SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] 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
(Exact Name of Registrant as Specified in its Charter)
Utah 87-0340206
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
5373 North Union Blvd, Suite 100, Colorado Springs, Colorado 80918
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(719) 590-4900
_____________________________________________
(Former Name or Address if Changed Since Last Report)
Securities to be registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the Issuer was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of Issuer'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 Issuer's revenues for the fiscal year ended June 30, 1999
were $9,069,329. As of September 30, 1999, the aggregate market
value of the Common Stock of the Issuer based upon the average
bid and asked prices of such Common Stock, as quoted on the "pink
sheets" published by the National Quotation Bureau, Inc., held by
non-affiliates of the Issuer was approximately $1,096,050. As of
September 30, 1999, 1,546,360 shares of Common Stock of the
Issuer were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by this reference the following:
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.
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.
12. Incorporated by reference from the Company's Current Report
on Form 10KSB, dated October 7, 1997, as filed with the
Commission on October 14, 1997.
13. Incorporated by reference from the Company's Amended Report
on Form 8-K, dated October 7, 1997, as filed with the Commission
on October 14, 1997.
14. Incorporated by reference from the Company's Current Report
on Form 8-K, dated June 11, 1998, as filed with the Commission on
June 15, 1998; as Amended June 11, 1998, and filed with the
Commission on July 7, 1998.
15. Incorporated by reference from the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1998, as
amended and filed with the Commission on December 23, 1998.
16. Incorporated by reference from the Company's Current Report
on Form 8-K as filed with the Commission on January 8, 1999, as
amended on Current Report on Form 8-K/A as filed with the
Commission on September 2, 1999.
FORWARD LOOKING STATEMENTS
Certain statements made in this Annual Report are
"forward-looking statements" (within the meaning of the Private
Securities Litigation Reform Act of 1995) regarding the plans and
objectives of management for future operations. Such statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of the
Company to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements made
in this Report are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and
objectives are based, in part, on assumptions involving the
growth and expansion of business. Assumptions relating to the
foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of
the Company. Although the Company believes that its assumptions
underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can
be no assurance that the forward-looking statements made in this
Report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements made in
this Report, particularly in view of the Company's early stage of
operations, the inclusion of such information should not be
regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Global Casinos, Inc. ("the Company", "Global Casinos", or
"Global") and its wholly-owned subsidiaries operate in the
domestic and international gaming industry. The Company is
organized as a holding company for the purpose of acquiring and
operating casinos, gaming properties, and other related
interests. Global was organized under the laws of the State of
Utah on June 8, 1978.
At June 30, 1999, Global's subsidiaries operating as casinos
consisted of Casinos U.S.A, Inc., a Texas corporation, ("Casinos
U.S.A") and Global Pelican, N.V., a St. Maarten corporation,
("Global Pelican") and Global Central Corporation, a Colorado
corporation, ("Global Central"). Casinos U.S.A. owns and
operates the Bull Durham Saloon & Casino in Black Hawk, Colorado
("the Bull Durham") Global Pelican owns and operates the Pelican
Casino in St. Maarten, Netherlands Antilles, and Global Central
operates the Tollgate Casino and Saloon in Central City, Colorado
(the "Tollgate"). Global's subsidiary Global Alaska Industries,
Inc., an Alaska corporation, ("Global Alaska") owns Alaska Bingo
Supply, Inc., an Alaska corporation, ("ABS") in Anchorage,
Alaska. ABS is primarily engaged in the distribution of a full
line of bingo related products. It also leases facilities to two
bingo hall operations.
From 1993 through 1995, the Company, through its wholly-
owned subsidiary Global International, Inc. ("Global
International), operated Casino Lazurnaya in Sochi, Russia.
Global International also operated Casino Las Vegas in Bishkek,
Kyrgystan from 1995 through 1998.
Beginning April 1994, the Company, through its wholly-owned
subsidiary BPJ Holdings N.V. ("BPJ"), operated Casino Masquerade
located in Aruba, Netherlands Antilles. In February 1998, the
casino closed and, effective December 31, 1998, the Company sold
its interest in BPJ to a third party.
In January 1998, the Company, through its wholly-owned
subsidiary, Destination Marketing Services ("DMS"), acquired
certain assets, net of liabilities, of a Colorado Springs,
Colorado travel services company. Effective October 1, 1998 the
Company sold in a management buy-out all of the outstanding
shares of common stock of DMS to its president in consideration
of a promissory note.
Description of Operations
Casinos U.S.A. - The Bull Durham
Background. Casinos U.S.A. was acquired on November 19,
1993. Global Casinos acquired 100% of the outstanding common
stock of Casinos U.S.A., a Texas corporation, and Lincoln
Corporation ("Lincoln") and Woodbine Corporation ("Woodbine"),
both South Dakota corporations, in exchange for 253,500 of the
Company's common stock. Lincoln and Woodbine operated the Last
Chance Saloon and Lillie's, respectively, both located in
Deadwood, South Dakota. The Company permanently closed the Last
Chance Saloon on May 31, 1994 and Lillie's on June 30, 1995 due
to unprofitable operations.
In October 1995, Casinos U.S.A. filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code as it was
in default under all of its secured obligations encumbering the
Bull Durham Saloon and Casino. In January 1997, the Court
approved the Debtor's Second Amended Plan of Reorganization, and
in February 1998 the bankruptcy was discharged upon being fully
administered.
Operations. The Bull Durham is located approximately one
hour from Denver, Colorado in the town of Black Hawk. The
Company through its acquisition of Casinos U.S.A. has operated
The Bull Durham since 1993, soon after limited stakes gambling
was legalized in Black Hawk in 1992. The casino holds a retail
liquor license issued by the State of Colorado, and offers
limited food service in addition to beverages.
Presently, the casino occupies approximately 7,200 square
feet. In November 1998, an expansion project that increased the
gaming space by 2,500 square feet, and allowed the casino to
offer 26 more slot machines and two more table games was
completed. As currently configured, the casino has 147 slot
machines available for play: 93 real slot machines and another
54 video slot machines; and has three table games: two standard
blackjack tables and one three card poker table. Casinos U.S.A.
owns the building in which the Bull Durham operates, subject to
three deeds of trust securing a total of $2,674,210 in debt.
The Bull Durham's customer base consists primarily of day
visitors from Denver. Gamblers arrive on buses, which are
provided by the major casinos. A new city bus stop was built
adjacent to the casino in 1999.
Bankruptcy Plan of Reorganization. Under the terms of the
Bankruptcy Plan of Reorganization which was confirmed in 1997,
the creditors holding the three deeds of trust encumbering the
Bull Durham property also hold warrants exercisable to purchase
up to 80% of the equity securities of Casinos U.S.A. The
warrants are exercisable for nominal cost, but only in the event
there occurs certain triggering events, such as a sale of the
property or a substantial refinancing. If the debts underlying
the deeds of trust are amortized and paid in full, the warrants
terminate. However, the existence of the warrants restricts the
Company's ability to undertake certain transactions without the
consent of the creditors.
Also under the Plan of Reorganization, Global Casinos, as
the operator of the Bull Durham, has been limited to receiving
only a $7,500 per month management fee, with all the excess net
cash flow from casino operations required to be paid to the
casino's unsecured and certain secured creditors under a schedule
set forth in the Plan. In July 1999, Global Casinos acquired all
the outstanding unsecured debt of Casinos U.S.A., whereupon
Global Casinos became entitled to receive 50% of net cash flow
from casino operations with the other 50% payable to the mortgage
holders. The amount of $128,215 which Global Casinos paid on
behalf of Casinos U.S.A. represents an intercompany indebtedness
from the subsidiary to the parent.
Regulation. The Bull Durham began gaming operations in 1993
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
operates under a gaming license issued to the Company.
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 the ability
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 stock may be
required to submit to a background investigation, provide
personal 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 stock and could also depress the price of the
stock.
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 issuance 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 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 or more of the
Company's common stock must notify the Division of Gaming within
ten 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. The same regulations apply to any person who
becomes a beneficial owner of more than ten percent of any other
class of voting securities of the Company.
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.
The Company has been granted a casino tavern license issued
under the Colorado Liquor Code for the Bull Durham and Tollgate.
As revised in 1993, the Colorado Liquor Code now includes a
casino tavern license issuable to duly licensed and operating
limited gaming casinos.
Net profits derived from the operations of the Company and
its subsidiaries are subject to taxation at both the federal and
state levels. Colorado imposes a variable gaming tax on
"adjusted gross proceeds", which includes the total amount of all
wagers made by players 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. Commencing July 1999
the tax ranges from .25 percent to two percent of adjusted gross
proceeds ranging from the first $2,000,000 to proceeds in excess
of $4,000,000, respectively. In addition, the cities of Black
Hawk and Central City assess "device fees" on each gaming unit
utilized in a casino. Colorado withdrew its device fee
assessment beginning July 1999.
Competition. Competition in the gaming industry in the
United States is intense. There are numerous competitors engaged
in the same business as the Company, and the Company's operations
also compete with other forms of gaming activities, such as
Bingo, Lotto, table games, sports betting and pari-mutuel
wagering.
Competition in Black Hawk, Colorado is particularly intense
as competitors are in very close proximity to the Company's
operations, with new competitors entering the market. There are
now 18 casinos operating in the Black Hawk market and two more
additional casinos under construction and scheduled to open at
the beginning of the year 2000. Additionally, there are 12
casinos located approximately one mile west in Central City. The
Bull Durham Casino is relatively small in comparison to the other
casinos in the market. The Bull Durham Casinos and three others
make up the small casinos, while the other 14 properties are
medium to large casinos. There are currently 7,115 gaming
devices in the Black Hawk market and 2,717 gaming devices in the
Central City market. Based upon these figures, the Bull Durham
Casino currently represents only 2.1% of the Black Hawk market.
The Bull Durham attempts to stay competitive by providing
personal customer service, innovative marketing promotions and
state-of-the-art gaming devices.
Seasonality. Because the Bull Durham Casino is located in a
small mountain community west of Denver, it experiences its peak
business during the summer months when weather conditions are
more favorable. The winter months tend to be substantially
slower when weather conditions reduce the amount of traffic
through the town.
Global Pelican - Pelican Casino
Background. On August 1, 1996, Global Pelican entered into a
cancelable management and operating lease agreement to lease and
operate the Pelican Casino located on the island of St. Maarten.
The original term of the lease is for five years, with options to
renew for three additional five-year terms. The agreement
provided 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 agreement states that until the equipment liens
and encumbrances are released, Global Pelican has the right to
terminate the agreement. At June 30, 1999, the equipment still
remains subject to liens and encumbrances, and Global Pelican is
renegotiating the lease and equipment purchase with the lessor.
Operations. The Company has operated the Pelican Casino,
located on the island of St. Maarten, since August 1996. The
casino sits on the west side of the island which is controlled by
the Dutch. The French control the east side of the island. Daily
direct flights leave from major East Coast cities during the
winter months, and the island is a popular destination for both
Americans and Europeans.
The Pelican Casino is located in one of the largest time-
share complexes on the island, the Pelican Resort, which has over
700 rooms. The casino occupies 7,000 square feet and features 140
slot machines, five black jack tables, two Pelican Poker, two
roulette wheels, one craps table, and one Let-it-Ride table.
Regulation. In order to operate, the Pelican Casino requires
an operating gaming license and business license. Global Pelican
has obtained a business license and is eligible to obtain its own
gaming license, if it chooses to do so. Since opening, however,
Global Pelican has operated under its lessor's gaming license in
order to avoid paying the additional gaming licensing fee.
While there is no gaming commission on St. Maarten,
government inspectors are present at the entrances of all casinos
on the island for the stated purpose of controlling access of
island residents to the casinos. The casino is charged fees for
these inspectors. At June 30, 1999, Global Pelican had accrued a
total of $1,168,531 in unpaid inspector fees. While the
government could theoretically close the casino due to the
delinquency in the payment of these fees, it is a matter of
custom and practice on the island for the casinos to only pay a
portion of the fees charged and accrue the balance, since there
exists substantial political impediments to the government
exercising its ability to close the casinos.
Competition. There are numerous national and international
corporations and entities engaged in the business of attempting
to develop casinos throughout the world. There are currently 11
casinos on the island of St. Maarten, with six in the immediate
vicinity. Caribbean resort islands have few barriers to entry of
new participants in the gaming business. 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.
Seasonality. St. Maarten is an independent nation 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 gained by
the Company in acquiring the casinos in the Caribbean is the
counter-cyclic effect that its high winter season has with the
Company's domestic operations. Typically, Caribbean destination
resorts experience the highest concentration of tourism from
December through April of each year.
Global Alaska - Alaska Bingo Supply
Background. On August 1, 1997, the Company, through its
wholly-owned subsidiary, Global Alaska, acquired all the
outstanding shares of stock of ABS. The purchase price of
$4,400,000 consisted of $400,000 cash and a $4,000,000 8%
convertible promissory note taken by the seller, collateralized
by shares of ABS common stock held by the Company. To fund the
acquisition, the Company borrowed $350,000 from third parties and
$75,000 from a related party. These promissory notes are
collateralized by a note receivable of the Company. Interest on
$200,000 of the promissory notes, which were paid in full during
fiscal year 1998, was at 24% and interest on the remaining
$225,000 (including the related party note) was at 12%. At June
30, 1999, the balance on the remaining notes was $60,000. During
fiscal year 1999, $50,850 remaining on the related party note was
converted to Class C Preferred Stock. The balance on the
remaining note has been extended.
Effective March 31, 1998, the remaining principal balance of
$3,853,290 due under the $4,000,000 promissory note and accrued
interest of $15,202 were converted into (i) 340,329 shares of the
Company's Series B Convertible Preferred Stock ("Series B
Preferred Stock), and (ii) a convertible promissory note in the
principal amount of $450,000 (the "Second Note") due in September
2004 and bearing interest at 8%. Effective December 31, 1998,
$150,000 of the Second Note was converted to 15,000 shares of
Series B Preferred Stock, leaving a principal balance on the
Second Note of $300,000.
Principal payments on the Second Note do not commence until
all the shares of the Series B Preferred Stock have been
redeemed. Each share of Series B Preferred Stock is convertible,
at the option of the holder, into one share of the Company's
common stock at any time commencing the earlier of (i) one year
from the date of issue or (ii) upon the effective date of a
registration statement registering the shares of the Company's
common stock issuable upon such conversion for sale. No more
than 311,550 shares of common stock may be converted without the
approval of the Company's shareholders.
The Company has the option, but not the obligation, to
redeem all or any portion of the Series B Preferred Stock at a
redemption price of $10.00 per share. Holders of the Series B
Preferred Stock are entitled to receive an annual dividend
payable at the rate of 8% per annum. For the year ended June 30,
1999, the Company redeemed 47,849 shares of Series B Preferred
Stock and paid $257,124 of dividends.
Operations. Charitable bingo is currently the sole form of
legalized gaming in Alaska. With an approximate 30% market
share, ABS is the largest distributor of bingo products in the
state. ABS has a strong operating history and reputation with
product suppliers and end-users, which allows it to compete
effectively with telemarketers that have lower operating costs.
In addition, ABS controls the leases covering two bingo halls
operated by third parties as a means of ensuring distribution and
maintaining its market share. One of those bingo halls is
expected to close effective December 31, 1999. The bingo hall
which is expected to close represented 5% of ABS's bingo supply
sales during fiscal 1999. Recently, there has been a push to
allow video lotteries as a form of gambling. Video lotteries
would have a definite impact on the operations of ABS's
customers, although management is uncertain how it would impact
ABS operations.
Regulation. ABS's operations are regulated by the Alaska
Department of Revenue's gaming unit. Regulations, which can
change annually, provide guidance on license requirements for
distributors like ABS, as well as operational requirements for
the charitable organizations.
ABS pays a monthly 3% tax on profits from pull tab sales.
Profit is defined as the percentage of profit made by vendors on
each pull tab. ABS is reimbursed by the vendors for the tax
through its regular product invoicing.
As more fully discussed under Legal Proceedings, the
government has brought an action against the former owners of
ABS, as well as ABS, claiming the former owners violated state
laws and regulations in their operation of ABS prior to its sale
to the Company. The Company has been informed that, among other
goals, the State of Alaska hopes to close the bingo halls which
operate under leases controlled by ABS. Should the government be
successful in these efforts, such a closure would have a
substantial material adverse impact upon the operations and
profitability of ABS.
Competition. ABS experiences direct competition from a
number of other companies which also distribute pull tabs, bingo
paper, bingo equipment and coin boards. In addition, ABS has
learned that two additional entities are considering entering the
Anchorage market. While bingo and pull tabs are the only
legalized form of gaming in the State of Alaska, there is
discussion concerning the possible legalization of video poker
and video lottery. Should these be legalized, their entry into
the market would substantially and adversely impact the bingo
market.
Seasonality. ABS's operations are strongly influenced by the
amount of daylight and snow received. Due to its location,
Alaska endures extreme fluctuations in the amount of sunshine it
receives, ranging from virtual total daylight in the summer
months to no light in the winter months. In addition, the state
receives significant snowfall in the winter that does not melt
due to the lack of sunshine. Consequently, ABS's operations are
the strongest from September through April when people do not
tend to be outdoors.
Dependence on Customers and Suppliers. During fiscal 1999,
approximately 25% of bingo product sales were attributed to two
significant customers. During fiscal 1998, approximately 33% of
bingo sales were attributed to three significant customers.
Approximately 41% and 54% of ABS's bingo product supply purchases
were from a single third party supplier during fiscal 1999 and
fiscal 1998, respectively. Management believes that other
suppliers could provide similar products with comparable terms.
A change in suppliers, however, could cause delays and possible
loss of sales that could have a material adverse impact upon
ABS's operating results.
Global Central - Tollgate
Background. Effective August 7, 1999, the Company entered
into a Lease and Option Agreement (the "Lease") pursuant to which
it leased the Tollgate Casino and Saloon in Central City,
Colorado. The term of the Lease is 24 months and grants to the
Company the option to purchase the casino and associated real
estate and equipment at any time prior to the expiration of the
Lease at a purchase price of $1,400,000. The Company also leased
certain additional gaming equipment from a third party that had
previously operated the casino under terms that also grant the
Company the ability to purchase the equipment at the end of the
24 month term for $35,000. The Company obtained gaming and
casino licenses and opened the Tollgate for operation in August
1999.
Operations. Central City is another historic mining town in
the mountains of Colorado that is located approximately one mile
west of Black Hawk. The Tollgate consists of 19,233 square feet
on three levels in a restored historic commercial building on the
main street of Central City. As currently configured, the
Tollgate has 116 slot machines and four blackjack tables.
Since gaming was legalized in Colorado in 1992, Central City
as a gaming destination has been eclipsed and overshadowed by the
popularity of Black Hawk, since the only vehicular access to
Central City requires passing directly through the heart of Black
Hawk. As a result, the casinos in Central City have historically
been unprofitable. Most of the casinos in Central City,
including the Tollgate, have experienced rather consistent
devaluation through a succession of owners, all of whom have been
relatively unsuccessful. Given this history and demographics,
the Company accepted the Tollgate opportunity only because it
could do so with only a nominal capital expenditure, having spent
less than $200,000 to reopen the project. However, whether the
Company can operate the Tollgate profitable, or even on a break-
even basis, will be unknown until results of operations can be
assessed over a completed annual seasonal cycle.
As the Tollgate operates in the same geographical and
regulatory environment as the Bull Durham, it is subject to the
same considerations previously discussed with the Bull Durham.
Global International - Casino Las Vegas, Bishkek (discontinued)
Through the acquisition of Casinos U.S.A. in 1993, the
Company acquired an 80% interest in an international joint
venture ("IJV"). The Company formed Global Casinos
International, Inc. ("Global International"), to operate the IJV.
From 1993 through 1995, Global International operated the Casino
Lazurnaya located in the four-star Hotel Radisson Lazurnaya in
Sochi, Russia.
In July 1995, Global transferred its interest in the IJV and
acquired the IJV's 61% interest in Casino Las Vegas located on
the second floor of the Restaurant Naryn in Bishkek, Kyrgyzstan.
In 1998, the government of Kyrgyzstan implemented a significant
change in its taxation policy that the Company determined would
be detrimental to the ongoing operations of Casino Las Vegas.
Consequently, the Company transferred in April 1998 its interest
to its IJV partner for assumption of liabilities. This
resulted in a loss of approximately $221,000.
BPJ Holdings - Casino Masquerade, Aruba (discontinued)
In April 1994, the Company purchased a 66-2/3% interest in
Global Entertainment Group, Inc. N.V. ("Global Entertainment").
Global Entertainment, through BPJ Holdings N.V. ("BPJ"), its
wholly-owned subsidiary, owned and operated Casino Masquerade
located in the Radisson Aruba Resort and Casino on the Caribbean
island of Aruba, Netherlands Antilles. Concurrent with the
transfer of its IJV interest in Casino Lazurnaya, the Company
acquired the remaining 33-1/3% interest in Global Entertainment.
During February 1998, Global was notified that the resort
would close effective March 1, 1998, for extensive remolding that
would cause a relocation of the casino area. In April 1998, the
Company reached a settlement agreement with the lessor of the
casino space regarding payment of working capital expenditures
and casino improvements, as well as the provision of new lease
terms. These terms included $750,000 to be deposited in an
escrow account until the casino was open for operations, and
approximately $2,000,000 in casino improvements and equipment
purchases.
The Company determined that it was unable to meet the
funding provisions of the agreement and became in default.
Consequently, the carrying value of leasehold and contract rights
was considered to be impaired, and an impairment of $746,500 was
recognized during the year ended June 30, 1998.
Due to protracted delays in completing the renovations and
other adverse business circumstances, the Company was able to
negotiate an early termination of the remaining term of the
casino lease. On December 23, 1998, the Company completed the
dissolution of Casino Masquerade. In consideration, the Company
received a cash payment of $400,000 and the issuance of hotel
trade credits having a face value of $600,000. The hotel credits
can be used for a six-year period commencing January 1, 2000,
usable at the rate of $100,000 per year.
Effective December 31, 1998, the Company agreed to sell all
of the outstanding shares of BPJ to an unaffiliated third party.
The Company recognized a gain of $183,856 in connection with the
disposition.
DMS (discontinued)
The Company, through its wholly-owned subsidiary,
Destination Marketing Services ("DMS"), acquired certain assets,
net of liabilities, of a Colorado Springs, Colorado travel
services company, in exchange for $10,000 cash and a $69,000 10%
note payable, due in 1999. Effective October 1, 1998, the Company
sold in a management buy-out all of the outstanding shares of
common stock to DMS's president. Under the terms of the buy-out,
the Company will receive an aggregate of $20,000 over three years
and will be indemnified against certain liabilities, including
payroll taxes. DMS was not considered to be a significant
subsidiary of the Company. The Company recognized a gain of
$5,394 in connection with the disposition.
ECUADOR (discontinued)
During fiscal year ended June 30, 1999, the Company opened
and closed a small gaming operation located in a hotel in a
resort town in Ecuador. The Company's capital investment in this
operation was not material and, due to unfavorable financial and
political conditions, the Company elected to close the casino
after a few months of operation.
Employees
The Company, as the corporate parent, has three executive
officers: Stephen G. Calandrella, President and CEO, Barbara
Chacon, Chief Financial Officer, and Eric Hartsough, Vice
President of Operations. John Lopez serves as President of ABS.
The Bull Durham Casino, Tollgate Casino and Global Pelican
Casino each operate with an on-site general manager who serves
without a written employment contract. The Company's three
operating casinos employ a total of 138 persons, including both
full and part-time employees. ABS has seven full-time employees.
Intellectual Property
The Company has a registered service mark for the name
"Global Casinos," together with its logo. The Company does not
claim any other intellectual property protection to any of its
assets and does not believe that its intellectual property is
material to its operations.
Consultants
The Company had no material consulting agreements at June 30, 1999.
ITEM 2. DESCRIPTION OF PROPERTY
Corporate Offices: Colorado Springs, Colorado
During fiscal year 1998, the Company's corporate
headquarters were relocated to Colorado Springs, Colorado, 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, and has not paid or
accrued any rent obligation for fiscal 1999 or 1998. During
fiscal 1999, the Company was able to sublet its prior office
space in Denver, Colorado. Under the terms of the sublet, the
Company has had to pay a net lease deficiency of $1,000 per
month, which obligation ended September 1999.
Operating Subsidiaries
The facilities and properties of the Company's operating
facilities are more fully described in Item 1 of this Report and
are incorporated herein by this reference.
ITEM 3. LEGAL PROCEEDINGS
The Company and its officers and directors are involved in
the following material legal proceedings:
Securities and Exchange Commission
In the Matter of Global Casinos, Inc. and William P.
Martindale, Securities Act Release No. 33-7586, Exchange Act
Release No. 34-40469 (September 24, 1998). On September 24,
1998, the Company and its former director, William P. Martindale,
voluntarily entered into a Voluntary Consent Decree with the
Securities and Exchange Commission, pursuant to which an
Administrative Order was entered by the Commission directing the
Company and Mr. Martindale to cease and desist from future anti-
fraud violations of the federal securities laws.
In the Matter of The Rockies Fund, Inc., Stephen G.
Calandrella, Charles M. Powell, Clifford C. Thygesen and John C.
Power, Exchange Act Release No. 34-40049, Investment Company
Release No. 40-23229 (June 1, 1998). On June 1, 1998, the
Securities and Exchange Commission brought an administrative
proceeding against The Rockies Fund, Inc. and the above-named
individuals alleging certain violations of federal securities
laws. Two of these individuals, Stephen G. Calandrella and
Clifford C. Thygesen, are directors of the Company. While the
matters at issue in the administrative proceeding do not involve
the Company, inasmuch as the proceeding involves two of the
Company's three directors, an adverse ruling could have a
material adverse impact upon the Company.
Civil Litigation
James E. Tice and Jeannette L. Tice and Global Casinos, Inc.
vs. William P. Martindale, Circuit Court, 8th Judicial District,
State of South Dakota, County of Lawrence, Civil No. 99-44. This
matter involves the foreclosure against certain real property
located in Deadwood, South Dakota which the Company believed it
had acquired in its acquisition of Woodbine Corporation in 1993.
In that transaction, the Company acquired Casinos, USA, Lincoln
Corporation and Woodbine Corporation from William P. Martindate
and others in consideration of a substantial number of shares of
the Company's common stock. It had been represented to the
Company that Lincoln and Woodbine Corporations owned the two
casinos in Deadwood, South Dakota that the Company believed it
was acquiring. The Company subsequently discovered that Woodbine
Corporation had no direct or indirect ownership of a casino; but
rather the casino was held by William P. Martindale under an
Installment Land Sale Contract. Mr. Martindale has been joined
in this litigation as the result of his refusal to transfer to
the Company his interest under the Installment Land Sale
Contract.
Botelho v. Griffin, et al. This matter involves an action
brought by regulatory authorities of the State of Alaska against
Mark Griffin, Susan Griffin and others, including the Company's
subsidiary, Alaska Bingo Supply, Inc. In the action, the State
of Alaska alleges several violations of Alaska law pertaining to
the operation of charitable gaming and bingo supply distribution,
particularly when those activities were conducted by the
Company's predecessors in interest, Mark and Susan Griffin. In
addition, the State of Alaska has alleged that the Griffins
improperly influenced the non-profit organizations involved in
charitable gaming to execute leases with ABS that had
unreasonably high lease rates. The State has asked the court to
declare the operations in two bingo halls leased by ABS to be
illegal, to terminate the leases and seize the fixtures,
furnishings and movable property, and to close the bingo halls
for at least one year. ABS has been named as a defendant in the
proceeding by virtue of allegations of misconduct against the
Griffins prior to their sale of ABS to the Company. The
defendants deny any wrongdoing and are defending the litigation
vigorously. The lawsuit is in the discovery phase, and legal councel
is unable to express and opinion as to the potential outcome. The stock
purchase and sale agreement of ABS contains a clause indemnifying Global
Alaska against any liability and reasonable attorney's fees associated
with defending the Company. The Company asserts that the indemnification
is also applicable to ABS. In the unlikely event that ABS is not successful
in obtaining indemnification from the previous shareholder, an adverse
ruling could have a material adverse effect on the Company.
Michael Jacobs vs. Global Casinos, Inc. This matter was
filed as a civil action which has been stayed pending mandatory
arbitration. Mr. Jacobs was a former employee of the Company in
Dallas, Texas and is asserting claims for compensation for
services rendered while under the supervision of William P.
Martindale at the Company's then existing Dallas, Texas office.
The Company has retained local legal counsel and is vigorously
defending the matter. The Company believes that the likelihood
of a material adverse outcome in this matter is remote.
The Company customarily has numerous indebtedness and trade
payables that have matured and as to which the Company is
currently in default. The Company routinely engages in active
dialog with each of its creditors, although from time to time the
Company is sued for collection.
In addition, the Company is indebted to Astraea Investment
Management, LP ("Astraea"), the holder of the first deed of trust
against the Bull Durham Casino in Blackhawk, Colorado. The note
that is in default is not the note secured by the deed of trust,
but rather an unsecured note in the approximate principal amount
of $500,000. The Company is in active dialog with the principals
of Astraea in an effort to reach a resolution of this outstanding
default.
In addition to the Astaea note, at June 30, 1999 there were
outstanding promissory notes held by non-affiliated third parties
totaling approximately $600,000 in principal and $200,00 in accrued
and unpaid interest. These notes unsecured, fully matured, and
in default. While the Company communicates with these creditors
in an effort to settle their claims, there can be no assurance
that it will be successful in these efforts.
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, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The outstanding shares of Common Stock are traded over-the-
counter and quoted in the "pink sheets" published by the National
Quotation Bureau, Inc. under the symbol "GBCS". In July 1999,
the Company's securities were delisted from the Nasdaq Small Cap
Market. The Company is currently appealing the decision of
Nasdaq to delisted securities. The delisting was effective July
7, 1999; accordingly, all trading information set forth below
prior to July 7, 1999 reflects trading on the Nasdaq Small Cap
Market, and market information beginning July 8, 1999 pertains to
trading on the "pink sheets." The reported high and low bid and
ask prices for the common stock are shown below for the period
from July 1, 1997 through September 30, 1999.
Sales
High Low
1998 Fiscal Year
First Quarter $4.19 $3.00
Second Quarter 4.63 3.25
Third Quarter 3.50 2.50
Fourth Quarter 3.25 2.00
1999 Fiscal Year
First Quarter $2.25 $1.31
Second Quarter 1.94 .60
Third Quarter 1.69 .88
Fourth Quarter 2.69 1.06
Bid Ask
High Low High Low
2000 Fiscal Year
First Quarter $0.63 $0.38 $1.25 $0.75
The bid and ask prices of Company's common stock as of
September 30, 1999 were $.75 and $1.06, respectively, as reported
on the "pink sheets." The" pink sheet" prices 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, 1999, there were approximately 744 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 on common stock 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.
There are issued and outstanding a total of 296,329 shares
of Series B Convertible Preferred Stock which are held by Mark
Griffin, the seller of ABS. All outstanding shares of Series B
Preferred Stock accrue a cumulative dividend at the rate of 8%
per annum. At June 30, 1999, there had accrued and were
outstanding cumulative dividends on the Series B Preferred Stock
of $9,742.
The Company also has outstanding a total of 487,172 shares
of Series C Convertible Preferred Stock which accrues a
cumulative dividend at the rate of 7% per annum. At June 30,
1999, cumulative dividends on the Series C Preferred Stock had
accrued in the amount of $17,051.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations 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. The following
discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto appearing
elsewhere in this report.
Results of Operations - Year June 30, 1999 Compared to the Year
Ended June 30, 1998
The Company incurred a net loss of $323,157 for the year
ended June 30, 1999, which was a decrease of $1,965,542 compared
to $2,288,699 for the same period in 1998. Net loss available to
common stockholders was $590,023 for the year ended June 30, 1999
compared to $2,353,688 for the same period in 1998. The
$1,763,665 decrease in the loss was due to gains from debt
restructuring offset by dividends paid on Class B preferred
stock.
The results of operations for the year ended June 30, 1999
were comprised of Bull Durham Saloon & Casino ("Bull Durham"),
Pelican Casino, Alaska Bingo Supply ("Alaska Bingo"), and
Destination Marketing (through September 30, 1998). The period
in 1998 was comprised of Bull Durham, Pelican Casino, eleven
months of Alaska Bingo operations, Casino Las Vegas (through
April 1998), and Casino Masquerade.
During the second quarter of 1999, the Company sold its
investments in BPJ Holdings ("BPJ") and Destination Marketing.
Destination Marketing was not a material subsidiary of the
Company. The Company, through BPJ, had operated Casino
Masquerade through February 1998, at which time the hotel in
which it was located was closed for major repairs and
renovations. Due to protracted delays in completing the
renovations and other adverse business circumstances, the Company
was able to negotiate an early termination of the remaining term
of the casino lease. In consideration, the Company received a
cash payment of $400,000 and the issuance of hotel trade credits
having a face value of $600,000. At June 30, 1999, the hotel
credits are recorded at their estimated realizable value of
$492,739. Effective December 31, 1998, the Company agreed to
sell all of the outstanding shares of BPJ to an unaffiliated
third party.
Revenues
The Company's revenues are generated from casino operations,
sales of bingo products, rental income from the leasing of bingo
halls, and miscellaneous income that is comprised of food and
beverage sales at the casinos. Revenues for the year ended June
30, 1999 were $9,069,329 compared to $11,446,163 for the 1998
period, a decrease of $2,376,834 or 21%. The decrease is due to
the 1999 period not containing any revenue from Casino Masquerade
and Casino Las Vegas. Revenues from these two sources for the
year ended June 30, 1998 were $3,201,177.
Bull Durham's revenues increased $528,121 to $2,968,498 for
the year ended June 30, 1999 compared to $2,440,377 for the
period in 1998. The increase is largely due to the expansion
that opened November 1998. The Pelican Casino's revenues
decreased $280,079 to $2,381,488 for the year ended June 30, 1999
compared to $2,661,567 for the same period in the prior year.
Alaska Bingo's revenues increased $644,251 to $3,611,594 for
the year ended June 30, 1999 compared to $2,967,343 for the
eleven months ended June 30, 1998. Alaska Bingo's sales were 12%
higher for the period in 1999 compared to the same period in 1998.
Expenses
Cost of sales increased $233,675 to $2,162,472 for the year
ended June 30, 1999 compared to $1,928,797 for the period in
1998. The increase is due to the period in 1999 including an
additional month of Alaska Bingo operations. Alaska Bingo's
gross profit remained at approximately 44% for both of the years
ended June 30, 1999 and 1998.
Operating, general, and administrative expenses decreased
$2,604,151 to $6,227,107 for the year ended June 30, 1999
compared to $8,831,258 for the period in 1998. The decrease is
primarily due to Casino Masquerade and Casino Las Vegas being
operational during the year ended June 30, 1998. Expenses for
those two properties totaled $2,845,453 for the year ended June 30, 1998.
Depreciation and amortization costs decreased $200,932 to
$852,601 for the year ended June 30, 1999 compared to $1,053,533
for 1998. The decrease is due predominantly once again to Casino
Masquerade and Casino Las Vegas being fully operational during
the year ended June 30, 1998. Bull Durham's depreciation
increased 18% due to depreciation of additional fixed assets
acquired through its expansion.
Other income net of expenses increased $612,220 to $32,703
for the year ended June 30, 1999 compared to $(579,517) in 1998.
Interest expense decreased approximately $144,000 due primarily
to the conversion of the promissory note issued to the seller of
ABS to Series B preferred stock in March 1998. In addition, the
Company recognized $274,390 in realized and $215,305 in
unrealized gains on its marketable trading securities during
fiscal year 1999.
The Company recognized an extraordinary item of $84,457
related to gains from debt restructuring and extinguishment.
Liquidity and Capital Resources
The Company's primary source of cash is internally generated
through operations. Historically, cash generated from operations
has not been sufficient to satisfy working capital requirements
and capital expenditures. Consequently, the Company has depended
on funding through debt and equity financing to address these
shortfalls.
While the Company continues to face a shortage of working
capital, the deficiency decreased by $485,562 to $(2,307,837) at
June 30, 1999 from $(2,793,400) at June 30, 1998. Current assets
increased to $2,563,614 at June 30, 1999 from $1,758,028 at June
30, 1998, an increase of $805,585 or 42%. Current liabilities
increased to $4,871,451 at June 30, 1999 from $4,551,428 at June
30, 1998, an increase of $320,023 or 7%. The decrease in the
working capital deficit was due mainly to purchases of marketable
securities and conversions of debt to equity.
During the year ended June 30, 1999, the Company purchased
$200,000 more in marketable securities compared to the same
period in 1998. The securities are held for trade and are valued
at their current market value. Included in marketable securities
at June 30, 1999 are 220,000 shares of First Entertainment (FEI)
common stock with a recorded value of $1.27 per share. The
Company acquired the FEI stock through the divestiture of its
investment in Global Internet in May 1997. The Company sold 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. In addition, the Company sold
1,500,000 of the 1,750,000 common shares of Global Internet in
exchange for 1,500,000 warrants of FEI, which would allow the
Company to purchase 1,500,000 shares of FEI common shares at
$1.25 per share for a period of five years. Because FEI was
thinly capitalized at the time, the Company was unable to assign
a value to the transaction and recognized a loss on the
investment.
On December 31, 1998, the Company converted all of its FEI
Class B preferred stock to FEI common stock and recognized a gain
of $110,750 that represented the market price of the common stock
at conversion. As of June 30, 1999, the Company had sold 155,000
shares of common stock at a gain of $102,788. In July 1999, the
Company sold the remaining shares of FEI at a realized gain of
$51,550.
During the year ended June 30, 1999, certain debt
restructurings resulted in gains reported as extraordinary items.
In December 1998, $100,000 of principal and $16,722 in accrued
interest was converted into 36,669 shares of common stock, at a
gain of $37,549. Principal of $150,000 was converted into 15,000
shares of Class B preferred stock. A creditor accepted payment
of $15,000 for $50,407 in principal and accrued interest,
resulting in a $35,407 gain. The holder of $27,500 of mandatory
redeemable preferred stock accepted payment of $16,000, resulting
in an $11,500 gain. The Company will continue to work toward
renegotiating its current debts to extend their maturities or
obtain reduced payments.
Effective December 1998, the Company issued a new series of
Class C preferred stock. The stock has a par value of $.01, is
voting, and is convertible into common stock at a rate of $1.20.
Holders of Class C preferred stock are entitled to receive
dividends at the annual rate of 7% based on the stated value per
share. The dividends are cumulative, with any outstanding unpaid
dividends bearing interest at an annual rate of 10%. In total,
principal of $487,220 and accrued interest of $97,385 were
converted to 487,172 shares of Class C preferred stock. Included
in this transaction were principal and interest of $299,720 and
$64,943, respectively, owed to related parties that were
converted into 303,886 shares of Class C preferred stock.
During 1999, a related party made working capital loans to
the Company in the amount of $412,842. The loans accrue interest
at 9%. The Company paid $63,137 toward the principal of the
outstanding working capital loans, and converted $189,713 of
principal to Class C preferred stock.
In conjunction with the dissolution of Casino Masquerade,
the Company received $400,000 in cash and hotel credits with a
face value of $600,000 at the renovated Radisson Aruba Caribbean
Hotel. The Company used the cash proceeds to acquire marketable
trading securities and make payments toward various accounts
payable and debt. The hotel credits can be used for a six-year
period commencing January 1, 2000. The Company intends to use
the hotel credits for marketing purposes and as consideration for
debt payments.
Net cash provided by operating activities increased $231,919
to $642,886 for the year ended June 30, 1999 compared to $410,947
for the same period in 1998. The increase is due to management's
continued efforts to improve operating efficiency and reduce
overhead.
