SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-21754
SODAK GAMING, INC.
(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 46-0407053
(State of Incorporation) (I.R.S. Employer Identification No.)
5301 S. Highway 16
Rapid City, South Dakota 57701
(Address of principal executive offices)
(605) 341-5400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
At April 30, 1999, there were outstanding 22,814,140 shares of the Company's
common stock.
Page 1 of 43
Exhibit Index Page 18
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Sodak Gaming, Inc.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Earnings for the three months ended
March 31, 1999 and 1998 3
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended March 31,
------------------------------
In thousands, except per share amounts 1999 1998
- ------------------------------------------- ------------ ------------
Revenue:
Product sales $ 17,934 10,764
Gaming operations 7,962 13,365
Wide area progressive systems 3,601 3,669
Financing income 1,779 2,088
------------ ------------
Total revenue 31,276 29,886
------------ ------------
Costs and expenses:
Cost of product sales 13,987 8,195
Gaming operations 6,284 11,709
Selling, general and administrative 4,079 4,284
Depreciation and amortization 1,228 1,510
Interest and financing costs 421 1,008
------------ ------------
Total costs and expenses 25,999 26,706
------------ ------------
Income from operations 5,277 3,180
------------ ------------
Other income (expense):
Loss on sale of joint venture interest (439) --
Other 64 21
------------ ------------
Total other income (expense) (375) 21
------------ ------------
Earnings before income taxes 4,902 3,201
Provision for income taxes 1,789 1,248
------------ ------------
Net earnings $ 3,113 1,953
============ ============
Earnings per share, basic and diluted $ 0.14 0.09
============ ============
Weighted average number of common and
assumed conversion shares outstanding 22,976 22,783
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
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Sodak Gaming, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
In thousands, except share and per share amounts March 31, 1999 December 31, 1998
- --------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,819 6,100
Current trade, notes and interest receivables 39,973 38,210
Net investment in sales-type leases, current maturities 1,543 1,640
Inventories 17,644 14,565
Prepaid expenses 405 408
Refundable income taxes -- 1,165
Deferred income taxes 2,030 1,870
------------ ------------
Total current assets 74,414 63,958
Property and equipment, net 46,463 47,117
Notes receivable, net of current maturities 21,316 24,708
Net investment in sales-type leases, net of current maturities 2,106 1,917
Investment in joint venture -- 2,400
Deferred income taxes 67 202
Other assets 56 206
------------ ------------
$ 144,422 140,508
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,797 16,313
Note payable 1,500 1,500
Current maturities of long-term debt 1,995 2,836
Income taxes payable 638 --
Deferred financing fee revenue 1,151 1,278
Accrued payroll and payroll-related costs 2,324 3,891
Other accrued liabilities 2,929 3,328
------------ ------------
Total current liabilities 30,334 29,146
Long-term debt, net of current maturities 3,828 4,366
------------ ------------
Total liabilities 34,162 33,512
------------ ------------
Shareholders' equity:
Preferred stock, $0.001 par value, 25,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $0.001 par value, 75,000,000 shares
authorized, 22,814,140 and 22,789,908 shares
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 23 23
Additional paid-in capital 64,377 64,226
Retained earnings 45,860 42,747
------------ ------------
Total shareholders' equity 110,260 106,996
------------ ------------
$ 144,422 140,508
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
In thousands 1999 1998
- ------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,113 1,953
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,228 1,510
Loss on sale of joint venture interest 439 --
Provision for doubtful accounts -- 104
Deferred income taxes (25) 3
Changes in operating assets and liabilities:
Trade and accrued interest receivables (1,053) (1,010)
Notes receivable relating to financed sales 2,988 5,301
Net investment in sales-type leases (92) --
Inventories (3,079) 3,055
Prepaid expenses 3 (424)
Accounts payable 3,484 (14,455)
Accrued liabilities and deferred financing fees (2,093) 277
Income taxes payable, net of refundable income taxes 1,803 1,122
---------- ----------
Net cash provided by (used in) operating activities 6,716 (2,564)
---------- ----------
Cash flows from investing activities:
Cash advanced on notes receivable -- (6,576)
Payments received on notes receivable 1,655 435
Purchases of property and equipment (574) (1,283)
Decrease in other assets 150 24
---------- ----------
Net cash provided by (used in) investing activities 1,231 (7,400)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term borrowings -- 18,500
Principal repayments of long-term debt (1,379) (8,706)
Net proceeds from exercise of stock options 151 --
---------- ----------
Net cash provided by (used in) financing activities (1,228) 9,794
---------- ----------
Effect of exchange rate changes on cash and cash equivalents -- (222)
---------- ----------
Net increase (decrease) in cash and cash equivalents 6,719 (392)
Cash and cash equivalents, beginning of period 6,100 3,942
---------- ----------
Cash and cash equivalents, end of period $ 12,819 3,550
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 311 971
Cash paid during the period for income taxes 12 --
Supplemental schedule of noncash investing activity:
Note receivable obtained from sale of joint venture interest $ 1,961 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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Sodak Gaming, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Sodak
Gaming, Inc. and its consolidated subsidiaries have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the Securities
and Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in the
consolidated financial statements have been condensed or omitted. The results
for the periods indicated are unaudited, but reflect all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for a
fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative
of a full year of operations.
These consolidated financial statements should be read in conjunction with
the 1998 consolidated financial statements and notes thereto as published in the
annual report on Form 10-K.
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
NOTE 2 - MERGER WITH IGT
On March 11, 1999, the Company announced that a definitive agreement was
signed whereby the Company would be acquired by a wholly-owned subsidiary of IGT
for $10 per share in cash, totaling approximately $230 million. The Company
would become a wholly-owned subsidiary under the terms of the agreement. The
transaction is subject to certain conditions, including regulatory approvals,
Sodak shareholder approval and IGT obtaining the financing required to fund the
transaction. In addition, as a further condition to closing, the Company is
expected to divest its wholly-owned riverboat casino entertainment complex, the
MISS MARQUETTE, and its 50% joint venture interest to develop a gaming riverboat
complex in Louisiana. The holders of a majority of the common stock of the
Company have agreed to vote in favor of the Merger. The transaction is expected
to close in the second half of 1999.
The Company is proceeding with its divestiture of gaming operations. On
March 31, 1999, the Company sold its interest in the Louisiana joint venture to
a subsidiary of Hollywood Casino Corporation for $2.5 million, payable six
months after the opening of the Louisiana complex. The amount was discounted to
reflect the present value of the transaction, resulting in a loss of $0.4
million. To assist in the disposition of the MISS MARQUETTE, the Company has
retained an investment bank, which is currently conducting the sale process.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENT
During 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes new
standards for recognizing all derivatives as either assets or liabilities, and
measuring those instruments at fair value. The Company plans to adopt the new
standard during the first quarter of the year 2000, as required. The Company is
in the process of evaluating SFAS 133 and the impact on the Company, but does
not believe the impact will be material.
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NOTE 4 - COMMON SHARES OUTSTANDING
The following is a reconciliation of basic weighted average shares
outstanding to diluted weighted average shares outstanding for the three-month
periods ended March 31, 1999 and 1998:
Three months ended March 31,
-----------------------------
1999 1998
------------ ------------
Weighted average common shares outstanding
for basic EPS calculation 22,790,177 22,758,408
Adjustments for assumed conversion shares
(stock options) 185,510 24,621
------------ ------------
Weighted average common shares
outstanding for diluted EPS calculation 22,975,687 22,783,029
============ ============
Net earnings $ 3,112,984 $ 1,952,520
============ ============
Earnings per share, basic $ 0.14 $ 0.09
============ ============
Earnings per share, diluted $ 0.14 $ 0.09
============ ============
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company's core business is distributing gaming equipment and ancillary
products and providing wide area progressive systems primarily to Native
American casinos. The Company also operates the MISS MARQUETTE riverboat casino
and entertainment facility located on the Mississippi River at Marquette, Iowa.
Other business activities include a participation in Harrah's Entertainment,
Inc.'s (Harrah's) management fee from Harrah's Phoenix Ak-Chin casino in Arizona
and income from financing product sales and casino ventures. Further, the
Company had entered a joint venture with subsidiaries of Hollywood Casino
Corporation (Hollywood) and New Orleans Paddlewheels (NOP) to develop a hotel,
dining, retail and riverboat casino entertainment complex on the Red River in
downtown Shreveport, Louisiana.
On March 11, 1999, the Company announced that a definitive agreement was
signed whereby the Company would be acquired by a wholly-owned subsidiary of IGT
for $10 per share in cash, totaling approximately $230 million. The Company
would become a wholly-owned subsidiary under the terms of the agreement. The
transaction is subject to certain conditions, including regulatory approvals,
Sodak shareholder approval and IGT obtaining the financing required to fund the
transaction. In addition, as a further condition to closing, the Company is
expected to divest its wholly-owned riverboat casino entertainment complex, the
MISS MARQUETTE, and its 50% joint venture interest to develop a gaming riverboat
complex in Louisiana. The holders of a majority of the common stock of the
Company have agreed to vote in favor of the Merger. The transaction is expected
to close in the second half of 1999.
The Company is proceeding with its divestiture of gaming operations.
On March 31, 1999, the Company sold its interest in the Louisiana joint venture
to a subsidiary of Hollywood for $2.5 million, payable six months after the
opening of the Louisiana complex. The amount was discounted to reflect the
present value of the transaction, resulting in a loss of $0.4 million. To assist
in the disposition of the MISS MARQUETTE, the Company has retained an investment
bank, which is currently conducting the sale process.
The Company operated a casino and various gaming hall and route operations
in certain Latin American countries from May 1995 through December 1998. In June
1998, the Company announced a corporate restructuring designed to refocus the
Company on its North American businesses as described above. As part of the
restructuring, the Company divested its Latin American gaming operations in
Peru, Ecuador and Brazil. As of December 31, 1998, the restructuring was
complete, and all Latin American operations were divested.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998
Net earnings increased 59% to $3.1 million, or $0.14 per share for the
three months ended March 31, 1999, compared to $2.0 million, or $0.09 per share
for the same period in 1998. The increase in earnings was primarily due to
increased product sales and decreased interest and financing costs, offset in
part by a $0.4 million loss on sale of the Company's interest in a Louisiana
joint venture. Total revenue increased 5% to $31.3 million in 1999, compared to
$29.9 million in 1998. Total costs and expenses decreased 3% to $26.0 million in
1999, compared to $26.7 million in 1998.
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PRODUCT SALES
Revenue from product sales increased 67% to $17.9 million in 1999 compared
to $10.8 million in 1998. The increase was the result of a 69% increase in
machine sales to $13.0 million in 1999, compared to $7.7 million in 1998 and a
61% increase in ancillary product sales to $4.9 million in 1999 compared to $3.0
million in 1998.
New gaming machine shipments increased 90% to approximately 1,820 machines
in 1999 compared to 960 machines in 1998. Average revenue per new machine sold
during the first quarter of 1999 decreased to approximately $7,200, compared to
$8,000 in 1998, due in part to a decreased percentage of enhanced, higher-priced
machines in the mix of machines sold, and also due to an increase in the
percentage of sales qualifying for cash discounts in 1999 compared to 1998.
In 1999, 71% of the new machine shipments were to casinos in Arizona, New
Mexico and Wisconsin. In 1998, 86% of the new machine shipments were to casinos
in Arizona, Louisiana, Minnesota, New Mexico and Wisconsin. Growth of gaming in
Native American jurisdictions is outside the control of the Company and is
influenced by the legal, electoral and regulatory processes of those
jurisdictions.
The cost of product sales increased 71% to $14.0 million in 1999, from
$8.2 million in 1998 as a result of increased product sales volume. The gross
margin on product sales was 22.0% in 1999 as compared to 23.9% in 1998. The
decrease in gross margin is primarily due to lower margins on ancillary product
sales and an increase in the percentage of sales qualifying for cash discounts.
The Company believes that its ability to provide products would be
unaffected by the pending acquisition of the Company by IGT.
GAMING OPERATIONS
Gaming operations revenue decreased 40% to $8.0 million in 1999, from
$13.4 million in 1998. Direct costs of gaming operations decreased 46% to $6.3
million in 1999, compared to $11.7 million in 1998. The decrease in both revenue
and direct costs was attributed primarily to the divestiture of the Latin
American gaming operations.
The MISS MARQUETTE riverboat casino and entertainment facility has 698
machines and 36 table games and is located on the Mississippi River at
Marquette, Iowa. Although revenue decreased 2% to $8.0 million in 1999 compared
to $8.1 million in 1998, direct operating costs also decreased 2% to $6.3
million in 1999 compared to $6.4 million in 1998. As a result, operating
performance was steady in 1999 compared to 1998. As a condition of the pending
acquisition of the Company by IGT, the Company is expected to divest this
operation. To assist in the disposition of the MISS MARQUETTE, the Company has
retained an investment bank, which is currently conducting the sale process.
