<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to ________________________
Commission file number 0-15415
GLOBAL CASINOS, INC
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(Exact Name of Registrant as Specified in its Charter)
Utah 87-0340206
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(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
4465 Northpark Drive, Suite 400, Colorado Springs, Colorado 80907
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(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (719) 590-4900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.005
------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of 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 ]
The Registrant's revenues for the year ended June 30, 199 were $9,234,097.
As of September 30, 1997, the aggregate market value of the Common Stock of
the Registrant based upon the average of the closing bid and asked prices of
the Common Stock, as quoted on NASDAQ, held by non-affiliates of the
Registrant was approximately $5,165,490.
As of September 30, 1997, 1,400,811 shares of Common Stock of the Registrant
were outstanding. <PAGE>
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The Registrant incorporates by this reference the following:
PART III
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Item 9 Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act.
Item 10 Executive Compensation.
Item 11 Security Ownership of Certain Beneficial Owners and Management.
Item 12 Certain Relationships and Related Transactions.
The foregoing are incorporated by reference from the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders,
which will be filed in an amendment within 120 days of June 30, 1997.
PART IV - EXHIBITS
------------------
1. Incorporated by reference from the Company's Registration Statement
on Form 10, as amended, SEC file number 0-15415.
2. Incorporated by reference from the Company's Registration Statement
on Form S-2, as amended, SEC File No. 33-46060, declared effective
May 15, 1992.
3. Incorporated by reference from the Company's Registration Statement
on Form S-8, filed with the Commission and effective December 8,
1995.
4. Incorporated by reference from the Company's Registration Statement
on Form SB-2, as amended, SEC File No. 33-76204, declared effective
August 12, 1994.
5. Incorporated by reference from the Company's Current Report on Form
8-K, dated July 15, 1995, as filed with the Commission on July 31,
1995, as amended on Form 8-K/A-1 filed with the Commission on
August 31, 1995;
6. Incorporated by reference from the Company's Current Report on Form
8-K, dated November 19, 1993, as filed with the Commission on
December 3, 1993;
7. Incorporated by reference from the Company's Current Report on Form
8-K, dated February 18, 1994, as filed with the Commission on
March 3, 1994;
8. Incorporated by reference from the Company's Current Report on Form
8-K, dated April 29, 1994, as filed with the Commission on May 13,
1994;
9. Incorporated by reference from the Company's Current Report on Form
8-K, dated June 3, 1994, as filed with the Commission on June 10,
1994;
10. Incorporated by reference from Casinos U.S.A., Inc.'s Corrected
Second Amended Disclosure Statement, dated September 16, 1996, as
filed with the Commission on October 31, 1996; and
11. Incorporated by reference from the Company's Current Report on Form
8-K, dated August 1, 1997, as filed with the Commission on August
14, 1997.<PAGE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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OVERVIEW
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Global Casinos, Inc. (the "Company" or "Global Casinos") and its
wholly-owned subsidiaries, operate in the rapidly developing and expanding
domestic and international gaming industry. The Company is organized as a
holding company for the purpose of acquiring operating casinos, gaming
properties and other related interests.
HISTORY
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Global Casinos, Inc., f/k/a Morgro Chemical Company, was organized
under the laws of the State of Utah on June 8, 1978. From 1978 until
February, 1994, it manufactured and marketed a line of garden fertilizers and
chemicals, as well as a retail ice melter.
In the fall of 1993, the Company embarked upon an aggressive plan to
acquire and develop casino properties both nationally and internationally. On
September 20, 1993, the Company acquired 100% of the outstanding Common Stock
of Colorado Gaming Properties, Inc., a Colorado corporation ("CGP"). CGP
owned two (2) real estate properties located in the limited stakes gaming
district in Central City, Colorado. The properties, known as the Nitro Club
and the Gas Light, which were never operational under the Company, were
foreclosed upon in June, 1996. (See ITEM 2. DESCRIPTION OF PROPERTIES)
On November 19, 1993, the Company acquired 100% of the outstanding
Common Stock of Casinos U.S.A., Inc., a Colorado corporation ("Casinos
U.S.A."), Lincoln Corporation, a South Dakota corporation ("Lincoln"), and
Woodbine Corporation, a South Dakota corporation ("Woodbine") in exchange for
253,500 of the Company's Common Stock. Casinos U.S.A. owns and operates the
Bull Durham Saloon and Casino, located in Black Hawk, Colorado. Lincoln and
Woodbine each operated casinos located in Deadwood, South Dakota. The Company
permanently closed the Last Chance Saloon owned and operated by Lincoln
Corporation on May 31, 1994. Lillie's, the casino operated by Woodbine
Corporation, was closed effective June 30, 1995 due to unprofitable
operations. (See ITEM 2. DESCRIPTION OF PROPERTIES)
Casinos U.S.A. also held an 80% interest in a joint venture
("International Joint Venture") which developed and operated gaming casinos in
several international locations. Through the International Joint Venture,
casinos have been developed and operated in Sochi, Russia and Bishkek,
Kyrgyzstan. In Sochi, the International Joint Venture developed and operated
Casino Lazurnaya located in the four-star Hotel Radisson Lazurnaya. In
Bishkek, the International Joint Venture has developed and operates the Casino
Las Vegas located on the second floor of the Restaurant Naryn.
In February, 1994, the Company sold to a management group all of the
assets, subject to all of the liabilities, utilized in the chemical and
fertilizer business which it formerly operated under the name "Morgro Chemical
Company." The Company received approximately $854,000 in cash and promissory
notes, and the purchasers assumed approximately $1,200,000 in liabilities.
The purchase price represented the net book value of the assets disposed of in
excess of the liabilities assumed.
In April, 1994, the Company successfully purchased for $1,381,274 in
cash a 66-2/3% interest in a holding company which, through a wholly-owned
subsidiary, owns and operates Casino Masquerade located in the Radisson Aruba
Resort and Casino located on the Caribbean island of Aruba, Netherlands
Antilles.
By an Agreement dated June 27, 1995, and effective July 15, 1995
("Dissolution Agreement"), the International Joint Venture (the "IJV") was
dissolved. The Company assigned its interest in the Casino Lazurnaya and
received all of the IJV's profit interest (61%) in Casino Las Vegas, the
remaining 33-1/3% interest in Casino Masquerade, and a promissory note in the
amount of two hundred thousand dollars ($200,000) secured by 20,000 shares of
the Company's common stock. Giving effect to this transaction, the Company
owns a 61% profit interest in Casino Las Vegas, 100% of the Casino Masquerade,
and no residual interest in Casino Lazurnaya.
In July, 1996, the Company formed a subsidiary, Global Internet
Corporation ("Global Internet"), to explore opportunities to develop and
operate one or more sites on the World Wide Web, with an initial focus on
entertainment and non-commercial gaming sites. The Company loaned $325,000 to
Global Internet in exchange for a 10% promissory note. At June 30, 1997, the
Company's investment Note and related interest and additional appointed
$385,000.
Management became aware that internet gaming could impair the
Company's Colorado state gaming license. As a result, the Company initiated
actions to divest itself of its investment in Global Internet. A separate
board of directors of Global Internet was established, with no overlapping
members of the Company's board, and the Company assigned its voting rights to
a member of the Global Internet board, who is not related to the Company. The
Company also entered into negotiations with First Entertainment, Inc. ("FEI"),
an unrelated third party, whereby FEI would acquire the Company's investment
in Global Internet.
On May 11, 1997, the Company and FEI entered into an agreement
whereby the Company will sell 1,500,000 of the 1,750,000 common shares of
Global Internet owned by the Company, in exchange for 1,500,000 warrants,
which will allow the Company to purchase 1,500,000 shares of FEI common shares
at $1.25 per share for a period of five years. The Company will also sell its
convertible promissory note, advances and interest receivable of $375,000 for
30,000 shares of FEI Class B Preferred Stock with a face value of $12.50 per
share, convertible into FEI common shares at $1.25 per share. The agreement
was originally expected to close shortly after May 1997. However, the FEI
shareholders have not yet approved the transaction, authorized an increase in
FEI common stock to allow for the issuance of shares underlying the
convertible preferred stock and warrants, or obtained long-term financing that
would allow Global Internet to continue to develop entertainment and gaming
sites.
FEI is a thinly capitalized and thinly traded public entity which
does not appear to currently have resources available to continue development
of Global Internet. In September 1997, the Company was informed that
completion of the transaction was contingent upon FEI shareholders' approval,
for which a shareholders meeting is currently scheduled for November 1997.
These factors raised concerns about the Company's ability to realize its
investment in Global Internet. Management determined that it would be
appropriate for the Company to fully expense its investment and allow for the
receivables in Global Internet during the quarter ended June 30, 1997,
although the sale may ultimately be consummated.
FEI has represented to the Company that financing will be obtained
and the transaction will be approved by the shareholders. Management believes
that if this is to occur, the Company may be able to recognize a gain on its
sale of Global Internet.
Effective August 1, 1996, the Company, through its subsidiary Global
Pelican, entered into a cancelable Management and Operating Lease Agreement
(the "Pelican Agreement") with a third party, whereby Global Pelican agreed to
lease and operate the Pelican Casino, located on the island of St. Maarten.
The original term of the lease was for five years, with its options to renew
for three additional five-year terms. Lease payments were scheduled to be
$30,000 per month for the initial lease term beginning in November 1996. Rent
expense in 1997 was $225,000. The Pelican Agreement provides that Global
Pelican would also purchase the equipment utilized at the casino for $225,000
in exchange for a note payable, subject to the owner providing clear title to
the equipment. The Pelican Agreement also states that until the equipment
liens and encumbrances are released, Global Pelican has the right to terminate
the Pelican Agreement. At June 30, 1997, the equipment remains subject to
liens and encumbrances, and Global Pelican has therefore not purchased the
equipment. In July 1997, Global Pelican renegotiated the terms of the Pelican
Agreement, whereby Global Pelican is to pay $20,000 per month through November
1997, of which $15,000 is to be applied as monthly rent, and $5,000 as
deferred rent pending completion of negotiations between Global Pelican and
the lessor. Global Pelican is scheduled to continue negotiations with the
lessor by November 1997.
On August 1, 1997, the Company acquired 100% of the outstanding
Common Stock of Anchorage-based Alaska Bingo Supply, Inc. ("ABS") and its
related operations. ABS will be operated by the Company's wholly-owned
subsidiary, Global Alaska Corporation ("Global Alaska").
The Company purchased ABS for $4,400,000, of which $400,000 was paid
in cash at closing, with the $4,000,000 balance in the form of a promissory
note, bearing interest at eight percent (8%) and to be amortized monthly over
a term of seven (7) years beginning in October, 1997. During the term of the
note, the noteholder the option to convert up to $2,500,000 of the promissory
note into shares of the Company's Common Stock at a price of ten dollars ($10)
per share.
In order to fund this acquisition, the Company borrowed $350,000
from third parties and $75,000 from an affiliate. The promissory notes are
due in equal monthly payments from January 1998 through April 1998. The
promissory notes to third parties are secured by a note receivable by the
Company. Interest on $200,000 of the notes is at 24% and interest on the
remaining $225,000 (including the affiliate Note) is at 12%. Additionally,
the holder of the $150,000, 12% note was issued warrants to purchase 15,000
shares of the Company's common stock at an exercise price of $3.00 per share.
The warrants expire June 2000.
FINANCING
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On May 31, 1994, the Company successfully closed a private placement
of 9% Convertible Notes in which it sold, in the aggregate, $2,812,500 in
Convertible Notes to a total of 33 accredited investors. In June, 1994, the
Convertible Notes were automatically converted into 1,406,250 shares of
Mandatory Redeemable ("Mandatory Redeemable") and Convertible and Class A
Preferred Stock ("Preferred Stock") and Class D Common Stock Purchase Warrants
("D Warrants") which have since expired. The Preferred Stock is convertible
into Common Stock of the Company at a conversion value of $20.00 per share
(one share of Common Stock for ten shares of Preferred Stock). The Company
had the obligation to redeem any Preferred Stock not yet converted at the rate
of $2.00 per share on May 31, 1995. Due to a significant decline in the
public trading price of the Company's Common Stock, none of the shares of
Preferred Stock were converted, and the Company was obligated to complete the
mandatory redemption on or before May 31, 1995, representing an aggregate
redemption price of $2,812,500. As the Company lacked the capital necessary
to redeem the outstanding shares of Preferred Stock, the Company entered into
agreements with the holders of 1,233,000 of the outstanding shares of
Preferred Stock, modifying the redemption and conversion terms of the
Preferred Stock, such that the Company was released from its obligation to
redeem the 1,233,000 shares of Preferred Stock, the conversion value was
reduced from $20.00 per share to $11.25 per share (approximately .1778 shares
of Common Stock for each share of Preferred Stock). During the year ended
June 30, 1996, 544,500 shares of the modified Preferred Stock were converted
into 96,790 shares of Common Stock. In July, 1995, the Company agreed to
issue 28,125 shares of Common Stock upon this exercise of 28,125 D Warrants at
$5.00 per share.
The foregoing modifications are applicable only to shares of
Preferred Stock and D Warrants owned by holders who voluntarily agreed to such
modifications. As a result, at June 30, 1995, there continued to be issued
and outstanding 173,250 shares of Preferred Stock as to which the Company
continued to be in default in its mandatory redemption obligation,
representing an aggregate redemption obligation of $346,500, all of which was
matured and in default, and 88,625 original D Warrants. Subsequent to June
30, 1995, the holder of 125,000 shares of Preferred Stock agreed with the
Company to convert same into Common Stock at a conversion of $11.25 per share
which was completed in June, 1996. The holder agreed to waive all interest
accrued while the Company was in default of its mandatory redemption
obligation and accepted no reduction in the exercise price of D Warrants. In
July, 1996, 10,000 shares of the Mandatory Redeemable Preferred Stock was
converted into Common Stock at a conversion of $11.25 per share, and 7,500
shares were converted into Common Stock at a conversion of $10.00 per share.
As a result, at June 30, 1997, 26,750 shares of the original Mandatory
Redeemable and Preferred Stock are outstanding and the Company continues to be
in default of its mandatory redemption obligation (representing an aggregate
redemption obligation of $53,500, all of which is matured and currently in
default).
On August 12, 1994 the Company's Registration Statement on Form SB-2
was declared effective by the Securities and Exchange Commission. The
Registration Statement registered for sale under the Securities Act of 1933,
as amended (the "Securities Act") 42,780 shares held by existing shareholders,
195,750 shares issuable upon exercise of Class A Common Stock Purchase
Warrants ("A Warrants"), 203,375 shares issuable upon exercise of Class B
Common Stock Purchase Warrants ("B Warrants"), and 65,144 shares issuable upon
exercise of Class C Common Stock Purchase Warrants ("C Warrants"). During the
period of time that the Registration Statement was effective, A Warrants were
exercised to purchase an aggregate of 67,500 shares of Common Stock at an
exercise price of $10.00 per share, B Warrants were exercised to purchase an
aggregate of 6,500 shares of Common Stock at an exercise price of $20.00 per
share, and C Warrants were exercised to purchase an aggregate of 4,500 shares
of Common Stock at an exercise price of $30.00 per share. As a result of
those Warrant exercises, the Company received aggregate gross proceeds of
$850,000. The Class A Warrants, B Warrants, and C Warrants expired on
December 31, 1995.
In June, 1995, the Company consummated the purchase of an aggregate
of $937,204 in subordinated secured promissory notes held by sixteen (16)
creditors of Casinos U.S.A.. Pursuant to the terms of the Promissory Note
Purchase Agreements, the Company purchased the promissory notes and collateral
security in consideration for the issuance of an aggregate of 124,961 shares
of the Company's Common Stock, valued at $7.50 per share. The shares of
Common Stock were issued by the Company in reliance upon an exemption from the
registration requirements of the Securities Act contained in Section 4(2)
thereof. In connection with the Promissory Note Purchase Agreements, the
Company has agreed to register for resale under the Securities Act the shares
of Common Stock issued in consideration of the Casinos U.S.A. Debt Purchase.
The Registration Statement filed by the Company with the Securities and
Exchange Commission on Form S-3 was declared effective on December 13, 1995.
In October, 1996, the Company raised $630,250 through an offering of
Units ("Units"), each Unit consisting of one (1) eight percent (8%) $1,000
convertible Promissory Note ("Promissory Note"), 200 Class E Common Stock
Purchase Warrants ("E Warrants"), 200 Class F Common Stock Purchase Warrants
("F Warrants"), and 200 Class G Common Stock Purchase Warrants ("G Warrants").
The Promissory Note is convertible to common stock at $5.00 per $1.00 loaned
and the Promissory Notes are due October 31, 1998. The Class E Warrants, F
Warrants and G Warrants are exercisable at $6,00, $7.00, and $8.00,
respectively.
In January, 1997, the Company borrowed $32,000 in 10% notes, $21,000
of which was from related parties, which were due in September, 1997. The
Company is currently in default on these notes.
INTERNATIONAL GAMING INTERESTS
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CASINO LAS VEGAS: BISHKEK, KYRGYZSTAN
-------------------------------------
Through the International Joint Venture, the Company's subsidiary,
Global International, developed and operated the Casino Las Vegas located in
the Naryn Restaurant, in Bishkek, Kyrgyzstan. Global International held an
eighty percent (80%) interest in the International Joint Venture which in turn
held a sixty-one percent (61%) profit interest in the Casino Las Vegas.
Casino Las Vegas is operated under a lease with the Naryn Restaurant pursuant
to which the restaurant owner retains the remaining thirty-nine percent (39%)
profit interest. Under the terms of the Dissolution Agreement, Global Casino
Group, Inc. and Global International both assigned their interests in Casino
Las Vegas and the lease under which the casino operates to the Company. As a
result, the Company held a net sixty-one percent (61%) profit interest in
Casino Las Vegas. At September, 1996, pursuant to the terms of the Joint
Venture Agreement, the Company's profit interest was reduced to fifty percent
(50%).
CASINO MASQUERADE: ARUBA, NETHERLAND ANTILLES
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In April, 1994, the Company purchased a sixty-six and two-thirds
percent (66-2/3%) interest in a holding company which, through a wholly-owned
subsidiary, owns and operates a casino located in the Radisson Aruba Resort
and Casino located on the Caribbean island of Aruba, Netherlands Antilles.
Casino Masquerade is open and operational, and the Company has upgraded many
of the gaming devices on location and invested in additional leasehold
improvements. Pursuant to the Dissolution Agreement, the Company acquired the
remaining thirty-three and one-third percent (33-1/3%) interest in Casino
Masquerade. As a result, the Company presently owns 100% of the Casino
Masquerade.
PELICAN CASINO: ST. MAARTEN, NETHERLANDS ANTILLES
--------------------------------------------------
The Company leases the Casino Las Vegas facility from the minority
joint venture partner ("JVP") in the Casino Las Vegas. The Company paid 39%
of the net casino profits, as defined, to the JVP until the Company recouped
its original investment plus interest, which occurred in September 1996.
Beginning in September 1996, the Company began paying 50% of the net casino
profits to the JVP. In addition, the Company has an agreement with an
unrelated entity whereby after the Company has received $500,000 in profits,
it shall pay 10% of its share of the net profits to this entity
In order to fund this project, the Company borrowed $165,000 from an
affiliate, which the Company used to establish the casino's bankroll of
$165,000.
DOMESTIC GAMING INTERESTS
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BULL DURHAM SALOON AND CASINO: BLACK HAWK, COLORADO
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The Company, through its wholly-owned subsidiary Casinos U.S.A.,
owns the Bull Durham Saloon and Casino (the "Bull Durham"). The Bull Durham
is located in Black Hawk, Colorado and currently operates as a Class B Gaming
Casino, which limits the casino to four (4) gaming tables and fewer than two
hundred fifty (250) slot machines. Under limited stakes gaming regulations in
Colorado, maximum wagers are limited to $5.00 per bet. The Bull Durham
commenced gaming operations in February, 1993. The Bull Durham operates under
a gaming license issued to the Company. Casinos U.S.A. ("Debtor") was in
default under all of its secured obligations encumbering the Bull Durham
Saloon and Casino. The efforts of the Company to negotiate restructured terms
for the repayment of the secured obligations were unsuccessful. As a result,
on October 18, 1995, Casinos U.S.A. filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code. Since October 18, 1995, Casinos
U.S.A. continued to operate the Bull Durham as debtor-in-possession. The
Court confirmed the Debtor's Second Amended Plan of Reorganization (the
"Plan") on December 18, 1996. The effective date of the Plan is thirty (30)
days after confirmation. (See ITEM 2. DESCRIPTION OF PROPERTIES)
NITRO CLUB - GAS LIGHT: CENTRAL CITY, COLORADO
----------------------------------------------
The Nitro Club and Gas Light properties are located in the limited
stakes gaming district in Central City, Colorado. Owned by the Company's
subsidiary, CGP, the Nitro Club and the Gas Light were never operated as
gaming facilities by the Company.
The Nitro Club was developed and operated by its prior owners as a
gaming casino from February, 1992 until January, 1993, when it ceased
operations due to lack of working capital resulting from unprofitable
operations, and non-renewal of its gaming license due to delinquent filing of
gaming tax reports and payment of gaming taxes. The Gas Light was operated
as a restaurant until 1991, and had never been developed as a gaming casino.
On January 25, 1996 the Company reached an agreement with the first
note holder on the Gas Light property to stay the foreclosure that was
initiated by the note holder. On March 7, 1996 a second mortgage holder on
the Nitro Club property initiated a foreclosure action. The Company was
unsuccessful in its attempts to settle this obligation and the note holder
foreclosed and assumed the obligations of the first mortgage holder. Because
the Company was unable to settle the Nitro Club obligations it ceased to make
the mortgage payments on the Gas Light notes payable. The statutory periods
within which the Company had the right to redeem the Gas Light and Nitro Club
out of foreclosure expired in June, 1996. (See ITEM 2. DESCRIPTION OF
PROPERTY)
EMPLOYEES
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The Company presently has six (6) full time employees: Stephen G.
Calandrella, Interim President; Peter Bloomquist, Chief Financial Officer;
George C. Garman, General Manager of Casino Masquerade; Dale Sterner, General
Manager of Casino Las Vegas; Daniel Scherer, General Manager of Bull Durham
Saloon and Casino; and one clerical staff.
Mr. Martindale was employed by the Company pursuant to the terms of
a three-year employment contract, which expired in November, 1996 and which
was not renewed by the Company. Mr. Martindale's contract provided for
payment of base salary in the amount of $8,000 per month, subject to certain
increases of up to $10,000 per month. Mr. Martindale was also entitled to
receive further incentive compensation based upon the Company's net income
from international gaming operations.
