
incorporated on October 31, 1980. Until the January 1999 sale of Freehold
Raceway and leasing to a third party of Garden State Park, we were primarily
engaged, through various operating subsidiaries, in the ownership and operation
of standardbred and thoroughbred racetracks in New Jersey. For the period of
approximately 22 months after our January 1999 sale of Freehold Raceway and our
leasing of Garden State Park to a third party, our focus concentrated upon
working out the Company's debt problems, by selling our real properties in an
orderly fashion rather than permitting such assets to be lost by foreclosure.
Our efforts in that regard were successful, and in two transactions, one in May
2000 and the other in November 2000, we sold all of our real properties and paid
our indebtedness in full. Since November 2000, we have evaluated and continue to
look for business opportunities. We are committed to remaining as an operating
company.
To that end, as of April 30, 2001, we acquired, by a bareboat charter,
operations of an offshore gaming vessel, the M/V Palm Beach Princess. This
vessel sails twice daily from the Port of Palm Beach, Florida and, once beyond
the three-mile territorial limit, engages in a casino gaming business. We
acquired this business pursuant to a bareboat charter for a one- year term,
which is continuing on a month-to-month basis, and, by negotiating to purchase
the substantial debt secured by a mortgage against the vessel, we plan to
negotiate an acquisition of the vessel and related assets. The business of
operating the cruise vessel includes a variety of shipboard activities,
including casino gaming, dining, music and other entertainment.
Current Operations
Effective April 30, 2001, we entered into a bareboat charter with MJQ
Corporation, pursuant to which we charter the vessel M/V Palm Beach Princess for
the purpose of operating a casino cruise business from the Port of Palm Beach,
Florida. Under the bareboat charter agreement, as amended, we are obligated to
pay $50,000 per month as a charter hire fee to the vessel's owner, MJQ
Corporation. In order to obtain the bareboat charter, we entered into a letter
of intent as of April 30, 2001, and then concluded a Master Settlement Agreement
dated February 22, 2002 with the Chapter 11 Trustee (the "Trustee") for the
Bankruptcy Estate of Robert E. Brennan, MJQ Corporation and others, including
Francis W. Murray, our Chairman, who is also a director and officer of MJQ
Corporation. (See Item 13, Certain Relationships and Related Transactions.) The
Master Settlement Agreement by its terms was subject to bankruptcy court
approval, and on April 1, 2002, the approval of the United States Bankruptcy
Court for the District of New Jersey, having jurisdiction over the bankruptcy
estate of Robert E. Brennan, was obtained.
In accordance with the Master Settlement Agreement, through our Palm Beach
Princess, Inc. subsidiary we entered into a Purchase and Sale Agreement with the
Trustee
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which provides for our purchase from the Trustee of the promissory note of MJQ
Corporation, having an outstanding balance of principal and interest of
approximately $15.7 million as of June 30, 2002 and secured by a ship mortgage
against the M/V Palm Beach Princess (the "Ship Mortgage Obligation"). The
purchase price payable by us for the Ship Mortgage Obligation is $13.75 million.
We began making payments on account of such purchase price effective April 30,
2001, in monthly installments of $250,000. Such monthly installments continued
under the terms of the Purchase and Sale Agreement through July 31, 2002, at
which time a $9.75 million balloon payment was to be due. The balloon payment
was not made by July 31, 2002, and we exercised our right to extend the time for
payment of the balance of the purchase price for three (3) additional months, by
paying $70,000 for the first month extension, an additional $80,000 for the
second month extension and an additional $100,000 for the third month extension,
which additional payments will not be credited towards the purchase price. In
the event that the balloon payment is not made when due (or any other default on
our part occurs which is not cured within the applicable grace period), at the
election of the Trustee all of our monthly $250,000 payments (which would total
$4 million as of September 30, 2002) would be forfeited as liquidated damages
and the Trustee would have the right to take possession and control of the
vessel M/V Palm Beach Princess, but we would not have any further liability for
any unpaid balance of the purchase price of the Ship Mortgage Obligation. The
Trustee would also have the right to take over operating assets used in
connection with the vessel, including the onboard cash bank, inventories,
supplies and equipment, and the Trustee would assume current liabilities
including trade debt and payroll. In the event the current assets so acquired by
the Trustee are less than the amount of the current liabilities so assumed by
the Trustee, we would be liable to the Trustee for such deficiency.
Our transaction with the Brennan Bankruptcy Trustee, including our
agreement to purchase the Ship Mortgage Obligation, is an opportunity which
arose out of the Brennan Bankruptcy Trustee's claims against MJQ Corporation and
others, including Mr. Murray, alleging that MJQ Corporation had received a loan
(the Ship Mortgage Obligation) from an entity which, in turn, received funds
from offshore trusts created by Robert E. Brennan (the Company's former
chairman). The Brennan Bankruptcy Trustee acquired the Ship Mortgage Obligation
through a settlement of litigation which the Brennan Bankruptcy Trustee brought
against those offshore trusts. We learned of the opportunity to acquire the Ship
Mortgage Obligation and of the opportunity to acquire, at least temporarily
(through the bareboat charter), the vessel and MJQ Corporation's casino cruise
business, through Mr. Murray's connection as a director of MJQ Corporation.
Under the bareboat charter, we have (on a month-to-month basis) the right
to operate the M/V Palm Beach Princess, which, once outside the three-mile
territorial coastal limit, operates a casino gaming business.
The Palm Beach Princess is a large, ocean going cruise ship with a
passenger capacity of approximately 850 for coastal voyages. The ship is 420
feet long, 6,659 gross tons, and registered in the Republic of Panama.
Originally built in 1964, the ship was substantially reconstructed, refurbished,
and upgraded in 1973, 1984 and 1997. The ship fully complies with the highest
standards of the International Convention on Safety of Life at Sea as applicable
to large passenger ships, and is regularly subjected to safety and health
inspections by the United States Coast Guard and the United States Public Health
Service.
2
The Palm Beach Princess performs fourteen cruises weekly, that is, a
daytime and an evening cruise each day. Each cruise is of five to six hours
duration. During each cruise, the Palm Beach Princess offers a range of
amenities and services to her passengers, including a full casino, sit-down
buffet dining, live musical shows, discotheque, bars and lounges, swimming pool
and sundecks. The casino occupies 15,000 square feet aboard the ship and is
equipped with approximately 400 slot machines, all major table games (blackjack,
dice, roulette and poker), and a sports wagering book.
Pursuant to the bareboat charter between MJQ Corporation, the owner of the
vessel, and a subsidiary of ours, the vessel is provided to us on a
month-to-month basis, unless earlier terminated. The charter may be terminated
by the Trustee if we fail to pay the $9.75 million balance of the purchase price
for the Ship Mortgage Obligation by October 31, 2002. As charterer of the
vessel, we are responsible for maintaining the vessel, all machinery, boilers
and other equipment on the vessel, and are responsible for making all necessary
repairs. We are responsible for all expenses of operations, including all taxes
payable in respect thereof. As charterer, we have the use of all equipment on
board the vessel at the time it was delivered to us, and are responsible for
re-delivery of the vessel and equipment at the end of the charter period in the
same condition as when we received it, ordinary wear and tear excepted. We are
also responsible for replacing any items of equipment that need to be replaced
and, to the extent equipment may be leased, we are responsible for all rental
and other liabilities of MJQ Corporation under such leases during the term of
the charter. We are to keep all insurance in place for the vessel and equipment.
Further, MJQ Corporation is to continue to conduct for us certain operations of
the vessel until such time as we obtain, through our operating subsidiary, all
permits, licenses and registrations required in connection with the operation of
the vessel, including but not limited to, the federal water pollution
certification, registration under the Gambling Devices Act, registration for
Florida sales tax, and Florida alcoholic beverage licensing. All costs of such
operations incurred by MJQ Corporation on our behalf are to be reimbursed by us
to MJQ Corporation. Pending consummation of our purchase of the Ship Mortgage
Obligation, we have not obtained such permits, licenses or registrations in our
own or our subsidiary's name.
Prior Operations
In April of 1998, our Board of Directors authorized the exploration of
strategic opportunities for our business, including a possible merger or sale of
all of our assets. The Board ultimately decided that a sale of our assets was
the preferred alternative.
On January 28, 1999, we completed the sale of Freehold Raceway, the sale of
a ten acre parcel at Garden State Park and the lease of Garden State Park
facilities to subsidiaries of Greenwood Racing, Inc. The purchase price was $46
million, with up to an additional $10 million in Contingent Promissory Notes
which would become payable only upon, among other things, the New Jersey
Legislature's approval of off-track betting facilities or telephone account
pari-mutuel wagering on horse racing by certain dates and Greenwood's obtaining
necessary licenses to operate by January 24, 2002. Such contingency did not
occur.
On May 22, 2000, through our wholly-owned subsidiary, Orion Casino
Corporation, we closed on the sale of the non-operating former El Rancho Hotel
and Casino in Las Vegas,
3
Nevada to Turnberry/Las Vegas Boulevard, LLC. The sale price was $45 million and
was paid by: (i) previous cash deposits totaling $2 million; and (ii) the
balance of the sale price paid in cash at the closing. The proceeds from the El
Rancho sale were principally used by us to reduce the outstanding balances on
our loan from Credit Suisse First Boston Mortgage Capital LLC to $14.7 million
and to purchase a promissory note, secured by the rights to 100% of the
distributable cash of the buyer in the event of a default, of the buyer in the
amount of $23 million, which will be convertible at our option into a 33 1/3%
equity interest in the buyer. The interest payable under such note will be
dependent upon, and payable solely out of, the buyer's net cash flow available
for distribution to its equity owners. After the equity investors in the Company
have received total distributions equal to their capital contributions plus an
agreed upon return on their invested capital, the next $23 million of
distributable cash will be paid to us. We will thereafter receive payments under
the Note equal to 33 1/3% of all distributable cash until the maturity date,
which occurs on the thirtieth anniversary of our purchase of the Note. We may
convert the Promissory Note, at our option, into a 33 1/3% equity interest in
the buyer during a six-month period beginning on the fifteenth anniversary of
the issuance of the Note. If not then converted, the Note will convert into a 33
1/3% equity interest in the buyer on the thirtieth anniversary of its issuance.
We have elected to defer the gain on the sale until such time that
collectability, under the $23 million Note purchased from Turnberry after the
closing, can be determined.
On November 30, 2000, through our wholly-owned subsidiary, GSRT, LLC, we
closed on the sale of our Garden State Park property, located in Cherry Hill,
New Jersey, to Realen- Turnberry/Cherry Hill, LLC. The purchase price was $30
million and was paid by: (i) previous cash deposits totaling $1 million; (ii) a
Promissory Note in the face amount of $10 million; and (iii) the balance of the
purchase price paid in cash at the closing. The cash proceeds from such sale
were principally used by us to repay in full the outstanding balances on our
debt to Credit Suisse First Boston Mortgage Capital LLC of approximately $14.3
million and to repay in full approximately $3.75 million of principal and
interest on the debt to the Chapter 11 Bankruptcy Trustee for the estate of
Robert E. Brennan which had been incurred to purchase 2,904,016 shares of our
common stock.
Under the $10 Million Note, the interest payable will be dependent upon,
and payable solely out of, the buyer's net cash flow available for distribution
to its equity owners. After the equity investors in the buyer have received
aggregate distributions equal to their capital contributions plus an agreed upon
return on their invested capital, the next $10 million of distributable cash
will be paid to us. We will thereafter receive payments under the Note equal to
33 1/3% of all distributable cash until the maturity date, which occurs on the
fifteenth anniversary of the issuance of the Note. We may convert the Promissory
Note, at our option, into a 33 1/3% equity interest in Realen-Turnberry/Cherry
Hill during the six-month period prior to the fifteenth anniversary of the
issuance of the Note. If not then converted, the Note will be payable at
maturity in an amount equal to (i) the difference, if any, between $10 million
and total payments previously made to us under the Note and (ii) 33 1/3% of any
excess of the fair market value of Realen-Turnberry/Cherry Hill's assets over
the sum of its liabilities (other than the Note) and any unreturned equity
investment of its owners. We have elected to defer the gain on the sale until
such time that collectability under the $10 million Note from
Realen-Turnberry/Cherry Hill can be determined.
4
During June 2001, we held auctions at which all of the personal property,
including equipment, furniture, furnishings and art work, that we owned at
Garden State Park was sold for approximately $1.2 million in cash.
Employees
As of June 30, 2002, we employed 7 full-time corporate executive,
administrative and clerical personnel. All of the crew of the M/V Palm Beach
Princess (226 persons) and office and management personnel of MJQ Corporation
(78 persons) are made available to us for operation of the casino cruise
business under an arrangement between us and MJQ Corporation by which all costs
of such personnel are borne by us.
Competition
From July 1, 2001 to December 4, 2001 the M/V Palm Beach Princess was the
only vessel operating a coastal gaming business from the Port of Palm Beach and
our closest competition was approximately 50 miles away in Ft. Lauderdale,
Florida. From December 10, 2001 until April 29, 2002, when it returned to its
home port of Boston Massachusetts, another coastal gaming vessel, the S.S.
Horizon Edge, operated from Riviera Beach Marina, which is in close proximity to
the Port of Palm Beach. This vessel was 186 feet and had a passenger capacity of
500 people. The M/V Palm Beach Princess is considerably larger at 421 feet with
a passenger capacity of 850 people. The Horizon Edge operated on a similar
schedule as the Palm Beach Princess, that is, two five hour cruises per day, 7
days a week, however, due to its smaller size it canceled more cruises than the
Palm Beach Princess for inclement weather. Additionally, in approximately June,
2002, the coastal gaming vessel Texas Treasure II (formerly the M/V Contessa)
began operating from the Port of Palm Beach in competition with the M/V Palm
Beach Princess. This vessel is approximately 400 feet, was built in 1968 and has
a passenger capacity of approximately 700 people. This vessel had previously
operated in competition with the Palm Beach Princess from May 13, 1999 until it
discontinued operations on May 15, 2000. The operator of Texas Treasure II has
announced an intention to replace that vessel with a larger vessel, Texas
Treasure I, which is approximately 419 feet long and has a passenger capacity of
more than 1,000 people. We compete with Texas Treasure II and expect to compete
with Texas Treasure I on the basis of cruise schedules, passenger services,
amenities, prices, and percentages of gaming win. Our agreement with the Port of
Palm Beach District (see Item 2 - Properties, below) gives us a competitive
advantage as to preferred cruise scheduling times and convenience of passenger
parking areas.
There is no assurance that other competing vessels will not enter the
gaming business at the existing Port of Palm Beach, at a new and larger port
facility in Palm Beach or at another port facility in the future.
In addition to competing with other vessels in the coastal gaming cruise
business, we compete with a variety of other entertainment activities in and
around Palm Beach, Florida, including, but not limited to, land-based Indian
gaming casinos, poker rooms, dog racing, state-sponsored lotteries, short-term
cruises, resort attractions, various sports activities and numerous other
recreational activities. There is no assurance that we will be able to
5
successfully compete with such other activities.
Weather and Seasonal Fluctuations
The success on our casino cruise business depends to significant extent on
the weather conditions. In particular, inclement weather, or the threat of such
weather, has a direct effect on passenger counts, potentially adversely
affecting our revenues. On relatively rare occasions, bad weather or sea
conditions may result in the cancellation of cruises. Our business is also
subject to seasonal fluctuations. Our peak seasons are the late fall, winter,
and early spring seasons due to the increased local population as well as
increased tourist populations.
Federal and State Regulations - Florida
The effect of amendments in 1994 to the Federal Gambling Ship Act and in
1992 to the Federal Johnson Act was to repeal the prior prohibition under
Federal law of gambling aboard ships performing coastal voyages beyond the
jurisdiction of state territorial waters (three miles on the United States
Atlantic coast), and to permit individual states to enact laws regulating or
prohibiting gambling aboard ships performing coastal voyages from ports located
in such states. From time to time in prior years, bills have been introduced in
the Florida legislature which, if enacted, would prohibit coastal gaming cruises
from Florida ports. No of such bills have been enacted and no such bill is
currently pending. There is a risk that the State of Florida may at some future
date regulate or prohibit the coastal cruise gaming business. In addition, the
Federal government could determine to enact regulations or prohibition of
coastal gaming cruises.
Further, from time to time, bills have been introduced seeking to place
passenger surcharges on cruises originating from ports within the State of
Florida. Originally, this surcharge was intended to fund a trust fund to be used
for statewide beach restoration and management. Such bills were subsequently
amended so that the gaming cruise industry would not be taxed. However, there
can be no assurance that similar bills designed to tax passengers on cruises
such as those offered by us will not be introduced in the future. In addition,
while current law and regulations do not now prohibit casino advertising, from
time to time bills have been introduced which, in part, prohibit the
advertisement of any form of gambling in any newspaper, circular, poster,
pamphlet, radio, telegraph, telephone or otherwise. There can be no assurance
that such bills will not be reintroduced or enacted in the future. There has
also been litigation instituted in the State of Florida against gaming cruise
operators for allegedly causing a public nuisance. There can be no assurance
that further litigation will not be instituted in the future which, if
successful, could adversely affect the industry in which we operate.
Item 2. Properties.
We lease approximately 4,000 square feet of office space in Bellmawr, New
Jersey which serves as our corporate headquarters. The lease is for a three year
period, expiring on May 31, 2004, and provides for an option to extend such term
for an additional three year period commencing June 1, 2004. We also lease, on a
month to month basis, approximately 200 square feet of office space in Toms
River, New Jersey which serves as a satellite executive
6
office.
In addition, through a subsidiary, we have negotiated with the Port of Palm
Beach District a new operating agreement and lease of space in a new office
complex constructed at the Port of Palm Beach adjacent to a new cruise terminal.
The new operating agreement provides priority scheduled times for our cruises,
operating rights from the Port, and priority parking location for our
passengers. The office space in the new office complex to be occupied by us
comprises 11,105 square feet. (Pending construction of the tenant improvements
to the new office space, we continue to occupy space in the Port which has been
leased to MJQ Corporation, under arrangements with that corporation.) We are
required to make tenant improvements to the new space, estimated to cost
approximately $600,000, construction of which was to have commenced by July 30,
2002. While we have obtained a commitment for the construction financing, we had
not begun construction by July 30, 2002 and received a notice from the Port's
attorney asserting that we may be in default in that regard. We intend to
proceed with construction of the required improvements to the leased space in
due course and expect to be able to cure the potential default. Such lease would
then extend for an initial term of five (5) years with our having two additional
five-year renewal options. The prior holder of the operating agreement with the
Port, Leo Equity Group, Inc., permitted us to take the new operating agreement
and lease in our own subsidiary as a result of our agreement with the sole
stockholder of Leo Equity Group, Inc. to purchase all of his shares in that
corporation. Pursuant to that agreement, we have agreed to pay $250,000 as the
purchase price for the stock in Leo Equity Group, payable in ten monthly
installments of $25,000 each. See Note 15 to our financial statements ( Related
Party Transactions) below.
Item 3. Legal Proceedings.
We are involved in litigation incidental to our prior ownership and
operation of Garden State Race Track and Freehold Raceway. We do not believe
that the resolution of any existing litigation will result in a material adverse
effect on our business, results of operations, or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matters to a vote of security holders during the
fourth quarter of fiscal year 2002.
7
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Our common stock has been traded infrequently on the Pink Sheets since
September 15, 1998. The following table sets forth, for the fiscal years
indicated, the high and low sales prices for each share of our common stock on
the Pink Sheets based upon information supplied by the Pink Sheets.
High Low
---- ---
2001
First Quarter .60 .20
Second Quarter .45 .10
Third Quarter .51 .19
Fourth Quarter .46 .30
2002
First Quarter .30 .17
Second Quarter .28 .17
Third Quarter .50 .20
Fourth Quarter .50 .23
On June 30, 2002, there were approximately 30,200 holders of record of the
shares of our outstanding common stock.
We have not paid any dividends since our inception. The declaration and
payment of dividends in the future will be determined by our board of directors
in light of conditions then existing, including our earnings, financial
condition and capital requirements. We do not anticipate paying dividends in the
foreseeable future.
8
Item 6. Selected Financial Data.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
Years Ended June 30,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ------------ ------------ ------------- -------------
Income (Loss) Before Discontinued
Operations (1)(6) $ 1,982,603 $ (2,402,142) $ (6,980,831) $ (16,034,769) $ (25,468,850)
Income From Discontinued Operations (3) $ 0 $ 0 $ 0 $ 8,144,072 $ 7,207,633
Net Income (Loss) $ 1,982,603 $ (2,402,142) $ (6,980,831) $ (7,890,697) $ (18,261,217)
Per Common Share - Basic and Diluted:
Income (Loss) Before Discontinued Operations
and Extraordinary Item $ 0.17 $ (0.24) $ (0.78) $ (1.38) $ (1.82)
Gain on Sale of Net Assets of
Discontinued Operations $ -- $ -- $ -- $ 0.32 $ --
Income From Discontinued Operations $ -- $ -- $ -- $ 0.39 $ 0.51
Net Income (Loss) $ 0.17 $ (0.24) $ (0.78) $ (0.67) $ (1.31)
Weighted Average Number of Shares 11,480,272 9,987,114 8,980,244 11,554,476 13,978,086
June 30,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ------------ ------------ ------------- -------------
Working Capital (Deficiency)(2) $ (2,200,346) $ (190,644) $ (17,792,740) $ (33,069,102) $ (36,744,740)
Total Assets $ 45,928,294 $ 41,391,208 $ 58,166,739 $ 76,588,565 $ 120,252,901
Long-Term Debt $ 0 $ 482,000 $ 482,000 $ 0 $ 0
Stockholders' Equity $ 33,961,312 $ 31,973,708 $ 33,870,852 $ 40,846,683 $ 59,913,361
(1) The Company commenced operation of a casino cruise vessel as of April 30,
2001 which materially affects the comparability of a portion of the
information reflected in the above data.
(2) The working capital presentation in Fiscal 2002 reclassed to long term a
$750,000 deposit that was previously present as current in Fiscal 2001.
(3) Prior to June 30, 1998, the Company decided to sell its racing operations.
As a result, such operations have been classified as discontinued
operations for all periods presented.
(4) As a result of the above described decision, the (loss) from continuing
operations primarily consists of corporate expenses, charges and write-offs
for years June 30, 1998 thorough June 30, 2000.
(5) The Company did not pay cash dividends during any of the fiscal years shown
above.
(6) See Management's Discussion and Analysis of Financial Conditions and
Results of Operations and the consolidated financial statements and the
notes thereto for additional information for each of the three years in the
period ended June 30, 2002.
9
Item 7. Management's Discussion And Analysis of Financial Conditions And Results
of Operations
Liquidity and Capital Resources
Cash flow and liquidity during the twelve month period ended June 30, 2002
included approximately $5.4 million in cash generated by the Palm Beach Princess
operations (prior to cash payments of 2,750,000 used for the payments to the
Chapter 11 Trustee of the Bankruptcy Estate of Robert E. Brennan), approximately
$1.2 million from the auction of all of the personal property (including
equipment, furniture, furnishings and artwork) that we owned at Garden State
Park, and $906,455 which had been held in escrow from the 1999 sale of Freehold
Raceway and the lease of Garden State Park. Such cash flow was used, in part, to
fund portions of the payments on account of the purchase price of the Ship
Mortgage Obligation against the Palm Beach Princess, described in Note 10 -
Commitments and Contingencies to our financial statements, to make loans of an
additional $573,280 to the Southern California golf course and Fort Lauderdale,
Florida real estate development projects during the twelve months ended June 30,
2002 as described in Note 15 - Related Party Transactions to our financial
statements, and to explore other potential business opportunities. We are
exploring gaming related business opportunities in various foreign countries and
expect to continue to incur expenses for exploring potential business
opportunities in the future. As of June 30, 2002, we have made loans of
approximately $350,000 in relation to the foreign projects and an additional
$933,814 has been funded and expensed in various foreign projects during the
year ended June 30, 2002. We are currently dependent upon operations of the Palm
Beach Princess vessel for substantially all of our cash flow.
On July 18, 2001, we sold our condominium unit and an ownership interest in
the Ocala Jockey Club that was located in Reddick, Florida. The sales price was
$94,000 and the proceeds after closing fees and other expenses were $81,645. A
gain of $77,577 was recognized during the first quarter of Fiscal 2002.
Under our bareboat charter of the vessel, we are obligated to pay $50,000
per month as the charter hire fee to the vessel's owner, MJQ Corporation. In
order to obtain the bareboat charter, we negotiated and on February 20, 2002
entered into a Master Settlement Agreement with the Chapter 11 Trustee of the
Bankruptcy Estate of Robert E. Brennan (the "Trustee"), MJQ Corporation and
others. Pursuant to the Master Settlement Agreement we have incurred the
following financial commitments:
1. For the purchase of the Ship Mortgage Obligation, we are to pay
$250,000 per month through July 31, 2002, and an additional $9.75
million balloon payment was due at that time. As permitted by the
Master Settlement Agreement we have extended the date for payment of
the balloon payment on a month-to-month basis until October 31, 2002
by paying extension fees of $70,000 for the first month, an additional
$80,000 for the second month and an additional $100,000 for the third
month. If we fail to make the balloon payment by October 31, 2002 or
otherwise are in default under the Purchase and Sale Agreement for the
Ship Mortgage Obligation, and such default is not cured within the
applicable grace period, then the Trustee may elect to terminate the
bareboat charter under which we operate the vessel M/V Palm Beach
Princess, and the Trustee would then retain, as liquidated damages,
all of the monthly payments we previously had made but we would have
no further liability for payment of the purchase price. Upon such
termination, we also would be liable to the Trustee for any amount by
which the current liabilities assumed by the Trustee pursuant to the
Purchase and Sale Agreement exceed the current assets acquired by the
Trustee.
2. We were obligated to purchase approximately 1,785,000 shares of our
common stock from the Trustee at $0.50 per share (aggregate purchase
price of approximately $892,500), on July 1,
10
2002. We are currently in negotiations with the Trustee to extend the
purchase date and payment of the purchase price for these shares.
We also are committed to making the tenant improvements to new office space
at the Port of Palm Beach. The cost of such improvements is expected to be
approximately $600,000. We have received a commitment for financing such cost
and expect that funding will be available before October 31, 2002.
We currently estimate that approximately $200,000 per month is needed from
operation of the vessel to cover overhead expenses of International Thoroughbred
Breeders, Inc. We will need to obtain approximately $1 million in financing in
order to pay the purchase price for the stock that was due the Trustee on July
1, 2002 and approximately $10 million in financing in order to make the balloon
payment of the purchase price of the Ship Mortgage Obligation due on October 31,
2002. We are seeking financing in order to fully pay all such obligations to the
Trustee. Failure to obtain such financing may result in the loss of our only
operating business and source of working capital.
Substantially all of our revenues are currently derived from our operation
of the M/V Palm Beach Princess. The cash flow from operations of the vessel is
seasonal and we may generate excess funds in some months and insufficient funds
in other months. The period July 1st to December 31st is a seasonably slow
period for the vessel operation. The period from January 1st to June 30th has
been a period of increased activity and profits for the vessel. Certain of our
operating costs, including the charter fee payable to the vessel's owner, fuel
costs and wages, are fixed and cannot be reduced when passenger loads decrease
or when rising fuel or labor costs cannot be fully passed through to customers.
Passenger and gaming revenues earned from the vessel must be high enough to
cover such expenses.
Other possible sources of cash include the two promissory notes we received
when we sold our Garden State Park real property in November, 2000 and our Las
Vegas real property in May, 2000. One such Note is in the face amount of $10
million, issued by Realen-Turnberry/Cherry Hill, LLC, the purchaser of the
Cherry Hill property (the "$10 Million Note"), and the other promissory note is
in the face amount of $23 million, issued by Turnberry/Las Vegas Boulevard, LLC,
purchaser of our Las Vegas real property (the "$23 Million Note"). Under both
Notes, interest and principal payments will be dependent upon, and payable
solely out of, the obligor's net cash flow available for distribution to its
equity owners. After the obligor's equity investors have received aggregate
distributions equal to their capital contributions plus an agreed upon return on
their invested capital, the next $10 million of distributable cash in the case
of the $10 Million Note, and the next $23 million of distributable cash in the
case of the $23 Million Note, will be paid to us, and following our receipt of
the face amount of the Note we will receive 33 1/3% of all distributable cash of
the obligor until maturity of the Note. The probable timing and amounts of
payments under these Notes cannot be predicted. We are attempting to borrow on
these Notes for additional working capital but such borrowing is expected to be
difficult to obtain as long as the timing and amounts of payments under the
Notes remain unpredictable.
While management believes that the $10 Million Note and the $23 Million
Note owned by us have substantial value and, ultimately, should generate
significant cash payments to us, the timing of receipt of any such payments
cannot be accurately predicted and we may not receive substantial payments under
the notes for one year or more. At the same time, we have utilized available
cash over the last several months, and expect to incur further costs in the
development of projects which, while believed by management to be worthwhile,
are expected to take more than one year before generating cash returns to us. We
will seek to borrow against the notes in order to obtain funds for our short
term obligations and current expenses and also for capital expenditures of any
new business we enter. However, there can be no assurance that we will be able
to borrow the necessary funds.
On October 25, 2002 the Company received a Letter of Interest for a
proposed $8 million financing, subject to additional due diligence. Principal
and interest of 7% per annum would be due monthly, based on a 5 year
amortization, with a balloon payment due 3 years from closing. Additionally the
bank would take a subordinated position of $7 million in our $10 million note
due from the sale of our Garden State Park property. It is the Company's intent
to borrow an additional $2 million on this note to satisfy the entire payment of
$9.75 million due to the Trustee for the purchase of the Ship Mortgage and to
complete the purchase of 1,785,000 Company shares from the Trustee for $892,500.
Additionally, at this time we are negotiating with the Trustee to extend the
closing date under the Purchase and Sale Agreement from October 31, 2002 until
December 31, 2002. There can be no assurances that the proposed loans will be
received, or that we will be successful in our negotiations with the Trustee.
11
Discussion of Statement of Cash Flows for the Year Ended June 30, 2002.
- -----------------------------------------------------------------------
Cash flows provided by operating activities were $2,570,950 for the year
ended June 30, 2002 compared to cash provided by operating activities in the
amount of $1,198,225 for the same period last year. Fiscal 2002 includes a full
12 months of operation of the M/V Palm Beach Princess, versus two months in
fiscal 2001.
Our working capital as of June 30, 2002 was a negative ($2,200,346) as
compared to a negative ($190,644)(after the reclassification presentation on the
Fiscal 2002 financial statements of the $750,000 deposit on the Ship Mortgage
Obligation which became non-refundable as a result of the Master Settlement
Agreement signed on February 20,2002) at June 30, 2001. The decrease in working
capital during the past twelve months was primarily caused by the use of cash to
fund on-going development projects partially offset by the cash provided by
operating activities and cash received from the auction of Garden State Park
personal property.
Cash used in investing activities was $3,044,925 for the year ended June
30, 2002. In June 2001, we held an auction at which all of the personal
property, including equipment, furniture, furnishings and art work, that we
owned at Garden State Park was sold for approximately $1.2 million (net of
costs) in cash, which was received during the first half of Fiscal 2002 and was
used for working capital purposes and to make additional loans of $447,241 for
the Ft. Lauderdale project. (See Note 15 - Related Party Transactions.)
Additionally, cash was used during the twelve month period for the monthly
payments made on the Palm Beach Princess Ship Mortgage Obligation in the amount
of $2,750,000, for additional loans of $922,751 by us on development projects,
and for capital expenditures of $480,614 which were primarily associated with
the Palm Beach Princess operations during the year ended June 30, 2002.
Cash used in financing activities was $100,000 during the year ended June
30, 2002, primarily consisting of payments on short term notes and inter-company
transactions.
Results of Operations for the Year Ended June 30, 2002 and 2001
- ---------------------------------------------------------------
Revenue for the year ended June 30, 2002 increased $21,134,500 from
$4,921,091 in Fiscal 2001 to $26,055,591 in Fiscal 2002 primarily as a result of
revenues generated by the Palm Beach Princess operations. Expenses increased
$16,610,505 from $7,323,233 in Fiscal 2001 to $23,933,738 in Fiscal 2002
primarily as the result of total operating expenses of $20,466,948 associated
with the Palm Beach Princess during the twelve month period in Fiscal 2002 as
compared to $3,767,710 for the two month period of operations in Fiscal 2001.
General and Administrative expenses for the parent decreased $904,762 primarily
as a result of a Fiscal 2001 $500,000 non-cash compensation cost of the
2,500,000 shares of Common Stock issued to Francis W. Murray, the Company's
Chief Executive Officer and Fiscal 2001 remediation costs of approximately
$300,000 associated with the sale of Freehold Raceway.
During the year ended June 30, 2002, our net income was $1,982,603 or $.17
per share on weighted average outstanding shares of 11,480,272 as compared to a
loss for the comparable period in prior fiscal year of ($2,402,142) or ($0.24)
per share on weighted average outstanding shares of 9,987,114. The change of
$4,384,745 was primarily the result of the net income from a full year's
operation of the vessel.
The Palm Beach Princess business is subject to seasonal fluctuations. Our
peak seasons are the winter and spring seasons due to the increased local
population as well as increased tourist populations. During the year ended June
30, 2002, our first full year of operation, passenger count was 256,021 and
total revenue from the vessel was $25,473,777 which included casino revenue of
$20,562,757, passenger fares of $3,199,389 and on board revenue of $1,711,631.
Casino operating expenses which also includes food, beverage and entertainment
for the twelve month period were $7,147,301 or 35% of casino revenue.
12
Sales, marketing and advertising expenses were $2,934,483 and on board gift
shop, catering and cabin expenses were $871,893. Maritime and maintenance costs
to operate the ship were $6,151,650. Finance and administrative expenses were
$3,361,621. State Income Tax expense was $139,250. Net income from operation of
the vessel for the year ended June 30, 2002 was $4,867,579. Out of the 710
scheduled cruises during the year ended June 30, 2002, 13 cruises were cancelled
for weather or mechanical difficulties. During the twelve month period the
vessel was placed in dry dock for 6 days in October, which is a slow seasonal
period, for general maintenance and repairs.
From July 1, 2001 to December 4, 2001 the M/V Palm Beach Princess was the
only vessel operating a coastal gaming business from the Port of Palm Beach and
our closest competition was approximately 50 miles away in Ft. Lauderdale,
Florida. From December 10, 2001 until April 29, 2002, another coastal gaming
vessel, the S.S. Horizon Edge, operated from Riviera Beach Marina, which is in
close proximity to the Port of Palm Beach. This vessel was 186 feet and has a
passenger capacity of 500 people. The M/V Palm Beach Princess is considerably
larger at 421 feet with a passenger capacity of 850 people. The Horizon Edge
operated on a similar schedule as the Palm Beach Princess, that is, two five
hour cruises per day, 7 days a week, however, due to its smaller size it
canceled more cruises than the Palm Beach Princess for inclement weather.
Another coastal gaming vessel, Texas Treasure II, began operating in
approximately June 2002 from the Port of Palm Beach in competition with the M/V
Palm Beach Princess. This vessel is approximately 400 feet, was built in 1968
and has a passenger capacity of approximately 700 people. Its operator has
announced plans to replace it with a larger vessel, having a passenger capacity
of more than 1,000 people, which would increase the uncertainties of our
business attributable to increased competition.
Results of Operations for the Fiscal Years Ended June 30, 2001 and 2000
- -----------------------------------------------------------------------
Revenue from operations for the year ended June 30, 2001 increased by
$4,474,503 from $446,588 in Fiscal 2000 to $4,921,091 in Fiscal 2001 primarily
as a result of revenues generated by the Palm Beach Princess operations which
commenced on April 30, 2001. Total expenses decreased $104,186, from $7,427,419
in Fiscal 2000 to $7,323,233 in Fiscal 2001. This decrease in expenses was
primarily the net result of: (i) a decrease in interest and financing expense of
$3,273,054 primarily as a result reduced debt; (ii) carrying costs of $1,011,634
during Fiscal 2000 for the El Rancho property being eliminated as a result of
its sale in Fiscal 2000; partially offset by (iii) operating expenses of $
3,315,260 associated with the Palm Beach Princess during the two month period in
Fiscal 2001; (iv) an increase in general and administrative expenses of $739,520
primarily associated with: (a) the $500,000 non-cash compensation cost of the
2,500,000 shares of common stock issued to Francis W. Murray, our Chief
Executive Officer, on January 28, 2001; and (b) additional environmental
remediation costs of approximately $300,000 associated with the sale of Freehold
Raceway.
Effective April 30, 2001, we chartered the vessel M/V Palm Beach Princess
for the purpose of operating a casino business out of the Port of Palm Beach,
Florida. During the two month period of May and June 2001, total revenue was
$4,592,469 and total expenses were $3,309,269. Net income for the two month
period of operation was $1,283,200.
During the year ended June 30, 2001, the Company incurred a net loss from
operations of ($2,402,142) as compared to a net loss from operations of
($6,980,831) for the prior fiscal year. The decrease in net loss of $4,578,689
for the comparable fiscal years was the result of those differences described
above.
13
Recently Issued Accounting Standards
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Account Standards No. 144, "Accounting for the Impairment of
Long-Lived Assets". This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Statement of Financial Accounting Standards No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". This statement rescinds FASB No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements". This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers". This Statement amends FASB Statement
No. 13, "Accounting for Leases". This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
menaings, or describe their applicability under changed conditions.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities". The standard requires companies to recognize costs
associates with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.
In October 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial
Institutions". Except for transactions between two or more mutual enterprises,
this Statement removes acquisitions of financial institutions from the scope of
both Statement 72 and Interpretation 9 and requires that those transactions be
accounted for in accordance with FASB Statements No. 141, Business Combinations,
and No. 142, Goodwill and Other Intangible Assets.
Presently, the Company does not have any circumstances that would require
the implementation of these standards. Accordingly, the Company believes the
adoption of these statements will have no impact on its financial position or
results of operations.
Other Information - Risk Factors
You should consider the following risk factors that pertain to our
business. The realization of any of these risks could result in significant harm
to our results of operations, financial condition, cash flows, business or the
market price of our common stock. Keep these risk factors in mind when reading
"forward-looking" statements elsewhere in this Form 10-K.
We derive substantially all of our revenues from our offshore gaming operations.
Substantially all of our revenues are currently derived from our operation
of the M/V Palm Beach Princess. Certain of our operating costs, including the
charter fee payable to the vessel's owner, fuel costs and wages, are fixed and
cannot be reduced when passenger loads decrease or when rising fuel or labor
costs cannot be fully passed through to customers. Passenger and gaming revenues
earned from the vessel must be high enough to cover such expenses. While we
14
have generated sufficient revenues from the M/V Palm Beach Princess to pay its
expenses and the $250,000 per month payments to the Brennan Bankruptcy Trustee
on account of the purchase price for the Ship Mortgage Obligation, there is no
guarantee that we will be able to continue to cover operating expenses of that
business, and our failure to do so could have materially adverse consequences.