WIDE AREA PROGRESSIVE SYSTEMS
Wide area progressive systems revenue decreased 2% to $3.6 million in
1999, compared to $3.7 million in 1998. At March 31, 1999, 23 systems were in
operation compared to 14 systems at March 31, 1998. During the first quarter of
1999, two new systems were introduced: ELVIS in a 25(cent) denomination and an
intrastate SLOTOPOLY. The number of machines on the systems at March 31, 1999
increased to approximately 2,200 from approximately 1,700 at March 31, 1998.
While the number of machines grew, revenue declined slightly due to the fact
that the
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Company continued to replace machines on older systems which provide higher
margins to the Company with machines on newer systems which provide lower
margins to the Company. These newer systems have greater player appeal and
acceptance, as well as greater casino acceptance. Continued machine additions to
existing systems along with the introduction of new, innovative systems and the
placement of machines and systems in new jurisdictions is anticipated to provide
increased future revenue growth. However, there can be no assurance that casinos
will continue adding systems and machines and that necessary regulatory
approvals will be obtained in prospective jurisdictions. Furthermore, public
acceptance of these systems and the entry of competing systems of other gaming
companies could affect the Company's future revenue from wide area progressive
systems.
At March 31, 1999, the Company offered wide area progressive systems in
Arizona (which permits the operation of intrastate systems in lieu of interstate
systems), Connecticut, Iowa, Kansas, Louisiana, Michigan, Minnesota, New Mexico,
North Dakota, Oregon, South Dakota and Wisconsin. The systems in operation were:
HIGH ROLLERS, MEGABUCKS (one interstate and one intrastate), DOLLARS DELUXE,
SLOTOPOLY (one interstate and one intrastate), FABULOUS 50'S, QUARTERMANIA (one
interstate and two intrastate), WHEEL OF GOLD, TOTEM POLE, PINBALLMANIA,
JEOPARDY! (one interstate and one intrastate), ELVIS(R), Nickelmania, SUPER
NICKELMANIA and WHEEL OF FORTUNE in both dollar (one interstate and one
intrastate) and 25(cent) denominations (one interstate and two intrastate).
The Company believes that its ability to provide wide area progressive
systems would be unaffected by the pending acquisition of the Company by IGT.
FINANCING INCOME
Financing income results from interest income on notes receivable, fees
charged in association with financing arrangements and the Company's portion of
the management fee from Harrah's Entertainment, Inc.'s (Harrah's) Phoenix
Ak-Chin casino and entertainment facility. Financing income decreased 15% to
$1.8 million in 1999, compared to $2.1 million in 1998. The decrease was
primarily due to a lower outstanding balance of interest-bearing receivables
related to financed sales in 1999 compared to 1998.
The Company recognized revenue of $0.5 million in both 1999 and 1998 as
its share of Harrah's management fee from the Harrah's Phoenix Ak-Chin casino
located near Phoenix, Arizona (Harrah's is a 14% shareholder of the Company).
This fee is earned in conjunction with a financing guaranty provided to Harrah's
by the Company during the initial development and early operations phases of the
facility. The guaranty expired in 1996 when the loan was paid in full. As
consideration for the guaranty, the Company receives, from Harrah's, 4% of the
distributable net income of the gaming operation over the term of the management
contract, which expires December 1999. The Company is entitled to participate in
any extensions to the management agreement between Harrah's and the Native
American tribe associated with the Harrah's Phoenix Ak-Chin. There can be no
assurance that Harrah's management contract will be extended or that the terms
of any extension will not change materially from the current management
contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 5% to $4.1 million
in 1999, from $4.3 million in 1998. As a percent of total revenue, selling,
general and administrative expenses decreased to 13.0% in 1999 compared to 14.3%
in 1998.
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DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 19% to $1.2 million in 1999,
compared to $1.5 million in 1998. This decrease was primarily attributable to
the decreased depreciation resulting from the Latin American divestitures in
1998, partially offset by increased depreciation related to a Company-wide
information system placed in service in the fourth quarter of 1998.
INTEREST AND FINANCING COSTS
Interest and financing costs decreased 58% to $0.4 million in 1999, from
$1.0 million in 1998. The decrease in interest and financing costs was primarily
the result of increased cash flows from operations during the latter part of
1998 and into 1999, which in turn decreased first quarter 1999 borrowings to
fund working capital needs as compared to 1998.
INCOME FROM OPERATIONS
The cumulative effect of the above described changes resulted in a 66%
increase in income from operations to $5.3 million in 1999, compared to $3.2
million in 1998. As a percent of total revenue, income from operations increased
to 16.9% in 1999, from 10.6% in 1998. The increase in the operating margin was
primarily due to increased product sales and decreased interest and financing
costs.
OTHER
Other income (expense) in 1999 consisted primarily of a $0.4 million loss
on the sale of the Company's interest in a joint venture to develop a Louisiana
gaming riverboat complex. Earnings before income taxes increased 53% to $4.9
million in 1999, compared to $3.2 million in 1998. Provision for income taxes
was $1.8 million in 1999 as compared to $1.2 million in 1998, representing 37%
and 39% of earnings before income taxes in 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital increased $9.3 million to $44.1 million during the three
months ended March 31, 1999. The increase is attributable to an increase in
current assets of $10.5 million, partially offset by an increase in current
liabilities of $1.2 million.
CASH FLOWS
During the three months ended March 31, 1999, the Company's cash and cash
equivalents increased $6.7 million to $12.8 million. Cash provided by operating
activities was $6.7 million in 1999 compared to $2.6 million used in operating
activities in 1998. Significant items affecting 1999 operating cash flows were
net income, depreciation and amortization, loss on sale of joint venture
interest and changes in operating assets and liabilities.
Cash provided by investing activities amounted to $1.2 million in 1999
compared to $7.4 million used in investing activities in 1998. Cash provided by
investing activities in 1999 consisted primarily of $1.7 million in payments
received on notes receivable from customer financing, partially offset by $0.6
million used to purchase property and equipment. Cash used in investing
activities in 1998 consisted primarily of $6.6 million advanced on notes
receivable primarily for customer financing and $1.3 million
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used to purchase property and equipment. These 1998 uses were partially offset
by $0.4 million in payments received on notes receivable for customer financing.
The property and equipment purchases in 1999 were primarily for: 1) wide area
progressive equipment placed at customer casinos, 2) service vehicles and 3)
gaming equipment at the MISS MARQUETTE. The property and equipment purchases in
1998 were primarily attributable to costs associated with the development of a
new Company-wide information system, and expenditures in Peru for leasehold
improvements and gaming operations equipment.
Financing activities used $1.2 million in 1999 compared to $9.8 million
provided in 1998. The 1999 uses resulted primarily from repayments of long-term
debt related to the MISS MARQUETTE. The cash provided by financing activities in
1998 consisted of proceeds from borrowings on the Company's revolving credit
facility, net of principal repayments on the revolving credit facility and other
long-term debt.
INDEBTEDNESS/LINES OF CREDIT
The Company had $5.8 million of long-term debt outstanding at March 31,
1999. Of that amount, $5.1 million relates to the balance of a financing
obligation resulting from the sale-leaseback arrangement involving certain MISS
MARQUETTE furniture and equipment. The remaining $0.7 million of long-term debt
is secured by certain real property of the MISS MARQUETTE.
The Company also has outstanding $1.5 million on a short-term note related
to an employee incentive loan plan. This note is due in July 1999.
The Company has a long-term revolving credit facility from a syndicate of
banks. The revolving line had two components, a $20 million tranche (Tranche A)
to be used for general corporate purposes and letters of credit, and a $30
million tranche (Tranche B) for acquisitions and major capital equipment
expenditures. Tranche A matured on March 31, 1999 and was not renewed at the
election of the Company. The amount available under Tranche B is being reduced
by $1.875 million quarterly since June 1997, and matures in February 2001. As a
result, the maximum credit amount under the revolving credit facility was $15
million at March 31, 1999. There were no borrowings or letters of credit
outstanding under the credit facility as of March 31, 1999. The unused portion
of the credit facility is subject to a commitment fee, based upon a calculation
as defined in the revolving credit agreement. Interest is payable at variable
rates which, at the Company's option, are based on the prime rate or a
Eurodollar rate plus an applicable margin. The revolving credit facility is
secured by substantially all Company assets, excluding real estate, but
including a first preferred ship mortgage on the MISS MARQUETTE riverboat.
CAPITAL COMMITMENTS
During 1994 the Company assisted a casino management company in acquiring
$8 million in financing from a financial institution. The Company also
guaranteed the debt. The loan guaranty agreement, as subsequently revised,
allows the casino management company to borrow back prepaid amounts, and at
March 31, 1999 the maximum allowable loan balance was $3.0 million. In return
for the guaranty, the Company receives a loan guaranty fee based upon a
percentage of the outstanding loan balance, and additionally, a lesser
percentage of the unused maximum allowable loan balance. As of March 31, 1999
the outstanding loan balance was $1.7 million.
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The Company entered into an agreement with subsidiaries of Hollywood and
NOP to develop a riverboat casino, hotel and retail complex in Shreveport,
Louisiana. The proposed project, to be managed by Hollywood, received regulatory
approval by the LGCB in September 1998. The project was anticipated to be
financed by an equity investment from the Company and Hollywood equal to
approximately 25% of the total estimated $185 million project cost; the
remaining 75% was anticipated to be financed through a debt offering or other
credit facility. During 1998, the Company invested $2.4 million in the joint
venture, but had no commitment to invest additional funds until financing for
the project is arranged. The debt financing for the project was anticipated to
occur in mid-1999, at which time it was anticipated that the Company and
Hollywood each would have invested approximately $21 million additional equity
in the joint venture. The Company and Hollywood each effectively own 50% of the
joint venture (subject to a 10% residual interest by NOP in the event the
operation is sold to a third party).
As a condition of the agreement to be acquired by IGT, the Company is
expected to divest its interest in this project. On March 31, 1999, the Company
sold its interest in the Louisiana joint venture to a subsidiary of Hollywood
for $2.5 million, payable six months after the opening of the Louisiana complex.
The amount was discounted to reflect the present value of the transaction,
resulting in a loss of $0.4 million.
IMPACT OF INFLATION
Inflation has not had a significant effect on the Company's operations
during the three months ended March 31, 1999.
YEAR 2000 COMPLIANCE
The Company has undertaken various initiatives to ensure that its computer
equipment and software will function properly with respect to dates prior to,
during, and after the Year 2000. Information technology (IT) systems impacted by
the Year 2000 issue include systems commonly thought of as IT systems, such as
accounting, data processing and telephone systems, as well as systems that are
not commonly thought of as IT systems, such as alarm systems, security systems,
fax machines, and other miscellaneous systems. Both IT and non-IT systems may
contain imbedded technology which compounds the inventory, risk assessment,
remediation, and testing efforts.
STATE OF READINESS
The Year 2000 readiness issue, which is common to most businesses, arises
from the inability of computer information systems with date sensitive processes
to properly recognize and accurately process date-sensitive information. If the
Company or its customers, suppliers, or other third parties fail to make
corrections for programs that have defined dates using a two-digit year, this
could result in system failure or malfunction of certain computer equipment,
software, and other devices dependent upon computerized mechanisms that are date
sensitive. This problem may cause disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Assessments of the potential cost
and effects of Year 2000 issues vary significantly among businesses, and it is
difficult to predict the actual impact. Recognizing this uncertainty, management
has commenced the following steps: a) established a Year 2000 project team; b)
implemented a plan that includes awareness, inventory, risk assessment,
remediation, contingency planning, and compliance maintenance phases; and c)
communicating with customers, vendors, and third party providers to ensure they
are addressing the Year 2000 issue.
The inventory, risk assessment, and remediation phases are currently
underway.
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<PAGE>
The Company is utilizing both internal and external resources to
accomplish its Year 2000 compliance plan, which began in November 1998 and is
expected to be substantially complete by the third quarter of 1999. Risk
management consultants have been engaged to review and assist Sodak in our Year
2000 compliance plans and efforts. The Company is also actively pursuing efforts
to ensure the readiness of our products and services.
COSTS
The Company estimates that its direct costs for Year 2000 compliance will
consist primarily of costs related to the staff time devoted to Year 2000
compliance. The Company expects expenditures related to Year 2000 compliance to
approximate $0.2 million.
RISKS
The Year 2000 issue presents a number of other risks and uncertainties
that could impact Sodak operations. These include but are not limited to third
parties whose services the Company relies upon in order to produce and sell our
products, such as key suppliers, public utilities, telecommunication providers,
financial institutions, or certain regulators of the various jurisdictions where
Sodak does business, which could result in lost production, sales, or
administrative difficulties on the part of Sodak. The Company is corresponding
with these parties to determine their Year 2000 compliant status. Based on these
communications, contingency plans will be developed to allow Sodak to continue
business as normal.
