<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission File Number: 0-8698
CONCORDE GAMING CORPORATION
---------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0716683
------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3290 LIEN STREET
RAPID CITY, SOUTH DAKOTA 57702
----------------------------------------
(Address of principal executive offices)
(605) 341-7738
----------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 6, 1996, there
were 26,755,193 shares of the issuer's $.01 par value common stock outstanding.
A subsidiary of the issuer owns 4,825,400 shares of the issuer resulting, for
financial statement reporting purposes only, in a total of 21,929,793 shares
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
INDEX
CONCORDE GAMING CORPORATION
and Subsidiaries
PART 1 - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheet
at June 30, 1996 (unaudited) 1
Condensed Consolidated Statements of Earnings for
Three Months Ended June 30, 1996 and 1995 and
for Nine Months Ended June 30, 1996 and 1995 (unaudited) 3
Condensed Consolidated Statements of Stockholders'
Equity for the Periods Ended June 30, 1996,
September 30, 1995 and June 30, 1995 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for
Nine Months Ended June 30, 1996 and 1995 (unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 3
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1996
(unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 150,033
Receivables:
Trade 23,332
Management agreement 291,198
Interest 46,719
Current maturities of long-term receivables:
The Three Affiliated Tribes 1,659,800
Notes receivable 156,808
Prepaid expenses 171,456
-----------------
Total current assets $ 2,499,346
-----------------
Investments and long-term receivables:
Long-term receivables from The Three Affiliated Tribes $ 4,471,780
Notes receivable, less current maturities 42,500
Investment in unconsolidated affiliate 207,287
Other 16,750
-----------------
$ 4,738,317
-----------------
Property and equipment, at cost:
Land $ 50,000
Building and improvements 205,511
Video lottery equipment 2,486,429
Furniture and equipment 251,845
Leasehold improvements 304,667
Vehicles 120,825
-----------------
$ 3,419,277
Less accumulated depreciation (1,378,729)
-----------------
$ 2,040,548
-----------------
Intangibles:
Noncompetition agreements, net $ 43,215
Other, principally goodwill, net 409,544
Casino development and financing costs, net 531,519
-----------------
$ 984,278
-----------------
$ 10,262,489
=================
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
June 30, 1996
(unaudited)
<TABLE>
<S> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable to banks, short-term $ 430,000
Current maturities of long-term debt 3,485,715
Accounts payable:
Trade 198,980
Construction and property and equipment related 217,411
Accrued expenses:
Lottery state share 181,073
Other 155,884
Income taxes payable 83,070
-----------------
Total current liabilities $ 4,752,133
-----------------
Long-term debt, less current maturities $ 1,002,747
-----------------
Note payable to related party $ 690,000
-----------------
Deferred income taxes $ 68,200
-----------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized
500,000,000 shares; issued 26,755,193 at June 30, 1996 $ 267,552
Preferred stock, par value $.01 per share; authorized
10,000,000 shares; no shares issued and outstanding 0
Additional paid-in capital 3,898,983
Retained earnings 95,621
-----------------
$ 4,262,156
Less stock subscription in the form of a note
and related accrued interest receivable (195,145)
Less cost of treasury stock, 4,825,400 shares (317,602)
-----------------
$ 3,749,409
-----------------
$ 10,262,489
=================
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 30, 1996 and 1995, and Nine Months Ended June 30, 1996
and 1995
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1996 and 1995 June 30, 1996 and 1995
-------------------------------- ------------------------------------
1996 1995 1996 1995
--------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Video lottery $ 2,247,368 $ 2,460,218 $ 6,891,024 $ 5,624,207
Management agreement 467,047 830,380 1,381,600 1,878,741
Other 93,171 5,613 138,087 14,213
--------------- ------------ -------------- ---------------
$ 2,807,586 $ 3,296,211 $ 8,410,711 $ 7,517,161
--------------- ------------ -------------- ---------------
Costs and expenses:
Video lottery state share $ 1,118,724 $ 902,123 $ 3,426,571 $ 2,059,600
Video lottery location share 706,521 1,013,512 2,203,932 2,314,386
Compensation expenses 269,663 190,481 707,553 508,966
Business development costs 18,797 18,981 55,083 88,063
Operating expenses 497,876 378,449 1,420,809 1,059,691
--------------- ------------ -------------- ---------------
Total costs and expenses $ 2,611,581 $ 2,503,546 $ 7,813,948 $ 6,030,706
--------------- ------------ -------------- ---------------
Operating income $ 196,005 $ 792,665 $ 596,763 $ 1,486,455
--------------- ------------ -------------- ---------------
Other income (expense):
Interest income $ 189,068 $ 155,983 $ 482,429 $ 458,649
Equity in earnings of unconsolidated affiliate 15,000 0 15,000 50,824
Loss on sale of equipment 0 0 (6,731) (49,826)
Other income 2,163 0 5,046 0
Interest expense and financing costs (181,551) (253,148) (627,865) (1,105,495)
--------------- ------------ -------------- ---------------
$ 24,680 $ (97,165) $ (132,121) $ (645,848)
--------------- ------------ -------------- ---------------
Earnings before income taxes $ 220,685 $ 695,500 $ 464,642 $ 840,607
Federal and state income taxes $ 74,100 $ 250,595 $ 161,900 $ 302,600
--------------- ------------ -------------- ---------------
Net earnings $ 146,585 $ 444,905 $ 302,742 $ 538,007
=============== ============ ============== ===============
Net earnings per common and
common equivalent share $0.01 $0.02 $0.01 $0.02
=============== ============ ============== ===============
Weighted average number of common and
common equivalent shares outstanding 22,374,843 21,929,793 22,097,724 21,982,782
=============== ============ ============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Periods Ended June 30, 1996, September 30, 1995 and June 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Number of Additional
Shares Common paid-in
Outstanding stock capital
---------- ----------------- ----------------
<S> <C> <C> <C>
Balance, September 30, 1994 26,987,593 $ 269,876 $ 3,898,745
Net earnings 0 0 0
Cancellation of 153,400 shares of common stock
relating to merger with Bruce H. Lien Company (153,400) (1,534) 1,534
Cancellation of 79,000 shares of
common stock held in treasury (79,000) (790) (83,683)
Issuance of warrant for 40,000 shares of common
stock in connection with note payable 0 0 4,000
Interest earned on note receivable 0 0 33,742
Principal payments received on note receivable 0 0 0
---------- ----------------- ----------------
Balance, June 30, 1995 26,755,193 267,552 3,854,338
Net earnings 0 0 0
Issuance of warrant for 360,000 shares of common
stock in connection with note payable 0 0 4,000
Interest earned on note receivable 0 0 10,437
Principal payments received on note receivable 0 0 0
---------- ----------------- ----------------
Balance, September 30, 1995 26,755,193 267,552 3,868,775
Net earnings 0 0 0
Issuance of warrant for 80,000 shares of common
stock in connection with note payable 0 0 1,600
Interest earned on note receivable 0 0 28,608
Principal payments received on note receivable 0 0 0
---------- ----------------- ----------------
Balance, June 30, 1996 26,755,193 $ 267,552 $ 3,898,983
========== ================= ================
</TABLE>
<TABLE>
<CAPTION>
Stock
subscription
in the form
of a note
Retained and related
earnings interest Treasury
(deficit) receivable stock Total
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 $ (1,266,994) $ (261,181) $ (402,075) $ 2,238,371
Net earnings 538,007 0 0 538,007
Cancellation of 153,400 shares of common stock
relating to merger with Bruce H. Lien Company 0 0 0 0
Cancellation of 79,000 shares of
common stock held in treasury 0 0 84,473 0
Issuance of warrant for 40,000 shares of common
stock in connection with note payable 0 0 0 4,000
Interest earned on note receivable 0 260 0 34,002
Principal payments received on note receivable 0 25,494 0 25,494
-------------- -------------- ------------- -----------
Balance, June 30, 1995 (728,987) (235,427) (317,602) 2,839,874
Net earnings 521,866 0 0 521,866
Issuance of warrant for 360,000 shares of common
stock in connection with note payable 0 0 0 4,000
Interest earned on note receivable 0 95 0 10,532
Principal payments received on note receivable 0 9,300 0 9,300
-------------- -------------- ------------- -----------
Balance, September 30, 1995 (207,121) (226,032) (317,602) 3,385,572
Net earnings 302,742 0 0 302,742
Issuance of warrant for 80,000 shares of common
stock in connection with note payable 0 0 0 1,600
Interest earned on note receivable 0 311 0 28,919
Principal payments received on note receivable 0 30,576 0 30,576
-------------- -------------- ------------- -----------
Balance, June 30, 1996 $ 95,621 $ (195,145) $ (317,602) $ 3,749,409
============== ============== ============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 302,742 $ 538,007
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
Depreciation 320,745 311,853
Amortization 136,262 188,390
Equity in earnings of unconsolidated affiliate (15,000) (50,824)
Warrants issued 1,600 0
Loss on disposal of video lottery equipment held for resale 0 52,221
Loss (gain) on sale of property and equipment 6,733 (2,393)
Deferred income taxes 0 302,600
Changes in assets and liabilities:
Receivables - trade, management fees, interest 11,738 (54,909)
Prepaid expenses (25,476) (117,859)
Accounts payable and accrued expenses 140,959 193,234
Income taxes payable 51,382 0
---------------- ----------------
Net cash provided by operating activities $ 931,685 $ 1,360,320
---------------- ----------------
Cash flows from investing activities:
Advances on long-term receivables $ (84,500) $ (29,733)
Principal payments received on long-term receivables 1,466,608 1,126,677
Proceeds from sale of property and equipment 40,304 37,050
Purchase of property and equipment (391,420) (31,694)
Investment in and advances to unconsolidated affiliate 0 (2,867)
Payments for casino development costs (173,325) (16,709)
Other (38,000) (69,594)
---------------- ----------------
Net cash provided by investing activities $ 819,667 $ 1,013,130
---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term borrowing $ 812,992 $ 181,821
Principal payments on long-term debt (3,409,244) (2,016,271)
Net change in short-term borrowings 415,000 (135,000)
Payment of accounts payable, construction related 0 (151,521)
Payment of accounts payable, property and equipment related 0 (162,171)
Payments received on stock subscription in the form of a
note and related interest receivable 59,495 59,496
---------------- ----------------
Net cash (used in) financing activities $ (2,121,757) $ (2,223,646)
---------------- ----------------
Net increase (decrease) in cash $ (370,405) $ 149,804
Cash:
Beginning 520,438 147,287
---------------- ----------------
Ending $ 150,033 $ 297,091
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 8
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 573,562 $ 996,094
================ ================
Income taxes $ 105,000 $ 59,000
================ ================
Supplemental schedule of noncash investing and
financing activities:
Property and equipment acquired by issuance of long-term debt $ 190,000
================
Property and equipment acquired by incurring accounts payable $ 17,556
================
Investment in unconsolidated affiliate acquired in exchange
for notes receivable and accrued interest $ 192,287
================
Long-term note receivable recognized for
the sale of certain assets $ 152,800
================
Long-term debt recognized by refinancing a short-term
note payable and accrued interest with a related party $ 690,000
================
Cancellation of 79,000 common shares held in treasury $ 84,473
================
Cancellation of 153,400 common shares returned to the Company
in accordance with a lookback provision involved with a merger $ 1,534
================
Issuance of a warrant for 40,000 common shares in connection
with a note payable $ 4,000
================
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 9
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
(1) Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements
of Concorde Gaming Corporation and its majority-owned subsidiaries
(the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
the rules and regulations of the U.S. Securities and Exchange
Commission. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the
year ending September 30, 1996.
