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, 1998 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 Identification No.)
incorporation or organization)
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: $19,458,852
The aggregate market value of the voting common stock held by non-affiliates of
the registrant on March 12, 1999, was approximately $10,944,000 based upon the
average of the reported closing bid and asked price of such shares on Nasdaq for
that date. As of March 12, 1999, there were 14,659,785 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference from the
Registrant's Definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
1998.
1
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Item 1. Business.
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." The Company's operating
revenue for 1998 and 1997 was derived principally from its casino operations in
Cripple Creek. See the Consolidated Financial Statements and the notes thereto
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.
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.
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.
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.
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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 would 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. In 1998 the Company
reached agreement with the two principals to pay them a total of $1,629,000,
consisting of cash of $534,000 and two promissory notes totaling $1,095,000, in
lieu of issuing common stock. See Note 4 to the Consolidated Financial
Statements for further information.
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 implemented certain consolidation,
expansion and capital improvement programs. The Company created openings in the
common walls in order to open up and integrate the gaming areas of Legends and
Womacks; expanded the existing player tracking system of Womacks to include all
of the Legends gaming devices; added and promoted gaming activities on second
floor areas; made general interior enhancements; and installed additional gaming
devices and replaced older generation equipment. See Item 6, Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further information.
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 4 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.
3
<PAGE>
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.
On June 3, 1998, the Company acquired 22,000 square feet of land (the
"Hicks Property") from an unaffiliated third party. The property, which is zoned
for gaming, is adjacent to Womacks/Legends Casino. A partially-completed
building structure that occupied a portion of the land was subsequently razed,
and the entire property has been improved to provide the first paved customer
parking spaces in the Cripple Creek market. The purchase price of $3.6 million
was financed through the Company's revolving credit facility with Wells Fargo
Bank.
Womacks/Legends Casino currently has approximately 570 slot and video
devices and eight gaming tables with the potential to add approximately 60
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 290 parking
spaces. Of this number, 99 paved spaces are held pursuant to an agreement. See
"Parking Lease and Option to Purchase." An additional 35 spaces are located on
the recently acquired Wright Property and 68 paved spaces are located on the
Hicks Property. The remaining parking spaces are subject to a three-year,
cancelable lease that expires in August 2001. Management believes that it could
obtain satisfactory parking spaces if existing arrangements were terminated or
became inadequate.
In November 1998, Womacks/Legends Casino entered into an agreement with the
operator of a new local hotel whereby the casino is leasing a block of rooms
from the hotel. The casino makes these rooms available to its customers,
sometimes on a complimentary basis, and provides a free shuttle service between
the casino and the hotel.
Revolving Credit Facility
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
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. 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.
4
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Various provisions of the RCF were amended subsequent to March 31, 1997. At
December 31, 1998, the maximum available under the RCF was $20 million. An
annual commitment fee of between three-eighths and one-half percent, payable
quarterly, is charged on the unused portion of the RCF. The RCF also contains an
interest rate matrix that ties the interest rate charged on outstanding
borrowings to the Company's leverage ratio, as defined. Largely as a result of
an improvement in the Company's leverage ratio, the Company's consolidated
weighted-average interest rate on all borrowings decreased from 9.58% in 1997 to
8.74% in 1998. At December 31, 1998, the Company's unused borrowing capacity
under the RCF was approximately $8.9 million. See Note 4 to the Consolidated
Financial Statements for further information.
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. In 1997 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.
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 24% of gaming
revenues for these three cities during the year ended December 31, 1998. As of
December 31, 1998, there were 18 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 1995 through 1998. 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.
5
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<TABLE>
<CAPTION>
GAMING REVENUE BY MARKET
(in $'000)
% change % change % change % change
Over Over Over Over
1995 Prior Year 1996 Prior Year 1997 Prior Year 1998 Prior Year
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CRIPPLE CREEK ......... $ 94,019 14.2% $103,373 9.9% $108,628 5.1% $113,230 4.2%
Black Hawk ............ $195,857 12.8% $219,911 12.3% $234,631 6.7% $272,008 15.9%
Central City .......... $ 94,468 35.5% $ 88,870 -5.9% $ 87,391 -1.7% $ 93,980 7.5%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
COLORADO TOTAL ........ $384,344 18.0% $412,154 7.2% $430,650 4.5% $479,218 11.3%
</TABLE>
<TABLE>
CRIPPLE CREEK SLOT DATA
% change % change % change % change
Over Over Over Over
1995 Prior Year 1996 Prior Year 1997 Prior Year 1998 Prior Year
------- ---------- ------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Slot Revenue $87,311 14.9% $97,024 11.1% $102,798 6.0% $107,690 4.8%
(in $'000)
Average Number
Of Slots ......... 3,843 17.0% 4,175 8.6% 4,507 8.0% 4,369 -3.1%
Average Win Per
Slot Per Day ..... $ 62 -1.8% $ 63 2.0% $ 62 -1.6% $ 68 8.1%
</TABLE>
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.
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<TABLE>
<CAPTION>
CENTURY CASINOS' PROPERTY IN CRIPPLE CREEK
(presently "Womacks/Legends Casino")
% change % change % change % change
Over Over Over Over
1995 Prior Year 1996 Prior Year 1997 Prior Year 1998 Prior Year
------ ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Slot Revenue... $3,266 57.1% $10,078 208.6% $18,102 79.6% $18,597 2.7%
(in $'000)
Average Number
Of Slots............. 172 22.0% 342 98.8% 547 59.9% 565 3.3%
Average Win Per
Slot Per Day......... $52.02 -3.0% $80.73 55.2% $ 90.67 12.3% $ 90.18 -0.5%
Market Share in %.... 3.74% 32.2% 10.39% 177.7% 17.61% 69.5% 17.27% -1.9%
</TABLE>
The Company competes, to a far lesser extent, with 19 casinos in Black Hawk
and 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.
In 1998 the Colorado Division of Gaming (the "Division") conducted an audit
of the Company's two Colorado gaming licenses covering the period August 1995
through July 1998. As a result of the audit, the Division alleged certain
violations of Colorado gaming regulations and internal control procedures. The
licensees have each entered into a Stipulation and Agreement whereby the
licensees have agreed to fines totaling $120,000 and have submitted to the
Division corrective action plans that are responsive to the Division's concerns.
The corrective action plans have been approved by, and will be monitored for
compliance by, the Division. Management believes that the licensees are in
compliance with the corrective action plans.
Description of Property. The Company's Womacks/Legends Casino is described
in Item 1 "Business".
Parking Lease and Option to Purchase. The Company leases 99 contiguous
parking spaces from the City of Cripple Creek. Annual rent payments total
$90,000 and the lease agreement expires on May 31, 2003. The agreement contains
a purchase option whereby the Company may purchase the property for $3,250,000,
less cumulative lease payments, at any time during the remainder of the lease
term. The Company has paved the property and currently uses it for customer
parking.
7
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Additional Company Projects
In addition to Womacks/Legends Casino in Cripple Creek, Colorado, the
Company has a number of potential gaming projects in various stages of
development. Along with 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 have been
substantial in the past 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.
The following describes other activities of the Company.
Prague, Czech Republic. In January 1999 the Company reached a 20-year
definitive agreement with Casino Millennium a.s., a Czech company, and with a
Czech subsidiary of Bau Holding AG, one of the largest construction and
development companies in Europe, to operate a casino in the five-star Marriott
Hotel, currently under construction in Prague, Czech Republic. The Company will
provide casino management services in exchange for ten percent of the casino's
gross revenue, and will provide gaming equipment for 45% of the casino's net
profit. The opening of the hotel and casino is currently scheduled, subject to
change, for the second quarter of 1999.
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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, 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 provided for additional payments to the Company upon the occurrence of
certain events. On September 14, 1998, the Indiana Gaming Commission awarded a
Certificate of Suitability to Pinnacle to conduct riverboat gaming in
Switzerland County. In accordance with the previous agreement, the Company
received a payment in the third quarter of 1998 of $431,000. Additionally, the
Company is entitled to a payment of $1,040,000 upon "groundbreaking" of the
project, and installment payments of $32,000 per month for the first 60 months
of the riverboat's operation. The Company may elect to receive, or the owners of
Pinnacle may elect to prepay, the installment payments in the aggregate
discounted amount of $1,453,000. While the Company believes that Pinnacle
intends to proceed with the development of the riverboat project, there can be
no assurance that Pinnacle will do so, or, if the project does proceed, when the
additional payments will be earned and received by the Company. Any future
payments to the Company will be recognized as income when earned.
Rhodes, Greece. In 1995, the Company executed a casino management and
consulting agreement with Rhodes Casino, S.A., a consortium including Playboy
Enterprises, Inc., under which the Company, as an independent contractor, would
supply services and assistance in establishing a casino on the island of Rhodes,
Greece. The consortium was awarded the exclusive license for casino gaming on
Rhodes for a 12-year period commencing with the opening of the casino. The
Company's management consulting agreement with the consortium, which had an
initial term running through the third anniversary of the casino opening,
provided 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. In the fourth quarter of 1996, the
Company received $50,000 with respect to certain preopening phase services. In
the second quarter of 1998, the Company reached a consulting agreement ("current
agreement") with Rhodes Casino S.A. and Playboy Gaming International Ltd.
("Playboy") to assign certain of the Company's rights and delegate its
responsibilities under the previously executed management and consulting
agreement ("previous agreement"). Under the current agreement the Company
received from Playboy a payment of $25,000 for additional preopening services
performed to date, and will receive annual payments of $50,000 for each of the
first three years of the casino's operations. The Company will have no further
obligations under the previous agreement unless, subsequent to the opening of
the casino, Playboy is unwilling or unable to perform under the current
agreement. In such event, the previous agreement, and the Company's obligations,
would be reinstated together with the Company's right to receive up to $300,000
per year for the first three years of casino operations, with an aggregate
minimum guarantee of approximately $250,000.
South Africa. Recently enacted legislation in South Africa provides for the
award of up to 40 casino licenses throughout the country. To date, the Company
has entered into agreements with five 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
not successful in being awarded a license. The second application was by Green
Oaks Trading (Pty) Ltd., which withdrew its application during the process.
9
<PAGE>
The third application was filed on June 17, 1997 with the Gambling and
Betting Board (the "Board") in the province of Gauteng for a hotel/casino resort
in the greater Johannesburg area. Silverstar Development Ltd. ("Silverstar"),
the consortium to which the Company is the contracted casino management partner,
and in which the Company holds a minority equity interest, had submitted an
application for a proposed $70 million, 1,700 gaming position hotel/casino
resort development. The Board had awarded all six casino licenses by the end of
April 1998, and Silverstar was not awarded one of the licenses. The Company
recorded an impairment allowance against its entire equity investment in
Silverstar in the amount of $196,022 in the first quarter of 1998. Silverstar
subsequently filed a legal action with the Supreme Court of South Africa (the
"Court") challenging the decision of the Board and the provincial government in
their failure to award a casino license to Silverstar on the grounds that the
decision-making process was legally deficient. On March 11, 1999, the Court
overturned the previous license award for the West Rand region of Gauteng
Province, the region for which Silverstar had applied. The Court's decision
requires that the Board and the provincial government redetermine the award
process for the West Rand region. Adverse parties have the right to appeal this
ruling. To date, no timetable for reconsideration of the gaming license award
has been established. While the Company believes that Silverstar's previous
application will be given proper consideration through the reevaluation process,
there can be no assurance that a gaming license will ultimately be awarded to
Silverstar.
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. If successful in receiving a
license, the Company would provide consulting/management services with respect
to the casino operations of a proposed $40 million casino, hotel, entertainment
and resort complex pursuant to a five-year agreement commencing with the opening
of the permanent casino. The Company would also provide consulting/management
services with respect to the operations of a temporary casino during the
development phase of the resort complex. The Company would earn fees based on a
percentage of annual gaming revenue. The Company has no significant additional
capital obligations with respect to this application. The licensing process in
the Northern Province has been suspended by the South African Supreme Court
pending an investigation of alleged improprieties by the Northern Province
Casino and Gaming Board.
The fifth application, filed by a consortium ("Black Rhino") that includes
the Company, was submitted on April 21, 1998, for a license in the province of
KwaZulu Natal. A detailed application was filed by Black Rhino on August 10,
1998, in accordance with the published timetable. As announced by the KwaZulu
Natal Provincial Cabinet on October 28, 1998, Black Rhino was not selected as
the Preferred Finalist for the zone for which it applied.
Kamloops, British Columbia. On November 28, 1997, the Kamloops Indian Band
of British Columbia, Canada, (the "Band"), 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 reached an agreement in
principle to become the casino management/consulting partner in the event of
license award. The Company was paid a fee for its consulting services in
connection with the application process. During the third quarter of 1998, the
Company was informed by the provincial government of British Columbia, Canada
that the application by the Band to establish a destination casino resort on
their land was denied. The Company did not incur any significant costs in
connection with the application.
10
<PAGE>
Cruise Vessels - Concession Agreements. The Company previously acted as
casino concessionaire for two luxury cruise ships operated by Silver Seas
Cruises, Ltd. The Company's concession agreement for the Silver Cloud commenced
April 1994 and expired April 1997. The agreement for the Silver Wind commenced
January 1995 and expired January 1998.
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 $851,504, including a note secured by the property, was
determined based on arm's length bargaining with the seller. The Company also
purchased in 1994 a seven-acre parcel of land directly across the street from
the casino for $69,000. 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.
Indian Tribal Management Agreement - California - In August 1995 the
Company terminated its management agreement with the Soboba Band of Mission
Indians with respect to the Legends Casino at Soboba in Riverside County,
California. In connection with the termination, an unaffiliated third party
issued a three-year promissory note to the Company for $3,100,000, with monthly
payments based on a percentage of gross revenue from certain operations of the
facility. In March 1998 the Company negotiated an early settlement of the
then-remaining outstanding balance. As a result, the Company received cumulative
payments through the date of settlement of $2,457,727, of which $1,825,756 was
applied to recovery of capitalized costs through the third quarter of 1997,
$81,971 was recognized in income in 1997 and $550,000 was recognized in income
in 1998. No further payments will be received under the note.
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.
11
<PAGE>
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.
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 of,
or notification to, 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, on an annual basis, a list of the
holders of its voting securities.