Net cash used in investing activities decreased $654,270 to
$305,843 during the year ended June 30, 1999 compared to $960,113
for the same period in 1998. The main reason for the decrease is
that the Company used $383,090, net of cash acquired, for the
purchase of Alaska Bingo in fiscal year 1998 versus receiving
$400,000 in fiscal year 1999 as part of the Casino Masquerade
lease settlement. The Company purchased $138,072 less in fixed
assets during the year ended June 30, 1999 compared to the period
in 1998. In November 1999 the Company opened the expansion of
the Bull Durham Saloon & Casino. The majority of the assets
acquired for the expansion were purchased primarily in fiscal
year 1998.
The Company used $554,427 in cash for financing activities
during the year ended June 30, 1999 compared to financing
activities providing $223,688 during the same period in 1998.
During the year ended June 30, 1999, $718,566 was used to pay
dividends on and redeem shares of Class B preferred stock
compared to $165,676 the quarter ended June 30, 1998. Proceeds
in excess of payments of long-term debt and notes payable was
$166,639 for the year ended June 30, 1999 compared to $221,864
for the same period in the prior year, a decrease of $55,225.
During 1998, warrants were exercised to purchase $187,500 of
common stock, whereas no warrants were exercised in 1999.
As of June 30, 1999 none the Company's subsidiaries have
commercial bank credit facilities. Management is currently
negotiating with several financial institutions to obtain
revolving lines of credit for the operating subsidiaries to use
for working capital during slow seasons.
During 1999, the Company opened and closed the Casino
Calypsso located in the Hotel Calypsso in Salinas, Ecuador. Due
to unfavorable financial and political conditions the Company
elected to close the casino after a few months of operation. A
restructuring charge of $195,140 was incurred as a result of the
closure.
Effective August 7, 1999, the Company entered into a lease
and option agreement (the "lease agreement") to lease the
Tollgate Saloon & Casino in Central City, Colorado. The Company
paid a $30,000 deposit upon inception of the lease agreement, of
which $10,000 is nonrefundable. The term of the lease is 24
months with monthly rent of $6,000. The Company has the option
to purchase the casino and associated real estate and equipment
at any time prior to the expiration of the lease agreement at a
purchase price of $1,400,000. In addition, the Company entered
into an agreement with a third party who had previously operated
the casino to lease additional gaming equipment under terms that
grant the Company the ability to purchase the equipment at the
end of the 24-month term for $35,000. The equipment lease
requires monthly rents of $1,700.
The Company continues its efforts to formulate plans and
strategies to address the Company's financial condition and increase
profitability. Management will continue to address debt currently
in default by negotiating with creditors to convert debt to equity,
extend maturity dates of debt, and accept reduced payment terms.
The Company will also continue to explore acquisition opportunities,
and improve operating efficiencies at its existing properties.
Management believes that these plans will result in increased
liquidity and future profitability.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") 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.
The Company did not have any components of comprehensive income
requiring separate disclosure under SFAS No. 130.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which was
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137 that
deferred the effective date of SFAS No. 133 to fiscal quarters
beginning after June 15, 2000. Currently, the Company does not
have any derivative financial instruments and does not
participate in hedging activities, therefore management believes
the accounting standard will not impact the Company's financial
statements.
Year 2000 Conversion
The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures.
Software failures due to processing errors potentially arising
from calculations using the Year 2000 date are a known risk. The
Company is addressing this risk to the availability and integrity
of financial systems and the reliability of the operational
systems. The Company has established processes for evaluating
and managing the risks and cost associated with this problem,
including communicating with suppliers, dealers, and others with
which it does business to coordinate Year 2000 conversion. The
total cost of compliance and its effect on the Company's future
results of operations is being determined as part of the detailed
conversion planning process.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed as part of this report:
Report of Independent Auditors;
Audited Balance Sheet as of June 30, 1999;
Audited Statements of Operations for the Years Ended June 30, 1999
and 1998;
Audited Statements of Stockholders' Equity for the Years
Ended June 30, 1999 and 1998;
Audited Statements of Cash Flows for the Years Ended June 30, 1999
and 1998; and
Notes to Financial Statements.
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On January 4, 1999, the client-auditor relationship between
the Company and its principal accountants, Gelfond Hochstadt
Pangburn & Co., ceased. The resignation of Gelfond Hochstadt
Pangburn & Co. was effective January 4, 1999. The report of
Gelfond Hochstadt Pangburn & Co. related to the consolidated
financial statements of the Company for the fiscal year ended
June 30, 1998 contains a going concern qualification. With the
exception of the foregoing, the reports of Gelfond Hochstadt
Pangburn & Co. related to the consolidated financial statements
of the Company for the fiscal years ended June 30, 1998 and 1997,
did not contain any adverse opinion or disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of the
Company's financial statements for each of the fiscal years ended
June 30, 1998 and 1997, there were no disagreements with Gelfond
Hochstadt Pangburn & Co. on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope
and procedures which, if not resolved to the satisfaction of
Gelfond Hochstadt Pangburn & Co., would have caused Gelfond
Hochstadt Pangburn & Co. to make reference to the matter in their
report.
The Company has retained the accounting firm of Gerald R.
Hendricks & Co., P.C. to serve as the Company's independent
accountant to audit the Company's financial statements. Prior to
its engagement as the Company's independent accountant, Gerald R.
Hendricks & Co., P.C. had not been consulted by the Company
either with respect to the application of accounting principles
to a specific transaction or the type of audit opinion that might
be rendered on the Company's financial statements or on any
matter that was the subject of any prior disagreement between the
Company and its previous certifying accountant.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
The name, position with the Company, age of each Director
and executive officer of the Company is as follows:
Name Age Position Director/Officer Since
Stephen G. Calandrella 38 President & Director 1993
Clifford C. Thygesen 63 Director 1996
Clifford L. Neuman 51 Director 1997
Barbara Chacon 34 Chief Financial Officer 1998
Eric Hartsough 54 Vice President of Operations 1999
Stephen G. Calandrella. Mr. Calandrella has been President
and Director of The Rockies Fund, Inc. since February, 1991. The
Rockies Fund, Inc., a Colorado Springs, Colorado-based business
development company regulated under the Investment Company Act of
1940, makes investments in, and managerial assistance available
to, certain eligible portfolio companies. Mr. Calandrella has
served as a Director of Kelly Motors, Ltd., a Fort Collins,
Colorado-based manufacturer of specialty automobiles, Combined
Penny Stock Fund, Inc. and Redwood MicroCap Fund, Inc., both of
which are closed-end investment companies registered under the
Investment Company Act of 1940, Good Times Restaurants, Inc., a
publicly-held Denver, Colorado-based company engaged in owning
and operating Good Times Restaurants and Round-The-Corner
Restaurants Southshore Corp., a publicly traded family
entertainment company; Cogenco International, Inc., a publicly
traded financial services company; Optimax Industries, Inc., a
NASDAQ Company, and Gold Capital Corporation, a publicly traded
mining company. Mr. Calandrella currently serves on the Board of
Directors of American Educational Products, Inc., a NASDAQ listed
company engaged in the manufacture of supplemental educational
materials, and Guardian Technologies, Inc., a NASDAQ listed
manufacturing company. Mr. Calandrella is also engaged in
financing and consulting activities for development stage
companies, which consists of advising public and private
companies on capital formation methods, enhancing shareholder
valuations, mergers, acquisitions and corporate restructurings,
as well as arranging for bridge loans and equity purchases.
Clifford C. Thygesen, has served as a Director of the
Company since 1996. He has also been President of American
Educational Products, Inc. since January 22, 1996 and a Director
since 1986, and also served as its Executive Vice-President from
1986 until January 1992. Mr. Thygesen is also currently a
director of Rockies Fund, Inc. a Colorado Springs, Colorado based
Business Development Company registered under the Investment
Company Act of 1940. From 1971 to 1973, Mr. Thygesen was Vice-
President of Operations for the Ithaca Gun Company of Ithaca, New
York, a manufacturer of high quality firearms. From 1973 to
1976, Mr. Thygesen served as President of Alpine Designs
Corporation, a company which produces backpacking equipment,
skiwear and hunting apparel. During the period of his employment
with Ithaca Gun Company and Alpine Designs, these two companies
were subsidiaries of General Recreation, Inc. In 1975 and 1976,
Mr. Thygesen was corporate Director of Manufacturing for General
Recreation, Inc., and, in this capacity, assumed responsibility
for decentralizing manufacturing operations in addition to his
duties at Alpine Designs. From 1977 to 1981, he served as Vice-
President of Manufacturing for Pure Cycle Corporation, a company
that designed water recycling systems for residential use. From
1981 until February, 1988, Mr. Thygesen was President, Chief
Operating Officer and a Director of Tri Coast Environmental
Corporation, formerly Colorado Venture Capital Corporation. He
received his B.S. degree in Industrial Administration from the
University of Illinois in 1961.
Clifford L. Neuman has served as a Director of the Company
since 1997. Mr. Neuman is a licensed, practicing attorney and a
partner in the law firm of Neuman, Drennen & Stone, LLC, with
offices located in Boulder and Denver, Colorado. Mr. Neuman also
serves on the Board of Directors of American Educational
Products, Inc. Mr. Neuman received his Bachelor of Arts degree
from Trinity College in 1970 and his Juris Doctorate degree from
the University of Pennsylvania School of Law in 1973.
Barbara Chacon has served as Chief Financial Officer of the
Company since 1998. Ms. Chacon holds an active license as a
Certified Public Accountant, and her business experience includes
eight years as an auditor in public accounting. Prior to joining
the Company in March 1998, Ms. Chacon was the Director of Finance
for Celluloid Studios LLC, a television commercial production
company in Denver, Colorado.
Eric Hartsough has served as Vice President of Operations of
the Company since August 1999. Prior to joining the Company,
Mr. Hartsough spent seven years as an investigator with the
Colorado Division of Gaming. His experience also includes ten
years of business development in the hospitality industry and
twelve years of enforcement with the Denver District Attorney's
Office in Denver, Colorado.
All directors serve for terms of one (1) year each, and are
subject to re-election at the Company's regular Annual Meeting of
Shareholders, unless they earlier resign.
During the fiscal year ended June 30, 1999, meetings of the
Board of Directors were held both in person and telephonically.
All Board members attended 100% of the Board meetings. Outside
Directors are entitled to reimbursement of their expenses
associated with attendance at such meeting or otherwise incurred
in connection with the discharge of their duties as a Director.
During fiscal 1999, Messrs. Thygesen and Neuman each received a
fee of $3,000 for their services. The Board of Directors has
also adopted a compensation plan for outside directors beginning
fiscal year 2000 pursuant to which such persons are entitled to a
fee of $1,000 per meeting attended and to receive, for each year
of service, non-qualified stock options exercisable to purchase
10,000 shares of the Company's Common Stock. The exercise price
of the options is the closing bid price of the Company's Common
Stock on the date of grant, and the options are exercisable for a
period of five (5) years. Directors who are also executive
officers of the Company receive no additional compensation for
their services as directors.
During fiscal 1999, the Company had standing Audit and
Compensation Committees of the Board of Directors. The members
of the Audit Committee were Clifford C. Thygesen and Clifford L.
Neuman. No member of the Audit Committee receives any additional
compensation for his service as a member of that Committee.
During fiscal 1999, the Audit Committee held one (1) meeting
which was attended by all of its members. The Audit Committee is
responsible for providing assurance that financial disclosures
made by Management reasonably portray the Company's financial
condition, results of operations, plan and long-term commitments.
To accomplish this, the Audit Committee oversees the external
audit coverage, including the annual nomination of the
independent public accountants, reviews accounting policies and
policy decisions, reviews the financial statements, including
interim financial statements and annual financial statements,
together with auditor's opinions, inquires about the existence
and substance of any significant accounting accruals, reserves or
estimates made by Management, reviews with Management the
Management's Discussion and Analysis section of the Annual
Report, reviews the letter of Management Representations given to
the independent public accountants, meets privately with the
independent public accountants to discuss all pertinent matters,
and reports regularly to the Board of Directors regarding its
activities.
During fiscal 1999, the Compensation Committee consisted of
Clifford C. Thygesen and Clifford L. Neuman. No member of the
Compensation Committee receives any additional compensation for
his service as a member of that Committee. During fiscal 1999,
the Compensation Committee held one (1) meeting which was
attended by all of its members. The Compensation Committee is
responsible for reviewing pertinent data and making
recommendations with respect to compensation standards for the
executive officers, including the President and Chief Executive
Officer, establishing guidelines and making recommendations for
the implementation of Management incentive compensation plans,
reviewing the performance of the President and CEO, establishing
guidelines and standards for the grant of incentive stock options
to key employees under the Company's Incentive Stock Option Plan,
and reporting regularly to the Board of Directors with respect to
its recommendations.
No family relationship exists between any director or
executive officer.
In 1998, the Securities and Exchange Commission (the
"Commission") commenced an administrative proceeding against The
Rockies Fund, Inc. and its directors, Stephen G. Calandrella,
Clifford C. Thygesen and Charles Powell. Messrs. Calandrella and
Thygesen are also directors of the Company. In the
administrative action, the Commission has alleged certain
violations of federal securities laws and regulations by The
Rockies Fund, Inc. and its directors. The allegations involve
certain violations of the Investment Company Act of 1940, as
amended, under which The Rockies Fund, Inc. is a regulated
business development company, as well as violations of the
Securities Exchange Act of 1934, as amended, and regulations
thereunder arising from certain transactions in the securities of
another company unrelated to the Company. The Rockies Fund, Inc.
and its directors have adamantly denied any violations of federal
securities laws and have informed the Company that they intend to
vigorously defend the matter. In November 1998, the matter went
to hearing before an administrative law judge and is awaiting a
ruling. There can be no assurance of the ultimate outcome of
this matter or its potential effect upon the ability of Messrs.
Calandrella and Thygesen to continue to serve the Company in
their current respective capacities.
Other than the foregoing, there are no material proceedings
to which any director, officer or affiliate of the Company, any
owner of record or beneficially of more than five percent (5%) of
any class of voting securities of the Company, or any associate
of any such director, officer, affiliate of the Company, or
security holder is a party adverse to the Company or any of its
subsidiaries or has a material interest adverse to the Company or
any of its subsidiaries.
Except as noted herein or below, during the last five (5)
years no director or officer of the Company has:
(1) had any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years
prior to that time;
(2) been convicted in a criminal proceeding or subject to a
pending criminal proceeding;
(3) been subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking activities; or
(4) been found by a court of competent jurisdiction in a
civil action, the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed,
suspended, or vacated.
Any transactions between the Company and its officers,
directors, principal shareholders, or other affiliates have been
and will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties on an arms-length
basis and will be approved by a majority of the Company's
independent, outside disinterested directors.
Indemnification and Limitation on Liability of Directors
The Company's Articles of Incorporation provide that the
Company shall indemnify, to the fullest extent permitted by Utah
law, any director, officer, employee or agent of the corporation
made or threatened to be made a party to a proceeding, by reason
of the former or present official of the person, against
judgments, penalties, fines, settlements and reasonable expenses
incurred by the person in connection with the proceeding if
certain standards are met. At present, there is no pending
litigation or proceeding involving any director, officer,
employee or agent of the Company where indemnification will be
required or permitted. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
The Company's Articles of Incorporation limit the liability
of its directors to the fullest extent permitted by the Utah
Business Corporation Act. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of
fiduciary duty as directors, except for (i) any breach of the
duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or that involved intentional
misconduct or a knowing violation of law, (iii) dividends or
other distributions of corporate assets that are in contravention
of certain statutory or contractual restrictions, (iv) violations
of certain laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal
securities law is not limited by the Articles. The officers of
the Company will dedicate sufficient time to fulfill their
fiduciary obligations to the Company's affairs. The Company has
no retirement, pension or profit sharing plans for its officers
and Directors.
Compliance with Section 16(a) of the Exchange Act
Under the Securities Laws of the United States, the
Company's Directors, its Executive (and certain other) Officers,
and any persons holding more than ten percent (10%) of the
Company's common stock are required to report their ownership of
the Company's common stock and any changes in that ownership to
the Securities and Exchange Commission. Specific due dates for
these reports have been established and the Company is required
to report in this report any failure to file by these dates
during fiscal 1999. All of these filing requirements were
satisfied by its Officers and Directors and ten percent holders.
In making these statements, the Company has relied on the written
representation of its Directors and Officers or copies of the
reports that they have filed with the Commission.
ITEM 10. EXECUTIVE COMPENSATION
The following tables and discussion set forth information
with respect to all plan and non-plan compensation awarded to,
earned by or paid to the Chief Executive Officer ("CEO"), and the
Company's four (4) most highly compensated executive officers
other than the CEO, for all services rendered in all capacities
to the Company and its subsidiaries for each of the Company's
last three (3) completed fiscal years; provided, however, that no
disclosure has been made for any executive officer, other than
the CEO, whose total annual salary and bonus does not exceed
$100,000.
TABLE 1
SUMMARY COMPENSATION TABLE
Annual Compensation
Long Term
Other Compensation
Name and Annual Options
Principal Fiscal Compensation SARs
Position Year Salary($) ($)(1)(2) (#)
1999 $72,000 $-0- -0-
Stephen G.
Calandrella, 1998 $48,000 $-0- 10,000(3)
President and
Director 1997 $24,000 $-0- 20,000(3)
(1) All executive officers of the Company, except Mr.
Calandrella, participate in the Company's group health insurance
plan. However, no executive officer received perquisites and
other personal benefits which, in the aggregate, exceeded the
lesser of either $50,000 or 10% of the total of annual salary and
bonus paid during the respective fiscal years.
(2) The Company has implemented a 401(k) plan in which its
executive officers may participate. During fiscal 1999, none of
the Company's executive officers elected to participate in the
plan.
(3) Effective June 30, 1999, Mr. Calandrella voluntarily
surrendered for cancellation all of his outstanding options due
to their lack of value.
Employment Arrangements
The Company's President receives an annual base salary of
$72,000 without an employment contract.
The Company has a written employment agreement with Eric
Hartsough, its Vice President of Operations. Mr. Hartsough's
agreement has a term of three years expiring August 2002 and
provides for an annual base salary of $65,000 per year. In
addition, Mr. Hartsough received incentive stock options
exercisable to purchase 30,000 shares of the Company's common
stock, which options vest at the rate of 10,000 per year over the
term of his employment.
Barbara Chacon serves as Chief Financial Officer without an
employment contract at an annual base salary of $60,000. In
addition, Ms. Chacon received incentive stock options exercisable
to purchase 20,000 shares of the Company's common stock. John
Lopez serves as President of ABS without a written employment
contract. He receives an annual base salary of $70,000 and is
eligible to receive a bonus equal to 10% of the excess cash flow
generated by ABS after payments to Mark Griffin, the individual
who sold ABS to the Company in 1997. In addition, the Company
has an agreement in principal to grant to Mr. Lopez incentive
stock options exercisable to purchase 10,000 shares of the
Company's common stock.
Company Stock Incentive Plans
In 1993, the Board of Directors and the Shareholders of the
Company adopted the Global Casinos, Inc. Stock Incentive Plan
(the "Incentive Plan"). The Incentive Plan allows the Company to
grant incentive stock options, non-qualified stock options and/or
stock purchase rights (collectively "Rights") to officers,
employees, former employees and consultants of the Company and
its subsidiaries. Options granted to eligible participants may
take the form of Incentive Stock Options ("ISO's") under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code")
or options which do not qualify as ISO's ("Non-Qualified Stock
Options" or "NQSO's"). As required by Section 422 of the Code,
the aggregate fair market value (as defined by the Incentive
Plan) of the Company's Common Stock (determined as of the date of
grant of ISO) with respect to which ISO's granted to an employee
are exercisable for the first time in any calendar year may not
exceed $100,000. The foregoing limitation does not apply to
NQSO's. Rights to purchase shares of the Company's Common Stock
may also be offered under the Incentive Plan at a purchase price
under terms determined by the Incentive Plan Administrator.
Either the Board of Directors (provided that a majority of
Directors are "disinterested") can administer the Incentive Plan,
or the Board of Directors may designate a committee comprised of
Directors meeting certain requirements to administer the
Incentive Plan. The Administrator will decide when and to whom
to make grants, the number of shares to be covered by the grants,
the vesting schedule, the type of awards and the terms and
provisions relating to the exercise of the awards.
An aggregate of 150,000 shares of the Company's Common Stock
are reserved for issuance under the Incentive Plan. As of June
30, 1999 options to purchase 62,500 shares of Common Stock were
issued and outstanding with a weighted average exercise price of
$3.14 per share, and an additional 87,500 shares were available
for future option grants.
The following table sets forth certain information
concerning the granting of incentive stock options during the
last completed fiscal year to each of the named executive
officers and the terms of such options:
TABLE 2
Option/SAR Grants in the Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
Stephen G.
Calandrella
The following table sets forth certain information
concerning the exercise of incentive stock options during the
last completed fiscal year by each of the named executive
officers and the fiscal year-end value of unexercised options on
an aggregated basis:
TABLE 3
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquire Value at FY-End (#) at FY-End($)(2)
on Realized(1) Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable
Stephen G.
Calandrella -0- $0.00 -0- N/A
(1) Value Realized is determined by calculating the difference
between the aggregate exercise price of the options and the
aggregate fair market value of the Common Stock on the date the
options are exercised.
(2) The value of unexercised options is determined by
calculating the difference between the fair market value of the
securities underlying the options at fiscal year end and the
exercise price of the options.
(3) Effective June 30, 1999, Mr. Calandrella voluntarily
surrendered for cancellation all of his outstanding options due
to their lack of value.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 1, 1999 and as
adjusted for the sale of option and warrant stock, the stock
ownership of (i) each person known by the Company to be the
beneficial owner of five (5%) percent or more of the Company's
Common Stock, (ii) all Directors individually, (iii) all Officers
individually, and (iv) all Directors and Officers as a group.
Each person has sole voting and investment power with respect to
the shares shown, except as noted.
Title Name & Address Shares Beneficially Owned
of Class of Beneficial Owner Number Percent(1)
Common Stephen G. Calandrella (2)
Stock 7210 Antelope Lane
Colorado Springs, Colorado 80920 21,680 1%
" Clifford C. Thygesen(2)
4893 Idylwild Trail
Boulder, Colorado 80301 1,500 nil
" Clifford L. Neuman
1507 Pine Street
Boulder, Colorado 80302 30,000 2%
" The Rockies Fund, Inc. (3)
5373 North Union Boulevard
Suite 100
Colorado Springs, Colorado 80918 413,430 22%
" All Officers and Directors
as a Group (5 Persons) 83,180 4%
(1) Shares not outstanding but beneficially owned by virtue of
the individuals' right to acquire them as of the date of this
Proxy Statement or within sixty days of such date, are treated as
outstanding when determining the percent of the class owned by
such individual.
(2) Messrs. Calandrella and Thygesen each serve as a director of
The Rockies Fund, Inc. Does not include securities owned of
record by The Rockies Fund, Inc., as to which Messrs. Calandrella
and Thygesen disclaim beneficial ownership for purposes of
Section 16 of the Exchange Act.
(3) Includes 17,680 shares of Common Stock, 291,667 shares of
Series C Preferred Stock, $10,207 in accrued and unpaid
dividends on the Series C Preferred Stock, which dividends
are convertible into an additional 8,506 shares of Common
Stock, $163,343 in outstanding indebtedness due under a
convertible promissory note convertible into 32,669 shares
of Common Stock at a conversion price of $5.00 per share,
and $314,538 in outstanding indebtedness under a working
capital loan convertible into 62,908 shares of Common Stock
at a conversion value of $5.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Throughout its history, the Company has experienced
shortages in working capital and has relied, from time to time,
upon loans from affiliates to meet immediate cash demands.
In fiscal 1998, a family partnership controlled by Peter
Bloomquist, a former director and Chief Financial Officer of the
Company, loaned to the Company the sum of $85,000 bearing
interest at the rate of 12% per annum. The loan is a demand
obligation and has an outstanding unpaid principal balance of
$47,000.
The Company has had several transactions with The Rockies
Fund, Inc., a business development company, for which Mr.
Calandrella serves as President, director and principal
shareholder, and on which Clifford Thygesen, a director of the
Company, also serves as a member of the Board of Directors. In
August 1996, the Company borrowed $175,000 from The Rockies Fund,
Inc. which was converted into a convertible debenture which the
Company sold and offered as part of a private placement which was
completed during the third quarter of 1996. The convertible
debenture accrued interest at 12% per annum and was convertible
into 35,000 shares of common stock, or a conversion value of
$5.00 per share.
In August 1997, the Company sold $400,000 in units
consisting of convertible notes and warrants. The proceeds were
used to complete the acquisition of ABS. The Rockies Fund, Inc.
purchased $75,000 in units in this offering.
Effective December 31, 1998, creditors holding matured debt
totaling $584,605, principal and interest, converted that amount
into an aggregate of 487,172 shares of Series C Convertible
Preferred Stock, having a stated value of $1.20 per share which
was higher than both the market price and net tangible book value
per share of the Company's common stock on the date of
conversion. In this transaction, The Rockies Fund, Inc.
participated to the extent of converting $287,219.89 in principal
and $62,780.11 in interest into an aggregate of 291,667 shares of
Series C Preferred Stock.
The express purpose of the conversion of the foregoing debt
into Series C Preferred Stock was to cure the Company's net asset
deficiency in an effort to avoid it being delisted from the
Nasdaq Stock Market. Unfortunately, the Company was nevertheless
delisted, from which Nasdaq decision the Company is currently
appealing. In order to acknowledge that the purpose of the
conversion to Series C Preferred Stock may be frustrated and, in
order to protect the creditors who assisted the Company in its
efforts to avoid delisting, in September 1999 the Company entered
into an agreement with the holders of Series C Preferred Stock
that, in the event either: (i) the Company is ultimately
unsuccessful in having its Nasdaq listing restored, or (ii) there
occurs a change of control of the Company, then the holders of
the Series C Preferred Stock shall have the option to put the
shares to the Company for redemption.
During 1999, The Rockies Fund, Inc. made additional loans to
the Company totaling $412,842, the proceeds of which were used by
the Company to cover the capital requirements in opening the
Tollgate Casino. At June 30, 1999, the net outstanding balance
of principal and interest due to The Rockies Fund, Inc. was
$266,494.
During fiscal 1999, The Rockies Fund, Inc. hypothecated a
parcel of undeveloped commercial real property located in
Colorado Springs, Colorado in order to secure the repayment of a
loan obtained by the Company from Peak National Bank, the
proceeds of which were used to complete the Bull Durham
expansion. At June 30, 1999, a balance of $301,202 remained
outstanding and unpaid under the loan from Peak National Bank.
During 1999, Mr. Calandrella personally guaranteed an
equipment lease for the Bull Durham in the principal amount of
approximately $9,800.
During fiscal 1998, Clifford Neuman, a director of the
Company who also serves as legal counsel, agreed to convert a
total of $80,000 in outstanding and unpaid fees for services into
20,000 shares of common stock, at a conversion value of $4.00 per
share and 20,000 warrants exercisable at $5.00 per share. Mr.
Neuman has voluntarily surrendered the warrants to the Company
for cancellation due to their lack of value. At June 30, 1999,
the Company owed Mr. Neuman's firm a total of $82,079.50 in
accrued and unpaid legal fees.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K FROM LAST YEAR UPDATE
EXHIBITS
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
3.4 Certificate of Designations, Preferences, and
Rights of Series B Convertible Preferred Stock
3.5 Certificate of Designations, Preferences, and Rights of
Series C Convertible Preferred Stock
3.6 Agreement Respecting Rights of Holders of Series C
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 Second Amended Plan of Reorganization of
Casinos USA, Inc., and Order Confirming Plan
* 10.25 Warrant Agreement
**** 10.26 Stock Purchase and Sale Agreement
between Alaska Bingo Supply, Inc., Global Alaska
Industries, Inc. and Mark Griffin
10.27 Convertible Promissory Note in the amount of
$450,000 dated March 31, 1998 in favor of
Mark Griffin
**** 10.28 General Security Agreement from Global
Alaska Industries, Inc. to Mark Griffin
**** 10.29 Stock Pledge Agreement from Global
Alaska Industries, Inc. to Mark Griffin
10.30 Agreement to Convert Debt dated March 31, 1998 with
Mark Griffin
10.31 Tollgate Casino Lease and Option Agreement
10.32 Equipment Lease with Plato Foufas & Co., Inc.
10.33 Employment Agreement of Eric Hartsough
* 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.
**** Incorporated by reference to the Registrant's
Current Report on Form 8-K dated August 1, 1997,
as filed with the Commission on August 14, 1997.
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the fourth
quarter ended June 30, 1999.
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: October 13, 1999 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 TITLE DATE
/s/ Stephen G. Calandrella President, Chief Executive October 13,1999
Stephen G. Calandrella Officer and Director
/s/ Barbara Chacon Chief Financial Officer, October 13,1999
Barbara Chacon Secretary and Treasurer
/s/ Clifford C. Thygesen Director October 13,1999
Clifford C. Thygesen
/s/ Clifford L. Neuman Director October 13,1999
Clifford L. Neuman
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1999 AND 1998
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors (Gerald R. Hendricks & Company P.C.)
Report of Independent Auditors (Gelfond Hochstadt Pangburn & Co.)
Consolidated Balance Sheet - June 30, 1999
Consolidated Statements of Operations - For Years
Ended June 30, 1999 and 1998
Consolidated Statements of Stockholders' Equity - For
Years Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows - For Years
Ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Global Casinos, Inc.
I have audited the accompanying consolidated balance sheet of
Global Casinos, Inc. and subsidiaries as of June 30, 1999, and
the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I 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. I believe that my
audit provides a reasonable basis for my opinion.
In my 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,
1999, and the results of their operations and their cash flows
for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that Global Casinos, Inc. will continue as a going concern. As
more fully described in Note 1, the Company has incurred
recurring operating losses, incurred a net loss of approximately
$323,000 during the year ended June 30, 1999, and had a working
capital deficiency of approximately $2,168,000 at June 30, 1999.
In addition, the Company is in default on various loan agreements
and is involved in litigation that could have a material negative
impact on the Company's operations. These conditions raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans with regard to these matters
are also described in Note 1. The financial statements do not
include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the
outcome of this uncertainty.
GERALD R. HENDRICKS & CO.
Westminster, Colorado
September 23, 1999
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Global Casinos, Inc.
We have audited the consolidated statements of operations,
stockholders' equity and cash flows of Global Casinos, Inc.
and subsidiaries for the year ended June 30, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations and cash flows of Global Casinos, Inc. and subsidiaries
for the year then ended June 30,1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Global Casinos, Inc. will continue as a going concern. As
more fully described in Note 1, the Company has incurred
recurring operating losses and incurred a net loss of approximately
$2,289,000 during the year ended June 30, 1998. In addition, the
Company is in default on various loan agreements and the Company
ceased operating two of its casinos during the year ended June 30,
1998. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the
outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
October 13, 1998
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(in thousands)
ASSETS
Current assets:
Cash 505
Accounts receivable:
Trade, net of allowance for doubtful accounts of $88 386
Related parties 22
Inventory 260
Prepaid rent 116
Current portion of notes receivable 156
Marketable trading securities 851
Property rights held for sale 200
Other 67
Total current assets 2,563
Land, buildings and improvements, and equipment:
Land 518
Buildings and improvements 4,072
Equipment 2,027
6,617
Accumulated depreciation (1,872)
4,745
Other assets:
Leasehold rights and interests and contract rights,
net of amortization of $848 1,441
Goodwill, net of amortization of $276 1,888
Hotel credits 493
Notes receivable, net of current portion, including
receivables in default 197
Other assets, net of amortization of $26 25
Restricted cash 140
4,184
11,492
(continued)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including $82 to a related party 506
Accrued expenses:
Accrued wages and taxes 570
Accrued casino license fees 1,169
Accrued interest, including $14 to related parties 308
Other 265
Notes payable 301
Current portion of long-term debt, including debt in default
and $439 to related parties 1,712
Other 40
Total current liabilities 4,871
Long-term debt, less current portion 2,580
Commitments and contingencies
Stockholders' equity:
Preferred stock - convertible; 10,000,000 shares authorized
Class A - $2 par value, nonvoting, 96,500 shares issued
and outstanding 193
Class B - $.01 par value, nonvoting, 296,329 shares issued
and outstanding 3
Class C - $1.20 par value, voting, 487,172 shares issued
and outstanding 5
Common stock - $.05 par value; 50,000,000 shares authorized;
1,546,360 shares issued and outstanding 77
Additional paid-in capital 12,915
Accumulated deficit (9,152)
4,041
11,492
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
For years ended June 30,
1999 1998
Revenues:
Casino 4,981 7,989
Bingo 3,593 2,955
Food and beverage 118 187
Other 377 314
9,069 11,445
Expenses:
Cost of sales 2,162 1,929
Operating, general, and administrative, including
$62 and $67, respectively, to a
related party 6,227 8,831
Depreciation and amortization 852 1,053
Restructuring charges 267 1,317
9,508 13,130
Loss from operations (439) (1,685)
Other income (expense):
Interest income 36 35
Interest expense, including $37 and $30,
respectively, to related parties (493) (637)
Realized gain on the sale of marketable securities 274 23
Adjustment to market value of marketable securities 215
32 (579)
Loss before minority interest and extraordinary item (407) (2,264)
Minority interest in income of subsidiary (25)
Loss before extraordinary item (407) (2,289)
Extraordinary item:
Gain from debt restructuring 84
Net loss (323) (2,289)
Dividends on Class B preferred stock (267) (65)
Net loss available to common stockholders (590) (2,354)
Loss per share - basic and diluted:
Loss before extraordinary item (0.44) (1.61)
Extraordinary item 0.05 0
Net income (loss) available to common stockholders (0.39) (1.61)
Weighted average shares outstanding 1,528,062 1,460,371
See accompanying notes.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED JUNE 30, 1999 AND 1998
($ amounts in thousands)
<CAPTIONS>
Preferred Stock Additional
Class A Class B Class C Common Stock Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997 147,750 269 1,400,811 70 8,906 (6,208) 3,037
Class B shares issued in
debt conversion 340,329 3 1,250 3,406 3,409
Shares issued for services 32,894 2 116 118
Shares issued in
conversion of Class A 0
preferred stock to
common stock (38,750) (51) 9,389 50 (1)
Shares issued in exercision
of options 60,000 3 184 187
Redemption of preferred stock (11,151) (111) (111)
Dividends on Class B
preferred stock (65) (65)
Net loss (2,289) (2,289)
Balances at June 30, 1998 109,000 218 329,178 3 1,504,344 75 12,551 (8,562) 4,285
Shares issued in conversion
of mandatory redeemable
preferred stock to
common stock 175 3 3
Shares issued in conversion
of Class A preferred stock
to common stock (12,500) (25) 2,222 24 (1)
Class B shares issued in debt
conversion 15,000 150 150
Redemption of Class B
preferred stock (47,849) (478) (478)
Common stock issued in
debt conversion 39,619 2 85 87
Class C shares issued in
debt conversion 487,172 5 580 585
Dividends on Class B
preferred stock (250) (250)
Dividends on Class C
preferred stock (17) (17)
Net loss (323) (323)
96,500 193 296,329 3 487,172 5 1,546,36 77 12,915 (9,152) 4,041
See accompanying notes.
</TABLE>
CONSOLIDATED STATEMENTS OF CASHFLOWS
(in thousands)
For years ended June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (323) (2,289)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 852 1,053
Provision for uncollectible receivables 99 39
Net gain on sales of marketable trading securities (274) (23)
Adjustment to market value of marketable trading
securities (215)
Extraordinary gain from extinguishment of debt (84)
Restructuring costs, net of cash 94 1,317
Expensing of prepaid rent 71
Stock issued for services 30
Minority interest 25
Changes in operating assets and liabilities,
net of effects of acquisitions and dispositions:
Restricted cash (140)
Accounts receivable (172) (196)
Inventory 25 2
Other current assets 24 (158)
Other assets (4) 25
Accounts payable (14) 319
Accrued expenses 575 372
Other current liabilities 40
Other liabilities (12) (6)
965 2,699
Net cash provided by operating activities 642 410
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of building improvements and equipment (460) (598)
Purchases of marketable trading securities,
net of sales (227) (27)
Collections on notes receivable 61 48
Issuance of notes receivable (80)
Acquisitions, net of cash acquired (383)
Settlement upon termination of operating lease 400
(306) (960)
(continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(in thousands)
For years ended June 30,
1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (337) (697)
Issuances of long-term debt 448 749
Borrowings against notes payable 150 170
Payments on notes payable (94)
Proceeds from issuance of common stock 188
Redemption of mandatory preferred stock (3) (20)
Redemption of Class B preferred stock (478) (111)
Payment of dividends on Class B preferred stock (240) (54)
Net cash provided by financing activities (554) 225
Net decrease in cash (218) (325)
Cash at beginning of year 723 1,048
Cash at end of year 505 723
Supplemental cash flow information:
Cash paid for interest 457 459
Supplemental disclosure of non-cash investing
and financing activities:
Debt converted to common stock:
Mandatory redeemable preferred stock 4
Accounts payable, including $80,000 to a related party 88
Long-term debt 87 6
Class A preferred stock converted to common stock 51
91 145
Debt converted to Class B preferred stock 150 3,403
Debt converted to Class C preferred stock 585
Fixed assets acquired through long-term debt 61
Transfer of land, building and improvements to
property rights held for sale 200
Proceeds of note payable used to purchase
note receivable 75
Acquisitions:
Fair value of assets acquired 592
Intangible assets 3,935
Liabilities assumed (135)
Fair value of assets exchanged (4,010)
Cash paid, net of cash acquired 382
See accompanying notes.
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, and distributes bingo supplies and leases
bingo facilities domestically. 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.
CASINOS USA, INC. ("Casinos USA"), 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.
GLOBAL ALASKA INDUSTRIES ("Global Alaska"), an Alaska
corporation, which acquired Alaska Bingo Supply, Inc.
("ABS") located in Anchorage, Alaska on August 1, 1997
(Note 2). ABS is primarily engaged in the distribution of
a full line of bingo and bingo-related products. ABS
products are sold in Alaska to non-profit organizations
and municipalities that use the products for fund-raising
purposes. ABS also receives rent income from the leasing
of space to two bingo hall operators. The bingo halls
are managed by the wife of the holder of the Company's
Class B preferred shares.
GLOBAL PELICAN N.V. ("Global Pelican"), a St. Maarten
Limited Liability Company located on the island of St.
Maarten in the Dutch Netherlands Antilles. Global
Pelican operates the Pelican Casino under a Management
and Operating Lease Agreement (Note 9).
BPJ HOLDINGS N.V. ("BPJ"), a Curacao Limited Liability
Company, which operated the Casino Masquerade on the
Caribbean resort island of Aruba through February 1998.
The Company disposed of its investment in BPJ in December
1998 (Note 2).
WOODBINE CORPORATION ("Woodbine"), a South Dakota
corporation, which operated Lillie's Casino ("Lillie's")
in Deadwood, South Dakota through June 30, 1995 (Note 9).
GLOBAL CASINOS INTERNATIONAL, INC. ("Global
International"), a Delaware corporation, which through an
International Joint Venture ("IJV") operated Casino Las
Vegas in Bishkek, Kyrgyzstan. The Company transferred its
interest in Casino Las Vegas to its IJV partner in April
1998 (Note 2).
DESTINATION MARKETING SERVICES, INC. ("DMS"), a Colorado
corporation, which acquired the net assets of a Colorado
travel services company in January 1998. The Company
disposed of its investment in DMS in October 1998 (Note 2).
Estimates and Assumptions
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. Examples include
depreciation, amortization, and allowances for doubtful
accounts. Actual results could differ from those estimates.
