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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 4, 1996
Commission File Number: 33-57342
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1158484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2060 Broadway, Suite 400
Boulder, Colorado 80302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 444-0240
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Item 5. Other Events.
On November 12, 1996, Black Hawk Gaming & Development Company, Inc.
(the "Company") entered into or became a party to several agreements with
Diversified Opportunities Group Ltd. ("Diversified") and BH Entertainment Ltd.
("BH"), both affiliated with Jacobs Entertainment, Ltd. and certain other
persons either affiliated with Diversified, BH or the Company. The essential
terms of all agreements are set forth below.
1. Amended and Restated Purchase Agreement. This agreement,
between the Company and Diversified, provided, among other things, as follows:
(a) The Company issued to Diversified 190,476 shares of
its $.001 par value Common Stock at a price of $5.25
per share (an aggregate consideration of $1,000,000).
In addition, Diversified loaned the Company the sum
of $1,500,000 under the terms of a convertible note
due November 11, 1998 and bearing interest at LIBOR
plus 2%. An annual facility fee equal to one-quarter
of 1% of the amount of principal outstanding is also
payable by the Company.
(b) The foregoing note is convertible into shares of the
Company's Common Stock at the price of $5.25 per
share at any time upon the election of Diversified
(after shareholder approval described in (d) below is
obtained) or such note will automatically be
converted into shares at such time as (i) Diversified
has acquired or received all necessary and
appropriate regulatory, licensing and other approvals
from the Colorado Division of Gaming (the
"Division"), the Colorado Limited Gaming Control
Commission (the "Commission") and the state and local
liquor licensing authorities; and (ii) the Commission
approves the issuance to Black Hawk/Jacobs
Entertainment LLC (the "LLC") of a retail gaming
license.
(c) The note is secured by a first priority lien on the
Company's membership interest and share of capital
and profits in the LLC. The LLC was formed for the
purpose of continuing the development of a hotel and
casino in Black Hawk, Colorado on properties
contributed to the LLC by the Company and
Diversified.
(d) Subject to obtaining approval from the Company's
shareholders in accordance with its listing
requirements on the NASDAQ/NMS trading market, the
Company will issue and deliver to Diversified, and
Diversified shall acquire an additional convertible
note in the principal amount of $6,000,000, and the
first note described in (a) above shall be canceled.
The second note shall contain all of the terms and
conditions of the first note and shall be secured in
the same manner
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and is convertible into an aggregate of 1,142,857
shares of the Company's Common Stock.
(e) The second convertible note is convertible on the
same terms and conditions and under the same
circumstances as is set forth in (b) above, assuming
approval of shareholders for NASDAQ listing purposes.
Such shareholder approval is expected to be obtained
in early January 1997.
(f) If approval for NASDAQ listing purposes is not
obtained, the first note in the amount of $1,500,000
shall be deemed canceled and the shares acquired by
Diversified, as set forth in subsection (a) above,
shall be considered to have been redeemed and
Diversified will be deemed to have made a $2,500,000
capital contribution to the LLC and the parties'
interests in the LLC shall be adjusted from 75/25 in
favor of the Company to 50/50.
(g) The proceeds received and to be received by the
Company from the issuance of the shares and
convertible notes are to be used to fund the
Company's required capital contributions to the LLC.
(h) At such time as shareholder approval is obtained and
Diversified loans the additional $4,500,000 to the
Company, three officers and directors of the Company
(i.e., Messrs. Robert D. Greenlee, Frank B. Day and
Stephen R. Roark) are obligated to loan $750,000 to
the Company, essentially on the same terms and
conditions, including interest rates, maturity dates
and conversion features as are set forth in the
convertible notes issued and to be issued to
Diversified.
(i) The Company, Diversified and Messrs. Greenlee and Day
entered into a Shareholders' Agreement which provided
that Messrs. Greenlee and Day would vote their shares
for the purposes of expanding the Company's Board of
Directors from 7 to 9 members, providing for a
classified (staggered) Board of Directors, and
approving the conversion feature of the notes issued
or to be issued to Diversified. Further, at such
time as Diversified has acquired at least 820,000
shares of the Company's Common Stock, Messrs.
Greenlee and Day have agreed to vote their shares for
five of the nine persons nominated to the Board of
Directors and designated by Diversified. The
Shareholders' Agreement also contains certain
customary buy-sell arrangements between and among the
Company, Diversified and Messrs. Greenlee and Day.
The Shareholders' Agreement further provided that on
closing, two of the Company's present six member
Board of Directors would resign and, pursuant
thereto, Messrs. Lamm and Politano resigned. The
Company
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previously had one existing Board vacancy. The
Shareholders' Agreement then provided that the three
vacancies would be filled by nominees of Diversified
which were filled with the election of Jeffrey P.
Jacobs, Robert H. Hughes and Martin S. Winick to the
Board of Directors. In addition, Mr. Jeffrey P.
Jacobs was elected Chief Executive Officer of the
Company replacing Robert D. Greenlee and was elected
Co-Chairman of the Board of Directors to serve along
with Mr. Greenlee.
(j) Finally, the agreement provided that the parties
would enter into the Shareholders' Agreement, a
Registration Rights Agreement, a Master Joint Venture
Agreement, certain Subscription Agreements,
Employment Agreements and Option Agreements, all of
which are discussed below.
(k) For further details, reference is made to the
Restated and Amended Purchase Agreement, which is
attached hereto as Exhibit 1 and incorporated herein
by reference.
2. Operating Agreement Among the Company and BH and Diversified
Relating to the Formation and Operation of Black Hawk/Jacobs Entertainment,
LLC.
(a) This agreement was entered into for the purpose of
organizing a limited liability company under the laws
of the State of Colorado and to pursue the continued
development of a hotel and casino on certain
properties in Black Hawk, Colorado contributed to the
LLC by the parties. A description of the proposed
project has been included in reports filed by the
Company with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 and in
reports and other information provided to
shareholders.
(b) The agreement provides that the membership interests
are as follows:
<TABLE>
<S> <C>
The Company 75%
BH 24%
Diversified 1%
</TABLE>
(c) The term of the LLC shall expire on December 31,
2036, or such other later date as may be fixed by
amendment to the agreement.
(d) The LLC is to be managed by BH subject to certain
limitations on transactions which are controlled by,
and must be approved in advance, by a Policy Board
consisting of five persons, three of whom have been
appointed by BH and two of whom who are appointed by
the Company. Upon conversion of the notes held by
Diversified and
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described above in the section "Amended and Restated
Purchase Agreement", the Policy Board will shift with
three members being appointed by the Company and two
members being appointed by BH.
(e) The agreement contemplates that the Company's total
capital contribution will be approximately
$15,000,000 and that the capital contribution of BH
will be approximately $5,000,000 reflecting the 75/25
membership interest ratio. It is further
contemplated that approximately $40,000,000 of third
party financing will be required to complete the
project, which amount will be personally guaranteed
by affiliates of BH, who will receive in
consideration therefor a fee of approximately 2% per
year for the amount subject to guarantee, payable by
the LLC. The financing arrangements contemplated by
the agreement are expected to be finalized in the
form of a loan agreement within the next 60 days.
(f) The agreement contains certain buy out provisions
stemming largely from an investigation, which is
being conducted with respect to certain activities at
the Gilpin Hotel Casino ("Casino") of which the
Company is the manager. The Casino has been made
aware that the Division is conducting an
investigation into certain check cashing and bad
check collection practices of the Casino or certain
of its personnel and agents since the date of its
opening. No proceedings have been initiated against
the Casino in any judicial or administrative forum as
of this date, although financial penalties and/or
license suspension or revocation could result if
material charges, such as extending credit by the
Casino, are established. The Casino would vigorously
contest any remedial actions brought by the Division,
but the outcome of the matter is not presently
determinable. The agreement, therefore, provides,
among other things, as follows:
(i) if any license, registration, application or
other form of required governmental filing
for the LLC project or otherwise is denied,
revoked, reserved or suspended for any
reason, including the participation of a
person unacceptable or unsuitable to the
Division or the Commission or any other
governmental authority, the Company, BH and
Diversified have agreed to take all measures
necessary to remedy or correct the
deficiency, including expelling any persons
associated with such company found
unacceptable or unsuitable by the Division,
the Commission or other governmental
authorities;
(ii) in the event that on or before January 1,
1998 the Commission has not approved the
retail gaming license for the LLC project
casino and on or before such date BH, in its
sole but
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reasonable discretion, has reason to believe
that the LLC casino will not receive such
approval and such failure to obtain such
approval is attributable to the Casino
investigation, BH will have the right and
option to acquire all of the Company's
interest in the LLC by canceling the notes
then outstanding in return for a 30% interest
(thereby reducing the Company's interest to
45% in the LLC) and purchasing the remaining
45% at an amount equal to 90% of the fair
market value of such interest determined by
appraisal. The purchase price shall be
payable pursuant to a note over a ten year
period bearing interest at a rate equal to 2%
in excess of the prime rate unless an earlier
payoff is required under Colorado gaming
laws.
(g) If BH has exercised the foregoing purchase right,
within two years after opening the LLC casino, the
Company has the right to reacquire: (i) its 30%
interest in the LLC for 1,142,857 shares of its
Common Stock (which would have been issued to
Diversified pursuant to conversion of the notes
described above), and (ii) its 45% interest in the
LLC for the same amount of cash which BH paid for the
Company's 45% interest in the LLC. The intent of the
repurchase provision is to put the parties in the
same position had the purchase and repurchase not
occurred.
(h) In addition to the right to purchase set forth above,
the agreement calls for automatic divestiture of a
member's interest in the LLC if certain events occur
with respect to that member of the LLC (the "Affected
Member"). The divestiture events are generally as
follows:
1. The Affected Member is charged with or
convicted of any criminal offense, if a
conviction of the offense in question would,
pursuant to the Colorado gaming laws
("Colorado Gaming Laws"), disqualify the
Affected member from obtaining a gaming
license. However, where a member is only
charged with a criminal offense and not
convicted, and where the Commission and the
Division upon request have agreed to defer
pursuing any action based upon such charges
against the Company's application for a
gaming license, or where any such actions of
the Division or Commission are subject to a
stay order, then the Affected Member's
interest shall not be subject to divestiture
under this subsection.
2. The Affected Member, or any entity that it
owns or controls, incurs a revocation of any
Colorado gaming or alcohol beverage license,
and it is determined through arbitration that
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such revocation has a material adverse affect
upon the issuance to the LLC of a gaming or
alcohol beverage license.
3. The Division issues a formal recommendation
against the issuance to the LLC of an
operator or retail gaming license, which
recommendation cites the participation of the
Affected Member as a material factor in the
decision.
4. The Commission denies the issuance to the LLC
of an operator or retail gaming license,
citing the participation of the Affected
Member as a factor in the decision, or the
Commission conditions the issuance of a
retail gaming license on the Company removing
the Affected Member in the LLC or its casino
operations.
5. The LLC's alcoholic beverage license
applications are denied by either the state
or local licensing authority, citing the
participation of the Affected Member as a
material factor in the decision.
6. The Affected Member is found to be an
"unsuitable person" within the meaning of the
Colorado Gaming Laws.
7. The Commission or the Division advise the LLC
in writing, or it is otherwise determined
through arbitration under the agreement, that
a decision on the LLC's gaming license
application is being delayed beyond the later
of (x) one year following the filing of the
LLC's application for a retail gaming license
or (y) January 1, 1998, and the LLC is
advised before or after said date that the
sole reason for such delay is the
participation of or concerns about the
Affected Member.
(i) The divestiture provisions operate similar to the buy
out provisions above in (f). In addition, the
repurchase provision operates in a fashion similar to
that provided above in (g) but is effective for a
period of two years from the event causing the
divestiture.
(j) For further details, reference is made to the
Operating Agreement, which is attached hereto as
Exhibit 2 and incorporated herein by reference.
3. Shareholders' Agreement.
(a) This Agreement was entered into by and among the
Company, Diversified and Robert D. Greenlee and Frank
B. Day, who are two of
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the seven person members of the Company's Board of
Directors. The Shareholders' Agreement provides that
Messrs. Greenlee and Day agree to vote all of their
shares for the matters set forth in Section 1(i)
above.
(b) The Shareholders' Agreement also contains
restrictions on transfer of shares and a right of
first refusal on behalf of the Company and the other
shareholders should any shareholder wish to sell his
shares.
(c) For further details, reference is made to a copy of
the Shareholders' Agreement attached hereto as
Exhibit 3 and incorporated herein by reference.
4. Registration Agreement.
(a) The Company, Diversified and Messrs. Robert D.
Greenlee and Frank B. Day, two directors of the
Company, entered into a Registration Rights Agreement
which provides that upon the request of holders of
15% or more of the Company's Common Stock that the
Company would undertake to file, at its expense, a
registration statement under the Securities Act of
1933. The Agreement also provides for a demand
registration right at the shareholders expense and
for various piggyback registration rights should the
Company elect to file a registration statement under
that Act for other purposes.
(b) For further details, reference is made to a copy of
the Registration Rights Agreement attached hereto as
Exhibit 4 and incorporated herein by reference.
5. Understanding As To Master Joint Venture Agreement.
(a) The Company and Diversified entered into this
understanding pursuant to which every gaming activity
now or in the future owned or controlled by
Diversified and/or its affiliates and assignees will
be offered to a joint venture, and the Company will
have the right to obtain an ownership interest of up
to 51% therein; provided however, that Diversified or
its affiliate's or assignee's present or future
interests in any gaming opportunity located at the
Nautica Entertainment Complex in Cleveland, Ohio or
the Colonial Downs Racetrack in Virginia or the
Boardwalk Casino, Inc. in Las Vegas are excepted from
the agreement.
(b) Likewise, every gaming opportunity, now or in the
future owned or controlled by the Company and/or its
affiliates and assignees, will be offered to a joint
venture in which Diversified will have the right to
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obtain an ownership interest of up to 49% therein;
provided however, that the Company or its affiliate's
or assignee's present or future interest in the
Gilpin Hotel Casino, or the Cross Border transaction
presently being pursued by Robert D. Greenlee, or the
Oklahoma City, Oklahoma project with the SAC and FOX
Indian Nation shall be excepted from the agreement.
(c) For further details, reference is made to a copy of
the Understanding As To Master Joint Venture
Agreement attached hereto as Exhibit 5 and
incorporated herein by reference.
6. Assignment, Pledge and Security Agreement.
(a) The Company entered into this agreement with
Diversified pursuant to which its entire interest in
the LLC was pledged on a nonrecourse basis to secure
the initial $1,500,000 convertible note issued to
Diversified and which is intended to secure the
$4,500,000 convertible note to be issued to
Diversified by the Company, assuming shareholder
approval for NASDAQ/NMS purposes is obtained as
discussed above.
(b) For further details, reference is made to a copy of
the Assignment, Pledge and Security Agreement
attached hereto as Exhibit 6 and incorporated herein
by reference.
7. Subscription Agreements.
(a) The Company entered into subscription agreements with
Messrs. Robert D. Greenlee, Frank B. Day and Stephen
R. Roark, who are directors of the Company. The
subscription agreements require Messrs. Greenlee, Day
and Roark to loan $300,000, $300,000 and $150,000,
respectively, to the Company after Diversified has
loaned the Company a total of $6,000,000 pursuant to
the notes described above. These loans to the
Company will be made on the same basis as the notes
issued to Diversified (i.e., such loans will be bear
interest at the same rate and will be convertible on
the same terms and conditions as Diversified's
notes). It is anticipated that funding for these
loans will be required of these individuals in early
1997.
(b) Reference is made to copies of the Subscription
Agreements between the Company and Messrs. Greenlee,
Day and Roark attached hereto as Exhibits 7, 8 and 9
and incorporated herein by reference.
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8. Employment Agreements.
(a) The Company entered into employment agreements with
Jeffrey P. Jacobs, its Chief Executive Officer and
Co-Chairman, Stephen R. Roark, President of the
Company, and Stanley Politano, Vice President of the
Company.
(b) Each employment agreement is for a term of three
years and provides for a base compensation for
Messrs. Jacobs, Roark and Politano of $150,000
$125,000 and $87,000, respectively. Bonuses may be
payable in the discretion of the Board of Directors.
(c) With respect to Mr. Jacobs' employment agreement and
in addition to the base salary of $150,000 provided
therein, when Mr. Jacobs or his affiliates acquire
820,000 or more shares of the Common Stock of the
Company, he shall be entitled to a bonus in the
amount of 2.5% of the Company's pre-tax net income in
excess of $2,880,000 in each fiscal year determined
in accordance with generally accepted accounting
principles and determined for each calendar year
(including the year of requisite share ownership) on
or before March 31 of the succeeding year.
(d) For further details, reference is made to copies of
the Employment Agreements attached hereto as Exhibits
10, 11 and 12 and incorporated herein by reference.
9. Option Agreements.
(a) At closing of the various agreements described above,
the Company issued stock options under its 1996
Incentive Stock Option Plan to certain of its
officers, directors and other persons associated with
the Company's business, including officers, directors
and consultants to Diversified, BH and their
affiliates. Options were granted to purchase 300,000
underlying shares of the Company's Common Stock at
prices having a weighted average of approximately
$5.71 per share. One third of the options vest upon
conversion of the notes held by Diversified (as
described above) and 1/3 and 1/3 vest, respectively,
on the second and third anniversaries of such
conversion. As part of the agreement, 317,500
options which had been previously granted by the
Company to its officers and directors, with exercise
prices ranging from $6.75 per share to $11.00 per
share were reduced to $5.62 per share (or $6.17 per
share for certain holders).
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements: None.
(b) Exhibits: The following are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
96-10-1 Amended and Restated Purchase Agreement with
Convertible Note attached.
96-10-2 Operating Agreement of BH/Jacobs Entertainment, LLC.
96-10-3 Shareholders' Agreement.
96-10-4 Registration Rights Agreement.
96-10-5 Understanding as to Master Joint Venture Agreement
96-10-6 Assignment, Pledge and Security Agreement.
96-10-7 Subscription Agreement--Greenlee
96-10-8 Subscription Agreement--Day
96-10-9 Subscription Agreement--Roark
96-10-10 Employment Agreement--Jacobs
96-10-11 Employment Agreement--Roark
96-10-12 Employment Agreement--Politano
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
Registrant
Date: December 4, 1996 By: /s/ Stephen R. Roark
-----------------------------------
Stephen R. Roark, President
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
96-10-1 Amended and Restated Purchase Agreement with
Convertible Note attached.
96-10-2 Operating Agreement of BH/Jacobs Entertainment, LLC.
96-10-3 Shareholders' Agreement.
96-10-4 Registration Rights Agreement.
96-10-5 Understanding as to Master Joint Venture Agreement
96-10-6 Assignment, Pledge and Security Agreement.
96-10-7 Subscription Agreement--Greenlee
96-10-8 Subscription Agreement--Day
96-10-9 Subscription Agreement--Roark
96-10-10 Employment Agreement--Jacobs
96-10-11 Employment Agreement--Roark
96-10-12 Employment Agreement--Politano
</TABLE>
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EXHIBIT 10.1
AMENDED AND RESTATED PURCHASE AGREEMENT
THIS AMENDED AND RESTATED PURCHASE AGREEMENT (this "Agreement") is
made and entered into as of the 12th day of November, 1996, by and between
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC., a Colorado corporation
("Seller"), and DIVERSIFIED OPPORTUNITIES GROUP LTD., an Ohio limited liability
company, or its nominee(s) as described in Section 29 ("Purchaser").
RECITALS
Seller desires to sell to Purchaser certain Shares (as hereinafter
defined) and issue to Purchaser certain convertible notes (the "Notes") in the
aggregate principal amount of $6,000,000, and Purchaser desires to acquire the
Shares and the Notes from Seller. Seller and Purchaser acknowledge that this
Agreement is intended to memorialize their understanding of their agreements
contained in that certain letter of intent dated as of May 29, 1996 by and
between Seller and Purchaser, as subsequently modified.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing Recitals and of the
warranties, representations, agreements and undertakings hereinafter set forth,
the parties hereto do hereby represent, warrant, covenant and agree as follows:
1. CERTAIN DEFINITIONS
For the purposes of this Agreement, the terms defined in this Section
1 shall have the meanings set out below. All capitalized terms not defined in
this Section 1 shall have the meanings ascribed to them in other parts of this
Agreement.
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(a) "Closing Date" shall mean November 12, 1996, as of
the close of business, or such other date as to which the parties may agree in
writing.
(b) "Closing" shall mean the closing on the Closing Date
of the transactions contemplated by this Agreement.
(c) "Annual Statement" shall mean Seller's Consolidated
Balance Sheet at December 31, 1995 and 1994 and the accompanying Consolidated
Statements of Income, Consolidated Statements of Cash Flows and Consolidated
Statements of Shareholders' Equity for Seller's three fiscal years then ended,
together with the schedules and notes related thereto, accompanied by the
applicable report of Deloitte & Touche L.L.P. ("Deloitte"), Certified Public
Accountants, as filed with the Securities and Exchange Commission ("SEC").
(d) "Interim Statement" shall mean Seller's unaudited
Consolidated Balance Sheet at September 30, 1996 and the accompanying
Consolidated Statements of Income and Statements of Cash Flow for the 9-month
period then ended, together with the notes relating thereto, as filed with the
SEC.
(e) "Gilpin Annual Statement" shall mean the Gilpin Hotel
Venture's (the "Gilpin") Balance Sheet at December 31, 1995 and 1994 and the
accompanying Statements of Income, Statements of Cash Flow and Statements of
Venturers' Investments and Advances for the Gilpin's three fiscal years, then
ended, together with the schedules and notes related thereto, accompanied by
the applicable report for Deloitte, as filed with the SEC.
(f) "Financial Statements" shall mean the Annual
Statement and Interim Statement and the Gilpin Annual Statement.
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(g) "Material Adverse Effect" shall mean any event which
would, in the aggregate, have a material adverse effect upon the business,
assets, financial condition or results of operations of any of Seller on a
consolidated basis, the Gilpin or the Joint Venture (as hereinafter defined).
(h) "NASD" shall mean the National Association of
Securities Dealers, Inc.
(i) "NASD Approval" shall mean the approval of Seller's
shareholders as required by the rules and regulations of the NASD by virtue of
its Shares being traded on the National Market tier of the NASDAQ Stock Market
for Purchaser's acquisition of certain Shares upon conversion of the Second
Note (as hereinafter defined).
(j) "Purchaser Material Adverse Effect" shall mean any
event which would, in the aggregate, have a material adverse effect upon the
business, assets, financial condition or results of operations of Purchaser.
(k) "Shares" shall mean shares of Seller's common stock,
$.001 par value.
2. ISSUANCE OF NOTES; OTHER PURCHASES; PRICE; SECURITY
Seller agrees to issue and sell to Purchaser, and Purchaser
agrees to purchase from Seller, the Notes and certain of the Shares for the
purchase price and upon and subject to the terms, provisions and conditions
hereinafter set forth.
(a) (i) Issuance of First Note. At Closing, Seller
shall issue and Purchaser shall acquire a Note in the principal amount of
$1,500,000 (the "First Note"). The First Note shall be in substantially the
form and substance of Exhibit A attached hereto and incorporated herein by
reference. The First Note shall contain, among other things, interest at a
variable rate per annum equal to Purchaser's cost of funds (estimated at LIBOR
+ 2%) and an annual facility
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fee equal to 1/4 of 1% of the amount of the principal amount outstanding.
Interest due on the First Note shall be payable on a quarterly basis. In
addition, the First Note shall provide that until the entire principal balance
of the Note is converted Seller shall pay Purchaser a profit participation
equal to 40% of the amount of cash flow distributed by the LLC (as hereinafter
defined) to Seller. Unless sooner converted as hereinafter described, the
principal due on the First Note shall be due and payable on the second
anniversary of the Closing Date. All or any portion of the unpaid principal
due shall be convertible into Shares at a conversion price of $5.25 per Share
at any time upon the election of Purchaser and, if not yet fully converted,
shall, unless the provisions of Article XI of the Operating Agreement (as
hereinafter defined) for the LLC apply, be automatically converted into Shares
at such time as (i) Purchaser has acquired or received all necessary and
appropriate regulatory, licensing and other approvals from the Colorado
Division of Gaming (the "Division"), the Colorado Limited Gaming Control
Commission (the "Commission") and the state and local liquor licensing
authorities and (ii) the Commission approves the issuance to the LLC (as
hereinafter defined) of a retail gaming license. Pursuant to the terms of an
Assignment, Pledge and Security Agreement (the "Assignment") of even date
herewith, the First Note shall be secured by a first priority lien on 100% of
Seller's membership interest in the LLC and the products and proceeds thereof,
including but not limited to its capital interest, interest in the net profits
and net cash flow of the LLC, and all other rights and privileges associated
with Seller's membership in the LLC.
(ii) Issuance of Second Note. Upon obtaining the
NASD Approval, Seller shall immediately issue and deliver to Purchaser and
Purchaser shall acquire a note in the principal amount of $6,000,000 (the
"Second Note") and the First Note shall be canceled. The
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Second Note shall be dated as of the Closing Date, contain all of the other
terms and conditions of the First Note and shall be secured in the same manner
as the First Note. The First Note and the Second Note are sometimes
collectively referred to hereinafter as the "Note" or the "Notes". It is the
intention of the parties that the Note is convertible into 1,142,857 Shares in
the aggregate. At the time of the issuance of the Second Note, Seller shall
issue a certificate to Purchase affirming that the representations and
warranties of Seller contained in this Agreement are true and correct as of the
date of the issuance of the Second Note with the same effect as if made on and
as of such date. In the event Seller does not obtain NASD Approval, Purchaser
shall have no further obligation to make any investment in or loan to Seller
beyond the $1,500,000 loan for the First Note. At such time, the Note shall be
deemed to have been canceled, the Shares acquired by Purchaser pursuant to
Section 2(a)(iii) below, shall be deemed to have been redeemed, and Purchaser
shall be deemed to have made a $2,500,000 capital contribution to the LLC and
the parties' interests in the LLC shall be adjusted in accordance with the
provisions of Section 4.2 of the Operating Agreement (as hereinafter defined).
(iii) Purchase of Shares. Seller shall sell and
Purchaser shall purchase 190,476 Shares at a price of $5.25 per Share for a
total purchase price of $1,000,000.
(b) Payment of Purchase Price for the Shares and the
Note. The purchase price for the Shares and the Notes shall be paid as
follows:
(i) $2,500,000, the aggregate purchase price for
the 190,476 Shares and the First Note, shall
be paid to Seller by wire transfer or by
certified or bank check at the Closing.
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(ii) Provided Seller obtains the NASD Approval,
the balance of $4,500,000 shall be paid by
wire transfer or by certified or bank check
at such time as the lender to the LLC
requires such amount to be invested in the
LLC, or at such time as otherwise agreed to
by Seller and Purchaser.
(c) Use of Proceeds. Seller shall use the
proceeds to be received from Purchaser's acquisition of Shares and Purchaser's
loans described in Sections 2(a) and 2(b), above, solely to fund Seller's
capital contributions to the LLC.
(d) Additional Purchases of Shares by Greenlee, Day and
Roark. Pursuant to certain convertible notes (the "Subscription Notes") being
executed by Robert D. Greenlee ("Greenlee"), Frank B. Day ("Day") and Stephen
R. Roark ("Roark"), such parties shall be obligated to acquire up to in the
aggregate 142,857 Shares at a purchase price of $5.25 per Share upon the terms
and the conditions set forth in the Subscription Notes, which Subscription
Notes shall contain terms and conditions materially agreeable to Purchaser and
Seller. The purchase price to be paid by such parties for the Subscription
Notes pursuant to this Section 2(d) shall be paid to the Seller in cash at the
time Purchaser makes the payment described in Section 2(b)(ii).
(e) Share Adjustments. Notwithstanding any contrary
provision herein, in the event that subsequent to the date hereof there shall
be any change in the issued and outstanding Shares by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
separation, reorganization, liquidation, consolidation, split- up, combination
or exchange of Shares, or transaction or event having an effect similar to any
of the foregoing, the number of and price
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for Shares to be acquired upon conversion of the Notes or hereunder and the
number of, and price for, Options (as hereinafter defined) to be granted
hereunder, shall be appropriately adjusted.
3. AGREEMENTS REGARDING SHARES OF CERTAIN KEY SHAREHOLDERS AND
BOARD OF DIRECTORS.
(a) At or prior to the Closing, Purchaser and/or Jeffrey
P. Jacobs (Mr. Jacobs being hereinafter referred to as "Jacobs"), Greenlee and
Day shall have entered into a Shareholders' Agreement (the "Shareholders'
Agreement") with respect to the Shares owned or subscribed to by each of them
or their controlled entities or Shares which may be acquired upon conversion of
the Note. The Shareholders' Agreement shall be in the form of Exhibit B
attached hereto and shall provide, among other things, for a pro rata right of
first refusal among such parties.
(b) At or prior to Closing, Seller's Board of Directors
(the "Board") shall consist of seven persons, three of whom shall be nominees
of Purchaser. In addition at or prior to Closing, Jacobs shall be elected as
Chief Executive Officer and Co-Chairman of the Board of Seller.
(c) The Shareholders' Agreement shall provide for
Greenlee and Day to cause their Shares to be voted for the purpose of (i)
effecting the provisions of subparagraph (b) above and (ii) calling or causing
Seller to call a special meeting of shareholders of Seller to occur on or
before January 31, 1997 (the "Special Meeting") in order to approve Purchaser's
acquisition of the Shares which may be acquired upon conversion of the Note and
to approve the proposals set forth in Section 3(d) below.
(d) The Shareholders' Agreement shall also contain
provisions whereby Greenlee and Day agree to vote or continue to vote at the
Special Meeting or otherwise, as the
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case may be, their Shares in favor of the following proposals which will become
effective at such time as Purchaser owns 820,000 or more Shares:
(i) The expansion of the Board to nine members
with Purchaser being entitled to nominate five members to the Board.
(ii) Adopting staggered terms for Seller's Board
in accordance with Section 7-108-106 of the Colorado Business Corporation Act
and nominees of Seller and Purchaser shall be nominated in each of three
classes so created on terms agreeable to the parties. No later than the next
annual meeting of shareholders following such time as Purchaser owns 820,000 or
more Shares, directors shall be nominated to the three classes as follows:
Class I shall have three directors (one nominee of Seller and two nominees of
Purchaser), Class II shall have three nominees (two nominees of Seller and one
of Purchaser) and Class III shall have three nominees (two nominees of
Purchaser and one of Seller).
(iii) Electing Jacobs as Chief Executive Officer
and Chairman of the Board of Directors of Seller.
(iv) If determined necessary by counsel to Seller
and Purchaser, an appropriate "poison pill" plan shall be submitted to Seller's
shareholders at such special meeting or at the next regularly scheduled meeting
of shareholders in order to protect Seller and its shareholders from
unwarranted and unwanted takeover attempts by unrelated third parties.
Pursuant to the Shareholders' Agreement, Greenlee and Day shall
appoint Jacobs as their proxy to vote their shares in accordance with this
Section 3.
(e) At or prior to Closing, Purchaser and Seller shall
execute and deliver a Registration Rights Agreement (the "Registration
Agreement") in the form of Exhibit C attached
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<PAGE> 9
hereto. The Registration Agreement shall provide for the registration of all
Shares acquired by Purchaser hereunder, including any Shares acquired pursuant
to the Shareholders' Agreement.
4. AGREEMENTS REGARDING JOINT VENTURE AND MASTER JOINT VENTURE
(a) At or prior to Closing, Purchaser and its affiliates
and Seller shall restructure that certain Joint Venture (the "Joint Venture")
which was previously formed by Seller and Purchaser's affiliate pursuant to a
certain Joint Venture Agreement dated December 15, 1994, as amended. The Joint
Venture shall be restructured into a limited liability company formed under the
laws of the State of Colorado (the "LLC"). At or prior to Closing, the parties
shall enter into the Operating Agreement for the LLC (the "Operating
Agreement") on terms mutually agreeable to the parties.
(b) At or prior to Closing, Seller and Purchaser shall
also have entered into a twenty year Master Joint Venture Agreement (the
"Master Joint Venture Agreement") on terms mutually agreeable to Seller and
Purchaser.
5. REPRESENTATIONS AND WARRANTIES BY SELLER
As a material inducement to Purchaser to enter into this
Agreement, Seller represents, warrants to and, where applicable, covenants with
Purchaser that as of the date hereof and as of the Closing Date:
(a) Due Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, and each of Seller and the Gilpin has full corporate power and
authority to own its properties and to carry on its business as it is now being
conducted, is duly qualified to do business and is in good standing in all
jurisdictions in which it is required to be so qualified, except where the
failure to so qualify or be in good
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<PAGE> 10
standing would not, in the aggregate, have a Material Adverse Effect, and has
received all necessary authorizations, consents, licenses and approvals of the
Division, the Commission and other governmental authorities material to the
ownership of its properties and assets and to the conduct of its business.
