<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JUBILEE GAMING ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MINNESOTA 7993 41-1822296
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
9855 WEST 78TH STREET, SUITE 220
MINNEAPOLIS, MINNESOTA 55344
(612) 944-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
------------------------
CRAIG H. FORSMAN, CHIEF EXECUTIVE OFFICER
JUBILEE GAMING ENTERPRISES, INC.
9855 WEST 78TH STREET, SUITE 220
MINNEAPOLIS, MINNESOTA 55344
(612) 944-5700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
AVRON L. GORDON, ESQ. KENNETH S. ROSE, ESQ.
JEFFREY L. COTTER, ESQ. MORSE, ZELNICK, ROSE & LANDER, LLP
BRIGGS AND MORGAN, 450 PARK AVENUE
PROFESSIONAL ASSOCIATION NEW YORK, NEW YORK 10022-2606
2400 IDS CENTER (212) 838-5030
MINNEAPOLIS, MINNESOTA 55402
(612) 334-8455
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Common Stock and One Redeemable
Common Stock Purchase Warrant........ 1,380,000 $5.00 $6,900,000 $2,091
- ---------------------------------------------------------------------------------------------------------------
Common Stock Underlying Redeemable
Common Stock Purchase Warrants(3).... 1,380,000 $6.50 $8,970,000 $2,719
- ---------------------------------------------------------------------------------------------------------------
Units Underlying Representative's
Warrant.............................. 180,000 $6.00 $1,080,000 $328
- ---------------------------------------------------------------------------------------------------------------
Common Stock Underlying Redeemable
Stock Purchase Warrants Included in
Representative's Warrant............. 180,000 $6.50 $1,170,000 $355
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Total.................................. -- -- $18,120,000 $5,493
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</TABLE>
(1) Includes 180,000 Units which may be sold pursuant to the underwriters'
overallotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) Pursuant to Rule 416, this registration statement includes an indeterminate
number of additional shares of Common Stock which may be issuable upon the
exercise of the Redeemable Common Stock Purchase Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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<PAGE> 2
JUBILEE GAMING ENTERPRISES, INC.
------------------------
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE
PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF FORM SB-2
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ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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1. Front of Registration Statement and Outside Front
Cover of Prospectus................................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Outside Front Cover Page;
Prospectus Summary; Inside Front
Cover Page; Risk Factors; Outside
Back Cover Page
3. Summary Information and Risk Factors................ Outside Front Cover Page;
Prospectus Summary; Underwriting;
Dilution
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Prospectus Cover Page; Underwriting
6. Dilution............................................ Dilution
7. Selling Security Holders............................ *
8. Plan of Distribution................................ Outside Cover Page; Underwriting
9. Legal Proceedings................................... Risk Factors; Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management; Principal Shareholders
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Risk Factors; Management; Principal
Shareholders
12. Description of Securities........................... Description of Capital Stock
13. Interest of Named Experts and Counsel............... Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Management
15. Organization Within Last Five Years................. Certain Transactions
16. Description of Business............................. Business
17. Management's Discussion and Analysis or Plan of
Operation........................................... Management's Discussion and
Analysis of Financial Condition and
Results of Operation
18. Description of Property............................. Business
19. Certain Relationships and Related Transactions...... Management
20. Market for Common Equity and Related Stockholder
Matters............................................. Price Range of Common Stock;
Dividend Policy; Shares Eligible
for Future Sale
21. Executive Compensation.............................. Management
22. Financial Statements................................ Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure................. *
</TABLE>
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* Omitted from Prospectus because item is inapplicable or answer is in the
negative.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 17, 1997
PROSPECTUS
1,200,000 UNITS
JUBILEE GAMING ENTERPRISES, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
Jubilee Gaming Enterprises, Inc. (the "Company") is offering hereby
1,200,000 Units, each consisting of one share of the Company's common stock (the
"Common Stock") and one Redeemable Common Stock Purchase Warrant (a "Redeemable
Warrant"). The Common Stock and the Redeemable Warrants are immediately
detachable and separately transferable. Each Redeemable Warrant entitles the
holder to purchase at any time until five years following the date of this
Prospectus, one share of Common Stock, at an exercise price of $6.50 per share.
The Redeemable Warrants are subject to redemption by the Company for $.01 per
warrant at any time on or after 90 days after the Effective Date of this
Prospectus, on 30 days' prior written notice, provided that the closing bid
price of the Common Stock exceeds $10.00 for any 20 consecutive trading days
prior to such notice. See "Description of Units."
Prior to this offering, there has been no market for the Company's
securities, and there can be no assurance that such a market will develop. The
initial public offering price of the Units is $5.00 per Unit. The offering price
of the Units has been determined by negotiation between the Company and H. J.
Meyers & Co., Inc. (the "Representative"), and is not necessarily related to the
Company's net asset value or any other established criteria of value. See
"Underwriting" for information relating to the factors considered in determining
the Price to Public. The Company has applied for listing of the Common Stock and
Redeemable Warrants on the Nasdaq SmallCap Market under the symbols JUBE and
JUBEW, respectively.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 HEREIN AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COLORADO LIMITED GAMING CONTROL COMMISSION HAS NOT PASSED ON THE ACCURACY,
ADEQUACY OR INVESTMENT MERIT OF THE SECURITIES DESCRIBED HEREIN. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
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<CAPTION>
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PRICE UNDERWRITING DISCOUNT PROCEEDS TO
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Unit............................... $5.00 $.50 $4.50
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Total(3)............................... $6,000,000 $600,000 $5,400,000
=====================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a nonaccountable expense allowance of
$180,000 (or $207,000 if the underwriters' overallotment option as described
in footnote (3) is exercised in full), (ii) a warrant to purchase up to
120,000 Units at $6.00 per Unit exercisable over a period of five years,
commencing one year following the date of this Prospectus (the
"Representative's Warrant"); and (iii) a consulting agreement for $72,000.
In addition, the Company has agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $430,000
(including the Representative's nonaccountable expense allowance referenced
in Note 1 above).
(3) The Company has granted the underwriters an overallotment option exercisable
within 45 days of the date of this Prospectus to purchase up to 180,000
additional Units on the same terms and conditions set forth above. If such
option is exercised in full, the total Price to Public will be $6,900,000,
the total Underwriting Discount and Commissions will be $690,000 and the
total Proceeds to Company will be $6,210,000. To the extent the
overallotment option is exercised, the first $391,500 of the net proceeds
thereof will be used by the Company to redeem 90,000 shares of Common Stock
of the Company owned by the Company's parent, National Lodging Companies,
Inc. ("National Lodging") at $4.35 per share. See "Underwriting."
The Units are offered on a "firm commitment" basis by the Representative
when, as and if delivered to and accepted by the underwriters, and subject to
prior sale, withdrawal, or cancellation of the offer without notice. It is
expected that delivery of the certificates representing these securities will be
made at the offices of H. J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, NY 15620 on or about , 1997.
H. J. MEYERS & CO., INC.
The date of this Prospectus is , 1997
<PAGE> 4
[CASINO PHOTOGRAPHS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
THE UNITS OFFERED BY THE UNDERWRITERS ARE SUBJECT TO PRIOR SALE. THE
UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY SUCH OFFER (WHICH
MAY BE DONE ONLY BY FILING AN AMENDMENT TO THE REGISTRATION STATEMENT) AND TO
REJECT ORDERS IN WHOLE OR IN PART FOR THE PURCHASE OF ANY OF THE UNITS AND TO
CANCEL ANY SALE EVEN AFTER THE PURCHASE PRICE HAS BEEN PAID IF SUCH SALE, IN THE
OPINION OF THE UNDERWRITERS, WOULD VIOLATE FEDERAL OR STATE SECURITIES LAWS OR A
RULE OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
A SIGNIFICANT NUMBER OF THE UNITS MAY BE SOLD TO CUSTOMERS OF THE
UNDERWRITERS. THOSE CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR PURCHASE OF SUCH UNITS THROUGH OR WITH THE UNDERWRITERS. ALTHOUGH THEY
HAVE NO LEGAL OBLIGATION TO DO SO, THE UNDERWRITERS MAY BECOME MARKET MAKERS AND
OTHERWISE EFFECT TRANSACTIONS IN THE COMMON STOCK AND REDEEMABLE WARRANTS OF THE
COMPANY. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY BE A
DOMINATING INFLUENCE IN THE MARKET FOR THESE SECURITIES. THE PRICES AND
LIQUIDITY OF THESE SECURITIES MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE, IF
ANY, OF THE UNDERWRITERS' PARTICIPATION IN SUCH MARKET.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified by the more detailed information and
consolidated financial statements appearing elsewhere in this Prospectus. All
information concerning the Company's authorized, issued and outstanding Common
Stock and all financial information presented on a per share basis reflects a 1
for 3.8125 share combination effective October 11, 1996. Unless otherwise
indicated, information in this Prospectus assumes no exercise of (a) the
Redeemable Warrants for the purchase of 1,200,000 shares of Common Stock sold as
a part of the Units, or (b) the underwriters' option to purchase from the
Company up to 180,000 additional Units to cover overallotments, if any. See
"Underwriting."
THE COMPANY
Jubilee Gaming Enterprises, Inc. (the "Company") operates the Jubilee
Casino (the "Jubilee" or the "Casino") in Cripple Creek, Colorado ("Cripple
Creek"), one of three cities in Colorado permitted to have limited stakes
gaming. In April 1996, the Company acquired the Jubilee by purchasing
substantially all of the interests in the 353 Myers Avenue Limited Partnership
(the "Partnership"), which owns and operates the Jubilee. The Company's
management has experience in planning and financing gaming operations, and its
major stockholder, National Lodging Companies, Inc., is a hotel development and
management company. Over the past four years annual adjusted gross proceeds
("AGP") in Cripple Creek has doubled from $45.5 million (in 1991-1992) to $91
million (in 1994-1995). The Company plans to position itself to capitalize on
this growth. The Company's business strategy is to substantially enlarge the
Casino and build an adjoining hotel to create a resort type gaming destination.
The Company has acquired real estate in order to expand the gaming floor, add a
restaurant, a 145-room hotel (the "Hotel") and additional convenient parking.
The planned expansion will establish the Jubilee as the second largest
casino in Cripple Creek and one of only two casinos with a large hotel facility.
As experienced in other gaming communities, the Company believes that the hotel
rooms will significantly improve the Casino's gaming volume, by attracting
patrons from a greater distance for longer periods of time resulting in a
"captive" following. The Company believes that the planned addition of the Hotel
and expansions of the Casino, the increased parking capacity and recent opening
of the Double Eagle Casino and Hotel in Cripple Creek will shift more of the
gaming activity to the eastern edge of the city from the present concentration
along Bennett Avenue, Cripple Creek's main street, thereby improving the
attractiveness of the Jubilee as a gaming destination. The Hotel is planned on
seven lots owned by the Company east of the Casino, which will also permit
expansion of the Casino to approximately 30,000 square feet of gaming space with
capacity for up to 700 slot machines, a separate children's entertainment area
and expanded restaurant facilities. The Jubilee is the only casino in Cripple
Creek that has a separate floor devoted to children's activities. Recently, a
new law restricting minors from gaming areas became effective in Colorado. The
Company believes that the passage of this law will attract even more family
business to the Casino. With this in mind, the Company intends to expand its
children's area.
The Jubilee is located on Myers Avenue, between Fourth and Fifth Streets,
and is one block south of Bennett Avenue. The Jubilee has, until recently,
experienced declining revenues. In 1995, the Casino's average slot revenue per
machine was nearly $20 below the Cripple Creek average. In 1994, the Casino
experienced a shortage of cash, was put up for sale, and marketing efforts were
greatly reduced. Advertising and marketing programs have been reinstituted and
management of the gaming floor improved, as changes in slot machine locations,
denomination mix and hold percentages were made. Total AGP at the Jubilee for
the first nine months of 1996 has increased by 4.4% over the same period in
1995, while Cripple Creek's total AGP increased by 11% during this period.
Patrons visiting Cripple Creek and the Jubilee primarily come from Colorado
Springs, which is located approximately 45 miles east of Cripple Creek. The
Colorado Springs metro area had a 1995 estimated population of approximately
474,000 people, and is projected to continue to grow. The other two gaming
communities in Colorado, Blackhawk and Central City, are located approximately
25 miles to the west of Denver, which serves as their primary market. Cripple
Creek also draws patrons from the Denver area as well as from Pueblo and
southern Colorado, and northern New Mexico. The Company believes that the new
Hotel will expand the Casino's market area and attractiveness to patrons by
increasing the gaming floor space and providing needed lodging for customers
desiring more than a day trip.
4
<PAGE> 7
The Jubilee was constructed and opened in July 1992 and currently operates
178 machines and 6 table game (blackjack and poker). The Casino consists of two
stories with a total of approximately 15,100 square feet, including a 50-seat
restaurant, a seven-seat bar and a children's entertainment area. Immediately
east of the Casino is a historic building owned by the Company and known as the
Homestead, a bordello during the gold rush days and currently operated as a
museum that draws patrons to the Jubilee.
Jubilee Gaming Enterprises, Inc. was incorporated under the laws of the
State of Minnesota under the name National Gaming Companies, Inc. on August 29,
1995. In December 1996 the Company's corporate name was changed to Jubilee
Gaming Enterprises, Inc. In October 1995 the Company entered into an agreement
to purchase all interests in the Partnership, which owned and operated the
Casino. The Company commenced operation of the Casino on April 23, 1996,
following approval of its gaming license by the Colorado Limited Gaming Control
Commission (the "Gaming Commission"). The Company intends to focus its efforts
on the development and operation of the Jubilee, but also intends to consider
future opportunities to develop, own, manage and operate additional gaming
projects as its time and resources permit.
Unless otherwise indicated, all references to the Company include the
Company's wholly-owned subsidiaries, Regent Gaming Enterprises, Inc. and Cripple
Creek Corporation and the Partnership. The Company maintains operating offices
at the Jubilee, 351 Myers Avenue, P.O. Box 610, Cripple Creek, Colorado 80813.
The Company's principal executive offices are located at 9855 West 78th Street,
Suite 220, Eden Prairie, Minnesota 55344 and its telephone number is (612)
944-5700.
THE OFFERING
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<S> <C>
Securities Offered............... 1,200,000 Units. Each Unit offered hereby consists of one
share of Common Stock and one Redeemable Warrant. Each
Redeemable Warrant is immediately exercisable and
transferable separately from the Common Stock. Each
Redeemable Warrant entitles the holder to purchase at any
time until five years after the date of this Prospectus,
one share of Common Stock at an exercise price of $6.50,
subject to adjustment in certain circumstances. The
Redeemable Warrants are subject to redemption by the
Company, at a price of $.01 per warrant, at any time on or
after 90 days after the Effective Date of this Prospectus,
on 30 days' written notice, provided that the closing bid
price of Common Stock exceeds $10.00 per share (subject to
adjustment) for any 20 consecutive trading days prior to
such notice. Holders of Redeemable Warrants may exercise
their rights until the close of business on the date fixed
for redemption, unless extended by the Company. See
"Description of Units."
Common Stock Outstanding:
Before this Offering........... 1,623,611 shares*
After this Offering............ 2,823,611 shares*
Use of Proceeds.................. To expand the Jubilee Casino Hotel, repayment of advances
from National Lodging, the Company's parent, and working
capital. See "Use of Proceeds."
Risk Factors..................... An investment in the Units is speculative and involves a
high degree of risk and substantial dilution. See "Risk
Factors" and "Dilution."
Proposed Nasdaq SmallCap Market
Symbols:
Common Stock................... JUBE
Warrants....................... JUBEW
</TABLE>
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* Assumes no exercise of (i) outstanding warrants to purchase an aggregate of
88,132 shares of Common Stock, or (ii) the Representative's Warrant to
purchase up to 120,000 Units. See "Description of Capital Stock" and
"Underwriting."
5
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
JUBILEE GAMING ENTERPRISES,
INC.
-------------------------------
PRO FORMA
353 MYERS -------------------------------
------------ NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995(1) 1996(1)
------------ ------------ --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................... $ 3,667,537 $ 2,995,923 $2,613,806
----------- ----------- -----------
Costs and expenses:
Operating departments......................... 2,489,557 2,138,377 1,855,582
General and administrative.................... 1,072,099 1,052,427 755,139
Interest...................................... 817,953 242,868 287,409
Depreciation and amortization................. 435,890 399,408 310,579
Impairment loss............................... 523,000
----------- ----------- -----------
4,815,499 4,356,080 3,208,709
----------- ----------- -----------
Net loss......................................... $(1,147,962) $(1,360,157) $ (594,903)
=========== =========== ===========
Net loss per common share........................ $ (.83) $ (.36)
=========== ===========
Weighted average shares outstanding.............. 1,640,923 1,640,923
</TABLE>
<TABLE>
<CAPTION>
JUBILEE GAMING ENTERPRISES, INC.
------------------------------------------------
SEPTEMBER 30, 1996
DECEMBER 31, -------------------------------
1995 ACTUAL ACTUAL AS ADJUSTED(2)
------------ ------------ --------------
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BALANCE SHEET DATA:
Working capital.................................. $ (948,866) $(3,452,168) $ 824,679
Non-current assets............................... 3,790,668 7,014,980 10,066,562
Total assets..................................... 4,007,465 7,375,480 13,055,062
Current liabilities.............................. 1,165,663 3,812,668 2,138,821
Long-term liabilities, net of current
maturities.................................... 645,740 1,704,262 4,062,691
Shareholders' equity............................. 2,196,062 1,858,550 6,828,550
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INDUSTRY INFORMATION:
Adjusted Gross Proceeds:
State of Colorado(3)......... $325,684,649 $384,342,947 $290,110,614 $315,917,049
Cripple Creek(3)............. $ 82,279,672 $ 94,018,958 $ 71,310,887 $ 74,487,206
Jubilee Casino............... $ 3,750,665 $ 2,826,063 $ 2,157,634 $ 2,251,953
</TABLE>
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(1) On April 22, 1996, the Company acquired all interests in a the Partnership
which operates the Jubilee. The pro forma statements of operations data is
presented as if the acquisition occurred on January 1, 1995 and as if all
related party debt from the sellers of the limited partnership had been
contributed to equity on that date. See Financial Statements.
(2) Gives effect to receipt and application of $3,564,000 loan from Miller &
Schroeder Investments Corporation and gives effect to receipt of the net
proceeds from this offering estimated at $4,970,000, but assumes no exercise
of (a) outstanding warrants to purchase an aggregate of 88,132 shares of
Common Stock, or (b) the Representative's Warrant to purchase up to 120,000
Units. See "Capitalization," "Recent Financing" and "Underwriting."
(3) Source: the Colorado Division of Gaming.
6
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully by prospective investors in evaluating
the Company and its business operations and prospects before purchasing the
Units offered by this Prospectus.
SPECIFIC RISKS RELATED TO COMPANY
History of Losses. The Company has operated the Jubilee since April 23,
1996. The Casino, which has been in operation since July 1992, had a net loss of
$1,147,962 for the year ended December 31, 1994, a pro forma loss of $1,360,157
for the year ended December 31, 1995 and a pro forma net operating loss of
$594,903 for the nine month period ended September 30, 1996. There can be no
assurance that the Company will achieve profitable operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Financial Statements."
Location off Bennett Avenue. The Jubilee is located one block south of
Bennett Avenue, Cripple Creek's main street, along which all other casinos in
Cripple Creek are located. While the Company believes that its Casino revenue
will increase when its planned Hotel and Casino expansion is completed, there
can be no assurance that the Casino's location off Bennett Avenue will
ultimately gain sufficient customer acceptance to enable the Casino and the
planned Hotel to attain profitability.
Dependence on Key Personnel. The success of the Company is largely
dependent on the continued efforts and skills of its current management who have
experience in the gaming and hospitality industries, including the development
and management of hotels. The loss of the services of members of this management
group could have a material adverse effect on the Company. The Company has
obtained key-person life insurance in the amount of $1,000,000 on the life of
Mr. Forsman, with the proceeds of such insurance to be payable to the Company.
In addition, the expansion of the Company's business may require additional
managers with gaming industry experience, as well as other skilled employees. A
shortage of skilled management personnel exists in the gaming industry, which
may make it difficult to attract and retain qualified managers and employees. A
failure to attract and retain qualified managers and employees could have a
material adverse effect on the Company's expansion plans. See "Management."
Proceeds from Offering Inadequate to Fund Business Plan; Need for
Additional Financing. Even if the securities offered hereby are sold, the
Company must obtain additional financing to complete the development of its
Hotel expansion. The Company's construction budget for the Hotel requires it to
obtain at least an additional $15.0 million of construction financing in order
to complete the project. There can be no assurance that such additional
financing can be obtained on terms satisfactory to the Company. In order to
raise capital, the Company may also be forced to sell all or a partial interest
in one or more of its undeveloped properties. Moreover, if the Company
encounters difficulty in obtaining additional financing, unfavorable
arrangements might have to be made which could significantly dilute
shareholders' interests.
Substantial Leverage. As of October 31, 1996, the Company had long-term
indebtedness totaling $4.1 million secured by a first deed of trust against all
of the Company's real estate other than the Casino and one lot and a note
secured by a trust deed against the Casino and one lot. The Company expects to
incur an additional $15.0 million of construction financing to complete the
Hotel and Casino expansion. Such indebtedness may have substantial consequences
for holders of the Company's securities, including, but not limited to the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to pay principal and interest on the Company's long-term
obligations (estimated at $1.74 million per year through 2000), including
monthly payments on the mortgage on the land on which the Casino is located;
(ii) the Company's high leverage may make it vulnerable if Casino and Hotel
revenues fail to meet expectations or if economic downturns should occur, and
limit its ability to respond to changing competitive and economic conditions;
and (iii) limiting the Company's ability to further expand in Cripple Creek or
elsewhere when expansion opportunities are presented. There can be no assurance
that the Company will be able to repay or refinance such longterm indebtedness
when due, or that the Company would be able to sell all or any portion of its
assets or raise additional capital to make required payments on maturing
indebtedness. An inability to make payments when due or to comply with covenants
and restrictions associated with such
7
<PAGE> 10
indebtedness could give a lender the right to foreclose on properties securing
payment obligations, which would have a material adverse effect upon the
Company.
Access to Cripple Creek. Cripple Creek is located in a mountainous region
and for approximately the last nine miles is primarily serviced by a winding two
lane state highway. Weather can adversely affect access to Cripple Creek, as ice
and snow can render highways hazardous. In addition, concerns about the overall
availability of convenient parking in Cripple Creek may discourage some
potential customers.
Environmental Risks. Ownership or operation of real estate exposes the
Company to the related risks of compliance with environmental laws, and clean-up
costs and related expenses (which would not be covered by insurance
reimbursement) in the event of environmental contamination, even if such
contamination was not caused by or known to the Company. In addition, the
discovery of such contamination could cause the Company to decline to proceed
with development of a proposed project or could expose the Company to
substantial costs for remediation of the contamination.
SPECIFIC RISKS RELATED TO OWNERSHIP AND OPERATION OF THE CASINO
New Industry With Intense Competition; Possible Adverse Effects of
Expansion of Gaming. Limited stakes gaming did not commence in Colorado until
October 1991. There is, as a result, only five years of experience in Colorado
against which to evaluate the likelihood of the success of the Company's gaming
operations in the state. Results to date may reflect the novelty of limited
gaming. Consequently, the Company's casino operations in Colorado are subject to
the numerous risks inherent in the establishment of a new business. Further,
there can be no assurance that the initial success of limited gaming in Colorado
will not decrease as the novelty wears off. There is intense competition in the
industry and in Cripple Creek in particular, where the Company competes with
approximately 25 gaming establishments. The Company will be competing with many
established companies, some of which have greater financial resources,
experience and expertise than the Company. Because of the intense nature of this
competition, there can be no assurance that the Company's activities will be
profitable. State and local public initiatives regarding expansion of limited
gaming to other Colorado localities have been actively pursued by many persons.
In 1994, three proposed gaming initiatives were filed with the Colorado
Secretary of State. One sought to allow limited stakes gaming in Manitou
Springs, Colorado (adjacent to Colorado Springs and approximately 40 miles from
Cripple Creek) and to allow slot machines in all public airports in Colorado. A
second sought permission for limited stakes gaming in Trinidad, Colorado
(located 120 miles south of Colorado Springs). The third requested authority to
establish limited stakes gaming in Antonito, Colorado (located approximately 180
miles southeast of Colorado Springs). In the November 1994 general election,
only the Manitou initiative had qualified for the ballot and was defeated. The
Trinidad initiative appeared on the November 1996 general election ballot and
was defeated. There can be no assurance however, that gaming will not be
approved in these or other Colorado communities in the future. Any additional
legalization of gaming closer to Colorado Springs would likely have a material
adverse affect on the Company's operations in Cripple Creek.
In addition to potential adverse effects of the expansion of gaming in
Colorado, the expansion or legalization of gaming in states neighboring Colorado
would adversely effect the Casino's business. In particular, the legalization of
gaming in New Mexico could reduce the number of visitors from New Mexico who
would patronize Colorado casinos. Gaming on New Mexico Indian reservations has
evolved from high stakes bingo operations to casino gaming. Presently, there are
14 casinos of various sizes operating throughout New Mexico. Slot machines are
not permitted in New Mexico and table games are restricted to blackjack and
poker. Further, New Mexico casinos are permitted to be open 24 hours a day. In
1995 the State of New Mexico negotiated compacts with eight tribes that operate
casinos there. These compacts were subsequently overturned by New Mexico's
supreme court in July 1995. New Mexico's governor ordered the casinos closed,
and then granted a grace period until the Tribe's appeal of the New Mexico
Supreme Court decision is heard. Currently, all casinos operating in New Mexico
are doing so without approved compacts. If the dispute which has arisen around
the casino issue in New Mexico is resolved in favor of the tribes in question,
gaming in New Mexico could be expanded. The Company cannot predict the effect
the resolution will have upon the operations of casinos in Cripple Creek, but
the legal availability of casino gaming in New Mexico will likely
8
<PAGE> 11
have the affect of substantially reducing the number of visitors from New Mexico
who patronize Colorado casinos.
Recent Gaming Failures and Related Factors. A number of casinos located in
Colorado have ceased operations since limited gaming was commenced in Colorado
in October 1991, and others have filed for protection under Chapter 11 of the
United States Bankruptcy Code. In addition, others have closed temporarily or
reduced staffing, and many casinos may not be operating profitably.
Additionally, future initiatives could expand limited gaming in Colorado to
other locations. In addition to competing with other casinos in Black Hawk,
Central City and Cripple Creek, Colorado, the Company's Casino may compete for
customers with two casinos located on Indian reservations in Colorado and with
casinos in Las Vegas and other gaming venues. It appears that national,
regional, state and local competition for the gaming market in general will be
extremely high during the foreseeable future, as gaming activities expand in
traditional gambling cities and in new jurisdictions, a number of which have
adopted or are considering gambling legislation. Many of the Company's
competitors have established positions in more locations, have greater financial
resources, and have more experience and expertise than the Company. The
successful commercial operation of the Company's Casino is subject to many
conditions beyond the Company's control, including but not limited to: (a) the
total number of visitors to the Cripple Creek area; (b) winter weather
conditions (November to April) and other natural calamities; (c) the vagaries of
the local, state or national economies; (d) the promotion and appeal of
competing gaming enterprises locally, statewide and nationally; and (e) the
actions of local and state gaming governmental authorities.
Taxes and Significant Gaming Regulation. The State of Colorado and Cripple
Creek taxing authorities have imposed substantial annual device fees of $1,200
and $75, respectively, for each gaming device installed on gaming premises. In
addition, the State of Colorado has promulgated an annual gross gaming revenue
tax with incremental rates ranging from 2% of gross gaming revenues to 20% of
gross gaming revenues exceeding $10,000,000. See "Business -- Regulatory
Matters." Under the Colorado Constitution, the Gaming Commission is required to
set the gaming tax rate annually and could increase this tax to as much as 40%,
which could thereby materially and adversely affect the economic viability of
limited gaming in Colorado. In addition, the gaming industry in the United
States faces the possibility of a national gaming tax as Congress and the
Executive Branch may look for sources to reduce tax burdens on some taxpayers,
as well as new sources of revenue to fund policies and programs. Efforts to
impose a federal tax on gaming were defeated in the 104th Congress, but a new
effort to impose a so-called "sin tax" on gaming could be launched concurrent
with the creation of a national gambling study commission. See
"Business -- Regulatory Matters."
Gaming licenses and related approvals are deemed to be privileges under
Colorado law, and no assurance can be given that any new licenses, permits, or
approvals that may be required in the future will be given or that existing ones
will not be revoked. Regulatory changes or increases in applicable taxes or fees
in Colorado could have a material adverse effect on the Company. Colorado has
only recently allowed for limited gaming, and its gaming laws have been modified
several times since adoption. Additional modifications of Colorado's gaming laws
may occur in the future. Any expansion of the Company's activities into other
jurisdictions would require additional approvals of various gaming authorities.
The Gaming Commission's rules and regulations are extensive and any violations
thereof could subject the Company's operations to monetary penalties and/or
other materially adverse consequences. The Company and its key personnel are
required to hold various gaming licenses; failure on the part of these
individuals to retain such licenses could have a material adverse effect on the
Company. Operators such as the Company holding an alcoholic beverage license
must adhere strictly to all state and local rules and regulations. The loss of
its alcoholic beverage license is possible in the event of regulatory violations
by the Company. The loss of the Company's alcoholic beverage license could have
a material adverse impact on its gaming activities. See "Business -- Regulatory
Matters."
Restrictions on Ownership of Securities; Mandatory Redemption. Any
beneficial holder of the Common Stock may be subject to investigation by gaming
authorities in Colorado if such authorities have reason to believe that
ownership may be inconsistent with the state's gaming policies. Persons who
acquire beneficial ownership of more than certain designated percentages of the
Common Stock may be subject to certain reporting and qualification procedures.
The Company's Articles of Incorporation, as amended and restated, provide that
certain transfers of voting securities are subject to Colorado laws and
regulations applicable to
9
<PAGE> 12
holders of gaming licenses and provide for a mandatory repurchase of Common
Stock if a stockholder is found unsuitable. It is possible that the Company may
be required to redeem the stock of an unsuitable person at a time when its
capital resources are limited, or its capital is allocated for other purposes.
Therefore, such a required redemption could have an adverse effect on the
Company's financial condition. In lieu of redeeming securities held by an
unsuitable person, such securities could be transferred to a person deemed
suitable by the Gaming Commission, thereby obviating the need of the Company to
redeem such securities. In addition, changes in control of the Company and
certain other corporate transactions may not be effected without the prior
approval of Colorado gaming authorities. Such laws and regulations could
adversely affect the marketability of the Common Stock or prevent certain
corporate transactions, including mergers or other business combinations. See
"Business -- Regulatory Matters."
Potential "Dram Shop" Liability. Restaurants in most states, including
Colorado are subject to "dram shop" laws and legislation, which impose liability
on licensed alcoholic beverage servers for injuries or damages caused by their
negligent service of alcoholic beverages to a visibly intoxicated person or to a
minor, if such service is the proximate cause of the injury or damage and such
injury or damage is reasonably foreseeable. While the Company maintains liquor
liability insurance as part of its comprehensive general liability insurance,
which management believes is adequate to protect against such liability, there
can be no assurance that the Company will not be subject to a judgment in excess
of such insurance coverage or that it will be able to continue to maintain such
insurance coverage at reasonable costs, or at all. The imposition of a judgment
substantially in excess of the Company's insurance coverage would have a
material adverse effect on the Company. The failure of the Company to obtain and
maintain insurance coverage could materially and adversely affect the Company.
Adequacy of Municipal Services. Cripple Creek has experienced unanticipated
demands upon its municipal systems, including water and sewage treatment
facilities. Increased levels of activity in the Cripple Creek area may burden
existing systems and pose new municipal and environmental problems, the costs of
which could be imposed on the gaming industry.
SPECIFIC RISKS RELATED TO CASINO AND HOTEL EXPANSION
Construction Risks. Real estate development and construction involve
significant special risks. Completion of the Hotel and Casino expansion may be
affected by factors both within and beyond the control of the Company. Such
factors include, among others, the performance of the general contractor and
subcontractors, unforeseen construction costs not covered by the contract,
adverse weather, strikes, local laws and regulations, inflation and other
unknown contingencies. In addition, the planned Hotel and Casino expansion could
be subject to cost overruns from presently unforeseen difficulties or as the
result of delays or cost increases, financial problems of a general contractor,
or other events not within the Company's control. Although it is the Company's
present intention to engage a general contractor for the expansion project who
will provide a completion bond to ensure that the project will be completed on
budget, if it does not, there can be no assurance that if such construction
problems arise, the Company will have sufficient financial resources to complete
the project. See "Business -- Jubilee Hotel and Casino Expansion."
General Risks. The Company's operation of the Casino and the planned Hotel
expansion represents a high-risk investment involving many factors beyond the
control of the Company. Such factors could adversely affect the operation and
value of the Jubilee to extents not currently ascertainable and, consequently,
the value of the Company's securities. Such factors include, but are not limited
to, changes in the general or local economic conditions, including changes in
interest rate structures; changes in the demand for use of the Casino and the
Hotel as a result of competition; adjacent land utilization; demographic trends;
increases in real estate taxes; changes in the state or federal gaming laws
(which could be applied retroactively); geographic expansion of areas in
Colorado where gaming is permitted; local, state and federal environmental and
other regulations; possible restrictive changes in the uses applicable to real
estate, zoning and similar land use and environmental laws and regulations; and
acts of God. Furthermore, expenditures associated with equity investments in
real estate (principally mortgage payments and real estate taxes) are not
normally decreased by events adversely affecting the revenue generated by the
real property. In order to make required payments and pay anticipated operating
expenses, it will be necessary to maintain high occupancy levels at the
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<PAGE> 13
Hotel. If payments are not made by the Company on its financing obligations when
due, the loans may be foreclosed and the Company will lose its interests in such
properties.
GENERAL AND INDUSTRY RISKS
Insider Control; Limitations on Stock Ownership. National Lodging, officers
and directors of the Company currently beneficially own approximately 90% of the
outstanding voting stock of the Company. Upon completion of this offering, such
persons will beneficially own approximately 52% of the outstanding voting stock
of the Company and, therefore, will continue to be in effective control of the
Company's affairs, including, without limitation, the sale of equity or debt
securities of the Company, the appointment of officers, the determination of
officers' compensation and the determination of who will serve on the Company's
Board of Directors. The Company has also agreed that for a period of three years
following the closing of this offering, the Representative shall be entitled to
designate one individual as a nominee for election to the Company's Board of
Directors. Messrs. Klinkhammer and Forsman have agreed to vote shares of the
Company's common stock owned by them in favor of such individual. Should the
Representative not elect to nominate an individual for election to the Company's
Board of Directors, the Company has agreed to allow the Representative to act as
an observer of all meetings of the Company's Board of Directors for such period
of time. In addition, the Company's principal shareholders are parties to a
Shareholder Voting and Control Agreement which controls certain matters relating
to the election of the Board of Directors of the Company. See "Principal
Shareholders," "Description of Securities" and "Certain
Transactions -- Shareholders' Voting and Control Agreement." Beneficial owners
of more than 5% of the Common Stock are subject to certain reporting and
qualification procedures established by the Gaming Commission. See
"Business -- Regulation." The Company may be required, under certain
circumstances, to redeem at fair market value the shares of persons whose status
as a shareholder may jeopardize the Company's eligibility to manage gaming
operations or to hold gaming licenses. Such restrictions may discourage
acquisitions of blocks of the Company's securities and may have an anti-takeover
effect, which, in turn, could have a depressive effect on the price of the
Common Stock. See "Business -- Regulation and Description of Securities" and
"Underwriting."
Arbitrary Offering Price of the Company's Securities. Prior to this
offering, there has been no public market for the securities of the Company. The
initial offering price of the Units has been determined by negotiations between
the Company and the Representative, with consideration being given to the
current status of the Company's business, the value of its properties, its
financial condition, its present and prospective operations, the general status
of the securities market and the market conditions for new offerings of
securities. The initial offering price bears no relationship to the assets, net
worth, book value, recent sales, price of shares issued to principal
shareholders or any other ordinary criteria of value. See "Underwriting."
No Prior Market for Common Stock. Prior to this offering, there has been no
public market for the Company's securities, and there can be no assurance that
an active trading market will develop after this offering or, if developed, that
it will be sustained. While the Company's securities are expected to be
initially included on the Nasdaq SmallCap Market, their listing and/or continued
inclusion on the Nasdaq SmallCap Market will depend on the Company's ability to
continue to meet certain eligibility requirements established for the system.
Loss of Nasdaq SmallCap Market eligibility could result, for example, if the
Company sustains continued material operating losses or if the market price of
the Common Stock falls below certain specified levels. If the Common Stock
becomes ineligible for trading on the Nasdaq SmallCap Market, such securities
may be subject to a rule under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), that imposes additional stringent sales practice
requirements on broker-dealers who sell the Common Stock. Those sales practice
requirements, if imposed, would adversely affect the ability of broker-dealers
to sell the Common Stock, and consequently would adversely affect the public
market for and the trading price of the Common Stock. See "Description of
Capital Stock."
Risk of Low-Priced Securities. The Securities and Exchange Commission has
adopted regulations which generally define "penny stock" to be any equity
security that has a market price (as defined) of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions,
including an exception for any equity security that is quoted on the Nasdaq
Stock Market. If the shares of Common Stock or Redeemable Warrants offered
hereby are removed or delisted from the Nasdaq SmallCap Market, the
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<PAGE> 14
securities may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchaser of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, among other requirements, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of purchasers in this offering to sell the
Redeemable Warrants and the Common Stock offered hereby in the secondary market.
Exercise of Warrants; Possible Redemption of Warrants. Investors purchasing
Units in this offering will not be able to exercise the Redeemable Warrants
unless at the time of exercise, this registration statement is current or a
post-effective amendment or new registration statement registering the Common
Stock issuable upon exercise of the Redeemable Warrants is effective and such
shares have been registered under the Securities Act of 1933, as amended (the
"Act"), and qualified or deemed to be exempt under the securities laws of the
state of residence of the holder of the Redeemable Warrants. The Company has
agreed to maintain a current prospectus relating thereto until the expiration of
the Redeemable Warrants. While the Company has undertaken to do so in the
Underwriting Agreement between the Company and H. J. Meyers & Co., Inc., as
representative of the underwriters (the "Underwriting Agreement"), there is no
assurance that it will be able to do so. The Redeemable Warrants are subject to
redemption by the Company on 30 days' prior written notice under certain
conditions. If the Redeemable Warrants are redeemed, holders thereof will lose
their right to exercise the Redeemable Warrants except during such 30 day
redemption period. See "Description of Units -- Redeemable Warrants."
Non-Registration in Certain Jurisdictions of Shares Underlying the
Redeemable Warrants. The Units will be immediately detachable from the Common
Stock, therefore, the Common Stock and Redeemable Warrants will be quoted and
traded separately. Although the Units will not knowingly be sold to purchasers
in jurisdictions in which the Units are not registered or otherwise qualified
for sale, purchasers may buy Redeemable Warrants in the aftermarket or may move
to jurisdictions in which the shares underlying the Redeemable Warrants are not
so registered or qualified during the period that the Redeemable Warrants are
exercisable. In this event, the Company would be unable to issue shares to those
persons desiring to exercise their Redeemable Warrants unless and until the
shares could be registered or qualified for sale in the jurisdiction in which
such person resides, or an exemption to such qualification exists in such
jurisdiction. Although the Company has agreed to use its best efforts to
register or qualify its shares for sale upon the exercise of the Redeemable
Warrants in any jurisdiction where the registered holders of 5% or more of the
Redeemable Warrants reside, there can be no assurance that the Company will be
able to effect any such registration or qualification. Further, the Company may
determine not to register or qualify the shares issuable upon the exercise of
the Redeemable Warrants in jurisdictions where holders of less than 5% of the
Redeemable Warrants reside and where the time and expense do not justify such
registration or qualification. In the event that for any reason the shares are
not registered or qualified in particular jurisdictions, persons holding
Redeemable Warrants in such jurisdictions would either have to sell their
Redeemable Warrants to persons in states where the Redeemable Warrants may be
exercised, or allow them to expire unexercised. See "Description of
Securities -- Warrants."
Market Making Activities During Redeemable Warrant Solicitation. If the
Representative elect, commencing any time 12 months after the Effective Date of
this Prospectus, to solicit the exercise of the Redeemable Warrants, the Company
will pay to the Representative a soliciting fee of 7% of the exercise price of
the Redeemable Warrants. Unless granted an exemption by the United States
Securities and Exchange Commission from its Rule 10b-6, the Representative and
any soliciting broker-dealers will be prohibited from engaging in any market
making activities with regard to the Company's securities during the period from
two
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<PAGE> 15
to nine business days prior to any solicitation of the exercise of the
Redeemable Warrants until the latter of the termination of such solicitation
activity to the termination (by waiver or otherwise) of any right that the
Representative and soliciting broker-dealers may have to receive a fee for the
exercise of the Redeemable Warrants following such solicitation. As a result,
the Representative and soliciting broker-dealers may be unable to continue to
provide a market for the Company's securities during certain periods while the
Redeemable Warrants are exercisable. Since the Representative and soliciting
broker-dealers may be the principal market makers for the Company's securities,
the liquidity of the Company's securities may be adversely affected during such
periods. See "Underwriting -- Warrant Solicitation Fees."
Shares Eligible for Future Sale. The availability for sale of certain
shares of Common Stock held by existing shareholders of the Company after this
offering could adversely affect the market price of the Common Stock. Of the
2,823,611 shares of Common Stock to be outstanding following this offering,
excluding any shares which may be issued pursuant to exercise of the Redeemable
Warrants and any previously issued warrants, 1,623,611 shares were sold to the
Company's existing shareholders in private transactions in reliance upon
exemptions from registration under the Act and are, therefore, "restricted
securities" under the Act, which may not be sold publicly unless the shares are
registered under the Act or are sold under Rules 144 or 144A of the Act after
expiration of applicable holding periods. In connection with this offering, all
executive officers, directors and certain other shareholders of the Company have
agreed not to offer, sell or otherwise dispose of a total of 1,477,248 shares
held by them for a period of 18 months after the effective date of this
offering, without the prior written consent of the underwriters. Sales of
substantial amounts of the Company's currently outstanding shares or exercise of
outstanding warrants could adversely affect prevailing market prices of the
Company's securities and the Company's ability to raise additional capital by
occurring at a time when it would be advantageous for the Company to sell
securities. See "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
Undesignated Preferred Stock. The authorized and unissued capital stock of
the Company includes undesignated shares of preferred stock. The Company's Board
of Directors, without any action by the Company's shareholders, is authorized to
designate and issue the undesignated preferred shares in such classes or series
as it deems appropriate, and to establish the rights, preferences and privileges
of such shares, including dividend, liquidation and voting rights. No shares of
preferred stock or other senior equity securities are currently designated, and
there is no current plan to designate or issue any such securities. In addition,
the Company must obtain the written consent of the Representative prior to the
issuance of any shares of preferred stock. However, the ability of the Company's
Board of Directors to designate and issue any such undesignated shares, could
impede or deter an unsolicited tender offer or takeover proposal regarding the
Company, and the issuance of additional shares having preferential rights could
adversely effect the voting power and other rights of holders of Common Stock.
See "Description of Securities."
Underwriters' Influence on the Market. A significant amount of the Units
offered hereby may be sold to customers of the underwriters. These customers
subsequently may engage in transactions for the sale or purchase of the Units
through or with the underwriters. The underwriters have advised the Company that
they intend to make a market in the Common Stock after the offering and may
otherwise effect transactions in the Common Stock and the Redeemable Warrants.
This market-making activity may terminate at any time. If they participate in
the market, the underwriters may exert a dominating influence on the market for
the Common Stock. The price and liquidity of the Redeemable Warrants may be
significantly affected by the degree, if any, of the underwriters' participation
in such market. See "Underwriting."
Dilution. Purchasers of the Units offered hereby will incur an immediate
substantial dilution, in terms of book value, from the public offering price of
approximately $2.60 per share of Common Stock. See "Dilution."
No Dividends. No dividends have been paid on the Common Stock of the
Company. The Company does not intend to pay cash dividends on its Common Stock
in the foreseeable future, and anticipates that profits, if any, received from
operations will be devoted to the Company's future operations. Any decision to
pay dividends will depend upon the Company's profitability at the time, cash
available therefor and other relevant factors. See "Price Range of Common Stock"
and "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from this offering, after the deduction of
offering expenses, are estimated to be $4,970,000. If the underwriters'
overallotment option is exercised in full, net proceeds to the Company will be
$5,953,000. The Company currently intends to use the net proceeds approximately
as follows:
<TABLE>
<S> <C>
Casino expansion and hotel development................... $3,800,000
Payment of amounts due National Lodging.................. 187,000
Working capital.......................................... 983,000
----------
Total.......................................... $4,970,000
==========
</TABLE>
Casino Expansion and Hotel Development. The Company estimates that
approximately $3,800,000 of the net proceeds will be applied toward the
expansion of the Casino and construction of a 145-room, seven story hotel. This
amount includes a fee payable to National Lodging for overseeing the
development, construction and planning of the Hotel project which will be 1% of
the project cost, not to exceed $140,000. The Company will require at least $15
million of additional financing to complete the Hotel. The Company is seeking
construction financing for the project, although no assurance can be given that
such financing will be available to the Company or, if available, that the same
will be on acceptable terms. See "Business -- Jubilee Casino -- Jubilee Hotel
and Casino Expansion" and "Risk Factors -- Proceeds from Offering May be
Inadequate to Fund Business Plan; Need For Additional Financing."
Payment of Amounts Due Affiliate. An estimated $187,000 of the net proceeds
will be used to repay advances made by National Lodging. Approximately $439,000
was advanced by National Lodging to Regent Gaming Enterprises, Inc. and the
Company between March 1994 and October 1996 and was used for general working
capital purposes and costs associated with the acquisition of the Jubilee. These
advances are due upon completion of this offering and are non-interest bearing.
Working Capital. Approximately $983,000 of the net proceeds will be used by
the Company for general working capital purposes, including, but not limited to,
the payment of $105,000 of salaries accrued from October 1 through December 31,
1995, payment of operating expenses for sales and marketing and general
administrative activities, and $72,000 payable to the Representative at the
closing of this offering pursuant to a financial consulting agreement between
the Representative and the Company. See "Underwriting."
Proceeds of up to $391,500 from the sale of additional Units pursuant to
any exercise of the underwriters' overallotment option will be used by the
Company first to redeem up to 90,000 shares of Common Stock owned by National
Lodging at $4.35 per share, and any remaining proceeds from exercise of the
overallotment option will be used by the Company for general working capital
purposes. See "Recent Financing" and "Underwriting."
Pending application of the net proceeds described above, the Company
intends to invest such funds in interest bearing money market funds, short term
certificates of deposit and United States government obligations. The described
use of proceeds is based upon management's assumptions concerning certain
marketing, selling, development, financial and other matters which may affect
the Company. If the development of the Company's business varies materially from
these assumptions, the Company may reallocate the use of proceeds in such a
manner as it deems appropriate under the circumstances.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company presently expects to retain its earnings to
finance the development or operation of its business. The payment by the Company
of dividends, if any, on its Common Stock in the future is subject to the
discretion of the Company's Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements and other relevant factors.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth the (a) actual current liabilities and
capitalization of the Company as of September 30, 1996; and (b) the pro forma
effect of the receipt and application of $3,564,000 loan from Miller & Schroeder
Investments Corporation; and (c) as adjusted to reflect the sale of the
1,200,000 Units offered hereby at an offering price of $5.00 per Unit and the
application of the estimated net proceeds from this offering.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt:
Notes payable, shareholders........................ $ 85,000 $ 10,000 $ 10,000
Real estate and other debt......................... 85,696 36,349 36,349
Capital lease obligations.......................... 1,257,819 1,257,819 1,257,819
Notes payable:
Related parties.................................... 662,500
Banks.............................................. 415,000
Due to National Lodging Companies, Inc................ 278,916 98,916
Accounts payable...................................... 104,352 104,352 104,352
Accrued expenses...................................... 923,385 923,385 730,301
---------- ---------- ----------
Total current liabilities..................... $3,812,668 $2,430,821 $2,138,821
========== ========== ==========
Long-term debt, net of current portion:
Notes payable, shareholders........................... $ 10,000 $ 10,000 $ 10,000
Real estate and other debt............................ 1,694,262 4,052,691 4,052,691
---------- ---------- ----------
Total long-term debt.......................... $1,704,262 $4,062,691 $4,062,691
========== ========== ==========
Shareholders' equity:
Preferred stock; no par value, authorized 5,000,000
shares; no shares outstanding...................... -- -- --
Common stock; no par value, authorized 45,000,000
shares, issued and outstanding 1,619,676 shares at
September 30, 1996, 2,819,676 shares, as
adjusted........................................... $2,761,754 $2,761,754 $7,731,754
Deficit............................................... (903,204) (903,204) (903,204)
---------- ---------- ----------
Total shareholders' equity.................... $1,858,550 $1,858,550 $6,828,550
========== ========== ==========
</TABLE>
- ---------------
(1) Gives effect to receipt and application of $3,564,000 loan from Miller &
Schroeder Investments Corporation described below.
(2) Gives effect to receipt of the net proceeds from this offering estimated at
$4,970,000, but without specific application thereof, but assumes no
exercise of (a) outstanding warrants to purchase an aggregate of 88,132
shares of Common Stock, or (b) the Representative's Warrant to purchase up
to 120,000 Units. See "Underwriting."
RECENT FINANCING
On October 18, 1996, the Company obtained a $3,564,000 loan (the "MS
Financing") from Miller & Schroeder Investments Corporation ("MSIC") secured by
a deed of trust and related security agreement and assignment of rents, revenues
and income against the Jubilee and other real estate owned by the Company in
Cripple Creek. The loan is evidenced by a promissory note which matures on May
1, 1998 and bears interest at a rate equal to 225 basis points above the base
rate announced from time to time by Norwest Bank Minnesota, National
Association, Minneapolis, Minnesota. The Company has the right to extend the
maturity date of the note for an additional term expiring on November 1, 1999,
if (a) it is not in default under the note
15
<PAGE> 18
or there has been no event of default thereunder, (b) the Company pays an
extension fee equal to one-half of one percent of the principal balance of the
note, (c) the Company meets certain cash flow requirements, and (d) the Company
prepays $250,000 of the principal balance upon extension and an additional
$250,000 during the ninth month of the extension period of the loan, in addition
to other customary terms. The Company may prepay the loan without penalty. The
note, trust deed and other security documents contain other terms and conditions
customary in similar loan transactions. The loan is jointly and severally
guaranteed by Robert Swenson, Stephen Sherf, Craig Forsman, Terrance DeRoche,
John Klinkhammer, 353 Myers Avenue Limited Partnership and National Lodging
Companies, Inc.
DILUTION
The net tangible book value of the Common Stock of the Company as of
September 30, 1996 was $1,770,183, or $1.09 per share. Assuming the sale of the
1,200,000 Units in this offering at an assumed offering price of $5.00 per Unit,
and after deduction of underwriting discounts and other expenses estimated at
$430,000 there will be issued and outstanding 2,823,611 shares of Common Stock,
having an aggregate net tangible book value of approximately $6,740,183 or $2.39
per share. An increase of $1.30 per share in net tangible book value of shares
owned by existing shareholders would result due to the Units sold in this
offering, representing an immediate dilution of $2.61 per share to new
investors. The following table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Public offering price........................................ $5.00
Net tangible book value per share at September 30,
1996(1)(2)................................................. $1.09
Increase in net tangible book value per share attributable to
sale of Units.............................................. $1.30
Pro forma net tangible book value per share after
offering(1)(2)............................................. 2.39
Dilution per share to new investors(2)....................... $2.61
</TABLE>
The following table summarizes, as of September 30, 1996, the difference
between current shareholders and purchasers of the Common Stock offered hereby
with respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average consideration paid per share.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED(1) CONSIDERATION(1)(3) AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
Shareholders......... 1,623,611 58% $2,761,754 32% $1.70
New Investors.......... 1,200,000 42 6,000,000 68 5.00
--------- --- ---------- ---
Total........ 2,823,611 100% $8,761,754 100%
========= === ========== ===
</TABLE>
- ---------------
(1) Includes 3,935 shares to be issued upon approval of the Gaming Commission,
but assumes no exercise of: (a) outstanding warrants for the purchase of an
aggregate of 88,132 shares of Common Stock, or (b) the Representative's
Warrant to purchase up to 120,000 Units.
(2) Before giving effect to restructuring of a capital lease subsequent to
September 30, 1996. If such restructuring occurred on that date: (a) the
tangible net worth as of such date would have increased from $1,770,183, or
$1.09 per share, to approximately $2,510,000, or $1.55 per share, (b) the
increase in net tangible book value per share attributable to this offering
would have been $1.11 per share, and (c) the dilution to new investors would
have decreased from $2.61 per share to $2.34 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Does not reflect the deduction of underwriting discounts or any other
expenses incurred in connection with this offering.
16
<PAGE> 19
SELECTED FINANCIAL DATA
The selected balance sheet data at December 31, 1995, is derived from, and
should be read in conjunction with, the more detailed consolidated financial
statements for the Company and the notes thereto, which have been audited by
Schechter Dokken Kanter Andrews & Selcer Ltd, independent public accountants,
whose report is located elsewhere in this Prospectus. The selected statement of
operations data for the year ended December 31, 1994, is derived from, and
should be read in conjunction with the more detailed financial statements for
353 Myers Avenue Limited Partnership and the notes thereto for which the 1994
financial statements have been audited by Biggs Kofford & Co., P.C., independent
public accountants, whose report is located elsewhere in this Prospectus. The
pro forma financial statements for the year ended December 31, 1995, and the
nine months ended September 30, 1996, have not been audited. Results for pro
forma interim periods are not necessarily indicative of the results that may be
expected for the entire year or other interim periods. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
353 MYERS ------------------------------
------------ NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995(1) 1996(1)
------------ ------------ -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 3,667,537 $ 2,995,923 $ 2,613,806
----------- ----------- -----------
Costs and expenses:
Operating departments.......................... 2,489,557 2,138,377 1,855,582
General and administrative..................... 1,072,099 1,052,427 755,139
Interest....................................... 817,953 242,868 287,409
Depreciation and amortization.................. 435,890 399,408 310,579
Impairment loss................................ 523,000
----------- ----------- -----------
4,815,499 4,356,080 3,208,709
----------- ----------- -----------
Net loss.......................................... $ (1,147,962) $ (1,360,157) $ (594,903)
=========== =========== ===========
Net loss per common share......................... $ (.83) $ (.36)
=========== ===========
Weighted average shares outstanding............... 1,640,923 1,640,923
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $ (948,866) $ (3,452,168)
Non-current assets............................................ 3,790,668 7,014,980
Total assets.................................................. 4,007,465 7,375,480
Current liabilities........................................... 1,165,663 3,812,668
Long-term liabilities, net of current maturities.............. 645,740 1,704,262
Shareholders' equity.......................................... 2,196,062 1,858,550
</TABLE>
- ---------------
(1) On April 22, 1996, the Company acquired all interests in the Partnership
which operates the Casino. The pro forma statements of operations data is
presented as if the acquisition occurred on January 1, 1995 and as if all
related party debt from the sellers of the limited partnership had been
contributed to equity on that date. See Financial Statements.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes.
Jubilee Gaming Company was formed to acquire and further develop the
Jubilee Casino located in Cripple Creek, Colorado, and to pursue other gaming
opportunities. The Company entered into an agreement to purchase the Jubilee
Casino in October 1995 and took over management of the Casino on April 23, 1996
at which time the Company obtained its gaming license. While the Company was not
allowed to make management decisions until it was licensed, it did begin to
suggest some changes in floor management and other aspects of the Casino's
operations. These activities have increased since management was assumed by the
Company in April 1996. The discussions of operations prior to April 1996 are
based on information provided by Casino staff who were employed during the
previous years at the Casino.
The Company believes that the poor financial performance of the Casino in
recent years can be attributed to inexperienced management and its attempts to
attract business to the Jubilee, which is the only casino located on Myers
Avenue. Prior management pursued aggressive coupon and other discount programs,
which in fiscal year 1993 and 1994, amounted to 9% and 13% of gaming revenues,
respectively. The Casino also operated 353 machines on two gaming floors through
most of 1993, which resulted in high operating costs. In 1994 it became evident
that the costs associated with building the gaming revenue in this manner
exceeded the profits that could be generated, particularly when the gaming tax
on this revenue was considered. The Jubilee continued to lose market share as
the competing casinos became more adept at marketing and operations. In April
1994 the Casino's marketing and promotion expenses were cut nearly in half in an
attempt to conserve cash. The Casino's profitability began to improve during the
summer of 1995, due to the implementation of cost-control measures, the addition
of the children's entertainment area and changes on the gaming floor.
CALENDAR YEAR 1995 COMPARED WITH CALENDAR YEAR 1994
Revenues
The Casino's net revenues for 1995 were $2.989 million, down $.679 million
or 19% from 1994 revenues of $3.668 million. The principal reason for the
decrease in net revenue was the decrease in gaming receipts which was primarily
attributable to marketing and promotion efforts that were significantly reduced
below previous years' levels. The average number of slot machines was reduced
from 220 to 164 in reaction to declines in gaming revenue.
Food, Beverage and Other
Food, beverage and other revenue for 1995 of $162,359 increased from a loss
of $98,559 in 1994. These revenues are shown net of coupon and complimentary
sales. The increase was due to both management's decision to operate the
restaurant, versus leasing it in 1994, and the creation of a new revenue source
when the children's entertainment area was opened on the second floor of the
Casino in place of gaming devices. This entertainment area created $71,251 of
revenue in 1995. The other components of this revenue category include liquor
sales in 1995 of $98,186 which decreased by 26% from 1994 sales of $132,223,
merchandise sales in 1995 of $31,417 which decreased by 32% from 1994 sales of
$46,067, and miscellaneous income in 1995 of $14,442 which deceased by 66%
compared to 1994 income of $32,664.
Costs and Expenses
Casino operating expenses were $2.147 million for 1995, down $.343 million
from $2.490 million in 1994. The decrease in expenses was primarily due to
decreases in gaming taxes brought about by lower gaming
18
<PAGE> 21
revenues as well as the reduction in the number of gaming devices which require
monthly fees. Restaurant coupon reimbursement expense also declined.
Cost of goods sold for food, beverage and merchandise for 1995 of $243,888
increased 188% from $84,621 in 1994. The increase in expenses was due mostly to
the operation of the restaurant in 1995 which was leased in 1994.
Selling, general and administrative expenses in 1995 of $642,062 declined
by $430,037 from 1994 expenses of $1,072,099, a decline of approximately 40%.
Most of this decrease was due to a decline of $386,177 in marketing and
promotion expenses. Marketing efforts were sharply reduced in 1995 due to a cash
flow shortage.
Depreciation and amortization expense declined in 1995 by $22,295 from the
1994 level of $435,890, due to retirement of some equipment at the Casino.
Loss from Operations
Loss from operations in 1995 was $1,403,864 compared to a loss of
$1,147,962 experienced in 1994. The increase in the loss was attributable to a
write-down of assets of $523,000 upon the sale of the Casino. Without this
write-down, the loss would have been $880,864 or $267,098 less than 1994.
Although revenues were lower in 1995, expenses were reduced by a greater amount,
particularly marketing, gaming taxes and interest expense, which accounted for
this lower loss.
Cash Flow
The Partnership experienced a net increase in cash of $8,244 in 1995,
compared to a $46,683 increase experienced in 1994. Operating activities
contributed $(337) to this increase.
Interest Expense
Interest expense for 1995 of $547,020 was $270,933 less than the 1994 level
of $817,953. In June 1995, the owners canceled a working capital loan they had
made to the Partnership which resulted in reduced interest cost of $172,106; the
remainder of the decline resulted from normal amortization of the debt
instruments in place.
CALENDAR YEAR 1994 COMPARED WITH CALENDAR YEAR 1993
Revenues
The Casino's net revenues for 1994 were $3.668 million, down $2.224 million
or 38% from 1993 revenues of $5.892 million. The principal reason for the
decrease in net revenue was the decrease in gaming receipts which was primarily
attributable to reduced marketing and promotion efforts, particularly busing
activities. The average number of slot machines was reduced from 251 to 220
following management's decision to discontinue gaming on the second floor of the
Casino.
Food, Beverage and Other
Food, beverage and other revenue for 1994 of $(98,559) declined $460,446
from revenues of $361,887 in 1993. These revenues are shown net of coupon and
complimentary sales. The decrease was due primarily to management's decision to
lease the restaurant in fiscal year 1994. The other components of this revenue
category include liquor sales in 1994 of $132,223 which decreased by 45% from
1993 sales of $242,454, merchandise sales in 1994 of $46,067 which increased by
13% from 1993 sales of $40,865, and miscellaneous income in 1994 of $32,664
which deceased by 14% compared to 1993 income of $37,804.
Costs and Expenses
Casino operating expenses were $2.490 million for 1994, down $.334 million
from $2.824 million in 1993. The decrease in expenses was primarily due to
decreases in gaming taxes brought about by lower gaming
19
<PAGE> 22
revenues as well as the reduction in the number of gaming devices which require
monthly fees. Gaming taxes in 1994 of $739,502 were 42% lower than the 1993
taxes of $1,270,861. Restaurant coupon reimbursement expense of $194,870 in 1994
was 204% above the 1993 level of $64,119. Personnel costs in 1994 of $1,238,573
declined 17% from 1993 costs of $1,500,903. Occupancy costs of $203,299 in 1994
increased 45% above the 1993 costs of $139,994.
Cost of goods sold for food, beverage and merchandise in 1994 of $84,621
decreased 77% from $361,056 in 1993. The decrease in expenses was due mostly to
the leasing out of the restaurant in 1994.
Selling, general and administrative expenses in 1994 of $1,072,099 declined
by $1,628,845 from 1993 expenses of $2,700,944, a decline of 60%. Most of this
decrease was due to a decline in marketing and promotion expenses.
Depreciation and amortization expense declined in 1994 by $15,280 from the
1993 level of $451,174 due to retirement of some equipment at the Casino.
Loss from Operations
Loss from operations in 1994 was $1,147,962 compared to a loss of
$1,290,498 experienced in 1993. Although revenues were lower in 1994, expenses
were reduced by a greater amount, particularly marketing and gaming taxes.
Cash Flow
The Partnership experienced a net increase in cash of $46,683 in 1994,
compared to a $171,048 decrease experienced in 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues
The Casino's net revenues for the nine months ended September 30, 1996,
were $2,613,806, up $315,614 or 14% from revenues of $2,298,192 for the nine
month period ended September 30, 1995. The principal reasons for the increase
was an increase in gaming receipts of $144,368 and an increase in revenues of
approximately $65,000 from the children's entertainment area.
Food, Beverage and Other
Food, beverage and other revenue for the nine months ended September 30,
1996, was $94,196, an increase of $27,898 or 42% over the same period in 1995.
Costs and Expenses
Casino operating expenses for the nine months ended September 30, 1996,
were $1,856 million, an increase of $.214 million or 13% over the same period in
1995. The increase in expenses was primarily due to the increase in gaming taxes
precipitated by higher gaming revenues.
Selling, general and administrative expenses for the nine months ended
September 30, 1996, were $755,139, an increase of $273,314 or 57% over the same
period in 1995. This increase was due primarily to the increased salary costs
associated with the management of the parent company of the Casino.
Interest expense for the nine months ended September 30, 1996, was
$287,409, a decrease of $292,660 or 50% from the same period in 1995. The
decrease was due to forgiveness of debt by the former owners of the Casino in
conjunction with the sale of the Casino.
Loss From Operations
Loss from operations for the nine months ended September 30, 1996, was
$594,903 compared to $717,371 for the same period in 1995.
20
<PAGE> 23
Seasonality
Business at the Jubilee is influenced by the same factors that influence
Cripple Creek, which is heavily affected by weather, holidays and tourist travel
patterns. Snow can render the mountainous roads that provide access to and from
Cripple Creek hazardous, and patronage is noticeably smaller when a snowfall
occurs. The months of January, February and March are the slowest months in
Cripple Creek with AGP's approximately 16% below the annual monthly average.
Tourism stimulates gaming activity in the community as tourists drive through
the mountains and visit the old goldmining towns. The three biggest months for
gaming in Cripple Creek are July, August and September, when AGP's generally
exceed the monthly average by 20%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Casino
Cash flow from operations for the Casino in 1994 and 1995 was approximately
break-even as it also was for the nine months ended September 30, 1995 and 1996.
Management expects this trend to continue for the foreseeable future until the
Casino expansion and Hotel development are completed.
In November 1996, the Company completed the negotiations of a new lease
covering its slot machines resulting in lower future interest charges and
improved working capital due to reclassifying its lease obligation from all
current liability to a significant portion as long-term debt. The Company
believes this restructuring will result in a gain of approximately $740,000 in
the fourth quarter of 1996.
Company
Cash flow used in operations in 1995 was $158,000 and was due to not having
any revenues during that year. In the nine months ended September 30, 1996, the
Company had $20,000 of cash flow from operations primarily from Casino
operations since April 1996.
Capital Resources
Casino
Capital expenditures for various improvements and equipment in 1994 and
1995 were $31,149 and $20,185, respectively. Management does not expect to
expend significant amounts in the foreseeable future on capital improvements and
equipment, except for the planned expansion and Hotel development.
Debt service in 1994 was covered by cash from operations and advances from
the limited partners and affiliates. Debt service in 1995 and the nine months
ended September 30, 1996, was covered by cash from operations and an advance
from the Company. Also during that period the Casino did not make most of its
monthly payments on the capital lease obligations for its slot machines. The
increased cash payments needed for the new lease discussed under Liquidity are
expected to be met by cash from operations.
Company
In 1995, the Company expended approximately $878,000 toward the acquisition
of the Casino and $658,000 for the purchase of land and building. Funds for
these expenditures were provided by loans from related parties and the sale of
Company stock. In the nine months ended September 30, 1996, the Company spent
approximately $549,000 for land which was funded primarily by loans from related
parties, a bank and MSIC. In addition to the cash expended during 1995 and 1996
for the acquisition of the Casino and land purchases, the Company transferred
stock of National Lodging valued at $1,575,000 and issued notes or Company stock
to the sellers.
In October 1996, the Company borrowed $3,564,000 from MSIC the proceeds of
which were used to pay the notes due on several parcels of land, repay loans or
advances from National Lodging and other shareholders and to provide funds to
begin development on the parking lots and on the Casino expansion and Hotel
project.
The Company expects to expand the Casino and construct a hotel using the
proceeds from this public offering of Units and by obtaining construction
financing of $15.0 million, although no commitments have been received for such
financing.
21
<PAGE> 24
BUSINESS
BACKGROUND AND BUSINESS STRATEGY
The Company began operating the Casino through the Partnership on April 23,
1996, following approval of the Company's gaming license by the Gaming
Commission. Cripple Creek is one of three communities in Colorado where limited
stakes gaming is allowed. The Company has acquired additional real estate
adjacent to or near the Jubilee to provide for expansion of the Casino,
construction of the Hotel, and for convenient patron parking. The Cripple Creek
gaming industry is currently hampered by a lack of hotel rooms to accommodate
visitors. As a result, the Company believes Cripple Creek's market is restricted
to patrons willing to drive relatively short distances for day trips. Until
recently, there were only approximately 200 hotel rooms in Cripple Creek. In
August 1996, one of the Company's competitors in Cripple Creek, the Double Eagle
Hotel & Casino, opened with a 160 room hotel with suites, 800 gaming devices and
valet parking for 500 to 600 cars, as well as a full service restaurant. The
Company's proposed hotel project will include approximately 145 rooms and an
expanded Casino which will make it the second largest casino and hotel in
Cripple Creek. The Company believes that the Casino's performance will be
significantly enhanced by the addition of the Hotel and related convenient
parking for patrons. It is the Company's current intention to focus on the
operation of the Jubilee and the development of the Hotel. The Company intends,
however, to look for other opportunities in the gaming industry in Colorado and
in other states, although the Company has no present plans to expand its
operations.
GAMING IN COLORADO
Gambling was prevalent in most frontier towns in the late 1800s. Subsequent
legal regulation accounted for the demise of casino gaming in virtually all
areas except the State of Nevada. Approximately 20 years ago, New Jersey adopted
a gaming law, and casino gaming activities have become prevalent in the Atlantic
City area. Thirty-three states, including Colorado, now have lottery-type games;
thirty states, including Colorado, have legalized dog and horse track betting;
48 states, including Colorado, have charitable gambling, such as bingo, raffles,
and pulltabs; and many other forms of gambling are under consideration across
the nation. Economic depression coupled with taxing authorities' hunger for
additional revenues has resulted in a plethora of gambling legislation and
proposed legislation in several states, including Colorado. The Company believes
that limited stakes and other gambling will be a growth industry in the 1990s.
In November 1990, Colorado voters approved limited stakes gambling (slot
machines, blackjack and poker, with a limit of $5 per bet) in three historic
mining towns -- Central City, Black Hawk and Cripple Creek. Cripple Creek is
located about 45 miles south and west of Colorado Springs. There are 26 casinos
and approximately 4,800 slot machines in operation in the Cripple Creek gaming
market. For gaming years 1993-1994 and 1994-1995, aggregate gaming proceeds for
Cripple Creek gaming establishments was $78.0 million and $90.9 million. As of
November 1, 1995, 39 gaming licenses were authorized for Cripple Creek. Of
these, at least 15 as of such date had closed or operated under more than one
license. The number of slot machines in Cripple Creek has increased each year,
from approximately 2,800 in 1992 to 3,900 at the end of 1995.
In 1995, the State of Colorado renegotiated compacts with two Indian tribes
in southwest Colorado to conduct casino-style gaming on their reservation land.
The two tribes, the Ute Mountain Tribe and the Southern Ute Tribe, are not
subject to taxation and are not required to report their revenues to the state.
These tribes have agreed to conduct limited stakes gaming with the same $5 bet
limits to which other casinos adhere, but a provision in their compacts allows
them to litigate possible higher stakes and increased scope of games. The tribal
casinos can operate on a 24-hour schedule and may offer live keno. The Ute
Mountain Tribe was the first to open an Indian gaming establishment in September
1992. This casino is located in Towaoc, 10 miles south of Cortez. The Southern
Ute Tribe opened the Sky Ute Casino and Lodge in Ignacio, 25 miles southeast of
Durango, in September 1993.
Total gaming proceeds in Colorado have increased every year since the
inception of gaming in the fall of 1991, according to information provided by
the Gaming Commission. Total AGP for the State of Colorado was more than $384
million in 1995. The Cripple Creek market experienced an average annual increase
in
22
<PAGE> 25
AGP of approximately 24% between 1992 and 1995, as AGP increased from
approximately $49.2 million to over $94 million. The increase experienced in
1995 was 14.3%. AGP at the Jubilee did not follow the city-wide trend, declining
from $5.5 million to $2.8 million during this period, according to information
provided by the Jubilee's previous owners. For the first nine months of 1996,
AGP at the Jubilee is up 4.4% above the same period in 1995, compared to an 11%
increase reported for Cripple Creek for this period.
Between 1992 and 1995, the average number of slot machines licensed in
Cripple Creek increased from approximately 2,800 to 3,900. Average AGP per slot
machine per day provides a measure of productivity for a casino. The average AGP
per slot machine at the Jubilee was $43 in 1995, which is below both the
city-wide average of $63 and the state-wide average of $78.
The following table sets forth certain information relating to the Casino,
Cripple Creek and the State of Colorado. There can be no assurance that the
Company will achieve average results set forth below or that the state and local
AGP and/or average per machine will not materially decrease. See "Risk Factors."
GAMING STATISTICS
<TABLE>
<CAPTION>
AVERAGE AGP AVERAGE NUMBER
AGP(1) PER SLOT(2) OF SLOTS(3)
------------ ----------- --------------
<S> <C> <C> <C>
Jubilee Casino
1992* (5 months)................ $ 2,753,367 N/A N/A
1993............................ 5,530,266 $59 251
1994............................ 3,750,665 42 219
1995............................ 2,826,063 43 164
1996 (9 months)................. 2,251,953 45 170
Cripple Creek
1992............................ 49,186,864 53 2,824
1993............................ 68,736,452 50 3,525
1994............................ 82,279,672 61 3,531
1995............................ 94,018,958 63 3,918
1996 (9 months)................. 74,487,206 62 4,017
State of Colorado
1992............................ 179,984,012 61 2,212
1993............................ 259,899,684 63 7,738
1994............................ 325,684,649 73 11,410
1995............................ 384,342,947 78 12,744
1996 (9 months)................. 315,917,049 87 12,551
</TABLE>
- ---------------
Source: Colorado Division of Gaming and Jubilee Casino
* Operations for August through December 1995
(1) Adjusted Gross Proceeds means the total gambling receipts less
jackpots/winnings, less restocking monies for slot machines, plus monies
collected from table games.
(2) Weighted average of Adjusted Gross Proceeds of the various denomination slot
machines on a per slot machine per day basis.
(3) Represents the annual average of the number of slot machines reported at the
end of each month.
The AGP for the Casino for the nine months ended September 30, 1996 was
$2,251,953, compared to $2,157,634 for the same period in 1995. From April 23,
1996, the date current management took over the Jubilee's operations, through
September 30, 1996, the amount of coin-in rose by nearly 18% over the same
period in 1995. The AGP during this period, however, declined by 2.9% due to a
reduction in the Casino's hold percentage.
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<PAGE> 26
JUBILEE CASINO
The Jubilee Casino was constructed and opened in July 1992 in Cripple Creek
with approximately 364 machines and 11 table games. The Casino is two stories
with a total of approximately 15,100 square feet and includes a 50-seat
restaurant, two bars of ten seats each and a children's entertainment area. The
Casino currently operates 178 machines and 6 table games (blackjack and poker).
The Company became licensed to operate the Jubilee in Colorado on April 19, 1996
and took over management of the Casino on April 23, 1996. Immediately east of
the Casino is a historic building known as the Homestead, which was a bordello
during the gold rush days and is currently a museum. The Homestead contains much
of its original furnishings which include antiques from all over the world that
were gifts given to the ladies who worked there. As one of only a few such
museums in the United States, it is a point of interest for visitors to Cripple
Creek and helps draw patrons to the Jubilee.
The Jubilee is located on Myers Avenue, between Fourth and Fifth Streets,
and is one block south of Bennett Avenue, the main street where all of the other
casinos are located in the town's historic storefronts. This location, although
only one block from the main street, is thought to have contributed to the
Casino's relatively poor past performance. The Jubilee had adjusted gross
proceeds ("AGP") from gaming activities of approximately $5.5 million, $3.8
million and $2.8 million for the years 1993, 1994 and 1995, respectively. In
1995, the Casino's average slot revenue per machine was $43 per day,
significantly below the Cripple Creek average of $63. Prior management at the
Jubilee initially "bought" a lot of business through coupons, an active busing
program and other giveaways. As the concentration of casinos along Bennett
Avenue (the main street) increased, this strategy was found to be unprofitable
and marketing expenditures were curtailed, resulting in lower revenues. In 1995,
the Casino experienced a shortage of cash, was put up for sale, and marketing
efforts were further reduced.
The Company entered into an agreement to acquire the Jubilee in October
1995 and became the operator of the Casino upon licensing on April 23, 1996.
Advertising and marketing programs have been reinstituted and management of the
gaming floor improved, as changes in slot machine locations, denomination mix
and hold percentages were made. Total coin-in at the Jubilee for the first nine
months of 1996 has increased by 24% over the same period in 1995. Total AGP
during this period increased by 4%, while Cripple Creek's total AGP increased by
11% during this period. The hold percentage was reduced at the Casino beginning
in March 1996 in an effort to build patronage which accounts for the lesser
increase in AGP.
The Company owns the Casino and the three lots beneath it along with one
lot to the north which provides access to Bennett Avenue. The Company has
acquired additional real estate around the Jubilee that will allow for expansion
and additional parking and now owns a total of 42 lots. In addition to the
Homestead and the lot on which it sits, the Company has acquired the three lots
immediately to the west of the Casino which are used for parking, and the six
lots immediately to the east of the Homestead which are used for parking. The
Company also owns 28 lots diagonally across Myers Avenue which are planned to be
leveled, paved and have lighted parking. As 15 of these lots are located in the
gaming district, this parcel represents a future potential casino/hotel site
should the Company or another party seek to develop that site. Each lot is 25
feet wide by 125 feet deep. There is a railroad easement over a portion of three
of the Company's lots which are located outside of the Cripple Creek gaming
district.
A new Colorado law forbids persons under age 21 from "lingering" on a
casino gaming floor. Under this law, which took effect on October 1, 1996,
minors may pass through a gaming floor only to get to a non-gaming area. The
Company believes that this measure has already had a positive effect on the
Jubilee's business. The Jubilee is the only casino in Cripple Creek to have a
separate floor devoted to children's activities. The mezzanine floor contains a
children's entertainment area with interactive games, video games and a soda
fountain. The carnival has successfully attracted patrons with children
throughout the 1996 spring and summer seasons as many of the casinos began to
observe the regulation prior to its effective date.
The Company intends to develop the Hotel around the Homestead on the seven
lots adjacent to the east of the Casino and expand the Casino into the first
floor of the Hotel, more than doubling its gaming floor space. The hotel rooms,
supported by the food and beverage facilities in the Casino and convenient
parking
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<PAGE> 27
across Myers Avenue, will result in the Jubilee being one of only two integrated
casino/lodging facilities in Cripple Creek, which is lacking in both lodging
rooms and convenient parking to accommodate its patrons.
JUBILEE HOTEL AND CASINO EXPANSION
The Company is proposing to construct the attached Hotel, enlarge the
Casino and develop paved parking lots in order to make the Jubilee more of a
destination for area gamblers, in contrast to the many small casinos that
presently exist in Cripple Creek which are patronized primarily by "day-trip"
visitors. A 145-room, six or seven-story attached hotel is currently planned on
the seven lots east of the Casino, which will also permit expansion of the
Casino to approximately 27,500 square feet of gaming and will accommodate up to
700 slot machines, a separate children's amusement area, and expanded restaurant
facilities. The planned addition will make the Jubilee the second largest
casino-hotel in Cripple Creek. The Company estimates a construction period of
eleven months and, subject to obtaining requisite financing for construction,
expects to open the Casino expansion and Hotel to the public in May 1998.
Subject to final plans and design changes and obtaining required
construction permits from the City of Cripple Creek, the Hotel is planned to
have 145 rooms and a total of approximately 102,000 square feet. There will be
approximately 24 rooms off a double-loaded corridor on each of six floors.
Included in the room complement will be several Jacuzzi suits. A pool and
function space will be constructed in the basement of the new structure. A
children's entertainment area will be placed on the second floor of the expanded
Casino. The Jubilee is the only casino in Cripple Creek that has a separate
floor devoted to children's activities. Recently, a new minors law became
effective in Colorado. The Company believes that the passage of this law,
together with its children's entertainment area, will enable it to receive even
more family business, and is planning the new children's area with this in mind.
The Casino will be expanded to occupy most of the site on the first floor, or
approximately 18,500 square feet. A new restaurant is planned on the second
floor of the Casino to meet the dining needs of Casino and Hotel patrons, along
with two banquet rooms and other casino support space. The Casino expansion will
provide for approximately 33,000 square feet of new gaming-related space, and
the completed project will have a total gaming-related area of approximately
48,000 square feet.
As experienced in other gaming communities, the addition of hotel rooms is
expected to significantly improve the Casino's gaming volume because the Company
believes the Casino will attract patrons from greater distances for longer
periods of time and create a "captive" group of patrons. The rooms will allow
the Casino to expand beyond its current "day-trip" market and will be a key
amenity in its planned marketing programs. Coupons and other promotions will be
used to encourage hotel guests to gamble at the Jubilee Casino. During the
slower winter months, the Hotel will provide lodging for bus groups and other
promotions conducted by the Casino. Based upon the present lodging supply in
Cripple Creek, the Company projects that the Hotel can operate at a relatively
high level of occupancy, due to the year-round lodging demand that can be
generated by the Jubilee and other gaming establishments in Cripple Creek.
The Hotel is expected to result in an increase in business at the Casino.
As experienced by casino hotels throughout the country, the proximity of the
Casino to the lodging rooms allows it to capture patrons as they first begin
their gaming entertainment and again as they return to their rooms at night.
Given the older age of many of Cripple Creek's visitors and the high altitude
(approximately 9,500 feet) that tends to fatigue people of all ages, the Company
believes that convenient lodging will be attractive to casino patrons and other
visitors. Industry analysts indicate that hotels in other gaming venues
typically generate $70 or more in additional gaming revenue per occupied hotel
room.
Room rates at the hotels in Cripple Creek typically increase on weekends
and during the summer when tourist demand is at its peak. During August and
September 1996, room rates at the new Double Eagle Hotel ranged from
approximately $99 to $129 during the week and approximately $119 to $159 on
weekends. Rates at the Holiday Inn Express in Cripple Creek are approximately
$94 on weekdays and $105 on weekends during this period.
The Hotel is expected to provide accommodations necessary to support an
active busing program and vacation packages that the Company intends to develop
to draw patrons to the Casino during the slower periods of the year. By
packaging transportation, lodging, food and gaming coupons, the Company believes
25
<PAGE> 28
that an attractive mini-vacation package can be developed which draws patrons
to, and holds them at, the Jubilee.
An estimated 260 parking spaces will be provided by the three lots to the
west of the Casino and the 28 lots across Myers Avenue. The Company intends to
pave and light the two lots across Myers Avenue from the Casino in order to
enhance their visibility and attractiveness. There is a critical shortage of
convenient parking in Cripple Creek and the Company believes that the additional
parking will provide it with a competitive advantage over the casinos located on
Bennett Avenue. The Company believes that the planned addition of the Hotel and
expansion of the Casino, the development of a concentration of parking spaces
and the recent opening of the Double Eagle Casino and Hotel will shift the
center of the gaming activity to the eastern edge of the city from the present
main street concentration, thereby enhancing the Jubilee's operations. As 15 of
these 28 contiguous lots lie within the gaming district in Cripple Creek, the
Company believes that a second casino and hotel can be developed on this parcel
in the future. The Company does not, however, have any plans to develop a second
hotel and/or casino and no assurance can be given that such a development
project will ever be contemplated by the Company.
RESTAURANT AND BAR FACILITIES
Upon expansion of the Casino, its present restaurant will be converted into
a deli-style operation and a new restaurant will be constructed on the mezzanine
floor. The deli, which will be open at all times the Casino is open, will have
30-35 seats and will provide high quality, fast service food items. The planned
restaurant will have 100-150 seats, will be located on the mezzanine level and
will offer a full menu and table service for lunch and dinner. A buffet is
planned for the restaurant in the evenings that will emphasize quality, in
addition to value. This restaurant is expected to service the needs of the hotel
guests and will be incorporated in various promotions conducted by the Casino.
The Casino's main bar will remain in its present location and a service bar
will be added to support the planned restaurant. A second service bar is also
planned as part of the Casino expansion to serve patrons on the gaming floor and
will be opened during peak hours of operation.
PROJECT COSTS
All new construction within the historic gaming district must meet both
stringent building code requirements and historic review criteria. These
requirements result in construction costs that can be significantly higher than
are normally experienced. As an example, the planned Hotel will be a brick
exterior structure and designed to appear similar to structures that once
existed in Cripple Creek.
The estimated costs and sources of financing for the Hotel are as follows:
<TABLE>
<S> <C>
Project Costs
Construction and development............................ $13,850,000
Furniture, fixtures and equipment....................... 750,000
Land and buildings...................................... 5,523,000
-----------
$20,123,000
===========
Sources of Funds
Construction financing.................................. $15,000,000
Offering proceeds....................................... 2,800,000
Company equity.......................................... 2,323,000
-----------
$20,123,000
===========
</TABLE>
The Company expects that the construction of the Hotel and Casino expansion
will be funded by the proceeds from this offering and the proceeds from
construction financing. Substantial construction will not commence until the
Company obtains construction financing of at least $15.0 million. The Company
intends to seek permanent financing for the project following its completion.
26
<PAGE> 29
GAMING
The Jubilee Casino operates five blackjack tables and one poker table,
together with approximately 178 gaming devices. There are 39 nickel machines,
104 quarter machines, 8 fifty cent machines and 27 dollar machines. Included in
the mix of gaming devices are 46 poker machines, and a series of progressive
payoffs on nickel, quarter, and dollar slots. The Company believes the Casino
has a suitable mix of machines based on the popularity of the types of play
which casinos have been receiving in Cripple Creek. The Company leases gaming
equipment under an equipment lease with International Game Technology pursuant
to a 48 month lease requiring payments of approximately $24,105 per month and
which provides for a transfer of ownership to the Casino at termination of the
lease. All machines leased carry warranties and service backup. The Company has
on-site personnel capable of handling minor repairs to the equipment on the
floor.
MARKETING AND SALES STRATEGY
The Company believes that effective marketing is a key to success in the
highly competitive casino gaming industry. The Company plans to increase its
marketing efforts directed toward developing and expanding a loyal customer
base. For example, the Company plans a number of special dinners which it will
market via direct mail to its data base of over 6,000 jackpot winners and other
regular patrons. The Company also plans to hold at least one special event in
each quarter, such as an outdoor barbecue, and quarterly slot and blackjack
tournaments to attract new patrons to the Casino. These events will be promoted
through radio, television and direct mail. The family-orientation and children's
facilities at the Casino will be emphasized during the summer when tourism
peaks. Most of the Company's marketing efforts will be focused on developing
business during the slower weekdays, rather on weekends or during the summer. In
addition, the Hotel will be used to provide lodging for vacation packages to
draw new patrons to the Casino. The Casino will also provide free parking to its
patrons, with a parking lot larger than any other casino in the Cripple Creek
area adjacent and directly across the street from the facility. The Company
anticipates that most of its marketing efforts will be concentrated on the
Colorado Springs and Pueblo markets.
OPERATIONS CONTROLS
The Gaming Commission has established strict rules with regard to the
supervision and control of all gaming activities, including security and cash
control systems. The Casino employs these controls and paperwork systems to
insure internal integrity and compliance with regulations. The Casino is also
required to obtain an annual audit report from an independent certified public
accounting firm, which in turn is required to make certain surprise inspections.
There are 75 closed circuit cameras which have been installed throughout the
Jubilee Casino with taping devices in place to record all play at all times.
These tapes and live action are regularly monitored by Casino staff and reviewed
by Gaming Commission employees to insure the integrity of gaming activities. The
Casino employs a controller who is responsible for all internal and external
accounting matters.
EMPLOYEES
The Jubilee employs approximately 100 full-time persons including cashiers,
dealers, food and beverage service personnel, facilities maintenance,
accounting, marketing and personnel services. No labor unions represent any
employee group.
COMPETITION
Although limited gaming in Colorado is relatively new, intense competition
in Cripple Creek exists. The Company competes directly with 25 licensed gaming
establishments in Cripple Creek, a number of which have more experience and
greater financial resources than the Company. Proposed plans have been announced
by several companies for the development and operation of hotel and gaming
facilities which may be similar to those operated and/or planned by the Company.
The Company also competes for gaming patrons with approximately 35 casinos in
Black Hawk and Central City, and with Indian gaming in Towaoc and Cortez.
Because of the intense nature of this competition in Colorado and other
established gaming venues including
27
<PAGE> 30
Las Vegas, Reno, Atlantic City and Gulf Coast cities such as Biloxi, Gulfport
and New Orleans, there can be no assurance the Company's Casino and proposed
hotel operations will be profitable.
In general, consolidation of some of the first casinos developed in Cripple
Creek is occurring as the young gaming market begins to mature, resulting in a
trend toward larger casinos. Although the number of casinos in Cripple Creek
peaked in 1992 at 31, and thereafter declined to 26 casinos in August 1996, the
average number of slot machines licensed in Cripple Creek has increased each
year. The Casino ranks 13th in size with the recent opening of the Double Eagle
Hotel and Casino. There are four casinos with 185 to 195 machines, four with 202
to 250 machines, three with 317 to 398 machines and one with 750 machines. The
expanded Jubilee, with approximately 700 slot machines, will be the second
largest casino in Cripple Creek.
As a result of many of the factors described above, particularly intense
competition and high state taxation, Colorado casinos have ceased operations.
Other casinos in Colorado have filed for protection under Chapter 11 of the
Bankruptcy Act. Others have closed temporarily or reduced employees, or reduced
the number of gaming devices, and many casinos may not be operating profitably.
Some of the failed casinos are smaller than average, but the factors causing the
"shakeout" which Colorado limited gaming is presently experiencing will affect
all operators. The Company believes the Hotel and the availability of convenient
parking are important competitive advantages. No assurance can be given that the
Company and/or its casinos will survive or prosper in this extremely difficult
business environment.
Recent state and local public initiatives regarding limited gaming are
being actively pursued by many persons. Interested parties in several widely
scattered Colorado cities were able to place limited gaming initiatives on the
November 1992 statewide ballot. Although these initiatives failed as did one in
1994, it is possible that future initiatives could be introduced. An initiative
did pass in 1992 which requires local voter approval for any expansion of
limited gaming. A measure to expand limited gaming to Trinidad, Colorado was
voted down in the November 1996 Colorado general election. Any expansion of
gaming in Colorado which significantly expands areas in which limited gaming is
permitted, could adversely affect the Company's prospects.
LITIGATION AND CLAIMS
The Company is not a party to, nor are any of its properties the subject
of, any material pending or threatened legal proceedings.
REGULATORY MATTERS
Colorado Gaming Laws and Regulations. The State of Colorado created the
Division of Gaming (the "Division") within the Department of Revenue to license,
implement, regulate and supervise the conduct of limited gaming. The Director of
the Division, under the supervision of the five-member Gaming Commission, has
been granted broad power to ensure compliance with the gaming laws and
regulations adopted thereunder (the "Colorado Regulations"). The Director may
inspect, without notice, impound or remove any gaming device. He may examine and
copy any licensee's records, may investigate the background and conduct of
licensees and their employees, and may bring disciplinary actions against
licensees and their employees. He also may conduct detailed background
investigations of persons who loan money to the Company.
The Gaming Commission is empowered to issue five types of gaming and
gaming-related licenses. The failure or inability of the Company, Jubilee
Casino, or others associated with the Company to maintain necessary gaming
licenses will have a material adverse effect on the operations of the Company.
All persons employed by the Company, Jubilee Casino and involved, directly or
indirectly, in gaming operations in Colorado also are required to obtain a
Colorado gaming license. Casino licenses must be renewed annually, and key and
support employee licenses must be renewed semi-annually.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming licenses
in Colorado. The Gaming Commission has ruled that a person does not have an
ownership interest in a licensee
28
<PAGE> 31
if: (i) such person has less than a 5% interest in an institutional investor
which has an ownership interest in a publicly traded retail licensee (a
"Licensee") or in a publicly traded company affiliated with a Licensee (such as
the Company); (ii) such person has a 5% or more ownership interest in an
institutional investor which has less than a 5% ownership interest in a publicly
traded Licensee or in a publicly traded company affiliated with a Licensee;
(iii) such person is an institutional investor which has less than a 5%
ownership interest in a publicly traded Licensee or in a publicly traded company
affiliated with a Licensee; (iv) such person is an institutional investor which
possesses voting securities of a publicly traded Licensee or in a company
affiliated with a Licensee in a fiduciary capacity and not for its own account
(unless such person exercises voting rights with respect to 5% or more of such
publicly traded company's outstanding voting securities); (v) such person is a
broker or dealer registered under the Securities Exchange Act of 1934, as
amended, which possesses voting securities of a publicly traded Licensee or of a
publicly traded company affiliated with a Licensee for the benefit of its
customers and not for such person's own account and which does not exercise
voting rights with respect to 5% or more of such publicly traded company's
voting securities; (vi) such person is a broker or dealer registered under the
Securities Exchange Act of 1934, as amended, and has an ownership interest in
voting securities of a publicly traded Licensee or of a publicly traded company
affiliated with a Licensee as a market maker in such voting securities (unless
such person exercises voting rights with respect to 5% or more of such
outstanding voting securities); (vii) such person is an underwriter of voting
securities of a publicly traded Licensee or of a publicly traded company
affiliated with a Licensee and has an interest in such voting securities during
the course of an underwriting (unless such person exercises voting rights with
respect to 5% or more of such publicly traded company's outstanding voting
securities); provided, however, that such underwriter may not possess such an
interest in such voting securities longer than 90 days after the beginning of
such underwriting; or (viii) such person possess voting securities of a publicly
traded Licensee or of a publicly traded company affiliated with a Licensee in
such person's capacity as a book-entry transfer facility (unless such person
exercises voting rights with respect to 5% or more of such publicly traded
company's outstanding voting securities). For purposes of the above discussion,
a person shall not be deemed to have an "ownership interest" in a Licensee if
such person's sole ownership interest in such Licensee is through the ownership
of less than 5% of the voting securities of (a) such Licensee is publicly
traded, or (b) a publicly traded company affiliated with such Licensee. The
Company's and its stockholders' business opportunities in Colorado are limited
to such interests that comply with the statute and Gaming Commission's rule.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino operator, allow
any of its officers to have such an interest, employ any person if such person
is employed by a casino operator, or allow any casino operator or person with a
substantial interest therein to have an interest in a manufacturer's or
distributor's business. The Gaming Commission has ruled that a person does not
have a "substantial interest" in a manufacturer, distributor, operator or
retailer licensee if it directly or indirectly has less than 5% of such voting
securities of a licensee.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, the Company and stockholders of the Company, may
be required to supply the Gaming Commission with substantial information,
including, but not limited to, personal, criminal and financial background
information, date of birth, source of funding information, a sworn statement
that such person or entity is not holding his interest for any other party,
fingerprints and a photograph. Such information, investigation and licensing as
an "associated person" automatically will be required of all persons (other than
certain institutional investors discussed below) which directly or indirectly
own 10% or more of a direct or indirect legal, beneficial or voting interest in
the Jubilee Casino, through their ownership in the Company. Such persons must
report their interest and file appropriate applications for a finding of
suitability within 45 days after acquiring such interest. Persons directly or
indirectly having a 5% or more interest in the Casino, through their ownership
in the Company, must report their interest to the Gaming Commission within ten
(10) days after acquiring such interest and may be required to provide
additional information and to be found suitable as required by the Division or
the Gaming Commission. If certain institutional investors provide certain
information to the Gaming Commission, such investors, at the Gaming Commission's
discretion, may be permitted to own up to 14.99% of the Jubilee Casino, through
their ownership in the Company, before being required to be found suitable. All
licensing and investigation fees must be paid to the Division by the person in
question.
29
<PAGE> 32
The Gaming Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty integrity, prior activities, criminal
record, reputation, habits and associations of (i) all persons licensed pursuant
to the Colorado Limited Gaming Act, (ii) all officers, directors and
stockholders of a licensed privately held corporation, (iii) all officers,
directors and stockholders holding either a 5% or greater interest or a
controlling interest in a licensed publicly traded corporation, (iv) all general
partners and all limited partners of a licensed partnership, (v) all persons
which have a relationship similar to that of an officer, director or stockholder
of a corporation (such as members and managers of a limited liability company),
(vi) all persons supplying financing or loaning money to any licensee connected
with the establishment or operation of limited gaming, (vii) all persons having
a contract, lease or ongoing financial or business arrangement with any
licensee, where such contract, lease or arrangement relates to limited gaming
operations, equipment, devices or premises, (viii) all persons who may influence
the operation of a licensee in any material manner, and (ix) all persons who may
have access to gaming proceeds or the accounting or reporting therefor.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" with an applicant for a license, or with a licensee, upon
the request of the Gaming Commission or the Director, promptly must provide to
the Gaming Commission or Director all written gaming contracts and summaries of
oral gaming contracts. Information which may be requested includes financial
history, financial holdings, real and personal property ownership, interest in
other companies, criminal history, personal history and associations, character,
reputation in the community, and all other information which might be relevant
to a determination whether a person would be suitable to be licensed by the
Gaming Commission. Failure to provide all information requested constitutes
sufficient grounds for the Director or the Gaming Commission to require a
licensee or applicant to terminate its "gaming contract" with any person who
failed to provide the information requested. In addition, the Director or the
Gaming Commission may require changes in "gaming contracts" before an
application is approved or participation in the contract is allowed. A "gaming
contract" is defined as an agreement in which a person does business with or on
the premises of a licensed entity.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Gaming Commission or the Director, as appropriate.
Specifically, the Gaming Commission and the Director must deny a license to any
applicant who (i) fails to prove by clear and convincing evidence that the
applicant is qualified; (ii) fails to provide information and documentation
required by law or requested by the Division or the Gaming Commission (iii) has
been, or has any director, officer, general partner, stockholder, limited
partner or other person who has a financial or equity interest in the applicant
who has been convicted of certain crimes, including gambling-related offenses,
theft by deception or crimes involving fraud or misrepresentation, is under
current prosecution for such crimes, has served a sentence for any felony or
certain misdemeanors in any correctional facility within the last ten years, is
a career offender or a member or associate of a career offender cartel, or is a
professional gambler; or (iv) has refused to cooperate with any state or federal
body investigating organized crime, official corruption or gaming offenses. If
the Gaming Commission and the Jubilee determines that a person or entity is
unsuitable to own interests in the Company, the Company and the Jubilee Casino
may be sanctioned, which may include the loss by the Company and the Jubilee
Casino of their respective approvals and licenses.
The Gaming Commission does not need to approve in advance a public offering
of securities, but rather requires a filing of notice and additional documents
with regard to such public offering. The Gaming Commission must receive notice
of a public offering to be registered with the Commission no later than 10
business days after the initial filing of the registration statement with the
Commission, or for any other type of public offering, 10 days prior to the
public use or distribution of any offering document if (i) the licensee is not a
publicly traded corporation, or (ii) the licensee is a publicly traded
corporation which intends to use the proceeds of the offering to pay for the
construction of Colorado gaming facilities, to acquire any interest in Colorado
gaming facilities, to finance operation of Colorado gaming facilities, or to
retire or extend obligations incurred for one or more purposes set forth above.
Under the regulations, the Gaming Commission may, in its discretion, require
additional information and prior approval of such public offering. In addition,
the Colorado Regulations prohibit a licensee or affiliated company thereof such
as the Company, from paying dividends, interest or other remuneration to any
unsuitable person, or recognizing the exercise of any voting rights by any
30
<PAGE> 33
unsuitable person. Further, the regulations require anyone who has a material
relationship to or a material involvement with a licensee, including a director
or officer of the corporation or any person who exercises significant influence
upon the management or affairs of the corporation, such as the Company, to file
for a finding of suitability if required by the Gaming Commission.
In addition to its authority to deny an application for a license or
suitability, the Gaming Commission has jurisdiction to disapprove a change in
corporate ownership, including investors, lenders or anyone who may have an
interest in gaming proceeds of a licensee and may have such authority with
respect to any entity which is required to be found suitable by the Gaming
Commission. The Gaming Commission has the power to require the Company and the
Jubilee Casino to suspend or dismiss managers, officers, directors and other key
employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in such
capacities, and may have such power with respect to any entity which is required
to be found suitable. A person or entity may not sell, lease purchase, convey or
acquire a controlling interest in the Company without the prior approval of the
Gaming Commission. Except as otherwise provided in the definition of "ownership
interest," the Company may not sell any interest in the Casino without the prior
approval of the Gaming Commission. Ongoing reporting to the Gaming Commission is
required. Each Licensee must report, at least quarterly, the names and addresses
of any person, including a lending agency, who may share in the revenues of
limited gaming, whether as owner, assignee, landlord or otherwise. This
requirement extends to anyone to whom an interest or share in the profits of
limited gaming have been pledged or hypothecated as security for a debt, the
performance of an act, or a contract of sale. Licensees are also required to
notify the Division Director in writing of any criminal conviction and any
pending criminal charge, within 10 days of arrest, summons or conviction.
Licensees are also required to report any known or suspected violations of the
Colorado's gaming laws to the Division. Failure to report any required
information may lead to revocation or summary suspension of the licensee's
license.
The Casino must meet certain architectural requirements, fire safety
standards and standards for access for disabled persons. The Jubilee Casino also
must not exceed certain gaming square footage limits as a total of each floor
and the full building. The Jubilee Casino may operate only between 8:00 a.m. to
2:00 a.m., and may permit only individuals 21 years or older to gamble in the
Casino. It may permit slot machines, blackjack and poker, with a maximum single
bet of $5.00. The Casino may not provide credit to its gaming patrons and no
licensee may provide credit to any person for the purpose of gaming.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Gaming Commission has set a gaming tax rate of 2% on
adjusted gross gaming proceeds of up to and including $2.0 million, 4% over $2.0
million up to and including $4.0 million, 14% over $4.0 million up to and
including $5.0 million, 18% on adjusted gross gaming proceeds over $5.0 million
up to and including $10.0 million and 20% on adjusted gross proceeds in excess
of $10.0 million. The Gaming Commission also has imposed an annual device fee of
$75 per gaming device. The Gaming Commission may revise the gaming tax rate and
device fee from time to time. Cripple Creek has imposed an annual fee of $1,200
per gaming device and may revise the same from time to time.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of the Jubilee Casino through their ownership of the
Company, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The liquor agencies also may investigate those persons who,
directly or indirectly, loan money to or have any financial interest in liquor
licensees. All licenses are revocable and not transferable. The Liquor Agencies
have the full power to limit, condition, suspend or revoke any such license and
any such disciplinary action could (and revocations would) have a material
adverse effect upon the operations of the Company.
Rather than a gaming tavern license, the Jubilee holds a hotel and
restaurant liquor license for casino, hotel and restaurant operations.
Accordingly, no person with an interest in the Company can have an interest in a
Colorado liquor licensee which holds anything other than a hotel and restaurant
liquor license, and such person specifically cannot have an interest in an
entity which holds a gaming tavern license.
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<PAGE> 34
Under the Colorado Regulations, the Company may repurchase the Shares of
anyone found unsuitable at the lesser of the cash equivalent to the original
investment in the Company or the current market price. Under the Colorado
Regulations, the Company cannot make any distribution, pay any remuneration or
recognize the vote of any unsuitable person. See "Description of Securities."
If, in the future, the Company operates licensed gaming businesses in other
jurisdictions which regulate the ownership of its securities, a finding of
unsuitability could require the Company to repurchase the securities of such
person. The Company has no present plans, however, to operate a gaming business
in any other jurisdiction.
SEASONALITY
Although the Company's business may not be seasonal in the conventional
sense, the highest levels of business activity occurs in the tourist season
(i.e. from May through October). Its base level (i.e. November through April)
remains fairly constant although weather conditions during this period can have
a significant impact on business levels in the gaming area.
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<PAGE> 35
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICER AND KEY EMPLOYEE
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------- --- --------------------------------------------
<S> <C> <C>
John H. Klinkhammer 59 Chairman and Director
Craig H. Forsman 49 Chief Executive Officer and Director
Stephen W. Sherf 49 Chief Financial Officer and Director
Ralf Hoehne 30 Vice President of Gaming Operations
Terrance P. DeRoche 50 Secretary and Director
</TABLE>
JOHN H. KLINKHAMMER. Mr. Klinkhammer is a founder of the Company and has
served as its Chairman and a Director since October 1995. Mr. Klinkhammer has
served as Chairman and a Director of National Lodging Companies, Inc. ("National
Lodging") since 1987. National Lodging is a hotel management and development
company and is the principal shareholder of the Company. National Lodging owns
four hotels and owns an interest in a fifth. It currently manages 14 hotels with
approximately 1,400 rooms and is pursuing the development and management of
additional hotels. Mr. Klinkhammer has been involved in hotel development for
more than 20 years.
CRAIG H. FORSMAN. Mr. Forsman has served as the Company's Chief Executive
Officer since October 30, 1995. For more than twelve years, Mr. Forsman has been
involved in real estate acquisition, leasing and finance. From February 1989
through July 1995 Mr. Forsman served as Chief Executive Officer, President and a
director of Sunrise Resources, Inc., an equipment leasing and financial services
company. Prior thereto, Mr. Forsman served as Managing Director of Financial
Services for Chrysler Systems Leasing, Inc. between April 1986 and February
1989; as Corporate Counsel/Equity Placement for DataServe Financial Services,
Inc. between May 1985 and April 1986 and as Regional Acquisitions Manager for
The Griffin Companies, Inc. between July 1984 and May 1985. Prior thereto, Mr.
Forsman served as First Assistant County Attorney for Ramsey County, Minnesota
and as Special Assistant Attorney General for the State of Minnesota.
STEPHEN W. SHERF. Mr. Sherf has served as the Company's Chief Financial
Officer and as a Director since October 1995. Mr. Sherf has over 20 years of
consulting experience in the hospitality industry and also serves as Vice
President -- Development for National Lodging. Prior to joining National Lodging
in November 1994, Mr. Sherf headed the Hospitality Consulting Group of Marquette
Advisors, a hotel and gaming consulting firm for which he performed feasibility
studies for hotels and casinos throughout the country. Between December 1990 and
March 1992, Mr. Sherf was the executive vice president of Midwest Hospitality
Advisors, which was acquired by Marquette Advisors. Both firms engaged in
rendering consulting services for the hotel and gaming industries. Between July
1974 and November 1990 Mr. Sherf was affiliated with the accounting firm of
Laventhol & Horwath. Between February 1983 and November 1990, Mr. Sherf was a
partner of Laventhol & Horwath and was in charge of its upper midwest consulting
practice.
RALF HOEHNE. Mr. Hoehne was appointed Vice President of Gaming Operations
in November 1996. Mr. Hoehne is the Company's casino manager and is in charge of
the day-to-day operations of the Casino under the supervision of the Company's
management. Mr. Hoehne has been involved in the Casino's management since June
1993. Between June 1992 and May 1993, Mr. Hoehne was the Casino's Transportation
Coordinator. Between October 1990 and June 1992, Mr. Hoehne was marketing and
sales Representative and Transportation Director for Vans to Vail, a
transportation company located in Vail, Colorado.
TERRANCE P. DEROCHE. Mr. DeRoche has served as Secretary and a Director of
the Company since October 1995. Mr. DeRoche also currently serves as President
of National Lodging with which he has been affiliated since July 1993. Between
June 1991 and July 1993, Mr. DeRoche served as a vice president of FAXX, Inc.
Since 1977 Mr. DeRoche has also maintained a business consulting practice. In
August 1995, while serving as an officer and a director of Faxx Foods, Inc.
("FFI"), FFI consented to the entry of a Consent Agreement with the Securities
Commissioner of North Dakota prohibiting FFI and its officers from
33
<PAGE> 36
transacting any securities business or from employing persons as securities
salesmen in North Dakota, and paying $8,000 to the Commissioner for expenses in
the proceedings.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company for
the fiscal year ended December 31, 1995, by the Company's Chief Executive
Officer:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
FISCAL ---------------
NAME AND PRINCIPAL POSITION YEAR SALARY/BONUS
------------------------------------------------------ ------ ---------------
<S> <C> <C>
Craig H. Forsman, Chief Executive Officer............. 1995 $18,750/$18,750
</TABLE>
- ---------------
(1) Represents accrued salary and bonuses as of December 31, 1995, but not paid
as of the date of this Prospectus.
Salaries for Messrs. Forsman, DeRoche and Sherf are paid at the monthly
rates of $6,250, $2,500 and $2,500, respectively, and bonuses for them have been
accrued in the amounts of $18,750, $7,500 and $7,500, respectively. Mr. Hoehne
is compensated at the base rate of $70,000 per annum. The Company has no
retirement, pension or profit-sharing plans for officers and employees, other
than an employee health insurance plan.
DIRECTORS COMPENSATION
The Company intends to issue stock options to its non-employee directors
pursuant to its Director Stock Option Plan as discussed below.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement dated December 2,
1996, with Ralf Hoehne providing for his employment by the Company as its Vice
President of Gaming Operations, at an annual salary of $70,000. Mr. Hoehne was
also granted an option to purchase 20,000 shares of the Company's common stock
at $4.35 per share. The agreement provides that in the event that Mr. Hoehne's
employment is terminated by the Company for any reason other than for cause, Mr.
Hoehne shall receive a payment equal to three months of his annual salary if he
is terminated prior to November 1, 1997, and a payment equal to four months of
his annual salary if he is terminated after November 1, 1997. The agreement
governs the employment relationship between Mr. Hoehne and the Company through
October 1997, but remains in effect until terminated or such time as a new
agreement is entered into between the parties.
1996 STOCK OPTION PLAN
The Company has adopted the 1996 Stock Option Plan (the "1996 Plan") which
provides for the granting of options to designated employees and non-employees,
including consultants of the Company, to purchase up to a maximum of 400,000
shares of Common Stock. To date the Company has granted stock options to each of
Messrs. Forsman and Sherf for 40,000 shares of Common Stock and to Mr. Hoehne
for 20,000 shares of Common Stock. The options granted to Messrs. Forsman, Sherf
and Hoehne are exercisable at $4.35 per share.
The 1996 Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986) and non-statutory
stock options (options which do not meet the requirements of Section 422). Under
the 1996 Plan, the exercise price may not be less than the fair market value of
the Common Stock on the date of the grant of the option.
The Compensation Committee of the Board of Directors (the "Committee")
administers and interprets the 1996 Plan and is authorized to grant options
thereunder to all eligible employees of the Company,
34
<PAGE> 37
including officers. The Committee designates the optionees, the number of shares
subject to the options and the terms and conditions of each option. Certain
changes in control of the Company will cause the options to vest immediately.
Each option granted under the 1996 Plan must be exercised, if at all, during a
period established in the grant which may not exceed 10 years from the date of
grant. An optionee may not transfer or assign any option granted and may not
exercise any options after a specified period subsequent to the termination of
the optionee's employment with the Company.
STOCK PURCHASE PLAN
In October 1996, the Company adopted an employee stock purchase plan (the
"Stock Purchase Plan"). A total of 150,000 shares of Common Stock have been
reserved for issuance under the Stock Purchase Plan. The Stock Purchase Plan,
which is intended to qualify under Section 423 of the Code is administered by
the Board of Directors of the Company or by a committee appointed by the Board
of Directors. Employees are eligible to participate after a year of employment
with the Company if they are employed for at least 20 hours per week and more
than five months per year. The Stock Purchase Plan permits eligible employees to
purchase Common Stock through payroll deductions, which may not exceed 10% of an
employee's compensation, at 85% of the lower of the fair market value of the
Common Stock on the offering date or at the end of each six-month period
following the offering date during the applicable offering period. Employees may
end their participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment with the
Company.
DIRECTOR STOCK OPTION PLAN
The Company has not paid any cash compensation to a director in his
capacity as a director and has no present plan to pay directors' fees. In
October 1996, the Company adopted its 1996 Director Stock Option Plan (the
"DOP"), subject to shareholder approval, pursuant to which up to 200,000 shares
are reserved for the grant of stock options to non-employee ("outside")
directors. The definition of outside director contained in the DOP excludes
employees of affiliates of the Company who own 10% or more of the outstanding
stock of the Company. Under the DOP, the Company will award each outside
director 5,000 shares for each year of service as a director, not to exceed in
the aggregate 25,000 shares per director. The term of each option granted under
the DOP is five years and the exercise price per share for stock granted under
the DOP is 100% of the fair market value per share on the date on which the
respective option was granted.
INDEMNIFICATION
Unless prohibited in a corporation's articles or bylaws, Minnesota Statutes
Section 302A.521 requires indemnification of officers, directors, employees and
agents, under certain circumstances, against judgments, penalties, fines,
settlements and reasonable expenses (including attorneys' fees and
disbursements) incurred by such persons in connection with respect to the acts
or omissions of such person in their official capacities. The Company's Restated
and Amended Bylaws (the "Bylaws") provide for indemnification of officers and
directors of the Company and certain other persons to the extent permitted by
law. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Minnesota Statutes and the foregoing Bylaws' provision, or
otherwise, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
DIRECTOR LIABILITY
The Company's Articles of Incorporation, as amended and restated (the
"Articles"), limit the liability of directors in their capacity as directors to
the Company or its shareholders to the full extent permitted by Minnesota law.
The Articles provide that a director shall not be liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of the director's duty of loyalty to the Company or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for dividends, stock
repurchases and other distributions made in violation of Minnesota law or for
violations of federal or state securities laws, (iv) for any
35
<PAGE> 38
transaction from which the director derived an improper personal benefit, or (v)
for any act or omission occurring prior to the effective date of the provision
in the Articles limiting such liability. These provisions do not affect the
availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available.
CERTAIN TRANSACTIONS
REGENT GAMING ENTERPRISES TRANSACTION
Pursuant to an Agreement effective October 30, 1995 between the Company and
Terrance P. DeRoche (DeRoche"), Robert J. Swenson ("Swenson") and Stephen W.
Sherf ("Sherf"), the Company acquired all of the interests of DeRoche, Swenson
and Sherf in Regent Gaming Enterprises, Inc. ("Regent") in exchange for the
issuance of the Company's common stock to them in the following amounts: DeRoche
(104,919 shares), Swenson (148,197 shares), and Sherf (140,328 shares). DeRoche,
Swenson and Sherf were, as of such date, the sole shareholders of Regent. Regent
was organized in 1994 for the purpose of raising capital, analyzing, negotiating
and planning for the acquisition of the Jubilee Casino. The founding
shareholders of Regent were National Lodging, DeRoche, Swenson, James Klas
("Klas") and Sherf. Prior to such transaction, DeRoche acquired from Lodging its
interest in Regent, Swenson acquired 52% of Klas' shares in Regent, and Sherf
acquired 48% of Klas' shares in Regent. The Company also assumed Regent's
indebtedness to DeRoche, Swenson and Sherf in the following amounts: DeRoche
($65,000); Swenson ($7,604), and Sherf ($7,396), and also assumed accrued
compensation due to DeRoche, Swenson and Sherf in the amount of $80,000. Messrs.
DeRoche, Swenson, Sherf, Craig Forsman and National Lodging may be deemed
promoters of the Company.
The cash investment in Regent of DeRoche, Swenson and Sherf was $20,000, in
the following amounts: DeRoche ($6,000); Swenson ($7,292), and Sherf ($6,708).
The foregoing transaction was effected for the purpose of acquiring any and all
interests of Regent in the gaming opportunity in Cripple Creek which had been
developed by Regent. Such transaction was not, however, effected on an
arm's-length basis, and there can be no assurance that the transaction was
equivalent to, or as fair to the Company, as a comparable transaction concluded
on a arms-length basis between unrelated parties.
NATIONAL LODGING COMPANIES TRANSACTIONS
Acquisition of Jubilee. National Lodging had been actively seeking a
project for development in Cripple Creek since early-1994. Between March 1994
and October 1995, National Lodging had expended approximately $884,000 to
develop a project in Cripple Creek and to ultimately acquire the Jubilee. Such
expenditures included the following:
<TABLE>
<S> <C>
Miscellaneous expenditures, salaries and overhead......... $101,500
Legal and other professional fees......................... 63,856
Travel expenses........................................... 3,953
Printing expenses......................................... 1,005
Architect and engineering fees............................ 204,234
Real estate option payments............................... 10,000
Finder's fee (real estate)................................ 102,800
Miscellaneous costs and expenses.......................... 396,906
--------
Total........................................... $884,254
========
</TABLE>
On October 31, 1995, the Company, National Lodging, the Partnership and
other selling parties ("Sellers") entered into a Partnership Interest and Stock
Acquisition Agreement (the "Jubilee Agreement") pursuant to which the Company
acquired the Sellers' entire interest in the Partnership, including all of the
outstanding stock of the general partner of the Partnership, Cripple Creek
Corporation, along with the Sellers' interest in the capital stock of the
general partner of the Partnership in exchange for 393,750 shares of National
Lodging common stock valued at $4.00 per share. The primary property owned by
the Partnership
36
<PAGE> 39
was the Casino. In exchange for National Lodging's interests in the Casino
project, and its issuance of 393,750 shares of National Lodging stock to acquire
the Jubilee and additional real estate to be used for future development of the
Hotel and related parking, the Company issued to National Lodging 1,022,951
shares of Common Stock. In January 1996, the Company paid $87,800 to settle a
lawsuit brought by National Lodging against Grand National Hotel & Casino, Inc.,
Orr Properties, Inc., Ronald V. Ortner, Joan L. Ortner and Michael R. Reeg to
acquire and develop land in the vicinity of the Jubilee through a partnership.
