As filed with the Securities and Exchange Commission
on September 27, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
COLORADO GAMING &
ENTERTAINMENT CO. DELAWARE 84-1242693
BWBH, INC. DELAWARE 84-1242691
BWCC, INC. DELAWARE 84-1243506
MILLSITE 27, INC. DELAWARE 84-1242692
SILVER HAWK CASINO, INC. DELAWARE 84-1339843
(Exact name of each (State Other Jurisdiction (I.R.S.
Registrant as of Incorporation or Employer
specified in its Organization) Identification No.)
charter)
1700 LINCOLN STREET, 49TH FLOOR
DENVER, CO 80203
(303) 863-2400
(Address, including zip code, and telephone number,
including area code, of Registrants' principal offices)
_____________________________
STEPHEN J. SZAPOR, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COLORADO GAMING & ENTERTAINMENT CO.
1700 LINCOLN STREET, 49TH FLOOR
DENVER, CO 80203
(303) 863-2400
(Name, address, including zip code, and telephone number,
including area code, of agents for service)
Copies of all communications, including all communications sent to the agent
for service, should be sent to:
THOMAS J. MOORE, ESQ. ALAN L. MAYER, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, SENIOR VICE PRESIDENT, CHIEF LEGAL
L.L.P. OFFICER AND SECRETARY
633 SEVENTEENTH STREET, SUITE 2800 COLORADO GAMING & ENTERTAINMENT CO.
DENVER, COLORADO 80202 1700 LINCOLN STREET, 49TH FLOOR
(303) 291-2600 DENVER, COLORADO 80203
(303) 863-2400
_____________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: x
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ___
_____________________________
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
Common Stock, par value
$.01 per share(2) . . . 5,138,888 $3.50 $17,986,108 $6,202.11
12% Senior Secured Pay- $55,883,000 96%
In-Kind Notes Principal of Principal
due 2003(2) . . . . . . Amount Amount $53,647,680 $18,499.20
Guarantees relating to
the 12% Senior Secured
Pay-In-Kind Notes due
2003(3) . . . . . . . . --- --- --- ---
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 based upon the average of the
bid and asked price for the Common Stock on September 25, 1996 and the Pay-in-
Kind Notes on September 25, 1996, according to information available to the
Company.
(2) Issued by Colorado Gaming & Entertainment Co.
(3) Issued by BWBH, Inc., BWCC, Inc., Millsite 27, Inc. and Silver Hawk
Casino, Inc. No separate consideration will be received for the Guarantees.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
COLORADO GAMING AND ENTERTAINMENT CO.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B)
OF REGULATION S-K
REGISTRATION STATEMENT ITEM LOCATION IN THE PROSPECTUS
___________________________ __________________________
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus . . . Cover Page of Registration
Statement; Outside Front Cover
Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus . . . . . . . Inside Front and Outside Back
Cover Pages
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges . . . . . . . . Prospectus Summary; Risk
Factors
4. Use of Proceeds . . . . Not Applicable
5. Determination of Offering
Price . . . . . . . . . Cover Page of Prospectus; Plan
of Distribution
6. Dilution . . . . . . . . Not Applicable
7. Selling Security Holders Front Cover Page; Prospectus
Summary; Principal and Selling
Securityholders
8. Plan of Distribution . . Front Cover Page; Plan of
Distribution
9. Description of Securities
To Be Registered . . . . Description of Capital Stock
10. Interests of Named
Experts and Counsel . . Not Applicable
11. Information with Respect
to the Registrant . . . Prospectus Summary; Risk
Factors; Selected Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal and
Selling Securityholders;
Description of Capital Stock;
Consolidated Financial
Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities . . . . . . Not Applicable
_______________________________
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
_______________________________
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1996
PRELIMINARY PROSPECTUS
, 1996
COLORADO GAMING & ENTERTAINMENT CO.
5,138,888 SHARES OF COMMON STOCK
$55,883,000 PRINCIPAL AMOUNT OF
12% SENIOR SECURED PAY-IN-KIND NOTES
DUE 2003
BWBH, INC.
BWCC, INC.
MILLSITE 27, INC.
SILVER HAWK CASINO, INC.
GUARANTEES OF 12% SENIOR SECURED PAY-IN-KIND NOTES
DUE 2003
_______________________________
All of the 5,138,888 shares (the "Shares") of common stock, par value $.01
per share (the "Common Stock"), of Colorado Gaming & Entertainment Co.
(formerly known as Hemmeter Enterprises, Inc.), a Delaware corporation ("the
Company"), and $50,000,000 principal amount of 12% Senior Secured Pay-In-Kind
Notes due 2003 (the "Notes") offered hereby are being sold by certain
securityholders of the Company named or to be named herein (the "Selling
Securityholders"). The remaining $5,883,000 in principal amount of Notes are
being registered hereunder by the Company and may be issued directly by the
Company to the holders of the Notes as payment of certain accrued interest when
due, in lieu of cash, pursuant to the terms of the Notes. Such Notes, if
issued, may be subsequently resold by the Selling Securityholders pursuant to
this Prospectus or otherwise. See "Principal and Selling Securityholders,"
"Plan of Distribution" and "Description of Capital Stock-Description of Notes."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES AND THE NOTES
BY THE SELLING SECURITYHOLDERS.
The Notes are guaranteed (the "Guarantees") by the Company's wholly-owned
subsidiaries: BWBH, Inc., ("BWBH"), BWCC, Inc., ("BWCC"), Millsite 27, Inc.,
("Millsite") and Silver Hawk Casino, Inc., ("Silver Hawk"), all of which are
Delaware corporations (collectively, the "Guarantors"). Interest on the Notes
accrues at the rate of 12% per annum, computed on the basis of a 360-day year
comprised of twelve 30-day months. Interest is payable commencing December 1,
1996 and semiannually thereafter on June 1 and December 1 of each year, to the
holders of record of the Notes at the close of business on the May 15 and
November 15 immediately preceding such interest payment date. The Notes are
secured by a perfected lien of certain collateral of the Company and the
Guarantors, including all of the capital stock of the Guarantors owned by the
Company and substantially all the real and personal property owned or leased by
the Company and the Guarantors. See "Description of Capital Stock-Description
of the Notes."
Any or all of the Selling Securityholders' Shares or the Notes may be
sold, from time to time, in privately negotiated transactions, in the over-the-
counter market, or otherwise, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at such other prices as
may be negotiated among the parties. A Selling Securityholder may engage one
or more brokers or dealers to act as principal or agent in making sales. Such
brokers or dealers may receive discounts, commissions or other compensation
from such Selling Securityholder and any such brokers or dealers may be deemed
"underwriters" under the Securities Act of 1933, as amended (the "Securities
Act"), of the Shares and Notes sold. Colorado law and the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"), and the
Indenture governing the Notes (the "Indenture") contain certain restrictions on
ownership of the Common Stock and Notes, respectively. The Company will pay
all expenses of filing the Registration Statement and preparing and reproducing
this Prospectus, which the Company estimates to be $95,000. The Selling
Securityholders will pay any selling expenses, including brokerage commissions,
incurred in connection with their sale of any Shares and Notes covered by this
Prospectus. See "Risk Factors -Colorado Regulatory Matters - Restrictions on
Holders of Common Stock," "-Mandatory Offer to Purchase Notes Upon Change of
Control," "Plan of Distribution," and "Description of Capital Stock."
Neither the Common Stock nor the Notes are listed on any national
securities exchange or a Nasdaq Stock Market. The Company understands that the
Common Stock and the Notes trade sporadically in the "pink sheets" on the over-
the-counter market. The Company understands that the average of the bid and
asked prices for the Common Stock and the Notes in the pink sheets on September
25, 1996 was $3.50 and 96% of principal, respectively.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE COLORADO LIMITED GAMING CONTROL COMMISSION
HAS NOT PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
The Company, BWBH, BWCC, Millsite and Silver Hawk (collectively, the
"Registrants") have filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), a registration statement (the "Registration Statement") of which this
Prospectus (this "Prospectus") is a part with respect to the Common Stock and
Notes offered hereby. This Prospectus does not contain all the information set
forth in or annexed as an exhibit to the Registration Statement. Such
additional information, and other information filed by the Registrants may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission maintained at Suite 1300, 7 World Trade Center, New York, New
York 10048 and Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 at prescribed rates. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is hereby
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read
in conjunction with the detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to the Company includes BWBH,
BWCC, Silver Hawk, Millsite and the Company's other consolidated subsidiaries.
THE COMPANY
The Company develops, owns and operates gaming and related entertainment
facilities. The Company owns and operates, through subsidiaries, two of the
largest casinos in terms of number of slot machines in the historic mining
towns of Black Hawk and Central City, Colorado, under the "Bullwhackers" name
(individually, "Bullwhackers Black Hawk" and "Bullwhackers Central City," and
collectively, the "Bullwhackers Casinos"). The Company also owns and operates,
through a subsidiary, a third gaming facility, located in Black Hawk, Colorado,
which it opened as the Silver Hawk Saloon & Casino on June 26, 1996 (the
"Silver Hawk Casino," together with the Bullwhackers Casinos, the "Colorado
Casinos"). The Company offers parking for patrons of Bullwhackers Black Hawk
and the Silver Hawk Casino at an approximately 400-space surface parking lot
(the "Surface Parking Lot") located directly between the two casinos. See
"Business--The Colorado Casinos."
As a result of the financial difficulties of a riverboat gaming project
undertaken by a wholly-owned subsidiary of the Company in New Orleans,
Louisiana (the "Riverboat Project"), the Company, BWBH, BWCC and Millsite
sought protection under Chapter 11 of the United States Bankruptcy Code on
November 7, 1995. The First Amended Joint Plan of Reorganization of the
Company, BWBH, BWCC and Millsite (the "Plan of Reorganization") was confirmed
on April 8, 1996 and became effective on June 7, 1996 (the "Effective Date").
As a result, among other things, the Company has significantly reduced its
consolidated debt and no longer has any interest in the Riverboat Project. See
"Legal Proceedings--Background of Bankruptcy; Plan of Reorganization."
The Company was incorporated in August 1993 for the purpose of conducting
the operations of certain entities, which, along with certain predecessor
entities, constructed and were operating the Bullwhackers Casinos. BWBH was
incorporated in 1993 for the purpose of owning and operating the Bullwhackers
Black Hawk Casino. BWCC was incorporated in 1993 for the purpose of owning and
operating the Bullwhackers Central City Casino. Silver Hawk was incorporated
in 1996 for the purpose of acquiring, owning and operating the Silver Hawk
Casino. Millsite, which was incorporated in 1993, owns the land underlying the
Surface Parking Lot. The principal executive offices of the Company and its
subsidiaries is 1700 Lincoln Street, 49th Floor, Denver, Colorado 80203, and
its telephone number is (303) 863-2400.
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK AND NOTES INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS."
THE OFFERING
The following securities may be offered and sold from time to time by the
Selling Securityholders:
5,138,888 shares of Common Stock.
$50,000,000 principal amount of Notes.
An additional $5,883,000 in principal amount of Notes are being registered
hereunder by the Company and may be issued directly by the Company to the
holders of the Notes as payment of certain accrued interest when due, in lieu
of cash, pursuant to the terms of the Notes. Such Notes, if issued, may be
subsequently resold by the Selling Securityholders pursuant to this Prospectus
or otherwise. The Notes are guaranteed by the Guarantors and are secured by,
among other things, a lien on substantially all of the real and personal
property owned or leased by the Company and the Guarantors, subject only to the
liens of the Company's working capital lender, and a collateral pledge of the
capital stock of the Guarantors. See "Description of Capital Stock -
Description of the Notes." None of the securities are being offered to the
public by the Company. See "Selling Securityholders" and "Plan of
Distribution."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
Years Ended December 31,
1995
1992(a) 1993 1994(c) 1995(c) (Pro
Forma)(d)
STATEMENT OF (unaudited)
OPERATIONS DATA:
Net revenues $ 17,045 $ 38,468 $ 45,474 $ 47,428 $ 47,428
Operating Expenses:
Impairment of
assets and
predevelopment
expense - - 10,804 11,347 11,347
Reorganization
items - - - 17,910 -
Other operating
expenses 25,349 35,310 47,631 44,807 46,120
Income (loss) from
operations (8,304) 3,158 (12,961) (26,636) (10,039)
Interest expense 3,000 6,987 18,822 18,664 6,731
Equity loss in
unconsolidated
subsidiary (GPRI) - - (2,323) (70,277) -
Net loss $(11,241) $(3,829) $(32,131) $(115,216) $ (16,720)
_________ ________ _________ __________ _________
Net loss per common
share (e) $ N/A $ N/A $ N/A $ N/A $ (3.25)
_______ ______ ______ ______ _________
Weighted average
common shares (b)(e) N/A N/A N/A N/A 5,138,888
Ratio of Earnings
to Fixed Charges (2.75) .45 (.71) (5.17) (2.48)
Six Months Jan. 1, 1996 June 7, 1996
Ended through through
June 30, 1995 June 6, 1996 June 30, 1996
(unaudited) (unaudited) (unaudited)
STATEMENT OF
OPERATIONS DATA:
Net revenues $ 23,667 $19,982 $3,245
Operating Expenses:
Impairment of assets
and predevelopment
expense 5,077 - -
Reorganization items 500 2,290 -
Other operating
expenses 23,743 16,886 3,064
Income loss from
operations (5,653) 806 181
Interest expense 9,976 579 403
Equity loss in
unconsolidated
subsidiary (GPRI) (12,187) - -
Extraordinary gain
from reorganization - 164,358 -
Net Income (loss) $(27,600) $164,407 $(211)
________ ________ ______
Ratio of Earnings to
Fixed Charges (1.77) 1.08 .48
As of December 31,
As of June 30,
1992 1994(c) 1995(c) 1996-unaudited
BALANCE SHEET DATA:
Cash and cash
equivalents . . . . . $ 1,676 $ 7,977 $ 3,623 $ 5,369
Total assets . . . . . 35,181 141,093 37,680 69,770
Long-term debt
(excluding current
portion) . . . . . . . 35,064 155,675 - 55,272
Liabilities subject
to compromise . . . . - - 186,460 -
Total stockholders'
equity (deficit) . . (10,002) (36,824) (153,137) 3,948
____________________
(a) Reflects operating results for the period from June 15, 1992 to December
31, 1992 for Bullwhackers Central City and the period from July 17, 1992
to December 31, 1992 for Bullwhackers Black Hawk.
(b) Warrants totaling 7,552,213 shares of common stock and 179,000 common
stock, warrants and options issued under the Company's pre-bankruptcy
Restricted Share Plan and Non-Employee Director Plan were not included in
the calculation of weighted average shares outstanding as their effect
would have been anti-dilutive.
(c) Grand Palais Riverboat, Inc. ("GPRI"), was consolidated with the Company
and its other wholly-owned subsidiaries for the Company's fiscal year
ended December 31, 1994, but was not consolidated with the Company and its
other wholly owned subsidiaries for the Company's fiscal year ended
December 31, 1995 because the Company no longer controlled GPRI following
the commencement of the GPRI's bankruptcy case (the "GPRI Bankruptcy
Case"). See Consolidated Financial Statements and Notes thereto.
(d) For information on specific pro forma adjustments resulting from the
reorganization, see "Unaudited Pro Forma Condensed Consolidated Financial
Information."
(e) The weighted average number of common shares outstanding and net income
per common share for the Company prior to the Effective Date (the
"Predecessor Company") have not been presented because, due to the
Reorganization and implementation of fresh start reporting, they are not
comparable to subsequent periods.
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
that involve risks, uncertainties, and other factors which may cause the
Company's actual performance to be materially different from the projections
expressed or implied by such statements. Such forward-looking statements may
be found in the material set forth under "Management's Discussion and Analysis
of Financial Condition an Results of Operations--Liquidity and Capital
Resources," "Business," and "Description of Capital Stock--Description of
Notes," as well as within the Prospectus generally. Such factors include,
among others, the risk factors set forth below and the matters set forth or
incorporated in the Prospectus generally.
Prospective investors of the Shares and Notes offered hereby should
carefully consider the following factors in addition to the other information
contained in this Prospectus in evaluating an investment.
RECENT EMERGENCE FROM BANKRUPTCY
The Company emerged from bankruptcy on the Effective Date. Also, on the
Effective Date, the Company adopted fresh start reporting in accordance with
generally accepted accounting policies, resulting in adjustment of the
Company's common stockholders' equity and the carrying value of assets and
liabilities. Therefore, the Company's post-reorganization balance sheets and
statements of operations are not prepared on a consistent basis of accounting
with its pre-reorganization balance sheets and statements of operations.
Accordingly, the Company has had limited history of operations post-bankruptcy
on which its performance may be evaluated and the Company does not believe that
pre-bankruptcy performance yields a valid comparison. See "Legal Proceedings--
Background of Bankruptcy; Plan of Reorganization" and Consolidated Financial
Statements and the Notes thereto.
COMPETITION
Colorado law permits limited stakes casino gaming in three historic mining
towns, Black Hawk and Central City, adjacent towns located approximately 35
miles west of Denver, and Cripple Creek, approximately 90 miles south of
Denver. Black Hawk and Central City form the primary gaming market in
Colorado, and competition is intense. Bullwhackers Central City is located
approximately one and one-half miles from Bullwhackers Black Hawk and the
Silver Hawk Casino is located adjacent to the Surface Parking Lot, and across
the Surface Parking Lot from Bullwhackers Black Hawk. Due to their proximity,
the Colorado Casinos compete for some of the same target markets of customers
in the Denver metropolitan area. However, the Company believes that its
primary competition for the Colorado Casinos are other casinos operating in
Black Hawk and Central City, of which there were approximately 33 as of July
31, 1996, and, secondarily, casinos operating in Cripple Creek of which there
were approximately 25 as of July 31, 1996. Recently, more experienced,
nationally recognized casino operators from other areas of the country have
entered, or announced plans to enter, the Colorado gaming market, including
Harrah's, Harvey's, ITT Sheraton, Colorado Central Station and Fitzgerald's,
many of which have substantially greater financial and marketing resources than
the Company. Because Colorado does not limit the total number of gaming
licenses available for issuance in Colorado and there are no minimum facility
size requirements, the Company expects the number of gaming facilities to
continue increasing.
The Company believes that the primary competitive factors in the Black
Hawk-Central City market are location, availability and convenience of parking,
number of slot machines and gaming tables, types and pricing of amenities, name
recognition, and overall atmosphere. The Company believes it generally
competes favorably on these factors, although Bullwhackers Central City offers
less convenient parking than some of its direct competitors and the Silver Hawk
Casino, recently opened, is smaller and currently has less name recognition
than some of its direct competitors.
The Company believes that since October 1991, approximately 12 casinos in
Black Hawk and 20 casinos in Central City have ceased operations. In addition,
several operators, including the Company, have reduced staffing and others have
closed temporarily or reduced their square footage and/or hours of operations.
The Company believes that the casinos that failed did so for a variety of
reasons, including inferior design, inconvenient parking, inadequate size,
inexperienced management and undercapitalization.
Various published reports detailing additional gaming projects have been
announced for Black Hawk. The majority of these projects are along the
southern end of Black Hawk at the first major intersection off State Highway
119, providing these projects with the initial opportunity to capture visitors
to Black Hawk and Central City from the Denver metropolitan area. Bullwhackers
Black Hawk and the Silver Hawk Casino, in contrast, are located at the northern
end of Black Hawk at the second major intersection off State Highway 119. In
addition, the Colorado Department of Transportation is analyzing plans to
potentially construct a third major intersection off State Highway 119 in
between the two current intersections. This additional intersection, if
constructed, would provide the casinos south of Bullwhackers Black Hawk and the
Silver Hawk Casino with another opportunity to capture visitors to Black Hawk
from the Denver metropolitan area before they reach Bullwhackers Black Hawk and
the Silver Hawk Casino, thereby potentially reducing traffic flow and customer
visitors to Bullwhackers Black Hawk and the Silver Hawk Casino, as well as to
casinos in Central City, including Bullwhackers Central City.
While it is difficult to assess the development stage of each of the
announced projects and the likelihood of whether any or all of the announced
projects will eventually be built and at what size, it is reasonably likely
that at least some of the new competition may be completed and open to the
public by early 1998. Therefore, should several of the announced competitive
projects open, the increased competition will adversely affect the Company's
operations in both Black Hawk and Central City and, accordingly, may have a
material adverse effect on the Company's consolidated results of operations,
financial position and cash flows.
Several lobbying groups placed initiatives for additional Colorado limited
stakes gaming venues, including Denver, on the November 1992 statewide ballot.
Each of these initiatives was defeated by a wide margin. However, in November
1996 there will be an initiative on the statewide ballot to expand limited
stakes gaming to the city of Trinidad, approximately 125 miles south of
Colorado Springs, and similar initiatives, legislation or regulations could be
introduced in the future. The enactment of any initiative, legislation or
regulations legalizing gaming elsewhere in Colorado could, and if such
legalized gaming was closer to Denver would, have a material adverse effect on
the Company's consolidated results of operations, financial position and cash
flows.
In addition to competing with other gaming facilities in Colorado as
described above, the Company competes, to a lesser degree, for both customers
and potential future gaming sites, with gaming facilities nationwide, including
casinos in Nevada and Atlantic City, many of which have substantially greater
financial resources and experience in the gaming business. The Company also
competes with other forms of gaming on both a local and national level,
including state-sponsored lotteries, charitable gaming and pari-mutuel
wagering, among others, and competes for entertainment dollars generally with
other forms of entertainment. The recent and continuing expansion of legalized
casino gaming to new jurisdictions throughout the United States may also affect
competitive conditions. Although the Company's focus is the Colorado gaming
market, it is considering gaming ventures in other locations that the Company
believes present favorable opportunities, and may pursue certain of such
opportunities if its resources allow it to do so. However, its ability to
capitalize on such opportunities is expected to be limited due to competition
for such opportunities from more experienced and financially stronger entities.
FLUCTUATING MARKET
Due to the rapid growth of the Colorado gaming market, changes in the
number of facilities operating and their individual layouts, the seasonality of
the business and the local attributes of each Colorado gaming market, revenue
results have varied, and likely will vary, significantly between the various
Colorado gaming markets and between properties within those markets. As the
Black Hawk market expands, both in terms of gaming device capacity and market
share, the Central City market tends to contract. The majority of new and
expansion projects are focused in Black Hawk, accordingly, the Company expects
revenue per gaming device in Central City generally and Bullwhackers Central
City in particular to decline relative to Black Hawk over the foreseeable
future.
RELIANCE ON DENVER MARKET
The Company's gaming revenues currently depend primarily upon "day-
tripper" visitor traffic at the Colorado Casinos from Denver metropolitan area
residents. A decline in the Denver economy, a decline in the Black Hawk-
Central City gaming market, or increased competition for Denver metropolitan
area residents from other gaming jurisdictions both inside and outside
Colorado, could have a material adverse effect on the Company's consolidated
results of operations, financial position and cash flows.
COLORADO GAMING REGULATIONS
GENERAL. Under Colorado law and regulations (the "Colorado Regulations"),
the ownership and operation of casino facilities in Colorado are subject to
strict and extensive regulation by the Colorado Division of Gaming supervised
by the five-member Colorado Limited Gaming Control Commission (the "Gaming
Commission").
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. The Gaming Commission requires various
licenses, findings of suitability, registrations, permits and approvals to be
held by the Company and its subsidiaries. The Gaming Commission may, among
other things, limit, condition, suspend or revoke a license to operate for any
cause deemed reasonable. Substantial fines or forfeiture of assets for
violations of gaming laws or regulations may be levied against the Company, the
Company's subsidiaries and the persons involved. In addition, the actions of
persons associated with the Company and its management employees, over whom the
Company may have no control, could jeopardize any licenses held by the Company
in Colorado. The suspension or revocation of any of the Company's licenses or
the levy on the Company of substantial fines or forfeiture of assets would have
a material adverse effect on the Company.
To date, the Company has obtained all governmental licenses, findings of
suitability, registrations, permits and approvals necessary for the operation
of the Colorado Casinos. However, gaming licenses and related approvals are
deemed to be privileges under Colorado law, and no assurances can be given that
any new licenses, permits and approvals that may be required in the future will
be given or that existing ones will not be revoked. The current licenses for
the Bullwhackers Casinos expire on December 2, 1996 and the license for the
Silver Hawk Casino expires on June 24, 1997. Renewal is subject to, among
other things, continued satisfaction of suitability requirements. There can be
no assurance that the Company will successfully renew its licenses in a timely
manner or at all.
Under the Colorado Regulations, no person can have an "interest" in more
than three gaming retailer/operator licenses. The Company currently has three
such licenses, one each for Bullwhackers Black Hawk, Bullwhackers Central City
and the Silver Hawk Casino. Accordingly, any expansion opportunities that the
Company may have in Colorado would be limited absent the disposition of one of
the Colorado Casinos. See "Business - Colorado Gaming Regulations."
RESTRICTIONS ON HOLDERS OF COMMON STOCK. Under Colorado Regulations, the
definition of an "interest" in a gaming license excludes ownership of less than
5% of a "publicly traded" company such as the Company. Because the Company has
three such licenses, any owner of any interest in a non-publicly traded
Colorado licensee or a 5% or greater interest in a publicly traded Colorado
licensee may be precluded from owning 5% or more of the Common Stock. To
enable the Company to comply with the Colorado Regulations and secure and
maintain the business and other regulatory approvals necessary for operating a
gaming-related business in Colorado, the Company's Certificate of Incorporation
provides that the Company may not issue any voting securities except in
compliance with the rules of any gaming authority. The Company's Certificate
of Incorporation also provides that all transfers of its voting securities must
be in compliance with applicable gaming authority rules and if any gaming
authority issues an order disqualifying a person from owning shares of Common
Stock, the Company may redeem the stock of the disqualified holder unless
Common Stock is transferred to a person found by the Gaming Commission to be
suitable within 60 days from the finding of unsuitability. See "Business -
Colorado Gaming Regulations" and "Description of Capital Stock - Description of
Common Stock."
RESTRICTIONS ON HOLDERS OF NOTES. If a record or beneficial owner of
Notes is required by any Gaming Authority (as defined in the Indenture) to be
licensed, qualified or found suitable, such holder must apply for a license,
qualification or finding of suitability within the required time period
requested by such Gaming Authority. The applicant for a finding of suitability
must pay all costs of the investigation for such finding of suitability. If a
record or beneficial owner is required to be licensed, qualified or found
suitable and is not licensed, qualified or found suitable by such Gaming
Authority, the Company shall require such owner to dispose of the Notes. See
"Business Colorado Gaming Regulations" and "Description of Capital
Stock Description of the Notes Redemption Mandatory Redemption."
LIQUOR REGULATION
The sale of alcoholic beverages is subject to licensing, control and
regulation by certain Colorado state and local agencies (the "Liquor
Agencies"). Subject to certain exceptions, all persons who directly or
indirectly own 5% or more of the Company must file applications with and are
subject to investigation by the Liquor Agencies. The Liquor Agencies also may
investigate persons who, directly or indirectly, loan money to liquor
licensees. All liquor licenses are subject to renewal, are revocable and are
not transferable. The Liquor Agencies have broad powers to limit, condition,
suspend or revoke any liquor license. Any disciplinary action could, and any
failure to renew or other revocation of any of its liquor licenses would, have
a material adverse effect upon the operations of the Company and the Colorado
Casinos.
Colorado law prohibits any person or entity from having an "interest" (as
defined) in more than one type of alcoholic beverage license or more than three
gaming tavern liquor licenses. The Company currently holds a gaming tavern
license for each of the three Colorado Casinos. Accordingly, the Company's
expansion opportunities in Colorado are limited by such licensing restrictions.
Furthermore, no person that holds an interest in the Company may hold any
interest in any other Colorado alcoholic beverage licensees. See "Business -
Non-Gaming Regulation-Liquor Regulation."
TAXATION
The Company's operations are subject to taxes imposed upon gaming
operators by the Gaming Commission and the municipalities of Black Hawk and
Central City. Taxes currently levied on the Company's operations include taxes
on gross gaming proceeds and annual gaming device fees. Such taxes and fees
are subject to revision from time to time, and the Gaming Commission is
expected to consider increased taxes in Fall of 1996. Any increase in tax
rates or gaming device fees, even if relatively small, may cause the Company's
operations to be unprofitable or may otherwise have a material adverse effect
on the Company results of operations, financial position, and cash flows. See
"Business Non-Gaming Regulation Taxation."