(b) Power and Authority; No Conflicts. Seller has full
power and authority (corporate or otherwise) to enter into and carry out the
terms of this Agreement. The execution and delivery by Seller of this
Agreement and the other documents and instruments to be executed and delivered
by Seller pursuant hereto and thereto and the consummation of the transactions
contemplated hereby and thereby by Seller have been duly authorized by the
requisite vote of the Board of Seller. This Agreement has been duly and
validly executed by Seller, and constitutes, and when executed and delivered,
each other document and instrument to be executed and delivered by Seller
pursuant hereto will constitute, a valid and binding agreement of Seller
enforceable against it in accordance with their respective terms subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and except to the extent that the enforceability of rights and
remedies may be limited by general principles of equity. The execution and
delivery of this Agreement does not, and, subject to any requisite governmental
or other consents or approvals, the consummation of the transactions
contemplated hereby will not, (i) violate any provision of the Articles of
Incorporation, as amended, of Seller, or the Bylaws of Seller, (ii) violate or
conflict with any law, ordinance, rule, regulation, order, judgment or decree
to which Seller or the Gilpin is subject or by which Seller or the Gilpin is
bound, or (iii) except as contemplated hereunder or set forth on Schedule 5(b),
violate or conflict with or constitute a material default (or an event
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<PAGE> 11
which, with notice or lapse of time, or both, would constitute a default)
under, or will result in the termination of, or accelerate the performance
required by, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets under, any term or
provision of any material contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which either Seller or the
Gilpin is a party or by which any of their respective assets or properties may
be bound or affected. Except for any required approval of Seller's
shareholders, the Division, the Commission and/or state and local liquor
licensing authorities, no consent, approval, authorization or action by any
federal, state, local or foreign governmental agency, instrumentality,
commission, authority, board or body (collectively, "Governmental Agency" or
"Governmental Authority") or any other third party is required in connection
with the execution and delivery by Seller of this Agreement and the other
documents and instruments to be executed and delivered by Seller pursuant
hereto or the consummation by Seller of the transactions contemplated herein or
therein.
(c) Capital Structure. The authorized capital stock of
Seller as of the date of this Agreement consists solely of Forty Million
(40,000,000) Shares, of which 2,481,567 are issued and outstanding, and Ten
Million (10,000,000) shares ("Preferred Shares") of a preferred class, $.001
par value, of which none are issued and outstanding. Except as set forth on
Schedule 5(c), no Shares or Preferred Shares are held as treasury shares. All
of the outstanding shares of capital stock of Seller have been duly authorized
and validly issued and are fully paid and nonassessable and free from
preemptive rights. Schedule 5(c) sets forth a list of each stock option,
warrant or other right to acquire securities of Seller (an "Option")
outstanding on the date of this Agreement. Seller's partners at the Casino
have no rights to acquire Shares or other securities of
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<PAGE> 12
Seller. There are no outstanding options, warrants, convertible securities,
subscriptions or other rights or agreements providing for the issuance or
delivery of any additional shares of capital stock of Seller, except the
Options.
(d) Valid Issuance of Shares. The Shares issuable upon
conversion of the Note have been duly and validly reserved for issuance, and
when issued and delivered in accordance with the terms of the Note, will be
duly and validly issued, fully paid and nonassessable.
(e) Subsidiaries. Except as set forth on Schedule 5(e),
Seller has no subsidiaries, either wholly or partially owned and except for the
Gilpin and the Joint Venture, Seller has no interest as a partner or otherwise
in any partnership, joint venture or other business enterprise.
(f) SEC Documents. Seller has made available to
Purchaser a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Seller with the SEC since
March 31, 1994 (as such documents have since the time of their filing been
amended, the "Seller SEC Documents") which are all of the documents (other than
preliminary material) that Seller was required to file with the SEC since such
date. As of their respective dates, the Seller SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933 or the
Securities Exchange Act of 1934, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Seller SEC Documents, and
none of the Seller SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Seller
included in the Seller SEC Documents comply as to form in all material respects
with
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<PAGE> 13
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of Seller as
at the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended. To the best of its knowledge Seller is not
now, nor has it ever been, the subject of any inquiry or other investigation by
the SEC ("SEC Investigation"), nor, to the best knowledge of Seller, is any
such SEC Investigation pending or threatened.
(g) Title to Assets. Each of Seller, the Gilpin and the
Joint Venture has good, marketable and valid title in and to all of its assets,
including all real, personal and intangible property, and, except as set forth
on Schedule 5(g), each holds its assets free and clear of any mortgage,
conditional sale agreement, title retention agreement, security interest,
lease, pledge, hypothecation, lien or other encumbrance.
(h) Condition of Assets. All of the assets (whether
owned or leased) that are necessary for the conduct of the business of Seller,
the Gilpin and the Joint Venture are in normal operating condition, free from
defects other than such minor defects as do not materially interfere with the
continued use thereof in normal operations.
(i) Insurance. Each of Seller, the Gilpin and the Joint
Venture (a) maintains insurance policies with licensed insurance carriers on
such assets, properties and businesses and against such risks as is customary
for companies engaged in its business, or (b) has reserved on
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the Financial Statements sufficient funds to cover all losses known to it
arising from such risks. Schedule 5(i) sets forth a list and brief description
(specifying the insurer and describing each pending claim thereunder) of all
policies, binders or reserves of fire, liability, workers' compensation,
vehicular and other insurance or self-insurance held by or on behalf of Seller,
the Gilpin and the Joint Venture. All such policies are in full force and
effect and insure against risks and liabilities to an extent and in a manner
customary in the industry in which such parties operate. Except for claims
identified on Schedule 5(i), there are no outstanding unpaid claims under any
such policy, binder or reserve. Except as set forth on Schedule 5(i), there
will be no liability of Seller, the Gilpin and the Joint Venture as of the
Closing Date, under any such insurance policy or ancillary agreement with
respect thereto in the nature of a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability arising wholly or partially
out of events occurring prior to the Closing Date. None of the Seller, the
Gilpin nor the Joint Venture has received notice of cancellation or nonrenewal
of any such policy or binder. There is no inaccuracy in any application for
such policies or binders, or any failure to pay premiums due.
(j) Dividends and Distributions. From December 31, 1995
to the date hereof, Seller has not declared or paid any dividends on any Shares
or Preferred Shares, nor has it made any other payments or distributions
thereon to its shareholders.
(k) Seller Data. Seller has made available to Purchaser
its corporate minutes, articles and regulations, books and records, all
material contracts, all loan documentation, all notes, all leases, evidence of
all bank accounts, an accurate and complete list of each insurance policy
currently providing coverage for the real and personal property owned, operated
or leased together with copies of such policies, information regarding employee
compensation and benefit
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<PAGE> 15
plans, a list of all outstanding workers compensation and unemployment claims,
all licenses and permits that Seller has with respect to its operations and
with respect to the operations of the Gilpin and the Joint Venture, and all
outstanding citations or complaints relating to environmental, health or safety
laws or regulations (collectively, the "Seller Data"). Seller acknowledges
that Purchaser has relied on the Seller Data in deciding to execute this
Agreement and consummate the transactions contemplated hereby.
(l) Undisclosed Liabilities. Except as set forth in
Schedule 5(l), none of the Seller, the Gilpin nor the Joint Venture has any
liabilities or obligations of any nature, secured or unsecured (absolute,
accrued, contingent or otherwise and whether due or to become due), except (i)
liabilities and obligations that are fully reflected, reserved against or
disclosed in the Financial Statements, and (ii) liabilities and obligations
incurred in the ordinary course of business consistent with past practice.
(m) Investigation or Litigation. Except for the
investigation with respect to the check cashing and bad check collection
practices of the Gilpin, and as set forth on Schedule 5(m), there is no
investigation or review pending or to the best knowledge of Seller threatened
by any Governmental Agency or other party or person with respect to Seller, the
Gilpin or the Joint Venture; nor has any Governmental Agency or other party or
person indicated in writing to Seller an intention to conduct any such
investigation or review; nor, to the knowledge of Seller, is there any valid
basis for any such investigation or review. Except as set forth on Schedule
5(m), there is no claim, action, suit or proceeding pending before or, to the
best knowledge of Seller, threatened against or affecting Seller, the Gilpin or
the Joint Venture at law or in equity by, any
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<PAGE> 16
Governmental Agency or other party or person, nor is there, to the best
knowledge of Seller, any valid basis for any such claim, action, suit or
proceeding.
(n) Certain Agreements. Except as disclosed in the
Seller SEC Documents filed prior to the date of this Agreement or in Schedule
5(n) as of the date of this Agreement, Seller is not a party to any oral or
written (i) consulting agreement not terminable on 60 days' or less notice,
(ii) agreement with any executive officer or other key employee of Seller, or
(iii) agreement or plan, including any stock option plan, stock appreciation
rights plan, any of the Plans (as defined in Section 5(o)), restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
(o) Employee Benefits.
(i) Schedule 5(o) contains a true and complete
list of each bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance or termination pay, hospitalization or other
medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, retirement or other employee benefit plan, program,
practice, agreement or arrangement, including, without limitation, each
"employee benefit plan" as defined in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), sponsored, maintained,
contributed to or required to be contributed to by Seller or any trade or
business, whether or not incorporated (an "ERISA Affiliate"), whose employees
would, for the purposes of applying certain provisions of the Internal Revenue
code of
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1986, as amended (the "Code"), be aggregated with the employees of Seller under
Section 414(b), (c), (m), (n) and/or (o) of the Code or which would be deemed
to be a member of a "controlled group" within the meaning of Section
4001(a)(14) of ERISA of which Seller is also a member, for the benefit of
current or former employees or directors of Seller and/or such ERISA Affiliate
(the "Plans").
(ii) Each of the Plans has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to ERISA and the Code. No violation of Section 404
of ERISA has occurred with respect to any Plan.
6. There are no pending, or to the best knowledge of Seller,
threatened or anticipated claims (other than routine claims for benefits) by,
on behalf of or against any of the Plans or any trusts related thereto.
(a) Labor Matters. Seller has not entered into any
collective bargaining agreements or any other agreements with any labor
organization or any other person or group claiming to represent or bargain
collectively for any of Seller's, the Gilpin's or the Joint Venture's
employees. Except as set forth in Schedule 5(p), there are no unfair labor
practice charges, lawsuits, grievances or administrative charges pending or to
the best knowledge of Seller threatened, concerning or affecting Seller, the
Gilpin or the Joint Venture. Seller has received no written notice nor has
there been any proceeding or adjudication questioning whether or alleging or
determining that Seller, the Gilpin or the Joint Venture, is not in compliance,
in all material respects, with all federal, state and local laws and
regulations with respect to employment, employment practices and terms and
conditions of employment.
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(b) Taxes. Except as set forth in Schedule 5(q), Seller
has (i) timely filed all tax returns, schedules, declarations, and tax-related
documents including, without limitation, all Forms 5500 pertaining to the Plans
(collectively, "Returns") required to be filed in any jurisdictions to which it
or the Gilpin is or has been subject, (ii) timely paid in full all taxes,
interest and penalties with respect thereto subject to audit by the taxing
authorities by such jurisdictions and timely made all deposits of tax required
by all applicable taxing jurisdictions, (iii) fully accrued on its books an
amount sufficient to pay all taxes not yet due but related to operations
through the date hereof and will have accrued all taxes not yet due but which
will become due through the Closing Date, (iv) made timely payments of all
taxes required to be deducted and withheld from the wages paid to employees,
and (v) otherwise satisfied, in all material respects, all legal requirements
applicable to it with respect to all aforementioned obligations to taxing
jurisdictions. All Returns filed by Seller accurately reflect in all material
respects their income, expenses, deductions, credits and loss carryovers and
the taxes due and are otherwise accurate and complete in all material respects
and have not been amended. Seller has delivered to Purchaser true and complete
copies of all federal and state income and franchise tax returns for each of
the taxable years ended December 31, 1991 through December 31, 1995, inclusive.
Except as set forth on Schedule 5(q), Seller has no knowledge that an audit of
any of the federal income tax returns of Seller or the Gilpin is in progress
and has no reason to believe that any such audit is contemplated. For purposes
of this Section, "tax" and "taxes" (when not modified by other words such as
"income" or "franchise") shall include all income, gross receipts, franchise,
excise, real and personal property, and other taxes imposed by any federal,
state, municipal, local, or other governmental agency, including assessments in
the nature of taxes.
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(c) Absence of Certain Changes. Since December 31, 1995,
except as disclosed in the Seller SEC Documents, none of Seller, the Gilpin nor
the Joint Venture has suffered any Material Adverse Effect.
(d) Conduct of Business. Since the close of business on
September 30, 1996, except as set forth in Schedule 5(s), Seller has not, and
prior to the Closing Date will not have, without the prior written consent of
Purchaser:
(i) Issued, sold, redeemed, reclassified or
purchased any Shares or Preferred Shares or
other corporate securities, warrants or debt
instruments or, except as contemplated by
Section 8(c), granted any Options or other
rights in connection therewith.
(ii) Incurred, paid or settled any obligations,
commitments or liabilities, absolute,
accrued, contingent or otherwise, except
obligations, commitments or liabilities to
perform sales contracts, purchase orders or
similar commitments, in each case incurred,
paid or settled in normal amounts and in the
regular and ordinary course of Seller's
business.
(iii) Incurred any continuing contract or
commitment or other liability for the future
purchase of materials, supplies or equipment
which is not in the regular and ordinary
course of the business, or any contracts or
commitments for capital expenditures in
excess of Twenty-Five Thousand Dollars
($25,000) individually or One Hundred
Thousand Dollars ($100,000) in the aggregate.
(iv) Conducted its business other than in the
regular and ordinary course thereof.
(v) Sold, assigned, transferred, encumbered or
granted a security interest in respect of any
of its assets.
(vi) Entered into any pension, retirement,
deferred compensation, profit sharing, bonus,
retainer, consulting, welfare or incentive
compensation plan or arrangement, or any
contract, or any fringe or other benefits or
arrangements, of, with or for any officer,
director, employee or any other person; or
granted any increase in the compensation
payable, or to become payable, by Seller to
any of its officers, directors, employees or
other persons (other than
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customary merit increases of nonofficers), or
in any bonus, insurance, pension or other
benefit plan made for or with any of them.
(vii) Terminated any material contract, agreement,
license or other instrument to which it is a
party other than in the regular and ordinary
course of business.
(viii) Changed its Articles of Incorporation, Bylaws
or any aspect of its corporate structure.
(ix) Agreed to do any of the things or made any
commitment to take any of the types of action
specified in (i) through (viii) above.
(e) Legal Compliance. Each of the Seller, the Gilpin and
the Joint Venture has complied in all material respects with all applicable
laws, rules, regulations, and ordinances of any Governmental Agency (including
without limitation, all laws and regulations of the Division and the
Commission) having jurisdiction, any trademark, tradename or copyright rules
and regulations, and any zoning, occupational safety or environmental
protection laws or any laws relating to the employment of labor. None of
Seller, the Gilpin nor the Joint Venture is in violation of, or in default
under, any terms or provisions of any mortgage, indenture, security agreement,
lease, license, contract, agreement, instrument, order, arbitration award,
judgment, injunction or decree. Except with respect to the Casino
Investigation, Seller has not received any notice nor has there been any
proceeding or adjudication questioning whether or alleging or determining that
the business of Seller, the Gilpin or the Joint Venture is or has been
conducted in violation of any law, ordinance, regulation, order, decree,
judgment or injunction. Seller has not received any notice nor has there been
any proceeding or adjudication questioning whether or alleging or determining
that they have not obtained all permits, licenses and other authorizations
which relate to the assets or the business of Seller, the Gilpin or the Joint
Venture. Seller has not received any written
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notice nor has there been any proceeding or adjudication questioning whether or
alleging or determining that any of such parties is not in compliance in all
material respects with all material terms and conditions of such permits,
licenses and authorizations.
(f) Environmental Protection.
(i) Each of Seller, the Gilpin and the Joint
Venture is in compliance with all Environmental Laws (as hereinafter defined)
applicable to the business of such parties. Seller has disclosed to Purchaser
all outside consultants' reports, internal memoranda, legal documents and any
other information, written or otherwise (including without limitation, phase 1
and phase 2 reports) in Purchaser's possession relating to its and their
compliance with all Environmental Laws.
(ii) "Environmental Laws" means all U.S. federal,
state, local and foreign laws and regulations relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata).
(g) Copyrights, Trademarks, Trade names, Etc. Schedule
5(v) contains an accurate and complete list of all material copyrights,
trademark registrations, trademark applications, service marks, trade names and
assumed names used in Seller's, the Gilpin's or the Joint Venture's business.
Seller has not received written notice nor has there been any proceeding or
adjudication questioning whether or alleging or determining that the use
thereof by Seller the Gilpin or the Joint Venture infringes on or conflicts
with any existing patents, trademarks or copyrights or any other rights of any
person. Seller has nor received any written notice of any material claim of a
third party to the use of any such names.
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(h) Contracts. Each contract and commitment (whether
written or oral) that individually involves potential future payments by or to
Seller, the Gilpin or the Joint Venture of $50,000 or more is disclosed on
Schedule 5(w) (except as otherwise indicated therein) and copies of such
written contracts or commitments have been provided to Purchaser. Seller is
not, nor has it been during the past three years, a partner in any partnership
or a party to any joint venture.
(i) Full Disclosure. There is no fact known to Seller
which has not been disclosed to Purchaser in writing, that has caused, or would
reasonably be anticipated to result in, a Material Adverse Effect.
7. Representations and Warranties of Purchaser. As a material
inducement to Seller to enter into this Agreement, Purchaser represents,
warrants to and, where applicable, covenants with Seller that as of the date
hereof and as of the Closing Date:
(a) Due Organization. Purchaser is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Ohio, has the requisite power and authority to own its properties
and to carry on its business as it is now being conducted.
(b) Power and Authority No Conflicts. Purchaser has the
requisite power and authority to enter into and carry out the terms of this
Agreement. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Purchaser pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
by Purchaser have been duly authorized by the Manager of Purchaser. This
Agreement has been duly and validly executed and delivered by Purchaser and
constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by Purchaser will constitute, valid
and binding agreements of Purchaser, enforceable against Purchaser in
accordance
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with their respective terms subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and except to the extent
that the enforceability of rights and remedies may be limited by general
principles of equity. The execution and delivery of this Agreement does not,
and, subject to any requisite governmental or other consents or approvals
(including without limitation, licensing approval of the Division and the
Commission), the consummation of the transactions contemplated hereby and
thereby will not, (i) violate any provision of the Articles of Organization or
the Operating Agreement of Purchaser, (ii) violate or conflict with any law,
ordinance, rule, regulation, order, judgment or decree to which Purchaser is
subject or by which Purchaser is bound (other than violations or conflicts
which individually or in the aggregate would not have a Purchaser Material
Adverse Effect or which would not prevent or delay the consummation of the
transactions contemplated hereby), or (iii) violate or conflict with or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or the
assets under, any term or provision of any contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which
Purchaser is a party or by which Purchaser or any of its assets or properties
may be bound or affected (other than, in any such instance, violations,
conflicts, defaults, terminations, accelerations, liens, security interests,
charges or encumbrances which individually or in the aggregate would not have a
Purchaser Material Adverse Effect or which would not prevent or delay the
consummation of the transactions contemplated hereby). Except for approval of
Seller's shareholders, any required licensing approval of the Division, the
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Commission and state and local liquor licensing authorities, no consent,
approval, authorization or action by any Governmental Agency or any other third
party is required in connection with the execution and delivery by Purchaser of
this Agreement and the other documents and instruments to be executed and
delivered by Purchaser pursuant hereto or the consummation by Purchaser of the
transactions contemplated herein or therein.
(c) Investment Purpose. The Shares to be acquired by
Purchaser upon conversion of the Note are being acquired for Purchaser's own
account and not with the view to or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act of 1933 (the "1933 Act"). Purchaser understands that the Shares have not
been registered under the 1933 Act by reason of their contemplated issuance in
a transaction believed to be exempt from the registration and prospectus
delivery requirements of the 1933 Act pursuant to Section 4(2) thereof, and in
transactions believed to be exempt from the registration and/or qualification
provisions of the appropriate state securities laws. Purchaser has such
knowledge and experience in financial and business matters that it is capable
of independently evaluating the risks and merits of purchasing or acquiring the
Shares.
(d) Gaming Approval. To the best of Purchaser's
knowledge, there are no facts or circumstances which exist which would preclude
Purchaser from obtaining any necessary approval from the Division and the
Commission and/or the appropriate state and local liquor licensing authorities.
8. CLOSING
The Closing hereunder shall take place on the Closing Date by
the use of facsimile, U.S. Mail and overnight courier.
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9. UNDERTAKINGS.
(a) Prior to the date hereof, Purchaser and its agents
and representatives commenced and, from and after the date hereof, shall be
permitted to continue Purchaser's due diligence review of Seller, in
anticipation of the Closing, and shall have full access to all relevant
information regarding Seller, its assets, the business and the Shares to
determine that all financial and other information has been and will be
provided to Purchaser is reasonably accurate. Purchaser acknowledges that such
information shall be and remain confidential until the Closing. In the event
the transactions contemplated by this Agreement do not close, Purchaser shall
return to the Seller all documents previously furnished to Purchaser by the
Seller. Purchaser and its agents and representatives hereby agree that they
will not divulge or use any confidential or other proprietary information
regarding Seller, except to the extent (i) required by law, (ii) otherwise
available from third parties, or (iii) previously known to Purchaser from
sources other than the Seller.
(b) Seller shall not divulge or use any confidential or
proprietary information regarding the Purchaser, except to the extent (i)
required by law, (ii) otherwise available from third parties, or (iii)
previously known to Seller from sources other than the Purchaser.
(c) At or prior to Closing, Seller's 1996 Employees'
Incentive Stock Option Plan (the "1996 Plan") shall have been expanded in a
manner satisfactory to Seller and Purchaser to provide for additional grants of
Options as follows: Options for 180,000 Shares to Purchaser's employees
(including Jacobs) as determined by Purchaser and Options for 120,000 Shares to
Seller's officers and employees as determined by Seller's Board. The exercise
price of such Options shall be $5.625 per Share. The vesting schedule for the
Options shall be 1/3 upon
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conversion of the entire unpaid principal balance of the Note, and 1/3 each
upon the first and second anniversary dates of such conversion. Options held
by certain officers and employees of Seller as approved by Purchaser shall be
amended in order to change the exercise price of such Options to $5.625 per
Share.
10. [INTENTIONALLY OMITTED]
11. Governmental Regulation.
(a) The parties hereto acknowledge that the business of
Seller and the proposed business of the Joint Venture is subject to stringent
government regulation including supervision by the Division and the Commission.
(b) The parties also acknowledge that Purchaser and
certain of its affiliates are presently seeking appropriate gaming licenses
from the Division (Jacobs has already obtained a key employee license), and
that no assurance can be given that such licenses will be issued or when such
licenses may be issued.
(c) If any license, registration, application or other
form of required governmental filing for the Gilpin Hotel Casino (the "Gilpin
Casino"), the LLC's planned casino or otherwise, is denied, reserved, revoked
or suspended for any reason, including, but not limited to the participation of
a person unacceptable or unsuitable to the Division and the Commission or other
Governmental Authority, the affected party hereto (either Seller, Purchaser or
Jacobs) shall take all measures necessary to remedy or correct the deficiency.
In the case where the Division, the Commission or other Governmental Authority
denies or reserves approval for gaming operations or other business operations
of a party hereto because of the participation of an unacceptable or unsuitable
person, that party shall forthwith expel such person(s) and substitute
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a person(s) acceptable to the Division, the Commission or other Governmental
Authority, or otherwise take measures to remedy or correct the deficiency.
(d) Pursuant to the Operating Agreement for the LLC (the
"Operating Agreement"), Purchaser and/or its affiliate has certain rights to
acquire Seller's interest in the LLC. Further, a member's interest in the LLC
may be automatically divested upon the occurrence of certain events. In the
event such rights to acquire Seller's interest have been exercised or Seller's
interest is divested and thereafter Seller exercises and fulfills certain
repurchase rights contained in the Operating Agreement, the parties intend that
Purchaser would thereafter be issued 1,142,857 Shares as part of the
consideration to be paid by Seller as part of the repurchase right (relating to
40% of Seller's Membership Interest (as defined in the Operating Agreement))
and all of the terms and conditions of this Agreement would apply.
12. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder are subject to the
following conditions, any of which may be waived in writing by Purchaser:
(a) Representations and Warranties True at Closing. The
representations and warranties of Seller contained in this Agreement shall be
true and correct on the Closing Date and the date of issuance of the Second
Note with the same effect as if made on and as of such dates. All Schedules
and all other information furnished to Purchaser pursuant to this Agreement
shall be updated by Seller as of the Closing Date and the date of issuance of
the Second Note, if so required. The updating of said Schedules shall not, in
any manner, affect the representations and warranties of Seller nor relieve
Seller from any liability thereunder.
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(b) Performance of Agreements and Conditions. Seller,
Greenlee and Day shall have performed and complied with all agreements and
conditions required by this Agreement to be performed and complied with by
Seller, Greenlee and Day as the case may be, prior to or at the Closing Date or
the date of issuance of the Second Note, as the case may be.
(c) President's Certificate. Seller shall have delivered
to Purchaser a certificate from its President, dated the Closing Date,
certifying in such detail as Purchaser may reasonably request to Seller's
fulfillment of the conditions specified in subsections (a) and (b) above and
such other evidence as to Seller's compliance with the provisions of this
Agreement as Purchaser reasonably may request.
(d) Due Diligence Completion. Purchaser shall have
completed its due diligence investigation contemplated by Section 8(a) and such
investigation shall not, in Purchaser's sole discretion, have disclosed any
material variances from information heretofore provided by Seller to Purchaser.
(e) Injunction. On the Closing Date there shall not be
in effect any injunction, writ, temporary restraining order or any other order
of any nature issued by a court or other governmental body or agency of
competent jurisdiction directing that the transaction provided for herein not
be consummated as herein provided, nor shall there be any litigation or
proceeding pending or threatened in respect of the transaction contemplated
hereby.
(f) Shareholders' Agreement. Greenlee, Day and Jacobs
shall have entered into the Shareholders' Agreement.
(g) Registration Agreement. Seller and Purchaser shall
have entered into the Registration Agreement.
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(h) LLC. Seller and Purchaser shall have entered into
all documents necessary to restructure the Joint Venture into the LLC.
(i) Master Joint Venture Agreement. Seller and Purchaser
shall have entered into the Master Joint Venture Agreement.
(j) Delivery of the Note, the Shares and Security
Documents. Seller shall have delivered to Purchaser the Note, certificates for
the 190,476 Shares and shall have delivered all other instruments, certificates
and other documents required to be delivered hereunder in order to grant
Purchaser the security interests referenced in Section 2(a).
(k) Condition of Business and Properties. Between the
date of this Agreement and the Closing Date, each of Seller, the Gilpin and the
Joint Venture shall have continued to operate its business in its regular and
ordinary course. On and before the Closing Date, the business and property of
Seller, the Gilpin and/or the Joint Venture shall not have been adversely
affected in any material way as a result of fire, accident or other casualty
(whether or not covered by insurance) or any labor dispute or act of God or the
public enemy or as the result of any judicial, administrative or governmental
proceeding or other event or condition.
(l) Governmental Approval. Purchaser shall have obtained
licensing approval from the Division and the Commission, if required, and any
other necessary governmental or regulatory approval.
(m) Employment Agreements. Seller shall have entered
into the employment agreements in form satisfactory to Purchaser, in its sole
discretion, with Jacobs, Roark and Stanley Politano.
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(n) Opinion of Counsel. Purchaser shall have received a
legal opinion from Jones & Keller P.C., counsel for Seller, dated as of the
Closing Date, which opinion shall be mutually agreeable to Purchaser's counsel
and Seller's counsel.
(o) Delivery of Documents. Seller shall have delivered
or caused to have been delivered to Purchaser the documents contemplated by
Section 15 not otherwise hereinabove specified.
Seller represents and warrants that it has not caused, and it
covenants and agrees that it shall not cause, any event that would prevent the
satisfaction of all of the conditions set forth in this Section 11. Seller
covenants and agrees to take all action reasonably required to satisfy such
conditions.
13. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the
following conditions, any of which may be waived in writing by Seller:
(a) Representations and Warranties True at Closing. The
representations and warranties of Purchaser contained in this Agreement shall
be true and correct on the Closing Date and the date of issuance of the Second
Note with the same effect as if made on and as of such dates.
(b) Performance of Agreements and Conditions. Purchaser
shall have performed and complied with all agreements and conditions required
by this Agreement to be performed or complied with by Purchaser prior to or at
the Closing Date and the date of issuance of the Second Note, as the case may
be.
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(c) President's Certificate. Purchaser shall have
delivered to Seller the certificate of Purchaser's President, dated the Closing
Date, certifying in such detail as Seller reasonably may request to Purchaser's
fulfillment of the conditions specified in subsections (a) and (b) above and
such other evidence as to Purchaser's compliance with the provisions of this
Agreement as Seller reasonably may request.
(d) Opinion of Counsel. Purchaser shall have delivered
to Seller an opinion of Hahn Loeser & Parks, counsel for Purchaser, dated the
Closing Date, which opinion shall be mutually agreeable to Purchaser's counsel
and Seller's counsel.
(e) Injunction. On the Closing Date there shall not be
in effect any injunction, writ, temporary restraining order or any order of any
nature issued by a court or other governmental body or agency directing that
the transactions provided for herein not be consummated as herein provided, nor
shall there be any litigation or proceeding pending or threatened in respect of
the transactions contemplated hereby.
(f) Delivery of Documents. Purchaser shall have
delivered to Seller the documents contemplated by Section 15 not otherwise
hereinabove specified.
Purchaser represents and warrants that it has not caused, and it
covenants and agrees that it shall not cause, any event that would prevent the
satisfaction of all of the conditions set forth in this Section 12. Purchaser
covenants and agrees to take all action reasonably required to satisfy such
conditions.
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14. INDEMNIFICATION BY SELLER
Seller shall and hereby does indemnify and hold Purchaser
harmless from and against and in respect of any and all loss, damage and
expense incurred by Purchaser, resulting from, arising out of, attributable to,
or in any manner connected with:
(i) Any matter in respect of which Seller shall
have made any misrepresentation, breached any
warranty made pursuant to this Agreement or
failed to fulfill any covenant or agreement
on the part of Seller contained in this
Agreement or in any Exhibit, Schedule or
certificate or other document delivered, or
to be delivered, by Seller to Purchaser in
connection with this Agreement;
(ii) Any liability of Seller actual or contingent,
current or deferred, not disclosed in the
Financial Statements, or any Exhibit or
Schedule furnished pursuant hereto; and
(iii) Any and all actions, suits, proceedings,
demands, assessments or judgments, costs and
expense (including reasonable legal and
accounting fees and investigation costs)
incident to the foregoing and the enforcement
thereof.
If any event shall occur or any circumstance arise which might give
rise to a claim in respect of any matter against which Seller has indemnified
Purchaser hereunder, Purchaser promptly shall give notice thereof to Seller.
If the matter as to which indemnification may be sought is a claim by a third
party, such notice shall be given within thirty (30) days after said claim
shall have been presented to the President of Purchaser; otherwise such notice
shall be given promptly after the President of Purchaser shall determine that
the matter is one as to which indemnification is sought. Unless the parties
otherwise agree in writing, Seller shall defend against all such third-party
claims or otherwise satisfy said claims, at its sole cost and expense, through
counsel and accountants designated by it and approved by Purchaser, which
approval shall not be withheld unreasonably. Purchaser shall have the right to
participate with Seller in the
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defense of any such matter and shall make available to Seller the business
records of Purchaser for said purpose. If Seller, after receipt of
notification from Purchaser of a third-party claim, fails to protest, defend or
settle any such third-party claim, demand, suit or proceeding promptly,
diligently and in good faith, Purchaser shall have the right at its discretion
to settle, defend or pay the same, in which event, Seller's indemnity shall
extend to and include the amount of said settlement or payment and/or the costs
and legal expenses of such defense.
15. INDEMNIFICATION BY PURCHASER
Purchaser shall and hereby does indemnify and hold Seller
harmless from and against and in respect of any and all loss, damage and
expense incurred by Seller, resulting from, arising out of, attributable to, or
in any manner connected with:
(a) Any matter in respect of which Purchaser shall have
made any misrepresentation, breached any warranty
made pursuant to this Agreement or failed to fulfill
any covenant or agreement on the part of Purchaser
contained in this Agreement or in any Exhibit,
Schedule or certificate or other document delivered,
or to be delivered, by Purchaser to Seller in
connection with this Agreement; and
(b) Any and all actions, suits, proceedings, demands,
assessments or judgments, costs or expenses
(including reasonable legal and accounting fees and
investigation costs) incident to the foregoing and
the enforcement thereof.
If any event shall occur or any circumstance arises which might give
rise to a claim in respect of any matter against which Purchaser has
indemnified Seller hereunder, Seller shall give notice thereof to Purchaser
within thirty (30) days after said claim shall have been presented to it and,
unless the parties otherwise agree in writing, Purchaser shall defend against
said claim or otherwise satisfy said claim, at its sole cost and expense,
through counsel and accountants designated by Purchaser and approved by Seller,
which approval shall not be unreasonably
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withheld. Seller shall have the right to participate with Purchaser in the
defense of any such matter and shall make available to Purchaser the business
records of Seller for said purpose. If Purchaser, after receipt of
notification from Seller of a thirty-party claim, fails to protest, defend or
settle any such third-party claim, demand, suit or proceeding promptly,
diligently and in good faith, Seller shall have the right in its discretion to
settle, defend or pay the same, in which event, Purchaser's indemnity shall
extend to and include the amount of said settlement or payment and/or the costs
and legal expenses of such defense.