The Company subsequently acquired 28 lots that had been controlled by such
partnership. The Company and National Lodging agreed that the expense relating
to the settlement of such litigation was an expense relating to the Casino
acquisition and expansion contemplated by the Company and that, accordingly,
such expense should be borne by the Company, even though the Company was not a
named party.
Consulting and Management Services. From time to time, National Lodging has
provided services to the Company and is expected to provide services to the
Company in the future in connection with the development of the Hotel. Services
have been billed by National Lodging in agreed upon amounts through October 31,
1996 totalling $14,832. The Company intends to negotiate directly with National
Lodging for future services on an as-needed basis at such rates as may be
customary or deemed reasonable by the Company. The Company also expects that it
will enter into an agreement for the management of its hotel by National Lodging
upon completion of the expansion project. The Company anticipates that payments
to National Lodging under such agreement will be equal to 4% of room sales. The
Company undertakes and agrees that all fees payable to National Lodging for such
services and the terms of any management contract will be consistent with
industry standards and will be no less favorable to the Company than could be
obtained by the Company negotiating with an unrelated party on an arm's-length
basis. Arrangements for such services and payment therefor will be approved and
determined by a committee of disinterested directors or disinterested persons
who have no direct or indirect interest in National Lodging and have never been
employed by National Lodging. Until disinterested directors of the Company are
appointed or elected, a committee of disinterested persons will approve all
contracts with, and expenditures relating to, services rendered by, National
Lodging to the Company. The Company believes that all services rendered to date
were on terms at least as favorable to the Company as could be obtained by the
Company negotiating with unrelated parties on an arm's-length basis.
Office and Administrative Support. National Lodging provides the Company
with offices, clerical, accounting and other support services for an agreed-upon
flat charge of $8,000 per month. Through October 31, 1996, an aggregate of
$56,000 has accrued and is due and owing to National Lodging for such office
services. This arrangement is terminable at the will of the parties.
Advances. The Company is indebted to National Lodging for National
Lodging's non-interest bearing advances to or on the Company's behalf on an
open-account basis totalling $187,000 through October 31, 1996. Between March
1995 and October 1996, National Lodging loaned the Company an aggregate of
$439,000. The Company will pay from the proceeds of this offering $187,000,
representing the balance of such advances.
TRANSACTIONS WITH CHIEF EXECUTIVE OFFICER
On October 31, 1995, the Company borrowed $500,000 from Craig H. Forsman,
evidenced by the Company's Promissory Notes in such amount bearing interest at
the rate of 15% per annum for the first six months after the date of the note
and 20% per annum thereafter. The loan was secured by deeds of trust in six lots
purchased by the Company in Cripple Creek. The Note was extended by Mr. Forsman
through February 28, 1997, but was repaid from the proceeds of the MS Financing.
In connection with the loan, the Company issued to Mr. Forsman a stock purchase
warrant in the amount of 70,820 Shares of Common Stock at a purchase price of
$1.91 per share. Concurrent with the foregoing $500,000 loan transaction, Mr.
Forsman purchased an aggregate of 131,148 Shares of Common Stock from the
Company for $80,000. On January 17, 1996, Mr. Forsman loaned the Company an
additional $45,000 on the same terms and conditions as the $500,000 loan, and
was issued a warrant for 7,082 Shares exercisable at $1.91 per share. Such loan
has also been repaid. At or about the same date, loans to the Company from
unrelated parties were made totalling $140,000 on the same terms and conditions,
including the issuance of warrants to such lenders for the purchase of 29,902
shares of the Company's Common Stock exercisable for $1.91 per share.
37
<PAGE> 40
REGISTRATION RIGHTS
Pursuant to the terms of the foregoing agreements among the Company and
Messrs. Swenson, Sherf and DeRoche, the Company and National Lodging and the
Company and Mr. Forsman, the Company has granted such parties rights to require
the registration of the shares issued to them under the Securities Act of 1933,
as amended, comparable to the registration rights granted to the Representative,
subordinate however, to prior rights of the Representative to sell their shares
acquired upon exercise of the Representative of their rights to acquire the
Company's Common Stock upon exercise of the Representative's Warrant. Such
registrations would be at the expense of the Company. Such registration rights
have been waived by such individuals with respect to this offering. See
"Underwriting."
SHAREHOLDERS' VOTING AND CONTROL AGREEMENT
In November 1996, the Company's shareholders entered into a Shareholder
Voting and Control Agreement (the "Shareholders' Agreement") for the purpose of
controlling certain aspects of the business and affairs of the Company relating
to the composition of its Board of Directors. The Shareholders' Agreement,
provides, among other things, that the Company's existing Directors are divided
into two groups, the "Lodging Directors," consisting of John H. Klinkhammer and
DeRoche, and the "Gaming Directors," consisting of Messrs. Forsman and Sherf.
Under the Shareholders' Agreement, the Lodging Directors will have the right to
designate two members of the Company's Board of Directors and the Gaming
Directors will have the right to designate three members of the Company's Board
of Directors. Messrs. Forsman and Sherf have agreed to vote their shares in
favor of Directors designated by the Lodging Directors, and John Klinkhammer and
DeRoche have agreed to vote their shares in favor of the election of persons
designated by the Gaming Directors. In addition, the parties to the
Shareholders' Agreement have agreed that two additional disinterested Directors
shall be designated and elected to the Board of Directors, subject to such
persons being found suitable by the Gaming Commission. Such disinterested
Directors shall be persons designated by a resolution of the Board of Directors
in which Lodging Directors and a majority of Gaming Directors shall have voted
in favor of such independent director nominees. Messrs. Forsman, Sherf and
DeRoche and John Klinkhammer have agreed to vote their shares in favor of the
election of designated Lodging and Gaming Directors, and for independent
directors designated by Lodging and a majority of Messrs. DeRoche, Sherf, and
Forsman. The Shareholders' Agreement terminates on January 1, 2001, unless
extended for up to one additional year by written consent of Lodging and the
holders of a majority of the shares then owned by Messrs. DeRoche, Sherf and
Forsman. Such parties may also amend or terminate the Shareholders' Agreement.
The Agreement also terminates at such time as National Lodging owns 20% or less
of the outstanding Common Stock of the Company.
38
<PAGE> 41
PRINCIPAL SHAREHOLDERS
The following table contains certain information as of December 31, 1996 as
to the number of shares of Common Stock beneficially owned by (i) each person
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each person who is a director of the Company, and (iii) all persons
who are directors and officers of the Company as a group, and as to the
percentage of the outstanding shares held by them on such date. Unless otherwise
noted, each person identified below possesses sole voting and investment power
with respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
NAME OF BENEFICIAL NUMBER OF SHARES ----------------------------------
OWNER OR GROUP BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
-------------------------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
National Lodging Companies, Inc....... 1,022,951 63% 36%
John H. Klinkhammer................... 1,022,951(2) 63 36
Craig H. Forsman...................... 209,050(3) 12 7
Stephen W. Sherf...................... 140,328 9 5
Terrance P. DeRoche................... 104,919 6 4
Robert J. Swenson..................... 148,197 9 5
All directors and officers as a group
(4 persons)......................... 1,477,248 90% 52%
</TABLE>
- ---------------
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Securities and Exchange Commission and accordingly, may include
securities owned by or for, among others, the spouse, children or certain
other relatives of such person as well as other securities as to which the
person has or shares voting or investment power or has the right to acquire
within 60 days. The same shares may be beneficially owned by more than one
person.
(2) Includes 1,022,951 shares of Common Stock owned by National Lodging of which
Mr. Klinkhammer is the Chairman and principal shareholder.
(3) Includes 77,902 shares of Common Stock purchasable upon exercise of stock
purchase warrants.
DESCRIPTION OF UNITS
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
Redeemable Warrant. The Redeemable Warrants are immediately exercisable and
separately transferable from the Common Stock. Each Redeemable Warrant entitles
the holder to the right to purchase, at anytime until redemption or five years
following the date of this Prospectus, one share of Common Stock at an exercise
price of $6.50, subject to adjustment.
COMMON STOCK
A description of the Company's Common Stock is set forth elsewhere in this
Prospectus. See "Description of Capital Stock -- Common Stock."
REDEEMABLE WARRANTS
The Redeemable Warrants included as part of the Units being offered hereby
will be issued under and governed by the provisions of a Warrant Agreement (the
"Warrant Agreement") between the Company and Norwest Bank Minnesota, National
Association, as Warrant Agent (the "Warrant Agent"). The following summary of
the Warrant Agreement is not complete and is qualified in its entirety by
reference to the Warrant Agreement, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
39
<PAGE> 42
The shares of Common Stock and the Redeemable Warrants offered as part of
the Units are detachable and separately transferable. One Redeemable Warrant
entitles the holder thereof ("Warrantholder") to purchase one share of Common
Stock during the five years following the date of this Prospectus (subject to
earlier redemption), provided that at such time a current prospectus relating to
the shares of Common Stock issuable upon exercise of the Redeemable Warrants is
in effect and the issuance of such shares is qualified for sale or exempt from
qualification under applicable state securities laws. Each Redeemable Warrant
will be exercisable at an exercise price of $6.50 per share, subject to
adjustment in certain events.
The Redeemable Warrants are subject to redemption by the Company beginning
90 days after the date of the Prospectus, on not less than 30 days' written
notice, at a price of $.01 per warrant at any time following a period of any 20
consecutive trading days on which the per share closing bid price of the Common
Stock exceeds $10.00 (subject to adjustment). For these purposes, the closing
bid price of the Common Stock shall be determined by the closing bid price as
reported by Nasdaq (so long as the Common Stock is quoted on Nasdaq). Holders of
Redeemable Warrants will automatically forfeit all rights thereunder except the
right to receive the $.01 redemption price per warrant, unless the Redeemable
Warrants are exercised before they are redeemed.
The Warrantholders are not entitled to vote, receive dividends, or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Redeemable Warrants are in registered form and may be presented for transfer,
exchange or exercise at the office of the Warrant Agent. Although the Company
has applied for listing of the Redeemable Warrants on the Nasdaq SmallCap
Market, there is currently no established market for the Redeemable Warrants,
and there is no assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Redeemable
Warrants to protect Warrantholders against dilution in certain events, including
stock dividends, stock splits, reclassification, and any combination of Common
Stock, or the merger, consolidation or disposition of substantially all of the
assets of the Company.
The Redeemable Warrants may be exercised upon surrender of the certificate
therefor on or prior to the expiration date (or earlier redemption date) at the
offices of the Warrant Agent, with the form of "Election to Purchase" on the
reverse side of the certificate properly completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or cashier's
check payable to the order of the Company) for the number of shares of Common
Stock being purchased.
The Company has sufficient shares of Common Stock authorized and reserved
for issuance upon exercise of the Redeemable Warrants, and such shares when
issued will be fully paid and nonassessable. Purchasers of Units will be able to
exercise the Redeemable Warrants only if a registration statement covering the
Common Stock underlying the Redeemable Warrants is then in effect under the
Securities Act and only if such Common Stock is qualified for sale or exempt
from qualification under applicable securities laws of the states in which the
holders of the Redeemable Warrants reside. Although the Company will use its
best efforts (i) to maintain the effectiveness of a registration statement
covering the Common Stock underlying the Redeemable Warrants pursuant to the
Securities Act and (ii) to maintain the registration of such Common Stock under
the securities laws of the states in which the Company initially qualifies the
Units for sale in the offering, there can be no assurance that the Company will
be able to do so. The Company will not be able to issue shares of Common Stock
to those persons desiring to exercise the Redeemable Warrants if a registration
statement is not kept effective under the Securities Act or if the Common Stock
underlying the Redeemable Warrants is not qualified or exempt from qualification
in the state where the holders of the Redeemable Warrants reside. In such a
case, the holders of the Redeemable Warrants could lose the benefit of owning
the Redeemable Warrants unless they could resell the Redeemable Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain federal income tax
consequences relating to this offering of Units under presently existing
provision of the Internal Revenue Code of 1986, as amended (the "Code"), and
other applicable authority. The following statements may not be authoritative in
individual cases, and
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each investor should consult his or her own tax advisor concerning this
offering, including the tax consequences under state, local, foreign and other
tax laws.
A holder's basis in the Common Stock and Redeemable Warrant purchased as a
Unit generally will be determined by allocating the purchase price of the Unit
to the Common Stock and Redeemable Warrant comprising such Unit on the basis of
their respective fair market values. Upon a sale of Common Stock or a Redeemable
Warrant, the holder thereof will recognize long-term or short-term capital gain
or loss, depending upon whether the holding period is more or less than one
year, assuming such holder is not a dealer in Common Stock or Redeemable
Warrants and the Common Stock is, or would be when acquired, a capital asset in
the hands of the holder. The amount of gain or loss will be the difference
between the amount realized and the tax basis, as adjusted, of the Common Stock
or Redeemable Warrant sold. The redemption of a Redeemable Warrant may also be
considered a sale or exchange so that any gain or loss recognized as a result
thereof may also be a capital gain or loss. Any loss realized by a holder of a
Redeemable Warrant due to the failure to exercise prior to the expiration date
will be treated as a capital loss.
Generally, a holder of Redeemable Warrants will not recognize any gain or
loss on the purchase of Common Stock for cash upon exercise of the Redeemable
Warrants. The tax basis of the Common Stock received will be equal to the tax
basis, as adjusted, in the Redeemable Warrants so exercised, plus the cash
exercise price. The holding period of the Common Stock received upon exercise of
a Redeemable Warrant for cash will not include the period during which the
Redeemable Warrant was held, but will commence only upon the exercise date of
the Redeemable Warrant.
Although an adjustment of the exercise price or number of shares of Common
Stock purchasable upon exercise of the Redeemable Warrants to protect
Warrantholders against dilution will generally not result in the recognition of
income, Section 305 of the Code and the applicable Treasury Regulations
thereunder may result in a deemed dividend to holders of Redeemable Warrants as
a result of adjustments, or a failure to make adjustments, to the exercise price
of the Redeemable Warrants which may occur under certain circumstances following
the issuance thereof.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares,
no par value, including 45,000,000 shares designated as Common Stock, and
5,000,000 shares of undesignated preferred stock. As of September 30, 1996,
there were 1,623,611 shares of Common Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. There is no
cumulative voting for the election of directors, which means that the holders of
more than 50% of the outstanding Common Stock voting for the election of
directors could elect all of the directors of the Company to be elected, if they
so chose. Subject to preferences that may be applicable to any outstanding
preferred stock and to limitations on declaring dividends in loan agreements
between the Company and its creditors, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor and are entitled to share ratably in all
assets of the Company available for distribution to holders of the Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company.
Holders of Common Stock have no preemptive, subscription or conversion rights
and there are no redemption or sinking fund provisions applicable thereto. The
outstanding shares of Common Stock are, and shares purchased in this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
The Articles authorize the Board of Directors of the Company, without
further stockholder action (except for approval of holders of Preferred Stock,
if required), to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the voting rights, liquidation preferences, dividend rights,
repurchase
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rights, conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences, of the preferred stock.
Although there is no current intention to do so, the Board of Directors of the
Company may, without stockholder approval (except for approval of holders of
Preferred Stock, if required), issue shares of a class or series of preferred
stock with voting and conversion rights which could adversely affect the voting
power or dividend rights of the holders of Common Stock and may have the effect
of delaying, deferring or preventing a change in control of the Company or
making removal of management more difficult.
OTHER WARRANTS
As of September 30, 1996, the Company had outstanding warrants to purchase
an aggregate of 88,132 shares of Common Stock of the Company at an exercise
price of $1.91 per share. Such warrants were issued in connection with prior
financing transactions by the Company. The holders of such warrants, as such,
are not entitled to vote, receive dividends or exercise any of the rights of
holders of shares of Common Stock for any purpose until such warrants have been
duly exercised and payment of the purchase price has been made. These warrants
contain customary anti-dilution provisions. See "Certain Transactions."
PROVISIONS OF THE COMPANY'S ARTICLES AND MINNESOTA BUSINESS CORPORATION ACT
The existence of authorized but unissued preferred stock described above,
and certain provisions of the Company's Articles and Minnesota law, described
below, could have an anti-takeover effect. These provisions are intended to
provide management flexibility, to enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors and in the
policies formulated by the Board, but could discourage an unsolicited takeover
of the Company if the Board determines that such a takeover is not in the best
interests of the Company and its stockholders. These provisions could have the
effect of discouraging some attempts to acquire the Company which could deprive
the Company's stockholders of opportunities to sell their shares of Common Stock
at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Statutes applies, with certain
exceptions, to any acquisition of voting stock of the Company (from a person
other than the Company, and other than in connection with certain mergers and
exchanges to which the Company is a party) resulting in the beneficial ownership
of 20% or more of the voting stock then outstanding. Section 302A.671 requires
approval of any such acquisitions by a majority vote of the stockholders of the
Company prior to its consummation. In general, shares acquired in the absence of
such approval are denied voting rights and are redeemable at their then fair
market value by the Company within 30 days after the acquiring person has failed
to give a timely information statement to the Company or the date the
stockholders voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
stockholder which purchases 10% or more of the Company's voting shares (an
"interested stockholder") within four years following such interested
stockholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested stockholder's share acquisition
date.
RESTRICTIONS ON CAPITAL STOCK; COMPANY RIGHT TO REDEEM SECURITIES
Article 8 of the Articles provides that the Company may not issue any
voting securities or other voting interests except in accordance with the
provisions of the Colorado Limited Gaming Act and the regulations adopted
thereunder, or any other gaming laws or the regulations adopted thereunder to
which the Company may be subject. The certificates for the Company's Common
Stock and Redeemable Warrants contain a legend which makes reference to
restrictions of such gaming laws and regulations.
If the Gaming Commission or any other state gaming authority at any time
determines that a holder of voting securities of the Company is unsuitable to
hold such securities, then the Company may within 60 days after the finding of
unsuitability purchase the voting securities at the lesser of (i) the cash
equivalent of such person's investment in the Company, or (ii) the current
market price as of the date of the finding of
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unsuitability, unless such voting securities are transferred to a suitable
person within 60 days after the finding of unsuitability. Unsuitability includes
prior convictions of various crimes, association with organized crime, drunk
driving convictions, failure to pay taxes and other indicia of lack of moral
character and financial integrity.
In addition, shares of Common Stock of the Company are subject to
redemption by the Company if in the judgment of the Board of Directors such
action would be necessary to obtain a license or franchise or to prevent the
loss or secure the reinstatement of any license or franchise of the Company from
any governmental agency, and the license or franchise is conditioned upon some
or all of the holders of the stock of the Company possessing prescribed
qualifications. The terms and conditions of the redemption are as follows:
The redemption price of the securities to be redeemed will be equal to the
fair market value (as defined) of the shares. The redemption price may be paid
in cash, redemption securities (as defined) or any combination thereof. At least
30 days' written notice of the redemption date must be given to the
recordholders of the shares selected to be redeemed.
The term "fair market value" means the average closing price for the 45
most recent days on which shares of stock traded preceding the date on which
notice of a redemption is given. A "redemption security" means any debt or
equity security of the Company having such terms and conditions as are approved
by the Board of Directors.
In the event the Company shall hold, or apply for, a gaming license or
permit in a jurisdiction other than, or in addition to, Colorado (an "Other
Jurisdiction"), the laws and regulations of the Other Jurisdiction shall also
govern the issuance of the securities of the Company and obligations of the
beneficial owners of its securities. The provisions of Article 8 shall be
applicable, to the extent necessary for purposes of regulating the issuance and
ownership of the Company's securities and the obligations of the beneficial
owners of its securities under the laws and regulations of an Other Jurisdiction
and applied in a manner to enable the Company to obtain and maintain a gaming
license or permit in such Other Jurisdiction.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Units, Redeemable Warrants and
Common Stock of the Company is Norwest Bank Minnesota, National Association,
Saint Paul, Minnesota.
SHARES ELIGIBLE FOR FUTURE RESALE
As of the date of this Prospectus, the Company has outstanding 1,623,611
shares of Common Stock and has 88,132 shares of Common Stock reserved for
issuance upon exercise of outstanding options and warrants. Of the 2,823,611
shares to be outstanding after this offering, the 1,200,000 Shares sold to the
public as a part of the Units hereby will be freely tradeable without
restrictions or registration under the Securities Act. The remaining outstanding
shares are freely tradeable without restrictions or registration under the
Securities Act, either (i) because the shares were purchased in transactions
exempt under the Securities Act and are, therefore, restricted securities which
may not be sold publicly unless the shares are registered under such act, or
(ii) are sold under Rules 144 or 144A of the Securities Act after expiration of
applicable holding periods. In connection with this Offering, all executive
officers, all directors and the principal shareholder of the Company have agreed
not to offer, sell or otherwise dispose of a total of 1,477,248 shares held by
them for a period of 18 months after the effective date of this Offering,
without the prior written consent of the underwriters. Sales of substantial
amounts of the Company's securities, including the securities offered hereby,
could adversely affect prevailing market prices of the Company's securities and
the Company's ability to raise additional capital by occurring at a time when it
would be beneficial for the Company to sell securities.
In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns shares last acquired privately from the Company or an
affiliate of the Company at least two years previously and affiliates of the
Company who beneficially own shares last acquired (whether or not such shares
were acquired privately) from the Company or an affiliate of the Company at
least two years previously, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then
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<PAGE> 46
outstanding shares of the Company's Common Stock or the average weekly trading
volume in the Company's Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. A person who has not been an affiliate of the
Company at any time during the three months preceding a sale, and who
beneficially owns shares last acquired from the Company or an affiliate of the
Company at least three years previously is entitled to sell all such shares
under Rule 144 without regard to any of the limitations of the Rule.
In addition, Rule 144A under the Securities Act, as currently in effect, in
general, permits unlimited resales of certain restricted securities of any
issuer provided that the purchaser is an institution that owns and invests on a
discretionary basis at least $100 million in securities or is a registered
broker-dealer that owns and invests $10 million in securities. Rule 144A allows
the existing shareholders of the Company to sell their shares to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.
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UNDERWRITING
The underwriters listed below (the "underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of Units set forth opposite their names. The
Underwriting Agreement provides that the obligations of the underwriters are
subject to certain conditions precedent and that the underwriters shall be
obligated to purchase all of the Units if any of the Units are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER UNITS
------------------- ---------
<S> <C>
H.J. Meyers & Co., Inc............................................
---------
Total................................................... 1,200,000
= =======
</TABLE>
The underwriters have advised the Company that they propose to offer the
Units to the public at an offering price of $5.00 per Unit and that underwriters
may allow certain dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") a concession of not in excess of $
per Unit, no portion of which may be reallowed to certain other dealers. After
commencement of this offering, the public offering price and concession may be
changed.
The underwriters have advised the Company that they do not intend to sell
any of the securities offered hereby to accounts for which they exercise
discretionary authority.
The Company has granted to the underwriters an option, exercisable during
the 45-day period from the date of this Prospectus, to purchase up to a maximum
of 180,000 additional Units on the same terms set forth above. The underwriters
may exercise such right only to satisfy overallotments in the sale of the Units.
To the extent the overallotment option is exercised, the underwriters and the
Company have agreed that the first $391,500 of the net proceeds thereof will be
used by the Company to redeem 90,000 shares of Common Stock owned by National
Lodging.
The Company has agreed to pay to the Representative a nonaccountable
expense allowance equal to 3% of the total proceeds of the offering, or $180,000
($207,000 if the underwriters exercise the overallotment option in full), of
which $53,000 has already been paid to the Representative and to a former
underwriter. In addition to the underwriters' commissions and Representative's
expense allowance, the Company is required to pay the costs of qualifying the
Units under federal and state securities laws, together with legal and
accounting fees, printing and other costs in connection with this offering,
estimated to total approximately $220,000.
At the closing of the offering, the Company will sell to the Representative
for $5.00, a warrant (the "Representative's Warrant") to purchase for investment
a maximum of 120,000 Units. The Units subject to the Representative's Warrant
will be identical to the Units sold to the public except for the purchase price
as provided below. The Representative's Warrant shall be non-exercisable and
transferable only to officers of the Representative for a period of 12 months
after the date of this Prospectus and shall be exercisable and transferable only
for a period of four years thereafter. The exercise price of the
Representative's Warrant is 120% of the public offering price per Unit, or
$6.00.
The Representative's Warrant will contain anti-dilution provisions
providing for adjustment in the event of any stock dividend, stock split,
recapitalization, reclassification or similar transaction. The Representative's
Warrant does not entitle the Representative to any rights as a shareholder of
the Company until such warrant is exercised and Units are purchased thereunder.
The Representative's Warrant and the securities thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, upon written request by a holder or
holders of 50% or more of the Representative's Warrants which is made during the
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<PAGE> 48
exercise period of the Representative's Warrant, the Company will, on two
separate occasions, register the Representative's Warrant and any of the
securities issuable upon exercise thereof. The initial such registration will be
at the Company's expense and the second such registration will be at the expense
of the holder(s) of the Representative's Warrant.
For the period during which the Representative's Warrant is exercisable,
the holder or holders will have the opportunity to profit from the rise in the
market value of the Company's common stock, with a resulting dilution in the
interests of the other shareholders of the Company. The holder or holders of the
Representative's Warrant can be expected to exercise it at a time when the
Company would, in all likelihood, be able to obtain any needed capital from an
offering of its unissued Common Stock on terms more favorable to the Company
than those provided for in the Representative's Warrant. Such fact may adversely
affect the terms on which the Company can obtain additional financing. To the
extent that the Representative realize any gain from the resale of the
Representative's Warrant or the securities issuable thereunder, such gain may be
deemed additional underwriting compensation under the Securities Act.
The Company has agreed to enter into a one-year consulting agreement with
the Representative, pursuant to which the Representative will act as a financial
consultant to the Company, commencing on the closing date of this Offering.
Under the terms of this agreement, the Representative, to the extent reasonably
required in the conduct of the business of the Company, and at the prior written
request of the principal executive officer of the Company, have agreed to
consult with the Company relating to corporate financing and other financial
service matters. The Representative will make available qualified personnel for
this purpose. The consulting fee of $72,000 will be payable, in full, on the
closing date of this Offering.
The Company has agreed that it will engage a public relations firm
acceptable to the Representative and the Company. The Company has also agreed to
maintain a relationship with such public relations firm for a minimum period of
24 months and on such other terms as are acceptable to the Representative.
Officers, directors and holders of 5% or more of the Company's outstanding
capital stock have agreed that they will not sell any Common Stock owned by them
(or subsequently acquired under any option, warrant or convertible security
owned prior to this offering) for 18 months following the date of this
Prospectus, without the Representative's prior written consent.
The Company has agreed that for a period of twelve months from the date of
this Prospectus, it will not sell any securities (with the exception of the
shares of Common Stock issued upon exercise of currently outstanding options or
warrants) without the prior written consent of the Representative, which consent
shall not be unreasonably withheld. The Company has agreed that for a period of
one year from the date of this Prospectus, it will not sell or issue any
securities pursuant to Regulation S promulgated under the Act without the
Representative's prior written consent.
The Company has agreed that, for a period of three years following the date
of this Prospectus, the Representative shall be given the right to purchase for
its own account or sell for the account of the Company's officers, directors and
principal shareholders (persons owning 5% or more of the Company's outstanding
voting securities), any securities sold pursuant to the provisions of Rule 144
promulgated by the Commission under the Act.
The Company has also agreed that, for a period of two years from the date
of this Prospectus, if it participates in any merger, consolidation or other
transaction which the Representative have brought to the Company (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities) then it will pay for
the Representative's services an amount equal to 5% of the first $3,000,000 of
value paid or received in the transaction, 2 1/2% of any consideration paid over
$3,000,000 and not greater than $5,000,000 and 2% of all such value above
$5,000,000. The Company has also agreed that if, during this two-year period,
someone other than the Representative brings such a merger, consolidation or
other transaction to the Company, and the Representative renders advice in
connection therewith, then upon consummation of the transaction the Company will
pay to the Representative as a fee the appropriate amount as set forth above or
as otherwise agreed to between the Company and the Representative.
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<PAGE> 49
The Company has agreed that, for a period of three years after the date of
the closing of this offering, it will allow the Representative to designate one
individual as a nominee for election to the Company's Board of Directors.
Messrs. Klinkhammer and Forsman have agreed to vote shares of the Company's
common stock owned by them in favor of such nominee. Should the Representative
elect not to nominate an individual for election to the Company's Board of
Directors, the Company has agreed that the Representative shall be entitled to
act as an observer to attend all meetings of the Company's Board of Directors.
The observer will have no voting rights, shall be reimbursed for all
out-of-pocket expenses incurred in attending such meetings and shall be entitled
to be indemnified by the Company against any claims arising out of its
participation at such board meetings. The Company has agreed to hold at least
four meetings of its Board of Directors per year.
The Company has agreed to pay to the Representative a fee of 7% of the
exercise price for each Redeemable Warrant exercised more than 12 months after
the effective date of this Prospectus; provided, however, that the
Representative will not be entitled to receive such compensation in Redeemable
Warrant exercise transactions in which (i) they do not provide bona fide
services; (ii) the market price of Common Stock at the time of the exercise is
lower than the exercise price of the Redeemable Warrant; (iii) the Redeemable
Warrants are held in any discretionary account; (iv) disclosure of compensation
arrangement is not made, in addition to the disclosure provided in this
Prospectus, in documents provided to holders of Redeemable Warrants at the time
of exercise; (v) the exercise of the Redeemable Warrants is unsolicited; or (vi)
the transaction was in violation of Regulation M promulgated under the Exchange
Act. No Redeemable Warrant solicitation fee will be paid to any NASD member
unless such member has been designated in writing by the Warrantholder.
The Company has also agreed to obtain the written consent of the
Representative prior to issuing any shares of preferred stock.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Representative against certain liabilities in connection
with the registration statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the Underwriting Agreement, or otherwise, the Company has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Prior to this offering, there has been no public trading market for the
Units or the Redeemable Warrants. Consequently, the public offering price of the
Units and the exercise price of the Redeemable Warrants have been determined by
negotiations between the Company and the Representative. Among the factors
considered in determining the offering price were the market price of the Common
Stock, the Company's financial condition and prospects, market prices of similar
securities of comparable publicly traded companies, certain financial and
operating information of companies engaged in activities similar to those of the
Company and general conditions of the securities markets.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Securities
and Exchange Commission as an exhibit to the Registration Statement of which
this Prospectus is a part. See "Available Information."
LEGAL MATTERS
The validity of the Common Stock offered hereby were passed upon for the
Company by Briggs and Morgan, Professional Association, Minneapolis, Minnesota.
Matters pertaining to the regulation of the Company by the Gaming Commission and
the Division under the laws and regulations of the State of Colorado were passed
upon by Isaacson, Rosenbaum, Woods and Levy, P.C., Denver, Colorado. Certain
legal matters were passed upon for the underwriters by Morse, Zelnick, Rose &
Lander, LLP, New York City, New York.
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<PAGE> 50
EXPERTS
The Financial Statements of Jubilee Gaming Enterprises, Inc. and of 353
Myers Avenue Limited Partnership as of December 31, 1995 and for the one year
period then ended included in this Prospectus and elsewhere in the registration
statement have been audited by Schechter Dokken Kanter Andrews & Selcer, Ltd
("Schechter"), independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report. The statements of operations and
partners' equity (deficit), for the year ended December 31, 1994 and the related
statements of cash flows of 353 Myers Avenue Limited Partnership included in
this Prospectus and elsewhere in the registration statement have been audited by
Biggs, Kofford & Co., P.C., independent public accountants ("Biggs"), as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report. In
March 1996, the Board of Directors of the Company engaged Schechter as the
Company's new independent accountants. Prior to such time, the Company did not
consult with Schechter on items which (1) involved the application of accounting
principles to a specified transaction, either completed or proposed, or involved
the type of audit opinion that might be rendered on the Company's financial
statements, or (2) concerned the subject matter of a disagreement or reportable
event with the former auditor (as described in Regulation S-B Item 304(a)(2)).
In August 1996, the Company dismissed Biggs as its independent accountants
for the Partnership. The reports of Biggs on the Company's financial statements
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The Company's
Board of Directors made the decision to change independent accountants. The
Company has not had any disagreements with Biggs on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Biggs
would have caused it to make reference thereto in its report on the Company's
financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Act, with respect
to the Common Stock. For further information about the Company and the Common
Stock, reference is made to the Registration Statement and to the financial
statements and exhibits filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document are not
necessarily complete and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement, including the exhibits filed or
incorporated as part thereof, copies of which can be inspected at and copied at
the Public Reference Section of the Securities and Exchange Commission at 450
Fifth Street, N.W., Room 1024, Washington D.C. 20459, and at the Commission's
regional offices at 74 Park Place, 14th Floor, New York, New York 10007 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. The Commission also maintains a World Wide
Web site which provides on-line access to registration statements, reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission at the address
"http://www.sec.gov."
The Company will become a reporting company under the Securities Exchange
Act of 1934, as amended, upon completion of this offering, and intends to
furnish to its shareholders annual reports containing financial statements
audited by independent accountants and quarterly reports containing unaudited
financial information for each of the first three quarters of each year.
48
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY:
Independent Auditors' Report.................................................... F-2
Consolidated Balance Sheets at December 31, 1995 and September 30, 1996
(unaudited).................................................................. F-3
Consolidated Statements of Operations for the year ended December 31, 1995 and
the nine months ended September 30, 1995 (unaudited) and September 30, 1996
(unaudited).................................................................. F-4
Consolidated Statements of Shareholders' Equity................................. F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and
the nine months ended September 30, 1995 (unaudited) and September 30, 1996
(unaudited).................................................................. F-6
Notes to Consolidated Financial Statements...................................... F-7
353 MYERS AVENUE LIMITED PARTNERSHIP
Independent Auditors' Report.................................................... F-16
Independent Auditors' Report.................................................... F-17
Balance Sheet at December 31, 1995.............................................. F-18
Statements of Operations and Partners' Equity (Deficit) for the years ended
December 31, 1994 and 1995, the nine months ended September 30, 1995
(unaudited) and the period from January 1, 1996 through April 22, 1996
(unaudited).................................................................. F-19
Statements of Cash Flows for the years ended December 31, 1994 and 1995, the
nine months ended September 30, 1995 (unaudited) and the period from January
1, 1996 through April 22, 1996 (unaudited)................................... F-20
Notes to Financial Statements................................................... F-21
PRO FORMA FINANCIAL INFORMATION:
Pro Forma Financial Information................................................. F-27
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1995......................................................................... F-28
Pro Forma Consolidated Statement of Operations for the nine months ended
September 30, 1996........................................................... F-29
</TABLE>
F-1
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
Board of Directors
Jubilee Gaming Enterprises, Inc.
and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Jubilee
Gaming Enterprises, Inc. and Subsidiary (formerly National Gaming Companies,
Inc.) as of December 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Jubilee Gaming Enterprises, Inc. and Subsidiary as of December 31, 1995, and the
consolidated results of its operations and cash flows for the year then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's deficiency in working
capital raises substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are described in Note 11 to
the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ SCHECHTER DOKKEN KANTER
ANDREWS & SELCER LTD
--------------------------------------
SCHECHTER DOKKEN KANTER
ANDREWS & SELCER LTD
Minneapolis, Minnesota
September 9, 1996,
October 22 for Note 11,
3rd paragraph
F-2
<PAGE> 53
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................ $ 1,794 $ 221,372
Cash escrow......................................................... 125,000
Receivables......................................................... 15,003
Due from 353 Myers Avenue Limited Partnership....................... 75,000
Prepaid expenses.................................................... 139,128
---------- ----------
Total current assets........................................ 216,797 360,500
---------- ----------
Investments........................................................... 2,224,807
----------
Property and equipment:
Land and improvements............................................... 1,458,113 3,944,998
Buildings and improvements.......................................... 25,000 2,282,896
Equipment........................................................... 75,000 554,967
Vehicles............................................................ 17,016
Equipment under capital lease....................................... 1,711,135
---------- ----------
1,558,113 8,511,012
Less accumulated depreciation....................................... 1,893 1,584,399
---------- ----------
1,556,220 6,926,613
---------- ----------
Other assets, net of accumulated amortization of $62,314.............. 68,612
Licensing costs, net of accumulated amortization of $163.............. 9,641 19,755
---------- ----------
9,641 88,367
---------- ----------
$4,007,465 $ 7,375,480
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt:
Notes payable, shareholders...................................... $ 10,000 $ 85,000
Real estate and other debt....................................... 41,113 85,696
Capital lease obligations........................................ 1,257,819
Notes payable:
Related parties.................................................. 575,000 662,500
Banks............................................................ 415,000
Due to National Lodging Companies, Inc.............................. 260,000 278,916
Accounts payable.................................................... 104,352
Accrued expenses.................................................... 279,550 923,385
---------- ----------
Total current liabilities................................... 1,165,663 3,812,668
---------- ----------
Long-term debt, net of current portion:
Notes payable, shareholders......................................... 90,000 10,000
Real estate and other debt.......................................... 555,740 1,694,262
---------- ----------
645,740 1,704,262
---------- ----------
Shareholders' equity:
Preferred stock; no par value, authorized 5,000,000 shares; no
shares outstanding............................................... -- --
Common stock; no par value, authorized 45,000,000 shares; issued and
outstanding 1,573,770 shares at December 31, 1995, 1,619,676 at
September 30, 1996............................................... 2,624,254 2,761,754
Deficit............................................................. (428,192) (903,204)
---------- ----------
2,196,062 1,858,550
---------- ----------
$4,007,465 $ 7,375,480
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 54
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1995 1995 1996
------------ --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Casino............................................... $1,483,628
Food and beverage.................................... 59,621
Other................................................ $ 14,978 $ 4,942 201,066
--------- --------- ----------
Total revenue.......................................... 14,978 4,942 1,744,315
--------- --------- ----------
Costs and expenses:
Operating departments................................ 1,260,302
General and administrative........................... 410,365 266,566 551,203
Interest............................................. 30,749 6,784 221,703
Depreciation and amortization........................ 2,056 186,119
--------- --------- ----------
Total costs and expenses............................... 443,170 273,350 2,219,327
--------- --------- ----------
Net loss............................................... $ (428,192) $(268,408) $ (475,012)
========= ========= ==========
Net loss per common share.............................. $ (.26) $ (.16) $ (.29)
========= ========= ==========
Common shares outstanding.............................. 1,640,923 1,640,923 1,640,923
========= ========= ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 55
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Issuance of stock for investment in casino
project and stock of National Lodging
Companies, Inc. (See Note 1) ($2.41 per
share)................................... 1,022,951 $2,474,254 $ 2,474,254
Issuance of stock for stock of Regent
Gaming Enterprises (See Note 1)($.05 per
share)................................... 393,444 20,000 20,000
Issuance of stock for services ($1.91 per
share)................................... 26,230 50,000 50,000
Sale of stock for cash ($.61 per share).... 131,148 80,000 80,000
Net loss................................... $(428,192) (428,192)
--------- ---------- --------- ----------
Balance, December 31, 1995................. 1,573,773 2,624,254 (428,192) 2,196,062
Issuance of stock as partial payment on
purchase of land ($3.81 per share)....... 26,230 100,000 100,000
Issuance of stock for debt upon exercise of
warrants ($1.91 per share)............... 19,673 37,500 37,500
Net loss................................... (475,012) (475,012)
--------- ---------- --------- ----------
Balance, September 30, 1996 (unaudited).... 1,619,676 $2,761,754 $(903,204) $ 1,858,550
========= ========== ========= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 56
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1995 1995 1996
------------ --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net loss........................................................ $ (428,192) $(268,408) $ (475,012)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization................................. 2,056 185,060
Discount on note payable, shareholder......................... 3,250
Changes in operating assets and liabilities:
Receivables................................................. (15,003) (4,955) 15,003
Prepaid expenses............................................ (21,204)
Other assets................................................ (43,750)
Accounts payable............................................ (13,213)
Accrued expenses............................................ 279,550 117,734 373,576
----------- --------- ----------
Cash flows used in operating activities....................... (158,339) (155,629) 20,460
----------- --------- ----------
Cash flows from investing activities:
Cash escrow:
Deposits.................................................... (400,000) (325,000)
Withdrawals................................................. 275,000 125,000
Investments................................................. (878,057) (328,945) (29,744)
Purchase of land and building............................... (658,113) (548,927)
Payment of licensing costs.................................. (9,804) (12,408)
Cash of business acquired................................... 154,094
----------- --------- ----------
Net cash used in investing activities......................... (1,670,974) (653,945) (311,985)
----------- --------- ----------
Cash flows from financing activities:
Proceeds from:
Notes payable, related parties.............................. $ 575,000 $ 110,000
Notes payable, banks........................................ 415,000
Loan from National Lodging Companies, Inc................... 300,000 26,880
Issuance of long-term debt.................................. 80,000 $ 80,000
Issuance of stock........................................... 999,254 804,574 15,000
Payments on:
Long-term debt.............................................. (8,147) (47,813)
Loan from National Lodging Companies, Inc................... (40,000) (7,964)
Loan to 353 Myers Avenue Limited Partnership from escrow...... (75,000) (75,000)
----------- --------- ----------
Net cash provided by financing activities..................... 1,831,107 809,574 511,103
----------- --------- ----------
Net increase in cash............................................ 1,794 -0- 219,578
Cash, beginning of period....................................... -0- -0- 1,794
----------- --------- ----------
Cash, end of period............................................. $ 1,794 $ -0- $ 221,372
=========== ========= ==========
Interest paid................................................... $ 10,666 $ 172,084
=========== ==========
Supplemental disclosure of non-cash transactions:
Stock of National Lodging Companies, Inc. issued to sellers of
a partnership and land...................................... $ 1,575,000
===========
Stock issued for services..................................... $ 50,000
===========
Note payable issued for services.............................. $ 25,000
===========
Contracts for deed/note payable issued to acquire land........ $ 600,000 $ 700,000
=========== ==========
Stock issued to acquire land.................................. $ 100,000
==========
Stock issued for cancellation of portion of note payable,
related party............................................... $ 22,500
==========
Acquisition of business:
Fair value of assets acquired................................. $3,902,311
Fair value of liabilities assumed............................. 2,246,561
----------
1,655,750
Less costs incurred prior to acquisition...................... 1,809,844
----------
Cash of business acquired..................................... $ 154,094
==========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 57
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS:
Nature of business:
Jubilee Gaming Enterprises, Inc. (the Company), formerly National Gaming
Companies, Inc., was in the development stage through April 22, 1996. The nine
months ended September 30, 1996 is the first period in which the Company has
been an operating company. Its primary business is the development and operation
of casino and hotel properties including the Jubilee Casino in Cripple Creek,
Colorado.
Organization:
The financial statements present the combined results of the Company,
Regent Gaming Enterprises Inc. (Regent) and the acquisition activities, related
to Jubilee Casino, of National Lodging Companies, Inc. (NLC) as if all interests
had been combined on January 1, 1995. The transfer of assets and exchange of
stock as explained below have been treated in a manner similar to a pooling of
interests due to common ownership and control. Two officers of NLC, including
its President, became significant shareholders of Regent when it was formed, and
Regent worked in the offices of NLC. Regent worked with NLC as NLC continued to
expend resources in structuring the acquisition activities of the Company and
the purchase agreement for Jubilee Casino in Colorado. Capitalized investment
activities by NLC prior to 1995 related to Jubilee Casino totaled $109,880. All
intercompany transactions have been eliminated.
JUBILEE GAMING ENTERPRISES, INC.:
The Company was incorporated on August 29, 1995 to succeed to Regent
and to the interests of NLC related to the development of Jubilee Casino in
Colorado. Stock of the Company was initially issued on October 30, 1995 to
an individual and as explained below to the shareholders of Regent and to
NLC.
REGENT GAMING ENTERPRISES INC.:
Regent was incorporated in 1994 but did not commence business
activities until January 1995. Activities were limited to capital formation
and analyzing, negotiating and planning for the acquisition of Jubilee
Casino.
In October 1995 the shareholders of Regent exchanged all of their
stock for approximately 25% of the Company's common stock, and Regent
thereby became a subsidiary of the Company. The Company's stock issued has
been valued at $20,000 based on the capital contribution to Regent when it
was formed.
NATIONAL LODGING COMPANIES, INC.:
Beginning in 1994, NLC was seeking a project for casino development
primarily in Colorado. Through October 1995, NLC had expended approximately
$900,000 related to the Jubilee Casino and adjacent property for land
option payments, environmental tests, preliminary architectural drawings,
construction plans, finder fees, legal costs, salaries and travel expenses.
NLC contributed its rights to the Jubilee Casino, its rights to another
project (see Note 3), and 393,750 shares of its stock to the Company in
exchange for 65% of the Company's common stock. The Company has expensed,
in 1995, $174,500 of the investment related to recurring costs.
1994 financial statements are not presented as 1994 activity directly
related to the Jubilee Casino in that year is immaterial.
F-7
<PAGE> 58
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements for the nine months ended September
30, 1996, include the accounts of Jubilee Gaming Enterprises, Inc. and its
subsidiaries, 353 Myers Avenue Limited Partnership, Regent Gaming Enterprises
Inc. and Cripple Creek Corporation. All intercompany transactions have been
eliminated.
Property and equipment:
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
<TABLE>
<S> <C>
Building......................................... 40 years
Furniture and equipment.......................... 5-7 years
</TABLE>
Licensing costs:
Licensing costs are stated at cost and are being amortized over 60 months
using the straight-line method.
Stock issued for services:
Common stock has been issued to an individual for services related to
locating the Jubilee Casino and was valued by the Company's board of directors
at the estimated fair value of services rendered.
Loss per common share:
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock issued by the Company at prices less than the initial offering
price during the twelve months immediately preceding the initial public
offering, plus common stock equivalents granted at exercise prices less than the
initial public offering price during the same period, have been included in the
determination of shares used in the calculation of historical net loss per share
as if they were outstanding for all periods.
Interim financial information:
The accompanying financial statements as of September 30, 1996 and for the
nine month periods ended September 30, 1995 and 1996 are unaudited, but, in the
opinion of management of the Company, reflect all adjustments (consisting of
normal and recurring accruals) necessary for a fair presentation. The results of
operations for the nine month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1996.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results
could differ from those estimates.
F-8
<PAGE> 59
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
3. INVESTMENT AND ACQUISITIONS:
Investments consist of the following at December 31, 1995:
<TABLE>
<S> <C>
353 Myers Avenue Limited Partnership:
Cash in escrow for seller.............................. $ 100,000
NLC stock in escrow for seller......................... 1,275,000
Capitalized costs...................................... 435,126
----------
1,810,126
Capitalized costs in connection with land
acquisition......................................... 414,681
----------
$2,224,807
==========
</TABLE>
Acquisition of 353 Myers:
In December 1994, NLC sent an initial letter of intent to 353 Myers Avenue
Limited Partnership (353 Myers), the owner of the Jubilee Casino, stating its
intent to acquire the general and limited interests in the partnership. Regent
and NLC worked together in 1995 to finance the acquisition and negotiate final
terms.
On October 31, 1995, the Company entered into a binding purchase agreement
for the acquisition of 353 Myers for $1,375,000 by placing in escrow $100,000
cash and 318,750 shares of NLC stock valued at $4 per share. The final closing,
including transfer of title to the NLC stock and the partnership interests, was
contingent upon the Company obtaining gaming regulatory approval from the
Colorado Gaming Division. The Company received Colorado approval on April 19,
1996 and the acquisition was completed on April 22, 1996. The acquisition has
been accounted for by the purchase method of accounting and the purchase price
along with capitalized acquisition costs totalling $1,810,126 approximates the
fair value of the net assets acquired. The operating results of this acquisition
are included in the Company's consolidated results of operations from the date
of acquisition.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred at the beginning of periods
presented and do not purport to be indicative of what would have occurred had
the acquisition been made as of those dates or of results which may occur in the
future.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenue................................... $ 2,995,923 $ 2,613,806
=========== ==========
Net loss.................................. $ (1,360,157) $ (594,903)
=========== ==========
Net loss per common share................. $ (.83) $ (.36)
=========== ==========
</TABLE>
Acquisition of land:
On October 31, 1995, the Company acquired land and a building and its
contents (operated as a museum) adjacent to the Jubilee Casino in two separate
transactions totaling $1,550,000. The purchase price was paid with $650,000
cash, $300,000 of NLC stock (75,000 shares valued at $4 per share) and the
issuance of two notes payable aggregating $600,000.
F-9
<PAGE> 60
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
3. INVESTMENT AND ACQUISITIONS (CONTINUED):
Beginning in 1994 and continuing through September 1995, NLC made
contributions to Grand National Casino and Hotel, Inc. (The Grand National) in
exchange for a one-third ownership in that entity. The Grand National owned land
in Cripple Creek, had options on contiguous land and was planning to develop a
casino and hotel on those properties. In late 1995, NLC and the two-thirds owner
of The Grand National began negotiations and legal actions to settle differences
over the proposed project. Contingent upon settling these differences, NLC
contributed to the Company its rights to The Grand National as part of the
consideration in exchange for 65% of the Company's stock (See Note 1). In
January 1996, the two parties agreed to a settlement and the Company became the
owner of the rights to land which were subsequently purchased by the Company.
On March 1, 1996, the Company acquired a parcel of land in Cripple Creek,
Colorado. The purchase price was $175,000, with $10,000 paid on March 1 and the
remaining $165,000 paid at closing on July 10, 1996. Interest at 10% or $1,375
per month was paid on the outstanding balance up to the closing.
On June 14, 1996, the Company acquired another parcel of land in Cripple
Creek, Colorado. The purchase price was $1,000,000, including $200,000 in cash,
100,000 shares of the Company's stock valued at $1.00 per share, and a note
payable to the seller for $700,000. The terms of the 10-year note are interest
only for the first 12 months at 9% with the principal to be amortized over the
next nine years.
4. NOTES PAYABLE, BANKS:
In July 1996, the Company borrowed $165,000 from a bank. The note requires
interest-only monthly payments at 9.5% until January 10, 1997, when the note is
due in full. The proceeds of this loan were used to purchase land contiguous to
the Jubilee Casino. The Company also borrowed $250,000 from Miller & Schroeder
Financial, Inc. (See Note 9). These loans total $415,000.
F-10
<PAGE> 61
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Notes payable, shareholders, unsecured, with interest-only
monthly payments at 12% to January, 25, 1997............. $ 80,000 $ 75,000
Note payable, shareholder, with annual payments of $10,000,
interest imputed at 12%, to November 1, 1997, guaranteed
by the Company's majority owner.......................... 20,000 20,000
Contracts for deed, with monthly payments totaling $7,281
including interest at 8% to November 1, 2005, secured by
land..................................................... 596,853 562,822
Contract for deed, with interest only payments at 9% to
June 1, 1997, then monthly payments of $9,480 including
interest at 9% to May 1, 2006, secured by land........... 700,000
Real estate debt, promissory note payable in monthly
installments of $7,000 including interest at 12% through
December 2001 at which time remaining principal is due,
secured by real property................................. 499,907
Other...................................................... 17,229
-------- --------
696,853 1,874,958
Less current portion....................................... 51,113 170,696
-------- --------
$645,740 $ 1,704,262
======== ========
</TABLE>
Interest of $8,113 was capitalized on certain land in Colorado as the
Company was performing activities necessary to get it ready for planned
expansion. Interest of $34,803 was capitalized on the land for the nine months
ended September 30, 1996.
Principal amounts due in future years are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------- --------
<S> <C>
1996...................................................... $ 51,113
1997...................................................... 134,525
1998...................................................... 48,221
1999...................................................... 52,223
2000...................................................... 56,557
Thereafter................................................ 354,214
--------
$696,853
========
</TABLE>
6. OBLIGATION UNDER CAPITAL LEASE:
Included in property and equipment at September 30, 1996 is $1,711,135 of
gaming equipment that 353 Myers leases under capital lease agreements. Included
in accumulated depreciation at September 30, 1996 is $936,118 of amortization on
the equipment. Amortization included in depreciation expense was $103,203 for
nine months ended September 30, 1996.
As of September 30, 1996 and subsequently, 353 Myers was delinquent with
respect to payments required under the lease agreements and is subject to the
default provisions of the agreement including a significant portion of the
remaining balance being due on demand and the repossession of the gaming
equipment.
F-11
<PAGE> 62
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
6. OBLIGATION UNDER CAPITAL LEASE (CONTINUED):
Accordingly, the related obligations have been included in current liabilities.
Management is renegotiating the lease to cover fewer machines and to modify the
payment terms. Management believes that the new lease will include no penalties
or back interest and anticipates a more favorable interest rate.
7. RELATED PARTY TRANSACTIONS:
The Company borrowed $575,000 from a shareholder and another individual
during 1995. The notes are due November 1, 1996. Notes payable to a shareholder
total $500,000 with interest-only monthly payments of $6,250 at 15%, increasing
to $8,333 at 20% on June 1, 1996. The Company has issued warrants to this
shareholder allowing for the purchase of 270,000 shares of the Company's common
stock. Another note for $75,000 is due to an individual and calls for
interest-only monthly payments of $938 at 15%, increasing to $1,250 at 20% on
June 1, 1996. The Company has issued warrants to this individual allowing for
the purchase of 75,000 shares of the Company's common stock. The warrants issued
in these transactions are exercisable at $.50 per share at any time through
November 1, 2000. On September 15, 1996, this individual exercised warrants for
75,000 shares of stock. These notes are secured by a deed of trust on the land
acquired by the Company on October 31, 1995. On January 17 and February 1, 1996,
the Company borrowed $110,000 from a shareholder and two other individuals. The
loans bear interest at 20% and are due January 17 and February 1, 1997. In
conjunction with the loans, the Company issued warrants for the purchase of
54,000 shares of the Company's common stock at $.50 per share. Interest expense
on notes payable to related parties was $14,375 for the year ended December 31,
1995, and $-0- and $88,958 for the nine months ended September 30, 1995
(unaudited) and 1996, respectively.
The Company has received cash advances from NLC totaling $300,000, of which
$40,000 has been repaid at December 31, 1995. The Company received additional
cash advances of $26,880 of which $7,964 was repaid during the nine months ended
September 30, 1996. The advances are unsecured and are non-interest bearing.
8. INCOME TAXES:
The Company has a net loss carryforward of approximately $243,000 at
December 31, 1995. Due to its accumulated net loss, the Company has a deferred
tax asset of $97,000. However, this deferred tax asset has been reduced to zero
through a valuation allowance.
F-12
<PAGE> 63
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments, which are
included in the balance sheet, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
-------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash........................................... $ 1,794 $ 1,794 $ 221,372 $ 221,372
Cash escrow.................................... 125,000 125,000
Liabilities:
Long-term debt:
Notes payable, shareholders................. 100,000 100,000 95,000 95,000
Real estate and other debt.................. 596,853 596,853 1,779,958 1,729,958
Capital lease obligations................... 1,257,819 1,257,819
Notes payable:
Related parties............................. 575,000 575,000 662,500 662,500
Banks....................................... 415,000 415,000
</TABLE>
The estimated fair value of financial instruments has been determined by
the Company using certain valuation methods described below. Accordingly, the
estimates presented are not necessarily indicative of the amounts that the
Company could realize in a current market exchange or the value that ultimately
will be realized by the Company upon maturity or disposition. Additionally,
because of the variety of valuation techniques permitted under SFAS No. 107,
Disclosure About Fair Value of Financial Instruments, comparability of fair
values among entities may not be meaningful. The use of different market
assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts.
The following methods and assumptions were used by the Company to estimate
the fair value of each class of financial instruments:
Cash: The carrying amount of cash approximates the fair value.
Cash escrow: The carrying amount of cash escrow approximates the fair
value.
Long-term debt, notes payable, shareholders: Loans totalling $85,000
were retired at face value subsequent to September 30, 1996, from the
proceeds of the Miller & Schroeder $3,564,000 bridge loan.
Long-term debt, real estate and other debt: $700,000 of the balance
was paid off at a $50,000 discount from the proceeds of the Miller &
Schroeder $3,564,000 bridge loan. The remainder of the carrying amount
approximates the fair value.
Long-term debt, capital lease obligations: Because management is
currently renegotiating the lease, it is not practicable to determine the
fair value of long-term debt, capital lease obligations.
Notes payable, related parties: These loans were retired at face value
subsequent to September 30, 1996, from the proceeds of the Miller &
Schroeder $3,564,000 bridge loan.
Notes payable, shareholders: These loans were retired at face value
subsequent to September 30, 1996, from the proceeds of the Miller &
Schroeder $3,564,000 bridge loan.
F-13
<PAGE> 64
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
10. SUBSEQUENT EVENTS:
In September 1996, the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"), subject to shareholder approval. The 1996 Plan provides for the
granting of options to designated employees and non-employees, including
consultants to the Company, to purchase up to a maximum of 400,000 shares of
common stock. The Company has not issued stock options under the 1996 Plan.
The Company adopted an employee stock purchase plan ("the Stock Purchase
Plan") in September 1996, subject to shareholder approval. A total of 150,000
shares of common stock have been reserved for issuance under the Plan. The
Company has not issued any stock under the Stock Purchase Plan.
The Company also adopted the Director Stock Option Plan (the "DOP") in
September 1996, subject to shareholder approval. Up to 200,000 shares are
reserved for the grant of stock options to non-related directors. The Company
has not granted any stock options under the DOP.
The Company entered into a development agreement with NLC covering its
services from inception of the Company through the completion and opening of the
Jubilee Casino expansion. The agreement calls for a payment of one percent of
the casino expansion and hotel project cost, not to exceed $140,000.
On October 11, 1996, the Company declared a 1 for 3.8125 reverse stock
split, whereby each share of common stock outstanding and each share of
authorized but unissued stock existing as of October 11 was converted into
.26229508 of 1 share. The reverse stock split has been reflected in the
computation of loss per common share as if the split had occurred on January 1,
1996.
11. FINANCING AND MANAGEMENT PLANS:
The Company's financial statements for the year ended December 31, 1995
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. However, the Company has incurred substantial losses in the
development stage and has a working capital deficiency of approximately
$949,000. The Jubilee Casino has experienced recurring losses since it opened in
1992.
On June 13, 1996, the Company, and its majority shareholders and officers
entered into a loan agreement with Miller & Schroeder Investments Corporation
for an advance on a bridge loan. The advance of $250,000 carried an interest
rate of 15% and requires monthly interest-only payments of approximately $3,125.
Most of the proceeds were used to acquire land in Cripple Creek.
On October 22, 1996, the Company obtained a $3,564,000 bridge loan from
Miller & Schroeder Investments Corporation. The loan requires monthly payment of
interest only at an interest rate of 2 1/4 points over a prime lending rate and
matures in 18 months, with an 18 month extension provision. The loan is secured
by senior and junior positions on the Company's real property. The proceeds of
the loan are to be used to replace the seller financing on the Company's land,
repay loans to NLC and other shareholders, and provide funds to begin
development on the parking lots and on the casino expansion and hotel project.
The loan proceeds were reduced by an interest reserve of approximately $500,000
available to pay the interest on the loan.
The Company has submitted an application to Miller & Schroeder Investments
Corporation for a $16 million construction loan with which to fund the casino
expansion and the hotel development.
Management of the Company is preparing for the public offering of shares of
its common stock to raise additional capital, to retire debt and to expand the
casino and develop a 145-room hotel to be attached to the
F-14
<PAGE> 65
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
11. FINANCING AND MANAGEMENT PLANS (CONTINUED):
casino. The Company has signed a letter of intent with an underwriter for an
initial public offering on a firm commitment basis of 1,200,000 units to be sold
by the Company at $5.00 per share. Each unit consists of one share of common
stock and one redeemable five-year warrant.
If the initial public offering is not successful, the Company will need to
seek additional debt or equity financing, refinance its current debt, or enter
into joint ventures or partnerships to enable it to complete the casino
expansion and the hotel construction. There is no assurance as to the
availability of any of these possible financing sources.
F-15
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
To the Partners
353 Myers Avenue Limited Partnership
dba The Jubilee Casino
We have audited the accompanying balance sheet of 353 Myers Avenue Limited
Partnership dba The Jubilee Casino as of December 31, 1995, and the related
statements of operations and partners' deficit, and cash flows for the two years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 353 Myers Avenue Limited
Partnership dba The Jubilee Casino as of December 31, 1995, and the results of
its operations and its cash flows for the two years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements for 1995 have been prepared assuming
that the Partnership will continue as a going concern. As discussed in note 6 to
the financial statements, the Partnership's recurring losses from operations and
limited capital resources raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in note 6. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ SCHECHTER DOKKEN KANTER
ANDREWS & SELCER LTD
--------------------------------------
SCHECHTER DOKKEN KANTER
ANDREWS & SELCER LTD
Minneapolis, Minnesota
September 27, 1996,
October 22, 1996 for
Note 6, 2nd paragraph
F-16
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Partners
353 Myers Avenue Limited Partnership
dba The Jubilee Casino
We have audited the accompanying statements of operations and partners'
deficit and cash flows of 353 Myers Avenue Limited Partnership dba The Jubilee
Casino for the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of operations and partners'
deficit and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations and partners' deficit and cash flows. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statements
of operations and partners' deficit and cash flows. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statements of operations and partners' deficit and cash
flows referred to above present fairly, in all material respects, the results of
operations and cash flows of 353 Myers Avenue Limited Partnership dba The
Jubilee Casino for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ BIGGS KOFFORD & CO., P.C.
--------------------------------------
BIGGS KOFFORD & CO., P.C.
February 8, 1995, except for Note 2,
as to which the date is September 27, 1996
F-17
<PAGE> 68
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Current assets:
Cash.......................................................................... $ 206,466
Prepaid expenses.............................................................. 80,694
----------
Total current assets.................................................. 287,160
----------
Property and equipment:
Land and improvements......................................................... 735,494
Buildings and improvements.................................................... 2,227,870
Furniture and equipment....................................................... 472,450
Vehicles...................................................................... 17,016
Equipment under capital leases................................................ 1,706,435
----------
5,159,265
Accumulated depreciation...................................................... 1,287,439
----------
3,871,826
----------
Other assets, net of accumulated amortization of $62,314........................ 33,770
----------
$4,192,756
==========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations:
Real estate and other debt................................................. $ 30,426
Capital lease obligations.................................................. 1,257,819
Due to Jubilee Gaming Enterprises, Inc. ...................................... 75,000
Accounts payable.............................................................. 130,633
Accrued liabilities........................................................... 258,465
------------
Total current liabilities............................................. 1,752,343
------------
Real estate and other debt, net of current maturities........................... 510,678
------------
Notes payable, related parties.................................................. 2,161,130
------------
Partners' deficit............................................................... (231,395)
------------
$4,192,756
==========
</TABLE>
See notes to financial statements.
F-18
<PAGE> 69
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NINE PERIOD FROM
MONTHS JANUARY 1,
YEAR ENDED DECEMBER 31, ENDED 1996 THROUGH
--------------------------- SEPTEMBER 30, APRIL 22,
1994 1995 1995 1996
----------- ----------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Casino............................... $ 3,766,096 $ 2,826,786 $ 2,157,732 $ 818,472
Food and beverage.................... 37,885 96,875 66,298 34,575
Other income (loss).................. (136,444) 65,484 74,162 32,844
----------- ----------- ----------- ----------
Total revenues............... 3,667,537 2,989,145 2,298,192 885,891
----------- ----------- ----------- ----------
Costs and expenses:
Operating departments................ 2,489,557 2,146,577 1,642,455 611,680
General and administrative........... 1,072,099 642,062 481,825 203,936
Interest............................. 817,953 667,775 580,069 101,915
Depreciation and amortization........ 435,890 413,595 311,214 124,460
Impairment loss...................... 523,000
----------- ----------- ----------- ----------
Total costs and expenses..... 4,815,499 4,393,009 3,015,563 1,041,991
----------- ----------- ----------- ----------
Net loss............................... (1,147,962) (1,403,864) (717,371) (156,100)
Partners' deficit, beginning........... (2,012,131) (4,734,563) (4,734,563) (231,395)
Assumption of guaranteed debt to
related party........................ (1,574,470)
Conversion of related party debt and
interest to equity................... 5,907,032 5,907,032 2,197,339
----------- ----------- ----------- ----------
Partners' equity (deficit), ending..... $(4,734,563) $ (231,395) $ 455,098 $1,809,844
=========== =========== =========== ==========
</TABLE>
See notes to financial statements.
F-19
<PAGE> 70
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE PERIOD FROM
MONTHS JANUARY 1,
YEAR ENDED DECEMBER 31, ENDED 1996 THROUGH
--------------------------- SEPTEMBER 30, APRIL 22,
1994 1995 1995 1996
----------- ----------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(1,147,962) $(1,403,864) $ (717,371) $ (156,100)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation...................... 418,320 395,974 297,999 118,976
Amortization...................... 17,570 17,619 13,215 5,484
Amortization of loan acquisition
fees............................ 173,334 132,368 130,000
Impairment loss................... 523,000
Loss on sale of assets............ 169,458
Interest on related party notes
converted to equity............. 244,909 244,909 36,209
Changes in operating assets and
liabilities:
Prepaid expenses and other
assets.......................... 56,128 (9,267) (6,954) (40,480)
Accounts payable.................. (82,436) (66,967) (60,533) (13,068)
Accrued liabilities............... 452,630 165,891 136,498 11,794
----------- ----------- ---------- ----------
Net cash (used in) provided by
operating activities................. 57,042 (337) 37,763 (37,185)
----------- ----------- ---------- ----------
Cash flows used in investment
activities, purchase of equipment.... (31,149) (20,185) (20,185)
----------- ----------- ----------
Cash flows from financing activities:
Payments on:
Real estate and other debt........ (59,202) (38,830) (26,892) (15,186)
Capital lease obligation.......... (334,760) (7,404) (7,404)
Advances from related party....... 414,752 75,000 75,000
----------- ----------- ---------- ----------
Net cash provided by (used in)
financing activities................. 20,790 28,766 40,704 (15,186)
----------- ----------- ---------- ----------
Net increase (decrease) in cash........ $ 46,683 $ 8,244 $ 58,282 $ (52,371)
Cash, beginning........................ 151,539 198,222 198,222 206,466
----------- ----------- ---------- ----------
Cash, ending........................... $ 198,222 $ 206,466 $ 256,504 $ 154,095
=========== =========== ========== ==========
Interest paid.......................... $ 367,935 $ 143,752 $ 124,318 $ 15,927
=========== =========== ========== ==========
Supplemental disclosure of non-cash
financing activities:
Related party debt and interest
converted to partners' equity... $ 5,907,032 $ 5,907,032 $2,197,339
=========== ========== ==========
Assumption of guaranteed debt to
related party................... $ 1,574,470
===========
</TABLE>
See notes to financial statements.
F-20
<PAGE> 71
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
PERIOD
FROM JANUARY 1, 1996 THROUGH APRIL 22, 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of business:
353 Meyers Avenue Limited Partnership dba The Jubilee Casino (the
Partnership) operates a casino located in Cripple Creek, Colorado. The
Partnership is subject to the licensing and regulatory requirements of the
Colorado Division of Gaming. The Partnership's gaming license is subject to
certain conditions and periodic renewal.
Cash:
Cash includes the amounts required for hopper inventories and amounts
necessary for exchanges with patrons.
Property and equipment:
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets:
<TABLE>
<S> <C>
Building.......................................... 40 years
Furniture and equipment........................... 5-7 years
</TABLE>
Revenue recognition:
Revenue from casino operations is the net win from gaming activities, which
is the difference between gaming wins and losses.
Promotional allowances:
Revenue does not include the retail amount of food and beverage provided
gratuitously to customers, which was $234,718 and $140,403 in 1995 and 1994,
respectively and $184,446 in the nine months ended September 30, 1995, and
$57,081 in the period from January 1, 1996 through April 22, 1996.
Provision for income taxes:
Income taxes on net earnings of the Partnership are payable by the partners
and, accordingly, are not reflected in the financial statements.
Interim financial information:
The accompanying financial statements for the nine month period ended
September 30, 1995 and the period from January 1, 1996 through April 22, 1996
are unaudited, but, in the opinion of management of the Partnership, reflect all
adjustments (consisting of normal and recurring accruals) necessary for a fair
presentation. The results of operations for the period from January 1, 1996
through April 22, 1996 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1996.
F-21
<PAGE> 72
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
PERIOD
FROM JANUARY 1, 1996 THROUGH APRIL 22, 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Accounting estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications:
Certain reclassifications have been made to the 1994 financial statements
to conform with the 1995 presentation.
2. RELATED PARTY TRANSACTIONS:
Conversion of debt to equity:
Prior to April 23, 1996, the general and substantially all limited partners
of the Partnership were members of one family or were entities controlled by all
or some of those family members (the Partners). Partners equity (deficit) is not
allocated between the various classes of partners because of common control and
the sale of all Partnership interests to Jubilee Gaming Enterprises, Inc. In
periods prior to 1995, the Partners lent funds to the Partnership to be repaid
at various dates with interest at the prime rate.
During 1994, the Partnership assumed certain debt of the former corporate
general partner (controlled by an unrelated party) owed to the Partners. The
debt totaling $1,574,470, including accrued interest of $58,253, had been
guaranteed by the Partnership and was assumed when it was determined that the
former general partner could not meet its obligations. The assumption of the
debt was originally reported as an extraordinary item on the statement of
operations and partners' deficit for the year ended December 31, 1994. Because
these financial statements are being issued in connection with the Company
registering its securities for a public offering, the accounting principle under
which this transaction is recorded was changed to correspond with the accounting
principles expected to be used in future periods. Accordingly, the total debt
assumed has been charged to partners' deficit in the accompanying financial
statements.
On June 8, 1995, the Partners converted a portion of the loans owed to them
to Partners equity and canceled all accrued interest on the loans. The total
amount of loans and interest converted to equity by the Partners was $5,907,032.
At December 31, 1995, the remaining portions of notes and accrued interest
not converted to equity was $2,161,130. On April 12, 1996, these notes plus
additional accrued interest were converted to equity.
During 1992, loan acquisition fees totaling $520,000 incurred in
conjunction with the issuance of a debt obligation to a related party were
capitalized and were charged to expense over 36 months, the term of the
obligation. The amount charged to expense totaled $132,368 and $173,334 for the
years ended December 31, 1995 and 1994, and $130,000 for the nine months ended
September 30, 1995, and is included in interest expense.
F-22
<PAGE> 73
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
PERIOD
FROM JANUARY 1, 1996 THROUGH APRIL 22, 1996 IS UNAUDITED)
2. RELATED PARTY TRANSACTIONS: (CONTINUED)
During the years ended December 31, 1995 and 1994 and nine month period
ended September 30, 1995 and the period from January 1, 1996 through April 22,
1996, total interest expense on notes to related parties was $455,368, $510,702,
$418,951, and $36,209, respectively.
Jubilee Gaming Enterprises, Inc.:
Pursuant to a letter of intent dated December 30, 1994, the Partnership
entered into an escrow agreement with National Lodging Company, Inc. (NLC) dated
January 17, 1995. The escrow agreement required NLC to place into escrow
$400,000 pending a definitive agreement to purchase the Partnership. Per the
agreement, $200,000 of the escrow is to be used to subsidize the operating
expenses of the Casino and $200,000 is to be used as part of the acquisition
price. As of December 31, 1995, the Casino has drawn $75,000 under the agreement
for operations. On October 30, 1995, NLC contributed its rights to the
acquisition of the Partnership including the funds in escrow along with other
assets to Jubilee Gaming Enterprises, Inc. (Jubilee) (formerly National Gaming
Companies, Inc.) in exchange for 65% of its stock.
On October 31, 1995, the Partners agreed to sell all their interests in the
Partnership to Jubilee for $1,375,000. As part of the sale, the Partners agreed
to contribute to equity, at closing, all remaining notes due them and to cancel
all related accrued interest. Jubilee placed in escrow $100,000 cash and 318,750
shares of NLC stock valued at $4 per share. The final closing, including
transfer of title to the NLC stock and the Partnership's interest, was
contingent upon Jubilee obtaining gaming regulatory approval from the Colorado
Gaming Division. The necessary Colorado approvals were received on April 19,
1996 and the acquisition was completed on April 22, 1996.
Impairment loss:
In connection with the agreement to sell, property and equipment were
deemed to be impaired and were written down to their fair value. Fair value,
which was determined by reference to the sales price, was less than the carrying
value by $523,000. An impairment loss of that amount has been charged to
operations in 1995.
3. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Real estate debt, promissory note payable in monthly
installments of $7,000 including interest at 12% through
December 2001 at which time remaining principal is due.
Secured by real property................................ $528,538
Other..................................................... 12,566
--------
541,104
Less current portion...................................... 30,426
--------
$510,678
========
</TABLE>
F-23
<PAGE> 74
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
PERIOD
FROM JANUARY 1, 1996 THROUGH APRIL 22, 1996 IS UNAUDITED)
3. LONG-TERM DEBT (CONTINUED):
As of December 31, 1995, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
----------------------------------------------------------
<S> <C>
1996................................................. $ 30,426
1997................................................. 28,391
1998................................................. 27,611
1999................................................. 31,113
2000................................................. 35,059
Thereafter........................................... 388,504
--------
$541,104
========
</TABLE>
4. OBLIGATION UNDER CAPITAL LEASES:
Included in property and equipment is $1,706,435 of gaming equipment the
Partnership leases under capital lease agreements. Included in accumulated
depreciation at December 31,1995 is $832,915 of amortization on the equipment.
Amortization included in depreciation expense for the years ended December 31,
1995 and 1994 and for the nine months ended September 30, 1995 and the period
from January 1, 1996 through April 22, 1996 was $243,776, $270,455, $182,832 and
$71,100, respectively. Future minimum lease payments under the agreements along
with the present value of minimum lease payments as of December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
---------------------------------------------------------
<S> <C>
1996................................................ $1,055,087
1997................................................ 505,811
----------
Total minimum lease payments............................. 1,560,898
Less amount representing interest........................ 303,079
----------
$1,257,819
==========
</TABLE>
As of December 31, 1995 and subsequently, the Partnership was delinquent
with respect to payments required under the lease agreements and is subject to
the default provisions of the agreement including a significant portion of the
remaining balance being due on demand and the repossession of the gaming
equipment. Accordingly, the related obligations have been included in current
liabilities. Management is renegotiating the lease to cover fewer machines and
to modify the payment terms. Management believes the new lease will include no
penalties or back interest and anticipates a more favorable interest rate.
F-24
<PAGE> 75
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
PERIOD
FROM JANUARY 1, 1996 THROUGH APRIL 22, 1996 IS UNAUDITED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Partnership's financial instruments, which
are included in the balance sheet, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Assets:
Cash....................................... $ 206,466 $ 206,466
Liabilities:
Long-term debt:
Real estate and other debt.............. 541,104 541,104
Capital lease obligations............... 1,257,819 1,257,819
</TABLE>
The estimated fair value of financial instruments has been determined by
the Partnership using certain valuation methods described below. Accordingly,
the estimates presented are not necessarily indicative of the amounts that the
Partnership could realize in a current market exchange or the value that
ultimately will be realized by the Partnership upon maturity or disposition.
Additionally, because of the variety of valuation techniques permitted under
SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
comparability of fair values among entities may not be meaningful. The use of
different market assumptions and/or estimation methods may have a material
effect on the estimated fair value amounts.
The following methods and assumptions were used by the Partnership to
estimate the fair value of each class of financial instruments:
Cash escrow: The carrying amount of cash escrow approximates the fair
value.
Long-term debt, real estate and other debt: The carrying amount of
long-term debt, real estate and other debt approximates the fair value.
Long-term debt, capital lease obligations: Because management is
currently renegotiating the lease, it is not practicable to determine the
fair value of long-term debt, capital lease obligations.
6. REALIZATION OF ASSETS:
The Partnership's financial statements for the year ended December 31, 1995
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. However, the Partnership has incurred substantial losses from
operations since inception and has a working capital deficiency. Completing the
renegotiation of the gaming equipment lease as described in Note 4 is expected
to have a positive impact on working capital.
On October 22, 1996, Jubilee borrowed $3,564,000 pursuant to a bridge loan
agreement with a lender. The proceeds of the loan are to be used in part to
begin development on parking lots adjacent to the Casino and on the casino
expansion and a related hotel project.
Jubilee has submitted an application to the same lender for a $16 million
construction loan with which to fund the casino expansion and the hotel
development.
F-25
<PAGE> 76
353 MYERS AVENUE LIMITED PARTNERSHIP
DBA THE JUBILEE CASINO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
PERIOD
FROM JANUARY 1, 1996 THROUGH APRIL 22, 1996 IS UNAUDITED)
6. REALIZATION OF ASSETS (CONTINUED):
Management of Jubilee intends to file with the Securities and Exchange
Commission a Form SB-2 Registration Statement for the sale shares of its common
stock to raise additional capital, to retire debt and to expand the casino and
develop a 145-room hotel to be attached to the casino. Jubilee has signed a
letter of intent with an underwriter for an initial public offering on a firm
commitment basis of 1,200,000 units to be sold by Jubilee at $5.00 per unit.
Each unit consists of one share of common stock and one redeemable five-year
warrant.
If the initial public offering is not successful, Jubilee may need to seek
additional debt or equity financing, refinance its current debt, or enter into
joint ventures or partnerships in order to provide capital for the Partnership.
There is no assurance as to the availability of any of these possible financing
sources.
F-26
<PAGE> 77
JUBILEE GAMING ENTERPRISES, INC.
AND 353 MYERS AVENUE
LIMITED PARTNERSHIP
YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated statement of operations of
Jubilee Gaming Enterprises, Inc. and Subsidiary (the "Company" or "Jubilee
Gaming") and of 353 Myers Avenue Limited Partnership ("353 Myers") for the year
ended December 31, 1995 and for the nine months ended September 30, 1996 combine
the results of operations assuming the acquisition of 353 Myers was consummated
on January 1, 1995 and all related party debt from the sellers of 353 Myers had
been contributed to equity on that date. All significant intercompany accounts
and transactions have been eliminated.
The Pro Forma Statements do not purport (1) to represent what the Company's
results of operations would have been had the acquisition occurred on January 1,
1995, or (2) to project the Company's results of operations for any future date
or period.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the respective historical consolidated financial statements of
the Company and 353 Myers, including the notes thereto.
F-27
<PAGE> 78
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
JUBILEE PRO FORMA
GAMING 353 MYERS ADJUSTMENTS PRO FORMA
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Casino................................. $ 2,826,786 $ 2,826,786
Food and beverage...................... 96,875 96,875
Other.................................. $ 14,978 65,484 $ (8,200)(a) 72,262
--------- ----------- --------- -----------
Total revenue.................. 14,978 2,989,145 (8,200) 2,995,923
Costs and expenses:
Operating departments.................. 2,146,577 (8,200)(a) 2,138,377
General and administrative............. 410,365 642,062 1,052,427
Interest............................... 30,749 667,775 (455,656)(b) 242,868
Depreciation and amortization.......... 2,056 413,595 (16,243)(c) 399,408
Impairment loss........................ 523,000 523,000
--------- ----------- --------- -----------
Total costs and expenses....... 443,170 4,393,009 (480,099) 4,356,080
--------- ----------- --------- -----------
Net loss................................. $(428,192) $(1,403,864) $ 471,899 $(1,360,157)
========= =========== ========= ===========
Net loss per common share................ $ (.26) $ (.83)
========= ===========
Weighted average number of common shares
outstanding for the period............. 1,640,923 1,640,923
========= ===========
</TABLE>
- ---------------
Pro Forma Adjustments:
(a) To eliminate rental income earned by the Company and rental expense paid by
353 Myers.
(b) To eliminate interest expense on debt contributed to equity.
(c) To eliminate depreciation expense on impaired assets.
F-28
<PAGE> 79
JUBILEE GAMING ENTERPRISES, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(PERIOD FROM
JANUARY 1, 1996
THROUGH
JUBILEE APRIL 22, 1996) PRO FORMA
GAMING 353 MYERS ADJUSTMENTS PRO FORMA
---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Casino................................ $1,483,628 $ 818,472 $2,302,100
Food and beverage..................... 59,621 34,575 94,196
Other................................. $ 201,066 32,844 $ (16,400)(a) 217,510
---------- ---------- -------- ----------
Total revenue......................... 1,744,315 885,891 (16,400) 2,613,806
---------- ---------- -------- ----------
Costs and expenses:
Operating departments................. 1,260,302 611,680 (16,400)(a) 1,855,582
General and administrative............ 551,203 203,936 755,139
Interest.............................. 221,703 101,915 (36,209)(b) 287,409
Depreciation and amortization......... 186,119 124,460 310,579
---------- ---------- -------- ----------
Total costs and expenses.............. 2,219,327 1,041,991 (52,609) 3,208,709
Net loss................................ $ (475,012) $ (156,100) $ 36,209 $ (594,903)
========== ========== ======== ==========
Net loss per common share............... $ (.29) -- -- $ (.36)
========== ========== ======== ==========
Weighted average number of common shares
outstanding for the period............ 1,640,923 1,640,923
</TABLE>
- ---------------
Pro Forma Adjustments:
(a) To eliminate rental income earned by the Company and rental expense paid by
353 Myers.
(b) To eliminate interest expense on debt contributed to equity.
F-29
<PAGE> 80
------------------------------------------------------------
------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY. OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.......................... 4
Risk Factors................................ 7
Use of Proceeds............................. 14
Dividend Policy............................. 14
Capitalization.............................. 15
Recent Financing............................ 15
Dilution.................................... 16
Selected Financial Data..................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 18
Business.................................... 22
Management.................................. 33
Certain Transactions........................ 36
Principal Shareholders...................... 39
Description of Units........................ 39
Description of Capital Stock................ 41
Shares Eligible for Future Resale........... 43
Underwriting................................ 45
Legal Matters............................... 47
Experts..................................... 48
Additional Information...................... 48
Index to Consolidated Financial
Statements................................ F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
JUBILEE GAMING
ENTERPRISES, INC.
1,200,000 UNITS
----------------------
PROSPECTUS
----------------------
H.J. MEYERS & CO., INC.
, 1997
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles limit the liability of its directors to the full extent
permitted by the Minnesota Business Corporation Act. Specifically, directors of
the Company will not be personally liable for monetary damages for breach of
fiduciary duty as directors except liability for (i) any breach of the duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions, (iv) violations
of certain Minnesota securities laws, or (v) any transaction from which the
director derives an improper personal benefit. Liability under federal
securities law is not limited by the Articles.
The Minnesota Business Corporation Act and the Bylaws require that the
Company indemnify any director or officer made or threatened to be made a party
to a proceeding, by reason of the former or present official capacity of the
person, against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with the proceeding if certain statutory standards are
met. "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the Company. Reference is made to the detailed terms of
the Minnesota indemnification statute (Minn. Stat. sec.302A.521) for a complete
statement of such indemnification rights. The Bylaws also require the Company to
provide indemnification to the fullest extent of the Minnesota indemnification
statute.
Pursuant to the terms of the Underwriting Agreement, to be filed as Exhibit
1.1, the directors and officers of the Company are indemnified against certain
civil liabilities that they may incur under the Securities Act of 1933 in
connection with this Registration Statement and the related Prospectus.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Table below sets forth estimated expenses in connection with the
issuance and distribution of the Common Stock being offered:
<TABLE>
<S> <C>
SEC registration fee...................................... $ 5,493
NASD corporate finance review fee......................... 2,312
Nasdaq SmallCap Market qualification fee.................. 7,824
*Printing expenses........................................ 45,000
*Fees and expenses of counsel for the Company............. 90,000
*Fees and expenses of accountants for the Company......... 30,000
Underwriters' expense allowance........................... 180,000
*Transfer Agent and Registrar fees........................ 7,000
*Blue Sky expenses, including attorney's fees............. 45,000
*Miscellaneous............................................ 17,371
--------
Total................................................ $ 430,000
========
</TABLE>
- ---------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following transactions reflect the issuance during the previous three
years of securities not registered under the Securities Act of 1933, as amended
(the "Act"), giving retroactive effect to a 1 for 3.8125 share combination
effective October 11, 1996.
II-1
<PAGE> 82
1. Sale of Securities to Founders and Promoters. In October 1995 the
Company issued an aggregate of 1,547,542 shares to founders and promoters of the
Company in the following transactions: (a) 1,022,951 shares to National Lodging
Companies, Inc. in exchange for its contribution of gaming-related expenditures
and activities in the approximate amount of $884,000 and its contribution of
393,750 shares of common stock of National Lodging Companies, Inc. used to
acquire the Jubilee Casino and adjacent real estate; (b) 148,197 shares to
Robert J. Swenson, 104,919 shares to Terrance P. DeRoche and 140,328 shares to
Stephen W. Sherf in exchange for all of the outstanding common stock of Regent
Gaming Enterprises, Inc.; and (c) 131,148 shares to Craig H. Forsman in exchange
for $80,000.
2. Loan Transactions. In October 1995, the Company issued promissory notes
totalling $500,000 to Craig H. Forsman in consideration of loans made by him to
the Company and, as additional consideration to Mr. Forsman, the Company issued
to him a warrant for the purchase of 70,820 shares of common stock, exercisable
at $1.91 per share. On October 31, 1995, the Company issued a $75,000 promissory
note to Richard Stockness in exchange for the latter's loan to the Company, and
issued Mr. Stockness a warrant for the purchase of 19,672 shares exercisable at
$.1.91 per share. In January 1996, in consideration of loans in the amount of
$45,000 made by each of Craig H. Forsman and Jeffrey Robinson, the Company
issued to Mr. Forsman and Mr. Robinson promissory notes in the amount of $45,000
each, together with warrants to each for the purchase of 7,082 shares at an
exercise price of $1.91 per share. In February 1996, the Company issued a
$20,000 promissory note to David Sherf in consideration of a loan made by Mr.
Sherf to the Company, and issued Mr. Sherf a warrant for the purchase of 3,148
shares of common stock, exercisable at $1.91 per share.
3. Issuance of Debt Security and Stock upon Acquisition of Real Estate. In
June 1996 the Company issued a $700,000 promissory note to E. Wayne Moore and
Sara A. Moore in connection with the purchase from the Moores of certain real
estate located in Cripple Creek, Colorado. As additional consideration in such
transaction, the Company issued 26,230 shares to the Moores.
4. Issuance of Stock for Services. In November 1995, the Company issued
26,230 shares of common stock to Randall Otis in consideration of services
rendered by Mr. Otis.
5. Miller & Schroeder Transactions. In June 1996, the Company issued to
Miller & Schroeder Investments Corporation ("M & S") a promissory note in the
amount of $250,000 in consideration of M & S's loan in such principal amount. In
October 1996, the Company issued to M & S its promissory note in the amount of
$3,564,000. The loan is secured by substantially all of the Company's assets.
6. Warrant Exercise. In September 1996, the Company issued 19,673 shares of
common stock to Richard Stockness, in connection with the latter's exercise of a
stock purchase warrant described above.
7. Mithun Shares. Upon receipt of approval from the Gaming Commission, the
Company will issue to Lewis Mithun 3,935 shares of common stock as additional
consideration in connection with the acquisition of the Jubilee Casino, which
was completed in April 1996.
All of the above sales were made by the Company in reliance upon Section
4(2) of the Act as transactions not involving a public offering. None of the
transactions described above involved a general solicitation of securities. None
of the transactions described above involved an underwriter, except that the
transactions described in Item 5 above were with M & S, a registered
broker-dealer. M & S purchased the $3,564,000 note and is believed to have
received compensation from institutional lenders participating in the
transaction.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- ------------------------------------------------------------------------------
<C> <S>
1.1 Proposed form of Underwriting Agreement
3.1 Articles of Incorporation, as amended and restated
3.2 Bylaws of the Company, as amended
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- ------------------------------------------------------------------------------
<C> <S>
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Agreement (including form of Redeemable Warrant Certificate)
4.3 Articles of Incorporation, as amended and restated (see Exhibit 3.1)
4.4 Bylaws as amended (see Exhibit 3.2)
5.1 Opinion of Briggs and Morgan, P.A.
10.1 Jubilee Gaming Enterprises, Inc. 1996 Stock Option Plan
10.2 Jubilee Gaming Enterprises, Inc. 1996 Director Stock Option Plan
10.3 Jubilee Gaming Enterprises, Inc. 1996 Employee Stock Purchase Plan
10.4 $300,000 Promissory Note dated June 30, 1994 by Lewis M. Mithun to Harold M.
Hern and Leota M. Hern
10.5 Agreement dated October 31, 1995 between the Company and Randall D. Otis
10.6 $25,000 Note dated October 31, 1995 by the Company to Randall D. Otis
10.7 $450,000 Promissory Note dated October 31, 1995 by the Company to Harold M.
Hern and Leota M. Hern
10.8 $150,000 Promissory Note dated October 31, 1995 by the Company to Harold M.
Hern and Leota M. Hern
10.9 Deed of Trust dated October 31, 1995 between the Company and Harold M. Hern,
Leota M. Hern and Victor Heyliger.
10.10 Warranty Deed dated October 31, 1995 from Harold M. Hern and Leota M. Hern to
the Company
10.11 Warranty Deed dated October 31, 1995 from Harold M. Hern, Leota M. Hern and
Victor Heyliger to the Company
10.12 Purchase Agreement dated October 31, 1995 between Harold M. Hern, Leote M.
Hern, Victor Heyliger and the Company and National Lodging Companies, Inc.
10.13 Deed of Trust dated October 31, 1995 from the Company to Harold M. Hern and
Leota M. Hern
10.14 Purchase Agreement dated October 31, 1995 between Lewis M. Mithun and the
Company and National Lodging Companies, Inc.
10.15 Agreement dated October 30, 1995 between the Company and National Lodging
Companies, Inc.
10.16 Letter to the Company dated October 30, 1995 from Craig H. Forsman.
10.17 Agreement dated October 30, 1995 between the Company and Terrance P. DeRoche,
Robert J. Swenson and Stephen W. Sherf.
10.18 Contract to Buy and Sell Commercial Real Estate dated May 16, 1996 between the
Company and E. Wayne Moore and Sarah A. Moore
10.19 $700,000 Promissory Note dated June 14, 1996 by the Company to E. Wayne Moore
and Sarah A. Moore
10.20 Deed of Trust dated June 14, 1996 by the Company to Public Trustee of the
County of Teller, Colorado, for the benefit of E. Wayne and Sarah A. Moore
10.21 Assumption Agreement dated October 1, 1995 by the Company assuming Regent
Gaming Enterprises, Inc. Promissory Notes aggregating $80,000
10.22 Agreement dated September 6, 1996 between the Company and Richard Stockness
10.23 Employment agreement dated December 2, 1996 between the Company and Mr. Ralf
Hoehne
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- ------------------------------------------------------------------------------
<C> <S>
10.24 Sales Order Contract between the Company and IGT-Colorado Corporation for Slot
Machine Equipment
10.25 Sales Credit Memo from IGT-Colorado Corporation to the Company for Sale of
Slot Machine Equipment
10.26 $3,564,000 Promissory Note dated October 22, 1996 by the Company to Miller &
Schroeder Investments Corporation
10.27 Deed of Trust and Security Agreement and Fixture Filing and Financing
Statement dated October 22, 1996 by the Company to Public Trustee of the
County of Teller, Colorado, for the benefit of Miller & Schroeder Investments
Corporation
10.28 Assignment of Rents, Lease(s), Income and Revenues dated October 22, 1996 by
353 Myers Avenue Limited Partnership and the Company to Miller & Schroeder
Investments Corporation
10.29 Deposit Agreement dated October 22, 1996 by the Company to Miller & Schroeder
Investments Corporation
10.30 Security Agreement dated October 22, 1996 by 353 Myers Avenue Limited
Partnership to Miller & Schroeder Investments Corporation
10.31 Shareholder Voting and Control Agreement dated November 30, 1996 between Craig
H. Forsman, Terrance P. DeRoche, Stephen W. Sherf, Robert J. Swenson, Richard
Stockness, Randall D. Otis, E. Wayne Moore and Sara A. Moore and National
Lodging Companies, Inc.
10.32 Form of Warrant issued by the Company to various individuals in connection
with financing transactions
10.33 Form of Note, as amended, issued by the Company to various individuals in
connection with financing transactions
10.34 Form of Representative's Warrant Agreement
16.1 Letter of change in Certifying Accountant
21.1 Subsidiaries of Registrant
23.1 Consent of Briggs and Morgan, P.A. (to be included in Exhibit 5.1)
23.2 Consent of Biggs, Kofford & Co., P.C. (to be included in Exhibit 16.1)
23.3 Consent of Schechter Dokken Kanter Andrews & Selcer Ltd (regarding 353 Myers
Ave Limited Partnership)
23.4 Consent of Schechter Dokken Kanter Andrews & Selcer Ltd (regarding Jubilee
Gaming Enterprises, Inc.)
23.5 Consent of Isaacson, Rosenbaum, Woods & Levy, P.C.
24.1 Powers of Attorney (included on signature page to this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect, in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement; and notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of the securities offered
II-4
<PAGE> 85
would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) of the Securities Act of 1933 if in the aggregate,
the changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For purposes of determining liability, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 86
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota, on January 17,
1997.
JUBILEE GAMING ENTERPRISES, INC.
By /s/ CRAIG H. FORSMAN
-----------------------------------
Craig H. Forsman
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig H. Forsman and Stephen W. Sherf or either
of them (with full power to act alone), as his true and lawful attorneys-in-fact
and agents, with full powers of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- -----------------
<S> <C> <C>
/s/ CRAIG H. FORSMAN Chief Executive Officer January 17, 1997
- ------------------------------------------ and Director
Craig H. Forsman (Principal Executive Officer)
/s/ STEPHEN W. SHERF Chief Financial Officer January 17, 1997
- ------------------------------------------ and Director
Stephen W. Sherf (Principal Accounting Officer)
/s/ JOHN H. KLINKHAMMER Director January 17, 1997
- ------------------------------------------
John H. Klinkhammer
/s/ TERRANCE P. DEROCHE Director January 17, 1997
- ------------------------------------------
Terrance P. DeRoche
</TABLE>
II-6
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- ------------------------------------------------------------------------------
<C> <S>
1.1 Proposed form of Underwriting Agreement
3.1 Articles of Incorporation, as amended and restated
3.2 Bylaws of the Company, as amended
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Agreement (including form of Redeemable Warrant Certificate)
4.3 Articles of Incorporation, as amended and restated (see Exhibit 3.1)
4.4 Bylaws as amended (see Exhibit 3.2)
5.1 Opinion of Briggs and Morgan, P.A.
10.1 Jubilee Gaming Enterprises, Inc. 1996 Stock Option Plan
10.2 Jubilee Gaming Enterprises, Inc. 1996 Director Stock Option Plan
10.3 Jubilee Gaming Enterprises, Inc. 1996 Employee Stock Purchase Plan
10.4 $300,000 Promissory Note dated June 30, 1994 by Lewis M. Mithun to Harold M.
Hern and Leota M. Hern
10.5 Agreement dated October 31, 1995 between the Company and Randall D. Otis
10.6 $25,000 Note dated October 31, 1995 by the Company to Randall D. Otis
10.7 $450,000 Promissory Note dated October 31, 1995 by the Company to Harold M.
Hern and Leota M. Hern
10.8 $150,000 Promissory Note dated October 31, 1995 by the Company to Harold M.
Hern and Leota M. Hern
10.9 Deed of Trust dated October 31, 1995 between the Company and Harold M. Hern,
Leota M. Hern and Victor Heyliger.
10.10 Warranty Deed dated October 31, 1995 from Harold M. Hern and Leota M. Hern to
the Company
10.11 Warranty Deed dated October 31, 1995 from Harold M. Hern, Leota M. Hern and
Victor Heyliger to the Company
10.12 Purchase Agreement dated October 31, 1995 between Harold M. Hern, Leote M.
Hern, Victor Heyliger and the Company and National Lodging Companies, Inc.
10.13 Deed of Trust dated October 31, 1995 from the Company to Harold M. Hern and
Leota M. Hern
10.14 Purchase Agreement dated October 31, 1995 between Lewis M. Mithun and the
Company and National Lodging Companies, Inc.
10.15 Agreement dated October 30, 1995 between the Company and National Lodging
Companies, Inc.
10.16 Letter to the Company dated October 30, 1995 from Craig H. Forsman.
10.17 Agreement dated October 30, 1995 between the Company and Terrance P. DeRoche,
Robert J. Swenson and Stephen W. Sherf.
10.18 Contract to Buy and Sell Commercial Real Estate dated May 16, 1996 between the
Company and E. Wayne Moore and Sarah A. Moore
10.19 $700,000 Promissory Note dated June 14, 1996 by the Company to E. Wayne Moore
and Sarah A. Moore
10.20 Deed of Trust dated June 14, 1996 by the Company to Public Trustee of the
County of Teller, Colorado, for the benefit of E. Wayne and Sarah A. Moore
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
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<C> <S>
10.21 Assumption Agreement dated October 1, 1995 by the Company assuming Regent
Gaming Enterprises, Inc. Promissory Notes aggregating $80,000
10.22 Agreement dated September 6, 1996 between the Company and Richard Stockness
10.23 Employment agreement dated December 2, 1996 between the Company and Mr. Ralf
Hoehne
10.24 Sales Order Contract between the Company and IGT-Colorado Corporation for Slot
Machine Equipment
10.25 Sales Credit Memo from IGT-Colorado Corporation to the Company for Sale of
Slot Machine Equipment
10.26 $3,564,000 Promissory Note dated October 22, 1996 by the Company to Miller &
Schroeder Investments Corporation
10.27 Deed of Trust and Security Agreement and Fixture Filing and Financing
Statement dated October 22, 1996 by the Company to Public Trustee of the
County of Teller, Colorado, for the benefit of Miller & Schroeder Investments
Corporation
10.28 Assignment of Rents, Lease(s), Income and Revenues dated October 22, 1996 by
353 Myers Avenue Limited Partnership and the Company to Miller & Schroeder
Investments Corporation
10.29 Deposit Agreement dated October 22, 1996 by the Company to Miller & Schroeder
Investments Corporation
10.30 Security Agreement dated October 22, 1996 by 353 Myers Avenue Limited
Partnership to Miller & Schroeder Investments Corporation
10.31 Shareholder Voting and Control Agreement dated November 30, 1996 between Craig
H. Forsman, Terrance P. DeRoche, Stephen W. Sherf, Robert J. Swenson, Richard
Stockness, Randall D. Otis, E. Wayne Moore and Sara A. Moore and National
Lodging Companies, Inc.
10.32 Form of Warrant issued by the Company to various individuals in connection
with financing transactions
10.33 Form of Note, as amended, issued by the Company to various individuals in
connection with financing transactions
10.34 Form of Representative's Warrant Agreement
16.1 Letter of change in Certifying Accountant
21.1 Subsidiaries of Registrant
23.1 Consent of Briggs and Morgan, P.A. (to be included in Exhibit 5.1)
23.2 Consent of Biggs, Kofford & Co., P.C. (to be included in Exhibit 16.1)
23.3 Consent of Schechter Dokken Kanter Andrews & Selcer Ltd (regarding 353 Myers
Ave Limited Partnership)
23.4 Consent of Schechter Dokken Kanter Andrews & Selcer Ltd (regarding Jubilee
Gaming Enterprises, Inc.)
23.5 Consent of Isaacson, Rosenbaum, Woods & Levy, P.C.
24.1 Powers of Attorney (included on signature page to this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
______________, 1996
H.J. Meyers & Co., Inc.
as Representative of the Several Underwriters
named in Schedule I hereto
1895 Mt. Hope Avenue
Rochester, New York 14620
Gentlemen:
JUBILEE GAMING ENTERPRISES, INC., a Minnesota corporation (the "Company"),
confirms its agreement with H.J. Meyers & Co., Inc. ("Meyers") and each of the
underwriters named in Schedule I hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 9), for whom Meyers is acting as representative (in such
capacity, Meyers shall hereinafter be referred to as "you" or the
"Representative") with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective numbers
of units ("Units"), each Unit consisting of one share ("Shares") of the
Company's Common Stock, $___ par value per share ("Common Stock"), and one
redeemable warrant to purchase one additional share of Common Stock each (the
"Redeemable Warrants"), set forth in Schedule II hereto. The Shares and
Redeemable Warrants will be immediately separately tradable following issuance,
and are hereinafter referred to as the "Firm Units" or, after separation, the
"Firm Securities."
Each Redeemable Warrant is exercisable commencing on the date of issuance
and ending five years from the date of the Prospectus, as hereinafter defined,
unless previously redeemed by the Company. Each Redeemable Warrant shall
entitle the holder to purchase one share of Common Stock at an exercise price
(the "Warrant Exercise Price") of $6.50 per share. Commencing ninety (90) days
from the date of the Prospectus, the Redeemable Warrants may be redeemed by the
Company at a redemption price of $.01 per Redeemable Warrant on thirty (30)
days' prior written notice, provided that the average closing bid price of the
Common Stock equals or exceeds, for any twenty (20) consecutive trading days
prior to the notice of redemption, $10.00 (hereinafter the "Notice Price").
Both the Warrant Exercise Price and the Notice Price are subject to adjustment.
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 180,000 Units for the purpose of covering over-allotments,
if any. Such 180,000 Units, and the 180,000 Shares and 180,000 Redeemable
Warrants underlying such Units, are hereinafter referred to as the "Option
Units." The Company also proposes to issue and sell to you warrants (the
"Representative's Warrants") pursuant to the Representative's Warrant Agreement
(the "Representative's Warrant Agreement") for the purchase of an additional
120,000 Units. The Units issuable upon exercise of the Representative's
Warrants, and the 120,000 Shares and 120,000 Redeemable Warrants underlying
such Units, are hereinafter referred to as the "Representative's Securities."
The Firm Units, the Option Units, the Representative's Warrants and the
Representative's Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, each Underwriter
that:
(a) A registration statement (File No.333-______) on Form SB-2 relating to
the public offering of the Securities, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated thereunder, and has been
filed with the Commission under the Act. "Preliminary Prospectus" shall mean
each prospectus filed pursuant to Rule 430 of the Rules and Regulations. The
registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are respectively hereinafter referred to as the "Registration
Statement", and the "Prospectus", except that (i) if the prospectus first filed
by the Company pursuant to Rule 424(b) or Rule 430A of the Rules and
Regulations or otherwise utilized and not required to be so filed shall differ
from said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b) or Rule 430A or so utilized from
and after the date on which it shall have been filed or utilized, and (ii) if
such registration statement or prospectus is amended or such prospectus is
supplemented after the effective date of such registration statement and prior
to the Option Closing Date (as defined in Section 2(b)), the term "Registration
Statement" shall include such registration statement as so amended or
supplemented, or both, as the case may be, and the term "Prospectus" shall
include the prospectus as so amended or supplemented, or both, as the case may
be.
(b) At the time the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, (i) the Registration Statement and Prospectus
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, and (ii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein, in light of the
circumstances in which they were made, or necessary to make the statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf
of you or by or on behalf of any Underwriter for use in the preparation
thereof. It is understood that the statements set forth in the Prospectus with
respect to stabilization, the material set forth in the second paragraph under
the heading "Underwriting" and the identity of counsel to the Underwriters
under the heading "Legal Matters" constitute the only information furnished in
writing by you, or by any Underwriter through you, for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota, with
full power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus and is duly qualified to do
business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where failure to so
qualify will not materially affect its business, properties or financial
condition.
(d) The authorized capital stock of the Company as of the Effective Date
is set forth under "Capitalization" in the Prospectus. The shares of issued
and outstanding capital stock of the Company set forth thereunder have been
duly authorized, validly issued and are fully paid and non-assessable; except
as set forth in the Prospectus, no options, warrants or other rights
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<PAGE> 3
to purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company. The Securities
conform in all material respects to all statements relating thereto contained
in the Registration Statement and Prospectus.
(e) The Securities are duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company.
(f) This Agreement has been duly and validly authorized, executed and
delivered by the Company and, assuming due execution by the other party or
parties hereto, constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and lawful
authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of anyone, including any governmental
authority, is required in connection with the authorization, issuance and sale
of the Securities or the Representative's Warrant, except such as may be
required under the Act or state or corporate securities laws, all of which have
been duly obtained.
(g) The Company is not in violation, breach or default of or under, and
the consummation of the transactions herein contemplated, and the fulfillment
of the terms of this Agreement will not conflict with, or, with or without
giving the notice or the passage of time or both, result in a breach of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance pursuant to the terms
of, any indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets of the Company are
subject, nor will such action result in any violation of the provisions of the
certificate of incorporation or the by-laws of the Company, or any statute or
any order, rule or regulation applicable to the Company of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company, or any judgment or order of any court or other tribunal by which the
Company may be bound; in each case where the breach or default would have a
material adverse effect on the Company.
(h) Subject to the qualifications stated in the Prospectus, the Company
has good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances
or restrictions, or any other rights whatsoever of any other entity or person,
except such as are not materially significant or important in relation to its
business; all of the leases and subleases under which the Company is the lessor
or sublessor of properties or assets or under which the Company holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect and, except as described in the Prospectus, the
Company is not in default with respect to any of the terms or provisions of any
of such leases or subleases and, except as described in the Prospectus, no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases to which it
is a party, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease
or sublease except as described or referred to in the Prospectus; and the
Company owns or leases all such properties described in the Prospectus as are
necessary to its operations as now conducted.
(i) Except as set forth in the Prospectus, the Company owns or possesses
adequate rights to use all material patents, patent applications, trademarks,
mark registrations, copyrights and licenses necessary for the conduct of its
business and has not received any notice of conflict with the asserted rights
of others in respect thereof. All patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights,
3
<PAGE> 4
franchises and other intangible properties and assets (all of the foregoing
being herein called "Intangibles") that the Company owns or has pending, or
under which it is licensed are accurately described in the Prospectus. There
is no right under any Intangible, necessary to the business of the Company as
presently conducted or as the Prospectus indicates it contemplates conducting,
except as accurately described in the Prospectus. Except as set forth in the
Prospectus, to the knowledge of the Company, it has not infringed, is not
infringing, and has not received notice of infringement with respect to,
asserted Intangibles of others, except for such infringement or alleged
infringement that has not had, or cannot be reasonably expected to have, a
material adverse effect on the financial condition, results of operations,
business, properties, assets or future prospects of the Company. Except as
accurately described in the Prospectus, to the knowledge of the Company, there
is no infringement by others of any of the Intangibles of the Company. Except
as accurately described in the Prospectus, to the knowledge of the Company,
there is no Intangible of any other entity or person which has had or may in
the future have a material adverse effect on the financial condition, results
of operations, business, properties, assets or future prospects of the Company.
(j) To the knowledge of the Company, Schecter Dokken Kanter Andrews &
Selcer, Ltd., who have given their report on certain financial statements filed
and to be filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus, are with respect to the Company
independent public accountants as required by the Act and the Rules and
Regulations.
(k) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flows of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said statements and
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during
the periods involved. To the knowledge of the Company, no other financial
statements are required by Form SB-2 or otherwise to be included in the
Registration Statement or the Prospectus. There has at no time been a material
adverse change in the financial condition, results of operations, business,
properties, or assets of the Company from the latest information set forth in
the Registration Statement or the Prospectus, except as properly described in
the Prospectus; and, except as set forth in the Prospectus, there is no fact
known to the Company which could reasonably be expected to have a material and
adverse effect on the future prospects of the Company (other than political or
economic matters of general applicability or as properly described in the
Prospectus).
(l) Except as set forth in the Prospectus, subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus, the Company has not incurred any liabilities or obligations, direct
or contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
business of the Company, and there has not been any change in the capital stock
of, or any incurrence of long-term debt by, the Company or any issuance of
options (except for the issuance of options pursuant to the Company's 1996
Stock Option Plan), warrants or other rights to purchase the capital stock of
the Company or any adverse change or any development involving, so far as the
Company can now reasonably foresee, a prospective adverse change in its
condition (financial or other), net worth, results of operations, business,
management or properties which would be material to the business or financial
condition of the Company, and the Company has not become party to, and neither
the business nor the property of the Company has become the subject of, any
material litigation whether or not in the ordinary course of business.
(m) Except as set forth in the Prospectus, there is not now pending nor,
to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters, discrimination on the basis
of age, sex, religion or race, or any
4
<PAGE> 5
regulatory matters) to which the Company is a party before or by any court or
governmental agency or body, which could result in any material adverse change
in the condition (financial or other), business prospects, net worth or
properties of the Company; and no labor disputes involving the employees of the
Company exist which could be expected to materially adversely affect the
conduct of the business, property or operations or the financial condition or
earnings of the Company.
(n) Except as set forth in the Prospectus, the Company (i) has paid all
federal, state, local and foreign taxes for which it is liable to the extent
such taxes are due and payable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information
returns it is required to furnish pursuant to the Code, (ii) has established
adequate reserves for such taxes which are not due and payable, and (iii) does
not have any tax deficiency or claims outstanding, proposed or assessed against
it.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(p) Except as set forth in the Prospectus, the Company has sufficient
licenses, permits and other governmental authorizations currently required for
the conduct of its business or the ownership of its property as described in
the Prospectus and is in all material respects complying therewith. To the
best knowledge of the Company, none of the activities or business of the
Company is in violation of, or could cause the Company to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business, property,
prospective results of operations or net worth of the Company.
(q) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or if made, failed to
disclose fully any such contribution made in violation of law, or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(r) On the Closing Dates (as defined in Section 2 (c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(s) Any contract, agreement, instrument, lease or license required to be
described in the Registration Statement or the Prospectus has been properly
described therein. Any contract, agreement, instrument, lease, or license
required to be filed as an exhibit to the Registration Statement has been filed
with the Commission as an exhibit to the Registration Statement.
(t) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected
5
<PAGE> 6
to constitute, the stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Securities hereunder.
(u) The Company has no subsidiaries.
(v) Except as described in the Prospectus, there are no claims, payments,
issuances, arrangements or understandings, oral or written, for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
directors, stockholders, partners, employees or affiliates that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(w) Neither the Commission nor, to the knowledge of the Company, the "blue
sky" or securities authority of any jurisdiction has issued an order (a "Stop
Order") suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus, the
Registration Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Securities, nor, to the knowledge of the
Company, has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(x) The Company has all requisite power and authority to execute, deliver,
and perform this Agreement. All necessary corporate proceedings of the Company
have been duly taken to authorize the execution, delivery and performance of
this Agreement by the Company. This Agreement has been duly authorized,
executed and delivered by the Company, is the legal, valid and binding
obligation of the Company, and is enforceable as to the Company in accordance
with its terms (subject to applicable bankruptcy, insolvency and other laws
affecting creditors' rights generally and except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws and
public policy). No consent, authorization, approval, order, lien, certificate,
or permit of or from, or declaration or filing with, any federal, state, local
or other governmental authority or any court or other tribunal is required for
the execution, delivery, or performance of this Agreement by the Company
(except filings under the Act which have been or will be made before the
Closing Date and such consents consisting only of consents under "blue sky" or
securities laws which have been obtained at or prior to the date of this
Agreement). No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which the Company is a party,
or to which any of its properties or assets are subject, is required for the
execution, delivery or performance or this Agreement; and the execution,
delivery, and performance of this Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such material contract, agreement, instrument, lease, license, arrangement
or understanding, or violate or result in a breach of any term of the articles
of incorporation or by-laws of the Company, or violate, result in a breach of,
or conflict with, any law, rule, regulation, order, judgment, or decree binding
on the Company or to which any of its operations, businesses, properties, or
assets is subject.
(y) The Company has caused to be duly executed agreements ("Lock-up
Agreements") pursuant to which each of the Company's officers, directors and
principal stockholders has agreed not to, directly or indirectly, offer to
sell, sell, grant any option for the sale of, assign, transfer, pledge,
hypothecate or other encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of 18 months following the Closing
Date without the prior written consent of the Representative. The Company has
no reason to believe that the Lock-up Agreements are not legally binding upon,
and enforceable against, the respective security holder signatories
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<PAGE> 7
thereto. The Company will cause the Transfer Agent to mark an appropriate
legend on the face of stock certificates representing all of such securities
and to place "stop transfer" orders on the Company's stock ledgers.
(z) The Securities have been approved for quotation on the National
Association of Securities Dealers, Inc. Automated Quotation System Small Cap
Market ("NASDAQ"), subject to notice of issuance.
(aa) Except as set forth in the Prospectus, no officer, director,
principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, principal stockholder of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities required to be set forth
in the Prospectus.
(bb) Any certificate signed by any officer of the Company and delivered to
the Underwriters or to Underwriters' Counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(cc) The minute book of the Company has been made available to the
Underwriters and contains a complete record in all material respects of all
meetings and actions of the directors and stockholders of the Company,
respectively, since the time of its respective incorporation and accurately
reflects all transactions referred to in such minutes in all material respects.
(dd) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other convertible
or exchangeable securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or in any other
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and except as described in the
Registration Statement, no person or entity holds any price protection
anti-dilution rights with respect to any securities of the Company.
(ee) The Company has entered into a warrant agreement substantially in the
form filed as Exhibit 4.1 to the Registration Statement (the "Warrant
Agreement") with Norwest Bank Minnesota, National Association, in form and
substance satisfactory to the Representative, with respect to the Redeemable
Warrants.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties and agreements herein contained, the
Company agrees to issue and sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to buy from the Company, at $________ per
Unit at the place and time hereinafter specified, the number of Units set forth
opposite each Underwriter's name in Schedule I hereto (the "Firm Units").
Delivery of the Firm Units against payment therefor shall take place at
the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New
York 14620 (or at such other place as may be designated by agreement between
you and the Company) at 10:00 a.m. New York time on ___________, 1996, or at
such later time and date as you may designate,
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<PAGE> 8
such time and date of payment and delivery for the Firm Units being herein
called the "First Closing Date." Time shall be of the essence and delivery at
the time and place specified in this subsection (a) is a further condition to
the obligations of the Underwriters hereunder.
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriters to purchase
all or any part of an aggregate of 180,000 additional Units at the same price
per Unit as the Underwriters shall pay for the Firm Units being sold pursuant
to the provisions of subsection (a) of this Section 2 (such additional Units
being referred to herein as the "Option Units"). This option may be exercised
within 45 days after the Effective Date upon notice by you to the Company
advising it as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such
Option Units are to be registered and the time and date when such certificates
are to be delivered. Such time and date shall be determined by you but shall
not be earlier than four and not later than ten full business days after the
exercise of said option, nor in any event prior to the First Closing Date, and
such time and date is referred to herein as the "Option Closing Date." Delivery
of the Option Units against payment therefor shall take place at the offices of
H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 (or at
such other place as may be designated by agreement between you and the
Company). Time shall be of the essence and delivery at the time and place
specified in this subsection (b) is a further condition to the obligations of
the Underwriters hereunder.
The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Units referred to in
subsection (a) above.
(c) The Company will make the certificates for the Securities to be
purchased by the Underwriters hereunder available to you for inspection at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing Dates"
and individually as a "Closing Date"), as the case may be. The certificates
shall be in such names and denominations as you may request, at least two full
business days prior to the relevant Closing Dates. Time shall be of the
essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the several accounts of the Underwriters against payment of the purchase
price by you, for the several accounts of the Underwriters, at your option, by
certified or bank cashier's checks in New York Clearing House funds or by wire
transfer, payable to the order of the Company or up to three designees of the
Company.
In addition, in the event the Underwriters exercise the option to purchase
from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Option Units shall be made
to or upon the order of the Company by you, for the several accounts of the
Underwriters, at your option, by certified or bank cashier's checks payable in
New York Clearing House funds or by wire transfer, at the offices of H.J.
Meyers & Co., Inc. at the time and date of delivery of such Option Shares as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Option Units by you, for the several accounts of the
Underwriters, registered in such names and in such denominations as you may
request.