In consideration for his services as Interim President, the Company
resolved to grant and issue to Mr. Calandrella the following: 1) For each
month of service, beginning October 1, 1995 and ending June 30, 1996, a number
of shares of the Company's Common Stock, $0.05 par value, which, when
multiplied by the closing bid price of the Company's Common Stock as quoted on
NASDAQ on the date of issuance, equals $5,000; that such shares of Common
Stock shall be "restricted securities" under the Securities Act of 1933, as
amended; and 2) Incentive stock options granted under the Company's Stock
Incentive Plan, exercisable for a period of five (5) years to purchase, in the
aggregate, 150,000 shares of the Company's Common Stock at an exercise price
of $0.50 per share. Of such incentive stock options, 50,000 shall be
immediately vested and exercisable, and the remaining 100,000 incentive stock
options shall vest ratably over two (2) years, subject to Mr. Calandrella
continuing to serve as an executive officer or key employee of the Company,
with 50,000 incentive stock options vesting on October 13, 1996 and 50,000
incentive stock options vesting on October 13, 1997. Effective January 1,
1997, the Company resolved to pay base compensation to Mr. Calandrella in the
amount of $4,000 per month.
Mr. Bloomquist is employed by the Company pursuant to the terms of a
three (3) year employment contract which expired in July, 1997 and provided
for payment of base compensation in the amount of $7,500 per month. Mr.
Bloomquist is also eligible to receive incentive stock options, subject to
vesting, under the Company's 1993 Stock Incentive Plan.
Mr. Garman is employed by the Company as General Manager of Casino
Masquerade pursuant to a three (3) year employment contract, expiring in May,
1998, which provides for payment of a base annual compensation of $6,000 per
month. In addition, Mr. Garman is also entitled to receive a bonus equal to
(i) five percent (5%) of the net operating income of Casino Masquerade up to
$1,000,000, (ii) ten percent (10%) of the net operating income of Casino
Masquerade in excess of $1,000,000 and up to $1,500,000, and (iii) fifteen
percent (15%) of net operating income of Casino Masquerade in excess of
$1,500,000. Mr. Garman is also eligible to receive incentive stock options
subject to vesting, under the Company's 1993 Stock Incentive Plan.
Mr. Sterner is employed by the Company as General Manager of Casino
Las Vegas pursuant to a three (3) year employment contract, expiring in
November, 1998, which provides for payment of base compensation in the amount
of $6,250 per month. Mr. Sterner is also eligible to receive incentive stock
options subject to vesting, under the Company's 1993 Stock Incentive Plan. In
addition, Mr. Sterner shall be paid a quarterly bonus equal to five percent
(5%) of the consolidated net income of Casino Las Vegas.
Mr. Scherer is employed by the Company as General Manager of the
Bull Durham Saloon and Casino pursuant to a one (1) year employment contract,
which automatically renews for two (2) successive years and provides for
payment of base compensation in the amount of $5,000 per month. Mr. Scherer
is also eligible to receive incentive stock options subject to vesting, under
the Company's 1993 Stock Incentive Plan. In addition, Mr. Scherer shall be
paid an annual bonus equal to two and one-half percent (2-1/2%) of the net
income of the Bull Durham Saloon and Casino in excess of $150,000.
Ms. Rose was employed by the Company as Director of Marketing of
Casino Masquerade pursuant to a three (3) year employment contract which would
expire in December, 1998, which provided for payment of a base annual
compensation of $37,500. Ms. Rose resigned her position with the Company in
November, 1996.
Casino Masquerade currently operates with a total of 70 employees.
Because of the requirements of Aruban law, the staffing levels cannot be
decreased during the slower summer season, and as a result the company expects
the size of the labor force to remain relatively constant year round.
Pelican Casino currently operates with a total of 50 full-time
employees.
The Bull Durham currently employs 20 persons. During the peak
summer season, employment typically increases by a total of 15 employees.
Casino Las Vegas currently employs 48 persons.
CONSULTANTS
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The Company relies upon the services of independent consultants,
including its local accountants and local attorneys in the jurisdictions in
which the Company holds or plans to develop its international gaming
interests.
COMPETITION
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INTERNATIONAL
-------------
There are numerous national and international corporations and
entities engaged in the business of attempting to develop casinos throughout
the world. There are currently eleven (11) casinos on the island of Aruba,
Netherlands Antilles and eight (8) casinos on the island of St. Maarten,
Netherlands Antilles. These Caribbean resort islands have few barriers to
entry of new participants in the gaming business. The Company is aware of
four other operating casinos in Bishkek, Kyrgyzstan. The Company expects that
it will have to operate competitively in these markets and to respond to
challenges from competitors that have substantially greater financial and
personnel resources than the Company.
DOMESTIC
--------
Competition in the gaming industry in the United States is intense.
The Company presently estimates that gaming is permitted in most states in
some form. There are numerous competitors engaged in the same or similar
business as the Company, and competition has increased substantially in recent
years with more competitors entering the market. Competition from these
entities will continue to affect the operations of the Company and other
operators in the gaming industry. Competition in Central City and Black Hawk,
Colorado is particularly intense with numerous competitors in very close
proximity and new competitors entering the market. There can be no assurance
that the Company can obtain the resources necessary to compete successfully in
the industry or that the Company can operate profitably given the existing
level of competition.
The Company's operations also compete with other forms of gaming
conducted throughout the United States and the world. Other gaming activities
include Bingo, Lotto, table games, sports betting and pari-mutuel wagering.
REGULATION
- ----------
INTERNATIONAL
-------------
Ownership and operation of gaming establishments in each foreign
jurisdiction where the Company has operations are regulated by local
authorities. In virtually all jurisdictions in which the Company plans to
operate casinos, the Company will be required to obtain a Certificate of
Authority to conduct business in that jurisdiction, as well as numerous
licenses, including gaming licenses, tax licenses, liquor licenses and the
like. Each jurisdiction maintains its separate regulatory environment with
discrete requirements and approvals necessary.
In each jurisdiction in which the Company has an opportunity to
develop a casino, the Company has consulted with local officials as well as
local advisors, including attorneys, accountants, bankers and other
professionals whose services are or will be retained in order to ensure that
the Company complies with all applicable regulatory requirements. The Company
will, of necessity, rely upon the consultation of such advisors in order to
ensure compliance.
DOMESTIC: FEDERAL AND STATE LAW
-------------------------------
Ownership and operation of gaming establishments are extensively
regulated by states in which such activities are permitted. Colorado has
adopted numerous statutes and regulations covering limited stakes gaming
operations. Existing regulation includes various aspects of the gaming
industry, including ownership, operation and employment in all limited stakes
gaming operations, taxation of revenues and regulation of equipment utilized
in connection with such activities. Virtually all aspects of ownership and
operation of gaming facilities require licensing by the state. Operators,
machine manufacturers and distributors, employees and retailers are all
subject to extensive investigation and regulation prior to licensing to engage
in gaming activities. The procedure for obtaining these licenses is time
consuming and costly.
Because the Company is a publicly traded corporation, each of the
officers, directors and shareholders owning 5% or more of the equity interest
must be approved under existing statutes and regulations. The criteria
established in determining fitness to conduct such operations include
financial history, criminal record and character, in addition to satisfaction
of application procedures set forth in the existing regulations. As a result
of these regulations, any investor in the company who becomes a holder of 5%
or more of the Company's Common Shares may be required to submit to a
background investigation, provide financial statements and respond to
inquiries from gaming regulators in accordance with licensing procedures.
Such restrictions may discourage acquisition of large blocks of the Company's
Common Shares and depress the price of the Company's Common Shares in any
market which has or may develop.
Under current regulations promulgated by the Colorado Limited Gaming
Commission (the "Gaming Commission"), no gaming licensee may issue shares
except in accordance with Colorado gaming laws and regulations; and any such
issuances will be ineffective and such stock shall not be deemed issued until
compliance is obtained; no shares of the licensee may be transferred except in
accordance with Colorado Gaming Laws and regulations; and if the Gaming
Commission determines that a holder of a licensee's securities is unsuitable,
the licensee or a suitable person must, within sixty (60) days, purchase such
securities at the lesser of the unsuitable person's investment or the current
market price of such securities. Any person who becomes a beneficial owner of
five percent (5%) or more of the Company's Common Stock must notify the
Division of Gaming within ten (10) days after such person acquires such
securities and must provide such additional information and be subject to a
finding of suitability as required by the Division of Gaming Commission. The
Company must notify each person who is subject to this regulation of its
requirements as soon as it becomes aware of the acquisition. Further, each
person who becomes a beneficial owner of more than ten percent (10%) of any
class of voting securities of the Company must apply to the Commission for a
finding of suitability within ten (10) days after acquiring such securities.
The Company must notify each person who is subject to this regulation and its
requirements as soon as it becomes aware of the acquisition.
Existing federal and state regulations may also impose civil and
criminal sanctions for various activities prohibited in connection with gaming
operations. State statutes and regulations also prohibit various acts in
connection with gaming operations, including false statements on applications
and failure or refusal to obtain necessary licenses described in such
regulations. Violation of any of these existing or newly adopted regulations
may have a substantial adverse effect on the operations of the Company and its
subsidiaries.
DOMESTIC: LIQUOR LICENSE
------------------------
The Company has been granted a casino tavern license issued under
the Colorado Liquor Code for the Bull Durham. As revised in 1993, the
Colorado Liquor Code now includes a casino tavern license which is issuable to
duly licensed and operating limited gaming casinos.
TAXATION
- --------
INTERNATIONAL
-------------
All jurisdictions in which the Company has the opportunity to
develop casino operations impose tax on revenues and income generated as a
permitted gaming licensee. The Company has consulted extensively with tax
experts in each jurisdiction, as well as international tax experts in the
United States, for the purpose of familiarizing itself with the tax laws of
each such jurisdiction, as well as developing plans to take advantage of any
and all opportunities available to companies which operate foreign businesses
on a multi-jurisdictional basis. It is possible that the Company may form and
organize controlled corporations under the laws of foreign jurisdictions in
order to maximize the advantages available under the circumstances.
DOMESTIC
--------
The operations of the Company and its subsidiaries will be subject
to taxation at both the Federal and State level. Any net profits derived from
the operations of the Company or its subsidiaries will be subject to United
States Federal Income Tax and state income tax imposed by states in which they
operate. These provisions regarding Federal and state income tax are
generally applicable to all entities.
The operations of the Company and its gaming subsidiaries in the
gaming industry will also be subject to special taxes imposed by the states
which permit such activities. Colorado imposes a variable tax on "adjusted
gross proceeds" obtained within its boundaries. Adjusted gross proceeds is
defined to include the total amount of all wagers made by players on limited
stakes gaming, less all payments received by such players. With regard to
games of poker, adjusted gross proceeds means any sums wagered in the poker
hand, which may be retained by the operator of the gaming establishment. The
tax ranges from two percent (2%) of all adjusted gross proceeds up to
$2,000,000; eight percent (8%) for all adjusted gross proceeds from $2,000,001
up to $4,000,000; fifteen percent (15%) on all adjusted gross proceeds from
$4,000,001 to $5,000,000; and eighteen percent (18%) on all adjusted gross
proceeds in excess of $5,000,000. In addition, the Cities of Black Hawk and
Central City, as well as the State of Colorado, assess annual taxes, called
"device fees", on each gaming unit utilized in a casino.
The cumulative impact of all the taxes, fees and assessments is
substantial, and there can be no assurance that future increases in those
taxes will not have a material adverse effect on the Company's gaming
interests and operations.
All regulations affecting the operations of the Company's limited
gaming properties and businesses are subject to change by the respective
regulatory authorities. Accordingly, there can be no assurance that there
will not be enacted future amendments to those regulations which materially
and adversely affect the business and profitability of the Company.
SERVICE MARKS
- -------------
The Company has received a Certificate of Registration from the
United States Patent and Trademark Office of its Service Mark "Global Casinos,
Inc.", which includes both the name and the Company's logo as federally
protected service marks for use in connection with the Company's business.
The Company has filed an application in the United States Patent and
Trademark Office to register "Casino Masquerade", including both the name and
the casino's logo, as a federally protected service mark for use in connection
with the Company's business.
The Company may seek to register or file intent to use applications
for additional service marks or trademarks in the future. Although the
Company regards its service marks as valuable assets and intends to vigorously
defend its service marks against infringements, the Company does not believe
that the failure to obtain the service mark registrations for which it may
apply, or the infringement by another entity of its service marks, would have
a material adverse effect on the Company at the present time.
SEASONALITY
- -----------
INTERNATIONAL
-------------
Bishkek is the capital city of the newly independent State of
Kyrgyzstan, located on the western border of the Peoples' Republic of China.
Bishkek has a population of approximately 900,000, with local economy based
primarily on agriculture and natural resource development, including mining
and oil and gas exploration. The local economy is experiencing the same
difficulties shared with its other Communist Independent States ("CIS")
members in evolving from a predominantly socialist economy to a free market
economy, including low productivity and high inflation. Management
anticipates that the principal clientele of the casino will be drawn largely
from the local population without any significant dependence upon tourism.
Moreover, the restaurant Naryn is a large entertainment facility located in
the central business district of Bishkek. Therefore, the Company does not
expect Casino Las Vegas to experience significant seasonal fluctuations in
business or revenues.
Aruba and St. Maarten are independent nations comprising part of the
Netherlands Antilles along with Curacao and Bonnaire. The islands have
experienced accelerated international recognition as a premier Caribbean
resort destination, hosting millions of tourists each winter season. An
advantage to be gained by the Company acquiring the Casinos in the Caribbean
is the counter-cyclic effect that its high winter season would have with the
Company's domestic operations. Typically, Caribbean destination resorts
experience the highest concentration of tourism from December through April of
each year.
DOMESTIC
--------
The Company's casino in Colorado, while not seasonal in the
conventional sense, experiences a significant increase in tourist traffic
which occurs from May through September. The Bull Durham Saloon and Casino
("Bull Durham") will generally realize more of its annual revenues during the
tourist season. Based on historical precedent, the Bull Durham should not be
expected to perform better than on a "break-even" basis during the winter
months.
ITEM 2. DESCRIPTION OF PROPERTIES
- ------- -------------------------
CORPORATE OFFICES: COLORADO SPRINGS, COLORADO
---------------------------------------------
The Company's corporate headquarters were relocated to 4465
Northpark Drive, Suite 400, Colorado Springs, Colorado 80907, where the
Company is sharing office space with an affiliate. These facilities are
believed by the Company to be suitable and adequate to meet the Company's
needs for the foreseeable future. The Company is currently not paying rent,
but is negotiating lease terms with the affiliate.
CASINO LAS VEGAS: BISHKEK, KYRGYZSTAN
-------------------------------------
The Company's right to operate the Casino Las Vegas in the Naryn
Restaurant located in the City of Bishkek, Kyrgyzstan, is derived from an
agreement initially entered into in 1992 (the "Naryn Contract") between
Corporation Restaurant Naryn and Aztec-Talas-Four Star, Inc., a Nevada
corporation ("ATF"). The Naryn Contract was assigned by ATF, with the consent
of Corporation Restaurant Naryn, to Global Group, the Company's international
joint venture partner. Global Group, in turn, assigned the Naryn Contract to
the International Joint Venture. Pursuant to the Dissolution Agreement,
effective July 15, 1995, the International Joint Venture assigned all rights
in Casino Las Vegas and the Naryn Contract with Corporation Restaurant Naryn
to the Company.
The Company operates the Casino Las Vegas on the second floor of the
Restaurant Naryn in Bishkek under a joint venture agreement with the Joint
Stock Company Naryn. The casino opened in July, 1994. Casino Las Vegas
occupies approximately 4,000 square feet, and contains eighteen (18) slot
machines, three (3) black jack tables, three (3) Caribbean Stud poker tables,
one (1) Let it Ride table, and two (2) roulette wheels. The Agreement has a
term of twenty (20) years, expiring on April 12, 2013.
Net income generated from gaming operations at the casino was
divided sixty-one percent (61%) to the Company and thirty-nine percent (39%)
to the Corporation Restaurant Naryn through September 1996, and 50%.
CASINO MASQUERADE: ARUBA, NETHERLAND ANTILLES
----------------------------------------------
On April 29, 1994, the Company closed upon a definitive Stock
Purchase Agreement purchasing a net sixty-six and two-thirds percent (66-2/3%)
interest in the Casino Masquerade which is located in the recently renovated
Radisson Aruba Caribbean Resort and Casino on the Caribbean resort island of
Aruba, Netherlands Antilles. The Aruba Caribbean Resort and Casino (the
"Hotel") is owned by the Dutch Hotel and Casino Development Corporation N.V.,
an Aruba corporation ("Dutchco") and operates under an October 11, 1992
Management Agreement with Radisson Hotel Corporation. Dutchco holds a gaming
permit issued by the Nation of Aruba which authorizes it to operate a gaming
casino on the premises. Under the authority of its Gaming License, Dutchco
has leased the casino to Global Entertainment Group N.V., an Aruba corporation
("Global Entertainment") which, since 1993, has operated the casino under an
exclusive lease which has a term of five (5) years with automatic one (1) year
extensions thereafter.
Global Entertainment is wholly-owned by BPJ Holding N.V., a Curacao
corporation. The definitive Stock Purchase Agreement provided for the
purchase by the Company of sixty-six and two-thirds percent (66-2/3%) of the
issued and outstanding shares of the capital stock of BPJ Holding N.V. Until
July 15, 1995, the remaining thirty-three and one-third percent (33-1/3%) of
BPJ Holding N.V. was owned by Broho Holding N.V., an unaffiliated company
controlled by Kenneth D. Brown. Effective July 15, 1995, Broho Holding N.V.
assigned its interest to the Company. The Company presently holds one hundred
percent (100%) of the issued and outstanding stock of BPJ Holding N.V.
The Company leases the Casino Masquerade facility under an operating
lease which expires in December, 2002 with an option to renew for 10 years.
The Casino occupies approximately 8,500 square feet in the Hotel under the
lease agreement between Dutchco and Global Entertainment. As rent under the
January 18, 1993 lease agreement, Global Entertainment was obligated to pay
Dutchco percentage rent based upon the gross gaming revenues (net of all
government taxes and fees) of the casino equal to ten percent (10%) of the
gross gaming revenues for the year ended December, 1995, fifteen percent (15%)
for the year ended December, 1996, and thereafter twenty percent (20%) of
gross gaming revenues. Under the lease, "gross gaming revenue" is defined to
mean (i) the net win from gaming activities, which is the difference between
gaming wins and losses before deducting cost and expenses which shall include
all markers, promises to pay and checks received, less (ii) the Aruba gaming
tax and the expenditures related to the employment of government inspectors
for the casino operation. During December, 1995, the Company reached an
agreement to modify the terms of the lease agreement whereby beginning January
1, 1996, the rent was calculated as $400,000 per year plus fifteen percent
(15%) of the gross gaming revenue over $4,000,000.
The Casino has been fully operational since December, 1993, when
extensive renovations to the Hotel were completed. Operations at the casino
currently consist of one hundred fifty-five (155) slot machines, six (6) black
jack tables, two (2) roulette wheels, two (2) Caribbean Stud tables, three (3)
Let it Ride tables, and one (1) craps table. The casino also serves liquor
and provides a limited food service. In September, 1997, the Company was
informed that Dutchco contemplates closing the property from March, 1998
through December, 1998 to conduct extensive renovations. The Company and
Dutchco are currently negotiating the Company's rights under the operating
lease agreement.
PELICAN CASINO: ST. MAARTEN, NETHERLANDS ANTILLES
--------------------------------------------------
Effective August 1, 1996, the Company, through its subsidiary
Global Pelican, entered into a cancelable Management and Operating Lease
Agreement (the "Pelican Agreement") with a third party, whereby Global Pelican
agreed to lease and operate the Pelican Casino, located on the island of St.
Maarten. The original term of the lease was for five years, with its options
to renew for three additional five-year terms. Lease payments were scheduled
to be $30,000 per month for the initial lease term beginning in November 1996.
Rent expense in 1997 was $225,000. The Pelican Agreement provides that Global
Pelican would also purchase the equipment utilized at the casino for $225,000
in exchange for a note payable, subject to the owner providing clear title to
the equipment. The Pelican Agreement also states that until the equipment
liens and encumbrances are released, Global Pelican has the right to terminate
the Pelican Agreement. At June 30, 1997, the equipment remains subject to
liens and encumbrances, and Global Pelican has therefore not purchased the
equipment. In July 1997, Global Pelican renegotiated the terms of the Pelican
Agreement, whereby Global Pelican is to pay $20,000 per month through November
1997, of which $15,000 is to be applied as monthly rent, and $5,000 as
deferred rent pending completion of negotiations between Global Pelican and
the lessor. Global Pelican is scheduled to continue negotiations with the
lessor by November 1997.
BULL DURHAM SALOON AND CASINO: BLACK HAWK, COLORADO
---------------------------------------------------
The Bull Durham Saloon and Casino ("Bull Durham") was acquired by
Casinos U.S.A., Inc. ("Casinos U.S.A.") in 1992 for a purchase price of $3.5
million. Casinos U.S.A. owns the real property and improvements subject to
numerous security interests. The Bull Durham consists of approximately 4,700
square feet and currently operates one hundred and thirteen (113) slot
machines and two (2) black jack tables. The casino also holds a retail liquor
license issued by the State of Colorado, and offers a limited food service in
addition to beverages. The Company is currently exploring options to expand
this property.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company is currently involved in the following pending legal
proceeding:
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION.
-------------------------------------------------
During 1995 and through 1997, the Company and certain officers and
directors of the Company received requests for information from the
U.S. Securities and Exchange Commission ("SEC") related to an
investigation begun by the SEC during 1994 into various matters,
including certain transactions in securities by the Company and one
of its officers and directors. On January 13, 1997, the Company was
notified that the SEC staff intended to recommend initiation of
administrative procedures for a Cease and Desist Order against the
Company and two of its former officers and directors with violations
of certain provisions of federal securities laws. The Company has
engaged in negotiations with the SEC staff concerning possible
disposition of this matter. Based upon the content of these
discussions, management believes that the outcome of this matter
will not have a material adverse effect on the business of the
Company, however, there can be no assurance that such will be the
case.
<PAGE>
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of the Company's shareholders
during the quarter ended June 30, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- --------------------------------------------------------
The outstanding shares of Common Stock are traded over-the-counter
and traded on the NASDAQ SmallCap Market under the symbol "GBCS". The
reported high and low bid and ask prices for the Common Stock are shown below
for the period from July 1, 1996 through September 30, 1997:
<TABLE>
<CAPTION>
Bid Ask
--- ---
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1996 Fiscal Year
First Quarter 7.50 4.06 7.81 5.31
Second Quarter 6.25 1.88 6.88 2.50
Third Quarter 4.06 1.88 4.69 2.19
Fourth Quarter 13.44 3.13 13.44 3.13
1997 Fiscal Year
First Quarter 7.50 3.75 8.125 4.375
Second Quarter 4.688 3.125 5.00 3.438
Third Quarter 4.25 2.25 4.75 2.75
Fourth Quarter 3.625 2.625 3.875 2.875
</TABLE>
The bid and ask prices of the Company's Common Stock as of September
30, 1997 were 3.625 and 3.75 respectively, as reported on NASDAQ. The prices
represented above are bid and ask prices which represent prices between
broker-dealers and do not include retail mark-ups and mark-downs or any
commissions to the broker-dealer. The prices do not reflect prices in actual
transactions. As of September 30, 1997, there were approximately 917 record
owners of the Company's Common Stock.
