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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, 1997 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 NO X
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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. $6,675,772
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1998 was $673,000. This calculation is based upon
the average of the bid ($0.0625) and asked ($0.125) price of the voting stock on
March 31, 1998.
The number of shares issued of the issuer's $.01 par value common stock was
23,673,126 as of March 31, 1998.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Concorde Gaming Corporation (the "Company" or the "Registrant") owns and
operates the Golden Gates Casino ("Casino"), a limited stakes casino in Black
Hawk, Colorado, and has an 80% ownership interest in a joint venture in Miami,
Florida, formed to build and operate an offshore gaming vessel from Bayfront
Park, Miami, Florida. Prior to June 1997, the Company was primarily engaged in
the operation of a video lottery route operation in South Dakota and prior to
February 1997, the Company also managed the Four Bears Casino and Lodge (the "4
Bears Casino") in North Dakota. The Company was incorporated as a Colorado
corporation on September 1, 1976.
CERTAIN RECENT DEVELOPMENTS
MANAGEMENT AGREEMENT
TAT Settlement Agreement. On September 27, 1996, Bruce H. Lien Company, a
wholly-owned subsidiary of the Company ("BHL"), and the Three Affiliated Tribes
("TAT") entered into a settlement agreement (the "Settlement Agreement") to
resolve disputes arising out of the management agreement (the "Management
Agreement") between BHL and TAT, pursuant to which BHL managed the 4 Bears
Casino. Pursuant to the terms of the Settlement Agreement, on February 13, 1997,
TAT paid the Company $8.65 million in consideration for the termination of the
Management Agreement. At the time of payment, the Company had $5,830,250 of
notes receivable and unamortized intangibles related to the Management Agreement
resulting in a net gain to the Company from the termination of the Management
Agreement of $2,819,750.
GOLDEN GATES CASINO
North Star Asset Exchange Agreement. Pursuant to the terms of an Asset
Exchange Agreement (the "Agreement") dated June 12, 1997 by and among North Star
Casino Limited Liability Company ("North Star"), the Company and its wholly
owned subsidiaries Midwest Gaming, Inc., Concorde Cripple Creek, Inc. and
Concorde Gaming of South Dakota, Inc., the Company exchanged substantially all
of the assets related to its video lottery route operations in South Dakota (the
"Video Lottery Assets") for substantially all of North Star's assets used in its
business of owning and operating the Casino (the "Casino Assets"). The transfer
of the Video Lottery Assets was completed in June 1997 and the Casino Assets
were transferred to the Company effective as of July 21, 1997. Additionally, the
Company paid North Star approximately $480,000 in cash, assumed approximately
$773,000 in liabilities related to the Casino Assets and issued 1,743,333 shares
of the Company's common stock, $.01 par value ("Common Stock").
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Parking Garage Agreement. On October 22, 1997, the Company and Elevation
E8000+, LLC ("E8000") entered into an agreement ("Parking Garage Agreement")
with KMM Parking L.L.C., a Colorado limited liability company ("KMM") to subject
certain property in Black Hawk, Colorado to a condominium regime. Pursuant to
the Parking Garage Agreement, the parties will contribute parcels of land
adjacent or near the Casino for construction of a 450 stall parking garage.
Under the Parking Garage Agreement, KMM has 270 days from the date of the
agreement to obtain all governmental approvals to construct the parking garage.
If KMM is successful in obtaining all governmental approvals, it will then have
45 days to obtain a loan (the "Loan") for approximately $10,000,000, repayment
of which will solely be its responsibility. Collateral for the Loan shall
initially include the parties' contributed property, provided, that upon
completion of the parking garage, only KMM's ownership interest in the parking
garage may be used as collateral. Upon completion of the parking garage, the
parties will enter into a condominium declaration whereby each party will
receive a proportionate share of the parking spaces based on each party's
contribution, provided however, the Company will own a minimum of 37 parking
spaces. In addition, the Company will be required to lease E8000's parking
spaces, which will be a minimum of 38.
BAYFRONT VENTURES
LEG Agreement. On August 5, 1997, the Company and Leo Equity Group, Inc.
("LEG"), a Florida corporation, entered into an agreement ("LEG Agreement")
whereby LEG assigned to the Company all of its interest in Bayfront Ventures, a
Florida joint venture ("Bayfront Ventures") formed for the purpose of
constructing, owning, operating and managing an offshore gaming vessel from
dockage at Bayfront Park in Miami, Florida (the "Project"). Pursuant to the LEG
Agreement, the Company acquired all of LEG's right, title and interest in
Bayfront Ventures for $650,000 plus payments equal to 2% of Bayfront Venture's
"gaming win" per operating year for the first three years of operations (subject
to a minimum of $175,000 and a maximum of $400,000). The Company owns an 80%
undivided percentage interest in Bayfront Ventures and Goldcoast Entertainment
Cruises, Inc. ("Goldcoast") owns the remaining 20%. See "Management's Discussion
and Analysis--Liquidity and Capital Resources."
Bayfront Joint Venture Agreement. On August 27, 1997, the Company and
Goldcoast entered into a joint venture agreement ("JV Agreement"). Pursuant to
the JV Agreement, the Company is required to contribute up to $6,405,000 for the
construction and other start-up costs of Bayfront Ventures related to the
Project. At December 31, 1997 the Company had contributed approximately
$3,000,000 to Bayfront Ventures. See "Management's Discussion and
Analysis--Liquidity and Capital Resources."
Use Agreement. On June 25, 1997, Bayfront Ventures entered into a Use
Agreement ("Use Agreement") with Bayfront Park Management Trust, a limited
agency and instrumentality of the City of Miami, Florida (the "Trust"). The Use
Agreement grants Bayfront Ventures the exclusive right to use the Trust's
docking facilities at Bayfront Park for the purpose of docking
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vessels, including an offshore gaming vessel. The initial term ("Use Initial
Term") of the Use Agreement is for five years commencing September 1, 1997 with
the option to extend for one additional five year term ("Extension Term").
Bayfront shall have a right of first refusal to extend the Extension Term, if
exercised, for one additional five year term provided the Trust in its sole
discretion has determined to permit the continued use of the Trust's docking
facilities by a gaming vessel and there has been no event of default under the
Use Agreement caused by Bayfront Ventures. The Use Agreement provides that
Bayfront Ventures shall pay the Trust annual fees during the Use Initial Term as
follows: $400,000 in year one, $450,000 in years 2 and 3, and $475,000 in years
4 and 5. In addition, the Company has provided a $900,000 irrevocable letter of
credit (the "Letter of Credit") on behalf of Bayfront Ventures for the benefit
of the Trust to secure the payment of the annual fees for the second and third
years of the Use Initial Term. The Company is also required to provide a letter
of credit throughout the term of the Use Agreement, in an amount equal to the
next two years' annual fees. The Use Agreement was amended on August 29, 1997
("Addendum"), to extend the commencement date of the Use Initial Term from
September 1, 1997 to October 1, 1997. See "Management's Discussion and
Analysis--Liquidity and Capital Resources."
Vessel Construction Agreement. On August 26, 1997, Bayfront Ventures
entered into a vessel construction agreement ("Vessel Construction Agreement")
with Keith Marine, Inc. ("Keith Marine"). Pursuant to the Vessel Construction
Agreement, Keith Marine has agreed to build, launch, and deliver on or before
April 30, 1998 one diesel-powered casino vessel having overall dimensions of 200
feet by 40 feet for the purchase price of $6,000,000. The purchase price is
required to be paid in installments upon Keith Marine's presentment of invoices
and stage completion certificate(s). See "Management's Discussion and
Analysis--Liquidity and Capital Resources."
LEXINGTON DEVELOPMENT AGREEMENT EXTENSION
On September 26, 1995, Concorde Gaming of Missouri, Inc., a wholly-owned
subsidiary of the Company, and the Company entered into a two-year development
agreement (the "Development Agreement") with the City of Lexington, Missouri
("Lexington") whereby the Company agrees to develop and operate a riverboat
gaming facility within the corporate limits of Lexington, contingent upon
licensing. The Development Agreement expired on January 24, 1998. The Company
seeks further discussions with the City of Lexington to explore the benefits of
a smaller project. At September 30, 1997, the Company has charged off
approximately $271,000 worth of development costs related to this project.
COLORADO OPERATIONS
SERVICE AND MARKETS
The Casino is located on Main Street in Black Hawk, Colorado directly
across from the Richman Street bridge, which is expected to become the primary
access onto Main Street from U.S. Highway 119. The Casino offers 3 blackjack
tables, 1 poker table, and 211 slot machines
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on 7,000 square feet of gaming floor space. The Casino also provides a 50-seat
restaurant and a full service liquor bar. The Casino furnishes nightly valet
parking for its gaming patrons in the Casino's adjacent parking lot.
The Casino's gaming revenues currently depend primarily upon "day-tripper"
visitor traffic from Denver metropolitan area residents. A decline in the Denver
economy, a decline in the Black Hawk gaming market, or increased competition for
Denver metropolitan area residents from other gaming jurisdictions both inside
and outside Colorado, could have a material adverse effect on the Company's
results of operations, financial position and cash flows.
COMPETITION
Colorado law permits limited stakes casino gaming ($5.00 or less per wager)
in three historic mining towns, Black Hawk and Central City, adjacent towns
located approximately 40 miles west of Denver, and Cripple Creek, approximately
90 miles south of Denver. Black Hawk and Central City form the primary gaming
market in Colorado, and competition is intense. The Company believes that the
primary competition for the Casino are other casinos operating in Black Hawk and
Central City, of which there were approximately 31 as of September 30, 1997,
and, secondarily, casinos operating in Cripple Creek of which there were
approximately 21 as of September 30, 1997. More experienced, nationally
recognized casino operators from other areas of the country have entered, or
announced plans to enter, the Colorado gaming market, including Harvey's, Casino
America, Anchor Gaming, Fitzgerald's, and the Riviera, many of which have
substantially greater financial and marketing resources than the Company.
Because Colorado does not limit the total number of gaming licenses available
for issuance in Colorado and there are no minimum facility size requirements,
the Company expects the number of gaming facilities to continue to increase.
The Company believes that the primary competitive factors in the Black
Hawk-Central City market are location, availability and convenience of parking,
number of slot machines and gaming tables, types and pricing of amenities, name
recognition, and overall atmosphere.
Various published reports detailing additional gaming projects have been
announced for Black Hawk. The majority of these projects are along the southern
end of Black Hawk at the first major intersection off State Highway 119,
providing these projects with the initial opportunity to capture visitors to
Black Hawk and Central City from the Denver metropolitan area. However, the
construction of a third major intersection off State Highway 119 in between the
two current intersections, called the Richman Street Bridge, now provides a
third access to Main Street. This intersection will provide additional access to
the Casino.
While it is difficult to assess the development and timing of competing
projects and the likelihood of whether any or all of the announced projects will
eventually be built and at what size, it is reasonably likely that at least some
of the new competition may be completed and open to the public by mid-1998.
Therefore, should any of the announced competitive projects open,
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the increased competition may adversely affect the Company's operations and
proposed operations and, accordingly, may have a material adverse effect on the
Company's results of operations, financial position and cash flows.
Several lobbying groups placed initiatives for additional Colorado limited
stakes gaming venues, including Denver, on the November 1992 statewide ballot.
Each of these initiatives was defeated by a wide margin. Similar initiatives,
legislation or regulations could be introduced in the future. The enactment of
any initiative, legislation or regulations legalizing gaming elsewhere in
Colorado could, and if such legalized gaming was closer to Denver would, have a
material adverse effect on the Company's results of operations, financial
position and cash flows.
In addition to competing with other gaming facilities in Colorado as
described above, the Company competes, to a lesser degree, for customers with
gaming facilities nationwide, including casinos in Nevada and Atlantic City,
many of which have substantially greater financial resources and experience in
the gaming business. The Company also competes with other forms of gaming on
both a local and national level, including state-sponsored lotteries, charitable
gaming and pari-mutuel wagering, among others, and competes for entertainment
dollars generally with other forms of entertainment. The recent and continuing
expansion of legalized casino gaming to new jurisdictions throughout the United
States may also affect competitive conditions. Although the Company's focus is
the Colorado gaming market, it is considering gaming ventures in other locations
that the Company believes present favorable opportunities, and may pursue
certain of such opportunities if its resources allow it to do so. However, its
ability to capitalize on such opportunities is expected to be limited due to
competition for such opportunities from more experienced and financially
stronger entities.
LEGISLATIVE ISSUES
The legalization of gaming in or near any area from which the Casino draws
its customers would have a material adverse effect on the Casino's business.
Additionally, the legalization of various types of gaming, such as video lottery
terminals, in existing venues such as airports, race tracks or drinking
establishments, would have a material adverse effect on the Casino's business.
Colorado law requires statewide voter approval for any expansion of limited
gaming into additional locations and, depending on the authorization approved by
the statewide vote, requires, in addition, voter approval from the locality in
question.
In 1994, Colorado voters refused by a margin of 93% to 7% to permit gaming
in Manitou Springs (located near Colorado Springs and Cripple Creek) or slot
machines in airports. On November 5, 1996, Colorado voters defeated by a margin
of 69% to 31% a proposal to allow gaming in Trinidad, located on the New Mexico
border. In 1997, the state legislature passed, but the Governor vetoed, a bill
that would have permitted video lottery terminals in dog and horse race tracks
under certain terms and conditions. Several cities within Colorado have active
citizen's lobbies that were able to place gaming initiatives on recent statewide
ballots. Although these initiatives have failed, new initiatives could be
introduced on future statewide ballots to
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allow expansion of gaming in Colorado or prohibit gaming in the Black Hawk
market. Future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting business in the
Black Hawk market. Additionally, there can be no assurance against future
legislation that would impose additional restrictions or prohibitions on, or
assess additional fees with respect to, the Company's business.
In August 1996, President Clinton signed a bill creating the National
Gambling Impact and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in the United
States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business or results of
operations.
Additionally, from time to time, certain federal legislators have proposed
the imposition of a federal tax on gaming revenues. Any such tax could have a
material adverse effect on the Company's financial condition or results of
operations.
COLORADO GAMING REGULATIONS
Under Colorado law and regulations (the "Colorado Regulations"), the
ownership and operation of casino facilities in Colorado are subject to strict
and extensive regulation by the Colorado Division of Gaming, which is supervised
by the five-member Colorado Limited Gaming Control Commission (the "Gaming
Commission").
The Gaming Commission requires various licenses, findings of suitability,
registrations, permits and approvals to be held by the Company and its
subsidiaries. The Gaming Commission may, among other things, limit, condition,
suspend or revoke a license to operate for any cause deemed reasonable.
Substantial fines or forfeiture of assets for violations of gaming laws or
regulations may be levied against the Company, the Company's subsidiaries and
the persons involved. In addition, the actions of persons associated with the
Company and its management employees, over which the Company may have no
control, could jeopardize any licenses held by the Company in Colorado. The
suspension or revocation of any of the Company's licenses or the levy on the
Company of substantial fines or forfeiture of assets would have a material
adverse effect on the Company.
To date, the Company has obtained all governmental licenses, findings of
suitability, registrations, permits and approvals necessary for the operation of
the Casino. However, gaming licenses and related approvals are deemed to be
privileges under Colorado law, and no assurances can be given that any new
licenses, permits and approvals that may be required in the future will be given
or that existing ones will not be revoked. The current license for the Casino
expires in July 1998. Renewal is subject to, among other things, continued
satisfaction of suitability requirements. There can be no assurance that the
Company can successfully renew its licenses in a timely manner or at all.
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Under the Colorado Regulations, no person can have an "interest" in more
than three gaming retailer/operator licenses. The Company currently has one
license. Accordingly, any expansion opportunities that the Company may have in
Colorado may be limited.
Under Colorado Regulations, the definition of an "interest" in a gaming
license excludes ownership of less than 5% of the "publicly traded" company such
as the Company. To enable the Company to comply with the Colorado Regulations
and secure and maintain the business and other regulatory approvals necessary
for operating a gaming-related business in Colorado, the Company's Articles of
Incorporation provided that the Company may not issue voting securities except
in compliance with the rules of any gaming authority. The Company's Articles of
Incorporation also provide that all transfers of its voting securities must be
in compliance with applicable gaming authority rules and if any gaming authority
issues an order disqualifying a person from owning shares of Common Stock, the
Company may redeem the stock of the disqualified holder unless the Common Stock
is transferred to a person found by the Gaming Commission to be suitable within
60 days from the finding of unsuitability.
LIQUOR REGULATION
The sale of alcoholic beverages is subject to licensing, control and
regulation by certain Colorado state and local agencies (the "Liquor Agencies").
Subject to certain exceptions, all persons who directly or indirectly own 5% or
more of the Company must file applications with and are subject to investigation
by the Liquor Agencies. The Liquor Agencies also may investigate persons who,
directly or indirectly, loan money to liquor licensees. All liquor licenses are
subject to renewal, are revocable and are not transferable. The Liquor Agencies
have broad powers to limit, condition, suspend or revoke any liquor license. Any
disciplinary action could, and any failure to renew or other revocation of any
of its liquor licenses would, have a material adverse effect upon the operations
of the Company and the Casino.
TAXATION
The Company's operations are subject to taxes imposed upon gaming operators
by the Gaming Commission and the municipality of Black Hawk. Taxes currently
levied on the Company's operations include taxes on adjusted gross proceeds
("AGP" defined by Colorado law as amount wagered minus the total amount paid out
in prizes) and annual gaming device fees. Such taxes and fees are subject to
revision from time to time. Effective October 1 of each year the Colorado Gaming
Commission establishes the tax rates for the following 12 months. The tax rates
in effect for the 12 months beginning October 1, 1997 have not changed from the
tax rates established on October 1, 1996. The tax rates are 2% of the first $2.0
million of AGP, 4% from $2.0 million to $4.0 million, 14% from $4.0 million to
$5.0 million, 18% from $5.0 million to $10.0 million, and 20% of amounts in
excess of $10.0 million of AGP. Under the
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Colorado Constitution, the Colorado Commission is authorized to increase the
gaming tax rate to as much as 40%. There can be no assurance that the taxes or
fees applicable to the Company will not be increased in the future, either by
the Colorado electorate, legislation, or action by the Gaming Commission
resulting in an adverse effect on the Company's operations.
In addition, a "device fee" is required for each gaming device (i.e. each
gaming machine and gaming table). The State of Colorado currently imposes an
annual fee of $75 per device and Black Hawk currently imposes annual fees per
device of $750. Black Hawk also imposes liquor licensing fees, restaurant fees
and other fees that are imposed per device. Significant increases in the
applicable taxes or fees, or the imposition of new taxes or fees, could have an
adverse effect on the Company, and it is not unreasonable to expect that such
taxes or fees could be increased or imposed.
LEGISLATIVE ISSUES - FLORIDA
In the past two years, various legislation has been proposed in Florida
that would impact the "cruise to nowhere industry". The proposed legislation
included the imposition of a boarding tax to an outright ban on the industry.
Although none of the proposed legislation passed, there can be no assurance that
there will not be additional attempts to tax and/or ban the industry.
On July 3, 1997 the State of Florida filed a complaint in St. Johns County,
Florida, alleging that a 1931 state law prohibits the possession and use of slot
machines by U.S. registered gaming vessels that only dock in intrastate
territorial waters and seeking a temporary injunction. On July 22, 1997, the
court denied the State of Florida's motion for a temporary injunction. If the
State of Florida were to prevail in the litigation it could have a material
adverse effect upon the Company.
EMPLOYEES
As of September 30, 1997, the Company employed 65 employees on a full-time
basis and 18 employees 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.
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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 September 30, 1998 from
BHL Capital (defined below). See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The Company leases dock space from the Trust. The lease is for five years
commencing October 1997 with one option to renew the lease for five years. The
Company has the first right of refusal to extend the lease for an additional
five years if the Trust decides to continue the use of the docks for gaming
vessels.
Effective July 21, 1997, the Company and E8000 entered into a lease for the
Casino ("Casino Lease"). The Casino Lease has an initial term (the "Initial
Term") of five years and has two 5-year options to renew. The base rent is
$15,000 per month during the first year of the Initial Term and increases to
$16,000 per month during the second year and $17,000 per month for the remainder
of the Initial Term. In addition to the base rent, the Company is required to
pay E8000 additional rent ("Percentage Rent") equal to a percentage of the
Casino's adjusted net gaming revenue ("ANGR"). The Percentage Rent shall be
payable monthly based on annual ANGR as follows: 2% of the first $2,000,000
ANGR; plus 4% of the second $2,000,000 ANGR; plus 6% of the third $2,000,000
ANGR; plus 8% of the ANGR in excess of $6,000,000. During the third, fourth and
fifth lease years of the Initial Term, the Company has the option to purchase
the Casino and E8000's 50% interest in two adjacent properties (which includes
the Parking Lot) for the following respective exercise prices: $5,800,000;
$5,974,000; and $6,153,220.
The Company and E8000 have entered into a parking lot lease ("Parking Lot
Lease") whereby the Company agreed to lease from E8000 its 50% interest in
property ("Parking Lot") adjacent to the Casino. The Company owns the other 50%
interest in the Parking Lot. The Parking Lot Lease has an initial term of five
(5) years and the Company has two 5-year options to renew. The lease rate is
$6,200 per month during the initial term; $6,510 per month during the first
option term and $6,835 per month during the second option term.
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 1,400 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.
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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>
iscal Year ended September 30, 1997
First Quarter $ 0.20 $0.0625
Second Quarter 0.25 0.0625
Third Quarter 0.25 0.125
Fourth Quarter 0.1875 0.125
Fiscal Year ended September 30, 1996
First Quarter 0.375 0.125
Second Quarter 0.25 0.125
Third Quarter 0.375 0.25
Fourth Quarter 0.375 0.0625
</TABLE>
As of December 31, 1997, 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 a bank.
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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, but are not
limited to, changes in gaming regulations and tax rates in Colorado, Florida,
and other jurisdictions that could impact the Company's operations, changes in
economic conditions, declining popularity of gaming, competition in Colorado and
Florida and other jurisdictions, and the level and rate of growth in the
Company's operations. 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,
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
The Management Agreement between BHL and TAT relating to the 4 Bears Casino
was terminated upon the closing of the Settlement Agreement effective February
13, 1997. In addition, on June 16, 1997 the Company transferred its Video
Lottery Assets to North Star and subsequently received the Casino Assets on July
21, 1997. As a result of these transactions, the Company will not receive any
future revenues from 4 Bears Casino or the Video Lottery Assets, and currently
the Casino is the Company's sole source of revenues.
RESULTS OF OPERATIONS
Year Ended September 30, 1997 ("Fiscal 1997") Compared to Year Ended
September 30, 1996 ("Fiscal 1996")
Revenues. Total revenues decreased 40.6% to $6,675,772 for Fiscal 1997,
compared to $11,242,586 for Fiscal 1996 primarily as a result of the termination
of the Management Agreement in February 1997 and the transfer of the Video
Lottery Assets to North Star in June 1997. Revenues from the Management
Agreement decreased 89.9% to $208,371 for Fiscal
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1997, compared to $2,064,649 for Fiscal 1996 and video lottery revenues
decreased 36.5% to $5,705,609 for Fiscal 1997, compared to $8,985,467 for Fiscal
1996. The Casino, acquired in July 1997, generated gaming revenues of $666,103
and other revenues, primarily food and beverage, of $44,125 in Fiscal 1997.
Costs and Expenses. Total costs and expenses decreased 23.6% to $7,865,803
for Fiscal 1997, compared to $10,290,570 for Fiscal 1996, primarily due to the
transfer of the Video Lottery Assets to North Star in June 1997. Due to the
decrease in video lottery revenues, video lottery state share decreased 36.5% to
$2,839,666 for Fiscal 1997, compared to $4,471,432 for Fiscal 1996 and video
lottery location share decreased 35.5% to $1,864,750 for Fiscal 1997, compared
to $2,891,852 in Fiscal 1996. Compensation expenses increased 7.7% to $1,056,948
for Fiscal 1997, compared to $981,536 for Fiscal 1996. Operating expenses
decreased 17.2% to $1,022,741 for Fiscal 1997, compared to $1,234,633 for Fiscal
1996.
Other Income and Expense. Interest expense and financing costs decreased
64.3% to $283,741 for Fiscal 1997, compared to $794,054 for Fiscal 1996. This is
primarily a result of the Company using the proceeds from the Settlement
Agreement to reduce its notes payable to $1,046,723 at September 30, 1997,
compared to $4,534,755 at September 30, 1996. Interest income decreased 80.5% to
$133,382 for Fiscal 1997, compared to $683,444 for Fiscal 1996, due primarily to
the retirement of the interest bearing receivable related to the Management
Agreement.
Federal and State Income Taxes. The Company recorded Federal and State
income tax expense of $619,000 for Fiscal 1997, compared to $339,000 for Fiscal
1996, an increase of $280,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $1,073,910 at September 30,
1997, compared to $120,572 at September 30, 1996, an increase of $953,338. The
Company had restricted cash of $288,894 at September 30, 1997 in accordance with
an agreement with one of the Company's lenders, which was terminated in March
1998. The increase in cash reflects the proceeds from the Settlement Agreement.
The $8.65 million in proceeds from the Settlement Agreement were used primarily
for (i) payment of approximately $4.1 million of notes and accounts payable,
(ii) payment of $0.5 million in income taxes, (iii) $0.5 million for the
acquisition of the Casino, and (iv) $1.6 million for the acquisition of, and
expenditures related to, the Project.
During Fiscal 1997, the Company used cash flows from operating activities
of $1,439,127, compared to generating cash flow of $1,468,814 in Fiscal 1996.
The decrease in cash flow is primarily attributed to decreased operating income.
In addition, the classification of the proceeds from the Settlement Agreement as
cash provided by investing activities adversely impacted the Company's cash
provided by operations.
15
<PAGE> 16
Investing Activities. Investing activities provided cash of $6,368,057 in
Fiscal 1997 compared to $1,306,952 in Fiscal 1996. Principal payments received
on long-term receivables, primarily related to the Management Agreement,
provided cash of $5,766,985 in Fiscal 1997 compared to $1,902,787 in Fiscal
1996. The Company received additional proceeds of $2,851,061 from the closing of
the Settlement Agreement. The Company used $1,791,250 in Fiscal 1997 for the
acquisition of property and equipment, intangibles and the acquisition of the
Casino, compared with $484,854 in Fiscal 1996 for similar capital expenditures.
Financing Activities. Financing activities used cash of $3,975,592 in
Fiscal 1997, compared to $3,175,632 in Fiscal 1996. Principal payments on
long-term debt used cash of $3,480,119 in Fiscal 1997, compared to $4,647,951 in
Fiscal 1996. The Company reduced its short-term borrowings by $595,000 in Fiscal
1997, compared to cash provided by short-term borrowings of $580,000 in Fiscal
1996.
Bank Financing. 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 term notes. The revolving note provides 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 revolving note was paid in full in February 1997
and expired in June 1997. The term note in the principal amount of $800,000
requires monthly payments of $22,222 commencing July 31, 1996 plus interest at a
rate equal to the bank's prime rate plus 2%, with the balance of the term note
due on June 30, 1998. In February 1997, the term note was modified to change the
interest rate to the bank's prime rate. The term note was originally secured by
substantially all of the Company's video lottery machines and the personal
guaranty of Mr. Lien. Upon the transfer of the Video Lottery Assets to North
Star in June 1997, the video lottery assets were released as security in
exchange for the Company agreeing to maintain at least $288,894 of cash on
account with the bank. Cash of $288,894 is recorded as restricted in the
accompanying financial statements.
RELATED PARTY FINANCING
From November 1997 through February 1998, the Company borrowed $1,440,000
from Mr. Bruce Lien, the majority shareholder of the Company, and BHL Capital
Corporation ("BHL Capital"), a company controlled by Mr. Lien in order to meet
its obligations under the JV Agreement and for working capital. The amounts were
borrowed pursuant to promissory notes that are due on demand and bear interest
at 18%. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." In March 1998, the
Company borrowed an additional $500,000 from Mr. Lien to repay the bank term
note that was due in June 1998 and for working capital. This loan is evidenced
by a promissory note which requires monthly payments of $8,500 plus accrued
interest at 12% per annum, with the balance due on February 28, 1999. The
Company was required to pledge all assets of the Golden Gates Casino to
Mr. Lien's bank. In April 1998, Mr. Lien signed a commitment letter whereby he
has agreed to provide additional working capital to the Company in an amount
not to exceed $500,000 (the "Working Capital Line of Credit"), the terms of
which will be negotiated in the event advances are made under the Working
Capital Line of Credit.
16
<PAGE> 17
Obligations to Bayfront Ventures.
The JV Agreement requires a minimum capital contribution of $6,405,000 (the
"Capital Contribution") from the Company. At December 31, 1997, the Company had
contributed approximately $3,000,000 to Bayfront Ventures. Although Bayfront
Ventures has obtained financing for the vessel (as described below), its ability
to purchase operational equipment, fund start up costs and meet other working
capital requirements are contingent upon the Company making its Capital
Contribution.
On January 16, 1998, Goldcoast notified the Company that the Company was in
default of its obligation to timely provide its minimum capital contributions
pursuant to the JV Agreement. On March 20, 1998, the Company and Goldcoast
entered into an agreement whereby Goldcoast waived any and all defaults of the
Company under the JV Agreement (the "Waiver Agreement"). As consideration for
such waiver, the Company agreed to waive the repayment of advances made to
Goldcoast since the commencement of the Project, except for $150,000 in advances
which will only be waived in the event the Company's annualized rate of return
in Bayfront Ventures is 33% or greater over the Project's first three years of
operation. The Waiver Agreement also provides that within 30 days the Company
must provide Goldcoast with evidence that the Company has the ability to make
its Capital Contribution.
On April 20, 1998 the Company entered into an agreement with Bruce H. Lien,
whereby Mr. Lien has agreed to provide the Company with a line of credit in the
amount of $3,000,000 (the "Project Line of Credit"), which may be used by the
Company to fund the Capital Contribution. Advances under the Project Line of
Credit will bear interest at a rate of 18% per annum, which interest shall
accrue until the Option Expiration Date (defined below), and principal and
interest shall be payable over three years beginning on the Option Expiration
Date. In consideration of the Project Line of Credit, the Working Capital Line
of Credit and the guaranty by Mr. Lien under the Line of Credit (defined below),
pursuant to an Option Agreement dated April 20, 1998 (the "Option Agreement")
the Company granted Mr. Lien an option (the "Option") to purchase all or a
portion of the Company's interest in Bayfront Ventures. The Option may be
exercised by Mr. Lien at any time on or prior to the date one year from the date
of grant ("Option Exercise Date"). The exercise price shall be equal to the
Capital Contribution plus accrued interest under the Project Line of Credit,
less any advances made under the Project Line of Credit, each as of the date of
exercise. In addition Mr. Lien shall be required to assume all of the Company's
obligations related to Bayfront Ventures, including, but not limited to the Use
Agreement, the LEG Agreement, the JV Agreement and all financing agreements in
connection therewith.
17
<PAGE> 18
In accordance with the Use Agreement in November, 1997, the Company
provided the Trust with a Letter of Credit in the principal amount of $900,000
to secure payment of the annual fees for the second and third years of the Use
Agreement. The Letter of Credit is secured by a $150,000 certificate of deposit
pledged by the Company, the personal guaranty of Mr. Lien and a mortgage on
certain real estate owned by BHL Capital. The Company is required to pay BHL
Capital a fee of $350 per day for so long as the real estate is collateral for
the Letter of Credit. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
In March 1998 Bayfront Ventures obtained a line of credit of up to $5.0
million (the "Line of Credit") in order to complete the construction of the
Vessel. The Line of Credit bears interest at an adjustable rate equal to 3.75%
per annum above the prime rate, as published in the Wall Street Journal
(currently 12.25%). The Line of Credit will be secured by, among other things, a
First Preferred Ship Mortgage on the Vessel and the guaranties of Mr. Lien, Mrs.
Lien, the Company, Goldcoast and certain other individuals (the "Guarantors").
The Line of Credit is due and payable upon the initial funding of the Permanent
Financing (defined below).
In March 1998, Bayfront Ventures also received a commitment for permanent
financing (the "Permanent Financing"), which will replace the Line of Credit
after the Vessel construction has been completed. The Permanent Financing will
be the lower of, $5,200,000, or 70% of the lesser of the cost of the Vessel, or
its estimated fair market value at the time of delivery. The Permanent Financing
will be evidenced by a promissory note payable in fifty-nine (59) equal payments
calculated on a eight (8) year amortization, along with accrued interest, with a
final balloon payment equal to the outstanding principal and interest at
maturity. The interest rate will be fixed at the five-year U.S. Treasury Note
Rate plus 4%. The Permanent Financing will be secured by, among other things, a
First Preferred Ship Mortgage on the Vessel, a first priority security interest
in the Vessel's gear, equipment and property, excluding gaming equipment. The
Permanent Financing will also be guarantied by the Guarantors.
FUTURE OPERATIONS
As of December 31, 1997, the Company's cash flow from operations was not
sufficient to meet the Company's current working capital requirements. However,
due to increased cash flow from the Casino combined with vessel financing
commitments and the financing commitment from Mr. Lien, the Company believes it
will have sufficient cash flow to meet such requirements.
FLUCTUATING MARKET
Due to the rapid growth of the Colorado gaming market, changes in the
number of facilities operating and their individual layouts, the seasonality of
the business and the local attributes of each Colorado gaming market, revenue
results have varied, and likely will vary, significantly between the various
Colorado gaming markets and between properties within those markets. As the
Black Hawk market expands, both in terms of gaming device capacity and market
share, the Central City market tends to contract. The majority of new projects
are focused in Black Hawk, accordingly, the Company expects revenue per gaming
device in Black Hawk may decline over the foreseeable future.
18
<PAGE> 19
DIFFICULTY IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES
The operation of the Casino requires qualified managers and skilled
employees with gaming industry experience and qualifications to obtain the
requisite licenses. The Company believes that a shortage of skilled labor which
exists in the gaming industry will make it increasingly difficult and expensive
to attract and retain qualified employees. Increasing competition in the Black
Hawk market may lead to higher costs in order to retain and attract qualified
employees. The Company may incur higher labor costs to attract qualified
employees from existing gaming facilities. While the Company believes that it
will be able to attract and retain qualified employees, there can be no
assurance that the Company will be able to do so.
SEASONALITY AND INCLEMENT WEATHER
Because the Casino is located in the Rocky Mountains, it is subject to
sudden and severe winter storms. Access to Black Hawk, which is located ten
miles from Interstate 70, is made via a two-lane secondary road. In bad weather,
and in the winter months generally, this access road is difficult to traverse,
which reduces the number of patrons traveling to Black Hawk and, accordingly,
negatively affects the Company's operating results during these periods. In
addition, bad weather can result in a loss of services to the Casino which also
negatively affects the Company's operating results. As a result, the Casino's
business tends to be seasonal, with the highest level of activity occurring
during the summer months.
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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
<PAGE> 20
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>
Brustuen "Bruce" H. Lien(1)(2)(3) 71 Chairman of the Board of Directors
Jerry L. Baum(2) 48 President, Chief Executive Officer, Chief Operating
Officer and Director
Deanna B. Lien(1)(2)(3) 54 Director
David L. Crabb 40 Chief Financial Officer and Treasurer
George J. Nelson 36 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.
Brustuen "Bruce" H. Lien. Chairman of the Board of Directors since August
10, 1990. Mr. Lien has previously served as Chief Executive Officer and
President of the Company. Mr. Lien is also a principal and director of Pete Lien
& Sons, Inc., a private company that is a regional leader in the construction
materials industry in the upper Midwest.
Jerry L. Baum. Chief Executive Officer since March 1997, 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 4 Bears Casino. Mr. Baum was Manager of
Operations at the Royal River Casino, an Indian casino owned by the Flandreau
Santee Sioux Tribe from March through October 1993. Prior to that, Mr. Baum was
Director of Criminal Investigation for the State of South Dakota from February
1987 to 1991.
20
<PAGE> 21
Deanna B. Lien. Director since August 10, 1990. Ms. Lien previously served
as Vice President and Treasurer of the Company. Ms. Lien is also a principal and
director of Diggers Auto Salvage, Inc., a private company.
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. Prior to that, Mr.
Crabb worked for McGladrey & Pullen from September 1980 to March 1986.
George J. Nelson. Vice President and Corporate Counsel since September 1993
and Secretary since September 1995. From March 1990 to August 1993, Mr. Nelson
was the General Manager of First Gold Hotel and Casino in Deadwood, South
Dakota. Mr. Nelson was a Deputy States Attorney from November 1986 to March 1990
in Rapid City.
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.
21
<PAGE> 22
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 $100,000 for the
last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION
COMPENSATION AWARDS ($)
------------------------- ------------ -------------
Securities
Underlying
Options/SARs
Name and (#)
Principal Position Year Salary ($) Bonus ($) Options (#)
- ------------------ ---- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Bruce H. Lien(1) 1997 -0- -0- -0- -0-
Chairman of the Board 1996 -0- -0- -0- -0-
1995 -0- -0- -0- -0-
1997 120,000 -0- 400,000 -0-
Jerry L. Baum(2) 1996 120,000 -0- 300,000 -0-
Chief Executive Officer 1995 111,667 -0- 59,740 -0-
</TABLE>
- ---------------
(1) Chief Executive Officer from April 1995 through March 1997.
(2) Chief Executive Officer since March 1997 and President since June 1995.
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.
22
<PAGE> 23
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
% of Total
Number of Securities Options Granted
Underlying Options to Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Share) Expiration Date
---- --------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Jerry L. Baum 400,000 50% $0.15 January 31, 2007
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
Jerry L. Baum 276,104/623,896 $0/$0
</TABLE>
(1) Based on the bid price of the Common Stock on September 30, 1997.
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 800,000 shares of
Common Stock were granted pursuant to the Plan during Fiscal 1997. In addition,
options for the purchase of 314,030 shares, issued in fiscal year 1994, were
cancelled and reissued in January 1997. As of September 30, 1997, options to
purchase 1,860,000 shares of Common Stock were outstanding pursuant to the Plan,
593,612 of which were vested at September 30, 1997.
23
<PAGE> 24
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 March 31, 1998 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.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name Owned(1) Class
---- ------------ -----------
<S> <C> <C>
Brustuen "Bruce" H. Lien ................ 18,487,500(2)(4) 72.0%
3290 Lien Street
Rapid City, SD 57702x
Deanna B. Lien(2) ....................... 18,487,500(3)(4) 72.0%
3290 Lien Street
Rapid City, SD 57702x
University of Wyoming Foundation ........ 1,900,000 8.0%
P. O. Box 3963
Laramie, WY 82071x
Jerry L. Baum ........................... 276,104(5) 1.2%
3290 Lien Street
Rapid City, SD 57702x
All executive officers and directors as a
group (5 persons) ....................... 19,018,279(4)(6) 72.6%
</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
24
<PAGE> 25
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 527,612 shares of Common Stock which may be acquired
pursuant to currently exercisable stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1997 and 1996, Mr. Lien, and BHL Capital, loaned money to the
Company under various promissory notes. These amounts loaned varied by month to
month and carried an interest rate ranging from prime rate plus 2% to 18% fixed
rate. The Company incurred interest expense relating to these notes payable of
$27,699 and $74,318, for Fiscal 1997 and Fiscal 1996, 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 December 1993, for $2,400,000 for construction of the Casino. The
balance on the note at September 30, 1997 and 1996 was $0 and $1,497,892,
respectively.
(b) 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, 1997 and 1996 was $0 and $10,208,
respectively.
(c) 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, 1997 and 1996 was $466,667 and $733,334, respectively.
(d) 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, 1997 and 1996 was $0 and $500,000, respectively.
(e) Personal guarantee of a conditional credit line to a bank, dated
April 1996, for $100,000. The balance on the note at September 30, 1997 and
1996 was $0 and $95,000, respectively.
25
<PAGE> 26
(f) Personal guarantee of a letter of credit dated November 7, 1997
for $900,000, related to the Use Agreement.
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 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 BHL Capital under a lease that expires
September 30, 1998. The monthly lease payment, including real estate taxes and
utilities, is $2,597.
The Company also leases an airplane, on an as needed basis, from BHL
Capital. The Company incurred lease payments to this affiliate of $26,678 and
$43,966 during Fiscal 1997 and Fiscal 1996, respectively.
26
<PAGE> 27
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The following documents of the Company are filed as part of this Report:
<TABLE>
<CAPTION>
Financial Statements Page
----
<S> <C>
Independent Auditors' Report (KPMG Peat Marwick LLP).......................F-1
Consolidated Balance Sheets at September 30, 1997 and 1996.................F-2
Consolidated Statements of Income for the
Years Ended September 30, 1997 and 1996..................................F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended September 30, 1997 and 1996..............................F-5
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1997 and 1996..................................F-6
Notes to Consolidated Financial Statements.................................F-8 - F-26
</TABLE>
27
<PAGE> 28
(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 Settlement Agreement dated September 30, 1994 between the
Registrant, Bruce H. Lien Company, Brustuen "Bruce" H. Lien and
Four Bears Investment Limited Liability Company.(4)
10.4 Development Agreement among the Company, Concorde Gaming of
Missouri, Inc. and the City of Lexington, Missouri dated
September 26, 1995.(1)
10.5 Indemnification Agreement between the Company and Bruce H. Lien.
(1)
10.6 Second Renewal Promissory Note in the principal amount of
$2,400,000 dated December 21, 1995 issued by the Company to
Roland Gentner.(1)
10.7 Second Loan Extension Agreement dated December 21, 1995 between
the Company and Roland Gentner.(1)
10.8 Promissory Note in the amount of $690,000 dated September 30,
1996 issued by the Company to BHL Capital Corporation.(5)
10.9 Assignment Agreement dated April 6, 1995 between the Company and
Federalist Municipal Development Corporation.(1)
10.10 Settlement Agreement between The Three Affiliated Tribes of the
Fort Berthold Reservation and Bruce H. Lien Company dated
September 27, 1996.(4)
10.11 Loan Agreement between the Company and BNC National Bank of
Minnesota dated June 20, 1996 (5)
10.12 Term Note in the amount of $800,000 dated June 20, 1996 issued by
BNC National Bank to the Company (5)
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.13 Short-Term Revolving Note in the amount of $500,000 dated
June 20, 1996 issued by BNC National Bank to the Company. (5)
10.14 Amendment No 1 to Settlement Agreement dated January 7, 1997
between BHL and FBILLC.(5)
10.15 Lease between Elevation 8000+ and Concorde Cripple Creek, Inc.
dated July 21, 1997.(+)
10.16 Agreement dated August 5, 1997, by and between Leo Equity Group,
Inc. and Concorde Gaming Corporation.(+)
10.17 Use Agreement dated June 28, 1997, by and between Bayfront
Ventures and Bayfront Park Management Trust.(+)
10.18 Joint Venture Agreement dated August 27, 1997, by and between
Concorde Gaming Corporation and Goldcoast Entertainment Cruises,
Inc.(+)
10.19 Vessel Construction Agreement dated August 26, 1997, by and
between Keith Marine, Inc. and Bayfront Ventures.(+)
10.20 Waiver Agreement dated March 20, 1998, by and between Goldcost
Entertainment Cruises, Inc. and Concorde Gaming Corporation.(+)
10.21 Option Agreement dated April 20, 1998 between Concorde Gaming
Corporation and Bruce H. Lien.(+)
10.22 Promissory Note dated April 20, 1998 in the aggregate principal
amount of $3,000,000 executed by Concorde Gaming Corporation and
BHL Capital Corporation.(+)
11 Computation of Per Share Earnings.(+)
21 Subsidiaries of the Registrant.(+)
23 Consent of Independent Auditors'.(+)
27 Financial Data Schedule(+)
</TABLE>
(+) Filed herewith
(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.
29
<PAGE> 30
(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 by the Company
as an exhibit to its Current Report on Form 8-K dated September 27, 1996.
(5) Previously filed with the Securities and Exchange Commission by the Company
as an exhibit to its Annual Report on Form 10-KSB for the year ended September
30, 1996.
(b) Reports on Form 8-K:
1. The Company filed a Current Report on Form 8-K dated July 1, 1997
under Item 2, which was amended by Form 8-K/A filed on September 2,
1997.
2. The Company filed a Current Report on Form 8-K dated August 5, 1997
under Item 2.
30
<PAGE> 31
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
April 29, 1998 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.