It is understood that the Underwriters propose to offer the Units to be
purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants, for an aggregate purchase price of
$5.00, which warrants shall
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<PAGE> 9
entitle the holders thereof to purchase an aggregate of 120,000 Units. The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement
at a price equaling one hundred twenty percent (120%) of the initial public
offering price of the Units. The Representative's Warrant Agreement and form
of Warrant Certificate shall be substantially in the form filed as Exhibit 4.6
to the Registration Statement. Payment for the Representative's Warrants shall
be made on the Closing Date.
3. Covenants of the Company.
The Company covenants and agrees with the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will
not at any time, whether before or after the Effective Date, file any amendment
to the Registration Statement or supplement to the Prospectus of which you
shall not previously have been advised and furnished with a copy or to which
you or counsel for the Underwriters shall have objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time
prior to the later of (A) the completion by the Underwriters of the
distribution of the Securities contemplated hereby (but in no event more than
nine months after the Effective Date) and (B) 25 days after the Effective Date,
the Company will prepare and file with the Commission, promptly upon your
request, any amendments or supplements to the Registration Statement or
Prospectus which, in your reasonable opinion, may be necessary or advisable in
connection with the distribution of the Securities.
Promptly after you or the Company is advised thereof, you will advise the
Company or the Company will advise you, as the case may be, and confirm the
advice in writing, of the receipt of any comments of the Commission, of the
effectiveness of any post-effective amendment to the Registration Statement, of
the filing of any supplement to the Prospectus or any amended Prospectus, of
any request made by the Commission for amendment of the Registration Statement
or for supplementing of the Prospectus or for additional information with
respect thereto, of the issuance by the Commission or any state or regulatory
body of any stop orders or other order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering in any jurisdiction, or the institution of any
proceedings for any of such purposes, and will use its best efforts to prevent
the issuance of any such order and, if issued, to obtain as soon as possible
the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus, and the Company has consented and hereby consents to the use of
such copies for the purposes permitted by the Act. The Company authorizes the
Underwriters and selected dealers to use the Prospectus in connection with the
sale of the Securities for such period as in the opinion of counsel for the
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer, of any event of
which the Company has knowledge and which materially affects the Company or the
Securities, or which in the opinion of counsel for the Company or counsel for
the Underwriters should be set forth in an amendment to the Registration
Statement or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Securities, or
in case it shall be necessary to amend or supplement the Prospectus to comply
with the Act or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any
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<PAGE> 10
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to
the Prospectus shall be without expense to the Underwriters, except that in
case the Underwriters are required, in connection with the sale of the
Securities, to deliver a Prospectus nine months or more after the Effective
Date, the Company will upon request of and at the expense of the Underwriters,
amend or supplement the Registration Statement and Prospectus and furnish the
Underwriters with reasonable quantities of prospectuses complying with Section
10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder in connection with the issuance and
offering of the Securities.
(b) The Company will use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and the
Company will furnish such information to counsel for the Underwriters as may be
required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer
in securities or to execute a general consent to service process in any
jurisdiction in any action other than one arising out of the offering or sale
of the Securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as you may reasonably request.
(c) If the sale of the Securities provided for herein is not consummated
due to the Company's breach of any representation or warranty or condition
contained in this Agreement, or because of the Company's actions or failure to
take such actions as are reasonably required hereunder, and the Representative
is prepared, and desires at its option, to perform in accordance with the terms
herein, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder in accordance with Section 8
hereof.
(d) The Company will furnish to you as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but no less
than two full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company which have been read by
the Company's independent certified public accountants, as stated in their
letters to be furnished pursuant to Section 4(e) hereof.
(e) For so long as the Company is a reporting company under either Section
12(b), Section 12(g) or Section 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five years from
the date hereof, (i) as soon as practicable after the end of each fiscal year,
a balance sheet of the Company and any subsidiaries as at the end of such
fiscal year, together with statements of income, stockholders' equity and cash
flows of the Company and any subsidiaries as at the end of such fiscal year,
all in reasonable detail and accompanied by a copy of the certificate or report
thereon of independent public accountants; (ii) as soon as they are available,
a copy of all quarterly financial statements; (iii) as soon as they are
available, a copy of all reports (financial or other) mailed to security
holders; (iv) as soon as they are available, a copy of all non-confidential
reports and financial statements furnished to or filed with the Commission; and
(v) such other information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
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<PAGE> 11
(g) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon your order, from time to time until the
Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may reasonably
request. The Company will deliver to you on the Effective Date and thereafter
for so long as a Prospectus is required to be delivered under the Act, from
time to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to time reasonably
request.
(h) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so, but in no event later
than 90 days after the end of 12 months after the end of its current fiscal
quarter, an earnings statement (which need not be audited) covering a period of
at least 12 consecutive months beginning after the Effective Date which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
opinion of Morse, Zelnick, Rose & Lander, LLP, counsel to the Underwriters, may
be reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(j) Prior to the Effective Date, the persons identified in Paragraph 1(y)
shall have executed the Lock-up Agreements described therein. You shall have
received written waivers of demand and/or piggy back registration rights, if
any, from all the holders thereof prior to the Effective Date of the
Registration Statement.
(k) The Company shall upon the initial filing of the Registration
Statement make all filings required to obtain approval for listing for
quotation of the Securities on the National Association of Securities Dealers,
Inc. ("NASDAQ") National Market System and shall use its best efforts to
maintain such listing for at least five years from the date of this Agreement.
In the event that the Securities do not initially qualify for listing on the
NASDAQ National Market System, such Securities shall be listed on the NASDAQ
SmallCap System. Within ten days after the Effective Date, the Company shall
cause the Company to be listed in Moody's OTC Industrial Manual and shall use
its best efforts to cause such listing to be maintained for five years from the
date of this Agreement [Boston Stock Exchange].
(l) The Company represents that it has not taken, and agrees that it will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock or Securities or
to facilitate the sale or resale of the Common Stock or Securities.
(m) During the 90-day period commencing as of the First Closing Date, the
Company will not, without your prior written consent, which consent shall not
be unreasonably withheld, grant options to purchase shares of Common Stock at a
price less than the closing bid price of the Common Stock on the Effective
Date. Furthermore, during the 24-month period commencing on the Effective Date
no options shall be granted by the Company to its officers or directors
pursuant to any stock option plan unless such option is either (a) not
exercisable during such 24-month period, or (b) the shares issuable upon
exercise of such option are subject to a lock-up agreement with the
Representative restricting the sale of such shares during such 24 month period.
(n) Prior to the Closing Date or any Additional Closing Date, as the case
may be, the Company will not issue any press release or other communication
directly or indirectly and will hold no press conference with respect to the
Company, or its financial condition, results
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<PAGE> 12
of operations, business, properties, or assets, or this offering, without your
prior written consent, which consent will not be unreasonably withheld.
(o) During the period of the offering, and for a period of twelve (12)
months from the Effective Date, the Company will not sell or otherwise dispose
of any securities of the Company, except for shares of Common Stock issuable
upon exercise of options, warrants or convertible securities outstanding on the
Effective Date or options granted under stock option plans, without your prior
written consent, which consent shall not be unreasonably withheld.
(p) The Company will reserve and keep available that number of its
authorized but unissued shares of Common Stock, which are issuable upon
exercise of the Warrants and Representatives' Warrant outstanding from time to
time.
(q) Within ninety (90) days from the First Closing Date, the Company shall
deliver to you, at the Company's expense, three bound volumes in form and
content acceptable to you, containing the Registration Statement and all
exhibits filed therewith, and all amendments thereto, and all other
correspondence, filings, certificates and other documents filed and/or
delivered in connection with this offering.
(r) On or prior to the Effective date, the Company shall retain a public
relations firm, reasonably acceptable to you, for a period of two years from
the Effective Date or such other firm reasonable acceptable to you.
(s) On or prior to the Closing Date, the Company shall enter into a one
year consulting agreement with you pursuant to which you will consult with the
Company or corporate financing and other financial service matters for a fee of
$72,000 payable in full on the Closing Date.
(t) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. Except as described in the Prospectus, no
portion of the net proceeds will be used, directly or indirectly, to acquire
any securities issued by the Company.
(u) For a period of three (3) years from the Closing Date, the Company
shall, as the Representative may reasonably request, but not more often than
monthly, furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and Redeemable
Warrants and (ii) the list of holders of all of the Company's securities.
(v) For a period of three (3) years from the date of the Prospectus, the
Company agrees that the Representative shall have the right, and the Company
shall allow, two non-voting observers designated by you to receive notice of
and to attend all meetings of the Company's Board of Directors. Such
individuals shall be reimbursed for all reasonable out-of-pocket expenses
incurred in connection with their attendance at meetings of the Board and shall
be compensated for their attendance in the same manner as the Company
compensates its non-employee directors.
(w) Upon the exercise of any Warrant or Warrants on or after ____________,
1998 (i.e. one year from the Effective Date), the Company will pay you a fee of
7% of the aggregate exercise price of the Warrants, of which a percentage may
be reallowed to the dealer who solicited the exercise (which may also be you)
if (i) you provide bona fide services; (ii) the market price of the Company's
Common Stock is greater than the exercise price of the Warrants on the date of
exercise; (iii) the exercise of the Warrant was solicited by a member of the
National Association of Securities Dealers, Inc.; (iv) the Warrant is not held
in a discretionary account; (v) the disclosure of the compensation arrangements
has been made in documents provided to customers, both as part of the original
offering and at the time of exercise; (vi) the exercise of the Warrant was not
solicited; and (vii) the transaction was not in
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<PAGE> 13
violation of Rule 10b-6 promulgated under the Exchange Act. The Company agrees
not to solicit the exercise of any Warrants other than through you and will not
authorize any other dealer to engage in such solicitation without your prior
written consent. No fee will be paid on Warrants exercised at any time without
solicitation by you. In addition, no warrant solicitation fee will be paid to
any NASD member unless such member has been designated in writing by the
warrantholder.
(x) For a period of two years fro the date of the Prospectus, the Company
shall, if it participates in any merger, consolidation or other transaction
which the Representatives have brought to the Company (including an acquisition
of assets or stock for which it pays, in whole or in part, with shares of the
Company's Common Stock or other securities) pay for the Representatives'
services an amount equal to 5% of the first $3,000,000 of value paid or
received in the transaction, 2 1/2% of any consideration paid over $3,000,000
and not greater than $5,000,000 and 2% of all such value above $5,000,000; in
addition, during such two-year period, if someone other than the
Representatives brings such a merger, consolidation or other transaction to the
Company, and the Representatives render advice in connection therewith, then
upon consummation of the transaction the Company shall pay to the
Representatives as a fee the aforesaid amount or as otherwise agreed to between
the Company and the Representatives.
(y) The Company will cause a Registration Statement under the Exchange Act
to be declared effective concurrently with the completion of the offering of
the Securities.
4. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters to purchase and pay for the
Units which they have agreed to purchase hereunder are subject to the accuracy
(as of the date hereof, and as of the Closing Dates) of and compliance with the
representations, warranties and covenants of the Company herein, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 4:00 p.m., New York time, on the
date following the date of this Agreement, or at such later time or on such
later date as to which you may agree in writing; on the Closing Dates, no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to the knowledge of any Underwriter or to
the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Morse, Zelnick, Rose &
Lander, LLP, counsel to the Underwriters; and no stop order shall be in effect
denying or suspending effectiveness of the Registration Statement nor shall any
stop order proceedings with respect thereto be instituted or pending or
threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Briggs and Morgan, counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters, to the effect
that:
(i) the Company has been duly organized and is validly existing as
a corporation in good standing under the laws of its state of
incorporation and is duly authorized to transact business as a foreign
corporation in good standing in each other jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
and in good standing would not have a material adverse effect on the
Company;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and
other governmental authorizations
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<PAGE> 14
necessary to the conduct of its business as described in the Prospectus,
and (b) such obtained licenses, permits and other governmental
authorizations are in full force and effect, and the Company is in all
material respects complying therewith;
(iii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all of the Company's
outstanding securities requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly
issued, are fully paid and non-assessable and conform in all material
respects to the description thereof contained in the Prospectus; the
outstanding securities of the Company have not been issued in violation
of the preemptive rights of any stockholder, under the Minnesota Business
Corporation Act or the Company's certificate of incorporation or by-laws
and the stockholders of the Company do not have any statutory preemptive
rights or, to the best of such counsel's knowledge, other than as set
forth in the Prospectus, other rights to subscribe for or to purchase,
and there are no restrictions upon the voting of any of the Common Stock;
the Units, the Common Stock, the Warrants and the Representatives'
Warrant conform to the respective descriptions thereof contained in the
Prospectus; the Securities to be issued as contemplated in the
Registration Statement have been duly authorized and, when issued and
paid for, will be non-assessable and free of preemptive rights under the
Minnesota Business Corporation Act or the Company's certificate of
incorporation or by-laws, and, to the best of such counsel's knowledge,
contractual preemptive rights, and no personal liability will attach to
the ownership thereof; a sufficient number of shares of Common Stock have
been reserved for issuance upon exercise of the Warrants, the
Representatives' Warrant (without regard to the anti-dilution provisions
thereof) and upon such issuance upon exercise in accordance with the
terms of the Representatives' Warrant, when the purchase price is paid,
will be fully paid, non-assessable and free of preemptive rights under
the Minnesota Business Corporation Act or the Company's certificate of
incorporation or by-laws and, to the best of such counsel's knowledge,
contractual preemptive rights, and no personal liability will attach to
the ownership thereof; and to the best of such counsel's knowledge,
except as set forth in the Prospectus, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any registration rights or
other rights, other than those which have been waived or satisfied, for
or relating to the registration of the Securities;
(iv) this Agreement, the Warrant Agreement and the Representatives'
Warrant, have been duly and validly authorized, executed and delivered by
the Company and, assuming due execution and delivery by you, all of such
agreements are, or when duly executed will be, the valid, legally binding
and enforceable obligations of the Company except (i) as limited by
applicable bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights, or (ii) as limited by general principles of
equity; provided, however, that no opinion need be expressed as to the
enforceability of the indemnity provisions contained in Section 6 or the
contribution provisions contained in Section 7 of this Agreement;
(v) the certificates evidencing the shares of Common Stock and the
Warrants are in valid and proper form;
(vi) except as disclosed in the Prospectus, such counsel knows of
no pending legal or governmental proceedings to which the Company is a
party which could materially adversely affect the business, property,
financial condition or operations of the Company or which question the
validity of the Securities, this Agreement or the Representatives'
Warrant, or of any action taken or to be taken by the Company pursuant to
this Agreement or the Representatives' Warrant; except as disclosed in
the Prospectus, no such proceedings are known to such counsel to be
threatened against the Company; and there are no governmental proceedings
or regulations known to such
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<PAGE> 15
counsel required to be described or referred to in the Registration
Statement which are not so described or referred to;
(vii) to the knowledge of such counsel, the Company is not in
violation of or default under this Agreement, the Warrant Agreement or
the Representatives' Warrant, and the execution and delivery hereof and
thereof and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or therein
contemplated will not result in a violation of, or constitute a default
under, the certificate of incorporation or by-laws of the Company, or, to
the best of such counsel's knowledge, in the performance or observation
of any material obligation, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness or in any
contract, indenture, mortgage, loan agreement, lease, joint venture or
other agreement or instrument to which the Company is a party or, to the
best of such counsel's knowledge, in a violation of any material order,
rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign applicable to
the Company or to which it is subject;
(viii) the Registration Statement has become effective under the
Act, and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, no proceedings
for that purpose have been instituted or are pending before, or
threatened by, the Commission and the Registration Statement and the
Prospectus (except for the financial statements and other financial and
statistical data contained therein, or omitted therefrom, as to which
such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
(ix) during the course of the preparation of the Registration
Statement, such counsel has participated in conferences with officers and
other representatives of the Company, the Representative and independent
public accountants of the Company, at which conferences the contents of
the Registration Statement and the Prospectus contained therein and
related matters were discussed and, although such counsel need not pass
upon and does not assume any responsibility for the adequacy, accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus contained therein (except as specified in
such counsel's opinion), solely on the basis of the foregoing without
independent check and verification, no facts have come to such counsel's
attention which lead it to believe that the Registration Statement or any
amendment thereto, at the time the Registration Statement or amendment
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading or the Prospectus or any
amendment or supplement thereto, at the time they were filed pursuant to
Rule 424(b) or at the date hereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading (except that no
view need be expressed as to (i) financial information and statistical
data and information included in the Registration Statement or the
Prospectus, (ii) information included in the Registration Statement or
the Prospectus which was furnished by or on behalf of the
Representatives, or (iii) information included in the second paragraph
of the "Underwriting" section of the Prospectus).
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents are accurate and complete in all material respects and
such counsel is familiar with the contracts and other documents referred
to in the Registration Statement and the Prospectus and any such
amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or documents
of a character required to be
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<PAGE> 16
summarized (other than real property leases) or described therein or to be
filed as exhibits thereto which are not so summarized, described or filed;
(xi) no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance of the
Representative's Warrant or the Shares and Warrants underlying the
Representative's Warrant, other than registration or qualification of the
Securities under applicable state or foreign securities or blue sky laws
(as to which such counsel need express no opinion) and registration under
the Act;
(xii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds," "Management - Executive
Compensation" (other than the data contained in the Executive
Compensation table), "Principal Shareholders", "Certain Transactions",
"Description of Units", "Description of Capital Stock" and "Shares
Eligible for Future Resale" have been reviewed by such counsel and,
insofar as they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all
material respects;
(xiii) to the knowledge of such counsel, no holders of Common Stock
or other securities of the Company have any registration rights with
respect to Common Stock, except as described in the Prospectus or which
have been validly waived or satisfied. All registration rights known to
such counsel have been so described and have been validly waived or
satisfied with respect to the transaction contemplated hereby;
(xiv) the Company is not required, and will not be required as a
result of this offering, to be registered as an "investment company"
under the Investment Company Act of 1940, as amended.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as you or counsel for the Underwriters shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; may exclude all matters relating to Colorado gaming laws and regulations
and may be limited to the laws of the United States and the State of Minnesota.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Morse, Zelnick, Rose
& Lander, LLP, counsel to the Underwriters, and you shall have received from
such counsel a signed opinion, dated as of the First Closing Date, with respect
to the validity of the issuance of the Securities, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have
furnished to counsel for the Underwriters such documents as they may reasonably
request for the purpose of enabling them to render such opinion.
(d) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Isaacson, Rosenbaum, Woods and Levy, P.C. with
respect to all matters governed by Colorado gaming laws and regulations in form
and substance satisfactory to counsel for the Underwriters.
(e) At the time this Agreement is executed and at the Closing Date and any
Additional Closing Date, as the case may be, you shall have received a letter,
addressed to the Underwriters and in form and substance satisfactory to you,
with reproduced copies or signed
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<PAGE> 17
counterparts thereof for each of the Underwriters, from Schecter Dokken Kanter
Andrews & Selcer Ltd, dated the date of delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus
they were, independent certified public accountants with respect to the
Company within the meaning of the Act and the public Regulations and
stating that the response to Item 10 of the Registration Statement is
correct insofar as it related to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement examined
by them comply in form in all material respects with the applicable
accounting requirements of the Act and the Regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited
interim financial statements of the Company (with an indication of the
date of the latest available unaudited interim financial statements), a
reading of the latest available minutes of the stockholders and Board of
Directors of the Company and committees of such board, inquiries to
certain officers and other employees of the Company responsible for
financial and accounting matters, and other specified procedures and
inquiries, nothing has come to their attention that caused them to
believe that (A) the unaudited financial statements and schedules of the
Company included in the Registration Statement and Prospectus do not
comply in form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations under either such act or are not fairly presented
in conformity with generally accepted accounting principles (except to
the extent that certain footnote disclosures regarding any stub period
may have been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) applied on a basis consistent with
that of the audited financial statements appearing therein, (B) any
unaudited financial information of the Company included in the Prospectus
was not determined on a basis substantially consistent with the
corresponding information in the audited statements of operations, (C)
there was any change in the capital stock or debt of the Company or any
decrease in the net current assets or stockholders' equity of the Company
as of the date of the latest available monthly financial statements of
the Company or as of a specified date not more than five business days
prior to the date of such letter, each as compared with the amounts shown
in the December 31, 1995 balance sheet included in the Registration
Statement and Prospectus, other than as properly described in the
Registration Statement and Prospectus or any change or decrease (which
shall be set forth therein) which you in your sole discretion shall
accept, or (D) there was any decrease in revenue, net earnings, or net
earnings per share of Common Stock of the Company during the period of
December 31, 1995 to the date of the latest available monthly financial
statements of the Company or to a specified date not more than five
business days prior to the date of such letter, each as compared with the
corresponding prior year period, other than as properly described in the
Registration Statement and Prospectus or any decrease (which shall be set
forth therein) which you in your sole discretion shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the
Registration Statement, each Preliminary Prospectus, and the Prospectus,
if applicable, which have been specified by you prior to the date of this
Agreement, to the extent that such data and information may be derived
from the general accounting records of the Company, and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries, and other
appropriate procedures
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<PAGE> 18
(which procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter, and
found them to be in agreement.
(f) At each of the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of such Closing
Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statements of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change
in the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the Effective Date, and the Company shall not have
incurred any material liabilities or entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, rule or finding would materially
and adversely affect the business, property, condition (financial or
otherwise), results of operations or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the Chief Executive Officer and the principal financial or accounting
officer of the Company, dated as of the First Closing Date, evidencing
compliance with the provisions of this subsection (f).
(g) Upon exercise of the option provided for in Section 2(b) hereof, the
obligations of the several Underwriters to purchase and pay for the Option
Shares referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) the Registration Statement shall remain effective at the Option
Closing Date, no stop order suspending the effectiveness thereof shall
have been issued, and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of any Underwriter
or the knowledge of the Company, shall be contemplated by the Commission,
and any reasonable request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction
of Morse, Zelnick, Rose & Lander, LLP, counsel to the Underwriters;
(ii) at the Option Closing Date there shall have been delivered to
you the signed opinion of Briggs and Morgan, counsel to the Company, and
Isaacson, Rosenbaum, Woods and Levy, P.C., dated as of the Option Closing
Date, in form and substance reasonably satisfactory to Morse, Zelnick,
Rose & Lander, LLP, counsel to the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished to
you at the First Closing Date pursuant to Sections 4(b) and 4(d) hereof,
respectively, except that such opinion, where appropriate, shall cover
the Option Units rather than the Firm Units. If the First Closing Date
is the same as the Option Closing Date, such opinions may be combined;
(iii) at the Option Closing Date, there shall have been delivered
to you a certificate of the Chief Executive Officer and the principal
financial or accounting
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<PAGE> 19
officer of the Company dated the Option Closing Date, in form and
substance satisfactory to Morse, Zelnick, Rose & Lander, LLP, counsel to
the Underwriters, substantially the same in scope and substance as the
certificate furnished to you at the First Closing Date pursuant to
Section 4 (f) hereof;
(iv) at the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from Schecter
Dokken Kanter Andrews & Selcer Ltd.,, dated the Option Closing Date and
addressed to you, confirming the information in each of their letters
referred to in Section 4(e) hereof as of the date thereof and stating
that, without any additional investigation required, nothing has come to
their attention during the period from the ending date of their review
referred to in said letter to a date not more than five (5) days prior to
the Option Closing Date which would require any change in said letter if
it were required to be dated the Option Closing Date;
(v) all proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Units shall be
reasonably satisfactory in form and substance to you, and you and Morse,
Zelnick, Rose & Lander, LLP, counsel to the Underwriters, shall have been
furnished with all such documents, certificates and opinions as you may
request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) If any of the conditions herein provided for in this Section shall not
have been completely fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriters under this
Agreement may be canceled at, or at any time prior to, each Closing Date by
your notifying the Company of such cancellation in writing or by telegram at or
prior to the applicable Closing Date. Any such cancellation shall be without
liability of any Underwriter to the Company, except as otherwise provided
herein.
(i) On or before the Closing Date, the Company shall have executed and
delivered to the Warrant Agent the Warrant Agreement substantially in the form
filed as Exhibit 4.1 to the Registration Statement, in final form and substance
satisfactory to the Representative and its counsel.
(j) The Company shall have entered into a Financial Consulting Agreement
with the Representative providing for the payment to the Representative,
commencing on the Closing Date, of a six thousand dollar ($6,000) per month
retainer for a period of twelve (12) months, all of which shall be payable in
advance at the Closing.
(k) The Company shall have entered into a Merger and Acquisition Agreement
with the Representative in final form and substance satisfactory to the
Representative and its counsel.
5. Conditions of the Obligations of the Company.
The obligation of the Company to sell and deliver the Units is subject to
the following conditions:
(a) The Registration Statement shall have become effective not later than
4:00 p.m. New York time, on the date following the date of this Agreement, or
on such later date or time as the Company and you may agree in writing.
(b) On the Closing Dates, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
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<PAGE> 20
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only
the obligation of the Company to sell and deliver the Option Units on exercise
of the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
each officer, director, employee and agent of such Underwriter and each person,
if any, who controls such Underwriter, within the meaning of the Act, from and
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), joint
or several, to which such Underwriter or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(A) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment thereof or supplement thereto, (B) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in light of the circumstances in which they were made; provided, however, that
the Company will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company through you by or on behalf of any
Underwriter specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Meyers, severally and each other Underwriter, severally, but not
jointly, agrees to indemnify and hold harmless the Company, each of its
directors, each nominee (if any) for director named in the Prospectus, each of
its officers who have signed the Registration Statement, and each person, if
any, who controls the Company, within the meaning of the Act, from and against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees) to which the Company or
any such director, nominee, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged untrue statement or omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company through you by or on behalf of any
Underwriter and with respect to any Underwriter specifically for use in
preparation thereof, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
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<PAGE> 21
Statement or Prospectus directly relating to the transactions effected by the
Underwriters in connection with this Offering. The Company acknowledges that
the statements with respect to the public offering of the Securities set forth
under the heading "Underwriting" and the stabilization legend in the Prospectus
have been furnished by the Underwriters expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus. This indemnity will be in
addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify in writing the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party
or (ii) the named parties to any such action (including any impleaded parties)
include both such Underwriter or such controlling person and the indemnifying
party, and the indemnified party or parties shall have reasonably concluded
that the indemnified party or parties have one or more legal defenses available
to it which are in conflict to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party or parties, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys). The indemnifying party shall be free to settle any
claim or action in respect to which indemnity may be sought against it pursuant
to this Section; provided, however, that the indemnifying party shall not
settle any such claim or action if such settlement would result in the
imposition against the indemnified party or parties of a judgment, decree or
order in the nature of equitable relief without the consent of the indemnified
party, which shall not be unreasonably withheld in light of all factors of
importance to such indemnified party.
7. Contribution.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the indemnified party makes claims for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
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<PAGE> 22
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that such
Underwriter is responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Unit appearing on the cover page of the Prospectus
bears to the public offering price per Unit appearing thereon, and Company
shall be responsible for the remaining portion; provided, however, that (a) if
such allocation is not permitted by applicable law, then the relative fault of
the Company and such Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by
the Company or such Underwriter, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if the respective obligations of the Company and the
Underwriters to contribute pursuant to this Section 7 were to be determined by
pro rata or per capita allocation of the aggregate damages (even if the
Underwriters have to be treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section 7 and (b) that the
contribution of any Underwriter shall not be in excess of its proportionate
share of the portion of such losses, claims, damages or liabilities for which
such Underwriter is responsible. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. The Underwriters' obligations to contribute pursuant to
this Section 7 are several in proportion to their respective underwriting
obligations and not joint. If the full amount of the contribution specified in
this paragraph is not permitted by law, then each Underwriter and each person
who controls each Underwriter shall be entitled to contribution from the
Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriters. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the National Association of
Securities Dealers, Inc. ("NASD") in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Underwriters, in connection with the qualification of the Securities under the
state securities or Blue Sky Laws which you shall designate; the cost of
printing and furnishing to the Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selling Agreement and the Blue Sky Memorandum; the cost of printing the
certificates representing the Shares and Warrants, the expenses of Company due
diligence meetings and presentations, and the expense (which shall not exceed
$10,000) of placing one or more "tombstone" advertisements as directed by you.
The Company shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to the
Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to
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<PAGE> 23
the Prospectus as called for in Section 3 (a) of this Agreement except as
otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to you the balance of a non-accountable expense allowance of
$180,000, of which $20,000 has been paid. In the event the over-allotment
option is exercised in part or in full, the Company shall pay to you at the
Option Closing Date, as a non-accountable expense allowance, an amount equal to
3% of the gross proceeds received upon exercise of the over-allotment option.
In the event the proposed offering is terminated for any reason, the
Representative shall return any portion of the $20,000 advanced by the Company
not previously expended in connection with the proposed offering for actual
accountable out-of-pocket expenses. If the proposed offering is not completed
due to the Company's breach of any representation, warranty, covenant or
condition contained in this Agreement, or because of the Company's actions or
failure to take such actions as are reasonably required hereunder, and the
Representatives are prepared to perform in accordance with the terms herein,
the Company shall be liable for all of the Representative's actual accountable
out-of-pocket expenses, including reasonable legal fees.
(c) No person is entitled either directly or indirectly to compensation
from the Company, from any Underwriter or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless each Underwriter, and the Underwriters agree to
indemnify and hold harmless, severally and not jointly, the Company from and
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees) to which
the indemnified party may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee in
connection with the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. Substitution of Underwriters.
If any Underwriter defaults in its obligation to purchase the number of
Units which it has agreed to purchase under this Agreement, you shall be
obligated to purchase all of the Units not purchased by the defaulting
Underwriter unless such purchase shall cause you to be in violation of the net
capital requirements of Rule 15c3-1 of the Exchange Act, in which case you, and
any other underwriters satisfactory to you who so agree, shall have the right,
but shall not be obligated, to purchase (in such proportions as may be agreed
upon among them) all of the Units. If you or the other underwriters
satisfactory to you do not elect to purchase the Units which the defaulting
Underwriter or Underwriters agreed but failed to purchase, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or
the Company except for the payment of expenses to be borne by the Company and
the Underwriters as provided in Section 8(a) and the indemnity and contribution
agreements of the Company and the Underwriters contained in Sections 6 and 7
hereof.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agree to purchase the Units
of a defaulting Underwriter, either you or the Company may postpone the First
Closing Date for up to seven full business days in order to affect any changes
that may be necessary in the Registration Statement, the Prospectus or in any
other document or agreement, and to file promptly any amendments or any
supplements to the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary.
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<PAGE> 24
10. Effective Date.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until 4:00 p.m., New York time, on
the first full business day following the Effective Date, or at any such
earlier time after the Effective Date as you in your discretion shall first
commence the initial public offering by the Underwriters of any of the Shares.
The time of the initial public offering shall mean the time of release by you
of the first newspaper advertisement with respect to the Securities, or the
time when the Securities are first generally offered by the Underwriters to
dealers by letter or telegram, whichever shall first occur. This Agreement may
be terminated by you at any time before it becomes effective as provided above
except that Sections 3(c), 6, 7, 8, 13, 14, 15 and 16 shall remain in effect
notwithstanding such termination.
11. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14, 15 and 16,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2 (b), if exercised, may be canceled, at any time prior
to the Option Closing Date, by you if in your judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriters for the resale
of the Units agreed to be purchased hereunder, by reason of (i) the Company
having sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on
trading in securities generally which are not in force and effect on the date
hereof, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement, or (viii) any material
adverse change having occurred, since the respective dates for which
information is given in the Registration Statement and Prospectus, in the
earnings, business, prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11 or in Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
12. Representative's Warrant.
On the First Closing Date, the Company will issue to you, for total
consideration of $5.00 and upon the terms and conditions set forth in the form
of Representatives' Warrant annexed as an exhibit to the Registration
Statement, a Representatives' Warrant to purchase, in the aggregate, one Unit
for each Firm Unit sold in the Offering. In the event of conflict in the terms
of this Agreement and the Representatives' Warrant, the language of the
Representatives' Warrant shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its Affiliates, where appropriate, and the
Underwriters, set forth in or made pursuant to this Agreement will remain in
full force and effect regardless of any
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investigation made by or on behalf of the Underwriters, the Company or any of
its officers or directors or any controlling persons and will survive delivery
of and payment for the Units and the termination of this Agreement.
14. Notice.
All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to any Underwriter, will be
mailed, delivered or telecopied and confirmed to it at H.J. Meyers & Co., Inc.
2495 Mt. Hope Avenue, Rochester, New York 14620-4S96, with a copy sent to
Kenneth S. Rose, Esq., Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New
York, New York 10022, or if sent to the Company, will be mailed, delivered, or
telecopied and confirmed to it at 9855 West 78th Street, Suite 220,
Minneapolis, Minnesota 55344, with a copy sent to Briggs and Morgan, 2400 IDS
Center, Minneapolis, Minnesota 55402 Attention: Avron L. Gordon, Esq. and
Jeffrey L. Colter, Esq.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
Underwriters, the Company and, to the extent expressed, the Affiliates, any
person controlling the Company, or any Underwriter, and directors of the
Company, nominees for directors of the Company (if any) named in the
Prospectus, the officers of the Company who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such purchaser, from any Underwriter of the Securities.
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of New York applicable to agreements made and to be entirely
performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it shall become a
binding agreement between the Company and you, as Representative of the several
Underwriters, in accordance with its terms.
Yours very truly,
JUBILEE GAMING ENTERPRISES, INC.
By:________________________________
Craig H. Forsman
Chief Executive Officer
Dated: ______________, 1997
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
H.J. MEYERS & CO., INC.
By:________________________________
Authorized Officer
Dated: ______________, 1997
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SCHEDULE I
Underwriting Agreement dated __________, 1996
UNDERWRITER NUMBER OF FIRM UNITS TO BE PURCHASED
H.J. Meyers & Co., Inc.
Total 1,200,000
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SCHEDULE II
Redeemable Warrant
27
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
NATIONAL GAMING COMPANIES, INC.
National Gaming Companies, Inc., a Corporation organized and existing
under the laws of the State of Minnesota (herein referred to as the
"Corporation"), in accordance with the provisions of Minnesota Statutes,
Section 302A.139, does hereby certify that:
1. Effective October 11, 1996, pursuant to the authority
conferred upon the Board of Directors by Minnesota Statutes, Section 302A.402,
Subdivision 3, the Board of Directors authorized and adopted resolutions
providing for a 1 for 3.8125 share combination, and the following is a true
copy of such resolutions:
BE IT RESOLVED, that there is hereby declared a 1 for 3.8125 share
combination, pursuant to which each share of common stock outstanding and each
share of authorized but unissued stock existing on the Record Date shall be
converted into .26229508 of 1 share.
RESOLVED FURTHER, that the Record Date of such 1 for 3.8125 share
combination shall be October 11, 1996.
RESOLVED FURTHER, that such 1 for 3.8125 share combination is hereby
effected automatically as of the Record Date without further action by the
Board of Directors or shareholders, and each shareholder of record on the
Record Date shall surrender such shareholder's certificates owned prior to the
Record Date to the Corporation to receive such lesser number of shares as shall
be determined pursuant to such 1 for 3.8125 share combination.
RESOLVED FURTHER, that any fractional shares resulting from the 1 for
3.8125 share combination shall be rounded to the nearest whole share.
RESOLVED FURTHER, that each stock option and warrant outstanding on
the Record Date shall be adjusted to reflect the 3.8125 share combination by
proportionally reducing the number of shares purchasable under such options and
warrants and proportionally increasing the applicable exercise prices.
RESOLVED FURTHER, that this Corporation's Articles of Incorporation
shall be amended and restated in its entirety as follows:
<PAGE> 2
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
NATIONAL GAMING COMPANIES, INC.
The following Amended and Restated Articles of Incorporation shall
supersede and take the place of the existing Articles of Incorporation and all
amendments thereto:
ARTICLE 1. NAME
The name of the Corporation is Jubilee Gaming Enterprises,
Inc.
ARTICLE 2. REGISTERED OFFICE
The address of the registered office of the Corporation is
9855 W. 78th Street, Suite 220, Eden Prairie, Minnesota 55344.
ARTICLE 3. AUTHORIZED SHARES
1. Authorized Shares.
The total number of shares of capital stock which the Corporation is
authorized to issue shall be 50,000,000 shares, consisting of 45,000,000 shares
of common stock, no par value ("Common Stock"), and 5,000,000 shares of
preferred stock, no par value ("Preferred Stock").
2. Common Stock.
All shares of Common Stock shall be voting shares and shall be
entitled to one vote per share. Holders of Common Stock shall not be entitled
to cumulate their votes in the election of directors and shall not be entitled
to any preemptive rights to acquire shares of any class or series of capital
stock of the Corporation. Subject to any preferential rights of holders of
Preferred Stock, holders of Common Stock shall be entitled to receive their pro
rata share, based upon the number of shares of Common Stock held by them, of
such dividends or other distributions as may be declared by the Board of
Directors from time to time and of any distribution of the assets of the
Corporation upon its liquidation, dissolution or winding up, whether voluntary
of involuntary.
3. Preferred Stock.
The Board of Directors of the Corporation is hereby authorized to
provide, by resolution or resolutions adopted by such Board, for the issuance
of Preferred Stock from time to time in one or more classes and/or series, to
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establish the designation and number of shares of each such class or series,
and to fix the relative rights and preferences of the shares of each such class
or series, all to the full extent permitted by the Minnesota Business
Corporation Act, Section 302A.401, or any successor provision. Without
limiting the generality of the foregoing, the Board of Directors is authorized
to provide that shares of a class or series of Preferred Stock:
(a) are entitled to cumulative, partially
cumulative or noncumulative dividends or other distributions
payable in cash, capital stock or indebtedness of the
Corporation or other property, at such times and in such
amounts as are set forth in the Board resolutions establishing
such class or series or as are determined in a manner
specified in such resolutions;
(b) are entitled to a preference with respect to
payment of dividends over one or more other classes and/or
series of capital stock of the Corporation;
(c) are entitled to a preference with respect to
any distribution of assets of the Corporation upon its
liquidation, dissolution or winding up over one or more other
classes and/or series of capital stock of the Corporation in
such amount as is set forth in the Board resolutions
establishing such class or series or as is determined in a
manner specified in such resolutions;
(d) are redeemable or exchangeable at the option
of the Corporation and/or on a mandatory basis for cash,
capital stock or indebtedness of the Corporation or other
property, at such times or upon the occurrence of such events,
and at such prices, as are set forth in the Board resolutions
establishing such class or series or as are determined in a
manner specified in such resolutions;
(e) are entitled to the benefits of such sinking
fund, if any, as is required to be established by the
Corporation for the redemption and/or purchase of such shares
by the Board resolutions establishing such class or series;
(f) are convertible at the option of the holders
thereof into shares of any other class or series of capital
stock of the Corporation, at such times or upon the occurrence
of such events, and upon such terms, as are set forth in the
Board resolutions establishing such class or series or as are
determined in a manner specified in such resolutions;
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(g) are exchangeable at the option of the holders
thereof for cash, capital stock or indebtedness of the
Corporation or other property, at such times or upon the
occurrence of such events, and at such prices, as are set
forth in the Board resolutions establishing such class or
series or as are determined in a manner specified in such
resolutions;
(h) are entitled to such voting rights, if any,
as are specified in the Board resolutions establishing such
class or series (including, without limiting the generality of
the foregoing, the right to elect one or more directors voting
alone as a single class or series or together with one or more
other classes and/or series of Preferred Stock, if so
specified by such Board resolutions) at all times or upon the
occurrence of specified events; and
(i) are subject to restrictions on the issuance
of additional shares of Preferred Stock of such class or
series or of any other class or series, or on the reissuance
of shares of Preferred Stock of such class or series or of any
other class or series, or on increases or decreases in the
number of authorized shares of Preferred Stock of such class
or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of the
rights and preferences of a class or series of Preferred Stock may be made
dependent upon facts ascertainable outside the Board resolutions establishing
such class or series, and may incorporate by reference some or all of the terms
of any agreements, contracts or other arrangements entered into by the
Corporation in connection with the issuance of such class or series, all to the
full extent permitted by the Minnesota Business Corporation Act. Unless
otherwise specified in the Board resolutions establishing a class or series of
Preferred Stock, holders of a class or series of Preferred Stock shall not be
entitled to cumulate their votes in any election of directors in which they are
entitled to vote and shall not be entitled to any preemptive rights to acquire
shares of any class or series of capital stock of the Corporation.
ARTICLE 4. NO CUMULATIVE VOTING
There shall be no cumulative voting by the shareholders of the
Corporation.
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ARTICLE 5. NO PREEMPTIVE RIGHTS
The shareholders of the Corporation shall not have any preemptive
rights to subscribe for or acquire securities or rights to purchase securities
of any class, kind or series of the Corporation.
ARTICLE 6. ACTION BY DIRECTORS
6.1 An action required or permitted to be taken at a meeting of
the Board of Directors of the Corporation may be taken by a written action
signed, or counterparts of a written action signed in the aggregate, by all of
the directors unless the action need not be approved by the shareholders of the
Corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
Board of Directors of the Corporation at which all of the directors were
present.
6.2 Until the date on which the Corporation has at least two (2)
Outside Directors serving, the Board of Directors shall take action by at least
seventy-five percent (75%) of the number of directors present at a duly held
meeting of the Board. For purposes of this Section 6.2, a written consent or
opposition by a Director to a proposal to be acted upon at a Board meeting
shall constitute presence of such director at such board meeting. For the
purposes of this Section 6.2, the term "Outside Director" shall mean a director
who is not employed by the Corporation or any of its Affiliates (as defined in
Section 8). Until it owns ten percent (10%) or less of the outstanding common
stock of this Corporation, National Lodging Companies, Inc. shall be deemed an
Affiliate of this Corporation.
6.3 In accordance with Section 302A.233 of the Minnesota Business
Corporation Act, a director may give advance written consent or opposition to a
proposal to be acted on at a Board meeting.
ARTICLE 7. LIMITED LIABILITY OF DIRECTORS
No director of this Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article shall
not eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under section 302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any
transaction from which the director derived an improperpersonal benefit or (v)
for any act or omission occurring prior to the effective date of this Article.
No
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amendment to or repeal of this Article shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
ARTICLE 8. OBLIGATIONS OF CERTAIN BENEFICIAL OWNERS;
RIGHTS OF REDEMPTION
8.1 The Corporation shall not issue any voting securities or other
voting interests except in accordance with the provisions of the Colorado
Limited Gaming Act and the regulations promulgated thereunder. The issuance of
any voting securities or other voting interests in violation thereof shall be
void and such voting securities or other voting interests shall be deemed not
to be issued and outstanding until (a) the Corporation shall cease to be
subject to the jurisdiction of the Colorado Limited Gaming Control Commission
(the "Commission"), or (b) the Commission shall, by affirmative action,
validate said issuance or waive any defect in issuance.
8.2 No voting securities or other voting interests issued by the
Corporation and no interest, claim or charge therein or thereto shall be
transferred in any manner whatsoever except in accordance with the provisions
of the Colorado Limited Gaming Act and the regulations promulgated thereunder.
Any transfer in violation thereof shall be void until (a) the Corporation shall
cease to be subject to the jurisdiction of the Colorado Limited Gaming Control
Commission, or (b) the Commission shall, by affirmative action, validate said
transfer or waive any defect in said transfer.
8.3 If the Commission at any time determines that a holder of
voting securities or other voting interests of this Corporation is Unsuitable
to hold such securities or other voting interests, then the issuer of such
voting securities or other voting interests may, within sixty (60) days after
the finding of Unsuitability, purchase such voting securities or other voting
interests of such Unsuitable Person at the lesser of (i) the cash equivalent of
such Person's investment in the Corporation, or (ii) the current market price
as of the date of the finding of Unsuitability unless such voting securities or
other voting interests are transferred to a Suitable Person (as determined by
the Commission) within sixty (60) days after the finding of Unsuitability, such
redemption to be made in accordance with the provisions of this Article 8.
Until such voting securities or other voting interests are owned by Persons
found by the Commission to be Suitable to own them, (a) the Corporation shall
not be required or permitted to pay any dividend or interest with regard to the
voting securities or other voting interests, (b) the holder of such voting
securities or other voting interests shall not be entitled to vote on any
matter as the holder of the voting securities or other voting interests, and
such voting securities or other voting interests shall not for any purposes be
included in
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the voting securities or other voting interests of the Corporation entitled to
vote, and (c) the Corporation shall not pay any remuneration in any form to the
holder of the voting securities or other voting interests except in exchange
for such voting securities or other voting interests as provided in this
paragraph.
8.4 No Person may become the Beneficial Owner of five percent (5%)
or more of any class or series of the Corporation's issued and outstanding
Capital Stock unless such Person agrees in writing to: (i) provide to any
Gaming Authority information regarding such Person, including without
limitation thereto, information regarding other gaming-related activities of
such Person and financial statements, in such form, and with such updates, as
may be required by any Gaming Authority; (ii) respond to written or oral
questions that may be propounded by any Gaming Authority; and (iii) consent to
the performance of any background investigation that may be required by any
Gaming Authority, including without limitation thereto, an investigation of any
criminal record of such Person.
8.5 To the extent that any Beneficial Owner of five percent (5%)
or more of any class or series of the Corporation's issued and outstanding
Capital Stock shall be determined unqualified to hold a gaming license,
Unsuitable to be involved in gaming by any Gaming Authority, or Unsuitable to
own the securities of this Corporation, such Person shall transfer his interest
to the Corporation or to a Suitable Person in accordance with this Article 8.
8.6 Notwithstanding any other provisions of these Articles, but
subject to the provisions of any resolution of the Board of Directors creating
any series of Preferred Stock or any other class of stock which has a
preference over common stock with regard to dividends or upon liquidation,
outstanding shares of Capital Stock held by a Disqualified Holder shall be
subject to redemption at any time by the Corporation by action of the Board of
Directors. The terms and conditions of such redemption shall be as follows:
(a) the redemption price of the shares to be redeemed
shall be equal to the lesser of (i) the Disqualified
Holder's investment in the Capital Stock or (ii) the
Current Market Price of such securities or such other
redemption price as required by pertinent state or
federal law or regulation pursuant to which the
redemption may be required;
(b) the redemption price for such securities may be paid
in cash, Redemption Securities or any combination
thereof;
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<PAGE> 8
(c) at least thirty (30) days written notice of the
Redemption Date shall be given to the record holder
of the securities selected to be redeemed (unless
waived in writing by any such holder) provided that
the Redemption Date may be the date on which written
notice shall be given to a record holder if the cash
or Redemption Securities necessary to effect the
redemption shall have been deposited in trust for the
benefit of such holder and subject to immediate
withdrawal by him upon surrender of the certificates
for the securities to be redeemed;
(d) from and after the Redemption Date or such earlier
date as mandated by pertinent state or federal law or
regulation, any and all rights of whatever nature, of
the Beneficial Owner of the securities to be redeemed
(including without limitation any rights to vote or
participate in dividends declared on stock of the
same class or series as such shares), shall cease and
terminate and such Beneficial Owner shall thenceforth
be entitled only to receive the cash or Redemption
Securities payable upon redemption; and
(e) such other terms and conditions as the Board of
Directors shall determine are required to comply with
applicable laws and regulations of Colorado, and
Other Jurisdiction or Gaming Authority.
8.7 Definitions. Capitalized terms used in this Article
8 shall have the meanings provided below.
"AFFILIATE" AND "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Act"). The term
"registrant" as used in said Rule 12b-2 shall mean the Corporation.
"BENEFICIAL OWNER" shall mean any Person who, singly or together with
any of such Person's Affiliates or Associates, directly or indirectly, has
"beneficial ownership" of Capital Stock (as determined pursuant to Rule 13d-3
of the Act).
"CAPITAL STOCK" shall mean any common stock, preferred stock, special
stock, or any other class or series of securities of the Corporation.
"CLOSING PRICE" on any day means the reported closing sales price or,
in case no such sale takes place, the average of the reported closing sale
price on the composite tape for the New York Stock Exchange - listed stocks,
or, if stock of the class or series in question is not quoted on such composite
tape
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<PAGE> 9
on the New York Stock Exchange, or, if such stock is not listed on such
exchange, on the principal United States securities exchange registered under
the Act on which such stock is listed, or, if such stock is not listed on any
such exchange, the closing sales price for such stock on the National
Association of Securities Dealers, Inc., Automated Quotation System, or, if no
such prices or quotations are available, the fair market value on the day in
question as determined by the Board of Directors in good faith.
"CURRENT MARKET PRICE" of a share of Capital Stock shall mean the
average Closing Price for such a share for each of the 45 most recent days
during which shares of stock of such class or series shall have been traded
preceding the day on which notice of redemption shall have been given;
provided, however, that if shares of stock of such class or series are not
traded on any securities exchange or in the over-the- counter-market, "Current
Market Price" shall be determined by the Board of Directors in good faith; as
provided, further, however, that "Current Market Price" as to any stockholder
who purchases any stock subject to redemption within 120 days prior to a
Redemption Date need not (unless otherwise determined by the Board of
Directors) exceed the purchase price paid for such shares.
"DISQUALIFIED HOLDER" shall mean any Beneficial Owner of shares of
Capital Stock of the Corporation or any of its Subsidiaries, who is deemed
Unsuitable by any Gaming Authority, or whose holding of shares of Capital Stock
may result or, when taken together with the holding of shares of Capital Stock
by any other Beneficial Holder, may result in the judgment of the Board of
Directors, in (i) the disapproval, modification, or non-renewal of any contract
under which the Corporation or any of its Subsidiaries has sole or shares
authority to manage any gaming operations, or (ii) the loss, non-reinstatement,
or delay of more than six months in the approval of any license or franchise
from any governmental agency held by the Corporation or any Subsidiary to
conduct any portion of the business of the Corporation or any Subsidiary, which
license or franchise is conditioned upon some or all of the holders of Capital
Stock meeting certain criteria.
"GAMING AUTHORITY" shall mean the Colorado Limited Gaming Control
Commission, the Colorado Division of Gaming, and any successors thereto, or any
tribal or governmental authority of an Other Jurisdiction regulating any form
of gaming and that has jurisdiction over the Corporation or its Subsidiaries.
"PERSON" shall mean any natural person, Corporation, firm,
partnership, association, government, governmental agency, or any other entity,
whether acting in an individual, fiduciary, or any other capacity.
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"REDEMPTION DATE" shall mean the date fixed by the Board of Directors
for the redemption of any shares of stock of the Corporation pursuant to this
Article 8.
"REDEMPTION SECURITIES" shall mean any debt or equity securities of
the Corporation, any subsidiary or any other corporation, or any combination
thereof, having such terms and conditions as shall be approved by the Board of
Directors and which, together with any cash to be paid as part of the
redemption price, in the opinion of any nationally recognized investment
banking form selected by the Board of Directors (which may be a firm which
provides other investment banking, brokerage or other services to the
Corporation), has a value, at the time notice of redemption is given, at least
equal to the Current Market Price of the securities to be redeemed pursuant to
this Article 8 (assuming, in the case of Redemption Securities to be publicly
traded, such Redemption Securities were fully distributed and subject only to
normal trading activity).
"SUBSIDIARY" shall mean any company of which a majority of any class
of equity security is beneficially owned by the Corporation.
"SUITABILITY" OR "SUITABLE" shall mean, in relation to a Person, the
ability to be licensed by the Commission or any Gaming Authority and, in
relation to acts or practices, lawful acts or practices.
"UNSUITABILITY" OR "UNSUITABLE" shall mean, in relation to a Person,
the inability to be licensed by the Commission because of prior acts,
associations, or financial conditions, and, in relation to acts or practices,
those which violate or would violate the statutes or rules or are or would be
contrary to the declared legislative purposes of the Colorado Limited Gaming
Act or those which violate or would violate the statutes and rules or are or
would be contrary to the declared legislative purposes of such statutes or
rules of any Gaming Authority.
8.8 In the event the Corporation shall hold, or apply for, a
gaming license or permit in a jurisdiction other than, or in addition to,
Colorado (an "Other Jurisdiction"), the laws and regulations of the Other
Jurisdiction shall also govern the issuance of the securities of this
Corporation and obligations of the beneficial owners of its securities. The
provisions of this Article 8 shall also be applicable, to the extent necessary
for purposes of regulating the issuance and ownership of this Corporation's
securities and the obligations of the beneficial owners of its securities,
under the laws and regulations of the Other Jurisdiction and any court or
tribunal shall substitute the name of an Other Jurisdiction for Colorado in
applying and construing these Articles of Incorporation, which shall be
construed to comply with the laws and regulations of the Other Jurisdiction and
applied in a manner to enable the Corporation to obtain and maintain a gaming
license or permit in such Other Jurisdiction.
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8.9 Unless the context of this Article 8 clearly requires
another construction, all references in the singular shall include the
plural and all references in the plural shall include the singular.
RESOLVED FURTHER, that the Chief Executive Officer of this Corporation
is authorized and directed: (1) to prepare, execute, acknowledge and file
Articles of Amendment to the Articles of Incorporation of this Corporation
together with any other document or instrument necessary in connection with
such 1 for 3.8125 share combination; and (2) to do or cause to be done any
other action necessary or desirable to effect such share combination and the
intents and purposes of the foregoing resolutions.
2. These Articles of Amendment will not adversely affect the
rights or preferences of the holders of outstanding shares of any class or
series of the Corporation's stock and will not result in the percentage of
authorized shares that remains unissued after the combination exceeding the
percentage of authorized shares that were unissued before the combination.
3. These Articles of Amendment to the Articles of Incorporation
was adopted pursuant to Chapter 302A.
IN WITNESS WHEREOF, National Gaming Companies, Inc. has caused these
Articles of Amendment to be signed by its Chief Executive Officer this 9th day
of December, 1996.
NATIONAL GAMING COMPANIES, INC.
By /s/ Craig H. Forsman
---------------------------
Craig H. Forsman
Chief Executive Officer
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EXHIBIT 3.2
BY-LAWS
of
NATIONAL GAMING COMPANIES, INC.
SHAREHOLDERS
Section 1.01 Place of Meetings. Each meeting of the shareholders
shall be held at the principal executive office of the Corporation or at such
other place as may be designated by the Board of Directors or the Chief
Executive Officer; provided, however, that any meeting called by or at the
demand of a shareholder or shareholders shall be held in the county where the
principal executive office of the Corporation is located.
Section 1.02 Regular Meetings. Regular meetings of the shareholders
may be held on an annual or other less frequent basis as determined by the
Board of Directors; provided, however, that if a regular meeting has not been
held during the immediately preceding 15 months, a shareholder or shareholders
holding three percent or more of the voting power of all shares entitled to
vote may demand a regular meeting of shareholders by written demand given to
the Chief Executive Officer or Chief Financial Officer of the Corporation. At
each regular meeting the shareholders shall elect qualified successors for
directors who serve for an indefinite term or whose terms have expired or are
due to expire within six months after the date of the meeting and may transact
any other business, provided, however, that no business with respect to which
special notice is required by law shall be transacted unless such notice shall
have been given.
Section 1.03 Special Meetings. A special meeting of the
shareholders may be called for any purpose or purposes at any time by the Chief
Executive Officer; by the Chief Financial Officer; by the Board of Directors or
any two or more members thereof; or by one or more shareholders holding not less
than ten percent of the voting power of all shares of the Corporation entitled
to vote (except that a special meeting for the purpose of considering any
action to directly or indirectly facilitate or effect a business combination,
including any action to change or otherwise affect the composition of the Board
for that purpose, must be called by shareholders holding not less than 25
percent of the voting power of all shares of the Corporation entitled to vote),
who shall demand such special meeting by written notice given to the Chief
Executive Officer or the Chief Financial Officer of the Corporation specifying
the purposes of such meeting.
Section 1.04 Meetings Held Upon Shareholder Demand. Within 30 days
after receipt of a demand by the Chief Executive Officer or the Chief Financial
Officer from any shareholder or shareholders entitled to call a meeting of the
shareholders, it shall be the duty of the Board of Directors of the Corporation
to cause a special or regular meeting of shareholders, as the case may be, to
be duly called and held on notice not later than 90 days after receipt of such
demand. If the Board fails to cause such a meeting to be called and held as
required by this Section, the shareholder or shareholders making the demand may
call the meeting by giving notice as provided in Section 1.06 hereof at the
expense of the Corporation.
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Section l.05 Adjournments. Any meeting of the shareholders may be
adjourned from time to time to another date, time and place. If any meeting of
the shareholders is so adjourned, no notice as to such adjourned meeting need
be given if the date, time and place at which the meeting will be reconvened
are announced at the time of adjournment.
Section 1.06 Notice of Meetings. Unless otherwise required by law,
written notice of each meeting of the shareholders, stating the date, time and
place and, in the case of a special meeting, the purpose or purposes, shall be
given at least ten days and not more than 60 days prior to the meeting to every
holder of shares entitled to vote at such meeting except as specified in
Section 1.05 or as otherwise permitted by law. The business transacted at a
special meeting of shareholders is limited to the purposes stated in the notice
of the meeting.
Section 1.07 Waiver of Notice. A shareholder may waive notice of the
date, time, place and purpose or purposes of a meeting of shareholders. A
waiver of notice by a shareholder entitled to notice is effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a shareholder at a meeting is a waiver of notice of
that meeting, unless the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item may
not lawfully be considered at that meeting and does not participate in the
consideration of the item at that meeting.
Section 1.08 Voting Rights. Subdivision 1. A shareholder shall have one
vote for each share held which is entitled to vote. Except as otherwise
required by law, a holder of shares entitled to vote may vote any portion of
the shares in any way the shareholder chooses. If a shareholder votes without
designating the proportion or number of shares voted in a particular way, the
shareholder is deemed to have voted all of the shares in that way.
Subdivision 2. The Board of Directors may fix a date not more than 60 days
before the date of a meeting of shareholders as the date for the determination
of the holders of shares entitled to notice of and entitled to vote at the
meeting. When a date is so fixed, only shareholders on that date are entitled
to notice of and permitted to vote at that meeting of shareholders.
Section 1.09 Proxies. A shareholder may cast or authorize the casting of
a vote by filing a written appointment of a proxy with an officer of the
Corporation at or before the meeting at which the appointment is to be
effective. The shareholder may sign or authorize the written appointment by
telegram, cablegram or other means of electronic transmission, provided that
the Corporation has no reason to believe that the telegram, cablegram or other
electronic transmission was not authorized by the shareholder. Any copy,
facsimile, telecommunication or other reproduction of the original of either
the writing or transmission may be used in lieu of the original, provided that
it is a complete and legible reproduction of the entire original.
Section 1.10 Quorum. The holders of a majority of the voting power of the
shares entitled to vote at a shareholders meeting are a quorum for the
transaction of business. If a quorum is present when a duly called or held
meeting is convened, the shareholders present may continue to transact business
until adjournment, even though the withdrawal of a number of the shareholders
originally present leaves less than the proportion or number otherwise required
for a quorum.
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Section 1.11 Acts of Shareholders. Subdivision 1. Except as otherwise
required by law or specified in the Articles of Incorporation of the
Corporation, the shareholders shall take action by the affirmative vote of the
holders of the greater of (a) a majority of the voting power of the shares
present and entitled to vote on that item of business or (b) a majority of the
voting power of the minimum number of shares entitled to vote that would
constitute a quorum for the transaction of business at a duly held meeting of
shareholders.
Subdivision 2. A shareholder voting by proxy authorized to vote on less
than all items of business considered at the meeting shall be considered to be
present and entitled to vote only with respect to those items of business for
which the proxy has authority to vote. A proxy who is given authority by a
shareholder who abstains with respect to an item of business shall be
considered to have authority to vote on that item of business.
Section 1.12 Action Without a Meeting. Any action required or permitted
to be taken at a meeting of the shareholders of the Corporation may be taken
without a meeting by written action signed by all of the shareholders entitled
to vote on that action. The written action is effective when it has been
signed by all of those shareholders, unless a different effective time is
provided in the written action.
DIRECTORS
Section 2.01 Number: Qualifications. Except as authorized by the
shareholders pursuant to a shareholder control agreement or unanimous
affirmative vote, the business and affairs of the Corporation shall be managed
by or under the direction of a Board of one or more directors. Directors shall
be natural persons. The shareholders at each regular meeting shall determine
the number of directors to constitute the Board, provided that thereafter the
authorized number of directors may be increased by the shareholders or the
Board and decreased by the shareholders. Directors need not be shareholders.
Section 2.02 Term. Each director shall serve for an indefinite term that
expires at the next regular meeting of the shareholders. A director shall hold
office until a successor is elected and has qualified or until the earlier
death, resignation, removal disqualification of the director.
Section 2.03 Vacancies. Vacancies on the Board of Directors resulting
from the death, resignation, removal or disqualification of a director may be
filled by the affirmative vote of a majority of the remaining members of the
Board, though less than a quorum. Vacancies on the Board resulting from newly
created directorships may be filled by the affirmative vote of a majority of
the directors serving at the time such directorships are created. Each person
elected to fill a vacancy shall hold office until a qualified successor is
elected by the shareholders at the next regular meeting or at any special
meeting duly called for that purpose.
Section 2.04 Place of Meetings. Each meeting of the Board of Directors
shall be held at the principal executive office of the Corporation or at such
other place as may be designated from time to time by a majority of the
members of the Board or by the Chief Executive Officer. A meeting may be held
by conference among the directors using any means of communication through
which the directors may simultaneously hear each other during the conference.
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Section 2.05 Regular Meetings. Regular meetings of the Board of Directors
for the election of officers and the transaction of any other business shall be
held without notice at the place of and immediately after each regular meeting
of the shareholders.
Section 2.06 Special Meetings. A special meeting of the Board of
Directors may be called for any purpose or purposes at any time by any member
of the Board by giving not less than two days' notice to all directors of the
date, time and place of the meeting, provided that when notice is mailed, at
least four days' notice shall be given. The notice need not state the purpose
of the meeting.
Section 2.07 Waiver of Notice: Previously Scheduled Meetings. Subdivision
1. A director of the Corporation may waive notice of the date, time and place
of a meeting of the Board. A waiver of notice by a director entitled to notice
is effective whether given before, at or after the meeting, and whether given
in writing, orally or by attendance. Attendance by a director at a meeting is
a waiver of notice of the meeting, unless the director objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened and thereafter does not participate in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting have
been provided herein or announced at a previous meeting of the Board, no notice
is required. Notice of an adjourned meeting need not be given other than by
announcement at the meeting at which adjournment is taken of the date, time and
place at which the meeting will be reconvened.
Section 2.08 Quorum. The presence in person of a majority of the
directors currently holding office shall be necessary to constitute a quorum
for the transaction of business. In the absence of a quorum, a majority of the
directors present may adjourn a meeting from time to time without further
notice until a quorum is present. If a quorum is present when a duly called or
held meeting is convened, the directors present may continue to transact
business until adjournment, even though the withdrawal of a number of the
directors originally present leaves less than the proportion or number
otherwise required for a quorum.
Section 2.09 Acts of Board. Except as otherwise required by law or
specified in the Articles of Incorporation of the Corporation, the Board shall
Take action by the affirmative vote of the greater of (a) a majority of the
directors present at a duly held meeting at the time the action is taken or (b)
a majority of the minimum proportion or number of directors that would
constitute a quorum for the transaction of business at the meeting.
Section 2.10 Participation by Electronic Communication. A director may
participate in a Board meeting by any means of communication through which the
director, other directors so participating and all directors physically present
at the meeting may simultaneously hear each other during the meeting. A
director so participating shall be deemed present in person at the meeting.
Section 2.11 Absent Directors. A director of the Corporation may give
advance written consent or opposition to a proposal to be acted on at a Board
meeting. If the director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as the vote
of a
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<PAGE> 5
director present at the meeting in favor of or against the proposal and shall
be entered in the minutes or other record of action at the meeting, if the
proposal acted on at the meeting is substantially the same or has substantially
the same effect as the proposal to which the director has consented or
objected.
Section 2.12 Action Without a Meeting. An action required or permitted to
be taken at a Board meeting may be taken without a meeting by written action
signed by all of the directors. Any action, other than an action requiring
shareholder approval, if the Articles of Incorporation so provide, may be taken
by written action signed by the number of directors that would be required to
take the same action at a meeting of the Board at which all directors were
present. The written action is effective when signed by the required number of
directors, unless a different effective time is provided in the written action.
When written action is permitted to be taken by less than all directors, all
directors shall be notified immediately of its text and effective date.
Section 2.13 Committees. Subdivision 1. A resolution approved by the
affirmative vote of a majority of the Board may establish committees having the
authority of the Board in the management of the business of the Corporation
only to the extent provided in the resolution. Committees shall be subject at
all times to the direction and control of the Board, except as provided in
Section 2.14 or otherwise provided by law.
Subdivision 2. A committee shall consist of one or more natural persons,
who need not be directors, appointed by affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 3. Section 2.04 and Sections 2.06 to 2.12 hereof shall apply
to committees and members of committees to the same extent as those sections
apply to the Board and directors.
Subdivision 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
Section 2.14 Special Litigation Committee. Pursuant to the procedure set
forth in Section 2.13, the Board may establish a committee composed of one or
more independent directors or other independent persons to determine whether it
is in the best interests of the Corporation to consider legal rights or
remedies of the Corporation and whether those rights and remedies should be
pursued. The committee, once established, is not subject to the direction or
control of, or (unless required by law) termination by, the Board. To the
extent permitted by law, a vacancy on the committee may be filled by a majority
vote of the remaining committee members. The good faith determinations of the
committee are binding upon the Corporation and its directors, officers and
shareholders to the extent permitted by law. The committee terminates when it
issues a written report of its determinations to the Board.
Section 2.15 Compensation. The Board may fix the compensation, if any, of
directors.
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OFFICERS
Section 3.01 Number and Designation. The Corporation shall have one or
more natural persons exercising the functions of the offices of Chief Executive
Officer and Chief Financial Officer. The Board of Directors may elect or
appoint such other officers or agents as it deems necessary for the operation
and management of the Corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall have the powers, rights, duties and
responsibilities set forth in these By-Laws unless otherwise determined by the
Board. Any of the offices or functions of those offices may be held by the
same person.
Section 3.02 Chief Executive Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Executive Officer (a)
shall have general active management of the business of the Corporation; (b)
shall, when present, preside at all meetings of the shareholders and Board; (c)
shall see that all orders and resolutions of the Board are carried into effect;
(d) may maintain records of and certify proceedings of the Board and
shareholders; and (e) shall perform such other duties as may from time to time
be assigned by the Board.
Section 3.03 Chief Financial Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Financial Officer (a)
shall keep accurate financial records for the Corporation; (b) shall deposit
all monies, drafts and checks in the name of and to the credit of the
Corporation in such banks and depositories as the Board shall designate from
time to time; (c) shall endorse for deposit all notes, checks and drafts
received by the Corporation as ordered by the Board, making proper vouchers
therefor; (d) shall disburse corporate funds and issue checks and drafts in the
name of the Corporation, as ordered by the Board; (e) shall render to the Chief
Executive Officer and the Board, whenever requested, an account of all of such
officer's transactions as Chief Financial Officer and of the financial
condition of the Corporation; and (f) shall perform such other duties as may be
prescribed by the Board or the Chief Executive Officer from time to time
Section 3.04 President. Unless otherwise determined by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation. If an officer other than the President is designated Chief
Executive Officer, the President shall perform such duties as may from time to
time be assigned by the Board.
Section 3.05. Vice Presidents. Any one or more Vice Presidents, if any,
may be designated by the Board of Directors as Executive Vice Presidents or
Senior Vice Presidents. During the absence or disability of the President, it
shall be the duty of the highest ranking Executive Vice President, and, in the
absence of any such Vice President, it shall be the duty of the highest ranking
Senior Vice President or other Vice President, who shall be present at the time
and able to act, to perform the duties of the President. The determination of
who is the highest ranking of two or more persons holding the same office
shall, in the absence of specific designation of order of rank by the Board, be
made on the basis of the earliest date of appointment or election, or, in the
event of simultaneous appointment or election, on the basis of the longest
continuous employment by the Corporation.
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Section 3.06 Secretary. The Secretary, unless otherwise determined by the
Board of Directors, shall attend all meetings of the shareholders and all
meetings of the Board, shall record or cause to be recorded all proceedings
thereof in a book to be kept for that purpose, any may certify such
proceedings. Except as otherwise required or permitted by law or by these
By-Laws, the Secretary shall give or cause to be given notice of all meetings
of the shareholders and all meetings of the Board.
Section 3.07 Treasurer. Unless otherwise determined by the Board of
Directors, the Treasurer shall be the Chief Financial Officer of the
Corporation. If an officer other than the Treasurer is designated Chief
Financial Officer, the Treasurer shall perform such duties as may from time
to time be assigned by the Board.
Section 3.08 Authority and Duties. In addition to the foregoing authority
and duties, all officers of the Corporation shall respectively have such
authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors.
Unless prohibited by a resolution approved by the affirmative vote of a
majority of the directors present, an officer elected or appointed by the Board
may, without the approval of the Board, delegate some or all of the duties and
powers of an office to other persons.
Section 3.09 Term. Subdivision 1. All officers of the Corporation shall
hold office until their respective successors are chosen and have qualified or
until their earlier death, resignation or removal.
Subdivision 2. An officer may resign at any time by giving written notice
to the Corporation. The resignation is effective without acceptance when the
notice is given to the Corporation, unless a later effective date is specified
in the notice.
Subdivision 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in
the office of Chief Executive Officer or Chief Financial Officer shall, be
filled for the unexpired portion of the term by the Board.
Section 3.10 Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors or by the Chief Executive Officer if
authorized by the Board.
INDEMNIFICATION
Section 4.01 Indemnification. The Corporation shall indemnify its
officers and directors for such expenses and liabilities, in such manner, under
such circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
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Section 4.02 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against
any liability asserted against and incurred by such person in or arising from
that capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
SHARES
Section 5.01 Certified and Uncertified Shares. Subdivision 1. The shares
of the Corporation shall be either certificated shares or uncertificated
shares. Each holder of duly issued certificated shares is entitled to a
certificate of shares.
Subdivision 2. Each certificate of shares of the Corporation shall bear the
corporate seal, if any, and shall be signed by the Chief Executive Officer, or
the President or any Vice President, and the Chief Financial Officer, or the
Secretary or any Assistant Secretary, but when a certificate is signed by a
transfer agent or a registrar, the signature of any such officer and the
corporate seal upon such certificate may be facsimiles, engraved or printed.
If a person signs or has a facsimile signature placed upon a certificate while
an officer, transfer agent or registrar of the Corporation, the certificate may
be issued by the Corporation, even if the person has ceased to serve in that
capacity before the certificate is issued, with the same effect as if the
person had that capacity at the date of its issue.
Subdivision 3. A certificate representing shares issued by the Corporation
shall, if the Corporation is authorized to issue shares of more than one class
or series, set forth upon the face or back of the certificate, or shall state
that the Corporation will furnish to any shareholder upon request and without
charge, a full statement of the designations, preferences, limitations and
relative rights of the shares of each class or series authorized to be issued,
so far as they have been determined, and the authority of the Board to
determine the relative rights and preferences of subsequent classes or series.
Subdivision 4. A resolution approved by the affirmative vote of a majority
of the directors present at a duly held meeting of the Board may provide that
some or all of any or all classes and series of the shares of the Corporation
will be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until the certificate is surrendered to the
Corporation.
Section 5.02 Declaration of Dividends and Other Distributions. The Board
of Directors shall have the authority to declare dividends and other
distributions upon the shares of the Corporation to the extent permitted by
law.
Section 5.03 Transfer of Shares. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by such person's attorney. In the case of certificated shares,
shares shall be transferred only upon surrender and cancellation of
certificates for a like number of shares. The Board of Directors, however, may
appoint one or more transfer agents and registrars to maintain the share
records of the Corporation and to effect transfers of shares.
Section 5.04 Record Date. The Board of Directors may fix a time, not
exceeding 60 days preceding the date fixed for the payment of any dividend or
other distribution, as a record date for
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the determination of the shareholders entitled to receive payment of such
dividend or other distribution, and in such case only shareholders of record on
the date so fixed shall be entitled to receive payment of such dividend or
other distribution, notwithstanding any transfer of any shares on the books of
the Corporation after any record date so fixed.
MISCELLANEOUS
Section 6.01 Execution of Instruments. Subdivision 1. All deeds,
mortgages, bonds, checks, contracts and other instruments pertaining to the
business and affairs of the Corporation shall be signed on behalf of the
Corporation by the Chief Executive Officer, or the President, or any Vice
President, or by such other person or persons as may be designated from time to
time by the Board of Directors.
Subdivision 2. If a document must be executed by persons holding different
offices or functions and one person holds such offices or exercises such
functions, that person may execute the document in more than one capacity if
the document indicates each such capacity.
Section 6.02 Advances. The Corporation may, without a vote of the
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
Section 6.03 Corporate Seal. The seal of the Corporation, if any, shall
be a circular embossed seal having inscribed thereon the name of the
Corporation and the following words:
"Corporate Seal Minnesota".
Section 6.04 Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.05 Amendments. The Board of Directors shall have the power to
adopt, amend or repeal the By-Laws of the Corporation, subject to the power of
the shareholders to change or repeal the same, provided, however, that the
Board shall not adopt, amend or repeal any By-Law fixing a quorum for meetings
of shareholders, prescribing procedures for removing directors or filling
vacancies in the Board, or fixing the number of directors or their
classifications, qualifications or terms of office, but may adopt or amend a
By-Law that increases the number of directors.
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EXHIBIT 4.1
A Minnesota Corporation
- # - - 0 -
JUBILEE GAMING ENTERPRISES, INC.
Common Stock No Par Value
This Certifies that John Doe************************** is the
----------------------------------------------
registered holder of Zero (0)************************* Shares
---------------------------------------------
transferable only on the books of the Corporation by the holder hereof
in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed
this day of A.D. 19
----------- -------------- --
- ---------------------------------- ----------------------------------
Secretary President
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT, dated as of _____________, 1996, by and between
Jubilee Gaming Enterprises, Inc., a Minnesota corporation (the "Company"), and
Norwest Bank Minnesota, National Association, as the Warrant Agent (the
"Warrant Agent").
WHEREAS, the Company proposes to issue at least 1,200,000 and up to
1,380,000 Redeemable Common Stock Purchase Warrants (the "Warrants") evidencing
the right to purchase an aggregate of up to 1,380,000 authorized but previously
unissued shares of common stock, no par value, of the Company (the "Common
Stock"). The Warrants are to be issued in connection with the issuance by the
Company of at least 1,200,000 and up to 1,380,000 Units, each Unit consisting
of one share of Common Stock and one Warrant, pursuant to the Company's
Registration Statement on Form SB-2.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent desires so to act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants.
NOW, THEREFORE, the Company and the Warrant Agent hereby agree as follows:
ARTICLE I
APPOINTMENT OF WARRANT AGENT;
ISSUANCE, FORM AND EXECUTION OF WARRANT CERTIFICATES
Section 1.1 Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company, and the Warrant Agent hereby
accepts the agency established herein and agrees to perform its agency duties
in accordance with the terms and conditions of this Warrant Agreement.
Section 1.2 Warrant Certificates. The Company shall execute and deliver to
the Warrant Agent certificates which the Company has authorized to represent
the Warrants (the "Warrant Certificates"). The Warrant Certificates shall be
substantially as set forth in Exhibit A hereto and may have such legends,
summaries or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Warrant Agreement, or
as may be required to comply with any law or with any rule or regulation
relating to listing of the Warrants on the Nasdaq system, including the Nasdaq
SmallCap Market, or on any stock exchange or to conform to usage. The Warrant
Certificates shall be dated with the date of their issuance.
Section 1.3 Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by a duly authorized officer of the
Company, either manually or by facsimile signature printed thereon. The Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless countersigned. Any Warrant Certificate may be
signed on behalf of the Company by the person who at the actual date of the
signing of such Warrant Certificate shall have been a
<PAGE> 2
duly authorized officer of the Company, regardless of whether at the date of
issuance of such Warrant Certificate such person has ceased to be a duly
authorized officer of the Company.
ARTICLE II
EXERCISE OF WARRANTS
Section 2.1 Exercise. Any or all of the Warrants represented by each
Warrant Certificate may be exercised by the holder thereof on or before 5:00
p.m., Minneapolis time, on ____________, 2001 (unless extended by the Company),
by surrender of the Warrant Certificate with the purchase form, which is printed
on the reverse thereof (or a reasonable facsimile thereof), duly executed by
such holder, to the Warrant Agent at its principal office in South St. Paul,
Minnesota. The purchase form must be accompanied by payment, in cash or by
certified check payable to the Company, in an amount equal to the product of the
number of shares of Common Stock issuable upon exercise of the Warrant
represented by such Warrant Certificate, as adjusted pursuant to the provisions
of Article III hereof, multiplied by the exercise price of $6.50, as adjusted
pursuant to the provisions of Article III hereof (such price as so adjusted from
time to time being herein called the "Purchase Price"), and such holder shall be
entitled to receive such number of fully paid and nonassessable shares of Common
Stock, as so adjusted, at the time of such exercise.
Section 2.2 Time of Exercise. Each exercise of Warrants shall be deemed to
have been effective immediately prior to the close of business on the business
day on which the Warrant Certificate relating to such Warrant shall have been
surrendered to the Warrant Agent as provided in Section 2.1. At such time, the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such exercise as provided in
Section 2.3, shall be deemed to have become the holder or holders of record
thereof.
Section 2.3 Issuance of Shares of Common Stock; No Fractional Shares. As
soon as practicable after the exercise of any Warrant, and in any event within
10 days after receipt by the Company of the notice of exercise under Section
2.1, the Company, at its expense (including the payment by it of any applicable
issue taxes), will cause to be issued in the name of and delivered to the holder
thereof or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct:
(a) a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which such holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
holder would otherwise be entitled, an amount in cash equal to such
fraction multiplied by the then current value of a share of Common Stock,
such current value to be determined as follows:
(i) if the Common Stock shall be listed or admitted to
unlisted trading privileges on any single national securities
exchange, then such current value shall be computed on the basis of
the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date
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of the exercise of such Warrant upon which a sale shall have been
effected; or
(ii) if the Common Stock shall not be so listed or admitted
to unlisted trading privileges and bid and asked prices therefor in
the over-the-counter market shall be reported by the Nasdaq Stock
Market, including the Nasdaq SmallCap Market, then such current value
shall be computed on the basis of the Last Reported Sale Valuation
Method or, in the event such method is not then used by Nasdaq, the
average of the closing bid and asked prices on the last business day
prior to the date of the exercise of such Warrant as so reported; or
(iii) if the Common Stock shall be listed or admitted to
unlisted trading privileges on more than one national securities
exchange or one or more national securities exchanges and in the
over-the-counter market, then such current value shall, if different
as a result of calculation under the applicable method(s) described
above in this Section, be deemed to be the higher number calculated in
connection therewith; or
(iv) if the Common Stock shall not be so listed or admitted
to unlisted trading privileges and such bid and asked prices shall not
be so reported, then such current value shall be computed on the basis
of the book value of Common Stock as of the close of business on the
last day of the month immediately preceding the date upon which such
warrant was exercised, as determined by the Company; and
(b) in case such exercise includes only part of the Warrants
represented by the Warrant Certificate, a new Warrant Certificate or
Warrant Certificates of like tenor calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock equal (without
giving effect to any adjustment therein) to the number of such shares
called for on the face of such Warrant Certificate minus the number of such
shares designated by the holder for such exercise as provided in Section
2.1. Warrants represented by a properly assigned Warrant Certificate may be
exercised by a new holder without first having a new Warrant Certificate
issued.
Section 2.4 Extension of Exercise Period; Change of Exercise Price. The
Company may, upon notice given to the Warrant Agent, and without the consent of
the holders of the Warrant Certificates, (a) reduce the Purchase Price during
all or any portion of the originally stated exercise period, (b) extend the
period over which the Warrants are exercisable beyond ____________, 2001, and
(c) increase or decrease the Purchase Price for any period the Warrant exercise
period is extended. Within a reasonable time prior to the effective time of such
change or extension, the Company shall provide the Warrant Agent and
Warrantholders of record with written notice of any change in the Purchase Price
or extension of the exercise period, as the case may be, specifying the time to
which such exercise period is extended, or the new Purchase Price and the
periods for which such new Purchase Price is in effect.
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ARTICLE III
ANTIDILUTION PROVISIONS
Section 3.1 Adjustment of Purchase Price.
(a) In the event that:
(i) any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock
shall be paid by the Company;
(ii) the Company shall subdivide its then outstanding
shares of Common Stock into a greater number of shares; or
(iii) the Company shall combine outstanding shares of
Common Stock by reclassification or otherwise;
the Purchase Price in effect immediately prior to such event shall (until
adjusted again pursuant hereto) be adjusted immediately after such event to a
price (calculated to the nearest full cent) determined by dividing, (A) the
number of shares of Common Stock outstanding immediately prior to such event,
multiplied by the then existing Purchase Price, by (B) the total number of
shares of Common Stock outstanding immediately after such event (including the
maximum number of shares of Common Stock issuable in respect of any securities
convertible into Common Stock). The resulting quotient shall be the adjusted
Purchase Price per share.
(b) No adjustments of the Purchase Price shall be made if the
amount of such adjustments shall be less than $.05 per share, but in such
case any adjustment that would otherwise be required then to be made shall
be carried forward and shall be made at the time and together with a
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to not less than $.05 per share.
Section 3.2 Adjustment of Number of Shares Purchasable on Exercise of
Warrants. Upon each adjustment of the Purchase Price pursuant to Section 3.1
above, the registered holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Purchase Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Purchase Price in effect prior to such adjustment) by the
Purchase Price in effect prior to such adjustment and dividing the product so
obtained by the adjusted Purchase Price.
Section 3.3 Notice as to Adjustment. Upon any adjustment of the Purchase
Price and in the number of shares of Common Stock purchasable upon the exercise
of the Warrant, then, and in each such case, the Company shall within 10 days
after the effective date of such adjustment give written notice thereof, by
first class mail, postage prepaid, addressed to each registered Warrantholder at
the address of such Warrantholder as shown
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<PAGE> 5
on the books of the Company, which notice shall state the adjusted Purchase
Price and the adjusted number of shares purchasable upon the exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which each calculation is based.
Section 3.4 Effect of Reorganization, Reclassification, Merger, Etc. If
at any time while any Warrant is outstanding there should be any capital
reorganization or reclassification of the capital stock of the Company (other
than the issuance of any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise and other than a
combination of shares provided for in Section 3.1 hereof or any consolidation or
merger of the Company with another corporation or any sale, conveyance, lease or
other transfer by the Company of all or substantially all of its property to any
other corporation, then the holder of any Warrant shall, during the remainder of
the period such Warrant is exercisable, be entitled to receive, upon payment of
the Purchase Price, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
consolidation or merger, or of the corporation in which the property of the
Company has been sold, conveyed, leased or otherwise transferred, as the case
may be, to which the Common Stock (and any other securities and property ) of
the Company, deliverable upon the exercise of such Warrant, would have been
entitled upon such capital reorganization, reclassification of capital stock,
consolidation, merger, sale, conveyance, lease or other transfer if such Warrant
had been exercised immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale, conveyance,
lease or other transfer; provided that, in any such case, appropriate adjustment
(as determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth in this Warrant Agreement with respect
to the rights and interests thereafter of the Warrantholders to the end that the
provisions set forth in this Warrant Agreement (including the adjustment of the
Purchase Price and the number of shares issuable upon the exercise of the
Warrants) shall thereafter be applicable, as near as may be reasonably
practicable, in relation to any shares or other property thereafter deliverable
upon the exercise of the Warrants as if the Warrants had been exercised
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger, sale, conveyance, lease or other transfer and the
Warrantholders had carried out the terms of the exchange as provided for by such
capital reorganization, reclassification, consolidation or merger. The Company
shall not effect any such capital reorganization, consolidation, merger or
transfer unless, upon or prior to the consummation thereof, the successor
corporation or the corporation to which the property of the Company has been
sold, conveyed, leased or otherwise transferred shall assume by written
instrument the obligation to deliver to the holder of each Warrant such shares
of stock, securities, cash or property as, in accordance with the foregoing
provisions, such holder shall be entitled to purchase.
Section 3.5 Prior Notice as to Certain Events. In case at any time:
(a) the Company shall pay any dividend upon its Common Stock
payable in stock or make any distribution (other than cash dividends) to
the holders of its Common Stock;
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<PAGE> 6
(b) the Company shall offer for subscription purposes to the
holders of its Common Stock any additional shares of stock of any class or
any other rights;
(c) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale, conveyance, lease or other transfer of all or
substantially all of its assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
the Company shall give prior written notice, by first class mail, postage
prepaid, addressed to each registered Warrantholder at the address of such
Warrantholder as shown on the books of the Company, of the date on which (i)
the books of the Company shall close or a record shall be taken for each stock
dividend, distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in such dividend, distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding up, as the case may be. Such
written notice shall be given at least 20 days prior to the action in question
and not less than 20 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto.
Section 3.6 Certain Obligations of the Company. The Company will not, by
any voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant Agreement or the Warrant Certificate, but will
at all times in good faith assist in the carrying out of all such terms.
Without limiting the generality of the foregoing, the Company (a) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of all Warrants from time to time outstanding, and (b) will
not (i) transfer all or substantially all of its properties and assets to any
other person or entity, (ii) consolidate with or merge into any other entity
where the Company is not the surviving entity, or (iii) permit any other entity
to consolidate with or merge into the Company where the Company is the surviving
entity, where in connection with such consolidation or merger, the Common Stock
then issuable upon the exercise of the Warrant shall be changed into or
exchanged for shares or other securities or property of any other entity unless,
in any such case, the other entity acquiring such properties and assets,
continuing or surviving after such consolidation or merger or issuing or
distributing such shares or other securities or property, as the case may be,
shall expressly assume in writing and be bound by all the terms of this Warrant
Agreement and the Warrant Certificates.
Section 3.7 Reservation and Listing of Common Stock. The Company will at
all times reserve a sufficient number of shares of Common Stock to provide for
the issuance of the same upon the exercise of all outstanding Warrants. All
such shares shall be authorized and, when issued upon such exercise, shall be
validly issued, fully paid and
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nonassessable. Upon the exercise of any of the Warrants, the Company, at its
expense, will list on the Nasdaq system, including the Nasdaq SmallCap Market,
if applicable, and on each national securities exchange on which any Common
Stock may be listed, subject to official notice of issuance, and will maintain
such listing of, the shares of Common Stock issued upon the exercise of any
Warrant.
Section 3.8 Registration or Exemption for Common Stock. The Company will
use its best efforts (a) at all times the Warrants are exercisable, to maintain
an effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), covering Common Stock issuable upon exercise of the
Warrants, (b) to amend or supplement the prospectus contained in such
registration statement to the extent necessary in order to comply with
applicable law, (c) to qualify the Common Stock issuable upon exercise of the
Warrants for exemption from the registration requirements of the Securities Act,
and (d) to maintain exemptions or qualifications, in those jurisdictions in
which the original registration statement relating to the Warrants was initially
qualified, to permit the exercise of the Warrants and the issuance of the Common
Stock pursuant to such exercise. The Warrant Agent shall have no responsibility
for the maintenance of such exemptions or qualifications or for liabilities
arising from the exercise or attempted exercise of Warrants in jurisdictions
where exemptions or qualifications have not been maintained or are otherwise
unavailable. Shares of Common Stock will not be issued to persons desiring to
exercise the Warrants if, at the time of exercise, a registration statement is
not effective under the Securities Act or the Common Stock underlying the
Warrants is not qualified or exempt from qualification in the state where the
holders of the Warrants reside.
ARTICLE IV
REDEMPTION OF WARRANTS
Section 4.1 Redemption Price. The Warrants may be redeemed at the option
of the Company, at any time on or after ____________, 1997 [90 days from the
date of this Warrant Agreement] and on or before ___________, 2001, upon notice
as set forth in Section 4.2 and at the redemption price equal to $.01 per
warrant, provided that (a) the last reported sale price of the Common Stock on a
national securities exchange, if the Common Stock shall be listed or admitted to
unlisted trading privileges on a national securities exchange, or (b) the
closing bid price of the Common Stock on the Nasdaq system, if the Common Stock
is not so listed or admitted to unlisted trading privileges, exceeds $10.00 per
share (such price subject to adjustment from time to time in the same manner as
the Purchase Price pursuant to the provisions of Article III hereof for any 20
consecutive trading days prior to the date such notice of redemption is given.
Section 4.2 Notice of Redemption. In the case of any redemption of
Warrants, the Company or, at its request, the Warrant Agent in the name of and
at the expense of the Company, shall give notice of such redemption to the
holders of the Warrants to be redeemed as hereinafter provided in this Section
4.2. Notices of redemption to the holders of Warrants shall be given by mailing
by first-class mail a notice of such redemption not less than 30 days prior to
the date fixed for redemption. Any notice which is given in the manner herein
provided shall be conclusively presumed to have been duly given, whether
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or not the holder receives notice. In any case, failure to duly give such
notice to the holder of any Warrant Certificate shall not affect the validity of
the proceedings for the redemption of the Warrants represented by any other
Warrant Certificate. Each such notice shall specify the date fixed for
redemption, the place of redemption and the redemption price of $.01 at which
each Warrant is to be redeemed, and shall state that payment of the redemption
price of the Warrants will be made upon surrender of the Warrants at such place
of redemption, and that if not exercised by the close of business on the date
fixed for redemption, the exercise rights of the Warrants identified for
redemption shall expire unless extended by the Company. Such notice shall also
state the current Purchase Price and the date on which the right to exercise the
Warrants will expire unless extended by the Company.
Section 4.3 Payment of Warrants on Redemption; Deposit of Redemption
Price. If notice or redemption shall have been given as provided in Section 4.2,
the redemption price of $.01 per Warrant shall, unless the Warrant is
theretofore exercised pursuant to the terms hereof, become due and payable on
the date and at the place stated in such notice. On and after such date of
redemption, provided that cash sufficient for the redemption thereof shall then
be deposited by the Company with the Warrant Agent for that purpose, the
exercise rights of the Warrants identified for redemption shall expire. On
presentation and surrender of Warrant Certificates at such place of payment
specified in such notice, the Warrant identified for redemption shall be paid
and redeemed at the redemption price of $.01 per Warrant. Prior to the date
fixed for redemption, the Company shall deposit with the Warrant Agent an amount
of money sufficient to pay the redemption price of all the Warrants identified
for redemption. Any monies which shall have been deposited with the Warrant
Agent for redemption of Warrants and which are not required for that purpose by
reason of exercise of Warrants shall be repaid to the Company upon delivery to
the Warrant Agent of evidence satisfactory to it of such exercise.
ARTICLE V
CERTAIN OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANT CERTIFICATES
Section 5.1 No Rights of Shareholders. The Warrant Certificates shall be
issued in registered form only. No Warrant Certificate shall entitle the holder
thereof to any of the rights of a holder of shares of Common Stock of the
Company, including, without limitation, the right to vote, to receive dividends
and other distributions, or to receive any notice of, or to attend meetings of
holders of Common Stock or any other proceeding of the Company.
Section 5.2 Loss, Theft, Destruction or Mutilation of Warrant
Certificates. Upon receipt by the Warrant Agent of evidence reasonably
satisfactory to the Warrant Agent of the loss, theft, destruction or mutilation
of any Warrant Certificate, and (a) in the case of such loss, theft, or
destruction upon delivery to the Warrant Agent of an indemnity bond in form and
amount, and issued by a bonding company, reasonably satisfactory to the Company,
or (b) in the case of any such mutilation, upon surrender to and cancellation by
the Warrant Agent of such Warrant Certificate, the Company at its expense will
execute and
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cause the Warrant Agent to countersign and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
Section 5.3 Transfer Agent; Cancellation of Warrant Certificates;
Unexercised Warrants. Norwest Bank Minnesota, National Association (and any
successor), as transfer agent (the "Transfer Agent"), is hereby irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued shares of Common Stock as shall be sufficient to permit the exercise in
full of all Warrants from time to time outstanding. The Company will keep a
copy of this Warrant Agreement on file with the Transfer Agent. The Warrant
Agent, and any successor thereto, is hereby irrevocably authorized to
requisition from time to time from the Transfer Agent certificates for shares of
Common Stock required for exercise of Warrants. The Company will supply the
Transfer Agent with duly executed certificates for shares of Common Stock for
such purpose and will make available any cash required in settlement of
fractional share interests. All Warrant Certificates surrendered upon the
exercise or redemption of Warrants shall be canceled by the Warrant Agent and
shall thereafter be delivered to the Company. Such canceled Warrant
Certificates, with the purchase form on the reverse thereof duly filled in and
signed, shall constitute conclusive evidence as between the parties hereto of
the numbers of shares of Common Stock which shall have been issued upon
exercises of Warrants. Promptly after the last day on which the Warrants are
exercisable (set forth in Section 2.1 above), the Warrant Agent shall certify to
the Company the aggregate number of Warrants then outstanding and unexercised.
No shares of Common Stock shall be subject to reservation with respect to
Warrants not exercised prior to the time and date identified in Section 2.1
above as the last time and date at which Warrants may be exercised.
ARTICLE VI
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
Section 6.1 Warrant Register; Transfer or Exchange of Warrant
Certificates. The Warrant Agent shall cause to be kept at the principal office
of the Warrant Agent a register (the "Warrant Register") in which, subject to
such reasonable regulations as the Company may prescribe, provisions shall be
made for the registration of transfers and exchanges of Warrant Certificates.
Upon surrender for transfer or exchange of any Warrant Certificate, properly
endorsed, to the Warrant Agent, the Warrant Agent at the Company's expense will
issue and deliver to or upon the order of the holder thereof a new Warrant
Certificate of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face thereof for the number of shares of Common Stock
called for on the face of the Warrant Certificate so surrendered. Any Warrant
Certificate surrendered for transfer or exchange shall be canceled by the
Warrant Agent and shall thereafter be delivered to the Company.
Section 6.2 Identity of Warrantholders. Until a Warrant Certificate is
transferred in the Warrant Register, the Company and the Warrant Agent may treat
the person in whose name the Warrant Certificate is registered as the absolute
owner thereof and of the Warrants represented thereby for all purposes,
notwithstanding any notice to the contrary, except that, if and when any Warrant
Certificate is properly assigned in blank, the Company
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and the Warrant Agent may (but shall not be obligated to) treat the bearer
thereof as the absolute owner of the Warrant Certificate and of the Warrant
represented thereby for all purposes, notwithstanding any notice to the
contrary.
ARTICLE VII
CONCERNING THE WARRANT AGENT
Section 7.1 Taxes. The Company will, from time to time, promptly pay to
the Warrant Agent, or make provision satisfactory to the Warrant Agent for the
payment of all taxes and charges that may be imposed by the United States or any
State upon the Company or the Warrant Agent upon the transfer or delivery of
shares of Common Stock upon the exercise of Warrants, but the Company shall not
be obligated to pay any tax imposed in connection with any transfer involved in
the delivery of a certificate for shares of Common Stock in any name other than
that of the registered holder of the Warrant Certificate surrendered in
connection with the purchase thereof.
Section 7.2 Replacement of Warrant Agent in Certain Circumstances.
(a) The Warrant Agent may resign its duties and be discharged from
all. further duties and liabilities hereunder after giving 30 days' written
notice to the Company (except that such shorter notice may be given if
approved by the Company). The Company may discharge the Warrant Agent at
any time with or without reason, effective upon 30 days' written notice to
the Warrant Agent (except that such shorter notice may be given if approved
by the Warrant Agent). If the office of Warrant Agent becomes vacant by
resignation, discharge, incapacity to act or otherwise, the Company shall
appoint a new Warrant Agent, the principal office of which shall be in
Minnesota. If the Company shall fail to make such appointment within a
period of 30 days after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or by the
holder of a Warrant Certificate, then the holders of any Warrant
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent. Any new Warrant Agent, whether
appointed by the Company or by such a court, shall be a corporation
organized and doing business under the laws of the United States or of the
State of Minnesota and authorized under such laws to exercise corporate
trust powers and subject to supervision or examination by federal or state
authority. Furthermore, such new Warrant Agent shall be of good standing
and shall have its principal office in Minnesota. Any new Warrant Agent
appointed hereunder shall execute, acknowledge and deliver to the Company
an instrument accepting such appointment hereunder and thereupon such new
Warrant Agent without any further act or deed shall become vested with all
the rights, powers, duties and responsibilities of the Warrant Agent
hereunder with like effect as if it had been named herein as the Warrant
Agent, but if for any reason it becomes necessary or expedient to have the
former Warrant Agent execute and deliver any further assurance, conveyance,
act or deed, the same shall be done and shall be legally and validly
executed and delivered by the former Warrant Agent. Not later than the
effective date of any such appointment the Company shall file notice
thereof with the former Warrant Agent. The Company shall promptly give
notice of any such appointment to the holders of the Warrant Certificates
by mail to their addresses as shown in the Warrant Register. Failure to
file or give such notice, or any defect therein, shall not affect the
legality or validity of the appointment of the successor Warrant Agent.
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The Company shall promptly give notice of any such appointment to the
holders of the Warrant Certificates by mail to their addresses as shown in
the Warrant Register. Failure to file or give such notice, or any defect
therein, shall not affect the legality or validity of the appointment of
the successor Warrant Agent.
(b) Any company into which the Warrant Agent or any new Warrant Agent
may be merged or converted or with which it may be consolidated or any
company resulting from any merger, conversion or consolidation to which the
Warrant Agent or any new Warrant Agent shall be a party, shall be the
successor Warrant Agent under this Warrant Agreement without any further
act; provided that if such company would not be eligible for appointment as
a successor Warrant Agent under the provisions of paragraph (a) of this
Section 7.2 the Company shall forthwith appoint a new Warrant Agent in
accordance with such provisions. Any such successor Warrant Agent may
adopt the prior countersignature of any predecessor Warrant Agent and
deliver Warrant Certificates countersigned and not delivered by such
predecessor Warrant Agent or may countersign Warrant Certificates either in
the name of any predecessor Warrant Agent or the name of the successor
Warrant Agent.
Section 7.3 Remuneration of Warrant Agent. The Company will pay the
Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder and will reimburse the Warrant Agent upon demand for all expenditures
that the Warrant Agent may reasonably incur in the execution of its duties
hereunder.
Section 7.4 Further Assurances. The Company will perform, exercise,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all acts, instruments and assurances as reasonably may be required by
the Warrant Agent for the carrying out or performing by the Warrant Agent of the
provisions of this Warrant Agreement.
Section 7.5 Limitations on Liabilities of the Warrant Agent.
(a) The Warrant Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection of the Warrant Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever, in the performance of its duties under this Warrant
Agreement, the Warrant Agent shall deem it necessary or desirable that
any matter be provided or established, or that any instructions with
respect to the performance of its duties hereunder be given, by the
Company prior to taking or suffering any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established, or
such instructions may be given, by a certificate or instrument signed by
an officer of the Company and delivered to the Warrant Agent; and such
certificate or instrument shall be full authorization to the Warrant
Agent for any action taken or suffered in good faith by it under the
provisions of this Warrant Agreement in reliance upon
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such certificate or instrument; provided, however, that in its discretion
the Warrant Agent may in lieu thereof accept other evidence of such matter
or may require such further or additional evidence as it may deem
reasonable.
(c) The Warrant Agent shall be liable hereunder only for its own
negligence or willful misconduct. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the
provisions hereof. The Company agrees to indemnity the Warrant Agent and
save it harmless against any and all liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant Agent
in the execution of this Warrant Agreement except as a result of the
Warrant Agent's negligence or willful misconduct.
(d) The Warrant Agent shall not be liable for or by any reason of
any of the statements of fact or recitals contained in this Warrant
Agreement or in the Warrant Certificates (except its countersignature
thereof) or be required to verify the same, but rather all such statements
and recitals are and shall be deemed to have been made by the Company only.
(e) The Warrant Agent shall not be under any responsibility in
respect to the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Warrant
Agreement or in any Warrant Certificate; nor shall it be responsible for
the making of any adjustment in the Purchase Price, or number of shares
issuable upon exercise of the Warrant Certificates or responsible for the
manner, method or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or reservation
of any shares of Common Stock to be issued pursuant to this Warrant
Agreement or any Warrant Certificate or as to whether any shares of Common
Stock or other securities are or will be duly authorized and validly issued
and fully paid and nonassessable.
Section 7.6 Amendment and Modification. The Warrant Agent may, without
the consent or concurrence of the holders of the Warrant Certificates, by
supplemental agreement or otherwise, join with the Company in making any changes
or corrections in this Warrant Agreement (a) which they shall have been advised
by counsel are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, (b) which add to the obligations of the Company in this Warrant
Agreement further obligations thereafter to be observed by it, or surrender any
right or power reserved to or conferred upon the Company in this Warrant
Agreement, or (c) which do not or will not adversely affect, alter or change the
rights, privileges or immunities of the holders of Warrant Certificates not
provided for under this Warrant Agreement; provided, however, that any term of
this Warrant Agreement or any Warrant Certificate may be changed, waived,
discharged or terminated by an instrument in writing signed by each party
against which enforcement of such chance, waiver, discharge or termination is
sought, or by which the same is to be performed or observed.
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ARTICLE VIII
OTHER MATTERS
Section 8.1 Successors and Assigns. All the covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns.
Section 8.2 Notices. Any notice or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant Certificate, to or on the Company shall be sufficiently given or made if
sent by first class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Jubilee Gaming Enterprises, Inc.
Suite 220
9855 West 78th Street
Minneapolis, Minnesota 55344
Attention: Chief Executive Officer
Any notice or demand authorized by this Warrant Agreement to be given or made
by the holder of any Warrant Certificate or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by first class or registered
mail, postage prepaid, addressed (until another address is filed in writing by
the Warrant Agent with the Company) as follows:
Norwest Bank Minnesota, National Association
Stock Transfer Department
161 North Concord Exchange
P.O. Box 738
South Saint Paul, Minnesota 55075
Section 8.3 Governing Law. This Warrant Agreement and the Warrant
Certificates are being delivered in the State of Minnesota and shall be
construed and enforced in accordance with and governed by the laws of such
State, without giving effect to such State's choice of law rules.
Section 8.4 No Benefits Conferred. Nothing in this Warrant Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company, the Warrant Agent and the holders of the
Warrant Certificates, any right, remedy or claim under or by reason of this
Warrant Agreement or of any covenant, condition, stipulation, promise or
agreement herein; and all covenants, conditions, stipulations, promises and
agreements in this Warrant Agreement shall be for the sole and exclusive benefit
of the Company, the Warrant Agent, their respective successors and the holders
of the Warrant Certificates.
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Section 8.5 Headings. The descriptive headings used in this Warrant
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by, the
parties hereto as of the day and year first above written.
JUBILEE GAMING ENTERPRISES, INC.
By
------------------------------
Its
-----------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
------------------------------
Its
-----------------------------
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EXHIBIT A
THIS WARRANT CERTIFICATE MAY BE
TRANSFERRED SEPARATELY FROM THE COMMON STOCK CERTIFICATE
WITH WHICH IT IS INITIALLY ISSUED
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME _________, 2001
No. W-___________ Certificate for _________ Warrants
UNIT CUSIP _____________
WARRANT CUSIP __________
WARRANTS TO PURCHASE COMMON STOCK OF
JUBILEE GAMING ENTERPRISES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that ____________________________________ or assigns, is
the owner of the number of Warrants set forth above, each of which represents
the right to purchase from Jubilee Gaming Enterprises, Inc., a Minnesota
corporation (the "Company"), at any time on or before 5:00 Minneapolis time,
___________, 2001, upon compliance with and subject to the conditions set forth
herein and in the Warrant Agreement hereinafter referred to, one share (subject
to adjustments referred to below) of the Common Stock of the Company (the
"Shares"), by surrendering this Warrant Certificate, with the purchase form on
the reserve side duly executed, at the principal office of Norwest Bank
Minnesota, National Association, or its successor, as warrant agent (the
"Warrant Agent"), and by paying in full, in cash or by certified check payable
to the order of the Company, the purchase price of $6.00 per share.
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
Upon the surrender for transfer or exchange hereof, properly endorsed, to
the Warrant Agent, the Warrant Agent (at the Company's expense) will issue and
deliver to the order of the holder hereof, a new Warrant Certificate or Warrant
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face thereof for the number of shares of Common Stock
called for on the face hereof.
The Warrant Certificates are issued only as registered Warrant
Certificates. Until this Warrant Certificate is transferred in the Warrant
Register, the Company and the Warrant Agent may treat the person in whose name
this Warrant Certificate is registered as the
A-1
<PAGE> 17
absolute owner hereof and of the Warrants represented hereby for all purposes,
notwithstanding any notice to the contrary.
This Warrant Certificate is issued under the Warrant Agreement dated as of
____________, 1997, between the Company and the Warrant Agent and is subject to
the terms and provisions contained in said Warrant Agreement, to all of which
terms and provisions the registered holder of this Warrant Certificate consents
by acceptance hereof. Copies of said Warrant Agreement are on file at the
principal office of the Warrant Agent in Minneapolis, Minnesota, and may be
obtained by written request to the Warrant Agent.
The number of Shares receivable upon the exercise of the Warrants
represented by this Warrant Certificate and the purchase price per share are
subject to adjustment upon the happening of certain events specified in the
Warrant Agreement (which provisions are contained in Article III of the Warrant
Agreement and are hereby incorporated by reference).
No fractional Shares of the Company's Common Stock will be issued upon the
exercise of Warrants. As to any final fraction of a share which a holder of
Warrants exercised in the same transaction would otherwise be entitled to
purchase on such exercise, the Company shall pay a cash adjustment in lieu of
any fractional Share determined as provided in the Warrant Agreement.
The Warrants may be redeemed by the Company in whole, at any time on or
after ___________, 1997, and on or before ____________, 2001, at a redemption
price of $.01 per Warrant, upon notice of such redemption as set forth below,
provided that (a) the last reported sale price of the Common Stock on a
national securities exchange, if the Common Stock shall be listed or admitted
to unlisted trading privileges on a national securities exchange, or (b) the
closing bid price of the Common Stock on the Nasdaq system, if the Common Stock
is not so listed or admitted to unlisted trading privileges, exceeds $6.00 per
share (subject to adjustment as provided in the Warrant Agreement) for any 20
consecutive trading days prior to the date such notice of redemption is given.
Notice of redemption shall be mailed not less than 30 days prior to the date
fixed for redemption to the holders of Warrants at their last registered
addresses. If notice of redemption shall have been given as provided in the
Warrant Agreement and cash sufficient for the redemption to be deposited by the
Company for that purpose, the exercise rights of the Warrants identified for
redemption shall expire at the close of business on such date of redemption
unless extended by the Company.
This Warrant Certificate shall not entitle the holder hereof to any of the
rights of a holder of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
exercise any preemptive right, or to receive any notice of or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
Shares may not be issued to holder upon exercise of this Warrant if, at
the time of exercise, a registration statement with respect to such Shares is
not effective under the
A-2
<PAGE> 18
Securities Act or if the Common Stock underlying the Warrants is not qualified
or exempt from qualification in the state wherein the holder of the Warrants
resides.
This Warrant Certificate shall be void and the Warrants and any rights
represented hereby shall cease unless exercised on or before 5:00 P.M.
Minneapolis time on ____________, 2001, unless extended by the Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized officers.
Dated:________________________ JUBILEE GAMING ENTERPRISES, INC.
By_____________________________
Craig H. Forsman, Chief Executive
Officer
Attest:
______________________________
Terrance P. DeRoche, Secretary
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Warrant Agent
By_____________________________
Authorized Signature
A-3
<PAGE> 19
[REVERSE OF WARRANT CERTIFICATE]
THE ARTICLES OF INCORPORATION OF THE CORPORATION GRANT TO THE BOARD OF DIRECTORS
THE POWER TO ESTABLISH MORE THAN ONE CLASS OR SERIES OF SHARES AND TO FIX THE
RELATIVE RIGHTS AND PREFERENCES OF ANY SUCH DIFFERENT CLASS OR SERIES. THE
CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE A
FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY
HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE
RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.
TO: Jubilee Gaming Enterprises, Inc.
c/o Norwest Bank Minnesota, National Association
Warrant Agent
PURCHASE FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE WARRANT
CERTIFICATES)
The undersigned hereby irrevocably elects to exercise ____________* of the
Warrants represented by the Warrant Certificate and to purchase for cash the
Shares issuable upon the exercise of said Warrants, and herewith makes payment
of $____________ therefor, and requests that certificates for such Shares be
issued in the name of
PLEASE INSERT SOCIAL SECURITY OR _____________________________
OTHER IDENTIFYING NUMBER OF (Print Name)
REGISTERED HOLDER OF CERTIFICATE
_______________________________ _____________________________
(Address)
Dated:_________________________ Signature(s)_________________
_____________________________
____________________
* Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion thereof
being exercised) without making any adjustment for additional Common Stock
or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
A-4
<PAGE> 20
ASSIGNMENT FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO TRANSFER WARRANT
CERTIFICATES)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
__________** of the Warrants represented by this Warrant Certificate unto
PLEASE INSERT SOCIAL SECURITY OR _________________________________
OTHER IDENTIFYING NUMBER OF (Print Name)
ASSIGNEE
______________________________ _________________________________
(Address)
and does hereby irrevocably constitute and appoint __________________ Attorney
to transfer this Warrant Certificate on the records of the Company with full
power of substitution in the premises.
Dated:_______________________ Signature(s)______________________
__________________________________
Signature(s)
Guaranteed:_______________________
____________________
** Insert here the number of warrants evidenced in the face of this Warrant
Certificate (or, in the case of a partial assignment, the portion thereof
being assigned) without making any adjustment for additional Common Stock
or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
NOTICE
THE SIGNATURE(S) TO THE PURCHASE FORM OR THE ASSIGNMENT FORM MUST
CORRESPOND TO THE NAME(S) AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY DAMAGE WHATSOEVER.
A-5
<PAGE> 1
EXHIBIT 4.3 ARTICLES OF INCORPORATION AS AMENDED AND RESTATED
SEE EXHIBIT 3.1
<PAGE> 1
EXHIBIT 4.4 BYLAWS AS AMENDED
SEE EXHIBIT 3.2
<PAGE> 1
EXHIBIT 5.1
[BRIGGS AND MORGAN LETTERHEAD]
January 17, 1997
(612) 334-8455
Jubilee Gaming Enterprises, Inc.
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to Jubilee Gaming Enterprises, Inc., a
Minnesota corporation (the "Company"), in connection with a Registration
Statement on Form SB-2 (the "Registration Statement") relating to the sale by
the Company of up to 1,200,000 Units (including 180,000 Units to be subject to
the Underwriters' overallotment option) (the "Units"). Each Unit consists of
one share of common stock of the Company, no par value (the "Common Stock"),
and one redeemable warrant to purchase one share of Common Stock (individually,
a "Warrant").
We have examined such documents and have reviewed such
questions of law as we have considered necessary and appropriate for the
purposes of our opinions set forth below. In rendering our opinions set forth
below, we have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures and the conformity to authentic
originals of all documents submitted to us as copies. We have also assumed the
legal capacity for all purposes relevant hereto of all natural persons and,
with respect to all parties to agreements or instruments relevant hereto other
than the Company, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to
our opinions, we have relied upon certificates
<PAGE> 2
BRIGGS AND MORGAN
Jubilee Gaming Enterprises, Inc.
January 17, 1997
Page 2
of officers of the Company and of public officials. We have also assumed that
the Units will be issued and sold as described in the Registration Statement.
Based on the foregoing, we are of the opinion that the Units, the
Warrants and the shares of Common Stock issued upon the exercise of Warrants,
have been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment therefor as described in the Registration Statement, will
be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Very truly yours,
BRIGGS AND MORGAN,
Professional Association
By: /s/ Avron L. Gordon
---------------------
Avron L. Gordon
<PAGE> 1
EXHIBIT 10.1
JUBILEE GAMING ENTERPRISES, INC.
1996 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1996 Stock Option Plan is to promote the interests of
Jubilee Gaming Enterprises, Inc., a Minnesota corporation, by providing
employees of the Company and certain independent contractors with an
opportunity to acquire a proprietary interest in the Company, and thereby
develop a stronger incentive to contribute to the Company's continued success
and growth. In addition, the opportunity to acquire a proprietary interest in
the Company by the offering and availability of stock options will assist the
Company in attracting and retaining key personnel and consultants of
outstanding ability.
2. DEFINITIONS
Wherever used in the Plan, the following terms have the meanings set forth
below:
2.1 "Act" means the Securities Act of 1933, as amended.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
2.4 "Committee" means the Committee which may be designated from time to
time by the Board to administer the Plan pursuant to Section 3.5.
2.5 "Company" means Jubilee Gaming Enterprises, Inc. and any Subsidiary
thereof.
2.6 "Incentive Stock Option" or "ISO" means the stock option which is
intended to qualify as an incentive stock option as defined in Section 422 of
the Code.
2.7 "Non-Statutory Stock Option" or "NSO" means a stock option that is not
intended to, or does not, qualify as an incentive stock option as defined in
Section 422 of the Code.
2.8 "Option" means, where required by the context of the Plan, an ISO
and/or NSO granted pursuant to the Plan.
2.9 "Optionee" means a Participant in the Plan who has been granted one or
more Options under the Plan.
<PAGE> 2
2.10 "Participant" means an individual described in Section 5 of this
Plan who may be granted Options under the Plan.
2.11 "Plan" means this 1996 Stock Option Plan.
2.12 "Stock" means the Common Stock, $.01 par value, of the Company.
2.13 "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Board, which shall have full
power, subject to the provisions of the Plan, to grant Options, construe and
interpret the Plan, establish rules and regulations with respect to the Plan and
Options granted hereunder, and perform all other acts, including the delegation
of administrative responsibilities, that it believes reasonable and necessary.
3.2 The Board shall have the sole discretion, subject to the provisions
of the Plan, to determine the Participants eligible to receive Options pursuant
to the Plan and the amount, type, and terms of any Options and the terms and
conditions of option agreements relating to any Option. On a case by case
basis, the Board, in its sole discretion, may: (i) accelerate the schedule of
the time or times when an Option granted under the Plan may be exercised; and
(ii) extend the duration of any Option granted under the Plan.
3.3 The Board may correct any defect, supply any omission, or reconcile
any inconsistency in the Plan or in any Option granted hereunder in the manner
and to the extent it shall deem necessary to carry out the terms of the Plan.
3.4 Any decision made, or action taken, by the Board arising out of or
in connection with the interpretation and administration of the Plan shall be
final, conclusive and binding upon all Optionees.
3.5 The Board may designate a Committee from time to time to administer
the Plan. If designated, the Committee shall be composed of not less than two
persons (who need not be members of the Board) who are appointed from time to
time by the Board. If the Board has appointed a Committee pursuant to this
Section 3.5, then the Committee may administer the Plan and exercise all of the
rights and powers granted to the Board in this Plan, including, without
limitation, the right to grant Options pursuant to the Plan and to establish the
Option price as provided in the Plan.
2
<PAGE> 3
4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER. The total number of shares of Stock reserved for issuance
upon exercise of Options under the Plan is 400,000. Such shares shall consist
of authorized but unissued Stock. If any Option granted under the Plan lapses
or terminates for any reason before being completely exercised, the shares
covered by the unexercised portion of such Option may again be made subject to
Options under the Plan.
4.2 CHANGES IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, or rights offering to purchase stock at a price
substantially below fair market value, or other similar corporate change, the
aggregate number of shares which may be subject to Options under the Plan and
the terms of any outstanding Option, including the number and kind of shares
subject to such Options and the purchase price per share thereof, shall be
appropriately adjusted by the Board, consistent with such change and in such
manner as the Board, in its sole discretion, may deem equitable to prevent
substantial dilution or enlargement of the rights granted to or available for
Optionees. Notwithstanding the preceding sentence, in no event shall any
fraction of a share of Stock be issued upon the exercise of an Option.
5. ELIGIBLE PARTICIPANTS
The following persons are Participants eligible to participate in the Plan:
5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary, including officers and
directors who are also employees of the Company or any Subsidiary; provided,
however, that officers who are not employed full-time shall not be eligible for
Incentive Stock Options.
