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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No.
September 30, 1996 0-8698
CONCORDE GAMING CORPORATION
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(Name of small business issuer in its charter)
Colorado 84-0716683
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3290 Lien Street, Rapid City, South Dakota 57702
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(Address of principal executive offices)
Issuer's telephone number: (605) 341-7738
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for the most recent fiscal year. $11,242,586
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The aggregate market value of the voting stock held by non-affiliates
of the registrant as of December 16, 1996 was $608,116. This calculation is
based upon the average of the bid ($.0625) and asked ($.28125) price of the
voting stock on December 16, 1996.
The number of shares issued of the issuer's $.01 par value common
stock was 26,755,193 as of December 16, 1996. 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.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Concorde Gaming Corporation (the "Company" or the "Registrant") owns,
installs, operates and services video lottery machines located in video lottery
licensed bars and restaurants in South Dakota. The machines generally offer
variations of poker, blackjack, keno and bingo. In addition, the Company owns
and operates bars in South Dakota which feature video lottery machines.
The Company also manages a casino and lodge (collectively, the
"Casino") under 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") in New Town, North Dakota. See "Certain
Recent Developments" and "Organization and History of Operations--4 Bears
Casino & Lodge Management Agreement/FBILLC." The Company does not have an
ownership interest in these facilities. The Casino has approximately 420 slot
machines, 20 table games (blackjack, poker, craps), and a 300-seat bingo hall.
CERTAIN RECENT DEVELOPMENTS
Settlement Agreement. BHL and TAT have entered into a settlement
agreement (the "Settlement Agreement") to resolve disputes arising out of the
Management Agreement. The Settlement Agreement provides for the termination of
the Management Agreement, the discharge of all amounts owing to BHL from TAT,
and the dismissal of all litigation between the parties upon TAT's payment of
$8.65 million (the "Termination Payment"). If the parties fail to close by
February 24, 1997, TAT must pay BHL interest on the Termination Payment equal to
BHL's blended cost of funds, not to exceed 18%, until closing or April 30, 1997,
whichever occurs sooner. Until the closing, BHL will remain as manager of the
Casino and will assist TAT in training its designated personnel for its future
management of the Casino. Monthly distribution amounts earned by BHL from
October 1, 1996 until closing will offset the Termination Payment. The closing
of the transactions contemplated by the Settlement Agreement is contingent upon
TAT's ability to obtain financing and may be subject to approval by the National
Indian Gaming Commission (the "NIGC") and/or the Secretary of the Interior of
the United States. In the event the parties fail to close by April 30, 1997, or
the Settlement Agreement is declared to be void by the NIGC, the Secretary of
the Interior or his designee or by the final judgment of any court of competent
jurisdiction, the Management Agreement shall be deemed to have been unaffected
by the Settlement Agreement and the parties' rights and claims asserted with
respect to the Management Agreement shall be deemed to have been preserved. See
"Legal Proceedings."
NIGC Review. In June 1995, the NIGC requested that BHL submit the
Management Agreement and certain related documents to the NIGC for review. The
NIGC reviews
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management agreements to determine whether they comply with the Indian Gaming
Regulatory Act ("IGRA"). The Management Agreement was previously found by the
Bureau of Indian Affairs ("BIA") to be in compliance with IGRA. On May 17,
1996, the NIGC notified BHL and TAT that modifications to the Management
Agreement were necessary and provided the parties with a list of deficiencies.
The notice gave the parties 120 days from receipt to modify the Management
Agreement. The NIGC also notified the parties that the current operation of
the Casino without proper licensing and background investigations violated NIGC
regulations. The NIGC threatened closure and/or civil penalties within 30 days
if the parties failed to make progress towards regulatory compliance.
Pursuant to the Settlement Agreement, TAT has subsequently temporarily
licensed the Company and the Casino for Class II and Class III gaming activity
on the Fort Berthold Reservation through the term of the Settlement Agreement.
TAT has also commenced background investigations of gaming personnel, as
required by the NIGC. Because of these actions and the parties entering into
the Settlement Agreement, the NIGC has found it unnecessary to initiate any
enforcement action to bring the Casino into compliance with NIGC regulations.
In addition, the NIGC's review of the Management Agreement will be held in
abeyance pending the closing of the Settlement Agreement. See "GAMING
REGULATION--Indian Gaming Regulatory Act."
Sale of Bayou Gaming, Inc. Common Stock. On September 29, 1995, the
Company entered into a stock purchase agreement ("Stock Purchase Agreement") to
sell all of its shares of common stock of Bayou Gaming, Inc. ("Bayou") for
$330,000 payable as follows: (a) $100,000 in cash, which was paid at closing;
(b) issuance of a promissory note in the principal amount of $50,000, plus
accrued interest at the rate of 10%, payable in full on December 28, 1995,
which due date was subsequently extended by the parties until January 31, 1996;
(c) issuance of a promissory note in the principal amount of $50,000, plus
accrued interest at the rate of 10% per annum, payable in full on March 27,
1996 ("Note A"); and (d) issuance of a promissory note in the principal amount
of $130,000, plus accrued interest at an annual rate equal to 5% above the
variable prime rate established by Norwest Bank South Dakota, N.A., payable in
full on September 29, 1996 ("Note B"). On April 1, 1996 the Stock Purchase
Agreement was modified and the Company repurchased 40 shares of Bayou common
stock in consideration for the cancellation of Note A and Note B. As a result
of the modification of the Stock Purchase Agreement, the Company now owns 38.5%
of the outstanding shares of Bayou. Bayou owns and operates video poker
machines located in the State of Louisiana.
ORGANIZATION AND HISTORY OF OPERATIONS
The Company was incorporated as a Colorado corporation on September 1, 1976.
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Bruce H. Lien Company Merger
On September 30, 1993 the Company, Concorde New Acquisition
Corporation ("CNAC"), a Colorado corporation and a wholly-owned subsidiary of
the Company, BHL and Mr. Lien, as the sole shareholder of BHL, entered into an
Agreement and Plan of Merger (the "Merger Agreement") whereby the Company
acquired all the outstanding capital stock of BHL through a reverse subsidiary
merger (the "Merger") of CNAC with and into BHL. At the time of the Merger,
the assets of BHL were: 4,825,400 shares of Common Stock; approximately $66,000
in assets net of liabilities and the Management Agreement. As consideration,
the Company issued 4,892,000 shares of Common Stock to Mr. Lien and 2,349,800
shares of Common Stock were placed in escrow to be released to Mr. Lien in
proportion to a "lookback" valuation based upon the income generated by the
Management Agreement. The "lookback" provision required that the shares of
Common Stock in escrow be reduced by 1.5 shares for each dollar that income
(after tax) from the Management Agreement was less than $1,566,533 during the
year ended September 30, 1994. Based on the Management Agreement operating
results, the escrow agent returned 153,400 shares to the Company for
cancellation and the rest were distributed to Mr. Lien.
4 Bears Casino & Lodge Management Agreement/FBILLC
On December 7, 1992, BHL entered into the Management Agreement with
TAT to finance, renovate, construct, manage and operate a casino and motor
lodge located on the Fort Berthold Reservation, New Town, North Dakota. See
"--Products and Services" and "--Recent Developments".
In conjunction with the financing for the Casino, BHL entered into an
agreement with Four Bears Investment Limited Liability Company ("FBILLC"). The
agreement provided that FBILLC would provide funding for the Casino and, in
consideration, the Management Agreement between BHL and TAT would be assigned
to FBILLC, subject to approval by TAT and the NIGC, if ever. On September 30,
1994, the Company, BHL and FBILLC entered into a settlement agreement (the
"FBILLC Settlement Agreement") to resolve disputes which had arisen between
such parties. Pursuant to the FBILLC Settlement Agreement, BHL, in
consideration of no longer being required to assign the Management Agreement,
is required to pay a promissory note dated April 15, 1993 in the principal
amount of $2,550,000, plus accrued interest and to purchase FBILLC's interest,
real or contingent, in the Management Agreement for $2,000,000, subject to
adjustment. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS--Liquidity
and Capital Resources" and Note 5 to Notes to Consolidated Financial
Statements.
Development Agreement. On September 26, 1995, Concorde Gaming of
Missouri, Inc., a wholly-owned subsidiary of the Company, and the Company
entered into a development agreement (the "Development Agreement") with the
City of Lexington, Missouri ("Lexington") whereby the Company will develop and
operate a riverboat gaming facility within the corporate limits of Lexington.
The Company's obligations under the Development Agreement, other than
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those which must be performed irrespective of any conditions, are subject to
the existence or fulfillment of numerous conditions, including, but not limited
to the following: (i) issuance of a permit or license from the Missouri Gaming
Commission authorizing the Company to conduct gaming activities on the
riverboat development site; and (ii) written verification that the riverboat
development site is zoned in a manner consistent with the Company's intended
use. Therefore, there can be no assurance that the Company will be able to
construct and operate the riverboat gaming facility.
The Company has submitted preliminary development plans to Lexington.
It was required to submit its final development plans to Lexington by April 13,
1996; however, the submission date has been extended because of delays in the
licensing process. The revised schedule has yet to be set. Once the
development plans have been approved by Lexington, the Company is required to
submit them for any additional required governmental approvals. Within 30 days
of approval of licensing by the Missouri Gaming Commission and approval of the
development plans by Lexington, whichever comes later, the Company is required
to commence site preparation. The construction of the riverboat gaming
facility is required to commence within 30 days after the Company receives a
license from the Missouri Gaming Commission and site preparation is completed,
whichever comes later, provided: (i) Lexington has issued all appropriate
permits and other necessary zoning approvals to the extent permissible under
Missouri law; and (ii) Lexington has provided written verification that a valid
building permit may be issued by Lexington or Lexington has issued a valid
building permit to the extent permissible under Missouri law. The Company
believes the total costs for the project will be approximately $17 million.
See "Liquidity and Capital Resources."
The Company acquired the exclusive right to submit a proposal for the
development and operation of a riverboat gaming facility from Federalist
Municipal Development Company ("Federalist") pursuant to an Assignment
Agreement (the "Assignment Agreement") dated April 6, 1995. Pursuant to the
Assignment Agreement, Federalist is entitled to receive 2% of adjusted gross
receipts of the riverboat gaming facility for the first five years of its
operations and 1% of adjusted gross receipts for the sixth through tenth years
of operations.
PRODUCTS AND SERVICES
Route Operations. The Company owns, installs, operates and services
video lottery machines in business establishments in South Dakota. The Company
currently owns and operates 366 video lottery machines in approximately 52
locations in South Dakota. The Company enters into agreements with owners of
business establishments to install video lottery machines at their places of
business. The agreements typically provide for revenue sharing with the
location owner based upon a percentage of the net revenues generated by the
Company's video lottery machines. The agreements generally require the Company
to install, maintain and service the video lottery machines.
Company-Owned Bars. The Company operates bars, also referred to as
video lottery casinos, in South Dakota that feature video lottery machines.
The Company currently owns and
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operates three video lottery casinos each of which feature video lottery
machines. The Company presently subleases two other video lottery casinos to
restaurateurs. As part of these subleases, the restaurateurs provide space for
the Company's operation of video lottery machines.
Terms of the Management Agreement. The Management Agreement had an
initial term of five years and commenced upon the opening of the Casino in July
1993. In October 1994, BHL exercised its option to extend the Management
Agreement for an additional two years. TAT has the option to purchase BHL's
interest in the Management Agreement after July of 1996. The option price is
equal to BHL's share of Net Profits (as defined below) during the 12 months
preceding the date of purchase, multiplied by the number of months remaining
under the term of the Management Agreement, plus the remaining construction and
development costs payable by TAT to BHL.
Under the terms of the Management Agreement, BHL earns fees based on
net profits, which are defined as the gross revenues from the Casino, including
but not limited to, Indian gaming activity less amounts paid out as, or paid
for, prizes and total operating expenses, excluding management fees and less
repayment of construction and other capital costs incurred by the Company ("Net
Profits"). BHL is entitled to receive 40% of the Net Profits from the Casino
for the initial term of the Management Agreement and 30% during the two-year
option period. Either party may terminate the Management Agreement if the
other party commits a material breach and the material breach is not cured
within 30 days of written notice thereof. The nonbreaching party may initiate
arbitration proceedings.
In February 1995, the Company initiated arbitration seeking
reimbursement of $2,280,021 of costs, in excess of budgeted amounts, which were
expended for the renovation and construction of the Casino. In addition, the
Company claims that TAT materially breached the Management Agreement by
amending its gaming ordinance to impose increased license fees on the Company.
The Company and TAT have agreed to stay these proceedings and all other legal
proceedings between the parties pending the closing of the Settlement
Agreement. See "Certain Recent Developments" and "Legal Proceedings."
MARKETING AND SALES
The Company attempts to acquire additional locations for the placement
of video lottery machines through a marketing strategy that emphasizes the
Company's premium service and top-of-the-line video lottery equipment. The
Company's primary supplier of video lottery machines is Video Lottery
Consultants Inc. ("VLC"). VLC machines are programmed to constantly process
self-checks and diagnostics to ensure accurate financial data and proper
working order of all subassemblies.
The Company attracts customers to the Casino through a variety of
media marketing techniques, including print and electronic media advertising
and billboard advertising. In addition, the Company focuses on providing a
quality experience for its Casino customers to encourage repeat visits and
referrals.
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COMPETITION
The Company's gaming operations are in competition with a significant
number of existing and proposed gaming operations in North Dakota, South Dakota
and Canada, some of which are, or may be, owned or operated by organizations
which may be significantly better capitalized than the Company, which have or
may have significantly larger facilities, and which may employ personnel who
have more experience in the gaming industry than those currently employed, or
proposed to be employed, by the Company. In addition, the Company is in
competition with other businesses which provide opportunities for gambling,
such as racetracks and lotteries, or which provide entertainment which may
divert the spending of discretionary income from gaming activities.
Furthermore, the gaming industry is expanding rapidly, with more establishments
competing for a customer base which may not be expanding as rapidly, if at all.
The Company's video lottery operations are also in competition with
establishments throughout South Dakota holding malt beverage, wine or liquor
licenses which establishments may operate up to 10 video lottery machines per
establishment. The video lottery machines allow customers to play electronic
versions of blackjack, poker, keno and bingo. The Company believes that there
are approximately 8,000 such video lottery machines installed in South Dakota.