The Company's Board of Directors may declare and pay dividends on
outstanding shares of Common Stock out of funds legally available therefor in
its sole discretion; however, to date no dividends have been paid and the
Company does not anticipate the payment of dividends in the foreseeable
future. Further, under the terms of the Convertible Preferred Stock issued by
the Company, the Company is restricted from paying cash dividends on Common
Stock during the period that the Convertible Preferred Stock is outstanding.
The Company was obligated to redeem any outstanding shares of Convertible
Preferred Stock on or before May 31, 1995, and the Company is in default on
this obligation with holders of Preferred Stock representing an aggregate
redemption value of $53,500, such holders having not entered into letter
agreements with the Company in May, 1995 as described elsewhere in this
report. (See ITEM 1. DESCRIPTION OF BUSINESS, Financing.)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------- ---------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
Report.
LIQUIDITY AND CAPITAL RESOURCES - JUNE 30, 19965 COMPARED TO JUNE 30, 1997
- -------------------------------------------------------------------------
The Company has continued its efforts to formulate plans and
strategies to address the Company's financial condition and increase
profitability. In December 1996, the Bankruptcy Court approved Casinos
U.S.A.'s Second Amended Plan of Reorganization (See Note 3). As a result, a
significant amount of the Company's debt has been extinguished and/or
restructured. Management continues to negotiate with creditors of debt that
remains in default. The Company also continues to explore acquisition
opportunities, such as the acquisition of ABS which occurred in August 1997
(See Note 14). Management believes that these plans will result in to
increased liquidity and future profitability. On October 18, 1995, Casinos
U.S.A. filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code. On December 18, 1996, the Bankruptcy Court confirmed the
Company's Second Amended Plan of Reorganization (the "Plan").
As a result the Company reported an extraordinary gain on debt
extinguishment $1,285,765. In addition, the Senior Secured Debt
Holders and the Junior Secured Debt Holders shall receive warrants
that permit their holders to purchase from the reorganized Debtor an
amount of common stock so that immediately after exercise, the
Warrant holders will own eighty percent (80%) of the common stock of
the Debtor. The Warrants shall be exercisable at any time from one
year after the Effective Date and before seven (7) years after the
Effective Date, but only subsequent to a sale of substantially all
of the Debtor's assets, merger, recapitalization, refinance or other
restructuring. The Warrants shall terminate after all of the
indebtedness to that holder of the Warrant has been paid, even where
seven (7) years from the Effective Date have not passed, so long as
there has been no merger, recapitalization, restructuring, refinance
or sale of substantially all of the assets of the Debtor prior to
the payment of such indebtedness.
In October, 1996, the Company raised $630,250 through an offering of
Units ("Units"), each Unit consisting of one (1) eight percent (8%) $1,000
convertible Promissory Note ("Promissory Note"), 200 Class E Common Stock
Purchase Warrants ("E Warrants"), 200 Class F Common Stock Purchase Warrants
("F Warrants"), and 200 Class G Common Stock Purchase Warrants ("G Warrants").
The Promissory Note is convertible to common stock at $5.00 per $1.00 loaned
and the Promissory Notes are due October 31, 1998. The Class E Warrants, F
Warrants and G Warrants are exercisable at $6.00, $7.00, and $8.00,
respectively.
By Letter Agreement dated July 31, 1996, the Company was able to
renegotiate the terms of a $750,000 Convertible Note. The restructured terms
call for the conversion price to be lowered from $30.00 per $1.00 loaned to
$10.00 per $1.00 loaned. Interest on the Convertible Note was reduced from
nine percent (9%) to seven percent (7%) and all prior accrued interest was
waived which resulted in an extraordinary gain of $164,627 from debt
restructuring. In addition, the Company shall assign its secured indebtedness
on Casinos in the amount of $249,418 to the holder of the $750,000 Convertible
Note as a principal reduction of this note. This Letter Agreement is
effective upon the Effective Date of Casinos U.S.A.'s Bankruptcy Plan.
On November 18, 1996, the Company effected a one-for-ten (1-for-10)
reverse split of its securities pursuant to the prior authorization of its
shareholders and Board of Directors.
The Company performs an annual assessment to determine whether there
has been an impairment in the carrying values of its land, buildings,
equipment and leasehold and contract rights. In performing this assessment,
management considers available appraisal information, current and projected
sales, operating income, and annual cash flows on an undiscounted basis. If
management determines that an impairment has occurred, an impairment loss is
recognized, based on the difference between the assets' carrying values over
the estimated fair values. Based on its annual review, the Company does not
believe that any impairments have occurred on its land, buildings, equipment,
leasehold and contract rights during 1997.
During the year ended June 30, 1997, the Company made advances to a
related company (evidenced by a convertible promissory note bearing interest
at 10%, "Convertible Note") that was formed to explore opportunities related
to entertainment and gaming sites on the Internet. In May 1997, the Company
entered into an agreement to exchange the Convertible Note for 30,000 shares
of Convertible Preferred Stock to First Entertainment, Inc. ("FEI"). The
agreement is contingent upon FEI shareholders' approval, for which a
shareholders meeting is currently scheduled for November 1997. Based upon the
financial resources of FEI and the financial condition of the maker of the
convertible note, the Company recorded an impairment of the convertible note
in the amount of $385,418 at June 30, 1997.
The Company's balance sheet reflects an increase in current assets,
a decrease in total assets, and an increase in working capital. Specifically,
during the year ended June 30, 1997, current assets increased from $1,067,962
at June 30, 1996, to $1,318,717 at June 30, 1997, an increase of $250,755 or
23.5%. Increases in cash of $160,997, or 18.1%, current portion of notes
receivable of $3,911, or 7.3%, and prepaid and other of $109,333, or 371.1%,
the majority of which is due to deferred rent and other prepaid expenses at
Global Pelican. These were offset by decreases in receivables from related
parties of $12,312, or 52.4%, and accounts receivable of $11,174, or 15.1%.
The Company's net investment in land, buildings and equipment
increased by $541,423, or 8.4%. The increase is primarily attributed to the
purchase of equipment for the Pelican Casino.
Current liabilities decreased from $2,890,708 at June 30, 1996, to
$2,043,024 at June 30, 1997. This decrease is comprised of a reduction in
accounts payable of $417,238, mandatory redeemable preferred stock of $35,000,
and current portion of long term debt including debt in default of $492,729.
The majority of the decreases in the current portion of long-term debt of
$492,729 was from the renegotiation of a $750,000 convertible debt that was in
default. These decreases were offset by an increase in accrued expenses of
$97,283.
Long-term debt less current portion increased from $52,266 at June
30, 1996 to $4,052,900 at June 30, 1997. This increase is comprised of
$2,590,457 of debt issued pursuant to the Plan of Reorganization as confirmed
by the Bankruptcy Court, restructuring of $500,581 of debt previously regarded
as current portion of long-term debt, and new net long-term debt borrowing of
$909,596, the majority of which was the issuance of $630,250 of convertible
debt.
As a result of the foregoing increase in current assets and decrease
in current liabilities, the Company's working capital increased from
$(1,822,746) on June 30, 1996, to $(724,307) on June 30, 1997, or a 57.7%
increase. Approximately $482,000 is comprised of debt in default included in
the current portion of long-term debt and Aruban controller costs. The
Company is attempting to negotiate these debts. The current ratio increased
from .37 to .65.
During the fiscal year ended June 30, 1997, the Company was able to
negotiate $109,279 of debt to accept an aggregate of 21,261 shares of Common
Stock in satisfaction of this debt. During the year ended June 30, 1997, the
Company reported net income of $386,016. As a result of the foregoing,
stockholders' equity increased from $2,540,964 at June 30, 1996 to $3,036,258
at June 30, 1997, or a 19.5% increase.
As a result of a net loss during the year ended June 30, 1996, of
$2,011,078, together with non-cash net expenses of $2,234,386 (comprised of
amortization of $366,300, depreciation of $459,815, stock for services of
$86,648, impairment of gaming facility of $1,225,000, and minority interest of
$205,437, provision for uncollectible receivables of $113,000, gain from
extinguishment of debt of $221,814), and increases in operating assets and
liabilities totaling $499,095 (primarily due to increases in accounts payable
and accrued expenses), at the year ended June 30, 1996, the Company reported
net cash provided by operations of $722,403. This compares with net cash
provided in operations of $278,719 for the year ended June 30, 1997, based on
a net income of $386,016, net non-cash items of $44,955 (comprised of $378,829
of amortization, $490,867 of depreciation, reserve for receivables of
$79,600, minority interest of $171,819, loss on investment, loan and advances
to affiliate of $385,418, offset by $1,551,488 of gain on extinguishment of
debt and a decrease in operating assets and liabilities of $62,342).
Net cash used by investing activities for the year ended June 30,
1997 was $1,035,170. This compares with net cash used by investing activities
of $264,921 for the year ended June 30, 1996. For the year ended June 30,
1997, the Company used $543,422 for the purchase of equipment, $8,643 for
additions to other assets, and $385,418 for the investment, loan and advances
to affiliates. This compares to $165,709 for the purchase of equipment for
the year ended June 30, 1996. Offset against this, the Company received
$53,735 of principal payments on its notes receivable for the year ended
June 30, 1997. This compares with principal payments on its notes receivable
of $70,361 and a reduction of other assets of $14,985 for the year ended June
30, 1996. At June 30, 1996 the Company had proceeds from the sale of
equipment of $3,410. This compares to proceeds from the sale of equipment of
$1,999 at June 30, 1997. For the year ended June 30, 1997 the Company had
distribution to minority interest of $153,421 compared to $187,968 for the
year ended June 30, 1996.
Net cash provided by financing activities for the year ended
June 30, 1997 was $917,448. This compares with net cash used by financing
activities of $135,104 for the year ended June 30, 1996. Specifically, cash
provided by financing activities from borrowings against notes payable was
$1,580,177 for the year ended June 30, 1997. Offset against the cash provided
by financing activities were promissory note principal reduction payments in
the amount of $662,729. This compares to proceeds from the issuance of Common
Stock of $140,639 for the year ended June 30, 1996. This was offset by debt
payments of $267,743 and payment of $8,000 to retire Mandatory Redeemable
Preferred Stock for the year ended June 30, 1996.
Neither the Company nor any of its subsidiaries have any commercial
bank credit facilities.
SUBSEQUENT EVENTS
- -----------------
On August 1, 1997, the Company acquired 100% of the outstanding
Common Stock of Anchorage-based Alaska Bingo Supply, Inc. ("ABS") and its
related operations. ABS will be operated by the Company's wholly-owned
subsidiary, Global Alaska Corporation ("Global Alaska").
The Company purchased ABS for $4,400,000, of which $400,000 was paid
in cash at closing, with the $4,000,000 balance in the form of a promissory
note to be held by ABS, bearing interest at eight percent (8%) and to be
amortized monthly over a term of seven (7) years beginning in October, 1997.
During the term of the note, the stockholder has the option to convert up to
$2,500,000 of the promissory note into shares of the Company's Common Stock at
a price of ten dollars ($10) per share.
In order to fund this acquisition, the Company borrowed $350,000
from third parties and $75,000 from an affiliate. The promissory notes are
due in equal monthly payments from January 1998 through April 1998. The
promissory notes to third parties are secured by a note receivable by the
Company. Interest on $200,000 of the notes is at 24% and interest on the
remaining $225,000 (including the affiliate Note) is at 12%. Additionally,
the holder of the $150,000, 12% note was issued warrants to purchase 15,000
shares of the Company's common stock at an exercise price of $3.00 per share.
The warrants expire June 2000.
Other than the foregoing, Management knows of no other trends,
events or uncertainties that have or are reasonably likely to have a material
impact on the Company's short-term or long-term liquidity.
RESULTS OF OPERATIONS - YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED
JUNE 30, 1996
- --------------------------------------------------------------------------
A comparison of the results of operations of the Company for the year
ended June 30, 1996 with the results of operations for the year ended June 30,
1997 demonstrates the Company's concentration on improving operating results.
For the year ended June 30, 1996, the Bull Durham Saloon and Casino in Black
Hawk, Colorado, Casino Las Vegas in Bishkek, Kyrgyzstan, and Casino Masquerade
in Aruba operated for the entire twelve-month period. For the year ended June
30, 1997, the Bull Durham, Casino Las Vegas and Casino Masquerade operated for
the entire twelve-month period, and the Pelican Casino in St. Maarten began
operations in August, 1996.
Net revenues for the year ended June 30, 1997 were $9,234,097 based on
casino revenues of $8,978,720, revenues from the sale of food of $195,550, and
other income of $59,827. Net revenues for the year ended June 30, 1996 were
$7,476,699 comprised of casino revenues of $7,315,497, food and beverage of
$150,743, and other revenues of $10,459.
More specifically, revenues at Casino Las Vegas and Casino Masquerade
decreased from $5,491,763 at June 30, 1996 to $4,675,507 at June 30, 1997. It
is believed this decrease is a result of increased competition in these
markets. At June 30, 1997, net revenues from domestic operations were
$2,248,645 comprised of $2,229,645 from Bull Durham and other domestic income
of $19,000, compared to net revenues at June 30, 1996 of $1,958,349 from Bull
Durham and $2,102 in other revenue from domestic operations. In addition, at
June 30, 1997 the Company had net revenues of $2,309,945 from Pelican Casino.
The foregoing changes in operations also resulted in an increase in
operating, general and administrative expenses which increased from $6,925,559
for the year ended June 30, 1996 to $8,698,312 for the year ended June 30,
1997, an increase of 25.6%. The Pelican Casino added $2,412,062 in operating,
general and administrative expenses. Therefore, the Company was able to
reduce operating expenses by $639,309 from the prior year. Depreciation
increased 6.8% and amortization increased 3.4% over the same period.
Total operating expenses increased from $8,976,674 for the year ended
June 30, 1996 to $9,568,008 for the year ended June 30, 1997, an increase of
6.6%.
As a result of the increase in net revenues, and an increase in operating
expenses, losses from operations were reduced 77.7% to a loss of $333,911 for
the year ended June 30, 1997, from a loss of $1,499,975 for the year ended
June 30, 1996. Interest income decreased 67.8% while interest expense
decreased 50.3% over the same period due to the Chapter 11 proceedings of
Casinos U.S.A. During the year ended June 30, 1997, the Company reported a
loss on investment of $385,418. Losses before reorganization items, minority
interest, and extraordinary items decreased 50.4% from a loss of $1,995,006
for the year ended June 30, 1996, to a loss of $990,150 for the year ended
June 30, 1997.
For the year ended June 30, 1997, the Company had net expenses from
reorganization of $3,503 and an extraordinary gain from reorganization of
$1,285,765. The Company reported a gain from debt restructuring of $265,723
for the year ended June 30, 1997, compared to a gain from debt restructuring
of $221,814 for the year ended June 30, 1996. Due to a decrease in the
operating results of Casino Las Vegas, the Company reported minority interest
expense of $171,819 for the year ended June 30, 1997, compared to a minority
interest expense of $205,437 for the year ended June 30, 1996.
As a result of the foregoing, the Company reported net income for the
year ended June 30, 1997 of $386,016, from the net loss for the year ended
June 30, 1996 of $2,011,078, which translates into net income per share of
$0.29 based on 1,350,418 weighted average shares outstanding for the year
ended June 30, 1997, and a net loss per share of $1.81, based on 1,110,671
weighted average shares outstanding for the year ended June 30, 1996.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the income and expenses
of the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT
- ----------------------------------------
Certain statements in this Annual Report on Form 10-KSB which are not
historical facts are forward looking statements, such as statements relating
to future operating results, existing and expected competition, financing and
refinancing sources and availability and plans for future development or
expansion activities and capital expenditures. Such forward looking
statements involve a number of risks and uncertainties that may significantly
affect the Company's liquidity and results in the future and, accordingly,
actual results may differ materially from those expressed in any forward
looking statements. Such risks and uncertainties include, but are not limited
to, those related to effects of competition, leverage and debt service
financing and refinancing efforts, general economic conditions, changes in
gaming laws or regulations (including the legalization of gaming in various
jurisdictions) and risks related to development and construction activities.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
Global Casinos, Inc. (the "Company"), a Utah corporation, develops and
operates gaming casinos domestically and internationally. At June 30, 1997,
the consolidated financial statements of the Company include the accounts of
the following wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
BPJ HOLDINGS N.V. ("BPJ"), a Curacao Limited Liability Company,
which operates the Casino Masquerade on the Caribbean resort island
of Aruba.
GLOBAL PELICAN N.V. ("Global Pelican"), a St. Maarten Limited
Liability Company which began operating the Pelican Casino located
on the island of St. Maarten in the Netherlands Antilles on August
1, 1996. Global Pelican operates the casino under a Management and
Operating Lease Agreement (See Note 8).
GLOBAL ALASKA CORPORATION ("Global Alaska"), an Anchorage
corporation, which acquired Alaska Bingo Supply, Inc. ("ABS")
located in Anchorage, Alaska on August 1, 1997 (See Note 14).
CASINOS U.S.A., INC. ("Casinos U.S.A."), a Colorado corporation,
which owns and operates the Bull Durham Saloon and Casino ("Bull
Durham"), located in the limited stakes gaming district in Black
Hawk, Colorado (See Note 3).
GLOBAL CASINOS INTERNATIONAL, INC. ("Global International"), a
Delaware corporation, which through July 15, 1995, owned an 80%
interest in an International Joint Venture ("IJV") which held
certain rights to develop and operate gaming casinos in several
international locations. Through the IJV, the Company opened Casino
Lazurnaya in Sochi, Russia and Casino Las Vegas in Bishkek,
Kyrgyzstan. Effective July 15, 1995, the Company exchanged its
interest in Global International and Casino Lazurnaya for an
additional interest in BPJ and the Casino Las Vegas. Through this
transaction, the Company now owns 100% of BPJ and a 61% profits
interest in the Casino Las Vegas (See Note 2).
COLORADO GAMING PROPERTIES, INC. ("CGP"), a Colorado corporation,
which through June, 1996, owned two non-operating real estate
properties, the Nitro Club and Gas Light properties located in
Central City, Colorado (See Note 4).
LINCOLN CORPORATION ("Lincoln"), a South Dakota corporation, which
operated the Last Chance Saloon ("Last Chance") in Deadwood, South
Dakota under a lease agreement. Last Chance was closed effective
May 31, 1994, and the lease agreement was terminated.
WOODBINE CORPORATION ("Woodbine"), a South Dakota corporation, which
operated Lillie's Casino ("Lillie's") in Deadwood, South Dakota
through June 30, 1995. Beginning in July 1996, Woodbine began
leasing this property and related equipment to a third party. These
leasing activities are immaterial to the financial statements.
ITEM 7. FINANCIAL STATEMENTS
- ------- --------------------
The following financial statements are filed as part of this report:
1. Report of Independent Auditors;
2. Audited Balance Sheet as of June 30, 1997;
3. Audited Statements of Operations as of June 30, 1997 and 1996;
4. Audited Statements of Changes in Stockholders' Equity for the
years ended June 30, 1997 and 1996;
5. Audited Statements of Cash Flows for the years ended June 30,
1997 and 1996; and
6. Notes to Financial Statements.
All schedules are omitted since the required information is not
present or is not in amounts sufficient to require submission of the schedule,
or because the information required is included in the financial statements
and notes thereto.
PART III
Part III, Items 9, 10, 11 and 12, are incorporated herein by
reference from the Registrant's definitive proxy statement relating to its
Annual Meeting of Shareholders which will be filed in an amendment within 120
days of June 30, 1997.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
- -------- ------------------------------------------------------
FINANCIAL STATEMENTS
--------------------
The following financial statements are filed as part of this report:
1. Report of Independent Auditors;
2. Audited Balance Sheet as of June 30, 1997;
3. Audited Statements of Operations as of June 30, 1997 and 1996;
4. Audited Statements of Changes in Stockholders' Equity for the
years ended June 30, 1997 and 1996;
5. Audited Statements of Cash Flows for the years ended June 30,
1997 and 1996; and
6. Notes to Financial Statements.
EXHIBITS
--------
a. The following Exhibits are filed as part of this Report
pursuant to Item 601 of Regulation S-B:
Exhibit No. Title
- ----------- -----
* 1.0 Articles of Amendment to the Articles of Incorporation dated
June 22, 1994
* 3.1 Amended and Restated Articles of Incorporation
* 3.2 Bylaws
* 3.3 Certificate of Designations, Preferences, and Rights of Series A
Convertible Preferred Stock
* 4.1 Specimen Certificate of Common Stock
* 4.2 Specimen Class A Common Stock Purchase Warrant
* 4.3 Specimen Class B Common Stock Purchase Warrant
* 4.4 Specimen Class C Common Stock Purchase Warrant
* 4.5 Warrant Agreement
* 5.0 Opinion of Neuman & Drennen, LLC regarding the legality of the
securities being registered
* 10.1 Selling Agent Agreement
* 10.2 The Casino-Global Venture I Joint Venture Agreement
* 10.3 Assignment of Casino-Global Joint Venture Agreement dated
January 31, 1994
* 10.4 Nonresidential Lease Agreement between Russian-Turkish Joint
Venture Partnership with Hotel Lazurnaya and Global Casino Group,
Inc. dated September 22, 1993
* 10.5 Contract by and between Aztec-Talas-Four Star, Inc. and Global
Casinos Group, Inc. dated April 12, 1993, and Addendum to
Agreement by and between Aztec-Talas-Four Star, Inc., Global
Casinos Group, Inc. and Restaurant "Naryn" dated June 29, 1993.
* 10.6 Agreement and Plan of Reorganization among Silver State Casinos,
Inc., Colorado Gaming Properties, Inc. and Morgro Chemical
Company, dated September 8, 1993, incorporated by reference from
the Company's Current Report on Form 8-K, dated September 20,
1993
* 10.7 Agreement and Plan of Reorganization among Casinos U.S.A.,
Lincoln Corporation, Woodbine Corporation and Morgro Chemical
Company, dated October 15, 1993, incorporated by reference from
the Company's Current Report on Form 8-K, dated November 19, 1993
* 10.8 Stock Pooling and Voting Agreement, incorporated by reference
from the Company's Current Report on Form 8-K, dated November 19,
1993
* 10.9 Employment Agreement, dated September 28, 1993, between Morgro
Chemical Company and Nathan Katz, incorporated by reference from
the Company's Current Report on Form 8-K, dated November 19, 1993
* 10.10 Employment Agreement, dated October 15, 1993, between Morgro
Chemical Company and William P. Martindale, incorporated by
reference from the Company's Current Report on Form 8-K, dated
November 19, 1993
* 10.11 Asset Acquisition Agreement by and among Global Casinos, Inc.,
Morgro, Inc. and MDO, L.L.C., dated as of February 18, 1994,
incorporated by reference from the Company's Current Report on
Form 8-K, dated February 18, 1994
* 10.12 Stock Purchase Agreement, dated March 25, 1994, incorporated by
reference from the Company's Current Report on Form 8-K, dated
April 29, 1994
* 10.13 Articles of Incorporation of BPJ Holding N.V., incorporated by
reference from the Company's Current Report on Form 8-K, dated
April 29, 1994
* 10.14 Aruba Caribbean Resort and Casino Lease Agreement, dated
January 18, 1993, incorporated by reference from the Company's
Current Report on Form 8-K, dated April 29, 1994
* 10.15 Aruba Gaming Permit issued to Dutch Hotel and Casino Development
Corporation, incorporated by reference from the Company's Current
Report on Form 8-K, dated April 29, 1994
* 10.16 Letter Agreement between Astraea Investment Management, L.P. and
Global Casinos, Inc. dated May 11, 1994
* 10.17 Guaranty from Global Casinos, Inc. to Astraea Investment
Management, L.P. dated May 19, 1994
* 10.18 Secured Convertible Promissory Note in favor of
Global Casinos, Inc. from Astraea Investment
Management, L.P. dated May 19, 1994
* 10.19 Registration Rights Agreement between Global Casinos,
Inc. and Astraea Investment Management, L.P. dated
May 11, 1994
* 10.20 Employment Agreement, dated July 1,1994 , between Global Casinos,
Inc. and Peter Bloomquist
** 10.21 Letter of Agreement, dated September 16, 1994 between Astraea
Management Services, L.P., Casinos U.S.A., Inc. and Global
Casinos, Inc.