5.2 NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options may be
granted to (i) any employee of the Company or any Subsidiary, including any
officer or director who is also an employee of the Company or any Subsidiary;
and (ii) any consultant to, or other independent contractor of, the Company.
6. GRANT OF OPTIONS
6.1 DISCRETIONARY GRANTS. Subject to the terms, conditions, and
limitations set forth in this Plan, the Company, by action of its Board, may
from time to time grant Options to purchase shares of the Company's Stock to
those eligible Participants as may be selected by the Board, in such amounts and
on such other terms as the Board in its sole discretion shall determine. In
making Option grants the Board shall specify in each Option agreement the
vesting schedule which shall apply to each such grant.
6.2 LIMITATIONS. Options specified in Section 6.1 above may be (i)
"Incentive
3
<PAGE> 4
Stock Options" so designated by the Board and which, when granted, are intended
to qualify as incentive stock options as defined in Section 422 of the Code;
(ii) "Non-Statutory Stock Options" so designated by the Board and which, when
granted, are not intended to, or do not, qualify as incentive stock options
under Section 422 of the Code; or (iii) a combination of both. The date on
which the Board approves the granting of an Option shall be the date of the
grant of such Option, unless a different date is specified by the Board on such
date of approval. Notwithstanding the foregoing, with respect to the grant of
any Incentive Stock Option under the Plan, the aggregate fair market value of
Stock (determined as of the date the Option is granted) with respect to which
incentive stock options are exercisable for the first time by an Optionee in any
calendar year (under all such stock option plans of the Company or Subsidiaries)
shall not exceed $100,000. Each grant of an Option under the Plan shall be
evidenced by a written stock option agreement between the Company and the
Optionee setting forth the terms and conditions, not inconsistent with the Plan,
under which the Option so granted may be exercised pursuant to the Plan and
containing such other terms with respect to the Option as the Board in its sole
discretion may determine.
7. OPTION PRICE AND FORM OF PAYMENT
7.1 INCENTIVE STOCK OPTIONS. The purchase price for a share of Stock
subject to an Incentive Stock Option granted hereunder shall not be less than
100% of the fair market value of the Stock at the time the option is granted.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted
to any Optionee then owning more than 10% of the voting power of all classes of
the Company's stock, the purchase price per share of the Stock subject to such
Option shall not be less than 110% of the fair market value of the Stock on the
date of grant of the Incentive Stock Option, determined as provided in Section
7.3.
7.2 NON-STATUTORY STOCK OPTIONS. The purchase price for a share of
Stock subject to a Non-Statutory Stock Option shall be not less than 100% of the
fair market value of the Stock.
7.3 DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section
7, the "fair market value" of the Stock shall be determined as follows:
(a) if the Stock of the Company is listed or admitted to unlisted
trading privileges on a national securities exchange, the fair market value
on any given day shall be the closing sale price for the Stock, or if no
sale is made on such day, the closing bid price for such day on such
exchange;
(b) if the Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange, the fair market value on any
given day shall be the closing sale price for the Stock as reported on the
NASDAQ National Market System on such day, or if no sale is made on such
day, the closing bid price for such day as entered by a market maker for
the Stock;
4
<PAGE> 5
(c) if the Stock is not listed on a national securities exchange,
is not admitted to unlisted trading privileges on any such exchange, and is
not eligible for inclusion in the NASDAQ National Market System, the fair
market value on any given day shall be the average of the closing
representative bid and asked prices as reported by the National Quotation
Bureau, Inc. or, if the Stock is not quoted on the National Association of
Securities Dealers Automated Quotations System, then as reported in any
publicly available compilation of the bid and asked prices of the Stock in
any over-the-counter market on which the Stock is traded; or
(d) if there exists no public trading market for the Stock, the
fair market value on any given day shall be an amount determined in good
faith by the Board in such manner as it may reasonably determine in its
discretion, provided that such amount shall not be less than the book value
per share as reasonably determined by the Board as of the date of
determination or less than the par value of the Stock.
7.4 PAYMENT OF PURCHASE PRICE. Except as provided herein, the purchase
price of each share of Stock purchased upon the exercise of any Option shall be
paid:
(a) in United States dollars in cash or by check, bank draft or
money order payable to the order of the Company; or
(b) at the discretion of the Board, through the delivery of shares
of Stock, having initially or as a result of successive exchanges of
shares, an aggregate fair market value (as determined in the manner
provided under this Plan) equal to the aggregate purchase price for the
Stock as to which the Option is being exercised; or
(c) at the discretion of the Board, by a combination of both (a)
and (b) above; or
(d) by such other method as may be permitted in the written stock
option agreement between the Company and the Optionee.
If such form of payment is permitted, the Board shall determine procedures
for tendering Stock as payment upon exercise of an Option and may impose such
additional limitations and prohibitions on the use of Stock as payment upon the
exercise of an Option as it deems appropriate.
If the Board in its sole discretion so agrees, the Company may finance the
amount payable by an Optionee upon exercise of any Option upon such terms and
conditions as the Board may determine at the time such Option is granted under
this Plan.
5
<PAGE> 6
8. EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Board and paying to
the Company the full purchase price of the Stock to be acquired upon the
exercise of the Option. Until certificates for the Stock acquired upon the
exercise of an Option are issued to an Optionee, such Optionee shall not have
any rights as a shareholder of the Company with respect to such stock.
8.2 LIMITATIONS AND CONDITIONS ON EXERCISE OF OPTIONS. In addition to
any other limitations or conditions contained in this Plan or that may be
imposed by the Board from time to time or in the stock option agreement to be
entered into with respect to Options granted hereunder, the following
limitations and conditions shall apply to the exercise of Options granted under
this Plan:
8.2.1 No Incentive Stock Option may be exercisable by its terms
after the expiration of ten (10) years from the date of the grant thereof.
8.2.2 No Incentive Stock Option granted pursuant to the Plan to an
eligible Participant then owning more than 10% of the voting power of all
classes of the Company's stock may be exercisable by its terms after the
expiration of five years from the date of the grant thereof.
9. INVESTMENT PURPOSES
Unless a registration statement under the Act is in effect with respect to
Stock to be purchased upon exercise of Options to be granted under the Plan, the
Company shall require that an Optionee agree with and represent to the Company
in writing that he or she is acquiring such shares of Stock for the purpose of
investment and with no present intention to transfer, sell or otherwise dispose
of such shares of Stock other than by transfers which may occur by will or by
the laws of descent and distribution, and no shares of Stock may be transferred
unless, in the opinion of counsel to the Company, such transfer would be in
compliance with applicable securities laws. In addition, unless a registration
statement under the Act is in effect with respect to the Stock to be purchased
under the Plan, each certificate representing any shares of Stock issued to an
Optionee hereunder shall have endorsed thereon a legend in substantially the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT
REGISTRATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, IN RELIANCE UPON
EXEMPTION(S) CONTAINED THEREIN. NO TRANSFER OF THESE SHARES OR ANY INTEREST
THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS
UNDER
6
<PAGE> 7
SAID LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH TRANSFER OR DISPOSITION DOES NOT REQUIRE
REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE 144 OF THE ACT,
SUCH EVIDENCE AS IT SHALL REQUEST FOR COMPLIANCE WITH THAT RULE, OR
APPLICABLE STATE SECURITIES LAWS.
10. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by an Optionee
(whether by sale, assignment, hypothecation or otherwise) other than by will or
the laws of descent and distribution. An Option shall be exercisable during the
Optionee's lifetime only by the Optionee or by the Optionee's guardian or legal
representative.
11. TERMINATION OF EMPLOYMENT
11.1 GENERALLY. Except as otherwise provided in this Section 11, if an
Optionee's employment with the Company or Subsidiary is terminated (hereinafter
"Termination") other than by death or Disability (as hereinafter defined), the
Optionee may exercise any Option granted under the Plan, to the extent the
Optionee was vested in and entitled to exercise the Option at the date of
Termination, for a period of 3 months after the date of Termination or until the
term of the Option has expired, whichever date is earlier.
11.2 DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability of an Optionee prior to expiration of an Option held by him or her,
the following provisions shall apply:
11.2.1 If the Optionee is at the time of his or her Disability
employed by the Company or a Subsidiary and has been in continuous
employment (as determined by the Board in its sole discretion) since the
date of grant of the Option, then the Option may be exercised by the
Optionee until the earlier of one (1) year following the date of such
Disability or the expiration date of the Option, but only to the extent the
Optionee was vested in and entitled to exercise such Option at the time of
his or her Disability. For the purpose of this Section 11, the term
"Disability" shall mean a permanent and total disability as defined in
Section 22(e)(3) of the Code. The determination of whether an Optionee has
a Disability within the meaning of Section 22(e)(3) shall be made by the
Board in its sole discretion.
11.2.2 If the Optionee is at the time of his or her death employed by
the Company or a Subsidiary and has been in continuous employment (as
determined by the Board in its sole discretion) since the date of grant of
the Option, then the Option may be exercised by the Optionee's estate or by
a person who acquired the right to exercise the Option by will or the laws
of descent and distribution, until the earlier of one (1) year from the
date of the Optionee's death or the expiration date
7
<PAGE> 8
of the Option, but only to the extent the Optionee was vested in and
entitled to exercise the Option at the time of death.
11.2.3 If the Optionee dies within three (3) months after
Termination, the Option may be exercised until the earlier of nine (9)
months following the date of death or the expiration date of the Option, by
the Optionee's estate or by a person who acquires the right to exercise the
Option by will or the laws of descent or distribution, but only to the
extent the Optionee was vested in and entitled to exercise the Option at
the time of Termination.
11.3 TERMINATION FOR CAUSE. If the employment of an Optionee is
terminated by the Company or a Subsidiary for cause, then the Board shall have
the right to cancel any Options granted to the Optionee under the Plan.
11.4 SUSPENSION OR TERMINATION FOR MISCONDUCT. If the Board reasonably
believes that an Optionee has committed an act of misconduct, it may suspend the
Optionee's right to exercise any Option pending a determination by the Board.
If the Board determines that an Optionee has committed an act of embezzlement,
fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of
fiduciary duty or deliberate disregard of the Company's rules resulting in loss,
damage or injury to the Company, or if an Optionee makes an unauthorized
disclosure of any Company trade secret or confidential information, engages in
any conduct constituting unfair competition with respect to the Company, or
induces any party to breach a contract with the Company, neither the Optionee
nor the Optionee's estate shall be entitled to exercise any Option whatsoever.
In making such determination, the Board shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on the Optionee's behalf
at a hearing before the Board.
12. AMENDMENT AND TERMINATION OF PLAN
12.1 The Board, may at any time and from time to time suspend or
terminate the Plan in whole or in part or amend it from time to time in such
respects as may be in the best interests of the Company; provided, however, that
no such amendment shall be made without the approval of the shareholders if it
would: (i) materially modify the eligibility requirements for Participants as
set forth in Section 5 hereof; (ii) increase the maximum aggregate number of
shares of Stock which may be issued pursuant to Options, except in accordance
with Section 4.2 of the Plan; (iii) reduce the minimum Option price per share as
set forth in Section 7 of the Plan, except in accordance with Section 4.2 of the
Plan; (iv) extend the period of granting Options; or (v) materially increase in
any other way the benefits accruing to Optionees.
12.2 No amendment, suspension or termination of this Plan shall,
without the Optionee's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to him or her under the Plan.
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12.3 The Board may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Incentive
Stock Options meeting the requirements of future amendments to the Code.
12.4 In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instance, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the right
to exercise his or her Option as to all or any part of the Option, including
Stock as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option in full including Stock as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of 15 days from the date of such notice, and the Option shall terminate
upon the expiration of such period.
13. CHANGE IN CONTROL PROVISIONS
13.1 IMPACT OF EVENT. Notwithstanding any other provision of the Plan
to the contrary, in the event of a Change in Control (as defined in 13.2), any
Options outstanding as of the date such Change in Control is determined to have
occurred and not then exercisable and vested shall become fully exercisable and
vested in the full extent of the original grant.
13.2 DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or more of
either (1) the then outstanding shares of Common Stock of the Company or
(2) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors;
provided, however, that the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from the Company; (2) any
acquisition by the Company; (3) any acquisition by a Person including the
participant or with whom or with which the participant is affiliated; (4)
any acquisition by a Person or Persons one or more of which is a member of
the Board or an officer of the Company or an affiliate of any of the
foregoing on the Effective Date, (5) any
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acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company; or
(6) any acquisition by any corporation pursuant to a transaction described
in clauses (A), (B) and (C) of paragraph (c) of this Section 13.2; or
(b) During any period of twenty-four (24) consecutive months,
individuals who, as of the beginning of such period, constituted the entire
Board cease for any reason to constitute at least a majority of the Board,
unless the election, or nomination for election, by the Company's
stockholders, of each new director was approved by a vote of at least
two-thirds (2/3) of the Continuing Directors, as hereinafter defined, in
office on the date of such election or nomination for election for the new
director. For purposes hereof, "Continuing Director" shall mean:
(i) any member of the Board at the close of business on the
Effective Date; or
(ii) any member of the Board who succeeded any Continuing
Director described in clause (1) above if such successor's election,
or nomination for election, by the Company's stockholders, was
approved by a vote of at least two-thirds (2/3) of the Continuing
Directors then still in office. The term "Continuing Director" shall
not, however, include any individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such term is used in Rule 14a-11 of Regulation 14A of the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board.
(c) Approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (A) more than 60% of the then
outstanding securities having the right to vote in the election of
directors of the corporation resulting from such reorganization, merger or
consolidation is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners of the outstanding securities having the right to vote in the
election of directors of the Company immediately prior to such
reorganization, merger or consolidation, (B) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 30% or
more of the then outstanding securities having the right to vote in the
election of directors of the Company) beneficially owns, directly or
indirectly, 30% or more of the then outstanding securities having the right
to vote in the election of the corporation resulting from such
reorganization, merger or consolidation, and (C) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation are Continuing Directors at the
time of
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the execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(d) Approval by the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (1) more than 60% of the then outstanding securities having
the right to vote in the election of directors of such corporation is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of the
outstanding securities having the right to vote in the election of
directors of the Company immediately prior to such sale or other
disposition of such outstanding securities, (2) no Person (excluding the
Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 30% or more of the
outstanding securities having the right to vote in the election of
directors of the Company) beneficially owns, directly or indirectly, 30% or
more of the then outstanding securities having the right to vote in the
election of directors of such corporation and (3) at least a majority of
the members of the board of directors of such corporation are Continuing
Directors at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition of assets of the
Company.
14. MISCELLANEOUS PROVISIONS
14.1 NO RIGHT TO CONTINUED EMPLOYMENT. No person shall have any claim
or right to be granted an Option under the Plan, and the grant of an Option
under the Plan shall not be construed as giving an Optionee the right to
continued employment with the Company. The Company further expressly reserves
the right at any time to dismiss an Optionee or reduce an Optionee's
compensation with or without cause, free from any liability, or any claim under
the Plan, except as provided herein or in a stock option agreement.
14.2 TRANSFER OF STOCK AND PAYMENT OF WITHHOLDING TAXES. The Company
shall have the right to require that payment or provision for payment of any and
all withholding taxes due upon the grant or exercise of an Option hereunder or
the disposition of any Stock or other property acquired upon exercise of an
Option be made by an Optionee. Stock acquired upon exercise of an Incentive
Stock Option may not be disposed of by the Optionee before the later of (i) two
years from the date of grant, or (ii) one year from the date of exercise unless
adequate provision is made for payment to the Company of funds sufficient for
payment of any withholding and other taxes required by any governmental
authority in respect of the disposition of such stock. The Company may place a
legend on certificates restricting the transfer of Stock issued pursuant to
Incentive Stock Options in
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order to obtain compliance with tax withholding requirements. In connection
therewith, the Board shall have the right to establish such rules and
regulations or impose such terms and conditions in any agreement relating to an
Option granted hereunder with respect to such tax withholding as the Board may
deem necessary and appropriate.
14.3 GOVERNING LAW. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation, and administration of
the Plan and all rights relating to the Plan shall be determined solely in
accordance with the laws of such state, unless controlled by applicable federal
law, if any.
15. EFFECTIVE DATE
The effective date of the Plan is October 11, 1996 subject, however, to
approval of this Plan by shareholders of the Company in the manner prescribed
by law not later than October 11, 1997. No Option may be granted after October
11, 2006, provided, however, that the Plan and all outstanding Options shall
remain in effect until such outstanding Options have expired or been canceled.
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EXHIBIT 10.2
JUBILEE GAMING ENTERPRISES, INC.
1996 DIRECTOR STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of this 1996 Director Stock
Option Plan (the "Plan"), adopted by the Board of Directors of Jubilee Gaming
Enterprises, Inc. on October 11, 1996, is to attract and retain the best
available individuals to serve as Directors of the Company, to provide
additional incentive to the Outside Directors of the Company to serve as
Directors and to encourage continued service by such persons on the Board.
The Company intends that the options granted hereunder shall not
constitute incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended. The Plan is intended to comply with
the requirements of Rule 16b-3 under the Exchange Act.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Affiliate" shall mean a person or an entity or group which
owns ten percent (10%) or more of the outstanding Common Stock.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Common Stock" shall mean the Common Stock, $.01 par value per
share, of the Company.
(d) "Company" shall mean Jubilee Gaming Enterprises, Inc., a
Minnesota corporation.
(e) "Committee" shall mean a committee of the Board appointed by
the Board to administer the Plan.
(f) "Continuous Service as a Director" shall mean the absence of
any interruption or termination of service as a Director. Continuous
Service as a Director shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Board or Committee.
(g) "Director" shall mean a member of the Board.
(h) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company, or any person employed by an Affiliate of the Company. The
payment of fees to a Director shall not be sufficient in and of itself to
constitute "employment" by the Company.
<PAGE> 2
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(j) "Option" shall mean a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Outside Director who receives an
option.
(m) "Outside Director" shall mean a Director who is not an
Employee, including an officer who is not employed on a full-time basis by
the Company.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue
Code of 1986, as amended.
(o) "Plan" shall mean this 1996 Director Stock Option Plan.
(p) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 200,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable for any reason without
having been exercised in full, the unexercised Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. If Shares which were acquired upon exercise of an Option are
subsequently repurchased by the Company, such Shares shall not become available
for future grant under the Plan.
4. Automatic Grant of Options. All grants of Options hereunder shall
be automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(a) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to
be covered by Options granted to Outside Directors.
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(b) Each Outside Director, including persons who are Outside
Directors on the date of adoption of the Plan, shall be automatically
granted an Option to purchase 5,000 Shares (the "First Option") upon the
later to occur of (i) the effective date of the Plan, as determined in
accordance with Section 8 hereof, or (ii) the date on which such person
first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy.
(c) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted
an Option to purchase 5,000 shares on the first and each successive
anniversary of the grant of the First Option; provided, however, that in no
event shall an Outside Director be granted options to purchase in the
aggregate more than 25,000 shares pursuant to the Plan.
(d) Notwithstanding the provisions of Sections 4(b) and (c)
hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options to Outside Directors plus Shares previously
purchased upon exercise of Options by Outside Directors to exceed 25,000
Shares, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for
grant by the number of Outside Directors on the automatic grant date. Any
further grants shall then be deferred until such time, if any, as
additional Shares become available for grant under the Plan through action
of the Company's shareholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Option Terms and Conditions. The terms and conditions of an Option
granted hereunder shall be as follows:
(a) the term of each Option shall be five (5) years, subject to
Sections 5(a) 12, 13 and 14 hereof.
(b) the First Option shall become exercisable in full beginning on
the later of (i) the first anniversary of the grant of the Option, or (ii)
twelve (12) months after the date on which the Plan is first approved by
the shareholders of the Company in accordance with Rule 16b-3 under the
Exchange Act and each subsequent Option shall become exercisable in full
beginning on the first anniversary of the grant of such Option, provided in
each case that the Outside Director shall have maintained Continuous
Service as a Director throughout such 12-month period.
(c) the Option shall be exercisable only while the Outside
Director serves as an Outside Director of the Company, and for a period of
six (6) months after ceasing to be an Outside Director pursuant to Section
10(b) hereof.
(d) the exercise price per Share shall be 100% of the fair market
value per
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Share on the date of grant of the Option, as determined in accordance with
Section 9(a) hereof.
(e) the effectiveness of any Options granted hereunder is
conditioned upon shareholder approval of the Plan in accordance with Rule
16b-3 under the Exchange Act.
6. Administration of and Grants of Options under the Plan.
(a) Administration. Except as otherwise required herein, the Plan
shall be administered by the Board or a Committee.
(b) Powers of the Board or Committee. Subject to the provisions
and restrictions of the Plan, the Board or Committee shall have the
authority, in its discretion: (i) to determine, upon review of relevant
information and in accordance with Section 9(a) hereof, the fair market
value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe,
amend and rescind rules and regulations relating to the Plan; (iv) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option hereunder; and (v) to make
all other determinations deemed necessary or advisable for the
administration of the Plan. On a case by case basis, the Board or
Committee, in its sole discretion, may: (i) accelerate the schedule of the
time or times when an Option granted under the Plan may be exercised; and
(ii) extend the duration of any Option granted under the Plan.
(c) Effect of Board or Committee Decision. All decisions,
determinations and interpretations of the Board or Committee shall be final
and binding on all Optionees and any other holders of any Options granted
under the Plan.
(d) Suspension or Termination of Option. If the Board or
Committee reasonably believes that an Optionee has committed an act of
misconduct, it may suspend the Optionee's right to exercise any Option
pending a determination by the Board or Committee (excluding the Outside
Director accused of such misconduct). If the Board or Committee (excluding
the Outside Director accused of such misconduct) determines that an
Optionee has committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of fiduciary duty
or deliberate disregard of the Company's rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure
of any Company trade secret or confidential information, engages in any
conduct constituting unfair competition with respect to the Company, or
induces any party to breach a contract with the Company, neither the
Optionee nor the Optionee's estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board or Committee
(excluding the Outside Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present
evidence on
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<PAGE> 5
the Optionee's behalf at a hearing before the Board or Committee.
(e) Date of Grant of Options. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section
4 hereof, notwithstanding the fact that an Optionee may not have entered
into an option agreement with the Company on such date. Notice of the
grant of an Option shall be given to the Optionee within a reasonable time
after the date of such grant.
7. Eligibility. Options may be granted only to Outside Directors. All
options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof. The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which a Director or
the Company may have to terminate such Director's directorship at any time.
8. Term of Plan. The effective date of this Plan is October 11, 1996,
the date upon which it was adopted by the Board. The Plan shall continue in
effect for a term of ten (10) years unless terminated sooner under Section 14
hereof.
9. Fair Market Value and Form of Consideration.
(a) Fair Market Value. The fair market value per share shall be
determined as follows:
(i) if the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange,
the fair market value on any given day shall be the closing sale price
for the Common Stock on such day, as reported in the Wall Street
Journal or other newspaper of general circulation;
(ii) if the Common Stock is not listed on a national
securities exchange, the fair market value on any given day shall be
the closing sale price for the Common Stock on the NASDAQ National
Market or the NASDAQ Small Cap Market on such day, as reported in the
Wall Street Journal or other newspaper of general circulation;
(iii) if the Common Stock is not listed on a national
securities exchange, is not admitted to unlisted trading privileges on
any such exchange, and is not eligible for inclusion on the NASDAQ
National Market or the NASDAQ Small Cap Market, the fair market value
on any given day shall be the average of the closing representative
bid and ask prices on such day, as reported on the NASDAQ or the
NASDAQ Small Cap Market, and if not reported on such system, then as
reported by the National Quotation Bureau, Inc. or such other publicly
available compilation of the bid and asked prices
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<PAGE> 6
of the Common Stock in any over-the-counter market on which the Common
Stock is traded; or
(iv) if there exists no public trading market for the Common
Stock, the fair market value on any given day shall be an amount
determined by the Board or Committee in such manner as it may
reasonably determine in its discretion, provided that such amount
shall not be less than the book value per share as reasonably
determined by the Board or Committee as of the date of determination
nor less than the par value of the Stock.
(b) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of
cash or such other form of consideration as the Board or Committee may
determine, in its sole discretion, to be appropriate for payment, including
but not limited to other shares of Common Stock having a fair market value
on the date of surrender equal to the aggregate exercise price of the
Shares as to which the Option is exercised, or any combination of such
methods of payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 5 hereof. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option may be exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 9(b) hereof. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
certificate is issued, except as provided in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option was exercised.
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(b) Termination of Status as a Director. If an Optionee ceases to
serve as a Director, the Optionee may, but only within twelve (12) months
after the date the Optionee ceases to be an Outside Director of the
Company, exercise his or her Option to the extent the Optionee was entitled
to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise an Option at the date of such
termination, or if the Optionee does not exercise such Option within the
time specified herein, the Option shall terminate.
(c) Death of Optionee. In the event of the death of an Optionee
occurring:
(i) during the term of the Option, and provided that the
Optionee was at the time of death a Director of the Company and had
been in Continuous Service as a Director since the date of grant of
the Option, the Option may be exercised, at any time within twelve
(12) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in
Continuous Service a Director for twelve (12) months after the date of
death; or
(ii) within thirty (30) days after the termination of
Continuous Service as a Director, the Option may be exercised, at any
time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination of
Continuous Service as a Director.
11. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization; Dissolution or
Liquidation. The number of Shares of Common Stock covered by each outstanding
Option, and the number of Shares of Common Stock which have been authorized for
issuance under the Plan but as to which Options have not yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding Shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed
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<PAGE> 8
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, or options or rights to purchase shares of stock of any
class shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the right
to exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
13. Change in Control.
(a) Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control (as defined in 13(b)), any
Options outstanding as of the date such Change in Control is determined to
have occurred and not then exercisable and vested shall become fully
exercisable and vested in the full extent of the original grant.
(b) For purposes of the Plan, a "Change in Control" shall mean the
happening of any of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or more of
either (1) the then outstanding shares of Common Stock of the Company,
or (2) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors; provided, however, that the following acquisitions shall
not constitute a Change in Control: (1) any acquisition directly from
the Company; (2) any acquisition by the Company; (3) any acquisition
by a Person including the participant or with whom or with which the
participant is affiliated; (4) any acquisition by a Person or Persons,
one or more of which is a member of the Board or an officer of the
Company or an affiliate of any of the foregoing on the Effective Date,
(5) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled
by the Company; or (6) any acquisition by any corporation pursuant to
a transaction described in clauses (1), (2) and (3) of paragraph (d)
of this Section 13; or
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(c) During any period of twenty-four (24) consecutive months,
individuals who, as of the beginning of such period, constituted the entire
Board cease for any reason to constitute at least a majority of the Board,
unless the election, or nomination for election, by the Company's
stockholders, of each new director was approved by a vote of at least
two-thirds (2/3rds) of the Continuing Directors, as hereinafter defined, in
office on the date of such election or nomination for election for the new
director. For purposes hereof, "Continuing Director" shall mean:
(i) any member of the Board at the close of business on the
Effective Date; or
(ii) any member of the Board who succeeded any Continuing
Director described in clause (i) above if such successor's election,
or nomination for election, by the Company's stockholders, was
approved by a vote of at least two-thirds (2/3rds) of the Continuing
Directors then still in office. The term "Continuing Director" shall
not, however, include any individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such term is used in Rule 14a-11 of Regulation 14A of the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board.
(d) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (1) more than sixty percent (60%)
of the then outstanding securities having the right to vote in the election
of directors of the corporation resulting from such reorganization, merger
or consolidation is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners of the outstanding securities having the right to vote in
the election of Directors of the Company immediately prior to such
reorganization, merger or consolidation, (2) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, thirty
percent (30%) or more of the then outstanding securities having the right
to vote in the election of Directors of the Company) beneficially owns,
directly or indirectly, thirty percent (30%) or more of the then
outstanding securities having the right to vote in the election of the
corporation resulting from such reorganization, merger or consolidation,
and (3) at least a majority of the members of the Board of the corporation
resulting from such reorganization, merger or consolidation are Continuing
Directors at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
(e) Approval by the stockholders of the Company of (1) a complete
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liquidation or dissolution of the Company, or (2) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than sixty percent (60%) of the then outstanding
securities having the right to vote in the election of directors of such
corporation is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners of the outstanding securities having the right to vote in the
election of Directors of the Company immediately prior to such sale or
other disposition of such outstanding securities, (B) no Person (excluding
the Company and any employee benefit plan (or related trust) of the Company
or such corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, thirty percent
(30%) or more of the outstanding securities having the right to vote in the
election of Directors of the Company) beneficially owns, directly or
indirectly, thirty percent (30%) or more of the then outstanding securities
having the right to vote in the election of directors of such corporation
and (C) at least a majority of the members of the board of directors of
such corporation are Continuing Directors at the time of the execution of
the initial agreement or action of the Board providing for such sale or
other disposition of assets of the Company.
14. Amendment, Termination and Approval of the Plan. The Board may at any
time amend or terminate the Plan, except that the Board shall not amend the Plan
more than once every six (6) months with respect to the provisions of the Plan
relating to the amount, price, and timing of grants, other than to comply with
changes in the Internal Revenue Code of 1986, the Employee Retirement Income
Security Act of 1974, as amended, or the regulations thereunder. No Option may
be granted after the Plan is terminated. The foregoing provisions of this
Section notwithstanding, no amendment or termination shall, without the consent
of the holder of an Option, alter or impair any rights or obligations under any
Option theretofore granted under the Plan except as is permitted pursuant to
Section 12 of the Plan.
If any amendment to the Plan requires approval by the shareholders of
the Company for continued applicability of Rule 16b-3 under the Exchange Act, or
for initial or continued listing of the Common Stock or other securities of the
Company upon any stock exchange, then such amendment shall be approved by the
holders of a majority of the Company's outstanding capital stock entitled to
vote.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of the NASD or any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
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As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law. Such Shares may also be issued with
appropriate legends on stock certificates representing such Shares, and the
Company may place stop transfer orders with respect to such Shares.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. Option Agreement. Options shall be evidenced by written option
agreements in substantially the form attached hereto or in such other form as
the Board or Committee shall approve.
18. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company.
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EXHIBIT 10.3
JUBILEE GAMING ENTERPRISES, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of JUBILEE GAMING ENTERPRISES, INC. (the "Company"), a Minnesota corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock, no par value per
share, of the Company.
(d) "Company" shall mean Jubilee Gaming Enterprises, Inc., a Minnesota
corporation, and any subsidiary of the Company.
(e) "Compensation" shall mean all taxable earnings, including payments
for overtime, incentive compensation, incentive payments, bonuses, commissions
or other compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered to be interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than ninety (90) days or reemployment upon the expiration of
such leave is guaranteed by contract or statute.
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to be a Participating Employer in the Plan.
<PAGE> 2
(h) "Employee" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Exercise Date" shall mean the last day of each offering period of
the Plan.
(k) "Offering Date" shall mean the first day of each offering period
of the Plan.
(l) "Offering Period" shall mean the period from the Offering Date to
the Exercise Date during which eligible employees of the Company or a
Participating Employer may participate in the Plan.
(m) "Participating Employer" shall mean any Designated Subsidiary
which offers to its eligible Employees the opportunity to participate in the
Plan.
(n) "Plan" shall mean this Employee Stock Purchase Plan.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, or
other entity of which not less than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of paragraph 5(a) and the limitations
imposed by Section 423(b) of the Code. Anyone who meets the eligibility
criteria and becomes an Employee during the Offering Period but after the
Offering Date may not begin participation prior to the beginning of the next
Offering Period. All eligible Employees who elect to participate in this Plan
shall have the same rights and privileges except as provided in Subparagraph (b)
below.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits his or her
rights to purchase stock under all employee stock purchase plans (described in
Section 423 of the Code) of the Company and its subsidiaries to accrue at a
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rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value
of such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by one offering during
each six month Offering Period of the Plan, commencing on or about each January
1 and July 1 and continuing thereafter to a date no later than June 30 and
December 31 of the same six consecutive month period or until terminated in
accordance with paragraph 20 hereof. The Board shall have the power to change
the duration of offering periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
The first Offering Period shall commence on a date determined by the Board which
follows the date on which the Common Stock has been registered under the
Exchange Act.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deduction on the form
provided by the Company or Participating Employer and filing it with the
Company's or Participating Employer's payroll office prior to the applicable
Offering Date, unless a later time for filing the subscription agreement is set
by the Board for all eligible Employees with respect to a given offering.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of the
offering to which such authorization is applicable, unless sooner terminated by
the participant as provided in paragraph 11. Payroll deductions must be whole
dollar amounts only and may not be less than $10.00 per pay period.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement
with the Company's or Participating Employer's payroll office, he or she shall
elect to have payroll deductions made on each payday during the Offering Period.
The aggregate of such payroll deductions during the Offering Period shall not
exceed ten percent (10%) of his or her aggregate Compensation during said
Offering Period.
(b) All payroll deductions made by a participant shall be credited to
his or her account under the Plan. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in paragraph 11.
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(d) A participant may increase or decrease the rate of his or her
payroll deductions during the Offering Period by completing and filing with the
Company's payroll office a new authorization for payroll deduction. The change
in rate shall be effective fifteen (15) days following the Company's or
Participating Employer's receipt of the new authorization. Only one change in
rate may be made in any Offering Period by any participant.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in the Plan shall be granted an option to purchase (at
the per share option price) up to a number of shares of Common Stock determined
by dividing such Employee's payroll deductions to be accumulated during such
Offering Period (not to exceed an amount equal to ten percent (10%) of his or
her anticipated Compensation for the Offering Period, to be determined as of the
date of the commencement of the applicable Offering Period and adjusted as of
the Exercise Date if appropriate) by eighty-five percent (85%) of the fair
market value of a share of the Common Stock on the Offering Date, subject to the
limitations set forth in Section 3(b) and 13 hereof. Fair market value of a
share of the Company's Common Stock shall be determined as provided in Section
7(b) hereof.
(b) The fair market value of a share of Common Stock on a given date
shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the mean of the bid and asked prices of the Common Stock for such
date, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation System) or, in the event the Common Stock is listed on a stock
exchange, the fair market value per Share shall be the closing price on such
exchange on such date, as reported in the Wall Street Journal.
(c) Options to purchase granted on the Offering Date expire as of the
Exercise Date.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 11, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the Offering Period, and the
maximum number of full shares of Common Stock subject to option will be
purchased for him or her at the applicable option price with the accumulated
payroll deductions in his or her account. The shares purchased upon exercise of
an option hereunder shall be deemed to be transferred to the participant on the
Exercise Date. During his or her lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the number of whole shares of Common
Stock purchased upon exercise of his or her option. Any cash remaining to the
credit of a participant's account
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under the Plan after a purchase by him or her of full shares of Common Stock at
the termination of each Offering Period, or which is insufficient to purchase a
full share of Common Stock, shall be returned to said participant.
10. Expenses. All costs of maintaining records and executing transfers
will be borne by the Company. Brokerage expenses incurred in connection with
the purchase of shares shall be included as part of the costs of the shares of
Common Stock to the participating Employees.
11. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all of the
payroll deductions credited to his or her account under the Plan at any time
prior to the Exercise Date of the Offering Period by giving five (5) days prior
written notice to the Company. All of the participant's payroll deductions
credited to his or her account will be paid to him or her promptly after receipt
of his or her notice of withdrawal and his or her option for the current period
will be automatically terminated, and no further payroll deductions for the
purchase of shares of Common Stock will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to each Exercise Date of the Offering Period for any reason,
including retirement or death, the payroll deductions credited to his or her
account will be returned to him or her or, in the case of his or her death, to
the person or persons entitled thereto under paragraph 15, and his or her option
will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the Employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the payroll deductions credited to
his or her account will be returned to him or her and his or her option
terminated.
(d) A participant who withdraws from the Plan may not revoke that
withdrawal and recommence payroll deductions during the same Offering Period.
(e) A participant's withdrawal from the Plan will not have any effect
upon his or her eligibility to participate in a succeeding offering or in any
similar plan which may hereafter be adopted by the Company.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 150,000 shares, subject to adjustment
upon changes
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in capitalization of the Company as provided in paragraph 19. If the total
number of shares of Common Stock which would otherwise be subject to options
granted pursuant to Section 7(a) hereof on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares of
Common Stock subject to the option to each Employee affected thereby and shall
similarly reduce the rate of payroll deductions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The administration,
interpretation or application of the Plan by the Board or such a committee shall
be final, conclusive and binding upon all participants. Members of the Board
who are eligible Employees are permitted to participate in the Plan, provided
that:
(a) Members of the Board who are eligible to participate in the Plan
may not vote on any matter affecting the administration of the Plan or the grant
of any option pursuant to the Plan.
(b) If a committee is established by the Board to administer the Plan,
no member of the Board who is eligible to participate in the Plan may be a
member of such a committee.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Exercise Date of the Offering Period.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator
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<PAGE> 7
of the estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its sole
discretion, may deliver such shares and/or cash to the spouse or to any one or
more dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 11.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees
promptly following the Exercise Date, which statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares of Common Stock purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all
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<PAGE> 8
of the assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
participant shall have the right to exercise the option as to all of the
optioned stock, including shares as to which the option would not otherwise be
exercisable. If the Board makes an option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the participant that the option shall be fully exercisable for a
period of (30) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. Amendment or Termination. The Board of Directors of the Company may
at any time terminate or amend the Plan. Except as provided in paragraph 19, no
such termination can affect options previously granted, nor may an amendment
make any change in any option theretofore granted which adversely affects the
rights of any participant, nor may an amendment be made without prior approval
of the shareholders of the Company (obtained in the manner described in
paragraph 22) if such amendment would:
(a) Increase the number of shares that may be issued under the Plan;
(b) Permit payroll deductions at a rate in excess of ten percent (10%)
of the participant's Compensation;
(c) Change the designation of the employees (or class of employees)
eligible for participation in the Plan; or
(d) If the Company has a class of equity securities registered under
Section 12 of the Exchange Act at the time of such amendment, materially
increase the benefits which may accrue to participants under the Plan.
If any amendment requiring shareholder approval under this paragraph 20 of
the Plan is made subsequent to the first registration of any class of equity
securities by the Company under Section 12 of the Exchange Act, such shareholder
approval shall be solicited as described in paragraph 22 of the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received
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<PAGE> 9
in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
22. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code.
(b) If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in paragraph 21(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act, or (2) the granting of an option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the United States
Securities and Exchange Commission four (4) copies of the written information
referred to in subsection (i) hereof not later than the date on which such
information is first sent or given to shareholders.
23. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the
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<PAGE> 10
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
Term of Plan. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in paragraph 21. It shall continue in effect for a term
of ten (10) years unless sooner terminated under paragraph 20.
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EXHIBIT 10.4
The printed portions of this form approved by the Colorado Real Estate
Commission (NTD 82-11-83)
IF THIS FORM IS USED IN A CONSUMER CREDIT TRANSACTION, CONSULT LEGAL COUNSEL.
THIS IS A LEGAL INSTRUMENT. IF NOT UNDERSTOOD, LEGAL, TAX OR OTHER COUNSEL
SHOULD BE CONSULTED BEFORE SIGNING.
PROMISSORY NOTE
(Right to Cure)
U.S. $300,000 Cripple Creek, Colorado
June 30, 1994
1. FOR VALUE RECEIVED, the undersigned (Borrower) promise(s) to pay HAROLD M.
HERN and LEOTA M. HERN, in joint tenancy, or order (Note Holder) the principal
sum of Three Hundred Thousand Dollars and No/100 ($300,000.00) U.S. Dollars,
with interest on the unpaid principal balance from June 30, 1994, until paid, at
the rate of 8 1/2% percent per annum. Principal and interest shall be payable
at P.O. Box 540, Cripple Creek, Colorado, or such other place as the Note Holder
may designate, in annual payments of $100,000.00 of principal each, plus accrued
interest on the outstanding principal balance, due on the June 30 of each
year, beginning June 30, 1995. Such payments shall continue until the entire
indebtedness evidenced by this Note is fully paid; provided, however, if not
sooner paid, the entire principal amount outstanding and accrued interest
thereon, shall be due and payable on June 30, 1997.
2. Borrower shall pay to the Note Holder a late charge of five (5%) % of any
payments not received by the Note Holder within 20 days after the payment is
due.
3. Payments received for application to this Note shall be applied first to
the payment of late charges, if any, second to the payment of accrued interest
specified above, and the balance applied in reduction of the principal amount
hereof.
4. If any payment required by this Note is not paid when due, the entire
principal amount outstanding and accrued interest thereon shall become due and
payable at the option of the Note Holder (Acceleration) twenty days after notice
of Acceleration has been given. Such notice of Acceleration shall specify the
amount of the nonpayment plus any unpaid late charges and other costs, expenses
and fees due under this Note. Until the expiration of said twenty-day period,
the Borrower may cure all defaults consisting of a failure to make required
payments by tendering the amounts of all unpaid sums due at the time of tender,
without Acceleration, as specified by the Note Holder in such notice. Cure
restores the Borrower to his rights under this Note as though defaults had not
occurred. Any defaults under this Note occurring within twelve months after the
Note Holder has once given a notice of Acceleration, entitles Borrower to no
right to cure, except as otherwise
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<PAGE> 2
provided by law. The Note Holder shall be entitled to collect all reasonable
costs and expense of collection and/or suit, including, but not limited to
reasonable attorneys' fees.
5. After January 1, 1995, Borrower may prepay the principal amount outstanding
under this Note, in whole or in part, at any time without penalty. Any partial
prepayment shall be applied against the principal amount outstanding and shall
not postpone the due date of any subsequent payments or change the amount of
such payments. There shall be no prepayment hereunder prior to January 1, 1995.
6. Borrower and all other makers, sureties, guarantors, and endorsers hereby
waive presentment, notice of dishonor and protest, and they hereby agree to any
extensions of time of payment and partial payments before, at, or after
maturity. This Note shall be the joint and several obligation of Borrower and
all other makers, sureties, guarantors and endorsers, and their successors and
assigns.
7. Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by first-class U.S. mail, addressed to Borrower at the Borrower's
address stated below, or to such other address as Borrower may designate by
notice to the Note Holder. Any notice to the Note Holder shall be in writing
and shall be given and be effective upon (1) delivery to Note Holder or (2) by
mailing such notice by first-class U.S. mail, to the Note Holder at the address
stated in the first paragraph of this Note, or to such other address as Note
Holder may designate by notice to Borrower.
8. The indebtedness evidenced by this Note is secured by a Deed of Trust dated
June 30, 1994, and until released said Deed of Trust contains additional rights
of the Note Holder. Such rights may cause Acceleration of the indebtedness
evidenced by this Note. Reference is made to said Deed of Trust for such
additional terms. Said Deed of Trust grants rights in the property identified
as follows:
Lots 28, 29 and 30, Block 22, Fremont (now Cripple Creek),
Teller County, Colorado.
2
<PAGE> 3
(CAUTION: SIGN ORIGINAL NOTE ONLY/RETAIN COPY)
IF BORROWER IS NATURAL
PERSON(S):
/s/ Lewis M. Mithun
- ---------------------------------- ---------------------------------------
Lewis M. Mithun
doing business as
---------------------
---------------------------------------
Name of Corporation
ATTEST:
By
- ---------------------------------- ------------------------------------
Secretary President
---------------------------------------
Name of Partnership
(SEAL)
By
------------------------------------
General Partner
Borrower's Address: P.O. Box 765, Teton Village, Wyoming 83025
KEEP THIS NOTE IN A SAFE PLACE. THE ORIGINAL OF THIS NOTE MUST BE EXHIBITED TO
THE PUBLIC TRUSTEE IN ORDER TO RELEASE A DEED OF TRUST SECURING THIS NOTE.
3
<PAGE> 1
EXHIBIT 10.5
[NATIONAL GAMING LETTERHEAD]
Randy Otis October 31, 1995
2939 Maple Street
Fargo, N.D. 58102
Dear Randy:
We have determined that, for purposes of financing and for the structuring
that may be required if expansion is pursued in the future, we will be better
served to control all of the Jubilee Casino located in Cripple Creek, Colorado.
Therefore, we are extending the following offer to purchase your minority
Interest in the Jubilee Casino which resulted from your bringing the
transaction to National Lodging. In addition, we are asking you to warrant
that there are no other interests involved, other than your interest addressed
in this letter.
National Gaming Companies, Inc. offers, in exchange for any and all
interests Randy Otis has in the Jubilee Casino, the following consideration:
1. $25,000 cash payable as follows:
$ 5,000 on November 1, 1995
$10,000 on November 1, 1996
$10,000 on November 1, 1997
2. 100,000 shares of common stock in National Gaming Companies, Inc.
3. Payment of the above to be guaranteed by National Lodging Companies,
Inc.
National Gaming is the entity that will manage the casino and will own it
as well as the surrounding land parcels used for parking. The present
estimated value of NGC ranges between $.20 and $.60 per share, depending on the
land value assumptions used. It is our intent to also construct and own a
100-room motel near the casino within National Gaming as well.
We intend to pursue other gaming opportunities through National Gaming.
At present, we are looking at several other gaming opportunities in Arizona,
Washington and Mississippi. It is our belief that, subject to market
conditions and other factors, we can eventually take NGC public which may
create some liquidity for your stock.
Very truly yours,
NATIONAL GAMING COMPANIES, INC.
AGREED /s/ Randall D. Otis
----------------------
/s/ Craig Forsman Randall D. Otis
Craig Forsman
Chief Executive Officer DATE 11/8/95
--------
National Lodging Companies, Inc. hereby guarantees performance of the
above payments and issuance of the stock payment.
NATIONAL LODGING COMPANIES, INC.
/s/ Terrance P. De Roche
- --------------------------------
Terrance P. DeRoche, President
<PAGE> 1
EXHIBIT 10.6
NOTE
U.S.$25,000.00 Minneapolis, Minnesota
October 31, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Randall
D. Otis the sum of Twenty Five Thousand and 00/100 ($25,000.00) Dollars,
together with interest at the rate of 0% per annum as follows: The amount of
$5,000.00 shall be paid on or before November 1, 1995; $10,000.00 shall be paid
on or before November 1, 1996; and $10,000.00 shall be paid on or before
November 1, 1997.
Borrowers may prepay the principal amount outstanding in whole or in part.
The Note holder may require that any partial prepayments (i) be made on the
date installments are due and (ii) be in the amount of that part of one or more
installments which would be applicable to principal. Any partial prepayment
shall be applied against the principal amount outstanding and shall not
postpone the due date of any subsequent installments or change the amount of
such installments, unless the Note holder shall otherwise agree in writing.
Presentment, notice of dishonor, and protest are herby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the
joint and several obligation of all makers, sureties, guarantors and endorsers,
and shall be binding upon them and their successors and assigns.
If suit is brought to collect this Note, the Note holder shall be entitled
to collect all reasonable costs and expenses of suit, including, but not
limited to, reasonable attorney's fees.
Any notice to Borrower provided for in this Note shall be given by mailing
such notice by certified mail addressed to Borrower at the property address or
to such other address as Borrower may designate by notice to the Note holder.
Any notice to the Note holder shall be given by mailing such notice by
certified mail, return receipt requested, to the Note holder at the address
stated in the first paragraph of this Note, or at such other address as may
have been designated by notice to Borrower.
<PAGE> 2
National Gaming Companies, Inc.
By /s/Craig Forsman
----------------------------
Its Chief Executive Officer
National Lodging Companies, Inc. hereby guarantees the payments set forth
above.
National Lodging Companies, Inc.
By /s/Terrance P. DeRoche
----------------------------
Its President
<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
S450,000.00 October 31, 1995
FOR VALUE RECEIVED, the undersigned (hereinafter "Maker") promises to pay
to the order of HAROLD M. HERN AND LEOTA M. HERN (hereinafter collectively
"Holder"), at P.O. Box 540, Cripple Creek, Colorado 80813, or such other place
or places as Holder may from time to time designate, the sum of FOUR HUNDRED
FIFTY THOUSAND AND NO/100 DOLLARS ($450,000.00), with interest on the unpaid
principal balance at the rate of eight percent (8%) per annum, with principal
and interest payable as follows:
Monthly amortized payments of principal and accrued interest in the amount
of $5,460.96 based upon a ten (10) year amortization, with payments commencing
on December 1, 1995 and continuing on the first day of each month thereafter
until November 1, 2005, at which time the remaining principal balance and
accrued interest shall be due and payable in full.
SECURITY. This Note is secured by a first lien Deed of Trust encumbering
certain real property in Teller County, Colorado, more particularly described
in the Deed of Trust (hereinafter "Property").
PREPAYMENT. Maker shall have the right, at any time, to prepay principal
without penalty.
APPLICATION OF PAYMENTS. All payments received by Holder shall first be
applied to any costs, fees, charges or expenses due under this Note or the Deed
of Trust and then to accrued interest with the balance to the reduction of
principal.
EVENT OF DEFAULT. If one or more of the following events shall occur,
Maker shall be in default of this Note:
A. Any payment required by this Note is not made in full on its due date,
or any other provision of this Note is breached, and Maker fails to
cure such nonperformance or breach with ten (10) days after written
notice from Holder.
B. A default occurs under the Deed of Trust, or any other documents
securing this Note.
REMEDIES IN THE EVENT OF DEFAULT. Upon an event of default, the Holder
may, in Holder's sole discretion, declare the unpaid balance of this Note and
all other obligations of the Maker to the Holder, direct or indirect, absolute
or contingent, now existing or hereinafter arising, immediately due and
payable, without notice or demand. Furthermore, if an event of the default
under this Note shall occur, Holder may exercise any of the remedies upon
default set forth in the Deed of Trust securing this Note. Neither delay on the
part of Holder in exercising any right, nor the partial exercise or partial
waiver of any right, shall constitute a waiver of Holder's right to exercise
these remedies in the future.
LATE PAYMENT CHARGE. If all or any part of any payment of interest or
principal is not paid within ten (10) days after the same is due, then without
notice, Maker shall owe Holder a late payment charge of four percent (4%) of
said payment. Said charge shall be considered due on the date the original
payment was due and shall become part of the principal on said date and shall
bear interest thereafter. The right of the Holder to impose such late payment
charge shall not constitute a waiver of the Holder's right to insist upon
timely payment of all installments owing hereunder or a waiver of the Holder's
rights to declare a default due to any late payment. Such charge shall be in
addition to all interest on each installment up to the date such installment is
received by Holder. The Holder shall not have to accept the next regularly
scheduled payment until the late charge is paid.
DEFAULT INTEREST. Upon a default, the interest rate shall increase to
twelve percent (12%) per annum and continue thereafter during the period of
default.
WAIVER. Each maker, endorser and guarantor jointly and severally waive
presentment, protest or notice of dishonor, and any duty or obligation of
Holder to proceed against any collateral before otherwise enforcing this Note.
COLLECTION COSTS. Upon an event of default, Holder may employ legal
counsel to attempt to collect or to enforce this Note or any instrument
securing payment thereof, including, without limitation, a foreclosure under
the Deed of Trust. In any of such events, all reasonable attorneys' fees
arising from such suit, proceeding or enforcement, as well as any expenses,
costs, disbursements and charges relating thereto, shall be an additional
liability owing thereunder by the Maker to the Holder, payable on demand.
NO VIOLATION OF LAW. All agreements between the Maker and the Holder are
hereby expressly limited so that in no event whatsoever shall the amount paid
or agreed to be paid to the Holder exceed the maximum amount permissible under
applicable law. If fulfillment of any provision hereof shall violate any limit
prescribed by law, the obligation shall be reduced to the limit of such law. If
the Holder shall ever receive anything of value deemed interest under
applicable law which would exceed interest at the highest lawful rate, an
amount equal to any excessive interest shall be applied to the reduction of the
principal
<PAGE> 2
amount owing hereunder and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal hereof, such excess shall be
refunded to the Makers. All sums paid or agreed to be paid to the Holder for
the use, forbearance, or detention of the indebtedness of the Makers to the
Holder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate of interest on account of such
indebtedness is uniform throughout the term hereof.
ACKNOWLEDGEMENT. The Maker acknowledges that at this time there are no
existing offsets or defenses to the Note or the Deed of Trust, and that such
documents are valid and binding and are fully enforceable according to their
terms.
GOVERNING LAW. The loan evidenced by this Note is made in the State of
Colorado and shall be construed in accordance with the laws of the State
Colorado. Maker agrees that the proper venue and jurisdiction for any matter
involving this Note shall be in County or District Court of Teller County,
Colorado.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Note.
PURPOSE. Maker certifies that the loan evidenced by this Note is made for
business purposes.
SEVERABILITY. Unenforcebility of any provision contained in this Note
shall not affect or impair the validity of any other provision of this Note.
ENTIRE AGREEMENT. This Note, the Deed of Trust and any other written loan
documents represent the entire and only agreement of the parties with respect
to the terms and provisions of this loan. All negotiations, considerations,
representations and understandings between the parties concerning the loan are
incorporated and merged in the written loan documents. This Note may be
modified or altered only by the parties' written agreement.
AUTHORITY. Maker represents that it is a Minnesota corporation in good
standing and that it has the power and authority to enter into and perform this
Note. The officer executing this Note represents that he has the power and
authority to enter into this Note on behalf of Maker.
BINDING EFFECT. This Note shall be binding upon and inure to the benefit
of the parties hereto, as well as their respective heirs, executors,
administrators, successors and assigns.
EXECUTED this 31st day of October, 1995.
MAKER:
NATIONAL GAMING COMPANIES, INC.
a Minnesota corporation
By: /s/ R.J. Swenson
----------------------------
President
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$150,000.00 October 31, 1995
FOR VALUE RECEIVED, the undersigned (hereinafter "Maker") promises to pay
to the order of HAROLD M. HERN, LEOTA M. HERN and VICTOR HEYLIGER, each as to
an individual one-third interest, (hereinafter collectively "Holder"), at P.O.
Box 540, Cripple Creek, Colorado 80813, or such other place or places as Holder
may from time to time designate, the sum of ONE HUNDRED FIFTY THOUSAND AND
NO/100 DOLLARS ($150,000.00), with interest on the unpaid principal balance at
the rate of eight percent (8%) per annum, with principal and interest payable
as follows:
Monthly amortized payments of principal and accrued interest in the amount
of $1,820.32 based upon a ten (10) year amortization, with payments commencing
on December 1, 1995 and continuing on the first day of each month thereafter
until November 1, 2005, at which time the remaining principal balance and
accrued interest shall be due and payable in full.
SECURITY. This Note is secured by a first lien Deed of Trust encumbering
certain real property in Teller County, Colorado, more particularly described
in the Deed of Trust (hereinafter "Property").
PREPAYMENT. Maker shall have the right, at any time, to prepay principal
without penalty.
APPLICATION OF PAYMENTS. All payments received by Holder shall first be
applied to any costs, fees, charges or expenses due under this Note or the Deed
of Trust and then to accrued interest with the balance to the reduction of
principal.
EVENTS OF DEFAULT. If one or more of the following events shall occur,
Maker shall be in default of this Note:
A. Any payment required by this Note is not made in full on its due date,
or any other provision of this Note is breached, and Maker fails to
cure such nonperformance or breach with ten (10) days after written
notice from Holder.
B. A default occurs under the Deed of Trust, or any other documents
securing this Note.
REMEDIES IN THE EVENT OF DEFAULT. Upon an event of default, the Holder
may, in Holder's sole discretion, declare the unpaid balance of this Note and
all other obligations of the Maker to the Holder, direct or indirect, absolute
or contingent, now existing or hereinafter arising, immediately due and
payable, without notice or demand. Furthermore, if an event of the default
under this Note shall occur, Holder may exercise any of the remedies upon
default set forth in the Deed of Trust securing this Note. Neither delay on the
part of Holder in exercising any right, nor the partial exercise or partial
waiver of any right, shall constitute a waiver of Holder's right to exercise
these remedies in the future.
LATE PAYMENT CHARGE. If all or any part of any payment of interest or
principal is not paid within ten (10) days after the same is due, then without
notice, Maker shall owe Holder a late payment charge of four percent (4%) of
said payment. Said charge shall be considered due on the date the original
payment was due and shall become part of the principal on said date and shall
bear interest thereafter. The right of the Holder to impose such late payment
charge shall not constitute a waiver of the Holder's right to insist upon
timely payment of all installments owing hereunder or a waiver of the Holder's
rights to declare a default due to any late payment. Such charge shall be in
addition to all interest on each installment up to the date such installment is
received by Holder. The Holder shall not have to accept the next regularly
scheduled payment until the late charge is paid.
DEFAULT INTEREST. Upon a default, the interest rate shall increase to
twelve percent (12%) per annum and continue thereafter during the period of
default.
WAIVER. Each maker, endorser and guarantor jointly and severally waive
presentment, protest or notice of dishonor, and any duty or obligation of
Holder to proceed against any collateral before otherwise enforcing this Note.
COLLECTION COSTS. Upon an event of default, Holder may employ legal
counsel to attempt to collect or to enforce this Note or any instrument
securing payment thereof, including, without limitation, a foreclosure under
the Deed of Trust. In any of such events, all reasonable attorneys' fees
arising from such suit, proceeding or enforcement, as well as any expenses,
costs, disbursements and charges relating thereto, shall be an additional
liability owing thereunder by the Maker to the Holder, payable on demand.
NO VIOLATION OF LAW. All agreements between the Maker and the Holder are
hereby expressly limited so that in no event whatsoever shall the amount paid
or agreed to be paid to the Holder exceed the maximum amount permissible under
applicable law. If fulfillment of any provision hereof shall violate any limit
prescribed by law, the obligation shall be reduced to the limit of such law. If
the Holder shall ever receive anything of value deemed interest under
applicable law which would exceed interest at the highest lawful rate, an
amount equal to any excessive interest shall be applied to the reduction of the
principal amount owing hereunder and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of principal hereof, such excess
shall be refunded to the Makers. All sums paid or agreed to be paid to the
Holder for the use, forbearance, or detention of the indebtedness of the Makers
to the Holder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout
<PAGE> 2
the full term of such indebtedness until payment in full so that the rate of
interest on account of such indebtedness is uniform throughout the term hereof.
ACKNOWLEDGEMENT. The Maker acknowledges that at this time there are no
existing offsets or defenses to the Note or the Deed of Trust, and that such
documents are valid and binding and are fully enforceable according to their
terms.
GOVERNING LAW. The loan evidenced by this Note is made in the State of
Colorado and shall be construed in accordance with the laws of the State
Colorado. Maker agrees that the proper venue and jurisdiction for any matter
involving this Note shall be in County or District Court of Teller County,
Colorado.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Note.
PURPOSE. Maker certifies that the loan evidenced by this Note is made for
business purposes.
SEVERABILITY. Unenforceability of any provision contained in this Note
shall not affect or impair the validity of any other provision of this Note.
ENTIRE AGREEMENT. This Note, the Deed of Trust and any other written loan
documents represent the entire and only agreement of the parties with respect
to the terms and provisions of this loan. All negotiations, considerations,
representations and understandings between the parties concerning the loan are
incorporated and merged in the written loan documents. This Note may be
modified or altered only by the parties' written agreement.
AUTHORITY. Maker represents that it is a Minnesota corporation in good
standing and that it has the power and authority to enter into and perform this
Note. The officer executing this Note represents that he has the power and
authority to enter into this Note on behalf of Maker.
BINDING EFFECT. This Note shall be binding upon and inure to the benefit
of the parties hereto, as well as their respective heirs, executors,
administrators, successors and assigns.
EXECUTED this 31st day of October, 1995.
MAKER:
NATIONAL GAMING COMPANIES, INC.
a Minnesota corporation
By: /s/ R.J. Swenson
-----------------------
PRESIDENT
<PAGE> 1
EXHIBIT 10.9
The printed portions of this form approved by the Colorado Real Estate
Commission (TD 73-11-83)
IF THIS FORM IS USED IN A CONSUMER CREDIT TRANSACTION, CONSULT LEGAL COUNSEL.
THIS IS A LEGAL INSTRUMENT. IF NOT UNDERSTOOD, LEGAL, TAX OR OTHER COUNSEL
SHOULD BE CONSULTED BEFORE SIGNING.
DEED OF TRUST
(Due on Transfer - Creditworthy Restriction)
THIS DEED OF TRUST is made this 31st day of October, 1995, between
National Gaming Companies, Inc. (Borrower) whose address is 9855 West 78th
Street, Suite 210, Eden Prairie, Minn. 55344; and the Public Trustee of the
County in which the Property (see paragraph 1) is situated (Trustee); for the
benefit of Harold M. Hern, Leota M. Hern and Victor Heyliger (Lender), whose
address is Post Office Box 540, Cripple Creek, CO 80813.
Borrower and Lender covenant and agree as follows:
1. Property in Trust. Borrower, in consideration of the indebtedness
herein recited and the trust herein created, hereby grants and conveys to
Trustee in trust, with power of sale, the following described property located
in the County of Teller, State of Colorado:
See Exhibit A attached hereto and incorporated by reference.
2. Note; Other Obligations Secured. This Deed of Trust is given to secure
to Lender:
A. the repayment of the indebtedness evidenced by Borrower's note (Note) dated
October 31, 1995, in the principal sum of One Hundred Fifty Thousand Dollars
and no cents ($150,000.00) U.S. Dollars, with interest on the unpaid principal
balance from October 31, 1995, until paid, at the rate of eight (8) percent per
annum, with principal and interest payable in accordance with the term of the
Note, with such payments to continue until the entire indebtedness evidenced by
said Note is fully paid; however, if not sooner paid, the entire principal
amount outstanding and accrued interest thereon, shall be due and payable on
October 31, 2005; and Borrower is to pay to Lender a late charge of four
percent (4%) of any payment not received by the Lender within ten (10) days
after payment is due; and Borrower has the right to prepay the principal amount
outstanding under said Note, in whole or in part, at any time without penalty.
B. the payment of all other sums, with interest thereon at twelve percent (12%)
per annum, disbursed by Lender in accordance with this Deed of Trust to protect
the security of this Deed of Trust; and
C. the performance of the covenants and agreements of Borrower herein
contained.
3. Title. Borrower covenants that Borrower owns and has the right to
grant and convey the Property, and warrants title to the same, subject to
general real estate taxes for the current year, easements of record or in
existence, and recorded declarations, restrictions, reservations and covenants,
if any, as of this date and except patent reservations and exceptions of
record; mineral reservations of record.
4. Payment of Principal and Interest. Borrower shall promptly pay when due
the principal of and interest on the indebtedness evidenced by the Note, and
late charges as provided in the Note and shall perform all of Borrower's other
covenants contained in the Note.
5. Application of Payments. All payments received by Lender under the
terms hereof shall be applied by Lender first in payment of amounts disbursed
by Lender pursuant to paragraph 9 (Protection of Lender's Security), and the
balance in accordance with the terms and conditions of the Note.
6. Prior Mortgages and Deeds of Trust; Charges; Liens. Borrower shall
perform all of Borrower's obligations under any prior deed of trust and any
other prior liens. Borrower shall pay all taxes, assessments and other
charges, fines and impositions attributable to the Property which may have or
attain a priority over this Deed of Trust, and leasehold payments or ground
rents, if any, by Borrower making payment when due, directly to the payee
thereof. Despite the foregoing, Borrower shall not be required to make
payments otherwise required by this paragraph if Borrower, after notice to
Lender, shall in good faith contest such obligation by, or defend enforcement
of such obligation in, legal proceedings which operate to prevent the
enforcement of the obligation or forfeiture of the Property or any part
thereof, only upon Borrower making all such contested payments and other
payments as ordered by the court to the registry of the court in which such
proceedings are filed.
7. Property Insurance. Borrower shall keep the improvements now existing
or hereafter erected on the Property insured against loss by fire or hazards
included within the term "extended coverage" in an amount at least equal to the
lesser of (1) the insurable value of the Property or (2) an amount sufficient
to pay the sums secured by this Deed of Trust as well as any prior encumbrances
on the Property. All of the foregoing shall be known as "Property Insurance."
The insurance carrier providing the insurance shall be qualified to write
Property Insurance in Colorado and shall be chosen by Borrower subject to
Lender's right to reject the chosen carrier for reasonable cause. All insurance
policies and renewals thereof shall include a standard mortgage clause in favor
of Lender, and shall provide that the insurance carrier shall notify Lender at
least ten (10) days before cancellation, termination or any material change of
1
<PAGE> 2
coverage. Insurance policies shall be furnished to Lender at or before
closing. Lender shall have the right to hold the policies and renewals
thereof.
In the event of loss, Borrower shall give prompt notice to the insurance
carrier and Lender. Lender may make proof of loss if not made promptly by
Borrower.
Insurance proceeds shall be applied to restoration or repair of the
Property damaged, provided such restoration or repair is economically feasible
and the security of this Deed of Trust is not thereby impaired. If such
restoration or repair is not economically feasible or if the security of this
Deed of Trust would be impaired, the insurance proceeds shall be applied to the
sums secured by this Deed of Trust, with the excess, if any, paid to Borrower.
If the Property is abandoned by Borrower, or if Borrower fails to respond to
Lender within 30 days from the date notice is given in accordance with
paragraph 16 (Notice) by Lender to Borrower that the insurance carrier offers
to settle a claim for insurance benefits, Lender is authorized to collect and
apply the insurance proceeds, at Lender's option, either to restoration or
repair of the Property or to the sums secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) or change the amount of such installments.
Notwithstanding anything herein to the contrary, if under paragraph 18
(Acceleration; Foreclosure; Other Remedies) the Property is acquired by Lender,
all right, title and interest of Borrower in and to any insurance policies and
in and to the proceeds thereof resulting from damage to the Property prior to
the sale or acquisition shall pass to Lender to the extent of the sums secured
by this Deed of Trust immediately prior to such sale or acquisition.
All of the rights of Borrower and Lender hereunder with respect to
insurance carriers, insurance policies and insurance proceeds are subject to
the rights of any holder of a prior deed of trust with respect to said
insurance carriers, policies and proceeds.
8. Preservation and Maintenance of Property. Borrower shall keep the
Property in good repair and shall not commit waste or permit impairment or
deterioration of the Property and shall comply with the provisions of any lease
if this Deed of Trust is on a leasehold. Borrower shall perform all of
Borrower's obligations under any declarations, covenants, by-laws, rules, or
other documents governing the use, ownership or occupancy of the Property.
9. Protection of Lender's Security. Except when Borrower has exercised
Borrower's rights under paragraph 6 above, if the Borrower fails to perform the
covenants and agreements contained in this Deed of Trust, or if a default
occurs in a prior lien, or if any action or proceeding is commenced which
materially affects Lender's interest in the Property, then Lender, at Lender's
option, with notice to Borrower if required by law, may make such appearances,
disburse such sums and take such action as is necessary to protect Lender's
interest, including, but not limited to, disbursement of reasonable attorney's
fees and entry upon the Property to make repairs. Borrower hereby assigns to
Lender any right Borrower may have by reason of any prior encumbrance on the
Property or by law or otherwise to cure any default under said prior
encumbrance.
Any amounts disbursed by Lender pursuant to this paragraph 9, with
interest thereon, shall become additional indebtedness of Borrower secured by
this Deed of Trust. Such amounts shall be payable upon notice from Lender to
Borrower requesting payment thereof, and Lender may bring suit to collect any
amounts so disbursed plus interest specified in paragraph 2B (Note; Other
Obligations Secured). Nothing contained in this paragraph 9 shall require
Lender to incur any expense or take any action hereunder.
10. Inspection. Lender may make or cause to be made reasonable entries
upon and inspection of the Property, provided that Lender shall give Borrower
notice prior to any such inspection specifying reasonable cause therefor
related to Lender's interest in the Property.
11. Condemnation. The proceeds of any award or claim for damages, direct
or consequential, in connection with any condemnation or other taking of the
Property, or part thereof, or for conveyance in lieu of condemnation, are
hereby assigned and shall be paid to Lender as herein provided. However, all
of the rights of Borrower and Lender hereunder with respect to such proceeds
are subject to the rights of any holder of a prior deed of trust.
In the event of a total taking of the Property, the proceeds shall be
applied to the sums secured by this Deed of Trust, with the excess, if any,
paid to Borrower. In the event of a partial taking of the Property, the
proceeds remaining after taking out any part of the award due any prior lien
holder (net award) shall be divided between Lender and Borrower, in the same
ratio as the amount of the sums secured by this Deed of Trust immediately prior
to the date of taking bears to Borrower's equity in the Property immediately
prior to the date of taking. Borrower's equity in the Property means the fair
market value of the Property less the amount of sums secured by both this Deed
of Trust and all prior liens (except taxes) that are to receive any of the
award, all at the value immediately prior to the date of taking.
If the Property is abandoned by Borrower, or if, after notice by Lender to
Borrower that the condemnor offers to make an award or settle a claim for
damages, Borrower fails to respond to Lender within 30 days after the date such
notice is given, Lender is authorized to collect and apply the proceeds, at
Lender's option, either to restoration or repair of the Property or to the sums
secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) nor change the amount of such installments.
12. Borrower Not Released. Extension of the time for payment or
modification of amortization of the sums secured by this Deed of Trust granted
by Lender to any successor in interest of Borrower shall not operate to
release, in any manner, the liability of the original Borrower, nor Borrower's
successors in interest, from the original terms of this Deed of Trust. Lender
shall not be required to commence proceedings against such successor or refuse
to extend time for payment or otherwise modify amortization of the sums secured
by this Deed of Trust by reason of any demand made by the original Borrower nor
Borrower's successors in interest.
2
<PAGE> 3
13. Forbearance by Lender Not a Waiver. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by law, shall
not be a waiver or preclude the exercise of any such right or remedy.
14. Remedies Cumulative. Each remedy provided in the Note and this Deed
of Trust is distinct from and cumulative to all other rights or remedies under
the Note and this Deed of Trust or afforded by law or equity, and may be
exercised concurrently, independently or successively.
15. Successors and Assigns Bound; Joint and Several Liability; Captions.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective successors and assigns of Lender and
Borrower, subject to the provisions of paragraph 24 (Transfer of the Property;
Assumption). All covenants and agreements of Borrower shall be joint and
several. The captions and headings of the paragraphs in this Deed of Trust are
for convenience only and are not to be used to interpret or define the
provisions hereof.
16. Notice. Except for any notice required by law to be given in another
manner, (a) any notice to Borrower provided for in this Deed of Trust shall be
in writing and shall be given and be effective upon (1) delivery to Borrower or
(2) mailing such notice by first-class U.S. mail, addressed to Borrower at
Borrower's address stated herein or at such other address as Borrower may
designate by notice to Lender as provided herein, and (b) any notice to Lender
shall be in writing and shall be given and be effective upon (1) delivery to
Lender or (2) mailing such notice by first-class U.S. mail, to Lender's address
stated herein or to such other address as Lender may designate by notice to
Borrower as provided herein. Any notice provided for in this Deed of Trust
shall be deemed to have been given to Borrower or Lender when given in any
manner designated herein.
17. Governing Law; Severability. The Note and this Deed of Trust shall
be governed by the law of Colorado. In the event that any provision or clause
of this Deed of Trust or the Note conflicts with the law, such conflict shall
not affect other provisions of this Deed of Trust or the Note which can be
given effect without the conflicting provision, and to this end the provisions
of the Deed of Trust and Note are declared to be severable.
18. Acceleration; Foreclosure; Other Remedies. Except as provided in
paragraph 24 (Transfer of the Property; Assumption), upon Borrower's breach of
any covenant or agreement of Borrower in this Deed of Trust, or upon any
default in a prior lien upon the Property, (unless Borrower has exercised
Borrower's rights under paragraph 6 above), at Lender's option, all of the sums
secured by this Deed of Trust shall be immediately due and payable
(Acceleration). To exercise this option, Lender may invoke the power of sale
and any other remedies permitted by law. Lender shall be entitled to collect
all reasonable costs and expenses incurred in pursuing the remedies provided in
this Deed of Trust, including, but not limited to, reasonable attorney's fees.
If Lender invokes the power of sale, Lender shall give written notice to
Trustee of such election. Trustee shall give such notice to Borrower of
Borrower's rights as is provided by law. Trustee shall record a copy of such
notice as required by law. Trustee shall advertise the time and place of the
sale of the Property, for not less than four weeks in a newspaper of general
circulation in each county in which the Property is situated, and shall mail
copies of such notice of sale to Borrower and other persons prescribed by law.
After the lapse of such time as may be required by law, Trustee, without demand
on Borrower, shall sell the Property at public auction to the highest bidder
for cash at the time and place (which may be on the Property or any part
thereof as permitted by law) in one or more parcels as Trustee may think best
and in such order as Trustee may determine. Lender or Lender's designee may
purchase the Property at any sale. It shall not be obligatory upon the
purchaser at any such sale to see to the application of the purchase money.
Trustee shall apply the proceeds of the sale in the following order: (a)
to all reasonable costs and expenses of the sale, including, but not limited
to, reasonable Trustee's and attorney's fees and costs of title evidence; (b)
to all sums secured by this Deed of Trust; and (c) the excess, if any, to the
person or persons legally entitled thereto.
19. Borrower's Right to Cure Default. Whenever foreclosure is commenced
for nonpayment of any sums due hereunder, the owners of the Property or parties
liable hereon shall be entitled to cure said defaults by paying all delinquent
principal and interest payments due as of the date of cure, costs, expenses,
late charges, attorney's fees and other fees all in the manner provided by law.
Upon such payment, this Deed of Trust and the obligations secured hereby shall
remain in full force and effect as though no Acceleration had occurred, and the
foreclosure proceedings shall be discontinued.
20. Assignment of Rents; Appointment of Receiver; Lender in Possession.
As additional security hereunder, Borrower hereby assigns to Lender the rents
of the Property; however, Borrower shall, prior to Acceleration under paragraph
18 (Acceleration; Foreclosure; Other Remedies) or abandonment of the Property,
have the right to collect and retain such rents as they become due and payable.
Lender or the holder of the Trustee's certificate of purchase shall be
entitled to a receiver for the Property after Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies), and shall also be so entitled
during the time covered by foreclosure proceedings and the period of
redemption, if any; and shall be entitled thereto as a matter of right without
regard to the solvency or insolvency of Borrower or of the then owner of the
Property, and without regard to the value thereof. Such receiver may be
appointed by any Court of competent jurisdiction upon ex parte application and
without notice notice being hereby expressly waived.
Upon Acceleration under paragraph 18 (Acceleration; Foreclosure; Other
Remedies) or abandonment of the Property, Lender, in person, by agent or by
judicially-appointed receiver, shall be entitled to enter upon, take possession
of and manage the Property and to collect the rents of the Property including
those past due. All rents collected by Lender or the receiver shall be
applied, first, to payment of the costs of preservation and management of the
Property, second, to payments due upon prior liens, and then to the sums
secured by this Deed of Trust. Lender and the receiver shall be liable to
account only for those rents actually received.
3
<PAGE> 4
21. Release. Upon payment of all sums secured by this Deed of Trust,
Lender shall cause Trustee to release this Deed of Trust and shall produce for
Trustee the Note. Borrower shall pay all costs of recordation and shall pay the
statutory Trustee's fees. If Lender shall not produce the Note as aforesaid,
then Lender, upon notice in accordance with paragraph 16 (Notice) from Borrower
to Lender, shall obtain, at Lender's expense, and file any lost instrument bond
required by Trustee or pay the cost thereof to effect the release of this Deed
of Trust.
22. Waiver of Exemptions. Borrower hereby waives all right of homestead
and any other exemption in the Property under state or federal law presently
existing or hereafter enacted.
23. [Intentionally Omitted]
24. Transfer of the Property; Assumption. The following events shall be
referred to herein as a "Transfer": (i) a transfer or conveyance of title (or
any portion thereof, legal or equitable) of the Property (or any part thereof or
interest therein), (ii) the execution of a contract or agreement creating a
right to title (or any portion thereof, legal or equitable) in the Property (or
any part thereof or interest therein), (iii) or an agreement granting a
possessory right in the Property (or any portion thereof), in excess of three
(3) years, (iv) a sale or transfer of, or the execution of a contract or
agreement creating a right to acquire or receive, more than fifty percent (50%)
of the controlling interest or more than fifty percent (50%) of the beneficial
interest in the Borrower,(v) the reorganization, liquidation or dissolution of
the Borrower. Not to be included as a Transfer are (i) the creation of a lien
or encumbrance subordinate to this Deed of Trust, (ii) the creation of a
purchase money security interest for household appliances, or (iii) a transfer
by devise, descent or by operation of the law upon the death of a joint tenant.
At the election of Lender, in the event of each and every Transfer.
(a) Borrower shall, upon Lender's request, submit information required to
enable Lender to evaluate the creditworthiness of the person ("Transferee") who
is, or is to be, the recipient of a Transfer, as if a new loan were being made
to Transferee. If Transferee is reasonably determined by the Lender to be
financially incapable of retiring the indebtedness according to its terms, based
upon standards normally used by persons in the business of making loans on real
estate in the same or similar circumstances, then all sums secured by this Deed
of Trust, at Lender's option, may become immediately due and payable
("Acceleration").
(b) If Lender exercises such option to Accelerate, Lender shall give
Borrower notice of Acceleration in accordance with paragraph 16 (Notice). The
notice shall inform Borrower of the right to assert in the foreclosure
proceeding the nonexistence of a default or any other defense of Borrower to
Acceleration and sale. Such notice shall also provide a period of not less than
10 days from the date the notice is given within which Borrower may pay the sums
declared due. If Borrower fails to pay such sums prior to the expiration of
such period, Lender may, without further notice or demand on Borrower, invoke
any remedies permitted by paragraph 18 (Acceleration; Foreclosure; Other
Remedies). Lender shall give notice of such Acceleration, within thirty (30)
days after notice of any Transfer is given to Lender by Borrower or Transferee
in accordance with paragraph 16 (Notice). If Lender shall not give notice of
such Acceleration within such thirty (30) days, then Lender will have no further
right to such Acceleration.
(c) If a Transfer occurs and should Lender not exercise Lender's option
pursuant to this paragraph 24 to Accelerate, Transferee shall be deemed to have
assumed all of the obligations of Borrower under this Deed of Trust including
all sums secured hereby whether or not the instrument evidencing such
conveyance, contract or grant expressly so provides. This covenant shall run
with the Property and remain in full force and effect until said sums are paid
in full. The Lender may without notice to the Borrower deal with Transferee in
the same manner as with the Borrower with reference to said sums including the
payment or credit to Transferee of undisbursed reserve Funds on payment in full
of said sums, without in any way altering or discharging the Borrower's
liability hereunder for the obligations hereby secured.
(d) Should Lender not elect to Accelerate upon the occurrence of such
Transfer then, subject to (b) above, the mere fact of a lapse of time or the
acceptance of payment subsequent to any of such events, whether or not Lender
had actual or constructive notice of such Transfer, shall not be deemed a waiver
of Lender's right to make such election nor shall Lender be estopped therefrom
by virtue thereof. The issuance on behalf of the Lender of a routine statement
showing the status of the loan, whether or not Lender had actual or constructive
notice of such Transfer, shall not be a waiver or estoppel of Lender's said
rights.
25. Borrower's Copy. Borrower acknowledges receipt of a copy of the Note
and of this Deed of Trust.
26. Additional Provisions. See Exhibit B attached hereto and
incorporated herein by reference for additional terms and provisions.
4
<PAGE> 5
EXECUTED BY BORROWER
IF BORROWER IS CORPORATION: National Gaming Companies, Inc.,
a Minnesota corporation
ATTEST: --------------------------------
Name of Corporation
/s/ Terrance P. DeRoche by /s/ R. J. Swenson
- -------------------------------- ------------------------------
Secretary President
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 31st day of
October, 1995, by* R. J. Swenson, as President, and Terrance P. DeRoche, as
Secretary, of National Gaming Companies, Inc., a Minnesota corporation.
Witness my hand and official seal.
My commission expires: 1-31-2000
/s/ Lorrie Lee Salzl
--------------------------------
Notary Public
3300 Norwest Center
Minneapolis, MN 55402-4140
--------------------------------
Address
*If a natural person or persons, insert the name(s) of such person(s). If a
corporation, insert, for example, "John Doe as President and Jane Doe as
Secretary of Doe & Co., a Colorado corporation." If a partnership, insert, for
example, "Sam Smith as general partner in and for Smith & Smith, a general
partnership."
5
<PAGE> 6
EXHIBIT A
The southern portion of Lot 34, Block 22, Fremont (now Cripple Creek),
Teller County, Colorado, upon which is currently located the historic Homestead
House improvements as shown on attached Exhibit C.
<PAGE> 7
EXHIBIT B
ADDITIONAL PROVISIONS TO DEED OF TRUST
This Exhibit B is a part of the October 31, 1995 Deed of Trust between
National Gaming Companies, Inc., a Minnesota corporation, as Borrower, Harold M.
Hern, Leota M. Hern and Victor Heyliger, as Lenders, and the Public Trustee of
Teller County, Colorado, and asserts additional terms and provisions to said
Deed of Trust.
1. Mechanic's Liens. Borrower shall not allow any mechanic's lien to
arise against the Property which is not bonded or removed within thirty (30)
days of filing.
2. Assignment of Rents. Even though under Paragraph 20, the Borrower is
given the right to collect income, rents and lease payments until there is a
default, this assignment shall in all respects constitute an absolute
assignment.
3. Bonded Construction. Prior to the commencement of construction of any
improvements upon or related to the Property, Borrower shall obtain payment and
performance bonds for the entire construction of such improvements and shall
have Lenders named as an additional beneficiary thereunder.
4. Cure Right. The Deed of Trust shall not be in default until written
notice from Lender to Borrower of Borrower's failure to perform its obligations
hereunder and Borrower's failure to cure such nonperformance within ten (10)
days thereafter.
5. Inconsistencies. In the event of any inconsistencies between this
Exhibit and the preprinted form Deed of Trust, the Exhibit shall control.
1
<PAGE> 8
EXHIBIT C
[MAP]
<PAGE> 1
EXHIBIT 10.10
WARRANTY DEED
THIS DEED, Made this 31st day of October, 1995, between Harold M. Hern and
Leota M. Hern, of the County of Teller, State of Colorado, grantor(s) and
National Gaming Companies, Inc., a Minnesota corporation whose legal address is
9855 West 78th Street, Suite 210, Eden Prairie, Minnesota 55344 of the State of
Minnesota, grantee(s):
WITNESSETH, That the grantor(s), for and in consideration of the sum of ten
dollars and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, have granted, bargained, sold and conveyed, and
by these presents do grant, bargain, sell, convey, and confirm, unto the
grantee(s), its heirs and assigns forever, all the real property, together with
improvements, if any, situate, lying and being in the County of Teller, State of
Colorado, described as follows:
Lots 34 through 36, Block 22, Fremont (now Cripple Creek), Teller County,
Colorado
also known by street and number as:
assessor's schedule or parcel number:
TOGETHER with all and singular the hereditaments and appurtenances thereto
belonging, or in anywise appertaining, and the reversion and reversions,
remainder and remainders, rents, issues and profits thereof, and all the estate,
right, title, interest, claim and demand whatsoever of the grantor(s), either in
law or equity, of, in and to the above bargained premises, with the
hereditaments and appurtenances.
TO HAVE AND TO HOLD the said premises above bargained and described with
the appurtenances, unto the grantee(s), its heirs and assigns forever. And the
grantor(s), for themselves and their heirs and personal representatives, do
covenant, grant, bargain, and agree to and with the grantee(s), its heirs and
assigns, that at the time of the ensealing and delivery of these presents, they
are well seized of the premises above conveyed, have good, sure, perfect,
absolute and indefeasible estate of inheritance, in law, in fee simple, and have
good right, full power and authority to grant, bargain, sell and convey the same
in manner and form as aforesaid, and that the same are free and clear from all
former and other grants, bargains, sales, liens, taxes, assessments,
encumbrances, and restrictions of whatever kind or nature soever, except:
real property taxes for the 1995 calendar year; patent reservations and
exceptions; mineral reservations of record; and easements of record or in
place.
The grantor(s) shall and will WARRANT AND FOREVER DEFEND the
above-bargained premises in the quiet and peaceable possession of the
grantee(s), its heirs and
1 of 2
<PAGE> 2
assigns, against all and every person or persons lawfully claiming the whole
or any part thereof.
IN WITNESS WHEREOF, the grantor(s) have executed this deed on the date set
forth above.
/s/ Harold M. Hern /s/ Leota M. Hern
- --------------------------------- -----------------------------------
Harold M. Hern Leota M. Hern
STATE OF COLORADO )
) ss.
COUNTY OF EL PASO )
The foregoing instrument was acknowledged before me this 31st day of
October, 1995, by Harold M. Hern and Leota M. Hern.
My commission expires 7-19-96.
Witness my hand and official seal
/s/ Katheryn Porter Smith
-------------------------------------
Notary Public
2 of 2
<PAGE> 1
EXHIBIT 10.11
WARRANTY DEED
THIS DEED, Made this 31st day of October, 1995, between Harold M. Hern,
Leota M. Hern and Victor Heyliger of the County of Teller, State of Colorado,
grantor(s) and National Gaming Companies, Inc., a Minnesota corporation whose
legal address is 9855 West 78th Street, Suite 210, Eden Prairie, Minnesota
55344 of the State of Minnesota, grantee(s):
WITNESSETH, That the grantor(s), for and in consideration of the sum of
ten dollars and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, have granted, bargained, sold and
conveyed, and by these presents do grant, bargain, sell, convey, and confirm,
unto the grantee(s), its heirs and assigns forever, all the real property,
together with improvements, if any, situate, lying and being in the County of
Teller, State of Colorado, described as follows:
Lots 37 through 40, Block 22, Fremont (now Cripple Creek), Teller
County, Colorado
also known by street and number as:
assessor's schedule or parcel number:
TOGETHER with all and singular the hereditaments and appurtenances thereto
belonging, or in anywise appertaining, and the reversion and reversions,
remainder and remainders, rents, issues and profits thereof, and all the
estate, right, title, interest, claim and demand whatsoever of the grantor(s),
either in law or equity, of, in and to the above bargained premises, with the
hereditaments and appurtenances.
TO HAVE AND TO HOLD the said premises above bargained and described with
the appurtenances, unto the grantee(s), its heirs and assigns forever. And the
grantor(s), for themselves and their heirs and personal representatives, do
covenant, grant, bargain, and agree to and with the grantee(s), its heirs and
assigns, that at the time of the ensealing and delivery of these presents, they
are well seized of the premises above conveyed, have good, sure, perfect,
absolute and indefeasible estate of inheritance, in law, in fee simple, and
have good right, full power and authority to grant, bargain, sell and convey
the same in manner and form as aforesaid, and that the same are free and clear
from all former and other grants, bargains, sales, liens, taxes, assessments,
encumbrances, and restrictions of whatever kind or nature soever, except:
real property taxes for the 1995 calendar year; patent
reservations and exceptions; mineral reservations of record; and
easements of record or in place.
The grantor(s) shall and will WARRANT AND FOREVER DEFEND the
above-bargained premises in the quiet and peaceable possession of the
grantee(s), heirs and assigns, against all and every person or persons lawfully
claiming the whole or any part thereof.
Page 1 of 2
<PAGE> 2
IN WITNESS WHEREOF, the grantor(s) have executed this deed on the date set
forth above.
/s/ Harold M. Hern /s/ Victor Heyliger
- --------------------------------- -----------------------------
Harold M. Hern Victor Heyliger
/s/ Leota M. Hern
- ---------------------------------
Leota M. Hern
STATE OF COLORADO )
) ss.
COUNTY OF EL PASO )
The foregoing instrument was acknowledged before me this 31st day of
October, 1995, by Harold M. Hern, Leota M. Hern and Victor Heyliger.
My commission expires 7-19-96.
Witness my hand and official seal
/s/ Katheryn Porter Smith
-------------------------------------
Notary Public
Page 2 of 2
<PAGE> 1
EXHIBIT 10.12
PURCHASE AGREEMENT
Sellers: HAROLD M. HERN AND LEOTE M. HERN,
AND
VICTOR HEYLIGER
Buyer: NATIONAL GAMING COMPANIES, INC.
NLC: NATIONAL LODGING COMPANIES, INC.
Effective Date: October 31, 1995
Property: LOTS 34, 35, 36, 37, 38, 39, AND 40, BLOCK 22,
FREMONT (NOW CRIPPLE CREEK),
TELLER COUNTY (FORMERLY EL PASO),
COLORADO
<PAGE> 2
INDEX
Page
1. Sale of Property . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . 2
4. Contemporaneous Transactions . . . . . . . . . . . . . . . . . . . . 3
5. Title Examination . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. Sellers' Representations and Warranties . . . . . . . . . . . . . . 5
7. Condition of Property . . . . . . . . . . . . . . . . . . . . . . . 9
8. Buyer's and NLC's Representations and Warranties . . . . . . . . . . 9
9. Conditions to Buyer's Obligations . . . . . . . . . . . . . . . . . 12
10. Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13. Sellers' Closing Documents . . . . . . . . . . . . . . . . . . . . . 13
14. Buyer's Closing Documents . . . . . . . . . . . . . . . . . . . . . 14
15. Closing Costs and Prorations . . . . . . . . . . . . . . . . . . . . 14
16. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 15
18. Broker's Commission . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Mutual Indemnification . . . . . . . . . . . . . . . . . . . . . . . 15
20. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
21. Memorandum of Purchase Agreement . . . . . . . . . . . . . . . . . . 16
-i-
<PAGE> 3
22. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
23. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
24. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
25. Entire Agreement: Modification . . . . . . . . . . . . . . . . 17
26. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . 18
27. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . 18
28. Section 1031 Exchange . . . . . . . . . . . . . . . . . . . . . 18
29. Ownership Interests . . . . . . . . . . . . . . . . . . . . . . 18
EXHIBITS
Schedule 1 - Personal Property to be Retained by Herns
Exhibit A - Escrow Agreement
Exhibit B - Mithun Property Legal Description
Exhibit C - Survey Certification
Exhibit D- Memorandum of Purchase Agreement
Disclosure Schedule
-ii-
<PAGE> 4
PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 31, 1995, (the "Effective Date")
between HAROLD M. HERN AND LEOTE M. HERN, husband and wife and VICTOR HEYLIGER,
a single person, (hereinafter referred to as "Sellers"), NATIONAL GAMING
COMPANIES, INC., a Minnesota corporation ("Buyer") and NATIONAL LODGING
COMPANIES, INC., a Minnesota corporation ("NLC"). The "Effective Date" shall
be the date on which this Agreement has been fully executed by all parties.
W I T N E S S E T H:
In consideration of the covenants and provisions hereinafter set forth and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, Sellers and Buyer agree as follows:
1. SALE OF PROPERTY. Subject to the terms and on the conditions
hereinafter set forth, Sellers agree to sell to Buyer, and Buyer agrees to buy
from Sellers, that certain real property located in the town of CRIPPLE CREEK,
in TELLER COUNTY, COLORADO which consists of approximately one half (.5) acres
of land, is legally described (subject to verification by title examination and
survey), as follows:
LOTS 34, 35, 36, 37, 38, 39, AND 40, BLOCK 22, FREMONT,
(NOW CRIPPLE CREEK), TELLER (FORMERLY EL PASO) COUNTY, COLORADO
(the "Land") together with (i) all buildings, fixtures and improvements now or
hereafter constructed or located in the Land, including, but not limited to, a
building commonly known as the Homestead House (the "Improvements"), (ii) all
easements, interests, rights and privileges benefiting or appurtenant to the
Land including, but not limited to, all right, title and interest of Sellers in
and to any land lying in the bed of any highway, street, alley, road or avenue,
existing or proposed, in front of or abutting or adjoining the Land, and all
right, title and interest of Sellers in and to any unpaid award for the taking
by eminent domain of any part of the Land or the Improvements or for damage
thereto, and (iii) all personal property and antiques located in the Homestead
House, less certain items to be removed by Sellers set forth on Schedule 1
attached hereto and incorporated herein (collectively the "Property").
2. EARNEST MONEY. Buyer has delivered One Hundred Thousand Dollars
($100,000.00) in U.S. Federal Funds (the "Earnest Money") to Joseph W. Dicker
and Alan C. Eidsness (together, the "Escrow Agent"), with offices at 105 South
Fifth Street, Suite 1720, Minneapolis, Minnesota 55402 and 400 Second Avenue
South, 1200 Title Insurance Building, Minneapolis, Minnesota 55401, pursuant to
that certain Escrow Agreement dated January 17, 1995 by and among Sellers,
Buyer, Escrow Agent, 353 Myers Avenue Limited Partnership, a
-1-
<PAGE> 5
Minnesota limited partnership, and Lewis M. Mithun (the "Escrow Agreement"), a
copy of which is attached hereto as Exhibit A. The Earnest Money shall be held
and used pursuant to the terms of the Escrow Agreement. Except in the event of
Sellers' default under this Agreement (which shall include termination of this
Agreement by Buyer pursuant to Section 5(b)(ii)), Twenty-Five Thousand Dollars
($25,000.00) of the Earnest Money shall be nonrefundable to Buyer.
3. PURCHASE PRICE AND PAYMENT. Buyer shall deliver to Sellers on the date
of closing as and for the total purchase price to be paid by Buyer to Sellers
for the Property ("Purchase Price") the following:
(a) Three Hundred Thousand Dollars ($300,000.00) cash;
(b) Three Hundred Thousand Dollars ($300,000.00) cash, said amount to
pay off the principal balance of that certain promissory note
payable to Harold M. Hern by Lewis M. Mithun, dated June 30,
1994, which promissory note may have been assumed by Buyer
pursuant to the Mithun Purchase Agreement (as defined in Section
4 below);
(c) Six Hundred Thousand Dollars ($600,000.00) by delivery to Sellers
of two promissory notes ($450,000 and $150,000) fully amortized
and payable over a term of ten (10) years, with interest at the
rate of eight percent (8%) per annum, secured by first lien deeds
of trust as follows:
(i) Four Hundred Fifty Thousand Dollars ($450,000.00) first lien deed
of trust encumbering Lots 28, 29 and 30, Block 22, Fremont (Now
Cripple Creek), Teller (Formerly El Paso) County, Colorado; and
(ii) One Hundred Fifty Thousand Dollars ($150,000.00) deed of trust
encumbering only that portion of Lot 34, Block 22, Fremont (Now
Cripple Creek), Teller (Formerly El Paso) County, Colorado, upon
which the Homestead House is located, which property may be
subsequently encumbered by other deeds of trust of Buyer's
investors and/or construction lender;
(d) 50,000 shares of NLC common stock (the "Shares"); and
(e) Fifty Thousand Dollars ($50,000.00) cash, for all personal
property and antiques remaining in the Homestead House.
Except as otherwise provided herein, the Earnest Money and all accrued interest
thereon shall be delivered to the Sellers by the Escrow Agent at Closing and
shall be credited against the Purchase Price.
4. CONTEMPORANEOUS TRANSACTIONS. Contemporaneously with the execution
of this Purchase Agreement, Lewis M. Mithun, Buyer and NLC are entering into a
purchase agreement
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(the "Mithun Purchase Agreement") to acquire the premises described in Exhibit
B attached hereto (the "Mithun Property") and 353 Myers Avenue Limited
Partnership, (the "Partnership"), NLC and Buyer are entering into a purchase
agreement (the "Jubilee Purchase Agreement") to acquire ownership of Jubilee
Casino in Cripple Creek, Colorado ("Jubilee"). The closing on the sale of the
Property pursuant to this Purchase Agreement is anticipated to
contemporaneously close with (i) the sale to Buyer of the Mithun Property
pursuant to the Mithun Purchase Agreement and (ii) the sale to Buyer of Jubilee
pursuant to the Jubilee Purchase Agreement.
5. TITLE EXAMINATION. Title Examination will be conducted as follows:
(a) Title Evidence. Promptly after the Effective Date, Buyer shall
be furnished with, or shall obtain the following (collectively,
the "Title Evidence"):
(i) Title Insurance Commitment. At Seller's expense, a
commitment for an ALTA Owner's policy of title insurance for
the Property dated subsequent to the date hereof (the
"Commitment") which shall be issued by Ticor Title Insurance
Company (the "Title Company"). The Commitment shall show all
exceptions to title including, but not limited to, all
covenants, conditions, restrictions, reservations,
easements, rights and rights-of-way, liens and other matters
of record, and shall include proper searches for
bankruptcies, judgments and State and Federal tax liens
affecting the Property or Sellers and endorsements for
access, zoning, contiguity and such other matters as Buyer
may request.
(ii) Exception Documents. At Seller's expense, complete and
legible copies of all documents or instruments which are
listed in the Commitment as affecting the Property (the
"Exception Documents").
(iii) Survey. At Buyer's expense, an ALTA survey of the Property
dated subsequent to the date hereof which shall be certified
in the manner set forth on Exhibit C attached hereto by a
land surveyor who is registered in the State of Colorado
(the "Survey").
(iv) UCC Searches. At Seller's expense, a report of UCC Searches
for any filings against the Property or Sellers made by a
search firm acceptable to Buyer (the "UCC Search").
(b) Buyer's Objections. Buyer shall be allowed 10 days after
receiving the last of the Title Evidence in which to notify
Sellers in writing of any objections based on the form of or the
matters disclosed by the Title Evidence which renders title
unmarketable ("Objections"). Buyer's failure to make Objections
within such time period will constitute a waiver of Objections.
Any matter shown on such Title Evidence and not objected to by
Buyer
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shall be a "Permitted Encumbrance" hereunder. Sellers agree
to diligently proceed to cure any Objections. If the
Objections are not cured within 30 days after Buyer delivers
written notice of the Objections to Sellers, Buyer will have
the right to do any of the following:
(i) Waive the Objection; or
(ii) Terminate this Agreement by delivering written notice
thereof to Sellers, whereupon the Escrow Agent shall
immediately return the Earnest Money and all accrued
interest thereon to Buyer.
If, prior to Closing, Buyer learns of any lien or encumbrance against
the Property or any other title defect which renders title
unmarketable that was not disclosed on the Title Evidence (a "Later
Objection"), Sellers shall be obligated to cure such Later Objection
within five (5) days after receiving written notice of such Later
Objection from Buyer. If Sellers fail to so cure any Later Objection,
Buyer shall have the right to take any of the actions specified above
in (i) and (ii) of this Subsection 5(b).
(c) Warranty Deed. At Closing, Sellers shall convey good and
marketable title to the Property to Buyer by Warranty Deed
subject only to (i) reservation of minerals or mineral rights [if
any]; (ii) building, zoning and subdivision laws and regulations;
(iii) the lien of real estate taxes in 1996 and subsequent years;
and (iv) Permitted Encumbrances.
(d) Policy of Title Insurance. At the Closing, the Title Company
shall issue to Buyer, at Buyer's cost, an ALTA extended coverage
Owner's Policy of Title Insurance (the "Title Policy"), in an
amount not less than the Purchase Price, insuring Buyer's title
to the Property in fee simple absolute, subject only to the
Permitted Exceptions and to Sellers, at Sellers' cost, two ALTA
Lender's Policies of Title Insurance (the Lender's Policies"), in
the amount of the promissory notes respectively, insuring
Sellers' first lien deeds of trust as provided in Section 3 of
this Agreement.
6. SELLER'S REPRESENTATIONS AND WARRANTIES. Except as set forth on the
Disclosure Schedule attached hereto, Sellers represent and warrant to Buyer and
NLC as follows:
(a) Authority. This Agreement has been duly executed and delivered;
all of Sellers' Closing Documents to be signed by Sellers will
have been duly executed and delivered at Closing; such execution,
delivery and performance by Sellers does not conflict with or
result in a violation of any judgment, order, or decree of any
court or arbiter to which Sellers are a party or by which they
are bound; this Agreement and those of Sellers' Closing Documents
to be signed by Sellers will contain the valid and
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<PAGE> 8
binding obligations of Sellers, and be enforceable in accordance
with their terms.
(b) Title to Property. Sellers own the Property in fee simple
absolute, free and clear of all defects, liens or encumbrances
except Permitted Encumbrances.
(c) Leases. As of the Effective Date and the Closing Date, the
Property is not, and will not be, subject to any lease or
occupancy agreement.
(d) Assessments. Sellers have received no notice of actual or
threatened special assessments or reassessments of the Property.
(e) Environmental Laws. Sellers have no actual knowledge that any
toxic or hazardous substances or wastes, pollutants or
contaminants (including, without limitation, asbestos, urea
formaldehyde, the group of organic compounds known as
polychlorinated biphenyls, petroleum products including gasoline,
fuel oil, crude oil and various constituents of such products,
and any hazardous substance as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601-9657, as amended) have been
generated, treated, stored, released or disposed of, or otherwise
placed, deposited in or located on the Property, nor do Sellers
have any actual knowledge of any activity having been undertaken
on the Property that would cause or contribute to (i) the
Property becoming a treatment, storage or disposal facility
within the meaning of, or otherwise bring the Property within the
ambit of, the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Section 6901 et seq., or any similar state
law or local ordinance, (ii) a release or threatened release of
toxic or hazardous wastes or substances, pollutants or
contaminants from the Property within the ambit of CERCLA or any
similar state law or local ordinance, or (iii) the discharge of
pollutants or effluents into any water source or system, the
dredging or filling of any waters or the discharge into the air
of any emissions, that would require a permit under the Federal
Water Act, 33 U.S.C. Section 1251 et seq., or the Clean Air Act,
42 U.S.C. Section 7401 et seq., or any similar state law or
local ordinance. Sellers have no actual knowledge of any
substances or conditions in or on the Property that may support a
claim or cause of action under RCRA, CERCLA or any other federal,
state or local environmental statutes, regulations, ordinances or
other environmental regulatory requirements. Sellers have no
actual knowledge of any above ground or under ground tanks that
have been located under, in or about the Property which have been
subsequently removed or filled. To the extent storage tanks
exist on or under the Property, such storage tanks have been duly
registered with all appropriate regulatory and governmental
bodies and are, to the best of Sellers' knowledge, otherwise in
compliance with
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<PAGE> 9
applicable Federal, state and local statutes, regulations,
ordinances and other regulatory requirements.
(f) Rights of Others to Purchase Property. Sellers have not entered
into any other contracts for the sale of the Property, nor are
there any rights of first refusal or options to purchase the
Property or any other rights of others that might prevent the
consummation of this Agreement.
(g) Sellers' Defaults. To Seller's actual knowledge, Sellers are
not in default concerning any of their obligations or liabilities
regarding the Property.
(h) FIRPTA. Sellers are not "foreign persons", a "foreign
partnership", "foreign trust" or "foreign estate" as those terms
are defined in Section 1445 of the Internal Revenue Code.
(i) Proceedings. There are no claims, actions, suits, proceedings
or investigations pending or, to Sellers' knowledge, threatened
by any governmental department or agency, or any corporation,
partnership, entity or person, which in any manner or to any
extent may affect (i) the Property, (ii) Sellers' right, title
and interest in and to any part or all of the Property, or (iii)
Sellers' ability to vest in Buyer a fee simple ownership interest
in the Property free and clear of any and all liens, claims,
encumbrances and rights of redemption.
(j) Area. The Property contains approximately one-half (.5)
acres.
(k) Notices. Sellers have received no notice of, nor have actual
knowledge that there exists
(1) any violation of any law, ordinance or other
governmental requirement affecting the Property;
(2) any condemnation proceedings affecting the Property;
(3) any claim for which a mechanic's lien may be filed
against the Property; or
(4) any right claimed by a third party in the Property
adverse to Sellers' interest therein.
(l) Subscription for Shares.
(i) Sellers have been given access to all information they
have requested regarding NLC (including the opportunity to
meet with
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<PAGE> 10
NLC's officers and review such other documents as Sellers
may have requested in writing).
(ii) Sellers are experienced and knowledgeable in financial and
business matters, capable of evaluating the merits and risks
of investing in the Shares, and do not need or desire the
assistance of a knowledgeable representative to aid in the
evaluation of such risks.
(iii) Sellers understand that an investment in the Shares is
highly speculative and involves a high degree of risk.
Sellers believe the investment is suitable for Sellers based
on Sellers' investment objectives and financial needs.
Sellers can bear the economic risk of an investment in the
Shares for an indefinite period of time and can afford a
complete loss of such investment.
(iv) Sellers understand that there will be no market for
the Shares, that there are significant restrictions on the
transferability of the Shares, and that for these and other
reasons, Sellers may not be able to liquidate an investment
in the Shares for an indefinite period.
(v) Sellers represent and warrant that Sellers are
acquiring the Shares for Sellers' own account, for long-term
investment and without the intention of reselling or
redistributing the Shares. Sellers have made no arrangement
or agreement with others regarding any of the Shares, and
Sellers' financial condition is such that it is not likely
that it will be necessary for Sellers to dispose of any of
the Shares in the foreseeable future.
(vi) Sellers understand that the Shares have not been
registered under the Securities Act of 1933, as amended,
(the "1933 Act"), or applicable state securities laws, and
are being offered and sold pursuant to exemptions from
registration under the 1933 Act and applicable state
securities laws. Sellers understand that NLC's reliance on
such exemptions is predicated in part on Sellers'
representations and warranties contained herein.
(vii) Sellers understand that the Shares may not be sold
by Sellers except pursuant to an effective registration
statement under the 1933 Act and applicable state securities
laws, or an opinion of counsel that such registration is not
required. Sellers understand that NLC does not have any
obligation to file a registration statement covering
securities of NLC, including the Shares.
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<PAGE> 11
(viii) Sellers understand that any transfer of the Shares by
Sellers will be further restricted by a legend placed on the
certificate(s) representing the Shares containing
substantially the following language:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 or
applicable state securities laws. No transfer of such
shares or any interest therein may be made except pursuant
to registration under said laws unless the Company has
received an opinion of counsel acceptable to the Company
stating that such transfer does not require registration
under said laws."
Sellers will indemnify Buyer and NLC, their successors and assigns, against,
and will hold Buyer and NLC, their successors and assigns, harmless from any
expenses or damages (including reasonable attorneys' fees) that Buyer and/or
NLC incurs because of the breach of any of the above representations and
warranties, whether such breach is discovered before or after Closing, and all
expenses and attorneys' fees incurred by Buyer and/or NLC in enforcing its
right to indemnification. Each of the representations and warranties herein
contained shall survive the Closing and consummation of this Agreement by Buyer
and NLC. Buyer's or NLC's knowledge of any such breach by Sellers will not
constitute a waiver or release by Buyer or NLC of any claims due to such
breach.
7. CONDITION OF PROPERTY. Except as expressly otherwise set forth in this
Agreement, the Property is contracted for and shall be sold in a strictly "as
is" condition. Except as may be set forth in writing in this Agreement, the
Sellers and their agents have not made and do not make any representations,
warranties or guarantees as to the physical or legal condition of the Property,
its suitability for Buyer's desired or intended uses, or any other matter.
Buyer is not relying upon any statement, warranties, guarantees, or
representations, express or implied, made by the Sellers or their agents not
embodied herein. Buyer hereby expressly acknowledges that no representations,
warranties or guarantees outside of the Agreement have been made to it. All
matters concerning the Property shall be independently invested and verified by
Buyer, and Buyer acknowledges that Buyer's purchase of the Property is based
upon its own investigations, inspections, examinations and opinions.
8. BUYER'S AND NLC'S REPRESENTATIONS AND WARRANTIES. Buyer and NLC
represent and warrant to Sellers as follows:
(a) Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the law of the State
of Minnesota. Accurate and complete copies of the articles of
incorporation and by-laws of Buyer have heretofore been delivered
to the Seller. NLC is a corporation duly organized, validly
existing and in good standing under the law of the State of
Minnesota. Accurate and complete copies of the articles
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<PAGE> 12
of incorporation and by-laws of NLC have heretofore been
delivered to the Seller.
(b) Financial Statements. True, correct and complete copies of the
unaudited financial statements of NLC as of and for the year
ended December 31, 1994, the audited financial statements by NLC
as of and for the year ended December 31, 1993, and of the
unaudited financial statements of NLC as of and for the eight
month period ending August 31, 1995 (together, the "Financial
Statements") have been furnished to Seller. The Financial
Statements fairly present the financial position of NLC as of
that date and the results of operations for the period then
ended, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and in a
manner substantially consistent with prior financial statements
of NLC. Except as contemplated by or permitted under this
Agreement, there are no adjustments that would be required on
review of the Financial Statements that would, individually or
in the aggregate, have a material negative effect upon NLC's
reported financial condition.
(c) Ordinary Course of Business. Since August 31, 1995, NLC has not
incurred or become subject to, or agreed to incur or become
subject to, any obligation or liability, absolute or contingent,
except current liabilities incurred, and obligations under
contracts entered into, in the ordinary course of business, the
performance of which will not, individually or in the aggregate,
have a material adverse effect on the financial condition or
results of operations of its business.
(d) No Undisclosed Liabilities. NLC does not have any material
liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or
to become due, including any liability for taxes), except for
such as have been disclosed to Seller.
(e) Returns and Audits. All required federal, state and local tax
returns or appropriate extension requests of NLC have been filed,
and all federal, state and local taxes required to be paid with
respect to such returns have been paid or due provision for the
payment thereof has been made. NLC is not delinquent in the
payment of any such tax or in the payment of any assessment or
governmental charge. NLC has not received notice of any tax
deficiency proposed or assessed against it, and has not executed
any waiver of any statute of limitations on the assessment or
collection of any tax. Except as disclosed to Seller, NLC's tax
returns have not been audited by governmental authorities in a
manner to bring such audits to the NLC's attention. NLC does not
have any tax liabilities, except those incurred in the ordinary
course of business since December 31, 1994.
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<PAGE> 13
(f) Litigation. There are no legal or governmental proceedings
pending or threatened to which NLC is or may be party which (i)
if determined adversely would have a material adverse effect upon
the business, financial condition or operations of NLC, or (ii)
which question the validity or enforceability of this Agreement.
(g) Capitalization. The authorized capital stock of the NLC consists
of an aggregate of 25,000,000 shares of common stock, of which
$5,413,245 are authorized, issued and outstanding and 5,000,000
shares of Preferred Stock, of which 300,000 shares have been
designated as Series A Convertible Preferred Stock (the "Series A
Preferred Stock"), of which 266,250 are authorized, issued and
outstanding and of which 346,444 shares have been designated as
Series B Redeemable Convertible Preferred Stock, of which 346,444
shares are authorized, issued and outstanding (the "Series B
Preferred Stock" and collectively with the Series A Preferred
Stock, the "Preferred Stock"). The Preferred Stock terms have
been provided to the Sellers. Except as indicated on Annex A,
there are no outstanding securities of the NLC which are
convertible into or exchangeable for any shares of capital stock
of the NLC or containing any capital appreciation or profit
participation features, there are no outstanding subscriptions,
options, warrants, contracts, calls, commitments or any purchase
rights of any nature or character (including preemptive rights)
relating to NLC's capital stock or any other securities of NLC
and there is no stock appreciation rights or phantom stock plan.
(h) Binding Obligation. All proceedings required by law, by the
articles and by-laws of Buyer, or by the provisions of this
Agreement to be taken by Buyer in connection with this Agreement
and the transactions contemplated hereby have been duly and
validly taken. This Agreement constitutes the legal, valid and
binding obligation of Buyer in accordance with the terms hereof.
All proceedings required by law, by the articles and by-laws of
NLC, or by the provisions of this Agreement to be taken by NLC in
connection with this Agreement and the transactions contemplated
hereby have been duly and validly taken. This Agreement
constitutes the legal, valid and binding obligation of NLC in
accordance with the terms hereof.
(i) Corporate Power. Buyer has the requisite power and authority
(corporate or otherwise) to own and operate its properties, to
carry on its business as now being conducted, to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. NLC has the requisite power and authority
(corporate or otherwise) to own and operate its properties, to
carry on its business as now being conducted, to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby.
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(j) Authorization for NLC's Common Stock. NLC has taken all
necessary action to permit it to issue the number of Shares
required to be issued pursuant to this Agreement. The Shares
required to be issued pursuant hereto will, when issued, be
validly issued, fully paid and nonassessable and no shareholder
of NLC will have any preemptive right of subscriptions or
purchase in respect thereof.
Buyer and NLC will indemnify Sellers, their successors and assigns, against,
and will hold Sellers, their successors and assigns, harmless from any expenses
or damages (including reasonable attorneys' fees) that Sellers incur because of
the breach of any of the above representations and warranties, whether such
breach is discovered before or after Closing, and all expenses and attorneys'
fees incurred by Sellers in enforcing its right to indemnification. Each of
the representations and warranties herein contained shall survive the Closing
and consummation of this Agreement by Sellers. Sellers' knowledge of any such
breach by Buyer and/or NLC will not constitute a waiver or release by Sellers
of any claims due to such breach.
9. CONDITIONS TO BUYER'S OBLIGATIONS. Buyer's obligation to close on the
purchase of the Property under this Agreement is contingent upon the occurrence
of each of the following as soon as possible, no later than October 30, 1995:
(a) Buyer shall have reviewed and approved the condition of title
to the Property;
(b) Buyer shall have reviewed and approved the Property's
suitability for operating a casino, hotel and/or parking lot,
including an investigation of the soils for the intended use,
compliance with applicable municipal zoning ordinances and
approval of any architectural control committee as required in
any covenants, conditions and restrictions of record.
(c) Buyer shall have conducted and approved an environmental
review of the Property; and
(d) Buyer shall have received, or satisfied itself that it will
receive, all the necessary licenses, permits and other
authorizations required to construct own and operate a casino,
hotel and/or parking lot on the Property (other than gaming
license approvals).
Any and all of the foregoing conditions are for the sole benefit of Buyer and
may be waived, in writing, by Buyer. In the event Buyer desires to terminate
this Agreement by reason of the failure of the foregoing conditions, it shall
do so by delivering written notice thereof to Sellers with a Quit Claim Deed to
the Property duly executed by Buyer, on or before October 31, 1995. If the
notice is timely received, this Agreement shall be null and void and $75,000 of
the Earnest Money, and any and all interest earned on the Earnest Money, shall
be returned to Buyer, and $25,000 of the Earnest Money shall be delivered to
Sellers.
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10. RIGHT OF ENTRY. Sellers shall allow Buyer, and Buyer's agents, access
to the Property without charge and at all reasonable times for the purpose of
Buyer's investigation of the same and the physical condition thereof, including,
without limitation, topographic and soil conditions, test pits, soil borings,
market and engineering studies, feasibility studies, environmental
investigations and such other tests, studies or investigation with respect to
the Property desired by Buyer. Buyer shall immediately repair any damage to the
Property caused by such inspections and studies and shall indemnify and defend
Sellers against and hold Sellers harmless from any loss, cost, damage or
expense, including without limitation, reasonable attorneys' fees, arising from
or in connection with Buyer's entry upon the Property for the foregoing
inspection, testing and related purposes. Buyer and NLC agree to use its best
efforts not to damage the Property, to pay for all work performed at the
Property and to prevent any mechanics' liens from attaching to the Property.
11. COOPERATION. Sellers shall, without cost or liability and without
charge to Buyer, reasonably cooperate in Buyer's attempts to obtain all
governmental approvals necessary in Buyer's judgment in order to make use of the
Property for Buyer's purposes. Sellers shall further execute such documents as
may be required by governmental bodies to accomplish the foregoing.
12. CLOSING. The closing of the purchase and sale contemplated by this
Agreement (the "Closing") shall occur as soon as possible after all conditions
have been fulfilled or October 31, 1995, which ever is earlier. Any reference
herein to the "Closing Date" shall mean the actual date of Closing as described
in this Section. The Closing shall take place at such place as may be mutually
agreed upon by the parties hereto. Sellers agree to deliver possession of the
Property to Buyer on the Closing Date.
13. SELLER'S CLOSING DOCUMENTS. On the Closing Date, Sellers shall
execute and/or deliver to Buyer the following (collectively, the "Sellers'
Closing Documents"):
(a) Deed. A statutory warranty deed, in form satisfactory to Buyer,
conveying the Property to Buyer subject only to Permitted
Exceptions.
(b) Title Policy. The Title Policy, or a suitably marked up
Commitment for the Title Policy signed by the Title Company in
form satisfactory to Buyer.