The video lottery industry is highly competitive. There can be no assurance
that competitors with greater financial resources and/or superior technology,
including competitors with similar products, will not elect to enter the
Company's market.
GAMING REGULATION
General. The ownership and operation of a gaming business by the
Company, including the operations of video lottery businesses, are subject to
extensive federal, state and/or local laws and regulations, including stringent
licensing requirements. The regulatory authorities in a jurisdiction in which
the Company is subject to licensing may do the following: (a) impose certain
corporate structure requirements on the Company; (b) require the officers,
directors, key employees and affiliates of the Company and/or any of the
Company's subsidiaries to be licensed or found suitable; (c) require some or
all of the shareholders of the Company or any subsidiary to be licensed or be
found suitable, or to divest their holdings of the Company's or such
subsidiary's securities; (d) require background investigation of the Company's
suppliers, subcontractors and certain of their personnel; and (e) subject the
Company, any subsidiary, or the officers, directors, key employees, affiliates,
or shareholders of the Company or any subsidiary to any other restriction that
is deemed reasonable by the regulatory authority. Generally, regulatory
authorities also have authority to disapprove a change in a licensed position,
which change must be reported to the issuing agency. In the event a regulatory
authority were to find an officer, director, key employee or affiliate of the
Company or any subsidiary, or any other person, including a shareholder,
unsuitable to act in such capacity or to continue to have a relationship with
the Company, the Company would be required to terminate all relationships with
such person or entity. Generally, regulatory authorities have
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broad discretion when granting such approvals. No assurance can be given that
such approvals will be obtained or retained in the future.
The commencement of video lottery and other gaming activities in new
jurisdictions requires authorizing legislation and implementing regulation at
the state or other jurisdictional level. The Company cannot predict the nature
of the regulatory scheme in any jurisdiction which may authorize such equipment
to be used in such jurisdiction in the future. Any such regulatory scheme may
be burdensome to the Company, or its key personnel and shareholders, and could
include requirements that the Company would be unable to satisfy.
Additionally, no assurance can be given that there will not be an adverse
change in the gaming laws of any jurisdiction in which the Company does
business.
Indian Gaming Regulatory Act. Gaming on Native American lands is
extensively regulated under federal law, tribal-state compacts and tribal law.
IGRA was passed by the United States Congress in 1988 and provides the
framework for federal and state control over all gaming on Native American
lands. IGRA is administered by the NIGC, a three- person quasi-independent
agency administratively located within the Department of the Interior. The
NIGC is the only federal agency with regulatory responsibility over gambling.
Its primary role is to monitor and regulate tribal gaming operations throughout
the United States. While the NIGC has broad enforcement authority, IGRA
clearly recognizes that Indian tribes, as governments, are the primary
regulatory authority over gaming on Indian lands. Thus, the NIGC will afford
tribes the opportunity to address identified violations in the first instance.
Since the Company's current operations under the Management Agreement
involve Class II and Class III Indian gaming, such operations come under the
auspices of IGRA. IGRA defines Class III gaming as including all forms of
gaming that are not Class I or Class II gaming, including banking card games,
casino games, slot machines, electronic or electromechanical facsimiles of
games of chance and parimutuel wagering. Class II gaming includes bingo.
Certain terms and conditions of the Management Agreement may be subject to the
provisions of statutes relating to contracts with Indian tribes which are
administered by the Secretary of the Interior (the "Secretary") through the BIA
and NIGC. The regulations and guidelines under which the NIGC administers IGRA
are incomplete and evolving. IGRA is subject to interpretation by the
Secretary and the NIGC and may be subject to judicial and legislative
clarification or amendment.
Class III gaming may lawfully be conducted by an Indian tribe if: (a)
the state in which the tribe is located permits such gaming for any purpose by
any person, organization or entity; (b) the tribe and the state have negotiated
a compact which has been approved by the Secretary; and (c) the tribe has
adopted a gaming ordinance which has been approved by the Chairman of the NIGC.
IGRA requires the NIGC to approve management contracts and certain
collateral agreements. The BIA approved management contracts prior to the NIGC
assuming the responsibility for approval of management contracts. The
Management Agreement and collateral
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agreements were approved by the BIA on February 19, 1993; however, the Company
has submitted the Management Agreement and certain collateral agreements to the
NIGC upon its request for a review of its compliance with IGRA. See "--Recent
Developments." The Chairman may approve a management contract if it provides:
(a) adequate accounting procedures; (b) access by tribal officials to the
gaming operations in order to verify the daily gross revenues and income; (c) a
minimum guaranteed payment to the tribe that has preference over the retirement
of development and construction costs; (d) a ceiling for the repayment of such
costs; (e) a maximum term of five years, or upon tribal request, seven years;
and (f) grounds and procedures for terminating the contract.
The Chairman may approve a management contract which authorizes a
management fee based upon net revenues if the Chairman believes the fee is
reasonable. As a general rule, the management fee cannot exceed 30 percent of
net revenues. Upon request of a tribe, however, the Chairman may approve a
contract authorizing a management fee greater than 30 percent of net revenues,
but not to exceed 40 percent, if the Chairman is satisfied that the capital
investment and income projections of the project require the higher percentage.
The Management Agreement has a seven-year term and the Company's management fee
is 40% of Net Profits for the first five years and 30% thereafter. While the
Company believes that the Management Agreement meets all the requirements of
IGRA, the NIGC is responsible for making such determination. If the Settlement
Agreement is not consummated and the NIGC determines that the Management
Agreement does not comply with IGRA, it may require the parties to modify the
Management Agreement, including but not limited to reducing the management fee
and the term.
GAMING COMPACT. A tribal-state compact for Class III gaming may
include provisions concerning: (a) the application of tribal or state criminal
and civil laws directly related to gaming; (b) the allocation of jurisdiction
between the state and the tribe; (c) an assessment to the state to defray the
cost of regulating the gaming activity; (d) taxation by the tribe in amounts
comparable to state taxation; (e) remedies for breach of the compact; (f)
standards for the operation and maintenance of the gaming facility; and (g) any
other subjects related to gaming activity. The Secretary is authorized to
approve tribal-state compacts.
The Gaming Compact ("Compact") between TAT and the State of North
Dakota was entered into on October 7, 1992. It provides that TAT shall have
the right to operate the following types of Class III Gaming: (a) electronic
and electromechanical facsimile games of chance; (b) blackjack; (c) poker,
including Pai Gai and Caribbean stud poker; (d) parimutuel and simulcast
betting; (e) pull-tabs; (f) raffles; (g) keno; (h) punchboards and jars; (i)
paddlewheels; and (j) craps and Indian dice.
The Compact also provides for the following limits on maximum wagers:
(a) wagers on blackjack shall not exceed $50 per individual hand; (b) wagers on
poker shall not exceed $10 per individual bet per round, with a three raise
maximum per round; (c) individual bets on paddlewheels shall not exceed $25 for
either single bet or overall multiple bets by an individual player per spin of
the wheel; (d) individual bets placed during the play of craps and Indian dice
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shall not exceed $25 per bet; and (e) electronic games of chance shall not
process individual bets in excess of $5 per bet (however, play may be conducted
upon individual machines which process simultaneously, up to three bets, each
not exceeding $5).
The Compact states there shall be no limit on the number of machines,
tables or other gaming devices which TAT may operate pursuant to the Compact,
nor shall there be a limit as to the number of sites on trust lands within the
exterior boundaries of the Fort Berthold Reservation upon which gaming may be
offered. However, the Management Agreement provides that neither party will
participate in any other gaming management contract in the State of North
Dakota.
TRIBAL GAMING ORDINANCE. Indian tribes wishing to engage in Class II
or Class III gaming must adopt a gaming ordinance which is approved by the
Chairman of the NIGC. The Chairman is required to approve a tribal ordinance
if the ordinance provides that: (a) the tribe will have the sole proprietary
interests in the gaming operation (with some exceptions); (b) net revenues from
tribal gaming operations will be used to fund tribal government operations, to
provide for the general welfare of tribal members, to promote economic
development, to donate to charitable organizations, or to help fund local
government agencies; (c) annual outside audits of the gaming operations will be
submitted to the NIGC; and (d) there is an adequate system for conducting
background investigations on key employees and primary management officials,
issuing licenses to such persons, and notifying the NIGC of the results of
background investigations before issuing tribal gaming licenses.
TAT enacted its enabling gaming ordinance (the "Gaming Ordinance") in
July 1991 which requires primary management officials, key employees and
management companies to apply for annual tribal gaming licenses. The Gaming
Ordinance also requires the establishment to obtain a yearly permit. The
Gaming Ordinance established the Gaming Commission which has the authority and
responsibility to, among other things, issue and renew gaming licenses and
permits, revoke licenses and permits, collect fees, levy and collect penalties,
and review gaming books and records. The Gaming Commission is the licensing
authority for Class I, Class II and Class III gaming on the Fort Berthold
Reservation. Each license issued by the Gaming Commission is valid for one
year following issuance. The Gaming Commission must also forward license
applications and gaming reports to the NIGC for its review. Furthermore, it is
responsible for enforcing the provisions of the Compact and the Gaming
Ordinance's specified use of gaming revenues.
Enforcement actions that the Gaming Commission may take include
suspension, revocation or conditioning of a license, and/or the imposition of
civil penalties not to exceed $500 for each violation of the Gaming Ordinance.
Upon a suspension, revocation or conditioning of a license, the Gaming
Commission may bring an action in the Tribal District Court for the seizure of
any gaming apparatus, proceeds or other property of a licensee, expel the
licensee from Indian lands, if the licensee is a nonmember of TAT, or seek
other relief as it deems necessary to enforce its decision.
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On April 12, 1994 the NIGC notified TAT that the Gaming Ordinance had
certain deficiencies. TAT amended its Gaming Ordinance on October 14, 1994 to
cure these deficiencies. The Chairman of the NIGC approved TAT's amended
Gaming Ordinance (the "Amended Gaming Ordinance") on November 17, 1994 as being
in compliance with IGRA. Pursuant to Section 8.1 of the Amended Gaming
Ordinance, the Gaming Commission established a new fee schedule for gaming
licenses and background investigations.
BHL received a notice of the Amended Gaming Ordinance and new fee
schedule on December 30, 1994. On behalf of the Casino, BHL had previously
submitted an application and permit fee of $250 to the Gaming Commission for
the renewal of the Casino's establishment permit. This application and permit
fee was submitted in accordance with the Gaming Ordinance. The new fee
schedule, if imposed on BHL, would require BHL to pay approximately $700,000 in
additional fees and deposits which are prohibited under the Management
Agreement. The Gaming Commission refused to accept the Casino's application
because it was not in conformance with the Amended Gaming Ordinance. As a
result, the establishment permit for the Casino was not renewed in 1995 or 1996.
However, the Gaming Commission has issued temporary licensing to the Company
and the Casino pursuant to the terms of the Settlement Agreement. These
licenses shall be valid through the term of the Settlement Agreement. See
"Certain Recent Developments."
In the event the Settlement Agreement is not consummated, the Company
cannot predict the consequences of operating the Casino without an
establishment permit. In addition to the enforcement actions which may be
taken by the Gaming Commission described above, under the terms of the
Management Agreement, loss of a gaming license for cause would constitute a
material breach. The Gaming Commission has not taken any enforcement actions
and TAT has not alleged a material breach of the Management Agreement by BHL of
the Management Agreement. BHL contends that the Amended Gaming Ordinance
materially reduces the value of the Management Agreement and constitutes a
material breach of such agreement. In February 1995, BHL initiated arbitration
proceedings to resolve this dispute and a dispute over the reimbursement of
certain expenses related to the Casino. See "LEGAL PROCEEDINGS--TAT Gaming
Commission Petitions and Arbitration."
SOUTH DAKOTA VIDEO LOTTERY REGULATION. The manufacture, distribution
and operation of video lottery equipment is subject to extensive regulation by
federal and state authorities. Federal law requires registration of the
Company's video lottery equipment as gaming devices. In addition, provisions
under South Dakota laws govern all aspects of the Company's video lottery
business as it is operated in South Dakota. The executive director of the
South Dakota Lottery Commission ("Lottery Commission") administers the state
lottery, including video lottery. The Lottery Commission as an independent
state agency has authority for the overall management of the state lottery and
control over the operation of its games.
The Lottery Commission has promulgated rules and regulations
concerning the licensing procedures for video lottery operators, setting the
mechanical and electronic specifications for video lottery, and the accounting
procedures for net machine income. Additionally, only retail
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establishments licensed to sell alcoholic beverages are permitted to offer
video lottery machines. No more than ten video lottery machines may be placed
in a licensed establishment. Persons under the age of twenty-one may only
enter the premises where video lottery machines are located provided they are
accompanied by a parent, guardian or spouse of twenty-one years or older.
Video lottery operators must pay an annual fee of $100 per machine. In
addition, South Dakota's percentage of net machine income is 50%. There can be
no assurance that license fees and/or South Dakota's percentage will not
increase, and any such increase would have an adverse effect on the Company and
its South Dakota video lottery operations.
The statutes and regulations governing gaming in South Dakota and
elsewhere may limit the ability of individuals and entities to acquire and own
Common Stock. Such provisions are designed to regulate ownership and control
of gaming establishments within those jurisdictions. In South Dakota, for a
corporation to be selected as a video lottery operator, the corporation must
have sufficient financial resources to support the activities required to
service video lottery machines, be greater than fifty percent owned by South
Dakota resident(s) and be current in payment of all taxes. Existing statutes
in South Dakota require that each officer, director or shareholder owning in
excess of five percent of any corporation engaged as a video lottery operator
must successfully complete background investigations regarding financial
history, criminal record and character. Such provisions may affect acquisition
of large blocks of the Common Stock and could depress the price of the Common
Stock.
EMPLOYEES
As of September 30, 1996, the Company employed 21 employees on a
full-time basis and 15 on a part-time basis. None of the Company's employees
are represented by a union or collective bargaining unit and management
considers relations with employees to be good.
ADDITIONAL INFORMATION
Compliance with federal, state and local law regarding the discharge
of materials into the environment or otherwise relating to the protection of
the environment has not had, and is not expected by the Company to have, any
adverse effect upon capital expenditures, earnings or the competitive position
of the Company. The Company is not presently a party to any litigation or
administrative proceeding with respect to its compliance with such
environmental standards. In addition, the Company does not anticipate being
required to expend any funds in the near future for environmental protection in
connection with its operations.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 4,500 square feet of office space
located in Rapid City, South Dakota under a lease that expires in September
1997 from an affiliated company controlled by Mr. Lien. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
11
<PAGE> 14
The Company owns real property and a building located in North Sioux
City, South Dakota. The building has approximately 4,000 square feet of floor
space and houses two video lottery casinos operated by the Company. The
Company leases the remainder of the building, approximately 1,300 square feet,
to a fast food franchise.