Our acquisition of operations of the M/V Palm Beach Princess remains temporary.
Our acquisition of operations of the vessel M/V Palm Beach Princess at this
time is derived from a bareboat charter which had an initial term ending July
31, 2002 and which thereafter continues on a month-to-month basis. If MJQ
Corporation terminates or decides not to extend our bareboat charter, we stand
to lose our primary operating business and source of revenues.
Retention of the casino cruise business also depends upon our ability to borrow
approximately $10 million to refinance the Ship Mortgage Obligation.
At October 31, 2002, a balloon payment of the remaining balance ($9.75
million) of the purchase price for the Ship Mortgage Obligation will be due and
payable. Our failure to pay the balloon payment when due will permit the
Bankruptcy Trustee to terminate the bareboat charter arrangement and take
possession of the vessel M/V Palm Beach Princess. While we would not be liable
for any unpaid portion of the purchase price of the Ship Mortgage Obligation, we
would forfeit (as liquidated damages) all of the $4.0 million previously paid by
us towards that purchase price. Our ability to pay the balloon payment when due
is dependent upon our ability to refinance the Ship Mortgage Obligation. We are
seeking to borrow a minimum of $10 million with which to make the balloon
payment of the purchase price of the Ship Mortgage Obligation. There is a
substantial risk that we will not be able to obtain such financing.
Revenues from our investments in real estate developments are uncertain.
When we sold our real estate property located in Las Vegas, Nevada in May,
2000, we used proceeds from that sale to purchase a promissory note, in the face
amount of $23 million, issued by the purchaser of the property. And, when we
sold our real estate property in Cherry Hill, New Jersey in November, 2000, a
portion of the purchase price was paid to us in the form of the purchaser's
promissory note in the face amount of $10 million. Each such promissory note is
payable solely from distributable cash generated by the purchaser's development
or sale of the property purchased from us, and, in each case, we could receive
more or less than the face amount of the note. The times and amounts of all
payments under these notes are uncertain and depend entirely upon the
profitability of each purchaser's development (or resale) of the subject real
property.
We face competition to our gaming operations.
We currently compete with a variety of other vacation activities in and
around Palm Beach, Florida, including short-term cruises, resort attractions and
sporting and other recreational activities. Moreover, another coastal gaming
vessel is now operating from the Port of Palm Beach and the operator of that
vessel has announced plans to bring in a larger vessel to do so. That vessel's
passenger capacity will be larger than ours. We also expect competition in other
areas surrounding Palm Beach in the future. Within fifty miles of the Port of
Palm Beach, there are a number of smaller marinas that are capable of handling
other coastal gaming vessels, although any such vessels necessarily would be
substantially smaller than the Palm Beach Princess. Our
15
operations compete directly with the other Palm Beach vessel and in the future
we expect competition to increase as new gaming operators enter our market,
existing competitors expand their operations, gaming activities expand in
existing jurisdictions and gaming is legalized in new jurisdictions. Our
operations compete directly with the Texas Treasure at our Palm Beach location.
Increased competition will result from expanded gaming in existing jurisdictions
and as gaming is legalized in new jurisdictions.
In general, gaming activities include traditional land-based casinos,
dockside gaming, casino gaming on Indian land, state-sponsored lotteries, video
poker in restaurants, bars and hotels, pari- mutuel betting on horse racing, dog
racing and jai-alai and sports bookmaking. Our operations compete with all of
these forms of gaming and will compete with any new forms of gaming that may be
legalized in the future, as well as with other types of entertainment. Over the
past few years, there has been an attempt to legalize gaming throughout the
state of Florida. While this movement has yet to be successful, it is likely
that the gaming industry will continue to pursue legalization of gaming in
Florida, and we believe that the legalization of gaming in Florida would have a
material adverse impact on our operations. In addition, we are also subject to
competition from other gaming establishments in other jurisdictions, including
but not limited to Atlantic City, New Jersey, Las Vegas, Nevada, the Bahamas,
and riverboat gambling on the Mississippi river. Such competition could
adversely affect our ability to compete for new gaming opportunities and to
maintain revenues.
We are potentially subject to a number of gaming regulations and statutes.
Under Federal law, individual states are permitted to regulate or prohibit
coastal gaming. The state of Florida does not currently regulate coastal gaming.
However, from time to time in prior years, legislation has been introduced
which, if enacted, would prohibit the coastal gaming business. There is the risk
that Florida may at some future date regulate the coastal gaming business. Such
regulation could adversely harm our business.
In addition, the Federal government has also previously considered a
Federal tax on casino revenues and may consider such tax or other regulations
that would affect our gaming business in the future. From time to time,
legislators and special interest groups have proposed legislation that would
expand, restrict or prevent gaming operations in Florida and in other
jurisdictions throughout the country. Any such taxes, expansion of gaming or
restriction on or prohibition of our gaming operations could have a material
adverse effect on our operating results.
We are subject to non-gaming regulations.
The M/V Palm Beach Princess and any other vessels which we may operate in
the future must comply with various international and U.S. Coast Guard
requirements as to ship design, on-board facilities, equipment, personnel and
general safety. Our inability to maintain compliance with such regulations could
force us to incur additional costs to retain compliance or require us to buy new
vessels. In addition, we are subject to certain Federal, state and local safety
and health laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clean Air Act, the Clean Water Act, and other
environmental rules and regulations. The coverage and compliance costs
associated with such laws, regulations and ordinances may result in future
additional costs to our operations.
16
We rely on patrons primarily from Florida and tourists from the Northeastern
United States.
We derive a substantial portion of our revenues from patrons from the
southern and central portions of Florida as well as from tourists visiting
Florida from other parts of the United States, particularly the Northeast.
Adverse economic conditions in any of these markets, or the failure of our
vessel to continue to attract customers from these geographic markets as a
result of increased competition in such markets, or other factors such as the
recent terrorist attacks which may lead to a decline in tourist travel, could
have a material adverse effect on our operating results. Conditions and other
factors beyond our control include competition from other amusement properties,
changes in regional and local population and disposable income composition,
seasonality, changes or cancellations in local tourist, athletic or cultural
events, changes in travel patterns or preferences which may be affected by
increases in gasoline prices, changes in airline schedules and fares, strikes
and weather patterns, and our need to make renovations, refurbishments and
improvements to our vessel.
Weather and other conditions could seriously disrupt our operations.
Our gaming operations are subject to unique risks, including loss of
service because of casualty, mechanical failure, extended or extraordinary
maintenance requirements, flood, hurricane or other severe weather conditions.
Our vessel faces additional risks from its movement and the movement of other
vessels on waterways. Palm Beach, Florida is subject to severe storms,
hurricanes and occasional flooding. As a result of such weather conditions, as
well as the ordinary or extraordinary maintenance requirements of our vessel, if
we are unable to operate our vessel, our results of operations will be harmed.
The loss of our vessel from service for any period of time could adversely
affect our revenues.
We depend on our management to execute our business plan.
Our success is dependent upon the efforts of our current management, in
particular that of our President and Chief Executive Officer, Francis W. Murray.
Since the business of gaming has expanded significantly over the past few years,
competition for qualified employees will be intense. There is no assurance that
such persons can be retained or readily replaced, and there is no assurance that
we will be able to continue to add qualified personnel as required. The loss of
the services of any of our executive officers could adversely affect our
business.
We experience quarterly fluctuations in operating results.
Our quarterly operating results are expected to fluctuate significantly
because of seasonality and other factors. We expect to generate the majority of
our income during our third and fourth fiscal quarters ending March 31 and June
30. Such fluctuations could affect our stock price, particularly during the
first and second fiscal quarters.
Our stock price faces volatility as a result of a number of factors.
The market price of our stock is dependent upon future operating results,
and therefore, is highly dependent on specific developments including, but not
limited to, any failure on our part to, pay the balloon payment of $9.75 million
for the Ship Mortgage Obligation by October 31, 2002 passage or defeat of
relevant gaming legislation or related initiatives, weather patterns, and the
general vibrancy of the economy and the Florida tourism industry. Announcements
concerning legislation approving or defeating gaming legislation, various
governmental actions, developments
17
in the gaming industry generally, announcements by our competition, weather
patterns, and other general economic matters or tourism industry may have a
significant impact on the market price of our common stock.
Terrorist Attacks of September 11, 2001
The terrorist attacks of September 11, 2001 adversely impacted our
operations and have effected our ability to borrow the approximately $10 million
dollars needed in order to make the balloon payment of the purchase of the Ship
Mortgage Obligation due on October 31, 2002 and to pay for the purchase of the
stock that was due to the Trustee on July 1, 2002. These attacks as well as any
similar attacks and/or future security alerts could have a material adverse
effect on our future operations.
Item 7A Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable
Item 8 Financial Statements and Supplemental Data.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants ...19
Balance Sheets .............................20
Statements of Operations ...................22
Statements of Stockholders' Equity .........23
Statements of Cash Flow ....................24
18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
International Thoroughbred Breeders, Inc.
Bellmawr, New Jersey
We have audited the accompanying consolidated balance sheets of
International Thoroughbred Breeders, Inc. and subsidiaries as of June 30, 2002
and 2001 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years ended June 30, 2002, 2001 and
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, should the Company not be able to make payments in
accordance with the Master Settlement Agreement with the Chapter 11 Trustee for
the Bankruptcy Estate of Robert E. Brennan, the Company will forfeit the
deposits as liquidated damages and the bareboat charter of the M/V Palm Beach
Princess would cease. This condition raises substantial doubt about its ability
to continue as a going concern. Management plans regarding those matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Thoroughbred Breeders, Inc. and its subsidiaries as of June 30,
2002, 2001 and 2000 and the results of their operations and their cash flows for
the three years ended June 30, 2002, 2001 and 2000 in conformity with U.S.
generally accepted accounting principles.
STOCKTON BATES, LLP
Philadelphia, Pennsylvania
September 10, 2002
19
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND 2001
ASSETS
June 30,
---------------------------------
2002 2001
--------------- --------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 796,610 $ 1,361,287
Accounts Receivable 37,682 843,385
Prepaid Expenses 190,639 362,048
Other Current Assets 391,596 1,032,311
Net Assets of Discontinued Operations - Current 123,569 1,007,398
--------------- --------------
TOTAL CURRENT ASSETS 1,540,096 4,606,429
--------------- --------------
LAND, BUILDINGS AND EQUIPMENT:
Land and Buildings 0 214,097
Equipment and Artwork 723,420 289,426
--------------- --------------
723,420 503,523
LESS: Accumulated Depreciation and Amortization 113,061 285,004
--------------- --------------
TOTAL LAND, BUILDINGS AND EQUIPMENT, NET 610,359 218,519
--------------- --------------
OTHER ASSETS:
Notes Receivable 33,000,000 23,000,000
Note Receivable of Discontinued Operations - Long-Term 0 10,000,000
Deposit on Purchase of Palm Beach Princess Mortgage 3,500,000 750,000
Deposits and Other Assets 7,277,839 2,816,260
--------------- --------------
TOTAL OTHER ASSETS 43,777,839 36,566,260
--------------- --------------
TOTAL ASSETS $ 45,928,294 $ 41,391,208
=============== ==============
See Notes to Consolidated Financial Statements.
20
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
---------------------------------
2002 2001
--------------- --------------
CURRENT LIABILITIES:
Accounts Payable $ 1,324,351 $ 2,549,539
Accrued Expenses 1,353,811 1,247,534
Short-Term Debt 1,062,280 1,000,000
--------------- --------------
TOTAL CURRENT LIABILITIES 3,740,442 4,797,073
--------------- --------------
DEFERRED INCOME 8,226,540 4,138,426
--------------- --------------
LONG-TERM DEBT 0 482,000
--------------- --------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $100 Par Value,
Authorized 500,000 Shares, Issued and Outstanding,
362,488 and 362,487 Shares, respectively 36,248,775 36,248,675
Common Stock, $2 Par Value, Authorized 25,000,000
Shares, Issued and Outstanding, 11,480,275 and
11,480,267, respectively 22,960,549 22,960,533
Capital in Excess of Par 20,192,090 20,192,206
(Deficit) (subsequent to June 30, 1993,
date of quasi-reorganization) (45,423,435) (47,406,038)
--------------- --------------
33,977,979 31,995,376
LESS:
Deferred Compensation, Net (16,667) (21,667)
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 33,961,312 31,973,709
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,928,294 $ 41,391,208
=============== ==============
See Notes to Consolidated Financial Statements.
21
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
June 30,
---------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
REVENUE:
Revenue from Operations $ 25,501,806 $ 4,588,592 $ 0
Other Income 78,163 209,939 337,334
Interest Income 475,622 122,560 109,254
-------------- -------------- --------------
TOTAL REVENUES 26,055,591 4,921,091 446,588
-------------- -------------- --------------
EXPENSES:
Cost of Revenues:
Operating Expenses 17,734,777 3,273,163 0
Depreciation & Amortization 139,294 42,097 0
General & Administrative Expenses - Palm Beach Princess 2,666,666 452,450 0
General & Administrative Expenses - Parent 2,152,414 3,057,176 2,644,384
Development Costs 933,814 0 0
El Rancho Property Carrying Costs 0 0 1,011,634
Interest and Financing Expenses 306,773 498,347 3,771,401
-------------- --------------- --------------
TOTAL EXPENSES 23,933,738 7,323,233 7,427,419
-------------- --------------- --------------
INCOME (LOSS) BEFORE TAX PROVISION 2,121,853 (2,402,142) (6,980,831)
State Income Tax Expense 139,250 0 0
-------------- --------------- --------------
NET INCOME (LOSS) $ 1,982,603 $ (2,402,142) $ (6,980,831)
============== =============== ==============
NET BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE $ 0.17 $ (0.24) $ (0.78)
============== =============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,480,272 9,987,114 8,980,244
============== =============== ==============
See Notes to Consolidated Financial Statements.
22
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
Preferred Common
--------------------- ------------------------
Number of Number of
Shares Amount Shares Amount
--------- ---------- ------------ ----------
BALANCE - JUNE 30, 1999 362,482 $ 36,248,175 11,884,249 $ 23,768,497
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected on March 13, 1992 2 200 21 42
Amortization of Deferred Compensation Costs --- --- --- ---
Net (Loss) for the Year Ended June 30, 2000 --- --- --- ---
--------- ---------- ------------ ----------
BALANCE - JUNE 30, 2000 362,484 $ 36,248,375 11,884,270 $ 23,768,539
Treasury Shares Retired --- --- (2,904,016) (5,808,032)
Shares Issued for Compensation --- --- 2,500,000 5,000,000
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected on March 13, 1992 3 300 13 26
Amortization of Deferred Compensation Costs --- --- --- ---
Net (Loss) for the Year Ended June 30, 2001 --- --- --- ---
--------- ---------- ------------ ----------
BALANCE - JUNE 30, 2001 362,487 $ 36,248,675 11,480,267 $ 22,960,533
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected on March 13, 1992 1 100 8 16
Amortization of Deferred Compensation Costs --- --- --- ---
Net Income for the Year Ended June 30, 2002 --- --- --- ---
--------- ---------- ------------ ----------
BALANCE - JUNE 30, 2002 362,488 $ 36,248,775 11,480,275 $ 22,960,549
========= ========== ============ ==========
Capital Deferred
in Excess Compen-
of Par (Deficit) sation Total
----------- ------------ ---------- ------------
BALANCE - JUNE 30, 1999 $ 26,144,782 $ (38,023,064) $ (7,260,040) $ (31,667)
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected on March 13, 1992 (242) --- --- ---
Amortization of Deferred Compensation Costs --- --- --- 5,000
Net (Loss) for the Year Ended June 30, 2000 --- (6,980,831) --- ---
----------- ------------ ---------- ------------
BALANCE - JUNE 30, 2000 $ 26,144,540 $ (45,003,895) $ (7,260,040) $ (26,667)
Treasury Shares Retired (1,452,008) --- 7,260,040 ---
Shares Issued for Compensation (4,500,000) --- --- ---
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected on March 13, 1992 (326) --- --- ---
Amortization of Deferred Compensation Costs --- --- --- 5,000
Net (Loss) for the Year Ended June 30, 2001 --- (2,402,142) --- ---
----------- ------------ ---------- ------------
BALANCE - JUNE 30, 2001 $ 20,192,206 $ (47,406,038) $ (21,667) $ 31,973,709
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected on March 13, 1992 (116) --- --- ---
Amortization of Deferred Compensation Costs --- --- 5,000 5,000
Net Income for the Year Ended June 30, 2002 --- 1,982,603 --- 1,982,603
----------- ------------ ---------- ------------
BALANCE - JUNE 30, 2002 $ 20,192,090 $ (45,423,435) $ (16,667) $ 33,961,312
=========== ============ ========== ============
See Notes to Consolidated Financial Statements.
23
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
June 30,
---------------------------------------------
2002 2001 2000
----------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ 1,982,603 $ (2,402,142) $ (6,980,831)
------------ ------------- -------------
Adjustments to reconcile income (loss) to net cash provided
by (used in) operating activities:
Depreciation and Amortization 144,294 47,097 62,737
(Gain) on Sale of Fixed Assets (77,577) (81,733) (31,400)
Compensation for Common Shares Issued 500,000 0
Changes in Operating Assets and Liabilities -
Decrease in Restricted Cash & Investments 0 1,656,743 (1,656,740)
Decrease in Accounts Receivable 805,703 (415,731) (192,880)
(Increase) Decrease in Other Assets (304,316) (720,559) 37,049
Decrease in Prepaid Expenses 171,409 750,273 (13,139)
Increase (Decrease) in Accounts Payable and Accrued Expenses (151,167) 2,876,062 (523,725)
------------ ------------- -------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES BEFORE
DISCONTINUED OPERATIONS 2,570,950 2,210,010 (9,298,929)
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATING ACTIVITIES 0 (1,011,785) 1,369,362
------------ ------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,570,950 1,198,225 (7,929,567)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits on Purchase of Palm Beach Princess Mortgage (2,750,000) (750,000) 0
Proceeds from Auction of Garden State Park Fixed Assets 1,216,481 0 0
Proceeds from Sale of El Rancho 0 0 22,304,540
Capital Expenditures (480,615) 0 (2,456)
Loans made on Development Projects (922,751) (2,095,105) 0
(Increase)Decrease in Other Investment Activity (108,040) (17,983) 96,968
------------ ------------- -------------
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
BEFORE DISCONTINUED INVESTING ACTIVITIES (3,044,925) (2,863,088) 22,399,052
CASH PROVIDED BY (USED IN) DISCONTINUED INVESTING ACTIVITIES 0 20,000,000 (131,110)
------------ ------------- -------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,044,925) 17,136,912 22,267,942
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-Term Loans 0 1,650,000 0
Escrow Deposits Utilized 0 0 502,154
Deposit to Escrow Funds 0 0 (320,000)
Principal Payments on Short Term Notes (100,000) (17,654,555) 3,473,637
Decrease in Balances Due to/From Subsidiaries 9,298 17,747,801 (17,842,995)
------------ ------------- -------------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
BEFORE DISCONTINUED FINANCING ACTIVITIES (90,702) 1,743,246 (14,187,204)
CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES (9,298) (19,005,177) (1,947,636)
------------ ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (100,000) (17,261,931) (16,134,840)
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (573,975) 1,073,206 (1,796,465)
LESS CASH AND CASH EQUIVALENTS FROM
DISCONTINUED OPERATIONS 9,298 16,962 709,384
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
BEFORE DISCONTINUED OPERATIONS 1,361,287 271,119 1,358,200
------------ ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 796,610 $ 1,361,287 $ 271,119
============ ============= =============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 13,200 $ 109,681 $ 1,306,950
Income Taxes $ 0 $ 0 $ 19,699
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During the year ended June 30, 2002, a non-cash transaction reduced a
long-term note payable and a long-term note receivable by $350,000.
See Notes to Consolidated Financial Statements.
24
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
assuming International Thoroughbred Breeders, Inc. and subsidiaries
(collectively, the "Company") will continue as a going concern. As described in
Note 10 below we entered into a Master Settlement Agreement to purchase from the
Chapter 11 Trustee for the Bankruptcy Estate of Robert E. Brennan the promissory
note of MJQ Corporation for $13.75 million. Should the Company not be able to
obtain the financing necessary to make the balloon payment scheduled for October
31, 2002 in the amount of $9.75 million, it may lose its only operating business
and source of revenues and will forfeit the $4 million in deposit payments. To
date the Company has not been able to obtain such financing.
On October 25, 2002 the Company received a Letter of Interest for a
proposed $8 million financing, subject to additional due diligence. Principal
and interest of 7% per annum would be due monthly, based on a 5 year
amortization, with a balloon payment due 3 years from closing. Additionally the
bank would take a subordinated position of $7 million in our $10 million note
due from the sale of our Garden State Park property. It is the Company's intent
to borrow an additional $2 million on this note to satisfy the entire payment of
$9.75 million due to the Trustee for the purchase of the Ship Mortgage and to
complete the purchase of 1,785,000 Company shares from the Trustee for $892,500.
Additionally, at this time we are negotiating with the Trustee to extend the
closing date under the Purchase and Sale Agreement from October 31, 2002 until
December 31, 2002. There can be no assurances that the proposed loans will be
received, or that we will be successful in our negotiations with the Trustee.
Other possible sources of cash include the promissory note we received when
we sold our Las Vegas real property in May 2000 in the amount of $23 million. We
may attempt to borrow on this Note but such borrowing is expected to be
difficult to obtain as the timing and amounts of payments under the Note remains
unpredictable.
The Company has sustained losses totaling approximately $9.4 million during
fiscal 2001 and 2000 and has been in a negative working capital position at the
end of each of the past three years. The Company currently estimates that
approximately $200,000 per month is needed to cover operating expenses of
International Thoroughbred Breeders. Should the Company lose the Palm Beach
Princess, its only operating business, the Company will need to seek additional
short term loans or collect on its various receivables to fund its current
payables and future operations.
The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
(A) Nature of Operations - We are currently engaged in an entertainment
cruise and casino ship business under a bareboat charter of the vessel M/V Palm
Beach Princess (the "Palm Beach Princess"). The Palm Beach Princess performs
fourteen cruises weekly, that is, a daytime and an evening cruise each day. Each
cruise is of five to six hours duration. During each cruise, the Palm Beach
Princess offers a range of amenities and services to her passengers, including a
full casino, sit-down buffet dining, live musical shows, discotheque, bars and
lounges, swimming pool and sundecks. The casino occupies 15,000 square feet
aboard the ship and is equipped with approximately 400 slot machines, all major
table games (blackjack, dice roulette and poker), and a sports wagering book.
(B) Principles of Consolidation - The accounts of all subsidiaries are
included in the consolidated financial statements. All significant intercompany
account and transactions have been eliminated in consolidation.
(C) Classifications - Certain prior years' amounts have been reclassified
to conform with the current years' presentation.
25
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) Depreciation and Amortization - Depreciation of property and equipment
were computed by the straight-line method at rates adequate to allocate their
cost or adjusted fair value in accordance with generally accepted accounting
principles over the estimated remaining useful lives of the respective assets.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Asset and for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill relate to those assets to be held and used
for long-lived assets and certain identifiable intangibles to be disposed of.
The Company reviews the carrying values of its long-lived property assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable based on undiscounted
estimated future operating cash flows
(E) Net Assets of Discontinued Operations - At June 30, 2002 an 2001, the
remaining net assets and liabilities of Garden State Park and Freehold Raceway
were classified as "Net Assets of Discontinued Operations."
(F) Recent Accounting Pronouncements - In August 2001, the Financial
Accounting Standards Board issued Statement of Financial Account Standards No.
144, "Accounting for the Impairment of Long-Lived Assets". In April 2002, the
Financial Accounting Standards Board issued Statement of Financial Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". In
July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities". In October 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 147,
"Acquisitions of Certain Financial Institutions".
Presently, the Company does not have any circumstances that would require
the implementation of these standards. Accordingly, the Company believes the
adoption of these statements will have no impact on its financial position or
results of operations.
(G) Revenue Recognition - The Company recognized the revenues associated
with the casino operation on the Palm Beach Princess as they were earned
(H) Income Taxes - The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in its financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based o the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
(I) Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
26
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(J) Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and cash
equivalents. The Company places its cash investments with high credit quality
financial institutions and currently invests primarily in U.S. government
obligations that have maturities of less than 3 months. The amount on deposit in
any one institution that exceeds federally insured limits is subject to credit
risk.
(K) Use Of Estimates - The preparation of financial statements i conformity
with generally accepted accounting principles requires management to make
estimates an assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
(L) Net Income (Loss) per Common Share - In March 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 provides a different method
of calculating earnings per share than was used in APB Opinion 15. SFAS 128
provides for the calculation of basic and diluted earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity.
Income (Loss) per common share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding. Options and
warrants to purchase 4,046,500 shares of Common Stock at various prices per
share, for the year ended June 30, 2002 were not included in the computation of
income per share because the exercise price of those options and warrants were
above market value. Options and warrants to purchase 3,104,000 shares of Common
Stock at various prices per share, for the each of the two years ended June 30,
2001 and 2000, were not included in the computation of loss per share for those
periods as their effect would have been anti-dilutive.
(2) NOTES RECEIVABLE
A portion of the proceeds from the sale of the non-operating former El
Rancho Hotel and Casino in Las Vegas to Turnberry/Las Vegas Boulevard, LLC
("Turnberry") on May 22, 2000 was used by us to purchase a promissory note in
the face amount of $23,000,000. The interest rate under such note will be
adjusted from time to time since the interest actually payable will be dependent
upon, and payable solely out of, the buyer's net cash flow available for
distribution to its equity owners ("Distributable Cash"). After the equity
investors i the buyer have received total distributions equal to their capital
contributions plus an agreed upon return on their invested capital, the next $23
million of Distributable Cash will be paid to us. We will thereafter receive
payments under the note equal to 33 1/3% of all Distributable Cash until the
maturity date, which occurs on the 30th anniversary of our purchase of the note.
We may convert the promissory note, at our option, into a 33 1/3% equity
interest in the buyer during a six month period beginning at the 15th
anniversary of the issuance of the note. If not then converted, the note will
convert into a 33 1/3% equity interest in the buyer at the 30th anniversary of
its issuance.
27
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A portion of the proceeds from the sale on November 30, 2000 of our Garden
State Park property in Cherry Hill, New Jersey, to Realen-Turnberry/Cherry Hill,
LLC ("Realen") was paid in the form of a promissory note in the face amount of
$10 million (the "Note.") Under the Note, the interest rate will be adjusted
from time to time since the interest actually payable will be dependent upon,
and payable solely out of, the buyer's net cash flow available for distribution
to its equity owners ("Distributable Cash"). After the buyer's equity investors
have received aggregate distributions equal to their capital contributions plus
an agreed upon return on their invested capital, the next $10 million of
Distributable Cash will be paid to us. We will thereafter receive payments under
the Note equal to 33 1/3% of all Distributable Cash until the maturity date,
which occurs on the 15th anniversary of the issuance of the Note. We may convert
the promissory note, at our option, into a 33 1/3% equity interest in Realen
during the six month period prior to the 15th anniversary of the issuance of the
Note. If not then converted, the Note will be payable at maturity on said 15th
anniversary in an amount equal to (i) the difference, if any, between $10
million and total payments previously made to us under the Note and (ii 33 1/3%
of any excess of the fair market value of Realen's assets over the sum of its
liabilities (other than the Note) and any unreturned equity investment of its
owners.
In addition, we sold two large bronze sculptures located at the Garden
State Park property to Realen, in exchange for Realen's promissory note due
November 30, 2002, in the principal amount of $700,000. The Chapter 11 Trustee
for the Bankruptcy Estate o Robert E. Brennan claimed ownership of those
sculptures, and we settled the resulting litigation over the sculptures by
agreeing that the first $350,000 in principal payments made by Realen under such
note would be remitted to the Brennan Bankruptcy Trustee (together with one-half
o the interest paid by Realen under such note). The remaining $350,000 of the
$700,000 note i classified in other current assets on our balance sheet as of
June 30, 2002. As part of the settlement of the sculpture litigation, the party
who sold us the sculptures, agreed to reduce the amount of our obligation for
payment of the balance of the sculpture price (described in Note 8(A) below) by
the same principal amount, $350,000, given up by us to the Trustee.
28
(3) DEPOSITS AND OTHER ASSETS
The following items are classified as deposits and other assets (See Note
15 - Related Party Transactions):
June 30,
------------------------
2002 2001
------------------------
Loans to the Ft Lauderdale Project $ 2,526,074 $ 1,728,000
Loans to the Golf Course Project in California 911,169 351,500
Loans to the South American Gaming Projects 349,472 -0-
Deposits on Port Lease 75,000 -0-
Accounts Receivable from MJQ Corporation 521,583 -0-
Accounts Receivable from Frank Leo 13,804 -0-
Accounts Receivable from Francis W Murray 19,236 -0-
Note Receivable from Realen-Turnberry/Cherry Hill, LLC -0- 700,000
Other Misc. Assets 25,252 36,760
Assets Assigned from Leo Equity Group, Inc. (See Note 15):
Note Receivable from Michael J Quigley III* 2,600,749 -0-
Accounts Receivable from MJQ Corp 21,000 -0-
Accounts Receivable from Ft Lauderdale Project 8,000 -0-
Loans to Francis W Murray 93,000 -0-
Accounts Receivable from GMO Travel 113,500 -0-
------------------------
Total Deposits and Other Assets $ 7,277,839 $ 2,816,260
========================
* The note receivable from Michael J. Quigley III is non-recourse except to his
stock in MJQ Corporation. If the Company consummates its purchase of stock in
MJQ Corporation from Mr. Quigley, the Company will assume that debt of Mr.
Quigley and accordingly would not receive cash in payment of this receivable.
(4) DISCONTINUED OPERATIONS
On January 28, 1999, we completed the sale of the real property and certain
related assets at Freehold Raceway and a ten-acre parcel of land at the Garden
State Park facility. On November 30, 2000, the Company, through its wholly-owned
subsidiary, GSRT, LLC, closed on the sale (the "Garden State Transaction") of
the Garden State Park property (the "Garden State Park Property") in Cherry
Hill, New Jersey, to Realen-Turnberry/Cherry Hill, LLC ("Realen"). The purchase
price was $30 million and was paid by: (i) previous cash deposits totaling a
$1,000,000; (ii) a promissory note in the face amount of $10 million (the
"Note"); and (iii) the balance of the
29
purchase price paid in cash at the closing (See Note 1). The Company has elected
to defer the gain on the sale until such time that collectability under the
$10,000,000 note from Realen can be determined.
The cash proceeds of the Garden State Transaction were principally used by
the Company to repay in full the outstanding balances on the Company's debt to
Credit Suisse First Boston Mortgage Capital LLC ("Credit Suisse") of
approximately $14.3 million and to repay in full approximately $3.75 million of
principal and interest on the debt to the Chapter 11 Bankruptcy Trustee for the
estate of Robert E. Brennan which was incurred to purchase 2,904,016 shares of
the Company's Common Stock.
In June 2001, the Company conducted a five-day public auction of the
equipment, furnishings and artwork that were not included in the sale of the
Garden State Park to Realen. Net proceeds after commission of the Garden State
Park equipment, furnishings and artwork were in the amount of $1,110,113 which
are classified as accounts receivable at June 30, 2001. Proceeds from the sale
were received in September 2001.
The net assets of the operations to be disposed of included in the
accompanying consolidated balance sheets as of June 30, 2002 and 2001 consist of
the following:
June 30,
-----------------------
Classified As: 2002 2001
---- ----
Current Assets $ 415,166 $ 1,542,100
Current Liabilities (291,597) (534,702)
Deferred Income -0- -0-
---------- ------------
Net Assets of Discontinued Operations - Current 123,569 1,007,398
Net Liabilities of Discontinued Operations - Current -0- -0-
Property Assets of Garden State Park -0- -0-
Note Receivable of Discontinued Operations - Long-Term -0- 10,000,000
---------- ------------
Net Assets of Discontinued Operations $ 123,569 $ 11,007,398
========== ============
On February 20, 2002, all rights, title and interest in and to the note
receivable in connection with the sale of the Garden State Park property in the
amount of $10,000,000 was transferred to the parent company, International
Thoroughbred Breeders, Inc. as a result of which such note receivable is no
longer classified as part of the net assets of discontinued operations. (See
Notes 2 & 10)
30
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flows from discontinued operations for the years ended June 30, 2002,
2001 and 2000 consist of the following:
June 30,
-------------------------------------
2002 2001 2000
--------- -------------- ----------
Cash Flows From Discontinued Operating Activities:
Income $ -0- $ -0- $ -0-
--------- -------------- ----------
Adjustments to reconcile income to net cash provided
by discontinued operating activities
Changes in Operating Assets and Liabilities of
Discontinued Operations:
Decrease in Restricted Cash and Investments -0- -0- (8,241)
Decrease (Increase) in Accounts Receivable -0- (1,030,285) 772,445
Decrease in Prepaid Expenses -0- -0- 10,304
Increase (Decrease) in Accounts and Purses
Payable and Accrued Expenses -0- 1,000 (405,145)
Increase in Deferred Revenue -0- 17,500 1,000,000
--------- -------------- ----------
Net Cash Provided by Discontinued Operating Activities -0- (1,011,785) 1,369,362
--------- -------------- ----------
Cash Flows From Discontinued Investing Activities:
Proceeds from Sale of Garden State Park -0- 20,000,000 -0-
(Increase) in Other Investments -0- -0- (131,110)
--------- -------------- ----------
Net Cash (Used In) Provided by Discontinued Investing
Activities -0- 20,000,000 (131,110)
--------- -------------- ----------
Cash Flows from Discontinued Financing Activities:
Principal Payments on Short Term Notes -0- -0- (82,789)
(Decrease) in Balances Due To/From Continuing Operations (9,298) (19,005,177) (1,864,847)
--------- -------------- ----------
Net Cash (Used In) Discontinued Financing Activities (9,298) (19,005,177) (1,947,636)
--------- -------------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents From
Discontinued Operations (9,298) (16,962) (709,384)
Cash and Cash Equivalents at Beginning of Year From
Discontinued Operations 11,825 28,787 738,168
--------- -------------- ----------
Cash and Cash Equivalents at End of Year From
Discontinued Operations $ 2,527 $ 11,825 $ 28,787
========= ============== ==========
31
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) ACQUISITIONS AND DISPOSITIONS
o Fiscal 2002
On July 18, 2001, we sold our condominium unit and an ownership interest in
the Ocala Jockey Club that was located in Reddick, Florida. The sales price was
$94,000 and the proceeds after closing fees and other expenses were $81,645. A
gain of $77,577 was recognized during the first quarter of Fiscal 2002.
o Fiscal 2001
On November 30, 2000, the Company, through its wholly-owned subsidiary,
GSRT, LLC, closed on the sale of the Garden State Park property in Cherry Hill,
New Jersey, to Realen- Turnberry/Cherry Hill, LLC ("Realen"). (See Note 2.)
In June 2001, the Company conducted a five-day public auction of the
equipment, furnishings and artwork that were excluded in the sale of the Garden
State Park to Realen.
o Fiscal 2000
On May 22, 2000, the Company, through its wholly-owned subsidiary, Orion
Casino Corporation, closed on the sale of the non-operating former El Rancho
Hotel and Casino in Las Vegas, Nevada, to Turnberry/Las Vegas Boulevard, LLC.
The sales price was $45 million and was paid by: (i) previous cash deposits
totaling $2,000,000; and (ii) the balance of the purchase price paid in cash at
the closing.(See Note 2.)
(6) INVESTMENTS
Interest income for the fiscal years ended June 30, 2002, 2001, and 2000
was $475,622, $122,560, and $109,254, respectively. There were no realized gains
or losses resulting from the sale of trading securities for fiscals 2002, 2001
and 2000.
(7) LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment are recorded at cost. Depreciation is being
computed over the estimated remaining useful lives using the straight-line
method.
32
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Major classes of land, buildings and equipment consist of the following:
June 30,
Estimated Useful--------------------------------
Lives in Years 2002 2001
- ----------------------------- ------------- --------------------------------
Buildings and Improvements 15-40 $ -0- $ 214,097
Equipment and Artwork 5-15 723,420 289,426
------------- -----------
Totals 723,420 503,523
Less Accumulated Depreciation
and Amortization 113,061 285,004
------------- -----------
$ 610,359 $ 218,519
============ ===========
(8) NOTES AND MORTGAGES PAYABLE
Notes and Mortgages Payable are summarized below:
June 30, 2002 June 30, 2001
Interest % --------------------- ------------------------
Per Annum Current Long-Term Current Long-Term
--------- ------- --------- ------- ---------
International Thoroughbred
Breeders, Inc.:
- --------------------------
MCJEM, INC. (A) 15% 132,000 -0- -0- 482,000
Michael J. Quigley, III (B) 10% 900,000 -0- 1,000,000 -0-
Other Various 30,280 -0- -0- -0-
Garden State Park:
- --------------------------
Service America Corporation (C) 6% 160,000 -0- 240,000 -0-
----------- ----- ------------ -----------
Totals $ 1,222,280 $ -0- $ 1,240,000 $ 482,000
Net Assets of Discontinued
Operations - Long Term -0- -0- -0- -0-
Net Liabilities of Discontinued
Operations - Long Term (160,000) -0- (240,000) -0-
----------- ----- ------------ -----------
Totals $ 1,062,280 $ -0- $ 1,000,000 $ 482,000
=========== ===== ============ ===========
There was no short term borrowings outstanding as of June 30, 2002.
(A) On February 24, 2000, the Company sold several pieces of artwork to
Robert E. Brennan Jr., son of the Company's former Chairman and Chief Executive
Officer. The $218,000 sales price of the artwork was in excess of the original
cost of $186,600. The Company recorded a $31,400 gain on the sale in Fiscal
2000. In addition, the Company purchased two large bronze sculptures located on
the Garden State Park property that were previously on loan to the Company from
Mr. Brennan Jr. The purchase price of the sculptures was $700,000 In connection
with the
33
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transaction, the Company signed a $482,000 promissory note with Mr. Brennan Jr.
which represented the purchase price of the sculptures less the sales price o
the artwork sold to Mr. Brennan Jr. On July 27, 2000 the Company received a
notice from the Chapter 11 Trustee for the bankruptcy estate of Robert E.