(c) Sellers' Affidavit. An Affidavit of Title duly executed by
Sellers indicating that on the Closing Date there are no
outstanding unsatisfied judgments, tax liens or bankruptcies
against or involving Sellers or the Property; that there has been
no skill, labor or material furnished to the Property for which
payment has not been made or for which mechanics' liens could be
filed; and that there are no other unrecorded interests in the
Property, together with whatever standard owner's affidavit
and/or indemnity (ALTA Form) which may be required by the Title
Company to issue the Title Policy required by this Agreement.
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(d) FIRPTA Affidavit. A non-foreign affidavit, properly executed and
in recordable form, containing such information as is required by
IRC Section 1445(b)(2) and its regulations.
(e) IRS Reporting Form. The appropriate Federal Income Tax reporting
form, if any if required.
(f) Bill of Sale. A warranty Bill of Sale conveying any and all
personal property located in the Homestead House, except that
described on Schedule 1, to Buyer subject only to Permitted
Exceptions.
(g) Other Documents. All other documents reasonably necessary to
transfer the Property to Buyer free and clear of all encumbrances
except the Permitted Exceptions.
14. BUYER'S CLOSING DOCUMENTS. On the Closing Date, Buyer will execute
and/or deliver to Sellers the following (collectively, the "Buyer's Closing
Documents"):
(a) Purchase Price. The Purchase Price as provided in paragraph 3
above, including the promissory notes and deeds of trust and NLC
Shares.
(b) Title Documents. Such documents as may be reasonably required
by the Title Company to record the Sellers' Closing Documents and
issue the Title Policy required by this Agreement.
(c) Buyer's Affidavit. An Affidavit of Title duly executed by
Buyer and NLC indicating that there has been no skill, labor or
material furnished to the Property for which payment has not been
made or for which mechanics' liens could be filed.
(d) Lender's Policies. The Lender's Policies, or a suitably marked
up Commitment for the Lender's Policies signed by the Title
Company in form satisfactory to Sellers.
15. CLOSING COSTS AND PRORATIONS. Real estate taxes payable in 1995 and
prior years shall be paid by Sellers. Sellers shall pay or cause to be paid all
pending or levied assessments; real property or personal property transfer taxes
and the premium for the Lender's Policies. Buyer shall pay any sales/use tax due
as the result of the sale of personal property, recording fees, the premium for
the Title Policy and all costs associated with Buyer's financing. Buyer and
Sellers shall each pay one-half of the Title Company's closing fee.
16. CONDEMNATION. If, prior to the Closing Date, eminent domain
proceedings are commenced against all or any part of the Property, Sellers shall
immediately give Buyer written notice of such fact and Buyer shall have the
right (to be exercised within 30 days after receipt of Sellers' notice) to
terminate this Agreement. If this Agreement is so terminated, neither party will
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have further obligations under this Agreement and $75,000 of the Earnest Money,
and all accrued interest, shall be returned to Buyer, and $25,000 of the
Earnest Money shall be paid to Sellers. If Buyer does not so terminate this
Agreement, the Purchase Price shall be reduced by any condemnation awards paid
to Sellers prior to Closing and Sellers shall, at Closing, assign to Buyer all
of Sellers' right, title and interest in and to any award made or to be made in
the condemnation proceedings. Prior to the Closing Date, Sellers shall not
designate counsel, appear in, or otherwise act with respect to the condemnation
proceedings without Buyer's prior written consent.
17. DEFAULT REMEDIES. If Buyer defaults under this Agreement, Sellers
shall have the right to terminate this Agreement by giving written notice to
Buyer. If Buyer fails to cure such default within the time period specified by
law or thirty (30) days, whichever is earlier, this Agreement will terminate.
Upon such termination the Escrow Agent will deliver the Earnest Money to Sellers
and Sellers shall retain the same as liquidated damages, time being of the
essence of this Agreement. The termination of this Agreement and retention of
such sums by Sellers will be the sole remedy available to Sellers for such
default by Buyer, and Buyer will not be liable for damages or specific
performance. If Sellers default under this Agreement and fail to cure such
default within the time period specified by law or thirty (30) days, whichever
is earlier, Escrow Agent will return the Earnest Money to Buyer and Buyer shall
have the right to seek and recover damages from Sellers for nonperformance or
specific performance of this Agreement. Except in the event of Sellers' default
under this Agreement (which shall include termination of this Agreement by Buyer
pursuant to Section 5(b)(ii)), Twenty-Five Thousand Dollars ($25,000.00) of the
Earnest Money shall be nonrefundable to Buyer.
18. BROKER'S COMMISSION. Sellers and Buyer represent and warrant to each
other that they have dealt with no brokers, finders or the like in connection
with this transaction. Sellers and Buyer agree to indemnify and hold each other
harmless against all claims, damages, costs or expenses of or for any such
brokerage fees or commissions resulting from their actions or agreements
regarding the execution or performance of this Agreement, and to pay all costs
of defending any action or lawsuit brought to recover any such fees or
commissions incurred by the Buyer or Sellers (including reasonable attorneys'
fees) or in enforcing such right to indemnification.
19. MUTUAL INDEMNIFICATION. Sellers and Buyer agree to indemnify each
other against, and hold each other harmless from, all liabilities (including
reasonable attorneys' fees in defending against claims or in enforcing such
right to indemnification) arising out of the ownership, operation or maintenance
of the Property for their respective periods of ownership. Such rights to
indemnification will not arise to the extent that (a) the party seeking
indemnification actually receives insurance proceeds or other cash payments
directly attributable to the liability in question (net of cost of collection,
including reasonable attorneys' fees), or (b) the claim for indemnification
arises out of the act or neglect of the party seeking indemnification. If and
to the extent that the indemnified party has insurance coverage, or the right to
make claim against any third party for any amount to be indemnified against as
set forth above, the indemnified party will, upon full performance by the
indemnifying party of its indemnification obligations, assign such rights to the
indemnifying party or, if such rights are not assignable, the indemnified party
will diligently pursue such rights by appropriate legal action or proceeding and
assign the recovery and/or right
-14-
<PAGE> 18
of recovery to the indemnifying party to the extent of the indemnification
payment made by such party.
20. ASSIGNMENT. Buyer shall have the right to assign its rights hereunder
to a wholly owned entity.
21. MEMORANDUM OF PURCHASE AGREEMENT. Simultaneously with the execution
of this Purchase Agreement, the parties hereto are executing that certain
Memorandum of Purchase Agreement in a form reasonably satisfactory to the
parties, which Memorandum of Purchase Agreement may be recorded by Buyer, at
Buyer's expense, against the Property. Buyer agrees, however, not to record
this Purchase Agreement. If Buyer does not close on the purchase of the
Property, Buyer agrees to execute and deliver to Sellers a Quit Claim Deed for
the Property.
22. SURVIVAL. All of the terms of this Agreement will survive and be
enforceable after the Closing and will not merge into the warranty deed to be
delivered by Sellers to Buyer.
23. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed given upon (i) personal service, (ii)
three (3) business days following deposit in the United States first class mail,
postage prepaid, and addressed as set forth below, or (iii) facsimile
transmission (confirmation received) at the facsimile numbers listed below.
Said addresses and numbers may be changed by written notice.
If to Sellers: Harold M. Hern and Leote M. Hern
353 Myers Avenue
Cripple Creek, CO 80813
With copy to: Steven T. Monson
Felt, Houghton & Monson, LLC
319 North Weber Street
Colorado Springs, CO 80903
Fax No. (719) 471-1234
Victor Heyliger
353 Myers Avenue
Cripple Creek, CO 8081
If to Buyer: National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
Attention: Bob Swenson
Fax No. 612-943-5666
-15-
<PAGE> 19
If to NLC: National Lodging Companies, Inc.
9855 West 78th Street
Suite 220
Eden Prairie, Minnesota 55344
Attention: Bob Swenson
Fax No. 612-943-5666
With a copy to: Douglas T. Holod, Esq.
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402
Fax No. 612-672-8397
If to Escrow Agent: Keenan & Katkov
150 South Fifth Street
Suite 1720
Minneapolis, Minnesota 55402
Henson & Efron
400 Second Avenue South
1200 Title Insurance Building
Minneapolis, Minnesota 55401
Fax No. (612) 339-6364
If to Title Company: Pikes Peak Title Service, Inc.
P.O. Box 6040
750 E. Hwy.. 24
Woodland Park, Colorado 80866
Attention: Shirley Barnes
Fax No. (719) 687-3837
24. CAPTIONS. The paragraph headings or captions appearing in this
Agreement have been inserted for convenience only, are not part of this
Agreement and are not to be considered in interpreting this Agreement.
25. ENTIRE AGREEMENT: MODIFICATION. This written Agreement together with
the Exhibits attached hereto constitutes the complete agreement between the
parties and supersedes any prior or contemporaneous oral or written agreements
between the parties regarding the Property. There are no verbal agreements that
change this Agreement and no waiver of any of its terms will be effective unless
in a writing executed by the parties.
26. BINDING EFFECT. This Agreement binds and benefits the parties and
their successors and assigns.
-16-
<PAGE> 20
27. CONTROLLING LAW. This Agreement has been made under the laws of the
State of Colorado, and such laws will control its interpretation.
28. SECTION 1031 EXCHANGE. Buyer understands that Sellers may elect to
have the sale of the Property treated as the relinquished property under an
I.R.C. Section 1031 tax deferred exchange. Buyer agrees to reasonably
cooperate with and assist Sellers in their efforts to accomplish the I.R.C.
Section 1031 tax deferred exchange, provided, however, Buyer shall in no event
be caused to incur any extra expense or liability in connection with such
exchange, unless adequately reimbursed or indemnified by Sellers. Except for
its obligations of this paragraph, Buyer shall have no responsibility or
liability to Sellers or any other party as a result of any failure by Sellers to
achieve their intended or desired tax results of this transaction.
29. OWNERSHIP INTERESTS. The Property consists of seven lots, being Lots
35 through 40 of Block 22, Fremont (now Cripple Creek). Lots 34, 35 and 36 are
owned by Harold M. Hern and Leote M. Hern, and Lots 37 through 40 are owned
one-third (1/3rd) each by Harold M. Hern, Leote M. Hern and Victor Heyliger.
The Sellers' respective interests shall be designated in the Promissory Note,
unless agreed otherwise by Sellers.
-17-
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first above written.
SELLERS
/s/ Harold M. Hern
-----------------------------
HAROLD M. HERN
/s/ Leote M. Hern
-----------------------------
LEOTE M. HERN
/s/ Victor Heyliger
-----------------------------
VICTOR HEYLIGER
BUYER
NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation
By: /s/ R.J. Swenson
-----------------------------
Its: President
NLC
NATIONAL LODGING COMPANIES, INC., a
Minnesota corporation
By: /s/ Terrance P. DeRoche
-----------------------------
Its: President
-18-
<PAGE> 22
STATE OF COLORADO )
)ss.
COUNTY OF EL PASO )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by Harold M. Hern and Leote M. Hern, husband and wife.
/s/ Katheryn Porter Smith
--------------------------------
Notary Public
STATE OF COLORADO )
)ss.
COUNTY OF EL PASO )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by Victor Heyliger, a single person.
/s/ Katheryn Porter Smith
--------------------------------
Notary Public
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by R.J. Swenson, the President of NATIONAL GAMING
COMPANIES, INC., a Minnesota corporation, on behalf of the corporation.
/s/ Lorrie Lee Salzl
--------------------------------
Notary Public
-19-
<PAGE> 23
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by Terrance P. DeRoche, the President of NATIONAL LODGING
COMPANIES, INC., a Minnesota corporation, on behalf of the corporation.
/s/ Lorrie Lee Salzl
-------------------------------
Notary Public
This Instrument Was Drafted By:
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402
33726-5
-20-
<PAGE> 24
EXHIBIT A
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
HAROLD M. HERN, LEOTE M. HERN AND VICTOR HEYLIGER, AS SELLERS,
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
ESCROW AGREEMENT
-21-
<PAGE> 25
EXHIBIT B
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
HAROLD M. HERN, LEOTE M. HERN AND VICTOR HEYLIGER, AS SELLERS,
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
MITHUN PROPERTY
Legal Description: Lots 28, 29, and 30, Block 22, Fremont (Now Cripple Creek),
Teller
(Formerly El Paso) County;
Property Owner: Lewis M. Mithun
Property Identification Number: District 40, 05.134-16-14
-22-
<PAGE> 26
EXHIBIT C
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
HAROLD M. HERN, LEOTE M. HERN, AND VICTOR HEYLIGER, AS SELLERS,
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
SURVEY CERTIFICATION
I hereby certify to National Gaming Companies, Inc., a Minnesota
corporation, and Ticor Title Insurance Company that on the ____ day of
_______________, 1995, I surveyed the following described Property:
Lots 34, 35, 36, 37, 38, 39, and 40, Block 22, Fremont (Now Cripple
Creek), Teller (Formerly El Paso) County, Colorado
and that:
(a) This survey made was on the ground as per the field notes shown on
this survey and correctly shows (i) the legal description of the Property, (ii)
the boundaries and areas of the Property and the size, location and type of any
foundation, buildings and improvements thereon and the distance therefrom to
the nearest facing exterior boundary lines of the Property, the area of the
Property to the nearest one 1,000th of an acre and the area of the Property to
the nearest one 1,000th of an acre net of any roadway easements or
rights-of-way, (iii) the location of all rights-of-way, easements, servitudes
and any other matters of record (or which are discernable, whether or not of
record) affecting or benefiting the Property, (iv) the location of any parking
areas on the Property showing the number of parking spaces provided thereby,
(v) all abutting dedicated public streets providing access to the Property,
together with the width and name thereof and any limitation of access, (vi) the
location of storm sewers, sanitary sewers and water lines located upon the
Property and service lines thereof from their respective main lines, (vii)
whether or not the Property is located in an area designated by any agency of
the United States of America as being subject to flood hazards or flood risks,
and (viii) all other significant items on the Property.
(b) There are no apparent (i) encroachments upon the Property, (ii)
encroachments on any adjacent property, streets or alleys by any improvements
on the Property, (iii) party walls, and (iv) conflicts or protrusions except as
follows (if none, so state):
(c) Adequate ingress to and egress from the Property as provided by (name
of streets), the same being paved, dedicated public right(s)-of-way maintained
by (name of maintaining authority).
(d) All required building setback lines on the Property are located as
shown herein (or stating that there are none affecting the Property).
-23-
<PAGE> 27
(e) This survey shows all matters reflected on the Commitment for Title
Insurance dated _________________, 1995, issued by _____________________ and
bearing the Commitment No. ________________.
(f) This survey is made in accordance with the "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys" jointly established and as
adopted by the American Land Title Association and American Congress on
Surveying and Mapping in 1992 and that meets the accuracy requirements of a
Class A Urban survey as defined therein.
______________________________
(Signature of Surveyor)
-24-
<PAGE> 28
EXHIBIT D
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
HAROLD M. HERN, LEOTE M. HERN, AND VICTOR HEYLIGER, AS SELLERS,
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
MEMORANDUM OF PURCHASE AGREEMENT
This Memorandum of Purchase Agreement has been executed as of the 31st day
of October, 1995 between HAROLD HER AND LEOTE HER, husband and wife and VICTOR
HEYLIGER, a single person, (hereinafter referred to as "Sellers") . NATIONAL
GAMING COMPANIES, INC., a Minnesota corporation ("Buyer") and NATIONAL LODGING
COMPANIES, INC., a Minnesota corporation ("NLC").
W I T N E S S E T H:
WHEREAS, Sellers, Buyer and NLC have executed that certain Purchase
Agreement dated October 31, 1995 (the "Purchase Agreement") with respect to
certain real property located in CRIPPLE CREEK, TELLER COUNTY, COLORADO, which
is legally described as follows (the "Property"):
Lots 34, 35, 36, 37, 38, 39, and 40, Block 22, Fremont (Now Cripple
Creek), Teller (Formerly El Paso) County, Colorado;
WHEREAS, Buyer desires to place this Memorandum of Purchase Agreement of
record in order to memorialize its rights to purchase the Property;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree and acknowledge as follows:
1. Buyer has certain rights to purchase the Property that are described in
the Purchase Agreement.
2. If Buyer does not exercise its rights to purchase the Property, the
termination of the Purchase Agreement and Buyer's rights to purchase the
Property will be evidenced by a Quit Claim Deed which will be executed by Buyer
and placed of record against the Property.
-25-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the date and year first above written.
SELLERS
__________________________________
HAROLD M. HERN
__________________________________
LEOTE M. HERN
__________________________________
VICTOR HEYLIGER
BUYER
NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation
By:
-------------------------------
Its:
------------------------------
NLC
NATIONAL LODGING COMPANIES, INC., a
Minnesota corporation
By:
------------------------------
Its:
-----------------------------
-26-
<PAGE> 30
STATE OF ______________)
)ss.
COUNTY OF______________)
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by Harold M. Hern and Leote M. Hern, husband and wife.
________________________________________
Notary Public
STATE OF ______________)
)ss.
COUNTY OF______________)
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by Victor Heyliger, a single person.
________________________________________
Notary Public
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by ________________________________, the
_________________ of NATIONAL GAMING COMPANIES, INC., a Minnesota corporation,
on behalf of the corporation.
_______________________________________
Notary Public
-27-
<PAGE> 31
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by ________________________________, the
_________________ of NATIONAL LODGING COMPANIES, INC., a Minnesota corporation,
on behalf of the corporation.
_______________________________________
Notary Public
This Instrument Was Drafted By:
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402
33726-5
-28-
<PAGE> 32
DISCLOSURE SCHEDULE
The following is a list of disclosures under paragraph 6 of the Contract:
1. All matters disclosed by the October 12, 1995 Title Commitment from
Ticor Title Insurance Company, issued by Pikes Peak Title Service, Inc.,
Commitment No. TLC27174A.
2. The Property is currently subject to a verbal lease arrangement with
the owner of the adjoining Jubilee Casino.
3. The Sellers entered into an October 1994 Memorandum of Agreement with
Ralf Hoehne, Lewis M. Mithun, Raymond O. Mithun, Sr., Raymond O. Mithun, Jr.,
353 Myers Avenue Limited Partnership and Cripple Creek Corporation, which in
part concerns the Property and the adjoining Jubilee Casino and other property
owned by the parties, which agreement the Herns feel is no longer in force and
effect, and which they anticipate to formally terminate on or before closing.
4. Matters as disclosed by October , 1995 survey.
-29-
<PAGE> 1
EXHIBIT 10.13
The printed portions of this form approved by the Colorado Real Estate
Commission (TD 73-11-83)
IF THIS FORM IS USED IN A CONSUMER CREDIT TRANSACTION, CONSULT LEGAL COUNSEL.
THIS IS A LEGAL INSTRUMENT. IF NOT UNDERSTOOD, LEGAL, TAX OR OTHER COUNSEL
SHOULD BE CONSULTED BEFORE SIGNING.
DEED OF TRUST
(Due on Transfer - Creditworthy Restriction)
THIS DEED OF TRUST is made this 31st day of October, 1995, between National
Gaming Companies, Inc. (Borrower) whose address is 9855 West 78th Street, Suite
210, Eden Prairie, Minn. 55344; and the Public Trustee of the County in which
the Property (see paragraph 1) is situated (Trustee); for the benefit of Harold
M. Hern and Leota M. Hern (Lender), whose address is Post Office Box 540,
Cripple Creek, CO 80813.
Borrower and Lender covenant and agree as follows:
1. Property in Trust. Borrower, in consideration of the indebtedness
herein recited and the trust herein created, hereby grants and conveys to
Trustee in trust, with power of sale, the following described property located
in the County of Teller, State of Colorado, together with all its appurtenances
(Property):
See Exhibit A attached hereto and incorporated by reference.
2. Note; Other Obligations Secured. This Deed of Trust is given to secure
to Lender:
A. the repayment of the indebtedness evidenced by Borrower's note (Note) dated
October 31, 1995, in the principal sum of Four Hundred Fifty Thousand Dollars
and no cents ($450,000.00) U.S. Dollars, with interest on the unpaid principal
balance from October 31, 1995, until paid, at the rate of eight (8) percent per
annum, with principal and interest payable in accordance with the term of the
Note, with such payments to continue until the entire indebtedness evidenced by
said Note is fully paid; however, if not sooner paid, the entire principal
amount outstanding and accrued interest thereon, shall be due and payable on
October 31, 2005; and Borrower is to pay to Lender a late charge of four percent
(4%) of any payment not received by the Lender within ten (10) days after
payment is due; and Borrower has the right to prepay the principal amount
outstanding under said Note, in whole or in part, at any time without penalty.
B. the payment of all other sums, with interest thereon at twelve percent (12%)
per annum, disbursed by Lender in accordance with this Deed of Trust to protect
the security of this Deed of Trust; and
1
<PAGE> 2
C. the performance of the covenants and agreements of Borrower herein
contained.
3. Title. Borrower covenants that Borrower owns and has the right to grant
and convey the Property, and warrants title to the same, subject to general real
estate taxes for the current year, easements of record or in existence, and
recorded declarations, restrictions, reservations and covenants, if any, as of
this date and except patent reservations and exceptions of record; mineral
reservations of record.
4. Payment of Principal and Interest. Borrower shall promptly pay when due
the principal of and interest on the indebtedness evidenced by the Note, and
late charges as provided in the Note and shall perform all of Borrower's other
covenants contained in the Note.
5. Application of Payments. All payments received by Lender under the
terms hereof shall be applied by Lender first in payment of amounts disbursed
by Lender pursuant to paragraph 9 (Protection of Lender's Security), and the
balance in accordance with the terms and conditions of the Note.
6. Prior Mortgages and Deeds of Trust; Charges; Liens. Borrower shall
perform all of Borrower's obligations under any prior deed of trust and any
other prior liens. Borrower shall pay all taxes, assessments and other charges,
fines and impositions attributable to the Property which may have or attain a
priority over this Deed of Trust, and leasehold payments or ground rents, if
any, Borrower making payment when due, directly to the payee thereof. Despite
the foregoing, Borrower shall not be required to make payments otherwise
required by this paragraph if Borrower, after notice to Lender, shall in good
faith contest such obligation by, or defend enforcement of such obligation in,
legal proceedings which operate to prevent the enforcement of the obligation or
forfeiture of the Property or any part thereof, only upon Borrower making all
such contested payments and other payments as ordered by the court to the
registry of the court in which such proceedings are filed.
7. Property Insurance. Borrower shall keep the improvements now existing
or hereafter erected on the Property insured against loss by fire or hazards
included within the term "extended coverage" in an amount at least equal to the
lesser of (1) the insurable value of the Property or (2) an amount sufficient
to pay the sums secured by this Deed of Trust as well as any prior encumbrances
on the Property. All of the foregoing shall be known as "Property Insurance."
The insurance carrier providing the insurance shall be qualified to write
Property Insurance in Colorado and shall be chosen by Borrower subject to
Lender's right to reject the chosen carrier for reasonable cause. All
insurance policies and renewals thereof shall include a standard mortgage
clause in favor of
2
<PAGE> 3
Lender, and shall provide that the insurance carrier shall notify Lender at
least ten (10) days before cancellation, termination or any material change of
coverage. Insurance policies shall be furnished to Lender at or before closing.
Lender shall have the right to hold the policies and renewals thereof.
In the event of loss, Borrower shall give prompt notice to the insurance
carrier and Lender. Lender may make proof of loss if not made promptly by
Borrower.
Insurance proceeds shall be applied to restoration or repair of the
Property damaged, provided such restoration or repair is economically feasible
and the security of this Deed of Trust is not thereby impaired. If such
restoration or repair is not economically feasible or if the security of this
Deed of Trust would be impaired, the insurance proceeds shall be applied to the
sums secured by this Deed of Trust, with the excess, if any, paid to Borrower.
If the Property is abandoned by Borrower, or if Borrower fails to respond to
Lender within 30 days from the date notice is given in accordance with
paragraph 16 (Notice) by Lender to Borrower that the insurance carrier offers
to settle a claim for insurance benefits, Lender is authorized to collect and
apply the insurance proceeds, at Lender's option, either to restoration or
repair of the Property or to the sums secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) or change the amount of such installments.
Notwithstanding anything herein to the contrary, if under paragraph 18
(Acceleration; Foreclosure; Other Remedies) the Property is acquired by Lender,
all right, title and interest of Borrower in and to any insurance policies and
in and to the proceeds thereof resulting from damage to the Property prior to
the sale or acquisition shall pass to Lender to the extent of the sums secured
by this Deed of Trust immediately prior to such sale or acquisition.
All of the rights of Borrower and Lender hereunder with respect to
insurance carriers, insurance policies and insurance proceeds are subject to
the rights of any holder of a prior deed of trust with respect to said
insurance carriers, policies and proceeds.
8. Preservation and Maintenance of Property. Borrower shall keep the
Property in good repair and shall not commit waste or permit impairment or
deterioration of the Property and shall comply with the provisions of any lease
if this Deed of Trust is on a leasehold. Borrower shall perform all of
Borrower's obligations under any declarations, covenants, by-laws, rules, or
other documents governing the use, ownership or occupancy of the Property.
9. Protection of Lender's Security. Except when Borrower has exercised
Borrower's rights under paragraph 6 above, if the Borrower fails to perform the
covenants and agreements contained in this Deed of Trust, or if a default
occurs in a prior lien, or if
3
<PAGE> 4
any action or proceeding is commenced which materially affects Lender's interest
in the Property, then Lender, at Lender's option, with notice to Borrower if
required by law, may make such appearances, disburse such sums and take such
action as is necessary to protect Lender's interest, including, but not limited
to, disbursement of reasonable attorney's fees and entry upon the Property to
make repairs. Borrower hereby assigns to Lender any right Borrower may have by
reason of any prior encumbrance on the Property or by law or otherwise to cure
any default under said prior encumbrance.
Any amounts disbursed by Lender pursuant to this paragraph 9, with interest
thereon, shall become additional indebtedness of Borrower secured by this Deed
of Trust. Such amounts shall be payable upon notice from Lender to Borrower
requesting payment thereof, and Lender may bring suit to collect any amounts so
disbursed plus interest specified in paragraph 2B (Note; Other Obligations
Secured). Nothing contained in this paragraph 9 shall require Lender to incur
any expense or take any action hereunder.
10. Inspection. Lender may make or cause to be made reasonable entries
upon and inspection of the Property, provided that Lender shall give Borrower
notice prior to any such inspection specifying reasonable cause therefor related
to Lender's interest in the Property.
11. Condemnation. The proceeds of any award or claim for damages, direct
or consequential, in connection with any condemnation or other taking of the
Property, or part thereof, or for conveyance in lieu of condemnation, are
hereby assigned and shall be paid to Lender as herein provided. However, all
of the rights of Borrower and Lender hereunder with respect to such proceeds
are subject to the rights of any holder of a prior deed of trust.
In the event of a total taking of the Property, the proceeds shall be
applied to the sums secured by this Deed of Trust, with the excess, if any,
paid to Borrower. In the event of a partial taking of the Property, the
proceeds remaining after taking out any part of the award due any prior lien
holder (net award) shall be divided between Lender and Borrower, in the same
ratio as the amount of the sums secured by this Deed of Trust immediately prior
to the date of taking bears to Borrower's equity in the Property immediately
prior to the date of taking. Borrower's equity in the Property means the fair
market value of the Property less the amount of sums secured by both this Deed
of Trust and all prior liens (except taxes) that are to receive any of the
award, all at the value immediately prior to the date of taking.
If the Property is abandoned by Borrower, or if, after notice by Lender to
Borrower that the condemnor offers to make an award or settle a claim for
damages, Borrower fails to respond to Lender within 30 days after the date such
notice is given, Lender is authorized to collect and apply the proceeds, at
Lender's option, either to restoration or repair of the Property or to the sums
secured by this Deed of Trust.
4
<PAGE> 5
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) nor change the amount of such installments.
12. Borrower Not Released. Extension of the time for payment or
modification of amortization of the sums secured by this Deed of Trust granted
by Lender to any successor in interest of Borrower shall not operate to
release, in any manner, the liability of the original Borrower, nor Borrower's
successors in interest, from the original terms of this Deed of Trust. Lender
shall not be required to commence proceedings against such successor or refuse
to extend time for payment or otherwise modify amortization of the sums secured
by this Deed of Trust by reason of any demand made by the original Borrower nor
Borrower's successors in interest.
13. Forbearance by Lender Not a Waiver. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by law, shall
not be a waiver or preclude the exercise of any such right or remedy.
14. Remedies Cumulative. Each remedy provided in the Note and this Deed
of Trust is distinct from and cumulative to all other rights or remedies under
the Note and this Deed of Trust or afforded by law or equity, and may be
exercised concurrently, independently or successively.
15. Successors and Assigns Bound; Joint and Several Liability; Captions.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective successors and assigns of Lender and
Borrower, subject to the provisions of paragraph 24 (Transfer of the Property;
Assumption). All covenants and agreements of Borrower shall be joint and
several. The captions and headings of the paragraphs in this Deed of Trust are
for convenience only and are not to be used to interpret or define the
provisions hereof.
16. Notice. Except for any notice required by law to be given in another
manner, (a) any notice to Borrower provided for in this Deed of Trust shall be
in writing and shall be given and be effective upon (1) delivery to Borrower or
(2) mailing such notice by first-class U.S. mail, addressed to Borrower at
Borrower's address stated herein or at such other address as Borrower may
designate by notice to Lender as provided herein, and (b) any notice to Lender
shall be in writing and shall be given and be effective upon (1) delivery to
Lender or (2) mailing such notice by first-class U.S. mail, to Lender's address
stated herein or to such other address as Lender may designate by notice to
Borrower as provided herein. Any notice provided for in this Deed of Trust
shall be deemed to have been given to Borrower or Lender when given in any
manner designated herein.
5
<PAGE> 6
17. Governing Law; Severability. The Note and this Deed of Trust shall be
governed by the law of Colorado. In the event that any provision or clause of
this Deed of Trust or the Note conflicts with the law, such conflict shall not
affect other provisions of this Deed of Trust or the Note which can be given
effect without the conflicting provision, and to this end the provisions of the
Deed of Trust and Note are declared to be severable.
18. Acceleration; Foreclosure; Other Remedies. Except as provided in
paragraph 24 (Transfer of the Property; Assumption), upon Borrower's breach of
any covenant or agreement of Borrower in this Deed of Trust, or upon any default
in a prior lien upon the Property, (unless Borrower has exercised Borrower's
rights under paragraph 6 above), at Lender's option, all of the sums secured by
this Deed of Trust shall be immediately due and payable (Acceleration). To
exercise this option, Lender may invoke the power of sale and any other remedies
permitted by law. Lender shall be entitled to collect all reasonable costs and
expenses incurred in pursuing the remedies provided in this Deed of Trust,
including, but not limited to, reasonable attorney's fees.
If Lender invokes the power of sale, Lender shall give written notice to
Trustee of such election. Trustee shall give such notice to Borrower of
Borrower's rights as is provided by law. Trustee shall record a copy of such
notice as required by law. Trustee shall advertise the time and place of the
sale of the Property, for not less than four weeks in a newspaper of general
circulation in each county in which the Property is situated, and shall mail
copies of such notice of sale to Borrower and other persons prescribed by law.
After the lapse of such time as may be required by law, Trustee, without demand
on Borrower, shall sell the Property at public auction to the highest bidder for
cash at the time and place (which may be on the Property or any part thereof as
permitted by law) in one or more parcels as Trustee may think best and in such
order as Trustee may determine. Lender or Lender's designee may purchase the
Property at any sale. It shall not be obligatory upon the purchaser at any such
sale to see to the application of the purchase money.
Trustee shall apply the proceeds of the sale in the following order: (a)
to all reasonable costs and expenses of the sale, including, but not limited
to, reasonable Trustee's and attorney's fees and costs of title evidence; (b)
to all sums secured by this Deed of Trust; and (c) the excess, if any, to the
person or persons legally entitled thereto.
19. Borrower's Right to Cure Default. Whenever foreclosure is commenced
for nonpayment of any sums due hereunder, the owners of the Property or parties
liable hereon shall be entitled to cure said defaults by paying all delinquent
principal and interest payments due as of the date of cure, costs, expenses,
late charges, attorney's fees and other fees all in the manner provided by law.
Upon such payment, this Deed of Trust and the obligations secured hereby shall
remain in full force and effect as though no
6
<PAGE> 7
Acceleration had occurred, and the foreclosure proceedings shall be
discontinued.
20. Assignment of Rents; Appointment of Receiver; Lender in Possession. As
additional security hereunder, Borrower hereby assigns to Lender the rents of
the Property; however, Borrower shall, prior to Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies) or abandonment of the Property, have
the right to collect and retain such rents as they become due and payable.
Lender or the holder of the Trustee's certificate of purchase shall be
entitled to a receiver for the Property after Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies), and shall also be so entitled
during the time covered by foreclosure proceedings and the period of redemption,
if any; and shall be entitled thereto as a matter of right without regard to the
solvency or insolvency of Borrower or of the then owner of the Property, and
without regard to the value thereof. Such receiver may be appointed by any
Court of competent jurisdiction upon ex parte application and without notice
notice being hereby expressly waived.
Upon Acceleration under paragraph 18 (Acceleration; Foreclosure; Other
Remedies) or abandonment of the Property, Lender, in person, by agent or by
judicially-appointed receiver, shall be entitled to enter upon, take possession
of and manage the Property and to collect the rents of the Property including
those past due. All rents collected by Lender or the receiver shall be applied,
first, to payment of the costs of preservation and management of the Property,
second, to payments due upon prior liens, and then to the sums secured by this
Deed of Trust. Lender and the receiver shall be liable to account only for
those rents actually received.
21. Release. Upon payment of all sums secured by this Deed of Trust,
Lender shall cause Trustee to release this Deed of Trust and shall produce for
Trustee the Note. Borrower shall pay all costs of recordation and shall pay the
statutory Trustee's fees. If Lender shall not produce the Note as aforesaid,
then Lender, upon notice in accordance with paragraph 16 (Notice) from Borrower
to Lender, shall obtain, at Lender's expense, and file any lost instrument bond
required by Trustee or pay the cost thereof to effect the release of this Deed
of Trust.
22. Waiver of Exemptions. Borrower hereby waives all right of homestead
and any other exemption in the Property under state or federal law presently
existing or hereafter enacted.
23. [Intentionally Omitted]
24. Transfer of the Property; Assumption. The following events shall be
referred to herein as a "Transfer": (i) a transfer or conveyance of title (or
any portion thereof, legal or equitable) of the Property (or any part thereof or
interest therein), (ii) the
7
<PAGE> 8
execution of a contract or agreement creating a right to title (or any portion
thereof, legal or equitable) in the Property (or any part thereof or interest
therein), (iii) or an agreement granting a possessory right in the Property (or
any portion thereof), in excess of three (3) years, (iv) a sale or transfer of,
or the execution of a contract or agreement creating a right to acquire or
receive, more than fifty percent (50%) of the controlling interest or more than
fifty percent (50%) of the beneficial interest in the Borrower,(v) the
reorganization, liquidation or dissolution of the Borrower. Not to be included
as a Transfer are (i) the creation of a lien or encumbrance subordinate to this
Deed of Trust, (ii) the creation of a purchase money security interest for
household appliances, or (iii) a transfer by devise, descent or by operation of
the law upon the death of a joint tenant. At the election of Lender, in the
event of each and every Transfer.
(a) Borrower shall, upon Lender's request, submit information required to
enable Lender to evaluate the creditworthiness of the person ("Transferee") who
is, or is to be, the recipient of a Transfer, as if a new loan were being made
to Transferee. If Transferee is reasonably determined by the Lender to be
financially incapable of retiring the indebtedness according to its terms, based
upon standards normally used by persons in the business of making loans on real
estate in the same or similar circumstances, then all sums secured by this Deed
of Trust, at Lender's option, may become immediately due and payable
("Acceleration").
(b) If Lender exercises such option to Accelerate, Lender shall give
Borrower notice of Acceleration in accordance with paragraph 16 (Notice). The
notice shall inform Borrower of the right to assert in the foreclosure
proceeding the nonexistence of a default or any other defense of Borrower to
Acceleration and sale. Such notice shall also provide a period of not less than
10 days from the date the notice is given within which Borrower may pay the sums
declared due. If Borrower fails to pay such sums prior to the expiration of
such period, Lender may, without further notice or demand on Borrower, invoke
any remedies permitted by paragraph 18 (Acceleration; Foreclosure; Other
Remedies). Lender shall give notice of such Acceleration, within thirty (30)
days after notice of any Transfer is given to Lender by Borrower or Transferee
in accordance with paragraph 16 (Notice). If Lender shall not give notice of
such Acceleration within such thirty (30) days, then Lender will have no further
right to such Acceleration.
(c) If a Transfer occurs and should Lender not exercise Lender's option
pursuant to this paragraph 24 to Accelerate, Transferee shall be deemed to have
assumed all of the obligations of Borrower under this Deed of Trust including
all sums secured hereby whether or not the instrument evidencing such
conveyance, contract or grant expressly so provides. This covenant shall run
with the Property and remain in full force and effect until said sums are paid
in full. The Lender may without notice to the Borrower deal with Transferee in
the same manner as with the
8
<PAGE> 9
Borrower with reference to said sums including the payment or credit to
Transferee of undisbursed reserve Funds on payment in full of said sums, without
in any way altering or discharging the Borrower's liability hereunder for the
obligations hereby secured.
(d) Should Lender not elect to Accelerate upon the occurrence of such
Transfer then, subject to (b) above, the mere fact of a lapse of time or the
acceptance of payment subsequent to any of such events, whether or not Lender
had actual or constructive notice of such Transfer, shall not be deemed a waiver
of Lender's right to make such election nor shall Lender be estopped therefrom
by virtue thereof. The issuance on behalf of the Lender of a routine statement
showing the status of the loan, whether or not Lender had actual or constructive
notice of such Transfer, shall not be a waiver or estoppel of Lender's said
rights.
25. Borrower's Copy. Borrower acknowledges receipt of a copy of the Note
and of this Deed of Trust.
26. Additional Provisions. See Exhibit B attached hereto and
incorporated herein by reference for additional terms and provisions.
9
<PAGE> 10
EXECUTED BY BORROWER
IF BORROWER IS CORPORATION: National Gaming Companies,
Inc., a Minnesota corporation
-----------------------------
ATTEST: Name of Corporation
/s/ Terrance P. DeRoche by /s/ R. J. Swenson
- ------------------------------ -----------------------------
Secretary President
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 31st day of
October, 1995, by* R. J. Swenson, as President, and Terrance P. DeRoche, as
Secretary, of National Gaming Companies, Inc., a Minnesota corporation.
Witness my hand and official seal.
My commission expires: 1-31-2000
/s/ Lorrie Lee Salzl
-----------------------------
Notary Public
3300 Norwest Center
Minneapolis, MN 55402-4140
-----------------------------
Address
*If a natural person or persons, insert the name(s) of such person(s). If a
corporation, insert, for example, "John Doe as President and Jane Doe as
Secretary of Doe & Co., a Colorado corporation." If a partnership, insert, for
example, "Sam Smith as general partner in and for Smith & Smith, a general
partnership."
10
<PAGE> 11
EXHIBIT A
Lots 28, 29 and 30, Block 22, Fremont (now Cripple Creek), Teller
County, Colorado.
<PAGE> 12
EXHIBIT B
ADDITIONAL PROVISIONS TO DEED OF TRUST
This Exhibit B is a part of the October 31, 1995 Deed of Trust between
National Gaming Companies, Inc., a Minnesota corporation, as Borrower, Harold M.
Hern and Leota M. Hern, as Lenders, and the Public Trustee of Teller County,
Colorado, and asserts additional terms and provisions to said Deed of Trust.
1. Mechanic's Liens. Borrower shall not allow any mechanic's lien to arise
against the Property which is not bonded or removed within thirty (30) days of
filing.
2. Assignment of Rents. Even though under Paragraph 20, the Borrower is
given the right to collect income, rents and lease payments until there is a
default, this assignment shall in all respects constitute an absolute
assignment.
3. Bonded Construction. Prior to the commencement of construction of any
improvements upon or related to the Property, Borrower shall obtain payment and
performance bonds for the entire construction of such improvements and shall
have Lenders named as an additional beneficiary thereunder.
4. Cure Right. The Deed of Trust shall not be in default until written
notice from Lender to Borrower of Borrower's failure to perform its obligations
hereunder and Borrower's failure to cure such nonperformance within ten (10)
days thereafter.
5. Inconsistencies. In the event of any inconsistencies between this
Exhibit and the preprinted form Deed of Trust, the Exhibit shall control.
<PAGE> 1
EXHIBIT 10.14
PURCHASE AGREEMENT
Seller: LEWIS M. MITHUN
Buyer: NATIONAL GAMING COMPANIES, INC.
and NATIONAL LODGING COMPANIES, INC.
Effective Date: October 31, 1995
Property: LOTS 28, 29, AND 30, BLOCK 22,
FREMONT (NOW CRIPPLE CREEK),
TELLER COUNTY (FORMERLY EL PASO),
COLORADO
<PAGE> 2
INDEX
Page
1. Sale of Property ................................................... 1
2. Earnest Money ...................................................... 1
3. Purchase Price and Payment ......................................... 1
4. Contemporaneous Transactions ....................................... 2
5. Title Examination .................................................. 2
6. Seller's Representations and Warranties ............................ 3
7. Buyer's and NLC's Representations and Warranties ................... 7
8. Conditions to Buyer's Obligations .................................. 10
9. Right of Entry ..................................................... 10
10. Cooperation ........................................................ 11
11. Closing ............................................................ 11
12. Seller's Closing Documents ......................................... 11
13. Buyer's Closing Documents .......................................... 12
14. Closing Costs and Prorations ....................................... 12
15. Condemnation ....................................................... 12
16. Default; Remedies .................................................. 12
17. Broker's Commission ................................................ 12
18. Indemnification .................................................... 13
19. Assignment ......................................................... 13
20. Memorandum of Purchase Agreement ................................... 13
21. Survival ........................................................... 14
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<PAGE> 3
22. Notices ......................................... 14
23. Captions ........................................ 15
24. Entire Agreement: Modification ................. 15
25. Binding Effect .................................. 15
26. Controlling Law ................................. 15
EXHIBITS
Exhibit A - Hern/Heyliger Property Legal Description
Exhibit B - Survey Certification
Exhibit C - Disclosure Schedule
Exhibit D- Memorandum of Purchase Agreement
-ii-
<PAGE> 4
PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 31, 1995, (the "Effective Date")
between LEWIS M. MITHUN ("Seller"), NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation ("Buyer") and NATIONAL LODGING COMPANIES, INC., a
Minnesota corporation ("NLC"). The "Effective Date" shall be the date on which
this Agreement has been fully executed by all parties.
W I T N E S S E T H:
In consideration of the covenants and provisions hereinafter set forth and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, Seller and Buyer agree as follows:
1. SALE OF PROPERTY. Subject to the terms and on the conditions hereinafter
set forth, Seller agrees to sell to Buyer, and Buyer agrees to buy from Seller,
that certain real property located in the town of CRIPPLE CREEK, in TELLER
COUNTY, COLORADO, is legally described as follows:
LOTS 28, 29, AND 30, BLOCK 22, FREMONT,
(NOW CRIPPLE CREEK), TELLER (FORMERLY EL PASO) COUNTY, COLORADO
together with all easements, interests, rights and privileges benefiting or
appurtenant thereto including, but not limited to, all right, title and
interest of Seller in and to any land lying in the bed of any highway, street,
alley, road or avenue, existing or proposed, in front of or abutting or
adjoining such, and all right, title and interest of Seller in and to any
unpaid award for the taking by eminent domain of any part thereof or for damage
thereto (the "Property").
2. EARNEST MONEY. Intentionally deleted.
3. PURCHASE PRICE AND PAYMENT. Buyer shall deliver to Seller on the
date of closing as and for the total purchase price to be paid by Buyer to
Seller for the Property ("Purchase Price") (i) an amount equal to Three Hundred
Thousand Dollars ($300,000.00), by paying the principal balance of that certain
promissory note payable to Harold M. Hern by Seller, dated June 30, 1994, and
obtaining a release of the deed of trust securing said promissory note, and
(ii) 25,000 shares of the NLC's common stock (the "Shares").
4. CONTEMPORANEOUS TRANSACTIONS. Contemporaneously with the execution
of this Purchase Agreement, Harold and Leota Hern, husband and wife and Victor
Heylinger, BUyer and NLC are entering into a purchase agreement (the
"Hern/Heyliger Purchase Agreement") to acquire the premises described in Exhibit
A attached hereto (the "Hern/Heyliger Property") and 353 Myers Avenue Limited
Partnership (the "Partnership") and other individuals and entities and sellers,
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Buyer and NLC are entering into a partnership interest and stock acquisition
agreement (the "Jubilee Agreement") for Buyer to acquire a partnership interest
in the Partnership in Jubilee Casino in Cripple Creek, Colorado ("Jubilee").
The closing on the sale of the Property pursuant to this Purchase Agreement is
anticipated to contemporaneously close with (i) the sale to Buyer of the
Hern/Heyliger Property pursuant to the Hern/Heyliger Purchase Agreement and (ii)
the sale to Buyer of a partnership interest in the Partnership pursuant to the
Jubilee Agreement.
5. TITLE EXAMINATION. Title Examination will be conducted as follows:
(a) Title Evidence. Promptly after the Effective Date, Seller shall,
at Seller's expense, furnish Buyer with the following
(collectively, the "Title Evidence"):
(i) Title Insurance Commitment. A commitment for an ALTA Owner's
policy of title insurance for the Property dated subsequent to
the date hereof (the "Commitment") which shall be issued by
Ticor Title Insurance Company (the "Title Company"). The
Commitment shall show all exceptions to title including, but
not limited to, all covenants, conditions, restrictions,
reservations, easements, rights and rights-of-way, liens and
other matters of record, and shall include proper searches for
bankruptcies, judgments and State and Federal tax liens
affecting the Property or Seller and endorsements for access,
zoning, contiguity and such other matters as Buyer may
reasonably request.
(ii) Exception Documents. Complete and legible copies of all
documents or instruments which are listed in the Commitment as
affecting the Property (the "Exception Documents").
(iii) Survey. An ALTA survey of the Property dated subsequent to
the date hereof which shall be certified in the manner set
forth on Exhibit B attached hereto by a land surveyor who is
registered in the State of Colorado (the "Survey").
(iv) UCC Searches. A report of UCC Searches for any filings
against the Property or Seller made by a search firm
acceptable to Buyer (the "UCC Search").
(b) Buyer's Objections. Buyer shall be allowed 10 days after
receiving the last of the Title Evidence in which to notify
Seller in writing of any objections based on the form of or the
matters disclosed by the Title Evidence ("Objections"). Buyer's
failure to make Objections within such time period will
constitute a waiver of Objections. Any matter shown on such
Title Evidence and not objected to by Buyer shall be a "Permitted
Encumbrance" hereunder. Seller agrees to diligently proceed
to cure any Objections. If the Objections are not cured
within 30 days after Buyer delivers written notice
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<PAGE> 6
of the Objections to Seller, Buyer will have the right to do any
of the following:
(i) Waive the Objection; or
(ii) Terminate this Agreement by delivering written notice
thereof to Seller.
If, prior to Closing, Buyer learns of any lien or encumbrance against
the Property or any other title defect that was not disclosed on the
Title Evidence (a "Later Objection"), Seller shall be obligated to
cure such Later Objection within five (5) days after receiving written
notice of such Later Objection from Buyer. If Seller fails to so cure
any Later Objection, Buyer shall have the right to take any of the
actions specified above in (i) and (ii) of this Subsection 5(b).
(c) Warranty Deed. At Closing, Seller shall convey good and
marketable title to the Property to Buyer by Warranty Deed
subject only to (i) reservation of minerals or mineral rights by
the State of Colorado, if any; (ii) building, zoning and
subdivision laws and regulations; (iii) the lien of real estate
taxes, including special assessments, which are payable in 1996
and subsequent years; and (iv) Permitted Encumbrances.
(d) Policy of Title Insurance. At the Closing, the Title Company
shall issue in Buyer's favor, at Buyer's cost, an ALTA extended
coverage Owner's Policy of Title Insurance (the "Title Policy"),
in an amount not less than the Purchase Price, insuring Buyer's
title to the Property in fee simple absolute, subject only to the
Permitted Exceptions.
6. SELLER'S REPRESENTATIONS AND WARRANTIES. Except as disclosed on the
Disclosure Schedule attached hereto as Exhibit C, Seller represents and warrants
to Buyer and NLC as follows:
(a) Authority. This Agreement has been duly executed and delivered;
all of Seller's Closing Documents to be signed by Seller will
have been duly executed and delivered at Closing; such execution,
delivery and performance by Seller does not conflict with or
result in a violation of any judgment, order, or decree of any
court or arbiter to which Seller is a party or by which it is
bound; this Agreement and those of Seller's Closing Documents to
be signed by Seller will contain the valid and binding
obligations of Seller, and be enforceable in accordance with
their terms.
(b) Title to Property. Seller owns the Property in fee
simple absolute, free and clear of all defects, liens or
encumbrances except Permitted Encumbrances.
(c) Leases. As of the Effective Date and the Closing
Date, the Property is not, and will not be, subject to any
lease or occupancy agreement.
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<PAGE> 7
(d) Assessments. Seller has received no notice of actual or
threatened special assessments or reassessments of the
Property.
(e) Environmental Laws. Seller has no knowledge, after
exercising due diligence in reviewing its files,
correspondence and other relevant information concerning the
Property currently in its possession, that any toxic or
hazardous substances or wastes, pollutants or contaminants
(including, without limitation, asbestos, urea formaldehyde,
the group of organic compounds known as polychlorinated
biphenyls, petroleum products including gasoline, fuel oil,
crude oil and various constituents of such products, and any
hazardous substance as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), 42 U.S.C. Section 9601-9657, as amended)
have been generated, treated, stored, released or disposed
of, or otherwise placed, deposited in or located on the
Property, nor does Seller have any knowledge, after
exercising due diligence as described above, of any activity
having been undertaken on the Property that would cause or
contribute to (i) the Property becoming a treatment, storage
or disposal facility within the meaning of, or otherwise
bring the Property within the ambit of, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.
Section 6901 et seq., or any similar state law or local
ordinance, (ii) a release or threatened release of toxic or
hazardous wastes or substances, pollutants or contaminants
from the Property within the ambit of CERCLA or any similar
state law or local ordinance, or (iii) the discharge of
pollutants or effluents into any water source or system, the
dredging or filling of any waters or the discharge into the
air of any emissions, that would require a permit under the
Federal Water Act, 33 U.S.C. Section 1251 et seq., or the
Clean Air Act, 42 U.S.C. Section 7401 et seq., or any
similar state law or local ordinance. After exercising due
diligence as described above, Seller knows of no substances
or conditions in or on the Property that may support a claim
or cause of action under RCRA, CERCLA or any other federal,
state or local environmental statutes, regulations,
ordinances or other environmental regulatory requirements.
After exercising due diligence as described above, Seller
knows of no above ground or under ground tanks that have been
located under, in or about the Property which have been
subsequently removed or filled. To the extent storage tanks
exist on or under the Property, such storage tanks have been
duly registered with all appropriate regulatory and
governmental bodies and are, to the best of Seller's
knowledge after due inquiry, otherwise in compliance with
applicable Federal, state and local statutes, regulations,
ordinances and other regulatory requirements.
(f) Rights of Others to Purchase Property. Seller has not
entered into any other contracts for the sale of the
Property, nor are there any rights of first refusal or
options to purchase the Property or any other rights of
others that might prevent the consummation of this Agreement.
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<PAGE> 8
(g) Seller's Defaults. Seller is not in default concerning any of
its obligations or liabilities regarding the Property.
(h) FIRPTA. Seller is not a"foreign person", a "foreign partnership",
"foreign trust" or "foreign estate" as those terms are defined in
Section 1445 of the Internal Revenue Code.
(i) Proceedings. There are no claims, actions, suits, proceedings or
investigations pending or, to Seller's knowledge, threatened by
any governmental department or agency, or any corporation,
partnership, entity or person, which in any manner or to any
extent may affect (i) the Property, (ii) Seller's right, title
and interest in and to any part or all of the Property, or (iii)
Seller's ability to vest in Buyer a fee simple ownership interest
in the Property free and clear of any and all liens, claims,
encumbrances and rights of redemption.
(j) Access. The Property has public access by roadways duly
dedicated and accepted by the public bodies having jurisdiction
thereof and said roadways provide access to the public roadway
system of the State of Colorado.
(k) Encroachments. No structures of any kind encroach on the
Property.
(l) Wetlands. The Property is not in a designated wetland, flood
plain or flood insurance area.
(m) Notices. Seller has received no notice of, nor has Seller reason
to believe there exists
(1) any violation of any law, ordinance or other governmental
requirement affecting the Property;
(2) any condemnation proceedings affecting the Property;
(3) any claim for which a mechanic's lien may be filed against
the Property; or
(4) any right claimed by a third party in the Property adverse
to Seller's interest therein.
(n) Subscription for Shares.
(i) Seller has been given access to full and complete
information regarding NLC (including the opportunity to meet
with NLC's officers and review such other documents as
Seller may have requested in writing).
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<PAGE> 9
(ii) Seller is experienced and knowledgeable in financial
and business matters, capable of evaluating the
merits and risks of investing in the Shares, and does
not need or desire the assistance of a knowledgeable
representative to aid in the evaluation of such risks.
(iii) Seller understands that an investment in the Shares is
highly speculative and involves a high degree of
risk. Seller believes the investment is suitable for
Seller based on Seller's investment objectives and
financial needs. Seller can bear the economic risk of
an investment in the Shares for an indefinite period of
time and can afford a complete loss of such investment.
(iv) Seller understands that there will be no market for the
Shares, that there are significant restrictions on the
transferability of the Shares, and that for these and
other reasons, Seller may not be able to liquidate an
investment in the Shares for an indefinite period.
(v) Seller represents and warrants that Seller is acquiring
the Shares for Seller's own account, for
long-term investment and without the intention of
reselling or redistributing the Shares. Seller has
made no arrangement or agreement with others regarding
any of the Shares, and Seller's financial condition is
such that it is not likely that it will be necessary
for Seller to dispose of any of the Shares in the
foreseeable future.
(vi) Seller understands that the Shares have not been
registered under the Securities Act of 1933, as
amended, (the "1933 Act"), or applicable state
securities laws, and are being offered and sold
pursuant to exemptions from registration under the 1933
Act and applicable state securities laws. Seller
understands that NLC's reliance on such exemptions is
predicated in part on Seller's representations and
warranties contained herein.
(vii) Seller understands that the Shares may not be sold by
Seller except pursuant to an effective registration
statement under the 1933 Act and applicable state
securities laws, or an opinion of counsel that such
registration is not required. Seller understands that
NLC does not have any obligation to file a registration
statement covering securities of NLC, including the
Shares.
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<PAGE> 10
(viii) Seller understands that any transfer of the Shares by
Seller will be further restricted by a legend placed
on the certificate(s) representing the Shares
containing substantially the following language:
"The securities represented by this
certificate have not been registered under
the Securities Act of 1933 or applicable
state securities laws. No transfer of
such shares or any interest therein may be
made except pursuant to registration under
said laws unless the Company has received
an opinion of counsel acceptable to the
Company stating that such transfer does
not require registration under said laws."
7. BUYER'S AND NLC'S REPRESENT AND WARRANTIES. Buyer and NLC to Seller
represent and warrant to Seller as follows:
(a) Corporate Organization. Buyer is a corporation duly
organized, validly existing and in good standing under
the law of the State of Minnesota. Accurate and
complete copies of the articles of incorporation and by-laws
of Buyer have heretofore been delivered to the Seller. NLC
is a corporation duly organized, validly existing and in good
standing under the law of the State of Minnesota. Accurate
and complete copies of the articles of incorporation and
by-laws of NLC have heretofore been delivered to the Seller.
(b) Financial Statements. True, correct and complete copies of
the unaudited financial statements of NLC as of and for the
year ended December 31, 1994, audited financial statements of
NLC as of and for the year ended December 31, 1993, and of
the unaudited financial statements of NLC as of and for the
eight month period ending August 31, 1995 (together, the
"Financial Statements") have been furnished to Seller. The
Financial Statements fairly present the financial position of
NLC as of that date and the results of operations for the
period then ended, and have been prepared in accordance with
generally accepted accounting principles, consistently
applied, and in a manner substantially consistent with prior
financial statements of NLC. Except as contemplated by or
permitted under this Agreement, there are no adjustments that
would be required on review of the Financial Statements that
would, individually or in the aggregate, have a material
negative effect upon NLC's reported financial condition.
(c) Ordinary Curse of Business. Since August 31, 1995, NLC has
not incurred or become subject to, or agreed to incur
or become subject to, any obligation or liability, absolute
or contingent, except current liabilities incurred, and
obligations under contracts entered into, in the ordinary
-7-
<PAGE> 11
course of business, the performance of which will not,
individually or in the aggregate, have a material adverse
effect on the financial condition or results of operations of
its business.
(d) No Undisclosed Liabilities. NLC does not have any material
liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether
due or to become due, including any liability for taxes),
except for such as have been disclosed to Seller.
(e) Returns and Audits. All required federal, state and local
tax returns or appropriate extension requests of NLC
have been filed, and all federal, state and local taxes
required to be paid with respect to such returns have been
paid or due provision for the payment thereof has been made.
NLC is not delinquent in the payment of any such tax or in
the payment of any assessment or governmental charge. NLC
has not received notice of any tax deficiency proposed or
assessed against it, and has not executed any waiver of any
statute of limitations on the assessment or collection of any
tax. Except as disclosed to Seller, NLC's tax returns have
not been audited by governmental authorities in a manner to
bring such audits to the NLC's attention. NLC does not have
any tax liabilities, except those incurred in the ordinary
course of business since December 31, 1994.
(f) Litigation. There are no legal or governmental proceedings
pending or threatened to which NLC is or may be party
which (i) if determined adversely would have a material
adverse effect upon the business, financial condition or
operations of NLC, or (ii) which question the validity or
enforceability of this Agreement.
(g) Capitalizaion. The authorized capital stock of NLC consists
of an aggregate 25,000,000 shares of common stock, of which
5,413,245 are authorized, issued and outstanding and
5,000,000 shares of Preferred Stock, of which 300,000 shares
have been designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), of which 266,250 are
authorized, issued and outstanding and of which 346,444
shares have been designated as Series B Redeemable
Convertible Preferred Stock, of which 346,444 shares are
authorized, issued and outstanding (the "Series B Preferred
Stock" and collectively with the Series A Preferred Stock,
the "Preferred Stock"). The Preferred Stock terms have been
provided to the Seller. Except as indicated on Annex A,
there are no outstanding securities of NLC which are
convertible into or exchangeable for any shares of capital
stock of NLC or containing any capital appreciation or profit
participation features, there are no outstanding
subscriptions, options, warrants, contracts, calls,
commitments or any purchase rights of any nature or
character (including preemptive rights) relating to NLC's
capital stock or
-8-
<PAGE> 12
any other securities of NLC and there is no stock
appreciation rights or phantom stock plan.
(h) Binding Obligation. All proceedings required by law, by
the articles and by-laws of Buyer, or by the provisions of
this Agreement to be taken by Buyer in connection with
this Agreement and the transactions contemplated hereby have
been duly and validly taken. This Agreement constitutes the
legal, valid and binding obligation of Buyer in accordance
with the terms hereof. All proceedings required by law, by
the articles and by-laws of NLC, or by the provisions of this
Agreement to be taken by NLC in connection with this
Agreement and the transactions contemplated hereby have been
duly and validly taken. This Agreement constitutes the
legal, valid and binding obligation of NLC in accordance with
the terms hereof.
(i) Corporate Power. Buyer has the requisite power and authority
(corporate or otherwise) to own and operate its properties,
to carry on its business as now being conducted, to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. NLC has the requisite power and
authority (corporate or otherwise) to own and operate its
properties, to carry on its business as now being conducted,
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
(j) Authorization for NLC'S Common Stock. NLC has taken all
necessary action to permit it to issue the number of
Shares required to be issued pursuant to this Agreement. The
Shares required to be issued pursuant hereto will, when
issued, be validly issued, fully paid and nonassessable and
no shareholder of NLC will have any preemptive right of
subscriptions or purchase in respect thereof.
8. CONDITIONS TO BUYER'S OBLIGATIONS. Buyer's obligation to close on
the purchase of the Property under this Agreement is contingent upon the
occurrence of each of the following as soon as possible, no later than October
31, 1995:
(a) Buyer shall have reviewed and approved the condition of title
to the Property; and
(b) Buyer shall have conducted and approved an environmental
review of the Property.
Any and all of the foregoing conditions are for the sole benefit of Buyer and
may be waived, in writing, by Buyer. In the event Buyer desires to terminate
this Agreement by reason of the failure of the foregoing conditions, it shall
do so by delivering written notice thereof to Sellers with a Quit
Claim Deed to the Property duly executed by Buyer, on or before October 31,
1995. If the notice is timely received, this Agreement shall be null and void.
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<PAGE> 13
9. RIGHT OF ENTRY. Seller shall allow Buyer, and Buyer's agents, access
to the Property without charge and at all reasonable times for the purpose of
Buyer's investigation of the same and the physical condition thereof,
including, without limitation, topographic and soil conditions, test pits, soil
borings, market and engineering studies, feasibility studies, environmental
investigations and such other tests, studies or investigation with respect to
the Property desired by Buyer. Buyer shall immediately repair any damage to
the Property caused by such inspections and studies and shall indemnify and
defend Seller against and hold Seller harmless from any loss, cost, damage or
expense, including without limitation, reasonable attorneys' fees, arising from
or in connection with Buyer's entry upon the Property for the foregoing
inspection, testing and related purposes.
10. COOPERATION. During the term of this Agreement and prior to Closing,
Seller shall, at no cost to Seller and without charge to Buyer,
cooperate in Buyer's attempts to obtain all governmental approvals necessary in
Buyer's judgment in order to make use of the Property for Buyer's purposes.
Seller shall further execute such documents as may be required by governmental
bodies to accomplish the foregoing.
11. CLOSING. The closing of the purchase and sale contemplated by this
Agreement (the "Closing") shall occur as soon as possible after all conditions
have been fulfilled or October 31, 1995, which ever is earlier. Any reference
herein to the "Closing Date" shall mean the actual date of Closing as described
in this Section. The Closing shall take place at such place as may be mutually
agreed upon by the parties hereto. Seller agrees to deliver possession of the
Property to Buyer on the Closing Date.
12. SELLER'S CLOSING DOCUMENTS. On the Closing Date, Seller shall execute
and/or deliver to Buyer the following (collectively, the "Seller's Closing
Documents"):
(a) Deed. A statutory warranty deed, in form
satisfactory to Buyer, conveying the Property to Buyer
subject only to Permitted Exceptions.
(b) Title Policy. The Title Policy, or a suitably
marked up Commitment for the Title Policy signed by the Title
Company in form satisfactory to Buyer.
(c) Seller's Affidavit. An Affidavit of Title duly
executed by Seller indicating that on the Closing Date there
are no outstanding unsatisfied judgments, tax liens or
bankruptcies against or involving Seller or the Property;
that there has been no skill, labor or material furnished to
the Property for which payment has not been made or for which
mechanics' liens could be filed; and that there are no other
unrecorded interests in the Property, together with whatever
standard owner's affidavit and/or indemnity (ALTA Form) which
may be required by the Title Company to issue the Title
Policy required by this Agreement.
(d) FIRPTA Affidavit. A non-foreign affidavit, properly
executed and in recordable form, containing such
information as is required by IRC Section 1445(b)(2) and its
regulations.
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<PAGE> 14
(e) IRS Reporting Form. The appropriate Federal Income
Tax reporting form, if any if required.
(f) Other Documents. All other documents reasonably
necessary to transfer the Property to Buyer free and clear of
all encumbrances except the Permitted Exceptions.
13. BUYER'S CLOSING DOCUMENTS. On the Closing Date, Buyer will execute
and/or deliver to Seller the following (collectively, the "Buyer's Closing
Documents"):
(a) Purchase Price. The Purchase Price as provided in
paragraph 3 above.
(b) Title Documents. Such documents as may be
reasonably required by the Title Company to record the
Seller's Closing Documents and issue the Title Policy
required by this Agreement.
14. CLOSING COSTS AND PRORATIONS. Real estate taxes payable in 1995 and
prior years shall be paid by Seller. Seller shall pay or cause to be paid
all pending or levied assessments. Buyer shall pay document and recording fees,
the premium for the Title Policy and all costs associated with Buyer's
financing. Buyer and Seller shall each pay one-half of the Title Company's
closing fee.
15. CONDEMNATION. If, prior to the Closing Date, eminent domain
proceedings are commenced against all or any part of the Property, Seller
shall immediately give Buyer written notice of such fact and Buyer shall have
the right (to be exercised within 30 days after receipt of Seller's notice) to
terminate this Agreement. If this Agreement is so terminated, neither party
will have further obligations under this Agreement. If Buyer does not so
terminate this Agreement, the Purchase Price shall be reduced by any
condemnation awards paid to Seller prior to Closing and Seller shall, at
Closing, assign to Buyer all of Seller's right, title and interest in and to
any award made or to be made in the condemnation proceedings. Prior to the
Closing Date, Seller shall not designate counsel, appear in, or otherwise act
with respect to the condemnation proceedings without Buyer's prior written
consent.
16. DEFAULT; REMEDIES. If Buyer defaults under this Agreement, Seller
shall have the right to terminate this Agreement by giving written notice to
Buyer. If Buyer fails to cure such default within the time period specified by
law or thirty (30) days, whichever is earlier, this Agreement will terminate.
Upon such termination, Seller shall have the right to seek and recover damages
from Buyer for nonperformance of this Agreement. If Seller defaults under this
Agreement, Buyer shall have the right to seek and recover damages from Seller
for nonperformance or specific performance of this Agreement.
17. BROKER'S COMMISSION. Seller and Buyer represent and warrant to each
other that they have dealt with no brokers, finders or the like in
connection with this transaction. Seller agrees to indemnify and hold the Buyer
harmless against all claims, damages, costs or expenses of or for any such
brokerage fees or commissions resulting from Seller's actions or agreements
regarding the execution or performance of this Agreement, and to pay all costs
of defending any action or lawsuit
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<PAGE> 15
brought to recover any such fees or commissions incurred by the Buyer (including
reasonable attorneys' fees) or in enforcing such right to indemnification.
18. INDEMNIFICATION.
a. INDEMNIFICATION BY SELLER. Seller shall indemnify and hold Buyer and
NLC harmless at all times from and after the date of this Agreement, against and
in respect of all damages, losses, costs and expenses (including reasonable
attorneys' fees) which Buyer or NLC may suffer or incur in connection with the
breach by Seller of any of its representations, warranties or covenants in this
Agreement.
b. INDEMNIFICATION BY BUYER AND NLC. Buyer and NLC shall indemnify and
hold Seller harmless at all times from and after the date of this Agreement,
against and in respect of all losses, damages, costs and expenses (including
reasonable attorneys' fees) which Seller may suffer or incur in connection with
the breach by Buyer or NLC any of their representations, warranties or covenants
in this Agreement.
c. THIRD PARTY CLAIMS. If a claim by a third party is made against any
of the indemnified parties, and if any of the indemnified parties intends to
seek indemnity with respect to such claim under this Section, such indemnified
party shall promptly notify the indemnifying party of such claim. The
indemnifying party shall have thirty (30) days after receipt of the
above-mentioned notice to undertake, conduct and control, through counsel of
such party's own choosing (subject to the consent of the indemnified party, such
consent not to be unreasonably withheld) and at such party's expense, the
settlement or defense of it, and the indemnified party shall cooperate with the
indemnifying party in connection with such efforts; provided that: (i) the
indemnifying party shall not by this Agreement permit to exist any lien,
encumbrance or other adverse charge upon any asset of any indemnified party,
(ii) the indemnifying party shall permit the indemnified party to participate in
such settlement or defense through counsel chosen by the indemnified party,
provided that the fees and expenses of such counsel shall be borne by the
indemnified party, and (iii) the indemnifying party shall agree promptly to
reimburse the indemnified party for the full amount of any loss resulting from
such claim and all related expense incurred by the indemnified party pursuant to
this Article. So long as the indemnifying party is reasonably contesting any
such claim in good faith, the indemnified party shall not pay or settle any such
claim. If the indemnifying party does not notify the indemnified party within
thirty (30) days after receipt of the indemnified party's notice of a claim of
indemnity under this Section that such party elects to undertake the defense of
such claim, the indemnified party shall have the right to contest, settle or
compromise the claim in the exercise of the indemnified party's exclusive
discretion at the expense of the indemnifying party. The indemnification
provisions of this Agreement shall not apply to claims which individually are
less than $5,000 or, in the aggregate with other claims, do not exceed $25,000.
19. ASSIGNMENT. Buyer shall have the right to assign its rights
hereunder.
20. MEMORANDUM OF PURCHASE AGREEMENT. Simultaneously with the execution
of this Purchase Agreement, the parties hereto are executing that certain
Memorandum of Purchase Agreement attached hereto as Exhibit D, which Memorandum
of Purchase Agreement may be recorded by Buyer, at Buyer's expense, against the
Property. Buyer agrees, however, not to record
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<PAGE> 16
this Purchase Agreement. If Buyer does not close on the purchase of the
Property, Buyer agrees to execute and deliver to Seller a Quit Claim Deed for
the Property by December 1, 1995.
21. SURVIVAL. All of the terms of this Agreement will survive and be
enforceable after the Closing and will not merge into the warranty deed to be
delivered by Seller to Buyer.
22. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed given upon (i) personal service, (ii)
three (3) business days following deposit in the United States first class mail,
postage prepaid, and addressed as set forth below, or (iii) facsimile
transmission (confirmation received) at the facsimile numbers listed below.
Said addresses and numbers may be changed by written notice.
If to Seller: Lewis M. Mithun
900 East Wayzata Boulevard, Suite 130
Wayzata, Minnesota 55391
Attention: Lori Egland
Fax No. 612-473-1011
with a copy to: Alan C. Eidsness
Henson & Efron, P.A.
400 Second Avenue South
1200 Title Insurance Building
Minneapolis, Minnesota 55401
Fax No. 612-339-6364
If to Buyer: National Gaming Companies, Inc.
9855 West 78th Street
Suite 220
Eden Prairie, Minnesota 55344
Attention: Bob Swenson
Fax No. 612-943-5666
or to: National Gaming Companies, Inc.
9855 West 78th Street
Suite 220
Eden Prairie, Minnesota 55344
Attention: Bob Stenson
Fax No. 612-943-5666
With a copy to: Douglas T. Holod, Esq.
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402
Fax No. 612-672-8397
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<PAGE> 17
If to Title Company: Pikes Peak Title Service, Inc.
P.O. Box 6040
750 E. Hwy. 24
Woodland Park, Colorado 80866
Attention: Shirley Barnes
Fax No. 719-687-3837
23. CAPTIONS. The paragraph headings or captions appearing in this
Agreement have been inserted for convenience only, are not part of this
Agreement and are not to be considered in interpreting this Agreement.
24. ENTIRE AGREEMENT: MODIFICATION. This written Agreement together with
the Exhibits attached hereto constitutes the complete agreement between the
parties and supersedes any prior or contemporaneous oral or written agreements
between the parties regarding the Property. There are no verbal agreements that
change this Agreement and no waiver of any of its terms will be effective unless
in a writing executed by the parties.
25. BINDING EFFECT. This Agreement binds and benefits the parties and
their successors and assigns.
26. CONTROLLING LAW. This Agreement has been made under the substantive
laws of the State of Colorado, and such laws will control its interpretation.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first above written.
SELLER
/s/ Lewis M. Mithun
-----------------------------------
LEWIS M. MITHUN
BUYER
NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation
By: /s/ R.J. Swenson
-------------------------------
Its: President
-------------------------------
NLC
NATIONAL LODGING COMPANIES, INC., a
Minnesota corporation
By: /s/ Terrance P. DeRoche
-------------------------------
Its: President
-------------------------------
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<PAGE> 18
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by LEWIS M. MITHUN, a married person.
/s/ Alan C. Eidsness
-----------------------------
Notary Public
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by R.J. Swenson, the President of NATIONAL GAMING
COMPANIES, INC., a Minnesota corporation, on behalf of the corporation.
/s/ Lorrie Lee Salzl
-----------------------------
Notary Public
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this 31st
day of October, 1995, by Terrance P. DeRoche, the President of NATIONAL LODGING
COMPANIES, INC., a Minnesota corporation, on behalf of the corporation.
/s/ Lorrie Lee Salzl
-----------------------------
Notary Public
This Instrument Was Drafted By:
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402
37019-5
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<PAGE> 19
EXHIBIT A
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
LEWIS M. MITHUN, AS SELLER
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
HERN/HEYLIGER PROPERTY
Legal Description: Lots 34, 35, 36, 37, 38, 39 and 40, Block 22, Fremont (Now
Cripple Creek), Teller (Formerly El Paso) County;
Property Owner: Harold Hern and Leota Hern, husband and wife, Victor
Heyliger (marital status)
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<PAGE> 20
EXHIBIT B
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
LEWIS M. MITHUN, AS SELLER
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
SURVEY CERTIFICATION
I hereby certify to National Gaming Companies, Inc., a Minnesota
corporation, and Ticor Title Insurance Company that on the ____ day of
_______________, 1995, I surveyed the following described Property:
Lots 28, 29, and 30, Block 22, Fremont (Now Cripple Creek), Teller
(Formerly El Paso) County, Colorado;
and that:
(a) This survey made was on the ground as per the field notes shown on
this survey and correctly shows (i) the legal description of the Property, (ii)
the boundaries and areas of the Property and the size, location and type of any
foundation, buildings and improvements thereon and the distance therefrom to the
nearest facing exterior boundary lines of the Property, the area of the Property
to the nearest one 1,000th of an acre and the area of the Property to the
nearest one 1,000th of an acre net of any roadway easements or rights-of-way,
(iii) the location of all rights-of-way, easements, servitudes and any other
matters of record (or which are discernable, whether or not of record) affecting
or benefiting the Property, (iv) the location of any parking areas on the
Property showing the number of parking spaces provided thereby, (v) all abutting
dedicated public streets providing access to the Property, together with the
width and name thereof and any limitation of access, (vi) the location of storm
sewers, sanitary sewers and water lines located upon the Property and service
lines thereof from their respective main lines, (vii) whether or not the
Property is located in an area designated by any agency of the United States of
America as being subject to flood hazards or flood risks, and (viii) all other
significant items on the Property.
(b) There are no apparent (i) encroachments upon the Property, (ii)
encroachments on any adjacent property, streets or alleys by any improvements
on the Property, (iii) party walls, and (iv) conflicts or protrusions except as
follows (if none, so state):
(c) Adequate ingress to and egress from the Property as provided by (name
of streets), the same being paved, dedicated public right(s)-of-way maintained
by (name of maintaining authority).
(d) All required building setback lines on the Property are located as
shown herein (or stating that there are none affecting the Property).
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<PAGE> 21
(e) This survey shows all matters reflected on the Commitment for Title
Insurance dated _________________, 1995, issued by _____________________ and
bearing the Commitment No. ________________.
(f) This survey is made in accordance with the "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys" jointly established and as
adopted by the American Land Title Association and American Congress on
Surveying and Mapping in 1992 and that meets the accuracy requirements of a
Class A Urban survey as defined therein.
______________________________
(Signature of Surveyor)
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<PAGE> 22
EXHIBIT C
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
LEWIS M. MITHUN, AS SELLER
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
DISCLOSURE SCHEDULE
Section 6(b): Title to the Property: Except that certain encroachment by the
Jubilee Casino building.
Section 6(c) Leases: Except that certain month to month verbal lease agreement
with Jubilee Casino.
Section 6(f) Rights of Others to Purchase Property: Except for Memorandum of
Agreement dated October 21, 1994 which will be cancelled at closing.
Section 6(g) Seller's Default: Except pursuant to the Promissory Note
referenced in Section 3 of the Purchase Agreement to Harold Hern.
Section 6(k) Encroachments: See disclosure regarding Section 6(b) above.
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<PAGE> 23
EXHIBIT D
TO THAT CERTAIN PURCHASE AGREEMENT BETWEEN
LEWIS M. MITHUN, AS SELLER
NATIONAL GAMING COMPANIES, INC., AS BUYER
AND
NATIONAL LODGING COMPANIES, INC.
MEMORANDUM OF PURCHASE AGREEMENT
This Memorandum of Purchase Agreement has been executed as of the ____ day
of _______________, 1995 between Lewis M. Mithun (hereinafter referred to as
"Seller"), NATIONAL GAMING COMPANIES, INC., a Minnesota corporation
("Buyer"), and NATIONAL LODGING COMPANIES, INC., a Minnesota corporation
("NLC").
W I T N E S S E T H:
WHEREAS, Seller and Buyer have executed that certain Purchase Agreement
dated _______________ (the "Purchase Agreement") with respect to certain real
property located in CRIPPLE CREEK, TELLER COUNTY, COLORADO, which is legally
described as follows (the "Property"):
Lots 28, 29, and 30, Block 22, Fremont (Now Cripple Creek), Teller
(Formerly El Paso) County, Colorado;
WHEREAS, Buyer desires to place this Memorandum of Purchase Agreement of
record in order to memorialize its rights to purchase the Property;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree and acknowledge as follows:
1. Buyer has certain rights to purchase the Property that are described in
the Purchase Agreement.
2. If Buyer does not exercise its rights to purchase the Property, the
termination of the Purchase Agreement and Buyer's rights to purchase the
Property will be evidenced by a Quit Claim Deed which will be executed by Buyer
and placed of record against the Property.
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the date and year first above written.
SELLER
----------------------------------
LEWIS M. MITHUN
BUYER
NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation
By:
--------------------------------
Its:
-------------------------------
NLC
NATIONAL LODGING COMPANIES, INC., a
Minnesota corporation
By:
--------------------------------
Its:
-------------------------------
STATE OF ______________)
)ss.
COUNTY OF______________)
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by Lewis M. Mithun, a single person.
-----------------------------------
Notary Public
-21-
<PAGE> 25
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by ________________________________, the
_________________ of NATIONAL GAMING COMPANIES, INC., a Minnesota corporation,
on behalf of the corporation.
_____________________________________
Notary Public
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was executed and acknowledged before me this ___
day of __________, 1995, by ________________________________, the
_________________ of NATIONAL LODGING COMPANIES, INC., a Minnesota corporation,
on behalf of the corporation.
_______________________________________
Notary Public
This Instrument Was Drafted By:
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402
37019-5
-22-
<PAGE> 1
EXHIBIT 10.15
AGREEMENT
AGREEMENT effective as of October 30, 1995, by and between National
Lodging Companies, Inc., a Minnesota corporation ("Lodging"), and National
Gaming Companies, Inc., a Minnesota corporation ("Gaming").
RECITALS
WHEREAS, Lodging has identified and developed an opportunity to purchase
the Jubilee Casino located in Cripple Creek, Colorado (the "Jubilee Casino");
and
WHEREAS, Lodging has certain rights and interests in parcels of real
estate known as the "Moore Lots" and the "Langhorn Lots," which lots are
located across the street and diagonally from the Jubilee Casino (said lots and
the Jubilee Casino shall be collectively referred to herein as the "Cripple
Creek Project"); and
WHEREAS, Lodging desires to assign and transfer to Gaming, and Gaming
desires to acquire, the Cripple Creek Project from Lodging upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, Lodging and Gaming agree as follows:
1. Property to be Transferred. Effective as of the date hereof (the
"Effective Date"), Lodging hereby assigns and transfers to Gaming (i) all
rights, trade secrets, opportunities, notes, files, documents, the value of
cash advances, property, both tangible as well as intangible, memoranda and all
other related or similar materials prepared, developed or compiled by Lodging
with respect to the Cripple Creek Project, and (ii) 393,750 shares of Lodging's
authorized, unissued and fully-paid shares of common stock, par value $.01 per
share (the "Lodging Stock"), to be utilized by Gaming to enable it to acquire
all ownership interests in the Jubilee Casino from the 353 Myers Avenue Limited
Partnership and to acquire certain real estate known as the "Mithun Lots" and
the "Hern Lots". The items referred to in this Section 1 shall be collectively
referred to herein as the "Property."
2. No Liabilities Assumed. Gaming does not assume any debts,
liabilities, or contractual or other obligations of Lodging of any kind
or nature whatsoever, except as specifically set forth in this Agreement.
Lodging shall continue to be liable for, and shall pay all obligations and
liabilities whatsoever incurred by it in connection with the Cripple Creek
Project.
3. Consideration. In consideration of Lodging's assignment and transfer
of the Property, Gaming hereby agrees to issue to Lodging 3,900,000
shares of the authorized, unissued common stock, par value $.01 per share, of
Gaming (the "Gaming Shares").
<PAGE> 2
4. Representations, Warranties and Covenants of Lodging. To induce
Gaming to enter into this Agreement and to consummate the transactions
contemplated by it, Lodging hereby represents and warrants to Gaming, and
covenants, as follows:
(a) Lodging is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota. Lodging
has full corporate power and authority to conduct its business as
now conducted and to enter into and perform its obligations under
this Agreement.
(b) This Agreement constitutes a valid and binding obligation of
Lodging, enforceable in accordance with its terms, except as may
be limited by bankruptcy, moratorium or other laws affecting the
rights of creditors generally, and the execution of this
Agreement by Lodging and the performance by Lodging of its
obligations hereunder have been duly authorized by all necessary
corporate action.
(c) Lodging owns and has good and marketable title to the
Property, free and clear of any judgments, liens, security
interests, encumbrances, charges, and claims of any kind or
nature. The shares of Lodging Stock, when issued pursuant
hereto, shall be validly issued, fully-paid and nonassessable.
(d) The transactions contemplated by this Agreement will not
result in the violation or breach of any contract, commitment, or
understanding to which Lodging is a party.
(e) Lodging acknowledges that: (1) the Gaming Shares have not
been registered under the Securities Act of 1933, as amended (the
"Act") or the securities or blue sky laws of any state or
jurisdiction; (2) it is acquiring the Gaming Shares for
investment and not with a view to distribution; (3) Gaming has no
obligation to register the Gaming Shares under the Act, except
that Gaming agrees to grant to Lodging, with respect to the
Gaming Shares, the same registration rights that Gaming grants to
underwriters of an initial public offering of Gaming's Common
Stock, with respect to Gaming Shares they may acquire upon the
exercise of warrants, subordinate, however, to the prior rights
of such underwriters to sell their shares of Gaming common in any
offering as to which registration rights have been exercised.
(f) Lodging agrees to indemnify and hold Gaming, its officers,
directors and shareholders harmless for all liabilities,
obligations, losses, damages, penalties, fees, charges and
expenses (including, without limitation, reasonable attorneys'
fees and expenses) that Gaming or its officers, directors and
shareholders may suffer or incur which arise out of or relate to:
(i) any of Lodging's acts or omissions prior to the date hereof,
whether or not related to the Cripple Creek Project, or (ii) any
breach of the representations, warranties, covenants, and
agreements of Lodging made in this Agreement and any related
documents or instruments.
The foregoing representations, warranties and covenants shall survive the
closing of the transactions contemplated by this Agreement.
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<PAGE> 3
5. Representations, Warranties and Covenants of Gaming. Gaming hereby
represents and warrants to Lodging, and covenants, as follows:
(a) Gaming is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota and has full
corporate power and authority to enter into, and perform its obligations
under, this Agreement.
(b) This Agreement constitutes a valid and binding obligation of
Gaming, enforceable in accordance with its terms, except as may be limited
by bankruptcy, moratorium or other laws affecting the rights of creditors
generally, and the execution of this Agreement by Gaming and the
performance by Gaming of its obligations hereunder have been duly
authorized by all necessary corporate action.
(c) The shares of Gaming Stock, when issued to Lodging pursuant
hereto, shall be validly issued, fully-paid and nonassessable.
(d) Gaming agrees to indemnify and hold Lodging, its officers,
directors and shareholders harmless for all liabilities, obligations,
losses, damages, penalties, fees, charges and expenses (including, without
limitation, reasonable attorney fees and expenses) that Lodging, it
officers, directors and shareholders may suffer or incur which arise out of
or relate to: (i) Gaming's acts or omissions from and after the date hereof
with respect to the Cripple Creek Project or the operation of the Jubilee
Casino, or (ii) any breach of the representations, warranties, covenants,
and agreements of Gaming made in this Agreement and any related documents
or instruments.
The foregoing representations, warranties and covenants shall survive the
closing of the transactions contemplated by this Agreement.
6. Governing Law. This Agreement shall be governed by the laws of the
State of Minnesota and shall be enforceable by, and binding upon, the parties
hereto and their respective legal representatives, successors, and assigns. The
rights and obligations of the parties under this Agreement may not be assigned
except as permitted in a writing signed by all parties.
7. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter described in this Agreement and
shall supersede all previous negotiations, commitments, or writings with respect
to such subject matter. This Agreement may not be modified and no party shall
be deemed to have waived any provision hereof, except as set forth in a writing
signed by the party to be charged thereby. There are no representations or
warranties among the parties in connection with this Agreement except as set
forth or referred to herein.
8. Notices. All notices or other communications required by or
permitted under this Agreement shall be in writing and shall be personally
delivered or sent by certified mail, postage prepaid, or by overnight national
courier (e.g., UPS and Federal Express), to the parties at their addresses
listed below. Any party may designate an additional or another
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<PAGE> 4
address upon giving notice to the other party pursuant to this Section. Notice
given in any manner other than as stated herein shall be deemed effective only
upon receipt by the party to whom such notice is given.
Notice to Lodging: National Lodging Companies, Inc.
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
Attention: John H. Klinkhammer, Chairman
Notice to Gaming: National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
Attention: Craig H. Forsman, Chief Executive
Officer
9. Miscellaneous.
(a) Additional Documents. Each of the parties, without further
consideration, agrees to execute such additional documents as may be
reasonably necessary to carry out the purposes and intent of this Agreement
and to fulfill the obligations of the respective parties hereunder.
(b) Waiver. No waiver by any party of any condition, or of any
breach of any term, covenant, representation, or warranty contained in this
Agreement shall be deemed or construed as a further or continuing waiver of
any such condition or breach or waiver of any other condition or of the
breach of any other term, covenant, representation or warranty of this
Agreement.
(c) Counterparts. For the convenience of the parties any number of
counterparts hereof may be executed and each such executed counterpart
shall be deemed an original, but all such counterparts together shall
constitute one and the same instrument.
(d) Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
NATIONAL LODGING COMPANIES, INC.
By /s/John H. Klinkhammer
----------------------
John H. Klinkhammer
Chairman
NATIONAL GAMING COMPANIES, INC.
By /s/Craig H. Forsman
-------------------
Craig H. Forsman
Chief Executive Officer
5
<PAGE> 1
EXHIBIT 10.16
October 30, 1995
The Board of Directors of
National Gaming Companies, Inc.
9855 West 78th Street
Suite 220
Eden Prairie, Minnesota 55344
RE: LOAN AND RELATED WARRANT GRANT AND STOCK PURCHASE
Gentlemen:
This letter is to confirm that as of the above date National Gaming
Companies, Inc. (the "Company") borrowed Five Hundred Thousand Dollars
($500,000.00) from me (the "Loan"), which Loan is evidenced by a promissory
note issued by the Company to me in such amount, which bears interest at the
rate of 15% per annum for the first six months after the date of such note and
20% per annum thereafter. The Loan is secured by deeds of trust in six parcels
of real estate owned by the Company in Cripple Creek, Colorado. In
consideration of the Loan, the Company issued me a warrant to purchase in the
aggregate 270,000 shares of the Company's common stock ("Common Stock") at a
purchase price of $.50 per share. This letter will also confirm that
concurrent with the Loan, I have purchased an aggregate of 500,000 shares of
Common Stock (the "Shares") from the Company for $80,000. This letter will
further confirm that on January 17, 1996, I loaned the Company an additional
$45,000 on the same terms and conditions as the $500,000 loan, and, in
consideration therefor, was issued a warrant to purchase 27,000 Shares
exercisable at $.50 per share.
I acknowledge that I (i) acquired the Shares for investment purposes and
not with a view toward distribution, (ii) understand that any sale or transfer
of the Shares shall be restricted and that a legend may be placed on the
certificates representing the Shares consistent with the above investment
representation. I further acknowledge that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or
Minnesota securities laws, and that the Company does not intend to register,
and is under no obligation to register, the Shares. I also acknowledge that I
may have to hold the Shares for an indefinite period of time. Finally, I
acknowledge that I have been given information concerning the business and
financial conditions of the Company and that I am familiar with its business,
financial condition and prospects. I have been given access to such corporate
and financial information, have had the opportunity to discuss my investment in
the Shares with officers or founders of the Company, and do not require any
further information from the Company.
It is agreed that I will have rights with respect to the registration of
the Shares under the Act, and under state securities laws, at the expense of
the Company, comparable with, but subordinate to, the rights granted to the
underwriters of the Company's initial public offering.
<PAGE> 2
The Board of Directors of National
Gaming Companies, Inc.
October 31, 1995
Page 2
Very truly yours,
/s/ Craig H. Forsman
Craig H. Forsman
Agreed:
National Gaming Companies, Inc.
/s/ Stephen W. Sherf
- -------------------------
By: Stephen W. Sherf
Its: Chief Financial Officer
<PAGE> 1
EXHIBIT 10.17
AGREEMENT
AGREEMENT effective as of October 30, 1995, by and between National Gaming
Companies, Inc., a Minnesota corporation ("Gaming"), Terrance P. DeRoche, Robert
J. Swenson, and Stephen W. Sherf.
RECITALS
WHEREAS, Regent Gaming Enterprises, Inc. ("Regent") has identified and
developed an opportunity to purchase the Jubilee Casino located in Cripple
Creek, Colorado (the "Cripple Creek Project"); and
WHEREAS, Messrs. DeRoche, Swenson and Sherf (collectively, the
"Transferors") desire to transfer and assign to Gaming, and Gaming desires to
acquire, all of the issued and outstanding common stock of Regent.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the Transferors and Gaming agree as follows:
1. Property to be Transferred. Effective as of the date hereof (the
"Effective Date"), the Transferors hereby assign and transfer to Gaming
2,000,000 shares of Regent's outstanding and fully-paid shares of common stock
(the "Regent Stock"), which shares shall constitute all the issued and
outstanding capital stock of Regent.
2. No Liabilities Assumed. Gaming does not assume any debts,
liabilities, or contractual or other obligations of Regent of any kind or nature
whatsoever, except as specifically set forth in this Agreement.
3. Consideration. In consideration of the Transferor's assignment and
transfer of the Regent Stock, Gaming hereby agrees as follows:
(a) Gaming hereby agrees to issue to the following people, the
number of shares of its common stock set forth respectively: Terrance P.
DeRoche (400,000 shares), Stephen W. Sherf (535,000 shares) and Robert J.
Swenson (565,000 shares).
(b) Gaming hereby further agrees to pay Mr. Randall D. Otis $25,000
and to issue to Mr. Otis 100,000 shares of Gaming's common stock. The
shares of Gaming's common stock transferred to Messrs. DeRoche, Sherf,
Swenson and Otis hereunder shall be collectively referred to herein as the
"Gaming Stock."
(c) In addition, Gaming hereby agrees to assume and pay in accordance
with their terms Regent's promissory notes in an aggregate amount of
$80,000 to the following persons: Terrance P. DeRoche ($65,000), Stephen
Sherf ($10,000) and James Klas ($5,000).
<PAGE> 2
(d) Gaming hereby agrees to pay accrued, unpaid compensation in the
aggregate amount of $80,000 due to the following people from Regent in the
amounts set forth respectively: Robert J. Swenson ($50,000), Terrance P.
DeRoche ($25,000) and Stephen Sherf ($5,000).
4. Representations, Warranties and Covenants of the Transferors. To
induce Gaming to enter into this Agreement and to consummate the transactions
contemplated by it, the Transferors hereby represent and warrant to Gaming, and
covenant, as follows:
(a) Regent is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota, and has full
corporate power and authority to conduct its business as now conducted and
to enter into and perform its obligations under this Agreement.
(b) The shares of Regent Stock are validly issued, fully-paid and
nonassessable.
(c) The shares of Regent Stock constitute all the issued and
outstanding capital stock of Regent and are assigned and transferred to
Gaming free and clear of any restrictions or encumbrances.
(d) The transactions contemplated by this Agreement will not result
in the violation or breach of any contract, commitment, or understanding to
which Regent or the Transferors, or any of them, is a party.
(e) Messrs. DeRoche, Sherf, Swenson and Otis acknowledge that: (1)
the Gaming Stock has not been registered under the Securities Act of 1933,
as amended (the "Act") or the securities or blue sky laws of any state or
jurisdiction; (2) they are acquiring the Gaming Stock for investment and
not with a view to distribution; and (3) Gaming has no obligation to
register the Gaming Stock under the Act, except that Gaming agrees to grant
to the Transferors, with respect to the Gaming Stock, the same registration
rights that Gaming grants to underwriters of an initial public offering of
Gaming's Common Stock, with respect to Gaming Shares they may acquire upon
the exercise of warrants, subordinate, however, to the prior rights of such
underwriters to sell their shares of Gaming common in any offering as to
which registration rights have been exercised.
(f) The Transferors agree, jointly and severally, to indemnify and
hold Gaming, its officers, directors and shareholders harmless for all
liabilities, obligations, losses, damages, penalties, fees, charges and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) that Gaming or its officers, directors and shareholders may
suffer or incur which arise out of or relate to: (i) acts or omissions of
Regent prior to the date hereof, whether or not related to the Cripple
Creek Project, except for the obligations specified in Sections 3(b), 3(c)
and 3(d) hereof, or (ii) any breach of the representations, warranties,
covenants and agreements of the Transferors made in this Agreement and any
related documents or instruments.
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<PAGE> 3
The foregoing representations, warranties and covenants shall survive the
closing of the transactions contemplated by this Agreement.
5. Representations, Warranties and Covenants of Gaming. Gaming hereby
represents and warrants to the Transferors, and covenants, as follows:
(a) Gaming is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota and has full
corporate power and authority to enter into, and perform its obligations
under, this Agreement.
(b) This Agreement constitutes a valid and binding obligation of
Gaming, enforceable in accordance with its terms, except as may be limited
by bankruptcy, moratorium or other laws affecting the rights of creditors
generally, and the execution of this Agreement by Gaming and the
performance by Gaming of its obligations hereunder have been duly
authorized by all necessary corporate action.
(c) The shares of Gaming Stock, when issued to Messrs. DeRoche,
Sherf, Swenson and Otis pursuant hereto, shall be validly issued,
fully-paid and nonassessable.
(d) Gaming agrees to indemnify and hold the Transferors harmless for
all liabilities, obligations, losses, damages, penalties, fees, charges and
expenses (including, without limitation, reasonable attorney fees and
expenses) that the Transferors may suffer or incur which arise out of or
relate to: any breach of the representations, warranties, covenants, and
agreements of Gaming made in this Agreement and any related documents or
instruments.
The foregoing representations, warranties and covenants shall survive the
closing of the transactions contemplated by this Agreement.
6. Governing Law. This Agreement shall be governed by the laws of the
State of Minnesota and shall be enforceable by, and binding upon, the parties
hereto and their respective legal representatives, successors, and assigns. The
rights and obligations of the parties under this Agreement may not be assigned
except as permitted in a writing signed by all parties.
7. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter described in this Agreement and
shall supersede all previous negotiations, commitments, or writings with respect
to such subject matter. This Agreement may not be modified and no party shall
be deemed to have waived any provision hereof, except as set forth in a writing
signed by the party to be charged thereby. There are no representations or
warranties among the parties in connection with this Agreement except as set
forth or referred to herein.
8. Notices. All notices or other communications required by or permitted
under this Agreement shall be in writing and shall be personally delivered or
sent by certified mail, postage prepaid, or by overnight national courier (e.g.,
UPS and Federal Express), to
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<PAGE> 4
Gaming or the Transferors at its or their addresses listed below. Either Gaming
or the Transferors may designate an additional or another address upon giving
notice to the other party pursuant to this Section. Notice given in any manner
other than as stated herein shall be deemed effective only upon receipt by the
party to whom such notice is given.
Notice to the Transferors: c/o Regent Gaming Enterprises, Inc.
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
Notice to Gaming: National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
Attention: Craig H. Forsman, Chief
Executive Officer
9. Miscellaneous.
(a) Additional Documents. Each of the parties, without further
consideration, agrees to execute such additional documents as may be
reasonably necessary to carry out the purposes and intent of this Agreement
and to fulfill the obligations of the respective parties hereunder.
(b) Waiver. No waiver by any party of any condition, or of any
breach of any term, covenant, representation, or warranty contained in this
Agreement shall be deemed or construed as a further or continuing waiver of
any such condition or breach or waiver of any other condition or of the
breach of any other term, covenant, representation or warranty of this
Agreement.
(c) Counterparts. For the convenience of the parties any number of
counterparts hereof may be executed and each such executed counterpart
shall be deemed an original, but all such counterparts together shall
constitute one and the same instrument.
(d) Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
NATIONAL GAMING COMPANIES, INC.
By /s/ Craig H. Forsman
------------------------------
Craig H. Forsman
Chief Executive Officer
/s/ Terrance P. DeRoche
---------------------------------
Terrance P. DeRoche
/s/ Robert J. Swenson
----------------------------------
Robert J. Swenson
/s/ Stephen W. Sherf
----------------------------------
Stephen W. Sherf
5
<PAGE> 1
EXHIBIT 10.18
CONTRACT TO BUY AND SELL COMMERCIAL REAL ESTATE
This Real Estate Contract (the "Contract" or "Agreement") is made this 6th
day of May, 1996, by and between National Gaming Companies, Inc., a Minnesota
Corporation (hereinafter "Buyer") and E. Wayne Moore and Sarah A. Moore
(hereinafter "Seller").
RECITALS
A. Seller is the owner of certain real property and improvements thereon,
situate in the County of Teller, State of Colorado, and desires to sell same to
Buyer, and Buyer desires to purchase the property from Seller, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants below, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Property. Buyer agrees to buy and Seller agrees to sell on the terms
and conditions set forth in this Contract the following described real property
(the "Real Property") located in the County of Teller, State of Colorado,
to-wit:
Lots 1 through 15, Block 26, Fremont Addition, now Cripple Creek,
County of Teller, State of Colorado;
together with all easements and other appurtenances thereto, if any,
improvements thereon, and all fixtures thereon (collectively the "Property").
2. Purchase Price and Terms. The total purchase price shall be One
Million and no/100's Dollars ($1,000,000.00), payable by Buyer as follows:
a. Earnest Money. Ten Thousand and no/100's Dollars ($10,000.00) in
the form of cash or certified funds as earnest money deposit and part payment of
the purchase price, payable to and held by Pikes Peak Title Service, Inc.
("Title Company") in its trust account on behalf of both Seller and Buyer to be
paid upon execution hereof. The parties hereby agree and the escrow
instructions with the Title Company shall provide that the earnest money deposit
shall be applied as follows:
(i) If there is not a default hereunder by either party prior
to closing and if this Agreement is not terminated in accordance with its terms,
the earnest money deposit shall be credited for payment to Seller at closing;
(ii) The earnest money deposit shall be payable to Seller upon a
default by Buyer under the terms of this Agreement in accordance with Paragraph
13. hereof.
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<PAGE> 2
b. Cash at Closing. One Hundred Ninety Thousand and no/100's
Dollars ($190,000.00) to be paid by Buyer at closing in cash, electronic
transfer of funds, certified check, or cashier's check or other method of
payment satisfactory to the Seller.
c. Note. Seven Hundred Thousand and no/100's Dollars
($700,000.00) by Buyer delivering to Seller an executed Promissory Note (the
"Note") in the form of Exhibit A, attached hereto and made a part hereof, to be
secured by a Deed of Trust (the "Deed of Trust") in the form of Exhibit B,
attached hereto and made a part hereof, to encumber the Property as a First Deed
of Trust. The Note and Deed of Trust shall, among others, contain the following
provisions:
(i) The Note shall accrue interest at the rate of 9% per
annum. During the first year of the Note Buyer shall pay to Seller on a
quarterly basis commencing July 1, 1996 all net income received by Buyer from
the parking business conducted on the subject property. Net income is defined
as gross receipts from the parking business less all ordinary and necessary
expenses for operating the business, including employee salaries, real property
taxes, liability insurance, utilities and general maintenance. Expenses for
capital improvements to the parking lot such as paving, installation of lights
and excavation to expand the parking lot, shall not be treated as operating
expenses. Net income from all parking shall apply to interest due under the
Note herein. In the event that the net income paid to Seller is less than the
accrued interest under the Note for the first year, the unpaid interest shall be
added to the principal balance of the Note, as of the end of the first year. In
the event the net income from parking is greater than the accrued interest for
the first year, the excess shall be applied as a partial prepayment of the
principal balance of the Note. The principal balance owing after the first year
shall be paid in monthly installments amortized over nine (9) years. Payments
shall be due and payable on the first of each month commencing on June 1, 1997
and all payments shall be applied first to interest and the remainder to
principal.
(ii) Buyer agrees that it will conduct a parking lot business
on the Property during at least the first year of the Note and will use its best
reasonable efforts to maximize revenues from such parking lot business. Buyer
agrees that it will charge a fee for parking on such lot comparable to such fees
charged by other public parking lots in Cripple Creek, Colorado but not less
that $5.00 per car per day. Buyer will provide Seller with a full accounting of
revenues and expenses of the parking lot on a quarterly basis. Seller and their
authorized agents shall have a right to review the books and records of Buyer
relating to the parking lot upon request.
(iii) The Note shall be secured by the Deed of Trust to the
Property which shall provide that the Seller's consent in writing shall be
required for any sale, assignment or transfer of all or a part of the Property.
The Deed of Trust shall require Purchaser to supply seller during all of the
term of the loan with a certificate of insurance showing liability coverage in
amounts suitable to Seller and stating that Seller will be notified at least
thirty (30) days prior to any cancellation of such coverage. The Deed of Trust
shall further require that Buyer shall provide Seller with a copy of the receipt
evidencing timely payment of all real property taxes on the Property.
(iv) The Note shall provide for prepayment at any time without
penalty or premium and for attorneys fees and costs in the event of default.
The Note shall provide that interest shall accrue at the rate of 12% per annum
during any period of default, and that a late charge of 10%
2
<PAGE> 3
of such payment shall be paid for each payment made more than ten days after
payment is due. The Note shall also be secured by an assignment of all rents
with respect to the rental of the property.
(v) The Note shall be deemed to be in default if any payment is
not made within ten (10) days of the due date, if Buyer shall file bankruptcy,
if Buyer shall violate any terms of the Deed of Trust, if Buyer or National
Lodging Companies, Inc. (hereinafter sometimes referred to as "NLC") defaults
under the terms of this Agreement with respect to its obligations to be
performed after closing, if a default occurs under any instrument or agreement
executed and delivered to secure payment of the Note (including the Deed of
Trust), and/or if a default occurs under any other note, security document or
obligation of Buyer (or any of Buyer's affiliates, sister companies,
subsidiaries, successors or assigns) to Seller.
(vi) Notwithstanding anything to the contrary herein, Seller
shall have no duty whatsoever to allow assumption of said Note and Deed of
Trust, and may, with or without cause, accelerate all amounts owed in the event
of a sale, conveyance, alienation, or disposal of the Property.
d. The balance of the $1,000,000.00 purchase price shall be paid by
Buyer transferring to Seller One Hundred Thousand (100,000) shares of Common
Stock of National Gaming Companies, Inc. (hereinafter "NGC"). With respect to
such stock, National Lodging Companies, Inc. and Buyer hereby agree as follows:
(i) NGC will not take any action to subdivide or combine its
outstanding shares into a greater or lesser number (including stock splits,
reverse stock splits or stock dividends) or to declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, or subdivide,
reclassify, reorganize, or recapitalize the outstanding shares of Common Stock
into a greater number of shares, or combine or reclassify the outstanding Common
Stock into a smaller number of shares, without proportionally adjusting the
Seller's Common Stock so that after such action Seller owns the same proportion
of Stock as Seller owned prior to such action. Accordingly, NGC will not take
any action to artificially dilute the Common Stock of the Seller. This
provision will not apply to issuance of Common Stock for reasonably equivalent
value.
3. Representations and Warranties.
3.1 Warranties of Buyer. The Buyer represents, warrants and agrees
that the following are true and correct as of the date of this Agreement and
will be true and correct as of Closing:
a. Authority. Buyer is a Minnesota Corporation, duly
organized, validly existing and duly authorized to conduct business in Colorado.
The execution and performance of this Agreement is not contrary to or restricted
by Buyer's organizational documents, or any other agreement, law, regulation or
Court Order to which it is subject, and it has full power and authority to enter
into this Agreement by and through the officers who have executed this
Agreement.
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<PAGE> 4
b. This Agreement has been approved by all necessary action of
Buyer, and the person signing the Agreement has the present authority to bind
the Buyer to the terms of this Agreement.
c. Buyer is aware that the Property is in a flood plain.
d. Buyer is aware that Seller has not conducted any soils test
on the Property and is proceeding to purchase without such a test.
e. Buyer acknowledges that there is no water or sewer system on
or to said Property.
f. Buyer acknowledges that it has fully inspected the Property
and agrees that any condition existing on the Property, including but not
limited to soil, gradation, radon, flood, environmental, wetlands, or other
conditions shall be the responsibility of Buyer and not of Seller.
g. Buyer acknowledges that the property may be subject to
certain agreements pertaining to Fifth Street and Myers Street and the location
of Cripple Creek between the prior tenant, Ron Ortner Productions, Inc., and the
City of Cripple Creek and the State of Colorado, or others.
h. Buyer acknowledges that the course of Cripple Creek may have
been diverted onto the Property and may encroach on the Property.
i. Buyer acknowledges that the Property is subject to wetlands
regulation as a result of the course of Cripple Creek and other conditions, and
may be subject to permits, approvals and actions by the Army Corps of Engineers
and from other governmental and regulatory authorities regarding wetlands and
the Clean Water Act.
j. Buyer acknowledges that Ron Ortner, Joan L. Ortner, Ron
Ortner Productions, Inc., the Grand National Hotel and Casino, Inc. or others
related to or affiliated with these parties, and their shareholders, directors,
officers, investors, lenders (hereinafter the "Ortner Group") and others may
claim that they have prior rights to purchase the Property by virtue of:
(1) The Commercial Contract to Buy and Sell Real Estate
and Addendum dated May 18, 1993, between Seller and Ron Ortner Productions,
Inc., (the "Ortner Agreement"), as "Purchaser", which granted Purchaser an
option to Purchase the Property;
(2) The Addendum to Purchase Contract Exhibit B dated May
2, 1994, purportedly assigning Ron Ortner Productions, Inc.'s purchase rights
under the May 18, 1993 contract to Grand National Hotel and Casino, Inc.; (the
"Grand National Assignment");
(3) The letter agreement dated January 11, 1996, from
Garth J. Nicholls, P.C. to Ron Ortner Productions, Inc., wherein Ron Ortner
Productions, Inc., acknowledged
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the termination of the Ortner Agreement and was granted a new option to
purchase the Property running through February 10, 1996 (the "New Option");
(4) The Option Agreement between National Lodging
Companies, Inc., and Ron Ortner, Joan L. Ortner, Orr Properties, Inc., Ron
Ortner Productions, Inc., and Michael R. Reeg, dated February 8, 1995, (the
"National Option");
(5) Agreement dated March 31, 1994, among National Lodging
Companies, Inc., Orr Properties, Inc., and Ron Ortner Productions, Inc. (The
"National Agreement").
(k) Buyer acknowledges that it is aware of the Cease and Desist
Order issued by the U.S. Army Corps of Engineers due to alleged Wetlands
violations involving the water course of Cripple Creek, and that mitigation of
such violation may impact the Property and proposed development of the Property
and may include that the creek bed remain open and that the creek channel be
enlarged to accommodate a 100 year flood.
(l) Buyer is aware that there is a filled-in mine-shaft on the
Property.
3.2 Warranties of Seller.
The Seller represents that as of the date of this Agreement:
a. Seller has not received actual notice of (i) any litigation
affecting the Property (other than the litigation between Ortner and Buyer), or
(ii) any pending or threatened condemnation actions against the Property.
b. Seller has not received actual notice from any governmental
agency requiring the correction of any condition on the Property other that the
Cease and Desist Order from the U.S. Army Corps of Engineers pertaining to the
Wetlands violation and the proposed mitigation impacting the Property.
3.3 Warranties of Buyer.
Buyer represents, warrants and agrees that the following are
true and correct as of the date of this agreement and will be true and correct
as of closing:
a. NGC is in good standing under such laws. NGC has the
requisite corporate power and authority to own and operate its property and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. NGC has full power and authority to enter into this agreement by
and through the officers who have executed this agreement.
b. All corporate action on the part of NGC, its directors,
and shareholders necessary for authorization, execution, delivery, and
performance of this agreement by NGC, and the authorization, sale, issuance and
delivery of the Common Stock and the performance of all the
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obligations of NGC with respect to the Common Stock to be issued hereunder has
been taken or will be taken prior to closing.
c. The authorized capital stock of the NGC consists of
50,000,000 shares of Common Stock, of which 6,000,000 shares are issued and
outstanding and no shares of Preferred Stock. The outstanding shares have been
duly authorized and validly issued, and are fully paid and nonassessable. NGC
currently has 411,000 Warrants issued and outstanding. The Warrants contain
conversion rights which allow them to be converted into shares of Common Stock.
d. NGC has delivered to Seller its combined unaudited balance
sheet and statement of operations for the period ended February 1996
(collectively "Financial Statements"). The Financial Statements are complete
and correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except the unaudited Financial Statements do
not contain footnotes. The Financial Statements accurately set out and describe
the financial condition and operating results of NGC as of the dates and periods
and during the periods indicated therein. Since the date of the Financial
Statements, there has not been any material change in the assets, liabilities,
financial condition or operation of NGC from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, either in any case or in the aggregate, materially adverse.
e. NGC has good and marketable title to the property and assets
of the Jubliee Casino in Cripple Creek, Colorado, and has good title to and is
the owner of the real property and building on which said casino is operated,
subject to the mortgages, pledges, liens, leases, encumbrances or charges set
out below:
Deed of Trust in favor of Terry and Suzanne Wahrer with a balance of
approximately $520,000.
4. Assignment. Except as provided below, this Contract may not be
assigned by Buyer without the prior written consent of the Seller.
a. Buyer shall have the right to assign its purchase rights under
this Agreement to a third party controlled by Buyer, provided that Buyer owns
more than 50% of the issued and outstanding stock or equity interests in such
party.
In the event of such assignment, Buyer hereby agrees to: (i) remain
liable for all obligations set forth in this Agreement, including, but not
limited to the indemnity obligations set forth in Paragraphs 18 and 20, and all
obligations and liabilities in the event of a default by Buyer; and (ii)
Guaranty all obligations of the Buyer under the Note and Deed of Trust.
b. The assignment rights set forth above shall only apply to the
Buyer, National Gaming Companies, Inc., and shall not apply to any third party
assignee of the Buyer. Any attempted assignment which does not fully comply
with the provisions set forth in this Paragraph 4. shall be deemed a material
breach of this Agreement and Seller shall have the right to pursue their
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default remedies set forth in Paragraph 13. in the event of a violation or
breach of the provisions set forth in this Paragraph 4.
5. Evidence of Title. Buyer shall be responsible for obtaining, at
Buyer's expense, a title insurance commitment for the Property. Buyer shall
also be responsible for obtaining, at Buyer's sole expense a title insurance
policy after closing.
6. Title Review. Buyer hereby agrees and acknowledges that it has
inspected the Title Commitment (as defined herein) and has accepted the
conditions of title as disclosed by the Title Commitment as satisfactory.
Accordingly, Buyer waives any contingency relating to the title commitment
review.
7. Closing. The date of closing shall be the 15th day of June, 1996, or
by mutual agreement at an earlier date. The hour and place of closing shall be
agreed upon by Seller and Buyer. Subject to the payments described in
Paragraph 2. at closing, and subject to compliance by Buyer with the other
terms and conditions of this Contract, Seller shall execute and deliver a good
and sufficient Special Warranty Deed to Buyer at closing, conveying the
Property free and clear except for: (1) the general taxes for 1995 and the
year of Closing, and all building and zoning regulations, recorded easements,
restrictions, reservations, restrictive covenants, rights of way, encroachments
or conflicts on or about the Property or property lines or by improvements on
the Property, public utility easements, requirements under local drainage,
development and/or master plans, patents, and any other easement or exception
of record; (2) discrepancies, conflicts in boundary lines, shortage in area,
encroachments, and any facts which correct survey and inspection of the
Property would disclose and which are not shown by the public records; (3)
unpatented mining claims; (4) all rights or claims of parties in possession
not shown by the public record; (5) easements, or claims of easements, not
shown by the public record; (6) those matters reflected on the title insurance
commitment issued by the Title Company on January 23, 1996, at 8:00 a.m.
("Title Commitment"), a copy of which is attached hereto as Exhibit "C" and by
this reference made a part hereof; (7) encroachment of the drainage channel or
creek bed for Cripple Creek which Buyer acknowledges that it is aware of and
assumes hereby; (8) any Federal, State or local wetlands regulations; (9) any
pending Federal, State, or local actions for violation or alleged violations of
regulations, rules, ordinances or laws including alleged violation of Wetlands
rules and regulations; (10) any rights that the Ortner Group may have in and to
the Property by virtue of the documents listed in Paragraph 3.1 j. hereof; all
of the foregoing shall be collectively known as "Approved Exceptions" for
purposes hereof.
8. Closing Procedure. At the closing, the following shall occur, each
being a condition precedent to the others and all being considered as occurring
simultaneously:
a. Seller shall deliver to Buyer the Deed conveying the Property as
described in Paragraph 7 above.
b. Buyer shall deliver to Seller the funds to be paid at Closing.
c. Buyer shall deliver the Note and Deed of Trust duly executed by
Buyer.
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d. Both parties shall sign settlement statements and such other
documents and certificates as the other or the Title Company may reasonably
require to carry out the intent of this Contract.
e. Buyer shall deliver to Seller a certificate of Good Standing
issued by the Secretary of State for Minnesota showing that Buyer is in good
standing.
f. Buyer shall deliver to Seller a duly certified Corporate
resolution from Buyer's Board of Directors, authorizing the transactions
contemplated hereby.
g. Seller shall deliver to Title Company a non-foreign Person Tax
Affidavit, properly executed by Seller.
h. Buyer shall transfer to Seller 100,000 shares of common stock in
National Gaming Companies, Inc.
i. NLC shall deliver to Seller a duly certified Corporate Resolution
from its Board of Directors, authorizing the transactions of National Lodging
Companies, Inc. contemplated hereby.
9. Closing Costs. Buyer and Seller shall pay their respective
attorney's fees and closing costs at closing. Buyer shall pay for the title
policy to be issued to Buyer. Buyer shall pay all recording fees and
documentary fees.
10. Prorations. No adjustments or prorations shall be made at closing
for real property taxes for 1995 and 1996, and Buyer agrees to pay the real
property taxes for 1995 and any real property taxes that have accrued on the
Property for 1996.
11. Subscription for Shares. Seller warrants the following with respect
to National Gaming Companies, Inc.'s shares to be transferred herein:
a. Seller has been given access to all information they have
requested regarding NGC (including the opportunity to meet with NGC's officers
and review such other documents as Seller may have requested in writing).
b. Seller is experienced and knowledgeable in financial and business
matters, capable of evaluating the merits and risks of investing in the Shares,
and does not need or desire the assistance of a knowledgeable representative to
aid in the evaluation of such risks.
c. Seller understands that an investment in the Shares is highly
speculative and involves a high degree of risk. Seller believes the investment
is suitable for Seller based on Seller's investment objectives and financial
needs. Seller can bear the economic risk of an investment in the Shares for an
indefinite period of time and can afford a complete loss of such investment.