The Company believes that its facilities and equipment are well
maintained and in good operating condition and will satisfy its current needs.
ITEM 3. LEGAL PROCEEDINGS.
MANAGEMENT AGREEMENT
Since July 1994, TAT and the Company have been engaged in numerous
legal disputes over the terms of the Management Agreement as previously
disclosed. All legal actions have been stayed pending the closing of the
Settlement Agreement. Included is the matter of Bruce H. Lien Company v. Three
Affiliated Tribes and Russell D. Mason, Sr., Mark Fox, Daylon Spotted Bear,
Ivan Johnson, Austin Gillette, George Fast Dog, and Ed Hall, as Members of the
Three Affiliated Tribes Tribal Business Council. BHL brought this claim
against TAT seeking a temporary restraining order and/or preliminary injunction
and a motion to compel arbitration proceedings. BHL brought the action in the
United States District Court for the District of North Dakota, Northwestern
Division. BHL initiated arbitration on January 31, 1995 to resolve disputes
that have risen out of the Management Agreement. These proceedings were
scheduled for hearings on October 9, 10, and 11, 1995. However, a Tribal
District Court judge enjoined the BHL and the American Arbitration Association
("AAA") from going forth, pending the review of the Management Agreement by the
NIGC or the Tribal judge's determination on the validity of the agreement,
whichever occurs earlier. As a result of BHL's action in federal court, U.S.
District Judge Patrick A. Conmy issued an order on October 13, 1995 for TAT
defendants to show cause as to why a restraining order should not be issued
restraining them and their agents from interfering with the arbitration now
pending before the AAA. A hearing was held October 25, 1995 in Minot, North
Dakota on the Order to Show Cause as to why the injunction should not be
granted. The federal court on November 10, 1995 held that, although it had
federal question jurisdiction, the NIGC had initial jurisdiction to decide the
validity of the Management Agreement. Additionally, because the court found no
irreparable harm, it refused to issue an injunction against TAT defendants.
On August 28, 1996, the Eighth Circuit Court of Appeals affirmed the
District Court's ruling on its federal question jurisdiction but reversed its
decision not to defer this matter to the Tribal Court. On September 27, 1996,
BHL and TAT entered into the Settlement Agreement. Among other things, the
agreement provides for the resolution of disputes arising out of the Management
Agreement and will terminate the Management Agreement upon the Company's
receipt of $8.65 million on or before April 30, 1997. TAT and BHL filed a
joint motion with the Court of Appeals to stay these proceedings pending the
final disposition of their settlement negotiations. Upon the closing of the
Settlement Agreement, the following actions and claims would be dismissed:
12
<PAGE> 15
(a) A Federal District Court action entitled
Bruce H. Lien Company v. Three Affiliated Tribes, et al. I
Civ. No. A4-95-135 (D. North Dakota);
(b) A Tribal Court action entitled Three
Affiliated Tribes v. Bruce H. Lien Co., Case No. 96-C-000 I
(Fort Berthold District Court);
(c) A Tribal Court action entitled Bruce H. Lien
Co. v. Three Affiliated Tribes Tribal Gaming Commission, Case
No. 95-C-00096 (Fort Berthold District Court);
(d) A Tribal Court action, as it relates to Lien
and its officers or employees, entitled Bruce H. Lien Co.,
Jerry Baum and Thomas K. Schoppert v. Three Affiliated Tribal
Gaming Commission, Case No. 95-C-00154 (Fort Berthold
District);
(e) An Arbitration action entitled Bruce H. Lien
Co. v. Three Affiliated Tribes, Case No. 53 133 00057 95 (AAA
Arbitration Association);
(f) A Tribal Court action entitled Gene
Christensen, et al. v. Marcus Wells, Jr. et al., (Jerry Long
case);
(g) A Tribal Employment Rights Office case
entitled Marcus Wells, Jr. v. Gene Christensen, et al., (Jerry
Long case);
(h) A Tribal Court action entitled Marcus Wells,
Jr. v. Jerry Baum, et al., Civ. No. (Devon Gordon case);
(i) A Tribal Employment Rights Office case
entitled Marcus Wells, Jr. v. Jerry Baum, et al., (Devon
Gordon case);
(j) A Tribal Court action entitled Marcus Wells,
Jr. v. Jerry Baum, et al., Civ. No. (Brenda Keller case);
and,
(k) A Tribal Employment Rights Office case
entitled Marcus Wells, Jr. v. Jerry Baum, et al., (Brenda
Keller case).
In the event the Settlement Agreement does not close, the Company will
proceed with petitioning the Eighth Circuit Court of Appeals for a rehearing,
with suggestion for rehearing en banc. The Company may renegotiate with TAT or
exhaust its legal remedies, which may include Tribal Court.
13
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Common Stock.
The following market information is based upon the bid and asked price of the
stock as reported by the OTC Bulletin Board. Such quotations reflect
interdealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
Fiscal Year ended September 30, 1996
First Quarter $.375 $.125
Second Quarter .25 .125
Third Quarter .375 .25
Fourth Quarter .375 .0625
Fiscal Year ended September 30, 1995
First Quarter .875 .25
Second Quarter .5625 .25
Third Quarter .25 .125
Fourth Quarter .1875 .125
</TABLE>
As of December 16, 1996, there were approximately 320 holders of
record of Common Stock.
DIVIDENDS
The Board of Directors of the Company currently anticipates that it
will retain all available funds for use in the operation of the business and
does not anticipate paying any cash dividends in the foreseeable future. The
payment of cash dividends is restricted by the Company's loan agreements with
the bank.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
selected financial data and the financial statements and notes thereto filed
herewith.
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
14
<PAGE> 17
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. Therefore, forward-looking
statements should not be relied upon as a prediction of actual future results.
INTRODUCTION
On June 22, 1994, the South Dakota Supreme Court issued a decision
holding that a video lottery was not a lottery, 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.
During a special legislative session held on July 11 and 12, the legislature
approved language for a constitutional amendment legalizing video lottery as it
had been operated in the State. The proposed constitutional amendment was
approved by South Dakota voters in the November 8, 1994 general election. The
Company reinstated its video lottery operations in South Dakota on November 22,
1994, the effective date of the constitutional amendments.
The 100-day shutdown of video lottery operations in South Dakota, from
August 14, 1994 to November 22, 1994, resulted in a significant decline in the
Company's revenues, operating income and cash flow. The shutdown affected 52
days of the year ended September 30, 1995 ("Fiscal 1995"). For Fiscal 1995,
the Company estimates revenues were reduced by approximately $1,650,000 and
that operating income and cash flow was reduced by approximately $240,000. The
Company calculated lost revenues based on historical operations.
RESULTS OF OPERATION
Year Ended September 30, 1996 ("Fiscal 1996") Compared to Year Ended
September 30, 1995
Revenues. Total revenues increased 0.9% to $11,242,586 for Fiscal
1996, compared to $11,140,773 for Fiscal 1995. Video lottery revenues
increased 10.4% to $8,985,467 for Fiscal 1996, compared to $8,136,160 for
Fiscal 1995. The increase in video lottery revenues was attributable to the
operation of video lottery during the entire twelve months of Fiscal 1996,
compared to less than ten and one-half months during Fiscal 1995. The revenue
generated by each video lottery machine in Fiscal 1996 decreased approximately
9% during the comparable period in Fiscal 1995. This decrease is a result of
some of the Company's higher revenue-per-machine locations not renewing their
lease agreements, and the Company placing its machines
15
<PAGE> 18
in lower revenue-per-machine locations. Revenues from the Management Agreement
decreased 30.8% to $2,064,649 for Fiscal 1996, compared to $2,984,271 for
Fiscal 1995, as a result of the decreased profitability of the Casino. The
earnings of the Casino were impacted during Fiscal 1996 by numerous factors
including, inclement weather, increased competition in the Regina, Canada area,
road construction on the main highway leading to the Casino, and a reduction in
tourism.
Costs and Expenses. Total costs and expenses increased 18.0% to
$10,290,570 for Fiscal 1996, compared to $8,723,534 for Fiscal 1995. The
increase was attributable to increases in the video lottery state share,
compensation expenses and operating expenses. Video lottery state share
increased 35.6% to $4,471,432 for Fiscal 1996, compared to $3,298,701 for
Fiscal 1995 due to an increase in the percentage of the video lottery revenues
paid to the State of South Dakota from 37% to 50% effective July 1, 1995.
Compensation expenses increased 40.8% to $981,536 for Fiscal 1996, compared to
$696,863 for Fiscal 1995, due primarily to an increase in the number of
employees in the Company's video lottery operations. Operating expenses
increased 56.9% to $1,234,633 for Fiscal 1996, compared to $786,727 for Fiscal
1995. The increase in operating expenses was primarily related to the
following: an increase of approximately $145,000 in legal costs related to the
arbitration and disputes with TAT and an increase of $113,000 in advertising
and marketing expenses associated with the video lottery operations. The
increase in total costs and expenses was offset, in part, by decreases in video
lottery location share, business development costs and depreciation and
amortization. Video lottery location share decreased 8.6% to $2,891,852 for
Fiscal 1996, compared to $3,164,046 for Fiscal 1995. Video lottery location
share, as a percentage of video lottery revenues, decreased to 32.2% for Fiscal
1996, compared to 38.9% for Fiscal 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.
Other Income and Expense. Interest expense and financing costs
decreased 40.8% to $794,054 for Fiscal 1996, compared to $1,341,088 for Fiscal
1995. This decrease was the result of (i) the Company having reduced its notes
payable to $4,534,755 at September 30, 1996, compared to $7,599,714 at
September 30, 1995, and (ii) no one-time fees and penalties (reported as
interest expense) incurred during Fiscal 1996, compared to $320,863 of one-time
fees and penalties during Fiscal 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 13.1% to
$683,444 for Fiscal 1996, compared to $604,202 for Fiscal 1995, due primarily
to an increase in the interest rate on the long-term receivable related to the
Casino.
Federal and State Income Taxes. The Company recorded Federal and
State income tax expense of $339,000 for Fiscal 1996, compared to an income tax
benefit of $623,000 for Fiscal 1995, a decrease of $284,000. The Company
records income tax expense using the estimated effective tax rate for the
fiscal year.
16
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $120,572 at September 30,
1996, compared to $520,438 at September 30, 1995, a decrease of $399,866. The
decrease was primarily attributable to cash used for principal payments on
long- term debt and the purchase of property and equipment. During Fiscal
1996, the Company generated $1,468,814 of cash flow from operating activities,
compared to $1,923,559 in Fiscal 1995. The decrease in cash flow from
operating activities is due to the decrease in revenues from the management of
the Casino.
Investing activities provided cash of $1,306,952 in Fiscal 1996
compared to $1,448,593 in Fiscal 1995. Principal payments received on
long-term receivables provided cash of $1,902,787 in Fiscal 1996 compared to
$1,511,696 in Fiscal 1995. Capital expenditures of $423,015 for Fiscal 1996
were primarily related to the Company's video lottery casino operations. In
addition, the Company incurred $182,884 in casino development costs associated
with the proposed Lexington, Missouri riverboat gaming project in Fiscal 1996.
Financing activities used cash of $3,175,632 in Fiscal year 1996
compared to $2,999,001 in Fiscal 1995. Principal payments on long-term debt
was $4,647,951 in Fiscal 1996 compared to $3,175,300 in Fiscal 1995. Proceeds
from long-term borrowings were $812,992 in Fiscal 1996 compared to $276,971 in
Fiscal 1995. Short-term borrowings provided cash of $580,000 in Fiscal 1996
compared to a $180,000 reduction of short-term borrowings in Fiscal 1995.
The Company has a working capital deficit of $1,849,222 at September
30, 1996 compared to $1,969,771 at September 30, 1995. The working capital
deficits are primarily a result of the Company's long-term borrowings having
maturities of three years or less.
Pursuant to the terms of the FBILLC Settlement Agreement, BHL is
required to purchase FBILLC's interest, real or contingent, in the Management
Agreement for $2,000,000, subject to certain adjustments (the "FBILLC
Obligation") the FBILLC Obligation was payable in full on December 31, 1996, at
which time the balance was $534,306.49. On January 7, 1997, BHL and FBILLC
entered into an amendment to the FBILLC Settlement Agreement (the "Amendment")
whereby the balance is payable as follows (a) $50,000 per month commencing
January 25, 1997 through June 25, 1997, and (b) $75,000 per month thereafter
beginning July 25, 1997, until the FBILLC Obligation is paid in full. Interest
is payable on the unpaid amount at a rate of 15% per annum for the period
January 1, 1997 through June 30, 1997, and at 18% per annum thereafter. If BHL
fails to make any payments, FBILLC can, at its sole option, declare all amounts
then due and owing from BHL to FBILLC to be immediately due and payable. In the
event of default under the FBILLC Settlement Agreement, FBILLC would be able to
exercise its rights under the Security Agreement and Guaranty, including without
limitation, the right of FBILLC to receive the payments due BHL under the
Management Agreement until such amounts have satisfied the FBILLC Obligation.
17
<PAGE> 20
On December 30, 1993, the Company issued a promissory note (the
"Promissory Note") payable to the order of an individual in an amount of up to
$2,400,000 due November 1994. Interest on the Promissory Note was payable at
an annual rate equal to the prime rate established by Norwest Bank South
Dakota, N.A. plus 0.5%. In addition, the Company issued a warrant to such
individual for the purchase of 480,000 shares of Common Stock with an exercise
price of $1.00 per share. Pursuant to a Loan Extension Agreement dated
September 30, 1994, the due date of the Promissory Note was extended to
November 30, 1995. In consideration for the extension (i) the interest rate
was increased from prime plus 0.5% to prime plus 2%, (ii) the Company paid
$100,000 in cash, and (iii) the Company issued warrants to purchase 480,000
shares of Common Stock with an exercise price of $.75 per share.