Management's Plans
The accompanying financial statements have been prepared assuming that
Global Casinos, Inc. will continue as a going concern. The Company has
incurred recurring operating losses, incurred net losses of approximately
$323,000 and $2,289,000 during the years ended June 30, 1999 and 1998,
respectively, and had a working capital deficiencies of approximately
$2,168,000 and $2,653,000 at June 30, 1999 and 1998, respectively. The
Company is in default on various loan agreements and the Company ceased
operating two of its casinos in 1998. Additionally, as further discussed
in Note 9, the Company is involved in litigation that could have a negative
impact on the Company's operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome
of this uncertainty.
The Company continues its efforts to formulate plans and strategies to
address the Company's financial condition and increase profitability.
Management will continue to address debt currently in default by
negotiating with creditors to convert debt to equity, extend maturity dates
of debt, and accept reduced payment terms. The Company will also continue
to explore acquisition opportunities, and improve operating efficiencies
at its existing properties. Management believes that these plans will
result in increased liquidity and
future profitability.
Cash
Cash consists of demand deposits, vault cash used in casino operations, and
cash provided for use in the leased bingo hall facilities.
Restricted cash
Restricted cash represents cash held in an escrow account in connection
with the Company's negotiations with the government of St. Maarten to
obtain a casino license.
Inventories
Inventories primarily consist of bingo supplies and are stated at the lower
of cost or market. Cost is determined by the average-cost method.
Revenue Recognition
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. Sales of bingo-related products are
recognized as products are shipped. Rental revenue is recognized as it
becomes due.
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments classified as
current assets and liabilities approximate fair value due to the short
maturities of these instruments. The carrying values of notes receivable
and long term debt approximate fair values because stated interest rates on
these instruments are similar to returns management believes are currently
available to the Company for instruments with similar risks.
Marketable securities are considered to be trading securities, and are
carried on the balance sheet at their market value. Market value is
determined by the traded price of the security in the public market at the
balance sheet date. Realized and unrealized gains and losses are
recognized currently. Net realized gains are determined on the first-in,
first-out cost method.
Marketable securities are transacted on either a cash or margin basis. In
margin transactions, the Company is extended credit that is collateralized
by cash and securities in the Company's account. The Company is required
to maintain margin collateral in compliance with various regulatory and
other guidelines, and make adjustments of collateral levels in the event of
excess market exposure. Included in other accrued expenses at June 30,
1999 are marketable securities of $121,406 transacted on a margin basis.
Hotel credits are presented at their estimated realizable value.
Property Rights Held for Sale
Property rights held for sale consists of the rights to the ownership of
land, building and improvements in Deadwood, South Dakota. The carrying
value of the property rights approximates the estimated sales price of the
land, building and improvements (Note 9).
Land, Building and Improvements, and Equipment
Land, building and improvements, and equipment are carried at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives. The building is depreciated over 31 years, and improvements
and equipment are depreciated over five to seven years.
Leasehold Rights and Interests, Contract Rights, and Goodwill
Leasehold rights and interests, contract rights, and goodwill represent the
excess of the purchase prices over the net assets of the acquired
investments in ABS and Casinos USA. The leasehold and contract rights are
amortized over eight years. Goodwill is amortized over fifteen years.
Valuation of Long-Lived Assets
The Company performs an annual assessment to determine whether there has
been impairment in the carrying values of its land, building and
improvements, equipment, leasehold rights and interests, contract rights,
and goodwill. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from the asset is less
than its carrying amount. In that event, a loss is recognized based on the
amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in
similar manner, except that fair market values are reduced by the cost to
dispose.
During the year ended June 30, 1999, the Company recognized a restructuring
charge of $160,471 due to the reduction of the amortization periods
associated with leasehold rights and interests, contract rights, and
goodwill. During the years ended June 30, 1999 and 1998, restructuring
charges of $65,970 and $19,763, respectively, were recognized due to the
reduction of the estimated useful lives of certain equipment.
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") 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
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 income taxes result primarily from temporary differences between
financial and tax reporting. Deferred tax assets and liabilities are
determined based on the difference between the financial statement bases
and tax bases of assets and liabilities using enacted tax rates. A
valuation allowance is recorded to reduce a deferred tax asset to that
portion that is expected to more likely than not be realized.
Loss Per Share
Basic loss per share represents the net loss available to common
stockholders divided by the weighted average number of common shares
outstanding during the year. Diluted loss per share 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 in the losses of the entity.
Convertible preferred stock, stock options, stock warrants and convertible
promissory notes are not considered in the calculation for the years ended
June 30, 1999 and 1998 as the impact of the potential common shares would
be to decrease loss per share. Therefore, diluted loss per share is
equivalent to basic loss per share.
Foreign Currency Transactions
Gaming activities in the Company's foreign operations are primarily
conducted in U.S. dollars. Gains and losses from foreign currency
transactions are recognized currently, and were immaterial for the years
ended June 30, 1999 and 1998.
Risk Considerations
ALASKA BINGO SUPPLY Trade receivables are due from ABS bingo supply
customers. ABS grants credit, generally without collateral, to its
customers. During 1999, approximately 28% of bingo product sales were
attributed to two significant customers. During 1998, approximately 33%
of bingo sales were attributed to three significant customers.
Approximately 41% and 54% of ABS's bingo product supply purchases were
from a third party supplier during 1999 and 1998, respectively.
Management believes that other suppliers could provide similar products
with comparable terms. A change in suppliers, however, could cause
delays and possible loss of sales that would affect ABS operating
results adversely.
As discussed in Note 9, the Company is involved in litigation in which
the plaintiffs are seeking actions that could materially impact ABS
operations.
GLOBAL PELICAN Global Pelican is subject to considerations and risks
not typically associated with investments in North American companies.
Due to the sustained stability of St. Maarten's political, economic, and
legal environments, the Company does not anticipate significant risk in
the immediate future.
The Company is currently able to remit funds from its operations in 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 to the U.S.
HOTEL CREDITS As discussed in Note 2, the Company was issued hotel
credits at the Radisson Aruba Resort Spa & Casino having a face value of
$600,000 (and a realizable value of $492,739 at June 30, 1999), usable
at the rate of $100,000 per year commencing January 2000. The hotel has
experienced protracted delays in opening for operations, and further
delays could adversely impact the Company's ability to utilize the
credits, resulting
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") 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. The Company did not have any components
of comprehensive income requiring separate disclosure under SFAS No. 130.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. In June 1999, the
FASB issued SFAS No. 137 that deferred the effective date of SFAS No. 133
to fiscal quarters beginning after June 15, 2000. Currently, the Company
does not have any derivative financial instruments and does not participate
in hedging activities, therefore management believes the accounting
standard will not impact the Company's financial statements.
Reclassifications
Certain amounts reported in the 1998 financial statements and notes have
been reclassified to conform to the 1999 presentation.
2. ACQUISITIONS AND DISPOSITIONS
Alaska Bingo Supply
On August 1, 1997, the Company acquired 100% of the outstanding common
stock of ABS. The acquisition was accounted for as a purchase. The
purchase price of $4,400,000 consisted of $400,000 cash, and a $4,000,000
8% convertible promissory note due in 2004, collateralized by shares of
ABS' common stock held by the Company.
In order to fund this acquisition, the Company borrowed $350,000 from third
parties and $75,000 from a related party. The promissory notes of $200,000
to third parties, all of which were paid in full in 1998, bore interest at
24% and were collateralized by a note receivable by the Company. The
remaining third party and related party notes bore interest at 12%. During
1999, the related party principal of $50,850 and accrued interest of
$15,548 were converted to 55,332 shares of Class C preferred stock. The
maturity of the remaining third party note has been extended to December
31, 1999.
Effective March 31,1998, the remaining principal balance due under the
$4,000,000 promissory note of $3,853,290 and accrued interest of $15,202
were converted into (i) 340,329 shares of the Company's Class B preferred
stock having a face value of $10.00 per share, and (ii) a convertible
promissory note in the principal amount of $450,000, due in September 2004
at 8% (the "Second Note"). Effective December 31, 1998, $150,000 of the
Second Note was converted to 15,000 shares of Class B preferred stock,
leaving a principal balance on the Second Note of $300,000.
Casino Masquerade
The Company had operated the Casino Masquerade located in the Radisson
Aruba Caribbean Hotel on the island of Aruba through February 28, 1998, at
which time the hotel was closed for major repairs and renovations. In
April 1998, the Company reached a settlement agreement with the lessor of
the casino space regarding payment of working capital expenses and
improvements, as well as the provision of new lease terms. These terms
included a deposit of $750,000 to be deposited in an escrow account until
the casino was open for operations, and approximately $2,000,000 in casino
improvements and equipment purchases. The Company was unable to meet these
requirements and defaulted on the lease agreement. Consequently, the
carrying value of leasehold rights and interests, contract rights, and
equipment were considered to be impaired, and the Company recognized a
restructuring charge of $1,076,549 for the year ended June 30, 1998.
Due to protracted delays in completing the renovations and other adverse
business circumstances, the Company was able to negotiate an early
termination of the casino lease. In consideration, the Company received a
cash payment of $400,000 and the issuance of hotel trade credits having a
face value of $600,000. The hotel credits are usable at the rate of
$100,000 per year commencing January 2000.
Effective December 31, 1998, the Company agreed to sell all of the
outstanding shares of BPJ to an unaffiliated third party. The resulting
gain of $191,800 in connection with the disposition is included in
restructuring charges for 1999.
Casino Las Vegas
Through April 1998, the Company leased the Casino Las Vegas facility from
the minority joint venture partner ("JVP") in the Casino Las Vegas. The
Company transferred its interest in the casino to the JVP in April 1998 and
recognized a restructuring charge of $220,835 in connection with the
transfer.
Destination Marketing Services, Inc.
In January 1998, the Company, through DMS, a newly-formed subsidiary,
acquired certain assets, net of liabilities, of a Colorado Springs,
Colorado travel services company in exchange for $10,000 cash and a $69,000
note payable bearing interest at 10%, due in 1999. Effective October 1,
1998 the Company sold to DMS's president all of the outstanding shares of
common stock which it had acquired. Under the terms of the buyout, the
Company will receive an aggregate of $20,000 over three years and will be
indemnified against certain liabilities, including payroll taxes. The
resulting gain of $5,400 in connection with the disposition is included in
restructuring charges in 1999.
Casino Calypsso
During the year ended June 30, 1999, the Company opened and closed the
Casino Calypsso located in the Hotel Calypsso in Salinas, Ecuador. Due to
unfavorable financial and political conditions the Company elected to close
the casino. A restructuring charge of $195,140 was incurred as a result of
the closure.
3. NOTES RECEIVABLE
At June 30, 1999, notes receivable consist of the following (in thousands):
6.5% note receivable, monthly interest and
principal payments of $6,569 until December
2002, at which time the unpaid balance is due.
The note is collateralized by a deed of trust
on real property, fixtures, and improvements. $ 247
Non-interest bearing note, originally due
December 1995, in default, collateralized by
20,000 shares of the Company's common stock 200
Non-interest bearing note, unsecured,
due on demand 80
10% note receivable, interest and principal
payments of $800 due monthly, unpaid principal
and interest due December 1, 2001 21
548
Allowance for doubtful collections (195)
353
Less current portion (156)
$ 197
The allowance for doubtful collections is maintained at amounts estimated
necessary to cover losses on receivables based on management's assessment
of the borrowers' financial condition and the underlying value of
collateral. During the years ended June 30, 1999 and 1998, the Company
increased the allowance for doubtful collections by $37,000 and $27,500,
respectively.
4. LONG-TERM DEBT
At June 30, 1999, long-term debt consists of the following (in thousands):
Unsecured loans, interest at 10% to 15%, in
default or due on demand $ 281
Mortgage payable to a third party,
collateralized by real estate, interest at
10%, in default 35
Secured convertible note, collateralized by
the Company's equity in certain Casinos USA
property, interest at 7%, in default. The
note is convertible in whole or in part to
common stock at the option of the holder at
any time prior to the note's maturity at a
conversion price of $10.00 per share. 501
Unsecured convertible notes, in default,
$163,343 to a related party, default interest
at 12%. Notes are convertible in whole or in
part, at the option of the holder, 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 306
Mortgages payable to third party,
collateralized by real estate, interest at 7%,
monthly payments of $5,210 plus annual
payments of 37.5% of available Bull Durham net
cash flow, as defined, due in 2004 752
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 1,111
Unsecured obligations, non-interest bearing,
annual payments of 50% of available Bull
Durham net cash flow, as defined, due in 2004 128
Mortgages payable to third parties,
collateralized by real estate, interest at 7%,
monthly payments of $2,119, due in 2004 310
Secured notes, interest ranging from 7% to
14%, monthly payments of $22,325,
collateralized by certain gaming equipment,
due through 2003. A note with a principal
balance of $9,758 is personally guaranteed by
a related party. 195
Secured note, bearing interest at 12%, due in
installments through September 1999,
collateralized by a note receivable 60
Unsecured obligations to related parties,
bearing interest at 9%, due on demand,
convertible in whole or in part to common
stock at the option of the holder at any time
at a conversion price of $5.00 per share. 276
Unsecured notes to Class B preferred
shareholder, bearing interest at 8%, principal
due September 2004 336
4,291
Less current portion, including debt in default (1,712)
$ 2,579
Scheduled maturities of long-term debt for the years ending
June 30 are as follows (in thousands):
2000 $ 1,712
2001 72
2002 61
2003 62
2004 2,384
Total $ 4,291
During 1999, a note payable with a principal balance of $25,000 and accrued
interest of $25,407 was extinguished for $15,000, resulting in an
extraordinary gain of $35,407.
5. NOTES PAYABLE
At June 30, 1999, the Company had $301,201 in notes due to a financial
institution. The notes bear interest at 2% to 3% over The Wall Street
Journal prime rate of interest through the term of the notes. The notes
are due in monthly installments of $12,911 including interest through
October 2001, and are collateralized by real estate pledged by a related
party.
6. STOCKHOLDERS' EQUITY
Class B Preferred Stock
During 1998 and in conjunction with the acquisition of Alaska Bingo Supply
(Note 2), the Company issued a new series of convertible preferred stock,
Class B preferred stock. Each share of Class B preferred stock is
convertible, at the option of the holder, into one share of the Company's
common stock at any time commencing the earlier of (i) one year from the
date of issue or (ii) upon the effective date of a registration statement
registering the shares of the Company's common stock that would be issuable
upon such conversion. No more than 311,550 shares of common stock may be
converted without the approval of the Company's shareholders.
The Company has the option, but not the obligation, to redeem all or any
portion of the Class B preferred stock at a redemption price of $10.00 per
share. Holders of the Class B preferred stock are entitled to receive an
annual dividend payable at the rate of 8% per annum. For the year ended
June 30, 1999, the Company redeemed 47,849 shares of Class B preferred
stock and paid $240,072 in dividends. For the year ended June 30, 1998,
the Company redeemed 11,151 shares of Class B preferred stock and paid
$54,166 in dividends. Included in accrued expenses at June 30, 1999 is
$9,742 of accrued dividends.
Class C Preferred Stock
In January 1999, the Board of Directors of the Company ratified the
issuance of the newly designated Series C preferred stock. The stock has a
par value of $.01, is voting, and is convertible into common stock at a
rate of $1.20 per share. Holders of Class C preferred stock are entitled
to receive dividends at the annual rate of 7% based on the stated value per
share. The dividends are cumulative, with any outstanding unpaid dividends
bearing interest at an annual rate of 10%.
In January 1999, principal of $487,220 and accrued interest of $97,385 were
converted to 487,172 shares of Class C preferred stock. Included in the
conversion were $258,870 and $46,395 in principal and accrued interest,
respectively, owed to related parties. Accrued expenses at June 30, 1999
include $17,051 in accrued dividends of which $10,208 is due to related
parties.
In September 1999, the Company entered into an agreement with the holders
of the Class C preferred stock that in the event of certain events the
holders have the option to put the shares to the Company for redemption.
Common stock
During the year ended June 30, 1999, 12,500 shares of Class A preferred
stock were converted to 2,222 shares of common stock. In addition,
$124,097 of principal and accrued interest was converted to 39,619 shares
of common stock, at a gain of $37,549.
Mandatory Redeemable Convertible Preferred Stock
During the year ended June 30, 1999, the Company completed its redemption
of Class A mandatory redeemable convertible preferred stock through $3,500
being converted to 175 shares of common stock, and $30,000 being redeemed
for $18,500, which resulted in an extraordinary gain of $11,500.
Warrants
During 1998, the Company issued 50,000 warrants to purchase common stock
exercisable at $2.50 per share as a loan fee in conjunction with the
issuance of a $50,000 note. These warrants expire July 2000. The Company
also issued 15,000 warrants to purchase common stock exercisable at $3.00
per share in conjunction with the issuance of a $150,000 note. These
warrants expire June 2000.
In October 1995, Casinos USA filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code. In January 1997, the Court approved the
Company's Second Amended Plan of Reorganization (the "Plan"), and in
February 1998 the bankruptcy was discharged upon being fully administered.
In accordance with the provisions of the Plan, certain creditors received
warrants that permit the holders to purchase from Casinos USA an amount of
common stock so that, immediately after exercise, the warrant holders would
own 80% of the common stock. The warrants are exercisable at any time
through the earlier of January 17, 2004, or when the indebtedness to the
warrant holders has been paid, but only subsequent to a sale of
substantially all of Casino U.S.A.'s assets, or a merger, recapitalization,
refinance, or other restructuring (a "capital event"). The warrant holders
are entitled to call a vote as to whether any capital event 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. No such
vote occurred during 1998.
As part of the settlement agreement of the Casino Masquerade lease, the
Company issued the lessor 100,000 warrants to purchase common stock
exercisable at $3.00 per share. The warrants were exercisable the earlier
of the effective declaration of the registration statement, or April 1999.
The warrants were rescinded in November 1998 with the termination and
release of the settlement agreement.
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 per share. The Class E, F, and G warrants expired in
February 1999.
Prior to 1995, the Company issued to an underwriter a warrant to purchase
2,813 units, which consisted of one share of Class A Preferred Stock and
one-half Class D Warrant at an exercise price of $24.00 per unit. This
warrant expired in April 1999.
Options
A total of 190,000 options were issued to two companies during 1998 in
conjunction with services rendered. The options expire at various times
through December 2001, and are exercisable at prices ranging from $2.50 to
$4.25.
7. 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. Management
became aware that internet gaming could impair the Company's Colorado state
gaming license and consequently divested itself of its investment in Global
Internet by entering into an agreement with First Entertainment ("FEI").
The Company sold 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. In addition, the Company sold 1,500,000 of common
shares of Global Internet in exchange for 1,500,000 warrants of FEI, which
would allow the Company to purchase 1,500,000 shares of FEI common shares
at $1.25 per share for a period of five years. Because FEI was thinly
capitalized and traded, the Company was unable to assign a value to the
transaction and recognized a loss of $385,418 during the year ended June
30, 1997.
On December 31, 1998, the Company converted all of its FEI Class B
preferred stock to common stock and recognized a gain of $110,750 that
represented the market price of the common stock at conversion. As of June
30, 1999, the Company had sold 155,000 shares of common stock at a gain of
$102,788. At June 30, 1999, marketable securities includes the remaining
220,000 FEI shares carried at their market value of $278,432, which
resulted in unrealized gains of $209,682. In July 1999, the Company sold
the remaining shares of FEI at a realized gain of $51,550.
8. SUBSEQUENT EVENTS
Tollgate Saloon & Casino
Effective August 7, 1999, the Company entered into a lease and option
agreement (the "lease agreement") to lease the Tollgate Saloon & Casino in
Central City, Colorado. The Company paid a $30,000 deposit upon inception
of the lease agreement, of which $10,000 is nonrefundable. The term of the
lease is 24 months with monthly rent of $6,000. The Company has the option
to purchase the casino and associated real estate and equipment at any time
prior to the expiration of the lease agreement at a purchase price of
$1,400,000. The Company entered into an agreement with a third party who
had previously operated the casino to lease additional gaming equipment
under terms that grant the Company the ability to purchase the equipment at
the end of the 24-month term for $35,000. The equipment lease requires
monthly rents of $1,700.
Casinos USA
In July 1999, Global Casinos paid a total of $52,858 in cash and assumed a
note of $54,163 to retire the unsecured debt of Casinos USA. The
transaction resulted in a gain of $20,566. Global Casinos is entitled to
receive 50% of the cash flow from casino operations, with the other 50%
payable to the mortgage holders.
Assignment of Note
In September 1999, the Company assigned to a related party its interest in
an $80,000 note and $43,766 in advances made to a third party subsequent to
yearend in partial satisfaction of a note payable owed to the related
party.
9. COMMITMENTS AND CONTINGENCIES
Leases and rental operations
The Company, through its subsidiary, Global Pelican, continues to lease and
operate the Pelican Casino under a cancelable Management and Operating
Lease Agreement (the "Pelican Agreement"). The term of the lease is for
five years with options to renew for three additional five-year terms.
Rent expense for the years ended June 30, 1999 and 1998 was $225,000 and
$235,000, respectively.
The Pelican Agreement provided that Global Pelican would also purchase the
equipment utilized at the casino for $225,000 in exchange for a note
payable, subject to the third party providing clear title to the equipment.
The Pelican Agreement also stated that until the equipment liens and
encumbrances were released, Global Pelican had the right to terminate the
Pelican Agreement. At June 30, 1999, the equipment remains subject to
liens and encumbrances, and Global Pelican has therefore not purchased the
equipment.
ABS leases from unrelated third parties two separate buildings that have
been configured and maintained for use as bingo halls. One lease expires
in August 2001, with the option to extend the lease for two additional
three-year periods. The lease payments are based on the Anchorage consumer
price index. The other lease expires in December 1999. Monthly rent
payments increase from $10,000 to $14,555 over the remaining term of the
lease, with rent expense being recognized on a straight-line basis. Bingo
hall lease expense was $390,102 and $362,203 for the periods ended June 30,
1999 and 1998, respectively.
The Company subleases both premises on a month-to-month basis to two
charitable groups that operate bingo games at the locations. The
operations of these charitable groups are managed by a company controlled
by the wife of the holder of the Company's Class B preferred stock. Under
the sublease arrangements, the Company leases furniture and bingo equipment
to the charitable organizations and the charitable groups purchase bingo
supplies from the Company for use in their operations.
The Company leases from the holder of it Class B preferred stock its ABS
office and warehouse facilities under a noncancellable operating lease
which expires July 2004. The Company has options to extend the lease for
two additional one-year periods; lease payments are subject to increase
based on the Anchorage consumer price index. Through June 30, 1999, the
Company also utilized a computer system for $1,000 per month. Rent expense
was $59,520 and $54,560 for the periods ended June 30, 1999 and 1998,
respectively.
The Company leases corporate office space under a noncancelable operating
lease expiring in September 1999. The Company leased office equipment
under a lease that expired in 1998. Lease expense under these leases was
$48,491 and $53,055 for the years ended June 30, 1999 and 1998,
respectively.
Future minimum lease payments for the years ending June 30, including lease
payments resulting from the Tollgate transaction (Note 8), are as follows
(in thousands):
Office
and
Casinos Bingo Halls Equipment Total
2000 $ 331 $ 308 $ 28 $ 667
2001 325 221 27 573
2002 69 221 5 295
2003 48 221 4 273
2004 48 221 269
Thereafter 4 37 41
$ 825 $ 1,229 $ 64 $2,118
Securities and Exchange Commission
On September 24, 1998, the Company and a former director entered into a
voluntary consent decree with the Securities and Exchange Commission,
pursuant to which an administrative order was entered by the Commission
directing the Company and the former director to cease and desist from
anti-fraud violations of the federal securities laws in the future.
On June 1, 1998, the Commission brought an administrative proceeding
against a related party and certain of its directors, alleging certain
violations of federal securities laws. Two of the individuals are also
directors of the Company. While the matters at issue in the administrative
proceeding do not involve the Company, inasmuch as the proceeding involves
two of the Company's three directors, an adverse ruling could have a
material adverse effect upon the Company.
Litigation
During 1999, the State of Alaska, on behalf of various non-profit
organizations involved in charitable gaming that include organizations that
lease the bingo halls from ABS, brought a lawsuit against the previous sole
shareholder of ABS. The State alleges that the previous shareholder
improperly influenced the non-profit organizations involved in charitable
gaming to execute leases with ABS that had unreasonably high rates. The
court is asked to declare the operations of the two bingo halls leased by
ABS illegal, to terminate the leases, and seize the fixtures, furnishings,
and moveable property used at these locations, and order the premises
closed for no less than one year. The suit names ABS as a defendant in the
lawsuit to the extent of allegations of misconduct by the previous
shareholder during the period when he owned ABS. The defendants deny any
wrongdoing and are defending the litigation vigorously. The lawsuit is in
the discovery phase, and legal counsel is unable to express an opinion as
to the potential outcome. The stock purchase and sale agreement of ABS
contains a clause indemnifying Global Alaska against any liability and
reasonable attorney's fees associated with defending the Company. The
Company asserts that the indemnification is also applicable to ABS. In the
unlikely event that ABS is not successful in obtaining indemnification from
the previous shareholder, an adverse ruling could have a material adverse
effect on the Company.
The Company entered into a lawsuit in 1999 with the mortgage holders of the
land and building in Deadwood, South Dakota against a former director of
the Company. The Company believed that it acquired the property in its
acquisition of Woodbine Corporation from the former director and others in
1993, and consequently made payments in the total amount of $117,676
towards the assumed mortgage. The Company subsequently discovered that
Woodbine Corporation had no direct or indirect ownership of the property,
but rather the former director held the property under an installment land
sale contract. The former director has been joined in the litigation as
the result of his refusal to transfer his interest in the installment land
sale contract to the Company. The Company has entered into an agreement
with the mortgage holders to receive $200,000 from the sale of the property
subsequent to foreclosure. In conjunction with the lawsuit, the land,
building, and improvements were classified as property rights held for
sale, and the Company recognized a restructuring charge in 1999 of $43,120
to reduce the carrying value of the property rights to estimated net
realizable value.
10. 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. Global Pelican is subject to 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, 1999, the Company
has net operating loss carryforwards related to its St. Maarten operations
of approximately $475,000 available to reduce future taxable income.
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. Deferred
tax assets at June 30, 1999 are comprised mainly of net operating loss
carryforwards of approximately $2,437,120. The valuation allowance was
increased by $108,000 during 1999 to reserve the deferred tax assets in
their entirety.
The reconciliation between the statutory federal tax rate and the effective
tax rate as a percentage is as follows:
1999 1998
Statutory federal income tax rate 34% 34%
Effect of net operating loss not utilized (34) (34)
- % - %
At June 30, 1999, the Company had domestic net operating loss carryforwards
of approximately $7,168,000 available to reduce future taxable income. The
net operating loss carryforwards expire in the years ending June 30 as
follows (in thousands):
2008 $ 920
2009 1,676
2010 1,217
2011 2,615
2012 -
2013 423
2014 317
$ 7,168
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
150,000 shares of common stock for issuance under these Plans. The options
expire five years from the date of grant or upon termination of employment.
The following number of stock options associated with these Plans is as
follows (in thousands):
Stock
Incentive Directors Total
Outstanding at June 30, 1997 91 25 116
Granted 80 30 110
Exercised (60) - (60)
Forfeited (76) (20) (96)
Outstanding at June 30, 1998 35 35 70
Granted 28 28
Exercised - - -
Forfeited (15) (35) -
Outstanding at June 30, 1999 48 - 98
The weighted average exercise prices were:
Stock
Incentive Directors
1999 $ 2.55
1998 $ 5.43 $ 2.86
The following pro forma net loss and earnings per share for 1999 and 1998
would result had the Company's compensation cost been determined using the
fair value based accounting provisions of SFAS No. 123:
1999 1998
Loss- reported (in thousands) $ (589) $ (2,289)
Loss- pro forma (in thousands) $ (711) $ (2,579)
Loss per share - reported $ (.39) $ (1.61)
Loss per share - pro forma $ (.45) $ (1.69)
12. SEGMENT INFORMATION
With the acquisition of ABS in August 1997, the Company expanded its
operations to three significant lines of business: the casino gaming
industry, the distribution of bingo products, and the leasing of bingo
halls. Each reportable segment is a strategic business unit that offers
different products and services. The bingo-related segments are managed
together to realize synergies in employment and marketing strategies.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates the
performance of each segment based on profit or loss from operations.
Following is a tabulation of business segment information for the years
ended June 30,1999 and 1998 (in thousands):
Bingo
Bingo Hall
1999 Casino Products Leasing Other Total
Revenue $5,350 $ 2,904 $ 708 $ 108 $ 9,070
Interest revenue 1 1 34 36
Interest expense 231 31 232 493
Depreciation and
amortization 469 326 57 852
Restructuring
(gains)/losses (663) 186 744 267
Realized and
unrealized gains
and (losses) 490 490
Extraordinary
items 84 84
Net income
(loss) 108 (318) 318 (430) (323)
Identifiable
assets 4,514 713 6,267 11,493
Capital
expenditures 474 39 7 520
1998
Revenue $8,303 $ 2,322 $ 646 $ 65 $11,336
Interest revenue 10 2 23 35
Interest expense 200 220 217 637
Depreciation and
amortization 532 297 224 1,053
Restructuring
(gains)/losses 1,138 (170) 968
Realized and
unrealized gains
and (losses) (324) (3) (327)
Net income
(loss) (1,896) (308) 283 (367) (2,288)
Identifiable
assets 4,948 736 6,378 12,062
Capital
expenditures 526 18 54 598
The following table sets forth financial information for the Company's
foreign and domestic operations for the years ended June 30, 1999 and
1998 (in thousands):
Foreign** Domestic Total
1999
Revenue $ 2,631 $ 6,494 $ 9,125
Net income(loss) 88 (411) (323)
Identifiable assets 228 11,265 11,493
1998
Revenue $ 5,863 $ 5,473 $ 11,335
Net loss (1,948) (340) (2,289)
Identifiable assets 1,314 10,748 12,062
**Foreign operations include Aruba, St. Maarten and Kyrgyzstan
operations in 1998, and Aruba and St. Maarten in 1999.
13. 401(k) SAVING AND PROFIT SHARING PLAN
On July 1, 1997, the Company started a Retirement Savings and Investment
Plan (the "401(k) Plan") for the employees of the Bull Durham Casino and
Alaska Bingo Supply that is intended to qualify under Section 401(k) of the
Internal Revenue Code. Qualified employees may participate in the
Company's 401(k) Plan by contributing up to 10% of their gross earnings to
the plan subject to certain Internal Revenue Service restrictions. The
Company matches an amount equal to 100% of each participant's contribution
to a maximum of 5% of their earnings. Company contributions for the years
ended June 30, 1999 and 1998 were $21,761 and $18,610, respectively.
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201
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CERTIFICATE OF DESIGNATIONS, PREFERENCES,
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF GLOBAL CASINOS, INC.
Pursuant to the
General Corporation Law of the State of Utah
GLOBAL CASINOS, INC., a corporation organized and existing
under the laws of the State of Utah (the "Company"), DOES HEREBY
CERTIFY that pursuant to the authority contained in Article IV of
its Articles of Incorporation, and in accordance with the
provisions of the General Corporation Law of the State of Utah, the
Company's Board of Directors has duly adopted the following
resolution creating a series of the class of its authorized
Preferred Stock, designated as Series B Convertible Preferred
Stock:
RESOLVED THAT:
Whereas, by virtue of Article IV of its Articles of
Incorporation, the Company has the authority to issue ten
million (10,000,000) shares of Preferred Stock of the par
value of $0.01 per share, the designation and amount thereof
and series, together with the powers, preferences, rights,
qualifications, limitations or restrictions thereof, to be
determined by the Board of Directors pursuant to the
applicable law of the State of Utah;
Now therefore, the Company's Board of Directors hereby
establishes a series of the class of Preferred Stock
authorized to be issued by the Company as above stated, with
the designations and amounts thereof, together with the voting
powers, preferences and relative, participating, optional and
other special rights of the shares of each such series, and
the qualifications, limitations or restrictions thereof, to be
as follows:
1. Designations and Amounts. Four hundred thousand
(400,000) shares of the Company's authorized Preferred Stock
are designated as Series B Convertible Preferred Stock, having
a face value of Ten Dollars ($10.00) per share.
2. Definitions.
For the purposes of this Resolution the following
definitions shall apply:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Company" shall mean Global Casinos, Inc., a Utah
corporation formed on June 8, 1978.
(c) "GAI" shall mean Global Alaska Industries, Inc., and
Alaska corporation and wholly-owned subsidiary of the
Company
(d) "Original Issue Date" for a series of Preferred
Stock shall mean the date on which the first share of
such series of Preferred Stock was originally issued.
(e) "Preferred Stock" shall refer to Series B
Convertible Preferred Stock having a face value of Ten
Dollars ($10.00) per share.
(f) "Subsidiary" shall mean any corporation at least
fifty percent (50%) of whose outstanding voting stock
shall at the time be owned directly or indirectly by the
Company or by one or more Subsidiaries.
3. Dividends.
(a) The holders of outstanding Preferred Stock shall be
entitled to receive dividends at the annual rate of 8%
based on the stated value per share computed on the basis
of a 360-day year and twelve 30-day months. Dividends
shall be calculated from the date of issue and payable,
in each case monthly on the fifteenth day of each month
for the preceding month (the "Dividend Payment Date").
Dividends shall be paid to recordholders of shares of
Preferred Stock as of the date one business day prior to
the Dividend Payment Date (the "Dividend Record Date").
The right of the holder of shares of Preferred Stock as
of the Dividend Record Date to the relevant dividend
shall not be affected by the subsequent transfer or
cancellation of such shares; such dividend being payable
to the holder as of the Dividend Record Date
notwithstanding such transfer or cancellation.
(b) Dividends on the shares of Preferred Stock shall be
cumulative; therefore, a full dividend on the shares of
this series with respect to any dividend period shall be
declared by the Board of Directors of the Company and the
Company shall be obligated to pay full dividend on the
shares of this series with respect to such dividend
period. Any outstanding and unpaid dividends shall bear
interest at the rate of twelve (12%) per annum.
(c) The obligation of the Company to declare and pay the
Preferred Stock dividend provided for in Paragraph 3(a)
above shall be secured by (i) a Security Agreement
granting to the holders of the Preferred Stock a security
interest in all of the tangible and intangible assets of
Alaska Bingo Supply, Inc., an Alaska corporation ("ABS"),
and (ii) a Stock Pledge Agreement granting to the holders
of the Preferred Stock a security interest in one hundred
percent (100%) of the issued and outstanding shares of
capital stock of ABS. In the event the Company defaults
in the payment of the Preferred Stock dividend provided
for in Section 3(a) above, and such default continues for
a period of ten days, then and in such event the holder
of the Preferred Stock shall have the right to
immediately seize and take possession of all collateral,
inventory, furniture, fixtures and equipment as well as
accounts receivable and other tangible and intangible
assets of ABS given as security as well as take
possession of the shares of ABS Common Stock pledged to
secure such payment. Should holder exercise his right
under the Security Agreement and Stock Pledge Agreement
in accordance with the foregoing, such exercise shall be
deemed holder's sole and exclusive remedy, it being
understood that neither the Company nor GAI shall have
any further liability for any deficiency, it being
expressly understood that the holders of Preferred Stock
shall have as their sole and exclusive remedy the
exercise of their rights under the Security Agreement and
Stock Pledge Agreement. Upon exercise by the holders of
the Preferred Stock of the rights under the Security
Agreement and Stock Pledge Agreement, the holder shall
have no further recourse as against Global, GAI or their
assets or affiliates, and all outstanding shares of this
Series B Preferred Stock shall be deemed canceled and
retired for all purposes.
(d) In addition to the Preferred Stock dividend, the
holders of outstanding Preferred Stock shall be entitled
to participate, pro rata, in dividends paid on
outstanding shares of Common Stock, if, when and as the
Board of Directors shall in their sole discretion deem
advisable, and only from the net profits or surplus of
the Company as such shall be fixed and determined by the
Board of Directors. The determination of the Board of
Directors at any time of the amount of net profits or
surplus available for dividend shall be binding and
conclusive on the holders of all the stock of the Company
at the time outstanding.
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution, or
winding up of GAI or the Company, whether voluntary or
involuntary, the holders of each share of Preferred Stock
then outstanding shall be entitled to be paid out of the
assets of GAI or the Company available for distribution
to its shareholders, before any payment or declaration
and setting apart for payment of any amount shall be made
in respect of any outstanding Preferred Stock ranking
junior to the Preferred Stock or the Common Stock, an
amount equal to Ten Dollars ($10.00) per share plus an
amount equal to all accrued and unpaid dividends thereon,
whether or not earned or declared, to and including the
date full payment shall be tendered to the holders of the
Preferred Stock with respect to such liquidation,
dissolution, or winding up, and no more. If upon any
liquidation, dissolution, or winding up of GAI or the
Company, whether voluntary or involuntary, the assets to
be distributed to the holders of the Preferred Stock
shall be insufficient to permit the payment to such
shareholders of the full preferential amount aforesaid,
then all of the assets of GAI or the Company available to
be distributed shall be distributed ratably to the
holders of the Preferred Stock.
(b) After the payment or distribution to the holders of
the Preferred Stock of the full preferential amounts
aforesaid, the holders of any preferred stock ranked
junior to be Preferred Stock and the Common Stock then
outstanding shall be entitled to receive all the
remaining assets of the Company.
(c) Neither a consolidation, merger or reorganization of
GAI or the Company, a sale or other transfer of all or
substantially all of its assets, nor a sale of fifty
percent (50%) or more of GAI or the Company's capital
stock then issued and outstanding nor the purchase or
redemption by GAI or the Company of stock of any class,
nor the payment of a dividend or distribution from net
profits or surplus of GAI or the Company shall not be
treated as or deemed to be a liquidation hereunder.
5. Redemption.
(a) At any time after issuance, the Company, by action
of its Board of Directors, may redeem the whole or any
portion of the Preferred Stock, at any time, or from time
to time, in accordance with the provisions of
Paragraphs 5(c) and (d) below (the "optional
redemption"). Under no circumstance shall the Company
have any obligation to redeem any shares of Preferred
Stock.
(b) In the case of the optional redemption of a portion,
but not all of the issued and outstanding Preferred
Stock, the Company shall select by lot or pro rata, in
such reasonable manner as the Board of Directors may
determine, the shares to be redeemed. The Board of
Directors shall have full power and authority, subject to
the limitations and provisions herein contained, to
prescribe the manner in which and the terms and
conditions upon which the Preferred Stock shall from time
to time be redeemable. On and after the date specified
in the notice provided for in Paragraph 5(d), each holder
of the Preferred Stock called for redemption as
aforesaid, upon presentation and surrender at the place
designated in such notice of the certificate or
certificates evidencing said Preferred Stock held by him,
her or it, properly endorsed in blank for transfer or
accompanied by proper instruments of assignment in blank,
shall be entitled to receive therefor the redemption
price thereof. Notwithstanding the foregoing, except in
accordance with an offer made to all holders of Preferred
Stock, the Company shall not at any time redeem or
purchase less than the whole amount of its then
outstanding Preferred Stock unless all cumulative
dividends upon all Preferred Stock outstanding and not
then to be redeemed or purchased shall have been paid or
declared and set apart for payment.
(c) The redemption price for each share of Preferred
Stock shall be an amount in cash equal to the sum of Ten
Dollars ($10.00) (such total amount being hereinafter
referred to as the "Redemption Price").
(d) At least ten (10) days and not more than twenty (20)
days prior to the date fixed for any such redemption of
the Preferred Stock (hereinafter referred to as the
"Redemption Date"), written notice (hereinafter referred
to as the "Redemption Notice") shall be mailed, first
class postage prepaid, to each holder of record of the
Preferred Stock to be redeemed at his post office address
last shown on the records of the Company.
(i) The Redemption Notice shall state:
(ii) That all or a portion of the holder's
outstanding shares of Preferred Stock are being
called for redemption;
(iii) The number of shares of Preferred Stock
held by the holder that the Company intends to
redeem;
(iv) The Redemption Date and the Redemption Price;
(v) The date upon which the holder's Conversion
Rights (as hereinafter defined) as to such shares
terminate; and
(vi) That the holder is to surrender to the
Company, in the manner and at the place designated,
his certificate or certificates representing the
shares of Preferred Stock to be redeemed.