16. DOCUMENTS TO BE DELIVERED AT CLOSING
At the Closing on the Closing Date:
(a) Seller shall deliver or cause to be delivered to
Purchaser the following:
(i) The First Note being issued to Purchaser at
Closing and the documents required in order
to grant Purchaser the security interests and
the certificates for the 190,476 Shares
referenced in Section 2(a);
(ii) The Shareholders' Agreement referred to in
Section 3(a);
(iii) The Registration Agreement referred to in
Section 3(d);
(iv) The documents necessary to restructure the
Joint Venture into the LLC and the Master
Joint Venture Agreement referred to in
Section 4;
(v) The certificate referred to in Section 11(c),
(vi) A copy of the Seller's Articles of
Incorporation and Bylaws certified as of the
Closing Date by the Secretary thereof;
(vii) The Employment Agreements referred to in
Section 11(m);
(viii) The opinion of counsel referred to in Section
11(n);
(ix) Certified resolutions of Seller's Board of
Directors authorizing and approving this
transaction; and
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(x) Subscription Agreements executed by each of
Greenlee, Day and Roark to evidence their
purchase obligations contained in Section
2(d); and
(xi) All other instruments not herein specifically
provided for but which are reasonably
necessary or desirable to effectuate the
purpose of this Agreement.
(b) Purchaser and/or Jacobs shall deliver to Seller the
following:
(i) The purchase price due at Closing pursuant to
Section 2(c);
(ii) The Shareholders Agreement referred to in
Section 3(c);
(iii) The Registration Agreement referred to in
Section 3(d);
(iv) The documents necessary to restructure the
Joint Venture into the LLC and the Master
Joint Venture Agreement referred to in
Section 4;
(v) Certified resolutions of the Manager of
Purchaser authorizing this transaction;
(vi) The certificate referred to in Section 12(c);
(vii) The opinion of counsel referred to in Section
12(d); and
(viii) All other instruments not herein specifically
provided for but which are reasonably
necessary or desirable to effectuate the
purpose of this Agreement.
17. BROKERAGE
Each party represents and warrants to the other that no person
or persons assisted in or brought about the negotiation of this Agreement in
the capacity of broker, agent, finder or originator on behalf of it. Each
party ("First Party") agrees to indemnify and hold harmless the other from any
claim asserted against such other party for a brokerage or agent's or finder's
or originator's commission or compensation in respect of the transaction
contemplated by this Agreement by any person purporting to act on behalf of
First Party.
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18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
All representations, warranties and agreements made by Seller
and Purchaser pursuant hereto shall survive the closing of this transaction.
None of the representations, warranties and agreements shall be affected by any
investigation at any time made by or on behalf of Seller or Purchaser.
19. [INTENTIONALLY OMITTED]
20. REIMBURSEMENT OF EXPENSES OF PURCHASER
Upon the Closing, Seller shall reimburse Purchaser for and/or
pay directly on behalf of and in the name of Purchaser, all the fees and
expenses of Purchaser's attorneys' and accountants' fees incurred on or after
May 29, 1996 in the negotiation and consummation of the transactions
contemplated hereby.
21. BINDING AGREEMENT
All of the terms and provisions of this Agreement shall inure
to the benefit of, be enforceable by and be binding upon and enforceable
against the parties hereto and their respective heirs and personal
representatives, successors and assigns; provided, however, that except as
specified in Section 29 hereof, none of the parties hereto may assign its
rights or duties hereunder. Nothing contained in this Agreement shall confer
any rights or remedies upon any other person, firm or corporation.
22. NOTICES
Any notice or other communication required or permitted
hereunder shall be expressed in writing and delivered in person or sent by
certified or registered mail, return receipt requested, or sent by overnight
courier service such as Federal Express and confirmed by certified
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or registered mail, return receipt requested, or sent by facsimile (receipt
confirmed) to the respective parties at the following addresses, or at such
other addresses as the parties shall designate by written notice to the other:
PURCHASER: Diversified Opportunities Group Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44113
Attn: Jeffrey P. Jacobs
Fax No.: (216) 861-1315
Copy To: Hahn Loeser & Parks
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attn: Stephen P. Owendoff, Esq.
Fax No.: (216) 241-2824
SELLER: Black Hawk Gaming & Development Company, Inc.
2060 Broadway, Suite 400
Boulder, Colorado 80302
Attn: Stephen R. Roark, President
Fax No.: (303) 444-7968
Copy To: Jones & Keller P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Attn: Samuel E. Wing, Esq.
Fax No.: (303) 825-8537
All notices shall be deemed received on the third business day after mailing or
the first business day after delivery to the overnight courier service or the
same business day if presently delivered or sent by facsimile.
23. SECTION HEADINGS
The section and subsection headings and any table of contents
listing the same contained in this Agreement are for reference purposes only
and shall not affect in any way the
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meaning or interpretation of this Agreement.
24. SCHEDULES AND EXHIBITS
All Schedules and Exhibits referred to in this Agreement are
attached hereto and are hereby incorporated herein and made a part hereof.
25. COUNTERPARTS
This Agreement may be executed in any one or more
counterparts, all of which taken together shall constitute one instrument.
26. COOPERATION
Each party shall cooperate and use its best efforts to
consummate the transaction contemplated herein. In addition, each party shall
cooperate and take such action and execute such other and further documents as
reasonably may be requested from time to time after the Closing Date by any
other party to carry out the terms and provisions and intent of this Agreement.
27. GENDER
Wherever the context of this Agreement so requires or permits,
the masculine herein shall include the feminine or the neuter, the singular
shall include the plural, and the term "person" shall also include
"corporation" or other business entity.
28. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the
parties hereto, and it is understood and agreed that there are no other
covenants, representations or warranties other than those contained herein.
This Agreement may not be changed or modified except by a writing duly executed
by the parties hereto.
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<PAGE> 39
29. WAIVER OF PROVISIONS
The terms, covenants, representations, warranties and
conditions of this Agreement may be waived only by a written instrument
executed by the party waiving compliance. The failure of any party at any time
or times to require performance of any provision of this Agreement shall in no
manner affect the right at a later date to enforce the same. No waiver by any
party of any condition or the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or of the breach of any
other provision, term, covenant, representation or warranty of this Agreement.
30. ASSIGNMENT BY PURCHASER.
Subject to any required approval of the Division, the
Commission and the state and local liquor licensing authorities, Purchaser may
assign its rights and obligations hereunder to corporations, limited liability
companies, partnerships, trusts or other entities which are under common
control with or controlled through equity ownership and/or voting control, by
Purchaser or Jacobs; it being acknowledged that (i) any entity managed either
by Jacobs Entertainment Ltd. ("JEL") or Jacobs, (ii) any entity in which either
JEL or Jacobs is one of the trustees and/or one of the beneficiaries or (ii)
any entity in which either JEL or Jacobs beneficially owns 15% or more of the
outstanding equity securities constitutes common control.
31. ARBITRATION.
If any dispute shall arise between the parties pursuant to
this Agreement, such dispute shall be settled by arbitration pursuant to this
Section 30. In such event, either party hereto may serve upon the other party
a written notice demanding that the dispute be resolved
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<PAGE> 40
pursuant to this Section 30. To the extent that any provision herein is
inconsistent with any rule of the AAA, this Agreement shall prevail. The
dispute or claim shall be heard in Chicago, Illinois by one (1) neutral
arbitrator, if the parties can agree on the selection of said arbitrator, or if
unable to agree, each party shall select one (1) arbitrator and the two
arbitrators chosen shall select the third arbitrator. If the dispute shall be
heard by three (3) arbitrators, one (1) arbitrator will be selected by the
party initiating the arbitration at the time of the submission to arbitration.
Within seven (7) days after submission, the other party will select an
arbitrator. Within seven (7) days after the first two (2) arbitrators are
chosen, the third arbitrator will be selected. The third arbitrator selected
shall not have any relationship to either of the parties. The arbitrators
shall apply the internal law of the State of Colorado. Said arbitrator(s)
shall be sworn faithfully and fairly to determine the question at issue. The
arbitrator(s) shall afford to the parties a hearing and the right to submit
evidence, with the privilege of cross examination and the right to compel
testimony by applying for subpoena powers to appropriate judicial authority, on
the question at issue, and shall, with all possible speed, make his/their
determination in writing and shall give notice to the parties hereto of such
determination. The concurring determination of the arbitrator, if heard by
one, or of any two of said three arbitrator(s) shall be binding upon the
parties hereto, or, in case no two of the arbitrators shall render a concurring
determination, then the determination of the third arbitrator appointed shall
be binding upon the parties hereto. The decision of the arbitrators shall be
final and binding upon the parties hereto and shall be enforceable in any court
having jurisdiction. Any arbitration shall be conducted in accordance with the
then prevailing Commercial Rules of the American Arbitration Association, or
the successor party thereto from time to time in existence. The fees and
expenses of the arbitrator(s)
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<PAGE> 41
shall be divided equally between the parties so involved. The parties shall
each bear their own expenses (including, but not limited to, attorneys' and
witnesses' fees and expenses) in any arbitration proceedings.
32. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of
the State of olorado.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above set forth.
SELLER:
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By: /s/ Robert D. Greenlee
----------------------------------
Robert D. Greenlee, Chairman
PURCHASER:
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: JACOBS ENTERTAINMENT LTD., its
manager
By: /s/ David C. Grunenwald
----------------------------------
Title: Vice President
----------------------------------
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<PAGE> 42
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibit Section Reference Description
- ------- ----------------- -----------
<S> <C> <C>
Exhibit A 2(a) First Note
Exhibit B 3(a) Shareholders' Agreement
Exhibit C 3(d) Registration Agreement
</TABLE>
<TABLE>
<CAPTION>
Schedule Section Reference Description
- -------- ----------------- -----------
<S> <C> <C>
5(b) 5(b) Conflicts
5(c) 5(c) Capital Structure
5(e) 5(e) Subsidiaries
5(g) 5(g) Liens
5(i) 5(i) Insurance and Claims
5(l) 5(l) Liabilities
5(m) 5(m) Investigation
5(n) 5(n) Certain Agreements
5(o) 5(o) Plans
5(p) 5(p) Labor Matters
5(q) 5(q) Taxes
5(s) 5(s) Conduct of Business
5(v) 5(v) Proprietary Rights
5(w) 5(w) Contracts
</TABLE>
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<PAGE> 43
CONVERTIBLE NOTE
$1,500,000 Boulder, Colorado
November 12, 1996
FOR VALUE RECEIVED, the adequacy of which is hereby acknowledged,
Black Hawk Gaming & Development Company, Inc., a Colorado corporation with its
principal office located at 2060 Broadway, Suite 400, Boulder, Colorado 80302
(the "Maker"), hereby promises to pay to the order of Diversified Opportunities
Group Ltd. (the "Holder") with its principal office located at 1231 Main
Avenue, Cleveland, Ohio 44113, the principal sum of One Million Five Hundred
Thousand Dollars ($1,500,000.00), together with interest thereon from the date
hereof until payment in full at the Charged Rate (as defined below). This
Convertible Note (the "Note") is issued pursuant to that certain Amended and
Restated Purchase Agreement of even date herewith (the "Purchase Agreement")
between the Maker and the Holder.
1. Payment of Principal
All principal outstanding hereunder shall be due in one payment, in
full, on November 12, 1998. Principal of and interest on this Note are payable
in lawful money of the United States of America at the Holder's address stated
above, or at such other place as the Holder shall designate to the Maker in
writing.
2. Interest
a. For purposes of this Note, the following terms shall have the
meanings given them in this subsection a.:
i. "Adjusted Eurodollar Rate": For each calendar month
until this Note is paid in full, the rate (rounded
upward, if necessary, to the next one
<PAGE> 44
hundredth of one percent) determined by dividing the
Eurodollar Rate for such Interest Period by 1.00
minus the Eurodollar Reserve Percentage;
ii. "Eurodollar Business Day": A day (other than a
Saturday, Sunday or legal holiday) on which banks are
open for business in New York City and on which there
is trading by and between banks in United States
dollar deposits in the interbank Eurodollar market.
iii. "Eurodollar Rate": For each calendar month, the
interest rate per annum (rounded upward, if
necessary, to the next one-sixteenth of one percent)
at which United States dollar deposits are offered to
First Bank National Association (the "Bank") in the
interbank Eurodollar market two Eurodollar Business
Days prior to the first day of such calendar month
for delivery in immediately available funds on the
first day of such month and in an amount
approximately equal to the outstanding principal
amount of the Note and for a thirty (30) day
maturity; provided, that in lieu of determining the
rate in the foregoing manner, the Holder may
substitute the per annum Eurodollar rate (LIBOR) for
United States dollars displayed on the Telerate
Systems, Inc. screen, page 3750 (or other applicable
page), on the first day of such calendar month.
iv. "Eurodollar Reserve Percentage": As of any day, that
percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Federal
Reserve Board for determining the maximum reserve
requirement (including any basic, supplemental or
emergency reserves) for a member
-2-
<PAGE> 45
bank of the Federal Reserve System, with deposits
comparable in amount to those held by the Bank, in
respect of "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Federal Reserve Board.
The rate of interest applicable to the outstanding
principal balance of the Note shall be adjusted
automatically on and as of the effective date of any
change in the Eurodollar Reserve Percentage.
b. This Note shall bear interest on the unpaid principal amount
at a variable rate per annum equal to the sum of (1) the
Adjusted Eurodollar Rate, plus (2) two percent (2.00%) (the
"Charged Rate"). The Charged Rate shall be adjusted monthly
on the first day of each calendar month and each change in the
Charged Rate shall result immediately, without notice or
demand of any kind, in a corresponding change in the interest
rate under the Note. Interest shall be payable on the last
day of each calendar quarter, and, in the event of a permitted
prepayment, on the date of such prepayment. The Holder shall
provide the Maker with notice of the Charged Rate periodically
in order to permit the Maker to make timely payments
hereunder.
c. Any amount not paid when due under this Note, whether at the
date scheduled for payment or earlier upon acceleration, shall
bear interest until paid in full at a rate per annum equal to
the Charged Rate plus four percent (4.00%) (the "Default
Rate").
3. Facility Fee
Maker shall pay to Holder an annual facility fee (the "Facility Fee")
equal to 1/4 of 1% of the amount of principal outstanding hereunder. The
Facility Fee shall be due and payable to
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<PAGE> 46
Holder on the date hereof and on the same day of each subsequent year until
this Note is paid in full.
4. Security
This Note is be secured by a first priority lien on the Maker's
interest in the LLC (as defined in the Purchase Agreement) equal to 100% of the
Maker's Membership Interest and the products and proceeds thereof, including
but not limited to, its Capital Interest, interest in the Net Profits and Net
Losses and Net Cash Flow of the LLC (each as defined in the Operating Agreement
for the LLC (the "Operating Agreement")), and all other rights and privileges
associated with Maker's membership in the LLC; provided, however, that the
Holder's remedies upon an Event of Default hereunder shall be limited as set
forth in Section 11 b., below. The Holder and BH Entertainment Ltd.
("Entertainment") are the other members of the LLC.
5. Profit Participation. In addition to the interest payable pursuant to
Section 2, until conversion of the entire unpaid principal balance of the Note
in accordance with Section 8, below, Maker shall pay to the Holder, as and when
received by the Maker, 40% of the Net Cash Flow distributed by the LLC to the
Maker.
6. Prepayment Except as may be required by the Commission, the Division
or other Governmental Authority (all as defined in the Purchase Agreement), the
Maker may not prepay this Note without the prior written consent of the Holder.
7. Covenants. So long as any indebtedness under this Note remains
outstanding, Maker shall not, without the prior written consent of the Holder:
a. directly or indirectly declare or pay any dividends or make
any distributions upon any of its common stock or other equity securities;
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<PAGE> 47
b. except with respect to the Maker's obligation to acquire
12,500 shares of its common stock pursuant to a put option incurred by the
Maker when it acquired certain property, directly or indirectly redeem,
purchase or otherwise acquire any of the Maker's common stock or other equity
securities (including, without limitation, options and other rights to acquire
such common stock or other equity securities), or directly or indirectly
redeem, purchase or make any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans;
c. except with respect to the exercise of warrants and options
currently outstanding as shown on Schedule 5(c) to the Purchase Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of (i) any notes or debt securities containing equity
features (including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other equity securities,
issued in connection with the issuance of capital stock or other equity
securities or containing profit participation features) or (ii) any capital
stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities); PROVIDED, that
the Maker may, without the Holder's consent, issue up to an aggregate of
100,000 shares of its common stock;
d. merge or consolidate with any person or permit any subsidiary
to merge or consolidate with any person (other than a wholly-owned subsidiary);
provided, that a subsidiary may merge with another person so long as after such
merger the Maker owns at least 80% of the (i) capital stock of the surviving
corporation possessing the right to vote for the election of directors and (ii)
number of shares of the common stock of the surviving corporation then
outstanding;
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<PAGE> 48
e. sell, lease or otherwise dispose or, or permit any subsidiary
to sell, lease or otherwise dispose of, more than 50% of the consolidated
assets of the Maker and its subsidiaries (computed on the basis of book value,
determined in accordance with generally accepted accounting principles
consistently applied, or fair market value);
f. except with respect to the sale of the Maker's subsidiary
formed for the purpose of obtaining a gaming license in downtown Oklahoma City,
Oklahoma with the Sac and Fox Indian Nation, issue or sell any shares of the
capital stock, or rights to acquire shares of the capital stock, of any
subsidiary to any person (other than the Holder or a permitted assignee of the
Holder) if immediately after such issuance or sale the Maker owns less than 80%
of the (i) capital stock possessing the right to vote for the election of
directors and (ii) the number of shares of the common stock of any subsidiary
then outstanding;
g. liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company or into partnership or other
non-corporate form);
h. make any amendment to the Articles of Incorporation or the
Maker's bylaws or file a resolution of the Board of Directors with the Colorado
Secretary of State containing any provisions, which would increase the number
of authorized shares of common stock of the Maker or adversely affect or
otherwise impair the rights of the Holder under the Agreement; or
i. create, incur or assume, or permit any subsidiary to create,
incur or assume additional indebtedness in excess of $1,000,000.
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<PAGE> 49
8. Conversion
a. All or any portion of the unpaid principal balance shall be
convertible into shares of common stock of the Maker, $.001 par value per Share
(the "Common Stock") at any time upon the election of the Holder and, if not
yet fully converted, shall, provided the provisions of Article XI of the
Operating Agreement do not apply, automatically be converted, at such time as
(i) the Holder has acquired or received all necessary and appropriate
regulatory, licensing and other approvals (to permit the Holder to convert the
Note and hold the resulting Conversion Shares) from the Colorado Division of
Gaming (the "Division"), the Colorado Limited Gaming Control Commission (the
"Commission") and the state and local liquor licensing authorities and (ii) the
Commission approves the issuance to the LLC of a retail gaming license for the
proposed casino of the LLC. The number of shares of Common Stock into which
this Note may be converted ("Conversion Shares") shall be determined by
dividing the amount of the then unpaid principal balance of this Note specified
in the notice described in Section 8.c. below for conversion by $5.25 (the
"Conversion Price").
b. Any Conversion Shares shall have the registration rights set
forth in the Registration Agreement among the Maker, the Holder and certain
shareholders of the Maker dated of even date herewith.
c. Before the Holder shall be entitled to convert this Note into
Conversion Shares in the event of an optional conversion by the Holder, it
shall give written notice by mail, postage prepaid, to the Maker at its
principal corporate office, of the election to convert the same. Such notice
shall state therein the date on which such conversion will occur. The Maker at
its own expense shall, as soon as practicable thereafter or as soon as
practicable after the issuance of the
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<PAGE> 50
retail gaming license for the LLC's casino in the event of an automatic
conversion, issue and deliver at such office to the Holder of this Note a
certificate or certificates for the number of Conversion Shares to which the
Holder of this Note shall be entitled. At the time such certificates are
issued, accrued interest on the amount of principal so converted shall be paid
by the Maker to the Holder. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of conversion specified
in such written notice, or, on the date of issuance of the retail gaming
license to the LLC in the event of an automatic conversion, and the Holder of
this Note shall be treated for all purposes as the record holder of such
Conversion Shares. To the extent that the entire unpaid principal balance of
this Note is not being converted in Conversion Shares, the Maker of this Note
shall credit the Note on its books to the extent of the principal being
converted by the Holder into Conversion Shares.
d. No fractional share of Common Stock shall be issued upon
conversion of this Note. In lieu of the Maker issuing any fractional share to
the Holder upon the conversion of this Note, the Maker shall pay, in cash, to
the Holder the amount of outstanding principal that is applicable to such
fractional share.
e. At its expense, the Maker shall, as soon as practicable
thereafter, issue and deliver to such Holder at such principal office a
certificate or certificates for the number of Conversion Shares to which the
Holder shall be entitled upon such conversion (bearing such legends as are
required by applicable state and federal securities and other laws in the
opinion of counsel to the Maker), together with any other securities and
property to which the Holder is entitled upon such conversion under the terms
of this Note, including a check payable to the Holder for any cash amounts
payable as described above and for all amounts of interest accrued as of the
date of
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<PAGE> 51
conversion. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date specified in such notice and on and
after such date the Holder of this Note entitled to receive the Conversion
Shares shall be treated for all purposes as the record holder of such
Conversion Shares. Upon conversion of this Note and delivery of the check
described above, the Maker shall be forever released from all its obligations
and liabilities under this Note to the extent of the amount of unpaid principal
which the Holder has elected to convert into Conversion Shares.
9. Conversion Price Adjustments.
a. In the event the Maker should at any time or from time to time
after the date of issuance hereof fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of this Note shall be appropriately decreased so that the
number of Conversion Shares issuable upon conversion of this Note shall be
increased in proportion to such increase of outstanding shares.
b. If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, following
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<PAGE> 52
the record date of such combination, the Conversion Price for this Note shall
be appropriately increased so that the number of Conversion Shares issuable on
conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
c. In the event of (i) any taking by the Maker of a record of the
holders of any class of securities of the Maker for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
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 (ii) any capital reorganization of
the Maker, any reclassification or recapitalization of the capital stock of the
Maker or any transfer of all or substantially all of the assets of the Maker to
any other person or any consolidation or merger involving the Maker, or (iii)
any voluntary or involuntary dissolution, liquidation or winding up of the
Maker, the Maker will mail to the Holder of this Note a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and the record date for determining
stockholders entitled to vote thereon and (C) the new Conversion Price after
giving effect to the adjustment event, which new Conversion Price shall
represent an appropriate increase or decrease in the Conversion Price to
preserve the proportionate amount of Conversion Shares. Such notice shall be
mailed at least twenty (20) days prior to the date described in clause (A) or
(B) above.
d. The Maker 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 Note
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<PAGE> 53
into such number of Conversion Shares as shall from time to time be sufficient
to effect the conversion of the Note; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the Holder of this
Note, the Maker will use its best efforts to 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 purposes.
10. Events of Default
"Event of Default," whenever used herein, means any one or more of the
following defaults shall have occurred and be continuing (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law pursuant to any judgement, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
i. Default in the payment of any installment of
interest, the Facility Fee, the principal of this Note or any other
amount payable hereunder when such payment becomes due and payable,
whether at maturity, by acceleration or otherwise, and such default
shall continue unremedied for a period of fifteen (15) days;
ii. Default in the performance or breach of any other
agreement, covenant or warranty of the Maker contained in this Note,
and such default or breach shall continue unremedied for a period of
thirty (30) days after the date on which written notice of such
default or breach, requiring the Maker to remedy the same, shall have
been given to the Maker by the Holder, or such longer period provided
that the default is of a nature that
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<PAGE> 54
cannot be remedied within 30 days and the Maker has within the thirty
(30) day period instituted curative action and diligently and
continuously pursues such action to completion;
iii. The entry of a decree or order by a court having
jurisdiction adjudging the Maker a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Maker under federal
bankruptcy law or any similar federal or state law for the relief of
debtors ("Bankruptcy Law"), or appointing a receiver, liquidator,
assignee, trustee, conservator, sequestrator or assignee in bankruptcy
or insolvency of the Maker or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and such
decree or order shall have continued undischarged and unstayed for a
period of thirty (30) days;
iv. The Maker shall commence a voluntary case or shall
consent to the entry of an order for relief in any involuntary case
under Bankruptcy Law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, custodian, sequestrator, trustee
or assignee of any substantial part of its property, or shall make an
assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due;
v. There shall have occurred any circumstance or event
which, upon the lapse of time, the giving of notice, or both, would
constitute an event of default under any other indebtedness of the
Maker, except if the same is cured or waived within any applicable
grace period;
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<PAGE> 55
vi. The Maker shall have failed to give written notice
within five (5) days after the occurrence of the event or
circumstances described in clause (v), above;
vii. Entertainment delivers a notice to the Maker that
pursuant to the terms of the Operating Agreement, it is electing its
Purchase Right of the Maker's Membership Interest in the LLC, or an
event occurs that pursuant to the terms of the Operating Agreement
would subject all of the Maker's Membership Interest in the LLC to
automatic and immediate termination; or
viii. Breach or default by the Maker of any representation,
warranty, agreement or covenant pursuant to the Purchase Agreement or
any other agreement between the Holder and the Maker.
11. Remedies
a. Subject to subsection b., below, if an Event of Default occurs
and is continuing (unless waived in writing by the Holder), then, and in each
and every case, unless the entire principal of this Note already shall have
become due and payable, the Holder may, by a notice in writing to the Maker,
declare the principal and the accrued interest on this Note to be immediately
due and payable. The principal and accrued interest on this Note shall become
and shall be immediately due and payable upon such declaration.
b. The following provisions shall apply if an Event of Default
shall occur. The principal and accrued interest on this Note shall be
immediately due and payable without any notice or other action being required
on the part of Holder. If the Event of Default consists of Entertainment's
election of a Purchase Right, then the Holder's remedies for this Event of
Default shall be limited to the extent and in the circumstances provided in the
Operating Agreement. If
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<PAGE> 56
the Event of Default is one that causes the automatic termination of the
Maker's Membership Interest, and the Membership Interest of the Holder as a
result increases in accordance with the provisions of the Operating Agreement,
then the Holder shall transfer the Note to the LLC as provided by the Operating
Agreement and shall exercise no remedies thereunder inconsistent with its
obligations as set out under the Operating Agreement. In the event of any
other Event of Default hereunder, then Holder's remedies shall be limited in
the same manner as if the Event of Default consists of Entertainment's election
of the Purchase Right under the Operating Agreement. In any event, provided
all of the applicable provisions of Section 11.2(b) of the Operating Agreement
occur, Holder shall take no further action against the Maker to enforce payment
under the Note, except for the payment of accrued but unpaid interest.
12. Miscellaneous
a. The Maker hereby waives presentment, notice of dishonor,
protest and diligence in bringing suit against the Maker. Acceptance by the
Holder of any payment which is less than the full amount then due and owing
hereunder shall not constitute a waiver of the Holder's right to receive
payment in full at such time or at any prior or subsequent time. The Maker
consents that the time of payment may be extended an unlimited number of times
before or after maturity without notice to the Maker, and that the Maker shall
not be discharged by reason of any such extension or extensions of time. No
delay or omission on the part of the Holder in exercising any right hereunder
shall operate as a waiver of such right or any other right under this Note. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
such right or remedy on any future occasion.
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<PAGE> 57
b. Notwithstanding the foregoing, if at any time implementation
of any provision hereof shall cause the interest contracted for or charged
herein and collectible hereunder to exceed the applicable lawful maximum rate,
then the interest shall be limited to such lawful maximum.
c. The Maker shall be liable for any and all costs and expenses
of collection of the interest required to be paid hereunder, including, without
limitation, reasonable attorneys' fees, arising by virtue of an Event of
Default.
d. This Note shall be subject to and construed in accordance with
the laws of the State of Colorado. If any provision herein shall be
unenforceable, such unenforceable provision shall not render the remaining
provisions hereof unenforceable or invalid.
e. This Note shall be binding upon the Maker and the Maker may
not assign its obligations hereunder without the prior written consent of the
Holder. The Holder may assign its rights hereunder, in whole or in part, to
one or more corporations, limited liability companies, partnerships, trusts or
other entities which are under common control with or controlled through equity
ownership and/or voting control by, the Holder or Jeffrey P. Jacobs; it being
acknowledged that (i) any entity managed by Jacobs Entertainment Ltd. ("JEL")
or Jeffrey P. Jacobs, (ii) any entity in which either JEL or Jeffrey P. Jacobs
is one of the trustees and/or one of the beneficiaries or (iii) any entity in
which either JEL or Jeffrey P. Jacobs beneficially owns 15% or more of the
outstanding equity securities constitutes common control.
BLACK HAWK GAMING & DEVELOPMENT
COMPANY, INC.
By: /s/ Stephen R. Roark
-------------------------------------
Title: President
----------------------------------
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<PAGE> 1
EXHIBIT 10.2
OPERATING AGREEMENT
OF
BLACK HAWK/JACOBS ENTERTAINMENT, LLC
A COLORADO LIMITED LIABILITY COMPANY
EFFECTIVE AS OF NOVEMBER 12, 1996
<PAGE> 2
THIS OPERATING AGREEMENT made as of the 12th day of November, 1996 for
BLACK HAWK/JACOBS ENTERTAINMENT, LLC (the "Company") by and among BLACK HAWK
GAMING & DEVELOPMENT COMPANY, INC., a Colorado corporation ("Black Hawk"), and
BH ENTERTAINMENT LTD., an Ohio limited liability company ("Entertainment"), and
DIVERSIFIED OPPORTUNITIES GROUP LTD., an Ohio limited liability company
("Diversified").
RECITALS
WHEREAS, concurrently herewith, Black Hawk and Diversified are
entering into an Amended and Restated Purchase Agreement (the "Purchase
Agreement");
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Purchase Agreement that the parties hereto form the Company
on the terms and subject to the conditions hereinafter set forth;
WHEREAS, the parties desire to form the Company as a limited liability
company under the laws of the State of Colorado to develop and manage a casino
project (the "Project") in the City of Black Hawk, County of Gilpin, State of
Colorado; and
WHEREAS, the parties desire to enter into this Operating Agreement to
reflect certain agreements among them and to replace and supersede that certain
Joint Venture Agreement dated December 15, 1994, by and between Black Hawk and
Jacobs Investments, Inc.; Entertainment and Diversified being the assignees of
Jacobs Investments, Inc.
NOW, THEREFORE, in consideration of the foregoing, of mutual promises
of the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this operating Agreement shall have the
following meanings (unless otherwise expressly provided herein):
"Act" shall mean the Colorado Limited Liability Company Act.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by, or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee, or holder of ten percent (10%) or more of the voting
interests of any Person described in clauses (i) through (iii) of this
sentence. For purposes of this definition, the term "controls," "is controlled
by," or "is under common control with" shall mean the possession,
<PAGE> 3
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person or Entity, whether through the ownership of
voting securities, by contract or otherwise.
"Annual Operating Plan" shall have the meaning ascribed in Section
5.11 of this Operating Agreement.
"Appraisal" shall mean the following process for determining the fair
market value of an interest in the Company: The fair market value of an
interest in the Company shall be the value agreed upon by the Members, or if an
agreement cannot be reached within thirty (30) days after such value is
requested by any Member (the "Determination Date"), then within twenty (20)
business days thereafter each Member shall select a reputable qualified
appraiser, each such appraiser having no less than ten (10) years experience in
the gaming industry and each being familiar with the prices then being paid for
comparable businesses. If either Member shall fail to designate its appraiser
within said twenty (20) business day period and thereafter shall fail to do so
within three (3) days after written notice by the other party requesting such
designation, then such appraiser shall be appointed by the office of the
American Arbitration Association. The two appraisers shall separately complete
their appraisals within thirty (30) days after the date that the later of them
is designated. The two appraisers shall then meet together with the Members or
their representatives, and at such meeting each appraiser shall present to the
other a sealed letter setting forth the appraiser's judgment as to the fair
market value of the interest in the Company and attempt to persuade all Members
to reach agreement as to the value. If all of the Members (or their
representatives) do not reach agreement, and if the higher amount set forth in
either such letter shall not exceed one hundred ten percent (110%) of the lower
amount, then the value shall be the average of the amounts set forth in the two
letters. If, however, the higher amount set forth in either of the two letters
shall exceed one hundred ten percent (110%) of the lower amount, then within
ten (10) business days after the initial delivery of the sealed letters the two
appraisers shall designate a third appraiser having the same minimum
qualifications as the first two. If the first two appraisers shall fail to
agree upon the designation of a third appraiser, then the third appraiser shall
be appointed by the American Arbitration Association. The third appraiser
shall conduct such investigations and hearing as he shall deem appropriate and
within thirty (30) days after his date of designation shall choose a value in
the range of the values determined by the appraisers selected by the Members as
the fair market value as of the Determination Date. The decision of the third
appraiser shall be in writing and shall be binding upon each Member. The costs
of the Appraisal shall be shared by all Members in accordance with their
Membership Interests.
"Articles of Organization" shall mean the Articles of Organization of
the Company as filed with the Office of the Secretary of State of the State of
Colorado in the form attached as Exhibit A hereto, as the same may be amended
from time to time.
"Bankruptcy" means, with respect to any Person, (i) the making of an
assignment for the benefit of creditors, (ii) the filing of a voluntary
petition in bankruptcy, (iii) the adjudication of such Person as bankrupt or
insolvent; (iv) the filing by such Person of a petition or answer seeking for
himself or itself any reorganization, arrangement, composition, readjustment,
liquidation,
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dissolution or similar relief under a statute, law or regulation; (v) the
filing by such Person of an answer or other pleading admitting or failing to
contest the material allegation of a petition filed against him or it in any
proceeding of this nature; (vi) seeking, consenting to, or acquiescence by such
Person in the appointment of a trustee, receiver, or liquidator of him or it or
of all or any substantial part of his or its property; (vii) the commencement
of any proceeding against such Person seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, if such proceeding has not been dismissed within
120 days after such commencement; or (viii) the appointment without the consent
of such Person or acquiescence of a trustee, receiver, or liquidator of such
Person or of all or any substantial part of his or its properties, if the
appointment is not vacated or stayed within 90 days, or if within 90 days after
the expiration of any such stay, the appointment is not vacated.