Each publicly traded gaming lecensee 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.
12
<PAGE>
(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 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 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.
13
<PAGE>
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.
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. 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 Security Holders.
No matters were submitted to a vote of security holders of the Company
during the quarter ended December 31, 1998.
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, 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
March 31, 1998 .................... $ 0.88 $ 1.25
June 30, 1998 ..................... $ 0.88 $ 1.31
September 30, 1998 ................ $ 0.94 $ 1.13
December 31, 1998 ................. $ 0.78 $ 1.03
At December 31, 1998, the Company had approximately 140 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.
On December 30, 1998, the NASDAQ Stock Market ("NASDAQ") notified the
Company that it was not in compliance with the $1 minimum bid requirement, one
of eight listing requirements of the NASDAQ SmallCap Market. The Company is in
compliance with the other seven requirements. If the Company is unable to come
into compliance with the $1 minimum bid requirement on or before March 30, 1999,
the Company's securities could be delisted. To avoid delisting of its
securities, the Company, in accordance with NASDAQ procedural guidelines,
intends to (1) request a hearing with NASDAQ before March 30, 1999, to seek a
stay of delisting, and (2) present its proposal of actions it expects to take to
become fully compliant with the $1 minimum bid requirement. While the Company's
management believes that the Company should be granted a stay of delisting, the
Company is concurrently taking steps which would enable it to effect a reverse
split of its common shares, if required, to come into compliance.
15
<PAGE>
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.
With the exception of historical information, the matters discussed below
under the headings "Results of Operations," "Liquidity and Capital Resources,"
and "Year 2000 Compliance" 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
Net operating revenue decreased slightly to $19,458,852 in 1998 from
$19,558,648 in 1997. Casino revenue was $19,036,621 in 1998 and $19,096,857 in
1997, a decrease of less than 1%. Casino revenue for Womacks/Legends Casino in
Cripple Creek, however, increased from $18,650,017 to $19,002,377, an increase
of 1.9%. The Company's share of the Cripple Creek market decreased slightly from
17.2% in 1997 to 16.8% in 1998. Womacks/Legends Casino operated approximately
12.9% of the gaming devices in the Cripple Creek market in 1998, with an average
win per day per machine of $90 compared with a market average of $68. The
remaining portion of casino revenue, $34,244 in 1998 and $446,840 in 1997, was
derived from the Company's casino concession for the Silver Wind cruise ship.
The concession agreement expired in January 1998. Gross margin from company-wide
casino activities increased from 46% in 1997 to 59% in 1998. The increase in
margin is attributable to a more focused management and marketing approach for
Womacks/Legends Casino. Management eliminated both the busing and the logojet
marketing programs that were in effect in 1997. At the same time, a significant
number of new memberships in the casino's Gold Club were added. Additional
emphasis was put into further refining the product mix, upgrading both the
interior of the facilities, as well as the slot machine mix. Parking capacity
was expanded and made more convenient as the Company secured an additional 68
spaces directly adjacent to the casino, and the Company paved 167 parking spaces
to provide the first paved casino parking in Cripple Creek. Also contributing to
the casino margin improvement were proportionately lower payroll costs. Various
other initiatives were undertaken that management believes has resulted in
greater attention to customer service.
Food and beverage revenue decreased from $922,449 in 1997 to $878,991 in
1998, or 4.7%, due to a reduction in the level of promotional meals and
beverages given to gaming patrons. The cost of food and beverage promotional
allowances, which are included in casino costs, decreased from $973,609 in 1997
to $842,305 in 1998. Hotel revenue increased slightly from $57,167 to $62,624,
principally as the result of a marketing arrangement with a local hotel that
commenced in late 1998. The decrease in other revenue from 1997 to 1998 was
chiefly due to lower gift shop sales at Womacks/Legends Casino and a decline in
concession fees from the Silver Wind cruise ship coincident with the expiration
of the concession agreement.
16
<PAGE>
General and administrative expense increased from $5,247,763 to $5,850,870,
representing an increase, as a percentage of net operating revenue, from 26.8%
in 1997 to 30.1% in 1998, primarily as a result of higher payroll costs. The
1998 amount also includes $120,000 of fines imposed against Womacks/Legends
Casino as a result of audits conducted by the Colorado Division of Gaming for
the period August 1995 through July 1998.
Depreciation increased from $1,607,148 in 1997 to $1,655,176 in 1998. The
increase is attributable to property improvements and acquisition of new gaming
equipment at Womacks/Legends Casino. Amortization of goodwill was $1,341,504 in
both years.
Interest expense decreased from $1,039,147 to $1,023,907, as a higher
average debt balance was more than offset by a lower weighted-average interest
rate. The weighted-average interest rate was 8.74% in 1998 and 9.58% in 1997.
The other items included in the caption "Other expense, net" in the consolidated
statements of operations, for both 1998 and 1997, are described in Note 8 to the
consolidated financial statements.
As more fully discussed in Note 7 to the consolidated financial statements,
the Company recognized income tax expense of $123,000 in 1998 versus $95,000,
before extraordinary item, in 1997. The provision in 1998 is net of a
nonrecurring credit of $1,003,580 from the reversal of a valuation allowance
against net deferred tax assets established in prior years. The provision in
1997 represents alternative minimum tax for which the Company will receive a
credit against its regular tax liability in succeeding years.
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, 1998 the Company had cash, cash equivalents and short-term
investments totaling $3,214,100 and net working capital of $681,100. Additional
liquidity is available under the Company's revolving credit facility ("RCF")
with Wells Fargo Bank. See Note 4 to the Consolidated Financial Statements for
further information on the RCF. The Company had unused borrowing capacity under
the RCF of approximately $8.9 million at December 31, 1998. Net cash provided by
operations was $4,221,872 in 1998 compared with $2,983,195 in 1997, with the
increase primarily attributable to the improved operations of Womacks/Legends
Casino. The Company used cash of $5,230,734 for purchases of property and
equipment in 1998, with approximately $3.6 million used to purchase a property
adjacent to Womacks/Legends Casino that was subsequently improved to provide
paved parking for casino patrons.
As more fully described in Note 4 to the consolidated financial
statements, during 1998 the Company renegotiated certain terms of the RCF. Among
other provisions, the maximum availability was increased from $13 million to $20
million and the interest rate structure was amended, which would further lower
the Company's cost of capital if certain leverage ratios are achieved.
17
<PAGE>
Management has deferred a decision on whether to proceed with the
construction of a hotel and parking structure on its property across the street
from Womacks/Legends Casino until it has had time to assess the impact of new
hotel capacity on the Cripple Creek market. In November 1998, Womacks/Legends
Casino entered into an agreement with the operator of a new local hotel whereby
the casino is leasing a block of rooms from the hotel. The casino makes these
rooms available to its customers, sometimes on a complimentary basis, and
provides a free shuttle service between the casino and the hotel. For the near
term the Company's property located across the street from Womacks/Legends
Casino will be used for customer parking.
In January 1999 the Company reached a 20-year definitive agreement with
Casino Millennium a.s., a Czech company, and with a Czech subsidiary of Bau
Holding AG, one of the largest construction and development companies in Europe,
to operate a casino in the five-star Marriott Hotel, currently under
construction in Prague, Czech Republic. The Company will provide casino
management services in exchange for ten percent of the casino's gross revenue,
and will provide gaming equipment for 45% of the casino's net profit. Through
December 31, 1998, the Company had made deposits towards the purchase of gaming
equipment totaling $537,400, with approximately $1 million remaining to be
funded in 1999. The Company expects to meet its remaining commitment through a
combination of existing liquidity and anticipated cash flow. The opening of the
hotel and casino is currently scheduled, subject to change, for the second
quarter of 1999.
In 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. In October 1998 the Board voted to increase the limit on the stock
repurchase program from $1 million to an aggregate of $2 million. 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. Through
December 31, 1998, the Company had repurchased 1,157,100 shares at an average
cost per share of $1.07.
Management believes that the Company's cash and working capital at December
31, 1998, together with expected cash flows from operations and borrowing
capacity under the RCF, will be sufficient to satisfy its debt repayment
obligations, fund its anticipated capital expenditures and pursue additional
business growth opportunities for the foreseeable future.
Year 2000 Compliance
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 ("Y2K") compliance
issue. As the year 2000 approaches, such systems may be unable to accurately
process certain date-based or date-sensitive information. The Company is
presently implementing its plan to ensure Y2K compliance. The Company believes
that it has identified all software applications, hardware components, equipment
and third-party vendors that could pose potential Y2K problems.
Computerized Systems and Components
The computerized systems of most significance to the Company's ongoing
business operations are those that involve slot reporting, player tracking and
accounting. Those systems rely primarily on hardware and software obtained from
third-party vendors. The Company has contacted the respective vendors for these
systems and has received written confirmation that the software applications and
related hardware components currently in use for those systems are Y2K
compliant. Certain of these systems and components were upgraded during 1998.
The Company did not incur any significant incremental costs in making these
systems Y2K compliant.
18
<PAGE>
Non-IT-Dependent Systems and Equipment
The Company uses in its business certain systems and equipment that contain
embedded technology ("non-IT dependent systems") such as electronic gaming
devices, security and surveillance equipment, copiers and fax machines, alarm
systems and voicemail systems, among others. The most significant of these to
the Company's operations are electronic gaming devices, from which the Company
derives in excess of 95% of its net operating revenue. Based on written
responses from its vendors, the Company believes that substantially all of the
electronic gaming devices presently being used in the Company's operations are
Y2K compliant. The Company has tested its security and surveillance systems
internally and determined that they are Y2K compliant. The remaining
non-IT-dependent systems and equipment are not considered critical to the
Company's operations. Through its own evaluation or contact with the appropriate
vendors, the Company has determined that the majority of these remaining systems
and equipment are Y2K compliant. Management believes that non-IT-dependent
systems and equipment that have not yet been fully evaluated for Y2K compliance
would not have a material adverse effect on the Company's operations in the
event of non-Y2K compliance.
Third-Party Service Providers
The Company has identified and contacted certain primary service providers,
including its banks and payroll processor, to determine whether their potential
Y2K problems could have a material adverse effect on the Company. The Company
has received responses that they are generally on schedule to achieving Y2K
compliance. The Company can make no assurances, however, that these providers
will, in fact, become Y2K compliant on a timely basis. The Company relies on its
banks principally to provide working capital and to process transactions. The
failure of the Company's banks to provide these services would likely have a
material adverse effect on the Company's day-to-day operations. The Company has
not yet developed a contingency plan to address any Y2K-related failures by its
banks. With respect to payroll processing, the Company estimates that the
incremental cost to process its payroll in-house would be approximately $75,000
on an annual basis. The Company has not, however, developed a contingency plan
to process its payroll in-house. The Company will continue to monitor the
progress of its banks and its payroll processor in addressing their potential
Y2K problems, and will consider whether to develop and test contingency plans
based on the extent of their reported progress.
The ability of the Company to conduct its operations is also dependent on
the provision of certain services such as electricity, water, natural gas,
telecommunications and the like by third parties, where there is limited or no
choice of alternative suppliers. Failures by such third-party suppliers would
have a material adverse effect on the Company's operations. The Company cannot
reasonably estimate the likelihood of Y2K-related failures by these suppliers to
provide their services. The Company does not believe that it is feasible to
develop or test contingency plans to cope with possible Y2K-related failures by
these third parties.
19
<PAGE>
Current Status
With the exception of certain services on which the Company relies as
described in the preceding two paragraphs, the Company's information at this
time does not indicate that Y2K compliance issues will have a material adverse
effect upon the financial condition or results of operations of the Company. The
Company's incremental cost of its Y2K compliance program to date has not been
significant and incremental costs to be incurred by the Company to complete its
Y2K compliance program are not expected to be significant. There can be no
assurance, however, that the cost of Y2K compliance might not become material as
the Company's study progresses and more information becomes available.
Item 7. Financial Statements.
See "Index to Financial Statements" on page F-1 hereof.
20
<PAGE>
CENTURY CASINOS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
-----------
Independent Auditors' Report ......................................... F2
Consolidated Balance Sheet
as of December 31, 1998 .............................................. F3
Consolidated Statements of Operations
for the Years Ended December 31, 1998 and 1997 ....................... F4
Consolidated Statements of Comprehensive Income
(Loss) for the Years Ended December
31, 1998 and 1997 .................................................... F5
Consolidated Statements of Shareholders'
Equity for the Years Ended December 31,
1998 and 1997 ........................................................ F6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1998 and 1997 ....................... F7
Notes to Consolidated Financial Statements ........................... F9
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, 1998, and the related consolidated
statements of operations, comprehensive income (loss), 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, 1998, 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
March 16, 1999
F2
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1998
-----------------
ASSETS
Current Assets:
<S> <C>
Cash and cash equivalents ............................................. $ 2,175,604
Short-term investments ................................................ 1,038,496
Prepaid expenses and other ............................................ 773,849
-----------
Total current assets .............................................. 3,987,949
Property and Equipment, net .............................................. 18,337,734
Goodwill, net of accumulated amortization of $5,130,877 .................. 11,257,130
Other Assets ............................................................. 1,100,893
===========
Total .................................................................... $34,683,706
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt, including $420,360 to related party $ 822,453
Accounts payable and accrued liabilities .............................. 2,484,396
-----------
Total current liabilities ........................................ 3,306,849
Long-Term Debt, less current portion ..................................... 12,229,106
Commitments and Contingencies (Note 6)
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; 14,704,785 shares outstanding 158,619
Additional paid-in capital ............................................ 23,323,155
Accumulated other comprehensive loss .................................. (15,308)
Accumulated deficit ................................................... (3,081,876)
-----------
20,384,590
Treasury stock - 1,157,100 shares, at cost ............................ (1,236,839)
-----------
Total shareholders' equity .................................... 19,147,751
-----------
Total .................................................................... $34,683,706
===========
See notes to consolidated financial statements.