(e) On or before the Redemption Date, each holder of
Preferred Stock to be redeemed, unless such holder has
exercised his right to convert the shares as provided in
Paragraph 7 hereof, shall surrender the certificate or
certificates representing such shares to the Company, in
the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price for such
shares shall be payable to the order of the person whose
name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be
canceled and retired.
(f) If the Redemption Notice shall have been duly given,
and if on the Redemption Date the Redemption Price is
either paid or irrevocably made available for payment
through the deposit arrangement specified in Subparagraph
5(g) below, then notwithstanding that the certificates
evidencing any of the shares of Preferred Stock so called
for redemption shall not have been surrendered, all
rights with respect to such shares shall forthwith after
the Redemption Date terminate, except only the right of
the holders to receive the Redemption Price without
interest upon surrender of their certificate or
certificates therefor.
(g) At least five (5) days prior to the Redemption Date,
the Company shall deposit with any bank or trust company
a sum (or an irrevocable letter of credit) equal to the
aggregate Redemption Price of all shares of Preferred
Stock called for redemption and not yet redeemed, with
irrevocable instructions and authority to the bank or
trust company to pay, on or after the Redemption Date or
prior thereto, the Redemption Price to the respective
holders entitled thereto upon the surrender of their
share certificates. From and after the Redemption Date,
the shares so called for redemption and not previously
converted as provided in Paragraph 7 shall be redeemed if
such deposit shall have been made with such instructions
or authority on or before the tenth (10th) day prior to
the Redemption Date. The deposit shall on the Redemption
Date constitute full payment of the shares to their
holders, and from and after the Redemption Date the
shares shall be deemed to be no longer outstanding, and
the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with
respect thereto except the rights to receive from the
bank or trust company payment of the Redemption Price of
the shares, without interest, upon surrender of their
certificates therefor. Any funds so deposited and
unclaimed at the end of one (1) year from the Redemption
Date by any holder of shares called for redemption (and
not converted prior to the Redemption Date as provided in
Paragraph 7) shall be released or repaid to the Company,
after which the holders of such shares called for
redemption and not converted prior to the Redemption Date
shall be entitled to receive payment of the Redemption
Price for such shares only from the Company. In
addition, any funds so deposited by the Company as
provided herein which are not required as at the
Redemption Date to pay the Redemption Price for any
shares called for redemption, by reason of the fact that
certain, or all, of such shares have been converted prior
to the Redemption Date as provided in Paragraph 7, shall
be released or repaid to the Company upon the date or
dates of conversion of such shares.
6. Voting Rights.
Holders of the Preferred Stock shall have no right to
vote on any matter voted upon by the holders of the
outstanding shares of Common Stock at any regular or
special meeting of the shareholders of the Company.
7. Conversion.
The following of the Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock
shall be convertible, at the option of the holder
thereof, at any time commencing the earlier of (i) one
year from the date of issue or (ii) upon the effective
date of a Registration Statement registering for sale
under the Securities Act of 1933, as amended (the
"Securities Act"), the shares of the Company's Common
Stock issuable upon such conversion (the "Conversion
Stock"), (and, if the Company has exercised its
redemption right as described in paragraph 5 hereof with
respect to all or any of the Preferred Stock, in the case
of the Preferred Stock called for redemption, up to the
date prior to the Redemption Date as fixed in any
Redemption Notice), at the office of the Company or any
transfer agent for the Preferred Stock or Common Stock,
into one fully paid and nonassessable share of Common
Stock.
(b) Limitation on Conversion Stock. Notwithstanding the
provisions of Paragraph 7(a) above, the maximum number of
shares of Conversion Stock issuable pursuant to the
exercise by Holders of the conversion rights set forth in
Paragraph 7(a) above shall be two hundred ninety-seven
thousand four hundred (297,400) shares of the Common
Stock (the "Maximum Aggregate Conversion") unless the
shareholders of the Company, at a duly convened meeting
of the Company's shareholders ratify and approve the
conversion of up to all of the shares of Preferred Stock
of the Series into shares of Common Stock even if such
conversion results in the issuance of shares of the
Company's Common Stock in excess of the Maximum Aggregate
Conversion.
(c) Conversion Rate. Each share of Preferred Stock
shall be convertible into one share of Common Stock, at
a conversion value of Ten Dollars ($10.00) per share.
Notwithstanding the foregoing, attached hereto as Exhibit
"A" and incorporated herein by reference is a schedule
setting forth the minimum monthly optional redemption
(the "Minimum Monthly Optional Redemption") with respect
to the Company's exercise of its optional redemption
right pursuant to Paragraph 5(a) hereof. In the event
the Company does not redeem a number of shares of
Preferred Stock during any given month in accordance with
the Minimum Monthly Optional Redemption schedule, then
and in such event the shares of Preferred Stock subject
to such Minimum Monthly Optional Redemption may be
converted, at the option of the Holder, into shares of
the Company's Common Stock at a conversion value equal to
the fair market value of the Company's Common Stock on
the first day of such month for which the Minimum Monthly
Optional Redemption is not exercised. For the purposes
of this Paragraph 7(c), the "Fair Market Value" of the
Company's Common Stock shall be equal to the average
closing bid and ask prices of the Company's Common Stock
on the over-the-counter market on such date (hereafter
referred to as the "Market Conversion Value"). The
Market Conversion Value shall be applicable with respect
to such shares of Preferred Stock for a period of thirty
(30) days following the determination date and, if not
exercised within such thirty (30) day period following
the determination date, the Conversion Value with respect
to such shares of Preferred Stock shall revert to the
Conversion Value of Ten Dollars ($10.00) per share.
(d) Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to convert the same
into shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at
the office of the Company or of any transfer agent for
the Common Stock, and shall give written notice to the
Company at such office that he elects to convert the same
and shall state therein the number of shares of Preferred
Stock being converted. Thereupon the Company shall
promptly issue and deliver at such office to such holder
of Preferred Stock a certificate or certificates for the
number of shares of Common Stock to which he shall be
entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the
date of such surrender of the shares of Common Stock
issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares
of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If
the Company shall at any time or from time to time after
the Original Issue Date for a series of the Preferred
Stock effect a subdivision of the outstanding Common
Stock, the Conversion Rate then in effect immediately
before that subdivision shall be proportionately
decreased, and conversely, if the Company shall at any
time or from time to time after the Original Issue Date
for a series of the Preferred Stock combine the
outstanding shares of Common Stock, the Conversion Rate
then in effect immediately before the combination shall
be proportionately increased. Any adjustment under this
paragraph 7(e) shall become effective at the close of
business on the date the subdivision or combination
becomes effective.
(f) Adjustment for Certain Dividends and Distributions.
In the event the Company at any time, or from time to
time after the Original Issue Date for a series of
Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such
event the Conversion Price for such series of Preferred
Stock then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall
have been fixed, as of the close of business on such
record date, by multiplying the Conversion Rate for such
series of Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total
number of shares of Common Stock issued and
outstanding immediately prior to the time of such
issuance or the close of business on such record
date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and
outstanding immediately prior to the time of such
issuance or the close of business on such record
date plus the number of shares of Common Stock
issuable in payment of such dividend or
distribution; provided, however, if such record
date shall have been fixed and such dividend is not
fully made on the date fixed therefor, the
Conversion Rate for such series of Preferred Stock
shall be recomputed accordingly as of the close of
business on such record date and thereafter the
Conversion Rate for such series of Preferred Stock
shall be adjusted pursuant to this Paragraph 7(f)
as of the time of actual payment of such dividends
or distributions.
(g) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the
conversion of the Preferred Stock shall be changed into
the same or a different number of shares of any class or
classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision
or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or
sale of assets provided for elsewhere in this Paragraph
7), then and in each such event the holder of each share
of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of
stock and other securities and property receivable upon
such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into
which such shares of Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification, or change, all subject to further
adjustments as provided herein.
(h) Reorganization, Mergers, Consolidations, or Sales of
Assets. If at any time or from time to time there shall
be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this
Paragraph 7) or a merger or consolidation of the Company
with or into another corporation, or the sale of all or
substantially all of the company's assets to any other
person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that
the holders of the Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred
Stock, the number of shares of stock or other securities
or property of the Company, or of the successor
corporation resulting form such merger or consolidation
or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 7 with
respect to the rights of the holders of the Preferred
Stock after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Paragraph 7
(including adjustment of the Conversion Rate then in
effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable
after that event as nearly equivalent as may be
practicable.
(i) Notices of Record Date. In the event of (i) any
taking by the Company of a record of the holders of any
class or series of securities for the purpose of
determining the holders thereof who are entitled to
receive any dividend or other distribution or (ii) any
reclassification or recapitalization of the capital stock
of the Company, any merger or consolidation of the
Company, or any transfer of all or substantially all of
the assets of the Company to any other corporation,
entity, or person, or any voluntary or involuntary
dissolution, liquidation, or winding up of the Company,
the Company shall mail to each holder of Preferred Stock
at least thirty (30) days prior to the record date
specified therein, a notice specifying (A) the date on
which any such record is to be taken for the purpose of
such dividend or distribution and a description of such
dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation, or
winding up is expected to become effective, and (C) the
time, if any is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or
other securities) for securities or other property
deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution,
liquidation, or winding up.
(j) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock.
In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay cash
equal to the product of such fraction multiplied by the
fair market value of one share of the Company's Common
Stock on the date of conversion, as determined in good
faith by the Board.
(k) Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the
Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the Company
will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares
as shall be sufficient for such purpose.
(l) Notices. Any notice required by the provisions of
this Paragraph 7 to be given to the holder of shares of
the Preferred Stock shall be deemed given when personally
delivered to such holder or five (5) business days after
the same has been deposited in the United States mail,
certified or registered mail, return receipt requested,
postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Company.
(m) Payment of Taxes. The Company will pay all taxes
and other governmental charges that may be imposed in
respect of the issue or delivery of shares of Common
Stock upon conversion of shares of Preferred Stock.
(n) No Dilution or Impairment. The Company shall not
amend its Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any
other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in
carrying out all such action as may be reasonably
necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
8. No Preemptive Rights.
No holder of the Series B Preferred Stock of the
Corporation shall be entitled, as of right, to purchase
or subscribe for any part of the unissued stock of the
Corporation or of any stock of the Corporation to be
issued by reason of any increase of the authorized
capital stock of the Corporation, or to purchase or
subscribe for any bonds, certificates of indebtedness,
debentures or other securities convertible into or
carrying options or warrants to purchase stock or other
securities of the Corporation or to purchase or subscribe
for any stock of the Corporation purchased by the
Corporation or by its nominee or nominees, or to have any
other preemptive rights now or hereafter defined by the
laws of the State of Utah.
9. No Reissuance of Preferred Stock.
No share or shares of Preferred Stock acquired by the
Company by reason of redemption, purchase, conversion, or
otherwise shall be reissued, and all such shares shall be
canceled, retired, and eliminated from the shares which
the Company shall be authorized to issue.
IN WITNESS WHEREOF, said GLOBAL CASINOS, INC., has caused
this Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock to be duly executed by its President
and attested by its Secretary and has caused its corporate seal to
be affixed hereto, this day of ,1998.
GLOBAL CASINOS, INC.
Attest
By:
Secretary
[Corporate Seal]
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF GLOBAL CASINOS, INC.
Pursuant to the
General Corporation Law of the State of Utah
GLOBAL CASINOS, INC., a corporation organized and existing
under the laws of the State of Utah (the "Company"), DOES HEREBY
CERTIFY that pursuant to the authority contained in Article IV of
its Articles of Incorporation, and in accordance with the
provisions of the General Corporation Law of the State of Utah, the
Company's Board of Directors has duly adopted the following
resolution creating a series of the class of its authorized
Preferred Stock, designated as Series C Convertible Preferred
Stock:
RESOLVED THAT:
Whereas, by virtue of Article IV of its Articles of
Incorporation, the Company has the authority to issue ten
million (10,000,000) shares of Preferred Stock of the par
value of $0.01 per share, the designation and amount thereof
and series, together with the powers, preferences, rights,
qualifications, limitations or restrictions thereof, to be
determined by the Board of Directors pursuant to the
applicable law of the State of Utah;
Now therefore, the Company's Board of Directors hereby
establishes a series of the class of Preferred Stock
authorized to be issued by the Company as above stated, with
the designations and amounts thereof, together with the voting
powers, preferences and relative, participating, optional and
other special rights of the shares of each such series, and
the qualifications, limitations or restrictions thereof, to be
as follows:
1. Designations and Amounts. Six hundred thousand (600,000)
shares of the Company's authorized Preferred Stock are
designated as Series C Convertible Preferred Stock, having a
face value of $1.20 per share.
2. Definitions.
For the purposes of this Resolution the following
definitions shall apply:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Company" shall mean Global Casinos, Inc., a Utah
corporation formed on June 8, 1978.
(c) "Original Issue Date" for a series of Preferred
Stock shall mean the date on which the first share of
such series of Preferred Stock was originally issued.
(d) "Preferred Stock" shall refer to Series C
Convertible Preferred Stock.
(e) "Stated Value" shall mean $1.20 per share.
(f) "Subsidiary" shall mean any corporation at least
fifty percent (50%) of whose outstanding voting stock
shall at the time be owned directly or indirectly by the
Company or by one or more Subsidiaries.
(g) "Securities Act" shall mean the Securities Act of
1933, as amended.
(h) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
3. Dividends.
(a) The holders of outstanding Preferred Stock shall be
entitled to receive dividends at the annual rate of seven
percent (7%) based on the Stated Value per share computed
on the basis of a 360-day year and twelve 30-day months.
Dividends shall be calculated from the date of issue and
payable, in each case monthly on the fifteenth day of
each month for the preceding month (the "Dividend Payment
Date"). Dividends shall be paid to recordholders of
shares of Preferred Stock as of the date one business day
prior to the Dividend Payment Date (the "Dividend Record
Date"). The right of the holder of shares of Preferred
Stock as of the Dividend Record Date to the relevant
dividend shall not be affected by the subsequent transfer
or cancellation of such shares; such dividend being
payable to the holder as of the Dividend Record Date
notwithstanding such transfer or cancellation.
(b) Dividends on the shares of Preferred Stock shall be
cumulative; therefore, a full dividend on the shares of
this series with respect to any dividend period shall be
declared by the Board of Directors of the Company and the
Company shall be obligated to pay full dividend on the
shares of this series with respect to such dividend
period. Any outstanding and unpaid dividends shall bear
interest at the rate of ten (10%) per annum.
(c) In addition to the Preferred Stock dividend, the
holders of outstanding Preferred Stock shall be entitled
to participate, pro rata, in dividends paid on
outstanding shares of Common Stock, if, when and as the
Board of Directors shall in their sole discretion deem
advisable, and only from the net profits or surplus of
the Company as such shall be fixed and determined by the
Board of Directors. The determination of the Board of
Directors at any time of the amount of net profits or
surplus available for dividend shall be binding and
conclusive on the holders of all the stock of the Company
at the time outstanding.
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution, or
winding up of the Company, whether voluntary or
involuntary, the holders of each share of Preferred Stock
then outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its
shareholders, after payment or declaration and setting
apart for payment amounts that must be paid with respect
to outstanding shares of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock which rank
senior to the Preferred Stock, but before any payment or
declaration and setting apart for payment of any amount
shall be made in respect of any outstanding Preferred
Stock ranking junior to the Preferred Stock or the Common
Stock, an amount equal to the Stated Value per share plus
an amount equal to all accrued and unpaid dividends
thereon, whether or not earned or declared, to and
including the date full payment shall be tendered to the
holders of the Preferred Stock with respect to such
liquidation, dissolution, or winding up, and no more. If
upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, the assets to
be distributed to the holders of the Preferred Stock
shall be insufficient to permit the payment to such
shareholders of the full preferential amount aforesaid,
then all of the assets of the Company available to be
distributed shall be distributed ratably to the holders
of the Preferred Stock.
(b) After the payment or distribution to the holders of
the Preferred Stock of the full preferential amounts
aforesaid, the holders of any preferred stock ranked
junior to be Preferred Stock and the Common Stock then
outstanding shall be entitled to receive all the
remaining assets of the Company.
(c) Neither a consolidation, merger or reorganization of
the Company, a sale or other transfer of all or
substantially all of its assets, nor a sale of fifty
percent (50%) or more of the Company's capital stock then
issued and outstanding nor the purchase or redemption by
the Company of stock of any class, nor the payment of a
dividend or distribution from net profits or surplus of
the Company shall not be treated as or deemed to be a
liquidation hereunder.
5. Redemption.
(a) Subject to the conditions set forth herein, the
Company, by action of its Board of Directors, may at its
sole option and discretion redeem all or any portion of
the Preferred Stock, at any time, or from time to time,
in accordance with the provisions of this Paragraph 5
(the "Optional Redemption"). Holders of the Preferred
Stock shall have no right to demand or compel the
redemption of any outstanding shares of Preferred Stock.
(b) In the event the Board of Directors elects to redeem
the Preferred Stock, on and after the date specified in
the notice provided for in Paragraph 5(d) below, each
holder of the Preferred Stock called for redemption, upon
presentation and surrender at the place designated in
such notice of the certificate or certificates evidencing
said Preferred Stock held by him, her or it, properly
endorsed in blank for transfer or accompanied by proper
instruments of assignment in blank, shall be entitled to
receive therefor the redemption price thereof.
(c) If redeemed pursuant to this Paragraph 5, the
redemption price for each share of Preferred Stock (the
"Redemption Price") shall be an amount in cash equal to
the sum of (i) the Stated Value per share of Preferred
Stock plus (ii) the amount of all accrued and unpaid
dividends thereon, whether or not earned or declared, to
and including the date fixed for redemption.
(d) In the case of any Optional Redemption pursuant to
this Paragraph 5, at least thirty (30) days and not more
than forty (40) days prior to the date fixed for any such
redemption of the Preferred Stock (hereinafter referred
to as the "Redemption Date"), written notice (hereinafter
referred to as the "Redemption Notice") shall be mailed,
first class postage prepaid, to each holder of record to
the Preferred Stock to be redeemed at his post office
address last shown on the records of the Company, and if
the holder has provided the Company with a facsimile
number for notices, also by facsimile transmission. The
Redemption Notice shall state:
(i) That all of the holder's outstanding shares of
Preferred Stock are being called for redemption;
(ii) The number of shares of Preferred Stock held
by the holder that the Company intends to redeem;
(iii) The Redemption Date and the Redemption
Price; and
(iv) That the holder is to surrender to the
Company, in the manner and at the place designated,
his certificate or certificates representing the
shares of Preferred Stock to be redeemed.
(e) Each holder of Preferred Stock to be redeemed shall
surrender the certificate or certificates representing
such shares to the Company, in the manner and at the
place designated in the Redemption Notice, and thereupon
the Redemption Price for such shares shall be payable to
the order of the person whose name appears on such
certificate or certificates as the owner thereof, and
each surrendered certificate shall be cancelled and
retired.
(f) If the Redemption Notice shall have been duly given
and, if on the Redemption Date the Redemption Price is
either paid or irrevocably made available for payment
through the deposit arrangement specified in Subparagraph
5(g) below, then notwithstanding that the certificates
evidencing any of the shares of Preferred Stock so called
for redemption shall not have been surrendered, the
dividends with respect to such shares shall cease to
accrue after the Redemption Date and all rights with
respect to such shares shall forthwith after the
Redemption Date terminate, except only the right of the
holders to receive the Redemption Price, without interest
upon surrender of their certificate or certificates
therefor.
(g) At least ten (10) days prior to the Redemption Date,
the Company may deposit with any bank or trust company in
Boulder, Colorado Springs or Denver, Colorado, a sum (or
an irrevocable letter of credit) equal to the aggregate
Redemption Price of all shares of Preferred Stock called
for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company
to pay, on or after the Redemption Date or prior thereto,
the Redemption Price to the respective holders entitled
thereto upon the surrender of their share certificates.
From and after the Redemption Date, the shares so called
for redemption shall be redeemed if deposit shall have
been made with such instructions or authority on or
before the tenth (10th) day prior to the Redemption Date.
The deposit shall on the Redemption Date constitute full
payment of the shares to their holders, and from and
after the Redemption Date the shares shall be deemed to
be no longer outstanding, and the holders thereof shall
cease to be shareholders with respect to such shares and
shall have no rights with respect thereto except the
rights to receive from the bank or trust company payment
of the Redemption Price of the shares, without interest,
upon surrender of their certificates therefor. Any funds
so deposit and unclaimed at the end of one (1) year from
the Redemption Date by any holder of shares called for
redemption shall be released or repaid to the Company,
after which the holders of such shares called for
redemption shall be entitled to receive payment of the
Redemption Price for such shares only from the Company.
6. Voting Rights.
Upon issuance, holders of shares of this series of
Preferred Stock shall be entitled to vote with the
holders of shares of Common Stock as a single class on
all matters presented for a vote to the shareholders of
the Company. The number of votes per share of this
series of Preferred Stock which can be cast shall be
adjusted at such time or times as the conversion price is
adjusted so that the number of votes per share of this
Series of Preferred Stock which may be cast shall always
be equal to the full number of shares of Common Stock
into which each share of this series of Preferred Stock
may be converted when voting with the holders of Common
Stock as a single class.
7. Conversion.
The following of the Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock
shall be convertible, at the option of the holder
thereof, at any time commencing the earlier of (i) one
hundred twenty (120) days from the date of issue or (ii)
upon the effective date of a Registration Statement
registering for sale under the Securities Act of 1933, as
amended (the "Securities Act"), the shares of the
Company's Common Stock issuable upon such conversion (the
"Conversion Stock"), (and, if the Company has exercised
its redemption right as described in Paragraph 5 hereof
with respect to all or any of the Preferred Stock, in the
case of the Preferred Stock called for redemption, up to
the date prior to the Redemption Date as fixed in any
Redemption Notice), at the office of the Company or any
transfer agent for the Preferred Stock or Common Stock,
into one fully paid and nonassessable share of Common
Stock.
(b) Conversion Rate. Each share of Preferred Stock
shall be convertible into one share of Common Stock, at
a conversion value of $1.20 per share of Common Stock
(the "Conversion Date").
(c) Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to convert the same
into shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at
the office of the Company or of any transfer agent for
the Common Stock, and shall give written notice to the
Company at such office that he elects to convert the same
and shall state therein the number of shares of Preferred
Stock being converted. Thereupon the Company shall
promptly issue and deliver at such office to such holder
of Preferred Stock a certificate or certificates for the
number of shares of Common Stock to which he shall be
entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the
date of such surrender of the shares of Common Stock
issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares
of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If
the Company shall at any time or from time to time after
the Original Issue Date for a series of the Preferred
Stock effect a subdivision of the outstanding Common
Stock, the Conversion Rate then in effect immediately
before that subdivision shall be proportionately
decreased, and conversely, if the Company shall at any
time or from time to time after the Original Issue Date
for a series of the Preferred Stock combine the
outstanding shares of Common Stock, the Conversion Rate
then in effect immediately before the combination shall
be proportionately increased. Any adjustment under this
paragraph 7(d) shall become effective at the close of
business on the date the subdivision or combination
becomes effective.
(e) Adjustment for Certain Dividends and Distributions.
In the event the Company at any time, or from time to
time after the Original Issue Date for a series of
Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such
event the Conversion Price for such series of Preferred
Stock then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall
have been fixed, as of the close of business on such
record date, by multiplying the Conversion Rate for such
series of Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total
number of shares of Common Stock issued and
outstanding immediately prior to the time of such
issuance or the close of business on such record
date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and
outstanding immediately prior to the time of such
issuance or the close of business on such record
date plus the number of shares of Common Stock
issuable in payment of such dividend or
distribution; provided, however, if such record
date shall have been fixed and such dividend is not
fully made on the date fixed therefor, the
Conversion Rate for such series of Preferred Stock
shall be recomputed accordingly as of the close of
business on such record date and thereafter the
Conversion Rate for such series of Preferred Stock
shall be adjusted pursuant to this Paragraph 7(e)
as of the time of actual payment of such dividends
or distributions.
(f) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the
conversion of the Preferred Stock shall be changed into
the same or a different number of shares of any class or
classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision
or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or
sale of assets provided for elsewhere in this Paragraph
7), then and in each such event the holder of each share
of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of
stock and other securities and property receivable upon
such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into
which such shares of Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification, or change, all subject to further
adjustments as provided herein.
(g) Reorganization, Mergers, Consolidations, or Sales of
Assets. If at any time or from time to time there shall
be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this
Paragraph 7) or a merger or consolidation of the Company
with or into another corporation, or the sale of all or
substantially all of the company's assets to any other
person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that
the holders of the Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred
Stock, the number of shares of stock or other securities
or property of the Company, or of the successor
corporation resulting form such merger or consolidation
or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 7 with
respect to the rights of the holders of the Preferred
Stock after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Paragraph 7
(including adjustment of the Conversion Rate then in
effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable
after that event as nearly equivalent as may be
practicable.
(h) Notices of Record Date. In the event of (i) any
taking by the Company of a record of the holders of any
class or series of securities for the purpose of
determining the holders thereof who are entitled to
receive any dividend or other distribution or (ii) any
reclassification or recapitalization of the capital stock
of the Company, any merger or consolidation of the
Company, or any transfer of all or substantially all of
the assets of the Company to any other corporation,
entity, or person, or any voluntary or involuntary
dissolution, liquidation, or winding up of the Company,
the Company shall mail to each holder of Preferred Stock
at least thirty (30) days prior to the record date
specified therein, a notice specifying (A) the date on
which any such record is to be taken for the purpose of
such dividend or distribution and a description of such
dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation, or
winding up is expected to become effective, and (C) the
time, if any is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or
other securities) for securities or other property
deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution,
liquidation, or winding up.
(i) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock.
In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay cash
equal to the product of such fraction multiplied by the
fair market value of one share of the Company's Common
Stock on the date of conversion, as determined in good
faith by the Board.
(j) Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the
Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the Company
will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares
as shall be sufficient for such purpose.
(k) Notices. Any notice required by the provisions of
this Paragraph 7 to be given to the holder of shares of
the Preferred Stock shall be deemed given when personally
delivered to such holder or five (5) business days after
the same has been deposited in the United States mail,
certified or registered mail, return receipt requested,
postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Company.
(l) Payment of Taxes. The Company will pay all taxes
and other governmental charges that may be imposed in
respect of the issue or delivery of shares of Common
Stock upon conversion of shares of Preferred Stock.
(m) No Dilution or Impairment. The Company shall not
amend its Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any
other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in
carrying out all such action as may be reasonably
necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
8. No Preemptive Rights.
No holder of the Series C Preferred Stock of the
Corporation shall be entitled, as of right, to purchase
or subscribe for any part of the unissued stock of the
Corporation or of any stock of the Corporation to be
issued by reason of any increase of the authorized
capital stock of the Corporation, or to purchase or
subscribe for any bonds, certificates of indebtedness,
debentures or other securities convertible into or
carrying options or warrants to purchase stock or other
securities of the Corporation or to purchase or subscribe
for any stock of the Corporation purchased by the
Corporation or by its nominee or nominees, or to have any
other preemptive rights now or hereafter defined by the
laws of the State of Utah.
9. No Reissuance of Preferred Stock.
No share or shares of Preferred Stock acquired by the
Company by reason of redemption, purchase, conversion, or
otherwise shall be reissued, and all such shares shall be
canceled, retired, and eliminated from the shares which
the Company shall be authorized to issue.
IN WITNESS WHEREOF, said GLOBAL CASINOS, INC., has caused
this Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock to be duly executed by its President
and attested by its Secretary and has caused its corporate seal to
be affixed hereto, this 12th day of January, 1999.
Attest GLOBAL CASINOS, INC.
By:/s/Gina Garcia-Shaw By:/s/Stephen G. Calandrella
Gina Garcia-Shaw Stephen G. Calandrella
AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of
September, 1999, between and among GLOBAL CASINOS, INC., a Utah
corporation, (the "Company") and the undersigned SHAREHOLDERS of
the Company (collectively the "Shareholders").
W I T N E S S E T H:
WHEREAS, effective December 31, 1998, each of the undersigned
Shareholders entered into an agreement with the Company pursuant to
which each Shareholder agreed to convert an outstanding
indebtedness of the Company to such Shareholder and to accept in
lieu thereof shares of the Company's Series C Convertible Preferred
Stock (the "Series C Preferred Stock"); and
WHEREAS, the only reason that each undersigned Shareholder
agreed to convert such indebtedness into shares of Series C
Preferred Stock was to accommodate a request of the Company to do
so in order to assist the Company in its efforts to increase its
net assets and thereby avoid a possible delisting from the Nasdaq
Stock Market ("Nasdaq"); and
WHEREAS, Shareholders and the Company recognize that the
foregoing conversion will result in an impairment of the
priorities, preferences and recourses available to Shareholders
with respect to ultimately recouping or otherwise satisfying the
indebtedness; and
WHEREAS, Shareholders and the Company desire to provide for
the protection of Shareholders under the circumstances set forth
below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinbelow set forth, the parties covenant and agree as
follows:
1. It is agreed that upon the occurrence of a Triggering
Event, as defined hereinafter, each Shareholder shall have the
right and option to put for redemption by the Company and otherwise
compel the purchase and redemption by the Company of all or any
portion of the Series C Preferred Stock owned by such Shareholder
for the Redemption Price, as hereinafter defined.
2. For the purposes of this Agreement, the Redemption Price
for the shares of Series C Preferred Stock shall be the sum of (i)
the stated value of $1.20 per share plus (ii) all accrued,
cumulative and unpaid dividends payable on such shares of Series C
Preferred Stock up to the date of redemption. Upon the exercise of
any Shareholder of the put option provided for herein, the Company
shall pay to such Shareholder the Redemption Price within thirty
(30) days of the delivery of written notice to the Company by such
Shareholder of its election to exercise the put option and the
delivery of the certificate or certificates evidencing the shares
of Series C Preferred Stock so tendered for redemption.
3. For the purposes of this Agreement, a Triggering Event
shall be deemed to have occurred in the event (i) a Change in
Control of the Company occurs, as hereinafter defined, (ii) the
Company's securities are delisted from Nasdaq, from which delisting
decision all rights to appeal have either been exhausted or, based
upon the reasonable judgment of the Company, waived due to a
reasonable determination that such efforts will be unsuccessful,
(iii) the insolvency, bankruptcy, dissolution or liquidation of the
Company, or (iv) the cessation of business by the Company for at
least thirty (30) consecutive days. For the purposes of this
Agreement, a "Change of Control" shall mean a change in control of
a nature that would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as in effect on the date of this
Agreement (the "Exchange Act") or a Change in Control that would be
required to be reported in response to Item 1 of Form 8-K under the
Exchange Act; provided, however, that without limiting the
generality of the foregoing, such Change in Control shall be deemed
to have occurred if and when (i) any "person" (as such term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes
a beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of
the Company's then outstanding securities, (ii) the consummation of
a transaction resulting in the sale of all or substantially all of
the Company's assets, or (iii) a majority of the individuals who
were members of the Board of Directors of the Company immediately
prior to an action of the shareholders of the Company involving the
election of directors or an action of the Board of Directors
without action by the Company's shareholders shall not constitute
a majority of the Board of Directors following such action.
4. The rights granted to Shareholders pursuant to the terms
of this Agreement are assignable by such Shareholders to any
assignee or successor-in-interest of the shares of Series C
Preferred Stock of the Company forming the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
COMPANY: GLOBAL CASINOS, INC.
By:/s/Stephen G. Calandrella
Stephen G. Calandrella,President
SHAREHOLDERS: THE ROCKIES FUND, INC.
By:/s/Dorothy Calandrella By:/s/Stephen G. Calandrella
Dorothy Calandrella Stephen G. Calandrella, President
By:/s/Lenard Nact By:/s/Allan Norris
Leonard Nacht Allan Norris
WEBQUEST,INC. By:/s/Marie Kanger
Marie Kanger
By:/s/Bradley-Alison Smith
Bradley-Alison Smith
CONVERTIBLE PROMISSORY NOTE
$450,000.00 Anchorage, Alaska
March 31, 1998
FOR VALUE RECEIVED, GLOBAL ALASKA INDUSTRIES, INC., an Alaska
corporation, and its successors and assign, (the "Maker" or
"Company") promises to pay to the order of MARK GRIFFIN (the
"Holder") at 3707 Woodland Drive, #4, Anchorage, Alaska 99517, or
at such other place as Holder may from time to time designate in
writing, the principal sum of Four Hundred Fifty Thousand Dollars
($450,000) in lawful money of the United States of America,
together with interest on so such thereof as is from time to time
outstanding at the rate hereinafter provided, and payable as
hereinafter provided.
1. Novation. This Note is given in substitution and lieu of
that certain promissory note made by Maker and given to Holder
dated August 1, 1997 in the original principal amount of $4,000,000
(the "First Note"), which First Note upon execution hereof shall be
null and void.
2. Interest Rate. The unpaid principal balance of this
Convertible Promissory Note ("Note") shall bear interest commencing
March 31, 1998 at the rate of eight percent (8%) per annum, simple
interest.
3. Payment. Principal and interest due under this Note
shall be payable as follows:
a. Commencing upon (i) full payment of all dividends by
Global Casinos, Inc., a Utah corporation ("Global"), to Holder,
accruing under Global's Series B Convertible Preferred Stock
("Preferred Stock") and (ii) redemption of all the Preferred Stock,
owned by Holder, and continuing monthly thereafter until the Note
is paid in full, the principal and accrued interest shall be
payable in equal monthly installments of $63,383.72 each.
b. In addition, Maker shall be obligated to pay a
amount equal to fifty percent (50%) of its annual earnings before
interest, taxes, depreciation and amortization ("EBITDA"), in
excess of $1,300,000 per year (the "Mandatory Payment"). At
Global's option, the Mandatory Payment shall be treated as a
redemption of a portion of Preferred Stock. Notwithstanding the
above, Maker shall not pay this Note in full by means of Mandatory
Payments, but shall be permitted to credit such payments as
interest on the outstanding principle balance.
4. Maturity Date. The total outstanding principal balance
hereof, together with accrued and unpaid interest, shall be due and
payable September 15, 2004.
5. Default, Penalty, Interest and Attorney Fees. Any
default in the provisions of that certain Stock Purchase and Sale
Agreement dated August 1, 1997 as amended by the Agreement to
Convert Debt executed and entered into contemporaneous with this
Note for which consideration is being given, shall be deemed a
breach of and default in the terms and conditions of this Note.
Said Stock Purchase and Sale Agreement and Agreement to Convert
Debt are incorporated herein by reference as stating Maker's
obligations and continuing responsibility during the term of this
Note, in addition to the specific terms and provisions stated
herein.
Default shall include, but not be limited to:
a. non-payment of any monthly dividend payable pursuant
to the Certificate of Designations, Preferences, and Rights of
Series B Convertible Preferred Stock of Global Casinos, Inc. dated
March 31, 1998 (the "Certificate" and "Series B Preferred Stock"
respectively) within ten (10) days of the due date thereof;
b. non-payment of any respective installment and/or
applicable late payment penalty described in this Note within ten
(10) days of the due date thereof;
c. any default in the Stock Pledge Agreement dated
August 1, 1997, as amended March 31, 1998; or
d. any default in the General Security Agreement dated
August 1, 1997 as amended;
e. in the event Global fails to redeem a number of
shares of Series B Preferred Stock pursuant to the Minimum Monthly
Optional Redemption described in the Certificate, and there does
not exist a public trading market for the Global common stock
issuable upon conversion of the Series B Preferred Stock
satisfactory to Holder; or
f. any default under the Agreement to Convert Debt
between Maker and Holder.
In the event that any installment and/or applicable late
payment penalties have not been paid to and received by the Holder
within ten (10) days of date due, Holder may declare a default and
may further declare the entire then outstanding balance due and
owing; fully accelerating total payments of all principal,
penalties, and interest thereon.
In the event any payment due hereunder shall not have been
paid to and received by the Holder hereof within seven (7) business
days of the due date of such payment, a late payment penalty of Ten
Thousand Dollars ($10,000.00) shall immediately become due and
owing in addition to the payment, or payments then overdue.
Upon default hereunder, the balance of the principal remaining
unpaid, interest accrued thereon, and all other costs and fees
shall bear interest at the rate of Twelve percent (12%) per annum
from the date of default, or the date of advance, as applicable.
Holder shall have the right to immediately seize, and take
possession thereof, of any and all collateral, inventory,
furniture, fixtures and equipment, as well as accounts receivables
and assets given as security for the sale and purchase evidenced by
the terms of this Note and the Stock Purchase and Sales Agreement
as amended by the Agreement to Convert Debt incorporated herein.
In the event of default, the Maker and all other parties liable
hereon agree to pay all costs of collection, seizure of security
interest given, including reasonable attorney's fees.
6. Escrow. All original documents executed herewith, to
include Stock Purchase and Sales Agreement as amended by the
Agreement to Convert Debt, this Note, and the original executed
stock in Alaska Bingo Supply, Inc. shall be placed in escrow with
the First National Bank of Anchorage, Main Branch, with all
payments made pursuant to the agreement of the parties being paid
and recorded through said escrow.
7. Conversion.
a. Optional Conversion Right. Subject to and in
compliance with the provisions of this paragraph 6, all or any
portion of the principal amount outstanding on the Note may, at the
option of the Holder, be converted into fully-paid and non-
assessable shares of common stock of Global ("Common Stock"), $.005
par value.
b. Time of Optional Conversion. The date upon which
the holder may convert the Note to Common Stock shall be any time
commencing the earlier (i) one year from the date hereof or (ii)
the effective date of a Registration Statement registering for sale
under the Securities Act of 1933, as amended, the issuance of the
Common Stock upon conversion through and including the maturity
date of the Note, or its prior pre-payment, whichever occurs first.
c. Applicable Conversion Value. Subject to the
adjustments provided for herein, the price per share at which the
Note may be converted into common stock (the "Applicable Conversion
Value") shall be Ten Dollars ($10.00) per share of Common Stock.
d. Adjustments for Capital Reorganization,
Reclassification or Transfer or Assets. In the event the Common
Stock issuable upon conversion of the Note shall be changed into
the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or
otherwise, or in the event Global shall at any time issue Common
Stock by way of dividend or other distribution on any stock of
Global, or subdivide or combine the outstanding shares of Common
Stock, then in each such event the Holder shall have the right
thereafter, but not the obligation, to exercise such Note and
receive the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification
or other change by holders of the number of shares of Common Stock
into which such Note might have been exercised immediately prior to
such organization, reclassification or change. In the case of any
such reorganization, reclassification or change, the Conversion
Value shall also be appropriately adjusted so as to maintain the
aggregate Conversion Value. Further, in case of any such
consolidation or merger of Global with or into another corporation
in which consolidation or merger Global is not the continuing
corporation, or in case of any sale or conveyance to another
corporation of the property of Global as an entirety, or
substantially as an entirety, Global shall cause effective
provision to be made so that the Holder shall have the right
thereafter, by converting the Note, to purchase the kind and amount
of shares of stock and other securities and property receivable
upon such consolidation, merger, sale or conveyance by holders of
the number of share of Common Stock into which such Note might have
been exercised immediately prior to such consolidation, merger,
sale or conveyance, which provision shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Note. The foregoing provisions
shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
Notwithstanding the foregoing, no adjustment of the Conversion
Value shall be made as a result of or in connection with (1) the
issuance of Common Stock of Global pursuant to options, warrants
and share purchase agreements now in effect or hereafter
outstanding or created, (2) the establishment of option plans of
Global, the modification, renewal or extension of any plan now in
effect or hereafter created, or the issuance of Common Stock upon
exercise of any options pursuant to such plans, (3) the issuance of
Common Stock in connection with an acquisition, consolidation or
merger of any type in which Global is the continuing corporation,
or (4) the issuance of Common Stock in consideration of such cash,
property or service as may be approved by the Board of Directors of
Global and permitted by applicable law.
e. Continuation of Terms. Upon any reorganization,
consolidation or merger referred to in this paragraph 6, the Note
shall continue in full force and effect until conversion by the
Holder and the terms hereof shall be applicable to the shares of
stock and other securities and property receivable on the
conversion of any note after the consummation of such
reorganization, consolidation, merger of any similar event and
shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of
Global whether or not such person shall have expressly assumed the
terms of the Note.
f. Exercise of Conversion Privilege. To exercise its
conversion privilege or in the event of the automatic conversion of
the Note, the Holder shall surrender such Note, or recognize
partial prepayment therefor, being converted to Global at its
principal office, and shall give written notice to Global at that
office that Holder is delivering the Note for conversion or
recognizing partial prepayment. Such notice shall also state the
name or names (with address or addresses) in which the certificate
or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The Note, if surrendered for
conversion shall be accompanied by proper assignment thereof to the
Company or in blank.
g. Notice of Record Date. In the event of:
(1) any taking by Global of a record of the
holders of any class of securities for the purpose
of determining the holders thereof who are entitled
to receive any dividend or other distribution, or
any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any
other securities or property, or to receive any
other right, or
(2) any capital reorganization of Global, any
reclassification or recapitalization of the capital
stock of Global, any merger or consolidating of
Global or a transfer of all or substantially all of
the assets of the company to any other corporation,
or any other entity or person, or
(3) any voluntary or involuntary dissolution,
liquidation or winding up of Global,
then and in each such event Global shall mail or cause to be mailed
to the Holder a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend,
distribution or right and a description of said dividend,
distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to
be fixed, as to when the holders of record of common stock (or
other securities) shall be entitled to exchange their shares of
common stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding up. Such notice shall be mailed at least
thirty (30) days prior to the date specified in such notice on
which such action is to be taken.
h. In the event Holder exercises the right of
conversion granted herein, if the underlying shares of Common Stock
(the "Conversion Shares") are not eligible to be resold in market
transactions in reliance upon Rule 144, or a successor rule, under
the Securities Act, then Holder shall have a one-time demand
registration right on Form S-3 to have registered for resale under
the Securities Act the Conversion Shares issuable upon such
conversion.