The Company has identified the integrated Oracle Applications system and
the Native American Progressive Systems (NAPS) as critical business pieces that
would be substantially impacted by an inability to handle Year 2000 issues. The
Company believes that Year 2000 deficiencies will be remedied through computer
equipment and software replacement or modification in a timely fashion. Oracle
Applications was implemented on the Digital Alphaserver platform with Compaq
Tru64 (formerly known as Digital UNIX) in fiscal 1998 to replace core-business
information systems with an Enterprise Resource Planning (ERP) software package.
Oracle Applications is stated to be Year 2000 compliant after application of
known patches and the Company has developed a testing platform to ensure the ERP
is and will remain Year 2000 compliant.
The Company's NAPS are the proprietary systems of IGT. IGT is in the process of
upgrading all wide area progressive system software. The software upgrade
obtained regulatory approval in Native American jurisdictions in March 1999. IGT
implemented the upgrade of all wide area progressive system software in late
March 1999.
The Company is also surveying its key vendors and service providers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues. Although the Company has developed a system of communicating
with vendors to understand their ability to continue providing services and
products through the Year 2000 without interruption, there can be no assurance
that the systems of other companies on which the Company may rely will be timely
converted or that such failure to convert by another company would not have an
adverse effect on the Company's systems.
The Company believes the implementation of the integrated Oracle
Applications system and completion of the Year 2000 project as scheduled will
significantly reduce the risk of significant operating problems. Based on our
Year 2000 project timeline, the majority of our application systems should be
tested by the third quarter of 1999. The Company believes this timetable should
allow enough time to fix or replace any business critical problems discovered
during the testing phase.
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<PAGE>
CONTINGENCY PLANS
In those instances where completion by the end of 1999 is not assured,
appropriate contingency plans will be developed. The Year 2000 issue presents a
number of other risks and uncertainties that could impact the Company, including
but not limited to third parties whose services relied upon in order to produce
and sell our products, such as key suppliers and customers, public utilities,
telecommunication providers, financial institutions, or certain regulators of
the various jurisdictions where the Company does business, which could result in
lost production, sales, or administrative difficulties on the part of the
Company. While the Company continues to believe the Year 2000 issues will not
materially affect its consolidated financial position or results of operations,
it remains uncertain as to what extent, if any, the Company may be impacted.
CAUTIONARY NOTICE
This report contains forward-looking statements reflecting the Company's
expectations or beliefs concerning future events which could materially affect
Company performance in the future. Terms indicating future expectation, optimism
about future potential, anticipated growth in revenue, earnings of the Company's
business lines and like expressions typically identify such statements. Actual
results and events may differ significantly from those discussed in
forward-looking statements.
All forward-looking statements are subject to the risks and uncertainties
inherent with predictions and forecasts. They are necessarily speculative
statements, and unforeseen factors, such as competitive pressures, changes in
regulatory structure, failure to gain the approval of regulatory authorities,
and changes in customer acceptance of gaming could cause results to differ
materially from any that may be expected.
Forward-looking statements are made in the context of information
available as of the date stated. The Company undertakes no obligation to update
or revise such statements to reflect new circumstances or unanticipated events
as they occur.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 26, 1994, William Poulos filed a class action lawsuit in the
United States District Court for the Middle District of Florida, Case No.
94-478-CIV-ORL-22 (the Poulos case). The Complaint in the Poulos case alleges
violations of 18 U.S.C. ss. 1962(a), (c), and (d), the Racketeering Influenced
and Corrupt Organizations Act, and pendent state law claims. The approximately
41 named defendants in the Poulos case consist of the manufacturers and
distributors of electronic gaming devices, and companies who are parents and/or
affiliates of the entities which operate and/or provide the electronic gaming
devices for play by the public.
On May 10, 1994, William Ahearn filed a class action lawsuit in the United
States District Court for the Middle District of Florida, Case No.
94-532-CIV-ORL-22 (the Ahearn case). The named defendants and claims made in the
Poulos and Ahearn cases are virtually identical.
On September 30, 1994, the Poulus and Ahearn cases were consolidated. On
December 9, 1994, the Poulos and Ahearn cases were transferred to the United
States District Court for the District of Nevada pursuant to 28 U.S.C. ss.
1404(a). On November 29, 1994, William Poulos filed a second class action
lawsuit in the United States District Court for the Middle District of Florida,
Case No. 94-1259-CIV-ORL-22 (the Cruise Ship case). The allegations made in the
Cruise Ship case are virtually identical to the allegations in the Poulos and
Ahearn cases. The defendants in the Cruise Ship case consist of manufacturers
and distributors of electronic gaming devices, and the operators of cruise ships
and cruise
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<PAGE>
ship casinos where the devices are exposed for play by passengers. On September
14, 1995, the Cruise Ship case was transferred to the United States District
Court for the District of Nevada pursuant to 28 U.S.C. ss. 1404(a). On September
26, 1995, Larry Schreier filed a class action lawsuit in the United States
District Court for the District of Nevada. Except for alleging a smaller and
more precisely defined class of plaintiffs, the Schreier case is virtually
identical to the Poulos and Ahearn cases. The Poulos, Ahearn, Schreier, and
Cruise Ship cases have been consolidated and assigned to visiting United States
District Court Judge David A. Ezra. Sodak is a named defendant in the Poulos,
Ahearn, and Schreier cases. The plaintiffs allege that the defendants actions
constitute violations of the Racketeer Influenced and Corrupt Organizations Act
(RICO) and give rise to claims of common law fraud and unjust enrichment. The
plaintiffs are seeking monetary damages in excess of $1 billion and are asking
that any damage awards be trebled under applicable federal law.
The Defendants argued a variety of motions to dismiss and also procedural
motions before the Court on November 3, 1997. The Court ruled on the same
issuing various Orders which were entered and served on December 19, 1997. The
most significant rulings were that the Court ordered Plaintiffs to file an
Amended Complaint by January 9, 1998, and the Plaintiffs wire fraud count
against Defendants was dismissed with prejudice (cannot be relitigated). On
March 19, 1998 the Court granted Defendant's Motion to Bifurcate Discovery and
to Stay Merits Discovery until the Court decides the Plaintiff's Motion for
Class Certification. Class certification proceedings continue.
Procedural and discovery issues are ongoing. The Company believes the
Consolidated action is without merit. The Company is vigorously pursuing all
legal defenses available to it and is participating in the defense through
counsel and the defendants steering committee created pursuant Court Order.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.19 Employment agreement between the Company and Roland W.
Gentner.
10.20 Membership Interest Purchase Agreement between the Company
and HWCC-Louisiana, Inc.
b. Reports on Form 8-K
Form 8-K dated March 11, 1999, reporting the Company's merger
agreement with International Game Technology.
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<PAGE>
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.
Date: April 30, 1999
SODAK GAMING, INC.
By: \s\ Clayton R. Trulson
------------------------------
Clayton R. Trulson
Vice President of Finance
and Treasurer
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<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Page
- ------ ----
10.19 Employment agreement between the Company and Roland W. Gentner 19
10.20 Membership Interest Purchase Agreement between the Company and
HWCC-Louisiana, Inc. 28
27 Financial Data Schedule (submitted with EDGAR filing only)
-18-
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT"), is dated March 10, 1999, and is by and between
Sodak Gaming, Inc., a South Dakota corporation (the "COMPANY"), and Roland W.
Gentner, an individual resident of Hughes County, South Dakota ("EXECUTIVE").
WHEREAS, Executive is currently employed by the Company; and
WHEREAS, the Company, International Game Technology ("PARENT") and a
wholly-owned subsidiary of Parent ("SUB"), have entered into an Agreement and
Plan of Merger, dated as of March 10, 1999 (the "MERGER AGREEMENT"), pursuant to
which Sub will be merged with and into the Company (the "MERGER"), with the
result that the Company will be a wholly-owned subsidiary of Parent after the
Merger; and
WHEREAS, the Company wishes to continue to employ Executive after the Merger to
render services for the Company on the terms and conditions set forth in this
Agreement, and Executive wishes to be retained and employed by the Company on
such terms and conditions;
NOW, THEREFORE, in consideration of the premises and the respective undertakings
of the Company and Executive set forth below, the Company and Executive agree as
follows:
1. EMPLOYMENT. The Company hereby employs Executive as its President and
Chief Executive Officer, and Executive accepts such employment and agrees to
perform services for the Company, for the period and upon the other terms and
conditions set forth in this Agreement.
2. TERM. Unless terminated at an earlier date in accordance with Section 8
of this Agreement, the term of Executive's employment hereunder shall be for a
period of one (1) year, commencing on the Effective Date (as defined in Section
9.1) (the "INITIAL TERM"). Thereafter, the term of this Agreement shall be
automatically extended for successive one (1) year periods, subject to Section 8
hereof, unless either party objects to such extension by written notice to the
other party at least thirty (30) days prior to the end of the Initial Term or
any extension term. The Initial Term and any subsequent one-year extensions of
this Agreement are collectively referred to as the "TERM".
3. POSITION AND DUTIES.
3.1 SERVICE WITH COMPANY. During the Term, Executive agrees to
perform such reasonable employment duties as the Board of Directors of the
Company shall assign to him from time to time consistent with Executive's title
and position as President and Chief Executive Officer of the Company. Executive
also agrees to serve, for any period for which he is so elected, as a director
of the Company. The Company shall use its reasonable best efforts to cause
Executive to be nominated and elected as a member of its Board of Directors and
to serve as such during the Term. This obligation shall cease on the event of a
sale of the Company or the Company is merged with or into Parent or a subsidiary
of Parent after the date hereof. During the Term, Executive shall report to (a)
the President and (b) the Chief Executive Officer of Parent unless otherwise
determined by the Board of Directors of Parent. The President of Parent shall
review the performance of Executive on an annual basis and make recommendations
concerning the compensation of Executive to the Compensation Committee of
Parent.
3.2 PERFORMANCE OF DUTIES. During the Term, Executive agrees to
serve the Company faithfully and to the best of his ability and to devote his
full working time, attention and reasonable efforts to the business and affairs
of the Company. Executive hereby confirms that he is under no contractual
commitments inconsistent with his obligations set forth in this Agreement, and
that during the Term, he will not render or perform services for any other
corporation, firm, entity or person which are in breach of the provisions of
this Agreement.
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<PAGE>
4. COMPENSATION.
4.1 BASE SALARY. As compensation for the services to be rendered by
Executive under this Agreement during the Initial Term, the Company shall pay to
Executive a base salary of $400,000 (the "BASE SALARY"), which Base Salary shall
be paid in accordance with the Company's normal payroll procedures and policies.
If the Initial Term is extended pursuant to Section 2, the Base Salary payable
to Executive during each subsequent year shall be mutually agreed upon by the
Company and Executive prior to the commencement of each such year, provided that
the Base Salary may be increased from $400,000 but not be decreased from
$400,000.
4.2 INCENTIVE COMPENSATION. In addition to the Base Salary,
Executive shall be eligible for the annual cash incentive bonus (the "BONUS")
equal to a percentage of his Base Salary corresponding to the percentage of the
performance target ("PERFORMANCE TARGET") established for the applicable fiscal
year that is achieved by the Company, based on the table below:
- --------------------------------------------------------------------------------
PERCENTAGE OF PERFORMANCE TARGET ACHIEVED BY THE BONUS EXPRESSED AS A
COMPANY PERCENTAGE OF BASE SALARY
- --------------------------------------------------------------------------------
120% 120%
- --------------------------------------------------------------------------------
100% 60%
- --------------------------------------------------------------------------------
80% 30%
- --------------------------------------------------------------------------------
For Company performance which exceeds 100% but is less than 120% of the
Performance Target for a fiscal year, the amount of Executive's Bonus for such
fiscal year, as a percentage of Base Salary, shall be increased by 3% for each
percentage point the Company's performance exceeds 100%, subject to the maximum
bonus of 120%.
For Company performance which is less than 100% but exceeds 80% of the
Performance Target for a fiscal year, the amount of Executive's Bonus for such
fiscal year, as a percentage of Base Salary, shall be decreased by 1.5% for each
percentage point that the Company's performance is less than 100%.
For Company performance which is less than 80% of the Performance Target for a
fiscal year, the Company may elect but will not be required to pay Executive a
Bonus for such year.
The Performance Target shall be an annual operating profit target for the
Company that shall be established by mutual agreement of the Company and
Executive no later than October 31 of the fiscal year to which such Performance
Target relates except that with respect to fiscal 1999, Parent and Executive
will mutually agree upon a Performance Target at the time of execution of this
Agreement and in so doing shall adjust Company's performance in fiscal 1999
through the date of the Merger to reflect the use of an operating profit target.