The accompanying condensed consolidated financial statements, and
related notes thereto, should be read in conjunction with the audited
financial statements of the Company, and notes thereto, for the year
ended September 30, 1995 included in the Company's 1995 Annual Report
on Form 10-KSB.
(2) Concentration of Revenues/Credit Risk
A substantial portion of the Company's revenues are derived from the
management of the 4 Bears Casino & Lodge (the "Casino") pursuant to a
management agreement (the "Management Agreement") between Bruce H.
Lien Company, a wholly-owned subsidiary of the Company ("BHL"), and
the Three Affiliated Tribes ("TAT"). A significant portion of the
Company's assets are notes receivable related to the Management
Agreement. The Company's ability to continue to earn management fees,
collect on the outstanding notes receivable, and fund its existing
obligations is highly dependent upon the future earnings and cash flow
from the Management Agreement. Any adverse change in the operations
of the Casino, the Company's relationship with TAT, compliance with
TAT's gaming compact with the State of North Dakota, or an adverse
ruling in the current arbitration and legal proceedings between the
Company and TAT could have a material adverse effect on the financial
condition and operations of the Company.
7
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
(3) NIGC Review
In June 1995, the National Indian Gaming Commission (the "NIGC")
requested that TAT and BHL submit the Management Agreement and certain
related documents to the NIGC for review. By notice received May 17,
1996, the NIGC notified TAT and BHL of certain deficiencies it found
with respect to the Management Agreement and advised TAT and BHL that
the parties had 120 days from receipt of the notice to modify the
Management Agreement. By letter dated May 17, 1996 the NIGC also
threatened to close the Casino and impose fines against both BHL and
TAT based on TAT's failure to complete background investigations and
to license BHL and the Casino for class II and class III gaming on the
Fort Berthold Reservation. As a result, the Company and TAT have
entered into settlement negotiations to avoid the NIGC's threatened
enforcement action. The NIGC has advised BHL that it will stay its
completion of the review of the Management Agreement and any
enforcement action pending the outcome of negotiations between TAT and
BHL. Modification or termination of the Management Agreement, a
closure of the Casino, or the imposition of civil fines, or a
combination of such events, would have a material adverse effect on
the financial condition, business and operations of the Company.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this report, if not historical, are
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties that could
cause actual results to differ materially from the financial results described
in such forward looking statements. These risks and uncertainties include,
among others, the level and rate of growth in the Company's operations, the
outcome of the arbitration and settlement negotiations with TAT and the outcome
of the NIGC review of the Management Agreement. The success of the Company's
business operations is in turn dependent on factors such as the effectiveness
of the Company's marketing strategies to grow its customer base and improve
customer response rates, retention of video lottery space lease agreements,
general competitive conditions within the gaming industry and general economic
conditions. Further, any forward looking statement, or statements, speak only
as of the date on which such statement was made, and the Company undertakes no
obligation to update any forward looking statement, or statements, to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
INTRODUCTION
On June 22, 1994, the South Dakota Supreme Court issued a decision
holding that video lottery was not a lottery as defined in the South Dakota
Constitution, and therefore, was unconstitutional. The court's decision became
effective on August 13, 1994, and resulted in the shutdown of all video lottery
machines in South Dakota (the "State"). In November 1994, the voters of South
Dakota approved a constitutional amendment legalizing video lottery as it had
been operated in South Dakota. After a 100-day shutdown, the Company
reinstated its video lottery operations in South Dakota on November 22, 1994,
the effective date of the constitutional amendment. Due to the video lottery
shutdown extending 52 days into the nine month period ended June 30, 1995 (the
"1994 Shutdown"), the financial results for the nine months ended June 30, 1995
have been adversely impacted.
RESULTS OF OPERATIONS
Three Months ended June 30, 1996 Compared to Three Months ended June 30, 1995
Revenues. Total revenues decreased 14.8% to $2,807,586 for the three
months ended June 30, 1996, compared to $3,296,211 for the three months ended
June 30, 1995. The decrease was attributable to decreases in video lottery
revenues and Management Agreement revenues. Video lottery revenues decreased
8.7% to $2,247,368 for the three months ended June 30, 1996, compared to
$2,460,218 for the three months ended June 30, 1995. The decrease in video
lottery revenues was attributable to a 3.2% decrease in dollars in per machine
and a 4.2% lower net win percentage per machine during the three months ended
June 30, 1996
9
<PAGE> 12
as compared to the same period in 1995. Revenues from the Management Agreement
decreased 43.8% to $467,047 for the three months ended June 30, 1996, compared
to $830,380 for the three months ended June 30, 1995. The decrease in revenues
from the Management Agreement is attributable to a decrease in earnings of the
Casino for the three months ended June 30, 1996 as compared to the three months
ended June 30, 1995. Management believes that earnings of the Casino were
impacted during the three months ended June 30, 1996 by numerous factors
including, inclement weather, increased competition in the Regina, Canada area
and a reduction in tourist traffic.
Costs and expenses. Total costs and expenses increased 4.3% to
$2,611,581 for the three months ended June 30, 1996, compared to $2,503,546 for
the three months ended June 30, 1995. The increase was primarily attributable
to increases in video lottery state share, compensation expense and operating
expenses. Video lottery state share increased 24.0% to $1,118,724 for the
three months ended June 30, 1996, compared to $902,123 for the three months
ended June 30, 1995, due to an increase in the percentage paid to the State to
50% for three months ended June 30, 1996, compared to 37% for the three months
ended June 30, 1995. Compensation expense increased 41.6% to $269,663 for the
three months ended June 30, 1996, compared to $190,481 for the three months
ended June 30, 1995, due primarily to an increase in the number of employees in
Company-operated video lottery casinos. Operating expenses, primarily
depreciation, amortization, legal, marketing, video lottery license fees and
supplies, and facility costs such as rent and utilities, increased 31.6% to
$497,876 for the three months ended June 30, 1996, compared to $378,449 for the
three months ended June 30, 1995. The increase in operating expenses was
primarily related to an increase in legal expenses related to the arbitration
and disputes with TAT and marketing costs associated with video lottery
operations. The increase in total costs and expenses was offset, in part, by a
decrease in video lottery location share of 30.3% to $706,521 for the three
months ended June 30, 1996, compared to $1,013,512 for the three months ended
June 30, 1995. Video lottery location share, as a percentage of video lottery
revenues, decreased to 31.4% for the three months ended June 30, 1996, compared
to 41.2% for the three months ended June 30, 1995. This decrease is directly
related to the increase in the video lottery state share, as the location share
is computed on video lottery revenues after the State share.
Operating Income. Operating income decreased 75.3% to $196,005 for
the three months ended June 30, 1996, compared to $792,665 for the three months
ended June 30, 1995. The decrease in operating income was primarily
attributable to the reduced earnings of the Casino, increased legal expenses
relating to the disputes with TAT, and increased costs associated with the
video lottery operations as described above.
Other Income and Expense. Other income and expense resulted in a net
income of $24,680 for the three months ended June 30, 1996, compared to a net
expense of $97,165 for the three months ended June 30, 1995, an decrease of
$121,845. Interest expense and financing costs decreased 28.3% to $181,551 for
the three months ended June 30, 1996, compared to $253,148 for the three months
ended June 30, 1995. The decrease in interest expense was a
10
<PAGE> 13
result of the Company having reduced its notes payable to $5,608,462 as of June
30, 1996, compared to $8,789,743 at June 30, 1995, this decease was partially
offset by an increase in the interest rate on a $2.4 million note payable.
Interest income increased 21.2% to $189,068 for the three months ended June 30,
1996, compared to $155,983 for the three months ended June 30, 1995, due
primarily to an increase in the interest rate on the long-term receivable
relating to the Casino.
Federal and State Income Taxes. The Company recorded Federal and
State income taxes of $74,100 for the three months ended June 30, 1996,
compared to $250,595 for the three months ended June 30, 1995, a decrease of
$176,495. The Company records income tax expense using the estimated effective
tax rate for the fiscal year.
Nine Months ended June 30, 1996 Compared to Nine Months ended June 30, 1995
Revenues. Total revenues increased 11.9% to $8,410,711 for the nine
months ended June 30, 1996, compared to $7,517,161 for the nine months ended
June 30, 1995 which was primarily attributable to video lottery revenues
increasing 22.5% to $6,891,024 for the nine months ended June 30, 1996,
compared to $5,624,207 for the nine months ended June 30, 1995. The increase
in video lottery revenues was primarily attributable to the operation of video
lottery during the entire nine month period ended June 30, 1996, compared to
less than seven and one-half months during the nine month period ended June 30,
1995, due to the 1994 Shutdown. Revenues from the Management Agreement
decreased 26.5% to $1,381,600 for the nine months ended June 30, 1996,
compared to $1,878,741 for the nine months ended June 30, 1995. The decrease
in revenues from the Management Agreement is attributable to a decrease in
earnings of the Casino for the nine months ended June 30, 1996 as compared to
the nine months ended June 30, 1995. Management believes that earnings of the
Casino were impacted during the nine months ended June 30, 1996 by numerous
factors including, harsh winter weather, increased competition in the Regina,
Canada area and a reduction in tourist traffic.
Costs and expenses. Total costs and expenses increased 29.6% to
$7,813,948 for the nine months ended June 30, 1996, compared to $6,030,706 for
the nine months ended June 30, 1995. The increase was primarily attributable
to increases in video lottery state share, compensation expense and operating
expenses. Video lottery state share increased 66.4% to $3,426,571 for the nine
months ended June 30, 1996, compared to $2,059,600 for the nine months ended
June 30, 1995, due to (i) an increase in the percentage paid to the State to
50% for the nine months ended June 30, 1996, compared to 37% for the nine
months ended June 30, 1995, and (ii) the effects of the 1994 Shutdown.
Compensation expense increased 39.0% to $707,553 for the nine months ended June
30, 1996, compared to $508,966 for the nine months ended June 30, 1995, due to
an increase in the number of employees in video lottery operations and the
reinstatement of officers' salaries, both of which were reduced during the 1994
Shutdown. Operating expenses, primarily depreciation, amortization, legal,
marketing, and accounting, video lottery license fees and supplies, and
facility costs such as rent and utilities, increased 34.0% to $1,420,809 for
the nine months ended June 30, 1996, compared to
11
<PAGE> 14
$1,059,91 for the nine months ended June 30, 1995. The increase in operating
expenses was primarily related to increases in (i) legal expenses related to
the arbitration and disputes with TAT, (ii) marketing costs associated with the
video lottery operations, and (iii) facility costs associated with the
company-operated video lottery casinos. The increase in total costs and
expenses was offset, in part, by a decrease in video lottery location share of
4.8% to $2,203,932 for the nine months ended June 30, 1996, compared to
$2,314,386 for the nine months ended June 30, 1995. Video lottery location
share, as a percentage of video lottery revenues, decreased to 32.0% for the
nine months ended June 30, 1996, compared to 41.2% for the nine months ended
June 30, 1995. This decrease is directly related to the increase in the video
lottery state share, as the location share is computed on video lottery
revenues after the State share.