</TABLE>
F3
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997
------------ -----------
Operating Revenue:
<S> <C> <C>
Casino ................................................... $19,036,621 $19,096,857
Food and beverage ........................................ 878,991 922,449
Hotel .................................................... 62,624 57,167
Other .................................................... 152,769 235,238
----------- -----------
20,131,005 20,311,711
Less promotional allowances .............................. (672,153) (753,063)
----------- -----------
Net operating revenue ............................ 19,458,852 19,558,648
----------- -----------
Operating Costs and Expenses:
Casino ................................................... 7,755,733 10,309,162
Food and beverage ........................................ 490,290 393,670
Hotel .................................................... 27,778 17,590
General and administrative ............................... 5,850,870 5,247,763
Depreciation and amortization ............................ 2,996,680 2,948,652
----------- -----------
Total operating costs and expenses ............... 17,121,351 18,916,837
----------- -----------
Income from Operations ...................................... 2,337,501 641,811
Other expense, net ....................................... (286,612) (917,575)
----------- -----------
Income (Loss) before Income Taxes and Extraordinary Item .... 2,050,889 (275,764)
Provision for income taxes ............................... 123,000 95,000
----------- -----------
Income (Loss) before Extraordinary Item ..................... 1,927,889 (370,764)
Extraordinary item - debt prepayment premium, net of
income tax benefit of $40,000 ........................ - (171,860)
----------- -----------
Net Income (Loss) ........................................... $1,927,889 $ (542,624)
=========== ===========
Income (Loss) Per Share, Basic and Diluted:
Before extraordinary item ................................ $ 0.13 $ (0.02)
Extraordinary item ....................................... - (0.01)
=========== ===========
Net income (loss) ........................................ $ 0.13 $ (0.03)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F4
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------
1998 1997
-------------------- ------------------
<S> <C> <C>
Net Income (Loss) $ 1,927,889 $ (542,624)
Foreign currency translation adjustments 12,469 (13,923)
==================== ==================
Comprehensive Income (Loss) $ 1,940,358 $ (556,547)
==================== ==================
</TABLE>
See notes to consolidated financial statements.
F5
<PAGE>
CENTURY CASINOS, INC.
AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury Stock
-------------------- Paid -in Comprehensive Accumulated -------------------
Shares Amount Capital Income (Loss) Deficit Shares Amount Total
---------- -------- ----------- ------------- ------------ ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 .. 15,861,885 $158,619 $24,820,275 $(13,854) $(4,467,141) $20,497,899
Amortization of warrants
issued to consultant ...... 48,660 48,660
Warrants repriced in
connection with
debt refinancing .......... 38,608 38,608
Other comprehensive loss ...... (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
Amortization of warrants
issued to consultant .. 44,612 44,612
Issuance of cash and notes
to former principals of
Gold Creek Associates ..... (1,629,000) (1,629,000)
Purchases of treasury stock ... 1,157,100 $(1,236,839) (1,236,839)
Other comprehensive income .... 12,469 12,469
Net income .................... 1,927,889 1,927,889
---------- -------- ----------- ------------ ------------ --------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 .. 15,861,885 $158,619 $23,323,155 $(15,308) $(3,081,876) 1,157,100 $(1,236,839) $19,147,751
========== ======== =========== ============ ============ ========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------
1998 1997
------------- ----------
<S> <C> <C>
Cash Flow from Operations:
Net income (loss) $ 1,927,889 $(542,624)
Adjustments to reconcile net income (loss) to net cash provided by
operations:
Depreciation 1,655,176 1,607,148
Amortization of goodwill 1,341,504 1,341,504
Amortization of deferred financing costs 104,044 65,744
Extraordinary item - debt prepayment premium 211,860
Income from terminated projects, net (687,128) (81,971)
(Gain) loss on disposition of assets (46,169) 44,367
Deferred tax benefit (499,000)
Other noncash charges 44,612 60,035
Changes in operating assets and liabilities:
Prepaid expenses and other assets 60,676 242,786
Accounts payable and accrued liabilities 320,268 34,346
-------------- ------------
Net cash provided by operations 4,221,872 2,983,195
-------------- ------------
Cash Flow from Investing Activities:
Expenditures for gaming development projects and other (638,034) (379,761)
Purchases of property and equipment (5,230,734) (3,432,985)
Purchases of short-term investment securities, net (1,038,496)
Proceeds from terminated projects 981,000 926,338
Proceeds received from disposition of assets 160,482 15,000
Payments to former principals of Gold Creek Associates (534,000)
-------------- ------------
Net cash used in investing activities (6,299,782) (2,871,408)
-------------- ------------
</TABLE>
-Continued on following page-
F-7
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1998 1997
Cash Flow from Financing Activities: ------------ ------------
<S> <C> <C>
Proceeds from borrowings 14,477,778 17,748,856
Principal repayments and prepayment premium on borrowings (13,115,144) (17,869,138)
Deferred financing costs (100,259) (320,067)
Purchases of treasury stock (1,236,839)
------------- -------------
Net cash provided by (used in) financing activities 25,536 (440,349)
------------- -------------
Decrease in Cash and Cash Equivalents (2,052,374) (328,562)
Cash and Cash Equivalents at Beginning of Year 4,227,978 4,556,540
-------------
-------------
Cash and Cash Equivalents at End of Year $ 2,175,604 $ 4,227,978
============= =============
Supplemental Disclosure of Noncash Investing and Financing Activities:
1998 1997
Issuance of notes to former principals of Gold Creek Associates $ 1,095,000
Equipment acquired through long-term financing $ 293,911
Warrants repriced in connection with debt refinancing $ 38,608
</TABLE>
Supplemental Disclosure of Cash Flow Information:
Interest paid by the Company was $1,194,268 in 1998 and $847,658 in 1997.
Income taxes paid by the Company were $669,545 in 1998 and $24,090 in 1997.
See notes to consolidated financial statements.
F-8
<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. 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
Company's operating revenue for both 1998 and 1997 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.
Except for an interest rate swap (see Note 4), which has no carrying
value in the consolidated financial statements, the Company's carrying
value of financial instruments approximates fair value at December 31,
1998.
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.
F-9
<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 $3,863,940 at December 31, 1998, 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
$7,393,190 at December 31, 1998, is being amortized on a straight-line
basis over 15 years, and is deductible for income 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 $842,305 in 1998 and $973,609 in 1997.
Foreign Currency Translation - Adjustments resulting from the
translation of the accounts of the Company's Austrian and South
African subsidiaries from the local functional currency to U.S.
dollars are recorded as other comprehensive income or loss in the
consolidated statements 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 - The Company follows the provisions of SFAS No.
128, "Earnings per Share," in calculating basic and diluted earnings
per share. Basic earnings per share considers only outstanding common
stock in the computation. Diluted earnings per share gives effect to
all potentially dilutive securities.
Comprehensive Income - The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," effective January 1, 1998. Comprehensive income
is a more inclusive financial reporting measure than net income, and
includes all changes in equity during the period, except those
resulting from investments by, and distributions to, shareholders of
the Company.
Operating Segments - Management considers the Company's business to
presently comprise a single operating segment, as that term is defined
by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which the Company adopted January 1, 1998.
F-10
<PAGE>
Recently Issued Accounting
Pronouncements - In June 1998 the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. The
pronouncement requires that a company designate the intent of a
derivative to which it is a party, and prescribes measurement and
recognition criteria based on the intent and effectiveness of the
designation. The Company will be required to adopt SFAS No. 133 no
later than the first quarter of 2000. The Company is in the process of
evaluating the impact that will result from the adoption of SFAS No.
133.
Reclassifications - Certain reclassifications have been made in the 1997
financial statements to conform with the 1998 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998, consist of the following:
Estimated
Service Life
in Years
Land $ 8,418,607
Buildings and improvements 6,825,209 7 - 31
Gaming equipment 4,615,246 3 - 7
Furniture and office equipment 1,091,638 5 - 7
Other 861,488 3 - 7
------------------
21,812,188
Less: accumulated depreciation (4,394,958)
------------------
17,417,230
Nonoperating casino and land 920,504
------------------
Property and equipment, net $ 18,337,734
==================
4. LONG-TERM DEBT
Long-term debt at December 31, 1998, consists of the following:
<TABLE>
<S> <C>
Borrowings under revolving line of credit facility with bank $11,073,059
Notes payable to former principals of Gold Creek 890,993
Convertible debenture 500,000
Note payable to founding shareholder, unsecured; noninterest-bearing 420,360
Notes payable secured by gaming equipment 167,147
------------
Total long-term debt 13,051,559
Less current portion (822,453)
============
Long-term portion $12,229,106
============
</TABLE>
F-11
<PAGE>
At December 31, 1998, the Company had a $20 million reducing revolving
line of credit facility (the "RCF") with Wells Fargo Bank ("Wells
Fargo") that expires on April 1, 2001. The RCF is secured by
substantially all of the real and personal property of Womacks/Legends
Casino. An annual commitment fee of between three-eighths and one-half
percent, payable quarterly, is charged on the unused portion of the
RCF. The Company has designated $10 million of the outstanding
borrowing as a LIBOR-based obligation for a period of six months,
expiring March 16, 1999. The interest rate on the outstanding amount
above $10 million is based on the bank's prime rate. The interest
rates for both the LIBOR-based and prime-based portions of the
outstanding balance are based on the Company's leverage ratio, as
defined, calculated on a trailing-four-quarters basis and adjusted
quarterly. At December 31, 1998, the weighted-average interest rate on
the total outstanding balance was 8.13%. The borrowing capacity under
the RCF will be reduced by $555,600 quarterly, beginning April 1,
1999. The unused borrowing capacity at December 31, 1998, was
approximately $8.9 million. 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, 1998, 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. An extraordinary charge,
net of income taxes, of $171,860, constituting a prepayment premium on
one of the borrowings retired at the inception of the RCF, was
recognized in the second quarter of 1997.
In the third quarter of 1998, the Company entered into a five-year
interest rate swap agreement on $7.5 million notional amount of debt
under the RCF, whereby the Company will pay a LIBOR-based fixed rate
and receive a LIBOR-based floating rate. Generally, the swap
arrangement will be advantageous to the Company to the extent that
interest rates increase in the future and disadvantageous to the
extent that they decrease. The net amount paid or received by the
Company on a quarterly basis will result in an increase or decrease to
interest expense. Net additional interest expense to the Company under
the swap agreement in 1998 was $4,701. At December 31, 1998, the cost
to the Company to terminate the interest rate swap would have been
approximately $123,000.
During the second quarter of 1998, the Company reached agreement with
the two former principals of Gold Creek to pay them a total of
$1,629,000, consisting of cash of $534,000 and two promissory notes
totaling $1,095,000, in lieu of issuing common stock as previously
provided for in connection with the acquisition of Gold Creek's
assets. The notes bear interest at 8.75% and require aggregate monthly
payments of principal and interest of $16,100 through June 2001.
Additional principal payments of $75,000 on January 1, 1999, and
$50,000 on April 1, 1999, are required on one of the notes. On July 1,
2001, the then-remaining aggregate principal of $356,681 is due and
payable.
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 second anniversary date at 127% of the outstanding
principal. The prepayment amount declines to 122% after the third
anniversary date and to 116% after the fourth anniversary date. The
entire unpaid principal is due on May 30, 2001.
The Company has acquired certain of its gaming equipment subject to
vendor financing at fixed rates of 10% to 10.5%.
F-12
<PAGE>
Scheduled maturities of long-term debt are as follows:
1999 $ 822,453
2000 4,109,606
2001 8,119,500
=============
Total $13,051,559
=============
5. 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 expired
on March 4, 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 on March 31, 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 on 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 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.
F-13
<PAGE>
In April 1994 the Board of Directors of the Company adopted the
Employees' 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, 1998, 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>
1998 1997
------------------------------ ----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Incentive Stock Options: -------------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Outstanding at January 1 2,615,400 $ 1.44 2,371,400 $ 1.50
Granted 20,000 $ 0.94 265,800 $ 0.85
Cancelled or forfeited (9,000) $ 1.50 (21,800) $ 1.50
--------------- --------------
Outstanding at December 31 2,626,400 $ 1.43 2,615,400 $ 1.44
=============== ==============
Options exercisable at December 31 2,604,267 $ 1.44 2,460,834 $ 1.47
=============== ==============
</TABLE>
Summarized information regarding options outstanding at December 31,
1998, is as follows:
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price At Year End Term in Years At Year End
-------- ----------- ------------- -----------
$0.75 230,000 8.8 230,000
$0.94 20,000 9.0 13,333
$1.50 2,336,900 6.7 2,321,434
$1.63 30,000 7.0 30,000
$2.25 9,500 6.4 9,500
========== ===========
2,626,400 6.9 2,604,267
========== ===========
F-14
<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 income (loss) and earnings
(loss) per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) As reported $ 1,927,889 $ (542,624)
Pro forma $ 1,881,683 $ (649,772)
Earnings (loss) per share,
basic and diluted As reported $ 0.13 $ (0.03)
Pro forma $ 0.12 $ (0.04)
</TABLE>
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:
1998 1997
-------- --------
Weighted-average fair value of
options granted during the year $ 0.57 $ 0.58
Weighted-average risk-free interest rate 5.5% 5.7%
Weighted-average expected life 5 yrs. 10 yrs.
Weighted-average expected volatility 67% 59%
Weighted-average expected dividends $ 0 $ 0
In 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. In October 1998 the Board voted to increase
the limit on the stock repurchase program from $1 million to an
aggregate of $2 million. Through December 31, 1998, the Company had
repurchased 1,157,100 shares at an average cost per share of $1.07.
F-15
<PAGE>
6. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Prague, Czech Republic - In March 1998 the Company entered into a
joint venture agreement with a Czech subsidiary of Bau Holding AG, one
of the largest construction and development companies in Europe, to
form Century Casinos Praha a.s. The Company was to hold a 49% interest
in the venture, which will operate a casino in the five-star Marriott
Hotel, currently under construction in Prague, Czech Republic.
Subsequent to signing the joint venture agreement, laws governing
casino licenses in the Czech Republic were amended to preclude a
foreign entity from holding an equity interest in a casino license. In
January 1999 the Company entered into a 20-year definitive agreement
with Casino Millennium a.s., a Czech company that has secured the
leasing rights from the hotel, to provide casino management services
for ten percent of the casino's gross revenue, and to provide certain
gaming equipment for 45% of the casino's net profit. Through December
31, 1998, the Company had made deposits towards the purchase of gaming
equipment totaling $537,400, with approximately $1 million remaining
to be funded in 1999. The opening of the hotel and casino is currently
scheduled, subject to change, for the second quarter of 1999.