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d. Seller understands that there will be no market for the Shares,
that there are significant restrictions on the transferability of the Shares,
and that for these and other reasons, Seller may not be able to liquidate an
investment in the Shares for an indefinite period.
e. Seller represents and warrants that Seller is acquiring the
Shares for Seller's own account, for long-term investment and without the
intention of reselling or redistributing the Shares. Seller has made no
arrangement or agreement with others regarding any of the Shares, and Seller's
financial condition is such that it is not likely that it will be necessary for
Seller to dispose of any of the Shares in the foreseeable future.
f. Seller understands that the Shares have not been registered under
the Securities Act of 1933, as amended, (the "1933 Act"), or applicable state
securities laws, and are being offered and sold pursuant to exemptions from
registration under the 1933 Act and applicable state securities laws.
g. Seller understands that the Shares may not be sold by Seller
except pursuant to an effective registration statement under the 1933 Act and
applicable state securities laws, or an opinion of counsel that such
registration is not required. Seller understands that NGC does not have any
obligation to file a registration statement covering securities of NGC,
including the Shares.
h. Seller understands that any transfer of the Shares by Seller will
be further restricted by a legend placed on the certificate(s) representing the
Shares containing substantially the following language:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
securities laws. No transfer of such shares or any interest therein
may be made except pursuant to registration under said laws unless the
Company has received an opinion of counsel acceptable to the Company
stating that such transfer does not require registration under said
laws."
12. Representations. THE PROPERTY AND INCLUSIONS SHALL BE CONVEYED TO
BUYER IN AN "AS IS" CONDITION AT TIME OF CLOSING WITH NO REPRESENTATIONS OF
WARRANTIES, EXPRESS OR IMPLIED, WHATSOEVER. Seller and Buyer acknowledge and
agree that, except as otherwise may be specifically provided for in this
Agreement, Seller has not made any representations, warranties or agreements to
or on behalf of the other party as to any matter concerning the Property, the
present use thereof or the suitability of Buyer's intended use of the Property,
including, without limitation, any representations, warranties or agreements
relating to topography, climate, air, water, sewer system, water rights, flood
plain designation, wetlands regulation, drainage requirements, development
rights, utilities, present and future zoning, soil, subsoil, the public roads,
or proposed routes or roads, or extensions thereof, presence or absence of any
'hazardous substance' or 'hazardous waste' as those may be defined under
federal, state or local statutes, ordinances or regulations, or if active, any
state or federal environmental protection laws or regulations, financial
viability or development. Buyer represents and warrants to Seller that Buyer
has made, or will make, its own independent inspection and
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investigation of the Property and inclusions and the market, development,
permitting, drainage, and other conditions affecting the Property, at Buyer's
expense, and Buyer has not relied and will not rely upon the accuracy of any of
the documents or written instruments which have been or may hereafter be
delivered to Buyer by Seller or its agents. No patent or latent physical
condition of the Property, whether or not now known or discovered, shall affect
the rights of either party hereto. No agreement, warranty or representation,
unless expressly contained herein, shall bind Seller. Buyer and anyone
claiming by, through or under Buyer, expressly waives any rights of rescission
and all claims or damages by reason of any statement, representation, warranty,
promise or agreement, if any, unless contained in this Agreement. Buyer
further agrees and acknowledges that after closing, any defect in the condition
of the Property shall be the sole responsibility of the Buyer. This provision
shall survive the closing of this Contract and the conveyance of the deed and
title to the Property and shall not merge therein.
13. Time of Essence. Time is of the essence hereof. If any obligation
hereunder or any other payment due hereunder is not paid, honored or tendered
when due, Seller may elect to treat this agreement as canceled, in which case
all payments and things of value, to include the earnest money deposit received
hereunder, shall be forfeited and retained on behalf of Seller and Seller may
recover such damages as may be proper, or Seller may elect to treat this
Contract as being in full force and effect and Seller shall have the right to
specific performance or damages beyond the amount of earnest money, or both.
In addition, Seller shall be entitled to recover all expenses it incurs to
enforce or interpret the terms of this Contract or in any action relating to
this Agreement, including costs and reasonable attorneys fees. From and after
closing, with respect to obligations which survive closing, Seller shall be
entitled to any remedies available at law or in equity or under the Note, Deed
of Trust and Guaranty.
14. Seller's Default. If Seller is in default, the Buyer may elect to
treat this Contract as canceled and the Earnest Money will be returned to the
Buyer, or Buyer may specifically enforce this Agreement, provided that Buyer
elects to do so within ten (10) days of such default.
15. Termination. Termination of this Agreement pursuant to the terms
hereof shall relieve the parties from all obligations to each other under this
Agreement with respect to the Property, except under Paragraph 2 (earnest
money), or except for obligations on account of the other party's fraud or
malfeasance. Upon termination, at Seller's request, Buyer shall deliver to
Seller all surveys, environmental and soil reports and any other studies or
reports in its possession which relate to the Property and Seller shall
reimburse Buyer for the cost of such items requested.
16. Possession. Possession of the Property shall be delivered to the
Buyer following closing.
17. Waiver. No consent or waiver, express or implied, by Seller or Buyer
to or for any breach of default by the other in the performance by the other of
its obligations hereunder shall be deemed or construed to be a consent of
waiver to or of any other breach or default in the performance by such other
party of the same or any other of its obligations. Failure on the part of any
party to complain of any act or failure to act of any other party, or to
declare any other party in default,
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irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder.
18. Indemnity. Buyer and National Lodging Companies, Inc. and their
successors and assigns, jointly and severally, hereby agree to defend, indemnify
and hold Seller (their heirs, personal representatives, successors and assigns)
harmless from and against any and all claims, demands, actions administrative
proceedings, liabilities, proceedings, and judgments of any kind or nature,
including reasonable attorney's fees (including attorneys fees and expenses
incurred in enforcing this indemnity) and related costs, arising from or in any
way related to (i) the Property; (ii) Buyer's possession, use or occupancy of
the Property; (iii) any breach or misrepresentation of any representation,
warranty or agreement given herein or any failure by Buyer or NLC to comply with
the terms of this Agreement; (iv) the Ortner Agreement, the Grand National
Assignment; the New Option, the National Option and National Agreement; (v) any
action, suit, or other proceedings brought by Ron Ortner, Joan L. Ortner, Ron
Ortner Productions, Inc., Grand National Hotel and Casino, Inc., Orr Properties,
Inc., Michael Reeg, Randall Burton, Traveler's Trust and Capital Corporation,
and/or any shareholder, director, officer, partner, member, manager, agent,
representative, contractor, subsidiaries, lender, investor, successor or assign
(or any of the heirs, affiliates, personal representatives, successors or
assigns thereof) or anyone claiming by, through or under any of the foregoing,
(collectively "Ortner") relating to the Property, this Agreement, or any of the
agreements referenced herein; (vi) any claim, interest, right, and/or option
that Ortner may have or allege having in or to the Property. Furthermore, Buyer
hereby agrees to be responsible for all defense costs relating to the defense of
any action brought by Ortner against Seller and shall promptly assume such
defense with counsel reasonably satisfactory to Seller upon notice by Seller
that an action has been commenced or threatened by Ortner.
19. Release. For and in consideration of Seller's sale of the Property to
Buyer and for other valuable consideration, receipt of which is hereby
acknowledged, Buyer and National Lodging Companies, Inc. and their successors
and assigns, and all those claiming by, through or under any of the foregoing
parties (the "Releasor") hereby fully release and forever discharge from
liability of any nature, to the fullest extent allowable by law, Seller, and
their executors, administrators, heirs, successors, assigns, from any and all
causes of action, claims, liabilities, damages, costs, expenses, and demands of
any nature, whatsoever (including without limitation attorney's fees and costs),
whether known or unknown at the time of this Agreement, as a result of arising
from, or in any way related to (i) any claims, actions, proceedings brought,
commenced or threatened by any member of the Ortner Group as a result of Buyer
and Seller entering into this Agreement or the sale of the Property by Seller to
Buyer; (ii) any action taken by any member of the Ortner Group against Buyer or
NLC (or any of their officers, directors, shareholders, agents, representatives,
successors, assigns or affiliates) as a result of this Agreement or the sale of
the Property hereunder. This is intended by the parties to be a full and
complete release of Seller from any liability Buyer or NLC suffers as a result
of any member of the Ortner Group taking any type of action whatsoever against
the Buyer or NLC (or those parties related to the Buyer named above) by reason
of this Agreement or Seller's sale of the Property to Buyer hereunder.
20. Indemnity. Buyer and National Lodging Companies, Inc. and their
successors and assigns agree to indemnify Seller (their heirs, personal
representatives, successors and assigns)
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against, and hold them harmless from, any and all loss, damage or expense
(including attorneys' fees and costs) that Seller may incur as a result of any
claim, including claims under any Environmental Laws, relating to Buyer's
activities on the Property during Buyer's ownership, operation, or management
of the Property or resulting from conditions present on the Property. For the
purpose of this Paragraph 20, the term Environmental Laws shall mean all
federal, state, and local statutes, regulations, ordinances or other rules
intended to protect the public health and welfare as related to land, water,
groundwater, air, or other aspects of the natural environment. The term
includes, but is not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, 42 U.S.C.
Section Section 9601, et seq., the Clean Air Act, 42 U.S.C. Section Section
1251, et seq., the Toxic Substances Control Act ("TSCA"), 15 U.S.C. Section
Section 2601, et seq., the National Environmental Policy Act ("NEPA"), 42
U.S.C. Section Section 4321, et seq., and any state or local counterparts to
those federal statutes.
21. Governing Law. This Contract shall be construed in accordance with
and governed by the laws of the State of Colorado. The parties hereto agree
that the State courts in El Paso County, Colorado shall have subject matter
jurisdiction and proper venue for any action or proceeding to enforce the terms
of this Agreement, and by execution hereof, NLC, Buyer and Seller voluntarily
submit to personal jurisdiction of such courts.
22. Survival. The covenants, warranties, representations and agreements
contained in this Agreement shall survive closing and the delivery of the Deed,
and shall not be merged herein.
23. Personal Property. Buyer hereby acknowledges that all fixtures and
improvements on the Property, are accepted "AS IS," in their present condition,
without representations and warranties whatsoever.
24. Counsel. The terms and conditions of this Contract are hereby agreed
to and approved by the parties, after each party hereto has had the benefit of
the advice of their own independent legal counsel.
25. Notices. Any and all notices or other communications between the
parties hereto shall be deemed given and received when delivered personally to
the other party, or three days following deposit thereof with the United States
postal service, postage prepaid, registered or certified, addressed as follows:
If to Seller: Wayne and Sarah Moore
712 Lakeside Avenue
Mobile, Alabama 36693
with copy to: Garth J. Nicholls, Esq.
407 South Tejon
Colorado Springs, Colorado 80903
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If to Buyer: National Gaming Companies, Inc.
Attn: Robert J. Swenson
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
with copy to: Marvin A. Liszt
Diamond, Liszt and Grady, P.A.
9855 West 78th Street, Suite 210
Minneapolis, Minnesota 55344
Notice may also be given by telefax. If notice is given by telefax, then it
shall be deemed received upon receipt of telefax confirmation.
26. Amendment. All understandings between the parties have been expressed
in this Agreement. This Agreement shall not be modified or amended unless in
writing executed by both parties.
27. DISCLOSURE. SPECIAL TAXING DISTRICTS MAY BE SUBJECT TO GENERAL
OBLIGATION INDEBTEDNESS THAT IS PAID BY REVENUES PRODUCED FROM ANNUAL TAX
LEVIES ON THE TAXABLE PROPERTY WITHIN SUCH DISTRICTS. PROPERTY OWNERS IN SUCH
DISTRICTS MAY BE PLACED AT RISK FOR INCREASED MIL LEVIES AND EXCESS TAX BURDENS
TO SUPPORT THE SERVICING OF SUCH DEBT WHERE CIRCUMSTANCES ARISE RESULTING IN
THE INABILITY OF SUCH A DISTRICT TO DISCHARGE SUCH INDEBTEDNESS WITHOUT SUCH
INCREASE IN MIL LEVIES. BUYER SHOULD INVESTIGATE THE DEBT FINANCING
REQUIREMENTS OF THE AUTHORIZED GENERAL OBLIGATION INDEBTEDNESS OF SUCH
DISTRICTS, EXISTING MIL LEVIES OF SUCH DISTRICT SERVING SUCH INDEBTEDNESS AND
THE POTENTIAL FOR AN INCREASE IN SUCH MIL LEVIES.
28. Parties Bound. Subject to the assignment restrictions set forth in
Paragraph 4. hereof, this Agreement shall be binding upon and inure to the
benefit of Buyer and Seller, and their respective heirs, personal
representatives, successors and assigns. In addition, the provisions set forth
in paragraphs 18, 19, 20, 21, and 29 of this Agreement and in this paragraph
shall be binding upon National Lodging Companies, Inc. and its successors and
assigns.
29. Authority. Each person executing this Agreement on behalf of Buyer
and NLC represents and warrants that he/she has full power and authority to
execute the Agreement on behalf of the Buyer and NLC, and such action
constitutes the binding action of the Buyer and NLC.
30. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provisions
shall be fully severable; the Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
the Agreement; and the remaining provision of the Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore,
in lieu of such illegal, invalid or unenforceable provisions, there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid or enforceable.
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31. Captions and Construction. This Agreement and each of its provisions
are to be construed fairly and reasonably and not strictly for or against
either party hereto. The captions are inserted for reference purposes only and
in no way constitute substantive matter to be considered in construing the
terms of this Agreement.
32. Mitigation. Buyer will not take or agree to any mitigation or
remediation of the alleged Wetland's violation without first obtaining Seller's
prior written consent, which consent will not be unreasonably withheld.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date and
year first written above.
Purchaser: Seller:
National Gaming Companies, Inc.
By: /s/ Robert J. Swenson /s/ E. Wayne Moore
-------------------------------- ------------------
Robert J. Swenson, President E. Wayne Moore
/s/ Sarah A. Moore
------------------
Sarah A. Moore
As to paragraphs 18, 19, 20, 21, 28 and 29 only:
National Gaming Companies, Inc.
By: /s/ John Klinkhammer
---------------------
John Klinkhammer, CEO
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EXHIBIT A
PROMISSORY NOTE
$700,00.00 Colorado Springs, Colorado
Principal Sum _____________, 1996
For value received, National Gaming Companies, Inc. a Minnesota corporation
("Maker"), whose address is 9855 West 78th Street, Ste 220, Minneapolis,
Minnesota 55344, promises to pay to the order of E. Wayne Moore and Sarah A.
Moore ("Payee"), at Payee's place of residence in Mobile, Alabama (or at such
other place as Payee may designate), the principal sum of Seven Hundred Thousand
Dollars and no/100's ($700,000.00), together with interest on the unpaid
principal sum outstanding from the date hereof at the rate of nine percent (9%)
per annum. Interest, based on a 365-day year, shall be accrued for the number
of days the principal sum (or any portion thereof is actually outstanding. This
Note shall be payable as follows:
A. During the first year of the Note and until June 1, 1997. Maker shall
pay to the Payee on at least a quarterly basis commencing July 1, 1996, all net
income received by Maker from the parking business conducted on the property
described herein. Net income shall be defined as gross receipts derived from
the parking business less all ordinary and necessary expenses for operating the
business, including employee salaries, real property taxes, liability insurance,
utilities and general maintenance. Expenses for capital improvements to the
parking lot such as paving, installation of lights and excavation to expand the
parking lot, shall not be treated as operating expenses. Net income from all
parking shall be applied to interest due under this Note. In the event that the
net income paid to Seller is less than the accrued interest under the Note for
the first year, the unpaid interest shall be added to the principal balance of
this Note, as of June 1, 1997. In the event the net income from parking is
greater than the accrued interest for the first year, the excess shall be
applied as a partial prepayment of the principal balance of this Note. Maker
agrees that it will conduct a parking lot business on the property (described
herein) and during at least the first year of this Note and will use its best
reasonable efforts to maximize revenues from such business. Maker agrees that
it will charge a fee for parking on such lot comparable to such fees charged by
other parking lots in Cripple Creek, Colorado, but not less that $5.00 per car
per day. Maker will provide Payee with a full accounting of revenues and
expenses of parking lot on a quarterly basis. Payee and their authorized agents
shall have the right to review the books and records of Maker relating to the
parking lot upon request.
B. The remaining balance of principal and accrued interest as of June 1,
1997, shall be paid in 108 equal consecutive monthly installments ammoritized
over 9 years, commencing on June 1, 1997 and continuing on the first day of each
succeeding month through May 1, 2006.
C. The entire remaining balance of principal and accrued interest shall be
due and payable on May 1, 2006.
All payments on this Note shall be applied first to the payment of accrued
interest, and, after all such interest has been paid, any remainder shall be
applied to reduction of the principal balance. All amounts payable hereunder
are payable in lawful money of the United States of America.
The privilege to prepay all or any part of the principal sum from time to
time without penalty is hereby reserved to Maker, provided that any such
principal prepayment shall be accompanied by all interest then accrued, if any,
and provided, further, that any such principal prepayment shall be applied to
discharge the principal sum payments in the inverse order in which any payments
thereon would otherwise become due.
This Note is made in connection with Maker's purchase of the Property (the
"Property") described below from Payee pursuant to that certain Contract to Buy
and Sell Commercial Real Estate dated May ____, 1996 (the "Contract").
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<PAGE> 16
If any payment under this Note, or any part thereof, is not paid within ten
(10) days after the same becomes due, Maker agrees, at the option of Payee, to
pay a "late charge" of ten percent (10%) of the installment due. Said charge
shall be considered due on the date the original payment was due and shall
become part of the principal on said date and shall bear interest thereafter.
The foregoing ten (10) day period shall not be interpreted as constituting a
grace period. Neither the right of the Payee to impose such late charge nor its
aforementioned right to charge default interest shall constitute a waiver of the
Payee's right to insist on timely payment of all installments due hereunder or a
waiver of the Payee's rights to declare a default due to any late payment. Such
charge shall be in addition to all interest on each installment up to the date
such installment is received.
For purposes of this Note, an "Event of Conveyance" shall be defined as any
sale, transfer, conveyance, assignment, hypothecation, encumbrance, mortgage,
pledge as security or other transfer, whether at law or equity of any interest
(including any beneficial interest) in the Property and any "Transfer" described
in the Deed of Trust.
At the option of Payee, the entire unpaid principal sum and all accrued
interest and all other obligations of Maker hereunder shall become immediately
due and payable, without notice or demand, upon the occurrence of any one or
more of the following events of default:
a. Any payment required by this Note or by the Deed of Trust (or any other
instrument securing the Note) is not made in full within ten (10) days of the
date it is due;
b. The failure of Maker to fully perform or comply with the terms and
conditions of and its obligations under this Note, the Deed of Trust, the
Contract, including, but not limited to, Maker's obligations in paragraph 2. of
the contract to provide liability insurance coverage, to timely pay the real
estate taxes on the Property, and to not dilute the Common Stock received by
Seller; and in paragraph 18., 19. and 20. of the Contract to indemnify and
release Payee; or under any instrument now or hereafter given to secure or
guaranty this Note.
c. A breach by National Lodging Companies, Inc. ("NLC") of or the failure
of NLC to fully perform or comply with the terms and conditions of and it
obligations under the Contract including, but not limited to NLC's obligations
under paragraphs 18., 19. and 20. of the Contract to release and indemnify
Payee; or under any other instrument not or hereafter given by NLC to secure or
guaranty this Note.
d. Maker or any guarantor, endorser, assignee, or accommodation party shall
commence, or there shall be commenced against any such party, any case,
proceeding, or other action seeking to have an order for relief entered with
respect to any such party, or to adjudicate any such party as a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution, or composition under any law relating to bankruptcy, insolvency,
reorganization, or relief of debtors or seeking appointment of a receiver,
trustee, custodian, or other similar fiduciary, with respect to any part of any
such party's property;
e. Maker (its affiliates, guarantors, endorsers, accommodation parties,
sister companies, subsidiaries, successors, assigns or any party related to
Maker) defaults on any other debts, obligations, or liabilities to Payee or
defaults on any instrument or agreement executed and delivered to secure any
such debt, obligation or liability;
f. Any default or breach in the performance of any obligation of Maker
hereunder or under any instrument or agreement executed and delivered to secure
payment of this Note or the Deed of Trust.
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<PAGE> 17
g. A default occurs under any other security document or deed of trust now
or hereafter encumbering the Property, or any note which said documents secure.
h. An Event of Conveyance occurs as defined above.
i. Any representation made by Maker or any endorser or guarantor herein, in
the Contract, or in any certificate, agreement, or statements furnished to Payee
by or on behalf of Maker shall prove to have been inaccurate in any substantial
and material respect when made or furnished.
Maker's obligations on this Note are secured by a first lien deed of trust
(hereinafter "Deed of Trust") of even date herewith, on property (the
"Property") located in Teller County, Colorado, and described as follows:
Lots 1 through 15, Block 26, Fremont Addition, now Cripple Creek, county of
Teller, State of Colorado.
Accordingly, at the option of Payee, the unpaid balance of this Note and
all other obligations of Maker hereunder shall become immediately due and
payable, without notice or demand, if a default or event of acceleration occurs
under the Deed of Trust or any other documents securing this Note.
Upon the occurrence of any default under this Note or under the Deed of
Trust (or any other instrument securing this Note) any unpaid principal and
accrued interest then due shall, from and after the date of such default, bear
interest at the rate of twelve percent (12%) per annum until the default shall
have been cured to the satisfaction of Payee in their sole discretion. If any
sum owed on this Note or pursuant to the Deed of Trust remains unpaid at the
maturity date of the Note, it shall bear interest at the Default Rate from the
date due until the date paid.
Furthermore, if any event of the default under this Note shall occur, Payee
may exercise any of the remedies upon default set forth in the Deed of Trust or
any other instrument securing this Note. Neither delay on the part of Payee in
exercising any right, nor the partial exercise or partial waiver of any right,
shall constitute a waiver of Payee's rights to exercise the default remedies set
forth herein in the future.
Payee may employ legal counsel for advice with respect to this Note or the
security securing payment of the same, or to attempt to collect, defend,
interpret or to endorse this Note or any instrument securing same, including a
foreclosure under the Deed of Trust. In any such events, all reasonable
attorneys fees arising from such suit, proceeding, defense, enforcement and any
expenses, costs, disbursements and charges relating thereto shall be an
additional liability owing hereunder to Payee, payable upon demand.
This Note shall be governed as to validity, interpretation, construction,
effect and in all other respects by the laws and decisions of the State of
Colorado. Maker, and any endorsers, sureties and guarantors, agree that the
state courts located in El Paso County, Colorado, and located in Mobile County,
Alabama shall have subject matter jurisdiction and proper venue to entertain any
action brought to enforce or collect upon this Note and, by execution hereof,
voluntarily submit to personal jurisdiction of such courts; provided, however,
such jurisdiction shall not be exclusive and, at its option, Payee may commence
such action in any other court which otherwise has jurisdiction.
Maker, and any endorsers, sureties and guarantors, of this Note jointly and
severally waives demand for payment, presentment for payment, notice of
nonpayment or dishonor, protest and notice of protest, and agree to any
extension of time of payment and partial payments before, at or after maturity.
No renewal or extension of this Note, no release or surrender of any security
for this Note, no release of any person liable thereon, no delay in the
enforcement hereof, and no delay or omission in exercising any right or power
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<PAGE> 18
hereunder, shall affect the liability of Maker. No delay or omission by Payee
in exercising any power or right hereunder shall impair such right or power or
be construed to be a waiver of any default, nor shall any single or partial
exercise of any power or right hereunder preclude any or full exercise thereof
or the exercise of any other right or power. Each legal holder hereof shall
have and may exercise all the rights and powers given to Payee herein. This
Note and all obligations evidenced hereby shall be binding upon the heirs,
executors, administrators, successors, assigns and legal representatives of the
Maker and shall inure to the benefit of the Payee and their heirs, executors,
administrators, successors, assigns and legal representatives. Maker certifies
that the loan evidenced by the note is made for business purposes. The
liability of all parties who are or who become liable under this Note shall be
joint and several.
The invalidity of any of the provisions of this Note or any paragraph,
sentence, clause, phrase or word herein shall not affect the validity of the
remainder of this Note. Time is of the essence of this Note. Any delay on the
part of Payee in exercising any right or insisting upon performance, shall not
constitute a waiver of Payee's right to exercise these rights or insist upon
these performances in the future.
"Maker"
National Gaming Companies, Inc.
_______________________________ By: ___________________________
Date President
Attest:
By: _______________________________
_______________________________, Secretary
STATE OF _____________ )
) ss.
COUNTY OF ____________ )
The foregoing Promissory Note was acknowledged before me this ____ day of
______________, 1996, by _______________________________, the President and CEO
of National Gaming Companies, Inc.
Witness my hand and official seal.
My Commission expires: _____________________
_______________________________
Notary Public
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<PAGE> 19
EXHIBIT B
DEED OF TRUST
(Due on Transfer - Strict)
THIS DEED OF TRUST is made on this __ of _______________________, 1996,
between National Gaming Companies, Inc., a Minnesota corporation (Borrower),
whose address is 9855 West 78th Street, Suite 220, Minneapolis, Minnesota 55344;
and the Public Trustee of the County in which the Property (see paragraph 1) is
situated (Trustee); for the benefit of E. Wayne and Sarah A. Moore (Lender),
whose address is 712 Lakeside Avenue, Mobile, Alabama 36693.
Borrower and Lender covenant and agree as follows:
1. Property in Trust. Borrower, in consideration of the indebtedness
herein recited and the trust herein created, hereby grants and conveys to
Trustee in trust, with power of sale, the following described property located
in the County of Teller, State of Colorado:
Lots 1 through 15, Block 26, Fremont, (now Cripple Creek), Colorado,
together with all improvements and appurtenances (Property).
2. Note; Other Obligations Secured. This Deed of Trust is given to
secure to Lender:
a. the repayment of the indebtedness evidenced by Borrower's note (Note)
dated ____________________________, 1996, in the principal sum of Seven Hundred
Thousand and no/100 U.S. Dollars ($700,000.00), with interest on the unpaid
principal balance from the date thereof, until paid, at the rate of nine percent
(9%) per annum, with principal and interest payable at 712 Lakeside Avenue,
Mobile, Alabama 36693, or such other place as the Lender may designate, as
follows:
1) During the first year of the Note and until June 1, 1997.
Borrower shall pay to the Lender on at least a quarterly basis commencing July
1, 1996, all net income received by Borrower from the parking business conducted
on the Property. Net income shall be defined as gross receipts derived from the
parking business less all ordinary and necessary expenses for operating the
business, including employee salaries, real property taxes, liability insurance,
utilities and general maintenance. Expenses for capital improvements to the
parking lot such as paving, installation of lights and excavation to expand the
parking lot, shall not be treated as operating expenses. Net income from all
parking shall be applied to interest due under the Note. In the event that the
net income paid to Lender is less than the accrued interest under the Note for
the first year, the unpaid interest shall be added to the principal balance of
the Note, as of June 1, 1997. In the event the net income from parking is
greater than the accrued interest for the first year, the excess shall be
applied as a partial prepayment of the principal balance of the Note. Borrower
agrees that it will conduct a parking lot business on the Property during at
least the first year of the Note and will use its best reasonable efforts to
maximize revenues from such business. Borrower agrees that it will charge a fee
for parking on such lot comparable to such fees charged by other parking lots in
Cripple Creek, Colorado, but not less than $5.00 per car per day. Borrower will
provide Lender with a full accounting of revenues and expenses of the parking
lot on a quarterly basis. Lender and their authorized agents shall have the
right to review the books and records of Borrower relating to the parking lot
upon request.
2) The remaining balance of principal and accrued interest as of
June 1, 1997, shall be paid in 108 equal consecutive monthly installments
amortized over 9 years, commencing on June 1, 1997 and continuing on the first
day of each succeeding month through May 1, 2006.
3) The entire remaining balance of principal and accrued interest
shall be due and payable on May 1, 2006; and
4) Borrower is to pay to Lender a late charge of ten percent (10%)
of any payment not received by the Lender within ten (10) days after payment is
due; and Borrower has the right to prepay the principal amount outstanding under
said Note, in whole or in part, at any time without penalty; and Borrower is to
pay interest on the outstanding principal balance of the Note at a rate of
twelve percent (12%) per annum during any default under this Deed of Trust and
under the Note.
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<PAGE> 20
b. the payment of all other sums, with interest thereon at twelve percent
(12%) per annum, disbursed by Lender in accordance with this Deed of Trust to
protect the security of this Deed of Trust; and
c. the prompt performance of the covenants and agreements of Borrower
contained in the Note, this Deed of Trust, any other instrument securing the
debt, and that certain Contract to Buy and Sell Commercial Real Estate dated
___________________, 1996 (the "Contract").
3. Title. Borrower covenants that Borrower owns and has the right to
grant and convey the Property, and warrants title to the same, subject to
general real estate taxes for the current year, easements of record or in
existence, and recorded declarations, restrictions, reservations and covenants,
if any, as of this date.
4. Payment of Principal and Interest. Borrower shall promptly pay when
due the principal of and interest on the indebtedness evidenced by the Note, and
late charges as provided in the Note and shall perform all of Borrower's other
covenants contained in the Note.
5. Application of Payments. All payments received by Lender under the
terms hereof shall be applied by Lender first in payment of amounts due pursuant
to paragraph 23, then to amounts disbursed by Lender pursuant to paragraph 9
(Protection of Lender's Security), and the balance in accordance with the terms
and conditions of the Note.
6. [Reserved]
7. Property Insurance. Borrower shall keep the improvements now
existing or hereafter erected on the Property insured against loss by fire or
hazards included within the term "extended coverage" in an amount at least equal
to the lessor of, (1) the full replacement value of the Property and any
improvements thereon, or (2) an amount sufficient to pay the sums secured by
this Deed of Trust as well as any prior encumbrances on the Property. All of
the foregoing shall be known as "Property Insurance."
The insurance carrier providing the insurance shall be qualified to write
Property Insurance in Colorado and shall be chosen by Borrower subject to
Lender's right to reject the chosen carrier for reasonable cause. Purchaser is
required to supply Seller during all of the term of the loan with a certificate
of insurance showing liability coverage in amounts suitable to Seller. All
insurance policies and renewals thereof shall include a standard mortgage clause
in favor of Lender, and shall provide that the insurance carrier shall notify
Lender at least thirty (30) days before cancellation, termination or any
material change of coverage. Insurance policies shall be furnished to Lender at
or before closing. Lender shall have the right to hold the policies and
renewals thereof.
In the event of loss, Borrower shall give prompt notice to the insurance
carrier and Lender. Lender may make proof of loss if not made promptly by
Borrower.
Insurance proceeds shall be applied to restoration or repair of the
Property damaged, provided such restoration or repair is economically feasible
and the security of this Deed of Trust is not thereby impaired. If such
restoration or repair is not economically feasible or if the security of this
Deed of Trust would be impaired, the insurance proceeds shall be applied to the
sums secured by this Deed of Trust, with the excess, if any, paid to Borrower.
If the Property is abandoned by Borrower, or if Borrower fails to respond to
Lender within thirty (30) days from the date notice is given in accordance with
paragraph 16 (Notice) by Lender to Borrower that the insurance carrier offers to
settle a claim for insurance benefits, Lender is authorized to collect and apply
the insurance proceeds, at Lender's option, either to restoration or repair of
the Property or to the sums secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) and 23 or change in the amount of such installments.
Notwithstanding anything herein to the contrary, if under paragraph 18
(Acceleration; Foreclosure; Other Remedies), the Property is acquired by Lender,
all right, title and interest of Borrower in and to any insurance policies and
in and to the proceeds thereof resulting from damage to the Property prior to
the sale or acquisition shall pass to Lender to the extent of the sums secured
by this Deed of Trust immediately prior to such sale or acquisition.
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<PAGE> 21
All of the rights of Borrower and Lender hereunder with respect to
insurance carriers, insurance policies and insurance proceeds are subject to the
rights of any holder of a prior deed of trust with respect to said insurance
carriers, policies and proceeds.
8. Preservation and Maintenance of Property. Borrower shall keep the
Property in good repair and shall not commit waste or permit impairment or
deterioration of the Property and shall comply with the provisions of any lease
if this Deed of Trust is on a leasehold. Borrower shall perform all of
Borrower's obligations under any declarations, covenants, by-laws, rules , or
other documents governing the use, ownership or occupancy of the Property,
provided that same do not materially adversely affect the value of the Property.
9. Protection of Lender's Security. Except when Borrower has exercised
Borrower's rights under paragraph 6 above, if the Borrower fails to perform the
covenants and agreements contained in this Deed of Trust, or if a default occurs
in a prior lien, or if any action or proceeding is commenced which materially
affects Lender's interest in the Property, then Lender, at Lender's option, with
notice to Borrower if required by law, may make such appearances, disburse such
sums and take such action as is necessary to protect Lender's interest,
including, but not limited to disbursement of reasonable attorney's fees and
entry upon the Property to make repairs. Borrower hereby assigns to Lender any
right Borrower may have by reason of any prior encumbrance on the Property or by
law or otherwise to cure any default under said prior encumbrance.
Any amounts disbursed by Lender pursuant to this paragraph 9, with interest
thereon, shall become additional indebtedness of Borrower secured by this Deed
of Trust. Such amounts shall be payable upon notice from Lender to Borrower
requesting payment thereof, and Lender may bring suit to collect any amounts so
disbursed plus interest specified in paragraph 2.b. (Note; Other Obligations
Secured). Nothing contained in this paragraph 9 shall require Lender to incur
any expense or take any action hereunder.
10. Inspection. Lender may make or cause to be made reasonable entries
upon and inspection of the Property, provided that Lender shall give Borrower
notice prior to any such inspection specifying reasonable cause therefore
related to Lender's interest in the Property.
11. Condemnation. The proceeds of any award or claim for damages, direct
or consequential, in connection with any condemnation or other taking of the
Property, or part thereof, or for any conveyance in lieu of condemnations, are
hereby assigned and shall be paid to Lender as herein provided. However, all of
the rights of Borrower and Lender hereunder with respect to such proceeds are
subject to the rights of any holder of a prior deed of trust.
In the event of a total or partial taking of the Property, the proceeds
shall be applied to the sums secured by this Deed of Trust, with the excess, if
any, paid by Borrower.
If the Property is abandoned by Borrower, or if, after notice by Lender to
Borrower that the condemnor offers to make an award or settle a claim for
damages, Borrower fails to respond to Lender within thirty (30) days after the
date such notice is given, Lender is authorized to collect and apply the
proceeds, at Lender's option, either to restoration or repair of the Property or
to the sums secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) and 23 (Escrow Funds for Taxes and Insurance) nor change
the amount of such installments.
12. Borrower Note Released. Extension of the time for payment or
modification of amortization of sums secured by this Deed of Trust granted by
Lender to any successor in interest of Borrower shall not operate to release, in
any manner, the liability of the original Borrower, nor Borrower's successors in
interest, from the original terms of this Deed of Trust. Lender shall not be
required to commence proceedings against such successor or refuse to extend time
for payment or otherwise modify amortization of the sums secured by this Deed of
Trust by reason of any demand made by the original Borrower's successors in
interest.
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<PAGE> 22
13. Forbearance by Lender Not a Waiver. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by law, shall
not be a waiver or preclude the exercise of any such right or remedy.
14. Remedies Cumulative. Each remedy provided in the Note and this Deed
of Trust is distinct from and cumulative to all other rights or remedies under
the Note and this Deed of Trust or afforded by law or equity, and may be
exercised concurrently, independently, or successively.
15. Successors and Assigns Bound; Joint and Several Liability; Captions.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective successors and assigns of Lender and
Borrower, subject to the provisions of paragraph 24 (Transfer of the Property;
Assumption). All covenants and agreements of Borrower shall be joint and
several. The captions and headings of the paragraphs in this Deed of Trust are
for convenience only and are not to be used to interpret or define the
provisions hereof.
16. Notice. Except for any notice required by law to be given in another
manner, (a) any notice to Borrower provided for in this Deed of Trust shall be
in writing and shall be given and be effective upon (1) delivery to Borrower or
(2) mailing such notice by first-class U.S. mail, addressed to Borrower at
Borrower's address stated herein or at such other address as Borrower may
designate by notice to Lender as provided herein, and (b) any notice to Lender
shall be in writing and shall be given and be effective upon (1) delivery to
Lender or (2) mailing such notice by first-class U.S. mail, to Lender's address
stated herein or to such other address as Lender may designate by notice to
Borrower as provided herein. Any notice provided for in this Deed of Trust
shall be deemed to have been given to Borrower or Lender when given in any
manner designated herein.
17. Governing Law; Severability. The Note and this Deed of Trust shall
be governed by the law of Colorado. In the event that any provision or clause
of this Deed of Trust or the Note conflicts with the law, such conflict shall
not affect other provisions of this Deed of Trust or the Note which can be given
effect without the conflicting provision, and to this end the provisions of the
Deed of Trust and Note are declared to be severable.
18. Acceleration; Foreclosure; Other Remedies. Except as provided in
paragraph 24 (Transfer of the Property; Assumption), upon Borrower's breach of
any covenant or agreement of Borrower in the Note or in this Deed of Trust, or
upon the occurrence of any Event of Default as set forth below, at Lender's
option, all of the sums secured by this Deed of Trust shall be immediately due
and payable (Acceleration). To exercise this option, Lender may invoke the
power of sale and any other remedies permitted by law. Lender shall be entitled
to collect all reasonable costs and expenses incurred in pursuing the remedies
provided in the Note and this Deed of Trust, including, but not limited to,
reasonable attorney's fees.
If Lender invokes the power of sale, Lender shall give written notice to
Trustee of such election. Trustee shall give such notice to Borrower of
Borrower's rights as is provided by law. Trustee shall record a copy of such
notice as required by law. Trustee shall advertise the time and place of the
sale of the Property, for not less than four (4) weeks in a newspaper of general
circulation in each county in which the Property is situated, and shall mail
copies of such notice of sale to Borrower and other persons as prescribed by
law. After the lapse of such time as may be required by law, Trustee, without
demand on Borrower, shall sell the Property at public auction to the highest
bidder for cash at the time and place (which may be on the Property or any part
thereof as permitted by law) in one or more parcels as Trustee may think best
and in such order as Trustee may determine. Lender or Lender's designee may
purchase the Property at any sale. It shall not be obligatory upon the
purchaser at any such sale to see to the application of the purchase money.
Trustee shall apply the proceeds of the sale in the following order: (a)
to all reasonable costs and expenses of the sale, including, but not limited to,
reasonable Trustee's and attorney's fees and costs of title evidence; (b) to all
sums secured by this Deed of Trust; and (c) the excess, if any, to the person or
persons legally entitled thereto.
The occurrence of any one or more of the following shall be deemed to be an
Event of Default hereunder:
a. Any payment required by the Note or by this Deed of Trust (or any
other instrument securing the Note) is not made in full within ten (10) days of
the date it is due;
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<PAGE> 23
b. The failure of Borrower to fully perform or comply with the
terms and conditions of and its obligations under the Note, this Deed of Trust,
the Contract, including, but not limited to, Borrower's obligations in paragraph
2. of the Contract to provide liability insurance coverage, to timely pay the
real estate taxes on the Property, and to not dilute the Common Stock received
by Lender; and in paragraph 18., 19. and 20. of the Contract to indemnify and
release Lender; or under any instrument now or hereafter given to secure or
guaranty the Note.
c. A breach by National Lodging Companies, Inc. ("NLC") of or the
failure of NLC to fully perform or comply with the terms and conditions of its
obligations under the Contract including, but not limited to NLC's obligations
under paragraphs 18., 19. and 20. of the Contract to release and indemnify
Lender; or under any other instrument now or hereafter given by NLC to secure or
guaranty the Note.
d. Borrower or any guarantor, endorser, or accommodation party
under the Note (or any successors or assigns) shall commence, or there shall be
commenced against any such party, any case, proceeding, or other action seeking
to have an order for relief entered with respect to any such party, or to
adjudicate any such party as a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution, or composition under any law
relating to bankruptcy, insolvency, reorganization, or relief of debtors or
seeking appointment of a receiver, trustee, custodian, or other similar
fiduciary, with respect to any part of any such party's property;
e. Borrower (its affiliates, guarantors, endorsers, accommodation
parties, sister companies, subsidiaries, successors, assigns or any party
related to Borrower) defaults on any other debts, obligations, or liabilities to
Lender or defaults on any instrument or agreement executed and delivered to
secure any such debt, obligation or liability;
f. Any default or breach in the performance of any obligation of
Borrower hereunder or under any instrument or agreement executed and delivered
to secure payment of the Note or the Deed of Trust.
g. A default under any other security document or deed of trust now
or hereafter encumbering the Property, or any note which said documents secure.
h. A Transfer occurs as defined herein.
i. Any representation made by Borrower or any endorser or guarantor
under the Note, in the Contract, or in any certificate, agreement, or statements
furnished to Lender by or on behalf of Borrower shall prove to have been
inaccurate in any substantial and material respect when made or furnished.
j. Any other event occurs which under the Note, this Deed of Trust
or any other instrument securing same constitutes a default or gives the right
to accelerate the maturity of the indebtedness.
k. Any failure by Borrower to discharge or defend a mechanic's lien
placed against the Property, as provided in paragraph 26. hereof.
19. Borrower's Right to Cure Default. Whenever foreclosure is commenced
for nonpayment of any sums due hereunder, the owners of the Property or parties
liable hereon shall be entitled to cure said defaults by paying all delinquent
principal and interest payments due as of the date of cure, costs, expenses,
late charges, attorney's fees and other fees all in the manner provided by law.
Upon such payment, this Deed of Trust and the obligations secured hereby shall
remain in full force and effect as though no Acceleration had occurred, and the
foreclosure proceedings shall be discontinued.
20. Assignment of Rents; Appointment of Receiver; Lender in Possession.
As additional security hereunder, Borrower hereby assigns to Lender the rents of
the Property; however, Borrower shall, prior to Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies) or abandonment of the Property, have
the right to collect and retain such rents as they become due and payable.
Lender or the holder of the Trustee's certificate of purchase shall be
entitled to a receiver for the Property after Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies), and shall also be so entitled
during the
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<PAGE> 24
time covered by foreclosure proceedings and the period of redemption, if any;
and shall be entitled thereto as a matter of right without regard to the
solvency or insolvency of Borrower or of the then owner of the Property, and
without regard to the value thereof. Such receiver may be appointed by any
Court of competent jurisdiction upon ex parte application and without notice -
notice being hereby expressly waived. The receiver shall not be required to
post a bond, and Borrower hereby waives such requirement.
Upon Acceleration under paragraph 18 (Acceleration; Foreclosure; Other
Remedies) or abandonment of the Property, Lender, in person, by agent or by
judicially-appointed receiver, shall be entitled to enter upon, take possession
of and manage the Property and to collect the rents of the Property including
those past due. All rents collected by Lender or the receiver shall be applied
first, to payment of the costs of preservation and management of the Property,
second, to the payments due upon prior liens, and then to the sums secured by
this Deed of Trust. Lender and the receiver shall be liable to account only for
those rents actually received.
21. Release. Upon payment of all sums secured by this Deed of Trust,
Lender shall cause Trustee to release this Deed of Trust and shall produce for
Trustee the Note. Borrower shall pay all costs of recordation and shall pay the
statutory Trustee's fees. If Lender shall not produce the Note as aforesaid,
then Lender, upon notice in accordance with paragraph 16 (Notice) from Borrower
to Lender, shall obtain, at Lender's expense, and file any lost instrument bond
required by Trustee or pay the cost thereof to effect the release of this Deed
of Trust.
22. Waiver of Exemptions. Borrower hereby waives all right of homestead
and any other exemption in the Property under state or federal law presently
existing or hereafter enacted.
23. Taxes and Insurance. Borrower shall pay or cause to be paid in full
when due, and in any event before any penalty or interest attaches, all general
taxes and assessments, special taxes and assessments, water charges, sewer
service charges, and all other charges against the Property and shall furnish
the Lender official receipts evidencing the payment thereof within thirty (30)
days of a written request therefor by the Lender. Borrower shall deliver to
Lender copies of official receipts showing payment of all real and personal
property taxes and assessments levied against the Property, within thirty (30)
days of the date on which taxes and assessments were due.
24. Transfer of the Property; Assumption. The following events shall be
referred to herein as a "Transfer": (i) a transfer or conveyance of title (or
any portion thereof, legal or equitable) of the Property (or any part thereof or
interest therein); (ii) the execution of a contract or agreement creating a
right to title (or any portion thereof, legal or equitable) in the Property (or
any part thereof or interest therein); (iii) or an agreement granting a
possessory right in the Property (or any portion thereof); (iv) a sale or
transfer of, or the execution of a contract or agreement creating a right to
acquire or receive, more than fifty percent (50%) of the controlling interest or
more than fifty percent (50%) of the beneficial interest in the Borrower; (v)
the reorganization, liquidation or dissolution of the Borrower; and or (vi) the
creation of any lien or encumbrance against the Property. At the election of
Lender, in the event of each and every Transfer:
a. All sums secured by this Deed of Trust shall become immediately
due and payable (Acceleration).
b. If a Transfer occurs and should Lender not exercise Lender's
option pursuant to this paragraph 24 to Accelerate, Transferee shall be deemed
to have assumed all of the obligations of Borrower under this Deed of Trust
including all sums secured hereby whether or not the instrument evidencing such
conveyance, contract or grant expressly so provides. This covenant shall run
with the Property and remain in full force and effect until said sums are paid
in full. The Lender may without notice to Borrower deal with Transferee in the
same manner as with the Borrower with reference to said sums including the
payment or credit to Transferee of undisbursed reserve Funds on payment in full
of said sums, without in any way altering or discharging the Borrower's
liability hereunder for the obligations hereby secured.
c. Should Lender not elect to Accelerate upon the occurrence of
such Transfer then, subject to (b) above, the mere fact of lapse of time or the
acceptance of payment subsequent to any of such events, whether or not Lender
had actual or constructive notice such Transfer, shall not be deemed a waiver of
Lender's right to make such election nor shall Lender be estopped therefrom by
virtue thereof. The issuance on behalf of the Lender of a routine statement
showing the status of the loan, whether or not Lender had actual or constructive
notice of such Transfer, shall
6
<PAGE> 25
not be a waiver or estoppel of Lender's said rights. The Borrower specifically
acknowledges that it agrees to the foregoing transfer restriction in order to
induce the Lender to make the loan secured hereby.
25. Borrower's Copy. Borrower acknowledges receipt of a copy of the
Note and this Deed of Trust.
26. Mechanics Liens. Borrower will keep the Property free and clear of
all liens and claims of liens by contractors, subcontractors, mechanics,
laborers, materialmen, and other such persons, and will cause any recorded
statement of any such lien to be released of record within thirty (30) days
after the recording thereof. Notwithstanding the preceding sentence, however,
Borrower will not be deemed to be in default under this section if and so long
as: (a) Borrower contests in good faith, the validity or amount of the asserted
lien and diligently prosecutes or defends an action appropriate to obtain a
binding determination of the disputed matter, and (b) provides Lender with such
security as Lender may reasonably require to protect Lender against all loss,
damage and expenses, including attorneys fees, which Lender might incur if the
asserted lien is determined to be valid.
27. Defensive Actions. Borrower will defend, at their expense, any
action, proceeding or claim which affects the Property encumbered hereby or any
interest of Lender in the Property and will indemnify and hold Lender harmless
from all loss, damage, cost, or expense, including attorneys fees, which Lender
may incur in connection therewith.
28. Enforcement. Lender shall be entitled to collect all of its costs
and expenses incurred including reasonable attorneys fees and costs in the event
any action is brought to interpret or enforce the terms of this Deed of Trust.
29. Assumption. Notwithstanding any provisions of said Deed of Trust,
the holder of the Note secured by this Deed of Trust shall have not duty of
"good faith" or otherwise to allow assumption of said Note or this Deed of
Trust, and may, with or without cause, accelerate all amounts owed in the event
of sale, conveyance, alienation, disposal or other "transfer" of the Property as
described in this Deed of Trust.
BORROWER:
National Gaming Companies, Inc.,
a Minnesota corporation
By: _____________________
Its: ________________
STATE OF MINNESOTA )
)
COUNTY OF__________ )
Subscribed and sworn to before me this __ day of June, 1996, by
_______________, the____ of National Gaming Companies, Inc., a Minnesota
corporation.
Witness my hand and official seal.
My commissions expires: ____________________
_________________
Address:
_________________
_________________
7
<PAGE> 26
EXHIBIT C
CONTRACT TO BUY AND SELL LAND
COMMERCIAL REAL ESTATE
MOORE TO NATIONAL GAMING
TICOR TITLE INSURANCE COMPANY ISSUED BY:
Pikes Peak Title Service, Inc.
COMMITMENT FOR TITLE INSURANCE P.O. Box 6040 - 471 S. Baldwin
Woodland Park, CO 80866
(719) 687-9211 / 1-800-999-9211
- --------------------------------------------------------------------------------
Purported Street Address:
Reference No.:
Commitment No.: TLC29196
CLOSER: CLOSING DEPT.
TITLE OFFICER: LINDA LINGLE
TICOR TITLE INSURANCE COMPANY, (a stock company), a California corporation,
herein called the Company, for a valuable consideration, hereby commits to
issue its policy or policies of title insurance, as identified in Schedule A,
in favor of the proposed Insured named in Schedule A, as owner or mortgagee of
the estate or interest covered hereby in the land described or referred to in
Schedule A upon payment of the premiums and charges therefor; all subject to
the provisions of Schedules A and B and to the Conditions and Stipulations
hereof.
SCHEDULE A
1. Effective date of this commitment is JANUARY 23, 1996 at 8:00 A.M.
2. Policy or policies to be issued: AMOUNT PREMIUM
(a) ALTA Owner's Policy $1,200,000.00 $2,535.00 REGULAR
Proposed Insured
NATIONAL LODGING COMPANIES, INC., A MINNESOTA CORPORATION
(b) ALTA Loan Policy $ TBD $75.00
Proposed Insured
TO BE DETERMINED
Additional Charges:
Certificate(s) of Taxes Due: $60.00
Extra Chain/Search Chg:
End Form:
End Form:
End Form:
End Form:
<PAGE> 27
SCHEDULE A (continued)
3. The estate or interest in the land described or referred to in this
commitment and covered herein is fee simple and title thereto is at the
effective date hereof vested in:
E. WAYNE MOORE AND SARAH A. MOORE
4. The land referred to in this commitment is described as follows:
The Surface only of
Lots 1 thru 15,
Block 25,
FREMONT (now Cripple Creek),
Teller County, Colorado
<PAGE> 28
SCHEDULE B - SECTION 1
REQUIREMENTS
The following are requirements to be complied with:
Payment to or for the account of the grantors or mortgagors of the full
consideration for the estate or interest to be insured.
Acceptable instrument(s) creating the estate or interest to be insured must be
executed and duly filed for record, to wit:
1. Warranty Deed from Seller(s) to Buyer(s) conveying the land described
herein. NOTE: A duly executed real property transfer declaration, signed
by either the grantor or the grantee, should accompany this document.
2. Deed of Trust from the Borrower(s) to the Public Trustee for the use of
the Lender.
3. Deed from Grand National Hotel & Casino, Inc., a Colorado corporation,
properly relinquishing all interest it might have in subject property by
virtue of Assignment recorded May 12, 1994 at Reception No. 420341.
4. Deed from Ron Ortner Productions, Inc., properly relinquishing all
interest it might have in subject property as reflected by Assignment
recorded May 12, 1994 at Reception No. 420341.
NOTE: The above two deeds must either run to the purchaser hereunder or
to some party conveying to the purchaser.
5. Certificate of Incorporation or of Good Standing of NATIONAL LODGING
COMPANIES, INC,, A MINNESOTA CORPORATION.
6. Resolution of the governing board of NATIONAL LODGING COMPANIES, INC., a
MINNESOTA Corporation, authorizing the within contemplated transaction;
said Resolution must contain an acknowledged certification by an officer
of said corporation with the corporate seal affixed.
NOTE: This commitment is issued contingent upon approval of the
underwriter, TICOR TITLE INSURANCE COMPANY. Following approval, this
contingency will be deleted, but any parties relying hereon should first
ascertain that this note has been deleted prior to closing the
contemplated transaction. The company reserves the right to assert
additional requirements as part of the deletion of this contingency.
<PAGE> 29
SCHEDULE B - SECTION 2
EXCEPTIONS
The policy or policies to be issued will contain exceptions for any and all
unpaid taxes and assessments and exceptions to the following unless the same
are disposed of to the satisfaction of the Company:
1. Rights or claims of parties in possession not shown by the public
records; water rights, claims or title to water.
2. Easements, or claims of easements, not shown by the public records.
3. Discrepancies, conflicts in boundary lines, shortage in area,
encroachments, and any facts which a correct survey and inspection of the
premises would disclose and which are not shown by the public records.
4. Any lien, or right to a lien, for services, labor, or material heretofore
or hereafter, furnished, imposed by law and not shown by the public
records.
5. Defects, liens, encumbrances, adverse claims, or other matters, if any,
created, first appearing in the public records or attaching subsequent to
the effective date hereof but prior to the date the proposed insured
acquires for value of record the estate or interest or mortgage thereon
covered by this Commitment.
6. Taxes for the year 1996, a lien, but not yet due and payable.
7. Right of way for existing roads, ditches, flumes, pipes and power lines,
and easements therefor, insofar as the same might affect subject property.
8. Reservations of all mineral rights as contained in various documents of
record.
9. Easement as described in document recorded July 21, 1992 in Book 616 Page
10. See copy(s).
IF THE LAND DESCRIBED IN SCHEDULE A OF THIS COMMITMENT FOR TITLE INSURANCE IS
SINGLE FAMILY RESIDENCE (INCLUDING A CONDOMINIUM OR TOWNHOUSE UNIT), THE
PROPOSED OWNER'S POLICY INSURED IS NOTIFIED:
1. Colorado Insurance Regulations requires that every title entity shall be
responsible for all matters which appear of record prior to the time of
recording whenever the title entity conducts the closing and is
responsible for recording or filing of legal documents resulting from the
transaction which was closed;
2. Exception No. 4 of Schedule B, Section 2 may be deleted from the owner's
policy, when issued, upon satisfaction of underwriting requirements.
These requirements may include indemnity agreements, approval of financial
status of an indemnitor, examination of lien waivers, a physical
inspection of the property and/or such additional requirements or
information as the Company may deem necessary.
<PAGE> 30
DISCLOSURE STATEMENT
Colorado Revised Statutes Section 10-11-122 requires that "every title
insurance agent or title insurance company shall provide, along with each title
commitment issued, for the sale of residential real property as defined in
Section 39-1-102(14.5), C.R.S., a statement disclosing the following
information:
(A) That the subject real property may be located in a special taxing
district;
(B) That a certificate of taxes due listing each taxing jurisdiction may be
obtained from the county treasurer or the county treasurer's authorized
agent;
(C) That information regarding special districts and the boundaries of such
districts may be obtained from the Board of County Commissioners, the
County Clerk and Recorder or the County Assessor."
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
$700,00.00 Colorado Springs, Colorado
Principal Sum June 14th, 1996
For value received, National Gaming Companies, Inc. a Minnesota corporation
("Maker"), whose address is 9855 West 78th Street, Ste 220, Minneapolis,
Minnesota 55344, promises to pay to the order of E. Wayne Moore and Sarah A.
Moore ("Payee"), at Payee's place of residence in Mobile, Alabama (or at such
other place as Payee may designate), the principal sum of Seven Hundred Thousand
Dollars and no/100's ($700,000.00), together with interest on the unpaid
principal sum outstanding from the date hereof at the rate of nine percent (9%)
per annum. Interest, based on a 365-day year, shall be accrued for the number
of days the principal sum (or any portion thereof is actually outstanding. This
Note shall be payable as follows:
A. During the first year of the Note and until June 1, 1997. Maker shall
pay to the Payee on at least a quarterly basis commencing July 1, 1996, all net
income received by Maker from the parking business conducted on the property
described herein. Net income shall be defined as gross receipts derived from
the parking business less all ordinary and necessary expenses for operating the
business, including employee salaries, real property taxes, liability insurance,
utilities and general maintenance. Expenses for capital improvements to the
parking lot such as paving, installation of lights and excavation to expand the
parking lot, shall not be treated as operating expenses. Net income from all
parking shall be applied to interest due under this Note. In the event that the
net income paid to Seller is less than the accrued interest under the Note for
the first year, the unpaid interest shall be added to the principal balance of
this Note, as of June 1, 1997. In the event the net income from parking is
greater than the accrued interest for the first year, the excess shall be
applied as a partial prepayment of the principal balance of this Note. Maker
agrees that it will conduct a parking lot business on the property (described
herein) and during at least the first year of this Note and will use its best
reasonable efforts to maximize revenues from such business. Maker agrees that
it will charge a fee for parking on such lot comparable to such fees charged by
other parking lots in Cripple Creek, Colorado, but not less that $5.00 per car
per day. Maker will provide Payee with a full accounting of revenues and
expenses of parking lot on a quarterly basis. Payee and their authorized agents
shall have the right to review the books and records of Maker relating to the
parking lot upon request.
B. The remaining balance of principal and accrued interest as of June 1,
1997, shall be paid in 108 equal consecutive monthly installments ammoritized
over 9 years, commencing on June 1, 1997 and continuing on the first day of each
succeeding month through May 1, 2006.
C. The entire remaining balance of principal and accrued interest shall
be due and payable on May 1, 2006.
All payments on this Note shall be applied first to the payment of accrued
interest, and, after all such interest has been paid, any remainder shall be
applied to reduction of the principal balance. All amounts payable hereunder
are payable in lawful money of the United States of America.
The privilege to prepay all or any part of the principal sum from time to
time without penalty is hereby reserved to Maker, provided that any such
principal prepayment shall be accompanied by all interest then accrued, if any,
and provided, further, that any such principal prepayment shall be
<PAGE> 2
applied to discharge the principal sum payments in the inverse order in which
any payments thereon would otherwise become due.
This Note is made in connection with Maker's purchase of the Property (the
"Property") described below from Payee pursuant to that certain Contract to Buy
and Sell Commercial Real Estate dated May 16th, 1996 (the "Contract").
If any payment under this Note, or any part thereof, is not paid within
ten (10) days after the same becomes due, Maker agrees, at the option of Payee,
to pay a "late charge" of ten percent (10%) of the installment due. Said
charge shall be considered due on the date the original payment was due and
shall become part of the principal on said date and shall bear interest
thereafter. The foregoing ten (10) day period shall not be interpreted as
constituting a grace period. Neither the right of the Payee to impose such
late charge nor its aforementioned right to charge default interest shall
constitute a waiver of the Payee's right to insist on timely payment of all
installments due hereunder or a waiver of the Payee's rights to declare a
default due to any late payment. Such charge shall be in addition to all
interest on each installment up to the date such installment is received.
For purposes of this Note, an "Event of Conveyance" shall be defined as
any sale, transfer, conveyance, assignment, hypothecation, encumbrance,
mortgage, pledge as security or other transfer, whether at law or equity of any
interest (including any beneficial interest) in the Property and any "Transfer"
described in the Deed of Trust.
At the option of Payee, the entire unpaid principal sum and all accrued
interest and all other obligations of Maker hereunder shall become immediately
due and payable, without notice or demand, upon the occurrence of any one or
more of the following events of default:
a. Any payment required by this Note or by the Deed of Trust (or any
other instrument securing the Note) is not made in full within ten (10) days of
the date it is due;
b. The failure of Maker to fully perform or comply with the terms and
conditions of and its obligations under this Note, the Deed of Trust, the
Contract, including, but not limited to, Maker's obligations in paragraph 2. of
the contract to provide liability insurance coverage, to timely pay the real
estate taxes on the Property, and to not dilute the Common Stock received by
Seller; and in paragraph 18., 19. and 20. of the Contract to indemnify and
release Payee; or under any instrument now or hereafter given to secure or
guaranty this Note.
c. A breach by National Lodging Companies, Inc. ("NLC") of or the failure
of NLC to fully perform or comply with the terms and conditions of and it
obligations under the Contract including, but not limited to NLC's obligations
under paragraphs 18., 19. and 20. of the Contract to release and indemnify
Payee; or under any other instrument not or hereafter given by NLC to secure or
guaranty this Note.
d. Maker or any guarantor, endorser, assignee, or accommodation party
shall commence, or there shall be commenced against any such party, any case,
proceeding, or other action seeking to have an order for relief entered with
respect to any such party, or to adjudicate any such party as a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution,
2
<PAGE> 3
or composition under any law relating to bankruptcy, insolvency, reorganization,
or relief of debtors or seeking appointment of a receiver, trustee, custodian,
or other similar fiduciary, with respect to any part of any such party's
property;
e. Maker (its affiliates, guarantors, endorsers, accommodation parties,
sister companies, subsidiaries, successors, assigns or any party related to
Maker) defaults on any other debts, obligations, or liabilities to Payee or
defaults on any instrument or agreement executed and delivered to secure any
such debt, obligation or liability;
f. Any default or breach in the performance of any obligation of Maker
hereunder or under any instrument or agreement executed and delivered to secure
payment of this Note or the Deed of Trust.
g. A default occurs under any other security document or deed of trust
now or hereafter encumbering the Property, or any note which said documents
secure.
h. An Event of Conveyance occurs as defined above.
i. Any representation made by Maker or any endorser or guarantor herein,
in the Contract, or in any certificate, agreement, or statements furnished to
Payee by or on behalf of Maker shall prove to have been inaccurate in any
substantial and material respect when made or furnished.
Maker's obligations on this Note are secured by a first lien deed of trust
(hereinafter "Deed of Trust") of even date herewith, on property (the
"Property") located in Teller County, Colorado, and described as follows:
Lots 1 through 15, Block 26, Fremont Addition, now Cripple Creek, county of
Teller, State of Colorado.
Accordingly, at the option of Payee, the unpaid balance of this Note and
all other obligations of Maker hereunder shall become immediately due and
payable, without notice or demand, if a default or event of acceleration occurs
under the Deed of Trust or any other documents securing this Note.
Upon the occurrence of any default under this Note or under the Deed of
Trust (or any other instrument securing this Note) any unpaid principal and
accrued interest then due shall, from and after the date of such default, bear
interest at the rate of twelve percent (12%) per annum until the default shall
have been cured to the satisfaction of Payee in their sole discretion. If any
sum owed on this Note or pursuant to the Deed of Trust remains unpaid at the
maturity date of the Note, it shall bear interest at the Default Rate from the
date due until the date paid.
Furthermore, if any event of the default under this Note shall occur, Payee
may exercise any of the remedies upon default set forth in the Deed of Trust or
any other instrument securing this Note. Neither delay on the part of Payee in
exercising any right, nor the partial exercise or partial waiver of any right,
shall constitute a waiver of Payee's rights to exercise the default remedies set
forth herein in the future.
3
<PAGE> 4
Payee may employ legal counsel for advice with respect to this Note or the
security securing payment of the same, or to attempt to collect, defend,
interpret or to endorse this Note or any instrument securing same, including a
foreclosure under the Deed of Trust. In any such events, all reasonable
attorneys fees arising from such suit, proceeding, defense, enforcement and any
expenses, costs, disbursements and charges relating thereto shall be an
additional liability owing hereunder to Payee, payable upon demand.
This Note shall be governed as to validity, interpretation, construction,
effect and in all other respects by the laws and decisions of the State of
Colorado. Maker, and any endorsers, sureties and guarantors, agree that the
state courts located in El Paso County, Colorado, and located in Mobile County,
Alabama shall have subject matter jurisdiction and proper venue to entertain
any action brought to enforce or collect upon this Note and, by execution
hereof, voluntarily submit to personal jurisdiction of such courts; provided,
however, such jurisdiction shall not be exclusive and, at its option, Payee may
commence such action in any other court which otherwise has jurisdiction.
Maker, and any endorsers, sureties and guarantors, of this Note jointly
and severally waives demand for payment, presentment for payment, notice of
nonpayment or dishonor, protest and notice of protest, and agree to any
extension of time of payment and partial payments before, at or after maturity.
No renewal or extension of this Note, no release or surrender of any security
for this Note, no release of any person liable thereon, no delay in the
enforcement hereof, and no delay or omission in exercising any right or power
hereunder, shall affect the liability of Maker. No delay or omission by Payee
in exercising any power or right hereunder shall impair such right or power or
be construed to be a waiver of any default, nor shall any single or partial
exercise of any power or right hereunder preclude any or full exercise thereof
or the exercise of any other right or power. Each legal holder hereof shall
have and may exercise all the rights and powers given to Payee herein. This
Note and all obligations evidenced hereby shall be binding upon the heirs,
executors, administrators, successors, assigns and legal representatives of the
Maker and shall inure to the benefit of the Payee and their heirs, executors,
administrators, successors, assigns and legal representatives. Maker certifies
that the loan evidenced by the note is made for business purposes. The
liability of all parties who are or who become liable under this Note shall be
joint and several.
4
<PAGE> 5
The invalidity of any of the provisions of this Note or any paragraph,
sentence, clause, phrase or word herein shall not affect the validity of the
remainder of this Note. Time is of the essence of this Note. Any delay on the
part of Payee in exercising any right or insisting upon performance, shall not
constitute a waiver of Payee's right to exercise these rights or insist upon
these performances in the future.
"Maker"
National Gaming Companies, Inc.
June 14, 1996 By: \s\Robert J. Swenson
------------- --------------------
Date President
Attest:
By: Terrance P. DeRoche
-------------------
\s\Terrance P. DeRoche, Secretary
----------------------
STATE OF MINNESOTA )
--------- ) ss.
COUNTY OF HENNEPIN )
---------
The foregoing Promissory Note was acknowledged before me this 14th day of
June, 1996, by Robert J. Swenson, the President of National Gaming Companies,
Inc.
Witness my hand and official seal.
My Commission expires: January 31, 2000
\s\Marvin A. Liszt
-------------------------
Notary Public
5
<PAGE> 1
EXHIBIT 10.20
DEED OF TRUST
(Due on Transfer - Strict)
THIS DEED OF TRUST is made on this 14th of June, 1996, between National
Gaming Companies, Inc., a Minnesota corporation (Borrower), whose address is
9855 West 78th Street, Suite 220, Minneapolis, Minnesota 55344; and the Public
Trustee of the County in which the Property (see paragraph 1) is situated
(Trustee); for the benefit of E. Wayne and Sarah A. Moore (Lender), whose
address is 712 Lakeside Avenue, Mobile, Alabama 36693.
Borrower and Lender covenant and agree as follows:
1. Property in Trust. Borrower, in consideration of the indebtedness
herein recited and the trust herein created, hereby grants and conveys to
Trustee in trust, with power of sale, the following described property located
in the County of Teller, State of Colorado:
Lots 1 through 15, Block 26, Fremont, (now Cripple Creek), Colorado,
together with all improvements and appurtenances (Property).
2. Note; Other Obligations Secured. This Deed of Trust is given to
secure to Lender:
a. the repayment of the indebtedness evidenced by Borrower's note (Note)
dated June 14th, 1996, in the principal sum of Seven Hundred Thousand and
no/100 U.S. Dollars ($700,000.00), with interest on the unpaid principal
balance from the date thereof, until paid, at the rate of nine percent (9%) per
annum, with principal and interest payable at 712 Lakeside Avenue, Mobile,
Alabama 36693, or such other place as the Lender may designate, as follows:
1) During the first year of the Note and until June 1, 1997. Borrower
shall pay to the Lender on at least a quarterly basis commencing July 1, 1996,
all net income received by Borrower from the parking business conducted on the
Property. Net income shall be defined as gross receipts derived from the
parking business less all ordinary and necessary expenses for operating the
business, including employee salaries, real property taxes, liability insurance,
utilities and general maintenance. Expenses for capital improvements to the
parking lot such as paving, installation of lights and excavation to expand the
parking lot, shall not be treated as operating expenses. Net income from all
parking shall be applied to interest due under the Note. In the event that the
net income paid to Lender is less than the accrued interest under the Note for
the first year, the unpaid interest shall be added to the principal balance of
the Note, as of June 1, 1997. In the event the net income from parking is
greater than the accrued interest for the first year, the excess shall be
applied as a partial prepayment of the principal balance of the Note. Borrower
agrees that it will conduct a parking lot business on the Property during at
least the first year of the Note and will use its best reasonable efforts to
maximize revenues from such business. Borrower agrees that it will charge a fee
for parking on such lot comparable to such fees charged by other parking lots in
Cripple Creek, Colorado, but not less than $5.00 per car per day. Borrower will
provide Lender with a full accounting of revenues and expenses of the parking
lot on a quarterly basis. Lender and their authorized agents shall have the
right to review the books and records of Borrower relating to the parking lot
upon request.
2) The remaining balance of principal and accrued interest as of June
1, 1997, shall be paid in 108 equal consecutive monthly installments amortized
over 9 years, commencing on June 1, 1997 and continuing on the first day of each
succeeding month through May 1, 2006.
3) The entire remaining balance of principal and accrued interest
shall be due and payable on May 1, 2006; and
4) Borrower is to pay to Lender a late charge of ten percent (10%) of
any payment not received by the Lender within ten (10) days after payment is
due; and Borrower has the right to prepay the principal amount outstanding under
said Note, in whole or in part, at any time without penalty; and Borrower is to
pay interest on the outstanding principal balance of the Note at a rate of
twelve percent (12%) per annum during any default under this Deed of Trust and
under the Note.
b. the payment of all other sums, with interest thereon at twelve percent
(12%) per annum, disbursed by Lender in accordance with this Deed of Trust to
protect the security of this Deed of Trust; and
<PAGE> 2
c. the prompt performance of the covenants and agreements of Borrower
contained in the Note, this Deed of Trust, any other instrument securing the
debt, and that certain Contract to Buy and Sell Commercial Real Estate dated
May 16th, 1996 (the "Contract").
3. Title. Borrower covenants that Borrower owns and has the right to
grant and convey the Property, and warrants title to the same, subject to
general real estate taxes for the current year, easements of record or in
existence, and recorded declarations, restrictions, reservations and covenants,
if any, as of this date.
4. Payment of Principal and Interest. Borrower shall promptly pay when
due the principal of and interest on the indebtedness evidenced by the Note,
and late charges as provided in the Note and shall perform all of Borrower's
other covenants contained in the Note.
5. Application of Payments. All payments received by Lender under the
terms hereof shall be applied by Lender first in payment of amounts due
pursuant to paragraph 23, then to amounts disbursed by Lender pursuant to
paragraph 9 (Protection of Lender's Security), and the balance in accordance
with the terms and conditions of the Note.
6. [Reserved]
7. Property Insurance. Borrower shall keep the improvements now
existing or hereafter erected on the Property insured against loss by fire or
hazards included within the term "extended coverage" in an amount at least equal
to the lessor of, (1) the full replacement value of the Property and any
improvements thereon, or (2) an amount sufficient to pay the sums secured by
this Deed of Trust as well as any prior encumbrances on the Property. All of
the foregoing shall be known as "Property Insurance."
The insurance carrier providing the insurance shall be qualified to write
Property Insurance in Colorado and shall be chosen by Borrower subject to
Lender's right to reject the chosen carrier for reasonable cause. Purchaser is
required to supply Seller during all of the term of the loan with a certificate
of insurance showing liability coverage in amounts suitable to Seller. All
insurance policies and renewals thereof shall include a standard mortgage clause
in favor of Lender, and shall provide that the insurance carrier shall notify
Lender at least thirty (30) days before cancellation, termination or any
material change of coverage. Insurance policies shall be furnished to Lender at
or before closing. Lender shall have the right to hold the policies and
renewals thereof.
In the event of loss, Borrower shall give prompt notice to the insurance
carrier and Lender. Lender may make proof of loss if not made promptly by
Borrower.
Insurance proceeds shall be applied to restoration or repair of the
Property damaged, provided such restoration or repair is economically feasible
and the security of this Deed of Trust is not thereby impaired. If such
restoration or repair is not economically feasible or if the security of this
Deed of Trust would be impaired, the insurance proceeds shall be applied to the
sums secured by this Deed of Trust, with the excess, if any, paid to Borrower.
If the Property is abandoned by Borrower, or if Borrower fails to respond to
Lender within thirty (30) days from the date notice is given in accordance with
paragraph 16 (Notice) by Lender to Borrower that the insurance carrier offers to
settle a claim for insurance benefits, Lender is authorized to collect and apply
the insurance proceeds, at Lender's option, either to restoration or repair of
the Property or to the sums secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) and 23 or change in the amount of such installments.
Notwithstanding anything herein to the contrary, if under paragraph 18
(Acceleration; Foreclosure; Other Remedies), the Property is acquired by Lender,
all right, title and interest of Borrower in and to any insurance policies and
in and to the proceeds thereof resulting from damage to the Property prior to
the sale or acquisition shall pass to Lender to the extent of the sums secured
by this Deed of Trust immediately prior to such sale or acquisition.
All of the rights of Borrower and Lender hereunder with respect to
insurance carriers, insurance policies and insurance proceeds are subject to the
rights of any holder of a prior deed of trust with respect to said insurance
carriers, policies and proceeds.
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<PAGE> 3
8. Preservation and Maintenance of Property. Borrower shall keep the
Property in good repair and shall not commit waste or permit impairment or
deterioration of the Property and shall comply with the provisions of any lease
if this Deed of Trust is on a leasehold. Borrower shall perform all of
Borrower's obligations under any declarations, covenants, by-laws, rules , or
other documents governing the use, ownership or occupancy of the Property,
provided that same do not materially adversely affect the value of the Property.
9. Protection of Lender's Security. Except when Borrower has exercised
Borrower's rights under paragraph 6 above, if the Borrower fails to perform the
covenants and agreements contained in this Deed of Trust, or if a default occurs
in a prior lien, or if any action or proceeding is commenced which materially
affects Lender's interest in the Property, then Lender, at Lender's option, with
notice to Borrower if required by law, may make such appearances, disburse such
sums and take such action as is necessary to protect Lender's interest,
including, but not limited to disbursement of reasonable attorney's fees and
entry upon the Property to make repairs. Borrower hereby assigns to Lender any
right Borrower may have by reason of any prior encumbrance on the Property or by
law or otherwise to cure any default under said prior encumbrance.
Any amounts disbursed by Lender pursuant to this paragraph 9, with interest
thereon, shall become additional indebtedness of Borrower secured by this Deed
of Trust. Such amounts shall be payable upon notice from Lender to Borrower
requesting payment thereof, and Lender may bring suit to collect any amounts so
disbursed plus interest specified in paragraph 2.b. (Note; Other Obligations
Secured). Nothing contained in this paragraph 9 shall require Lender to incur
any expense or take any action hereunder.
10. Inspection. Lender may make or cause to be made reasonable entries
upon and inspection of the Property, provided that Lender shall give Borrower
notice prior to any such inspection specifying reasonable cause therefore
related to Lender's interest in the Property.
11. Condemnation. The proceeds of any award or claim for damages, direct
or consequential, in connection with any condemnation or other taking of the
Property, or part thereof, or for any conveyance in lieu of condemnations, are
hereby assigned and shall be paid to Lender as herein provided. However, all of
the rights of Borrower and Lender hereunder with respect to such proceeds are
subject to the rights of any holder of a prior deed of trust.
In the event of a total or partial taking of the Property, the proceeds
shall be applied to the sums secured by this Deed of Trust, with the excess, if
any, paid by Borrower.
If the Property is abandoned by Borrower, or if, after notice by Lender to
Borrower that the condemnor offers to make an award or settle a claim for
damages, Borrower fails to respond to Lender within thirty (30) days after the
date such notice is given, Lender is authorized to collect and apply the
proceeds, at Lender's option, either to restoration or repair of the Property or
to the sums secured by this Deed of Trust.
Any such application of proceeds to principal shall not extend or postpone
the due date of the installments referred to in paragraphs 4 (Payment of
Principal and Interest) and 23 (Escrow Funds for Taxes and Insurance) nor change
the amount of such installments.
12. Borrower Note Released. Extension of the time for payment or
modification of amortization of sums secured by this Deed of Trust granted by
Lender to any successor in interest of Borrower shall not operate to release, in
any manner, the liability of the original Borrower, nor Borrower's successors in
interest, from the original terms of this Deed of Trust. Lender shall not be
required to commence proceedings against such successor or refuse to extend time
for payment or otherwise modify amortization of the sums secured by this Deed of
Trust by reason of any demand made by the original Borrower's successors in
interest.
13. Forbearance by Lender Not a Waiver. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by law, shall
not be a waiver or preclude the exercise of any such right or remedy.
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<PAGE> 4
14. Remedies Cumulative. Each remedy provided in the Note and this Deed
of Trust is distinct from and cumulative to all other rights or remedies under
the Note and this Deed of Trust or afforded by law or equity, and may be
exercised concurrently, independently, or successively.
15. Successors and Assigns Bound; Joint and Several Liability; Captions.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective successors and assigns of Lender and
Borrower, subject to the provisions of paragraph 24 (Transfer of the Property;
Assumption). All covenants and agreements of Borrower shall be joint and
several. The captions and headings of the paragraphs in this Deed of Trust are
for convenience only and are not to be used to interpret or define the
provisions hereof.
16. Notice. Except for any notice required by law to be given in another
manner, (a) any notice to Borrower provided for in this Deed of Trust shall be
in writing and shall be given and be effective upon (1) delivery to Borrower or
(2) mailing such notice by first-class U.S. mail, addressed to Borrower at
Borrower's address stated herein or at such other address as Borrower may
designate by notice to Lender as provided herein, and (b) any notice to Lender
shall be in writing and shall be given and be effective upon (1) delivery to
Lender or (2) mailing such notice by first-class U.S. mail, to Lender's address
stated herein or to such other address as Lender may designate by notice to
Borrower as provided herein. Any notice provided for in this Deed of Trust
shall be deemed to have been given to Borrower or Lender when given in any
manner designated herein.
17. Governing Law; Severability. The Note and this Deed of Trust shall be
governed by the law of Colorado. In the event that any provision or clause of
this Deed of Trust or the Note conflicts with the law, such conflict shall not
affect other provisions of this Deed of Trust or the Note which can be given
effect without the conflicting provision, and to this end the provisions of the
Deed of Trust and Note are declared to be severable.
18. Acceleration; Foreclosure; Other Remedies. Except as provided in
paragraph 24 (Transfer of the Property; Assumption), upon Borrower's breach of
any covenant or agreement of Borrower in the Note or in this Deed of Trust, or
upon the occurrence of any Event of Default as set forth below, at Lender's
option, all of the sums secured by this Deed of Trust shall be immediately due
and payable (Acceleration). To exercise this option, Lender may invoke the
power of sale and any other remedies permitted by law. Lender shall be entitled
to collect all reasonable costs and expenses incurred in pursuing the remedies
provided in the Note and this Deed of Trust, including, but not limited to,
reasonable attorney's fees.
If Lender invokes the power of sale, Lender shall give written notice to
Trustee of such election. Trustee shall give such notice to Borrower of
Borrower's rights as is provided by law. Trustee shall record a copy of such
notice as required by law. Trustee shall advertise the time and place of the
sale of the Property, for not less than four (4) weeks in a newspaper of general
circulation in each county in which the Property is situated, and shall mail
copies of such notice of sale to Borrower and other persons as prescribed by
law. After the lapse of such time as may be required by law, Trustee, without
demand on Borrower, shall sell the Property at public auction to the highest
bidder for cash at the time and place (which may be on the Property or any part
thereof as permitted by law) in one or more parcels as Trustee may think best
and in such order as Trustee may determine. Lender or Lender's designee may
purchase the Property at any sale. It shall not be obligatory upon the
purchaser at any such sale to see to the application of the purchase money.
Trustee shall apply the proceeds of the sale in the following order: (a)
to all reasonable costs and expenses of the sale, including, but not limited to,
reasonable Trustee's and attorney's fees and costs of title evidence; (b) to all
sums secured by this Deed of Trust; and (c) the excess, if any, to the person or
persons legally entitled thereto.
The occurrence of any one or more of the following shall be deemed to be an
Event of Default hereunder:
a. Any payment required by the Note or by this Deed of Trust (or any
other instrument securing the Note) is not made in full within ten (10) days of
the date it is due;
b. The failure of Borrower to fully perform or comply with the terms
and conditions of and its obligations under the Note, this Deed of Trust, the
Contract, including, but not limited to, Borrower's obligations in paragraph 2.
of the Contract to provide liability insurance coverage, to timely pay the real
estate taxes on the Property,
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<PAGE> 5
and to not dilute the Common Stock received by Lender; and in paragraph 18., 19.
and 20. of the Contract to indemnify and release Lender; or under any instrument
now or hereafter given to secure or guaranty the Note.
c. A breach by National Lodging Companies, Inc. ("NLC") of or the
failure of NLC to fully perform or comply with the terms and conditions of its
obligations under the Contract including, but not limited to NLC's obligations
under paragraphs 18., 19. and 20. of the Contract to release and indemnify
Lender; or under any other instrument now or hereafter given by NLC to secure or
guaranty the Note.
d. Borrower or any guarantor, endorser, or accommodation party under
the Note (or any successors or assigns) shall commence, or there shall be
commenced against any such party, any case, proceeding, or other action seeking
to have an order for relief entered with respect to any such party, or to
adjudicate any such party as a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution, or composition under any law
relating to bankruptcy, insolvency, reorganization, or relief of debtors or
seeking appointment of a receiver, trustee, custodian, or other similar
fiduciary, with respect to any part of any such party's property;
e. Borrower (its affiliates, guarantors, endorsers, accommodation
parties, sister companies, subsidiaries, successors, assigns or any party
related to Borrower) defaults on any other debts, obligations, or liabilities to
Lender or defaults on any instrument or agreement executed and delivered to
secure any such debt, obligation or liability;
f. Any default or breach in the performance of any obligation of
Borrower hereunder or under any instrument or agreement executed and delivered
to secure payment of the Note or the Deed of Trust.
g. A default under any other security document or deed of trust now
or hereafter encumbering the Property, or any note which said documents secure.
h. A Transfer occurs as defined herein.
i. Any representation made by Borrower or any endorser or guarantor
under the Note, in the Contract, or in any certificate, agreement, or statements
furnished to Lender by or on behalf of Borrower shall prove to have been
inaccurate in any substantial and material respect when made or furnished.
j. Any other event occurs which under the Note, this Deed of Trust
or any other instrument securing same constitutes a default or gives the right
to accelerate the maturity of the indebtedness.
k. Any failure by Borrower to discharge or defend a mechanic's lien
placed against the Property, as provided in paragraph 26. hereof.
19. Borrower's Right to Cure Default. Whenever foreclosure is commenced
for nonpayment of any sums due hereunder, the owners of the Property or parties
liable hereon shall be entitled to cure said defaults by paying all delinquent
principal and interest payments due as of the date of cure, costs, expenses,
late charges, attorney's fees and other fees all in the manner provided by law.
Upon such payment, this Deed of Trust and the obligations secured hereby shall
remain in full force and effect as though no Acceleration had occurred, and the
foreclosure proceedings shall be discontinued.
20. Assignment of Rents; Appointment of Receiver; Lender in Possession. As
additional security hereunder, Borrower hereby assigns to Lender the rents of
the Property; however, Borrower shall, prior to Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies) or abandonment of the Property, have
the right to collect and retain such rents as they become due and payable.
Lender or the holder of the Trustee's certificate of purchase shall be
entitled to a receiver for the Property after Acceleration under paragraph 18
(Acceleration; Foreclosure; Other Remedies), and shall also be so entitled
during the time covered by foreclosure proceedings and the period of redemption,
if any; and shall be entitled thereto as a matter of right without regard to the
solvency or insolvency of Borrower or of the then owner of the Property, and
without
5
<PAGE> 6
regard to the value thereof. Such receiver may be appointed by any Court of
competent jurisdiction upon ex parte application and without notice - notice
being hereby expressly waived. The receiver shall not be required to post a
bond, and Borrower hereby waives such requirement.
Upon Acceleration under paragraph 18 (Acceleration; Foreclosure; Other
Remedies) or abandonment of the Property, Lender, in person, by agent or by
judicially-appointed receiver, shall be entitled to enter upon, take possession
of and manage the Property and to collect the rents of the Property including
those past due. All rents collected by Lender or the receiver shall be applied
first, to payment of the costs of preservation and management of the Property,
second, to the payments due upon prior liens, and then to the sums secured by
this Deed of Trust. Lender and the receiver shall be liable to account only for
those rents actually received.
21. Release. Upon payment of all sums secured by this Deed of Trust,
Lender shall cause Trustee to release this Deed of Trust and shall produce for
Trustee the Note. Borrower shall pay all costs of recordation and shall pay the
statutory Trustee's fees. If Lender shall not produce the Note as aforesaid,
then Lender, upon notice in accordance with paragraph 16 (Notice) from Borrower
to Lender, shall obtain, at Lender's expense, and file any lost instrument bond
required by Trustee or pay the cost thereof to effect the release of this Deed
of Trust.
22. Waiver of Exemptions. Borrower hereby waives all right of homestead
and any other exemption in the Property under state or federal law presently
existing or hereafter enacted.
23. Taxes and Insurance. Borrower shall pay or cause to be paid in full
when due, and in any event before any penalty or interest attaches, all general
taxes and assessments, special taxes and assessments, water charges, sewer
service charges, and all other charges against the Property and shall furnish
the Lender official receipts evidencing the payment thereof within thirty (30)
days of a written request therefor by the Lender. Borrower shall deliver to
Lender copies of official receipts showing payment of all real and personal
property taxes and assessments levied against the Property, within thirty (30)
days of the date on which taxes and assessments were due.
24. Transfer of the Property; Assumption. The following events shall be
referred to herein as a "Transfer": (i) a transfer or conveyance of title (or
any portion thereof, legal or equitable) of the Property (or any part thereof or
interest therein); (ii) the execution of a contract or agreement creating a
right to title (or any portion thereof, legal or equitable) in the Property (or
any part thereof or interest therein); (iii) or an agreement granting a
possessory right in the Property (or any portion thereof); (iv) a sale or
transfer of, or the execution of a contract or agreement creating a right to
acquire or receive, more than fifty percent (50%) of the controlling interest or
more than fifty percent (50%) of the beneficial interest in the Borrower; (v)
the reorganization, liquidation or dissolution of the Borrower; and or (vi) the
creation of any lien or encumbrance against the Property. At the election of
Lender, in the event of each and every Transfer:
a. All sums secured by this Deed of Trust shall become immediately
due and payable (Acceleration).
b. If a Transfer occurs and should Lender not exercise Lender's
option pursuant to this paragraph 24 to Accelerate, Transferee shall be deemed
to have assumed all of the obligations of Borrower under this Deed of Trust
including all sums secured hereby whether or not the instrument evidencing such
conveyance, contract or grant expressly so provides. This covenant shall run
with the Property and remain in full force and effect until said sums are paid
in full. The Lender may without notice to Borrower deal with Transferee in the
same manner as with the Borrower with reference to said sums including the
payment or credit to Transferee of undisbursed reserve Funds on payment in full
of said sums, without in any way altering or discharging the Borrower's
liability hereunder for the obligations hereby secured.
c. Should Lender not elect to Accelerate upon the occurrence of such
Transfer then, subject to (b) above, the mere fact of lapse of time or the
acceptance of payment subsequent to any of such events, whether or not Lender
had actual or constructive notice such Transfer, shall not be deemed a waiver of
Lender's right to make such election nor shall Lender be estopped therefrom by
virtue thereof. The issuance on behalf of the Lender of a routine statement
showing the status of the loan, whether or not Lender had actual or constructive
notice of such Transfer, shall
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<PAGE> 7
not be a waiver or estoppel of Lender's said rights. The Borrower specifically
acknowledges that it agrees to the foregoing transfer restriction in order to
induce the Lender to make the loan secured hereby.
25. Borrower's Copy. Borrower acknowledges receipt of a copy of the Note
and this Deed of Trust.
26. Mechanics Liens. Borrower will keep the Property free and clear of
all liens and claims of liens by contractors, subcontractors, mechanics,
laborers, materialmen, and other such persons, and will cause any recorded
statement of any such lien to be released of record within thirty (30) days
after the recording thereof. Notwithstanding the preceding sentence, however,
Borrower will not be deemed to be in default under this section if and so long
as: (a) Borrower contests in good faith, the validity or amount of the asserted
lien and diligently prosecutes or defends an action appropriate to obtain a
binding determination of the disputed matter, and (b) provides Lender with such
security as Lender may reasonably require to protect Lender against all loss,
damage and expenses, including attorneys fees, which Lender might incur if the
asserted lien is determined to be valid.
27. Defensive Actions. Borrower will defend, at their expense, any
action, proceeding or claim which affects the Property encumbered hereby or any
interest of Lender in the Property and will indemnify and hold Lender harmless
from all loss, damage, cost, or expense, including attorneys fees, which Lender
may incur in connection therewith.
28. Enforcement. Lender shall be entitled to collect all of its costs
and expenses incurred including reasonable attorneys fees and costs in the event
any action is brought to interpret or enforce the terms of this Deed of Trust.
29. Assumption. Notwithstanding any provisions of said Deed of Trust,
the holder of the Note secured by this Deed of Trust shall have not duty of
"good faith" or otherwise to allow assumption of said Note or this Deed of
Trust, and may, with or without cause, accelerate all amounts owed in the event
of sale, conveyance, alienation, disposal or other "transfer" of the Property as
described in this Deed of Trust.
BORROWER:
National Gaming Companies, Inc.,
a Minnesota corporation
By: /s/ Robert J. Swenson
-----------------------------
Its: President
-----------------------------
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNIPIN )
Subscribed and sworn to before me this 14 day of June, 1996, by Robert J.
Swenson, the President of National Gaming Companies, Inc., a Minnesota
corporation.
Witness my hand and official seal.
My commissions expires: January 31, 2000
/s/ Marvin Liszt
---------------------------------
Address:
9855 W. 78th St.
---------------------------------
Minneapolis, MN 55344
---------------------------------
7
<PAGE> 1
EXHIBIT 10.21
ASSUMPTION AGREEMENT
For One Dollar and other good and valuable consideration, National Gaming
Companies, Inc., a Minnesota corporation, hereby agrees to assume and pay
according to their terms and conditions, four Promissory Notes dated January
25, 1995 by Regent Gaming Enterprises, Inc. in favor of the following:
1. Terrance P. DeRoche - $65,000.00;
2. Steve Sherf - $5,000.00;
3. Robert Swenson - $5,000.00;
4. James Klas - $5,000.00.
National Gaming Companies, Inc. shall assume the principal balance owing
on these Notes together with interest accruing from January 25, 1995.
National Gaming Companies, Inc.
Dated: October 1, 1995 By /s/ Stephen W. Sherf
-----------------------
Its Vice President
-----------------------
<PAGE> 2
NOTE
U.S. $65,000.00 Minneapolis, Minnesota
January 25, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Terrance
P. DeRoche, the sum of Sixty Five Thousand Dollars and 00/100 ($65,000.00),
together with interest at the rate of 12% per annum. Interest shall commence on
the date of this Note. The entire principal balance due herein together with
accrued interest shall be due and payable in full on January 25, 1997.
If this Note is not paid when due and remains unpaid after a date specified
by a notice to Borrowers, the entire principal amount outstanding and accrued
interest thereon shall at once become due and payable at the option of the Note
holder. The date specified shall not be less than thirty days from the date
such notice is mailed. The Note holder may exercise this option to accelerate
during any default by Borrowers regardless of any prior forbearance. If suit is
brought to collect this Note, the Note holder shall be entitled to collect all
reasonable costs and expenses of suit, including, but not limited to, reasonable
attorney's fees.
Borrowers may prepay the principal amount outstanding in whole or in part.
The Note holder may require that any partial prepayments (i) be made on the date
installments are due and (ii) be in the amount of that part of one or more
installments which would be applicable to principal. Any partial prepayment
shall be applied against the principal amount outstanding and shall not postpone
the due date of any subsequent installments or change the amount of such
installments, unless the Note holder shall otherwise agree in writing.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the joint
and several obligation of all makers, sureties, guarantors and endorsers, and
shall be binding upon them and their successors and assigns.
Any notice to Borrower provided for in this Note shall be given by mailing
such notice by certified mail addressed to Borrower at the property address or
to such other address as Borrower may designate by notice to the Note holder.
Any notice to the Note holder shall be given by mailing such notice by certified
mail, return receipt requested, to the Note holder at the address stated in the
first paragraph of this Note, or at such other address as may have been
designated by notice to Borrower.
Regent Gaming Enterprises, Inc.
By /s/ Stephen W. Sherf
----------------------------
Its Chairman
--------------------------
<PAGE> 3
NOTE
U.S. $5,000.00 Minneapolis, Minnesota
January 25, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Steve
Sherf, the sum of Five Thousand Dollars and 00/100 ($5,000.00), together with
interest at the rate of 12% per annum. Interest shall commence on the date of
this Note. The entire principal balance due herein together with accrued
interest shall be due and payable in full on January 25, 1997.
If this Note is not paid when due and remains unpaid after a date
specified by a notice to Borrowers, the entire principal amount outstanding and
accrued interest thereon shall at once become due and payable at the option of
the Note holder. The date specified shall not be less than thirty days from
the date such notice is mailed. The Note holder may exercise this option to
accelerate during any default by Borrowers regardless of any prior forbearance.
If suit is brought to collect this Note, the Note holder shall be entitled to
collect all reasonable costs and expenses of suit, including, but not limited
to, reasonable attorney's fees.
Borrowers may prepay the principal amount outstanding in whole or in part.
The Note holder may require that any partial prepayments (i) be made on the
date installments are due and (ii) be in the amount of that part of one or more
installments which would be applicable to principal. Any partial prepayment
shall be applied against the principal amount outstanding and shall not
postpone the due date of any subsequent installments or change the amount of
such installments, unless the Note holder shall otherwise agree in writing.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the
joint and several obligation of all makers, sureties, guarantors and endorsers,
and shall be binding upon them and their successors and assigns.
Any notice to Borrower provided for in this Note shall be given by mailing
such notice by certified mail addressed to Borrower at the property address or
to such other address as Borrower may designate by notice to the Note holder.
Any notice to the Note holder shall be given by mailing such notice by
certified mail, return receipt requested, to the Note holder at the address
stated in the first paragraph of this Note, or at such other address as may
have been designated by notice to Borrower.
Regent Gaming Enterprises, Inc.
By /s/ R. J. Swenson
-------------------------
Its President
-----------------------
<PAGE> 4
NOTE
U.S. $5,000.00 Minneapolis, Minnesota
January 25, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Robert
Swenson, the sum of Five Thousand Dollars and 00/100 ($5,000.00), together with
interest at the rate of 12% per annum. Interest shall commence on the date of
this Note. The entire principal balance due herein together with accrued
interest shall be due and payable in full on January 25, 1997.
If this Note is not paid when due and remains unpaid after a date
specified by a notice to Borrowers, the entire principal amount outstanding and
accrued interest thereon shall at once become due and payable at the option of
the Note holder. The date specified shall not be less than thirty days from
the date such notice is mailed. The Note holder may exercise this option to
accelerate during any default by Borrowers regardless of any prior forbearance.
If suit is brought to collect this Note, the Note holder shall be entitled to
collect all reasonable costs and expenses of suit, including, but not limited
to, reasonable attorney's fees.
Borrowers may prepay the principal amount outstanding in whole or in part.
The Note holder may require that any partial prepayments (i) be made on the
date installments are due and (ii) be in the amount of that part of one or more
installments which would be applicable to principal. Any partial prepayment
shall be applied against the principal amount outstanding and shall not
postpone the due date of any subsequent installments or change the amount of
such installments, unless the Note holder shall otherwise agree in writing.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the
joint and several obligation of all makers, sureties, guarantors and endorsers,
and shall be binding upon them and their successors and assigns.
Any notice to Borrower provided for in this Note shall be given by mailing
such notice by certified mail addressed to Borrower at the property address or
to such other address as Borrower may designate by notice to the Note holder.
Any notice to the Note holder shall be given by mailing such notice by
certified mail, return receipt requested, to the Note holder at the address
stated in the first paragraph of this Note, or at such other address as may
have been designated by notice to Borrower.
Regent Gaming Enterprises, Inc.
By /s/ Stephen W. Sherf
-----------------------
Its Chairman
----------------------
<PAGE> 5
NOTE
U.S. $5,000.00 Minneapolis, Minnesota
January 25, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay James
Klas, the sum of Five Thousand Dollars and 00/100 ($5,000.00), together with
interest at the rate of 12% per annum. Interest shall commence on the date of
this Note. The entire principal balance due herein together with accrued
interest shall be due and payable in full on January 25, 1997.
If this Note is not paid when due and remains unpaid after a date
specified by a notice to Borrowers, the entire principal amount outstanding and
accrued interest thereon shall at once become due and payable at the option of
the Note holder. The date specified shall not be less than thirty days from
the date such notice is mailed. The Note holder may exercise this option to
accelerate during any default by Borrowers regardless of any prior forbearance.
If suit is brought to collect this Note, the Note holder shall be entitled to
collect all reasonable costs and expenses of suit, including, but not limited
to, reasonable attorney's fees.
Borrowers may prepay the principal amount outstanding in whole or in part.
The Note holder may require that any partial prepayments (i) be made on the
date installments are due and (ii) be in the amount of that part of one or more
installments which would be applicable to principal. Any partial prepayment
shall be applied against the principal amount outstanding and shall not
postpone the due date of any subsequent installments or change the amount of
such installments, unless the Note holder shall otherwise agree in writing.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the
joint and several obligation of all makers, sureties, guarantors and endorsers,
and shall be binding upon them and their successors and assigns.
Any notice to Borrower provided for in this Note shall be given by mailing
such notice by certified mail addressed to Borrower at the property address or
to such other address as Borrower may designate by notice to the Note holder.
Any notice to the Note holder shall be given by mailing such notice by
certified mail, return receipt requested, to the Note holder at the address
stated in the first paragraph of this Note, or at such other address as may
have been designated by notice to Borrower.
Regent Gaming Enterprises, Inc.
By /s/ Stephen W. Sherf
-----------------------
Its Chairman
-----------------------
<PAGE> 1
EXHIBIT 10.22
AGREEMENT
AGREEMENT made this 6th day of September, 1996, by and between National
Gaming Companies, Inc. ("Gaming") and Richard Stockness ("Stockness").
WHEREAS, Gaming is indebted to Stockness in the principal amount of
$75,000 which indebtedness is evidenced by a Note dated October 31, 1995; and
WHEREAS, Stockness is the holder of a Stock Subscription Warrant for
75,000 shares of common stock in Gaming; and
WHEREAS, Stockness desires to exercise the above Warrant and the parties
desire to amend the October 31, 1995 Note.
NOW, THEREFORE, the parties agree as follows:
1. Stockness hereby exercises his right to purchase 75,000 shares of
common stock in Gaming pursuant to the Stock Subscription Warrant dated October
31, 1995. The $37,500 purchase price for the shares shall be paid by Stockness
paying Gaming $15,000 upon execution of this Agreement and reducing the
principal balance of the October 31, 1995 Note to $52,500.
2. The parties agree that the October 31, 1995 Note is hereby amended to
provide that the principal balance is $52,500 as of September 1, 1996. The
parties further agree that the date on which the entire principal balance shall
be due and payable in full is extended to February 28, 1997. Monthly interest
payments shall continue in the amount of $875.00 payable on the first of each
month with the next payment being due on October 1, 1996.
<PAGE> 2
Except as provided herein, all other terms and conditions of the October 31,
1995 Note shall remain the same.
3. The parties agree that in the event the initial public offering of
Gaming does not close on or before February 28, 1997, Stockness shall have the
right to require Gaming to repurchase the 75,000 shares of Gaming's common
stock. The purchase price for the repurchase shall be $37,500 payable by the
parties increasing the principal balance due on the October 31, 1995 Note.
4. The parties acknowledge that upon execution of this Agreement,
Stockness shall have no further warrants for Gaming's stock.
5. This Agreement shall be binding upon the heirs, executors and assigns
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
National Gaming Companies, Inc.
By /s/ Craig Forsman
----------------------------
Its Chief Executive Officer
---------------------------
/s/ Richard Stockness
-------------------------------
Richard Stockness
2
<PAGE> 1
EXHIBIT 10.23
December 2, 1996
Mr. Ralf Hoehne
THE JUBILEE CASINO
351 Myers Avenue
P.O. Box 610
Cripple Creek, CO 80813
Dear Ralf:
This letter is to confirm our understanding of your employment by the Jubilee
Casino and is effective November 1, 1996.
1. You will be employed by Jubilee Gaming Corporation and assigned to 353
Myers Avenue Limited Partnership, d.b.a. the Jubilee Casino, in
Cripple Creek, Colorado.
2. Your position is Vice President of Gaming Operations of the Jubilee
Casino.
3. Your annual salary will be $70,000.00 with a monthly salary of
$5,833.33 per month.
4. You have been granted an option to purchase 20,000 shares of Jubilee
Gaming Corporation (post-split) at $4.35 per share. The options are
granted pursuant to the 1996 Jubilee Stock Option Plan (copy
enclosed). The vesting period begins on April 23, 1996.
5. Your benefits will be the benefits offered by the Jubilee Casino.
6. In the event that we terminate your employment for any reason other
than cause you will receive the following:
a) A lump sum payment equal to three months (25%) of your annual
salary if employment is terminated prior to November 1, 1997.
b) A lump sum payment equal to four months (33.3%) of your annual
salary if employment is terminated after November 1, 1997.
c) Cause is defined as meaning that the Company has determined you
have committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of
<PAGE> 2
fiduciary duty or deliberate disregard of the Company's rules
resulting in loss, damage or injury to the Company, or if you
make an unauthorized disclosure of any Company trade secrets or
confidential information, engage in any conduct constituting
unfair competition with respect to the Company, or induce any
party to breach a contract with the Company.
7. Additionally, should you decide to terminate your employment, you
agree that you will provide us with a minimum of 45 days notice. In
the event you terminate employment, paragraph 6 is not applicable.
8. In the event of a lawsuit between the Company and you, either party
shall be entitled to recover their attorney fees to the extent they
are awarded by the court to the prevailing party.
The above sets forth your compensation for the current year, from November 1996
through October 1997. This employment agreement shall remain in effect until
such time that a new agreement is entered into. We look forward to your
continued employment and growing with National Gaming.
Sincerely,
NATIONAL GAMING COMPANIES, INC.
/s/ Craig Forsman
Craig Forsman
CEO
AGREED TO:
/s/ Ralf Hoehne
- ----------------------------
Ralf Hoehne
c: Stephen Sherf
John Klinkhammer
Terry DeRoche
<PAGE> 1
EXHIBIT 10.24
BUYER: 353 MEYERS AVE. LIMITED PARTNERSHIP
dba JUBILEE CASINO
[I.G.T. LOGO]
SALES ORDER NO. CO 5354
-------
301 COMMERCIAL ROAD, GOLDEN, CO 80401
IGT-Colorado, Corporation agrees to sell and Buyer agrees to accept and purchase
the equipment ("Equipment") specified on the foregoing pages of this sales
order contract.
Unit prices and specifications of the Equipment shall be as set forth above
and any written amendments hereto signed by both parties. Serial numbers shall
be provided by IGT at time of installation. Any blank below filled in with
"N/A" shall mean the term is not applicable and not a part of this agreement.
FIXED CF INITIAL
----
The total purchase price of the Equipment together with sales tax is $915,387.78
("Purchase Price"). Interest shall be at rate equal to 12% per annum.
CF INITIAL
----
1. DOWN PAYMENT/CREDITS:
a. A cash down payment of $N/A shall be received by IGT prior to
delivery of any portion of the Equipment purchased.
b. A total trade-in credit of $N/A shall be applied against the
Purchase Price, for used Equipment to be forthwith transferred by
Buyer to IGT free and clear of any liens or encumbrances.
2. BALANCE OF PURCHASE PRICE: The remaining balance of the Purchase Price
after deduction for any down payment or credit(s) shall be due and payable
as specified below:
CF INITIAL
----
a. In 47 consecutive monthly installments of $24,105.67, and a final
monthly payment of any outstanding principal and interest due on the
last month. The first installment shall be due 30 days following
installation of one-half the units of Equipment purchased
under this Agreement, and all following installments shall be due on
the same day of each month thereafter.
CF INITIAL CF INITIAL
---- ----
3. I ACKNOWLEDGE THAT I HAVE READ AND ACCEPT THE TERMS AND CONDITIONS AS
FILLED OUT ABOVE AND AS SET FORTH ON THE REVERSE SIDE. THIS SALES ORDER
CONTRACT ("AGREEMENT") IS NOT BINDING UNTIL SIGNED BY THE AUTHORIZED
REPRESENTATIVES OF BUYER AND IGT.
BUYER:
353 MEYERS AVE. LIMITED PARTNERSHIP
dba JUBILEE CASINO
DATED this _____ day of _______, 19__.
BUYER IGT
By: Craig Forsman By:
------------------------- ----------------------------
Title: CEO Title:
------------------------- -------------------------
Authorized Representative Authorized Representative
All obligations of Buyer hereunder
are hereby guaranteed by:
- ------------------------------------
(Name)
- ------------------------------------
(Signature) GUARANTOR
Page
-------------
ACCOUNTING
<PAGE> 2
A. INTEREST COMPUTATION:
Except as provided in paragraph F below, interest shall be computed on
a 365-day year and shall be as specified above and shall commence accruing
on the first day following installation of the Equipment purchased
hereunder. In the event that portions of the Equipment are installed on
different dates, interest shall accrue only on the portions of the Purchase
Price attributable to units of Equipment actually installed.
CF INITIAL PLEASE INITIAL
----
B. INSTALLATION:
IGT shall install the Equipment on, or within a reasonable time
following, the Promise Date specified in the IGT Sales Order. IGT may, at
is option, install portions of the purchased Equipment on separate dates as
warranted by availability and scheduling of installation personnel. Buyer
agrees to installation and continuous operation of the Equipment in the
main public gaming areas of Buyer's business premises during the term of
this Agreement.
C. WARRANTY, DISCLAIMERS AND LIMITATIONS OF LIABILITY:
IGT WARRANTS THAT FOR A PERIOD OF 90 DAYS FOLLOWING INSTALLATION,
EQUIPMENT PURCHASED HEREUNDER WILL BE FREE FROM DEFECTS AND IN GOOD WORKING
ORDER. IGT SHALL PROVIDE REMEDIAL MAINTENANCE AND SERVICING FOR THE
SPECIFIED WARRANTY PERIOD. BUYER'S SOLE AND EXCLUSIVE REMEDY IN THE EVENT
OF DEFECT IS EXPRESSLY LIMITED TO THE RESTORATION OF THE EQUIPMENT TO GOOD
WORKING CONDITION BY ADJUSTMENT, REPAIR OR REPLACEMENT OF DEFECTIVE PARTS,
AT IGT'S ELECTION. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, THERE
ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NO
AFFIRMATION OF FACT, INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING
SUITABILITY FOR USE, PERFORMANCE OR PERCENTAGE HOLD OF THE EQUIPMENT SHALL
BE OR BE DEEMED TO BE A WARRANTY OF IGT FOR ANY PURPOSE. IN NO EVENT SHALL
IGT BE LIABLE FOR DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES,
INCLUDING LOSS OF PROFITS, ARISING OUT OF ANY BREACH OF THIS AGREEMENT.
D. SECURITY INTEREST:
Buyer hereby grants to IGT a purchase money security interest in the
Equipment, and in the proceeds, proceeds of sale, drop and Net Win of the
Equipment, to secure the performance and payment of sums due under this
Agreement. Buyer agrees to sign appropriate documents to perfect IGT's
security interest. Buyer shall not, without prior written consent of IGT,
its successors or assigns, sell, lease, encumber, or otherwise alienate the
Equipment or any part thereof until all of Buyer's obligations under this
Agreement have been fully satisfied. Buyer shall, at its own cost and
expense, pay as they become due, all taxes, fees, assessments levied or
assessed on the Equipment. IGT may enter upon Buyer's premises at any
reasonable hour and inspect the Equipment.
E. LOSS OR DAMAGE:
Buyer assumes all risk of loss of, and damage to, the Equipment
following delivery by IGT, and Buyer shall not be released from any
obligations under this Agreement because of any loss, damage or disrepair
suffered by the Equipment. Buyer agrees to: (1) maintain the Equipment in
good order and repair, and not permit misuse, waste, or undue deterioration
of the Equipment; (2) at its own cost and expense, keep the Equipment
insured for its full insurable value by insurance policy acceptable to IGT
which shall name IGT, its successors and assigns, as the insured and shall
provide for 30 days prior written notice of cancellation to IGT, its
successors and assigns. Buyer shall, upon request, furnish a certificate
evidencing the required insurance coverage.
F. DEFAULT:
Buyer shall be deemed in default under this Agreement upon the
occurrence of any one of the following: (1) Failure of Buyer to make any
payment within ten (10) days of its due date or failure to perform any
other obligation under this Agreement within thirty (30) days after receipt
of written notice of default and failure to cure; (2) Any representation or
statement made or furnished to IGT by Buyer in any financial or credit
statement or application for credit made prior to this Agreement, proves to
have been false in any material respect when made or furnished; (3) Loss,
theft, destruction, seizure, attachment or unauthorized sale or encumbrance
of any of the Equipment; (4) Death, dissolution, insolvency, appointment of
a receiver for, or commencement of any proceeding under any bankruptcy or
insolvency laws by or against Buyer; (5) Expiration or revocation of any
gaming license of Buyer; (6) Sale, or any other transfer of Buyer's rights
to possession of Buyer's business premises, for any reason, which results
in cessation of operation of the Equipment for a period of 30 days. In the
event of default, IGT may, at is option and without demand or notice to
Buyer, declare all amounts remaining unpaid under this Agreement
immediately due and payable and interest shall accrue on the outstanding
principal and interest balance at a rate of 1.5% per month, which is 18%
per annum, until paid in full and IGT shall be entitled to recover attorney
fees and any other costs of collection. IGT shall have all rights and
remedies afforded to a secured party pursuant to the provisions of Article
9 of the Uniform Commercial Code. No waiver by IGT, its successors or
assigns, of any default including but not limited to acceptance of late
payment after the same is due, shall operate as a waiver of any other
default or of the same default on a future occasion. Time is of the essence.
G. APPLICABLE LAW:
This Agreement shall be subject to and construed according to the laws
of Colorado. Buyer agrees that any use or subsequent transfer by Buyer of
the Equipment shall strictly comply with all applicable laws.
H. MODIFICATION, ASSIGNMENT:
This Agreement shall not be modified except in writing, signed by both
parties. Buyer shall not assign, transfer, pledge, hypothecate or otherwise
dispose of this Agreement, or any interest herein, nor shall Buyer sublet,
lend, or permit the Equipment sold hereunder to be used by anyone other
than Buyer without the prior consent of IGT. IGT may assign any or all of
its rights under this Agreement, and Buyer shall not assert against any
such assignee any defense, counterclaim or offset that Buyer may have
against IGT. Subject to the foregoing, this Agreement shall inure to the
benefit of and is binding upon the heirs, legatees, personal
representatives, successors and assigns of the parties hereto. The complete
and exclusive statement of the agreement between the parties relating to
the Equipment shall consist of this Agreement, which supersedes all prior
understandings of the parties. Buyer acknowledges all blanks in this
Agreement have been completed or marked "N/A" prior to Buyer's execution of
this Agreement.