"Book Basis" means the adjusted basis of an item of property as
reflected in the books of the Company, determined and maintained in accordance
with this Operating Agreement and with the capital accounting rules contained
in Treasury Regulation Section 1.704-1(b)(2)(iv).
"Budget" means the Budget proposed and adopted with respect to a
Fiscal Year of the Company pursuant to Section 5.11 of this Operating
Agreement.
"Capital Account" means the account maintained by the Company for each
Member in accordance with the provisions of Treasury Regulation Section
1.704-1(b) and Section 7.4 of this Operating Agreement.
"Capital Interest" shall mean the proportion that a Member's Capital
Account bears to the aggregate Capital Accounts of all Members whose Capital
Accounts have positive balances as adjusted from time to time.
"Capital Proceeds" means the net cash proceeds realized by the Company
resulting from (1) a Capital Transaction, (2) any refinancing of indebtedness
of the Company, or (3) the elimination of the necessity for any funded reserve
in connection with any mortgage or other indebtedness of the Company.
"Capital Transaction" means the sale, exchange, liquidation or other
disposition of, or any condemnation award or casualty loss recovery with
respect to, all or substantially all of the property of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall refer to Black Hawk/Jacobs Entertainment, LLC.
"Consent" means the written consent of a Person to do the act or thing
for which the Consent may be required.
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"Deficit Capital Account" shall mean with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the following adjustments:
credit to such Capital Account any amount which such Member is
obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any additions thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations,
after taking into account thereunder any changes during such year in
partnership minimum gain (as determined in accordance with Section 1.704-2(d)
of the Treasury Regulations) and in the minimum gain attributable to any
partner nonrecourse debt (as determined under Section 1.704-2(i)(3) of the
Treasury Regulations); and
(i) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
This definition of Deficit Capital Account is intended to comply with the
provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and 1.704-2,
and will be interpreted consistently with those provisions.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Manager.
"Entity" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
"Fiscal Year" shall mean the Company's fiscal year, which shall be the
calendar year.
"Gifting Member" shall mean any Member who gifts, bequeaths or
otherwise transfers for no consideration (by operation of law or otherwise) all
or any part of its Membership Interest in accordance with the provisions of
Article IX of this Operating Agreement.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
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The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset, as
determined by the mutual agreement of the Members, provided that the initial
Gross Asset Values of the assets contributed to the Company pursuant to Section
7.1 hereof shall be the agreed values of such assets as set forth in Section
7.1;
(i) The Gross Asset Values of all Company assets may be
adjusted to equal their respective gross fair market values, as
determined by the mutual agreement of the Members as of the following
times: (a) the acquisition of an additional interest by any new or
existing Member in exchange for more than a de minimis contribution of
property (including money); (b) the distribution by the Company to a
Member of more than a de minimis amount of property as consideration
for a Membership Interest; and (c) the liquidation of the Company
within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clauses (a) and (b) above shall be made only if the Manager reasonably
determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Members in the Company;
(ii) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined
by the mutual agreement of the Members; and
(iii) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m) and Section 7.4 and
subparagraph (iv) under the definition of Net Profits and Net Losses;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to subparagraph (iv) to the extent the Manager determines
that an adjustment pursuant to subparagraph (ii) of this definition is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraph (i), (ii) or (iv) of this definition, then such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Losses.
"Liquidator" means the Manager or, if there is no Manager at the time
in question, such other Person as may be appointed in accordance with
applicable law who shall be responsible to take all actions related to the
winding up and distribution of assets of the Company.
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"Manager" shall mean Entertainment or any other Person that
accompanies or succeeds it in that capacity in accordance with this Operating
Agreement.
"Member" shall initially mean each of Black Hawk, Entertainment and
Diversified, in their capacities as Members, and thereafter shall mean each of
the foregoing so long as it remains a Member of the Company in accordance with
the terms of this Operating Agreement, and each person who may hereafter become
a Member in accordance with the terms of this Operating Agreement.
"Member Capital" means an amount equal to the sum of all the Members'
Capital Account balances determined immediately prior to an allocation to the
Members pursuant to Section 8.1(b) of any Disposition Gain or Disposition Loss,
increased by the aggregate amount of Disposition Gain to be allocated to the
Members pursuant to Section 8.1(b)(i) or decreased by the aggregate amount of
Disposition Loss to be allocated to the Members pursuant to Section 8.1(b)(ii).
"Membership Interest" shall mean the entire interest of a Member in
the Company, including without limitation, the right to receive distributions
(liquidation or otherwise) and allocations of profits and losses. Initial
Membership Interests of the Members are as follows, although actual voting,
governance and other rights deriving from membership, and the allocation of
them, are subject to the specific provisions of this Operating Agreement:
Black Hawk - 75%
Entertainment - 24%
Diversified - 1%
"Net Cash Flow" means the Net Profits or Net Losses of the Company as
shown on the books of the Company adjusted for any accrual items and further
adjusted by the addition of all items set forth in subsection (i) below and by
the deduction of all items set forth in subsection (ii) below:
(i) (A) the amount of Depreciation taken in computing
such taxable income; (B) all other receipts of the Company not
included in taxable income (exclusive of Capital Contributions), the
proceeds of loans and similar capital receipts provided for elsewhere;
(C) the net proceeds of sale, exchange, condemnation, destruction or
other event resulting from the disposition of any part (but not all or
substantially all) of the property owned by the Company, to the extent
not included in such taxable income; (D) amounts released from
Reserves; and (E) any other funds deemed available for distribution
and designated as Net Cash Flow by the Manager.
(ii) (A) all principal payments for the current Fiscal
Year on all loans and on similar obligations of the Company, if any;
(B) expenditures of the acquisition of property of the Company and
similar capital outlay items not deducted for federal income tax
purposes; and (C) amounts added to Reserves.
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Net Cash Flow shall be determined separately for each Fiscal Year and shall not
be cumulative.
"Net Profits" and "Net Losses" shall mean for each taxable year of the
Company an amount equal to the Company's net taxable income or loss for such
year as determined for federal income tax purposes (including separately stated
items) in accordance with Section 703 of the Code with the following
adjustments:
(i) Any items of income, gain, loss and deduction
allocated to Members pursuant to Section 8.2 shall not be taken into
account in computing Net Profits or Net Losses for purposes of this
Operating Agreement;
(ii) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Profits and Net Losses (pursuant to this definition) shall be added to
such taxable income or loss;
(iii) Any expenditure of the Company described in Section
705(a)(2)(B) of the Code and not otherwise taken into account in
computing Net Profits and Net Losses (pursuant to this definition)
shall be subtracted from such taxable income or loss;
(iv) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to clause (ii) or (iii) of the definition
of Gross Asset Value, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such asset for
purposes of computing Net Profits and Net Losses;
(v) Gain or loss resulting from any disposition of any
Company asset with respect to which gain or loss is recognized for
federal income tax purposes shall be computed with reference to the
Gross Asset Value of the asset disposed of, notwithstanding that the
adjusted tax basis of such asset differs from its Gross Asset Value;
and
(vi) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year.
"Notice" means a writing containing the information required by this
Agreement to be communicated to a Person and sent by registered or certified
United States mail, postage prepaid and registered or certified with returns
receipt requested, or sent by some form of overnight express delivery to such
Person at the last known address of such Person or sent by facsimile (receipt
confirmed). All Notices shall be effective upon being deposited in the United
States mail or with such overnight express delivery service. However, the time
period in which a response to any such Notice must be given shall commence to
run from the date of delivery or attempted delivery as noted on the return
receipt of the Notice by the addressee thereof or the records of the Entity
effecting the overnight express delivery. Notwithstanding the foregoing, any
written
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communication containing such information sent to such Person actually received
by such Person shall constitute Notice for all purposes of this Agreement.
"Operating Agreement" shall mean this Operating Agreement as
originally executed and as amended from time to time.
"Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of
such "Person" where the context so permits.
"Policy Board" shall mean the board established by the Members as
contemplated by Section 5.3, which Policy Board shall have full responsibility
and authority for the operation and management of the Company's business
affairs. Initially, the Policy Board shall have five members (three appointed
by Entertainment and two appointed by Black Hawk).
"Project" shall have the meaning ascribed to it in the recital
paragraphs.
"Reserves" shall mean, with respect to any fiscal period, funds set
aside or amounts allocated to such period to reserves which shall be maintained
in amounts deemed sufficient by the Members for working capital or other
reasonable business needs.
"Required Interest" shall mean Members owning 100% of the Membership
Interests of the Company.
"Selling Member" shall mean any Member which sells, assigns, or
otherwise transfers for consideration all or any portion of its Membership
Interest in accordance with the provisions of Article IX of this Operating
Agreement.
"Service" means the Internal Revenue Service.
"State" means the State of Colorado.
"Tax Matters Partner" means Entertainment.
"Transferring Member" shall, depending on the context, refer to a
Selling Member, a Gifting Member or both.
"Treasury Regulations" shall include temporary and final regulations
promulgated under the Code in effect as of the date of filing the Articles of
organization and the corresponding sections of any regulations subsequently
issued that amend or supersede such regulations.
"Withdrawal Event" shall have the meaning ascribed in Section
12.1(a)(iii) of this Operating Agreement.
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ARTICLE II
FORMATION OF COMPANY
SECTION 2.1 Members. The names and business addresses of the initial
Members are as follows:
Black Hawk Gaming & Development
Company, Inc.
2060 Broadway, Suite 400
Boulder, Colorado 80302
BH Entertainment Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44114
Diversified Opportunities Group Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44114
2.2 Formation and Name. The Company was formed as a Colorado
limited liability company as of November _____, 1996, upon the filing of
Articles of Organization with the Colorado Secretary of State. This Operating
Agreement constitutes the sole agreement, and supersedes any prior oral or
written agreements, of the Members relating to the Company.
2.3 Name. The name of the Company is Black Hawk/Jacobs
Entertainment, LLC.
2.4 Principal Place of Business. The principal place of business
of the Company shall be 2060 Broadway, Suite 400, Boulder, Colorado 80302.
The Company may locate its places of business and registered office at any
other place or places as the Manager may from time to time determine.
2.5 Registered Office and Registered Agent. The Company's initial
registered office shall be at the office of its registered agent at 2060
Broadway, Suite 400, Boulder, Colorado 80302, and the name of its initial
registered agent at such address shall be Black Hawk Gaming & Development
Company, Inc. The registered office and registered agent may be changed from
time to time by filing the address of the new registered office and/or the name
of the new registered agent with the Secretary of State pursuant to the Act.
2.6 Term. The term of the Company shall commence upon the filing
of the Articles of Organization with the Colorado Secretary of State and shall
expire on December 31, 2036, or
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such later date as may be fixed by amendment of this Operating Agreement,
unless the Company is earlier dissolved in accordance with either the
provisions of this Operating Agreement or the Act.
ARTICLE III
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be
the development, ownership and management of the Project and in connection
therewith:
(a) to accomplish any lawful business whatsoever, or
which shall at any time appear conducive to or expedient for the
protection or benefit of the Company and its assets;
(b) to exercise all other powers necessary to or
reasonably connected with the Company's business which may be legally
exercised by limited liability companies under the Act; and
(c) to engage in all activities necessary, customary,
convenient, or incident to any of the foregoing.
ARTICLE IV
GENERAL ECONOMIC TERMS AND SECURITY
4.1 Purchase Agreement Terms. Subject to the terms of the
Purchase Agreement, Diversified is acquiring 190,476 Shares (as defined in the
Purchase Agreement) and is loaning to Black Hawk an amount that ultimately will
equal $6,000,000. The loan is evidenced by a Convertible Note of even date
herewith (the "Note"). The Note provides, among other things, that prior to
payment in full of the principal balance of the Note, all or any portion of the
unpaid principal balance shall be convertible into Shares of Black Hawk at any
time upon the election of Diversified and, if not yet fully converted, shall,
unless the provisions of Article XI of this Operating Agreement apply, be
automatically converted into Shares at such time as (i) Diversified has
acquired or received all necessary and appropriate regulatory, licensing and
other approvals from the Colorado Division of Gaming (the "Division"), the
Colorado Limited Gaming Control Commission (the "Commission") and the State and
local liquor licensing authorities and (ii) the Commission approves the
issuance to the Company of a retail gaming license (such date of conversion
being hereafter referred to as the "Conversion Date"). The proceeds of the
loan received by Black Hawk pursuant to the Note shall be contributed to the
capital of the Company by Black Hawk.
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4.2 NASD Approval. Notwithstanding anything to the contrary
contained in Section 4.1, in the event Black Hawk does not obtain NASD Approval
(as defined in the Purchase Agreement), Diversified shall have no further
obligation to make any investment in or loan to Black Hawk beyond the
acquisition of the 190,476 Shares and the initial $1,500,000 loan for the First
Note (as defined in the Purchase Agreement). At such time, the First Note
shall be deemed to have been cancelled, the 190,476 Shares acquired by
Diversified shall be deemed to have been redeemed by Black Hawk, and
Diversified shall be deemed to have made a $2,500,000 capital contribution to
the Company and the parties' Membership Interests and other interests in the
Company shall be adjusted so that Black Hawk shall have a 50% Membership
Interest and Diversified and Entertainment shall have an aggregate 50%
Membership Interest and, thereafter, the parties shall make such capital
contributions as are necessary to equalize their Capital Accounts in accordance
with the foregoing.
4.3 Security. As security for Black Hawk's obligations to
Diversified under the Note, pursuant to the terms of an Assignment, Pledge and
Security Agreement (the "Security Agreement") of even date herewith, Black Hawk
is granting Diversified a first priority lien in 100% of Black Hawk's
Membership Interest and the products and proceeds thereof, including but not
limited to its Capital Interest, interest in Net Profits and Net Losses and Net
Cash Flow of the Company, and all other rights and privileges associated with
Black Hawk's membership in the Company; provided, however, that Diversified's
remedies upon an event of default under the Note shall be limited (i) to
obtaining accrued but unpaid interest thereon and (ii) in the same manner as if
it exercised its Purchase Right described in Sections 11.2(a) and (b), below,
(provided that all of the events described in Section 11.2(b) occur).
ARTICLE V
MANAGEMENT
5.1 Manager.
(a) Subject to the other provisions of this Operating
Agreement, the business and affairs of the Company shall be managed by the
Manager. The Manager shall direct, manage and control the business of the
Company to the best of its ability. Except for decisions, actions or
situations in which the approval of the Policy Board or the Members is
expressly required by this Operating Agreement or by non-waivable provisions of
applicable law, the Manager shall have full and complete authority, power and
discretion to manage and control the business, affairs and properties of the
Company, to make all decisions regarding those matters and to perform any and
all other acts or activities customary or incident to the management of the
Company's business.
(b) No Person may serve as Manager unless it is a Member
and holds at least a twenty percent (20%) Membership Interest in the Company.
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(c) The Members hereby designate Entertainment as the
initial Manager; provided, however, that from and after the Conversion Date,
Black Hawk also shall be designated as a Manager and, thereafter, Entertainment
and Black Hawk shall have equal rights as Manager. Notwithstanding the
foregoing, following the Conversion Date, Entertainment shall continue to serve
as the Tax Matters Partner.
5.2 Powers and Duties of Manager.
(a) Without limiting the generality of Section 5.1, but
subject to the limitations set forth in Section 5.4, the Manager shall have the
power and authority, on behalf of the Company to:
(i) Cause the Company to pay all required taxes,
rents, assessments and other obligations of the Company;
(ii) On behalf of the Company, execute and
supervise contracts to be entered into by the Company and execute all
other instruments and documents, including, without limitation,
checks, drafts, notes and other negotiable instruments, mortgages or
deeds of trust, security agreements, financing statements, documents
providing for the acquisition, mortgage or disposition of the
Company's property, assignments, bills of sale, leases and any other
instruments or documents necessary, in the opinion of the Manager, to
the business of the Company;
(iii) Borrow money for the Company from banks,
other lending institutions, Members, or Affiliates of Members in
accordance with this Agreement or on such terms as may be approved by
the Members, and in connection therewith, to hypothecate, encumber and
grant security interests in the assets of the Company to secure
repayment of the borrowed sums. No debt shall be contracted or
liability incurred by or on behalf of the Company except to the extent
expressly provided in this Operating Agreement or as approved by the
Policy Board;
(iv) Purchase liability and other insurance to
protect the Company's property and business;
(v) Invest any Company funds temporarily (by way
of example but not limitation) in time deposits, short-term
governmental obligations, commercial paper or other investments; and
(vi) Take any action and do and perform all other
acts which (A) are necessary or appropriate to the conduct of the
Company's business, including all actions necessary to fulfill the
Company's obligations to maintain the development of the Project, but
(B) do not require approval of the Policy Board under this Operating
Agreement,
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unless such action or acts are specifically authorized by the Budget
or the Annual Operating Plan.
(b) The Manager shall be responsible for and hereby
covenants that:
(i) as Tax Matters Partner, it will provide: (A)
notice of each Member's name, address and profits interest to be
furnished to the Service in accordance with Section 6223(c) of the
Code, provided the Tax Matters Partner has knowledge of such Member's
name, address and profits interest, (B) notice of all administrative
and judicial proceedings for the adjustment at the partnership
(Company) level of partnership (Company) items shall be sent to each
known Member, and (C) if the Service notifies the Company of any
administrative proceeding, notice will be sent to the Service in
accordance with Section 6230(e) of the Code;
(ii) it will exercise good faith in all activities
relating to the conduct of the business of the Company and will take
no action with respect to the business and property of the Company
which is not reasonably related to the achievement of the purpose of
the Company;
(iii) extended risk insurance in favor of the
Company acceptable to the Policy Board and workmen's compensation and
public liability insurance in favor of the Company in amounts
satisfactory to the Policy Board will be kept in force during the term
of the Company as to property of the Company;
(iv) all funds of the Company will be deposited in
a separate bank account or accounts as shall be determined by the
Manager;
(v) at the Company's cost and expense, it will
provide or cause to be provided each Member (A) within thirty (30)
days after the end of each fiscal quarter, a report of operations for
such quarter, including a balance sheet, a statement of income and
expenses and a cash flow statement for the quarter then ended, (B)
within ninety (90) days after the end of each Fiscal Year of the
Company, reviewed and compiled and, if necessary, audited financial
statements prepared by Deloitte & Touche (or such other independent
accountants as may be selected by the Members) in accordance with
generally accepted accounting principles and such financial
information with respect to such Fiscal Year of the Company as shall
be reportable for federal and state income tax purposes, (C) tax
returns for the Company as set forth in Section 8.10; and (D) regular
and periodic (but not less than quarterly) reports and updates
regarding the Project;
(vi) comply with all contracts, agreements and
obligations and all governmental rules, regulations, laws, ordinances
and requirements, applicable to the Project and management of the
Company; and
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(vii) in hiring professionals on behalf of the
Company, it will consider, on a reasonable basis, any business issues
or concerns raised by any Member with respect to any one or more
candidates for such engagement.
5.3 Policy Board.
(a) Subject to the authority granted to the Manager, the
Policy Board shall have full authority for operating and managing the Company
and the Project. Actions and decisions of the Policy Board shall require the
vote or Consent of a majority of the members of the Policy Board. The Policy
Board shall make all decisions on behalf of the Company not specifically
reserved herein to the Manger.
(b) There shall be five Members of the Policy Board. The
Policy Board members and the Member of the Company appointing such individuals
are as follows:
Entertainment Black Hawk
------------- ----------
1) Jeffrey P. Jacobs 1) Robert D. Greenlee
2) David C. Grunenwald 2) Stephen R. Roark
3) Robert H. Hughes
All members of the Policy Board shall serve in such capacity without
compensation from the Company. Each Member of the Company may at any time and
from time to time upon Notice to the other Members replace any of its designees
to the Policy Board should such designee die, become disabled, resign or for
any reason cease to serve on the Policy Board.
(c) From and after the date on which Diversified controls
Black Hawk's Board of Directors, one of the Members of the Policy Board
designated by Entertainment shall resign and Black Hawk shall have the right to
nominate the fifth member of the Policy Board. If, however, Jeffrey P. Jacobs
("Jacobs") ceases to be Chief Executive Officer or Chairman of the Board of
Black Hawk, the Policy Board shall consist of six members, with three members
being designated by each of Entertainment and Black Hawk and thereafter
decisions of the Policy Board shall require the vote or consent of four of the
members of the Policy Board.
5.4 Restrictions on Authority of the Manager.
The Manager shall not have the authority to, and covenants and
agrees that it shall not, do any of the following acts without the majority
Consent of the members of the Policy Board:
(a) Cause or permit the Company to engage in any activity
that is not consistent with the purposes of the Company as set forth in Section
3.1 hereof;
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(b) Do any act in contravention of this Operating
Agreement;
(c) Do any act which would make it impossible to carry on
the ordinary business of the Company, except as otherwise provided in this
Operating Agreement;
(d) Confess a judgment against the Company or execute an
assignment for the benefit of creditors;
(e) Utilize Company property, or assign rights in
specific property of the Company, for other than a Company purpose;
(f) Perform any act that would cause the Company to
conduct business in a state which has neither enacted legislation which permits
limited liability' companies to organize in such state nor permits the Company
to register to do business in such state as a foreign limited liability
company;
(g) Cause the Company to voluntarily take any action that
would cause Bankruptcy of the Company;
(h) Cause the Company to acquire any equity or debt
securities of any Member or any of its Affiliates, or otherwise make loans to
any Member or any of its Affiliates;
(i) Direct the business and affairs of the Company and
exercise the rights and powers granted by Section 5.2 in a manner that would
cause or effect a significant change in the nature of the Company's business;
(j) Cause the Company to admit any additional Members;
(k) Sell, lease, encumber or otherwise dispose of all or
any part of the Project or Company assets, except for a liquidating sale in
connection with the dissolution of the Company or the casual sale or other
disposition of Company assets with a fair market value of less than $10,000 in
a single transaction or $100,000 in the aggregate;
(l) Except as otherwise contemplated by this Agreement,
cause the Company to enter into any contract or obligation in excess of
$50,000;
(m) Borrow money on behalf of the Company;
(n) Except as otherwise contemplated by this Agreement,
cause the Company to enter into any contract or agreement with any Affiliate of
any Member, unless the compensation provided thereunder is in accordance with
Section 6.7 and the services to be provided are approved by the Manager and are
reasonably necessary for the Company's business;
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(o) Cause dissolution of the Company;
(p) Establish, add to and release funds from Reserves;
(q) Cause the Company to enter into any joint venture,
partnership or other Entity; or
(r) Agree or consent to any material amendment of, or the
execution of, any Agreement, contract or other document relating to the
Project.
5.5 Duties of Manager and Policy Board. Each of the Manager and
Policy Board shall perform their respective duties in good faith, in a manner
each reasonably believes to be in the best interests of the Company, and with
such care as an ordinarily prudent person in a like position would use under
similar circumstances.
5.6 Managers and Members of the Policy Board Have No Exclusive
Duty to Company. Neither the Manager nor the members of the Policy Board shall
be required to manage the Company as its sole and exclusive function and each
(and/or any Member) (i) may have other business interests and may engage in
other activities in addition to those relating to the Company, including,
without limitation, subject to this Agreement, and the Master Joint Venture
Agreement (as defined in the Purchase Agreement), participation in ventures
which compete, or may compete, with the business of the Company and (ii) shall
incur no liability to the Company or to any of the Members as a result of
engaging in any such other business or venture.
5.7 Bank Accounts. The Manager may from time to time open bank
accounts in the name of the Company, and the Policy Board shall designate the
sole signatories on such accounts.
5.8 Resignation. The Manager of the Company may resign at any
time by giving Notice to the Members. Any such resignation of a Manager shall
take effect upon receipt of Notice thereof or at such later time as shall be
specified in such Notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
The failure of a Manager to satisfy or to continue to satisfy the requirements
of Section 5.1(b) shall be deemed to constitute the resignation of such
Manager, effective immediately and without Notice or any further action upon
such failure. Upon resignation of a Manager, until a new Manager is appointed
pursuant to Section 5.8, the management of the Company shall revert to and be
vested in the Policy Board. The resignation of a Manager shall not affect the
former Manager's rights as a Member and shall not constitute a withdrawal of a
Member.
5.9 Vacancies. Any vacancy occurring for any reason in the
position of Manager of the Company shall be filled by Entertainment until the
Conversion Date and, thereafter, by the Members holding the Required Interest.
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5.10 Right to Rely on the Manager. Any Person dealing with the
Company may rely (without duty of further inquiry) upon a certificate signed by
the Manager as to:
(a) The identity of the Manager or any Member;
(b) The existence of nonexistence of any fact or facts
which contribute a condition precedent to acts by the Manager or which are in
any other manner germane to the affairs of the Company;
(c) The Persons who are authorized to execute and deliver
any instrument or document of the Company; or
(d) Any act or failure to act by the Company or any other
matter whatsoever involving the Company or any Member with respect to the
business of the Company.
5.11 Annual Operating Plan and Budget.
(a) The Manager shall prepare for the approval of the
Policy Board, which approval shall not be unreasonably withheld, each Fiscal
Year (no later than thirty (30) days prior to the end of the then current
Fiscal Year) a business plan ("Annual Operating Plan") for the next Fiscal
Year. Each Annual Operating Plan shall consist of a strategic plan setting
forth the Company's goals and objectives regarding the Project during the next
Fiscal Year. Any such Annual Operating Plan shall also include such other
information or other matters necessary in order to inform the Policy Board of
the Company's business and prospects and to enable the Policy Board to make an
informed decision with respect to their approval of such Annual Operating Plan.
(b) The Manager shall prepare for the approval of the
Policy Board, which approval shall not be unreasonably withheld, each Fiscal
Year (no later than thirty (30) days prior to the end of the then current
Fiscal Year) a budget ("Budget") for the next Fiscal Year. If the proposed
Budget for any given year is not approved by the Policy Board by the first day
of such year, then, until such time as the Members approve a Budget for that
year, the Manager shall be authorized to expend only such funds as are required
to preserve and protect the value of the Project and satisfy the Company's
obligations under existing contracts with Persons.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF MEMBERS
6.1 Limitation of Liability. Each Member's liability shall be
limited as set forth in this Operating Agreement, the Act and other applicable
law. A Member will not be personally liable for any debts, obligations,
liabilities or losses of the Company beyond its respective Capital
Contributions and any obligation of a Member under Section 7.1, 7.2 or 7.4 to
make Capital
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Contributions, as specifically agreed in accordance with Section 7.5 or as
otherwise required by law.
6.2 List of Members. Upon written request of any Member, the
Manager shall provide a list showing the names, addresses and Membership
Interests of all Members.
6.3 Company Books. In accordance with the Act, at the expense of
the Company, the Manager shall maintain and preserve, during the term of the
Company, and for five (5) years thereafter, all books, records and accounts of
all operations and expenditures of the Company and other relevant Company
documents. Upon reasonable request, each Member (or its representative) shall
have the right, during ordinary business hours, to inspect and copy such
Company documents at the requesting Member's expense. In addition to complete
accounting records, at a minimum, the Company shall keep at its principal place
of business the following records:
(a) A current list of the full name and last known
business, residence, or mailing address of each Member, assignee, member of the
Policy Board and Manager, both past and present;
(b) A copy of the Articles of Organization of the Company
and all amendments thereto, together with executed copies of any powers of
attorney pursuant to which any amendment has been executed;
(c) Copies of the Company's federal, state, and local
income tax returns and reports, if any, for the four most recent years;
(d) Copies of the Company's currently effective written
Operating Agreement, copies of any writings permitted or required with respect
to a Member's obligation to contribute cash, property or services, and copies
of any financial statements of the Company for the three most recent years;
(e) Minutes of every annual, special meeting and
court-ordered meeting of the Manager or the Members; and
(f) Any written consents obtained from Members for
actions taken by Members without a meeting and from members of the Manager for
actions taken by the Manager without a meeting.
6.4 Liability of a Member to the Company. A Member who receives a
distribution in violation of this Agreement or the Act is liable to the Company
to the extent now or hereafter provided by the Act.
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6.5 No Commitments on Behalf of the Company. Except as provided
in this Operating Agreement, each Member agrees that it will not take any
action which will commit or bind, or purport to commit or bind, the Company or
any other Member to any act, agreement, contract or undertaking of any kind or
nature whatsoever, or incur debt in the name of or on behalf of the Company or
create any lien upon any of the properties or the other assets of the Company
or hold itself out as authorized to act on behalf of the Company or any Member,
unless permitted by this Operating Agreement or expressly authorized in advance
to do so by approval of the other Member. Each Member agrees that it will
indemnify the Company and the other Member(s) against any and all claims,
damages, losses and liabilities to which the Company or any other Member may be
or become subject arising or resulting from the breach by such Member of this
Section 6.5.
6.6 Payment of Costs and Expenses. All reasonable costs and
expenses of the Company and (to the extent fairly allocable to the Company) of
the Manager and/or the Policy Board will be borne by and charged to the
Company, including, without limitation: (i) out-of pocket expenses incurred by
the Company, the Manager or the Policy Board in connection with the
organization of the Company; (ii) fees and expenses of consultants, appraisers,
custodians, counsel, independent public accountants, actuaries and other
agents; (iii) finders, placement, brokerage and other similar fees; (iv)
out-of-pocket costs of meetings with (including travel), and reports to, the
Members or the Policy Board; (v) costs and expenses incurred for the
preparation and distribution of financial reports, tax reports, and other
information for the benefit of the Members or as specifically requested by a
Member; (vi) any taxes, fees or other governmental charges levied against the
Manager or its income or assets or in connection with its business or
operations; and (vii) costs of any agency or administrative actions or
hearings, any governmental action or third-party litigation or other matters
that are the subject of indemnification pursuant to Article X hereof; (viii)
costs of winding-up and liquidating the Company, and (ix) all other reasonable
costs and expenses of the Company, the Manager or the Policy Board in
connection with this Agreement.
6.7 Member or Affiliates Dealing With Company.
(a) A Member or any Affiliate of a Member shall have the
right to contract or otherwise deal with the Company for the sale of goods or
services only if (i) the terms and conditions of such contract are fully
disclosed in writing to all Members not less than thirty (30) business days
prior to the effective date of such contract, (ii) compensation paid or
promised for such goods or services is reasonable and competitive (i.e., at
fair market value) and is paid only for goods or services actually furnished to
the Company, (iii) the goods or services to be furnished are reasonable for and
necessary to the Company, and (iv) the terms for the furnishing of such goods
and services are at least as favorable to the Company as would be obtainable in
an arm's length transaction. Any contract covering such transactions shall be
in writing. Any payment made to a Member or any Affiliate of a Member for such
goods or services shall be fully disclosed to all Members, and no Affiliate
shall, by the making of lump-sum payments to any other Person for disbursement
by such other Person, circumvent the provisions of this Section 6.7.
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(b) Notwithstanding the provisions of Section 6.7(a), no
Member or Affiliate of a Member shall:
(i) participate in any arrangement which would
circumvent the provisions of Section 6.7(a), including but not limited
to receipt of a rebate or give-up; or
(ii) receive any insurance brokerage fee or write
any insurance policy covering the Company.
6.8 Member Loans. Nothing in this Operating Agreement shall
prevent any Member from making secured or unsecured loans to the Company by
agreement with the Company and approval of all of the Members; provided,
however, each Member shall be entitled to proportionately participate in making
such loan(s) on the same terms as made by any Member.
ARTICLE VII
CAPITAL CONTRIBUTIONS, MEMBER LOANS,
FINANCIAL OBLIGATIONS AND CAPITAL ACCOUNTS
7.1 Members' Capital Contributions.
(a) As its Capital Contribution to the Company,
Entertainment and Diversified have or will assign, or cause to be assigned, and
contribute those items set forth on Exhibit B. For Capital Account purposes,
the Members acknowledge that the Agreed Value of such Capital Contribution is
$5,000,000.
(b) As its Capital Contribution to the Company, Black
Hawk has or will assign, or cause to be assigned, and contribute those items
set forth on Exhibit B. For Capital Account purposes, the Members acknowledge
that the Agreed Value of such Capital Contribution is $15,000,000.
7.2 Additional Capital. Except as may be required or desired by
the Policy Board, no Member shall be required to contribute capital to the
Company beyond its initial Capital Contribution. Additional Capital
Contributions shall be made by each of the Members in proportion to their
Membership Interests.
7.3 Provisions Not for Benefit of Creditors. None of the terms,
covenants, obligations or rights contained in this Article VII is or shall be
deemed to be for the benefit of any person or Entity other than the Members and
the Company, and no such third person shall under any circumstances have any
right to compel any actions or payments by the Manager and/or the Members.
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7.4 Capital Accounts.
(a) A separate Capital Account will be maintained for
each Member. Each Member's Capital Account will be increased by (1) the amount
of money contributed by such Member to the Company; (2) the fair market value
of property contributed by such Member to the Company (net of liabilities
secured by such contributed property that the Company is considered to assume
or take subject to under Section 752 of the Code); (3) allocations to such
Member of Net Profits; (4) any items in the nature of income and gain which are
specially allocated to the Member pursuant to paragraphs (a), (b), (c), (d),
(e), (i) and/or (j) of Section 8.2; and (5) allocations to such Member of
income described in Section 705(a)(1)(B) of the Code. Each Member's Capital
Account will be decreased by (1) the amount of money distributed to such Member
by the Company; (2) the fair market value of property distributed to such
Member by the Company (net of liabilities secured by such distributed property
that such Member is considered to assume or take subject to under Section 752
of the Code); (3) allocations to such Member of expenditures described in
Section 705(a)(2)(B) of the Code; (4) any items in the nature of deduction and
loss that are specially allocated to the Member pursuant to paragraphs (a),
(b), (c), (d), (e), (f), (i) and/or (j) of Section 8.2; and (5) allocations to
the account of such Member of Net Losses.