South Africa - On April 21, 1998, the Gauteng Gambling and Betting
Board (the "Board") announced the award of the remaining two licenses
for the province of Gauteng, South Africa. Silverstar Development Ltd.
("Silverstar"), the consortium to which the Company is the contracted
casino management partner, and in which the Company holds a minority
equity interest, had submitted an application for a proposed $70
million, 1,700 gaming position hotel/casino resort development.
Silverstar was not awarded one of the licenses. The Company recorded
an impairment allowance against its entire equity investment in
Silverstar in the amount of $196,022, which is included in "other
expense, net" in the accompanying statements of operations. Silverstar
subsequently filed a legal action with the Supreme Court of South
Africa (the "Court") challenging the decision of the Board and the
provincial government in their failure to award a casino license to
Silverstar on the grounds that the decision-making process was legally
deficient. On March 11, 1999, the Court overturned the previous
license award for the West Rand region of Gauteng Province, the region
for which Silverstar had applied. The Court's decision requires that
the Board and the provincial government redetermine the award process
for the West Rand region. Adverse parties have the right to appeal
this ruling. To date, no timetable for reconsideration of the gaming
license award has been established. While the Company believes that
Silverstar's previous application will be given proper consideration
through the reevaluation process, there can be no assurance that a
gaming license will ultimately be awarded to Silverstar.
Riverboat Development Agreement-Indiana - On September 14, 1998, the
Indiana Gaming Commission awarded a Certificate of Suitability to
Pinnacle Gaming Development Corporation ("Pinnacle") to conduct
riverboat gaming in Switzerland County. In accordance with the terms
of the sale of the Company's interest in Pinnacle in 1995, the Company
received a payment in the third quarter of 1998 of $431,000, which is
included in "other expense, net" in the accompanying statements of
operations. Additionally, the Company is entitled to a payment of
$1,040,000 upon "groundbreaking" of the project, and installment
payments of $32,000 per month for the first 60 months of the
riverboat's operation. The Company may elect to receive, or the owners
of Pinnacle may elect to prepay, the installment payments in the
aggregate discounted amount of $1,453,000. While the Company believes
that Pinnacle intends to proceed with the development of the riverboat
project, there can be no assurance that Pinnacle will do so, or, if
the project does proceed, when the additional payments will be earned
and received by the Company. Any future payments to the Company will
be recognized as income when earned.
F-16
<PAGE>
Consulting Agreement-Rhodes, Greece - In the second quarter of 1998,
the Company reached a consulting agreement ("current agreement") with
Rhodes Casino S.A. and Playboy Gaming International Ltd. ("Playboy")
to assign certain of the Company's rights and delegate its
responsibilities under a previously executed management and consulting
agreement ("previous agreement") pertaining to the operation of a
casino on the island of Rhodes, Greece. The Company has received from
Playboy a payment of $25,000 for certain preopening services performed
to date, and will receive annual payments of $50,000 for each of the
first three years of the casino's operations. The Company will have no
further obligations under the previous agreement unless, subsequent to
the opening of the casino, Playboy is unwilling or unable to perform
under the current agreement. In such event, the previous agreement,
and the Company's obligations, would be reinstated together with the
Company's right to receive up to $300,000 per year for the first three
years of casino operations, with an aggregate minimum guarantee of
approximately $250,000.
Settlement of Note Receivable from Terminated Management Agreement -
In March 1998 the Company negotiated an early settlement of its note
receivable from SSK Game Enterprises, Inc. ("SSK"), with respect to
the Company's casino management agreement with the Soboba Band of
Mission Indians in California, which agreement was terminated in
August 1995. Aggregate payments received pursuant to the note from
August 1995 through the date of settlement were $2,457,727, of which
$1,825,756 was applied to recovery of capitalized costs through the
third quarter of 1997, $81,971 was recognized in income in 1997 and
$550,000 was recognized in income in 1998. The amounts recognized in
income are included in the caption "other income, net" in the
accompanying consolidated statements of operations. No further
payments will be received under the note.
Colorado Division of Gaming Audit - In 1998 the Colorado Division of
Gaming (the "Division") conducted an audit of the Company's two
Colorado gaming licenses covering the period August 1995 through July
1998. As a result of the audit, the Division alleged certain
violations of Colorado gaming regulations and internal control
procedures. The licensees have each entered into a Stipulation and
Agreement whereby the licensees have agreed to fines totaling $120,000
and have submitted to the Division corrective action plans that are
responsive to the Division's concerns. The corrective action plans
have been approved by, and will be monitored for compliance by, the
Division. Management believes that the licensees are in compliance
with the corrective action plans.
Employee Benefit Plan - In March 1998 the Company adopted the 401(k)
Savings and Retirement Plan (the "Plan"). The Plan allows eligible
employees to make tax-deferred contributions that are matched by the
Company up to a specified level. The Company contributed $16,177 to
the Plan in 1998.
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
$468,150 in 1999, $374,364 in 2000, $328,878 in 2001, $320,566 in
2002, $229,500 in 2003 and $272,000 thereafter. Rental expense was
$573,584 in 1998 and $630,353 in 1997.
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
and having terms and conditions as shall be approved by the Board of
Directors, or a combination thereof.
F-17
<PAGE>
7. INCOME TAXES
The provision for income taxes, before extraordinary item, consists of
the following:
1998 1997
--------------- --------------
Current:
Federal $ 512,000 $ 95,000
State 110,000
---------------- ---------------
622,000 95,000
---------------- ---------------
Deferred:
Federal (439,000)
State (60,000)
---------------- ---------------
(499,000)
---------------- ---------------
$ 123,000 $ 95,000
================ ===============
The provision for income taxes, before extraordinary item, differs
from the amount of income tax provision (benefit) calculated by
applying the U.S. statutory federal income tax rate of 34% to pretax
income (loss), before extraordinary item, as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Expected federal income tax provision (benefit) at statutory rate $ 697,302 $ (93,759)
Increase (decrease) due to:
Goodwill amortization 252,111 252,111
Loss of foreign subsidiary 16,444 17,702
State income taxes, net of federal benefit 98,362 17,500
Alternative minimum tax, before benefit associated
with extraordinary item of $40,000 in 1997 95,000
Penalties and fines 45,171 1,926
Other nondeductible expenses 17,190 2,326
Change in valuation allowance (1,003,580) (197,806)
------------- ------------
Provision for income taxes $ 123,000 $ 95,000
============= ============
</TABLE>
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, 1998,
consist of the following:
Deferred tax assets:
Alternative minimum tax credit carryforward $ 51,434
Property, plant and equipment 130,406
Accrued liabilities and other 348,952
----------
530,792
Deferred tax liabilities:
Prepaid expenses (31,792)
----------
Net deferred tax assets $ 499,000
==========
F-18
<PAGE>
8. OTHER EXPENSE, NET
Other expense, net, consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Interest income $ 108,041 $ 152,912
Interest expense (1,023,906) (1,039,147)
Income from terminated projects, net 687,128 81,971
Amortization of deferred financing costs (104,044) (65,744)
Gain (loss) on disposal of equipment 46,169 (47,567)
-------------- -------------
$ (286,612) $ (917,575)
============== =============
</TABLE>
9. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share were computed as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Basic Earnings (Loss) Per Share:
Net income (loss) $ 1,927,889 $ (542,624)
============== ==============
Weighted average common shares 15,300,516 15,861,885
============== ==============
Basic earnings (loss) per share $ 0.13 $ (0.03)
============== ==============
Diluted Earnings (Loss) Per Share:
Net income (loss), as reported $ 1,927,889 $ (542,624)
Interest expense, net of income taxes, on convertible debenture 32,918
-------------- --------------
Net income (loss) available to common shareholders $ 1,960,807 $ (542,624)
============== ==============
Weighted average common shares 15,300,516 15,861,885
Effect of dilutive securities:
Convertible debenture 271,739
Stock options and warrants 63,253
-------------- --------------
Dilutive potential common shares 15,635,508 15,861,885
============== ==============
Diluted earnings (loss) per share $ 0.13 $ (0.03)
============== ==============
Excluded from computation of diluted earnings (loss) per share
due to antidilutive effect:
Options and warrants to purchase common shares 5,526,009 6,215,009
Weighted average exercise price $ 1.99 $ 1.97
</TABLE>
F-19
<PAGE>
9. EVENT SUBSEQUENT TO DECEMBER 31, 1998
On February 8, 1999, the Company's Board of Directors approved the
award of options on 809,000 shares of the Company's common stock under
the Employees' Equity Incentive Plan. The options have an exercise
price of $0.75 per share, a vesting period of one year and an exercise
period of ten years.
F-20
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
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 1999 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1998, 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 1999 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1998, 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 1999 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1998, 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 with respect to the 1999 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
1998, under the caption "Certain Relationships and Related Transactions."
21
<PAGE>
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 fiscal 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.
10.33 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.
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.
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.
22
<PAGE>
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.
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-QSB for the quarterly
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").
6. The following exhibits were filed with the Form 10-KSB for the fiscal
year ended December 31, 1997 and are incorporated herein by reference:
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.
7. The following exhibits were filed with the Form 10-QSB for the quarterly
period ended June 30, 1998 and are incorporated herein by reference:
Exhibit No. Description
10.71 Termination of Stock Transfer and Registration Rights Agreement
dated May 1, 1998, between Century Casinos, Inc. and Gary Y.
Findlay
10.72 Promissory Note dated April 30, 1998, between Century Casinos,
Inc. and Gary Y. Findlay
10.73 Termination of Stock Transfer and Registration Rights Agreement
dated June 2, 1998, between Century Casinos, Inc. and James A.
Gulbrandsen
10.74 Promissory Note dated June 2, 1998, between Century Casinos,
Inc. and James A. Gulbrandsen
10.75 Commercial Contract to Buy and Sell Real Estate dated November
19, 1997, between WMCK Venture Corp.
and Hal D. Hicks
10.76 Casino Consulting Agreement dated March 25, 1998, by and between
Rhodes Casino S.A., Century Casinos, Inc. and Playboy Gaming
International Ltd.
24
<PAGE>
8. The following exhibits are filed herewith:
Exhibit No. Description
10.77 Third 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 4, 1998.
10.78 Parking Lease - Option to Purchase dated June 1, 1998, between
the City of Cripple Creek ("Lessor") and WMCK Venture Corp.
("Lessee")
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 fourth quarter
of its fiscal year ended December 31, 1998.
25
<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, 1999.
CENTURY CASINOS, INC.
By:/s/Erwin Haitzmann
------------------
Erwin Haitzmann, President and Chief
Executive Officer
/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 Erwin Haitzmann 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, 1999.
<TABLE>
<CAPTION>
Signature Title Signature Title
- --------- ----- --------- -----
<S> <C> <C> <C>
/s/ Erwin Haitzmann Chairman of the Board and /s/ Gottfried Schellmann Director
- ------------------- Chief Executive Officer --------------------------
Erwin Haitzmann Gottfried Schellmann
/s/ Peter Hoetzinger Vice Chairman of the Board /s/ Robert S. Eichberg Director
- -------------------- --------------------------
Peter Hoetzinger Robert S. Eichberg
/s/ James D. Forbes Director
- -------------------
James D. Forbes
/s/ Norbert Teufelberger Chief Financial Officer and
- ------------------------ Director
Norbert Teufelberger
</TABLE>
26
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10.77 Third 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 4, 1998.
10.78 Parking Lease - Option to Purchase dated June 1, 1998, between the
City of Cripple Creek ("Lessor") and WMCK Venture Corp. ("Lessee")
21 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule
27
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment") is made and
entered into as of the 4th day of November, 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 L/C Issuer and as the
administrative and collateral agent for the Lenders and L/C Issuer (herein in
such capacity called the "Agent Bank" and, together with the Lenders and L/C
Issuer, 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 by Second Amendment to Credit Agreement dated
January 28, 1998 (the "Second Amendment", and together with the Original Credit
Agreement and the First Amendment, 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 Fifteen Million Dollars
($15,000,000.00).
B. For the purpose of this Third 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) Increasing the Aggregate Commitment to Twenty Million Dollars
($20,000,000.00);
<PAGE>
(ii) excluding from the calculation of the TFCC Ratio a one-time
pre-payment of Subordinated Debt in the aggregate amount of Five Hundred
Thousand Dollars ($500,000.00);
(iii) adding a subfacility for the issuance of Letters of Credit up to
the maximum aggregate amount of One Million Dollars ($1,000,000.00) at any
time outstanding;
(iv) reducing the Nonusage Fee from .50% per annum to .375% per annum
during such periods as the Borrower Consolidation has achieved Pricing
Levels I or II as set forth in the amended definition of Applicable Margin;
and
(v) making certain changes to the Financial Covenants and to the
Applicable Margins.
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 Third Amendment.
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 in each instance effective as of the Third
Amendment Effective Date, 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:
"Agent Bank" shall mean WFB in its capacity as administrative and
collateral agent for Lenders and L/C Issuer.
"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 in the principal amount of Twenty Million Dollars
($20,000,000.00), 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.
2
<PAGE>
"Aggregate Commitment Reduction Schedule" shall mean the Aggregate
Commitment Reduction Schedule marked "Schedule 2.01(c)", affixed to the Third
Amendment and by this reference incorporated herein and made a part hereof,
setting forth the Scheduled Reductions and Maximum Scheduled Balance as of each
Reduction Date under the Credit Facility.
"Aggregate Outstandings" shall mean collective reference to the sum of the
Funded Outstandings and L/C Exposure as of any given date of determination.
