SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997 Commission File No. 0-22290
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CENTURY CASINOS, INC.
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(Name of small business issuer in its charter)
Delaware 84-1271317
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 - 220 E. Bennett Ave., Cripple Creek, CO 80813
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(Address of principal executive offices) (Zip code)
(719) 689-9100
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(Issuer's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act: None.
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value, and 1994 Class I Warrants
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(Title of classes)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $19,660,018
The aggregate market value of the voting common stock held by non-affiliates of
the registrant on March 13, 1998, was approximately $12,236,000 based upon the
average of the reported closing bid and asked price of such shares on Nasdaq for
that date. As of March 13, 1998, there were 15,861,885 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference from the
Registrant's Definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
1997.
1
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Item 1. Business.
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General
Century Casinos, Inc. and its subsidiaries (the "Company"), own and
operate a limited-stakes gaming casino in Cripple Creek, Colorado and are
pursuing a number of additional gaming opportunities internationally and in the
United States. Prior to July 1, 1996, the Company's operations in Cripple Creek
consisted of Legends Casino ("Legends"), which the Company had acquired on March
31, 1994, through a merger with Alpine Gaming, Inc. ("Alpine"). On July 1, 1996,
the Company acquired the net assets of Gold Creek Associates, L.P. ("Gold
Creek"), the owner of Womack's Saloon & Gaming Parlor ("Womacks"), which was
adjacent to Legends. Following the acquisition of Womacks, both properties were
renovated to facilitate operation and marketing of the combined properties as
one casino under the name "Womacks/Legends Casino." In 1997, the Company
acquired additional property adjacent to Womacks/Legends Casino for future
expansion. The Company's operating revenue for 1997 and 1996 was derived
principally from its casino operations in Cripple Creek. See the Consolidated
Financial Statements included herein.
The Company was formed in 1992 to acquire ownership interests in, and to
obtain management contracts with respect to, gaming establishments. The Company,
formerly known as Alpine, is a result of a business combination completed on
March 31, 1994, pursuant to which Century Casinos Management, Inc. ("Century
Management") shareholders acquired approximately 76% of the then issued and
outstanding voting stock of the Company, and all officer and board positions of
the Company were assumed by the management team of Century Management. Effective
June 7, 1994, the Company reincorporated in Delaware under the name "Century
Casinos, Inc." Because the Company is the result of this transaction, the
Company's business has been combined with that of Century Management, and
references herein to the Company refer to the combined entities, unless the
context otherwise requires.
Century Management was founded in 1992 by a team of career gaming
executives who had worked primarily for an Austrian gaming company that owned
and operated casinos throughout the world. These persons held the positions of
chief executive officer, deputy to the chief executive officer, managing
director and head of international finance and control. See Item 9 herein.
In connection with its expansion activities, the Company generally seeks
to enter into gaming operations in areas with attractive demographic attributes,
high population densities, local tourism and/or predictable traffic patterns,
with the long-term objective of establishing geographic project diversification.
The Company's primary economic analysis covers the potential market area
surrounding a proposed gaming location, although it takes into consideration the
economic conditions in any community in which it intends to establish a gaming
facility, as many gaming jurisdictions consider gaming as a means to revitalize
local economies. At the present time, management believes that there are more
growth opportunities internationally than in the United States; however, the
Company will evaluate opportunities in any area which, in management's judgment,
may provide attractive returns.
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Information contained in this Form 10-KSB contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which can be identified by the use of words such as "may," "will,"
"expect," "anticipate," "estimate" or "continue," or variations thereon or
comparable terminology. In addition, all statements other than statements of
historical facts that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future, and
other such matters, are forward-looking statements.
The future results of the Company may vary materially from those
anticipated by management, and may be affected by various trends and factors,
which are beyond the control of the Company. These risks include the competitive
environment in which the Company operates, the Company's dependence upon the
Cripple Creek, Colorado gaming market, the effects of governmental regulation
and other risks described herein.
Property and Project Descriptions
Womacks/Legends Casino, Cripple Creek, Colorado.
On July 1, 1996, the Company purchased substantially all of the assets,
and assumed substantially all of the liabilities, of Gold Creek, the owner of
Womacks in Cripple Creek, Colorado. The total purchase price was approximately
$14.2 million, consisting of cash and the assumption of debt. The agreement
further provided that two years after the closing, the Company will issue
1,060,000 shares of its common stock, valued at $1.8 million based on the July
1, 1996 trading price, to two principals of the seller. The number of shares to
be issued is subject to upward adjustment, determined by a formula, to the
extent that the trading price of the Company's stock is less than $1.58 at the
time of issuance, and subject to downward adjustment to the extent that the
trading price exceeds $4.00. Based upon the 20-day average closing price of the
Company's common stock preceding December 31, 1997, the number of shares to be
issued would have been 1,595,048. At the Company's option, it may elect to issue
1,060,000 shares together with a cash payment equal to the difference between
$1,674,800 and 1,060,000 shares valued at the 20-day closing price preceding
date of issuance. The cash payment under this option would have been $561,800 at
December 31, 1997.
Following the Company's acquisition of Gold Creek, the Womacks property
was consolidated with the Company's Legends Casino, and the combined properties
have been operated and marketed since then as one casino under the name
"Womacks/Legends Casino." Management has implemented certain consolidation,
expansion and capital improvement programs. The Company (i) created openings in
the common walls in order to open up and integrate the gaming areas of Legends
and Womacks; (ii) expanded the existing player tracking system of Womacks to
include all of the Legends gaming devices; (iii) added and promoted gaming
activities on second floor areas; (iv) made general interior enhancements; and
(v) installed additional gaming devices and replaced older generation equipment.
3
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Womacks/Legends Casino is located at 200 to 220 East Bennett Avenue in
Cripple Creek, Colorado. The lots comprising 200 to 210 East Bennett Avenue are
owned by wholly-owned subsidiaries of the Company and are collateralized by a
first mortgage held by Wells Fargo Bank. See Note 5 to the Consolidated
Financial Statements for further information.
The Company holds a leasehold interest in the real property and
improvements located at 220 East Bennett Avenue. An unaffiliated third party, as
fee owner of the property, granted first and second deeds of trust for the
benefit of Park State Bank ("Park") and Community Banks of Colorado Cripple
Creek ("Community"), respectively. The third party then leased the property to
Teller Realty, Inc. ("Teller") and granted to Teller an option to acquire the
fee interest in the property. Teller subsequently executed a sublease to the
property with Gold Creek, and granted to Gold Creek a suboption to purchase the
property through Teller's purchase option. The Company's wholly-owned subsidiary
which purchased the assets of Gold Creek, WMCK Acquisition Corp. ("WMCK"), has
executed separate subordination, non-disturbance and attornment agreements with
each of Park and Community, pursuant to which WMCK has agreed that its interest
in the sublease is subordinate to the liens arising out of the deeds of trust in
the fee estate in favor of Park and Community. In return, Park and Community
have each agreed (i) not to disturb WMCK's possessory rights in and to the
property, and (ii) to honor the sublease and suboption, should either foreclose
on their respective lien, so long as WMCK is not in default under the sublease,
and so long as WMCK attorns to Park, Community or any purchaser at a
foreclosure. The sublease, as assigned to WMCK, provides for monthly rental
payments of $16,000, and expires on June 20, 2005 unless terminated earlier by
WMCK with 12 months' notice. The suboption may be exercised at the expiration of
the sublease at an exercise price of $1,500,000. Teller, the third party, Gold
Creek and WMCK have executed a four-party agreement evidencing the assignment of
the sublease and suboption, as well as the consent to these assignments. None of
the above entities other than WMCK is affiliated with the Company.
On March 31, 1997, the Company entered into a four-year, $13 million
reducing revolving line of credit facility (the "RCF") with Wells Fargo Bank
("Wells Fargo"). The initial borrowing drawdown under the RCF of $12.2 million
on April 3, 1997, was used to retire approximately $9.2 million of secured debt
relating to Womacks/Legends Casino. The Company also exercised a purchase option
and acquired a portion of Womacks/Legends Casino, previously subject to a
long-term operating lease, for $1.85 million. Remaining proceeds were used for
bank fees, other costs paid at closing and for general operating purposes. The
RCF is secured by substantially all of the real and personal property of
Womacks/Legends Casino. On January 28, 1998, the RCF was amended to increase the
maximum available borrowings to $15 million, subject to the completion of a
proposed property acquisition, and provides for improved financial terms. Under
the RCF, the Company is required to comply with certain customary financial
covenants, and Womacks/Legends Casino is subject to certain capital expenditure
requirements and restrictions on investments. At December 31, 1997, the
Company's outstanding borrowings under the RCF were approximately $2.8 million
less than available borrowing capacity.
In August 1997, the Company exercised its purchase option to acquire three
lots (formerly known as the "Wright Property"), consisting of 8,250 square feet
of land across the street from Womacks/Legends Casino, for $785,000 in cash.
This acquisition provides the Company with 30 long-term parking spaces, with the
future potential to construct a multi-level parking structure and additional
hotel rooms.
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In November 1997, the Company entered into a definitive purchase agreement
to acquire 22,000 square feet of land adjacent to Womacks/Legends Casino, zoned
for gaming, (formerly known as the "Hicks Property") for $3.6 million in cash
and restricted stock, or all cash, at the Company's option. Closing on this
transaction is set for the second quarter of 1998. The prime parcel of land
under contract includes a partially constructed casino and hotel and is located
directly to the rear of Womacks/Legends Casino. After completion of the
acquisition, the Company will have ownership of a total of 50,000 square feet
(or 1.15 acres) of land zoned for gaming that is separated only by public
throughways. While plans for use of the property have not been finalized, the
recent acquisition enables the Company to proceed with the development of
additional, conveniently located parking, the addition of up to 100 hotel rooms
and the possible expansion of existing gaming space.
Womacks/Legends Casino currently has a total of 534 slot and video devices
and five gaming tables with the potential to add approximately 80 gaming
positions without conducting any substantial construction. Womacks/Legends
Casino has 150 feet of frontage on Bennett Avenue, the main gaming thoroughfare
in Cripple Creek, and 110 feet of frontage on Second Street, with approximately
40,000 square feet of floor space.
Management believes that, in addition to providing an adequate number of
hotel rooms, an integral component in attracting gaming patrons to Cripple Creek
is the availability of adequate, nearby parking spaces. Management believes that
it has secured or will be able to secure adequate parking for the operations of
Womacks/Legends Casino. The Company presently controls approximately 240 parking
spaces. Of this number, 110 spaces are held pursuant to an agreement, see
"Parking Lease and Option to Purchase." Approximately thirty spaces are located
on the recently acquired Wright Property and approximately 35 spaces are located
on the Hicks Property. The remaining parking spaces are subject to
month-to-month lease agreements. Management believes that it could obtain
satisfactory parking spaces if existing arrangements were terminated or became
inadequate.
Marketing Strategy. The marketing strategy of Womacks/Legends Casino
highlights promotion of Womacks Gold Club, a players club with a database
containing profiles on over 40,000 members. Gold Club members receive benefits
from membership, such as cash, merchandise, food and lodging. Those who qualify
for VIP status receive additional benefits in addition to regular club
membership. Status is determined through player tracking. Members receive
monthly newsletters of upcoming events and parties, and, depending on player
ranking, also receive invitations to special events and monthly coupons.
In 1996 the Company entered into a three-year advertising agreement with
Western Pacific Airlines, Inc. ("WestPac"), which provided for WestPac to
promote the Company's Womacks/Legends Casino as well as other joint marketing
and advertising activities. In 1997, WestPac significantly revised its business
strategy by relocating its hub from Colorado Springs to Denver. Shortly
thereafter, WestPac filed for protection under Federal bankruptcy laws and
completely ceased operations. The Company believes that the contract is
terminated and it does not expect to receive any further benefits nor incur
further liabilities in connection therewith. See Note 7 to the Consolidated
Financial Statements of the Company for further information.
On February 1, 1997, Womacks/Legends Casino became a co-sponsor of the
Ramblin' Express shuttle bus service to Cripple Creek. This agreement was
terminated by the Company on December 31, 1997. Management believes that the
cost of the program did not generate sufficient incremental revenue to justify
its continuation. Management has determined to reallocate a portion of the
marketing budget to various other, more cost-effective campaigns.
5
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The Cripple Creek Market. Cripple Creek is a small mountain town located
approximately 45 miles southwest of Colorado Springs on the western boundary of
Pikes Peak. Cripple Creek is an historic mining town, originally founded in the
late 1800's following a large gold strike. Cripple Creek is a tourist town and
its heaviest traffic is in the summer months. Traffic generally decreases to its
low point in the winter months.
Cripple Creek is one of three Colorado historical cities where casino
gaming is legal, the others being Black Hawk and Central City. Cripple Creek
operated approximately 33% of the gaming devices and generated 25% of gaming
revenues for these three cities during the year ended December 31, 1997. As of
December 31, 1997, there were 21 casinos operating in Cripple Creek.
The tables below set forth information obtained from the Colorado Division
of Gaming regarding gaming revenue by market and slot machine data for Cripple
Creek from calendar 1994 through 1997. This data is not intended by the Company
to imply, nor should the reader infer, that it is any indication of future
Colorado or Company gaming revenue.
GAMING REVENUE BY MARKET
(in $'000)
<TABLE>
<CAPTION>
% change % change % change % change
Over Over Over Over
1994 Prior Year 1995 Prior Year 1996 Prior Year 1997 Prior Year
--------- -------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CRIPPLE CREEK $82,319 19.8% $ 94,019 14.2% $103,373 9.9% $108,628 5.1%
Black Hawk $173,704 71.0% $195,857 12.8% $219,911 12.3% $234,631 6.7%
Central City $69,702 -11.7% $ 94,468 35.5% $ 88,870 -5.9% $ 87,391 -1.7%
--------- -------- -------- -------- --------- --------- -------- --------
COLORADO TOTAL $325,725 30.7% $384,344 18.0% $412,154 7.2% $430,650 4.5%
</TABLE>
<TABLE>
<CAPTION>
CRIPPLE CREEK SLOT DATA
% change % change % change % change
Over Over Over Over
1994 Prior Year 1995 Prior Year 1996 Prior Year 1997 Prior Year
--------- -------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Slot Revenue $75,979 20.2% $87,311 14.9% $97,024 11.1% $102,798 6.0%
(in $'000)
Average Number
Of Slots 3,285 -4.4% 3,843 17.0% 4,175 8.6% 4,507 8.0%
Average Win Per
Slot Per Day $63 25.8% $62 -1.8% $63 2.0% $62 -1.6%
</TABLE>
6
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Gaming in Colorado is "limited stakes," which restricts any single wager
to a maximum of $5.00. While this limits the revenue potential of table games,
management believes that slot machine play, which accounts for over 95% of total
gaming revenues, is currently impacted only marginally by the $5.00 limitation.
The Company faces intense competition from other casinos in Cripple Creek,
including a handful of casinos of similar size and many other smaller casinos.
There can be no assurance that other casinos in Cripple Creek will not undertake
expansion efforts similar to those recently taken by the Company, thereby
further increasing competition, or that large, established gaming operators will
not enter the Cripple Creek market. The Company seeks to compete against these
casinos through promotion of Womacks Gold Club and superior service to players.
Management believes that the casinos likely to be more successful and best able
to take advantage of the market potential of Cripple Creek will be the larger
casinos that have reached a certain critical mass.
CENTURY CASINOS' PROPERTY IN CRIPPLE CREEK
(presently "Womacks/Legends Casino")
<TABLE>
<CAPTION>
% change % change % change
Over Over Over
1994 1995 Prior Year 1996 Prior Year 1997 Prior Year
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Slot Revenue $2,079 $3,266 57.1% $10,078 208.6% $18,102 79.6%
(in $'000)
Average Number
Of Slots 141 172 22.0% 342 98.8% 547 59.9%
Average Win Per
Slot Per Day $53.62 $52.02 -3.0% $80.51 54.8% $90.67 12.6%
Market Share in % 2.8% 3.8% 34.3% 10.1% 165.8% 17.2% 70.0%
</TABLE>
The Company competes, to a far lesser extent, with approximately 19
casinos in Black Hawk and approximately 12 casinos in Central City. Black Hawk
and Central City are also small mountain tourist towns, which adjoin each other
and are approximately 30 miles from Denver and a two and one-half hour drive
from Cripple Creek. The main market for Cripple Creek is the Colorado Springs
metropolitan area, and the main market for Black Hawk and Central City is the
Denver metropolitan area.
In addition, there is intense competition among companies in the gaming
industry generally, and many gaming operators have greater name recognition and
financial and marketing resources than the Company. The Company competes with
many established operators in gaming venues other than Cripple Creek. Many of
these operators have greater financial, operational and personnel resources than
the Company. There can be no assurance that the number of casino and hotel
operations will not exceed market demand or that additional hotel rooms or
casino capacity will not adversely affect the operations of the Company.
7
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Description of Property. The Company's Womacks/Legends Casino is
described in Item 1 "Business".
Parking Lease and Option to Purchase. In October 1995, an unaffiliated
third party entered into an agreement with a subsidiary of the Company, Century
Casinos Cripple Creek, Inc. ("CCC"), to assign to CCC a parking lease ("Lease")
with an option to purchase ("Option") relating to approximately 110 contiguous
parking spaces in Cripple Creek. The Lease and Option expire on September 30,
1998. The initial payment to the assignor was $246,000, with CCC agreeing to pay
an additional $88,400 if the Option is exercised. Lease payments are $15,000 per
quarter. The Option exercise price is $3,250,000.
Additional Projects of the Company
In addition to Womacks/Legends Casino in Cripple Creek, Colorado, the
Company has a number of potential gaming projects in various stages of
development. In addition to the capital needs of these potential projects, there
are various other risks which, if they materialize, could materially adversely
affect a proposed project or eliminate its feasibility altogether. For example,
in order to conduct gaming operations in most jurisdictions, the Company must
first obtain gaming licenses or receive regulatory clearances. To date the
Company has obtained gaming licenses or approval to operate gaming facilities in
Colorado, Louisiana and on an American Indian reservation in California. While
management believes that the Company is licensable in any jurisdiction, each
licensing process is unique and requires a significant amount of funds and
management time. The licensing process in any particular jurisdiction can take
significant time and expense through licensing fees, background investigation
costs, fees of counsel and other associated preparation costs. Moreover, should
the Company proceed with a licensing approval process with industry partners,
such industry partners would be subject to regulatory review as well. The
Company seeks to satisfy itself that industry partners are licensable, but
cannot assure that such partners will, in fact, be licensable. Additional risks
before commencing operations include the time and expense incurred and
unforeseen difficulties in obtaining suitable sites, liquor licenses, building
permits, materials, competent and able contractors, supplies, employees, gaming
devices and related matters. In addition, certain licenses include competitive
situations where, even if the Company is licensable, other factors such as the
economic impact of gaming and financial and operational capabilities of
competitors must be analyzed by regulatory authorities. All of these risks
should be viewed in light of the Company's limited staff and limited capital.