Brennan (the "Chapter 11 Trustee") asserting certain ownership rights in a
number of items on loan to the Company, including the sculptures mentioned
above. After the Chapter 11 Trustee claimed ownership of the sculptures, an
arrangement was agreed to between the Company and the Chapter 11 Trustee
pursuant to which the Company was permitted to resell the sculptures to Realen
in May 2001, free and clear of any claim by the Chapter 11 Trustee, in exchange
for a $700,000 promissory note of Realen due November 30, 2002 (the "Realen
Sculpture Note"). Pursuant to the agreement between the Company and the Chapter
11 Trustee, payments by Realen under the Realen Sculpture Note were to be held
in escrow pending determination of the Chapter 11 Trustee's claims. On December
29, 2000 the Chapter 11 Trustee instituted suit against the Company seeking the
right to all payments and proceeds of the Realen Sculpture Note. After the end
of the fiscal year, in September 2001, a settlement agreement was entered into
among the Company, Robert E. Brennan, Jr., the Chapter 11 Trustee and others
pursuant to which, among other things, the litigation by the Chapter 11 Trustee
against the Company was dismissed with prejudice and the first $350,000 of
principal plus one-half of the interest received under the $700,000 Realen
Sculpture Note will be paid to the Chapter 11 Trustee. The balance (up to
$350,000 in principal plus one-half of the interest) will be paid to the
Company. As a result of this settlement, the Company and Mr. Brennan Jr. agreed
that (i) all claims of the Company against Mr. Brennan Jr. arising out of his
sale of the sculptures to the Company will be released and (ii) the promissory
note issued by the Company to Mr. Brennan Jr. will be amended (x) to reduce the
principal amount of such promissory note from $482,00 to $132,000, with interest
on that sum at the rate of 15% annum to accrue from November 30, 2001 only if
the principal of such note is not paid in full by December 10, 2001, (y) to make
such promissory note due and payable on November 30, 2002, and (z) to permit the
Company to defer payment of the promissory note to such later date as the
Company shall have received payment in full of the Realen Sculpture Note. The
effect of the aforesaid settlement is therefore that the Company's loss of the
amount to be paid under the settlement agreement to the Chapter 11 Trustee will
be borne by Brennan Jr. by reduction to the Company's promissory note payable to
him.
(B) On January 26, 2001, we borrowed $1,000,000 from Michael J. Quigley,
III at an annual interest rate of 10%. Principal and interest on the note was
due on or about April 25, 2001. On May 14, 2001, the loan was modified to be due
on demand. As collateral for the loan, we pledged the $10 million Realen Note
and the $23 million note issued to us by Turnberry (the "Turnberry Note"). On
February 20, 2002 Mr. Quigley released his security interest in the Realen Note
in connection with the Master Settlement Agreement with, among other parties,
Donald F. Conway, the Chapter 11 Trustee for the Bankruptcy Estate of Robert E.
Brennan (the "Trustee"). (See Note 10.)
(C) In connection with the January 28, 1999 lease transactions for the
Garden State Park facility, the Company purchased equipment located at Garden
State Park and a liquor license owned by an unaffiliated third party, Service
America Corporation (the "Holder ), for $500,000 financed by a five (5) year
promissory note at a 6% interest rate. Yearly principal payments of $80,000 plus
interest are due on December 28, 2002 and December 28, 2003.
34
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INCOME TAX EXPENSE
In the event the Company incurs income taxes in the future, any future
income tax benefits resulting from the utilization of net operating losses and
other carryforwards existing at June 30, 1993 to the extent resulting from a
quasi-reorganization of the Company assets effective June 30, 1993, including
those assets associated with the possible sale of the Garden State Property,
will be excluded from the results of operations and credited to paid in capital
The Company's income tax expense for the year ended June 30, 2002 relates
to state income taxes for its Palm Beach Princess operations.
The Company has net operating loss carryforwards aggregating approximately
$171,700,000 at June 30, 2002 expiring in the years June 30, 2003 through June
30, 2022. SFAS No. 109 requires the establishment of a deferred tax asset for
all deductible temporary differences and operating loss carryforwards. Because
of the uncertainty that the Company will generate income in the future
sufficient to fully or partially utilize these carryforwards, however, the
deferred tax asset of approximately $90,000,000 is offset by a valuation
allowance o the same amount. Accordingly, no deferred tax asset is reflected in
these financial statements.
Certain amounts of the net operating loss carryforward may be limited due
to possible changes in the Company's stock ownership. In addition, the sale of
Common Stock by the Company to raise additional operating funds, if necessary,
could limit the utilization of the otherwise available net operating loss
carryforwards. The grant and/or exercise of stock options by others would also
impact the number of shares which could be sold by the Company or by significant
stockholders without affecting the net operating loss carryforwards.
The Company has the following carryforwards to offset future taxable income at
June 30, 2002:
Net Operating Loss Year End
Carryforwards Expiration Dates
------------- ----------------
$ 26,400,000 6/30/2003
19,900,000 6/30/2004
15,600,000 6/30/2005
11,800,000 6/30/2006
98,000,000 6/30/2007
through 6/30/2022
-----------
$171,700,000
===========
35
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENCIES
See Note 15 for additional commitments and contingencies of the Company and
transactions with related parties.
Effective December 1, 2000, we entered into a five-year employment contract
with Francis W. Murray, our Chief Executive Officer. The contract provides for
annual compensation of $395,000, a $1,500 monthly automobile expense allowance,
a country club annual dues allowance and travel and entertainment reimbursements
for business expenses reasonably incurred by him in addition to participation in
various other benefits provided to our employees. As part of his employment
contract, Mr. Murray was awarded options to purchase 2,000,000 shares of our
Common Stock.
We are responsible for remediation costs associated with an environmental
site on the Freehold Raceway property. We have accrued what we believe to be the
total cost of remediation. At June 30, 2002, the remaining balance of such
accrual was $130,398 for remediation costs. These accrued costs are expected to
be incurred during the next twenty months.
In connection with the January 28, 1999 lease transactions for the Garden
State Park facility, we purchased a liquor license owned by an unaffiliated
third party, Service America Corporation, for $500,000 financed by a five (5)
year promissory note at a 6% interest rate. At June 30, 2002, the unpaid
principal balance was $160,000. Yearly principal payments of $80,000 plus
interest are due on December 28, 2002 and December 28, 2003.
Effective February 20, 2002, we entered into a Master Settlement Agreement
with the Chapter 11 Trustee (the "Trustee") for the Bankruptcy Estate of Robert
E. Brennan and a related Stock Purchase Agreement, and, through our Palm Beach
Princess, Inc. subsidiary, a Purchase and Sale Agreement, described below. These
agreements followed many months of negotiation with the Trustee of the details
of the transactions outlined in the letter of intent that had been signed by the
parties effective April 30, 2001. It was on the basis of the letter of intent,
initially, and then the Master Settlement Agreement that we have been operating
the vessel M/V Palm Beach Princess and conducting a casino cruise business since
April 30, 2001.
As permitted by the Master Settlement Agreement with the Trustee, we have
entered into a bareboat charter with MJQ Corporation, pursuant to which we have
chartered the vessel M/V Palm Beach Princess for the purpose of operating a
casino cruise business from the Port of Palm Beach, Florida. Under the bareboat
charter agreement, we are obligated to pay $50,000 per month as a charter hire
fee to the vessel's owner, MJQ Corporation. Other parties to the Master
Settlement Agreement include MJQ Corporation, Leo Equity Group, Inc. and Francis
W. Murray, our Chairman, who is also a director and officer of MJQ Corporation
and a director of Leo Equity Group, Inc. (See Note 15, Related Party
Transactions.)
In accordance with the Master Settlement Agreement, through our Palm Beach
Princess, Inc. subsidiary we entered into a Purchase and Sale Agreement which
provides for our purchase from the Trustee of the promissory note of MJQ
Corporation, having an outstanding balance of principal and interest of
approximately $15.7 million as of June 30, 2002 and secured by a ship mortgage
against the M/V Palm Beach Princess (the "Ship Mortgage Obligation"). The
purchase price payable by us for the Ship Mortgage Obligation is $13.75 million.
We began making payments on account of such purchase price effective April 30,
2001, in monthly installments of $250,000. Such monthly installments continued
under the terms of the Purchase and Sale Agreement through July 31, 2002, at
which time a $9.75 million balloon payment was to be due. However, before July
31, 2002, we exercised our right to extend the time for payment of
36
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the balance of the purchase price for up to three (3) additional months to
October 31,2002, by paying $70,000 for the first one month extension, an
additional $80,000 for the second month extension and an additional $100,000 for
the third month extension , which additional payments will not be credited
towards the purchase price. In the event that the balloon payment is not made
when due on October 31, 2002 (or any other default on our part occurs which is
not cured within the applicable grace period), at the election of the Trustee
all of our monthly $250,000 payments (which would total $4.0 million) would be
forfeited as liquidated damages and the Trustee would have the right to take
possession and control of the vessel M/V Palm Beach Princess, but we would not
have any further liability for an unpaid balance of the purchase price of the
Ship Mortgage Obligation. The Trustee would also have the right to take over
operating assets used in connection with the vessel, including the onboard cash
bank, inventories, supplies and equipment, and the Trustee would assume current
liabilities including trade debt and payroll. In the event the current assets so
acquired by the Trustee are less than the amount of the current liabilities so
assumed by the Trustee, we would be liable to the Trustee for such deficiency.
The second agreement which we entered into with the Trustee pursuant to the
Master Settlement Agreement is a Stock Purchase Agreement. Under this Agreement,
which superseded all prior agreements and understandings between us and the
Trustee for the purchase of our common stock held or claimed by the Trustee, we
agreed to purchase up to approximately 2,235,000 shares of our common stock at a
purchase price of $0.50 per share on July 1, 2002. We desired to purchase these
shares in order to preserve our net operating loss carryforwards which otherwise
may be lost if the shares are transferred. As collateral security for our
payment of the purchase price for these shares, we have granted to the Trustee a
security interest in all proceeds of (including all payments that might be made
in the future under) the $10 million Realen Note, described in Note 2 above (in
connection with which Michael J. Quigley, III released his prior security
interest in the Realen Note).
We did not pay the purchase price under the Stock Purchase Agreement on
July 1, 2002 (which price, at that date, was $892,500 for 1,785,000 shares). The
Trustee has issued a default notice to us and we are negotiating an amendment
with the Trustee which would extend the time of payment.
Through a subsidiary, we have negotiated with the Port of Palm Beach
District a new operating agreement and lease of space in a new office complex
constructed at the Port of Palm Beach adjacent to a new cruise terminal. We are
required to make tenant improvements to the new space, estimated to cost
approximately $600,000, construction of which was to have commenced by July 30,
2002. While we have obtained a commitment for the construction financing, we had
not begun construction by July 30, 2002 and received a notice from the Port's
attorney asserting that we may be in default in that regard. We intend to
proceed with construction of the required improvements to the leased space in
due course and expect to be able to cure the potential default.
In other transactions related to our acquisition of the Ship Mortgage
Obligation, we entered into an agreement to purchase the outstanding shares of
stock in Leo Equity Group, Inc., and another agreement to purchase the
outstanding shares in MJQ Corporation, in order to acquire control of the Palm
Beach Princess business on a long-term basis. Leo Equity Group, Inc. owned the
agreement with the Port of Palm Beach under which the Palm Beach Princess vessel
has been operating, an by our agreement to purchase the stock in Leo Equity
Group, Inc., the shareholder of Leo Equity Group, Inc. has permitted us to
negotiate a new long-term agreement with the Port which would replace Leo Equity
Group's agreement with the Port. Further, the term of our bareboat charter of
the vessel from MJQ Corporation was scheduled to expire on July 31, 2002.
Therefore, by agreeing to contract for the purchase of the shares of Leo Equity
Group, Inc. and
37
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MJQ Corporation, we are in a position to control both the rights to the Port
agreement and the ownership of the vessel itself (subject to the rights of the
Trustee to take over such assets if we fail to pay the balance of the purchase
price for the Ship Mortgage Obligation when due). Also in connection with the
purchase of MJQ Corporation, we would be assuming all the executory contracts of
MJQ Corporation which includes employment and operation contracts of the Palm
Beach Princess vessel.
The purchase price we have agreed to pay for the stock in Leo Equity Group,
Inc. is $250,000, payable in ten consecutive monthly installments of $25,000
each, without interest. As further consideration, we also agreed to reduce the
exercise price of Seller's previously granted options to purchase 200,000 shares
of our common stock, to $0.50 per share. In consideration of the sale to us of
the stock in MJQ Corporation, we agreed to assume $3.7 million of indebtedness
owing by MJQ Corporation's sole stockholder, of which $1.1 million is owing to
Francis W. Murray, our Chairman, and $2.6 million is owing to Leo Equity Group,
Inc. Leo Equity Group, Inc. agreed to assign its rights to such $2.6 million
receivable as described in Note 15, Related Party Transactions, and therefore
our assumption of the foregoing indebtedness to Leo Equity Group, Inc. will not
entail any cash payment. Mr. Murray has indicated that he would be willing to
defer payment of all or a portion of the assumed indebtedness owing to him.
Terms for the satisfaction of such indebtedness have not yet been worked out
between us and Mr. Murray. See Note 15 below, Related Party Transactions.
In addition to the commitments described above, we are in the process of
negotiating other potential acquisitions of gaming related businesses in foreign
countries. While we explore each business opportunity, including performance of
due diligence, and pending negotiation of definitive agreements, we have lent
approximately $600,000 to persons and entities having rights to certain of these
gaming opportunities. If such acquisitions are concluded, the businesses in
foreign countries would involve a significant additional investment and would
entail substantial risks (including political risks). There can be no assurance
that definitive agreements will be concluded or that we would be able to obtain
necessary funds to proceed, and there is no assurance that we will be able to
recover our loans should we not proceed.
On October 25, 2002 the Company received a Letter of Interest for a
proposed $8 million financing, subject to additional due diligence. Principal
and interest of 7% per annum would be due monthly, based on a 5 year
amortization, with a balloon payment due 3 years from closing. Additionally the
bank would take a subordinated position of $7 million in our $10 million note
due from the sale of our Garden State Park property. It is the Company's intent
to borrow an additional $2 million on this note to satisfy the entire payment of
$9.75 million due to the Trustee for the purchase of the Ship Mortgage and to
complete the purchase of 1,785,000 Company shares from the Trustee for $892,500.
Additionally, at this time we are negotiating with the Trustee to extend the
closing date under the Purchase and Sale Agreement from October 31, 2002 until
December 31, 2002. There can be no assurances that the proposed loans will be
received, or that we will be successful in our negotiations with the Trustee.
LEGAL PROCEEDINGS
We are a defendant in various lawsuits incidental to the ordinary course of
business. It is not possible to determine with any precision the probable
outcome or the amount of liability, if any, under these lawsuits; however, in
the opinion of the Company and its counsel, the disposition of these lawsuits
will not have a material adverse effect on our financial position, results of
operations, or cash flows.
Commencing in the third quarter of Fiscal 1999, the Company and certain of
its officers and directors and former officers and directors received subpoenas
from the Securities and Exchange Commission (the "SEC") relating to certain
transactions and reports. We have fully cooperated with the SEC's investigation.
On February 13, 2002, as a result of actions brought against the Company and
certain current and former officers by the SEC, settled cease and desist
proceedings were filed against the Company and certain current and former
officers without the parties admitting or denying the allegations which settled
this matter. The Commission found that the parties committed and caused
violations of the reporting, record keeping and internal control provisions of
the Securities Exchange Act of 1934, and the parties without admitting or
denying the Commission's findings, consented to issuance of cease and desist
orders.
38
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2002, in assessing the fair value of financial instruments,
the Company has used a variety of methods and assumptions, which were based on
estimates of market conditions and loan risks existing at that time. For certain
instruments, including cash and cash equivalents, investments, non-trade
accounts receivable and loans, and short-term debt, it was estimated that the
carrying amount approximated fair value for the majority of these instruments
because of their short term maturity. The carrying amounts of long term debt
approximate fair value since the Company's interest rates approximate current
interest rates.
(12) RETIREMENT PLANS
The Company maintains a Retirement Plan under the provisions of section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code") covering
all its non-union full time employees who have completed one year of service.
The Company's basic contribution under the plan is 4% of each covered employee's
compensation for such calendar year. In addition, the Company contributes up to
an additional 50% of the first 4% of compensation contributed by any covered
employee to the plan (an employee's maximum contribution is $11,000 factored for
inflation annually). The Company's expense totaled $40,901, $36,863 and
$1,911(utilizing accumulated forfeitures) for the fiscal years ended June 30,
2002, 2001 and 2000, respectively.
(13) STOCK OPTIONS AND WARRANTS
(A) EMPLOYEE AND NON-EMPLOYEE OPTIONS
On October 16, 2000, the Company awarded options to purchase 6,500 shares
of the Company's Common Stock to various employees as part of annual
compensation. On January 7, 2002, Mr. Francis W. Murray and Mr. William H.
Warner were awarded options to purchase 2,000,000 and 75,000 shares,
respectively, of the Company's Common Stock, expiring December 31, 2010 with an
exercise price of $0.26875 per share. These options replaced options for the
same number of shares which had been granted to them in December, 2000 under an
Incentive Stock Option Plan. Such Incentive Stock Option Plan and the options
granted under it terminated under the Plan's requirement that if approval of
Plan by the Company's common stockholders shall not be obtained within twelve
month from the date the Incentive Plan was adopted by the Board, the Incentive
Plan and all options then outstanding under it automatically will terminate and
be of no force or effect.
The Company's 1994 Employees' Stock Option Plan ("Option Plan"), remains in
effect. The Option Plan was approved by the Company's Board and stockholders in
December 1994, and permits the grant of options to purchase up to 475,000 shares
of Common Stock, at a price per share no less than 100% of the fair market value
of the Common Stock on the date the option is granted. The price would be no
less than 110% of fair market value in the case of an incentive stock option
granted to any individual who owns more than 10% of the Company's outstanding
Common Stock. The Option Plan provides for the granting of both incentive stock
options intended to qualify under section 422 o the Code, and non-qualified
stock options which do not qualify. No option may have a term longer than 10
years (limited to five years in the case of an option granted to a 10% or
greater stockholder of the Company). Options under the Option Plan are
non-transferable except in the event of death and are only exercisable by the
holder while employed by the Company. Unless the Option Plan is terminated
earlier by the Board, the Option Plan will terminate in June 2004. As of June
30, 2002, no options were outstanding under this Option Plan.
39
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to the non-qualified options granted to Messrs. Murray and
Warner described above, the Company has granted non-qualified stock options for
the purchase of Common Stock to employees and directors of the Company that are
not part of the above mentioned Option Plan. These options have been granted
with terms of five and ten years. These options have been granted at prices per
share that have been below, equal to or above the fair market value on the grant
date. At June 30, 2002, total employee options outstanding were 3,111,500 and
total non-employee options outstanding were 225,000.
The following table contains information on stock options for options
granted from the Plan and options granted outside the Plan for the three year
period ended June 30, 2002:
Stock Options
-------------
Exercise Weighted
Number Price Range Average
of Shares Per Share Price
------------- ----------------- --------
Outstanding at June 30, 1999 1,550,000 $ 4.00 - $ 5.875 $ 4.58
Granted 5,000 $ 1.00 $ 1.00
Canceled (200,000) $ 5.875 $ 5.875
------------
Outstanding at June 30, 2000 1,355,000 $ 1.00 - $ 5.00 $ 4.37
Granted 2,081,500 $ 0.269 - $ 1.00 $ 0.283
------------
Outstanding at June 30, 2001 3,436,500 $ 0.269 - $ 5.00 $ 1.89
Canceled (2,175,000) $ 0.269 - $ 5.00 $ 0.489
Granted 2,075,000 $ 0.269 $ 0.269
------------
Outstanding at June 30, 2002 3,336,500 $ 0.269 - $ 5.00 $ 1.800
============
Exercise Weighted
Price Range Average
Option shares Per Share Price
-------------- --------------- --------
Exercisable at June 30:
2000 1,355,000 $ 1.00 - $5.00 $ 4.37
-------------- --------------- ---------
2001 3,436,500 $ 0.269 - $5.00 $ 1.89
-------------- --------------- ---------
2002 3,336,500 $ 0.269 - $5.00 $ 1.800
-------------- --------------- ---------
Options available for future grant
under the Plan at June 30: 1994 Plan
---------------
2000 475,000
2001 475,000
2002 475,000
40
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
June 30, 2002:
Ranges Total
---------------------------------------- --------------
Range of exercise prices $0.20 - 0.30 $1.00 - 4.625 $5.00 $0.20 - 5.00
------------- ------------- ----- -------------
Outstanding options:
- --------------------
Number outstanding at June 30, 2002 2,081,500 955,000 300,000 3,336,500
----------------------------------------- --------------
Weighted average remaining contractual life (years) 8.48 3.97 4.50 6.83
----------------------------------------- --------------
Weighted average exercise price $0.269 $4.132 $5.00 $1.80
----------------------------------------- --------------
Exercisable options:
- --------------------
Number outstanding at June 30, 2001 2,081,500 955,000 300,000 3,336,500
----------------------------------------- --------------
Weighted average exercise price $0.269 $4.132 $5.00 $1.80
----------------------------------------- -------------
Weighted
Number of Average Weighted
Weighted Average Fair Value of Options Granted Shares Exercise Average Fair
- ---------------------------------------------- Price Value
--------------- ------------- ------------
June 30, 2000:
--------------------------------------------
Below Market 5,000 $1.00 $1.00
At Market -- -- --
Above Market -- -- --
---------------
Total 5,000
---------------
June 30, 2001:
--------------------------------------------
Below Market 2,081,500 $0.283 $0.128
At Market -- -- --
Above Market -- -- --
---------------
Total 2,081,500
---------------
June 30, 2002:
--------------------------------------------
Below Market 2,075,000 $0.26875 $0.150
At Market -- -- --
Above Market -- -- --
---------------
Total 2,075,000
---------------
During 1995, the Financial Accounting Standards Board adopted Statemen of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which has recognition provisions that establish a fair value
based method of accounting for stock-based employee compensation plans and
established fair value as the measurement basis for transactions in which an
entity acquires goods or services from non-employees in exchange for equity
instruments.
41
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS 123 also has certain disclosure provisions. Adoption of the recognition
provisions of SFAS 123 with regard to these transactions with non-employees was
required for all such transactions entered into after December 15, 1995, and the
Company adopted these provisions as required. The recognition provision with
regard to the fair value based method of accounting for stock-based employee
compensation plans is optional. Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") uses what is referred to
as a intrinsic value based method of accounting. The Company has decided to
continue to apply APB 25 for its stock-based employee compensation arrangements.
Accordingly, no compensation cost has been recognized. The Company estimates the
fair value of each option and warrant granted on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: a weighted
average risk-free interest rate of 6.3%, a weighted average expected life of 5
years base on Company expectations, and a weighted average expected volatility
of 56.29%.
Had compensation cost for the Company's employee stock option plan been
determined based on the fair value at the grant date for awards under the Plan
consistent with the method of SFAS 123, the Company's net income (loss) and net
income (loss) per share would have been increased to the pro forma amounts
indicated below:
Years Ended June 30,
--------------------
2002 2001 2000
---- ---- ----
Net Income (Loss): As Reported
Income (Loss) Before Discontinued
Operations $ 1,982,603 $ (2,402,142) $ (6,980,831)
----------- ------------- -----------
Net Income (Loss) $ 1,982,603 $ (2,402,142) $ (6,980,831)
----------- ------------- -----------
Pro Forma Net Income (Loss)
Income (Loss) Before Discontinued
Operations $ 1,671,353 $ (2,498,508) $(7,026,581)
----------- ------------- -----------
Net Income (Loss) $ 1,671,353 $ (2,498,508) $(7,026,581)
----------- ------------- -----------
Net Income (Loss) Per Share- Basic
and Diluted: As Reported
Income (Loss) Before Discontinued
Operations $ 0.17 $ (0.24) $ (0.78)
----------- ------------- -----------
Net Income (Loss) $ 0.17 $ (0.24) $ (0.78)
----------- ------------- -----------
Pro Forma Net Income (Loss) Per Share -
Basic and Diluted
Income (Loss) Before Discontinued
Operations $ 0.15 $ (0.25) $ (0.78)
----------- ------------- -----------
Net Income (Loss) $ 0.15 $ (0.25) $ (0.78)
----------- ------------- -----------
42
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) WARRANTS
During the fiscal years ended June 30, 1996, 1997 and 1999, the Company
issued 925,000, 746,847 and 932,153, respectively of warrants to purchase Common
Stock in connection with financing activities. During Fiscal 2002, 1,894,000 of
those warrants expired. All outstanding warrants are exercisable at June 30,
2002. The fair value of warrants issued during the year ended June 30, 1999 were
accounted for as financing expense.
Warrants have been granted to acquire Common Stock at various prices above,
below and at fair market value at the date of grant. The following table
contains information on warrants for the three-year period ended June 30, 2002:
Warrants
--------
Exercise Weighted
Number Price Range Average
Of Shares Per Share Price
--------- --------- -----
Outstanding at June 30,1999, 2,604,000 $2.50 - $5.25 $4.25
2000 and 2001
Expired During Fiscal 2002 (1,894,000) $4.375 - $5.25 $4.68
---------
Outstanding at June 30, 2002 710,000 $2.50 - $4.00 $3.08
=========
(14) DIVIDENDS
The Company is required to pay to the holders of the Company's Series A
Convertible Preferred Stock ("Preferred Stock") a cash dividend from any net
racetrack earnings, as defined, of Garden State Park. No dividends were required
for fiscals 2002, 2001 and 2000. The Preferred Stock has liquidation rights of
$100 per share plus accrued dividends, if any.
(15) RELATED PARTY TRANSACTIONS
During the third quarter of Fiscal 2001, we invested in two projects in
which our Chairman, President and Chief Executive Officer, Francis W. Murray,
also has a pecuniary interest. In connection with one such project, the Board of
Directors approved advances, as loans, of up to $1.5 million, the proceeds of
which were to be used to pay costs and expenses for development of a golf course
in Southern California. A limited partnership, the general partner of which is
owned by Mr. Murray, has acquired an option to purchase certain real estate in
Southern California on which it intends to construct a golf club. The project is
a long-term one, requiring environmental, engineering and other studies,
regulatory approvals, other governmental entitlements and substantial additional
funding. Loans by us to the limited partnership will bear interest at an annual
rate of 12%, and we will have the right to convert our loans into a 50% equity
interest in the limited partnership (which percentage interest would be reduced
if additional investments by others are made in the limited partnership). Mr.
Murray equity interest in the limited partnership, indirectly through his
ownership of the general partner, as of June 30, 2002, is 64%, and will be
reduced proportionally if we exercise our right to convert our loans into
43
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equity. During the year ended June 30, 2002, we loaned an additional $126,039 on
this project. At June 30, 2002, $803,291 has been loaned to such project and we
have accrued $107,878 of interest due on the loan.
In the second project, Mr. Murray is participating in the development of an
oceanfront parcel of land, located in Fort Lauderdale, Florida, which has
received all governmental entitlements from the City of Fort Lauderdale to
develop a 14-story building to include a 5-story parking garage, approximately
6,000 square feet of commercial space and a residential 9-story tower. The
property owner, MJQ Development which is owned by Michael J Quigley, III, is
developing a condominium hotel resort. Mr. Quigley has no relationship to Robert
J. Quigley, one of our directors and former president. During the year ended
June 30, 2002, we loaned an additional $447,241 and we have accrued interest in
the amount of $350,833 for the year ended June 30, 2002 on this project. At June
30, 2002, we have lent $2,175,241 in total to the property owner. These loans
bear interest at 12% and will be repayable out of the first proceeds, after
payment of bank debts, generated by the sale of the condominiums. We will have
the right to convert our loan into an equity interest (subject to receiving
certain third party approvals), which would entitle us to receive a priority
return of our investment and a priority profits interest equal to three times
our investment. Repayment of these loans (and receipt o any return if we convert
our loans to equity) will be subject to repayment of, first, bank debt of
approximately $3.8 million incurred in the purchase of the real property and,
second, construction financing expected to amount to $25 to $30 million. If the
project is successful, Mr. Murray stands to receive a contingent benefit, which
could be substantial, from the owner for his participation in the project, but
only after the Company and the owner have received priority returns of their
investment and priority shares of profits.
On January 26, 2001, we borrowed $1,000,000 from Michael J. Quigley, III at
an annual interest rate of 10%. Principal and interest on the note was due on or
about April 25, 2001. On May 14, 2001, the loan was modified to be due on
demand. As collateral for the loan, we pledged the $10 million Realen Note and
the $23 million Turnberry Note. On February 20, 2002 Mr. Quigley released his
security interest in the Realen Note in connection with the Master Settlement
Agreement. (See Note 10.)
Effective April 30, 2001, we entered into a bareboat charter wit MJQ
Corporation, pursuant to which we are chartering the vessel M/V Palm Beach
Princess for the purpose of operating an entertainment casino cruise business
from the Port of Palm Beach, Florida. Michael J. Quigley, III is a principal of
MJQ Corporation. Francis W. Murray, our Chairman, President and Chief Executive
Officer, is an officer and director of MJQ Corporation, and his son, Francis X.
Murray, is President and a director of MJQ Corporation and President of our
subsidiary, Palm Beach Princess, Inc., which operates the vessel. Under the
bareboat charter agreement, we are obligated to pay $50,000 per month as the
charter hire fee to MJQ Corporation. All costs of operating the vessel incurred
by MJQ Corporation on our behalf are to be reimbursed by us to MJQ Corporation.
In addition, as described in Note 10 above, we have entered into a Master
Settlement Agreement with the Chapter 11 Trustee of the Bankruptcy Estate of
Robert E. Brennan, MJQ Corporation and others to purchase from the Trustee the
Ship Mortgage Obligation of MJQ Corporation, having a balance of principal and
interest outstanding of
44
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $15.7 million as of June 30, 2002 for a purchase price o $13.75
million. Pursuant to the Master Settlement Agreement, MJQ Corporation and its
officers and directors (including Francis W. Murray and his son) exchanged
mutual releases wit the Trustee and others having claims to the Ship Mortgage
Obligation.
Also, as set forth in Note 10 above, in separate transactions, we entered
into agreements to purchase all of the shares of outstanding stock of each of
MJQ Corporation and Leo Equity Group, Inc. Mr. Francis W. Murray is an officer
and director of MJQ Corporation and a director of Leo Equity Group, Inc. In
consideration of the sale of the MJQ stock to us, we have agreed to assume $1.1
million of indebtedness owing by Michael J. Quigley, III to Francis W. Murray
and $2.6 million of indebtedness owing by Michael J. Quigley to Leo Equity
Group, Inc. Since Leo Equity Group, Inc. is assigning its right to receive
payment of such $2.6 million of indebtedness to us as payment of the success fee
charged to Leo Equity Group, Inc. in connection with the Master Settlement
Agreement described below, no cash outlay is expected to be made in assuming the
indebtedness owing to that entity. Mr. Murray has indicated that he would be
willing to defer payment of all or a portion of the assumed indebtedness owing
to him. Final terms for satisfaction of such indebtedness have not yet been
completed. Closing on the Leo Equity Group, Inc. purchase occurred on October
15, 2002 (See Note 17-D). The purchase price payable by us for the stock in Leo
Equity Group, Inc. is $250,000, payable without interest in 10 monthly
installments of $25,000 each. We also agreed to reduce the exercise price of
previously granted options held by the seller, Frank A. Leo (our former director
and chairman), to purchase 200,000 shares of our common stock, from $4.00 per
share to $0.50 per share, while conditioning exercise of such options upon our
first having consummated the purchase of the shares required to be purchased by
us from the Trustee under the Stock Purchase Agreement. The purpose of our
contracting for such acquisitions is to enable us to continue the Palm Beach
Princess business on a long term basis, subject to our ability to finance the
balance of the purchase price for the Ship Mortgage Obligation due to the
Trustee.
The Master Settlement Agreement with the Chapter 11 Trustee for the
Bankruptcy Estate of Robert E. Brennan included a final settlement by the
Trustee with numerous parties. Among those parties were Frank A. Leo, Leo Equity
Group, Inc., Michael J. Quigley III and MJQ Corporation. During the quarter
ended March 31, 2002 we charged Leo Equity Group $3,000,000 and MJQ Corporation
$1,000,000 for their portion of expenses incurred by us and a success fee for
the efforts of International Thoroughbred Breeders, Inc. in connection with the
final settlement with the Trustee. Leo Equity Group, Inc. has assigned to us
certain receivables in the approximate amount of $3 million, including the
receivables of approximately $2.6 million due it from Michael J. Quigley III,
for payment of this obligation. We Have deferred all income from these
transactions until such time as payment is received.
On July 12 2002 we borrowed $300,000 from Francis W. Murray at an annual
interest rate of 6%. The note is due on demand and interst is payable monthly.
45
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) TREASURY SHARES RETIRED
Effective January 12, 2001, the Company retired 2,904,016 shares of the
Company's Common Stock which were held as Treasury Stock.
(17) SUBSEQUENT EVENTS
(A) The Company did not pay the purchase price for the stock to be
purchased by it in July, 2002, under the Stock Purchase Agreement with the
Chapter 11 Trustee for the Bankruptcy Estate of Robert E. Brennan. The number of
shares to be purchased at that time is believed to be 1,785,000 shares, the
purchase price of which was $892,500. The Trustee has issued a default notice to
the Company. The Company is in the process of negotiating an amendment with the
Trustee which would extend the time for payment.
(B) Under the Purchase and Sale Agreement between the Company's subsidiary,
Palm Beach Princess, Inc., and the Brennan Chapter 11 Trustee, a balloon payment
of $9.75 million originally was scheduled to be due on July 31, 2002. The
Company exercised its right under the Purchase and Sale Agreement to extend the
time for payment thereof until October 31, 2002. See Note 10. There is a
substantial risk that the Company may not be able to borrow the necessary funds
in order to make the balloon payment by October 31, 2002 in which case the
Trustee may terminate the Company's bareboat charter of the M/V Palm Beach
Princess and the Company may lose its only operating business.
(C) The Company and MJQ Development, LLC (the entity developing the ocean
front property in Ft. Lauderdale) have agreed in principle to a transaction for
MJQ Development, LLC to acquire our receivable for the golf course project in
Southern California.
(D) The Company closed on the stock purchase of Leo Equity Group, Inc. on
October 15, 2002. (See Notes 10 and 15)
(E) On October 25, 2002 the Company received a Letter of Interest for a
proposed $8 million financing, subject to additional due diligence. Principal
and interest of 7% per annum would be due monthly, based on a 5 year
amortization, with a balloon payment due 3 years from closing. Additionally the
bank would take a subordinated position of $7 million in our $10 million note
due from the sale of our Garden State Park property. It is the Company's intent
to borrow an additional $2 million on this note to satisfy the entire payment of
$9.75 million due to the Trustee for the purchase of the Ship Mortgage and to
complete the purchase of 1,785,000 Company shares from the Trustee for $892,500.
Additionally, at this time we are negotiating with the Trustee to extend the
closing date under the Purchase and Sale Agreement from October 31, 2002 until
December 31, 2002. There can be no assurances that the proposed loans will be
received, or that we will be successful in our negotiations with the Trustee.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
46
PART III
Item 10. Directors and Executive Officers of the Registrant.
Set forth below is certain information regarding our directors and
executive officers:
Name Age Position
- ---- --- --------
Francis W. Murray 61 Chairman of the Board, President and
Chief Executive Officer
James J. Murray 63 Director
Walter ReDavid 76 Director
Robert J. Quigley 73 Director
- -------------------------------------------------------------------------------
Set forth below is certain biographical information with respect to each
director, including his principal occupation and employment during the past five
years.
Francis W. Murray. Mr. Murray has been a director since 1996 and our
President, Chief Executive Officer and Chairman of the Board since October 10,
2000. On October 15, 2002, Mr. Murray assumed the position of Chief Financial
Officer. From time to time from November 1995 until June 1999, Mr. Murray served
as President of the Company's subsidiaries International Thoroughbred Gaming
Development Corporation ("ITG") and Orion Casino Corporation. From November 1993
through June 1995, Mr. Murray served as a consultant to ITG. From December 1988
through November 1993, Mr. Murray was the co-owner and President of the New
England Patriots and co-founder of the St. Louis NFL Partnership, which
attempted to obtain an expansion NFL franchise for the city of St. Louis. Mr.
Murray has been a member of the Executive Committee and the Compensation and
Stock Options Committee since March 15, 1999.
James J. Murray. Mr. Murray was elected by the Board of Directors on
February 22, 1999. Mr. Murray previously served as a director of the Company
from November 6, 1996 to January 15, 1997. Mr. Murray is a member of the Ronald
McDonald House of Charities Local Operations Advisory Council and past President
of Jim Murray, Ltd., a sports promotion and marketing firm. In 1969, Mr. Murray
joined the Philadelphia Eagles' public relations staff and two years later
became the NFL team's administrative assistant. In 1974, just five years after
joining the organization, he was named the Eagles' General Manager and spent
more than nine years in that post, during which the Eagles' appeared in Super
Bowl XV. He also served as Director of Marketing for our Garden State Park
subsidiary from 1985-1987. Mr. Murray has been a member of the Audit Committee
since March 15, 1999. Mr. Murray is the brother of Francis W. Murray, who is a
director and our President, Chief Executive Officer and Chairman of the Board.
Walter ReDavid. Mr. ReDavid was elected to the board on July 3, 2001. Mr.
ReDavid is a past Registrar of Wills and has served on various Delaware County,
Pennsylvania township
47
boards. Mr. ReDavid has been practicing general law as a sole practitioner for
over 50 years.
Robert J. Quigley. Mr. Quigley has been a director since 1980. From
February 1996 until October 15, 1997, and again from 1999 until October 10,
2000, Mr. Quigley served as our President. Mr. Quigley also served as President
from 1988 until July 1992. Between November 1995 and May 1996, Mr. Quigley
served as our Chairman of the Board and acting Chief Executive Officer. From
July 1992 until November 1995, Mr. Quigley was President and Chief Operating
Officer of Retama Park Association, Inc., a racetrack facility in San Antonio,
Texas.
Executive and Other Key Officers
Our executive and other key officers, in addition to Mr. Francis W. Murray,
include:
- --------------------------------------------------------------------------------
Name Age Position
- ---- --- --------
William H. Warner 57 Secretary
Christine E. Rice Newell 57 Assistant Treasurer and Controller
Francis X. Murray 36 President and CEO of Palm Beach Princess, Inc.
Jerry Winters 42 Treasurer and CFO of Palm Beach Princess, Inc.
Stephen Flood 42 Vice President of Casino Operations, Palm Beach
Princess, Inc.
- --------------------------------------------------------------------------------
William H. Warner. Served as Treasurer and Chief Financial Officer from
1983 until October 15, 2002. Mr. Warner resigned those positions over his
concerns that the Company may not maintain its Director and Officer's insurance
policy in the future. The limits of the policy have been reduced from Fiscal
2001 levels. Mr. Warner was appointed our Secretary in October 2000 and
continues to hold that position. Mr. Warner is a certified public accountant,
and prior to joining us, was employed in public accounting for 11 years.