SEASONALITY AND INCLEMENT WEATHER
Because the Colorado Casinos are located in the Rocky Mountains, they are
subject to sudden and severe winter storms. Access to Central City and Black
Hawk, which are both located ten miles from Interstate 70, is made via a two-
lane secondary road. In bad weather, and in the winter months generally, this
access road is difficult to traverse, which reduces the number of patrons
traveling to Black Hawk and Central City, and, accordingly, negatively affects
the Company's operating results during these periods. In addition, bad weather
can result in a loss of services to the Colorado Casinos which also negatively
affects the Company's operating results. As a result, the Colorado Casinos'
business tends to be seasonal, with the highest level of activity occurring
during the summer months.
The sites of Bullwhackers Black Hawk and the Silver Hawk Casino are
located in a 100-year flood plain. To date, the Company has not experienced
any flooding resulting in damage to the casino. The Company carries $5 million
in flood insurance on Bullwhackers Black Hawk [and the Silver Hawk Casino],
which management currently believes is adequate. There can be no assurance
that Bullwhackers Black Hawk [or the Silver Hawk Casino] will not suffer flood
damage in the future or that any damage will be adequately covered by
insurance.
AVAILABILITY AND RETENTION OF KEY MANAGEMENT AND OTHER EMPLOYEES
The Company's operations and development are dependent upon the services
of its executive officers. In connection with the Reorganization, most of the
Company's senior management positions were eliminated. The Company's remaining
senior executives, Stephen J. Szapor, Jr., President and Chief Executive
Officer of the Company, Alan L. Mayer, Senior Vice President, Chief Legal
Officer and Secretary of the Company and Richard Rabin, Senior Vice President
of Operations of the Company, entered into employment agreements with the
Company on the Effective Date. The loss of the services of any of these
individuals could adversely affect the Company. See "Management."
The Company's operations and development also are dependent in part on its
ability to attract and retain qualified management personnel or obtaining the
services of third parties in connection with the development, operation and
management of the Colorado Casinos. Certain of the Company's current
management, some of whom have been engaged by the Company only recently, have
limited experience in the development or operation of casinos. In addition,
competition for qualified personnel at all employment levels in the gaming
industry in Colorado is intense. There can be no assurance that in the future
the Company will be able to attract and retain the personnel necessary for
successful operation and development.
ABSENCE OF ESTABLISHED TRADING MARKET FOR THE SHARES AND THE NOTES; POSSIBLE
VOLATILITY OF TRADING PRICES
No established public trading market exists for either the Common Stock or
the Notes. Although the Company understands that the Common Stock and the
Notes trade sporadically in the "pink sheets" in the over-the-counter market,
neither the Common Stock nor the Notes are, or will be upon effectiveness of
the Registration Statement of which this Prospectus is a part, listed or be
qualified for listing on any national securities exchange or on a Nasdaq Stock
Market. A primary reason that neither the Common Stock or Notes qualify for
any listing is that they are held by a relatively small number of holders,
which the Company estimates at 40 for the Common Stock and 15 for the Notes,
which has an adverse effect on the liquidity of the markets for the Common
Stock and Notes. There can be no assurance that the Common Stock or the Notes
will ever have enough holders or meet the other criteria to qualify for a
listing on any national securities exchange or a Nasdaq Stock Market, that an
active trading market for the Common Stock or the Notes will develop, or, if
such a market develops, as to the liquidity or sustainability of such market.
Accordingly, there can be no assurance that a holder of the Common Stock or
Notes will be able to sell such securities in the future or as to the price at
which any sale may occur. Factors such as quarterly fluctuations in the
financial and operating results of the Company, negative announcements by the
Company or others, developments affecting the Company or the gaming industry
generally, and general stock market or economic conditions not necessarily
related to the Company's operating performance, could cause the market price of
such securities to fluctuate substantially. Market prices may also be affected
by the amount of Common Stock and Notes sold, and the timing of sales, by the
Selling Securityholders.
DEBT SERVICE
Although much of the Company's debt obligations were eliminated or reduced
in connection with the Reorganization, the Company has significant interest
expense and principal repayment obligations under the Notes and its credit
facility and the Company is required to comply with certain financial covenants
under the Notes and its credit facility. The Company's ability to service its
debt, including interest and principal payments on the Notes, and comply with
such financial covenants, will depend on its future performance, which will be
affected by the Company's operating and marketing success, prevailing economic
conditions, government regulation and taxation and financial, business and
other factors, certain of which are beyond the Company's control. Accordingly,
no assurance can be given that the Company will maintain a level of operating
cash flow that will permit it to service its obligations and to satisfy such
financial covenants. If the Company is unable to generate sufficient cash flow
or is unable to refinance or extend its outstanding indebtedness, it will have
to adopt one or more alternatives, such as reducing or delaying future
expansion and capital expenditures, selling assets, restructuring debt or
obtaining additional equity capital. There is no assurance that any of these
strategies could be effected on satisfactory terms or at all. In addition,
there is no sinking fund for the retirement of the Notes. Therefore, the
Company will be required to repay the entire principal amount of the Notes when
they mature on June 7, 2003, unless the Notes are previously redeemed. There
can be no assurances that the Company will have available funds or will be able
to raise funds for the repayment of the Notes at maturity.
The terms and financial covenants contained in the Notes and the Company's
credit facility restrict the ability of the Company to incur additional
indebtedness. Those restrictions may limit the Company's ability to compete in
the gaming market by effectively preventing expansion of the Company's
facilities or other competitively advantageous capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources" and "Description of Capital
Stock Description of Notes Certain Covenants Limitation on Indebtedness."
SECURITY FOR THE NOTES
The lien on real and personal property of the Company and the Guarantors
securing the Notes (the "Collateral") is junior to a lien on the Collateral
held by the Company's lender under its credit facility. If an Event of Default
(as defined in the Indenture) occurs, there can be no assurance that a
foreclosure on the Collateral would produce proceeds in an amount that would be
sufficient to pay the principal of, and accrued interest on, the Notes.
In addition, the trustee for the Notes (the "Trustee") may be limited in
its ability to foreclose upon the Collateral by applicable gaming laws and
regulations. In particular, in any foreclosure sale involving a Colorado
Casino, the purchaser would be required to obtain retail/operator licenses from
the Commission as well as a gaming tavern liquor license from Colorado state
and local agencies. If the trustee for the Notes was unable to, or chose not
to, sell the Colorado Casinos or their assets, the trustee would be required to
obtain such licenses. Such requirements may limit the number of potential
bidders, and may adversely affect the sales price for the Colorado Casinos or
their assets. Furthermore, the right of the Trustee to repossess and dispose
of the Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
was commenced by or against the Company or any Guarantor prior to the Trustee
having repossessed and disposed of the Collateral. See "Description of Capital
Stock Description of the Notes Security."
MANDATORY OFFER TO PURCHASE NOTES UPON CHANGE OF CONTROL
In the event of a Change of Control (as defined in the Indenture), the
Company is obligated to offer to purchase all or a portion of each holder's
Notes in accordance with the terms of the Indenture at a price of 101% of the
principal amount of such Notes plus accrued but unpaid interest. The Company's
ability to pay cash to the holders of the Notes upon such event, and the
ability of the Guarantors to pay pursuant to the terms of the Guarantees upon
the failure of the Company to purchase the Notes upon such event, may be
limited by the Company's and Guarantors' respective financial condition at the
time of such event. See "Description of Capital Stock Description of the
Notes Mandatory Offers to Purchase."
ENVIRONMENTAL MATTERS
The Black Hawk and Central City gaming districts, including the Colorado
Casino sites, are located generally within the Central City/Clear Creek
Superfund site (the "Site") as designated by the Environmental Protection
Agency (the "EPA"), pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). The Site
includes numerous specifically identified areas of mine tailings and other
waste piles from former gold mine operations that are the subject of ongoing
investigation and clean-up by the EPA and the Colorado Department of Public
Health and Environment (the "CDPHE"). CERCLA requires remediation of sites
from which there has been a release or threatened release of hazardous
substances and authorizes the EPA to take any necessary response actions at
Superfund sites, including authorizing potentially responsible parties ("PRPs")
to clean up or contribute to the clean-up of a Superfund site. PRPs are
broadly defined under CERCLA, and include past and present owners and operators
of a site. CERCLA imposes strict liability on PRPs, and courts have commonly
held PRPs to be jointly and severally liable for all response costs.
Although the Colorado Casinos are not within any of the specific areas of
the Site currently identified by the EPA for investigation or remediation, the
site on which the Surface Parking Lot was constructed was identified as
requiring remediation in connection with the construction of the Surface
Parking Lot. That remediation was completed in June 1994. In the process of
completing additional environmental remediation in connection with expanding
the Surface Parking Lot, the Company discovered that two small and confined
treatment cells within the Surface Parking Lot contain unacceptable levels of
mercury and lead within the soil, and thus are classified as hazardous. The
Company immediately reported this finding to the EPA and the CDPHE. The
hazardous soil is located above the groundwater table. At the direction and
approval of the EPA and CDPHE, the Company placed an asphalt cap over the
hazardous soil to prevent infiltration. While the parties have agreed that the
hazardous soil presents minimal impact to the environment in the short term,
the Company has reached an agreement with the EPA and CDPHE to remove the
hazardous soil and dispose of the material at a hazardous waste landfill prior
to December 31, 1996. The Company is currently analyzing the most efficient
way and time period within which to complete the removal of the hazardous soil.
It is currently estimated that the cost of this removal project will be
approximately $100,000. See "Legal Proceedings - Environmental Matters."
The Company has conducted environmental examinations of the real property
underlying the Bullwhackers Casinos. Based on these examinations, the Company
is not aware of any environmental problems affecting the Bullwhackers Casinos
which are likely to result in material costs to the Company. Although the
Company has not conducted environmental examinations of the real property
underlying the Silver Hawk Casino facility, it does not believe that there are
any environmental problems affecting the Silver Hawk Casino site which are
likely to result in material costs to the Company. No assurance can be given,
however, that the Company will not subsequently discover significant
environmental problems at any of its Colorado properties. Furthermore, the EPA
or other governmental authorities could broaden their investigations and
identify additional areas within the Site, including the Colorado Casino sites,
for remediation. If any of the Colorado Casinos were included in additional
areas of concern within the Site, the Company could be identified as a PRP and
any liability related thereto could have a material adverse effect on the
Company.
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY
No established trading market for the Common Stock exists.
Since the Effective Date, the Company has neither declared nor paid
dividends on the Common Stock and does not anticipate paying dividends in the
foreseeable future. The Company intends to follow a policy of retaining any
earnings either to repay borrowings under the Company's credit facility,
finance the Company's growth, or for general corporate purposes. In addition,
the Company's credit facility and the Indenture restrict the Company from
paying cash dividends. Payment of dividends in the future will be determined
by the Company's Board of Directors and will depend upon, among other things,
the Company's future earnings, operations, capital requirements, contractual
restrictions in the Company's debt or other instruments, and such other factors
the Board of Directors may deem relevant.
SELECTED FINANCIAL DATA
The selected consolidated financial information presented below for each
year since the Predecessor Company commenced operations through the year ended
December 31, 1995 and for the six-month period ended June 30, 1995, the period
from January 1, 1996 through June 6, 1996, and the period from June 7, 1996
(the Effective Date) through June 30, 1996, is derived from the Company's
Consolidated Financial Statements and Notes thereto which include BWBH, Inc.,
BWCC, Inc., Millsite 27, Inc. and Silver Hawk Casino, Inc. Separate financial
statements for BWBH, BWCC, Millsite, and Silver Hawk, as the guarantors of the
Notes, are not included herein because the Guarantors are each jointly and
severally liable with respect to the full amount of Notes and the aggregate
total assets, net earnings and net equity of the Guarantors are substantially
equivalent to the total assets, net earnings and net equity of the Company and
its subsidiaries on a consolidated basis. This data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in this Prospectus.
The pro forma condensed consolidated statement of operations data has been
prepared assuming that the Effective Date occurred on January 1, 1995. For a
more complete discussion of the pro forma data, see "Colorado Gaming &
Entertainment Co. Unaudited Pro Forma Condensed Consolidated Financial
Information."
IN THOUSANDS, EXCEPT SHARE DATA
Years Ended December 31,
1992(a) 1993 1994(c) 1995(c) 1995
Pro
Forma)(d)
STATEMENT OF OPERATIONS (unaudited)
DATA:
Net revenues . . . . . . . $ 17,045 $ 38,468 $ 45,474 $ 47,428 $ 47,428
Operating Expenses:
Impairment of assets and
predevelopment expense . - - 10,804 11,347 11,347
Reorganization items . . - - - 17,910 -
Other operating expenses 25,349 35,310 47,631 44,807 46,120
Income (loss) from
operations . . . . . . (8,304) 3,158 (12,961) (26,636) (10,039)
Interest expense . . . . . 3,000 6,987 18,822 18,664 6,731
Equity loss in
unconsolidated subsidiary
(GPRI) . . . . . . . . . - - (2,323) (70,277) -
Net loss . . . . . . . . . $(11,241) $ (3,829) $(32,331) $(115,216) $(16,720)
________ ________ ________ _________ ________
Net loss per common
share (e). . . . . . . . N/A N/A $ N/A $ N/A $ (3.25)
________ ________ ________ _________ ________
Weighted average common
shares (b)(e) . . . . N/A N/A N/A N/A 5,138,888
Six Months Jan. 1, 1996 June 7, 1996
Ended through through
June 30, 1995 June 6, 1996 June 30, 1996
(unaudited) (unaudited) (unaudited)
STATEMENT OF OPERATIONS DATA:
Net revenues . . . . . . . $ 23,667 $19,982 $3,245
Operating Expenses:
Impairment of assets and
predevelopment expense . 5,077 -- --
Reorganization items . . . 500 2,290 --
Other operating expenses . 23,743 16,886 3,064
Income loss from
operations . . . . . . . (5,653) 806 181
Interest expense . . . . . . 9,976 579 403
Equity loss in unconsolidated
subsidiary (GPRI) . . . 12,187 -- --
Extraordinary gain from
reorganization . . . . . -- 164,358 --
Net income (loss) . . . . . $(27,600) $164,407 $(211)
As of December 31,
As of
1992 1994(c) 1995(c) June 30, 1996
(unaudited)
BALANCE SHEET DATA:
Cash and cash
equivalents . . . . . $ 1,676 $ 7,977 $ 3,623 $ 5,369
Total assets . . . . . 35,181 141,093 37,680 69,770
Long-term debt
(excluding current
portion) . . . . . . 35,064 155,675 - 55,272
Liabilities subject to
compromise . . . . . - - 186,460 -
Total stockholders'
equity (deficit) (10,002) (36,824) (153,137) 3,948
(a) Reflects operating results for the period from June 15, 1992 to December
31, 1992 for Bullwhackers Central City and the period from July 17, 1992
to December 31, 1992 for Bullwhackers Black Hawk.
(b) Warrants totaling 7,552,213 shares of common stock and 179,000 common
stock, warrants and options issued under the Company's pre-bankruptcy
Restricted Share Plan and Non-Employee Director Plan were not included in
the calculation of weighted average shares outstanding as their effect
would have been anti-dilutive.
(c) GPRI was consolidated with the Company and its other wholly owned
subsidiaries for the Company's fiscal year ended December 31, 1994, but
was not consolidated with the Company and its other wholly owned
subsidiaries for the Company's fiscal year ended December 31, 1995 because
the Company no longer controlled GPRI following the commencement of the
GPRI Bankruptcy Case. See Consolidated Financial Statements and Notes
thereto."
(d) For information on specific pro forma adjustments resulting from the
reorganization, see "Unaudited Pro Forma Condensed Consolidated Financial
Information."
(e) The weighted average number of common shares outstanding and net income
per common share for the Predecessor Company have not been presented
because, due to the Reorganization and implementation of fresh start
reporting, they are not comparable to subsequent periods.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1995 of the Company is based on the
consolidated financial statements of the Company included elsewhere in this
Prospectus. The unaudited pro forma condensed consolidated statement of
operations has been prepared assuming that the Effective Date of the Plan of
Reorganization had occurred on January 1, 1995. The unaudited pro forma
condensed consolidated statement of operations of the Company does not reflect
the acquisition of the Silver Hawk Casino or the commencement of construction
of the Parking Garage.
The unaudited pro forma condensed statement of operations of the Company
and accompanying notes should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in this
Prospectus. The unaudited pro forma condensed consolidated statement of
operations is being presented for information purposes only and does not
purport to represent what the Company's consolidated results of operations
would actually have been if the Effective Date of the Plan of Reorganization
had occurred on January 1, 1995 or to project the Company's results of
operations at any future date.
COLORADO GAMING & ENTERTAINMENT CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(In thousands)
Year Ended Year Ended
December December 31,
31, 1995 Reorganization Fresh Start 1995
(Historical) Adjustments Adjustments (Pro Forma)
Revenues, net . . . . $47,428 $ 47,428
_______ ________
Operating Expenses:
Casino . . . . . . . 13,087 13,087
Gaming taxes . . . . 8,277 8,277
Food and beverage . 3,173 3,173
Casino general &
administrative . . 3,223 3,223
Corporate general &
administrative . . . 6,470 6,470
Marketing . . . . . 5,806 5,806
Depreciation and
amortization . . . . 4,771 1,313(5) 6,084
Impairment assets and
predevelopment
expense . . . . . 11,347 11,347
Reorganization items 17,910 (17,910)(1) --
______ ______
Total operating
expenses . . . . 74,064 57,467
_______ _______
Operating loss . . . (26,636) (10,039)
Interest expense . . (18,664) 11,933 (2) (6,731)
Interest income . . . 361 (311)(3) 50
Equity in loss -
unconsolidated
subsidiary (GPRI) . (70,277) 70,277 (4) --
_______ _______
Loss before income
taxes . . . . . . . (115,216) (16,720)
Provision for income
taxes . . . . . . . -- --
_______ _______
Net loss . . . . . .$(115,216) $(16,720)
_______ _______
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements
The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1995.
The unaudited pro forma condensed consolidated statement of operations reflects
the adjustments described under "- Pro Forma Adjustments" below, which are
based on the assumptions and preliminary estimates described therein, which are
subject to change. These statements do not purport to be indicative of the
results of operations of the Company for such periods, nor are they indicative
of future results. Furthermore, these unaudited pro forma condensed
consolidated statement of operations does not reflect anticipated changes
[which may occur as the result of activities before and] after the Effective
Date of the Plan of Reorganization and other matters.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the financial statements and the notes thereto
included in this Prospectus.
PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated statement of operations
reflects the following pro forma adjustments based on the assumptions described
below:
1). Elimination of one time non-recurring reorganization items.
2). Adjustment to interest expense to reflect the reorganized debt structure
of the Company.
3). This adjustment reflects the reduction of interest income recorded on
affiliate loans in the 1995 period.
4). Elimination of any charges from the disposed subsidiary (GPRI).
Fresh Start Adjustments
5). Recording of additional amortization charges on excess reorganization
value, based on a 18.5 year amortization period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company emerged from bankruptcy on the Effective Date. The Company
and its consolidated subsidiaries prior to the Effective Date are sometimes
referred to below and elsewhere in this Prospectus as the "Predecessor
Company."
Prior to the Effective Date, the Company, through its Colorado
Subsidiaries (as defined below), owned and operated the Bullwhackers Casinos
and the Surface Parking Lot in Colorado, and, through Grand Palais Riverboat,
Inc. ("GPRI"), operated a riverboat gaming facility on the Mississippi River
adjacent to downtown New Orleans and owned a 50% interest in River City Joint
Venture ("RCJV") which owned and leased certain shore facilities in New
Orleans, including approximately 53 acres of land. Additionally, RCJV provided
administrative services on behalf of its joint venture partners to support
their riverboat gaming operations. Both the Company's and its joint venture
partner's riverboat gaming facilities were operated under the name `River
City'. The Company's riverboat gaming facility commenced operations on
March 29, 1995, and due to substantial operating losses, stopped operations on
June 6, 1995. The Company's joint venture partner stopped riverboat gaming
operations on June 9, 1995.
Prior to the closure of its riverboat gaming operations, GPRI had incurred
substantial obligations, including construction costs, equipment purchases, and
trade payables, for which it had no funds available or financial ability to
pay. On July 26, 1995, three creditors of GPRI filed a Chapter 7 involuntary
bankruptcy petition against GPRI in the United States Bankruptcy Court for the
Eastern District of Louisiana. On July 27, 1995, GPRI's involuntary bankruptcy
case was converted into a voluntary Chapter 11 case (the "GPRI Bankruptcy
Case"). On March 29, 1996, a plan of reorganization (the "GPRI Plan") was
confirmed in the GPRI Bankruptcy Case. On May 3, 1996 as part of the Company's
overall restructuring, the Company's equity interest in GPRI was sold to Casino
America, Inc. pursuant to the GRPI Plan of Reorganization. Consideration,
consisting of cash, stock and notes, totaling approximately $59 million, was
given to GPRI creditors, including the Company's senior secured creditors.
Accordingly, the Company received no consideration from the sale of GPRI.
Concurrently with this stock sale, all claims against the Company related to
GPRI were released. This transaction had no financial statement impact on the
Company in the 1996 period, as the Company's investment in GPRI was reduced to
zero in the 1995 period.
As a result of GPRI's financial difficulties and subsequent bankruptcy
filing, the outstanding 11 Senior Secured Pay-In-Kind Notes due 2000 issued by
the Company (the "Old Notes") were declared in default in June 1995. After
reaching agreement on a debt restructuring with the holders of the Old Notes,
the Company and the Colorado Subsidiaries filed a voluntary Chapter 11 case in
the United States Bankruptcy Court for the District of Delaware (the "Hemmeter
Bankruptcy Cases") on November 7, 1995. The venue of the Hemmeter Bankruptcy
Cases was changed to the United States Bankruptcy Court for the Eastern
District of Louisiana on December 27, 1995. The Plan of Reorganization of the
Company and its Colorado Subsidiaries was confirmed on April 8, 1996 and became
effective on June 7, 1996. The Company and the Colorado Subsidiaries continued
their business operations as debtors-in-possession under the supervision of the
Bankruptcy Court from the date their bankruptcy petitions were filed.
The Company's Reorganization became effective on June 7, 1996, the
Effective Date. Pursuant to the Reorganization, the following events occurred:
- $176 million of senior secured debt was canceled and $50 million in
new debt, consisting of the Notes, was issued.
- All outstanding common stock and warrants were canceled and 5 million
shares of new common stock was issued on a pro rata basis to the
holders of the Old Notes and Resort Income Investors ("RII").
- Certain unsecured liabilities totaling approximately $1.2 million
were canceled.
- The Company changed its name to Colorado Gaming & Entertainment Co.
Also on the Effective Date, the Company adopted fresh start reporting in
accordance with SOP 90-7 resulting in adjustment of the Company's common
stockholder equity and the carrying values of assets and liabilities.
Accordingly, the Company's post-Reorganization balance sheets and statements of
operations are not prepared on a consistent basis of accounting with its pre-
Reorganization balance sheets and statements of operations, a substantial
amount of pre-bankruptcy liabilities of the Company were converted to equity or
otherwise discharged and significant adjustments were made to reflect the
resolution of certain liabilities.
Because of the Hemmeter Bankruptcy Cases and the elimination of GPRI's
operations, no measure of comparability can be drawn from past results in order
to measure those that may occur in the future. Among the uncertainties which
have affected the Company's operations in the past and might adversely impact
the Company's future operations are (i) general economic conditions, especially
in the Denver, Colorado, metropolitan area, (ii) the intensely competitive
nature of the Colorado gaming industry, (iii) the entry into the Black Hawk and
Central City gaming markets of licensees with substantially greater economic
resources and gaming experience than the Company, (iv) changes in the laws
governing gaming operations, and (v) the possibility of increased taxes and
other regulatory burdens on the Company's operations.
IMPACT OF THE PLAN OF REORGANIZATION ON RESULTS OF OPERATIONS
Upon the Company's emergence from bankruptcy on the Effective Date, the
Company's aggregated outstanding debt balance was reduced from $185.2 million
to approximately $56.6 million. The reduction in debt is expected to result in
a reduction in annual interest expense of approximately $12 million based on
the Company's weighted average interest rate on outstanding debt in 1995. The
Company obtained a credit facility with an unaffiliated lender to provide
working capital financing and financing for its expansion plans. See "-
Liquidity and Capital Resources." Interest on this facility, the amount of
which will depend on the amount borrowed by the Company, will increase the
Company's post-Effective Date interest expense. The Company also incurred
reorganization charges totaling $17.9 million in 1995 which are non-recurring
in nature. The Company's corporate general and administrative expense in 1995
was $6.5 million. In early 1995, the Company employed 27 corporate management
employees who provided operations, finance, design, development, legal and
aviation services to the Company. As part of the downsizing of the Company,
the Company employed five corporate management employees on the Effective Date.
The Company has also terminated its arrangement with an affiliate for use of a
corporate aircraft and has renegotiated its office lease to provide for more
favorable terms. The reductions resulting from these measures is expected to
allow the Company to reduce its corporate general and administrative expense by
approximately $4.0 million per year. Because of the divestiture of GPRI
through the GPRI Bankruptcy Case, the Company's operations will no longer be
burdened with the loss on GPRI's New Orleans operations, which totaled $71.7
million in 1995.
The adoption of fresh start accounting will result in increased
amortization charges of approximately $1.0 million annually as a result of
recording $18.5 million of excess reorganization value.
Since its inception, the Company has generated significant net operating
loss carryforwards for tax purposes, which, in the absence of the Company's
bankruptcy, would have been available to offset any taxable income earned in
the future. As a result of the consummation of the Plan of Reorganization, the
Company underwent a substantial change in ownership and incurred significant
forgiveness of indebtedness income. For tax purposes, the forgiveness of
indebtedness income and the ownership change will significantly limit or
eliminate the Company's net operating loss carryforwards and other tax
benefits. Additionally, while fresh start accounting requires the Company to
significantly increase the book basis of its assets, the tax bases of those
assets generally remain at their historical bases. Therefore, given the
potential limitation or elimination of the Company's net operating loss
carryforwards and the increased book depreciation and amortization charges, the
Company may have taxable income in the future, and, therefore, may be required
to pay income taxes, even though it may record a loss for financial reporting
purposes.
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1996 as Compared to the Six Months Ended June
30, 1995
The Company's net revenue decreased 2%, to $23.2 million for the six
months ended June 30, 1996, from $23.7 million for the six months ended June
30, 1995. The decrease in revenue is due to significant revenue declines at
the Company's Central City property, and unusually severe weather in the
central Colorado Rockies in January 1996. The Company's Black Hawk facility
has produced a 6% increase in revenues for the six months, despite the fact
Black Hawk's operations were negatively affected by the construction activities
relating to expansion of the parking lot which began April 1 and ended in early
June. The revenue gains in Black Hawk were offset by significant revenue
declines at the Company's Central City property due to a continued competitive
market. The Central City market, which was relatively flat year to year,
continues to struggle to compete with Black Hawk, which continues to offer
better access and parking convenience. The Company's facility in Central City
has not been able to compete effectively with certain other competitors which
offer substantially more amenities in terms of on-site parking and hotel rooms.
The Silver Hawk Casino, located in Black Hawk adjacent to the Company's
expanded parking lot, opened for business on June 26, 1996 and contributed
approximately $164,000 in net revenue for the five days in June. The initial
results for June and the month of July exceeded management's expectations,
however, it is premature to estimate whether these results will continue.
Expenses directly related to casino operations, including casino expense,
gaming taxes and food and beverage expense decreased 5% to $12.0 million for
the six months ended June 30, 1996, as compared to $12.6 million for the six
months ended June 30, 1995. The decrease in expenses is due to certain labor
efficiencies and other cost saving programs implemented in late 1995 and early
1996.
Marketing expense remained constant at $2.8 million for both the six
months ended June 30, 1996 and 1995.