(b) In the event of a permitted sale or exchange of a
Membership Interest in the Company, the Capital Account of the transferor shall
become the Capital Account of the transferee to the extent it relates to the
transferred Membership Interest in accordance with Section 1.704-1(b)(2)(iv) of
the Treasury Regulations.
(c) The manner in which Capital Accounts are to be
maintained pursuant to this Section 7.4 is intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. If, in the opinion of the Company's accountants, the
manner in which Capital Accounts are to be maintained pursuant to the preceding
provisions of this Section 7.4 should be modified in order to comply with
Section 704(b) of the Code and the Treasury Regulations thereunder, then
notwithstanding anything to the contrary contained in the preceding provisions
of this Section 7.4, the method in which Capital Accounts are maintained shall
be so modified; provided, however, that any change in the manner of maintaining
Capital Accounts shall not materially alter the economic agreement between or
among the Members.
(d) Upon liquidation of the Company (or any Member's
Membership Interest or an assignee's Membership Interest, except as otherwise
provided in this Operating Agreement), liquidating distributions will be made
in accordance with the positive Capital Account balances of the Members and
assignees, as determined after taking into account all Capital Account
adjustments for the Company's taxable year during which the liquidation occurs.
Liquidation proceeds will be paid in accordance with Section 12.3(b). The
Company may offset damages for breach of this Operating Agreement by a Member
or assignee whose interest is liquidated (either upon the withdrawal of the
Member or the liquidation of the Company) against the amount otherwise
distributable to such Member.
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(e) Except as otherwise required in the Act (and subject
to Sections 6.1 and 6.4), no Member or assignee shall have any liability to
restore all or any portion of a deficit balance in such Member's or assignee's
Capital Account.
7.5 Withdrawal or Reduction of Members' Contributions
(a) A Member shall not receive out of the Company's
property any part of its Capital Contribution until all liabilities of the
Company, except liabilities to Members on account of their Capital
Contributions, have been paid or there remains property of the Company
sufficient to pay them.
(b) A Member, irrespective of the nature of its Capital
Contribution, has only the right to demand and receive cash in return for its
Capital Contribution.
ARTICLE VIII
ALLOCATIONS, DISTRIBUTIONS, ELECTIONS AND REPORTS
8.1 (a) Allocations of Profits and Losses from Operations.
Subject to Section 8.1(b) and 8.2 the Net Profits and Net Losses of the Company
for each Fiscal Year shall be allocated to the Members in proportion to their
respective Membership Interests.
(b) Allocations of Gain or Loss Upon Sale or Other Disposition
of the Property Upon Liquidation of the Company. The Net Profits or Net Losses
from the sale or other disposition of the property or any portion thereof (such
Net Profits or Net Losses determined by reference to the Book Basis of such
property to the Company, and without including any income from interest on any
deferred portion of the sale price) ("Disposition Gain" and Disposition Loss,"
respectively) for each fiscal year of the Company shall be allocated to the
Members as follows:
(i) Disposition Gain. Subject to the allocations set forth in
Sections 8.2, Disposition Gain shall be allocated to the
Members as follows:
(A) First, to any Members with deficit balances in their
respective Capital Accounts, until such balances are
restored to zero;
(B) Second, among the Members in such proportions and in
such amounts as would result in the Capital Account
balance of each Member equaling, as nearly as
possible, the amount of the distribution that such
Member would receive if an amount equal to the Member
Capital were distributed to the Members pursuant to
Section 8.4; and
(C) Any remaining Disposition Gain shall be allocated to
the Members in accordance with their respective
Percentage Interests.
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(ii) Disposition Loss. Subject to the allocations set forth in
Sections 8.2, Disposition Loss shall be allocated to the
Members as follows:
(A) First, to those Members with positive balances in
their respective Capital Accounts in amounts equal to
their respective Capital Account balances; provided,
however, that if the amount of Disposition Loss to be
allocated is less than the sum of the Capital Account
balances of all Members having positive Capital
Account balances, then the Disposition Loss shall be
allocated to such Members in such proportions and in
such amounts as would result in the Capital Account
balance of each such Member equaling, as nearly as
possible, the amount of the distribution that such
Member would receive if an amount equal to the Member
Capital were distributed to such Members pursuant to
Section 8.4; and
(B) Any remaining Disposition Loss shall be allocated to
the Members in accordance with their respective
Membership Interests.
(iii) Interest Income on Sale. Income from interest on any deferred
portion of the Net Capital Proceeds with respect to a sale or other
disposition of Property shall not be deemed to be gain on such sale,
and such income shall be considered an item of gross income and
allocated to the Member receiving the interest to which such income is
attributable.
8.2 Special Allocations to Capital Accounts and Certain Other
Income Tax Allocations. Notwithstanding Section 8.1 hereof:
(a) In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, which create
or increase a Deficit Capital Account of such Member, then items of Company
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income, and gain for such year and, if necessary, for
subsequent years) shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Deficit Capital Account so created as quickly as possible. It
is the intent that this Section 8.2(a) be interpreted to comply with the
alternate test for economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of
the Treasury Regulations.
(b) In the event any Member would have a Deficit Capital
Account at the end of any Company taxable year which is in excess of the sum of
any amount that such Member is obligated to restore to the Company under
Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations and such Member's
share of minimum gain as defined in Section 1.704-2(g)(1) of the Treasury
Regulations (which is also treated as an obligation to restore in accordance
with Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations), the Capital
Account of such Member shall be specially credited with items of Membership
income (including gross income) and gain in the amount of such excess as
quickly as possible.
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(c) Notwithstanding any other provision of this Section
8.2, if there is a net decrease in the Company's minimum gain as defined in
Treasury Regulation Section 1.704-2(d) during a taxable year of the Company,
then, the Capital Account of each Member shall be allocated items of income
(including gross income) and gain for such year (and if necessary for
subsequent years) equal to that Member's share of the net decrease in Company
minimum gain. This Section 8.2(c) is intended to comply with the minimum gain
chargeback requirement of Section 1.704-2 of the Treasury Regulations and shall
be interpreted consistently therewith. If (i) in any taxable year that the
Company has a net decrease in the Company's minimum gain, (ii) the minimum gain
chargeback requirement would cause a distortion in the economic arrangement
among the Members, and (iii) it is not expected that the Company will have
sufficient other income to correct that distortion, then the Manager may in its
discretion (and shall, if requested to do so by a Member) seek to have the
Internal Revenue Service waive the minimum gain chargeback requirement in
accordance with Treasury Regulation Section 1.704-2(f)(4).
(d) Items of Company loss, deduction and expenditures
described in Section 705(a)(2)(B) which are attributable to any nonrecourse
debt of the Company and are characterized as partner (Member) nonrecourse
deductions under Section 1.704-2(i) of the Treasury Regulations shall be
allocated to the Members' Capital Accounts in accordance with said Section
1.704-2(i) of the Treasury Regulations.
(e) Beginning in the first taxable year in which there
are allocations of "nonrecourse deductions" (as described in Section 1.704-2(b)
of the Treasury Regulations) such deductions shall be allocated to the Members
in the same manner as Net Profit or Net Loss is allocated for such period.
(f) In accordance with Section 704(c)(1)(A) of the Code
and Section 1.704-1(b)(2)(i)(iv) of the Treasury Regulations, if a Member
contributes property with a fair market value that differs from its adjusted
basis at the time of contribution, income, gain, loss and deductions with
respect to the property shall, solely for federal income tax purposes (and not
for Capital Account purposes), be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company and its fair market value at the time of contribution.
(g) Pursuant to Section 704(c)(1)(B) of the Code, if any
contributed property is distributed by the Company other than to the
contributing Member within five years of being contributed, then, except as
provided in Section 704(c) (2) of the Code, the contributing Member shall,
solely for federal income tax purposes (and not for Capital Account purposes),
be treated as recognizing gain or loss from the sale of such property in an
amount equal to the gain or loss that would have been allocated to such Member
under Section 704(c) (1)(A) of the Code if the property had been sold at its
fair market value at the time of the distribution.
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(h) In the case of any distribution by the Company to a
Member or assignee, such Member or assignee shall, solely for federal income
tax purposes (and not for Capital Account purposes), be treated as recognizing
gain in an amount equal to the lesser of:
(i) the excess (if any) of (A) the fair market
value of the property (other than money) received in the distribution
over (B) the adjusted basis of such Member's Membership Interest or
assignee's Membership Interest in the Company immediately before the
distribution reduced (but not below zero) by the amount of money
received in the distribution, or
(ii) the Net Precontribution Gain (as defined in
Section 737(b) of the Code) of the Member or assignee. The Net
Precontribution Gain means the net gain (if any) which would have been
recognized by the distributes Member or assignee under Section
704(c)(1)(B) of the Code of all property which (1) had been
contributed to the Company within five years of the distribution, and
(2) is held by the Company immediately before the distribution, had
been distributed by the Company to another Member or assignee. If any
portion of the property distributed consists of property which had
been contributed by the distributes Member or assignee to the Company,
then such property shall not be taken into account under this Section
8.2(h) and shall not be taken into account in determining the amount
of the Net Precontribution Gain. If the property distributed consists
of an interest in an Entity, the preceding sentence shall not apply to
the extent that the value of such interest is attributable to the
property contributed to such Entity after such interest had been
contributed to the Company.
(i) All recapture of income tax deductions resulting from
sale or disposition of company property shall be allocated to the Member or
Members to whom the deduction that gave rise to such recapture was allocated
hereunder to the extent that such Member is allocated any gain from the sale or
other disposition of such property.
(j) Any credit or charge to the Capital Accounts of the
Members pursuant to Sections 8.2(a), (b), (c), (d), and/or (e) hereof shall be
taken into account in computing subsequent allocations of profits and losses
pursuant to Section 8.1, so that the net amount of any items charged or
credited to Capital Accounts pursuant to Sections 8.1 and 8.2(a), (b), (c),
(d), and/or (e) shall, to the extent possible, be equal to the net amount that
would have been allocated to the Capital Account of each Member pursuant to the
provisions of this Article VIII if the special allocations required by Sections
8.2(a), (b), (c), (d), and/or (e) hereof had not occurred.
8.3 INTENTIONALLY OMITTED.
8.4 Distributions. Except as provided in Section 12.3, all
Company Net Cash Flow, Capital Proceeds, or other cash or property shall be
distributed at least quarterly, after payment of debts of the Company to the
extent required (including the payment of debts to Members) and the setting
aside of any Reserves which the Members deem reasonably necessary for
contingent,
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unforeseen or unmatured Company obligations, to the Members in the same manner
as Net Profits and Net Losses are allocated as set forth in Section 8.1.
8.5 Limitation Upon Distributions. No distribution shall be
declared and paid unless, after the distribution is made, the then fair market
value of the assets of the Company are in excess of all liabilities of the
Company, except liabilities to Members on account of their contributions.
8.6 Priority and Return of Capital. Except as may be expressly
provided in this Article VIII, no Member or assignee shall have priority over
any other Member or assignee, either as to the return of Capital Contributions
or as to Net Profits, Net Losses or distributions; provided that this Section
shall not apply to loans (as distinguished from Capital Contributions) which a
Member has made to the Company.
8.7 Accounting Principles. The profits and losses of the Company
shall be determined in accordance with generally accepted accounting principles
applied on a consistent basis.
8.8 Interest on and Return of Capital Contributions. No Member
shall be entitled to interest on its Capital Contribution or to return of its
Capital Contribution, except as otherwise specifically provided for herein.
8.9 Accounting Period. The Company's accounting period shall be
the calendar year.
8.10 Returns and Elections. The Manager shall cause the
preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of
such returns, or pertinent information therefrom, shall be furnished to the
Members within a reasonable time after the end of the Company's Fiscal Year.
All elections permitted to be made by the Company under federal or
state tax laws shall be made by the Manager with the prior approval and
direction of the Members.
8.11 Distributions In Kind. No Member shall be entitled to demand
and receive property other than cash in return for his Capital Contributions to
the Company. No Company assets shall be distributed in kind except as and in
such manner as may be specifically agreed and approved by the Members. The
amount by which the fair market value of any property to be distributed in kind
to the Members exceeds or is less than the tax basis of such property shall, to
the extent not otherwise recognized by the Company, be taken into account in
computing Net Profits and Net Losses of the Company for purposes of allocations
and distributions to the Members under this Article VIII.
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ARTICLE IX
ASSIGNMENTS AND TRANSFERS
9.1 General. Except for the pledge and assignment by Black Hawk
to Diversified of its Membership Interest and as otherwise specifically
provided herein, neither a Member nor an assignee shall have the right to:
(a) sell, assign, transfer, exchange, pledge or otherwise
transfer for consideration, (collectively, "sell" or "sale"), or
(b) gift, bequeath or otherwise transfer for no
consideration whether or not by operation of law, including without limitation,
in the case of Bankruptcy (collectively "gift") all or any part of its
Membership Interest. Each Member hereby acknowledges the reasonableness of the
restrictions on sale and gift of Membership Interests imposed by this Operating
Agreement in view of the unique terms, the Company purposes and the
relationship of the Members. Accordingly, the restrictions on sale and gift
contained herein shall be specifically enforceable. Any attempt to effect a
sale or gift of a Membership Interest in contravention of this Section 9.1
shall be deemed null and void.
9.2 No Assignment or Transfer in Absence of Unanimous Consent.
(a) Notwithstanding anything contained herein to the
contrary, except Sections 12.1(c) and (d) below, no sale or gift of a
Membership Interest to a proposed assignee which is not a Member immediately
prior to the sale or gift shall be permitted or shall be effective without the
prior Consent of all of the remaining Members, which Consent may be given or
withheld in the sole and absolute discretion of such Members; provided,
however, (x) each of Entertainment or Diversified may assign its rights
hereunder, in whole or in part, to one or more corporations, limited liability
companies, partnerships, trusts or other entities which are under common
control with or control through equity ownership and/or voting control by,
Entertainment, Diversified or Jacobs; it being acknowledged that (i) any entity
managed by Jacobs Entertainment Ltd. ("JEL") or Jacobs, (ii) any entity in
which either of JEL or Jacobs is one of the trustees and/or one of the
beneficiaries or (iii) any entity in which either JEL or Jacobs beneficially
owns 15% or more of the outstanding equity securities constitutes common
control and (y) Black Hawk may assign its rights hereunder, in whole or in
part, to one or more corporations, limited liability companies, partnerships,
trusts or other entities which are wholly-owned by Black Hawk.
(b) Further notwithstanding anything contained herein to
the contrary, notwithstanding the Consent of the remaining Members to the sale
or gift of a Membership Interest to an assignee in accordance with Section
9.2(a) above, no assignee (other than a permitted assignee of Entertainment or
Diversified as described in 9.2(a)) which is not a Member immediately prior to
the sale or gift shall have any right to exercise any rights as a Member, to
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participate in the management of the business and affairs of the Company or to
become a Member without the further Consent of all of the remaining Members.
Such assignee shall have only the rights of an assignee under Section 7-80-702
of the Act.
(c) No assignment or transfer of a Member's interest in
the Company shall be effective unless and until Notice (including the name and
address of the proposed assignee and the date of such transfer) has been
provided to the Company and the non-transferring Member(s).
(d) Upon and contemporaneously with any sale or gift of a
Transferring Member's Membership Interest in the Company which does not at the
same time transfer the balance of the rights associated with the Membership
Interest transferred by the Transferring Member (including, without limitation,
the rights of the Transferring Member to participate in the management of the
business and affairs of the Company), all remaining rights and interests
otherwise retained by the Transferring Member which immediately prior to such
sale or gift were associated with the transferred Membership Interest shall
lapse.
(e) The remaining Members may require the Selling Member
or Gifting Member and the proposed assignee to execute, acknowledge and deliver
to the remaining Members such instruments of transfer, assignment and
assumption and such other certificates, representations and documents, and to
perform all such other acts which the remaining Members may deem necessary or
desirable to:
(i) constitute the assignee as a Member, donee or
successor-in-interest as such;
(ii) confirm that the Person desiring to acquire
an interest or interests in the Company, or to be admitted as a
Member, has accepted, assumed and agreed to be subject and bound by
all of the terms, obligations and conditions of this Operating
Agreement, as the same may have been further amended (whether such
Person is to be admitted as a new Member or will merely be an
assignee);
(iii) preserve the Company after the completion of
such sale, transfer, assignment, or substitution under the laws of
each jurisdiction in which the Company is qualified, organized or does
business;
(iv) maintain the status of the Company as a
partnership for federal tax purposes; and
(v) assure compliance with any applicable state
and federal laws including securities laws and regulations.
9.3 Effective Date. Any sale or gift of a Membership Interest or
admission of a Member in compliance with this Article IX shall be deemed
effective as of the later of the last day
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of the calendar month in which the remaining Members' Consent thereto was given
(if such Consent is required) or such date that the assignee complies with
Section 9.2. The Transferring Member agrees, upon request of the remaining
Members, to execute such certificates or other documents and perform such other
acts as may be reasonably requested by the remaining Members from time to time
in connection with such sale, transfer, assignment, or substitution.
9.4 Indemnity. The Transferring Member hereby indemnifies the
Company and the remaining Members against any and all loss, damage or expense
(including, without limitation, reasonable attorney's fees and tax liabilities
or loss of tax benefits) arising directly or indirectly as a result of any
transfer or purported transfer in violation of this Article IX.
ARTICLE X
INDEMNIFICATION AND DAMAGES
10.1 Indemnity of the Manager, Members of the Policy Board,
Employees and Other Agents. To the maximum extent permitted under the Act, the
Company shall indemnify the Manager, members of the Policy Board and the
Members and make advances for expenses to the maximum extent permitted under
the Act. The Company shall indemnify its employees and other agents who are
not managers to the fullest extent permitted by law, provided that such
indemnification in any given situation is approved by the Members. The
Manager, the members of the Policy Board and the Members (and their respective
officers, directors, employees and agents) shall be indemnified by the Company
from any liability resulting from any act omitted or performed by them in good
faith on behalf of the Company and in a manner reasonably believed by them to
be within the scope of the authority conferred upon them by this operating
Agreement and in the best interest of the Company; provided, however, that any
indemnity under this Article X shall be provided out of and be limited to the
extent of the Company assets only and shall not include any liabilities arising
under the Securities Act of 1933, and no Member shall have any personal
liability therefor.
10.2 Liability for Acts and Omissions. No Manager or Member (and
no officer, director, employee or agent of a Manager or a Member) shall be
liable, responsible or accountable, in damages or otherwise, to the Company or
the Members for or as a result of any act, omission or error in judgment which
was taken, omitted or made by them in good faith on behalf of the Company and
in a manner reasonably believed by them to be within the scope of the authority
granted to them by this Operating Agreement and in the best interest of the
Company, except for fraud, deceit, willful misconduct, gross negligence or a
knowing violation of the law. The Manager or Member may consult with such
legal or other professional counsel as it may select. Any action taken or
omitted by it in good faith reliance on, and in accordance with, the opinion or
advice of such counsel shall be full protection and justification to it with
respect to the action taken or omitted.
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10.3 Reimbursement. If (i) a Member ("Paying Member") shall pay
any amount on behalf of or for the account of the Company with respect to any
liability, obligation, undertaking, damage or claim for which the Company shall
or may (pursuant to contract or applicable law) be liable or responsible, or
with respect to making good any loss or damage sustained by, or paying any
duty, costs, claim or damage incurred by, the Company, and (ii) such payment
was made by the Paying Member because the Members authorized such payment by
the Paying Member, then (except as otherwise expressly provided in this
Operating Agreement) the Paying Member shall have a right of contribution from
the Members and the other Members shall reimburse the Paying Member for such
amount as shall have been so paid thereby in accordance with such other
Members' proportionate Membership Interests in the Company.
10.4 Damages. In the event that a Member violates or breaches any
of its representations, warranties or agreements under this Operating
Agreement, becomes a Resigning Member, or is terminated as a result of its
Bankruptcy, resignation, expulsion or dissolution, then, in any such event,
such Member shall be liable to the Company and to the other Members for damages
incurred by the Company and such other Members and arising from such violation,
breach, resignation, Bankruptcy, expulsion or dissolution. Except as otherwise
provided in this Operating Agreement, the foregoing remedy is in addition to
and not in limitation of the right of the Company and the other Members to
recover damages resulting from any default or breach by a Member hereunder and
any other right or remedy of the Company and the other Members at law or in
equity. Each Member acknowledges that the damages suffered by the Company may
include expenses relating to the Company's efforts to exercise its rights and
remedies upon such breach or default. To the extent required to recover the
damages suffered by the Company, the Company and the other Members shall have
the right to set-off any cash or property otherwise payable on account of the
defaulting Member's Membership Interest and to retain such cash or property.
Except as otherwise provided in this Operating Agreement, the selection of
which remedy or remedies to pursue will be made is the sole and absolute
discretion of the other Members, and the pursuit of any remedy shall not
operate as a waiver of the rights of such Members or the Company to pursue any
other remedy against the defaulting Member.
ARTICLE XI
REGULATORY CONCERNS AND MANDATORY REDEMPTION EVENTS
11.1 Government Regulations.
(a) The parties hereto acknowledge that the proposed
business of the Project is subject to stringent government regulation including
supervision by the Division and the Commission.
(b) The parties also acknowledge that Entertainment and
certain of its Affiliates are presently seeking appropriate gaming licenses
from the Division (Jacobs has already obtained
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a key employee license), and that no assurance can be given that such licenses
will be issued or when such licenses may be issued.
(c) If any license, registration, application or other
form of required governmental filing for the Project or otherwise, is denied,
reserved, revoked or suspended for any reason, including but not limited to the
participation of a person unacceptable or unsuitable to the Division and the
Commission or other Governmental Authority (as defined in the Purchase
Agreement), the affected party hereto (each of Black Hawk, Entertainment,
Diversified or the affected Affiliate) shall take all measures necessary to
remedy or correct the deficiency. In the case where the Division, the
Commission or other Governmental Authority denies or reserves approval for
gaming operations or other business operations of a party hereto because of the
participation of an unacceptable or unsuitable person, that party shall
forthwith expel such person(s) and substitute a person(s) acceptable to the
Division, the Commission or other Governmental Authority, or otherwise take
measures to remedy or correct the deficiency.
11.2 Casino Investigation.
(a) In the event that, on or before January 1, 1998, the
Commission has not approved a retail gaming license for the Project casino
("Licensing Approval") and, on or before such date, Entertainment, in its sole
but reasonable discretion, has reason to believe that the Project casino will
not receive such Licensing Approval and such failure to obtain Licensing
Approval is attributable to the Division's and the Jefferson County, Colorado
District Attorney's office's investigation into check cashing and bad check
collection practices of the Gilpin Hotel Casino of which Black Hawk is the
general manager and a joint venture participant and/or certain of the Gilpin
Hotel Casino's personnel and agents (the "Casino Investigation"), Entertainment
shall have the right and option to acquire (the "Purchase Right") all of Black
Hawk's interest in the Company, except that portion that is actually
transferred to the Holder (as defined below) in full satisfaction of the Note
as described in Section 11.2(b).
(b) Entertainment may elect such Purchase Right by
delivering Notice of such election to Black Hawk on or before March 31, 1998.
The purchase price for the Purchase Right shall be an amount equal to 90% of
the fair market value of such interest determined as of the date Entertainment
delivered its Notice. The fair market value of such interest shall be
determined by an Appraisal. The purchase price for the Purchase Right shall be
payable by Entertainment to Black Hawk pursuant to a promissory note which
shall be payable over a ten year period and which shall bear interest at a rate
equal to 2% in excess of the prime rate of interest as announced from time to
time by the Wall Street Journal or shall be discounted (using the same rate) to
present value if an earlier payoff is required under the Colorado Gaming Laws.
The closing of the Purchase Right shall occur on a date mutually agreed to by
Entertainment and Black Hawk, which date shall be within 15 days following the
completion of the Appraisal. At such time as Entertainment provides Notice of
the election of its Purchase Right, Black Hawk shall be deemed to be in default
of the Note. For four months thereafter or such longer period as the parties
shall agree, so long as the Appraisal and purchase process is ongoing and not
stayed, Diversified or any
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other related entity that is a Member and is holding the Note by permitted
assignment from Diversified (collectively, the "Holder") shall take no
enforcement action on the Note (other than the collection of accrued but unpaid
interest thereon and sending any notices or filing any claims it deems
appropriate.) Concurrently with the closing of the Purchase Right, Black Hawk
shall transfer to the Holder in exchange for the cancellation of the Note, and
the Holder shall accept in full satisfaction of its rights under the Note, the
following property (collectively, the "Note Satisfaction Property"): 40% of
each of Black Hawk's (a) Capital Interest, (b) Membership Interest, and (c)
interest in Net Profits, Net Losses, and Net Cash Flow of the Company; together
with all membership rights associated with any of the foregoing, and all
proceeds and products of any of the foregoing. On the Closing Date, Black Hawk
shall cease to be a Member, shall cease to have any management function in the
Company, and the members of the Policy Board appointed by it shall be
terminated and replaced by designees of the Holder and Entertainment.
(c) In the event Entertainment has exercised the Purchase
Right, within two years of the opening of the Project casino, Black Hawk shall
have the right to reacquire its 75% Membership Interest in the Company on the
terms and subject to the conditions hereinafter set forth. Provided Black Hawk
can prove to Entertainment, in Entertainment's sole but reasonable discretion,
that the involvement of Black Hawk in the Project will not detrimentally affect
the Project casino and provided Black Hawk obtains Licensing Approval, Black
Hawk shall have the right and option to reacquire its 75% Membership Interest
in the Company (the "Repurchase Right"). Black Hawk may elect such Repurchase
Right by delivering Notice to Entertainment of the exercise of such Repurchase
Right. The purchase price for the Repurchase Right representing 60% of its
Membership Interest shall be an amount equal to the purchase price for the
Purchase Right, plus an amount equal to Black Hawk's proportionate share of any
additional capital contributions made to the Company from and after the closing
of the Purchase Right. In addition, the purchase price for the Repurchase
Right representing 40% of its Membership Interest shall be 1,142,857 Shares (as
adjusted in accordance with Section 2(e) of the Purchase Agreement) to be
issued by Black Hawk to the Holder. The closing of the Repurchase Right shall
occur on a date mutually agreed to by Black Hawk and Entertainment, which date
shall be within 30 days after the date which Black Hawk gave Notice to
Entertainment and Holder of the Repurchase Right and at such time, the economic
and control position of Black Hawk, Entertainment and Holder, as to both the
Company and Black Hawk, shall be made to be equivalent to what would have been
the positions of such parties immediately following the Conversion Date.
(d) The parties acknowledge that the redemption
provisions contained in this Article XI and the terms hereof (including price
and payment terms) are subject to the Colorado Gaming Laws (as defined below)
and the discretion of the Commission and the Division.
11.3 Automatic Divestiture.
(a) If, prior to the issuance by the Commission of
appropriate gaming licenses to the Company for the Project casino, any of the
following occur to a Member, all interests of that Member (the "Affected
Member") will automatically and immediately terminate, and the Affected
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Member will cease to be a Member, all subject only to any contrary requirements
of the Colorado Gaming Laws (as defined below.) The divestiture events are as
follows:
(i) The Affected Member is charged with or
convicted of any criminal offense, if a conviction of the offense in question
would, pursuant to the Colorado gaming laws (C.R.S. Section 12-47.1-101 et
seq., as the same may be amended or supplemented from time to time, together
with the regulations promulgated thereunder -- collectively, the "Colorado
Gaming Laws") disqualify the Affected Member from obtaining a gaming license.
However, where a Member is only charged with a criminal offense and not
convicted, and where the Commission and the Division upon request have agreed
to defer pursuing any action based upon such charges against the Company's
application for a gaming license, or where any such actions of the Division or
Commission are subject to a stay order, then the Affected Member's Membership
Interest shall not be subject to divestiture under this subdivision (i).
(ii) The Affected Member, or any Entity that it owns
or controls, incurs a revocation of any Colorado gaming or alcohol beverage
license, and it is determined through arbitration pursuant to Section 15.2
below, that such revocation has a material adverse affect upon the issuance to
the Company of a gaming or alcohol beverage license.
(iii) The Division issues a formal recommendation
against the issuance to the Company of an operator or retail gaming license,
which recommendation cites the participation of the Affected Member as a
material factor in the decision.
(iv) The Commission denies the issuance to the
Company of an operator or retail gaming license, citing the participation of
the Affected Member as a factor in the decision, or the Commission conditions
the issuance of a retail gaming license on the Company removing the Affected
Member in the Company or its casino operations.
(v) The Company's alcoholic beverage license
applications are denied by either the state or local licensing authority,
citing the participation of the Affected Member as a material factor in the
decision.
(vi) The Affected Member is found to be an
"unsuitable person" within the meaning of the Colorado Gaming Laws.
(vii) The Commission or the Division advise the
Company in writing, or it is otherwise determined through arbitration pursuant
to Section 15.2 below, that a decision on the Company's gaming license
application is being delayed beyond the later of (x) one year following the
filing of the Company's application for a retail gaming license or (y) January
1, 1998, and the Company is advised before or after said date that the sole
reason for further delay is the participation of or concerns about the Affected
Member.
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(b) The Company shall continue in existence
notwithstanding the automatic termination of any Member pursuant to Section
11.3(a) above, notwithstanding any provision of this Operating Agreement to the
contrary. The occurrence of any of the events enumerated in Section 11.3(a)
above, if the Affected Member is Black Hawk, shall constitute an Event of
Default under the Note, and the Note shall automatically be accelerated, all
without notice or other action of any kind by the Holder. The automatic
termination of the Membership Interest shall cause the percentage Membership
Interest of the Holder to increase by an amount equal to 40% of the percentage
Membership Interest of Black Hawk as it existed immediately prior to its
automatic termination. For example, if Diversified is the Holder,
Diversified's percentage Membership Interest would increase to 31% (1% + the
product of (75% x 40%)). The percentage Membership Interest of Entertainment
shall increase by an amount equal to 60% of the percentage Membership Interest
of Black Hawk as it existed immediately prior to its automatic termination.
For example, Entertainment's Membership Interest would increase to 69% (24% +
the product of (75% x 60%)). The Company shall be liable to Black Hawk for the
value of its terminated Membership Interest as follows. The Company shall pay
in full for 40% of the terminated Membership interest by canceling the Note,
which the Holder shall immediately contribute to the Company to enable the
Company to make payment. The Company shall pay in full for the remaining 60%
of the terminated Membership Interest as follows: the Company and Black Hawk
shall determine the fair market value of that portion of the Membership
Interest by an Appraisal. Upon determination, the Company shall deliver a note
(the "Payoff Note") to Black Hawk for 90% of the value found by the Appraisal.
The Payoff Note shall be payable over a ten year period and shall bear interest
at a rate equal to 2% in excess of the prime rate of interest as announced
from time to time by the Wall Street Journal or shall be discounted (using the
same rate) to present value if an earlier payoff is required under the Colorado
Gaming Laws. Entertainment agrees to contribute to the Company, in time for
payments to be made under the Payoff Note, additional capital in an amount
equal to the payments to be made, which additional capital shall be used solely
for that purpose. On request of Black Hawk, Entertainment will also execute a
guaranty of the Payoff Note, and any payments made pursuant to the guaranty
will be deducted from the additional capital requirements that it would
otherwise have. In the event the Affected Member is either Entertainment or
Diversified, both will be treated as being the Affected Member. The percentage
Membership Interest of Black Hawk shall increase by an amount equal to the
percentage Membership Interest of both Entertainment and Diversified as such
Membership Interests existed immediately prior to their automatic termination.
The Company shall be liable to the Affected Member (both Entertainment and
Diversified) for the value of their terminated Membership Interest by the
Appraisal method and issuance of the Payoff Note in the same manner as
described above. Black Hawk agrees to contribute to the Company, in time for
payments to be made under the Payoff Note, additional capital in an amount
equal to the payments to be made, which additional capital shall be used solely
for that purpose. On request of the Affected Member, Black Hawk will also
execute a guaranty of the Payoff Note, and any payments made pursuant to the
guaranty will be deducted from the additional capital requirements that it
would otherwise have. On the date of automatic termination pursuant to this
Section 11.3(b), the Affected Member shall cease to be a Member, shall cease to
have any management function in the Company and the members of the
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Policy Board appointed by it shall be terminated and replaced by designees of
the other Member(s) of the Company.
(c) Subject only to the contrary requirements of the
Colorado Gaming Laws, the Affected Member pursuant to this Section 11.3 shall
have, for a period of two years from and after the event causing the
involuntary termination, the right to reacquire its Membership Interest on the
same terms described above in Section 11.2(c); provided, however, that if
Entertainment or Diversified is the Affected Member, no Shares shall be issued
as part of the purchase price for the repurchase right described in this
Section 11.3(c) (the "11.3(c) Repurchase Right") and Diversified and
Entertainment shall have the right to reacquire 100% of their respective
Membership Interests that was divested by paying to Black Hawk an amount equal
to what Black Hawk paid for such Membership Interests, plus an amount equal to
their proportionate share of any additional capital contributions made to the
Company from and after the date of the event causing the involuntary
termination. The closing of the 11.3(c) Repurchase Right shall occur on a date
mutually agreed to by Black Hawk, Diversified and Entertainment, which date
shall be within 30 days after the date which Diversified and Entertainment gave
Notice to Black Hawk of the 11.3(c) Repurchase Right and at such time, the
economic and control position of Black Hawk, Entertainment and Diversified, as
to both the Company and Black Hawk, shall be made to be equivalent to what
would have been the positions of such parties immediately following the
Conversion Date.