Christine E. Rice Newell. Ms. Rice Newell has been our Assistant Treasurer
and Controller since 1990. From 1986 until 1990, Ms. Rice Newell was our
Corporate Accounting Manager. Ms. Rice Newell is a certified public accountant.
Francis X. Murray. Mr. Murray, son of our Chairman and CEO, has, since
April 2001, been President of our Palm Beach Princess, Inc. subsidiary, which
operates the cruise ship M/V Palm Beach Princess and related offshore gaming
business. He has also been President of MJQ Corporation since May of 1999, which
corporation owns the M/V Palm Beach Princess and operated the cruise and
offshore gaming business from May 1999 until chartering the vessel to Palm Beach
Princess, Inc. in April, 2001. Prior thereto, Mr. Murray was President (January
1999 to May 1999), and Vice President and General Manager (February 1998 to
January 1999) of Palm
48
Beach Casino Line, a division of Leo Equity Group, Inc. which operated the
vessel M/V Palm Beach Princess; and in 1997-98 was a consultant for Leo Equity
Group, Inc.
Jerry Winters. Mr. Winters has been Treasurer and Chief Financial Officer
of our Palm Beach Princess, Inc. subsidiary since its inception in April 2001.
He has also been Treasurer and CFO of MJQ Corporation since March 1999. Prior
thereto, Mr. Winters was CFO for Home Care America, Inc. (March 1998 to March
1999) and regional CFO for Vencor, Inc., (March 1996 to March 1998). Mr. Winters
is a certified public accountant.
Stephan Flood. Mr. Flood joined the previous owners of the Plam Beach
Princess in May 1994. From 1997 he served as a casino manager until January 2000
when he assumed his current position of Vice President, Casino Operations. In
that position, Mr. Flood is responsible for management and direction of all
aspects of the company's casino operations, including casino marketing, tracking
and customer service. Prior to joining the company Mr. Flood was employed in a
range of casino positions by Norwegian Cruise Line, Premier Cruises, Lucayan
Beach Casino and Charlie Chester's London Casino. He holds licenses issued by
British casino regulatory authorities.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, our
executive officers and directors are required to file reports with the SEC
relating to their ownership of and transactions in our equity securities. Based
on our records and other information, we believe that all Section 16(a) filing
requirements were met for fiscal year 2002.
Involvement in Certain Legal Proceedings
In February, 2002, Robert J. Quigley and William H. Warner, without
admitting or denying the allegations, settled a cease and desist order
instituted by the Securities and Exchange Commission relating to filings made in
Fiscal 1997, which included findings by the Commission that Messrs. Quigley and
Warner committed and caused violations of the reporting, record keeping and
internal control provisions of the Securities Exchange Act of 1934 (the
"Exchange Act") by causing the Company to improperly disclose and account for
certain related party transactions involving the Company's former chief
executive officer. Without admitting or denying the Commission's findings, Mr.
Quigley consented to the issuance of an order that he cease and desist from
causing any violation or future violation of Section 13(a) of the Exchange Act
and Rules 12b-20 and 13a-13 thereunder and from committing any violation and any
future violation of Rule 13b2-2. Also without admitting or denying the
Commission's findings, Mr. Warner consented to the issuance of an order that he
cease and desist from causing any violation or future violation of Sections
13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and
13a-13 thereunder and from committing any violations and any future violations
of Rules 13b2-1 and 13b2-2.
49
Item 11. Executive Compensation
The following table sets forth the cash compensation as well as certain
other compensation paid or accrued during fiscal years 2002, 2001 and 2000 to
the individuals who served as our chief executive officer during fiscal year
2002 and four other executive officers of the Company or key officers of
subsidiaries who earned more than $100,000 during fiscal year 2002
(collectively, the "Named Executives"):
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Securities All
Name and Other Annual Underlying Other
Principal Position Year Salary Bonus Compensation Options Compensation
($) ($) ($) (#) ($)
Francis W. Murray, 2002 387,404 -0- 17,049(2) 2,000,000(3) 18,658(4)
President, Chief 2001 278,654 500,000(1) 17,011 -0- 18,537
Executive Officer 2000 122,308 -0- 17,737 -0- 10,997
and Chief Financial
Officer
Francis X. Murray, 2002 277,885 135,320 11,423(5) -0- 21,930(6)
President of Palm 2001 63,462(14) 12,000 1,904 -0- 1,074
Beach Princess, Inc. 2000 -0- -0- -0- -0- -0-
William H. Warner, 2002 176,346 -0- 3,244(7) 75,000(8) 18,650(9)
Secretary 2001 123,693 -0- -0- -0- 15,430
2000 126,000 -0- -0- -0- 11,219
Jerry Winters, 2002 147,269 35,000 6,000(10) -0- 2,458(11)
Treasurer of Palm 2001 32,308(14) -0- 1,000 -0- 605
Beach Princess, Inc. 2000 -0- -0- -0- -0- -0-
Stephan Flood, 2002 110,385 26,250 6,000(12) -0- 2,258(13)
Vice President of 2001 24,231(14) -0- 1,500 -0- 470
Palm Beach Princess, 2000 -0- -0- -0- -0- -0-
Inc.
- ------------------------------------------------------------------------------------------------
(1) In recognition of Mr. F. W. Murray's efforts in successfully settling the
significant litigation in Delaware involving Mr. DeSantis, successfully
closing the transactions involving the sale of our real properties located
in Las Vegas, Nevada and Cherry Hill, New Jersey, paying off all of our
bank debt and acquiring valuable interests in the profits from development
of the properties sold, we awarded a bonus to Mr. Murray of $500,000,
payable solely in shares of our common stock valued at $0.20 per share,
which was determined by the Board of Directors to equal or exceed the fair
market value per share of our common stock. Accordingly, such compensation
was paid in the form of 2,500,000 shares of our common stock.
(2) Consists of monthly automobile lease payments.
(3) Represents the number of shares under options granted in fiscal 2002. Such
options replaced options for the same number of shares which had been
granted in fiscal 2001 and terminated in fiscal 2002.
50
(4) Fiscal 2002 amounts consist of $7,908 of life and long-term disability
insurance premiums paid by the Company with respect to term life insurance
payable to beneficiaries designated by Mr. F. W. Murray and $10,750
contributed by the Company under the Company's 401(k) plan.
(5) Consists of monthly automobile lease payments.
(6) Fiscal 2002 amounts consist of $877 of life insurance premiums paid by the
Company with respect to term life insurance payable to beneficiaries
designated by Mr. F. X. Murray, $1,231 contributed by the Company under
MJQ's 401(k) plan and $19,822 of golf membership dues as provided with an
MJQ employment contract.
(7) Fiscal 2002 amounts of $811 per month of automobile allowance for four
months.
(8) Represents the number of shares under options granted in fiscal 2002. Such
options replaced options for the same number of shares which had been
granted in fiscal 2001 and terminated in fiscal 2002.
(9) Fiscal 2002 amounts include $7,868 of life and long-term disability
insurance premiums paid by the Company with respect to term life insurance
payable to beneficiaries designated by Mr. Warner and $9,225 contributed by
the Company under the Company's 401(k) plan.
(10) Fiscal 2002 amounts of $500 per month of automobile allowance
(11) Fiscal 2002 amounts consist of $653 of life insurance premiums paid by the
Company with respect to term life insurance payable to beneficiaries
designated by Mr. Winters and $1,805 contributed by the Company under MJQ's
401(k) plan.
(12) Fiscal 2002 amounts of $500 per month of automobile allowance
(13) Fiscal 2002 amounts consist of $602 of life insurance premiums paid by the
Company with respect to term life insurance payable to beneficiaries
designated by Mr. Flood and $1,656 contributed by the Company under MJQ's
401(k) plan.
(14) Includes compensation in Fiscal 2001 from April 30, 2001 to June 30, 2001.
51
Stock Options Grants
The following table contains information concerning grants of stock options
to the Named Executives during fiscal year 2002.
Option Grants in Fiscal 2002
- ------------------------------------------------------------------------------------------------------
Individual Grants
-----------------
Number of % of Total
Securities Options Potential Realizable
Underlying Granted to Exercise Value At Assumed Annual Rates
Options Employees Price Expiration of Stock Price Appreciation for
Name Granted(#) In 2002 ($/Sh) Date Option Term (1)
- ---- ----------- ---------- -------- ----------- -------------------------------
5% ($) 10% ($)
------ ---------
Francis W. Murray 2,000,000 96.4 0.268750 12/31/10 338,030 856,636
Francis X. Murray 0 -- -- -- -- --
William H. Warner 75,000 3.60 0.268750 12/31/10 12,676 32,124
Jerry Winters 0 -- -- -- -- --
Stephan Flood 0 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
(1) Illustrates the value that might be received upon exercise of options
immediately prior to the assumed expiration of their term at the specified
compounded rates of appreciation based on the market price for the common stock
when the options were granted. Assumed rates of appreciation are not necessarily
indicative of future stock performance.
Stock Option Exercises and Holdings
The following table sets forth the value of options held by each of the
Named Executives at June 30, 2002. None of the Named Executives exercised any
options during fiscal year 2002.
Aggregated Option Exercises in 2002 and Option Values at June 30, 2002
- -------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at June 30, 2002(#) at June 30, 2002 ($)(1)
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
Francis W. Murray -- -- 2,300,000 0 62,500 0
William H. Warner -- -- 75,000 0 2,344 0
- --------------------------------------------------------------------------------------------------
(1) The value of unexercised in-the-money options is based on the difference
between the last reported sale price of a share of common stock as reported on
the Pink Sheets on June 26, 2002 ($0.30) and the exercise price of the options,
multiplied by the number of options.
52
Compensation of Directors
Outside directors are provided compensation of $1,000 for each regular or
special meeting of the Board in which each outside director participates either
in person or by telephone.
Employment Contracts
Effective December 1, 2000, we entered into a five-year employment contract
with Mr. Francis W. Murray as our Chief Executive Officer. The contract provides
for annual compensation of $395,000, a $1,500 monthly automobile expense
allowance, a country club annual dues allowance and travel and entertainment
reimbursements for business expenses reasonably incurred by him, in addition to
participation in various other benefits provided to our employees. As part of
his contract, on December 28, 2000, Mr. Murray was awarded options to purchase
2,000,0000 shares of our common stock under an stock incentive plan which was
subject to stockholder approval. Such options terminated in fiscal 2002 since
the Plan was not submitted for shareholder approval, and replacement options
were granted in fiscal 2002 with an exercise price of $0.26875 per share,
expiring December 31, 2010.
In connection with the bareboat charter with MJQ Corporation we are
obligated to honor several employment contracts between key executives and MJQ
Corporation. Should we be successful in purchasing from the Trustee the
promissory note of MJQ Corporation, it is our intention to honor these
employment contracts. The first contract is for Francis X. Murray, which
provides for a base salary of $290,000 and $310,000 respectively during calendar
years 2002 and 2003. Additionally the contract provides for an annual bonus of
up to 30% of the executive's base salary if certain EBITDA performance goals are
met, membership to a golf club and other expense allowances. The employment
contract with Jerry Winters provides for a base salary of $140,000 and $147,000
respectively during calendar years 2002 and 2003. Additionally the contract
provides for an annual bonus of up to 25% of the executive's base salary if
certain EBITDA performance goals are met, and other expense allowances. The
employment contract with Stephen Flood provides for a base salary of $105,000
and $110,000 respectively during calendar years 2002 and 2003. Additionally the
contract provides for an annual bonus of up to 20% of the executive's base
salary if certain EBITDA performance goals are met.
Compensation Committee Interlocks and Insider Participation
Mr. Francis W. Murray, a member of the Compensation Committee of the Board
of Directors, currently serves as our President and Chief Executive Officer. See
also "Item 13. Certain Relationships and Related Transactions" for additional
information with respect to Mr. Murray.
53
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to the
beneficial ownership, as of September 16, 2002, of each person who we knew to be
the beneficial owner of more than 5% of our common stock. Each of the
stockholders named below has sole voting and investment power with respect to
such shares, unless otherwise indicated.
- --------------------------------------------------------------------------------
Common Stock
------------
Name and Address of
Beneficial Owner Number of Shares Percent
- ---------------- ---------------- -------
The Family Investment Trust 1,090,731 (1) 12.5%
Henry Brennan, Trustee
340 North Avenue
Cranford, NJ 07016
Francis W. Murray 4,800,000 (2) 33.6%
211 Benigno Boulevard
Suite 210
Bellmawr, NJ 08031
Frank A. Leo 736,201 (3) 5.2%
44 Minebrook Rd
Colts Neck, NJ 07722
- --------------------------------------------------------------------------------
(1) Henry Brennan is the brother of Robert E. Brennan, our former president,
whose adult sons are the beneficiaries of the trust.
(2) Includes 2,300,000 shares of common stock issuable upon the exercise of
warrants.
(3) Includes 200,000 shares purchasable under stock options.
Security Ownership of Management
The following table sets forth certain information with respect to the
beneficial ownership, as of September 16, 2002, of (i) each director, (ii) the
Named Executives and (iii) all of our directors and executive officers as a
group. Each of the stockholders named below has sole voting and investment power
with respect to such shares, unless otherwise indicated.
- --------------------------------------------------------------------------------
Name of Beneficial Owner Number of Shares(1) Percent of Class
- ------------------------ ------------------- ----------------
Francis W. Murray 4,800,000 (2) 33.6%
James J. Murray 25,000 (3) *
Walter ReDavid 0 *
Robert J. Quigley 105,830 (4) *
William H. Warner 75,124 (5) *
All executive officers and 5,010,954 35.8%
directors as a group (6 persons)
- --------------------------------------------------------------------------------
* Less than 1 percent.
(1) With respect to each stockholder, includes any shares issuable upon
exercise of any options or warrants held by such stockholder that are or
will become exercisable within sixty days of September 16, 2002.
54
(2) Includes 2,300,000 shares issuable upon the exercise of stock options.
(3) Consists of shares of common stock issuable upon the exercise of options.
(4) Includes 100,000 shares of common stock issuable upon the exercise of
options.
(5) Includes 75,000 shares issuable upon the exercise of stock options.
Equity Compensation Plan Information
The following table contains information on Equity Compensation Plans that
have been and have not been approved by securityholders at June 30, 2002:
Number of securities
remaining available for
Number of future issuance under
Securities to be Weighted average equity compensation
issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a)
Plan Category (a) (b) (c)
- ---------------------- ----------------------- -------------------- ------------------------
Equity compensation
plans approved by -0- N/A N/A
securityholders
Equity compensation
plans not approved by 4,046,500 2.02 -0-
securityholders
Total 4,046,500 2.02 -0-
Set forth below is a summary of the material terms of stock options granted
by the Company which were not approved by the Company's securityholders.
Pursuant to a Non-qualified Stock Option Agreement dated January 7, 2002
between the Company and each of Francis W. Murray and William H. Warner, the
Company granted an option to purchase 2,000,000 shares of Common Stock to Mr.
Murray and to purchase 75,000 shares of Common Stock to Mr. Warner, in each case
for a purchase price of $0.26875 per share. The options vested immediately and
expire December 31, 2010. The options are not transferable other than by will or
the laws of descent and distribution, and, during the lifetime of the optionee,
are exercisable only by the optionee. The options remain exercisable following
termination of employment, until their scheduled expiration date.
In Fiscal 1997, the Company granted a non-qualified stock option to Frank
A. Leo, its then chairman, to purchase 200,000 shares of Common Stock at $4.00
per share. In fiscal 2002, in connection with the agreement to purchase Mr.
Leo's stock in Leo Equity Group, Inc., the Company agreed to reduce the purchase
price for shares under Mr. Leo's stock option to $0.50 per share and imposed, as
a condition of exercise of such option, the requirement that the Company first
shall have consummated its purchase of Company Common Stock from the Chapter 11
Trustee for the Bankruptcy Estate of Robert E. Brennan pursuant to the Stock
Purchase Agreement dated as of February 22, 2002, between the Company and such
55
Trustee. Mr. Leo's option survived termination of his employment and expires
December 20,2006.
In connection with prior agreements with former officers and directors, the
Company granted options to purchase 925,000 shares of Common Stock at prices
ranging from $4.00 to $5.00 per share. These options expire at various times
from January 2006 to January 2007.
In Fiscal 1999, the Company granted warrants to purchase 435,000 shares of
Common Stock at $2.50 per share in connection with obtaining financing. These
warrants expire in May 2004. In Fiscal 1996 the Company granted warrants to
purchase 275,000 shares of Common Stock at $4.00 per share as a finder's fee in
connection with the purchase of its El Rancho property. These warrants expire in
April 2006.
Item 13. Certain Relationships and Related Transactions.
During the third quarter of fiscal year 2001, we invested in two projects
which our Chairman, President and Chief Executive Officer, Francis W. Murray,
also has a pecuniary interest. In connection with one such project, we agreed to
advance, as a loan, up to $1.5 million, the proceeds of which were to be used to
pay costs and expenses for development of a golf course in Southern California.
At June 30, 2002, approximately $803,291 has been loaned to such project and we
have accrued $107,878 of interest due on the loan. A limited partnership, the
general partner of which is owned by Mr. Murray, has acquired an option to
purchase certain real estate in Southern California on which it intends to
construct a golf club. Loans by us to the limited partnership will bear interest
at an annual rate of 12%, and we will have the right to convert our loans into a
50% equity interest in the limited partnership (which percentage interest would
be reduced if additional investments by others are made in the limited
partnership). Mr. Murray's equity interest in the limited partnership,
indirectly through his ownership of the general partner, presently is 80%, and
would be reduced proportionally if we exercise our right to convert our loans
into equity.
In the second project, Mr. Murray is participating in the development of an
oceanfront parcel of land located in Fort Lauderdale, Florida, which has
received all governmental entitlements from the City of Fort Lauderdale, to
develop a 14-story building to include a 5-story parking garage, approximately
6,000 square feet of commercial space and a residential 9-story tower. The
property owner, MJQ Development which is owned by Michael J. Quigley, III, is
developing a vacation membership/condominium hotel resort. Mr. Quigley has no
relationship to Robert J. Quigley, the Company's director and former president.
At June 30, 2002, the Company has lent $2,175,241 and has accrued $350,833 of
interest incurred on the loan to the property owner. Our loans will bear
interest at 12% and will be repayable out of the first proceeds, after payment
of bank debts, generated by the sale of vacation memberships or hotel
condominiums. We will have the right to convert our loan into an equity interest
(subject to receiving certain third party approvals); which would entitle us to
receive a priority return of our investment and a priority profits interest
equal to three times our investment. Repayment of our loans (and receipt of any
return if we convert our loans to equity) will be subject to repayment of,
first, bank debt of approximately $3.8 million incurred in the purchase of the
real property and, second, construction financing expected to amount to $25
million to $30 million. If the project is successful, Mr. Murray stands to
receive a contingent benefit, which could be substantial, from the owner for his
participation in the project, but only after we and the owner have received
priority returns of our investment and priority shares of profits.
56
On January 26, 2001, the Company borrowed $1,000,000 from Michael J.
Quigley, III at an annual interest rate of 10%. Principal and interest on the
loan was due on or about April 25, 2001. On May 14, 2001, the loan was modified
to be due on demand. As collateral for the loan, the Company pledged the $33
million in notes receivable from the sale of the El Rancho and Garden State Park
properties. On February 22, 2002, Mr. Quigley released his security interest in
the Garden State Park Note in connection with the Master Settlement Agreement.
(See Note 10.)
Effective April 30, 2001, we entered into a bareboat charter with MJQ
Corporation, pursuant to which we are chartering the vessel M/V Palm Beach
Princess for the purpose of operating a casino cruise business from the Port of
Palm Beach, Florida. Francis W. Murray, our Chairman, President and Chief
Executive Officer, is an officer and director of MJQ Corporation, and his son,
Francis X. Murray, is President and a director of MJQ Corporation. Under the
charter agreement, we are obligated to pay $50,000 per month as the charter hire
fee to MJQ Corporation. All costs of operating the vessel incurred by MJQ
Corporation on our behalf are to be reimbursed by us to MJQ Corporation. In
addition, in order to maintain the bareboat charter, we have entered into a
Master Settlement Agreement with the Chapter 11 Trustee of the Bankruptcy Estate
of Robert E. Brennan, MJQ Corporation and others, and a related Purchase and
Sale Agreement, providing for our purchase from the Trustee of the promissory
note of MJQ Corporation, having a balance of principal and interest outstanding
of approximately $15.7 million as of June 30, 2002 and secured by a ship
mortgage against the Palm Beach Princess vessel, for a purchase price of $13.75
million. See Notes 10 and 17. Pursuant to the Master Settlement Agreement, MJQ
Corporation and its officers and directors (including Francis W. Murray and his
son) exchanged mutual releases with the Trustee and others having claim to the
Ship Mortgage Obligation.
On July 12 2002 we borrowed $300,000 from Francis W. Murray at an annual
interest rate of 6%. The note is due on demand and interst is payable monthly.
57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K.
(a) The following documents are filed as part of this report
1. Financial Statements.
See index to Financial Statements at Item 8 on page 18 of this report.
2. Financial Statement Schedules.
See index to Financial Statements at Item 8 on page 18 of this report.
3. Exhibits.
The following exhibits are filed as part of, or incorporated by reference
into, this report:
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 3(a) to the Registrant's Registration Statement on Form S-1,
File No. 2-70153, filed December 5, 1980).
3.2 Amendment to the Certificate of Incorporation (incorporated by
reference to Exhibit 3(a)(11) to Amendment No. 3 to the Registrant's
Registration Statement on Form S-1, File No. 2-70153).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997).
10.1 Asset Purchase Agreement dated as of July 2, 1998 by, between and
among Greenwood New Jersey, Inc., Garden State Race Track, Inc.,
Freehold Raceway Association, Atlantic City Harness, Inc., Circa 1850
and International Thoroughbred Breeders, Inc. together with exhibits
thereto (incorporated by reference to Exhibit 10.2 on Form 8-K dated
July 2, 1998)
10.2 Registration Rights Agreement dated as of May 23, 1997 between the
Registrant and CSFB (incorporated by reference to Exhibit 10.4 to the
Registrant's Current Report on Form 8-K dated May 23, 1997).
10.3 * Employment Agreement by and between the Registrant and Francis W.
Murray dated as of December 1, 2000
58
Exhibit
Number Description
------ -----------
10.4 First Amendment to Asset Purchase Agreement dated as of January 28,
1999 among the Company, Garden State Race Track, Inc., Freehold Racing
Association, Atlantic City Harness, Inc., Circa 1850, Inc., Greenwood
New Jersey, Inc. and Penn National Gaming, Inc. (without Exhibits)
(incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated January 28, 1999).
10.5 Lease Agreement between Garden State Race Track, Inc. and GS Park
Racing, L.P. (without Exhibits) (incorporated by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K dated January 28,
1999).
10.6 Agreement dated January 6, 1999 between the Company and Donald F.
Conway, Chapter 11 Trustee for the Bankruptcy Estate of Robert E.
Brennan (without Exhibits) (incorporated by reference to Exhibit 10.4
to the Registrant's Current Report on Form 8-K dated January 28,
1999).
10.7 Agreement of Sale Between Orion Casino Corporation (the "Seller") and
Turnberry/Las Vegas Boulevard, LLC (the "Buyer"). (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form
8K dated May 22, 2000)
10.8 Note Purchase Agreement Between Orion Casino Corporation, as
Purchaser, and Turnberry/Las Vegas Boulevard, LLC, as Issuer, Dated as
of March 1, 2000 (incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K dated May 22, 2000).
10.9 $23,000,000.00 Promissory Note dated May 18, 2000, from Turnberry/Las
Vegas Boulevard, LLC (the "Maker") to Orion Casino Corporation (the
"Payee") (incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated May 22, 2000).
10.10Security Agreement, dated as of May 18, 2000, by and among
Turnberry/Las Vegas Boulevard, LLC (the "Joint Venture"), the members
of the Joint Venture parties to this Agreement (said members being
collectively called the "Pledgers"), and Orion Casino Corporation, a
Nevada corporation (the "Purchaser") (incorporated by reference to
Exhibit 10.4 to the Registrant's Current Report on Form 8-K dated May
22, 2000).
10.11Note Agreement between GSRT, LLC, and Realen-Turnberry/Cherry Hill,
LLC, as Issuer, dated as of November 29, 2000. (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form
8-K dated November 30, 2000)
10.12$10,000,000.00 Promissory Note dated November 29, 2000, from Realen-
Turnberry/Cherry Hill, LLC to GSRT, LLC. (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
November 30, 2000)
59
Exhibit
Number Description
------ -----------
10.13Security Agreement, dated as of November 29, 2000, by and among
Realen- Turnberry/Cherry Hill, LLC, its sole member
Realen-Turnberry/Cherry Hill Associates and GSRT, LLC. (incorporated
by reference to Exhibit 10.3 to the Registrant's Current Report on
Form 8-K dated November 30, 2000)
10.14Amended and Restated Bareboat Charter between Palm Beach Princess.
Inc. and MJQ Corporation
10.15Master Settlement Agreement dated February 22, 2002, among the
Chapter 11 Trustee for the Bankruptcy Estate of Robert E. Brennan, the
Company, and, among others, MJQ Corporation, Leo Equity Group, Inc.,
Francis W. Murray, Frank A. Leo and Michael J. Quigley, III
10.16Purchase and Sale Agreement dated February 22, 2002, between Palm
Beach Princess, Inc. and the Chapter 11 Trustee for the Bankruptcy
Estate of Robert E. Brennan
10.17Stock Purchase Agreement dated February 22, 2002, between the Company
and the Chapter 11 Trustee for the Bankruptcy Estate of Robert E.
Brennan
10.18* Non-Qualified Stock Option Agreement dated January 7, 2002, between
the Company and Francis W. Murray
10.19* Non-Qualified Stock Option Agreement dated January 7, 2002, between
the Company and William H. Warner
10.20 * Stock Option granted to Francis W. Murray on January 15, 1997
10.21 * Stock Option granted to Frank A. Leo on December 20, 1996
21 Subsidiaries.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------------------------------------------------------------------------
* Constitutes a management contract or compensation plan.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the last quarter
of fiscal year 2002.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Bellmawr, New
Jersey, this 25th day of October,2002.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
By:/s/ Francis W. Murray
--------------------------------------------------------
Francis W. Murray
Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Francis W. Murray Chairman of the Board, President October 25,2002
- --------------------- and Chief Executive Officer
Francis W. Murray (Principal Executive Officer)
/s/ Francis W. Murray Chief Financial Officer October 25,2002
- ------------------------ (Principal Financial and
Francis W. Murray Accounting Officer)
/s/ James J. Murray Director October 25,2002
- ------------------------
James J. Murray
/s/ Robert J. Quigley Director October 25,2002
- ------------------------
Robert J. Quigley
/s/ Walter ReDavid Director October 25,2002
- ------------------------
Walter ReDavid
61
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I. Francis W. Murray, the President and Chief Executive Officer of International
Thoroughbred Breeders, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of International
Thoroughbred Breeders, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: October 25, 2002 s/Francis W. Murray
-------------------------------
Francis W. Murray
President and Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Francis W. Murray, the Chief Financial Officer and Treasurer of International
Thoroughbred Breeders, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of International
Thoroughbred Breeders, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: October 25, 2002 s/ Francis W. Murray
---------------------------------------
Francis W. Murray
Chief Financial Officer and Treasurer
62
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 3(a) to the Registrant's Registration Statement on Form S-1,
File No. 2-70153, filed December 5, 1980).
3.2 Amendment to the Certificate of Incorporation (incorporated by
reference to Exhibit 3(a)(11) to Amendment No. 3 to the Registrant's
Registration Statement on Form S-1, File No. 2-70153).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997).
10.1 Asset Purchase Agreement dated as of July 2, 1998 by, between and
among Greenwood New Jersey, Inc., Garden State Race Track, Inc.,
Freehold Raceway Association, Atlantic City Harness, Inc., Circa 1850
and International Thoroughbred Breeders, Inc. together with exhibits
thereto (incorporated by reference to Exhibit 10.2 on Form 8-K dated
July 2, 1998)
10.2 Registration Rights Agreement dated as of May 23, 1997 between the
Registrant and CSFB (incorporated by reference to Exhibit 10.4 to the
Registrant's Current Report on Form 8-K dated May 23, 1997).
10.3 * Employment Agreement by and between the Registrant and Francis W.
Murray dated as of December 1, 2000
10.4 First Amendment to Asset Purchase Agreement dated as of January 28,
1999 among the Company, Garden State Race Track, Inc., Freehold Racing
Association, Atlantic City Harness, Inc., Circa 1850, Inc., Greenwood
New Jersey, Inc. and Penn National Gaming, Inc. (without Exhibits)
(incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated January 28, 1999).
10.5 Lease Agreement between Garden State Race Track, Inc. and GS Park
Racing, L.P. (without Exhibits) (incorporated by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K dated January 28,
1999).
10.6 Agreement dated January 6, 1999 between the Company and Donald F.
Conway, Chapter 11 Trustee for the Bankruptcy Estate of Robert E.
Brennan (without Exhibits) (incorporated by reference to Exhibit 10.4
to the Registrant's Current Report on Form 8-K dated January 28,
1999).
10.7 Agreement of Sale Between Orion Casino Corporation (the "Seller") and
Turnberry/Las Vegas Boulevard, LLC (the "Buyer"). (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form
8K dated May 22, 2000)
63
Exhibit
Number Description
------ -----------
10.8 Note Purchase Agreement Between Orion Casino Corporation, as
Purchaser, and Turnberry/Las Vegas Boulevard, LLC, as Issuer, Dated as
of March 1, 2000 (incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K dated May 22, 2000).
10.9 $23,000,000.00 Promissory Note dated May 18, 2000, from Turnberry/Las
Vegas Boulevard, LLC (the "Maker") to Orion Casino Corporation (the
"Payee") (incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated May 22, 2000).
10.10Security Agreement, dated as of May 18, 2000, by and among
Turnberry/Las Vegas Boulevard, LLC (the "Joint Venture"), the members
of the Joint Venture parties to this Agreement (said members being
collectively called the "Pledgers"), and Orion Casino Corporation, a
Nevada corporation (the "Purchaser") (incorporated by reference to
Exhibit 10.4 to the Registrant's Current Report on Form 8-K dated May
22, 2000).
10.11Note Agreement between GSRT, LLC, and Realen-Turnberry/Cherry Hill,
LLC, as Issuer, dated as of November 29, 2000. (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form
8-K dated November 30, 2000)
10.12$10,000,000.00 Promissory Note dated November 29, 2000, from Realen-
Turnberry/Cherry Hill, LLC to GSRT, LLC. (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
November 30, 2000)
10.13Security Agreement, dated as of November 29, 2000, by and among
Realen- Turnberry/Cherry Hill, LLC, its sole member
Realen-Turnberry/Cherry Hill Associates and GSRT, LLC. (incorporated
by reference to Exhibit 10.3 to the Registrant's Current Report on
Form 8-K dated November 30, 2000)
10.14Amended and Restated Bareboat Charter between Palm Beach Princess.
Inc. and MJQ Corporation
10.15Master Settlement Agreement dated February 22, 2002, among the
Chapter 11 Trustee for the Bankruptcy Estate of Robert E. Brennan, the
Company, and, among others, MJQ Corporation, Leo Equity Group, Inc.,
Francis W. Murray, Frank A. Leo and Michael J. Quigley, III
10.16Purchase and Sale Agreement dated February 22, 2002, between Palm
Beach Princess, Inc. and the Chapter 11 Trustee for the Bankruptcy
Estate of Robert E. Brennan
10.17Stock Purchase Agreement dated February 22, 2002, between the Company
and the Chapter 11 Trustee for the Bankruptcy Estate of Robert E.
Brennan
64
Exhibit
Number Description
------ -----------
10.18* Non-Qualified Stock Option Agreement dated January 7, 2002, between
the Company and Francis W. Murray
10.19* Non-Qualified Stock Option Agreement dated January 7, 2002, between
the Company and William H. Warner
10.20 * Stock Option granted to Francis W. Murray on January 15, 1997
10.21 * Stock Option granted to Frank A. Leo on December 20, 1996
21 Subsidiaries.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------------------------------------------------------------------------
* Constitutes a management contract or compensation plan.
65
EXHIBIT 10.14
THE BALTIC AND INTERNATIONAL MARITIME CONFERENCE
STANDARD BAREBOAT CHARTER
CODE NAME: "BARECON A"
PART I
1. Shipbroker
None
2. Place and date
Riviera Beach, Florida;
3. Owners(Lessors)/Place of business
MJQ Corporation
777 East Port Road
Riviera Beach, Florida 33404
4. Charterers (Lessors)/Place of business
Palm Beach Princess, Inc
777 East Port Road
Riviera Beach, Florida 33404
5. Vessel's name (Cl. 8)
Palm Beach Princess
6. Flag & county of registry (Cl. 8)
Panama
7. Call sign
3FNQ2
8. Type of Vessel (motor or steam, dry-cargo, tank, reefer or passenger)
Motor passenger vessel
9. GRT/NRT
6,659GRT/2,499NRT
10. When/where built
Finland; 1964
11. Total dw. (abt.) in tons of 2,240 lbs. on summer freeboard
Not Applicable
12. Class (Cl. 8)
Det norske Veritas + 1A1 ICE A
13. Date of last special survey by the Vessel's classification society
October, 1998
14. Further particulars of Vessel (also indicate minimum number of months'
validity of class certificates agreed acc. to Cl. 13)
LOA 421 feet; beam 53.5 feet; draft 14.5 feet. Passenger capacity: 870
on coastal cruises; 480 on Bahamas cruises. Minium 6 months validity of
class certificates on redelivery.
15. Port or Place of delivery (Cl. 1)
Palm Beach, Florida
16. Time for delivery (Cl. 2)
[Intentionally left blank]
17. Cancelling date (Cl. 3)
Not Applicable
18. Port of redelivery (Cl. 13)
Palm Beach, Florida
19. Running days' notice if other than stated in Cl. 2
[Intentionally left blank]
20. Frequency of dry-docking if other than stated in Cl. 8(f)
See Clause 8 (f).
21. Trading Limits (Cl. 4)
United States east coast; Bahamas; Gulf of Mexico; Caribbean.
22. Charter period
_________ (____) months, through July 31, 2002, and thereafter for up
to twelve (12) additional, successive one-month periods, at Charterers'
option, unless terminated earlier pursuant to clause 33 of Part II.
23. Charter hire (Cl. 9)
U.S. $50,000 per month.
24. Currency and method of payment (Cl. 9)
United States Dollars, by wire transfer.
25. Place of payment; also state beneficiary and bank account (Cl. 9)
Deerfield Beach, Florida; account no. 2090002690578 of MJQ Corporation
at First Union National Bank, 1950 West Hillsboro Boulevard, Deerfield
Beach, Florida 33442 ABA no. 067006432
26. Bank guarantee/bond (sum and place) (Cl. 21) (optional)
None
27. Mortgage(s), if any (Cl. 10)
1. First Union National Bank
2. Cambridge Capital Group, Inc.
28. Insurance (marine and war risks) (state value acc. to Cl. 11(e)
or, if applicable, acc. to Cl. 12(k)) (also state if Cl. 12 applies)
U. S. $18,000,000 value. Clause 12 not applicable.
29. Additional insurance cover, if any, for Owners' account limited
to (Cl. 11(b)) or, if applicable, (Cl. 12(g))
None
30. Additional insurance cover for Charterers' account limited to
(Cl. 11(b))or, if applicable, (Cl. 12(g))
None
31. Brokerage commission and to whom payable (Cl. 24)
None
32. Latent defects (only to be filled in if period other than
stated in Cl. 1)
[Intentionally left blank]
33. Applicable law (Cl. 25)
United States
34. Place of arbitration (Cl. 25)
New York City
35. Hire/Purchase agreement (state ifPart III applies) (optional)
Not Applicable
36. Number of additional clauses covering special provisions, if agreed
Clauses 33 and 38
PREAMBLE. - It is mutually agreed that this Contract shall be performed
subject to the conditions contained in this Charter which shall include Part I
as well as Part II. In the event of a conflict of conditions, the provisions of
Part I shall prevail over those of Part II to the extent of such conflict. It is
further mutually agreed that Part III shall only apply and shall only form part
of this Chart if expressly agreed and stated in Box 35. If Part III applies it
is further mutually agreed that in the event of a conflict of conditions, the
provisions of Part I and Part II shall prevail over those of Part III to the
extent of such conflict.
Signature (Owners(Lessors)) Signature (Charterers(Lessees))
MJQ CORPORATION PALM BEACH PRINCESS, INC.
By: /s/ Michael J. Quigley By: /s/ Francis X. Murray
Chairman President
PART II
"BARECON A" Standard Bareboat Charter
1. Delivery
The Vessel shall be delivered and taken over by the Charterers at the port
or place indicated in Box 13, in such ready berth as the Charterers may
direct.
The Owners shall before and at the time of delivery exercise due diligence
to make the Vessel seaworthy and in every respect ready in hull, machinery
and equipment for service under this Charter. The Vessel shall be properly
documented at time of delivery.
The delivery to the Charterers of the Vessel and the taking over of the
Vessel by the Charterers shall constitute a full performance by the Owners
of all the Owners' obligations hereunder, and thereafter the Charterers
shall not be entitled to make or assert any claim against the Owners on
account of any conditions, representations or warranties expressed or
implied with respect to the Vessel but the Owners shall be responsible for
repairs or renewals occasioned by latent defects in the Vessel, her
machinery or appurtenances,existing at the time of delivery under the
Charter, provided such defects have manifested themselves within 18 months
after delivery unless otherwise provided in Box 32.
2. Time for Delivery
The Vessel to be delivered not before the date indicated in Box 16 unless
with the Charterers' consent. Unless otherwise agreed in Box 19, the Owners
to give the Charterers not less than 30 running days' preliminary of the
date on which the Vessel is expected to be ready for delivery. The Owners
to keep the Charterers closely advised of possible changes in the Vessel's
position.
3. Cancelling
Should the Vessel not be delivered latest by the cancelling date indicated
in Box 17, the Charterers to have the option of cancelling this Charter.
If it appears that the Vessel will be delayed beyond the cancelling date,
the Owners shall, as soon as they are in a position to state with
reasonable certainty the day on which the Vessel should be ready, give
notice thereof to the Charterers asking whether they will exercise their
option of cancelling, and the option must then be declared within one
hundred and sixty-eight (168) hours of the receipt by the Charterers of
such notice. If the Charterers do not then exercise their option of
cancelling, the seventh day after the readiness date stated in the Owners'
notice shall be regarded as a new cancelling date for the purpose of this
Clause.