"Applicable Margin" means for any Prime Rate Loan or LIBOR Loan during the
period commencing on the date of the Third Amendment and continuing until the
Maturity Date, the applicable per annum percentage amount to be added to the
Prime Rate or the LIBO Rate, as the case may be, at the margin rates as set
forth in Table One below in each instance based on the Leverage Ratio calculated
with regard to the Borrower Consolidation as of each Fiscal Quarter end,
commencing with the Fiscal Quarter ending September 30, 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, provided that for the period commencing on the date of the
Third Amendment to December 1, 1998, the Applicable Margin shall be set at
Pricing Level II:
3
<PAGE>
<TABLE>
<CAPTION>
TABLE ONE TABLE TWO
---------------------------- --------------
PRICING LEVERAGE PRIME RATE LIBO RATE NONUSAGE
LEVEL RATIO MARGIN MARGIN PERCENTAGE
------- ---------------------------------- ---------- --------- --------------
<S> <C> <C> <C> <C>
I Less than 1.50 to 1.00 0.00% 2.30% 0.375%
II Greater than or equal to 0.00% 2.70% 0.375%
1.50 to 1.00 but less than
2.00 to 1.00
III Greater than or equal to 0.25% 2.95% 0.50%
2.00 to 1.00 but less than
2.50 to 1.00
IV Greater than or equal to 0.50% 3.20% 0.50%
2.50 to 1.0 but less than
3.00 to 1.0
V Greater than or equal to 0.75% 3.45% 0.50%
3.00 to 1.0
</TABLE>
4
<PAGE>
"Available Borrowings" shall mean, at any time, and from time to time, the
aggregate amount available to Borrowers for a Borrowing or issuance of a Letter
of Credit not exceeding the amount of the Maximum Availability, as of each date
of determination.
"Bank Facilities" shall mean collective reference to the Credit Facility
and L/C Facility.
"Bank Facility Termination" shall mean indefeasible payment in full of all
sums owing under the Bank Facilities and each of the other Loan Documents, the
occurrence of the Stated Expiry Date or other termination of all outstanding
Letters of Credit, and the irrevocable termination of: (i) the obligation of
Lenders to advance Borrowings under the Credit Facility and (ii) the obligation
of L/C Issuer to issue Letters of Credit under the L/C Facility.
"Borrowing(s)" shall mean such amounts as Borrowers may request from Agent
Bank from time to time to be advanced under the Credit Facility by Notice of
Borrowing in the manner provided in Section 2.03 or at the request of Agent Bank
pursuant to Section 2.14.
"Cash Collateral Account" shall mean the restricted depository
savings account to be established by Borrowers or Agent Bank on behalf of
Borrowers with L/C Issuer at its offices located at 3800 Howard Hughes Parkway,
Las Vegas, Nevada, or at such other office located in the United States as may
be designated from time to time by L/C Issuer, for the purpose of depositing
Cash collateral for the aggregate L/C Exposure upon the occurrence of any Event
of Default.
5
<PAGE>
"Cash Collateral Pledge Agreement" shall mean the Pledge and Assignment of
Savings Account Agreement to be executed by Borrowers in favor of L/C Issuer as
of the Third Amendment Effective Date as the same may be amended or modified
from time to time under the terms of which all sums held from time to time in
the Cash Collateral Account are pledged in favor of L/C Issuer to secure
repayment of any funding required under any outstanding Letters of Credit, a
copy of the form of which Cash Collateral Pledge Agreement is marked "Exhibit
M", affixed to the Third Amendment and by this reference incorporated herein and
made a part hereof.
"Commercial Letter(s) of Credit" shall mean a letter or letters of credit
issued by L/C Issuer pursuant to Section 2.14 of the Credit Agreement for the
purpose of assuring payment for goods, equipment or materials supplied to
Borrower.
"Commitment Increase" shall mean the increase of the Maximum Scheduled
Balance to Twenty Million Dollars ($20,000,000.00) as of the Third Amendment
Effective Date.
"Commitment Increase Fee" shall have the meaning set forth in Paragraph
15(d) of the Third Amendment.
"Credit Agreement" shall mean the Existing Credit Agreement as amended by
the Third 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.
"Excluded Subdebt Reduction" shall have the meaning ascribed to such term
in Paragraph 11 of the Third Amendment.
"Existing Credit Agreement" shall have the meaning set forth in Recital
Paragraph A of the Third Amendment.
"First Amendment" shall have the meaning set forth in Recital Paragraph A
of the Second Amendment.
"Funded Outstandings" shall mean the unpaid principal amount outstanding on
the Credit Facility as of any given date of determination for Borrowings made
thereunder, not including the amount of any L/C Exposure.
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"Funding Date" shall mean each date upon which Lenders fund Borrowings
requested by Borrowers in accordance with the provisions of Section 2.03 or at
the request of Agent Bank pursuant to Section 2.14.
"L/C Agreement(s)" shall mean collective reference to the Application and
Agreement for Standby Letter of Credit and Application for Commercial Letter of
Credit and addendum(s) thereto executed by an Authorized Officer of Borrowers in
favor of L/C Issuer in L/C Issuer's standard form, setting forth the terms and
conditions upon which L/C Issuer shall issue a Letter(s) of Credit, as the same
may be amended or modified from time to time.
"L/C Exposure" shall mean the aggregate amount which L/C Issuer may be
required to fund or is contingently liable for disbursement under all issued and
outstanding Letter(s) of Credit, which amount shall be determined by subtracting
from the aggregate of the Stated Amount of each such Letter(s) of Credit, the
principal amount of all L/C Reimbursement Obligations which have accrued and
have been fully satisfied as of each date of determination.
"L/C Facility" shall mean the agreement of L/C Issuer to issue Letters of
Credit subject to the terms and conditions and up to the maximum amounts and
duration as set forth in Section 2.14 of the Credit Agreement.
"L/C Fee" shall have the meaning set forth in Section 2.07(c) of the Credit
Agreement, as added pursuant to Paragraph 4 of the Third Amendment.
"L/C Issuer" shall mean WFB in its capacity as the issuer of Letters of
Credit under the L/C Facility.
"L/C Reimbursement Obligation(s)" shall mean the obligation of Borrowers to
reimburse L/C Issuer for amounts funded or disbursed under a Letter(s) of
Credit, together with accrued interest thereon.
"Letter(s) of Credit" shall mean collective reference to the Standby
Letter(s) of Credit and/or Commercial Letter(s) of Credit, as the case may be,
issued by L/C Issuer on behalf of Borrower, as the same may be extended, renewed
or reissued from time to time.
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<PAGE>
"Loan Documents" shall mean collective reference to the Credit Agreement,
the Note, the Security Documentation, Cash Collateral Pledge Agreement, the
Environmental Certificate and all other documents and instruments which may
hereafter be executed and delivered by or on behalf of Borrowers or any other
Person in connection with the Bank Facilities for the benefit of Banks or Agent
Bank on behalf of the Lenders and/or the L/C Issuer.
"Maximum Availability" shall mean the Maximum Permitted Balance less the
Aggregate Outstandings.
"Maximum Scheduled Balance" shall mean the maximum amount of scheduled
principal which may be outstanding on the Credit Facility from time to time in
the amount of Twenty Million Dollars ($20,000,000.00) as of the Third Amendment
Effective Date, as reduced from time to time by the Scheduled Reductions as set
forth on the Aggregate Commitment Reduction Schedule.
"Note" shall mean the Revolving Credit Note (Second Restated), a copy of
which is marked "Exhibit A", affixed to the Third Amendment and by this
reference incorporated herein and made a part hereof, executed by Borrowers on
or before the Third Amendment Effective Date, 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 Third Amendment.
"Schedule of Lenders' Proportions in Credit Facility" shall mean the
Schedule of Lenders' Proportions in Credit Facility, a copy of which is set
forth as Schedule 2.01(a), affixed to the Third Amendment and by this reference
incorporated herein and made a part hereof, 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 have the meaning set forth in Recital Paragraph A
of the Third Amendment.
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<PAGE>
"Standby Letter(s) of Credit" shall mean a letter or letters of credit
issued by L/C Issuer pursuant to Section 2.14 of the Credit Agreement for the
purpose of securing payment or performance of a financial obligation of
Borrowers, other than in connection with the payment for goods, equipment or
materials.
"Stated Amount" shall mean the maximum amount which L/C Issuer may be
required to disburse to the beneficiary(ies) of a Letter(s) of Credit under the
terms thereof.
"Stated Expiry Date(s)" shall mean the date set forth on the face of a
Letter(s) of Credit as the date when all obligations of L/C Issuer to advance
funds thereunder will terminate, as the same may be extended from time to time.
"Subordinated Debt" shall mean collective reference to: (i) the BGP Note,
(ii) the unsecured intercompany Indebtedness, owing by WMCKAC and assumed by
WMCKVC, payable to the order of Guarantor in the approximate amount of Six
Million One Hundred Ninety-One Thousand Dollars ($6,191,000.00) evidenced by a
Promissory Note dated June 27, 1996, as amended by an Assignment, Assumption and
Amendment Agreement dated as of March 31, 1997, which Subordinated Debt shall be
structurally and contractually subordinated to the Credit Facility by execution
of the Payment Subordination Agreement by Borrowers and Guarantor in favor of
Agent Bank, and (iii) any other unsecured intercompany Indebtedness owing by any
Borrower to Guarantor which is permitted and incurred in accordance with Section
6.05(f).
"TFCC Ratio" shall be defined as follows:
Net profit after cash taxes, plus depreciation and amortization, plus
Interest Expense (accrued and capitalized), less Distributions (not
including the Excluded Subdebt Reduction) paid, less Non-Financed Capital
Expenditures incurred during the period under review,
Divided by (/)
Current portion of scheduled principal and actual interest payments on long
term debt and Capitalized Lease Liabilities, excluding payments made on
Subordinated Debt.
"Third Amendment" shall mean the Third Amendment to Credit Agreement.
"Third Amendment Effective Date" shall mean September 29, 1998.
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2. Modification of Applicable Margin Matrix. Commencing on the date of this
Third Amendment, the definition of Applicable Margin shall be modified as set
forth in the definition of "Applicable Margin" contained in the Third Amendment.
3. Amendment of Section 2.04. As of the Third Amendment Effective Date, the
first sentence of Section 2.04 of the Existing Credit Agreement shall be and is
hereby deleted and the following is substituted as a full restatement thereof:
"During the Revolving Credit Period, Borrowings, other than Borrowings
made at the request of Agent Bank for the purpose of funding L/C
Reimbursement Obligations as hereinafter provided, 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 Credit Agreement."
4. Modification of Section 2.07. As of the Third Amendment Effective Date,
Section 2.07 of the Credit Agreement entitled "Fees" shall be and is hereby
amended by modifying Subsection (b) and adding Subsection (c) thereto as
follows:
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"b. Borrowers shall pay a quarterly nonusage fee (the "Nonusage Fee")
to the Agent Bank for the account of Lenders at the rate of one-half of one
percent (0.50%) per annum during the period commencing with the
commencement of the Revolving Credit Period and continuing until the Third
Amendment Effective Date and commencing on the Third Amendment Effective
Date and continuing until the Maturity Date based on the Leverage Ratio
calculated with reference to the Borrower Consolidation, calculated as of
each Fiscal Quarter end, to determine the applicable Nonusage Percentage
determined as set forth in Table Two of the definition of Applicable
Margin. As of the Third Amendment Effective Date, the Commitment Percentage
shall be three eighths of one percent (.375%).
The Nonusage Fee shall be calculated as the product of (i) the applicable
Nonusage Percentage multiplied by (ii) the daily average of the Maximum
Permitted Balance less the daily average of the Funded Outstandings during
such Fiscal Quarter, computed on the basis of a three hundred sixty (360)
day year based on the number of actual days elapsed. Each Nonusage Fee
shall be payable in arrears on a quarterly basis on or before the first
(1st) day of the third (3rd) month following each applicable Fiscal Quarter
end and on the Maturity Date. Each Nonusage Fee shall be promptly
distributed by Agent Bank to Lenders in proportion to their respective
Syndication Interests in the Credit Facility.
c. Concurrently with the issuance of each Letter of Credit, Borrowers
shall pay an issuance fee to the L/C Issuer ("L/C Fee") in an amount equal
to the Stated Amount of each such Letter of Credit multiplied by two
percent (2.00%) per annum for the number of days elapsing from the issuance
date to the Stated Expiry Date of each such Letter of Credit, but in no
event shall the L/C Fee be less than Five Hundred Dollars ($500.00) for
each Letter of Credit. From each L/C Fee the greater of Five Hundred
Dollars ($500.00) or one quarter of one percent (.25%) of the Stated Amount
of each such Letter of Credit, calculated on a per annum basis as provided
hereinabove, shall be retained by L/C Issuer for its own account and the
balance of each L/C Fee shall be promptly distributed by Agent Bank to
Lenders in proportion to their respective Syndication Interests in the
Credit Facility. All L/C Fees paid by Borrowers are nonrefundable and shall
be deemed fully earned upon issuance of the applicable Letter of Credit."
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5. Amendment of Section 2.11. As of the Third Amendment Effective Date, the
first sentence of Section 2.11 of the Existing Credit Agreement entitled "Net
Payments" shall be and is hereby deleted and the following is substituted as a
full restatement thereof:
"All payments under the Credit Agreement, the Note and/or a L/C
Reimbursement Obligation shall be made without set-off, counterclaim,
recoupment or defense of any kind 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."
6. Addition of Letter of Credit Provisions. As of the Third Amendment
Effective Date, Section 2.14 entitled "Issuance of Letters of Credit" shall be
and is hereby added to the Credit Agreement as follows:
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"Section 2.14. Issuance of Letters of Credit.
a. Any Authorized Officer of Borrowers may from time to time request
that a Standby Letter of Credit or Commercial Letter of Credit be issued by
delivering to L/C Issuer (with a telecopy to the Agent Bank) on a Banking
Business Day, at least five (5) Banking Business Days prior to the date of
such proposed issuance, an L/C Agreement in L/C Issuer's then standard form
(consistent with the terms of the Credit Agreement), completed to the
satisfaction of L/C Issuer and such other certificates as the L/C Issuer
may reasonably request; provided, however, that no Letter of Credit shall
be issued (a) if any Default or Event of Default has occurred and remains
continuing, or (b) if after giving effect to the issuance thereof, the
aggregate Stated Amount of outstanding Letters of Credit would exceed One
Million Dollars ($1,000,000.00), or (c) the Stated Amount of the requested
Letter of Credit exceeds the Maximum Availability. Each Letter of Credit
shall be issued by the L/C Issuer on the Banking Business Day specified in
the Borrower's application therefor. Each request for a Letter of Credit
and each Letter of Credit shall be subject to the Uniform Customs and
Practice for Documentary Credits, International Chamber of Commerce
Publication New 1994 Revision No. 500, or any successor publication then in
effect. Each Standby Letter of Credit will be issued for a term not greater
than one (1) year and shall not include any provision for automatic
renewal. Each Commercial Letter of Credit will be issued for a term not
greater than one hundred eighty (180) calendar days. In no event shall any
Letter of Credit have a Stated Expiry Date later than thirty (30) days
prior to the Maturity Date. Promptly after receipt of each request for the
issuance of a Letter of Credit and immediately prior to the issuance
thereof, L/C Issuer shall obtain telephonic verification from Agent Bank
that the amount of such request does not exceed the then Available
Borrowings. The L/C Issuer shall promptly notify the Agent Bank of the
aggregate L/C Exposure of outstanding Letters of Credit each time there is
a change therein.