/s/ Brustuen "Bruce" H. Lien Chairman of the Board April 29, 1998
- ---------------------------- of Directors and Chief
Brustuen "Bruce" H. Lien Executive Officer
/s/ Jerry L. Baum President, Chief Executive April 29, 1998
- ---------------------------- Officer, Chief Operating
Jerry L. Baum Officer and Director
/s/ Deanna B. Lien Director April 29, 1998
- ----------------------------
Deanna B. Lien
/s/ David L. Crabb Chief Financial Officer, April 29, 1998
- ---------------------------- Principal Accounting
David L. Crabb Officer and Treasurer
<PAGE> 32
CONCORDE GAMING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
<PAGE> 33
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, 1997 and 1996, 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, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
November 21, 1997 except as to note 16 which is as of April 20, 1998
F-1
<PAGE> 34
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 1,073,910 120,572
Restricted cash 288,894 0
Receivables:
Trade 33,175 13,156
Management agreement 0 230,442
Interest 0 37,120
Current maturities of long-term receivables:
The Three Affiliated Tribes (note 2) 0 1,675,800
Notes receivable (note 4) 51,000 30,584
Property held for sale 195,216 0
Prepaid expenses 508,939 47,385
Other current 29,470 33,828
----------- -----------
Total current assets 2,180,604 2,188,887
----------- -----------
Investments and long-term receivables:
Long-term receivables from the Three Affiliated
Tribes (note 2) 0 4,076,204
Notes receivable, less current maturities (note 4) 95,000 8,509
Investment in unconsolidated affiliate (note 5) 200,413 236,364
Deferred income taxes (note 10) 66,000 0
Other 1,250 3,250
----------- -----------
362,663 4,324,327
----------- -----------
Property and equipment, at cost:
Land 1,097,080 50,000
Building 0 205,511
Boat construction in progress 706,250 0
Gaming equipment and office furniture 1,348,712 2,756,205
Vehicles 58,274 120,825
Leasehold improvements 0 301,447
----------- -----------
3,210,316 3,433,988
Less accumulated depreciation and amortization (83,412) (1,491,883)
----------- -----------
3,126,904 1,942,105
----------- -----------
Intangibles:
Noncompetition agreements, net 0 34,782
Dock rights 355,000 0
Casino development and financing costs, net (note 6) 170,410 523,741
Other, principally goodwill, net 711,359 402,799
----------- -----------
1,236,769 961,322
----------- -----------
$ 6,906,940 9,416,641
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 35
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable (note 7) $ 0 595,000
Current maturities of long-term debt (note 8) 570,085 2,631,981
Accounts payable:
Trade 109,836 121,926
Construction related 0 199,855
Accrued expenses:
Lottery state share 0 150,473
Payroll and payroll taxes 100,363 36,669
Accrued interest 2,285 131,335
Other 198,380 44,270
Income taxes payable 206,471 126,600
----------- -----------
Total current liabilities 1,187,420 4,038,109
----------- -----------
Long-term debt, less current maturities (note 8) 476,638 617,774
Note payable to related party (note 7) 0 690,000
Deferred income taxes (note 10) 0 46,600
----------- -----------
Total liabilities 1,664,058 5,392,483
----------- -----------
Stockholders' equity (notes 9, 11, and 13):
Common stock, par value $.01 per share, authorized
500,000,000 shares; issued and outstanding 23,673,126 and
26,755,193 at September 30, 1997 and 1996, respectively 236,731 267,552
Preferred stock, par value $.01 per share, authorized
10,000,000 shares; no shares issued and out-
standing at September 30, 1997 and 1996 0 0
Additional paid-in capital 3,858,732 3,907,547
Retained earnings 1,280,737 350,538
----------- -----------
5,376,200 4,525,637
Less stock subscription in the form of a note and
related accrued interest receivable (note 9) (133,318) (183,877)
Less cost of treasury stock, 0 and 4,825,400 shares at
September 30, 1997 and 1996, respectively 0 (317,602)
----------- -----------
Total stockholders' equity 5,242,882 4,024,158
Commitments and contingencies (notes 13 and 14)
----------- -----------
$ 6,906,940 9,416,641
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE> 36
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Video lottery $ 5,705,609 8,985,467
Casino operations 666,103 0
Management Agreement (note 2) 208,371 2,064,649
Other 95,689 192,470
------------ ------------
Total revenue 6,675,772 11,242,586
------------ ------------
Costs and expenses:
Video lottery state share 2,839,666 4,471,432
Video lottery location share 1,864,750 2,891,852
Compensation expenses 1,056,948 981,536
Business development costs 195,857 74,786
Depreciation and amortization 508,944 636,331
Write-off of casino development costs
and long-lived assets (note 1) 376,897 0
Operating expenses 1,022,741 1,234,633
------------ ------------
Total costs and expenses 7,865,803 10,290,570
------------ ------------
Operating income (loss) (1,190,031) 952,016
------------ ------------
Other income (expense):
Interest income 133,382 683,444
Gain/(loss) on sale of equipment 19,750 (6,882)
Gain on termination of management agreement 2,819,750 0
Other income 40,289 8,435
Interest expense and financing costs (283,741) (794,054)
Equity in earnings of unconsolidated
affiliate (note 5) 9,800 53,700
------------ ------------
2,739,230 (55,357)
------------ ------------
Income before income taxes 1,549,199 896,659
Federal and state income taxes (note 10 and 14) 619,000 339,000
------------ ------------
Net income $ 930,199 557,659
------------ ------------
Net income per common and common
equivalent share $ 0.04 0.03
------------ ------------
Weighted average number of common and
common equivalent shares outstanding 22,227,104 22,175,415
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 37
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Retained
Additional earnings
Number Common paid-in (accumulated
of shares stock capital deficit)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance September 30, 1995 26,755,193 $ 267,552 3,868,775 (207,121)
Net income 0 0 0 557,659
Issuance of warrant for 80,000 shares of
common stock in connection with note
payable (note 11) 0 0 1,600 0
Interest earned on note receivable (note 9) 0 0 37,172 0
Principal payments received on note
receivable (note 9) 0 0 0 0
----------- ----------- ----------- -----------
Balance September 30, 1996 26,755,193 267,552 3,907,547 350,538
Net income 0 0 0 930,199
Cancellation of 4,825,400 shares of common
stock related to liquidation of subsidiary
into parent (4,825,400) (48,254) (269,348) 0
Issuance of 1,743,333 shares of common
stock relating to asset exchange agreement 1,743,333 17,433 191,767 0
Interest earned on note receivable (note 9) 0 0 28,766 0
Principal payments received on note
receivable (note 9) 0 0 0 0
----------- ----------- ----------- -----------
Balance September 30, 1997 23,673,126 $ 236,731 3,858,732 1,280,737
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Stock
subscription
in the form
of a note
and related
accrued
interest Treasury
receivable stock Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance September 30, 1995 (226,032) (317,602) 3,385,572
Net income 0 0 557,659
Issuance of warrant for 80,000 shares of
common stock in connection with note
payable (note 11) 0 0 1,600
Interest earned on note receivable (note 9) 424 0 37,596
Principal payments received on note
receivable (note 9) 41,731 0 41,731
----------- ----------- -----------
Balance September 30, 1996 (183,877) (317,602) 4,024,158
Net income 0 0 930,199
Cancellation of 4,825,400 shares of common
stock related to liquidation of subsidiary
into parent 0 317,602 0
Issuance of 1,743,333 shares of common
stock relating to asset exchange agreement 0 0 209,200
Interest earned on note receivable (note 9) 509 0 29,275
Principal payments received on note
receivable (note 9) 50,050 0 50,050
----------- ----------- -----------
Balance September 30, 1997 (133,318) 0 5,242,882
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 38
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 930,199 557,659
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization 508,944 636,331
Warrants issued 0 1,600
Deferred income taxes (112,600) (21,600)
Equity in earnings of unconsolidated affiliate (9,800) (53,700)
Gain on termination of management agreement (2,819,750) 0
(Gain) loss on disposal of property and equipment, real estate (19,750) 6,882
Write-off of casino development costs and long-lived assets 376,897
Change in assets and liabilities:
Receivables - trade, management agreement, and interest 274,282 92,270
Prepaid expenses (409,574) 6,013
Accounts payable and accrued expenses (242,780) 89,693
Income taxes payable 79,871 167,912
Other 4,934 (14,246)
----------- -----------
Net cash provided by (used in) operating activities (1,439,127) 1,468,814
----------- -----------
Cash flows from investing activities:
Advances on long-term receivables (121,035) (101,000)
Principal payments received on long-term receivables 5,766,985 1,902,787
Proceeds from termination of management agreement 2,851,061 0
Purchase of property and equipment (856,690) (423,015)
Purchase of intangibles (454,306) (61,839)
Proceeds from sale of property and equipment, real estate 102,314 40,304
Payments for casino development costs (177,626) (182,884)
Payments related to asset exchange with North Star Casino, LLC (480,254) 0
Investment in and advances to unconsolidated affiliate 0 120,110
Increase in restricted cash (288,894) 0
Other 26,502 12,489
----------- -----------
Net cash provided by investing activities 6,368,057 1,306,952
----------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowing 20,201 812,992
Principal payments on long-term debt (3,480,119) (4,647,951)
Net change in short-term borrowings (595,000) 580,000
Payments received on stock subscription in the form of a note
and related accrued interest receivable 79,326 79,327
----------- -----------
Net cash used in financing activities (3,975,592) (3,175,632)
----------- -----------
Net increase (decrease) in cash 953,338 (399,866)
----------- -----------
Cash, beginning of year 120,572 520,438
----------- -----------
Cash, end of year $ 1,073,910 120,572
=========== ===========
(Continued)
</TABLE>
F-6
<PAGE> 39
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 409,602 736,890
--------- --------
Income taxes $ 545,000 190,764
--------- --------
Supplemental schedule of noncash investing and financing activities:
Issuance of note payable for acquisition of property and equipment $ 0 190,000
--------- --------
Purchase of 40 shares of Bayou Gaming, Inc. common stock $ 0 192,287
--------- --------
Cancellation of treasury stock $ 317,602 0
--------- --------
Note receivable received for sale of Video Lottery Casino assets $ 51,000 0
--------- --------
Fair value of common stock issued to North Star Casino, LLC $ 209,200 0
--------- --------
Property and equipment transferred to property held for resale $ 195,216 0
--------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 40
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(1) NATURE OF BUSINESS, PRINCIPLES OF CONSOLIDATION, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Concorde Gaming Corporation and its subsidiaries (the Company) is a
diversified gaming company that seeks to capitalize on its
experience as an operator of casinos and gaming machines. Concorde
currently owns and operates the Golden Gates Casino in Black Hawk,
Colorado and is developing an offshore gaming vessel to be
operated in Miami, Florida.
The Company previously owned and operated video lottery route
operations in South Dakota and developed and managed the 4 Bears
Casino and Lodge (4 Bears Casino) for the Three Affiliated Tribes
(TAT) on Indian land in North Dakota in accordance with a
management agreement (Management Agreement). In February 1997 the
Company received a $8.65 million payment from TAT under a buyout
settlement agreement (Settlement Agreement) in exchange for
termination of the Management Agreement and dismissal of
outstanding disputes with TAT. The video lottery operations were
exchanged in June 1997 in conjunction with the acquisition of the
Golden Gates Casino.
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. Subsidiaries at September 30, 1997
include Concorde Cripple Creek, Inc. (100% owned), Midwest Gaming,
Inc. (100%), Concorde Gaming of Missouri, Inc. (100%) and Bayfront
Ventures (80% owned joint venture). During fiscal 1997 the 100%
owned subsidiaries Concorde Gaming of South Dakota, Inc. and Bruce
H. Lien Company ceased their operations and were dissolved.
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.
(Continued)
F-8
<PAGE> 41
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
In accordance with industry practice, the Company recognizes gaming
revenues as the net win from gaming operations, which is the
difference between amounts wagered by customers and payments to
customers.
RESTRICTED CASH
Restricted cash is held at a bank in accordance with an agreement with
one of the Company's lenders.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Forthe years ended September 30, 1997 and 1996, 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
Property and equipment placed in service are depreciated over their
estimated useful lives using the straight-line or accelerated
methods. Estimated useful lives for furniture, gaming equipment
and vehicles are 5 to 7 years, for leasehold improvements 7 to 20
years or the life of the underlying lease, if shorter, and for
buildings and improvements 39 years.
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 1996 balance sheet is net of
accumulated amortization of $97,338.
Goodwill (excess of purchase price over net assets acquired) is
amortized over its estimated useful life of 10 to 15 years using
the straight-line method. Amounts reflected on the consolidated
balance sheets are net of accumulated amortization of $35,726 and
$171,062 in 1997 and 1996, respectively.
Casino development and financing costs related to the Management
Agreement were amortized using the straight-line method over the
seven-year term of the Management Agreement up to the settlement
date. Casino development costs related to offshore gaming
operations will be amortized upon commencement of operations.
(Continued)
F-9
<PAGE> 42
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
TheCompany assesses the recoverability of intangible assets 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, 1997, 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/or the
establishment of a gaming operation.
INCOME TAXES
TheCompany accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) 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. 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.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. SFAS 121, effective
for fiscal years beginning after December 15, 1995, requires that
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company adopted SFAS No. 121
in the current year, and recorded charges to income for the
impairment of $270,897 and $106,000 for casino development costs
and property and equipment that have been classified as property
held for sale, respectively.
(Continued)
F-10
<PAGE> 43
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS 123, effective for fiscal years
beginning after December 15, 1995, establishes financial
accounting and reporting standards for stock-based employee
compensation plans and for transactions in which an entity issues
its equity instruments to acquire goods and services from
nonemployees. The Company continues to account for stock-based
compensation arrangements in accordance with Accounting Principles
Board (APB) No. 25, Accounting for Stock Issued to Employees, and
therefore the adoption of SFAS 123 had no effect on the financial
position or results of operations of the Company. The Company has
included additional disclosures about stock-based employee
compensation plans as required by SFAS 123 (see Note 11).
NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, Earnings per Share.
This statement establishes standards for computing and presenting
earnings per share and is effective for financial statements
issued for periods ending after December 15, 1997. Earlier
application of this statement is not permitted and upon adoption
requires restatement (as applicable) of all prior-period earnings
per share data presented. Management does not believe this
standard will have a significant impact on earnings per share.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement requires companies to classify items of
other comprehensive income by their nature in a financial
statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. This statement is effective for financial
statements issued for fiscal years beginning after December 15,
1997. Management does not believe this standard will have a
significant impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. This statement
establishes additional standards for segment reporting in the
financial statements and is effective for fiscal years beginning
after December 15, 1997. The Company believes the segment
information required to be disclosed under this statement will be
more comprehensive than previously provided, including expanded
disclosure of income statement and balance sheet items for each of
its reportable segments. However, the Company has not yet
completed its analysis of which operating segments it will report
on.
(Continued)
F-11
<PAGE> 44
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
In April 1998, the Accounting Standards Executive Committee issued a
Statement of Position (SOP), Reporting on the Costs of Start-Up
Activities. This SOP requires costs of start-up activities to be
expensed as incurred effective for financial statements for fiscal
years beginning after December 15, 1998. The Company will adopt
this method of reporting on development and start-up costs in
accordance with the SOP.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
(2) MANAGEMENT AGREEMENT AND SETTLEMENT AGREEMENT
The Company had an agreement with the TAT for the management of the 4
Bears Casino located on the Fort Berthold Indian Reservation near
New Town, North Dakota. The Management Agreement governed 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.
On September 27, 1996, the Company and TAT entered into the Settlement
Agreement to resolve disputes that arose out of the Management
Agreement. On February 13, 1997, TAT paid the Company $8.65 million
in accordance with the Settlement Agreement and in consideration for
the termination of the Management Agreement. At the time of payment,
the Company had $5,830,250 of notes receivable and unamortized
intangibles related to the Management Agreement, resulting in a gain
from the termination of the Management Agreement of $2,819,750 which
has been recorded as other income in the 1997 statement of income.
The proceeds from the Settlement Agreement were used to pay off
substantially all the Company's debt, for working capital purposes,
and to fund the acquisition of the Golden Gates Casino and develop
the offshore gaming project in Miami, Florida. See notes 7 and 8.
(Continued)
F-12
<PAGE> 45
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(3) ACQUISITIONS
NORTH STAR ASSET EXCHANGE AGREEMENT
On June 16, 1997, the Company completed the exchange of substantially
all of the assets related to its video lottery route operations in
South Dakota (the "Video Lottery Assets"), pursuant to the terms
of an Asset Exchange Agreement (the "Exchange Agreement") dated
June 12, 1997 by and among the Company, its subsidiaries, and
North Star Casino Limited Liability Company ("North Star").
Effective July 21, 1997, the Company completed the acquisition of
substantially all of North Star's assets used in its business of
owning and operating the Golden Gates Casino in Black Hawk,
Colorado (the "Casino Assets"). A condition to the Company
acquiring the Casino Assets was the licensing of the Company by
the Colorado Gaming Commission (the "Commission") on or before
September 1, 1997. The Commission licensed a wholly owned
subsidiary of the Company on July 21, 1997. This acquisition was
accounted for as a purchase and the operating results of the
Casino Assets have been included in the Company's consolidated
financial statements since the date of acquisition. In addition to
the transfer of Video Lottery Assets, the Company paid
approximately $480,000 in cash, assumed approximately $773,000 in
liabilities and issued 1,743,333 shares of the Company's common
stock to North Star. The exchange was accounted for using fair
values and resulted in $616,850 of goodwill that is being
amortized using the straight-line method over 15 years.
The Company's primary source of revenue and net income are
currently dependent upon the results obtained from the Casino
Assets. Unaudited proforma consolidated financial operations for
the years ended September 30, 1997 and 1996, as though the Casino
Assets had been acquired as of October 1, 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues $ 9,483,384 $ 15,928,790
Net income $ 952,761 $ 552,372
Net income per common share $ 0.04 $ 0.02
</TABLE>
(Continued)
F-13
<PAGE> 46
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
BAYFRONT VENTURES
On August 5, 1997, the Company acquired an 80% interest in Bayfront
Ventures, a Florida joint venture. The acquisition was accounted for
as a purchase and the operating results of the business have been
included in the Company's consolidated financial statements since
the date of acquisition. The purchase price of this business was an
initial payment of $650,000 and future consideration equal to 2% of
Bayfront Venture's "gaming win" per operating year for each of the
first three operating years. The future payments will be a minimum
of $175,000 but not greater than $400,000. Once the actual payment
is determined for each of the first three operating years, the
amount will be recorded as goodwill and amortized using the
straight-line method over the remaining term of the dock lease. The
$650,000 initial purchase price includes $355,000 of cost in excess
of book value of assets acquired that will be amortized over the
term of the dock lease (10 years). The joint venture has entered
into an agreement for the construction of a gaming vessel. Costs
associated with this commitment are estimated to be $6,000,000. The
joint venture also has entered into an agreement to lease dock space
requiring annual payments ranging form $400,000 to $475,000.
(4) NOTES RECEIVABLE
Notes receivable consist of:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C>
Various notes receivable repaid in full during the year
ended September 30, 1997 $ 0 39,093
Other notes receivable 146,000 0
---------------------------------------------------------------------------------------------
146,000 39,093
Less current maturities (51,000) (30,584)
---------------------------------------------------------------------------------------------
$ 95,000 8,509
=============================================================================================
</TABLE>
(Continued)
F-14
<PAGE> 47
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(5) 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. As a result,
the Company discontinued recording its share of any equity in
earnings generated by Bayou effective November 1996. Management
anticipates Bayou's operations will generate sufficient cash flows
prior to the termination of video poker in these parishes to
recover its investment of $200,413 at September 30, 1997.
(6) CASINO DEVELOPMENT COSTS
Casino development costs consist of:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C>
Related to the Management Agreement $ 0 441,972
Related to new casino development (note 3) 170,410 263,679
-------------------------------------------------------------------------------------------
170,410 705,651
Less accumulated amortization 0 (181,910)
-------------------------------------------------------------------------------------------
$ 170,410 523,741
===========================================================================================
</TABLE>
(Continued)
F-15
<PAGE> 48
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(7) NOTES PAYABLE AND LINES OF CREDIT
Notes payable and lines of credit consist of:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured note payable to a related party, controlled by the majority
stockholder paid off during the year ended September 30, 1997. $ 0 690,000
Bank lines of credit paid off during the year ended September 30,
1997. 0 595,000
-----------------------------------------------------------------------------------------------------
1,285,000
Less current maturities 0 (595,000)
-----------------------------------------------------------------------------------------------------
$ 0 690,000
=====================================================================================================
</TABLE>
(8) LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage payable to third party in monthly
installments of $5,220, including interest at
prime plus 2% to April 2005; secured by real
estate. $ 326,554 0
Note payable to third party paid off during the year
ended September 30, 1997. 0 634,306
11.5% note payable to a vendor in monthly
installments of $6,206, including interest to
September 1999; secured by slot machines. 132,500 0
9.25% mortgage payable to third party in monthly
installments of $329, including interest to May
2001; secured by real estate. 39,625 0
</TABLE>
(Continued)
F-16
<PAGE> 49
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
9% note payable to a bank in monthly
installments of $419, including interest to
June 2002; secured by a vehicle. 19,396 0
Note payable to third party paid off during the
year ended September 30, 1997. 0 73,728
Note payable to third party paid off during the
year ended September 30, 1997. 0 80,218
Note payable to individual paid off during the
year ended September 30, 1997. 0 1,497,892
Notepayable to a bank, with interest at prime,
monthly principal payments of $22,222 plus
interest through June 1998 when the remaining
balance is due; secured by cash and guaranteed
by majority stockholder. 466,670 733,334
Note payable to third party paid off during the year
ended September 30, 1997. 0 154,883
Other notes, due in various monthly installments
to March 2006, at various rates from 6.90%
to 13.93%, secured in part by property and equipment. 61,978 75,394
- -----------------------------------------------------------------------------------------
1,046,723 3,249,755
Less current maturities (570,085) (2,631,981)
- -----------------------------------------------------------------------------------------
$ 476,638 617,774
=========================================================================================
</TABLE>
The prime interest rates at September 30, 1997 and 1996 were 8.5% and 8.25%,
respectively.
(Continued)
F-17
<PAGE> 50
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
The future aggregate annual maturities of long-term debt at September
30, 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal year ending:
----------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 570,085
1999 112,729
2000 47,427
2001 90,604
2002 56,013
Thereafter 169,865
----------------------------------------------------------------------------------------------------
$ 1,046,723
====================================================================================================
</TABLE>
(9) 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.
(Continued)
F-18
<PAGE> 51
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(10) INCOME TAXES
The income tax provision for the years ended September 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Federal $ 652,000 352,600
State 3,000 8,000
Deferred (benefit) (36,000) (21,600)
- -------------------------------------------------------------------------------------------------
$ 619,000 339,000
=================================================================================================
</TABLE>
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>
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense $ 526,730 309,225
Permanent differences, net 49,100 5,645
State income taxes, net of federal effect 1,980 5,200
Other 41,190 18,930
- --------------------------------------------------------------------------------------------
$ 619,000 339,000
============================================================================================
</TABLE>
Net deferred tax asset (liabilities) are as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Intangibles $ 30,000 58,000
Reserves not currently deductible 36,000 0
- ------------------------------------------------------------------------------------
66,000 58,000
Deferred tax liabilities:
Other 0 (104,600)
- ------------------------------------------------------------------------------------
Net $ 66,000 (46,600)
====================================================================================
</TABLE>
(Continued)
F-19
<PAGE> 52
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
(11) 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,
1997, 1,860,000 incentive stock options were issued and
outstanding under the Plan. The options were granted at exercise
prices ranging from $0.15 to $0.42 per share and vest ratably over
a five-year period. Options for the purchase of 593,612 shares
were vested at September 30, 1997. No options under the Plan have
been exercised. Options for the purchase of 314,030 shares, issued
in fiscal year 1994, were canceled and reissued in January 1997.
The exercise price per share was decreased from $1.00 to $0.15.
Summarized information for all options is as follows for the years
ended September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Outstanding: Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Beginning of year 1,110,000 $ 0.32 (A) 500,000 $ 0.23
Granted 800,000 $ 0.15 610,000 $ 0.40
Exercised 0 0
Canceled (50,000) $ 0.41 0
------------ -------------
End of year 1,860,000 $ 0.25 1,110,000 $ 0.32
Exercisable at end of year 593,612 $ 0.23 225,612 $ 0.19
============ =============
Options available for grant 340,000 1,090,000
</TABLE>
(A) Reflects the cancellation and reissuance of options for 314,030
shares in fiscal 1997 for which the exercise price was reduced.
(Continued)
F-20
<PAGE> 53
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ------------ ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.15 1,114,030 8.5 $ 0.15 411,224 $ 0.15
$0.40 - $0.42 745,970 8.3 $ 0.40 182,388 $ 0.41
------------------- ------------------
1,860,000 8.4 $ 0.25 593,612 $ 0.23
</TABLE>
In June 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.
In January 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.
In December 1993, December 1994 and November 1995, the Company granted
warrants to purchase 960,000 common shares in conjunction with the
terms of a note payable to an individual. The warrants have exercise
prices ranging from $0.75 to $1.00 per common share and expire
between December 1998 and November 2000.
The Company has adopted the disclosures-only provision of SFAS No. 123,
Accounting for Stock-Based Compensation. The Company applies APB
Opinion No. 25 and related interpretations in accounting for its
stock options. Under APB 25, no compensation cost has been
recognized in the financial statements for the Stock Option Plan.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. Had compensation
cost for the stock option grants been determined based on the fair
value at the date of grant for awards consistent with the provisions
of SFAS 123, the Company's net income per common and common
equivalent share would have been decreased to the pro forma amounts
below for the years ended September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income - as reported $ 930,199 $ 557,659
Net income - pro forma $ 887,648 $ 499,918
Net income per common and common equivalent
shares - as reported $ 0.04 $ 0.03
Net income per common and common equivalent
shares - pro forma $ 0.04 $ 0.02
</TABLE>
(Continued)
F-21
<PAGE> 54
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
The fair value of each option granted in fiscal year 1997 and 1996 was
estimated using the following assumptions for the Black-Scholes
option-pricing model: (i) no dividends, (ii) expected volatility
for both years of 30%, (iii) risk free interest rates averaging 6%
for both years and (iv) the expected average life of 5 years for
both years. The weighted average fair value of the options granted
in 1997 and 1996 were $0.04 and $0.10, respectively. Because the
SFAS 123 method of accounting has not been applied to options
granted prior to October 31, 1995, the resulting pro forma net
income may not be representative of that to be expected in future
years.
(12) RELATED PARTY TRANSACTIONS
Rentexpense to related parties totaled $34,350 and $28,501 for 1997
and 1996, respectively. The Company leases office space from a
related party under a lease that expires September 30, 1998.
The Company also leases an airplane from a related party. The lease
payments are based on the Company's actual usage and totaled
$26,678 and $43,966 during 1997 and 1996, respectively.
Through January 31, 1997, the Company was charged for employee health
care premiums that are paid by a related party. During the years
1997 and 1996, $0 and $13,333, respectively, were charged to the
Company.
Interest expense relating to notes payable to majority shareholder and
related parties controlled by the majority shareholder was $27,699
and $74,318 for the years 1997 and 1996, respectively.
(13) COMMITMENTS
LEASES
The Company has several noncancelable operating leases, primarily for
casino property, that expire over the next five years. These
leases generally contain renewal options for periods ranging one
to ten 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, 1997 and 1996 was
$153,404 and $79,969, respectively.
(Continued)
F-22
<PAGE> 55
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
The future aggregate minimum lease payments as of September 30, 1997
are as follows:
<TABLE>
<CAPTION>
Fiscal year ending:
---------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 800,000
1999 782,000
2000 807,000
2001 804,000
2002 822,000
---------------------------------------------------------------------------------------------------
$ 4,016,000
===================================================================================================
</TABLE>
The casino lease also requires the Company to pay additional rent
based on a percentage of adjusted net gaming revenue of Golden
Gates Casino as set forth in the casino lease agreement. Base
rental payments under the agreement are included in the minimum
lease payments above.
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 $17,295 and $12,266 during the
years ended September 30, 1997 and 1996, respectively.
JOINT VENTURE FUNDING
The Bayfront Ventures joint venture agreement (JV Agreement) requires
a minimum capital contribution of $6,405,000 (the Capital
Contribution) from the Company. At September 30, 1997, the Company
had contributed approximately $1,630,000 to Bayfront Ventures.
Although Bayfront Ventures has obtained financing for the vessel
its ability to purchase operational equipment, fund start up costs
and meet other working capital requirements are contingent upon
the Company making its Capital Contribution. See Note 16
Subsequent Events.
(14) CONTINGENCIES
The Internal Revenue Service (IRS) has audited the income tax returns
for fiscal years 1995 and 1994. The IRS has proposed adjustments
relating to the contract termination costs related to third party
financing for the Management Agreement deducted by the Company in
the 1994 return. The IRS proposes that these costs be amortized
over the life of the Management Agreement, rather than expensed in
1994. The deficiency notice issued shows tax liabilities of
approximately $74,700 for 1994 and $379,200 for 1995, before
interest. No penalties are presently being assessed and the IRS
has not computed any interest due, since fiscal years 1996 and
1997 have tax payments that would be applied to these
deficiencies.
(Continued)
F-23
<PAGE> 56
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
Management believes the expensing of the contract termination costs in
fiscal 1994 is proper and has requested an appeal conference to
further review the facts in this matter. In the event that the
Company's appeal is not successful, the amortization of the
contract termination costs would result in tax overpayments in
fiscal years 1996 and 1997, which would result in reducing the
deficiencies for 1994 and 1995 to approximately $67,000 of tax and
approximately $62,000 of interest. These amounts approximate the
current tax liability reflected for 1997 without the proposed
audited adjustments. Management believes that adequate provision
for income taxes and interest has been made in the financial
statements, regardless of the outcome of the IRS's proposed
adjustments.
(15) DISCLOSURES ABOUT FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practical to estimate that value:
CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those instruments.
TRADE ACCOUNTS RECEIVABLE, NOTES RECEIVABLE, ACCOUNTS PAYABLE,
ACCRUED LIABILITIES AND NOTES PAYABLE
The carrying amounts of trade accounts receivable, accounts payable
and accrued liabilities approximate fair value because of the
short maturity of those instruments.
Management estimates that the notes receivable and notes payable
approximate fair value as they generally include variable interest
rates.
(16) SUBSEQUENT EVENTS
In October 1997, the Company entered into a parking garage agreement
for the purpose of constructing a parking garage adjacent to
Golden Gates Casino. This agreement requires the Company to
contribute land valued at $1,097,080 to a third party. The Company
has no additional commitments relating to the construction of the
parking garage. Contribution of this land is contingent upon
performance of contractual obligations by the third party as set
forth in the parking garage agreement.
(Continued)
F-24
<PAGE> 57
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
FromNovember 1997 through February 1998, the Company borrowed
$1,440,000 from the majority shareholder of the Company, and a
related party controlled by the majority shareholder in order to
meet its obligations under the JV Agreement and for working
capital. The amounts were borrowed pursuant to promissory notes
that are due on demand and bear interest at 18%. In March 1998,
the Company borrowed an additional $500,000 from the majority
shareholder to repay the bank term note that was due in June 1998
and for working capital. This loan is evidenced by a promissory
note which requires monthly payments of $8,500 plus accrued
interest at 12% per annum, with the balance due on February 28,
1999. The Company was required to pledge all assets of the Golden
Gates Casino to the lender that entered into a loan agreement with
the majority shareholder of the Company. In April 1998, the
majority shareholder signed a commitment letter whereby he has
agreed to provide additional working capital to the Company in an
amount not to exceed $500,000 (the Working Capital Line of
Credit), the terms of which will be negotiated in the event
advances are made under the Working Capital Line of Credit.
On January 16, 1998, the 20% joint venture partner (Goldcoast)
notified the Company that the Company was in default of its
obligation to timely provide its minimum capital contributions
pursuant to the JV Agreement. On March 20, 1998, the Company and
Goldcoast entered into an agreement whereby Goldcoast waived any
and all defaults of the Company under the JV Agreement (the Waiver
Agreement). As consideration for such waiver, the Company agreed
to waive the repayment of advances made to Goldcoast since the
commencement of the Project, except for $150,000 in advances which
will only be waived in the event the Company's annualized rate of
return in Bayfront Ventures is 33% or greater over the Project's
first three years of operation. The Waiver Agreement also provides
that within 30 days of execution the Company must provide
Goldcoast with evidence that the Company has the ability to make
its Capital Contribution.
In March 1998, Bayfront Ventures obtained a line of credit of up to
$5.0 million (the Line of Credit) in order to complete the
construction of the Vessel. The Line of Credit bears interest at
an adjustable rate equal to 3.75% per annum above the prime rate,
as published in the Wall Street Journal (currently 12.25%). The
Line of Credit will be secured by, among other things, a First
Preferred Ship Mortgage on the Vessel and the guaranties of the
majority shareholder, the Company, Goldcoast and certain other
individuals (the Guarantors). The Line of Credit is due and
payable upon the initial funding of the Permanent Financing
(defined below).
(Continued)
F-25
<PAGE> 58
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
In March 1998, Bayfront Ventures also received a commitment for
permanent financing (the Permanent Financing), which will replace
the Line of Credit after the Vessel construction has been
completed. The Permanent Financing will be the lower of,
$5,200,000, or 70% of the lesser of the, cost of the vessel, or
its estimated fair market value at the time of delivery. The
Permanent Financing will be evidenced by a promissory note payable
in fifty-nine equal payments calculated on an eight-year
amortization, along with accrued interest, with a final balloon
payment equal to the outstanding principal and interest at
maturity. The interest rate will be fixed at the five-year U.S.
Treasury Note Rate plus 4%. The Permanent Financing will be
secured by, among other things, a First Preferred Ship Mortgage on
the Vessel and a first priority security interest in the Vessel's
gear, equipment and property, excluding gaming equipment. The
Permanent Financing will also be guarantied by the Guarantors.
On April 20, 1998, the Company entered into an agreement (the Option
Agreement) with majority shareholder, whereby he has agreed to
provide the Company with a line of credit in the amount of
$3,000,000 (the Project Line of Credit), which may be used by the
Company to fund the Capital Contribution. Advances under the
Project Line of Credit will bear interest at a rate of 18% per
annum, which interest shall accrue until the Option Expiration
Date (defined below), and principal and interest shall be payable
over three years beginning on the Option Expiration Date. In
consideration for the Project Line of Credit, the Working Capital
Line of Credit, and the guaranty of the Line of Credit, the
Company granted the majority shareholder an option (the Option) to
purchase all or a portion of the Company's interest in Bayfront
Ventures. The Option may be exercised by the majority shareholder
at any time on or prior to the date one year from the date of
grant (Option Exercise Date). The exercise price shall be equal to
the Capital Contribution plus accrued interest under the Project
Line of Credit, less any advances made under the Project Line of
Credit, each as of the date of exercise. In addition the majority
shareholder shall be required to assume all of the Company's
obligations related to Bayfront Ventures, including, but not
limited to the Use Agreement, the LEG Agreement, the JV Agreement
and all financing agreements in connection therewith.
In accordance with the dock lease (Use Agreement), in November 1997,
the Company provided the lessor (Bayfront Park Trust) with a
Letter of Credit in the principal amount of $900,000 to secure
payment of the annual fees for the second and third years of the
Use Agreement. The Letter of Credit is secured by a $150,000
certificate of deposit pledged by the Company, the personal
guaranty of the majority shareholder and a mortgage on certain
real estate owned by a related party controlled by the majority
shareholder. The Company is required to pay a fee to the related
party of $350 per day for so long as the real estate is collateral
for the Letter of Credit.
F-26
<PAGE> 59
EXHIBIT INDEX
<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 Settlement Agreement dated September 30, 1994 between the
Registrant, Bruce H. Lien Company, Brustuen "Bruce" H. Lien and
Four Bears Investment Limited Liability Company.(4)
10.4 Development Agreement among the Company, Concorde Gaming of
Missouri, Inc. and the City of Lexington, Missouri dated
September 26, 1995.(1)
10.5 Indemnification Agreement between the Company and Bruce H. Lien.
(1)
10.6 Second Renewal Promissory Note in the principal amount of
$2,400,000 dated December 21, 1995 issued by the Company to
Roland Gentner.(1)
10.7 Second Loan Extension Agreement dated December 21, 1995 between
the Company and Roland Gentner.(1)
10.8 Promissory Note in the amount of $690,000 dated September 30,
1996 issued by the Company to BHL Capital Corporation.(5)
10.9 Assignment Agreement dated April 6, 1995 between the Company and
Federalist Municipal Development Corporation.(1)
10.10 Settlement Agreement between The Three Affiliated Tribes of the
Fort Berthold Reservation and Bruce H. Lien Company dated
September 27, 1996.(4)
10.11 Loan Agreement between the Company and BNC National Bank of
Minnesota dated June 20, 1996 (5)
10.12 Term Note in the amount of $800,000 dated June 20, 1996 issued by
BNC National Bank to the Company (5)
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
10.13 Short-Term Revolving Note in the amount of $500,000 dated
June 20, 1996 issued by BNC National Bank to the Company. (5)
10.14 Amendment No 1 to Settlement Agreement dated January 7, 1997
between BHL and FBILLC.(5)
10.15 Lease between Elevation 8000+ and Concorde Cripple Creek, Inc.
dated July 21, 1997.(+)
10.16 Agreement dated August 5, 1997, by and between Leo Equity Group,
Inc. and Concorde Gaming Corporation.(+)
10.17 Use Agreement dated June 28, 1997, by and between Bayfront
Ventures and Bayfront Park Management Trust.(+)
10.18 Joint Venture Agreement dated August 27, 1997, by and between
Concorde Gaming Corporation and Goldcoast Entertainment Cruises,
Inc.(+)
10.19 Vessel Construction Agreement dated August 26, 1997, by and
between Keith Marine, Inc. and Bayfront Ventures.(+)
10.20 Waiver Agreement dated March 20, 1998, by and between Goldcost
Entertainment Cruises, Inc. and Concorde Gaming Corporation.(+)
10.21 Option Agreement dated April 20, 1998 between Concorde Gaming
Corporation and Bruce H. Lien.(+)
10.22 Promissory Note dated April 20, 1998 in the aggregate principal
amount of $3,000,000 executed by Concorde Gaming Corporation and
BHL Capital Corporation.(+)
11 Computation of Per Share Earnings.(+)
21 Subsidiaries of the Registrant.(+)
23 Consent of Independent Auditors'.(+)
27 Financial Data Schedule(+)
</TABLE>
(+) Filed herewith
(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.
<PAGE> 61
(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 by the Company
as an exhibit to its Current Report on Form 8-K dated September 27, 1996.
(5) Previously filed with the Securities and Exchange Commission by the Company
as an exhibit to its Annual Report on Form 10-KSB for the year ended September
30, 1996.
<PAGE> 1
EXHIBIT 10.15
LEASE
BETWEEN
ELEVATION 8000+, a Colorado limited liability company
("Landlord")
and
CONCORDE CRIPPLE CREEK INC., a Colorado corporation
("Tenant")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Premises............................................................................................... 1
1.1 Defined....................................................................................... 1
1.2 Use of Premises............................................................................... 1
1.3 Quiet Enjoyment............................................................................... 2
1.4 Title to Premises and Improvements............................................................ 3
1.5 Limitation on Representations................................................................. 3
2. Term................................................................................................... 3
2.1 Initial Term.................................................................................. 4
2.2 Definition of Lease Year...................................................................... 4
2.3 Option to Extend Term......................................................................... 4
2.4 Hold Over..................................................................................... 5
3. Construction of New Improvements by Tenant............................................................. 5
3.1 New Improvements to Premises.................................................................. 5
3.2 Construction of New Improvements.............................................................. 6
3.3 Landlord's Cooperation........................................................................ 7
4. Standards and Requirements for Improvements; Mechanic's Lien; Maintenance.............................. 7
4.1 Standards and Requirements.................................................................... 7
4.2 Mechanic's Liens.............................................................................. 7
4.3 Maintenance................................................................................... 8
5. Rent................................................................................................... 8
5.1 Base Rent..................................................................................... 8
5.2 Additional Base Rent.......................................................................... 9
5.3 Percentage Rent............................................................................... 9
5.4 Adjusted Net Gaming Revenues Defined.......................................................... 10
5.5 Books and Records............................................................................. 10
5.6 Payment of Percentage Rent and Tenant Report.................................................. 10
5.7 Audit......................................................................................... 11
5.8 No Partnership................................................................................ 11
5.9 No Offset..................................................................................... 11
5.10 Place of Payment.............................................................................. 11
5.11 Net Lease..................................................................................... 11
5.12 Base Rent During Extension Terms.............................................................. 12
6. Taxes.................................................................................................. 12
6.1 Defined....................................................................................... 12
6.2 Tenant Payments............................................................................... 13
6.3 Direct Payment by Tenant...................................................................... 13
6.4 Tenant's Right to Contest Taxes............................................................... 13
7. Insurance Coverage..................................................................................... 13
7.1 Tenant's Liability Insurance.................................................................. 13
7.2 Property Insurance............................................................................ 14
7.3 Limits of the Policies........................................................................ 14
7.4 Waiver of Subrogation......................................................................... 15
7.5 Mutual Cooperation............................................................................ 15
7.6 Policies of Insurance......................................................................... 15
7.7 Mortgagees as Insureds........................................................................ 16
7.8 Indemnification of Landlord................................................................... 16
7.9 Compliance with Insurance..................................................................... 16
</TABLE>
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<TABLE>
<S> <C>
8. Utilities.............................................................................................. 16
8.1 Service Lines and Taps........................................................................ 16
8.2 No Warranty................................................................................... 16
8.3 Payment for Service........................................................................... 17
8.4 Interruption of Services...................................................................... 17
9. Damage by Fire or Other Casualty....................................................................... 17
9.1 Restoration................................................................................... 17
9.2 Termination by Tenant or Landlord/Extension for Repair Period................................. 17
10. Condemnation........................................................................................... 18
10.1 Total Condemnation............................................................................ 18
10.2 Partial Condemnation.......................................................................... 19
10.3 No Reduction of Rent.......................................................................... 19
10.4 Substantially All............................................................................. 19
10.5 Temporary Condemnation........................................................................ 20
10.6 Pending Proceedings with the City of Black Hawk............................................... 20
10.7 Proceedings................................................................................... 20
11. Assignment, Subletting, and Encumbrancing.............................................................. 21
11.1 Assignment and Subletting..................................................................... 21
11.2 Financing..................................................................................... 21
11.3 Permitted Assignment by Tenant................................................................ 23
11.4 Transfers by Landlord......................................................................... 23
12. Default by Tenant...................................................................................... 23
12.1 Defined....................................................................................... 24
12.2 Landlord's Remedies........................................................................... 25
12.3 Suspension of Landlord's Obligations.......................................................... 26
12.4 Bankruptcy Remedies........................................................................... 27
12.5 Remedies Cumulative........................................................................... 27
13. Default by Landlord.................................................................................... 27
13.1 Defined....................................................................................... 27
13.2 Tenant's Remedies............................................................................. 27
14. Estoppel Certificates.................................................................................. 28
15. Surrender.............................................................................................. 29
16. Option to Purchase and Right of First Refusal.......................................................... 29
16.1 Right to Purchase............................................................................. 29
16.2 Right of First Refusal........................................................................ 30
16.3 Terms of Sale................................................................................. 30
17. Miscellaneous.......................................................................................... 31
17.1 No Implied Waiver............................................................................. 31
17.2 Survival of Provisions........................................................................ 31
17.3 Binding Effect................................................................................ 31
17.4 Recordation................................................................................... 31
17.5 Notice and Demands............................................................................ 31
17.6 Time of the Essence........................................................................... 32
17.7 Captions for Convenience...................................................................... 32
17.8 Severability.................................................................................. 32
17.9 Governing Law................................................................................. 32
17.10 No Oral Amendment or Modifications............................................................ 32
17.11 Landlord's Activities......................................................................... 32
17.12 Interest/Late Charges......................................................................... 32
17.13 Integration................................................................................... 33
17.14 Brokerage Commissions......................................................................... 33
</TABLE>
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<TABLE>
<S> <C>
17.15 Authority..................................................................................... 33
17.16 Hazardous Materials........................................................................... 33
17.17 Force Majeure Events.......................................................................... 34
17.18 Litigation Costs and Participation............................................................ 35
17.19 Days.......................................................................................... 35
17.20 Terminations by Right......................................................................... 35
</TABLE>
iii
<PAGE> 5
DEFINED TERMS
PAGE
Acquired Parcels .............................. 30
Acquisition Costs ............................. 9
Act ........................................... 1
Additional Base Rent .......................... 9
Additional Costs .............................. 9
All risk ...................................... 14
ANGR .......................................... 9
ANGR Tiers .................................... 10
Assignee ...................................... 28
Assuming Tenant ............................... 26
Available insurance proceeds .................. 17
Average Percentage Rent ....................... 5
Backus Property ............................... 6
Base Rent ..................................... 8
Best's Insurance Report........................ 15
Casino ........................................ 1
City .......................................... 5
Claim Costs ................................... 20
Commencement Date ............................. 4
Construction .................................. 5, 6
Exercise Notice ............................... 29
Exercise Price ................................ 29
Existing Lease ................................ 2
Extension Option .............................. 4
Extension Options ............................. 4
Extension Term ................................ 4
Fee Mortgage .................................. 21
Fee Mortgagee ................................. 21
First Extension Option ........................ 4
Force Majeure Events .......................... 34
Gaming Laws ................................... 1
Governmental Entities ......................... 7
Hazardous Materials............................ 33
Improvement Costs ............................. 29
Improvements .................................. 1
Initial Term .................................. 4
Land Value .................................... 19
Landlord ...................................... 1
Landlord's Taxes .............................. 13
Lease ......................................... 1
Lease Date .................................... 1
Lease Year .................................... 4
Leasehold Mortgage ............................ 22
Leasehold Mortgagee ........................... 22
Net Lease ..................................... 9
New Improvements .............................. 5
Notice ........................................ 30
Option to Purchase ............................ 29
Parking Lot ................................... 6, 29
Pending Claim ................................. 20
Percentage Rent ............................... 9
Permitted Exceptions ......................... 2
Permitted Uses ................................ 2
Plans and Specifications ...................... 6
Premises ...................................... 1
Pro Rata Levy ................................. 10
iv
<PAGE> 6
Real Property Taxes ........................... 12
Receiving Party ............................... 30
Rent .......................................... 9
Replacement Cost Endorsement................... 14
Requesting party .............................. 28
Responding party .............................. 28
Restoration Shortfall ......................... 17
Second Extension Option ....................... 4
Selling Party ................................. 30
Taxes ......................................... 12
Tenant ........................................ 1
Term .......................................... 4
Terms ......................................... 30
Waiver Notice ................................. 4
v
<PAGE> 7
LEASE
This Lease (the "Lease") is entered into as of the ____ day of July,
1997 (the "Lease Date"), between Elevation 8000+, L.L.C., a Colorado limited
liability company (the "Landlord"), and Concorde Cripple Creek, Inc. a Colorado
corporation (the "Tenant"). Any capitalized terms contained in this Lease which
are not defined when first used shall be defined in some subsequent provision of
this Lease.
1. Premises.
1.1 Defined. In consideration of the payment of the rent
provided herein and the keeping and performance of each and every one of the
covenants, agreements and conditions of Tenant hereinafter set forth, the
Landlord now leases to the Tenant, and the Tenant now leases from the Landlord,
certain real property known as the Golden Gates Casino ("Casino") and legally
described as Lots 9-12, inclusive, Block 39, City of Black Hawk, County of
Gilpin, State of Colorado, and numbered as 261 Main Street, together with all
improvements now or hereafter located thereon ("Improvements") and all rights of
Landlord, if any, (including, but not limited to, rights to adjacent streets or
alleys, (now or hereafter vacated or conveyed to Landlord), easements and
appurtenances thereto (collectively the "Premises").
1.2 Use of Premises.
A. Tenant shall use the Premises primarily as a
Gaming Establishment, as that term is defined in the Colorado Limited Gaming Act
C.R.S. sections 12-47.1-101, et seq. (the "Act") (such statute, including
amendments and regulations now existing or hereafter adopted pursuant to the
Act, and all laws, ordinances and regulations for the regulation of gaming
adopted by Gilpin County or the town of Black Hawk, are also referred to in this
Lease as the "Gaming Laws"), and, secondarily, for any other ancillary or
related use as may be permitted by law. Tenant shall have the right to determine
the types, number and locations of gaming devices and procedures for the
operation of the Premises as a licensed Gaming Establishment, in Tenant's
reasonable business discretion, subject to the terms and provisions of the Act;
it is understood and agreed, and the intention of Landlord and Tenant, that
Landlord shall have no control or power to influence decisions concerning the
operation of the Premises, or portions thereof, as a licensed gaming
establishment. Notwithstanding the foregoing, it is the intent of Landlord and
Tenant hereunder that Tenant shall endeavor to maximize the gaming revenues to
be generated from the Premises, taking into consideration its best business
judgment in that regard. Tenant shall not use or permit the Premises to be used
for any business or purpose deemed to be extra hazardous, or in any manner as to
constitute a violation of any present or future laws, rules, regulations,
requirements or orders of any lawful governmental or public authority relating
to the Premises.
B. Without limiting the generality of the
provisions of Section 1.2.A, Tenant, throughout the Term, and at its sole
expense, in its possession and use of the Premises, and the operation of the
business done in and from the Premises shall:
(i) comply substantially with (a) all laws,
ordinances, notices, orders, rules, regulations, and requirements of all
federal, state, municipal and local governments and all departments,
commissions, boards and officers thereof; and (b) all requirements relating to
the operation of a licensed gaming establishment under the Act; and, without
limiting the generality of the foregoing provision of this Section,
(ii) keep in force throughout the Term all
licenses, consents, and permits necessary for the use of the Premises as a
licensed gaming establishment under the Act and to advise Landlord immediately
in the event Tenant and/or its operations becomes subject to any material
inquiry or investigation by any gaming or liquor licensing authority; and
Initial _______
<PAGE> 8
(iii) operate the business for the uses
provided under this Section 1.2 ("Permitted Uses") continuously during the
entire Term, or such other uses as may be approved by Landlord and Tenant in
their reasonable discretion should the Permitted Uses be declared unlawful.
C. Landlord agrees to cooperate in any manner
reasonably required for Tenant to obtain gaming and liquor licenses for the
Premises and to maintain such licenses, provided that the costs of obtaining and
maintaining such licenses shall be borne by Tenant. Landlord shall not cause any
such licenses to be denied, suspended or revoked, whether through actions of
Landlord prior to the issuance of such licenses or thereafter during the term of
this Lease. If Landlord receives notice from governmental officials that the
status or actions of Landlord may, will or have resulted in the denial,
revocation or failure to renew any such gaming or liquor licenses, Landlord
shall take such actions as are necessary to cure such problem prior to denial,
revocation or suspension, including, but not limited to, transfer of Landlord's
interest in the Premises to a third party if Landlord's continued ownership of
the Premises would prevent Tenant from obtaining, maintaining or renewing such
licenses. Prior to any denial, suspension or revocation, Landlord shall have a
right to contest by appropriate proceedings, conducted in good faith and with
reasonable diligence, without cost or expense to Tenant, the validity of any
such proposed denial, suspension or revocation related to the status or actions
of Landlord. If due to actions of Landlord, Tenant is precluded from opening for
business on the date Tenant is otherwise ready to open because Landlord has
failed to obtain any necessary approvals or reviews from any licensing
authority, notwithstanding anything to the contrary set forth herein, Tenant's
obligation to commence paying the Rent hereunder shall be abated until such time
as Landlord has obtained the necessary approvals from said licensing
authorities. Landlord will execute any and all documents necessary to obtain
gaming and liquor licenses.