4. Trading Limits
The Vessel shall be employed in lawful trades for the carriage of suitable
lawful merchandise within the trading limits indicated in Box 21.
Notwithstanding any other provisions contained in this Charter it is agreed
that nuclear fuels or radioactive products or waste are specifically
excluded from the cargo permitted to be loaded or carried under this
Charter. This exclusion does not apply to radio-isotopes used or intended
to be used for any industrial, commercial, agricultural, medical or
scientific purposes provided the Owners' prior approval has been obtained
to loading thereof.
5. Surveys
Survey on Delivery and Redelivery. - The Owners and Charterers shall each
appoint surveyors for the purpose of determining and agreeing in writing
the condition of the Vessel at the time of delivery and redelivery
hereunder. The Owners shall bear all expenses of the On-Survey including
loss of time, if any, and the Charterers shall bear all expenses of the
Off-Survey including loss of time, if any, at the rate of hire per day or
pro rata, also including in each case the cost of any docking and
undocking, if required, in connection herewith.
6. Inspection
Inspection. - The Owners shall have the right at any time to inspect or
survey the Vessel or instruct a duly authorized surveyor to carry out such
survey on their behalf to ascertain the condition of the Vessel and satisfy
themselves that the Vessel is being properly repaired and maintained.
Inspection or survey in dry- dock shall be made only when the Vessel shall
be in dry-dock for the Charterers' purpose. However, the Owners shall have
the right to require the Vessel to be dry-docked for inspection if the
Charterers are not docking her at normal classification intervals. The fees
for such inspection or survey shall in the event of the Vessel being found
to be in the condition provided in Clause 9 of this Charter be payable by
the Owners and shall be paid by the Charterers only in the event of the
Vessel being found to require repairs or maintenance in order to achieve
the condition so provided. All time taken in respect of inspection, survey
or repairs shall count as time on hire and shall form part of the Charter
period.
The Charterers shall also permit the Owners to inspect the Vessel's log
books whenever requested and shall whenever required by the Owners furnish
them with full information regarding any casualties or other accidents or
damage to the Vessel. For the purpose of this Clause, the Charterers shall
keep the Owners advised of the intended employment of the Vessel.
7. Inventories and Consumable Oil and Stores
A complete inventory of the Vessel's entire equipment, outfit, appliances
and of all consumable stores on board the Vessel shall be made by the
Charterers in conjunction with the Owners on delivery and again on
redelivery of the Vessel. The Charterers and the Owners, respectively,
shall at the time of delivery and redelivery take over and pay for all
bunkers, lubricating oil, water and unbroached provisions, paints, oils,
ropes and other consumable stores in the said Vessel at the then current
market prices at the ports of delivery and redelivery, respectively.
8. Maintenance and Operation
(a) The Vessel shall during the Charter period be in the full possession
and at the absolute disposal for all purposes of the Charterers and under
their complete control in every respect. The Charterers shall maintain the
Vessel, her machinery, boilers, appurtenances and spare parts in a good
state of repair, in efficient operating condition and in accordance with
good commercial maintenance practice and, except as provided for in Clause
12(l)they shall keep the Vessel with unexpired classification of the class
indicated in Box 12 and with other required certificates in force at all
times.
The Charterers to take immediate steps to have the necessary repairs done
within a reasonable time failing which the Owners shall have the right of
withdrawing the Vessel from the service of the Charterers without noting
any protest and without prejudice to any claim the Owners may otherwise
have against the Charterers under the Charter.
Unless otherwise agreed, in the event of any improvement, structural
changes or expensive new equipment becoming necessary for the continued
operation of the Vessel by reason of new class requirements or by
compulsory legislation costing more than 5 per cent. of the Vessel's marine
insurance value as stated in Box 28, then the arbitrators under Clause 25
shall have the power to renegotiate this contract in a reasonable way
having regard, inter alia, to the length of the period remaining under the
Charter and may decide the ratio in which the cost of compliance shall be
shared between the parties concerned.
The Charterers are required to establish and maintain financial security or
responsibility in respect of oil or other pollution damage as required by
any government, including Federal, state or municipal or other division or
authority thereof, to enable the Vessel, without penalty or charge,
lawfully to enter, remain at, or leave any port, place, territorial or
contiguous waters of any country, state or municipality in performance of
this Charter without any delay. This obligation shall apply whether or not
such requirements have been lawfully imposed by such government or division
or authority thereof. The Charterers shall make and maintain all
arrangements by bond or otherwise as may be necessary to satisfy such
requirements at the Charterers' sole expense and the Charterers shall
indemnify the Owners against all consequences whatsoever (including loss of
time) for any failure or inability to do so.
TOVALOP SCHEME (Applicable to oil tank vessels only). [Intentionally
Deleted]
(b) The Charterers shall at their own expense and by their own procurement
man, victual, navigate, operate, supply, fuel and repair the Vessel
whenever required during the Charter period and they shall pay all charges
and expenses of every kind and nature whatsoever incidental to their use
and operation of the Vessel under this Charter, including any foreign
general municipality and/or state taxes. The Master, officers and crew of
the Vessel shall be the servants of the Charterers for all purposes
whatsoever, even if for any reason appointed by the Owners.
Charterers shall comply with the regulations regarding officers and crew in
force in the country of the Vessel's flag or any other applicable law.
(c) During the currency of this Charter, the Vessel shall retain her
present name as indicated in Box 5 and shall remain under and fly the flag
as indicated in Box 6. Provided, however, that the Charterers shall have
the liberty to paint the Vessel in their own colours, install and display
their funnel insignia and fly their own house flag. Painting and
re-painting, installment and re-installment to be for the Charterers'
account and time used thereby to count as time on hire.
(d) The Charterers shall make no structural changes in the Vessel or
changes in the machinery, boilers, appurtenances or spare parts thereof
without in each instance first securing the Owners' approval thereof. If
the Owners so agree, the Charterers shall, if the Owners so require,
restore the Vessel to its former condition before the termination of the
Charter.
(e) The CharterersF shall have the use of all outfit, equipment, and
appliances on board the Vessel at the time of delivery, provided the same
or their substantial equivalent shall be returned to the Owners on
redelivery in the same good order and condition as when received, ordinary
wear and tear excepted. The Charterers shall from time to time during the
Charter period replace such items of equipment as shall be so damaged or
worn as to be unfit for use. The Charterers are to procure that all repairs
to or replacement of any damaged, worn or lost parts or equipment be
effected in such manner (both as regards workmanship and quality of
materials) as not to diminish the value of the Vessel. The Charterers have
the right to fit additional equipment at their expense and risk but the
Charterers shall remove such equipment at the end of the period if
requested by the Owners.
Any equipment including radio equipment on hire on the Vessel at time of
delivery shall be kept and maintained by the Charterers and the Charterers
shall assume the obligations and liabilities of the Owners under any lease
contracts in connection therewith and shall reimburse the Owners for all
expenses incurred in connection therewith, also for any new equipment
required in order to comply with radio regulations.
(f) The Charterers shall dry-dock the Vessel and clean and paint her
underwater parts whenever the same may be necessary, but not less than once
in every eighteen calendar months after delivery unless otherwise agreed in
Box 20.
9. Hire
(a) The Charterers shall pay to the Owners for the hire of the Vessel at
the lump sum per calendar month as indicated in Box 23 commencing on and
from the date and hour of her delivery to the Charterers and at and after
the agreed lump sum for any part of a month. Hire to continue until the
date and hour when theVessel is redelivered by the Charterers to her
Owners.
(b) Payment of Hire, except for the first and last month's Hire, if
sub-clause (c) of this Clause is applicable, shall be made in cash without
discount every month in advance on the first day of each month in the
currency and in the manner indicated in Box 24 and at the place mentioned
in Box 25.
(c) Payment of Hire for the first and last month's Hire if less than a full
month shall be calculated proportionally according to the number of days in
the particular calendar month and advance payment to be effected
accordingly.
(d) Should the Vessel be lost or missing, Hire to cease from the date and
time when she was lost or last heard of. Any Hire paid in advance to be
adjusted accordingly.
(e) In default of payment beyond a period of seven running days, the Owners
shall have the right to withdraw the Vessel from the service of the
Charterers without noting any protest and without interference by any court
or any other formality whatsoever, and shall, without prejudice to any
other claim the Owners may otherwise have against the Charterers under the
Charter, be entitled to damages in respect of all costs and losses incurred
as a result of the Charterers' default and the ensuing withdrawal of the
Vessel.
(f) Any delay in payment of Hire shall entitle the Owners to an interest of
10 percent per annum.
10. Mortgage
Owners warrant that they have not effected any mortgage of the Vessel
unless otherwise indicated in Box 27. Owners hereby undertake not to effect
any (other) mortgage without the prior consent of the Charterers. Any
mortgage approved by Charterers hereunder is herein referred to as an
"approved mortgage" and any mortgagee under an approved mortgage is herein
referred to as an "approved mortgagee."
11. Insurance and Repairs
(a) During the Charter period the Vessel shall be kept insured by the
Charterers at their expense against marine, war and Protection and
Indemnity risks in such form as the Owners shall in writing approve, which
approval shall not be unreasonably withheld. Such marine war and P. and I.
insurances shall be arranged by the Charterers to protect the interests of
both the Owners and the Charterers and mortgagees (if any), and the
Charterers shall be at liberty to protect under such insurances the
interests of any managers they may appoint. All insurance policies shall be
in the joint names of the Owners and the Charterers as their interests may
appear.
If the Charterers fail to arrange and keep any of the insurances provided
for under the provisions of sub- clause (a) above in the manner described
therein, the Owners shall notify the Charterers whereupon the Charterers
shall rectify the position within seven running days, failing which Owners
shall have the right to withdraw the Vessel from the service of the
Charterers without prejudice to any claim the Owners may otherwise have
against the Charterers.
The Charterers shall, subject to the approval of the Owners and the
Underwriters, effect all insured repairs and shall undertake settlement of
all costs in connection with such repairs as well as insured charges,
expenses and liabilities (reimbursement to be secured by the Charterers
from the Underwriters) to the extent of coverage under the insurances
herein provided for.
The Charterers also to remain responsible for and to effect repairs and
settlement of costs and expenses incurred thereby in respect of all other
repairs not covered by the insurances and/or not exceeding any possible
franchise(s) or deductibles provided for in the insurances. All time used
for repairs under the provisions of sub-clause (a) of this Clause and for
repairs of latent defects according to Clause 1 above including any
deviation shall count as time on hire and shall form part of the Charter
period.
(b) If the conditions of the above insurances permit additional insurance
to be placed by the parties, such cover shall be limited to the amount for
each party set out in Box 29 and Box 30, respectively. The Owners or the
Charterers as the case may be shall immediately furnish the other party
with particulars of any additional insurance effected, including copies of
any cover notes or policies and the written consent of the insurers of any
such required insurance in any case where the consent of such insurers is
necessary.
(c) Should the Vessel become an actual, constructive, compromised or agreed
total loss under the insurances required under sub-clause (a) of Clause 12,
all insurance payments for such loss shall be paid to the Mortgagee, if
any, in the manner described in the Deed(s) of Covenant, who shall
distribute the moneys between themselves, the Owners and the Charterers
according to their respective interests.
(d) The Owners shall upon the request of the Charterers, promptly execute
such documents as may be required to enable the Charterers to abandon the
Vessel to insurers and claim a constructive total loss.
(e) For the purpose of insurance coverage against marine and war risks
under the provisions of sub-clause (a) of this Clause, the value of the
Vessel is the sum indicated in Box 28.
12. Insurance, Repairs and Classification
(Optional only to apply if expressly agreed and stated in Box 28, in which
event Clause 11 shall be considered deleted).
[Intentionally Deleted]
13. Re-delivery
The Charterers shall at the expiration of the Charter period redeliver the
Vessel at a safe and ice-free port or place as indicated in Box 18. The
Charterers shall give the Owners not less than 30 running days' preliminary
and not less than 14 days' definite notice of expected date, range of ports
of redelivery or port or place of redelivery. Any changes thereafter in
Vessel's position shall be notified immediately to the Owners.
Should the Vessel be ordered on a voyage by which the Charter period may be
exceeded the Charterers to have the use of the Vessel to enable them to
complete the voyage, provided it could be reasonably calculated that the
voyage would allow redelivery about the time fixed for the termination of
the Charter.
The Vessel shall be redelivered to the Owners in the same or as good
structure, state, condition and class as that in which she was delivered,
fair wear and tear not affecting class excepted.
The Vessel upon redelivery shall have her survey cycles up to date and
class certificates valid for at least the number of onths agreed in Box 14.
14. Non-Lien
Charterers will not suffer, nor permit to be continued, any lien or
encumbrance incurred by them or their agents, which might have priority
over the title and interest of the Owners in the Vessel.
The Charterers further agree to fasten to the Vessel in a conspicuous place
and to keep so fastened during the Charter period a notice reading as
follows:-
"This Vessel is the property of (name of Owners). It is under charter
to (name of Charterers) and by the terms of the Charter Party neither
the Charterers nor the Master have any right, power or authority to
create, incur or permit to be imposed on the Vessel any lien
whatsoever."
Charterers shall indemnify and hold the Owners harmless against any lien of
whatsoever nature arising upon the Vessel during the Charter period while
she is under the control of the Charterers, and against any claims against
the Owners arising out of or in relation to the operation of the Vessel by
the Charterers. Should the Vessel be arrested by reason of claims or liens
arising out of her operation hereunder by the Charterers, the Charterers
shall at their own expense take all reasonable steps to secure that within
a reasonable time the Vessel is released and at their own expense put up
bail to secure release of the Vessel.
15. Lien
The Owners to have a lien upon all cargoes and sub-freights belonging to
the Charterers and any Bill of Lading freight for all claims under this
Charter, and the Charterers to have a lien on the Vessel for all moneys
paid in advance and not earned.
16. Salvage
All salvage and towage performed by the Vessel shall be for the Charterers'
benefit and the cost of repairing damage occasioned thereby shall be borne
by the Charterers.
17. Wreck Removal
In the event of the Vessel becoming a wreck or obstruction to navigation
the Charterers shall indemnify the Owners against any sums whatsoever which
the Owners shall become liable to pay and shall pay in consequence of the
Vessel becoming a wreck or obstruction to navigation.
18. General Average
General Average, if any, shall be adjusted according to the York-Antwerp
Rules 1974 or any subsequent modification thereof current at the time of
the casualty.
The Charter Hire not to contribute to General Average.
19. Assignment and Sub-Demise
The Charterers shall not assign this Charter nor sub-demise the Vessel
except with the prior consent in writing of the Owners which shall not be
unreasonably withheld and subject to such terms and conditions as the
Owners shall approve.
20. Bills of Lading
[Intentionally Deleted]
21. Bank Guarantee
The Charterers undertake to furnish, before delivery of the Vessel, a first
class bank guarantee or bond in the sum and at the place as indicated in
Box 26 as guarantee for full performance of their obligations under this
Charter. (Optional, only to apply if Box 26 filled in).
22. Requisition/Acquisition
(a) In the event of the Requisition for Hire of the Vessel by any
governmental or other competent authority (hereinafter referred to as
"Requisition for Hire") irrespective of the date during the Charter period
when "Requisition for Hire" may occur and irrespective of the length
thereof and whether or not it be for an indefinite or a limited period of
time, and irrespective of whether it may or will remain in force for the
remainder of the Charter period, this Charter shall not be deemed thereby
or thereupon to be frustrated or otherwise terminated and the Charterers
shall continue to pay the stipulated hire in the manner provided by this
Charter until the time when the Charter would have terminated pursuant to
any of the provisions hereof always provided however that in the event of
"Requisition for Hire" any Requisition Hire or compensation received or
receivable by the Owners shall be payable to the Charterers during the
remainder of the Charter period or the period of the "Requisition for Hire"
whichever be the shorter.
The Hire under this Charter shall be payable to the Owners from the same
time as the Requisition Hire is payable to the Charterers.
(b) In the event of the Owners being deprived of their ownership in the
Vessel by any Compulsory Acquisition of the Vessel or requisition for title
by any governmental or other competent authority (hereinafter referred to
as "Compulsory Acquisition"), then, irrespective of the date during the
Charter period when "Compulsory Acquisition" may occur, this Charter shall
be deemed terminated as of the date of such "Compulsory Acquisition". In
such event Charter Hire to be considered as earned and to be paid up to the
date and time of such "Compulsory Acquisition".
23. War
(a) The Vessel unless the consent of the Owners be first obtained not to be
ordered nor continue to any place or on any voyage nor be used on any
service which will bring her within a zone which is dangerous as the result
of any actual or threatened act of war, war, hostilities, warlike
operations, acts of piracy or of hostility or malicious damage against this
or any other vessel or its cargo by any person, body or State whatsoever,
revolution, civil war, civil commotion or the operation of international
law, nor be exposed in any way to any risks or penalties whatsoever
consequent upon the imposition of Sanctions, nor carry any goods that may
in any way expose her to any risks of seizure, capture, penalties or any
other interference of any kind whatsoever by the belligerent or fighting
powers or parties or by any Government or Ruler.
(b) The Vessel to have liberty to comply with any orders or directions as
to departure, arrival, routes, ports of call, stoppages, destination,
delivery or in any other wise whatsoever given by the Government of the
nation under whose flag the Vessel sails or any other Government or any
person (or body) acting or purporting to act with the authority of such
Government or by any committee or person having under the terms of the war
risks insurance on the Vessel the right to give any such orders or
directions.
(c) In the event of outbreak of war (whether there be a declaration of war
or not) between any two or more of the countries as stated in Box 31, both
the Owners and the Charterers shall have the right to cancel this Charter,
whereupon the Charterers shall redeliver the Vessel to the Owners in
accordance with Clause 14, if she has cargo on board after discharge
thereof at destination, or if debarred under this Clause from reaching or
entering it at a near open and safe port as directed by the Owners, or if
she has no cargo on board, at the port at which she then is or if at sea at
a near open and safe port as directed by the Owners. In all cases hire
shall continue to be paid in accordance with clause l0 and except as
aforesaid all other provisions of this Charter shall apply until
redelivery.
(d) If in compliance with the provisions of this Clause anything is done or
is not done, such not to be deemed a deviation.
24. Commission
The Owners to pay a commission at the rate indicated in Box 32 to the
Brokers named in Box 32 on any Hire paid under the Charter but in no case
less than is necessary to cover the actual expenses of the Brokers and a
reasonable fee for their work. If the full Hire is not paid owing to breach
of Charter by either of the parties the party liable therefor to indemnify
the Brokers against their loss of commission.
Should the parties agree to cancel the Charter, the Owners to indemnify the
Brokers against any loss of commission but in such case the commission not
to exceed the brokerage on one year's Hire.
25. Law and Arbitration
This Charter shall be governed by the law of the country agreed in Box 33
(if Box 33 is not filled in, English Law shall apply). Any dispute arising
out of this Charter shall be referred to arbitration in London or at the
place agreed in Box 34, as the case may be, the dispute being settled by a
single Arbitrator to be appointed by the parties hereto. If the parties
cannot agree upon the appointment of the single Arbitrator the dispute
shall be settled by three Arbitrators, each party appointing one
Arbitrator, the third being appointed by the Arbitrators of the parties. If
the Arbitrators fail to agree on the appointment of the third Arbitrator,
such appoint shall be made by The Baltic and International Maritime
Conference in Copenhagen. If either of the appointed Arbitrators refuses or
is incapable of acting, the party who appointed him shall appoint a new
Arbitrator in his place.
If one party fails to appoint an Arbitrator - either originally or by way
of substitution - for two weeks after the other party having appointed his
Arbitrator has sent the party making default notice by mail, cable or telex
to make the appointment, The Baltic and International Maritime Conference
shall, after application from the party having appointed his Arbitrator,
also appoint an Arbitrator on behalf of the party making default.
The award rendered by the Arbitration Court shall be final and binding upon
the parties and may if necessary be enforced by the Court or any other
competent authority in the same manner as a judgment in the Court of
Justice.
PART III
"BARECON A" Standard Bareboat Charter
HIRE/PURCHASE AGREEMENT
(Optional, only to apply if expressly agreed and stated in Box 35)
26. [Intentionally Deleted]
27. [Intentionally Deleted]
28. [Intentionally Deleted]
29. [Intentionally Deleted]
30. [Intentionally Deleted]
31. [Intentionally Deleted]
32. [Intentionally Deleted]
Additional Clauses
33. This Charter may be terminated prior to the end of the Charter period
stated in Box 22 of Part 1 in the event that an Event of Default shall
exist under Section 3(b) of the Purchase and Sale Agreement dated of
even date herewith between the Charterers and Donald F. Conway,
Chapter Eleven Trustee for the Bankruptcy Estate of Robert E. Brennan
(herein the "Trustee"). Upon occurrence of such an Event of Default,
the Trustee, shall have the right, among other things, to cause the
termination of this Charter upon notice to the Owners and the
Charterers.
34. Upon delivery of the Vessel by the Owners to the Charterers under this
Charter, the Owners shall continue to conduct certain operations of
the Vessel until such time as the Charterers shall have applied for
and obtained any and all permits, licenses, and/or registrations
necessary or desirable in connection with the Charterers' acting as
operators of the Vessel. Such applications shall include, but shall
not be limited to, those for Federal water pollution certification,
registration under the Gambling Devices Act, registration for Florida
sales tax, and Florida alcoholic beverages licensing. The Charterers
shall diligently pursue such applications.
35. This Charter and the rights of the Charterers under it are and shall
be subject and subordinate both to the provisions of the Indenture of
First Naval Mortgage, and the lien created thereby, given as of May
13, 1999 by the Owners to First Union National Bank as First
Mortgagee, and to the provisions of the Indenture of Second Naval
Mortgage, and the lien created thereby, given as of May 13, 1999 by
the Owners to Cambridge Capital Group, Inc. as Second Mortgagee.
36. This Charter shall not be assigned or amended by the parties in the
absence of the prior written approval of the Trustee, and Clause 35
shall not be amended without the prior written approval of the First
and Second Mortgagees.
37. The provisions of Clauses 33, 35 and 36 are for the express benefit
of, and shall be enforceable by, the Trustee. The provisions of
Clauses 35 and 36 are for the express benefit of, and shall be
enforceable by, the holders of the First and Second Mortgagees.
38. This Charter supersedes and replaces the previous charter agreement
dated April 30, 2001 between the Owners and the Charterers with
respect to the Vessel.
<page>
EXHIBIT 10.15
EXECUTION COPY
MASTER SETTLEMENT AGREEMENT
This MASTER SETTLEMENT AGREEMENT (the "Agreement") is made as of the 22nd
day of February, 2002, to be effective as of April 30, 2001 (the "Effective
Date") by and among DONALD F. CONWAY, THE CHAPTER 11 TRUSTEE FOR THE BANKRUPTCY
ESTATE OF ROBERT E. BRENNAN, a bankruptcy estate formed pursuant to Chapter 11
of Title 11 of the United States Code (the "Trustee"), MJQ CORPORATION, a
Delaware corporation ("MJQ"), MICHAEL J. QUIGLEY, III, an individual
("Quigley"), LEO EQUITY GROUP, INC., a Florida corporation ("LEG"), FRANK A.
LEO, an individual ("Leo"), DEERBROOKE INVESTMENTS, INC., a Panamanian
corporation ("Deerbrooke"), FRANCIS W. MURRAY, an individual ("Murray"),
CAMBRIDGE CAPITAL GROUP, INC., a Delaware corporation ("Cambridge"),
INTERNATIONAL THOROUGHBRED BREEDERS, INC., a Delaware corporation ("ITB"), and
PALM BEACH PRINCESS, INC., a Delaware corporation ("PBP").
Background
A. On August 7, 1995, Robert E. Brennan (the "Debtor") filed a voluntary
petition for relief under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"), Case No. 95-35502(KCF). Pursuant to an Order
entered June 10, 1997, the Bankruptcy Court approved the appointment of Trustee
as trustee for the bankruptcy estate of the Debtor (the "Estate").
B. Debtor is the grantor of three pre-petition offshore asset protection
trusts (the "Offshore Trusts") established in Gibraltar pursuant to the laws of
Gibraltar. Debtor appointed STG Valmet Trustees Limited ("STG"), formerly known
as Seamark Trust Company (Gibraltar) Limited, as the trustee of two of the
Offshore Trusts. Peter M. Bond ("Bond") is a principal of STG.
C. The Palm Beach Princess f/k/a the Viking Princess, Patente of Navigation
No. 14348-84-D, radio call signal 3FNQ2, (the "Ship") is an ocean-faring casino
cruise ship under Panamanian flag owned by MJQ and operated out of the Port of
Palm Beach, Florida.
D. On April 28, 1998 the Trustee commenced litigation in Gibraltar against
STG in the Supreme Court of Gibraltar which action is numbered 1998 C. No. 87
(the "Gibraltar Litigation") to recover the assets claimed by the Trustee to
have been diverted to the Offshore Trusts, including the Ship Obligations (as
defined below) and the Valmet Shares (as defined below). On December 7, 2000,
the Trustee on the one hand, and STG and Bond, on the other, signed two written
settlement agreements (collectively, the "STG Settlement Agreement") which
resolve the Gibraltar Litigation and provide, inter alia, for the assignment by
Oceanic Venture Funding Ltd. ("OVFL"), an Isle of Man entity, to the Trustee of
all the right, title and interest of OVFL in and to (1) that certain Promissory
Note dated May 13, 1999 (the "Ship Note") in the original principal amount of
$12,000,000 payable by MJQ to the order of Cambridge, and (2) that certain
Indenture of Second Naval Mortgage dated as of May 13, 1999 by MJQ in favor of
Cambridge securing the obligations of MJQ under the Ship Note and encumbering
the Ship (collectively, the "Ship Obligations"). In addition, Bond agreed to
assign certain shares of common stock of International Thoroughbred Breeders,
Inc. (the "Valmet Shares") held by entities owned or controlled by him to the
Trustee. The performance of the STG Settlement Agreement by the parties is
conditioned upon Bankruptcy Court approval in the Pirates Litigation (as defined
below) as well as approval by the Supreme Court of Gibraltar in the Gibraltar
Litigation. On February 21, 2001, the Bankruptcy Court entered an Order in the
Pirates Litigation approving the STG Settlement Agreement pursuant to Federal
Rule of Bankruptcy Procedure 9019. On September 27, 2001, the Supreme Court of
Gibraltar entered an order approving the STG Settlement Agreement (the
"Gibraltar Court Approval Order").
E. On May 13, 1998, the Trustee commenced an adversary proceeding,
captioned Conway v. Pirates Associates, et al., Adv. Pro. No. 98-3245 (the
"Pirates Litigation"), seeking, inter alia, avoidance of the Debtor's transfers
of assets to the Offshore Trusts and avoidance of certain of the Debtor's
transfers of shares of International Thoroughbred Breeders, Inc. ("ITB") to
non-debtor entities (the "Pirates Shares"). On November 29, 2000, the Trustee
obtained leave to file the Third Amendment to the Complaint in the Pirates
Litigation seeking, inter alia, avoidance of certain transfers from the Offshore
Trusts to the Ship (the "Ship Claims"). In the Third Amendment to the Complaint,
the Trustee joined MJQ, LEG, Deerbrooke, Cambridge, Quigley, Leo, and Murray
(collectively the "Ship Defendants"), among others, as defendants to the Pirates
Litigation.
F. On June 9, 1998, the Trustee commenced an adversary proceeding,
captioned Conway v. Abbey Investors of America, Inc., et al., Adv. Pro. No.
98-3283 (the "Abbey Litigation"), seeking, inter alia, avoidance of certain of
the Debtor's transfers of certain shares of ITB to non-debtor entities (the
"Abbey Shares") (the Abbey Shares and the Pirates Shares are collectively
referred to herein as the "Litigated Shares").
G. PBP is a wholly owned subsidiary of International Thoroughbred Gaming
Development Corporation ("ITG"), which is a wholly owned subsidiary of
International Thoroughbred Breeders, Inc. ("ITB"), a Delaware corporation. GSRT,
LLC ("GSRT") is a wholly owned subsidiary of ITB and is the payee of that
certain promissory note dated November 29, 2000 in the original principal amount
of $10,000,000 payable by Realen- Turnberry/Cherry Hill, LLC (the "GSP Note").
To facilitate the continued operation of the Ship as a going concern, ITB and
PBP desire to participate in the Master Settlement Agreement. PBP shall purchase
the Ship Obligations.
H. The Trustee has agreed to, among other things, assign the Ship
Obligations to PBP and release the Ship Claims in consideration of the agreement
by and among the Ship Defendants that in the event of certain defaults by PBP in
connection with its obligation to purchase the Ship Obligations or certain other
obligations to be undertaken by the parties hereto, the Trustee shall take
control of the Ship, and shall thereafter be free to sell the Ship along with
its Related Assets as a going concern, free and clear of all claims of the Ship
Defendants, with the proceeds of such sale being applied by the Trustee for the
benefit of the Estate.
2
I. The Trustee and Ship Defendants intend that this Agreement resolve the
Ship Claims and all other claims asserted by and against each of them without
exposing either party to any further costs or uncertainty of the outcome. The
Trustee and Ship Defendants each desire to terminate the litigation with respect
to the Ship Claims and deliver and exchange mutual general releases upon the
approval of this Agreement by the Bankruptcy Court and by certain third parties
more particularly set forth below.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants, and agreements contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree,
subject to Bankruptcy Court approval, as follows:
1. Defined Terms; Interpretation.
(a) The following capitalized terms generally used in this Agreement
shall have the meanings defined or referenced below:
"Abbey Litigation" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Abbey Shares" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Additional Shares" shall have the meaning ascribed to such term in Section
3(a)(iii) of this Agreement.
"Agreement" shall have the meaning ascribed to such term in the Background
of this Agreement.
"Assumed Contracts" shall have the meaning ascribed to such term in Section
11(a)(i) of this Agreement.
"Assumed Liabilities" shall have the meaning ascribed to such term in
Section 11(a) of this Agreement.
"Balloon Payment" shall have the meaning ascribed to such term in Section
3(a)(i) of this Agreement.
"Bankruptcy Code" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Bankruptcy Court" shall have the meaning ascribed to such term in the
Background of this Agreement.
3
"Bankruptcy Court Approval Order" shall have the meaning ascribed to such
term in Section 2(b) of this Agreement.
"Bareboat Charter" shall have the meaning ascribed to such term in Section
3(b)(ii) of this Agreement.
"Benefit Plans" shall have the meaning ascribed to such term in Section
11(b) of this Agreement.
"Business" shall have the meaning ascribed to such term in the definition
of Related Assets below.
"Bond" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Cambridge" shall have the meaning ascribed to such term in the Background
of this Agreement.
"Charter Rent" shall have the meaning ascribed to such term in Section
3(b)(ii) of this Agreement.
"Cherry Hill Property" shall have the meaning ascribed to such term in
Section 5(b) of this Agreement.
"Closing Date" shall have the meaning ascribed to such term in the Purchase
and Sale Agreement.
"Control Date" shall mean the date, if any, on which the Trustee takes
control of the Ship pursuant to the Foreclosure Documents.
"Control Date Working Capital Statement" shall have the meaning ascribed to
such term in Section 11(c)(i) hereof.
"Current Assets" and "Current Liabilities" shall mean assets and
liabilities, respectively, of MJQ and PBP that would be classified as current
assets and current liabilities, respectively, in accordance with generally
accepted accounting principles.
"Debtor" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Deerbrooke" shall have the meaning ascribed to such term in the Background
of this Agreement.
"Discharge" shall have the meaning ascribed to such term in Section
3(d)(ii) of this Agreement.
"District" shall have the meaning ascribed to such term in Section 3(c)(i)
of this Agreement.
4
"Eligible Assets" shall mean those categories of assets set forth on the
pro forma consolidated financial statements of MJQ and PBP as set forth on
Schedule 6(e) attached hereto consisting of (a) prepaid shipyard expenses and
insurance premiums, (b) on board casino cash float, (c) accounts receivable (as
set forth in clause (j) of the definition of "Related Assets" set forth below),
(d) prepaid expenses, (e) security deposits and (f) inventory (as defined in
clause (i) of the definition of "Related Assets" set forth below).
"Eligible Liabilities" shall mean those categories of liabilities set forth
on the pro forma consolidated financial statements of MJQ and PBP as set forth
on Schedule 6(e) attached hereto consisting of (a) accounts payable arising in
the ordinary course of business (excluding payments to affiliates and third
party professional fees), (b) accrued purchases, (c) accrued expense payable,
(c) unearned passenger fare, (e) wages payable for any pay period except the
current payroll period, (f) other miscellaneous payables other than those
related to the current pay period and (f) taxes payable, other than current
quarterly payroll taxes.
"Environmental Claims" shall have the meaning ascribed to such term in
Section 11(b) of this Agreement.
"Environmental Laws" shall have the meaning ascribed to such term in
Section 11(b) of this Agreement.
"Escrow Agreement" shall have the meaning ascribed to such term in Section
8 of this Agreement.
"Escrow Excess" shall have the meaning ascribed to such term in Section
3(e) of this Agreement.
"Escrow Funds" shall have the meaning ascribed to such term in Section 2(c)
of this Agreement.
"Estoppel Letter" shall have the meaning ascribed to such term in Section
3(a)(iv) of this Agreement.
"Excess Related Asset Value" shall have the meaning ascribed to such term
in Section 11(c)(v) of this Agreement.
"Foreclosure Documents" shall have the meaning ascribed to such term in
Section 3(b)(i) of this Agreement.
"Fraudulent Conveyance Litigation" shall mean the litigation over the Ship
Claims in the Pirates Litigation.
"Gibraltar Litigation" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Gibraltar Court Approval Order" shall have the meaning ascribed to such
term in Section 2(b) of this Agreement.
5
"GSP Escrow" shall have the meaning ascribed to such term in Section 3(e)
of this Agreement.
"GSP Note" shall have the meaning ascribed to such term in the Background
of this Agreement.
"GSRT" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Individual Settlors" means, collectively, Leo, Murray and Quigley.
"Installment Payments" shall have the meaning ascribed to such term in
Section 3(a)(i) of this Agreement.
"ITB" shall have the meaning ascribed to such term in the Background of
this Agreement.
"ITB Security Agreement" shall have the meaning ascribed to such term in
Section 3(a)(iv) of this Agreement.
"ITG" shall have the meaning ascribed to such term in the Background of
this Agreement.
"LEG" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Leo" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Liquidated Damages" shall have the meaning ascribed to such term in
Section 3(a)(i) of this Agreement.
"Litigated Shares" shall have the meaning ascribed to such term in the
Background of this Agreement.
"MJQ" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Materials of Environmental Concern" shall have the meaning ascribed to
such term in Section 11(b) hereof.
"Murray" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Murray Guaranty Agreement" shall have the meaning ascribed to such term in
Section 3(a)(vi) of this Agreement.
"Offshore Trusts" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Operating Agreement" shall have the meaning ascribed to such term in
Section 3(c)(i) of this Agreement.
6
"Operational Documents" shall have the meaning ascribed to such term in the
definition of "Related Assets" below.
"Option" shall have the meaning ascribed to such term in Section 3(a)(iii)
of this Agreement.
"Other LEG Agreements" shall have the meaning ascribed to such term in
Section 3(c)(ii) of this Agreement.
"OVFL" shall have the meaning ascribed to such term in the Background of
this Agreement.
"PBP Ship Mortgage Assignment" shall have the meaning ascribed to such term
in Section 3(d)(i) of this Agreement.
"PBP" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Pirates Litigation" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Pirates Shares" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Port Management Agreement" shall have the meaning ascribed to such term in
Section 3(b)(iii) of this Agreement.
"Port Management Agreement Assignment" shall have the meaning ascribed to
such term in Section 3(b)(iii) of this Agreement.
"Purchase and Sale Agreement" shall have the meaning ascribed to such term
in Section 3(a)(i) of this Agreement.
"Quigley" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Realen-Turnberry" shall have the meaning ascribed to such term in Section
3(a)(v) of this Agreement.
"Related Assets" means the following:
(a) the leases under which MJQ or PBP is a lessee, listed as of the date
hereof in Schedule 1(a) attached hereto (with the understanding that
some of those leases may expire and additional leases may be added in
the ordinary course of business between the date of the Settlement
Agreement and the Closing Date or the Control Date, as the case may
be);
(b) all casino equipment owned by MJQ or PBP used in connection with the
operation of the business known as the "Palm Beach Casino Line" (the
7
"Business"), which includes (among other things) the operation of the
Ship in the casino cruise business, and all of MJQ's or PBP's
leasehold interests in any and all casino equipment being leased to
MJQ or PBP and used in the Business, which casino equipment is listed
as of the date hereof in Schedule 1(b) (it being understood and agreed
that some of those leases may expire, and others may be added, between
the date hereof and the Closing Date or the Control Date, as the case
may be);
(c) all office equipment owned by MJQ or PBP and used in the Business and
all of MJQ's or PBP's leasehold interest in any and all office
equipment leased to MJQ or PBP and used in the Business, which office
equipment is listed as of the date hereof in Schedule 1(c) attached
hereto (it being understood and agreed that some of those leases may
expire, and others may be added, between the date hereof and the
Closing Date or the Control Date, as the case may be);
(d) any and all other equipment (including but not limited to all
electrical, navigational, radar and computer systems), machinery,
furniture, fixtures, life boats, engines, charts, test equipment,
tools and other fixed assets owned by MJQ and PBP and used in the
Business, whether on board the Ship or on shore, and all of MJQ's and
PBP's leasehold interests in any and all such equipment, which
equipment is listed as of the date hereof in Schedule 1(d) attached
hereto (it being understood and agreed that some of such leases may
expire, and others may be added, between the date hereof and the
Closing Date and the Control Date, as the case may be);
(e) all executory contracts, agreements, and commitments of or in favor of
MJQ or PBP entered into in the ordinary course of the Business (other
than insurance policies and collective bargaining agreements including
all prepayments and security deposits thereunder), which contracts,
agreements and commitments are listed as of the date hereof in
Schedule 1(e) attached hereto (it being understood and agreed that
some of such contracts, agreements and commitments may expire, and
others may be added, between the date hereof and the Closing Date and
the Control Date, as the case may be);
(f) all of MJQ and PBP's right, title and interest in and to all licenses,
permits, franchises, approvals, certificates, authorizations and
rights issued by any federal, state or local government relating to
the Business to the extent such rights, title and interest are
transferable or assignable to the Trustee or its designee;
(g) all right, title and interest (if any) of MJQ and PBP to the trade
names "Palm Beach Princess" and "Palm Beach Casino Line", and to any
variations thereof;
(h) all right, title and interest of MJQ Corporation d/b/a Palm Beach
Casino Line in and to Florida Alcoholic Beverages License #60-11456,
Series 4COP-SPX;
8
(i) all inventories and supplies of MJQ and PBP, including, without
limitation, inventories of food, beverages, spare parts, phone cards
held for sale to employees, gift shop inventory and the remaining
bunkers and unused lubricating oils but only to the extent such oils
are in storage tanks or sealed drums or otherwise in the Ship's
system; and
(j) the casino cash float on board the Ship on the Control Date (including
but not limited to cash in slot machines), credit card receivables and
other receivables arising in the ordinary course of business.