Casino general and administrative expenses decreased to $1.4 million for
the six months ended June 30, 1996, as compared to $1.8 million for the six
months ended June 30, 1995. The decrease primarily relates to reductions in
staffing at the Central City property and decreased insurance costs.
Corporate expense was reduced to $1 million for the six months ended June
30, 1996, as compared to $4.2 million for the six months ended June 30, 1995.
These reductions included the elimination of most corporate positions,
combining corporate offices with the Colorado Casinos offices and terminating
the use and subsidy of a corporate aircraft, all beginning in the second
quarter of 1995.
Depreciation and amortization expense decreased to $2.3 million for the
six months ended June 30, 1996 as compared to $2.4 million for the six months
ended June 30, 1995. Due to the increased book basis of the Company's assets
as a result of adopting fresh start accounting, depreciation and amortization
charges going forward will be substantially greater.
The Company incurred $388,000 in pre-opening expense for the six months
ended June 30, 1996 related to its Silver Hawk Casino which opened on June 26,
1996.
Reorganization and other impairment charges totaled $2.3 million for the
six months ended June 30, 1996, as compared to $5.6 million for the six months
ended June 30, 1995. Reorganization expenses are costs directly related to the
Company's Reorganization.
Operating Income. Income from operations increased to $908,000 for six
months ended June 30, 1996, as compared to a $5.7 million loss for the six
months ended June 30, 1995. The increase in operating income is primarily
attributable to the $5.6 million in one-time reorganization and other
impairment charges incurred in the 1995 period, and a reduction of corporate
expense from the 1995 period.
Interest expense totaled $982,000 for the six months ended June 30, 1996,
as compared to $10 million for the six months ended June 30, 1995. The Company
did not record any interest expense during the reorganization period on its
debt obligations in default. On a pro forma basis, based on the reorganized
capital structure interest for the second quarter would have been approximately
$3.3 million.
For the Year Ended December 31, 1995 as Compared to the Year Ended
December 31, 1994.
Although GPRI's results of operations were consolidated with the results
of operations of the Company and its other wholly owned subsidiaries for the
Company's fiscal year ended December 31, 1994 and were not consolidated for the
Company's fiscal year ended December 31, 1995, GPRI's only operating item in
1994 was the preopening expense of $2.6 million discussed below. Therefore,
with the exception of this item, the Company's 1995 results of operations which
do not include GPRI are comparable to the Company's 1994 results of operations
which do include GPRI.
The Company's net revenue increased to $47.4 million in 1995 as compared
with $45.5 million in 1994, representing a 4% increase in net revenues. The
growth is primarily attributable to increased revenues at Bullwhackers Black
Hawk resulting from the fact that Bullwhackers Black Hawk had the benefit of
the Surface Parking Lot, which opened in April 1994, for all of 1995, as
opposed to eight months during 1994, and the fact of the overall market growth
in Black Hawk of 14% in 1995. The revenue growth at Bullwhackers Black Hawk
was offset by a slight decrease in Bullwhackers Central City gross revenues.
Expenses directly related to the casinos, including casino expense, gaming
taxes and food and beverage expense decreased by 3% to an aggregate of $24.5
million for 1995 as compared to an aggregate $25.3 million for 1994. Casino
expense was 52% of net revenue at the Bullwhackers Casinos for 1995 as compared
56% of net revenue at the Bullwhackers Casinos for 1994. Casino expense
consists of all direct costs of casino operations, and includes salaries, wages
and benefits expense.
General and administrative expense decreased to $9.7 million for 1995 as
compared to $11.4 million for 1994, representing a 15% decrease. The decrease
is due to the Company's reduced corporate group during the second half of 1995.
During the second quarter of 1995, the Company began to implement significant
cost reductions at the corporate level as part of the Company's reorganization.
Most corporate positions were eliminated, administrative offices were combined
with the Colorado Casinos, and the use and subsidy of a corporate airplane was
terminated.
Marketing expense increased to $5.8 million for 1995 as compared to $3.8
million for 1994. The increase primarily relates to the increased promotional
costs due to increased business volume and the competitive nature of the
market.
Depreciation and amortization expense increased to $4.7 million for 1995
as compared to $4.3 million for 1994, representing a 9% increase. The increase
primarily reflects a full year of depreciation on the improvements at the
Surface Parking Lot in 1995.
There were no pre-opening costs for 1995 as compared to $2.6 million in
pre-opening costs for 1994. Pre-opening costs in 1994 consisted of
expenditures incurred to prepare the New Orleans riverboat gaming facility for
opening.
Predevelopment expense decreased to $402,000 in 1995, as compared to $3.9
million in 1994. Predevelopment expense consists of costs incurred during the
investigation of potential new gaming venues throughout North America,
including legal, consulting and design costs, political contributions and
travel expenses. The Company substantially reduced its predevelopment activity
in early 1995 due to the Company's lack of financial resources. The Company is
not currently engaged in any predevelopment activities and has focused its
expansion efforts on the Black Hawk market in the immediate future.
Impairment of asset charges were $10.9 million for 1995 as compared to
$6.9 million for 1994. In 1995, the impairment charges resulted primarily from
approximately $6.4 million of affiliate company receivables determined to be
uncollectible, $2.7 million of capitalized interest related to construction of
the Riverboat Project and $1.5 million of capitalized offering costs which were
written-off once certain initial public offering and debt registration efforts
were abandoned.
Reorganization expense in 1995 totaled approximately $17.9 million as
compared to none in 1994. Reorganization expenses are costs directly related
to the Company's Chapter 11 reorganization and consist primarily of
professional fees and the write-off of unamortized debt placement costs and
debt discount.
Operating Income. The loss from operations increased to $26.6 million for
1995 as compared to $13.0 million for 1994. The New Orleans operations
accounted for none and $2.6 million of this loss in 1995 and 1994,
respectively. In 1995, reorganization, impairment and other necessary charges
totaled approximately $29.3 million. The Bullwhackers Casinos had operating
income of $9.7 million for 1995 as compared to $8.3 million for 1994. This
increase primarily reflects the growth in the Colorado market and the impact of
the Surface Parking Lot on the Bullwhackers Black Hawk operations.
Interest expense totaled $18.7 million for 1995 as compared to $18.8
million for 1994. The Company ceased accruing interest on the Old Notes and on
certain of its Bullwhackers Casino equipment financings as of November 7, 1995
because of the Company's bankruptcy filing. As a result of the decrease in the
Company's debt following the Effective Date, the Company anticipates that its
interest expense will be substantially reduced in the future.
The Company has made no provision for income taxes in 1995 or since its
inception because the Company never generated taxable income. The Company has
reserved the full amount of its net deferred tax asset (primarily net operating
loss carry forwards) because future taxable income, if any, is uncertain. The
reorganization of the Company on the Effective Date may have substantial tax
consequences to the Company.
For the Year Ended December 31, 1994 as Compared to the Year Ended
December 31, 1993.
Net revenues for 1994 were $45.5 million, an increase of 18% over the
$38.5 million of net revenues for 1993. The increase in revenue is due
primarily to the completion of the Surface Parking Lot in the spring of 1994
and an expanded gaming market in Black Hawk.
Expenses directly related to the casinos, including casino expense, gaming
taxes and food and beverage expense increased to an aggregate of $25.3 million
for 1994 as compared to $19.7 million for 1993. The increase in casino
expenses is due primarily to increased staffing as a result of greater activity
at Bullwhackers Black Hawk.
General and administrative expense increased to $11.4 million for 1994 as
compared to $7.7 million for 1993. These expenses include the cost of support
services such as finance, marketing, and administrative staff. The increased
expense for 1994 is due to costs totaling $8.1 million incurred in 1994
associated with the creation of a corporate group and related staff, which were
added beginning in January 1994. The corporate group was involved with
strategic planning and administration, the development of the Company's
Louisiana operations and the pursuit and development of gaming in other venues.
The corporate group put in place in 1994 was designed to manage several
operating companies in addition to the Colorado Subsidiaries and to pursue and
develop opportunities in new venues.
Marketing expense decreased to $3.8 million for 1994 as compared to $4.0
million for 1993.
Depreciation and amortization increased to $4.3 million for 1994 as
compared to $3.9 million for 1993. The increase is related to depreciation of
the improvements at the Surface Parking Lot which was completed in April 1994.
Pre-opening expense totaled $2.6 million for 1994 as compared to none in
1993. Pre-opening costs consist of expenditures incurred to prepare for the
opening of the casinos and include labor costs, certain consulting, marketing
and other direct costs. The pre-opening expense incurred in 1994 relates to
costs associated with the Company's New Orleans riverboat gaming facility.
In 1994, the Company recorded predevelopment expense of $3.9 million as
compared to none in 1993. This amount related to costs incurred during
investigation of potential new gaming venues which was initially capitalized as
investment in development projects. These costs are expended when a project is
no longer deemed viable. As a result of various gaming initiatives which were
not adopted by voters in potential new gaming venues, unsuccessful gaming
legislation proposed in potential new venues and municipalities which selected
gaming operators other than the Company, all such costs were expended in 1994.
Beginning in 1995, costs related to the investigation of new venue development
projects were expended as incurred. Once management has determined a new venue
project has a high probability of success, commercial development costs
incurred will be capitalized.
In September 1994, the Company entered into an agreement to acquire a 25%
equity interest in Promociones e Inversiones de Guerrero S.A. de C.V.
("PRIGSA"), a Mexican gaming company operating a sports book and jai alai
Erenton. The Company contributed $5.9 million to PRIGSA during 1994. The
contributions were made in the form of loans and, upon approval by the Mexican
government, were convertible into common stock. The results of PRIGSA's
operations upon opening in the fall of 1994 were substantially below
expectations, and, as a result, PRIGSA suffered significant operating losses
and has significant liabilities which are senior to the Company's loans to
PRIGSA. As of December 31, 1994, the Company wrote-off its investment in
PRIGSA for a total charge to earnings of $5.9 million. Although Mexico is
considering legalizing casino-style gaming, even if this occurred and PRIGSA's
gaming operations may become viable, the Company believes that any recovery on
its PRIGSA investment would be speculative
In 1994, the Company established a reserve of $1 million for certain
affiliate receivables that management believed might not be collectable. The
loss is included in impairment of investments as of December 31, 1994 in the
accompanying consolidated financial statements of the Company for 1994. See
Note 11 to the Company's 1994 Consolidated Financial Statements.
Interest expense increased to $18.8 million, net of $2.1 million of
interest costs capitalized for construction projects, in 1994 as compared to
$7.0 million for 1993. The increase in interest costs relates to the interest
on the Old Notes which were issued during December 1993. Interest expense of
$4.8 million in 1993 related to certain loans provided by RII which were repaid
out of the proceeds of the Old Notes.
The Company had a net loss of $32.1 million for 1994 and accordingly
recorded no provision for income taxes. The loss for tax reporting purposes
was different than the net loss for financial reporting purposes due to
differences between the book and tax basis of the Company's assets. In 1994,
the Company booked a valuation allowance to offset the net deferred tax asset
of approximately $16.0 million arising from differences between the book and
tax basis of the Company's assets, liabilities and net operating loss
carryforwards, because future taxable income was uncertain.
LIQUIDITY AND CAPITAL RESOURCES
On the Effective Date of the Company's Plan of Reorganization, June 7,
1996, the Company's outstanding Old Notes totaling $174 million, and certain
other notes payable to RII totaling $2 million, were canceled and $50 million
in Notes were issued on a pro rata basis to the holders of the Old Notes and
the RII notes. The Notes are secured by substantially all the assets of the
Company and require semi-annual interest payments commencing on December 1,
1996. On the first two interest payment dates, December 1, 1996 and June 1,
1997, interest on the Notes may, at the Company's option, be paid by issuing
additional notes in lieu of cash interest payments. As a result, the Company
will have the option of deferring approximately $6 million in new interest
payments until the Notes are due in 2003.
Also on the Effective Date, the Company closed on a credit facility (the
"Credit Facility") with Foothill Capital Corporation. The Credit Facility
provides for loans up to $12.5 million in the form of several sub facilities
including a construction line of $5 million, an equipment financing line of $5
million and a revolving line for up to $3.5 million. At no point may the
aggregate borrowings exceed $12.5 million. Borrowings under the Credit
Facility are subject to a 1% financing fee and accrue interest at prime plus
2.375%. The loans have varying terms, ranging from three to five years from
the date funds are borrowed. The Credit Facility is secured by first liens on
substantially all the Company's assets and are senior, in terms of lien rights,
to the Notes.
In April 1996, the Company purchased the Silver Hawk Casino, which was not
operating at the time, for $2.7 million, of which $900,000 was borrowed under
the DIP Facility. The $1.8 million note payable to the seller accrued interest
at 9.5% per annum, and provided for monthly principal and interest payments on
a 20 year amortization schedule. The seller of the Silver Hawk Casino is an
elected official of Black Hawk. A statute in Colorado prohibits an elected
official from having an "interest" in a gaming license. To avoid any potential
regulatory interpretation that the seller would have an "interest" in the
Silver Hawk Casino gaming license, thereby detrimentally affecting the
Company's ability to obtain the gaming license, the Company retired the
seller's note from available cash on June 18, 1996.
Certain other equipment financing, with a principal balance totaling $3.9
million, was retired prior to and on the Effective Date in accordance with the
Reorganization for $3.1 million (realizing an $800,000 discount) with proceeds
from the DIP Facility and Credit Facility. This equipment refinancing , the
Silver Hawk Casino down payment, accrued interest and certain borrowing
expenses, altogether totaling approximately $4.3 million, were replaced or
borrowed on the Effective Date from the Credit Facility.
The Company opened the Silver Hawk Casino on June 26, 1996. The Silver
Hawk Casino had been closed since 1993. Prior to opening, the Company
refurbished the interior, outfitted the Silver Hawk Casino with equipment
(including slot machines) and incurred certain other pre-opening expenses. As
of June 30, the vast majority of these costs, totaling approximately $2.0
million, were unpaid. The Company paid for these costs in July by financing
$1.1 million in slot machines from funds available under the Credit Facility
and paid the remaining costs from available cash.
The excavation of the Company's surface parking lot in Black Hawk
commenced on April 1, 1996 and concluded on June 7, 1996. Upon completion of
the extensive excavation work, which included the excavation of a substantial
portion of the mountain located on the back part of the 3.25 acre site, and the
subsequent repaving of the surface parking lot, capacity of the surface parking
lot was increased from 260 cars to approximately 400 cars, a 50% increase in
capacity. The Company is analyzing whether to construct the parking garage
given the fact that it has achieved 80% of the desired parking capacity for
only a fraction of the total capital cost anticipated to be spent on the
parking garage. The Company is also considering the benefit of avoiding the
business disruption that would occur during the parking garage construction
project. The Company has concluded that it will indefinitely delay the
construction of the parking garage as it continues to re-evaluate the long-term
utilization of the site pending market conditions.
During the Reorganization, the Company incurred substantial bankruptcy
related expenses including the expenses of attorney's, accountants, and
financial advisors. The Company anticipates the total unpaid billings to such
professionals are approximately $2.9 million, reflected in accounts payable in
the accompanying balance sheet as of June 30, 1996. The Company made
substantially all of these payments in the third quarter from available cash.
Subsequent to the end of the second quarter, the Company entered into an
agreement with New Horizon Kids Quest III, Inc. ("Kids Quest"), a provider of
childcare to the casino industry. The agreement provides for Kids Quest to
operate a licensed day care facility adjacent to Bullwhackers Black Hawk. Kids
Quest would be solely responsible for the day-to-day operations of the day care
facility. The Company would receive a percentage of revenues from the Kids
Quest operations. The Company will construct a day care facility for use by
Kids Quest. However, construction of the facility is subject to reaching
agreement with Kids Quest on certain issues and obtaining necessary permits and
financing, and no assurances can be given that the necessary agreements will be
reached or the necessary permits or financing obtained, or if reached or
obtained, on satisfactory terms. The preliminary cost estimate for the day
care facility is approximately $1.1 million, although the actual costs could be
higher.
The Company estimates that the ongoing capital expenditures necessary to
keep its casinos competitive are approximately $2.5 million per year. As part
of this expenditure program, the Company has upgraded most of its slot machines
by installing bill validators or purchasing new slot machines with bill
validators. The Company anticipates paying for its capital expenditures from
cash flow from operations or loans under the Credit Facility.
The Company believes that the Credit Facility and its operating cash flows
will provide sufficient liquidity and capital resources for the Company's
operations. However, there is no assurance the Company's estimate of its need
for liquidity and capital resources is accurate or that new business
developments or other unforeseen events will not occur which will increase
those needs. Although no additional financings are contemplated at this time,
the Company may seek additional debt or equity financing if necessary. There
can be no assurance that additional financing will be available, or if
available, will be on terms favorable to the Company. Additionally, debt or
equity financing may require consent from the holders of the Notes and the
lender under the Credit Facility.
BUSINESS
GENERAL
The Company develops, owns and operates gaming and related entertainment
facilities. The Company owns and operates, through subsidiaries, Bullwhackers
Black Hawk and Bullwhackers Central City, two of the largest casinos in terms
of number of slot machines in the historic mining towns of Black Hawk and
Central City, Colorado, respectively. In addition, the Company owns and
operates, through a subsidiary, a third gaming facility, the Silver Hawk
Casino, in Black Hawk, which opened on June 26, 1996. In addition, through a
subsidiary, the Company owns the approximately 400-space Surface Parking Lot,
which is located directly between, and used by, Bullwhackers Black Hawk and the
Silver Hawk Casino.
Colorado law currently permits limited stakes gaming (with a maximum
single bet of $5.00) in three historic mining towns: Black Hawk and Central
City, adjacent towns located approximately 35 miles from Denver, and Cripple
Creek, located approximately 40 miles from Colorado Springs and 90 miles from
Denver. Gaming operations also exist on two Native American reservations in
Southwest Colorado. Colorado law only permits casinos to offer slot machines
and the table games of blackjack and poker.
As a result of the financial difficulties of a riverboat gaming project
undertaken by a wholly-owned subsidiary of the Company in New Orleans,
Louisiana (the "Riverboat Project"), the Company, BWBH, BWCC and Millsite
sought protection under Chapter 11 of the United States Bankruptcy Code on
November 7, 1995. The first Amended Joint Plan of Reorganization (the "Plan of
Reorganization") of the Company, BWBH, BWCC and Millsite was confirmed on April
8, 1996 and became effective on June 7, 1996 (the "Effective Date"). As a
result, among other things, the Company has significantly reduced its
consolidated debt and no longer has any interest in the Riverboat Project. See
"Legal Proceedings Background of Bankruptcy; Plan of Reorganization."
THE COLORADO CASINOS
BULLWHACKERS BLACK HAWK. Bullwhackers Black Hawk opened on July 17, 1992
and is currently one of the largest gaming facilities, in terms of number of
slot machines, in Black Hawk. It is located on a prime site at the town's main
intersection of Colorado State Highway 119 (the primary access road to
Interstate 70, which leads to Denver) and Gregory Street (which connects Black
Hawk to Central City). Bullwhackers Black Hawk is housed in a 36,000 square
foot facility which contains approximately 12,000 square feet of gaming space
on four levels with the main entry on the second level. The casino currently
has approximately 600 slot machines, 8 black jack tables and 7 poker tables.
The facility has one bar on each level, a 176-seat full service restaurant and
office space. Bullwhackers Black Hawk utilizes a Victorian theme in its
interior design, featuring a winding grand staircase and a glass-enclosed
elevator connecting the various levels of the facility.
The Company recently entered into an agreement with Kids Quest under which
Kids Quest will operate a licensed day care facility adjacent to Bullwhackers
Black Hawk. Kids Quest would be solely responsible for the day-to-day
operations of the day care facility. The Company would receive a percentage of
revenues from the Kids Quest operation. The Company will construct a day care
facility for use by Kids Quest. However, construction of the facility is
subject to reaching agreement with Kids Quest on certain issues and obtaining
necessary permits and financing, and no assurances can be given that the
necessary agreements will be reached or the necessary permits or financing
obtained, or, if reached or obtained, on satisfactory terms. The preliminary
cost estimate for the day care facility is approximately $1.1 million, although
the actual costs could be higher. The Company believes the day care facility,
if constructed and opened, will give it a competitive advantage with other
casinos that do not have such a facility. The Company believes that no other
casinos in the Black Hawk-Central City market currently have, or have announced
plans to build, a day care facility.
BULLWHACKERS CENTRAL CITY. Bullwhackers Central City opened on June 15,
1992 and is currently one of the largest gaming facilities, in terms of number
of slot machines, in Central City. It is located on a prime site at one of the
town's two main intersections, and is adjacent to a public parking facility and
two of Central City's other large casinos. This 31,000 square foot facility
contains approximately 8,750 square feet of gaming space on three levels with
the main entry to the facility on the second level. Bullwhackers Central City
currently has approximately 400 slot machines and 4 black jack tables. The
facility has one bar on each level, a 126-seat full service restaurant, a
retail shop and office space. Bullwhackers Central City also utilizes a
Victorian theme in its interior design.
The Company believes that proximity to parking is extremely important to
Central City casinos. However, except for the largest casino in Central City,
none of the casinos currently operating in Central City offer onsite parking
for more than 50 cars immediately adjacent to their facilities. There are
several public parking lots in Central City offering parking for a total of
approximately 550 cars, including a 200-space public lot adjacent to
Bullwhackers Central City. To alleviate the difficulties associated with a
lack of adequate parking, the Company has recently implemented several busing
programs in conjunction with other Central City casino operators, which offer
cash promotions and other incentives designed to enhance incremental patron
play, particularly during off-peak periods.
THE SILVER HAWK CASINO. The Silver Hawk Casino is an approximately 12,000
square foot four-story building constructed in 1993, and was operated as a
casino by an unaffiliated third party for less than 90 days in 1993 before it
was closed. The Company purchased the Silver Hawk Casino facility on April 12,
1996. The Company completed minor interior remodeling, installed approximately
230 slot machines and 4 table games and reopened the facility on June 26, 1996.
The purchase price for the Silver Hawk land and building was $2.7 million,
of which $900,000 was paid in cash and the balance was financed by the seller
and payable pursuant to a promissory note secured by a first deed of trust on
the facility. The initial cash portion of the purchase price was financed
through borrowings under the DIP Facility, later refinanced through the Credit
Facility. The seller is an elected official of Black Hawk. A statute in
Colorado prohibits an elected official from having an interest in a gaming
license. To avoid any potential regulatory interpretation that the seller
would have an interest in the Silver Hawk Casino gaming license, thereby
detrimentally affecting the Company's ability to obtain the gaming license, the
Company paid in full the outstanding balance owing the seller with available
cash on June 18, 1996.
SURFACE PARKING LOT. The Company owns the approximately 3.25-acre Surface
Parking Lot site located between Bullwhackers Black Hawk and the Silver Hawk
Casino. The Company believes that proximity to parking is extremely important
in Black Hawk. The Company believes that onsite parking is currently
inadequate for most Black Hawk casinos. Although the town has developed an
approximately 3,000-space public parking facility which serves all of the Black
Hawk casinos by shuttle service, the location of, and access to, the municipal
parking facility are generally considered to be inadequate by most casino
patrons. The Company believes that the few gaming facilities that offer
substantial parking at or close to the facility generate higher revenues per
gaming device than gaming facilities that do not offer adequate parking. The
Company believes that the Surface Parking Lot gives Bullwhackers Black Hawk and
the Silver Hawk Casino a competitive advantage over casinos in Black Hawk that
offer fewer parking spaces or less convenient parking.
Because of the importance of convenient close-in parking to maximizing
casino revenue, in April 1994 the Company completed development of the Surface
Parking Lot site into a paved and lighted surface parking facility staffed for
valet service with a capacity or approximately 260 cars. Subsequently, the
Company announced plans to construct in phases an approximately 500-space
parking garage on the Surface Parking Lot, for which it previously received the
requisite local zoning approvals. The parking garage was expected to cost
approximately $6 million. In connection with the readying the surface parking
lot for construction, the Company completed environmental remediation and
excavation work, at a cost of approximately $1.3 million.
Upon completion of the extensive excavation work, which included the
excavation of a substantial portion of the mountain located on the back part of
the 3.25 acre site, and the subsequent repaving of the Surface Parking Lot,
capacity of the Surface Parking Lot unexpectedly increased from 260 cars to
approximately 400 cars, a 50% increase. Thus, the Company analyzed whether to
construct the parking garage given the fact that it had achieved 80% of the
desired parking capacity for only a fraction of the total capital cost
anticipated to be spent on the parking garage. The Company also considered the
benefit of avoiding the attendant business disruption that would occur during
the parking garage construction project. The Company has concluded that it
will indefinitely delay the construction of the parking garage as it continues
to re-evaluate the long-term utilization of the site pending market conditions.
OTHER. Although the Company intends to focus on its existing operations,
it continues to evaluate new opportunities to apply existing management
expertise to additional gaming operations both in Colorado and in other
jurisdictions. The Company's ability to acquire additional gaming facilities
in Colorado without disposing of existing facilities is limited by the fact
that no entity may hold more than three Colorado gaming licenses or more than
three gaming tavern liquor licenses or more than one type of liquor license.
The Company currently holds, through its subsidiaries, the maximum number of
gaming and liquor licenses allowed in Colorado. See "Colorado Gaming
Regulations" and "Non-Gaming Regulation."
MARKET FOR THE COLORADO CASINOS
GENERAL. Black Hawk and Central City are historic mining towns made
famous during the gold rush of 1869. Prior to the advent of casino gaming in
October 1991, Black Hawk, and to a greater extent, Central City, were popular
tourist towns, especially in the summer months. The two towns offered mine
tours, antique and rock shops and live performances of opera in the Central
City Opera House. Casino gaming is currently the main draw to the towns and
gaming establishments have displaced many of the former tourist-related
businesses.
Customers for casinos in Black Hawk and Central City are primarily "day
trippers" from within a 100-mile radius of Black Hawk and Central City, which
includes the Denver metropolitan area. Approximately 1.6 million people live
in the Denver metropolitan area, and approximately two million people live
within a 50-mile radius, and approximately 2.8 million people live within a
100-mile radius, of Black Hawk and Central City. Black Hawk and Central City
are located approximately 35 miles west of Denver and approximately ten miles
from Interstate 70, the main east-west artery connecting Denver with many of
Colorado's premier ski resorts.
MARKETING STRATEGY. The Company targets customers in the Denver
metropolitan area. The Company seeks to attract customers to the Colorado
Casinos by: (i) offering first class facilities with comfortable and efficient
layouts; (ii) providing ample parking which is more convenient than that
provided by many of its competitors; (iii) promoting customer awareness through
marketing of the Bullwhackers name and theme; (iv) providing excellent customer
service with a motivated staff; (v) utilizing strategic busing programs;
(vi) offering customer promotions; (vii) providing desirable food products and
refreshments; and (viii) providing incentives to higher value repeat customers.
In particular, the Company has used extensive marketing programs to build
customer awareness, including television, radio, print and direct mail. The
Company believes that Bullwhackers enjoys among the highest name recognition
among all casinos located in Colorado, a fact which the Company attributes in
part to the success of its marketing campaigns. The Company has also developed
promotional offerings centered around the Bullwhackers theme of offering a fun,
exciting gaming atmosphere, including providing gift items and a cash-back
reward system based upon level of play through membership in the "Bullwhackers
Five Star Players Club". The Company also has instituted a popular busing
program known as the "Bullride." The Bullride operates at least four times per
day from Golden, a western Denver suburb, to and from Black Hawk and Central
City, and between the two towns, and carries an average of 2,500 patrons per
week.