1.3 Quiet Enjoyment. Landlord's obligations hereunder are
expressly subject to the termination of the existing lease of the Premises dated
February 6, 1992 by and between Landlord's predecessor in interest and Northstar
Casino Limited Liability Company ("Existing Lease"), and surrender of the
Premises by the tenant thereunder, prior to the Commencement Date. Tenant's
rights hereunder are subject to the exceptions listed on Exhibit A (the
"Permitted Exceptions"), to the express limitations contained herein on the
Tenant's rights to use and enjoy the Premises and to the lawful rights and
powers of Governmental Entities other than Landlord. Upon payment by Tenant of
the amounts herein provided, and upon the observance and performance of all the
covenants, terms and conditions on Tenant's part to be observed and performed,
Tenant shall peaceably use and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person or persons lawfully or equitably
claiming by, through or under Landlord. Landlord shall in no event be liable in
damages or otherwise, nor except as expressly provided herein with respect to
interruption of utilities, shall Tenant be released from any obligations
hereunder, because of the interruption of any service, or a termination,
interruption or disturbance, attributable to strike, lockout, breakdown,
accident, war or other emergency, law, order, rule or regulation of or by any
governmental authority, failure of supply, inability to obtain supplies, parts
or employees, or any cause beyond Landlord's reasonable control, or any cause
due to any act or neglect of Tenant or its servants, agents, employees,
licensees, business invitees, or any person claiming by, through or under
Tenant.
1.4 Title to Premises and Improvements. Tenant is
entering into this Lease in reliance on Landlord's representation that Landlord
is the record owner of the Property, subject to the Permitted Exceptions. Tenant
has the right to obtain a leasehold title insurance policy (in an amount not to
exceed the initial Exercise Price set forth below) and Landlord agrees to
contribute 1/2 of the cost thereof. Except for Landlord's above representation
and its warranty of quiet enjoyment as to claims arising by, through or under
Landlord (as set forth above), Landlord makes no warranty of title to Tenant and
Tenant shall rely solely upon its own investigation for protection as to matters
of title. Except as hereinafter provided, Tenant shall be the owner of all
Improvements hereafter constructed on the Premises which are paid for and
constructed by Tenant upon the Premises, as the same may be altered, expanded
and/or improved (from time to time) in accordance with the provisions of this
Lease (hereafter
Initial _______
2
<PAGE> 9
collectively defined as New Improvements). Upon the expiration or earlier
termination of this Lease, Tenant shall, without compensation from Landlord,
surrender to Landlord ownership, possession and control of all Improvements,
together with all fixtures necessary to the operation of the Improvements as a
casino, including, without limitation, the generator, all heating, ventilation
and air conditioning equipment and machinery, pipes, ducts, compressors,
flooring, and all other property described on Exhibit B hereto, and Tenant shall
thereafter have no further rights thereto or interest therein. It is understood
and agreed that stand-alone gaming devises shall not be deemed a part of the
Improvements. Upon expiration or earlier termination of the Lease, Tenant shall
inform Landlord of all combinations on locks, safes and vaults, if any, in the
Improvements. Upon such expiration or earlier termination, Tenant agrees to
execute, acknowledge and deliver to Landlord any instrument reasonably requested
by Landlord to carry out the intention of this Section. Tenant shall surrender
the Premises and all such Improvements to Landlord in good condition and repair,
reasonable wear and tear and fire and other casualty excepted, subject to the
terms of Sections hereof relating to Casualty and Condemnation, and shall
surrender all keys to the Improvements, and every part thereof, to Landlord.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or termination of the Term.
1.5 Limitation on Representations. Landlord represents to
Tenant that Landlord has received no written notice of any violation of any laws
applicable to the Premises, including any laws relating to Hazardous Materials
except as may be set forth in any environmental audit of the Premises. By
execution of this Lease, Tenant shall be deemed to have accepted the Premises in
an "AS IS" condition. Except to the extent expressly set forth herein, Landlord
has made no representation, warranty or assurance of any kind or nature
whatsoever regarding the Premises, the condition, nature of suitability of the
Improvements, the soils, hydrology and seismology thereof, and the laws and
regulations relating to the and operation of the Improvements, including
environmental, zoning and land use entitlement requirements and procedures,
height restrictions, floor area coverage limitations, and any other matters,
whether similar or dissimilar, and Tenant acknowledges that except as expressly
set forth herein it has not relied upon any statement, representation or
warranty of Landlord of any kind or nature in connection with its decision to
execute and deliver this Lease and its agreement to perform the obligations of
Tenant hereunder.
2. Term.
2.1 Initial Term. This Lease shall be for an initial term
of five (5) years (and the fractional month prior to the commencement of the
first Lease Year) ("Initial Term"), commencing on the date upon which Tenant
receives all the necessary governmental approvals as a retail licensee for the
conduct of limited stakes gaming at the Casino, if ever, provided the Existing
Lease has been terminated (the "Commencement Date"); provided, however, if the
Commencement Date has not occurred by September 1, 1997, then this Lease will be
void ab initio and of no further force and effect. Unless this Lease is
terminated pursuant to the other express provisions hereof pursuant to Section
2.3, this Lease shall automatically extend to the First Extension Option upon
the expiration of the Initial Term and then extend to the Second Extension
Option upon the expiration of the First Extension Option. All references herein
to Term will automatically be deemed to include the Initial Term and any
Extension Term. The Initial Term and the Extension Term(s) if applicable are
sometimes referred to herein as "Term."
2.2 Definition of Lease Year. The term "Lease Year"
shall mean a period of twelve (12) full consecutive calendar months. If the
Commencement Date is other than on the first day of the month, the first Lease
Year shall commence on the first day of the first calendar month following the
Commencement Date, and the first Lease Year will contain the fractional month
between the Commencement Date and the last day of said month. Each subsequent
Lease Year shall commence on the anniversary of the commencement date of the
first Lease Year.
2.3 Option to Extend Term. The Tenant shall have two (2)
five (5) year options to extend the term of this Lease (respectively, the "First
Extension Option" and "Second
Initial _______
3
<PAGE> 10
Extension Option". Also referred to herein individually as "Extension Option",
and collectively, "Extension Options" and each term is referred to herein
sometimes as "Extension Term". Tenant shall give the Landlord written notice of
its election to waive ("Waiver Notice") its right to exercise the Extension
Option at least six (6) months prior to the expiration of the existing term
period. If no such notice is timely given then unless one of the conditions set
forth herein is not met, the applicable Extension Option shall automatically be
deemed to have been exercised. Neither option shall be exercised nor assigned,
voluntarily or involuntarily, by or to any person or entity other than the
Tenant or a permitted assignee of Tenant under this Lease. The Second Extension
Option will only be applicable if the First Extension Option has not been
waived. The right to the Extension Options shall be of no force and effect if
(i) as of the date the Waiver Notice is required to be given, the Tenant shall
be in default under this Lease beyond any applicable cure period; or (ii) after
such date but prior to the commencement of the Extension Term, the Tenant shall
be in default under this Lease beyond any applicable cure period; or (iii) the
Permitted Uses have been declared unlawful, unless Landlord and Tenant agree
that the right to the Extension Option(s) would nonetheless be in effect despite
the change in the law. The Landlord's waiver of its right to terminate this
Lease due to the Tenant's default in any instance shall not be deemed a waiver
of these conditions precedent and conditions subsequent to Tenant's right to the
Extension Option. If no Waiver Notice is given (and the Tenant otherwise has the
right to the Extension Option as provided herein) the Extension Term shall
commence upon the expiration of the previous five (5) year term, and, unless
this Lease is terminated pursuant to other express provisions hereof, shall
expire automatically on the date which is five (5) years thereafter (it being
understood that at the end of the First Extension Term if Tenant has not timely
given the Waiver Notice (and the Tenant otherwise has the right to the Extension
Option as provided herein) then the Term will automatically be extended for the
Second Extension Term). Each Extension Term shall be governed by all the
provision of this Lease applicable to the original five (5) year term, except
for the increase in Base Rent payable during each Extension Term which shall be
computed as provided below and except to the extent that this Lease provides
other specific provisions applicable to the Extension Terms.
2.4 Hold Over. Nothing in the provisions of this Lease
shall be deemed in any way to permit the Tenant to use or occupy the Premises
after the expiration of the Term or any earlier termination of this Lease. If
the Tenant continues to occupy the Premises after such expiration or
termination, such occupancy shall (unless the parties hereto otherwise agree in
writing) be deemed to be under a month-to-month tenancy at a monthly rental
equal to one hundred fifty percent (150%) of the annual Base Rent prorated on a
monthly basis for the month prior to the commencement of the holdover period,
and Tenant shall remain liable for 100% of all other Rent and charges payable by
it hereunder, and such occupancy shall be subject to all of the terms and
conditions of this Lease. For purposes of Tenant's obligation to pay Percentage
Rent during any such holdover, the Percentage Rent payable each month will be
equal to 1/12 of the average Percentage Rent paid by Tenant for the immediately
preceding 12 month period ("Average Percentage Rent"). If Landlord relets or
sells the Premises and the term of such new Lease commences or the closing of
the sale is to occur during the period for which Tenant holds over, then, after
Landlord gives Tenant written notice of such fact as may be required by Colorado
law, such holding over shall be deemed a breach of Tenant's covenant to deliver
up the Premises upon the termination or expiration of the Term, and Landlord
shall be entitled to recover from Tenant any and all costs, expenses, legal
expenses, attorney's fees, damages, loss of profits or any other loss resulting
from Landlord's inability to deliver possession of the Premises to the new
Tenant or resulting from Landlord's inability to close the sale.
3. Construction of New Improvements by Tenant
3.1 New Improvements to Premises.
A. The Tenant shall receive the Premises and
the existing Improvements thereon in their present "As Is" condition. It is
understood and agreed by the parties hereto that the Tenant plans to remodel and
renovate the front of the Casino and may, from time to time, construct or
install other improvements to the Premises, and make such
Initial ________
4
<PAGE> 11
changes, alterations and additions and such other improvements (including
demolitions and removals of the same) as Tenant shall deem necessary or
desirable (any such improvements, changes, alterations, or additions which are
hereafter made with Landlord's prior written approval as hereafter provided,
shall be referred to hereinafter collectively as "New Improvements"). Tenant
will have the right to cause the New Improvements to be partially constructed on
other parcels owned in whole or in part by Landlord and leased to Tenant
referred to hereafter as the Parking Lot and Backus Property, it being
understood that all leases of the Parking Lot and Backus Property will run
concurrently with this Lease. All New Improvements shall be constructed in a
good and workmanlike manner and in substantial accordance with the plans and
specifications therefor previously submitted to and approved by Landlord as
hereafter provided. In connection with any construction, Tenant shall pay to the
City of Black Hawk (the "City") all fees, impact charges, and taxes (whether now
or hereafter in effect) as the City customarily charges for the issuance of
permits and approvals that are within the City's purview.
B. Nature of New Improvements; As Built Survey.
After any New Improvements are completed which expand the footprint of the
existing Improvements, to the extent so required by any applicable governmental
authority in connection with such construction, Tenant, at its expense, shall
deliver to the Landlord a survey, certified to the Landlord, of the Premises
prepared by a land surveyor duly licensed in the State of Colorado, showing the
location of the Improvements in relation to the perimeter of the Premises and
certified in a form reasonably acceptable to Landlord.
C. Combination of Premises with Adjoining
Property. Notwithstanding anything set forth herein to the contrary, Landlord
and Tenant hereby agree that, Tenant intends to acquire an interest in certain
real property adjoining the Premises in which Landlord currently has a 50%
interest (hereafter defined as the "Parking Lot" and "Backus Property" a
generally depicted on Exhibit C), and Landlord and Tenant have agreed that
Landlord will enter into written lease agreements granting Tenant the right to
use the Parking Lot and/or Backus Property in accordance with the provisions of
such lease(s). Tenant shall have the right, subject to the provisions of such
lease(s) and the Co-Ownership Agreement Landlord and Tenant will enter into with
respect to the Parking Lot and/or Backus Property, to cause New Improvements to
be located partially on the Premises and partially on either the Parking Lot or
Backus Property. It is understood and agreed that as an express condition of
such construction, the Co-Ownership Agreement will provide that irrevocable
easements, licenses, or other documents reasonably satisfactory to Landlord will
be created. Further, all ANGR generated from all Improvements will be considered
in computing the Percentage Rent payable hereunder.
3.2 Construction of New Improvements. The construction
of all New Improvements by Tenant (the "Construction") shall be performed in the
following manner and subject to the following conditions:
A. Plans and Specifications. At Tenant's sole
cost and expense, Tenant shall prepare and deliver to Landlord, for its prior
reasonable approval (which shall be granted, or denied within seven (7) days of
its receipt thereof) proposed plans and specifications for the New Improvements,
together with a plan of demolition or relocation (the "Plans and
Specifications") if any portion of the Improvements presently located on the
Premises or any part thereof will be razed or demolished. Tenant shall have the
right to amend or modify the Plans and Specifications from time to time, subject
to applicable governmental approvals, after first resubmitting the same to
Landlord for its approval as set forth herein. The Plans and Specifications
shall include, but not by way of limitation:
(i) The location of the New Improvements
(including, but not limited to, the location of building, ramps, roadways and
sidewalks, and any other improvements for vehicular or pedestrian ingress and
egress, any parking areas, and any trash or garbage deposit or collection areas,
or facilities, and any other items that are required to be shown on the
Initial ________
5
<PAGE> 12
Plans and Specifications by the governmental authority, as they are to be
constructed on the Premises);
(ii) Schematic, elevation and final
architectural plans for the improvements;
(iii) A signage program for the Premises;
(iv) A grading and landscaping plan for the
Premises;
(v) Schedule of the exterior colors and
building materials to be utilized by the Tenant for such improvements; and
(vi) A lighting plan for the Premises.
3.3 Landlord's Cooperation. Landlord shall cooperate
with the Tenant in all of Tenant's efforts to comply with the requirements of
this Article and shall execute such applications and other undertakings as
shall be reasonably required in its capacity as the owner of the Premises to
enable the Tenant to file for and obtain all building permits, licenses,
variances, rezonings, permissions and consents necessary to construct and
operate the buildings and Improvements and otherwise necessary to perform its
obligations under this Article, as well as to permit Tenant to make repairs,
alterations, and construct New Improvements in accordance with this Lease.
Landlord agrees to join in and consent to any utility or other easements over,
across or under the Premises as may be reasonably required by Tenant in
conjunction with improvements to or use of the Premises.
4. Standards and Requirements for Improvements; Mechanic's Lien;
Maintenance
4.1 Standards and Requirements. In addition to all
conditions and requirements otherwise set forth herein, all New Improvements
shall be made only on the following conditions:
A. New Improvements shall not be undertaken
until the Tenant has obtained Landlord's approval of plans and specifications
for the New Improvements and the approval of the City and any other entity
having jurisdiction thereover ("Governmental Entities"), as may be required.
Such approval rights shall be governed by and subject to all of the procedures,
standards, limitations, and requirements set forth in Article 3 above.
B. No New Improvements shall be undertaken
until the Tenant at its expense has delivered to Landlord, with respect to any
aspect of the Improvements then being undertaken, copies of any plans,
specifications, certificates or other documents which must be filed with the
pertinent Governmental Entities in order to obtain their approvals, if any.
C. All New Improvements, the construction and
installation of which exceed $25,000 in any given Lease Year, shall be conducted
under the supervision of an architect or engineer licensed in the State of
Colorado, selected by the Tenant.
D. Any demolition, removal of existing
Improvements, or New Improvements made must collectively increase the value and
utility of the Premises at that time.
E. All work done in connection with the New
Improvements shall be done in a good and workmanlike manner and in material
conformity with the plans and specifications therefor which are approved by
Landlord.
F. The work of all New Improvements shall be
prosecuted with reasonable dispatch, subject to delays caused by Force Majeure
Events. The Tenant shall procure or shall cause the contractor for the work to
procure insurance in accordance with
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Article 7, including worker's compensation insurance covering all persons
employed in connection with the work, before any work is begun.
4.2 Mechanic's Liens.
A. Satisfaction of Claims. In connection with
the construction of any New Improvements, Tenant shall cause the payment of all
proper and valid invoices and charges of all contractors, subcontractors,
suppliers, materialmen and similar parties who furnish services or materials in
connection with the construction process. In the event any party ever records a
mechanic's lien to enforce any claim for services or materials alleged to have
been provided in connection with the Premises, Tenant shall cause the same to be
released of record within forty-five (45) days after the recordation thereof,
and Tenant shall be liable to satisfy and cause a discharge of any such
mechanic's lien claim. Notwithstanding the foregoing, Tenant shall have the
right to contest any such mechanic's lien claim, provided that Tenant conducts
such contest in a timely manner and with due diligence and that Tenant provides
Landlord with security in an amount required by applicable law to secure the
release of such lien of record. In connection with any such contest, Landlord
shall join and participate in any such contest upon Tenant's request and at
Tenant's expense, and subject to the provisions of Section 17.19 (with
participation to include, without limitation, the execution and filing of
pleadings and the provision and gathering of testimony and other evidence). In
the event Tenant loses any such contest, with all further rights of appeal
having expired, Tenant shall satisfy the mechanic's lie claim in full prior to
any foreclosure sale or other disposition of the Premises in order to satisfy
the claim.
B. Posting. Prior to the commencement of any
construction on the Premises, and if Landlord gives written notice requesting
same, Tenant shall deliver notices to all contractors and subcontractors and
post notices in accordance with C.R.S. section 38-22-105 (as it may be amended
or in accordance with similar statutes that may be substituted therefor in the
future), in locations that will be visible by parties performing any work, which
notices shall state that Landlord is not responsible for the payment of such
work and setting forth such other information as may be reasonably required
pursuant to such statutory provisions.
4.3 Maintenance. Tenant shall at all times during the
Term keep in good order, condition and repair the entire Premises and all
Improvements located thereon, including, without limiting the generality of the
foregoing, the structural and non-structural portions of the Improvements, the
entrances, the windows, partitions, doors, lighting and plumbing fixtures,
heating, ventilation and air conditioning systems, the grounds and all
landscaping, the paving, if any, and other hardscape surfaces, and all
fixtures, equipment and appurtenances relating to the Premises and/or the
Improvements, except Landlord shall be responsible for the replacement costs
and/or major repairs of the roof, outside walls, foundation, and chiller and
heating units of the Improvements during the Extension Term(s). Nothing in this
provision defining the duty of maintenance shall be construed as limiting any
right given elsewhere in this Lease to alter, modify, demolish, remove, or
replace any Improvement, or as limiting provisions relating to condemnation in
Article 10 or to damage or destruction in Article 9.
5. Rent.
5.1 Base Rent. Tenant shall pay Landlord a base rent
(the "Base Rent") for the Premises as set forth below. Beginning on the
Commencement Date, and continuing through and until the end of the first Lease
Year, Tenant shall pay as Base Rent the sum of Fifteen Thousand Dollars
($15,000.00) per month. Landlord acknowledges receipt of the rent for the
partial month, if any, on which the Commencement Date falls. Commencing the
second Lease Year, the Base Ren will increase by $1,000 per month (for a total
annual increase of $12,000). Commencing the third Lease Year, the Base Rent
will increase by $1,000 per month (for a total annual increase of $12,000),
which amount will continue to be payable for the remainder of the Initial Term.
Base Rent shall be payable in advance, without notice, each Lease Year in equal
monthly installments commencing on the on the first day of each calendar month
thereafter. All
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amounts (including Base Rent, Additional Base Rent, Percentage Rent, all amounts
described in the Section entitled "Net Lease," and all other sums payable by the
Tenant under this Lease are hereinafter collectively referred to as "Rent"),
shall be paid to the Landlord, (or directly to the party entitled to receive the
same) in lawful money of the United States of America, which shall be legal
tender at the time of payment. Payment to Landlord shall be made at the office
of the Landlord or to such other person or at such other place as the Landlord
may fro time to time designate in writing.
5.2 Additional Base Rent. If additional monies, and/or
in-kind consideration (not to exceed an agreed upon value, or if no agreement is
reached between Landlord and Tenant then the amount of the appraised value
thereof as accepted by the City), is contributed by Landlord for the acquisition
of certain property adjacent to the Premises known as "Backus Street", (the
location of which is generally depicted on Exhibit C hereto) ("Acquisition
Costs") or any amounts required to be expended by Landlord in connection with
the repair or restoration of the Premises as hereafter provided, or the
performance by Landlord of any of its repair or maintenance obligations during
the Extension Terms (all such amounts collectively with Acquisition Costs are
referred to herein as "Additional Costs"), Tenant's monthly rent shall increase
in an amount equal to 0.92% of Landlord's share of the Additional Costs
("Additional Base Rent"); provided, however, that to the exten such Costs are
Acquisition Costs, the same shall not exceed Landlord's share of the appraised
market value of any acquired Backus Street property. Any portion of the
Additional Base Rent that is attributable to Acquisition Costs shall not become
effective until six (6) months after the Acquisition Costs have been expended.
All references herein to Base Rent, shall mean and refer to the Base Rent as
determined in accordance with Section 5.1 above, or Section 5.12 below as to the
Extension Term(s), as increased by the Additional Base Rent. Notwithstanding
anything set forth herein to the contrary, if the Permitted Uses are declared
unlawful, then following such date (and for the remainder of the Term unless the
same are again permitted as lawful uses), Landlord will not voluntarily incur
any Additional Costs as provided herein (unless Tenant requests the same).
5.3 Percentage Rent. In addition to the Base Rent
hereinabove provided, Tenant shall pay to Landlord, without notice, additional
rent ("Percentage Rent") during the Term of the Lease and any extension thereof
an amount equal to a percentage rent based upon the Casino's Adjusted Net Gaming
Revenue ("ANGR"), defined below. The Percentage Rent shall be paid monthly no
later than 20 days after the end of each calendar month. The Percentage Rent
will be based on the annual ANGR using either June 30th or September 30th as the
fiscal year end. The determination of which fiscal year end shall be applicable
will be made based on the Commencement Date. If the Commencement Date is on or
before August 1, 1997, then the Fiscal Year for the purposes of this Lease will
be the 12 month period beginning July 1 and ending June 30th of each year during
the Term. If the Commencement Date is on or after August 1, 1997, then the
Fiscal year will be the 12 month period beginning October 1 and ending September
30th of each year during the Term. As its Percentage Rent, Tenant shall pay the
following percentages of the ANGR generated each fiscal year: 2% of the first
$2,000,000 ANGR; plus, 4% of the second $2,000,000 ANGR; plus, 6% of the third
$2,000,000 ANGR; and plus, 8% of the ANGR in excess of $6,000,000. Any ANGR
attributable to any portion of the Improvements located on the Parking Lot
and/or the Backus Property will, for all purposes hereof be deemed to be
generated from that portion of the Improvements located on the Premises and
shall be payable hereunder. Percentage Rent shall be payable commencing with the
Commencement Date. Depending on when the Fiscal Year begins, for the
determination of Percentage Rent for the first Fiscal Year during the Term,
which will end on either June 30, 1998, or September 30, 1998, as provided
above, the first $2,000,000, the second $2,000,000, the third $2,000,000 and the
amount in excess of $6,000,000 collectively define as (the "ANGR Tiers") will be
prorated in the event that the Fiscal Year has greater or fewer than 365 days of
operations by Tenant. For example, if the Commencement Date occurred on July 31,
1997 and there were 334 days in the first Fiscal Year, the ANGR tiers shall be
multiplied by a formula the numerator of which shall be the actual number of
days from the Commencement Date through June 30, 1998, in this example 334 and
the denominator shall be 365 (e.g. the percentage rent would be 2% of the first
$1,840,000 of ANGR (or 334/365 X $2,000,000), 4% of the second
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$1,840,000 ANGR, 6% of the third $1,840,000, and 8% in excess of $5,520,000.
Notwithstanding anything set forth herein to the contrary, if the Permitted Uses
become unlawful as set forth in Section 1.2 B (iii) above, then and in that
event, and so long as the Permitted Uses remain unlawful, no Percentage Rent
will thereafter become due or payable.
5.4 Adjusted Net Gaming Revenues Defined. ANGR shall be
defined as the Adjusted Gross Proceeds (as defined by C.R.S. 12-47.1-103), less
amounts for (i) any Federal gaming tax of 8% or less, (ii) any tax or fee on
gaming devices imposed by municipal ordinance, which is a tax on the direct use
of the devices for gaming purposes as defined in C.R.S. 12-47.1-605(excluding
any impact fees, sales taxes, use taxes and fees including, but not limited to
the following: $2,365,000 City of Black Hawk, Colorado Device Tax Revenue Bonds
Series 1996; Black Hawk Transportation Device Fee as established by Ordinance
96-39; Black Hawk Business Improvement District, Gilpin County, Colorado
$2,995,000 General Obligations Bonds Series 1995; and, Black Hawk Business
Improvement District, Gilpin County, Colorado Special Improvement District No.
1995-1 $1,000,000 Special Assessment Bonds), and (iii), any tax or fee on gaming
devices imposed by Colorado statute or regulation. If any levy, tax or
assessment is for a period greater than one month, then such levy, tax or
assessment shall be divided over the period of the levy, tax or assessment (the
"Pro Rata Levy") and only the Pro Rata Levy shall be a deduction from monthly
ANGR hereunder. ANGR shall not include revenues derived from bulk sales or other
sale or disposition of the business of Tenant or Tenant's interest under this
Lease, the sale or other disposition of capital items or equipment used in the
operation of Tenant's business, proceeds of insurance, proceeds of financing or
refinancing.
5.5 Books and Records. The Tenant shall keep full, complete
and proper books, records and accounts of its ANGR, both cash and on credit, of
each separate department and concession at any time operated in the Premises,
which books and records shall be kept at the Premises. The Landlord and its
agents and employees shall have the right at any time upon no less than 3
business days prior written notice to Tenant, and from time to time but not more
often than once in any calendar quarter, during regular business hours, to
examine and inspect all of the books and records of Tenant pertaining to ANGR,
including any gaming tax reports pertaining to the business of Tenant conducted
in, upon or from the Premises, which Tenant shall make available information of
Landlord or its agents for the purposes of investigating and verifying the
accuracy of any statement of ANGR. Landlord shall not disclose the contents or
information found in Tenant's books and records or reported to Landlord or in
Tenant's returns, except on a confidential basis to Landlord's accountants and
to the extent required by process of law or if the same are otherwise of public
record prior to such disclosure.
5.6 Payment of Percentage Rent and Tenant Report. Within
twenty (20) days after the end of each calendar month during the Term, including
the month during which the Commencement Date occurs (unless the Permitted Uses
are declared unlawful as provided above), Tenant shall furnish to Landlord a
statement in writing, certified by Tenant to be correct, showing the total ANGR
made in, upon or from the Premises during the preceding month, and Tenant shall
accompany each such statement with a payment to Landlord equal to its
appropriate Percentage Rent, as described above. If at any time during the Term,
other than during a period which pursuant to the express provisions of the Lease
Rent is to abate, Tenant is not actively operating the Casino, then it shall pay
to Landlord as Percentage Rent on a monthly basis 1/12th of the Average
Percentage Rent. In addition, Tenant shall furnish to Landlord a copy of each
monthly return setting forth the Adjusted Gross Proceeds as required to be filed
under the Act. Landlord shall not disclose the contents or information found in
Tenant's books and records or reported to Landlord or in Tenant's returns,
except on a confidential basis to Landlord's accountants and to the extent
required by process of law or if the same are otherwise of public record prior
to such disclosure.
5.7 Audit. Landlord may at any time and from time to time,
not more often than once during any Fiscal Year, cause an audit of the ANGR of
Tenant to be made by an independent Certified Public Accountant of Landlord's
selection, and if the statement of ANGR for any month previously made to
Landlord by Tenant shall be found to be in error in under-
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reporting, Tenant will immediately pay to Landlord all amounts determined to be
owing. If such under-reporting is in an amount of five percent (5%) or more,
Tenant shall also immediately pay to Landlord the cost of such audit. If such
under-reporting was less than five percent (5%), then Landlord and Tenant shall
share the cost of such audit equally. If such audit determines that there was an
over-reporting of 5% or more, Landlord shall immediately pay the amount of the
over-payment to Tenant, if any, and shall pay the cost of the audit.
5.8 No Partnership. It is further understood and agreed
that, notwithstanding that the amount to be paid to Landlord for rental for the
use of the Premises, is partially based upon a percentage of ANGR, nothing
contained herein shall be deemed, held or construed as creating Landlord as a
partner or an associate of the Tenant in the conduct of the business, nor as
rendering Landlord liable for any debts, liabilities or obligations incurred by
Tenant in the conduct of said business, it being expressly understood and agreed
that the relationship between the parties hereto is and shall at all times
remain that of Landlord and Tenant.
5.9 No Offset. All Rent shall be paid without
counterclaim, setoff, deduction or defense, except as expressly provided herein
to the contrary.
5.10 Place of Payment. Tenant shall only be obligated to
pay rent payments to Landlord at one address designated by Landlord and Tenant
shall have no liability to see to the proper distribution to multiple parties of
any payments, notwithstanding that Landlord consists of multiple parties.
5.11 Net Lease. Unless it is otherwise provided for in
this Agreement, it is the intent of Landlord and Tenant that the Rent provided
for herein shall be absolutely net return to Landlord throughout the Term of
this Lease, and the Extension Terms, unless waived, free of any expense,
charge, or reduction whatsoever, with respect to the Premises; that except as
expressly provided herein, Landlord shall not be required to pay any costs or
expenses or to provide any services or do any act in connection with the
Premises; that except as expressly provided herein, Tenant shall bear all costs
and expenses related to the ownership, occupancy, development, maintenance or
use of the Premises and the Improvements that accrue during or are allocable to
the Term of this Lease, including, without limitation, any and all costs and
expenses to maintain, operate, repair and replace all or any portion of the
Improvements and (during the Initial Term, including, but not limited to, the
roof, structural and mechanical components of the building), notwithstanding
the effect of any new or changed laws, or whatever circumstances not described
in this Lease occur which might make occupancy of the Premises by Tenant
unprofitable, and except as provided for in Section 4.3. Accordingly, without
limiting the foregoing, Tenant covenants and agrees to pay, in addition to the
Rent, otherwise described in this Article 5, all costs and expenses related to
the Premises, which amounts, are referred to herein as Rent, and as required
herein shall be paid, prior to their respective due dates, directly by Tenant
to the entity entitled to receive the same. Such amounts of Rent payable by
Tenant shall include, without limitation, the costs and expenses of Taxes (as
defined in Article 6 herein); insurance costs; utility charges; operating
expenses; maintenance, repair and replacement expenses; any assessment charge
and common maintenance charges or assessments with respect to the replacement
and maintenance of on-site improvements (such as utilities); advances, if any
by Landlord pursuant to the terms hereof; and interest on past-due payments, if
any, all as hereinafter provided. Failure to pay any such amounts of Rent shall
constitute a default by Tenant hereunder.
5.12 Base Rent During Extension Terms. During the first
two years of the First Extension Term the Base Rent will be the same amount as
was payable during the final three (3) years of the Initial Term. Commencing
with the third year of the First Extension Term, the Base Rent will be
increased by $1,700 per month (for a total annual increase of $20,400), which
increased Base Rent will continue to be paid during the remainder of the First
Extension Term and the first two years of the Second Extension Term, unless
Tenant has timely delivered its Waiver Notice. For the final three years of the
Second Extension Term, the Base Rent will be further increased by $1,870 per
month (for a total annual increase of $22,440).
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6. Taxes.
6.1 Defined. In general, the term "Taxes" shall mean all
personal property sales and use taxes and real property taxes, assessments and
other governmental charges and levies, of any kind or nature whatsoever
(including, without limitation, regular and special assessments, impact fees,
fees, levies and charges imposed for public improvements or benefits, or for
public services such as fire protection, parking, street, sidewalk and road
maintenance or refuse removal, including without limitation those enumerated in
Section 5.3 as being Tenant's sole responsibility, and interest on unpaid
installments) which may be levied, assessed or imposed, or become liens upon or
arise out of the use, occupancy, ownership, or possession of the Premises, and
which accrue during or are allocable to the Lease term. All Taxes paid or
payable by Tenant shall be paid in such a manner that they inure to the benefit
of the Premises and/or Landlord. The Taxes which relate to real property
interests are sometimes referred to hereinafter as "Real Property Taxes." Taxes
for the entire calendar year during which the Commencement Date occurs will be
Tenant's responsibility and there shall be no proration thereof whatsoever. If
because of any change in the taxation of real estate any other tax or
assessment (including, without limitation, any occupancy, gross receipts or
rental tax but excluding Landlord's Taxes, as hereafter defined) is imposed
upon Landlord or the owner of the land and/or buildings, or upon or with
respect to the land and/or building or the occupancy, rents or gross income
therefrom, in lieu of, or in the substitution for, or in addition to, any of
the foregoing taxes, such other tax or assessment shall be deemed part of the
taxes. The term Taxes shall not, however, include inheritance, estate,
succession, transfer, gift, income or excess profits taxes imposed upon the
Landlord ("Landlord's Taxes"), as distinguished from taxes arising from the use
or ownership of the Premises.
6.2 Tenant Payments. In addition to the payment of taxes
as hereinabove provided, Tenant covenants and agrees to pay, or cause to be
paid, before any fine, penalty, interest or cost may be added thereto, all
license and franchise taxes of the Tenant, all personal property taxes,
assessments, water rents, sewer rents and charges, and other governmental
charges which are levied, assessed, imposed or become a lien upon the Premises
or the contents thereof (excluding Landlord's Taxes). Without limiting the
generality of the payments of other taxes contained in this Section 6.2, Tenant
will make all payments to maintain in a current status all permits and licenses
necessary to continue the operation of the licensed gaming establishment from
the Premises.
6.3 Direct Payment by Tenant. Tenant shall make timely
payment of all Taxes, and provide to Landlord prior to the last day for payment
of the Real Property Taxes without penalty or interest, a photostatic copy of
the receipts showing payment of the same. The Taxes related to personal property
interests shall all be paid directly by Tenant. Tenant may pay any Taxes in
installments if permitted by law. The Landlord shall promptly deliver to the
Tenant any tax bill received by the Landlord covering only the Premises.
6.4 Tenant's Right to Contest Taxes. Without limiting
the right of the Landlord to contest any Real Property Taxes levied against
the Premises, the Tenant shall have the right, at its sole expense, to contest
any Taxes (including, without limitation, any valuations serving as the basis
for the same) payable by the Tenant by the commencement and prosecution, in
good faith and with due diligence, of appropriate legal proceedings, provided
that the commencement and prosecution of such legal proceedings does not
jeopardize the Landlord's interest in the Premises during the pendency of the
proceedings, and that the Tenant makes timely payment of the Taxes if the
Tenant loses the contest or there is any risk whatsoever that the Premises may
be sold as a result of such non-payment of taxes. Tenant shall advise Landlord
prior to instituting any such contest and shall as a condition of exercising
such right provide Landlord such reasonable assurance as it may request that
such contest will be in compliance with the provisions of this Section 6.4.
Landlord, at Tenant's sole cost and expense, shall reasonably cooperate with
Tenant in any such contest, shall join in the contest if requested by Tenant,
subject to the provisions of Section 17.19, and shall execute and deliver such
documents
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and instruments as may be necessary or appropriate for prosecuting an effective
contest.
7. Insurance Coverage.
7.1 Tenant's Liability Insurance. The Tenant shall at
all times carry and maintain, at its sole cost and expense commercial general
liability insurance, insuring the Tenant for at least Three Million Dollars
($3,000,000.00) bodily injury liability for any one occurrence, including at
least One Million Dollars ($1,000,000.00) broad form liability coverage for
damage to property, and Three Million Dollars ($3,000,000.00) general aggregate
coverage insuring against any and all liability of the Tenant with respect to
the Premises, or rising out of the maintenance, use or occupancy of the
Premises, including, without limitation, insuring against bodily injury, death,
personal injury and property damage. Tenant shall also carry dram shop
insurance for uses involving the sale of beer, wine and alcoholic beverages,
with limits for individual recovery at not less than One Million Dollars
($1,000,000.00).
7.2 Property Insurance.
A. Construction. During the construction of
any New Improvements, Tenant shall maintain builder's risk insurance against
"all risk" of physical loss, including without limitation the perils of collapse
and transit (excluding flood and earthquake), with reasonable deductibles
covering the total cost of work performed, equipment, supplies and materials
furnished on a replacement cost basis, excluding elements of work not normally
replaced after a casualty, such as foundations, caissons and piers. Tenant shall
also maintain insurance covering the cost of delay in completion of said
construction caused by the "all risk" perils referred to in subsection B below.
B. Operations. At all times during the Term,
Tenant shall obtain and maintain "all risk" insurance coverage at replacement
cost of building and contents against loss or damage. The policy shall also
contain endorsements for flood, if applicable, and boiler and machinery. The
insurance shall also cover the Premises and all fixtures, contents and building
equipment (such as heating, ventilating, air conditioning, mechanical,
electrical and plumbing equipment and the like), and improvements and
alterations made to the Premises, in an amount equal to one hundred percent
(100%) of replacement cost (excluding foundation and excavation, but including
demolition, debris removal and regrading). Such policies shall contain a
"Replacement Cost Endorsement." Subject to the provisions of Article 9, all
proceeds of such insurance shall be used by the Tenant for the use of repairing
and restoring the items covered thereby in accordance with the provisions of
this Lease. The other terms of coverage for the property insurance (excluding
amounts of coverage, which are governed by Section 7.3.B below) shall be subject
to Landlord's approval, which shall not be unreasonably withheld. Tenant shall
obtain and maintain during the Term, combined rental income and/or business
interruption insurance against loss of Tenant's income for a period of twelve
(12) months due to the perils covered by the insurance referred to herein, in an
amount sufficient to cover the Rent payable under the terms of this Lease.
7.3 Limits of the Policies. The limits of the liability
and property policies shall be reasonably increased from time to time to meet
changed circumstances as set forth below:
A. Liability Coverage Limits. The minimum
policy limits set forth above shall be subject to increases in amounts as
Landlord may reasonably require, but not more frequently then every three (3)
years at the time of the annual renewal of said policy; provided, however, that
such increased amount shall not exceed the amount of coverage generally carried
by owners or operators of similar buildings having similar uses in the Black
Hawk and Central City areas from time to time Landlord shall give Tenant at
least thirty (30) days prior notice of any requested changes.
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B. Property Coverage Limits.
(i) As of or prior to renewal, all property
insurance policies required by Section 7.2 above shall be indexed annually to
reflect a current replacement cost based on the Marshall Swift Index or some
other index reasonably designated by Landlord.
(ii) The provisions of this Article 7 do
not affect or limit the Tenant's obligations under Article 9, nor relieve the
Tenant from any responsibility for having insured for less than full replacement
cost if, after a loss, the Improvements or other Improvements are found to be
under-insured. Whenever any amount of property insurance is required to be
changed pursuant to the provisions of this Section 7.3., the limits of the
policy shall be endorsed to provide for the agreed upon replacement cost, and
Tenant shall furnish Landlord with written evidence of such change within thirty
(30) days after the change is to take effect. Provided that the same are to be
applied to restoration under the terms of this Lease, any proceeds of property
insurance received in advance of actual repair of loss shall be deposited in a
bank or trust company as insurance trustee, designated by the Tenant, with the
Landlord's approval, which approval shall not be unreasonably withheld, pursuant
to a notice given to the insurance companies and to the Landlord promptly
following the occurrence of the casualty, which bank or trust company shall have
its principal office in Denver, Colorado, and must have a capital and surplus
account according to its last public statement in excess of Twenty-Five Million
Dollars ($25,000,000.00).
7.4 Waiver of Subrogation. Landlord and Tenant each waive
any and all rights to recover against the other or against any other subtenant
or occupant of the Premises, or against the officers, directors, shareholders,
partners, joint venturers, employees, agents, customers, invitees or business
visitors of such other party or of such other subtenant or occupant of the
Premises, for any loss or damage to such waiving party arising from any cause
covered by any "all-risk" or other property coverage required to be carried by
such party pursuant to this Lease or any other property insurance actually
carried by such party, to the extent of the limits of such coverage. Landlord
and Tenant, from time to time, will cause their respective insurers to issue
appropriate waiver of subrogation rights endorsements for those insurance
policies which are referenced in the foregoing waiver.
7.5 Mutual Cooperation. Landlord and Tenant shall
cooperate with each other in the collection of any insurance proceeds which may
be payable in the event of any loss, including the execution and delivery of any
proof of loss or other actions required to effect recovery.
7.6 Policies of Insurance. Tenant shall pay the cost of
all insurance premiums for insurance required under this Article 7. In the event
that the Tenant fails to procure and maintain any insurance required by this
Article 7, or fails to carry insurance required by law or governmental
regulation, the Landlord may at any time (but without any obligation to do so),
procure such insurance and pay the premiums for the insurance, provided the
Landlord has given the Tenant ten (10) days prior written notice of its
intention to do so. In such event, the Tenant shall repay the Landlord all sums
so paid, together with interest as provided in Section 17.12 and any reasonable
incidental out-of-pocket costs or expenses incurred by the Landlord in
connection with the procurement of such insurance, within thirty (30) days
following the Landlord's written demand to Tenant for such repayment. All
policies of insurance required by this Article 7 shall be issued by insurance
companies with a rating of not less than A-14 as rated in the most currently
available "Best's Insurance Report" (or a then-equivalent rating from such
service or from a similar service, if such rating or reporting service is no
longer available), and qualified to do business in the State of Colorado and
shall be issued in the name of the Tenant as the named insured and the Landlord
as a additional insured thereunder as to liability and the Premises and an
additional interested party as to personal property. Tenant shall provide
evidence to Landlord of the rating and qualification of Tenant's insurance
carrier annually. Executed copies of such policies of insurance shall be
delivered to the Landlord within ten (10) days after the delivery of possession
of the Premises to the Tenant, and thereafter within thirty (30) days subsequent
to the
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<PAGE> 20
renewal of each insurance policy. As often as any such policy shall expire or
terminate, the Tenant shall procure and maintain renewal or additional policies
in a like manner and to a like extent. All such policies shall contain a
provision that the company writing the policy will give the Landlord thirty (30)
days written notice in advance of any cancellation or lapse of the effective
date, any reduction in the amounts of insurance or any material change in the
coverage, and shall provide further that any losses shall be payable
notwithstanding any act or negligence of Tenant which might otherwise result in
forfeiture of said insurance. All comprehensive general liability and other
property policies shall be written as primary policies and are not to be
construed as being in excess of coverage which the Landlord may carry, at its
sole option.
7.7 Mortgagees as Insureds. Landlord acknowledges and
agrees that Tenant may name the holder of any Leasehold Mortgage as an
additional insured in connection with any property or liability policy of any
nature which Tenant maintains in connection with the Premises.
7.8 Indemnification of Landlord. Except to the extent
caused by the gross negligence wilful misconduct of the Landlord or its
employees or members, to the fullest extent permitted by law, Tenant hereby
agrees to defend (with counsel approved by Landlord, which approval shall not be
unreasonably withheld), indemnify and hold Landlord, its members, and employees,
harmless from and against any and all liability, claims, damage, penalties,
actions, demands or expenses of any kind or nature, including, without
limitation, damage to any property (including Landlord's but subject to the
waiver in Section 7.4) and injury (including death) to any person, arising from,
in connection with or concerning this Lease, Tenant's use or occupation of the
Premises or the Improvements, or from any activity, work or things done,
permitted or suffered by Tenant or any omission of Tenant on or about the
Premises or the Improvements or elsewhere, or from any breach or default by
Tenant in the performance of any of its obligations hereunder, or any of the
foregoing acts or omissions by any of Tenant's agents, employees, contractors,
subcontractors or invitees, or from any litigation concerning any of the
foregoing in which Landlord is made a party defendant. This, obligation to
indemnify shall include reasonable attorneys' fees and investigation costs and
all other reasonable costs, expenses and liabilities incurred by Landlord or its
counsel from the first notice that any claim or demand is to be made or may be
made. Tenant agrees that its obligations shall survive the expiration or earlier
termination of this Lease.
7.9 Compliance with Insurance. Throughout the Term of
this Lease, Tenant, at its sole expense, will comply promptly and fully with the
provisions of any policy of insurance covering any or all of the Premises as
required, pursuant to the provisions of this Article 7 to be maintained by the
Tenant, whether such provisions relate to all or any portion of the Premises or
the use or manner of use thereof, and relate to matters which are foreseen or
unforeseen.
8. Utilities.
8.1 Service Lines and Taps. Tenant shall bear all costs
and expenses related to extension, upgrading, and or upsizing any existing
utility lines serving the Premises. Further, Tenant at its sole cost and expense
shall be solely responsible for applying for and obtaining all taps, fees and or
permits necessary to enable the Premises to be served by utilities.
8.2 No Warranty. Landlord does not warrant or guarantee
the continued availability of any or all of the utilities. In no event shall the
interruption, diminution or cessation of such utilities be construed as an
actual or constructive eviction of Tenant nor, except as expressly provided
herein regarding an abatement of Rent, shall Tenant be entitled to any abatement
of its obligations under this Lease on account thereof. In the event that a
deposit is required by a public or quasi-public body in order to obtain such
utilities, Tenant agrees and covenants to pay such charge or deposit (or its
share thereof); such deposit shall remain the property of Tenant and be refunded
to Tenant, in the event such deposit becomes refundable at any time. Any money
so paid shall not entitle Tenant to an offset or reduction of any rent liability
hereunder, nor shall Landlord be obligated to return, repay or credit Tenant for
any such
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deposit (except and unless such deposit is refunded to Landlord).
8.3 Payment for Service. The Tenant shall pay or cause
to be paid, before any notice of delinquency, at its sole cost and expense, all
charges for water, gas, heat, electricity, power, telephone or any other
communications services, sewer service charges and any other utilities charged
or attributable to the Premises, and all other charges for services or utilities
of any kind or nature used in, upon or about the Premises by the Tenant,
including the cost of installing meters for such utility charges.
Notwithstanding the foregoing, the Tenant shall have the right to contest any
such charges so long as Tenant diligently prosecutes the same pursuant to
appropriate legal proceedings. If any such charge leads to a mechanic's or other
lien claim against the Premises, such contest shall also be conducted in
conformity with the standards hereof for contesting mechanic's lien claims. The
Tenant or its permitted subtenants or assigns shall contract in their name for
and promptly pay all such utility charges.
8.4 Interruption of Services. If provision of utilities
to the Premises is interrupted to the extent that Tenant cannot operate the
Casino, due to no fault of Tenant's, its agents or employees for a period of
twenty (20) consecutive days then Tenant's obligation to pay Rent shall be
abated following the 20th day of such interruption until the same are restored.
9. Damage by Fire or Other Casualty.
9.1 Restoration.
A. Tenant's Obligation. If the Improvements
shall be damaged by fire or other casualty, the Tenant shall with the proceeds
of all insurance policies maintained pursuant to Article 7, cause the damage to
be repaired to the extent such proceeds are available. Provided, however, the
amount of any deductible, any insurance proceeds taken by a Leasehold Mortgagee,
and any amounts attributable to Tenant's having failed to maintain insurance in
accordance with the requirements of this Lease shall be Tenant's responsibility
and construed as a part of the "available insurance proceeds." All insurance
proceeds shall be used solely for the purposes of repair and restoration of the
Premises. Subject to the following provisions of this Article 9, neither this
Lease nor the Rent payable by the Tenant to the Landlord shall be affected by
any damage or destruction of the Premises.