11.4 Right of First Participation. In the event that the right of
first participation asserted by Black Hawk's partners at the Gilpin Hotel
Casino is determined in a final adjudication (whether by arbitration or
declaratory judgment action or otherwise), and the outcome of such
determination provides Black Hawk's partners at the Gilpin Hotel Casino with a
50% Membership Interest in the Company, thereafter, Entertainment shall have
the right to acquire 50% of Black Hawk's then Membership Interest. If such
determination provides Black Hawk's partners with a 25% interest in the
Company, thereafter Entertainment shall have the right to acquire 25% of Black
Hawk's then Membership Interest. The price and payment terms for such
Membership Interest shall be as agreed to by the parties.
11.5 Addition of Member. Notwithstanding anything to the contrary
contained in this Article XI, if, upon the occurrence of any event described in
this Article XI, there is only one remaining Member, then such Member shall be
entitled to cause one or more additional persons to become members in order to
enable the existence of the Company to continue.
ARTICLE XII
DISSOLUTION AND TERMINATION
12.1 Dissolution.
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(a) The Company shall be dissolved upon the occurrence of
any of the following events:
(i) expiration of the period fixed for the
duration of the Company pursuant to Section 2.6 hereof;
(ii) the unanimous written agreement of all
Members; or
(iii) upon the death, retirement, resignation,
removal, expulsion, Bankruptcy or dissolution of a Member or
occurrence of any other event which terminates the continued
Membership of a Member in the Company (a "Withdrawal Event"), unless
the business of the Company is continued by the consent of all the
remaining Members within 90 days after the Withdrawal Event.
(b) As soon as possible following the occurrence of any
of the events specified in this Section 12.1 effecting the dissolution of the
Company, the Liquidator shall execute a certificate of dissolution in such form
as shall be prescribed by the Act and the Colorado Secretary of State and file
the same with the Colorado Secretary of State's office.
(c) If a Member who is an individual dies or a court of
competent jurisdiction adjudges him to be incompetent to manage his person or
his property, the Member's executor, administrator, guardian, conservator, or
other legal representative ("Successor") may exercise all of the Member's
rights for the purpose of settling his estate or administering his property,
provided, however, that for purposes of Section 9.2 and Section 12.1(a) (iii),
the Successor shall not be considered a Member and shall have no right to vote,
approve or consent to any matter pursuant to such provisions.
(d) Except as expressly permitted in this Operating
Agreement, a Member shall not voluntarily withdraw or resign or take any other
voluntary action which directly causes a Withdrawal Event. Unless otherwise
approved by all of the other Members, a Member who attempts to withdraw or
resign (a "Resigning Member") or whose Membership Interest is otherwise
terminated by virtue of a Withdrawal Event, regardless of whether such
Withdrawal Event was the result of a voluntary act by such Resigning Member,
shall become an assignee and be entitled to receive only those distributions to
which such Resigning Member would have been entitled had such Resigning Member
remained a Member (and only at such times as such distribution would have been
made had such Resigning Member remained a Member). Damages for breach of this
Section 12.1(d) may be offset against distributions by the Company to which the
Resigning Member would otherwise be entitled.
(e) Notwithstanding anything to the contrary contained in
this Article 12, if, upon the occurrence of any event described in this Section
12.1, there is only one remaining Member, then such Member shall be entitled to
cause one or more additional persons to become Members in order to enable the
existence of the Company to continue.
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12.2 Effect of Filing of Certificate of Dissolution. Upon the
filing with the Colorado Secretary of State of a certificate of dissolution,
the Company shall cease to carry on its business, except insofar as may be
necessary for the winding up of its business or as may be otherwise permitted
under the Act, but its separate existence shall continue until the winding up
of its affairs is completed.
12.3 Winding Up, Liquidation and Distribution of Assets.
(a) Upon dissolution, an accounting shall be made by the
Company's independent accountants of the accounts of the Company and of the
Company's assets, liabilities and operations, from the date of the last
previous accounting until the date of dissolution. The Liquidator shall
immediately proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be
wound up, the Liquidator shall:
(i) Sell or otherwise liquidate all of the
Company's assets as promptly as practicable (except to the extent the
Members may determine to distribute any assets to the Members in
kind);
(ii) Allocate any Net Profit or Net Loss resulting
from such sales to the Members' and assignees' in accordance with
Section 8.1 hereof;
(iii) Discharge all liabilities of the Company,
including liabilities to Members and assignees who are also creditors,
to the extent otherwise permitted by law, other than liabilities to
Members and assignees for distributions and the return of capital, and
establish such Reserves as may be reasonably necessary to provide for
contingent liabilities of the Company (for purposes of determining the
Capital Accounts of the Members and assignees, the amounts of such
Reserves shall be deemed to be an expense of the Company); and
(iv) Distribute the remaining assets in the
following order:
(1) If any assets of the Company are to
be distributed in kind, the net fair market value of such
assets as of the date of dissolution shall be determined by
Appraisal or by agreement of the Members. Such assets shall
be deemed to have been sold as of the date of dissolution for
their fair market value, and the Capital Accounts of the
Members and assignees shall be adjusted pursuant to the
provisions of Article VIII and Section 7.4 of this Operating
Agreement to reflect such deemed sale.
(2) The positive balance (if any) of
each Member's and assignees Capital Account(as determined
after taking into account all Capital Account
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adjustments for the Company's taxable year during which the
liquidation occurs) shall be distributed to the Members,
either in cash or in kind, with any assets distributed in kind
being valued for this purpose at their fair market value. Any
such distributions to the Members in respect of their Capital
Accounts shall be made in accordance with the time
requirements set forth in Section 1.704-1(b)(2)(ii)(b)(2) of
the Treasury Regulations.
(c) Notwithstanding anything to the contrary in this
operating Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Member has a Deficit
Capital Account (after giving effect to all contributions, distributions,
allocations and other Capital Account adjustments for all taxable years,
including the year during which such liquidation occurs), such Member shall
have no obligation to make any Capital Contribution, and the negative balance
of such Member's Capital Account shall not be considered a debt owed by such
Member to the Company or to any other Person for any purpose whatsoever.
(d) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
(e) The Liquidator shall comply with any applicable
requirements of applicable law pertaining to the winding up of the affairs of
the Company and the final distribution of its assets.
12.4 Return of Contribution Nonrecourse to Other Members. Except
as provided by law or as expressly provided in this operating Agreement, upon
dissolution, each Member shall look solely to the assets of the Company for the
return of its Capital Contribution. If the Company property remaining after
the payment or discharge of the debts and liabilities of the Company is
insufficient to return the cash contribution of one or more Members, such
Member or Members shall have no recourse against any other Member.
ARTICLE XIII
MEETINGS OF MEMBERS
13.1 Meetings of Members.
(a) Annual Meetings. An annual meeting of Members may be
held if so desired, and if held shall be at such time and on such date in the
first three months of each year (commencing in 1997) as may be fixed by the
Manager and stated in the notice of the meeting.
(b) Special Meetings. Special meetings of the Members
shall be called upon the written request of the Manager, acting either with or
without a meeting, or by any Member. Calls for such meetings shall specify the
purposes thereof. No business other than that specified in the call shall be
considered at any special meeting.
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(c) Notices of Meetings. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each Member of record
entitled to vote at or entitled to notice of the meeting, not more than sixty
(60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the Member at its address as the same appears
upon the records of the Company. Any Member, either before or after any
meeting, may waive any notice required to be given by law or under this
Agreement. The giving of notice shall be deemed to have been waived by any
Member who shall participate in any annual or special meeting.
(d) Place of Meetings. Meetings of Members shall be held
at the principal office of the Company unless the Manager determines that a
meeting shall be held at some other place within or without the State of
Colorado and causes the notice thereof to so state.
(e) Quorum. Members holding a Required Interest present
in person or by proxy, shall constitute a quorum for the transaction of
business to be considered at such meeting; provided, however, that no action
required by law or by the Articles or this Operating Agreement to be authorized
or taken by the holders of a designated proportion of the Membership Interests
may be authorized or taken by the holders of a designated proportion of the
Membership Interests may be authorized or taken by a lesser proportion. The
holders of a majority of the voting Membership Interests represented at a
meeting, whether or not a quorum is present, may adjourn such meeting from time
to time, until a quorum shall be present.
(f) Record Date. The Manager may fix a record date for
any lawful purpose, including without limiting the generality of the foregoing,
the determination of Members entitled to (i) receive notice of or to vote at
any meeting, (ii) receive payment of any distribution, (iii) receive or
exercise rights of purchase of or subscription for, or exchange or conversion
of, certificates or other securities, subject to any contract right with
respect thereto, or (iv) participate in the execution of written consents,
waivers or releases. Said record date shall not be more than sixty (60) days
preceding the date of such meeting, the date fixed for the payment of any
distribution or the date fixed for the receipt or the exercise of rights, as
the case may be. If a record date shall not be fixed, the record date for the
determination of Members who are entitled to notice of, or who are entitled to
vote at, a meeting of Members, shall be the close of business on the date next
preceding the day on which notice is given, or the close of business on the
date next preceding the day on which the meeting is held, as the case may be.
(g) Proxies. A person who is entitled to attend a
Members' meeting, to vote thereat, or to execute consents, waivers or releases,
may be represented at such meeting or vote thereat, and execute consents,
waivers and releases, and exercise any of its other rights, by proxy or proxies
appointed by a writing signed by such person.
(h) Written Action. Any action may be decided or
approved, without notice, by written action signed by all of the Members.
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<PAGE> 41
ARTICLE XIV
DEBT FINANCING
14.1 It is contemplated by the parties that certain Affiliates of
Entertainment will be providing guarantees for the Company's debt financing
with Wells Fargo Bank, N.A. or such other lenders as may be selected by the
Company. In the event that Entertainment's Affiliates provide such guarantees,
the Company shall pay Entertainment an annual fee in an amount equal to 2% of
the amount so guaranteed. The fee required to be paid pursuant to this Section
14.1 shall be paid on an annual basis in arrears on or before March 31.
Notwithstanding the foregoing, one-half of the fee payable for 1997 pursuant to
this Article XIV shall be deferred and paid in two (2) equal installments on or
before March 31, 1999 and March 31, 2000, respectively.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 Notices. All Notices and communications required or permitted
under this Operating Agreement to be sent to the Members shall be expressed in
writing and delivered in person and sent and confirmed by certified or
registered mail, return receipt requested, or sent by overnight courier service
such as Federal Express, or sent by facsimile (receipt confirmed) to the
Members at the following addresses, or at such other addresses as the parties
shall designate by Notice to the other:
If to Black Hawk: Black Hawk Gaming &
Development Company, Inc.
2060 Broadway, Suite 400
Boulder Colorado 80302
Attention: Stephen R. Roark, President
Fax No. (303) 444-7968
with a copy to:
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Attention: Samuel E. Wing, Esq.
Fax No. (303) 825-8537
If to Entertainment or
Diversified: c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Jeffrey P. Jacobs
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<PAGE> 42
Fax No. (216) 861-6315
with a copy to:
Hahn Loeser & Parks
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Stephen P. Owendoff, Esq.
Fax No. (216) 241-2824
15.2 Arbitration. If any dispute shall arise between the parties
pursuant to this Operating Agreement, such dispute shall be settled by
arbitration pursuant to this Section 15.2. In such event, either party hereto
may serve upon the other party a written notice demanding that the dispute be
resolved pursuant to this Section 15.2. To the extent that any provision
herein is inconsistent with any rule of the American Arbitration Association
(the "AAA"), this Agreement shall prevail. The dispute or claim shall be heard
in Chicago, Illinois by one (1) neutral arbitrator, if the parties can agree on
the selection of said arbitrator, or if unable to agree, each party shall
select (1) arbitrator and the two arbitrators chosen shall select the third
arbitrator. If the dispute shall be heard by three (3) arbitrators, one (1)
arbitrator will be selected by the party initiating the arbitration at the time
of the submission to arbitration. Within seven (7) days after submission, the
other party will select an arbitrator. Within seven (7) days after the first
two (2) arbitrators are chosen, the third arbitrator will be selected. The
third arbitrator selected shall not have any relationship to either of the
parties. The arbitrators shall apply the internal law of the State of
Colorado. Said arbitrator(s) shall be sworn faithfully and fairly to determine
the question at issue. The arbitrator(s) shall afford to the parties a hearing
and the right to submit evidence, with the privilege of cross examination and
the right to compel testimony by applying for subpoena powers to appropriate
judicial authority, on the question at issue, and shall, with all possible
speed, make his/their determination in writing and shall give notice to the
parties hereto of such determination. The concurring determination of the
arbitrator, if heard by one, or of any two of said three arbitrator(s) shall be
binding upon the parties hereto, or, in case no two of the arbitrators shall
render a concurring determination, then the determination of the third
arbitrator appointed shall be binding upon the parties hereto. The decision of
the arbitrators shall be final and binding upon the parties hereto and shall be
enforceable in any court having jurisdiction. Any arbitration shall be
conducted in accordance with the then prevailing Commercial Rules of the AAA,
or the successor party thereto from time to time in existence. The fees and
expenses of the arbitrator(s) shall be divided equally between the parties so
involved. The parties shall each bear their own expenses (including, but not
limited to, attorneys' and witnesses' fees and expenses) in any arbitration
proceedings.
15.3 Development Fee. The Company shall pay Entertainment or its
nominee the remaining portion of the development fee, which is estimated at
$370,000.
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<PAGE> 43
15.4 Abrahamson and Rich. Any amounts paid or to be paid to Robert
S. Rich or Ron Abrahamson pursuant to certain Settlement Agreements shall be
treated as expenses of the Company.
15.5 Books of Account and Records. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Manager in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. Such
books and records shall be maintained as provided in Section 5.3. The books
and records shall at all times be maintained at the principal executive office
of the Company and shall be open to the reasonable inspection and examination
of the Members, assignees or their duly authorized representatives during
reasonable business hours.
15.6 Application of Colorado Law. This Operating Agreement, and
the application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State, and specifically the Act.
15.7 Waiver of Action for Partition. Each Member and assignee
irrevocably waives during the term of the Company any right that it may have to
maintain any action for partition with respect to the property of the Company.
15.8 Amendments. This Operating Agreement may not be amended
except by the written agreement of all of the Members. Further, without the
Consent of the Member or former Member, no amendment shall be adopted which
prejudices the rights of a Member or former Member from exercising any
repurchase or similar right described in this Operating Agreement.
15.9 Execution of Additional Instruments. Each Member hereby
agrees to execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments and documents, and to
provide such information, necessary to comply with any laws, rules or
regulations, and to effectuate the provisions of this Operating Agreement.
15.10 Construction. Whenever the singular number is used in this
Operating Agreement and when required by the context, the same shall include
the plural and vice versa, and the masculine gender shall include the feminine
and neuter genders and vice versa.
15.11 Headings and Pronouns. The headings in this operating
Agreement are inserted for convenience only and are in no way intended to
describe, interpret, define, or limit the scope, extent or intent of this
Operating Agreement or any provision hereof. All pronouns and only variations
thereof shall be deemed to refer to masculine, feminine, or neuter, singular or
plural as the identity of the Person or Persons may require.
15.12 Waivers. The failure of any party to seek redress for
violation of or to insist upon the strict performance of any covenant or
condition of this Operating Agreement shall not
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<PAGE> 44
constitute a waiver or prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
15.13 Rights and Remedies Cumulative. The rights and remedies
provided by this Operating Agreement are cumulative and the use of any one
right or remedy by any party shall not preclude or waive the right to use any
or all other remedies. Said rights and remedies are given in addition to any
other rights the parties may have by law, statute, ordinance or otherwise.
15.14 Severability. If any provision of this Operating Agreement or
the application thereof to any Person or circumstance shall be invalid, illegal
or unenforceable to any extent, the remainder of this Operating Agreement and
the application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
15.15 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, and
permitted successors and assigns.
15.16 Creditors. None of the provisions of this Operating Agreement
shall be for the benefit of or enforceable by any creditor of the Company.
15.17 Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
15.18 Investment Representations. The undersigned Members and
assignees, if any, understand (i) that the Membership Interests evidenced by
this Operating Agreement have not been registered under the Securities Act of
1933, the Colorado or the Ohio Securities Act or any other state securities
laws (the "Securities Acts") because the Company is issuing these Membership
Interests in reliance upon the exemptions from the registrations requirements
of the Securities Acts providing for issuance of securities not involving a
public offering, (ii) that the Company has relied upon the fact that the
Membership Interests are to be held by each Member for investment, and (iii)
that exemption from registrations under the Securities Acts would not be
available if the Membership Interests were acquired by a Member with a view to
distribution.
Accordingly, each Member and assignee hereby confirms to the Company
that such Member or assignee is acquiring the Membership Interests for such own
Member's or assignee's account, for investment and not with a view to the
resale or distribution thereof. Each Member and assignee agrees not to
transfer, sell or offer for sale any portion of the Membership Interests unless
(i) there is an effective registration or other qualification relating thereto
under the Securities Acts, or (ii) the holder of Membership Interests delivers
to the Company an opinion of counsel, satisfactory to the Company, that such
registration or other qualification under such Act and applicable state
securities laws is not required in connection with such transfer, offer or
sale. Each Member and assignee understands that the Company is under no
obligation to register the
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<PAGE> 45
Membership Interests or to assist such Member or assignee in complying with any
exemption from registration under the Securities Acts if such Member or
assignee should at a later date, wish to dispose of the Membership Interest.
Furthermore, each Member realizes that the Membership Interests are unlikely to
qualify for disposition under Rule 144 of the Securities and Exchange
commission unless such Member is not an "affiliate" of the Company and the
Membership Interest has been beneficially owned and fully paid for by such
Member for at least three years.
Prior to acquiring the Membership Interests, each Member and assignee
has made an investigation of the Company and its business and has had made
available to each other Member and assignee all information with respect
thereto which such other Member or assignee needed to make an informed decision
to acquire the Membership Interest. Each Member and assignee considers himself
or itself to possess experience and sophistication as an investor which are
adequate for the evaluation of the merits and risks of such Member's or
assignee's investment in the Membership Interest.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.]
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<PAGE> 46
CERTIFICATE
The undersigned hereby agree, acknowledge and certify that the
foregoing Operating Agreement, consisting of 45 pages, excluding the Table of
Contents and attached Exhibits, constitutes the Operating Agreement of Black
Hawk/Jacobs Entertainment, LLC adopted by the Members of the Company as of
November 12, 1996.
MEMBERS: BLACK HAWK GAMING & DEVELOPMENT
COMPANY, INC.
By:/s/ Robert D. Greenlee
-------------------------------------------
Robert D. Greenlee, Chairman
BH ENTERTAINMENT LTD.
By: Jacobs Entertainment Ltd., its manager
By:/s/ David C. Grunenwald
-------------------------------------------
Title: Vice President
---------------------------------------
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: Jacobs Entertainment Ltd., its manager
By:/s/ David C. Grunenwald
-------------------------------------------
Title: Vice President
---------------------------------------
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<PAGE> 1
EXHIBIT 10.3
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
SHAREHOLDERS AGREEMENT
THIS AGREEMENT is made as of November 12, 1996, by and among BLACK HAWK
GAMING & DEVELOPMENT COMPANY, INC., a Colorado corporation (the "Company"),
DIVERSIFIED OPPORTUNITIES GROUP LTD., an Ohio limited liability company or its
nominee as described in Section 12 (the "Investor"), and ROBERT D. GREENLEE
("Greenlee") and FRANK B. DAY ("Day"). The Investor, Greenlee and Day are
sometimes collectively referred to as the "Shareholders" and individually as a
"Shareholder."
RECITALS
A. Pursuant to a certain Amended and Restated Purchase Agreement
dated as of even date herewith, by and between Investor and the Company (the
"Purchase Agreement"), Investor is acquiring certain Shares and a Note which is
convertible into certain Shares (each as defined in the Purchase Agreement) of
the Company.
B. It is a condition to closing the transactions contemplated by the
Purchase Agreement that the parties enter into this Agreement for the purposes,
among others, of (i) establishing the composition of the Company's Board of
Directors (the "Board"), (ii) assuring continuity in the management and
ownership of the Company, and (iii) limiting the manner and terms by which the
Shareholders' Shares may be transferred.
C. Capitalized terms used herein are defined in Paragraph 7 hereof.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Covenants With Respect To Voting.
(a) From and after the Closing (as defined in the Purchase
Agreement) and until the occurrence of both of the conditions described in
Sections 1(a)(i) and 1(a)(ii) below, each of Greenlee and Day shall vote all of
his Shareholder Shares (as defined in paragraph 7 hereof) and any other voting
securities of the Company over which such Shareholder has voting control and
shall take all other necessary or desirable actions within his control (whether
in his capacity as a stockholder, director, member of a board committee or
officer of the Company or otherwise, and including, without limitation,
attendance at meetings in person or by proxy for purposes of obtaining a quorum
and execution of written consents in lieu of meetings), and the Company shall
take all reasonable, necessary or desirable actions within its control
(including, without limitation,
<PAGE> 2
calling special board and shareholder meetings), to ensure that the size of the
Board remains at seven (three members being nominees of the Investor) and
voting for the election of Jeffrey P. Jacobs as Chief Executive Officer and Co-
Chairman of the Board of Seller and to duly call or cause the Company to call a
special meeting of shareholders of the Company to occur on or before January
31, 1997 (the "Special Meeting") to approve Investor's acquisition of the
Shares which may be acquired upon conversion of the Note and to vote or
continue to vote at the Special Meeting or otherwise, as the case may be, their
Shares in favor of the following proposals, which will become effective at such
time as Purchaser owns 820,000 or more Shares:
(i) expanding the number of directors of the
Company to nine and electing (or, if already
appointed by the Board, ratifying the
appointment of five directors designated by
the Investor (the "Investor Directors"));
and
(ii) adopting staggered terms for the Company's
Board in accordance with Section 7-108-106
of the Colorado Business Corporation Act
and, no later than the next annual meeting
of Shareholders following such time as the
Investor owns 820,000 or more Shares,
nominating directors to the three classes as
follows: Class I shall have three directors
(one nominee of the Company and two nominees
of the Investor, Class II shall have three
nominees (two nominees of the Company and
one of the Investor) and Class III shall
have three nominees (two nominees of the
Investor and one of the Company);
(iii) electing or ratifying the election of
Jeffrey P. Jacobs as Chief Executive Officer
and as Chairman of the Board of the Company;
(iv) at the request of the Investor, electing at
least one of the Investor Directors to the
board of directors of any of the Company's
Subsidiaries (a "Sub Board"); or
(v) at the request of the Investor, at least one
of the Investor Directors shall be a member
of the Compensation Committee and, at the
request of the Investor, at least one of the
Investor Directors shall be a member of any
other committee of the board or a Sub Board,
and any other committees of the Board or a
Sub Board shall be created only upon the
approval of six members of the Board.
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<PAGE> 3
(b) The removal from the Board or a Sub Board (with or without
cause) of any representative designated pursuant to this Paragraph 1 by the
Investor shall be at the Investor's written request, but only upon such written
request and under no other circumstances.
(c) In the event that any representative designated hereunder
by the Investor hereunder ceases to serve as a member of the Board or a Sub
Board during his term of office, the resulting vacancy on the Board or the Sub
Board shall be filled by a representative designated by the Investor as
provided hereunder.
(d) The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending the meetings of
the Board, any Sub Board and any committee thereof.
(e) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Paragraph 1, the election of an
individual to such directorship shall be accomplished in accordance with the
Company's bylaws and applicable law.
(f) Greenlee's and Day's obligation to vote their Shares as
described in this Paragraph 1 constitutes a voting agreement created under
Section 7-107-302 of the Colorado Business Corporation Act.
2. IRREVOCABLE PROXY. IN ORDER TO SECURE EACH OF GREENLEE'S AND
DAY'S OBLIGATION TO VOTE HIS SHAREHOLDER SHARES AND OTHER VOTING SECURITIES OF
THE COMPANY IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 1 HEREOF, EACH OF
GREENLEE AND DAY HEREBY APPOINTS THE INVESTOR AS HIS TRUE AND LAWFUL PROXY AND
ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO VOTE ALL OF HIS
SHAREHOLDER SHARES AND OTHER VOTING SECURITIES OF THE COMPANY FOR THE ELECTION
AND/OR REMOVAL OF DIRECTORS AND ALL SUCH OTHER MATTERS AS EXPRESSLY PROVIDED
FOR IN PARAGRAPH 1. THE INVESTOR MAY EXERCISE THE IRREVOCABLE PROXY GRANTED TO
HIM/IT HEREUNDER AT ANY TIME GREENLEE OR DAY FAILS TO COMPLY WITH THE
PROVISIONS OF THIS AGREEMENT. THE PROXIES AND POWERS GRANTED BY GREENLEE AND
DAY PURSUANT TO THIS PARAGRAPH 2 ARE COUPLED WITH AN INTEREST AND ARE GIVEN TO
SECURE THE PERFORMANCE OF THEIR RESPECTIVE OBLIGATIONS TO THE INVESTOR UNDER
THIS AGREEMENT. SUCH PROXIES AND POWERS SHALL BE IRREVOCABLE-FOR THE TERM SET
FORTH IN PARAGRAPH 1 OF THIS AGREEMENT AND SHALL SURVIVE THE DEATH,
INCOMPETENCY, DISABILITY OR BANKRUPTCY OF GREENLEE OR DAY AND THE SUBSEQUENT
HOLDERS OF THEIR SHAREHOLDER SHARES.
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<PAGE> 4
3. Representations and Warranties of Greenlee and Day
Each of Greenlee and Day represents and warrants that (i) each is
the record owner of the number of Shareholder Shares set forth opposite his
name on Schedule A attached hereto, and (ii) such Shareholder has not granted
and is not a party to any proxy, voting trust or other agreement which is
inconsistent with, conflicts with or violates any provision of this Agreement.
No holder of Shareholder Shares shall grant any proxy or become party to any
voting trust or other agreement which is inconsistent with, conflicts with or
violates any provision of this Agreement.
4. Restrictions on Transfer of Shareholder Shares.
(a) Transfer of Shareholder Shares. No Shareholder shall
sell, transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
any interest in any Shareholder Shares (a "Transfer"), except pursuant to the
provisions of this Paragraph 4; provided however that any Shareholder may,
without restriction and without notice to any other Shareholder, transfer
Shareholder Shares by inter vivos gift or testamentary disposition to a
transferring Shareholder's spouse or lineal descendants or to a trust for the
benefit of such persons, to a family partnership consisting of the Shareholder
and/or such persons if the designated transferee, heir, trust or partnership,
upon transfer of record ownership of such Shares, agrees to be bound by the
terms and provisions of this Agreement.
(b) First Offer Right. Subject to Paragraph 4(c), below, at
least 30 days prior to making any Transfer of any Shareholder Shares (the
"Election Period"), the transferring Shareholder (the "Transferring
Shareholder") shall deliver a written notice (an "Offer Notice") to the Company
and the other Shareholders (the "Other Shareholders"). The Offer Notice shall
disclose in reasonable detail the proposed number of Shareholder Shares to be
transferred, the proposed terms and conditions of the Transfer and the identity
of the prospective transferee(s) (if known). Each Other Shareholder may elect
to purchase all (but not less than all) of his Pro Rata Share (as defined
below) of the Shareholder Shares specified in the Offer Notice at the price and
on the terms specified therein by delivering written notice of such election to
the Transferring Shareholder as soon as practical but in any event within 20
days after delivery of the Offer Notice. Any Shareholder Shares not elected to
be purchased by the end of such 20-day period shall be reoffered for the
ten-day period prior to the expiration of the Election Period by the
Transferring Shareholder on a pro rata basis to the Other Shareholders who have
elected to purchase their Pro Rata Share and, if there are any such Shareholder
Shares remaining after such allocation, the Company shall have the right to
purchase such remaining Shareholder Shares. If the Other Shareholders and/or
the Company have elected to purchase Shareholder Shares from the Transferring
Shareholder, the transfer of such shares shall be consummated as soon as
practical after the delivery of the election notice(s) to the Transferring
Shareholder, but in any event within 15 days after the expiration of the
Election Period. To the extent that the Company and the Other Shareholders
have not elected to purchase all of the Shareholder Shares being offered, the
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<PAGE> 5
Transferring Shareholder may, within 90 days after the expiration of the
Election Period, transfer such Shareholder Shares to one or more third parties
at a price no less than the price per share specified in the Offer Notice and
on other terms no more favorable to the transferees thereof than offered to the
Company and the Other Shareholders in the Offer Notice. Any Shareholder Shares
not transferred within such 90-day period shall be reoffered to the Other
Shareholders under this Paragraph 4 prior to any subsequent Transfer. The
purchase price specified in any Offer Notice shall be payable solely in cash at
the closing of the transaction or in installments over time, and no Shareholder
Shares may be pledged except on terms and conditions satisfactory to the
Investor. Each Shareholder's "Pro Rata Share" shall be based upon such
Shareholder's proportionate ownership of all Shareholder Shares owned by
Shareholders other than the Transferring Shareholder.
(c) Exception for Market Transactions. Should a Transferring
Shareholder wish to sell Shareholder Shares in a bona-fide open market
transaction, pursuant to Rule 144 adopted under the Securities Act of 1933 or
otherwise, such Shareholder, at least 48 hours prior to entering a sell or
limit order with respect to such shares, shall so advise the Company and the
Other Shareholders who shall have a period of 48 hours to elect to purchase
their Pro Rata Share of such shares at the price which could have been obtained
upon execution of the order on the open market during such 48 hour period. If
the Other Shareholders and/or the Company have elected to purchase Shareholder
Shares from the Transferring Shareholder, the transfer of such Shares shall be
consummated with three days after the Company and/or any Shareholder elects to
purchase Shareholder Shares under this Paragraph 4(c). To the extent that the
Company and the Other Shareholders have not elected to purchase all of the
Shareholder Shares being offered pursuant to this Paragraph 4(c), the
Transferring Shareholder may transfer such Shares in such open market
transaction or as otherwise described above. Any Shareholder Shares not so
transferred shall be reoffered to the Other Shareholders under this Paragraph 4
prior to any subsequent Transfer.
5. Legend.
(a) Each certificate evidencing Shareholder Shares and each
certificate issued in exchange for or upon the transfer of any Shareholder
Shares covered hereby shall be stamped or otherwise imprinted with a legend in
substantially the following form:
The transfer of the securities represented by this certificate is
subject to the conditions specified in the Shareholders
Agreement, dated as of November 12, 1996 and as amended and
modified from time to time, between the issuer (the "Company")
and certain stockholders, and the Company reserves the right to
refuse the transfer of such securities until such conditions have
been fulfilled with respect to such transfer.
The Company shall imprint such legend on certificates evidencing Shareholder
Shares outstanding as of the date hereof.
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<PAGE> 6
6. Transfer. Prior to transferring any Shareholder Shares to any
Person, the Transferring Shareholder shall cause the prospective transferee to
be bound by this Agreement and to execute and deliver to the Company and the
Other Shareholders a counterpart of this Agreement.
7. Definitions.
"Affiliate" of a Person means any other Person controlling, controlled
by or under common control with such first Person.
"Board" has the meaning set forth in the preamble.
"Closing" has the meaning set forth in the Purchase Agreement.
"Common Stock" means the Company's common shares, $.001 par value.
"Company" has the meaning set forth in the preamble.
"Investor" has the meaning set forth in the preamble.
"Investor Directors" has the meaning set forth in Paragraph 1(a).
"Note has the meaning set forth in the Purchase Agreement.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Agreement" has the meaning set forth in the preamble.
"Shareholder Shares" means (i) any Common Stock purchased or otherwise
acquired by any Shareholder, and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Shareholders" has the meaning set forth in the preamble.
"Sub Board" has the meaning set forth in Paragraph l(a)(v).
"Subsidiary" means, with respect to any Person, any corporation limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled,
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<PAGE> 7
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a limited liability
company, partnership, association or other business entity, a majority of the
limited liability company, partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority
of limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Transfer" has the meaning set forth in Paragraph 4.
8. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Shareholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Shareholder Shares as the owner
of such shares for any purpose.
9. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Shareholders unless such modification,
amendment or waiver is approved in writing by the parties hereto. The failure
of any party to enforce any of the provisions of this Agreement shall in no way
be construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
10. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect the validity, legality or enforceability of any other provision of
this Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
11. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
12. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
parties hereto and may not be assigned; provided, however, subject to any
required approval of the Division, the Commission (both as
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<PAGE> 8
defined in the Purchase Agreement) and the state and local liquor licensing
authorities, the Investor may assign its rights and obligations hereunder, in
whole or in part, to one or more corporations, limited liability companies,
partnerships, trusts or other entities which are under common control with, or
controlled through equity and/or voting control by the Investor or Jeffrey P.
Jacobs; it being acknowledged that (i) any entity managed by Jacobs
Entertainment Ltd. and/or Jeffrey P. Jacobs, (ii) any entity in which either
Jacobs Entertainment Ltd. or Jeffrey P. Jacobs is one of the trustees and/or
one of the beneficiaries or (iii) any entity in which either Jacobs
Entertainment Ltd. or Jeffrey P. Jacobs beneficially owns 15% or more of the
outstanding equity securities constitutes common control.
13. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same agreement.
14. Remedies. The Company and the Shareholders shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and the Shareholders may in their discretion apply
to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
15. Notices. Except for notices given in accordance with Section
4(c), which shall be deemed given only upon receipt by the Company and the
Other Shareholders, all notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or sent by telecopier. Such
notices, demands and other communications shall be sent to the Company, the
Investor, Greenlee and Day at the addresses indicated below:
Notices to the Investor:
Diversified Opportunities Group Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, OH 44114
Attention: Jeffrey P. Jacobs
Fax No.: (216) 861-6315
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with a copy (which shall not constitute notice) to:
Hahn Loeser Parks
3300 BP America Building
200 Public Square
Cleveland, OH 44114-2301
Attention: Stephen P. Owendoff, Esq.