The Company has upgraded most of its slot machines at the Colorado Casinos
by equipping them with bill validators, either by retrofitting existing slot
machines or replacing them with new slot machines with bill validators, as part
of its capital expenditure program pursuant to which it expects to spend
approximately $2.5 million per year. Bill validators allow patrons to use
paper currency rather than tokens or coins in slot machines. This capital
expenditure program is expected to increase the competitiveness of the Colorado
Casinos within their markets by increasing the convenience and therefore the
usage of the slot machines. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
COMPETITION
Competition in the Black Hawk and Central City gaming market, which forms
the primary gaming market in Colorado, is intense. Bullwhackers Central City
is located approximately one and one-half miles from Bullwhackers Black Hawk
and the Silver Hawk Casino is located adjacent to the Surface Parking Lot,
across the Surface Parking Lot from Bullwhackers Black Hawk. Due to their
proximity, the Colorado Casinos compete for some of the same target markets of
customers in the Denver metropolitan area. However, the Company believes that
its primary competition for the Colorado Casinos are other casinos operating in
Black Hawk and Central City, of which there approximately 33 as of July 31,
1996, and, secondarily, casinos operating in Cripple Creek, of which there
approximately 25 as of July 31, 1996. Recently, more experienced, nationally
recognized casino operators from other areas of the country have entered, or
announced plans to enter, the Colorado gaming market, including Harrah's,
Harvey's, ITT Sheraton, Colorado Central Station, and Fitzgerald's, many of
which have substantially greater financial and marketing resources than the
Company. Because Colorado does not limit the total number of gaming licenses
available for issuance in Colorado and there are no minimum facility size
requirements, the Company expects the number of gaming facilities and gaming
devices to continue increasing.
The Company believes that the primary competitive factors in the Black
Hawk-Central City market are location, availability and convenience of parking,
number of slot machines and gaming tables, types and pricing of amenities, name
recognition, and overall atmosphere. The Company believes it generally
competes favorably on these factors, although Bullwhackers Central City offers
less convenient parking than some of its competitors and the Silver Hawk
Casino, recently opened, is smaller and currently has less name recognition
than some of its direct competitors.
According to the Colorado Division of Gaming, there were 58 gaming
facilities operating in Colorado in July 1996, with a total of 12,644 slot
machines and 259 table games. Of these, 20 facilities, 5,175 slot machines and
112 table games were located in Black Hawk; 13 facilities, 3,441 slot machines
and 73 table games were located in Central City; and 25 facilities, 4,028 slot
machines and 74 table games were located in Cripple Creek. In July 1996, the
average daily adjusted gross proceeds (determined by deducting the amount paid
out to patrons from gross proceeds, and sometimes referred to as the casino's
"win") per slot machine was $117.71 in Black Hawk, $70.11 in Central City and
$77.69 in Cripple Creek. The cumulative win for slot machines in Black Hawk as
a market was $181 million in 1995 and $119 million for the first seven months
of 1996, compared with the cumulative win for slot machines in Central City as
a market of $86 million and $49 million, respectively.
The Company believes that since October 1991, approximately 12 casinos in
Black Hawk and 20 casinos in Central City have ceased operations. In addition,
several operators, including the Company, have reduced staffing and others have
closed temporarily or reduced their square footage and/or hours of operations.
The Company believes that the casinos that failed did so for a variety of
reasons, including inferior design, inconvenient parking, inadequate size,
inexperienced management and undercapitalization.
Various published reports detailing additional gaming projects have been
announced for Black Hawk. The announced projects include: Colorado Central
Station, an existing casino in Black Hawk, has announced both an expansion of
its existing casino and a new 22,000 square foot casino across the street from
its existing casino with 600 slot machines, a 120-room hotel and an 800-space
parking garage; Caesar's of Las Vegas, a subsidiary of ITT Sheraton, has
established a joint venture to build an approximately $80 million project with
600 - 700 slot machines, and 800 parking spaces; the Black Hawk Brewery has
shown drawings of a $23 million project, with 46,000 square feet of gaming
space containing 500-700 slot machines; the Gilpin Hotel has announced a joint
venture with Jacobs Entertainment from Cleveland for a new 35,000 square foot
casino with 52 hotel rooms, 250 parking spaces and 750-1,000 slot machines; the
Jazz Alley has announced an expansion to roughly 650 slot machines in a highly
themed casino to be known as Virginia City. In Central City, Harvey's Wagon
Wheel, currently the largest casino in Central City, has announced plans to
build a new parking garage. The majority of the Black Hawk projects are along
the southern end of Black Hawk at the first major intersection off of State
Highway 119, providing these projects with the initial opportunity to capture
visitors to Black Hawk and Central City from the Denver metropolitan area.
Bullwhackers Black Hawk and the Silver Hawk Casino, in contrast, are located at
the northern end of Black Hawk at the second major intersection off State
Highway 119. In addition, the Colorado Department of Transportation is
analyzing plans to potentially construct a third major intersection off State
Highway 119 in between the two current intersections. This additional
intersection, if constructed, would provide the casinos south of Bullwhackers
Black Hawk and the Silver Hawk Casino with another opportunity to capture
visitors to Black Hawk from the Denver metropolitan area before they reach
Bullwhackers Black Hawk and the Silver Hawk Casino, thereby potentially
reducing traffic flow and customer visitors to Bullwhackers Black Hawk and the
Silver Hawk Casino, as well as to casinos in Central City, including
Bullwhackers Central City.
While it is difficult to assess the development stage of each of the
announced projects and the likelihood of whether any or all of the announced
projects will eventually be built and at what size, it is reasonably likely
that at least some of the new competition may be completed and open to the
public by early 1998. In addition, as the Town of Black Hawk expands, both in
terms of gaming device capacity and market share, the Central City market tends
to contract. Therefore, should several of the announced competitive projects
open, the increased competition will adversely affect the Company's operations
in both Black Hawk and Central City and, accordingly, may have a material
adverse effect on the Company's consolidated results of operations and
financial position.
Several lobbying groups placed initiatives for additional Colorado limited
stakes gaming venues, including Denver, on the November 1992 statewide ballot.
Each of these initiatives was defeated by a wide margin, However, in November
1996 there will be an initiative on the statewide ballot to expand limited
stakes gaming to the city of Trinidad, approximately 125 miles south of
Colorado Springs, and similar initiatives, legislation or regulation could be
introduced in the future. The enactment of any initiatives, legislation, or
regulations legalizing gaming elsewhere in Colorado could, and if such
legalized gaming was closer to Denver would, have a material adverse effect on
the Company's consolidated results of operations or financial position.
In addition to competing with other gaming facilities in Colorado as
described above, the Company competes to a lesser degree, for both customers
and potential future gaming sites, with gaming facilities nationwide, including
casinos in Nevada and Atlantic City, many of which have substantially greater
financial resources and experience in the gaming business. The Company also
competes with other forms of gaming on both a local and national level,
including state-sponsored lotteries, charitable gaming and pari-mutuel
wagering, among others, and competes for entertainment dollars generally with
other forms of entertainment. The recent and continuing expansion of legalized
casino gaming to new jurisdictions throughout the United States may also affect
competitive conditions. Although the Company's focus is the Colorado gaming
market, it is considering gaming ventures in other locations that the Company
believes present favorable opportunities if its resources allow it to do so.
However, its ability to capitalize on such opportunities is expected to be
limited due to competition for such opportunities from more experienced and
financially stronger entities.
COLORADO GAMING REGULATIONS
The State of Colorado created the Colorado Division of Gaming within the
Department of Revenue to license, implement, regulate and supervise the conduct
of limited stakes gaming. The Director of the Division, under the supervision
of the Gaming Commission, has been granted broad power to ensure compliance
with Colorado law and regulations adopted thereunder (collectively, the
"Colorado Regulations"). The Director of the Division may inspect, without
notice, premises where gaming is being conducted; may seize, impound or remove
any gaming device; may examine and copy all of a licensee's records; may
investigate the background and conduct of licensees and their employees; and
may bring disciplinary actions against licensees and their employees. He may
also conduct detailed background checks of persons who loan money to or invest
money in a licensee.
It is illegal to operate a gaming facility without a license issued by the
Gaming Commission. The Gaming Commission is empowered to issue five types of
gaming and gaming-related-licenses. The licenses are revocable and non-
transferrable. The failure or inability of the Company, BWBW, BWCC, Silver
Hawk, or associated persons to maintain necessary gaming licenses will have a
material adverse effect on the operations of the Company.
The Gaming Commission closely regulates the suitability of persons owning
or seeking to renew an interest in a gaming license or permit, and the
suitability of a licensee or permittee can be adversely affected by persons
associated with the licensee or permittee. Additionally, any person or entity
having any direct interest in the Company or any casino directly or indirectly
owned by the Company may be subject to administrative action, including
personal history and background investigations. The actions of persons
associated with the Company and its management employees, over whom the Company
may have no control, could jeopardize any licenses held by the Company in
Colorado.
Bullwhackers Black Hawk, Bullwhackers Central City and the Silver Hawk
Casino were granted retailer/operator licenses concurrently with their
respective openings. These licenses are subject to continued satisfaction of
suitability requirements. The current licenses for the Bullwhackers Casinos
expire on December 2, 1996 and the license for the Silver Hawk expires on June
24, 1997. There can be no assurance that the Company will successfully renew
its licenses in a timely manner or at all.
All persons employed by the Company who are involved, directly or
indirectly, in gaming operations in Colorado also are required to obtain a
"key" license. Key licenses are issued to "key employees," which include any
executive, employee or agent of a licensee having the power to exercise a
significant influence over decisions concerning any part of the operations of a
licensee. At least one key license holder must be on the premises of each
Colorado Casino at all times. Messrs. Szapor, Mayer and Rabin, among others,
hold key licenses for the Company. All of the Company's directors are required
to obtain key licenses before serving as such. Messrs. Szapor and Wimer have
obtained their key licenses and the Company's other director nominees have
applied for their key licenses. There is no assurance that such director
nominees will meet applicable licensing criteria, or as to when, if at all,
such licenses will be will be issued. Accordingly, the Company is operating
with an interim board of directors consisting of Messrs. Szapor, Wimer, Mayer
and Rabin until such time as the remaining director nominees are able to obtain
their key licenses. See "Management Directors and Executive Officers."
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail/operator
gaming licenses in Colorado. The Company currently has three such licenses,
one each for Bullwhackers Black Hawk, Bullwhackers Central City and the Silver
Hawk Casino. Accordingly, any expansion opportunities that the Company may
have in Colorado are limited absent the disposition of one of the Colorado
Casinos. In addition, this limitation may affect the ability of certain
persons to own the Company's stock. Under the Colorado Regulations, the
definition of an "interest" in a licensee excludes ownership of less than 5% of
a publicly traded company. Pursuant to the Colorado Regulations, a licensee
that elects to register its common stock under Section 12(g) of the Exchange
Act is considered to be publicly traded. The Company registered its common
stock effective on the Effective Date and, accordingly, is treated as a
publicly traded company within the meaning of the Colorado Regulations. Any
owner of any interest in a Colorado licensee that is not publicly traded or a
5% or more interest in a publicly traded licensee may be precluded from owning
more than 5% of the Company's stock.
The Gaming Commission has ruled that a person does not have an interest in
a licensee for purposes of the multiple-license prohibition if: (i) such
person has less than a five percent (5%) interest in an institutional investor
which has an interest in a publicly traded licensee or publicly traded company
affiliated with a licensee (such as the Company); (ii) a person has a five
percent (5%) or more financial interest in an institutional investor, but the
institutional investor has less than a five percent (5%) interest in a publicly
traded licensee or publicly traded company affiliated with a licensee; (iii) an
institutional investor has less than a five percent (5%) financial interest in
a publicly traded licensee or publicly traded company affiliated with a
licensee; (iv) an institutional investor possesses securities in a fiduciary
capacity for another person, and does not exercise voting control over five
(5%) or more of the outstanding voting securities of a publicly traded licensee
or of a publicly traded company affiliated with a licensee; (v) a registered
broker or dealer retains possession of securities of a publicly traded licensee
or of a publicly traded company affiliated with a licensee for its customers in
street name or otherwise, and exercises voting rights for less than five
percent (5%) of the publicly traded licensee's voting securities or of a
publicly traded company affiliated with a licensee; (vi) a registered broker or
dealer acts as a market maker for the stock of a publicly traded licensee or of
a publicly traded company affiliated with a licensee and possesses a voting
interest in less than five percent (5%) of the stock of the publicly traded
licensee or of a publicly traded company affiliated with a licensee; (vii) an
underwriter is holding securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee as part of an underwriting
for no more than 90 days if it exercises voting rights of less than five
percent (5%) of the outstanding securities of a publicly traded licensee or of
a publicly traded company affiliated with a licensee; (viii) a stock
clearinghouse holds voting securities for third parties, if it exercises voting
rights with respect to less than five percent (5%) of the outstanding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee; or (ix) a person owns less than five percent (5%)
of the voting securities of the publicly traded licensee or publicly traded
company affiliated with a licensee. Hence, the Company's and its stockholders'
business opportunities in Colorado are limited to such interests that comply
with the statute and Gaming Commission's rule.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including but not limited to the Company and stockholders of the Company, may
be required to supply the Gaming Commission with substantial information,
including but not limited to, personal background and financial information,
source of funding information, a sworn statement that such person or entity is
not holding his interest for any other party, and fingerprints. Such
information, investigation and licensing as an "associated person" is
automatically required of all persons who directly or indirectly own 10% or
more of a direct or indirect legal, beneficial or voting interest in the
Colorado Casinos, through their ownership of the Company, as a publicly traded
licensee. Such persons (other than certain institutional investors discussed
below) must report their interest and apply to the Gaming Commission for a
finding of suitability within 45 days after acquiring such interest. Persons
directly or indirectly having an interest of between 5% and 9.99% in a publicly
held licensee must report their interest to the Gaming Commission within ten
days after acquiring their interest and may be required to provide additional
information and may be required to be found suitable by the Gaming Commission.
If certain kinds of institutional investors provide specified information to
the Gaming Commission, such investors, at the Gaming Commission's discretion,
may be permitted to own up to 14.99% of the Colorado Casinos, through their
ownership of the Company, before a finding of suitability will be required.
The Gaming Commission also has the right to request information from any
person, directly or indirectly interested in or employed by a licensee. An
application for licensure or a finding of suitability may be denied for any
reason deemed reasonable by the Gaming Commission or the Director of the
Division. All licensing and investigation fees must be paid by the person in
question. The associated person investigation fee currently is $48 per hour.
If the Gaming Commission determines that a person or entity is not
suitable to own a direct or indirect voting interest in the Company, the
Company may be sanctioned unless the person or entity disposes of its voting
interest. Sanctions may include the loss by any of the Colorado Casinos of
their licenses. In addition, the Colorado Regulations prohibit a licensee or
any affiliate of a licensee from paying dividends, interest or other
remuneration to any person found to be unsuitable, or recognizing the exercise
of any voting rights by any person found to be unsuitable. The Colorado
Regulations require an operating casino licensee to include in its corporate
charter provisions which permit the repurchase of the voting interests of any
person found to be unsuitable. The Company's Certificate of Incorporation
includes the required provisions. See "Description of Capital Stock
Description of Common Stock."
The Gaming Commission has the power to require the Company to suspend or
dismiss officers, directors and other key employees or sever relationships with
other persons who refuse to file appropriate applications or who are found to
be unsuitable to act in such capacities, and may have such power with respect
to any entity which is required to be found suitable under the Colorado
Regulations.
A person or entity may not sell, lease, purchase, convey, acquire or
pledge an interest in an entity licensed to conduct limited stakes gaming in
Colorado without the prior approval of the Gaming Commission, except for a less
than 5% interest in a publicly traded corporation.
The Gaming Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of (i) all persons licensed
pursuant to the Colorado Limited Gaming Act, (ii) all officers, directors and
stockholders of a licensed privately held corporation, (iii) all officers,
directors and stockholders holding either a five percent (5%) or greater
interest or a controlling interests in a licensed publicly traded corporation,
(iv) all general partners and all limited partners of a licensed partnership,
(v) all persons which have a relationship similar to that of an officer,
director or stockholder of a corporation (such as members and managers of a
limited liability company), (vi) all persons supplying financing or loaning
money to any licensee (such as the holders of the Notes) connected with the
establishment or operation of limited gaming, and (vii) all persons having a
contract, lease or ongoing financial or business arrangement with any licensee,
where such contract, lease or arrangement relates to limited gaming operations,
equipment, devices or premises.
In addition, under the Colorado Regulations, every person who is a party
to a "gaming contract" with an applicant for a license, or with a licensee,
upon the request of the Gaming Commission or the Director, promptly must
provide to the Gaming Commission or Director all information which may be
requested concerning financial history, financial holdings, real and personal
property ownership, interests in other companies, criminal history, personal
history and associations, character, reputation in the community, and all other
information which might be relevant to a determination whether a person would
be suitable to be licensed by the Gaming Commission. Failure to provide all
information requested constitutes sufficient grounds for the Director or the
Gaming Commission to require a licensee or applicant to terminate its "gaming
contract" (as defined below) with any person who failed to provide the
information requested. In addition, the Director or the Gaming Commission may
require changes in "gaming contracts" before an application is approved or
participation in the contract is allowed. A "gaming contract" is defined as an
agreement in which a person does business with or on the premises of a licensed
entity. Holders of the Notes will be considered parties to a gaming contract
and subject to potential review by the Gaming Commission or the Director.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Gaming Commission or the Director, as appropriate.
Specifically, the Gaming Commission and the Director must deny a license to any
applicant who (i) fails to prove by clear and convincing evidence that the
applicant is qualified; (ii) fails to provide information and documentation
requested; (iii) fails to reveal any fact material to qualification, or
supplies information which is untrue or misleading as to a material fact
pertaining to qualification; (iv) has been, or has any director, officer,
general partner, stockholder, limited partner or other person who has a
financial or equity interest in the applicant who has been, convicted of
certain crimes, including the service of a sentence upon conviction of a felony
in a correctional facility, city or county jail, or community correctional
facility or under the state board of parole or any probation department within
ten years prior to the date of the application, gambling-related offenses,
theft by deception or crimes involving fraud or misrepresentation, is under
current prosecution for such crimes (during the pendency of which license
determination may be deferred), is a career offender or a member of associate
of a career offender cartel, or is a professional gambler; or (v) has refused
to cooperate with any state or federal body investigating organized crime,
official corruption or gaming offenses.
If the Gaming Commission determines that a person or entity is unsuitable
to own interests in the Company, then the Company, and/or any of the Colorado
Casinos may be sanctioned, which may include the loss by the Company, and/or
any of the Colorado Casinos of their respective approvals and licenses.
The Gaming Commission does not require advance approval of a public
offering of securities, but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Gaming Commission may, in its discretion, require
additional information and prior approval of such public offering. The Company
may not sell any interest in any of the Colorado Casinos without the prior
approval of the Gaming Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change in
corporate position of a licensee and may have such authority with respect to
any entity which is required to be found suitable by the Gaming Commission.
The Gaming Commission has the power to require the Company and the Colorado
Casinos to suspend or dismiss managers, officers, directors and other key
employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in such
capacities, and may have such power with respect to any entity which is
required to be found suitable.
The Colorado Casinos may operate only between 8:00 a.m. and 2:00 a.m., and
may permit only individuals 21 years or older to gamble in the casino. Slot
machines, black jack and poker are the only permitted games, with a maximum
single bet of $5.00. The Colorado Casinos may not provide credit to gaming
patrons. The Colorado Regulations restrict the percentage of space a casino
may use for gaming to 50% of any floor and 35% of the overall square footage of
the building in which the casino is located. Effective October 1 of each year,
Colorado establishes the gross gaming revenue tax rate for the ensuing twelve
months. Under the Colorado Constitution, the rate can be increased to as much
as 40%. Colorado has both raised and lowered gaming tax rates since they were
initially set in 1991. Currently, the maximum gaming tax rate is 18%. These
regulations and taxes adversely affect the Colorado Casinos' ability to
generate revenues and operating profits. See "- Non-Gaming Regulation -
Taxation."
The Company believes that it is presently in material compliance with all
applicable gaming rules and regulations.
NON-GAMING REGULATION
LIQUOR REGULATION. The sale of alcoholic beverages is subject to
licensing, control and regulation by certain Colorado state and local agencies
(the "Liquor Agencies"). Subject to certain exceptions, all persons who
directly or indirectly own 5% or more of the Company must file applications
with and are subject to investigation by the Liquor Agencies. The Liquor
Agencies also may investigate persons who, directly or indirectly, loan money
to liquor licensees. All liquor licenses are renewable, are revocable and are
not transferable. The Liquor Agencies have broad powers to limit, condition,
suspend or revoke any liquor license. Any such disciplinary action could, and
any failure to renew or other revocation of any of its liquor licenses would,
have a material adverse effect upon the operations of the Company and the
Colorado Casinos.
Under Colorado law, it is a criminal violation for any person or entity
to own a direct or indirect interest in more than one type of alcoholic
beverage license or more than three gaming tavern liquor licenses. Each
Colorado Casino has a gaming tavern liquor license. Accordingly, the Company's
expansion opportunities in Colorado are limited by such licensing restriction.
Furthermore, no person that holds an interest in the Company may hold any
direct or indirect legal, equitable or voting interest in any other Colorado
alcoholic beverage licensee, and vice versa.
TAXATION. Gaming operators in Colorado are subject to state and local
taxes and fees in addition to ordinary federal and state income taxes. Black
Hawk and Central City have imposed annual license fees, currently $750 and
$1,265, respectively, for each gaming device installed in a casino. Colorado
currently levies an annual device fee of $75 for each gaming device installed
in a casino. In addition, Colorado has promulgated an annual gross gaming
revenue tax (gross gaming revenue being generally defined as the total amount
wagered less the total amount paid out in prizes) of 2% of the gross gaming
revenue up to and including $2 million, 8% of the gross gaming revenue above $2
million up to and including $4 million, 15% of gross gaming revenue above $4
million up to and including $5 million and 18% of gross gaming revenue in
excess of $5 million. Effective October 1 of each year, the Commission
establishes the gross gaming revenue tax rate for the ensuing 12 months. The
Gaming Commission is expected to consider increased taxes in the Fall of 1996.
See "Risk Factors-Taxation." Under the Colorado Constitution, the Commission
could increase this rate to as much as 40%. Pursuant to a more recent tax
limitation amendment to the Colorado Constitution, however, neither the state
nor any local government may increase a tax rate without an affirmative vote of
the people; therefore, there is some question as to whether the Gaming
Commission could constitutionally increase the state tax levied on gross gaming
revenues without such a vote. Any increase in the taxes or fees paid by the
Company, even if relatively small, may cause the Company's operations to be
unprofitable or otherwise may have a material adverse effect on the Company's
consolidated results of operations, financial position, and cash flows.
EMPLOYEES
The Company employs approximately 635 persons, including cashiers,
dealers, food and beverage service, facilities maintenance, accounting,
marketing and human resources personnel. Several of the Company's employees
hold key licenses in Colorado. See "-Colorado Gaming Regulations." No labor
unions currently represent any employees of the Company. A standard package of
employee benefits is provided to full-time employees. The Company believes
that its employee relations are satisfactory.
PROPERTIES
The Company owns, through wholly owned subsidiaries, the Colorado Casinos
and the Surface Parking Lot including, with the exception of Bullwhackers Black
Hawk, the land underlying the buildings. Under a current city ordinance which
imposes a fee on parking facilities which are not "on-site" to a casino, the
Company previously was required to pay the Town of Black Hawk $4 per day for
each space in the Surface Parking Lot. However, the Surface Parking Lot is on-
site to the Silver Hawk Casino, and the Company is no longer required to pay
such fee.
The Company leases the land underlying Bullwhackers Black Hawk pursuant to
a 23-year ground lease expiring in 2014. The terms of the ground lease require
base minimum payments for the calendar year 1996 of $150,000 per quarter. The
base minimum quarterly payments increase thereafter for each five-year period
for the balance of the lease term, up to a maximum of $195,000 per quarter.
Additional rent in the amount of 1.9% of Bullwhackers Black Hawk's adjusted
gross revenue is payable monthly in arrears throughout the term of the lease.
The lease contains a buy-out provision which allows the Company to buy the land
subject to the lease on or after November 1, 2001 at a price equal to nine
times the annual base minimum rent payments in effect when the buy-out is
exercised. See "Business The Colorado Casinos."
In January 1996, the Company entered into an amended sublease for
approximately 19,500 square feet of office space located in Denver, Colorado
which the Company occupies as its corporate offices. The sublease expires in
October 31, 1997 and provides for rent of approximately $7,500 per month.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to each individual who
is a director of the Company or is nominated to be a director of the Company
and each individual who is an executive officer of the Company:
Name Age Position(s)
____ ___ ___________
Stephen J. Szapor, Jr. 36 Chief Executive Officer,
President and Director
Alan L. Mayer 35 Senior Vice President, Chief Legal
Officer and Secretary
Richard J. Rabin 49 Senior Vice President of
Operations
Robert Stephens 28 Vice President of Finance
Franklin S. Wimer 60 Director
Steve Leonard 42 Director Nominee
Mark Van Hartesvelt 45 Director Nominee
Philip J. DiBerardino 54 Director Nominee
Messrs. Mayer and Rabin are serving as interim directors until Messrs. Leonard,
Van Hartesvelt and DiBerardino obtain their respective Colorado key gaming
licenses.
STEPHEN J. SZAPOR, JR. has served as President and Chief Executive Officer
of the Company since August 1995 and as a director since June 7, 1996, the
Effective Date. Mr. Szapor served as Executive Vice President and Chief
Financial Officer from March 1995 until August 1995. From July 1994 until
joining the Company, he served as the Chief Operating Officer and a member of
the board of directors of Sahara Gaming Corporation, and from June 1993 until
July 1994, he was the Executive Vice President/Chief Financial Officer of
Sahara Gaming Corporation. From October 1986 until June 1993, Mr. Szapor held
several executive positions with Hollywood Casino Corporation including
Assistant to the President and Vice President--Strategic Planning. Mr. Szapor
has also held financial and accounting positions with Merrill Lynch & Co. and
Arthur Andersen LLP. He holds a key license from the Gaming Commission and is
a Certified Public Accountant. Mr. Szapor's employment agreement with the
Company provides that he shall serve as President and Chief Executive Officer
and as a director during the term of his employment. See " Employment and
Consulting Agreements."
ALAN L. MAYER has served as Senior Vice President, Secretary and Chief
Legal Officer of the Company and its predecessors since September 1992 and as
an interim director since the Effective Date. From 1987 to 1992, Mr. Mayer was
associated with Isaacson, Rosenbaum, Woods & Levy in Denver, where he
specialized in real estate, land use planning, finance, corporate and gaming
law. Mr. Mayer is a member of the American Bar Association, the Colorado Bar
Association, the California Bar Association and the International Association
of Gaming Attorneys. He is licensed to practice law in California and
Colorado. He holds a key license from the Gaming Commission and is a member of
the Board of Directors of the Casino Owners Association of Colorado. See
" Employment and Consulting Agreements."
RICHARD RABIN has served as Senior Vice President of Operations of the
Company since March 1996 and as an interim director since the Effective Date.
Mr. Rabin served as Vice President, Finance & Administration of the Company
from August 1995 until March 1996. From 1994 until joining the Company, he
served as Chief Financial Officer of a riverboat gaming facility operated by
Sahara Gaming Corporation in Missouri and then as General Manager of a gaming
facility operated by Sahara Gaming Corporation in Nevada. From 1991 to 1994,
Mr. Rabin was Chief Financial Officer and Vice President and, beginning in
1993, also General Manager, of the Glory Hole Saloon and Gambling Hall in
Central City, Colorado. From 1985 until 1991, Mr. Rabin served in various
positions in the gaming industry in Reno, Nevada. Mr. Rabin holds a key
license from the Gaming Commission and is a Certified Public Accountant. See
" Employment and Consulting Agreements."
ROBERT J. STEPHENS has served as Vice President of Finance since September
1996. He served as Controller, Chief Accounting Officer and Treasurer of the
Company from August 1995 until September 1996. Previously, Mr. Stephens served
in various finance and accounting positions since joining the Company in May
1994. From 1990 to 1994 Mr. Stephens was associated with Arthur Andersen LLP.
Mr. Stephens is a Certified Public Accountant.
FRANKLIN S. WIMER has served as a director of the Company since July 16,
1996. Mr. Wimer is a founder of and has been the President of UniRock
Management Corporation, a Denver, Colorado investment banking firm, since
January 1988. Prior to forming UniRock Management Corporation, Mr. Wimer held
executive positions with a number of financial institutions.