Also, the Company's ability to expand to additional locations will depend
upon a number of factors, including, but not limited to: (i) the identification
and availability of suitable locations, and the negotiation of acceptable
purchase, lease, joint venture or other terms; (ii) the securing of required
state and local licenses, permits and approvals, which in some jurisdictions are
limited in number; (iii) political factors; (iv) the risks typically associated
with any new construction project; (v) the availability of adequate financing on
acceptable terms; and (vi) for locations outside the United States, all the
risks of foreign operations, including currency controls, unforeseen local
regulations, political instability and other related risks. Certain
jurisdictions issue licenses or approval for gaming operations by inviting
proposals from all interested parties, which may increase competition for such
licenses or approvals. The development of dockside and riverboat casinos may
require approval from the Army Corps of Engineers and will be subject to
significant Coast Guard regulations governing design and operation. Most of
these factors are beyond the control of the Company. As a result, there can be
no assurance that the Company will be able to expand to additional locations or,
if such expansion occurs, that it will be successful. Further, the Company
anticipates that it will continue to expense certain costs, which were
8
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substantial in 1996 and 1997 and may continue to be substantial in the future,
in connection with the pursuit of expansion projects, and may be required to
write off any capitalized costs incurred in connection with these ventures. In
1996 the Company terminated its pursuit of a previously disclosed gaming
development project in Louisiana due to the rejection of a gaming initiative by
local citizenry.
The following describes other activities of the Company.
Casino Management Agreement-Rhodes, Greece. In 1995, the Company executed
a casino management consulting agreement with Rhodes Casino, S.A., a consortium
including Playboy Enterprises, Inc., under which the Company, as an independent
contractor, will supply services and assistance in establishing a casino on the
island of Rhodes, Greece. The consortium has been awarded the exclusive license
for casino gaming on Rhodes for a 12-year period commencing when the casino
begins operations. The Company's management consulting agreement with the
consortium, which has an initial term running through the third anniversary of
the casino opening, provides for fees to the Company of $200,000 for services to
be rendered in the pre-opening phase, $300,000 per year during the first three
years of operation and $50,000 per year thereafter, if renewed. The Company is
not required to commit any capital in connection with the proposed activities
under the agreement. In the fourth quarter of 1996, the Company received $50,000
with respect to pre-opening phase services. Because the consortium has revised
target opening dates for the casino on several occasions, the Company cannot
predict whether the casino opening will occur in 1998.
South Africa. Recently enacted legislation in South Africa provides for
the award of up to 40 casino licenses throughout the country. The Company has
entered into agreements with four local consortia to provide consulting services
during the application phase, as well as casino management services should the
Company's partners be awarded one or more licenses. The first application was by
the Company's partners in the province of Mpumalanga and was eventually not
successful in being awarded a license. The second application was by Green Oaks
Trading (Pty) Ltd., which withdrew its application during the process. The third
application was filed on June 17, 1997 with the Gambling and Betting Board in
the province of Gauteng for a hotel/casino resort in the greater Johannesburg
area. The Gauteng Gambling and Betting board has awarded four of a possible six
casino licenses and has made known its intent to award the remaining two
licenses by the end of March 1998. Silverstar Development Ltd., the consortium
to which the Company is the contracted casino management partner, was not
awarded one of the four licenses but is continuing its efforts to secure one of
the two remaining licenses for the province of Gauteng. If successful in this
application, the Company would be required to make an investment of
approximately $2 million for a 3.8% equity interest in the licensee. The fourth
application was filed on January 31, 1998, by the Company's partner, Great North
Resorts Limited, for a casino license in Pietersburg, the provincial capital of
the Northern Province. The Company has been selected by Great North Resorts
Limited as its contracted management/consulting gaming partner and holds a small
equity position in the applicant. A final decision on this application is
expected late in the second quarter or in the third quarter of 1998. The Company
cannot predict whether any licenses will ultimately be awarded to the Company's
partners.
9
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Kamloops, British Columbia . On November 28, 1997, the Kamloops Indian
Band of British Columbia, Canada, in cooperation with the Company, presented a
proposal for a $40 million destination casino resort complex to the British
Columbia Lottery Advisory Committee. The Company has reached an agreement in
principle to become the casino management/consulting partner in case of license
award. The Company was paid a fee for its consulting services in connection with
the application process, and final terms of the management agreement will be
negotiated in the event licensing details become available. The British Columbia
Lottery Advisory Committee has indicated that they intend to announce awards of
licenses late in the second quarter of 1998.
Cruise Vessels - Concession Agreements. The Company has been acting as
casino concessionaire for Silver Seas Cruises, Ltd. ("Silver Seas"), a cruise
vessel operator which presently operates two luxury vessels. Silver Seas
commenced operating the vessel known as the Silver Cloud in April 1994 and the
vessel known as the Silver Wind in January 1995. The Company's concession to
provide unlimited-stakes gaming on the Silver Cloud and the Silver Wind, expired
in April 1997 and January 1998, respectively.
Nonoperating Casino in Wells, Nevada. In 1994, the Company purchased the
Ranch House Casino in Wells, Elko County, Nevada from an unaffiliated party. The
total purchase price of $850,000, including a note secured by the property, was
determined based on arm's length bargaining with the seller. In April 1997, the
Company paid off all amounts owed to the seller and now owns the property free
and clear. The property, closed since 1992 but in operable condition, is an
18,000 square foot building with approximately 6,000 square feet of gaming
space. Management currently does not intend to pursue a gaming license with
respect to the facility, and is seeking a sale or lease of the casino and land.
Sale of Interest in Riverboat Project in Indiana - In December 1995 the
Company sold its 80% interest in Pinnacle Gaming Development Corp. ("Pinnacle")
to an affiliate of Hilton Gaming Corporation and Boomtown, Inc.
("Hilton/Boomtown"). Pinnacle had been pursuing a riverboat gaming license
application in Switzerland County, Indiana. Upon signing the agreement, the
Company received a cash payment of $80,000 and recognized a gain on the sale of
its investment of $26,627. The agreement provides for additional payments to the
Company of up to approximately $3.3 million upon the occurrence of certain
events. The Company will recognize future payments, if any, from the buyer as
income when earned. In December 1997 the Indiana Gaming Commission voted to
delay a decision on the award of any additional riverboat gaming licenses for at
least one year, until the economic impact of the four existing licenses could be
more fully evaluated.
Indian Tribal Management Agreement - California - In August 1995 the
Company terminated its management agreement with the Soboba Band of Mission
Indians (the "Tribe") with respect to the Legends Casino at Soboba in Riverside
County, California. In connection with the termination, an unaffiliated third
party issued a promissory note to the Company for $3,100,000 payable over three
years in monthly installments, based on a percentage of gross revenue from
certain operations of the facility. Through December 31, 1997, the Company has
received cumulative payments on the promissory note totaling $1,922,475. The
Company has applied payments received as recovery of costs previously
capitalized under the management agreement. Capitalized costs were fully
recovered in the fourth quarter of 1997. Subsequent payments have been, and will
continue to be, recognized as income when received. The Company recognized
income of $81,971 in 1997 from payments received.
10
<PAGE>
There continues to be a dispute within the State of California between the
state government and Indian tribes regarding the types of gaming devices that
may be operated at casinos on Indian tribal lands. An outcome adverse to the
Indian tribes could affect the ability of the note obligor to earn sufficient
revenue to satisfy the remaining amount due under the promissory note to the
Company, which amount was $1,177,525 at December 31, 1997, excluding late
payment interest on amounts already received. The Company, at this time, cannot
predict the likelihood of an outcome adverse to the Company. The Company cannot
predict the amount of remaining payments that will be received under the note.
Portage des Sioux, Missouri. In 1994, the Company entered into a riverboat
development agreement with the City of Portage des Sioux, Missouri. The
agreement provided that the Company would be the developer and operator for the
development of a riverboat gaming enterprise, and that the City would not
actively pursue additional or alternative casino operations. The Company elected
not to renew this agreement, which expired on February 25, 1997. Although the
Company maintains current a gaming application filed in November 1994 with the
Missouri Gaming Commission, management believes that consideration of the
Company's application is unlikely in the foreseeable future.
Employees
The Company employs approximately 200 persons on an equivalent full-time
basis, including cashiers, dealers, food and beverage service personnel,
facilities maintenance staff, and accounting and marketing personnel. No labor
unions represent any employee group. A standard package of employee benefits is
provided to full-time employees along with training and job advancement
opportunities. In March 1998 the Company adopted a 401(k) Savings and Retirement
Plan for its employees.
Seasonality
The Company's business is not considered to be seasonal; however, the
anticipated highest levels of business activity, at least in Colorado, will
occur in the tourist season (i.e., from May through September). Its base level
(i.e., November through May) is expected to remain fairly constant although
weather conditions during this period could have a significant impact on
business levels in Colorado.
GOVERNMENTAL REGULATION
The Company's gaming operations are subject to strict governmental
regulations at state and local levels. Statutes and regulations can require the
Company to meet various standards relating to, among other matters, business
licenses, registration of employees, floor plans, background investigations of
licensees and employees, historic preservation, building, fire and accessibility
requirements, payment of gaming taxes, and regulations concerning equipment,
machines, tokens, gaming participants, and ownership interests. Civil and
criminal penalties can be assessed against the Company and/or its officers or
stockholders to the extent of their individual participation in, or association
with, a violation of any of the state and local gaming statutes or regulations.
Such laws and regulations apply in all jurisdictions within the United States in
which the Company may do business. Management believes that the Company is in
compliance with applicable gaming regulations. For purposes of the discussion
below, the term "the Company" includes its applicable subsidiaries.
11
<PAGE>
Colorado Regulation
The Colorado Limited Gaming Control Commission ("Commission") has adopted
regulations regarding the ownership of gaming establishments by publicly held
companies (the "Regulations"). The Regulations require the prior clearance or
notification of the Commission before any public offering of any securities of
any gaming licensee or any affiliated company. The Regulations require all
publicly traded or publicly owned gaming licensees to comply with numerous
regulatory gaming requirements. These requirements include, but are not limited
to, those listed below.
A publicly traded gaming licensee that sends to the holders of its voting
securities any proxy statements subject to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or an information statement
subject to Regulation 14C of the 1934 Act, must file such material with the
Colorado Division of Gaming (the "Colorado Division").
Whenever any document is furnished to the holders of voting securities of
a publicly traded gaming licensee or filed by a publicly traded gaming licensee
with the SEC, the publicly traded gaming licensee is required to file a true
copy of that document with the Colorado Division. Whenever a publicly traded
gaming licensee receives any material document filed with the SEC by any other
person relating to the publicly traded gaming licensee, it must file a true copy
of the document with the Colorado Division. Each publicly traded gaming licensee
must file with the Colorado Division, on an annual basis, a list of the holders
of its voting securities.
Each publicly traded gaming licensee is required to report promptly to the
Colorado Division the election or appointment of any director, any executive
officer and any other officers actively and directly engaged in the
administration or supervision of the gaming activities at any licensed gaming
establishment.
The following provisions are required to be included in the certificate of
incorporation for every publicly traded gaming licensee or holding company which
has a gaming license in the State of Colorado.
(i) The entity is precluded from issuing any voting securities except in
accordance with the provisions of the Colorado Limited Gaming Act
("Gaming Act") and the regulations promulgated thereunder. The
issuance of any voting securities in violation of the Gaming Act is
ineffective and such voting securities are deemed not to be issued and
outstanding until (a) the entity ceases to be subject to the
jurisdiction of the Commission, or (b) the Commission, by affirmative
action, validates the issuance or waives any defect in the issuance.
(ii) No voting securities issued by the entity and no interest in the
entity can be transferred in any manner except in accordance with the
provisions of the Gaming Act and its regulations. Any transfer in
violation of the Gaming Act is ineffective until (a) the entity ceases
to be subject to the jurisdiction of the Commission, or (b) the
Commission, by affirmative action, validates the transfer or waives
the defect in the transfer.
(iii) If the Commission at any time determines that a holder of voting
securities of the entity is unsuitable to hold the securities, then
the issuer of the securities may, within 60 days after the finding of
unsuitability, purchase the securities of the unsuitable person at the
lesser of (i) the cash equivalent of such person's investment in the
12
<PAGE>
entity, or (ii) the current market price of the date of finding of
unsuitability, unless the securities are transferred to a suitable
person, as determined by the Commission, within 60 days after the
finding of unsuitability. Until the securities are owned by persons
found by the Commission to be suitable to own them, (a) the entity is
not required or permitted to pay any dividend or interest with regard
to the securities, (b) the holder of the securities is not entitled to
vote on any matter as the holder of the securities and such securities
shall not for any purpose be included in the voting securities of the
entity, and (c) the entity is precluded from paying any remuneration
in any form to the holder of the securities.
The Company has the above provisions in its Certificate of Incorporation.
The Colorado regulations for publicly traded gaming licensees (the
"Regulations") also require each person who individually or in association with
others acquires, directly or indirectly, beneficial ownership of 5% or more of
any class of voting securities of a publicly traded gaming licensee to notify
the Colorado Division within 10 days after the person acquired 5% or more of the
securities. The person who acquires 5% or more of the securities shall provide
any additional information requested by the Colorado Division and be subject to
a finding of suitability as required by the Colorado Division. Publicly traded
gaming licensees are also required to notify each person subject to the
Regulations of the Colorado Division's requirements as soon as the gaming
licensee becomes aware of the acquisition.
Each person who, individually or in association with others, acquires,
directly or indirectly, the beneficial ownership of 10% or more of any class of
voting securities of a publicly traded gaming licensee required to contain the
above charter provisions is required to apply to the Commission for a finding of
suitability within 10 days after acquiring 10% or more of the securities. A
publicly traded gaming licensee is also required to notify each person subject
to the Regulations of its requirements as soon as the gaming licensee becomes
aware of the acquisition. However, the obligations of the person subject to the
Regulations are independent of and unaffected by the gaming licensee's failure
to give the notice.
Any person found unsuitable by the Commission is not permitted ownership
of any voting security of a publicly traded gaming licensee, subject to the
provisions of the Regulations, and must be removed immediately from any position
as a director, officer or employee of the publicly traded gaming licensee.
The State of Colorado created the Colorado Division within the Department
of Revenue to license, implement, regulate and supervise the conduct of limited
gaming. The Director of the Colorado Division, under the supervision of a
five-member Colorado Commission, has been granted broad power to ensure
compliance with the law, and regulations adopted thereunder. The Director may
inspect, without notice, premises where gaming is being conducted; he may seize,
impound or remove any gaming device. He may examine and copy any licensee's
records, may investigate the background and conduct of licensees and their
employees, and may bring disciplinary actions. He may also conduct detailed
background checks of persons who loan money to the Company.
The Commission is empowered to issue five types of gaming and gaming
related licenses. The Colorado Division has broad discretion to revoke, suspend,
condition, limit or restrict a license at any time. The license of the Company
must be renewed each year. All licenses are revocable, non-transferable and
valid only for the particular location initially authorized. No person, such as
the Company, can have an ownership interest in more than three retail licenses.
13
<PAGE>
Hence, the Company's business opportunities in Colorado could be limited
accordingly. All of the Company's employees must apply for and receive a support
gaming license prior to commencing employment. The Commission has adopted
comprehensive rules and regulations which require the Company to maintain
adequate books and records and these rules also prescribe minimum operating,
security and payoff procedures. The Commission has the power to deny any license
or renewal thereof to any person it considers to be "unsuitable," a broad,
discretionary standard. The Commission has also promulgated a list of excluded
persons; it is unlawful for any person on this list to enter licensed premises
or to hold shares in a licensee. Rules regarding gaming, cheating and other
fraudulent practices have also been adopted, which rules the Company is
obligated to police and enforce.
Other state regulatory agencies also impact the Company's operations,
particularly its license to serve alcoholic beverages. Rules and regulations in
this regard are strict, and loss or suspension of a liquor license could
significantly impair, if not ruin, a licensee's operation. Local building,
parking and fire codes and similar regulations could also impact the Company's
operations and proposed development of its properties.
Item 2. Properties.
- ------------------
The Company moved its corporate offices to its Womacks/Legends Casino at
200 - 220 East Bennett Avenue, Cripple Creek, Colorado, and rents a small office
at 999 18th Street, Suite 1810, Denver, Colorado pursuant to a lease with an
unaffiliated party. The lease term runs through April 2001, and monthly lease
payments are $1,470. The Company remains obligated under two office leases for
its former corporate offices in Denver and Colorado Springs. Both leases expire
in September 1998. The Company has sublet the space in the former Denver office
to an unaffiliated third party for the remainder of the lease term. The Company
pays monthly rent of $6,162 and receives monthly payments of $6,200 from the
subtenant. In January 1998, coincident with vacating its Colorado Springs
office, the Company recognized a liability of $35,000 for the remaining payments
due under the lease. The Company is seeking a suitable subtenant for this space.
See Item 1. "Business -- Property and Project Descriptions" herein for a
description of the Company's other properties.
Item 3. Legal Proceedings.
- -------------------------
The Company is not a party to any litigation, which is individually or in
the aggregate material to the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
- ----------------------------------------------------------
No matters were submitted to a vote of security holders of the Company
during the quarter ended December 31, 1997.
14
<PAGE>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- -----------------------------------------------------------------------------
The common stock of the Company began trading in the Nasdaq SmallCap
Market on November 10, 1993. The following table sets forth the low and high bid
price per share quotations as reported on the NASDAQ SmallCap Market of the
common stock for the periods indicated. These quotations reflect inter-dealer
prices, without retail markup, mark down or commission and may not necessarily
represent actual transactions. Actual prices may vary.
Quarter Ended Low High
- ------------------------------------------
March 31, 1996 $1.50 $2.13
June 30, 1996 $1.13 $2.00
September 30, 1996 $1.25 $1.69
December 31, 1996 $1.06 $1.81
March 31, 1997 $0.97 $1.47
June 30, 1997 $0.91 $1.31
September 30, 1997 $0.38 $0.94
December 31, 1997 $0.72 $1.38
At December 31, 1997, the Company had approximately 100 shareholders of
record of its common stock; management estimates that the number of beneficial
owners is approximately 1,000.