8. Interest Calculation. Daily interest shall be calculated
on a 365-day year and the actual number of days in each month.
9. Prepayment. This Note may not be prepaid, in whole or in
part, at any time without the prior written consent of Holder.
10. Nonrecourse Obligation. The obligation of Maker to pay
all sums of principal, interest and other amounts due and owing
under this Note is secured by Stock Pledge Agreement dated August
1, 1997 as amended on even date covering one hundred percent (100%)
of the issued and outstanding shares of common stock of ALASKA
BINGO SUPPLY, INC., an Alaskan corporation ("ABS"); and a General
Security Agreement and Financing Statement covering all of the
tangible and intangible assets of ABS. This Note and Maker's
obligation hereunder shall be deemed to be nonrecourse as to Maker;
and in the event of Maker's default hereunder, Holder's sole and
exclusive remedies shall be to exercise its rights under this Note
and the Stock Pledge Agreement and General Security Agreement, and
under no circumstances shall Maker have any liability for any
deficiency which may result following Holder's exhaustion of such
remedies.
Upon default of any provision referenced herein, Holder
may immediately retake all documents held in escrow, with or
without notice, seize and take possession of all collateral and
assets given as security for and in consideration of the terms and
conditions of this Note.
11. Costs of Collection. Maker agrees that if, and as often
as, this Note is placed in the hands of an attorney for collection
or to defend or enforce any of the Holder's rights hereunder or
under any instrument securing payment of this Note, Maker shall pay
to Holder its reasonable attorney's fees and all court costs and
other expenses incurred in connection therewith, regardless of
whether a lawsuit is ever commenced or whether, if commenced, the
same proceeds to judgment or not. Such costs and expenses shall
include, without limitation, all costs, reasonable attorneys' fees,
and expenses incurred by Holder in connection with any insolvency,
bankruptcy, reorganization, foreclosure, deed in lieu of
foreclosure or similar proceedings involving Maker or any endorser,
surety, guarantor, or other person liable for this Note which in
any way affect the exercise by Holder of its rights and remedies
under this Note, or any other document or instrument securing,
evidencing, or relating to the indebtedness evidenced by this Note.
12. Application of Payments. Any payment made against the
indebtedness evidenced by this Note shall be applied against the
following items in the following order: (1) costs of collection,
including reasonable attorney's fees incurred or paid and all
costs, expenses, default interest, late charges and other expenses
incurred by Holder and reimbursable to Holder pursuant to this Note
(as described herein); (2) default interest accrued to the date of
said payment; (3) ordinary interest accrued to the date of said
payment; and finally, outstanding principal.
13. Assignment of Note . This Note may be assigned by Maker
to any entity that acquires Maker or substantially all Maker's
assets.
14. Non-Waiver. No delay or omission on the part of Holder
in exercising any rights or remedy hereunder shall operate as a
waiver of such right or remedy or of any other right or remedy
under this Note. A waiver on any one or more occasion.
15. Maximum Interest. In no event whatsoever shall the
amount paid, or agreed to be paid, to Holder for the use,
forbearance, or retention of the money to be loaned hereunder
("Interest") exceed the maximum amount permissible under applicable
law. If the performance or fulfillment of any provision hereof, or
any agreement between maker and Holder shall result in Interest
exceeding the limit for Interest prescribed by law, then the amount
of such Interest shall be reduced to such limit. If, from any
circumstance whatsoever, Holder should receive as Interest an
amount which would exceed the highest lawful rate, the amount which
would be excessive Interest shall be applied to the reduction of
the principal balance owing hereunder (or, at the option of Holder,
be paid over to Maker) and not to the payment of Interest.
16. Purpose. Maker certifies that the debt evidenced by this
Note is obtained for business or commercial purposes and that the
proceeds thereof will not be used primarily for person, family,
household, or agricultural purposes. This Note is issued "in
substitution" for the Convertible Promissory Note dated August 1,
1997 given by Maker to Holder, for the purpose stated in the
General Security Agreement dated August 1, 1997, and such security
agreement and related financing statement remain in full force and
effect.
17. Waiver of Presentment. Maker and the endorsers,
sureties, guarantors and all persons who become liable for all or
any part of this obligation shall be jointly and severally liable
for such obligation and hereby jointly and severally waive
presentment and demand for payment, notice of dishonor, protest and
notice of protest, and any and all lack of diligence of delays in
collection or enforcement hereof.
18. Governing Law. As an additional consideration for the
extension of credit, Maker and each endorser, surety, guarantor,
and any other person who may become liable for all or any part of
this obligation understand and agree that the indebtedness
evidenced by this Note is made in the State of Alaska and the
provisions hereof will be construed in accordance with the laws of
the State of Alaska, and such parties further agree that in the
event of default, this Note may be enforced in the Superior Court
for the State of Alaska sitting in Anchorage, Alaska, and they do
hereby submit to the jurisdiction of such court regardless of their
residence or where this Note or any endorsement hereof may be
executed.
19. Binding Effect. The term "Maker" as used herein shall
include the original Maker of this Note and any party who may
subsequently become liable for the payment hereof as an assumer
with the consent of the Holder, provided that Holder may, at its
option, consider the original Maker of this Note alone as Maker
unless Holder has consented in writing to the substitution of
another party as Maker. The term "Holder" as used herein shall
mean Holder or, if this Note is transferred, the then Holder of
this Note.
20. Relationship of Parties. Nothing herein contained shall
create or be deemed or construed to create a joint venture or
partnership between Maker and Holder, Holder is acting hereunder as
a seller only.
21. Severability. Invalidation of any of the provisions of
this Note or of any paragraph, sentence, clause, phrase, or word
herein, or the application thereof in any given circumstance, shall
not affect the validity of the remainder of this Note.
22. Amendment. This Note may not be amended, modified, or
changed, except only by an instrument in writing signed by both of
the parties.
23. Time of the Essence. Time is of the essence for the
performance of each and every obligation of Maker hereunder.
IN WITNESS WHEREOF, the undersigned has executed this Note
effective as of the 31st day of March, 1998.
GLOBAL ALASKA INDUSTRIES, INC.
an Alaska corporation
By:/s/Stephen G. Calandrella
Stephen G. Calandrella, President
Consent as to Paragraphs 3, 5 and 7:
GLOBAL CASINOS, INC., a Utah corporation
By:/s/Stephen G. Calandrella
Stephen G. Calandrella, President
AGREEMENT TO CONVERT DEBT
THIS AGREEMENT to Convert Debt ("Agreement") is made and
entered into this 31st day of March, 1998, by and between GLOBAL
CASINOS, INC., a Utah corporation ("Global" or the "Company"), and
MARK GRIFFIN (Claimant").
WITNESSETH:
WHEREAS, Claimant is the holder of a certain Convertible
Promissory Note dated August 1, 1997, in the original principal
amount of Four Million Dollars ($4,000,000) (the "First Note") made
and given by Global Alaska Industries, Inc., an Alaska corporation
and wholly-owned subsidiary of the Company ("GAI");
WHEREAS, this conversion is a result of Nasdaq rules applied
to the Company for the Company's benefit and to that end, the
Company agrees to pay all costs of Claimant required to accomplish
the conversion required by this Agreement;
WHEREAS, Global desires to satisfy the outstanding principal
balance of the First Note by the issuance to Claimant of a
Convertible Promissory Note of even date in the principal amount of
Four Hundred Fifty Thousand Dollars ($450,000) made and given by
GAI (the "Second Note") and shares of Global Series B Convertible
Preferred Stock (the "Preferred Stock" or the "Securities"); and
WHEREAS, Claimant is willing to accept the Second Note and
Preferred Stock in full payment and satisfaction of the outstanding
balance due and owing under the First Note; and
WHEREAS, Claimant and GAI are parties to the Stock Purchase
and Sale Agreement dated August 1, 1997 ("Sale Agreement") and the
parties hereto desire to amend that agreement to the extent
described in this Agreement.
SECTION I: CONVERSION OF DEBT
A. Claimant, GAI and Global affirm and agree that as
of the date of this Agreement, the total outstanding balance of all
sums due and owing to Claimant under the First Note is Three
Million Eight Hundred Fifty-Three Thousand Two Hundred Ninety-One
Dollars ($3,853,291), together with all accrued and unpaid interest
of Fifteen Thousand Two Hundred Two Dollars ($15,202) for a total
due of Three Million Eight Hundred Sixty-Eight Thousand Four
Hundred Ninety-Three Dollars ($3,862,846).
B. Claimant, for itself, successors in interest and
assigns, agrees to accept, as payment in full of the First Note (i)
340,329 shares of Preferred Stock of the Company, such Preferred
Stock having a face value of Ten Dollars ($10.00) per share and
(ii) a Convertible Promissory Note in the original principal amount
of Four Hundred Fifty Thousand Dollars ($450,000) (the "Second
Note").
C. Claimant agrees that upon delivery to it by GAI
and Global, respectively, of the Second Note and confirmation of
the issuance of 340,329 uncertificated shares of Preferred Stock,
such shares of Preferred Stock being validly issued, fully paid and
non-assessable, and Claimant's acceptance of such Securities,
Claimant, for itself, successors in interest and assigns, agrees to
release and forever discharge Global Alaska Industries, Inc., the
Company, its subsidiaries, officers, directors, shareholders,
affiliates, employees and agents, from any liability, payment or
obligation whatsoever in connection with or arising out of the
First Note. Claimant's acceptance of such Securities and the
Second Note shall constitute a full and complete release,
settlement and discharge of any of GAI's or Global's obligation to
Claimant, in connection with the First Note, without the necessity
of Claimant executing any further documentation, release or
settlement agreement; it being the express understanding of the
parties hereto that this Agreement, upon its performance, shall
constitute such evidence of release and discharge.
D. With respect to accepting the Second Note and
Securities in lieu of other forms of payment of the First Note,
Claimant represents and warrants as follows:
1. Claimant fully understands and agrees that
the Securities are offered by Global at a price which was
arbitrarily determined without regard to any value of the
Securities.
2. Claimant fully understands that Global has
a limited net worth and lack of profitable operating history.
3. Claimant acknowledges receipt of such
information as it deems necessary or appropriate as a prudent and
knowledgeable investor in evaluating the conversion of the
obligation. The Claimant acknowledges that Global has made
available to him the opportunity to obtain additional information
to evaluate its status a creditor and the alternatives available to
him. The Claimant acknowledges that it had an opportunity to ask
questions of Global and to the extent it availed itself of such
opportunity, it received satisfactory answers from Global, or its
affiliates.
4. Claimant understands that there exist
inherent risks in accepting the Securities in lieu of payment of
the obligation, which risks include, but are not limited to, the
lack of liquidity of the Securities, and the Company's history of
unprofitable operations.
5. Claimant has been provided with a copy of the
Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Company (the "Certificate"),
and, in consultation with Claimant's advisors, fully understands
the relative rights and preferences of holders of shares of the
Preferred Stock. Claimant understands that the Company has no
obligation to redeem any or all of the shares of Preferred Stock at
any time in the future, and that Claimant may be required to hold
such shares indefinitely or convert them into shares of the
Company's Common Stock.
6. Claimant understands that there can be no
assurance with respect to the tax consequences to Claimant under
the execution and delivery of this Agreement, and Claimant
represents and warrants that to the extent that Claimant so
desires, he has obtained tax and legal advice concerning this
Agreement.
7. Claimant acknowledges that the Company has
made no representations or warranties to Claimant, other than
stated in this Agreement, and there can be no assurance regarding
the Company's ability to improve its operating results.
8. Claimant realizes that (i) acceptance of the
Securities is a long-term investment, (ii) Claimant must bear the
economic risk of such investment for an indefinite period of time
because the Securities have not been registered under the
Securities Act or under the Securities Laws of any state and cannot
be resold unless they are subsequently registered under such laws
or exemptions from such registration requirements are available
(iii) the Securities are "restricted securities" within the meaning
of Rule 144 under the Securities Act and are subject to
restrictions on transfer imposed by or on account of federal and
state securities laws.
E. Notwithstanding the provisions to the contrary
contained in this Agreement, the Certificate, the Second Note, the
General Security Agreement dated August 1, 1997, as amended, and
the Amended Stock Pledge Agreement dated March 31, 1998 (hereafter
collectively the "Transaction Documents"), to the contrary, in the
event that prior to the redemption by the Company of the Preferred
Stock and retirement of the Note or the conversion into Common
Stock of the Preferred Stock and Second Note, there should occur a
change in the statutes, rules, regulations and other legal
requirements applicable to the business operations of Alaska Bingo
Supply, Inc., an Alaska corporation ("ABS") and wholly-owned
subsidiary of GAI which, in the sole opinion and judgment of the
Company materially and adversely affects the business operations of
ABS, then and in such event, at GAI's sole option and election,
subject to ABS having no less than Four Hundred Thousand Dollars
($400,000) in net tangible working capital, GAI shall have the
right upon thirty days' prior written notice to Claimant may
rescind all the transactions contemplated by or included in the
Sale Agreement and the Transaction Documents, without any liability
whatsoever. Upon recission, the collateral covered by the General
Security Agreement and shares of ABS Common Stock covered by the
Amended Stock Pledge Agreement shall be immediately delivered to
Claimant, free of any claim of the Company or GAI; and the Second
Note shall be canceled, null and void and all issued and
outstanding shares of Preferred Stock shall be deemed canceled,
null and void and surrendered to the Company, free of any claim of
Claimant.
F. Claimant and GAI agree that the Sale Agreement is
amended consistent with this Agreement, and to the extent there are
conflicts with the Sale Agreement, this Agreement shall be
controlling.
G. GAI and Global represent and warrant that (i)
there are no liens, actual or threatened, against the collateral
described in the General Security Agreement dated August 1, 1997
(the "Collateral"); (ii) Claimant has a perfected first priority
interest in the Collateral; and (iii) this Agreement shall not
adversely affect Claimant's rights in and to the Collateral in any
way whatsoever.
H. In consideration of the foregoing, GAI agrees to
pay to Claimant the sum of Thirty-Six Thousand Dollars ($36,000),
which represents payment in full to Claimant of all costs and
expenses, including legal fees, incurred by Claimant in connection
with the execution and delivery of the Transaction Documents, as
well as payment of all other sums due and owing by GAI or Global to
Claimant. Such sum of Thirty-Six Thousand Dollars ($36,000) shall
be payable, without interest, at the rate of Six Thousand Dollars
($6,000) per month for six (6) consecutive months.
SECTION II: REPRESENTATIONS AND WARRANTIES BY GLOBAL
Global represents and warrants to Claimant that, as of the
date of this Agreement, and as of the date of closing:
A. Organization and Corporation Power. The Company
is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Utah; and has all required
corporate power and authority to own its property and to carry on
its business as now being conducted, and to carry out the
transactions contemplated hereby.
B. Authorization.
1. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated
hereby will not, violate any provision of any charter, by-law,
mortgage, lien, lease, agreement, contract, instrument, order
judgment, or decree to which the Company is a party, or by which it
is bound, and will not violate any other restriction of any other
kind or character of which Company is subject.
2. The Board of Directors of the Company has
taken all action required by law, the Company's Articles of
Incorporation and By-Laws, or otherwise, to authorize execution and
delivery of this Agreement, the stock and the consummation of the
transactions described herein.
3. This Agreement, upon execution and delivery
in accordance herewith, is the valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to the
terms of bankruptcy and similar laws, and any rules and regulations
adopted thereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
and other action.
C. Capitalization. There are sufficient authorized
shares of Common Stock of the Company to cover the issuance of all
shares to be issued and sold pursuant to this Agreement. There are
no restrictions on the transferability of shares of the Company's
Common Stock imposed by or pursuant to the Company's Articles of
Incorporation, as amended, or the Company's By-Laws, or by
agreement to which the Company is a party, except for restrictions
imposed by or on account of federal and state securities laws. The
common shareholders of the Company have no preemptive rights with
respect to the issue or sale of the Company's Common Stock.
D. Compliance. The consummation of the transactions
provided for herein have and will be undertaken in compliance with
all applicable federal and state securities laws.
SECTION III: REPRESENTATIONS AND WARRANTIES BY CLAIMANT
Claimant represents and warrants to Global that, as of the
date of this Agreement, and as of the date of closing, the
following are true and accurate to its knowledge and belief:
A. No Other Information Relied Upon. Claimant
represents, warrants and agrees that it has been afforded the
opportunity to make, and has made, all such investigation of Global
and its financial condition, business, affairs and prospects as it
deems appropriate. Claimant acknowledges receipt of such
information as it deems necessary or appropriate as a prudent and
knowledgeable investor in evaluating the exchange of the shares.
Claimant acknowledges that Global has made available to it the
opportunity to obtain additional information to evaluate the merits
and risks of this exchange. Claimant acknowledges that it has had
the opportunity to ask questions of Global, and, to the extent it
availed itself such opportunity, it received satisfactory answers
from Global, its affiliates, associates, officers and directors.
B. Nature of the Risk. Claimant represents, warrants
and agrees that it understands that Global's business is, by its
nature, speculative; that Claimant is aware that the financial
resources of Global are extremely limited and that it is very
likely that the Company will require additional capital, and there
is no assurance that such capital will be available if necessary;
that Claimant is familiar with the high degree of risk that is
involved in the Company's business, and that Claimant is
financially able and willing to accept the substantial risk
involved in such investment, including the risk of loss of the
entire amount invested.
C. Unregistered Stock. Claimant represents that it
understands that the Global stock has not been registered for sale
under federal or state securities laws and that said securities are
being issued to Claimant pursuant to a claimed exemption from the
registration requirements of such laws which is based upon the fact
that said securities are not being offered to the public. Claimant
understands that in order to satisfy such requirement it must be
acquiring the stock with no view to making a public distribution of
said securities and the representations and warranties contained in
this Section III are given with the intention that Global may rely
thereon for purposes of claiming such exemption; and that it
understands that it must bear the economic risk of its investment
in the stock for a substantial period of time, because the stock
has not been registered under the federal or state securities laws,
and cannot be sold unless subsequently registered under such laws,
or unless an exemption from such registration is available.
D. Stock Acquired for Investment; Limitations on
Dispositions. Claimant represents that it is acquiring the stock
for its own account and for investment and not with a view to, or
for sale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended. Claimant agrees that the
stock will not be offered for sale, sold or otherwise transferred
for value and that no transfer thereof will be made by the Claimant
unless (a) a registration statement with respect thereto has become
effective under the Securities Act of 1933, as amended, or (b)
there is presented to the Company an opinion of counsel for
Claimant reasonably satisfactory to the Company that such
registration is not required, or (c) there is presented to the
Company a letter from the Securities and Exchange Commission (said
Commission having been informed of all relevant circumstances) to
the effect that in the event either the stock is transferred by
Claimant without such registration the Commission or the staff will
not recommend any action. Claimant further agrees that the stock
will not be offered for sale, sold or otherwise transferred unless,
in the opinion of legal counsel for Global, such sale or
disposition does not and will not violate any provisions of any
federal or state securities law or regulation. Claimant consents
that any transfer agent of the Company may be instructed not to
transfer any of the stock unless it receives satisfactory evidence
of compliance with the foregoing provisions and that there may be
endorsed upon any certificates (or instruments issued in
substitution therefor), the Company's regular legend regarding the
sale of restricted securities.
SECTION IV: AGREEMENTS RESPECTING PREFERRED STOCK
A. The parties acknowledge and agree that the
Certificate provides that the Company is under no obligation to
redeem any shares of the Preferred Stock issued hereunder and that
the Claimant does not have the right to compel the Company to
redeem any shares of such Preferred Stock. However, the parties
recognize that the Certificate also provides that in the event the
Company does not exercise its option to redeem shares of Preferred
Stock in certain minimum monthly numbers as shown on the attached
Exhibit A incorporated herein by reference, (the "Minimum Monthly
Optional Redemption"), then and in such event Claimant shall have
the right to convert that number of shares subject to the Minimum
Monthly Optional Redemption which were not so redeemed into shares
of the Company's Common Stock at a conversion price equal to the
Fair Market Value of the Company's Common Stock on the first day of
such month. For the purposes of this Agreement, the "Fair Market
Value" of the Company's Common Stock shall be the average of the
bid and ask prices of the Company's Common Stock as quoted on the
over-the-counter market on such date.
B. Notwithstanding the provisions of Section 4(A)
above, the parties acknowledge that the Rules of Governance of the
Nasdaq Stock Market preclude the conversion of the Preferred Stock
by Claimant into more than 311,550 shares of the Company's Common
Stock ("Maximum Aggregate Conversion") (19.9% of the 1,565,586
shares of the Company's Common Stock issued and outstanding on this
date) without the approval of the Company's shareholders. Claimant
agrees that, notwithstanding any other provision of this Agreement
or the Certificate to the contrary, Claimant will not exercise his
right of conversion to acquire Common Stock of the Company in
excess of the Maximum Aggregate Conversion without the consent of
the Company's shareholders.
C. As soon as practicable following the preparation,
completion and filing by the Company of its annual report on Form
10-KSB (the "Annual Report"), for the fiscal year ending June 30,
1998, the Company agrees to schedule and conduct an Annual Meeting
of Shareholders (the "Annual Meeting") and to seek at such Annual
Meeting the approval of the Company's shareholders of the
conversion of the Preferred Stock into shares of the Company's
Common Stock in excess of the Maximum Aggregate Conversion
permitted under the Nasdaq Rules of Governance in the absence of
such shareholder approval. In connection with such Annual Meeting,
the Company agrees to prepare and file with the Securities and
Exchange Commission (the "Commission") a Proxy Statement for use in
the solicitation of proxies and in such Proxy Statement to
recommend that the Company's shareholders approve the conversion of
the Preferred Stock by Claimant in excess of the Maximum Aggregate
Conversion in accordance with the terms and conditions of the
Certificate.
D. No later than thirty (30) days following the
effective date of this Agreement, the Company agrees to prepare and
file with the Commission a Registration Statement on Form S-3 (the
"Registration Statement"), registering for sale under the
Securities Act of 1933, as amended, (the "Securities Act"), the
shares of the Company's Common Stock issuable upon conversion of
the Preferred Stock (the "Conversion Shares"). In connection with
the filing of such Registration Statement, the Company agrees to
use its best efforts to cause such Registration Statement to be
declared or ordered effective by the Commission, to prepare and
file with the Commission such amendments or supplements to such
Registration Statement and the Prospectus used in connection with
such Registration Statement as may be necessary to keep such
Registration Statement effective for the period ending the earlier
of (i) the redemption by the Company of all of the Preferred Stock;
or (ii) the conversion by Claimant of all of the shares of
Preferred Stock. All costs and expenses incurred in connection
with the registration of the Conversion Shares, including, without
limitation, all registration and qualification fees, and fees and
disbursements of counsel, shall be borne by the Company. The
Company shall be responsible for any underwriter's discounts or
broker's commissions charged in connection with the sale of such
Conversion Shares by Claimant.
E. The Company agrees to comply with all applicable
federal and state securities laws and regulations in connection
with the issuance of the Preferred Stock and registration for sale
of the Conversion Stock.
SECTION V: EVENTS OF DEFAULT
The following occurrences shall be deemed in default of this
Agreement and the Second Note, and Claimant may take all
enforcement action authorized by law or equity:
A. The Registration Statement is not effective on or
before sixty (60) days following the effective date of this
Agreement;
B. The Company issues Preferred Stock or an option
to acquire Preferred Stock to any other person, or issues stock in
the Company or an option to acquire stock in the Company to any
other person where such stock would be senior to the Preferred
Stock; or
C. The Company's failure to comply with or fulfill
any obligation under this Agreement, the Second Note, or the
Certificate.
SECTION VI: MISCELLANEOUS
A. Payment of Expenses of Prevailing Party in
Dispute. Unless otherwise specifically provided for herein, in the
event that there is a dispute concerning this Agreement, including,
without limitation, the issue of compliance with any term of this
Agreement, the court may in its discretion, direct that the
prevailing party shall be entitled to reimbursement from the other
party of reasonable attorneys' fees and other expenses incurred in
resolving the said dispute.
B. Survival and Incorporation of Representations.
The representations, warranties, covenants and agreements made
herein or in any certificates or documents executed in connection
herewith shall survive the execution and delivery thereof, and all
statements contained in any certificate or other document delivered
by the Company hereunder or in connection herewith shall be deemed
to constitute representations and warranties made by the Company in
this Agreement.
C. Amendments and Waivers. This Agreement may not
be amended, nor may compliance with any term, covenant, agreement,
condition or provision set forth herein be waived (either generally
or in a particular instance and either retroactively or
prospectively) unless such amendment or waiver is agreed to in
writing by all parties hereto.
D. Governing Law. This Agreement shall be construed
and enforced in accordance with and governed by the laws of the
State of Alaska, and venue for any legal action brought to enforce
a party's rights under this Agreement shall be in the Superior
Court located in Anchorage, Alaska.
E. Counterparts. This Agreement may be executed by
telex, telecopy or other facsimile transmission, and such facsimile
transmission shall be valid and binding to the same extent as if it
were an original. Further, this Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall together constitute one agreement.
F. Severability. Wherever there is any conflict
between any provision of this Agreement and any statute, law,
regulation or judicial precedent, the latter shall prevail, but in
such event the provisions of this Agreement thus affected shall be
curtailed and limited only to the extent necessary to bring it
within the requirement of the law. In the event that any part,
section, paragraph or clause of this Agreement shall be held by a
court of proper jurisdiction to be invalid or unenforceable, the
entire Agreement shall not fail on account thereof, but the balance
of the Agreement shall continue in full force and effect unless
such construction would clearly be contrary to the intention of the
parties or would result in unconscionable injustice.
IN WITNESS WHEREOF, the parties have signed the Agreement the
date and year first above written.
GLOBAL CASINOS, INC., a Utah corporation
Attest:
By:/s/Stephen G. Calandrella
Secretary Stephen G. Calandrella, President
GLOBAL ALASKA INDUSTRIES, INC.,
an Alaska corporation
Attest:
By:/s/Stephen G. Calandrella
Secretary Stephen G. Calandrella, President
CLAIMANT:
By:/s/Mark Griffin
Mark Griffin
LEASE AND OPTION
"Tollgate Casino"
Central City, Colorado
TABLE OF CONTENTS
REFERENCE DATA . . . . . . . . . . . . . . . . . . . . . . . .
LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . . .
Premises and Property . . . . . . . . . . . . . . .
Landlord's Improvements . . . . . . . . . . . . . . .
LEASED TERM. . . . . . . . . . . . . . . . . . . . . . . . . .
Primary Term. . . . . . . . . . . . . . . . . . . . .
Possession of Premises and Property . . . . . . . . .
Tenant Improvements Prior to Commencement Date. . . . . . . . .
LEASE RENTALS. . . . . . . . . . . . . . . . . . . . . . . . .
Base Rental - Monthly . . . . . . . . . . . . . . . .
TRIPLE NET LEASE . . . . . . . . . . . . . . . . . . . . . . .
Triple Net Lease. . . . . . . . . . . . . . . . . .
Payment of Taxes and Liens. . . . . . . . . . . . . .
New Taxes . . . . . . . . . . . . . . . . . . . . . .
Triple Net Payments . . . . . . . . . . . . . . . . .
Parking Improvement or Impact Fees. . . . . . . . . .
SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . .
USE OF LEASED PREMISES . . . . . . . . . . . . . . . . . . . .
Use of Leased Premises. . . . . . . . . . . . . . . .
Prohibited Uses . . . . . . . . . . . . . . . . . . .
MAINTENANCE AND REPAIRS: ALTERATIONS AND ADDITIONS. . . . . .
Maintenance and Repairs . . . . . . . . . . . . . . .
Alterations and Additional Improvements . . . . . . .
Construction on Leased Premises . . . . . . . . . . .
Builders' Risk Insurance. . . . . . . . . . . . . . .
GAMING AND OTHER PROVISIONS. . . . . . . . . . . . . . . . . .
Licensing . . . . . . . . . . . . . . . . . . . . . .
Failure to Obtain Approvals . . . . . . . . . . . . .
ENTRY BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . .
LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .
Licensing . . . . . . . . . . . . . . . . . . . . . .
Pollutants. . . . . . . . . . . . . . . . . . . . . .
Exemption of Landlord From Liability. . . . . . . . .
INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coverage. . . . . . . . . . . . . . . . . . . . . . .
Contractor's Insurance. . . . . . . . . . . . . . . .
Insurance Policies. . . . . . . . . . . . . . . . . .
Waiver of Subrogation . . . . . . . . . . . . . . . .
DAMAGES OR DESTRUCTION . . . . . . . . . . . . . . . . . . . .
Landlord's Obligation to Rebuild. . . . . . . . . . .
Rent Adjustment . . . . . . . . . . . . . . . . . . .
Termination . . . . . . . . . . . . . . . . . . . . .
CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . .
Taking. . . . . . . . . . . . . . . . . . . . . . . .
Restoration and Rent Adjustment . . . . . . . . . . .
Vacation. . . . . . . . . . . . . . . . . . . . . . .
ASSIGNMENT OR SUBLETTING . . . . . . . . . . . . . . . . . . .
Assignment of Lease . . . . . . . . . . . . . . . . .
Assumption and Release. . . . . . . . . . . . . . . .
QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . .
EVENTS OF DEFAULTS: REMEDIES. . . . . . . . . . . . . . . . .
Events of Default . . . . . . . . . . . . . . . . . .
Landlord's Remedies Upon an Event of Default. . . . .
Late Charges. . . . . . . . . . . . . . . . . . . . .
Event of Default by Landlord. . . . . . . . . . . . .
Tenant's Remedies . . . . . . . . . . . . . . . . . .
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . .
Estoppel Certificate. . . . . . . . . . . . . . . . .
Transfer of Landlord's Interest . . . . . . . . . . .
Regulatory Issues Affecting Leased Premises . . . . .
Captions; Attachments; Defined Terms. . . . . . . . .
Severability. . . . . . . . . . . . . . . . . . . . .
Costs of Suit . . . . . . . . . . . . . . . . . . . .
Time; Joint and Several Liability . . . . . . . . . .
Binding Effect; Choice of Law . . . . . . . . . . . .
Waiver. . . . . . . . . . . . . . . . . . . . . . . .
Surrender of Leased Premises. . . . . . . . . . . . .
Holding Over. . . . . . . . . . . . . . . . . . . . .
Covenants Running with the Land . . . . . . . . . . .
Force Majeure . . . . . . . . . . . . . . . . . . . .
Liquor Licenses . . . . . . . . . . . . . . . . . . .
Memorandum of Lease . . . . . . . . . . . . . . . . .
No Broker . . . . . . . . . . . . . . . . . . . . . .
Notices . . . . . . . . . . . . . . . . . . . . . . .
Representations . . . . . . . . . . . . . . . . . . .
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . .
OPTION TO PURCHASE. . . . . . . . . . . . . . . . . . . . . . .
Option. . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Contract . . . . . . . . . . . . . . . . . . . .
EXHIBIT 2.1.1
Real Property and Improvements
EXHIBIT 21.2
Real Estate Purchase and Sale Contract
LEASE AND OPTION
"Tollgate Casino"
Central City, Colorado
THIS LEASE, made and entered into this _____ day of May, 1999,
by and between U.S. Bank, N.A., Trustee (formerly Colorado National
Bank, Trustee) (hereinafter "Landlord") and Global Central
Corporation, a Colorado corporation, (hereinafter "Tenant"),
W I T N E S S E T H:
WHEREAS, Landlord is the owner of that certain real property
located at 106 and 108 Main Street, Central City, Colorado (the
"Premises") as well as certain furniture, fixtures, machinery and
equipment located therein or thereon, a list of which is attached
hereto as Exhibit "A" (the "Property"), commonly known as the
"Tollgate Casino" (the "Casino"); and
WHEREAS, Tenant is experienced in the management and operation
of gaming casinos; and
WHEREAS, Tenant desires to lease with an option to purchase
from Landlord, and Landlord is willing to lease and grant to Tenant
an option to purchase, the Premises and the Property to be used to
operate the Casino under and pursuant to gaming, liquor and
restaurant licenses to be applied for and obtained by Tenant (the
"Licenses").
NOW, THEREFORE, in consideration of the rents and agreements
set forth herein and intended to be legally bound thereby, Landlord
and Tenant agree as follows:
1. REFERENCE DATA. Any reference in this Lease to the following
terms shall incorporate therein the data defining such terms as set
forth in this Article
PREMISES: 106 and 108 Main Street, Central City,
Colorado
PROPERTY: All tangible assets and property located on or
in the Premises owned by Landlord, including
all furniture, fixtures and equipment listed
on Exhibit "A."
LEASE TERM: The term (the "Term") of this Lease shall be
twenty-four (24) months commencing as 12:00
a.m. on the first day following Tenant
obtaining the Licenses (the "Commencement
Date") and terminating at 12:00 a.m. on the
date next following 24 months thereafter (the
"Expiration Date"), subject to Tenant's right
to terminate without liability if the Licenses
are not obtained by August 1, 1999 upon thirty
(30) days' prior written notice.
PERMITTED USES: Casino, including restaurant and beverage
service, which shall be operated in
accordance with the Licenses.
LEASE FEE: Upon execution of this Agreement, Tenant
shall pay to Landlord a nonrefundable
$10,000 Lease Fee which is paid as
consideration for the execution of this
Lease and shall be retained by Landlord.
DEPOSIT: Upon issuance of the Licenses, Tenant shall
pay to Landlord an additional $20,000 deposit,
which shall be paid into escrow to be applied
against the purchase price for the Premises
and Property should Tenant exercise the Option
to Purchase provided for in Section 20 hereof.
If Tenant does not exercise the Option to
Purchase, the $20,000 deposit shall be
refunded in full to the Tenant upon
termination of this Agreement, without
interest thereon or deduction therefrom;
provided, however, that said $20,000 shall be
treated as a damage or security deposit, and
such amount shall be controlled by the
provisions of Section 6 of this Lease.
OPTION TO PURCHASE: At any time following the Commencement Date
and prior to the Expiration Date, Tenant
shall have the right and option to purchase
the Premises and Property. At the request of
Landlord, the Closing Date of the purchase may
be deferred until as late as May 31, 2001.
Should Landlord elect to defer the Closing
Date, all Base Rent up to a maximum of four
(4) months' Base Rent paid by Tenant under
this Lease after the option exercise date (the
"Post-Option Base Rent") shall be applied
towards and credited against the closing cash
portion of the purchase price. The purchase
price shall be $1,400,000 payable as follows:
At closing the sum of $130,000, less the total
Post-Option Base Rent paid to Landlord, plus
the $20,000 escrow deposit; with the balance
of $1,250,000 payable together with interest
at the rate of six percent (6%) per annum
amortized in equal monthly installments of
principal and interest over a period of nine
(9) years.
2. LEASED PREMISES
2.1 Premises and Property.
2.1.1 The premises ("Leased Premises") to be leased
by Landlord to Tenant is described as follows:
The real property together with all improvements thereon
legally described on Exhibit 2.2.1 hereto and commonly known as 106
and 108 Main Street, City of Central City, County of Gilpin, State
of Colorado.
2.1.2 The personal property and assets (the
"Property") to be leased by Landlord to Tenant shall include all
tangible and intangible property and assets located on or in the
Premises on the date of this Lease owned by Landlord, including,
without limitation, all furniture, fixtures, machinery and
equipment set forth on Exhibit "A" hereto.
2.2 Landlord's Improvements.
2.2.1 There has been constructed and installed upon
the Leased Premises certain improvements, fixtures, machinery,
equipment, excluding slot machines and gaming equipment which will
permit the Tenant to conduct upon the Leased Premises, gaming
operations, food and beverage operations, as well as any and all
other operations normally incident thereto ("Landlord's
Improvements").
2.2.2 Landlord represents that the Landlord's
Improvements comply with all federal, state and local laws,
including, but not limited to, applicable building codes, design
review guidelines, historic requirements and Environmental Laws.
Landlord further warrants and shall indemnify and defend Tenant
from any and all mechanics' and materialmens' liens filed against
the Leased Premises arising in any fashion from the construction of
the Landlord's Improvements. Tenant shall have the same right to
remove such liens and charge Landlord with the cost thereof
pursuant to Section 11 of this Lease.
2.2.3 Landlord shall warrant the Premises and the
Property free from all material defects in workmanship and
materials. It is expressly understood that the Property shall not
include any tangible assets acquired or leased by Tenant from third
parties who are not affiliated with, controlled by or under common
control of Landlord. Landlord shall deliver possession of the
Premises and Property, including the HVAC system, the mechanical
systems and the elevator in good working order at or before the
Commencement Date. Should any portion of the Premises or Property
described herein, including the HVAC system, mechanical systems and
elevator, require any repair in order to render them in good and
working order on the Commencement Date, Tenant agrees to bear the
first $5,000 of any such expenses, with any expenses in excess of
such $5,000 to be Landlord's responsibility, which Tenant agrees to
offset against payments of Base Rent hereunder. In the event this
Agreement terminates prior to the Commencement Date due to the
failure of Tenant to obtain the Licenses, then any amounts expended
by Tenant in excess of such $5,000 shall be reimbursed by Landlord
within 20 days following the termination of this Agreement. Should
repair be necessary in order to render such systems in good working
order and repair, Tenant agrees to cooperate with Landlord to
enforce Landlord's right for indemnity from any third party
independent contractors who may be responsible to Landlord for such
repair. This provision shall not be construed to constitute a
release of Landlord of its primary responsibility to deliver the
Premises and Property free from all material defects in workmanship
and materials.