*** 10.23 Letter of Agreement dated June 27, 1995, between Global Casinos,
Inc., Global Casinos International, Inc., Global Casinos Group,
Inc., Broho Holding, N.V., and Kenneth D. Brown individually.
* 10.24 Secured Amended Plan of Reorganization of Casinos USA, Inc., and
Order Confirming Plan
* 10.25 Warrant Agreement
________________________________
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-76204, on file with the Commission on
August 11, 1994.
** Incorporated by reference to the Registrant's Annual Report on Form 10-
KSB for year ended June 30, 1994.
*** Incorporated by reference to the Registrant's Current Report on Form 8-K
dated July 15, 1995.
REPORTS ON FORM 8-K
-------------------
The Registrant did not file any Current Reports on Form 8-K during
the Fourth Quarter ended June 30, 1997.
<PAGE>
<PAGE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1997 AND 1996
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors (Gelfond Hochstadt Pangburn & Co.) . . . . F-
Consolidated Balance Sheet - June 30, 1997 . . . . . . . . . . . . . . . . F-
Consolidated Statements of Operations - For Years
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-
Consolidated Statements of Stockholders' Equity - For
Years Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . F-
Consolidated Statements of Cash Flows - For Years
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Global Casinos, Inc.
We have audited the accompanying consolidated balance sheet of Global Casinos,
Inc. and subsidiaries as of June 30, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the two-year period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 Global
Casinos, Inc. and subsidiaries as of June 30, 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
September 30, 1997
<PAGE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
<S> <C>
ASSETS
- ------
Current assets:
Cash $ 1,048,371
Receivables, related parties 11,199
Receivables, net of allowance for doubtful
accounts of $14,750 62,710
Prepaid expenses and other 138,792
Current portion of notes receivable 57,645
---------------
Total current assets 1,318,717
Land, buildings and equipment:
Land 531,715
Buildings 3,913,510
Equipment 2,539,837
---------------
6,985,062
Accumulated depreciation (1,615,751)
---------------
Net land, buildings and equipment 5,369,311
Other assets, net of amortization of $17,000 60,486
Leasehold and contract rights, net of
amortization of $1,077,424 2,050,976
Notes receivable, net of current portion,
including receivables in default 369,059
Total assets $ 9,168,549
===============
</TABLE>
<PAGE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable, includes related
party payables of $31,421 $ 318,199
Accrued expenses 958,880
Accrued interest 154,995
Current portion of long-term debt,
includes debt in default and
$68,000 to related parties 557,450
Mandatory redeemable convertible
Class A preferred stock, in default 53,500
--------------
Total current liabilities 2,043,024
Long-term debt, less current portion,
includes $187,500 to related parties 4,052,900
--------------
Total liabilities 6,095,924
--------------
Minority interest 36,367
--------------
Commitments and Contingencies
Stockholders' equity:
Class A preferred stock - Convertible nonvoting,
$2 par value: Authorized - 10,000,000 shares
Issued and outstanding - 147,750 shares 268,538
Common stock - $.005 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 1,400,811 shares 7,004
Additional paid-in capital 8,969,045
Accumulated deficit (6,208,329)
--------------
Total stockholders' equity 3,036,258
--------------
Total liabilities and stockholders' equity $ 9,168,549
==============
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For Years Ended June 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Casino $ 8,978,720 $ 7,315,497
Food and beverage 195,550 150,743
Other 59,827 10,459
------------ ------------
9,234,097 7,476,699
------------ ------------
Expenses:
Operating, general and administrative 8,698,312 6,925,559
Depreciation 490,867 459,815
Amortization 378,829 366,300
Impairment of gaming facility - 1,225,000
------------ ------------
9,568,008 8,976,674
------------ ------------
Loss from operations (333,911) (1,499,975)
------------ ------------
Other income (expense):
Interest income 46,743 144,952
Interest expense, includes $25,000
to related parties (317,564) (639,983)
Loss on investment, loan and advances
to Global Internet Corporation (385,418) -
------------ ------------
(656,239) (495,031)
------------ ------------
Loss before reorganization items, minority
interest and extraordinary item (990,150) (1,995,006)
------------ ------------
Reorganization items:
Interest earned on accumulated cash
resulting from Chapter 11 proceedings 7,608 -
Professional fees (11,111) (32,449)
------------ ------------
(3,503) (32,449)
------------ ------------
Loss before minority interest
and extraordinary item (993,653) (2,027,455)
Minority interest in income of subsidiaries (171,819) (205,437)
------------ ------------
Loss before extraordinary item (1,165,472) (2,232,892)
Extraordinary item:
Gain from debt restructuring 1,551,488 221,814
------------ ------------
Net income (loss) $ 386,016 $(2,011,078)
============ ============
Loss per share before extraordinary item $ (0.86) $ (2.01)
Extraordinary item 1.15 0.20
------------ ------------
Net income (loss) per share $ 0.29 $ (1.81)
============ ============
Weighted average number of shares
outstanding (restated to reflect
1-for-10 reverse split of stock
effected on November 18, 1996) 1,350,418 1,110,671
============= ============
/TABLE
<PAGE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Years Ended June 30, 1996 and 1997
<CAPTION>
Preferred Stock Common Stock Additional
--------------------- -------------------- Paid-in Accumulated
Shares Amount Shares* Amount Capital Deficit Total
---------- ---------- ----------- ------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 1,1995 1,233,000 $2,241,000 955,108 $ 48,081 $5,390,437 ($4,583,267) $3,096,251
Shares issued upon exer-
cise of D warrants 28,125 1,406 139,233 140,639
Shares issued in debt
conversion 185,386 9,268 1,219,236 1,228,504
Shares issued for
services 18,000 900 85,748 86,648
Shares in conversion
of preferred stock
to common stock (544,500) (989,639) 96,800 4,839 984,800
Net Loss (2,011,078) (2,011,078)
---------- ----------- ------------ ------- --------- ----------- ----------
Balances at June 30, 1996 688,500 1,251,361 1,283,419 64,494 7,819,454 (6,594,345) 2,540,964
1-for-10 reverse stock
split (58,076) 58,076
Shares issued in con-
version of preferred
stock to common stock (540,750) (982,823) 96,131 480 982,343
Shares issued in debt
conversions 21,261 106 109,172 109,278
Net Income 386,016 386,016
---------- ----------- ------------ ------- --------- ----------- ----------
Balances at June 30, 1997 147,750 $ 268,538 1,400,811 $ 7,004 $8,969,045 $(6,208,329) $3,036,258
======= ========== ========= ======= ========== ============ ==========
*Shares of common Stock have been restated for 1996, to reelect the 1997 1-for-10 reverse stock split
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For Years Ended June 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $ 386,016 $ (2,011,078)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Extraordinary gain from extinguishment of
debt (1,551,488) (221,814)
Loss on investment, loan and advances to
Global Internet Company 385,418 -
Amortization 378,829 366,300
Depreciation 490,867 459,815
Provision for uncollectible receivables 79,600 113,000
Stock and warrants issued as compensation 86,648
Impairment of gaming facility 1,225,000
Minority interest 171,819 205,437
Changes in operating assets and liabilities:
Receivables 18,840 (105,012)
Prepaid expenses and other (109,333) (3,483)
Accounts payable (248,363) 65,162
Accrued expenses and interest 276,514 542,428
------------- -------------
Net cash provided by operating activities 278,719 722,403
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Other assets (8,643) 14,985
Purchase of equipment (543,422) (165,709)
Investment, loan and advances to Global
Internet Corp. (385,418) -
Proceeds from sale of equipment 1,999 3,410
Collections on notes receivable 53,735 70,361
Distribution to minority interest (153,421) (187,968)
------------- -------------
Net cash used in investing activities (1,035,170) (264,921)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Principal payments on notes (662,729) (267,743)
Borrowings against notes payable 1,580,177 -
Proceeds from issuance of common stock - 140,639
Redemption of mandatory preferred stock (8,000)
------------- -------------
Net cash provided by (used in) financing
activities 917,448 (135,104)
------------- -------------
Net increase in cash 160,997 322,378
Cash at beginning of year 887,374 564,996
------------- -------------
Cash at end of year $ 1,048,371 $ 887,374
============= =============
Supplemental cash flow information:
Cash paid for interest $ 122,717 $ 99,196
============= =============
/TABLE
<PAGE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental disclosure of non-cash investing and financing activities:
<CAPTION>
For Year Ended June 30,
---------------------------
1997 1996
------------- -----------
<S> <C> <C>
Debt converted to common stock:
Mandatory redeemable preferred stock
(Note 9) $ 35,000 $ 250,000
Accrued expenses, related parties
(Note 10) 74,279 126,000
Notes payable and accrued interest
(Note 6) 852,504
Accounts payable -
------------- -------------
$ 109,279 $ 1,228,504
============= =============
Acquisition of additional interest in
BPJ Holdings, N.V. and Casino Las
Vegas in exchange for the Company's
interest in Casino Lazurnaya (Note 2):
Assets and liabilities exchanged:
Accounts receivable $ (55,753)
Equipment, net (515,262)
Leasehold and contract rights (516,832)
Accrued expenses 17,388
Assets acquired and liability released:
Note receivable 200,000
Accounts payable 45,459
-------------
Leasehold and contract rights $ (825,000)
=============
Extinguishment of debt (Notes 3 and 6):
Liabilities released:
Capital lease obligation $ 198,778
Note payable $ 101,335 38,129
Accounts payable 20,000
Accrued interest 164,627
Net debt relieved in Chapter 11 proceeding 2,503,114
Assets relinquished:
Note receivable and equipment,
respectively, net (1,217,588) (35,093)
------------- -------------
Extraordinary gain $ 1,551,488 $ 221,814
============= =============
Property foreclosure (Note 4):
Liabilities released:
Notes payable $ 759,532
Accounts payable and accrued expenses 91,789
Assets relinquished:
Land and building, net (836,874)
Miscellaneous current assets (14,447)
-------------
-
=============
Note receivable acquired in Chapter 11
proceeding, assigned to creditor as
payment on note to creditor $ (249,418)
Reduction in note payable by
assignment of note receivable
acquired in Chapter 11 proceeding 249,418
-------------
$ -
===============
</TABLE>
See accompanying notes.<PAGE>
<PAGE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
------------------------------
Global Casinos, Inc. (the "Company"), a Utah corporation, develops and
operates gaming casinos domestically and internationally. At June 30, 1997,
the consolidated financial statements of the Company include the accounts of
the following wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
BPJ HOLDINGS N.V. ("BPJ"), a Curacao Limited Liability Company, which
operates the Casino Masquerade on the Caribbean resort island of
Aruba.
GLOBAL PELICAN N.V. ("Global Pelican"), a St. Maarten Limited
Liability Company which began operating the Pelican Casino located on
the island of St. Maarten in the Netherlands Antilles on August 1,
1996. Global Pelican operates the casino under a Management and
Operating Lease Agreement (See Note 8).
GLOBAL ALASKA CORPORATION ("Global Alaska"), an Anchorage
corporation, which acquired Alaska Bingo Supply, Inc. ("ABS") located
in Anchorage, Alaska on August 1, 1997 (See Note 14).
CASINOS U.S.A., INC. ("Casinos U.S.A."), a Colorado corporation,
which owns and operates the Bull Durham Saloon and Casino ("Bull
Durham"), located in the limited stakes gaming district in Black
Hawk, Colorado (See Note 3).
GLOBAL CASINOS INTERNATIONAL, INC. ("Global International"), a
Delaware corporation, which through July 15, 1995, owned an 80%
interest in an International Joint Venture ("IJV") which held certain
rights to develop and operate gaming casinos in several international
locations. Through the IJV, the Company opened Casino Lazurnaya in
Sochi, Russia and Casino Las Vegas in Bishkek, Kyrgyzstan. Effective
July 15, 1995, the Company exchanged its interest in Global
International and Casino Lazurnaya for an additional interest in BPJ
and the Casino Las Vegas. Through this transaction, the Company now
owns 100% of BPJ and a 61% profits interest in the Casino Las Vegas
(See Note 2).
COLORADO GAMING PROPERTIES, INC. ("CGP"), a Colorado corporation,
which through June, 1996, owned two non-operating real estate
properties, the Nitro Club and Gas Light properties located in
Central City, Colorado (See Note 4).
LINCOLN CORPORATION ("Lincoln"), a South Dakota corporation, which
operated the Last Chance Saloon ("Last Chance") in Deadwood, South
Dakota under a lease agreement. Last Chance was closed effective
May 31, 1994, and the lease agreement was terminated.
WOODBINE CORPORATION ("Woodbine"), a South Dakota corporation, which
operated Lillie's Casino ("Lillie's") in Deadwood, South Dakota
through June 30, 1995. Beginning in July 1996, Woodbine began
leasing this property and related equipment to a third party. These
leasing activities are immaterial to the financial statements.
MANAGEMENT'S PLANS
------------------
The Company has continued its efforts to formulate plans and strategies to
address the Company's financial condition and increase profitability. In
December 1996, the Bankruptcy Court approved Casinos U.S.A.'s Second Amended
Plan of Reorganization (See Note 3). As a result, a significant amount of the
Company's debt has been extinguished and/or restructured. Management continues
to negotiate with creditors of debt that remains in default. The Company also
continues to explore acquisition opportunities, such as the acquisition of ABS
which occurred in August 1997 (See Note 14). Management believes that these
plans will result in to increased liquidity and future profitability.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
---------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH
----
Cash consists of demand deposits and vault cash used in casino operations.
CASINO REVENUES
---------------
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses.
PROMOTIONAL ALLOWANCES
----------------------
Food and beverage revenue does not include the retail amount of food and
beverage provided gratuitously to customers, which was $145,230 and $224,155 in
1996 and 1997. The cost of food and beverages provided on a complimentary
basis to customers and other promotional allowances are charged to operating
expenses. The cost of complimentary food and beverages and other promotional
allowances was $107,190 and $150,788 for the years ended June 30, 1996 and
1997.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS
No. 128"), which is effective for fiscal years ending after December 15, 1997.
This statement replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared the earnings of
the entity. Diluted EPS is computed similar to fully diluted EPS. SFAS No.
128 requires restatement of all EPS data that was presented in previously filed
reports. Management believes that implementation of SFAS 128 will not have a
material effect on earnings per share.
The FASB also recently issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, which establishes requirements for disclosure of comprehensive income
and is effective for fiscal years beginning after December 15, 1997.
Reclassification of earlier financial statements for comparative purposes is
required. Management believes that implementation of SFAS 130 will not
materially effect the Company's financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying values of the Company's financial instruments classified as
current assets and liabilities approximate fair values primarily because of the
short maturities of these instruments. The carrying values of notes receivable
approximate fair values because interest on these notes is similar to returns
management believes are currently available to the Company for instruments with
similar risks. The fair value of long-term debt, carried at $4,610,350 is
estimated by management to be approximately $4,350,000 at June 30, 1997, which
has been determined using interest rates management believes are available to
the Company for similar instruments with similar terms.
LEASEHOLD AND CONTRACT RIGHTS
-----------------------------
Leasehold and contract rights represent the excess of the purchase price
over the net assets of the acquired investments in the Casino Las Vegas and
Casino Masquerade. These costs are amortized over the ten-year terms of the
agreements. The Company annually assesses the carrying value of its leasehold
and contact rights as discussed below.
LAND, BUILDINGS AND EQUIPMENT
-----------------------------
Land, buildings and equipment are carried at cost. Depreciation is
computed using the straight-line method over the estimated useful lives.
Buildings are depreciated over 31 years and equipment is depreciated over five
to seven years.
The Company performs an annual assessment to determine whether there has
been an impairment in the carrying values of its land, buildings, equipment and
leasehold and contract rights. In performing this assessment, management
considers available appraisal information, current and projected sales,
operating income, and annual cash flows on an undiscounted basis. If
management determines that an impairment has
occurred, an impairment loss is recognized, based on the difference between the
assets' carrying values over the estimated fair values. Based on management's
annual review, the Company does not believe that any impairments have occurred
on land, buildings, equipment and leasehold and contract rights during 1997.
In 1996, management's assessment of certain non-operating real property
located in Central City, Colorado, indicated that the property was impaired.
The events and circumstances providing this indication included a continuing
decline in actual and listed sales prices of comparable real estate in the area
and a general decline during the year in gaming revenues related to similar
gaming properties. In addition, based on the Company's inability to refinance
certain debt secured by these properties, the creditors initiated foreclosure
proceedings. Based on these factors, management determined that the fair value
of the properties approximated the related debt secured by these assets, and
the Company recognized an impairment loss of approximately $1,225,000.
STOCK-BASED COMPENSATION
------------------------
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-
BASED COMPENSATION, defines a fair-value-based method of accounting for stock-
based employee compensation plans and transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees, and
encourages but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB No. 25") and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
INCOME TAXES
------------
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 and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in the consolidated
statement of operations in the period that includes the enactment date.
COMMON STOCK SPLIT
------------------
On November 18, 1996, the Company effected a one-for-ten reverse split of
its common stock. All references in the financial statements to number of
shares and per share amounts have been restated to reflect the stock split.
NET INCOME (LOSS) PER SHARE
---------------------------
Net income (loss) per share of common stock is computed based on the
weighted average number of common shares outstanding during the year. Stock
options and warrants and convertible promissory notes are not considered in the
calculations, as they would be antidilutive in 1996 and 1997. During 1997,
117,392 shares of common stock were issued upon conversion of preferred shares
and debt. Had these conversions occurred on July 1, 1996,the loss per share
before the extraordinary item, the extraordinary gain per share and net income
per share would have been ($.0.83), $1.11 and $0.28, respectively.
FOREIGN CURRENCY TRANSACTIONS
-----------------------------
Gaming operations in Kyrgyzstan, Aruba, and St. Maarten are primarily
conducted in U.S. dollars. As a result, the U.S. dollar is considered the
functional currency for these operations. Payments for payroll and certain
other expenses are made in the local currency. Gains and losses from foreign
currency transactions are included in determining net earnings and were
immaterial for the years ended June 30, 1996 and 1997.
RISK CONSIDERATIONS
-------------------
Casino Las Vegas, Casino Masquerade, and the Pelican Casino (the
"Casinos") are located in Kyrgyzstan, Aruba, and St. Maarten respectively;
therefore, they are subject to special considerations and significant risks not
typically associated with investments in North American companies. These
include risks associated with, among others, the political, economic and legal
environments and expropriation matters, and are described further in the
following paragraphs:
a. POLITICAL ENVIRONMENT
---------------------
The Casinos' results may be adversely affected by changes in the
political and social conditions in Kyrgyzstan, Aruba, and St. Maarten
and by changes in governmental policies with respect to laws and
regulations, inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other
things. While the Kyrgyzstanian government is expected to continue
its economic reform policies, many of the reforms are new or
experimental and may be refined or changed. It is also possible that
a change in leadership in Kyrgyzstan could lead to changes in
economic policy. The political environment in Aruba and St. Maarten
has been stable for a sustained period of time. As a result, the
Company does not anticipate significant risks related to Aruba and
St. Maarten in the immediate future.
b. ECONOMIC ENVIRONMENT
--------------------
The economies in Kyrgyzstan, Aruba, and St. Maarten differ
significantly from the economy in the United States in many respects,
including their structures, levels of development and capital
reinvestment, growth rates, government involvement, resource
allocation, employment policy, self-sufficiency, rates of inflation
and balance of payments positions.
In Kyrgyzstan, the adoption of economic reform policies since 1991
has resulted in a significant reduction in the role of state economic
plans in the allocation of resources, pricing and management of such
assets, and increased emphasis on the utilization of market forces
and growth in Kyrgyzstan's economy. However, such growth has been
uneven among various regions of the country and among various sectors
of the economy. The economic environment in Aruba and St. Maarten
has remained stable for a sustained period of time.
c. LEGAL ENVIRONMENT
-----------------
Ownership and operation of casinos in Kyrgyzstan, Aruba, and St.
Maarten are regulated by local authorities. Each jurisdiction
maintains its separate regulatory environment which requires various
licenses, approvals and certificates to operate in these
jurisdictions. In Kyrgyzstan, considerable progress has been made in
the promulgation of laws and regulations dealing with economic
matters such as corporate organization and governance, foreign
investment, commerce, taxation and trade. This has enhanced the
protection afforded to foreign investors. However, experience with
respect to the implementation, interpretation and enforcement of such
laws is limited. As the Kyrgyzstan legal system develops, the
promulgation of new laws, changes to existing laws and the preemption
of local regulations by national laws may adversely affect foreign
investors, such as the Company.
d. EXPROPRIATION OF FUNDS
------------------------
The Company is currently able to remit funds from its operations in
Kyrgyzstan, Aruba, and St. Maarten to the U.S., to meet certain
intercompany obligations, without significant local government
approvals, restrictions or taxation. However, the remittance of
funds to the U.S. for other means (including profit distribution)
would be subject to certain restrictions and taxation. Changes in
the local legal and economic environments may adversely affect the
expropriation of funds from the Casinos to the U.S.
2. ACQUISITION OF ADDITIONAL CASINO INTERESTS
------------------------------------------
Effective July 15, 1995, the Company exchanged its 80% interest in Casino
Lazurnaya, Sochi, Russia, valued at approximately $1,070,000 for (a) the
remaining one-third interest in BPJ, (b) an additional 12.2% interest in Casino
Las Vegas, Bishkek, Kyrgyzstan, and (c) a $200,000 promissory note receivable
from a third party and release of approximately $45,000 due to the third party.
These acquisitions resulted in an increase in leasehold and contract rights of
$825,000, which is being amortized over the terms of the existing agreements.
The acquisitions of the additional interests have been accounted for as
purchases; and accordingly, the results of operations have been included in the
consolidated statements of operations from the date of the transaction.
3. CASINOS U.S.A. REORGANIZATION
-----------------------------
In October 1995, Casinos U.S.A. ("Debtor") filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code, and until December 18,
1996, operated under the protection of the Bankruptcy Court. The Bankruptcy
Court confirmed the Company's Second Amended Plan of Reorganization (the
"Plan") on December 18, 1996. The effective date of the Plan was thirty days
after confirmation (the "Effective Date"). The confirmed Plan allowed the
Debtor to retain its property and assets and continue its business. The Plan's
provisions resulted in the restructuring and/or extinguishment of creditor
claims filed during the bankruptcy proceedings and the cancellation of a note
and interest receivable of approximately $1,217,000. As a result, the Company
recognized an extraordinary gain on the extinguishment of debt of $1,285,765
during the year ended June 30, 1997.