At the present time, management of the Company intends to use any earnings
which may be generated to finance the growth of the Company's business.
Accordingly, while payment of dividends rests within the discretion of the Board
of Directors, no dividends have been declared or paid by the Company, and it
does not presently intend to pay dividends.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
-------------
Business Environment and Risk Factors
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere herein.
The Company's future operating results may be affected by various trends and
factors, which are beyond the Company's control. These include, among other
factors, the competitive environment in which the Company operates, present
dependence upon the Cripple Creek, Colorado gaming market, changes in the rates
of gaming-specific taxes, shifting public attitudes toward the socioeconomic
costs and benefits of gaming, actions of regulatory bodies, dependence upon key
personnel, the speculative nature of gaming projects the Company may pursue,
risks associated with expansion, and other uncertain business conditions that
may affect the Company's business.
15
<PAGE>
With the exception of historical information, the matters discussed below
under the headings "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. The
Company cautions the reader that a number of important factors discussed herein,
and in other reports filed with the Securities and Exchange Commission, could
affect the Company's actual results and cause actual results to differ
materially from those discussed in forward-looking statements.
Results of Operations
As discussed more fully in Note 3 to the consolidated financial
statements, on July 1, 1996, the Company acquired the assets of Gold Creek
Associates, L.P. ("Gold Creek"), owner of Womack's Saloon & Gaming Parlor
("Womacks") in Cripple Creek, Colorado. Following the Company's acquisition of
Gold Creek, the Womacks property was consolidated with the Company's Legends
casino. Subsequent to June 30, 1996, the combined properties have been operated
and marketed as one casino under the name Womacks/Legends Casino. The
accompanying financial statements include the results of operations acquired
from Gold Creek for the period subsequent to June 30, 1996. Consequently,
results of operations for 1997 cannot be readily compared with those of 1996.
Net operating revenue increased to $19,660,018 in 1997 from $11,478,042 in
1996, primarily as a result of the acquisition of Gold Creek on July 1, 1996.
Casino revenue was $19,096,857 in 1997 and $10,984,499 in 1996, an increase of
74%. The Company's share of the Cripple Creek market increased from 17.8% in
December 1996 to 19.5% in December 1997, with an average market share of 17.4%
for all of 1997. On a pro forma basis, casino revenue for Womacks/Legends
increased 13.1% from 1996 to 1997, compared with growth of the Cripple Creek
market of 5.1%. Womacks/Legends Casino operated approximately 12% of the gaming
devices in the Cripple Creek market in 1997. Casino revenue from the Company's
cruise ship concessions decreased from $546,958 to $446,841 as a result of the
expiration of the Silver Cloud agreement in April 1997. The concession agreement
for the second ship, the Silver Wind, expired in January 1998. Gross margin from
company-wide casino activities decreased from 58% in 1996 to 45%. The decrease
in margin is principally attributable to a higher average effective gaming tax
rate, as well as the costs of the Womacks/Legends Casino busing program and the
WestPac logojet marketing program in 1997. Both marketing programs were
discontinued at the end of 1997. The increased gaming taxes and marketing costs
were partially offset by proportionately lower payroll costs.
Food and beverage revenue increased 70% from 1996 to 1997 due to the
larger scale of operations resulting from the Gold Creek acquisition. The cost
of food and beverage promotional allowances, which are included in casino costs,
increased to $973,609 in 1997 from $439,811 in 1996. Hotel revenue increased
from $31,443 to $57,167, principally as a result of the inclusion of a full
year's results in 1997 compared with a half year in 1996.
Other revenue primarily consists of Womacks/Legends Casino's parking lot
revenue and gift shop sales. The decrease in other revenue was mainly due to
receipt of nonrecurring consulting and licensing fees in 1996.
16
<PAGE>
General and administrative expenses increased from $4,254,666 in 1996 to
$5,247,763 in 1997, but as a percentage of net operating revenue decreased from
37% to 27%. Contributing to the percentage decrease were proportionately lower
payroll, rent and travel expenses in 1997. The 1996 amount also includes
$150,000 of up-front costs related to the Company's three-year advertising
agreement with WestPac.
Depreciation increased from $894,561 in 1996 to $1,607,148 in 1997
primarily as the result of a full year's depreciation on the assets acquired
from Gold Creek and, to a lesser extent, due to the exterior and interior
renovations undertaken in the latter half of 1996 and continuing into 1997. The
increase in amortization expense of $300,000 from 1996 to 1997 results from a
full year of goodwill amortization related to the Gold Creek acquisition.
Interest expense increased from $577,914 to $1,039,147 as a result of the
debt incurred to partially finance the Gold Creek acquisition. The other items
included in the caption "Other expense, net" in the consolidated statements of
operations, for both 1997 and 1996, are described in Note 9 to the consolidated
financial statements.
As more fully discussed in Note 8 to the consolidated financial
statements, the Company recognized income tax expense, before extraordinary
item, of $95,000 in 1997 versus $49,000 in 1996. In both years the income tax
expense consists of alternative minimum tax ("AMT"), with the higher provision
in 1997 being primarily attributable to the utilization of proportionately lower
net operating loss carryforwards for AMT purposes in 1997. As a result, a larger
portion of AMT taxable income was subject to AMT in the current year.
The Company recognized an extraordinary charge, net of income tax benefit,
of $171,860 in 1997 resulting from a prepayment premium on a secured borrowing
that was retired in connection with the refinancing consummated with Wells Fargo
Bank.
Liquidity and Capital Resources
At December 31, 1997 the Company had cash and cash equivalents totaling
$4,227,978 and a net working capital position of $2,074,799. Net cash provided
by operations was $2,983,195 in 1997 as compared with $2,635,788 in 1996. The
Company used cash of $3,432,985 for purchases of property and equipment in 1997.
The major acquisitions were the purchase, for $1.85 million, of a portion of the
Womacks/Legends Casino property previously subject to a long-term lease, and the
purchase of a parcel of land for $785,000 for customer parking.
As more fully described in Note 5 to the consolidated financial
statements, the Company refinanced substantially all of the secured debt
associated with its Cripple Creek operations through a revolving credit facility
with Wells Fargo Bank. The refinancing resulted in the Company lowering its
average cost of borrowed funds to approximately 9.5%. The original facility, in
the amount of $13 million, was increased in early 1998 to $15 million, subject
to the completion of a proposed purchase of a property adjacent to
Womacks/Legends Casino for approximately $3.6 million. The Company also
negotiated a more favorable interest rate structure, which further reduces its
cost of borrowed funds beginning March 1, 1998. At December 31, 1997 the
Company's outstanding borrowings under the facility were $9.4 million.
17
<PAGE>
The Company is presently pursuing several gaming opportunities in South
Africa. The Company is the contracted casino management partner to a consortium,
Silverstar Development Ltd. ("Silverstar"), which is an applicant for a gaming
license in the province of Gauteng. The Company also has a small equity position
in Silverstar. In late February 1998, the Gambling and Betting Board (the
"Board") for the province of Gauteng, which includes the greater Johannesburg
area, awarded four of a possible six casino licenses. The Westrand region of
Gauteng, for which Silverstar has submitted its application and competes with
one other applicant, did not receive one of the four licenses. The Board has
indicated that it expects to award the remaining two licenses by the end of
March 1998. In the event Silverstar receives a license, the Company would be
required to make an additional equity investment of approximately $2,000,000.
The equity investment would be funded from the Company's existing working
capital. The Company cannot predict the likelihood of Silverstar being awarded a
gaming license.
The Company also holds a small equity position in Great North Resorts
Limited which has submitted a license application for Pietersburg, the capital
of the Northern Province. If successful in receiving a license, the Company
would manage the casino operations of a proposed $40 million casino, hotel,
entertainment and resort complex pursuant to a five-year agreement. The Company
would earn fees based on a percentage of annual gaming revenue. A decision on
this application is expected no sooner than late second quarter of 1998. The
Company has no significant additional capital obligations with respect to this
application.
In late February 1998, the Company's Board of Directors approved a
discretionary program to repurchase up to $1 million of the Company's
outstanding common stock. The Board believes that the Company's stock is
undervalued in the trading market in relation to both its present operations and
its future prospects. Repurchases will be made, subject to market conditions, in
open market transactions using available cash and cash equivalent resources.
The Company believes that its present cash and working capital positions,
together with expected cash flows from operations, are sufficient to meet its
near- and medium-term obligations and contemplated capital expenditures. The
Company is subject to customary financial covenants associated with its debt
instruments which could restrict the Company's ability to pursue other new
gaming opportunities that require significant capital investment.
Information Systems and the Year 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is generally referred to as the Year 2000 compliance issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain date-based or date-sensitive information.
18
<PAGE>
The Company is in the process of identifying all significant applications
that will require modification to ensure Year 2000 compliance. Internal and
external resources will be used as necessary to make the required modifications
and to test and verify Year 2000 compliance. Most of the Company's computer
applications have been purchased, and will continue to be purchased, from third
party vendors. Accordingly, a significant part of the Company's efforts to
ensure Year 2000 compliance will be to obtain assurances from vendors that
timely upgrades will be made available to make previously-purchased software
Year 2000 compliant, and to obtain assurances that newly-purchased software is
Year 2000 compliant. Additionally, the Company will contact companies with whom
it does business, and upon whose systems the Company may indirectly rely, to
obtain assurances that such systems will be timely modified. There can be no
guarantee that the Company's systems, applications supplied by vendors, and the
systems of other companies on which the Company relies, will be timely converted
or that a failure to convert would not have a material adverse effect on the
Company.
The Company anticipates that it will complete this process in early 1999,
leaving adequate time to assess and resolve any significant remaining issues.
The cost of Year 2000 compliance is not expected to be material to the Company's
financial position or results of operations in any one year, however, since the
Company is early in the Year 2000 compliance process there can be no assurance
that such costs would not become material as more information becomes available.
Item 7. Financial Statements.
- ----------------------------
See "Index to Financial Statements" on page F-1 hereof.
Item 8. Changes In and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure.
--------------------
Not applicable.
19
<PAGE>
CENTURY CASINOS, INC.
INDEX TO FINANCIAL STATEMENTS
Page Number
-----------
Independent Auditors' Report F2
Consolidated Balance Sheet as of December 31, 1997 F3
Consolidated Statements of Operations for the Years Ended F4
December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the F5
Years Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended F6
December 31, 1997 and 1996
Notes to Consolidated Financial Statements F8
F1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Century Casinos, Inc.
We have audited the accompanying consolidated balance sheet of Century Casinos,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for the two years
in the period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Century Casinos, Inc. and
subsidiaries at December 31, 1997, and the results of their operations and their
cash flows for the two years in the period then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 27, 1998
F2
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-----------------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 4,227,978
Prepaid expenses and other 536,260
---------------
Total current assets 4,764,238
Property and Equipment, net 14,626,489
Goodwill, net of accumulated amortization of $3,727,781 12,598,634
Other Assets 797,312
===============
Total $ 32,786,673
===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Current portion of long-term debt, including $420,360 to
related party $ 525,311
Accounts payable and accrued liabilities 2,164,128
---------------
Total current liabilities 2,689,439
Long-Term Debt, less current portion 10,068,614
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding
Common stock; $.01 par value; 50,000,000 shares
authorized; 15,861,885 shares issued and outstanding 158,619
Additional paid-in capital 24,907,543
Foreign currency translation (27,777)
Accumulated deficit (5,009,765)
---------------
Total shareholders' equity 20,028,620
---------------
Total $ 32,786,673
===============
</TABLE>
See notes to consolidated financial statements.
F3
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Operating Revenue:
Casino $ 19,096,857 $ 10,984,499
Food and beverage 922,449 543,379
Hotel 57,167 31,443
Other 336,608 350,728
-------------- -------------
20,413,081 11,910,049
Less promotional allowances (753,063) (432,007)
-------------- -------------
Net operating revenue 19,660,018 11,478,042
-------------- -------------
Operating Costs and Expenses:
Casino 10,410,532 4,660,482
Food and beverage 393,670 323,454
Hotel 17,590 8,326
General and administrative 5,247,763 4,254,666
Depreciation and amortization 2,948,652 1,936,065
-------------- -------------
Total operating costs and expenses 19,018,207 11,182,993
-------------- -------------
Income from Operations 641,811 295,049
Other expense, net (917,575) (1,541,191)
-------------- -------------
Loss before Income Taxes and Extraordinary Item (275,764) (1,246,142)
Provision for income taxes 95,000 49,000
-------------- -------------
Loss before Extraordinary Item (370,764) (1,295,142)
Extraordinary item - debt prepayment premium,
net of income tax benefit of $40,000 (171,860)
-------------- -------------
Net Loss $ (542,624) $(1,295,142)
============== =============
Loss Per Share, Basic and Diluted:
Before extraordinary item $ (0.02) $ (0.09)
Extraordinary item $ (0.01)
-------------- -------------
Net loss $ (0.03) $ (0.09)
============== =============
Weighted Average Common Shares Outstanding 15,861,885 13,902,150
============== =============
</TABLE>
See notes to consolidated financial statements.
F4
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Foreign
------------------ Paid-in Currency Accumulated
Shares Amount Capital Translation Deficit Total
-------- ------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 10,789,652 $ 107,897 $ 17,232,907 $ (8,423) $ (3,171,999) $ 14,160,382
Private placement 1,000,000 10,000 1,365,665 1,375,665
Private placement 4,072,233 40,722 4,428,898 4,469,620
Contingent shares to be
issued July 1, 1998 in
connection with Gold
Creek acquisition 1,788,750 1,788,750
Warrants issued to consultant 4,055 4,055
Foreign currency translation (5,431) (5,431)
Net loss (1,295,142) (1,295,142)
---------- --------- ------------ --------- ------------- -------------
BALANCE AT DECEMBER 31, 1996 15,861,885 158,619 24,820,275 (13,854) (4,467,141) 20,497,899
Warrants issued to consultant 48,660 48,660
Warrants repriced in connection
with debt refinancing 38,608 38,608
Foreign currency translation (13,923) (13,923)
Net loss (542,624) (542,624)
========== ========= ============ ========= ============= =============
BALANCE AT DECEMBER 31, 1997 15,861,885 $ 158,619 $ 24,907,543 $(27,777) $ (5,009,765) $ 20,028,620
========== ========= ============ ========= ============= =============
</TABLE>
See notes to consolidated financial statements.
F5
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flow from Operations:
Net loss $ (542,624) $(1,295,142)
Adjustments to reconcile net loss to net
cash provided by operations:
Depreciation 1,607,148 894,561
Amortization 1,341,504 1,041,504
Extraordinary item - debt prepayment premium 211,860
Income from terminated management agreement (81,971)
Noncash consulting fees 60,035 140,555
Loss on note receivable 422,476
Costs associated with terminated debt offering 65,800
Loss on disposition of assets and other noncash charges 110,111 413,094
Deferred tax provision 32,000
Gain from foreign currency transactions (741)
Changes in operating assets and liabilities:
Prepaid expenses and other assets 242,786 46,671
Accounts payable and accrued liabilities 34,346 875,010
------------- ------------
Net cash provided by operations 2,983,195 2,635,788
------------- ------------
Cash Flow from Investing Activities:
Acquisition of Gold Creek, net of cash acquired (5,309,027)
Expenditures for gaming development projects and other (379,761) (104,923)
Purchases of property and equipment (3,432,985) (1,554,115)
Redemptions of short-term investment securities 747,588
Purchase of note receivable (1,337,500)
Sale of note receivable 1,231,119
Principal payments received on note receivable 24,668
Proceeds from terminated gaming development projects 926,338 947,954
Proceeds received from disposition of assets 15,000 33,761
------------- ------------
Net cash used in investing activities (2,871,408) (5,320,475)
------------- ------------
</TABLE>
-Continued on following page-
F6
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flow from Financing Activities:
Proceeds from borrowings 17,748,856 800,000
Principal repayments and prepayment premium on
borrowings (17,869,138) (1,449,029)
Deferred debt costs (320,067)
Proceeds from sales of common stock 5,856,785
------------- -------------
Net cash provided by (used in) financing activities (440,349) 5,207,756
------------- -------------
Increase (Decrease) in Cash and Cash Equivalents (328,562) 2,523,069
Cash and Cash Equivalents at Beginning of Year 4,556,540 2,033,471
------------- -------------
Cash and Cash Equivalents at End of Year $ 4,227,978 $ 4,556,540
============= =============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Disclosure of Noncash Investing and Financing Activities:
1997 1996
---- ----
<S> <C> <C>
Equipment acquired through long-term financing $ 293,911 $ 355,615
Warrants repriced in connection with
debt refinancing $ 38,608
</TABLE>
See Note 3 for details of noncash transactions related to Gold Creek
acquisition.
Supplemental Disclosure of Cash Flow Information:
Interest paid by the Company was $847,658 in 1997 and $563,698 in 1996.
Income taxes paid by (refunded to) the Company were $24,090 in 1997 and
$(1,125) in 1996.
See notes to consolidated financial statements.
F7
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. and subsidiaries (the "Company") own and operate a
limited-stakes gaming casino in Cripple Creek, Colorado, and are pursuing a
number of additional gaming opportunities internationally and in the United
States. Prior to July 1, 1996, the Company's operations in Cripple Creek,
Colorado, consisted of Legends Casino ("Legends"), which the Company
acquired on March 31, 1994, through a merger with Alpine Gaming, Inc.
("Alpine"). On July 1, 1996, the Company acquired the net assets of Gold
Creek Associates, L.P. ("Gold Creek"), the owner of Womack's Saloon &
Gaming Parlor ("Womacks"), which is immediately adjacent to Legends (see
Note 3). Following the Company's acquisition of Womacks, interior
renovations were undertaken on both properties to facilitate the operation
and marketing of the combined properties as one casino under the name
Womacks/Legends Casino. The accompanying financial statements include the
results of operations acquired from Gold Creek for the period subsequent to
June 30, 1996.
The Company's operating revenue for 1997 and 1996 is derived principally
from its casino operations in Cripple Creek.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Use of Estimates - The preparation of the accompanying financial statements
in accordance with generally accepted accounting principles requires the
use of estimates by management in determining the reported amount of
certain assets, liabilities, revenues and expenses. Actual results could
differ from those estimates.
Cash Equivalents - All highly liquid investments with a maturity of three
months or less at the time of purchase are considered to be cash
equivalents.