Operating Income. Operating income decreased 59.9% to $596,763 for
the nine months ended June 30, 1996, compared to $1,486,455 for the nine months
ended June 30, 1995. The decrease in operating income was primarily
attributable to the reduced earnings of the Casino, increased legal expense
relating to the disputes with TAT, and increased costs associated with the
video lottery operations as described above.
Other Income and Expense. Other income and expense resulted in a net
expense of $132,121 for the nine months ended June 30, 1996, compared to a net
expense of $645,848 for the nine months ended June 30, 1995, a decrease of
$513,727. Interest expense and financing costs decreased 43.2% to $627,865 for
the nine months ended June 30, 1996, compared to $1,105,495 for the nine months
ended June 30, 1995. The decrease in interest expense and financing costs was
a result of (i) the Company having reduced its notes payable to $5,608,462 as
of June 30, 1996, compared to $8,789,743 at June 30, 1995, and (ii) no one-time
fees and penalties (reported as interest expense) incurred during the nine
months ended June 30, 1996, compared to $320,863 of one-time fees and penalties
incurred during the nine months ended June 30, 1995. The decrease in interest
expense and financing costs was offset, in part, by an increase in the
effective interest rate on a $2.4 million note payable. Interest income
increased 5.2% to $482,429 for the nine months ended June 30, 1996, compared to
$458,649 for the nine months ended June 30, 1995, due primarily to an increase
in the interest rate on the long-term receivable relating to the Casino.
Federal and State Income Taxes. The Company recorded Federal and
State income taxes of $161,900 for the nine months ended June 30, 1996,
compared to $302,600 for the nine months ended June 30, 1995, an increase of
$140,700. The Company records income tax expense using the estimated effective
tax rate for the fiscal year.
FUTURE OPERATIONS
The Company's future revenues from the Management Agreement may be
adversely affected if the Company is not able to favorably resolve its disputes
with TAT or if the NIGC determines that the Management Agreement is not in
compliance with IGRA. See "Notes 2 and
12
<PAGE> 15
3 to Notes to Condensed Consolidated Financial Statements." Revenues from the
Management Agreement for the nine months ended June 30, 1996 decreased
approximately 26% compared to the same period last year. Management believes
that the decline in revenues has been caused by numerous factors, including
harsh winter weather, increased Canadian competition, reconstruction of the
main highway leading to the Casino, and a decrease in tourist traffic. Many of
these factors are beyond the Company's control, and the Company cannot predict
whether these same factors will continue to affect the Casino's operations in
the future. The Company expects that revenues from the Management Agreement
for the year ending September 30, 1996 will be approximately 20-25% less than
the revenues reported for the year ended September 30, 1995. The Company
believes that the revenues from the Management Agreement for the years ending
September 30, 1997 and beyond will be comparable to the revenues that are
expected to be reported for the year ended September 30, 1996.
The Company's video lottery space lease agreements with establishments
are for limited terms. There is no assurance that the Company will be able to
renew the space lease agreements with existing establishments, or if the space
leases are renewed, that the terms will be as favorable to the Company as the
current agreements. If the space leases are not renewed, or renewed with terms
less favorable to the Company, the Company's revenues, net income and cash flow
would be adversely impacted.
The Company expects to continue to incur expenses related to the
evaluation and development of additional gaming opportunities. However, there
can be no assurance that the Company will be successful in continuing or
expanding its current operations.
SEASONALITY/QUARTERLY FLUCTUATIONS
On a historic basis, the revenues and cash flow of the Casino have
been higher during the Company's third and fourth quarters due to better
weather and travel conditions and increased tourism.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $150,033 at June 30,
1996, compared to $520,438 at September 30, 1995, a decrease of $370,405. The
decrease was primarily attributable to cash used for principal payments on
long-term debt and for the purchase of property and equipment. During the nine
months ended June 30, 1996, the Company generated $931,685 of cash flow from
operating activities, compared to $1,360,320 during the nine months ended June
30, 1995. The decrease in cash flow from operating activities is due primarily
to the decrease in revenues and earnings derived from the management of the
Casino. Cash flows from operating activities during the nine months ended June
30, 1995 were also impacted by the utilization of income tax loss carryforwards
that provided approximately $302,000 of cash flow.
13
<PAGE> 16
Investing activities provided cash of $819,667 during the nine months
ended June 30, 1996, compared to $1,013,130 during the nine months ended June
30, 1995. Principal payments received on long-term receivables provided cash
of $1,466,608 during the nine months ended June 30, 1996, compared to
$1,126,677 during the nine months ended June 30, 1995. Purchases of property
and equipment used cash of $391,420 during the nine months ended June 30, 1996,
compared to $31,694 during the nine months ended June 30, 1995. The additions
to property and equipment during the nine months ended June 30, 1996 were
primarily for the Company's video lottery casinos.
Financing activities used cash of $2,121,757 during the nine months
ended June 30, 1996, compared to $2,223,646 during the nine months ended June
30, 1995. Principal payments on long-term debt used cash of $3,409,244 during
the nine months ended June 30, 1996, compared to $2,016,271 during the nine
months ended June 30, 1995. Proceeds from long- term borrowing provided
$812,992 of cash flow during the nine months ended June 30, 1996, compared to
$181,821 during the nine months ended June 30, 1995. Short-term borrowings
provided cash flow of $415,000 during the nine months ended June 30, 1996,
compared to a reduction of short-term borrowings of $135,000 during the nine
months ended June 30, 1995.
The Company has a working capital deficit of $2,252,787 at June 30,
1996, compared to $1,969,771 at September 30, 1995, an increase of $283,016 due
primarily to an increase in short-term borrowings. The working capital
deficits are a result of the Company's long-term borrowings having repayment
periods of three years or less.
In June 1996, the Company, and one of its subsidiaries entered into a
loan agreement (the "Loan Agreement") with a bank, which provides for a
revolving note and a term note. The revolving note allows for advances to the
Company of up to $500,000, with interest paid monthly at a rate equal to the
bank's prime rate plus 2%. The balance of the revolving note, if any, is due
on June 21, 1997. The term note in the principal amount of $800,000 requires
monthly payments of $22,222 commencing July 31, 1996 plus interest at a rate
equal to the bank's prime rate plus 2%. The proceeds from the term note were
used to payoff a note to a bank of approximately $750,000. The balance of the
term note is due on June 30, 1998. The revolving note and term note are
secured by substantially all of the Company's video lottery machines and the
personal guaranty of Mr. Lien, the majority shareholder and an officer and
director of the Company.
The Company believes that the Loan Agreement and cash from existing
operations will be sufficient to fund its capital and operating requirements.
14
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Shareholders of the Company was held on May 15,
1996 for the purpose of electing directors and to ratify the appointment of the
Company's independent auditors. The following sets forth each of the proposals
and the results of the meeting:
1. Proposal to elect three directors to the Board of Directors
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstained
<S> <C> <C> <C>
Bruce H. Lien 24,890,970 13,500 0
Deanna B. Lien 24,890,970 13,500 0
Jerry L. Baum 24,890,970 13,500 0
</TABLE>
2. Proposal to ratify the Board of Directors' selection of KPMG
Peat Marwick LLP as the Company's independent auditors for the fiscal year
ending September 30, 1996.
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstained
<S> <C> <C>
24,897,470 0 7,000
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Loan Agreement dated as of June 20, 1996 among
Concorde Gaming of South Dakota, Inc., Concorde
Gaming Corporation and BNC National Bank of Minnesota
10.2 Short-Term Revolving Note dated June 20, 1996 issued
by BNC National Bank to Concorde Gaming Corporation
in the principal amount of up to $500,000
10.3 Term Note dated June 20, 1996 issued by BNC National
Bank to Concorde Gaming Corporation in the principal
amount of $800,000
15
<PAGE> 18
10.4 Guaranty Agreement dated June 20, 1996 executed by
Bruce H. Lien in favor of BNC National Bank of
Minnesota
11. Computation of Per Share Earnings
27. Financial Data Schedule (for EDGAR purposes only)
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which
this report is filed.
16
<PAGE> 19
Signatures:
In accordance with the requirements of the Exchange Act, the
registrant caused the report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONCORDE GAMING CORPORATION
Date: August 8, 1996 By: /s/ David L. Crabb
-----------------------------
David L. Crabb,
Chief Financial Officer
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.1 Loan Agreement dated as of June 20, 1996 among Concorde Gaming of South Dakota, Inc.,
Concorde Gaming Corporation and BNC National Bank of Minnesota
10.2 Short-Term Revolving Note dated June 20, 1996 issued by BNC National Bank to Concorde
Gaming Corporation in the principal amunt of up to $500,000
10.3 Term Note dated June 20, 1996 issued by BNC National Bank to Concorde Gaming
Corporation in the principal amount of $800,000
10.4 Guaranty Agreement dated June 20, 1996 executed by Bruce H. Lien in favor of BNC
National Bank of Minnesota
11 Computation of Per Share Earnings
27 Financial Data Schedule (for EDGAR purposes only)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
BNC NATIONAL BANK OF MINNESOTA
LOAN AGREEMENT
Dated as of June 20, 1996
CONCORDE GAMING CORPORATION, a Colorado corporation, having its
mailing address and principal place of business at 3290 Lien Street, P.O. Box
505, Rapid City, South Dakota 57709-0505 ("PARENT") and CONCORDE GAMING OF
SOUTH DAKOTA, INC., a South Dakota corporation, having its mailing address and
principal place of business at 3290 Lien Street, P.O. Box 505, Rapid City,
South Dakota 57709-0505 ("SUBSIDIARY") (Parent and Subsidiary shall hereinafter
be collectively and individually referred to as the "CO-BORROWERS") and BNC
NATIONAL BANK OF MINNESOTA, a national banking association, having an office at
200 Metropolitan Centre, 333 South Seventh Street, Minneapolis, MN 55402
(herein called the "BANK"), agree as follows:
1 DEFINITIONS. Capitalized terms in this Agreement have the meanings
defined in the accompanying Definition Supplement, which the
Co-Borrowers acknowledge receiving and which is hereby made a part of
this Agreement.
2 [Intentionally Deleted.]
3 [Intentionally Deleted.]
4 LOAN COMMITMENT NUMBER 1: THE SHORT-TERM REVOLVER CREDIT COMMITMENT.
4.1 NATURE AND AMOUNT OF COMMITMENT. Subject to the terms and
conditions of this Agreement, the Bank shall make Advances
upon the request of either of the Co-Borrowers pursuant to a
Short-Term Revolver Credit Commitment. The maximum aggregate
principal amount of all Advances outstanding at any one time
under the Short-Term Revolver Credit Commitment shall not
exceed $500,000.00.
4.2 THE SHORT-TERM REVOLVING NOTE. The Obligation of the
Co-Borrowers to repay Advances made pursuant to the Short-Term
Revolver Credit Commitment shall be evidenced by a single
Short-Term Revolving Note of the Co-Borrowers in the form of
Exhibit A hereto to be made payable to the order of the Bank
by the Co-Borrowers in the principal amount of Five Hundred
Thousand and 00/100 Dollars ($500,000.00). The aggregate
principal amount of the indebtedness evidenced by such
Short-Term Revolving Note at any time shall be, however, and
the same is to be determined by, the aggregate principal
amount of all Advances made to the Co-Borrowers pursuant to
the Short-Term Revolver Credit
<PAGE> 2
Commitment less the aggregate amount of principal repayments
received by the Bank upon the indebtedness evidenced by the
Short-Term Revolving Note.