In accordance with the provisions of the Plan, certain creditors received
warrants that permit the holders thereof to purchase from the reorganized
Debtor an amount of common stock, so that immediately after exercise, the
warrant holders would own 80% of the common stock of the Debtor. The warrants
are exercisable at any time from one year after the Plan's Effective Date
through the earlier of seven years after the Effective Date, or when the
indebtedness to the warrant holders has been paid, but only subsequent to a
sale of substantially all of the Debtor's assets, merger, recapitalization,
refinance or other restructuring all of which, management is not considering
likely.
After one year from the Plan's Effective Date, the warrant holders are
entitled to call a vote as to whether any merger, recapitalization,
restructuring, refinance, or sale of the assets of the Debtor should be made or
effectuated. The warrant holders shall be entitled to vote their warrants as
though each warrant was one share of common stock.
4. COLORADO GAMING PROPERTIES FORECLOSURE
--------------------------------------
In March 1996, creditors of Colorado Gaming Properties, which held notes
secured by the Nitro Club and Gas Light properties located in Central City,
Colorado, commenced foreclosure proceedings on these properties. The Company
was unsuccessful in its attempts to renegotiate the terms of the debt, and the
statutory periods within which the Company had the right to redeem the Nitro
Club and Gas Light out of foreclosure expired in June 1996. As a result, the
foreclosure sales occurred in June 1996. The carrying value of the assets
foreclosed upon of approximately $850,000, after recognition of the $1,225,000
impairment loss discussed in Note 1, approximated the carrying value of the
debt extinguished.
5. NOTES RECEIVABLE
----------------
At June 30, 1997, notes receivable consist of the following:
<TABLE>
<S> <C> <C>
6.5% note receivable, monthly interest
and principal payments of $6,569 until
January 2009, at which time the unpaid
balance is due; the note is collateralized
by a deed of trust on real property,
fixtures and improvements $ 356,704
Non-interest bearing note, due December
1995, in default; the note is
collateralized by 20,000 shares
of the Company's common stock 200,000
Allowance for doubtful collections (130,000)
-------------
426,704
Less current portion (57,645)
-------------
$ 369,059
=============
</TABLE>
The allowance for doubtful collections is maintained at estimated amounts
necessary to cover losses on receivables based on management's assessment of
the borrowers' financial condition and the underlying value of collateral.
During the year ended June 30, 1997, the Company increased the allowance for
doubtful collections by $75,000. Management also periodically evaluates
receivable balances to determine if impairments are evident based on available
information and events.
6. LONG-TERM DEBT
At June 30, 1997, long-term debt consists of the following:
<TABLE>
<S> <C> <C>
Unsecured loans, $68,158 to related parties, interest
at 10% to 15%, past due and in default or due
on demand $ 292,891
Mortgage payable to a third party, collateralized
by real estate, interest at 10%, semiannual
payments with maturity in 2000 52,266
Secured convertible note, interest at 7%, reduced from
9% in July 1996, payments of interest only due
quarterly; principal and unpaid interest due May 1999;
original principal balance of $750,000 reduced by
$249,419 through an assignment of its interest in
senior secured debt on Casinos U.S.A. the Note is
convertible in whole or in part at the option of the
holder at any time prior to its maturity to common
stock at a conversion price of $10.00 per share 500,581
Unsecured convertible notes, $187,500 to related
parties, interest at 8%, principal and unpaid
interest due October 1998; notes are convertible
in whole or in part at the option of the holder
at any time beginning in October 1997, to common
stock at a conversion price of $5.00 per
share,upon the effective date of a registration
statement, registering the underlying shares of
common stock, notes will automatically convert 630,250
Mortgages payable to third parties, collateralized by
real estate, includes $249,419 assigned from the
Company to a third party, interest at 7%, monthly
payments of $7,329 plus annual payment of,
37.5% of available Bull Durham net cash flow,
as defined, due in 2004 1,097,121
Secured notes, interest at 10% and 12%, monthly
payments of $18,088, secured by certain
gaming equipment, due through 2000, $154,756
in default 276,494
Mortgages payable to third parties,
collateralized by real estate, interest at
9.2%, monthly payments of $10,225 plus annual
payments of 12.5% of available Bull Durham net
cash flow, as defined, due in 2004 1,245,033
Unsecured obligation, non-interest bearing, minimum
monthly payments of $6,086, due through
November 2004 515,714
-------------
4,610,350
Less current portion, including debt in default (557,450)
--------------------
$ 4,052,900
=============
</TABLE>
Scheduled maturities of long-term debt are as follows:
<PAGE>
<TABLE>
<CAPTION>
For Year Ending
June 30,
---------------
<S> <C> <C>
1998 $ 557,450
1999 1,301,759
2000 159,327
2001 98,425
2002 100,536
Thereafter 2,392,853
-------------
Total $ 4,610,350
=============
</TABLE>
In 1997, the Company was able to negotiate the exchange and/or
restructuring of $375,002 of certain accounts payable and short-term debt for
21,261 shares of common stock, as satisfaction of these obligations. These
transactions resulted in an extraordinary gain from debt extinguishment of
$265,723, in addition to the extraordinary gain discussed in Note 3.
In 1996, the Company entered into various agreements, which resulted in
the extinguishment of certain debt in exchange for assets securing the debt or
for accelerated payments on the debt. The transactions resulted in an
extraordinary gain from debt extinguishment of $221,814.
Effective December 13, 1995, the Company purchased promissory notes held
by creditors of Casinos U.S.A. with principal and interest owing of $597,500
and $255,004, respectively. The promissory notes were secured by a collateral
assignment against the Bull Durham. In consideration of the assignment of the
notes and collateral security, the Company issued to the Casinos U.S.A.
noteholders an aggregate of 124,961 shares of common stock, valued at $7.50 per
share.
At June 30, 1997, the Company reserved 176,000 shares of common stock for
debt conversions.
7. INCOME TAXES
------------
The Company and its subsidiaries are subject to income taxes on income
arising in, or derived from the tax jurisdictions in which they are domiciled.
BPJ and Global Pelican are subject to Aruban and St. Maarten tax provisions
which provide for utilization of prior years cumulative net operating losses to
offset current and future taxable income. At June 30, 1997, the Company has
net operating loss carryforwards related to its Aruban and St. Maarten
operations of approximately $200,000 and $100,000, respectively, available to
reduce future taxable income.
Under the Foreign Investment Act of Kyrgyzstan, qualified joint ventures
are exempt from income tax for a two-year period, beginning in the first year
of operations. Thereafter, income is subject to tax. The two-year tax exempt
period expires in 1998.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the deferred tax assets at June 30, 1997, are as follows:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Compensated absences and other accruals $ 43,000
Net operating loss carryforwards 2,143,000
-----------
Total gross deferred tax assets 2,186,000
Valuation allowance (2,186,000)
------------
Net deferred tax assets $ -
============
</TABLE>
The valuation allowance decreased by $522,000 during the year. The
reconciliation between the statutory federal tax rate and the effective tax
rate as a percentage is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Statutory federal income tax rate 34% 34%
Effect of net operating loss not utilized (34) (34)
----- -----
- % - %
=== ===
</TABLE>
At June 30, 1997, the Company has available domestic net operating loss
carryforwards available to reduce future taxable income of approximately
$6,428,000 expiring in years 2008 through 2011 as follows:
<TABLE>
<CAPTION>
Net
Year Operating Loss
------ --------------
<S> <C> <C>
2008 $ 920,000
2009 1,676,000
2010 1,217,000
2011 2,615,000
------------
$ 6,428,000
============
</TABLE>
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASES
----------------
The Company leases the Casino Masquerade facility under an operating lease
that expires in December 2002, with an option to renew for 10 years. Until
December 1995, rent expense was contingent solely upon a percentage of casino
win, as defined, adjusted for certain gaming taxes and license fees. In
December 1995, the Company reached an agreement to modify the terms of the
lease whereby beginning January 1, 1996, rent expense is calculated as $400,000
per year plus 15% of the adjusted annual casino win over $4,000,000. Rent
expense was $370,558, which includes contingent rent of $170,558, and $400,000
for the years ended June 30, 1996 and 1997, respectively. In September 1997,
the Company was informed that the casino lessor is contemplating closure of the
property from March 1998 through December 1998 to perform renovations. The
Company and the lessor are currently negotiating the Company's rights under the
lease.
The Company leases the Casino Las Vegas facility from the minority joint
venture partner ("JVP") in the Casino Las Vegas. The Company paid 39% of the
net casino profits, as defined, to the JVP until the Company recouped its
original investment plus interest, which occurred in September 1996. Beginning
in September 1996, the Company began paying 50% of the net casino profits to
the JVP. In addition, the Company has an agreement with an unrelated entity
whereby after the Company has received $500,000 in profits, it shall pay 10% of
its share of the net profits to this entity.
Effective August 1, 1996, the Company, through its subsidiary Global
Pelican, entered into a cancelable Management and Operating Lease Agreement
(the "Pelican Agreement") with a third party, whereby Global Pelican agreed to
lease and operate the Pelican Casino, located on the island of St. Maarten.
The original term of the lease was for five years, with its options to renew
for three additional five-year terms. Lease payments were scheduled to be
$30,000 per month for the initial lease term beginning in November 1996. Rent
expense in 1997 was $225,000. The Pelican Agreement provides that Global
Pelican would also purchase the equipment utilized at the casino for $225,000
in exchange for a note payable, subject to the owner providing clear title to
the equipment. The Pelican Agreement also states that until the equipment
liens and encumbrances are released, Global Pelican has the right to terminate
the Pelican Agreement. At June 30, 1997, the equipment remains subject to
liens and encumbrances, and Global Pelican has therefore not purchased the
equipment. In July 1997, Global Pelican renegotiated the terms of the Pelican
Agreement, whereby Global Pelican is to pay $20,000 per month through November
1997, of which $15,000 is to be applied as monthly rent, and $5,000 as deferred
rent pending completion of negotiations between Global Pelican and the lessor.
Global Pelican is scheduled to continue negotiations with the lessor by
November 1997.
During the year ended June 30, 1995, the Company entered into a
noncancelable operating lease for corporate office space expiring in September
1999, as well as various operating leases for equipment. Lease expense under
these leases was $41,088 and $44,496 for the years ended June 30, 1996 and
1997, respectively.
Future minimum lease payments, by year and in the aggregate, under non-
cancelable operating leases with initial or remaining terms of one year or more
consist of the following (exclusive of contingent rentals and Global Pelican):
<TABLE>
<S> <C> <C>
1998 $ 444,496
1999 444,496
2000 411,124
2001 400,000
2002 400,000
------------
$ 2,100,116
============
</TABLE>
SEC MATTER
----------
During 1995 and through 1997, the Company and certain officers and
directors of the Company received requests for information from the U.S.
Securities and Exchange Commission ("SEC") related to an investigation begun by
the SEC during 1994 into various matters, including certain transactions in
securities by the Company and one of its officers and directors. On January
13, 1997, the Company was notified that the SEC staff intended to recommend
initiation of administrative procedures for a Cease and Desist Order against
the Company and two of its former officers and directors regarding violations
of certain provisions of federal securities laws. The Company has engaged in
negotiations with the SEC staff concerning possible disposition of this matter.
Based upon the content of these discussions, management believes that the
outcome of this matter will not have a material adverse effect on the business
of the Company, however, there can be no assurance that such will be the case.
ARUBAN CONTROLLER COSTS
-----------------------
The Aruban government provides "Government Controllers" for each gaming
property operating on the island. The Aruban government recoups the expenses
of these controllers through a monthly charge per square meter of casino space.
The Casino Masquerade and other Aruban casinos are disputing the charges. The
Aruban casinos argue that the rate charged by the government exceeds the cost
of providing the controllers. The Company has recorded 1996 and 1997
government controller expense of $64,800 and $66,200, respectively, at the same
rate paid as of December 31, 1994. The cumulative difference in the controller
cost, based on the rate charged by the government and that accrued by the
Company is approximately $236,000 as of June 30, 1997.
ST. MAARTEN AND CONTROLLER COST
-------------------------------
The Pelican Casino is charged a St. Maarten Government Controller and a
casino license fee of $36,500 per month. The Company has accrued $401,500 of
license and controller expense as of and for the year ended June 30, 1997.
Although the government has been assessing the Pelican Casino the monthly fees,
Global Pelican has not yet been granted a license, which it applied for in
October 1996. In July, Global Pelican met with government representatives and
proposed to pay a one-time license issuance fee of $112,000, of which the
casino lessor has agreed to pay 1/2, pay license and controller fees accrued
through May 31, 1997, of $365,000 over a five-year term, and continuing to pay
monthly fees from June 1, 1997 and thereafter.
<PAGE>
9. STOCKHOLDERS' EQUITY
--------------------
MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
------------------------------------
At June 30, 1997, 26,750 shares of Series A Mandatory Redeemable
Convertible Preferred Stock are outstanding. The Series A Convertible
Preferred Stock had a mandatory redemption date of May 31, 1995, and the
Company is currently in default. The Series A Preferred Stock has a redemption
price of $20.00 per share, subject to adjustment for certain events such as
splits and dividends. Holders of the Series A Preferred Stock have the option
to convert each share of the preferred stock into one-tenth of one share of the
Company's Common Stock.
WARRANTS
--------
During 1996, 28,125 Class D Warrants were exercised at $5.00 per share.
In May 1997, the remaining Class D Warrants expired. Prior to 1995, the
Company issued to an underwriter a warrant to purchase 2,813 units, which
consist of one share of Series A Preferred Stock and one-half Class D Warrant
at an exercise price of $24.00 per unit. This warrant expires in April 1999.
In October 1996, in connection with a private placement of convertible
debt, the Company issued 126,100 Class E Warrants exercisable at $6.00, 126,100
Class F Warrants exercisable at $7.00, and 126,100 Class G Warrants exercisable
at $8.00. The Class E, F, and G Warrants expire the earlier of 30, 90, and 120
days, respectively, after a registration statement covering the stock
underlying the Warrants is declared effective by the Securities and Exchange
Commission, or in October 1997.
10. RELATED PARTIES
---------------
At June 30, 1997, the Company had receivables from employees and officers
of $11,199 unsecured 12% notes payable to officers, shareholders and directors
of $68,158, due on demand, and secured 8% convertible Notes payable to officers
and an affiliate of $175,000 due in 1998. In August 1996, the Company borrowed
$270,000 from an affiliate in exchange for 12% Notes, which were repaid in the
second quarter of the year ended June 30, 1997. During 1997, the Company
converted $74,279 of legal fees due to firms of which directors of an affiliate
are employed into 14,586 shares of common stock. During 1996, the Company
converted $126,000 of accrued salaries due to former officers and directors of
the Company into common stock valued at $5.00 per share.
In consideration of services performed by certain employees, officers and
directors of the Company, the Company issued 18,000 shares of common stock and
recorded compensation expense of $86,648 for the year ended June 30, 1996,
based on the market price of the Company's common stock on the dates of
issuance.
11. STOCK INCENTIVE PLAN
--------------------
The Company has a Stock Incentive Plan (the "Incentive Plan"), that allows
the Company to grant incentive stock options and/or purchase rights
(collectively "Rights") to officers, employees, former employees and
consultants of the Company and its subsidiaries. The Company has reserved
75,000 shares of common stock for issuance under the Incentive Plan. In
October 1995, the Company granted 81,000 options to purchase common stock at a
weighted average exercise price of $5.00 per share, of which 38,000 are subject
to future vesting requirements. In October 1995, the Company also granted
90,000 options to be divided among four of its directors, which entitle the
directors to purchase common stock at a weighted average exercise price of
$5.00 per share. Of the 90,000 options, 60,000 are subject to future vesting
requirements. The options expire five years from the date of grant. Had
compensation cost for the Company's Incentive Plan been determined based on the
fair value at the grant date for awards in 1996, consistent with the provisions
of SFAS No. 123, the Company's net income (loss) per share would have changed
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- --------------
<S> <C> <C> <C>
Net income (loss) - as reported $ 386,016 $ (2,011,078)
Net income (loss) - pro forma 328,016 (2,069,078)
Income (loss) per share - as reported 0.29 (1.81)
Income (loss) per share - pro forma $ 0.24 $ (1.86)
</TABLE>
12. FOREIGN AND DOMESTIC OPERATIONS
-------------------------------
The Company owns, operates, and develops domestic and international
casino projects in several geographical areas. The following table sets forth
financial information for the Company's foreign and domestic segments as of and
for the years ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
Kyrgyzstan Russia * Caribbean** Domestic Total
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
- ----
Net revenue 1,033,123 24,485 4,458,640 1,960,451 7,476,699
Depreciation 59,675 158,140 242,000 459,815
Amortization 3,000 67,500 295,800 366,300
Income (loss) from
operations 402,832 (6,639) 504,530 (2,400,698) (1,499,975)
Identifiable assets 293,010 1,804,676 8,489,926 10,587,612
Capital expenditures 12,858 117,190 35,661 165,709
1997
- ----
Net revenue 787,181 6,198,271 2,248,645 9,234,097
Depreciation 55,670 175,182 260,015 490,867
Amortization 7,360 75,669 295,800 378,829
Income (loss) from
operations 354,701 (109,213) (579,399) (333,911)
Identifiable assets 238,445 2,361,146 6,568,958 9,168,549
Capital expenditures 9,361 413,924 120,137 543,422
</TABLE>
* The Casino Lazurnaya operations ceased, effective July 15, 1995.
** Caribbean includes Aruba and St. Maarten operations.
13. GLOBAL INTERNET CORPORATION
---------------------------
In July 1996, the Company and other investors formed Global Internet
Corporation ("Global Internet"), to explore opportunities related to
developing entertainment and gaming sites on the Internet. The Company owns
58% of the outstanding common stock of Global Internet. During the year ended
June 30, 1997, the Company loaned $325,000 to Global Internet in exchange for
a 10% promissory note receivable, convertible into common shares of Global
Internet and due October 31, 1997. At June 30, 1997, the Company's
investment, promissory note and related interest, and additional advances due
from Global Internet totaled approximately $385,000.
Management became aware that internet gaming could impair the Company's
Colorado state gaming license. As a result, the Company initiated actions to
divest itself of its investment in Global Internet. A separate board of
directors of Global Internet was established, with no overlapping members of
the Company's board, and the Company assigned its voting rights to a member of
the Global Internet board, who is not related to the Company. The Company
also entered into negotiations with First Entertainment, Inc. ("FEI"), an
unrelated third party, whereby FEI would acquire the Company's investment in
Global Internet.
On May 11, 1997, the Company and FEI entered into an agreement whereby
the Company will sell 1,500,000 of the 1,750,000 common shares of Global
Internet owned by the Company, in exchange for 1,500,000 warrants, which will
allow the Company to purchase 1,500,000 shares of FEI common shares at $1.25
per share for a period of five years. The Company will also sell its
convertible promissory note, advances and interest receivable of $375,000 for
30,000 shares of FEI Class B Preferred Stock with a face value of $12.50 per
share, convertible into FEI common shares at $1.25 per share. The agreement
was originally expected to close shortly after May 1997. However, the FEI
shareholders have not yet approved the transaction, authorized an increase in
FEI common stock to allow for the issuance of shares underlying the
convertible preferred stock and warrants, or obtained long-term financing that
would allow Global Internet to continue to develop entertainment and gaming
sites.
FEI is a thinly capitalized and thinly traded public entity which does
not appear to currently have resources available to continue development of
Global Internet. In September 1997, the Company was informed that completion
of the transaction was contingent upon FEI shareholders' approval, for which a
shareholders meeting is currently scheduled for November 1997. These factors
raised concerns about the Company's ability to realize its investment in
Global Internet. Management determined that it would be appropriate for the
Company to fully expense its investment and allow for the receivables in
Global Internet during the quarter ended June 30, 1997, although the sale may
ultimately be consummated.
FEI has represented to the Company that financing will be obtained and
the transaction will be approved by the shareholders. Management believes
that if this is to occur, the Company may be able to recognize a gain on its
sale of Global Internet.
<PAGE>
14. SUBSEQUENT EVENTS
-----------------
On August 1, 1997, the Company acquired 100% of the outstanding common
stock of Alaska Bingo Supply, Inc., an Alaska corporation ("ABS"). The
purchase price of $4,400,000 consisted of $400,000 cash, and a $4,000,000
convertible promissory note, secured by shares of ABS' common stock held by
the Company. The promissory note bears interest at 8%, due in 2004, with
monthly payments of principal and interest beginning in October 1997. The
Noteholder has the option to convert up to $2,500,000 of the Note into shares
of the Company's common stock at per share. This acquisition will be
accounted for as a purchase.
In order to fund this acquisition, the Company borrowed $350,000 from
third parties and $75,000 from an affiliate. The promissory notes are due in
equal monthly payments from January 1998 through April 1998. The promissory
notes to third parties are secured by a note receivable by the Company.
Interest on $200,000 of the notes is at 24% and interest on the remaining
$225,000 (including the affiliate Note) is at 12%. Additionally, the holder
of the $150,000, 12% note was issued warrants to purchase 15,000 shares of the
Company's common stock at an exercise price of $3.00 per share. The warrants
expire June 2000.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report
to
be signed on its behalf by the undersigned, thereunto duly authorized.
GLOBAL CASINOS, INC.
Date: 10/14/97 By: /s/ Stephen G. Calandrella
---------------- -----------------------------
Stephen G. Calandrella,
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 Registrant and in the capacities and on the dates indicated.
Signature Position Date
- --------- -------- ----
/s/ Stephen G. Calandrella President, Director 10/14/97
- ---------------------------- --------
Stephen G. Calandrella
/s/ Pete Bloomquist Chief Financial Officer, 10/14/97
- --------------------------- Chief Accounting Officer, --------
Pete Bloomquist Director
/s/ Gerald Jacobs Director 10/14/97
- --------------------------- --------
Gerald Jacobs
/s/ Clifford C. Thygesen Director 10/14/97
- --------------------------- --------
Clifford C. Thygesen
<PAGE>
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
In re:
CASINOS USA, INC. d/b/a BULL ) Case No. 95-20864 MSK
DURHAM SALOON & CASINO )
EIN: 75-2429383 ) Chapter 11
Debtor. )
- ------------------------------------------------------------------------------
DEBTOR'S SECOND AMENDED PLAN OF REORGANIZATION
DATED SEPTEMBER 4, 1996
- ------------------------------------------------------------------------------
The Debtor, Casinos U.S.A., Inc., proposes the following Plan of
Reorganization pursuant to Chapter 11 of the Bankruptcy Code:
ARTICLE I.
DEFINITIONS
For the purposes of this Plan of Reorganization, the following terms
shall have the respective meanings hereinafter set forth (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Administrative Claim" shall mean those claims entitled to priority under
the provisions of Sections 507(a)(1) and 503(b) of the Bankruptcy Code,
including actual and necessary costs and expenses of preserving the estate.