Fair Value of Financial Instruments - In accordance with the reporting and
disclosure requirements of Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments,"
the Company calculates the fair value of financial instruments and includes
this additional information in the notes to its financial statements when
the fair value does not approximate the carrying value of those financial
instruments. Fair value is determined using quoted market prices whenever
available. When quoted market prices are not available, the Company uses
alternative valuation techniques such as calculating the present value of
estimated future cash flows utilizing risk-adjusted discount rates. The
Company's carrying value of financial instruments approximates fair value
at December 31, 1997.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of assets in service is provided using the straight-line
method over the estimated useful lives or the applicable lease term, if
shorter.
F8
<PAGE>
Goodwill - Goodwill represents the excess of purchase price over net
identifiable assets acquired. Goodwill recognized in the 1994 Alpine
acquisition, which is not deductible for income tax purposes, has an
unamortized balance of $4,605,444 at December 31, 1997, and is being
amortized on a straight-line basis over 10 years. Goodwill recognized in
the 1996 Gold Creek acquisition has an unamortized balance of $7,993,190 at
December 31, 1997, is being amortized on a straight-line basis over 15
years, and is deductible for tax purposes.
Impairment of Long-Lived Assets - The Company reviews long-lived assets for
possible impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. If there is an
indication of impairment, which is estimated as the difference between
anticipated undiscounted future cash flows and carrying value, the carrying
amount of the asset is written down to its estimated fair value by a charge
to operations. Estimates of future cash flows are inherently subjective and
are based on management's best assessment of expected future conditions.
Revenue Recognition - Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Consulting fees are
recognized as revenue as services are provided.
Promotional Allowances - Food and beverage furnished without charge to
customers is included in gross revenue at a value which approximates retail
and then deducted as complimentary services to arrive at net revenue. The
estimated cost of such complimentary services is charged to casino
operations and was $973,609 in 1997 and $439,811 in 1996.
Foreign Currency Translation - Adjustments resulting from the translation
of the accounts of the Company's Austrian subsidiary from the local
functional currency to U.S. dollars are recorded as a separate component of
shareholders' equity. Adjustments resulting from the translation of
transactions which are denominated in a currency other than U.S. dollars
are recognized in the statement of operations.
Income Taxes - The Company follows SFAS No. 109, "Accounting for Income
Taxes," which requires the liability approach to computing deferred income
taxes. The liability method provides that deferred tax assets and
liabilities are recorded based on the difference between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes.
Stock-Based Compensation - The Company follows the intrinsic value based
method for valuing stock options or similar equity instruments granted to
employees, as permitted by SFAS No. 123, "Accounting for Awards of
Stock-Based Compensation." The intrinsic value based method generally
provides that no compensation expense is recognized when the option
exercise price is equal to or greater than the trading price of the stock
on the date of grant. The Company follows the fair value based method for
valuing stock options or similar equity investments granted to
non-employees.
Earnings Per Share - In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings per Share," which supersedes
Accounting Principles Board Opinion No. 15 and establishes new guidelines
for the computation and presentation of earnings per share. A measurement
designated "basic earnings per share" replaces "primary earnings per
share." Basic earnings per share considers only outstanding common stock in
the computation. A measurement designated "diluted earnings per share"
replaces "fully diluted earnings per share," although the computations are
similar in that both give effect to all potentially dilutive securities.
The provisions of SFAS No. 128 became effective in the fourth quarter of
1997. There was no effect on the loss per share amounts for 1996 previously
reported.
Reclassifications - Certain reclassifications have been made in the 1996
financial statements to conform with the 1997 presentation.
F9
<PAGE>
Recently Issued Accounting Pronouncements - In June 1997 the FASB issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and display of comprehensive income and its components. It
requires that all changes in equity during a period, except those resulting
from investments by owners and distributions to owners, be reported as a
component of comprehensive income and that comprehensive income be
displayed in a financial statement with the same prominence as other
financial statements that constitute a full set of financial statements.
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments, products and services,
geographic areas and major customers.
The Company will be required to adopt both SFAS No. 130 and SFAS No. 131
for the year ending December 31, 1998. The Company has not completed the
process of evaluating the impact, if any, that will result from the
adoption of the new pronouncements.
3. ACQUISITION OF WOMACKS
On July 1, 1996, the Company purchased substantially all of the assets, and
assumed substantially all of the liabilities, of Gold Creek, the owner of
Womacks in Cripple Creek, Colorado. The total purchase price was
approximately $14.2 million, consisting of a base cash payment of $5
million plus $425,000 for the amount of working capital as of the closing
date, a promissory note of $5.2 million issued to Gold Creek, the
assumption of existing debt of Gold Creek of approximately $3 million, and
direct out-of-pocket costs of approximately $600,000. The promissory note
to Gold Creek and substantially all of the assumed debt obligations were
refinanced in April 1997 (see Note 5). The purchase agreement further
provided that two years after the closing of the transaction, the Company
will issue 1,060,000 shares of its common stock, valued at $1.8 million
based on the July 1, 1996 trading price, to two principals of the seller
who entered into consulting contracts with the Company at closing. The
number of shares to be issued is subject to upward adjustment, determined
by a formula, to the extent that the trading price of the Company's stock
is less than $1.58 at the time of issuance, and subject to downward
adjustment to the extent that the trading price exceeds $4.00. Based upon
the 20-day average closing price of the Company's common stock preceding
December 31, 1997, the number of shares to be issued would have been
1,595,048. At the Company's option, it may elect to issue 1,060,000 shares
together with a cash payment equal to the difference between $1,674,800 and
1,060,000 shares valued at the 20-day closing price preceding date of
issuance. The cash payment under this option would have been $561,800 at
December 31, 1997.
The Company has accounted for the Gold Creek acquisition using the purchase
method of accounting, whereby the total purchase price, including direct
out-of-pocket costs of the acquisition, has been allocated to identifiable
assets acquired and liabilities assumed based on their estimated fair
market value. The excess of the purchase price over the fair value of
identifiable net assets ("goodwill") is being amortized to expense ratably
over 15 years.
F10
<PAGE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment at December 31, 1997 consist of the following:
Estimated
Service
Life
in Years
----------
<S> <C> <C>
Land $ 4,616,437
Buildings and improvements 5,679,250 7 - 31
Gaming equipment 4,401,793 3 - 7
Furniture and office equipment 1,034,346 5 - 7
Other 955,503 3 - 7
--------------
16,687,329
Less: accumulated depreciation (2,981,344)
--------------
13,705,985
Nonoperating casino and land 920,504
--------------
Property and equipment, net $ 14,626,489
==============
</TABLE>
5. LONG-TERM DEBT
Long-term debt at December 31, 1997, consists of the following:
<TABLE>
<S> <C>
Borrowings under revolving line of credit facility with bank $ 9,401,466
Notes payable secured by gaming and other equipment 262,474
Note payable, unsecured; payable in monthly installments of
$1,660, including interest at 12%; maturing in June 1998 9,625
Convertible debenture 500,000
Note payable to founding shareholder, unsecured;
noninterest-bearing 420,360
------------
Total long-term debt 10,593,925
Less current portion (525,311)
============
$10,068,614
============
</TABLE>
F11
<PAGE>
On March 31, 1997, the Company entered into a four-year, $13 million
reducing revolving line of credit facility (the "RCF") with Wells Fargo
Bank ("Wells Fargo"). The initial borrowing drawdown under the RCF of $12.2
million on April 3, 1997, was used to retire approximately $9.2 million of
secured debt relating to Womacks/Legends Casino. The Company also exercised
a purchase option and acquired a portion of Womacks/Legends Casino,
previously subject to a long-term operating lease, for $1.85 million. The
remaining proceeds were used for bank fees and other costs paid at closing,
and for general operating purposes. The RCF is secured by substantially all
of the real and personal property of Womacks/Legends Casino. On January 28,
1998, the RCF was amended to increase the maximum available borrowings to
$15 million, subject to the completion of a proposed property acquisition.
An annual commitment fee of one-half percent, payable quarterly, is charged
on the unused portion of the RCF. Through February 28, 1998, borrowings
bear interest at Wells Fargo's prime rate plus one-half percent, payable
quarterly. Beginning March 1, 1998, the interest rate will be reduced to a
maximum of prime plus three-quarters percent and a minimum of prime, with
the rate based on the Company's leverage ratio, as defined, on a
trailing-four-quarters basis. At the Company's option, all or a portion of
the outstanding balance may be converted to a LIBOR-based borrowing. The
borrowing capacity under the RCF is reduced by $375,000 quarterly. The
total borrowing capacity at December 31, 1997, was $12,250,000, with unused
borrowing capacity of approximately $2.8 million at that date. Quarterly
repayments of principal are required to the extent that outstanding
borrowings exceed borrowing capacity at the beginning of any quarter. Based
upon the balance of outstanding borrowings at December 31, 1997, and the
scheduled reductions in borrowing capacity over the next 12 months, the
entire balance of outstanding borrowings has been classified as long-term
in the accompanying balance sheet. Under the RCF, the Company is required
to comply with certain customary financial covenants, and Womacks/Legends
Casino is subject to certain capital expenditure requirements and
restrictions on investments. In connection with securing the RCF, the
Company incurred and capitalized approximately $360,000 of out-of-pocket
costs, comprising principally nonrefundable bank commitment fees and
attorneys' fees, including costs incurred prior to closing. These deferred
costs are being charged to operations on a straight-line basis over the
term of the RCF. An extraordinary charge, net of income taxes, of $171,860,
constituting a prepayment premium on one of the retired borrowings, was
recognized in the second quarter of 1997.
On May 30, 1996, the Company issued a convertible debenture in the
principal amount of $500,000 to a private investor. The proceeds were used
in financing the Gold Creek acquisition. The debenture bears interest at
10.5%, payable quarterly. The holder has the option to convert, in one or
more transactions, all or a portion of the outstanding principal into the
Company's common stock at $1.84 per share, subject to a minimum per
conversion transaction of $50,000. The Company has the option to prepay the
debenture, in whole or in part, after the first anniversary date at 132% of
the outstanding principal. The prepayment amount declines to 127% after the
second anniversary date, 122% after the third anniversary date and 116%
after the fourth anniversary date. The entire unpaid principal is due on
May 30, 2001.
The Company has acquired certain of its gaming and other equipment subject
to vendor financing at fixed rates of 10% to 10.5%.
F12
<PAGE>
Scheduled maturities of long-term debt are as follows:
1998 $ 525,311
1999 3,844,701
2000 1,572,447
2001 4,651,466
=============
Total $ 10,593,925
=============
6. SHAREHOLDERS' EQUITY
In connection with a purchase of the Company's common stock in 1994, the
Company granted to an unaffiliated third party options to acquire 230,000
shares of common stock at $3.00 per share in the event the trading price of
the common stock reaches $10.00 (115,000 shares may be purchased) and
$13.00 (the remaining 115,000 shares may be purchased). The Company has the
right to require the third party to exercise the options if these
conditions are met. The options expire in March 1999.
In connection with the business combination with Alpine, warrants were
granted to certain key Alpine employees to purchase 235,000 shares of
common stock at an exercise price of $3.49. In 1997, the exercise price on
warrants covering 150,000 shares was reduced to $1.50 as an inducement to
two former principals of Alpine to cure certain property title issues in
connection with the Company's April 1997 debt refinancing. The warrants
expire in March 1999.
Warrants to purchase 1,000,000 shares of common stock at an exercise price
of $2.25 were issued in conjunction with a private placement of common
stock in July 1994 and expire June 30, 1999.
In early 1995 the Company completed a private placement of 1,460,000 units
at $1.50 per unit, each unit consisting of one share of common stock and
one warrant to purchase one share of common stock at an exercise price of
$2.50 per share, exercisable until December 31, 1999. The Company, at its
option, may redeem the warrants in the event its common stock trades at a
price above $6.00 per share for a minimum of five consecutive trading days
for a redemption price of $0.01 per warrant.
Additionally, in early 1995 the Company entered into a consulting agreement
with a third party whereby the consultant will assist the Company, from
time to time, in seeking investors and business opportunities. The
agreement provides that, upon the consummation of certain transactions, the
Company will issue to the consultant warrants to purchase the Company's
common stock. The number of shares and exercise price are determined based
on a formula, which depends upon the type and size of transaction
consummated and the recent trading price of the common stock. In connection
with the 1995 private placement discussed above, the Company on March 20,
1995 issued warrants to the consultant for 71,428 shares exercisable at
$1.05 per share. The warrants have a five-year term from the date of issue.
The consulting agreement may be terminated by either party upon 30 days
notice.
In January 1996 the Company completed a private placement of 1,000,000
shares of its common stock at $1.50 per share. Net proceeds to the Company
were $1,375,665.
In June 1996 the Company completed a private placement of 4,072,233 shares
of its common stock at an average price of $1.43 per share, with proceeds,
net of selling commissions, of approximately $4,470,000. In connection with
this private placement, the Company issued warrants to a placement agent to
purchase 150,000 shares of its common stock at $2.36 per share. The
warrants expire in June 2001.
F13
<PAGE>
In December 1996 the Company issued warrants to purchase 450,000 shares of
its common stock to a consulting firm in connection with a two-year
agreement, whereby the consulting firm will provide the Company with
institutional and individual contacts in the investment community. The
warrants were issued in increments of 150,000 shares with exercise prices
of $1.75, $2.25 and $2.75 per share and expiration dates of December 1997,
June 1998 and December 1998, respectively. The estimated fair value of the
warrants at issuance was $97,327, which is being charged ratably to
earnings, with a corresponding credit to additional paid-in capital, over
the term of the consulting contract.
In April 1994 the Board of Directors of the Company adopted the Employee's
Equity Incentive Plan (the "Plan"), which was amended effective November
22, 1995, and further amended November 25, 1996. The Plan provides for the
grant of awards to eligible employees in the form of stock, restricted
stock, stock options, stock appreciation rights, performance shares or
performance units, all as defined in the Plan. The Plan provides for the
issuance of up to 3,500,000 shares of common stock through the various
forms of award permitted. Through December 31, 1997, only stock option
awards had been granted under the Plan. Stock options may be either
incentive stock options, for which the option price may not be less than
fair market value at the date of grant, or nonstatutory options, which may
be granted at any option price. All options must have an exercise period
not to exceed ten years. Options granted to date have either one-year or
two-year vesting periods. Transactions regarding the Plan are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Incentive Stock Options: ------ --------- ------ ---------
------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1 2,371,400 $ 1.50 2,266,000 $ 1.50
Granted 265,800 $ 0.85 105,400 $ 1.54
Cancelled or forfeited (21,800) $ 1.50
----------- -----------
Outstanding at December 31 2,615,400 $ 1.44 2,371,400 $ 1.50
=========== ===========
Options exercisable at 2,460,834 $ 1.47 2,321,133 $ 1.50
December 31 =========== ===========
</TABLE>
Summarized information regarding options outstanding at December 31, 1997,
is as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price At Year End Term in Years at Year End
-------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
$0.75 230,000 9.8 115,000
$1.50 2,345,900 7.7 2,306,334
$1.63 30,000 8.0 30,000
$2.25 9,500 7.4 9,500
============= ================
2,615,400 7.9 2,460,834
============= ================
</TABLE>
F14
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for options granted under the Plan.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements. Had compensation cost for the Plan been determined
based on the fair value at the grant dates for awards under the Plan,
consistent with the method recommended, but not required, by SFAS No.123,
the Company's net loss and loss per share would have been adjusted to the
pro forma amounts indicated below:
1997 1996
---- ----
Net loss As reported $ (542,624) $(1,295,142)
Pro forma $ (649,772) $(1,660,324)
Loss per share As reported $ (0.03) $ (0.09)
Pro forma $ (0.04) $ (0.12)
The fair value of options granted under the Plan was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions:
1997 1996
---- ----
Weighted-average fair value of
options granted during the year $ 0.58 $ 1.16
Weighted-average risk-free interest rate 5.7% 6.1%
Weighted-average expected life 10 yrs. 10 yrs.
Weighted-average expected volatility 59% 74%
Weighted-average expected dividends $ 0 $ 0
7. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Concession Agreement - The Company's concession to provide unlimited-stakes
gaming on a luxury cruise ship, the Silver Wind, expired in January 1998.
Proposed Property Acquisition - In November 1997 the Company entered into a
definitive purchase agreement to acquire 22,000 square feet of land, zoned
for gaming, adjacent to Womacks Casino. The prime parcel of land under
contract includes a partially constructed building structure. The Company
anticipates developing the property to include a covered parking structure,
hotel rooms and possibly additional gaming facilities. The purchase price
is $3,200,000, plus either 400,000 shares of Century's restricted common
stock or $400,000, at the Company's option. The Company has made an earnest
money deposit of $150,000. Closing of the purchase is scheduled for the
second quarter of 1998.
F15
<PAGE>
WestPac Advertising Agreement - In late 1996 the Company entered into a
three-year advertising agreement, which commenced in January 1997, with
Western Pacific Airlines, Inc. ("WestPac"), whereby the entire exterior of
one of WestPac's aircraft prominently displayed the logos and color scheme
of Womacks/Legends Casino and its corporate parent, Century Casinos. The
agreement also provided for various other joint marketing and advertising
activities. At the time, WestPac operated flights nationwide out of its
sole hub in Colorado Springs, which is located in the primary market area
for Womacks/Legends Casino in Cripple Creek. During 1997, WestPac
significantly revised its business strategy, selecting Denver as its
primary hub, and began to operate a majority of its flights into and out of
the Denver hub. Due to the change in WestPac's strategy and its reduced
emphasis on the Colorado Springs market, the Company informally advised
WestPac that the latter's change in business strategy constituted a
material breach of the agreement and that the Company sought to terminate
the agreement as well as reimbursement of monies previously paid. In
October 1997 WestPac filed a Chapter 11 bankruptcy petition and in January
1998 completely ceased operations. Consequently, the Company believes it
has no further obligations under the advertising agreement and, in light of
WestPac's cessation of operations, does not expect to recover any amounts
previously paid.
Casino Management Agreement-Rhodes, Greece - The Company has executed a
casino management consulting agreement with Rhodes Casino, S.A., a
consortium including Playboy Enterprises, under which the Company, as an
independent contractor, will supply services and assistance in establishing
a casino on the island of Rhodes, Greece. The consortium has been awarded
the exclusive license for casino gaming on Rhodes for a 12-year period. The
Company's management consulting agreement with the consortium, which has an
initial term running through the third anniversary of the casino opening,
provides for fees to the Company of $200,000 for services to be rendered in
the pre-opening phase, $300,000 per year during the first three years of
operation and $50,000 per year thereafter, if renewed. The Company is not
required to commit any capital in connection with the proposed activities
under the agreement. In the fourth quarter of 1996, the Company received
$50,000 with respect to pre-opening phase services. The consortium had
previously indicated a target opening date for the casino of late 1997,
which it did not achieve, and has not announced a revised opening date.