STEVE LEONARD will become a director of the Company upon approval of the
Gaming Commission. Mr. Leonard has been President of Pacifica Holding Company,
a Denver-based commercial real estate firm since 1990. Prior to establishing
Pacifica Holding Company in 1990, Mr. Leonard held various executive positions
in the real estate and real estate development industry.
MARK VAN HARTESVELT will become a director of the Company upon approval of
the Gaming Commission. Mr. Van Hartesvelt has been President of the Village at
Breckenridge Resort, a Breckenridge, Colorado resort, since 1994. From 1989 to
1994 he was Senior Vice President Sales and Marketing of Doubletree Hotels
Corporation. Prior to 1989, Mr. Van Hartesvelt served in a number of senior
executive positions in the gaming industry.
PHILIP J. DIBERARDINO will become a director of the Company upon approval
of the Gaming Commission. Mr. DiBerardino has been Senior Vice President of
Commerce Bank in New Jersey since September 1993. From October 1990 to
September 1993, Mr. DiBerardino was President and Chairman of Coastal Bank in
New Jersey. Prior to October 1990, he served as Deputy Commissioner of the New
Jersey Department of Banking. Prior to his service at the New Jersey
Department of Banking, Mr. DiBerardino held various executive positions in the
banking industry.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides information
concerning compensation paid to the Company's chief executive officer, each of
the three other most highly compensated executive officers serving as such at
year-end 1995 who earned at least $100,000 during such year, and two executive
officers who would have been among the most highly compensated had they been
employed at year end, for services rendered by such persons in all positions
with the Company.
Annual Compensation Long-Term
Compensation
Awards Payouts
Shares
Name and Principal Other Annual Underlying LTIP
Positions Year Salary Bonus Compensation Options/SARs Payouts
Stephen J. Szapor, Jr. 1995 $211,728 $5,000 $0 0 $ 0
President and Chief 1994 N/A N/A N/A N/A N/A
Executive Officer 1993 N/A N/A N/A N/A N/A
since August 10, 1995,
Chief Financial
Officer from March,
1995 to August 10,
1995
Alan L. Mayer 1995 111,926 15,000 2,798 0 0
Senior Vice President, 1994 106,384 30,000 2,144 40,000* 0
Chief Legal Officer 1993 N/A N/A N/A N/A N/A
and Secretary since
September 1992
Christopher B. 1995 351,182 100,000 0 0 0
Hemmeter 1994 336,709 100,000 0 0 0
Chief Executive 1993 0 0 0 0 0
Officer December 15,
1993 to August 10,
1995, Vice President
August 10, 1995 to
June 7, 1996
Mark M. Hemmeter 1995 194,223 0 0 0 0
President 1994 126,977 37,500 0 0 0
December 15, 1993 to 1993 57,962 0 0 0 0
March 27, 1995,
Executive Vice
President March 27,
1995 to August 1,
1995, Vice President
August 1, 1995 to June
7, 1996
Kevin G. DeSanctis 1995 522,688 0 0 0 0
Executive Vice 1994 572,110 0 0 120,000* 60,000
President, Chief 1993 N/A N/A N/A N/A N/A
Operating Officer from
April 8, 1994 to
March 27, 1995
President and Chief
Operating Officer from
March 27, 1995 to
August 10, 1995
Thomas Robinson 1995 172,706 0 2,415 144,000* 0
Executive Vice 1994 240,569 100,000 0 0 0
President, Development 1993 N/A N/A N/A N/A N/A
to July 1995
_________________________
*Cancelled in connection with the Reorganization.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company receive no
compensation for service as members of the Board. The Company compensates
directors who are not officers or employees of the Company for their services
by paying such directors annual retainers of $20,000, paid quarterly, and by
allowing such non-employee directors to participate in the Company's non-
employee director component of the Company's Management Incentive and Non-
Employee Director Stock Plan (the "Stock Plan"). Under the Stock Plan, each
non-employee director receives an award of 2,315 restricted shares of Common
Stock on the date such a director qualifies as a director and thereafter upon
reelection, subject to the maximum number of shares of Common Stock that may be
issued to non-employee directors under the Stock Plan. See "- Management
Incentive and Non-Employee Director Stock Plan."
EMPLOYMENT AND CONSULTING AGREEMENTS
On the Effective Date, the Company entered into the following employment
and consulting agreements:
Stephen J. Szapor, Jr. The Company's employment agreement with Stephen J.
Szapor, Jr., provides that Mr. Szapor will serve as president, chief executive
officer and as a director of the Company. Pursuant to this agreement,
Mr. Szapor earns an initial annual salary of $300,000, subject to increases
based on cost-of-living adjustments and other mutually agreed factors. As
additional compensation, on the Effective Date Mr. Szapor received a bonus of
$100,000 and 138,888 shares of Common Stock representing 2.5% of the capital
stock of the Company (determined on a fully diluted basis), and will be
entitled to participate in Stock Plan. In addition, he is entitled to 30% of
the bonus pools, if any, under the Company's Cash Bonus Plan (the "Cash Bonus
Plan"). Mr. Szapor's employment agreement is for an initial term of three
years and renews thereafter for successive one year terms unless terminated by
either party. The employment agreement with Mr. Szapor provides for payment to
Mr. Szapor equal to the greater of $500,000 or his base salary for the then
remaining period of his employment agreement in the event of the termination of
Mr. Szapor's employment by the Company without cause or by Mr. Szapor for good
reason as defined in the employment agreement.
Other Employment Agreements. The Company's employment agreement with Alan
L. Mayer provides that he will serve as the Company's Senior Vice President,
Chief Legal Officer and Secretary, and the Company's employment agreement with
Richard Rabin provides that he will serve as the Company's Senior Vice
President of Operations. Mr. Mayer and Mr. Rabin currently earn annual
salaries of $130,000 and $120,000, respectively, subject to increases based on
cost-of-living adjustments and other mutually agreed factors. Messrs. Mayer's
and Rabin's employment agreements are each for an initial term of three years,
and renew thereafter for successive one year terms unless terminated by each of
the respective parties. These employment agreements also provide that in the
event of termination by the Company without cause or by the respective employee
for good reason (as defined in the respective employment agreements) the
employee will receive a payment equal to his base salary then in effect for the
then remaining period of his employment agreement. Mr. Mayer and Mr. Rabin
are entitled to participate in the Stock Plan and Cash Bonus Plan.
Christopher B. Hemmeter. Pursuant to the Plan of Reorganization, the
Company entered into a consulting agreement with Christopher B. Hemmeter
pursuant to which the Company pays Mr. Hemmeter $29,166.67 per month from the
Effective Date through August 1997 in return for services rendered thereunder.
The consulting services provided to the Company by Mr. Christopher B. Hemmeter
include advice and services related to gaming regulatory issues and help in
identifying potential new business opportunities.
Mark M. Hemmeter. Pursuant to the Plan of Reorganization, the Company
entered into a consulting agreement with Mark M. Hemmeter (the "Mark M.
Hemmeter Consulting Agreement") pursuant to which the Company pays Mr. Hemmeter
$10,416.67 per month from the Effective Date through November 1996 in return
for services rendered thereunder. The consulting services provided to the
Company by Mr. Mark M. Hemmeter include advice and services related to gaming
regulatory issues and help in identifying potential new business opportunities.
The Mark M. Hemmeter Consulting Agreement will expire on November 30, 1996.
MANAGEMENT INCENTIVE AND NON-EMPLOYEE DIRECTOR STOCK PLAN
The Company has established the Stock Plan, which became effective on the
Effective Date, pursuant to which the senior management of the Company will be
eligible to earn stock grants of up to 7.0% of the Common Stock (determined on
a fully diluted basis) if certain performance benchmarks as determined by the
Board of Directors are achieved and non-employee directors will be awarded
0.50% of the capital stock of the Company (also determined on a fully diluted
basis). The Stock Plan provides for the following participation levels of the
Common Stock:
Stephen J. Szapor, Jr. 2.50%
Alan L. Mayer 1.25%
Richard Rabin 1.25%
Robert J. Stephens 0.50%
Other Employees 1.50%
Non-employee Directors 0.50%
_____
7.50%
Shares awarded to non-employee directors are restricted and shall be
forfeited if the director is not serving as such on the date of the first
annual meeting of the Company following the date of the award. Shares awarded
to eligible employees will be restricted and subject to forfeiture if certain,
pre-determined annual performance goals are not obtained. One-third of awarded
shares will vest and become non-forfeitable for each year in which such
performance goals are achieved.
MANAGEMENT CASH BONUS PLAN
The Company has established a Cash Bonus Plan which became effective on
the Effective Date for senior management employees in which the participants
will split a bonus pool equal to 15% of the increase in earnings before
interest, taxes, depreciation and amortization for each plan period commencing
with the period beginning on the Effective Date and ending on December 31, 1996
and each six months thereafter over the same period in the immediately
preceding calendar year determined, in the case of the periods in 1995 and
1996, without regard to the effect of the Company's Riverboat Project or the
Company's extraordinary expenses resulting from the Hemmeter or GPRI Bankruptcy
Cases. Mr. Szapor's employment agreement provides that he will receive 30% of
the bonus pools, if any. The other plan participants will split the remaining
70% of any bonus pools.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Effective Date, the Company entered into certain transactions
in which Christopher B. Hemmeter, who formerly served as Chief Executive
Officer and in other executive officer positions and was the controlling
stockholder of the Company, and Mark M. Hemmeter, formerly an executive officer
of the Company, had, or may be deemed to have had, direct or indirect material
interests, as described below.
Resort Income Investors ("RII") made an acquisition, development and
construction loan to the predecessor of the Company in the principal amount of
$12 million (later increased to $12.3 million). At that time, Christopher B.
Hemmeter was the president and chairman of the board of RII and the beneficial
owner of approximately 2.2% of RII's outstanding equity securities and Mark M.
Hemmeter was executive vice president, secretary and treasurer and a director
of RII and the beneficial owner of less than 1% of RII's outstanding equity
securities. The loan was secured by a third mortgage on the real property and
improvements comprising Bullwhackers Central City as well as liens on all
personal property contained therein and $6,551,200 of the principal thereof was
personally guaranteed by Christopher B. Hemmeter. In 1992, RII also made an
acquisition, development and construction loan in the principal amount of $12
million to a predecessor of the Company secured by a senior leasehold mortgage
on Bullwhackers Black Hawk. The terms and provisions of this loan were
substantially the same as the loan secured by Bullwhackers Central City except
that the loan was not personally guaranteed by Christopher B. Hemmeter. Both
loans obligated the Company to pay, under certain circumstances, contingent
interest equal to a portion of any increase in the value of the collateral
securing the loans. The $24.3 million of principal, $790,000 of accrued
interest and $700,000 of bonus interest on both of these loans were repaid in
1993 with $25.8 million of the $131.5 million of net proceeds to the Company
from the offering of the Old Notes. Upon repayment of the loans, Christopher
B. Hemmeter was released from his guarantee.
On April 21, 1995, the Company borrowed $1 million from RII. On May 15,
1995, the Company borrowed $2 million from RII on a secured basis and used $1
million of this loan to repay the April 21, 1995 loan from RII. At that time,
Christopher B. Hemmeter beneficially owned approximately 1.7% of RII's
outstanding equity securities and Mark M. Hemmeter beneficially owned less than
1% of RII's outstanding equity securities. This loan was satisfied pursuant to
the Plan of Reorganization. Currently, both Christopher B. Hemmeter and Mark
M. Hemmeter each own less than 1% of the outstanding equity securities of RII.
The general contractor for the Bullwhackers Casinos held a construction
note in the principal amount of $6,251,200 (the "Construction Note") which was
secured by a second mortgage on the land and improvements comprising
Bullwhackers Central City. Christopher B. Hemmeter personally guaranteed the
Construction Note. The Construction Note was repaid with a portion of the
proceeds of the offering of the Old Notes and Mr. Hemmeter was released from
his guarantee.
In 1994, the Company and certain affiliates entered into an amended
consulting agreement with Mr. Daniel P. Robinowitz, a pre-Effective Date
stockholder of the Company of approximately 9.1% on a fully diluted basis,
pursuant to which Mr. Robinowitz was entitled to receive an ownership interest
in the Company and a $3 million fee in exchange for his assistance in obtaining
necessary licensing and other regulatory approvals with respect to the
Company's Louisiana operations. Pursuant to this agreement, Mr. Robinowitz's
right to receive an ownership interest in the Company was converted in January
1995 into 1,605,739 shares of common stock of the Company. The $3 million fee
was paid to Mr. Robinowitz in March 1994. In addition, Mr. Robinowitz was paid
an initial consulting fee of $2,790,000 for his services with respect to
certain Louisiana projects, of which $279,000 was allocated to the Company.
In December 1993, the Company reimbursed Christopher B. Hemmeter in the
amount of $225,000 for advances made by him in 1993 to Michigan City Casino &
Lodge, Inc., a wholly owned, non-operating subsidiary of the Company.
The Company made outstanding advances to the following:
December 31
1994 1995
(in thousands)
Canadian Pavilion Limited Partnership $ 1,323 $1,573*
Outlaws Casino, Ltd. 876 1,072*
RCJV 763 43
RCH Investments, NV 250 259
Hemmeter Partners 344 335
Grand Palais Casino, Inc. 557 587
Officers 585 867
Other 62 35
$ 4,760 $4,771
________ ______
*Constitutes largest aggregate amount outstanding.
Canadian Pavilion Limited Partnership ("CPLP"), Outlaws Casino, Ltd.
("Outlaws"), RCH Investments, NV ("RCH") and Hemmeter Partners are majority
owned by Christopher B. Hemmeter and Mark M. Hemmeter. The advances to CPLP,
Outlaws, RCH, and Hemmeter Partners accrue interest at 14% per annum, with
interest payable quarterly, and are due on demand. Grand Palais Casino, Inc.
("GPCI") is a wholly owned subsidiary of Grand Palais Enterprises, Inc.
("GPEI"), of which certain stockholders were also majority stockholders of the
Company prior to the Effective Date. This advance accrues interest at 14% per
annum, and is due on demand. The Company has fully reserved the amounts of
these advances because of uncertainty as to their collectibility.
In July 1994, Kevin G. DeSanctis, then Executive Vice President and Chief
Operating Officer of the Company, received a $225,000 advance in accordance
with the terms of his employment agreement, of which none has been repaid to
date. In September 1994, Christopher B. Hemmeter, was advanced funds totalling
$275,000, accruing interest at prime plus 2%, and due on demand. In January
1995, an additional $373,000 was advanced to Mr. Hemmeter on an interest free
basis, of which $110,000 has been repaid. The amount of Mr. Hemmeter's
advances that remained unpaid totalled $641,900.
In 1994, the Company established a reserve of $1 million for the portion
of the affiliate advances described above that the Company believed may not be
collectible. This reserve was not allocated to any particular affiliate
advances. In 1995, due to the deteriorating financial condition of Christopher
B. Hemmeter and the affiliate companies listed in the above table who received
those advances and possible defenses that they could raise, the Company
provided a reserve for the remainder of the amounts owed the Company by these
individuals and affiliates.
The affiliate advances described above are fully reserved and the Company
has ceased accruing interest thereon. The Company is assessing its strategy in
terms of pursuing any collection of these advances. The Company has agreed not
to exercise any rights of set-off that the Company may have in respect of the
payments which the Company will make to Christopher B. Hemmeter under his
consulting agreement with the Company, and the Company, as a result of the Plan
of Reorganization, does not have any obligations to the other obligors which
would give it set-off rights.
Hemmeter Partners, an affiliate of Christopher B. Hemmeter, leased an
aircraft that Mr. Hemmeter used for business and personal purposes. In
exchange for Mr. Hemmeter making the aircraft available to the Company for
business purposes, the Company agreed to pay such affiliate approximately
$100,000 per month and to pay the salary and benefits of the aircraft pilot and
co-pilot, which totaled approximately $125,000 per year. Direct payments to
Hemmeter Partners totalled $1.5 million and $420,000 for 1994 and 1995,
respectively. Payments made by the Company with respect to the aircraft
represent the Company's pro rata share of the costs and expenses associated
with the aircraft and are adjusted based on actual use of the aircraft. The
Company ceased using the aircraft and terminated this arrangement as of May
1995.
In 1992 and 1993, Grand Palais Casinos, Inc. ("GPCI"), undertook a private
offering of senior secured exchangeable notes. Certain of the Company's former
majority stockholders and warrantholders, including Christopher B. Hemmeter and
Daniel P. Robinowitz, were also stockholders of GPCI's parent company, Grand
Palais Enterprises, Inc. ("GPEI"). In September 1993, $7.5 million of the net
proceeds of GPCI's private offering were loaned to GPRI. The loan was
evidenced by a demand note payable to GPCI which accrued interest at the rate
of 12% per annum. The loan was repaid with proceeds from the sale of the Old
Notes. As additional consideration, the GPCI noteholders were issued warrants
to purchase 2,980,986 shares of common stock. All warrants were extinguished
pursuant to the Plan of Reorganization.
GPCI also made additional advances to GPRI on an as needed basis. In
1993, the advances totaled $2.2 million, accrued interest at 12% and were
unsecured. Proceeds from the Old Notes were used to repay $1.70 million of the
advances. The remaining $490,000 was repaid in the first quarter of 1994.
Through December 31, 1993, GPCI also paid certain overhead costs and expenses
on behalf of GPRI, which amounts were not material.
The Company paid $1.5 million, $1.3 million and $624,000 to the law firm
of Shefsky, Froelich & Devine Ltd. for legal services rendered to the Company
in 1993, 1994 and 1995, respectively. Cezar M. Froelich, a pre-Effective Date
director and stockholder of the Company of 1.4% on a fully diluted basis, is a
member of that firm. Shefsky, Froelich & Devine Ltd. provided legal services
to the Company until February 9, 1996. Any further payments to Shefsky,
Froelich & Devine Ltd. are subject to Bankruptcy Court approval.
LEGAL PROCEEDINGS
BACKGROUND OF BANKRUPTCY; PLAN OF REORGANIZATION
The Company was incorporated in August 1993 for the purpose of conducting
the operations of HP Casino Management, L.P., BH Management Company, LLC,
Central City Management Company, LLC, HP Black Hawk, LLC and HP Central City,
LLC, which, along with certain predecessor entities, constructed and were
operating the Bullwhackers Casinos.
In June 1994, through its wholly owned subsidiary, GPRI, the Company
entered into a joint venture with an unrelated entity to construct and operate
the Riverboat Project. The Company's share of development costs of the
Riverboat Project was financed in part through the private placement by the
Company of $140,000,000 of Notes (the "Old Notes"). On June 15 and December
15, 1994, and June 15, 1995, the Company issued additional Old Notes in the
respective principal amounts of $8,117,000, $8,884,000 and $9,420,000 in
payment of the interest then due and payable on the outstanding Old Notes.
The Riverboat Project incurred construction cost overruns and had
substantial operating losses as a result of the failure of the New Orleans
gaming market to develop as anticipated and the resulting failure of the
Riverboat Project to achieve projected revenues. In June 1995, GPRI
discontinued operation of the Riverboat Project because it was unable to
generate sufficient revenues to cover operating expenses.
On July 26, 1995, the GPRI Bankruptcy Case was commenced in the United
States Bankruptcy Court for the Eastern District of Louisiana. The GPRI
Bankruptcy Case was converted into a voluntary Chapter 11 case on July 27,
1995.
As a result of the financial difficulties of GPRI, the Old Notes were
declared to be in default in June 1995. During the summer and early fall of
1995, the Company and investment advisors to certain of the holders of the Old
Notes negotiated a debt restructuring which contemplated the commencement of
Chapter 11 bankruptcy proceedings for the Company and the Colorado Subsidiaries
which were not then in bankruptcy. On November 7, 1995, the Company and the
Colorado Subsidiaries commenced the Hemmeter Bankruptcy Cases. On December 27,
1995, the venue of the Hemmeter Bankruptcy Cases was transferred to the United
States Bankruptcy Court for the Eastern District of Louisiana.
The Company and the Colorado Subsidiaries continued their business
operations as debtors-in-possession under the supervision of the Bankruptcy
Court following the commencement of the Hemmeter Bankruptcy Cases. The Company
received approval from the Bankruptcy Court to pay or otherwise honor certain
of its pre-petition obligations related to the Bullwhackers Casinos, including
employee wages and benefits, utilities, and claims of certain trade vendors,
and such payments were made. In addition, the Bankruptcy Court approved a $7.9
million debtor-in-possession credit facility (the "DIP Facility").
On March 29, 1996, the GPRI Plan was confirmed in the GPRI Bankruptcy
Case. The GPRI Plan was consummated on May 3, 1996. The GPRI Plan provided
that all outstanding shares of capital stock of GPRI (which were owned by the
Company) were cancelled and new stock issued to Casino America, Inc., an
unrelated party, or its assigns, which provided consideration to GPRI's
creditors. Under the GPRI Plan, the Company received GPRI's causes of action,
if any, against GPRI's joint venture partner in the Riverboat Project and
received no other distribution in respect of its stock ownership in GPRI or any
claim that it may have in the GPRI Bankruptcy Case.
On April 8, 1996, the Plan of Reorganization in the Hemmeter Bankruptcy
cases was confirmed by order of the United States Bankruptcy Court for the
Eastern District of Louisiana, and was consummated on the Effective Date.
The following events occurred at the Effective Date pursuant to the Plan
of Reorganization:
1. The Company and its Colorado Subsidiaries were discharged from any
liability to GPRI or its creditors. The Company no longer has any
interest in GPRI or the Riverboat Project and its principal assets consist
of the stock of its subsidiaries which own the Colorado Casinos and the
Surface Parking Lot.
2. The claims of entities which provided goods and services to the
Bullwhackers Casinos were paid in full or were otherwise treated in such a
manner so that they were not impaired and all other unsecured creditors of
the Bullwhackers Casinos received notes in a principal amount equal to the
allowed amount of their claims which provide for a single payment of
principal and accrued interest on the tenth anniversary of the issuance
thereof. All other unsecured creditors of the Company received no
distribution in respect of their claims against the Company.
3. The holders of the Old Notes<F1> and Resort Income Investors,
Inc., which held a secured claim in the Hemmeter Bankruptcy Case (the "RII
Claim"; Resort Income Investors, Inc. is sometimes referred to as "RII")
received an aggregate of $50,000,000 in principal amount of the Notes and
one hundred percent (100%) of the issued and outstanding capital stock of
the reorganized Company, subject to being diluted to 90% by certain stock
grants to be provided to senior management employees and non-employee
directors. See "Management Executive Compensation." As a result, the
holders of the Old Notes and RII are the principal creditors and
stockholders of the Company. The portion of the principal amount of the
Notes paid to RII is less than $1 million and a similar portion of common
stock was issued to RII.
4. Pursuant to the settlement of certain lawsuits against the Company and
certain of its executive officers, the Company issued the CAI Notes
(defined below) to Capital Associates, Inc. ("CAI"). The Company's
obligation in respect of the CAI Notes was reduced dollar for dollar by
any amounts received by CAI in respect of its claims filed in the GPRI
Bankruptcy Case.
5. Certain claims of the Company and the Colorado Subsidiaries against
third parties, including derivative claims against the pre-Effective Date
directors, officers, and employees of the Company and its Colorado
Subsidiaries, were transferred to a litigation trust (the "Litigation
Trust"). The trustees of the Litigation Trust are the post-Effective Date
directors of the Company and will determine whether or not to pursue any
such claims. Any amounts received in respect of any such claims will
inure to the benefit of the holders of the Old Notes and RII.
6. The amounts outstanding under the DIP Facility were paid in full and
the DIP Facility was terminated. The Company replaced the DIP Facility
with the Foothill Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
7. The Company changed its name to Colorado Gaming & Entertainment Co.
____________________
<F1> Because the Old Notes were primarily held in the names of
nominees, the Company was unable to determine the identity
of the Old Note holders directly. The individual holders of
approximately $152,775,000 of the outstanding principal
balance of the Old Notes filed proofs of claim in the
Chapter 11 bankruptcy proceedings of the Company described
below. The holders of five percent or more of the Old Notes
at the time of filing of those proofs of claim are described
below in "Principal and Selling Securityholders."
The foregoing is only a summary of some of the principal terms of the Plan
of Reorganization and is qualified in its entirety by reference to the complete
copy of the Plan of Reorganization that has been filed as an Exhibit to the
Registration Statement of which this Prospectus is a part.
OTHER
During June 1995, CAI filed an action against the Company, BWBH, BWCC,
Christopher B. Hemmeter and Mark M. Hemmeter in the District Court for the City
and County of Denver, Colorado, seeking to enforce guarantees allegedly
provided by the defendants of an equipment lease provided to GPRI. On
September 14, 1995, the court granted summary judgment in favor of CAI and
against the defendants in the amount of $4,477,950.26, plus interest. In July
1995, CAI also filed an action against the Company, Messrs. Szapor and Mayer,
BWBH, BWCC, and GPRI in the District Court for the City and County of Denver,
Colorado alleging that, among other things, they negligently and fraudulently
induced it into entering into the equipment lease which was the subject of its
June 1, 1995 lawsuit. Messrs. Szapor and Mayer filed answers denying the
allegations in the complaint and have asserted a counterclaim against CAI for
abuse of process.
On February 6, 1996, both lawsuits filed by CAI were settled, subject to
the consummation of the Plan of Reorganization. Upon the Effective Date, CAI
dismissed both lawsuits with prejudice and released all claims asserted
therein. In accordance with the settlement, on the Effective Date, the Company
issued two unsecured promissory notes to CAI (the "CAI Notes") in the
respective principal amounts of $1.6 million and $3 millon and Messrs. Szapor
and Mayer released their counterclaims. Both CAI Notes accrue interest at the
rate of 9% per annum. The $1.6 million CAI Note is due in ten equal quarterly
installments commencing September 7, 1996. The $3 million CAI Note has been
reduced by amounts received by CAI in respect of its claims filed in the
Chapter 11 bankruptcy cased filed by GPRI. Accordingly, the outstanding
balance on the $3 million CAI Note is in the range of between $500,000 to
$700,000, depending on the ultimate resolution of the exact amount received by
CAI from GPRI distributions to be credited against this CAI Note. Accordingly,
the Company has reflected $700,000 of the second CAI Note as an obligation in
its consolidated balance sheet, although this amount might be reduced as
discussed above.
Upon the Effective Date, a Litigation Trust was formed with the exclusive
right to enforce, in its sole discretion, any and all causes of action of the
debtors in the Chapter 11 cases. Accordingly, certain claims of the Company
against third parties were transferred to the Litigation Trust. The Trustee of
the Litigation Trust will initially be the directors of the Company who will
determine whether to pursue any such claims. Any amounts received in respect
of such claims by the Litigation Trust will benefit the holders of the Old
Notes and RII. Included among the transfer of claims to the Litigation Trust
was the derivative action filed in September 1995 against the pre-Effective
Date directors of the Predecessor Company by Daniel P. Robinowitz, a pre-
Effective Date stockholder of the predecessor company.
Claims that the Company may have against affiliates of the predecessor
company for outstanding receivables that such affiliates owe to the Company
were not transferred to the Litigation Trust. Such claims remain with the
Company and any amounts received by the Company on account of such claims will
benefit the Company. All affiliate receivables have been fully reserved and,
it is unlikely that the Company will receive any amounts in respect of such
claims.
All other legal proceedings pending against the predecessor company prior
to the Effective Date were settled pursuant to the Reorganization. There are
no legal proceedings pending against the Company after the Effective Date which
could reasonably be believed to have a material adverse effect on the Company's
consolidated results of operation. See " Background of Bankruptcy; Plan of
Reorganization."
The Plan of Reorganization provides that the Company's obligation to
indemnify Messrs. Szapor and Mayer against any claims asserted against them as
a result of their service as employees of the Company, both before and after
the commencement of the Hemmeter Bankruptcy Cases, will not be affected by the
Hemmeter Bankruptcy Cases and that the Company will assume any obligations of
GPRI to indemnify Messrs. Szapor and Mayer against claims arising as a result
of their service with GPRI. The Plan of Reorganization also provides that
Messrs. Szapor and Mayer are released from any liability in respect of causes
of action assigned to the Litigation Trust.