The licenses, permits, leases of real property, leases of personal property, and
other executory contracts and agreements included in the Related Assets
described above are hereinafter collectively called the "Operational Documents."
It is agreed that the following assets are expressly excluded from the Related
Assets: all automobile leases and automobile finance agreements; any and all
accounts receivable and notes receivable owing from MJQ, PBP or any other
affiliated or related persons and entities and claims by MJQ and PBP which arose
prior to the Trustee's acquisition of control of the Ship; all insurance
policies of MJQ or PBP (including any unearned premiums); all bank accounts and
certificates of deposit of PBP and MJQ; and employment contracts of Francis X.
Murray, John McTighe, and Jerry Winters.
"Release" shall have the meaning ascribed to such term in Section 2(a) of
this Agreement.
"Related Asset Value Deficiency" shall have the meaning ascribed to such
term in Section 11(c)(v) of this Agreement.
"Retained Liabilities" shall have the meaning ascribed to such term in
Section 11(b) of this Agreement.
"Settlement Documents" shall mean this Agreement, the Purchase and Sale
Agreement, the Stock Purchase Agreement, the ITB Security Agreement, Stock
Option Agreement, the Escrow Agreement, the Release and all other documents and
agreements executed concurrently with the execution and delivery of this
Agreement as set forth in Section 3.
"Ship Claims" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Ship Defendants" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Ship Mortgage" shall have the meaning ascribed to such term in Section
3(d)(i) of this Agreement.
"Ship Note" shall have the meaning ascribed to such term in the Background
of this Agreement.
"Ship Obligations" shall have the meaning ascribed to such term in the
Background of this Agreement.
9
"Ship Obligation Event of Default" shall have the meaning ascribed to such
term in Section 9 of this Agreement.
"Ship" shall have the meaning ascribed to such term in the Background of
this Agreement.
"STG Settlement Agreement" shall have the meaning ascribed to such term in
the Background of this Agreement.
"STG" shall have the meaning ascribed to such term in the Background of
this Agreement.
"Stock Acquisition Event of Default" shall have the meaning ascribed to
such term in Section 9(b) of this Agreement.
"Stock Purchase Agreement" shall have the meaning ascribed to such term in
Section 3(a)(ii) of this Agreement.
"Taxes" shall have the meaning ascribed to such term in Section 11(b) of
this Agreement.
"Trustee Ship Mortgage Assignment" shall have the meaning ascribed to such
term in Section 3(d)(i) of this Agreement.
"Trustee" shall mean Donald F. Conway, the Chapter 11 Trustee for the
Bankruptcy Estate of Robert E. Brennan, and any successor thereto.
"Valmet Closing" shall have the meaning ascribed to such term in Section
3(a)(ii) of this Agreement.
"Valmet Payment" shall have the meaning ascribed to such term in Section
3(e) of this Agreement.
"Valmet Shares" shall have the meaning ascribed to such term in the
Background of this Agreement.
"Working Capital Deficiency" shall mean the amount by which Eligible
Liabilities exceeds Eligible Assets.
"Working Capital Test Date" shall have the meaning ascribed to such term in
Section 6(e) of this Agreement.
(b) The parties hereto acknowledge and agree that certain of the
transactions described herein shall be implemented by the Settlement Documents,
and that in the event of a conflict between the terms of this Settlement
Agreement and any of the Settlement Documents, the terms of the Settlement
Documents shall govern and control.
2. Settlement; Effectiveness.
(a) Settlement. On the terms hereinafter set forth and subject to the
conditions set forth in Section 2(b) hereof, the Trustee and the Ship Defendants
shall cause the
10
Fraudulent Conveyance Litigation to be settled, discontinued and ended, with
prejudice, and the parties shall execute and deliver a mutual general release in
the form attached as Exhibit "A" to this Agreement (the "Release"). The Release
delivered by the parties hereto shall incorporate mutual general releases by
each of the Trustee, the Ship Defendants and each of the business entities and
persons set forth on Exhibit "B" to this Agreement.
(b) Effectiveness. The effectiveness of this Agreement is contingent
upon (i) the entry of a final order by the Bankruptcy Court approving the
Purchase and Sale Agreement pursuant to 11 U.S.C. ss.363(b)(1) and approving
this Agreement pursuant to Federal Rule of Bankruptcy Procedure 9019,
respectively, which Order shall require that all claims to or against the Ship
Obligations shall attach to and be satisfied solely from the payments of the
purchase price for the Ship Obligations, and the time for obtaining a stay of
such Order shall have passed without any stay of such Order having been granted
or, if such stay shall have been granted, the Order shall have become final and
non-appealable (the "Bankruptcy Court Approval Order"); (ii) the entry of an
order by the Supreme Court of Gibraltar approving the STG Settlement Agreement
and ordering the assignment of the Ship Obligations to the Trustee (the
"Gibraltar Court Approval Order"); and (iii) the Trustee shall have received a
written assignment by OVFL of all of OVFL's right, title and interest in and to,
and all claims against, the Ship Obligations and the Ship. In the event that the
foregoing items (i), (ii) and (iii) have not occurred on or prior to April 30,
2002, this Settlement Agreement shall terminate and the Settlement Documents
shall be null and void and of no further force and effect; provided, however,
that in any such event the penultimate sentence of Section 2(c) below shall
remain in effect.
(c) Escrow of Installment Payments. The Installment Payments will be
paid into the Registry of the Bankruptcy Court in an interest bearing account
(the "Escrow Funds") and not released until the conditions set forth in Section
2(b) hereof have been fully satisfied. If the conditions set forth in Section
2(b) hereof are fully satisfied, then Trustee shall be entitled to the entry of
an order by the Bankruptcy Court permitting the release of the Escrow Funds to
the Trustee, subject to the release and delivery by the Escrow Agent to all
parties of the Release more particularly described in Section 3(a), and ITB and
PBP consent to the entry of such an order by the Bankruptcy Court releasing the
Escrow Funds to the Trustee. Upon the satisfaction of the conditions in Section
2(b) hereof, all Installment Payments paid thereafter shall be made directly to
the Trustee. If the conditions set forth herein are not met by April 30, 2002,
then PBP shall be entitled to terminate the Purchase and Sale Agreement and to
the entry of an Order permitting the release of the Escrow Funds to PBP, and the
Trustee consents to the entry of such an Order releasing the Escrow Funds to
PBP. The effect of a failure of the Closing to occur as a result of the
inability to satisfy various other conditions precedent or a material breach by
any party is provided for in the Purchase and Sale Agreement.
3. Settlement Documents. Simultaneously with the execution of this
Agreement the parties to this Agreement shall execute the Release and deposit
the Release with the Escrow Agent, and the following documents, certain of which
are being executed simultaneously with this Settlement Agreement and others of
which may be required to be executed after the execution of this Agreement, in
either case are being or when executed shall be deposited with the Escrow Agent
to be held in accordance with the terms of the Escrow Agreement:
11
(a) ITB and PBP Agreements: Simultaneously with the execution and
delivery of this Settlement Agreement, ITB or PBP, as the case may be, shall
execute and deposit the following with the Escrow Agent:
(i) Purchase and Sale Agreement. A Purchase and Sale Agreement in
the form attached hereto as Exhibit "C" (the "Purchase and Sale Agreement")
pursuant to which PBP agrees to purchase the Ship Obligations. The purchase
price of the Ship Obligations shall be $13,750,000, payable by PBP in (A)
sixteen (16) consecutive monthly installments of $250,000 each (the "Installment
Payments"), with the first payment being made as of April 30, 2001 and
continuing on the last day of each calendar month thereafter through and
including July 31, 2002 and (B) a payment of $9,750,000 (the "Balloon Payment")
due on the Closing Date. Until the conditions in Section 2(b) hereof are fully
satisfied, the Installment Payments shall be held in the Registry of the
Bankruptcy Court pursuant to Section 2(c) hereof. Thereafter, Installment
Payments by PBP shall be made directly to the Trustee. The closing of the
transactions contemplated by the Purchase and Sale Agreement shall be scheduled
to occur on or before July 31, 2002, as such date may be extended pursuant to
the terms of the Purchase and Sale Agreement, but in no event shall it occur
prior to Bankruptcy Court Approval and the conditions set forth in Paragraph
2(b) hereof have been satisfied. Upon the occurrence of a Ship Obligation Event
of Default under the Purchase and Sale Agreement, the Trustee shall have the
right in his sole discretion to terminate the Purchase and Sale Agreement and
the Trustee shall be permitted to retain as liquidated damages any and all of
the Installment Payments theretofore made (the "Liquidated Damages"). In the
event that the Trustee terminates the Purchase and Sale Agreement, the Escrow
Agent shall take all actions necessary to convey the Ship to the Trustee or its
designee, record the Foreclosure Documents and otherwise perfect the ownership
and possessory interest of the Trustee in and to the Ship.
(ii) Stock Purchase Agreement. A Stock Purchase Agreement in the
form attached hereto as Exhibit "D" (the "Stock Purchase Agreement") pursuant to
which the Trustee shall agree to sell and ITB shall agree to purchase all of the
Valmet Shares at $.50 per share, upon the terms and conditions more particularly
set forth therein. The purchase of the Valmet Shares shall be scheduled to occur
(subject to satisfaction of certain conditions precedent) on or before July 1,
2002 ("Valmet Closing").
(iii) Stock Option Agreement. A Stock Option Agreement in the form
attached hereto as Exhibit "E" pursuant to which ITB shall have the option to
purchase the Litigated Shares and any other shares of ITB common stock that the
Trustee may come into possession of (the "Additional Shares") at a purchase
price of $.50 per share (the "Option") exercisable within forty-five (45) days
of written notice from the Trustee that the Trustee is entitled to take
possession of the Litigated Shares or the Additional Shares. ITB acknowledges
and agrees that the Trustee shall have no obligation to take possession or
control of the Litigated Shares or the Abbey Shares, regardless of the Trustee's
ability to do so. ITB further acknowledges and agrees that the Trustee's
agreement to grant an option to ITB does not constitute an election of remedies
in the Pirates Litigation, the Abbey Litigation or otherwise.
(iv) ITB Security Agreement. A security agreement in the form
attached as Exhibit "F" hereto (the "ITB Security Agreement") pursuant to which
ITB's
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obligations to purchase the Valmet Shares from the Trustee shall be secured by
the proceeds of the GSP Note.
(v) Estoppel Letter. An estoppel letter in the form attached hereto
as Exhibit "G" from Realen-Turnberry/Cherry Hill, LLC ("Realen-Turnberry"), the
payor of the GSP Note, with such changes as may be approved by the Trustee.
(vi) Murray Guaranty. A guaranty agreement in the form attached
hereto as Exhibit "H" (the "Murray Guaranty Agreement") pursuant to which
Francis W. Murray ("Murray") shall unconditionally guaranty and act as surety
for the obligation to pay the Related Asset Value Deficiency to the Trustee.
(vii) Quigley Guaranty. A guaranty agreement in the form attached
hereto as Exhibit "I" (the "Quigley Guaranty Agreement") pursuant to which
Quigley shall unconditionally guaranty and act as surety for the obligation to
pay the Related Asset Value Deficiency to the Trustee.
(b) MJQ Agreements.
(i) Foreclosure Documents. Those documents and agreements set forth
on Schedule 3(b)(i) hereto (collectively, the "Foreclosure Documents"), pursuant
to which MJQ, PBP and other necessary parties consent to the entry of a judgment
of strict foreclosure in favor of the Trustee. MJQ, PBP and the Trustee or any
of their respective assignees shall execute any and all documents necessary or
reasonably requested by the other to effectuate the Trustee's sale of the Ship
and the Related Assets during the existence of a Ship Obligation Event of
Default, including but not limited to an Assignment and Assumption Agreement in
the form attached hereto as Exhibit J. At the Trustee's election during the
existence of a Ship Obligation Event of Default, the Trustee shall have the
right to retain all of the Installment Payments and any other sums theretofore
paid to Trustee under the Purchase and Sale Agreement, to take control of the
Ship and to foreclose, market and sell the Ship and the Related Assets in his
sole discretion with the proceeds of any sale being paid over to the Estate. The
Trustee shall receive the installment payments, the proceeds of such foreclosure
and sale of the Ship and Related Assets in full satisfaction of the Ship
Obligations, and neither MJQ nor any other Ship Defendants shall be liable for a
deficiency with respect to Ship Obligations. The Foreclosure Documents shall be
executed simultaneously with the execution of this Agreement and held by the
Escrow Agent in escrow and released to the Trustee upon the occurrence of a Ship
Obligation Event of Default.
(ii) Bareboat Charter. A bareboat charter (the "Bareboat Charter")
pursuant to which PBP charters the Ship effective as of April 30, 2001 and
ending on July 31, 2002, subject to extension as provided therein. The Charter
shall provide that PBP will pay monthly rent in the amount of not less than
Fifty Thousand Dollars ($50,000) (the "Charter Rent"). The Charter Rent shall be
an amount sufficient to cover MJQ's monthly installment payments of principal
owed to First Union National Bank under that certain term loan dated May 13,
1999 and secured by an Indenture of First Naval Mortgage encumbering the Ship.
The Bareboat Charter shall automatically terminate upon the occurrence of a Ship
Obligation Event
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of Default. The Trustee consents to MJQ and PBP entering into the Bareboat
Charter in the form of Exhibit "K" attached hereto.
(iii) Port Management Agreement. An assignment to PBP all of MJQ's
right, title and interest in, to and under the Port Management Agreement for the
Ship dated May 13, 1999 between MJQ and LEG (the "Port Management Agreement").
Said assignment will provide that it shall terminate upon the occurrence of a
Ship Obligation Event of Default. MJQ will execute an assignment in the form
attached hereto as Exhibit "L", pursuant to which MJQ assigns to the Trustee of
all its right, title and interest in, to and under the Port Management Agreement
to the Trustee ("Port Management Agreement Assignment"). The Port Management
Agreement Assignment shall be executed simultaneously with the execution of the
Purchase and Sale Agreement and held by the Escrow Agent in escrow and released
to the Trustee upon termination by the Trustee of the Purchase and Sale
Agreement due to the occurrence of a Ship Obligation Event of Default. The
Trustee acknowledges that prior to closing under the Purchase and Sale Agreement
PBP may enter into a new operating agreement with the District, subject to the
consent and approval of the Trustee, and upon the effectiveness of the new
operating agreement, the Port Management Agreement shall terminate and be of no
further force and effect.
(iv) Insurance. Hull, Machinery and Third Party Liability polices of
insurance identifying the Trustee as a co-insured and as a loss payee "as its
interest may appear in form and substance satisfactory to the Trustee and its
counsel". The Trustee acknowledges that the existing policies of insurance
identified on Schedule 3(b)(iv) attached hereto and copies of which have been
furnished to Trustee are satisfactory in form and substance.
(v) Power of Attorney. Irrevocable Power of Attorney issued in favor
of the Trustee in the event of a Ship Obligation Event of Default in the form
attached hereto as Exhibit "M".
(vi) Transcript of Registry. A Certificate of Ownership and
Encumbrance disclosing that the Ship is free and clear of all encumbrances
except the Ship Obligations, a First Naval Mortgage in favor of First Union
National Bank, N.A. and a Subordination Agreement among MJQ, First Union
National Bank, N.A. and Cambridge (the "First Union Subordination Agreement").
(vii) Other Agreements. Upon request by the Trustee, MJQ shall
execute any and all documents reasonably necessary to effectuate the Trustee's
sale of the Ship and the Related Assets as a going concern and shall reasonably
cooperate in obtaining any and all third party approvals required in connection
with the assignment and sale of the Ship as provided herein. All of the
foregoing shall be held in escrow by the Escrow Agent pursuant to Section 8 of
this Agreement.
(c) LEG Agreements.
(i) Operating Agreement. An Assignment Agreement in the form of
Exhibit "N" (the "Operating Agreement Assignment") attached hereto pursuant to
which LEG
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assigns to the Trustee all of its right, title and interest in, to and under the
Operating Agreement (the "Operating Agreement") dated May 29, 1996, as renewed,
with the Port of Palm Beach District (the "District"). The Trustee acknowledges
that prior to closing under the Purchase and Sale Agreement PBP may enter into a
new operating agreement with the District, subject to the consent and approval
of the Trustee, in which event PBP shall enter into an assignment agreement in
form and substance reasonably satisfactory to the Trustee.
(ii) Other LEG Assignments. An Assignment and Assumption Agreement
in the form of Exhibit "O" hereto pursuant to which LEG assigns to the Trustee
all agreements, contracts and leases to which it is a party necessary to the
operations of the Ship ("Other LEG Agreements"). The Operating Agreement
Assignment and Other LEG Assignments shall be held in escrow pursuant to Section
8 of this Agreement.
(iii) Consents. LEG consents to MJQ's assignment of the Port
Management Agreement to PBP and the Trustee. LEG agrees to execute such further
documents and agreements as may be reasonably required by the Trustee in his
sole discretion to confirm or further evidence such consent.
(iv) Other Agreements. Upon request of the Trustee, LEG shall
execute any and all documents reasonably necessary to effectuate the sale of the
Ship and the Related Assets by the Trustee as a going concern and shall
reasonably cooperate in obtaining any and all third party approvals required in
connection with the assignment and sale of the Ship as provided herein. All of
the foregoing shall be held in escrow by the Escrow Agent pursuant to Section 8
of this Agreement.
(d) Cambridge Agreements.
(i) Mortgage Assignments. Two assignments in the form of Exhibit "P"
attached hereto (the "Mortgage Assignment") pursuant to which Cambridge assigns
the Indenture of Second Naval Mortgage by MJQ dated as of May 19, 1999 ("Ship
Mortgage") encumbering the Ship. One Mortgage Assignment will be in favor of the
Trustee ("Trustee Ship Mortgage Assignment") and one Mortgage Assignment will be
in favor of PBP ("PBP Ship Mortgage Assignment"). The Trustee Ship Mortgage
Assignment and the PBP Ship Mortgage Assignment (collectively the "Ship Mortgage
Assignments") shall be held in escrow by the Escrow Agent pursuant to Section 8
of this Agreement.
(ii) Discharge. A discharge of Mortgage in the form attached as
Exhibit "Q" hereto ("Discharge") to be held in escrow by the Escrow Agent
pursuant to Section 8 of this Agreement.
(iii) Other Documents. Cambridge agrees to execute any and all
documents as may be reasonably required by Trustee for the recordation of the
Mortgage Assignment and Discharge in the Republic of Panama or to otherwise
terminate of record the Ship Obligations or the First Union Subordination
Agreement.
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(iv) Other Agreements. Cambridge shall execute any and all documents
as may be reasonably required by Trustee in his sole discretion to effectuate
the sale of the Ship Obligations and to terminate of record the Ship
Obligations. All of the foregoing shall be held in escrow by the Escrow Agent
pursuant to Section 8 of this Agreement.
(e) GSRT Agreements. ITB shall cause GSRT to endorse the GSP Note to the
order of ITB effective as of April 30, 2001. All payments made under the GSP
Note prior to the closing of the Trustee's sale of the Valmet Shares to ITB (the
"Valmet Payment") shall be held in escrow (the "GSP Escrow") by the Escrow
Agent. ITB shall notify the Realen-Turnberry to make all payments to the Escrow
Agent. ITB shall, by appropriate documentation reasonably acceptable to Trustee,
covenant and agree that it shall waive its right to convert the GSP Note to an
equity interest in Realen-Turnberry as long as the proceeds of the GSP Note are
pledged as collateral. Prior to the Valmet Payment, ITB shall have the right to
direct the Escrow Agent to apply the GSP Escrow toward the payment of the
Installment Payments under the Purchase and Sale Agreement. If the amount held
in the GSP Escrow exceeds the amount required to purchase the Valmet Shares
pursuant to the Stock Purchase Agreement ("Escrow Excess") at any time prior to
the Closing Date of the Purchase and Sale Agreement, the Escrow Agent will be
permitted to release the Escrow Excess to ITB if requested in writing by ITB. In
the event ITB fails to timely make the Valmet Payment, Escrow Agent shall
release the GSP Escrow to the Trustee.
4. Trustee Covenants. The Trustee shall file an application pursuant to
Federal Rule of Bankruptcy Procedure 9019 and Section 363(b)(1) of the
Bankruptcy Code with the Bankruptcy Court to set a hearing to approve the terms
of this Agreement within ten (10) days after the execution and delivery of this
Agreement and the Settlement Documents. The Trustee covenants and agrees to
reasonably cooperate with ITB and MJQ in explaining to third parties this
Agreement in order to maintain, establish or reestablish relationships with the
District or MJQ's suppliers, contractors or creditors.
5. Representations and Warranties.
(a) ITB. ITB represents and warrants that (i) ITB is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder; (ii) the execution, delivery
and performance of this Agreement, and other agreements and documents to be
executed and delivered pursuant hereto, by ITB and the consummation by ITB of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of ITB, and no other corporate proceedings on the part of
ITB are necessary to authorize this Agreement and the transactions contemplated
hereby and thereby; and (iv) this Agreement has been duly executed and delivered
by ITB and constitutes, and the other agreements and documents to be executed
and delivered by ITB pursuant hereto, when executed and delivered by ITB, will
have been duly executed and delivered by ITB and will constitute, the legal,
valid and binding obligations of ITB, enforceable against ITB in accordance with
their respective terms, except as remedies may be limited by bankruptcy,
insolvency, fraudulent conveyance and other laws affecting creditors' rights
generally and by general principles of equity.
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(b) GSP Note. ITB represents and warrants that (i) the GSP Note matures
on November 28, 2015; however, the indebtedness evidenced by the Note shall be
prepaid upon the sale of all real property owned by Realen-Turnberry and
previously owned by GSRT consisting of 57.9 acres of real property located at
Route 70 and Haddonfield Road, Cherry Hill Township, Camden County, New Jersey
(the "Cherry Hill Property"). ITB shall promptly notify Trustee in writing of
any and all significant developments of which it obtains knowledge in connection
with the sale of the Cherry Hill Property.
(c) PBP. PBP represents and warrants that (i) PBP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder; (ii) the execution, delivery
and performance of this Agreement, and other agreements and documents to be
executed and delivered pursuant hereto, by PBP and the consummation by PBP of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of PBP, and no other corporate proceedings on the part of
PBP are necessary to authorize this Agreement and the transactions contemplated
hereby and thereby; (iii) this Agreement, has been duly executed and delivered
by PBP and constitutes, and the other agreements and documents to be executed
and delivered by PBP pursuant hereto, when executed and delivered by PBP, will
have been duly executed and delivered by PBP and will constitute, the legal,
valid and binding obligation of PBP, enforceable against PBP in accordance with
their respective terms, except as remedies may be limited by bankruptcy,
insolvency, fraudulent conveyance and other laws affecting creditor's rights
generally and by general principles of equity; and (iv) PBP charters the Ship
pursuant to the Bareboat Charter.
(d) Deerbrooke. Deerbrooke represents and warrants that (i) Deerbrooke
is a corporation duly organized, validly existing and in good standing under the
laws of the Republic of Panama and has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder;
(ii) the execution, delivery and performance of this Agreement, and other
agreements and documents to be executed and delivered pursuant hereto, by
Deerbrooke and the consummation by Deerbrooke of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors and
shareholders of Deerbrooke, and no other corporate proceedings on the part of
Deerbrooke are necessary to authorize this Agreement and the transactions
contemplated hereby and thereby; and (iii) this Agreement, has been duly
executed and delivered by Deerbrooke and constitutes, and the other agreements
and documents to be executed and delivered by Deerbrooke pursuant hereto, when
executed and delivered by Deerbrooke, will have been duly executed and delivered
by Deerbrooke and will constitute, the legal, valid and binding obligation of
Deerbrooke, enforceable against Deerbrooke in accordance with their respective
terms, except as remedies may be limited by bankruptcy, insolvency, fraudulent
conveyance and other laws affecting creditor's rights generally and by general
principles of equity.
(e) MJQ. MJQ represents and warrants that (i) MJQ is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder; (ii) the execution, delivery
and performance of this Agreement, and other agreements and documents to be
executed and delivered pursuant hereto, by MJQ and the
17
consummation by MJQ of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors and sole shareholder of MJQ, and
no other corporate proceedings on the part of MJQ are necessary to authorize
this Agreement and the transactions contemplated hereby and thereby; and (iii)
this Agreement, has been duly executed and delivered by MJQ and constitutes, and
the other agreements and documents to be executed and delivered by MJQ pursuant
hereto, when executed and delivered by MJQ, will have been duly executed and
delivered by MJQ and will constitute, the legal, valid and binding obligation of
MJQ, enforceable against MJQ in accordance with their respective terms, except
as remedies may be limited by bankruptcy, insolvency, fraudulent conveyance and
other laws affecting creditor's rights generally and by general principles of
equity and (iv) MJQ charters the Ship to PBP pursuant to the terms of the
Bareboat Charter.
(f) Additional Representations and Warranties of MJQ. MJQ represents and
warrants that (i) the Ship is currently registered in the Republic of Panama and
flies the Panamanian flag and that it is owned by MJQ and is free and clear of
all liens, taxes, encumbrances, and claims of every kind, nature and description
whatsoever except the First Ship Mortgage and the Second Naval Mortgage dated
May 13, 1999 and that all personal property owned by MJQ contained in and on the
Ship is also free and clear of any liens, encumbrances, claims, and demands
whatsoever, except as set forth in Schedule 5(f)-1; (ii) at the time of Closing,
any individual or entity still owed for any outstanding services, dockage,
supplies, labor, or materials rendered to, or for the benefit of, the Ship shall
be paid in full by MJQ; and that the Ship is not currently under contract for
charter or otherwise leased or hired out to any third parties, including, but
not limited to, claims for future use or charter of the Ship, except: (A) the
Bareboat Charter; and (B) the contracts and agreements disclosed on Schedule
5(f)-2. MJQ further represents that, except as disclosed on Schedule 5(f)-3,
there are no personal injury claims now outstanding against the Ship; and no
judgment or decree has been entered in any court of any state, country,
territory, province against MJQ which remains unsatisfied; and (iii) MJQ further
acknowledges that Trustee is relying on these representations and warranties in
completing the transaction; accordingly, MJQ, its heirs, representatives,
successors, and assigns, shall indemnify and hold harmless Trustee against and
from any claim, lien encumbrance, penalty, loss or expense trustee might suffer,
including, but not limited to, court costs and legal fees, arising by reason of
breach of its above representations and warranties.
(g) LEG. LEG represents and warrants that (i) LEG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder; (ii) the execution, delivery
and performance of this Agreement, and other agreements and documents to be
executed and delivered pursuant hereto, by LEG and the consummation by LEG of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of LEG, and no other corporate proceedings on the part of
LEG are necessary to authorize this Agreement and the transactions contemplated
hereby and thereby; and (iii) this Agreement, has been duly executed and
delivered by LEG and constitutes, and the other agreements and documents to be
executed and delivered by LEG pursuant hereto, when executed and delivered by
LEG, will have been duly executed and delivered by LEG and will constitute, the
legal, valid and binding obligation of LEG, enforceable against LEG in
accordance with their respective terms, except as remedies may be limited by
bankruptcy,
18
insolvency, fraudulent conveyance and other laws affecting creditor's rights
generally and by general principles of equity.
(h) Cambridge. Cambridge represents and warrants that (i) Cambridge is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder; (ii) the
execution, delivery and performance of this Agreement, and other agreements and
documents to be executed and delivered pursuant hereto, by Cambridge and the
consummation by Cambridge of the transactions contemplated hereby and thereby
have been duly authorized by the Board of Directors of Cambridge, and no other
corporate proceedings on the part of Cambridge are necessary to authorize this
Agreement and the transactions contemplated hereby and thereby; and (iii) this
Agreement, has been duly executed and delivered by Cambridge and constitutes,
and the other agreements and documents to be executed and delivered by Cambridge
pursuant hereto, when executed and delivered by Cambridge, will have been duly
executed and delivered by Cambridge and will constitute, the legal, valid and
binding obligation of Cambridge, enforceable against Cambridge in accordance
with their respective terms, except as remedies may be limited by bankruptcy,
insolvency, fraudulent conveyance and other laws affecting creditor's rights
generally and by general principles of equity.
(i) By Individual Settlors. Each of the Individual Settlors represents
and warrants that he is sui juris and of full capacity to make and perform this
agreement.
(j) Documents and Agreements. ITB, PBP, and each of the Ship Defendants
severally represent and warrant with respect to each of the Operational
Documents all of which are in effect on the date hereof and set forth on
Schedules 1(a), 1(b), 1(c), 1(d) and 1(e) attached hereto, as follows:
(i) such agreements, leases, licenses and permits constitute all of
the agreements, leases, licenses and permits used in connection with the
operation of the Ship and conduct of the related businesses.
(ii) there is no pending, or to such party's knowledge, threatened
litigation affecting any of the Operational Documents, any of which would
constitute a lien, charge, or claim of any kind against any of the party's
interests in and to the Operational Documents;
(iii) each of the copies of the Operational Documents provided to
the Trustee constitute the entire agreement relating, in each case, to the
subject matter thereof are true, correct and complete and remain unmodified;
(iv) there has been no default in any material aspect under any of
the Operational Documents that would entitle any party thereto to terminate such
document or to increase the financial obligations of the non-defaulting party
thereunder;
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(v) all of the Operational Documents remain in full force and effect
and constitute the valid, legal, binding and enforceable obligation of MJQ or
PBP, as applicable, except as remedies may be limited by bankruptcy, insolvency,
fraudulent conveyance and other laws affecting creditor's rights generally and
by general principles of equity, and except that certain of the Operational
Documents may be continuing beyond their stated terms and may be terminated at
will by either party at any time;
(vi) the list set forth as Schedule 5(j)(vi) hereto sets forth all
agreements, leases, licenses and permits for which third party consents are
required in connection with the assignment of each of the Operational Documents
to the Trustee;
(vii) none of the parties to any of the operational Documents has
given any notice of default under any of the Operational Documents which default
remains uncured; and
(viii) none of the parties to any of the Operational Documents has
received notice (whether actual or constructive) of any assignment,
hypothecation, mortgage or pledge of any interest in any of the Operational
Documents or any sums payable thereunder, except as may be specified in Schedule
5(j)(viii) hereto.
(k) By Trustee. The Trustee represents and warrants as follows:
(i) Trustee has the power to and authority to enter into this
Agreement and perform its obligations hereunder, subject to approval by the
Bankruptcy Court.
(ii) This Agreement has been duly executed and delivered by Trustee
and constitutes the legal, valid and binding obligations of Trustee, enforceable
against Trustee in accordance with its terms, subject to approval by the
Bankruptcy Court.
(iii) The execution, delivery and performance by Trustee of this
Agreement does not and will not (with or without the passage of time or giving
of notice) violate or conflict with any law or regulation, judgment or order of
any court or arbitrator binding upon Trustee.
(iv) No consents, approvals of or registrations, notifications,
filings and /or declarations with any court, government, governmental agency or
instrumentality or any other person are required to be given or made by Trustee
in connection with the execution, delivery and performance of this Agreement,
except for the approvals of the Gibraltar Court Approval Order and the
Bankruptcy Court Approval Order.
(v) There are no judicial, administrative, governmental or other
actions, proceedings or investigations pending, or to the knowledge of the
Trustee, threatened against or involving the Trustee, that question any of the
transactions contemplated by, or the validity of, this Agreement, except for the
proceedings seeking the requisite approval of the Gibraltar Court and the
Bankruptcy Court.
6. Additional Covenants.
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(a) Appraisal. The Trustee shall have the right to have one (1)
appraisal made at the Trustee's expense of the Ship, the Related Assets and
business operations at any time after the execution of this Agreement and prior
to the Closing Date or the Control Date, as the case may be. ITB, PBP, MJQ and
LEG severally covenant and agree to reasonably cooperate and use their best
efforts to cause their agents to reasonably cooperate with the Trustee and his
agents in conducting such appraisal.
(b) Title to Ship. Until Closing Date, MJQ shall not transfer or
otherwise encumber ownership of the Ship or grant any security interest in the
Ship unless with express written consent of the Trustee.
(c) Conduct of Ship Business. From the date hereof through Closing Date,
except as otherwise consented to by Trustee in writing or as specifically
contemplated by this Agreement, ITB, PBP, MJQ and LEG shall: (i) carry on the
Ship's business operations in, and only in, the usual, regular and ordinary
course in substantially the same manner as conducted heretofore and, to the
extent consistent with such business operations, use reasonable efforts to keep
available the services of its present employees and preserve the goodwill of the
Ship and relationships with insurance companies, suppliers, customers, and
others having business dealings with the Ship, (ii) maintain all its material
equipment and other property in good repair, order and condition, except for
depletion, depreciation, ordinary wear and tear and damage by casualty, (iii)
keep in full force and effect insurance coverages no less than those now carried
by it (although deductibles may be reasonably increased to avoid increases in
insurance premiums above current levels), (iv) perform in all material respects
all of its obligations under agreements, contracts and instruments relating to
or affecting its properties, assets and the Ship's business operations, (v)
maintain its books of account and records in the usual, regular and ordinary
manner, (vi) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to it and to the conduct of the
Ship's business operations and keep in full force and effect all licenses,
permits and approvals necessary for the conduct of the Ship's business
operations, and (vii) promptly advise Trustee in writing of any materially
adverse change in the Ship's business or its financial condition, operations,
properties or prospects.
(d) Access. MJQ represents that all records and books of account
relating to the operation of the Ship are presently maintained at 777 East Port
Road, Riviera Beach, Florida, and shall remain there, or at such other office
facilities as may be leased by MJQ prior to the Closing Date. PBP and MJQ will
provide the Trustee and his agents with reasonable access to all information
regarding the Ship, its operations and financial condition ("Ship Information").
The Trustee and his agents will have the right to inspect and copy Ship
Information during normal business hours upon three (3) business days prior
notice to PBP and MJQ at the offices of MJQ at 777 East Port Road, Riviera
Beach, Florida or at offices of PBP or MJQ at which the books and records of
account may be maintained in the future. MJQ shall provide the Trustee with
written notice prior to the relocation of the offices where books and records
are maintained and such notice shall set forth the address of the relocated
offices in which such books and records shall be maintained.
(e) Financial Reporting; Working Capital Deficiency. PBP and MJQ shall
not permit to exist at any Working Capital Test Date (as defined below), a
Working Capital
21
Deficiency in excess of Seven Hundred Fifty Thousand Dollars ($750,000.00). For
purposes hereof, a "Working Capital Test Date" shall mean the quarterly periods
ending March 31, 2002, June 30, 2002 and, if necessary, September 29, 2002. PBP
and MJQ shall deliver to the Trustee not later than fifteen (15) days after the
last day of each monthly accounting period during the term of this Agreement a
consolidated financial statement prepared in accordance with generally accepted
accounting principles and a consolidated financial statement in the form of
Schedule 6(e) attached hereto, all of the foregoing certified by an officer of
each of MJQ and PBP as true, correct and complete in all material respects. For
purposes hereof, each monthly accounting period during the term of this
Agreement during the calendar year 2002 shall end on January 27, February 24,
March 31, April 28, May 26, June 30, July 28, August 25 and September 29.
7. Litigation. The Trustee and Ship Defendants agree that all discovery
related to the Ship Claims in the Pirates Litigation shall be stayed pending
Bankruptcy Court Approval.
8. Escrow Closing Items. PBP, ITB, Ship Defendants and the Trustee agree
that Drinker Biddle & Shanley LLP shall act as the Escrow Agent hereunder
pursuant to the terms of the Escrow Agreement attached hereto as Exhibit "R"
(the "Escrow Agreement"). The Escrow Agent will hold the Settlement Documents in
escrow pursuant to the terms of the Escrow Agreement.
9. Default.
(a) The occurrence of any one or more of the following shall constitute
an "Ship Obligation Event of Default" under this Agreement and the Purchase and
Sale Agreement:
(i) failure by PBP to pay the Installment Payment, the Balloon
Payment or any fee or other amount payable under any of the Purchase and Sale
Agreement or Operational Documents, which, in the case of a failure to pay the
Installment Payment when due, shall not be cured within five (5) days after the
date of such payment became due, and in the case of a failure to make any
payment under any Operational Document, shall not have been cured within fifteen
(15) days after written notice of such failure shall have been given to PBP by
the Trustee, provided, however, that no Ship Obligation Event of Default shall
be deemed to exist in respect of any failure to make a payment under an
Operational Document to the extent such payment is contested in good faith by
appropriate proceedings by MJQ, PBP, LEG or ITB;
(ii) failure by MJQ and PBP to comply with Section 6(e) hereof, and
such failure shall not have been cured within fifteen (15) days after written
notice of such failure shall have been given to PBP by the Trustee;
(iii) any representation or warranty made by PBP in this Agreement,
the Purchase and Sale Agreement, the Assignment and Assumption Agreement, the
Port Management Agreement Assignment or the Operating Agreement Assignment shall
be untrue or misleading in any material respect at the time when made;
(iv) any representation or warranty made by PBP, ITB, MJQ or LEG in
this Agreement, the Operational Documents or any financial information furnished
to the
22
Trustee's fiscal agent by PBP or MJQ shall be untrue or misleading in any
material respect at the time when made;
(v) any material default by ITB, PBP, MJQ or LEG in the due
observance or performance of any of its covenants contained in this Agreement or
the Operational Documents which is not cured within thirty (30) days after their
receipt of written notice of such default from the Trustee;
(vi) (1) ITB, PBP, MJQ or LEG shall commence any voluntary case,
proceeding or other action (a) under the Bankruptcy Code, or under any other law
of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to adjudicate it a bankrupt or
insolvent or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or relief with respect to its debts or (b)
seeking appointment of a receiver, custodian or other similar, official for all
or substantially all of its assets or any of ITB, PBP, MJQ or LEG shall make a
general assignment for the benefit of creditors; or (2) there shall be commenced
against any of ITB, PBP, MJQ or LEG any case, proceeding or other action of a
nature referred to in clause (1) of this Section which (a) results in the entry
of an order for relief or any adjudication or appointment or (b) remains
unstayed and undismissed for a period of time of thirty (30) days (but in no
event shall the Closing occur hereunder if such case remains undismissed); or
(3) there shall be issued against any of ITB, PBP, MJQ or LEG a warrant of
attachment, execution, distraint or similar process against any or a substantial
part of its assets material to the operation of the Ship, which results in the
entry of an order for any such relief; or (4) any of ITB, PBP, MJQ or LEG shall
generally not, or shall admit in writing its inability to, pay its debts as they
become due;
(vii) the happening of any default under any financial instrument of
any kind or nature, including but not limited to financing leases, security
agreements, mortgages or loan agreements, by which there is secured or evidenced
any indebtedness for money borrowed or guaranteed by any of PBP, MJQ or LEG,
whether such indebtedness presently exists or is hereafter created, which
default shall result in such indebtedness becoming or being deemed due and
payable prior to the date on which it would otherwise have become due and
payable; or
(viii) any governmental certification, license, or permit required
in connection with the operation of the Ship as a going concern shall be
revoked, terminated or withdrawn.