B. Landlord's Contribution. If the cost of
repairing and restoring the Premises exceeds the available insurance proceeds,
("Restoration Shortfall") then Landlord and Tenant shall contribute equally to
the Restoration Shortfall and Landlord will make available to Tenant Landlord's
share of the Restoration Shortfall, within 30 days following Landlord's receipt
of reasonable evidence of such amount and confirmation that all available
insurance proceeds have been expended for such repair and restoration by Tenant
in accordance with the provisions hereof and that Tenant has contributed its
share of the Restoration Shortfall.
9.2 Termination by Tenant or Landlord/Extension for
Repair Period.
Notwithstanding the provisions of Section 9.1 above, if the Restoration
Shortfall exceeds $200,000 in the aggregate, and neither Landlord nor Tenant
elect (which they shall have the right, but not the obligation to so do by
notice to the other within 15 days of determination of the Restoration
Shortfall) to contribute more than their respective share of the Restoration
Shortfall, then within 30 days following the determination of such facts, either
Landlord or Tenant shall have the right by written notice to the other party to
terminate this Lease, in which event such termination will be deemed effective
as of the date of the casualty. If the provisions of the preceding sentence are
applicable, and no notice of termination is given, then it shall be presumed
that both parties have agreed to contribute 50% of the entire Restoration
Shortfall and the provisions of Section 9.1 above shall control. Alternatively,
if either Landlord or Tenant elects to exercise its right to terminate, and the
other party elects to make an additional contribution to the Restoration
Shortfall (which election must be made within 15 days following receipt of the
termination notice), than Tenant shall proceed to repair and restore the
Improvements as required herein. Further, in the event of a casualty, Tenant
shall have an
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election to extend the term of this Lease for any qualifying casualty that
occurs within any Lease Year of the Term for a period of time equal to the time
required to repair or restore the Premises to their condition existing prior to
the occurrence of such casualty. It being the intent of all parties hereto that
Tenant shall be entitled to the full Term contemplated herein of operation. Such
right to extend the term hereof for such period of time must be exercised, if at
all, not later than 30 days following the date of such casualty.
10. Condemnation.
10.1 Total Condemnation. If during the Term of this Lease,
the whole or substantially all of the Premises, including the Improvements,
shall be taken for a public or quasi-public use by the exercise of the power of
eminent domain or by purchase under threat of condemnation, this Lease shall
terminate on the date the condemning authority actually takes possession of the
real property and the Rent and other sums and charges required to be paid by
Tenant hereunder shall be appropriately prorated and paid to such date of
taking. In the event of any such taking, Landlord and Tenant shall together make
one claim for an award for their combined interests in the Premises and the
Improvements, including any award for severance damages if less than the whole
shall be so taken. The net award and proceeds received (after reduction of
reasonable fees and expenses of collection, including, but not limited to,
reasonable attorneys' fees and experts' fees) shall be paid in the following
order:
A. First, Landlord shall receive an amount
equal to the fair market value of the Premises (as of the date of such
condemnation), such fair market value to be determined based on the Premises in
an improved condition (based on the Improvements in place as of the Commencement
Date) at its highest and best use without consideration of this Lease together
with the value of Landlord's reversionary interest in the New Improvements (to
the extent they added to or increased the value of the Improvements existing on
the Commencement Date) which Tenant has made during the Term. Such reversionary
interest shall be determined based upon the number of months elapsed during the
Lease Term from the Commencement Date to the date of the condemnation compared
to the number of months during the entire Term (including the First (or Second)
Extension Term, as applicable, if the time period for waiver has occurred prior
to the occurrence of such condemnation and same has not been timely waived). For
example, if such total condemnation occurred during the 18th month of the First
Extension Term, the value of the New Improvements accruing to Landlord would be
78/120ths of the total value, with the balance of such value (42/120) accruing
to Tenant (the aggregate of the land and reversionary value may be referred to
in this Lease as the "Landlord's Value").
B. Second, the mortgagees of the Leasehold
Mortgage shall receive, in the order of the priority of their mortgages (first
mortgage, second mortgage, etc.), the unpaid principal and interest and other
indebtedness secured by such Leasehold Mortgage.
C. Third, the balance of such award shall belong to
Tenant.
10.2 Partial Condemnation. If less than the whole or
substantially all of the Premises shall be taken for any public or quasi-public
use under the power of eminent domain or by purchase under threat of
condemnation, this Lease shall continue in force and effect, and Tenant shall
give prompt notice thereof to Landlord and shall proceed, with reasonable
diligence, to perform any necessary repairs and to restore the Premises to an
economically viable unit in strict accordance with all governmental regulations
and as nearly as possible to the condition the Premises were in immediately
prior to such taking; provided, however, if the proceeds are insufficient for
the repair and restoration of the Premises, then the shortfall shall be deemed
to be a Restoration Shortfall, and the provisions set forth above in Sections
9.1 and 9.2 shall apply with respect to the respective rights and obligations of
Landlord and Tenant to contribute to any Restoration Shortfall or to terminate
this Lease. All awards payable as a result of any such taking, including
severance damages (after deducting reasonable fees and expenses of collection,
including, but not limited to, reasonable attorneys' and experts' fees) shall be
paid in the following order:
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A. First, to Tenant, or as Tenant may direct,
as the restoration of the portion of the Premises not taken progresses, to pay
or reimburse Tenant for the costs of such restoration. However, if Tenant does
not promptly commence and thereafter complete the restoration required by this
Section and Landlord shall have caused the termination of the Lease by reason
thereof, such award shall be paid to Landlord upon termination of this Lease.
B. Second, to Landlord an amount equal to
Landlord's Value times a fraction, the numerator of which is the number of
square feet contained in the portion of the Premises so taken, and the
denominator of which is the number of square feet contained in the Premises;
plus any accrued but unpaid Rent.
C. Third, to the mortgagees whose Leasehold
Mortgages encumber Tenant's leasehold estate (in the order of the priority of
their mortgages) to the extent required under the terms and provisions of such
mortgages.
D. The remainder of the award shall belong
to Tenant.
10.3 No Reduction of Rent. There shall be no reduction in
Rent as a result of any such condemnation, unless more than 10% of the floor
area of the Improvements are permanently taken, in which event the Base Rent
shall be reduced proportionately based on the total square footage of the
Improvements so taken compared to the total square footage of the Improvements
immediately prior to the taking.
10.4 Substantially All. As used herein, a taking of
substantially all of the Premises shall mean a taking of such portion of the
Premises (but less than the whole thereof) or all or such portion of the
appurtenances to the Premises, areas outside the boundaries thereof, or rights
in adjoining streets as leaves remaining a balance which cannot be economically
operated in Tenant's opinion for the purpose for which the Premises was operated
prior to such taking. Any other taking of a portion of the Premises,
appurtenances, areas outside the boundaries thereof, or rights in adjoining
streets, other than a taking of the whole or substantially all (as defined
above) of the Premises shall be deemed a taking of less than substantially all
of the Premises.
10.5 Temporary Condemnation. If the temporary use of the
whole or any part of the Premises shall be taken, this Lease shall not be
affected in any way and Tenant shall continue to pay all Rent payable by Tenant
hereunder, and Tenant shall receive any award therefor. A temporary taking shall
be one that is of ninety (90) days or less duration.
10.6 Pending Proceedings with the City of Black Hawk.
Landlord and Tenant acknowledge that there is currently a proceeding/dispute
with the City of Black Hawk (the "City") regarding the economic effects and
resulting costs of certain actions it has taken in connection with widening and
raising certain roads abutting the Premises ("Pending Claim"). Landlord and
Tenant agree that Landlord has heretofore and will continue to pursue the
Pending Claim. All costs associated with the actual repair, and restoration and
remodeling work performed as a result of the raising of Main Street, all costs
associated with the Pending Claim (including in kind costs incurred by Landlord
and/or Tenant prior to the date hereof in connection with such matter) and all
costs associated with any acquisition of Backus Street adjacent to the Parking
Lot and/or Backus Property which are incurred as a result of the City's
agreement to allow such acquisition (collectively "Claim Costs") will be borne
equally by Landlord and Tenant. Landlord and Tenant acknowledge that certain of
the Claim Costs have been incurred prior to the Commencement date and as to
certain of such Costs, Tenant will seek and may obtain reimbursement from the
tenant under the Existing Lease. Landlord's right to receive contribution from
Tenant for Tenant's share of all Claim Costs is not conditioned or dependent on
such prior tenant performing its obligations or making any payments it has
agreed to make to Tenant. To the extent either Landlord or Tenant has incurred
any Claim Costs, the party seeking reimbursement thereof will provide the other
party with an itemized statement for
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such costs and expenses and the party obligated to make such reimbursement will
do so promptly upon receipt of such statement(s), from time to time. To the
extent that there is any recovery attributable to the Pending Claim, the amount
of such recovery will be split equally between Landlord and Tenant. Any award
given shall first be applied towards the reimbursement of expenses incurred by
Landlord and/or Tenant in connection with the Pending Claim. Services performed
by Landlord's members or Tenant's employees shall be compensated at the rate of
$100 per hour.
10.7 Proceedings. In any condemnation proceeding
affecting the Premises which affects the interest of Landlord and Tenant herein,
both parties, as well as any mortgagee, shall have the right to appear in and
defend against such action as they deem proper in accordance with their own
interest. To the extent possible, the parties shall cooperate to maximize the
award payable by reason of the condemnation. Issues between Landlord and Tenant
required to be resolved pursuant to this Section shall be joined in such
condemnation proceeding to the extent permissible under then applicable
procedural rules of such court of law or equity for the purposes of avoiding
multiplicity of action and minimizing the expenses of the parties, or in the
absence of any appropriate proceeding or if the issue in dispute cannot be
joined in such proceedings, such issue shall be determined by separate
proceedings.
11. Assignment, Subletting, and Encumbrancing.
11.1 Assignment and Subletting.
A. Approvals Required. Except as provided in
Section 11.3 below, the Tenant shall not assign or transfer this Lease, or any
interest in this Lease, and shall not sublet the Premises or any part of the
Premises without, in each case, first obtaining the prior consent of the
Landlord, which shall not be unreasonably withheld if the proposed assignee or
subtenant:
(i) has sufficient financial capabilities
for performing Tenant's obligations under this Lease or the subtenant's
obligations under the sublease, whichever is applicable;
(ii) has sufficient experience in
operating, managing and maintaining similar gaming establishments to provide
reasonable assurance to Landlord that there will be no interruption of or
diminution of the Rent; and
(iii) is qualified to obtain all licenses
required for such assignee to operate the Premises in the manner required
hereunder.
Landlord's approval shall be deemed given if it does not give written notice of
disapproval within twenty (20) days after Tenant gives notice requesting such
approval; provided, that such period shall be forty-five (45) days in the case
of any assignment by Tenant of all of its rights and interests hereunder. If all
such licenses are not timely obtained, such approval shall be deemed withdrawn
upon written notice from Landlord to Tenant.
B. Effect of Assignment. If Tenant attempts to
make any assignment or subletting without the requisite consent, if any, of the
Landlord, such assignment or subletting shall be void. Any consent by Landlord
to any assignment of this Lease or any consent by Landlord to any sublease of
the Premises shall not constitute a waiver by the Landlord of the provisions of
this Section 11 as to subsequent transactions of the same or similar nature.
Notwithstanding any assignment or subletting, including any under the provisions
of this Section 11.1 or Section 11.3 below. Tenant shall remain liable for the
full performance of the terms, conditions and obligations under this Lease
unless Landlord otherwise expressly provides to the contrary by written
agreement. Any assignee or subtenant shall be bound by the use limitations in
Section 1.2 hereof.
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11.2 Financing.
A. By Landlord. Landlord shall have the right
to subject Landlord's interest herein to a mortgage or deed of trust, or to
effect a sale, conveyance or assignment of its interest in the Premises in whole
or in part, provided that: (a) Tenant's gaming and liquor licenses are not
suspended, terminated or otherwise adversely affected as a result of such
action; (b) such mortgage, deed of trust, or transfer shall be subordinate to
and subject to the terms and provisions of the Lease and Tenant's rights and
remedies under the Lease; and (c) Landlord gives prior written notice to Tenant
of all terms and provisions of such mortgage or deed of trust (including
documents incorporated therein by reference), and upon the occurrence of a sale,
transfer or conveyance and provides reasonable evidence that the terms of (a)
and (b) are met. The mortgagee or holder of the beneficiaries rights under a
deed of trust entered into in accordance with the terms of this Section is
referred to in this Lease as a "Fee Mortgagee" and such document is referred to
as a "Fee Mortgage." If the interest of Landlord is transferred to any person,
firm, conveyance or corporation by reason of foreclosure or other proceedings
for enforcement of any mortgage or deed of trust, by delivery of a deed in lieu
of such foreclosure or other proceedings, Tenant shall immediately and
automatically attorn to such person, firm, company or corporation, subject to
the provisions of this Lease. No such transfer may be made which would in any
way prevent or impair Tenant's ability to operate the Premises in the manner
provided herein.
B. Tenant's Rights. Tenant may, at any time or
from time to time mortgage the leasehold estate, so long as Tenant is in
compliance with all terms, conditions, and provisions of this Lease. In no event
shall Landlord have any obligation to subject its interest in the Premises or
this Lease to the lien of any mortgage by Tenant incurred in connection with
financing construction of improvements on the Premises or otherwise. Such right
of Tenant to mortgage the leasehold estate shall be a continuing right and shall
not be deemed to be exhausted by the exercise thereof on one or more occasions.
Any such mortgage shall be expressly subject to the provisions of this Lease,
shall not to any extent encumber all or any portion of Landlord's interest in
the Premises. Any such leasehold mortgage shall provide:
(i) The indebtedness secured thereby shall
be payable in equal regularly amortizing installments that will give rise to a
full repayment and extinguishment of the indebtedness no later than the
expiration of the Initial Term;
(ii) The principal amount of the loan will
not exceed the fair market value of the leasehold estate for the Initial Term.
The loan documents shall specifically provide that any condemnation or insurance
proceeds available as a result of an action in eminent domain or insured
casualty shall be made available to Tenant to repair and restore the
Improvements in accordance with this Lease, unless Landlord agrees to the
contrary, which it shall have the right to do in its sole discretion. The
documents evidencing any such leasehold mortgage shall be subject to the prior
written approval of Landlord which approval shall not be unreasonably withheld
or delayed; upon approval by Landlord in accordance with the terms hereof, any
such leasehold mortgage shall be deemed a "Leasehold Mortgage" hereunder. Each
mortgagee under a Leasehold Mortgage (hereinafter referred to as a "Leasehold
Mortgagee") shall be deemed to have agreed that in the event of any default of
this Lease which is not cured as provided herein (unless such default is not
required to be cured by the Leasehold Mortgagee), following which a termination
of this Lease b Landlord occurs, the Leasehold Mortgagee shall not thereafter
have any rights whatsoever in this Lease, or in the Improvements, or Premises,
all interest having reverted to Landlord as a result of the termination of this
Lease, and upon request of Landlord, the Leasehold Mortgagee will execute any
releases and similar documents requested by Landlord to evidence such
termination any reversion of Tenant's interest. A Leasehold Mortgagee shall be
deemed to have agreed to reimburse Landlord for all reasonable costs, including
attorneys' fees, incurred by Landlord in obtaining such releases and similar
documents if such documents are not delivered to Landlord within ten (10) days
following written request therefor. In the event of any default by Tenant
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under this Lease, Landlord shall give to any Leasehold Mortgagee notice (sent in
the manner described below, addressed to any address designated by such
mortgagee) of any defaults of Tenant concurrently with giving notice thereof to
Tenant, and an opportunity shall be afforded to such mortgagee to cure such
default as provided hereinafter, including time to obtain possession of the
Premises if this should be necessary to effect a cure. Notwithstanding anything
contained herein to the contrary, there shall not be any obligation on Landlord
to give notice to any a Leasehold Mortgagee unless either Tenant or such
mortgagee shall have given Landlord notice in the manner herein provided of the
name and address of the Leasehold Mortgagee.
C. Leasehold Mortgagee's General Cure Rights.
Landlord, prior to terminating this Lease or exercising any other right or
remedy hereunder for a default by Tenant (as defined in Section 16 hereof),
shall give each Leasehold Mortgagee written notice of the pertinent default by
Tenant and thirty (30) days thereafter in which to cure the same, or, if the
subject default by Tenant is of such a nature that the same cannot reasonably be
cured within said thirty (30) day period, then the Leasehold Mortgagee's cure
period shall be extended for so long as the Leasehold Mortgagee diligently
pursues the cure to completion, for a period not to exceed ninety (90) days.
Furthermore, in the event this Lease is terminated in accordance with this Lease
or by provision of law, or in the event Landlord dispossesses Tenant pursuant to
Section 12.2 hereof, Landlord shall give each Leasehold Mortgagee written notice
thereof within ten (10) days prior to the termination or dispossession. Landlord
and Tenant agree that any mutual termination, cancellation or rescission of this
Lease by Landlord and Tenant shall be effective only if the same is given the
prior written approval of any Leasehold Mortgagee.
11.3 Permitted Assignment by Tenant. Notwithstanding
anything to the contrary set forth herein, Tenant shall have the right without
obtaining Landlord's prior consent, or requiring compliance with Section 16.2
below, to assign, transfer or sublet all or any portion of its interest herein
to any subsidiary or affiliate 100% owned by the Tenant or Guarantor, or entity
which acquires 100% of Tenant's or Guarantor's stock or assets by way of merger
or otherwise; provided in each instance, Tenant provides Landlord with not less
than thirty (30) days prior written notice of such intended transfer and
provides reasonable evidence that any such assignee or transferee meets the
requirements set forth in Section 11.1 above. In no event will such assignment
operate as a release of Guarantor hereunder.
11.4 Transfers by Landlord.
A. Notwithstanding anything to the contrary set
forth herein, Landlord shall have the right without requiring compliance with
Section 16.2 below, to assign, transfer, or otherwise convey all or any portion
of its interest herein to any subsidiary or affiliate 100% owned by the Landlord
or entity which acquires 100% of Landlord's assets by way of merger or
otherwise. Following compliance with Section 16.2, below, nothing in this Lease
shall restrict the right of Landlord to sell, convey, assign or otherwise deal
with the Premises or this Lease subject to the terms and provisions of this
Lease.
B. Subject to the terms of this Section 11.4,
a sale, conveyance or assignment of the Premises or this Lease shall operate to
release Landlord from liability which arises hereunder from and after the
effective date of such sale, conveyance, or assignment. In no event shall
Landlord be relieved of any liability to Tenant arising prior to the effective
date of such sale, conveyance or assignment. This Lease shall not be affected by
any such sale, conveyance or assignment, and Tenant shall attorn to Landlord's
successor in interest thereunder provided that such successor attorns to Tenant
and any funds in which Tenant has an interest in the hands of Landlord or the
then grantor at the time of such transfer shall be turned over to the grantee.
Nothing contained herein shall be applicable to a sale of the Premises to Tenant
in accordance with the provisions hereof.
12. Default by Tenant.
12.1 Defined. Any of the following events shall
constitute a default under this
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Lease by the Tenant:
A. The Tenant's failure to make any payment of
Rent or other payment required by this Lease when it is due and the continuance
of such failure for a period of fifteen (15) days after the date such payment
was due; provided, however, if Tenant has no actual or constructive knowledge of
its obligation to pay any amount of Rent other than Base Rent or Percentage
Rent, it shall not be deemed to be in default hereunder until fifteen (15) days
following receipt of notice that such payment was required (there being no
further grace period allowed for any such late payment of other amounts of
Rent).
B. Following the Commencement Date, the
abandonment of the Premises by the Tenant, but not including mere vacation as
may be necessary to facilitate the reoccupancy of the Premises for a permitted
use pursuant to an assignment or subletting authorized under the terms of this
Lease, or except as caused by any casualty or condemnation or as ordered by any
legal authority having jurisdiction (and not in response to a request of
Tenant).
C. The making by the Tenant of any general
assignment or general arrangement for the benefit of creditors; the filing by or
against the Tenant of a petition to have the Tenant adjudged bankrupt or a
petition for reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against the Tenant, such petition is
dismissed within 90 days); the taking of any action by Tenant to authorize any
of the foregoing actions on behalf of Tenant; the appointment of a trustee or
receiver to take possession of substantially all of the Tenant's assets located
at the Premises or of the Tenant's interest in this Lease (unless possession is
restored to the Tenant within 60 days); or the attachment, execution or other
judicial seizure of substantially all of the Tenant's assets located at the
Premises or of the Tenant's interest in this Lease (unless such seizure is
discharged within 30 days);
D. Except as expressly permitted by the Section
hereof dealing with Assignment, any attempted assignment of this Lease or
subletting of the Premises or any portion thereof (which term shall not include
negotiations with a prospective assignee);
E. The failure by the Tenant to observe,
perform or comply with any material term, condition or obligation in this Lease
not already specifically mentioned in this Section 12.1, where such failure
continues for thirty (30) days after the Landlord gives the Tenant written
notice of such failure; provided, however, that if the nature of the Tenant's
failure is such that more than thirty (30) days are reasonably required for its
cure, then the Tenant shall not be in default if it begins to undertake action
to cure the failure within the thirty (30) day period and thereafter prosecutes
such cure to completion with due diligence and in good faith, such completion to
occur within ninety (90) days; and provided further, that if Tenant's failure is
in the giving of any notice or the doing of any task or thing at a particular
time or times, then it shall be deemed a sufficient cure for the purposes hereof
if such notice is given or thing is done within such thirty (30) day cure period
(extended as may be necessary for the due diligence completion of any such thing
to be done, but not to exceed ninety (90) days thereafter), notwithstanding that
Tenant's performance thereof will not occur at the time or times specified
herein. Any cure period shall terminate at any time that the subject breach
becomes incurable or that the cure efforts become futile.
F. Any material default or material failure by
Tenant to perform its obligations under any lease hereafter entered into with
respect to the Parking Lot or the Backus Property or the Co-Ownership Agreement,
which is not cured or remedied within applicable cure periods provided
thereunder.
12.2 Landlord's Remedies. In the event of any default by
the Tenant, after the expiration of applicable cure periods, the Landlord shall
have the right, at its election, then or at any time thereafter, to exercise any
one of more of the following remedies in accordance with applicable law:
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A. At the Landlord's option, but without any
obligation to do so and without releasing the Tenant from any obligations under
this Lease, the Landlord may make any payment or take any action to cure any
such default by Tenant in such manner and to such extent as the Landlord may in
good faith deem necessary or desirable. The Tenant shall then pay to the
Landlord, within thirty (30) days after demand, all sums paid and costs and
expenses reasonably incurred by the Landlord in connection with the making of
any such payment or the taking of any such action, including reasonable
attorneys' fees, together with interest as specified in Section 17.12. The
actions which the Landlord is authorized to take under this Section 12.2 shall
include but not be limited to commencing, appearing in, defending or otherwise
participating in any action or proceeding and paying, purchasing, contesting or
compromising any claim, right, encumbrance, charge or lien with respect to the
Premises which the Landlord reasonably deems necessary to protect its interests
in the Premises or under this Lease. In the case of any breach or default by
Tenant, Landlord shall use reasonable efforts to mitigate its damages.
B. By giving the Tenant written notice in
accordance with the Colorado forcible entry and detainer laws, the Landlord may
terminate this Lease as of the date of the Tenant's default, or as of any later
date specified in the notice and may demand and recover possession of the
Premises from the Tenant. Upon receipt of such notice, the Tenant shall
immediately surrender possession of the Premises to the Landlord. In
surrendering possession, Tenant and its assignees, subtenants, licensees, and
invitees, subject in all events to Landlord's rights under Section 17.22 below,
shall be entitled to remove and retain all of their removable trade fixtures and
other personal property located on the Premises, so long as the removal is
completed within ten (10) days after the notice is given. In connection with
such termination, the Landlord shall be entitled to recover from the Tenant as
damages: (a) the worth at the time of the award of the unpaid Rent which is due
and payable at the time of the termination; (b) the worth at the time of the
award of the amount, if any, by which the unpaid Rent which would have been
earned after termination until the time of the award exceeds fair rental value
of the Premises for the same period; and (c) the worth at the time of award of
the amount, if any, by which the unpaid Rent for the balance of the Lease Term
after the time of award exceeds the fair rental value of the Premises for the
same period. The computation of the Premises' fair rental value shall include
deductions for Landlord's actual out-of-pocket costs of recovering possession of
the Premises, reasonable expenses of reletting (including advertising),
brokerage commissions and fees, reasonable costs of putting the Premises in good
order, condition and repair (including necessary renovation and alteration of
the Premises), reasonable attorneys' fees, court costs, all costs for
maintaining the Premises, and all costs incurred in the appointment of and
performance by a receiver to protect the Premises or the Landlord's interests
under the Lease. The "worth at the time of award" of the amounts referred to in
clauses (a) and (b) above shall be computed by allowing interest at the rate
specified in Section 17.12. The "worth at the time of award" of the amount
referred to in clause (c) above shall be computed by discounting such amount at
one percentage point above the discount rate of the Federal Reserve Bank of
Kansas City at the time of award.
C. The Landlord may re-enter and take
possession of all or any part of the Premises, without further demand or notice
(except as required by the Colorado forcible entry and detainer laws), and expel
the Tenant or any party claiming any right to the Premises by or under the
Tenant and may remove any personal property in the Premises (subject to the
prior rights of the Tenant and those claiming by, through and under Tenant to
remove and retain personal property, as set forth in Section 12.2(ii) above),
without prejudice to any remedies for delinquent rent or right to bring any
proceeding for breach of this Lease. Any such action by the Landlord shall not
be construed as an election by the Landlord to terminate this Lease unless a
written notice of such election is given to the Tenant. After recovering
possession of the Premises, the Landlord shall use reasonable efforts to relet
the Premises, at a commercially reasonable rent and on otherwise commercially
reasonable terms giving consideration to the Improvements on the Premises, the
uses specified in Section 1.2. The Landlord may make such repairs and
alterations as may reasonably be necessary to accomplish such reletting, and the
Tenant shall reimburse the Landlord within thirty (30) days after demand for all
costs and expenses which the Landlord reasonably incurs in connection with such
reletting. The Landlord
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shall collect and receive the rents from such reletting for the account of the
Tenant. Notwithstanding the Landlord's recovery of possession of the Premises,
so long as this Lease is not terminated, the Tenant shall continue to pay all
Rent, and other amounts required to be paid if the repossession had not
occurred, on the specified dates, less any amounts collected by the Landlord
from reletting the Premises. It is expressly agreed and understood that active
maintenance or preservation, or efforts to relet the Premises, or the
appointment of a receiver at the initiative of the Landlord to protect the
Landlord's interests under this Lease, shall not constitute a termination of
this Lease. No surrender to Landlord of this Lease or of the Premises or the
Improvements, or of any part thereof or any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Landlord; and no act by
Landlord or any representative or agent thereof, other than a written agreement
and acceptance by Landlord, shall constitute an acceptance of any such
surrender. In the event that there shall be any Leasehold Mortgage, the
Leasehold Mortgagee must also consent to any such surrender.
12.3 Suspension of Landlord's Obligations. In the event
of the occurrence of any of the defaults specified in Section 12.1, if the
Landlord shall choose not to exercise its remedies under Section 12.2 hereof, or
by law shall not be able to exercise such remedies, then, in addition to any
other rights of the Landlord under this Lease or by law, and, until the subject
default is cured, neither the Tenant, as debtor-in-possession, nor any trustee
or other person acting on behalf of Tenant in any bankruptcy or similar
proceeding affecting Tenant (the "Assuming Tenant"), shall be entitled to assume
this Lease unless, on or before the date of such assumption, the Assuming Tenant
(x) cures, or provides assurance that the latter will promptly cure, any
existing default under this Lease, such cure to be completed within the time
frames set forth in Section 12.1 above measured from the date of such assumption
(y) compensates, or provides adequate assurance that the Assuming Tenant will
compensate, the Landlord for any pecuniary loss (including, without limitation,
reasonable attorneys' fees and disbursements) resulting from such default, and
(z) provides adequate assurance of future performance under this Lease,
including, without limitation, its ability to operate the Improvements in the
manner contemplated herein.
12.4 Bankruptcy Remedies. Nothing contained in this Lease
shall limit or prejudice the right of the Landlord to prove and obtain as
liquidated damages in any bankruptcy, insolvency, receivership, reorganization
or dissolution proceedings involving the Tenant, an amount equal to the maximum
allowable by any statute or rule of law governing such proceeding in effect at
the time when such damages are to be proved.
12.5 Remedies Cumulative. Each of the remedies described
above, and all remedies available to Landlord at law or at equity for a default
by Tenant, shall be cumulative with and in addition to one another and may be
exercised simultaneously or successively, as the Landlord may deem appropriate,
without any exercise of one remedy being deemed an election of remedies or a
waiver to the exclusion of any other remedy.
13. Default by Landlord.
13.1 Defined. Each of the following shall constitute a
default by Landlord under this Lease:
A. If the Landlord shall fail to pay when due
any amounts owing from the Landlord to the Tenant under the terms of this Lease,
and such failure shall continue for thirty (30) days after Landlord is in actual
receipt of written notice of such failure from the Tenant.
B. If the Landlord fails to comply with any
material term, condition or obligation of the Landlord's in this Lease not
otherwise mentioned in this Section 13.1, and such failure to comply continues
for a period of thirty (30) days after the Tenant gives the Landlord written
notice of such failure, unless such failure cannot reasonably be cured within
such thirty (30) day period, in which event the cure period shall extend so long
as Landlord
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begins to undertake action to cure such failure within such 30 days and
thereafter prosecutes such cure to completion with due diligence and in good
faith; and provided further, that if Landlord's failure is in the giving of any
notice or the doing of any task or thing at a particular time or times, then it
shall be deemed a sufficient cure for the purposes hereof if such notice is
given or thing is done within such thirty (30) day cure period (extended as may
be necessary for the due diligence completion of any such thing to be done)
notwithstanding that Landlord's performance thereof will not occur at the time
or times specified herein. Tenant waives the right to claim a constructive
eviction hereunder unless Landlord has been given written notice of the facts
giving rise to such claim and the opportunity to cure, as provided above.
13.2 Tenant's Remedies. Upon the occurrence of any
default by Landlord, after the expiration of applicable cure periods, the Tenant
shall have the right, at its election, then or at any time thereafter, to
exercise any one or more of the following remedies:
A. Tenant may, at the Tenant's option, without
obligation to do so and without releasing the Landlord from any obligation under
this Lease, make any payment or take any action to cure any such default by the
Landlord in such manner and to such extent as the Tenant may in good faith deem
the same necessary or reasonable. The Landlord shall pay to the Tenant within
thirty (30) days after demand for all sums paid and costs and expenses
reasonably incurred by the Tenant in connection with such action, including
reasonable attorneys' fees, together with interest on all sums as specified in
Section 17.12. Tenant at its election may also offset all such sums and interest
against the Rent. Actions taken by the Tenant may include commencing, appearing
in, defending, or otherwise participating in any action or proceeding and
paying, purchasing, contesting or compromising any claim, right, encumbrance,
charge or lien affecting the Premises which the Tenant reasonably deems neces
sary to protect the Tenant's interest in the Premises or under this Lease.
B. By giving the Landlord written notice, the
Tenant may terminate this Lease as of the date of the default by the Landlord,
or as of any later date specified in the notice, but only so long as Landlord's
default causes a material impairment of the ability of Tenant to use, occupy and
enjoy the Premises. The Rent shall be apportioned to the date of termination. In
connection with any such termination, Tenant shall be entitled to recover as
damages its direct proximate actual damages, including reasonable attorneys'
fees (excluding, however, any resulting lost profits and consequential damages)
(a) the value of the right to use, occupy and enjoy the Improvements for what
otherwise would have been the remainder of the Lease Term and also for any
Extension Term (only if exercised as of such date), and (b) Tenant's reasonable
costs and losses incurred in connection with the resulting relocation.
Notwithstanding anything to the contrary provided in this Lease, it is specif
cally understood and agreed, such agreement being primary consideration for the
execution of this Lease by Landlord, that there shall be absolutely no personal
liability on the part of Landlord, their successors, assigns, legally-appointed
representatives, or any mortgagee in possession (for the purpose of this
paragraph collectively referred to as "Landlord") with respect to any of the
terms, covenants, and conditions of this Lease beyond their respective interests
in this Lease and the Premises, and the Tenant shall look solely to the interest
of Landlord in this Lease and the Premises for the satisfaction of each and
every remedy of Tenant in the event of any breach by Landlord of any of the
terms, covenants and conditions of this Lease to be performed by Landlord, such
exculpation of liability to be absolute and without any exception whatsoever.
Notwithstanding the foregoing, nothing shall prevent Tenant from naming Landlord
personally in any action for injunctive relief or an action for the purposes of
seeking a judgment against Landlord, provided that such judgment may be levied
solely against Landlord's interest in this Lease and the Premises.
C. Tenant may commence any permissible action
to specifically enforce any of Landlord's obligations hereunder (subject to the
preclusion under Section 13.2(ii) above of lost profits or consequential damages
in any case where Tenant terminates this Lease and the provisions of Section
13.2 above regarding limitation of Landlord's liability hereunder). In the case
of any breach or default by Landlord, Tenant shall use reasonable efforts to
mitigate
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its damages. If Landlord' interest in the Premises or any part thereof are at
any time subject to a mortgage or a deed of trust and this Lease or the rentals
due from Tenant hereunder are assigned as security for such mortgagee, trustee
or beneficiary (called "Assignee" for purposes of this Article 13 only) and
Tenant is given written notice thereof, including the address of such Assignee,
then there shall be no default on the part of Landlord without Tenant first
giving written notice thereof to such Assignee, specifying the default in
reasonable detail, and affording such Assignee a reasonable opportunity to make
performance for and on behalf of Landlord. If and when said Assignee has made
performance on behalf of Landlord, such default shall be deemed cured, provided
that such performance has occurred within a reasonable period of time after
receipt by Assignee of notice of default from Tenant.
14. Estoppel Certificates. Each party (the "responding party")
covenants and agrees to execute, acknowledge, and deliver to the other party,
upon such party's written request (the " requesting party"), a written statement
certifying that this Lease is unmodified (or, if modified, stating the
modifications) and in full force and effect; stating the date to which Rent has
been paid; stating whether or not the responding party or, to the best of the
responding party's knowledge, the requesting party is in default under this
Lease (and, if so, specifying the nature of the default); and setting forth the
status of such other matters as the requesting party may reasonably designate in
writing. Landlord and Tenant agree that a failure by either party to deliver
such a statement within fifteen (15) days after written request from the other
party shall be conclusive that this Lease is in full force and effect without
modification except as may be represented by the party requesting the
certificate; that there are no uncured defaults by either party except as may be
represented by the requesting party; that any representations by the requesting
party with respect to Rent are true; and that any other matters designated for
disclosure are in such status as may be represented by the requesting party.
15. Surrender. Upon the expiration or earlier termination of
this Lease, or on the date specified in any demand for possession by Landlord
after a default by Tenant, Tenant covenants and agrees to surrender possession
of the Premises to Landlord, with the Improvements as may then exist thereon.
16. Option to Purchase and Right of First Refusal.
16.1 Right to Purchase. Effective during the third,
fourth and fifth Lease Years of the Initial Term, Tenant shall have the
exclusive and irrevocable right, if timely exercised by Tenant, and provided
that Tenant is not in default hereunder at said time, to purchase the Premises,
Landlord's 50% ownership interest in the Backus Property and Parking Lot,
consisting of the Casino's existing parking lot and the Backus Property,
respectively described as Lots 6-8, Block 39 ("Parking Lot"), and the east half
of Lot 11, Block 48 and Lot 1, Block 49 ("Backus Property"), City of Black Hawk,
County of Gilpin, State of Colorado, together with all Landlord's rights in any
easements, rights of way, and appurtenances, including any right of Landlord in
any adjoining streets or alleys (collectively, "Option to Purchase"), on and
subject to the terms and conditions set forth as follows:
A. If Tenant desires to exercise the Option to
Purchase contained herein, it shall notify Landlord not less than one hundred
eighty (180) days prior to the date Tenant desires to close the Option to
Purchase, but in no event less than 180 days prior to the expiration of the
Initial Term ("Exercise Notice"). If the Exercise Notice is received timely, and
the closing occurs during the third Lease Year, the exercise price ("Exercise
Price") shall be $5,800,000.00; or if the closing occurs during the fourth Lease
Year, the Exercise Price shall be $5,974,000.00; or if the closing occurs during
the fifth Lease Year, the Exercise Price shall be $6,153,220.00. If there are
any Additional Costs, or any costs or expenses and/or in kind consideration paid
by Landlord for improvements (not to exceed an agreed upon value, or if no
agreement is reached between Landlord and Tenant then the amount of the
appraised value thereof as accepted by the City), repairs, or replacements to
either the Parking Lot or Backus Property pursuant to the separate lease(s) for
said properties or the co-ownership agreement relating thereto, or incurred with
respect to or in connection with the acquisition of Backus Street
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adjacent to the Backus Property or Parking Lot (subject to the market value
limitations set forth above), (all such amounts together with the Additional
Costs are referred to herein collectively as "Improvement Costs"), the
respective Exercise Prices shall be increased according to the following
formula: Exercise Price + Landlord's share of Improvement Costs + ((Landlord's
share of Improvement Costs x 0.25% per month) x number of months from date of
payment for Landlord's share of Improvement Costs). For example, if Landlord
paid 50% of $200,000 in Improvement Costs on the first day of the 6th month of
the Lease, and Tenant closed its Option at the end of the 30th month, Tenant's
adjusted Exercise Price would be calculated at follows: $ 5,800,000 + $100,000 +
(($100,000 x 0.25% per month) x 24 months) = adjusted Option exercise price.
Upon exercising the Option, Tenant shall pay a non-refundable downpayment of
$200,000.00 to Landlord to be applied against the Exercise Price and close the
purchase no earlier than six (6) months after the exercise. Upon exercising the
Option, Tenant shall continue to pay rent, which shall not be applied towards
the Exercise Price. Tenant will use its best reasonable efforts to accommodate a
1031 exchange.
16.2 Right of First Refusal. If Landlord or Tenant desires
to transfer, assign or otherwise convey all, or any portion of its respective
interest herein, other than in the manner provided in Sections 11.3 or 11.4, the
following provisions shall apply: the party desiring to sell its interest
("Selling Party") shall notify the other party ("Receiving Party") in writing
(the "Notice") specifying the terms and conditions, and the price at which the
Selling Party intends to offer its interest herein for sale (the "Terms"). The
Receiving Party shall have thirty (30) days after receipt of the Notice within
which to notify Sending Party that the Receiving Party desires to purchase the
interest being offered on the Terms. If the Receiving Party fails to timely
notify the Sending Party, the Sending Party shall be free to consummate a
transaction with any third party or parties on the Terms (provided that the
sales price is at least equal to ninety-six percent (96%) of the amount set
forth in the Terms) at any time within the next six (6) months without
reoffering the same to the Receiving Party. If no sale occurs within said six
(6) month period, then prior to consummating any transaction, the provisions of
this Section shall be complied with again. If the Receiving Party timely
notifies the Sending Party that it desires to exercise the right to purchase,
the closing shall occur on the Terms within sixty (60) days of the date of
giving of the Notice The First Right of Refusal shall exist during the Initial
Term and all Extension Terms.
16.3 Terms of Sale. In the event of either the exercise by
Tenant of its rights under Sections 16.1 or 16.2 above, the sale by Landlord to
Tenant shall be subject to the following agreements:
A. Title to the Premises, Backus Property and
Parking Lot ("Acquired Parcels") shall be conveyed by special warranty deed
subject only to the Permitted Exceptions (as to the Premises) with standard
printed exceptions deleted and as to the Backus Property and Parking Lot, all
matters existing of record on the date the lease(s) of said parcels commenced
and such other exceptions and matters arising by, through, under, or with the
consent of Tenant. Landlord will pay for a title insurance policy (or reimburse
Tenant for an equivalent amount) insuring title to the Acquired Parcels in an
amount equal to the purchase price therefor, subject to all standard printed
exceptions, the Permitted Exceptions, and the title exceptions delineated above;
provided, however, if Landlord has contributed to the cost of Tenant's leasehold
policy as provided above, then Landlord will only be responsible for the cost of
the insurance required to be provided herein less any amounts previously
contributed by Landlord toward Tenant's leasehold policy.
B. All closing costs and recording costs shall
be allocated as customary in Colorado at the time of such sale and Buyer will be
responsible for all transfer taxes, if any.
C. Closing will occur through the title company
pursuant to closing instructions which will require that the title insurance
company agree to insure title to the Acquired Parcels in the manner required
herein prior to releasing any funds to Landlord.
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17. Miscellaneous.
17.1 No Implied Waiver. No failure by Landlord or Tenant
to insist upon the strict performance of any term, covenant, or agreement
contained in this Lease or to exercise any right or remedy in connection
therewith, and no acceptance of full or partial payment during the continuance
of any default by Tenant or default by Landlord, shall constitute a waiver of
any such term, covenant, or agreement or any such right or remedy or any such
default by Tenant or default by Landlord, it being understood and agreed by the
parties hereto that any such waiver shall be effective only to the extent
expressly and specifically set forth in a written instrument executed by the
party against whom such waiver is sought. Any waiver of a default by Tenant or
default by Landlord or any right or remedy applied thereto shall not serve to
waive any other default by Tenant or default by Landlord or the same default by
Tenant or default by Landlord arising in the future or other rights or remedies
or the same rights or remedies as applied to any future default by Tenant or
default by Landlord.
17.2 Survival of Provisions. Notwithstanding any
termination of this Lease, the same shall continue in force and effect as to any
provisions hereof which require observance or performance by Landlord or Tenant
subsequent to termination.
17.3 Binding Effect. This Lease shall extend to and be
binding upon the heirs, executors, legal representatives, successors, and
permitted assigns of the respective parties hereto. The terms, covenants,
agreements, and conditions in this Lease shall be construed as covenants running
with the Premises.
17.4 Recordation. This Lease shall not be recorded but at
Landlord's or Tenant's request both Landlord and Tenant shall execute one or
more memoranda leases to evidence and represent the provisions of this Lease,
including the Option and Right of First Refusal. Landlord agrees to execute and
deliver such memoranda in recordable form, in a form mutually acceptable to both
Landlord and Tenant, approval shall not be unreasonably withheld
17.5 Notice and Demands. All notices required or
permitted under this Lease shall be given by registered or certified mail,
return receipt requested, postage prepaid, or by hand or commercial carrier
delivery, or by telecopier directed as follows:
If intended for Landlord, to:
c/o J. Scott Bradley
78436 U.S. Highway 40
P.O. Box 163
Winter Park, Colorado 80482
Telecopier number: (970) 726-9522
Telephone number: (970) 726-8000
with a copy in each case to:
Sandy Gail Nyholm, Esq.
Isaacson, Rosenbaum, Woods & Levy, P.C.
633 17th Street, Suite 2200
Denver, Colorado 80202
Telecopier number: (303) 292-3152
Telephone number: (303) 292-5656
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If intended for Tenant, to:
c/o George J. Nelson
Concorde Cripple Creek, Inc.
3290 Lien Street
Rapid City, South Dakota 57702
Telecopier number: (605) 342-0247
Telephone number: (605) 341-7738
and with a copy in each case to:
c/o Warren L. Troupe, Esq.
Morrison & Foerster L.L.P.
5200 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202-5638
Telecopier number: (303) 592-1500
Telephone number: (303) 592-1510
Any notice delivered by mail in accordance with this Section shall be deemed to
have been duly given on the date such notice is actually received. Any notice
delivered by telecopier in accordance with this Section shall be deemed to have
been duly given upon receipt if concurrently with sending by telecopier receipt
is confirmed orally by telephone and a copy of said notice is sent by certified
mail, return receipt requested, on the same day to that intended recipient. Any
notice delivered by hand or commercial carrier shall be deemed to have been duly
given upon actual receipt. Either party, by notice given as above, may change
the address to which future notices may be sent.
17.6 Time of the Essence. Time is of the essence under
this Lease for the performance and observance of all obligations of the Landlord
and Tenant hereunder, and all provisions of this Lease shall be strictly
construed.
17.7 Captions for Convenience. The headings and captions
hereof are for convenience only and shall not be considered in interpreting the
provisions hereof.
17.8 Severability. If any provision of this Lease shall
be held invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, it being the intent of the parties hereto that the provisions
of this Lease shall be enforceable to the fullest extent permitted by law. There
shall be deemed substituted for any invalid or unenforceable provision a valid
and enforceable provision as similar as possible to the invalid provision.
17.9 Governing Law. This Lease shall be interpreted and
enforced according to the laws of the State of Colorado.
17.10 No Oral Amendment or Modifications. No provision of
this Lease may be amended or modified except to the extent any such amendment or
modification is expressly and specifically set forth in a written instrument
executed by the party against whom the amendment or modification is sought.
17.11 Landlord's Activities. Tenant acknowledges that
Landlord, or affiliates of Landlord now or may hereafter own or acquire other
properties in the Black Hawk-Central City area. Landlord shall have the right to
operate such other properties, directly or indirectly for purposes and in such
manner as it may, from time to time, desire, and Tenant shall have no rights or
interests whatsoever in said other properties.
17.12 Interest/Late Charges. In any case where (i) any
installment of Rent is not paid within fifteen (15) days after the same is due,
or (ii) any other sum or charge which is owing from Tenant to Landlord
hereunder, or from Landlord to Tenant hereunder, is not paid within fifteen (15)
days after the same is due and payable or within any cure period applicable
thereto, whichever is later, then the delinquent Rent or other sum or charge
shall thereafter bear
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interest at the lessor of: an annual rate which is equal to ten percent (10%)
over the prime commercial lending rate which is publicly announced or quoted
from time to time by Key Bank, a national banking association (which rate will
not necessarily be the most preferential rate granted by Key Bank to any of its
customers), with changes in said annual rate to take effect automatically,
without any notice between the parties hereto, upon the public announcement or
quotation of changes to said prime rate; or the highest rate allowed by
applicable Colorado usury limitations then in effect. If the prime rate of Key
Bank ceases to be made available for any reason, then in lieu thereof Tenant may
select the prime commercial lending rate of another national banking association
or a federally chartered savings and loan association doing business in the
Denver metropolitan area (including Boulder), which selection shall be made by
Landlord giving Tenant notice thereof. In addition, any Rent not paid within 15
days of the due date thereof shall bear a late charge equal to 5% of the
delinquent amount, and the entire amount due, together with such late charge
must be paid in order to remedy any such late payment.
17.13 Integration. This Lease, the Exhibit hereto and the
other documents expressly referenced herein constitute the entire agreement
between the parties hereto with regard to the subject matter hereof, and any
extrinsic covenants, agreements, representations, warranties, conditions or
terms are superseded hereby and shall be of no force or effect.
17.14 Brokerage Commissions. Landlord and Tenant mutually
warrant and represent to one another that neither of them has incurred any
liability which arises by, through or under that party for the payment of any
brokerage fee or commission in connection with the transaction contemplated
herein. If either of the parties shall breach the foregoing warranty and
representation, it shall be liable to the other party for any damage, liability,
loss, claim or expense, including attorneys' fees, suffered by the other party
as a result of such breach. The liable party shall pay to the other party hereto
such sums as are due and owing pursuant to the foregoing within thirty (30) days
after demand by the other party.