For purposes of this determining whether the Performance Target has been met,
the operating profit of the Company shall be derived from the Parent's audited
financial statements for the relevant fiscal year, adjusted to exclude (i) any
charges or revenues recorded as a result of the accounting treatment of the
Merger, (ii) any gains or losses from the sale of non-core assets, (iii)
extraordinary items of income or expense and (iv) expenses relating to the Bonus
payments. The Company shall pay the Bonus to Executive as soon as reasonably
practicable, but in no event more than 10 days, after delivery of the audited
financial statements of Parent for the relevant fiscal year to the Board of
Directors of Parent.
4.3 PARTICIPATION IN BENEFIT PLANS. Executive shall also be entitled
to participate in all executive and employee benefit plans or programs
(including vacation time) of the Company at a level commensurate with his
position, title, tenure, salary and other qualifications. The Company does not
guarantee the adoption or continuance of any particular employee benefit plan or
program during the Term, and Executive's participation in any such plan or
program shall be subject to the provisions, rules and regulations applicable
thereto. Further, in light of the Restricted Stock grant to Executive described
below, the granting of any additional equity incentives to Executive shall be at
the sole and absolute discretion of Parent.
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<PAGE>
4.4 RESTRICTED STOCK.
(i) AWARD AND PURCHASE OF RESTRICTED STOCK. On the Effective Date,
Parent shall grant to Executive an award of 50,000 shares of restricted common
stock of Parent at a price of $.01 per share, under and in accordance with the
provisions of Parent's 1993 Stock Option Plan (the "PLAN"). Executive hereby
acknowledges that he has received and reviewed a copy of the Plan.
(ii) RESTRICTIONS ON TRANSFER. The shares of Common Stock awarded to
Executive pursuant to Section 4.4(i) above and any additional shares
attributable thereto received by Executive as a result of any stock dividend,
recapitalization, merger, reorganization or similar event described in Section
6.2 of the Plan (collectively, the "RESTRICTED STOCK") shall be subject to the
restrictions set forth herein and may not be sold, assigned, transferred,
pledged or otherwise disposed of, or encumbered, during the applicable
Restricted Period (as defined below), except as permitted hereby. The
"Restricted Period" shall terminate on the second anniversary of the Effective
Date.
(iii) PURCHASE OPTION. For a period of three months after the
termination of the Restricted Period, Executive shall have the option to require
Parent to purchase all or a portion of the Restricted Stock at a cash price of
$20.00 per share, payable in full at the closing of such sale. The closing of
the sale of any such shares of Restricted Stock to Parent shall take place as
soon as reasonably practicable, but in no event more than ten days, after
delivery by Executive of written notice to Parent of his election to require
Parent to purchase such shares.
(iv) STOCK CERTIFICATE. A stock certificate issued in respect of the
shares of Restricted Stock issued pursuant to this Agreement shall be registered
in the name of Executive and shall be deposited by Executive with Parent
together with a stock power endorsed in blank. Parent shall provide Executive
with a receipt for such stock certificate acknowledging that Parent is holding
such certificate pursuant to the terms of this Agreement.
All stock certificates for shares of Restricted Stock during the Restricted
Period shall bear the following legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions contained
in an Agreement entered into between the registered owner and
International Game Technology. A copy of such Agreement is on file in the
office of the Secretary of International Game Technology, 9295 Prototype
Drive, Reno, Nevada 89502."
Parent shall use commercially reasonable efforts to cause, within 10
days of the date the Restricted Period expires, the transfer of such shares free
of all restrictions set forth in the Plan and this Agreement to Executive or, in
the event of such Executive's death, to Executive's legal representative, heir
or legatee.
(v) STOCKHOLDER'S RIGHTS. Subject to the terms of this Agreement,
during the Restricted Period, Executive shall have, with respect to the
Restricted Stock, all rights of a shareholder of Parent, including the right to
vote such shares and the right to receive all regular cash dividends paid with
respect to the shares of Restricted Stock; provided, that the right to receive
regular cash dividends shall terminate immediately with respect to any shares of
Restricted Stock upon forfeiture of those shares pursuant to Section 8 of this
Agreement.
(vi) REGULATORY COMPLIANCE. The issue and sale of shares of
Restricted Stock shall be subject to full compliance with all then applicable
requirements of law and the requirements of any stock exchange upon which the
Common Stock of Parent may be listed. Parent hereby represents and warrants that
the offer, grant and sale of the shares of Restricted Stock have been registered
on Form S-8 and that such registration is currently, and Parent will use its
best efforts to cause such registration to continue, in effect.
(vii) FEDERAL INCOME TAX ELECTION. Executive hereby acknowledges
receipt of advice that pursuant to current federal income tax laws, (i)
Executive has 30 days following the date of this Agreement in which to elect to
be taxed in the current taxable year on the Fair Market Value (as defined in the
Plan) of the Restricted Stock in accordance with the provisions of Internal
Revenue Code Section 83(b) and, (ii) if no such election is made, the taxable
event will occur when the shares of Restricted Stock cease to be subject to
restriction, and the tax will be measured by the Fair Market Value of the
Restricted Stock on the date of the taxable event.
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<PAGE>
4.5 LIFE INSURANCE. During the Initial Term only, the Company shall
provide to Executive a life insurance policy for $1 million, and the Company
shall pay the expenses and premiums on such policy up to an aggregate amount of
$20,000.
4.6 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement subject to the presentment of
appropriate documentation in accordance with the Company's normal policies for
expense verification and reimbursement.
4.7 WITHHOLDING TAXES. The Company may withhold from any benefits
payable under this Agreement, including the shares of Restricted Stock, all
federal, state, city or other taxes as shall be required to be withheld pursuant
to any law or governmental regulation or ruling.
5. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors or required by an order of a court having
jurisdiction or under subpoena from an appropriate government agency, during the
Term or at any time thereafter Executive shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course of the
business of Parent, the Company or any of their respective affiliates) any
confidential or secret knowledge or information of the Company which Executive
has acquired or become acquainted with or will acquire or become acquainted with
prior to the termination of the period of his employment by the Company
(including employment by the Company or any affiliated or predecessor companies
prior to the date of this Agreement), whether developed by himself or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company and represents a substantial investment
of time and expense by the Company, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of Parent, the Company
and their respective affiliates would be wrongful and would cause irreparable
harm to the Company. Both during and after the Term, Executive shall refrain
from any acts or omissions that would reduce the value of such knowledge or
information to the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information which is now published
or which subsequently becomes generally publicly known, other than as a direct
or indirect result of the breach of this Agreement by Executive.
6. VENTURES. If, during the Term, Executive is engaged in or associated
with the planning or implementing of any project, program or venture involving
the Company and a third party or parties, all rights with respect to such
project, program or venture shall belong to the Company. Except as approved by
the Company's Board of Directors, Executive shall not be entitled to any
interest in such project, program or venture or to any commission, finder's fee
or other compensation in connection therewith other than the amounts to be paid
to Executive as provided in this Agreement. In the event Executive is required
by Parent to purchase the Company's interest in, and to assume the Company's
obligations under, the Louisiana Joint Venture Agreements (as defined in the
Merger Agreement) (either directly and/or through the purchase of all the
Company's interests in Sodak Louisiana, L.L.C.) pursuant to the Merger Agreement
and that certain Irrevocable Proxy and Voting Agreement, dated as of March 10,
1999, by and between Executive and Parent, the provisions of this Section 6 (and
Sections 5 and 7) shall not apply to such purchase and assumption or to
Executive's subsequent engagement in or association with the joint venture in
Shreveport, Louisiana.
7. NONCOMPETITION COVENANT.
7.1 AGREEMENT NOT TO COMPETE. Executive agrees that,
(i) during the Term and
(ii) except as otherwise provided in this Section 7.1, for a period of two (2)
years after the termination of the Term,
Executive shall not, without the written consent of the Company's Board of
Directors (determined by majority vote excluding Executive should he be serving
on said Board), directly or indirectly, engage in competition with the Company
in any manner or capacity (e.g., as an advisor, principal, agent, partner,
officer, director, stockholder, employee, member of
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<PAGE>
any association, or otherwise) in any phase of the business which the Company is
conducting during the Term, including the design, development, manufacture,
distribution, marketing, leasing or selling of accessories, devices, or systems
related to the products or services being sold by the Company. Notwithstanding
the foregoing, if, prior to the expiration of the term set forth in Section 2,
Executive is terminated by the Company Without Cause (as defined in Section
8.3), the covenants not to compete set forth in this Section 7.1 shall remain in
effect for the remainder of the Term, but only for so long as the Company
continues to fulfill its obligations to make all payments to Executive of the
pursuant to Section 8.6. If the Company fails to make any payment required
pursuant to Section 8.6, the covenants not to compete set forth in this Section
7.1 shall terminate and be of no force or effect from and after the first date
the Company fails to make any such payment.
7.2 GEOGRAPHIC EXTENT OF COVENANT. The obligations of Executive
under Section 7.1 shall apply to any geographic area in which the Company or
Parent:
(i) has engaged in business during the Term through production,
promotional, sales or marketing activity, or otherwise; or
(ii) has otherwise established its goodwill, business reputation, or
any customer or supplier relations.
7.3 LIMITATION ON COVENANT. Ownership by Executive, as a passive
investment, of less than five percent (5%) of the outstanding shares of capital
stock of any corporation listed on a national securities exchange or publicly
traded in an over-the counter market shall not constitute a breach of this
Section 7.
7.4 INDIRECT COMPETITION. Executive further agrees that, during the
Term, he will not, directly or indirectly, assist or encourage any other person
in carrying out, directly or indirectly, any activity that would be prohibited
by the above provisions of this Section 7 if such activity were carried out by
Executive, either directly or indirectly; and in particular Executive agrees
that he will not, directly or indirectly, induce any employee of the Company to
carry out, directly or indirectly, any such activity.
7.5 NON-SOLICITATION. Executive agrees that during the Term and for
a period of 24 months thereafter, he will not, without the prior written
approval of the Company's Board of Directors, hire, solicit or endeavor to
entice away from the Company or, following termination of Executive's
employment, otherwise interfere with the relationship of the Company with any
employee of the Company, or any person or entity who was, within the then most
recent prior 12-month period, a customer, supplier or contractor of the Company,
Parent or any of their affiliates.
8. TERMINATION.
8.1 TERMINATION DUE TO DEATH OR DISABILITY. In the event that
Executive's employment hereunder terminates due to death or is terminated by the
Company due to Executive's Disability (as defined below), no termination
benefits shall be payable to or in respect of Executive except as provided in
Section 8.6(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents the performance by Executive of his
duties hereunder for periods aggregating six months in any twelve month period.
The determination of Executive's Disability shall be made by an independent
physician who is reasonably acceptable to the Company and Executive (or his
representative) and shall be based on such competent medical evidence as shall
be presented to such independent physician by Executive and/or the Company or by
any physician or group of physicians or other competent medical experts employed
by Executive and/or the Company to advise such independent physician.
8.2 TERMINATION BY THE COMPANY FOR CAUSE. Executive's employment
hereunder may be terminated by the Company for Cause (as defined below),
provided that Executive shall be permitted to attend a meeting of the Board
within 30 days after delivery to him of a Notice of Termination (as defined
below) to explain why he should not be terminated for Cause and if, following
any such explanation by Executive, the Board determines that the Company does
not have Cause to terminate Executive's employment, any such prior Notice of
Termination delivered to Executive shall thereupon be withdrawn and of no
further force or effect. "CAUSE" shall mean (i) the willful and material failure
of Executive to perform his duties hereunder (other than any such failure
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<PAGE>
due to Executive's physical or mental illness), or the willful and material
breach by Executive of his obligations hereunder, (ii) Executive's engaging in
willful and serious misconduct that has caused or is reasonably expected to
result in material injury to the Company, (iii) Executive's conviction of, or
entering a plea of guilty or nolo contendere to, a crime that constitutes a
felony or (iv) the failure or inability of Executive to obtain or retain any
license required to be obtained or retained by him in any jurisdiction in which
Parent or the Company does or proposes to do business.
8.3 TERMINATION WITHOUT CAUSE. Executive's employment hereunder may
be terminated by the Company Without Cause. A termination "WITHOUT CAUSE" shall
mean a termination of Executive's employment by the Company other than due to
disability as described in Section 8.1 or for Cause as described in Section 8.2.
8.4 TERMINATION BY EXECUTIVE. Executive may terminate his employment
with the Company for any reason. A termination of employment by Executive for
"GOOD REASON" shall mean a termination by Executive of his employment with the
Company (or any successor) as a result of the occurrence, without Executive's
consent, of any of the following events: (i) the assignment to Executive of
duties that result in a substantial diminution of the duties specified in
Section 3 hereof, (ii) a reduction in the rate of Executive's Base Salary or
annual incentive compensation opportunity, (iii) a material breach by the
Company of its obligations hereunder or (iv) the failure of the Company to
obtain the assumption of this Agreement by any successor to the Company as
contemplated by Section 9.8; provided that in the case of any of clauses (i),
(ii) and (iii), within 30 days following the occurrence of any of the events set
forth therein, Executive shall have delivered written notice to the Company of
his intention to terminate his employment for Good Reason, which notice
specifies in reasonable detail the circumstances claimed to give rise to
Executive's right to terminate his employment for Good Reason, and the Company
shall not have cured such circumstances to the reasonable satisfaction of
Executive.