(b) The occurrence of a default by ITB under the Stock Purchase
Agreement shall constitute a "Stock Acquisition Event of Default" under this
Agreement.
10. Specific Remedies.
(a) During the existence of a Ship Obligation Event of Default, the
Trustee's sole and exclusive remedy shall be to terminate the Purchase and Sale
Agreement, in which case:
(i) all of the Installment Payments then paid shall be immediately
paid over to the Trustee as liquidated damages;
23
(ii) the Trustee may notify Escrow Agent to cause the Ship
Obligations and Foreclosure Documents to be released to Trustee or its agents or
designees; provided, however, that the Trustee hereby agrees that its sole
remedies under the Ship Obligations shall be to take control of the Ship and
Related Assets, foreclose and sell the Ship and Related Assets and accept the
proceeds thereof in full satisfaction of all indebtedness under the Ship
Obligations, and, in either case, MJQ shall not be liable for any deficiency
under the Ship Obligations;
(iii) MJQ, LEG, ITB and PBP shall execute any and all documents
reasonably necessary to effectuate the Trustee's sale of the Ship and the
Related Assets and shall reasonably cooperate in obtaining any and all third
party approvals required in connection with the assignment and sale of the Ship
as provided herein.
(iv) MJQ, PBP and the Trustee shall take such actions as are set
forth in Section 11 of this Agreement.
(v) The Trustee may take any and all other actions necessary or
appropriate to assume control of the operation of the Ship and the Related
Assets.
(vi) PBP shall have no further liability in respect of the purchase
price under the Purchase and Sale Agreement and the liability of MJQ in respect
of the Ship Obligations shall be non-recourse except to the Ship and the Related
Assets.
(b) During the existence of a Stock Acquisition Event of Default, the
Trustee shall have the rights and remedies set forth in the Stock Purchase
Agreement.
11. Certain Liabilities and Obligations of the Parties After the Control
Date.
(a) Liabilities. On the Control Date, PBP and MJQ will assign to the
Trustee and the Trustee will assume only those obligations or liabilities of PBP
and MJQ enumerated below:
(i) The liabilities and obligations of PBP and MJQ (x) to the Port
of Palm Beach District under the Operating Agreement and (y) to third parties
(other than LEG, PBP or MJQ) under all Operational Documents then in effect, but
in each case only to the extent such liabilities or obligations become due or
are initially to be performed (other than by reason of acceleration as a result
of a breach or default occurring prior to the Control Date) on or after the
Control Date (the "Assumed Contracts");
(ii) The liabilities and obligations of PBP and MJQ for all trade
indebtedness and accounts payable arising in the ordinary course of the Business
from the purchase of inventory, supplies or other current assets by PBP or MJQ
before the Control Date or the performance of services (excluding payroll
expense) before the Control Date (including any such accounts payable to the
extent accrued prior to the Control Date under the Operational Documents but
excluding any such accounts payable to LEG, PBP or MJQ and accounts payable
arising from performance of professional services); and
24
(iii) All unpaid payroll expense (including salaries, wages,
benefits and payroll taxes) accrued to the Control Date for the current pay
period in which the Control Date occurs.
The liabilities accrued prior to the Control Date to be assumed as described in
Sections 11(a)(ii) and (iii) are collectively called the "Assumed Liabilities".
(b) Retained Liabilities. Except for the Assumed Contracts and the
Assumed Liabilities, the Trustee does not and will not assume or become
obligated to pay or perform any liabilities or obligations of MJQ and PBP,
respectively, whatsoever, whether accrued, absolute, fixed or contingent, known
or unknown or otherwise (all such liabilities and obligations being called
collectively the "Retained Liabilities"), and the Trustee acknowledges and
agrees that PBP and MJQ shall remain fully liable for and responsible to pay,
satisfy or otherwise discharge the Retained Liabilities. Retained Liabilities
shall include, without limitation, liabilities and obligations of PBP and MJQ
with respect to (i) Environmental Claims (as defined below), (ii) PBP and MJQ's
collective bargaining agreements, including, without limitation, such agreements
identified on Schedule 11(b)-1; Benefit Plans (as defined below), (iii) Taxes
(as defined below) (excluding payroll taxes described in Section 11(a)(iii)
above), (iv) liabilities to former and existing employees arising out of their
employment with PBP or MJQ, as the case may be, including, without limitation,
wages, salaries, other compensation and benefits, severance payments, workers'
compensation claims, grievances, discrimination, harassment and similar claims
(except that wages, salaries, benefits and payroll taxes for the pay period in
progress at the Control Date shall be assumed and paid by the Trustee), and (v)
any other items enumerated on Schedule 11(b)-2. "Environmental Claim" means any
written or oral demand, claim, suit, lien, action, expense (including
consequential damages and counsel fees), cause of action, investigation or
notice by any person or entity alleging actual or potential liability
(including, without limitation, potential or actual liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of ore relating
to any Materials of Environmental Concern or any violation of or non-compliance
with or alleged violation of or non-compliance with any Environmental Law.
"Environmental Laws" means all federal, state and local laws and regulations
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C.A
ss.ss. 9601 et. seq., the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C.A. ss.ss. 6901 et. seq., the Clean Water Act, 33 U.S.C.A. ss.ss. 1251 et.
seq., the Clean Air Act, 42 U.S.C.A. ss.ss. 7401 et. seq., and laws and
regulations relating to emissions, spills, leaks, discharges, releases or
threatened releases of Materials of Environmental Concern, or otherwise relating
to the manufacture, possession, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern. "Materials of
Environmental Concern" means any "hazardous substance" or "hazardous waste", as
defined in Environmental Laws, petroleum and petroleum products, natural gas or
synthetic gas, material that is a source, special nuclear or by-product
material, as defined by the Atomic Energy Act of 1954, 42 U.S.C.A. ss.ss. 3011
et. seq., and the regulations promulgated thereto and "hazardous chemical", as
defined in 29 C.F.R. Part 1910. "Benefit Plans" means all bonus, incentive
compensation, deferred purchase stock option, stock ownership, stock
appreciation rights,
25
phantom stock, leave of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, health, accident, disability, workmen's compensation
or other insurance, severance, separation or other employee benefit plan,
practice, policy or arrangement of any kind, whether written or oral, including,
without limitation, any "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and any Multi-employer Plan") within the meaning of Section 4001(a)(3)
of ERISA, which currently or were previously maintained by PBP and/or MJQ or
which PBP and/or MJQ currently is participating or previously participated in or
to which PBP and/or MJQ is or was required to contribute. "Taxes" means all
taxes, assessments and other governmental charges or impositions (including any
interest or penalties) which are or were due and payable by PBP and/or MJQ,
including, without limitation, income taxes, franchise taxes, transfer taxes,
sales taxes, use taxes, unemployment compensation taxes, social security taxes
and other withholding taxes (including those required under applicable law to be
withheld from PBP and/or MJQ's employees) and obligations or liabilities
relating to the filing or failure to file of any tax or information returns,
declarations and other reports or statements required to be filed or sent by PBP
and/or MJQ in respect of any of the foregoing.
(c) The Excess Related Asset Value (as defined below) shall be paid by
the Trustee to PBP, or the Related Asset Value Deficiency (as defined below)
shall be paid by PBP to the Trustee, in accordance with the following procedure:
(i) As soon as possible after the Control Date, and in any event
within fifteen (15) days thereafter, the Trustee, with the cooperation and
assistance of PBP and its representative, shall prepare and deliver to PBP a
statement (the "Control Date Working Capital Statement") of the book value of
the Related Assets constituting current assets as of the Control Date and of the
book value of the Assumed Liabilities constituting current liabilities as of the
Control Date, all determined in accordance with generally accepted accounting
principles, and setting forth the Trustee's resulting calculation of the Excess
Related Asset Value or Related Asset Value Deficiency, as the case may be. The
current assets shall include the amounts of security deposits and prepayments in
respect of the Operating Agreement with the District and the Operational
Documents, and shall be determined giving effect to the physical inventories of
the casino cash float and of the inventory and supplies included in the Related
Assets as of the Control Date, as described below. Rental and utilities for the
month (or the applicable rental or billing period) under leases included in the
Related Assets shall be allocated between the Trustee and PBP such that (A) if
paid by PBP or MJQ, the portion attributable to the period from the Control Date
to the end of the month (or other applicable rental or billing period) shall be
included as a current asset and (B) if not paid by PBP or MJQ, the portion
attributable to the period from the beginning of the month (or other applicable
rental or billing period) to the Control Date shall be included as a current
liability assumed by the Trustee.
(ii) On the Control Date or as soon as possible thereafter, PBP and
the Trustee will jointly conduct a physical count of the casino cash float
(including, without limitation, cash in slot machines) and of the inventories
and supplies of the Business, including without limitation the inventories of
food, beverages and spare parts, phone cards held for sale to employees, gift
shop inventory, and the remaining bunkers and unused lubricating oils (but only
to the extent such oils are in storage tanks or sealed drums or otherwise in the
Ship's system).
26
Each party shall have the right to have the physical inventory observed by its
outside accountants or other representatives, provided that such observation
shall not delay the conduct of the physical inventory. The amount of casino cash
float and book value of the inventories and supplies will be based on physical
quantities on hand as of the Control Date. No such cash, inventory or supplies
will be used or removed from the Ship until completion of the physical inventory
at the Ship. Either party shall have the right to have the physical inventory
conducted overnight or during other than operating hours, upon reasonable prior
notice (not to exceed three (3) days). Notwithstanding the foregoing, in the
event that either party shall fail to cooperate in the conduct of the physical
inventory or make available the necessary personnel, the other party shall have
the right to conduct the physical inventory without observation by the other
party.
(iii) For a period of fifteen (15) days after delivery of the
Control Date Working Capital Statement to PBP (the "Objection Period"), PBP
shall have the right to review, investigate, verify and, by written notice to
the Trustee (an "Objection Notice") given before the expiration of the Objection
Period, dispute or object to any item or amount included in or omitted from the
Control Date Working Capital Statement. Each of MJQ, PBP and the Trustee shall
provide the other with full access to the books, records, work papers and
facilities of the Ship and cooperate fully with the other to the extent
reasonably required by the other in connection with the preparation, review,
investigation and verification of the Control Date Working Capital Statement and
the aforesaid inventory count. All matters concerning the Control Date Working
Capital Statement delivered by the Trustee as to which PBP does not give an
Objection Notice within the Objection Period shall be deemed accepted by PBP and
shall be final, binding and conclusive on the parties hereto.
(iv) In the event PBP shall give an Objection Notice before the
expiration of the Objection Period, PBP and the Trustee shall attempt to
reconcile their differences in good faith as promptly as reasonably practicable.
If PBP and the Trustee are unable to resolve any disputed items specified in the
Objection Notice within ten (10) days after the end of the Objection Period, PBP
and the Trustee shall submit the items remaining in dispute for resolution to a
qualified, impartial firm of independent public accountants acceptable to both
PBP and the Trustee, which firm shall, as soon as practicable, determine and
issue a written report to PBP, MJQ and the Trustee upon such remaining disputed
items in accordance with the provisions hereof, and such report shall be binding
and conclusive on the parties hereto. If PBP and the Trustee are not able to
agree upon a qualified, impartial firm of independent public accountants as
aforesaid, the items remaining in dispute shall be submitted for arbitration to
the American Arbitration Association (in Miami) in accordance with its
Commercial Arbitration Rules then in effect, and the arbitrator's award shall be
binding and conclusive on the parties hereto. The fees and disbursements of the
accounting firm retained to resolve the dispute, or the costs of the arbitrator,
as applicable (any such firm or arbitrator being hereinafter called the
"Arbitrator"), shall be allocated between PBP and the Trustee in the same
proportion that the aggregate amount of such remaining disputed items so
submitted to the Arbitrator which were unsuccessfully disputed by each (as
finally determined by the Arbitrator) bears to the total amount of such disputed
items so submitted. Judgment upon the Arbitrator's determination may be entered
in any court of competent jurisdiction. The dispute resolution mechanism set
forth in this Section 11(c)(iv) relates solely to the accuracy of the Control
Date Working Capital
27
Statement and its compliance with the requirements of this Agreement, and shall
not apply to the application or interpretation of any other provision of this
Agreement.
(v) In the event that the book value of the current assets included
in the Related Assets exceeds the book value of the Assumed Liabilities as of
the close of business on the day immediately proceeding the Control Date (such
excess being hereinafter called the "Excess Related Asset Value"), the Trustee
shall pay an amount equal to the Excess Related Asset Value to PBP in accordance
with subparagraph (vi) of this Section 11(c). In the event that the book value
of the Assumed Liabilities as of the close of business on the day immediately
proceeding the Control Date shall exceed the book value of the current assets
included in the Related Assets (such excess being herein called the "Related
Asset Value Deficiency"), PBP shall pay an amount equal to the Related Asset
Value Deficiency to the Trustee in accordance with subparagraph (vi) of this
Section 11(c).
(vi) MJQ and PBP shall jointly and severally pay the Trustee any
Related Asset Value Deficiency and the Trustee shall pay to PBP any Excess
Related Asset Value, as applicable, in United States dollars by certified check
or wire transfer of immediately available funds to an account designated by the
recipient. Such payment shall be due, if PBP does not timely give an Objection
Notice, no later than five days after the end of the Objection Period, and, if
PBP shall have timely given an Objection Notice, no later than five days after
the disputed items are resolved in accordance with subparagraph (iv) of this
Section 11(c).
12. Jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey without giving effect to
principles of conflicts of laws, and any and all disputes under and/or related
to this Agreement shall be resolved by the Bankruptcy Court.
13. Notices. All notices that are required or may be given pursuant to the
terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and delivered by hand or national overnight courier
service, transmitted by telecopy or mailed by registered or certified mail,
postage prepaid, as follows:
To ITB, PBP, & GSRT:
c/o International Thoroughbred Breeders, Inc.
211 Beningo Boulevard, Suite 210
Bellmawr, NJ 08031
Attention: President
Tel: (856) 931-8163
Fax: (856) 931-8165
With Copy to:
Cozen O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
Attention: David S. Petkun, Esq.
Tel: (215) 665-2000
Fax: (215) 665-2013
28
To Trustee:
Druker, Rahl & Fein
3625 Quakerbridge Road
Hamilton, New Jersey 08619
Attention: Donald F. Conway, Trustee
Tel: (609) 689-2317
Fax: (609) 689-9720
With Copy to:
Drinker Biddle & Shanley LLP
500 Campus Drive
Florham Park, NJ 07932
Attention: A. Dennis Terrell, Esq.
Tel: (973) 360-1100
Fax: (973) 360-9831
To MJQ:
MJQ Corporation
Port of Palm Beach
777 E. Port Road
Riviera Beach, FL 33404
Attention: Francis X. Murray, President
Tel: (561) 845-2101
Fax: (561) 845-1201
With Copy to:
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
Attention: Kevin G. Abrams, Esq.
Tel: (302) 658-6541
Fax: (302) 658-6548
29
To Leo:
Gibbons, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Lawrence S. Lustberg, Esq.
Tel: (973) 596-4500
Fax: (973) 596-0545
To LEG and Deerbrooke:
Page, Mrachek,
Fitzgerald & Rose, P.A.
505 South Flagler Drive, Suite 200
West Palm Beach, FL. 33401
Attention: Alan B. Rose, Esq.
Tel: (561) 655-2250
Fax: (561) 655-5537
To Quigley:
Swidler, Berlin, Shereff, Friedman L.L.P.
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Guy Petrillo, Esq.
Tel: (212) 891-9438
Fax: (212) 891-9598
30
To Cambridge:
Cambridge Capital Group, Inc.
5335 Wisconsin Avenue, N.W.
Suite 440
Washington, DC 20015
Attention: Mr. Eric L. Cummings, President
Tel: (202)237-7600
Fax: (202)237-8100
With Copy to:
Thomas A. Mauro & Associates, P.C.
1050 Seventh Street N.W.
Suite 1200
Washington, DC 20036
Attention: Thomas A. Mauro, Esq.
Tel: (202) 452-9865
Fax: (202) 452-0092
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto. A notice shall be deemed to have
been given (a) upon personal delivery, if delivered by hand or courier, (b)
three (3) business days after the date of deposit in the mails, postage prepaid,
if mailed by certified or registered mail, or (c) the next business day if sent
by facsimile transmission (if receipt is electronically confirmed).
14. Waivers. Trustee, on the one hand, and ITB and PBP, on the other hand,
may, by written notice to the other, (a) extend the time for the performance of
any of the obligations or other actions of the other under this Agreement; (b)
waive any inaccuracies in the representations or warranties of the other
contained in this Agreement or in any document delivered pursuant to this
Agreement; or (c) waive compliance with any of the covenants and agreements of
the other contained in this Agreement. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
15. Entire Agreement. This Agreement, including the Settlement Documents,
constitute the entire agreement of the parties concerning the subject matter
hereof, and shall not be amended, modified or supplemented unless by written
agreement executed by the parties hereto. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. This Agreement supercedes all prior written and oral agreements among
the parties concerning the subject matter hereof.
31
16. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
17. No Assignment. The rights and obligations under this Agreement shall
not be assignable to any person except with the written consent of the
non-assigning parties.
18. Further Assurances. Each of the Trustee, ITB, PBP, GSRT or any of the
Ship Defendants hereby agrees from time-to-time upon request of any party
hereto, to take such additional actions and to execute and deliver such
additional documents and instruments as such party may reasonably request to
effect the transactions contemplated by and to carry out the intent of this
Agreement.
19. Headings. The headings set forth herein are for the convenience of
reference only and shall not be used in the interpretation or construction of
this Agreement.
20. Date of Execution. The parties hereto authorize the Trustee to date
this Agreement and any of the Settlement Documents upon the date of receipt of
the complete fully executed counterparts of the Settlement Documents, or any
other date determined to be appropriate by the Trustee in his sole reasonable
discretion.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the day and year first above written.
ATTEST/WITNESS: DONALD F. CONWAY, CHAPTER 11
TRUSTEE FOR THE BANKRUPTCY
ESTATE OF ROBERT E. BRENNAN
/s/Karl Piirimae /s/Donald F. Conway
- ---------------- -------------------
By:Donald F. Conway, Trustee
ATTEST/WITNESS: INTERNATIONAL THOROUGHBRED
BREEDERS, INC.
/s/David Petkun /s/Francis W. Murray
- --------------- --------------------
Name:Francis W. Murray
Title:President
ATTEST/WITNESS: PALM BEACH PRINCESS, INC.
/s/David Petkun /s/Francis X. Murray
- --------------- --------------------
Name:Francis X. Murray
Title:President
32
ATTEST/WITNESS: MJQ CORPORATION
/s/David Petkun /s/Francis X. Murray
- --------------- --------------------
Name:Francis X. Murray
Title:President
ATTEST/WITNESS: LEO EQUITY GROUP
/s/David Petkun /s/Frank A. Leo
- --------------- ---------------
Name:Frank A. Leo
Title:President
ATTEST/WITNESS: CAMBRIDGE CAPITAL GROUP, INC.
/s/Eric L. Cummings
-------------------
Name:Eric L Cummings
Title:President
ATTEST/WITNESS:
/s/David Petkun /s/Frank A. Leo
- --------------- ---------------
Frank A. Leo
ATTEST/WITNESS:
/s/David Petkun /s/Michael J. Quigley, III
- --------------- --------------------------
Michael J. Quigley, III
ATTEST/WITNESS: DEERBROOKE INVESTMENTS, INC.
/s/David Petkun /s/Francis X. Murray
- --------------- --------------------
Name:Francis X. Murray
Title:Secretary
ATTEST/WITNESS:
/s/David Petkun /s/Francis W. Murray
- --------------- --------------------
Francis W. Murray
33
EXHIBIT 10.16
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made as of this 22nd
day of February, 2002 to be effective as of April 30, 2001 (the "Effective
Date"), by and among, DONALD F. CONWAY, CHAPTER 11 TRUSTEE FOR THE BANKRUPTCY
ESTATE OF ROBERT E. BRENNAN having an address at c/o A. Dennis Terrell, Esq.,
Drinker Biddle & Shanley LLP, 500 Campus Drive, Florham Park, New Jersey
07932-1047 ("Seller"), PALM BEACH PRINCESS, INC., a Delaware corporation having
an address at 777 East Port Road, Riviera Beach, Florida 33404 ("PBP" or
"Purchaser").
Background
A. Seller is the holder of that certain Promissory Note dated as of May 13,
1999 (the "Note") from MJQ Corporation ("MJQ" or "Borrower") to Cambridge
Capital Group, Inc. ("Cambridge") in the original principal amount of Twelve
Million Dollars ($12,000,000.00). The obligations of MJQ under the Note are
secured by, among other things, an Indenture of Second Naval Mortgage dated May
13, 1999 (the "Mortgage") by and between MJQ Corporation and Cambridge pursuant
to which MJQ granted to Cambridge a second priority lien encumbering the ocean
faring motor vessel "M/V Palm Beach Princess" registered under the Panamanian
flag with International Call Sign 3FNQ2 and Patente of Navigation No. 14348-84-D
(the "Ship"). The Note, the Mortgage and all other documents executed or
delivered in connection therewith are described on Exhibit "A" attached hereto
and collectively referred to herein as the "Loan Documents".
B. Pursuant to the terms of that certain Standard Bareboat Charter dated as
of April 30, 2001 (the "Bareboat Charter") by and between MJQ and PBP, PBP
chartered the Ship from MJQ.
C. Subject to the terms and conditions hereof, Seller desires to sell and
assign to Purchaser, and Purchaser desires to purchase from Seller and assume
all of Seller's right, title and interest in and to the Loan Documents.
Agreement
NOW, THEREFORE, the parties hereto, in consideration of the mutual promises
contained herein, and intending to be legally bound, hereby covenant and agree
as follows:
1. Certain Definitions. Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in that certain Master Settlement
Agreement dated of even date herewith to be effective as of April 30, 2001 by
and among Seller, Purchaser and certain other parties (the "Settlement
Agreement").
2. Purchase and Sale. Subject to the terms and conditions set forth herein,
Seller hereby assigns, sells, transfers and conveys to Purchaser, and Purchaser
hereby purchases, all of Seller's right, title and interest in and to the Loan
Documents; provided however that, Seller and Purchaser shall have no obligation
to complete the Closing (as defined in Section 4(a) below)
unless: (a) the United States Bankruptcy Court for the District of New Jersey
(the "Bankruptcy Court") shall have entered an order in that certain adversary
proceeding commenced under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") and styled Conway v. Pirates Associates, et al., Adv. Pro.
No. 98-3245 (KCF) (the "Bankruptcy Case") approving this Agreement and the
Settlement Agreement under 11 U.S.C. ss.363(b)(1) and Bankruptcy Rule 9019,
respectively, and ordering that all claims to or against the Loan Documents
shall attach and be satisfied solely from the payment of the Purchase Price (as
defined below) (the "Order"); (b) the time for obtaining a stay of the Order
shall have passed without any stay of such Order having been granted or, if such
stay shall have been granted, the Order shall have become final and
non-appealable and (c) Seller shall have received a written assignment by
Oceanic Venture Funding Ltd. ("OVFL") pursuant to which OVFL shall assign to the
Seller the Loan Documents and release all of OVFL's right, title and interest in
and to, and all claims against the Loan Documents or the Ship (the "OVFL
Release").
3. Purchase Price; Default.
(a) The purchase price for all of Seller's right, title and interest in
and to the Loan Documents shall be an amount equal to Thirteen Million Seven
Hundred Fifty Thousand Dollars ($13,750,000.00) (such amount, the "Purchase
Price"), which shall be due and payable as follows:
(i) Four Million Dollars ($4,000,000.00) by the payment of sixteen
(16) equal monthly installments of Two Hundred Fifty Thousand Dollars
($250,000.00) each by certified check, beginning as of the Effective Date and
continuing on the last day of each month thereafter through and including July
31, 2002 (individually an "Installment Payment" and collectively, the
"Installment Payments"). Notwithstanding anything herein to the contrary, prior
to the satisfaction of the conditions provided in Section 2 above, the
Installment Payments shall be made by check sent to the registry of the
Bankruptcy Court, and following the satisfaction of such conditions the
Installment Payments shall be released from the registry of the Bankruptcy Court
to Seller, and all subsequent Installment Payments shall be made to an account
designated in writing by the Seller to Purchaser. In the event the conditions
set forth in Section 2 hereof are not satisfied on or prior to April 1, 2002,
either Purchaser or Seller may terminate this Agreement, and upon such
termination all of the Installment Payments shall be repaid to Purchaser.
(ii) Nine Million Seven Hundred Fifty Thousand Dollars
($9,750,000.00) by wire transfer of immediately available funds at Closing (as
defined in Section 4(c) below) (the "Balloon Payment").
Any and all sums payable hereunder, including but not limited to the Purchase
Price and any of the payments to be made in connection with Purchaser's notice
to extend the Closing as provided in Section 4(b) hereof, shall be made in
United States dollars by (i) Purchaser's check mailed to the Registry of the
Bankruptcy Court until satisfaction of the conditions set forth in Section 2,
and (ii) thereafter by certified check or wire transfer of immediately available
funds.
(b) At Closing (as defined in Section 4(a) below), the Installment
Payment shall be credited against the Purchase Price. In the event that any of
the following (each, an "Event of Default") shall have occurred: (i) Purchaser
shall fail to pay any installment of the Installment Payment on or prior to the
date that is five (5) days after the date when such payment
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is due hereunder; or (ii) Purchaser shall fail in any material respect to
perform any other obligation to be performed hereunder by Purchaser at or before
Closing (as defined in Section 4(a) below) and shall fail to cure such failure
within fifteen (15) days after the Seller has given written notice thereof to
Purchaser, or (iii) there shall have occurred any other Ship Obligation Event of
Default (as defined in the Settlement Agreement), Seller's sole and exclusive
remedy shall be to terminate this Agreement by written notice to Purchaser, and
upon any such termination of this Agreement by Seller, Seller shall (x) retain
that portion of the Installment Payment paid to Seller or released to Seller
pursuant to Section 3(a)(i) as liquidated damages, (y) notify the Escrow Agent
of the occurrence of the Event of Default, whereupon Escrow Agent shall take all
actions necessary to cause the Ship and the Related Assets (as defined in the
Settlement Agreement) to be transferred into the custody of the Seller and sold
by foreclosure and (z) neither Seller nor Purchaser shall have any further
right, obligation or liability under this Agreement; provided, however, that in
connection with the transfer of the Ship and the Related Assets (as defined in
the Settlement Agreement) to Seller upon the occurrence of an Event of Default
hereunder, the Purchaser and Seller shall perform an accounting of the value of
the Related Assets in accordance with Section 11 of the Settlement Agreement and
the provisions of said Section 11 shall apply.
(c) The entire outstanding balance of the Purchase Price may be prepaid
in whole (but not in part) at any time upon not less than five (5) days prior
written notice to Seller without premium or penalty by Purchaser.
4. Settlement; Conditions Precedent.
(a) Closing hereunder (the "Closing") shall take place on the later to
occur of (i) July 31, 2002, subject to Purchaser's right to extend the Closing
Date for up to three (3) additional months pursuant to Section 4(b) hereof, (ii)
ninety (90) days following the satisfaction of the conditions set forth in
Section 2 hereof or (iii) such earlier date as Purchaser shall specify by at
least ten (10) days prior written notice to Seller, provided, however that such
notice shall only be effective so long as all conditions precedent to Closing
shall have been satisfied or are then reasonably capable of being satisfied
prior to the date set forth in Purchaser's notice (the "Closing Date") and,
unless before said date Seller and Purchaser shall have agreed on a definite
time, date and place, at 10:00 A.M. on such day at the offices of Drinker Biddle
& Shanley LLP, 500 Campus Drive, Florham Park, New Jersey 07932. For purposes
hereof, a "Business Day" shall be any day other than a day on which commercial
banks in the State of New Jersey are required or permitted by law to close.
(b) Notwithstanding the foregoing, so long as no Event of Default exists
under this Agreement and no Ship Obligation Event of Default exists under the
Settlement Agreement at the time of exercise, Purchaser may extend the Closing
Date as follows:
(i) upon written notice from Purchaser delivered to Seller not later
than July 15, 2002, together with a non-refundable payment to Seller of Seventy
Thousand Dollars ($70,000.00), the Closing Date shall be extended to August 31,
2002.
(ii) in the event that Purchaser shall have extended the Closing
Date as provided in subsection (b)(i) above, upon written notice from Purchaser
delivered to Seller not later than August 15, 2002, together with a
non-refundable payment to Seller of Eighty Thousand Dollars ($80,000.00), the
Closing Date shall be extended to September 30, 2002.
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(iii) in the event that Purchaser shall have extended the Closing
Date as provided in subsection (b)(i) and subsection (b)(ii) above, upon written
notice from Purchaser delivered to Seller not later than September 15, 2002,
together with a non-refundable payment to Seller of One Hundred Thousand Dollars
($100,000.00), the Closing Date shall be extended to October 31, 2002.
The payments under Sections 3(b)(i), (ii) and (iii) shall not be applied in
reduction of the Purchase Price, and constitute additional consideration for the
extension of the Closing Date by Seller. Except as set forth in this Section
4(b), Purchaser shall have no right or option to extend the Closing Date. Any
and all notices to extend the Closing Date shall be irrevocable, and shall not
be binding upon Seller unless accompanied by the payment of the sums set forth
herein by certified check or wire transfer of immediately available funds to the
Escrow Agent.
(c) Purchaser agrees that Seller's obligation to complete the Closing
hereunder shall be subject to the fulfillment, at or prior to the Closing, of
the following conditions precedent, provided however, that Seller, in its sole
discretion, may elect to waive any thereof: (i) the representations and
warranties of Purchaser pursuant to Section 6 hereof shall be true and correct
in all material respects; (ii) Purchaser shall pay to Seller the Installment
Payment and Balloon Payment; (iii) all of the conditions set forth in Section 2
hereof shall have been satisfied; and (iv) no Event of Default shall exist
hereunder and no Ship Obligation Event of Default shall exist under the
Settlement Agreement.
(d) Seller agrees that Purchaser's obligation to complete the Closing
hereunder shall be subject to the fulfillment, at or prior to the Closing, of
the following conditions precedent, provided however, that Purchaser, in its
sole discretion, may elect to waive any thereof: (i) the representations and
warranties of Seller pursuant to Section 5 hereof shall be true and correct in
all material respects; (ii) Seller shall cause the Escrow Agent to deliver the
Loan Documents and the other instruments relevant to Section 4(e) to Purchaser;
and (iii) all of the conditions in Section 2 hereof shall have been satisfied.
(e) At the Closing, Seller shall:
(i) Deliver to Purchaser the original Note, which (a) if previously
endorsed to Seller shall be endorsed by Seller: "Pay to the order of
_________________, without recourse or warranty" and (b) otherwise shall be
endorsed in blank by (x) OVFL or such other person or entity to whom the Note
shall have been last endorsed (if the Note shall have been endorsed before the
Closing) or (y) Cambridge Capital Group, Inc. ("Cambridge") if the Note shall
not have been endorsed by it before the Closing, and any endorsement by OVFL or
Cambridge may be made without recourse or warranty;
(ii) Deliver to Purchaser the original Mortgage, and an original or
a copy of each of the documents listed on Exhibit "A" attached hereto and all of
the other documents referred to in Sections 3(b), (c) and (d) of the Settlement
Agreement; and
(iii) Execute, acknowledge and deliver to Purchaser an Assignment
and Assumption Agreement in the form attached hereto as Exhibit "B" (the
"Assignment").
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(f) At the Closing, Purchaser shall:
(i) pay the Balloon Payment to Seller; and
(ii) execute and deliver to Seller a document acknowledging
Purchaser's receipt and acceptance of the Loan Documents. Purchaser shall bear
all of the costs of recording any and all documents required to be recorded in
connection with the purchase and sale hereunder.
5. Seller's Representations and Warranties.
(a) Seller hereby represents and warrants to Purchaser, which as to
matters within clauses (i) and (v) are made to the best of Seller's actual
knowledge without independent investigation, as follows, and all such
representations and warranties shall be deemed repeated at and as at the
Settlement Date:
(i) Seller has been granted title to the Loan Documents pursuant to
the order entered into in the Gibraltar Litigation;
(ii) Seller is transferring the Loan Documents and the indebtedness
evidenced thereby pursuant to the Order;
(iii) Seller has the right, power, legal capacity and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement;
(iv) this Agreement has been duly and validly executed and delivered
by Seller and constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms except to the extent such
enforceability may be limited by applicable bankruptcy, insolvency and other
laws affecting creditor's rights generally; and
(v) except for the Order and the OVFL Assignment, no approval of any
person or entity is required for the execution of this Agreement by Seller or
the consummation by Seller of the transactions contemplated by this Agreement,
excluding any consents received on or prior to the date hereof.
(b) Seller has made and makes no warranty or representation regarding
the perfection or priority of the Mortgage, the condition, value or use of the
Ship, or any other matter not specifically set forth above.
6. Purchaser's Representations and Warranties. Purchaser hereby represents
and warrants to Seller as follows:
(a) Purchaser has the right, power, legal capacity and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by and constitutes the legal, valid and binding
obligation of Purchaser enforceable in accordance with its terms except to the
extent such enforceability may be limited by applicable bankruptcy, insolvency
and other laws affecting creditor's rights generally.
-5-
(b) To the best of Purchaser's knowledge no approval of any person or
entity is required for the execution of this Agreement by Purchaser or the
consummation by Purchaser of the transactions contemplated by this Agreement,
excluding any consents received on or prior to the date hereof; and
(c) Purchaser hereby acknowledges and agrees that it has become a party
hereto in reliance upon its own independent analysis of the Borrowers' financial
condition and creditworthiness based on such documents and information as
Purchaser deemed appropriate or necessary and not in reliance on any
representation, warranty, analysis or advice, whether express or implied, made
by Seller.
7. Appraisal. Between the Effective Date and the Closing Date, Seller shall
have the right to cause a single market value appraisal of the Ship and related
equipment and business operations (the "Appraisal") to be made, at Seller's
expense. Once Seller notifies Purchaser of Seller's retention of a specified
appraiser to conduct the Appraisal, Purchaser shall permit such appraiser, his
employees and agents, to enter the Ship, at reasonable times which do not
interfere with the normal operation of the Ship from the Port of Palm Beach,
scheduled upon at least five (5) Business Days' prior notice to Purchaser, for
the purpose of conducting such studies and reports (at Seller's sole cost and
expense) as are reasonably necessary for the preparation of the Appraisal.
8. Non-Recourse; No Survival of Representations and Warranties. Except as
specifically provided herein or the Assignment, the transfer of the Loan
Documents to Purchaser shall be without representation, recourse or warranty,
express or implied. The trustee of Seller shall not be personally liable for any
of the transactions or obligations of Seller hereunder and any judgment entered
against the Seller or the Estate shall be satisfied only from the assets of the
Estate. Except as set forth in Sections 5(a)(iii), 5(a)(iv) and 6(a) (which
representations and warranties shall survive the Closing for two (2) years after
the Closing Date) the representations and warranties provided herein shall not
survive the Closing.
9. Entire Agreement. This Agreement and the Settlement Agreement together
supersede any prior negotiations, discussions or communications between
Purchaser and Seller and constitutes the entire agreement between Purchaser and
Seller with respect to the Loan Documents and the Mortgaged Premises.
10. Termination. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Purchaser and Seller, the effect of
which (including any right PBP may have to have any refund of the Installment
Payment) shall be as determined by the mutual agreement between Purchaser and
Seller;
(b) by Seller, if an Event of Default occurs as set forth in, and with
the effect set forth in, Section 3(b) above; and
(c) by Purchaser, if the Closing shall not have occurred (i) due to a
breach of this Agreement by Seller in any material respect which Seller shall
not have cured within thirty
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(30) days after notice from Purchaser to Seller or (ii) due to failure to have
satisfied any of the conditions precedent set forth in Section 2(a) hereof to be
satisfied. In the event that Purchaser terminates this Agreement as set forth in
this Section, Purchaser shall be entitled to (A) the refund of any of the
Installment Payments or any other sum paid to Seller hereunder or specific
performance of this Agreement and (B) solely in the event of the willful breach
of this Agreement, an action for money damages.
11. Time is of the Essence. Time is of the essence for the performance of
this Agreement.
12. Notices. All notices, statements, demands, requests, consents,
communications and certificates to be given under this Agreement shall be duly
and properly given if delivered personally or given verbally and promptly
confirmed in writing or sent by overnight courier service to the party entitled
to such notice or demand at the address set forth below, or at such other
address as such party may, from time to time, specify in writing and shall be
effective when actually received by such party.
Address for PBP:
Palm Beach Princess, Inc.
777 East Port Road
Riviera Beach, Florida 33404
Attention: Francis X. Murray
with a copy to:
David S. Petkun, Esq.
Cozen O'Connor
The Atrium
1900 Market Street
Philadelphia, Pennsylvania 19103
Address for Seller:
c/o Drinker Biddle & Shanley LLP
500 Campus Drive
Florham Park, New Jersey 07932-1047
Attention: A. Dennis Terrell, Esq.
13. Headings. The headings contained in this Agreement are for convenience
only and shall not affect the interpretation of any provision hereof.
14. Governing Law. This Agreement and the rights and duties described
herein shall be governed by, and interpreted in accordance with, the laws of the
State of New Jersey without reference to conflict of laws provisions.
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15. Counterparts. This Agreement may be executed in several counterparts,
and by the parties hereto on separate counterparts, each of which is an original
but all of which together shall constitute one document.
16. No Recording. This Agreement shall not be lodged for recording in any
place or office of public record and any action in violation of this provision
shall be deemed to be a default hereunder and permit the other party hereto to
terminate this Agreement immediately and without further notice.
17. No Assignment. Neither this Agreement, nor the rights, duties and
obligations hereunder, may be assigned by a party hereto without the prior
written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
under seal, as of the day and year first-above written.
WITNESS DONALD F. CONWAY, CHAPTER 11 TRUSTEE
FOR THE BANKRUPTCY ESTATE OF
ROBERT E. BRENNAN
/s/Karl Piirimae By:/s/Donald F. Conway
- ---------------------- ----------------------------------
Name: Name: Donald F. Conway
Title:
WITNESS PALM BEACH PRINCESS, INC.