17.15 Authority. The signatories on this Lease for
Landlord represent and warrant to Tenant that Landlord has all inherent legal
power and authority requisite to entering into this Lease, has taken all action
necessary to authorize the execution of this Lease and to perform and satisfy
the transactions and obligations contained herein, and has duly authorized the
signatories to execute and deliver this Lease on behalf of Landlord. The
signatories on this Lease for Tenant represent and warrant to Landlord that the
Tenant has all inherent legal power and authority requisite to entering into
this Lease, has taken all actions necessary to authorize the execution and
delivery of this Lease and to perform and satisfy the transactions and
obligations contained herein, and has duly authorized the signatories to execute
and deliver this Lease on behalf of Tenant.
17.16 Hazardous Materials.
A. Warranty. Except as expressly provided
above in Section 1.5, Landlord makes no representation or warranty to Tenant
regarding any chemical, material, substance or waste (i) exposure to which is
prohibited, limited or regulated by any federal, state, county, regional or
local authority, or other governmental authority of any nature, that has
competent jurisdiction over the Premises or (ii) which, even if not so
regulated, may or could pose a hazard to the health or safety of the occupants
of the Premises (herein collectively "Hazardous Materials"). As herein used
Hazardous Materials shall include, but not be limited to petroleum, crude oil
(any fraction thereof), natural gas, natural gas liquids, and those substances
defined as "hazardous substances," "hazardous materials," "hazardous wastes," or
other similar designations in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.
and any other governmental statutes, laws, ordinances, rules, regulations, and
precautions. Landlord represents and warrants that Landlord has not received any
notice of an outstanding breach or violation of any federal, state or local law,
rule, regulation, code, ordinance or order related to Hazardous Materials which
arises in connection with the Premises.
B. Tenant's Warranty and Covenants. Tenant
shall strictly comply with all statutes, laws, ordinances, rules, regulations,
and precautions now or hereafter mandated
Initial _______
29
<PAGE> 36
or advised by any federal, state, local or other governmental agency with
respect to the use, generation, storage, or disposal of Hazardous Materials.
Tenant shall not cause, or allow any one else to cause, any Hazardous Materials
(except Hazardous Materials used and disposed of in accordance with applicable
laws for normal and customary office and cleaning purposes) to be used,
generated, stored, or disposed of on or about the Premises without the prior
written consent of Landlord, which consent may be withheld in the sole
discretion of Landlord, and which consent may be revoked at any time. Tenant's
indemnification of Landlord pursuant to this Lease shall extend to all
liability, including all foreseeable and unforeseeable consequential damages,
directly or indirectly arising out of the use, generation, storage, or disposal
of Hazardous Materials by Tenant or any person claiming under Tenant, including,
without limitation, the cost of any required or necessary repair, cleanup, or
detoxification and the preparation of any closure or other required plans,
whether such action is required or necessary prior to or following the
termination of this Lease, to the full extent that such action is attributable,
directly or indirectly, to the use, generation, storage, or disposal of
Hazardous Materials by Tenant or any person claiming under Tenant. Neither the
written consent by Landlord to the use, generation, storage, or disposal of
Hazardous Materials nor the strict compliance by Tenant with all statutes, laws,
ordinances, rules, regulations, and precautions pertaining to Hazardous
Materials shall excuse Tenant from Tenant's obligation of indemnification. In
the event Tenant is in breach of the covenants herein, after notice to Tenant
and the expiration of the earlier of (i) the cure period provided in Article 13
or (ii) the cure period permitted under applicable law, regulation, or order,
Landlord may, in its sole discretion, declare an Event of Default and/or cause
the Premises to be freed from the Hazardous Material and the cost thereof shall
be deemed Rent hereunder and shall immediately be due and payable from Tenant.
The representations and warranties of Tenant under this Section shall survive,
not withstanding the termination of this Lease, for one year.
17.17 Force Majeure Events. Except to the extent otherwise
expressly provided by this Lease, in the event that either Landlord or Tenant
shall be delayed in the performance of any acts required under this Lease by
reason of labor strikes, lockouts, failure of power, inclement weather of such
severity as to preclude continued work under prevailing industry standards,
riots, insurrection, war, inability to procure materials, default of the other
party hereto, or any other reason of a like nature which is beyond the
reasonable control of the party so delayed, then the period for the performance
of any such act shall be extended for a period equivalent to the period of such
delay. The circumstances for which a delay in performance is excused under this
Section 17.18 are sometimes referred to collectively in this Lease as "Force
Majeure Events." Notwithstanding any indications to the contrary contained in
the foregoing, Force Majeure Events shall not include any financial
incapabilities or burdens suffered by either party, or a mere failure of timely
performance of any agent or contractor of either party. The application of Force
Majeure Events is subject to the express limitations thereon contained in the
other provisions of this Lease.
17.18 Litigation Costs and Participation. Several
provisions of this Lease require that Landlord, at Tenant's expense, join and
participate in certain types of litigation or legal proceedings undertaken by
Tenant or implead or commence actions against third parties. Notwithstanding
those express provisions to the contrary, Landlord shall not be required to join
or participate in any such litigation hearings or legal proceedings commenced by
Tenant or to join in, contest, execute or file pleadings, or gather evidence if,
as reasonably determined by Landlord, the same constitutes (i) a frivolous
action within the meaning of Rule 11 of the Colorado Rules of Civil Procedure or
the Federal Rules of Civil Procedure, or (ii) an abuse of process, or (iii) a
violation of the Code of Professional Responsibility as adopted by the Colorado
Supreme Court. Once Landlord agrees under the foregoing provisions to
participate in any such litigation, the Tenant and Landlord will make reasonable
and good faith efforts to adopt a mutually agreeable remedial strategy. However,
either party is not constrained from pursuing the course of action of its
choice, so long as each party satisfies the foregoing obligation to exercise
reasonable and good faith efforts for adopting a mutual strategy. Furthermore,
Landlord and Tenant acknowledge that, under the Colorado Procurement Code, all
disputes between Landlord and contractors/vendors are subject to administrative
proceedings before either Landlord or any contractor/vendor can initiate
litigation.
17.19 Days. All references in this Lease to any given
number of days shall refer
Initial _______
30
<PAGE> 37
to actual calendar days unless business days are specified.
17.20 Terminations by Right. Whenever this Lease is
terminated by the exercise of any right, election or option hereunder in favor
of either party, any corresponding release of the parties from "all further
obligations" hereunder shall apply only to such obligations which have not then
accrued and shall not relieve either party of liability for any pre-existing
breach or default by that party of its respective obligations hereunder.
Furthermore, each party hereto expressly acknowledges and agrees that, in
connection with any such termination by right, each party shall have rights of
reimbursement or repayment against the other only to the extent expressly
provided herein.
IN WITNESS WHEREOF the parties hereto have caused this Lease to be
executed the day and year first above written.
LANDLORD:
ELEVATION 8000+, a Colorado limited liability
company
----------------------------------------------
J. SCOTT BRADLEY, MANAGER
TENANT:
CONCORDE CRIPPLE CREEK, INC., a Colorado company
By:
-------------------------------------------
JERRY L. BAUM, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
31
<PAGE> 38
GUARANTY
The undersigned Guarantor in order to induce Landlord to enter into
this Lease with Tenant, hereby guarantees to Landlord all of Tenant's financial
obligations owed to Landlord and created by this Lease (or any other obligations
that can be reduced to a financial obligation) until all such obligations have
been paid in full and such guarantee shall continue until payment is made of
every financial obligation of Guarantor and Tenant now due or hereafter to
become due (together with any and all other obligations of Tenant under this
Lease which have been reduced to a financial obligation), and until payment is
made of any loss or damage incurred by Landlord with respect to any matter
covered by this Guaranty. This guaranty is one of payment and not of collection
and Landlord shall have the right to pursue any and all rights against Guarantor
alone, prior to pursuing any rights against Tenant or simultaneous with such
pursuit of rights. Prior to the commencement of any New Improvements, Tenant
agrees to provide Landlord with the Guarantor's most current, public financial
statement evidencing Tenant's ability to perform the same, the payment of the
costs for which, in all events will be guaranteed by Guarantor.
CONCORDE GAMING CORPORATION, A
COLORADO, CORPORATION
By:
---------------------------
Title:
------------------------
<PAGE> 39
EXHIBIT A
Section One:
1. Taxes and Assessments, not certified to the Treasurer's Office.
2. Any facts, rights, interests or claims which are not shown by the
public records, but which could be ascertained by an inspection of the
land or by making inquiry of persons in possession thereof.
3. Easements, or claims of easements, not shown by the public records.
4. Discrepancies, conflicts in boundary lines, shortage in area,
encroachments, and any facts which a correct survey and inspection of
the land would disclose, and which are not shown by the public
records.
5. Any lien, or right to a lien, for services, labor or material
heretofore or hereafter furnished, imposed by law and not shown by the
public records.
6. Any and all unpaid taxes, assessments and unredeemed tax sales.
7. Any water rights or claims or title to water, in, or under the land.
8. Unpatented mining claims; reservations or exceptions in patents or in
Acts authorizing the issuance thereof.
Section Two:
1. TAXES AND ASSESSMENTS FOR TAX YEAR 1997, A LIEN NOT YET DUE AND
PAYABLE.
2. UNPATENTED MINING CLAIMS; RESERVATIONS OR EXCEPTIONS IN PATENTS OR IN
ACTS AUTHORIZING THE ISSUANCE THEREOF, INCLUDING, BUT NOT LIMITED TO
RESERVATIONS CONTAINED IN THE PATENTS TO THE CITY OF BLACK HAWK,
RECORDED MAY 13, 1874, IN BOOK 56 AT PAGE 555 AND JULY 21, 1877, IN
BOOK 62 AT PAGE 456, AS FOLLOWS: "PROVIDING THAT NO TITLE SHALL BE
HEREBY ACQUIRED TO ANY MINE OF GOLD, SILVER, CINNABAR OR COPPER OR TO
ANY VALID MINING CLAIM OR POSSESSION HELD UNDER EXISTING LAWS."
3. EASEMENT AND RIGHT OF WAY FOR STREETS, ALLEYS, ROAD AND FOR WATER PIPE
PURPOSES AS RESERVED BY INSTRUMENT RECORDED IN BOOK 210 AT PAGE 203
AND IN BOOK 227 AT PAGE 16.
4. EASEMENT FOR BACKUS STREET, WHETHER FEE OR EASEMENT, OVER THE
PORTION(S) OF SAID PROPERTY AS SHOWN ON ALTA/ASCM LAND TITLE SURVEY OF
JOSEPH F. ASMUS DATED MARCH 10, 1994, DRAWING NUMBER 9309-04.
5. ENCROACHMENT OF THE ELEC. AS NOW LOCATED ON THE SUBJECT PROPERTY ONTO
BACKUS STREET RIGHT OF WAY AS SHOWN BY THE ALTA/ASCM LAND TITLE SURVEY
OF JOSEPH F. ASMUS, DRAWING NUMBER 9309-04, DATED MARCH 10, 1994.
6. ENCROACHMENT OF THE PATIO AND ROCK WALL AS NOW LOCATED ON THE SUBJECT
PROPERTY ONTO BACKUS STREET RIGHT OF WAY AS SHOWN BY THE ALTA/ASCM
LAND TITLE SURVEY OF JOSEPH F. ASMUS, DRAWING NUMBER 9309-04, DATED
MARCH 10, 1994.
A-1
<PAGE> 40
7. ENCROACHMENT OF THE AIR COND. AS NOW LOCATED ON THE SUBJECT PROPERTY
ONTO BACKUS STREET RIGHT OF WAY AS SHOWN BY THE ALTA/ASCM LAND TITLE
SURVEY OF JOSEPH F. ASMUS, DRAWING NUMBER 9309-04, DATED MARCH 10,
1994.
8. ENCROACHMENT OF THE ELEC. AS NOW LOCATED ON THE SUBJECT PROPERTY ONTO
BACKUS STREET RIGHT OF WAY AND THE PROPERTY ADJOINING TO THE WEST AS
SHOWN BY THE ALTA/ASCM LAND TITLE SURVEY OF JOSEPH F. ASMUS, DRAWING
NUMBER 9309-04, DATED MARCH 10, 1994.
9. EASEMENT FOR MAIN STREET RIGHT OF WAY, WHETHER FEE OR EASEMENT OVER
THE PORTION OF SAID PROPERTY AS SHOWN ON ALTA/ASCM LAND TITLE SURVEY
OF JOSEPH F. ASMUS DATED MARCH 10, 1994, DRAWING NUMBER 9309-04.
10. TERMS, AGREEMENTS, PROVISIONS, CONDITIONS AND OBLIGATIONS AS CONTAINED
IN BOUNDARY AGREEMENT RECORDED JULY 21, 1994, IN BOOK 567 AT PAGE 95.
11. TERMS, AGREEMENTS, PROVISIONS, CONDITIONS AND OBLIGATIONS AS CONTAINED
IN BOUNDARY AGREEMENT RECORDED NOVEMBER 14, 1994, IN BOOK 572 AT PAGE
246 AND RE-RECORDED NOVEMBER 14, 1994, IN BOOK 573 AT PAGE 217.
CONSENT TO BOUNDARY AGREEMENT RECORDED NOVEMBER 14, 1994, IN BOOK 572
AT PAGE 250.
12. ENCROACHMENT OF THE ASPHALT AS NOW LOCATED ON THE SUBJECT PROPERTY
ONTO SUBJECT PROPERTY AS SHOWN BY THE ALTA/ASCM LAND TITLE SURVEY OF
JOSEPH F. ASMUS, DRAWING NUMBER 9309-04, DATED MARCH 10, 1994.
13. ALL OTHER MATTERS REFLECTED OR DISCLOSED ON THE SURVEY OF THE PROPERTY
AND ANY ENCROACHMENTS EXISTING AS A RESULT OF THE UNCERTAIN OR
DISPUTED LOCATION OF STREETS ABUTTING THE PREMISES
A-2
<PAGE> 41
EXHIBIT B
DESCRIPTION OF CERTAIN PROPERTY TO
BE SURRENDERED AT EXPIRATION OF LEASE
B-1
<PAGE> 42
EXHIBIT C
DEPICTION OF THE PREMISES, BACKUS STREET AND PARKING PROPERTY
C-1
<PAGE> 1
EXHIBIT 10.16
AGREEMENT
THIS AGREEMENT, made as of the 5th day of August, 1997, by and
between Leo Equity Group, Inc. ("LEG"), a Florida corporation, and Concorde
Gaming Corporation ("Concorde"),
W I T N E S S E T H:
WHEREAS, LEG and Goldcoast Entertainment Cruises, Inc.
("Goldcoast") are joint venturers in Bayfront Ventures, a Florida joint venture
(the "Joint Venture") which has entered into a Use Agreement (such agreement,
as amended and supplemented from time to time, being hereinafter called the
"Use Agreement") with Bayfront Park Management Trust, a limited agency and
instrumentality of the City of Miami (the "Trust") providing for the grant to
the Joint Venture of the privilege of entry upon Bayfront Park and the
exclusive right to enter upon, use and occupy related facilities (the
"Bayfront Park Docks") for the purpose of docking vessels; and
WHEREAS, Concorde desires to purchase LEG's interest in the
Joint Venture, and LEG desires to sell the same, all upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. On the terms and subject to the conditions herein set
forth, LEG shall sell to Concorde, and Concorde shall purchase, all of LEG's
right, title and interest (hereinafter called the "Interest") in and to the
Joint Venture, and LEG's entire economic and ownership interest in the Joint
Venture, including any and all rights to distributions and money and/or
property, whether accrued or unaccrued.
2. The purchase price which Concorde agrees to pay and
LEG agrees to accept for the Interest shall be as follows:
(a) Subject to the provisions of paragraph 6
hereof, Concorde shall reimburse LEG for the $150,000 payment made by it to the
Trustee on or about June 19, 1997 and shall pay to LEG the sum of $500,000
(such $150,000 and $500,000 payments to LEG being hereinafter collectively
called the "Initial Payment") upon the later to occur of (i) the execution and
delivery of this Agreement by the parties hereto, (ii) receipt of a copy of the
written approval by the Trust for LEG's transfer of the Interest to Concorde
(or to a subsidiary of Concorde) or (iii) receipt of a copy of the written
approval of the Use Agreement by the U.S. Army (or the Army Corps of
Engineers). The Initial Payment shall be made to LEG by wire transfer in
accordance with written wire transfer instructions provided by it to Concorde
or, in the absence of such instructions, by bank treasurer's or certified
check. Simultaneously with Concorde's making the Initial Payment, LEG shall
execute and deliver to Concorde an Assignment of the Interest in the form of
Exhibit A
<PAGE> 2
attached hereto. Delivery of the Initial Payment and of such Assignment is
hereinafter called the "Closing."
(b) Following the Closing, Concorde shall pay to
LEG an amount equal to 2% of the Joint Venture's "gaming win" per "Operating
Year" for each of the first three Operating Years of the Joint Venture, subject
to (i) the minimum annual guaranteed payment and annual cap described in this
paragraph 2(c), and (ii) suspension of such payments and extension of the time
period for determining such payments pursuant to paragraph 2(d). For purposes
hereof:
(1) "gaming win" means the total amount
of all wagers made by players on slot machines, video
poker, lotto, keno, table games and any other games
in which wagers are made, less (i) winnings thereon
paid to players, (ii) promotional chips, coupons and
other promotional devices usable solely for placing
wagers, and other forms of redeemable gaming credits,
and (iii) any "gaming taxes";
(2) "gaming taxes" means federal, state
or local taxes specifically upon gross or net gaming
revenues, as distinct from, inter alia, taxes upon
income, revenue or profits generally or fees for the
registration of or privilege of possessing or
operating gambling equipment;
(3) subject to paragraph 2(d) below, the
Joint Venture's first "Operating Year" shall begin on
the date the Joint Venture commences operation of a
gaming vessel from the Bayfront Park Docks and shall
end at the close of business on the day immediately
preceding the first anniversary of such commencement,
and the second and third Operating Years shall begin
on the first and second anniversary dates,
respectively, of such commencement, and shall end at
the close of business on the day immediately
preceding the second and third anniversary dates,
respectively, of the Joint Venture's commencement of
operation of a gaming vessel from the Bayfront Park
Docks; and
(4) operation of a gaming vessel from
Bayfront Park Docks by any successor by merger (or
similar transaction) or assignee of the Joint
Venture's rights under the Use Agreement shall have
the same effect as (and shall be deemed to
constitute) operation by the Joint Venture, unless
the Joint Venture shall have assigned the Use
Agreement to a third party unaffiliated with either
the Joint Venture, Goldcoast or Concorde for fair
market value in an arm's length sale transaction, in
which case, in lieu of further payments as a
percentage of the Joint Venture's future gaming win,
the gaming win for the remaining period of time in
the first three Operating Years shall be projected
based upon the gaming win for the period elapsed to
the date of such sale and a lump sum payment shall be
made to LEG within 15 days after consummation of such
sale in the amount to which LEG would have been
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<PAGE> 3
entitled had the Joint Venture (A) continued to
operate a gaming vessel from the Bayfront Park Docks
for the full three Operating Years and (B)
experienced a gaming win equal to such projected
gaming win.
(c) As a minimum annual guaranteed payment,
Concorde shall pay to LEG $175,000 for each of the three Operating Years; and
the maximum annual amount (the cap) payable by Concorde to LEG for each of such
three Operating Years, shall be $400,000. Accordingly, the annual payment for
each of the first three Operating Years shall equal the greater of (i) $175,000
or (ii) the lesser of (A) $400,000 or (B) 2% of such Operating Year's gaming
win. Except as otherwise stated above in the case of a sale by the Joint
Venture of its rights under the Use Agreement, the amount payable for each such
Operating Year shall be paid in two installments, the first of which shall be
in the amount $87,500 and shall be paid within 180 days after the beginning of
each such Operating Year, and the second of which shall equal the balance of
the amount actually owing for such Operating Year determined as aforesaid and
shall be paid within 30 days after the end of the Operating Year.
(d) An Operating Year shall be suspended, and the
time period for determining and making payments by Concorde to LEG under
paragraphs 2(b) and 2(c) shall be extended as hereinafter provided, for any
period of time that the Joint Venture is prevented from operating a gaming
vessel from the Bayfront Park Docks for the purpose of conducting (outside the
three-mile limit) in any material respect the gaming activities referred to in
paragraph 2(b)(1) above as a result of any act of God, war, civil disturbance,
court order, strike or other labor dispute, change in applicable law as a
result of which such operation or conduct would be illegal, or other cause
beyond the Joint Venture's reasonable control, including destruction or
substantial damage to or loss of the vessel as a result of an act of God;
provided, however, that no such suspension or extension shall be triggered
unless the Joint Venture is so prevented from operating such vessel or
conducting such gaming activities for more than 15 consecutive days. Concorde
agrees to use its best efforts to expeditiously remedy the problem causing such
prevention, and if it fails to do so, LEG may require payment by Concorde of
the minimum annual guaranteed payment during the period of such suspension as
if the suspension did not occur, while preserving its right to receive further
payments as a percentage of actual future gaming win when the Joint Venture's
operations continue (with any such minimum annual guaranteed payments actually
made to be applied as a credit towards the percentage payment that may
ultimately become due hereunder). In the event an Operating Year is suspended
within the first 180 days after the beginning of such Operating Year, the
payment (in the amount of $87,500) which would otherwise become due within 180
days after the beginning of such Operating Year shall be prorated and Concorde
shall pay to LEG a portion thereof equal to the product of $87,500 multiplied
by a fraction, the numerator of which is the number of days elapsed from the
beginning of such Operating Year and the denominator of which is 180. After
any suspension of an Operating Year under this paragraph 2(d), such Operating
Year (and related payment obligation) shall resume at such time as the Joint
Venture shall resume operation of a gaming vessel from the Bayfront Park Docks,
and shall be extended for the number of days of the suspension.
(e) Notwithstanding anything to the contrary in
this Agreement, Concorde may (in its discretion) terminate this Agreement by
written notice to LEG if the
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<PAGE> 4
possession, repair or use of slot machines for purposes of conducting "day
cruises" on a gaming vessel docked at the Bayfront Park Docks becomes illegal
as a result of a legislative or judicial change in the applicable law and the
Joint Venture, for that reason, terminates the Use Agreement. "Day cruises"
shall mean one or more trips by a vessel embarking and disembarking within the
state and not making an intervening stop within another state or possession of
the United States or a foreign country at which passengers could disembark. In
addition, LEG shall have the right to terminate this Agreement (in its
discretion) by written notice to Concorde in the event any Operating Year shall
have been suspended under paragraph 2(d) above for more than 180 days and such
Operating Year (and the related payment obligation) shall not yet have been
resumed. In the case of termination under either of the two immediately
preceding sentences, any Operating Year which was suspended under paragraph
2(d) and which did not resume before such termination or, in the absence of
such a suspended Operating Year, the Operating Year in which the termination
occurs, is hereinafter called the "Final Operating Year." In the event either
party terminates this Agreement pursuant to the provisions of this paragraph
2(e): (i) Concorde shall remain obligated to pay any amount due or to become
due under paragraph 2(c) for any Operating Year ended before the Final
Operating Year; (ii) Concorde shall be obligated to make an annual payment for
the Final Operating Year in accordance with the next sentence of this paragraph
2(e); and (iii) Concorde shall not have any obligation to make any payment
under paragraph 2(c) for any subsequent Operating Year (i.e., for any Operating
Year beginning after the end of the Final Operating Year). The annual payment
for the Final Operating Year shall equal the greater of (A) the product of
$175,000 multiplied by a fraction, the numerator of which is the number of days
elapsed from the beginning of the Final Operating Year to the date of
suspension or termination and the denominator of which is 365 or (B) the lesser
of (I) $400,000 or (II) 2% of the Final Operating Year's gaming win (calculated
to the effective date of such suspension or termination). Any payment made by
Concorde under paragraph 2(d) hereof for the Final Operating Year shall be
credited towards any amount payable by Concorde for such Operating Year under
this paragraph 2(e).
(f) Concorde shall have the right to pay to the
applicable creditors the amounts of the Joint Venture's liabilities disclosed
in Exhibit B and, to the extent of such payments, to offset the same against
the Initial Payment. The Initial Payment also will be reduced by $50,000 as a
result of Concorde's payment of the administrative fee imposed by the Trust in
that amount as described in paragraph 6 below.
3. In order to induce Concorde to enter into this
Agreement, LEG hereby represents and warrants to Concorde as follows:
(a) LEG is a corporation validly existing under
the laws of its jurisdiction of incorporation and has full power and authority
to execute and deliver this Agreement and to perform its obligations hereunder,
all of which have been duly authorized by all requisite corporate action.
(b) This Agreement has been duly authorized,
executed and delivered by LEG and constitutes a valid and binding agreement of
LEG, enforceable against LEG in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
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<PAGE> 5
similar laws of general applicability relating to or affecting creditors'
rights and to general principles of equity.
(c) Neither the execution and delivery of this
Agreement by LEG nor the performance by LEG of its obligations hereunder will
(i) contravene any provision of LEG's certificate or articles of incorporation
or bylaws or (ii) violate or result in a breach of any contract, agreement,
pledge, or other instrument or obligation to which LEG is a party or by which
LEG or any of its properties is bound, or any judgment, order, decree, law,
rule or regulation of any governmental authority applicable to LEG or any of
its properties.
(d) Except for approval of the Trust and the
consent hereto of Goldcoast, no notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
or entity is necessary for LEG's execution, delivery or performance of this
Agreement or for the transfer and assignment of the Interest hereunder.
(e) At the Closing, LEG will transfer to Concorde
good and valid title to the Interest, free and clear of any charges, liens,
security interests, adverse claims and encumbrances (other than encumbrances
consisting of restrictions on transfer without the consent of Goldcoast and
limitations arising by operation of the Revised Uniform Partnership Act as in
effect in Florida).
(f) The Joint Venture does not have, and at
Closing will not have, liabilities other than (i) liabilities under the Use
Agreement, (ii) liabilities under the agreement made by Goldcoast on behalf of
the Joint Venture with Directions and Design, and (iii) liabilities disclosed
in Exhibit B hereto. The Joint Venture's assets consist at the date hereof,
and will consist as of the Closing, of its contract rights under the Use
Agreement and said agreement with Directions and Design.
(g) There is no action, suit or proceeding
pending, and to the knowledge of LEG, there is no investigation pending or
action, suit, proceeding or investigation threatened, against the Joint Venture
or against LEG affecting the Joint Venture (with the exception of a threatened
action against LEG regarding use of the name "Princess").
(h) All federal, state and local returns,
declarations, reports or statements filed by the Joint Venture have been timely
filed. To the knowledge of LEG, there are no federal, state or local tax
liens, either threatened or presently existing, upon any property of the Joint
Venture.
(i) The Joint Venture is a Florida "partnership"
as that term is defined in the Revised Uniform Partnership Act as in effect in
the State of Florida, and is in good standing in such State. The Joint
Venture has the requisite power to consummate the transactions contemplated in
the Use Agreement.
(j) Subject to Goldcoast's execution and delivery
of its consent and agreement appearing at the end of this Agreement, the
transfer and assignment of the Interest will
-5-
<PAGE> 6
not cause a dissolution and winding up of the Joint Venture's business under
the Florida Revised Uniform Partnership Act.
The foregoing representations and warranties by LEG shall be
deemed repeated at and as of the date of the Closing, and shall then be true
and correct in all material respects.
4. In order to induce LEG to enter into this Agreement,
Concorde hereby represents and warrants to LEG as follows:
(a) Concorde is a corporation validly existing
under the laws of its jurisdiction of incorporation, and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, all of which have been duly authorized by all requisite corporate
action.
(b) This Agreement has been duly authorized,
executed and delivered by Concorde and constitutes the valid and binding
agreement of Concorde, enforceable against Concorde in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(c) Neither the execution and delivery of this
Agreement by Concorde nor the performance by Concorde of its obligations
hereunder will (i) contravene any provision of Concorde's articles or
certificate of incorporation or bylaws, or (ii) violate or result in a breach
of any contract, agreement, pledge or other instrument or obligation to which
Concorde is a party or by which Concorde or any of its properties is bound, or
any judgment, order, decree, law, rule or regulation of any governmental
authority applicable to Concorde or any of its properties.
(d) Except for approval of the Trust and the
consent hereto of Goldcoast, no notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
or entity is necessary for Concorde's execution, delivery or performance of
this Agreement.
(e) Concorde is an entity which qualifies for
issuance of a liquor license under Section 561.15 of the Florida Statutes.
The foregoing representations and warranties by Concorde shall
be deemed repeated at and as of the date of the Closing and shall then be true
and correct in all material respects.
5. This Agreement shall become effective only upon
execution and delivery by Goldcoast of the consent hereto appearing at the end
of this Agreement. The obligation of LEG to sell its Interest to Concorde, and
Concorde's obligation to purchase such Interest, shall be subject to receipt of
written approval of the Trust to LEG's transfer of its Interest in the Joint
Venture to Concorde. In addition, it shall be a condition precedent to the
obligations of each party to effectuate the purchase and sale of the Interest
as contemplated hereby that (i) the Use Agreement shall
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<PAGE> 7
continue to be in full force and effect, or another such agreement shall have
been entered into by the Trust and the Joint Venture or another entity in which
Concorde has an equity interest, and (ii) the representations and warranties
made by the other party in this Agreement shall be true and correct in all
material respects at and as of the date of the Closing.
6. Each party shall cooperate with the other and use its
best efforts to obtain the written approval of the Trust referred to in
paragraph 5 above. If such approval shall not have been obtained by August 20,
1997, or if for any other reason the Closing shall not have occurred by August
20, 1997, then either party may terminate this Agreement by written notice to
the other party, and any such termination shall be without prejudice to any
party's rights and remedies against the other for breach of any representation,
warranty, covenant or agreement contained herein occurring prior to the date of
such termination. For approving the transfer of LEG's interests to Concorde,
the Trust has imposed an administration fee of $50,000 (the "Fee") pursuant to
Section 14(c) of the Use Agreement. The parties agree that Concorde shall pay
the Fee and the Initial Payment will be reduced by the amount of the Fee.
7. LEG hereby covenants and agrees that, for a period
commencing on the date hereof and ending on February 28 (or, if applicable,
29), 2005, that neither LEG nor any subsidiary or Affiliate of LEG or the
existing directors or shareholders of LEG or any subsidiary of LEG shall
directly or indirectly own, manage, operate, finance, join, control or
participate in the ownership, management, organization, financing or control
of, or be connected as an officer, director, member, partner, principal, agent,
representative or consultant or otherwise with any business or enterprise
engaged in a business which manages, owns, operates or engages in the operation
of a gaming vessel from any point of embarkation located within Dade County,
Florida (the "Business") except as the holder or owner, individually or in the
aggregate, of fewer than 15% of the outstanding shares or other equity
interests of a company whose shares or other equity interests are registered
under the Securities Exchange Act of 1934, as amended. For the purposes
hereof, the term "Affiliate" means any person or entity that, directly or
indirectly, through one or more subsidiaries, controls, is controlled by, or is
under common control with LEG or is controlled by any of LEG's existing
directors (Frank A. Leo, Francis W. Murray and Jack Mariucci) or shareholder
(Frank A. Leo); and "control" (including with correlative meanings, "controlled
by" and "under common control with") means possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
The primary purpose of this paragraph 7 is Concorde's
legitimate interest in protecting the economic welfare and business goodwill of
the Joint Venture. It is expressly understood and agreed that although the
parties hereto consider the restrictions contained in this paragraph 7 to be
reasonable, if a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this paragraph 7 is an unenforceable restriction against LEG, its Affiliates,
subsidiaries, directors or shareholder, the provisions of this paragraph 7
shall not be rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any
court of competent jurisdiction finds
-7-
<PAGE> 8
that any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any other restrictions contained herein.
LEG acknowledges that, in the event of its violation of the
foregoing covenant against competition, Concorde shall be entitled to
injunctive relief to enforce such covenant in addition to any other rights or
remedies available to it.
8. (a) From and after the Closing, Concorde shall
indemnify LEG and LEG's officers, directors, employees and agents ("LEG
Indemnitees") against and hold them harmless from any and all damage, loss,
liability, claim, assessment, audit, fine, judgment, cost and expense
(including attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by the LEG Indemnitees arising out
of (i) any misrepresentation or breach of warranty, covenant or agreement made
or to be performed by Concorde pursuant to this Agreement, or (ii) any and all
liabilities and obligations of the Joint Venture under the Use Agreement, the
existing agreement with Directions and Design, or any other obligation or
liability of the Joint Venture arising after the Closing.
(b) From and after the Closing, LEG shall
indemnify Concorde and Concorde's officers, directors, employees and agents
("Concorde Indemnitees") against and hold them harmless from any and all
Damages incurred or suffered by the Concorde Indemnitees arising out of (i) any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by LEG pursuant to this Agreement or (ii) any and all liabilities and
obligations of the Joint Venture of any nature whatsoever arising before the
Closing, except for obligations and liabilities of the Joint Venture under the
Use Agreement and the existing agreement with Directions and Design. In the
event Concorde incurs or suffers any Damages to which the foregoing
indemnification obligation of LEG applies, Concorde may, at its sole
discretion, offset the amount of such Damages against the Initial Payment and
any subsequent payment owing by it to LEG hereunder.
(c) As evidenced by Goldcoast's agreement
appearing at the end of this Agreement, Goldcoast is representing and
warranting to LEG and Concorde that Goldcoast has not incurred, and as of the
Closing will not have incurred, any obligation or liability for or on behalf of
the Joint Venture, except for the liabilities and obligations under the Use
Agreement and the agreement with Directions and Design. In the event Concorde
suffers or incurs any Damages arising out of a misrepresentation or breach of
such warranty by Goldcoast and LEG indemnifies Concorde in respect thereof
under paragraph 8(b) (or Concorde obtains such indemnity by exercise of the
right of set-off under paragraph 8(b)), then LEG shall have the right to
recover the same from Goldcoast and from any subsequent distributions in
respect of Goldcoast's 20% interest in the Joint Venture. By its agreement
appearing at the end of this Agreement, Goldcoast agrees to the provisions of
this paragraph 8(c).
9. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida without reference to
the choice of law principles thereof. The
-8-
<PAGE> 9
parties hereto irrevocably submit to the non-exclusive jurisdiction of the
courts of the State of Florida and the United States District Court of any
district located in Florida for the purpose of any suit, action, proceeding or
judgment relating to or arising out of this Agreement or the transaction
contemplated hereby. The parties hereto irrevocably consent to the
jurisdiction of any such court in any such suit, action or proceeding and to
the laying of venue in such court. The parties hereto irrevocably waive any
objection to the venue of any such suit, action or proceeding brought in such
courts and irrevocably waive any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
10. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered or express mail, postage pre-paid or
overnight courier service, and shall be deemed given when so delivered
personally, or by facsimile or courier service, or if mailed, three business
days after the date of mailing, as follows:
If to LEG:
Leo Equity Group, Inc.
2790 North Federal Highway
Boca Raton, FL 33431
Attn: Mr. Frank A. Leo
Fax No.: (561) 392-5917
If to Concorde:
Concorde Gaming Corporation
3290 Lien Street
Rapid City, SD 57709-0505
Attn: Jerry A. Baum, President
Fax No.: (605) 342-0247
or to such other address of which a party hereto shall notify the other by
written notice hereunder.
11. Neither party hereto shall assign this Agreement
without the prior written consent of the other except that (i) Concorde may
assign its rights to acquire the Interest to any subsidiary of Concorde,
provided that such subsidiary assumes all of the obligations of Concorde
hereunder and Concorde shall not be relieved of any liability hereunder
notwithstanding such assignment and (ii) Concorde may assign this Agreement in
connection with a sale of its Interest in the Joint Venture, provided that the
purchaser of Concorde's Interest assumes all of the obligations of Concorde
hereunder (including but not limited to obligations of Concorde pursuant to
paragraph 2(b) hereof, for which purpose if Goldcoast is the purchaser,
Goldcoast shall be deemed to be an assignee of the Joint Venture's interest in
the Use Agreement) and Concorde shall not be relieved
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<PAGE> 10
of any liability hereunder notwithstanding such assignment. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
12. This Agreement may be executed in counterparts, each
of which shall be deemed an original agreement, but all of which together shall
constitute one and the same instrument.
13. This Agreement may only be amended or modified by an
instrument in writing signed by the party against whom enforcement of such
amendment or modification is sought.
14. The invalidity of any portion of this Agreement shall
not affect the validity, force or effect of the remaining portions hereof. All
representations, warranties, covenants and agreements set forth herein shall
survive the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
LEO EQUITY GROUP, INC.
By:
------------------------------
Title:
CONCORDE GAMING CORPORATION
By:
------------------------------
Jerry L. Baum, President
The undersigned, Goldcoast Entertainment Cruises, Inc., being
the other joint venturer with LEG in the joint venture known as "Bayfront
Ventures," does hereby consent to the sale and assignment by LEG of its
interest in the Joint Venture to Concorde Gaming Corporation or any subsidiary
thereof and LEG's execution, delivery and performance of the foregoing
Agreement, and agrees that, upon consummation of such assignment, Concorde will
be admitted as a full (general) joint venture partner in the Joint Venture,
with management and other rights as provided by mutual agreement between
Concorde and Goldcoast. Goldcoast further hereby represents and warrants to
Concorde and LEG that Goldcoast has not incurred or taken any action to incur,
and hereby covenants that it will not incur or take any action to incur at or
before the Closing, any liability or obligation on behalf of the Joint Venture,
other than (i) the liabilities and obligations under the Use Agreement and the
existing agreement with Directions and Design and (ii) the liabilities listed
in Exhibit B hereto. Goldcoast agrees to indemnify Concorde, LEG and their
respective officers, directors, employees and agents ("Indemnitees") against
and hold them harmless
-10-
<PAGE> 11
from any and all damages, losses, liabilities, claims, assessments, audits,
fines, judgments, costs and expenses (including attorneys' fees and expenses in
connection with any action, suit or proceeding) ("Damages") incurred or
suffered by the Indemnitees arising out of any inaccuracy in or breach of the
foregoing representation, warranty or covenant, and agrees that any such
Damages may, at the election of the Indemnitee thereof, be paid from all
distributions due or to become due from the Joint Venture in respect of
Goldcoast's 20% interest therein, and hereby pledges and grants a charge
against and a security interest in all such distributions to which Goldcoast
may hereafter become entitled for the purpose of paying any amounts owing by
Goldcoast from time to time under this sentence.
GOLDCOAST ENTERTAINMENT CRUISES, INC.
By:
------------------------------
Title:
-11-
<PAGE> 12
EXHIBIT A
ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS, that Leo Equity Group, Inc.
("Assignor") does hereby sell, assign, transfer, convey, grant, bargain, set
over, release, deliver and confirm unto Concorde Gaming Corporation
("Assignee") all of Assignor's right, title and interest in and to Bayfront
Ventures, a Florida joint venture (the "Joint Venture"), and Assignor's entire
economic and ownership interest in the Joint Venture, including any and all
rights to distributions and money and/or property, whether accrued or
unaccrued. Such assignment is made free and clear of any charges, liens,
security interests, adverse claims and encumbrances.
This Assignment is given pursuant to that certain Agreement
dated as of August 5, 1997, between Assignor and Assignee, and is entitled to
the benefits thereof. All representations, warranties, covenants and
agreements contained therein are hereby incorporated herein by reference, and
shall survive the execution and delivery of this Assignment.
By its acceptance hereof, Assignee accepts this Assignment on
the terms set forth above.
Executed this day of , 1997.
------------ ---------------------
LEO EQUITY GROUP, INC.
By:
-------------------------
Title:
<PAGE> 1
EXHIBIT 10.17
USE AGREEMENT
USE AGREEMENT dated June 28, 1997 (this "Agreement" or the
"Agreement"), between BAYFRONT PARK MANAGEMENT TRUST, a limited agency and
instrumentality of the City (the "Trust"), and BAYFRONT VENTURES, d/b/a The
Bayfront Princess, a Florida joint venture consisting of Leo Equity Group, Inc.
and Goldcoast Entertainment Cruises, Inc. ("User").
The parties hereby covenant and agree to the following:
1. PRIVILEGE OF ENTRY. In consideration of the covenants and
agreements hereinafter set forth, the Trust does hereby grant unto User:
(a) the privilege of entry upon or into Bayfront Park
(the "Park") through access points which provide reasonable access to
the facilities described herein and
(b) the exclusive right to enter upon the related
facilities described below and to use and occupy said facilities for
the purpose of docking vessels,
for the term (the "Term") provided herein. User's customers, employees and
other invitees shall also be permitted to use said facilities and to have
rights of ingress and egress into and out of the Park for the purpose of
embarking and disembarking User's vessels.
This Agreement shall be subject to the lease between the City of Miami
(the "City") and the Secretary of the Army on behalf of the United States of
America dated August 16, 1990, as supplemented (the "Army Lease"),
#DACW-17-1-90- 0001, a copy of which is attached hereto as Exhibit A. The Army
Lease, as supplemented by Supplemental Agreement No. 1, prohibits gambling on
the vessels while the vessels are docked.
The rights conferred upon User hereunder do not constitute a lease of
real property, and do not create a relationship of landlord and tenant between
the Trust and User.
2. FACILITY. The facilities which are the subject of this
Agreement (the "Facility") are:
1. the entire dock space situated in the northerly
portion of the Park, as shown on the site plan (the
"Site Plan") attached as Exhibit B hereto (the "North
Dock").
2. the entire dock space situated in the southerly
portion of the Park, as shown on the Site Plan (the
"South Dock"; together with the North Dock, being
collectively called the "Docks").
<PAGE> 2
In addition to the Docks, the Trust shall permit User to use the
portion of the Park adjacent to and lying to the west of the North Dock, and
shown on the Site Plan as the "Adjacent Land". The Adjacent Land shall not
extend westerly by more than such distance as the City of Miami Attorney and
the Trust Architect consider to be "de minimus". The parties acknowledge that
an extension of 10 feet has already been determined to be "de minimus".
3. TERM.
1. The initial term of this Agreement (the "Initial
Term") shall be for five (5) years, commencing at 12:01 AM on September 1, 1997
(the "Commencement Date"), and terminating at 11:59 PM on the day prior to the
fifth anniversary of the Commencement Date (the "Termination Date"), unless
extended or earlier terminated as provided herein. The Initial Term, as so
extended or earlier terminated, is herein called the "Term". Each year of the
Term, commencing on the Commencement Date and on each anniversary of the
Commencement Date, is herein called a "Contract Year".
2. Provided that no Event of Default shall have occurred
and be continuing, User shall have an option (the "Extension Option") to extend
the Term for one (1) additional five (5) year term (the "Extension Term"),
provided written notice of the exercise of this option is delivered to the
Trust not less than 180 days prior to the end of the Initial Term of this
Agreement.
3. Provided that (i) the Trust in its sole discretion
has determined to permit the continued use of the Facility by a gaming vessel
following the Extension Term, and has so notified User, (ii) no Event of
Default shall have occurred and be continuing, and (iii) User shall have
exercised its option for the Extension Term, User shall have a right of first
refusal (the "Additional Option") to extend the Term for one (1) additional
five (5) year term beyond the Extension Term (the "Additional Term") on the
same terms as those that prevailed during the Extension Term, except as
provided in Paragraph 4(c) hereof. User shall have fifteen (15) days after
notice from the Trust within which to provide the Trust with written notice of
its intent to exercise the right of first refusal, subject to the terms set
forth in this subsection and in subsection 4(c) hereof. It is agreed that if
the Trust does not give User the notice contemplated by clause (i) of this
subsection, but, within five (5) years following the end of the Extension Term,
determines to permit the use of the Facility by a gaming vessel, the Trust
shall so notify User, and the Additional Option shall apply on the terms set
forth herein, with User having forty-five (45) days from the date of such
notice within which to exercise the Additional Option and with the Additional
Term commencing immediately upon User's notice of exercise.
4. FEES; LETTER OF CREDIT.
1. For the Initial Term, User shall pay the Trust fees
(the "Fees") for the use of the Facility in the following annual amounts:
2
<PAGE> 3
<TABLE>
<CAPTION>
Contract Use Fee- Use Fee- Advertising Total
Year North Dock South Dock Fee Annual Fee
- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1 $ 350,000 $ 25,000 $ 25,000 $ 400,000
2 $ 400,000 $ 25,000 $ 25,000 $ 450,000
3 $ 400,000 $ 25,000 $ 25,000 $ 450,000
4 $ 425,000 $ 25,000 $ 25,000 $ 475,000
5 $ 425,000 $ 25,000 $ 25,000 $ 475,000
TOTAL $2,250,000
</TABLE>
User shall pay One Hundred Fifty Thousand Dollars ($150,000) (the "Initial
Payment") on the date of the approval of this Agreement (the "Approval Date")
by (i) the U. S. Army Corps of Engineers, (ii) the Miami City Commission and
(iii) the Oversight Committee established by the Governor of the State of
Florida. One Hundred Thousand Dollars ($100,000) of the Initial Payment shall
be applied to the annual fees for the first year of the Initial Term. The
remaining Fifty Thousand Dollars ($50,000) is in consideration for the deferral
of the Commencement Date to September 1, 1997, as provided in paragraph 3(a).
Except for the Initial Payment, User shall pay the annual Fees in advance on
the Commencement Date and on each anniversary of the Commencement Date, for the
subsequent year. In the event User desires to use more than $25,000 of annual
advertising, User shall pay for the additional advertising at the Trust's
prevailing rates.
2. On the or before September 1, 1997, User shall
furnish an irrevocable letter of credit (the "Letter of Credit"). The form of
the Letter of Credit shall be reasonably acceptable to the parties, and the
issuer of the Letter of Credit shall be reasonably acceptable to the Trust and
the City of Miami. The Letter of Credit shall be renewed annually during the
entire Initial Term and if User exercises the Extension Option and,
subsequently, the Additional Option, annually during the entire Extension Term
and the Additional Term, respectively. The Letter of Credit shall secure the
payment of an amount equal to Fees for the next two (2) Contract Years, or the
Fees remaining to be paid during the remainder of the Initial Term (or, during
the Extension Term or the Additional Term, for the remainder of the Extension
Term or the Additional Term, respectively), whichever is the lesser.
Simultaneously with User's exercise of its Extension Option or the Additional
Option, respectively, User shall furnish a new Letter of Credit meeting the
aforesaid requirements.
3. For the Extension Term, the annual Fees shall be
increased annually, effective on the first day of each Contract Year, by an
amount equal to four percent (4%) of the Fees payable during the preceding
Contract Year. For the Additional Term, the annual Fees shall be increased
annually, effective on the first day of the first Contract Year of the
Additional Term, by an amount equal to eight percent (8%) over the Fees during
the last year of the Extension Term, and on the first
3
<PAGE> 4
day of each subsequent Contract Year of the Additional Term, by an amount equal
to eight percent (8%) over the Fees during the preceding Contract Year of the
Additional Term..
4. In addition to the Fees, User shall pay the Trust
additional fees (the "Additional Fees") in the amount of $1.00 per passenger
carried on a gaming vessel from the Facility (the "Gaming Passengers"), in
excess of 200,000 passengers per Contract Year (excluding the "Charitable
Sails" as provided below). User shall furnish a statement, certified by User
to be accurate and correct, within ninety (90) days following the end of each
Contract Year, stating the number of Gaming Passengers carried during such
Contract Year, which statement shall be accompanied by payment of the
Additional Fees (if any are shown to be due). For the Extension Term, the $1
per passenger Additional Fee shall be increased annually, effective on the
first day of each Contract Year (including the Extension and Additional Terms),
by an amount equal to four percent (4%) of the per passenger Additional Fee
payable during the preceding Contract Year.
5. User shall keep full, complete and proper books,
records and accounts of the number of Gaming Passengers. The Trust and its
agents and employees shall have the right, during regular business hours, to
examine and inspect the records of User pertaining to the number of gaming
passengers carried from the Facility. Such records for each year shall be
retained at User's principal place of business for at least three (3) years
following such year.
5. CONDITION OF PREMISES, SEAWALL AND VESSELS. (a) User hereby
accepts the Facility "as is" in its present condition and agrees to maintain
the Facility and its vessels in a neat, clean, safe and orderly condition.