4.3 SHORT-TERM REVOLVING NOTE INTEREST. The outstanding principal
indebtedness evidenced by the Short-Term Revolving Note shall
bear interest (computed upon the actual number of days elapsed
in a 360-day year) at the Reference Rate plus two percent
(2.0%) per annum and shall change when, if and to the extent
said Reference Rate changes. All accrued and unpaid interest
shall be payable in arrears upon the last day of each month,
commencing June 30, 1996, and continuing on the last day of
each calendar month thereafter and at maturity (whether by
acceleration or otherwise).
4.4 TERMINATION OF SHORT-TERM REVOLVING CREDIT COMMITMENT. The
Short-Term Revolving Credit Commitment shall terminate
automatically upon the earlier of (aa) June 21, 1997, or (bb)
the occurrence of a Default or an Event of Default, and the
Bank's obligation to make Advances thereunder shall terminate
without notice on such date.
5 LOAN COMMITMENT NO. 2: TERM LOAN COMMITMENT.
5.1 NATURE AND AMOUNT OF TERM LOAN COMMITMENT. Subject to the
terms and conditions of this Agreement, the Bank agrees to a
single Advance upon the request of either of the Co-Borrowers
to refinance Equipment pursuant to a Term Loan Commitment.
5.2 THE TERM NOTE. The obligation of Co-Borrowers to repay
Advances made under the Term Loan Commitment shall be
evidenced by a single note of Co-Borrowers in the form of
Exhibit B hereto to be made payable to the order of the Bank
by Co-Borrowers in the principal amount of Eight Hundred
Thousand and 00/100 Dollars ($800,00.00). The principal
balance of the Term Note shall be due and payable in
twenty-three (23) installments of $22,222.00 on the last day
of each calendar month, commencing July 31, 1996, and one
final installment of the remaining principal amount
outstanding on June 30, 1998.
5.3 TERM NOTE INTEREST. The outstanding principal indebtedness
evidenced by the Term Note shall bear interest (computed upon
the actual number of days elapsed in a 360-day year) from the
date hereof until paid at the Reference Rate plus two percent
(2.0%) per annum and shall change when, if and to the extent
said Reference Rate changes. All accrued and unpaid interest
shall be payable in arrears upon the last day of each month,
commencing June 30, 1996 and continuing on the last day of
each calendar month thereafter and at maturity (whether by
acceleration or otherwise). Principal amounts remaining
unpaid after the occurrence of a Default or an Event of
Default under the Loan Agreement
2
<PAGE> 3
shall bear interest from and after that date in time until
paid at a rate of two percent (2%) per annum plus the rate
otherwise payable.
5.4 TERMINATION OF TERM LOAN COMMITMENT. The Bank's obligation to
make Advances under this Section 5 shall terminate
automatically upon the earlier of (aa) thirty (30) days after
the execution of this Agreement, or (bb) the occurrence of a
Default or an Event of Default.
6 PROCEDURES FOR LOAN REQUESTS/ADVANCES.
6.1 LOAN REQUESTS AND ADVANCES. The Bank may make Advances to
either of the Co-Borrowers in any amount and in any manner
requested orally or in writing by any Person authorized to
make requests on behalf of the Co-Borrowers. All requests for
Advances shall be made in amounts not less than $25,000 unless
the Bank decides to accept a loan request for a lesser amount.
The proceeds of loans to be made pursuant to this Agreement
shall be made available to the Co-Borrowers at the office of
the Bank in immediately available funds on the date requested
provided that the request is made on a business day prior to
11:00 a.m. This Agreement is subject to the general policies
of the Bank regarding the administration of loan requests.
6.2 [Intentionally Deleted.]
7 [Intentionally Deleted.]
8 OVERADVANCES. If at any time the aggregate principal amount of
Advances outstanding under this Agreement or any commitment hereunder
shall exceed any limitation set forth herein, the Co-Borrowers shall
immediately pay to the Bank the amount by which said principal amount
exceeds the limitation.
9 PAYMENT/PREPAYMENT/APPLICATION/FEE.
9.1 MANNER OF MAKING PAYMENTS. All payments of principal and
interest made by the Co-Borrowers in respect of the
Obligations shall be made to the Bank at its offices at 200
Metropolitan Centre, 333 South Seventh Street, Minneapolis, MN
55402, and in funds there current not later than 11:00 a.m.
Minneapolis time on the date such payment is due or as the
Bank may otherwise direct. Any payments received after 11:00
a.m. Minneapolis time (or after the time the Bank may
otherwise direct) shall be deemed received on the following
Business Day.
9.2 PREPAYMENT WITHOUT PENALTY. Co-Borrowers shall have the
privilege of prepaying any of the Obligations to the Bank
without premium or penalty, in whole or in part, together with
accrued interest upon the amount prepaid. All
3
<PAGE> 4
prepayments applied to principal shall be applied to
installments in the inverse order of maturity.
9.3 APPLICATIONS. The Bank in its discretion may apply any
payment received to any Obligation of the Co- Borrowers that
is due and payable.
9.4 [Intentionally Deleted.]
9.5 COMMITMENT FEE. Co-Borrowers agree to pay to the Bank on the
date hereof a commitment fee equal to $13,000, which is equal
to one percent (1.0%) of the maximum credit accommodations
available under the Short-Term Revolver Credit Commitment and
the Term Loan Commitment.
10 SECURITY AGREEMENT. As security for the repayment of the Obligations,
the Co-Borrowers shall duly execute and deliver to the Bank a Security
Agreement in a form acceptable to the Bank, granting a first Security
Interest to the Bank in and to the Collateral.
11 GUARANTIES. As further security for repayment of the Obligations,
each of the Guarantors shall duly execute and deliver to the Bank an
absolute and unconditional Guaranty of the Obligations in a form
acceptable to the Bank. Such Guaranties shall be in addition to any
and all existing Guaranties in favor of the Bank.
12 [Intentionally Deleted.]
13 GENERAL REPRESENTATIONS AND WARRANTIES. The Co-Borrowers represent
and warrant to the Bank as follows:
13.1 ORGANIZATION, QUALIFICATION AND OWNERSHIP. Concorde Gaming
Corporation is a corporation duly organized and validly
existing under the laws of the State of Colorado and Concorde
Gaming of South Dakota, Inc. is a corporation duly organized
and validly existing under the laws of the State of South
Dakota, and that they (i) have full and adequate corporate
power to carry on their business as now conducted, (ii) are
duly licensed or qualified in all jurisdictions wherein the
nature of their activities require such licensing or
qualifying, and (iii) have full right and authority to enter
into and perform this Agreement. The Parent owns 100% of the
issued and outstanding capital stock of the Subsidiary.
13.2 FINANCIAL REPORTS. Co-Borrowers have delivered to the Bank a
copy of the consolidated audited financial report of the
Co-Borrowers dated as of and for the period ending September
30, 1995 (including a balance sheet and income and cash flow
statements and notes thereto). The Co-Borrowers have also
delivered unaudited financial statements including a balance
sheet and income and cash flow statements for the periods
ending December 31, 1995 and March 31, 1996. Such
4
<PAGE> 5
financial statements have been prepared in accordance with
GAAP on a basis consistent, except as otherwise noted therein,
with that of the previous fiscal year or period and fairly
reflect the consolidated financial position of the
Co-Borrowers as of the dates thereof, and the results of its
operations for the periods covered thereby. Since the date of
the most recent financial statement, there has been no
Material Adverse Occurrence relating to the condition,
financial or otherwise, of the Co-Borrowers. The Co-Borrowers
have disclosed to the Bank in writing any and all facts known
to the Co-Borrowers or which the Co-Borrowers believe might
materially and adversely affect the business, operations and
condition, financial or otherwise, of Co-Borrowers and the
Co-Borrowers' ability to perform their Obligations under the
Loan Documents.
13.3 LITIGATION; TAX RETURNS. Except as disclosed to Bank in
writing, there is no litigation or governmental proceeding
pending, nor to the knowledge of the Co-Borrowers threatened,
against the Co-Borrowers for which there is a reasonable
possibility of an adverse determination, that would result in
any Material Adverse Occurrence in the properties, business or
operations of the Co-Borrowers. All United States federal,
state and local income tax returns for the Co-Borrowers
required to be filed have been filed on timely basis, and all
amounts required to be paid as shown by said returns have been
paid in full. There are no pending or threatened objections
to or controversies in respect of the United States federal
income tax returns of the Co-Borrowers for any fiscal year.
13.4 REGULATION U. No part of the proceeds of any Advance
hereunder will be used to purchase or carry any margin stock
or to extend credit to others for such a purpose.
13.5 NO DEFAULT. As of the date of this Agreement, the
Co-Borrowers are in full compliance with all of the terms and
conditions of this Agreement and no Default or Event of
Default is existing under this Agreement.
13.6 ERISA. To the extent applicable, Co-Borrowers are in
compliance in all material respects with ERISA.
13.7 LIENS. The Bank's Security Interests hereunder are first
priority Security Interests in all of the Collateral. There
are no Security Interests, liens or encumbrances on any of the
Collateral except such as are permitted by Subsection 15.4 or
Security Interests in favor of the Bank.
13.8 ENVIRONMENTAL LAW. The Co-Borrowers have not received any
notice to the effect that their respective operations are not
in compliance with any of the requirements of applicable
federal, state and local environmental, health and safety
statutes and regulations or are the subject of any federal or
state investigation evaluating whether any remedial action is
needed to respond to a
5
<PAGE> 6
release of any toxic or hazardous waste or Hazardous Substance
into the environment.
13.9 REAFFIRMATION WITH ADVANCES. Each representation and warranty
shall be deemed to be restated and reaffirmed to the Bank on
and as of the date of each Advance under this Agreement,
except that any reference to the financial statements referred
to in this Section shall be deemed to refer to the financial
statements then most recently delivered to the Bank pursuant
to Section 14.
13.10 USE OF PROCEEDS. The Co-Borrowers will use the proceeds of
each Advance and other extension of credit by the Bank
hereunder only for working capital purposes, except to the
extent loans are made for the refinancing of Equipment in
accordance with this Agreement.
13.11 AUTHORIZATION; NO CONFLICT; NO APPROVALS, ETC. The execution
and delivery by each of the Co-Borrowers of each of the Loan
Documents and the performance thereof by each of the
Co-Borrowers, have been duly authorized by all necessary
corporate action (including any necessary stockholder action)
on its part, and do not and will not: (i) contravene any laws,
including without limitation, any Gaming Laws currently in
effect, applicable to or binding on it, the Collateral or
their respective businesses; (ii) violate any provision of its
respective charter or bylaws; (iii) result in a breach of or
constitute a default under (with or without the giving of
notice or lapse of time or both) any indenture, mortgage, deed
of trust, lease, loan or any other agreement or instrument to
which either of the Co-Borrowers is a party; (iv) require any
governmental license, notice, consent or approval by any
federal, state or local governmental authority; or (v) require
the Bank to provide any notice to or obtain any license or
other approval from any federal, state or local governmental
authority under any Gaming Laws.