3. LEASED TERM
3.1 Primary Term. The term of this Lease (the "Lease Term")
shall be for twenty-four (24) months and shall commence (the
"Commencement Date" or "Effective Date") when Tenant has received
all Licenses and appropriate administrative approvals to commence
operations upon the subject Premises, including, without
limitations, local approvals from the City of Central City, and
State of Colorado, liquor license approval, as well as approval
with respect to either the Division of Gaming, or the State of
Colorado Limited Gaming Control Commission, as required. Further,
this Lease shall not be effective as against Tenant unless and
until all of the proper administrative approvals required with
respect to the same have been obtained including, without being
limited to, approval by either the Division of Gaming or the
Colorado Limited Gaming Control Commission, as well as the Division
of Liquor Enforcement, State Department of Revenue, State of
Colorado. Tenant may terminate this Lease without liability upon
thirty (30) days' notice if the Licenses and other administrative
approval are not obtained by August 1, 1999.
3.2 Possession of Premises and Property. Landlord shall
deliver possession of the Leased Premises and Property to Tenant on
May 22, 1999. During the period commencing the date the Tenant
takes possession of the Premises and Property and ending the
Commencement Date, Tenant agrees to reimburse Landlord for any and
all utility expenses incurred by Landlord for the Leased Premises
resulting from Tenant's occupancy of same prior to the Commencement
Date.
3.3 Tenant Improvements Prior to Commencement Date. After
Tenant takes possession of the Premises and Property but prior to
the Commencement Date, Tenant shall be permitted to undertake
improvements on the Leased Premises and the Property to prepare for
commencement of operations, subject in all respects to the
provisions of Sections 8 and 11 of this Lease. Prior to commencing
any construction, alteration or improvement prior to the
Commencement Date, Tenant shall obtain and deliver to Landlord a
surety bond in an amount of at least $100,000 to protect Landlord
from any lien claims which may be incurred during the initial
period of possession. All alterations and improvements shall be
undertaken in strict conformity with the provisions of Sections 8
and 11 of this Lease.
4. LEASE RENTALS
4.1 Base Rental - Monthly.
4.1.1 Commencing on the Effective Date and continuing
until expiration or termination of the Lease Term, Tenant shall pay
to the Landlord monthly rentals equal to $6,000 per month.
4.1.2 Such monthly Base Rental payments shall be due
on the Commencement Date and monthly thereafter.
5. TRIPLE NET LEASE
5.1 Triple Net Lease.
5.1.1 Following commencement of the Lease Term,
Tenant shall pay all costs and expenses of operation and
maintenance of the Leased Premises, including by way of
illustration but not limited to: real and personal property taxes
and assessments (including special assessments) and any tax in
addition to or in lieu thereof, whether assessed against Landlord
or Lessee; utilities; supplies; insurance; license, permit and
inspection fees; costs of repairs, maintenance and improvements,
and all other expenses of the Leased Premises, but excluding:
5.1.1.1 Costs of repairs or rebuilding
necessitated by condemnation;
5.1.1.2 Any interest on borrowed money or debt
amortization;
5.1.1.3 Depreciation on the Building;
5.1.1.4 Any settlement, payment, or judgment
incurred by Landlord or their agents due to their negligence, as
established by a court of law;
5.1.1.5 Cost of any damage to the Building caused
directly by Landlord's negligence; and
5.1.1.6 Any costs that have already been directly
paid by Tenant.
5.1.2 This Lease is a triple net lease, and
subsequent to commencement of the Lease Term, the Landlord shall
have no obligation of any kind to make any expenditures of any
nature upon the Leased Premises, except as specifically provided
herein. The Tenant shall throughout the Lease Term, or any
extension thereof, at its sole cost and expense, put, keep and
maintain the Leased Premises in good, substantial and sufficient
condition, repair and order, both inside and outside. The Tenant
shall not permit, commit or suffer waster, impairment, or
deterioration of the Leased Premises or the improvements thereon or
any part thereof.
5.2 Payment of Taxes and Liens. Tenant shall pay and
discharge all taxes, assessments, water rents, sewer rents, ground
rents, governmental or municipal charges, fines (related to
Tenant's actions or failure to act) and impositions, and all other
charges now or hereafter levied or assessed against the Leased
Premises, or any part thereof (the "Taxes"), and shall keep the
Leased Premises, or any part thereof, free of all liens or claims
of liens of mechanics, laborers and suppliers, and any lien of any
taxing authority or governmental body; except that Tenant may, in
good faith, contest the validity or amount of any such Taxes or
liens or claims of lien provided that (i) nothing in this Lease
contained shall imply any right on the part of Tenant to postpone
or defer payment for any purpose, unless the proceeding initiated
by Tenant to so contest such Taxes, liens or claims of lien shall
operate to prevent or stay the collection of such Taxes, or such
liens or claims of lien, and possible levy against or sale of the
Leased Premises, or any part thereof, to satisfy the same; and (ii)
Tenant shall have deposited with an escrow agent reasonably
acceptable to Landlord and Tenant a sum equal to the amount which
could be payable if Tenant is unsuccessful in such contest, or
otherwise secure payment thereof to the reasonable satisfaction of
Landlord. Upon the termination of such proceeding, Tenant shall
pay such Taxes or liens or part thereof as finally determined in
such proceeding from such escrow, the payment of which had been
deferred during the prosecution of such proceeding, or incurred in
connection therewith. Landlord shall cooperate with the Tenant and
attend and participate in or consent to any proceedings in which
Landlord's presence is required in order to contest the imposition
of any tax. Any reduction in Real Estate Taxes created as a result
of Tenant's protest shall first go to reimburse Tenant for the
expenses of the protest and, thereafter, shall be applied against
the next Taxes due. Any increase in the Taxes resulting from the
proceeding shall be paid by Tenant.
5.3 New Taxes. In addition to rent and other charges to be
paid by Tenant hereunder, Tenant shall pay all ad valorem taxes
(other than any income taxes) whether or not now customary or
within the contemplation of the parties hereto; (a) upon, allocable
to, or measured by the area of the Leased Premises or on the rent
payable hereunder; or (b) upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Leased Premises, or any portion
thereof, or (c) upon or measured by the value of Tenant's personal
property, equipment or fixtures located in the Leased Premises; or
(d) upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the
Leased Premises. Tenant agrees to pay, before delinquency, any and
all taxes levied or assessed and which become payable during the
term hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the Leased Premises. Tenant shall
comply with the provisions of any law, ordinance or rule of the
taxing authorities which require Tenant to file a report of
Tenant's property located in the Leased Premises. Notwithstanding
anything to the contrary herein, with respect to extraordinary or
special assessments, they shall only be included in Real Estate
Taxes to the extent that they are payable in respect of the term of
this Lease, and such assessments shall be paid in installments over
the longest payment period permitted by law for the particular
assessment. In this connection, to the best of Landlord's
knowledge, Landlord warrants and represents to Tenant that the
Premises are not presently subject to any special assessments.
Tenant shall not be charged, nor be obligated to pay, any income,
profit, inheritance, estate, succession, gift, franchise, or
transfer taxes which are or may be imposed upon Landlord, its
successors or assigns, by whatsoever authority imposed or howsoever
designated.
5.4 Triple Net Payments. 1/12th of the estimated annual
Triple Net Payments, including 1/12th of the annual real and
personal property taxes and assessments, special assessments and
taxes shall be paid to Landlord on a monthly basis in addition to
the Base Rent payment. Tenant shall continue to make monthly
payments until notified by Landlord of a change thereof. Within 90
days after the Landlord receives a statement of actual taxes owed,
Landlord shall endeavor to give Tenant a statement showing the
actual taxes for the Premises and Property for the prior year. In
the event the total monthly payments which Tenant made for the
prior year is less than the Tenant's actual responsibility, then
Tenant shall pay the difference in a lump sum within 30 days after
receipt of such statement from Landlord. Any overpayment by Tenant
shall be credited toward the monthly Triple Net Payment next coming
due.
5.5 Parking Improvement, Impact Fees and Device Fees. Any
parking improvement, impact, device or similar fees that may be
imposed, assessed or levied by any governmental authority with
respect to the Leased Premises or the Tenant's operations to be
carried on thereon, shall be borne entirely by Tenant and paid as
the same become due, again, such fees being paid over the longest
payment period permitted by law. Tenant shall provide confirmation
to Landlord of payment of any parking improvement, impact fees
and/or device fees as the same become due and are paid.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum
of $20,000. Said sum shall be held by Landlord as security for the
faithful performance by Tenant of all of the terms, covenants and
conditions of this Lease. If Tenant defaults with respect to any
provision of this Lease, including, without limitation, the
provisions relating to a payment of rent or adjustments, Landlord
may use, apply or retain all or any portion of the security deposit
for the payment of rent or other sum in default, with a payment of
any amount which Landlord may spend or become obligated to spend by
reason of Tenant's default, or to compensate Landlord for any loss
or damage which Landlord may suffer by reason of Tenant's default.
If Tenant shall fully and faithfully perform every provision of
this Lease to be performed, and Tenant does not exercise the Option
to Purchase provided for herein, the security deposit shall be
returned to the Tenant at the expiration of the Lease term. In the
event Tenant elects to exercise its option to purchase herein, the
security deposit shall be applied against the purchase price as
more fully described in Section 21 hereof.
7. USE OF LEASED PREMISES
7.1 Use of Leased Premises. The Leased Premises and Property
shall be used for the purpose of conducting gaming, restaurant,
lounge and entertainment operations as well as any other lawful
activity.
7.2 Prohibited Uses.
7.2.1 The Leased Premises shall not be used for any
unlawful purpose, nor shall Tenant cause, maintain or permit any
nuisance in or about the Leased Premises. Tenant shall not commit
or suffer to be committed any waste in or upon the Leased Premises.
7.2.2 Tenant shall not use the Leased Premises or
permit anything to be done in or about the Leased Premises which
will in any way materially conflict with any law, statute, or
ordinances or governmental rule or regulation or requirement of
duly constituted public authorities now in force or which may
hereafter be enacted or promulgated. Tenant shall at its sole cost
and expense promptly comply in all material respects with all laws,
statutes, ordinances and governmental rules, regulations or
requirements of any board of fire underwriters or other similar
body now or hereafter constituted relating to or affecting the
condition, use or occupancy of the Leased Premises. The judgment
of any court of competent jurisdiction or the admission of Tenant
in any action against Tenant, whether Landlord be a party thereto
or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive
of the fact as between Landlord and Tenant.
8. MAINTENANCE AND REPAIRS: ALTERATIONS AND ADDITIONS
8.1 Maintenance and Repairs.
8.1.1 Landlord's Obligations. Landlord shall keep
and maintain in good order, condition and repair, the exterior and
load-bearing walls, the foundation, roof, the structural elements
of the Premises and shall maintain the exterior areas of the
Premises.
8.1.2 Tenant's Obligations.
8.1.2.1 Tenant shall keep and maintain in good
order, condition and repair, the HVAC, electrical, plumbing and
mechanical systems, the elevator, windows and glass and any other
portion of the Premises which are not specifically the obligation
of the Landlord set forth above. During the period of tenancy,
Tenant shall, at its expense, engage AMI Mechanical Systems to
inspect and maintain the HVAC system on a monthly basis; provided,
however, that Tenant may retain the services of an alternative
contractor to perform such inspections and maintenance subject to
Landlord's prior consent and approval, which approval shall not be
unreasonably withheld. Tenant shall provide Landlord with copies
of all inspection and service reports provided by AMI Mechanical
Systems, or its successor.
8.1.2.2 Upon the expiration or earlier termination
of this Lease, Tenant shall surrender the Leased Premises in a
condition of repair at least equal to the condition upon Tenant's
taking possession thereof, ordinary wear and tear excepted, and
shall promptly remove or cause to be removed at Tenant's expense
from the Leased Premises any signs, notices, and displays placed by
Tenant.
8.1.2.3 Tenant agrees to repair any material
damage to the Leased Premises which is not normal wear and tear
caused by or in connection with the removal of any articles of
personal property, business or trade fixtures, machinery,
equipment, cabinetwork, furniture, movable partition or permanent
improvements or additions, including without limitation thereto,
repairing the floor and patching and painting the walls where
reasonably required by Landlord to Landlord's reasonable
satisfaction, all at Tenant's sole cost and expense. Tenant agrees
to refrain from any activity and not to remove or otherwise alter
the Leased Premises in any way to adversely affect or cause
revocation or modification of any historical designations or
violate any restrictions relating to historical structures. Should
Tenant directly or indirectly breach the provisions contained
herein, Tenant shall be liable to Landlord for all such damage
actually incurred.
8.1.2.4 Tenant shall do all acts required to
comply in all material respects with all applicable laws,
ordinances, regulations and rules of any public authority relating
to its maintenance and repair obligations as set forth herein.
8.2 Alterations and Additional Improvements. The following
provisions shall govern all alterations of and additional
improvements to the Leased Premises:
8.2.1 Subject to the provisions of Section 8.3 Tenant
is hereby granted the right to make any and all such alterations,
additions or improvements to the Leased Premises, so long as such
alterations, additions or improvements do not constitute a
structural alteration of the Leased Premises. Any alterations
having a cost in excess of $25,000 shall require the consent of
Landlord, which consent shall not be unreasonably withheld.
8.2.2 All permanent alterations, additions or
improvements shall, at the expiration or earlier termination of the
Lease, become the property of Landlord and remain upon and
surrendered with the Leased Premises.
8.2.3 All of those items comprising Tenant Finish,
together with all personal property, business and trade fixtures,
machinery and equipment, cabinetwork, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in
the Leased Premises, including, without limitation, gaming
machines, table games and related equipment, counters, screens,
cages, freestanding partitions and cabinets, and signage shall be
and remain the property of Tenant and may be removed by Tenant upon
expiration of the Lease Term or upon termination under Section
3.1.1 or any other provision hereof.
8.2.4 All alterations or improvements commenced by
Tenant shall be timely completed and promptly paid for by Tenant
within a reasonable time. All such alterations or improvements
shall be erected: (i) in a good and workmanlike manner strictly in
material compliance with all applicable laws; (ii) entirely on the
Leased Premises; (iii) without encroaching upon any easement, right
of way, or land of others, unless consented to by such owner; (iv)
so as not to violate any applicable use, height, setback or other
applicable restriction; (v) without permitting any mechanic's lien
to attach to the Leased Premises, subject to the provisions
allowing a contest of the validity of any such lien. Any such new
improvements to the Leased Premises shall automatically be a part
of the Leased Premises and shall be subject to the additional
covenants contained in Section 8.3.
8.3 Construction on Leased Premises. Prior to the
commencement of any construction or renovation on the Leased
Premises which is reasonably anticipated to cost in excess of
Twenty-Five Thousand Dollars ($25,000.00), Tenant shall provide
written notice to Landlord who shall concurrently be provided with:
8.3.1 A complete set of the plans and specifications
setting forth the proposed improvements.
8.3.2 A proposed construction time schedule setting
forth the anticipated time of completion.
8.3.3 A proposed construction budget outlining the
anticipated costs for such improvements.
8.3.4 Reasonable assurance that the anticipated costs
will be paid when due. Such reasonable assurance may be any of the
following: proof that such funds are available to Tenant in an
account established or reserved for such construction, proof that
a lender has committed to advance such construction funds, proof
that Tenant possesses a completion bond for the improvements, or
other proof reasonably acceptable to Landlord.
Upon receipt of such items, Landlord shall have the right
to object only if such items do not comply with this Section 8.3 or
if Landlord reasonably believes that the construction budget is not
adequate to complete the proposed improvements. Landlord shall
have no approval rights with respect to the nature of the
improvements. Any objection from Landlord must be in writing and
must specifically outline the objections and the manner in which
such objections may be cured. If Landlord objects to the budgeted
amount, such objection may be cured by providing Landlord with a
copy of a final accepted bid in the appropriate amount. If
Landlord has not objected within five (5) business days after
receipt of the above items, Landlord shall be deemed to have no
objection. It is specifically understood that the provisions of
this Section 8.3 only to improvements costing in excess of Twenty-
Five Thousand Dollars ($25,000.00) and that Landlord shall have no
right to obtain the above items with respect to other improvements.
8.4 Builders' Risk Insurance. During the period of
installation of Tenant Finish and of any subsequent renovation of
the Leased Premises, the Tenant shall keep or cause to be kept, in
full force and effect and continuously maintain, insurance policies
in builders' risk form or fire and extended coverage, or some
combination of the two, which will provide coverage in an amount
not less than the replacement cost of the Leased Premises, with a
clause naming Landlord as an insured. All insurance policies shall
contain, if available, a provision that cancellation of said
policies may not occur without ten (10) days prior written notice
to the Landlord.
9. GAMING AND OTHER PROVISIONS
9.1 Licensing. Landlord acknowledges and agrees that Tenant
intends to utilize the Leased Premises for the operation of a
limited gaming under Colorado Revised Statutes 12-47.1-101, et seq.
Tenant shall be responsible for obtaining all licenses for such
operation. However, in accordance with the limited gaming statutes
and regulations, Landlord may be required to obtain certain
licenses, and will, in any event, be required to submit certain
information and applications in connection with Tenant's
application and operation. Landlord agrees to submit all
applications and provide all requested information, financial or
otherwise, and to use its best efforts to assist Tenant in
obtaining any such necessary licenses for the operation of limited
gaming and for liquor licenses (such approvals being referred to
herein as the "Approvals"), and shall otherwise fully cooperate
with Tenant and any governmental authorities (the "Authorities") in
connection with any approval or permit applications of Landlord or
Tenant, which shall include, without limitation, provision of such
information, books and records as may be requested by such
Authorities and compliance with all orders and requirements of such
Authorities.
9.2 Failure to Obtain Approvals. This Lease may be
terminated by Tenant without liability upon thirty (30) days'
written notice in the event Tenant fails to obtain the Licenses and
other administrative approvals by August 1, 1999.
10. ENTRY BY LANDLORD. Landlord reserves and shall, during normal
business hours, have the right to enter the Leased Premises to
inspect the same, except for any gaming security areas, upon
reasonable notice to Tenant.
11. LIENS. Tenant shall keep the Leased Premises free from any
liens arising out of work performed, materials furnished, or
obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of
any work performed or materials furnished by or at the direction of
Tenant. In the event that Tenant shall not, within forty-five (45)
days following the imposition of any such lien, cause such lien to
be released of record by payment or posting of a proper bond or
other means, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but no obligation, to cause
the same to be released by such means as Landlord shall deem
proper, including payment of the claim giving rise to such lien.
Notwithstanding the above, Tenant may, in good faith, contest any
such liens or claims of lien provided that Tenant shall have
deposited with an escrow agent reasonably acceptable to Landlord,
an amount sufficient to satisfy such lien in the event Tenant is
unsuccessful in such contest, or otherwise secure payment thereof
to the reasonable satisfaction of Landlord. In the event of such
contest, Landlord shall not pay the lien unless Landlord is
required to pay the same in order to avoid immediate forfeiture of
the Leased Premises. Landlord shall have the right at all times to
post and keep posted on the Leased Premises any notices permitted
or required by law, or which Landlord shall deem proper, for the
protection of Landlord and the Leased Premises, and any other party
having an interest therein, from mechanics' and materialmens'
liens, and Tenant shall give to Landlord at least ten (10) business
days prior written notice of the expected date of commencement of
any work relating to structural alterations to the Leased Premises
or any work of the nature described in Section 7.3.
12. INDEMNIFICATION
12.1 Licensing.
12.1.1 Except with respect to Pollutants existing as
of the date of the execution of this Lease and defects in the
Landlord's Improvements, Tenant shall indemnify and hold Landlord
harmless from and defend Landlord against any and all claims of
liability for any injury or damage to any person whatsoever
occurring in, or about the Leased Premises or any part thereof
during the term of the Lease, unless caused by the negligence or
willful misconduct of Landlord. Tenant shall further indemnify and
hold Landlord harmless from and against any and all liabilities and
claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this
Lease, or arising from any act or negligence of Tenant, or any of
its agents, contractors, employees, and from and against all costs,
attorney's fees, expenses and liabilities incurred in the defense
of any such claim or any action or proceeding brought thereon.
Except as to Pollutants existing as of the date of this Lease or
defects in the Landlord's Improvements, Tenant, as a material part
of the consideration to Landlord, hereby assumes all other risk of
damage to property or injury to persons in, upon or about the
Leased Premises from any cause and Tenant hereby waives all claims
in respect thereof against Landlord.
12.1.2 Landlord shall indemnify and hold Tenant
harmless from and defend Tenant against any and all claims of
liability for any injury or damage to any person whatsoever
occurring in, or about the Leased Premises or any part thereof
prior to the commencement of the Lease Term, or the earlier date on
which possession of the Premises is received by Tenant, unless
caused by the gross negligence or willful misconduct of Tenant.
Landlord shall further indemnify and hold Tenant harmless from and
against any and all liabilities and claims arising from any breach
or default in the performance of any obligation on Landlord's part
to be performed under the terms of this Lease, or arising from any
act or negligence of Landlord, or any of Landlord's agents,
contractors, employees and from and against all costs, attorney's
fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon.
12.2 Pollutants.
12.2.1 Tenant covenants and agrees with Landlord that
during this Lease, all Pollutants, which may be used by any person
for any purpose upon the Leased Premises shall be used or stored
thereon only in a safe, approved manner, in material accordance
with all industrial standards and all laws, regulations and
requirements for such storage promulgated by any governmental
authority, that the Leased Premises will not be used for the
principal purpose of storing any such substances, and that no such
storage or use will otherwise be allowed on the Leased Premises
which will cause or which will increase the likelihood of causing
the release of such substances on the Leased Premises.
12.2.2 Tenant will promptly notify Landlord as soon as
Tenant knows or suspects that a Pollutant has been released on the
Leased Premises.
12.2.3 Tenant shall indemnify and hold Landlord
harmless of and from all loss, costs (including reasonable
attorney's fees), liability and damage whatsoever that Landlord may
be subjected to by reason of any material violation by Tenant or
any of the Environmental Laws which occurs upon the Leased
Premises, or by reason of the imposition of any governmental lien,
action, position, demand or proceeding, (whether civil, criminal or
administrative) for the recovery of environmental clean-up costs
expended by reason of such violation.
12.2.4 The above indemnity by Tenant relating to
Pollutants shall not relate to any Pollutant which existed on the
Leased Premises prior to the commencement of the Lease Term, or the
earlier date on which possession of the Premises is received by
Tenant, unless such Pollutant was introduced to the Leased Premises
by Tenant.
12.2.5 Except for any violations caused by Tenant,
Landlord covenants and agrees that at the time of commencement of
the Lease Term and continuing during the Lease Term, Landlord shall
maintain those portions of the Leased Premises described in Section
8.1.1 in accordance with all federal, state and local Environmental
Laws, and not to cause, suffer or permit any damage or impairment
to the health, safety or comfort of any person or to the
environment on the Leased Premises, including, but not limited to,
damage or threatened damage to the soil surface or groundwater
resources or any condition constituting a nuisance or causing a
violation of or resulting in liability under any state, federal or
local law, regulation or ordinance. The foregoing obligations of
Landlord shall hereinafter collectively be referred to as the
"Environmental Obligations." Landlord agrees, promptly to remedy
and correct any such violation of any Environmental Obligation
pursuant to any final order of the appropriate administrative
agency or, non-appealable decree of a court of proper jurisdiction.
Landlord covenants and agrees to protect, indemnify and hold Tenant
harmless from and against any and all liability, obligations,
claims, inducing administrative claim or claims for injunctive
relief, loss, cost, damage, expense or liability, including,
without limitation, any liability arising under the Environmental
Laws, plus reasonable attorneys' fees, incurred by or asserted
against Tenant resulting from any failure to comply with the
provisions of this Section 12.2. Notwithstanding the above Section
12.2.5, the cost of any cleanup obligation resulting from
activities or events occurring during the Lease Term shall be
shared fifty percent (50%) by Tenant, unless such cost exceeds One
Hundred Thousand Dollars ($100,000.00), in which event, Tenant may
elect to terminate this Lease and not pay any cleanup costs which
are not due to Tenant's acts.
12.2.6 Landlord represents and warrants that, to the
best of its knowledge, there are no hazardous substances present on
the Premises. Furthermore, should Tenant be required to close its
business operations during the removal or neutralization of
hazardous substances by Landlord, all rent and related charges
shall be abated until such time as Tenant can safely resume normal
business operations.
12.3 Exemption of Landlord From Liability. Landlord shall not
be liable for injury or damage which may hereafter be sustained by
the person, goods, wares, merchandise or property of Tenant, its
employees, invitees or customers, or any other person in or about
the Leased Premises caused by or resulting from fire, steam,
electricity, gas, water or rain, which may leak or flow from or
into any part of the Leased Premises, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures
of the same, unless caused by the negligence of Landlord.
13. INSURANCE
13.1 Coverage. In addition to any other insurance coverages
required by the provisions of this Lease, Tenant shall at all times
during the Lease Term, and at its own cost and expense procure and
continue in force the following insurance coverage:
13.1.1 Bodily Injury and Liability Insurance with a
combined single limit for Bodily Injury and liability, of no less
than Two Million Dollars ($2,000,000.00).
13.1.2 Liquor Liability Insurance in the amount of One
Hundred Fifty Thousand Dollars ($150,000.00).
13.1.3 Fire and Extended Coverage Insurance including
vandalism and malicious mischief coverage, in an amount equal to
the full replacement value of all building improvements, fixtures
and other improvements to or upon the Leased Premises.
13.1.4 In event of loss, Tenant will give immediate
notice by mail to Landlord, who may make proof of loss if not made
promptly by Tenant. Each insurance company concerned shall and is
hereby authorized and directed to make payment for such loss
directly to all insureds and additional insureds.
13.2 Contractor's Insurance. Landlord and Tenant shall
require any contractor whom they hire to perform the work on the
Leased Premises to carry and maintain a nondeductible:
13.2.1 Comprehensive general Liability Insurance,
including, but not limited to, contractor's liability coverage,
contractual liability coverage, completed operations coverage,
broad form property damage endorsement and contractor's protective
liability coverage, of not less than Two Million Dollars
($2,000,000.00) with respect to personal injury or death, and Two
Million Dollars ($2,000,000.00) with respect to property damage;
and
13.2.2 Workmen's compensation or similar insurance in
form and amounts required by law.
13.3 Insurance Policies. The aforementioned minimum limits
of policies shall in no event limit the liability of Tenant
hereunder. Said insurance shall be with companies having a rating
of not less than B in "Best's Insurance Guide" and licensed to sell
insurance in the State of Colorado. Tenant shall furnish from the
insurance companies or cause the insurance companies to furnish
certificates of coverage; and all such policies shall name the
Landlord as a co-insured. No such policy shall be cancelable or
subject to reduction of coverage or other modification or
cancellation except after ten (10) days' prior written notice to
Landlord and Landlord's Lender by the insurer. All such policies
shall be written as primary policies, not contributing with and not
in excess of the coverage which Landlord may carry. Tenant shall,
at least twenty (20) days prior to the expiration of such policies,
furnish Landlord with renewals thereof or binders for renewed
coverage. Tenant agrees that if Tenant does not take out and
maintain such insurance, Landlord may (but shall not be required
to) procure said insurance on Tenant's behalf and charge Tenant the
premiums. Tenant shall have the right to provide such insurance
coverage pursuant to blanket policies obtained by Tenant as
required by this Lease.
13.4 Waiver of Subrogation. Landlord and Tenant each hereby
waive any and all rights of recovery against the other or against
the officers, employees, agents and representatives of the other,
on account of any loss or damage arising from any cause covered by
any insurance required to be carried by each of them pursuant to
Section 12.1 or any other insurance actually carried by each of
them, regardless of cause or origin, including the negligence of
Landlord or Tenant or their respective agents, officers, and
employees. Landlord and Tenant shall cause their respective
insurers to issue appropriate waiver of subrogation rights
endorsements to all policies carried by each of them and such
endorsements shall be immediately delivered to the other.
14. DAMAGES OR DESTRUCTION
14.1 Landlord's Obligation to Rebuild.
14.1.1 If all or any part of the Leased Premises is
damaged or destroyed by fire, the elements or other casualty, then
Landlord shall, promptly and diligently, to the extent of insurance
proceeds, repair the damage and restore the Leased Premises. If
the insurance proceeds are insufficient to repair and restore the
Leased Premises, Landlord shall remain obligated to perform the
work, but Landlord and Tenant shall split equally any cost in
excess of the insurance proceeds.
14.1.2 Landlord shall not have any liability or
obligation for replacement, repair or restoration of any of
Tenant's trade fixtures or personal property located in or at the
Leased Premises. Tenant shall re-fixture and restore the Leased
Premises upon Landlord's completion of work.
14.2 Rent Adjustment. If Tenant is deprived of the use of all
or any portion of the Leased Premises by reason of such damage or
destruction or the repair thereof, then the Rent and other charges
payable hereunder shall be abated (during such period Tenant is not
open for business) or proportionately reduced (during such period
as Tenant is open for business but is deprived of the use of any
portion of the Lease Premises) according to the extent of the
interference with Tenant's use thereof. It is understood and
agreed that Tenant shall have twenty (20) days after the date
Landlord notifies Tenant in writing that all repairs and
restoration are completed within which to reopen the Leased
Premises and that Tenant shall have no obligation to pay any Base
Rent or any Percentage Rent or other charges during such twenty
(20) day period.
14.3 Termination. Notwithstanding anything contained in this
Section 14 to the contrary, if Landlord fails to diligently pursue
in good faith such repair and restoration, then Tenant shall give
Landlord notice of its belief that Landlord is not diligently
pursuing the repair and restoration and Landlord shall have thirty
(30) days to begin or resume the repair and restoration. Tenant
shall not be required to give more than one such notice for any
specific repair or restoration required to be performed by
Landlord. If Landlord fails to so begin or resume the repair and
restoration within the time period, Tenant may perform the repairs
or restorations and offset the expense of the work against the next
Rent due.
15. CONDEMNATION
15.1 Taking. In the event of condemnation by eminent domain
or similar law, including a sale in lieu thereof to an authority or
other entity having the power of eminent domain (a "Taking"), which
results in a taking of (i) more than twenty-five percent (25%) of
the Leased Premises, or (ii) materially adversely affects ingress
or egress to the Leased Premises, then Tenant may terminate this
Lease by giving notice to Landlord not more than forty-five (45)
days after the later of the date on which title vests in the
condemning authority or the date Tenant receives notice of said
vesting.
15.2 Restoration and Rent Adjustment. In the event of a
Taking of a portion of the Leased Premises, if this Lease is not
terminated by Tenant pursuant to Section 15.1, Landlord at its sole
cost and expense, shall promptly restore the Leased Premises as
nearly as practicable to a complete unit of like quality and
character as existed prior to the partial Taking. If a portion of
the Leased Premises is Taken, then from and after the date on which
title vests in the condemning authority, the Base Rental payable
hereunder shall be equitably reduced in proportion to the area of
the Leased Premises Taken.
15.3 Vacation. If this Lease is terminated pursuant to this
Section 15, then any rent and other charges paid in advance shall
be refunded to Tenant and Tenant shall have an additional thirty
(30) days, rent free within which to remove its property from the
Leased Premises. In the event of any condemnation or Taking or sale
as outlined in this Section 15, the entire amount of the award or
compensation paid for such condemnation or taking shall belong to
and be the property of Landlord except for any portion thereof
payable to Tenant. Notwithstanding the above, Tenant shall have
the right to pursue such claims as may be separately awarded or
recoverable by Tenant on account of any and all damage to Tenant's
business by reason of condemnation and for or on account of any
cost or loss to which Tenant might be put in moving Tenant's
merchandise, trade fixtures, furnishings and other personal
property, or for any other damages compensable separately to Tenant
that does not reduce Landlord's award.
16. ASSIGNMENT OR SUBLETTING
16.1 Assignment of Lease. Tenant shall have the right to
assign, sublease or transfer its interest in this Lease, without
the consent of the Landlord to a Close Affiliate of the Tenant.
The Tenant shall also have the right to assign its rights under
this Lease to any successor to or assignee of the Tenant resulting
from any merger, consolidation or reorganization of the Tenant, to
an assignee that acquires all or substantially all of the business
and assets or stock of the Tenant or to assign or sublease to any
other person, provided that in each case the successor, assignee or
sublessee, in the reasonable judgment of the Landlord, (i) is
financially capable of performing the Tenant's obligations under
this Lease, (ii) is of good character and business reputation, and
(iii) has received a gaming license from the State of Colorado for
the Leased Premises. At least twenty (20) days prior to an
assignment or sublease by Tenant of its interest in this Lease
pursuant to and as permitted by this section, Tenant shall consult
with the Landlord about such assignment or sublease and provide
Landlord with all reasonably requested information about the
Tenant's proposed successor or assignee. In any event, such
assignments or subleases shall be subject to proper approvals by
the Division of Gaming and the State Liquor Enforcement Division.
16.2 Assumption and Release. Any permitted assignee or
successor of the Tenant shall assume all of the obligations of the
immediate predecessor assignor under this Lease and notice thereof
in the form of a duplicate original of such assignment shall be
delivered to the Landlord. Upon a valid assignment and the
assignee's or successor's assumption of the Tenant's obligations,
the assigning party shall not be relieved of its obligations
arising after the effective date of such assignment pursuant to
this Lease. Any purported assignment, subletting or delegation in
violation of Section 16.1 or this Section 15.2 shall be void and
shall be ineffective to vest any rights or obligations in the
purported assignee or successor.
17. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that upon Tenant paying rent and other monetary sums due under the
Lease, performing its covenants and conditions under the Lease,
Tenant shall and may peaceably and quietly have, hold and enjoy the
Leased Premises for the Lease Term, subject, however, to the terms
of this Lease. If Landlord does not comply with the terms of this
Section 17, all rental and other payment obligations then due and
thereafter arising shall abate and not become due until such time
as Landlord shall have cured its default. In addition, all time
periods regarding increased payment of rent, the term of this
Lease, and exercise of any options granted hereunder shall be
likewise extended for the same amount of time.
18. EVENTS OF DEFAULTS: REMEDIES
18.1 Events of Default.
18.1.1 The occurrence of any of the following shall
constitute a material default and breach of the Lease by Tenant,
but only after Landlord has given written notice of such default to
Tenant, and Tenant has failed to cure such default within fifteen
(15) days (or such longer period provided for hereafter) after
receipt of such notice, such failure to cure shall then be an
"Event of Default." The Events of Default are as follows:
18.1.2 Any failure by Tenant to pay the rent or any
other monetary sums required to be paid hereunder when due,
including, without limitation, payments required in Section 5.5
hereof.
18.1.3 The abandonment of the Leased Premised by
Tenant, or the cessation by Tenant of the operation of the Casino
for 30 or more consecutive days unless such cessation is due to
causes beyond the reasonable control of Tenant.
18.1.4 A failure by Tenant to observe and perform any
other non-monetary provision of this Lease to be observed or
performed by Tenant, where such failure continues for thirty (30)
days after written notice thereof by Landlord to Tenant, provided,
however, that if the nature of the default is such that the same
cannot reasonably be cured within said thirty (30) day period,
Tenant shall not be deemed to be in default if Tenant shall within
such period commence such cure and thereafter diligently prosecute
the same to completion.
18.1.5 The making by Tenant of any general assignment
or general arrangement for the benefit of creditors; the filing by
or against Tenant of a petition to have Tenant adjudged a bankrupt,
an order for debtor relief, or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the
case of a petition filed against Tenant, the same is dismissed
within sixty (60) days); the appointment of a trustee or receiver
to take possession of substantially all of Tenant's assets located
at the Leased Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within sixty (60) days; or the
attachment, and execution or other judicial seizure of
substantially all of Tenant's assets located at the Leased Premises
or of Tenant's interest in this Lease, where such seizure is not
discharged within sixty (60) days, excluding the actions of any
Leasehold Mortgagee of Tenant's. It is understood and agreed that
due to the nature of the Leased Premises and the personal nature of
Tenant's business, that this provision is a material and critical
part of the consideration of this Lease.
18.2 Landlord's Remedies Upon an Event of Default.
18.2.1 At any time after occurrence of an Event of
Default, without limiting Landlord in the exercise of any right or
remedy at law or in equity which Landlord may have by reason of
such default or breach, Landlord at its sole subjective discretion
shall have the following options:
18.2.2 The Landlord shall have the right to declare
this Lease terminated. Said action shall not waive the Landlord's
claims against the Tenant, if any. Further, the Landlord may
pursue what legal action is necessary in order to regain the Leased
Premises, and the Tenant hereby agrees to vacate the same within
fifteen (15) days of notice from the Landlord.
18.2.3 Maintain this Lease in full force and effect
and recover the rent and other monetary charges without terminating
Tenant's obligations irrespective of whether Tenant shall have
abandoned the Leased premises. In the event Landlord elects not to
terminate the Lease, Landlord shall have the duty to attempt to
relet the Leased Premises at such rent and upon such conditions and
for the same or different term, conditions, amounts, etc., and to
do all acts necessary to maintain or preserve the Leased Premises
as Landlord deems reasonable and necessary without being deemed to
have elected to terminate the Lease, including removal of all
persons and property from the Leased Premises; such property may be
removed and stored in a public warehouse or elsewhere at the cost
of and for the account of Tenant, or have the property set out as
directed by Sheriff or Court. In the event any such re-letting
occurs, Tenant's right to possession pursuant to this Lease shall
terminate within fifteen (15) days of notice of the new Tenant's
execution of a new lease or a written right to occupancy, if there
is none, then upon the new Tenant's taking possession of the Leased
Premises. Notwithstanding that Landlord fails to elect to
terminate Tenant's possession initially Landlord at any time during
the Lease Term may elect to terminate this Lease by virtue of such
previous default by Tenant which remains uncured.
18.2.4 Terminate Tenant's right to possession by any
lawful means, in which case Tenant's right to possession pursuant
to this Lease shall terminate and Tenant shall surrender possession
of the premises to Landlord within fifteen (15) days of written
notice. Landlord shall be entitled to recover from Tenant only
those damages incurred by Landlord by reason of Tenant's default,
including only the following: any amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the
ordinary course of events would be likely to result therefrom
including but not limited to the cost of preparing the Leased
Premises for reletting, brokerage fees and reasonable attorney fees
incurred in such breach and reletting.
18.3 Late Charges.
18.3.1 If any installment of rent or any other sums
due collectively from Tenant shall not be received by Landlord or
Landlord's designee within ten (10) days after such rent or other
sum be due, Tenant shall pay to Landlord a late charge of eight
percent (8%) with respect to such overdue amount.
18.3.2 The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant. Acceptance of such
late charge by Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent
Landlord from exercising any of the other rights and remedies
granted hereunder.
18.4 Event of Default by Landlord. Landlord shall not have
caused an Event of Default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in
no event later than thirty (30) days after receipt of written
notice by Tenant to Landlord and to Landlord's Lender, if any,
whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to
perform such obligations; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are
required for performance (not including the payment of money), then
Landlord shall not Default if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes
the same to completion.
18.5 Tenant's Remedies. If Landlord fails to commence or
continue with diligence to cure any default, Tenant shall have all
rights and remedies available at law or in equity, including, but
not limited to, the right (but not the obligation) to cure such
default and receive upon demand from Landlord reimbursement of the
amount expended by Tenant in curing such default. If Landlord
fails to reimburse Tenant for such amount, Tenant may institute
proceedings in any court having jurisdiction over such controversy
for collection of such amount, together with reasonable attorneys'
fees and court costs incurred by Tenant as a result of such
default, or deduct the amount expended by Tenant in curing such
default, together with attorneys' fees incurred as a result of
Landlord's default from rent and other charges payable under this
Lease until all such sums are fully recovered by Tenant.
19. MISCELLANEOUS
19.1 Estoppel Certificate.
19.1.1 Both parties shall at any time upon not less
than ten (10) days' prior written notice from the other party
execute, acknowledge and deliver a statement in writing (i)
certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are
paid in advance, if any, (ii) acknowledging that there are not, to
such party's knowledge, any uncured defaults on the part of the
other party hereunder, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Leased Premises.