8.5 NOTICE OF TERMINATION. Any termination by the Company pursuant
to Section 8.1, 8.2 or 8.3, or by Executive pursuant to Section 8.4, shall be
communicated by a written Notice of Termination addressed to the other party to
this Agreement. A "NOTICE OF TERMINATION" shall mean a notice stating that
Executive's employment with the Company has been or will be terminated and
setting forth the provisions of this Agreement under which such employment is
being terminated and, in reasonable detail, the reasons therefor.
8.6 PAYMENTS UPON CERTAIN TERMINATIONS.
(i) In the event of a termination of Executive's employment by the
Company Without Cause or a termination by Executive of his employment for Good
Reason during the Term, the Company shall pay to Executive within 5 business
days following the date of termination a lump sum payment equal to (a) his full
Base Salary through the end of the Term (the remaining period of the Term being
determined as though Executive's employment had not terminated and the Company
had elected not to renew the then current initial or extension term, as the case
may be) and (b) a Bonus equal to the amount that would have been payable to
Executive pursuant to Section 4.2 for the fiscal year of his termination if he
had remained employed for the entire fiscal year and the Company had achieved
100% of the Performance Target applicable for such fiscal year, prorated to
reflect Executive's early termination. In addition, at the end of the Restricted
Period, Executive shall be entitled to receive the Restricted Stock in
accordance with Section 4.4; provided that Executive has not breached the
Non-Competition Agreement dated as of March 10, 1999 between the Company and
Executive.
(ii) If Executive's employment shall terminate upon his death or
disability, the Company shall pay to Executive a lump sum payment equal to (a)
his full Base Salary through the end of the Term (the remaining period of the
Term being determined as though Executive's employment had not terminated and
the Company had elected not to renew the then current initial or extension term,
as the case may be) and (b) a Bonus equal to the amount that would have been
payable to Executive pursuant to Section 4.2 for the fiscal year of his
termination if he had remained employed for the entire fiscal year and the
Company had achieved 100% of the Performance Target applicable for such fiscal
year, prorated to reflect Executive's early termination. The Executive shall
also be entitled to such death or disability benefits, as applicable, as are
provided under the terms of any employee or executive death benefit or
disability plans or programs referred to in Section 4.3 or otherwise. In
addition, if Executive is terminated due to death or Disability during the
Initial Term, all Restricted Stock shall, upon the date of termination, be
forfeited and returned to Parent, and no cash payment shall be made to Executive
upon forfeiture of such Restricted Stock. If Executive is terminated due to
death after the Initial Term but before the second anniversary of
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the Effective Date, all Restricted Stock shall, upon the date of termination, be
forfeited and returned to Parent, and Parent shall pay to the estate of
Executive, in addition to the amounts set forth above, a lump sum payment of
$1,000,000. If Executive is terminated due to Disability after the Initial Term
but before the second anniversary of the Effective Date, at the end of the
Restricted Period, Executive shall be entitled to receive the Restricted Stock
in accordance with Section 4.4; provided that Executive has not breached the
Non-Competition Agreement dated as of March 10, 1999 between the Company and
Executive.
(iii) If the Company shall terminate Executive's employment for
Cause or Executive shall terminate his employment without Good Reason during the
Term, the Company shall pay Executive his full Base Salary through the date of
termination and a Bonus equal to the amount that would have been payable to
Executive pursuant to Section 4.2 for the fiscal year of his termination if he
had remained employed for the entire fiscal year and the Company had achieved
100% of the Performance Target applicable for such fiscal year, prorated to
reflect Executive's early termination. In addition, if the Company terminates
Executive for Cause or Executive terminates his employment without Good Reason
during the Initial Term, all Restricted Stock which are then subject to any
restrictions set forth in Section 4.4(ii), shall, upon the date of termination,
be forfeited and returned to Parent and no payments other than those set forth
above shall be made to Executive upon forfeiture of such Restricted Stock. If
the Company terminates Executive for Cause or if Executive terminates his
employment without Good Reason after the Initial Term but before the second
anniversary of the Effective Date, at the end of the Restricted Period,
Executive shall be entitled to receive the Restricted Stock in accordance with
Section 4.4; provided that Executive has not breached the Non-Competition
Agreement dated as of March 10, 1999 between the Company and Executive.
(iv) In addition to the foregoing, Executive shall be entitled to
receive all amounts payable and benefits accrued under any otherwise applicable
plan, policy, program or practice of the Company in which Executive was a
participant during his employment with the Company (or any affiliate thereof) in
accordance with the terms thereof; provided that Executive shall not be entitled
to receive any payments or benefits under any such plan, policy, program or
practice providing any annual bonus or severance compensation or benefits (and
the provisions of this Section 8.6 shall supersede the provisions of any such
plan, policy, program or practice).
8.7 SURRENDER OF RECORDS AND PROPERTY. Upon termination of his
employment with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company, and all other property, trade secrets and confidential
information of the Company, including, but not limited to, all documents which
in whole or in part contain any trade secrets or confidential information of the
Company, which in any of these cases are in his possession or under his control.
9. MISCELLANEOUS.
9.1 EFFECTIVENESS. This Agreement shall be effective as of the
Effective Time (as defined in the Merger Agreement) of the Merger (the
"Effective Date"). This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
9.2 GOVERNING LAW. This Agreement and all rights and obligations
hereunder, including, without limitation, matters of construction, validity and
performance, is made under and shall be governed by and construed in accordance
with the internal laws of the State of South Dakota, without regard to
principles of conflict of laws.
9.3 PRIOR AGREEMENTS. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, including,
without limitation, the Employment Agreement, dated as of June 30, 1993, by and
between Executive and the Company, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein. Notwithstanding anything to the
contrary to Section 5.5(c) of the Merger Agreement, Executive hereby
acknowledges and confirms that the Amended and Restated Employment Agreement,
dated as of January 14, 1999 (the "AMENDED AGREEMENT"), by and between Executive
and the Company, shall terminate as of the Effective Date, without any
requirement or obligation that the Company make any payments to Executive in
connection with such termination or as a result of the Merger, and Executive
hereby releases the Company of all of its obligations of any kind thereunder.
Notwithstanding the
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foregoing, (x) this Agreement does not in any way relieve Executive of his
obligations under that certain Non-Competition Agreement dated March 10, 1999
between the Company and Executive and (y) the provisions of Section 4.6 of the
Amended Agreement (and the provisions of the Agreement defining any capitalized
term used in such Section 4.6) shall survive the termination of such agreement
and shall remain in full force and effect in accordance with the terms thereof.
9.4 AMENDMENTS. No amendment or modification of this Agreement shall
be deemed effective unless made in writing and signed by all of the parties
hereto.
9.5 NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed to have been effectively made or
given if personally delivered, or if telegraphed, telexed, cabled, or mailed to
the other party at its address set forth below in this Section 9.5, or at such
other address as such party may designate by written notice to the other party
hereto. Any effective notice hereunder shall be deemed given on the date
personally delivered or on the date telegraphed, telexed, cabled or deposited in
the United States mail (sent by certified mail, return receipt requested)
mailed, as the case may be at the following address:
If to the Company:
Sodak Gaming, Inc.
5301 South Highway 16
Rapid City, South Dakota 57701
Attention: Secretary
If to Executive:
Roland W. Gentner
5890 Wildwood Drive
Rapid City, South Dakota 57702
9.6 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9.7 SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation of
the foregoing, should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in excess of that
which is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent or activities which may validly
and enforceably be covered. Executive acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.
9.8 ASSIGNMENT. This Agreement shall not be assignable, in whole or
in part, by any party without the written consent of the other parties, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to Parent or any subsidiary of Parent.
Notwithstanding the foregoing, the Company shall require any successor thereto
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
the Company had terminated
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Executive's employment Without Cause as described in Section 8, except that for
purposes of implementing the foregoing, the date on which any succession becomes
effective shall be deemed the date of termination.
9.9 INJUNCTIVE, RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement, including without limitation the provisions of Sections 5, 7
and 8.7. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
9.10 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement or breach thereof, shall be settled by arbitration in
accordance with the Voluntary Labor Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement.
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of
the date set forth in the first paragraph.
COMPANY:
SODAK GAMING, INC., a South Dakota corporation
By:
------------------------------------------
Its:
------------------------------------------
EXECUTIVE:
ROLAND W. GENTNER
----------------------------------------------
PARENT (WITH RESPECT TO SECTION 4.4 HEREOF ONLY):
INTERNATIONAL GAME TECHNOLOGY, a
Nevada corporation
By:
------------------------------------------
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Exhibit 10.20
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This Membership Interest Purchase Agreement (the "Agreement") is
made and entered into this 31st day of March, 1999 by and among HWCC-Louisiana,
Inc., a Louisiana corporation ("Purchaser"), Sodak Gaming, Inc., a South Dakota
corporation ("Seller"), and Sodak Louisiana, L.L.C., a Louisiana limited
liability company (the "Company"). Certain definitions for this Agreement are
set forth in Section 10.15.
RECITALS:
A. Purchaser, the Company and Shreveport Paddlewheels, L.L.C.
("Paddlewheels") are parties to that certain Amended and Restated Joint Venture
Agreement of QNOV (formerly known as the "Queen of New Orleans at the Hilton
Joint Venture") dated July 31, 1998 (as amended from time to time, the "Joint
Venture Agreement").
B. Pursuant to the Joint Venture Agreement, Purchaser, the Company
and Paddlewheels agreed to enter into a joint venture named QNOV (the "Joint
Venture") for the purposes of participating in, constructing and operating a
riverboat gaming vessel, hotel and casino in Shreveport, Louisiana.
C. Seller owns all of the outstanding membership interest in the
Company (the "Membership Interest");
D. Seller desires to sell the Membership Interest to Purchaser, and
Purchaser desires to purchase the Membership Interest from Seller, all on the
terms and subject to the conditions set forth herein;
THEREFORE, Purchaser, Seller and the Company agree as follows:
ARTICLE I
SALE OF MEMBERSHIP INTEREST AND CLOSING
1.1 Purchase and Sale of Membership Interest. Subject to the terms and
conditions of this Agreement, Seller agrees to sell the Membership Interest to
Purchaser and Purchaser agrees to purchase the Membership Interest from Seller.
1.2 Purchase Price.
Purchaser shall pay to Seller the amount of $2,500,000 in cash in
consideration for the sale of the Membership Interest (the "Purchase Price"),
$1,000 of which is payable at Closing (as defined herein) and the balance of
which is payable on the six month anniversary of the Commencement Date (as
defined in the Joint Venture Agreement) (the "Subsequent Payment Date").
1.3 Closing.
(a) Within 5 days after the satisfaction of the conditions set
forth in ARTICLES V and VI, the closing (the "Closing") will take place at the
offices of Purchaser, or at such other place as Seller and Purchaser may agree
in writing.
(b) At the Closing, Purchaser shall deliver to Seller (i) a
check payable to Seller in the amount of $1,000 and (ii) such documents and
instruments required to be delivered by Purchaser pursuant to this Agreement. On
the Subsequent Payment Date, Purchaser shall deliver to Seller via wire transfer
of immediately available funds, cash in the amount of $2,499,000.
(c) At the Closing, Seller will deliver to Purchaser (i) a
certificate or certificates, if any, representing all the Membership Interest in
appropriate form for transfer to Purchaser duly endorsed in blank and (ii) such
other documents and instruments required to be delivered by Seller pursuant to
this Agreement.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY
Each of Seller and the Company hereby represents and warrants to Purchaser
as follows:
2.1 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of South
Dakota.
2.2 Corporate Authority. Seller has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
Seller's execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action on the part of Seller. This Agreement has been duly
and validly executed and delivered by Seller and constitutes the legal, valid
and binding obligation of Seller, enforceable against it in accordance with its
terms.
2.3 Organization and Operation of the Company. The Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Louisiana and has all requisite limited liability
company power and authority to own, lease and operate its assets and carry on
its business as it is now being conducted. The Company has no, and has never had
any, (i) assets or property or debts, obligations or other liabilities (whether
absolute, accrued, contingent, fixed or otherwise) (collectively,
"Liabilities"), other than by virtue of its ownership interest in the Joint
Venture or (ii) employees. Since its formation, the Company has not conducted
any business other than any business related to its ownership in the Joint
Venture.