On December 21, 1995, the Company and such individual entered into a
Second Loan Extension Agreement whereby the due date on the Promissory Note was
extended to August 27, 1997. Pursuant to the terms of the Second Loan
Extension Agreement the Company is required to pay each month (i) $142,800 to
be applied to principal and interest on the Promissory Note computed using the
prime rate established by Norwest Bank South Dakota, N.A., (ii) interest equal
to 2% per annum on the outstanding balance, and (iii) a fee of $7,500 per month
for each month that an outstanding balance exists on the Promissory Note. In
addition, the Company is required to accrue an additional fee (the "Accrued
Fee") of $12,500 per month that an outstanding balance exists on the Promissory
Note. The Accrued Fee is due in monthly payments of $25,000, commencing 30
days after the Promissory Note is paid in full. Any unpaid Accrued Fee shall
be paid in full 180 days after the Promissory Note is paid in full. The
Accrued Fee shall bear interest equal to the prime rate established by Norwest
Bank South Dakota, N.A. plus 2% beginning at such time as the Promissory Note
is paid in full. The Promissory Note is secured by the personal guaranty of
Mr. Lien. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." As of
September 30, 1996, the outstanding principal balance on the Promissory Note
was $1,497,892 and the Accrued Fee was $112,500.
In June 1995, the Company renegotiated a promissory note payable to
Mr. Lien. The prior note, a $690,000 demand note payable to Mr. Lien, was
cancelled and a new note in the principal amount of $690,000, due January 1997,
was issued to Mr. Lien. During Fiscal 1996, this note was assigned by Mr. Lien
to an affiliated company controlled by Mr. Lien. In September 1996 this
promissory note was cancelled and a new note in the principal amount of
$690,000, due December 31, 1997, was issued to the affiliated company. These
promissory notes provide for interest equal to the prime rate established by
Norwest Bank South Dakota, N.A. plus 2%. The interest rate as of September 30,
1996 was 10.25%. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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
18
<PAGE> 21
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. In December 1996, the Company obtained an
additional loan from the bank in the principal amount of $300,000. The loan is
due April 11, 1997, with interest payable monthly at a rate equal to the bank's
prime rate plus 2%. The Company utilized the proceeds from the additional loan
for working capital.
As a result of the increased costs associated with video lottery
operations and decreased revenue from the Casino, the Company has had to seek
additional short term financing from the Bank and to renegotiate the FBILLC
Settlement Agreement to extend and restructure the payment terms. The Company
has also received an additional loan in the amount of $100,000 from Mr. Lien in
order to meet working capital needs.
In addition, because of seasonal fluctuations the Casino retains
revenue during December through March for working capital purposes. As a
result, sometimes during this period the Casino does not have sufficient
revenue to timely pay the distributions due BHL under the Management Agreement.
In order to accommodate the Casino's working capital requirements, the Company
has sought to renegotiate the FBILLC Settlement Agreement and has sought to
obtain additional lines of credit to meet its working capital requirements.
If the Company is successful in obtaining a riverboat gaming license
in Missouri, the Company will seek to raise approximately $17 million of equity
or debt in the private and/or public markets to fund the construction and
development of the riverboat gaming vessel and related facilities. There is no
assurance that the Company will be able to obtain the gaming license or to
raise the financing, or that if financing is available it will be on terms
satisfactory to the Company.
The Company will continue to evaluate and investigate expanding or
acquiring additional interests in the video lottery and gaming industries in
states likely to legalize or expand in these industries in the future, the
acquisition or expansion of which may result in increased profitability and
cash flow. There is no assurance that the Company will be successful in such
an acquisition or expansion, be able to obtain additional financing, or that
increased profitability and cash flow would result. The Company anticipates
incurring additional expenses in order to investigate these possible future
business opportunities.
MATERIAL COMMITMENTS
The Company's long-term capital expenditure requirements will depend
on numerous factors, including the status of various agreements the Company has
entered into, the time required to file and process regulatory approval
applications for additional video lottery routes and development of the
Company's gaming business. The Company currently does not have any commitment
for long-term capital expenditures.
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.
FUTURE OPERATIONS
If the Settlement Agreement closes, the Company intends to use the
proceeds to pay off the majority of its existing debt and to fund future
projects, including the Development Agreement. In addition, the Company's
revenues from the Management Agreement will be
19
<PAGE> 22
eliminated, and as a result the Company's only revenues will be from its video
lottery operations.
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
agreements are renewed, that the terms will be as favorable to the Company as
the current agreements. If the agreements 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. In addition, the trend in current years
has been a decrease in video lottery profits due to increased state share,
higher percentages paid to location owners and a decrease in
revenues-per-machine due to video lottery machines being placed in lower
revenue-per-machine locations.
A substantial portion of the Company's revenues are derived from the
Management Agreement. The Company also has a significant portion of its assets
in the form of notes receivable and a significant portion of its short-term and
long-term notes payable that are related to the Management Agreement. The
realization of the notes receivable and the Company's ability to meet its
short-term and long-term debt obligations are highly dependent upon the future
earnings and cash flows from the Management Agreement. Any adverse change in
the operations of the Casino, the Company's relationship with TAT, an adverse
ruling in the arbitration proceeding, an adverse ruling in Tribal district
court, compliance with TAT's gaming compact with the State of North Dakota or a
determination by the NIGC that the terms of the Management Agreement are not in
compliance with IGRA could be detrimental to the Company. As of September 30,
1996, the Company has recorded $5,752,004 of costs (of which $3,471,983 is
pursuant to the commitment under the Management Agreement and $2,280,021 is in
excess of budgeted amounts and is subject to arbitration) as a note receivable
related to the Management Agreement that remain subject to approval by TAT, and
subsequently could be disapproved by TAT. Any costs not approved by TAT, or
future arbitration proceedings, will be reclassified as a casino development
cost and amortized over the remaining term of the Management Agreement, and
would result in a decrease in future earnings and cash flow of the Company.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company required by Regulation S-B are
attached to this Report. Reference is made to Item 13 below for an index to
the financial statements and financial statement schedules.
20
<PAGE> 23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and their ages are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jerry L. Baum(2) 47 President, Chief Operating Officer and Director
David L. Crabb 38 Chief Financial Officer and Treasurer
Brustuen "Bruce" H. Lien(1)(2)(3) 69 Chairman of the Board of Directors and Chief Executive Officer
Deanna B. Lien(1)(2)(3) 53 Director
George J. Nelson 35 Vice President, Corporate Counsel and Secretary
</TABLE>
_______________
(1) Member of the Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Stock Option Committee.
At each annual meeting of shareholders, each director is elected to
hold office for a one year term expiring at the next succeeding annual meeting
or until their successor is duly elected and qualified. Two of the directors,
Brustuen "Bruce" H. Lien and Deanna B. Lien are husband and wife. None of the
other directors or officers of the Company bears any family relationship to any
other director or officer. Each executive officer of the Company is elected
for a term of one year and serves until a successor is elected and qualified.
Jerry L. Baum. President since June 1995 and Chief Operating Officer
since April 1995. Mr. Baum was appointed as a director in November 1995. From
October 1, 1993 to February 1995, Mr. Baum served as Project Director of the
Casino. From March to October 1993, Mr. Baum was manager of operations at the
Royal River Casino, a Class III Indian gaming casino owned by the Frandreau
Santee Tribe and from February 1987 to 1991 was Director of Criminal
Investigation, State of South Dakota.
David L. Crabb. Chief Financial Officer since May 1993 and Treasurer
since August 1993. From March 1986 through May 1993, Mr. Crabb was a CPA for
Northwestern Engineering Company and Hills Materials Company.
21
<PAGE> 24
Brustuen "Bruce" H. Lien. Chief Executive Officer since April 1995
and Chairman of the Board of Directors since August 10, 1990. From October
1991 through June 1993, Mr. Lien served as the President and Chief Executive
Officer of the Company. Mr. Lien is a director of Pete Lien & Sons, Inc.
Deanna B. Lien. Director since August 10, 1990. Vice President and
Treasurer from August 10, 1990 to June 29, 1993. Ms. Lien has been a Vice
President and Secretary of Diggers Auto Salvage, Inc. since 1986.
George J. Nelson. Vice President and Corporate Counsel since
September 1993 and Secretary since September 1995. From March 1, 1990 to
August 31, 1993 Mr. Nelson was the General Manager of First Gold, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies.
Based on its review of the copies of the Section 16(a) forms received
by it, or written representations from certain reporting persons, the Company
believes that, during the last fiscal year, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with, except that Mr. Baum, Mr. Crabb and Mr.
Nelson each reported one transaction late on a Form 5.
ITEM 10. EXECUTIVE COMPENSATION.
CASH COMPENSATION
The following table sets forth certain information concerning
compensation paid by the Company to the Chief Executive Officer and any
executive officer whose total annual salary and bonus exceeded $100,000 for the
last fiscal year.
22
<PAGE> 25
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION
COMPENSATION AWARDS ($)
---------------------- ------------ ------------
Securities
Underlying
Options/SARs
(#)
Name and Principal Position Year Salary ($) Bonus ($) Options (#)
--------------------------- ---- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Bruce H. Lien(1) 1996 -0- -0- -0- -0-
Chief Executive Officer and 1995 -0- -0- -0- -0-
Chairman of the Board 1994 -0- -0- 2,000,000 -0-
Jerry L. Baum(2)(3) 1996 120,000 -0- 300,000 -0-
1995 111,667 -0- 59,740 -0-
1994 95,833 -0- 140,260 -0-
</TABLE>
--------------
(1) Chief Executive Officer since April 1995.
(2) Chief Operating Officer since April 1995 and President since June 1995.
(3) Represents amounts paid to him as Project Director for BHL. No salary was
paid by the Company to Mr. Baum during 1994.
The foregoing compensation tables do not include certain fringe
benefits made available on a nondiscriminatory basis to all company employees
such as group health insurance, dental insurance, long-term disability
insurance, vacation and sick leave. In addition, some benefits which are made
available only to certain of the Company's officers, such as the use of a
Company vehicle, are not described, as the monetary value of such benefits is
believed to be below 10 percent of each of the named executive officer's annual
salary and bonus.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
% of Total Options
Number of Securities Granted to Employees
Underlying Options in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
---- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Jerry L. Baum 300,000 49% $.40 March 28, 2006
</TABLE>
23
<PAGE> 26
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
Jerry L. Baum 96,104/403,896 $0/$0
</TABLE>
(1) Based on the average of the high and low bid price of the Common Stock
on September 30, 1996.
COMPENSATION PURSUANT TO PLANS
The Company has adopted a Performance Stock Option Plan (the "Plan"),
approved by the Shareholders, for the benefit of certain employees, officers
and directors of the Company. The Stock Option Committee of the Board of
Directors selects the optionees and determines the terms and conditions of the
stock options granted pursuant to the Plan. Options to purchase 610,000 shares
of Common Stock were granted pursuant to the Plan during Fiscal 1996. As of
September 30, 1996, options to purchase 1,110,000 shares of Common Stock were
outstanding pursuant to the Plan, 225,612 of which were vested at September 30,
1996.
COMPENSATION OF DIRECTORS
The Company does not compensate its directors for their services as
directors or pursuant to any other arrangements. The Company reimburses its
directors for expenses incurred related to their services as directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding
beneficial ownership of outstanding shares of Common Stock as of December 16,
1996 by (i) each person who is known by the Company to own beneficially 5% or
more of the outstanding shares of Common Stock; (ii) the Company's directors;
(iii) all named executive officers; and (iv) all directors and executive
officers as a group.
24
<PAGE> 27
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name Owned(1) Class
---- -------- -----
<S> <C> <C>
Brustuen "Bruce" H. Lien . . . . . . . . 20,387,500(2)(4) 70.9%
3290 Lien Street
Rapid City, SD 57702
Deanna B. Lien(2) . . . . . . . . . . . . 20,387,500(3)(4) 70.9%
3290 Lien Street
Rapid City, SD 57702
Jerry L. Baum . . . . . . . . . . . . . . 96,104(5) .4%
3290 Lien Street
Rapid City, SD 57702
All executive officers and directors as
a group (5 persons) . . . . . . . . . . . 20,603,279(4)(6) 70.2%
</TABLE>
- ---------------
(1) Shares are considered beneficially owned, for purposes of this table, only
if held by the person indicated, or if such person, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise has
or shares the power to vote, to direct the voting of and/or to dispose of or to
direct the disposition of, such securities, or if the person has the right to
acquire the beneficial ownership within sixty days, unless otherwise indicated.
(2) This number includes the shares of Common Stock which are beneficially
owned, or which may be deemed to be beneficially owned, by Brustuen "Bruce" H.
Lien. For purposes of this table, the same shares may be deemed to be
beneficially owned by Mr. Lien's wife, Deanna B. Lien.
(3) For purposes of this table, Deanna B. Lien is deemed to be the beneficial
owner of the shares of Common Stock which may be deemed to be beneficially owned
by her husband, Brustuen "Bruce" H. Lien.
(4) This number includes 2,000,000 shares of Common Stock which may be acquired
pursuant to a currently exercisable warrant.
(5) This number represents shares of Common Stock which may be acquired pursuant
to currently exercisable stock options.
(6) This number includes 211,612 shares of Common Stock which may be acquired
pursuant to currently exercisable stock options.
Except as stated herein, there are no arrangements known to the
Company which may result in a change in control of the Company, and each
shareholder has sole voting and investment power with respect to Common Stock
included in the above table.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996 and 1995, Mr. Lien, and an affiliated company controlled
by Mr. Lien, loaned money to the Company under various promissory notes. These
amounts loaned varied
25
<PAGE> 28
by month to month and carried an interest rate not in excess of 2% over prime
rate. The Company currently has a promissory note in the principal amount of
$690,000 payable to a company controlled by Mr. Lien which is due on December
31, 1997 and provides for interest equal to the prime rate established by
Norwest Bank South Dakota, N.A. plus 2%. The interest rate at September 30,
1996 was 10.25%. The Company incurred interest expense relating to these notes
payable of $74,318 and $67,238, for Fiscal 1996 and Fiscal 1995, respectively.
Mr. Lien has pledged assets and/or personally guaranteed loans in
order for the Company to obtain financing which otherwise may not have been
available to the Company, as follows:
(a) Personal guarantee of a note payable to an unrelated
third party, dated July 1993, for $1,867,130 for gaming equipment
placed in service at the Casino. The balance on the note at September
30, 1996 was $0.
(b) Pledge of assets to secure a note payable to an
unrelated third party, dated July 1993, for $500,000 for working
capital for the construction of the Casino. The balance on the note
at September 30, 1996 was $0.