"Allowed Claim" shall mean a claim (a) in respect of which a proof of
claim has been timely filed with the court against the Debtor within the
applicable period of limitation fixed by Federal Rule of Bankruptcy Procedure
3003 or (b) scheduled in the list of creditors prepared and filed with the
court by the Debtor pursuant to Rules 1007 and 2003 of the Federal Rules of
Bankruptcy Procedure, and not listed as disputed, contingent or liquidated as
to amount in either case to which no objection to the allowance thereof has
been interposed within any applicable period of limitation pursuant to Federal
Rule of Bankruptcy Procedure 3007 or an order of the Court, or as to which any
such objection has been terminated by an order of judgment which is no longer
subject to appeal, or certiorari proceeding, and as to which no appeal or
certiorari proceeding is pending.
"Allowed Secured Claim" shall mean an Allowed Claim secured by a valid
lien, security interest or other charge against or interest in property in
which the Debtor has an interest, or which is subject to set off, which is not
void or voidable under any state or federal law, including any provision of
the Bankruptcy Code to the extent of the value (determined in accordance with
Sections 506(a) and/or Section 502(c) of the Bankruptcy Code and Federal Rule
of Bankruptcy Procedure 3012) of the interest of the holder of such allowed
secured claim and the Debtor's interest in such property, or to the extent of
the amount subject to set off, as the case may be, less such fees, costs, and
charges as may be allowed with respect to such claim under Section 506(c) of
the Bankruptcy Code.
"Allowed Unsecured Claim" shall mean the Allowed Claims against the
Debtor which are unsecured and which are other than Allowed Priority Claims
and Administrative Claims and shall include any deficiency claim accruing to
the holder of an Allowed Secured Claim.
"ASTRAEA" shall mean Astraea Investment Management, L.P., the holder of a
Collateral Assignment of the Promissory Note and Deed of Trust executed by
Lisa Paige Montrose payable to Casinos U.S.A., Inc.
"Available Net Cash Flow" shall mean, as of a particular Distribution
Date, the Net Cash Flow received by the Debtor during the period commencing on
the immediately prior Distribution Date and terminating on the day prior to
such particular Distribution Date.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, 11 U.S.C.
Section 101, et seq.
"Choses in Action" shall mean any claims, rights, causes of action or
choses in action held by the Debtor, including without limitation, all rights
of the Debtor under Sections 544, 545, 547, 548, 549 and 553 of the Bankruptcy
Code, against any person, including, without limitation, any claims that the
Debtor may have against current or former officers and directors of the Debtor
in connection with transactions involving funds of Casinos U.S.A., Inc.
"Claim" shall mean a claim against the Debtor as defined in 11 U.S.C.
Section 101(5).
"Class" shall mean any class of creditors or interests described in
Article II of the Plan.
"Confirmation Date" shall mean the date on which the confirmation order
is entered by the Bankruptcy Court.
"Confirmation Order" shall mean a Final Order of the Bankruptcy Court
confirming the Plan in accordance with the provisions of Chapter 11 of the
Bankruptcy Code.
"Court" or "Bankruptcy Court" shall mean the United States Bankruptcy
Court for the District of Colorado, unless otherwise identified.
"Debtor" shall mean Debtor-In-Possession, Casinos U.S.A., Inc., a
Colorado corporation. The terms "Debtor" and "Debtor-In-Possession" may be
used interchangeably in the within Plan and Disclosure Statement, but shall
have the same meaning. The Debtor, Casinos U.S.A., Inc. is the proponent of
this Plan of Reorganization.
"Disallowed Claim" shall mean any claim or portion thereof that has been
disallowed by a Final Order of the bankruptcy court.
"Distribution Date" shall mean each anniversary of the Effective Date and
the date the Global Management Agreement is terminated.
"Disclosure Statement" shall mean the Disclosure Statement describing the
Plan filed herein, approved by the Court and distributed to the creditors and
parties in interest pursuant to 11 U.S.C. Section 1125.
"Effective Date" shall mean the date 30 days after the entry of the
Confirmation Order.
"Estate" shall mean the estate created and existing in this case pursuant
to Section 541 of the Bankruptcy Code.
"Final Order" shall mean an order of the Court as to which (a) the time
for appeal has expired and no notice of appeal has been filed; (b) no stay as
provided by Rule 8005 of the Federal Rules of Bankruptcy Procedure has been
issued with respect to any timely filed appeal, or, if issued, such stay has
lapsed, expired or been revoked; or (c) any timely filed appeal in which a
stay has issued has been finally determined or dismissed. The time for appeal,
for purposes of this definition, shall be the time permitted for an appeal to
the United States District Court.
"Global" shall mean Global Casinos, Inc., a Utah corporation.
"Global Management Agreement" shall mean the Management Agreement
described in Article IV.C. of the Plan.
"IGT" shall mean IGT Commercial Corporation, the entity which has a
security interest in certain of the Slot Machines owned by the Debtor and
which is the holder of an Allowed Secured Claim and an Allowed Unsecured Claim
against the estate.
"Management Fee" shall mean the monthly fee of $7,500.00 per month paid
to Global pursuant to the Global Management Agreement.
"Net Cash Flow" shall mean all revenue of the Debtor, derived from any
source whatsoever, less reasonable operating expenses incurred in connection
therewith (including the Management Fee), reasonable expenditures for
necessary or desirable capital improvement expenditures, amounts necessary for
reserves, taxes, and all amounts due and payable on the Notes held by holders
of Allowed Claims in Classes 5, 6, 8, and 9. Net Cash Flow shall be calculated
and distributed by the Debtor as soon as practicable after each Distribution
Date.
"Petition Date" shall mean October 18, 1995, the date on which the Debtor
filed its Chapter 11 petition with the Court.
"Plan" shall mean this Plan of Reorganization and such amendments, if
any, as may be proposed by the Debtor or any other joint proponent of this
Plan of Reorganization.
"Promissory Note" shall mean the promissory note executed by Lisa Paige
Montrose payable to Casinos U.S.A., Inc., as modified June 21, 1993, in the
principal amount of $1,160,000.00, which is secured by a first priority deed
of trust on the Real Estate.
"Real Estate" shall mean the real property and improvements located at
110 Main Street, Black Hawk, Colorado, which property is legally described as
Lot 5 and the Adjoining 30 feet of Lot 4, Block 40, City of Black Hawk, as
described in Deed recorded in Book 58 at Page 16, County of Gilpin, State of
Colorado.
"Shareholder" shall mean those individuals or entities holding shares of
stock in the Debtor.
"Slot Machines" shall mean all of the slot machines owned by the Debtor
which are collateral for the debt owed to IGT.
"Warrants" shall mean all of the Warrants to be distributed pursuant to
this Plan and shall provide for the rights and duties set forth below:
(1) General Description of Warrants. Collectively, the Warrants shall
permit their holders to purchase from the reorganized Debtor an amount of
common stock so that immediately after exercise, the Warrant holders will own
80% of the common stock of the Debtor. Except as set forth herein, the
Warrants shall be non-transferable and any person that controls an entity that
owns the Warrants shall be prohibited from transferring such controlling
interest. A Warrant holder may transfer their Warrants to an affiliate of the
Warrant holder subject to applicable gaming and securities laws, and subject
to the consent of a majority of the Debtor's shareholders, which consent shall
not be unreasonably withheld. The Warrants shall be exercisable at any time
from one year after the Effective Date and before seven (7) years after the
Effective Date, but only subsequent to a sale of substantially all of the
Debtor's assets, merger, recapitalization, refinance or other restructuring.
In the event the Debtor, in accordance with the provisions of its corporate
bylaws, negotiates a sale of substantially all of the Debtor's assets, or a
merger, recapitalization, refinance or other restructuring within the one year
period after the Effective Date, the Warrant holders shall be entitled to
exercise their Warrants. Each Warrant shall permit its holder to purchase one
(1) share of common stock for $.01. A Warrant shall terminate after all of the
indebtedness to that holder of the Warrant has been paid, even where seven (7)
years from the Effective Date have not passed, so long as there has been no
merger, recapitalization, restructuring, refinance or sale of substantially
all of the assets of the Debtor prior to the payment of such indebtedness. Any
exercise of the Warrants by their holders shall be subject to any applicable
rules, regulations, and/or approvals of the Colorado Gaming Commission.
(2) Limited Voting Right of Warrant Holders. The Warrant holders shall
be entitled to call a vote of the stockholders and Warrant holders on whether
any merger, recapitalization, restructuring, refinance, or sale of the assets
of the Debtor should be made or effectuated and the reorganized Debtor's board
of directors shall effectuate any transaction approved in such a vote in
accordance with applicable law, but the Warrant holders shall not have the
right to call a vote of the stockholders and Warrant holders during the one
year period after the Effective Date of the Plan. Shareholder approval shall
be required for any merger, recapitalization, restructuring, refinance or sale
of substantially all of the assets of the Debtor. The Warrant holders shall be
entitled to vote their Warrants as though each Warrant was one share of common
stock on any such merger, recapitalization, restructuring, refinance or sale
issues, but upon no other issue. Nothing herein shall be deemed to prohibit
the common stockholder from transferring all of the common stock of the Debtor
(subject to the Warrants) to a third party without a vote of the Warrant
holders provided that such transfer would not materially jeopardize the gaming
licensing of the Debtor.
(3) Warrant Holder Obligation to Buy Common Stock Pursuant to Put
Option. The Warrant holders shall have the obligation to purchase all of the
outstanding common stock of the Debtor at the option of the common stockholder
for $1.00, exercisable at any time from one year after the Effective Date but
no later than 7 years after the Effective Date and upon thirty (30) days
written notice by the common stockholder to the Warrant holders (the "Put").
The Put is contingent upon the transfer of the Management Agreement to a
licensed gaming operator (whose identity shall be disclosed in the thirty (30)
day written notice by the common stockholder to the Warrant holders) subject
to any applicable rules, regulations and/or approvals of the Colorado Gaming
Commission, so that the continued operation of the casino will not be
jeopardized by gaming licensing problems caused by the exercise of the Put. In
the event the Put is exercised, the Warrant holders shall have a right to
substitute the designated transferee of the Management Agreement during the
thirty (30) day notice period.
(4) Definition of "Affiliate"; "Control" and "Person". For purposes of
this Section on Warrants, the following definitions shall apply:
(a) "Affiliate" shall mean (i) in the case of an entity, any Person who
or which, as of the Effective Date, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, any specified Person; or (ii) in the case of an individual, such
individual's spouse, children, grandchildren or parents or a trust primarily
for the benefit of any of the foregoing.
(b) "Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
(c) "Person" means any individual or entity, including corporations,
partnerships, limited liability companies, and trusts.
(5) Other Rights and Duties. The holders of the Warrants shall have
other rights and duties as set forth in this Plan, including those rights set
forth in Article IV, Paragraph C.
ARTICLE II.
CLASSIFICATION OF CLAIMS AND INTERESTS
The claims and interests of the Debtor shall be divided into the
following classes:
Class 1. Class 1 claims shall consist of and be all Allowed
Administrative Claims.
Class 2. Class 2 claims shall consist of and be all Allowed Claims
entitled to priority under Section 507(a)(3) and (4) of the Bankruptcy Code
(certain wage and employee benefit priorities).
Class 3. Class 3 claims shall consist of and be all Allowed Claims
entitled to priority under Section 507(a)(8) of the Bankruptcy Code (certain
taxes).
Class 4. Class 4 claims shall consist of the Allowed Secured Claim of any
governmental units for pre-petition taxes, including but not necessarily
limited to the following:
4.1 The claim of the Colorado Department of Revenue for unpaid sales tax
plus statutory interest.
4.2 The claim of the Gilpin County Treasurer for unpaid real and
personal property taxes for the 1995 year due and payable in 1996 plus
statutory interest.
Class 5. Class 5 claims shall consist of the Allowed Secured Claim of
ASTRAEA as the holder of a fully secured and perfected security interest in
the Promissory Note.
Class 6. Class 6 claims shall consist of the Allowed Secured Claims of
persons who have equal priority security interests in the Promissory Note
other than ASTRAEA (the unsecured portion of the indebtedness to such persons
Note shall be classified as Class 12 indebtedness).
Class 7. Class 7 claims shall consist of the claim of Public Service
Company of Colorado which is fully secured by a pre-petition security deposit
paid by the Debtor to Public Service Company of Colorado.
Class 8. Class 8 claims shall consist of the Allowed Secured Claims of
Lisa Paige Montrose, Long & Jaudon and Richard and Francine Frajola, all of
which claims are secured by a single deed of trust on the Real Estate owned by
the Debtor (the unsecured portion of the indebtedness to such persons shall be
classified as Class 13 indebtedness).
Class 9. Class 9 claims shall consist of and be the Allowed Secured Claim
of IGT, which claim is secured by a security interest in Slot Machines owned
by the Debtor (the unsecured portion of the indebtedness to IGT shall be
classified as Class 11 indebtedness and shall be limited to $75,000.00).
Class 10. Class 10 claims shall consist of and be the Allowed Unsecured
Claims not entitled to priority and not expressly included in the definition
of any other class (including, without limitation, each allowed claim arising
out of the rejection of any executory contract or unexpired lease, and each
claim of the kinds described in Clauses (3) and (4) of 11 U.S.C. Section
507(a), to the extent that the allowed amount of such claim exceeds the
maximum amount (as fixed by said clauses) in which such claim may be accorded
priority thereunder), provided the allowed amount of such claim does not
exceed $1,500.00 or the holder thereof elects to reduce such claim to such
sum.
Class 11. Class 11 claims shall consist of and be the Allowed Unsecured
Claims not entitled to priority and not expressly included in the definition
of any other class (including, without limitation, each allowed claim arising
out of the rejection of any executory contract or unexpired lease, and each
claim of the kinds described in Clauses (3) and (4) of 11 U.S.C. Section
507(a), to the extent that the allowed amount of such claim exceeds the
maximum amount (as fixed by said clauses) in which such claim may be accorded
priority thereunder), provided the allowed amount of such claim exceeds
$1,500.00 and the holder thereof does not elect to reduce such claim to said
amount.
Class 12. Class 12 claims shall consist of the Allowed Claims for the
unsecured portion of any indebtedness secured by a lien on the Promissory
Note.
Class 13. Class 13 claims shall consist of the Allowed Claims for the
unsecured portion of the indebtedness to Lisa Paige Montrose, Long & Jaudon,
and Richard and Francine Frajola.
Class 14. The Class 14 claims shall consist of the Allowed Claims for the
unsecured indebtedness owing to Global in the amount of $134,565.00 and
$239,171.00, and the indebtedness owing to Colorado Gaming Properties, Inc. in
the amount of $50,000.00, but shall not include any claims in Class 1, 6, 11,
or 12.
Class 15. Class 15 interests shall be and consist of the interest of the
Shareholders of all of the stock of the Debtor.
ARTICLE III.
TREATMENT AND PROVISIONS FOR EACH CLASS OF CLAIMS
DEALT WITH UNDER THE PLAN
Each class of claims or interests shall be dealt with in the manner set
forth below. All classes of claims and interests above defined will be
impaired under the Plan, except for Classes 1, 2, and 7, whose claims are
unimpaired under the Plan.
In the event of a controversy as to whether any class of claims is
impaired under the Plan, the Bankruptcy Court, after notice and opportunity
for hearing, shall determine such controversy.
Class 1. Class 1 claims approved and allowed by the Court shall be paid
in cash within thirty days following the Effective Date of the Plan, except to
the extent that the holder of a particular claim in Class 1 shall agree to a
different treatment.
Class 2. Class 2 claims shall be paid in cash, the amount of their
Allowed Claims within thirty (30) days following the Effective Date of the
Plan.
Class 3. Class 3 claims shall be paid in cash, the amount of their
Allowed Claims within thirty (30) days following the Effective Date of the
Plan.
Class 4. Class 4 claims shall retain their liens and shall be paid in
cash the amount of their Allowed Claims (including statutory interest) within
thirty (30) days following the Effective Date, unless paid sooner pursuant to
court order.
Class 5. The Promissory Note shall be cancelled and the holder of the
Class 5 claim shall receive Debtor's promissory note in the principal amount
of $720,000.00, bearing interest at the rate of 7% per annum from the Petition
Date with monthly payments amortized evenly over a period of thirty (30)
years, and shall be payable in full on or before seven (7) years from the
Effective Date. In addition to the payments set forth above, the promissory
note shall provide for payment to the holder of the Class 5 claim, as soon as
practicable after each Distribution Date of 37.5% of Available Net Cash Flow
until the promissory note is paid in full. All payments under the promissory
note shall be first applied to accrued interest and then to principal. The
promissory note to be issued to the Class 5 claim holder (along with the
promissory notes to be issued to Class 6 holders) shall be secured by a first
deed of trust on the Real Estate. The deed of trust shall provide that the
holders of the second deed of trust (Class 8 claimants) to be issued pursuant
to this Plan shall have a nine (9) month period to cure any monetary default
by the Debtor under the deed of trust to be issued to the holders of Class 5
and 6 claims, provided that within thirty (30) days of receiving written
notice of a monetary default from the holders of the first deed of trust, the
holders of the second deed of trust have commenced a state law foreclosure
action, and further provided that within seven (7) days of receipt of a
Certificate of Purchase, the holders of the second deed of trust provide
evidence that the property has been listed with a licensed realtor. The nine
(9) month cure period shall begin to run from receipt of the written notice,
and shall expire prior to the nine (9) month period if the holders of the
second deed of trust (Class 8 claimants) fail to diligently pursue a state law
foreclosure action. Upon a termination of the cure period for any reason other
than payment of the amounts necessary to cure a monetary default, the holders
of the second deed of trust (Class 8 claimants) shall be required to assign
their rights in the second deed of trust to the holders of the first deed of
trust subject to the rights of the holders of the second deed of trust to
receive payment of all amounts owed to them under the second deed of trust
upon a sale of the Property. In addition, the holder of the Class 5 claim
shall receive 65% of the Warrants.
Class 6. Class 6 claims shall receive Debtor's promissory notes bearing
interest at 7% per annum with monthly payments amortized evenly over thirty
(30) years with principal equal to their Allowed Secured Claims, and shall be
payable in full on or before seven (7) years from the Effective Date. The
promissory notes to be issued to Class 6 claim holders (along with the
promissory note to be issued to the Class 5 holder) shall be secured by a
first deed of trust on the Real Estate. The deed of trust shall provide that
the holders of the second deed of trust (Class 8 claimants) to be issued
pursuant to this Plan shall have a nine (9) month period to cure any monetary
default by the Debtor under the deed of trust to be issued to the holders of
Class 5 and 6 claims, provided that within thirty (30) days of receiving
written notice of a monetary default from the holders of the first deed of
trust, the holders of the second deed of trust have commenced a state law
foreclosure action, and further provided that within seven (7) days of receipt
of a Certificate of Purchase, the holders of the second deed of trust provide
evidence that the property has been listed with a licensed realtor. The nine
(9) month cure period shall begin to run from receipt of the written notice,
and shall expire prior to the nine (9) month period if the holders of the
second deed of trust (Class 8 claimants) fail to diligently pursue a state law
foreclosure action. Upon a termination of the cure period for any reason other
than payment of the amounts necessary to cure a monetary default, the holders
of the second deed of trust (Class 8 claimants) shall be required to assign
their rights in the second deed of trust to the holders of the first deed of
trust subject to the rights of the holders of the second deed of trust to
receive payment of all amounts owed to them under the second deed of trust
upon a sale of the Property. .
Class 7. The Class 7 claim shall be paid in full upon the effective date
of the Plan from the pre-petition security deposit held by Public Service
Company of Colorado.
Class 8. Class 8 claims shall receive promissory notes for the amount of
their total Allowed Secured Claims (which collective total is $2,350,000 less
the amount due on the promissory notes to be issued to holders of Class 5 and
Class 6 claims) payable monthly evenly amortized over a period of thirty (30)
years at 9.2% interest per annum and shall be payable in full on or before
seven (7) years from the Effective Date. In addition to the payments set forth
above, the Class 8 promissory notes shall provide for payment to the holders
of the Class 8 claims, prorata, as soon as practicable after each Distribution
Date, of 12.5% of the Available Net Cash Flow until such claims are paid in
full. Any payments shall be applied first to accrued interest and then to
principal. The Class 8 promissory notes shall be secured by a single second
deed of trust on the Real Estate. In addition, the Promissory Note shall be
cancelled, with the outstanding balance of the Promissory Note reducing the
amount of the claim of Lisa Montrose.
Class 9. The holder of the Class 9 claim shall receive $35,000.00 in cash
within thirty (30) days of the Effective Date and a promissory note in the
principal amount of $208,200.00, plus interest at 10% per annum with payments
of $6,000.00 per month and a final payment of all unpaid interest and
principal three (3) years after the Effective Date. The Class 9 promissory
note shall be secured by a first priority security interest in the Slot
Machines and all other slot machines owned by the Debtor as of the Effective
Date.
Class 10. Class 10 claims shall be paid an amount equal to 100% of the
allowed amount of their claims in cash within thirty (30) days following the
Effective Date of the Plan.
Class 11. Class 11 claims shall be paid a prorata amount of their allowed
claims from a pool of $50,000.00 less amounts paid to the holders of Class 10
claims, in cash within thirty (30) days following the Effective Date. The
holders of Class 11 claims shall also receive noninterest bearing promissory
notes for the remainder of their Allowed Claims payable upon the merger,
recapitalization, restructuring or sale of substantially all of the assets of
the Debtor, and if not sooner paid, within seven (7) years of the Effective
Date. The Debtor will make reasonable efforts to prepay the Class 11
promissory notes (prorata with payments on the Class 12 promissory notes) from
Available Net Cash Flow not otherwise committed under the Plan.
Class 12. Class 12 claims shall, within thirty (30) days of the Effective
Date of the Plan, be given one share of common stock in the Debtor for each
dollar of their claims, if the holder agrees. If a holder does not agree to
the treatment set forth in the previous sentence, or if, in the opinion of
Debtor's board of directors, the issuance of stock to any of Class 12 holders
would make it unfeasible or overly difficult to maintain gaming licensing,
then instead of the treatment set forth in the previous sentence, such holders
who do not agree or who would make licensing unfeasible or overly difficult
shall receive no-interest promissory notes for the amounts of their claims
payable upon the sale of substantially all of the assets of the reorganized
Debtor, but in any event, before seven (7) years after the Effective Date. The
Debtor will make reasonable efforts to prepay the Class 12 promissory notes
(prorata with payments on the Class 11 promissory notes) from Available Net
Cash Flow not otherwise committed under this Plan.
Class 13. Class 13 claims shall, within thirty (30) days of the Effective
Date of the Plan, receive $50,000.00 in cash to be divided among them prorata
and 35% of the Warrants. Each holder shall receive a portion of the Warrants
(to be given to Class 13 claimants) prorata to his claim to the total Class 13
claims.
Class 14. The Class 14 claims shall receive nothing under the Plan on
account of their claims.
Class 15. Class 15 interests shall receive nothing under the Plan on
account of such interests, and all outstanding stock of the Debtor shall be
cancelled.
ARTICLE IV.