2.4 Membership Interest of the Company. The Membership Interest is duly
authorized, validly issued, fully paid and nonassessable, and has not been
issued in violation of any preemptive or similar rights. Seller is the owner of
record and beneficially of the Membership Interest, free and clear of all
mortgages, pledges, encumbrances, security interests, charges, agreements or
claims of any kind (collectively, "Liens). There are no authorized or
outstanding options, warrants, calls, subscriptions or rights, commitments or
other agreements of any kind to purchase any membership interest or other
capital stock of the Company or to cause the Company to issue any membership
interest or other shares of capital stock or securities convertible into or
exchangeable or exercisable for any membership interest or other shares of such
stock. There are no authorized or outstanding securities of the Company
convertible into or exchangeable or exercisable for any membership interest or
other capital stock of the Company. There are no agreements or understandings to
which the Company is a party or by which it is bound with respect to the voting,
sale or transfer of the Membership Interest, other than the Joint Venture
Agreement. Upon delivery of the Membership Interest against payment therefor in
accordance with this Agreement, Purchaser will acquire good and marketable title
to the Membership Interest, free and clear of any and all Liens.
2.5 Interest in the Joint Venture. The Company owns 2,500,000 JV Interests
(as defined in the Joint Venture Agreement), which accounts for 50% of the total
JV Interests of the Joint Venture (the "Company JV Interests"). The Company is
the owner of record and beneficially of the Company JV Interests, free and clear
of all Liens. There are no agreements or understandings to which the Company is
a party or by which it is bound with respect to the voting, sale or transfer of
the Company JV Interests, other than the Joint Venture Agreement. As of the date
hereof, the Company has made all capital contributions required by it to be made
to the Joint Venture pursuant to the Joint Venture Agreement.
2.6 Consents and Approvals. Neither the Seller, the Company nor the Joint
Venture is required to make any filing with, or to obtain any permit,
authorization, consent or approval of or from, any governmental authority as a
condition to the consummation of the transactions contemplated by this
Agreement, except to obtain the approval of the State of Louisiana Gaming
Control Board (the "Gaming Board"). The execution and delivery of this Agreement
by Seller does not, and the performance by Seller of its obligations under this
Agreement will not: (i) conflict with or result in a breach of any of the terms,
conditions or provisions of the certificate of incorporation or bylaws of Seller
or the articles of
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<PAGE>
organization or operating agreement of the Company; (ii) conflict with or
constitute a default under, or give rise to any right to terminate, cancel,
modify or accelerate, or to the loss of any material right under, any contract,
agreement, license, mortgage, note, debenture or other evidence of indebtedness
to which Seller or the Company is a party or by which any of their respective
properties may be bound; (iii) violate any term or provision of any law, rule or
regulation or any permit, concession, grant, franchise, license, writ, judgment,
decree, injunction, order or ruling of any court or governmental or regulatory
authority applicable to Seller or the Company; or (iv) result in the creation or
imposition of any Lien upon Seller or the Company or any of their respective
assets.
2.7 Absence of Changes. Except as set forth in Schedule 2.7, since its
formation, there has not been (i) any material adverse change in the condition,
financial or otherwise, business, assets, properties or results of operations of
the Company, or any event, occurrence or circumstance that could reasonably be
expected to result in such a material adverse change, (ii) any event which, if
it had taken place after the execution of this Agreement, would not have been
permitted by ARTICLE IV hereof, or (iii) any condition, event or occurrence
which could reasonably be expected to prevent, hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement.
Without limiting the generality of the foregoing, since the
formation of the Company, there has not been:
(a) any declaration, setting aside, or payment of any dividend
or distribution (whether in cash, securities, property or a combination thereof)
in respect of the Membership Interest of the Company or any direct or indirect
redemption, purchase, or other acquisition by the Company of any membership
interest of the Company or of any interest in or right to acquire any such
membership interest;
(b) (i) any employment, deferred compensation, or other
salary, wage, or compensation contract entered into between the Company and any
of its officers, managers, agents, consultants or representatives; (ii) any
salary, wages, or other compensation, whether current or deferred, of any
officer, manager, agent, consultant or representative of the Company or (iii)
any creation of an Employee Benefit Plan (as hereinafter defined);
(c) any mortgage or pledge of, or the creation of any Lien on,
any assets of the Company securing Liabilities of the Company or another person
or the creation of any Liabilities of the Company;
(d) any change in any financial reporting, tax, or accounting
practice or policy followed by the Company or in any assumption underlying such
a practice or policy, or in any method of calculating any contingency or other
reserve for financial reporting purposes or for any other tax or accounting
purposes;
(e) any cancellation of any Liability owed to the Company by
any other person;
(f) any write-off or write-down of, or any determination to
write off or write down, the assets of the Company or any portion thereof;
(g) any sale, transfer, or conveyance of any assets of the
Company;
(h) any amendment, termination, waiver, disposal, or lapse of,
or other failure to preserve, any license, permit, or other form of
authorization of the Company, the result of which individually or in the
aggregate has had or could have a material adverse effect on the business,
condition (financial or otherwise), assets, results of operations or prospects
of the Company;
(i) any transaction or arrangement under which the Company
paid, lent, advanced or invested any amount to or in respect of, or sold,
transferred, or leased any of its assets or any services to, (i) Seller, (ii)
any officer or manager of the Company or of any affiliate of Seller; (iii) any
affiliate of Seller, the Company or any subsidiary or of any such officer or
manager, or (iv) any business or other person in which Seller, the Company, any
subsidiary, any such officer or manager, or any such affiliate has any material
interest;
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<PAGE>
(j) any amendment to the articles of organization or operating
agreement of the Company;
(k) any agreement or commitment to take any of the actions
that should be disclosed as exceptions to this Section 2.7.
2.8 Taxes. Except as disclosed on Schedule 2.8,
(a) Since the date of the organization of the Company, all of
the Membership Interests of the Company have been owned by Seller;
(b) For federal and Louisiana income tax purposes, at all
times the Company has been a disregarded entity and all of its assets have been
properly treated as being owned directly by Seller;
(c) Since the date of its organization, the Company's only
asset has been its interest in the Joint Venture;
(d) Since the date of its organization, the Company has not
been required to file any Tax Returns in any Taxing Jurisdiction;
(e) There are no encumbrances for Taxes upon the assets or
properties of the Company, except for statutory encumbrances for current Taxes
not yet due;
(f) The Company is not liable for Taxes of any other Person by
agreement or pursuant to any applicable law or regulation;
(g) No power of attorney has been granted with respect to
either of the Company and the Joint Venture as to any matter relating to Taxes;
(h) No property owned by any of the Company and the Joint
Venture (i) is property required to be treated as being owned by another person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended, and in effect immediately prior to the enactment of the Tax
Reform Act of 1986, (ii) constitutes "tax-exempt use property" within the
meaning of Section 168(h)(1) of the Code, or (iii) is tax-exempt bond financed
property within the meaning of Section 168(g) of the Code;
(i) Since its formation, the Company has not incurred any
liability for Taxes other than in the ordinary course of business;
(j) Schedule 2.8 sets forth each and every Taxing Jurisdiction
in which (A) consummation of the transactions that are the subject of this
Agreement subjects the Purchaser to a liability for any Taxes of the Seller or
the Company, or (B) the nature of the Seller's or the Company's business or
assets requires the Seller, the Company or the Purchaser to notify a Taxing
Authority of the transactions that are the subject of this Agreement, if the
failure to make such notification would subject the Purchaser to a liability for
any Taxes of Seller or the Company; and
(k) The Seller is not a foreign person within the meaning of
Section 1445 of the Code.
2.9 Litigation. Except as disclosed in Schedule 2.9:
(a) There are no actions, suits, investigations, arbitrations,
or proceedings pending, or, to the knowledge of Seller or the Company,
threatened, against Seller or the Company or, to the knowledge of the Seller or
the Company, the Joint Venture or any of their assets that questions the
validity or enforceability of this Agreement or that could have an adverse
effect on the ability of Seller to perform its obligations hereunder.
(b) There are no actions, suits, investigations, arbitrations,
or proceedings pending, or, to the knowledge of Seller or the Company,
threatened, against the Seller or Company or, to the knowledge of the Seller or
the Company, the Joint Venture, which relates to, or effects the Company, the
Joint Venture or any of their assets.
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<PAGE>
(c) There are no writs, judgments, decrees, injunctions, or
similar orders of any court or governmental or arbitral authority outstanding
against Seller or the Company or to the knowledge of Seller or the Company, the
Joint Venture, which relates to, or effects the Company, the Joint Venture or
any of their assets.
2.10 Compliance With Laws. Except as disclosed in Schedule 2.10, since its
formation, the Company has not been in violation (or with or without notice or
lapse of time or both would be in violation) of any term or provision of any
law, rule or regulation or any writ, judgment, decree, injunction, or similar
order applicable to such entity or any of its assets. Without limiting the
generality of the foregoing the Company has duly and validly filed or caused to
be filed all reports, statements, documents, registrations, filings, or
submissions that were required by law, rule or regulation to be filed with any
court or other governmental authority. All such filings complied with applicable
laws, rules or regulations in all material respects when filed, and to the
knowledge of Seller and the Company, no deficiencies have been asserted by any
person with respect to any such filings.
2.11 ERISA. The Company does not employ, and has never employed, any
person. The Company does not sponsor, maintain or contribute to, and has never
sponsored, maintained or contributed to, any "employee benefit plan" (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), nor does the Company have any direct or indirect
liability with respect to any employee benefit plan.
2.12 Contracts. Schedule 2.12 contains a true and complete list of each of
the contracts (whether or not in writing) or other documents or arrangements
(true and complete copies, or, in the case of oral contracts or arrangements,
written summaries of the terms, of which have been furnished to Purchaser), to
which the Company is a party or by which any of its assets is or may be bound.
2.13 Licenses and Permits. Except as disclosed in Schedule 2.13, the
Company owns or validly holds all licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations and
similar documents or instruments that are required for its business, operations
and affairs. All such licenses, franchises, permits, approvals, authorizations,
exemptions, classifications, certificates, registrations and similar documents
or instruments are valid, binding and in full force and effect.
2.14 Insurance. Schedule 2.14 contains a true and complete list and
description of all liability, property, workers compensation, managers and
officers liability and other similar insurance contracts that insure the
business, operations, or affairs of the Company or that affect or relate to the
ownership, use, or operations of any of its assets.
2.15 Intercompany Liabilities. Except as disclosed in Schedule 2.15, (a)
neither Seller nor any other Affiliate of Seller or the Company provides or
causes to be provided to the Company any products, services, equipment,
facilities, or similar items and (b) there are no Liabilities between the
Company and Seller or any other affiliate of the Company or the Seller.
2.16 Limited Liability Company Records. The minute books and membership
records of the Company contain complete and accurate records of all proceedings
and actions taken at all meetings, or by written consent in lieu of meetings, of
the members and the managers and all authorized committees of the managers
thereof.
2.17 Bank Accounts. Schedule 2.17 contains (a) a true and complete list of
the names and locations of all banks, trust companies, securities brokers and
other financial institutions at which the Company has accounts or safe deposit
boxes or maintain banking, custodial, trading, or other similar relationships
and (b) a true and complete list and description of each such account, box and
relationship.
2.18 Disclosure. No representation or warranty made by Seller or the
Company in this Agreement, in the schedules hereto, or in any certificate
furnished by Seller or the Company to Purchaser in connection with this
Agreement or the transactions contemplated hereby contains any untrue statement
of material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading in light of the circumstances under
which they were made.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
Purchaser hereby represents and warrants, with respect to Sections
3.1 through 3.4, and covenants, with respect to Section 3.5, to Seller as
follows:
3.1 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Louisiana.
3.2 Corporate Authority. Purchaser has full corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
Purchaser's execution and delivery of this Agreement and the performance of its
obligations hereunder have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement constitutes a legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
3.3 Consents and Approvals. Purchaser is not required to make any filing
with, or to obtain any permit, authorization, consent or approval of, any
governmental authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement, except to obtain the approval of
the Gaming Board. The execution and delivery of this Agreement by Purchaser does
not, and the performance by Purchaser of its obligations under this Agreement
will not: (i) conflict with or result in a breach of any of the terms,
conditions or provisions of the articles of incorporation or bylaws of
Purchaser; (ii) conflict with or constitute a default under, or give rise to any
right to terminate, cancel, modify or accelerate, any contract, agreement,
license, mortgage, note, bond, debenture or other evidence of indebtedness to
which Purchaser is a party or by which any of its assets may be bound; or (iii)
violate any term or provision of any law, rule or regulation or any permit,
concession, grant, franchise, license, writ, judgment, decree, injunction, order
or ruling of any court or governmental or regulatory authority applicable to
Purchaser.