(c) Personal guarantee and pledge of assets to secure the
payment of a note payable to a bank, dated September 1994, for
$1,296,124 for video lottery machines. The balance on the note at
September 30, 1996 was $0.
(d) Personal guarantee of a note payable to an unrelated
third party, dated December 1993, for $2,400,000 for construction of
the Casino. The balance on the note at September 30, 1996 was
$1,497,892.
(e) Personal guarantee of a note payable to a bank, dated
January 1994, for $66,589 for acquisition of stock in Bayou Gaming,
Inc. The balance on the note at September 30, 1996 was $10,208.
(f) Personal guarantee of a note payable to a bank, dated
June 1996, for $800,000 for video lottery machines. The balance on
the note at September 30, 1996 was $733,334.
(g) Personal guarantee of a short-term revolving note
payable to a bank, dated June 1996, for $500,000. The balance on the
note at September 30, 1996 was $500,000.
(h) Personal guarantee of a conditional credit line to a
bank, dated April 1996, for $100,000. The balance on the note at
September 30, 1996 was $95,000.
In consideration for such pledges and guarantees, on January 26, 1994
the Company issued a warrant to Mr. Lien for 2,000,000 shares of Common Stock
at an exercise price of $1.00 per share. This warrant expires in January 2004.
In addition, the Company entered into an indemnification agreement with Mr.
Lien whereby the Company has agreed to indemnify him
26
<PAGE> 29
from all losses, claims, damages and expenses relating to any guarantees and/or
pledges of collateral made by Mr. Lien on behalf of the Company.
The Company leases approximately 4,500 square feet of office space
located in Rapid City, South Dakota from a company controlled by Mr. Lien under
a lease that expires September 30, 1997. The monthly lease payment, including
real estate taxes and utilities, is $2,862.
The Company also leases an airplane, on an as needed basis, from a
company controlled by Mr. Lien. The Company incurred lease payments to this
affiliate of $43,966 and $43,101 during Fiscal 1996 and Fiscal 1995,
respectively.
27
<PAGE> 30
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The following documents of the Company are filed as part of this
Report:
Financial Statements
Independent Auditors' Report (KPMG Peat Marwick LLP)
Consolidated Balance Sheets at September 30, 1996
and 1995
Consolidated Statements of Income for the Years Ended
September 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity for
the Years Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
28
<PAGE> 31
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation.(1)
3.2 Third Amended and Restated Bylaws.(1)
4 Form of Common Stock Certificate.(2)
10.2 1992 Performance Stock Option Plan.(3)
10.3 Management Agreement By and Between the Three Affiliated Tribes and Bruce H. Lien Company, dated as of
December 7, 1992, and amended as of February 19, 1993.(4)
10.6 Agreement to sublease dated June 2, 1993 between the Registrant and Jon Yi Company.(5)
10.7 Settlement Agreement dated September 30, 1994 between the Registrant, Bruce H. Lien Company, Brustuen
"Bruce" H. Lien and Four Bears Investment Limited Liability Company.(6)
10.8 Stock Purchase Agreement between the Company and Yvonne R. Scott dated September 29, 1995.(1)
10.9 Development Agreement among the Company, Concorde Gaming of Missouri, Inc. and the City of Lexington,
Missouri dated September 26, 1995.(1)
10.10 Indemnification Agreement between the Company and Bruce H. Lien.(1)
10.11 Second Renewal Promissory Note in the principal amount of $2,400,000 dated December 21, 1995 issued by
the Company to Roland Gentner.(1)
10.12 Second Loan Extension Agreement dated December 21, 1995 between the Company and Roland Gentner.(1)
10.13 Promissory Note in the amount of $690,000 dated September 30, 1996 issued by the Company to BHL
Capital Corporation.(+)
10.14 Assignment Agreement dated April 6, 1995 between the Company and Federalist Municipal Development
Corporation.(1)
</TABLE>
29
<PAGE> 32
<TABLE>
<S> <C>
10.15 Contract for Purchase of Assets dated November 10, 1995 between the Company and J & U, Inc.(1)
10.16 Settlement Agreement between The Three Affiliated Tribes of the Fort Berthold Reservation and Bruce H.
Lien Company dated September 27, 1996.(7)
10.17 Loan Agreement between the Company and BNC National Bank of Minnesota dated June 20, 1996.(+)
10.18 Term Note in the amount of $800,000 dated June 20, 1996 issued by BNC National Bank to the Company.(+)
10.19 Sort-Term Revolving Note in the amount of $500,000 dated June 20, 1996 issued by BNC National Bank to the Company.(+)
10.20 Supplemental Revolving Note in the amount of $300,000 dated December 13, 1996 issued by BNC National Bank
to the Company.(+)
10.21 Amendment No. 1 to Settlement Agreement dated January 7, 1997 between BHL and FBILLC.(+)
11 Computation of Per Share Earnings.(+)
21 Subsidiaries of the Registrant.(1)
23 Consent of Independent Accountants.(+)
27 Financial Data Schedule(+)
</TABLE>
_________________
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended September 30,
1995.
(2) Previously filed with the Securities and Exchange Commission on May 6,
1991, as an Exhibit to the Annual Report on Form 10-K of the Company for the
fiscal year ended September 30, 1990 and incorporated herein by this reference.
(3) Previously filed with the Securities and Exchange Commission by the Company
on September 24, 1992 as Exhibit 10 to the Registration Statement on Form S-8,
file number 33-52388 and incorporated herein by this reference.
(4) Previously filed with the Securities and Exchange Commission on October 15,
1993, as an Exhibit to the Current Report of the Company on Form 8-K and
incorporated herein by this reference.
(5) Previously filed with the Securities and Exchange Commission by the Company
on July 30, 1993 as an Exhibit to the Current Report on Form 8-K and
incorporated herein by this reference.
(6) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended September 30,
1994.
(7) Previously filed with the Securities and Exchange Commission by the Company
as an exhibit to its Current Report on Form 8-K dated September 27, 1996.
(+) Filed herewith.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated September
27, 1996 under Item 5.
30
<PAGE> 33
CONCORDE GAMING CORPORATION
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT (KPMG Peat Marwick LLP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets - September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Income - Years Ended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
September 30, 1996 and 1995
Statements of Stockholders' Equity - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Years Ended September 30, 1996 and 1995
Statements of Cash Flows - Years Ended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
September 30, 1996 and 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 to F-23
</TABLE>
F-1
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Concorde Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Concorde Gaming
Corporation and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Concorde Gaming
Corporation and subsidiaries as of September 30, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 8, 1996, except as to Note 9 which
is as of January 7, 1997.
F-2
<PAGE> 35
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 120,572 520,438
Receivables:
Trade 13,156 5,687
Management agreement 230,442 343,715
Interest 37,120 35,872
Current maturities of long-term receivables:
The Three Affiliated Tribes (note 5) 1,675,800 1,486,600
Notes receivable (note 4) 30,584 426,846
Prepaid expenses 47,385 53,398
Refundable federal income taxes 0 73,000
Other current 33,828 19,582
- ------------------------------------------------------------------------------------------------
Total current assets 2,188,887 2,965,138
- ------------------------------------------------------------------------------------------------
Investments and long-term receivables:
Long-term receivables from the Three Affiliated
Tribes (note 5) 4,076,204 5,755,415
Notes receivable, less current maturities (note 4) 8,509 224,135
Investment in unconsolidated affiliate (note 6) 236,364 0
Other 3,250 16,750
- ------------------------------------------------------------------------------------------------
4,324,327 5,996,300
- ------------------------------------------------------------------------------------------------
Property and equipment, at cost:
Land 50,000 0
Building 205,511 0
Video lottery equipment 2,487,101 2,553,152
Furniture and equipment 269,104 179,149
Vehicles 120,825 118,133
Leasehold improvements 301,447 53,346
- ------------------------------------------------------------------------------------------------
3,433,988 2,903,780
Less accumulated depreciation (1,491,883) (1,094,426)
- ------------------------------------------------------------------------------------------------
1,942,105 1,809,354
- ------------------------------------------------------------------------------------------------
Intangibles:
Noncompetition agreements, net 34,782 74,766
Other, principally goodwill, net 402,799 424,242
Casino development and financing costs, net (note 7) 523,741 410,207
- ------------------------------------------------------------------------------------------------
961,322 909,215
- ------------------------------------------------------------------------------------------------
$ 9,416,641 11,680,007
================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 36
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable (note 8) $ 595,000 15,000
Current maturities of long-term debt (note 9) 2,631,981 4,293,388
Accounts payable:
Trade 121,926 108,564
Construction related 199,855 199,855
Accrued expenses:
Lottery state share 150,473 196,275
Payroll and payroll taxes 36,669 14,719
Accrued interest 131,335 74,171
Other 44,270 1,249
Income taxes payable 126,600 31,688
- ---------------------------------------------------------------------------------------------------
Total current liabilities 4,038,109 4,934,909
- ---------------------------------------------------------------------------------------------------
Long-term debt, less current maturities (note 9) 617,774 2,601,326
Note payable to related party (note 8) 690,000 690,000
Deferred income taxes (note 11) 46,600 68,200
- ---------------------------------------------------------------------------------------------------
Total liabilities 5,392,483 8,294,435
- ---------------------------------------------------------------------------------------------------
Stockholders' equity (notes 9, 12, and 14):
Common stock, par value $.01 per share, authorized
500,000,000 shares; issued and outstanding 26,755,193
at September 30, 1996 and 1995 267,552 267,552
Preferred stock, par value $.01 per share, authorized
10,000,000 shares; no shares issued and out-
standing at September 30, 1996 and 1995 0 0
Additional paid-in capital 3,907,547 3,868,775
Retained earnings (accumulated deficit) 350,538 (207,121)
- ---------------------------------------------------------------------------------------------------
4,525,637 3,929,206
Less stock subscription in the form of a note and
related accrued interest receivable (note 10) (183,877) (226,032)
Less cost of treasury stock, 4,825,400 shares at
September 30, 1996 and 1995, respectively (317,602) (317,602)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 4,024,158 3,385,572
Commitments and contingencies (notes 3, 9, 12, 14, 15, and 16)
- ---------------------------------------------------------------------------------------------------
$ 9,416,641 11,680,007
===================================================================================================
</TABLE>
F4
<PAGE> 37
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Video lottery $ 8,985,467 8,136,160
Management Agreement (note 3) 2,064,649 2,984,271
Other 192,470 20,342
- --------------------------------------------------------------------------
Total revenue 11,242,586 11,140,773
- --------------------------------------------------------------------------
Costs and expenses:
Video lottery state share 4,471,432 3,298,701
Video lottery location share 2,891,852 3,164,046
Compensation expenses 981,536 696,863
Business development costs 74,786 109,940
Depreciation and amortization 636,331 667,257
Operating expenses 1,234,633 786,727
- --------------------------------------------------------------------------
Total costs and expenses 10,290,570 8,723,534
- --------------------------------------------------------------------------
Operating income 952,016 2,417,239
- --------------------------------------------------------------------------
Other income (expense):
Interest income 683,444 604,202
Loss on sale of equipment (6,882) (48,304)
Other income 8,435 0
Interest expense and financing costs (794,054) (1,341,088)
Equity in earnings of unconsolidated
affiliate (note 6) 53,700 50,824
- --------------------------------------------------------------------------
(55,357) (734,366)
- --------------------------------------------------------------------------
Income before taxes 896,659 1,682,873
Federal and state income taxes (note 11) 339,000 623,000
- --------------------------------------------------------------------------
Net income $ 557,659 1,059,873
==========================================================================
Net income per common and common
equivalent share $ 0.03 0.05
==========================================================================
Weighted average number of common and
common equivalent shares outstanding 22,175,415 21,983,378
==========================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 38
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Stock
subscription
in the form
of a note
Retained and related
Additional earnings accrued
Number Common paid-in (accumulated interest Treasury
of shares stock capital deficit) receivable stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994 26,987,593 $ 269,876 3,898,745 (1,266,994) (261,181) (402,075) 2,238,371
Net income 0 0 0 1,059,873 0 0 1,059,873
Cancellation of 153,400 shares of common
stock relating to merger with Bruce H.
Lien Company (note 2) (153,400) (1,534) 1,534 0 0 0 0
Cancellation of 79,000 shares of common
stock held in treasury (79,000) (790) (83,683) 0 0 84,473 0
Issuance of warrant for 400,000 shares
of common stock in connection with
note payable (note 9) 0 0 8,000 0 0 0 8,000
Interest earned on note receivable (note 1 0 0 44,179 0 355 0 44,534
Principal payments received on note
receivable (note 10) 0 0 0 0 34,794 0 34,794
- ------------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1995 26,755,193 267,552 3,868,775 (207,121) (226,032) (317,602) 3,385,572
Net income 0 0 0 557,659 0 0 557,659
Issuance of warrant for 80,000 shares of
common stock in connection with note
payable (note 9) 0 0 1,600 0 0 0 1,600
Interest earned on note receivable (note 1 0 0 37,172 0 424 0 37,596
Principal payments received on note
receivable (note 10) 0 0 0 0 41,731 0 41,731
- ------------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996 26,755,193 $ 267,552 3,907,547 350,538 (183,877) (317,602) 4,024,158
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 39
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 557,659 1,059,873
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization 636,331 667,257
Warrants issued 1,600 15,000
Deferred income taxes (21,600) 513,700
Equity in earnings of unconsolidated affiliate (53,700) (50,824)
Loss on disposal of property and equipment 6,882 48,304
Change in assets and liabilities:
Receivables--trade, management agreement, and interest 92,270 (119,169)
Prepaid expenses 6,013 (39,632)
Accounts payable and accrued expenses 89,693 (150,417)
Refundable federal income taxes and income taxes payable
current and other 167,912 31,688
Other (14,246) (52,221)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,468,814 1,923,559
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Advances on long-term receivables (101,000) (29,734)
Principal payments received on long-term receivables 1,902,787 1,511,696
Purchase of property and equipment (423,015) (52,417)
Purchase of intangibles (61,839) 0
Proceeds from sale of property and equipment 40,304 37,250
Payments for casino development costs (182,884) (97,504)
Investment in and advances to unconsolidated affiliate 120,110 (6,000)
Proceeds from sale of Bayou Gaming, Inc. stock 0 100,000
Other 12,489 (14,698)
- --------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,306,952 1,448,593
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowing 812,992 276,971
Principal payments on long-term debt (4,647,951) (3,175,300)
Net change in short-term borrowings 580,000 (180,000)
Payments received on stock subscription in the form of a note
and related accrued interest receivable 79,327 79,328
- --------------------------------------------------------------------------------------------
Net cash flows used in financing activities (3,175,632) (2,999,001)
- --------------------------------------------------------------------------------------------
Net (decrease) increase in cash (399,866) 373,151
- --------------------------------------------------------------------------------------------
Cash, beginning of year 520,438 147,287
- --------------------------------------------------------------------------------------------
Cash, end of year $ 120,572 520,438
============================================================================================
</TABLE>
(Continued)
F-7
<PAGE> 40
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 736,890 1,323,570
=========================================================================================================
Income taxes $ 190,764 134,000
=========================================================================================================
Supplemental schedule of noncash investing and financing activities:
Issuance of note payable for acquisition of property and equipment $ 190,000 0
=========================================================================================================
Purchase of 40 shares of Bayou Gaming, Inc. common stock $ 192,287 0
=========================================================================================================
Long-term note receivable received for sale of Video Lottery
Casino assets $ 0 145,304
=========================================================================================================
Long-term note receivable received for sale of Bayou Gaming,
Inc. common stock $ 0 230,000
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 41
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996 and 1995
(1) NATURE OF BUSINESS, PRINCIPLES OF CONSOLIDATION, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company owns and operates video lottery route operations in the
state of South Dakota. In connection therewith, the Company
acquires video lottery machines and facilities or leases space
from food and beverage establishments in exchange for an
agreed-upon share of the video lottery net revenue after the
state's share of the proceeds. The lottery operations are
regulated by the South Dakota Lottery Commission.