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b. Upon presentation of a draft drawn under any Letter of Credit, L/C
Issuer shall promptly notify the Agent Bank and Borrowers of the amount
under such draft and the date upon which such draft is to be funded. On or
before two (2) Banking Business Days following such notice (unless
Borrowers have made other arrangements acceptable to the L/C Issuer to pay
the amount of such draft in full), Borrowers shall advance to L/C Issuer
the amount of such draft from Borrowers' available funds or shall request a
Borrowing under the Credit Facility in an amount sufficient to pay the
amount of such draft in full. The Agent Bank, upon receipt of such funds
from the Lenders, shall automatically provide such amount to the L/C Issuer
for payment of the amount of such draft and the balance of the Borrowing
shall be deposited in immediately available funds to the Designated Deposit
Account. In the event Borrowers fail to advance to L/C Issuer the amount of
such draft from Borrowers' available funds or to request a Borrowing within
two (2) Banking Business Days from receipt of the notice as specified
above, on the third (3rd) Banking Business Day following Agent Bank's
receipt of such notice, Agent Bank shall, without notice to or consent of
the Borrowers and without regard to any other conditions precedent for the
making of Borrowings under the Credit Facility, cause a Borrowing to be
made and funded by the Lenders under the Credit Facility and Lenders agree
to fund their respective Pro Rata Share of such Borrowing in the amount
necessary to pay the amount of such draft in full. Upon the occurrence of
any Event of Default, L/C Issuer shall, without notice or further
authorization or consent of Borrowers whatsoever, be authorized to
immediately cause the Cash Collateral Account to be established and funded
by Lenders with a Borrowing advanced to Agent Bank equal to the aggregate
amount of the L/C Exposure then outstanding. All amounts held by L/C Issuer
in the Cash Collateral Account shall be held as security for the repayment
of any L/C Reimbursement Obligation thereafter arising pursuant to the
terms of the L/C Agreement(s) and the Cash Collateral Pledge Agreement.
Borrowings advanced by Lenders to pay drafts drawn upon or to secure
repayment of the L/C Exposure under Letters of Credit pursuant to this
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subsection shall: (i) constitute Borrowings under the Credit Facility, (ii)
initially be Base Rate Loans and (iii) be subject to all of the provisions
of this Credit Agreement concerning Borrowings under the Credit Facility,
except that such Borrowings shall be made upon demand of the Agent Bank as
set forth above rather than upon Notice of Borrowing by Borrowers and shall
be made, notwithstanding anything in this Credit Agreement to the contrary,
without regard to any other conditions precedent to the making of
Borrowings under the Credit Agreement and notwithstanding any Default or
Event of Default thereunder. All amounts paid by L/C Issuer on a draft
drawn under any Letter of Credit which has not been funded or concurrently
reimbursed by Borrowers or through a Borrowing as provided hereinabove,
shall bear interest at the Base Rate plus the Applicable Margin per annum
until repaid or reimbursed to L/C Issuer.
c. Each Lender's obligation to advance Borrowings in the proportionate
amount of its Syndication Interest in the Credit Facility of any
unreimbursed amounts outstanding under any Letter of Credit pursuant hereto
is several, and not joint or joint and several. The failure of any Lender
to perform its obligation to advance a Borrowing in a proportionate amount
of such Lender's Syndication Interest of any unreimbursed amounts
outstanding under a Letter of Credit will not relieve any other Lender of
its obligation hereunder to advance such Borrowing in the amount of such
other Lender's proportionate Syndication Interest of such amount, nor
relieve the Lender which has failed to fund of its obligation to fund
hereunder. The Borrowers agree to accept the Borrowings for payment of
Letters of Credit as provided hereinabove, whether or not such Borrowings
could have been made pursuant to the terms of Article III B or any other
section of the Credit Agreement.
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d. Letters of Credit shall be used and issued for the benefit of
Borrowers for the general corporate purposes of Borrowers relating to the
Casino Facilities, the Parking Lot Property or the Hicks Property."
7. Amendment of Paragraph B of Article III Entitled "Conditions Precedent
to all Borrowings". As of the Third Amendment Effective Date, Paragraph B of
Article III of the Existing Credit Agreement shall be and is hereby deleted and
the following is substituted as a full restatement thereof:
"B. Conditions Precedent to all Borrowings. The obligation of each
Lender and Agent Bank to make any Borrowing requested to be made on any
Funding Date, except Borrowings made upon the demand of Agent Bank for the
purpose of funding repayment of L/C Reimbursement Obligations, is subject
to the occurrence of each of the following conditions precedent as of such
Funding Date:"
8. Replacement of Minimum Annual EBITDA with Leverage Ratio Covenant. As of
the Third Amendment Effective Date, Section 6.01 of the Existing Credit
Agreement entitled "Minimum Annual EBITDA" shall be and is hereby fully amended
and restated in its entirety as follows:
"Section 6.01. Leverage Ratio. Commencing on the Third Amendment
Effective Date and continuing as of each Fiscal Quarter end until the
Maturity Date, the Borrower Consolidation shall maintain a maximum Leverage
Ratio no greater than 3.10 to 1.00.
9. Restatement of TFCC Ratio Covenant. As of the Third Amendment Effective
Date, Section 6.03 entitled "TFCC Ratio" shall be and is hereby fully amended
and restated in its entirety as follows:
"Section 6.03. TFCC Ratio. Commencing as of the Third Amendment
Effective Date and continuing as of each Fiscal Quarter end until the
Maturity Date, the Borrower Consolidation shall maintain a minimum TFCC
Ratio of 1.10 to 1.00. Each TFCC Ratio calculation shall be made on a
cumulative basis with respect to each applicable Fiscal Quarter and the
most recently ended three (3) preceding Fiscal Quarters on a rolling four
(4) Fiscal Quarter basis."
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10. Increase of Permitted Secured Interest Rate Hedges and Indebtedness to
Guarantor. As of the Third Amendment Effective Date, Section 6.05(b) and 6.05(d)
shall be and are hereby fully amended and restated in their entirety as follows:
"b. Secured Interest Rate Hedges up to the aggregate amount of Ten Million
Dollars ($10,000,000.00);"
"d. Indebtedness to Guarantor or any Subsidiary or Affiliate of Guarantor
which is not a member of the Borrower Consolidation shall not exceed Five
Hundred Thousand Dollars ($500,000.00) in the aggregate at any time;"
11. Subordinated Debt Payment Carve Out for TFCC Calculation. On and after
the Third Amendment Effective Date and so long as no Default or Event of Default
has occurred and remains continuing, Borrowers may pre-pay the aggregate amount
of Five Hundred Thousand Dollars ($500,000.00) in principal reduction on the
Subordinated Debt (the "Excluded Subdebt Reduction"), which Excluded Subdebt
Reduction shall: (i) be excluded from the TFCC calculation under Section 6.03 as
provided in the amended "TFCC Ratio" definition set forth in Paragraph 1 of the
Third Amendment, and (ii) not otherwise constitute a Default or Event of Default
under the Credit Agreement.
12. Additions to Section 7.02. As of the Third Amendment Effective Date,
Section 7.02 entitled "Default Remedies" shall be and is hereby amended by
adding thereto the additional Subsections (d) and (e) as follows:
"(d) The L/C Issuer shall, upon receipt of written notice of the occurrence
of an Event of Default, terminate its obligation to issue Letters of Credit
and/or any Letter of Credit which may be terminated in accordance with its
terms. This remedy will be deemed to have been automatically exercised on the
occurrence of any event set out in Sections 7.01(f), (g) or (h).
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(e) Agent Bank and/or L/C Issuer may, or at the direction of the Requisite
Lenders will, direct the Borrowers to pay (and Borrowers hereby agree upon
receipt of such notice to pay) to the L/C Issuer an amount in Cash equal to the
then outstanding L/C Exposure, such Cash to be held by L/C Issuer in the Cash
Collateral Account as security for the repayment of all L/C Reimbursement
Obligations thereafter occurring."
13. Amendment of Section 9.04(b). As of the Third Amendment Effective Date,
the penultimate sentence of Section 9.04(b) shall be and is hereby deleted and
the following is substituted as a full restatement thereof:
"No Nonusage Fee or L/C Fees shall accrue in favor of, or be payable to,
such Defaulting Lender from the date of any failure to fund Borrowings, or
to reimburse Agent Bank for any Liabilities and Costs as herein provided
until such failure has been cured, and Agent Bank shall be entitled to (A)
withhold or setoff, and to apply to the payment of the defaulted amount and
any related interest, any amounts to be paid to such Defaulting Lender
under the Credit Agreement, and (B) bring an action or suit against such
Defaulting Lender in a court of competent jurisdiction to recover the
defaulted amount and any related interest."
14. Amendment of Section 10.01. As of the Third Amendment Effective Date,
Section 10.01 entitled "Amendments and Waivers" shall be and is hereby amended
by inserting at the end thereof the following sentence:
"No modification of Section 2.14 shall be made without the consent of the
L/C Issuer."
15. Conditions Precedent to Third Amendment Effective Date. The occurrence
of the Third 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 November 5, 1998:
a. Due execution by Borrowers, Guarantor and Banks of four (4)
duplicate originals of this Third Amendment;
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b. Due execution by Borrowers of the original Revolving Credit Note
(Second Restated) and the original Cash Collateral Pledge Agreement;
c. Corporate resolutions or other evidence of requisite authority of
Borrowers and Guarantor, as applicable, to execute the Third Amendment;
d. Payment of a fee in the amount of Fifty-Two Thousand Dollars
($52,000.00) (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;
e. 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;
f. 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 Third Amendment Effective Date; and
g. Such other documents, instruments or conditions as may be
reasonably required by Lenders.
16. 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 Third Amendment Effective Date
in all material respects as though such representations and warranties had been
made on and as of the Third 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;
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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; and
d. The execution, delivery and performance of this Third Amendment has
been duly authorized by all necessary action of Borrowers and Guarantor and this
Third Amendment constitutes a valid, binding and enforceable obligation of
Borrowers and Guarantor.
17. Affirmation and Ratification of Continuing Guaranty. Guarantor joins in
the execution of this Third 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
Third Amendment, including, without limitation, all amounts owing under the
Commitment Increase.
18. Incorporation by Reference. This Third Amendment shall be and is hereby
incorporated in and forms a part of the Existing Credit Agreement.
19. Governing Law. This Third Amendment to Credit Agreement shall be
governed by the internal laws of the State of Nevada without reference to
conflicts of laws principles.
20. Counterparts. This Third 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.
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21. Continuance of Terms and Provisions. All of the terms and provisions of
the Credit Agreement shall remain unchanged except as specifically modified
herein.
22. 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) - Schedule of Lenders' Proportions
in Credit Facility
Schedule 2.01(c) - Aggregate Commitment Reduction
Schedule
Exhibit A - Revolving Credit Note
(Second Restated) - Form
Exhibit M - Cash Collateral Pledge
Agreement - Form
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IN WITNESS WHEREOF, the parties hereto have executed this Third 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____________
CENTURY CASINOS CRIPPLE
CREEK, INC.,
a Colorado corporation
By_/s/Norbert Teufelberger_
Name__Norbert Teufelberger_
Title__Director____________
WMCK ACQUISITION
CORP., a Delaware
corporation
By_/s/Norbert Teufelberger_
Name__Norbert Teufelberger_
Title__Director____________
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GUARANTOR:
CENTURY CASINOS, INC.,
a Delaware corporation
By_/s/Norbert Teufelberger_
Name__Norbert Teufelberger_
Title__Director____________
BANKS:
WELLS FARGO BANK,
National Association,
Agent Bank, Lender and
L/C Issuer
By_/s/David_J. Kramer______
Name__David J. Kramer______
Title__Vice Prresident_____
23
-PARKING LEASE - OPTION TO PURCHASE
THIS PARKING LEASE - OPTION TO PURCHASE (the "Agreement") is entered
into as of June 1, 1998, between the CITY OF CRIPPLE CREEK, a Colorado municipal
corporation ("Lessor") and WMCK VENTURE CORP., a Delaware corporation
(collectively, the "Lessee").
R E C I T A L S
A. Lessor is the fee owner of property situated in Teller County, Colorado, more
particularly described as follows:
LOTS 11 THROUGH 20, BLOCK 28 FREMONT ADDITION TO
CRIPPLE CREEK, COLORADO
(the "Property").
B. Lessee provides and operates short-term parking facilities for employees of
casinos and other businesses located in Cripple Creek as well as for tourists
visiting Cripple Creek (the "Parking Facilities").
C. Lessee wishes to lease the Property, and Lessor wishes to let the Property,
for the purpose of operating the Parking Facilities in accordance with the terms
and conditions of this Agreement.
D. Lessee is the assignee and current Lessee of an existing lease for the
Property dated April 1, 1993, (the "Previous Lease"). The parties acknowledge
and agree that the "Previous Lease" shall automatically terminate upon the
beginning of the term of the Lease Agreement.
A G R E E M E N T
1. Term. The term of this Agreement will begin on June 1, 1998, (the
"Commencement Date") and shall end on May 31, 2003, (the "Term").
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2. Rent. Lessee agrees to pay Lessor the amount of Ninety Thousand and
no/100 Dollars ($90,000.00) annually (the "Rent"). The Rent will be paid in
equal quarterly installments of Twenty Two Thousand Five Hundred and No/100
Dollars ($22,500.00). The first such payment shall be due and payable on June 1,
1998, and shall be paid on the first day of each June, September, December and
March during the Term. If Lessee does not perform the actions set forth in
Section 3, hereof, such that the monthly rent is increased to $10,000.00, then
in such case the annual rent shall be One Hundred Twenty Thousand and No/1100
Dollars, ($120,000.00); payable in quarterly installments of Thirty Thousand and
No/100 Dollars, ($30,000.00), each of which shall be due and payable on the
first day of each June, September, December and March during the remainder of
the term. If Lessee exercises its option to Purchase (as defined below), and the
actions set forth in Section 3, hereof have been timely completed, one hundred
percent (100%) of all amount paid under this Section 2 shall be applied to the
Purchase Price, (as defined below) as a credit to Lessee. However, if the action
set forth in Section 3 hereof have not been timely completed, only fifty percent
(50%) of all amounts paid under this Section 2 shall be applied towards the
Purchase Price (as defined below) as a credit to Lessee.