3.4 Purchase for Investment. Purchaser is acquiring the Membership
Interest for its own account for investment purposes and not with a view to the
distribution of the Membership Interest. Purchaser has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Membership Interest. Purchaser
will not, directly or indirectly, dispose of the Membership Interest except in
compliance with applicable federal and state securities laws.
3.5 Contract and Regulatory Approvals. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, to obtain as promptly
as practicable all (i) approvals and consents of any person under all contracts
to which Purchaser is a party, or by which its assets may be bound, necessary to
permit Purchaser to consummate the transactions contemplated hereby and (ii) all
approvals, authorizations and clearances of governmental authorities required of
Purchaser to consummate the transactions contemplated hereby, (b) provide such
other information and communications to such governmental authorities as Seller
or such authorities may reasonably request and (c) cooperate with Seller in
pursuing, as promptly as practicable, all approvals, authorizations and
clearances of governmental authorities (including the Gaming Board) and other
persons required of Seller to consummate the transactions contemplated hereby.
ARTICLE IV
COVENANTS OF SELLER
Each of Seller and the Company covenants and agrees with Purchaser
as follows:
4.1 Contract and Regulatory Approvals. Seller will take and will cause the
Company to, and the Company will, (a) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts, to obtain as promptly as practicable all (i)
approvals and consents of any person under all contracts to which the Seller or
the Company is a party, or by which their respective assets may be bound,
necessary to permit Seller to consummate the transactions contemplated hereby
and (ii) all approvals, authorizations and clearances of governmental
authorities required of the Seller or the Company to consummate the transactions
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contemplated hereby, (b) provide such other information and communications to
such governmental authorities as Purchaser or such authorities may reasonably
request and (c) cooperate with Purchaser in pursuing, as promptly as
practicable, all approvals, authorizations and clearances of governmental
authorities (including the Gaming Board) and other persons required of Purchaser
to consummate the transactions contemplated hereby.
4.2 Investigation by Purchaser. Seller will provide and will cause the
Company to, and the Company will, provide, Purchaser, its counsel, accountants
and other representatives (including its financing sources and their respective
representatives) with full access, upon prior notice and during normal business
hours, to all facilities, officers, agents, accountants, assets and books and
records of the Company and will furnish Purchaser and such other persons with
all such information and data (including without limitation copies of contracts,
and other books and records) concerning the business, operations and affairs of
the Company as Purchaser or any of such other persons reasonably may request.
4.3 No Negotiations. Seller shall not initiate or encourage (including by
way of furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or may
be reasonably expected to lead to, any Company Acquisition Proposal (as defined
below), or enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Company Acquisition Proposal, or
authorize or permit any of the officers, directors or employees of Seller or the
Company, or any investment bank, financial advisor, attorney, accountant or
other representative of Seller or the Company to take any such action; provided,
however, in the event that the Gaming Board fails to approve the transactions
contemplated by this Agreement by May 31, 1999, this sentence shall not prohibit
Thomas Celani and Roland Gentner from filing after May 31, 1999 documentation
with the Gaming Board and any other regulatory authority necessary to obtain
approval for such individuals to own an interest in the Joint Venture and/or the
Company. Seller shall promptly notify Purchaser of all relevant terms of any
such inquiries and proposals received by it or the Company or by any such
officer, director, employee, investment banker, financial advisor, attorney,
accountant or other representative relating to such matters, and if such inquiry
or proposal is in writing, Seller shall deliver or cause to be delivered to
Purchaser a copy of such inquiry or proposal. For purposes of this Agreement,
"Company Acquisition Proposal" shall mean any of the following (other than the
transactions between Seller and Purchaser contemplated hereunder) involving the
Company: (i) any merger, consolidation, share exchange, business combination, or
other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of any of the assets or securities of the Company
in a single transaction or series of transactions; or (iii) any acquisition,
issuance or transfer of shares of capital stock or other securities of the
Company.
4.4 No Disposal of Property. Seller will cause the Company to refrain from
(a) disposing of any assets of the Company and from permitting any of such
assets to be subjected to any Liens, (b) entering into any contracts obligating
the Company to administer or manage the operations of any other person, and (c)
entering into any contracts permitting any person, other than the Company to
administer or manage the operations of the Company.
4.5 No Breach or Default. Seller will cause the Company to, and the
Company will, refrain from violating, breaching, or defaulting and from taking
or failing to take any action that (with or without notice or lapse of time or
both) would constitute a violation, breach, or default, under any term or
provision of any contract listed in Schedule 2.12.
4.6 No Acquisitions. Seller will cause each of the Company to, and the
Company will, refrain from (a) merging, consolidating, or otherwise combining or
agreeing to merge, consolidate, or otherwise combine with any other person, (b)
acquiring or agreeing to acquire all or substantially all assets or capital
stock or other equity securities of any other person, or (c) otherwise acquiring
or agreeing to acquire control or ownership of any other person.
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4.7 Resignations of Managers. Seller will cause such managers and such
officers of the Company as are designated by Purchaser to tender, effective at
the Closing, their resignations as managers and officers. If requested by
Purchaser, Seller will cause the election of Purchaser's nominees as managers of
the Company.
4.8 Tax Matters.
(a) The Company shall not, prior to the Closing Date, admit
any new members.
(b) All transfer and sales Taxes incurred in connection with
this Agreement and the transactions contemplated hereby shall be borne by
Seller, and the Seller shall, at its own expense, file to the extent required by
applicable law all necessary Tax Returns and other documentation with respect to
all such transfer or sales Taxes and, if required by applicable law, the
Purchaser will join in the execution of any such Tax Returns or other
documentation.
4.9 Books and Records. On the date of the Closing (the "Closing Date")
Seller will deliver to Purchaser all books and records of the Company. If (at
any time after the Closing) Seller discovers in its possession or under its
control any other books and records of the Company, Seller will forthwith
deliver such books and records to Purchaser.
4.10 Notice and Cure. Seller will notify Purchaser promptly in writing of
and contemporaneously will provide Purchaser with true and complete copies of
any and all information or documents relating to, any event, transaction, or
circumstance occurring after the date hereof that causes or will cause any
covenant or agreement of Seller or the Company under this Agreement to be
breached or that renders or will render untrue any representation or warranty of
Seller or the Company contained in this Agreement. Seller will use all
commercially reasonable efforts to cure, before the Closing, (a) any such breach
or misrepresentation and (b) any violation or breach of any representation,
warranty, covenant, or agreement made by it in this Agreement, whether occurring
or arising before or after the date hereof.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to close is subject to the following
conditions precedent:
5.1 Representations and Warranties. Each representation and warranty made
by Seller or the Company in this Agreement, in the certificates delivered by
Seller or the Company pursuant to this Agreement and in schedules hereto shall
be true in all material respects on the date on which made and shall be true in
all material respects on and as of the Closing Date as though such
representation and warranty were made on and as of the Closing Date.
5.2 Performance. Each of Seller and the Company shall have performed or
complied with all its agreements, covenants and obligations required to be
performed or complied with by this Agreement on or before the Closing Date.
5.3 No Injunctions. There shall not be in effect on the Closing Date any
injunction or similar restraining order of any court or governmental authority
of competent jurisdiction preventing either party from consummating any of the
transactions contemplated by this Agreement nor shall there be any writ,
injunction, decree or similar order or any court or governmental authority of
competent jurisdiction that would impose any limitation on Purchaser's ability
to exercise full rights of ownership of the Membership Interest.
5.4 Consents and Authorizations. Each of the governmental and other
approvals, consents, permits, or waivers listed in Schedule 2.6 and in Schedule
3.3 and the consent of the Gaming Board shall have been obtained for the
consummation of the transactions contemplated by this Agreement.
5.5 No Adverse Change. Prior to the Closing Date, there shall not have
been, occurred, or arisen any change in, or any event, condition, or state of
facts of any character that individually or in the aggregate has or may
reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), assets, results of operations or properties
of the Company or the Joint Venture.
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5.6 Officer's Certificates. Seller and the Company shall have delivered to
Purchaser a certificate, dated the Closing Date and signed by a duly authorized
officer of the Seller and the Company, to the effect of the statements set forth
in Sections 5.1 and 5.2. In addition, Seller and the Company shall have
delivered to Purchaser a certificate, dated the Closing Date and executed by the
secretary or any assistant secretary of Seller and the Company, certifying as to
the certificate of incorporation, bylaws, resolutions and encumbancy of the
Seller and certificate of formation, operating agreement, resolution and
encumbancy of the Company. Each such certificate shall be in form and substance
reasonably satisfactory to Purchaser.
5.7 Resignations. Seller shall have delivered to Purchaser the written
resignations of the managers and officers of the Company.
5.8 Consulting Agreement. On or before the Closing, the Seller and the
Joint Venture shall execute any necessary documents to (i) terminate the
Consulting Agreement between the Joint Venture and the Seller dated September
22, 1998, and (ii) release Seller and the Joint Venture from all obligations
thereunder.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SELLER
The obligation of Seller to close is subject to the following
conditions precedent:
6.1 Representations and Warranties. Each representation and warranty made
by Purchaser in this Agreement, in the certificates delivered by Purchaser
pursuant to this Agreement and in schedules hereto shall be true in all material
respects on the date on which made and shall be true in all material respects on
and as of the Closing Date as though such representations and warranties were
made on and as of the Closing Date.
6.2 Performance. Purchaser shall have performed or complied with all its
agreements, covenants and obligations required to be performed or complied with
by this Agreement on or before the Closing Date.
6.3 No Injunctions. There shall not be in effect on the Closing Date any
injunction or similar restraining order of any court or governmental authority
of competent jurisdiction preventing either party from consummating any of the
transactions contemplated by this Agreement.
6.4 Consents and Authorizations. The consent of the Gaming Board shall
have been obtained.
6.5 Officer's Certificates. Purchaser shall have delivered to Seller a
certificate, dated the Closing Date and signed by an authorized officer, to the
effect of the statements set forth in Sections 6.1 and 6.2. In addition,
Purchaser shall have delivered to Seller a certificate, dated the Closing Date
and executed by the secretary or any assistant secretary of Purchaser certifying
as to the articles of incorporation, bylaws, resolutions and encumbancy of
Purchaser. Such certificates shall be in the form and substance reasonably
satisfactory to Seller.
ARTICLE VII
SURVIVAL OF PROVISIONS
7.1 Survival of Representations and Warranties. The representations and
warranties respectively made by Seller, the Company (before the Closing Date)
and Purchaser in this Agreement, in the schedules hereto and in any certificate
delivered pursuant to this Agreement will survive the Closing and will remain in
full force and effect for 18 months thereafter; provided, however, that the
representations and warranties in (i) Sections 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6
shall survive forever, and (ii) Section 2.8 shall survive until the expiration
of the applicable statues of limitations relating to such taxes.
7.2 Survival of Covenants and Agreements. All covenants and agreements
respectively made by Seller, the Company (before the Closing Date) and Purchaser
in this Agreement to be performed after the date hereof will survive the Closing
and will remain in full force and effect thereafter, until the expiration of the
terms or periods specified therein or (if there is no such specified term or
period) indefinitely without regard to duration.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Seller. Subject to the provisions of Sections 7.1,
8.4 and 8.5 hereof, Seller, and the Company before the Closing Date, will
indemnify and hold harmless the Purchaser and its officers, directors,
shareholders, employees and agents (each a "Purchaser Party") (whether or not
such Purchaser Party owns any Membership Interest) in respect of any and all
taxes, monetary damages, Liabilities, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
punitive, treble, or other exemplary or extra contractual damages, amounts paid
in settlement, interest, court costs, costs of investigation, fees and expenses
of attorneys, accountants, actuaries, consultants and other experts and other
expenses of litigation or of any claim, default, or assessment) (collectively,
"Damages") resulting from or relating to any breach by Seller or the Company of
any representation, warranty, covenant, or agreement made by Seller or the
Company in this Agreement, in the schedules hereto, or in any certificate
delivered by Seller or the Company in connection with this Agreement.
8.2 Indemnification by Purchaser. Subject to the provisions of Sections
8.4 and 8.5 hereof, Purchaser will indemnify and hold harmless Seller and its
officers, directors, shareholders, employees and agents (each a "Seller Party")
(whether or not such Seller Party sells any Membership Interest) in respect of
any and all Damages resulting from or relating to any breach by Purchaser of any
representation, warranty, covenant, or agreement made by Purchaser in this
Agreement or in any schedule hereto or certificate delivered by Purchaser in
connection with this Agreement.
8.3 ERISA Indemnification. Seller shall indemnify and hold Purchaser
harmless with respect to any Damages arising as a result of any "employee
benefit plan" (within the meaning of Section 3(3) of ERISA) maintained,
sponsored or contributed to at any time by the Company or any trade or business
(whether or not incorporated) which is under common control or treated as a
single employer with the Company under Sections 414(b), (c), (m) or (o) of the
Code.