In addition, the Company developed the 4 Bears Casino and Lodge
(Casino), a casino, bingo hall, lodge, and restaurant facility for
the Three Affiliated Tribes (TAT) on Indian land in North Dakota
that it manages for an agreed-upon fee based on results of
operations, in accordance with the Management Agreement
(Management Agreement).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Concorde Gaming Corporation and its majority-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation. Concorde Gaming Corporation and its
subsidiaries are herein referred to as the Company.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses. Actual results could
differ from those estimates.
SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from video lottery is the net win, which is the difference
between coins in and winnings paid to customers. Location share
and state share are recorded as expenses based upon the
recorded net win.
Revenue from the management of the casino is recognized when
earned according to terms of the Management Agreement.
(Continued)
F-9
<PAGE> 42
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
RECEIVABLE FROM THE THREE AFFILIATED TRIBES
It is the Company's policy to report all costs incurred for the
construction and development of the Casino as a long-term
receivable, pursuant to the terms of the Management Agreement
with the Three Affiliated Tribes (the TAT) (see notes 3, 5, and
16). Such costs are reimbursed to the Company over the term of
the Management Agreement and are subject to the approval of the
TAT. Any construction and development costs not approved by the
TAT will be reclassified as casino development costs and
amortized over the remaining term of the Management Agreement.
As of September 30, 1996, no costs have been reclassified as
casino development costs.
As of September 30, 1996, $4,285,271 of costs remain subject to
approval by the TAT, and could subsequently be disapproved by
the TAT (see note 5). However, the Company believes the
approval process will not be necessary due to the Settlement
Agreement with the TAT (see note 3). In the event the
Settlement Agreement fails to close by April 30, 1997, the
Company believes substantially all costs will be approved by
the TAT as the result of future arbitration proceedings, as
provided for under the Management Agreement.
The Company assesses the recoverability of the long-term
receivable by determining whether the amount can be recovered
from future undiscounted cash flows of the 4 Bears Casino and
Lodge. The amount of impairment, if any, is measured based on
projected discounted cash flows of the 4 Bears Casino and Lodge
using a discount rate reflecting the Company's average cost of
funds. As of September 30, 1996, there is no impairment based
upon this analysis.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
For the years ended September 30, 1996 and 1995, net income per
common and common equivalent share was computed using the
weighted average number of common shares and common stock
equivalents, consisting of stock options and warrants
outstanding.
DEPRECIATION
It is the Company's policy to provide depreciation using the
straight-line method on property and equipment based on the
following estimated useful lives and salvage values:
<TABLE>
<CAPTION>
Life Salvage value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Video lottery equipment and furniture
and equipment 5-7 years 0-15%
Vehicles 5 years 0-10
Leasehold improvements 7-20 years 0
Building 39 years 0
</TABLE>
(Continued)
F-10
<PAGE> 43
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
AMORTIZATION
Noncompetition agreements, which range from two to five years, are
amortized over the life of the agreements using the
straight-line method. Amounts reflected on the balance sheets
are net of accumulated amortization of $97,338 and $203,486 in
1996 and 1995, respectively.
Goodwill (excess of purchase price over net assets acquired) is
amortized over its estimated useful life of ten years using the
straight-line method. Amounts reflected on the consolidated
balance sheets are net of accumulated amortization of $171,062
and $94,894 in 1996 and 1995, respectively.
Casino development and financing costs related to the Management
Agreement are amortized using the straight-line method over the
seven-year term of the Management Agreement.
The Company assesses the recoverability of intangible assets other
than noncompete agreements by determining whether the
amortization of the intangible assets over their remaining
lives can be recovered through undiscounted future operating
cash flows of the acquired or related operations. The amount of
impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting
the Company's average cost of funds. As of September 30, 1996,
there is no impairment based upon this analysis.
CASINO DEVELOPMENT COSTS
It is the Company's policy to capitalize all costs incurred
relating to the state approval of a license to operate a casino
and the establishment of a gaming operation.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Additionally deferred tax assets are
recorded for income tax operating loss carryforwards. Deferred
tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of
enactment.
(Continued)
F-11
<PAGE> 44
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
NEWLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121,
(SFAS 121) Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, which is effective
for fiscal years beginning after December 15, 1995 (beginning
with the Company's fiscal 1997). SFAS 121 established
accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The
implementation of SFAS No. 121 in the Company's fiscal 1997 is
not expected to have a material impact on the Company's results
of operations or financial position.
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123,
(SFAS 123), Accounting for Stock-Based Compensation, which is
effective for fiscal years beginning after December 15, 1995
(beginning with the Company's fiscal 1997), which establishes a
fair value method of accounting for stock-based compensation
plans. SFAS 123 allows companies to continue to apply
pre-existing accounting guidance contained in APB Opinion No.
25 (APB 25), Accounting for Stock Issued to Employees, but
requires disclosure of pro forma net income and earnings per
share as if the fair value based accounting method had been
used to account for stock-based compensation. Management plans
to retain the current accounting method and will provide the
necessary fair value disclosures in 1997.
RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform to the
1996 presentation.
(2) ACQUISITION OF BRUCE H. LIEN COMPANY
On September 30, 1993, as part of a merger agreement, the Company
acquired all of the outstanding capital stock of Bruce H. Lien
Company (BHL).
As consideration for the BHL shares acquired from Bruce H. Lien, an
individual, hereinafter referred to as "Lien", the Company issued
4,892,000 shares to Lien and 2,349,800 shares to an escrow agent
for a total of 7,241,800 shares. In accordance with the merger
agreement, the shares issued and held in escrow were to be
released to Lien in proportion to a "lookback" valuation based on
the income generated by the Management Agreement. The lookback
provision required that the shares in escrow be reduced by 1.5
shares for each dollar that the Management Agreement income (after
tax) was less than $1,566,533 during the year ended September 30,
1994. Based on the Management Agreement operating results, the
escrow agent returned 153,400 shares to the Company for
cancellation.
(Continued)
F-12
<PAGE> 45
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(3) MANAGEMENT AGREEMENT
The Company has an agreement with the TAT for the management of the
Casino located on the Fort Berthold Indian Reservation near New
Town, North Dakota. The Management Agreement governs the
relationship between the Company and the Tribe with respect to the
construction, renovation, financing, and management of the casino,
lodge, restaurant, and bingo hall (the Casino).
The five-year Management Agreement commenced upon the opening of the
Casino in July 1993. In October 1994, the Company exercised its
option to extend the Management Agreement for two additional
years. The Company receives 40% of the net profits during the
initial five-year term of the agreement and 30% during the two-
year option period. Net profits are defined in the agreement and
include a deduction for repayment of construction and other
capital costs incurred by the Company (note 5).
The Management Agreement was approved by the Bureau of Indian Affairs
(BIA) and the United States Department of the Interior to be in
compliance with the Indian Gaming Regulatory Act of 1988 (IGRA).
Subsequent to approval by the BIA, the National Indian Gaming
Commission (NIGC) assumed authority for the approval and review of
Management Agreements. As part of the matter discussed in note 16,
in June 1995, the NIGC initiated a review of the Management
Agreement. On May 17, 1996, the NIGC notified the Company and the
TAT that modifications to the agreement were necessary. It
provided the parties a list of deficiencies that concerned
provisions in the agreement and its submission to the NIGC. The
NIGC also communicated that operation of the Casino without proper
licensing and background investigations violated NIGC regulations.
The NIGC threatened possible closure and civil penalties if the
parties failed to make progress towards regulatory compliance.
On September 27, 1996, the Company and TAT negotiated a buyout
settlement agreement (Settlement Agreement), whereby the TAT
agrees to purchase from the Company the right to terminate the
Management Agreement in exchange for $8.65 million, payable to the
Company by February 24, 1997. If the parties fail to close by
February 24, 1997, the TAT must pay the Company interest on the
Settlement Agreement amount equal to the Company's blended cost of
funds, not to exceed 18%, until closing or April 30, 1997,
whichever occurs sooner. In the event the parties fail to close by
April 30, 1997, the Management Agreement shall be deemed to have
been unaffected by the Settlement Agreement and the parties'
rights and claims asserted with respect to the Management
Agreement shall be deemed to have been preserved. Until the
closing, the Company remains as Manager of the Casino and will
assist the TAT in training its designated personnel for management
of the Casino subsequent to the closing date. Monthly distribution
amounts received by the Company after October 15, 1996 will offset
the Settlement Agreement amount. All necessary governmental
approvals are also required to be obtained by the closing date. At
closing, the Company must turnover management control to the TAT
and the parties agree to dismiss all outstanding disputes between
them (see note 16).
(Continued)
F-13
<PAGE> 46
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
As of September 30, 1996,the Company has approximately $6,000,000 in
notes receivable and other assets related to the Management
Agreement. Accordingly, considering the Settlement Agreement
payment of $8.65 million, the Company expects a gain on closing of
this transaction. The amount of gain will be affected by monthly
distribution amounts as described above and closing costs.
(4) NOTES RECEIVABLE
Notes receivable consist of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
--------------------------------------------------------------------------------------------------
Various notes receivable repaid in full during the year ended
September 30, 1996 $ 0 650,981
Other notes receivable 39,093 0
--------------------------------------------------------------------------------------------------
39,093 650,981
Less current maturities 30,584 426,846
--------------------------------------------------------------------------------------------------
$ 8,509 224,135
==================================================================================================
</TABLE>
(5) RECEIVABLE FROM THE THREE AFFILIATED TRIBES
The Company has a receivable from the TAT for monies expended
pursuant to the Management Agreement relating to development and
expansion of the Casino and related facilities as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Pursuant to the commitment under the Management Agreement $ 7,450,000 7,450,000
Additional amounts expended for expansion 2,280,021 2,280,021
------------------------------------------------------------------------------------------
9,730,021 9,730,021
Less repayments received (3,978,017) (2,488,006)
------------------------------------------------------------------------------------------
5,752,004 7,242,015
Less current maturities (1,675,800) (1,486,600)
------------------------------------------------------------------------------------------
$ 4,076,204 5,755,415
==========================================================================================
</TABLE>
In accordance with the Settlement Agreement discussed in notes 3 and
16, the TAT will make monthly payments of $194,412, which does not
include interest, from October 1, 1996 to the date of closing.
(Continued)
F-14
<PAGE> 47
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
In the event the Company and the TAT fail to close by April 30, 1997,
the receivable will follow the current terms of the Management
Agreement. The Company will receive equal monthly installments
over the first 60 months of the Management Agreement, including
interest at a variable rate, 24% at September 30, 1996. Monthly
payment is limited not to exceed 50% of the net distributable
profits from the Casino.
Pursuant to terms of the Management Agreement, the TAT must approve
construction and development costs related to the Casino. As of
September 30, 1996, $5,444,750 of the $9,730,021 had been approved
and the remaining $4,285,271 is pending approval (of which
$2,005,250 is pursuant to the commitment under the Management
Agreement and $2,280,021 is in excess of budgeted amounts and
subject to arbitration). As further discussed in notes 1, 3, and
16, the approval process may not be necessary due to the
Settlement Agreement with TAT. In the event the Settlement
Agreement fails to close by April 30, 1997, the increase in the
amount of expansion costs to be reimbursed in excess of $7,450,000
may be subject to approval by the chairman of the NIGC and will
likely be subject to arbitration proceedings.
(6) INVESTMENT IN UNCONSOLIDATED AFFILIATE
In January 1994, the Company acquired a 49.6% interest in Bayou
Gaming, Inc. (Bayou), which operates a video poker route in
Louisiana. On September 30, 1995, the Company sold its entire
interest in Bayou to an unrelated party for $330,000, consisting
of $100,000 in cash and $230,000 in notes receivable.
On April 1, 1996, the Company reacquired a 38.5% interest in Bayou in
forgiveness of $180,000 of the notes receivable plus accrued
interest. Goodwill of $96,000 has been recorded in connection with
the reacquisition and is being amortized over five years. The
Company accounts for its investment using the equity method of
accounting under which its proportionate share of the earnings of
the subsidiary are included in the consolidated financial
statements since acquisition.
In November 1996, each parish (county) in Louisiana gave voters the
opportunity to decide if video poker would continue to be allowed
to operate within each parish. If the voters decided to disallow
video poker operations within the parish, all existing video poker
establishments could operate until June 30, 1999. A significant
portion of Bayou's routes are located in parishes that voted to
cease the video poker operations as of June 30, 1999. The
Company's management anticipates Bayous operations will generate
sufficient cash flows prior to the termination of video poker in
these parishes to recover its investment in this unconsolidated
affiliate of $236,364 at September 30, 1996.