3. Additional Rent. In the event Lessor does not acquire the real
property legally described as Lots Block City of Cripple Creek, Teller County,
Colorado and remove the currently existing unfinished structure located thereon,
and fill in the existing excavation and basement for said structure on or before
December 1, 1999, then the rent shall be Ten Thousand and no/100 Dollars
($10,000.00) per month retroactive to the Commencement Date. Consequently, if
the aforementioned structure is not removed and the basement filled on or before
November 1, 1999, a lump sum payment of Forty Five Thousand and no/100 Dollars
($45,000.00) shall be due on December 1, 1999 along with the quarterly rental
payment of $30,000.00, as provided in Section 2, above, in order to keep this
Lease Agreement in full force and effect.
4. No Set Off. Lessee waives and disclaims any present or future right
to withhold any rent payment or other payment due under this Agreement, or to
set off in any action for rent, as a result of any obligation of Lessor, Lessee
agrees that it will not claim or assert any right to so withhold or set off
rent.
5. Interest/Service Charge. Lessee shall pay Lessor a service charge of
Five Percent (5%) of the amount due for all quarterly rent payments not paid by
the tenth (10th) day of the quarter for which they are payable. The service
charge is imposed upon Lessee in an effort to reimburse Lessor for the
inconvenience of handling, receiving and collecting delinquent payments.
6. Permitted Uses. The Property shall be used by Lessee only for
purposes of operating a commercial parking lot, and for no other use or purpose
without the Lessor's prior written consent, which shall be granted or withheld
in Lessor's sole and subjective discretion. The Lessee shall comply with all
laws, ordinances, codes and regulations regarding the Property and the permitted
uses upon the Property.
7. Operating Expenses. Lessee agrees to pay all expenses associated
with the holding and operating the Property and the Parking Facilities,
including electric or gas utilities, accounting, trash and snow removal, general
maintenance, insurance, attendant's salary, property taxes, special assessments,
water and sewer assessments and other charges imposed by law or against the
Property as part of Lessee's obligation hereunder.
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8. Permits. Lessee will apply for, pay for and keep current all permits
and licenses required for the lawful operation of the Parking Facilities.
9. Improvements.
(a) Development Requirements. In the event Lessee desires to
further improve the Property, Lessee may do so only after receiving the prior
written consent of the Lessor. Any and all improvements to the Property shall be
constructed at Lessee's sole cost and expense. Any improvements made by Lessee
shall comply with local laws, ordinances, city council resolutions and building
codes. The Lessee shall comply with all development requirements set forth in
the Ordinances of the City of Cripple Creek, (the "Development Requirements").
Notwithstanding anything contained herein to the contrary, no Development
Requirement shall be more burdensome than those required of persons
contemplating similar improvements and activities on similarly situated
properties within the city limits of Cripple Creek, Colorado.
(b) Construction Standards. The construction of all
improvement to the Property shall be done by Lessee in a workmanlike manner in
accordance with industry standards using quality grade materials, and shall
comply with all laws, Ordinances, Codes and Regulations governing the Property
and the construction of the improvements. Lessee shall pay all contractors,
materialmen and laborers for the improvements and shall not allow any mechanic's
lien to arise which is not removed or bonded over within sixty (60) days of
filing. All improvements to the Property shall remain upon the Property and
shall become the Lessor's property upon the expiration or termination of this
Lease, except for trade fixtures, including the Attendant Facility, which may be
removed by Lessee provided Lessee is not in default of the Lease and provided
any damage to the Property or the improvements are adequately repaired.
(c) Mechanics' Liens. The parties agree that Lessor's Property
interests shall under no circumstances be subject to a mechanic's lien upon the
Property occurring as a result of Lessee's construction activities thereon
unless bonded within sixty (60) days of filing. Lessee shall pay all contractors
when due, following commercially reasonable practices for the distribution of
the construction payments, including, without limitation, verification of
completion of work, progress payments, use of lien waiver checks to its general
contractor and subcontractors, and require the general contractor to use lien
waiver checks for its payments to its subcontractors and materialmen.
(d) Notice of Non-Liability. Lessor shall have the right to
post upon the Property a notice that Lessor, as owner, is not responsible to
contractors, materialmen, or laborers for any non-payment of materials or work
performed upon the Property. Lessee shall cooperate with Lessor in posting the
notice and keeping it posted in a conspicuous place upon the Property.
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10. Insurance. Lessee shall procure and maintain throughout the Term an
insurance policy, at its sole cost and expense, insuring Lessee against all
claims, demands or actions arising out of or in connection with Lessee's use or
occupancy of the Property or the condition of the Property (the "Policy"). The
amount of insurance shall be a minimum amount of $3,000,000.00 and will be bound
with an insurance carrier reasonably acceptable to the Lessor. Lessor shall be
named as an additional insured and all Policies shall provide that the Lessor
will receive notice of cancellation at least thirty (30) days prior to any
cancellation and/or expiration of such Policies. Lessee shall provide proof of
insurance on file with the Lessor at all times. - If these provisions are not
met, the Lessor shall be entitled, but shall not be required, to obtain such
insurance at the cost of Lessee, which shall be paid by Lessee within ten (10)
days after the Lessor gives Lessee notice. Any premium remaining unreimbursed to
Lessor after said ten day period shall bear interest at eighteen percent (18%)
per annum. Failure to maintain insurance shall be an Event of Default (as
hereinafter defined).
11. Access. Lessor shall permit no less than two (2) full vehicular
entrances into the Property pursuant to the Development Requirements.
12. Security Deposit. Lessee shall deposit with Lessor and shall
maintain at all times the sum of Five Thousand and No/100 Dollars, ($5,000.00),
as security for the faithful performance by Lessee of every term and condition
of this Lease. Lessee shall not be entitled to apply the security in payment of
rent. If there should be a default by Lessee in respect to any term or condition
of this Lease, Lessor may use all or any part of the security deposit to perform
the same for the account of the Lessee, or for any damages or deficiency. Lessor
may commingle the security deposit in its General Fund. Any interest accruing
thereon shall be for the sole benefit of Lessor. If Lessee shall fully and
faithfully comply with all of the provisions of this Lease, then the security
deposit or any balance thereof remaining shall be re-paid to Lessee within sixty
(60) days from the termination of this Lease. In the event of any sale, transfer
or assignment of Lessor's interest under this Lease, Lessor shall transfer the
security to the vendee, transferee, or assignee, as the case may be, and Lessor
thereupon shall be released from all liability for repayment of the security,
and Lessee in each instance shall look solely to such vendee, transferee or
assignee for repayment of the security deposit.
13. Lessee's Obligations. The Lessee, at its own expense, shall
properly maintain and keep the Property and all improvements in good order,
condition and repair. The Lessee in maintaining, repairing or improving the
property shall not allow any mechanic's liens to arise which are not bonded over
within sixty (60) days of filing. The Lessee shall not permit waste, damage, or
injury to the Property or the improvements.
14. Repairs by Lessor. Lessor shall have no obligation for repairs,
maintenance or improvement to the Property, except damages caused by Lessor's
negligence or intentional wrongful acts. Should Lessee fail to perform its
responsibilities under Section 13, above, the Lessor, may, at its option take
such actions as the Lessor may deem necessary to remedy the non-compliance,
without being liable to Lessee for loss or damage to the business or Property of
Lessee. In such event, Lessee shall reimburse Lessor, within ten (10) days of
written demand, for all costs incurred, plus interest at the rate of eighteen
percent (18%) per annum for any amount not paid to Lessor under this Section 14
following said ten (10) day period.
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15. Lessee Indemnity. Lessee shall indemnify, defend, and hold the
Lessor harmless from and against any and all claims, actions, liability, costs,
expenses and damages of every kind and nature, including reasonable attorney's
fees, arising from (i) the Lessee's use and occupancy of the Property, (ii) any
breach or default by the Lessee under the provisions of this Lease, or (iii)
from any act, omission, or negligence on or about the Property by the Lessee,
its agents, contractors, employees, licensees, customers or business invitees.
In case of any action or proceeding brought against the Lessor by reason of such
claim, the Lessee at Lessor's option, shall defend such action or proceeding by
counsel reasonably satisfactory to Lessor.
16. Lessor's Indemnity. The Lessor shall indemnify, defend, and hold
the Lessee harmless from and against any and all claims, actions, liability,
costs, expenses and damages of every kind and nature, including reasonable
attorney's fees arising from (i) any breach or default by Lessor under the
provisions of the Lease, (ii) from any act, omission, or negligence on or about
the Property by the Lessor, its agents, contractors, or employees. In case of
any action or proceeding brought against the Lessee by reason of such claim, the
Lessor, at Lessee's option, shall defend such action or proceeding by counsel
reasonably satisfactory to Lessee.
17. Lessee Assignment. Lessee shall not assign nor in any manner
transfer this Agreement, or any interest therein, nor sublet the Property or any
part or parts thereof, nor permit occupancy by anyone, except in connection with
the Lessee's use and occupancy of the Property as a Parking Facility, (i.e.,
allowing automobiles to be parked on the Property for a fee), without Lessor's
prior written consent which Lessor shall not unreasonably withhold, taking into
consideration of the proposed transferees credit-worthiness. Consent by Lessor
to one or more assignments of this Lease or to one or more sublettings of the
Property shall not operate as a waiver of Lessor's rights under this provision.
No assignment shall release Lessee of any of its obligations under this
Agreement nor be construed or taken as a waiver of any of Lessor's rights
hereunder. For the purposes hereof, if Lessee is a corporation, partnership, or
other entity, any collective change and control of either Lessee in excess of
twenty percent (20%) shall be deemed to be assignment which shall require
Lessor's consent as set forth above. The acceptance of rent from someone other
than Lessee shall not be deemed to be a waiver of any of the provisions of this
Agreement, nor as a consent to any assignment or subletting of the Property.
18. Trustee or Receivership. Neither this Agreement, nor any interest
therein shall pass to any trustee or receiver in bankruptcy, or any assignee for
the benefit of creditors or by operation of law.
19. Lessor Assignment. The Lessor shall be entitled to assign its
rights under this Lease.
20. Access. Lessor and Lessor's authorized representatives shall have
the right, upon reasonable notice, to enter upon the Property during all
business hours for the purpose of inspecting the same or of making repairs,
additions or alterations which the Lessee has failed to perform or which Lessor
deems advisable. Lessor shall not be liable to Lessee in any manner for any
expense, loss or damage by reason of such entry, nor shall the exercise of such
right be deemed an eviction or disturbance of Lessee's use or possession.
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21. Hazardous Materials
(a) Defined. The term hazardous material means any substance (1) the
presence of which requires investigation or remediation under any federal, state
or local statute, regulation, ordinance, order, action, policy or common law; or
(2) which is or becomes defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any federal, state or local statute, regulation,
rule or ordinance or amendments thereto Including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act and/or the
Resource Conservation and Recovery Act; or (3) the presence of which on the
Property causes or threatens to cause a nuisance upon the Property or to
adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about the Property; or (4) without limitation, which
contains gasoline, diesel fuel or other petroleum hydrocarbons.
(b) Prohibiting Hazardous Materials. Except in strict compliance with
all environmental laws, rules and regulations for materials commonly used in the
Lessee's day to day business operations, the Lessee shall not cause, permit or
allow any hazardous materials to be brought upon, treated, generated, disposed
of or used upon the Property by Lessee. Lessee will promptly take all actions
required by federal, state or local government to remediate the Property in the
event of the presence or release of any hazardous materials as a result of the
actions or omissions of Lessee. Lessee shall immediately notify Lessor of the
presence or release of any hazardous materials requiring such remedial action.
(c) Environmental Indemnity. Lessee agrees to indemnify, defend,
reimburse and hold harmless the Lessor for all claims, damages, losses,
liabilities, and expenses, including reasonable attorney's fees, incurred as a
result of the violation of the paragraphs set forth above or the violation of
any federal, state or local environmental law, ordinance or regulation by
Lessee.
22. Events of Default. The following events shall be deemed to be
events of default by Lessee under this Agreement ("Event of Default"):
(a) Lessee shall have failed to pay any installment of rent or any
other charge provided herein, or any portion thereof, within ten (10) days after
the same shall be due and payable;
(b) Lessee shall have failed-to comply with any other provisions of
this agreement and shall not cure such failure within thirty (30) days after
Lessor, by written notice, has informed Lessee of such non-compliance. In the
case of a default which cannot with due diligence be cured within a period of
thirty (30) days, Lessee shall have such additional time to cure same as may be
reasonably necessary, provided Lessee proceeds promptly and with due diligence
to cure such default after receipt of said notice;
<PAGE>
6
(c) Lessee files a petition for relief pursuant to the bankruptcy or
insolvency laws of the United States or of any state.
(d) Lessee shall abandon the Property.
23. Notice of Default. In the event of a default pursuant to Section 22
(c) and 22 (d) above, Lessor may, by serving three (3) days written notice upon
Lessee, elect either to (a) cancel and terminate this Lease, or (b) terminate
Lessee's right to possession only without terminating this Lease. If Lessor
gives Lessee notice of Lessee's default and/or delivers to Lessee a Notice of
Demand for Payment or Possession pursuant to the applicable statute (either of
which shall hereinafter be referred to as a "Notice of Default"), the Notice of
Default will not constitute an election to terminate the Lease unless Lessor
expressly state in the Notice of Default that it is exercising its right to
terminate the Lease.