(b) User shall promptly repair any damage it causes to
the Facilities and/or to the seawall. All repairs shall be accomplished to
restore the Facilities or the seawall, as the case may be, to its condition on
the Commencement Date, subject to reasonable wear and tear.
6. SECURITY DEPOSIT. On the Commencement Date, User shall
deposit the sum of One Hundred Thousand Dollars ($100,000) (the "Security
Deposit"), to be held in an interest bearing account in a financial institution
reasonably acceptable to the parties. All interest accruing on the Security
Deposit shall be for the benefit of User. The Security Deposit shall secure
only the non-monetary Events of Default. If User does not cure such Event of
Default within thirty (30) days following notice to User (or, if such Event of
Default involves a safety or health hazard, within 72 hours following notice to
User, or if it poses a threat to life or limb, within 24 hours following notice
to User), the Trust shall have the right to apply such portion of the Security
Deposit as is necessary to cure any non- monetary Event of Default. In the
event the Trust does apply funds from the Security Deposit, the Trust shall
utilize such funds to remedy such Event of Default or to reimburse itself for
funds already expended to remedy such Event of Default. User shall replenish
the Security Deposit to its original amount within thirty (30) days following
notice of such drawdown. The Security Deposit shall remain on deposit during
the Initial Term and, if exercised, during the Extension Term and the
Additional Term, respectively. Upon termination of this Agreement, User
4
<PAGE> 5
shall be entitled to receive a refund of any portion of the Security Deposit
not applied pursuant to this Agreement.
7. DEFAULT PROVISION.
Default - The following events are hereby defined as "Events
of Default":
1. Failure - Payment of Money. Failure of User to pay
any Fees or Additional Fees or other amounts due hereunder when due, and the
continuance of such failure for a period of twenty-five (25) days after notice
thereof in writing.
In the event any annual payment of Fees is not paid to the Trust
within fifteen (15) days following the Anniversary Date, User covenants and
agrees to pay to the Trust interest on the amount thereof from the date such
payment became due and payable to the date of payment thereof, at the rate of
ten percent (10%) per annum (the "Default Rate").
2. Failure - Performance of Other Covenants, etc.
Failure of User to perform any of the other covenants, conditions and
agreements which are to be performed by User in this Agreement, and the
continuance of such failure for a period of thirty (30) days after notice
thereof in writing from the Trust to User, provided that if such default cannot
be cured within such thirty (30) day period as a result of "force majeure", no
Event of Default shall occur so long as User shall have commenced to cure such
default within said period and shall diligently and continuously use its best
efforts to cure such default. For this purpose, "force majeure" shall include
but is not limited to strikes, Acts of God, war, acts of public enemies, orders
from any properly constituted governmental authority, insurrections, riots, or
other civil disturbances, acts of nature, including floods, hurricanes,
tornadoes, or earthquakes, fires, storms and the like; or any other cause or
event not reasonably within the control of the disabled party.
3. Remedies for User's Default. (1) If any of the
Events of Default shall occur and continue beyond the applicable cure period,
the Trust may, upon thirty (30) days' prior written notice to User, give to
User a notice of termination of this Agreement. If such notice of termination
is given, this Agreement shall terminate upon the date specified in such notice
from the Trust to User, as fully and completely as if that date were the date
herein originally fixed for the expiration of the term of this Agreement, and
on the date so specified, User shall then quit and vacate the Facility and
surrender the same to the Trust. Except as expressly provided herein, the
termination of this Agreement shall not impair the Trust's right to draw on the
Letter of Credit to the extent of (i) the Fees payable during the remainder of
the Contract Year in which this Agreement was terminated and/or (ii) all other
amounts due and owing at the time of termination.
(2) In addition, the Trust may institute such proceedings as in its
opinion are necessary to cure such Event of Default and/or to compensate the
Trust for damages resulting from such Event of Default.
5
<PAGE> 6
(3) Upon the termination of this Agreement, all rights and interest
of User in and to the Facility shall cease and terminate and the Trust may
apply all sums paid to it by User under this Agreement to the balance owing to
the Trust.
(4) If:
(a) any of the monetary Events of Default shall occur and
continue beyond the applicable cure period; or
(b) User is adjudicated a bankrupt, or User institutes any
proceedings under any federal or state insolvency or bankruptcy law as
the same now exists or under any amendment thereof which may hereafter
be enacted, or under any other act relating to the subject of
bankruptcy wherein User seeks to be adjudicated a bankrupt, or to be
discharged of its debts, or to effect a plan of liquidation,
composition or reorganization, or should any involuntary proceedings
be filed against User under any such insolvency or bankruptcy law (and
such proceeding not be removed within sixty (60) days thereafter),
the Trust may draw on the Letter of Credit up to the full amount of the Letter
of Credit. The amount so drawn shall be applied to the payment of all Fees and
other amounts then due and owing by User hereunder (and shall be treated as
payment of such amounts by User, curing any monetary default to the extent so
applied).
8. ADVERTISING; SIGNAGE. (a) User shall be permitted to
advertise on the Park's marquee during the Term of this Agreement. This shall
be the only location in the Park in which User is permitted to advertise. User
shall pay an Advertising Fee for advertising at the rate set forth in Exhibit C
hereto, which is the Trust's prevailing market rate, provided that User shall
not be required to pay for the first $25,000 per year of advertising.
(b) User shall be permitted to erect and maintain signage
on User's ticketing facilities and protective canopies. The Trust shall have
the right to approve all signage as well as the exterior appearance of the
vessels, which approval shall not be unreasonably withheld or delayed. All
such signage shall comply with applicable municipal codes.
9. COOPERATION IN APPLICATIONS. User shall pursue all
governmental approvals required to construct, use and occupy the Facility,
including but not limited to approvals from the City of Miami, Dade County,
Army Corps of Engineers, State of Florida and DERM (the "Approvals") and all
easements and rights of way (the "Easements") required to provide the necessary
utilities and access to the Facility. Such actions shall be conducted at
User's sole cost and expense. User will promptly deliver to the Trust copies
of any submittals and written correspondence between User and the governmental
entities and other entities or their respective consultants with respect to the
Approvals and the Easements. The Trust agrees to reasonably cooperate with
User in connection with the Approvals and the Easements, which cooperation
shall include, without limitation, the
6
<PAGE> 7
prompt execution by the Trust of all necessary documents, including, without
limitation, applications for such Approvals and Easements.
10. CHARITABLE CRUISES.
1. User shall provide the Trust with the gross revenues
from four (4) sails each Contract Year for cruises for the benefit of the
Trust, provided that (i) the Trust shall not receive the merchandising and
gaming revenues, and (ii) the Trust shall not receive the bar revenues unless,
at its option, it elects to staff the bar and provide all alcoholic beverages
and supplies served at the bar during such cruises. Entertainment and food
shall be provided by User at its expense. These sails are herein called
"Charitable Sails".
2. User shall provide the Trust with two (2) community
sails each Contract Year for cruises for the benefit of community or charitable
organizations selected by the Trust, provided that the Trust shall not receive
the merchandising, gaming and bar revenues. Entertainment, hot dogs and soft
drinks shall be provided by User at its expense. These sails are herein called
"Community Sails".
3. User shall collect the sales tax during the
Charitable Sails and remit same to the Department of Revenue on behalf of the
Trust.
4. The Trust shall coordinate the dates of the
Charitable Sails and the Community Sails with User at least ninety (90) days
prior to the event. No Charitable Sails or Community Sails shall take place on
any national holidays or on a Friday, Saturday or Sunday, except that in each
Contract Year, one Charitable Sail or Community Sail may take place on a
Friday or a Sunday.
5. Revenues shall not include any revenues from gaming or
gift shop sales.
6. All promotional materials disseminated by the Trust
with respect to the Charitable Sails and Community Sails shall state that such
sails have been made possible by a grant from User.
7. User shall pay the reasonable out of pocket
promotional expenses in connection with the Charitable Sails, not to exceed the
lesser of five percent (5%) of the anticipated revenues from such Charitable
Sails or $5,000 per Charitable Sail.
11. APPROVAL RIGHTS.
1. All signage and capital improvements with respect to
the Park and the Facility shall be subject to the approval of the Trust and of
its designated architect, Lester Pancoast or other designated architect (the
"Trust Architect").
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<PAGE> 8
2. User shall pay the reasonable fees of the Trust
Architect in connection with this review, provided that such fees shall not
exceed $5,000 for its review of the signage and capital improvements initially
proposed.
12. CAPITAL IMPROVEMENTS.
1. Subject to the approvals required by the Trust and
the Trust Architect, User may construct an all-weather structure on the Docks
or the Adjacent Land that will serve as a ticketing and embarkation facility.
2. User shall pay all costs of the capital improvements
contemplated hereby.
3. All capital improvements which are so affixed to the
land as not to be removable without permanent damage ("Permanent Improvements")
shall become the property of the Trust. All other improvements shall remain
the property of User. User shall repair all damage resulting from the removal
of any of the improvements which User is permitted to remove hereunder.
4. User shall not suffer or permit any mechanics' liens
or other liens to be filed against the Facility or the Park by reason of any
work, labor, services, or materials supplied or claimed to have been supplied
to User. If any such lien is recorded against the Facility or the Park, User
must promptly notify the Trust in writing of its existence, and must either
cause it to be removed or purchase a bond acceptable to the Trust against which
the lien will attach in lieu of the Facility or the Park. If User in good
faith desires to contest the lien, User may do so, but User must indemnify and
save the Trust harmless from all liability for damages occasioned thereby and
must, in the event of a judgment of foreclosure on the lien, cause it to be
discharged and removed prior to the execution of the judgment.
13. PERSONAL SERVICE CONTRACT. This Agreement has been entered
into by the Trust, in part, in reliance upon the successful business experience
and business reputation of Frank A. Leo ("Leo"), who is the founder, president
and controlling stockholder of Leo Equity Group, Inc, a Florida corporation.
14. TRANSFER OF CONTROLLING INTERESTS IN USER. (a) Without the
Trust's prior written approval, User shall not transfer more than fifteen
percent (15%) of its interest in User. This percentage limit shall apply
cumulatively, whether to a single transaction or a series of transactions. In
no event shall User transfer its controlling interest in User without the
Trust's prior written approval, which shall not be unreasonably withheld or
delayed.
(b) Only a person or entity which is a "Qualified
Transferee" shall be entitled to hold any interest in User. A "Qualified
Transferee" shall mean any person who would qualify for the issuance of a
liquor license under either Section 561.15 of the Florida Statutes or its
equivalent.
8
<PAGE> 9
(c) The Trust shall have the right to impose a reasonable
administration fee for its actual cost of processing any request for the
Trust's consent hereunder.
(d) The Trust shall not withhold or delay its approval
(where its approval is required) of a person or entity which satisfies the
requirements of a Qualified Transferee.
(e) For this purpose, the issuance of new interests in
User shall be treated in the same manner as transfers of interests, provided
that in the event interests in User are offered pursuant to a public offering,
holders of less than five percent (5%) of the interest in User shall not be
required to be Qualified Transferees.
(f) Whether or not the Trust's approval is required
hereunder, User shall be required to disclose to the Trust all transfers of
interests in User and new issues of interests in User within thirty (30) days
following such transfer or new issue.
15. SCHEMATICS OF PROPOSED IMPROVEMENTS. The Site Plan attached
hereto as Exhibit B includes schematics of the improvements proposed by User,
showing traffic flow for docking, provisioning, embarking and disembarking of
passengers.
16. TRANSFER AND ASSIGNMENT. User shall not transfer or assign
its interests hereunder to any person other than a Qualified Transferee.
However, this provision shall not prohibit the assignment of this Agreement as
a result of a merger or consolidation, provided that Leo is the owner of a
controlling interest and of a majority of the outstanding shares of capital
stock of the successor entity and that User discloses the identity of each
holder of FIVE PERCENT (5%) or more of the outstanding shares of capital stock
of the successor entity. In any event, any transferee must agree in writing
to be bound by the terms of this Agreement.
17. APPROVAL OF VESSELS. The Trust shall have the right to
approve the vessels docked by User at the Facility, which approval, so long as
the vessel does not exceed 260 feet in length, shall not be unreasonably
withheld or delayed. The Trust confirms that it has approved the "Bayfront
Princess", a 230 foot yacht currently under construction at Leevac Shipyards in
Jennings, Louisiana. User shall only have the right to operate one gaming
vessel from the North Dock. User shall not be prohibited from docking other
non-gaming vessels from the North Dock so long as they do not dock there
overnight.
18. LIMITATION OF ACTIVITIES AT FACILITY. No painting of the
vessel, heavy maintenance or fueling shall occur at the Facility.
19. SECURITY. User shall take such steps as it considers prudent
with respect to the provision of security for User's customers and invitees who
approach and leave the Park and who travel the route between the North and
South Docks as shown in the Site Plan. User can propose improvements to provide
a safer environment at User's expense. However, User shall have no
9
<PAGE> 10
responsibility with respect to security elsewhere in the Park but, at its own
expense, shall have the right to provide additional security in the Park. User
acknowledges that the only vehicular access within the Park is over the road
shared by the Park with Bayside, and that User will need to coordinate with the
Bayside security guard before bringing vehicles within the Park. This
agreement is for the exclusive benefit of the parties hereto and nothing herein
shall create any rights in favor of any other persons.
20. HIRING OF PERSONNEL. All hiring of personnel shall comply
with the City's goals as to local preferences and minority composition.
21. MINORITY EMPLOYMENT. User shall comply with the City of
Miami's Minority and Women Business Affairs and Procurement Programs.
22. HOURS OF OPERATION. User intends to operate two cruises
sailing daily Sunday through Thursday, from 12:00 PM to 5:00 PM, and from 6:30
PM to midnight, and three cruises sailing on Friday and Saturday where the
night cruise would return after midnight. Hours of operation shall be subject
to business and weather conditions and may vary on a daily basis. Significant
changes in User's schedule shall be subject to the Trust's approval, which
shall not be unreasonably withheld or delayed. The Trust shall permit access
to the Facility on the part of User or its employees, customers or other
invitees at all such times, except during hurricane and other emergency
situations. User acknowledges that there may be approximately 10 Significant
Park Events (as hereinafter defined) per year, and that there may be over
100,000 people attending certain of such events.
23. TAXES AND ASSESSMENTS. At User's request, the Trust, as owner
of the Park, shall execute an application for exemption from real property
taxes and assessments, if any. In the event that the Facility becomes taxable
or assessable, and an application for exemption as provided above is denied,
User shall be liable for said taxes and assessments.
24. PROVISIONING OF VESSELS. Provisioning of the vessels shall
occur between the hours of 12 midnight to 8:00 AM, except (a) on Friday,
Saturday and Sunday nights and nights of "Significant Park Events", during
which provisioning shall occur between the hours of 2:00 AM and 8:00 AM, and
(b) with respect to perishable goods, which may have to be delivered shortly
prior to cruise departure times. "Significant Park Events" means the
occasional community- wide events held at the Park. The Trust shall give User
at least 60 days' prior written notice of each Significant Park Event. User
acknowledges that there may be approximately 10 Significant Park Events per
year, and that there may be over 100,000 people attending certain of such
events.
25. PARKING. User shall identify available parking for its
customers and employees, and intends to use off-site parking and to provide
shuttle and ferry services. User acknowledges that it will not receive more
than 2 parking spaces outside the Park office or at another location in the
Park.
10
<PAGE> 11
In the event a parking facility is constructed in the future in or under the
Park, User shall have the same rights to such parking as the general public.
26. UTILITIES. User shall be responsible for the cost of bringing
electric, telephone and water and sewer service to the Facility. To the extent
such are within its control, the Trust shall grant all easements required by
the utility services in connection with the installation and maintenance of
such service within the Park. The location and design of the electric,
telephone and water and sewer facilities and of such easements shall be subject
to the approval of the Trust and the Trust Architect, which shall not be
unreasonably withheld or delayed. User acknowledges the existence of an
easement which underlies the Park.
27. VALIDITY OF RIGHTS GRANTED HEREUNDER. The Trust represents
and warrants that it has the right to enter into this Agreement and, so long as
no Event of Default shall exist, to grant the rights granted hereunder, and
covenants that User shall be entitled to the exclusive right to occupy the
Facility, provided that if any person shall successfully challenge the Trust's
right to permit User to use the South Dock in accordance with this Agreement,
the Trust shall not be in default of its obligations hereunder, but the Fees
shall be reduced by $25,000 per Contract Year. In any case, the Trust shall
vigorously defend against any such challenge. User acknowledges that its use
of the Park is in common with Park events and with all other persons entitled
to use the Park. User acknowledges that there may be approximately 10
Significant Park Events per year, and that there may be over 100,000 people
attending certain of such events. User acknowledges that this covenant of
"quiet enjoyment" does not suggest that the Park shall be quiet during certain
of the Significant Park Events.
28. INSURANCE; INDEMNIFICATION.
1. User shall provide General Liability Insurance
(including liquor liability insurance) covering the Park and the Facility with
respect to User's use thereof by either its agents, employees, crew members,
independent contractors, invitees or passengers, to protect against all claims
for personal injury, death or property damage. The limits of said insurance
for personal injury or death shall be not less than $1,000,000 per
person/$2,000,000 per occurrence. The limits of said insurance for property
damage shall not be less than $500,000 per occurrence. The policy or policies
providing said insurance shall name the "City of Miami," the Trust, the sponsor
of the Amphitheater (currently AT&T), and the "Army Corps of Engineers" as
"Additional Insureds," shall contain a waiver of subrogation in favor of said
"Additional Insureds", and shall provide for thirty days notice to said
"Additional Insureds" in the event of cancellation, modification by change in
coverage, or non-renewal. User shall furnish to the Trust and to the City of
Miami Risk Management Department, at 444 SW 2nd Avenue, Ninth Floor, Miami, FL
33130, Certificates of Insurance showing all coverages and additional insureds
no later than August 1, 1997, and thereafter copies of any and all of said
policies immediately upon their becoming available.
11
<PAGE> 12
2. The Trust shall provide General Liability Insurance
covering the Park and the Trust's use thereof against claims for personal
injury or death and property damage occurring upon, in or about the Park, such
insurance to afford protection to the limit of not less than $1,000,000 in
respect of injury or death to any number of persons arising out of any one
occurrence and such insurance against property damage to afford protection to
the limit of not less than $2,000,000 in respect of injury or death to any
number of persons arising out of any one occurrence and such insurance against
property damage to afford protection to the limit of not less than $500,000 in
respect of any instance of property damage. User is to be named "Additional
Insured" on all policies, provided that User shall pay the cost of being so
named (the current annual cost being approximately $6,400). The Trust shall
furnish the appropriate insurance certificates no later than August 1, 1997.
3. User hereby indemnifies and agrees to defend the
Trust and the members of the Board of Trustees of the Trust for all damages
sustained by the Trust as a result of any personal injury or death in the Park
or the Facility which results from the negligence or wilful misconduct of User.
4. The Trust hereby indemnifies User for all damages
sustained by the User as a result of any personal injury or death in the Park
or the Facility which results from the negligence or wilful misconduct of the
Trust, provided that this indemnification shall be limited to the extent of the
Trust's limited waiver of sovereign immunity as provided in Section 768.28 of
the Florida Statutes.
29. COMPLIANCE WITH LAW. User shall comply with all Federal,
State and County and local statutes, laws, rules and regulations, and shall, at
its sole expense, obtain all required licenses and permits.
30. HURRICANE PREPAREDNESS. User shall comply with City of Miami
requirements regarding hurricanes, as the same may be amended from time to
time.
31. INABILITY TO USE FACILITY. If, as a result of hurricane or
other casualty beyond User's reasonable control, User is not able to use the
Facility, there shall be no abatement of the Fees, provided that the Term shall
be extended for an equivalent period, and User shall not be required to pay any
Fees for such extension period.
32. TERMINATION RIGHTS. User shall have the right terminate this
Agreement on thirty (30) days' written notice to the Trust if, because of
governmental action, User is not legally permitted to operate an offshore
gaming vessel. If, because of governmental action, casino gaming becomes legal
in the State of Florida and User's passenger count declines to less than eighty
percent (80%) of the passenger count in the prior Contract Year, User shall
have the right to negotiate a just termination fee for the right to terminate
this Agreement, which termination fee will not be less than
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<PAGE> 13
one year's Fees. User's obligation to pay any termination fee so agreed upon
shall be secured by the Letter of Credit.
33. EXCLUSIVITY. Provided that no Event of Default exists
hereunder, User shall have the exclusive right to operate an offshore gaming
vessel from docks or land controlled by the Trust, as shown in the Site Plan
attached hereto as Exhibit "B".
34. RELATIONSHIP OF PARTIES. This Agreement shall not be deemed
or construed to create any agency relationship, partnership, or joint venture
between the Trust and User.
35. NOTICES. Unless otherwise provided herein to the contrary,
all notices required under this Agreement shall be deemed to be given when
received either by hand-delivery (with receipt therefor) or mailed by
registered or certified mail, postage prepaid, return receipt requested and if
addressed:
AS TO USER:
-----------
Frank A. Leo
Bayfront Ventures
Suite 3400
One Biscayne Tower
Two South Biscayne Blvd.
Miami, FL 33133
WITH A COPY TO:
---------------
Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.
c/o Santiago D. Echemendia
One Biscayne Tower
Two South Biscayne Blvd.
Suite 3400
Miami, FL 33131
AS TO THE TRUST:
----------------
Ira Marc Katz
Executive Director & General Manager
301 N. Biscayne Blvd.
Miami, FL 33132
WITH A COPY TO:
---------------
Commissioner J.L. Plummer
Chairperson
City of Miami/City Hall
3500 Pan American Drive
Miami, FL 33131
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<PAGE> 14
36. ENTIRE AGREEMENT/AMENDMENT. This Agreement constitutes the
sole and entire agreement between the parties hereto; no alteration, amendments
or modifications shall be valid unless executed by an instrument in writing
signed by all parties.
37. APPROVAL BY EMERGENCY FINANCIAL OVERSIGHT BOARD. The State of
Florida has appointed an Emergency Financial Oversight Board (the "Oversight
Board") which is empowered to review and approve all pending City of Miami
contracts. As a result, contracts shall not be binding on the City until such
time as they have been approved by the Oversight Board. Execution of this
Agreement by the City Manager shall constitute evidence of its approval by the
Oversight Board.
38. PUBLIC RECORDS. User understands that the public shall have
access, at all reasonable times, to all documents and information pertaining to
city contracts, subject to the provisions of Chapter 1198, Florida Statutes,
and agrees to allow access by the City and the public to all documents subject
to disclosure under applicable law.
39. ADDITIONAL PROVISIONS REQUIRED BY ARMY CORPS OF ENGINEERS. At
the request of the U.S. Army Corps of Engineers (the "Army"), the following
additional provisions have been added:
(a) Advertising of Alcoholic Beverages Outside of the Vessels, No
advertising of alcoholic beverages shall be permitted on the
Facility outside of the Vessels, provided that this shall not
prohibit advertising on the exterior surface of the Vessels.
(b) Indemnification. User shall hold the United States harmless
from any and all claims for damages to property or injuries to
persons arising out of the rights and privileges granted to
User herein, not including damages due to the fault of
negligence of the United States or its contractors.
40. GOVERNING LAW. This Agreement shall be construed according to
the laws of the State of Florida, to the extent such laws do not conflict with
Federal statutes, and venue shall be in Dade County.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
Witnesses: BAYFRONT PARK MANAGEMENT
TRUST
By:
-------------------------------
Name: Ira Marc Katz
--------------------------- Executive Director & General Manager
Name:
---------------------------
BAYFRONT VENTURES
d/b/a The Bayfront Princess,
a Florida joint venture
By: LEO EQUITY GROUP, INC.
a Florida corporation
By:
------------------------
Frank A. Leo, President
By: GOLDCOAST ENTERTAINMENT
CRUISES, INC., a Florida
corporation
By:
-----------------------
David Grossman, Vice
President
15
<PAGE> 16
APPROVAL OF THE CITY OF MIAMI
THE CITY OF MIAMI,
a municipal corporation of
Witnesses: the State of Florida
By:
-------------------------------------
Edward Marquez, City Manager
Name:
----------------------------
Name:
----------------------------
ATTEST:
By:
------------------------------
City Clerk
APPROVED AS TO INSURANCE APPROVED AS TO FORM AND
REQUIREMENTS: CORRECTNESS:
By: By:
------------------------------ ---------------------------------
Mario E. Soldevilla A. Quinn Jones, III
Risk Management Administrator City Attorney
Department of General Services
Administration
EXHIBITS:
A - Army Lease
B - Site Plan
C - Schedule of Advertising Fees
16
<PAGE> 17
STATE OF )
-------------
) SS:
COUNTY OF
------------ )
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1997 by Frank A. Leo, as President of Leo Equity Group, Inc.,
on behalf of the corporation. He is personally known to me.
------------------------------------
Notary Public
State of
--------------
Print Name:
-------------------------
My Commission Expires:
(SEAL)
STATE OF FLORIDA )
) SS:
COUNTY OF
---------------------)
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1997 by David Grossman, as Vice President of Goldcoast
Entertainment Cruises, Inc., on behalf of the corporation. He is personally
known to me.
-----------------------------------
Notary Public
State of Florida
--------------
Print Name:
------------------------
My Commission Expires:
(SEAL)
17
<PAGE> 18
STATE OF FLORIDA )
) SS:
COUNTY OF DADE )
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1997 by Edward Marquez, as City Manager of The City of Miami,
on behalf of the corporation. He is personally known to me.
---------------------------------------
Notary Public
State of Florida
Print Name:
----------------------------
My Commission Expires:
(SEAL)
<PAGE> 1
EXHIBIT 10.18
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT ("Agreement") is made and entered
into as of this 27th day of August, 1997 by and between Goldcoast Entertainment
Cruises, Inc., a Florida corporation ("Goldcoast") and Concorde Gaming
Corporation, a Colorado corporation ("Concorde").
RECITALS
A. The parties hereto propose to enter into a joint
venture to construct, own, operate and manage a commercial gaming vessel from
dockage at Bayfront Park, Miami, Florida (the "Project") and such other
activities as may be necessary or incidental thereto.
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, and the mutual promises contained herein, the
parties hereto agree as follows:
ARTICLE I
FORMATION, PURPOSES, DURATION
Section 1.1. FORMATION AND NAME.
1.1.1. Formation. The parties hereto (jointly the "Venturers" and
individually a "Venturer") hereby enter into a definitive joint venture
agreement to memorialize the limited purposes and scope of the joint venture
(the "Joint Venture" or the "Venture") set forth in this Agreement. The Joint
Venture shall be governed by the Florida Revised Uniform Partnership Act (the
"Act"), as from time to time amended, except as expressly provided herein to
the contrary.
1.1.2. Name. The name of the Joint Venture shall be "Bayfront
Ventures" and the business of the Joint Venture shall be conducted solely under
such name or in the name of the "Bayside Princess", or any other name
unanimously selected by the Management Committee.
1.1.3 Statement of Partnership. The parties hereto acknowledge that
a Partnership Registration Statement, pursuant to the provisions of Section
620.8105 of the Act, has been executed and recorded with the Secretary of State
of the State of Florida, and the parties agree to execute and acknowledge a
fictitious name affidavit and cause the same to be published and filed in
accordance with the Act.
1.1.4 Title to Venture Assets. Title to all Venture property,
whether real or personal, shall be taken and held only in the name of the
Venture or in such other name, as may be required under applicable law.
<PAGE> 2
Section 1.2. PURPOSES AND SCOPE OF THE JOINT VENTURE.
1.2.1 Purposes. The purposes of the Joint Venture are (a) to
construct, own, operate and manage the Project, and any other projects
hereafter acquired by the Joint Venture pursuant to and in accordance with this
Agreement ("Additional Projects"), if it is "Approved by the Management
Committee" (as hereinafter defined); and to engage in such other activities as
are reasonably necessary or incidental to the foregoing with respect to the
Project and the Additional Projects.
1.2.2 Scope of Venturers' Authority. Except as otherwise expressly
and specifically provided in this Agreement, neither Venturer shall have any
authority to bind or act for, or assume any obligations or responsibility on
behalf of, the other Venturer or the Joint Venture. Neither the Joint Venture
nor either Venturer shall be responsible or liable for any indebtedness or
obligation of the other Venturer or otherwise relating to the Project incurred
or arising either before or after the execution of this Agreement, except as to
those joint responsibilities, liabilities, indebtedness, or obligations
incurred after the date hereof pursuant to and as limited by the terms of this
Agreement. This Agreement shall not be deemed to create a general partnership
between the Venturers with respect to any activities whatsoever other than
activities within the scope and business purposes of the Joint Venture
specified in Subsection 1.2.1.
Section 1.3 PRINCIPAL PLACE OF BUSINESS.
The principal place of business of the Joint Venture shall be
located at Bayfront Park, Miami, Florida, or at such other location as may be
approved by the Management Committee from time to time.
Section 1.4. TERM.
The term of the Joint Venture shall commence as of the date
set forth above, and shall continue, unless sooner terminated in accordance
with other provisions of this Agreement, for so long as the Joint Venture holds
any interest in or has any obligations relating to the Project or any
Additional Projects, or until the Venturers agree to its termination; provided,
however, that the Joint Venture shall, if not sooner terminated, terminate on
December 1, 2015, unless otherwise extended by mutual written agreement of both
Venturers; and provided further, that neither Venturer shall have the right and
each Venturer hereby agrees not to withdraw from the Joint Venture nor to
dissolve, terminate or liquidate, or to petition a court for the dissolution,
termination or liquidation of the Joint Venture, except as provided in this
Agreement, and neither Venturer at any time shall have the right to petition or
to take any action to subject the Project or any part thereof or the Joint
Venture assets or any part thereof to the authority of any court of bankruptcy,
insolvency, receivership or similar proceeding.
2
<PAGE> 3
ARTICLE II
CAPITAL CONTRIBUTIONS,
FINANCING AND DISTRIBUTION
Section 2.1 JOINT VENTURE INTERESTS AND CAPITAL ACCOUNTS.
2.1.1. Percentage Interests. The Venturers shall have the following
undivided percentage interests in the Joint Venture (individually a "Percentage
Interest" and jointly "Percentage Interests").
Concorde 80%
Goldcoast 20%
----
100%
2.1.2 Adjustments. Unless otherwise agreed by both Venturers, no
adjustment to the Percentage Interest of either Venturer shall be made as a
result of a transfer of a Venturer's Percentage Interest or a portion thereof
pursuant to Articles VI or VII hereof.
2.1.3 Capital Accounts Defined. A separate capital account ("Capital
Account") shall be maintained for each Venturer in accordance with federal
income tax accounting principles under Treasury Regulation Section 1.704-1(b).
The Capital Account of each Venturer shall be:
(a) increased by (i) the amount of any cash and the fair market
value of any property contributed to the Venture by such Venturer (net
of liabilities secured by such contributed property that the Venture
is considered to assume or to which it is subject under Section 752
of the Internal Revenue Code of 1986, as amended and in effect from
time to time, and applicable regulations thereunder (the "Code")); and
(ii), its distributive share of Venture income and gain (or items
thereof), including income and gain exempt from tax and gain
determined for book purposes, but excluding income and gain described
in Treasury Regulations Section 1.704-1(b)(4)(i); and
(b) decreased by (i) the amount of money and the fair market value
of property distributed to the Venturer by the Venture (net of
liabilities secured by such distributed property that the Venturer is
considered to assume or to which it is subject under Code Section
752); (ii) such Venturer's distributive share of Venture loss or
deduction (or items thereof), including loss and deduction determined
for book purposes, but excluding loss or deduction described in
Treasury Regulation Section 1.704-1(b)(4)(i) and expenditures
described in clause (iii); and (iii), such Venturer's distributive
share of expenditures which are neither deductible nor properly
capitalized.
Section 2.2 CAPITAL CONTRIBUTIONS BY CONCORDE.
Following the execution of this Agreement, Concorde shall make capital
contributions in accordance with the construction and capital outlay needs of
the Joint Venture. Concorde's capital contribution will be $6,405,000,
("Capital Contribution") which amount shall not include
3
<PAGE> 4
any funds contributed by Concorde in conjunction with the letter of credit
required by the Use Agreement. Concorde shall be credited for all payments
made by Concorde to Leo Equity Group, Inc. ("LEG") and the Bayfront Park
Management Trust, if any, related to the acquisition of LEG's interest in the
Joint Venture, less $95,000 which shall be treated as a loan between Concorde
and Goldcoast. Concorde and Goldcoast agree to enter into a separate loan
agreement evidencing Goldcoast's obligation to reimburse Concorde for these
initial advances.
Section 2.3 CONTRIBUTIONS BY GOLDCOAST.
Goldcoast's capital contribution account shall be zero. Goldcoast's
contribution to the Joint Venture shall be: (i) the initial Identification and
Concept of the Project, including the successful award from a Request For
Proposals by the Bayfront Park Management Trust, a limited agency and
instrumentality of the City of Miami; (ii) the successful negotiation and
execution of a Use Agreement with Bayfront Park Management Trust for the
Bayfront Park docking facilities; (iii) the development and management of the
Project prior to the initial commercial voyage of the Project; and (iv) the
management of the Project, upon its initial commercial voyage.
Section 2.4 ADDITIONAL FUNDING.
2.4.1 General. It is anticipated that the Joint Venture will require
funds in addition to the capital contributions provided for above in Sections
2.2 and 2.3. The Venturers agree that in no event shall any additional capital
contributions be required to be made by either Venturer to the Venture, but
that such funds shall be sought through outside financing, which may include
leasing. In the event that third party financing is not available at
reasonable terms, the Venturers shall have the opportunity to provide financing
to the Joint Venture (the "Financing Venturer).
2.4.2 Notice by Manager. In the event that the Management Committee
unanimously determines that it is necessary for the Venture to borrow
additional funds for the Venture's continued operations pursuant to this
Section 2.4, the Manager, when Approved by the Management Committee (as such
phrase is defined herein), shall give notice to each Venturer in the manner
provided in Section 10.2. Such notice shall specify in reasonable detail the
amount and purpose of any such additional funds and a proposed method of
obtaining such additional funds.
2.4.3 Repayment of Financing Venturer Loan(s). In the event a
Financing Venturer makes a loan to the Joint Venture ("Venturer Loan"), the
Venturer Loan shall bear interest at a rate equal to the highest prime rate, as
published in the Wall Street Journal, plus 6 %, provided that such rate shall
not be less than 15% nor more than 20%. Any Financing Venturer Loans shall be
repaid in monthly installments in accordance with the following schedule:
<TABLE>
<CAPTION>
Venturer Loan Amount Months for Repayment
<S> <C>
< $1,000,000 12
$1,000,000 or >, but < $2,000,000 24
$2,000,000 or >, but < $3,000,000 36
$3,000,000 or > 60
</TABLE>
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Repayment of a Venturer Loan shall be secured by all assets of the Joint
Venture and the Joint Venture agrees to file Uniform Commercial Code financing,
continuation statements, and other security instruments as may be appropriate
to perfect and continue such security interest in favor of such Financing
Venturer. In the event that the Venture's Net Cash Flow would result in a
distribution to Goldcoast in excess of the advances paid to Goldcoast in
Sections 3.4.2 and 3.4.3 ("Excess Net Cash Flow"), the Ventures agree that
either Venturer can request the Excess Net Cash Flow be used to repay a Venture
Loan, if any. No Venturer Loan shall have a prepayment penalty. Section 2.5
Section 2.5 NO INTEREST ON CAPITAL.
Interest earned on Joint Venture funds shall inure solely to the
benefit of the Joint Venture, and except as specifically provided in Section
2.4 with respect to the payment of interest on a Venturer Loan, no interest
shall be paid upon any contributions or advances to the capital of the Joint
Venture nor upon any undistributed or reinvested income or profits of the Joint
Venture.
Section 2.6 DISTRIBUTIONS TO VENTURERS FROM PROJECT NET CASH FLOW.
2.6.1 Definition of Net Cash Flow. Not later than thirty (30) days
after the end of each calendar quarter, the Manager shall make a distribution
to the Venturers of the entire Net Cash Flow (as hereinafter defined in this
Subsection 2.6.1) of the Joint Venture from the Project during such preceding
calendar quarter in accordance with the provisions of Subsection 2.6.3 below.
"Net Cash Flow" shall be computed by the Manager and shall consist of the gross
cash receipts of the Joint Venture of any kind or description from the Project
during a calendar quarter except for the receipts described in Subsection
2.6.4, after deducting the following:
(a) all costs of improving, managing, leasing, operating,
maintaining, replacing and preserving the Project to the extent paid
in cash during such calendar quarter but not including any such
payments to the extent that the amounts thereof were reserved against
and funded from such reserves;
(b) all other operating or other expenses of the Joint Venture
attributable to the Project whether paid or accrued during such
calendar quarter, or any expenditures for casualty losses to the
extent that such losses are not reimbursed during such quarter by any
third party responsible therefore or through insurance maintained by
the Joint Venture, but not including any expenses paid in cash to the
extent that such expenses were reserved against and funded from such
reserves;
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(c) all cash payments made with respect to the discharge of Joint
Venture indebtedness during the calendar quarter, but not including
any such payments to the extent that the amounts thereof were reserved
against and funded from such reserves; and
(d) all reasonable amounts of reserved cash as shall be determined
and Approved by the Management Committee to be necessary or
advisable,provided that quarterly allocations for cash reserves from
the Net Cash Flow do not exceed 25% of the total quarterly Net Cash
Flow, for: (i) the repayment of Joint Venture indebtedness coming due
in such future time period as shall be determined by the Management
Committee; (ii) the improvement, management, operation (including but
not limited to insurance and property taxes and assessments),
maintenance, replacement or preservation of the Project; and (iii)
increases in working capital and other contingencies.
(e) all payments to Concorde as reimbursement for payments to LEG
or accruals in years one through three
2.6.2 No Deduction for Depreciation. In computing Net Cash Flow, no
deduction shall be made for depreciation or amortization as such terms are used
for purposes of the United States Internal Revenue Code of 1986, as amended
(the "Code").
2.6.3 Distribution. Distributions of Net Cash Flow will be paid, or
be payable, to the Venturers in accordance with their respective Percentage
Interests in the Joint Venture, as stated in Section 2.1.1. All distributions
paid, or payable, to Goldcoast will be reduced by the amount of advances paid
to Goldcoast in accordance with Sections 3.4.2 and 3.4.3. The parties
anticipate Concorde receiving a 100% payback of its capital contribution within
three (3) years of the Commencement of Operations. In the event the aggregate
distributions to Concorde as a percent of its capital contribution ("Concorde
Return") results in an annualized return of less than 33.33%, the distributions
to be paid will be computed pursuant to the following modifications:
(a) If Concorde's Return is between 33.3% and 20%, the
distributions paid to the Venturers shall be recomputed so that
Concorde's Return equals 33.3%, with the exception of advances paid to
Goldcoast under Sections 3.4.3.
(b) If Concorde's Return is less than 20%, then all distributions
shall be paid to Concorde, with the exception of advances paid to
Goldcoast under Section 3.4.3.
For purposes of calculating Concorde's Return, Concorde's share of the payments
to LEG after the Commencement of Operations shall be added to Concorde's Net
Cash Flow distribution, which sum shall be the numerator in determining
Concorde's Return. The denominator shall be Concorde's capital contribution of
$6,000,000.
In the event (a) or (b) above reduces the distribution paid to Goldcoast, the
Venturer's agree that Goldcoast will continue to accrue distributions equal to
their 20% interest in the Joint Venture. Accrued distributions due to
Goldcoast shall be paid upon the earlier of (1) when Concorde's Return is
33.3%, or (2) when Concorde's Capital Contribution has been paid back in its
entirety.
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The Management Committee shall endeavor to make distributions sufficient in
such amount and at such time to enable the Ventures to satisfy their respective
income tax liabilities attributable to the Venture.
2.6.4 Exclusions from Net Cash Flow. Notwithstanding the foregoing,
Net Cash Flow shall not include the proceeds of any sale, mortgage,
hypothecation, assignment, condemnation or other transfer or disposition of the
Project, or any part thereof or interest therein (excluding only occupancy
leases for space within the Improvements), which proceeds shall be distributed
as set forth in Section 2.7.
Section 2.7 PROCEEDS FROM SALE OR FINANCING AND PROFITS ON SALE.
Proceeds from any sale, mortgage, hypothecation (other than
the Construction Loan), assignment, condemnation or other transfer or
disposition of the Project, or any part thereof or interest therein, shall be
paid to the Venturers in their respective Percentage Interests in the Joint
Venture, as stated in Section 2.1.1. after the payment of (i) Concorde's
capital contribution less any distributions paid, (ii) the payment of any
Financing Venturer Loans, if any, and (iii) the repayment of any unpaid initial
advances to Goldcoast prior to commencement of operations. The remainder of
such proceeds, if any, shall be distributed to the Venturers based on their
respective Percentage Interests, as provided in Section 2.1.1.
Section 2.8 ALLOCATIONS OF PROFITS AND LOSSES TO VENTURERS.
(a) Allocation of Losses. Venture Losses for any year shall
be allocated:
(1) first, to the Venturers up to the positive balance of
their Capital Accounts, ratably in accordance with the
positive balances of their Capital Accounts, and
(2) next, any remaining Losses shall be equally allocated
to the Venturers.
(b) Allocation of Profits. Venture Profits and gains for any
year shall be allocated:
(1) first, to the Venturers previously allocated Losses
under Section 2.8(a) to the extent of such Losses (reduced by
allocations under this clause for all prior years), ratably
and in inverse order to the manner in which such Losses were
allocated; and
(2) the balance, if any, shall be allocated 80% to
Concorde and 20% to Goldcoast
Section 2.9 WITHDRAWALS OF CAPITAL.
Except as otherwise provided herein, no portion of the capital of the
Joint Venture may be withdrawn at any time without the unanimous Approval of
the Management Committee. Upon termination of the Joint Venture, the
Venturers' capital shall be distributed pursuant to Section 7.5 hereof.
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Section 2.10 TAX ALLOCATIONS CODE SECTION 704(C)
In accordance with Code Section 704(c) and the regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Venture by a Venturer shall, solely for tax purposes, be
allocated among the Venturers so as to take account of any variation between
the adjusted basis of such property to the Venture for federal income tax
purposes and its fair market value at the time of contribution. In the event
the value of any of the real and personal property acquired by the Venture and
any improvements thereto (collectively, the "Venture Property") is adjusted on
the Venture's books to reflect the fair market value pursuant to Section 2.10
of this Agreement, subsequent allocations of income, gain, loss and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such property for federal income tax purposes and its value
on the Venture's books in the same manner under Section 704(c) of the Code.
Section 2.11 REVALUATION OF VENTURE PROPERTY
Upon (1) the admission of any Venturer to the Venture, (2) the
liquidation of a Venturer's interest in the Venture, (3) the making of any full
or partial withdrawals by a Venturer which changes the Venture's relative
Venture interest (other than a de minimis amount) in the Venture as determined
by reference to the relative balances in the Venturers' Capital Accounts and
(4) immediately before liquidation of the Venture, all the Venture Property
shall be revalued at its fair market value, and the Venturers' Capital Accounts
shall be adjusted to reflect the manner in which the unrealized income, gain,
loss or deduction inherent in such property (that has not been previously
reflected in adjustments to the Venturers' Capital Accounts) would be allocated
among the Venturers if the Venture Property were sold at its fair market value
on the valuation date.
Section 2.11 TAX MATTERS PARTNER
Concorde shall be the "tax matters partner" of the Partnership as
defined in Section 6231 of the Code.
ARTICLE III
MANAGEMENT
Section 3.1 MANAGEMENT OF THE VENTURE.
3.1.1 Management Committee. The overall management and control of
the business and affairs of the Joint Venture shall be vested in a management
committee ("Management Committee"). Except where herein expressly provided to
the contrary, all decisions with respect to the management and control of the
Joint Venture that are "Approved by the Management Committee" shall be binding
on the Joint Venture and each of the Venturers. The Management
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Committee of the Joint Venture shall be composed of two representatives from
Concorde and one representative from Goldcoast. Each Venturer shall designate
in writing from time to time its respective representatives on the Management
Committee and an alternate for each. Each such representative shall be fully
authorized to provide any consent or approval which may be required hereunder
of the Management Committee. When the phrases "Approved by the Management
Committee" or "Approval of the Management Committee" are used in this
Agreement, such phrases shall mean approval in writing by the Venturers acting
through their representatives on the Management Committee who shall have been
designated pursuant to this Subsection 3.1.1.
3.1.2 The Manager. The Joint Venture shall have a manager (the
"Manager"), who shall be designated pursuant to Section 3.2 hereof. The
Manager shall be responsible for the implementation of the decisions of the
Management Committee and for conducting the ordinary and usual business and
affairs of the Joint Venture as more fully set forth in Section 3.2 hereof.
The Management Committee shall require that the Manager shall at all times
conform to policies and programs established by the Management Committee and
that the scope of the Manager's authority shall be limited to said policies and
programs. The acts of the Manager shall bind the Venturers and the Joint
Venture when within the scope of the Manager's authority. The Manager shall at
all times be subject to the direction of the Management Committee, and the
Management Committee shall require that the Manager shall keep the Management
Committee informed as to all matters of concern to the Joint Venture.
3.1.3 Major Decisions. No act shall be taken, sum expended,
decision made or obligation incurred by the Joint Venture, the Management
Committee, the Manager or either Venturer with respect to a matter within the
scope of any of the major decisions enumerated below (the "Major Decisions"),
unless and until the same has been Approved by the Management Committee or
expressly delegated by the Management Committee in writing. The Major
Decisions itemized under (a) through (d) below shall require the unanimous
approval of the Management Committee. All other Major Decisions shall require
majority approval. The Major Decisions shall include:
(a) acquisition of any land or other real property or interest
therein;
(b) financing or refinancing of the Joint Venture or any assets of
the Joint Venture, including, without limitation, the financing of the
acquisition of the Project, the construction of the Project, interim and
long-term financing or refinancing of the Project, and financing operations of
the Joint Venture;
(c) subject to the provisions of Section 6.4 below, sale or other
transfer of, or mortgaging or the placing or suffering of any other encumbrance
on or affecting the Project or any part or parts thereof;
(d) construction of any improvements or the making of any capital
improvements, alterations or changes in, to or of the Project or any part
thereof, except for such matters as may be expressly delegated to the Manager
by the Management Committee; and approval of all construction and architectural
contracts and all architectural plans, specifications and drawings
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prior to the construction, addition to and/or alteration of the Project or any
portion thereof, and any modifications of such contracts, plans, specifications
and drawings, except for such matters as may be expressly delegated in writing
to the Manager by the Management Committee;
(e) selecting or varying depreciation and accounting methods and
making other decisions with respect to treatment of various transactions for
state or federal income tax purposes or other financial purposes not otherwise
specifically provided for herein, provided that such methods and decisions
shall be consistent with the other provisions of this Agreement;
(f) varying or changing any portion of the insurance program
Approved by the Management Committee;
(g) determining the amount of distributions to be made to the
Venturers as computed in Section 2.6, notwithstanding payments required by
Sections 2.4 and 3.4 hereof;
(h) approving the Project Plan and all Budgets pursuant to Section
3.3 hereof;
(i) making any expenditure or incurring any obligation, other than
payments for utilities, fuel and governmental agencies, by or on behalf of the
Joint Venture involving a sum in excess of $5,000 or involving a sum of $5,000
or less than $5,000 where the same relates to a component part of work, the
combined cost of which in any one fiscal year exceeds $5,000 , except for
expenditures made and obligations incurred pursuant to and specifically set
forth in a Budget theretofore Approved by the Management Committee;
(j) making any expenditure or incurring any obligation which when
added to any other expenditure for the fiscal year of the Joint Venture exceeds
the Budget or any line item specified in the Budget;
(k) retention of counsel for the Joint Venture or institution of
any legal action, except for such action as the Management Committee may in
writing expressly authorize the Manager to institute; or
(l) any other decision or action which by any provision of this
Agreement is required to be Approved by the Management Committee or which
materially affects the Joint Venture or the assets or operations thereof.