13.12 LICENSES. The Co-Borrowers have obtained all licenses,
registrations and permits required under any Gaming Laws for
the conduct of its business and the ownership and operation of
the Equipment and the Bank is not required to provide any
notice nor obtain any license, permit or approval under any
Gaming Laws in connection with the execution of any Loan
Documents or the transactions evidenced thereby.
13.13 EQUIPMENT LIST. The Equipment described on Schedule I to the
Security Agreement and the current location of the Equipment
is true and correct in all respects.
13.14 VLT SPACE LEASES. Each of the VLT Space Leases described on
Schedule 1 to the Security Agreement continue in full force
and effect as of the date hereof, without default by any party
thereto, and a true and correct copy or original thereof,
together with all amendments thereto, has been delivered to
the Bank.
6
<PAGE> 7
14 AFFIRMATIVE COVENANTS. Each of the Co-Borrowers agree that it will
and will cause its subsidiaries to:
14.1 FINANCIAL INFORMATION.
14.1.1 [Intentionally Deleted.]
14.1.2 ANNUAL FINANCIAL REPORT. Within one hundred five
(105) days after the end of Co-Borrowers' fiscal year
provide the Bank with a complete audited financial
report prepared and certified without qualification
by Independent Public Accountants for the
Co-Borrowers on a consolidated basis. If the
Co-Borrowers shall fail to supply said report timely,
the Bank shall have the right to employ certified
public accountants acceptable to the Bank at the
Co-Borrowers' expense for said purpose.
14.1.3 MONTHLY FINANCIAL REPORTS/COVENANT COMPLIANCE
CERTIFICATE. Within thirty (30) days after the end
of each calendar month commencing June 30, 1996,
provide the Bank with a balance sheet and income
statements of the Co-Borrowers and their subsidiaries
for said month and year-to-date, on a consolidated
and consolidating basis, certified as correct by an
officer or the controller of Co-Borrowers; together
with a Covenant Compliance Certificate certified as
correct by an officer or the controller of the
Co-Borrowers.
14.1.4. FINANCIAL STATEMENT OF GUARANTOR. On or before June
15th of each year the Co-Borrowers will provide the
Bank with sworn financial statements for each
Guarantor, and all income tax returns of the
Guarantors promptly after they are filed with the
applicable governmental agencies.
14.1.5. OTHER INFORMATION. From time to time, at the Bank's
request, the Co-Borrowers shall provide the Bank with
any and all other material, reports, information or
figures required by the Bank.
14.2. ACCESS TO RECORDS. Permit the Bank and its representatives
access to, and the right to make copies of, the books, records
and properties of each of the Co-Borrowers and its
subsidiaries at all reasonable times; and permit the Bank and
its representative to discuss the financial matters of the
Co-Borrowers and its subsidiaries with all applicable officers
and their Independent Public Accountant (and, by this
provision, Co-Borrowers authorize their Independent Public
Accountant to participate in such discussions).
7
<PAGE> 8
14.3 PAYMENT OF TAXES. Pay when due all taxes, assessments and
other Liabilities against each of the Co-Borrowers and its
subsidiaries or its properties except those which are being
contested in good faith and for which an adequate reserve has
been established; each of the Co-Borrowers and its
subsidiaries shall make all withholding payments when due.
14.4 NOTIFICATION OF MANAGEMENT CHANGE. Promptly notify the Bank
in writing of any substantial change in the present management
of either of the Co-Borrowers or its subsidiaries.
14.5 ERISA PLAN COMPLIANCE. Pay when due all amounts necessary to
fund in accordance with its terms any Plan.
14.6 COMPLIANCE WITH LAWS. Comply in all material respects with
all laws, acts, rules, regulations and orders of any
legislative, administrative or judicial body or official
applicable to its business operation or Collateral or any part
thereof, including, without limitation, all Gaming Laws;
provided, however, that Co-Borrowers may contest any such law,
act, rule, regulation or order in good faith by appropriate
proceedings so long as (i) Co-Borrowers first notify the Bank
in writing of such contest, and (ii) such contest does not, in
the Bank's sole discretion, adversely affect the Bank's right
or priority in the Collateral or impair Co-Borrowers' ability
to pay the Obligations when due.
14.7 NOTIFICATION OF PROCEEDINGS. Promptly notify the Bank in
writing and keep the Bank apprised of any litigation,
governmental or administrative proceeding which (i) involves
any gaming license or approval, including, without limitation,
any gaming license or approval required to be maintained by
any VLT Space Lessor, (ii) involves an amount in dispute in
excess of $100,000, (iii) relates to the matters which are the
subject of this Agreement, or (iv) if determined adversely to
either of the Co-Borrowers or its subsidiaries, would be a
Material Adverse Occurrence.
14.8 BANK ACCOUNTS/OTHER FINANCINGS. Maintain Co-Borrowers
business accounts at the Bank. The Parent also agrees that it
shall provide the Bank a good faith opportunity to (i) provide
any additional financing required for the business operations
of either of the Co-Borrowers or any of their subsidiaries,
and (ii) obtain the primary business accounts associated with
the 4 Bears Casino and Lodge located in New Town, North
Dakota.
14.9 MINIMUM CASH COVERAGE. As of each fiscal year end, the
Co-Borrowers shall maintain on a consolidated basis the ratio
of (i) EBITDA to (ii) Debt Service plus taxes of not less than
1.0 to 1.0 for fiscal year end September 30, 1996, and 1.3 to
1.0 for each fiscal year end thereafter.
8
<PAGE> 9
14.10 MINIMUM NET INCOME. Earn a minimum consolidated Net Income of
at least $800,000 in each fiscal year.
14.11 DEBT LEVEL. Maintain on a consolidated basis the ratio of:
(i) Liabilities minus the outstanding principal amount of
Subordinated Debt to (ii) Capital Base at not greater than the
ratio of 2.6 to 1.0 at all times.
14.12 UPDATED EQUIPMENT LIST/VLT SPACE LEASES. Furnish the Bank,
within thirty (30) days after the end of each calendar month,
updated Equipment lists similar to Schedule 1 to the Security
Agreement showing the current location of all Equipment, which
list shall be accompanied by all amendments to and any new VLT
Space Leases. The Co-Borrowers agree that they shall not make
any material modifications to the VLT Space Leases without the
prior written consent of the Bank and any new VLT Space Leases
shall be executed in a form similar to that currently provided
to the Bank and provided further that such Leases shall
contain no restrictions on the assignment of such Leases to
the Bank by the Co-Borrowers.
14.13 SECURITIES REPORTS. As soon as available and in any event
within sixty (60) days after the end of the first three fiscal
quarters of each fiscal year of Parent, Form 10Qs of Parent
shall have been delivered to Bank and within one hundred five
(105) days after the end of each fiscal year of Parent, Form
10K of Parent shall have been delivered to the Bank.
14.14 COMPLIANCE BY VLT SPACE LESSORS. Use their best efforts to
cause each of the VLT Space Lessors to comply in all material
respects with all applicable Gaming Laws associated with
maintaining any video lottery terminal at the location of the
VLT Space Lessor.
15 NEGATIVE COVENANTS. Each of the Co-Borrowers agrees that they will
not and shall cause each of their subsidiaries not to:
15.1 [Intentionally Deleted.]
15.2 [Intentionally Deleted.]
15.3 PROHIBITION AGAINST DISTRIBUTIONS. Purchase or redeem any
shares of either of the Co-Borrowers' or any of their
subsidiaries' stock or declare or pay any dividends (other
than dividends payable in capital stock) or make any
distribution to stockholders of any assets of either of the
Co-Borrowers or any of their subsidiaries or make any
distribution which would result in an Event of Default.
Notwithstanding this Section, distributions to Parent from any
of its subsidiaries are authorized prior to the occurrence of
an Event of Default.
9
<PAGE> 10
15.4 NEGATIVE PLEDGES. Create or permit to exist any Security
Interest on the Bank's Collateral, now owned or hereafter
acquired except: (i) those created in the Bank's favor and
held by the Bank; or (ii) liens of current taxes not
delinquent or taxes which are being contested in good faith
for which a full cash reserve has been established at the
Bank.
15.5 REORGANIZATION. Effect any material recapitalization; or be a
party to any merger or consolidation; or, except in the normal
course of business, sell, transfer, convey or lease all or any
substantial part of its property;
15.6 INVESTMENTS. Make any Investments with respect to any Person
or any business, except for (i) Investments permitted by
Section 15.7, and (ii) without duplication, prior to the
occurrence of any Default or Event of Default and provided
such Investment will not cause any such Default or Event of
Default, Investments not to exceed $1,000,000 per year that
are not otherwise prohibited.
15.7 DEBTS FROM INSIDERS. Permit any amount to be owing between or
amongst any of the Co-Borrowers and/or their subsidiaries, or
to any such entities by all or any of their respective
employees, officers, directors or shareholders, or members of
their families, as a result of any borrowings, purchases,
investments, travel advances or other transactions or events,
except that prior to the occurrence of any Default or Event of
Default and provided such transaction will not cause any
Default or Event of Default, such indebtedness may be incurred
or extended provided the aggregate of all such amounts are not
in excess of $100,000 on a consolidated basis.
15.8 CONDITIONAL OBLIGATIONS. Become a guarantor or surety or
pledge its credit or its Collateral on any undertaking of
another, except to Co-Borrowers' customers in the ordinary
course of business.
15.9 OTHER DEFAULTS. Permit any default to occur under the terms
of any note, loan agreement, lease, Mortgage, contract for
deed, security agreement or other contractual obligation
binding upon Co-Borrowers which would, with the giving of
notice or passage of time, permit the acceleration or
otherwise result in the maturity of Liabilities exceeding
$250,000 in the aggregate.
15.10 FISCAL YEARS. Change its fiscal year.
15.11 ERISA VIOLATIONS. Violate any provision of ERISA or of any
Plan.
15.12 INCONSISTENT AGREEMENTS. Enter into any agreement containing
any provision which would be violated or breached by
Co-Borrowers by the performance by Co-Borrowers of their
Obligations under any Loan Document.
10
<PAGE> 11
15.13 CASINO MANAGEMENT AGREEMENT. Enter into any amendment or
modification of the Management Agreement without fifteen (15)
days' prior written notification to the Bank, accompanied by a
true and correct copy of the proposed amendment.
15.14 NO RELOCATION OF VLTS. Relocate any of the Equipment from
their current locations to any location outside of the State
of South Dakota without the prior written consent of the Bank,
nor relocate such equipment to any new location within the
State of South Dakota unless: (i) all governmental licenses
and approvals required for any relocation have been obtained,
and (ii) the Bank has received all applicable original VLT
Space Leases with respect to any new location, together with
any executed financing statements, landlord consents and other
agreements necessary in the reasonable opinion of the Bank to
insure the continued first priority security interest of the
Bank in and to such Equipment.