The Plan of Reorganization also provides that the Company's obligations to
indemnify its other officers and employees who are employed by the Company on
the date of commencement of the Hemmeter Bankruptcy Cases, other than
Christopher B. Hemmeter and Mark M. Hemmeter (together, the "Hemmeters"),
against claims against them as a result of their service with the Company after
the commencement of the Hemmeter Bankruptcy Cases will not be affected by the
Hemmeter Bankruptcy Cases and that the Company will assume any similar
indemnity obligations of GPRI.
The Plan of Reorganization also requires the Company to indemnify its pre-
Effective Date directors other than the Hemmeters (the "Independent Directors")
against any claims asserted against them as a result of their service as
directors of the Company if the final report of the Independent Litigation
Counsel indicates that there is no basis for pursuing any of the potential
claims against them reviewed by the Independent Litigation Counsel. The
Company's maximum indemnity obligation for all of the Independent Directors is
capped at $500,000 in the aggregate. Although the Company has no direct
indemnity obligations with respect to claims against the Hemmeters, if a claim
is asserted against both the Independent Directors and the Hemmeters, the
Hemmeters will be entitled to be represented by the counsel representing the
Independent Directors at the expense of the Company to the extent that the
claims are based on the Hemmeters' actions as directors of the Company.
ENVIRONMENTAL MATTERS
The Black Hawk and Central City gaming districts, including the Colorado
Casino sites, are located generally within the Central City/Clear Creek
Superfund site (the "Site") as designated by the Environmental Protection
Agency (the "EPA"), pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). The Site
includes numerous specifically identified areas of mine tailings and other
waste piles from former gold mine operations that are the subject of ongoing
investigation and clean-up by the EPA and the Colorado Department of Public
Health and Environment (the "CDPHE"). CERCLA requires remediation of sites
from which there has been a release or threatened release of hazardous
substances and authorizes the EPA to take any necessary response actions at
Superfund sites, including authorizing potentially responsible parties ("PRPs")
to clean up or contribute to the clean-up of a Superfund site. PRPs are
broadly defined under CERCLA, and include past and present owners and operators
of a site. CERCLA imposes strict liability on PRPs, and courts have commonly
held PRPs to be jointly and severally liable for all response costs.
Although the Colorado Casinos are not within any of the specific areas of
the Site currently identified by the EPA for investigation or remediation, the
site on which the Surface Parking Lot was constructed was identified as
requiring remediation in connection with the construction of the Surface
Parking Lot. That remediation was completed in June 1994. In the process of
completing additional environmental remediation on the Surface Parking Lot, the
Company discovered that two small and confined treatment cells within the
Surface Parking Lot contain unacceptable levels of mercury and lead within the
soil, and thus are classified as hazardous. The Company immediately reported
this finding to the EPA and the CDPHE. The hazardous soil is located above the
groundwater table. At the direction and approval of the EPA and CDPHE, the
Company placed an asphalt cap over the hazardous soil to prevent infiltration.
While the parties have agreed that the hazardous soil presents minimal impact
to the environment in the short term, the Company has reached an agreement with
the EPA and CDPHE to remove the hazardous soil and dispose of the material at a
hazardous waste landfill prior to December 31, 1996. The Company is currently
analyzing the most efficient way and time period within which to complete the
removal of the hazardous soil. It is currently estimated that the cost of this
removal project will be approximately $100,000.
The Company, through independent environmental consultants, conducted both
Phase I and Phase II environmental examinations of the real property underlying
the Bullwhackers Casinos and obtained subsequent follow-up reports. Based on
these examinations, the Company is not aware of any environmental problems
affecting the Bullwhackers Casinos which are likely to result in material costs
to the Company. Although the Company has not conducted environmental
evaluations of the real property underlying the Silver Hawk Casino facility, it
does not believe that there are any environmental problems affecting the Silver
Hawk Casino site which are likely to result in material costs to the Company.
No assurance can be given, however, that the Company will not subsequently
discover significant environmental problems at any of its Colorado properties.
Furthermore, the EPA or other governmental authorities could broaden their
investigations and identify additional areas within the Site, including the
Colorado Casino sites, for remediation. If any of the Colorado Casinos were
included in additional areas of concern within the Site, the Company could be
identified as a PRP and any liability related thereto could have a material
adverse effect on the Company. Furthermore, environmental conditions at any of
the Company's Colorado properties could have, or could in the future have, a
detrimental impact on adjacent or nearby properties or persons. No assurance
can be given that no such impact on a third party will arise in the future, nor
that such an impact, if it arises, will not have a material adverse impact on
the Company.
PRINCIPAL AND SELLING SECURITYHOLDERS
This Prospectus covers resales of Common Stock and Notes received under
the Plan of Reorganization by the Selling Securityholders named below and other
Selling Securityholders pursuant to certain registration rights under the
Registration Rights Agreement (as defined below). This Prospectus may be
supplemented or amended from time to time to reflect its use for resales by
persons who are entitled to such rights but are not named below. All such
Selling Securityholders may be deemed to be underwriters of such securities
within the meaning of the Securities Act. See "Plan of Distribution."
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 25, 1996, and as adjusted to
reflect the sale of the Shares offered hereby by, (i) each person known by the
Company to be the beneficial owner of more than 5% of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table above (See "Management --
Executive Compensation"), (iv) all executive officers and directors as a group,
and (v) the Selling Securityholders. Unless otherwise indicated, all
beneficial ownership is sole and direct. The information presented in this
table and the following table regarding the Selling Securityholders' holdings
of the Common Stock and the Notes is based on information furnished to the
Company by the Selling Securityholders and other sources that the Company has
not verified. The Company is in the process of attempting to verify the
current ownership of the Common Stock and Notes and will update the information
below accordingly prior to the effective date of the Registration Statement.
The Selling Securityholders were holders of the Old Notes and certain of such
holders participated in negotiations relating to the Company's bankruptcy and
the Reorganization. Other than relationships arising in connection with such
matters and with regard to Stephen J. Szapor, Jr., President and Chief
Executive Officer and a director of the Company, none of the Selling
Securityholders has had a material relationship with the Company within the
past three years.
COMMON STOCK
[TO BE UPDATED PRIOR TO EFFECTIVENESS OF REGISTRATION STATEMENT]
SHARES SHARES
OWNED NUMBER OF OWNED
PRIOR TO SHARES AFTER
OFFERING PERCENT OFFERED OFFERING PERCENT
Donaldson, Lufkin & Jennette 135,826 2.6% 135,826 0% 0
Prudential Investment Advisors 50,127 1.0 50,127 0 0
PaineWebber Strategic Income Trust 13,911 * 13,911 0 0
Managed High Yield Fund, Inc. 83,394 1.6 83,394 0 0
PaineWebber High Income Trust 768,694 14.96 768,694 0 0
All-American Term Trust Inc. 73,300 1.4 73,300 0 0
PaineWebber Offshore Funds, plc -- 0 0
The High Income Fund 50,025 * 50,025 0 0
Putnam Advisory Funds 296,834 5.8 0 0
One Post Office Square
Boston, MA 01209
SC Fundamental Value Fund, L.P. 416,311 8.1 416,311 0 0
SC Fundamental Value BVI, Ltd. 190,192 3.7 190,192 0 0
712 Fifth Avenue
New York, NY 10019
Resort Income Investors 60,170 * 60,170 0 0
Stephen J. Szapor, Jr. 138,888 2.7 138,888 0 0
Alan L. Mayer 0 0 0 0
Richard Rabin 0 0 0 0
Robert J. Stephens 0 0 0 0
Franklin S. Wimer 0 0 0 0
Steve Leonard 0 0 0 0
Mark Van Hartesvelt 0 0 0 0
Philip J. DiBerardino
The following table sets forth certain information regarding the ownership
of the Notes, to the Company's knowledge as of September 25, 1996, offered
pursuant to this Prospectus held by the Selling Securityholders.
[TO BE UPDATED PRIOR TO EFFECTIVENESS OF REGISTRATION STATEMENT]
<TABLE>
<CAPTION>
Principal
Principal Amount
Amount of Principal of Notes
Notes Owned Amount of Owned
Prior to Notes After
Offering Percent Offered Offering Percent
<S> <C> <C> <C> <C> <C>
Prudential Investment Advisors, Inc. $ 2,000,000 4.0% $2,000,000 $0 0%
Cardinal Capital 768,000 1.5 768,000 0 0
Donaldson, Lufkin & Jenrette 6,057,000 12.1 6,057,000 0 0
Putnam Advisory Funds 20,219,000 40.4 20,219,000 0 0
IDS Financial Services, Inc. 14,000,000 28.0 14,000,000 0 0
Resort Income Investors 601,702 1.2 601,702 0 0
Landing & Co. 2,500,000 5.0 2,500,000 0 0
________________________
*Less than 1%
</TABLE>
PLAN OF DISTRIBUTION
GENERAL
An aggregate of up to 5,138,888 shares of Common Stock and $55,883,000
principal amount of Notes may be offered pursuant to this Prospectus. Of the
Notes, $50,000,000 are currently held by the Selling Securityholders and are
being registered for resale hereunder. An additional $6,000,000 in principal
amount of Notes are being registered hereunder by the Company and may be issued
directly to the holders of the Notes as payment of certain accrued interest
when due, in lieu of cash, pursuant to the terms of the Notes. Such Notes, if
issued, may be subsequently resold by the Selling Securityholders pursuant to
this Prospectus or otherwise. The Company will not receive any of the proceeds
from the sale by the Selling Securityholders of the Notes or Common Stock
offered hereby. Such securities may be sold by the Selling Securityholders in
the over-the-counter market, or otherwise, in transactions at prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
such other prices as may be negotiated among the parties. The Selling
Securityholders' Shares and Notes may be sold by one or more of the following
methods, without limitation: (a) a block trade in which a broker or dealer so
engaged will attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchases; and
(d) directly in transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. The
Selling Securityholders, such brokers or dealers may receive commissions or
discounts from Selling Securityholders in amounts to be negotiated. Broker or
dealers participating in such transactions as agent may receive commissions
from the purchasers as well as from the Sellers, if also acting as agent for
the purchasers, Selling Securityholders and any participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with such sales. Profits, commissions, concessions, and
discounts on sales by persons who may be deemed to be underwriters within the
meaning of the Securities Act may be deemed underwriting compensation under the
Securities Act.
Selling Securityholders may also offer the Shares or Notes covered by this
Prospectus under other registration statements or pursuant to exemptions from
the registration requirements of the Securities Act, including sales which meet
the requirements of Rules 144 or 148 under the Securities Act or pursuant to an
exemption contained in the Federal Bankruptcy Code. Selling Securityholders
should seek advice from their own counsel with respect to the legal
requirements for such sales.
The Company will pay all expenses of filing the Registration Statement and
preparing and reproducing this Prospectus which the Company estimates to be
$95,000. The Selling Securityholders will pay any selling expenses, including
brokerage commissions, incurred in connection with their sale of any Shares
covered by this Prospectus.
In order to comply with certain states' securities laws, if applicable,
the Notes or Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Notes and
Common Stock may not be sold unless they have been registered or qualified for
sale in such state, or unless an exemption from registration or qualification
is available.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement, dated as of the Effective
Date, among the Company and the Initial Holders as defined therein (the
"Registration Rights Agreement"), the Company agreed to file the Registration
Statement of which this Prospectus is a part with the Commission and use its
best efforts to have it declared effective within 150 days of the Effective
Date. Under the terms of the Registration Rights Agreement, substantially all
of the expenses of the offering (other than broker or dealer discounts,
commissions, or other compensation) will be paid by the Company. Furthermore,
the Company has agreed to keep the Registration Statement continuously
effective, subject to certain blackout periods, for a period of up to three
years following the effective date of the Registration Statement. In addition,
the Company and the Selling Securityholders are obligated to indemnify each
other against certain liabilities, including liabilities arising under the
Securities Act.
This Prospectus may be supplemented or amended from time to time to
reflect its use relating to the Common Stock and Notes for resales by Selling
Securityholders not named in this Prospectus as such who are entitled to
certain registration rights under the Registration Rights Agreement.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no established market for the
Common Stock of the Company and there can be no assurance that an active
trading market will subsequently develop. Sales of substantial shares of
Common Stock in the public market could adversely affect the market price of
the Common Stock prevailing from time to time.
The Company has 5,138,888 shares of Common Stock outstanding, all of which
are being registered on the Registration Statement of which this Prospectus
forms a part. Accordingly, all such shares will be freely transferable without
restriction or registration under the Securities Act, except for any shares
purchased by an existing "affiliate" of the Company, as that term is defined by
the Securities Act (an "Affiliate"), which shares will be subject to the resale
limitations of Rule 144 adopted under the Securities Act ("Rule 144").
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years (including the holding period of any prior owner except
an affiliate of the Company) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) one percent
of the number of shares of Common Stock then outstanding (which equals
approximately 51,139 shares); or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an Affiliate at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provision
of Rule 144.
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, of which 5,138,888 shares are issued and outstanding. Holders of
Common Stock are entitled to one vote for each share held in the election of
directors and on all other matters submitted to a vote of stockholders, and do
not have cumulative voting rights in the election of directors. Accordingly,
the stockholders of a majority of the shares of Common Stock entitled to vote
in any election of directors may elect all of the directors standing for
election.
Stockholders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board out of funds legally
available therefor. Upon the liquidation, dissolution or winding-up of the
Company, the stockholders of Common Stock are entitled to receive ratably the
net assets of the Company available after payment of all debts and other
liabilities. Stockholders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All shares of the Common Stock are fully paid
and non-assessable when issued upon receipt of the purchase price therefor. As
of September 25, 1996, the Company had approximately 40 holders of record of
the Common Stock.
COLORADO GAMING REGULATIONS
Pursuant to the Colorado Regulations, the Gaming Commission has broad
powers to require stockholders of the Company, as a gaming licensees, to
provide it with information and to determine the suitability of any
stockholders of the Company to hold voting interests in the Company. If the
Gaming Commission determines that a person or entity is not suitable to own a
voting interest in the Company, whether directly or indirectly, the Company may
be sanctioned (including by loss of any gaming licenses) unless such person or
entity disposes of its voting interests. In addition, the Colorado Regulations
prohibit a licensee from paying dividends, interest or other remuneration to
any person found to be unsuitable, or from recognizing the exercise of any
voting rights by any person found to be unsuitable. The Colorado Regulations
require a casino licensee to include in its corporate charter provisions to
permit the repurchase of the voting interests of any person who the Gaming
Commission finds unsuitable. The Company has included the required provisions
in its Certificate of Incorporation. See "- Certain Charter and Bylaws
Provisions." In addition, a person or entity may not sell, lease, purchase,
convey, acquire or pledge 5% or more of the stock of a "publicly traded" gaming
licensee, such as the Company, shares in a gaming license without the prior
approval of the Gaming Commission, except for sales or other transactions
involving less than a 5% interest in a publicly traded licensee. See "Business
- - Colorado Gaming Regulations."
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
To enable the Company to secure and maintain the business and other
regulatory approvals necessary for operating a gaming-related business, the
Company's Certificate of Incorporation provides that the Company may not issue
any voting securities except in compliance with the rules of any gaming
authority. The Company's Certificate of Incorporation also provides that all
transfers of voting securities of the Company must be in compliance with
applicable gaming authority rules and if any gaming authority issues an order
disqualifying a person from owning shares of Common Stock, the Company may
redeem the stock of the disqualified holder unless Common Stock is transferred
to a person found by the Gaming Commission to be suitable within 60 days from
the finding of unsuitability. See "- Colorado Gaming Regulations." The
redemption price will be equal to the lesser of the holder's investment in the
voting securities or the current market price as of the finding of
unsuitability. No holder of voting securities of the Company which has been
found to be unsuitable may vote any such voting securities and such voting
securities shall not be deemed outstanding for quorum or other purposes and the
disqualified holder shall not be entitled to any dividends or other
remuneration with respect to such voting securities. See "Business -- Colorado
Gaming Regulations."
As permitted by the provisions of the Delaware General Corporation Law
(the "DGCL"), the Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for a breach of their
fiduciary duty as directors. These provisions do not eliminate the liability
of a director for: (i) breach of the director's duty of loyalty to the Company
or its stockholders; (ii) acts or omissions by a director not in good faith or
which involve intentional misconduct or a knowing violation of the law;
(iii) liability arising under Section 174 of the DGCL (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the DGCL); or (iv) any transaction from which the director derived an improper
personal benefit. In addition, these provisions do not eliminate the liability
of a director for violations of federal securities laws, nor do they limit the
rights of the Company or its stockholders, in appropriate circumstances, to
seek equitable remedies such as injunctive or other forms of non-monetary
relief. Such remedies may not be effective in all cases.
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify all directors and officers of the Company to the full
extent permitted by the DGCL. Under such provisions, any director of officer,
in his capacity as such, who is made or threatened to be made a party to any
suit or proceeding, may be indemnified if the Board determines such director of
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the Company. The Company's Certificate of
Incorporation, Amended and Restated Bylaws and the DGCL further provide that
such indemnification is not exclusive of any other rights to which such
individuals may be entitled under the Company's Certificate of Incorporation
and Amended and Restated Bylaws, or under any agreement, vote of stockholders
or disinterested directors or otherwise.
The Company's Certificate of Incorporation provides initially for a five
member board of directors with each director serving a one year term.
Directors may be removed with or without cause.
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued on the Effective Date to the holders of the Old
Notes and the RII Claim as fully registered Notes, without coupons, under an
Indenture dated as of the Effective Date (the "Indenture") between the Company,
its Colorado Subsidiaries and Fleet National Bank, as trustee (together with
any successor, the "Trustee"). This summary of the material terms of the Notes
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Indenture. Capitalized terms used under
this heading which are not otherwise defined herein shall have the meanings
ascribed thereto in the Indenture, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
TERMS
The Notes are senior secured obligations of the Company and will mature on
June 1, 2003. The aggregate principal amount of Notes which may be
authenticated and delivered under the Indenture is limited to $50,000,000 (plus
any Secondary Notes, as described below) except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for, other Notes.
Interest on the Notes accrues at the rate of 12% per annum, computed on
the basis of a 360-day year comprised of twelve 30-day months. Interest is
payable commencing December 1, 1996 and semiannually thereafter on June 1 and
December 1 of each year, to the holders of record of Notes at the close of
business on May 15 and November 15 immediately preceding each such interest
payment date.
The Company may, at its option if an effective registration statement
under the Securities Act covers such issuance or such issuance is exempt from
registration under the Securities Act, pay interest on the Notes through the
issuance of additional Notes (the "Secondary Notes") in an aggregate principal
amount equal to the interest that would be payable if such interest were paid
in cash (provided, however, that amounts less than $1,000 shall be payable in
cash). The terms of the Secondary Notes shall be identical to the terms of the
Notes, except that interest on the Secondary Notes is payable only in cash.
All references to "Notes" herein shall, unless the context otherwise requires,
also refer to any Secondary Notes.
Principal of, premium, if any, and interest on the Notes is payable at the
office or agency of the Company maintained for that purpose, provided that upon
the agreement of the Company and a holder (a "Holder") of a Note payments of
interest and principal of any Note may be made directly to the Holder of such
Note. The Notes are transferrable at the corporate trust office of the Trustee
located at 777 Main Street, Hartford, Connecticut. No service charge is made
for any registration of transfer or exchange of the Notes, except for any tax
or other governmental charge that may be imposed in connection therewith.
REDEMPTION
Optional Redemption. The Notes are redeemable prior to maturity, in whole
or part, at the election of the Company on or after June 1, 2000, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning on the June 1st that begins in the years
indicated below:
Year Redemption Price
____ ________________
2000 104%
2001 103%
2002 and thereafter 102%
Mandatory Redemption. Notwithstanding any other provision of the
Indenture, if any Gaming Authority requires that a Holder or beneficial owner
of Notes must be licensed, qualified or found suitable under any applicable
Gaming Law, such Holder or beneficial owner must apply for a license,
qualification or a finding of suitability within the required time period after
being requested to do so by the Gaming Authority. If such Holder or such
beneficial owner is not so licensed, qualified or found suitable within the
period provided therefor by such Gaming Authority, the Company shall have the
right, at its option, (i) to require such Holder or beneficial owner to dispose
of such Holder's or beneficial owner's Notes within 30 days of receipt of
notice of the Company's election or such earlier date as may be ordered by such
Gaming Authority, or (ii) to call for a redemption of the Notes of such Holder
or beneficial owner at a price equal to the lesser of 100% of the principal
amount thereof or the price at which such Holder or beneficial owner acquired
the Notes, plus, in either case, accrued interest to the earlier of the date of
redemption or the date of the finding of unsuitability by such Gaming Authority
(which may be less than 30 days following the notice of redemption, if so
ordered by such Gaming Authority). The Company is not responsible for any
costs or expenses that any Holder may incur in applying for a license,
qualification or finding of suitability.
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by the
Trustee on a pro rata basis, by such method as the Trustee shall deem fair and
appropriate (provided that no Notes in a principal amount of $1,000 or less
shall be redeemed in part). Unless otherwise specified herein, notice of
redemption shall be mailed by first class mail not less than 30 days nor more
than 60 days before the redemption date to each Holder to be redeemed at its
registered address. If any New Note is to be redeemed in part only, the notice
of redemption that relates to such New Note shall state the portion of the
principal amount thereof to be redeemed. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption.
NO SINKING FUND
No sinking fund payments are required with respect to the Notes.
MANDATORY OFFERS TO PURCHASE
Offer to Purchase Upon Change of Control. The Company is obligated to
make an offer to purchase all outstanding Notes at a purchase price of 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase if a Change of Control of the Company occurs. A Change of
Control includes (i) the sale or other disposition of substantially all of the
Company's assets; (ii) the liquidation or dissolution of the Company; (iii) the
acquisition by any person or group (within the meaning of Section 13(d) and
14(d) of the Exchange Act) of beneficial ownership or the right to acquire,
whether immediately or only after the passage of time, of more than 50% of all
classes of capital stock of the Company then outstanding normally entitled to
vote for the election of directors; (iv) during the twelve months following the
Issue Date of the Notes, a change in the composition of the Board of Directors
of the Company such that a majority of the directors of the Company nominated
to be such on the Issue Date cease to be directors of the Company (other than
as may be caused by the replacement of interim directors who are serving as
directors only until the individuals named to serve as directors on the Issue
Date receive Commission approval). If a Change of Control occurs, the Company
shall, within 15 days, notify the Trustee in writing of such occurrence, and
the Trustee shall, within 15 days following receipt of notice to the Trustee,
notify the Holders of such occurrence. Such notice from the Company shall
include an offer to purchase all Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the payment date. The purchase offer by the Company must remain
open for at least 20 business days from the date of the Trustee's notice. The
obligation of the Company to purchase the Notes upon a Change of Control may
not be amended or waived without the concurrence of the Holders of not less
than 66-2/3% of the aggregate principal amount of the Notes then outstanding.
See "- Amendments and Waivers." There can be no assurance that the Company
will have sufficient funds to purchase the Notes upon a Change of Control.
Other Offers to Purchase. The Company is also obligated to make offers to
purchase Notes at a purchase price of 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase in an amount
equal to the Net Cash Proceeds of certain sales or other dispositions of assets
or certain events of loss. See "- Certain Covenants - Restricted Asset Sales"
and "- Application of Net Cash Proceeds in Event of Loss."
GUARANTEE OF NOTES
The Notes and the Company's obligations under the Indenture are
irrevocably and unconditionally guaranteed by the Guarantors. The Guarantees
of the Guarantors are in addition to (and not in substitution for) any other
security for the Notes and may not be revoked by the Guarantor until all
guaranteed obligations have been indefeasibly paid and performed in full.
SECURITY
The Notes are secured by a perfected lien on certain Collateral of the
Company and the Guarantors, including all of the capital stock of the
Guarantors owned by the Company and on substantially all of the assets of the
Company and the Guarantors, whether owned on the Issue Date or thereafter
acquired, including the Colorado Casinos, the Surface Parking Lot and, if and
when constructed, the Parking Garage through appropriate Security Documents in
favor of the Trustee as Collateral Agent.
The liens securing the Notes will be subordinate only to those liens
defined in the Indenture as "Permitted Liens," which include: (i) liens
securing credit facilities providing for an aggregate principal amount of
indebtedness of up to $17,500,000 incurred pursuant to permitted credit
facilities; (ii) certain specified liens on certain assets of the Company or
the Guarantors in existence on the date of the Indenture; (iii) liens on the
Silver Hawk casino securing the deferred portion of the purchase price thereof;
(iv) liens encumbering after-acquired property of the Company or a Guarantor
which were in existence when the encumbered property was acquired and which
were not created in connection with the acquisition; (v) certain statutory
liens, such as mechanics or materialmen's liens and tax liens, to the extent
that the obligation secured is not delinquent or is being contested in good
faith; and (vi) leases, subleases, easements, rights-of-way and other minor
title irregularities which do not materially interfere with the business of the
Company or any of its subsidiaries.
Provided that no Event of Default then exists, the Company is entitled to
obtain a release of any lien securing the Notes with respect to any property of
the Company sold or otherwise disposed of in the ordinary course of business
(including the sale of gaming and other equipment as part of a program to
replace or upgrade gaming or such other equipment) up to $1,500,000 in the
aggregate in any 12-month period (an "Unrestricted Asset Sale"). The Company
is also entitled to obtain a release of any lien securing the Notes with
respect to any property sold or otherwise transferred in any other permitted
asset sale provided that the Company complies with certain reinvestment or Note
repurchase obligations. See "- Certain Covenants - Restricted Asset Sales."
The proceeds of any sale of the Collateral in whole pursuant to the
Indenture and the related Security Documents following an Event of Default may
not be sufficient to satisfy payments due on the Notes. In addition, the
ability of the Holders to realize upon the Collateral may be limited pursuant
to gaming laws as described below, in the event of a bankruptcy or pursuant to
other applicable laws, including securities laws.
Certain Gaming Law Limitations. The Trustee's ability to foreclose upon
the Collateral is limited by relevant Gaming Laws, which generally require that
persons who own or operate a casino or possess or sell gaming equipment hold a
valid gaming license. No person can hold a license in the State of Colorado
unless the person is found qualified or suitable by the relevant Gaming
Authorities. In order for the Trustee to be found qualified or suitable such
Gaming Authorities would have discretionary authority to require the Trustee
and any or all of the Holders to file applications, be investigated and be
found qualified or suitable as a casino licensee or as a landlord or landlords
of a gaming establishment. The applicant for qualification for a suitability
determination or for licensing must pay all costs of such investigation. If
the Trustee is unable or chooses not to qualify, be found suitable or be
licensed to own, operate or sell such assets, it would have to retain an entity
licensed to operate or sell such assets. In addition, in any foreclosure sale
or subsequent resale by the Trustee, licensing requirements under the relevant
Gaming Laws may limit the number of potential bidders and may delay any sale,
which may have an adverse effect on the sale price of such Collateral. In
addition, under Colorado law, Holders may be required to file personal history
and financial background information with the Gaming Authorities and to be
found suitable in order for the Trustee to foreclose on gaming equipment and
the Colorado Casinos. Therefore, the practical value of realizing on the
Collateral may, without the appropriate approvals, be limited.
Certain Bankruptcy Limitations. The right of the Trustee to repossess and
dispose of the Collateral upon the occurrence of an Event of Default is likely
to be significantly impaired by applicable bankruptcy law if a bankruptcy
proceeding were to be commenced by or against the Company or the Company
Subsidiaries prior to the Trustee having repossessed and disposed of the
Collateral. Under the United States Bankruptcy Code (the "Bankruptcy Code"), a
secured creditor such as the Trustee is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
Bankruptcy Code permits the debtor to continue to retain and to use Collateral
owned as of the date of the bankruptcy filing (and the proceeds, products,
rents or profits of such Collateral) to the extent provided by the Security
Documents and applicable nonbankruptcy law even though the debtor is in default
under the applicable debt instruments, provided that the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
value of the secured creditor's interest in the Collateral and may include, if
approved by the court, cash payments or the granting of additional security for
any diminution in the value of the Collateral as a result of the stay of
repossession or disposition or any use of Collateral by the debtor during the
pendency of the bankruptcy case. In view of the lack of a precise definition
of the term "adequate protection" and the broad discretionary power of a
bankruptcy court, it is impossible to predict how long payments under the Notes
could be delayed following commencement of a bankruptcy case, whether or when
the Trustee could repossess or dispose of the Collateral or whether or to what
extent Holders would be compensated for any delay in payment or loss of value
of the Collateral through the requirement of "adequate protection."