South Africa - Recently enacted legislation in South Africa provides for
the award of up to 40 casino licenses throughout the country. The Company
has filed applications with two consortia for casino licenses in the
province of Gauteng. The Company has signed long-term management contracts
with both consortia, with one of the agreements providing that, should a
license be granted, the Company would make a minority equity investment of
approximately $2,000,000. The Company cannot reasonably predict whether
either license will ultimately be awarded to the Company's partners.
Riverboat Development Agreement-Indiana - In December 1995 the Company sold
its 80% interest in Pinnacle Gaming Development Corp. ("Pinnacle") to an
affiliate of Hilton Gaming Corporation and Boomtown, Inc.
("Hilton/Boomtown"). Pinnacle had been pursuing a riverboat gaming license
application in Switzerland County. Upon signing the agreement, the Company
received a cash payment of $80,000 and recognized a gain on the sale of its
investment of $26,627. The agreement provides for additional payments to
the Company of up to approximately $3.3 million upon the occurrence of
certain events. The agreement may be terminated by the buyer under
specified circumstances, without further obligation to the Company. The
Company will recognize future payments, if any, from the buyer as income
when earned. In December 1997 the Indiana Gaming Commission voted to delay
a decision on the award of any additional riverboat gaming licenses for at
least one year, until the economic impact of the four existing licenses
could be more fully evaluated.
F16
<PAGE>
Indian Tribal Management Agreement-California - In August 1995 the Company
terminated its management agreement with the Soboba Band of Mission Indians
(the "Tribe") with respect to the Legends Casino at Soboba in Riverside
County, California. In connection with the termination, an unaffiliated
third party issued a promissory note to the Company for $3,100,000 payable
over three years in monthly installments, based on a percentage of gross
revenue from certain operations of the facility through August 1998.
Through December 31, 1997, the Company has received cumulative payments on
the promissory note totaling $1,922,475. The Company has applied payments
received as recovery of costs previously capitalized under the management
agreement. Capitalized costs were fully recovered in the fourth quarter of
1997. Subsequent payments have been, and will continue to be, recognized as
income when received. The Company recognized income of $81,971 in 1997 from
payments received.
There continues to be a dispute within the State of California between the
state government and Indian tribes regarding the types of gaming devices
that may be operated at casinos on Indian tribal lands. An outcome adverse
to the Indian tribes could affect the ability of the note obligor to earn
sufficient revenue to satisfy the remaining amount due under the promissory
note to the Company, which amount was $1,177,525 at December 31, 1997. The
Company, at this time, cannot predict the likelihood of an outcome adverse
to the Company. In addition, in late 1997 the third party negotiated an
amendment to its agreement with the Tribe which reduces the percentage of
revenue to be earned by the third party. The Company cannot predict the
amount of remaining payments that will be received under note.
Operating Lease Commitments - The Company has entered into certain
noncancelable operating leases for real property, equipment and vehicles.
Future minimum lease payments under these leases are $451,753 in 1998,
$401,287 in 1999, $289,920 in 2000, $247,332 in 2001, $235,594 in 2002 and
$480,000 thereafter. Rental expense was $630,353 in 1997 and $387,410 in
1996.
Stock Redemption Requirement - Colorado gaming regulations require the
disqualification of any shareholder who may be determined by the Colorado
Division of Gaming to be unsuitable as an owner of a Colorado casino.
Unless a sale of such common stock to an acceptable party could be
arranged, the Company would repurchase the common stock of any shareholder
found to be unsuitable under the regulations. The Company could effect the
repurchase with cash, Redemption Securities, as such term is defined in the
Company's Certificate of Incorporation, or a combination thereof.
8. INCOME TAXES
The provision for income taxes, before extraordinary item, consists of the
following:
1997 1996
---- ----
Federal - currently payable $ 95,000 $ 17,000
Utilization of acquired net operating
loss carryforward recorded as a
reduction to goodwill 32,000
------------- -------------
$ 95,000 $ 49,000
============= =============
F17
<PAGE>
The provision for income taxes, before extraordinary item, differs from
the amount of income tax benefit calculated by applying the U.S. statutory
federal income tax rate (34% for the income tax bracket applicable to the
Company) to pretax loss, before extraordinary item, as follows:
1997 1996
---- ----
Expected federal income tax benefit at $ (93,759) $ (423,688)
Increase (decrease) due to:
Goodwill amortization 252,111 252,111
Income of foreign subsidiary 17,702 (24,507)
State income taxes, net of federal benefit 17,500 (18,681)
Alternative minimum tax, before benefit
associated with extraordinary item
of $40,000 in 1997 95,000 17,000
Other nondeductible expenses 4,252 3,612
Change in valuation allowance (197,806) 243,153
------------- -------------
Provision for income taxes $ 95,000 $ 49,000
============= =============
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred
tax assets and liabilities at December 31, 1997, consist of the following:
Deferred tax assets:
Net operating loss carryforward $ 94,431
Alternative minimum tax credit carryforward 94,547
Property, plant and equipment 92,363
Deferred costs from terminated management contract 268,304
Unrealized loss on note receivable 157,584
Accrued liabilities and other 335,545
--------------
1,042,774
Deferred tax liabilities:
Prepaid expenses (39,194)
--------------
Net deferred tax assets 1,003,580
Valuation allowance (1,003,580)
--------------
$ -
==============
At December 31, 1997 the Company has a net operating loss carryforward for
income tax purposes of approximately $255,000, which expires in 2009, and
has no remaining net operating loss carryforwards for alternative minimum
tax purposes. A valuation allowance has been recorded to offset the amount
of net deferred tax assets due to the uncertainty of realizing the related
tax benefits.
F18
<PAGE>
9. OTHER EXPENSE, NET
<TABLE>
<CAPTION>
Other expense, net, consists of the following:
1997 1996
---- ----
<S> <C> <C>
Interest income $ 152,912 $ 188,411
Interest expense (1,039,147) (577,914)
Proceeds from terminated management agreement 81,971
Costs associated with sale of mortgage note
receivable (97,909)
Costs associated with terminated debt offering (318,502)
Amortization of deferred debt costs (65,744)
Loss on note receivable (422,476)
Loss on disposal of equipment (47,567) (263,542)
Other (49,259)
------------- -------------
$ (917,575) $(1,541,191)
============= =============
</TABLE>
10. LOSS PER SHARE
In accordance with SFAS No. 128, the basic loss per share amounts for 1997
and 1996 presented in the accompanying statements of operations are
calculated by dividing the net loss by the weighted number of common
shares outstanding for the respective periods. Contingently issuable
shares (see Note 3) have not been considered in the basic loss per share
calculations as the number of shares to be issued is not determinable as
of the balance sheet dates. Diluted loss per share amounts for 1997 and
1996 are identical to the respective basic loss per share amounts.
Contingently issuable shares, options and warrants to purchase common
stock (see Note 6), and the convertible debenture (see Note 5) have not
been considered in the calculations of diluted loss per share for the
periods presented as their effects would be antidilutive.
F19
<PAGE>
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
--------------------------------------
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1997, under the
captions "Information Concerning Directors and Executive Officers" and
"Compliance with Section 16(a) of the Securities Exchange Act."
Item 10. Executive Compensation.
- -------------------------------
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1997, under the
caption "Information Concerning Directors and Executive Officers."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -----------------------------------------------------------------------
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1998 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1997, under the
caption "Voting Securities."
Item 12. Certain Relationships and Related Transactions.
- -------------------------------------------------------
The information in this item is incorporated by reference from the
Company's Definitive Proxy material in respect of the 1998 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
1997, under the caption "Certain Relationships and Related Transactions."
Item 13. Exhibits and Reports on Form 8-K.
- -----------------------------------------
a. Exhibits Filed Herewith or Incorporated by Reference to Previous
Filings with the Securities and Exchange Commission:
1. The following exhibits were included with the filing of the Alpine's
Form 10-KSB for the year ended December 31, 1993 and are hereby
incorporated by reference:
Exhibit No. Description
-----------------------------
10.14 Plan of Reorganization and Agreement Among Alpine Gaming,
Inc., Alpine Acquisition, Inc. and Century Casinos
Management, Inc. - Filed with Form 8-K dated December 24,
1993 and incorporated by reference therein.
10.15 Amendments One, Two and Three to Plan of Reorganization and
Agreement Among Alpine Gaming, Inc., Alpine Acquisition,
Inc. and Century Casinos Management, Inc.
10.16 Consulting Agreement - Dr. Alfred Liebich.
20
<PAGE>
10.18 Switzerland County/Vevay Town Cooperation Agreement dated
September 14, 1993.
10.19 Land Purchase Option - James A. Glatthaar.
10.20 Option to Lease and Land Lease - James Chaskel.
10.21 Agreement among Century Casinos Management, Inc., Pinnacle
Development Group and The Benefit Group, Inc. dated December
13, 1993.
10.22 Commercial Contract to Buy and Sell Real Estate - Central
City, Colorado - C.C. Traders, Inc.; Deed of Trust and
Security Agreement - C.C. Traders, Inc.; Secured Promissory
Note - C.C. Traders, Inc.; Assignment of Right of
Action/Bill of Sale - C.C. Traders, Inc.; Addendum to
Commercial Contract to Buy and Sell Real Estate - C.C.
Traders, Inc.
10.23 Concession Agreement - Silver Cloud and Silver Wind -
Silver Sea Cruises.
10.27 Management Agreement - Soboba Bingo Hall - Soboba Band of
Mission Indians.
10.28 Missouri Riverboat Agreement - City of Portage des Sioux.
10.30 Soboba Debt Financing Commitment - Hospitality Franchise
Systems, Inc.
10.33 Warrant to purchase common stock - Stephan J. Ossello.
10.34 Warrant to purchase common stock - Andrew J. Bartoletti.
10.35 Warrants to purchase common stock - Christopher S. Wrolstad.
10.36 Office Lease and Amendment Thereto - Century Casinos
Management, Inc.
10.42 Agreement Among Century Casinos Management, Inc.; Century
Casinos Missouri, Inc. (a corporation to be formed) and The
Benefit Group, Inc. dated March 18, 1994.
- --------------------
2. The following exhibits were filed with the Form 10-KSB for the
Fiscal Year Ended December 31, 1994 and are hereby incorporated
herein by reference:
Exhibit No. Description
-----------------------------
10.45 Agreements regarding Wells, Nevada Nonoperating Gaming
Facility.
10.47 Amendment to Agreement - Missouri - Casino Development
Corporation.
10.48 Amended Management Contract - Soboba Indian Tribe,
10.49 Buyout Agreement - St. Charles Gaming Company.
- -------------------
21
<PAGE>
3. The following exhibits were filed with the Form 10-KSB for the
Fiscal Year Ended December 31, 1995 and are incorporated herein by
reference:
Exhibit No. Description
-----------------------------
3.1 Certificate of Incorporation (filed with Proxy Statement in
respect of 1994 Annual Meeting of Stockholders and
incorporated herein by reference).
3.2 Bylaws (filed with Proxy Statement in respect of 1994 Annual
Meeting of Stockholders and incorporated herein by reference).
10.51 Asset Purchase Agreement dated as of September 27, 1995 by and
among Gold Creek Associates, L.P., WMCK Acquisition Corp. and
Century Casinos, Inc., including Exhibits and Schedules, along
with First Amendment thereto.
10.52 Agreement dated August 18, 1995 between SSK Game Enterprises
and Century Casinos Management, Inc., including: Exhibit A,
Gaming Machine Lease and Purchase Agreement; Exhibit B,
Promissory Note; and Agreement and Release between The Soboba
Bank of Missouri Indians and Century Casinos Management, Inc.
10.53 Assignment and Assumption of Lease dated October 12, 1995
between Cripple Creek Properties, Inc., Star Casinos
International, Inc. and Century Casinos Cripple Creek, Inc.,
including short form Assignment and Assumption of Lease and
Assignment and Assumption of Lease made November 1995 between
Century Casinos Cripple Creek, Inc. and Gold Creek Associates,
L.P., d/b/a Womacks Saloon and Gaming Parlor.
10.56 Casinos Management Consulting Agreement by and between
Rhodes Casino, S.A. and Century Casinos, Inc.
10.57 Stock Purchase Agreement dated December 21, 1995 between
Switzerland County Development Corp. ("Buyer") and Century
Casinos Management, Inc. and Cimarron Investment Properties
Corp. ("Sellers").
10.58 Consultancy Agreement - Chalkwell Limited.
-------------------
22
<PAGE>
4. The following exhibits were filed with the Form 8-K Current Report
dated July 1, 1996 and are hereby incorporated by reference:
Exhibit No. Description
-----------------------------
10.59 Second Amendment to Asset Purchase Agreement dated as of
April 10, 1996, among Gold Creek Associates, L.P., WMCK
Acquisition Corp. and Century Casinos, Inc.
10.60 Promissory Note dated March 19, 1992, made by Chrysore, Inc.
in the original amount of $1,850,000 payable to R. & L
Historic Enterprises, together with Assignment dated September
14, 1992 of said Promissory Note to TJL Enterprises, Inc. and
Assignment dated May 16, 1996 of said Promissory Note to
Century Casinos, Inc.
10.61 Promissory Note dated July 1, 1996, made by WMCK Acquisition
Corp. in the original principal amount of $5,174,540 payable
to Gold Creek Associates, L.P., together with Guaranty dated
July 1, 1996, of said Promissory Note by Century Casinos, Inc.
10.62 Building Lease dated as of July 1, 1996, among TJL
Enterprises, Inc., WMCK Acquisition Corp. and Century Casinos,
Inc., together with Memorandum of Building Lease with Option
to Purchase dated as of July 1, 1996, among the
same parties.
10.63 Four Party Agreement, Assignment and Assumption of Lease,
Consent to Assignment of Lease, Confirmation of Option
Agreement and Estoppel Statements dated as of July 1, 1996,
among Harold William Large, Teller Realty, Inc., Gold Creek
Associates, L.P., and WMCK Acquisition Corp.
10.64 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and James A. Gulbrandsen.
10.65 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and Gary Y. Findlay.
10.66 Stock Transfer and Registration Rights Agreement dated as
of July 1, 1996, between Century Casinos, Inc. and James A.
Gulbrandsen and Gary Y. Findlay.
-------------------
23
<PAGE>
5. The following exhibit was filed with the Form 10-KSB for the Fiscal
Year Ended December 31, 1996 and is incorporated herein by
reference:
:
Exhibit No. Description
-----------------------------
10.67 Office Lease - 26 South Tejon Street, Colorado Springs,
Colorado.
-------------------
6. The following exhibit was filed with the Form 10-QSB for the Period
ended March 31, 1997 and is incorporated herein by reference:
Exhibit No. Description
-----------------------------
10.68 Credit Agreement dated as of March 31, 1997, between Wells
Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp.
("Borrowers"); and Century Casinos, Inc. ("Guarantor").
7. The following exhibits are filed herewith:
Exhibit No. Description
-----------------------------
10.69 First Amendment to the Credit Agreement dated as of March
31, 1997, between Wells Fargo Bank, N.A. ("Lender"); WMCK
Venture Corp., Century Casinos Cripple Creek, Inc., and WMCK
Acquisition Corp. ("Borrowers"); and Century Casinos, Inc.
("Guarantor"), dated November 11, 1997.
10.70 Second Amendment to the Credit Agreement dated as of March
31, 1997, between Wells Fargo Bank, N.A. ("Lender"); WMCK
Venture Corp., Century Casinos Cripple Creek, Inc., and WMCK
Acquisition Corp. ("Borrowers"); and Century Casinos, Inc.
("Guarantor"), dated January 28, 1998.
21 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule
b. Reports on Form 8-K Filed During the Registrant's Fourth
--------------------------------------------------------------
Fiscal Quarter:
--------------
No reports on Form 8-K were filed by the Company during the last quarter
of its fiscal year ended December 31, 1997.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado on March 18, 1998.
CENTURY CASINOS, INC.
By: /s/ James D. Forbes
--------------------------------------
James D. Forbes, President
/s/ Norbert Teufelberger
--------------------------------------
Norbert Teufelberger, Chief Financial
Officer (Principal Financial Officer)
/s/ Brad Dobski
--------------------------------------
Brad Dobski, Chief Accounting Officer
(Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James D. Forbes and Norbert Teufelberger, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-KSB, and to file the
same, with all exhibits thereto, and other documentation in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on March 18, 1998.
<TABLE>
<CAPTION>
Signature Title Signature Title
<S> <C> <C> <C>
/s/ Erwin Haitzmann Chairman of the Board /s/ Gottfried Schellmann Director
--------------------- ---------------------
Erwin Haitzmann Gottfried Schellmann
/s/ Peter Hoetzinger Vice Chairman of the Board /s/ Robert Eichberg Director
--------------------- ---------------------
Peter Hoetzinger Robert Eichberg
/s/ James D. Forbes President and Director
---------------------
James D. Forbes
/s/ Norbert Teufelberger Chief Financial Officer and Director
---------------------
Norbert Teufelberger
</TABLE>
25
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- -----------------------------
10.69 First Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 11, 1998.
10.70 Second Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated January 28, 1998.
21 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule
26
EXHIBIT 10.69
First Amendment to the Credit Agreement dated as of March 31, 1997, between
Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century Casinos Cripple
Creek, Inc., and WMCK Acquisition Corp. ("Borrowers"); and Century Casinos, Inc.
("Guarantor"), dated November 11, 1997.
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment to Credit
Agreement") dated as of the 11th day of November, 1997, is entered into with
reference to that certain Credit Agreement dated as of March 31, 1997 (the
"Existing Credit Agreement") executed by and among WMCK VENTURE CORP., a
Delaware corporation, CENTURY CASINOS CRIPPLE CREEK, INC., a Colorado
corporation and WMCK ACQUISITION CORP., a Delaware corporation (collectively,
"Borrowers"), as Borrowers, CENTURY CASINOS, INC., a Delaware corporation
("Guarantor"), as Guarantor, each of the Lenders, as defined therein, and WELLS
FARGO BANK, National Association, as administrative and collateral agent for the
Lenders ("Agent Bank" and together with the Lenders, collectively referred to as
the "Banks"). Capitalized terms used herein not otherwise defined shall have the
meaning set forth for such terms in the Existing Credit Agreement.