Fax No.: (216) 241-2824
Notices to the Company:
Black Hawk Gaming & Development Company, Inc. 2060
Broadway, Suite 400 Boulder, Colorado 80302 Attention:
Stephen R. Roark, President Fax No.: (303) 444-7968
with a copy (shall not constitute notice) to:
Jones & Keller P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Attention: Samuel E. Wing, Esq.
Fax No.: (303) 893-6506
Notices to Greenlee:
Robert D. Greenlee
c/o Black Hawk Gaming & Development Company, Inc. 2060
Broadway, Suite 400 Boulder, Colorado 80302 Fax No.: (303)
444-7968
Notices to Day:
Frank B. Day
c/o Rock Bottom Restaurants, Inc.
1050 Walnut Street, Suite 402
Boulder, Colorado 80302
Fax No.: (303) 417-4199
16. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEABILITY OF THIS AGREEMENT AND
THE EXHIBITS AND SCHEDULES HERETO
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SHALL BE GOVERNED BY THE LAWS OF THE STATE OF COLORADO, WITHOUT GIVING EFFECT
TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE
STATE OF COLORADO OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION
OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO.
17. Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of Colorado, the time period shall automatically be extended to
the business day immediately following such Saturday, Sunday or legal holiday.
18. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: JACOBS ENTERTAINMENT LTD., its manager
By /s/ David C. Grunenwald
---------------------------------------
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Its Vice President
--------------------------------------
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By /s/ Robert D. Greenlee
---------------------------------------
Its Chief Executive Officer
--------------------------------------
/s/ Robert D. Greenlee
------------------------------------------
ROBERT D. GREENLEE
/s/ Frank B. Day
------------------------------------------
FRANK B. DAY
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<PAGE> 1
EXHIBIT 10.4
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of November 12, 1996, by and among BLACK HAWK
GAMING & DEVELOPMENT COMPANY, INC., a Colorado corporation (the "Company"),
DIVERSIFIED OPPORTUNITIES GROUP LTD., an Ohio limited liability company or its
nominee as described in Paragraph 9(e) ("Purchaser"), ROBERT D. GREENLEE
("Greenlee") and FRANK B. DAY ("Day").
Pursuant to a certain Amended and Restated Purchase Agreement dated as
of even date herewith (the "Purchase Agreement"), the parties hereto may be
acquiring unregistered shares of the Company's Common Stock. In order to
induce Purchaser to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the closing of the
transactions described in the Purchase Agreement. Unless otherwise provided in
this Agreement, capitalized terms used herein shall have the meanings set forth
in paragraph 8 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Until June 30, 2001, the
holders of 15% of the Registrable Securities may request registration under the
Securities Act of 1933 (the "Securities Act") of all or any portion of their
Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations") or on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations") if available. All registrations
requested pursuant to this Paragraph l(a) are referred to herein as "Demand
Registrations". Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(b) Number of Demand Registrations. The holders of
Registrable Securities shall be entitled to request (i) one Demand Registration
in which the Company shall pay all Registration Expenses (the "Company-paid
Registration") and (ii) one Demand Registration in which the holders of
Registrable Securities shall pay their share of the Registration Expenses as
set forth in paragraph 5 hereof; provided, however, if Greenlee and Day request
a Company-paid Registration in which Purchaser does not participate, Purchaser
shall be entitled to an additional Company-paid Registration. A registration
shall not count as one of the permitted Demand Registrations until it has
become effective, and no Demand Registration shall count as one of the
<PAGE> 2
permitted Demand Registrations unless the holders of Registrable Securities are
able to register and sell at least 90% of the Registrable Securities requested
to be included in such registration; provided that in any event the Company
shall pay all Registration Expenses in connection with any registration
initiated as a Company-paid Demand Registration whether or not it has become
effective. The first Demand Registration shall be the Company-paid
Registration, and all Demand Registrations shall be underwritten Long-Form
Registrations unless the holders of a majority of the Registrable Securities
included in such registration otherwise agree or unless the Company is
permitted to use any applicable short form. The Company shall use its
reasonable best efforts to make Short-Form Registrations on Form S-3 available
for the sale of Registrable Securities.
(c) Priority on Demand Registrations. The Company shall not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of a majority of
the Registrable Securities included in such registration. Any Persons other
than holders of Registrable Securities who participate in Demand Registrations
which are not at the Company's expense must pay their share of the Registration
Expenses as provided in Paragraph 5 hereof.
(d) Restrictions on Demand Registrations. The Company shall
not be obligated to effect any Demand Registration within 180 days after the
effective date of a previous Demand Registration.
(e) Selection of Underwriters. The holders of a majority of
the Registrable Securities included in any Long-Form Registration shall have
the right to select the investment banker(s) and manager(s) to administer the
offering with the approval of the Company. Such approval shall not be
unreasonably withheld.
(f) Other Registration Rights. Except as provided in this
Agreement, the Company has not granted and shall not grant to any Persons the
right to request the Company to register any equity securities of the Company,
or any securities convertible or exchangeable into or exercisable for such
securities, without the prior written consent of the holders of a majority of
the Registrable Securities; provided that the Company may grant rights to other
Persons to participate in Piggyback Registrations so long as such rights are
subordinate to the rights of the holders of Registrable Securities with respect
to such Piggyback Registrations.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the
Company shall give prompt written notice (in any event within three business
days after its receipt of notice of any exercise of demand registration rights
other than under this Agreement) to all holders of Registrable Securities of
its intention to effect such a registration and shall include in such
registration all Registrable Securities with respect to which
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<PAGE> 3
the Company has received written requests for inclusion therein within 20 days
after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the
holders of Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares owned by each such holder, and (iii) third, other
securities requested to be included in such registration.
(d) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering must be approved by the holders of a majority of
the Registrable Securities included in such Piggyback Registration. Such
approval shall not be unreasonably withheld.
(e) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this Paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 180 days has elapsed from the effective date of such
previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities shall not effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable
or exercisable for such securities, during the seven days prior to and the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Company (i) shall not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part
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<PAGE> 4
of such underwritten registration or Pursuant to registrations on Form S-8 or
any successor form), unless the underwriters managing the registered public
offering otherwise agree, and (ii) shall cause each holder of at least 5% (on a
fully-diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such period (except
as part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to this Agreement, the Company shall use its best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective; provided that before filing a registration statement or prospectus
or any amendments or supplements thereto, the Company shall furnish to the
counsel selected by Purchaser, Greenlee and Day of all such documents proposed
to be filed, which documents shall be subject to the review and comment of such
counsel;
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than 180 days and comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided that the Company shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this
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<PAGE> 5
subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction;
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by
such registration statement as a NASDAQ "national market system security"
within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission
or, failing that, to secure NASDAQ authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange
for at least two market makers to register as such with respect to such
Registrable Securities with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including effecting a stock split
or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
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<PAGE> 6
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
(m) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the sellers thereof to consummate the disposition of such Registrable
Securities; and
(n) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request; provided
that such Registrable Securities constitute at least 10% of the securities
covered by such registration statement.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and
disbursements of custodians, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the Company
(all such expenses being herein called "Registration Expenses"), shall be borne
as provided in this Agreement, except that the Company shall, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by the Company
are then listed or on the NASD automated quotation system.
(b) In connection with the Company-paid Registration and each
Piggyback Registration, the Company shall reimburse the holders of Registrable
Securities included in such
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<PAGE> 7
registration for the reasonable fees and disbursements of one counsel chosen by
each such participant included in such registration.
(c) To the extent Registration Expenses are not required to be
paid by the Company, each holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration
of such holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and, the extent permitted by law, shall indemnify the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder; provided that the obligation
of a Person to indemnify shall be individual to each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
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(c) Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give prompt
notice shall not impair any Person's right to indemnification hereunder to the
extent such failure has not prejudiced the indemnifying party) and (ii) unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not
be unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim shall not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by
or on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the
Company's indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements;
provided that no holder of Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters (other than representations and warranties
regarding such holder and such holder's intended method of distribution) or to
undertake any indemnification obligations to the Company or the underwriters
with respect thereto (other than the representations the holder or holders make
with respect to intended method of distribution).
8. Definitions.
(a) "Affiliates" of a Person means any other Person
controlling, controlled by or under common control with such first Person.
(b) "Common Stock" means, collectively, the Company's common
shares, $.001 par value, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par
or stated value in respect to the rights of the
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<PAGE> 9
holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Company.
(c) "Registrable Securities" means any Common Stock issued or
issuable pursuant to the Purchase Agreement to Purchaser, Greenlee or Day,
including without limitation, common stock acquired by Purchaser upon
conversion of the Note or pursuant to the Shareholders' Agreement (as defined
in the Purchase Agreement).
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company shall not
hereafter enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the holders of Registrable
Securities in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company
shall not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any person having rights under any Provision of
this Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of a majority of the
Registrable Securities.
(e) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the parties hereto and may not be assigned; provided,
however, subject to any required approval of the Division, the Commission (both
as defined in the Purchase Agreement) and the state and local liquor licensing
authorities, Purchaser may assign its rights and obligations hereunder, in
whole or in part, to one or more corporations, limited lability companies,
partnerships, trusts or other entities which are under common control with, or
controlled through equity and/or voting control by Purchaser or Jeffrey P.
Jacobs; it being acknowledged that (i) any entity managed either by Jacobs
Entertainment Ltd. and/or Jeffrey P. Jacobs, (ii) any entity in which either
Jacobs Entertainment
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Ltd. or Jacobs is one of the trustees and/or one of the beneficiaries or (iii)
any entity in which either Jacobs Entertainment Ltd. or Jeffrey P. Jacobs
beneficially owns 15% or more of the outstanding equity securities constitutes
common control.
(f) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
(g) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
(i) Governing Law. All issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and
the exhibits and schedules hereto will be governed by the laws of the State of
Colorado, without giving effect to any choice of law or conflict of law rules
or provisions (whether of the State of Colorado, or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Colorado.
(j) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid or sent by
telecopier. Such notices, demands and other communications shall be sent to
the Company, Purchaser, Greenlee and Day at the addresses indicated below:
Notices to the Purchaser:
Diversified Opportunities Group Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, OH 44113
Attention: Jeffrey P. Jacobs
Fax No.: (216) 861-6315
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<PAGE> 11
with a copy (which shall not constitute notice) to:
Hahn Loeser Parks
3300 BP America Building
200 Public Square
Cleveland, OH 44114-2301
Attention: Stephen P. Owendoff, Esq.
Fax No.: (216) 241-2824
Notices to the Company:
Black Hawk Gaming & Development Company, Inc. 2060
Broadway, Suite 400 Boulder, Colorado 80302 Attention:
Stephen R. Roark, President Fax No.: (303) 444-7968
with a copy (shall not constitute notice) to:
Jones & Keller P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Attention: Samuel E. Wing, Esq.
Fax No.: (303) 893-6506
Notices to Greenlee:
Robert D. Greenlee
c/o Black Hawk Gaming & Development Company, Inc. 2060
Broadway, Suite 400 Boulder, Colorado 80302 Fax No.:
(303) 444-7968
Notices to Day:
Frank B. Day
c/o Rock Bottom Restaurants, Inc.
1050 Walnut Street, Suite 402
Boulder, Colorado 80302
Fax No.: (303) 417-4199
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
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<PAGE> 12
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: JACOBS ENTERTAINMENT LTD.,
its manager
-12-
<PAGE> 13
By: /s/ David C. Grunenwald
----------------------------------
Title: Vice President
-------------------------------
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By /s/ Robert D. Greenlee
-----------------------------------
Its Chief Executive Officer
----------------------------------
/s/ Robert D. Greenlee
--------------------------------------
ROBERT D. GREENLEE
/s/ Frank B. Day
--------------------------------------
FRANK B. DAY
-13-
<PAGE> 1
EXHIBIT 10.5
UNDERSTANDING
AS TO
MASTER JOINT VENTURE AGREEMENT
Pursuant to Paragraph 4(b), of that certain Amended and Restated
Purchase Agreement dated as of even date herewith (the "Purchase Agreement") by
and between Black Hawk Gaming & Development Company, Inc. ("Seller") and
Diversified Opportunities Group Ltd. ("Purchaser"), it was provided that a
20-year Master Joint Venture Agreement would be entered into on terms mutually
agreeable to Seller and Purchaser. This document is to state the understanding
of the parties with respect to that subsection of the Purchase Agreement in
lieu of entering into a Master Joint Venture Agreement. The parties hereto
acknowledge, however, that they may in the future enter into joint venture
agreements with respect to future potential projects by and between the parties
and/or their assignees.
FOR AND IN CONSIDERATION of the promises and covenants set forth in
the Purchase Agreement, the parties hereto agree as follows:
The commitments described below shall be in full force and effect for
a period of 20 years from the date hereof and so long thereafter as the parties
hereto mutually extend such commitment; provided, however, in the event that
the Note issued by Seller to Purchaser pursuant to the Purchase Agreement is
accelerated or is not converted, then, from and after the date of acceleration
or maturity date of said Note, as the case may be, the provisions of this
Understanding shall cease to apply and be of no further force or effect with
respect to any gaming opportunities presented by either Seller or Purchaser,
unless, at such time, the parties have entered into a formal joint venture
agreement with respect to such gaming opportunity, in which event the terms of
such formal joint venture agreement shall apply.
1. Every gaming opportunity now or in the future owned or
controlled by the Purchaser and/or its affiliates and assignees will be offered
to a joint venture in which the Seller and/or its affiliates and assignees
shall have the right to obtain an ownership interest of up to 51% therein;
provided however, that Purchaser's or its affiliates' or assignees' present or
future interests in (i) any gaming opportunity located at the Nautica
Entertainment Complex, Cleveland, Ohio, (ii) the Colonial Downs, Virginia,
project and (iii) Boardwalk Casino, Inc. shall be excepted from the operation
of this Paragraph 2.
2. Every gaming opportunity now or in the future owned or
controlled by the Seller and/or its affiliates and assignees will be offered to
a joint venture in which the Purchaser and/or its affiliates and assignees
shall have the right to obtain an ownership interest of up to 49% therein;
provided, however, that Seller's or its affiliates' or assignees' present or
future interests in (i) the Gilpin Hotel Casino, (ii) the cross-border
transaction currently being pursued by Robert D. Greenlee, and (iii) the
Oklahoma City, Oklahoma project with the Sac and Fox Indian Nation shall be
excepted from the operation of this Paragraph 3.
<PAGE> 2
3. The Purchaser and/or its affiliates or assignees shall be
entitled to a co-management fee with respect to any joint venture formed in the
future pursuant to this Understanding, any individual agreement arising
thereunder, and shall be calculated as a percentage of each individual
venture's gaming revenues less gaming taxes (the "Fee"). The Fee shall be 1% if
the Purchaser's ownership of a particular venture is in the range of 25%-49%;
the Fee shall be 3/4 of 1% if the Purchaser's ownership is in the range of 15%
or more and less than 25%; and the Fee shall be 1/2 of 1% if the Purchaser's
ownership is less than 15%.
4. The terms of any such joint venture arising hereunder shall be
structured such that the financial results will be consolidated with the
financial results of the Seller in accordance with generally accepted
accounting principles.
5. Provision shall be made in any such joint venture to be
entered into or any agreement arising thereunder so as to provide for
contributions based on the discretion of the Board of Directors of the Seller
after giving due regard to the need for reserves for operating and capital
improvements of such joint venture, if any.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]
-2-
<PAGE> 3
With the intention of being fully and legally bound to the intentions
set forth above, the parties have executed this Understanding as of the 12th
day of November, 1996.
DIVERSIFIED OPPORTUNITIES
GROUP LTD.
By: Jacobs Entertainment Ltd., its manager
By: /s/ DAVID C. GRUNENWALD
---------------------------
Title: Vice President
------------------------
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By: /s/ STEPHEN R. ROARK
---------------------------
Stephen R. Roark, President
-3-
<PAGE> 1
EXHIBIT 10.6
ASSIGNMENT, PLEDGE AND SECURITY AGREEMENT
This Assignment, Pledge and Security Agreement (the "Agreement") is
made and entered into as of the ____ day of November, 1996, by and between
Diversified Opportunities Group,, Ltd., an Ohio limited liability company whose
principal place of business is at 425 Lakeside Avenue, Cleveland, Ohio 44114
(the "Secured Party"), and Black Hawk Gaming & Development Company, Inc., a
Colorado corporation, whose principal place of business is at 2060 Broadway,
Suite 400, Boulder, Colorado 80302 (the "Debtor").
1. Pledge and Grant of Security Interest. As security for the
payment of all indebtedness and other obligations of the Debtor to the Secured
Party under a certain Convertible Promissory Note of even date herewith
executed by the Debtor in the original principal amount of $1,500,000 and
payable to the Secured Party and any and all renewals, extensions or
substitutions therefor (the "Note") and the obligations of Debtor under that
certain Amended and Restated Purchase Agreement of even date herewith between
the Debtor and the Secured Party (the "Purchase Agreement") and under this
Agreement (collectively, the "Obligations"), the Debtor hereby pledges and
assigns to the Secured Party, and grants to the Secured Party a security
interest in, all of the Debtor's right, title, and interest in and to certain
property consisting of (a) the Membership Interest of the Debtor in Black
Hawk/Jacobs Entertainment, LLC, a Colorado limited liability company (the
"LLC"), (b) the Capital Interest of the Debtor in the LLC, (c) the interest of
the Debtor in the Net Profits and Net Losses and Net Cash Flow of the LLC
together with any and all additional Membership Interests in the LLC now or
hereafter acquired by the Debtor in any manner, and any and all certificates
representing the membership interests, and all cash, dividends, distributions
and other instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the
Membership Interests; and (d) all products and proceeds of any of the
foregoing, and all other rights and privileges associated with Debtor's
membership in the LLC (collectively, the "Collateral"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by the Debtor to the
Secured Party but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding
involving the Debtor. "Proceeds" shall have the meaning set forth in the
Uniform Commercial Code and shall include without limitation all proceeds of
the conversion, voluntary or involuntary, of the foregoing into cash or
liquidated claims. (All capitalized terms used but not otherwise defined
herein shall have the meanings given to such terms in the Operating Agreement
for the LLC (the "Operating Agreement").) The other members of the LLC are
Secured Party and BH Entertainment Ltd. ("Entertainment").
2. Representations, Warranties and Covenants of the Debtor. The
Debtor represents, warrants and agrees as follows:
<PAGE> 2
(a) The Debtor owns all of the Collateral including,
without limitation, both the legal title and beneficial interest in the
Membership Interest, free and clear of all liens, claims and encumbrances
except for the rights of the Secured Party granted hereunder;
(b) The Debtor has full power and authority to make the
pledges, assignments and grants of security interests made hereby;
(c) No consent of any person or entity and no
authorization, approval or other action by, and no notice to or filing with any
governmental authority or regulatory body is required for the Debtor to make
the pledges, assignments or grants of security interests made hereby or for the
Secured Party to exercise its rights hereunder;
(d) The pledges, assignments and grants of security
interests made hereby will not contravene any agreement binding upon the
Debtor;
(e) The pledge of the Membership Interest, and the grant
of a security interest therein, to the Secured Party is, and shall remain, duly
noted in the books and records of the LLC including, without limitation, the
register or other similar listing of membership interests;
(f) The Note and this Agreement are legally valid and
binding and are enforceable against the parties thereto in accordance with
their respective terms, and this Agreement creates in favor of the Secured
Party a valid first priority security interest in, and lien upon, the
Collateral;
(g) The chief executive office of the Debtor is located
at the address set forth at the top of this Agreement and the Debtor shall
notify the Secured Party promptly in writing in the event the Debtor relocates
its chief executive office during the term of this Agreement;
(h) The Debtor will execute such financing statements in
connection herewith as the Secured Party may reasonably request;
(i) The Debtor will pay or cause to be paid all taxes,
assessments, fees and other charges respecting the Collateral or this Agreement
which are from time to time levied upon or assessed against the Collateral,
this Agreement or the Debtor (but the Debtor may contest such taxes or other
charges in good faith and with due diligence, provided no part of the
Collateral will be subject to a lien, forfeiture, sale or diminution in value
in connection with such contested tax or other charge during any such contest);
(j) The Debtor will not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of or grant any option with respect to
the Membership Interest or the Collateral or (ii) create or permit to exist any
lien, security interest, restriction, option or other charge or encumbrance
upon or with respect to any of the Collateral except for the rights granted to
the Secured Party hereby; and
-2-
<PAGE> 3
(k) Except as permitted by the Operating Agreement, the
Debtor shall cause the LLC not to issue any Membership Interest or other
securities in addition to or in substitution for the Membership Interest except
to the Debtor, Secured Party or Entertainment, and the Debtor shall,
immediately upon its acquisition (directly or indirectly) thereof, pledge to
the Secured Party any and all such additional Membership Interests or other
securities of the LLC upon the terms and subject to the conditions of this
Agreement and such Membership Interests or securities shall constitute part of
the Collateral hereunder.
3. Membership Interest.
(a) If at any time the Membership Interest is evidenced
by one or more certificates, then the Debtor shall deliver or cause to be
delivered to the Secured Party such certificate(s), duly endorsed to the order
of the Secured Party in order to evidence the pledge being made hereunder. The
Membership Interest shall be held by the Secured Party in accordance with the
terms of this Agreement. Upon the occurrence of an Event of Default as
provided herein, the Secured Party shall have the right, at any time in its
discretion and without notice to the Debtor, to transfer to or to register in
the name of the Secured Party, or any of its nominees, any or all of the
Membership Interest. In addition, the Secured party shall have the right at
any time to exchange any certificates or instruments representing or evidencing
any of the Membership Interest for certificates or instruments of smaller or
larger denominations.
(b) So long as no Event of Default or event which, with
the giving of notice or the lapse of time, or both, would become an Event of
Default shall have occurred and be continuing:
(i) The Debtor shall be entitled to exercise or
refrain from exercising any and all voting
and other consensual rights pertaining to the
Membership Interest or any part thereof for
any purpose not inconsistent with the terms
of this Agreement or the Note; provided,
however, that the Debtor shall not exercise
or refrain from exercising any such right if,
in the Secured Party's judgment, such action
would have a material adverse effect on the
value of the Collateral or any part thereof.
(ii) The Debtor shall be entitled to receive and
retain any and all dividends or other
distributions paid in respect of the
Membership Interest; provided, however, that
any and all
(a) dividends and distribution paid or
payable other than in cash in
respect of, and certificates,
instruments and other property
received, receivable or otherwise
distributed in respect of, or in
exchange for, any of the Membership
Interest;
-3-
<PAGE> 4
(b) dividends and other distributions
paid or payable in cash in respect
of any Membership Interest in
connection with a partial or total
liquidation or dissolution or in
connection with a reduction of
capital, capital surplus or paid-in
surplus; and
(c) cash paid, payable or otherwise
distributed in respect of, or in
redemption of, or in exchange for,
any Membership Interest;
shall be, and shall be forthwith delivered to
the Secured Party to hold as, Collateral and
shall, if received by the Debtor, be received
in trust for the benefit of the Secured
Party, be segregated from the other property
or funds of the Debtor, and be forthwith
delivered to the Secured Party as Collateral
in the same form as so received (with any
necessary indorsement or assignment).
(iii) The Secured Party shall execute and deliver
(or cause to be executed and delivered) to
the Debtor all such proxies and other
instruments as the Debtor may reasonably
request for the purpose of enabling the
Debtor to exercise the voting and other
rights which the Debtor is entitled to
exercise pursuant to paragraph (i) above and
to receive the dividends or payments which it
is authorized to receive and retain pursuant
to paragraph (ii) above.
(c) Upon the occurrence of an Event of Default:
(i) All rights of the Debtor to exercise or
refrain from exercising the voting and other
consensual rights which it would otherwise be
entitled to exercise pursuant to Section
3(b)(i) and to receive and retain pursuant to
Section 3(b)(ii) shall cease, and all such
rights shall thereupon become vested in the
Secured Party who shall thereupon have the
sole right to exercise or refrain from
exercising such voting and other consensual
rights and to receive and hold as Collateral
such dividends and payments.
(ii) All dividends and payments which are received
by the Debtor contrary to the provisions of
paragraph (i) of this Section 3(c) shall be
received in trust by the Debtor for the
benefit of the Secured Party, shall be
segregated from other funds of the Debtor and
shall be forthwith paid over to the Secured
Party as collateral in the same form as so
received (with any necessary indorsement).
-4-
<PAGE> 5
4. Indemnification. The Debtor hereby agrees to indemnify and
save the Secured Party harmless from any loss, damage or expense, including
attorneys' fees, incurred by the Secured Party as a result of the Debtor's
breach of any of the terms of this Agreement or any of the warranties,
obligations or undertakings described in this Agreement, the Note or any other
instrument executed in connection herewith. The Debtor further agrees to pay
to the Secured Party upon demand the amount of any and all reasonable expenses,
including the fees and expenses of its counsel and any experts and agents,
which the Secured Party may incur in connection with the administration of this
Agreement, the custody, preservation or use of, or the sale of, collection from
or other realization upon, any of the Collateral or the exercise or enforcement
of any of the rights of the Secured Party hereunder. The indemnities set forth
in this Section 4 shall survive the expiration or earlier termination of this
Agreement with respect to acts or events occurring or alleged to have occurred
prior to such expiration or earlier termination.
5. Default and Remedies.
(a) Each of the following shall constitute an Event of
Default hereunder:
(i) An Event of Default occurs and is continuing
under the Note;
(ii) The Debtor defaults in the performance of any
obligation of the Debtor hereunder or under
the Purchase Agreement for more than fifteen
(15) days after the Secured Party has given
notice of such default to the Debtor;
(iii) Entertainment delivers a notice to the Debtor
that pursuant to the terms of the Operating
Agreement, Entertainment is electing its
Purchase Right of the Debtor's Membership
Interest in the LLC, or an event occurs that
pursuant to the terms of the Operating
Agreement would subject all of the Debtor's
Membership Interest in the LLC to automatic
and immediate termination; or
(iv) Any representation or warranty made herein by
the Debtor shall prove to have been false or
misleading in any material respect as of the
date hereof or to have been breached and is
not cured within fifteen (15) days after the
Secured Party has given notice to the Debtor
thereof.
(b) (i) Subject to clause (ii), below, if an Event of
Default shall occur, then the Secured Party may at its option (x) declare the
Note to be immediately due and payable in full, whereupon the unpaid principal
of and accrued interest on the Note shall become immediately due and payable
and (y) the Secured Party may exercise all rights and remedies (not
inconsistent with the terms of the Note or this Agreement) with respect to the
Collateral as are available to it under such agreements and instruments and
applicable law.
-5-
<PAGE> 6
(ii) The following provisions shall apply if an Event of
Default shall occur. The principal and accrued interest on the Note shall be
immediately due and payable without any notice or other action being required
on the part of the Secured Party. If the Event of Default consists of
Entertainment's election of a Purchase Right, then the Secured Party's remedies
for this Event of Default shall be limited to the extent and in the
circumstances provided in the Operating Agreement. If the Event of Default is
one that causes the automatic termination of the Debtor's Membership Interest,
and the Membership Interest of the Secured Party as a result increases in
accordance with the provisions of the Operating Agreement, then the Secured
Party shall transfer the Note to the LLC as provided by the Operating Agreement
and shall exercise no remedies thereunder inconsistent with its obligations as
set out under the Operating Agreement. In the event of any other Event of
Default hereunder, then Secured Party's remedy shall be limited in the same
manner as if the Event of Default consists of Entertainment's election of a
Purchase Right under the Operating Agreement. In any event, provided all of
the applicable provisions of Section 11.2(b) of the Operating Agreement occur,
Secured Party shall take no further action against the Debtor to enforce
payment under the Note, except for the payment of accrued but unpaid interest.
(iii) Without limiting the generality of the remedies
provided for above, following an Event of Default the Secured Party shall (i)
be entitled to exercise all rights with respect to the Membership Interest,
including the right to vote the Membership Interest and to give all consents,
waivers and ratifications in respect thereof, and in such event and for such
purpose, the Debtor hereby irrevocably constitutes and appoints the Secured
Party as its proxy and attorney-in-fact (which appointment shall be coupled
with an interest) with full power of substitution, to do so. To evidence such
appointment, the Debtor agrees to execute and deliver such further documents
and instruments as the Secured Party reasonably may request. The rights and
remedies provided in this Agreement are cumulative and in addition to any
rights and remedies which the Secured Party may have under the Note or at law
or in equity. The Secured Party shall be entitled to reimbursement from the
Debtor for all reasonable costs, attorneys' fees and legal expenses incurred by
it in exercising such rights and remedies.
6. Termination; Reinstatement or Continuation. The Secured Party
agrees that upon satisfaction by the Debtor of all of the Obligations, the
Secured Party shall cancel this Agreement and related financing statements, if
any, and return to the Debtor any document or instrument delivered by the
Debtor to the Secured Party to perfect the pledge and security agreement
granted hereunder. Notwithstanding the foregoing, this Agreement shall be
reinstated or continue to be effective, as the case may be, if at any time any
payment or performance of the Obligations is rescinded or must otherwise be
returned by the Secured Party upon the insolvency, bankruptcy or reorganization
of the Debtor or otherwise, all as though such payment or performance had not
be made.
7. Secured Party's Duties. The powers conferred on the Secured
Party hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any certificates or other instruments evidencing the Membership
Interest in its possession and an accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty, as to any Collateral, to
ascertain or take action
-6-
<PAGE> 7
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not the Secured Party has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral. The Secured Party shall be deemed to have exercised reasonable
care in the custody and preservation of any Collateral in its possession if
such Collateral is accorded treatment substantially equal to that which the
Secured Party accords its own property.
8. Miscellaneous.
(a) Governing Law. This Agreement and the Note shall be
contracts made under and governed by the laws of the State of Colorado.
(b) Colorado Gaming Laws. The exercise of any rights
under this Agreement shall be subject to and consistent with the requirements
of the Colorado gaming laws (C.R.S. Section 12-47.1-101 et seq., as the same
may be amended or supplemented from time to time, together with the regulations
promulgated thereunder).
(c) Severability. Whenever possible, each provision of
the Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective
only to the extent and duration of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
(d) Notice. Any notice required or given hereunder shall
be deemed properly given (i) two business days after mailed, certified mail,
return receipt requested, postage prepaid, addressed to the designated
recipient at its address set forth in the introductory paragraph of this
Agreement or such other address as such party may advise by notice given in
accordance with this provision or (ii) upon receipt by the party to whom
addressed if given in writing by personal delivery, commercial courier service,
telecopy or other means which provides a permanent record of the delivery of
such notice.
(e) No Waiver; Modification. The Secured Party may in
its sole discretion waive a default. Any waiver granted by the Secured Party
must be made in a writing signed by the Secured Party and no failure or delay
of the Secured Party in exercising any right, power or privilege under this
Agreement shall operate as a waiver thereof. Any such waiver granted in a
particular instance or of a particular default shall not be a waiver of other
defaults or of the same kind of default at another time. No modification or
change in this Agreement or the Note or any related instrument or agreement
shall bind the Secured Party unless in writing signed by the Secured Party. No
oral agreement shall be binding.
(f) Further Assurances. The Debtor from time to time
shall, at its own expense, execute and deliver all such proxies, agreements and
other instruments and documents and take all such action as may be necessary or
that the Secured Party may deem appropriate in order to perfect and protect any
security interest granted or purported to be granted hereby or the
-7-
<PAGE> 8
first priority of such security interest, to enable the Secured Party to
enforce its rights and remedies hereunder or otherwise to effectuate the
purposes of this Agreement and carry out the terms hereof.
(g) Financing Statements. If permitted by law, the
Debtor authorizes the Secured Party to file a financing statement with respect
to the Collateral signed only by the Secured Party and to file a carbon,
photograph or other reproduction of this Agreement or of a financing statement
for such purpose.
(h) Successors. This Agreement shall be binding upon,
and shall inure to the benefit of, the successors and assigns of the Debtor and
the Secured Party. Neither party may assign this Agreement or its rights
hereunder without the prior written consent of the other party.
(i) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which, when taken together, shall constitute one and the
same Agreement.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.]
IN WITNESS WHEREOF, the Debtor and the Secured Party have duly
executed and delivered this Agreement as of the day and year first above
written.
BLACK HAWK GAMING & DIVERSIFIED OPPORTUNITIES
DEVELOPMENT COMPANY, INC. GROUP LTD.
By: /s/ STEPHEN R. ROARK By: JACOBS ENTERTAINMENT LTD.,
--------------------------- its manager
Name/Title: President
-------------------
By: /s/ DAVID C. GRUNENWALD
-----------------------------
Title: Vice President
--------------------------
-8-
<PAGE> 1
EXHIBIT 10.7
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
SUBSCRIPTION FOR SUBSCRIPTION NOTE
For value received, the receipt and sufficiency of which are hereby
acknowledged, the undersigned, Robert D. Greenlee ("Purchaser"), hereby
subscribes for a convertible note (the "Subscription Note") of Black Hawk
Gaming & Development Company, Inc., a Colorado corporation ("Seller"), which
Subscription Note is convertible into 57,143 Shares at a price of $5.25 per
Share. Capitalized terms used but not defined herein shall have the meaning
assigned to such terms in that certain Amended and Restated Purchase Agreement
entered into as of even date herewith, by and between Seller and Diversified
Opportunities Group Ltd. (the "Purchase Agreement").