16 DEFAULT AND REMEDIES. It shall be an Event of Default under this
Agreement if any one of the following shall occur:
16.1 Co-Borrowers fail to make any payment required under this
Agreement or any present or future supplements hereto or under
any other agreement between Co-Borrowers and the Bank,
including the loan Documents, when due, or if payable upon
demand; or
16.2 Co-Borrowers fail to observe or perform any covenant,
condition or agreement in this Agreement, any of the other
Loan Documents or in any other agreement between the
Co-Borrowers and the Bank when and as required; or
16.3 Any warranty, representation or statement made or furnished to
the Bank by or on behalf of Co-Borrowers or any Guarantor
proves to have been false in a material respect when made or
reaffirmed by the Co-Borrowers or Guarantor; or
16.4 Co-Borrowers or any Guarantor becomes insolvent or
Co-Borrowers or any Guarantor generally fails to pay, or admit
in writing its or his inability to pay, its or his debts as
they become due; or
16.5 Co-Borrowers or any Guarantor applies for, consents to or
acquiesces in, the appointment of a trustee, receiver or other
custodian for it or him or for any of its or his property, or
makes a general assignment for the benefit of creditors; or,
in the absence of such application, consent or acquiescence, a
trustee, receiver or other custodian is appointed for
Co-Borrowers or for Guarantor or for a substantial part of
Co-Borrowers' or any Guarantor's property; or
16.6 Any bankruptcy reorganization, debt arrangement or other case
or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect
of Co-Borrowers or any Guarantor; or
11
<PAGE> 12
16.7 Any judgments, writs, warrants of attachment, executions or
similar process (not covered by insurance) in the aggregate
amount that exceeds $100,000 is issued or levied against
Co-Borrowers, any Guarantor or any of its or his assets and is
not released, vacated or fully bonded prior to any sale and in
any event within five days after its issue or levy; or
16.8 Any Guarantor attempts to revoke his or its Guaranty;
16.9 Any Guarantor dies; or
16.10 The Management Agreement is amended or modified in violation
of Section 15.13 hereof, or the Management Agreement is
canceled, terminated or voided in any material respect by any
of the parties thereto or by any governmental authority, or
the Parent and/or Bruce H. Lien Company is ousted as the
managers of, or its management role is materially curtailed
with respect to, the 4 Bears Casino and Lodge; provided,
however, that in connection with the involuntary occurrence of
any of the foregoing, Parent shall be provided one hundred
twenty (120) days from the occurrence of the same to
diligently contest and cure such action.
Upon the occurrence of any Event of Default, all Obligations shall be
and become immediately due and payable, at the option of the Bank, without any
declaration, notice, presentment, protest, demand or dishonor of any kind (all
of which are hereby waived) and the Co-Borrowers' ability to obtain any
additional Advances under this Agreement shall be immediately and automatically
terminated. Upon the occurrence of an Event of Default, the Bank shall have
all rights and remedies of a secured party under the Commercial Code,
including, without limitation, any and all rights and remedies provided under
the Security Agreement.
17 CONDITIONS PRECEDENT TO LOANS. Without limiting the other conditions
of this Agreement, the obligation of the Bank to make any Advance
under this Agreement is further subject to the condition precedent
that the Bank shall have received on or before the date of the initial
Advance to be made hereunder all of the following:
17.1 The Short-Term Revolving Note, the Term Note, the Security
Agreement and each of the other Loan Documents, each executed
and delivered by the Co-Borrowers and any other applicable
party;
17.2 UCC searches from the filing offices in all states required by
the Bank which reflect that the Bank holds a first priority
Security Interest and no other Person holds a Security
Interest in any Collateral of Co-Borrowers, except for
Security Interests permitted by Subsection 15.4.;
17.3 Guaranties, in form and substance satisfactory to the Bank,
appropriately completed and duly executed by each of the
Guarantors;
12
<PAGE> 13
17.4 Corporate resolutions of the Co-Borrowers in a form acceptable
to the Bank;
17.5 A copy of the Co-Borrowers' respective articles of
incorporation certified by the Secretary of State and a copy
of the Co-Borrowers' bylaws;
17.6 Certificate of Good Standing for the Co-Borrowers issued by
its state of incorporation and by those states requested by
the Bank;
17.7 Evidence of insurance for all insurance required by the Loan
Documents;
17.8 An officer's certificate, in form and substance satisfactory
to the Bank, executed by the President of Co-Borrowers (the
"Officer's Certificate");
17.9 A current Covenant Compliance Certificate;
17.10 A landlord waiver or mortgagee waiver (if applicable);
17.11 Debt Subordination Agreements, in form and substance
satisfactory to the Bank, appropriately completed and duly
executed by each holder of Subordinated Debt (if applicable);
17.12 Co-Borrowers' legal opinion (if required);
17.13 True and correct copies of the Management Agreement, duly
certified by a corporate officer of the Parent and the Bruce
H. Lien Company; and
17.14 True and correct copies of all VLT Space Leases (including
amendments) with respect to the Equipment, duly certified by
the Presidents of the Co-Borrowers.
18 MISCELLANEOUS.
18.1 The performance or observance of any affirmative or negative
covenant or other provision of this Agreement and any
supplement hereto may be waived by the Bank in a writing
signed by the Bank but not otherwise. No delay on the part of
the Bank in the exercise of any remedy, power or right shall
operate as a waiver thereof, nor shall any single or partial
exercise of any remedy, power or right preclude other or
further exercise thereof or the exercise of any other remedy,
power or right. Each of the rights and remedies of the Bank
under this Agreement will be cumulative and not exclusive of
any other right or remedy which the Bank may have hereunder or
as allowed by law.
18.2 Any notice, demand or consent authorized by this Agreement to
be given to Co-Borrowers or the Bank shall be deemed to be
given when transmitted by telex or telecopier or personally
delivered, or three days after being deposited in the
13
<PAGE> 14
U.S. mail, postage prepaid, or one day after delivery to
Federal Express or other overnight courier service, in each
case addressed to the respective address shown in the opening
Paragraph of this Agreement, or at such other address as may
be provided from time to time by either Party in writing as
the designated address for notice hereunder.
18.3 This Agreement, including exhibits and schedules and other
agreements referred to herein, is the entire agreement between
the parties, cannot be changed, terminated or amended orally,
and shall be deemed effective as of the date it is accepted by
the Bank.
18.4 Each of the Co-Borrowers jointly and severally agrees to pay
and will reimburse the Bank on demand for all reasonable
out-of-pocket expenses incurred by the Bank relating to this
Agreement, including, without limitation, filing and recording
fees and reasonable attorneys' fees and reasonable legal
expenses, including costs of in-house counsel (whether or not
suit is commenced), whether incurred in the negotiation and
preparation of this Agreement, in the protection and
perfection of the Bank's Security Interest in the Collateral,
in the enforcement of any of the provisions of this Agreement
or of the Bank's rights and remedies hereunder and against the
Collateral, in the defense of any claim or claims made or
threatened against the Bank arising out of this transaction,
or otherwise including, without limitation, in each instance,
all reasonable attorneys' fees and legal expenses incurred in
connection with any appeal of a lower court's order or
judgment.
18.5 This Agreement and obligations thereunder shall be binding
upon each of the Co-Borrowers and the Bank and their
respective successors, assigns, heirs and personal
representatives and shall inure to the benefit of
Co-Borrowers, the Bank and the successors and assigns of the
Bank, except that neither of the Co-Borrowers may assign or
transfer their rights hereunder without the prior written
consent of the Bank, and any assignment or transfer in
violation of this provision shall be null and void. In
connection with the actual or prospective sale by the Bank of
any interest or participation in the Obligations, Co-Borrowers
authorize the Bank to furnish any information in its
possession, however acquired, concerning Co-Borrowers or any
of their Affiliates to any Person or entity.
18.6 Each of the Co-Borrowers shall be jointly and severally liable
for the payment and performance of all obligations, including,
without limitation, any obligations owing under this Agreement
and each of the other Loan Documents, and each of the
Co-Borrowers hereby acknowledges and agrees that it has not
executed and delivered any of such agreements, documents or
instruments as an accommodation maker, surety or guarantor,
all of which defenses, if any, are hereby forever waived and
released.
14
<PAGE> 15
18.7 If any Person shall acquire a participation in Advances made
to Co-Borrowers hereunder, Co-Borrowers hereby grant to any
such Person holding a participation, and such Person shall
have and is hereby given a continuing Security Interest in any
money, securities and other property of Co-Borrowers in the
custody or possession of such Participant as fully as if such
Participant had lent directly to the Co-Borrowers the amount
of such participation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BNC NATIONAL BANK OF MINNESOTA
By:
------------------------------------
Its:
----------------------------
CONCORDE GAMING CORPORATION,
By:
------------------------------------
Its:
----------------------------
CONCORDE GAMING OF SOUTH DAKOTA, INC.
By:
------------------------------------
Its:
----------------------------
15
<PAGE> 16
DEFINITIONS SUPPLEMENT
TO
BNC NATIONAL BANK
LOAN AGREEMENT
"ADVANCES" shall mean loans made by the Bank to the Co-Borrowers
hereunder and all loans evidenced by existing notes of the Co-Borrowers made
payable to the Bank.
"AFFILIATE" shall include, with respect to any party, any Person which
directly or indirectly controls, is controlled by, or is under common control
with such party and, in addition, in the case of Co-Borrowers, each officer,
director, shareholder, joint venturer or a partner of Co-Borrowers.
"AGREEMENT" shall mean this agreement as supplemented, revised and
modified from time to time.
"CAPITAL BASE" of Co-Borrowers at any date shall mean on a
consolidated basis with their subsidiaries the sum of (i) the Tangible Net
Worth on such date plus (ii) the outstanding principal amount of Subordinated
Debt on such date.
"CO-BORROWERS" shall individually and collectively, as the context may
require, mean Concorde Gaming Corporation, a Colorado corporation, and Concorde
Gaming of South Dakota, Inc., a South Dakota corporation.
"COLLATERAL" shall have the meaning provided in the Security
Agreement.
"COMMERCIAL CODE" shall mean the Uniform Commercial Code as enacted in
the State of Minnesota, as amended from time to time.
"CONTINGENT OBLIGATIONS" shall mean, with respect to any Person, all
of such Person's liabilities and obligations which are based upon one or more
contracts and are contingent upon and will not mature unless and until the
occurrence of some event or circumstance and which are not included within the
definition of Liabilities of such Person.
"COVENANT COMPLIANCE CERTIFICATE" shall mean the Compliance
Certificate in the form of Exhibit C to the Agreement or such other form as the
Bank may require from time to time.
"DEBT SERVICE" shall mean all scheduled payments of principal and
interest on the consolidated Liabilities of the Co-Borrowers and their
subsidiaries.
"DEBT SUBORDINATION AGREEMENT" shall mean that certain Debt
Subordination Agreement of even date herewith executed by Brustuen "Bruce" H.
Lien.
<PAGE> 17
"DEFAULT" shall mean any event which, with the giving of notice or
passage of time, or both, would constitute an Event of Default.
"EBITDA" shall mean, on a consolidated basis, the Net Income of the
Co-Borrowers and their subsidiaries, less interest, taxes, depreciation and
amortization, each as determined in accordance with GAAP, plus any cash
actually received by the Parent from Bruce H. Lien Company which constitutes
the proceeds of any principal repayment received by Bruce H. Lien Company for
loans extended by it under the Management Agreement in connection with the
construction, development and operation of the 4 Bears Casino & Lodge.