Borrowers, Guarantor and Banks agree as follows:
1. Modification of Definitions. Section 1.01 of the Existing Credit
Agreement shall be and is hereby amended to include the following definitions,
with such amendment to be effective as of September 30, 1997. Those terms which
are currently defined by Section 1.01 of the Existing Credit Agreement and which
are also defined below shall be defined as set forth below:
"Credit Agreement" shall mean the Existing Credit Agreement as
amended by the First Amendment to Credit Agreement, and as it may be further
amended, modified, extended, renewed or restated from time to time.
"Existing Credit Agreement" shall have the meaning set forth in the
Preamble to the First Amendment to Credit Agreement.
"Existing Guaranty" shall mean the General Continuing Guaranty which
is defined as the "Guaranty" by Section 1.01 of the Existing Credit Agreement.
"First Amendment to Credit Agreement" shall have the meaning set
forth in the Preamble of the First Amendment to Credit Agreement dated as of
November 11, 1997, executed by Borrowers, Guarantor and Banks.
"Guaranty" shall mean the Existing Guaranty as affirmed, ratified
and modified pursuant to the First Amendment to Credit Agreement and as it may
be further amended, modified, supplemented, replaced, renewed or restated from
time to time.
2. Retroactive Modification of Minimum Annual EBITDA. Section 6.01
of the Existing Credit Agreement is hereby amended to read, in its entirety, as
follows, with such amendment to be effective as of September 30, 1997:
<PAGE>
"Section 6.01. Minimum Annual EBITDA. The Borrower
Consolidation shall maintain a minimum EBITDA, in the amounts set
forth below, determined as of the end of the Fiscal Quarter
commencing on July 1, 1997, and as of the end of each succeeding
Fiscal Quarter, until Bank Facility Termination, with such EBITDA to
be calculated, in each case, with respect to the Fiscal Quarter then
ended and with respect to the immediately preceding three (3) Fiscal
Quarters, on a rolling four (4) quarter basis:
(a) For EBITDA calculated as of the end of the Fiscal
Quarter commencing on July 1, 1997, and for EBITDA calculated
as of the end of each succeeding Fiscal Quarter until, and
including, the Fiscal Quarter commencing on July 1, 1998, the
minimum EBITDA shall be Four Million Five Hundred Thousand
Dollars ($4,500,000.00); and
(b) For EBITDA calculated as of the end of the Fiscal
Quarter commencing on October 1, 1998 and for EBITDA
calculated as of the end of each succeeding Fiscal Quarter
until Bank Facility Termination, the minimum EBITDA shall be
Five Million Dollars ($5,000,000.00)."
3. Representation and Warranty. To induce the Banks to enter into
this First Amendment to Credit Agreement and to make the accommodations provided
for herein, Borrowers and Guarantor represent and warrant to the Banks that
there are not any Events of Default existing, nor are there any circumstances
existing which would constitute such an Event of Default with notice, lapse of
time, or both.
4. Reaffirmation of Guaranty. Guarantor hereby: (i) reaffirms and
ratifies its obligations under the Existing Guaranty; and (ii) agrees that each
and every reference to the "Credit Agreement" which is contained in such
Existing Guaranty shall be to the Existing Credit Agreement, as amended by the
First Amendment to Credit Agreement, and as it may be further amended,
supplemented or otherwise modified from time to time.
5. Corporate Authority. Concurrently herewith, Borrowers and
Guarantor shall each deliver to Agent Bank an original Certificate of Corporate
Resolution and Certificate of Incumbency executed by the respective Secretary of
each such entity and attested to by the President, Vice President or Treasurer
of each such entity authorizing such entity to enter into all documents and
agreements to be executed by the respective entity pursuant to this First
Amendment to Credit Agreement and further authorizing and empowering the officer
or officers who will execute such documents and agreements with the authority
and power to execute such documents and agreements on behalf of the respective
entity.
6. Reimbursement of Agent Bank. Borrowers shall reimburse Agent Bank
for all reasonable fees and out-of-pocket expenses incurred by Agent Bank in
connection with this First Amendment to Credit Agreement including, without
limitation, attorneys' fees of Henderson & Nelson and all other like expenses.
2
<PAGE>
7. No Other Amendments. Except as specifically set forth herein, the
Credit Agreement and each of the Loan Documents shall remain unchanged and in
full force and effect.
8. Counterparts. This First Amendment to Credit Agreement may be
executed by the parties hereto in any number of separate counterparts with the
same effect as if the signatures hereto and hereby were upon the same
instrument. All such counterparts shall together constitute but one and the same
document.
IN WITNESS WHEREOF, Borrowers and Banks have executed this First
Amendment to Credit Agreement by their duly authorized representatives as of the
day and year first above written.
BORROWERS: BANKS:
CENTURY CASINOS CRIPPLE WELLS FARGO BANK,
CREEK, INC., a Colorado National Association,
corporation Agent Bank and Lender
By /s/ Norbert Teufelberger By /s/ Dave Kramer
-------------------------- ---------------------------------
Name Norbert Teufelberger Name Dave Kramer
Title Director & Secretary Title SVP
WMCK ACQUISITION CORP., a Delaware
corporation
By /s/ Norbert Teufelberger
--------------------------
Name Norbert Teufelberger
Title Director & Secretary
WMCK VENTURE CORP., a
Delaware corporation
By /s/ Norbert Teufelberger
---------------------------
Name Norbert Teufelberger
Title Director & Secretary
GUARANTOR:
CENTURY CASINOS, INC., a
Delaware corporation
By /s/ Norbert Teufelberger
---------------------------
Name Norbert Teufelberger
Title Director & Secretary
EXHIBIT 10.70
Second Amendment to the Credit Agreement dated as of March 31, 1997, between
Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century Casinos Cripple
Creek, Inc., and WMCK Acquisition Corp. ("Borrowers"); and Century Casinos, Inc.
("Guarantor"), dated January 28, 1998.
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment") is
made and entered into as of the 28th day of January, 1998, by and among WMCK
VENTURE CORP., a Delaware corporation, CENTURY CASINOS CRIPPLE CREEK, INC., a
Colorado corporation and WMCK ACQUISITION CORP., a Delaware corporation
(collectively the "Borrowers"), CENTURY CASINOS, INC., a Delaware corporation
(the "Guarantor") and WELLS FARGO BANK, National Association, as Lender and as
the administrative and collateral agent for the Lenders (herein in such capacity
called the "Agent Bank" and, together with the Lender, collectively referred to
as the "Banks").
R E C I T A L S:
----------------
WHEREAS:
A. Borrowers, Guarantor, Agent Bank and Lender entered into a Credit
Agreement dated as of March 31, 1997 (the "Original Credit Agreement") as
amended by First Amendment to Credit Agreement dated as of November 11, 1997
(the "First Amendment" and together with the Original Credit Agreement,
collectively the "Existing Credit Agreement") for the purpose of establishing a
reducing revolving line of credit in favor of Borrowers, up to the maximum
principal amount of Thirteen Million Dollars ($13,000,000.00).
B. For the purpose of this Second Amendment, all capitalized words
and terms not otherwise defined herein shall have the respective meanings and be
construed herein as provided in Section 1.01 of the Existing Credit Agreement
and any reference to a provision of the Existing Credit Agreement shall be
deemed to incorporate that provision as a part hereof, in the same manner and
with the same effect as if the same were fully set forth herein.
C. Borrowers and Guarantor desire to further amend the Existing
Credit Agreement for the following purposes:
(i) As of April 1, 1998, modifying the rate of interest
accruing on the unpaid balance of principal by substituting rates
based upon the Prime Rate plus an Applicable Margin based on the
Leverage Ratio of the Borrower Consolidation and rates, to be
effective at the option of Borrowers, based on LIBO Rates plus an
Applicable Margin based on the Leverage Ratio of the Borrower
Consolidation; and
(ii) Subject to the occurrence of the Commitment Increase
Conditions, increasing the Aggregate Commitment to Fifteen Million
Dollars ($15,000,000.00) for the purpose of providing financing for
the acquisition and development of
the Hicks Property.
D. Banks have agreed to make the amendments set forth in the
preceding recital paragraph subject to the terms, conditions and provisions set
forth in this Second Amendment.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do agree to the amendments and modifications to
the Existing Credit Agreement as specifically hereinafter provided as follows:
1. Definitions. Section 1.01 of the Existing Credit Agreement
entitled "Definitions" shall be and is hereby amended to include the following
definitions. Those terms which are currently defined by Section 1.01 of the
Existing Credit Agreement and which are also defined below shall be superseded
and restated by the applicable definition set forth below:
"Aggregate Commitment" shall mean reference to the aggregate amount
committed by Lenders for advance to or on behalf of Borrowers as Borrowings
under the Credit Facility: (i) in the initial principal amount, as of the
Closing Date, of Thirteen Million Dollars ($13,000,000.00), or (ii) in the event
of the occurrence of the Commitment Increase Effective Date, the principal
amount of Fifteen Million Dollars ($15,000,000.00), in each case as reduced on
each Reduction Date by the Scheduled Reductions to the Maximum Scheduled
Balance, and further subject to the additional reductions and/or limitations for
advance as set forth or incorporated in the definition of Maximum Permitted
Balance.
"Aggregate Commitment Reduction Schedule" shall mean: (i) the
Aggregate Commitment Reduction Schedule marked Schedule 2.01(c) affixed to the
Original Credit Agreement and by this reference incorporated herein and made a
part hereof, or (ii) in the event of occurrence of the Commitment Increase
Effective Date, the Aggregate Commitment Reduction Schedule - Alternate One
marked "Schedule 2.01(c) - Alternate One", affixed to the Second Amendment and
by this reference incorporated herein and made a part hereof, in each case
setting forth the Scheduled Reductions and Maximum Scheduled Balance as of each
Reduction Date under the Credit Facility.
"Applicable Margin" means for any Prime Rate Loan or LIBOR Loan the
applicable per annum percentage amount to be added to the Prime Rate or the LIBO
Rate, as the case may be, as follows: (i) commencing on April 1, 1998, the
margin rates set forth in the table below based on the Leverage Ratio of the
Borrower Consolidation calculated for the Fiscal Quarter ending December 31,
1997, together with the immediately preceding three (3) Fiscal Quarters on a
four (4) Fiscal Quarter basis; and (ii) on and after June 1, 1998, the margin
rates set forth in the table below based on the Leverage Ratio of the Borrower
Consolidation as of each Fiscal Quarter end, commencing with the Fiscal Quarter
ending March 31, 1998, together with the immediately preceding three (3) Fiscal
Quarters on a four (4) Fiscal Quarter basis, any change in the applicable
percentage amount by reason thereof to be effective as of the 1st day of the
third month immediately following each such Fiscal Quarter end:
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PRICING LEVERAGE PRIME RATE LIBO RATE
LEVEL RATIO MARGIN MARGIN
------------------------------------------------------------
I Less than 2.00 0.00% 2.70%
to 1.00
------------------------------------------------------------
II Greater than or 0.25% 2.95%
equal to 2.00
to 1.00 but
less than 2.50
to 1.00
------------------------------------------------------------
III Greater than or 0.50% 3.20%
equal to 2.50
to 1.0 but less
than 3.00 to 1.0
------------------------------------------------------------
IV Greater than or 0.75% 3.45%
equal to 3.00
to 1.0
------------------------------------------------------------
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"Banking Business Day" means (a) with respect to any Borrowing,
payment or rate determination of LIBOR Loans, a day, other than a Saturday or
Sunday, on which Agent Bank is open for business in San Francisco, California
and on which dealings in Dollars are carried on in the London interbank market,
and (b) for all other purposes any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of California and/or
Nevada, or is a day on which banking institutions located in California and/or
Nevada are required or authorized by law or other governmental action to close.
"Breakage Charges" shall have the meaning set forth in
Section 2.06(c) of the Credit Agreement.
"Commitment Increase" shall mean the increase of the Maximum
Scheduled Balance to Fifteen Million Dollars ($15,000,000.00) upon the
occurrence of all of the Commitment Increase Conditions.
"Commitment Increase Conditions" shall have the meaning set forth in
Paragraph 5 of the Second Amendment.
"Commitment Increase Effective Date" shall mean the date upon which
all of the Commitment Increase Conditions have occurred and the Commitment
Increase is deemed by Agent Bank to be effective.
"Commitment Increase Fee" shall have the meaning set forth in
Paragraph 6(c) of the Second Amendment.
"Continuation/Conversion Notice" shall mean a notice of continuation
of or conversion to a LIBOR Loan and certificate duly executed by an Authorized
Officer of Borrowers, substantially in the form of that certain exhibit marked
"Exhibit K", affixed hereto and by this reference incorporated herein and made a
part hereof.
"Convert, Conversion and Converted" shall refer to a Borrowing at or
continuation of a particular interest rate basis or conversion of one interest
rate basis to another pursuant to Section 2.05(c) of the Credit Agreement as set
forth in Paragraph 2 of the Second Amendment.
"Credit Agreement" shall mean the Existing Credit Agreement as
amended by the Second Amendment, together with all Schedules, Exhibits and other
attachments thereto, as it may be further amended, modified, extended, renewed
or restated from time to time.
"Existing Credit Agreement" shall have the meaning set forth in
Recital Paragraph A of the Second Amendment.
"First Amendment" shall have the meaning set forth in Recital
Paragraph A of the Second Amendment.
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"Hicks Expansion Improvements" shall mean the construction of a
parking structure, hotel rooms and walkway across Alley Street connecting the
Hicks Property with Womacks Casino, together with any other improvements thereon
costing in excess of $100,000.00, all of which are first approved in writing by
Agent Bank, which approval shall not be unreasonably withheld or delayed.
"Hicks Property" shall mean that certain real property consisting of
seven (7) contiguous lots located in Cripple Creek, Teller County, Colorado,
situate and contiguous to the south line of Alley Street, the north line of
Masonic Street and the easterly line of Second Street.
"Interest Period(s)" shall have the meaning set forth in
Section 2.05(d) of the Credit Agreement.
"Interest Rate Option" shall have the meaning ascribed to such term
in Section 2.05(b) of the Credit Agreement.
"LIBO Rate" means, relative to any Interest Period for any LIBOR
Loan included in any Borrowing, the per annum rate (reserve adjusted as
hereinbelow provided) of interest quoted by Agent Bank, rounded upwards, if
necessary, to the nearest one-sixteenth of one percent (0.0625%) at which Dollar
deposits in immediately available funds are offered to Agent Bank by leading
banks in the London interbank market at approximately 11:00 A.M. London, England
time two (2) Banking Business Days prior to the beginning of such Interest
Period, for delivery on the first day of such Interest Period for a period
approximately equal to such Interest Period and in an amount equal or comparable
to the LIBOR Loan to which such Interest Period relates. The foregoing rate of
interest shall be reserve adjusted by dividing the applicable LIBO Rate by one
(1.00) minus the LIBOR Reserve Percentage, with such quotient to be rounded
upward to the nearest whole multiple of one-hundredth of one percent (0.01%).
All references in this Credit Agreement or other Loan Documents to a LIBO Rate
include the aforesaid reserve adjustment.
"LIBOR Loan" shall mean each portion of the total unpaid principal
under the Credit Facility which bears interest at a rate determined by reference
to the LIBO Rate plus the Applicable Margin.
"LIBOR Reserve Percentage" means, relative to any Interest Period
for LIBOR Loans made by any Lender, the reserve percentage (expressed as a
decimal) equal to the actual aggregate reserve requirements (including all
basic, emergency, supplemental, marginal and other reserves and taking into
account any transactional adjustments or other scheduled changes in reserve
requirements) announced within Agent Bank as the reserve percentage applicable
to Agent Bank as specified under regulations issued from time to time by the
Federal Reserve Board. The LIBOR Reserve Percentage shall be based on Regulation
D of the Federal Reserve Board or other regulations from time to time in effect
concerning reserves for "Eurocurrency Liabilities" from related institutions as
though Agent Bank were in a net borrowing position.
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<PAGE>
"Lender" shall mean individual reference and "Lenders" shall mean
collective reference to WFB and any other bank, finance company, insurance or
other financial institution which is or becomes a party to this Credit Agreement
by execution of a counterpart signature page hereto or an Assignment and
Assumption Agreement, as assignee. At all times that there are no Lenders other
than WFB, the terms "Lender" and "Lenders" means WFB in its individual capacity.
With respect to matters requiring the consent to or approval of all Lenders at
any given time, all then existing Defaulting Lenders will be disregarded and
excluded, and, for voting purposes only, "all Lenders" shall be deemed to mean
"all Lenders other than Defaulting Lenders".
"Leverage Ratio" as of the end of any Fiscal Quarter shall mean with
reference to the Borrower Consolidation, the ratio of Funded Debt to EBITDA.
"Maximum Scheduled Balance" shall mean the maximum amount of
scheduled principal which may be outstanding on the Credit Facility from time to
time: (i) in the amount of Thirteen Million Dollars ($13,000,000.00) as of the
Closing Date, as reduced from time to time by the Scheduled Reductions as set
forth on the Aggregate Commitment Reduction Schedule, or (ii) in the event of
the occurrence of the Commitment Increase Effective Date, in the amount of
Fifteen Million Dollars ($15,000,000.00), as reduced from time to time by the
Scheduled Reductions as set forth on the Aggregate Commitment Reduction Schedule
- - Alternate One.
"Note" shall mean: (i) the Revolving Credit Note, a copy of which is
marked "Exhibit A", affixed to the Original Credit Agreement and by this
reference incorporated herein and made a part hereof, executed by Borrowers as
of the Closing Date, or (ii) in the event of the occurrence of the Commitment
Increase Effective Date, the Revolving Credit Note (Restated), a copy of which
is marked "Exhibit A", affixed to the Second Amendment and by this reference
incorporated herein and made a part hereof, executed by Borrowers on or before
the Commitment Increase Effective Date, in each case payable to the order of
Agent Bank on behalf of the Lenders, evidencing the Credit Facility, as the same
may be amended, modified, supplemented, replaced, renewed or restated from time
to time.
"Original Credit Agreement" shall have the meaning set forth in
Recital Paragraph A of the Second Amendment.
"Pricing Certificate" shall have the meaning set forth in Section
5.08(i) of the Credit Agreement (Paragraph 4 of the Second Amendment).
"Prime Rate Loan" shall mean reference to that portion of the unpaid
principal balance of the Credit Facility bearing interest with reference to the
Prime Rate, plus the Applicable Margin.