(Continued)
F-15
<PAGE> 48
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(7) CASINO DEVELOPMENT AND FINANCING COSTS
Casino development and financing costs consist of:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Related to the Management Agreement:
Finder's fee $ 241,972 241,972
Financial accommodation costs (note 13) 200,000 200,000
Related to new casino development 263,679 80,795
--------------------------------------------------------------------------------------------------
705,651 522,767
Less accumulated amortization (181,910) (112,560)
--------------------------------------------------------------------------------------------------
$ 523,741 410,207
==================================================================================================
</TABLE>
Finder's fee relates to amounts paid to a third party for assistance
in securing the Management Agreement.
(8) NOTES PAYABLE AND LINES OF CREDIT
Notes payable and lines of credit consist of:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured note payable to a related party, controlled by the
majority stockholder, with interest at prime plus 2% due
December 1997. $ 690,000 690,000
Bank line of credit with maximum borrowings of $500,000, interest
is charged at prime plus 2%, interest only payments required
through maturity date, June 1997; secured by video lottery
machines and guaranteed by majority stockholder 500,000 0
Bank line of credit with maximum borrowings of $100,000, interest
is charged at prime plus .5%, interest only payments required
through maturity date, May 1997; guaranteed by the majority
stockholder. 95,000 0
Other, repaid during the year ended September 30, 1996 0 15,000
---------------------------------------------------------------------------------------------------
1,285,000 705,000
Less current maturities (595,000) (15,000)
---------------------------------------------------------------------------------------------------
$ 690,000 690,000
===================================================================================================
</TABLE>
(Continued)
F-16
<PAGE> 49
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(9) LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to third party paid off during year ended
September 30, 1996. $ 0 1,118,115
Note payable to third party relating to contract
termination expense; payable in monthly installments
through December 31, 1996, in amounts fluctuating
based upon proceeds from the Management Agreement,
with an effective interest rate of 11%, secured by
proceeds from the Management Agreement. 634,306 1,525,964
Note payable to a vendor paid off during year ended
September 30, 1996. 0 352,232
Note payable to a vendor paid off during the year ended
September 30, 1996. 0 95,638
Note payable to a bank refinanced during the year ended
September 30, 1996. 0 980,767
11.5% note payable to third party in monthly installments
of $7,013, including interest to August 1997; secured
by video lottery machines. 73,728 144,702
13% note payable to third party in monthly installments of
$5,464, including interest to January 1998; secured by
video lottery machines.
80,218 131,455
Note payable to individual at prime plus 2% plus a monthly
finance fee of $20,000, monthly payments of $150,000,
including interest, through August 1997; guaranteed by
the majority stockholder.
1,497,892 2,400,000
Note payable to a bank, with interest at prime plus 2%,
monthly principal payments of $22,222 through June 1998
when the remaining balance is due; secured by video
lottery machines and guaranteed by majority stockholder. 733,334 0
</TABLE>
(Continued)
F-17
<PAGE> 50
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
8% note payable to third party in monthly payments of
$4,638 including interest to November 1999; secured by
real estate. $ 154,883 0
Other, due in various monthly installments to October
1999, at various rates from 6.90% to 13.93%, secured in
part by property and equipment. 75,394 145,841
---------------------------------------------------------------------------------------------------
3,249,755 6,894,714
Less current maturities (2,631,981) (4,293,388)
---------------------------------------------------------------------------------------------------
$ 617,774 2,601,326
===================================================================================================
</TABLE>
The prime interest rates at September 30, 1996 and 1995 were 8.25%
and 8.75%, respectively.
On December 21, 1995, the Company entered into an extension agreement
for the $1,497,892 note payable to an individual with terms as
described above. As of September 30, 1996, pursuant to the terms
of the prior note payable, the Company issued the individual
warrants to purchase 960,000 common shares. The warrants have an
exercise price ranging from $0.75 to $1.00 per common share and
expire between December 1998 and November 2000. The warrants were
valued by the Company's management at $1,600 and $15,000 for the
years ended September 30, 1996 and 1995, respectively.
On January 7, 1997, the Company reached an agreement with a third
party for the note payable for $634,306 to amend the payment terms
as follows (a) $50,000 per month commencing January 25, 1997
through June 25, 1997, and (b) $75,000 per month thereafter
beginning July 25, 1997, until the note payable is paid in full.
Interest is payable on the unpaid amount at a rate of 15% per
annum for the period January 1, 1997 through June 30, 1997, and
18% per annum thereafter.
The future aggregate annual maturities of long-term debt at September
30, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal year ending:
-----------------------------------------------------------------------------------------------
<S> <C>
1997 $ 2,631,981
1998 551,180
1999 57,613
2000 8,981
-----------------------------------------------------------------------------------------------
$ 3,249,755
===============================================================================================
</TABLE>
The future aggregate maturities schedule reflects indebtedness at the
latest possible due date without regard to potential late payment
and interest penalties. These penalties will be recorded as
interest expense when they become an obligation of the Company.
(Continued)
F-18
<PAGE> 51
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
The Company has a working capital deficit of $1,849,222 as of
September 30, 1996. The working capital deficit results from a
significant portion of the Company's long-term borrowings coming
due during the 12 months ending September 30, 1997. The Company
believes that its cash flow generated from operations, bank loan
agreements, and anticipated cash to be received related to the
Settlement Agreement described in notes 1, 3, and 16, will be
sufficient to meet its current obligations. Certain of the
Company's debt agreements contain financial covenants including
maintenance of debt service ratios and minimum net income levels.
At September 30, 1996, the Company was not in compliance with
certain of the covenants. The Company's lender has waived all of
the covenant violations as of September 30, 1996 and, accordingly,
the Company has continued to classify its long-term debt in
accordance with the original agreements.
(10) STOCK SUBSCRIPTION IN THE FORM OF A NOTE AND RELATED ACCRUED INTEREST
RECEIVABLE
The stock subscription in the form of a note and related accrued
interest receivable is due from an unrelated corporation in
monthly installments of $6,611 including interest at an effective
rate of 18.3% through September 1999. The note was assigned to the
Company by its majority stockholder as consideration for the
purchase of Company common stock. The note is secured by a second
interest in the corporation's personal property and its common
stock. However, due to the length to maturity of the note and full
collection being dependent upon the future success of the maker,
which cannot be assured, the note and related accrued interest
receivable have been reflected as a stock subscription receivable
and interest on the note is credited to additional paid-in capital
as it is earned.
(11) INCOME TAXES
The income tax provision for the years ended September 30, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Federal $ 352,600 103,000
State 8,000 6,300
Deferred (benefit) (21,600) 513,700
------------------------------------------------------------------------------------------------
$ 339,000 623,000
================================================================================================
</TABLE>
(Continued)
F-19
<PAGE> 52
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
The income tax provision differs from the amount of income tax
determined by applying the statutory tax rate to pretax income due
to the following:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense $ 318,320 589,006
Effect of graduated rates (9,095) (16,829)
Permanent differences, net 5,645 6,900
State income taxes, net of federal effect 5,200 4,095
Other 18,930 39,828
----------------------------------------------------------------------------------------------
$ 339,000 623,000
==============================================================================================
</TABLE>
Net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Intangibles $ 58,000 39,200
----------------------------------------------------------------------------------------------------
58,000 39,200
Deferred tax liabilities:
Property and equipment (104,600) (107,400)
----------------------------------------------------------------------------------------------------
Net $ (46,600) (68,200)
====================================================================================================
</TABLE>
(12) STOCK OPTION PLAN AND STOCK WARRANTS ISSUED AS COMPENSATION
The Company has reserved 2,200,000 shares of its common stock for
issuance under the 1992 Performance Stock Option Plan (the Plan).
The Plan allows for the issuance of incentive stock options and
nonqualified stock options to certain officers, directors, and
employees of the Company. Incentive stock options may be granted
at prices not less than fair market value on the date of grant,
while nonqualified stock options may be granted at prices less
than fair market value on the date of grant. At September 30,
1996, 1,110,000 incentive stock options were issued and
outstanding under the Plan. The options were granted at exercise
prices ranging from $0.40 to $1 per share and vest ratably over a
five year period. Options for the purchase of 225,612 shares were
vested at September 30, 1996. No options under the Plan have been
exercised.
On June 12, 1995, the Company issued a warrant for the purchase of
80,000 shares of the Company's common stock at an exercise price of
$1.50 per share to a financial advisor for services rendered. The
warrant is exercisable through February 1, 1999.
(Continued)
F-20
<PAGE> 53
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
On January 26, 1994, the Company granted its majority stockholder a
warrant to purchase 2,000,000 shares of the Company's common stock
at $1 per share through January 2004. The warrant was issued as
consideration for the stockholder's financial accommodations and
guarantees of over $9,000,000 in Company debt. The warrant was
valued by the Company's Management at $0.10 per share or $200,000.
Because the financial accommodations were substantially to finance
the Casino, the amount has been capitalized as a casino development
and financing cost and is being amortized over the term of the
Management Agreement.
(13) RELATED PARTY TRANSACTIONS
Rent expense to related parties totaled $28,501 and $28,740 for 1996
and 1995, respectively. The Company leases office space from a
related party under a lease that expires September 30, 1997.
The Company also leases an airplane from a related party. The lease
payments are based on the Company's actual usage and totaled
$43,966 and $43,101 during 1996 and 1995, respectively.
Through January 31, 1996, the Company was charged for employee health
care premiums that are paid by a related party. During the years
1996 and 1995, $13,333 and $25,440, respectively, were charged to
the Company.
Interest expense relating to notes payable to majority shareholder
and related parties controlled by the majority shareholder was
$74,318 and $67,238 for the years 1996 and 1995, respectively.
(14) COMMITMENTS
COMMON STOCK REPURCHASES
In the event any officer, director, and/or stockholder who owns 5% or
more of the common stock of the Company is disqualified by the
South Dakota Lottery Commission pursuant to the State Lottery Act,
the Company has the absolute right to repurchase, at the market
price or the original purchase price, whichever is the lesser, any
security, share, or other interest in the Company.
LEASES
The Company has several noncancelable operating leases, primarily for
video lottery casino locations, that expire over the next five
years. These leases generally contain renewal options for periods
ranging from two to five years and require the Company to pay all
executory costs such as maintenance and insurance. Rental expense
for operating leases during the years ended September 30, 1996 and
1995 was $79,969 and $95,427, respectively.
Future minimum lease payments under noncancelable operating leases
are not significant.
(Continued)
F-21
<PAGE> 54
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
RETIREMENT PLAN
During the year ended September 30, 1996, the Company adopted a
defined contribution 401(k) profit sharing plan covering
substantially all employees. Employer contributions under the Plan
are discretionary and vest ratably over a six-year period.
Employer contributions totaled $12,266 during the year ended
September 30, 1996.
(15) CONCENTRATION OF REVENUES/CREDIT RISK
A substantial portion of the Company's revenues are derived from the
Management Agreement. The Company also has a significant portion
of its assets in the form of notes receivable and a significant
portion of its short-term and long-term notes payable that are
related to the Management Agreement. Should the terms of the
Settlement Agreement described in notes 3 and 16 not be fulfilled,
the Company's ability to continue to earn management fees, collect
on the notes receivable, and meet its short-term and long-term
obligations will be 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 the TAT,
compliance with the TAT's gaming compact with the State of North
Dakota, or an adverse ruling in the related legal proceedings
could be detrimental to the Company.
(16) LITIGATION AND NIGC REVIEW OF MANAGEMENT AGREEMENT
In 1995, the Company initiated arbitration before the American
Arbitration Association as a remedy available under the Management
Agreement. Through its demand for arbitration, the Company is
seeking to enforce reimbursement of $2,280,021 of costs that were
expended for expansion of the Casino (see note 5 regarding these
costs). Furthermore, the Company claims that the TAT materially
breached the Management Agreement by amending its gaming ordinance
(Amended Gaming Ordinance) in January 1995, which would require
the Company to pay additional aggregate annual license fees of
approximately $700,000. The TAT's Gaming Commission refused to
accept the Casino's application for renewal of its gaming permit
because it was not in conformance with the Gaming Commission's new
application and fee schedule under the Amended Gaming Ordinance.
As a result, the establishment permit for the Casino was not
renewed in 1995. However, gaming operations at the Casino were not
affected during fiscal 1995 and fiscal 1996.
(Continued)
F-22
<PAGE> 55
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Through the arbitration demands, the Company is seeking actual and
exemplary damages of approximately $35,000,000, and is seeking
judgment disallowing the increased license fees. The arbitration
proceedings were enjoined by the TAT tribal court, pending the
outcome of the NIGC's review of the Management Agreement.
Consequently, the Company commenced an action in United States
District Court against the TAT that sought to compel arbitration
proceedings. On November 10, 1995, a federal judge held that the
NIGC had initial jurisdiction to decide the validity of the
Management Agreement and that injunctive relief to compel the
arbitration would not be granted. On August 28, 1996, the Eighth
Circuit Court of Appeals affirmed the District Court's ruling that
it had federal question jurisdiction but reversed its decision not
to defer to the Tribal Court for that court's determination as to
its "jurisdiction and a discussion regarding the legal validity of
the management contract." Regardless of this decision, the parties
continued with settlement discussions, which had begun earlier
during the NIGC review process. As part of this process, the NIGC
had notified the parties on May 17, 1996, that modifications to
the Management Agreement were necessary, along with regulatory
compliance regarding background investigations and Casino
licensing (see note 3). The NIGC encouraged the parties to enter
good faith negotiations to settle their disputes arising out of
the Management Agreement. The Settlement Agreement facilitated by
the NIGC is the product of these negotiations. As part of the
Settlement Agreement, the TAT has issued the Company and the Casino
gaming licenses for their continued operations on the Fort
Berthold Reservation until closing. If the Settlement Agreement
closes, the Company will receive $8.65 million in exchange for all
amounts due the Company and relinquishing its rights under the
Management Agreement and the NIGC review process will end, as well
as all outstanding litigation between the parties. The parties
have mutually stayed all existing legal proceedings between them
until the closing or April 30, 1997 at the latest.
While the Company's management cannot give any assurance that the
Settlement Agreement will close, it is nevertheless preparing for
such. In the event that the Settlement Agreement does not close,
the parties will proceed with their legal claims, however, the
Company is unable to predict the outcome of the parties' legal
claims, the outcome of possible arbitration, or the outcome of the
NIGC's review of the Management Agreement.