Section 3.2 APPOINTMENT AND REPLACEMENT OF MANAGER AND CONSTRUCTION
MANAGER; DUTIES AND FEES OF MANAGER AND CONSTRUCTION MANAGER.
3.2.1 Appointment of Manager. Goldcoast is hereby appointed as the
initial Manager of the Joint Venture. The duties, obligations and compensation
of the Manager shall be as set forth in this agreement. The Manager shall not
be compensated but shall receive an advance against its distributions as set
forth in this agreement.
3.2.2 Termination of Manager. Following the completion of the
second full year of operations, Manager may be terminated as Manager for cause
if Concorde's Return is less than
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20% for any consecutive two-year period, as calculated pursuant to Section
2.6.3. In the event of termination of Manager, the parties agree to, in good
faith, discuss future payments which will include the following considerations
in an effort to negotiate a buyout of the Manager's Joint Venture Interest:
(a) value of Joint Venture assets and equity therein, if any;
(b) net present value of future operating cash flows for the
remaining term of this Project using a discount rate tied to the prime
rate, plus; and
(c) the management services that were to be provided by the
Manager to the Joint Venture and how it relates to the Manager
acquiring its Joint Venture Interest.
3.2.3 Duties of Manager. The Manager, at the expense of and on
behalf of the Joint Venture, shall implement or cause to be implemented all
decisions Approved by the Management Committee and delegated to the Manager in
writing by the Management Committee and shall conduct or cause to be conducted
the ordinary and usual business and affairs of the Joint Venture in accordance
with and as limited by this Agreement.
3.2.4 Prior Authorization. Any provision hereof to the contrary
notwithstanding, except for expenditures made and obligations incurred
previously Approved by the Management Committee or in direct pursuance to a
Budget Approved by the Management Committee, or otherwise not required to be
Approved by the Management Committee, the Manager shall not have any authority
to make any expenditure or incur any obligation on behalf of the Joint Venture.
The Manager shall not expend more than what the Manager in good faith believes
to be the fair and reasonable market value at the time and place of contracting
for any goods purchased or services engaged on behalf of the Joint Venture.
3.2.5 Rights Not Assignable. The rights and obligations of the
Manager under this Agreement shall not be assignable voluntarily or by
operation of law by the Manager.
Section 3.3 PROJECT PLAN AND BUDGETS.
(a) As soon as practically possible following the date of this
Agreement, the Manager shall prepare a Project Plan and submit it to the
Management Committee for approval. The Project Plan shall be the overall plan
for development, construction, completion, financing, leasing and operation of
the Project, including, but not limited to, the following:
(i) A site plan as well as a statement of the conditions
and restrictions applicable thereto.
(ii) A plan for responding to all conditions required by
the City of Miami or other governmental authorities to construct and
operate the Project, including, but not limited to, all permits and
approvals.
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(iii) All cost estimates for development and operating
expenses, including a construction budget and pro forma income
projections, which cost estimates shall include estimates of required
project funding.
(vi) The final terms of the construction contract.
(v) A comprehensive insurance program for the Venture and
the Project.
(vi) The final terms of the architectural services
contract for the Project.
(vii) Feasibility studies and such other reports, studies,
investigations, and recommendations as are requested by the Management
Committee, or as are, in the judgment of the Manager, necessary or
advisable in order to provide the Venturers with adequate and timely
information with respect to development of the Project.
(b) Not less often than one time each fiscal year, the Manager
shall prepare and submit to the Management Committee for its consideration a
budget ("Budget") setting forth the estimated receipts and expenditures
(capital, operating, and other) of the Joint Venture for the period covered by
the Budget. The Management Committee shall review and adjust the Budget on a
quarterly basis. When approved by the Management Committee, the Manager shall
implement the Budget and shall be authorized, subject to the provisions of
Section 3.1.3, without the need for further Approval by the Management
Committee, to make the expenditures and incur the obligations provided for in
the Budget.
Section 3.4 COMPENSATION AND REIMBURSEMENT OF VENTURERS.
3.4.1 No Compensation. Except as provided in Sections 3.4.2 and
3.4.3 herein or hereafter Approved by the Management Committee, no payment will
be made by the Joint Venture to either Venturer for the services of such
Venturer or any member, shareholder, director or employee of such Venturer.
3.4.2 Initial Advances. Goldcoast shall receive prior to the
commencement of operations ("Initial Advances") an advance against its Net Cash
Flow distributions of $20,000 per month, provided, that in the event
construction of the Project is not completed by July 1, 1998, the parties agree
to discuss future payments, if any. Commencement of Operations shall be
defined as the day the Joint Venture conducts its first revenue-generating
cruise. Prior to the Commencement of Operations, Goldcoast may seek other
compensation, which shall offset its monthly advances. Repayment of Initial
Advances shall come from net cash flow distributions and shall be payable out
of Goldcoast's distribution provided for in Section 2.6.3. hereof beginning
with the first quarter after the commencement of operations. Initial Advances
shall be reflected as a reduction in Goldcoast's capital account and repaid in
accordance with the following:
(a) If Net Cash Flow is $450,000 or less, repayment of Initial
Advances may be deferred by Goldcoast until the Joint Venture receives Net Cash
Flow greater than $450,000 for any subsequent quarter;
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(b) If Net Cash Flow is greater than $450,000 but less than
$750,000 during the quarter, Goldcoast shall repay the Joint Venture in equal
quarterly installments over 12 quarters;
(c) If Net Cash Flow is $750,000 or greater, but less than
$1,000,000, during the quarter, the Joint Venture shall be repaid in equal
quarterly installments over 8 quarters; and
(d) If Net Cash Flow is $1,000,000 or greater during the quarter,
the Joint Venture shall be repaid in equal quarterly installments over 4
quarters.
The payment schedule shall be adjusted quarterly. Notwithstanding any
of the above, the repayment of Initial Advances computed in (a) through (d)
above shall not reduce Goldcoast's quarterly distribution of Net Cash Flow
below $90,000. Thus, the repayment of Initial Advances shall be reduced to an
amount that results in a minimum distribution of Net Cash Flow to Goldcoast of
$90,000 per quarter.
3.4.3. Advances to Goldcoast after the Commencement of Operations.
Advances made to Goldcoast after the Commencement of Operations shall be
$30,000 per month and shall be reflected as a reduction in its capital account.
Section 3.5 CONTRACTS WITH RELATED PARTIES.
The Manager shall not knowingly enter into any agreement or other
arrangement for the furnishing to or by the Venture of goods or services with
any individual, corporation, partnership, joint venture, association, firm,
joint stock company, trust, unincorporated association or other entity
(hereinafter in this Section referred to as a "Person") related to or
affiliated with the Manager or either Venturer unless such agreement or
arrangement has been Approved by the Management Committee after the nature of
the relationship or affiliation has been disclosed. By way of definition of
the phrase "related to or affiliated with," for the purposes of this Section
3.5, the following Persons shall be deemed to be "related to or affiliated
with" the Manager or a Venturer:
(a) Any Owning Person, which shall mean a Person owning directly
or indirectly more than five percent (5%) of the issued and outstanding stock
of, or more than a five percent (5%) beneficial interest in, the Manager, the
Construction Manager, or either Venturer;
(b) Any Owned Person, which shall mean a Person more than five
percent (5%) of the issued and outstanding stock of which, or more than a five
percent (5%) beneficial interest in which, is owned directly or indirectly by
the Manager, the Construction Manager or either Venturer;
(c) Any Affiliated Person, which shall mean (i) a Person owning
more than five percent (5%) of the issued and outstanding stock of which, or
more than a five percent (5%) beneficial interest in which, is owned by an
Owning Person or an Owned Person, and (ii) a Person which owns more than five
percent (5%) of the issued and outstanding stock of, or more than a five
percent (5%) beneficial interest in, any Owning Person or any Owned Person; and
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(d) Any agent, officer, director, employee, or partner (or any
member of the family of any agent, officer, director, employee or partner) of
the Manager, either Venturer, any Owning Person, any Owned Person or any
Affiliated Person.
Section 3.6 TIME DEVOTED TO JOINT VENTURE.
The Venturers shall each devote such time to the Joint Venture as is
reasonably necessary to carry out the provisions of this Agreement.
Section 3.7 OTHER BUSINESS ACTIVITIES; DISCLOSURE, WAIVER.
Each of the Venturers understands that the other Venturer or its
affiliates may be interested, directly or indirectly, in various other
businesses and undertakings not included in the Joint Venture. The Venturers
hereby agree that the creation of the Joint Venture and the assumption by each
of the Venturers of their duties hereunder shall be without prejudice to their
rights (or the rights of their affiliates) to have such other interests and
activities and to receive and enjoy profits or compensation therefrom, and each
Venturer waives any rights he or it might otherwise have to share or
participate in such other interests or activities of the other Venturer or
their affiliates, provided such other interests do not negatively and
materially affect the Venture. The Venturers may engage in or possess an
interest in any other business venture of any nature or description
independently or with others and neither the Joint Venture nor the other
Venturer shall have any right by virtue of this Agreement in and to such
venture or the income or profits derived therefrom if it negatively and
materially affects the Venture. Each Venturer shall give notice to the other
Venturer of its interest, or the interest of any of its affiliates, in any
other business or undertaking which proposes to enter into any business
transactions with the Joint Venture. Notwithstanding the above, Goldcoast
hereby grants Concorde a right of first refusal with respect to any transaction
involving or relating to the ownership, operation or management of a commercial
gaming vessel which is located either within the State of Florida or is based,
located or operated on land in or adjacent to Florida, other than Goldcoast's
existing Fort Lauderdale project.
Section 3.8 SCOPE OF AUTHORITY; INDEMNIFICATION.
Neither of the Venturers shall, without the consent of the other
Venturer, take any action on behalf of or in the name of the Joint Venture, or
enter into any commitment or obligation binding upon the Joint Venture, except
for (a) actions expressly provided for in this Agreement, (b) actions by the
Manager within the scope of its authority granted hereunder, and (c) actions
authorized by the Venturers in the manner set forth herein. Each Venturer
shall indemnify and hold harmless the other Venturer and its affiliates,
directors and officers from and against any and all claims, demands, losses,
damages, liabilities, lawsuits and other proceedings, judgments and awards, and
costs and expenses (including but not limited to reasonable attorneys' fees)
arising directly or indirectly, in whole or in part, out of any breach of the
foregoing provisions by such Venturer or its affiliates, officers, agents or
employees.
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ARTICLE IV
ACCOUNTING
Section 4.1 BOOKS AND RECORDS.
4.1.1 General. At all times during the term hereof, the Manager, at
the Joint Venture's expense, shall cause accurate books and records of account
to be maintained in which shall be entered all matters relating to the Joint
Venture, including all income, expenditures, assets, and liabilities thereof.
4.1.2 Accrual Basis. Such books and records of account shall be
maintained on the accrual basis and shall be adequate to provide either
Venturer with all financial information as may be needed by either Venturer or
any affiliate of either Venturer for purposes of satisfying the financial
reporting obligations of either Venturer or its respective affiliate or
affiliates.
4.1.3 Information to Venturers. Each Venturer shall be entitled to
any additional information necessary for the Venturer to adjust its financial
basis statement to a tax basis as the Venturer's individual needs may dictate.
Section 4.2 LOCATION AND RIGHTS OF INSPECTION.
The Joint Venture's books and records of account shall be kept and
maintained at all times at the place or places Approved by the Management
Committee. Each Venturer and its authorized representatives shall have the
right to inspect, examine and copy the books, records, files, securities and
other documents of the Joint Venture at all reasonable times.
Section 4.3 FISCAL YEAR.
The fiscal year of the Joint Venture shall end on September 30 of each
year.
Section 4.4 FINANCIAL STATEMENTS.
The Manager shall prepare a financial statement which will include a
balance sheet, income statement and statement of Net Cash Flow of the Joint
Venture as of the last day of each month of each fiscal year. Financial
statements shall be prepared in accordance with generally accepted accounting
principles. Such statements shall be certified by an officer of the Manager.
Copies shall be furnished to the Management Committee and to each of the
Venturers within fifteen (15) days after the end of each month. Annual
financial statements of the Joint Venture and income (unaudited) shall be
furnished to the Management Committee and to each of the Venturers within sixty
(60) days after the close of the fiscal year, to the extent feasible.
Section 4.5 AUDIT.
In conjunction with Concorde's annual audit, the Joint Venture shall
allow, and provide assistance to, Concorde's independent auditors to audit the
Joint Venture. The independent auditors shall at the end of each fiscal year
(a) audit the records and accounts of the Joint
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Venture, (b) render their opinion on the financial statements of the Joint
Venture as of the end of each fiscal, and (c) render their opinion on the
annual Net Cash Flow computations made by the Manager for the Joint Venture and
as to whether distributions thereof are in accordance with Section 2.6 of this
Agreement.
Section 4.6 BANK ACCOUNTS.
Funds of the Joint Venture shall be deposited in an account or
accounts of a type, in form and name and in a bank or banks Approved by the
Management Committee. Withdrawals from bank accounts shall be made by parties
Approved by the Management Committee.
Section 4.7 OTHER ACCOUNTING DECISIONS.
All accounting decisions for the Joint Venture (other than those
specifically provided for in other Sections of this Agreement) shall be
approved by the Management Committee.
ARTICLE V
INCOME TAX RETURNS,
TAX ACCOUNTING, TAX ELECTIONS
Section 5.1 PREPARATION OF TAX RETURNS.
Federal, state and local income tax returns of the Joint Venture shall
be prepared by qualified certified public accountants. Copies of all tax
returns of the Joint Venture shall be furnished for review and approval by each
of the Venturers and the Management Committee at least thirty (30) days prior
to the statutory date for filing, including extensions thereof, if any. If the
Management Committee shall fail to approve any such return, an application for
extension of time to file shall be timely filed by the Manager.
Section 5.2 ALLOCATIONS TO VENTURERS.
5.2.1 Method of Allocation. The proportionate part of each item of
income, gain, loss, deduction or credit earned, realized or available by or to
the Joint Venture shall be allocated to the Venturers in accordance with the
Percentage Interests of each Venturer.
5.2.2 754 Election. The Joint Venture shall, if requested by either
Venturer, make the election under Section 754 of the Internal Revenue Code.
Section 5.3 TAX DECISIONS NOT SPECIFIED.
Tax decisions and elections for the Joint Venture not provided for
herein must be approved by the Management Committee.
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Section 5.4 NOTICE OF TAX AUDIT.
Prompt notice shall be given to the Venturers upon receipt of advice
that the Internal Revenue Service intends to examine Joint Venture income tax
returns for any year.
ARTICLE VI
SALE, TRANSFER OR MORTGAGE
Section 6.1 GENERAL.
6.1.1 Required Consents. Except as expressly permitted herein,
neither Venturer shall sell, assign, transfer, mortgage, charge or otherwise
encumber, or suffer any third party to sell, assign, transfer, mortgage, charge
or otherwise encumber, or contract to do or permit any of the foregoing,
whether voluntarily or by operation of law (herein sometimes collectively
called a "transfer"), any part or all of its Joint Venture interest without the
written consent of the other Venturer and any attempt to do so shall be void.
The giving of such consent in any one or more instances shall not limit or
waive the need for such consent in any other or subsequent instances.
6.1.2 Indirect Transfers. In order to effectuate the purpose of
this Section 6.1, each Venturer agrees that to the extent its interest in the
Joint Venture is at any time held by any Person which is a partnership,
corporation, trust or other entity, such Venturer will seek to transfer its
interest in the Joint Venture only through a direct transfer of such interest
therein in the manner contemplated in this Article VI, and that no transfer or
other disposition of any stock or partnership or other beneficial interest in
any such entity which holds an interest in the Joint Venture will be effected,
directly or indirectly, unless Approved by the Management Committee.
Section 6.2 PERMITTED TRANSFERS BY THE VENTURERS.
6.2.1 Transfers by Concorde. Notwithstanding the provisions of
Subsection 6.1, Concorde may without the consent of the other Venturer from
time to time, and at any time transfer, its interest in the Joint Venture to a
subsidiary of Concorde, or to a subsidiary of such subsidiary, or from such
subsidiary or sub-subsidiary back to Concorde or to such subsidiary.
6.2.2 Transfers by Goldcoast. Notwithstanding the provisions of
Subsection 6.1, Goldcoast may, without the consent of the other Venturer, from
time to time transfer its interest in the Joint Venture to a subsidiary of
Goldcoast or to a subsidiary of such subsidiary, or from such subsidiary or
sub-subsidiary back to Goldcoast or to such subsidiary.
Section 6.3 TERMINATION OF OBLIGATIONS.
As of the effective date of any transfer not prohibited hereunder by a
Venturer of its entire interest in the Venture, such Venturer's rights and
obligations hereunder shall terminate except as to items accrued as of such
date and except as to any indemnity obligations of such Venturer attributable
to acts or events occurring prior to such date. Thereupon, except as limited
by the preceding sentence, this Agreement shall terminate as to the
transferring Venturer but
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shall remain in effect as to the other Venturer. In the event of a transfer of
its or his entire Joint Venture interest by a Venturer to the other Venturer,
the Venturer to whom such interest is transferred shall indemnify, defend and
hold harmless the Venturer so transferring its or his Joint Venture interest
from and against any and all claims, demands, losses, liabilities, expenses,
actions, lawsuits, and other proceedings, judgments, awards, and costs and
expenses (including but not limited to reasonable attorneys' fees) incurred in
or rising directly or indirectly, in whole or in part, out of operation of the
business of the Joint Venture, excluding only those liabilities, if any,
accruing prior to the date of such transfer.
Section 6.4 AGREEMENTS WITH TRANSFEREES.
In the event that pursuant to the provisions of this Article VI, any
Venturer (the "Transferor") shall transfer its Joint Venture interest to any
person or entity other than the other Venturer ("Transferee"), no such transfer
shall be made or shall be effective to make such Transferee a Venturer or
entitle such Transferee to any benefits or rights hereunder until the proposed
Transferee agrees in writing to assume and be bound by all the obligations of
the Transferor and be subject to all the restrictions to which the Transferor
is subject under the terms of this Agreement and any further agreement with
respect to the Project or the Additional Projects contemplated by this
Agreement to which the Transferor is then subject or is then required to be a
party. In the event a Venturer's Joint Venture interest is transferred by
operation of law and the Venturer's Transferee fails to sign such a writing
within ninety (90) days of the date it is determined such transfer has been
made, such failure shall entitle either Venturer (i) to treat such failure as a
default under this Agreement, or (ii) if the Venturer elects not to treat such
failure to sign as a default hereunder, nonetheless to invoke the appraisal or
the dissolution procedures as set forth in Section 7.4 hereof and in such
event, such transferee shall be treated in the same manner as a "Defaulter"
under Section 7.4.
Section 6.5 RESTRAINING ORDER.
In the event that either Venturer shall at any time transfer or
attempt to transfer its Joint Venture interest in violation of the provisions
of this Agreement and any rights hereby granted, then the other Venturer shall,
in addition to all rights and remedies at law and in equity, be entitled to a
decree or order restraining and enjoining such transfer and the offending
Venturer shall not plead in defense thereto that there would be an adequate
remedy at law; it being hereby expressly acknowledged and agreed that damages
at law will be an inadequate remedy for a breach or threatened breach of the
violation of the provisions concerning transfer set forth in this Agreement.
Section 6.6 NO TERMINATION.
Notwithstanding any provision to the contrary in this Article VI,
neither Venturer shall transfer all or any part of its interest in the Joint
Venture to any party other than the other Venturer, whether or not such
transfer would otherwise be permitted hereunder, if such transfer would result
in a termination of the Joint Venture under the Code. At the request of the
other Venturer and as a condition of the consummation of any transfer of all or
any part of a Venturer's interest to any party other than the other Venturer,
the Venturer proposing to transfer all or any
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part of its interest shall at its cost provide an unqualified opinion of
counsel, which must be reasonably satisfactory to the other Venturer, that such
transfer would not result in such a termination and the Venturer proposing to
transfer all or any part of its interest to any party other than the other
Venturer shall indemnify and hold harmless the other Venturer from and against
any and all loss, cost, liability or expense (including but not limited to
reasonable attorneys' fees) which such other Venturer may suffer if such
transfer would, either by itself or together with any other prior transfers of
an interest in the Venture of which the transferring Venturer has knowledge at
the time of such transfer, cause such a termination.
Section 6.7 TAKE-ALONG RIGHT/RIGHT OF FIRST NEGOTIATION
Concorde shall agree not to sell its interest in the Joint Venture,
unless the proposed purchaser also agrees to purchase Goldcoast's interest in
the Joint Venture upon the same terms and conditions. Goldcoast shall have the
right to sell such interest to any purchaser who has agreed to acquire
Concorde's interest in the Joint Venture, provided such a sale is upon the same
terms and conditions as received by Concorde. Each Venturer shall grant the
other a right of first negotiation on its interest in the Joint Venture,
exercisable within five (5) business of receiving written notice of the
Venturer's offer to sell. For purposes of this agreement, a right of first
negotiations shall mean that the Venturer desiring to sell shall first offer
its interest to the other Venturer; if after ten (10) business days
satisfactory terms are not agreed upon, the Venturer desiring to sell shall
have the right for an agreed upon period of time to sell to third parties on
terms no less favorable to the seller than those offered to the other Venturer.
Section 6.8 TRANSFER RESTRICTIONS
6.8.1 Venturers' Transfers. Except as expressly provided for
herein, neither Venturer shall assign its rights or obligations under this
Agreement without the approval of the other Venturer, which approval may be
withheld for any reason or no reason at all.
6.8.2 Right of First Refusal
6.8.2.1 If at any time Venturer shall desire to accept a
Qualified Written Offer (hereinafter defined) to purchase all or any part of
Venturer's right, title and interest and to the Joint Venture (the "Venturer's
Interest"), then the Venturer ("Selling Venturer") shall first offer to sell
all of such Selling Venturer's Interest to the to the other Venturer pursuant
to a written offer.
6.8.2.2 A Qualified Written Offer means a written offer that,
at a minimum, (i) provides for at least fifty percent (50%) of the purchase
price to be paid in cash at closing, (ii) provides for a closing no later than
one hundred twenty (120) days after the date of such offer, and (iii) is
expressly made subject to the rights of the other Venturer under this
Agreement.
6.8.2.3 The Offer shall include (a) a copy of the Qualified
Offer, (b) the name and address of the person or entity desiring to purchase
the Selling Venturer's Interest (the "Proposed Transferee") (and if the
Proposed Transferee is an entity, the principals and parents of the
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Proposed Transferee) and (c) and offer to sell the Selling Venturer's Interest
to the other Venturer on the same terms and conditions, including price, as
those on which the Selling Venturer proposes to sell its Interest to the
Proposed Transferee. For purposes of this Section, the date on which Selling
Venturer delivers the Offer shall be deemed the "Offer Date".
6.8.2.4 The Venturer shall have the option, exercisable by
written notice given to the Selling Venturer within forty five (45) days of the
Offer Date, to purchase all, but not less than all, of the Selling Venturer's
Interest upon the terms and conditions set forth in the Offer.
6.8.2.5 In the event that Venturer does not elect to purchase
all of the Selling Venturer's Interest, then all, but not less than all, of the
Selling Venturer's Interest may be sold by the Selling Venturer at any time
within one hundred twenty (120) days after the Offer date to the Proposed
Transferee, upon terms and conditions no more favorable to the Proposed
Transferee than those specified in the Offer. If the Selling Venturer's
Interest is not sold to the Proposed Transferee within such one hundred twenty
(120) day period, the Selling Venturer's Interest shall again be subject to the
restrictions set forth in this Agreement.
6.8.2.6 It shall be a condition precedent to the sale of the
Selling Venturer's Interest to the Proposed Transferee that the Proposed
Transferee execute and deliver to the Venturer an agreement acknowledging that
the Selling Venturer's Interest transferred to the Proposed Transferee is and
shall be subject to the terms and conditions of this Agreement and agreeing to
be bound by this agreement.
ARTICLE VII
DEFAULT AND DISSOLUTION
Section 7.1 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default ("Event of Default") hereunder on the part of the Venturer
with respect to whom such event occurs ("Defaulter") if within forty-five (45)
days following notice of such default from the other Venturer (thirty (30) days
if the default is due solely to the nonpayment of monies), the Defaulter fails
to pay such monies, or in the case of non-monetary defaults, fails to commence
substantial efforts to cure such default or thereafter fails within a
reasonable time to prosecute to completion with diligence and continuity the
curing of such default:
(a) the violation by a Venturer of any of the restrictions set
forth in Article VI of this Agreement upon the right of a
Venturer to transfer its Joint Venture interest;
(b) institution by a Venturer of proceedings of any nature under
any laws of the United States or of any state, whether now
existing or subsequently enacted or amended, for the relief of
debtors wherein such Venturer is seeking relief as debtor;
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(c) a general assignment by a Venturer for the benefit of
creditors;
(d) the institution by a Venturer of a case or other proceeding
under any section or chapter of the federal Bankruptcy Act as
now existing or hereafter amended or becoming effective;
(e) the institution against a Venturer of a case or other
proceeding under any section or chapter of the federal
Bankruptcy Act as now existing or hereafter amended or
becoming effective, which proceeding is not dismissed, stayed
or discharged within a period of sixty (60) days after the
filing thereof or if stayed, which stay is thereafter lifted
without a contemporaneous discharge or dismissal of such
proceeding;
(f) a proposed plan of arrangement or other action by a Venturer's
creditors taken as a result of a general meeting of the
creditors of such Venturer;
(g) the appointment of a receiver, custodian, trustee or like
officer, to take possession of assets having a value in excess
of $100,000 of a Venturer if the pendency of said receivership
would reasonably tend to have a materially adverse effect upon
the performance by said Venturer of its obligations under this
Agreement; which receivership remains undischarged for a
period of thirty (30) days from the date of its imposition;
(h) admission by a Venturer in writing of his or its inability to
pay his or its debts as they mature;
(i) attachment, execution or other judicial seizure of all or any
substantial part of a Venturer's assets or of a Venturer's
Joint Venture interest, or any part thereof, such attachment,
execution or seizure being with respect to an amount not less
than $100,000 and remaining undismissed or undischarged for a
period of fifteen (15) days after the levy thereof, if the
occurrence of such attachment, execution or other judicial
seizure would reasonably tend to have a materially adverse
effect upon the performance by said Venturer of its
obligations under this Agreement; provided, however, that said
attachment, execution or seizure shall not constitute an Event
of Default hereunder if said Venturer posts a bond sufficient
to fully satisfy the amount of such claim or judgment within
fifteen (15) days after the levy thereof and the Venturer's
assets are thereby released from the lien of such attachment;
(j) default in performance of or failure to comply with any other
agreements, obligations or undertakings of a Venturer herein
contained; and
(k) any other matter specifically deemed an Event of Default
hereunder.
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Section 7.2 CONCORDE'S FAILURE TO MAKE CAPITAL CONTRIBUTION.
Notwithstanding any of the above, if Concorde fails to make its
minimum capital contribution on a timely basis, Goldcoast shall have the right
to solicit other individuals and/or entities for the purpose of buying out
Concorde's Joint Venture Interest. In such an event, Concorde agrees to sell
its Joint Venture interest for a cash.
Section 7.3 CAUSES OF DISSOLUTION.
The Joint Venture shall be dissolved only in the event that:
(a) an Event of Default has occurred as provided in Section 7.1
and the non-defaulting Venturer elects to dissolve the Joint Venture as
provided in Section 7.3 hereof;
(b) the Venturers mutually agree to terminate the Joint Venture;
(c) the Joint Venture ceases to maintain any interest in the
Project or the Additional Projects;
(d) one or both of the Venturers elect to dissolve or terminate
the Joint Venture pursuant to any provision of this Agreement permitting such
election to be made; or
(e) the Joint Venture by its terms, as set forth in this
Agreement, is terminated.
Section 7.4 ELECTION OF NON-DEFAULTING VENTURER.
7.4.1 Purchase of Defaulter's Interest. Upon the occurrence of an
Event of Default by either Venturer ("Defaulter"), the other Venturer (a
"non-Defaulter") shall have the right to acquire the Joint Venture interest of
the Defaulter for cash, except as provided in Subsection 7.3.2 hereof, at a
price determined pursuant to the appraisal procedure set forth in Article VIII,
subject to adjustment as set forth in Subsection 6.6.2. In furtherance of such
right, the non-Defaulter may notify the Defaulter at any time following an
Event of Default of its election to institute the appraisal procedure set forth
in Article VIII. Within fifteen (15) days of receipt of notice of
determination of the net fair market value of the Defaulter's Joint Venture
interest, the non-Defaulter may notify the Defaulter of its election to
purchase the interest of the Defaulter.
7.4.2 Election to Dissolve. If the non-Defaulter does not elect to
acquire the entire interest of the Defaulter as set forth in Subsection 7.4.1,
the non-Defaulter may elect (i) to dissolve and terminate the Joint Venture
pursuant to Section 7.3 of this Agreement by written notice to the Defaulter or
(ii) to pursue any other right or remedy available to it at law or in equity.
The right of the non-Defaulter to institute the procedures for purchase of the
Defaulter's Joint Venture interest as set forth in this Section 7.4 shall
continue until such non-Defaulter elects to exercise its right to terminate the
Joint Venture as provided in this Subsection 7.4.2.
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Section 7.5 PROCEDURE IN DISSOLUTION AND LIQUIDATION.
7.5.1 Winding Up. Upon dissolution of the Joint Venture pursuant to
Section 7.2 hereof, the Joint Venture shall immediately commence to wind up its
affairs and the Venturers shall proceed with reasonable promptness to liquidate
the business of the Joint Venture.
7.5.2 Management Rights During Winding Up. During the period of the
winding up of the affairs of the Joint Venture, the rights and obligations of
the Venturers set forth herein with respect to the management of the Joint
Venture shall continue. For purposes of winding up, the Management Committee
shall continue to act as such and shall make all decisions relating to the
conduct of any business or operations during the winding up period and to the
sale or other disposition of Joint Venture assets; provided that if the
termination of the Venture results from an Event of Default, the defaulting
Venturer shall have no further right to participate in the management or
affairs of the Venture or to attend Management Committee meetings or vote on
decisions by the Management Committee, but shall nonetheless be bound by all
decisions made by the non-Defaulter. Each Venturer hereby waives any claims it
may have against the non- Defaulter that may arise out of the management by the
non-Defaulter of the Joint Venture, so long as such non-Defaulter acts in good
faith.
7.5.3 Work in Progress. If the Joint Venture is dissolved for any
reason while there is work in progress on the development or construction of
the Project, winding up of the affairs and termination of the business of the
Joint Venture may include completion of the work in progress to the extent of
development or construction on the Project as the Management Committee may
determine to be necessary to bring the matters under construction to a state of
completion convenient to permit a sale of the Joint Venture's interest in such
work, giving due regard to the interests of the Venturers.
7.5.4 Distributions in Liquidation. The assets of the Joint Venture
shall be applied or distributed in liquidation in the following order of
priority; provided, however, that if a Venturer shall have a negative balance
in its Capital Account, such Venturer shall immediately, and prior to any
distributions made pursuant to this Subsection 7.4.5, pay to the Joint Venture
in cash for distribution as provided in this Subsection 7.5.5 an amount equal
to the negative balance in said Venturer's Capital Account:
(a) In payment of debts and obligations of the Joint Venture owed
to third parties, which shall include either Venturer as the
holder of any secured loan;
(b) In payment of debts and obligations of the Joint Venture to
either Venturer;
(c) In payment of Concorde's Capital Contribution reduced by
distributions paid,
(d) To the Venturers in payment of any positive balances remaining
in their Capital Accounts .
7.5.5 Non-Cash Assets. Every reasonable effort shall be made to
dispose of the assets of the Joint Venture so that the distribution may be made
to the Venturers in cash. If at the time
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of the termination of the Joint Venture, the Joint Venture owns any assets in
the form of work in progress, notes, deeds of trust or other non-cash assets,
such assets, if any, shall be distributed in kind to the Venturers, in lieu of
cash, proportionately to their right to receive the assets of the Joint Venture
on an equitable basis reflecting the net fair market value of the assets so
distributed, which net fair market value shall be determined by appraisal in
accord with Section 8.3.
Section 7.6 DISPOSITION OF DOCUMENTS AND RECORDS.
All documents and records of the Joint Venture including, without
limitation, all financial records, vouchers, canceled checks and bank
statements, shall be delivered to Concorde upon termination of the Joint
Venture. Unless otherwise Approved by the other Venturer, Concorde shall
retain such documents and records for a period of not less than seven (7) years
and shall make such documents and records available during normal business
hours to the other Venturer for inspection and copying at the other Venturer's
cost and expense. In the event either Venturer ("Withdrawing Venturer") for
any reason ceases as provided herein to be a Venturer at any time prior to
termination of the Joint Venture, and the Joint Venture is continued without
the Withdrawing Venturer, the other Venturer ("Surviving Venturer") agrees that
said documents and records of the Joint Venture up to the date of the
termination of the Withdrawing Venturer's interest shall be maintained by the
Surviving Venturer, its successors and assigns, for a period of not less than
seven (7) years thereafter; provided, however that if there is an audit or
threat of audit, such documents and records shall be retained until the audit
is completed and any tax liability finally determined. Said documents and
records shall be available for inspection, examination and copying by the
Withdrawing Venturer upon reasonable notice in the same manner as provided in
Section 4.2 during said seven-year period.
ARTICLE VIII
APPRAISAL
Section 8.1 GENERAL.
Whenever this Agreement provides for the valuation of an interest in
the Joint Venture to be purchased or sold, the value of such interest in the
Joint Venture shall be determined as follows. The parties shall first attempt
to agree upon the "net fair market value" of the Joint Venture and of the
interests in the Joint Venture to be purchased or sold. The "net fair market
value" of the Joint Venture shall mean the cash price which a sophisticated
purchaser would pay on the effective date of the appraisal for all tangible
assets of the Joint Venture in excess of the financing then encumbering the
Joint Venture assets, such valuation to be made on the assumption that such
assets are subject to any agreements, including, without limitation, leases,
management and service agreements then in effect, except this Agreement. A
sophisticated purchaser shall be one who would take into account the nature,
extent, maturity date, and other terms of the liabilities of the Joint Venture,
whether fixed or contingent, including the favorable or unfavorable nature of
any financing then encumbering the Project or other Joint Venture assets, and
the prospects that the income from the Joint Venture assets would be sufficient
to
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satisfy such liabilities when due, excluding any liability under any financing
already taken into account. The "net fair market value" of a Joint Venture
interest shall mean the value of the interest to be sold or purchased, based on
the net fair market value of the Joint Venture, and subject to the terms and
provisions of this Agreement.
Section 8.2 APPRAISAL PROCEDURE.
In the event the Venturers are unable to mutually agree upon the net
fair market value of the Joint Venture and of the Joint Venture interests to be
sold or purchased within thirty (30) days of the date the appraisal procedure
of this Article XIII is instituted as provided in this Agreement, the Venturers
shall then attempt to agree upon the appointment of three disinterested
appraisers who shall be members of an investment banking firm. If the
Venturers are unable to agree upon the selection of three appraisers within
seventy-five (75) days of the date the appraisal procedure is instituted as
provided in this Agreement, then a petition may be made by either Venturer to
the presiding judge of the Superior Court for the City of Miami, Florida,
County of Dade, for such selection. Each Venturer shall have the right to
submit the names of three (3) appraisers so qualified and the judge shall
select the three (3) appraisers from the names so submitted. Each appraiser so
selected shall furnish the Venturers and the certified public accountants for
the Venture with a written appraisal within ninety (90) days of his selection,
setting forth his determination of the net fair market value of all real estate
and other tangible assets owned by the Venture as of the date of the
application to the Superior Court. Such appraisal shall assume that the
Project shall be the highest and best use of the Property, and the appraisal
shall not include any value for any intangible assets of the Venture, such as
good will. The average of the two closest valuations of such appraisers shall
be treated as the net fair market value of the Venture and the determination
shall be final and binding on the Venturers. The cost of the appraisal shall
be an expense of the Venture, except that if the appraisal is instituted
pursuant to Section 6.5 or 7.3, the cost shall be at the expense of the dead or
disabled Venturer or Defaulter, as applicable.
Section 8.3 APPRAISAL OF NON-CASH ASSETS.
The procedures set forth in Sections 8.1 and 8.2 for determining the
net fair market value of the Venture shall be followed in determining the net
fair market value of non-cash assets of the Venture as described in Subsection
7..5.5; provided, however, that all references to the net fair market value of
the Venture shall be deemed to be references to the net fair market value of
such non-cash assets.
ARTICLE IX
ARBITRATION
Section 9.1 INITIATION.
In such cases where this Agreement provides for the determination of
any matter by arbitration, the same shall be settled and finally determined by
arbitration in accordance with the Rules of Commercial Arbitration of the
American Arbitration Association, or its successor in
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Dade County, Florida. Any arbitration pursuant to this Agreement shall be
conducted by three arbitrators. The judgment upon the award rendered in any
such arbitration shall be final and binding upon the parties and may be entered
in any court having jurisdiction thereof.
Section 9.2 COSTS.
All fees and expenses of the arbitrators and all other expenses of the
arbitration, except for attorneys' fees, shall be shared equally by the
Venturers. Each Venturer shall bear its own attorneys' fees.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 COMPLETE AGREEMENT; AMENDMENT.
This Agreement constitutes the entire agreement between the parties
and supersedes all agreements, representations, warranties, statements,
promises and understandings, whether oral or written, with respect to the
subject matter hereof, and neither party hereto shall be bound by nor charged
with any oral or written agreements, representations, warranties, statements,
promises or understandings not specifically set forth in this Agreement or the
exhibits hereto. This Agreement may not be amended, altered or modified except
by a writing signed by both the Venturers.
Section 10.2 NOTICES.
10.2.1 Addresses. All notices under this Agreement shall be in
writing and shall be delivered by personal service, or by certified or
registered mail, postage prepaid, return receipt requested, to the Venturers at
the addresses herein set forth and to the Joint Venture at its principal place
of business.
The addresses for notices are as follows:
Concorde Gaming Corporation Goldcoast Entertainment Cruises, Inc.
C/o Jerry L. Baum C/o David Grossman
3290 Lien Street 1002 Shadyside Lane
Rapid City, South Dakota 57702 Weston, Florida 33327
10.2.2 Effective Date. All notices, demands and requests shall be
effective upon being deposited in the United States mail. However, the time
period in which a response to any such notice, demand or request must be given
shall commence to run from the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof. Rejection or other refusal
to accept or the inability to deliver because of changed address of which no
notice was given as provided in Subsection 10.2.3 shall be deemed to be receipt
of the notice, demand or request sent.
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10.2.3 Changes. By giving to the other parties at least thirty (30)
days' written notice thereof, the parties hereto and their respective permitted
successors and assigns shall have the right from time to time and at any time
during the term of this Agreement to change their respective addresses for
notices and each shall have the right to specify as its or his address for
notices any other address within the United States of America.
Section 10.3 ATTORNEYS' FEES.
Should any litigation be commenced between the parties hereto or their
representatives or should any party institute any proceeding in a bankruptcy or
similar court which has jurisdiction over any other party hereto or any or all
of his or its property or assets concerning any provision of this Agreement or
the rights and duties of any person or entity in relation thereto, the party or
parties prevailing in such litigation shall be entitled, in addition to such
other relief as may be granted, to a reasonable sum as and for his or its or
their attorneys' fees and court costs in such litigation which shall be
determined by the court in such litigation or in a separate action brought for
that purpose.
Section 10.4 VALIDITY.
In the event that any provision of this Agreement shall be held to be
invalid or unenforceable, the same shall not affect in any respect whatsoever
the validity or enforceability of the remainder of this Agreement.
Section 10.5 SURVIVAL OF RIGHTS.
Except as provided herein to the contrary, this Agreement shall be
binding upon and inure to the benefit of the parties signatory hereto, their
respective heirs, executors, legal representatives and permitted successors and
assigns.
Section 10.6 GOVERNING LAW.
This Agreement has been negotiated, executed and delivered in the
State of Florida and all questions with respect to this Agreement and the
rights and liabilities of the parties hereto shall be governed by the laws of
that state.
Section 10.7 WAIVER.
No consent or waiver, express or implied, by a Venturer to or of any
breach or default by the other Venturer in the performance by such other
Venturer of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other Venturer of the same or any other obligations of such other Venturer
hereunder. Failure on the part of a Venturer to complain of any act or failure
to act of the other Venturer or to declare the other Venturer in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such Venturer of its rights hereunder. The giving of consent by a Venturer
in any one instance shall not limit or waive the necessity to obtain such
Venturer's consent in any future instance.
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<PAGE> 28
Section 10.8 REMEDIES IN EQUITY.
The rights and remedies of either of the Venturers hereunder shall not
be mutually exclusive, i.e., the exercise of one or more of the provisions
hereof shall not preclude the exercise of any other provisions hereof. Each of
the Venturers confirms that damages at law will be an inadequate remedy for a
breach or threatened breach of this Agreement and agree that, in the event of a
breach or threatened breach of any provision hereof, the respective rights and
obligations hereunder shall be enforceable by specific performance, injunction
or other equitable remedy, but nothing herein contained is intended to, nor
shall it, limit or affect any rights at law or by statute or otherwise of any
party aggrieved as against the other for a breach or threatened breach of any
provision hereof, it being the intention by this Section to make clear the
agreement of the Venturers that the respective rights and obligations of the
Venturers hereunder shall be enforceable in equity as well as at law or
otherwise.
Section 10.9 TERMINOLOGY.
All personal pronouns used in this Agreement, whether used in the
masculine, feminine, or neuter gender, shall include all other genders; and the
singular shall include the plural and vice versa. Titles of Articles, Sections
and Subsections are for convenience only, and neither limit nor amplify the
provisions of this Agreement itself. The use herein of the word "including,"
when following any general statement, term or matter, shall not be construed to
limit such statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as "without limitation," or "but not limited to," or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that could reasonably fall within
the broadest possible scope of such general statement, term or matter.
Section 10.10 COUNTERPARTS.
This Joint Venture Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement.
Section 10.11 SURVIVAL OF INDEMNITY OBLIGATIONS.
Any and all indemnity obligations of either party hereto shall survive
any termination of the Joint Venture.
Section 10.12 FEES AND COMMISSIONS.
Each Venturer hereby represents and warrants that as of the date of
this Agreement there are no known claims for brokerage or other commissions or
finder's or other similar fees in connection with the transactions covered by
this Agreement insofar as such claims shall be based on actions, arrangements
or agreements taken or made by or on its behalf, and each Venturer hereby
agrees to indemnify and hold harmless the other Venturer from and against any
liabilities, costs, damages, and expenses from any party making any such claims
through such Venturer.
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Section 10.13 FURTHER ASSURANCES.
Each party hereto agrees to do all acts and things and to make,
execute and deliver such written instruments, as shall from time to time be
reasonably required to carry out the terms and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above set forth.
CONCORDE GAMING CORPORATION,
a Colorado corporation
By
---------------------------
Its
---------------------------
GOLDCOAST ENTERTAINMENT CRUISES,
INC., a Florida corporation
By
---------------------------
Its
---------------------------
29
<PAGE> 1
EXHIBIT 10.19
VESSEL CONSTRUCTION AGREEMENT
-----------------------------
HULL NUMBER:
----------
PRICE: $6,000,000
--------------
DELIVERY DATE: APRIL 30, 1998
--------------
CONTRACT
--------
This Agreement entered into as of the 26th day of August, 1997.
BETWEEN
-------
KEITH MARINE, INC.
(hereinafter called "BUILDER").
AND
BAYFRONT VENTURES
or its assigned
(hereinafter called "OWNER").
1
<PAGE> 2
ARTICLE I - SCOPE
A. For the price and sum of Six Million, Dollars U.S. currency
($6,000,000) ("Contract Price"), BUILDER agrees, at its own risk and
expense, to build, launch, equip, complete and deliver to OWNER,
afloat at delivery point determined by Article II-B below, on or
before April 30, 1998 one diesel-powered casino vessel having overall
dimensions of 200 feet by 40 feet, (the "Vessel") constructed,
outfitted and tested in accordance with the attached specifications
("Specifications") and contract drawings ("Contract Drawings")
prepared by DeJong & Lebet, Inc. The Specifications and Contract
Drawings have been identified by signatures of the parties hereto and
are hereby made a part of this Agreement. The Contract Price is
exclusive of any local, state or federal taxes, or any governmental or
regulatory fees, which may be due.
B. BUILDER agrees to furnish a suitable location at its shipyard for the
construction of the Vessel, all labor, tools, equipment, materials,
services and fees necessary for the construction and completion of the
Vessel, except as otherwise indicated herein or in the Specifications
and Contract Drawings.
C. OWNER, or its designated agent, shall be responsible for the adequacy
and accuracy of the Specifications and Contract Drawings with regard
to compliance with any requirements or classifications mandated by the
U.S. Coast Guard or any other governmental or regulatory body, for the
intended or actual use of the Vessel.
D. BUILDER will provide and/or install ready for use all parts, equipment
and appurtenances shown in the Specifications and Contract Drawings
(including OWNER furnished items, except those items to be installed
by OWNER or its Subcontractors). BUILDER shall store, safe keep and
handle OWNER'S equipment and supplies both prior to and after
placement on board and BUILDER shall allow sufficient working area and
time to allow the timely and safe installation of equipment and
loading of supplies prior to the Vessel's departure voyage.
E. BUILDER will allow OWNER and/or its representatives, at all reasonable
times, the right to examine the Vessel during construction.
F. BUILDER will provide OWNER with a production schedule updated every
thirty (30) days.
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<PAGE> 3
G. BUILDER will complete all work in a workman-like manner in accordance
with the Specifications and Contract Drawings. All materials and
equipment shall be in accordance with the Specifications and Contract
Drawings.
H. The Contract Price provides for the following allowances:
(i) Hull and Superstructure Steel - 1,240,000 lbs @
$1.25/lb
(ii) Air Conditioning Installed - 222 tons @ $2,500/ton
(iii) Carpeting Installed - $25/sq.yd.
(iv) Ceilings Installed - $5/sq.ft.
(v) Galley Area Installed - $25,000
(vi) Wallpaper Installed - $1.10/sq.ft.
(vii) Bar Construction and Equipment Installed - $60,000
(viii) Rescue boat and Davit Installed- $25,000
(ix) Wall Mirrors Installed - $10,000
(x) Light Fixtures Installed - $12,000
ARTICLE II - DELIVERY
A. Unless time of delivery is extended as hereinafter provided, the
Vessel shall be delivered for inspection and acceptance by the Owner,
free and clear of all liens, claims and encumbrances, on or before
April 30, 1998.
B. After required river trials, the Vessel shall be delivered by BUILDER,
in accordance with the Specifications and Contract Drawings, and
accepted by OWNER safely afloat at BUILDER'S shipyard. BUILDER shall
execute a "Certificate of Completion and Delivery" in a form
reasonably acceptable to OWNER at the time of delivery.
C. In the event the contract work is not completed at the time BUILDER
tenders the "Certificate of Completion and Delivery", OWNER, shall
have the option, if it, in its sole discretion, deems the Vessel fit
for service, to take Delivery of the Vessel and treat all "unfinished
work" as a Guarantee Defect as set forth in Article VIII. The parties
shall agree as to the amount to be withheld from the Delivery Payment
(as set forth in Article III), and the Vessel shall be delivered to
OWNER upon OWNER paying the undisputed amount to BUILDER and by
withholding the amount for "unfinished work" until such time that
BUILDER completes the "unfinished work" and OWNER accepts the
"unfinished work" as complete. BUILDER shall invoice OWNER for
completion of "unfinished work" and OWNER shall, within ten (10) days
of receipt of invoice, pay BUILDER.