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<PAGE>
"Schedule of Lenders' Proportions in Credit Facility" shall mean:
(i) the Schedule of Lenders' Proportions in Credit Facility, a copy of which is
set forth as Schedule 2.01(a), affixed to the Original Credit Agreement and by
this reference incorporated herein and made a part hereof, or (ii) in the event
of the occurrence of the Commitment Increase Effective Date, the Schedule of
Lenders' Proportions in Credit Facility - Alternate One, a copy of which is set
forth as Schedule 2.01(a) - Alternate One, affixed to the Second Amendment and
by this reference incorporated herein and made a part hereof, in each case
setting forth the respective Syndication Interest and maximum amount to be
funded under the Credit Facility by each Lender, as the same may be amended or
restated from time to time in connection with an Assignment and Assumption
Agreement.
"Second Amendment" shall mean the Second Amendment to
Credit Agreement.
"Second Amendment Effective Date" shall mean the date upon which
each of the conditions precedent set forth in Paragraph 6 of the Second
Amendment shall have occurred to the satisfaction of Agent Bank.
2. Restatement of Article II. On the Second Amendment Effective
Date, Article II of the Original Credit Agreement shall be and is hereby
restated and amended to read in its entirety as follows:
"ARTICLE II
AMOUNT, TERMS AND SECURITY OF THE CREDIT FACILITY
Section 2.01. The Credit Facility.
a. Subject to the conditions and upon the terms hereinafter
set forth and in accordance with the terms and provisions of the Note,
Lenders severally agree in the proportions set forth on the Schedule of
Lenders' Proportions in Credit Facility to lend and advance Borrowings to
Borrowers, up to the Maximum Permitted Balance, in such amounts as
Borrowers may request by: (i) Notice of Borrowing duly executed by an
Authorized Officer and delivered to Agent Bank on or before three (3)
Banking Business Days prior to the Closing Date for the purpose of
requesting funding of the Closing Disbursements, and (ii) Notice of
Borrowing duly executed by an Authorized Officer and delivered to Agent
Bank from time to time during the Revolving Credit Period when and as
provided in Section 2.03; provided, however, notwithstanding anything
herein contained to the contrary: (a) until WMCKVC has acquired fee title
to the Parking Lot Property, a portion of the Credit Facility equal to the
Parking Lot Purchase Price shall not be available for Borrowing hereunder
for any purpose other than the acquisition by WMCKVC of fee title to the
Parking Lot Property in accordance with the requirements of Article III C,
and (b) until WMCKVC has acquired fee title to the Hicks Property, no
portion of the Commitment Increase shall be available for Borrowing
hereunder for any purpose other than the acquisition by WMCKVC of fee
title to the Hicks Property in accordance with the requirements of Article
III D.
7
<PAGE>
b. During the Revolving Credit Period, Borrowers may borrow,
repay and reborrow the Available Borrowings up to the Maximum Permitted
Balance from time to time, provided that at all times the Maximum
Availability shall be no less than zero (0) and provided further, however,
amounts of Funded Outstandings bearing interest with reference to a LIBO
Rate shall be subject to Breakage Charges incident to prepayment as
provided in Section 2.06(c) hereinbelow and such prepayment may only be
made upon three (3) Banking Business Days prior written notice to Agent
Bank with sufficient copies for distribution to each of the Lenders. The
Credit Facility shall be for a term commencing on the Closing Date and
terminating on the Maturity Date, on which date the entire outstanding
balance of the Credit Facility shall be fully paid and Credit Facility
Termination shall occur. In no event shall any Lender be liable to fund
any amounts under the Credit Facility in excess of its respective
Syndication Interest in any Borrowing.
c. Notwithstanding the Scheduled Reductions to the Maximum
Scheduled Balance as set forth on the Aggregate Commitment Reduction
Schedule, Borrowers may voluntarily further reduce the Maximum Permitted
Balance from time to time (a "Voluntary Reduction") on the following
conditions:
(i) that each such Voluntary Reduction be made in
writing by an Authorized Officer, effective on the fifth (5th)
Banking Business Day following receipt by Agent Bank; and
(ii) that each such Voluntary Reduction shall be
irrevocable and a permanent reduction to the Maximum Permitted
Balance.
d. In the event any Scheduled Reduction or Voluntary Reduction
reduces the Maximum Permitted Balance to less than the sum of the Funded
Outstandings, the Borrowers shall immediately cause the Funded
Outstandings to be reduced by such amount as may be necessary to cause the
Funded Outstandings to be equal to or less than the Maximum Permitted
Balance.
Section 2.02. Use of Proceeds of the Credit
Facility. Available Borrowings shall be used for the purposes of:
a. On the Closing Date (collectively the "Closing
Disbursements"):
(i) paying in full all loans and advances outstanding under
the Existing Real Estate Debt and the Existing Equipment Debt
as of the Closing Date;
(ii) financing the costs of acquisition by CCCC of fee title
to the Legends Property and the costs of acquisition by WMCKAC
of fee title to the Diamond Lil's Property;
(iii) Nine Hundred Twenty-Three Thousand Dollars ($923,000.00)
toward repayment of outstanding Indebtedness owing by
Borrowers to Guarantor; and
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<PAGE>
(iv) paying in full the Upfront Fee, the costs, fees and
expenses of Title Company incurred in connection with the
issuance of the Title Policy, the costs, fees and expenses of
Henderson & Morgan, LLC attorneys for Agent Bank, and
associate counsel and insurance consultants retained by them
incurred to the Closing Date.
b. During the Revolving Credit Period:
(i) funding working capital needs of Borrowers
relating to the Casino Facilities;
(ii) financing Distributions to Guarantor to the extent not
prohibited by the Financial Covenants and so long as no
Default or Event of Default would result from the making of
such Distributions;
(iii) financing the costs of acquisition by WMCKVC of fee
title to the Parking Lot Property, subject to compliance with
the requirements of Article III C;
(iv) subject to the full satisfaction of each of the
Commitment Increase Conditions, financing the costs of
acquisition by WMCKVC of fee title to the Hicks Property,
subject to compliance with the requirements of Article III D,
and thereafter financing the costs of the Hicks Expansion
Improvements; and
(v) funding ongoing Capital Expenditure
requirements of Borrowers relating to the Casino
Facilities.
9
<PAGE>
Section 2.03. Notice of Borrowings.
a. Borrowings shall be made through Agent Bank's credit sweep
product; provided, however, for each Borrowing in excess of Five Hundred
Thousand Dollars ($500,000.00), an Authorized Officer shall give Agent
Bank, no later than 10:00 a.m. on a Banking Business Day at Agent Bank's
office specified in Section 2.06(b), three (3) full Banking Business Days
prior written notice in the form of the Notice of Borrowing ("Notice of
Borrowing"), a copy of which is marked "Exhibit C", affixed to the Second
Amendment and by this reference incorporated herein and made a part
hereof, for each proposed Borrowing to be made during the Revolving Credit
Period with reference to a LIBO Rate and at least two (2) full Banking
Business Days prior notice for all other Borrowings, specifying the date
and amount of each proposed Borrowing. Agent Bank shall give prompt, and
in any event within one (1) Banking Business Day, notice of each Notice of
Borrowing to Lenders of the amount to be funded and specifying the Funding
Date. Not later than 10:00 o'clock a.m. on the Funding Date specified,
each Lender shall disburse to Agent Bank the Pro Rata Share to be advanced
by each such Lender in lawful money of the United States of America and in
immediately available funds. Agent Bank shall make the proceeds of such
fundings received by it on or before 11:00 o'clock a.m. from the Lenders
available to Borrowers by depositing in or wiring to, prior to 1:00
o'clock p.m. on the day so received (but not prior to the Funding Date),
the Designated Deposit Account the amounts received from the Lenders. No
Borrowing may exceed the Available Borrowings.
b. The failure of any Lender to fund its Pro Rata Share of any
Borrowing on any Funding Date shall not relieve any other Lender of any
obligation hereunder to fund its Pro Rata Share of such Borrowing on such
Funding Date nor relieve the Lender which has failed to fund of its
obligations to Borrowers hereunder. No Lender shall be responsible for the
failure of any other Lender to fund its Pro Rata Share of such Borrowing
on any Funding Date nor shall any Lender be responsible for the failure of
any other Lender to perform its respective obligations hereunder.
Section 2.04. Conditions of Borrowings. During the Revolving Credit
Period, Borrowings will only be made so long as Borrowers are in full
compliance with each of the requirements and conditions precedent set
forth in Article III B of the Existing Credit Agreement and with respect
to the initial disbursement of the Commitment Increase, so long as
Borrowers have complied with each of the requirements and conditions
precedent set forth in Article III D as set forth in the Second Amendment.
Provided, however, upon the consent of the Requisite Lenders, Lenders
shall advance Borrowings notwithstanding the existence of less than full
compliance with the requirements of Articles III B or III D and Borrowings
so made shall be deemed to have been made pursuant to this Credit
Agreement.
Section 2.05. The Note and Interest Rate Options.
a. The Credit Facility shall be further evidenced by the Note
payable to the order of Agent Bank on behalf of the Lenders. Borrowers
waive any rights which they might otherwise have under Colorado Revised
Statutes ss.ss. 13-50-102 or 13-50-103 (or under any corresponding future
statute or rule of law in any jurisdiction) by reason of any release of
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<PAGE>
fewer than all of the Borrowers. Agent Bank shall record the date and
amount of each Borrowing advanced by the Lenders together with the
applicable LIBOR Loan Interest Period in the case of portions of the
unpaid principal under the Credit Facility bearing interest with reference
to a LIBO Rate, and the amount of each repayment of principal made
thereunder by Borrower and the entry of such records shall be conclusive
absent manifest error; provided, however, the failure to make such a
record or notation with respect to any Borrowing or repayment thereof, or
an error in making such a record or notation, shall not limit or otherwise
affect the obligations of Borrower hereunder or under the Note.
b. Interest shall accrue on the entire outstanding principal
balance at a rate per annum equal to the Prime Rate plus one percent
(1.0%) per annum until April 1, 1998, on and after which date interest
shall accrue on the entire outstanding principal balance at a rate per
annum equal to the Prime Rate plus the Applicable Margin, unless Borrowers
request a LIBOR Loan pursuant to Section 2.03 or elect pursuant to Section
2.05(c) hereinbelow to have interest accrue on a portion or portions of
the outstanding principal balance at a LIBO Rate ("Interest Rate Option"),
in which case interest on such portion or portions shall accrue at a rate
per annum equal to such LIBO Rate plus the Applicable Margin, as long as:
(i) each such LIBOR Loan is in a minimum amount of One Million Dollars
($1,000,000.00) and in minimum increments of One Hundred Thousand Dollars
($100,000.00), and (ii) no more than four (4) LIBOR Loans may be
outstanding at any one time. Interest accrued on each Prime Rate Loan
shall be due and payable on the first day of the month following the
Closing Date, on the first day of each successive month thereafter, and on
the Maturity Date. For each LIBOR Loan, interest shall be due and payable
at the end of each Interest Period applicable thereto, but in any event no
less frequently than at the end of each three (3) month period during the
term of such LIBOR Loan. Except as qualified above, on and after April 1,
1998, the outstanding principal balance hereunder may be a Prime Rate Loan
or one or more LIBOR Loans, or any combination thereof, as Borrowers shall
specify.
c. At any time and from time to time, Borrowers may Convert
from one Interest Rate Option to another Interest Rate Option by giving
irrevocable notice to Agent Bank of such Conversion by 10:00 a.m., on a
day which is at least three (3) Banking Business Days prior to the
proposed date of such Conversion to each LIBOR Loan or two (2) Banking
Business Days prior to the proposed date of such Conversion to each Prime
Rate Loan. Each such notice shall be made by an Authorized Officer by
telephone or telex and thereafter immediately confirmed in writing by
delivery to Agent Bank of a Continuation/Conversion Notice specifying the
date of such Conversion, the amounts to be so Converted and the initial
Interest Period if the Conversion is to a LIBOR Loan. Upon receipt of such
Continuation/Conversion Notice, Agent Bank shall promptly set the
applicable interest rate (which in the case of a LIBOR Loan shall be the
LIBO Rate plus the Applicable Margin as of the second Banking Business Day
prior to the first day of the applicable Interest Period) and the
applicable Interest Period if the Conversion is to a LIBOR Loan and shall
confirm the same in writing to Borrowers and Lenders. Each Conversion
shall be on a Banking Business Day. No LIBOR Loan shall be converted to a
Prime Rate Loan or renewed on any day other than the last day of the
current Interest Period relating to such amounts outstanding unless
Borrowers pay any applicable Breakage Charges. If Borrowers fail to give a
Continuation/Conversion Notice for the continuation of a LIBOR Loan as a
LIBOR Loan for a new Interest Period in accordance with this Section
2.05(c), such LIBOR Loan shall automatically become a Prime Rate Loan at
the end of its then current Interest Period.
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<PAGE>
d. Each interest period (each individually an "Interest
Period" and collectively the "Interest Periods") for a LIBOR Loan shall
commence on the date such LIBOR Loan is made or the date of Conversion of
any amount or amounts of the outstanding Borrowings hereunder to a LIBOR
Loan, as the case may be, and shall end on the date which is one (1), two
(2), three (3) or six (6) months thereafter at the election of Borrowers.
However, no Interest Period may extend beyond the Maturity Date. Each
Interest Period for a LIBOR Loan shall commence and end on a Banking
Business Day. If any Interest Period would otherwise expire on a day which
is not a Banking Business Day, the Interest Period shall be extended to
expire on the next succeeding Banking Business Day, unless the result of
such extension would be to carry such Interest Period into another
calendar month, in which event such Interest Period shall end on the
immediately preceding Banking Business Day.
e. The applicable LIBO Rate and Prime Rate shall be determined
by the Agent Bank, and notice thereof shall be given promptly to Borrowers
and Lenders. Each determination of the applicable Prime Rate and LIBO Rate
shall be conclusive and binding upon the Borrowers, in the absence of
manifest or demonstrable error. The Agent Bank shall, upon written request
of Borrowers or any Lender, deliver to Borrowers or such Lender, as the
case may be, a statement showing the computations used by the Agent Bank
in determining any rate hereunder.
f. Computation of interest on all Prime Rate Loans and on all
LIBOR Loans shall be calculated on the basis of a year of three hundred
sixty (360) days and the actual number of days elapsed. The applicable
Prime Rate shall be effective the same day as a change in the Prime Rate
is announced by WFB as being effective.
g. If with respect to any Interest Period, (a) the Agent Bank
reasonably determines (which determination shall be binding and conclusive
on Borrowers) that by reason of circumstances affecting the inter-bank
eurodollar market adequate and reasonable means do not exist for
ascertaining the applicable LIBO Rate, or (b) Requisite Lenders advise
Agent Bank that the LIBO Rate as determined by Agent Bank will not
adequately and fairly reflect the cost to such Lenders of maintaining or
funding, for such Interest Period, a LIBOR Loan, then so long as such
circumstances shall continue: (i) Agent Bank shall promptly notify
Borrowers thereof, (ii) the Agent Bank shall not be under any obligation
to make a LIBOR Loan or Convert a Prime Rate Loan into a LIBOR Loan for
which such circumstances exist, and (iii) on the last day of the then
current Interest Period, the LIBOR Loan for which such circumstances exist
shall, unless then repaid in full, automatically Convert to a Prime Rate
Loan.
h. Notwithstanding any other provisions of the Note or the
Credit Agreement, if, after April 1, 1998 any law, rule, regulation,
treaty, interpretation or directive (whether having the force of law or
not) or any change therein shall make it unlawful for any Lender to make
or maintain LIBOR Loans, (i) the commitment and agreement to maintain
LIBOR Loans as to such Lender shall immediately be suspended, and (ii)
unless required to be terminated earlier, LIBOR Loans as to such Lender,
if any, shall be Converted on the last day of the then current Interest
Period applicable thereto to a Prime Rate Loan. If it shall become lawful
for such Lender to again maintain LIBOR Loans, then Borrowers may once
again as to such Lender request Conversions to the LIBO Rate.
12
<PAGE>
Section 2.06. Place and Manner of Payment.
a. All amounts payable by Borrowers to the Lenders shall be
made to Agent Bank on behalf of Lenders pursuant to the terms of the
Credit Agreement and the Note and shall be made on a Banking Business Day
in lawful money of the United States of America and in immediately
available funds. Other than in connection with the Scheduled Reductions of
principal, Borrower shall not make more than three (3) repayments
("Principal Prepayments") of the outstanding balance of principal owing
under the Credit Facility during each calendar month. Each such Principal
Prepayment shall be in a minimum amount of Five Hundred Thousand Dollars
($500,000.00) and in increments of One Hundred Thousand Dollars
($100,000.00).
b. All such amounts payable by Borrowers shall be made to
Agent Bank at its office located at Wells Fargo Agency Department, 201
Third Street, 8th Floor, San Francisco, California 94103. If such payment
is received by Agent Bank prior to 11:00 o'clock a.m., Agent Bank shall
credit Borrowers with such payment on the day so received and shall
disburse to the appropriate Lenders on the same day such Lenders' Pro Rata
Shares of payments relating to the Credit Facility based on the respective
Syndication Interests, in immediately available funds. If such payment is
received by Agent Bank after 11:00 o'clock a.m., Agent Bank shall credit
Borrowers with such payment as of the next Banking Business Day and
disburse to the appropriate Lenders on the next Banking Business Day such
Lenders' Pro Rata Shares of such payment relating to the Credit Facility
based on their respective Syndication Interests, in immediately available
funds. Any payment on the Credit Facility made by Borrowers to Agent Bank
pursuant to the terms of the Credit Agreement or the Note for the account
of Lenders shall constitute payment to the appropriate Lenders. If the
Note or any payment required to be made thereon or hereunder, is or
becomes due and payable on a day other than a Banking Business Day, the
due date thereof shall be extended to the next succeeding Banking Business
Day and interest thereon shall be payable at the then applicable rate
during such extension.
c. The outstanding principal owing under the Credit Facility
and the Note may, subject to Section 2.06(a), be prepaid at any time in
whole or in part without penalty, provided, however, that any portion or
portions of the unpaid principal balance which is accruing interest at a
LIBO Rate may only be prepaid on the last day of the applicable Interest
Period unless Borrowers give three (3) days prior written notice to Agent
Bank and additionally pay concurrently with such prepayment such
additional amount or amounts as will compensate Lenders for any losses,
costs or expenses which they may incur as a result of such payment,
including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund or maintain such
LIBOR Loan ("Breakage Charges"). A certificate of a Lender as to amounts
payable hereunder shall be conclusive and binding on Borrowers for all
purposes, absent manifest or demonstrable error. Any calculation hereunder
shall be made on the assumption that each Lender has funded or will fund
each LIBOR Loan in the London interbank market; provided that no Lender
shall have any obligation to actually fund any LIBOR Loan in such manner.