MEANS FOR EXECUTION OF THE PLAN
The Debtor hereby provides the following means for execution of this
Plan.
A. Continuity of Business. The Debtor shall continue in business.
Payments to be made by the Debtor shall be made from cash currently on hand,
except that deferred payments and payments to be made under Debtor's
promissory notes issued pursuant to the Plan shall be made from cash flow
generated by the Debtor's reorganized business. The Debtor shall continue to
minimize expenses, maximize revenues, and make desirable capital improvements
to the end that the Debtor is able to pay all amounts owing under the Plan
within the time prescribed by the Plan. The Debtor will also diligently pursue
collection of the Woodbine Receivable and investigation, and if warranted,
suit on the Choses in Action.
B. Retention of Assets. The Debtor shall retain its property and assets
free and clear of all liens subject only to the security interests granted
under the terms of this Plan. Without limiting the generality of the
foregoing, the Debtor shall own the Promissory Note (which shall be
cancelled), the Real Estate, and the Slot Machines free and clear of all liens
and upon giving the promissory notes and security interests as set forth in
Article III those claimants who hold security interests in the Promissory
Note, Real Estate and Slot Machines shall execute such documents as may be
necessary or reasonably requested by the Debtor to perfect or otherwise put of
record, the release of their interests in the Promissory Note, the Real
Estate, and the Slot Machines.
C. Management. The directors of the Debtor and the officers of the
Debtor shall remain as currently constituted subject to replacement at the
will of the Debtor's board of directors or shareholders as provided in the
Colorado Business Corporation Act. Debtor shall employ Daniel Scherer as on-
site general manager at a reasonable salary (currently approximately
$45,000.00 per year) on an at-will basis. Pursuant to the Global Management
Agreement, Global shall provide administrative, accounting, licensing and
purchasing management services and shall be entitled to receive from the
reorganized Debtor, the Management Fee for such services until such time as
substantially all of the assets of the Debtor are sold, provided that Global
may discontinue the Global Management Agreement at any time when the
reorganized Debtor has failed to pay at least two-thirds of all the Management
Fee which have accrued after the Effective Date, provided that Global gives
the holders of the Warrants ninety (90) days notice of such termination and
the opportunity to cure within said ninety (90) day period. Global shall
provide, on a monthly basis, the same types of information in the same format
as the Debtor is currently required to provide to the U.S. Trustee's office,
to the Warrant holders c/o Bruce Leadbetter, Dalfort Aviation, 7701 Lemmon
Avenue, Dallas, TX 75209.
D. Objections to Claims. The Debtor shall, and any other party in
interest, may object, when appropriate, to any Administrative, Secured or
Unsecured Claim.
E. Payment of Allowed Claims or Issuance of Stock Under the Plan. The
reorganized Debtor shall make payments to creditors as provided for under the
terms of the within Plan. Payments shall be made by check, warrant
certificates, stock certificates, or promissory notes (as the case may be) and
shall be mailed to each creditor with Allowed Claims at the address in the
Debtor's Statements and Schedules filed with the Court, or as set forth in any
Proof of Claim, other pleading or change of address notification filed with
the Court.
F. Unclaimed Distribution. For a period of seven (7) years following
the Effective Date, the reorganized Debtor shall retain for issuance any
unclaimed distributions for the benefit of the holders of Allowed Claims which
have failed to claim such property. At the end of seven (7) years following
the Effective Date, the holders of Allowed Claim who are entitled to
distributions held in such reserve shall cease to be entitled thereto, and
such distributions shall become property of the Debtor.
ARTICLE V.
EXECUTORY CONTRACTS
To the best of Debtor's knowledge, the Debtor does not have any executory
contracts or unexpired leases. To the extent an agreement between the Debtor
and another party is determined to be an executory contract or unexpired
lease, then pursuant to Sections 365 and 1123(b)(2) of the Bankruptcy Code,
the Debtor hereby rejects all executory contracts and unexpired leases except
for those executory contracts and unexpired leases which shall have been
specifically assumed by the Debtor in writing prior to confirmation in a
pleading filed with the Court.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
1. Procedures for Resolving Contested Matters.
(a) Objections to Claims shall be filed with the Court and shall be
served on the holders of each of the claims to which objections are filed by
no later than one hundred eighty (180) days after the Effective Date. The
reorganized Debtor shall litigate to judgment, settle or withdraw objections
to all such disputed claims.
(b) No payments or distributions shall be made with respect to all or
any portion of a disputed claim, unless and until all objections to such
disputed claims have been determined by Final Order of the Court. Payments and
distributions to holders of disputed claims, to the extent such become Allowed
Claims, shall be made in accordance with the provisions of the Plan, except
that if the Plan provides for a distribution prior to the time the disputed
claim is resolved, such distribution shall be delayed until the disputed claim
is determined by Final Order of the Court.
2. Retention of Jurisdiction.
(a) The Court shall retain and have exclusive jurisdiction over the
Chapter 11 case for the following purposes:
(i) To determine any and all objections to the allowance of claims;
(ii) To determine any and all applications for allowances of
compensation and reimbursement of expenses, and any other fees and
expenses authorized to be paid or reimbursed under the Bankruptcy Code or
Plan;
(iii) To determine any application pending on the Effective Date
for the rejection or assumption of executory contracts or unexpired
leases or the assumption and assignment, as the case may be, of those
executory contracts or unexpired leases to which the Debtor is a party or
with respect to which the Debtor may be liable, and to hear and
determine, and if need be, to liquidate, any and all claims arising
therefrom;
(iv) To determine any and all applications, adversary proceedings,
and contested or litigated matters that may be pending on the Effective
Date;
(v) To consider any modifications of the Plan, remedy any defect or
omission, or reconcile any inconsistency in any order of the Bankruptcy
Court, including the Confirmation Order, to the extent authorized by the
Bankruptcy Code;
(vi) To determine all controversies, suits and disputes that may
arise in connection with or interpretation, enforcement or consummation
of the Plan;
(vii) To consider and act on the compromise and settlement of
any claim against, or cause of action by or against the Debtor's Estate;
(viii) To resolve any pending disputes regarding the Debtor's
interest in property;
(ix) To issue orders in aid of execution of the Plan to the extent
authorized by 11 U.S.C. Section 1142 of the Code; and
(x) To determine such other matters as may be set forth in the
Confirmation Order or as may arise in connection with the Plan or the
Confirmation Order.
(b) The Plan may be amended by the Debtor before or after the Effective
Date as provided in 11 U.S.C. Section 1127 of the Code.
3. Payment of Fees Pursuant to 11 U.S.C. Section 1129(a)(12). All fees
required to be paid by 28 U.S.C. Section 1930 which are due and owing as of
the date of confirmation shall have been paid prior to the Confirmation Date,
or shall be paid on the Effective Date of the Plan. Post-confirmation, the
Debtor shall continue to pay all quarterly fees due under 28 U.S.C. Section
1930(a)(6) until such time as the Debtor's Chapter 11 case is closed.
4. Modification of Payment Terms. The treatment of any Allowed Claim
(secured or unsecured) may be reduced at any time after the Effective Date
upon the consent of the creditor whose Allowed Claim treatment is being
reduced. Unless otherwise provided in this Plan with respect to a specific
lien, any lien retained by the holder of an Allowed Secured Claim may be
satisfied by payment in full of the allowed amount of such Secured Claim.
5. Discharge of the Debtor. The rights afforded in the Plan shall be in
exchange for and in complete satisfaction, discharge and release of all claims
or interest of any nature whatsoever, including any interest accrued thereon
from and after the Petition Date against the Debtor, or the Estate, or any of
its assets or properties, except as otherwise provided for in the Plan. Upon
the Effective Date, pursuant to Section 1141 of the Code, all such claims or
interests against or in the Debtor shall be satisfied, discharged and released
in full. Pursuant to Section 524 of the Code, confirmation of the Plan shall
not affect the liability of any party other than the Debtor with respect to
any debt. All creditors and holders of interests shall be precluded from
asserting against the Debtor or its Estate or its assets any other further
claim or interest based on any act or omission, transaction or other activity
of any kind that occurred prior to the Effective Date. Except as provided for
in the Plan or in the Confirmation Order, upon Confirmation of the Plan, the
Debtor shall be vested with full ownership of and dominion over its property
and assets free and clear of all claims, liens, charges, and other interests
of creditors arising prior to the filing of the Bankruptcy Petition, and
except as otherwise provided in the Plan. Upon confirmation of the within
Plan, the Debtor may operate its business free of any restrictions of the
Bankruptcy Code, the Bankruptcy Court, or the United States Trustee.
6. Final Report. Within one hundred eighty (180) days following the
Effective Date of the Plan, the Debtor will file its Final Report and account
of administration of its estate and application for Final Decree seeking to
close the Chapter 11 bankruptcy proceeding.
7. Amendment of Articles of Incorporation. Pursuant to Section
1123(a)(6), the Debtor shall, on or before the Effective Date of the Plan,
amend its Articles of Incorporation to add (i) a provision prohibiting the
issuance of non-voting equity securities, (ii) a provision for one single
class of common stock with authority to issue a number of shares of stock at
least equal to the number of shares to be issued pursuant to this Plan,
together with the number of shares to be issued pursuant to the Warrants, and
(iii) a provision for a single class of preferred stock available to be issued
to persons who would be qualified to have an interest in the Debtor pursuant
to the applicable rules, regulations and requirements of the Colorado Gaming
Commission governing investment in entities holding gaming licenses, and who
contributes capital which in the reasonable opinion of the Debtor's board of
directors is necessary for needed improvements.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
DATED:
CASINOS U.S.A., INC.
By --------------------------------------
Gerald Jacobs, President
Respectfully submitted,
LIRTZMAN NEHLS NORMAN & HEPNER, P.C.
- ------------------------------------
Daniel A. Hepner #16894
Richard C. Nehls #7581
190 Arapahoe Avenue
Boulder, CO 80302
(303) 444-5141
ATTORNEYS FOR DEBTOR IN POSSESSION
<PAGE>
NG&E DRAFT--September 4, 1997
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT (this "Agreement") is dated as of January 17,
1997, by and between Casinos U.S.A., Inc., a Colorado corporation (the
"Company"), and Astraea Investment Management, L.P., a Delaware limited
partnership, Lisa Paige Montrose, Janice Steinle, not individually but as
Trustee for the Bankruptcy Estate of Richard and Francine Frajola, and Gary L.
Shupp, P.C. (each a "Warrant Holder" and collectively, the "Warrant Holders").
W I T N E S S E T H:
--------------------
WHEREAS, on October 18, 1995, the Company filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the District of Colorado (the "Bankruptcy Court");
WHEREAS, on December 16, 1996, the Bankruptcy Court entered an order (the
"Confirmation Order") confirming the Company's Second Amended Plan of
Reorganization dated September 4, 1996 (the "Plan");
WHEREAS, the Plan and the Confirmation Order provide for the issuance to
Warrant Holders of warrants for the purchase of the Company's common stock, no
par value (the "Common Stock"); and
WHEREAS, subject to the terms and provisions hereof, each Common Stock
purchase warrant (individually, a "Warrant", and, collectively, the
"Warrants") issued pursuant to the Plan, the Confirmation Order and this
Agreement entitle the Warrant Holder thereof to purchase one share of Common
Stock at the per share Exercise Price (as defined herein) (subject to
adjustment hereunder).
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties intending to be
legally bound hereby agree as follows:
ARTICLE I
FORM OF WARRANT
The Warrants shall be evidenced by a certificate (the "Warrant
Certificate"). The text of the Warrant Certificate (and the related forms of
exercise and assignment) shall be substantially in the form attached hereto as
Exhibit A and may have such identification, designation and information
thereon as the Company may deem appropriate and as is not inconsistent with
the provisions of this Agreement, or as may be required to comply with any law
or with any rule or regulation adopted pursuant thereto.
ARTICLE II
EXERCISE PRICE, VESTING, TERM, AND METHOD OF EXERCISE
Section 2.01. Exercise Price. Unless adjusted as provided in Article III
hereof, the Warrant Holders shall receive the following number of Warrants
from the Company:
<PAGE>
<TABLE>
<S> <C> <C>
Astraea Investment Management, L.P. 671,268
Lisa Paige Montrose 220,401
Janice Steinle, Trustee for the
Bankruptcy Estate of
Richard and Francine Frajola 72,213
Gary L. Shupp, P.C. 68,838
</TABLE>
The exercise price ("Exercise Price") for each share of Common Stock purchased
upon exercise of a Warrant issued hereunder shall be $0.01.
Section 2.02. Warrant Rights and Term. Each Warrant shall entitle the
Warrant Holder, upon exercise thereof and subject to the provisions thereof,
of the Plan and of this Agreement, including provisions relating to
adjustments upon the occurrence of certain events as set forth in Article III
hereof, to purchase from the Company one fully paid and nonassessable share of
Common Stock at the Exercise Price. All of the Warrants issued hereunder and
evidenced by the Warrant Certificate shall expire and no longer be exercisable
at 5:00 p.m. on January 17, 2004 (the "Expiration Date"). The Warrant shall be
exercisable at any time from one year after the date hereof and prior to the
Expiration Date, but only upon the occurrence of a Capital Event, as defined
in Section 3.04 of this Agreement. In the event that the Company, in
accordance with the provisions of its Articles of Incorporation and Bylaws,
negotiates a Capital Event within one year of the date hereof, the Warrant
Holder shall be entitled to exercise its Warrants. The Warrants shall
terminate after all indebtedness owed by the Company to the Warrant Holder has
been paid, even where the Expiration Date has not yet occurred, so long as
there has been no Capital Event prior to the payment of such indebtedness. Any
exercise of the Warrants by the Warrant Holder shall be subject to any
applicable rules, regulations, and/or approvals of the Colorado Gaming
Commission.
Section 2.03. Expiration. Each Warrant not exercised by 5:00 p.m. on the
Expiration Date shall become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall thereupon cease.
Section 2.04. Method of Exercise. The Warrant Holder may exercise its
rights with respect to all or any whole number of Warrants evidenced by the
Warrant Certificate. Exercise shall be effected by surrender of the Warrant
Certificate, with the exercise form thereon duly executed, to the Company at
its offices as designated in Section 5.04 hereof, together with the Exercise
Price for each Warrant that is exercised. Payment of the Exercise Price shall
be made by (a) certified check payable in lawful money of the United States of
America to the order of the Company, or (b) wire transfer of immediately
available funds to an account designated by the Company.
Upon receipt of the Warrant Certificate with the exercise form duly
executed and accompanied by full and proper payment of the Exercise Price for
the shares of Common Stock purchased thereby, the Company shall deliver to, or
in accordance with the instructions of, the Warrant Holder certificates for
the total number of shares of Common Stock for which the Warrants evidenced by
such Warrant Certificate are being exercised.
In the event that the Warrant Holder shall exercise rights with respect
to less than all of the Warrants evidenced by the Warrant Certificate
surrendered upon the exercise of Warrants, a new Warrant Certificate for the
balance of such Warrants shall be delivered to, or in accordance with the
instructions of, the Warrant Holder.
Section 2.05. Cancellation of Warrants. In the event the Company shall
purchase or otherwise acquire the Warrants, the same shall thereupon be
delivered to the Company and be cancelled by it and retired. The Company shall
cancel any Warrant surrendered for exchange, substitution, transfer or
exercise in whole or in part.
Section 2.06. Transferability. Except as set forth in this Section 2.06,
the Warrants shall be non-transferable and any person that owns a controlling
interest in the Warrant Holder is prohibited from transferring that
controlling interest. The Warrant Holder may transfer the Warrants and all
rights thereunder and hereunder to an affiliate (as defined in the Plan) of
the Warrant Holder subject to applicable gaming and securities laws and
subject to the consent of the Holders of a majority of the Company's then
outstanding Common Stock, which consent shall not be unreasonably withheld.
Nothing in this Section 2.06 shall prohibit a Warrant Holder from transferring
its Warrants to another Warrant Holder, the Company or a Shareholder of the
Company.
ARTICLE III
ADJUSTMENTS TO WARRANTS UPON CERTAIN EVENTS
Section 3.01. Mechanical Adjustments. The number of shares of Common
Stock purchasable upon the exercise of each Warrant (such shares being
referred to in this Article III as the "Warrant Shares") shall be subject to
adjustment as follows if any of the events listed in (a) - (b) below occur
prior to exercise of each Warrant:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, or (iv) cause to
occur or suffer any other event that would dilute the Warrants, then the
number of Warrant Shares in effect immediately prior to such action shall
be proportionately adjusted so that the holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital
stock of the Company that such Holder would have owned immediately
following such action if such Warrant had been exercised immediately
prior to such action. The adjustment shall become effective retroactive
to the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a subdivision,
combination or reclassification. If any dividend or distribution is not
paid or made, the number of Warrant Shares shall be appropriately
readjusted.
(b) Unless otherwise agreed in writing, in case the Company shall
(i) sell or issue shares of its Common Stock, (ii) issue rights, options
or warrants to subscribe for or purchase shares of Common Stock or (iii)
issue or sell other rights or securities convertible into or for the
purchase of shares of Common Stock (collectively, the "Securities"), then
in each case the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Securities
plus the maximum number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance of such Securities. To the extent that Securities expire
unexercised, the number of Warrant Shares purchasable upon the exercise
of each Warrant shall be readjusted to the number which would then be in
effect had the adjustments made upon the issuance of such Securities been
made upon the basis of only the number of shares of Common Stock
delivered pursuant to Securities actually exercised.
(c) In the event that the provisions of this Article III fail as a
result of an unintentional oversight to provide expressly for the
adjustment of the number of Warrant Shares purchasable upon exercise of
each Warrant under circumstances that, based upon the purposes and
intentions expressed herein, would otherwise have been addressed, the
Board shall, in good faith, cause an equitable adjustment to be made to
the number of Warrant Shares purchasable upon exercise of each Warrant to
correct such an oversight.
Section 3.02. Adjustment of Exercise Price. Whenever the number of
Warrant Shares purchasable upon the exercise of each Warrant is adjusted, as
provided above, the Exercise Price payable upon exercise of each Warrant shall
be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of each Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
Section 3.03. Notice of Adjustment. Whenever the number of Warrant
Shares purchasable upon the exercise of each Warrant is adjusted as provided
above, the Company shall promptly provide to the Warrant Holder, in accordance
with Section 5.04, a notice of such adjustment or adjustments which sets forth
the number of Warrant Shares purchasable upon the exercise of each Warrant
after such adjustment, a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made.
Section 3.04. Effect of Sale, Merger or Consolidation. In the event of
(a) any reclassification (other than a change in par value) of the Common
Stock or the exchange or cancellation of outstanding shares of Common Stock,
(b) any conversion of the Common Stock into securities or property (including
cash) of another corporation, (c) the consolidation of the Company with, or
the merger of the Company with or into, any other corporation, (d) in the
event of the sale of all or substantially all of the properties and assets of
the Company to any person in exchange for securities or other property
(including cash) or (e) any other recapitalization, issuance of shares or debt
instruments, refinancing or financial restructuring of the Company (each such
event hereinafter being referred to as a "Capital Event"), each Warrant shall
thereafter be exercisable upon the terms and conditions specified in this
Agreement and the Plan for the number of shares of stock or other securities
or property (including cash) of the Company or of the person into which shares
of Common Stock are converted or resulting from such consolidation or
surviving such merger or to which such sale shall be made, as the case may be,
to which the shares of Common Stock issuable (immediately prior to such
Capital Event) upon exercise of such Warrant would have been entitled upon
such Capital Event. In any such case, if necessary, the provisions set forth
in this Article III with respect to the rights and interests thereafter of the
Warrant Holder shall be appropriately adjusted so as to be reasonably
applicable to any shares of stock or other securities or property thereafter
deliverable on the exercise of the Warrants. The following shall not be
considered as a Capital Event under this Agreement: (a) the refinance of debts
not secured by the Real Estate (as defined in the Plan); (b) the granting of a
purchase money security interest to secure debt that does not exceed $50,000
to any one creditor (or its affiliates) or $125,000 in the aggregate; or (c)
the issuance of preferred stock to persons who would be qualified to have an
interest in the Company pursuant to the applicable rules, regulations and
requirements of the Colorado Gaming Commission governing entities holding
gaming licenses, and who contribute capital solely for the purposes of making
capital improvements to the Company's property.
The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common Stock shall
not be deemed to be a reclassification of the Common Stock of the Company for
the purpose of this Section.
Section 3.05. Notice of Certain Events. In case at any time prior to the
Expiration Date:
(a) the Company shall authorize the granting to all the holders of
Common Stock of rights to subscribe for or purchase any shares of stock
of any class or of any other rights; or
(b) there shall be any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its outstanding
Common Stock); or
(c) there shall be any Capital Event; or
(d) there shall be voluntary or involuntary dissolution,
liquidation and winding up by the Company or extraordinary dividend or
distribution to holders of Common Stock (other than the Company's
customary cash and stock dividends); or
(e) any other event described in Section 3.01.
then in any one or more of said cases, the Company shall cause to be delivered
to each Warrant Holder, at the earliest practicable time (and, in any event,
not less than forty-five (45) days before any record date or other date set
for definitive action), notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such
notice) on the Exercise Price and the kind and amount of the shares of stock
and other securities and property deliverable upon exercise of the Warrants.
Such notice shall also specify the date, if known, as of which the holders of
record of the Common Stock shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their shares of the
Common Stock for securities or other property (including cash) deliverable
upon such reorganization, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be.
Section 3.06. Effect of Adjustment on Warrant Certificates. The form of
Warrant Certificate need not be changed because of any change in the number of
Warrant Shares issuable upon the exercise of a Warrant or the number of
Warrants outstanding pursuant to this Article III, and Warrant Certificates
issued before or after such change may state the same Exercise Price, the same
number of Warrants and the same number of Warrant Shares issuable upon
exercise of Warrants as are stated in the Warrant Certificates theretofore
issued pursuant to this Agreement. The Company may, however, at any time, in
its sole discretion, make any change in the form of Warrant Certificate that
it may deem appropriate and that does not affect the substance thereof, and
any Warrant Certificates thereafter issued, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in
the form as so changed.
ARTICLE IV
RIGHTS OF WARRANT HOLDERS; OTHER AGREEMENTS
Section 4.01. No Rights as Stockholders.
Except as provided in Section 4.02 hereof, the Warrant Holders, as such,
shall not be entitled to vote or to receive dividends or otherwise be deemed
to be the holders of shares of Common Stock for any purpose, nor shall
anything contained herein or in any Warrant Certificate be construed to confer
upon any Warrant Holder, as such, any of the rights of a stockholder of the
Company or any right to vote upon or give or withhold consent to any action of
the Company, receive notice of meetings or other action affecting stockholders
(except for notices expressly provided for in this Agreement or the Plan) or
receive dividends or subscription rights, until such Warrant Certificates
shall have been surrendered for exercise accompanied by full and proper
payment of the Exercise Price as provided in this Agreement and shares of
Common Stock thereunder shall have become issuable and until such person shall
have been deemed to have become a holder of record of such shares. If, at the
date of surrender of such Warrant Certificate and payment of such Exercise
Price, the transfer books for the Common Stock shall be closed, certificates
for the shares of Common Stock shall be issuable on the date on which such
books shall next be open (whether before, on or after the Expiration Date).