"EQUIPMENT" shall have the meaning provided in the Security Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be amended, and the rules and
regulations promulgated thereunder by any governmental agency or authority, as
from time to time in effect.
"EVENT OF DEFAULT" shall have the meaning provided in Section 16 of the
Agreement.
"GAAP" shall mean Generally Accepted Accounting Principles
consistently applied and maintained throughout the period indicated and
consistent with the financial statements delivered to Bank pursuant to Section
14 of the Agreement. Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP.
"GAMING LAWS" shall mean the South Dakota State Lottery Act, S.D.
Codified Laws Section 42-7A-1, et seq., and the rules and regulations
promulgated thereunder, together with any other federal, state or local laws,
rules, regulations or ordinances applicable to the conduct of either of the
Co-Borrower's gaming businesses, including, without limitation, the ownership
and operation of the Equipment.
"GUARANTOR(S)" shall mean Brustuen "Bruce" H. Lien and any other
Person who enters into a Guaranty of any of the Obligations.
"GUARANTY(IES)" shall mean that certain Guaranty dated as of the date
hereof from Brustuen "Bruce" H. Lien and any other agreement whereby a Person
guarantees the payment or performance of any of the Obligations.
"HAZARDOUS SUBSTANCE" shall mean any "hazardous substance," "hazardous
waste," "pollutant," "contaminant" or other similar material as defined by any
United States federal, state, or local law or rule applicable to Co-Borrowers
or any of the Collateral.
"INDEPENDENT PUBLIC ACCOUNTANTS" shall mean any firm of independent
certified public accountants which is acceptable to the Bank.
2
<PAGE> 18
"INVESTMENTS" shall mean, with respect to any Person, all investments
by such Person in any other Persons in the form of loans or guaranties,
advances or capital contributions (excluding commission, travel, relocation,
and other advances to employees, officers, directors or shareholders, or
members of their families, made in the ordinary course of business), purchases
or other acquisitions for consideration of debt or equity or other securities
and all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.
"LIABILITIES" of any Person shall mean those items which, in
accordance with GAAP, would appear as Liabilities on a balance sheet.
"LOAN DOCUMENT(S)" shall mean individually or collectively, as the
case may be, the Agreement, the Guaranties, the Short-Term Revolving Note, the
Term Note, the Security Agreement, the Debt Subordination Agreement and any and
all other documents executed, delivered or referred to herein, as originally
executed and as amended, revised, supplemented and replaced from time to time.
"MANAGEMENT AGREEMENT" shall mean that certain Management Agreement
dated December 7, 1992 , entered into by and among Bruce H. Lien Company and
the Three Affiliated Tribes with respect to the development and management
of the 4 Bears Casino & Lodge in New Town, North Dakota.
"MATERIAL ADVERSE OCCURRENCE" shall mean any occurrence of whatever
nature (including, without limitation, any adverse determination in any
litigation, arbitration or governmental investigation or proceeding) which
materially adversely affects the present or prospective financial condition or
operations of either of the Co-Borrowers, any of their subsidiaries, and/or a
Guarantor or impair the ability of either of the Co-Borrowers and/or a
Guarantor to perform its or their Obligations under this Agreement or any other
Loan Document.
"NET INCOME" for any period shall mean the consolidated Net Income of
the Co-Borrowers and their subsidiaries for such period, determined in
accordance with GAAP excluding, however, (1) extraordinary gains, and (2) gains
whether or not extraordinary from sales or other dispositions of assets other
than the sale of Inventory in the ordinary course of business.
"OBLIGATIONS" shall have the meaning provided in the Security
Agreement.
"PERSON" shall mean any natural person, corporation, firm,
partnership, association, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"PLAN" shall mean each employee benefit Plan or other class of
benefits covered by Title IV of ERISA, in either case whether now in existence
or hereafter instituted, of Co-Borrowers.
3
<PAGE> 19
"REFERENCE RATE" shall at any time mean at the time any determination
thereof is to be made, the fluctuating per annum rate of interest then most
recently reported in the Wall Street Journal as the "Prime Rate" (the base rate
on corporate loans at the 30 largest U.S. money center commercial banks) and if
reported as a range, the interest rate shall be the mid-point of the range. In
the event that the Wall Street Journal ceases to report the Prime Rate, then
"Prime Rate" shall mean the fluctuating interest rate per annum announced from
time to time by the Bank as its Prime Rate (or, if otherwise denominated, such
Lender's or Bank's reference rate for interest rate calculations on general
commercial loans for short-term borrowings). The Co-Borrowers acknowledge that
the Reference Rate may not be the lowest rate made available by Bank to its
customers and that Bank may lend to its customers at rates that are at, above
or below the Reference Rate.
"SECURITY AGREEMENT" shall mean that certain Security Agreement of
even date herewith, and any and all other Security Agreements heretofore or
hereafter, executed by the Co-Borrowers, as debtor, in favor of the Bank, as
secured party.
"SECURITY INTEREST" shall mean any lien, pledge, mortgage,
encumbrance, charge or security interest of any kind whatsoever (including,
without limitation, the lien or retained security title of a conditional
vendor) whether arising under a security instrument or as a matter of law,
judicial process or otherwise or the agreement by Co-Borrowers to grant any
lien, security interest or pledge, mortgage or encumber any asset.
"SHORT-TERM REVOLVER CREDIT COMMITMENT" shall mean the obligation of
the Bank to make Advances pursuant to Section 4 of the Agreement.
"SHORT-TERM REVOLVING NOTE" shall mean the Short-Term Revolving Note
referred to in Section 4 of the Agreement.
"SUBORDINATED DEBT" shall mean indebtedness of Co-Borrowers for
borrowed money which is subordinated to the Obligations in writing on terms
satisfactory to Bank in its sole discretion.
"TANGIBLE NET WORTH" of Co-Borrowers and the subsidiaries shall mean
on a consolidated basis, the total of all assets appearing on a balance sheet
of Co-Borrowers, prepared in accordance with GAAP, after deducting all proper
reserves (including reserves for depreciation, obsolescence and amortization)
minus all Liabilities of such entities; excluding, however, from the
determination of total assets: (i) goodwill, memberships, trademarks, trade
names, service marks, copyrights, patents, licenses, organization expenses,
research and development expenses and other similar intangibles; (ii) all
deferred charges or unamortized debt discount; (iii) treasury stock; (iv)
securities that are not readily marketable; (v) any write-up in the book value
of any assets resulting from a revaluation thereof subsequent to September 30,
1995; (vi) prepaid expenses; (vii) notes or receivables due from employees,
officers, directors or shareholders; (viii) notes or receivables due from any
Affiliate; (ix) all other intangible assets in existence on the date of this
Agreement and determined by Bank, in its absolute discretion,
4
<PAGE> 20
to be intangible assets; and (x) any asset acquired subsequent to the date of
this Agreement which the Bank determines, in its reasonable discretion, to be
an intangible asset.
"TERM LOAN COMMITMENT" shall mean the obligation of the Bank to make
Advances pursuant to Section 5 of the Agreement.
"TERM NOTE" shall mean the promissory note referred to in Section 5
of the Agreement.
"TERMINATION DATE" shall have the meaning set forth in Section 3 of the
Agreement.
"VLT SPACE LEASES" shall mean each of the space leases entered into by
either of the Co-Borrowers with each of the VLT Space Lessors in connection
with the renting of space for the operation of the Equipment, each of which
Leases are more specifically described on Schedule I attached to the Security
Agreement.
"VLT SPACE LESSOR(S)" shall mean each of the Space Lessors who have
leased space to either of the Co-Borrowers with respect to maintaining and
operating the Equipment.
5
<PAGE> 1
EXHIBIT 10.2
$500,000.00 Minneapolis, Minnesota
June 20, 1996
SHORT-TERM REVOLVING NOTE
FOR VALUE RECEIVED, each of the undersigned, hereby jointly and
severally promises to pay to the order of BNC NATIONAL BANK (the "Bank") in the
lawful money of the United States at its offices at 200 Metropolitan Centre,
333 South Seventh Street, Minneapolis, MN 55402, or at such other place as the
Bank may from time-to-time designate:
(i) the principal sum of Five Hundred Thousand and 00/100
($500,000.00) Dollars, or such other principal amount as may
be owing to Bank for the repayment of loans made pursuant to
the Short-Term Revolving Credit Commitment as set forth in
that certain Loan Agreement dated of even date herewith,
between Bank and the undersigned as the same may be amended
from time to time (the "Loan Agreement"), which sum shall be
due and payable in full on June 21, 1997; and plus
(ii) interest on the unpaid principal amount of this Note from
time-to-time outstanding payable in arrears at a rate of
interest equal to the Reference Rate (as defined in the Loan
Agreement) plus two percent (2.0%) per annum (calculated on
the basis of the number of days actually elapsed in a 360-day
year) on the last day of each calendar month commencing with
the first month following the date hereof. Following the
occurrence of an Event of Default as defined in the Loan
Agreement, the principal indebtedness shall bear interest at a
floating rate of two percent (2%) per annum greater than the
otherwise applicable rate.
This Note is the "Short-Term Revolving Note" referred to in the Loan
Agreement and is subject to all of the agreements, terms and conditions therein
contained which are incorporated herein by reference. In no event shall
interest hereunder be in excess of the maximum interest rate permitted by law.
This Note has been delivered in the State of Minnesota and shall be
construed and enforced in accordance with the substantive laws of such state.
Each of the undersigned and all guarantors expressly waive any
presentment, demand, protest, notice of protest, and notice of dishonor.
<PAGE> 2
This Note has been executed by each of the undersigned as co-makers
and not as a surety, accommodation marker or guarantor, and each of the
undersigned hereby expressly waive all claims and defenses, if any, as a
surety, accommodation maker and/or guarantor.
CONCORDE GAMING CORPORATION,
a Colorado corporation
By
----------------------------------
Its
-----------------------------
CONCORDE GAMING OF SOUTH DAKOTA,
INC., a South Dakota corporation
By
----------------------------------
Its
-----------------------------
Witness:
- -------------------------------------
<PAGE> 1
EXHIBIT 10.3
$800,000.00 Minneapolis, Minnesota
June 20, 1996
TERM NOTE
FOR VALUE RECEIVED, each of the undersigned hereby jointly and severally
promises to pay to the order of BNC NATIONAL BANK OF MINNESOTA (the "Bank") in
the lawful money of the United States of America at its offices at 200
Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota 55402, or
at such other place as the Bank may from time-to-time designate:
(i) the principal sum of Eight Hundred Thousand and 00/100 ($800,000.00)
Dollars, which principal amount shall be due and payable in
twenty-three (23) installments of $22,222.00 on the last day of each
calendar month commencing on July 31, 1996 and one final installment
of the remaining principal amount on June 30, 1998; plus
(ii) interest on the unpaid principal amount of this Note from time to
time outstanding from the date hereof at a floating rate equal to Two
Percent (2.0%) in excess of the Reference Rate (as defined in the
Loan Agreement) per annum, calculated on the number of days actually
elapsed in a 360-day year, due and payable on the last day of each
calendar month, commencing June 30, 1996, and at maturity (whether by
acceleration or otherwise). Principal amounts remaining unpaid after
the occurrence of an Event of Default under the Loan Agreement shall
bear interest from and after that date in time until paid at a rate
of 2% per annum plus the rate otherwise payable.