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<PAGE>
d. Unless the Agent Bank receives notice from an Authorized
Officer prior to the date on which any payment is due to the Lenders that
the Borrowers will not make such payment in full as and when required, the
Agent Bank may assume that the Borrowers have made such payment in full to
the Agent Bank on such date in immediately available funds and the Agent
Bank may (but shall not be so required), in reliance upon such assumption,
distribute to each Lender on such due date an amount equal to the amount
then due such Lender. If and to the extent the Borrowers have not made
such payment in full to the Agent Bank, each Lender shall repay to the
Agent Bank on demand such amount distributed to such Lender, together with
interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
Section 2.07. Fees.
a. On the Closing Date, Borrowers shall pay the unpaid balance
of the non-refundable upfront fee (the "Upfront Fee"), in such amount as
has been agreed upon by Agent Bank and Borrowers in the Upfront Fee Side
Letter, which Upfront Fee shall be retained by Agent Bank or distributed
in whole or in part to Lenders as may be agreed between Agent Bank and
Lenders.
b. Commencing with the commencement of the Revolving Credit
Period, Borrowers shall pay to Agent Bank for disbursement to Lenders in
proportion to their respective Syndication Interests in the Credit
Facility and in consideration for their commitment to advance Borrowings
under the Credit Facility during the Revolving Credit Period a
non-refundable fee (the "Nonusage Fee") in the amount of one-half of one
percent (.50%) per annum of the daily average of the Maximum Availability,
computed on the basis of a three hundred sixty (360) day year based on the
actual number of days elapsed, to be calculated during the Revolving
Credit Period and continuing until the Maturity Date. The Nonusage Fee
will be payable on the first Banking Business Day following the end of
each Fiscal Quarter commencing with the Fiscal Quarter in which the
Closing Date occurs, and on the Maturity Date. Each Nonusage Fee shall be
distributed by Agent Bank to Lenders in proportion to their respective
Syndication Interests in the Credit Facility.
Section 2.08. Late Charges and Default Rate.
a. If any principal reduction, interest payment, fee or other
Obligation due under the Note or under the Credit Agreement is not paid
within five (5) days of the date upon which such payment is due, Borrowers
promise to pay a late charge in the amount of three percent (3%) of the
amount of such delinquent payment and Agent Bank need not accept any late
payment made unless it is accompanied by such three percent (3%) late
payment charge. Any late charge shall be paid to Lenders in proportion to
their respective Syndication Interests.
b. In the event of the existence of an Event of Default,
commencing on the first (1st) Banking Business Day following the receipt
by Borrowers of written notice of the occurrence of such Event of Default
from Agent Bank, the total of the unpaid balance of the principal and the
then accrued and unpaid interest owing under the Credit Facility shall
collectively commence accruing interest at a rate equal to five percent
14
<PAGE>
(5%) over the Prime Rate (the "Default Rate") until such time as all
payments and additional interest are paid, together with the curing of any
Events of Default which may exist, at which time the interest rate shall
revert to that rate of interest otherwise accruing pursuant to the terms
of the Note.
c. In the event of the occurrence of an Event of Default,
Borrowers agree to pay all reasonable costs of collection, including a
reasonable attorneys' fee, in addition to and at the time of the payment
of such sum of money and/or the performance of such acts as may be
required to cure such default. In the event legal action is commenced for
the collection of any sums owing hereunder or under the terms of the Note,
the Borrowers and Guarantor agree that any judgment issued as a
consequence of such action against any Borrower and/or Guarantor shall
bear interest at a rate equal to the Default Rate until fully paid.
Section 2.09. Security for the Credit Facility. As security for the
due and punctual payment and performance of the terms and provisions of
the Credit Agreement, the Note and each of the other Loan Documents, the
Security Documentation shall be executed and delivered to Agent Bank, as
of the Closing Date, by the respective parties to each of the Security
Documentation.
Section 2.10. Guaranty Agreement. As additional security for the due
and punctual payment and performance of the Credit Facility and each of
the terms, covenants, representations, warranties and provisions herein
contained and contained in each of the Loan Documents, on or before the
Closing Date Guarantor shall execute the Guaranty, a copy of which is
marked "Exhibit B", affixed to the Original Credit Agreement and by this
reference incorporated herein and made a part hereof.
Section 2.11. Net Payments. All payments under the Credit Agreement,
the Note and/or any other Loan Document shall be made without set-off or
counterclaim and in such amounts as may be necessary in order that all
such payments, after deduction or withholding for or on account of any
future taxes, levies, imposts, duties or other charges of whatsoever
nature imposed by the United States or any Governmental Authority, other
than franchise taxes or any tax on or measured by the gross receipts or
overall net income of any Lender pursuant to the income tax laws of the
United States or any State, or the jurisdiction where each Lender's
principal office is located (collectively "Taxes"), shall not be less than
the amounts otherwise specified to be paid under the Credit Agreement and
the Note. A certificate as to any additional amounts payable to the
Lenders under this Section 2.11 submitted to the Borrowers by the Lenders
shall show in reasonable detail an accounting of the amount payable and
the calculations used to determine in good faith such amount and shall be
conclusive absent manifest or demonstrable error. Any amounts payable by
the Borrowers under this Section 2.11 with respect to past payments shall
be due within ten (10) days following receipt by the Borrowers of such
certificate from the Lenders; any such amounts payable with respect to
future payments shall be due within ten (10) days after demand with such
future payments. With respect to each deduction or withholding for or on
account of any Taxes, the Borrowers shall promptly furnish to the Lenders
such certificates, receipts and other documents as may be required (in the
reasonable judgment of the Lenders) to establish any tax credit to which
the Lenders may be entitled.
15
<PAGE>
Section 2.12. Increased Costs. If after the date hereof the
adoption, or any change in, of any applicable law, rule or regulation
relating to LIBOR Loans (including without limitation Regulation D of the
Board of Governors of the Federal Reserve System and any successor
thereto), or any change in the interpretation or administration thereof by
any Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender
with any request or directive relating to LIBOR Loans (whether or not
having the force of law) of any such Governmental Authority, central bank
or comparable agency:
a. Shall subject any Lender to any tax, duty or other charge
with respect to LIBOR Loans, the Note or such Lender's obligation to make
any LIBOR Loans, or shall change the basis of taxation of payments to such
Lender of the principal of, or interest on, LIBOR Loans or any other
amounts due under the Note in respect of LIBOR Loans or such Lender's
obligation to fund LIBOR Loans (except for changes in the rate of tax on
the overall net income of such Lender imposed by the United States or any
Governmental Authority pursuant to the income tax laws of the United
States or any State, or the jurisdiction where each Lender's principal
office is located); or
b. With respect to any LIBOR Loan, shall impose, modify or
deem applicable any reserve imposed by the Board of Governors of the
Federal Reserve System, special deposit, capitalization, capital adequacy
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender; or
c. Shall impose on any Lender any other
condition affecting LIBOR Loans, the Note or such Lender's
obligation to make any LIBOR Loans;
and the result of any of the foregoing is to increase the cost to (or in
the case of Regulation D or reserve requirements referred to above or a
successor thereto, to impose a cost on) such Lender (or any Eurodollar
office of such Lender) of making or maintaining LIBOR Loans, or to reduce
the rate of return on capital of the Lender or the amount of any sum
received or receivable by such Lender under the Note, then within ten (10)
days after demand by such Lender (which demand shall be accompanied by a
certificate setting forth the basis of such demand), the Borrower shall
pay directly to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost (or in the case of
Regulation D or reserve requirements or capital adequacy referred to above
or a successor thereto, such costs which may be imposed upon such Lender)
or such reduction of the rate of return on capital or of any sum received
or receivable under the Note. Each Lender agrees to use its reasonable
efforts to minimize such increased or imposed costs or such reduction.
Section 2.13. Mitigation; Exculpation. Each Lender agrees that it
will promptly notify the Borrower in writing upon its becoming aware that
any payments are to become due to it under the Credit Agreement pursuant
to Section 2.11 or 2.12. Each Lender further agrees that it will use
reasonable efforts not materially disadvantageous to it (in its reasonable
determination) in order to avoid or minimize, as the case may be, the
payment by the Borrowers of any additional amounts pursuant to Section
2.11 or 2.12. Each Lender represents, to the best of its knowledge, that
as of the Second Amendment Effective Date no such amounts are payable."
16
<PAGE>
3. Addition of Article III D, Sections 3.28, 3.29 and 3.30. As of
the Second Amendment Effective Date, Article III D, containing Sections 3.28,
3.29 and 3.30 shall be and are hereby added to the Existing Credit Agreement as
follows:
"D. Conditions Precedent to Disbursement of Hicks Property Purchase
Price. In addition to the requirements set forth in Article III B and the
full satisfaction of each of the Commitment Increase Conditions, the
obligation of Lenders and Agent Bank to advance a Borrowing to finance the
cost of acquisition of the Hicks Property as permitted under Section
2.02(b)(iv) is subject to Agent Bank having received, in each case in form
and substance reasonably satisfactory to Agent Bank and Requisite Lenders
each of the following:
Section 3.28. Legal Description and Deed of Trust. A complete legal
description of the Hicks Property shall be prepared and delivered to Agent
Bank together with a title commitment showing all exceptions to title
thereto. WMCKVC shall execute and deliver to Agent Bank a deed of trust
and security agreement with assignment of rents encumbering the Hicks
Property in substantially the same form as the Deed of Trust.
Section 3.29. Environmental Site Assessment.
a. A Phase I Environmental Site Assessment of the Hicks
Property, prepared in conformance with the scope and limitations of ASTM
Standard Designation E1527-93 and approved by Agent Bank. Any recommended
action shall have been completed.
b. Borrowers shall confirm in writing that the representations
contained in Sections 2.1 and 2.2 of the Environmental Certificate are
true and correct in all material respects as to the Hicks Property.
Section 3.30. Title Policy or Endorsement. Borrowers shall cause, at
their expense, concurrently with the funding of the Borrowing to finance
the cost of acquisition of the Hicks Property, the Title Insurance Company
to issue a title insurance policy or endorsement to the Title Insurance
Policy in favor of Agent Bank insuring the deed of trust encumbering the
Hicks Property as a first priority lien, subject only to such exceptions
as are approved by Agent Bank."
4. Addition of Section 5.08(i) - Pricing Certificate Requirement. As of the
Second Amendment Effective Date, Section 5.08(i) shall be and is hereby added to
the Existing Credit Agreement as follows:
"c. As soon as practicable, and in any event within forty-five
(45) days after the end of each Fiscal Quarter, commencing with the Fiscal
Quarter ending December 31, 1997, a pricing certificate in the form marked
"Exhibit L", affixed hereto and by this reference incorporated herein and
made a part hereof (the "Pricing Certificate") setting forth a preliminary
calculation of the Leverage Ratio of the Borrower Consolidation as of the
last day of such Fiscal Quarter, and providing reasonable detail as to the
calculation thereof, which calculations shall be based on the preliminary
unaudited financial statements of Borrowers for such Fiscal Quarter, and
as soon as practicable thereafter, in the event of any material variance
in the actual calculation of the Leverage Ratio from such preliminary
calculation, a revised Pricing Certificate setting forth the actual
calculation thereof.
17
<PAGE>
5. Commitment Increase Conditions. The Commitment Increase is
subject to and contingent upon the occurrence and full satisfaction of each of
the following conditions precedent on or before July 1, 1998 (collectively, the
"Commitment Increase Conditions"):
a. The Borrower Consolidation has achieved a Leverage Ratio no
greater than 3.00 to 1.00 as of the end of the Fiscal Quarter ending December
31, 1997, or as of the end of the Fiscal Quarter ending March 31, 1998, in each
instance calculated for such Fiscal Quarter and the three (3) immediately
preceding Fiscal Quarters on a four (4) Fiscal Quarter basis;
b. No Default or Event of Default shall have occurred and
remains continuing;
c. Borrowers shall have executed and delivered to Agent Bank
the original Revolving Credit Note (Restated), a copy of the form of which is
attached to the Second Amendment as Exhibit A; and
d. Borrowers shall have executed and delivered to Agent Bank
any amendments to the Security Documentation reasonably requested by Agent Bank
for the purpose of securing repayment of the Commitment Increase and shall pay
the costs of a 110.5 endorsement or other applicable endorsement to the Title
Insurance Policy evidencing its continued application to the Credit Facility, as
increased by the Commitment Increase, and to the Security Documentation.
6. Conditions Precedent to Second Amendment Effective Date. The
occurrence of the Second Amendment Effective Date is subject to Agent Bank
having received the following documents and payments, in each case in a form and
substance reasonably satisfactory to Agent Bank, and the occurrence of each
other condition precedent set forth below on or before February 6, 1998:
a. Due execution by Borrowers, Guarantor and
Banks of three (3) duplicate originals of this Second Amendment;
b. Corporate resolutions or other evidence of requisite
authority of Borrowers and Guarantor, as applicable, to execute the Second
Amendment;
c. Payment of a fee in the amount of Thirty Thousand Dollars
($30,000.00) (the "Commitment Increase Fee") to Agent Bank to be disbursed by
Agent Bank to Lenders in proportion to their respective Syndication Interests in
the Credit Facility;
d. Reimbursement to Agent Bank by Borrowers for all reasonable
fees and out-of-pocket expenses incurred by Agent Bank in connection with the
Commitment Increase, including, but not limited to, reasonable attorneys' fees
of Henderson & Morgan, LLC and all other like expenses remaining unpaid as of
the Second Amendment Effective Date; and
e. Such other documents, instruments or conditions as may be
reasonably required by Lenders.
18
<PAGE>
7. Representations of Borrowers. Borrowers hereby represent to the
Banks that:
a. the representations and warranties contained in Article IV
of the Existing Credit Agreement and contained in each of the other Loan
Documents (other than representations and warranties which expressly speak only
as of a different date, which shall be true and correct in all material respects
as of such date) are true and correct on and as of the Second Amendment
Effective Date in all material respects as though such representations and
warranties had been made on and as of the Second Amendment Effective Date,
except to the extent that such representations and warranties are not true and
correct as a result of a change which is permitted by the Credit Agreement or by
any other Loan Document or which has been otherwise consented to by Agent Bank;
b. Since the date of the most recent financial statements
referred to in Section 5.08 of the Existing Credit Agreement, no Material
Adverse Change has occurred and no event or circumstance which could reasonably
be expected to result in a Material Adverse Change or Material Adverse Effect
has occurred;
c. no event has occurred and is continuing
which constitutes a Default or Event of Default under the terms of the
Credit Agreement;
d. The execution, delivery and performance of this Second
Amendment has been duly authorized by all necessary action of Borrowers and
Guarantor and this Second Amendment constitutes a valid, binding and enforceable
obligation of Borrowers and Guarantor; and
e. The proceeds of the Commitment Increase shall be used only
for the purposes set forth in Section 2.02(b) above.
8. Affirmation and Ratification of Continuing Guaranty. Guarantor
joins in the execution of this Second Amendment for the purpose of ratifying and
affirming its obligations under the Continuing Guaranty for the guaranty of the
full and prompt payment and performance of all of Borrowers' indebtedness and
obligations under the Credit Facility and each of the Loan Documents as modified
under this Second Amendment, including, without limitation, all amounts owing
under the Commitment Increase.
9. Incorporation by Reference. This Second Amendment shall be and is
hereby incorporated in and forms a part of the Existing Credit Agreement.
10. Governing Law. This Second Amendment to Credit Agreement shall
be governed by the internal laws of the State of Nevada without reference to
conflicts of laws principles.
11. Counterparts. This Second Amendment may be executed in any
number of separate counterparts with the same effect as if the signatures hereto
and hereby were upon the same instrument. All such counterparts shall together
constitute one and the same document.
19
<PAGE>
12. Continuance of Terms and Provisions. All of the terms and
provisions of the Credit Agreement shall remain unchanged except as specifically
modified herein.
13. Additional/Replacement Schedules and Exhibits Attached. The
following additional and replacement Schedules and Exhibits are attached hereto
and incorporated herein and made a part of the Credit Agreement as follows:
Schedule 2.01(a)
Alternate One - Schedule of Lenders' Proportions in Credit
Facility - Alternate One
Schedule 2.01(c)
Alternate One - Aggregate Commitment Reduction Schedule
- Alternate One
Exhibit A - Revolving Credit Note (Restated)- Form
Exhibit C - Notice of Borrowing - Form
Exhibit K - Continuation/Conversion Notice - Form
Exhibit L - Pricing Certificate - Form
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the day and year first above written.
BORROWERS:
WMCK VENTURE CORP.,
a Delaware corporation
By /s/ Norbert Teufelberger
---------------------------------
Name Norbert Teufelberger
Title Director & Secretary
CENTURY CASINOS CRIPPLE
CREEK, INC.,
a Colorado corporation
By /s/ Norbert Teufelberger
---------------------------------
Name Norbert Teufelberger
Title Director & Secretary
20
<PAGE>
WMCK ACQUISITION
CORP., a Delaware
corporation
By /s/ Norbert Teufelberger
---------------------------------
Name Norbert Teufelberger
Title Director & Secretary
GUARANTOR:
CENTURY CASINOS, INC.,
a Delaware corporation
By /s/ Norbert Teufelberger
---------------------------------
Name Norbert Teufelberger
Title Director & Secretary
BANKS:
WELLS FARGO BANK,
National Association,
Agent Bank and Lender
By /s/ Dave Kramer
---------------------------------
Name Dave Kramer
Title SVP
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Country
Name of Incorporation
- --------------------------------------- ----------------
Century Casinos Management, Inc. Delaware
Century Casinos - Nevada, Inc. Nevada
Century Management und BeteiligungsGmbH Austria
Century Casinos Cripple Creek, Inc. Colorado
Century Casinos Missouri, Inc. Missouri
WMCK Acquisition Corp. Delaware
WMCK Venture Corp. Delaware
Century Casinos Africa (Pty) Limited South Africa
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-83688 on Form S-3 and in Registration Statement No. 33-13601 on Form S-8 of
Century Casinos, Inc. of our report dated February 27, 1998, appearing in this
Annual Report on Form 10-KSB of Century Casinos, Inc. for the year ended
December 31, 1997.
/s/ Deloitte & Touche LLP
---------------------
Deloitte & Touche LLP
Denver, Colorado
March 18, 1998
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