<PAGE> 1
EXHIBIT 10.25
[INTERNATIONAL GAME TECHNOLOGY LOGO]
CREDIT MEMO
DATE TIME PAGE
-------------------------------
11/15/96 12:58:59 1
SOLD TO JUBILEE CASINO SHIP TO JUBILEE CASINO
PO BOX 610 PO BOX 610
CRIPPLE CREEK CO 80813-0610 CRIPPLE CREEK CO 80813-0610
USA USA
Legal Entity:
353 MYERS AVE LIMITED PARTNERSHIP
BILL TO JUBILEE CASINO INSTALL JUBILEE CASINO
PO BOX 610 PO BOX 610
CRIPPLE CREEK CO 80813-0610 CRIPPLE CREEK CO 80813-0610
USA USA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUSTOMER ORDER SALES REPRESENTATIVE PURCHASE ORDER P.O. REVISION
- ----------------------------------------------------------------------------------------------------------
2 10075610 CM 200021 BRYAN DAVIS
- ----------------------------------------------------------------------------------------------------------
EXPORT CURRENCY ORDER TYPE BILLING TERMS ORDER DATE
- ----------------------------------------------------------------------------------------------------------
N LEASE REMOVAL TERMS PER LEASE AGREEMENT 10/29/96
- ----------------------------------------------------------------------------------------------------------
SHIPPING INSTRUCTIONS SHIPPING TERMS SHIP DATE
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SEC NO. QTY ITEM NUMBER DESCRIPTION UNIT PRICE NET AMOUNT
- ----------------------------------------------------------------------------------------------------------
100 143- 96400100 ID-S+ UPRT,W/B,BARE/MISC $4,745.00 $678,535.00-
Warehouse . : USD USED MACHINES WAREHOUSE
SN: 279958 279959 281812 281813 281814 281815 281816 281817 330400
330401 330407 330408 330411 330412 330414 330415 330417 330403
330404 330418 330419 330405 330420 330421 330423 317403 338830
330406 330425 330426 330427 330428 330429 330430 330431 330432
330433 330434 330435 330436 330437 330438 330439 330442 330443
330444 330447 330449 330450 330451 330452 330453 330455 330456
330457 330458 330459 330460 330461 330462 330463 330464 330465
330468 330469 330470 330472 330473 330424 330474 330475 330477
330478 330479 330480 330481 330482 330483 330484 330485 330486
330487 330488 330489 330490 330491 330492 330493 330494 330495
330496 330497 330498 330499 330500 330501 330502 330503 330504
330505 330506 330507 330508 330509 330510 330511 330512 330513
330514 330515 330516 330517 330518 330519 330520 330521 330522
330523 330524 330525 330526 330527 330528 330529 330530 330531
330532 330533 330534 330535 330536 330537 330538 330539 330540
330541 330542 334661 334702 337271 338732 338742 338743
200 42- 96400700 ID-S+ S/T,BARE/MISC $5,495.00 $230,790.00-
Warehouse . : USD USED MACHINES WAREHOUSE
SN: 332115 332116 332117 332118 332120 332123
332125 332127 332128 332129 332131 332133
332134 332137 332138 332139 332140 332141
332142 332143 332144 332145 332146 332147
332148 332149 332156 332157 332158 332159
332160 332161 332162 332163 338616 338617
338618 338619 338620 338621 338622 338623
300 15- 96404100 ID-PE+ F/T,BARE/MISC $5,995.00 $89,925.00-
Warehouse . : USD USED MACHINES WAREHOUSE
SN: 330356 330357 330358 330359 330360 330361 330362 330363 330365
</TABLE>
ORIGINAL
<PAGE> 2
[INTERNATIONAL GAME TECHNOLOGY LOGO]
CREDIT MEMO
ORDER DATE TIME PAGE
-----------------------------------
CM 200021 11/15/96 12:58:59 2
<TABLE>
<S><C>
SEQ. NO. QTY ITEM NUMBER DESCRIPTION UNIT PRICE NET AMOUNT
- -------------------------------------------------------------------------------------------------------------------
330366 330367 330368 330369 330370 330371
- -------------------------------------------------------------------------------------------------------------------
400 24- 96403500 ID-PE+, BARE/MISC $4,595.00 $110,280.00-
Warehouse . : USD USED MACHINES WAREHOUSE
SN: 330168 330169 330170 330171 330172 330173 330174 330175 330176
330177 330178 330179 330156 330157 330158 330159 330160 330161
330162 330163 330164 330165 330166 330167
- -------------------------------------------------------------------------------------------------------------------
500 20- 96404700 ID-PE+ S/T,BARE/MISC $5,795.00 $115,900.00-
Warehouse . : USD USED MACHINES WAREHOUSE
SN: 333753 333754 333755 333756 333757 333743 333744 333747 333748
333745 333749 333750 333746 333751 333752 333758 333759 333760
333761 333762
- -------------------------------------------------------------------------------------------------------------------
600 14- 96400100 ID-S+ UPRT,W/B,BARE/MISC $4,445.00 $62,230.00-
Warehouse . : USD USED MACHINES WAREHOUSE
SN: 250869 250971 253126 253127 253131 253171 253175 253186 253221
253222 282545 282568 330471 330410
- -------------------------------------------------------------------------------------------------------------------
700 1- 98400004 ID-SIGN,CO,NON-SYSTEM,SGL $7,525.00 $7,525.00-
SN: 602982
- -------------------------------------------------------------------------------------------------------------------
800 1- 98400004 ID-SIGN,CO,NON-SYSTEM,SGL $9,704.00 $9,704.00-
SN: 603012
- -------------------------------------------------------------------------------------------------------------------
900 1- 98400005 ID-SIGN,CO,NON-SYSTEM,DBL $14,962.00 $14,962.00-
SN: 603011
- -------------------------------------------------------------------------------------------------------------------
1000 1- 98400006 ID-SIGN,CO,NON-SYS,MULTI $27,225.00 $27,225.00-
SN: 603447
- -------------------------------------------------------------------------------------------------------------------
1100 1- 98400004 ID-SIGN,CO,NON-SYSTEM,SGL $16,898.00 $16,898.00-
SN: 603446
- -------------------------------------------------------------------------------------------------------------------
1200 2- 98400004 ID-SIGN,CO,NON-SYSTEM,SGL $2,366.00 $4,732.00-
SN: 603338 & 603339
- -------------------------------------------------------------------------------------------------------------------
1300 2- 98400005 ID-SIGN,CO,NON-SYSTEM,DBL $4,295.00 $8,590.00-
SN: 603340 & 603341
- -------------------------------------------------------------------------------------------------------------------
1400 12- USDINV USED RAW MATERIAL INVENTO $50.00 $600.00-
Powder coat S+ Slant Bar Top Box Ref equip 1,2,3 on #74733
- -------------------------------------------------------------------------------------------------------------------
1500 12- USDINV USED RAW MATERIAL INVENTO $300.00 $3,600.00-
S+ Slant Top Bar Cabinet Ref equip 4,5,6 on #74733
- -------------------------------------------------------------------------------------------------------------------
1600 57- USDINV USED RAW MATERIAL INVENTO $300.00 $17,100.00-
S+ Slant Top Bar Cabinet (Black Gloss) Ref equip 7 on #74733
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ORIGINAL
<PAGE> 3
[INTERNATIONAL GAME TECHNOLOGY LOGO]
CREDIT MEMO
ORDER DATE TIME PAGE
------------------------------------------
CM 200021 11/15/96 12:58:59 3
<TABLE>
<S><C>
SEQ NO. QTY ITEM NUMBER DESCRIPTION UNIT PRICE NET AMOUNT
- ------------------------------------------------------------------------------------------------------------
1700 6- USDINV USED RAW MATERIAL INVENTO $300.00 $1,800.00-
S+ Slant Top Bar Cabinet (Emerald Green Gloss) Ref equip 8 on #74733
- ------------------------------------------------------------------------------------------------------------
1800 6- USDINV USED RAW MATERIAL INVENTO $200.00 $1,200.00-
Round Top Cabinets (Blue Gloss) Ref equip 9 on #74733
- ------------------------------------------------------------------------------------------------------------
1900 16- USDINV USED RAW MATERIAL INVENTO $200.00 $3,200.00-
Round Top Cabinets Ref equip 18 on #74733
- ------------------------------------------------------------------------------------------------------------
2000 225- USDINV USED RAW MATERIAL INVENTO $79.60 $17,910.00-
S+ Wide Body Slot Stands Ref equip 21 on #74733
- ------------------------------------------------------------------------------------------------------------
2100 3- USDINV USED RAW MATERIAL INVENTO $1,247.08 $3,741.24-
Six Device Slot Bank (Hexagonal) Ref equip 22 on #74733
- ------------------------------------------------------------------------------------------------------------
2200 8- USDINV USED RAW MATERIAL INVENTO $200.00 $1,600.00-
Round Top Cabinets Ref item 23 on #74733
- ------------------------------------------------------------------------------------------------------------
2300 1- USDINV USED RAW MATERIAL INVENTO $150.00 $150.00-
Built-In Sgl Prog Meter Ref item 20 on #74733
- ------------------------------------------------------------------------------------------------------------
2400 1- USDINV USED RAW MATERIAL INVENTO $300.00 $300.00-
S+ Slant Top Cabinet (Black Matte)
- ------------------------------------------------------------------------------------------------------------
2500 1- 98400005 ID-SIGN,CO,NON-SYSTEM,DBL $18,129.00 $18,129.00-
SN: 603462
- ------------------------------------------------------------------------------------------------------------
2600 1- 98400004 ID-SIGN,CO,NON-SYSTEM,SGL $27,343.00 $27,343.00-
SN: 603463
- ------------------------------------------------------------------------------------------------------------
2700 1- 98400004 ID-SIGN,CO,NON-SYSTEM,SGL $11,293.00 $11,293.00-
SN: 603007
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Comments:
Requested by: Judy Baatrup
Remove all machines and equipment installed on SO# 74733 & 79754.
Ref CO 5354 for reinstall of selected machines and equipment.
SUMMARY:
Machines:
Item Number Item Description Denomination Quantity
96400100 ID-S+ UPRT,W/B,BARE/MISC 157
96400700 ID-S+ S/T,BARE/MISC 42
96403500 ID-PE+,BARE/MISC 24
96404100 ID-PE+ F/T,BARE/MISC 15
96404700 ID-PE+ S/T,BARE/MISC 20
Total Machine Quantity . . : 258
ORIGINAL
<PAGE> 4
[INTERNATIONAL GAME TECHNOLOGY LOGO]
CREDIT MEMO
ORDER DATE TIME PAGE
-----------------------------------
CM 200021 11/15/96 12:58:59 4
<TABLE>
<CAPTION>
Seq No. Qty Item Number Description Unit Price Net Amount
<S><C>
Miscellaneous Equipment:
Item Number Item Description Denomination Quantity
USDINV USED RAW MATERIAL INVENTORY 347
98400004 ID-SIGN,CO,NON-SYSTEM,SGL FACE 7
98400005 ID-SIGN,CO,NON-SYSTEM,DBL FACE 4
98400006 ID-SIGN,CO,NON-SYS,MULTI FACE 1
Total Misc. Equipment Quantity . . : 359
*--Total Order Quantity . . : 617
By signature below, I hereby acknowledge my understanding of the terms and conditions as set
forth on the attached sheets.
/s/ Craig Forsman 11/19/96
- ------------------------------- ------------------------------------------
Customer Signature Date Authorized IGT-Signature Date
NET SALES 1,485,262.24-
TRADE DISCOUNTS .00
MISC. CHARGE CREDIT .00
SHIPPING HANDLING .00
TAXES .00
TOTAL AMOUNT $1,485,262.24-
</TABLE>
ORIGINAL
<PAGE> 5
<TABLE>
<S><C>
[INTERNATIONAL GAME TECHNOLOGY LOGO] CREDIT MEMO
-----------------------------------------------
ORDER DATE TIME PAGE
-----------------------------------------------
CM 200021 11/15/96 12:58:59 5
-----------------------------------------------
IGT - Colorado Corporation, a Colorado corporation ("IGT") agrees to provide the customer as specified on this Customer
Order ("Customer") with the gaming machines ("Machines") and/or associated equipment, parts, etc. ("Equipment") which is specified
in this Customer Order, and Customer agrees to purchase said Machines and Equipment under the following terms and conditions:
1. Payment Terms. Unless other payment terms are specified in this Customer Order, Customer understands and agrees
that payment in full of the amounts due Customer under this Customer Order, is due and payable when Machines and/or Equipment are
delivered to Customer's specified location. If IGT and Customer enter into any subsequent written agreement for the Machines
and/or Equipment referenced herein, then that agreement shall prevail. Customer's order for the Machines and/or Equipment shall be
subject to credit approval.
2. Late Charge. A late charge may apply to any amounts invoiced by IGT where payment is not received by IGT's Reno,
Nevada office within the payment terms of the invoice. The late charge will be calculated at a rate of 1.5% of the unpaid
amount per month (18% per annum) and will be considered due and payable immediately upon invoice by IGT.
3. Licensing. Customer holds, or has applied for, a valid license from the appropriate regulatory agency to own
and/or operate the Machines and/or Equipment described herein in the jurisdiction to which the Machines and/or Equipment are being
shipped. Customer understands and agrees that the obtaining of any license described in this paragraph (or the obtaining of
approval by the appropriate regulatory agency of shipment of any Machines and/or Equipment described herein while a license is
pending) is the sole responsibility of Customer, and that written evidence of such license (or shipping authorization) is required
to be delivered to IGT prior to shipment. Customer covenants and agrees that it will comply with all applicable foreign, federal,
state and local laws with respect to the use or distribution of the Machines and/or Equipment purchased hereunder.
4. Storage Fees. Customer understands and agrees that, should it be necessary for IGT to store customer's Machines
and/or Equipment at an IGT facility interim to installation at Customer's specified location, then a storage fee may apply, at
IGT's sole discretion. Such storage fee would be identified by IGT when and if it becomes applicable.
5. Delivery Schedule. IGT will attempt to meet the delivery schedule as requested by Customer, however, time shall
not be of the essence as to any delivery schedule. IGT assumes no liability, consequential or otherwise, for any delay or failure
to deliver all or any part of any order for any reason.
6. Delivery Terms. In the absence of a written agreement to the contrary, the means of shipment will be at the
discretion of IGT. Customer will pay all costs of shipment. Risk of loss shall pass to the Customer on delivery to the carrier at
IGT's facility, notwithstanding any provisions for payment of freight or insurance by IGT or the form of the shipping documents.
Risk of loss of merchandise sent to IGT for repair or adjustment shall remain with Customer until such is received by IGT.
7. Cancellations. Orders may be canceled on the condition that Customer pay IGT for completed work allocated to
Customer's order at the time of termination of work at the unit selling price, along with (a) all costs, direct and indirect, for
work in progress, (b) costs resulting from the cancellation, (c) a reasonable profit to IGT therefrom.
8. Restocking Charges. IGT considers all sales to be final, and will not accept the return of Machines and/or
Equipment purchased hereunder. However, should Customer request to return (prior to installation) a portion of the Machines and/or
Equipment ordered, and should IGT agree to an exception and accept said Machines and/or Equipment as returned items, a restocking
fee may apply, in IGT's sole discretion. Such restocking fee would be identified by IGT when and if it becomes applicable.
9. Trade-In Machines. Customer understands and agrees that all machines accepted by IGT as trade-in machines are to
be forthwith transferred by Customer to IGT free and clear of any liens or encumbrances, in good working order, and are in
aesthetically good condition.
10. WARRANTY. IGT WARRANTS THAT FOR A PERIOD OF 90 DAYS FOLLOWING INSTALLATION, NEW IGT MACHINES AND EQUIPMENT INSTALLED
HEREUNDER WILL BE FREE FROM DEFECTS AND IN GOOD WORKING ORDER. CUSTOMER'S SOLE AND EXCLUSIVE REMEDY IN THE EVENT OF DEFECT IS
EXPRESSLY LIMITED TO THE RESTORATION OF THE EQUIPMENT TO GOOD WORKING CONDITION BY ADJUSTMENT, REPAIR OR REPLACEMENT OF DEFECTIVE
PARTS, AT IGT'S ELECTION. VIDEO MONITORS (COVERED UNDER SEPARATE MANUFACTURER WARRANTY), MACHINES, EQUIPMENT, AND OTHER PRODUCTS
NOT MANUFACTURED BY IGT, ARE EXCLUDED FROM THIS WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, THERE ARE NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
NO AFFIRMATION OF FACT, INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING SUITABILITY FOR USE, PERFORMANCE, PERCENTAGE HOLD, OR
PAR VALUE OF THE EQUIPMENT SHALL BE DEEMED TO BE A WARRANTY OR GUARANTY OF IGT FOR ANY PURPOSE. IN NO EVENT SHALL IGT OR ANY OF ITS
AFFILIATES, SUBSIDIARIES, REPRESENTATIVES, OR AGENTS BE LIABLE FOR DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING
LOSS OF PROFITS, ARISING OUT OF ANY BREACH OF THIS AGREEMENT.
THE LIABILITY OF IGT AND THE MANUFACTURER OF THE NOTE ACCEPTOR WHICH MAY BE INCLUDED IN THE MACHINES AND/OR EQUIPMENT INSTALLED
HEREUNDER, WHETHER IN CONTRACT, IN TORT, UNDER WARRANTY, IN NEGLIGENCE OR OTHERWISE, SHALL NOT EXCEED THE FAIR MARKET VALUE OF THE
NOTE ACCEPTOR AND UNDER NO CIRCUMSTANCES SHALL IGT OR THE MANUFACTURER OF THE NOTE ACCEPTOR BE LIABLE FOR SPECIAL, INDIRECT, OR
CONSEQUENTIAL DAMAGES. NEITHER IGT NOR THE MANUFACTURER OF THE NOTE ACCEPTOR SHALL BE LIABLE IN ANY RESPECT FOR THE ACCEPTANCE OF
COUNTERFEITS AND/OR FRAUDULENT MATERIALS. ANY UNAUTHORIZED MODIFICATION, ALTERATION, OR REVISION OF ALL OR ANY PORTION OF THE IGT
EQUIPMENT WHICH IS THE SUBJECT OF THIS AGREEMENT SHALL CAUSE THE WARRANTY DESCRIBED IN THE ABOVE PARAGRAPH TO BE NULL AND VOID.
IGT, ITS AFFILIATES, SUBSIDIARIES, REPRESENTATIVES, AND AGENTS MAKE NO OTHER WARRANTY, EXPRESS OR IMPLIED.
11. Defined Terms. The term "par value" or "payback percentage" refers to the theoretical percentage of coin-in that is
paid out by a particular game as an average over an extended period of time. The term "percentage hold" is equal to one hundred
percent (100%) minus the par value. The term "optimum value" refers to the theoretical percentage of coin-in that is paid out to
an imaginary player employing optimum skill strategy on a particular game in which skill is a component in the payback percentage.
Each of the terms defined herein is determined by IGT according to a computer calculation program developed by IGT. Due to the
strategy employed by each individual player in games involving player skill, IGT cannot predict the actual observed par, payback
percentage or percentage hold values with certainty. The IGT computer calculation program attempts to account for optimum skill
strategy to provide customers with a comparative measure between games. Any numerical representation of the defined terms made by
IGT, whether oral, written, or in any other form, should not be relied on for revenue forecasts.
12. Maintenance. It is the sole responsibility of the Customer to provide quarterly inspection and regular maintenance
of all chairs and stools sold or leased hereunder. Failure to provide such maintenance could result in serious injury to patrons.
13. Purchase Order. The terms and conditions stated herein shall prevail over any conflict in terms and conditions
between any Purchase Order submitted by Customer and the terms and conditions stated herein.
14. Intellectual Property Protection. IGT agrees to indemnify Customer against liability, including costs for
infringement of any valid United States patent, copyright or trademark arising out of the purchase of products under this Agreement
which are produced to IGT's specifications, drawing or design and which are not produced in substantial accordance with Customer's
specifications, drawings or design; provided, however, that the foregoing indemnity shall not apply unless IGT shall have been
informed as soon as practicable by Customer or Customer's customer of the suit or action alleging such infringement, and shall have
been given such opportunity as is afforded by applicable laws, rules or regulations to assume and control the investigation,
defense and settlement thereof. This indemnification shall not apply if (a) the infringement results from compliance with specific
written instructions of Customer directing a change in the supplies to be delivered or in the materials or equipment to be used, or
directing a manner of performance of this Agreement not normally used by IGT; or (b) the infringement results from the addition to,
or change in, the supplies furnished, which addition or change was made subsequent to delivery or performance by IGT; or (c) the
infringement results from Customer's use of the products manufactured under this Agreement in a system patented by a person or
persons other than IGT; or (d) the claimed infringement is settled without the consent of IGT, unless required by final decree
of a court of competent jurisdiction.
15. Entire Agreement. This Agreement constitutes the entire understanding between the parties with regard to the subject
matter of this Agreement. There are no other understandings, express or implied, written or oral. This Agreement may not be
modified, and no provision herein shall be waived, except by a written instrument signed by both parties. No waiver of any term or
condition shall be deemed to waive that term or condition on a future occasion or any other term or condition, unless expressly
stated in the written instrument constituting the waiver.
16. Applicable Law. The laws of the State of Colorado shall govern the validity, performance, and enforcement of the
terms and conditions of this Agreement and any other obligations created thereby.
</TABLE>
<PAGE> 1
EXHIBIT 10.26
PROMISSORY NOTE
(THIS NOTE PROVIDES FOR ADJUSTMENTS IN ITS INTEREST RATE)
$3,564,000.00 Minneapolis, Minnesota
October 22, 1996
FOR VALUE RECEIVED, the Undersigned, NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation ("Undersigned"), agrees and promises to pay to the order
of MILLER & SCHROEDER INVESTMENTS CORPORATION, a Minnesota corporation, its
endorsees, successors and assigns ("Holder"), at its principal office at 300
Pillsbury Center, 220 South Sixth Street, Minneapolis, Minnesota 55402, or such
other place as the Holder may from time to time designate, the principal sum of
Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) or so much as may from time to time be disbursed hereon,
together with interest on the Principal Balance (as later defined) at the rate
or rates of interest hereinafter set forth. This Note shall be payable in the
following manner and on all the following terms and at the following times:
1. Definitions. For purposes of this Note the following terms shall have the
following meanings:
a. "Adjusted Rate" shall mean the Interest Rate as from time to time
adjusted in accordance with paragraph 2.b. of this Note.
b. "Adjustment Date" shall mean the first day of each Loan Year.
c. "Bank" shall mean Norwest Bank Minnesota, National Association, Main
Office, Minneapolis, Minnesota.
d. "Basis Points" shall mean an arithmetic expression of a percentage
measured in hundredths of a percent (i.e. 50 Basis Points equals fifty
hundredths percent).
e. "Base Rate" shall mean the rate of interest from time to time as
announced by the Bank as its "base rate". The "base rate" shall be as
so announced, notwithstanding that other rate or rate(s) of interest
may actually be charged by the Bank to its borrowers, and Holder shall
have no liability on account of any such discrepancy. The written
statement or notice from the Bank as to what the Base Rate was on any
given date shall be conclusive and in the event the Bank ceases to
announce a "base rate", the rate used by the Bank to price its loans
whether called its "reference rate", "prime rate", "base rate", or
otherwise, shall be substituted in place of its Base Rate. If the
Bank shall cease business or is no longer quoting a base rate to price
its loans, then the rate publicly announced by one of the five largest
Minneapolis-St. Paul area banks selected by Holder in its discretion
as its rate most closely resembling
<PAGE> 2
such Base Rate shall be substituted. The Base Rate may not be the
Bank's best rate and Holder makes no representations to that effect.
f. "Casino" shall mean a gaming casino operated on the Premises.
g. "Casino Equipment" shall mean all equipment used in the operation of
the Casino.
h. "Disbursement Date" shall mean the date on which Principal sums on
this Note are transmitted or sent by electronic means or delivered by
draft or check to the account of Ticor Title Insurance Company,
Woodland Park, Colorado, as closing escrow, or to the Undersigned, in
closing of the loan evidenced by this Note.
i. "Maturity Date" shall mean May 1, 1998 or such earlier date as this
Note may be declared due and payable by the Holder in accordance with
its terms.
j. "Premises" shall mean certain parcel(s) of land and improvements
situate in the City of Cripple Creek, County of Teller, State of
Colorado, all as more fully described in the Deed of Trust referred to
in this Note.
k. "Principal" shall mean the from time to time sums of money
disbursed by the Holder pursuant to this Note.
l. "Principal Balance" shall mean the Principal from time to time
outstanding and unpaid on this Note.
m. "Term" shall mean the period over which this Note is to be paid, that
is from the Disbursement Date to the Maturity Date.
2. Interest Rate. The Principal Balance of this Note shall bear
interest at the following rates of interest ("Interest"):
a. Stated Rate. From and after the Disbursement Date until payment in
full this Note shall bear interest at a definite and certain but
fluctuating per annum rate of interest equal to 225 Basis Points plus
the Base Rate as such Base Rate may change from time to time.
b. Default Rate. If a Default (as later defined) occurs under this Note
then, at the option of the Holder hereof, during the entire period
during which such Default shall occur and be continuing interest shall
be payable on the Principal Balance at a per annum rate of interest
equal to the lesser of (i) the maximum lawful rate of interest
permitted to be paid on this Note or (ii) Four percent (4%) plus the
Interest Rate then in effect ("Default Rate") whether or not the
2
<PAGE> 3
Holder has exercised its option to accelerate the maturity of this
Note and declare the entire Principal Balance due and payable.
3. Basis of Computation. Interest shall be computed on the basis of a
365/360 day year payable on a 30/360 day basis. Interest shall commence as to
any Principal disbursed on the date of disbursement of such Principal.
4. Late Charge. In the event that any payment required hereunder is not
paid when due within ten (10) days of when due, the Undersigned agrees to pay a
late charge of $.04 per $1.00 of unpaid payment to defray the costs of the
Holder incident to collecting such late payment. This late charge shall apply
individually to all payments past due and there will be no daily pro rata
adjustment. This provision shall not be deemed to excuse a late payment or be
deemed a waiver of any other rights the Holder may have including the right to
declare the entire Principal Balance and interest immediately due and payable.
5. Terms of Payment. This Note shall be payable as follows:
a. On the first day of November, 1996 and on the first day of each
month thereafter up to and including the month preceding the
Maturity Date a payment equal to the Interest then accrued shall
be paid.
b. On the Maturity Date, the entire Principal Balance plus accrued
interest and all other charges and sums due under this Note shall
be due and payable in full.
Payment on this Note shall be made by automatic payment via Automated Clearing
House procedures to the Holder on each payment date. The Undersigned will
issue Authorization for automatic payments to its depository bank authorizing
automatic payment of each monthly payment. Such authorization shall be
irrevocable and may not be changed or withdrawn without Holder's consent.
6. Application of Payments. All payments shall be applied first to any
costs of collection, then to Late Charges, then to Interest and then to
Principal Balance, except that if any advance made by the Holder under the terms
of any instruments securing this Note is not repaid, any monies received, at the
option of the Holder, may first be applied to repay such advances, plus interest
thereon, and the balance, if any, shall be applied as above. If any payment of
Principal, Interest, Late Charge or other sum be made hereunder becomes due and
payable on a day other than a business day, the due date of such payment shall
be extended to the next succeeding business day and interest thereon shall be
payable at the applicable interest rate during such extension.
7. Extensions. The Undersigned reserves the right to extend the Maturity
Date of this Note for an additional term of eighteen (18) months ("Extended
Term") expiring November 1, 1999 ("Extended Maturity Date") on the following
terms and conditions:
3
<PAGE> 4
a. No Default then be existing under this Note.
b. No Event of Default shall have occurred under the Deed of Trust
hereafter referred to;
c. The Undersigned pays to the Holder an extension fee equal to one-half
of one percent (1/2 of 1%) of the Principal Balance of this Note.
d. The Undersigned shall have furnished to the Holder and the Holder
shall have approved a financial statement showing income and expenses
for the preceding twelve (12) months prepared by a reputable
accounting firm and showing cash flow available for debt service on
this Note (after payment of all indebtedness secured by liens on the
Premises senior to the Deed of Trust and all Casino Equipment
lease/financing obligations due on equipment used in the Casino) equal
to a minimum of 1.25 times debt service on this Note for the
immediately preceding twelve (12) months and multiplied by 1.5 times
to provide for eighteen (18) months debt service coverage ("Coverage
Requirement"), or alternatively, if the Undersigned cannot satisfy
such coverage ratio, the Undersigned shall have furnished the Holder
an unconditional, irrevocable, "evergreening", sight letter of credit
issued by a bank acceptable to the Holder naming the Holder as
beneficiary in an amount equal to the difference between the cash flow
available for debt service coverage on this Note and the Coverage
Requirement..
e. The Undersigned shall prepay $250,000.00 of the Principal Balance at
the time of extension.
f. During the term of the extension the Undersigned shall continue to
make the monthly payments of accrued Interest as required above and
shall during the ninth (9th) month of the term of the extension prepay
an additional $250,000.00 of the Principal Balance.
g. The Undersigned must notify the Holder in writing not more than sixty
(60) days nor less than thirty (30) days before the Maturity Date of
its intention to exercise this right to extend this Note for the
Extended Term.
h. The Holder have funds available at that time for the Extended Term.
If the above terms and conditions are satisfied and the Undersigned extends the
term of this Note for the Extended Term, the Undersigned agrees to execute such
documents and provide such evidence as the Holder shall deem necessary to
continue the obligation of the Undersigned under this Note and each of the
instruments securing the same in full force and effect at the new Extension
Rate including among other things a Note Modification Agreement and an
endorsement to the Mortgagee's Title Insurance Policy issued to the Holder
insuring the uninterrupted continuity of the Holder's first lien under
4
<PAGE> 5
the Deed of Trust with no additional exceptions to title. All expenses incurred
in connection with the extension of the term, including any necessary recording
fees, mortgage registration tax, title insurance fees and premiums, reasonable
fees of Holder's counsel and the like, shall be paid by the Undersigned.
8. Mandatory and Permitted Prepayment. The Principal Balance of this
Note may be voluntarily prepaid in whole or in part at any time without penalty.
Any voluntary prepayment shall be made on fifteen (15) days advance written
notice. At the option of the Holder the Principal Balance of this Note is
subject to mandatory prepayment, in whole or part as the case may be, upon
certain events of damage, destruction or condemnation of the Premises Deed of
Trust as security for this Note all as more fully set forth in the Deed of Trust
hereinafter referred to.
9. Security. This Note is the Note referred to in and secured by (i) a
Deed of Trust and Security Agreement and Fixture Filing and Financing Statement
given by the Undersigned and 353 Myers Avenue Limited Partnership, a Minnesota
limited partnership, ("Partnership") to the Public Trustee of the County of
Teller, Colorado, for the benefit of the Holder ("Deed of Trust"), (ii) an
Assignment of Rents and Leases given by the Undersigned and the Partnership to
Holder ("Assignment"), and (iii) other security instruments ("Other Security
Instruments") each of even date herewith conveying the Premises in trust,
granting a security interest in personal property thereon and assigning the
rents, leases, income and profits therefrom ("Collateral").
10. Default. If (i) default be made in any payment when due in
accordance with the terms and conditions of this Note or (ii) an Event of
Default (as defined therein) occurs under the Deed of Trust, or (iii) an Event
of Default (as defined therein) occurs under the Assignment or any Other
Security Instruments, [clauses (i), (ii) and (iii) being herein singularly and
collectively referred to as a "Default"], the entire Principal Balance together
with accrued interest thereon and Late Charges, if any, shall become immediately
due and payable at the option of the Holder hereof.
11. Time of Essence. Time is of the essence. No delay or omission on
the part of the Holder in exercising any right hereunder shall operate as a
waiver of such right or of any other remedy under this Note. A waiver on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy on a future occasion.
12. Costs Of Collection. In the event of any Default hereunder the
Undersigned agrees to pay the costs of collection including reasonable
attorney's fees.
13. Waiver of Presentment, Etc. Presentment for payment, protest and
notice of non-payment are waived. Consent is given to any extension or
alteration of the time or terms of payment hereof, any renewal, any release of
any or all part of the security given for the payment hereof, any acceptance of
additional security of any kind, and any release of, or resort to any party
liable for payment hereof.
5
<PAGE> 6
14. Savings Clause. It is expressly stipulated and agreed to be the
intent of Undersigned and Holder at all times to comply with applicable state
law or applicable United States federal law (to the extent that it permits
Holder to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this section shall control every other
covenant and agreement in this Note and any other loan documents delivered in
connection herewith. If the applicable law is ever judicially interpreted so as
to render usurious any amount called for under this Note or under any of the
other Loan Documents, or contract for, charged, taken, reserved, or received
with respect to the indebtedness by this Note ("Indebtedness"), or if Holder's
exercise of the option to accelerate the maturity of this Note, or if any
prepayment by Undersigned results in Undersigned having paid any interest in
excess of that permitted by applicable law, then it is Undersigned's and
Holder's express intent that all excess amounts theretofore collected by Holder
shall be credited on the Principal Balance of this Note and all other
Indebtedness (or, if this Note and all other Indebtedness have been or would
thereby be paid in full, refunded to Undersigned), and the provisions of this
Note and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new documents, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid or agreed to be paid to Holder for the
use, forbearance, or detention of the Indebtedness shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term of the Indebtedness until payment in full so
that the rate or amount of interest on account of the Indebtedness does not
exceed the maximum lawful rate from time to time in effect and applicable to the
Indebtedness for so long as the Indebtedness is outstanding. Notwithstanding
anything to the contrary contained herein or in any of the other Loan Documents,
it is not the intention of Holder to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
15. Acceleration on Sale or Encumbrance. In the event of a Transfer
without the written consent of the Holder being first obtained, whether
voluntarily, involuntarily, or by operation of law, then at the sole option of
the Holder, the Holder may upon notice to the Undersigned declare the entire
Principal Balance together with accrued Interest, due and payable in full. Any
such payment shall be subject to the requirements, if any, in this Note
providing for the payment of a prepayment premium in the event of a
non-permitted Transfer. A consent by the Holder as to any one Transfer shall
not be deemed to be a waiver of the right to require consent to a future
Transfer. As used herein, the term "Transfer" shall include any sale, pledge,
assignment, Deed of Trust, encumbrance, security interest, consensual lien,
hypothecation, transfer or divesture or otherwise of or in i) the Premises or
ii) the Undersigned or iii) any underlying ownership interest in the Undersigned
or iv) any entity controlling, managing or in control of the Undersigned, either
directly or indirectly, including an interest taken as security. Any change in
the legal or equitable title of the Premises or in the beneficial ownership of
the Premises or the Undersigned, whether or not of record and whether or not for
consideration shall be deemed a Transfer. This paragraph shall not be construed
as to
6
<PAGE> 7
prevent the Undersigned from issuing additional shares of stock in the
Undersigned as long as National Lodgings, Inc., and the guarantors of this Note
shall in the aggregate remain the majority shareholders in the Undersigned nor a
sale of Parcel No. 2 of the Premises to the Undersigned.
16. Consent to Jurisdiction. The Undersigned submits and consents to
personal jurisdiction of the Courts of the State of Minnesota and Courts of the
United States of America sitting in such State for the enforcement of this
instrument and waive any and all personal rights under the laws of any state or
the United States of America to object to jurisdiction in the State of
Minnesota. Litigation may be commenced in any state court of general
jurisdiction for the State of Minnesota or the United States District Court
located in that state, at the election of the Holder. Nothing contained herein
shall prevent Holder from bringing any action against any other party or
exercising any rights against any security given to Holder, or against the
Undersigned personally, or against any property of the Undersigned, within any
other state. Commencement of any such action or proceeding in any other state
shall not constitute a waiver of consent to jurisdiction or of the submission
made by the Undersigned to personal jurisdiction within the State of Minnesota.
17. Notices. Any notices and other communications permitted or required
by the provisions of this Note (except for telephonic notices expressly
permitted) shall be in writing and shall be deemed to have been properly given
or served by depositing the same with the United States Postal Service, or any
official successor thereto, designated as Certified Mail, Return Receipt
Requested, bearing adequate postage, or deposited with reputable private courier
or overnight delivery service, and addressed as hereinafter provided. Each such
notice shall be effective three (3) days after being deposited or delivered as
aforesaid. The time period within which a response to any such notice must be
given, however, shall commence to run from the date of receipt of the notice by
the addressee thereof. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall be deemed
to be receipt of the notice sent. By giving to the other party hereto at least
ten (10) days' notice thereof, either party hereto shall have the right from
time to time to change its address and shall have the right to specify as its
address any other address within the United States of America.
Each notice to Holder shall be addressed as follows:
Miller & Schroeder Investments Corporation
300 Pillsbury Center
220 South Sixth Street
Minneapolis, Minnesota 55402
Attn: Vice President - Mortgage Loans
Each notice to Undersigned shall be addressed as follows:
7
<PAGE> 8
National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
Attn: President
18. Governing Law. Notwithstanding the place of execution of this
instrument, the parties to this instrument have contracted for Minnesota law to
govern this instrument and it is controllingly agreed that this instrument is
made pursuant to and shall be construed and governed by the laws of the State of
Minnesota without regard to the principles of conflicts of law.
19. Adjustable Rate. The interest rate on this Note is subject to
adjustment as provided herein.
Executed as of the date first above written.
NATIONAL GAMING COMPANIES, INC.,
a Minnesota corporation
By: /s/ Robert J. Swenson
--------------------------------
Its: President
-------------------------------
8
<PAGE> 1
EXHIBIT 10.27
THIS DOCUMENT WAS DRAFTED BY
AND WHEN RECORDED RETURN TO:
Donald P. Norwich, Esq.
OPPENHEIMER WOLFF & DONNELLY
3400 Plaza VII Building
45 South Seventh Street
Minneapolis, Minnesota 55402
THIS DOCUMENT IS ALSO TO BE FILED AS A FIXTURE FILING IN THE REAL ESTATE
RECORDS OF TELLER COUNTY, COLORADO AND CONSTITUTES A FIXTURE FILING.
INFORMATION CONCERNING THE GRANTOR AND THE PROPERTY COVERED BY THIS FILING ARE
CONTAINED HEREIN.
DEED OF TRUST
and
SECURITY AGREEMENT
and
FIXTURE FILING
and
FINANCING STATEMENT
THIS INSTRUMENT (hereinafter referred to as "Deed of Trust"), is made and
given this 22nd day of October, 1996, by NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation ("Borrower") and 353 MYERS AVENUE LIMITED PARTNERSHIP, a
Minnesota limited partnership ("Partnership") (both Borrower and Partnership
being herein sometimes collectively referred to as "Grantor"), each of whose
post office address is 9855 West 78th Street, Suite 220, Eden Prairie,
Minnesota 55344 to PUBLIC TRUSTEE OF THE COUNTY OF TELLER, COLORADO
("Trustee"), for the benefit of MILLER & SCHROEDER INVESTMENTS CORPORATION, a
Minnesota corporation ("Beneficiary"), whose post office address is 300
Pillsbury Center, 220 South Sixth Street, Minneapolis, Minnesota 55402.
PRELIMINARY STATEMENT OF FACTS:
A. The Borrower is the owner of those parcels of real estate situate
in City of Cripple Creek, County of Teller, State of Colorado as described in
Exhibit "A" attached hereto with the exception of Parcel No. 2.
B. The Partnership is the owner of Parcel No. 2 as described in
Exhibit "A" on which land there is located improvements which are operated as a
gaming casino commonly known as the "Jubilee Casino" ("Casino"). The other
parcels owned by the Borrower provide parking and other facilities for use by
the Casino. As used in this Deed of Trust the term
<PAGE> 2
"Premises" includes all of real property and improvements thereon described in
Exhibit "A" attached ("Premises").
C. The Borrower is a limited partner of the Partnership holding a
97.165647% interest in the Partnership. Cripple Creek Corporation, a Minnesota
corporation, is also a partner of the Partnership and holds a 2% interest as
general partner and holds the remaining percentage interest of the Partnership
as a limited partner.
D. The Beneficiary is making a loan to the Borrower in the amount of up to
Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) ("Loan") the proceeds of which are being used to among other
things reimburse the Borrower for costs of acquiring its interest in the
Partnership, the stock of Cripple Creek Corporation, the Premises, to retire
existing indebtedness of the Partnership, to pay off short term debt of the
Partnership, to cover future development costs and to fund various reserves
required by the Beneficiary.
E. The Loan is evidenced by a Promissory Note dated of even date herewith
executed and delivered by the Borrower to the Beneficiary in the principal sum
of Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) ("Note").
F. The Note bears interest at a variable per annum rate of interest equal
to 225 Basis Points plus the "Base Rate" of Norwest Bank Minnesota, National
Association, Main Office, Minneapolis, Minnesota, as such Base Rate changes from
time to time all as more fully set forth in the Note ("Interest Rate") except
that during the period of and continuance of a default under the Note or Event
of Default under this Deed of Trust the Note shall bear interest at a per annum
rate of interest of Four percent (4%) percent in excess of the interest rate
then in effect on the Note whether or not the Beneficiary has exercised its
option to accelerate the maturity of the Note and declare the entire unpaid
Indebtedness Secured Hereby due and payable as more fully set forth in the Note
("Default Rate").
G. The Partnership is executing and delivering to the Beneficiary its
Guaranty of the Note to be dated of even date herewith ("Guaranty") and which
Guaranty is also executed by Robert Swenson, Stephen Sherf, Craig Forsman,
Terrance DeRoche, John Klinkhammer and National Lodging Companies, Inc., a
Minnesota corporation. All of such parties including the Partnership are herein
referred to as the "Guarantors".
H. As security for the repayment of the Loan as evidenced by the Note and
to secure the obligations of the Partnership under the Guaranty, and in order to
induce the Beneficiary to extend the Loan to the Borrower and in recognition
that the Borrower, as majority partner in the Partnership will be using the
funds to retire the existing indebtedness on the Casino, the Partnership is
executing this Deed of Trust.
I. The Note is payable in installments with a final installment payment of
principal and interest due on May 1, 1998 ("Maturity Date").
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J. As used herein the term "Note Rate" shall mean the rate of interest
then in effect on the Note whether the Interest Rate or Default Rate, as the
case may be.
K. As used herein the term "Grantor" shall include both the Borrower and
the Partnership in their capacities as co-grantors under this Deed of Trust.
NOW, THEREFORE, in consideration of the Loan evidenced by the Note and of
the sum of One and 00/100 Dollar ($1.00) paid by the Beneficiary to the
Grantor, the receipt whereof is hereby acknowledged, and for the purposes
aforesaid the Grantor hereby GRANTS, BARGAINS, SELLS, TRANSFERS AND CONVEYS
unto the Trustee, its successors and assigns, forever, AND GRANTS TO THE
BENEFICIARY A SECURITY INTEREST IN all of the following properties hereinafter
set forth (all the following being hereinafter collectively referred to as the
"Premises"):
A. REAL PROPERTY
All the tracts or parcels of real property lying and being in the County of
Teller, State of Colorado, all as more fully described in Exhibit "A" attached
hereto and made a part hereof, together with all the estates and rights in and
to the real property and in and to lands lying in streets, alleys and roads
adjoining the real property and all buildings, structures, improvements,
fixtures and annexations, access rights, easements, rights of way or use,
servitudes, licenses, tenements, hereditaments and appurtenances now or
hereafter belonging or pertaining to the real property; together with all water
rights (whether riparian, appropriative or otherwise whether or not appurtenant)
now or hereafter relating to or used in connection with the real property, and
all shares of stock, if any, evidencing such rights ("Real Property"), and
B. PERSONAL PROPERTY
All buildings, improvements, personal property, fixtures, fittings and
furnishings, now owned, licensed or leased or hereafter acquired by the Grantor
and now or hereafter attached to, located at, or placed in the improvements on
the real property described herein including, without limitation all machinery,
fittings, fixtures, apparatus, equipment or articles used to supply heating,
gas, electricity, air conditioning, water, light, waste disposal, power,
refrigeration, ventilation, and fire and sprinkler protection; all maintenance
supplies and repair equipment; all draperies, carpeting, floor coverings,
screens, storm windows and window coverings, blinds, awnings, shrubbery and
plants; all elevators, escalators and shafts, motors, machinery, fittings and
supplies necessary for their use; all building materials and supplies now or
hereafter delivered to the Premises, and
C. ACCOUNTS
All Accounts now owned or hereafter acquired by the Grantor and, which in
any event, includes, without limitation, (i) all accounts receivable, book debts
and other forms of obligations now owned or hereafter received or acquired by or
belonging or owing to the
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Grantor (including, without limitation, under any trade name, style or division
thereof) whether arising out of goods sold or services rendered by the Grantor,
or from any other transaction, whether or not the same involves the sale of
goods or services by the Grantor (including, without limitation, any such
obligation which might be characterized as an account or contract right under
the UCC), (ii) all of the Grantor's rights in, to and under all purchase orders
or receipts now owned or hereafter acquired by it for goods or services, and all
of the Grantor's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller's rights of rescission, repletion,
reclamation and stoppage in transmit and rights to returned, reclaimed or
repossessed goods), (iii) all moneys due or to become due to the Grantor under
all contracts for the sale of goods or the performance of services or both by
the Grantor (whether or not yet earned by performance on the part of the Grantor
or in connection with any other transaction), now in existence or hereafter
occurring, including, without limitation, the right to receive the proceeds of
said purchase orders and contracts, and (iv) all collateral security and
guarantees of any kind given by any person with respect to any of the foregoing,
and
D. INCOME
All income derived from the operations conducted in the Casino including
all cash, all bank accounts and all payments from any consumer credit/charge
card organization, whether or not now existing or owed or hereinafter credited
or owed, and all proceeds of the foregoing, whether cash or non-cash, and
E. COMPUTER HARDWARE AND SOFTWARE
All computer hardware and software and which in any event includes (i) all
computer and other electronic data processing hardware, whether now owned,
licensed or leased or hereafter acquired by the Grantor, including, without
limitation, all integrated computer systems, central processing units, memory
units, display terminals, printers, features, computer elements, card readers,
tape drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and other
related computer hardware; (ii) all software programs, whether now owned,
licensed or leased or hereafter acquired by the Grantor, designed for use on the
computers and electronic data processing hardware described in clause (i) above,
including, without limitation, all operating system software, utilities and
application programs in whatsoever form (source code and object code in magnetic
tape, disk or hard copy format or any other listings whatsoever); (iii) all
firmware associated therewith, whether now owned, licensed or leased or
hereafter acquired by the Grantor including, without limitation, flow charts,
logic diagrams, manuals, specifications, training materials, charts and pseudo
codes; (iv) all documentation for such hardware, software and firmware described
in the preceding clauses (i), (ii) and (iii) above, and (v) all rights with
respect thereto, including, without limitation, any and all licenses, options,
warranties, service contracts, program services, test rights, maintenance
rights, support rights, improvement rights, renewal rights and indemnifications,
and any substitutions, replacements, additions or modern conversions of any of
the foregoing; whether now owned, licensed or leased or hereafter acquired by
the Grantor.
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F. CONTRACTS
All Contracts, undertakings or other agreements in or under which the
Grantor may now or hereafter have any right, title or interest, including,
without limitation, with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof, and
G. EQUIPMENT
All Equipment whether now owned, licensed or leased or hereafter acquired
by the Grantor and, which in any event, includes, without limitation, (i) all
equipment and fixtures of every kind and nature owned by Grantor used in
connection with the gaming operations in the Casino included but not limited to
all gaming tables, slot machines, computerized games and other electronic
equipment, (ii) tables, chairs, booths, bar equipment, utensils, food service
equipment, all equipment used in preparing food for use in the Casino,
freezers, refrigerators, dishwashers, ice machines and entertainment equipment;
(iii) all televisions, radios, cabling, phone and communications systems, and
wiring, cash registers, office equipment, coin wrappers, and the like used in
operating the Casino (iv) all ground keeping lawn sprinklers and lawn
maintenance systems owned by Grantor; (v) all vehicles used in the Casino
operations including courtesy vans and courtesy cars; (vi) all food stock,
liquor and inventory on hand or on order for the food and beverage service
provided in the Casino; (vii) all cleaning supplies and equipment; (viii) all
convenience items furnished to guests of the Casino; and all stationery,
brochures, booklets, written materials and writing supplies furnished or made
available to the guests of the Casino, (ix) all of the furniture, fixtures and
equipment owned by Grantor used in the operation of the Premises as a gaming
casino including but not limited to all carpeting, floor coverings, draperies,
curtains, lamps, beds, mattresses, box springs, towels, linens, chests, chairs,
lobby furniture and other furniture used in the operation of the Casino, (x)
all security systems, cameras, monitors, security devices and wiring, and (xi)
all other machinery, equipment, furnishings, fixtures, vehicles, computers and
other electronic data-processing and office equipment and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto, and
H. GENERAL INTANGIBLES
All General Intangibles now owned, licensed or leased, or hereafter
acquired by the Grantor and, which in any event, includes, without limitation,
customer lists, trademarks, patents, rights in intellectual property, licenses,
permits, copyrights, trade secrets, proprietary or confidential information,
inventions (whether patented or patentable or not) and technical information,
procedures, designs, knowledge, know-how, software data bases, data, skill,
expertise, experience, processes, models, drawings, materials and records,
goodwill, rights of indemnification, all right, title and interest which the
Grantor may now or hereafter have in or under any Contract, and now owned or
hereafter acquired by the Grantor, all licenses and permits used, useful or
necessary in the operation of the Casino, all liquor licenses, gaming
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licenses, elevator permits, beverage and food licenses, all right and interest
and into the use of the name and logo "Jubilee Casino" and "Jubilee Casino and
Old Homestead" and all derivatives thereof, all books, records, writings, data
bases, information and other property relating to, used or useful in connection
with, evidencing, embodying, incorporating, or referring to any of the
foregoing, and
I. INSURANCE PROCEEDS AND AWARDS
All awards, payments, proceeds now or hereafter obtainable by Grantor under
any policy of insurance insuring the Premises including but not limited to the
proceeds of casualty insurance, title insurance, business interruption/rents
insurance or other insurance maintained with respect to the Premises whether by
Grantor or otherwise, and
J. RENTS, INCOME, LEASES AND PROFITS
All rents, income, contract rights, leases and profits now due or which may
hereafter become due under or by virtue of any lease, license or agreement,
whether written or verbal, for the use or occupancy of the Premises or any part
thereof together with all tenant security deposits, and
K. CONDEMNATION AWARDS
All awards, compensation and settlements in lieu thereof made as a result
of the taking by power of eminent domain of the whole or any part of the
Premises, including any awards for damages sustained to the Premises, for a
temporary taking, change of grade of streets or taking of access; and
L. INVENTORY
All inventory of Grantor, whether now owned or hereafter acquired and
wherever located.
Together with improvements, accessions, appurtenances, substitutions and
replacements thereof, insurance proceeds and condemnation awards payable
therefrom together with all proceeds and products thereof and all rights
thereto now or hereafter existing.
It is specifically understood that the enumeration of any specific articles
of property shall in nowise exclude or be held to exclude any items of property
not specifically mentioned. All of the Premises hereinabove described, real,
personal and mixed, whether affixed or annexed or not, and all rights hereby
conveyed and Deed of Trust are intended to be as a unit and are hereby
understood and agreed and declared to be appropriated to the use of the
Premises, and shall for the purposes of this Deed of Trust be deemed to be real
estate and conveyed and Deed of Trust hereby.
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THIS CONVEYANCE IS MADE IN TRUST, HOWEVER, to secure
(i) payment by the Borrower, its successors and assigns, to the
Beneficiary, its successors and assigns, the sum of Three Million Five
Hundred Sixty-Four Thousand and no/100 Dollars ($3,564,000.00),
according to the terms of the Note, or so much as is from time to time
disbursed thereon, the terms and conditions of which are incorporated
herein by reference and made a part hereof, together with any
extensions or renewals thereof, due and payable with interest thereon
at the Note thereon being due and payable in any event on the Maturity
Date; and
(ii) payment to the Beneficiary, its successors and assigns, at the
times demanded and with interest thereon at the Note Rate, all sums
advanced (a) in protecting the lien of this Deed of Trust, (b) in
payment of taxes on the Premises, (c) in payment of insurance premiums
covering improvements thereon, (d) in payment of principal and
interest on prior liens, (e) in payment of expenses and attorneys fees
herein provided for, and (f) all sums advanced for any other purpose
authorized herein; and
(iii) the keeping and performance of the obligations of the Partnership
under the Guaranty; and
(iv) the keeping of and performance of the covenants and agreements
herein contained; and
(v) the keeping of and performance of all of the terms and conditions of
any instrument given as collateral for the Loan.
The Note and all such sums, together with interest thereon, being collectively
referred to as the "Indebtedness Secured Hereby".
AND IT IS FURTHER COVENANTED AND AGREED AS FOLLOWS:
I. GENERAL COVENANTS, AGREEMENTS, WARRANTIES
1.1 Payment of Indebtedness: Observance of Covenants. Borrower shall
duly and punctually pay each and every installment of principal and interest on
the Note and all other Indebtedness Secured Hereby, as and when the same shall
become due, and shall duly and punctually perform and observe all of the
covenants, agreements and provisions contained herein, in the Note and any other
instrument given as security for the payment of the Note.
1.2 Performance of Guaranty. The Partnership shall duly and punctually
keep and perform all of its obligations under the Guaranty.
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1.3 Maintenance: Repairs. Grantor shall not abandon the Premises, shall
keep and maintain the Premises in good condition, repair and operating
condition, normal wear and tear excluded, free from any waste or misuse, and
shall promptly repair or restore any buildings, improvements or structures now
or hereafter on the Premises which may become damaged or destroyed to their
condition prior to any such damage or destruction. Grantor further agrees that
it will not expand any improvements on the Premises, erect any new improvements
or make any material alterations in any improvements which shall alter the basic
structure, adversely affect the market value or change the existing
architectural character of the Premises, nor remove or demolish any improvements
without suitable replacement thereof, and shall complete within a reasonable
time any buildings now or at any time in the process of remodeling on the
Premises; provided nothing herein shall preclude Grantor from constructing
improvements necessary or desirable to the use of the Premises for Grantor's
business purposes which are non-structural in nature and which do not constitute
material alterations to the Premises or affect the nature of use, structure or
utility of the Premises or decrease the market value of the Premises.
1.4 Compliance with Laws. Grantor shall comply with all requirements of
law, municipal ordinances and regulations affecting the Premises, shall comply
with all private restrictions and covenants affecting the Premises and shall not
acquiesce in or seek any rezoning classification affecting the Premises.
1.5 Payment of Operating Costs: Prior Deed of Trusts and Liens. Grantor
shall pay all operating costs and expenses of the Premises, shall keep the
Premises free from levy, attachment, mechanics', materialmen's and other liens
("Liens") and shall pay when due all indebtedness which may be secured by Deed
of Trust, lien or charge on the Premises.
1.6 Payment of Impositions. Grantor shall pay when due and in any event
before any penalty attaches all taxes, assessments, governmental charges, water
charges, sewer charges, and other fees, taxes, charges and assessments of every
kind and nature whatsoever assessed or charged against or constituting a lien on
the Premises or any interest therein ("Impositions") and will upon demand
furnish to the Beneficiary proof of the payment of any such Impositions. In the
event of a court decree or an enactment after the date hereof by any legislative
authority of any law imposing upon a Beneficiary the payment of the whole or any
part of the Impositions herein required to be paid by the Grantor, or changing
in any way the laws relating to the taxation of Deed of Trusts or debts secured
by Deed of Trusts or a Beneficiary's interest in mortgaged premises, so as to
impose such Imposition on the Beneficiary or on the interest of the Beneficiary
in the Premises, then, in any such event, Grantor shall bear and pay the full
amount of such Imposition, provided that if for any reason payment by Grantor of
any such Imposition would be unlawful, or if the payment thereof would
constitute usury or render the Indebtedness Secured Hereby wholly or partially
usurious, Beneficiary, at its option, may declare the whole sum secured by this
Deed of Trust with interest thereon to be immediately due and payable, without
prepayment premium, or Beneficiary, at its option, may pay that amount or
portion of such Imposition as renders the Indebtedness Secured Hereby unlawful
or usurious, in which event Grantor
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shall concurrently therewith pay the remaining lawful and non-usurious portion
or balance of said Imposition.
1.7 Contest of Impositions, Liens and Levies. Grantor shall not be
required to pay, discharge or remove any Imposition or any Lien so long as the
Grantor shall in good faith contest the same or the validity thereof by
appropriate legal proceedings which shall operate to prevent the collection of
the Lien or Imposition so contested and the sale of the Premises, or any part
thereof, to satisfy the same, provided that the Grantor shall, prior to the date
such Lien or Imposition is due and payable, have given such reasonable security
as may be demanded by the Beneficiary to insure such payments plus interest or
penalties thereon, and prevent any sale or forfeiture of the Premises by reason
of such nonpayment. Any such contest shall be prosecuted with due diligence and
the Grantor shall promptly after final determination thereof pay the amount of
any such Lien or Imposition so determined, together with all interest and
penalties which may be payable in connection therewith. Notwithstanding these
provisions Grantor shall (and if Grantor shall fail so to do, Beneficiary, may
but shall not be required to) pay any such Lien or Imposition notwithstanding
such contest if in the reasonable opinion of the Beneficiary, the Premises shall
be in jeopardy or in danger of being forfeited or foreclosed.
1.8 Protection of Security. Grantor shall promptly notify Beneficiary of
and appear in and defend any suit, action or proceeding that affects the
Premises or the rights or interest of Beneficiary hereunder and the Beneficiary
may elect to appear in or defend any such action or proceeding. Grantor agrees
to indemnify and reimburse Beneficiary from any and all loss, damage, expense or
cost arising out of or incurred in connection with any such suit, action or
proceeding, including costs of evidence of title and reasonable attorney's fees
and such amounts together with interest thereon at the Note Rate shall become
additional "Indebtedness Secured Hereby" and shall become immediately due and
payable.
1.9 Annual Statements. Grantor shall furnish to the Beneficiary the
following information at the following times:
(a) as soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of Borrower, its annual
financial statement for such year, which annual report shall include its
balance sheet and related statements of income and expenses, shareholders'
equity and cash flow for the fiscal year then ended, all in reasonable
detail and all prepared in accordance with GAAP by a reputable accounting
firm.
(b) as soon as available, and in any event within one hundred twenty
(120) days after the end of each calendar year, a copy of the annual
financial statements of Partnership, which shall include the balance sheet
of Partnership as at the end of such year and related statements of income
and expenses, statements of changes in financial position, a statement of
changes in capital accounts and a statement of allocation of distribution
of profits and losses of the Partnership all in reasonable
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detail, prepared in accordance with GAAP (or tax accounting reconciled to
GAAP) by a reputable accounting firm.
(c) as soon as available, and within one hundred twenty (120) days
after the end of each calendar year, a current financial statement of each
of the Guarantors who are natural persons which statement shall include an
itemization of all assets and liabilities of the Guarantor scheduled by
item and type, all investments and contingent liabilities and adequate to
disclose the net worth of Guarantor at such point in time. Such financial
statement shall be personally certified by the Guarantor and shall be
accompanied by the annual federal income tax return of Guarantor, including
all schedules, for the preceding taxable year as filed with the Internal
Revenue Service.
(d) as soon as available, and in any event within one hundred twenty
(120) days after the end of each fiscal year of the corporate Guarantor,
its annual financial statement for such year, which annual report shall
include its balance sheet and related statements of income and expenses,
shareholders' equity and cash flow for the fiscal year then ended, all in
reasonable detail and all prepared in accordance with GAAP by a reputable
accounting firm.
In the event Grantor fails to furnish any such statements after written request
to Grantor, the same shall be an Event of Default and in addition to any other
remedies available to Beneficiary, the Beneficiary may cause an audit to be
made of the respective books and records at the sole cost and expense of the
Grantor. Beneficiary also shall have the right to examine at their place of
safekeeping at reasonable times all books, accounts and records relating to the
operation of the Premises.
1.10 Additional Assurances. Grantor agrees upon reasonable request by the
Beneficiary to execute and deliver such further instruments, deeds and
assurances including financing statements under the Uniform Commercial Code and
will do such further acts as may be necessary or proper to carry out more
effectively the purposes of this Deed of Trust and without limiting the
foregoing, to make subject to the lien hereof any property agreed to be
subjected hereto or covered by the granting clause hereof, or intended so to be.
Grantor agrees to pay any recording fees, filing fees, note taxes, Deed of Trust
registry taxes or other charges arising out of or incident to the filing or
recording of this Deed of Trust, such further assurances and instruments and the
issuance and delivery of the Note.
1.11 Current Compliance With Laws. The Premises as improved on the date
hereof, comply with all material requirements of laws, including requirements of
any Federal, State, County, City or other governmental authority having
jurisdiction over the Grantor or the Premises and including, but not limited to,
any applicable zoning, occupational safety and health, the Americans with
Disability Act, energy and environmental laws, ordinances and regulations; and
the Grantor has obtained all necessary consents, permits and licenses to
construct, occupy and operate the Premises for its intended purposes.
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1.12 Title. Grantor is the lawful owner of and has good and marketable fee
simple absolute title to the Premises and will warrant and defend title to the
same free of all liens and encumbrances, other than the Encumbrances permitted
under the Lender's Policy of title insurance issued to Beneficiary in connection
with this Deed of Trust and has good right and lawful authority to grant,
bargain, sell, convey, Deed of Trust and grant a security interest in the
Premises as provided herein.
1.13 Management Agreement. Grantor will punctually keep and perform all of
the terms and conditions of the Management Agreement, will keep the same free of
default.
1.14 Equipment Replacement. Grantor will keep all equipment, including
gaming equipment, in the Casino in good order and repair and condition and will
maintain adequate reserves for replacement of the same. As and when any item of
equipment becomes one or obsolete the Grantor shall replace the same with a
replacement item of equipment of same utility and value.
1.15 Licenses and Permits. Grantor shall obtain and keep in full force and
effect all licenses and permits required to operate the Casino and all their
components, shall pay all required license and permit fees thereunder and shall
not surrender or permit such licenses and permits to lapse or terminate without
the prior written consent of the Beneficiary.
1.16 Federal Wetlands. Parcel No. 5 of the Premises is currently subject
to Cease and Desist Order issued by the U.S. Army Corps of Engineers, Action No.
1992 30103 (the "Order"). The Grantor covenants and agrees to bring the parcel
into compliance with the requirements of the Nationwide Permit authorization for
work in Cripple Creek in the Town of Cripple Creek, Colorado and the
requirements of the Corps of Engineers and to cause the Order to be rescinded.
II. INSURANCE AND ESCROWS
2.1 Insurance. Grantor shall obtain, pay for and keep in full force and
effect during the term of this Deed of Trust at its sole cost and expense the
following policies of insurance:
(a) All risk/open perils special form property insurance with extended
coverages including any building contents, sprinkler coverage, Ordinance of
Law coverage (including demolition cost, loss to undamaged portions of any
buildings and increased cost of construction) with limits of 100%
replacement cost and with no co-insurance provision or if the insurance
carrier requires, co-insurance provisions with an agreed amount endorsement
in amount acceptable to Beneficiary;
(b) insurance against loss or damage from (i) leakage of sprinkler
systems and (ii) explosion of steam boilers, air conditioning equipment,
high pressure piping, machinery and equipment, pressure vessels or similar
apparatus now or hereafter
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installed in any improvements on the Premises and including broad form
boiler and machinery insurance (without exclusion for explosion) covering
all boilers or other pressure vessels, machinery and equipment (including
electrical equipment, sprinkler systems, heating and air conditioning
equipment, refrigeration equipment and piping) located in, on or about the
Premises and any improvements thereon in an amount at least equal to the
full replacement cost of such equipment and the building or buildings
housing the same;
(c) flood insurance if any part of the Premises now (or
subsequently determined to be) is located in an area identified by the
Federal Emergency Management Agency as an area having special flood hazards
and in which flood insurance has been made available under the National
Flood Insurance Act of 1968 (and amendment or successor act thereto) in an
amount at least equal to the lesser of the full replacement cost of all
buildings and equipment on the Premises, the outstanding principal amount
of the Note or the maximum limits of coverage available with respect to the
buildings and equipment under said Act;
(d) earthquake or sinkhole insurance, if available in the area where
the Premises are located, in an amount at least equal to principal balance
of the Note or the maximum limited of coverage available, whichever is
less;
(e) Business Interruption insurance covering risk of loss due to the
occurrence of any hazards insured against under the required fire and
extended coverage insurance in an amount equal to one (1) year's loss of
income as such income may change from time to time due to changes in income
from the Premises;
(f) commercial general liability insurance (including broad form
property damage, blanket contractual and personal injuries, including death
resulting therefrom) and with minimum policy limits per single occurrence
of $1,000,000.00 and $2,000,000.00 in the aggregate and with excess
umbrella coverage of at least $10,000,000.00;
(g) Workmen's Compensation - Statutory workmen's compensation
coverage in the required amounts.
(h) Liquor Liability Coverage ("Dram Shop" coverage) in the minimum
amount of (i) $3,000,000 or (ii) amounts as may be statutorily required,
unless included in Grantors' General Liability Insurance.
(i) If any safety deposit box is maintained for guests, Safe Deposit
Box Liability in minimal amounts of $1,000,000.
(j) Such other coverages appropriate to the Premises, its location
and use as Beneficiary may from time to time require such as earthquake,
mine subsidence,
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sinkhole, personal property supplemental liability, or coverages of other
property - specific risks.
Such insurance policies shall be written on forms and with insurance
companies satisfactory to Beneficiary, shall be in amounts sufficient to prevent
the Grantor from becoming a co-insurer of any loss thereunder, and shall bear a
satisfactory mortgagee clause in favor of the Beneficiary with loss proceeds
under any such policies to be made payable to the Beneficiary. Blanket policies
must include limits by property location. All required policies of insurance or
acceptable certificates thereof together with evidence of the payment of current
premiums therefor shall be delivered to and be held by the Beneficiary. The
Grantor shall, within thirty (30) days prior to the expiration of any such
policy, deliver other original policies or certificates of the insurer
evidencing the renewal of such insurance together with evidence of the payment
of current premiums therefor. In the event of a foreclosure of this Deed of
Trust or any acquisition of the Premises by the Beneficiary all such policies
and any proceeds payable therefrom, whether payable before or after a
foreclosure sale, or during the period of redemption, if any, shall become the
absolute property of the Beneficiary to be utilized at its discretion. In the
event of foreclosure or the failure to obtain and keep any required insurance
the Grantor empowers the Beneficiary to effect the above insurance upon the
Premises at Grantor's expense and for the benefit of the Beneficiary in the
amounts and types aforesaid for a period of time covering the time of redemption
from foreclosure sale, and if necessary therefor, to cancel any or all existing
insurance policies. Grantor agrees to pay Beneficiary such fees as may be
permitted under applicable law for the costs incurred by Beneficiary in
determining, from time to time, whether the Premises are located within an area
having special flood hazards. Such fees shall include the fees charged by any
organization providing for such services.
2.2 Escrows. Grantor shall deposit with the Beneficiary, or at
Beneficiary's request, with its servicing agent, on the first day of each and
every month hereafter as a deposit to pay the costs of taxes, assessments and
insurance premiums next due ("Charges"):
(a) Initially a sum such that the amounts to be deposited pursuant to
(b) next and such initial sum shall equal the estimated Charges for the
next due payment; and
(b) Thereafter an amount equal to one-twelfth (1/12th) of the
estimated annual Charges due on the Premises.
Beneficiary will, upon the presentation to the Beneficiary by the Grantor of the
bills therefor, pay the Charges from such deposits or will upon presentation of
receipted bills therefor, reimburse the Grantor for such payments made by the
Grantor. In the event the deposits on hand shall not be sufficient to pay all
of the estimated Charges when the same shall become due from time to time, or
the prior deposits shall be less than the currently estimated monthly amounts,
then the Grantor shall pay to the Beneficiary on demand any amount necessary to
make up the deficiency. The excess of any such deposits shall be credited to
subsequent payments to be made for such items. If a default or an event of
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default shall occur under the terms of this Deed of Trust the Beneficiary may,
at its option, without being required so to do, apply any deposits on hand to
the Indebtedness Secured Hereby, in such order and manner as the Beneficiary may
elect. When the Indebtedness Secured Hereby has been fully paid any remaining
deposits shall be returned to the Grantor as its interest may appear. All
deposits are hereby pledged as additional security for the Indebtedness Secured
Hereby, shall be held for the purposes for which made as herein provided, may be
held by Beneficiary or its servicing agent and may be commingled with other
funds of the Beneficiary, or its servicing agent, shall be held without any
allowance of interest thereon and shall not be subject to the decision or
control of the Grantor. Neither Beneficiary nor its servicing agent shall be
liable for any act or omission made or taken in good faith. In making any
payments, Beneficiary or its servicing agent may rely on any statement, bill or
estimate procured from or issued by the payee without inquiry into the validity
or accuracy of the same. If the taxes shown in the tax statement shall be levied
on property more extensive than the Premises, then the amounts escrowed shall be
based on the entire tax bill and Grantor shall have no right to require an
apportionment and Beneficiary or its servicing agent may pay the entire tax bill
notwithstanding that such taxes pertain in part to other property and the
Beneficiary shall be under no duty to seek a tax division or apportionment of
the tax bill.
III. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT
3.1 Security Agreement. This Deed of Trust shall constitute a security
agreement as defined in the Uniform Commercial Code of the State of Colorado
("Code") in the items described in the Granting Clauses of this Deed of Trust
("Collateral"). Any Collateral installed in or used in the Premises are to be
used by the Grantor solely for Grantor's business purposes or as the equipment
and fixtures leased or furnished by the Grantor, as landlord, to tenants of the
Premises and such Collateral will be kept at the buildings on the Premises and
will not be removed therefrom without the consent of the Beneficiary and may be
affixed to such buildings but will not be affixed to any other real estate. The
remedies of the Beneficiary hereunder are cumulative and separate, and the
exercise of any one or more of the remedies provided for herein or under the
Uniform Commercial Code shall not be construed as a waiver of any of the other
rights of the Beneficiary including having any Collateral deemed part of the
realty upon any foreclosure thereof. If notice to any party of the intended
disposition of the Collateral is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given at least ten (10) days
prior to such intended disposition and may be given by advertisement in a
newspaper accepted for legal publications either separately or as part of a
notice given to foreclose the real property or may be given by private notice if
such parties are known to Beneficiary. Neither the grant of a security interest
pursuant to this Deed of Trust nor the filing of a financing statement pursuant
to the Code shall ever impair the stated intention of this Deed of Trust that
all Collateral comprising the Premises and at all times and for all purposes and
in all proceedings both legal or equitable shall be regarded as part of the real
property conveyed hereunder irrespective of whether such item is physically
attached to the real property or any such item is referred to or reflected in a
financing statement. Grantor will on demand deliver all financing statements
that may from time to time be required by Beneficiary to
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establish, perfect and continue the priority of Beneficiary's security interest
in the Collateral and shall pay all expenses incurred by Beneficiary in
connection with the renewal or extensions of any financing statements executed
in connection with the Premises; and shall give advance written notice of any
proposed change in Grantor's name, identity or structure and will execute and
deliver to Beneficiary prior to or concurrently with such change all additional
financing statements that Beneficiary may require to establish and perfect the
priority of Beneficiary's security interest.
3.2 Maintenance Of Property. Subject to the provisions of this section,
in any instance where Grantor in its sound discretion determines that any
Collateral subject to a security interest under this Deed of Trust has become
inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary for the
operation of the Premises, Grantor may, at its expense, remove and dispose of it
and substitute and install other items not necessarily having the same function,
provided, that such removal and substitution shall not impair the operating
utility and unity of the Premises. All substituted items shall become a part of
the Premises and subject to the lien of the Deed of Trust. Any amounts received
or allowed Grantor upon the sale or other disposition of the removed items of
Collateral shall be applied first against the cost of acquisition and
installation of the substituted items. Nothing herein contained shall be
construed to prevent any tenant from removing from the Premises trade fixtures,
furniture and equipment installed by the tenant and removable by the tenant
under its terms of the lease, on the condition, however, that the tenant shall
at its own cost and expense, repair any and all damages to the Premises
resulting from or caused by the removal thereof.
3.3 Fixture Filing. THIS DEED OF TRUST SHALL BE EFFECTIVE AS A FINANCING
STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO ALL GOODS CONSTITUTING A
PART OF THE COLLATERAL WHICH ARE OR ARE TO BECOME FIXTURES RELATED TO THE
PREMISES. FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE THE FOLLOWING INFORMATION
IS FURNISHED:
(a) The name and address of the record owner of the real estate described
in this instrument is:
National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
353 Myers Avenue Limited Partnership
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
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(b) The name and address of the Grantor is:
National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
353 Myers Avenue Limited Partnership
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
(c) Grantor's Federal Tax ID No.:
National Gaming Companies, Inc.: 41-1822296
353 Myers Avenue Limited Partnership: 41-1839055
(d) the name and address of the Secured Party is:
Miller & Schroeder Investments Corporation
300 Pillsbury Center
220 South Sixth Street
Minneapolis, Minnesota 55402
(e) Information concerning the security interest evidenced
by this instrument may be obtained from the Secured Party at
its address above:
(f) This document covers goods which are or are to become
fixtures.
3.4 Grantor to Comply with Prior Security Instruments. Grantor shall
at its sole cost and expense perform, comply with and discharge all obligations
of Grantor under any prior secured financing arrangements (whether lease
purchase, conditional sales or pure lease arrangements) for any property subject
to this security interest. Grantor shall not permit a surrender, assignment or
transfer of its interest in any such property without the prior written consent
of Beneficiary nor permit or suffer a default to exist under such prior
financing arrangements.
IV. APPLICATION OF INSURANCE AND AWARDS
4.1 Damage or Destruction of the Premises. Grantor shall give the
Beneficiary prompt notice of any damage to or destruction of the Premises and in
case of loss covered by policies of insurance the Beneficiary is hereby
authorized at its option to settle and adjust any claim arising out of such
policies and collect and receipt for the proceeds payable therefrom, provided,
that the Grantor may itself adjust and collect for any losses arising out of a
single occurrence aggregating not in excess of Twenty-Five Thousand and 00/100
($25,000.00) Dollars. Any expense incurred by the Beneficiary in the adjustment
and collection of insurance proceeds (including the cost of any independent
appraisal of the loss
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or damage on behalf of Beneficiary) shall be reimbursed to the Beneficiary first
out of any proceeds. The proceeds or any part thereof shall be applied to
reduction of the Indebtedness Secured Hereby then most remotely to be paid,
whether due or not, without the application of any prepayment premium, or to the
restoration or repair of the Premises, the choice of application to be solely at
the discretion of Beneficiary.
4.2 Condemnation. Grantor shall give the Beneficiary prompt notice of
any actual or threatened condemnation or eminent domain proceedings affecting
the Premises and hereby assigns, transfers, and sets over to the Beneficiary the
entire proceeds of any award or claim for damages or settlement in lieu thereof
for all or any part of the Premises taken or damaged under such eminent domain
or condemnation proceedings, the Beneficiary being hereby authorized to
intervene in any such action and to collect and receive from the condemning
authorities and give proper receipts and acquittances for such proceeds. Grantor
will not enter into any agreements with the condemning authority permitting or
consenting to the taking of the Premises or agreeing to a settlement unless
prior written consent of Beneficiary is obtained. Any expenses incurred by the
Beneficiary in intervening in such action or collecting such proceeds, including
reasonable attorney's fees, shall be reimbursed to the Beneficiary first out of
the proceeds. The proceeds or any part thereof shall be applied upon or in
reduction of the Indebtedness Secured Hereby then most remotely to be paid,
whether due or not, without the application of any prepayment premium, or to the
restoration or repair of the Premises, the choice of application to be solely at
the discretion of Beneficiary.
4.3 Disbursement of Insurance and Condemnation Proceeds. Any
restoration or repair shall be done under the supervision of an architect
acceptable to Beneficiary and pursuant to plans and specifications approved by
the Beneficiary. In any case where Beneficiary may elect to apply the proceeds
to repair or restoration or permit the Grantor to so apply the proceeds they
shall be held by Beneficiary for such purposes and will from time to time be
disbursed by Beneficiary to defray the costs of such restoration or repair under
such safeguards and controls as Beneficiary may establish to assure completion
in accordance with the approved plans and specifications and free of liens or
claims. Grantor shall on demand deposit with Beneficiary any sums necessary to
make up any deficits between the actual cost of the work and the proceeds and
provide such lien waivers and completion bonds as Beneficiary may reasonably
require. Any surplus which may remain after payment of all costs of restoration
or repair may at the option of the Beneficiary be applied on account of the
Indebtedness Secured Hereby then most remotely to be paid, whether due or not,
without application of any prepayment premium or shall be returned to Grantor as
its interest may appear, the choice of application to be solely at the
discretion of Beneficiary.
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V. LEASES AND RENTS
5.1 Grantor to Comply with Leases. Grantor will, at its own cost and
expense:
(a) Faithfully abide by, perform and discharge each and every
obligation, covenant and agreement under any leases to be performed by the
landlord thereunder;
(b) Enforce or secure the performance of each and every material
obligation, covenant, condition and agreement of said leases by the tenants
thereunder to be performed;
(c) Not borrow against, pledge or further assign any rentals due
under said leases;
(d) Not permit the prepayment of any Rents for more than thirty
(30) days in advance nor for more than the next accruing installment of
Rents, nor anticipate, discount, compromise, forgive or waive any Rents;
(e) Not waive, excuse, condone or in any manner release or
discharge the tenants of or from the obligations, covenants, conditions and
agreements by any tenant to be performed under the leases;
(f) Not permit any tenant to assign or sublet its interest in its
lease unless required to do so by the terms of its lease;
(g) Not terminate any leases;
(h) Not consent to a subordination of any lease to any party other
than Beneficiary and then only if specifically consented to by the
Beneficiary; Not amend or modify any lease or alter the obligations of the
parties thereunder without the consent of the Beneficiary; and
(i) Not accept a surrender of any lease.
5.2 Beneficiary's Right to Perform Under Leases. Should the Grantor
fail to perform, comply with or discharge any obligations of Grantor under any
lease or should the Beneficiary become aware of or be notified by any tenant
under any lease of a failure on the part of Grantor to so perform, comply with
or discharge its obligations under said lease, Beneficiary may, but shall not be
obligated to, and without further demand upon the Grantor, and without waiving
or releasing Grantor from any obligation in this Deed of Trust contained, remedy
such failure, and the Grantor agrees to repay upon demand all sums incurred by
the Beneficiary in remedying any such failure together with interest at the then
rate in effect on the Note. All such sums, together with interest as aforesaid
shall become
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so much additional Indebtedness Secured Hereby, but no such advance shall be
deemed to relieve the Grantor from any default hereunder.
5.3 Assignment of Leases and Rents. To further secure the Indebtedness
Secured Hereby, Grantor does hereby sell, assign and transfer unto the
Beneficiary all rents, income and profits now due and which may hereafter become
due under or by virtue of any lease, whether written or verbal, or any agreement
for the use or occupancy of the Premises, it being the intention of this Deed of
Trust to establish an absolute transfer and assignment of all such leases and
agreements and all of the rents, income and profits from the Premises unto the
Beneficiary and the Grantor does hereby appoint irrevocably the Beneficiary its
true and lawful attorney in its name and stead, which appointment is coupled
with an interest, to collect all of said rents, income, and profits; provided,
Beneficiary grants the Grantor the privilege, revocable, to collect and retain
such rents, income, and profits unless and until an Event of Default exists
under this Deed of Trust. Upon an Event of Default and whether before or after
the institution of proceedings to sell the Premises or foreclose this Deed of
Trust or during any period of redemption the Beneficiary, and without regard to
waste, adequacy of the security or solvency of the Grantor, may revoke the
privilege granted Grantor hereunder to collect the rents, income and profits of
the Premises, and may, at its option, without notice in person or by agent, with
or without taking possession of or entering the Premises, with or without
bringing any action or proceeding or by a receiver duly appointed, give or
require Grantor to give notice to any or all tenants under any lease authorizing
and directing the tenant to pay such rents, income and profits to Beneficiary,
such agent, or receiver as the case may be; collect all of the rents, income and
profits; enforce the payment thereof and exercise all of the rights of the
landlord under any lease and all of the rights of Beneficiary hereunder; enter
upon, take possession of, manage and operate said Premises, or any part thereof;
cancel, enforce or modify any leases, and fix or modify rents, and do any acts
which the Beneficiary deems proper to protect the security hereof. Any rents,
income and profits collected shall be applied to the costs and expenses of
operation, management and collection, including reasonable attorneys fees, to
the payment of the fees and expenses of any agent or receiver so acting, to the
costs incurred by the Beneficiary, including attorneys fees, to the payment of
taxes, assessments, insurance premiums and expenditures for the management,
repair and upkeep of the Premises, to the performance of landlord's obligations
under any leases and to the Indebtedness Secured Hereby all in such order as the
Beneficiary may require. The entering upon and taking possession of the
Premises, the collection of such rents, income and profits and the application
thereof as aforesaid shall not cure or waive any defaults under this Deed of
Trust or affect any notice of default or invalidate any act done pursuant to
such notice nor in any way operate to prevent the Beneficiary from pursuing any
other remedy which it may now or hereafter have under the terms of this Deed of
Trust or any other security given for the Indebtedness Secured Hereby nor shall
it in any way be deemed to constitute the Beneficiary a mortgagee-in-possession.
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VI. RIGHTS OF BENEFICIARY
6.1 Right to Cure Default. If the Grantor shall fail to comply with
any of the covenants or obligations of this Deed of Trust, the Beneficiary may,
but shall not be obligated to, without further notice to Grantor, and without
waiving or releasing Grantor from any obligation in this Deed of Trust
contained, remedy such failure, and the Grantor agrees to repay upon demand all
sums incurred by the Beneficiary in remedying any such failure together with
interest at the then rate in effect on the Note. All such sums, together with
interest as aforesaid shall become so much additional Indebtedness Secured
Hereby, but no such advance shall be deemed to relieve the Grantor from any
failure hereunder.
6.2 No Claim Against the Beneficiary. Nothing contained in this Deed
of Trust shall constitute any consent or request by the Beneficiary, express or
implied, for the performance of any labor or services or for the furnishing of
any materials or other property in respect of the Premises or any part thereof,
nor as giving the Grantor or any party in interest with Grantor any right, power
or authority to contract for or permit the performance of any labor or services
or the furnishing of any materials or other property in such fashion as would
create any personal liability against the Beneficiary in respect thereof or
would permit the making of any claim that any lien based on the performance of
such labor or services or the furnishing of any such materials or other property
is prior to the lien of this Deed of Trust.
6.3 Inspection. Grantor will permit the Beneficiary's authorized
representatives to enter the Premises at reasonable times for the purpose of
inspecting the same; provided the Beneficiary shall have no duty to make such
inspections and shall not incur any liability or obligation for making or not
making any such inspections.
6.4 Waivers; Releases; Resort to Other Security, Etc. Without
affecting the liability of any party liable for payment of any Indebtedness
Secured Hereby or performance of any obligation contained herein, and without
affecting the rights of the Beneficiary with respect to any security not
expressly released in writing, the Beneficiary may, at any time, and without
notice to or the consent of the Grantor or any party in interest with the
Premises or the Note:
(a) release any person liable for payment of all or any part of
the Indebtedness Secured Hereby or for performance of any obligation
herein;
(b) make any agreement extending the time or otherwise altering
the terms of payment of all or any part of the Indebtedness Secured Hereby
or modifying or waiving any obligation, or subordinating, modifying or
otherwise dealing with the lien or charge hereof;
(c) accept any additional security;
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(d) release or otherwise deal with any property, real or personal,
including any or all of the Premises, including making partial releases of
the Premises; or
(e) resort to any security agreements, pledges, contracts of
guarantee, assignments of rents and leases or other securities, and exhaust
any one or more of said securities and the security hereunder, either
concurrently or independently and in such order as it may determine.
6.5 Waiver of Appraisement, Homestead, Marshaling. The Grantor waives
to the full extent lawfully allowed the benefit of any homestead, appraisement,
evaluation, stay and extension laws now or hereinafter in force. Grantor waives
any rights available with respect to marshaling of assets so as to require the
separate sales of any portion of the Premises, or as to require the Beneficiary
to exhaust its remedies against a specific portion of the Premises before
proceeding against the other and does hereby expressly consent to and authorize
the sale of the Premises or any part thereof as a single unit or parcel or as
separate parcels.
VII. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. It shall be an event of default ("Event of
Default") under this Deed of Trust upon the happening of any of the following:
(a) failure to make any payment on the Note whether principal,
interest, premium or late charge, when and as the same becomes due (whether
at the stated maturity or at a date fixed for any installment payment or
any accelerated payment date or otherwise); or
(b) a "Default" as defined therein shall occur under the Note and
shall not have been cured within the time permitted therein to cure; or
(c) failure to pay, perform or comply with when due any other
Indebtedness Secured Hereby; or
(d) failure to comply with or perform any of the other terms,
conditions or covenants of this Deed of Trust and such failure shall
continue for a period of ten (10) days after notice thereof to Grantor;
provided, if the same is not susceptible of cure within said time limits
and the same may be cured within a reasonable period of time thereafter the
time period shall be extended for such additional time as is reasonably
necessary to effectuate such cure provided such curative action is promptly
taken in good faith and diligently prosecuted to completion and the
security afforded hereby and the interest of the Beneficiary is not in
jeopardy or be subject to forfeiture; or
(e) either Grantor or any guarantor or surety of the Note shall
fail to pay its debts as they become due, make an assignment for the
benefit of its/his/her
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creditors, or shall admit in writing its inability to pay
its/his/her debts as they become due, or shall file a petition under any
chapter of the Federal Bankruptcy Code or any similar law, state or
federal, now or hereafter existing, or shall become "insolvent" as that
term is generally defined under the Federal Bankruptcy Code, or shall in
any involuntary bankruptcy case commenced against it/him/her file an
answer admitting insolvency or inability to pay its/his/her debts as they
become due, or shall fail to obtain a dismissal of such case within sixty
(60) days after its commencement or convert the case from one chapter of
the Federal Bankruptcy Code to another chapter, or be the subject of an
order for relief in such bankruptcy case, or be adjudged a bankrupt or
insolvent, or shall have a custodian, trustee or receiver appointed for,
or have any court take jurisdiction of its/his/her property, or any part
thereof, in any proceeding for the purpose of reorganization,
arrangement, dissolution or liquidation, and such custodian, trustee or
receiver shall not be discharged, or such jurisdiction shall not be
relinquished, vacated or stayed within sixty (60) days of the
appointment; or
(f) an event of default shall occur under any other instrument
securing the Note and shall not have been cured within the time permitted
therein to cure; or
(g) a judgment, writ or warrant of attachment or execution, or
similar process shall be entered and become a lien or be issued or levied
against the Premises and shall not be released or fully bonded within
forty-five (45) days after its entry, issue or levy; or
(h) any representation or warranty made by Grantor herein, in the
Note or in any other instrument given as security for the Note shall be
false, materially breached or dishonored; or
(i) any individual guarantor or surety for the Note shall be
adjudged incompetent or a conservator, custodian or guardian be appointed
to handle his/her affairs or the guarantor or surety shall die and a
replacement surety acceptable to Beneficiary is not substituted or
satisfactory provisions are not made for the substitution of the liability
of guarantor's or such surety's estate for the repayment of the
Indebtedness Secured Hereby; or
(j) either Grantor or any corporate guarantor or surety for the
Note shall be dissolved, liquidated or wound up or shall fail to maintain
its existence as a going concern in good standing; or
(k) if any guarantor or surety for the Note shall fail to keep or
perform any covenant, undertaking or agreement on its part under any
separate guaranty, indemnity or other surety arrangement given in
connection with the Note; or
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(l) any operating license for the Casino is terminated and a
substitute license acceptable to the Beneficiary is not issued to the
Partnership within thirty (30) days thereof; or
(m) any management agreement providing for the management of the
Casino is terminated and a substitute management agreement acceptable
to the Beneficiary with a management company acceptable to Beneficiary
is not entered into within thirty (30) days thereof.
7.2 Beneficiary's Right to Accelerate. If an Event of Default
shall occur the Beneficiary may declare the entire unpaid principal balance of
the Note together with all other Indebtedness Secured Hereby to be immediately
due and payable and thereupon all such unpaid principal balance of the Note
together with all accrued interest thereon at the Note Rate and all other
Indebtedness Secured Hereby shall be and become immediately due and payable.
7.3 Remedies. If an Event of Default shall occur, the Beneficiary
may elect to advertise the Premises and demand the sale thereof by filing notice
of such election and demand for sale with the Trustee, who shall upon receipt of
such notice of election and demand for sale, cause a copy of the same to be
recorded in the recorder's office of the county in which the Premises are
situated. It shall be lawful for the Trustee to sell and dispose of the same
(en masse or in separate parcels, as the Trustee may think best), and all the
right, title and interest of the Grantor, its successors or assigns therein, at
public auction at any place authorized by law as specified in the notice of such
sale, for the highest and best price the same will bring in cash, public notice
having been previously given pursuant to statute of the time and place of such
sale, by advertisement, weekly, in some newspaper of general circulation at that
time published in said county, a copy of which notice shall be mailed within ten
(10) days from the date of the first publication thereof to the Grantor at the
addresses herein given and to such person or persons appearing to have acquired
a subsequent record interest in the Premises at the address given in the
recorded instrument. The Trustee shall make and give to the purchaser or
purchasers of the Premises at such sale a certificate or certificates in writing
describing the Premises purchased, and the sum or sums paid therefor, and the
time when the purchaser or purchasers (or other person entitled thereto) shall
be entitled to a deed or deeds therefor, unless the same shall be redeemed as is
provided by law; and the Trustee shall, upon demand by the person or persons
holding the said certificate or certificates of purchase, when said demand is
made, or upon demand by the person entitled to a deed to and for the Premises
purchased at the time such demand is made, the time for redemption having
expired, make and execute to such person or persons a deed or deeds to the
Premises purchased, which said deed or deeds shall be in the ordinary form of a
conveyance, and shall be signed, acknowledged and delivered by the Trustee as
grantor, and shall convey and quitclaim to such person or persons entitled to
such deed as grantee, the Premises purchased as aforesaid, and all the right,
title, interest, benefit and equity of redemption of the Grantor, its successors
and assigns therein and shall recite the sum or sums for which the Premises was
sold and shall refer to the power of sale herein contained, and to the sale or
sales made by virtue thereof;
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and in case of an assignment of such certificate or certificates of purchase, or
in case of the redemption of the Premises by a subsequent encumbrancer, such
assignment or redemption shall also be referred to in such deed or deeds; but
the notice of sale need not be set out in such deed or deeds and the said
Trustee shall, out of the proceeds or avails of such sale, after said sale, pay
to the Beneficiary hereunder or the legal holders of said Note, the principal
and interest due on said Note according to the tenor and effect thereof, and all
moneys advanced by such Beneficiary or legal holder of said Note for insurance,
taxes and assessments, or other money advanced pursuant to the terms hereof,
with interest thereon at the rate provided for in the Note, the overplus, if
any, to be applied pursuant to statute; which sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against the
Grantor, its successors or assigns, and all other person claiming the property,
or any part thereof, by, from, through or under the Grantor. The holder or
holders of the Note may purchase the Premises or any part thereof; and it shall
not be obligatory upon the purchaser or purchasers at any such sale to see to
the application of the purchase money. If a release deed is required, it is
agreed that the Grantor, its successor or assigns, will pay the expense thereof.
Reasonable attorneys' fees for services in the supervision of said foreclosure
proceedings shall be allowed by the Trustee as a part of the cost. Separate
sales may be conducted in each county in which the Premises are situate and no
sale in a particular county shall act as a bar to or waiver of any right to
conduct a separate sale in another county. When the Indebtedness Hereby
Secured, or any part thereof, shall become due, whether by acceleration or
otherwise, Beneficiary shall have the right to foreclose the lien hereof for
such indebtedness or part thereof. If foreclosure be made through the Court,
reasonable attorneys' fees, in no event to exceed the maximum amount allowed by
law, shall be allowed as part of the foreclosure costs. In the event of
foreclosure of the lien hereof, whether through the Trustee or through the
Court, there shall be allowed and included as additional indebtedness all
reasonable expenditures and expense which may be paid or incurred by or on
behalf of Beneficiary for attorneys' fees, appraisers' fees, outlays for
documentary and expert evidence, stenographers' charges, publication costs and
costs (which may be estimated as to items to be expended after foreclosure sale
or entry of the decree) or procuring all such abstracts of title, title searches
and examinations, title insurance policies, and similar data and assurances with
respect to title as beneficiary may deem reasonably necessary either to
prosecute such suit or to evidence to bidders at any sale which may be had
pursuant to such decree the true condition of the title to or the value of the
Premises. All expenditures and expenses of the nature in this Section
mentioned, and such expense and fees as may be incurred in the protection of
said Premises and the maintenance of the lien of this Deed of Trust, including
the reasonable fees of any attorney employed by Beneficiary in any litigation or
proceeding affecting this Deed of Trust, the Note or said Premises, including
probate and bankruptcy proceedings, or in preparation for the commencement or
defense of any proceedings, or in preparation for the commencement or defense of
any proceeding or threatened suit or proceeding shall be immediately due and
payable by Grantor with interest thereon at the rate provided for in the Note.
In the alternative, the Beneficiary may commence a judicial proceeding for
foreclosure of this Deed of Trust or exercise any other remedies permitted by
Colorado law. Nothing herein dealing with foreclosure procedures or specifying
particular actions to be taken by Beneficiary or by the trustee shall be deemed
to contradict or add to their requirements and procedures of
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Colorado law now or hereafter existing; any such conflict or inconsistency shall
be resolved in favor of Colorado law applicable at the time of foreclosure.
The proceeds of any sale shall be applied as follows and in the following
order:
FIRST: Payment of the costs and expenses of the sale, including without
limitation Trustee's fees, legal fees and disbursements, title charges and
transfer taxes, and payment of all expenses, liabilities and advances of
Trustee, together with interest on all advances made by Trustee from date of
disbursement at the default interest rate under the Note from time to time or at
the maximum rate permitted to be charged by Trustee under the applicable law if
that is less.
SECOND: Payment of all sums expended by Beneficiary under the terms of
this Deed of Trust and not yet repaid, together with interest on such sums from
date of disbursement at the Note Rate or the maximum rate permitted by
applicable law if that is less.
THIRD: Payment of the Indebtedness Secured Hereby in any order that the
Beneficiary chooses.
FOURTH: The remainder, if any, to the person or persons legally entitled
to it.
The Power of Sale conferred by this Deed of Trust and the laws of the State of
Colorado is not an exclusive remedy and when not exercised, Beneficiary may
foreclose this Deed of Trust as a mortgage.
7.4 Receiver. If an Event of Default shall occur, the Beneficiary
shall be entitled as a matter of right without notice and without regard to the
solvency or insolvency of the Grantor, or waste of the Premises or adequacy of
the security of the Premises, or any other party or parties liable for the
payment of the amount due to exparte apply for the appointment of a Receiver of
rents and profits of any part or the whole of the Premises with power to lease
the Premises, or such part thereof as may not then be under lease, and with such
powers as may be deemed necessary who after deducting all proper charges and
expense attending the execution of its trust as received shall apply the residue
of the rents, issues and profits to the payment and satisfaction of the
Indebtedness Secured Hereby or to any deficiency which may exist after applying
the proceeds of the sale of the Premise to the payment of the amount due,
including interest and such costs of any reasonable attorneys' fees for the
foreclosure and sale in such order of priority as Beneficiary shall elect.
7.5 Rights Under Uniform Commercial Code. In addition to the rights
available to a Beneficiary of real property Beneficiary shall also have all the
rights, remedies and recourse available to a secured party under the Uniform
Commercial Code including the right to proceed under the provisions of the
Uniform Commercial Code governing default as to any property which is subject to
the security interest created by the Deed of Trust or
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<PAGE> 26
to proceed as to such personal property in accordance with the procedures and
remedies available pursuant to a foreclosure of real estate.
7.6 Due on Sale or Mortgaging, Etc. In the event of a Transfer without
the written consent of the Beneficiary being first obtained, whether
voluntarily, involuntarily, or by operation of law, then at the sole option of
the Beneficiary, the Beneficiary may declare the entire unpaid principal balance
together with accrued interest, due and payable in full and call for payment of
the same in full at once. Any such payment shall be subject to the
requirements, if any, in the Note providing for the payment of a prepayment
premium in the event of a non-permitted Transfer. A consent by the Beneficiary
as to any one Transfer shall not be deemed to be a waiver of the right to
require consent to a future Transfer. As used herein, the term "Transfer" shall
include any sale, pledge, assignment, Deed of Trust, encumbrance, security
interest, consensual lien, hypothecation, transfer or divesture, or otherwise,
of or in (i) the Premises, (ii) either Grantor, or (iii) any underlying
ownership in either Grantor or (iv) any entity controlling, managing or in
control of either Grantor. Any change in the legal or equitable title of the
Premises or in the beneficial ownership of the Premises or either Grantor
whether or not of record and whether or not for consideration shall be deemed a
Transfer. This paragraph shall not be construed as to prevent the Borrower from
issuing additional shares of stock in the Borrower as long as National Lodgings,
Inc., and the Guarantors shall in the aggregate remain the majority shareholders
in the Borrower nor the sale of Parcel No. 2 of the Premises to the Borrower.
7.7 Rights Cumulative. Each right, power or remedy herein conferred upon
the Beneficiary is cumulative and in addition to every other right, power or
remedy, express or implied, now or hereafter arising, available to Beneficiary,
at law or in equity, or under any other agreement, and each and every right,
power and remedy herein set forth or otherwise so existing may be exercised from
time to time as often and in such order as may be deemed expedient by the
Beneficiary and shall not be a waiver of the right to exercise at any time
thereafter any other right, power or remedy. No delay or omission by the
Beneficiary in the exercise of any right, power or remedy arising hereunder or
arising otherwise shall impair any such right, power or remedy or the right of
the Beneficiary to resort thereto at a later date or be construed to be a waiver
of any default or event of default under this Deed of Trust or the Note.
7.8 Right to Discontinue Proceedings. In the event Beneficiary shall
have proceeded to invoke any right, remedy or recourse permitted under this Deed
of Trust and shall thereafter elect to discontinue or abandon the same for any
reason, Beneficiary shall have the unqualified right to do so and in such event
Grantor and Beneficiary shall be restored to their former positions with respect
to the Indebtedness Secured Hereby. This Deed of Trust, the Premises and all
rights, remedies and recourse of the Beneficiary shall continue as if the same
had not been invoked.
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VIII. HAZARDOUS SUBSTANCE
8.1 Definitions. As used herein, the following definitions shall apply:
(a) "Hazardous Substance" shall mean any hazardous or toxic
material, substance or waste, pollutant or contaminant which is regulated
under any statute, law, ordinance, rule or regulation of any local, state,
regional or Federal authority having jurisdiction over the property of the
Grantor, or its use, including but not limited to any material, substance
or waste which is (a) defined as a hazardous substance under any
Environmental Laws; (b) a petroleum hydrocarbon, including crude oil or any
fraction thereof and all petroleum products; (c) polychlorinated biphenyls
(d) lead; (e) urea formaldehyde (f) asbestos; (g) flammable explosives; (h)
infectious materials; (i) radioactive materials; or (j) defined or
regulated as a hazardous substance or hazardous waste under any rules or
regulations promulgated under any of the foregoing Environmental Laws.
(b) "Environmental Laws" shall mean any international, federal,
state or local statute, law, regulation, order, consent, decree, judgment,
permit, license, code, covenant, deed restriction, common law, treaty,
convention, ordinance or other requirement relating to public health,
safety or the environment, including, without limitation, those relating to
releases, discharges or emissions to air, water, land or groundwater, to
the withdrawal or use of groundwater, to the use and handling of
polychlorinated biphenyls or asbestos, to the disposal, treatment, storage
or management of hazardous or solid waste, or Hazardous Substances or crude
oil, or any fraction thereof, or to exposure to toxic or hazardous
materials to the handling, transportation, discharge or release of gaseous
or liquid Hazardous Substances and any regulation, order, notice or demand
issued pursuant to such law, statute or ordinance, in each case applicable
to the property of the Grantor or its affiliates, if any, including without
limitation the following: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, the Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act of 1976 and the
Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials
Transportation Act, as amended, the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1976, the Safe Drinking Water Act, the
Clean Air Act, as amended, the Toxic Substances Control Act of 1976, the
Occupational Safety and Health Act of 1977, as amended, the Emergency
Planning and Community Right-to-Know Act of 1986, the National
Environmental Policy Act of 1975, the Oil Pollution Act of 1990 and any
similar or implementing state law, and any state statute and any further
amendments to these laws providing for financial responsibility for cleanup
or other actions with respect to the release or threatened release of
Hazardous Substances or crude oil, or any fraction thereof and all rules
and regulations promulgated thereunder.
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<PAGE> 28
8.2 Representations of Grantor. Grantor hereby represents to
Beneficiary that, except as heretofore disclosed to Beneficiary: (a) the
Premises has never been used by Grantor, or, to the best of Grantor's knowledge,
by any previous owners or occupants or current occupants other than Grantor to
generate, manufacture, refine, transport, treat, store, handle or dispose of any
Hazardous Substances and no such Hazardous Substances exist on the Premises or
in its soil or groundwater; (b) to the best of Grantor's knowledge after due
inquiry, no portion of the improvements on the Premises has been constructed
with asbestos, asbestos-containing materials, urea formaldehyde insulation or
any other chemical or substance which has been determined to be a hazard to
health and/or the environment; (c) to the best of Grantor's knowledge after due
inquiry, there are no nor have there been electrical transformers or other
equipment which have dielectric fluid-containing polychlorinated biphenyls
(PCBs) located in, on or under the Premises; (d) to the best of Grantor's
knowledge after due inquiry, the Premises has never contained any underground
storage tanks; (e) Grantor has not received nor does it have any knowledge of
any summons, citation, directive, letter or other communication, written or
oral, from any local, state or federal governmental agency concerning (f) the
existence of Hazardous Substances on the Premises or in the immediate vicinity
and (g) the releasing, spilling, leaking, pumping, pouring, emitting, emptying,
or dumping of Hazardous Substances onto the Premises or into waters or other
lands.
8.3 Covenants of Grantor. Grantor hereby covenants to Beneficiary that
Grantor shall (a) comply and shall cause all occupants of the Premises to comply
with all federal, state and local laws, rules, regulations and orders with
respect to the discharge, generation, removal, transportation, storage and
handling of Hazardous Substances, (b) remove any Hazardous Substances
immediately upon discovery of same, in accordance with applicable laws,
ordinances and orders of governmental authorities having jurisdiction thereof,
(c) pay or cause to be paid all costs associated with such removal; and (d)
prevent the migration of Hazardous Substances from or through the Premises onto
or under other properties; (e) keep the Premises free of any lien imposed
pursuant to any state or federal law, rule, regulation or order in connection
with the existence of Hazardous Substances on the Premises; (f) not install or
permit to be incorporated into any improvements in the Premises or to exist in
or on the Premises any asbestos, asbestos-containing materials, urea
formaldehyde insulation or any other chemical or substance which has been
determined to be a hazard to health and environment; (g) not cause or permit to
exist, as a result of an intentional or unintentional act or omission on the
part of Grantor or any occupant of the Premises, a releasing, spilling, leaking,
pumping, emitting, pouring, emptying or dumping of any Hazardous Substances onto
the Premises or into waters or other lands; and (h) give all notifications and
prepare all reports required by Environmental Laws or any other law with respect
to Hazardous Substances existing on, released from or emitted from the Premises.
8.4 Indemnification. Grantor hereby agrees to defend, indemnify and hold
harmless Beneficiary, its directors, officers, employees, agents, contractors,
subcontractors, licensees, invitees, successors and assigns ("Indemnified
Parties") from and against any and all claims, losses, damages, liabilities,
judgments, costs and expenses (including, without limitation, attorneys' fees
and costs incurred in the investigation, defense and settlement of
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claims or remediation of contamination) incurred by the Indemnified Parties as a
result of (i) the failure of the Grantor to keep and perform the covenants of
the Grantor as contained in this Article, (ii) the misrepresentation or
incorrectness of any of the representations of Grantor as contained in this
Article, (iii) the presence on, in or under the Premises of a Hazardous
Substance and (iv) the removal of Hazardous Substances or as a result of or in
connection with activities regulated under this Article. Grantor shall bear,
pay and discharge, as and when the same become due and payable, any and all such
judgments or claims for damages, penalties or otherwise, against the Indemnified
Parties, shall hold the Indemnified Parties harmless against all claims, losses,
damages, liabilities, costs and expenses, administrative proceedings, and
negotiations of any description with any and all persons, political subdivisions
or government agencies arising out of any of the occurrences set forth in this
Article.
8.5 Run with Land. These covenants, representations, warranties and
indemnities shall be deemed continuing covenants, representations, warranties
and indemnities running with the Real Property for the benefit of the
Beneficiary, and any successors and assigns of the Beneficiary, including any
purchaser at a Deed of Trust foreclosure sale, any transferee of the title of
the Beneficiary or any subsequent purchaser at a foreclosure sale, and any
subsequent owner of the Premises claiming through or under the title of
Beneficiary and shall survive any foreclosure of this Deed of Trust and any
acquisition of title of Beneficiary. The amount of all such indemnified loss,
damage, expense or cost, shall bear interest thereon at the rate of interest in
effect on the Note and shall become so much additional Indebtedness Secured
Hereby and shall become immediately due and payable in full on demand of the
Beneficiary, its successors and assigns. The indemnification contained herein
shall be a personal monetary obligation of the Grantor notwithstanding any
provisions of this Deed of Trust to the contrary that limit or exculp the
personal liability of the Grantor and/or require the Beneficiary to look solely
to the security of the Premises.
8.6 Limitations. Notwithstanding anything in this Article to the
contrary, this Article shall not apply to the introduction and initial release
of a Hazardous Substance on the Premises from and after the date that the
Beneficiary acquires title to the Premises through foreclosure or a deed in lieu
of foreclosure (the "Transfer Date"); provided, however, the Grantor shall bear
the burden of proof that the introduction and initial release of such Hazardous
Substance (i) occurred subsequent to the Transfer Date, (ii) did not occur as a
result of any action of the Grantor, and (iii) did not occur as a result of a
continuing migration or release of any Hazardous Substance introduced prior to
the Transfer Date in, on, under or near the Premises.
IX. PRIOR INDEBTEDNESS
9.1 Prior Indebtedness. As to Parcel No. 2 such parcel is subject to an
existing Deed of Trust to the Public Trustee of the County of Teller, Colorado
dated November 15, 1991, and recorded November 22, 1991 in Book 582, page 1,
Teller County Records, given to secure a Promissory Note executed by Norman J.
Kerr, nominee for Blackjack Holding Company, a Colorado corporation, to the
order of Terry Wahrer and Suzanne Wahrer in
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the principal sum of $593,648.33 the aforesaid Deed of Trust, the Note secured
thereby, and any and all additional security given in connection therewith being
hereinafter collectively referred to as the "Prior Indebtedness". Grantor
covenants and agrees to pay the principal, interest and other sums on the Prior
Indebtedness on or before their due date and to comply with all of the other
terms, covenants and conditions thereof. If requested hereafter by the
Beneficiary, the Grantor shall produce to the Beneficiary from time to time and
no less than three days prior to their due dates the installments of principal,
interest and other sums payable on the Prior Indebtedness or receipts or other
evidence of payment thereof satisfactory to the Deed of Trust. Grantor further
agrees:
(a) The Grantor will not without the prior written consent of the
Beneficiary enter into any modification, amendment, agreement or
arrangement with respect to the Prior Indebtedness expressly including, but
not in limitation of the foregoing, any such modification, amendment,
agreement or arrangement pursuant to which the Grantor is granted any
forbearance or indulgence (as to time or amount) in payment of any
principal, interest or other sums due in accordance with the terms and
provisions of the Prior Indebtedness nor obtain any additional advances
thereunder.
(b) In case of any default under the Prior Indebtedness or if any
holder of the Prior Indebtedness shall take any action to accelerate or
otherwise declare its Prior Indebtedness due or exercise any rights or
remedies available to it under its Prior Indebtedness, then in addition to
the rights and remedies available to the Beneficiary hereunder, or at law,
the Beneficiary may, but need not, make any payment or perform any act
required of the Grantor under the Prior Indebtedness in any form and manner
deemed expedient and may, but need not, make full or partial payments of
principal or interest on the Prior Indebtedness, perform in the name of
Grantor or in its own name, any and all covenants, conditions and
agreements on the part of the Grantor to be performed under the Prior
Indebtedness, pay, compromise or settle the Prior Indebtedness and redeem
from any foreclosure sale or forfeiture of the Prior Indebtedness affecting
the Premises or contest any foreclosure sale or forfeiture under the Prior
Indebtedness. For this purpose Grantor hereby appoints the Beneficiary as
its attorney in fact, irrevocable, which appointment is coupled with an
interest. All monies paid for any purposes herein authorized and all
expenses paid or incurred in connection therewith, including attorney's
fees, and all other sums advanced by the Beneficiary to protect the
Premises and the lien hereof, shall be so much additional Indebtedness
Secured Hereby and shall become immediately due and payable with interest
thereon at the rate then in effect in the Note. Inaction of the
Beneficiary shall never be considered as a waiver of any right accruing to
it on account of any default on the part of Grantor under the Prior
Indebtedness.
(c) Grantor will furnish to Beneficiary copies of all notices
forwarded to Grantor by the Holder of the Prior Indebtedness.
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(d) On request the Grantor from time to time agrees to use its best
efforts to obtain from the Holder of the Prior Indebtedness written
statements setting forth the unpaid principal of and interest on the Prior
Indebtedness and any unpaid sums thereunder and the date to which payment
has been made and whether any payment is in arrears.
(e) Beneficiary shall be subrogated to the rights of the Holder of
such Prior Indebtedness to the extent of any advances made by Beneficiary
hereunder as fully as if said liens had been created in favor of
Beneficiary.
(f) In order to protect the security of the Beneficiary's interest
therein the Grantor shall pay monthly, to the Beneficiary, not later than
ten (10) days before its due date under the Prior Indebtedness the amount
of the next due installment of Principal, Interest and other amounts due
under the Prior Indebtedness. Upon receipt of the same, the Beneficiary
shall make payment directly to the holder of the Prior Indebtedness out of
such deposit. The failure to make timely payment of such amounts to the
Beneficiary shall be an Event of Default under this Deed of Trust and
Beneficiary shall be entitled to exercise any and all of the remedies
available to it by reason of an Event of Default. TIME IS OF THE ESSENCE
IN THE PAYMENT OF THESE SUMS.
X. MISCELLANEOUS
10.1 Choice of Law. Notwithstanding the situs of the Premises, the parties
to this instrument have contracted for the law of the State of Minnesota to
govern the loan, including matters of construction, validity and performance and
the obligations arising hereunder, provided, however, that with respect to the
creation, perfection, priority and enforceability of this instrument, and any
warranties of title contained in this instrument with respect to the Premises,
and the provisions hereof which relate to realizing upon the security covered by
this instrument, the applicable provisions of this instrument shall be governed
by, and interpreted in accordance with, the laws of the State of Colorado,
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America.
10.2 Successors and Assigns. This Deed of Trust and each and every
covenant, agreement and other provision hereof shall be binding upon Grantor and
its successors and assigns including without limitation each and every from time
to time record owner of the Premises or any other person having an interest
therein, shall run with the land and shall inure to the benefit of the
Beneficiary and its successors and assigns. As used herein the words
"successors and assigns" shall also be deemed to include the heirs,
representatives, administrators and executors of any natural person who is or
becomes a party to this Deed of Trust. In the event that the ownership of the
Premises becomes vested in a person or persons other than the Grantor, the
Beneficiary shall not have any obligation to deal with such successor or
successors in interest unless such transfer is permitted by this Deed of Trust
and then only upon being notified in writing of such change of ownership. Upon
such
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notification, the Beneficiary may thereafter deal with such successor in place
of Grantor without any obligation to thereafter deal with Grantor and without
waiving any liability of Grantor hereunder or under the Note. No change of
ownership shall in any way operate to release or discharge the liability of the
Grantor hereunder unless such release or discharge is expressly agreed to in
writing by the Beneficiary.
10.3 Unenforceability of Certain Clauses. The unenforceability or
invalidity of any provisions hereof shall not render any other provision or
provisions herein contained unenforceable or invalid.
10.4 Captions and Headings. The captions and headings of the various
sections of this Deed of Trust are for convenience only and are not to be
construed as confining or limiting in any way the scope or intent of the
provisions hereof. Whenever the context requires or permits the singular shall
include the plural, the plural shall include the singular and the masculine,
feminine and neuter shall be freely interchangeable.
10.5 Amendment/Modification. Any amendment to or modification of this Deed
of Trust may be made in writing by and between Grantor and Beneficiary without
necessity of joinder therein by the Trustee. No oral waiver, amendment, or
modification may be implied and the same must be executed by the party against
whom enforcement is sought.
10.6 Acceptance of Trust. Trustee accepts this trust when this Deed of
Trust, duly executed and acknowledged, is made a public record as provided by
law. Trustee is not obligated to notify any party hereto of a pending sale under
any other Trust Indenture or of any action or proceeding in which Grantor,
Beneficiary or Trustee shall be a party unless brought by Trustee.
10.7 Reconveyance Upon Surrender of Deed of Trust. Upon payment in full of
the Indebtedness Secured Hereby the Beneficiary shall deliver to the Trustee
this Deed of Trust and all notes secured hereby to Trustee for cancellation and
release and upon payment by Beneficiary of its fees, Trustee shall reconvey to
Grantor, without warranty, the Premises then held hereunder. The grantee in
such reconveyance may be described as "the person or persons legally entitled
thereto."
10.8 Notices. Any notices and other communications permitted or required
by the provisions of this Deed of Trust (except for telephonic notices expressly
permitted) shall be in writing and shall be deemed to have been properly given
or served by depositing the same with the United States Postal Service, or any
official successor thereto, designated as Certified Mail, Return Receipt
Requested, bearing adequate postage, or deposited with reputable private courier
or overnight delivery service, and addressed as hereinafter provided. Each such
notice shall be effective upon being deposited as aforesaid. The time period
within which a response to any such notice must be given, however, shall
commence to run from the date of receipt of the notice by the addressee thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given shall be deemed to be receipt of
the notice sent. By giving to the other party
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hereto at least ten (10) days' notice thereof, either party hereto shall have
the right from time to time to change its address and shall have the right to
specify as its address any other address within the United States of America.
Each notice to Beneficiary shall be addressed as follows:
Miller & Schroeder Investments Corporation
300 Pillsbury Center
220 South Sixth Street
Minneapolis, Minnesota 55402
Attn: Vice President - Mortgage Loans
Each notice to Grantor shall be addressed as follows:
National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
Attn: President
353 Myers Avenue Limited Partnership
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
Attn: Managing General Partner
10.9 Savings Clause. It is expressly stipulated and agreed to be the
intent of Grantor, and Beneficiary at all times to comply with applicable state
law or applicable United States federal law (to the extent that it permits the
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this section shall control every
other covenant and agreement in the Note, this Deed of Trust and any other loan
documents delivered in connection with this instrument ("Loan Documents"). If
the applicable law is ever judicially interpreted so as to render usurious any
amount called for under the Note, this Deed of Trust or under any of the other
Loan Documents, or contract for, charged, taken, reserved, or received with
respect to the indebtedness by the Note ("Indebtedness"), or if the
Beneficiary's exercise of the option to accelerate the maturity of the Note, or
if any prepayment by Grantor results in Grantor having paid any interest in
excess of that permitted by applicable law, then it is Grantor's and
Beneficiary's express intent that all excess amounts theretofore collected by
Beneficiary shall be credited on the principal balance of the Note and all other
Indebtedness (or, if the Note and all other Indebtedness have been or would
thereby be paid in full, refunded to Grantor), and the provisions of the Note
and this Deed of Trust and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Beneficiary for the use, forbearance, or detention of the
Indebtedness shall, to the
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extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full stated term of the Indebtedness until payment in
full so that the rate or amount of interest on account of the Indebtedness does
not exceed the maximum lawful rate from time to time in effect and applicable
to the Indebtedness for so long as the Indebtedness is outstanding.
Notwithstanding anything to the contrary contained herein or in any of the
other Loan Documents, it is not the intention of the Beneficiary to accelerate
the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such acceleration.
10.10 Adjustable Rate Note. The Note secured by this Deed of Trust
provides for adjustments in its interest rate from time to time in accordance
with its terms. Reference is made to the Note for the time, terms and
conditions of the adjustments in the interest rate. Such times, terms and
conditions are incorporated herein by reference.
10.11 Consent to Jurisdiction. The Grantor submit(s) and consent(s) to
personal jurisdiction of the Courts of the State of Minnesota and Courts of the
United States of America sitting in such State for the enforcement of this
instrument and waive(s) any and all personal rights under the laws of any state
or the United States of America to object to jurisdiction in the State of
Minnesota. Litigation may be commenced in any state court of general
jurisdiction for the State of Minnesota or the United States District Court
located in that state, at the election of the Beneficiary. Nothing contained
herein shall prevent Beneficiary from bringing any action against any other
party or exercising any rights against any security given to Beneficiary or
against the Grantor personally, or against any property of the Grantor, within
any other state. Commencement of any such action or proceeding in any other
state shall not constitute a waiver of consent to jurisdiction or of the
submission made by the Grantor to personal jurisdiction within the State of
Minnesota.
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IN WITNESS WHEREOF, the Grantor has caused these presents to be executed as
of the date first above written.
NATIONAL GAMING COMPANIES, INC., a
Minnesota corporation
By: /s/ Robert Swenson
----------------------------
Its: President
----------------------------
353 MYERS AVENUE LIMITED PARTNERSHIP, a
Minnesota limited partnership
By: CRIPPLE CREEK CORPORATION, a
Minnesota corporation, its General Partner
By: /s/ Robert Swenson
------------------------
Its: President
------------------------
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STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing was instrument was acknowledged before me this 22nd day of
October, 1996, by Robert Swenson, the President of National Gaming Companies,
Inc., a Minnesota corporation on behalf of the corporation.
/s/ Marvella S. Playle
---------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing was instrument was acknowledged before me this 22nd day of
October, 1996, by Robert Swenson, the President of Cripple Creek Corporation, a
Minnesota corporation, the General Partner of 353 Myers Avenue Limited
Partnership, a Minnesota limited partnership, on behalf of the limited
partnership.
/s/ Marvella S. Playle
---------------------------
Notary Public
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EXHIBIT "A"
Legal Description
PARCEL 1A:
Lots 34 through 36,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 1B:
Lots 37 through 40,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 2:
Lots 11 and 31R,
(Lot 31R being formerly known as Lots 31, 32 and 33),
Block 22,
FREMONT (now Cripple Creek),
according to the original plat as modified by the Subdivision Exemption
Plat recorded September 12, 1991 in Plat Book L Page 13;PARCEL 3:
Lots 28, 29, and 30,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 4:
The Surface only of
Lots 1 through 15,
Block 26,
FREMONT (now Cripple Creek);
A-1
<PAGE> 38
PARCEL 5:
Lots 1 through 13,
Block 1,
ARCADIA HEIGHTS ADDITION TO THE CITY OF CRIPPLE CREEK;
NOTE: The North 1/2 of Warren Avenue lying Easterly of Fourth Street and
Westerly of the Midland Terminal Railway Right of Way appears to have
been vacated and probably should be included in any legal documents.
All in Teller County, Colorado.
A-2
<PAGE> 1
EXHIBIT 10.28
THIS DOCUMENT WAS DRAFTED BY
AND WHEN RECORDED RETURN TO:
Donald P. Norwich, Esq.
OPPENHEIMER WOLFF & DONNELLY
3400 Plaza VII Building
45 South Seventh Street
Minneapolis, Minnesota 55402
ASSIGNMENT OF RENTS, LEASE(S), INCOME AND REVENUES
THIS ASSIGNMENT ("Assignment"), is made and given this 22nd day of
October, 1996, by NATIONAL GAMING COMPANIES, INC., a Minnesota corporation
("Borrower") and 353 MYERS AVENUE LIMITED PARTNERSHIP, a Minnesota limited
partnership ("Partnership") (both Borrower and Partnership being herein
sometimes collectively referred to as "Assignor"), each of whose post office
address is 9855 West 78th Street, Suite 220, Eden Prairie, Minnesota 55344 to
MILLER & SCHROEDER INVESTMENTS CORPORATION, a Minnesota corporation
("Assignee"), whose post office address is 300 Pillsbury Center, 220 South
Sixth Street, Minneapolis, Minnesota 55402.