19.1.2 A failure to deliver such statement within such
time shall be conclusive upon the party required to deliver such
statement (i) that this Lease is in full force and effect, without
modification except as may be represented, and (ii) that there are
no uncured defaults in the other party's performance.
19.2 Transfer of Landlord's Interest. Landlord may not
transfer, or grant any option to acquire, all or any portion of its
interest in this Lease or its interest in the Premises or Property
at any time during the term of this Agreement.
19.3 Regulatory Issues Affecting Leased Premises. At the
request of Tenant, and upon the consent of Landlord, which consent
shall not be unreasonably withheld, Landlord agrees to cooperate
with Tenant to grant rights and make agreements with all
governmental entities and adjoining property owners as may be
reasonably necessary for Tenant's maximum use of the Leased
Premises.
19.4 Captions; Attachments; Defined Terms.
19.4.1 The captions of the paragraphs of this Lease
are for convenience only and shall not be deemed to be relevant in
resolving any question of interpretation or construction of any
section of this Lease.
19.4.2 Exhibits attached hereto, and addendums and
schedules to this Lease, are deemed by attachment to constitute
part of this Lease and are incorporated herein.
19.5 Severability. If any term or provision of this Lease
shall, to any extent be determined by a court of competent
jurisdiction to be invalid or unenforceable, the remainder of this
Lease shall not be effected thereby, and each term and provision of
this Lease shall be valid and be enforceable to the fullest extent
permitted by law.
19.6 Costs of Suit.
19.6.1 Should either party bring any action for any
relief against the other party, declaratory or otherwise, arising
out of this Lease, including any suit by Landlord for the recovery
of rent or other monies or possession of the Leased Premises, the
prevailing party shall be awarded their reasonable attorneys' fees
which shall be deemed to have accrued on the commencement of the
cause of action and shall be paid whether or not such action is
prosecuted to judgment.
19.6.2 Should Landlord, without fault on Landlord's
part, be made a party to any litigation instituted by Tenant or by
any third party against Tenant, the Leased Premises, or by or
against any person holding under or using the Leased Premises by
license of Tenant, except for violation of any Environmental Laws
not caused by the fault of Tenant, or for the foreclosure of any
lien for labor or material furnished to or for Tenant or any such
other person or otherwise arising out of or resulting from any
action or transaction of Tenant or of any such other person
(excluding any such lien or action caused by Landlord), Tenant
covenants to save and hold Landlord harmless from any judgment
rendered against Landlord or the Leased Premises or any part
thereof, and all costs and expenses including reasonable attorneys'
fees incurred by Landlord in or in connection with such matter
unless due to Landlord's actions or failure to act. The
appropriate tribunal or court shall decide whether the Landlord was
without fault prior to the enforcement of this Paragraph 16.6.2.
19.7 Time; Joint and Several Liability. Time is of the
essence of this Lease and each and every provision hereof, except
as to the conditions relating to the delivery of possession of the
Leased Premises to Tenant. All the terms, covenants and conditions
contained in this Lease to be performed by Tenant, if such party
shall consist of more than one person or organization, shall be
deemed to be joint and several, and all rights and remedies of the
parties shall be cumulative and nonexclusive of any other remedies
of the parties at law or in equity.
19.8 Binding Effect; Choice of Law. The parties hereto agree
that all provisions hereof are to be construed as both covenants
and conditions as though the words importing such covenants and
conditions were used in each separate paragraph hereof. Subject to
any provisions hereof restricting assignment or subletting by
Tenant, all of the provisions hereof shall bind and inure to the
benefit of the parties hereto and their respective heirs, legal
representative, successors and assigns. This Lease shall be
governed by the laws of the State of Colorado.
19.9 Waiver. No covenant, term or condition or the breach
thereof shall be deemed waived, except by written consent of the
party against whom the waiver is claimed, and any waiver or the
breach of any covenant, term or condition shall not be deemed to be
a waiver of any preceding or succeeding breach of the same or any
other covenant, term or condition. Acceptance by Landlord of any
performance by Tenant after the time the same shall have become due
shall not constitute a waiver by Landlord of the breach or default
of any covenants, term or condition unless otherwise expressly
agreed to by Landlord in writing.
19.10 Surrender of Leased Premises. The voluntary or
other surrender of this Lease by Tenant, or a mutual cancellation
thereof, shall not work a merger, and shall, at the option of the
Landlord, terminate all or any existing sublease or subtenancies,
or may, at the option of Landlord, operate as an assignment to it
of any or all such subleases or subtenancies.
19.11 Holding Over. If Tenant remains in possession of
all or any part of the Leased Premises after the expiration of the
term hereof, including extensions, with or without the express or
implied consent of Landlord, such tenancy shall be from month to
month only, and not a renewal hereof or an extension for any
further term, and in such case, Base Rent and other monetary sums
due hereunder shall be payable in the amount and at the time
specified in this Lease, and such month to month tenancy shall be
subject to every other term, covenant and agreement contained
herein.
19.12 Covenants Running with the Land. All of the
covenants, conditions and restrictions set forth in this Lease are
intended to be and shall be construed as covenants running with the
land, binding upon and inuring to the benefit of the parties
hereto, their successors and assigns.
19.13 Force Majeure. If either party to this Lease shall
be delayed or hindered in or prevented from the performance of any
non-monetary obligation or act required under this Lease by reason
of materially adverse weather conditions, strikes, lockouts, labor
troubles, failure of power, riots, insurrection, war, fire,
casualty, or other acts of God or other reasons of a like nature
beyond the reasonable control of the party delayed in performing
works or doing acts required under the terms of this Lease, then
performance of such act shall be excused for the period of the
delay, and the period of the performance of any such act shall be
extended for a period equivalent to the period of such delay,
except as otherwise specifically provided herein to the contrary.
The provisions of this Section 19.13 shall not be applicable to
delays resulting from the inability of a party to obtain financing
or to proceed with its obligations under this Lease because of a
lack of funds.
19.14 Liquor Licenses. If Tenant applies for a liquor
license, Landlord agrees not to object to said application and
agrees to cooperate with the licensing procedures.
19.15 Memorandum of Lease. Landlord and Tenant shall
execute, acknowledge and record at Tenant's sole cost and expense,
a Memorandum of Lease in a form attached hereto as "Exhibit C"
specifying therein the commencement date and termination date of
the term of the Lease, as well as any restraints or alienation
contained herein, if permitted by the Master Leases.
19.16 No Broker. Landlord and Tenant agree to hold each
other harmless against any and all claims by any other person for
brokerage commissions arising out of any conversation, negotiations
or other dealings held by the other party with any broker regarding
this Lease.
19.17 Notices. Every notice, demand, request,
designation, consent, approval or other document or instrument
required or permitted to be served hereunder shall be in writing,
and shall be hand-delivered or sent by registered or certified
United States mail postage prepaid, return receipt requested,
addressed to the parties hereto as their addresses set forth below.
Either party may change the place for serving of such papers upon
it, or provide for the delivery of not more than two (2) additional
copies, by giving the other party at least ten (10) days' prior
notice to such effect. Copies of any notices to Tenant shall be
delivered or sent to:
Global Central Corporation
ATTN: Stephen G. Calandrella
5373 North Union Boulevard, Suite 100
Colorado Springs, Colorado 80918
All notices shall be deemed to have been duly served on the day of
receipt, except that if the first attempt at mailing is refused or
returned as non-deliverable, the note shall be deemed received
three (3) days after the second mailing attempt.
19.18 Representations. Each party acknowledges and agrees
that it has not relied upon any statements, representation,
agreements or warranties except such as are expressed in this
Lease.
20. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
20.1 "Environmental Laws" means all federal, state and local
environmental, health and safety statutes, ordinances, rules and
regulations, as may from time to time be in effect, including but
not limited to federal laws such as the Comprehensive Environmental
Response, Compensation and Liability Act ("Superfund" or "CERCLA"),
42 U.S.C. Section 9602 et seq. ; the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section
9601(20)(D); the Resource Conservation and Recovery Act (the "Solid
Waste Disposal Act" or "RCRA"), 42 U.SC. Section 6901 et seq.; the
Federal Water Pollution Control Act, as amended by the Clean Water
Act Amendments of 1977 ("CWA"), 33 U.S.C. Section 1251 et seq.; the
Clean Air Act of 1966, as amended ("CAA"), 42 U.S.C. Section 7401
et seq.; the Federal Insecticide, Fungicide and Rodenticide Act
("FIFRA"), 7 U.S.C. Section 136 et seq.; the Occupational Safety
and Health Act ("OSHA"), 29 U.S.C. Section 651 et seq.; the Safe
Drinking Water Act ("SDWA"), 42 U.S.C. Section 300f et seq.; the
Toxic Substances Control Act ("ECA"), 15 U.S.C. Section 2601 et
seq.; and any and all State of Colorado environmental, health and
safety statutes, ordinances, rules and regulations as may from time
to time be in effect.
20.2 "Pollutants" means any "hazardous substance" as that term
is defined in CERCLA; any "hazardous waste" as that term is defined
in RCRA, and any "hazardous material" as that term is defined in
the Hazardous Materials Transportation Act (49 U.S.C. Section 1801
et seq., as amended (including as those terms are further defined,
construed, or otherwise used in rules, regulations or standards
issued pursuant to the Environmental Laws); and including any
petroleum product or by-product, flammable or explosive material,
radioactive material, asbestos, PCBS, dioxins, heavy metals, and
radon gas.
20.3 "Close Affiliate" means, when used with respect to any
entity:
20.3.1 Any entity who directly or indirectly
beneficially owns or controls more than fifty percent (50%) (by
voting power as to all matters) of all classes of the outstanding
voting equity interests of the entity in question.
20.3.2 Any entity, more than fifty percent (50%) (by
voting power as to all matters) of all classes of the outstanding
voting equity interests of which are directly or indirectly
beneficially owned or controlled by the entity in question; or
20.3.3 Any entity who, along with the entity in
question, is beneficially owned or controlled, directly or
indirectly, by individual tenants or a common parent entity, which
parent entity directly or indirectly beneficially owns or controls
more than fifty percent (50%) (by voting power as to all matters)
of all classes of the outstanding voting equity interest of such
individuals or each such entity.
21. OPTION TO PURCHASE
21.1 Option.
21.1.1 At any time following the Commencement Date and
prior to the termination of this Agreement, the Tenant shall have
the exclusive right and option, at its sole election, to purchase
from the Landlord, and Landlord agrees to sell to Tenant upon
exercise of such option, the Premises and the Property in
accordance with the terms hereof. In the event Tenant elects to
exercise such option, Tenant shall serve written notice upon
Landlord that it intends to purchase the Premises and the Property
in accordance with the following terms and conditions:
21.1.1.1 The purchase price for the Premises and
the Property shall be the aggregate sum of $1,400,000 (the
"Purchase Price").
21.1.1.2 The Purchase Price shall be payable by
Tenant delivering to Landlord the sum of $130,000 in cash at the
time of closing, less all Post-Option Base Rent up to a maximum of
four (4) months' Base Rent paid by Tenant to Landlord. In
addition, the $20,000 deposit held in escrow in accordance with the
provisions of this Agreement shall also be credited towards and
applied against the Purchase Price at the closing.
21.1.1.3 The balance of the Purchase Price shall be
evidence by Tenant's promissory note in the principal amount of
$1,250,000 (the "Note") which, together with interest at the rate
of six percent (6%) per annum, shall be payable in equal monthly
installments of principal and interest amortized over a term of
nine (9) years. Tenant's obligation to repay sums due and owing
under the Note shall be secured by a Deed of Trust covering the
Premises and a Security Agreement and Financing Statement covering
the Property.
21.2 Purchase Contract Upon receipt of Tenant's notice
pursuant to the provisions of section 20.1.1 above, Landlord and
Tenant shall execute a Real Estate Purchase and Sale Contract (the
"Purchase Contract") substantially in the form of Exhibit 21.2
hereto. Such Purchase Contract shall be executed and delivered
within twenty (20) days following the delivery of such notice to
Landlord. The parties agree to schedule a closing within the
closing period established in the Purchase Contract. Landlord
shall have the right to defer closing until a date not later than
May 31, 2001; provided, however, that all Post-Option Base Rent
paid by Tenant to Landlord shall be applied towards and credited
against the closing cash portion of the purchase price. No
transfer shall take place unless and until the approval of the
Colorado Division of Gaming or the Colorado Limited Gaming Control
Commission has first been obtained.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease the date and year first above written:
LANDLORD: TENANT:
U.S. Bank, N.A., Global Central Corporation,
a _________ corporation a Colorado corporation
By: By:
Name/Title: Name/Title:
Date: Date:
STATE OF COLORADO )
) ss.
COUNTY OF __________)
The foregoing instrument was acknowledged before me this ____day of
May, 1999, by , a (title) of U.S. Bank, N.A.,
a _____________ corporation, as Landlord.
WITNESS my hand and official seal.
My commission expires:
Notary Public
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF EL PASO )
The foregoing instrument was acknowledged before me this ____day of
May, 1999, by Stephen G. Calandrella, President of Global Central
Corporation, a Colorado corporation, as Tenant.
WITNESS my hand and official seal.
My commission expires:
Notary Public
EXHIBIT "21.2"
REAL ESTATE PURCHASE AND SALE CONTRACT
THIS CONTRACT is made this day of , 2000 by
and between Global Central Corporation, a Colorado corporation,
and/or assigns ("Buyer") and ("Seller").
1. The Property. Subject to the terms and conditions
hereinafter set forth, Buyer agrees to purchase and Seller agrees
to sell and convey the real property, building and personal
property (collectively the "Property") located in the County of
Gilpin, State of Colorado, having the street address of 106 and 108
Main Street, Central City, Colorado 80427, and more particularly
described as follows:
Block , Lots and Block , Lots ,
Together with (i) all easements, rights-of-
way, and vacated roads, streets and alleys,
adjacent or appurtenant to the Property; (ii)
all buildings, fixtures and improvements on
the Property (the "Improvements"); (iii) all
of Seller's right, title and interest in and
to all deposits, licenses, permits, contract
rights, warranties and guarantees, and all
other intangible personal property associated
with or related to the Property or the
Improvements; (iv) all equipment, machinery,
supplies, signages, fixtures and any other
tangible personal property owned by Seller and
associated with, related to, located upon or
used at the Property or the Improvements (the
"Equipment").
2. Purchase Price. The purchase price for the Property
shall be One Million Four Hundred Thousand Dollars ($1,400,000).
The purchase price shall be paid to Seller by Buyer as follows:
a. Earnest Money Deposit. The sum of Twenty Thousand
Dollars ($20,000) in the form of Buyer's corporate check, as
earnest money deposit and part payment of the Purchase Price,
payable to and held by the title company identified in Section 4
below ("Title Company"). Title Company shall hold the earnest
money deposit in its trust account on behalf of both Seller and
Buyer, subject to the provisions of this Contract. Title Company
is authorized to deliver the earnest money deposit to the Closing
Agent, if any, at or before closing.
The balance of the Purchase Price in the amount of One
Million Three Hundred Eighty Thousand Dollars ($1,380,000) shall be
paid as follows:
b. Cash at Closing. One Hundred Thirty Thousand Dollars
($130,000) to be delivered by Buyer in certified funds at Closing.
c. Seller Financing. The balance of One Million Two
Hundred Fifty Thousand Dollars ($1,250,000) shall be paid and
evidenced by Buyer's promissory note (the "Note") in a form
mutually agreeable to both Buyer and Seller, to be secured by a
first deed of trust (the "First Deed of Trust") and UCC-1 Security
Agreement and Financing Statement ("Security Agreement") in a form
mutually agreeable to both Buyer and Seller. The Note and First
Deed of Trust shall contain (among others) the following
provisions:
(1) The Note shall be amortized on the basis of
nine (9) years, payable in monthly installments of principal and
interest at the rate of six percent (6%) per annum. Payments shall
commence the first day of the month following the Closing Date, and
thereafter shall be due on the 1st day of each succeeding month.
If not sooner paid, the balance of principal and accrued interest
shall be due and payable nine (9) years from the Closing Date;
(2) If any payment is not received within fifteen
(15) calendar days after its due date, a late charge of five
percent (5%) of such monthly payment shall be due. Interest on
lender disbursements under the deed of trust shall be eight percent
(8%) per annum. Default interest rate shall be twelve percent
(12%) per annum;
(3) There shall be no pre-payment penalty; and
(4) The Note, First Deed of Trust, Security
Agreement and Financing Statement shall provide that the obligation
of the Buyer with respect to the indebtedness secured thereby shall
be limited wholly and solely to the value of the Property
encumbered thereby at the time of default, without recourse against
the Buyer for any deficiency.
d. Allocation. For all purposes, Seller and Buyer
irrevocably agree that the purchase price for the Property shall be
allocated as follows:
Real Estate $
Equipment
$1,400,000
3. Survey. Within thirty (30) days of the date hereof, or
such later date as the parties shall agree, Seller, at its expense,
shall obtain and furnish to Buyer a current boundary and
improvement survey plat of the Property, certified by a licensed
Colorado surveyor, showing thereon the correct legal description,
property dimensions, square footage, roadways, easements, rights-
of-way, fences, walls and encroachments, if any, recorded or in
place, and all improvements, with the dimensions thereof.
4. Title Evidence.
a. Property and Improvements. At Seller's expense, a
current commitment for an owner's title insurance policy, issued by
Clear Creek Gilpin Abstract and Title Corp. (the "Title Company")
in an amount equal to the purchase price, and certificates of taxes
due issued by the Treasurer of the County of Gilpin showing the
current status of all taxes and assessments due or accruing, shall
be delivered by Seller to Buyer on or before , 2000
("Title Deadline"). Buyer may require of Seller that copies of
instruments (or abstracts of instruments) listed in the
schedule of exceptions ("Exceptions") in the title insurance
commitment also be furnished to Buyer at Seller's expense. The
title insurance commitment, together with any copies or abstracts
of instruments furnished pursuant to this Section 4, constitute the
title documents ("Title Documents"). Buyer, or Buyer's designee,
must request Seller, in writing, to furnish copies or abstracts of
instruments listed in the schedule of exceptions no later than ten
(10) calendar days after the Title Deadline. Seller will pay the
premium at closing and have the title insurance policy delivered to
Buyer as soon as practicable after Closing. Said policy shall be
issued on the current ALTA Owner's Policy form, with standard
printed exceptions, 1, 2, 3 and 4 deleted, except for matters of
survey approved by Buyer, with "gap" protection, and with no other
exceptions other than those permitted by Section 7 below.
5. Approval of Title Evidence and Survey.
a. Title Review. Buyer shall examine the Survey, Title
Documents, and the certificates of taxes due (the "Title Evidence")
furnished by Seller. Written notice by Buyer of unmerchantability
of title or of any other unsatisfactory title condition shown by
the Title Evidence shall be signed by or on behalf of Buyer and
given to Seller on or before , 2000, or within five
(5) calendar days after receipt by Buyer of any Title Document(s)
or endorsement(s) adding new Exception(s) to the title
commitment together with a copy of the Title Document adding new
Exception(s) to title. Upon receipt of notice of defects from
Buyer, Seller may, by written notice to Buyer within ten (10) days,
elect to cure such defects or not to cure them. Unless Seller
elects to cure such defects, Buyer may, by written notice to Seller
at or before the Closing (a) elect to waive such defects and
proceed to close; or (b) terminate this Contract. In the event
that Buyer fails to give written notice of defects or of
termination within the times stated herein, Buyer shall be deemed
to have accepted and approved the status of the title as disclosed
by the Title Evidence. If Buyer gives notice of termination
pursuant to this Section 5, this Contract shall terminate, the
Title Company shall promptly return to Buyer its earnest money
deposit, and both parties shall be released from all further
obligations hereunder.
b. Matters Not Shown by the Public Records. Seller
shall deliver to Buyer, on or before the Title Deadline set forth
in Section 4, true copies of all lease(s), sub-lease(s) and
survey(s) in Seller's possession pertaining to the Property and
shall disclose to Buyer all easements, liens or other title matters
not shown by the public records of which Seller has actual
knowledge. Buyer shall have the right to inspect the Property to
determine if any third-party has any right in the Property not
shown by the public records (such as an unrecorded easement,
unrecorded lease, or boundary line discrepancy). Written notice of
any unsatisfactory condition(s) disclosed by Seller or revealed by
such inspections shall be signed by or on behalf of Buyer and given
to Seller on or before , 2000. If Seller does not
receive Buyer's notice by said date, Buyer accepts title subject
to such rights, if any, of third-parties of which Buyer has
actual knowledge.
c. Special Taxing Districts. In the event the Property
is located within a Special Taxing District and Buyer desires to
terminate this contract as a result, if written notice is given to
Seller on or before , 2000, this Contract shall then
terminate. If Seller does not receive Buyer's notice by the
date specified above, Buyer accepts the effect of the Property's
inclusion in such Special Taxing District(s) and waives the right
to so terminate.
6. Seller's Information. On or before the dates stated
below, Seller, at its expense, shall furnish the following
documentation ("Seller's Information") to Buyer:
a. On or before , 2000, Seller and
Buyer shall work together to obtain on Buyer's behalf and for its
benefit a phase one environmental audit ("Environmental Audit") of
the Property performed by licensed and qualified environmental
scientists/engineers acceptable to Buyer. Buyer shall pay the cost
of obtaining the Environmental Audit. In the alternative, Seller
may provide Buyer with a Phase I conducted within the past twelve
(12) months, together with the representation of warranty contained
in Paragraph 11(c).
b. Buyer's performance under this Contract shall be
contingent upon Buyer's approval of Seller's Information. If Buyer
is not satisfied with any item of Seller's Information, Buyer shall
so notify Seller, in writing, within fourteen (14) days of Buyer's
receipt of such item. Upon receipt of notice of defects from
Buyer, Seller may, by written notice to Buyer with ten (10) days,
elect to cure such defects or not to cure them. Unless Seller
elects to cure such defects, Buyer may, by written notice to Seller
at or before Closing (a) elect to waive such defects and proceed to
close; or (b) terminate this Contract. In the event that Buyer
fails to give written notice of defects or of termination within
the times stated herein, Buyer shall be deemed to have accepted and
approved the status of Seller's Information. If Buyer gives notice
of termination pursuant to this Section 6, this Contract shall
terminate, the Title Company shall promptly return to Buyer its
earnest money deposit, and both parties shall be released from all
further obligations hereunder.
7. Conveyance. Title to the Property shall be merchantable
in the Seller. Subject to payment or tender as above provided and
compliance with the other terms and conditions hereunder by Buyer,
Seller shall convey the Property and Improvements to Buyer by good
and sufficient Trustee's deed. All other portions of the Property
shall be conveyed to Buyer by assignment or other appropriate
instrument of conveyance executed by Seller. All conveyances shall
be free and clear of (a) all taxes and assessments, except general
property taxes accruing and not due and payable as of the date of
Closing; (b) the lien of all special improvements installed as of
the date of Closing, whether assessed or not; and (c) all other
liens, encumbrances, leases, easements, rights-of-way, reservations
and restrictions, except (i) zoning codes and regulations, (ii) the
title exceptions listed in the schedule of exceptions
("Exceptions") in the title insurance commitment described in
Section 4 above, and (iii) leases and unrecorded liens existing as
of the date of Closing, provided copies of said leases and/or liens
have been provided to, and approved by, Buyer in accordance with
the provisions of Section 5(b) above prior to the date of Closing.
The funds to be paid by Buyer to Seller pursuant to the
provisions of Section (c) above may be used by Seller to discharge
any liens encumbering the Property.
8. Adjustments. Real estate and personal property taxes for
the year of Closing, based upon the most recent levy and the most
recent assessment, prepaid rents, water, sewer and all other
utilities and charges shall be apportioned to the Date of Closing
and adjusted against or credited to the payment described in
Section 2(b) above. In the event demand is made by the treasurer
of the County of Gilpin for full payment of personal property taxes
for the year in which the Closing occurs, each of the parties
hereto shall pay its share thereof, apportioned as above provided,
in cash at Closing. Seller shall pay in full and save Buyer
harmless from any sales/use tax assessed as a result of the sale of
the personal property hereunder.
9. Closing.
a. Closing Date. Unless extended by the terms of this
Agreement or by mutual consent of the parties hereto, the Closing
of this transaction shall be held on or before
, 2000, at a time and location mutually agreeable to both Buyer and
Seller; provided, however, that Seller shall have the right to
defer the Closing Date until as late as May 31, 2001.
b. Seller's Deliveries. At the Closing, Seller shall
deliver the following:
(1) A Trustee's deed (the "Deed"), delivered to
Buyer in accordance with the provisions of Section 7 above; and
(2) A bill of sale conveying all Equipment and
other personal property located on the Property to Buyer; and
(3) An assignment of all guarantees or warranties
pertaining to the Property, if any, in Seller's possession, which
are assignable at no cost to Seller and do not require the approval
of any third party; and
(4) Seller shall execute, acknowledge and deliver,
at or subsequent to Closing, such other instruments, documents and
materials as the Title Company may reasonably request to vest title
to the Property in Buyer, including a standard form Seller's
affidavit.
c. Buyer's Deliveries. At the Closing, Buyer shall
deliver the following:
(1) The sum of One Hundred Thirty Thousand Dollars
($130,000) in certified funds payable to Seller; and
(2) An executed original of the Note and related
First Deed of Trust and Security Agreement and Financing Statement
in favor of Seller; and
(3) Any other documents, instruments or agreements
reasonably necessary to close the transaction as contemplated by
this Agreement.
10. Contingencies. This Contract and Buyer's performance
hereunder are contingent upon Buyer's satisfaction, in exercise of
its sole discretion, with each of the following conditions:
a. All defects in Title and Seller's Information, if
any, shall have been remedied to Buyer's satisfaction in accordance
with the provisions of Section 5 and 6 above; and
b. The Title Company shall be standing ready to issue
an ALTA Owner's Policy of Title Insurance insuring Buyer's interest
in the Property, dated the date of Closing in the amount of the
Purchase Price; and
c. The Board of Directors of Buyer shall have approved
and ratified this Agreement and shall have authorized the
appropriate officers of the Buyer to execute same and fully perform
its terms within twenty (20) days of the date of this Agreement;
and
d. The representations and warranties of Seller set
forth in this Agreement shall be true and correct in all material
respects as of the date of Closing; and
e. Seller shall have satisfied its obligations and
requirements under Section 9(b) above.
Each of the Contingencies set forth above must be
satisfied and removed on or before the date specified in each
respective Contingency ("Contingency Termination Date"). In the
event one or more of the Contingencies has not been satisfied and
removed by the relevant Contingency Termination Date, then, at
Buyer's election (i) this Contract shall terminate, the earnest
money deposit shall be returned to Buyer and both parties shall be
released from this Contract; or (ii) Buyer and/or Seller shall have
the option to continue their efforts to satisfy and remove the
remaining Contingencies; provided, however, that in the event Buyer
or Seller elects to continue their efforts to remove the remaining
Contingencies, either party may, at any time following the
Contingency Termination Date, and upon ten (10) days advance
written notice ("Contingency Termination Notice"), elect to
terminate this Contract. Upon receipt by either party of the other
party's Contingency Termination Notice, the party receiving the
Contingency Termination Notice shall have ten (10) days to remove
and/or waive all remaining Contingencies, and to close the
transactions contemplated by this Contract. In the event the party
receiving the Contingency Termination Notice is unable to
consummate the transactions contemplated by this Contract within
said ten (10) day period, this Contract shall terminate (unless the
tenth (10th) day falls on a weekend or legal holiday, in which case
the ten (10) day period shall be extended until the next business
day following the weekend or legal holiday), the earnest money
deposit shall be returned to the Buyer and both parties shall be
released from all further obligations under this Contract.
11. Possession; Inspection.
a. Time of Possession. Possession of the Property
shall be delivered to Buyer at the Closing.
b. Entry Prior to Closing. Prior to the Closing, Buyer
and its agents and employees shall be authorized to enter upon the
Property in order to inspect, appraise and survey the Property;
provided, however, that Buyer shall coordinate such inspection with
Seller, and provided further that at all times Buyer shall comply
with applicable laws; shall save and protect Seller harmless from
any and all liability on account of the actions of Buyer, its
agents or employees, upon the Property; shall cause no harm or
damage to the Property; and shall not allow any liens to be filed
against the Property as a result of such activities of Buyer, its
agents or employees.
12. Seller's Representations. In addition to its
representations and warranties elsewhere in this Contract, Seller
represents and warrants to Buyer that as of the date of its
execution of this Contract and on the date of Closing all of the
following statements are and will be true:
a. Casualty or Condemnation. To the best of Seller's
knowledge and belief there are no pending or threatened
condemnation proceedings, assessments or litigation of any kind
affecting the Property or any part thereof. In the event that,
prior to the Closing, a condemnation proceeding, assessment or
legal action affecting the Property or any part thereof shall be
commenced, levied or threatened, this Contract may be terminated at
the option of the Buyer upon notice to Seller, whereupon the
earnest money deposit shall be returned by the Title Company to the
Buyer and all parties shall be released herefrom. Should Buyer
elect or be obligated to carry out this Contract despite a taking,
Buyer shall be entitled to all of the condemnation proceeds
resulting from any such taking.
b. Defects. There is no condition known to Seller
existing with respect to the Property or its operation, or any part
thereof, which violates any law, rule, regulation, ordinance,
covenant, restriction, code, order, decree or ruling of the County
of Gilpin, the State of Colorado, the United States, or any agency
or court. Seller has not received notice, written or otherwise,
from any governmental, quasi-governmental or private agency or
party requiring or demanding the correction of any condition with
respect to the Property, or any part thereof, or the cessation of
any activities upon the Property.
c. Authority. Seller is the sole owner of the
Property, is duly authorized and empowered to execute and deliver
this Contract and the execution and delivery hereof will not cause
or constitute any breach of or default under any law, contract or
other agreement.
d. Taxes. There are no unpaid and due tax assessments
affecting the Property and shown on the Tax Certificate which will
not be fully paid, accounted for or adjusted at or prior to
Closing.
e. Valid Transfer. Seller represents and warrants to
Buyer that the transfer of the Property to Buyer will not violate
the Colorado Uniform Fraudulent Transfer Act, C.R.S. Sections 38-8-
101, et seq., and Seller agrees to indemnify, defend and hold
harmless Buyer and the Property from the claims of Seller's
creditors, and for all costs and expenses of Buyer incurred in
connection therewith, including Buyer's attorneys' fees.
13. Buyer's Representations.
a. Authority. Buyer is duly and properly authorized to
carry on its business in the State of Colorado and has full
authority to enter into this Agreement, to comply with all the
terms and obligations hereof and to consummate the transactions
provided for hereunder. The execution and delivery of this
Agreement and the transactions provided for hereunder will be duly
authorized by all necessary corporate action of the Buyer and this
Agreement will, when executed and delivered by Buyer, constitute
the valid and binding obligation of Buyer enforceable in accordance
with its terms.
b. Defaults. The execution and delivery of this
Agreement and the transactions provided for herein will not result
in a breach of any of the terms and provisions of or constitute
default under or conflict with any agreement, indenture, mortgage,
lien, lease, consent, license, franchise or other instrument to
which Buyer or any person or entity which Buyer represents is
bound.
14. Default. Time is of the essence hereof. If any payment
or any other condition hereof is not made, tendered, or performed
by the Buyer as herein provided, or if Buyer shall fail to close
within the time stated in Section 9 above, then at the election of
the Seller, and provided Buyer has not rightfully terminated this
Agreement and/or Seller shall not then be in default hereunder or
unable to convey merchantable title to Buyer, this Contract shall
terminate, and the earnest money deposit shall be paid to and
retained by the Seller as Seller's sole remedy hereunder and as
liquidated damages for Buyer's default or failure to close. In
such event neither party shall have any further or other
obligations hereunder to the other; provided, however, that Buyer
shall deliver to Seller, without additional cost, all contracts,
documents, agreements, appraisals, encumbrances, insurance
policies, site plans, studies, surveys, test results permits,
licenses, easements, maps, plats, leases, reports and data
pertaining to or affecting the Property which are in Buyer's
possession or under Buyer's control. If Seller is unable to convey
merchantable title or otherwise defaults hereunder, or fails or
neglects to perform its obligations or covenants as set forth in
this Contract, then Buyer may elect to terminate this Contract,
whereupon the earnest money deposit shall be returned by the Title
Company to the Buyer and both Buyer and Seller shall thereupon be
released from all obligations hereunder; or Buyer may elect to
treat this Contract as being in full force and effect, in which
event Buyer shall have the right to an action against Seller for
specific performance and damages.
15. Commissions. The Seller represents that no commissions
or fees shall be due or payable as a result of this transaction and
Seller agrees to indemnify and hold Buyer and the Property harmless
from any and all claims by brokers and sales agents to commissions
and fees, and for all costs and expenses, including Buyer's
attorney fees, incurred in connection with any such claims, except
as to brokers or agents with whom Buyer has contracted directly.
16. Applicable Law. This Contract is made in and shall be
construed and interpreted in accordance with the law of the State
of Colorado.
17. Assignment. Buyer may assign its rights under this
Agreement without the consent of Seller to a wholly owned
subsidiary of Buyer or to an entity controlled by or under the
common control of Buyer.
18. Attorney Fees. If either party commences an action to
enforce or interpret any portion of this Contract, the prevailing
party in such action shall be entitled to recover from the non-
prevailing party all costs and expenses, including reasonable
attorney fees, incurred by the prevailing party in any such action.
19. Notices. Any notice required or permitted to be
delivered hereunder shall be in writing and shall be deemed to be
given and delivered when deposited with the United States Postal
Service, postage prepaid, registered or certified mail, return
receipt requested, addressed to the party intended at the address
stated below, or to such other address as may hereafter be
furnished in writing:
If to Buyer: Global Central Corporation
Attn: Stephen G. Calandrella
5373 North Union Boulevard, Suite 100
Colorado Springs, Colorado 80918
With Copies to: Neuman, Drennen & Stone, LLC
Attn: Clifford L. Neuman
1507 Pine Street
Boulder, Colorado 80302
If to Seller: U.S. Bank, N.A., Trustee
c/o Ken Roth
950 17th Street, Suite 615
Denver, Colorado 80212
With Copies to: Lyle Sheftel
9683 Camino Capistrano Lane
Las Vegas, Nevada 89148-8048
and
Robert Rottman
1331 17th Street, Suite 510
Denver, Colorado 80202
20. Complete Agreement. This Contract expresses the entire
agreement of Seller and Buyer. There are no other understandings,
oral or written, which in any manner alter or enlarge its terms.
This Contract supersedes any and all agreements between the parties
hereto regarding the Property which are prior in time to this
Contract. Seller and Buyer agree to execute such additional
documents as may be reasonable and necessary to carry out the
provisions of this Contract.
21. Survival. All representations, warranties, indemnities
and covenants made herein shall survive the termination of this
Contract prior to Closing or, alternatively, the Closing of this
Contract and the conveyance of title hereunder, as the case may be,
and shall remain enforceable after either of such events.
22. Set-off. Following the Closing, any sums owed hereunder
by one party to the other that are not paid when due may be applied
as a set-off against any sums then or thereafter due to the
defaulting party, including, but not limited to, a portion of the
purchase price due Seller from Buyer, as evidenced by the Note.
23. Alternative Dispute Resolution. If a dispute arises
relating to this Contract, and is not resolved, the parties shall
first proceed in good faith to submit the matter to mediation.
Buyer and Seller will jointly appoint an acceptable mediator and
will share equally in the cost of such mediation. In the event the
entire dispute is not resolved within thirty (30) calendar days
from the date written notice requesting mediation is sent by one
party to the other, the mediation, unless otherwise agreed, shall
terminate. This section shall not alter any date in this Contract,
unless otherwise agreed.
24. Loss by Fire, Other Casualty or Condemnation. In the
event that prior to the Closing, the Property, or any substantial
part thereof, is destroyed or materially damaged, Buyer shall have
the right, exercisable by written notice to Seller within ten (10)
days after receiving notice of such damage or destruction, either
(i) to terminate this agreement, in which case neither party shall
have any further rights or obligations hereunder and the escrow
deposit shall be promptly returned to Buyer, or (ii) to accept the
Property in its then condition, proceed with the Closing, and
receive and accept an assignment of Seller's rights to any
insurance proceeds payable by reason of such damage or destruction.
Anything herein notwithstanding, the right of Buyer hereunder,
shall be subject to the rights of the tenant under the Lease of the
Property, and/or applicable law.
In the event that prior to the Closing, there is any
insubstantial or immaterial damage to the Property, Buyer shall
accept the Property in its then condition and proceed with the
Closing, in which case Buyer shall be entitled to an assignment of
any insurance proceeds. Anything herein notwithstanding, the right
of Buyer hereunder, shall be subject to the rights of the tenant
under the Lease of the Property, and/or applicable law.
In the event that prior to Closing, all or any material
portion of the Property is subject to a taking by public authority,
including a pending or threatened condemnation, Buyer shall have
the right, exercisable by notice to Seller within ten (10) days
after receiving notice of such taking, either (i) to terminate this
Agreement, in which case neither party shall have any further
rights or obligations hereunder and the escrow deposit shall be
returned to Buyer promptly, or (ii) to accept the Property in its
then condition, proceed with the Closing and receive an assignment
of all of Seller's rights to any condemnation award payable by
reason of such taking. Anything herein notwithstanding, the right
of Buyer hereunder, shall be subject to the rights of the tenant
under the Lease of the Property, and/or applicable law.
In the event that prior to Closing, any insubstantial or
immaterial portion of the Property is subject to a taking, Buyer
shall accept the Property in its then condition and proceed with
the Closing, in which case, Buyer shall be entitled to an
assignment of all of Seller's rights to any award in connection
with such taking. Anything herein notwithstanding, the right of
Buyer hereunder, shall be subject to the rights of the tenant under
the Lease of the Property, and/or applicable law.
For purposes of this Section 24, damage to the Property
or a taking of a portion thereof, shall be deemed to involve a
substantial or material portion if the reasonably estimated cost of
restoration or repair of such damage, or the amount of condemnation
award with respect to a taking, shall exceed $50,000.
25. Execution. This Contract may be executed by telex,
telecopy or other facsimile transmission, and such facsimile
transmission shall be valid and binding to the same extent as if it
were an original. Further, this Contract may be signed in one or
more counterparts, all of which when taken together shall
constitute the same document.
IN WITNESS WHEREOF, Buyer and Seller have signed this Contract
as of the date first above set forth.
GLOBAL CENTRAL CORPORATION,
a Colorado corporation
ATTEST:
By:/s/Stephen G. Calandrella
Stephen G. Calandrella, President
Seller:
EQUIPMENT LEASE AND SUBLEASE AGREEMENT
THIS EQUIPMENT LEASE AND SUBLEASE AGREEMENT (the "Agreement")
is entered into this ____ day of June, 1999, by and between PLATO
FOUFAS & CO., an Illinois corporation, and PLATO FOUFAS,
individually (hereafter collectively "Foufas"), PARK NATIONAL BANK
& TRUST OF CHICAGO ("Lender") and GLOBAL CENTRAL CORPORATION, a
Colorado corporation, ("Global").