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<PAGE> 4
D. BUILDER shall furnish OWNER on delivery of the Vessel a Bill of Sale,
a Master Builder's Certificate conveying title to the Vessel, a
"Certificate of Delivery and Acceptance" (as set forth in Article
III-F) and any other documents required by regulatory agencies of the
United States for the OWNER to document the Vessel. BUILDER shall
assist OWNER, in obtaining all documentation necessary to operate the
Vessel, however, the required U.S.C.G. or ABS approved drawings are
the responsibility of the OWNER.
ARTICLE III - PAYMENT SCHEDULE
A. OWNER agrees to pay BUILDER the following payments ("Interim
Installment Payments") for the Vessel:
1. 5% contract signing.
2. 10% receipt of initial steel order.
3. 5% lay keel
4. 5% erect hull transverse frames and bulkheads.
5. 5% receipt of main engines and generators.
6. 5% completion of deck and hull side plating.
7. 5% order air conditioners.
8. 5% install bottom and paint inside hull.
9. 5% install shafts and rudders.
10. 5% install bow thruster.
11. 5% install engines, generators, controls and steering.
12. 5% install switchboard and hull sub-panels.
13. 5% Begin hull painting.
14. 5% installation bars.
15. 5% installations ceilings.
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<PAGE> 5
16. 5% complete bulb bow and bilge keels.
17. 5% install windows and doors.
18. 5% painting 90% complete.
19. 5% upon delivery of Vessel by Builder and acceptance
thereof by OWNER at BUILDER'S shipyard ("Delivery
Payment"). The Delivery Payment shall be adjusted to
reflect Change Orders, in accordance with Article VII
herein, and liquidated damages as provided in Article V
herein.
All payments shall be made by wire transfer to:
Barnett Bank of Jacksonville Florida
ABA NR 063 000 047
Keith Marine, Inc.
ACCT NR 4439125653
B. BUILDER shall give OWNER notice of intended date of issuance of each
"Stage Completion Certificate", hereinafter defined, not more than ten
(10) or less than seven (7) days before issuance.
C. The Interim Installment Payments shall be payable within seven (7)
days after presentment of Builder's invoice and Stage Completion
Certificate. The Delivery Payment shall be payable upon delivery of
the Vessel and the presentment of BUILDER'S invoice and "Certificate
of Completion and Delivery" (as defined herein).
D. BUILDER shall furnish a Stage Completion Certificate for each Interim
Installment Payment, which shall include therein: (i) the stage of
contract work achieved; (ii) that the contract work completed complies
with the Contract Drawings and Specifications; and (iii) that there
are no claims or liens upon the Vessel for labor, materials or
equipment for the Vessel, except those created by OWNER, its
subcontractors, vendors or employees. The Stage Completion
Certificate shall be executed and certified by a corporate officer of
BUILDER, and OWNER'S representative. A copy of an unsigned Stage
Completion Certificate is attached as Exhibit __. If BUILDER has any
outstanding liens on the Vessel, OWNER shall not be obligated to make
payment until the liens are resolved, unless such liens are held by
OWNER or its subcontractors, employees or vendors.
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<PAGE> 6
E. If OWNER objects to the Stage Completion Certificate on grounds that
the pertinent stage has not been reached, or for any other reason, the
parties shall immediately notify the ABS Worldwide Technical Services,
Inc. (ABSTECH) office nearest to BUILDER, and request an opinion.
Both parties shall be bound by the opinion of the ABSTECH
representative. The Interim Installment Payment in issue shall be
withheld pending the ABSTECH decision. Notwithstanding the pending
resolution of this matter, BUILDER shall proceed with the Vessel's
construction.
F. The Certificate of Completion and Delivery shall state: (i) that the
Vessel has been completed; (ii) that all trials and tests have been
satisfactorily completed to the BUILDER'S and OWNER'S satisfaction,
(iii) that the Vessel complies with the Specifications and Contract
Drawings and is free from defects in materials and workmanship; (iv)
that there are no liens or claims upon the Vessel for materials,
equipment or labor, except those created or incurred by the OWNER, its
subcontractors, vendors or employees.
G. The payment of the Interim Installment Payments or Delivery Payment
shall not preclude OWNER from thereafter asserting any right or remedy
due to the failure of BUILDER to deliver Vessel in accordance with
this Agreement.
ARTICLE IV - FORCE MAJEURE
A. All representations of BUILDER regarding the Date of Delivery of the
Vessel shall be subject to extension by reason of "Force Majeure",
which term is hereby declared to be any delay caused by natural
forces, fire, explosion, or persons not under control of BUILDER, and
not caused, or contributed to, by BUILDER, including non-delivery
and/or late delivery of all OWNER furnished equipment or OWNER'S
approved drawings or revisions of drawings.
B. Delays caused by late receipt of OWNER furnished equipment or OWNER's
approved drawings or revisions of drawings shall not be considered
Force Majeure unless BUILDER has notified OWNER of date by which each
such item of OWNER furnished equipment must be delivered to BUILDER's
yard in time to allow OWNER to cause timely delivery. BUILDER shall
provide OWNER with a schedule indicating latest on-sight arrival date
for each OWNER furnished component.
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<PAGE> 7
C. BUILDER shall have no responsibility for Force Majeure delays, other
than to inform the OWNER of the occurrence of a Force Majeure within
three (3) business days of its occurrence and to include with that
notice (i) a description of the event and (ii) its expected duration.
BUILDER shall inform OWNER of the end of a Force Majeure event within
three (3) business days of its cessation and include an estimate of
the delay in Delivery Date, if any, caused by the event. Failing such
notices, BUILDER shall not have the benefit of the Force Majeure
clause for said event. The Delivery Date for the Vessel shall
automatically be extended by a period of time equal to the total of
said delays ("Extended Delivery Date") relating to the Vessel unless
the OWNER, within ten (10) days after receiving the aforesaid notice
of a Force Majeure development, shall state its objections in writing
to treating such development as a Force Majeure event, in which event
the rights of both parties, with respect to treating such events as
Force Majeure, shall be preserved.
ARTICLE V - LIQUIDATED DAMAGES
A. All work on the Vessel contemplated hereunder shall be completed and
delivery on the Vessel effected on or before the Delivery Date, or
such extensions of time as are provided for herein. BUILDER and OWNER
recognize that OWNER will make contracts relying upon the use of the
Vessel, therefore, delivery time is of the essence and a delay in
delivery will result in substantial damages not susceptible of
accurate calculation. In the event that the Vessel is not completed
and delivered to OWNER within fifteen (15) calendar days of the
Delivery Date, or Extended Delivery Date, Owner shall deduct from the
Delivery Payment the sum of Two Thousand ($2,000) Dollars per day for
each day following the Delivery Date, or the Extended Delivery Date,
until the Vessel is completed and delivered to OWNER.
B. In the event that the parties are unable to agree on the above
reduction of the Delivery Payment, the Vessel shall nevertheless be
delivered to OWNER upon OWNER paying the undisputed amount to BUILDER
and by placing the disputed portion of the delivery in a Certificate
of Deposit with a bank or in prime grade commercial paper of OWNER's
choice, withdrawable only upon signatures of both OWNER's and
BUILDER's attorneys, interest to be accumulated and payable in
proportion to the resolution of the dispute, and the certificate to be
held by OWNER's attorneys.
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<PAGE> 8
ARTICLE VI - CHANGES IN SPECIFICATIONS AND CONTRACT DRAWINGS
A. OWNER reserves the right to make additions, deductions or
substitutions to the Specifications and Contract Drawings ("Change
Order ") by giving due notice in writing to BUILDER. The cost of any
Change Order shall be reflected in the Contract Price. If any Change
Order shall delay the Delivery Date, BUILDER shall be allowed a
reasonable time to implement the Change Order.
B. The cost of a Change Order shall include Labor and Materials, unless
otherwise agreed to in writing by BUILDER and OWNER. For purposes of
Article VI, Labor is agreed to be twenty-eight ($28) Dollars per hour
charged to a specific task, and Materials shall be the actual cost of
materials plus freight charges.
C. Changes required by ABS, U.S. Coast Guard or other regulatory agencies
shall be subject to the same Change Order procedure, provided they are
not based on laws rules or regulations which existed prior to the
execution of this Agreement that were the responsibility of BUILDER,
and not of design or engineering which was the responsibility of
OWNER.
ARTICLE VII - RISKS AND INSURANCE
A. All risks of damage to or destruction of the Vessel, all machinery,
materials and equipment (provided by BUILDER) and all liability, to or
for labor employed by BUILDER and subcontracted effort arranged by
BUILDER on or about the Vessel during construction and prior to
delivery and acceptance, shall be the responsibility of BUILDER.
Pre-keel and full form BUILDER's Risk Insurance acceptable to OWNER
(including loss or damage caused by strikes, locked-out workmen or
persons taking part in labor disturbances or riots, or civil
commotion's, without deletions of protection and indemnity and
collusion clauses, and including risks of earthquakes and hurricanes,
with endorsements attached covering losses or damage caused by
vandalism and malicious mischief) will be maintained by BUILDER at
BUILDER's expense. Such insurance shall cover the Contract Price and
any agreed Change Orders. BUILDER shall maintain Workmen's
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<PAGE> 9
Compensation, Longshoreman's and Harborworker's Compensation
Insurance, not less than the minimum required by statute, and Public
Liability Insurance of One Million ($1,000,000) Dollars. BUILDER
shall provide evidence of such coverage upon request of OWNER.
B. BUILDER's Risk Insurance and Public Liability Insurance shall be in
the name of BUILDER and OWNER and "Construction Financing Entity", and
all losses under such policies shall be payable to the BUILDER and
OWNER and "Construction Financing Entity", as their interests may
appear. The policies shall provide that there shall be no recourse
against the OWNER for payment of premiums or other charges and shall
further provide that at least thirty (30) days written notice of any
cancellation for the non-payment of premiums or other charges shall be
given to the OWNER by the insurance underwriters. Policies not in
conformance herewith shall be conformed or surrendered and cancelled
upon direction of OWNER and new policies procured in conformance
herewith.
C. If, prior to delivery, Vessel, its machinery, equipment, or material
shall be damaged, such damage shall be repaired by BUILDER, or
replacement shall be supplied by BUILDER at its sole cost, except for
OWNER furnished material and equipment not covered under BUILDER's
Risk Insurance.
D. For actions prior to Delivery and Acceptance of the Vessel, BUILDER
shall at its cost and expense indemnify, protect and defend the Vessel
and the OWNER against any claims and expenses incident thereto arising
from injury to, or death of, employees, workmen, BUILDER's
sub-contractors, trespassers, licensees, invitees and all other
persons or from property damage, whether in, or on, or about the
Vessel and the work to be performed hereunder, due in whole or in part
to the act, neglect or default of the BUILDER or BUILDER's
subcontractors (it being acknowledged that the workmen, other than
compensated employees or subcontractors of the OWNER, engaged upon the
work on the Vessel, shall at all times be employees or subcontractors
of the BUILDER and not of OWNER ). Moreover, BUILDER shall be
responsible for any loss or damage to the Vessel resulting in whole or
in part (except for OWNER furnished equipment and material not covered
under BUILDER's Risk Insurance) from the act, neglect or default of
the BUILDER or BUILDER's subcontractors or their agents or employees
(it being acknowledged that the workmen other than compensated
employees or subcontractors of OWNER, engaged upon the work on the
Vessel shall at all times be employees or subcontractors of the
BUILDER and not of OWNER).
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E. For actions prior to Delivery and Acceptance of the Vessel, OWNER
shall at its own cost and expense indemnify, protect and defend the
Vessel and the BUILDER against any claim arising from injury to, or
death of OWNER's employees, workmen, subcontractors; or from property
damage, whether in or about the Vessel and the work to be performed
hereunder, due in whole or in part to the act, neglect or default of
OWNER or OWNER's subcontractor's or their agents or employees.
F. In the event there is an actual total loss or constructive total loss
of the Vessel, this Contract shall be terminated upon receipt by OWNER
and BUILDER, and "Construction Financing Entity" as interest may
appear, of insurance proceeds, required pursuant to this Article VII
for such actual loss or constructive total loss, or if such actual
total loss or constructive loss shall occur through the operation of a
risk not covered by insurance for which the BUILDER assumes the risk
as herein set forth, upon receipt by OWNER of payment of the full
amount as interest may appear.
G. For purposes of this Article VII, it is agreed that "as interest may
appear " shall be construed to mean that OWNER and "Construction
Finance Entity " are entitled to a reimbursement of amounts paid by
OWNER as Down Payment and Interim Installment Payments, and BUILDER is
entitled to the balance of any insurance proceeds.
H. OWNER is responsible for providing insurance on OWNER furnished
equipment and material. If owner specifically requests that BUILDER
carry BUILDER's Risk Insurance on OWNER furnished equipment, and
BUILDER concurs, OWNER shall be responsible for designating the values
and for paying BUILDER for the additional insurance cost. If OWNER
requests that BUILDER include OWNER furnished equipment on BUILDER's
Risk Insurance, and BUILDER has concurred, then Paragraph F herein
shall also include OWNER furnished equipment and material. If OWNER
does not add OWNER furnished equipment to BUILDER's Risk Insurance,
OWNER agrees to insure its full value and shall name BUILDER as
additional insured with a waiver of Subrogation in all liability and
property policies as pertains OWNER furnished equipment and material.
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ARTICLE VIII - GUARANTEE
A. The Vessel shall be built in accordance with the Specifications and
Contract Drawings in a good and workmanlike manner, free from defects
in material and workmanship, whether latent or patent. BUILDER agrees
to repair or replace any defects discovered within 365 days of
delivery and acceptance, excepting machinery and equipment
manufactured by others, and/or furnished by OWNER; however, BUILDER
subrogates OWNER to all warranties by said manufacturers and agrees
to extend full cooperation to OWNER, as needed, to coordinate
enforcing such warranties. This is in lieu of all other expressed or
implied warranties.
B. BUILDER shall construct the Vessel in a good and workmenlike fashion
according to design information provided by OWNER. However, in the
event that such design or engineering should prove faulty or
defective, BUILDER shall not be responsible for the faulty design and
engineering and OWNER shall be responsible to pay any additional costs
or receive any credits incurred by reason of any re-designing,
re-engineering or re-working of the Vessel. More particularly,
BUILDER specifically disclaims and OWNER releases BUILDER from any
claim, responsibility or liability for reconstructing, re-fabrication,
or re-purchase of materials, equipment or component systems, or any
other consequential loss which may arise out of such faulty design or
engineering. If BUILDER suspects or recognizes that the design is
faulty, BUILDER will notify OWNER promptly.
C. In the event of any defect covered by BUILDER'S guarantee, BUILDER
will make repairs or replacements (OWNER'S option) at the expense of
BUILDER at its yard, if practical, in Palatka, Florida. Should it be
impractical to deliver the Vessel to BUILDER's yard for warranty work
(and if the Vessel is not within 150 miles of the yard, it shall be
considered per se impractical), BUILDER will reimburse the OWNER for
reasonable costs directly incurred in repairing the claimed defect.
OWNER shall give prompt notice and BUILDER shall have reasonable time
and opportunity, under the circumstances to inspect the Vessel before
work is undertaken. BUILDER'S liability for repair or replacement
cost shall not exceed the expense which would have been incurred at
BUILDER'S yard as determined using actual hours incurred and actual
direct material costs incurred by the OWNER with the BUILDER'S then
current appropriate time and materials rates applied.
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D. Notwithstanding any provisions contained in this Agreement to the
contrary, BUILDER recognizes that OWNER'S business will be
substantially impaired if the Vessel is unable to be utilized as
intended. Therefore, if there is a defect covered by BUILDER'S
guarantee that effects OWNER'S ability to safely conduct its
operations, OWNER will immediately notify BUILDER in the most
expedient manner, describing the nature of the defect and the action
proposed to be taken to remedy the defect. BUILDER, if available, may
consult with OWNER as to resolution of the defect, however, due to
the effect on OWNER'S business, OWNER may take all reasonable actions
at BUILDER'S expense to repair the defect, so as to allow OWNER to
safely continue its business operations.
E. BUILDER shall have no obligation under this guarantee unless such
defect becomes manifest within 365 days after Delivery and Acceptance
of the Vessel and notice of claim is given within ten (10) days
thereafter. The BUILDER shall not be liable for any consequential or
incidental damage occasioned by any defect.
ARTICLE IX - DEFAULT BY BUILDER
A. BUILDER shall be considered in default under this Agreement in the
event (a) during a period of thirty (30) consecutive days (plus the
number of days from the beginning of such period when work has been
prevented by force majeure causes) no substantial progress has been
made in the construction of the Vessel; or (b) that the Vessel has not
been delivered within thirty-five (35) days after Delivery Date or
Extended Delivery Date.
B. If BUILDER is in default, the Initial Deposit Payment, Interim
Installment Payments and any financing charges paid by OWNER, shall
at OWNER's option be promptly repaid to OWNER.
C. Payment to OWNER of the Down Payment and Interim Installment Payments
in accordance with this Article will not prejudice OWNER as to all
other rights and remedies available to OWNER in the event of default
as provided in Article IX or in any other provisions within this
Agreement.
D. Section IX-A herein lists causes of default applicable only to the
provision for repayment of the Down Payment and Interim Installment
Payments. For any such default and any other default, OWNER shall
have all rights and remedies otherwise available to it, including
specifically, but not by
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way of limitation, any rights to specific performance or mandatory
injunction.
ARTICLE X - ARBITRATION, JURISDICTION AND LAW
A. Any technical or design dispute or controversy arising under this
Agreement shall be settled and finally determined by arbitration in
accordance with the Rules of Commercial Arbitration of the Society of
Naval Architects and Marine Engineers, or its successor, in
Jacksonville, Florida. The judgment upon the award rendered in any
such arbitration shall be final and binding upon the parties and may
be entered in any court having jurisdiction thereof. All fees and
expenses of the arbitrators and all other expenses of the arbitration,
except for attorneys' fees, shall be shared equally by the parties.
Each party shall bear its own attorneys' fees.
B. This Agreement has been negotiated, executed and delivered in the
State of Florida. All questions with respect to this Agreement and
the rights and liabilities of the parties hereto shall be governed by
the laws of that state.
ARTICLE XI - AGREEMENT CONTROLLING
A. This Agreement, which includes the Specifications and Contract
Drawings incorporated herein by reference, contains all the agreements
between BUILDER and OWNER, and there are no promises or
representations by either of the parties, other than those set forth
herein. This Agreement shall not be altered or modified except by
agreement in writing signed by the parties hereto.
B. In the event of a conflict between this Agreement and the
Specifications and/or Contract Drawings, this Agreement shall govern;
and as between the Specifications and Contract Drawings, the
Specifications govern.
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ARTICLE XII- INSPECTION, ACCESS, TESTS AND OFFICIAL CERTIFICATES
A. During construction, BUILDER shall provide OWNER, or its
representative, facilities and access to inspect the Vessel,
materials, workmanship, plans and tests. BUILDER shall provide a
suitable office for OWNER'S representative and BUILDER shall provide
access to suitable facilities and conditions such as a telephone, fax,
copy machine, heat and air conditioning. BUILDER will perform all of
the tests and trials required of BUILDER in any of the contract
documents, and will give OWNER at least three (3) business days'
notice of the date thereof.
B. All of the workmanship and material required under this Agreement,
while the same is in the process of fabrication, erection,
construction, installation and performance, shall be inspected
promptly by the OWNER and its agents and shall be accepted promptly in
accordance with the Agreement and the Specifications and Contract
Drawings, or rejected promptly in accordance therewith. Failure to
object will not preclude OWNER from subsequently objecting if OWNER
establishes that it used reasonable diligence, under the
circumstances, to promptly discover defects. Where the term "promptly"
is used, a reasonable standard shall be used.
C. OWNER shall have the right to appoint an "OWNER'S Representative" and
OWNER shall inform BUILDER in writing as to the extent of authority
OWNER has granted to said OWNER'S Representative. In the event of a
"working conflict" between OWNER'S Representative and BUILDER, BUILDER
shall promptly inform OWNER of the problem and OWNER shall make a due
diligence effort to promptly resolve the "working conflict" in a
manner amenable to both parties.
ARTICLE XIII - ASSIGNMENT OF THE AGREEMENT
A. This Agreement shall inure to the benefit of the BUILDER and OWNER and
their successors and assigns and shall be binding upon the BUILDER and
OWNER and their successors and assigns; provided, however, that
BUILDER shall not assign this Agreement or any interest hereunder
without the prior written consent of OWNER, and any assignment without
said prior written consent shall be null and void. OWNER may at any
time sell the Vessel and/or assign this Agreement, but shall at all
times remain liable under the Agreement. BUILDER agrees that such a
sale and/or assignment shall not be grounds for termination of the
Agreement.
14
<PAGE> 15
ARTICLE XIV - COMPLIANCE WITH REGULATIONS
A. The BUILDER shall comply with all laws, rules, regulations and
requirements of the departments or agencies of the United States
affecting the construction of works, plants and Vessels, in or on
navigable waters and the shores thereof, and all other waters subject
to the control of the United States. The BUILDER shall procure at its
own expense such permits from the United States and from state and
local authorities, as may be necessary in connection with beginning,
or carrying on the completion of the contract work, and shall at all
times comply with all United States, state and local laws in any way
affecting the contract work.
B. BUILDER will not knowingly build any portion of the Vessel or its
systems or components that by OWNER'S design will not meet U.S.C.G.
requirements without written notification to the OWNER. If BUILDER
suspects or recognizes that the design will not meet U.S.C.G.
requirements, BUILDER will promptly notify OWNER.
ARTICLE XV - USE OF THE DRAWINGS AND SPECIFICATIONS
The Specifications, Contract Drawings and BUILDER'S working drawings of the
Vessel are and shall remain property of the OWNER.
ARTICLE XVI - NOTICES AND COMMUNICATIONS
All notices or other communications required or permitted hereunder shall be in
writing and delivered personally, by facsimile or sent by certified, registered
or express mail, postage pre-paid or overnight courier service, and shall be
deemed given when so delivered personally, or by facsimile or courier service,
or if mailed, three business days after the date of mailing, as follows:
Keith Marine, Inc. Bayfront Ventures
P.O. Box 187 1002 Shadyside Lane
Palatka, FL 32178-0187 Weston, FL 33327
Attn: Kevin or Dick Keith Attn: David Grossman
Fax No.: (904)325-9337 Fax No.: (954)385-1004
15
<PAGE> 16
Or to such other address of which a party hereto shall notify the other by
written notice hereunder.
ARTICLE XVII - TITLE
Title to the Vessel, to the extent completed, and title to all work and
material performed upon or installed in the Vessel or placed on board the
Vessel shall vest in the OWNER. The risk of the loss or damage to such
material (except for OWNER furnished material and equipment not covered under
BUILDER'S Risk Insurance) and the Vessel shall remain with the BUILDER, and the
OWNER shall not be deemed to have waived its right to require the BUILDER to
repair and replace, at the BUILDER'S expense, defective workmanship or damaged
or defective material, and to deliver the Vessel with the contract work
completed, as herein provided. The BUILDER shall have a lien on such material
and completed contract work in the BUILDER'S shipyard and elsewhere to the
extent that BUILDER has not been paid as provided herein. Title to all scrap
and title to any material which is surplus to the requirements of this
Agreement (except material furnished by the OWNER of which under any adjustment
of Agreement price under the provisions of this Agreement remains the property
of the OWNER) shall be vested in the BUILDER. Without regard to the provisions
of this Article XVII as to Title, BUILDER shall be subject to the risk of loss
of all material and the Vessel (except OWNER furnished material and equipment
not covered under BUILDER'S Risk Insurance) until the completed Vessel is
delivered to and accepted by OWNER.
IN WITNESS WHEREOF, the parties hereto, acting by and through their proper and
duly authorized officers or representatives, have each duly executed this
Agreement under seal the day and year first above written.
KEITH MARINE, INC. BAYFRONT VENTURES
By By
------------------------------- -------------------------------
CONCORDE GAMING CORPORATION,
a Colorado Corporation.
By
-------------------------------
GOLDCOAST ENTERTAINMENT
CRUISES, INC., a Florida Corporation.
16
<PAGE> 1
EXHIBIT 10.20
AGREEMENT
This Agreement ("Agreement"), effective as of March 20, 1998, is made by
and between Goldcoast Entertainment Cruises, Inc., a Florida corporation
("Goldcoast") having its mailing address at 315 Biscayne Blvd., Miami, Florida
33132, and Concorde Gaming Corporation, a Colorado corporation ("Concorde'),
having its principal office at 3290 Lien Street, Rapid City, South Dakota.
RECITALS
WHEREAS, Goldcoast and Concorde are joint venturers in Bayfront Ventures, a
Florida joint Venture ("Bayfront Ventures"), which was formed to construct, own,
operate, and manage a commercial gaming vessel (the "Project") from dockage at
Bayfront Park, Miami, Florida pursuant to the terms of the Joint Venture
Agreement (the "JV Agreement") dated August 27, 1998 between Concorde and
Goldcoast; and
WHEREAS, on January 16, 1998 Goldcoast notified Concorde that it was in
default of its obligations to timely provide Bayfront Ventures with Concorde's
minimum capital contribution required pursuant to the terms of the JV Agreement
and Concorde disputes the same; and
WHEREAS, Goldcoast and Concorde are attempting to obtain financing from BNC
Financial Corporation ("BNC") required for the completion of the construction of
the vessel; and
WHEREAS, it is a condition to receipt of financing from BNC that Goldcoast
waives all defaults, if any, by Concorde under the JV Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties agree as follows:
(1) Goldcoast hereby waives any and all defaults by Concorde under the
terms and conditions of the JV Agreement and agrees to take such action as BNC
may reasonably request and to certify to BNC that there are no unwaived or
uncured defaults by Concorde.
(2) The parties shall provide each other with executed mutual releases in
the form of Exhibit A attached hereto; and
(3) As consideration for Goldcoast waiving any and all defaults, Concorde
hereby agrees to waive the repayment of all advances made by the Leo Equity
Group, Inc. (the sum of $95,000) and Concorde directly, or indirectly, through
Bayfront Ventures to Goldcoast through the commencement date of operations for
the Project (the "Commencement Date"), except for the sum of $150,000 which
amount shall be waived only in the event that Concorde's annualized rate of
return on its capital contribution to Bayfront Ventures is 33.3% or greater over
the Project's first three years of operations.
<PAGE> 2
(4) Concorde hereby agrees to provide Goldcoast within 30 days from the
date of this Agreement (the "Financing Deadline") evidence reasonably
satisfactory to Goldcoast that Concorde has the ability to make additional
capital contributions on a timely basis to Bayfront Ventures in accordance with
Schedule A ("Project Costs and Schedule of Anticipated Capital Contributions").
In the event Concorde is unable to produce such reasonably satisfactory evidence
on or prior to the Financing Deadline, Concorde agrees that such failure would
constitute an Event of Default, as defined in the JV Agreement, and that
Goldcoast could seek to acquire Concorde's interest in Bayfront Ventures (the
"Interest") pursuant to Article VII of the JV Agreement, and Concorde hereby
agrees to waive its right to an appraisal, and Concorde further agrees that it
will sell its Interest to Goldcoast, or a qualified purchaser (as defined in the
Use Agreement dated June 25, 1997), for a purchase price equal to the Project
Cost (as defined below) plus the applicable Premium as set forth below:
<TABLE>
<CAPTION>
NUMBER OF CALENDAR DAYS AFTER THE FINANCING
DEADLINE PRIOR TO EXECUTION OF THE PURCHASE
AGREEMENT PREMIUM
--------- --------
<S> <C>
0-15 5%
16-30 10%
31-45 15%
46-60 20%
</TABLE>
(For example, if the Financing Deadline is April 1, 1998, and Concorde is
unable to provide reasonably satisfactory evidence to Goldcoast, then the
purchase price would be equal to the Project Cost plus a premium equal to 5% of
the amount of the Project Cost. If the parties are unable to enter into a
definitive purchase agreement on or prior to April 16, 1998, then commencing at
12:01 a.m. on April 17, 1998, the purchase price shall be equal to the Project
Cost plus 10% and the Premium shall increase by 5% each 15 calendar days
thereafter.)
The purchase price shall be paid in cash or by wire transfer of immediately
available funds at the closing of the sale. The sale shall be evidenced by a
purchase agreement which shall contain mutual releases of all claims,
obligations and liabilities of the venturers in a form mutually agreeable to the
parties.
For purposes of this Agreement, the term "Project Cost" shall mean all
amounts paid or incurred by Concorde to, or on behalf of, Bayfront Ventures up
to the closing of the purchase of the Interest. To set a bench mark, Project
Costs to date are $3,558,024.
(5) Goldcoast hereby consents to, and waives the provisions of Sections 6.7
and 6.8 of the JV Agreement, with respect to the transfer and assignment of all
or a portion of Concorde's interest in Bayfront Ventures to Bruce H. Lien or an
entity controlled by Bruce H. Lien (collectively, "Lien"); provided, however,
that Lien assumes all of Concorde's rights, duties, and obligations under the JV
Agreement, and any amendment thereto. Goldcoast further agrees to use its best
efforts to obtain the written approval of the Bayfront Park Management Trust to
such transfer and assignment.
<PAGE> 3
(6) Goldcoast and Concorde agree to amend the JV Agreement as follows: a)
amend Section 2.6.3 to replace the reference to a return of "33.33%" with "25%"
and to define the phrase
Commencement of Operations as used therein to be October 1, 1998; and b) to
amend Section 3.4.2 to provide that Goldcoast shall continue to receive advances
in the sum of $20,000 per month up to the Commencement of Operations.
(7) Miscellaneous.
(a) Successors and Assigns. The terms and conditions contained herein shall
inure to the benefit of, and be binding upon, the heirs, executors,
administrators, representatives, assigns and successors-in-interest of the
parties.
(b) Complete Agreement. This Agreement constitutes the full and entire
agreement and understanding of the parties. This agreement supersedes and
replaces all prior negotiations and all agreements, proposed or otherwise,
between the parties, whether written or oral, concerning the subject matters
hereof. All such prior negotiations and agreements are merged into this
Agreement.
(c) Severability of Invalid Provisions. If any provision or portion of this
Agreement or the application thereof is held by a court of competent
jurisdiction or arbitrator to be invalid, unlawful or unenforceable, the
remaining provisions or portions of provisions of this Agreement shall remain in
full force and effect. Such invalidity shall not affect other provisions or
applications of the Agreement that can be given effect without the invalid
provisions or applications and to this end the provisions of this Agreement are
declared severable.
(d) Governing Law. The rights and obligations of the parties hereunder,
including any agreement to arbitrate and the law to be applied in the
arbitration shall be construed and enforced in accordance with and governed by
the law of the United States to the extent applicable and otherwise the laws of
the State of Florida, without giving effect to principles of conflicts of law.
(e) Further Executions. All parties agree to cooperate fully and to execute
any and all supplementary documents and to take all additional actions that may
be necessary or appropriate to give full force to the basic terms and intent of
this Agreement and which are not inconsistent with its terms.
(f) Counterparts. This Agreement may be executed in counterparts (including
execution by facsimile signature) and as so executed shall constitute one
Agreement binding on all the parties hereto, notwithstanding that all the
parties are not signatories to the original or the same counterpart.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first written above.
GOLDCOAST ENTERTAINMENT CONCORDE GAMING CORPORATION
CRUISES, INC.
- ---------------------------- ------------------------------
Michael A. Hlavsa, President Jerry L. Baum, CEO & President
<PAGE> 1
EXHIBIT 10.21
OPTION AGREEMENT
THIS OPTION AGREEMENT ("Agreement") is made and entered into as of this
20th day of April, 1998 (the "Contract Date") by and between Bruce H. Lien, an
individual (the "Optionee"), and Concorde Gaming Corporation, a Colorado
corporation ("the Optionor").
W I T N E S S E T H
WHEREAS, the Optionor is the owner of an 80% interest (the "Interest") in
Bayfront Ventures, a Florida general partnership ("Bayfront Ventures"); and
WHEREAS, Goldcoast Entertainment Cruises, Inc. ("Goldcoast") is the owner
of the remaining 20% interest in Bayfront Ventures; and
WHEREAS, pursuant to the joint venture agreement dated as of August 27,
1997 between the Optionor and Goldcoast (the "JV Agreement"), the Optionor is
required to make certain capital contributions (the "Capital Contributions") to
Bayfront Ventures; and
WHEREAS, the Optionor has not been able to obtain financing to fund the
Capital Contributions; and
WHEREAS, Optionee has agreed to provide Optionor until the Termination Date
(defined below) with a line of credit (the "Line of Credit") in the amount of
$3,000,000 upon which Optionor may draw (each, an "Advance") at any time. Any
Advance made to Optionor from the Line of Credit will bear interest at a rate of
18% per annum which interest shall accrue until the earlier of the Exercise Date
or the Termination Date (as defined below) and shall be payable over a four year
term; and
WHEREAS, Optionee has signed a Commitment Letter whereby he has agreed to
finance the working capital needs of the Optionor in an amount not to exceed
$500,000 (the "Working Capital Line of Credit"); and
WHEREAS, in consideration for Optionee extending Optionor the Line of
Credit and the Working Capital Line of Credit, Optionor has agreed to grant to
Optionee the exclusive right to purchase all or a portion of the Interest (the
"Option") in accordance with the terms and on the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements as
hereinafter set forth, the parties agree as follows:
<PAGE> 2
1. GRANT OF RIGHTS.
(a) Grant of Option. Optionor hereby grants to Optionee an exclusive
and irrevocable right to purchase all or a portion of the Interest from
Optionor subject to the terms contained herein.
(b) Termination. This Option shall terminate on April 20, 1999 (the
"Termination Date") if not previously exercised.
(c) Option Exercise. Optionee may exercise the Option at any time (the
"Exercise Date") on or prior to the Termination Date by giving Optionor
written notice of such exercise (the "Exercise Notice"); provided that the
Option may not be exercised until the Exercise Conditions (as defined
below) have been met.
(d) Exercise Price. On the Exercise Date the Optionee shall pay to the
Optionor the Exercise Price (the "Exercise Price"), which shall be an
amount equal to (i) the total amount of the Capital Contributions made by
the Optionor up to the Exercise Date; (ii) other costs incurred by Optionor
to acquire its partnership interest, which costs are set forth on Schedule
A and include costs related to the LEG Agreement, legal costs and other
costs (not including their financing costs) related to Bayfront Ventures
that are not classified as a Capital Contribution; and (iii) financing
costs such as interest and fees incurred by Optionor on all obligations
related to Bayfront Ventures from the date of this Agreement.
(e) Payment Terms. Upon the exercise of the Option by Optionee,
Optionee shall pay Optionor the Exercise Price in the following manner: (i)
One Million Dollars ($1,000,000.00) in cash, which amount may be increased
at Optionee's discretion; (ii) the cancellation of all notes receivable
from Optionor related to loans made by Optionee, or entities controlled by
him, for Bayfront Ventures (which total $1,440,000.00) as of the date of
this Option Agreement; and (iii) a promissory note for the balance of the
Exercise Price payable in 36 monthly installments with interest at eighteen
percent (18%) commencing one month after the later of (A) the Exercise Date
or (B) October 1, 1998.
(f) In the event Optionee elects to purchase only a portion of the
Interest, the Exercise Price and the payment terms set forth in subsection
(e) above shall be reduced on a pro rata basis.
2. CONDITIONS TO EXERCISE. The exercise of the Option by Optionee shall be
subject to the successful completion of the following (collectively, the
"Exercise Conditions"):
(a) Optionee shall provide a letter of credit in the amount of
$900,000 to the Bayfront Park Management Trust (the "Trust") which letter
of credit shall be reasonably acceptable to the Trust;
<PAGE> 3
(b) the Trust shall release Optionor from the letter of credit
Optionor previously provided to the Trust;
(c) Goldcoast must have consented in writing to the transfer of the
Interest to Optionee and the replacement of Optionor by Optionee as a
partner in Bayfront Ventures;
(d) the Trust must have approved in writing the transfer of the
Interest to Optionee;
(e) all lenders who had provided Bayfront Ventures with financing
prior to the Exercise Date must approve of the transfer of the Interest to
Optionee and release Concorde from any obligation thereunder; and
(f) Optionor and Optionee must have executed a management agreement
acceptable to each party pursuant to which Optionor will agree to manage
Optionor's interest in Bayfront Ventures.
3. CONVEYANCE OF THE INTEREST. On the Exercise Date, Optionor shall convey
to Optionee, or an entity controlled by Optionee and designated in writing, the
Interest. Optionee shall agree to assume and agree to pay, discharge or perform,
as appropriate, all liabilities and obligations of Optionor, and indemnify and
hold Optionor, its directors, officers, employees and agents harmless with
respect to all contracts related to Bayfront , including but not limited to the
following: 1) that certain agreement dated as of August 5, 1997 between the
Optionor and the Leo Equity Group (the "LEG Agreement"); 2) the JV Agreement and
3) any vessel construction financing or long-term financing agreement entered
into by Bayfront. Optionor shall also assign to Optionee all of Optionor's
right, title and interest to: 1) the LEG Agreement and 2) the JV Agreement.
4. ASSIGNMENT. Except upon the prior written consent of the parties hereto,
Optionee may not assign the Option or any other right under this Agreement;
provided, however that Optionee may assign the Option to an entity controlled
(as such term is defined in the Securities Exchange Act of 1934, as amended) by
the Optionee without obtaining such consent.
5. BROKER. Each of the parties hereto represents to the other that it has
not retained the services of a broker or finder in connection with this
transaction.
6. NOTICE. Any notice, demand or request which may be permitted, required
or desired to be given in connection herewith shall be in writing and directed
to Optionor or Optionee at the respective addresses set forth below (or at such
other addresses as party hereto may designate in writing), personally delivered
or deposited in the U.S. mail, registered or certified, return receipt
requested. Such notice shall be deemed received seventy-two (72) hours after
deposited in the U.S. mail, or if personally delivered, upon delivery. A
registered mail or certified mail receipt will be prima facie evidence of the
giving of such notice and the date thereof:
<PAGE> 4
Optionee: Bruce H. Lien
6400 Hidden Valley Road
Rapid City, South Dakota 57702
Telephone:________________
Fax:_____________________
Optionor: Concorde Gaming Corporation
3290 Lien Street
Rapid City, South Dakota 57702
Telephone (605) 341-7738
Fax (303) 342-0247
Attention: George Nelson
Copies to: Morrison & Foerster LLP
5200 Republic Plaza
370 17th Street
Denver, Colorado 80202
Telephone: (303) 592-1500
Fax: (303) 592-1510
Attention: Warren L. Troupe
7. SURVIVAL. The terms and provisions of this Agreement shall not merge
with, be extinguished or otherwise affected by any subsequent conveyance or
instrument by or between the parties hereto unless such instruments shall
specifically so state and are signed by the parties hereto. The representations,
warranties, covenants and agreements of the parties contained herein shall
survive the closing and shall not be deemed to merge upon delivery and
acceptance of the License.
8. GENERAL PROVISIONS.
(a) Integration Clause. This is the entire agreement between the
parties with respect to this transaction. There are no oral promises,
conditions, representations, understandings, interpretations, or terms of
any kind as conditions or inducements to the execution hereof or in effect
between the parties. This Agreement may not be amended or modified except
by a document in writing signed by both parties.
(b) Applicable Law. This Agreement shall be interpreted in accordance
with the laws of the State of Colorado.
(c) Severability. In the event any provisions hereof or any portion of
any provision hereof shall be deemed to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not
alter the remaining portion of any provision, or any other provision
hereof, as each provision of this Agreement shall be deemed to be severable
from all other provisions hereof.
<PAGE> 5
(d) Waivers. The waiver of either party hereto of any right granted to
it hereunder shall not be deemed to be a waiver of any other right granted
herein, nor shall the same be deemed to be a waiver of a subsequent right
obtained by reason of the continuation of any matter previously waived.
(e) Binding Agreement; Inurement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, successors, heirs and assigns.
(f) Time Calculations. Unless otherwise indicated, all periods of time
referred to in this Agreement shall refer to calendar days unless
specifically stated otherwise and shall include all Saturdays, Sundays and
state or national holidays; provided that if the date or last date to
perform any act or give any notice with respect to this Agreement shall
fall on a Saturday, Sunday or state or national holiday, such act or notice
may be timely performed or given on the next succeeding day which is not a
Saturday, Sunday or state or national holiday.
(g) Construction of Party Relationships. Nothing herein contained
shall be deemed or construed by the parties hereto or by any third person
to create the relationship of principal or agent or of partnership or joint
venture or of any association between Optionee and Optionor.
(h) Captions. The captions of the paragraphs hereof are for
convenience only and shall not govern or influence the interpretation
hereof.
(i) Parties Not Bound. No term or provision of this Agreement is
intended to, or shall be for the benefit of any person, firm, corporation
or other entity not a party hereto (including, without limitation, any
broker) and no such other person, firm, corporation or entity shall have
any right or cause of action hereunder.
(j) Preparation of Agreement. The parties hereto acknowledge that this
Agreement has been negotiated and prepared in an arms-length transaction
and that both Optionee and Optionor have negotiated all the terms contained
herein. Accordingly, the parties agree that neither party shall be deemed
to have drafted the Agreement and the Agreement shall not be interpreted
against either party as the draftsman.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
OPTIONOR:
Concorde Gaming Corporation
By:
--------------------------
OPTIONEE:
By:
--------------------------
Bruce H. Lien
<PAGE> 1
EXHIBIT 10.22
PROMISSORY NOTE
$3,000,000 Rapid City, South Dakota
April 20, 1998
FOR VALUE RECEIVED, the undersigned, Concorde Gaming Corporation, a
Colorado corporation ("Maker"), hereby promises to pay to the order of BHL
Capital Corporation, a South Dakota corporation ("Payee"), the aggregate
principal amount of Three Million Dollars ($3,000,000) or, if less, the
aggregate unpaid principal amount of all advances ("Advances") made by Payee to
Maker as set forth on Schedule A to this Note, (the "Principal Amount"), plus
interest thereon to accrue commencing on the date of each Advance at an interest
rate per annum equal to 18%, which interest shall be payable at such time as the
principal is due hereunder unless previously paid. Interest shall be calculated
on the basis of a 365 day year and for the number of days actually lapsed.
Capitalized terms not otherwise defined herein shall have the meaning
assigned to such terms in that certain Option Agreement (the "Option Agreement")
dated as of April 20, 1998 by and among Maker and the Payee.
No payment of principal or interest shall be due until the earlier to occur
of the Exercise Date or the Termination Date (hereinafter referred to as the
"Payment Start Date"). Following the occurrence of the Payment Start Date,
principal and interest shall be due on the last day of each month (including the
month in which the Payment Start Date occurs) (each, a "Payment Date"). Payment
shall be made in 36 equal installments to Payee at 6400 Hidden Valley Road,
Rapid City, South Dakota 57702.
Maker may prepay any amount due under this Note, in whole or in part, at
any time after the Payment Start Date without penalty. Payments received for
application to this Note shall be applied first to the payment of accrued
interest, if any, and the balance applied in reduction of the principal amount
hereof.
This Note is secured with Payee receiving a secured interest in Maker's
assets that would be subordinated to Maker's secured creditors.
A default shall occur under this Note in the event that Maker shall fail to
pay any amount due under this Note within five (5) days after the Payment Date.
Upon default, Payee may elect to accelerate the entire unpaid balance of
principal and interest due under this Note. In addition, upon default, the
balance of principal and interest due under this Note shall bear interest at a
rate equal to 24% per annum from the date such payment was due, as accelerated,
until the date that Maker makes such payment.
<PAGE> 2
Payee shall be entitled to collect all reasonable costs and expenses of
collection of amounts due under this Note. In the event this Note is placed in
the hands of any attorney for collection or is collected through any legal
proceedings, Maker promises to pay (in addition to costs and disbursements
otherwise allowed), to the extent permitted by law, reasonable attorneys' fees
and legal costs.
Any notice or other communication required or permitted under this Note
shall be in writing and shall be deemed to have been duly given if delivered by
hand, overnight delivery, or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to Maker at his address given
below and to Payee at its address given above. Maker and Payee shall be
obligated to notify the other party of any change in address. Notice of change
of address shall be effective only when made in accordance with this paragraph.
The rights or remedies of Payee as provided in this Note, as well as any
other remedy provided at law or in equity, shall be cumulative and concurrent
and may be pursued singly, successively or together against Maker.
Maker, for itself and its successors and assigns, hereby: (a) waives
presentment, demand, protest, notice of protest, notice of dishonor and all
other notices and demands whatever; and (b) consents to extensions of time for
payment, and acceptance of late or partial payments before, at or after
maturity.
No failure on the part of Payee to exercise any right or remedy under this
Note shall constitute a waiver of such right or remedy, and no waiver of any
past default shall constitute waiver of any future default or of any other
default.
If any provision of this Note (or any part of any provision) is held by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Note; but
this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had not been contained in this Note, but only to the
extent it is invalid, illegal or unenforceable.
This Note may not be amended orally, but only by an amendment in writing
signed by Maker and Payee.
Reference in this Note to "Payee" shall mean the original Payee hereunder
so long as such Payee shall be holder of this Note and thereafter shall mean any
assignee of Payee or subsequent holder of this Note. This Note shall be binding
upon Maker and its successors and assigns and shall inure to the benefit of
Payee.
<PAGE> 3
This Note shall be governed in all respects in accordance with the laws of
the State of Colorado.
MAKER
Concorde Gaming Corporation
By:
-----------------------------
Jerry L. Baum, President
Maker's Address: 3290 Lien Street
Rapid City, South Dakota 57702
<PAGE> 4
SCHEDULE A
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Unpaid
Amount of Maturity of Principal Paid Principal Notation
Date Advance Interest Rate Advance or Prepaid Balance Made By
- ---- --------- ------------- ----------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
- ---- --------- ------------- ----------- -------------- --------- --------
</TABLE>
<PAGE> 1
EXHIBIT 11
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1997 1996
------------------------- -------------------
<S> <C> <C>
Weighted average shares outstanding, net of
treasury stock, beginning of period 22,101,739 21,929,793
Adjustments for common stock equivalents (1) 125,365 245,622
------------------------- -------------------
Weighted average common and common equivalent
shares outstanding, end of period 22,227,104 22,175,415
========================= ===================
Net earnings $ 930,199 $ 557,659
========================= ===================
Net earnings per common and common equivalent share $ 0.04 $ 0.03
========================= ===================
</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 21
SUBSIDIARIES OF CONCORDE GAMING CORPORATION
Concorde Cripple Creek, Inc.
Midwest Gaming, Inc.
Bayfront Ventures, 80% controlled joint venture
Concorde Gaming of Missouri, Inc.
The following subsidiaries were dissolved during fiscal 1997:
Concorde Gaming of South Dakota, Inc.
Bruce H. Lien Company
<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 21, 1997, except as to note 16 which is as of April 20, 1998, relating
to the consolidated balance sheets of Concorde Gaming Corporation and
subsidiaries as of September 30, 1997, and 1996, 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, 1997, which report appears in the
September 30, 1997, annual report on Form 10-KSB of Concorde Gaming Corporation.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,362,804
<SECURITIES> 0
<RECEIVABLES> 33,175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,180,604
<PP&E> 3,210,316
<DEPRECIATION> 83,412
<TOTAL-ASSETS> 6,866,940
<CURRENT-LIABILITIES> 1,165,120
<BONDS> 0
0
0
<COMMON> 236,731
<OTHER-SE> 4,966,151
<TOTAL-LIABILITY-AND-EQUITY> 6,866,940
<SALES> 95,689
<TOTAL-REVENUES> 6,675,772
<CGS> 0
<TOTAL-COSTS> 7,865,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,741
<INCOME-PRETAX> 1,549,199
<INCOME-TAX> 619,000
<INCOME-CONTINUING> 930,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 930,199
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