8.4 Indemnification Procedures.
(a) If any Purchaser Party or Seller Party, as the case may be
(each an "Indemnitee") becomes aware of any matter for which it believes it is
entitled to indemnification hereunder that involves (i) any claim made against
the Indemnitee by any person or entity other than a Purchaser Party or a Seller
Party or (ii) the commencement of any action, suit, investigation, arbitration,
or similar proceeding against the Indemnitee by any person other than a
Purchaser Party or a Seller Party, the Indemnitee will give the Seller or
Purchaser, as appropriate (each an "Indemnifying Party") prompt written notice
of such claim or the commencement of such action, suit, investigation,
arbitration, or similar proceeding. Such notice will (A) provide (with
reasonable specificity) the basis on which indemnification is being asserted,
(B) set forth the actual or estimated amount of Damages for which
indemnification is being asserted, if known, and (C) be accompanied by copies of
all relevant pleadings, demands and other papers served on the Indemnitee.
(b) The Indemnifying Party will have a period of 30 days after
the delivery of each notice required by Section 8.4(a) hereof during which to
respond to such notice. If the Indemnifying Party elects to defend the claim
described in such notice or does not respond within such 30-day period, the
Indemnifying Party will be obligated to compromise or defend (and will control
the defense of) such claim, at its own expense and by counsel chosen by the
Indemnifying Party and reasonably satisfactory to the Indemnitee. The Indemnitee
will cooperate fully with the Indemnifying Party and counsel for the
Indemnifying Party in the defense against any such claim and the Indemnitee will
have the right to participate at its own expense in the defense of any such
claim. If the Indemnifying party responds within such 30-day period and elects
not to defend such claim, the Indemnitee will be free to compromise or defend
(and control the defense of) such claim and to pursue such remedies as may be
available to the Indemnitee under applicable law.
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(c) Any compromise or settlement of any claim (whether
defended by the Indemnitee or by the Indemnifying Party) will require the prior
written consent of the Indemnitee and the Indemnifying Party.
(d) If an Indemnitee becomes aware of any matter for which it
believes it is entitled to indemnification hereunder and such matter involves a
claim made by any Purchaser Party or Seller Party, the Indemnitee will give the
Indemnifying Party prompt written notice of such claim. Such notice will (i)
provide (with reasonable specificity) the basis for which indemnification is
being asserted and (ii) set forth the actual or estimated amount of Damages for
which indemnification is being asserted. The Indemnifying Party will have a
period of 10 days after the delivery of each notice required by this Section
8.4(d) during which to respond to such notice. If the Indemnifying Party accepts
(in writing) full responsibility for the claim described in such notice, the
actual or estimated amount of Damages reflected in such notice will be
conclusively deemed a Liability that the Indemnifying Party owes and will pay
(in cash) upon demand, to the Indemnitee. If the Indemnifying Party has disputed
such claim or does not respond within such 10-day period, the Indemnifying Party
and the Indemnitee agree to proceed in good faith to negotiate a resolution of
such dispute. If all such disputes are not resolved through negotiations within
10 days after such negotiations begin, either the Indemnifying Party or the
Indemnitee may initiate litigation to resolve such disputes. If the Indemnifying
Party does not respond within 10 days after delivery of any claim notice
required by this Section 8.4(d), the Indemnitee may initiate litigation to
resolve such claim.
8.5 Indemnification Payments. Seller and Purchaser agree that any payment
made under ARTICLE VIII hereof will be treated by the parties on their Tax
Returns as an adjustment to the aggregate consideration for the Membership
Interest. If, notwithstanding such treatment by the parties, any indemnity
payment is determined to be taxable to Purchaser by any taxing authority, Seller
shall indemnify Purchaser for any Taxes payable by Purchaser by reason of the
receipt of such indemnity payment (including any payments under this Section
8.5), determined at a Tax rate equal to the maximum marginal federal, state and
local corporate income Tax rate for the taxable year in which the indemnity is
determined to be taxable to Purchaser.
ARTICLE IX
TERMINATION
9.1 Termination. Without limiting the rights or remedies that any party
hereto may otherwise have, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned:
(a) at any time before the Closing by written agreement of
Seller and Purchaser; or
(b) at any time after August 31, 1999, by Seller or Purchaser
if the Closing has not occurred on or before such date and such failure to close
is not caused by a breach of this Agreement (or any representation, warranty,
covenant, or agreement included herein) by the party electing to terminate
pursuant to this Section 9.1(b).
9.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 9.1 hereof, (a) the obligation of Purchaser to purchase the
Membership Interest and the obligation of Seller to sell the Membership Interest
will terminate, (b) the provisions of Sections 10.5, 10.7 and 10.8 hereof will
continue to apply following any such termination and (c) no party hereto will be
relieved of any Liability for Damages that such party may have to the other
party by reason of such party's breach of this Agreement (or any representation,
warranty, covenant, or agreement included herein).
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ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notice or other communication given pursuant to this
Agreement must be in writing and (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c) delivered by
overnight express, charges prepaid, or (d) sent by registered or certified mail,
postage prepaid, as follows:
(i) If to Seller or Company:
Sodak Gaming, Inc.
5301 South Highway 16
Rapid City, South Dakota 57701
Attention: General Counsel
Facsimile Number: (605) 355-4976
with a copy to:
John T. Kramer
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile Number: (612) 340-8738
(ii) If to Purchaser:
HWCC-Louisiana, Inc.
c/o Hollywood Gaming Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB48
Dallas, Texas 75240
Attention: General Counsel
Facsimile Number: (972) 716-3903
with copies to:
Weil, Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: Michael A. Saslaw
Facsimile number: 214-746-7777
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 10.1 will (A) if
delivered personally or by overnight express, be deemed given upon delivery; (B)
if delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed; and (C) if sent by registered or certified mail,
be deemed given on the third day after delivery of such notice to the United
States Post Office for delivery. Any party from time to time may change its
address for the purpose of notices to that party by giving a similar notice
specifying a new address, but no such notice will be deemed to have been given
until it is actually received by the party sought to be charged with the
contents thereof.
10.2 Entire Agreement; Interpretation. Except for documents executed by
Seller, the Company and Purchaser pursuant hereto, this Agreement supersedes all
prior discussions and agreements between the parties with respect to the subject
matter of this Agreement and this Agreement contains the sole and entire
agreement between the parties hereto with respect to the subject matter hereof.
Unless the context of this Agreement otherwise requires, (a) words of any gender
are deemed to include each other gender; (b) words using the singular or plural
number also include the plural or singular number, respectively; (c) the terms
"hereof," "herein," "hereby," "hereto," and derivative or similar words refer to
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this entire Agreement; (d) the terms "ARTICLE" or "Section" refer to the
specified ARTICLE or Section of this Agreement; (e) the term "or" means
"and/or"; (f) the term "party" means, on the one hand, Purchaser and, on the
other hand, Seller and the Company (before the Closing Date) and (g) all
references to "dollars" or "$" refer to currency of the United States of
America.
10.3 Expenses. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in ARTICLE VIII hereof), each of
Seller and Purchaser will pay its own costs and expenses in connection with this
Agreement and the transactions contemplated hereby.
10.4 Brokers. Seller will indemnify and hold harmless each Purchaser Party
in respect of any and all claims or demands for commission, compensation, or
other Damages by any broker, finder, or other agent (whether or not a present or
former employee or agent of Seller or the Company) claiming to have been engaged
by Seller or the Company in connection with the transactions contemplated by
this Agreement.
10.5 Further Assurances. Seller and Purchaser agree that, from time to
time after the Closing, upon the reasonable request of the other, they will
cooperate and will cause their respective Affiliates to cooperate with each
other to effect the orderly transition of the business, operations and affairs
of the Company. Without limiting the generality of the foregoing, (a) Seller
will provide, and will cause its Affiliates to provide, representatives of
Purchaser reasonable access to all books and records of the Company reasonably
requested by Purchaser in the preparation of any post-Closing financial
statements, reports, or tax returns of the Company; (b) Purchaser will provide
representatives of Seller reasonable access to all pre-closing books and records
of the Company reasonably requested by Seller in the preparation of any
post-Closing financial statements, reports, or tax returns of Seller; and (c)
each party hereto will execute such documents and instruments as the other party
hereto may reasonably request containing terms and conditions mutually
satisfactory to each party hereto to further effectuate the terms hereof.
10.6 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof. Such waiver must be
in writing and must be executed by an executive officer of such party. A waiver
on one occasion will not be deemed to be a waiver of the same or any other
breach or nonfulfillment on a future occasion. All remedies, either under this
Agreement, or by law or otherwise afforded, will be cumulative and not
alternative.
10.7 Amendment. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of Seller, the Company and Purchaser.
10.8 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
10.9 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of Seller, Purchaser, each Seller
Party, each Purchaser Party and their respective successors and permitted
assigns and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
10.10 Governing Law. This Agreement will be governed by and construed and
enforced in accordance with the laws of the State of Louisiana (without regard
to the principles of conflict of laws) applicable to a contract executed and
performable in such state.
10.11 Binding Effect. This Agreement is binding upon and will inure to the
benefit of the parties and their respective successors and permitted assigns.
10.12 No Assignment. Neither this Agreement nor any right or obligation
hereunder or part hereof may be assigned by any party hereto without the prior
written consent of the other party hereto (and any attempt to do so will be
void), except as otherwise specifically provided herein and except that
Purchaser may assign all or any part of the rights or obligations of Purchaser
hereunder to one or more affiliates of Purchaser without the consent Seller;
provided, however, that upon such assignment Purchaser shall not be deemed to be
released from any of its obligations hereunder.
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10.13 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law and if the
rights or obligations under this Agreement of Seller and Purchaser will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom; and (d) in lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible.
10.14 Confidentiality. (a) Each of Purchaser and Seller will refrain, and
will cause its respective officers, directors, employees, agents and other
representatives to refrain, from disclosing to any other person any confidential
documents or confidential information concerning the other party hereto
furnished to it in connection with this Agreement or the transactions
contemplated hereby and (b) Seller will refrain, and will cause its respective
officers, directors, employees, agents and other representatives to refrain,
from disclosing to any person any confidential documents or confidential
information concerning the Company or the Joint Venture unless (i) such
disclosure is compelled by judicial or administrative process or by other
requirements of law and notice of such disclosure is furnished to such other
party hereto; (ii) either party hereto deems it advisable (upon advice of such
party's legal counsel) to disclose any such confidential documents or
information in connection with the requirements of any securities law; or (iii)
such confidential documents or information can be shown to have been (A)
previously known by the party hereto receiving such documents or information,
(B) in the public domain through no fault of such receiving party, or (C) later
acquired by such receiving party from other public sources.
10.15 Certain Definitions.
"Code" means the Internal Revenue Code of 1986, as amended unless
otherwise provided.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, ,unincorporated organization,
governmental body or other entity.
"Taxing Authority" means any department, bureau or agency of any Taxing
Jurisdiction having the legal authority to collect taxes, or administer the tax
laws of any Taxing Jurisdiction, or with whom or which Tax Returns are required
to be filed.
"Taxing Jurisdiction" means the United States of America, any foreign
country, any state or local government, or any political subdivision of any of
the foregoing, that imposes or administers any Tax, or which requires, by
statue, regulation or otherwise, the filing of any Tax Return.
"Taxes" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including, without limitation, all
net income, gross receipts, capital sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated taxes, customs duties, fees, assessments and
charges of any kind whatsoever, (ii) all interest, penalties, fines, additions
to tax or additional amounts imposed by any Taxing Authority in connection with
any item described in clause (i), and (iii) any transferee liability in respect
of any items described in clauses (i) and (ii).
"Tax Returns" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
-41-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered as of the date first written above by the duly authorized officers of
Seller, the Company and Purchaser.
PURCHASER:
HWCC-LOUISIANA, INC.
By:
---------------------------
Jack E. Pratt
President
SELLER:
SODAK GAMING, INC.
By:
---------------------------
Roland Gentner
CEO
COMPANY:
SODAK LOUISIANA, L.L.C.
By:
---------------------------
Michael G. Diedrich
Manager
-42-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SODAK GAMING, INC.'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,819
<SECURITIES> 0
<RECEIVABLES> 41,914
<ALLOWANCES> 1,941
<INVENTORY> 17,644
<CURRENT-ASSETS> 74,414
<PP&E> 55,627
<DEPRECIATION> 9,164
<TOTAL-ASSETS> 144,422
<CURRENT-LIABILITIES> 30,334
<BONDS> 3,828
0
0
<COMMON> 23
<OTHER-SE> 110,237
<TOTAL-LIABILITY-AND-EQUITY> 144,422
<SALES> 17,934
<TOTAL-REVENUES> 31,276
<CGS> 13,987
<TOTAL-COSTS> 25,999
<OTHER-EXPENSES> (375)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 4,902
<INCOME-TAX> 1,789
<INCOME-CONTINUING> 3,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,113
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