F-23
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONCORDE GAMING CORPORATION
January 8, 1997 By /s/ Jerry L. Baum
------------------------------
Jerry L. Baum, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Brustuen "Bruce" H. Lien Chairman of the Board January 8, 1997
- ---------------------------- of Directors and Chief
Brustuen "Bruce" H. Lien Executive Officer
/s/ Jerry L. Baum President, Chief Operating January 8, 1997
- ---------------------------- Operating Officer and
Jerry L. Baum Director
/s/ Deanna B. Lien Director January 8, 1997
- ----------------------------
Deanna B. Lien
/s/ David L. Crabb Chief Financial Officer, January 8, 1997
- ---------------------------- Principal Accounting
David L. Crabb Officer and Treasurer
</TABLE>
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation.(1)
3.2 Third Amended and Restated Bylaws.(1)
4 Form of Common Stock Certificate.(2)
10.2 1992 Performance Stock Option Plan.(3)
10.3 Management Agreement By and Between the Three Affiliated Tribes and Bruce H. Lien Company, dated as of
December 7, 1992, and amended as of February 19, 1993.(4)
10.6 Agreement to sublease dated June 2, 1993 between the Registrant and Jon Yi Company.(5)
10.7 Settlement Agreement dated September 30, 1994 between the Registrant, Bruce H. Lien Company, Brustuen
"Bruce" H. Lien and Four Bears Investment Limited Liability Company.(6)
10.8 Stock Purchase Agreement between the Company and Yvonne R. Scott dated September 29, 1995.(1)
10.9 Development Agreement among the Company, Concorde Gaming of Missouri, Inc. and the City of Lexington,
Missouri dated September 26, 1995.(1)
10.10 Indemnification Agreement between the Company and Bruce H. Lien.(1)
10.11 Second Renewal Promissory Note in the principal amount of $2,400,000 dated December 21, 1995 issued by
the Company to Roland Gentner.(1)
10.12 Second Loan Extension Agreement dated December 21, 1995 between the Company and Roland Gentner.(1)
10.13 Promissory Note in the amount of $690,000 dated September 30, 1996 issued by the Company to BHL
Capital Corporation.(+)
10.14 Assignment Agreement dated April 6, 1995 between the Company and Federalist Municipal Development
Corporation.(1)
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
10.15 Contract for Purchase of Assets dated November 10, 1995 between the Company and J & U, Inc.(1)
10.16 Settlement Agreement between The Three Affiliated Tribes of the Fort Berthold Reservation and Bruce H.
Lien Company dated September 27, 1996.(7)
10.17 Loan Agreement between the Company and BNC National Bank of Minnesota dated June 20, 1996.(+)
10.18 Term Note in the amount of $800,000 dated June 20, 1996 issued by BNC National Bank to the Company.(+)
10.19 Sort-Term Revolving Note in the amount of $500,000 dated June 20, 1996 issued by BNC National Bank to the Company.(+)
10.20 Supplemental Revolving Note in the amount of $300,000 dated December 13, 1996 issued by BNC National Bank
to the Company.(+)
10.21 Amendment No. 1 to Settlement Agreement dated January 7, 1997 between BHL and FBILLC.(+)
11 Computation of Per Share Earnings.(+)
21 Subsidiaries of the Registrant.(1)
23 Consent of Independent Accountants.(+)
27 Financial Data Schedule.(+)
</TABLE>
- ----------------------------------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended September 30,
1995.
(2) Previously filed with the Securities and Exchange Commission on May 6,
1991, as an Exhibit to the Annual Report on Form 10-K of the Company for the
fiscal year ended September 30, 1990 and incorporated herein by this reference.
(3) Previously filed with the Securities and Exchange Commission by the Company
on September 24, 1992 as Exhibit 10 to the Registration Statement on Form S-8,
file number 33-52388 and incorporated herein by this reference.
(4) Previously filed with the Securities and Exchange Commission on October 15,
1993, as an Exhibit to the Current Report of the Company on Form 8-K and
incorporated herein by this reference.
(5) Previously filed with the Securities and Exchange Commission by the Company
on July 30, 1993 as an Exhibit to the Current Report on Form 8-K and
incorporated herein by this reference.
(6) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended September 30,
1994.
(7) Previously filed with the Securities and Exchange Commission by the Company
as an exhibit to its Current Report on Form 8-K dated September 27, 1996.
(+) Filed herewith.
<PAGE> 1
EXHIBIT 10.13
$690,000 Rapid City, South Dakota
September 30, 1996
COPY PROMISSORY NOTE
FOR VALUE RECEIVED, CONCORDE GAMING CORPORATION ("MAKER"), a Colorado
corporation with its principal place of business at 3290 Lien Street, Rapid
City, South Dakota, promises to pay to the order of BHL CAPITAL CORPORATION
("HOLDER"), a South Dakota corporation with its principal place of business at
3290 Lien Street, Rapid City, South Dakota 57702, in immediately available
funds the outstanding balance of advances made by HOLDER the sum of Six Hundred
Ninety Thousand and No/100 Dollars ($690,000) together with interest on the
outstanding amount thereof at the following rate: an annual rate equal to two
percent (2%) above the prime rate established by Norwest Bank of South Dakota,
N.A. The entire unpaid principal and accrued and unpaid interest hereon shall
be due and payable in full on December 31, 1997.
The Maker may prepay this Note in whole or in part at any time without
penalty.
In the event of default hereunder the undersigned agrees that HOLDER
shall have all rights reserved herein, including all expenses of collection.
The undersigned waives demand, presentment, notice of non-payment, protest,
notice of protest and notice of dishonor.
The makers, endorsers, sureties and guarantors hereof hereby severally
waive presentment for payments, notice of non-payment, protest and notice of
protest. The amount loaned by HOLDER shall be at HOLDER'S discretion and will
not exceed Six Hundred Ninety Thousand and No/100 Dollars. Payment schedule
may be extended at the option of HOLDER of this note.
The undersigned hereby severally agree to pay all costs for any
collections necessary.
CONCORDE GAMING CORPORATION (MAKER)
By: Jerry L. Baum
Its: President
Signature:
--------------------------
BHL CAPITAL CORPORATION (HOLDER)
By: Bruce H. Lien
Its: President
Signature:
--------------------------
<PAGE> 1
EXHIBIT 10.17
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 Definitions 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 Commitment less the aggregate
amount of principal repayments received by the Bank upon the
indebtedness evidenced by the Short-Term Revolving Note.
<PAGE> 2
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 ($800,000.00). 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 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.
-2-
<PAGE> 3
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 am.
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 prepayments
applied to principal shall be applied to installments in the
inverse order of maturity.
-3-
<PAGE> 4
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 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
-4-
<PAGE> 5
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 the 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 a 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 release of any toxic or hazardous waste
or Hazardous Substance into the environment.
-5-
<PAGE> 6
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 1 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.
14 AFFIRMATIVE COVENANTS. Each of the Co-Borrowers agree that it will
and will cause its subsidiaries to:
-6-
<PAGE> 7
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).
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
-7-
<PAGE> 8
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.
14.10 MINIMUM NET INCOME. Earn a minimum consolidated Net Income of
at least $800,000 in each fiscal year.
-8-
<PAGE> 9
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.
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) lieus of current taxes not
delinquent
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<PAGE> 10
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.
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.
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<PAGE> 11
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 in 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
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
-11-
<PAGE> 12
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 the 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;
17.4 Corporate resolutions of the Co-Borrowers in a form acceptable
to the Bank;
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<PAGE> 13
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 A 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 officers 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 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
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<PAGE> 14
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.
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
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<PAGE> 15
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:
------------------------
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<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.
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<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.
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<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) notes or receivables due from employees, officers, directors or
shareholders; (vii) notes or receivables due from any Affiliate; (viii) all
other intangible assets in existence on the date of this Agreement and
determined by Bank, in its absolute discretion, to be intangible
-4-
<PAGE> 20
assets; and (ix) 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 10.18
$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 $22,220.00 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 10.19
$500,000 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 10.20
$300,000 Minneapolis, Minnesota
December 13, 1996
SUPPLEMENTAL 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 Three Hundred Thousand and 00/100
($300,000) Dollars, or such other principal amount as may be
owing to Bank for the repayment of loans made pursuant to the
Supplemental Revolving Credit Commitment as set forth in that
certain Loan Agreement dated June 20, 1996, 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 April 11, 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 "Supplemental 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 10.21
AMENDMENT NO. 1 TO SETTLEMENT AGREEMENT
THIS AGREEMENT is made and entered into the 7th day of January, 1997
and modifies that certain Settlement Agreement ("Settlement Agreement") made
and entered into the 30th day of September, 1994, by and between Bruce H. Lien
Company, a corporation with its principal place of business being located at
3290 Lien Street, Rapid City, South Dakota 57702 ("BHLC"); Concorde Gaming
Corporation, a corporation with its principal place of business being located
at 3290 Lien Street, Rapid City, South Dakota 57702 ("CONCORDE"); Four Bears
Investment Limited Liability Company, a limited liability company organized
under the laws of the State of Colorado, with its principal place of business
located at 317 South University Drive, Fargo, North Dakota 58103 ("FBILLC");
and Brustuen "Bruce" H. Lien, whose principal address is P.O. Box 440, Rapid
City, South Dakota 57702 ("LIEN").
RECITALS
A. As of the date of this Agreement, the remaining amount due by
BHLC to FBILLC per the provisions of the Settlement Agreement is $534,306.49,
plus interest as hereinafter provided for.
B. BHLC is currently unable to make the monthly payments to
FBILLC as required in Article 2(D) of the Settlement Agreement; and
C. For payments due by BHLC to FBILLC after October 25, 1996, the
parties desire to amend Article 2(D) of the Settlement Agreement based upon the
terms and conditions as hereinafter set forth.
<PAGE> 2
NOW, THEREFORE, for and in consideration of the promises and the
mutual covenants set forth below, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. The effective time and date of this Agreement shall be 12:01
a.m. on October 25, 1996.
2. The parties agree that:
(A) As a result of the $100,000 payment made by BHLC to FBILLC on
or about October 25, 1996, the total amount due and owing by BHLC to
FBILLC per the provisions of the Settlement Agreement is $534,306.49;
(B) Due to the fact that no payments have been made by BHLC to
FBILLC since October 25, 1996, BHLC owes FBILLC an additional $500 for
costs and expenses incurred by FBILLC, and said $500 amount will be
paid by BHLC to FBILLC upon the signing of this Agreement;
(C) Until the above referred to $534,306.49 has been paid in full,
interest shall accrue on the unpaid balance for the period of January
1, 1997 through June 30, 1997 at the rate of fifteen percent (15%) per
annum, and for all periods after June 30, 1997 at the rate of eighteen
percent (18%) per annum; and
(D) The $534,306.49 is to be paid by BHLC to FBILLC, with interest
on the unpaid balance for the period beginning January 1, 1997, and
thereafter, at the above referred to applicable rate, in consecutive
monthly installments of the following amounts until the entire
indebtedness is fully paid:
(i) Fifty Thousand and no/100ths Dollars ($50,000.00)
shall be paid on or before January 25, 1997, February 25,
1997, March 25, 1997, April 25, 1997, May 25, 1997 and June
25, 1997, and
(ii) Seventy-five Thousand and no/100ths Dollars
($75,000.00) shall be paid in consecutive monthly installments
beginning on the 25th day of July, 1997, and monthly
thereafter, until the entire indebtedness is fully paid.
(E) All payments made by BHLC to FBILLC shall be applied first to
interest and then to principal.
<PAGE> 3
3. If BHLC fails to make any of the above referred to payments by
their required due date, FBILLC can, at its sole option, declare all amounts
then due and owing to BHLC to FBILLC to be immediately due and payable.
4. That nothing in this Agreement is intended to nullify the
obligation on the part of BHLC to pay all amounts due and owing to FBILLC if
and when the Three Affiliated Tribes exercises its right of buyout of the
Management Agreement as provided for in Article 4 of the Settlement Agreement.
5. Except as set forth in this Agreement, the parties shall not
be deemed to have amended the Settlement Agreement, the Exhibit "B" Guaranty or
the Exhibit "C" Security Agreement in any other respect.
6. Terms that are not otherwise defined herein are set forth in
the Settlement Agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed, in duplicate, to be effective as of the day and year
first above written.
----------------------------------------
BRUSTUEN "BRUCE" H. LIEN
BRUCE H. LIEN COMPANY
By:
------------------------------------
JERRY L. BAUM, President
CONCORDE GAMING CORPORATION
By:
------------------------------------
JERRY L. BAUM, President
FOUR BEARS INVESTMENT LIMITED
LIABILITY COMPANY
By:
------------------------------------
ROBERT N. SPOLUM, Manager
3
<PAGE> 1
EXHIBIT 11
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Weighted average common shares outstanding, net of
treasury stock, beginning of year 21,929,793 22,083,193
Shares issued for mergers, acquisitions and compensation - (115,576)
Adjustments for common stock equivalents (1) 245,622 15,761
------------ -------------
Weighted average common and common equivalent 22,175,415 21,983,378
============ =============
shares outstanding, end of year
Net income $ 557,659 $ 1,059,873
============ =============
Net income per common and common equivalent share $0.03 $0.05
===== =====
</TABLE>
(1) Represents adjustments computed under the treasury stock method for
stock options and warrants granted at fair market value at date of
grant.
<PAGE> 1
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
Concorde Gaming Corporation:
We consent to incorporation by reference in the registration statement (No.
33-52388) on Form S-8 of Concorde Gaming Corporation of our report dated
November 8, 1996, relating to the consolidated balance sheets of Concorde
Gaming Corporation and subsidiaries as of September 30, 1996, and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the two-year period ended September 30, 1996, which
report appears in the September 30, 1996, annual report on Form 10-KSB of
Concorde Gaming Corporation.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 120,572
<SECURITIES> 0
<RECEIVABLES> 1,987,102
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,188,887
<PP&E> 3,433,988
<DEPRECIATION> 1,491,883
<TOTAL-ASSETS> 9,416,641
<CURRENT-LIABILITIES> 4,038,109
<BONDS> 0
267,552
0
<COMMON> 0
<OTHER-SE> 3,756,606
<TOTAL-LIABILITY-AND-EQUITY> 9,416,641
<SALES> 192,470
<TOTAL-REVENUES> 11,242,586
<CGS> 0
<TOTAL-COSTS> 10,290,570
<OTHER-EXPENSES> 6,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 794,054
<INCOME-PRETAX> 896,659
<INCOME-TAX> 339,000
<INCOME-CONTINUING> 557,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 557,659
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