PRELIMINARY STATEMENT OF FACTS:
A. The Borrower is the owner of those parcels of real estate situate in
City of Cripple Creek, County of Teller, State of Colorado as described in
Exhibit "A" attached hereto with the exception of Parcel No. 2.
B. The Partnership is the owner of Parcel No. 2 as described in Exhibit
"A" on which land there is located improvements which are operated as a gaming
casino commonly known as the "Jubilee Casino" ("Casino"). The other parcels
owned by the Borrower provide parking and other facilities for use by the
Casino. As used in this Deed of Trust the term "Premises" includes all of real
property and improvements thereon described in Exhibit "A" attached
("Premises").
C. The Borrower is a limited partner of the Partnership holding a
97.165647% interest in the Partnership. Cripple Creek Corporation, a Minnesota
corporation, is also a partner of the Partnership and holds a 2% interest as
general partner and holds the remaining percentage interest of the Partnership
as a limited partner.
D. The Assignee is making a loan to the Borrower in the amount of up to
Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) ("Loan") the proceeds of which are being used to among other
things reimburse the Borrower for costs of acquiring its interest in the
Partnership, the stock of Cripple Creek Corporation, the Premises, to retire
existing indebtedness of the Partnership, to pay off short term debt of the
<PAGE> 2
Partnership, to cover future development costs and to fund various reserves
required by the Assignee.
E. The Loan is evidenced by a Promissory Note dated of even date herewith
executed and delivered by the Borrower to the Assignee in the principal sum of
Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) ("Note").
F. As security for the repayment of the Note, the Assignor is executing
and delivering to the Assignee its Deed of Trust and Security Agreement and
Fixture Filing and Financing Statement of even date herewith (herein the "Deed
of Trust") conveying the Premises to the Public Trustee of the County of Teller,
Colorado in trust for the benefit of the Assignee
G. The Partnership is executing and delivering to the Assignee its
Guaranty of the Note to be dated of even date herewith ("Guaranty") and which
Guaranty is also executed by Robert Swenson, Stephen Sherf, Craig Forsman,
Terrance DeRoche, John Klinkhammer and National Lodging Companies, Inc., a
Minnesota corporation. All of such parties including the Partnership are herein
referred to as the "Guarantors".
H. As security for the repayment of the Loan as evidenced by the Note and
to secure the obligations of the Partnership under the Guaranty, and in order to
induce the Assignee to extend the Loan to the Borrower and in recognition that
the Borrower, as majority partner in the Partnership will be using the funds to
retire the existing indebtedness on the Casino, the Partnership is executing
this Assignment
I. As further condition to the making of the Loan the Assignor is
executing and delivering to the Assignee this Assignment.
J. The Loan and all sums due and payable under the Note, the Deed of
Trust and this Assignment are herein sometimes referred to as the
"Indebtedness".
NOW THEREFORE FOR VALUE RECEIVED, Assignor hereby grants, transfers and
assigns to Assignee all Lease(s) and agreements for the leasing, use or
occupancy of the Premises now, heretofore or hereafter entered into, and all
renewals and extensions thereof ("Lease(s)") together with:
1. the immediate and continuing right to receive and collect the
rents from the leasing of the Premises including all monies owed the
Assignor for payments for services performed pursuant to any Lease(s) and
for materials, leasehold improvements or otherwise furnished or installed
pursuant to any Lease(s) all accounts, contract rights and rights to
payments arising out of the operation of the Casino or any other facility
on the Premises including but not limited to payments for the rental or
sale or use of rooms, for beverages, food and goods sold or leased, for
services rendered, whether or not yet earned by performance, for the
rental, sale or use of any equipment, from vending machines, all payments
from any consumer
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<PAGE> 3
credit/charge card organization, whether or not now existing or owed or
hereinafter credited or owed, and all proceeds of the foregoing, whether
cash or non-cash ("Rents");
2. for recovery of damages done to the Premises under any Lease(s)
and the abatement of any nuisance existing thereon ("Damages");
3. for payments and awards resulting from default under said Lease(s)
and for the cancellation of said Lease(s) prior to the expiration date or
the waiver of any obligation thereof ("Awards");
4. for payment in lieu of rent or pursuant to a termination of the
Lease(s) or a settlement of the obligations of the Tenant under any
Lease(s) ("Termination Payments");
5. all guarantees of the obligations of any tenant under any Lease(s)
("Guarantees");
6. all rights and remedies the Assignor may have against a tenant
under any Lease(s) ("Remedies");
7. all proceeds payable by reason of the exercise by a tenant of any
option to purchase the Premises or any first refusal rights of a tenant
contained in any Lease(s) ("Option Proceeds");
8. any award or damages payable to the Assignor pursuant to any
bankruptcy, insolvency or reorganization proceeding affecting any tenant
("Bankruptcy Payments"); and
9. all security deposits paid by any tenant under any Lease(s)
("Security Deposits");
all the foregoing being collectively referred to herein as the "Lease Rights".
AND THE ASSIGNOR FURTHER REPRESENTS, WARRANTS, COVENANTS AND AGREES AS
FOLLOWS:
I. PERFORMANCE OF LEASE(S)
1.1 Performance of Lease(s). The Assignor shall:
A. Faithfully abide by, perform and discharge each and every obligation,
covenant and agreement under any Lease(s) to be performed by the landlord
thereunder;
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<PAGE> 4
B. Enforce or secure the performance of each and every material
obligation, covenant, condition and agreement of said Lease(s) by the tenants
thereunder to be performed;
C. Not borrow against, pledge or further assign any Rents due under said
Lease(s);
D. Not permit the prepayment of any Rents for more than thirty (30) days
in advance nor for more than the next accruing installment of Rents, nor
anticipate, discount, compromise, forgive or waive any Rents;
E. Not waive, excuse, condone or in any manner release or discharge the
tenants of or from the obligations, covenants, conditions and agreements by any
tenant to be performed under the Lease(s);
F. Not permit any tenant to assign or sublet its interest in its Lease(s)
unless required to do so by the terms of its Lease(s);
G. Not terminate any Lease(s);
H. Not consent to a subordination of any Lease(s) to any party other than
Assignee and then only if specifically consented to by the Assignee;
I. Not amend or modify any Lease(s) or alter the obligations of the
parties thereunder without the consent of the Assignee; and
J. Not accept a surrender of any Lease(s).
II. PROTECTION OF SECURITY
2.1 Protection of Security. The Assignee shall have the right at Assignor's
sole cost and expense to appear in and defend any action or proceeding arising
under, growing out of or in any manner connected with any Lease(s) or the
obligations, duties or liabilities of the landlord thereunder, and Assignor
agrees to pay all costs and expenses of Assignee, including attorney's fees in
a reasonable sum, in any such action or proceeding in which the Assignee in its
sole discretion may appear.
III. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. Assignor represents and warrants:
A. that it is now the absolute owner of said Lease Rights with full right
and title to assign the same;
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<PAGE> 5
B. that there are no outstanding assignments or pledges of any Lease
Rights;
C. that there are no existing defaults under the provisions of any
Lease(s) on the part of any party to the Lease(s);
D. that all obligations on the part of the landlord under any Lease(s)
have been fully complied with;
E. that no Rents has been collected for more than thirty (30) days in
advance of its due date or waived, anticipated, discounted, compromised or
released, except as may have been previously disclosed to Assignee in writing;
F. that to Assignor's knowledge no tenant has any defenses, setoffs, or
counterclaims against Assignor;
G. Assignor has not executed any instrument that would prevent Assignee
from enjoying the benefits of this Assignment; and
H. that no part of the Premises is used as a homestead of the Assignor or
as agricultural property.
IV. PRESENT ASSIGNMENT
4.1 Present Assignment. This Assignment is a perfected, absolute and present
assignment, provided unless and until an Event of Default shall occur hereunder
the Assignor shall have the license to collect, but not prior to accrual, the
Rents, and to retain, use and enjoy the same. Upon an Event of Default the
Assignee at its sole election may revoke such license.
V. EVENTS OF DEFAULT
5.1 Event of Default. It shall be an Event of Default under this Assignment
upon the happening of any of the following:
A. failure to comply with any of the provisions of the Note including
without limitation the failure to make any payment on the Note whether
principal, interest, premium or late charge, when and as the same becomes due
(whether at the stated maturity or at a date fixed for any installment payment
or any accelerated payment date or otherwise); or
B. a "Default" as defined therein shall occur under the Note and shall not
have been cured within the time permitted therein to cure; or
C. failure to pay when due any other Indebtedness and such failure shall
continue for a period of ten (10) days after notice thereof to Assignor; or
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<PAGE> 6
D. failure to comply with or perform any of the terms, conditions or
covenants of this Assignment and such failure shall continue for a period of ten
(10) days after notice thereof to Assignor; provided, if the same is not
susceptible of cure within said time limits and the same may be cured within a
reasonable period of time thereafter the time period shall be extended for such
additional time as is reasonably necessary to effectuate such cure provided such
curative action is promptly taken in good faith and diligently prosecuted to
completion and the security afforded hereby and the interest of the Assignee is
not in jeopardy or be subject to forfeiture; or
E. either Assignor or any guarantor or surety of the Note shall fail to
pay its, his or her debts as they become due, or shall make an assignment for
the benefit of its, his or her creditors, or shall admit in writing its, his or
her inability to pay its, his or her debts as they become due, or shall file a
petition under any chapter of the Federal Bankruptcy Code or any similar law,
state or federal, now or hereafter existing, or shall become "insolvent" as that
term is generally defined under the Federal Bankruptcy Code, or shall in any
involuntary bankruptcy case commenced against it, him or her file an answer
admitting insolvency or inability to pay its debts as they become due, or shall
fail to obtain a dismissal of such case within sixty (60) days after its
commencement or convert the case from one chapter of the Federal Bankruptcy Code
to another chapter, or be the subject of an order for relief in such bankruptcy
case, or be adjudged a bankrupt or insolvent, or shall have a custodian, trustee
or receiver appointed for, or have any court take jurisdiction of its, his or
her property, or any part thereof, in any proceeding for the purpose of
reorganization, arrangement, dissolution or liquidation, and such custodian,
trustee or receiver shall not be discharged, or such jurisdiction shall not be
relinquished, vacated or stayed within sixty (60) days of the appointment; or
F. any representation or warranty made by Assignor herein, in the Note or
in any other instrument given as security for the Note shall be false, breached
or dishonored in any material manner; or
G. an Event of Default (as defined therein) shall occur under the Deed of
Trust or any other instrument securing the Note and shall not have been cured
within the time permitted therein to cure.
VI. REMEDIES
6.1 Remedies. Upon an Event of Default the Assignee may declare all
Indebtedness immediately due and payable, may revoke the license granted
Assignor hereunder to collect the Rents, and may, at its option, without notice,
either in person or by agent, with or without taking possession of or entering
the Premises, with or without bringing any action or proceeding, or by a
receiver to be appointed by a court, collect all of the Rents and enforce the
payment thereof, exercise the Lease Rights and all of the rights of the Assignor
under any Lease(s) and all of the rights of the Assignee hereunder, and may
enter upon, take possession of, manage and operate said Premises, or any part
thereof; may cancel, enforce or modify the Lease(s), and fix or modify Rents,
and do any acts which the Assignee
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<PAGE> 7
deems proper to protect the security hereof with or without taking possession of
said Premises, and may apply the same to the costs and expenses of operation,
management and collection, including reasonable attorney's fees, to the payment
of the fees and expenses of any agent, or receiver so acting, to the payment of
taxes, assessments, insurance premiums and expenditures for the management and
upkeep of the Premises, to the performance of the landlord's obligation under
the Lease(s) and to any Indebtedness all in such order as the Assignee may
determine. The entering upon and taking possession of said Premises, the
collection of such Rents, and the application thereof as aforesaid, shall not
cure or waive any default or waive, modify or affect notice of default under
said Deed of Trust or invalidate any act done pursuant to such notice nor in any
way operate to prevent the Assignee from pursuing any remedy which it now or
hereafter may have under the terms or conditions of said Deed of Trust or the
Note secured thereby or any other instrument securing the same.
VII. GENERAL COVENANTS
7.1 No Liability Imposed on Assignee. The Assignee shall not be obligated to
perform or discharge, nor does it hereby undertake to perform or discharge any
obligation, duty or liability under the Lease(s) nor shall this Assignment
operate to place responsibility for the control, care, management or repair of
the Premises upon the Assignee nor for the carrying out of any of the terms and
conditions of said Lease(s); nor shall it operate to make the Assignee
responsible or liable for any waste committed on the Premises, or for any
dangerous or defective condition of the Premises, or for any negligence in the
management, upkeep, repair or control of said Premises resulting in loss or
injury or death to any tenant, licensee, employee or stranger nor liable for
laches or failure to collect any Rents or protect the Lease(s).
7.2 Indemnification. The Assignor shall and does hereby agree to indemnify and
to hold Assignee harmless of and from any and all liability, loss or damage
which it may or might incur under the Lease(s) or under or by reason of this
Assignment and of and from any and all claims and demands whatsoever which may
be asserted against Assignee by reason of any alleged obligations or
undertakings on its part to perform or discharge any of the terms, covenants or
agreements contained in said Lease(s). Should the Assignee incur any such
liability, or in the defense of any such claims or demands or a judgment be
entered against Assignee, the amount thereof, including costs, expenses, and
reasonable attorney's fees, shall bear interest thereon at the rate then in
effect on the Note and Assignor shall reimburse the Assignee for the same
immediately upon demand.
7.3 Tenant to Recognize Assignee. Each tenant under any Lease is hereby
irrevocably authorized and directed to recognize the claims of Assignee or any
receiver appointed without investigating the reason for any action taken or the
validity or the amount of indebtedness owing to the Assignee, or the existence
of any default in the Note, Deed of Trust, or Event of Default hereunder, or the
application to be made by the Assignee or such receiver. Assignor hereby
irrevocably directs and authorizes the tenants to pay to Assignee or such
receiver all sums due under the Lease(s) and consents and directs that said sums
shall be paid to any such receiver in accordance with terms of its receivership
or to Assignee
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<PAGE> 8
without the necessity for a judicial determination that a default has occurred
hereunder or under the Deed of Trust or that Assignee is entitled to exercise
its rights hereunder, and to the extent such sums are paid to Assignee or such
receiver, the Assignor agrees that the tenant shall have no further liability to
Assignor for the same. The sole signature of the Assignee or such receiver
shall be sufficient for the exercise of any rights under this Assignment and the
sole receipt of the Assignee or such receiver for any sums received shall be a
full discharge and release therefor to any such tenant or occupant of the
Premises. Checks for all or any part of the rentals collected under this
Assignment shall upon notice from the Assignee be drawn to the exclusive order
of the Assignee or such receiver.
7.4 Security Deposits. Upon an Event of Default Assignor shall on demand
transfer to the Assignee any security deposits held by Assignor under the terms
of any Lease(s) to be held by Assignee and applied in accordance with the
provisions of the Lease(s). Until Assignee makes such demand and the deposits
are paid over to Assignee the Assignee assumes no responsibility for any such
security deposit and the Assignor shall remain liable to each Tenant for the
retention of such security deposit and any required interest thereon. If
required by applicable law to maintain such security deposits in a separate
account, the Assignor shall not commingle such security deposits with its other
funds and accounts and shall deposit the same in an account, separated from its
general funds, and if such deposits are required by law to be refunded to the
respective tenants with interest thereon, such account shall be an interest
bearing account.
7.5 Attorney In Fact. Assignor hereby irrevocably appoints Assignee and its
successors and assigns as its agent and attorney in fact, irrevocable, which
appointment is coupled with an interest, to exercise any rights or remedies
hereunder and to execute and deliver during the term of this Assignment such
instruments as Assignee may deem necessary to make this Assignment and any
further assignment effective.
7.6 Assignment of Future Lease(s). That until the Indebtedness shall have been
paid in full, Assignor will on demand of the Assignee deliver to the Assignee
executed copies of any and all other and future Lease(s) upon all or any part of
the said Premises and agrees to make, execute and deliver unto Assignee upon
demand and at any time or times, any and all assignments and other instruments
sufficient to assign such Lease Rights thereunder to Assignee or that the
Assignee may deem to be advisable for carrying out the true purposes and intent
of this Assignment. From time to time on request of the Assignee the Assignor
agrees to furnish Assignee with a rent roll of the Premises disclosing current
tenancies, rents payable, and such other matters as Assignee may reasonably
request.
7.7 No Mortgagee In Possession. Nothing herein contained and no actions taken
pursuant to this Assignment shall be construed as constituting the Assignee a
"Mortgagee in Possession".
7.8 Assignee Creditor of Tenant. Assignor agrees that Assignee, and not
Assignor, shall be and be deemed to be the creditor of any tenant in respect of
assignments for the benefit of creditors and bankruptcy, reorganization,
insolvency, dissolution, or receivership
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<PAGE> 9
proceedings affecting such tenant, (without obligation on the part of Assignee,
however, to file or make timely filings of claims in such proceedings or
otherwise to pursue creditor's rights therein) with an option to Assignee to
apply any money received by Assignee as such creditor in reduction of the
Indebtedness; provided unless an Event of Default has occurred and is continuing
the Assignor may exercise the right of a creditor of any tenant provided it acts
with due regard for the interest of the Assignee in the Lease(s) and as a
fiduciary would under similar circumstances.
7.9 Continuing Rights. The rights and powers of Assignee or any receiver
hereunder shall continue and remain in full force and effect until all
Indebtedness, including any deficiency remaining from a sale of the Premises
pursuant to a foreclosure or sale pursuant to any power of sale under the Deed
of Trust is paid in full, and shall continue after commencement of an action to
foreclosure the Deed of Trust or to exercise any such power of sale thereunder
and after foreclosure sale and until expiration of any period of redemption.
VIII. MISCELLANEOUS
8.1 Successors and Assigns. This Assignment and each and every covenant,
agreement and provision hereof shall be binding upon the Assignor and its
successors and assigns including without limitation each and every from time to
time record owner of the Premises or any other person having an interest therein
and shall inure to the benefit of the Assignee and its successors and assigns.
As used herein the words "successors and assigns" shall also be deemed to mean
the heirs, executors, representatives and administrators of any natural person
who is a party to this Assignment.
8.2 Choice of Law. Notwithstanding the situs of the Premises, the parties to
this instrument have contracted for the law of the State of Minnesota to govern
the loan, including matters of construction, validity and performance and the
obligations arising hereunder, provided, however, that with respect to the
creation, perfection, priority and enforceability of this instrument, and any
warranties of title contained in this instrument with respect to the Premises,
and the provisions hereof which relate to realizing upon the security covered by
this instrument, the applicable provisions of this instrument shall be governed
by, and interpreted in accordance with, the laws of the State of Colorado,
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America.
8.3 Severability. It is the intent of this Assignment to confer to Assignee
the rights and benefits hereunder to the full extent allowable by law. The
unenforceability or invalidity of any provisions hereof shall not render any
other provision or provisions herein contained unenforceable or invalid. Any
provisions found to be unenforceable shall be severable from this Assignment.
8.4 Notices. Any notices and other communications permitted or required by the
provisions of this Assignment (except for telephonic notices expressly
permitted) shall be in
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<PAGE> 10
writing and shall be deemed to have been properly given or served by depositing
the same with the United States Postal Service, or any official successor
thereto, designated as Certified Mail, Return Receipt Requested, bearing
adequate postage, or deposited with reputable private courier or overnight
delivery service, and addressed as hereinafter provided. Each such notice shall
be effective upon being deposited as aforesaid. The time period within which a
response to any such notice must be given, however, shall commence to run from
the date of receipt of the notice by the addressee thereof. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to be receipt of the notice sent. By
giving to the other party hereto at least ten (10) days' notice thereof, either
party hereto shall have the right from time to time to change its address and
shall have the right to specify as its address any other address within the
United States of America.
Each notice to Assignee shall be addressed as follows:
Miller & Schroeder Investments Corporation
300 Pillsbury Center
220 South Sixth Street
Minneapolis, Minnesota 55402
Attn:Vice President - Mortgage Loans
Each notice to Assignor shall be addressed as follows:
National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
Attn: President
353 Myers Avenue Limited Partnership
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
Attn: Managing General Partner
8.5 Captions and Headings. The captions and headings of the various sections
of this Assignment are for convenience only and are not to be construed as
confining or limiting in any way the scope or intent of the provisions hereof.
Whenever the context requires or permits, the singular shall include the plural,
the plural shall include the singular and the masculine, feminine and neuter
shall be freely interchangeable.
8.6 Consent to Jurisdiction. The Assignor submit(s) and consent(s) to personal
jurisdiction of the Courts of the State of Minnesota and Courts of the United
States of America sitting in such State for the enforcement of this instrument
and waive(s) any and all personal rights under the laws of any state or the
United States of America to object to jurisdiction in the State of Minnesota.
Litigation may be commenced in any state court of general jurisdiction for the
State of Minnesota or the United States District Court located
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in that state, at the election of the Assignee. Nothing contained herein shall
prevent Assignee from bringing any action against any other party or exercising
any rights against any security given to Assignee or against the Assignor
personally, or against any property of the Assignor within any other state.
Commencement of any such action or proceeding in any other state shall not
constitute a waiver of consent to jurisdiction or of the submission made by the
Assignor to personal jurisdiction within the State of Minnesota.
IN FURTHERANCE WHEREOF, this Assignment is executed as of the date first
above written.
NATIONAL GAMING COMPANIES, INC.,
a Minnesota corporation
By: /s/ Robert Swenson
---------------------------
Its: President
----------------------
353 MYERS AVENUE LIMITED
PARTNERSHIP, a Minnesota limited partnership
By: CRIPPLE CREEK CORPORATION, a
Minnesota corporation, its general partner
By: /s/ Robert Swenson
--------------------------
Its: President
----------------------
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STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing was instrument was acknowledged before me this 22nd day of
October, 1996, by Robert Swenson, the President of National Gaming Companies,
Inc., a Minnesota corporation on behalf of the corporation.
/s/ Marvella Playle
---------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing was instrument was acknowledged before me this 22nd day of
October, 1996, by Robert Swenson, the President of Cripple Creek Corporation, a
Minnesota corporation, the general partner of 353 Myers Avenue Limited
Partnership, a Minnesota limited partnership, on behalf of the limited
partnership.
/s/ Marvella Playle
------------------------
Notary Public
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EXHIBIT "A"
Legal Description
PARCEL 1A:
Lots 34 through 36,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 1B:
Lots 37 through 40,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 2:
Lots 11 and 31R,
(Lot 31R being formerly known as Lots 31, 32 and 33),
Block 22,
FREMONT (now Cripple Creek),
according to the original plat as modified by the Subdivision Exemption
Plat recorded September 12, 1991 in Plat Book L Page 13;PARCEL 3:
Lots 28, 29, and 30,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 4:
The Surface only of
Lots 1 through 15,
Block 26,
FREMONT (now Cripple Creek);
PARCEL 5:
Lots 1 through 13,
Block 1,
ARCADIA HEIGHTS ADDITION TO THE CITY OF CRIPPLE CREEK;
NOTE: The North 1/2 of Warren Avenue lying Easterly of Fourth Street and
Westerly of the Midland Terminal Railway Right of Way appears to have been
vacated and probably should be included in any legal documents.
All in Teller County, Colorado.
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EXHIBIT 10.29
DEPOSIT AGREEMENT
THIS DEPOSIT AGREEMENT ("Agreement") is made and given this 22nd day of
October, 1996, by NATIONAL GAMING COMPANIES, INC., a Minnesota corporation
(Borrower), whose post office address is 9855 West 78th Street, Suite 220, Eden
Prairie, Minnesota 55344 to MILLER & SCHROEDER INVESTMENTS CORPORATION, a
Minnesota corporation ("Lender"), whose post office address is 300 Pillsbury
Center, 220 South Sixth Street, Minneapolis, Minnesota 55402.
PRELIMINARY STATEMENT OF FACTS:
A. The Borrower is the owner of certain parcels of real estate situate in
City of Cripple Creek, County of Teller, State of Colorado all as more fully
described in Exhibit A attached hereto.
B. 353 Myers Avenue Limited Partnership, a Minnesota limited partnership
("Partnership") is the owner of an additional parcel of land also situate in
the City of Cripple Creek, County of Teller, State of Colorado as described in
Exhibit A on which land there is located improvements which are operated as a
gaming casino commonly known as the Jubilee Casino (Casino). The other parcels
owned by the Borrower provide parking and other facilities for use by the
Casino. As used in this Agreement the term Premises includes all of real
property and improvements thereon described in Exhibit A attached (Premises).
C. The Borrower is a limited partner of the Partnership holding a
97.165647% interest in the Partnership. Cripple Creek Corporation, a Minnesota
corporation, is also a partner of the Partnership and holds a 2% interest as
general partner and holds the remaining percentage interest of the Partnership
as a limited partner.
D. The Secured Party is making a loan to the Borrower in the amount of up
to Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) ("Loan") the proceeds of which are being used to among other
things reimburse the Borrower for costs of acquiring its interest in the
Partnership, the stock of Cripple Creek Corporation, the Premises, to retire
existing indebtedness of the Partnership, to pay off short term debt of the
Partnership, to cover future development costs and to fund various reserves
required by the Secured Party.
E. In order to assure the payment to the Secured Party of the Loan the
Borrower will execute and deliver to the Secured Party its Promissory Note to
be dated of even date herewith in the principal amount of the Loan ("Note") and
the Borrower and Partnership are executing and delivery to the Public Trustee
of the County of Teller, Colorado their Deed of Trust and Security Agreement
and Fixture Financing Statement of even date herewith conveying in trust for
the benefit of Secured Party the Premises (the "Deed of Trust") and other
security instruments ("Other Security Instruments").
<PAGE> 2
F. The Note, Deed of Trust and Other Security Instruments are herein
sometimes collectively referred to as the Loan Documents.
G. The Loan and all sums due and payable under the Note, the Deed of Trust
and this Assignment are herein sometimes referred to as the Indebtedness
Secured Hereby.
H. Lender requires the Borrower to deposit in escrow with the Lender at
the closing of the Loan the sum of $800,000.00 ("Deposit") to provide a source
of funds as (i) an interest reserve to defray interest that accrues on the Loan
and (ii) a development cost reserve to defray costs incurred by the Borrower in
planning and developing a hotel facility on the Premises.
NOW THEREFORE, for value received, it is agreed as follows:
1. On the date of this Agreement the Borrower shall deposit with Lender
the sum of $800,000.00. Such Deposit shall be held in escrow with the Lender
and allocated to the following two separate accounts ("Reserve Accounts"):
a. an interest reserve account of $500,000.00 ("Interest Reserve")
and
b. a development cost reserve of $300,000.00 ("Development Reserve").
2. The Lender shall withhold the sums deposited in each Reserve Account
for disbursement solely for the following purposes:
a. Monthly as and when a payment of accrued interest is due Lender in
accordance with the terms of the Note the Lender shall automatically
withdraw from the Interest Reserve for credit to its account the amount of
the then accrued interest.
b. Not more frequently than monthly as and when the Borrower incurs
expenses in connection with the planning and development of the proposed
hotel addition to the Premises the Borrower may make application to the
Lender for a disbursement from the Development Reserve of an amount equal
to the actual costs so expended and payable to third parties not related to
and/or affiliated with the Borrower and/or its affiliates or entities
controlling or controlled by the Borrower or persons controlling or in
control of the Borrower. Such requests shall be accompanied by invoices
substantiating the amount requested for disbursement and if such invoice
represents an item that is lienable under local law accompanied by a waiver
of lien sufficient to extinguish any right of lien for such invoiced item.
Lender shall have no obligation to disburse any portion of the Deposit from a
Reserve Account (i) if an Event of Default has occurred and is continuing under
the Loan Documents, or (ii) to disburse any of the Deposit for any other purpose
or to any other person other than for which the Reserve Account was established,
provided if an Event of Default has occurred, the Lender may disburse any of the
Deposit in its discretion to the
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<PAGE> 3
payment of any item for which a Reserve Account is established. Borrower hereby
grants to Lender a first security interest in the Deposits.
3. Lender shall provide Borrower on request not more frequently than
quarterly statements certifying the amount of the Deposit currently on account.
4. If an Event of Default (as defined therein) shall occur under the Deed
of Trust, the Lender may at its sole discretion elect either (a) to leave the
Deposits on deposit for disbursement at a later date to replace such items of
obsolete and worn out FF&E and Capital Improvements as Lender in its reasonable
discretion may deem necessary to be replaced and disburse directly to Lender or
to any suppliers in payment thereof when furnished or (b) may apply the Deposit
to repayment of the amounts in default under the Deed of Trust in such order of
application as Lender may elect.
5. During the term of this Agreement the Lender, shall hold and invest
the money from time to time in any one of the following investments
("Investments"):
a. Commercial Paper carrying the highest quality rating issued by
Standard & Poor's Corporation or Moody's Investors Services, Inc.; or
b. Instruments of Deposit in domestic banks (such as certificates of
deposit and demand and time deposits), if they have capital, surplus and
undivided profits of over $100,000,000, or if the principal amount of the
Deposit is fully insured by the Federal Deposit Insurance Corporation; or
c. Direct obligations of the United States Government or obligations
of agencies of the United States Government insured by the United States
Government; or
d. A money market fund managed by a recognized money market fund
manager.
It is the intent of the parties that the term of the Investment which will be
made by the Lender shall be of a duration such that funds will be immediately
available to Borrower after Lender' notification to Lender that the conditions
for release have been satisfied. Any interest earnings on the Investment shall
accrue pro rata to the benefit of the Reserve Accounts and shall be reported on
Borrower's Federal and State income tax returns and Borrower shall be reported
as the payee on all information returns forwarded the taxing authorities. Upon
payment in full of the Loan any excess Deposits shall be paid over to Borrower.
Borrower accepts all risk of loss (both principal and interest earnings) on the
Deposit and agrees Lender shall have no responsibility to manage the investment
of the Deposit, to maximize yield or otherwise and that Lender assumes no
responsibility for the safety or performance of the account in which the Deposit
is invested. All costs and expenses of Lender incurred in maintaining the
Account shall be the expense of Borrower.
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<PAGE> 4
6. Borrower hereby agrees that in performing any of the duties hereunder,
Lender shall not incur any liability to anyone with respect to (i) any action
taken or omitted in good faith and after reasonable inquiry with respect to any
question relating to the duties and responsibilities of the Lender under this
Deposit Agreement, or (ii) any action taken or omitted in reliance upon any
instrument, including any written notice or instruction provided for in this
Deposit Agreement not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein, which the Lender shall in good faith believe to
be genuine, to have been signed or presented by a proper person or persons and
to conform with the provisions of this Deposit Agreement.
7. The Lender's obligations hereunder shall terminate as of the time it has
delivered all monies held by it to the proper party as herein provided. Borrower
and Lender may at any time, with each other's concurrence, substitute a third
party escrow agent in which event Lender shall transfer over to the new escrow
agent all Deposits and upon acceptance of this Agreement by the new escrow agent
the transferring Lender shall be relieved of any further responsibility
thereafter.
8. Anything contained herein to the contrary notwithstanding, in the event
of any dispute between or among the parties hereto, Lender at its option, shall
be permitted to tender into the Court of general jurisdiction where the Premises
are located, all monies and documents held by it and interplead Borrower with
respect thereto whereupon Lender's liabilities and obligations hereunder shall
be terminated.
9. Lender shall charge no fee for administering the Deposit.
10. It shall be a condition precedent to any disbursement of the Deposit
that there shall be no default under the Note or Event of Default under the Deed
of Trust and any Loan Documents executed pursuant to the Loan and all
representations, warranties, covenants, terms, conditions and agreements herein
and under the Note, Deed of Trustor other Loan Documents shall have been
complied with on the date of each disbursement of the Deposit. In the event
there is a default by Borrower hereunder or under the Note, or if an Event of
Default shall occur under the Deed of Trust or other Loan Documents, the Deposit
may at Lender's option be paid over to the Lender to be applied pursuant to
paragraph 4 hereof.
11. The failure of Lender to enforce strict performance of the terms and
conditions hereof shall not constitute a waiver of its rights hereunder.
12. This Agreement cannot be changed orally and this Agreement and the
proceeds hereunder may not be assigned by Borrower; however, this Agreement and
the rights of the Lender hereunder, including the right to direct the
disposition of the Deposit, shall upon notice to Borrower of an Assignment of
the Deed of Trust be deemed assigned to the subsequent holder of the Deed of
Trust and shall run with the Deed of Trust unless Lender has notified Borrower
to the contrary.
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<PAGE> 5
13. Any notices and other communications permitted or required by the
provisions of this Agreement (except for telephonic notices expressly permitted)
shall be in writing and shall be deemed to have been properly given or served by
depositing the same with the United States Postal Service, or any official
successor thereto, designated as Registered or Certified Mail, Return Receipt
Requested, bearing adequate postage, or delivery by reputable private carrier
such as Federal Express, Airborne, DHL or similar overnight delivery service,
and addressed as hereinafter provided. Each such notice shall be effective upon
being deposited as aforesaid. The time period within which a response to any
such notice must be given, however, shall commence to run from the date of
receipt of the notice by the addressee thereof. Rejection or other refusal to
accept or the inability to deliver because of changed address of which no notice
was given shall be deemed to be receipt of the notice sent. By giving to the
other party hereto at least ten (10) days' notice thereof, either party hereto
shall have the right from time to time and at any time during the term of this
Agreement to change its address and shall have the right to specify as its
address any other address within the United States of America.
Each notice to Lender shall be addressed as follows:
Miller & Schroeder Investments Corporation
300 Pillsbury Center
220 South 6th Street
Minneapolis, Minnesota 55402
Attn: Vice President - Deed of Trust Department
Each notice to Borrower shall be addressed as follows:
National Gaming Companies, Inc.
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
14. Notwithstanding the place of execution of this instrument, the parties
to this instrument have contracted for Minnesota law to govern this instrument
and it is controllingly agreed that this instrument is made pursuant to and
shall be construed and governed by the laws of the State of Minnesota without
regard to the principles of conflicts of law.
15. The Debtor submit(s) and consent(s) to personal jurisdiction of the
Courts of the State of Minnesota and Courts of the United States of America
sitting in such State for the enforcement of this instrument and waive(s) any
and all personal rights under the laws of any state or the United States of
America to object to jurisdiction in the State of Minnesota. Litigation may be
commenced in any state court of general jurisdiction for the State of Minnesota
or the United States District Court located in that state, at the election of
the Secured Party. Nothing contained herein shall prevent Secured Party from
bringing any action against any other party or exercising any rights against any
security given to Secured Party, or against the Debtor personally, or against
any property of the Debtor,
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<PAGE> 6
within any other state. Commencement of any such action or proceeding in any
other state shall not constitute a waiver of consent to jurisdiction or of the
submission made by the Debtor to personal jurisdiction within the State of
Minnesota.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto the day and year first above written.
NATIONAL GAMING COMPANIES, INC.,
a Minnesota corporation
By: /s/ Robert J. Swenson
-------------------------
Its: President
---------------
MILLER & SCHROEDER INVESTMENTS CORPORATION,
a Minnesota corporation
By: /s/ Greg Miller
-------------------
Its: Vice President
-------------------
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<PAGE> 7
EXHIBIT A
Legal Description
PARCEL 1A:
Lots 34 through 36,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 1B:
Lots 37 through 40,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 2:
Lots 11 and 31R,
(Lot 31R being formerly known as Lots 31, 32 and 33),
Block 22,
FREMONT (now Cripple Creek),
according to the original plat as modified by the Subdivision Exemption
Plat recorded September 12, 1991 in Plat Book L Page 13;
PARCEL 3:
Lots 28, 29, and 30,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 4:
The Surface only of
Lots 1 through 15,
Block 26,
FREMONT (now Cripple Creek);
A-1
<PAGE> 8
PARCEL 5:
Lots 1 through 13,
Block 1,
ARCADIA HEIGHTS ADDITION TO THE CITY OF CRIPPLE CREEK;
NOTE: The North 1/2 of Warren Avenue lying Easterly of Fourth
Street and Westerly of the Midland Terminal Railway Right of Way
appears to have been vacated and probably should be included in any
legal documents.
All in Teller County, Colorado.
A-2
<PAGE> 1
EXHIBIT 10.30
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made and given this 22nd day of
October, 1996, by 353 MYERS AVENUE LIMITED DEBTOR, a Minnesota limited
partnership ("Debtor"), whose post office address is 9855 West 78th Street,
Suite 220, Eden Prairie, Minnesota 55344 to MILLER & SCHROEDER INVESTMENTS
CORPORATION, a Minnesota corporation ("Secured Party"), whose post office
address is 300 Pillsbury Center, 220 South Sixth Street, Minneapolis, Minnesota
55402.
PRELIMINARY STATEMENT OF FACTS:
A. National Gaming Companies, Inc., a Minnesota corporation ("Borrower") is
the owner of certain parcels of real estate situate in City of Cripple Creek,
County of Teller, State of Colorado all as more fully described in Exhibit "A"
attached hereto.
B. Debtor is the owner of an additional parcel of land also situate in the
City of Cripple Creek, County of Teller, State of Colorado as described in
Exhibit "A" on which land there is located improvements which are operated as a
gaming casino commonly known as the "Jubilee Casino" ("Casino"). The other
parcels owned by the Borrower provide parking and other facilities for use by
the Casino. As used in this Agreement the term "Premises" includes all of real
property and improvements thereon described in Exhibit "A" attached
("Premises").
C. The Borrower is a limited partner of the Debtor holding a 97.165647%
interest in the Debtor. Cripple Creek Corporation, a Minnesota corporation, is
also a partner of the Debtor and holds a 2% interest as general partner and
holds the remaining percentage interest of the Debtor as a limited partner.
D. The Secured Party is making a loan to the Borrower in the amount of up
to Three Million Five Hundred Sixty-Four Thousand and no/100 Dollars
($3,564,000.00) ("Loan") the proceeds of which are being used to among other
things reimburse the Borrower for costs of acquiring its interest in the Debtor,
the stock of Cripple Creek Corporation, the Premises, to retire existing
indebtedness of the Debtor, to pay off short term debt of the Debtor, to cover
future development costs and to fund various reserves required by the Secured
Party.
E. In order to assure the payment to the Secured Party of the Loan the
Borrower will execute and deliver to the Secured Party its Promissory Note to be
dated of even date herewith in the principal amount of the Loan ("Note") and the
Borrower and Debtor are executing and delivery to the Public Trustee of the
County of Teller, Colorado their Deed of Trust and Security Agreement and
Fixture Financing Statement of even date herewith conveying in trust for the
benefit of Secured Party the Premises (the "Deed of Trust") and other security
instruments ("Other Security Instruments").
<PAGE> 2
F. The Note, Deed of Trust and Other Security Instruments are herein
sometimes collectively referred to as the "Loan Documents".
G. The Undersigned are either shareholders of the Debtor and/or National
Lodgings, Inc., or are benefited by the Loan, and each is financially interested
in the Casino.
H. The Loan and all sums due and payable under the Note, the Deed of Trust
and this Assignment are herein sometimes referred to as the "Indebtedness
Secured Hereby".
I. As a condition to the making of the Loan the Undersigned has required
that the Debtor execute and deliver its Guaranty of the Loan guarantying to
Secured Party the due and prompt payment of the Note and performance and
observance of the terms and conditions of the Deed of Trust and other security
documents ("Guaranty").
J. In order to induce the Secured Party to make the Loan and accept the
Guaranty the Secured Party requires that the Debtor grant a security interest to
the Secured Party in the Collateral as set forth in this Agreement.
NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) and other
good and valuable consideration receipt and sufficiency of which is hereby
acknowledged and in order to induce the Secured Party to disburse the Loan:
1. Security Interest. The Debtor grants to Secured Party a security
interest in and to all of the following, to wit ("Collateral"):
a. ACCOUNTS. All Accounts now owned or hereafter acquired by the
Debtor and, which in any event, includes, without limitation, (i) all
accounts receivable, book debts and other forms of obligations now owned or
hereafter received or acquired by or belonging or owing to the Debtor
(including, without limitation, under any trade name, style or division
thereof) whether arising out of goods sold or services rendered by the
Debtor, or from any other transaction, whether or not the same involves the
sale of goods or services by the Debtor (including, without limitation, any
such obligation which might be characterized as an account or contract
right under the UCC), (ii) all of the Debtor's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods
or services, and all of the Debtor's rights to any goods represented by any
of the foregoing (including, without limitation, unpaid seller's rights of
rescission, repletion, reclamation and stoppage in transmit and rights to
returned, reclaimed or repossessed goods), (iii) all moneys due or to
become due to the Debtor under all contracts for the sale of goods or the
performance of services or both by the Debtor (whether or not yet earned by
performance on the part of the Debtor or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and (iv) all collateral security and guarantees of any kind
given by any person with respect to any of the foregoing, and
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<PAGE> 3
b. INCOME. All income derived from the operations conducted in the
Casino including all cash, all bank accounts and all payments from any
consumer credit/charge card organization, whether or not now existing or
owed or hereinafter credited or owed, and all proceeds of the foregoing,
whether cash or non-cash, and
c. COMPUTER HARDWARE AND SOFTWARE. All computer hardware and
software and which in any event includes (i) all computer and other
electronic data processing hardware, whether now owned, licensed or leased
or hereafter acquired by the Debtor, including, without limitation, all
integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card readers,
tape drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and
other related computer hardware; (ii) all software programs, whether now
owned, licensed or leased or hereafter acquired by the Debtor, designed for
use on the computers and electronic data processing hardware described in
clause (i) above, including, without limitation, all operating system
software, utilities and application programs in whatsoever form (source
code and object code in magnetic tape, disk or hard copy format or any
other listings whatsoever); (iii) all firmware associated therewith,
whether now owned, licensed or leased or hereafter acquired by the Debtor
including, without limitation, flow charts, logic diagrams, manuals,
specifications, training materials, charts and pseudo codes; (iv) all
documentation for such hardware, software and firmware described in the
preceding clauses (i), (ii) and (iii) above, and (v) all rights with
respect thereto, including, without limitation, any and all licenses,
options, warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal rights and
indemnifications, and any substitutions, replacements, additions or modern
conversions of any of the foregoing; whether now owned, licensed or leased
or hereafter acquired by the Debtor.
d. CONTRACTS. All Contracts, undertakings or other agreements in or
under which the Debtor may now or hereafter have any right, title or
interest, including, without limitation, with respect to an Account, any
agreement relating to the terms of payment or the terms of performance
thereof, and
e. EQUIPMENT. All Equipment whether now owned, licensed or leased
or hereafter acquired by the Debtor and, which in any event, includes,
without limitation, (i) all equipment and fixtures of every kind and nature
owned by Debtor used in connection with the gaming operations in the Casino
included but not limited to all gaming tables, slot machines, computerized
games and other electronic equipment, (ii) tables, chairs, booths, bar
equipment, utensils, food service equipment, all equipment used in
preparing food for use in the Casino, freezers, refrigerators, dishwashers,
ice machines and entertainment equipment; (iii) all televisions, radios,
cabling, phone and communications systems, and wiring, cash registers,
office equipment, coin wrappers, and the like used in operating the Casino
(iv) all ground keeping lawn sprinklers and lawn maintenance systems owned
by Debtor; (v) all
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<PAGE> 4
vehicles used in the Casino operations including courtesy vans and courtesy
cars; (vi) all food stock, liquor and inventory on hand or on order for the
food and beverage service provided in the Casino; (vii) all cleaning
supplies and equipment; (viii) all convenience items furnished to guests of
the Casino; and all stationery, brochures, booklets, written materials and
writing supplies furnished or made available to the guests of the Casino,
(ix) all of the furniture, fixtures and equipment owned by Debtor used in
the operation of the Premises as a gaming casino including but not limited
to all carpeting, floor coverings, draperies, curtains, lamps, beds,
mattresses, box springs, towels, linens, chests, chairs, lobby furniture
and other furniture used in the operation of the Casino, (x) all security
systems, cameras, monitors, security devices and wiring, and (xi) all other
machinery, equipment, furnishings, fixtures, vehicles, computers and other
electronic data-processing and office equipment and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto, and
f. GENERAL INTANGIBLES. All General Intangibles now owned, licensed
or leased, or hereafter acquired by the Debtor and, which in any event,
includes, without limitation, customer lists, trademarks, patents, rights
in intellectual property, licenses, permits, copyrights, trade secrets,
proprietary or confidential information, inventions (whether patented or
patentable or not) and technical information, procedures, designs,
knowledge, know-how, software data bases, data, skill, expertise,
experience, processes, models, drawings, materials and records, goodwill,
rights of indemnification, all right, title and interest which the Debtor
may now or hereafter have in or under any Contract, and now owned or
hereafter acquired by the Debtor, all licenses and permits used, useful or
necessary in the operation of the Casino, all liquor licenses, gaming
licenses, elevator permits, beverage and food licenses, all right and
interest and into the use of the name and logo "Jubilee Casino" and
"Jubilee Casino and Old Homestead" and all derivatives thereof, all books,
records, writings, data bases, information and other property relating to,
used or useful in connection with, evidencing, embodying, incorporating, or
referring to any of the foregoing, and
g. INSURANCE PROCEEDS AND AWARDS. All awards, payments, proceeds now
or hereafter obtainable by Debtor under any policy of insurance insuring
the Premises including but not limited to the proceeds of casualty
insurance, title insurance, business interruption/rents insurance or other
insurance maintained with respect to the Premises whether by Debtor or
otherwise, and
h. RENTS, INCOME, LEASES AND PROFITS. All rents, income, contract
rights, leases and profits now due or which may hereafter become due under
or by virtue of any lease, license or agreement, whether written or verbal,
for the use or occupancy of the Premises or any part thereof together with
all tenant security deposits, and
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<PAGE> 5
i. CONDEMNATION AWARDS. All awards, compensation and settlements in
lieu thereof made as a result of the taking by power of eminent domain of
the whole or any part of the Premises, including any awards for damages
sustained to the Premises, for a temporary taking, change of grade of
streets or taking of access; and
j. INVENTORY. All inventory of Debtor, whether now owned or
hereafter acquired and wherever located.
Together with improvements, accessions, appurtenances, substitutions and
replacements thereof, insurance proceeds and condemnation awards payable
therefrom together with all proceeds and products thereof and all rights
thereto now or hereafter existing.
2. Representations and Warranties. Debtor warrants and represents to
Secured Party that:
a. Debtor is the true and lawful owner of the Collateral free and
clear from any and all liens, security interest, encumbrances or other
rights, title or interest of any other person, firm or corporation;
b. the Debtor shall defend the Collateral against all claims and
demands of all or any other persons at any time claiming the same or any
interest therein adverse to Secured Party;
c. there are no actions at law, suits in equity, or proceedings
before any governmental agency, commission, bureau or tribunal or any
arbitration proceedings that if adversely determined would adversely affect
the present condition, financial or otherwise, of the Collateral or would
adversely affect the right of the Debtor to pledge and assign all or any
part of the Collateral or rights and security afforded Secured Party
hereunder;
d. The Collateral is used in or for the business of operating the
Casino and all Collateral will be located at the Casino.
e. Debtor will keep the Collateral insured at all times against loss
by fire and/or other hazards concerning which, in the judgment of the
Secured Party, insurance protection is reasonably necessary, in a company
or companies satisfactory to the Secured Party and in amounts sufficient to
protect Secured Party against loss or damage to said Collateral and will
pay the premiums therefor; that such policy or policies of insurance will
be delivered to and held by the Secured Party, together with loss payable
clauses in favor of the Secured Party as its interest may appear, in form
satisfactory to the Secured Party; and Secured Party may act as attorney
for Debtor in obtaining, adjusting, settling and canceling such insurance
and endorsing any drafts.
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<PAGE> 6
f. Debtor will keep the Collateral in good condition and repair,
reasonable wear and tear excepted, and will permit Secured Party to enter
upon any lands owned, leased or otherwise controlled by the Debtor at
reasonable times for the purpose of examining the Collateral.
g. Debtor will pay as part of the debt hereby secured all amounts,
including reasonable attorneys' fees and legal expenses, with interest
thereon, paid by Secured Party (a) for taxes, levies, insurance, repairs
to, or maintenance of the Collateral, and (b) in taking possession of,
disposing of or preserving the Collateral after any default hereinafter
described.
h. Debtor will immediately notify Secured Party of any change in
Debtor's principal office or place of business.
i. Debtor will not without the prior written consent of Secured
Party (a) permit any liens or security interests (other than the security
interest granted hereby) to attach to any of the Collateral; (b) permit any
of the Collateral to be levied upon or attached by legal process; (c) sell
or offer to sell or otherwise transfer the Collateral; (d) do or permit
anything to be done that may impair the value of the Collateral; or (e)
remove or permit the Collateral to be removed from the Collateral.
j. No part of the Collateral are or shall become fixtures.
Notwithstanding and not in derogation of the foregoing, if any of the
Collateral is or is to become a fixture, Debtor agrees to furnish Secured
Party, at its request, with a statement or statements signed by all persons
who have or claim an interest in the real estate concerned, which
statements shall provide that the signer consents to the security interest
created hereby and disclaims any interest in the Collateral as fixtures.
k. No financing statement covering any of the Collateral is on file
in any public office, and at request of Secured Party, Debtor will join
with Secured Party in executing one or more financing statements pursuant
to the Uniform Commercial Code in form satisfactory to Secured Party and
will pay the cost of filing the same in all public offices wherever filing
is deemed necessary or desirable by Secured Party.
3. UCC Law. This Agreement constitutes a Security Agreement under the
Uniform Commercial Code of the State of Colorado (the "Code") and shall be
governed by the Code.
4. Event of Default. An event of default ("Event of Default") shall
occur hereunder upon any of the following:
a. failure to comply with any of the provisions of the Note
including without limitation the failure to make any payment of principal
or interest on the Note when and as the same becomes due (whether at the
stated maturity or at a date fixed for any installment payment or any
accelerated payment date or otherwise); or
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<PAGE> 7
b. failure to pay when due any other Indebtedness Secured Hereby; or
c. an Event of Default as defined therein shall occur under any of
the Loan Document; or
d. Debtor or its general partner shall fail to pay its debts as they
become due, or shall make an assignment for the benefit of its creditors,
or shall admit in writing its inability to pay its debts as they become
due, or shall file a petition under any chapter of the Federal Bankruptcy
Code or any similar law, state or federal, now or hereafter existing, or
shall become "insolvent" as that term is generally defined under the
Federal Bankruptcy Code, or shall in any involuntary bankruptcy case
commenced against it file an answer admitting insolvency or inability to
pay its debts as they become due, or shall fail to obtain a dismissal of
such case within sixty (60) days after its commencement or convert the case
from one chapter of the Federal Bankruptcy Code to another chapter, or be
the subject of an order for relief in such bankruptcy case, or be adjudged
a bankrupt or insolvent, or shall have a custodian, trustee or receiver
appointed for, or have any court take jurisdiction of its property, or any
part thereof, in any proceeding for the purpose of reorganization,
arrangement, dissolution or liquidation, and such custodian, trustee or
receiver shall not be discharged, or such jurisdiction shall not be
relinquished, vacated or stayed within sixty (60) days of the appointment;
or
e. any material representation or warranty made by either Debtor
herein, in the Note, any Loan Documents or in any other instrument given as
security for the Note shall be false, breached or dishonored; or
f. Debtor shall be dissolved, liquidated or wound up or shall fail
to maintain its partnership existence; or
g. the general partner of the Debtor shall be dissolved, liquidated
or wound up or shall fail to maintain its corporate existence.
5. Remedies. Upon the occurrence of an Event of Default, the Secured
Party may without demand, advertisement or notice of any kind (except such
notice as may be required under the Code) and all of which are, to the extent
permitted by law, hereby expressly waived:
a. exercise any of the remedies available to a secured party under
the Code;
b. proceed immediately to exercise each and all of the powers,
rights, and privileges reserved or granted to Secured Party hereunder and
under the Note, and the Loan Documents;
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<PAGE> 8
c. proceed to protect and enforce this Agreement by suits or
proceedings or otherwise, and for the enforcement of any other legal or
equity available to Secured Party;
d. Realize upon the Collateral and hold, own or dispose of the same as
its own property.
Debtor agrees in the event of a default, to make the Collateral available
to Secured Party at a place to be designated by Secured Party which is
reasonably convenient and authorizes Secured Party to enter the Premises to
assemble, possess, store and sell the Collateral. Debtor further agrees to pay
all costs and expenses of Secured Party, including reasonable attorneys' fees,
in the enforcement of any of Secured Party's rights. If any notice of sale,
disposition or other intended action by Secured Party is required by laws to be
given to Debtor, such notice shall be deemed reasonably and properly given if
mailed to Debtor at the address specified above, or at such other address of
Debtor as may be shown on Secured Party's records, at least ten (10) days before
such sale, disposition or other intended action. Waiver of any default
hereunder by Secured Party shall not be waiver of any other default or of a same
default on a later occasion. No delay or failure by Secured Party to exercise
any right or remedy shall be a waiver of such right or remedy and no single or
partial exercise by Secured Party of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy at any
other time.
6. Rights Reserved. Unless an Event of Default shall have occurred and be
continuing the Debtor shall be entitled to utilize the Collateral for its use in
the operation of the Project. The Debtor shall be permitted to use the Cash in
the operations of the Casino in the ordinary and prudent course of business.
7. Further Instruments. Debtor agrees to execute such financing statements
as may be required under the Code to perfect the security interest hereunder and
shall from time to time at its expense execute and deliver such assignments and
endorsements and file such additional financing statements as may be required to
create and continue to perfect the security interest intended to be created
herein. Debtor hereby authorizes Secured Party at Debtor's expense, to do all
acts and things which Secured Party may deem necessary to perfect and continue
perfected the security interest created by this security agreement and to
protect the Collateral.
8. Controlling Law. Notwithstanding the place of execution of this
instrument, the parties to this instrument have contracted for Colorado law to
govern this instrument and it is controllingly agreed that this instrument is
made pursuant to and shall be construed and governed by the laws of the State of
Colorado without regard to the principles of conflicts of law.
9. Consent to Jurisdiction. The Debtor submit(s) and consent(s) to
personal jurisdiction of the Courts of the State of Minnesota and Courts of the
United States of America sitting in such State for the enforcement of this
instrument and waive(s) any and
8
<PAGE> 9
all personal rights under the laws of any state or the United States of America
to object to jurisdiction in the State of Minnesota. Litigation may be
commenced in any state court of general jurisdiction for the State of Minnesota
or the United States District Court located in that state, at the election of
the Secured Party. Nothing contained herein shall prevent Secured Party from
bringing any action against any other party or exercising any rights against any
security given to Secured Party, or against the Debtor personally, or against
any property of the Debtor, within any other state. Commencement of any such
action or proceeding in any other state shall not constitute a waiver of consent
to jurisdiction or of the submission made by the Debtor to personal jurisdiction
within the State of Minnesota.
10. Notices. Any notices and other communications permitted or required by
the provisions of this Agreement (except for telephonic notices expressly
permitted) shall be in writing and shall be deemed to have been properly given
or served by depositing the same with the United States Postal Service, or any
official successor thereto, designated as Registered or Certified Mail, Return
Receipt Requested, bearing adequate postage, or delivery by reputable private
carrier such as Federal Express, Airborne, DHL or similar overnight delivery
service, and addressed as hereinafter provided. Each such notice shall be
effective upon being deposited as aforesaid. The time period within which a
response to any such notice must be given, however, shall commence to run from
the date of receipt of the notice by the addressee thereof. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to be receipt of the notice sent. By
giving to the other party hereto at least ten (10) days' notice thereof, either
party hereto shall have the right from time to time and at any time during the
term of this Agreement to change its address and shall have the right to specify
as its address any other address within the United States of America.
Each notice to Secured Party shall be addressed as follows:
Miller & Schroeder Investments Corporation
300 Pillsbury Center
220 South Sixth Street
Minneapolis, Minnesota 55402
Attn: Vice President - Mortgage Loans
Each notice to Debtor shall be addressed as follows:
353 Myers Avenue Limited Partnership
9855 West 78th Street, Suite 220
Eden Prairie, Minnesota 55344
11. Successors and Assigns. This Security Agreement and each and every
covenant and agreement and other provisions hereunder shall be binding upon the
Debtor and its successors and assigns and shall inure to the benefit of Secured
Party and its successors and assigns.
9
<PAGE> 10
12. Invalid Provisions. Any enforceability or invalidity of any
provisions hereof shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Time of Essence. Time is of the essence of this Agreement.
IN FURTHERANCE WHEREOF, the undersigned has caused this Agreement to be
executed as of the date first above written.
353 MYERS AVENUE LIMITED
PARTNERSHIP, a Minnesota limited partnership
By: CRIPPLE CREEK CORPORATION, a
Minnesota corporation, its general partner
By: /s/ Robert J. Swenson
-------------------------
Its: President
---------------
10
<PAGE> 11
EXHIBIT "A"
Description of Premises
PARCEL 1A:
Lots 34 through 36,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 1B:
Lots 37 through 40,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 2:
Lots 11 and 31R,
(Lot 31R being formerly known as Lots 31, 32 and 33),
Block 22,
FREMONT (now Cripple Creek),
according to the original plat as modified by the Subdivision Exemption
Plat recorded September 12, 1991 in Plat Book L Page 13;
PARCEL 3:
Lots 28, 29, and 30,
Block 22,
FREMONT (now Cripple Creek);
PARCEL 4:
The Surface only of
Lots 1 through 15,
Block 26,
FREMONT (now Cripple Creek);
PARCEL 5:
Lots 1 through 13,
Block 1,
ARCADIA HEIGHTS ADDITION TO THE CITY OF CRIPPLE CREEK;
A-1
<PAGE> 12
NOTE: The North 1/2 of Warren Avenue lying Easterly of Fourth
Street and Westerly of the Midland Terminal Railway Right of Way
appears to have been vacated and probably should be included in any
legal documents.
All in Teller County, Colorado.
A-2
<PAGE> 1
EXHIBIT 10.31
SHAREHOLDER VOTING AND CONTROL AGREEMENT
AGREEMENT dated this 30th day of November, 1996, by and between Craig
H. Forsman ("Forsman"), Terrance P. DeRoche ("DeRoche"), Stephen W. Sherf
("Sherf"), Robert J. Swenson ("Swenson"), Richard Stockness ("Stockness"),
Randall D. Otis ("Otis"), E. Wayne Moore and Sara A. Moore and National Lodging
Companies, Inc. ("Lodging"), all of such parties hereinafter referred to
collectively as "Shareholders."
RECITALS
The Shareholders own all of the outstanding common stock of Jubilee
Gaming Corporation ("the Company"), a Minnesota corporation which operates the
Jubilee Casino in Cripple Creek, Colorado (the "Business"). The Board of
Directors of the Company, consisting of Messrs. Forsman, Klinkhammer, DeRoche
and Sherf have determined that it is advisable and in the best interests of the
Company to obtain additional capital through a public offering of common stock
of the Company and have authorized the Company's chief executive officer to
enter into a Letter of Intent with H. J. Meyers & Co., Inc. and Sterling Foster
& Co., Inc. dated August 8, 1996, providing for a public offering of 1,200,000
units of the Company's securities (each unit consisting of one share of common
stock and one common stock purchase warrant) for a gross offering price of
$6,000,000 or $5.00 per unit (the "Public Financing"). In order to provide for
the independence of the Company in the operation and control of the Business,
the Shareholders desire to make certain provisions regarding the management and
control of the Company, to take place effective upon the closing of the Public
Financing, all as hereinafter set forth. The Shareholders intend that, subject
to the closing of the Public Financing, this Agreement constitute a Shareholder
Voting Agreement within the meaning of Minnesota Statutes Section 302A.455
among Messrs. Forsman, DeRoche and Sherf and Lodging. In addition, the
Shareholders intend that this Agreement constitute a Shareholder Control
Agreement among them within the meaning of Minnesota Statutes, Section
302A.457.
In consideration of the premises and the mutual covenants hereinafter
contained, the Shareholders agree as follows:
1. CONDITION PRECEDENT TO EFFECTIVENESS; TERM. This Agreement and
all covenants contained herein by the Shareholders, shall become effective upon
the closing of the Public Financing. In the event the Public Financing is not
completed on or before March 1, 1997, this Agreement shall be null and void and
of no further effect. Upon its becoming effective, this Agreement shall
continue in force until January 1, 2001. This Agreement may be extended for up
to one additional year upon the written consent of Lodging and the holders of a
majority of the shares of the Company then owned by Messrs. Forsman, Sherf and
DeRoche. This Agreement shall also terminate at such time as Lodging, or
Lodging and its affiliates in the aggregate, beneficially own 20% or less of
the Company's outstanding common stock. For purposes of the foregoing
provisions of this Section 1, ownership of the Company's shares shall be
determined in the manner specified by Rule 13d-3 of the
<PAGE> 2
Securities Exchange Act of 1934 ("Exchange Act"), as amended, and the term
"affiliate" shall have the meaning set forth in Rule 144(a) of the General
Rules and Regulations under the Securities Act of 1933.
2. EXCHANGE ACT REPORTING. If, as a result of this Agreement,
the Shareholders constitute a "group" within the meaning of Section 13(d) of
the Exchange Act, as amended, the parties agree that Forsman may prepare and
file, on their behalf, with the Securities and Exchange Commission one or more
forms of Schedule 13D or any successor form thereto, and any and all amendments
thereto, to disclose any group relationship and voting provisions and stock
ownership relating thereto. The Shareholders agree to fully cooperate with
Forsman in connection with the filing of one or more Schedules 13D with the
Securities and Exchange Commission required to be filed, together with
amendments thereto, to disclose any such group relationship, securities,
ownership and voting provisions, or changes thereto, as may be required
pursuant to Section 13(d) of the Exchange Act. In the event Forsman is not
able to obtain the signature of any Shareholder which may be required in
connection with any of the foregoing filings, such Shareholder hereby grants to
Forsman, Sherf or DeRoche, and each of them acting individually, an irrevocable
power of attorney, coupled with an interest, to make, execute and file any of
such schedules or forms on behalf of such Shareholder. In the event Forsman is
unavailable, unwilling, deceased, disabled or fails for any reason to effect
any such filings, such filings may be prepared, coordinated and filed as
contemplated herein by Sherf or DeRoche, or any of them acting individually.
Any and all such filings shall be made on advice, and with the assistance, of
legal counsel.
3. VOTING FOR BOARD OF DIRECTORS. The Board of Directors of the
Company shall, until their successors are elected, consist of the current
members of the Board, John H. Klinkhammer, DeRoche, Sherf and Forsman, (the
"Current Members"), together with an additional Gaming Director to be
designated by Sherf and Forsman and two additional non-employee directors (the
"Independent Directors") as hereinafter provided. In the event of the death or
resignation of one of the Current Members, the following procedure shall
apply:
(a) a vacancy created by the loss of Messrs. Klinkhammer or
DeRoche, shall be filled by a person designated by the
remaining Lodging Director; and
(b) a vacancy created by the loss of any of Messrs. Forsman or
Sherf, thereby shall be filled by a person designated by the
remaining Gaming Directors.
For purposes of this Agreement, "Lodging Directors" shall mean Messrs.
Klinkhammer and DeRoche, or any successor director appointed or elected to
their positions pursuant to this Agreement. The term "Gaming Directors" shall
mean Messrs. Sherf and Forsman, or any successor or additional Gaming Director
appointed or elected to their positions pursuant to this Agreement. The term
"Independent Directors" shall mean directors who are not employees of the
Company or any affiliate of the Company and shall exclude any person who is an
officer, director, shareholder or employee of Lodging.
2
<PAGE> 3
3.1 At least ninety (90) days prior to any regular or
special meeting of the shareholders of the Company at which directors
are to be elected, the Board of Directors of the Company shall meet
and select a slate of proposed directors of the Company, which shall
consist of the Lodging Directors, the Gaming Directors and two
Independent Directors, who shall be designated by resolution of the
Board of Directors in which the Lodging Directors and a majority of
the Gaming Directors shall have voted in favor of such Independent
Director nominees.
3.2 The nominees designated at such meeting of the Board
shall be the nominees of the management of the Company and shall be so
designated to the shareholders of the Company at their next meeting
(regular or special) at which directors are elected, and shall be so
designated in the Company's proxy statement.
3.3 It is agreed and understood that the Independent
Directors and all newly-elected Directors other than the Current
Directors, when elected by the Shareholders, shall take office subject
to, and upon receiving, approval of suitability by the Colorado
Limited Gaming Control Commission (the "Commission"). In the event
any Independent Director shall be found unsuitable by the Commission,
the vacancy created thereby shall be filled by the remaining members
of the Board of Directors who shall designate another person as a
successor Independent Director, and who shall be subject to approval
of suitability by the Commission prior to assuming office.
4. VOTING AGREEMENT. The Shareholders agree that at any regular
or special meeting of the shareholders of the Company at which directors are to
be elected, they will vote their shares in favor of the two nominees designated
by the Lodging Directors, the three nominees designated by the Gaming Directors
and the two Independent Directors designated by the Board of Directors as
provided in the foregoing Section 3. Notwithstanding the foregoing, in the
event any of the procedures specified in the foregoing Section 3 shall not
occur, or shall occur but any or all of said Section 3 shall be held invalid by
a court of competent jurisdiction, Lodging, DeRoche, Sherf and Forsman agree
that they will in all events vote their shares in favor of the election to the
Board of Directors of:
(a) two persons designated as nominees by Lodging;
(b) three persons designated as nominees by Messrs. Sherf
and Forsman; and
(c) two Independent Directors designated as nominees
unanimously in writing by Lodging, and at least two of Messrs. DeRoche, Sherf
and Forsman.
Notwithstanding the foregoing, it is agreed that in all events a Director shall
not assume office until he or she is found suitable by the Commission.
3
<PAGE> 4
5. MISCELLANEOUS.
5.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given upon receipt
if delivered personally, telecopied (which is confirmed) or mailed by
registered or certified mail, return receipt requested, to the parties
at 9855 West 78th Street, Suite 220, Minneapolis, Minnesota 55344, or
at such other address for a party as shall be specified by like
notice.
5.2 DESCRIPTIVE HEADINGS. The descriptive headings
herein are inserted for convenience only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
5.3 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the
same agreement and shall become effective when two or more
counterparts have been signed by each of the parties and delivered to
the other parties, it being understood that all parties need not sign
the same counterpart.
5.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement shall
constitute the entire agreement of the parties concerning the subject
matter hereof and shall supersede all prior agreements and
understandings, both written and oral, among the parties with respect
to the subject matter hereof, and shall not be assigned by operation
of law or otherwise without the written consent of all other parties
to this agreement; provided, however, that Lodging may assign its
rights and obligations under this Agreement to any wholly-owned
subsidiary of Lodging that becomes a party to this Agreement and
agrees to perform and assume the obligations of Lodging hereunder, but
no such assignment shall relieve Lodging of its obligations hereunder
if such assignee does not perform such obligations; provided further,
however, that in the event of the disability or death of an individual
party hereto, the rights and obligations under this Agreement may be
assigned to such party's duly appointed personal representative who
agrees to become a party to this Agreement.
5.5 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Minnesota
without regard to any applicable principles of conflicts of law;
provided, however, that with respect to the ability of any person to
assume the duties, rights and responsibilities of a Director of the
Company, the Colorado Limited Gaming Act, as amended, and the rules
and regulations of the Colorado Limited Gaming Control Commission,
shall govern.
5.6 PARTIES IN INTEREST; ADDITIONAL PARTIES. This
Agreement shall be binding upon and inure solely to the benefit of
each party hereto and such party's successors and assigns. With the
consent of the Gaming Directors and the Lodging Directors, additional
persons who are shareholders of the Company may become parties to this
Agreement by signing a counterpart copy thereof.
4
<PAGE> 5
5.7 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the extent
possible.
5.8 ARBITRATION. Upon any dispute or controversy arising
out of this Agreement, any party hereto may call for the resolution of
such dispute or controversy by arbitration by and in accordance with
the rules of the American Arbitration Association in the City of
Minneapolis, by three arbitrators, at least one of whom shall be a
member of the Bar of the State of Minnesota. The arbitrators shall
render written findings, conclusions of law and decision, unless the
parties thereto waive the same. The decision of the arbitrators shall
be conclusive and binding upon the parties hereto, and enforceable by
them in a court of competent jurisdiction. The arbitrators may, in
their discretion, award attorneys' fees and arbitration costs in favor
of a prevailing party; otherwise, each party shall bear its or his own
expense in connection with any such arbitration proceeding.
5.9 AMENDMENT. This Agreement, insofar as it
constitutes, and operates as, a shareholder voting agreement, may be
amended by written amendment signed by all of the parties hereto or,
if not signed by all of the parties hereto, by not less than a
majority in interest of Lodging and DeRoche and a majority in interest
of Sherf and Forsman. In the event that any shareholder named herein
shall fail to execute this Agreement, then in such event this
Agreement shall be valid and binding upon the remaining signatories
hereto as a Shareholder Voting Agreement within the meaning of
Minnesota Statutes Section 302A.455. For purposes of this Agreement,
the term "majority in interest" means the holder or holders of a
majority of the total issued and outstanding shares of the Company
owned by the subject persons.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
/s/ Craig H. Forsman
-------------------------
Craig H. Forsman
/s/ Terrance P. DeRoche
-------------------------
Terrance P. DeRoche
5
<PAGE> 6
/s/ Stephen W. Sherf
--------------------------------
Stephen W. Sherf
/s/ Robert J. Swenson
--------------------------------
Robert J. Swenson
--------------------------------
Richard Stockness
--------------------------------
Randall D. Otis
--------------------------------
E. Wayne Moore
--------------------------------
Sara A. Moore
NATIONAL LODGING COMPANIES, INC.
By /s/ John H. Klinkhammer
--------------------------------
John H. Klinkhammer, Chairman
6
<PAGE> 1
WARRANT
These securities are subject to restrictions on transferability and resale and
may not be transferred or resold except as permitted under the Securities Act
of 1933, as amended (the "Act") and the applicable state securities laws,
pursuant to registration or exemption therefrom. Investors should be aware
that they may be required to bear the financial risks of this investment for an
indefinite period of time.
This Warrant and the shares of Common Stock issuable upon exercise of this
Warrant have not been registered under the Act or any applicable state
securities laws. Neither this Warrant nor the Common Stock issuable upon
exercise hereof may be transferred to anyone until (i) a registration statement
under the Act shall have become effective with regard thereto, or (ii) in the
opinion of counsel reasonably acceptable to the Company, registration under the
Act is not required in connection with such proposed transfer.
Warrant to Subscribe for
27,000 Shares
STOCK SUBSCRIPTION WARRANT
To Subscribe For and Purchase Common Stock of
NATIONAL GAMING COMPANIES, INC.
THIS WARRANT CERTIFIES THAT, for value received, Craig Forsman (the
"Holder) is entitled to subscribe for and purchase from National Gaming
Companies, Inc., a Minnesota corporation (the "Company") an aggregate of 27,000
shares (subject to adjustments referred to below) of the Common Stock of the
Company (the "Common Stock"), at a purchase price of $.50 per share at any time
from the date hereof through December 31, 2000.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised by the Holder hereof, in whole or in part (but not as to a fractional
share of Common Stock) at any time prior to December 31, 2000, by written notice
of exercise delivered to the Company and by the surrender of this Warrant
(properly endorsed if required) on the exercise date at the principal office of
the Company accompanied by payment by certified check of the purchase price for
such shares. The company agrees that the shares so purchased shall be and are
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
2. EXERCISE PERIOD. Notwithstanding any other provision of this Warrant,
this Warrant may be exercised only at such time as the Common Stock issuable to
the Holder hereof upon exercise may be issued to such the Holder pursuant to an
exemption from registration under federal or state securities laws.
1
<PAGE> 2
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant
except in accordance with the provisions, and subject to the limitations, of
Section 3 hereof.
3. RESTRICTIONS ON TRANSFER OF WARRANT AND COMMON STOCK. Neither this
Warrant nor the Common Stock purchasable upon the exercise of this Warrant have
been registered under the Securities Act of 1933, as amended (the "Act") or
state securities laws. Neither this Warrant nor such Common Stock may be sold,
transferred, pledged or otherwise disposed of except pursuant to registration
under the Act and under applicable state securities laws of until the Holder has
obtained an opinion of counsel satisfactory to the Company and its counsel to
the effect that such registration is not required. The Company may cause the
following legend or one similar thereto to be set forth on each certificate
representing shares of Common Stock issuable upon exercise of this Warrant:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED (THE "ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE TRANSFERRED TO ANYONE UNTIL (i) A REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) IN THE OPINION OF COUNSEL
REASONABLE ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME.
4. PIGGYBACK REGISTRATION.
(a) Subject to subparagraphs(b),(c) and (d) below, if prior to
December 31, 2000, the Company proposes to file a registration statement under
the Act covering a public offering of any of its Common Stock (other than on
Forms S-4 or S-8 or other similarly inappropriate form or primarily a
registration for Common Stock proposed to be issued in exchange for securities
or assets of, or in connection with a merger or consolidation with another
corporation), then in each such case it shall promptly notify the Holder prior
to such filing and will include in such registration (to the extend permitted by
applicable regulation) all or any part of the Common Stock purchasable upon the
exercise of this Warrant as requested by the Holder.
(b) If the offering to which the registration relates is to be
distributed by or through an underwriter or underwriters, then, at the option of
such underwriter or underwriters and as a condition to the inclusion of all or
any part of such Common Stock in such registration, the Common Stock shall be
sold through such underwriter or underwriters on the same terms and conditions
as the underwriter or underwriters agree to sell the shares of Common Stock on
behalf of the Company. The COMPANY may, in its sole discretion, withdraw any
such registration and abandon the proposed offering in which the Holder had
requested to participate without the consent of, or liability or obligation to,
the Holder. If the registration has not become effective within six (6) months
following
2
<PAGE> 3
the date such notice is given to the Holder, the Company must again notify the
Holder in the manner provided in subparagraph (a) above.
(c) Notwithstanding any other provision of this Section 4, if the
underwriter for the proposed offering determines that marketing factors required
a limitation of the number of shares to be underwritten, the underwriter may
limit the number of shares to be included in such registration for the account
of selling security holders having piggyback registration rights. The Company
shall so advise the Holder and any other holders desiring to distribute their
securities through such underwriting, and the number of shares purchasable upon
exercise of this registration and underwriting shall be allocated among the
Holder and all other holders (if any) having piggyback registration rights in
proportion (as nearly as practicable) to the respective numbers of shares with
respect to which each such holder has registration rights. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to the Holder or any other holder to the
nearest 100 shares.
(d) The Company shall pay all costs and expenses of the registration
except for the fees of the Holder's legal counsel, costs or expenses with
respect to the Holder's compliance with the securities laws if any state
incurred as a direct result of any action or request of the Holder which would
not otherwise have been incurred by the Company, and the payment of
underwriter's commissions and expenses relating to the registration of such the
Holder's Common Stock, and the Company shall not be responsible for such costs
and expenses.
5. DELIVERY OF STOCK CERTIFICATES. The Company agrees that the shares of
Common Stock purchased upon exercise of this Warrant shall be deemed to be
issued to the Holder as of the close of business on the date on which this
Warrant shall have been surrendered and the payment made for such shares of
common stock as provided in Section 1. Certificates for the shares of Common
Stock purchased pursuant to the exercise of this Warrant shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant shall have expired, a new Warrant representing the number of
shares of Common Stock remaining, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the Holder within
such time.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens and charges with respect to the
issuance thereof. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised:
(a) the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant;
(b) the Company shall, upon request, furnish the Holder annual
financial statements of the Company, including a balance sheet, statement of
profit and loss and statement of retained earnings, within ninety (90) days
following the end of the fiscal year of the Company and quarterly unaudited
financial statements of the Company within forty-five (45) days following the
end of each
3
<PAGE> 4
fiscal quarter; and
(c) the Holder shall have the same rights to examine and copy the
Company's books and records as are granted to shareholders of the Company under
Minnesota Statutes, Section 302A.461.
7. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are
subject to adjustment as provided in this Section 7.
(a) The warrant exercise price shall be adjusted from time to time
such that in case the Company shall hereafter;
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into
Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into
a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the warrant exercise price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (A) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing warrant
exercise price, by (B) the total number of shares of Common Stock outstanding
immediately after such event (including in each case the maximum number of
shares of Common Stock issuable in respect of any securities convertible into
Common Stock), and the resulting quotient shall be the adjusted warrant
exercise price per share. An adjustment made pursuant to this subparagraph
7(a) shall become effectively immediately after the record date in the case of
a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this subparagraph 7(a) the
Holder of this Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive) shall determine the allocation of the
adjusted warrant exercise price between or among shares of such classes of
capital stock or shares of Common Stock and other capital stock. All
calculations under this subparagraph 7(a) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be. In the event that at any
time as a result of an adjustment made pursuant to this subparagraph 7(a), the
Holder of this Warrant thereafter surrendered for exercise shall become entitled
to receive any shares of the Company other than shares of Common Stock,
thereafter the warrant exercise price of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section 7.
(b) Upon each adjustment of the warrant exercise price pursuant to
subparagraph 7(a) above, the Holder of this Warrant shall thereafter (until
another such adjustment) be entitled to
4
<PAGE> 5
purchase at the adjusted warrant exercise price the number of shares,
calculated to the nearest full share, obtained by multiplying the number of
shares specified in such Warrant (as adjusted as a result of all adjustments
in the warrant exercise price in effect prior to such adjustment) by the
warrant exercise price in effect prior to such adjustment and dividing the
product so obtained by the adjusted warrant exercise price.
(c) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company, there shall be no adjustment under subparagraph
7(a) above but the Holder of this Warrant shall have the right thereafter to
convert such Warrant into the kind and amount of shares of stock and other
securities and property which he would have owned or have been entitled to
receive immediately after such consolidation, merger, statutory exchange, sale,
or conveyance had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 7 with respect to the
rights and interests thereafter of any Holders of the Warrant, to the end that
the provisions set forth in this Section 7 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this subparagraph 7(c) shall similarly apply
to successive consolidations, mergers, statutory exchanges, sales or
conveyances.
(d) Upon any adjustment of the warrant exercise price, then and in each
such case, the Company shall give written notice thereof, by First-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the warrant exercise price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based.
(e) If any event occurs as to which in the opinion of the Board of
Directors the other provisions of this Section 7 are not strictly applicable or
if strictly applicable would not fairly protect the purchase rights of the
Holder of this Warrant in accordance with the essential intent and principles of
such provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid.
8. NO RIGHTS OF STOCKHOLDERS. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a stockholder of the Company
until the issuance to the Holder of a certificate for shares.
9. REPRESENTATIONS OF THE HOLDER. The Holder, by acceptance of this
Warrant, represents and warrants as follows:
(a) The Holder is acquiring this Warrant and any shares of Common
Stock purchasable
5
<PAGE> 6
upon the exercise of this Warrant for the Holder's own account, for investment
purposes only and not with a view to resale or distribution, and the Holder has
no present intention of selling or otherwise disposing of this Warrant or such
shares of Common Stock.
(b) The Holder has had an opportunity to review the books and
records of the Company, has been furnished all documents, records or other
property of the Company, has had the opportunity to review the business and
operations of the Company and has been furnished access to any and all further
documents or officers of the Company for purposes of making its own
investigation into the affairs of the Company.
(c) The Holder is an accredited investor as that term is defined in
Regulation D under the Act.
10. NOTICES. All notices provided for hereunder shall be sent by first
class mail, address as follows:
If to the Company at:
National Gaming Companies, Inc.
9855 West 78th Street
Suite 220
Minneapolis, MN 55344
Attn: President
with a copy to:
Marvin A. Liszt, Esq.
Diamond, Liszt & Grady, P.A.
9855 West 78th Street
Suite 210
Minneapolis, MN 55344
If to the Holder:
Craig Forsman
21 Deer Hills Drive
North Oaks, MN 55127
Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All notices
shall be deemed given on the date when actually delivered as provided above (if
delivered personally or by telecopy) or on the day shown on the return receipt
(if delivered by mail or delivery service).
6
<PAGE> 7
11. GOVERNING LAW. The provisions of this Warrant shall be governed by
and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and to be dated this 25th day of January, 1996.
"Company" NATIONAL GAMING COMPANIES, INC.
By /s/ Robert J. Swenson
-------------------------------
Its President
----------------------------
7
<PAGE> 1
EXHIBIT 10.33
NOTE
U.S. $200,000.00 Minneapolis, Minnesota
October 31, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Craig
Forsman the sum of Two Hundred Thousand and 00/100 ($200,000.00) Dollars,
together with interest at the rate of 15% per annum. Interest shall commence
on the date of this Note. Borrower shall pay interest only payments in the
amount of $2,500 on the first day of each month commencing December 1, 1995.
The entire principal balance due herein together with accrued interest shall be
due and payable in full on February 1, 1996.
If this Note is not paid when due and remains unpaid after a date
specified by a notice to Borrowers, the entire principal amount outstanding and
accrued interest thereon shall at once become due and payable at the option of
the Note holder. The date specified shall not be less than thirty days from
the date such notice is mailed. The Note holder may exercise this option to
accelerate during any default by Borrowers regardless of any prior
forbearance. If suit is brought to collect this Note, the Note holder shall be
entitled to collect all reasonable costs and expenses of suit, including, but
not limited to, reasonable attorney's fees.
Borrowers may prepay the principal amount outstanding in whole or in
part. The Note holder may require that any partial prepayments (i) be made on
the date installments are due and (ii)
<PAGE> 2
be in the amount of that part of one or more installments which would be
applicable to principal. Any partial prepayment shall be applied against the
principal amount outstanding and shall not postpone the due date of any
subsequent installments or change the amount of such installments, unless the
Note holder shall otherwise agree in writing.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof.
This Note shall be the joint and several obligation of all makers,
sureties, guarantors and endorsers, and shall be binding upon them and their
successors and assigns.
Any notice to Borrower provided for in this Note shall be given by
mailing such notice by certified mail addressed to Borrower at the property
address or to such other address as Borrower may designate by notice to the
Note holder. Any notice to the Note holder shall be given by mailing such
notice by certified mail, return receipt requested, to the Note holder at the
address stated in the first paragraph of this Note, or at such other address as
may have been designated by notice to Borrower.
This Note is secured by a Deed of Trust encumbering certain real
property in Teller County, Colorado.
National Gaming Companies, Inc.
By /s/ R. J. Swenson
-------------------------------------
Its President
----------------------------------
<PAGE> 3
AMENDMENT TO NOTE
Agreement made this 28th day of December, 1995, by and between Craig
Forsman (hereinafter referred to as "Forsman") and National Gaming Companies,
Inc. (hereinafter referred to as "National Gaming").
WHEREAS, National Gaming executed a Note dated October 31, 1995, in
favor of Forsman in the original principal amount of $200,000; and
WHEREAS, the parties desire to amend the payment terms of the October
31, 1995 Note.
NOW, THEREFORE, the parties agree as follows:
1. The first paragraph of the October 31, 1995 Note shall be deleted
in its entirety and replaced with the following:
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay
Craig Forsman the sum of Two Hundred Thousand and 00/100 ($200,000.00)
Dollars, together with interest at the rate of 15% per annum. Interest
shall commence on the date of this Note. Borrower shall pay interest
only payments in the amount of $2,500 on the first day of each month
commencing December 1, 1995. The entire principal balance due herein
together with accrued interest shall be due and payable in full on May
1, 1996. National Gaming Companies, Inc. shall have the right, at its
option, to extend the date on which the entire principal balance
together with accrued interest shall be due and payable in full to
November 1, 1996. In the event National Gaming Companies, INC. extends
the due date to November 1, 1996, interest on the above principal shall
increase to 20% per annum for the time period from May 1, 1996 to
November 1, 1996, and monthly interest only payment shall increase to
$3,333.33 commencing June 1, 1996.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment to Note as
of the date first above written.
National Gaming Companies, Inc.
By /s/ R. J. Swenson
------------------------------------
Its President
---------------------------------
/s/ Craig Forsman
--------------------------------------
Craig Forsman
<PAGE> 1
EXHIBIT 10.34
JUBILEE GAMING CORPORATION
AND
H.J. MEYERS & CO., INC.
REPRESENTATIVE'S WARRANT AGREEMENT
DATED AS OF _______________ __, 1997
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT
THIS REPRESENTATIVE'S WARRANT AGREEMENT (the "Agreement"), dated as of
___________ ___, 1997, is made and entered into by and between JUBILEE GAMING
ENTERPRISES, INC., a Minnesota corporation (the "Company"), and H.J. MEYERS &
CO., INC., a Delaware corporation (the "Warrantholder").
The Company agrees to issue and sell, and the Warrantholder agrees to
purchase, for an aggregate purchase price of $5.00, warrants, as hereinafter
described (the "Warrants"), to purchase up to an aggregate of 120,000 units
(the "Units"), each Unit consisting of (i) one (subject to adjustment pursuant
to Section 8 hereof) share (the "Shares") of the Company's Common Stock, $____
par value (the "Common Stock") and (ii) one five-year Common Stock purchase
warrant exercisable to purchase one share of Common Stock, in connection with a
public offering by the Company of 1,200,000 Units pursuant to an underwriting
agreement (the "Underwriting Agreement"), dated ___________ ___, 1996, among
the Company and the Warrantholder, as representative ("Representative") of the
several Underwriters named in the Underwriting Agreement. (The warrants
underlying the Units are hereinafter referred to as the "Unit Warrants." The
shares of Common Stock purchasable upon exercise of the Unit Warrants are
hereinafter referred to as the "Unit Warrant Stock"). The purchase and sale of
the Warrants shall occur on the First Closing Date, as defined in the
Underwriting Agreement, and shall be subject to the conditions to the
Underwriters' obligations to purchase Units thereunder. The Unit Warrants shall
be subject to all of the terms and conditions of the Transfer Agent/Warrant
Agreement, dated as of ___________ ___, 1996, between the Company and Norwest
Bank Minnesota, National Association, as Warrant Agent (the "Warrant
Agreement").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby agree
as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 REGISTRATION. The Warrants shall be numbered and registered on
the books of the Company when issued.
1.2 TRANSFER. The Warrants shall be transferable only on the books
of the Company maintained at its principal office, wherever its principal office
may then be located, upon delivery thereof duly endorsed by the Warrantholder or
by its duly authorized attorney or representative, accompanied by proper
evidence of succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver new Warrants to
the person entitled thereto.
1.3 LIMITATIONS ON TRANSFER OF THE WARRANTS. Subject to the
provisions of Section 11, the Warrants shall not be sold, transferred, assigned
or hypothecated by the Warrantholder until ____________. 1997 except to (i) one
or more persons, each of whom on the date of transfer is an officer of the
Warrantholder; (ii) any of the several Underwriters set forth on Schedule I to
the Underwriting Agreement or members of the selling group and/or the officers
or partners thereof; (iii) a successor to the Warrantholder in merger or
consolidation; (iv) a purchaser of all or substantially all of the
Warrantholder's assets; or (v) any person receiving the Warrants from one or
more of the persons listed in this subsection 1.3 at such person's or persons'
death pursuant to will, trust or the laws of intestate succession. The Warrants
may be divided or combined, upon request to the Company by the Warrantholder,
2
<PAGE> 3
into a certificate or certificates representing the right to purchase the same
aggregate number of Units. Unless the context indicates otherwise, the term
"Warrantholder" shall include any transferee or transferees of the Warrants
pursuant to this subsection 1.3, and the term "Warrants" shall include any and
all warrants outstanding pursuant to this Agreement, including those evidenced
by a certificate or certificates issued upon division, exchange, substitution
or transfer pursuant to this Agreement.
1.4 FORM OF WARRANTS. The text of the Warrants and of the form of
election to purchase Units shall be substantially as set forth in Exhibit "A"
attached hereto. The number of shares issuable upon exercise of the Warrants and
Unit Warrants is subject to adjustment upon the occurrence of certain events,
all as hereinafter provided. The Warrants shall be executed on behalf of the
Company by its Chief Executive Officer or by a Vice President, attested to by
its Secretary or an Assistant Secretary. A Warrant bearing the signature of an
individual who was at any time the proper officer of the Company shall bind the
Company notwithstanding that such individual shall have ceased to hold such
office prior to the delivery of such Warrant or did not hold such office on the
date of this Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 LEGEND ON SHARES AND UNIT WARRANTS. Each certificate for Shares
or Unit Warrants (or Unit Warrant Stock issued upon exercise of a Unit Warrant)
initially issued upon exercise of the Warrants or a Unit Warrant shall bear the
following legend, unless, at the time of exercise, such Shares or Unit Warrants
(or Unit Warrant Stock) are subject to a currently effective Registration
Statement under the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT
BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 11 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE
ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Act"), of the securities
represented thereby) shall also bear the above legend unless, in the opinion of
the Company's counsel, the securities represented thereby need no longer be
subject to such restrictions.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the
Warrantholder to purchase a like aggregate number of Units as the certificate
or certificates surrendered then entitled such Warrantholder to purchase. Any
Warrantholder desiring to exchange a Warrant certificate shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, with signatures guaranteed, the certificate evidencing the Warrant to
be so exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrantholder shall
have the right, at any time during the period commencing at 9:00 a.m., New York
City Time, on ____________, 1997 and ending at 5:00 p.m., New York City Time, on
____________, 2001
3
<PAGE> 4
(the "Termination Date"), to purchase from the Company up to the number of
fully paid and nonassessable Units which the Warrantholder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the Company,
at its principal office, of the certificate evidencing the Warrants to be
exercised, together with the purchase form on the reverse thereof duly filled
in and signed, with signatures guaranteed, and upon payment to the Company of
the Warrant Price (as defined in and determined in accordance with the
provisions of this section 3 and sections 7 and 8 hereof), for the number of
Units in respect of which such Warrants are then exercised, but in no event for
less than 100 Units (unless less than an aggregate of 100 Units are then
purchasable under all outstanding Warrants held by a Warrantholder).
(b) Except as otherwise provided for in this Section, payment of the
aggregate Warrant Price shall be made in cash or by check, or any combination
thereof. No Warrant may be exercised by the Warrantholder after 5:00 p.m., New
York City Time, on _____________, 2001. Subject to the terms of this agreement,
each Warrant may be exercised to purchase one Unit at a price of $__________
[120% of the Unit Offering price] and each Unit Warrant shall be exercisable to
purchase one share of Common Stock at a price of $________ [120% of the Warrant
exercise price] per share. The Unit Warrant Price is further subject to
adjustment as set forth herein and as is provided in Section 4 of the Warrant
Agreement.
Upon such surrender of the Warrants and payment of such Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrantholder and in
such name or names as the Warrantholder may designate a certificate or
certificates for the number of full Shares and Unit Warrants so purchased upon
the exercise of the Warrant, together with cash, as provided in Section 9
hereof, in respect of any fractional Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such securities as of the date of surrender of the
Warrants and payment of the Warrant Price, as aforesaid, notwithstanding that
the certificate or certificates representing such securities shall not actually
have been delivered or that the stock or Unit Warrant transfer books of the
Company shall then be closed. The Warrants shall be exercisable, at the
election of the Warrantholder, either in full or from time to time in part and,
in the event that a certificate evidencing the Warrants is exercised in respect
of less than all of the Units specified therein at any time prior to the
Termination Date, a new certificate evidencing the remaining portion of the
Warrants will be issued by the Company.
(c) Notwithstanding the provisions of Section 1(b) with respect to the
payment of the aggregate Warrant Price to the contrary, the Holder may elect to
exercise this Warrant, in whole or in part, by receiving Units equal to the
value (as herein determined) of the portion of this Warrant then being
exercised, in which event the Company shall issue to the Holder the number of
Units determined by using the following formula:
X = Y(A-B)
------
A
where: X = the number of Units to be issued to the Holder under the
provisions of this Section 1(c).
Y = the number of Units that would otherwise be issued upon such
exercise.
4
<PAGE> 5
A = the Current Fair Market Value (as hereinafter defined) of one
Unit calculated as of the last trading day immediately
preceding such exercise.
B = the Exercise Price
As used herein, the "Current Fair Market Value" of the Unit as of a
specified date shall mean with respect to each Unit, (i) the aggregate of the
average of the last reported sales price regular way of the Common Stock and
the Warrants issuable pursuant to the Warrant Agreement sold on all securities
exchanges on which such securities may at the time be listed, or (ii) if there
have been no sales on any such exchange on such day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day, or
(iii) if on such day such securities are not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00
p.m., New York time, or (iv) if on such day such securities are not quoted in
the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
the Current Fair Market Value is being determined and the 20 consecutive
business days prior to such day. If on the Date for which Current Fair Market
Value is to be determined such securities are not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, then
Current Fair Market Value of such securities shall be the highest price per
share and per warrant which the Company could then obtain from a willing buyer
(not a current employee or director) for such securities sold by the Company
for such securities, as determined in good faith by the Board of Directors of
the Company, unless prior to such date the Company has become subject to a
merger, consolidation, reorganization, acquisition or other similar transaction
pursuant to which the Company is not the surviving entity, in which case the
Current Fair Market Value of the securities shall be deemed to be the per share
value received or to be received in such transaction by the holder of such
securities.
SECTION 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Units; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Units.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and a bond of indemnity, if requested,
also satisfactory in form and amount at the applicant's cost. Applicants for
such substitute Warrants certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe.
SECTION 6. RESERVATION OF SHARES. There have been reserved, and the
Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of
Common Stock as shall be subject to purchase under the Warrants (including such
number of shares of Unit Warrant Stock subject to purchase upon exercise of the
Unit Warrants). Every transfer agent for the Common Stock and other securities
of the Company issuable upon the exercise of the Warrants will be irrevocably
authorized and directed at all times to reserve such number of authorized
shares and other securities as shall be requisite for such purpose. The Company
will keep a copy of this
5
<PAGE> 6
Agreement and the Warrant Agreement on file with every transfer agent for the
Common Stock and other securities of the Company issuable upon the exercise of
the Warrants. The Company will supply every such transfer agent with duly
executed stock and other certificates, as appropriate, for such purpose and
will provide or otherwise make available any cash which may be payable as
provided in Section 9 hereof.
SECTION 7. WARRANT PRICE. The price per Unit at which Units shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$_______ [120% of the Unit offering price], subject to further adjustment
pursuant to Section 8 hereof.
SECTION 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise
of the Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in Common Stock
or make a distribution in Common Stock, (ii) subdivide its outstanding Common
Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares of Common Stock, or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number of Shares purchasable upon exercise
of the Warrants immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of Shares or
other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.l(a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
Initial Price (defined as $______ per share of Common Stock), the Warrant Price
shall be adjusted so that it shall equal the price determined by multiplying the
number of shares then comprising a Unit by the Warrant Price in effect
immediately prior to the date of such issuance, multiplied by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Initial Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Warrant Price shall be readjusted to the Warrant Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
6
<PAGE> 7
(c) In case the Company shall hereafter distribute to all holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Warrant Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising a Unit by the Warrant Price in effect immediately prior thereto,
multiplied by a fraction, the numerator of which shall be the total number of
shares of Common Stock then outstanding multiplied by the Initial Price, less
the fair market value (as determined by the Company's Board of Directors) of
said assets, or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such Initial Price. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such distribution.
(d) Whenever the Warrant Price payable upon exercise of the
Representative's Warrant is adjusted pursuant to Subsections (a), (b) or (c)
above, the number of Units purchasable upon exercise of this Representative's
Warrant shall simultaneously be adjusted by multiplying the number of Units
issuable upon exercise of this Representative's Warrant by the Warrant Price in
effect on the date hereof and dividing the product so obtained by the Warrant
Price, as adjusted.
(e) Whenever the number of Shares purchasable upon the exercise
of the Warrants is adjusted as herein provided, the Company shall cause to be
promptly mailed to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment and a certificate of the chief financial officer of
the Company setting forth the number of Shares purchasable upon the exercise of
the Warrants after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(f) For the purpose of this subsection 8.1 the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to purchase any securities of the Company other than Common Stock and
Unit Warrants, (i) if the Warrantholder's right to purchase is on any other
basis than that available to all holders of the Company's Common Stock, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities and (ii) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in this
Section 8.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Shares purchasable upon exercise of the Warrants, to the extent the Warrants
have not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
on the basis of (A) the fact that the only shares of Common Stock so issued were
the shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion privileges, and (B) the fact that
such shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion privileges whether or not
exercised; provided, however, that no such readjustment shall have the
effect of decreasing the number of
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<PAGE> 8
Shares purchasable upon exercise of the Warrants by an amount in excess of the
amount of the adjustment initially made in respect of the issuance, sale or
grant of such rights, options, warrants or conversion privileges.
8.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in subsection
8.1, no adjustment in respect of any dividends or distributions out of earnings
shall be made during the terms of the Warrants or upon the exercise of Warrants.
8.3 NO ADJUSTMENT IN CERTAIN CASES. No adjustment shall be made
pursuant to Sections 3 or 8 hereof in connection with the issuance of Units,
Shares, Unit Warrants or Unit Warrant Stock sold as part of the public sale and
issuance of Units pursuant to the Underwriting Agreement or the issuance of
Units, Shares, Unit Warrants or Unit Warrant Stock upon exercise of the
Warrants. No adjustment in the Warrant Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 8.3 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section B shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
8.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATIONS. In case of any consolidation of the Company with, or merger of
the Company into, another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Warrant Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants (and each underlying security) been exercised immediately prior
to such action. In the event of a merger described in Section 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended, in which the Company is the
surviving corporation, the right to purchase Units under the Warrants shall
terminate on the date of such merger and thereupon the Warrants shall become
null and void, but only if the controlling corporation shall agree to substitute
for the Warrants its warrant which entitles the holder thereof to purchase upon
its exercise the kind and amount of shares and other securities and property
which it would have owned or been entitled to receive had the Warrants been
exercised immediately prior to such merger. Any such agreements referred to in
this subsection 8.4 shall provide for adjustment, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 8
hereof. The provisions of this subsection 8.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
8.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the Warrant
Price allocable to each Share below the then par value per share of the Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which, in the opinion of its counsel, may be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock upon exercise of the Warrants.
8.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this Section 8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 8.
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8.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company, at any time
in its sole discretion (which shall be conclusive), may make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof and any Warrant certificate thereafter issued,
whether upon registration of transfer of, or in exchange or substitution for, an
outstanding Warrant certificate, may be in the form so changed.
SECTION 9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company
shall not be required to issue fractional Shares on the exercise of the
Warrants. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of the Warrants (or specified portion
thereof), the Company shall pay an amount in cash equal to the then Current
Market Price multiplied by such fraction. For purposes of this Agreement, the
term "Current Market Price" shall mean (i) if the Common Stock is traded in the
NASDAQ Small Cap Market and not in the NASDAQ National Market System nor on any
national securities exchange, the average, of the per share closing bid prices
of the Common Stock on the thirty (30) consecutive trading days immediately
preceding the date in question, as reported by NASDAQ or an equivalent generally
accepted reporting service, or (ii) if the Common Stock is traded in the NASDAQ
National Market System or on a national securities exchange, the average for the
thirty (30) consecutive trading days immediately preceding the date in question,
of the daily per share closing prices of the Common Stock in the NASDAQ National
Market System or on the principal stock exchange on which it is listed, as the
case may be. For purposes of clause (i) above, if trading in the Common Stock is
not reported by NASDAQ, the bid price referred to in said clause shall be the
lowest bid price as reported in the "pink sheets" published by National
Quotation Bureau, Incorporated. The closing price referred to in clause (ii)
above shall be the last reported sale price or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, in either case in the NASDAQ National Market System or on the national
securities exchange on which the Common Stock is then listed.
SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in the Warrants shall be construed as
conferring upon the Warrantholder or its transferees any rights as a stockholder
of the Company, including the right to vote, receive dividends, consent or
receive notices as a stockholder in respect of any meeting of stockholders for
the election of directors of the Company or any other matter. If, however, at
any time prior to the expiration of the Warrants and prior to their exercise,
any one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to Section
8.1; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property, assets
and business as an entirety or substantially as an entirety) shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 14 hereof, at least twenty (20) days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the stockholders entitled to any relevant
dividend, distribution, subscription rights or other rights or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or date
of closing the transfer books, as the case may be. Failure to mail or receive
such notice or any defect therein shall not affect the validity of any action
taken with respect thereto.
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SECTION 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any disposition of
the Warrants, the Shares, the Unit Warrants or the Unit Warrant Stock, other
than to persons or entities identified in clauses (i) through (v), inclusive, of
Section 1.3, the Warrantholder shall give written notice to the Company
describing briefly the manner in which any such proposed disposition is to be
made; and no such disposition shall be made if the Company has notified the
Warrantholder that in the opinion of counsel reasonably satisfactory to the
Warrantholder a registration statement or other notification or post-effective
amendment thereto (hereinafter collectively a "Registration Statement") under
the Act is required with respect to such disposition and no such Registration
Statement has been filed by the Company with, and declared effective, if
necessary, by the Securities and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of the Warrants, the
Shares, the Unit Warrants and the Unit Warrant Stock to file a Registration
Statement as follows:
(i) Whenever during the four-year period beginning on
___________, 1997 and ending on ___________, 2001, the Company proposes to file
with the Commission a Registration Statement (other than as to securities issued
pursuant to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act or which a Form S-4 Registration Statement could be
used), it shall, at least twenty (20) days prior to each filing, give written
notice of such proposed filing to the Warrantholder and each holder of Shares,
Unit Warrants and Unit Warrant Stock, at their respective addresses as they
appear on the records of the Company, and shall offer to include and shall
include in such filing any proposed disposition of the Shares, Unit Warrants and
Unit Warrant Stock upon receipt by the Company, not less than ten (10) days
prior to the proposed filing date, of a request therefor setting forth the facts
with respect to such proposed disposition and all other information with respect
to such person reasonably necessary to be included in such Registration
Statement. In the event that the managing underwriter, if any, for said offering
advises the Company in writing that the inclusion of such securities in the
offering would be detrimental to the offering, such securities shall
nevertheless be included in the Registration Statement provided that the
Warrantholder and each holder of Warrants and Shares, Unit Warrants and Unit
Warrant Stock desiring to have such securities included in the Registration
Statement agrees in writing, for a period of ninety (90) days following such
offering not to sell or otherwise dispose of such securities pursuant to such
Registration Statement, which Registration Statement the Company shall keep
effective for a period of at least nine months following the expiration of such
ninety (90) day period.
(ii) In addition to any Registration Statement pursuant to
subparagraph (i) above, during the four-year period beginning on
_______________, 1997 and ending on ________, 2001, the Company, as promptly as
practicable (but in any event within sixty (60) days), after written request
(the "Request") by H.J. MEYERS & CO., INC., or by a person or persons holding
(or having the right to acquire by virtue of holding the Warrants or Unit
Warrants) at least 50% of the shares of Common Stock which have been (or may be)
issued upon exercise of the Warrants and Unit Warrants, will prepare and file at
its own expense a Registration Statement with the Commission and appropriate
Blue Sky authorities sufficient to permit the public offering of the Shares, the
Unit Warrants and the Unit Warrant Stock, and will use its best efforts at its
own expense through its officers, directors, auditors and counsel, in all
matters necessary or advisable, to cause such Registration Statement to become
effective as promptly as practicable and to maintain such effectiveness so as to
permit resale of the Shares, the Unit Warrants and the Unit Warrant Stock
covered by the Request until the earlier of the time that all such
securities have been sold or the expiration of ninety (90) days from the
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effective date of the Registration Statement; provided, however, that the
Company shall only be obligated to file a Registration Statement under this
Section 1 l(b)(ii) on two occasions.
(c) Except as set forth in the last sentence of this paragraph,
all fees, disbursements and out-of-pocket expenses (other than Warrantholder's
brokerage fees and commissions and legal fees of counsel to the Warrantholder,
if any) in connection with the filing of any Registration Statement under
Section 11) (or obtaining the opinion of counsel and any no-action position of
the Commission with respect to sales under Rule 144) and in complying with
applicable securities and Blue Sky laws shall be borne by the Company. The
Company at its expense will supply any Warrantholder and any holder of Shares,
Unit Warrants or Unit Warrant Stock with copies of such Registration Statement
and the prospectus included therein and other related documents and opinions and
no-action letters in such quantities as may be reasonably requested by the
Warrantholder or holder of Shares, Unit Warrants or Unit Warrant Stock.
Notwithstanding the foregoing, all costs and expenses of a second Registration
Statement filed pursuant to Section 11(b)(ii) shall be borne by the holders of
the securities included therein.
(d) The Company shall not be required by this Section 11 to file
such Registration Statement if, in the opinion of counsel for the Warrantholders
and holders of Shares, Unit Warrants and Unit Warrant Stock and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for such holders and the Company),
the proposed public offering or other transfer as to which such Registration
Statement is requested is exempt from applicable federal and state securities
laws and would result in all purchasers or transferees obtaining securities
which are not "restricted securities," as defined in Rule 144 under the Act.
(e) The Company agrees that until all Shares, Unit Warrants and
Unit Warrant Stock have been sold under a Registration Statement or pursuant to
Rule 144 under the Act, it will keep current in filing all materials required to
be filed with the Commission in order to permit the holders of such securities
to sell the same under Rule 144.
SECTION 12. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
with respect to Warrants, the Shares, the Unit Warrants or the Unit Warrant
Stock pursuant to Section 11 hereof, the Company agrees to indemnify and hold
harmless the Warrantholder or any holder of such Shares, Unit Warrants or Unit
Warrant Stock and each person, if any, who controls the Warrantholder or any
holder of any Shares, Unit Warrants or Unit Warrant Stock, within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all reasonable attorneys' fees),
to which the Warrantholder or any holder of such Shares, Unit Warrants or Unit
Warrant Stock or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, or amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Warrantholder or the
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holder of such Shares, Unit Warrants or Unit Warrant Stock specifically for use
in the preparation thereof. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) The Warrantholders and the holder of the Shares, Unit
Warrants and Unit Warrant Stock agree that they will indemnify and hold harmless
the Company, each other person referred to in subparts (1), (2) and (3) of
Section 11(a) of the Act in respect of the Registration Statement and each
person, if any, who controls the Company within the meaning of the Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
or any related preliminary prospectus, final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made, but in each case only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such Registration Statement, preliminary prospectus, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Warrantholder or such holder of Shares, Unit Warrants or Unit Warrant Stock
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Warrantholder or such holder of
Shares, Unit Warrants or Unit Warrant Stock may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 12 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 12, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section 12. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and upon a notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 12 for any legal or other expenses, subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party shall have been advised by its counsel
that there may be one or more legal defenses available to the indemnifying party
which differ from those available to the indemnified party the indemnifying
party shall be liable for reasonable legal and other expense incurred by the
indemnified party in connection with the defense of the action (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
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reasonable fees and expenses of more than one separate firm of attorneys for
the indemnified party, which firm shall be designated in writing by a majority
in interest of such holders and controlling persons based upon the value of the
securities included in the Registration Statement. No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified and the indemnifying parties, which shall not be unreasonably
withheld in light of all factors of importance to such parties.
SECTION 13. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 12 hereof provide for indemnification in
such case or (ii) contribution under the Act may be required on the part of any
Warrantholder or any holder of the Shares, Unit Warrants or Unit Warrant Stock
or controlling person, then the Company and any Warrantholder or any such
holder of Shares, Unit Warrants or Unit Warrant Stock, Unit Warrants or Unit
Warrant Stock or controlling person shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact related to information supplied by the Company on the one hand or
a Warrantholder or holder of Shares, Unit Warrants or Unit Warrant Stock or
controlling person on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 13 were determined by pro rata allocation or by any other
method which does not take account of the equitable considerations referred to
in this Section 13. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 13 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 1l(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
SECTION 14. NOTICES. Any notice pursuant to this Agreement by the Company
or by a Warrantholder, a holder of Shares, Unit Warrants or Unit Warrant Stock
shall be in writing and shall be deemed to have been duly given if delivered or
mailed by certified mail, return receipt requested:
(a) If to a Warrantholder or a holder of Shares, Unit Warrants or Unit
Warrant Stock, addressed to H.J. MEYERS & CO., INC., 1895 Mt. Hope Street,
Rochester, New York 14620; Attention: Corporate Finance Department
(b) If to the Company addressed to it at 9855 West 78th Street, Suite
220, Minneapolis, Minnesota 55344 Attention: Chief Executive Officer.
Each party may from time to time change the address to which notices to it
are to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
SECTION 15. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrantholders, or the holders of the
Shares, Unit Warrants
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or Unit Warrant Stock shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not
merge or consolidate with or any other corporation or sell all or substantially
all of its property to another corporation, unless the provisions of Section
8.4 are complied with.
SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered
by or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf
of the parties to this Agreement, all representations, warranties and
agreements made by the parties to this Agreement or pursuant hereto shall
survive.
SECTION 18. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State.
SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares, Unit Warrants or Unit Warrant Stock
any legal or equitable right, remedy or claim under this Agreement. This
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrantholders and the holders of Shares, Unit Warrants and Unit Warrant Stock.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
JUBILEE GAMING ENTERPRISES, INC.
By:_______________________________
Craig H. Forsman
Chief Executive Officer
H.J. MEYERS & CO., INC.
By:_______________________________
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EXHIBIT A
Warrant Certificate No. HJ-1
REPRESENTATIVE'S WARRANTS TO PURCHASE 120,000 UNITS,
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE FIVE-YEAR WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON _______________, 2001
JUBILEE GAMING ENTERPRISES, INC.,
This certifies that, for value received, H.J. MEYERS & CO., INC. the
registered holder hereof or its assigns (the "Warrantholder"), is entitled to
purchase from JUBILEE GAMING ENTERPRISES, INC., (the "Company"), at any time
during the period commencing at 9:00 a.m., Eastern Standard Time, on
____________, 1997, and before 5:00 p.m., Eastern Standard Time, on
____________, 2001, at the purchase price per Unit of $_____ (the "Warrant
Price"), the number of Units of the Company set forth above (the "Units"). The
number of shares of Common Stock of the Company included in the Units
purchasable upon exercise of each Warrant evidenced hereby shall be subject to
adjustment from time to time as set forth in the Representative's Warrant
Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash, by check
or as provided for in Section 3(c) of the Representative's Warrant Agreement.
The Warrants evidenced hereby are one of a series representing the right
to purchase an aggregate of up to 120,000 Units and are issued under and in
accordance with a Representative's Warrant Agreement, dated as of ___________
___, 1996 (the "Representative's Warrant Agreement"), between the Company and
H.J. MEYERS & CO., INC., and are subject to the terms and provisions contained
in the Representative's Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Units as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Units as here evidenced by the Warrant
or Warrants exchanged. No fractional Units will be issued upon the exercise of
rights to purchase hereunder, but the Company shall pay the cash value of any
fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Representative's Warrant Agreement.
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This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
JUBILEE GAMING ENTERPRISES, INC.,
By:___________________________
Dated:______________ ___, 1997
ATTEST:
_________________________________
________________, Secretary
[Corporate Seal]
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JUBILEE GAMING ENTERPRISES, INC.
PURCHASE FORM
JUBILEE GAMING ENTERPRISES, INC.
9855 West 78th Street, Suite 220
Minneapolis, Minnesota 55344
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, __ Units (the "Units") provided for therein, and requests that
certificates for the Units be issued in the name of:
_______________________________________________
(Please Print or Type Name, Address and Social Security Number)
_______________________________________________
_______________________________________________
and, if said number of Units shall not be all the Units purchasable hereunder,
that a new Warrant Certificate for the balance of the Units purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: ______________
Name of Warrantholder
or Assignee:________________________________________
(Please Print)
Address:____________________________________________
____________________________________________
Signature:__________________________________________
__________________________________________
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:________________________________________
(Signature must be guaranteed by a bank or trust company having an officer or
correspondent in the United States or by a member firm or a registered
securities exchange or the National Association of Securities Dealers, Inc.)
17
<PAGE> 18
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
______________________________________________
______________________________________________
______________________________________________
The within Warrants, hereby irrevocably constituting and appointing
_________________ Attorney to transfer said Warrants on the books of the
Company, with full power of substitution in the premises.
Dated:__________ ____________________________________________
Signature or Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever
Signature Guaranteed:__________________________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association or Securities Dealers, Inc.)
18
<PAGE> 1
EXHIBIT 16.1
LETTER OF CHANGE IN CERTIFYING ACCOUNTANT
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, D.C. 20459
Ladies and Gentlemen:
We have examined the disclosure contained in the prospectus under the heading
"Experts" and agree with the statements contained therein regarding the change
in certifying accountant. Further, we consent to the use of our report
dated February 8, 1995 on the statements of operations and partners' deficit
and cash flows of 353 Myers Avenue Limited Partnership dba The Jubilee Casino
for the year ended December 31, 1994 included therein and to reference to our
firm under the heading "Experts" in the prospectus.
/s/ Biggs, Kofford & Co., P.C.
Biggs, Kofford & Co., P.C.
Colorado Springs, Colorado
January 16, 1997
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
SUBSIDIARIES
Regent Gaming Enterprises, Inc., a Minnesota corporation
Cripple Creek Corporation, a Minnesota corporation
353 Myers Avenue Limited Partnership, a Minnesota limited partnership
<PAGE> 1
EXHIBIT 23.1
CONSENT OF BRIGGS AND MORGAN, P.A.
(TO BE INCLUDED IN EXHIBIT 5.1)
<PAGE> 1
EXHIBIT 23.2
CONSENT OF BIGGS, KOFFORD & CO., P.C.
(TO BE INCLUDED IN EXHIBIT 16.1)
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated September 27, 1996, (October 22, 1996 for Note 6, 2nd paragraph)
relating to the financial statements of 353 Myers Avenue Limited Partnership as
of December 31, 1995, and to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ Schechter Dokken Kanter
Andrews & Selcer Ltd
Schechter Dokken Kanter
Andrews & Selcer Ltd
Minneapolis, Minnesota
January 16, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated September 9, 1996, (October 22, 1996 for Note 11, 3rd paragraph)
relating to the consolidated financial statements of Jubliee Gaming
Enterprises, Inc. and Subsidiary as of December 31, 1995, and to the reference
to our Firm under the caption "Experts" in the Prospectus.
/s/ Schechter Dokken Kanter
Andrews & Selcer Ltd
Schechter Dokken Kanter
Andrews & Selcer Ltd
Minneapolis, Minnesota
January 16, 1997
<PAGE> 1
CONSENT OF ISAACSON, ROSENBAUM, WOODS & LEVY, P.C.
We hereby consent to the inclusion of Isaacson, Rosenbaum, Woods &
Levy, P.C. as Colorado gaming counsel for the purpose of passing upon matters
pertaining to regulation of Jubilee Gaming Enterprises, Inc. (the "Company") by
the Colorado Limited Gaming Control Commission and the Colorado Division of
Gaming under the gaming laws and regulations of the State of Colorado on behalf
of the Company under the section entitled "Legal Matters" in the Company's
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission.
ISAACSON, ROSENBAUM, WOODS & LEVY, P.C.
/s/ Mark G. Grueskin
Date: January 15, 1997
Denver, Colorado
<PAGE> 1
EXHIBIT 24.1
POWERS OF ATTORNEY
(INCLUDED ON SIGNATURE PAGE TO THIS REGISTRATION
STATEMENT)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUBILEE
GAMING ENTERPRISES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1995 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDING
DECEMBER 31, 1995. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
SB-2 JUBILEE GAMING ENTERPRISES, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 126,394
<SECURITIES> 0
<RECEIVABLES> 90,003
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 216,797
<PP&E> 3,792,501
<DEPRECIATION> (1,893)
<TOTAL-ASSETS> 4,007,465
<CURRENT-LIABILITIES> 1,165,663
<BONDS> 645,740
0
0
<COMMON> 2,624,254
<OTHER-SE> (428,192)
<TOTAL-LIABILITY-AND-EQUITY> 4,007,465
<SALES> 0
<TOTAL-REVENUES> 14,978
<CGS> 0
<TOTAL-COSTS> 410,365
<OTHER-EXPENSES> 2,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,749
<INCOME-PRETAX> (428,192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (428,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (428,192)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