RECITALS
WHEREAS, Foufas is the owner of that certain property and
equipment identified on Exhibit A (the "Owned Equipment") and is
the lessee of that certain property and equipment also identified
on Exhibit A (the "Leased Equipment") (hereafter the Owned
Equipment and Leased Equipment may collectively be referred to as
the "Equipment"); and
WHEREAS, Foufas desires to rent to Global and Global desires
to rent from Foufas the Equipment; and
WHEREAS, the Leased Equipment was delivered to Foufas pursuant
to that certain Equipment Lease (the "Lease") dated as of January 9,
1995 in which Park Western Leasing, Inc. ("Park Western") was
the lessor and Tollgate Stage Door, LLC ("Tollgate") was the
lessee; and
WHEREAS, concurrently with the execution of the Lease, Plato
Foufas, individually, executed an individual guaranty (the
"Guaranty") of the payments due by Tollgate pursuant to the Lease; and
WHEREAS, on January 25, 1995 Park Western entered into a
certain Without Recourse Seller's Agreement (the "Park Western
Agreement") pursuant to which Park Western assigned to Lender the
Lease together with all of Park Western's right, title and interest
in and to the Leased Equipment, and as a result of which Lender is
the current title holder of and holds a security interest in the
Equipment described and set forth on Exhibit A hereto; and
WHEREAS, following the occurrence of various conditions of
default and events of default under the Lease and Guaranty
(hereinafter collectively the "Agreements"), Foufas and Lender
entered into a certain Forbearance Agreement dated as of July 31,
1996 (the "Forbearance Agreement"), pursuant to which Lender agreed
not to execute its rights under the Agreements by virtue of the
existence of defaults thereunder (the "Current Defaults"), subject
to the terms and conditions set forth in such Forbearance
Agreement; and
WHEREAS, pursuant to that certain Forbearance Agreement
executed July 31, 1996, by and between Plato Foufas, Plato Foufas
& Co. and Park National Bank & Trust of Chicago, Lender is the
current title holder of and holds a security interest in the
Equipment described and set forth on Exhibit A hereto.
NOW, THEREFORE, in consideration of the above recitals, the
mutual promises herein contained and such other good and valuable
consideration, the sufficiency and receipt of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Lease of Equipment. Foufas hereby agrees to lease and
rent to Global the Equipment and Global hereby agrees to lease the
Equipment from Foufas for the term of this Agreement. In addition,
Global acknowledges that a portion of the Equipment is located in
Foufas' storage space located in Nationwide Self Storage, Unit A-
19, in Golden, Colorado (the "Storage"), and Foufas hereby leases
and agrees to allow Global access to the Storage for purposes
consistent with the provisions of this Agreement.
2. Lender's Consent. Lender hereby consents to the lease,
sublease and option grant set forth in Paragraph 17 hereof of the
Equipment set forth on Exhibit A hereto. Lender represents and
warrants that the Lease is valid, enforceable and in full force and
effect and any condition or event of default thereunder is subject
to the Forbearance Agreement attached hereto as Exhibit B.
Further, Lender represents and warrants that the execution and
delivery of this Agreement and the grant of the lease, sublease and
option to Global hereunder do not and will not constitute a default
under the Lease or the Forbearance Agreement. Lender agrees that,
should there occur an event of default under the Lease or the
Forbearance Agreement, Lender shall serve written notice of such
event of default to Global concurrently with any notice sent by
Lender to Foufas and agrees to permit Global the opportunity to
cure any such event or condition of default under the Lease or the
Forbearance Agreement in accordance with their respective terms and
subject to its conditions.
3. Extension of Forbearance Agreement and Option. In
consideration of the mutual covenants and agreements herein
contained, Lender agrees to extend the termination date of the
Forbearance Agreement (the "Forbearance Termination Date") for an
additional twenty (20) months or until August 1, 2001. Lender
further agrees that by such extension the option to purchase the
Leased Equipment granted under the Lease shall remain in full force
and effect until the revised Forbearance Termination Date, provided
that no condition or event of default under the Forbearance
Agreement shall occur or shall fail to be cured in accordance with
its terms and conditions. Lender further represents and warrants
that the option price which will be necessary to be paid under the
Lease to purchase the Equipment shall not exceed the sum of Thirty-
Five Thousand Dollars ($35,000).
4. Rental. Global shall pay Foufas as rent for the use of
the Equipment, the sum of One Thousand Seven Hundred Dollars
($1,700) per month for each month during the term hereof, with the
first payment due upon and subject to Global obtaining a valid
gaming casino license (the "License") from the Colorado Division of
Gaming permitting the operation of the Tollgate Casino in Central
City, Colorado (the "Casino"), which date shall be the Commencement
Date of this Agreement. Should Global not receive or obtain the
License on or before August 31, 1999, this Agreement shall
terminate without liability to Global to pay any rent hereunder.
In addition, beginning on the Commencement Date, Global shall pay
and discharge all rent and other sums due for use and occupancy of
the Storage; provided, however, that Global shall have the right to
remove all items of personal property from the Storage Unit and
upon Global's notification of Foufas that all items of personal
property have been removed from the Storage, Foufas shall terminate
the Storage Unit Lease and Global shall have no further obligation
to pay rent or other sums due thereunder.
5. Possession. Possession of the Equipment shall be
delivered to Global upon execution of this Agreement. Global
accepts the Equipment in an "as is" condition.
6. Ownership and Use.
a. Foufas represents and warrants that the Owned
Equipment is owned by Foufas free and clear of all claims, liens or
encumbrances of third parties. During the term hereof, Foufas
agrees not to suffer or permit any liens or other encumbrances to
be asserted against such Owned Equipment described on Exhibit A and
agrees at all times to maintain itself as the sole and exclusive
owner of such property.
b. Foufas represents and warrants that the Leased
Equipment is held subject to the Forbearance Agreement and the
Lease. Foufas represents and warrants that the Forbearance
Agreement is valid, enforceable and in full force and effect and
there does not exist any condition or event of default thereunder.
During the term hereof, Foufas agrees to maintain such Forbearance
Agreement in full force and effect and not to suffer or permit any
default to occur thereunder. Foufas agrees that, should there
occur a default under the Forbearance Agreement during the term,
Foufas shall serve written notice of such default upon Global and
grants to Global the right without further notice to Foufas to make
such payments and take such other actions as Global may deem
necessary, reasonable or advisable to cure such default and to
maintain such Forbearance Agreement in full force and effect and in
good standing. Any costs or expenses incurred by Global to cure
any default under any such Forbearance Agreement may be offset and
credited by Global against any and all rent due hereunder as well
as against payment of the option price, should Global exercise its
option to purchase granted hereunder.
c. Global shall keep the Equipment free and clear from
all claims, levies, liens, and encumbrances. Global shall give
Foufas immediate notice of any attachment, seizure or other process
affecting any article of Equipment.
d. Global shall not pledge, lend, create a security
interest in, sublet or relinquish possession of the Equipment or
any part thereof, or attempt in any manner to dispose of the
Equipment, or remove the Equipment or any part thereof from its
casino without Foufas's written consent. Global shall operate and
use the Equipment in accordance with all applicable manufacturers'
and owners' manuals of instruction, and such operations shall be by
competent and qualified personnel.
e. Global shall keep the Equipment at the location of
the Tollgate Casino, Central City, Colorado, and the Equipment
shall not be removed therefrom without the prior written consent of
Foufas. Foufas shall have the right to inspect the Equipment at
any reasonable time during normal business hours. If Foufas
provides Global with labels stating that the Equipment is owned by
Foufas, Global shall affix and keep same in a prominent place on
each item of Equipment.
f. Global shall use the Equipment in a careful and
lawful manner in compliance with all laws, ordinances, regulations,
requirements and rules of any governmental authority with respect
to the use, maintenance, modification and operation of the
Equipment. Global shall provide Foufas with written certification
of such compliance upon reasonable request by Foufas. Global shall
not make any alterations, additions or improvements to the
Equipment without the prior written consent of Foufas, which
consent shall not be unreasonably withheld. All additions and
improvements made to the Equipment shall be the property of Foufas,
shall not be removed without the prior written consent of Foufas,
and shall be made at the sole cost and expense of Global.
7. Repairs and Maintenance. Global shall keep the Equipment
in good working condition, and shall pay all costs and expenses
associated with all repairs and replacement parts necessary for the
proper maintenance and preservation of the Equipment. Global shall
provide all the repair services, parts and supplies necessary to
properly maintain the Equipment.
8. Expenses. Global shall be liable for all expenses which
may be incurred from time to time arising out of this Agreement,
including but not limited to all property taxes, license fees, use
and excise taxes, title and registration fees and other
governmental assessments imposed as a result of the Equipment's
presence and use in Central City, Colorado.
9. Damage or Theft. Global hereby agrees to replace or pay
the fair market value of any of the Equipment which is damaged,
destroyed, stolen or which in any way becomes unavailable for
return to Foufas. Upon termination of this agreement, provided
Global does not exercise the purchase option provided for herein,
all Equipment shall be returned in good working condition, ordinary
wear and tear excepted.
10. Insurance. Global shall provide and maintain insurance
against loss, theft, damage or destruction of the Equipment in an
amount no less than the fair market value of the Equipment, with
Foufas and Lender named as co-insured. Global shall also provide
and maintain comprehensive general all-risk liability insurance
insuring Global and naming Foufas and Lender as co-insureds against
any and all loss or liability for damages either to person or
property or otherwise which may result or arise from any condition,
use or operation of the Equipment. Each policy shall expressly
provide that said insurance as to Foufas and Lender and their
respective assigns shall not be invalidated by any act, omission or
neglect of Global and cannot be canceled without thirty (30) days'
written notice to Foufas and Lender. As to each policy, Global
shall furnish Foufas and Lender with a Certificate of Insurance
from the insurer, which Certificate shall evidence the insurance
coverage required by this paragraph and shall designate Foufas and
Lender as loss payees and/or additional insureds. If Global fails
to procure or maintain said insurance, Foufas and/or Lender shall
have the right, but shall not be obligated, to effect such
insurance, in which event Foufas or Lender, as the case may be,
shall notify Global of any such payment and Global shall repay such
party within fifteen (15) days after such notice is mailed to
Global.
11. Term. The term of this Agreement shall commence upon
Global obtaining the License from the Colorado Division of Gaming
permitting the operation of the Casino (the "Commencement Date")
and shall terminate twenty-two (22) months following the
Commencement Date (the "Termination Date").
12. Return of Equipment. Upon termination of this Agreement,
Global hereby agrees to return to Foufas possession of the
Equipment. Possession shall be redelivered to Foufas at the Casino
premises.
13. Assumption of Liability for Use of Tollgate Tokens.
Global does hereby agree to assume any and all liability whether
financial or otherwise, for whatever reason, arising during the
term of this Agreement out of Global's use of Tollgate Casino
tokens, including, but not limited to, any liability relating to
the redemption of Tollgate Casino tokens pursuant to applicable
Casino Gaming regulations. Global shall otherwise indemnify Foufas
for any claims, actions, damages or liabilities, including
attorneys' fees, arising out of the use of Tollgate Casino tokens
by Global, its agents and/or assigns.
14. Default. The occurrence of any of the following events
shall constitute a "default":
a. Failure by Global to pay any installment of monthly
rent or other sum due and owing, now or hereafter owed by Global to
Foufas under this Agreement, which default remains uncured after
thirty (30) days' written notice;
b. Failure in the performance of any obligation,
covenant or liability contained in this Agreement or any other
agreement with Foufas in connection herewith, which default remains
uncured after thirty (30) days' written notice;
c. Any warranty, representation or statement made or
furnished by or on behalf of Global proving to have been false in
any material respect when made or furnished, which default remains
uncured after thirty (30) days' written notice;
d. Loss, theft, damage, destruction without insurance
required in Paragraph 9 hereof or without replacement by Global, or
attempted sale, bulk transfer or encumbrance by Global of any of
the Equipment, or the making of any levy, seizure or attachment
thereof; or
e. Dissolution, termination of existence,
discontinuance of Global's business, insolvency or appointment of
a receiver of any part of the property of, or assignment for the
benefit of creditors by Global, or the commencement of any
proceeding under any bankruptcy, reorganization or arrangement laws
by or against Global.
15. Global's Remedies. Upon the occurrence of default,
Foufas shall have the following rights and remedies which shall be
cumulative and which may be exercised with or without notice, and
which may be exercised separately, independently or concurrently
and more than once and in any order, and without any election of
remedies to be deemed made, and without affecting the right of
Foufas to exercise any other remedy hereunder or which Foufas may
have in law:
a. To declare all unpaid monthly rent under this
Agreement to be immediately due and payable, in which event this
Agreement shall continue in full force and effect;
b. To terminate this Agreement as to any or all of the
Equipment;
c. To take possession of the Equipment wherever found,
and for this purpose enter any premises of Global or any other
location without any liability for suit, action or other
proceedings by Global and remove the Equipment;
d. To cause Global at its expense to promptly return
the Equipment to Foufas;
e. To repair, recondition, maintain, remove, transport
or store the Equipment at Global's expense;
f. To use, hold or otherwise dispose of the Equipment
without affecting Global's obligations hereunder; or
g. To proceed by appropriate action, either by law or
in equity to enforce performance by Global of the applicable
covenants, promises or undertakings of this Agreement or to recover
damages for the breach thereof.
16. Indemnification. Global hereby agrees to indemnify and
hold harmless Foufas from any and all liability, causes of action,
damages, costs or expenses of whatever kind or nature resulting
from the existence of or the operations of its casino, Global's
possession and use of the Equipment, and any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits,
costs, expenses and disbursements of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against Foufas, in
any way relating to or arising out of this Agreement or the
enforcement of this Agreement against Global of any of the terms
hereof. If Global has or receives any knowledge or notice of any
claim, liability, or potential claim or liability, it shall give
prompt written notice of same to Foufas. Global shall, at its
expense, and at Foufas's option, defend any action, suit or
proceeding with counsel reasonably satisfactory to Foufas;
provided, however, that Global shall not admit liability on behalf
of Foufas or settle any such action without the consent of Foufas.
17. Assignment. Assignment by Foufas or Global of any right,
obligation or duty, in whole or in part, or any other interest
hereunder, requires consent by the other party and Lender. Such
consent shall not unreasonably be withheld. Any and all
obligations and duties of any of the parties hereunder shall be
binding on all successors in interest and assigns of such party and
shall survive any acquisition, merger, reorganization or other
business combination to which it is a party.
18. Option to Purchase. Upon the termination of the
Agreement, Global shall have the right and option to purchase all
of the Equipment. Such option may be exercised at Global's
election by delivering written notice to Foufas at least thirty
(30) days prior to the Termination Date. The purchase price for
the equipment shall be an aggregate of Thirty-Five Thousand Dollars
($35,000) for all of the Equipment. Upon exercise by Global of the
option to purchase granted herein, Global shall also be obligated
to pay the balance, if any, of all rent which may be due and owing
under this Agreement from the date of exercise to the Termination
Date. Foufas shall be obligated to exercise all rights to purchase
the Leased Equipment under the terms of the Lease, and pay all
costs associated therewith, and thereafter to convey to Global the
Equipment by bill of sale with general warranty of title against
tender and delivery by Global of payment of the purchase price,
which shall occur within thirty (30) days of the date of Global's
exercise of the option herein granted. Should Foufas fail to
exercise all rights to purchase the Leased Equipment under the
terms of the Lease within the time provided, Global shall have the
right to tender to Lender payment of the option exercise price and
all associated costs; whereupon Lender shall convey the Equipment
by Bill of Sale with general warranty of title to Global and Global
shall pay to Foufas the balance, if any, between the aggregate
purchase price of Thirty-Five Thousand Dollars ($35,000) and the
sums paid by Global to Lender to exercise the purchase option. The
Equipment shall be conveyed by Foufas or Lender, as the case may
be, to Global free and clear of all liens, claims or encumbrances
of third parties.
19. Force Majeure. Neither party shall be held liable for
any delay or failure in performance of any part of this Agreement
from any cause beyond its control, including, without limitation,
acts of God, acts of civil, governmental or military authority,
government regulations or changes thereof, embargoes, epidemics,
war, terrorist acts, riots, insurrections, fires, explosions,
earthquakes, nuclear accidents, floods, strikes, power blackouts,
other major environmental disturbances, or severe weather
conditions.
20. Resolution of Disputes.
a. In the event of a dispute, claim or controversy
arising out of or related to this Agreement or any other agreements
arising hereunder, the laws of the United States and the State of
Colorado shall be applied and shall govern such dispute, claim or
controversy without regard to choice of law provisions.
b. Any action or proceeding brought to resolve any
controversy or claim arising out of or relating to this Agreement
shall take place in Denver, Colorado, U.S.A.
c. In any action or proceeding brought to enforce any
provision of this Agreement, the prevailing party in such dispute
shall be entitled to an award for all costs and expenses incurred
in connection therewith, including an award for reasonable
attorneys' fees.
21. Waiver. Waiver by either party of any violation or non-
performance by the other party of any of its obligations hereunder
shall not be considered a waiver of any other of the party's
obligations, covenants or agreements, nor shall any forbearance by
other parties be deemed a waiver by such party of its right to
remedies with respect to such violation of non-performance.
22. Severability. If, for any reason, any provision of this
Agreement is held invalid, such invalidity shall not affect any
other provision of this Agreement, and each such other provision
shall to the full extent consistent with law continue in full force
and effect. If any provision of this Agreement should be invalid
in part, such invalidity shall in no way affect the rest of such
provision, which shall, together with all other provisions of this
Agreement, to the full extent consistent with law, continue in full
force and effect.
23. Prior Agreements. This Agreement supersedes all prior
discussions, negotiations and agreements between Foufas and Global,
and cannot be altered or amended except by agreement in writing
signed by both parties.
24. Execution. This Agreement may be executed by duly
authorized officers of the respective parties hereunder in any
number of counterparts, each of which shall be deemed the original.
25. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing in the English
language and shall be delivered personally or sent by first class
registered or certified mail, overnight courier service, or
telecopy as follows:
If to Global, to: Stephen G. Calandrella, President
Global Central Corporation
5373 North Union Boulevard, Suite 100
Colorado Springs, Colorado 80918
Fax: (719) 590-4888
with a copy to: Clifford L. Neuman, Esq.
Neuman, Drennen & Stone, LLC
1507 Pine Street
Boulder, Colorado 80302
Fax: (303) 442-1045
If to Foufas: Plato Foufas, President
Plato Foufas & Co.
One IBM Plaza
Chicago, Illinois 60611
Fax: (312) 828-9681
with a copy to: Timothy S. Wilhelm, Esq.
Keck & Associates, P.C.
One IBM Plaza, Suite 2630
Chicago, Illinois 60611
Fax: (312) 828-9681
If to Lender: ________________________________
Park National Bank & Trust of Chicago
________________________________
________________________________
Fax:____________________________
with a copy to:
________________________________
________________________________
________________________________
Fax:____________________________
or such other address or telecopy number as may be designated in
writing by any party to the other parties hereto. Any notice or
other communication so transmitted shall be deemed to have been
given on the day of delivery, if delivered personally, on the
business day following receipt of telecopy confirmation, if sent by
telecopy, one business day after delivery to an overnight courier
service, or five days after mailing if sent by mail.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PLATO FOUFAS & CO.
By:/s/Plato Foufas
Plato Foufas, President
___________________________
PLATO FOUFAS
GLOBAL CENTRAL CORPORATION
By:/s/Stephen G. Calandrella
Stephen G. Calandrella,President
PARK NATIONAL BANK & TRUST OF CHICAGO
By:
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of August ___, 1999, is made and
entered into by and between GLOBAL CASINOS, INC., a Utah
corporation, ("Company") and ERIC HARTSAUGH ("Employee"). For the
definition of certain terms used in this Agreement, see Section 6
below.
The Company and Employee agree as follows:
Section 1. Employment.
1.1. Engagement. The Company will employ Employee, and
Employee will accept employment, as an Employee of Company for the
Term, subject to and in accordance with the provisions of this
Agreement.
1.2. Duties. During the Term, Employee will serve
Company in the capacity of Vice President of Operations or such
other capacity as may be designated by the Board, or President
Employee's duties as an Employee of Company include all of the
duties normally associated with such capacity. Employee's duties
will also include such other activities, responsibilities and
duties as may reasonably be assigned from time to time by the
President or the Board. If Employee is elected or appointed by the
Board as an officer or other position with Company, Employee will
perform the duties of such position as described in the Company's
bylaws or as determined from time to time by the Board.
1.3. Attention and Effort. During normal business hours,
for such periods of time as the Company has specific projects
assigned to Employee, Employee will devote Employee's best efforts,
entire productive time, ability and attention to the business of
Company. For such periods of time as there are no specific
projects assigned to Employee, Employee shall only be required to
devote such time, effort and attention to the affairs of the
Company as may from time to time be requested by the President or
Board, subject to the agreement of Employee. Further, during the
Term, Employee will not, without Company's prior written consent,
directly or indirectly engage in any employment, consulting or
other activity which would interfere or conflict with the
performance of Employee's duties or obligations to Company or which
would directly or indirectly compete with Company.
Section 2. Compensation.
2.1. Base Salary. During the Term, Company will pay
Employee a base salary equal to $65,000 per year, payable bi-
weekly.
2.2. Incentive Compensation. In addition to base salary
described in paragraph 2.1, Employee may be entitled to receive
such bonuses and other compensation as may be determined by the
Board or the President (e.g., pursuant to such bonus, stock and
other incentive compensation plans as may be adopted and maintained
by Company during the Term).
2.3 Stock Incentive Plan. The Company has adopted and
implemented a Stock Incentive Plan pursuant to which the Company
shall be authorized to issue incentive stock options qualified
under Section 422 of the Internal Revenue Code of 1986, as amended
("Stock Plan"). Employee shall be entitled to receive incentive
stock options exercisable to purchase 30,000 shares of the
Company's common stock at an exercise price per share equal to the
average bid and ask prices of the Company's common stock as quoted
on the over-the-counter market on the date of this Agreement. Of
such incentive stock options, 10,000 incentive stock options shall
vest and become exercisable on each anniversary of the date of this
Agreement, subject to Employee's continued employment on each such
anniversary date. The incentive stock options shall be exercisable
for a period of five years from the date of grant, subject to
vesting and subject to early termination as provided for in the
Stock Plan.
2.4. Benefits. During the Term, Employee will be
entitled to participate in such fringe benefit programs (e.g.,
medical, dental, disability, life insurance and vacation programs)
as may be provided from time to time by the Board or any person or
committee appointed by the Board to determine fringe benefit
programs, all subject to and in accordance with the eligibility and
other requirements of such programs.
2.5. Expenses. During the Term, Company will reimburse
Employee for reasonable out-of-pocket expenses incurred by Employee
in performance of service for Company under this Agreement (e.g.,
transportation, lodging and food expenses incurred while traveling
on Company business), all subject to such policies and other
requirements as Company may from time to time establish for its
Employees generally.
2.6. Withholding and Offset. Payment of the base salary
and any other amounts to Employee will be subject to such
withholding and offset as may be provided by applicable law (e.g.,
for income tax purposes) or consented to by Employee.
2.7. Indemnification. Subject to applicable law, the
Company shall indemnify and hold Employee harmless from any and all
loss, judgments or claims Employee may suffer in the proper
discharge of Employee's duties hereunder, including, but not
limited to attorney's fees and court costs.
Section 3. Term and Termination.
3.1. Commencement. The Term will commence on August ___,1999.
3.2. Termination. The Term will terminate upon the first
of the following to occur: (a) Company's termination of Employee's
Employment for Cause pursuant to paragraph 3.3; (b) Company's
termination of Employee's employment without Cause pursuant to
paragraph 3.4; (c) Employee resigns from employment as an Employee
of Company pursuant to paragraph 3.5; (d) Employee terminates his
employment for Cause pursuant to paragraph 3.6; (e) the death of
Employee; or (f) the disability of Employee resulting from injury,
illness or disease, whether of a mental or physical nature, which
substantially impairs or prevents the ability of Employee to
satisfactorily perform Employee's duties and obligations under this
Agreement for a period of 90 days; (g) the Change in Control of the
Company or (h) three (3) years from the commencement date. If the
Employee is terminated pursuant to subparagraphs 3.2(a), (c), (e),
(f) or (h), the Employee shall be entitled to no additional
compensation under Section 2 herein after the date of termination.
However, if an Employee is terminated pursuant to subparagraphs
3.2(b), (d) or (g), Employee shall be entitled to receive the
Termination Payments provided for in Section 3.9 below.
3.3. Termination for Cause. Company may at any time
terminate Employee's employment for Cause without prior notice.
3.4. Termination Without Cause. Company may at any time
terminate Employee's employment with or without Cause by giving
Employee notice of the same at least five (5) days prior to the
effective date of such termination.
3.5. Resignation. Employee may at any time resign from
employment with Company by giving Company notice of thirty (30)
days prior to the effective date of such termination.
3.6. Termination For Cause By Employee. Employee may at
any time terminate Employee's employment for Cause without prior
notice.
3.7. Termination Due to Change in Control. Employee may
terminate Employee's employment due to a Change in Control without
prior notice.
3.8. Disability. If in the event of a disability
described in paragraph 3.2(e) Company decides not to terminate
Employee's employment and Employee is entitled to receive payments
(i.e., in lieu of wages or other compensation for employment) on
account of such disability under any fringe benefit program
provided by Company, then the base salary described in
paragraph 2.1 will be reduced to the extent of such entitlement.
3.9. Termination Payments. In the event the Employee's
employment is terminated pursuant to paragraph 3.4 or 3.6, the
Company shall be obligated to pay to Employee Termination Payments
equal to, in the aggregate, all of the Employee's then current base
salary payable for the number of years, and fractions of years,
remaining on the Term of this Agreement as defined in
Section 3.2(g) above. Such Termination Payments shall be due and
payable when and as paid prior to the date of Termination.
3.10. Return of Company Property. Upon termination
of the Term, Employee will deliver to Company any and all property
of Company which is in Employee's possession or control (including,
but not limited to, any and all Materials).
3.11. Survival. Sections 4 and 5, together with all
other provisions of this Agreement that may reasonably be
interpreted or construed to survive any termination of the Term,
will survive any termination of the Term.
Section 4.Confidentiality.
4.1. Confidential Information. In the course of
Employee's employment with Company, Employee will have access to
certain Confidential Information. Employee will use and disclose
Confidential Information solely for the purposes for which it is
provided and will take reasonable precautions to prevent any
unauthorized use or disclosure of the same. Employee will not use
or disclose any Confidential Information (a) other than as required
in the course of Employee's employment with Company, (b) for
Employee's own personal gain, or (c) in any manner contrary to the
best interests of Company.
4.2. Proprietary Information of Others. Employee will
not use in the course of Employee's employment with Company, or
disclose or otherwise make available to Company any information,
documents or other items which Employee may have received from any
other person (e.g., a prior employer) and which Employee is
prohibited from so using, disclosing or making available (e.g., by
reason of any contract, court order, law or obligation by which
Employee is bound).
4.3. Work Product. All Work Product which Employee
conceives, develops or first reduces to practice, either alone or
with others, during the Term will be the sole and exclusive
property of Company, together with any and all related Intellectual
Property Rights. The foregoing applies to all Work Product which
relates to Employee's performance of services under this Agreement,
Company's Field of Business or Company's actual or demonstrably
anticipated research or development and whether or not such Work
Products are conceived, developed or first reduced to practice
during normal business hours or with the use of any equipment,
supplies, facilities, personnel, Confidential Information or other
resource of Company.
4.4. Disclosure and Protection of Work Products.
Employee will disclose all Work Products described in paragraph 4.3
to Company, promptly and in writing. At Company's request and at
Company's expense, Employee will assist Company or its designee in
efforts to protect such Work Products. Such assistance may
include, but is not necessarily limited to, the following:
(a) making application in the United States and in foreign
countries for a patent or copyright on any Work Products specified
by Company; (b) executing documents of assignment to Company or its
designee of all Employee's right, title and interest in and to any
Work Product and related Intellectual Property Rights; and
(c) taking such additional action (including, but not limited to,
the execution and delivery of documents) to perfect, evidence or
vest in Company or its designee all rights, title and interest in
and to any Work Product and any related Intellectual Property
Right.
4.5. Materials. All Materials and related Intellectual
Property Rights will be the sole and exclusive property of Company,
whether or not such Materials are marked with any Intellectual
Property Right notice of Company or Employee. All such Materials
authored, made, conceived or developed by Employee or made
available to Employee (or any copies or extracts thereof) will be
held by Employee in trust solely for the benefit of Company.
Employee will use such Materials only as required in the course of
Employee's employment with Company or as otherwise authorized in
writing by Company.
4.6. Notice. This Agreement does not apply to any
invention for which no equipment, supplies, facility or trade
secret information of Company was used, and which was developed
entirely on Employee's own time, unless: (a) the invention relates
(i) directly to the Company or (ii) to Company's actual or
demonstrable anticipated research or development; or (b) the
invention results from any work performed by Employee for Company.
Section 5.Competition.
5.1 Employee covenants to and with the Company, its
successors and assigns, that during the term of this Agreement and
for a period of twelve (12) months from the date of the termination
of this Agreement if terminated pursuant to Sections 3.3 or 3.5 of
this Agreement, he will not directly or indirectly, either as
principal, agent, manager, employee, owner, partner (dominant or
otherwise), stockholder, director or other officer of a
corporation, creditor, consultant or otherwise, engage or become
interested financially or otherwise, in any business, agency, trade
or occupation similar to or in competition with the Company or its
affiliates; nor shall Employee, during the term of this Agreement
and for a period of six (6) months from the date of the termination
of this Agreement, consult or enter into any agreement or
arrangement with any other person, firm, corporation or entity to
conduct any research or development, nor shall Employee directly or
indirectly conduct such research or development on its own behalf,
related to the discovery of processes, improvements, developments
or commercialization of any service or product developed or reduced
to practice during the period of employment with the Company,
unless Employee shall have first obtained the Company's expressed
written consent thereto. Because of the nature of the business,
the parties agree that it is reasonable for the covenant to apply
to any state of the United States or any political subdivision of
a foreign nation or state within which the Company owns or operates
a gaming facility. If the geographic area is determined by a court
to be overly broad in scope, it shall be modified only to the
extent necessary to bring it within the requirements of the law and
interpreted to give the Company the broadest protection allowed by
law.
5.2 In the event of a breach or threatened breach by Employee
of any provisions of this Section 5, the Company shall be entitled
to an injunction restraining it from the commission of such breach.
Nothing herein contained shall be construed as prohibiting the
Company from pursuing any other remedies available to it for such
breach or threatened breach, including the recovery of money
damages. The covenants contained in this Section 5 shall be
construed as independent of any other provisions in this Agreement;
and the existence of any claim or cause of action of Employee
against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the
Company of said covenants.
5.3 The covenants contained in this Section 5 shall terminate
and, upon termination, shall be unenforceable and of no further
legal force and effect, in the event the Company, or any successor
to the Company, becomes insolvent or ceases for any reason to
conduct business operations for a continuous period of at least
thirty (30) days.
5.4 The Company shall have the right to assign the aforesaid
covenants; and Employee agrees to remain bound by the terms of the
covenants to any and all subsequent purchasers and assignees of the
assets and business of the Company.
Section 6.Non-Interference.
6.1 The Employee covenants with the Corporation that
employees of or consultants to the Corporation and employees of and
consultants to firms, corporations or entities affiliated with the
Corporation have, of necessity, been exposed to and have acquired
certain knowledge, understandings, and know-how concerning the
Corporation's business operations which is confidential information
and proprietary to the Corporation.
6.2 In order to protect the Corporation's confidential
information and to promote and insure the continuity of the
Corporation's contractual relations with its employees and
consultants, the Employee covenants and agrees that for so long as
the Employee holds any position or affiliation with the
Corporation, including service to the Corporation as an officer,
director, employee, consultant, agent or contractor, and for a
period of six (6) months from the date the Employee ceases to hold
any such position or status with the Corporation or otherwise
becomes disaffiliated with the Corporation, he will not directly,
or permit or encourage others to directly (i) interfere in any
manner whatsoever with the Corporation's contractual or other
relations with any or all of its employees or consultants, or (ii)
induce or attempt to induce any employee or consultant to the
Corporation to cease performing services for or on behalf of the
Corporation, or (iii) solicit, offer to retain, or retain, or in
any other manner engage or employ the services of, or conduct any
business activity in cooperation or association with, any person or
entity who is then employed by the Corporation, or any subsidiary
of the Corporation, except with the consent of the Corporation.
6.3 In the event any court of competent jurisdiction
determines or holds that all or any portion of the covenants
contained in this Section 6 are unlawful, invalid, or unenforceable
for any reasons, then the parties hereto agree to modify the
provisions of this Section 6 if and only to the extent necessary to
render the covenants herein contained enforceable and otherwise in
conformance with all legal requirements.
Section 7.Clients and Customers.
7.1 In order to protect the Corporation's proprietary rights
and to promote and ensure the continuity of the Corporation's
contractual relations with its customers and clients, the Employee
covenants and agrees that, for so long as the Employee holds any
position or affiliation with the Corporation, including service to
the Corporation as an officer, director, employee, consultant,
agent or contractor, and for a period of twelve (12) months from
the date the Employee ceases to hold any such position or status
with the Corporation or otherwise becomes disaffiliated with the
Corporation, he will not directly, or permit or encourage others to
directly (i) interfere in any manner whatsoever with the
Corporation's contractual or prospective relations with any clients
or customers, or (ii) induce or attempt to induce any client or
customer of the Corporation to cease doing business with the
Corporation, or (iii) solicit, offer to retain, or retain, or in
any other manner engage or enter into any business or other
arrangement with any of the Corporation's customers or clients to
provide any services or products to any of such customers or
clients as they may from time to time exist or be constituted,
except and unless such arrangement for the provision of products or
services is not in any way competitive with the products or
services actually provided by the Corporation to its clients or
customers or proposed to be provided by the Corporation to its
clients or customers, or except under circumstances to which the
Corporation has consented in writing, which consent shall not be
unreasonably withheld.
7.2 In the event any court of competent jurisdiction
determines or holds that all or any portions of the covenants
contained in this Section 7 are unlawful, invalid or unenforceable
for any reason, then the parties hereto agree to modify the
provisions of this Section 7 if and only to the extent necessary to
render the covenants herein contained enforceable and otherwise in
conformance with all legal requirements.
Section 8.Definitions.
Whenever used in this Agreement with initial letters
capitalized, the following terms will have the following specified meanings:
8.1. "Board" means Company's Board of Directors.
8.2. "Cause" for purposes of paragraph 3.3, shall include
the occurrence of any of the following:
a. The Employee commits a material breach of the
terms of this Agreement, which shall remain uncured for a period of
thirty (30) days after written notice by the Company of such
breach.
b. The Employee is shown to have engaged in any
act of dishonesty detrimental to the Company, or fraud upon the
Corporation, any of its affiliated companies, or any of its
customers or clients;
c. The Employee fails to devote his full time,
attention and efforts to the business and affairs of the
Corporation or its affiliated companies which condition remains
uncured for a period of thirty (30) days after written notice by
the Company; or
d. The Employee has been grossly negligent in the
performance of his employment duties or responsibilities which
condition remains uncured for a period of thirty (30) days after
written notice by the Company.
8.3. "Cause," for purposes of paragraph 3.6, shall
include the occurrence of any of the following:
a. The breach or violation by the Company of the
any of the material terms of this Agreement, which shall remain
uncured for a period of thirty (30) days of written notice by
Employee of such breach;
b. Any significant change in position, duties and
responsibilities of Employee to which the Employee does not
consent;
c. Any move of the Company or its principal
officers resulting in or any other requirement that the Employee,
without his consent, change his principal residence.
d. The Company has shown to have engaged in any
active material dishonesty or fraud upon the Employee.
e. There shall occur a Change of Control of the
Company.
8.4. "Change of Control" means any transaction of the
Company involving (i) the merger or consolidation of the Company
into or with another entity where the Company's shareholders
receive less than 50% of the outstanding voting securities of the
new or continuing entity, (ii) the sale of all or substantially all
of the Company's assets, (iii) any person not already a stockholder
of the Company becoming a beneficial owner, directly or indirectly,
of the securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities,
(iv) a change in the majority of the Board of Directors of the
Company, or (v) the Company terminating its business or liquidating
its assets.
8.5. "President" means Company's Chief Executive Officer.
8.6. "Company's Field of Business" means any of the
fields of the Company's business. On the date of the Agreement,
Company's Field of Business includes, but is not necessarily
limited to, the following: owning and operating gaming casinos and
gaming related businesses.
8.7. "Confidential Information" means any information
that is confidential, proprietary or trade secret information of
Company or any of its customer or clients or any other information
the use of disclosure of which by Company is prohibited or
restricted (e.g., by reason of any contract, court order, law or
other obligation by which Company is bound). "Confidential
Information" may include, but is not necessarily limited to,
technology, computer programs, business plans, marketing plans,
information as to existing or future products or services of
Company, financial projections, unpublished works of original
authorship, customer lists, financial information, and trade
secrets.
Notwithstanding the foregoing, the restrictions on
disclosure and use of information and materials as set forth in
Section 4 shall not apply to the following, and the following is
not confidential or proprietary information: (1) any information
or materials which were generally available to the public at the
time made available to Employee by the Company; (2) any information
or materials which become, without breach of Section 4 and through
no fault of Employee, generally available to the public; (3) any
information or materials which Employee has received from other
sources prior to the date of this Agreement, subject to no
restrictions on disclosure applicable to Employee; and (4) any
information or materials which Employee at any time lawfully
obtains from a third party who is not under any obligation of
secrecy or confidentiality to the Company, under circumstances
permitting disclosure by Employee to others without restriction.
8.8. "Intellectual Property Right" means any patent,
copyright, trade secret, trade name, trademark or other
intellectual property right.
8.9. "Materials" means hardware, software, programs,
manuals, drawings, designs, articles, writings, data, notes,
memorandum, manuscripts, notebooks, proposals, work plans, interim
and final reports, project files, client contract records and other
tangible manifestations of any Confidential Information or Work
Products.
8.10. "President" means Company's President.
8.11. "Term" means the term of Employee's employment
as an Employee of Company pursuant to this Agreement.
8.12. "Work Product" means any invention, discovery,
concept or idea (including, but not necessarily limited to,
hardware, software programs, or processes, techniques, know-how,
methods, systems, improvements, analytical reports, and other
developments).
Section 9. Miscellaneous.
9.1. Compliance with Laws. In the performance of this
Agreement, each party will comply with all applicable laws,
regulations, rules, orders and other requirements of governmental
authorities having jurisdiction.
9.2. Equitable Relief. Employee acknowledges that: the
provisions of Sections 4 and 5 are essential to Company; Company
would not enter into this Agreement if it did not include such
provisions; the damages sustained by Company as a result of any
breach of such provisions cannot be adequately remedied by damages;
and, in addition to any other right or remedy that Company may have
(e.g., under this Agreement, by law or otherwise), Company will be
entitled to injunctive and other equitable relief to prevent or
curtail any breach of any such provisions.
9.3. Nonwaiver. The failure of either party to insist
upon or enforce strict performance by the other of any provision of
this Agreement or to exercise any right, remedy or provision of
this Agreement will not be interpreted or construed as a waiver or
relinquishment to any extent of such party's right to consent or
rely upon the same in that or any other instance; rather, the same
will be and remain in full force and effect.
9.4. Entire Agreement. This Agreement constitutes the
Entire Agreement, and supersedes any and all prior Agreements,
between Company and Employee. No amendment, modification or waiver
of any of the provisions of this Agreement will be valid unless set
forth in a written instrument signed by the party to be bound
thereby.
9.5. Applicable Law. This Agreement will be interpreted,
construed and enforced in all respects in accordance with the local
laws of the State of Colorado, without reference to its choice of
law rules.
9.6. Attorneys Fees. In the event that either party
consults or retains an attorney to enforce the terms of this
Agreement, the prevailing party in any such dispute or litigation
shall be entitled to recover from the other party its reasonable
attorneys fees and costs incurred.
9.7. Severability. If any of the provisions of this
Agreement are held to be invalid or unenforceable, the remaining
provisions shall nevertheless continue to be valid and enforceable
to the extent permitted by law.
COMPANY: GLOBAL CASINOS, INC., a Utah corporation
By:/s/Stephen G. Calandrella
Stephen G. Calandrella, President
EMPLOYEE: By:/s/Eric Hartsough
Eric Hartsough