The Warrant Holders shall, upon the exercise of Warrants, not be entitled to
any dividends if the record date with respect to payment of such dividends
shall be a date prior to the date such shares of Common Stock became issuable
upon the exercise of such Warrants.
Section 4.02. Limited Voting Rights of Warrant Holders. The Warrant
Holders shall be entitled to call a vote of the holders of the Company's
Common Stock and Warrant Holders on whether any Capital Event enumerated in
Section 3.04 should be made or effectuated and the Company's board of
directors shall effectuate any transaction approved in such a vote in
accordance with applicable law, but the Warrant Holders shall not have the
right to call a vote of the holders of the Company's Common Stock and Warrant
Holders during the one year period after the date hereof. Shareholder approval
shall be required for any Capital Event. The Warrant Holders shall be entitled
to vote their Warrants as though each Warrant was one share of common stock on
any such Capital Event and the vote of a majority of the Warrants and the
Common Stock, voting as a single class, shall be required for a Capital Event,
but upon no other issue.
Section 4.03. Replacement Warrants. If any Warrant Certificate is lost,
stolen, mutilated or destroyed, the Company may, upon receipt of evidence
satisfactory to the Company of such loss, theft, mutilation or destruction and
on such terms as to indemnity or otherwise as the Company may in its
discretion require (which shall, in the case of a mutilated Warrant
Certificate, include the surrender thereof), issue a new Warrant Certificate
of like denomination and tenor as the lost, stolen, mutilated or destroyed
Certificate. Applicants for such substitute Warrant Certificates shall also
comply with such other reasonable regulations and pay any such reasonable
charges as the Company may prescribe. In the event any Warrant Certificate is
lost, stolen, mutilated or destroyed, and the owner thereof desires to
exercise the Warrants evidenced thereby, the Company may, in lieu of issuing a
substitute Warrant Certificate, authorize the exercise thereof upon receipt of
the above evidence and on such terms of indemnity as it may require.
Section 4.04. Maintenance of Sufficient and Proper Shares of Common
Stock.
(a) The Company shall at all times reserve and keep available a
number of authorized shares of Common Stock sufficient to permit the
exercise in full of all outstanding Warrants and shall use its best
efforts to cause all shares of Common Stock issued upon the exercise of
the Warrants to be listed on any exchanges on which the Common Stock is
then listed.
(b) If at any time the taking of any action would cause an
adjustment in the Exercise Price so that the exercise of a Warrant while
such Exercise Price is in effect would cause a share of Common Stock to
be issued at a price below its then par value, the Company shall take
such action as may, in the opinion of its counsel, be necessary in order
that it may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of the Warrants at such Exercise Price.
Section 4.05. Fractional Warrants. Anything herein to the contrary
notwithstanding, the Company shall not be required to issue fractions of
Warrants on any distribution of Warrants to Warrant Holders or to distribute
Warrant Certificates that evidence fractional Warrants.
Section 4.06. Legend. The Warrant Certificates shall bear the legend set
forth in Exhibit A hereto and the shares of Common Stock issuable upon the
exercise of the Warrants shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS.
A STATEMENT SUMMARIZING THE VOTING POWERS, DESIGNATIONS,
PREFERENCES, LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF THE
VARIOUS CLASSES OF STOCK OR SERIES THEREOF MAY BE OBTAINED BY THE
STOCKHOLDERS AND WARRANT HOLDERS OF THE COMPANY, WITHOUT CHARGE,
FROM THE PRINCIPAL OFFICES OF THE COMPANY."
Section 4.07. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrants against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of Common Stock receivable on
the exercise of the Warrants above the amount payable therefor on such
exercise, and (b) will not effect a subdivision or split-up of shares or
similar transaction with respect to any class of Common Stock of the Company
without effecting an equivalent transaction with respect to all other classes
of Common Stock of the Company.
4.08. No Liens, etc. All securities that may be issued upon exercise
of the Warrants (and pursuant to this Agreement) will, upon issuance, be
validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and shall be listed on any
exchanges on which that class of securities is listed.
ARTICLE V
GENERAL
Section 5.01. Taxes on Issuance of Shares of Common Stock. The Company
shall pay all stamp taxes, franchise taxes, and similar taxes and governmental
charges that may be imposed in respect to the issue or delivery of shares of
Common Stock. In no event shall the Company pay taxes imposed on net income of
the Warrant Holders as a result of the exercise of the Warrants and receipt of
shares of Common Stock. The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock in any name other than
that of the registered holder of the Warrant surrendered in connection with
the purchase of such shares, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the Company's satisfaction
that no tax or other charge is due.
Section 5.02. Dates and Times. If any date set forth in this Warrant
Agreement shall fall on a day other than a business day in Denver, Colorado,
said date shall be deemed to be the next full business day succeeding that
date. All times shall be the legal time then in effect in Denver, Colorado.
Section 5.03. Binding Agreement. All of the covenants and provisions of
this Agreement by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder. Nothing
expressed in this Agreement and nothing that may be implied from any of the
provisions hereof is intended, or shall be construed, to confer upon or give
to any person or corporation, other than the Company and the Warrant Holders,
any legal or equitable right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
herein, and all covenants, conditions, stipulations, promises and agreements
contained in this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Holders and their respective successors and assigns.
Section 5.04. Notices. All notices under this Agreement shall be in
writing and shall be delivered by personal service or telecopy or certified
mail return receipt requested (if such service is not available, then by first
class mail), postage prepaid, to such address as may be designated from time
to time by the relevant party, and which shall initially be:
(a) If to the Company: Casinos U.S.A., Inc.
P.O. Box 486
Blackhawk, Colorado 80422
With a copy to: Lirtzman, Nehls & Hepner
190 Arapahoe Avenue
Boulder, Colorado 80302
Attention: Daniel A. Hepner
Telecopy: 303/444-9253
(b) If to a Warrant Holder to that Warrant Holder at the address
set forth on the signature page hereto, and in the case of Astraea
Investment Management, L.P., with a copy to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Attention: Richard S. Meller
Telecopy: 312/269-1747
and in the case of Lisa Page Montrose with a copy to:
Long & Jaudon P.C.
1600 Ogden Street
Denver, Colorado 80218
Attention: James Dierker
Telecopy: 303/832-1348
and in the case of Janice Steinle, Trustee with a copy to:
Pearlman & Dalton P.C.
730 17th Street
Suite 650
Denver, Colorado 80202
Attention: Philip Pearlman
Telecopy: 303/572-7533
Any notice sent by certified mail, return receipt requested, shall be
deemed to have been given upon receipt. All other notices shall be deemed
given when received. No objection may be made to the manner of delivery of any
notice actually received in writing by an authorized agent of a party.
Section 5.05. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Colorado
without regard to the conflict of laws provisions thereof.
Section 5.06. Headings. The Article and Section headings herein are for
convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
Section 5.07. of counterparts, each of which so executed shall be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 5.08. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
Section 5.09. Entire Agreement. This Agreement, the Plan, the Disclosure
Statement and the Confirmation Order (and all exhibits and/or schedules
attached hereto and thereto) are intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities now or hereafter owned by the Warrant Holders.
Section 5.10. Modification and Waiver. This Agreement, the Warrant
Certificate and any provision hereof or thereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
Section 5.11. Put Option. Nothing herein shall be deemed to modify the
Put Option obligations of the Warrant Holders as set forth in the Plan. The
Warrant Holders acknowledge their obligations to purchase all of the
outstanding common stock of the Company at the option of the common
stockholder on the terms and conditions set forth in the Plan.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
COMPANY:
CASINOS U.S.A., INC.
By: __________________________
Gerald Jacobs, President
<PAGE>
<PAGE>
WARRANT HOLDERS:
ASTRAEA INVESTMENT MANAGEMENT, L.P.
By: _____________________________________
Astraea Investment Management Service
Company, General Partner
Title: _______________________________
Address: _______________________________
_______________________________
_______________________________
Telecopy: _______________________________
_________________________________________
LISA PAIGE MONTROSE
Address: P.O. Box 503
Blackhawk, CO 80422
________________________________________
JANICE STEINLE, NOT INDIVIDUALLY, BUT AS
TRUSTEE FOR THE BANKRUPTCY ESTATE OF
RICHARD AND FRANCINE FRAJOLA
Address: 4 West Dry Creek Circle, #240
Littleton, CO 80120
________________________________________
GARY L. SHUPP, P.C.
Address: 14 West Costilla
Colorado Springs, CO 80903
[Signature Page to Warrant Agreement]
<PAGE>
<PAGE>
EXHIBIT A
(Form of Warrant Certificate)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK UNDERLYING SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
No.__________ ______________, 1997
___________ Warrants
VOID AFTER 5:00 P.M., DENVER, COLORADO TIME
ON _________, 2004 (UNLESS EXTENDED OR EARLIER TERMINATED),
CASINOS U.S.A., INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that [_____________________] or
registered assigns, is the registered holder of [________] Warrants (the
"Warrants") to purchase shares of the common stock ("Common Stock"), of
Casinos U.S.A., a Colorado corporation (the "Company"). Each Warrant entitles
the holder thereof, upon proper exercise and subject to the provisions of the
Warrant Agreement, dated as of January __, 1997 (the "Warrant Agreement")
between the Company and the Warrant Holders, to [one] fully paid and non-
assessable share of Common Stock. In order to exercise a Warrant evidenced by
this Warrant Certificate, holder shall deliver an executed copy of this
Warrant Certificate (together with the Form of Election to Purchase duly
executed) at the corporate office of the Company, together with proper payment
of the Exercise Price (as defined below). The Warrants evidenced by this
Warrant Certificate may be exercised in whole or in part to purchase shares of
Common Stock. Subject to adjustment as provided in the Warrant Agreement, the
exercise price ("Exercise Price") for each Warrant evidenced hereby shall be
$0.01 per share of Common Stock. This Warrant will expire on the Expiration
Date (as defined in the Warrant Agreement). Payment of the Exercise Price
shall be made in accordance with the terms of the Warrant Agreement. As
provided in the Warrant Agreement, the number of shares of Common Stock
purchasable upon the exercise of the Warrants are, upon the occurrence of
certain events, subject to modification or adjustment.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, including the provisions thereof relating
to the amendment thereof, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Company and the holder of this
Warrant Certificate. Capitalized terms not otherwise defined herein have the
meanings ascribed to them in the Warrant Agreement.
If this Warrant Certificate shall be exercised in part, the holder hereof
shall be entitled to receive upon surrender hereof another Warrant Certificate
evidencing the number of Warrants not exercised.
Except as provided in the Warrant Agreement and the Plan, no holder of
this Warrant Certificate shall be deemed to be the holder of Common Stock or
any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate as such any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant Certificate shall have
been exercised and the Common Stock issuable upon the exercise hereof shall
have become issued as provided in the Warrant Agreement.
WITNESS the signatures of the proper officer(s) of the Company.
Dated: ____________, 1997 CASINOS U.S.A., INC.
By: _____________________________
Gerald Jacobs, President
<PAGE>
<PAGE>
FORM OF
ELECTION TO EXERCISE
To: CASINOS U.S.A., INC.
The undersigned hereby irrevocably elects to exercise __________ Warrants
represented by this Warrant Certificate, and to purchase the Common Stock
issuable upon the exercise of such Warrants, and requests that certificates
for such shares shall be issued in the name of
________________________________________________________________
(Name)
________________________________________________________________
(Address)
________________________________________________________________
(Social Security or other Identifying Number)
and be delivered to
________________________________________________________________
(Name)
at ________________________________________________________________
(Address)
and, if said number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be delivered to the undersigned at the address stated above.
Dated: __________________________________________________________
Name of Warrant Holder: ___________________________________________
(Please Print)
Signature: ____________________________________________________
Address: ____________________________________________________
<PAGE>
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ____________________ the right represented by the within Warrant to
purchase Warrant Shares and appoints _______________ attorney-in-fact to
transfer such right on the books of Casinos U.S.A., Inc. with full power of
substitution in the premises.
Dated: ______________________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________________________________________
(Address)
Signed in the presence of:
<PAGE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK UNDERLYING SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
No. 1 January __, 1997
671,268 Warrants
VOID AFTER 5:00 P.M., DENVER, COLORADO TIME
ON JANUARY 17, 2004 (UNLESS EXTENDED OR EARLIER TERMINATED),
CASINOS U.S.A., INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that ASTRAEA INVESTMENT MANAGEMENT
L.P., is the registered holder of Six Hundred Seventy-One Thousand, Two
Hundred Sixty-Eight (671,268) Warrants (the "Warrants") to purchase shares of
the common stock ("Common Stock"), of Casinos U.S.A., Inc., a Colorado
corporation (the "Company"). Each Warrant entitles the holder thereof, upon
proper exercise and subject to the provisions of the Warrant Agreement, dated
as of January 17, 1997 (the "Warrant Agreement") between the Company and the
Warrant Holders, to one (1) fully paid and non-assessable share of Common
Stock. In order to exercise a Warrant evidenced by this Warrant Certificate,
holder shall deliver an executed copy of this Warrant Certificate (together
with the Form of Election to Purchase duly executed) at the corporate office
of the Company, together with proper payment of the Exercise Price (as defined
below). The Warrants evidenced by this Warrant Certificate may be exercised in
whole or in part to purchase shares of Common Stock. Subject to adjustment as
provided in the Warrant Agreement, the exercise price ("Exercise Price") for
each Warrant evidenced hereby shall be $0.01 per share of Common Stock. This
Warrant will expire on the Expiration Date (as defined in the Warrant
Agreement). Payment of the Exercise Price shall be made in accordance with the
terms of the Warrant Agreement. As provided in the Warrant Agreement, the
number of shares of Common Stock purchasable upon the exercise of the Warrants
are, upon the occurrence of certain events, subject to modification or
adjustment.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, including the provisions thereof relating
to the amendment thereof, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Company and the holder of this
Warrant Certificate. Capitalized terms not otherwise defined herein have the
meanings ascribed to them in the Warrant Agreement.
If this Warrant Certificate shall be exercised in part, the holder hereof
shall be entitled to receive upon surrender hereof another Warrant Certificate
evidencing the number of Warrants not exercised.
Except as provided in the Warrant Agreement and the Plan, no holder of
this Warrant Certificate shall be deemed to be the holder of Common Stock or
any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate as such any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant Certificate shall have
been exercised and the Common Stock issuable upon the exercise hereof shall
have become issued as provided in the Warrant Agreement.
WITNESS the signatures of the proper officer(s) of the Company, effective
January __, 1997.
CASINOS U.S.A., INC.
By: _____________________________________
Gerald Jacobs, President
<PAGE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK UNDERLYING SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
No. 2 January __, 1997
220,401 Warrants
VOID AFTER 5:00 P.M., DENVER, COLORADO TIME
ON JANUARY 17, 2004 (UNLESS EXTENDED OR EARLIER TERMINATED),
CASINOS U.S.A., INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that LISA PAIGE MONTROSE, is the
registered holder of Two Hundred Twenty Thousand, Four Hundred One (220,401)
Warrants (the "Warrants") to purchase shares of the common stock ("Common
Stock"), of Casinos U.S.A., Inc., a Colorado corporation (the "Company"). Each
Warrant entitles the holder thereof, upon proper exercise and subject to the
provisions of the Warrant Agreement, dated as of January 17, 1997 (the
"Warrant Agreement") between the Company and the Warrant Holders, to one (1)
fully paid and non-assessable share of Common Stock. In order to exercise a
Warrant evidenced by this Warrant Certificate, holder shall deliver an
executed copy of this Warrant Certificate (together with the Form of Election
to Purchase duly executed) at the corporate office of the Company, together
with proper payment of the Exercise Price (as defined below). The Warrants
evidenced by this Warrant Certificate may be exercised in whole or in part to
purchase shares of Common Stock. Subject to adjustment as provided in the
Warrant Agreement, the exercise price ("Exercise Price") for each Warrant
evidenced hereby shall be $0.01 per share of Common Stock. This Warrant will
expire on the Expiration Date (as defined in the Warrant Agreement). Payment
of the Exercise Price shall be made in accordance with the terms of the
Warrant Agreement. As provided in the Warrant Agreement, the number of shares
of Common Stock purchasable upon the exercise of the Warrants are, upon the
occurrence of certain events, subject to modification or adjustment.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, including the provisions thereof relating
to the amendment thereof, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Company and the holder of this
Warrant Certificate. Capitalized terms not otherwise defined herein have the
meanings ascribed to them in the Warrant Agreement.
If this Warrant Certificate shall be exercised in part, the holder hereof
shall be entitled to receive upon surrender hereof another Warrant Certificate
evidencing the number of Warrants not exercised.
Except as provided in the Warrant Agreement and the Plan, no holder of
this Warrant Certificate shall be deemed to be the holder of Common Stock or
any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate as such any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant Certificate shall have
been exercised and the Common Stock issuable upon the exercise hereof shall
have become issued as provided in the Warrant Agreement.
WITNESS the signatures of the proper officer(s) of the Company, effective
January __, 1997.
CASINOS U.S.A., INC.
By: _________________________________
Gerald Jacobs, President
<PAGE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK UNDERLYING SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
No. 3 January __, 1997
72,212 Warrants
VOID AFTER 5:00 P.M., DENVER, COLORADO TIME
ON JANUARY 17, 2004 (UNLESS EXTENDED OR EARLIER TERMINATED),
CASINOS U.S.A., INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that JANICE STEINLE, not individually,
but as Trustee for the Bankruptcy Estate of Richard and Francine Frajola, is
the registered holder of Seventy-Two Thousand, Two Hundred Twelve (72,212)
Warrants (the "Warrants") to purchase shares of the common stock ("Common
Stock"), of Casinos U.S.A., Inc., a Colorado corporation (the "Company"). Each
Warrant entitles the holder thereof, upon proper exercise and subject to the
provisions of the Warrant Agreement, dated as of January 17, 1997 (the
"Warrant Agreement") between the Company and the Warrant Holders, to one (1)
fully paid and non-assessable share of Common Stock. In order to exercise a
Warrant evidenced by this Warrant Certificate, holder shall deliver an
executed copy of this Warrant Certificate (together with the Form of Election
to Purchase duly executed) at the corporate office of the Company, together
with proper payment of the Exercise Price (as defined below). The Warrants
evidenced by this Warrant Certificate may be exercised in whole or in part to
purchase shares of Common Stock. Subject to adjustment as provided in the
Warrant Agreement, the exercise price ("Exercise Price") for each Warrant
evidenced hereby shall be $0.01 per share of Common Stock. This Warrant will
expire on the Expiration Date (as defined in the Warrant Agreement). Payment
of the Exercise Price shall be made in accordance with the terms of the
Warrant Agreement. As provided in the Warrant Agreement, the number of shares
of Common Stock purchasable upon the exercise of the Warrants are, upon the
occurrence of certain events, subject to modification or adjustment.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, including the provisions thereof relating
to the amendment thereof, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Company and the holder of this
Warrant Certificate. Capitalized terms not otherwise defined herein have the
meanings ascribed to them in the Warrant Agreement.
If this Warrant Certificate shall be exercised in part, the holder hereof
shall be entitled to receive upon surrender hereof another Warrant Certificate
evidencing the number of Warrants not exercised.
Except as provided in the Warrant Agreement and the Plan, no holder of
this Warrant Certificate shall be deemed to be the holder of Common Stock or
any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate as such any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant Certificate shall have
been exercised and the Common Stock issuable upon the exercise hereof shall
have become issued as provided in the Warrant Agreement.
WITNESS the signatures of the proper officer(s) of the Company, effective
January __, 1997.
CASINOS U.S.A., INC.
By: ________________________________
Gerald Jacobs, President
<PAGE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK UNDERLYING SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
No. 4 January __, 1997
68,838 Warrants
VOID AFTER 5:00 P.M., DENVER, COLORADO TIME
ON JANUARY 17, 2004 (UNLESS EXTENDED OR EARLIER TERMINATED),
CASINOS U.S.A., INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that GARY L. SHUPP, P.C., is the
registered holder of Sixty-Eight Thousand, Eight Hundred Thirty-Eight (68,838)
Warrants (the "Warrants") to purchase shares of the common stock ("Common
Stock"), of Casinos U.S.A., Inc., a Colorado corporation (the "Company"). Each
Warrant entitles the holder thereof, upon proper exercise and subject to the
provisions of the Warrant Agreement, dated as of January 17, 1997 (the
"Warrant Agreement") between the Company and the Warrant Holders, to one (1)
fully paid and non-assessable share of Common Stock. In order to exercise a
Warrant evidenced by this Warrant Certificate, holder shall deliver an
executed copy of this Warrant Certificate (together with the Form of Election
to Purchase duly executed) at the corporate office of the Company, together
with proper payment of the Exercise Price (as defined below). The Warrants
evidenced by this Warrant Certificate may be exercised in whole or in part to
purchase shares of Common Stock. Subject to adjustment as provided in the
Warrant Agreement, the exercise price ("Exercise Price") for each Warrant
evidenced hereby shall be $0.01 per share of Common Stock. This Warrant will
expire on the Expiration Date (as defined in the Warrant Agreement). Payment
of the Exercise Price shall be made in accordance with the terms of the
Warrant Agreement. As provided in the Warrant Agreement, the number of shares
of Common Stock purchasable upon the exercise of the Warrants are, upon the
occurrence of certain events, subject to modification or adjustment.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, including the provisions thereof relating
to the amendment thereof, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Company and the holder of this
Warrant Certificate. Capitalized terms not otherwise defined herein have the
meanings ascribed to them in the Warrant Agreement.
If this Warrant Certificate shall be exercised in part, the holder hereof
shall be entitled to receive upon surrender hereof another Warrant Certificate
evidencing the number of Warrants not exercised.
Except as provided in the Warrant Agreement and the Plan, no holder of
this Warrant Certificate shall be deemed to be the holder of Common Stock or
any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate as such any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant Certificate shall have
been exercised and the Common Stock issuable upon the exercise hereof shall
have become issued as provided in the Warrant Agreement.
WITNESS the signatures of the proper officer(s) of the Company, effective
January __, 1997.
CASINOS U.S.A., INC.
By: _________________________________
Gerald Jacobs, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 39 THROUGH 41 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,048,371
<SECURITIES> 0
<RECEIVABLES> 131,554
<ALLOWANCES> 14,750
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,717
<PP&E> 6,985,062
<DEPRECIATION> 1,615,751
<TOTAL-ASSETS> 9,168,549
<CURRENT-LIABILITIES> 2,043,024
<BONDS> 0
268,538
0
<COMMON> 7,004
<OTHER-SE> 8,969,045
<TOTAL-LIABILITY-AND-EQUITY> 9,168,549
<SALES> 9,234,097
<TOTAL-REVENUES> 9,234,097
<CGS> 0
<TOTAL-COSTS> 9,568,008
<OTHER-EXPENSES> 656,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317,564
<INCOME-PRETAX> (990,150)
<INCOME-TAX> 0
<INCOME-CONTINUING> (993,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,551,488
<CHANGES> 0
<NET-INCOME> 1,350,418
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