Purchaser hereby acknowledges that he has been furnished with a copy
of the Purchase Agreement and has read and understands the terms thereof.
The Subscription Note being subscribed for hereunder is being acquired
pursuant to Section 2(d) of the Purchase Agreement, and shall be paid for in
cash and acquired at such time as Diversified Opportunities Group Ltd. pays the
remaining $4,500,000 for the Note as described in Section 2(b)(ii) of the
Purchase Agreement.
The Subscription Note (and the Shares into which the Subscription Note
are convertible) being subscribed for hereunder are being acquired for
Purchaser's own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933 (the "1933 Act"). Purchaser understands that the Shares
have not been registered under the 1933 Act by reason of their contemplated
issuance in a transaction believed to be exempt from the registration and
prospectus delivery requirements of the 1933 Act pursuant to Section 4(2)
thereof, and in transactions believed to be exempt from the registration and/or
qualification provisions of the appropriate state securities laws. Purchaser
has such knowledge and
<PAGE> 2
experience in financial and business matters that he is capable of
independently evaluating the risks and merits of purchasing and acquiring the
Shares.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Subscription for Shares as of the 12th day of November, 1996.
/s/ ROBERT D. GREENLEE
-----------------------------
Robert D. Greenlee
-2-
<PAGE> 1
EXHIBIT 10.8
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
SUBSCRIPTION FOR SUBSCRIPTION NOTE
For value received, the receipt and sufficiency of which are hereby
acknowledged, the undersigned, Frank B. Day ("Purchaser"), hereby subscribes
for a convertible note (the "Subscription Note") of Black Hawk Gaming &
Development Company, Inc., a Colorado corporation ("Seller"), which
Subscription Note is convertible into 57,143 Shares at a price of $5.25 per
Share. Capitalized terms used but not defined herein shall have the meaning
assigned to such terms in that certain Amended and Restated Purchase Agreement
entered into as of even date herewith, by and between Seller and Diversified
Opportunities Group Ltd. (the "Purchase Agreement").
Purchaser hereby acknowledges that he has been furnished with a copy
of the Purchase Agreement and has read and understands the terms thereof.
The Subscription Note being subscribed for hereunder is being acquired
pursuant to Section 2(d) of the Purchase Agreement, and shall be paid for in
cash and acquired at such time as Diversified Opportunities Group Ltd. pays the
remaining $4,500,000 for the Note as described in Section 2(b)(ii) of the
Purchase Agreement.
The Subscription Note (and the Shares in to which the Subscription
Note are convertible) being subscribed for hereunder are being acquired for
Purchaser's own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933 (the "1933 Act"). Purchaser understands that the Shares
have not been registered under the 1933 Act by reason of their contemplated
issuance in a transaction believed to be exempt from the registration and
prospectus delivery requirements of the 1933 Act pursuant to Section 4(2)
thereof, and in transactions believed to be exempt from the registration and/or
qualification provisions of the appropriate state securities laws. Purchaser
has such knowledge and
<PAGE> 2
experience in financial and business matters that he is capable of
independently evaluating the risks and merits of purchasing and acquiring the
Shares.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Subscription for Shares as of the 12th day of November, 1996.
/s/ FRANK B. DAY
-------------------------------------
FRANK B. DAY
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<PAGE> 1
EXHIBIT 10.9
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
SUBSCRIPTION FOR SHARES
For value received, the receipt and sufficiency of which is hereby
acknowledged, the undersigned, Stephen R. Roark ("Purchaser"), hereby
subscribes for 28,571 Shares of Black Hawk Gaming & Development Company, Inc.,
a Colorado corporation ("Seller"), at a price of $5.25 per Share. Capitalized
terms used but not defined herein shall have the meaning assigned to such terms
in that certain Purchase Agreement entered into as of August 12, 1996, by and
between Seller and Jacobs Entertainment Ltd. (the "Purchase Agreement").
Purchaser hereby acknowledges that he has been furnished with a copy
of the Purchase Agreement and has read and understands the terms thereof.
The Shares being subscribed for hereunder are being acquired pursuant
to Section 2(f) of the Purchase Agreement, are being acquired subject to the
satisfaction of the Section 2(c) conditions and are being secured by a letter
of credit as described in Section 2(g) of the Purchase Agreement.
The Shares being subscribed for hereunder are being acquired for
Purchaser's own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933 (the "1933 Act"). Purchaser understands that the Shares
have not been registered under the 1933 Act by reason of their contemplated
issuance in a transaction believed to be exempt from the registration and
prospectus delivery requirements of the 1933 Act pursuant to Section 4(2)
thereof, and in transactions believed to be exempt from the registration and/or
qualification provisions of the appropriate state securities laws. Purchaser
<PAGE> 2
has such knowledge and experience in financial and business matters that he is
capable of independently evaluating the risks and merits of purchasing and
acquiring the Shares.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Subscription for Shares as of the 12th day of November, 1996.
/s/ STEPHEN R. ROARK
----------------------------------------
STEPHEN R. ROARK
-2-
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 12th day of November, 1996, by
and between Black Hawk Gaming & Development Company, Inc., a Colorado
corporation ("Black Hawk"), and Jeffrey P. Jacobs ("Executive").
1. TERM. Black Hawk agrees to employ Executive, and Executive
agrees to serve Black Hawk, on the terms and conditions of this Agreement for a
three (3) year period (such period, subject to earlier termination as provided
herein, being referred to as the "Period of Employment") commencing as of
November 12, 1996 (the "Commencement Date").
2. DUTIES AND SERVICES. During the Period of Employment,
Executive agrees to serve Black Hawk as Chief Executive Officer and Co-Chairman
of the board of Black Hawk and in such other offices and directorships of Black
Hawk and of its subsidiaries and related companies (collectively, "Affiliates")
to which he may be elected or appointed, and to perform the duties commensurate
with such positions and such other reasonable and appropriate duties as may be
requested of him by the board of directors of Black Hawk (the "Board of
Directors"), in accordance with this Agreement and in compliance with all
applicable laws and regulations. Excluding periods of vacation and sick leave
to which Executive is entitled, Executive shall devote such time, energy, and
skill to the business and affairs of Black Hawk and its Affiliates and to the
promotion of their interests as is necessary to perform the duties required of
him by this Agreement. The principal place of performance by Executive of his
duties hereunder shall be in Cleveland, Ohio or at such other location as may
be mutually agreed upon by Black Hawk and Executive, but Executive may be
reasonably required to travel outside that area in the performance of
Executive's responsibilities.
3. COMPENSATION.
(a) Base Salary and Additional Payment. As compensation
for his services under this Agreement, Black Hawk shall pay Executive
commencing November 12, 1996 and thereafter, during the Period of Employment,
an annual base salary in the amount of $150,000 in accordance with Black Hawk's
normal payroll practices (the "Base Salary"). In addition, from and after the
time that Diversified Opportunities Group Ltd. ("Diversified") has converted
such portion of the unpaid principal balance under that certain Convertible
Note of Black Hawk of even date herewith into 820,000 or more Shares (the
"Conversion"), thereafter, Black Hawk shall pay the Executive, during the
Period of Employment, 2.5% of Black Hawk's pre-tax net income in excess of
$2,880,000 in each fiscal year determined in accordance with generally accepted
accounting principles determined for each calendar year (including the year of
the Conversion) on or before March 31 of the succeeding year (the "Additional
Payment'). Executive's Base Salary shall be subject to periodic increases by
the Board of Directors in its discretion. The Base Salary and the Additional
Payment are sometimes collectively referred to herein as the "Compensation."
<PAGE> 2
(b) Bonus. During the Period of Employment, Executive
shall be entitled to such bonuses and other benefits as the Compensation
Committee or the Board of Directors may periodically award in its discretion.
Nothing contained herein shall preclude Executive from participating in the
present or future employee benefit plans of Black Hawk or of any Affiliate,
including without limitation any pension plan, profit-sharing plan, savings
plan, or stock option plan. Specifically, Executive shall be a participant in
Black Hawk's 1996 Incentive Stock Option Plan.
(c) Health Insurance. During the Period of Employment,
provided eligibility requirements are met, Executive shall be entitled to
family health insurance coverage, at Black Hawk's expense, under Black Hawk's
current health insurance plan or any successor plan thereto.
(d) Fringe Benefits. Executive shall receive employment
fringe benefits no less favorable than those made available to Black Hawk's
most senior executives.
(e) Expenses. All travel and other expenses incident to
the rendering of services by Executive under this Agreement shall be paid by
Black Hawk. If any such expenses are paid in the first instance by Executive,
Black Hawk shall reimburse him therefor on presentation of the appropriate
documentation required by the Internal Revenue Code and Regulations or
otherwise required under Black Hawk policy in connection with such expenses.
(f) Vacation. Executive shall be entitled to paid
vacation, to be taken at times mutually satisfactory to Executive and the Board
of Directors of Black Hawk, for such periods of time as permitted for Black
Hawk's most senior executives.
4. EARLY TERMINATION.
(a) Termination for Cause or Death and Disability.
Notwithstanding the provisions of Section 1, Executive may be discharged by
Black Hawk for Cause (as defined in Section 4(c), in which event the Period of
Employment shall terminate and Black Hawk shall have no further obligation or
duties under this Agreement, except for obligations accrued under Section 3 at
the date of termination. In addition, the Period of Employment shall terminate
upon the earliest to occur of the following events: (i) the death of Executive,
or (ii) at the election of the Board of Directors (subject to the Americans
With Disabilities Act), the inability of Executive by reason of physical or
mental disability to continue the proper performance of his duties hereunder
for a period of 180 consecutive days.
(b) Other Termination. If (i) Executive is discharged by
Black Hawk other than for Cause and other than because of death or physical or
mental disability under Section 4(a), or (ii) Executive terminates employment
with Black Hawk for "good reason" (as defined in Section 4(d)), Executive shall
have no further obligations or duties under this Agreement; provided, however,
that Executive shall continue to be bound by the provisions of Section 5. If
the Period of Employment is terminated pursuant to the preceding sentence,
Black Hawk shall, in addition
-2-
<PAGE> 3
to paying the obligations accrued under Section 3 at the date of termination,
(i) continue to pay Executive the Compensation otherwise payable to him under
Section 3(a) for one year or the remaining Period of Employment, whichever is
shorter (the "Continuation Period") and (ii) continue to provide the health
insurance coverage described in Section 3(c) during the Continuation Period.
(c) Cause. For purposes of this Agreement, cause
("Cause") shall be deemed to exist only (i) on Executive's consistent refusal
to substantially perform, or willful misconduct in the substantial performance
of, his duties and obligations under this Agreement, (ii) on the material
breach by Executive of this Agreement, or (iii) on the revocation or suspension
of any license necessary for Executive to perform under this Agreement, in all
cases, following written notice from Black Hawk to the Executive and the
Executive's failure to cure the events described in such notice within thirty
(30) days following receipt of such notice by the Executive.
(d) Good Reason. For purposes of this Agreement, the
term "good reason" means (i) the assignment to Executive of any duties or
responsibilities that in Executive's reasonable judgment are inconsistent in
any respect with Executive's position (including status, offices, titles, and
reporting requirements), authority, duties, or responsibilities as contemplated
by Section 2, or any other action by Black Hawk that in Executive's reasonable
judgment results in a substantial diminishment in such position, authority,
duties, or responsibilities; (ii) Black Hawk's requiring relocation of
Executive, without his prior written consent, to a place of employment other
than in Ohio, except for travel reasonably required in the performance of
Executive's responsibilities; or (iii) Black Hawk's failure to substantially
comply with the provisions of Section 3 of this Agreement.
5. CONFIDENTIALITY
(a) Confidential Material. Black Hawk and Executive
acknowledge that the services to be performed by Executive under this Agreement
are unique and extraordinary and that, as a result of such employment,
Executive will possess confidential information, proprietary information, and
trade secrets (collectively, "Confidential Material") relating to the business
practices of Black Hawk and its Affiliates. Executive agrees that he will not,
directly or indirectly, (i) disclose to any other person or entity either
during or after his employment by Black Hawk, or (ii) use, except during his
employment by Black Hawk in the business and for the benefit of Black Hawk or
any of its Affiliates, any Confidential Material acquired by Executive during
his employment by Black Hawk, without the prior written consent of Black Hawk.
On termination of his employment with Black Hawk for any reason, Executive
agrees to return to Black Hawk all tangible manifestations of Confidential
Materials and all copies thereof. All programs, ideas, strategies, approaches,
practices, or inventions created, developed, obtained, or conceived of by
Executive prior to or during the term thereof, and all business opportunities
presented to Executive during the term hereof by reason of his engagement by
Black Hawk shall be owned by and belong exclusively to Black Hawk, provided
that they are related in any manner to its business or that of any of its
Affiliates. Executive shall (i) promptly disclose all such programs, ideas,
strategies,
-3-
<PAGE> 4
approaches, practices, inventions, or business opportunities to Black Hawk and
(ii) execute and deliver to Black Hawk, without additional compensation, such
instruments as Black Hawk may require from time to time to evidence its
ownership of any such items.
(b) Injunctive Relief. Executive agrees that the remedy
at law for any breach by him of this section will be inadequate and that Black
Hawk shall be entitled to injunctive relief.
6. MISCELLANEOUS.
(a) Notices. All notices given under this Agreement must
be in writing and must be delivered, sent by facsimile transmission, or sent by
certified mail, postage paid, return receipt requested, to the following
addresses or to such other addresses as the parties may designate in writing:
If to Black Hawk: Black Hawk Gaming &
Development Company, Inc.
2060 Broadway, Suite 400
Boulder, Colorado 80302
Attn: Stephen R. Roark,
Senior Vice President
Fax No.: (303) 444-7968
If to Executive: Jeffrey P. Jacobs
425 Lakeside Ave.
Cleveland, Ohio 44114
Fax No.: (216) 861-4590
Such notices shall be effective on delivery if delivered in person and either
on actual receipt or three days after mailing, whichever is earlier, if
delivered by mail or by facsimile.
(b) Parties in Interest. This Agreement shall be binding
upon and inure to the benefit of Executive, and it shall be binding upon and
inure to the benefit of Black Hawk and any corporation succeeding to all or
substantially all of the business and assets of Black Hawk by merger,
consolidation, purchase of assets or otherwise.
(c) Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes all other oral and written
agreements concerning the same subject matter.
(d) Governing law. This Agreement shall be governed by
Colorado law.
-4-
<PAGE> 5
(e) Severability. If any provision is unenforceable for
any reason, it shall be deemed stricken from the Agreement but shall not
otherwise affect the intention of the parties or the remaining provisions of
this Agreement.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]
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<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above.
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By: /s/ STEPHEN R. ROARK /s/ JEFFREY P. JACOBS
------------------------------ ------------------------------
Jeffrey P. Jacobs
Its: President
-----------------------------
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 12th day of November, 1996, by
and between Black Hawk Gaming & Development Company, Inc., a Colorado
corporation ("Black Hawk"), and Stephen R. Roark ("Executive").
1. TERM. Black Hawk agrees to employ Executive, and Executive
agrees to serve Black Hawk, on the terms and conditions of this Agreement for a
three (3) year period (such period, subject to earlier termination as provided
herein, being referred to as the "Period of Employment") commencing as of
November 12, 1996 (the "Commencement Date").
2. DUTIES AND SERVICES. During the Period of Employment,
Executive agrees to serve Black Hawk as President, to oversee acquisitions, new
projects and opportunities and to serve in such other offices and directorships
of Black Hawk and of its subsidiaries and related companies (collectively,
"Affiliates") to which he may be elected or appointed, and to perform the
duties listed on Exhibit A and such other reasonable and appropriate duties as
may be requested of him by the Chief Executive Officer or the board of
directors of Black Hawk (the "Board of Directors"), in accordance with this
Agreement and in compliance with all applicable laws and regulations. In the
performance of his duties, Executive shall be subject to the direction of the
Chief Executive Officer and the Board of Directors. Excluding periods of
vacation and sick leave to which Executive is entitled, Executive shall devote
such time, energy, and skill to the business and affairs of Black Hawk and its
Affiliates and to the promotion of their interests as is necessary to perform
the duties required of him by this Agreement. The principal place of
performance by Executive of his duties hereunder shall be in Boulder, Colorado
or at such other location as may be mutually agreed upon by Black Hawk and
Executive, but Executive may be reasonably required to travel outside that area
in the performance of Executive's responsibilities.
3. COMPENSATION.
(a) Base Salary and Additional Payment. As compensation
for his services under this Agreement, Black Hawk shall pay Executive
commencing November 12, 1996 and thereafter, during the Period of Employment,
annual base salary in the amount of $125,000 in accordance with Black Hawk's
normal payroll practices (the "Base Salary").
(b) Bonus. During the Period of Employment, Executive
shall be entitled to such bonuses and other benefits as the Compensation
Committee or the Board of Directors may periodically award in its discretion.
Nothing contained herein shall preclude Executive from participating in the
present or future employee benefit plans of Black Hawk or of any Affiliate,
including without limitation any pension plan, profit-sharing plan, savings
plan, or stock option plan. Specifically, Executive shall be a participant in
Black Hawk's 1996 Incentive Stock Option Plan.
<PAGE> 2
(c) Health Insurance. During the Period of Employment,
provided eligibility requirements are met, Executive shall be entitled to
family health insurance coverage, at Black Hawk's expense, under Black Hawk's
current health insurance plan or any successor plan thereto.
(d) Fringe Benefits. Executive shall receive employment
fringe benefits no less favorable than those made available to Black Hawk's
most senior executives.
(e) Expenses. All travel and other expenses incident to
the rendering of services by Executive under this Agreement shall be paid by
Black Hawk. If any such expenses are paid in the first instance by Executive,
Black Hawk shall reimburse him therefor on presentation of the appropriate
documentation required by the Internal Revenue Code and Regulations or
otherwise required under Black Hawk policy in connection with such expenses.
(f) Vacation. Executive shall be entitled to paid
vacation, to be taken at times mutually satisfactory to Executive and the Chief
Executive Officer of Black Hawk, for such periods of time as permitted for
Black Hawk's most senior executives.
4. EARLY TERMINATION.
(a) Termination for Cause or Death and Disability.
Notwithstanding the provisions of Section 1, Executive may be discharged by
Black Hawk for Cause (as defined in Section 4(c), in which event the Period of
Employment shall terminate and Black Hawk shall have no further obligation or
duties under this Agreement, except for obligations accrued under Section 3 at
the date of termination. In addition, the Period of Employment shall terminate
upon the earliest to occur of the following events: (i) the death of Executive,
or (ii) at the election of the Board of Directors (subject to the Americans
With Disabilities Act), the inability of Executive by reason of physical or
mental disability to continue the proper performance of his duties hereunder
for a period of 180 consecutive days.
(b) Other Termination. If (i) Executive is discharged by
Black Hawk other than for Cause and other than because of death or physical or
mental disability under Section 4(a), or (ii) Executive terminates employment
with Black Hawk for "good reason" (as defined in Section 4(d)), Executive shall
have no further obligations or duties under this Agreement; provided, however,
that Executive shall continue to be bound by the provisions of Section 5. If
the Period of Employment is terminated pursuant to the preceding sentence,
Black Hawk shall, in addition to paying the obligations accrued under Section 3
at the date of termination, (i) continue to pay Executive the Base Salary
otherwise payable to him under Section 3(a) for one year or the remaining
Period of Employment, whichever is shorter (the "Continuation Period") and (ii)
continue to provide the health insurance coverage described in Section 3(c)
during the Continuation Period.
(c) Cause. For purposes of this Agreement, cause
("Cause") shall be deemed to exist only (i) on Executive's consistent refusal
to substantially perform, or willful misconduct
-2-
<PAGE> 3
in the substantial performance of, his duties and obligations under this
Agreement, (ii) on the material breach by Executive of this Agreement, or (iii)
on the revocation or suspension of any license necessary for Executive to
perform under this Agreement, in all cases, following written notice from Black
Hawk to the Executive and the Executive's failure to cure the events described
in such notice within thirty (30) days following receipt of such notice by the
Executive.
(d) Good Reason. For purposes of this Agreement, the
term "good reason" means (i) the assignment to Executive of any duties or
responsibilities that in Executive's reasonable judgment are inconsistent in
any respect with Executive's position (including status, offices, titles, and
reporting requirements), authority, duties, or responsibilities as contemplated
by Section 2, or any other action by Black Hawk that in Executive's reasonable
judgment results in a substantial diminishment in such position, authority,
duties, or responsibilities; (ii) Black Hawk's requiring relocation of
Executive, without his prior written consent, to a place of employment other
than in Colorado, except for travel reasonably required in the performance of
Executive's responsibilities; or (iii) Black Hawk's failure to substantially
comply with the provisions of Section 3 of this Agreement.
5. CONFIDENTIALITY
(a) Confidential Material. Black Hawk and Executive
acknowledge that the services to be performed by Executive under this Agreement
are unique and extraordinary and that, as a result of such employment,
Executive will possess confidential information, proprietary information, and
trade secrets (collectively, "Confidential Material") relating to the business
practices of Black Hawk and its Affiliates. Executive agrees that he will not,
directly or indirectly, (i) disclose to any other person or entity either
during or after his employment by Black Hawk, or (ii) use, except during his
employment by Black Hawk in the business and for the benefit of Black Hawk or
any of its Affiliates, any Confidential Material acquired by Executive during
his employment by Black Hawk, without the prior written consent of Black Hawk.
On termination of his employment with Black Hawk for any reason, Executive
agrees to return to Black Hawk all tangible manifestations of Confidential
Materials and all copies thereof. All programs, ideas, strategies, approaches,
practices, or inventions created, developed, obtained, or conceived of by
Executive prior to or during the term thereof, and all business opportunities
presented to Executive during the term hereof by reason of his engagement by
Black Hawk shall be owned by and belong exclusively to Black Hawk, provided
that they are related in any manner to its business or that of any of its
Affiliates. Executive shall (i) promptly disclose all such programs, ideas,
strategies, approaches, practices, inventions, or business opportunities to
Black Hawk and (ii) execute and deliver to Black Hawk, without additional
compensation, such instruments as Black Hawk may require from time to time to
evidence its ownership of any such items.
(b) Injunctive Relief. Executive agrees that the remedy
at law for any breach by him of this section will be inadequate and that Black
Hawk shall be entitled to injunctive relief.
-3-
<PAGE> 4
6. MISCELLANEOUS.
(a) Notices. All notices given under this Agreement must
be in writing and must be delivered, sent by facsimile transmission, or sent by
certified mail, postage paid, return receipt requested, to the following
addresses or to such other addresses as the parties may designate in writing:
If to Black Hawk: Black Hawk Gaming &
Development Company, Inc.
2060 Broadway, Suite 400
Boulder, Colorado 80302
Attn: Jeffrey P. Jacobs, Chief
Executive Officer
Fax No.: (303) 444-7968
If to Executive: Stephen R. Roark
----------------------------
----------------------------
----------------------------
Fax No.:
--------------------
Such notices shall be effective on delivery if delivered in person and either
on actual receipt or three days after mailing, whichever is earlier, if
delivered by mail or by facsimile .
(b) Parties in Interest. This Agreement shall be binding
upon and inure to the benefit of Executive, and it shall be binding upon and
inure to the benefit of Black Hawk and any corporation succeeding to all or
substantially all of the business and assets of Black Hawk by merger,
consolidation, purchase of assets or otherwise.
(c) Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes all other oral and written
agreements concerning the same subject matter.
(d) Governing law. This Agreement shall be governed by
Colorado law.
(e) Severability. If any provision is unenforceable for
any reason, it shall be deemed stricken from the Agreement but shall not
otherwise affect the intention of the parties or the remaining provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above.
-4-
<PAGE> 5
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By: /s/ ROBERT D. GREENLEE /s/ STEPHEN R. ROARK
------------------------ ------------------------
Stephen R. Roark
Its: Chairman of the Board
-----------------------
-5-
<PAGE> 6
EXHIBIT A
DUTIES
o Work with Chief Executive Officer and others to develop new projects
for Black Hawk.
o Review and analyze expansion opportunities:
o assist with potential financing with investment bankers
o assist in structuring acquisitions and identifying accounting
and legal issues and working with attorneys and accountants to
resolve such issues
o identify public company reporting issues
-6-
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 12th day of November, 1996, by
and between Black Hawk Gaming & Development Company, Inc., a Colorado
corporation ("Black Hawk"), and Stanley Politano ("Executive").
1. TERM. Black Hawk agrees to employ Executive, and Executive
agrees to serve Black Hawk, on the terms and conditions of this Agreement for a
three (3) year period (such period, subject to earlier termination as provided
herein, being referred to as the "Period of Employment") commencing as of
November 12, 1996 (the "Commencement Date").
2. DUTIES AND SERVICES. During the Period of Employment,
Executive agrees to serve Black Hawk as Vice President-Investor Relations and
opportunities and in such other offices and directorships of Black Hawk and of
its subsidiaries and related companies (collectively, "Affiliates") to which he
may be elected or appointed, and to perform the duties listed on Exhibit A and
such other reasonable and appropriate duties as may be requested of him by the
Chief Executive Officer or the board of directors of Black Hawk (the "Board of
Directors"), in accordance with this Agreement and in compliance with all
applicable laws and regulations. In the performance of his duties, Executive
shall be subject to the direction of the Chief Executive Officer and the Board
of Directors. Excluding periods of vacation and sick leave to which Executive
is entitled, Executive shall devote such time, energy, and skill to the
business and affairs of Black Hawk and its Affiliates and to the promotion of
their interests as is necessary to perform the duties required of him by this
Agreement. The principal place of performance by Executive of his duties
hereunder shall be in Boulder, Colorado or at such other location as may be
mutually agreed upon by Black Hawk and Executive, but Executive may be
reasonably required to travel outside that area in the performance of
Executive's responsibilities.
3. COMPENSATION.
(a) Base Salary and Additional Payment. As compensation
for his services under this Agreement, Black Hawk shall pay Executive
commencing November 12, 1996 and thereafter, during the Period of Employment,
annual base salary in the amount of $87,000 in accordance with Black Hawk's
normal payroll practices (the "Base Salary").
(b) Bonus. During the Period of Employment, Executive
shall be entitled to such bonuses and other benefits as the Compensation
Committee or the Board of Directors may periodically award in its discretion.
Nothing contained herein shall preclude Executive from participating in the
present or future employee benefit plans of Black Hawk or of any Affiliate,
including without limitation any pension plan, profit-sharing plan, savings
plan, or stock option plan. Specifically, Executive shall be a participant in
Black Hawk's 1996 Incentive Stock Option Plan.
<PAGE> 2
(c) Health Insurance. During the Period of Employment,
provided eligibility requirements are met, Executive shall be entitled to
family health insurance coverage, at Black Hawk's expense, under Black Hawk's
current health insurance plan or any successor plan thereto.
(d) Fringe Benefits. Executive shall receive employment
fringe benefits no less favorable than those made available to Black Hawk's
most senior executives.
(e) Expenses. All travel and other expenses incident to
the rendering of services by Executive under this Agreement shall be paid by
Black Hawk. If any such expenses are paid in the first instance by Executive,
Black Hawk shall reimburse him therefor on presentation of the appropriate
documentation required by the Internal Revenue Code and Regulations or
otherwise required under Black Hawk policy in connection with such expenses.
(f) Vacation. Executive shall be entitled to paid
vacation, to be taken at times mutually satisfactory to Executive and the Chief
Executive Officer of Black Hawk, for such periods of time as permitted for
Black Hawk's most senior executives.
4. EARLY TERMINATION.
(a) Termination for Cause or Death and Disability.
Notwithstanding the provisions of Section 1, Executive may be discharged by
Black Hawk for Cause (as defined in Section 4(c), in which event the Period of
Employment shall terminate and Black Hawk shall have no further obligation or
duties under this Agreement, except for obligations accrued under Section 3 at
the date of termination. In addition, the Period of Employment shall terminate
upon the earliest to occur of the following events: (i) the death of Executive,
or (ii) at the election of the Board of Directors (subject to the Americans
With Disabilities Act), the inability of Executive by reason of physical or
mental disability to continue the proper performance of his duties hereunder
for a period of 180 consecutive days.
(b) Other Termination. If (i) Executive is discharged by
Black Hawk other than for Cause and other than because of death or physical or
mental disability under Section 4(a), or (ii) Executive terminates employment
with Black Hawk for "good reason" (as defined in Section 4(d)), Executive shall
have no further obligations or duties under this Agreement; provided, however,
that Executive shall continue to be bound by the provisions of Section 5. If
the Period of Employment is terminated pursuant to the preceding sentence,
Black Hawk shall, in addition to paying the obligations accrued under Section 3
at the date of termination, (i) continue to pay Executive the Base Salary
otherwise payable to him under Section 3(a) for one year or the remaining
Period of Employment, whichever is shorter (the "Continuation Period") and (ii)
continue to provide the health insurance coverage described in Section 3(c)
during the Continuation Period.
(c) Cause. For purposes of this Agreement, cause
("Cause") shall be deemed to exist only (i) on Executive's consistent refusal
to substantially perform, or willful misconduct
<PAGE> 3
in the substantial performance of, his duties and obligations under this
Agreement, (ii) on the material breach by Executive of this Agreement, or (iii)
on the revocation or suspension of any license necessary for Executive to
perform under this Agreement, in all cases, following written notice from Black
Hawk to the Executive and the Executive's failure to cure the events described
in such notice within thirty (30) days following receipt of such notice by the
Executive.
(d) Good Reason. For purposes of this Agreement, the
term "good reason" means (i) the assignment to Executive of any duties or
responsibilities that in Executive's reasonable judgment are inconsistent in
any respect with Executive's position (including status, offices, titles, and
reporting requirements), authority, duties, or responsibilities as contemplated
by Section 2, or any other action by Black Hawk that in Executive's reasonable
judgment results in a substantial diminishment in such position, authority,
duties, or responsibilities; (ii) Black Hawk's requiring relocation of
Executive, without his prior written consent, to a place of employment other
than in Colorado, except for travel reasonably required in the performance of
Executive's responsibilities; or (iii) Black Hawk's failure to substantially
comply with the provisions of Section 3 of this Agreement.
5. CONFIDENTIALITY
(a) Confidential Material. Black Hawk and Executive
acknowledge that the services to be performed by Executive under this Agreement
are unique and extraordinary and that, as a result of such employment,
Executive will possess confidential information, proprietary information, and
trade secrets (collectively, "Confidential Material") relating to the business
practices of Black Hawk and its Affiliates. Executive agrees that he will not,
directly or indirectly, (i) disclose to any other person or entity either
during or after his employment by Black Hawk, or (ii) use, except during his
employment by Black Hawk in the business and for the benefit of Black Hawk or
any of its Affiliates, any Confidential Material acquired by Executive during
his employment by Black Hawk, without the prior written consent of Black Hawk.
On termination of his employment with Black Hawk for any reason, Executive
agrees to return to Black Hawk all tangible manifestations of Confidential
Materials and all copies thereof. All programs, ideas, strategies, approaches,
practices, or inventions created, developed, obtained, or conceived of by
Executive prior to or during the term thereof, and all business opportunities
presented to Executive during the term hereof by reason of his engagement by
Black Hawk shall be owned by and belong exclusively to Black Hawk, provided
that they are related in any manner to its business or that of any of its
Affiliates. Executive shall (i) promptly disclose all such programs, ideas,
strategies, approaches, practices, inventions, or business opportunities to
Black Hawk and (ii) execute and deliver to Black Hawk, without additional
compensation, such instruments as Black Hawk may require from time to time to
evidence its ownership of any such items.
(b) Injunctive Relief. Executive agrees that the remedy
at law for any breach by him of this section will be inadequate and that Black
Hawk shall be entitled to injunctive relief.
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6. MISCELLANEOUS.
(a) Notices. All notices given under this Agreement must
be in writing and must be delivered, sent by facsimile transmission, or sent by
certified mail, postage paid, return receipt requested, to the following
addresses or to such other addresses as the parties may designate in writing:
If to Black Hawk: Black Hawk Gaming &
Development Company, Inc.
2060 Broadway, Suite 400
Boulder, Colorado 80302
Attn: Jeffrey P. Jacobs, Chief
Executive Officer
Fax No.: (303) 444-7968
If to Executive: Stanley Politano
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Fax No.:
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Such notices shall be effective on delivery if delivered in person and either
on actual receipt or three days after mailing, whichever is earlier, if
delivered by mail or by facsimile .
(b) Parties in Interest. This Agreement shall be binding
upon and inure to the benefit of Executive, and it shall be binding upon and
inure to the benefit of Black Hawk and any corporation succeeding to all or
substantially all of the business and assets of Black Hawk by merger,
consolidation, purchase of assets or otherwise.
(c) Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes all other oral and written
agreements concerning the same subject matter.
(d) Governing law. This Agreement shall be governed by
Colorado law.
(e) Severability. If any provision is unenforceable for
any reason, it shall be deemed stricken from the Agreement but shall not
otherwise affect the intention of the parties or the remaining provisions of
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above.
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
By: /s/ ROBERT D. GREENLEE /s/ STANLEY POLITANO
------------------------------ ------------------------------
Stanley Politano
Its: Chairman of the Board
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EXHIBIT A
DUTIES
o Investor Relations
o Road shows to brokers and institutional investors
o Annual and quarterly reports
o Press releases
o Special broker functions
o Respond to shareholder inquiries
o Increase visibility of stock
o Review and analyze expansion opportunities
o At the direction of President or Senior Vice President, review
market data and participate in financial analysis of
alternatives
o Review and analyze existing operations
o Review current operations relative to competition
o Participate in implementation of policies and procedures of
current operations
o Formulate marketing plans
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