/s/David Petkun By:/s/Francis X. Murray
- ---------------------- ----------------------------------
Name: Name:Francis X. Murray
Title: Title:President
-8-
EXHIBIT "A"
Loan Documents
1. Promissory Note dated May 13, 1999 from MJQ Corporation to Cambridge
Capital Group, Inc.
2. Indenture of Second Naval Mortgage dated May 13, 1999 from MJQ Corporation
to Cambridge Capital Group, Inc.
3. Debt and Security Interest Subordination Agreement dated May 13, 1999 by
and among Cambridge, First Union National Bank, MJQ and Michael J. Quigley.
EXHIBIT "B"
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made as of
the ____ day of ______, 2002, by DONALD F. CONWAY, CHAPTER 11 TRUSTEE FOR THE
BANKRUPTCY ESTATE OF ROBERT E. BRENNAN, ("Assignor"), and PALM BEACH PRINCESS,
INC. ("Assignee").
Background
Assignor is the owner and holder of a that certain (i) Promissory Note
dated as of May 13, 1999 (the "Note") from MJQ Corporation ("MJQ" or "Borrower")
to the Cambridge Capital Group, Inc. ("Cambridge") in the original principal
amount of Twelve Million Dollars ($12,000,000.00); and (ii) Indenture of Second
Naval Mortgage dated May 13, 1999 (the "Mortgage") by and between MJQ and
Cambridge pursuant to which MJQ granted to Cambridge a second priority lien
encumbering the ocean faring vessel "M/V Palm Beach Princess" registered under
the Panamanian flag with International Call Sign 3FNQ2 and Patente of Navigation
Number 14348-84-D (the "Ship"). The Note, the Mortgage and all other documents
executed or delivered in connection therewith are described on Exhibit "A"
attached hereto and collectively referred to herein as the "Loan Documents".
Assignor desires to sell, assign, transfer and convey the Loan Documents to
Assignee on the terms and conditions set forth in this Agreement.
Agreement
NOW, THEREFORE, Assignor and Assignee, for the consideration specified in
that certain Purchase and Sale Agreement dated February __, 2002 to be effective
as of April 30, 2001 among Assignor, Assignee and others (the "Purchase
Agreement"), which Purchase Agreement is hereby incorporated herein by this
reference, to Assignor in hand paid, the receipt and sufficiency of which are
hereby acknowledged, and the mutual promises contained herein, and intending to
be legally bound hereby, covenant and agree as follows:
1. Assignment. Assignor hereby sells, assigns, transfers, conveys and sets
over to Assignee the Loan Documents. The assignment and transfer accomplished
hereby shall be effective as of the date of this Agreement.
2. Acceptance. Assignee hereby accepts the foregoing assignment of the Loan
Documents and assumes all of the liabilities and obligations under the Loan
Documents effective as of the date of this Agreement, subject to the terms of
the Debt and Security Interest Subordination Agreement dated May 13, 1999 by and
among Cambridge, First Union National Bank, MJQ and Michael J. Quigley III.
3. No Representations. Except as expressly set forth in the Purchase
Agreement, this Assignment is without recourse, warranty, representation,
obligation or responsibility of any
type, kind, character or nature, whether expressed or implied, statutory or
otherwise, in fact or in law.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed this Agreement
as of the day and year first above written.
Assignor:
DONALD F. CONWAY, CHAPTER 11 TRUSTEE
FOR THE BANKRUPTCY ESTATE OF
ROBERT E. BRENNAN
By:
-----------------------
Name: Donald F. Conway
Assignee:
PALM BEACH PRINCESS, INC.
By:
----------------------
Name:
Title:
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EXHIBIT 10.17
STOCK PURCHASE AGREEMENT
THIS AGREEMENT made this 22nd day of February 2002 between DONALD F.
CONWAY, THE CHAPTER 11 TRUSTEE, FOR THE BANKRUPTCY ESTATE OF ROBERT E. BRENNAN
(the "Seller"), maintaining an office at Druker, Rahl & Fein, 3625 Quakerbridge
Road, Hamilton, New Jersey 08619, and INTERNATIONAL THOROUGHBRED BREEDERS, INC.,
a Delaware corporation ("Purchaser" or "ITB") maintaining an office at 211
Beningo Boulevard, Bellmawr, New Jersey 08031.
Background
A. On August 7, 1995, Robert E. Brennan (the "Debtor") filed a voluntary
petition for relief under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"), Case No. 95-35502(KCF). Seller is the duly
appointed Chapter 11 Trustee of the bankruptcy estate of the Debtor (the
"Estate").
B. On December 7, 2000, the Seller entered into that certain Agreement for
Settlement of Controversy (the "Bond Agreement") with Peter M. Bond on his own
and on behalf of certain companies and entities identified therein
(collectively, "Bond"), which provides for the transfer of all of the shares of
ITB common stock owned by Bond to the Trustee (the "Valmet Shares").
C. The performance of the Bond Agreement and the Trustee's receipt of the
Valmet Shares are contingent upon the Bankruptcy Court's approval of the Bond
Agreement. On February 21, 2001, the Bankruptcy Court entered an Order approving
the Bond Agreement pursuant to Federal Rule of Bankruptcy Procedure 9019.
D. Seller and Purchaser are parties to that certain Master Settlement
Agreement dated the date hereof by and among Seller, Purchaser, MJQ Corporation,
Michael J. Quigley, II, Leo Equity Group, Inc., Frank A. Leo, Deerbrooke
Investments, Inc., Francis W. Murray and Cambridge Capital Group, Inc. (the
"Settlement Agreement"), pursuant to which the parties agreed to settle,
discontinue and end certain litigation relating to various assets of the Debtor,
including, but not limited to, the Valmet Shares.
E. In furtherance of the Settlement Agreement, Seller desires to sell all
of its interest in and to the Valmet Shares to Purchaser, and Purchaser desires
to purchase all of Seller's interest in and to the Valmet Shares upon the terms
and conditions set forth herein.
Agreement
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Sale of Shares. Subject to the terms of this Agreement, at the Closing
(as hereinafter defined), Seller shall sell and cause to be transferred to
Purchaser all of the Valmet Shares that the Seller may receive and obtain
control from Bond under the Bond Agreement, and Purchaser shall purchase all of
Seller's interests and rights in and to such Valmet Shares, for the purchase
price specified in Paragraph 2 hereof. Purchaser and Seller acknowledge that
Seller's rights in and to the Valmet Shares are derived from the Bond Agreement
and that Seller presently does not have possession and control of the Valmet
Shares. Although the parties have approximated the number of Valmet Shares to be
2,235,000, the exact number of Valmet Shares cannot presently be determined.
2. Purchase Price. The aggregate purchase price for the Valmet Shares (the
"Purchase Price") shall be the amount in United States dollars determined by
multiplying (i) the number of Valmet Shares to be transferred to Purchaser;
times (ii) U.S. $.50 (fifty cents). For example, if the Valmet Shares consist of
2,235,000 shares of ITB common stock, the Purchase Price shall be $1,117,500.
The per share purchase price shall be equitably adjusted in the event of any
stock split, reverse stock split, reclassification, recapitalization,
reorganization or other transaction which affects the capital structure of ITB
or changes the number, rights or the nature of the Valmet Shares or other shares
of ITB capital stock from the date hereof to the Closing.
3. Payment of the Purchase Price. The Purchase Price shall be paid by
Purchaser at the Closing to Seller by wire transfer of immediately available
funds pursuant to instructions given by Seller to Purchaser for that purpose or
by delivery of a certified or bank cashier's check payable to the order of
Seller.
4. Security for Purchaser's Obligations. The obligations of Purchaser
hereunder are secured by the Pledge and Security Agreement (the "ITB Security
Agreement") dated the date hereof made between ITB and Seller and all collateral
pledged to Seller thereunder.
5. Delivery of the Shares. Seller shall deliver to Purchaser at Closing a
certificate or certificates representing all of the Valmet Shares, each duly
endorsed in the name of Purchaser or accompanied by a duly executed stock power,
all in good form for transfer of all such Valmet Shares to Purchaser.
6. Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller, knowing and intending that Seller is relying hereon, as
follows:
(a) Purchaser is a corporation, and GSRT is a limited liability company,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and Purchaser has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder;
(b) The execution, delivery and performance of this Agreement, the ITB
Security Agreement, and other all agreements and documents to be executed and
delivered pursuant hereto by Purchaser and GSRT (collectively, the "Purchaser
Transaction Documents") and the consummation by Purchaser and GSRT of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of Purchaser and by the Board of Directors
2
of Garden State Race Track, Inc., as the sole member of GSRT, and no other
corporate proceedings on the part of Purchaser and GSRT are necessary to
authorize this Agreement and the transactions contemplated hereby and thereby.
(c) This Agreement has been duly executed and delivered by Purchaser and
constitutes, and the other Purchaser Transaction Documents to be executed and
delivered by Purchaser and GSRT pursuant hereto when executed and delivered by
Purchaser and GSRT will constitute, the legal, valid and binding obligations of
Purchaser and GSRT, enforceable against Purchaser and GSRT in accordance with
their respective terms.
(d) The execution, delivery and performance by Purchaser of this
Agreement and by Purchaser and GSRT of the Purchaser Transaction Documents do
not and will not (with or without the passage of time or the giving of notice)
violate or conflict with Purchaser's certificate of incorporation or by-laws or
any agreement, law or regulation, judgement or order binding upon Purchaser or
its assets or GSRT's certificate of formation, operating agreement or any
agreement, law or regulation, judgment or order binding upon GSRT or its assets.
(e) No consents, approvals of, or registrations, notifications, filing
and/or declarations with, any court, government, governmental agency or
instrumentality or any other person are required to be given or made by
Purchaser or GSRT in connection with the execution, delivery and performance of
this Agreement and the Purchaser Transaction Documents.
(f) There are no judicial, administrative, governmental or other
actions, proceedings or investigations pending, or, to the knowledge of
Purchaser threatened against or involving Purchaser or GSRT, that question any
of the transactions contemplated by, or the validity of, this Agreement or any
of the other Purchaser Transaction Documents.
7. Representations and Warranties of Seller. Seller represents and warrants
to Purchaser, knowing that Purchaser is relying hereon, as follows:
(a) Seller has the power to and authority to enter into this Agreement
and perform its obligations hereunder, subject to approval by the Bankruptcy
Court.
(b) This Agreement has been duly executed and delivered by Seller and
constitutes the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with its terms, subject to approval by the
Bankruptcy Court.
(c) The execution, delivery and performance by Seller of this Agreement
do not and will not (with or without the passage of time or giving of notice)
violate or conflict with any law or regulation, judgment or order of any court
or arbitrator binding upon Seller.
(d) No consents, approvals of or registrations, notifications, filings
and /or declarations with any court, government, governmental agency or
instrumentality or any other person are required to be given or made by Seller
in connection with the execution, delivery and performance of this Agreement,
except for the approval of the Bankruptcy Court referred to in Sections 9(a) and
9(b).
3
(e) There are no judicial, administrative, governmental or other
actions, proceedings or investigations pending, or to the knowledge of Seller,
threatened against or involving Seller, that question any of the transactions
contemplated by, or the validity of, this
Agreement, except for the proceedings seeking the requisite approval of the
Gibralter Court and the Bankruptcy Court.
8. Obligations of Purchaser Until Closing.
(a) Purchaser shall not take any action with respect to its capital
structure, or change the number, rights or the nature of the Valmet Shares or
other shares of the capital stock of ITB, including, but not limited to, the
effecting of a stock split, reverse stock split, recapitalization,
reclassification, or reorganization, without the prior written consent of
Seller, which consent shall not be unreasonably withheld or delayed.
(b) Purchaser shall maintain, and cause GSRT to maintain, its corporate
existence and good standing in its jurisdiction of organization.
(c) Purchaser shall operate its business, and cause GRST to operate its
business, in the ordinary course, including, but not limited to, maintaining in
full force and effect all licenses, permits, authorizations and insurance
policies necessary to do business. For purposes of this subsection, Purchaser's
operation of its business in the ordinary course shall include acquisitions of
other businesses and assets; provided, however, that any such acquisition from
an "Affiliate" of Purchaser shall be on terms no less favorable to Purchaser
than such terms Purchaser would receive in a transaction at arms length. For
purposes of this Section 8(c), the term "Affiliate" shall include MJQ
Corporation, Leo Equity Group, Inc., Cambridge Capital Group, Inc., Frank A.
Leo, Francis W. Murray, Michael J. Quigley, III, all persons and entities set
forth on Schedule A hereto and any and all persons or entities having any legal
or beneficial interest in or with any of the persons and entities named in this
subsection or on Schedule A.
(d) Purchaser shall promptly advise Seller in writing of the threat or
commencement of any dispute, claim, action, suit, proceeding, arbitration or
investigation which could materially adversely affect Purchaser's ability to
perform its obligations under this Agreement or which challenges or may affect
the validity of this Agreement.
(e) Purchaser shall not take, or enter into any agreement or commitment
to take, any of the following actions:
(i) Purchaser shall not make any change in its authorized or issued
capital stock, grant any stock option or other right to purchase shares of its
capital stock or other securities or purchase, redeem, retire or make any other
acquisition of any shares of any capital stock or other securities, except for:
(1) the purchase of the Valmet Shares as contemplated by this Agreement and
shares of ITB common stock purchased by Purchaser under the terms of the Stock
Option Agreement between Purchaser and Seller dated of even date herewith, (2)
issuance's by Purchaser of shares of its common stock upon the due exercise of
stock options and warrants granted and outstanding as of the date hereof, (a
list of such options and warrants is set forth on Schedule B hereto); and (3)
Purchaser's substitution and replacement of stock options for Francis Murray and
William Warner as set forth in Schedule C hereto.
4
Notwithstanding the foregoing exception in 8(e)(i)(2) above, Purchaser shall not
permit Francis Murray to exercise any stock options held by him and Purchaser
shall not issue any shares of its capital stock upon any attempted exercise or
exchange thereof.
(ii) Purchaser shall not liquidate or dissolve.
(iii) Purchaser shall not sell all or a material portion of its
assets.
(iv) Purchaser shall not enter any agreement of merger, combination,
or consolidation, unless such agreement expressly provides for Purchaser's
consummation of the purchase of the Valmet Shares hereunder before any such
merger, combination or consolidation may take place.
(v) Purchaser shall not declare or pay any dividends or
distributions.
(vi) Purchaser shall not amend its certificate of incorporation or
bylaws which could adversely affect the rights of the holders of ITB common
stock.
(vii) Purchaser shall not unreasonably increase cash compensation
paid to its management or pay cash bonuses.
(f) Purchaser shall promptly advise Seller in writing, promptly after
becoming aware, of any event or the existence of any fact which (i) makes
untrue, or will make untrue as of the Closing, any representation or warranty of
Purchaser set forth in this Agreement or in any other Purchaser Transaction
Document or (ii) would constitute a breach of this Agreement by Purchaser.
9. Conditions Precedent to Seller's Obligations.
The obligation of Seller to consummate the sale of the Valmet Shares is
subject to fulfillment by or at Closing of each of the following conditions:
(a) Bankruptcy Court Approval. The Bankruptcy Court shall have entered
an Order (the "Approval Order") pursuant to Section 363(b)(1) of the Bankruptcy
Code approving this Agreement and the consummation of the sale of the Valmet
Shares contemplated herein and providing, among other matters, that (i) the
Valmet Shares shall be transferred to the Purchaser free and clear of any and
all liens, encumbrances, security interests, charges, claims and interests and
free of any stamp or similar tax requirements; (ii) any and all liens and/or
encumbrances against the Valmet Shares shall attach to the proceeds of the sale,
and (iii) the Purchaser is a good faith purchaser entitled to protection
pursuant to Section 363(m) of the Bankruptcy Code.
(b) Final Order. The Approval Order becomes a Final Order. The Approval
Order shall be considered a "Final Order" when the Approval Order has not been
stayed, vacated or otherwise rendered ineffective and either (i) the time period
for taking an appeal therefrom shall have passed without an appeal therefrom
having been taken or (ii) if any such appeal shall have been taken or stay
granted, such appeal shall have been dismissed or resolved or such stay shall
have been vacated or terminated and all applicable periods for further appeal of
such order shall have passed.
5
(c) Seller obtains possession and control of the Valmet Shares duly
endorsed for transfer by Bond.
(d) Purchaser's representations and warranties contained in this
Agreement shall be made again as at the Closing and shall then be true and
correct in all material respects.
(e) Purchaser shall have performed or complied in all material respects
with all agreements, covenants and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
(f) Purchaser shall have executed and delivered the Purchaser
Transaction Documents with no default thereunder.
(g) The Closing shall not violate any order or decree of any court or
governmental body of competent jurisdiction and no suit, action, investigation,
or legal or administrative proceeding shall have been brought or threatened by
any person other than Seller or an affiliate of Seller which questions the
validity or legality of this Agreement or the transaction contemplated hereby.
10. Conditions Precedent To Purchaser's Obligations.
The obligation of Purchaser to consummate the purchase of the Valmet Shares
is subject to fulfillment by or at Closing of each of the following conditions.
(a) Bankruptcy Court Approval. The Bankruptcy Court shall have entered
the Approval Order.
(b) Final Order. The Approval Order becomes a Final Order.
(c) Seller obtains possession and control of the Valmet Shares duly
endorsed for transfer by Bond, on behalf of the record owner, and Seller shall
deliver to Purchaser good and marketable title to the Valmet Shares, free and
clear of all liens, security interests and adverse claims pursuant to Section
363 of the Bankruptcy Code. Purchaser hereby acknowledges that the Valmet Shares
are held of record by non United States persons and entities and, accordingly,
Purchaser hereby waives, on behalf of itself and its stock transfer agent, all
requirements that stock powers or other stock transfer documents bear signatures
with "medallion guarantees".
(d) Seller's representations and warranties contained in this Agreement
shall be made again as at the Closing and shall then be true and correct in all
material respects.
(e) Seller shall have performed or complied in all material respects
with all agreements, covenants and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
(f) The Closing shall not violate any order or decree of any court or
governmental body of competent jurisdiction and no suit, action, investigation,
or legal or administrative proceeding shall have been brought or threatened by
any person other than Purchaser or an
6
affiliate of Purchaser which questions the validity or legality of this
Agreement or the transaction contemplated hereby.
11. Closing.
(a) The closing of the purchase and sale of the Valmet Shares (the
"Closing") shall take place at the office of Drinker Biddle & Shanley LLP, 500
Campus Drive, Florham Park, New Jersey 07932 on the later of: (i) July 1, 2002
or (ii) the date occurring 90 days after the Approval Order of the Bankruptcy
Court becomes a Final Order (the "Closing Date") or at such other date and place
as may be agreed to by Purchaser and Seller.
(b) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser the following:
(i) all certificates representing the Valmet Shares duly endorsed
for transfer or with stock powers affixed thereto; and
(ii) a certificate dated as of the Closing Date to the effect set
forth in Section 7.
(c) At the Closing, Purchaser shall deliver to Seller the following:
(i) the Purchase Price;
(ii) a certificate, dated the Closing Date, to the effect set forth
in Section 6; and
(iii) a copy of the resolutions of the board of directors of
Purchaser authorizing the execution, delivery and performance by Purchaser of
this Agreement, the ITB Security Agreement and the other Purchaser Transaction
Documents.
12. Termination.
This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written consent of Seller and Purchaser;
(b) by Seller, if (i) any representation or warranty of Purchaser made
in or pursuant to this Agreement is untrue or incorrect in any material respect,
(ii) Purchaser breaches in any material respect any covenant or obligation or
other term of this Agreement and such breach is not cured within 10 days
thereafter ((i) and (ii) above being hereinafter referred to as a "Purchaser
Event of Default"), or (iii) any of the conditions precedent to Closing
contained in Section 9 are not satisfied by July 1, 2002.
(c) by Purchaser, if (i) any representation or warranty of Seller made
in or pursuant to this Agreement is untrue or incorrect in any material respect,
(ii) Seller breaches any covenant or other term of this Agreement and such
breach is not cured within 10 days thereafter
7
((i) and (ii) above being hereinafter referred to as a "Seller Event of
Default") or (iii) any of the conditions precedent to Closing contained in
Section 10 are not satisfied by July 1, 2002.
(d) In the event of termination of this Agreement by either Seller or
Purchaser as provided above, this Agreement shall immediately become void and of
no further force and effect, except that Seller and Purchaser shall have the
remedies set forth in Section 13(a) and (b), respectively.
13. Remedies.
(a) In the event of a Purchaser Event of Default or a Stock Acquisition
Event of Default occurs as defined in the Settlement Agreement, Purchaser shall
immediately be liable to Seller for the Purchase Price hereunder for all Valmet
Shares over which Purchaser has possession and control at the time of such
default, plus all costs of enforcement, collection and disposition, including,
but not limited to, reasonable attorneys fees and costs (collectively, "Costs").
Without limiting any of its remedies, Seller shall immediately have all of the
rights and remedies entitled to it under the ITB Security Agreement and the
Settlement Agreement and shall have the right to dispose of the Valmet Shares to
another party at any price. In the event Seller sells some or all of the Valmet
Shares to a third party, the amount of Purchaser's liability hereunder shall be
reduced by the net proceeds of such sale(s). Upon Seller's recovery or
collection from Purchaser or from disposition of the Pledged Collateral (as
defined in the ITB Security Agreement) of the Purchase Price (or the balance
thereof if Seller has previously sold some of the Valmet Shares), plus all
Costs, Seller shall transfer to Purchaser the Valmet Shares which it has not
previously sold. No failure to exercise and no delay in exercising on the part
of Seller any right, remedy or power shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy or power preclude any
other or further exercise thereof. The rights, remedies and powers herein
provided are cumulative and not exclusive of any rights, remedies or powers
provided herein or by law or equity.
(b) In the event of a Seller Event of Default, Purchaser shall be
entitled to specific performance for the delivery of the Valmet Shares and
injunctive relief, as well as all other remedies available at law or in equity,
but only to the extent Seller obtains possession and control of the Valmet
Shares. Purchaser acknowledges that Seller's inability to obtain possession and
control of the Valmet Shares or the failure of the Bankruptcy Court to issue the
Approval Order or the failure of the Approval Order to become a Final Order
shall not constitute a breach by Seller hereunder. Purchaser shall have no
recourse against Donald Conway, individually.
14. Survival. The representation and warranties made by the parties in this
Agreement and in the certificates, documents and schedules delivered pursuant
hereto shall survive the consummation of the transactions herein contemplated.
15. Notices. All notices that are required or may be given pursuant to the
terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and delivered by hand or national overnight courier
service, transmitted by telecopy or mailed by registered or certified mail,
postage prepaid, as follows:
8
To Purchaser:
International Thoroughbred Breeders, Inc.
211 Beningo Boulevard, Suite 210
Bellmawr, NJ 08031
Fax No. (856) 931-8165
Attention: Francis W. Murray, President
With Copy to:
Cozen O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
(215) 665-2000
Attention: David S. Petkun, Esquire
To Seller:
Druker, Rahl & Fein
3625 Quakerbridge Road
Hamilton, New Jersey 08619
(609) 689-2317
Attention: Donald F. Conway, Trustee
With Copy to:
Drinker Biddle & Shanley LLP
500 Campus Drive
Florham Park, NJ 07932
(973) 360-1100
Attention: A. Dennis Terrell, Esquire
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto. A notice shall be deemed to have
been given (a) upon personal delivery, if delivered by hand or courier, (b)
three (3) days after the date of deposit in the mails, postage prepaid, if
mailed by certified or registered mail, or (c) the next business day if sent by
facsimile transmission (if receipt is electronically confirmed).
16. Best Efforts. Purchaser and Seller shall use their commercially best
efforts to cause to occur the transactions contemplated hereby in accordance
with the terms hereof and to cause all conditions hereto that are within its
control to be satisfied.
17. Jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey without giving effect to
principles of conflicts of laws, and
9
any and all disputes under and/or related to this Agreement shall be resolved by
the Bankruptcy Court.
18. Waivers. Seller, on the one hand, and Purchaser, on the other hand,
may, by written notice to the other, (a) extend the time for the performance of
any of the obligations or other actions of the other under this Agreement; (b)
waive any inaccuracies in the representations or warranties of the other
contained in this Agreement or in any document delivered pursuant to this
Agreement; or (c) waive compliance with any of the covenants and agreements of
the other contained in this Agreement. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
19. Entire Agreement. This Agreement, including the documents incorporated
herein by reference, constitutes the entire agreement of the parties concerning
the subject matter hereof, and shall not be amended, modified or supplemented
unless by written agreement executed by the parties hereto. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors and assigns. This Agreement supercedes all prior written and oral
agreements among the parties concerning the subject matter hereof, including,
without limitation, the letter agreement between Purchaser and Seller dated
January 4, 2000.
20. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
21. No Assignment. The rights and obligations under this Agreement shall
not be assignable to any person except with the written consent of the
non-assigning parties.
22. Further Assurance. Each party hereby agrees from time-to-time upon
written request of the other, to take such additional actions and to execute and
deliver such additional documents and instruments as such other party may
reasonably request to effect the transactions contemplated by and to carry out
the intent of this Agreement.
23. Severability. In the event that any provision of this Agreement shall
be held invalid, illegal, or unenforceable in any respect, the validity,
legality, enforceability of the remaining provisions contained in this Agreement
shall not in any way be affected or impaired thereby, and this Agreement shall
otherwise remain in full force and effect.
24. Brokers. The Seller and the Purchaser represent and warrant that they
have not employed any broker, finder or investment banker who might be entitled
to any brokerage, finder's fee, underwriting discount or other fee or commission
from the Purchaser or the Seller in connection with the sale of the Shares.
25. Fees. Each party shall be responsible for all legal and other fees
incurred by it in connection with the negotiation of this Agreement and the
consummation of the transaction contemplated hereby.
10
26. Headings. The headings set forth herein are for the convenience of
reference only and shall not be used in the interpretation or construction of
this Agreement.
27. Voting of Shares; Standing: Purchaser acknowledges that Seller may
obtain voting proxies for the Valmet Shares and Purchaser shall not object to
Seller's voting of such Valmet Shares for which Seller has valid proxies on any
matter for which a stockholder of ITB may vote. Purchaser also agrees that
Seller shall have standing as a stockholder of ITB as to such Valmet Shares over
which Seller has possession and control to bring, or participate in, any action,
in the capacity as a stockholder, against ITB and/or its directors and officers.
IN WITNESS WHEREOF, parties hereto have duly executed the Agreement on the
date first above written.
WITNESS: SELLER:
/s/Karl Piirimae /s/Donald F. Conway
- ------------------ -------------------
DONALD F. CONWAY, TRUSTEE
For the Bankruptcy Estate of Robert E.
Brennan
PURCHASER:
ATTEST: INTERNATIONAL THOROUGHBRED
BREEDERS, INC.
By:/s/Francis W. Murray
Name:Francis W. Murray
Title:President
11
EXHIBIT 10.18
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This AGREEMENT, dated as of January 7, 2002, is made between International
Thoroughbred Breeders, Inc. (the "Company") and Francis W. Murray (the
"Optionee").
W I T N E S S E T H;
1. Grant of Option. Subject to the terms and conditions herein set forth,
the Company hereby grants to the Optionee the right, exercisable at the option
of the Optionee, to purchase from the Company up to an aggregate of Two Million
(2,000,000) shares of the Company's Common Stock ($2.00 par value) at the
purchase price of $0.26875 per share (the "Option").
2. Terms and Conditions. The Option is subject to the following terms and
conditions:
a. Expiration Date. The Option shall expire at 5 p.m. (Eastern
Standard Time) on December 31, 2010 (the "Expiration Date").
b. Exercise of Option. Subject to the terms of this Agreement
regarding the exercisability of the Option, the Option shall vest immediately
and may be exercised in whole or from time to time in part by Optionee at any
time until expiration of the Option.. Any exercise shall be accompanied by a
written notice to the Company specifying the number of shares as to which the
Option is being exercised. Notation of any partial or total exercise shall be
made by the Company on its books and records. In no event shall the Option be
exercisable for the purchase of fractional shares.
c. Payment of Purchase Price upon Exercise. At the time of any
exercise as aforesaid, the purchase price of the shares as to which the Option
shall be exercised shall be paid to the Company in cash by certified check or by
such other means, including in shares of the Company's common stock or in a
combination of cash and shares, as the Board of Directors of the Company may
from time to time designate. The Option shall not be deemed exercised unless and
until payment of the purchase price shall have been delivered to the Company in
the manner provided herein. Any shares of the Company's common stock utilized to
pay any portion of the purchase price of shares under the Option shall be valued
at their fair market value as reasonably determined by the Company.
d.Termination of Employment. In the event that Optionee's employment
with the Company is terminated for any reason, the Option shall remain in effect
until it is fully exercised or until the Expiration Date (at which time such
Option shall no longer be exercisable), whichever first occurs.
e. Nontransferability. The Option and the Optionee's rights hereunder
shall not be transferable other than by will or by the laws of descent and
distribution. During the lifetime of Optionee, the Option shall be exercisable
only by the Optionee.
f. Adjustments. In the event of any change in the stock of the Company
by reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, stock-split, combination or exchange of shares, or of any similar
change affecting the stock, the number and kind of share subject to the Option
and their purchase price per share shall be appropriately adjusted consistent
with such change in such manner as the Board of Directors may deem equitable to
prevent dilution or enlargement of the rights granted to Optionee hereunder. Any
adjustments so made shall be final and binding upon Optionee.
g. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to any shares of stock subject to the Option prior to
the date of issuance to Optionee of a certificate or certificates for such
shares.
h. No Right to Continued Employment. This Agreement and the Option
shall not confer upon Optionee any right with respect to continuance of
employment by the Company or any affiliate, nor shall it interfere in any way
with the right of the Company to terminate his employment at any time. i.
Compliance with Laws and Regulations. The Option and the obligation of the
Company to sell and deliver shares hereunder shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. The Option may not be
exercised if its exercise, or the receipt of shares of stock pursuant thereto,
would be contrary to applicable law. Without limiting the generality of the
foregoing, the Option shall not be exercised unless the shares issuable upon
such exercise shall have been registered under the Securities Act of 1933, as
amended, and under any applicable state securities laws, or, in the opinion of
counsel satisfactory to the Company, shall be exempt from such registration. The
Company shall have no obligation to comply with the terms of any exemption from
registration requirements in order to permit the exercise of the Option.
3. Exercise Representations. The Company may require Optionee to furnish to
the Company, prior to the issuance of any shares upon the exercise of all or any
part of the Option, an agreement (in such form as the Board of Directors may
specify) in which Optionee represents that the shares acquired by him upon
exercise are being acquired for investment and not for resale or with a view of
distribution thereof and that Optionee has been advised and understands that (i)
such shares have not been registered under the Securities Act of 1933 and are
"restricted securities" within the meaning of Rule 144 under the Securities Act
and are subject to restrictions on transfer and (ii) the Company is under no
obligation to register such shares under the Securities Act or to take any
action which would make available to the Optionee any exemption from such
registration in order to permit any transfer of shares issued upon exercise of
the Option.
4. Notices. Any notice hereunder to the Company shall be addressed to it at
its office at the following address:
-2-
International Thoroughbred Breeders, Inc.
211 Benigno Boulevard
Suite 210
Bellmawr, NJ 08031
Attention: Chief Financial Officer
and any notice hereunder to Optionee shall be addressed to him at:
Francis W. Murray
1293 Farm Road
Berwyn, PA 19312
subject to the right of either party to designate at any time hereafter in
writing some other address.
5. Amendment. The Board of Directors shall have the right to amend this
Agreement, subject to the Optionee's consent only if such amendment adversely
affects the rights of the Optionee hereunder.
6. Withholding of Taxes. Whenever the Company proposes or is required to
deliver or transfer shares in connection with the exercise of an option, the
Company shall have the right to (a) require the recipient to remit or otherwise
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of shares
shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
an appropriate officer and Optionee has executed this Agreement, both as of the
day and year first above written.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
By:/s/ William H. Warner
------------------------------------
Treasurer
ACCEPTED BY:
/S/ Francis W. Murray
------------------------------------
-3-
EXHIBIT 10.19
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This AGREEMENT, dated as of January 7, 2002, is made between International
Thoroughbred Breeders, Inc. (the "Company") and William H. Warner (the
"Optionee").
W I T N E S S E T H;
1. Grant of Option. Subject to the terms and conditions herein set forth,
the Company hereby grants to the Optionee the right, exercisable at the option
of the Optionee, to purchase from the Company up to an aggregate of Seventy-Five
Thousand (75,000) shares of the Company's Common Stock ($2.00 par value) at the
purchase price of $0.26875 per share (the "Option").
2. Terms and Conditions. The Option is subject to the following terms and
conditions:
a. Expiration Date. The Option shall expire at 5 p.m. (Eastern
Standard Time) on December 31, 2010 (the "Expiration Date").
b. Exercise of Option. Subject to the terms of this Agreement
regarding the exercisability of the Option, the Option shall vest immediately
and may be exercised in whole or from time to time in part by Optionee at any
time until expiration of the Option.. Any exercise shall be accompanied by a
written notice to the Company specifying the number of shares as to which the
Option is being exercised. Notation of any partial or total exercise shall be
made by the Company on its books and records. In no event shall the Option be
exercisable for the purchase of fractional shares.
c. Payment of Purchase Price upon Exercise. At the time of any
exercise as aforesaid, the purchase price of the shares as to which the Option
shall be exercised shall be paid to the Company in cash by certified check or by
such other means, including in shares of the Company's common stock or in a
combination of cash and shares, as the Board of Directors of the Company may
from time to time designate. The Option shall not be deemed exercised unless and
until payment of the purchase price shall have been delivered to the Company in
the manner provided herein. Any shares of the Company's common stock utilized to
pay any portion of the purchase price of shares under the Option shall be valued
at their fair market value as reasonably determined by the Company.
d.Termination of Employment. In the event that Optionee's employment
with the Company is terminated for any reason, the Option shall remain in effect
until it is fully exercised or until the Expiration Date (at which time such
Option shall no longer be exercisable), whichever first occurs.
e. Nontransferability. The Option and the Optionee's rights hereunder
shall not be transferable other than by will or by the laws of descent and
distribution. During the lifetime of Optionee, the Option shall be exercisable
only by the Optionee.
f. Adjustments. In the event of any change in the stock of the Company
by reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, stock-split, combination or exchange of shares, or of any similar
change affecting the stock, the number and kind of share subject to the Option
and their purchase price per share shall be appropriately adjusted consistent
with such change in such manner as the Board of Directors may deem equitable to
prevent dilution or enlargement of the rights granted to Optionee hereunder. Any
adjustments so made shall be final and binding upon Optionee.
g. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to any shares of stock subject to the Option prior to
the date of issuance to Optionee of a certificate or certificates for such
shares.
h. No Right to Continued Employment. This Agreement and the Option
shall not confer upon Optionee any right with respect to continuance of
employment by the Company or any affiliate, nor shall it interfere in any way
with the right of the Company to terminate his employment at any time.
i. Compliance with Laws and Regulations. The Option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Option may not be
exercised if its exercise, or the receipt of shares of stock pursuant thereto,
would be contrary to applicable law. Without limiting the generality of the
foregoing, the Option shall not be exercised unless the shares issuable upon
such exercise shall have been registered under the Securities Act of 1933, as
amended, and under any applicable state securities laws, or, in the opinion of
counsel satisfactory to the Company, shall be exempt from such registration. The
Company shall have no obligation to comply with the terms of any exemption from
registration requirements in order to permit the exercise of the Option.
3. Exercise Representations. The Company may require Optionee to furnish to
the Company, prior to the issuance of any shares upon the exercise of all or any
part of the Option, an agreement (in such form as the Board of Directors may
specify) in which Optionee represents that the shares acquired by him upon
exercise are being acquired for investment and not for resale or with a view of
distribution thereof and that Optionee has been advised and understands that (i)
such shares have not been registered under the Securities Act of 1933 and are
"restricted securities" within the meaning of Rule 144 under the Securities Act
and are subject to restrictions on transfer and (ii) the Company is under no
obligation to register such shares under the Securities Act or to take any
action which would make available to the Optionee any exemption from such
registration in order to permit any transfer of shares issued upon exercise of
the Option.
4. Notices. Any notice hereunder to the Company shall be addressed to it at
its office at the following address:
-2-
International Thoroughbred Breeders, Inc.
211 Benigno Boulevard
Suite 210
Bellmawr, NJ 08031
Attention: Chief Financial Officer
and any notice hereunder to Optionee shall be addressed to him at:
William H. Warner
51 Cranmoor Drive
Toms River, NJ 08753
subject to the right of either party to designate at any time hereafter in
writing some other address.
5. Amendment. The Board of Directors shall have the right to amend this
Agreement, subject to the Optionee's consent only if such amendment adversely
affects the rights of the Optionee hereunder.
6. Withholding of Taxes. Whenever the Company proposes or is required to
deliver or transfer shares in connection with the exercise of an option, the
Company shall have the right to (a) require the recipient to remit or otherwise
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of shares
shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
an appropriate officer and Optionee has executed this Agreement, both as of the
day and year first above written.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
By: /s/ Francis W. Murray
---------------------------------
President
ACCEPTED BY:
/S/ William H. Warner
---------------------------------
-3-
EXHIBIT 21
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
EXHIBIT 21
The following table indicates the subsidiaries of International
Thoroughbred Breeders, Inc. and their states of incorporation. All of such
subsidiaries are wholly owned.
Name State of Incorporation
- ---- ----------------------
Atlantic City Harness, Inc. New Jersey
Circa 1850, Inc. New Jersey
Garden State Race Track, Inc. New Jersey
GSRT, LLC New Jersey
Holdfree Racing Association New Jersey
International Thoroughbred Breeders Management, Inc. New Jersey
International Thoroughbred Gaming Development Corporation New Jersey
ITG - Brazil, Inc. Delaware
ITG - Venezuela, Inc. Delaware
Olde English Management Co., Inc. New Jersey
Orion Casino Corporation Nevada
Palm Beach Princess, Inc. Delaware
ITG Vegas, Inc Nevada
South America Thoroughbred Company, LLC Delaware
EXHIBIT 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K of
International Thoroughbred Breeders, Inc. (the "Company") for the year ended
June 30, 2002 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Francis W. Murray, Chief Executive Officer of the
Company, hereby certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
s/ Francis W. Murray
-------------------------------
Name: Francis W. Murray
Title: President and CEO
October 25, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K of
International Thoroughbred Breeders, Inc. (the "Company") for the year ended
June 30, 2002 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Francis W. Murray, Chief Financial Officer of the
Company, hereby certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
s/ Francis W. Murray
- ---------------------------------
Name: Francis W. Murray
Title: Chief Financial Officer
October 25, 2002