This Note is the "Term Note" within the meaning of that certain Loan
Agreement between the undersigned and the Bank of even date herewith (the "Loan
Agreement"). All of the terms and conditions set forth in the Agreement are
hereby incorporated by this reference, including without limitation the right
of holder hereto to accelerate all amounts evidenced by the Note upon the
occurrence of an Event of Default within the meaning of the Agreement.
This Note has been delivered in the State of Minnesota and shall be
construed and enforced in accordance with the substantive laws thereof.
Each of the undersigned and all guarantors expressly waive any right of
presentment, demand, protest or notice of protest or notice of dishonor.
<PAGE> 2
This Note has been executed by each of the undersigned as co-makers and
not as a surety, accommodation marker or guarantor, and each of the undersigned
hereby expressly waive all claims and defenses, if any, as a surety,
accommodation maker and/or guarantor.
CONCORDE GAMING CORPORATION,
a Colorado corporation
By
-----------------------------------------------
Its
-------------------------------------------
CONCORDE GAMING OF SOUTH DAKOTA, INC.,
a South Dakota corporation
By
-----------------------------------------------
Its
-------------------------------------------
Witness:
- -----------------------------
<PAGE> 1
EXHIBIT 10.4
GUARANTY AGREEMENT
AGREEMENT made as of this 20th day of June, 1996 by the undersigned
for the benefit of BNC NATIONAL BANK OF MINNESOTA (herein, with its
participants, successors and assigns, called "LENDER").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce Lender from time to time to make
one or more loans or extend other financial accommodations at the discretion of
the Lender to CONCORDE GAMING CORPORATION, a Colorado corporation, and/or
CONCORDE GAMING OF SOUTH DAKOTA, INC., a South Dakota corporation (herein
individually and collectively called "BORROWER"), the undersigned hereby
guarantee(s) and agree(s) as follows:
The undersigned hereby absolutely and unconditionally guarantee(s) to
Lender the full and prompt payment when due (whether on demand or at a stated
maturity or earlier by reason of acceleration or otherwise) of any and all
present and future debts, liabilities and obligations owed to Lender by any
Borrower; and the undersigned represent(s), warrant(s) and agree(s) that:
1. The debts, liabilities and obligations guaranteed hereby
(collectively referred to herein as the "Indebtedness") shall include, but
shall not be limited to, debts, liabilities and obligations of any Borrower
arising out of loans, credit transactions, financial accommodations, discounts,
purchases of property or other transactions with any Borrower or for any
Borrower's account or out of any other business transaction, or event, owed to
Lender or owed to others by reason of participation granted to or interests
acquired or created for or sold to them by Lender, in each case whether now
existing or hereafter arising, whether arising directly in a transaction or
event involving Lender or acquired by Lender from another by purchase or
assignment or as collateral security, whether owed by any Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, joint, several or joint and several, secured or unsecured, due or
not due, liquidated or unliquidated, arising by agreement or imposed by law or
otherwise.
2. No act or thing need occur to establish the liability of the
undersigned hereunder, and no act or thing, except full payment and discharge
of all Indebtedness, shall in any way exonerate the undersigned or modify,
reduce, limit or release the liability of the undersigned hereunder. This is
an absolute, unconditional and continuing guaranty of payment of the
Indebtedness and shall continue to be in force and be binding upon the
undersigned, whether or not all Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by Lender, and such revocation shall not be effective as to
Indebtedness existing or committed for at the time of actual receipt of such
notice by Lender, or as to any renewals, extensions and refinancings thereof.
Any adjudication of bankruptcy or death or disability or incapacity of the
undersigned shall not revoke this guaranty,
<PAGE> 2
except upon actual receipt of written notice thereof by Lender and then only
prospectively, as to future transactions, as herein set forth.
3. If the undersigned shall die, shall be or become insolvent or
shall initiate or have initiated against the undersigned any act, process or
proceeding under the United States Bankruptcy Code or any other bankruptcy,
insolvency or reorganization law or otherwise for the modification or
adjustment of the rights of creditors, then the undersigned will forthwith pay
to Lender, the full amount of all Indebtedness then outstanding, whether or not
any Indebtedness is then due and payable.
4. Until all of the Indebtedness and the obligations of the
undersigned hereunder have been paid in full, the undersigned shall not have
and waives any right or subrogation to any of the rights of Lender against any
Borrower, any other guarantor, maker or endorser, and waives its rights to any
reimbursement, contribution, recourse and indemnity therefrom; waives any right
to enforce any remedy which Lender now has or may hereafter have against any
Borrower, and any other guarantor, maker or endorser; and waives any benefit
of, and any other right to participate in, any collateral security for the
Indebtedness or any guaranty of the Indebtedness now or hereafter held by
Lender.
5. If any payment received and applied by Lender to Indebtedness
is thereafter set aside, recovered or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
any Borrower or such other person), the Indebtedness to which such payment was
applied shall, for the purposes of this Guaranty, be deemed to have continued
in existence, notwithstanding such application, and this Guaranty shall be
enforceable as to such Indebtedness as fully as if such application had not
been made.
6. Lender shall not be obligated by reason of its acceptance of
this Guaranty to engage in any transactions with or for any Borrower. Whether
or not any existing relationship between the undersigned and any Borrower has
been changed or ended and whether or not this Guaranty has been revoked in
accordance with Paragraph 2, Lender may enter into transactions resulting in
the creation or continuance of Indebtedness and may otherwise agree, consent
to, or suffer the creation or continuance of any Indebtedness, without any
consent or approval by the undersigned and without any prior or subsequent
notice to the undersigned. The liability of the undersigned shall not be
affected or impaired by any of the following acts or things (which Lender is
expressly authorized to do, omit or suffer from time to time, both before and
after revocation of this Guaranty, without consent or approval by or notice to
the undersigned): (i) any acceptance of collateral security, guarantors,
accommodation parties or sureties for any or all Indebtedness; (ii) one or more
extensions or renewals of Indebtedness (whether or not for longer than the
original period) modification of the interest rates, maturities or other
contractual terms applicable to any Indebtedness; (iii) any waiver or
indulgence granted to any Borrower, any delay or lack of diligence in the
enforcement of Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Indebtedness; (iv)
any full or partial release of, compromise or settlement with, or agreement not
to sue any Borrower or any other guarantor or other person liable in respect of
any Indebtedness; (v) any
2
<PAGE> 3
release, surrender, cancellation or other discharge of any evidence of
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or other
disposition of, or any other foreclosure or enforcement of or realization on,
any collateral security; (viii) any assignment, pledge or other transfer of any
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon Indebtedness. The undersigned
waive(s) any and all defenses and discharges available to a surety, guarantor,
or accommodation co-obligor, dependent on its character as such.
7. The undersigned waive(s) any and all defenses, claims,
setoffs, and discharges of any Borrower, or any other obligor, pertaining to
Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the undersigned will not assert
against Lender any defense of waiver, release, discharge in bankruptcy, statute
of limitations, res judicata, statute of frauds, anti-deficiency statute,
fraud, incapacity, minority, usury, illegality or unenforceability which may be
available to any Borrower or any other person liable in respect of any
Indebtedness, or any setoff available to any Borrower or any such other person,
whether or not on account of a related transaction, and the undersigned
expressly agree(s) that the undersigned shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing Indebtedness, whether or not the liability of any Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the undersigned shall not be affected or impaired
by any voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all the assets, marshaling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit
creditors, reorganization, arrangement, composition or readjustment of, or
other similar event or proceeding affecting any Borrower or any of its assets.
The undersigned will not assert against Lender any claim, defense or setoff
available to the undersigned against any Borrower.
8. The undersigned waive(s) presentment, demand for payment,
notice of dishonor or nonpayment, and protest of any instrument evidencing
Indebtedness. Lender shall not be required first to resort for payment of the
Indebtedness to any Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for Indebtedness,
before enforcing this Guaranty.
9. The undersigned will pay or reimburse Lender for all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
Lender in connection with the collection of any Indebtedness or the enforcement
of this Guaranty.
10. This Guaranty shall be enforceable against each person signing
this Guaranty, even if only one person signs and regardless of any failure of
other persons to sign this Guaranty
3
<PAGE> 4
or to otherwise guaranty any of the any Borrower's debts, liabilities or
obligations to Lender. All agreements and promises herein shall be construed
to be, and are hereby declared to be, joint and several in each and every
particular with respect to the Guarantor and any other guarantors of the
Indebtedness and shall be fully binding upon and enforceable against any or all
such guarantors. This Guaranty shall be binding upon the undersigned, and the
heirs, successors and assigns of the undersigned and shall inure to the benefit
of Lender and its respective participants, successors and assigns. Except to
the extent otherwise required by law, this Guaranty and the transaction
evidenced hereby shall be governed by the substantive laws of the State of
Minnesota. If any provision or application of this Guaranty is held unlawful
or unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Guaranty shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Guaranty or in any other
agreement between the undersigned and Lender shall survive the execution,
delivery and performance of this Guaranty and the creation and payment of the
Indebtedness. This Guaranty may not be waived, modified, invalidated,
terminated or released or otherwise changed except by a writing signed by
Lender. The Guaranty shall be effective whether or not accepted in writing by
Lender and the undersigned waive(s) notice of the acceptance of this Guaranty
by Lender.
11. This Guaranty shall expire upon full payment of the debt owed by
Borrower.
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered
by the undersigned on the day and year first above written.
----------------------------------------
Brustuen "Bruce" H. Lien
Address:
WITNESS; -------------------------------
-------------------------------
Social Security No.:
--------------------
- --------------------------
Name:
---------------------
Address:
------------------
- --------------------------
4
<PAGE> 1
EXHIBIT 11
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding, net of
treasury stock, beginning of period 21,929,793 21,929,793 21,929,793 22,083,193
Shares cancelled in accordance with a
lookback provision of a merger
0 0 0 (102,828)
Adjustments for common stock equivalents (1) 445,050 0 167,481 2,417
Weighted average common and common equivalent
shares outstanding, end of period 22,374,843 21,929,793 22,097,274 21,982,782
============ ============ ============ ============
Net earnings $ 146,585 $ 444,905 $ 302,742 $ 538,007
============ ============ ============ ============
Net earnings per common and common equivalent share $ 0.01 $ 0.02 $ 0.01 $ 0.02
============ ============ ============ ============
</TABLE>
(1) Represents adjustments computed under the treasury stock method for stock
options and warrants granted at fair market value at date of grant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 150,033
<SECURITIES> 0
<RECEIVABLES> 6,692,137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,499,346
<PP&E> 3,419,277
<DEPRECIATION> 1,378,729
<TOTAL-ASSETS> 10,262,489
<CURRENT-LIABILITIES> 4,752,133
<BONDS> 0
<COMMON> 267,552
0
0
<OTHER-SE> 3,481,857
<TOTAL-LIABILITY-AND-EQUITY> 10,262,489
<SALES> 138,087
<TOTAL-REVENUES> 8,410,711
<CGS> 0
<TOTAL-COSTS> 7,813,948
<OTHER-EXPENSES> 6,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 627,865
<INCOME-PRETAX> 464,642
<INCOME-TAX> 161,900
<INCOME-CONTINUING> 302,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302,742
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