24. Termination of Right to Possession Only. If Lessor delivers to
Lessee a Notice of Default, which notice does not state that Lessor has elected
to terminate the Lease, Lessor may at Lessor's option, after expiration of the
stated time, enter the Leased Premises and take and hold possession thereof,
without such entry into possession terminating this Lease or releasing Lessee in
whole or in part from Lessee's obligation to pay the rent hereunder for the full
stated term. Upon and after entry into possession without termination of the
Lease, Lessor shall make reasonable efforts to mitigate its damages by releasing
the Leased Premises, or any part thereof, for the account of Lessee, for such
rent, time and terms as Lessor, in Lessor's reasonable discretion, shall
determine. Lessor shall not be required to accept any lessee offered by Lessee
or to observe any instruction given by Lessee about such reletting. If the
consideration collected by Lessor upon any such reletting for Lessee's account,
after deducting all expenses incident thereto, including brokerage fees and
legal expenses, is not sufficient to pay monthly the full amount of the rent
provided in this Lease, Lessee shall pay Lessor the amount of each such
quarterly deficiency upon demand. At any time after Lessor has elected to
terminate Lessee right to possession, Lessor shall have the right to cancel and
terminate this Lease by serving written notice on Lessee of such further
election. Lessor shall have the right to pursue any remedy at law or in equity
that may be available to Lessor.
25. Termination of Lease. Termination of the Lease by Lessor shall not
excuse Lessee of its obligation for future rents due under the Lease for the
remaining term, which obligation of Lessee shall survive any termination of the
Lease. If Lessor delivers to Lessee a Notice of Default which states that Lessor
has elected to terminate the Lease, or if Lessor otherwise terminates this
Lease, Lessor shall be entitled to recover from Lessee damages for breach of
contract, including with limitation, damages equal to the present value, at a
discount rate of ten percent (10%) per annum, of the difference between the rent
reserved in the Lease and the reasonable net rental value of the property that
could be reasonably expected for the duration of the term, plus any other
consequential damages.
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26. Lessee's Property. If Lessee shall fail to remove any of Lessee's
personal property within three (3) days of receipt of a Notice of Default or
upon the termination of this Lease for any cause whatsoever, or upon Lessee's
abandonment of the Leased Premises, Lessor, at its option, may remove the same
in any reasonable manner that it shall choose and store the same without
liability to Lessee in any public or private warehouse. In such case, Lessee
agrees to pay Lessor on demand any and all expenses incurred in such removal,
including court costs and attorney's fees and storage charges for any length of
time the personal property shall be in storage. Such personal property must be
returned to Lessee upon payment of such costs. In the alternative, at Lessor's
option, it may sell such unclaimed personal property at public or private sale
following Uniform Commercial Code sale procedures.
27. Termination of Purchase Option. Upon any Event of Default which
remains uncured for a period of thirty (30) days, Lessor may, in its sole and
subjective discretion, terminate the Option to Purchase, by written notice to
Lessee. Upon such termination, the Option to Purchase shall become null, void
and of no further force or effect.
28. Lessor's Right to Cure. In the event of any default hereunder by
Lessee, Lessor may immediately or at any time thereafter, without notice to
Lessor, cure such default for the account and at the expense of the Lessee. If
Lessor at any time by reason of such default is compelled to pay or elects to
pay any sum of money or do any act which will require the payment of any sum of
money, or is compelled to incur any expense, including reasonable attorney's
fees, the sum or sums so paid by Lessor, with interest thereon at the rate of
eighteen percent (18%) per annum from the date of payment thereof shall be
deemed to be due from Lessee to Lessor on demand.
29. Surrender of Possession. Upon the expiration or termination of this
Agreement, whether by lapse of time or otherwise, Lessee shall surrender the
Property in good condition and repair, reasonable wear and tear excepted.
30. Holdover Lessee. In the event Lessee remains in possession of the
Property after the expiation of the tenancy created hereunder with the consent
of Lessor and without execution of a new lease, it shall be deemed to be
occupying the Property as a lessee from month to month, at two times the
previous rent, subject to all the other conditions, provisions and obligations
of the Lease insofar as the same are applicable to a month-to-month tenancy.
31. Estoppel Statement. Within seven (7) days after request therefor by
Lessor, Lessee shall provide an estoppel statement for any proposed mortgagee or
purchaser, or to Lessor, certifying (if such be the case) that this Agreement is
in full force and effect and there are no defenses or offsets thereto (or
stating those claimed by Lessee) and certifying to such other matters as such
party shall reasonably require. If Lessee refuses to execute and deliver a
statement and/or certificate as required hereunder within seven (7) days of
written request, Lessor shall have the right, as attorney-in-fact for Lessee, to
make such a statement, Lessee hereby constituting and irrevocably appointing
Lessor as attorney-in-fact for such purpose. Lessor's mortgage lender and/or
purchasers shall be entitled to rely upon any statement so executed.
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32. (a) Option To Purchase. Until the end of the Term , Lessee shall
have the option to purchase the Property under the terms and conditions as set
forth below(the "Option to Purchase"). Lessee may exercise the option to
Purchase by giving written notice of its intent to so exercise no less than one
hundred and twenty (120) days prior to the expiration of the Term. The option to
Purchase can only be exercised if the Lessee is not in default under the terms
of this Agreement at the time the Option to Purchase is exercised, and/or that
the Option to Purchase has not previously been terminated.
(b) Right of Purchase. If the Option to Purchase is timely exercised,
on the Closing Date, as hereinafter defined, Lessee shall purchase from Lessor,
and Lessor shall sell and convey to Lessee, the Property in accordance with the
terms and conditions contained in this Section. Lessor's rights under this
Agreement shall be transferred to Lessee or Lessee's designee upon closing of
the sale of the Property under the option to Purchase.
(c) Purchase Price. If the Option to Purchase is exercised, the
Purchase Price shall be $3,250,000.00.
(d) Payment of Purchase Price. Subject to the full and timely
performance by Lessor hereunder, the Purchase Price for the Property shall be
payable to Lessor by Lessee, on the Closing Date as follows: All payments shall
be made by certified funds or wire transfer. The provisions of Section 2, above
shall govern what percentage of all payments made with respect to the Rent
during the Term shall be applied against the Purchase Price as credits to
Lessee.
(e) Engineering Documents. Within ten (10) days of Lessee's exercise of
its Option to Purchase, Lessor shall provide Lessee with all engineering
studies, surveys, maps and other documents in Lessor's possession or control
which concern the Property.
(f) Closing Date. The transaction shall be closed at the offices of
Pikes Peak Title Insurance Company on or before the expiration of ninety (90)
days after the exercise of the Option to Purchase by Lessee as set forth herein.
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(g) Title Insurance. Lessor shall deliver title to Property free and
clear of all liens and encumbrances. Lessor shall obtain and deliver to Lessee
at Lessor's expense, on or before thirty (30) days from the date of Lessee's
exercise of its Option to Purchase, a certificate of taxes due on the Property
and a current title insurance commitment (together with legible copies of all
instruments referred to therein) committing to issue a standard A.S.T.A. owner's
title insurance policy in form 1970-B, as amended, issued by Pikes Peak Title
Insurance Company, ("Title Company") to Lessee in the face amount of the
Purchase Price, insuring good and marketable title in fee simple to the Property
in Lessee subject only to: a) current non-delinquent general real property
taxes, and b) such easements, rights-of -way, restrictions and other title
matters as shall not adversely affect the value of or Lessee's intended use of
the Property. The foregoing items a) and b) are hereinafter referred to as the
"Permitted Exceptions". All items listed on the title commitment shall be deemed
to be Permitted Exceptions unless Lessee notifies Lessor within ten (10) days of
receipt of the commitment that any particular items shall not be deemed to be
Permitted Exceptions. In the event Lessee notifies Lessor that certain
exceptions will not constitute Permitted Exceptions, Lessor shall have sixty
(60) days thereafter in which to remove such exception or to notify Lessee that
it is unable to remove such exceptions, in which case Lessee may elect to
terminate this option to Purchase within five (5) days of receipt of notice, by
written notice to Lessor, or to accept such exceptions (which Lessor shall be
deemed to do if Lessee does not timely elect to terminate this Contract). Said
title insurance commitment (the "Commitment") shall affirmatively provide for
the deletion, at Lessee's sole expense, of all standard printed exceptions of
Schedule B-2 thereof on or before five (5) days prior to the Closing Date,
Lessor shall obtain and deliver to Lessee, at Lessor's sole expense, an
endorsement to the Commitment with a current effective date, showing no new
title exceptions therein. After the Closing Date, Lessor shall obtain and
deliver to Lessee, at Lessor's sole expense, a title policy for the Property in
the amount of the Purchase Price showing fee simple title thereto an being
vested in Lessee subject only to the Permitted Exceptions. If Lessee does not
exercise the option hereunder, it shall pay the cancellation fee for such
Commitment. Lessor shall not impose or permit to be imposed any deed or other
restrictions against the Property during the term of this Agreement.
(h) Further Instruments. Each party hereto shall from time to time
execute and deliver such further instruments as the other party or its counsel
may reasonably request to effectuate the intent of this Contract.
33. Quiet Enjoyment. Lessor covenants and agrees with Lessee that so long as
Lessee pays the Rent, and observes and performs all the terms, covenants and
conditions of this Agreement on Lessee's part to-be observed and performed,
Lessee may peaceably and quietly enjoy the Property subject, nevertheless, to
the terms and conditions of this Agreement and Lessee's possession will not be
disturbed by anyone claiming by, through or under Lessor.
34. Miscellaneous Provisions.
(a) Writing Required. No waiver, change, amendment, modification,
cancellation, or discharge of any provision of this Agreement, or any part
hereof, will be valid unless in writing and signed by the parties hereto.
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(b) Notices. All notices, demands, and requests given or required to be
given hereunder shall be in writing and shall be deemed to have been properly
given when delivered in person or by overnight or similar courier service, or
sent by tested telex, telegram, or telecopier or five (5) days after having been
deposited in any post office, branch post office, or-mail depository regularly
maintained by the U.S. Postal Service and sent by U.S. registered or certified
mail, postage prepaid, addressed as follows:
TO LESSOR:
Mr. Kip Petersen
City Administrator
The City of Cripple Creek
P.O. Box 430
Cripple Creek, CO 80813
WITH A COPY TO:
Charles T. Houghton, Esq.
Felt, Houghton & Monson, LLC
319 North Weber
Colorado Springs, CO 80903
TO LESSEE:
Mr. Larry Hannappel
General Manager
WMCK Venture Corp.
P.O. Box 373
Cripple Creek, CO 80813
WITH A COPY TO:
Mr. Erwin Haitzmann
Chief Executive Officer
Century Casinos, Inc.
P.O. Box 373
Cripple Creek, CO 80813
or addressed to each respective party at such other address as such party may
hereafter furnish to the other parties in writing. Notice given by counsel to a
party shall be deemed to be notice from such party.
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(c) Applicable Law. This Agreement shall be governed by the laws of the
State of Colorado.
(d) Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(e) Time is of the Essence. Time is of the essence in all matters
concerning this Agreement.
(f) Attorneys Fees. In the event of any dispute between the parties
concerning this Agreement, or in the event of any action to enforce this
agreement or to collect damages on account of any breach of the obligations
provided for herein, the prevailing party shall be entitled to recover from the
other party, all costs and expenses, including reasonable attorneys' fees,
incurred in such litigation as well as all additional costs of collecting any
judgment rendered in such action. The term "prevailing party" shall mean the
party who receives substantially the relief requested, whether by settlement,
dismissal, summary judgment, judgment, or otherwise.
(g) No Other Relationship. Nothing contained herein shall be deemed or
construed by anyone as creating the relationship of principal and agent,
partnership, or joint venture between the parties hereto.
(h) Cumulative Remedies. The various rights and remedies contained
herein shall not be considered as exclusive of any other right or remedy, but
shall be cumulative and in addition to every other remedy now or hereafter
existing at law, in equity, or by statute.
(i) Nonwaiver. No delay or omission of the right to exercise any power
by either party shall impair any such right or power, or shall be construed as a
waiver of any default or as acquiescence therein. One or more waivers of any
covenant, term or condition of this Lease by either party shall not constitute a
waiver of a subsequent breach of the same covenant, term or condition. The
consent or approval by either party to any act by the other party of a nature
requiring consent or approval shall not be deemed to waive or render unnecessary
consent or approval of any subsequent similar act.
(j) Entire Agreement/Merger. This Agreement represents the entire and
only agreement between the parties with respect to the subject matter covered
herein, and no oral statement or representation not contained herein shall be of
any force or effect between the parties. All negotiations, considerations,
representations and understandings between the parties are incorporated and
merged herein. This Parking Lease-Option to Purchase may be modified or altered
only by the parties' written agreement.
(k) Binding Effect. The covenants, agreements and obligations herein
contained shall extend to, bind and inure to the benefit of the parties hereto,
as well as their respective personal representatives, heirs, successors and
assigns.
12
<PAGE>
(1) Recording. Lessee shall have the right to record a memorandum of
this Agreement, and Lessor agrees to execute such memorandum upon Lessee's
request.
(m) Acceptance of Rent. No payment by Lessee or receipt by Lessor of a
lesser amount than the amount then due under this agreement shall be deemed to
be other than on account of the earliest portion due. Lessor may accept such
payment without prejudice to Lessor's right to recover the balance due or to
pursue any other remedy provided in this agreement.
(n) Severability. Unenforceability of any provision contained in this
Lease shall not affect or impair the validity of any other provision of this
agreement.
(o) Lessee Status. Lessee represents that it is a corporation in good
standing in Delaware, as indicated in the introductory paragraph of this
Agreement, is duly qualified to do business in Colorado and that it is
authorized to execute and perform this Agreement.
(p) Lessor Status. Lessor represents and warrants that it is duly
authorized to execute and perform this agreement.
IN WITNESS WHEREOF, the parties acknowledge and agree to the terms and
conditions above stated by signing below on this date.
LESSOR: LESSEE:
CITY OF CRIPPLE CREEK, a Colorado WMCK VENTURE CORP.
municipal corporation
By: _/S/ William D. Page______________ By: _/S/ Larry Hannappel____________
Its: _Owner___________________________ Its: _General Manager ______________
By: _/S/ Erwin Haitzmann ___________
Its: CEO____________________________
13
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
29
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-83688 on Form S-3 of Century Casinos, Inc. and in Registration Statement No.
33-13601 on Form S-8 of Century Casinos, Inc. of our report dated March 16,
1999, appearing in this Annual Report on Form 10-KSB of Century Casinos, Inc.
for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Denver, Colorado
March 16, 1999
30
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