CERTAIN COVENANTS
The following summarizes certain of the covenants with which the Company
and each Company Subsidiary must comply:
Limitation on Indebtedness. The Company shall not, and shall not permit
any Company Subsidiary to, directly or indirectly, incur any Indebtedness other
than:
(a) Indebtedness under the Notes, the Indenture and the Security
Documents;
(b) Bank Indebtedness and any renewals, replacements and/or
refinancings thereof, so long as the aggregate principal amount
of Bank Indebtedness at any one time outstanding pursuant to
this paragraph (b) does not exceed the Bank Indebtedness
Amount;
(c) Any Indebtedness, if (i) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur
after giving effect to, on a pro forma basis, such incurrence
of such Indebtedness and (ii) immediately after giving effect
to the incurrence thereof, and the receipt and the application
of the proceeds thereof, the Consolidated Coverage Ratio would
be greater than (A) 1.75 to 1, in the case of such Indebtedness
incurred or to be incurred on or prior to December 31, 1996 and
(B) 2.0 to 1, in the case of such Indebtedness incurred or to
be incurred on or after January 1, 1997; provided that any such
Indebtedness shall mature at a date not earlier than the Stated
Maturity of the Notes and shall have an Average Life to Stated
Maturity equal to or greater than the remaining Average Life to
Stated Maturity of the Notes; or
(d) Any Indebtedness issued in exchange for or to repay, prepay,
repurchase, redeem, defease, retire or refinance ("refinance")
any Indebtedness permitted by clauses (a) or (c) above;
provided that (i) if the principal amount of the Indebtedness
so issued shall exceed the principal amount of the Indebtedness
so exchanged or refinanced, then such excess shall be permitted
only to the extent that it is otherwise permitted to be
incurred hereunder and (ii) the Indebtedness so issued (A) has
a Stated Maturity later than the Stated Maturity of the
Indebtedness so exchanged or refinanced, (B) has an Average
Life to Stated Maturity equal to or greater than the remaining
Average Life to Stated Maturity of the Indebtedness so
exchanged or refinanced, and (C) is subordinated to the Notes
to at least the same extent as the Indebtedness so exchanged or
refinanced.
Limitation on Restricted Payments. The Company shall not, and shall not
permit any Company Subsidiary to, make, directly or indirectly, any Restricted
Payment, including (i) any declaration or payment of any dividend or similar
payments in respect of the capital stock of the Company or a Company Subsidiary
(other than dividends payable solely in capital stock or payments of dividends
on capital stock of a Company Subsidiary payable to the Company or to Company
Subsidiary which is wholly owned by the Company); (ii) any purchase,
defeasance, redemption or other acquisition or retirement for value of any
capital stock, or any warrants, rights or options to purchase any capital
stock, of the Company or any Company Subsidiary; (iii) any payment of principal
on any Indebtedness which is subordinated in right of payment to the Notes, or
(iv) any loan, stock purchase or other Investment in any Person that will not
be a wholly owned Company Subsidiary of the Company immediately after giving
effect to such loan, stock purchase or other Investment, if after giving effect
thereto, on a pro forma basis:
(a) a Default or Event of Default shall have occurred and is
continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such Restricted Payment, the
Company could not incur at least $1.00 of Indebtedness and maintain the
Consolidated Coverage Ratio required for the incurrence of additional
debt; or
(c) the aggregate of all Restricted Payments declared or made after
the Issue Date exceeds the sum of: (i) 50% of Consolidated Net Income (or
in the event such Consolidated Net Income shall be a deficit, minus 100%
of such deficit) accrued during the period (treated as one accounting
period) commencing on the first full quarter after the Issue Date, to and
including the last day of the fiscal quarter ended immediately prior to
the date of each such calculation, minus (ii) 100% of the amount of any
write downs, write-offs, or negative extraordinary charges not otherwise
reflected in Consolidated Net Income during such period, plus (iii) an
amount equal to the aggregate Net Cash Proceeds received by the Company
from the issuance or sale (other than to a subsidiary) of its Capital
Stock (excluding Disqualified Stock, but including capital stock issued
upon conversion of convertible Indebtedness and from the exercise of
options, warrants or rights to purchase capital stock, other than
Disqualified Stock, of the Company) after the Issue Date;
provided, however, that the foregoing provisions will not prevent, provided
that no Default or Event of Default shall have occurred and is continuing at
the time of the restricted payment: (i) the payment of any dividend within 60
days after the date of its declaration if, at the date of declaration, such
payment would be permitted by the foregoing provisions; (ii) the payment of
dividends or the making of distributions solely in shares of capital stock of
the Company; and (iii) Restricted Payments not otherwise permitted by clauses
(i) through (iii) above in an amount not exceeding $200,000 in any calendar
year.
Limitation of Liens. The Company shall not, and shall not permit any
Company Subsidiary to, create, incur, assume or suffer to exist any lien of any
kind upon any of its property or assets (including, without limitation, any
income or profits) now owned or hereafter acquired by it, other than Permitted
Liens.
Limitation on Dividends and Other Payment Restrictions Affecting Company
Subsidiaries. The Company shall not, and shall permit any Company Subsidiary
to, directly or indirectly create or otherwise cause or suffer to exist any
consensual encumbrance or restriction on the ability of any Company Subsidiary
to pay dividends, make distributions on the capital stock of such Company
Subsidiary, pay any obligation to the Company or a Company Subsidiary, or
otherwise transfer assets or make or pay loans to the Company or any Company
Subsidiary, except: (i) restrictions imposed by the Security Documents;
(ii) certain other restrictions set forth in the Indenture; (iii) customary
non-assignment provisions restricting subletting or assignment of any lease
entered into in the ordinary course of business; (iv) restrictions imposed by
Gaming Laws or any Gaming Authority; (v) restrictions under any agreement
relating to any property, assets or business acquired by the company or its
Company Subsidiaries, which restrictions are applicable only to the assets or
business acquired; (v) any restrictions with respect to capital stock or assets
of a Company Subsidiary imposed pursuant to a stock or asset sale of such
Company Subsidiary, and (vii) replacements of restrictions imposed pursuant to
clauses (i) through (vi) above that are no more restrictive than those being
replaced.
Limitation on Sale-Leaseback Transactions. The Company shall not, and
shall not permit any Company Subsidiary to, directly or indirectly enter into,
guarantee or otherwise become liable with respect to any Sale-Leaseback
Transaction involving Collateral or any other Sale-Leaseback Transaction
unless: (i) after giving effect to any such Sale-Leaseback Transaction the
Company could incur $1.00 of additional Indebtedness and its Consolidated
Coverage Ratio would be no less than the ratio necessary to increase additional
Indebtedness; (ii) such Sale-Leaseback Transaction does not involve the
creation of a lien which is not a Permitted Lien; (iii) the consideration
received by the Company and/or any of its Company Subsidiaries for such
Sale-Leaseback Transaction is at least equal to the Fair Market Value of such
property being transferred, and (iv) the Company shall apply the Net Cash
Proceeds of the sale as if such sale was a Restricted Asset Sale. See "-
Restricted Asset Sales".
Restricted Asset Sales. The Company shall not, and shall not permit any
Company Subsidiary to, directly or indirectly, make any Restricted Asset Sale,
including the issuance by a Company Subsidiary of any capital stock or other
equity interests to a Person other than the Company or a wholly owned Company
Subsidiary or any asset sale or other disposition which is not an Unrestricted
Asset Sale, unless: (i) at the time of such Restricted Asset Sale the Company
or such Company Subsidiary, as the case may be, receives consideration at least
equal to the Fair Market Value of the assets sold or otherwise disposed of;
(ii) with certain exceptions, which include the sale of Bullwhackers Central
City, at least 90% in value of the proceeds therefrom consist of U.S. dollars;
(iii) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Restricted Asset Sale; and
(iv) unless otherwise permitted by the Indenture, the Restricted Asset Sale
does not involve any Collateral.
On or before the 180th day after the date on which the Company or any
Company Subsidiary consummates a Restricted Asset Sale, the Company shall make
an offer to purchase a principal amount (expressed as a multiple of $1,000) of
Notes equal to the Net Cash Proceeds received by the Company in respect of the
Restricted Asset Sale at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided that the Company will not be required to purchase Notes with
the Net Cash Proceeds of a Restricted Asset Sale if and to the extent that on
or before the 180th day after the date on which the Company or such Company
Subsidiary consummates the Restricted Asset Sale, the Company or such Company
Subsidiary applies all or part of the Net Cash Proceeds from the Restricted
Asset Sale to acquire other assets for use in the Company's gaming business,
and upon consummation thereof, the Trustee shall have received a perfected
security interest in the property or assets acquired by the Company or any of
its Company Subsidiaries in connection therewith. Each offer to purchase Notes
after a Restricted Asset Sale shall remain open for a period of at least twenty
(20) business days.
In the event any Restricted Asset Sale involves any Collateral, the
Company or such Company Subsidiary, as the case may be, shall cause such Net
Cash Proceeds to be deposited in a Collateral Account maintained by the
Trustee. Such funds may be released from the Collateral Account only to
repurchase Notes or to acquire assets for use in the Company's gaming business.
Application of Net Cash Proceeds in Event of Loss. In the event that the
Company or any Company Subsidiary suffers any casualty loss or government
taking to any material asset, on or before the 360th day that the Company or
such Company Subsidiary received any Net Cash Proceeds from such Event of Loss,
the Company shall make an offer to purchase from all Holders up to a maximum
principal amount (expressed as a multiple of $1,000) of Notes equal to the Net
Cash Proceeds at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of purchase;
provided that the Company will not be required to purchase Notes with such Net
Cash Proceeds if and to the extent that on or before the 360th day after the
date on which the Company or such Company Subsidiary receives such Net Cash
Proceeds, the Company or such Company Subsidiary applies all or part of the Net
Cash Proceeds to acquire other assets for use in the Company's gaming business
and upon consummation thereof, the Trustee shall have received a perfected
security interest (subject only to Permitted Liens) in the property or assets
acquired by the Company or any of its Company Subsidiaries in connection
therewith.
In the event any casualty loss or government taking involves any
Collateral, the Company or such Company Subsidiary, as the case may be, shall
cause such Net Cash Proceeds to be deposited in a Collateral Account maintained
by the Trustee. Such funds may be released from the Collateral Account only to
repurchase Notes or to acquire assets for use in the Company's gaming business.
Limitation on Company Subsidiary Preferred Stock. The Company shall not
issue or permit any Company Subsidiary to issue, directly or indirectly, any
preferred stock other than preferred stock issued to and held by the Company or
a wholly owned Company Subsidiary of the Company.
Ownership of Stock of Company Subsidiaries. The Company shall at all
times have, or cause a wholly owned Company Subsidiary (other than a Non-
Operating Subsidiary) of the Company to have, ownership of at least 100% of
each class of Voting Stock of, and all other equity securities in, each Company
Subsidiary other than a Company Subsidiary which becomes such as a result of a
permitted Investment.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Company Subsidiary to, conduct any business or enter into
any transaction or series of transactions with any of their respective
Affiliates (defined to include entities having 15% or more voting control),
except such transactions that are on terms that are no less favorable to the
Company or such Company Subsidiary, as the case may be, than those that could
have been obtained in a comparable transaction on an arm's-length basis from an
unaffiliated third party. All transactions with Affiliates involving aggregate
payments (i) in excess of $500,000 shall not be permitted unless, prior to the
consummation thereof, the transaction shall be approved by the Board of
Directors of the Company, including a majority of the independent directors, as
evidenced by a Board Resolution, and (ii) in excess of $2 million shall not be
permitted unless, prior to consummation thereof, the Company shall, in addition
to board approval, receive a favorable opinion as to the fairness of the
transaction from any national or regional investment banking firm with
recognized experience with the gaming industry.
Change in Nature of Business. The Company shall not, and shall not permit
any of its Company Subsidiaries to, own, manage or conduct any operation other
than an operation involved in the gaming and ancillary businesses.
Maintenance of Consolidated Fixed Charge Coverage Ratio. The Company
shall, at the end of each fiscal quarter beginning with the fiscal quarter
ending March 31, 1998, maintain the ratio of the difference between its
Consolidated EBITDA and its Capital Expenses to its Consolidated Fixed Charges
for the four quarters then ending at a ratio which is greater than or equal to
1.25 to 1.
Consolidation, Merger, Conveyance, Transfer or Lease. Except as part of a
permitted Restricted Asset Sale, the Company shall not consolidate with, merge
with or into, sell, assign, convey, lease or transfer all or substantially all
of its properties and assets to any Person or group of affiliated Persons
unless (i) the Company shall be surviving entity or the surviving entity shall
be a corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia; (ii) the surviving entity shall
expressly assume all of the obligations of the Company under the Notes, the
Indenture, and the Security Documents; (iii) no Default or Event of Default
shall have occurred and be continuing; (iv) the surviving entity shall,
immediately after giving effect to such transaction on a pro forma basis, have
a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction; (v) immediately after giving
effect to such transaction on a pro forma basis, the Company or the surviving
entity could incur at least $1.00 of additional Indebtedness and maintain a
Consolidated Coverage Ratio of no less than the ratio necessary to incur
additional Indebtedness; (vi) the surviving entity shall have delivered to the
Trustee an Officer's Certificate stating that such consolidation, merger,
conveyance, transfer or lease and supplemental indenture if a supplemental
indenture is required in connection with such transaction or series of
transactions complies with this covenant and that all conditions precedent in
the Indenture relating to the transaction or series of transactions have been
satisfied, and (vii) such transaction will not result in the loss of any Gaming
License or Change in Control.
Other than the provisions of the Indenture discussed above, the Indenture
may not afford Holders any further protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders of the
Notes, if such transaction is not a transaction defined as a Change of Control.
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the Indenture:
(a) the default in the payment of any interest on any Note when it
becomes due and payable and the continuance of any such default for a
period of ten (10) days; or
(b) the default in the payment of the principal of or premium, if
any, on any Note when due at maturity, upon acceleration, mandatory
redemption, optional redemption, required purchase or otherwise; or
(c) the failure by the Company to own directly or through wholly
owned Company Subsidiaries subject to certain exceptions, 100% of the
Voting Stock of all Company Subsidiaries, the failure by the Company to
maintain the required Consolidated Fixed Charges Coverage Ratio at the
required level or if the Company or any Company Subsidiary modifies any
agreement with Christopher B. Hemmeter or Mark M. Hemmeter existing as of
the Issue Date or enters into any additional agreement after the Issue
Date with either Person.
(d) default in the performance, or breach of any covenant or
warranty of the Company or any Company Subsidiary in the Indenture, or by
the Company or any Guarantor under any other Noteholder Document, or by
any Guarantor under its Guarantee (other than defaults otherwise specified
in this section), and the continuance of such default or breach for a
period of thirty (30) days after written notice to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25%
in aggregate principal amount of the outstanding Notes; or
(e) failure by the Company or any Company Subsidiary to make any
payment when due or within applicable grace periods with respect to any
other Indebtedness to the extent that all such payments then due aggregate
the principal amount of $1 million or more; or
(f) a final judgment for the payment of money in excess of $1
million shall be entered against the Company, any Guarantor or any Company
Subsidiary and remaining undischarged for a period of thirty (30) days; or
(g) any warrant of attachment in an amount of $1 million or more
shall be issued against any portion of the property or assets of the
Company, any Guarantor or any Company Subsidiary; or
(h) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Company Subsidiary shall have occurred; or
(i) any Noteholder Document ceases to be in full force and effect
or any Noteholder Documents ceases to create in favor of the Trustee, with
respect to any portion of the Collateral, a valid and perfected Lien on
the Collateral (subject only to Permitted Liens) purported to be covered
thereby; or
(j) any Guarantee of a Guarantor is determined by a court of
competent jurisdiction to be null and void with respect to such Guarantor
or any Guarantor denies that it has any further liability under its
Guarantee or gives notice to such effect; or
(k) the cessation of substantially all gaming operations at any
Gaming Facility which has commenced operations, other than the Central
City Casino, for more than 45 days, except as a result of an Event of Loss
(or 90 days in the case of cessation as a result of renovations to or
construction at or adjacent to such Gaming Facility); or
(l) the revocation, suspension or involuntary loss of the legal
right to operate any Gaming Facility which continues for more than 45
days; or
(m) the Company ceases to own 100% of the Voting Stock of BWBH,
Inc., sells the Black Hawk Casino or all or a significant portion of BWBH,
Inc.'s assets or properties, the occurrence of a Restricted Asset Sale
involving assets or property owned or leased by BWBH, Inc. or used by
BWBH, Inc. in the operation of the Black Hawk Casino, or certain Events of
Loss occur with respect to the Black Hawk Casino or BWBH, Inc.
The Company is required to deliver to the Trustee on or before the date
which is 45 days after the end of each of the first three fiscal quarter of the
Company's fiscal year and on or before the date which is 90 days after the end
of each fiscal year of the Company, an officer's certificate stating whether or
not any Default or Event of Default has occurred. Within 45 days after the
occurrence of any Default, unless such Default shall have been cured or waived,
the Trustee must deliver notice of such Default known to the Trustee to all
Holders. Except in the case of a Default specified in clauses (a) or (b)
above, the Trustee may withhold such notice if and so long as it determines in
good faith that withholding such notice is in the interest of the Holders.
If an Event of Default (other than an Event of Default specified in clause
(h) above) occurs, the Trustee or the Holders of at least 25% in principal
amount of the outstanding Notes may, by written notice, declare the principal
of, premium, if any, and accrued interest on all the Notes to be immediately
due and payable. If an Event of Default specified in clause (h) occurs, then
the principal of and accrued interest on all the Notes shall become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
After a declaration of acceleration, the Holders of a majority in
principal amount of Outstanding Notes may, by notice to the Company and the
Trustee, rescind such declaration of acceleration if (a) the Company has
deposited with the Trustee a sum sufficient to pay the unpaid principal of (and
premium, if any, on) the Notes, all overdue interest on the Notes (including
interest on overdue interest), and the Trustee's reasonable expenses, (b) all
existing Events of Default have been cured or waived, other than nonpayment of
principal of and interest on the Notes due solely by such acceleration, and
(c) the rescission of acceleration would not conflict with any judgment or
decree.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because of an Event of Default specified
in clause (e), such declaration of acceleration shall be automatically annulled
if (i) the Indebtedness that is the subject of such Event of Default has been
discharged or the holders thereof have waived the default and rescinded their
declaration of acceleration in respect of such Indebtedness, (ii) the Company
shall have given notice of such discharge to the Trustee (countersigned by the
holders of such Indebtedness) within 30 days after such declaration of
acceleration in respect of the Notes, and (iii) no other Event of Default has
occurred during such 30 day period which has not been cured or waived.
Upon the occurrence of an Event of Default which is continuing, the
Trustee may, or at the direction of the Holders of at least 25% in principal
amount of the outstanding Notes shall, initiate suit for collection of the
amounts due under the Notes and the Guarantees, exercise all rights and
remedies in respect of the Collateral pursuant to the Noteholder Documents or
otherwise exercise any rights and remedies available to it under the Indenture
or otherwise.
No Holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the Holders of
at least 25% in principal amount of the outstanding Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee, the Trustee has failed to institute such proceeding
within 15 days after receipt of such notice and the Trustee has not within such
15-day period received directions inconsistent with such written request by
Holders of a majority in principal amount of the outstanding Notes. Such
limitations do not apply, however, to a suit instituted by a Holder for the
enforcement of the payment of the principal of, premium, if any, or accrued
interest on, such Note on or after the respective due dates expressed in such
Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
shall have offered to such Trustee reasonable security or indemnity. Subject
to certain provisions concerning the rights of the Trustee, the holders of a
majority in principal amount of the outstanding Notes have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee exercising any trust or power conferred on the
Trustee.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect
to the Notes and the Indenture ("Legal Defeasance"), except for certain
obligations, including those regarding any trust established for a defeasance
and obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain agencies in respect
to the Notes. The Company may also at any time terminate its obligations under
certain covenants set forth in the Indenture that constitute a Default or an
Event of Default with respect to the Notes issued under the Indenture
("Covenant Defeasance"). In order to exercise either Legal Defeasance or
Covenant Defeasance, the Company must irrevocably deposit with the Trustee in
trust, for the benefit of the Holders, money or United States Government
Obligations (or a combination thereof) in such amounts as will be sufficient to
pay the principal of, premium, if any, and interest on the Notes to redemption
or maturity, together with all other sums payable by it under the Indenture,
and comply with certain other conditions, including the delivery of an opinion
as to certain tax matters.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of Notes) as to all outstanding Notes when either: (a) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation; or (b)(i) all such Notes
not theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable at their Stated Maturity within one year
or are to be called for redemption within one year, and the Company has
irrevocably deposited or caused to be deposited, prior to the date of such
discharge, with the Trustee funds sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal, premium, if any, and accrued interest to the date
of such deposit; (ii) the Company has paid all sums payable by it under the
Indenture, and (iii) the Company has delivered to the Trustee an Officer's
Certificate and an opinion of counsel stating that all conditions precedent to
satisfaction and discharge have been complied with.
AMENDMENTS AND WAIVERS
The Company may, when authorized by resolutions of its Board of Directors,
and the Trustee may, without the consent of the Holders, amend, waive or
supplement the Indenture, the Security Documents or the Notes for certain
specified purposes. The purposes for which amendments may be made without the
consent of the holders include, among other things, curing ambiguities, defects
or inconsistencies, maintaining the qualification of the Indenture under the
Trust Indenture Act, or making any change that does not adversely affect the
rights of any Holder. Other amendments and modifications of the Indenture, the
Notes or the Security Documents may be made by the Company and the Trustee with
the consent of the Holders of not less than a majority of the aggregate
principal amount of the Outstanding Notes, provided that no such modification
or amendment may, without the consent of the Holder of each Outstanding New
Note affected thereby:
(a) Alter the maturity, principal amount, interest rate or priority
of the Notes (or the right to institute suit for any payment after stated
maturity),
(b) Release any Guarantor from its Guarantee or amend the
provisions of the Indenture relating to the Guarantee (other than a
release resulting from a permitted sale of all of the capital stock of a
Guarantor),
(c) Except as otherwise provided in the Indenture, release any
Collateral or permit creation of any Lien senior to or equal to the Lien
of any Security Document, or
(d) Reduce the percentage in principal amount of the Outstanding
Notes the consent of whose Holders is required for any supplemental
indenture, waiver, amendment or consent to take any action under the
Indenture.
No supplemental indenture shall, without the consent of the Holders of 66 2/3%
in principal amount of the Outstanding Notes, waive or amend the obligation of
the Company to repurchase the Notes upon a Change of Control. See "- Mandatory
Offers to Purchase - Offer to Purchase Upon Change of Control".
REGARDING THE TRUSTEE
Fleet National Bank, Hartford, Connecticut, will serve as Trustee under
the Indenture and will act as collateral agent and the mortgagee, as
applicable, under the Security Documents. Any replacement trustee must be
qualified to act as such under the United States Trust Indenture Act of 1940,
as amended.
GUARANTEES OF 12% SENIOR SECURED PAY-IN-KIND NOTES DUE 2003
BWBH, BWCC, Millsite and Silver Hawk, have irrevocably and unconditionally
guaranteed the payment of the Notes and the Company's obligations under the
Indenture. The Guarantees of the Guarantors are in addition to (and not in
substitution for) any other security for the Notes and may not be revoked by
Guarantor until all guaranteed obligations have been indefeasibly paid and
performed in full.
The liability of each Guarantor under its Guarantee is joint and several
for the full amount of each new Note and is independent of, and not in
consideration of or contingent upon, the liability of the Company or any other
Guarantor. The obligation of each Guarantor under its Guarantee is continuing,
absolute and unconditional without regard to (i) the legality, validity or
enforceability of the Notes, the Indenture, any Security Document, any Lien or
Collateral or the Guarantee given by any other Guarantor; (ii) any defense
(other than payment), set-off or counterclaim that may be available to the
Company or any other Guarantor against any Holder; or (iii) any other
circumstance whatsoever. Each Guarantor waives (i) any and all rights of
subrogation, indemnity or reimbursement (until all guaranteed obligations have
been paid in full); (ii) the right to require the Holders to proceed against
the Company, any other Guarantor, or any Collateral for the Notes or other
guaranteed obligations; (iii) all rights under applicable law which reduce a
guarantor's obligations; (iv) the benefit of any statute of limitations;
(v) any requirement of marshalling or any other principle of election or
remedies; (vi) any right to assert any defense, set-off or counterclaim;
(vii) notice of any kind, except as expressly required by any Security
Documents securing any guaranteed obligations, and (viii) all defenses
available to any Guarantor by virtue of valuation, stay, moratorium or other
law.
LEGAL MATTERS
Certain matters regarding the validity of the Notes, the Guarantee and the
Common Stock will be passed upon for the Company by LeBoeuf, Lamb, Greene &
MacRae, L.L.P., a partnership including professional corporations.
EXPERTS
The consolidated financial statements of the Company at December 31, 1994
and 1995, and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
Page
____
CONSOLIDATED FINANCIAL STATEMENTS
[to be
completed
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1994, 1995, including
unaudited pro forma consolidated balance sheet as of December 31,
1995 F-3
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1995
Consolidated Statements of Stockholders' Equity (Deficit) for each of the
three years in the period ended December 31, 1995
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1995
Notes to Consolidated Financial Statements
Consolidated Balance Sheets - for June 30, 1996 and December 31, 1995
Consolidated Statement of Operations - for the period June 7 through June
30, 1996, January 1 through June 6, 1996, April 1 through June 6,
1996 and the for the six and three months ended June 30, 1995
Consolidated Statements of Cash Flows - for the period June 7 through June
30, 1996, January 1 through June 6, 1996 and for the six months ended
June 30, 1995
Notes to Unaudited Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hemmeter Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of
Hemmeter Enterprises, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated 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 audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hemmeter
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described more fully
in Note 1 to the consolidated financial statements, on November 7,
1995, the Company filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code and has since operated its business as a
debtor-in-possession under the supervision the Bankruptcy Court. The
Company's proposed plan of reorganization ("Plan" -- see Note 1) was
confirmed by the Bankruptcy Court on March 28, 1996; however, there
are certain events that must occur for the Plan to be declared
effective by the Bankruptcy Court. Because the Company's Plan is not
yet effective, and the Company would be unable to satisfy its default
on its senior secured pay-in-kind notes if the Plan does not become
effective, substantial doubt exists regarding the Company's ability to
continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Denver, Colorado,
April 11, 1996.
<TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
December 31,
---------------------------
ASSETS 1994 1995
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,977 $ 3,623
Accounts receivable, net 1,109 226
Inventories 85 85
Prepaid expenses 1,581 638
Due from affiliates, net 3,625 -
--------- ---------
Total current assets 14,377 4,572
========= =========
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net 69,079 32,127
EQUITY INVESTMENT IN UNCONSOLIDATED
SUBSIDIARIES 18,010 -
RESTRICTED FUNDS IN ESCROW 18,648 -
EXCESS REORGANIZATION VALUE (Note 1) - -
OTHER ASSETS, net 20,979 981
--------- ---------
$ 141,093 $ 37,680
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 3,118 $ 404
Accrued expenses 3,727 3,953
Current portion of credit facility - -
Current portion of notes payable 14,610 -
Current portion of obligations under
capital leases 787 -
--------- ---------
Total current liabilities 22,242 4,357
--------- ---------
NOTES PAYABLE, net of current portion:
Senior secured notes payable 154,213 -
Obligations under capital leases 1,462 -
Credit facility - -
Other notes - -
--------- ---------
155,675 -
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE
(Note 1) - 186,460
--------- ---------
Total liabilities 177,917 190,817
--------- ---------
COMMITMENTS AND CONTINGENCIES
(See Notes)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value,
50,000,000 shares authorized,
9,847,787 and 11,786,235
shares issued and outstanding
at December 31, 1994 and 1995,
respectively 99 118
Warrants issued 8,266 7,000
Additional paid-in capital 2,012 2,162
Accumulated deficit (47,201) (162,417)
--------- ---------
Total stockholders' equity
(deficit) (36,824) (153,137)
--------- ---------
$ 141,093 $ 37,680
========= =========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<CAPTION>
Years Ended December 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Casino $ 35,982 $ 42,724 $ 44,854
Food and beverage 2,935 3,571 3,737
Other 259 389 286
---------- ---------- ----------
Gross revenues 39,176 46,684 48,877
Less: promotional allowances (708) (1,210) (1,449)
---------- ---------- ----------
Net revenues 38,468 45,474 47,428
---------- ---------- ----------
OPERATING EXPENSES:
Casino 12,705 14,006 13,087
Gaming taxes and device fees 7,703 8,178 8,277
Food and beverage 3,270 3,140 3,173
General and administrative:
Casino 4,325 3,281 3,223
Corporate - 8,108 6,470
Marketing 3,376 3,776 5,806
Depreciation and amortization 3,931 4,307 4,771
Pre-opening - 2,594 -
Reorganization items (Note 1) - - 17,910
Impairment of assets (Notes 5 and 11) - 6,875 10,945
Predevelopment costs - 3,929 402
Other - 241 -
---------- ---------- ----------
Total operating expenses 35,310 58,435 74,064
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 3,158 (12,961) (26,636)
Interest expense (includes $4,755 and
$122 to affiliates in 1993 and 1995,
respectively) (contractual interest of
$3,179 and $5,391 was not recognized
for December 31, 1995 (Note 7)) (6,987) (18,822) (18,664)
Interest income - 1,976 361
Equity in loss of unconsolidated
subsidiaries (Notes 1 and 6) - (2,324) (70,277)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (3,829) (32,131) (115,216)
Provision for income taxes - - -
---------- ---------- ----------
NET LOSS $ (3,829) $ (32,131) $ (115,216)
========== ========== ==========
NET LOSS PER SHARE $ (0.37) $ (3.22) $ (9.78)
========== ========== ==========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 10,269,641 9,969,142 11,786,235 11,786,235 11,786,235
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(in thousands, except number of shares)
<CAPTION>
Common Stock Additional
------------------------- Warrants Paid-in Accumulated
Shares Amount Issued Capital Deficit Totals
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1992 - $ - $ - $ 1,239 $ (11,241) $ (10,002)
Capital contributions to predecessor companies - - - 871 - 871
Issuance of common stock pursuant to
restructuring 10,269,641 103 - (102) - 1
Issuances of warrants to purchase common stock - - 8,266 - - 8,266
Net loss - - - - (3,829) (3,829)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1993 10,269,641 103 8,266 2,008 (15,070) (4,693)
Conversion of common stock to warrants (421,854) (4) - 4 - -
Net loss - - - - (32,131) (32,131)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1994 9,847,787 99 8,266 2,012 (47,201) (36,824)
Vesting of common stock grants to officers
and directors 88,667 1 - 168 - 169
Warrants of deconsolidated subsidiary - - (1,266) - - (1,266)
Conversion of warrants to common stock 1,849,781 18 - (18) - -
Net loss - - - - (115,216) (115,216)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1995 11,786,235 $ 118 $ 7,000 $ 2,162 $ (162,417) $ (153,137)
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE> Page 1 of 2
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Years Ended December 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,829) $ (32,131) $ (115,216)
---------- ---------- ----------
Adjustments to reconcile net
loss to net cash provided by
operating activities-
Depreciation and amortization 3,931 4,307 4,771
Loss on retirements of property
and equipment 92 - 127
Equity in loss of unconsolidated
subsidiaries - 2,324 70,277
Noncash compensation - - 169
Predevelopment costs - 3,929 -
Impairment of assets - 6,875 11,347
Noncash interest expense 692 17,909 17,895
Noncash reorganization items - - 15,317
(Increase) decrease in accounts
receivable (252) (808) 883
(Increase) decrease in inventories 115 15 -
Increase in prepaid expenses and
other assets (16) (1,270) (172)
(Decrease) increase in accounts
payable (297) 1,397 378
(Decrease) increase in accrued
expenses 17 167 226
---------- ---------- ----------
Total adjustments 4,282 34,845 121,218
---------- ---------- ----------
Net cash provided by operating
activities 453 2,714 6,002
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, equipment
and leasehold improvements (9,812) (31,560) (1,508)
Investment in development projects (571) (3,358) -
Net restricted funds (placed in)
disbursed from escrow (71,200) 52,552 4,209
Investment in unconsolidated
subsidiaries - (20,334) (9,270)
Advances to PRIGSA (Note 5) - (5,875) (289)
(Increase) decrease in other assets (7,830) (5,174) 59
Advances to affiliates, net (365) (4,402) (1,257)
---------- ---------- ----------
Net cash provided by investing
activities (89,778) (18,151) (8,056)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to affiliate 6,285 - 2,000
Repayment of notes payable to affiliate (31,851) - -
Proceeds from notes payable and
obligations under capital leases 135,255 13,048 -
Payment of debt placement costs,
net of accrued liabilities (7,667) (38) (315)
Repayments of notes payable and
obligations under capital leases
(10,565) (2,540) (1,651)
Capital contributions received by
predecessor companies 871 - -
Issuance of warrants to purchase
common stock 8,266 - -
---------- ---------- ----------
Net cash provided by (used in)
financing activities 100,594 10,470 34
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 11,269 (4,967) (2,020)
CASH AND CASH EQUIVALENTS, at beginning
of period (less $2,334 of cash in
subsidiary deconsolidated for the
1995 period) 1,675 12,944 5,643
---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
at end of period $ 12,944 $ 7,977 $ 3,623
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest, net of
amounts capitalized $ 6,647 $ 965 $ 579
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of notes payable and capital
lease obligations for purchases of
property and equipment $ 408 $ 726 $ 227
========== ========== ==========
Issuance of notes payable for accrued
interest obligations $ - $ 17,001 $ 9,416
========== ========== ==========
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) ORGANIZATION, PLAN OF REORGANIZATION
AND GOING-CONCERN CONSIDERATIONS
Organization
Hemmeter Enterprises, Inc. ("HEI"), and its subsidiaries (the
"Company"), develop, own and operate gaming and related entertainment
facilities. HEI was incorporated in August 1993 to acquire and serve
as the parent company of certain companies now comprising HEI's wholly
owned subsidiaries pursuant to a restructuring of certain entities
under common control which was consummated on December 17, 1993. The
accompanying financial statements have been prepared to give effect to
the 1993 restructuring.
Two wholly owned subsidiaries, BWBH, Inc. and BWCC, Inc., own and
operate limited stakes gaming facilities in Colorado (collectively,
"Bullwhackers Casinos"). Millsite 27, Inc., also a wholly owned
subsidiary, owns a surface parking facility constructed in 1994 for
the benefit of BWBH, Inc.'s casino. The Bullwhackers Casinos
commenced operations in 1992. Another wholly owned subsidiary, Grand
Palais Riverboat, Inc. ("GPRI"), is a fifty percent joint venture
partner in River City Joint Venture ("RCJV") with Crescent City
Capital Development Corp. ("CCCD"), an affiliate of Capital Gaming
International, Inc., which developed and operated a riverboat gaming
project in New Orleans, Louisiana (the "Riverboat Project") (Note 6).
GPRI and CCCD each operated separate riverboat gaming operations which
commenced on March 29, 1995 and April 3, 1995, respectively. RCJV
operated an entertainment and docking facility for the two riverboats,
with parking, dining, entertainment facilities and other amenities.
GPRI Bankruptcy
The Riverboat Project incurred construction cost overruns and had
substantial operating losses as a result of the failure of the New
Orleans gaming market to develop as anticipated and the resulting
failure of the Riverboat Project to achieve projected revenues. As a
result, GPRI and CCCD terminated riverboat gaming operations on June
6, 1995 and June 9, 1995, respectively. On July 26, 1995, certain
creditors filed an involuntary petition under Chapter 11 of the
Federal Bankruptcy Code against GPRI, CCCD and RCJV. On July 27,
1995, GPRI converted its petition to a voluntary petition under
Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Louisiana (the "Court").
Since that time, GPRI has continued to operate as a debtor-in-
possession, although the business of GPRI has not operated since June
6, 1995.
Following termination of operations, HEI management began assessing
the possibility that all or part of the Riverboat Project could be
sold to another gaming operator. After evaluation and negotiation of
potential transactions, HEI, certain creditors and GPRI entered into a
letter of intent with Casino America, Inc. ("Casino America
Agreement"). Generally, the Casino America Agreement provides for the
purchase by Casino America, Inc. of 100% of the newly issued shares of
common stock of a Reorganized GPRI in exchange for consideration from
Casino America, Inc. valued at approximately $59 million, including
cash, stock, notes and the assumption of certain GPRI liabilities. On
January 30, 1996, GPRI filed its proposed plan of reorganization
("GPRI Plan") pursuant to which it seeks to implement the terms of the
Casino America Agreement. The GPRI Plan was confirmed by the Court on
March 29, 1996. The GPRI Plan will be consummated on the date on
which the conditions to the effectiveness of the GPRI Plan have been
satisfied or waived (Note 13). Under the GPRI Plan, the Company will
receive GPRI's causes of action, if any, against GPRI's joint venture
partner in the Riverboat Project and will receive no other
distribution in respect of its stock ownership in GPRI or any claim
that it may have in the GPRI bankruptcy case.
HEI Bankruptcy
In June 1995, HEI received "Notices of Default" from the trustee of
its Senior Secured Pay-In-Kind Notes (the "Old Notes") (See Note 7),
alleging that HEI was in default under various provisions of the Old
Notes Indenture. The alleged defaults included, among other matters,
violations related to the issuance of certain additional indebtedness,
the termination of riverboat gaming operations, the numerous liens
filed against the Riverboat Project and the failure to file audited
financial statements on a timely basis. HEI negotiated with a
committee comprised of certain holders of the Old Notes to restructure
the Old Notes. On November 7, 1995, HEI and three of its wholly owned
subsidiaries (BWBH, Inc. BWCC, Inc. and Millsite 27, Inc.)
(collectively, the "Debtor"), filed voluntary petitions for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the
District of Delaware as contemplated by the negotiations with the
holders of the Old Notes. The Chapter 11 case subsequently was
transferred to the Court.
The Court allowed the Debtor to continue business operations as a
debtor-in-possession. The Debtor's primary operations now consist of
the Bullwhackers Casinos. The Debtor received approval from the Court
to pay or otherwise honor certain of its pre-petition obligations
related to the Bullwhackers Casinos, including employee wages and
benefits, utilities, and claims of certain trade vendors.
Accordingly, these amounts have been paid or are included in the
appropriate liability captions in the accompanying December 31, 1995
consolidated balance sheet. In addition, the Court approved the
Debtor's entering into a $7.9 million debtor-in-possession financing
facility (see Note 7).
HEI Proposed Plan of Reorganization
On February 12, 1996, the Debtor filed its Chapter 11 First Amended
Plan of Reorganization and Disclosure Statement (as amended, the
"Plan") with the Court. The Court granted motions filed by the Debtor
approving an amended Disclosure Statement describing the Plan and
establishing procedures for notification of creditors and stockholders
and for solicitation of formal acceptances of the Plan by creditors.
The Plan was confirmed by the Court on March 28, 1996.
The Plan will be consummated on the date (the "Effective Date") on
which certain conditions specified in the Plan are satisfied or
waived. The Company expects that the Effective Date will occur on or
about June 1, 1996.
The following events will occur at the Effective Date pursuant to the
Plan:
1. The Debtor will be discharged from any liability to GPRI or its
creditors. Assuming that the GPRI Plan becomes effective, the
Company will no longer have any interest in GPRI or the
Riverboat Project and its principal assets will consist of the
stock of its subsidiaries which own the Bullwhackers Casinos
and a surface parking lot. If the GPRI Plan is not effective
prior to the Effective Date, the Company will continue to own
the capital stock of GPRI until the GPRI Plan becomes
effective; however, Company management does not believe that
the GPRI stock has any value.
2. The claims of entities which provide goods and services to the
Bullwhackers Casinos will be paid in full or will otherwise be
treated in such a manner so that they are not impaired and all
other unsecured creditors of the Bullwhackers Casinos will
receive notes in a principal amount equal to the allowed amount
of their claims which provide for a single payment of principal
and accrued interest on the tenth anniversary of the issuance
thereof. All other unsecured creditors of the Company will
receive no distribution in respect of their claims against the
Company.
3. The holders of the Old Notes and the holder of the secured
claim of Resort Income Investors, Inc. (the "RII Claim"; Resort
Income Investors, Inc. is sometimes referred to as "RII") will
receive $50,000,000 in principal amount of 12% Senior Secured
Pay-In-Kind Notes of the Company, due 2003 (Note 7), and one
hundred percent (100%) of the issued and outstanding capital
stock of the "Reorganized Company," subject to being diluted to
90% by certain stock grants to be provided to senior management
employees and non-employee directors of the Reorganized Company
(Note 8). As a result, the holders of the Old Notes and the
RII Claim will be the principal creditors and stockholders of
the Company. The portion of the new Senior Secured Pay-In-Kind
Notes paid to the holder of the RII claim will be less than
$1 million and a similar portion of common stock will be issued
to the holder of the RII claim.
4. Pursuant to the settlement of certain lawsuits against the
Company and certain of its executive officers, the Company will
issue two promissory notes to Capital Associates International,
Inc. ("CAI"), an equipment lessor which had leased equipment to
the Company and GPRI, in the respective principal amounts of
$1.6 million and $3 million (the "CAI Notes"). The Company's
obligation in respect of the CAI Notes will be reduced dollar-
for-dollar by any amounts received by CAI in respect of its
claims filed in the GPRI bankruptcy case (Note 10).
5. Certain claims of the Debtor against third parties, including
derivative claims against the pre-Effective Date directors,
officers, and employees of the Debtor, will be transferred to a
litigation trust (the "Litigation Trust"). The trustees of the
Litigation Trust will be the post-Effective Date directors of
the Company and will determine whether or not to pursue any
such claims. Any amounts received in respect of any such
claims will inure to the benefit of the holders of the Old
Notes and the RII Claim (Note 12).
6. Any amounts outstanding under the DIP Facility (Note 7) will be
paid in full and the DIP Facility will be terminated. The
Company anticipates replacing the DIP Facility with a new
$12.5 million credit facility on the Effective Date.
7. The Company will change its name to Colorado Gaming &
Entertainment Co.
Liabilities Subject to Compromise
Pursuant to the Chapter 11 proceedings, certain secured and unsecured
claims against the Debtor in existence prior to the filing of the
petitions for relief under the Federal Bankruptcy Code were stayed
while the Debtor continued business operations as a debtor-in-
possession. The stayed claims which are "impaired" under the Plan are
reflected in the accompanying December 31, 1995 consolidated balance
sheet as "liabilities subject to compromise." As of the petition
date, the Debtor also discontinued accruing interest on its
pre-petition debt obligations. Additional claims have arisen
subsequent to the petition date resulting from the rejection of
executory contracts and/or leases and from the allowance by the Court
of contingent and/or disputed claims. Creditors and other parties in
interest have filed claims with the Court which are substantially in
excess of the amounts recorded in the Debtor's records. Management
believes these differences are primarily related to errors,
duplicative claims and overstatement of claims. The exact amount of
these liabilities is subject to adjustment as disputed claim amounts
are resolved by the Court, which management believes will not have a
material adverse effect on the Company's financial position, results
of operations or cash flows.
Liabilities subject to compromise consist of the following (in
thousands):
December 31
1995,
-----------
Senior Secured Pay-In-Kind Notes $174,274
Resort Income Investors 2,122
Equipment financing 4,169
HEI guarantee of subsidiary debt 4,600
HEI trade payables 1,295
--------
Total $186,460
========
The accompanying consolidated financial statements have been prepared
on a going-concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary
course of business. However, as a result of the Chapter 11 filing and
circumstances relating to this event, including the Debtor's highly
leveraged financial structure, there is substantial doubt about the
continuity of the Company's operations and the realization of the
Company's assets and liquidation of its liabilities. While under the
protection of Chapter 11, the Debtor may, with the approval of the
Court, sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated
financial statements. Further, the proposed Plan will materially
change the amounts reported in the consolidated financial statements,
which do not give effect to any adjustments to the carrying value of
the assets or amounts of liabilities that might be necessary as a
consequence of the proposed Plan. The appropriateness of using the
going-concern basis is dependent upon both the Plan and the GPRI Plan
becoming effective, generation of sufficient cash from operations and
financing sources to meet obligations and achievement of satisfactory
levels of future operating profit. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary if
the Company is unable to continue as a going concern.
Fresh Start Reporting
Upon confirmation of the Plan, the Company's post-petition liabilities
and allowed claims exceeded the reorganization value of the
Reorganized Company. Additionally, the Plan provides that the
existing stockholders of the Company will receive no ownership
interest in the Reorganized Company. Because these two conditions
exist, the Company is subject to and as of the effective date of the
Plan, the Reorganized Company will adopt Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"). Fresh start
reporting will result in material changes to the consolidated balance
sheet, including revaluation of assets and liabilities to fair market
value and revaluation of equity based on the reorganization value of
the ongoing business.
The unaudited $64 million reorganization value was estimated based
upon a Discounted Cash Flow Analysis. Under the Discounted Cash Flow
Analysis, the value of the Company was calculated utilizing five year
projected cash flows plus an estimated terminal value at the end of
year five. The terminal value was calculated at 6 times year five
cash flows. The cash flows and terminal values were then discounted
to present values by applying a discount rate of approximately 17%.
The Company's cash flow forecasts reflect numerous assumptions,
including modest increases in revenues and profitability resulting
primarily from enhanced marketing efforts, selective capital
expenditures, implementation of additional cost efficiencies and
overall growth in the Black Hawk market. The increases have been
assumed to be offset somewhat by an increased level of competition in
the Black Hawk market. The forecasts do not take into account the
Company's proposed expansion plans including the acquisition and
opening of the Silver Hawk Casino or the construction of the proposed
parking structure in Black Hawk. Upon adopting fresh start reporting,
the reorganization value will be allocated to the assets and
liabilities of the Reorganized Company, including subsidiaries. Any
excess of the reorganization value over the fair market value of the
net assets and liabilities will be reported as excess reorganization
value and will be amortized over a 20-year period or less.
As a result of adopting fresh start reporting, the Reorganized
Company's consolidated financial statements will not be comparable
with those prepared before the effective date, including the
historical consolidated financial statements included herein. The
unaudited pro forma consolidated balance sheet as of December 31,
1995, presented alongside the accompanying consolidated balance
sheets, has been prepared by Company management based on an assumption
that fresh start reporting was adopted as of December 31, 1995,
although appraisals necessary to allocate the reorganization value to
specific assets, including the Bullwhackers Casinos and surface
parking facility, are not yet available. Once appraisals are
obtained, management anticipates that a substantial amount of the
unaudited excess reorganization value will be allocated to property,
equipment and leasehold improvements. Final allocation of this excess
amount is subject to receipt of an independent appraisal expected to
be completed by June 1996. Management believes a significant portion
of the excess amount will be allocated to property and equipment. The
Company anticipates that it may establish a deferred tax liability if
the revalued property and equipment for financial reporting purposes
is significantly in excess of the historical tax basis. The expected
amount of property and equipment basis differences from tax basis is
not reasonably estimatable.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the
accounts of HEI and its wholly owned subsidiaries. Intercompany
balances and transactions have been eliminated.
As of December 31, 1994, the accounts of GPRI are consolidated with
those of HEI and its other majority owned subsidiaries. Because of
the pending GPRI Chapter 11 bankruptcy proceedings and Casino America
Agreement, it has been determined that HEI does not "control" GPRI
and, therefore, GPRI no longer meets the consolidation criteria
pursuant to Statement of Financial Standards No. 94, "Consolidation of
All Majority-Owned Subsidiaries." Accordingly, effective January 1,
1995, HEI's investment in GPRI is being accounted for under the equity
method. Under the equity method, original investments and advances
are recorded at cost and adjusted by the Company's share of
undistributed losses of the investee.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes cash in banks, currency located in
the casinos' vaults, coins located in the gaming device hoppers and
other cash used in daily operations. Included in cash and cash
equivalents at December 31, 1994 and 1995 is restricted cash
totaling $618,000 and $595,000, respectively, which represents the
portion of cash on hand that is required to be maintained by the
Bullwhackers Casinos based on regulations promulgated by the
Colorado Limited Gaming Control Commission (the "Colorado Gaming
Commission").
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
carrying amount of cash equivalents approximates fair value because of
the short-term maturity of those investments.
Inventories
Inventories consist of food and beverage, retail and casino supplies.
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets. Costs of major
improvements are capitalized; costs of normal repairs and maintenance
are charged to expense as incurred.
Other Assets
Other assets consisted of the following (in thousands):
December 31,
------------------------
1994 1995
----------- -----------
Debt placement costs for
$140 million 11 1/2% Senior
Secured Pay-In-Kind Notes
(net of $1,441,000 of
accumulated amortization
in 1994) $ 7,377 $ -
Dock Board deposit 7,551 -
Licensing costs 3,271 -
Other, net 2,780 981
------- -------
$ 20,979 $ 981
======= =======
Debt placement costs incurred to obtain the Old Notes were being
amortized over the seven-year term of the Old Notes using the
effective interest rate method. In 1995, all unamortized debt
placement cost were charged-off as reorganization items in accordance
with the provisions of SOP 90-7. The Dock Board deposit represents a
deposit paid by GPRI to the Board of Commissioners of the Port of New
Orleans related to the Riverboat Project. Costs incurred in relation
to formation of GPRI and licensing fees for its initial gaming license
have been capitalized and were being amortized over the five-year term
of the initial Louisiana gaming license beginning in March 1995.
Effective January 1, 1995, as a result of the deconsolidation of GPRI,
the Dock Board deposit and licensing costs were included in the
separate financial statements of GPRI. Accumulated amortization of
other assets as of December 31, 1994 and 1995 totaled $175,200 and
$239,400, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
December 31,
------------------------
1994 1995
----------- -----------
Gaming taxes payable $ 541 $ 537
Accrued payroll
and related expenses 1,310 1,048
Accrued offering costs 200 -
Accrued gaming liabilities 659 437
Reorganization items - 1,202
Other accruals 1,017 729
------- -------
$ 3,727 $ 3,953
======= =======
Casino Revenues and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference
between gaming wins and losses. The retail value of food and beverage
furnished to customers on a complimentary basis is included in gross
revenues and then deducted as promotional allowances. The estimated
cost of providing such promotional allowances is included in casino
operating expenses in the accompanying consolidated statements of
operations and totaled approximately $251,000, $429,000 and $615,000
for the years ended December 31, 1993, 1994 and 1995, respectively.
Predevelopment Expense
Historically, costs incurred during investigation of potential
development projects were capitalized and charged to expense at such
time as management concluded that a development project was no longer
viable. As of December 31, 1994 all costs related to development
projects were expensed as management had determined each of the
related projects were no longer viable development opportunities.
Beginning in 1995, costs related to investigation of new venue
development projects were expensed as incurred.
Pre-opening Expenses
The Company expenses pre-opening costs as incurred. Pre-opening costs
consist of expenditures incurred prior to the opening of the casinos
to prepare the casinos for business and include labor costs, certain
consulting, marketing and other direct costs. Because GPRI was
consolidated in 1994, pre-opening costs of $2.6 million incurred in
1994 in connection with GPRI's riverboat are reflected in the
accompanying 1994 consolidated statement of operations.
Reorganization Items
Reorganization items consist of income, expenses and other costs
directly related to the Chapter 11 reorganization of the Debtor.
Reorganization items consisted of the following (in thousands):
December 31
1995
-----------
Charge-off of debt discount
and placement costs $ 10,717
Guarantee of subsidiary debt 4,600
Professional fees 2,593
-------
$ 17,910
=======
Net Loss Per Common Share
Net loss per common share and common equivalent share are computed by
dividing net loss by the weighted average number of shares of common
stock and common stock equivalents outstanding during the year. For
all periods presented in the accompanying consolidated statements of
operations, outstanding warrants, options and restricted stock have
been excluded from the calculation of weighted average common and
common equivalent shares outstanding as their impact in net loss per
share would have been antidilutive.
New Authoritative Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," will be adopted by the Company in 1996. The adoption of
this Statement is not expected to have a material impact upon the
Company's results of operations or financial position.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
(3) RESTRICTED FUNDS IN ESCROW
In connection with the issuance of the $140 million aggregate
principal amount of Old Notes (Note 7), the Company was required to
escrow a portion of the net proceeds to be used to fund a portion of
the Company's expected share of the total cost to develop the
Riverboat Project (Note 6). The Company also escrowed additional net
proceeds used for construction of a surface parking facility (Note
12). Transactions in the escrow account were managed by an
independent trustee and disbursement agent who administered requests
for disbursements pursuant to a Disbursement Agreement, which was a
condition to the issuance of the Old Notes. Total deposits to the
escrow account were $81.7 million in 1993 of which $10.5 million and
$64.8 million had been disbursed as of December 31, 1993 and 1994,
respectively, including $9 million used to repay loans from an
affiliate in 1993 (Note 11) and $15 million which was released to the
Company in 1994 for general working capital upon the occurrence of
certain events as allowed by the Old Notes Indenture. Approximately
$2.5 million of the funds disbursed in 1994 were used for construction
of the surface parking facility. The remaining funds were disbursed
in 1995 for development of the Riverboat Project, including funds for
construction of the riverboat, and the acquisition of property for the
entertainment and dock facility. Funds held in this account served as
collateral for the Old Notes.
(4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements consisted of the
following (in thousands):
December 31,
------------------------
1994 1995
----------- -----------
Land and improvements $ 14,105 $ 14,330
Building and improvements 5,722 5,764
Leasehold improvements 7,699 7,626
Gaming equipment, furniture
and fixtures 18,204 18,570
Construction in-progress 33,551 -
-------- --------
79,281 46,290
Less: accumulated
depreciation
and amortization (10,202) (14,163)
-------- --------
$ 69,079 $ 32,127
======== ========
For the year ended December 31, 1994, interest costs totaling $248,000
were capitalized to land and improvements during construction of the
surface parking facility. In addition, interest costs totaling
$1.3 million and $1.8 million were capitalized on construction costs
related to the riverboat in 1993 and 1994, respectively, and are
included in construction in-progress. Construction in-progress at
December 31, 1994 consisted of construction costs related to GPRI's
riverboat. Effective January 1, 1995, these costs are now reflected
in the separate financial statements of GPRI.
Depreciation and amortization are computed using the straight-line
method over the following useful lives:
Useful Lives
------------------
Land improvements 15 years
Building and improvements 5 - 31.5 years
Leasehold improvements 5 - 23 years
Gaming equipment, furniture
and fixtures 5 - 31.5 years
(5) NEW VENUE PROJECTS
For the years ended December 31, 1994 and 1995, the Company expensed
$3.9 million and $402,000, respectively, of predevelopment expenses
related to various potential development opportunities in new gaming
venues throughout North America. The costs incurred represented
design, presentation, research, consulting, regulatory and other costs
associated with pursuing development opportunities in new gaming
venues. The Company expensed these costs as management determined
that each of the potential new gaming venues were no longer viable
development projects. In early 1995, the Company ceased such
activities due to its deteriorating financial condition.
In September 1994, the Company entered into an agreement to invest
$6.2 million for a 25% interest in Promociones e Inversiones de
Guerrero S.A. de C.V. ("PRIGSA"), a Mexico based development and
gaming Company with operations in Acapulco. As of December 31, 1994,
the Company had contributed $5.8 million towards its investment. In
1995, the Company contributed its remaining commitment of
approximately $289,000. The Company had an option to convert its
contributions to shares of common stock in PRIGSA upon approval by the
Mexican government. Results of PRIGSA operations upon opening in the
fall of 1994 were substantially below expectations and, as a result,
PRIGSA suffered significant operating losses. Because the majority of
PRIGSA's other debt securities are in a senior position to PRIGSA's
obligation to the Company, the Company has determined that it is
unlikely that the Company's advances will be repaid or that the
Company will otherwise realize its investment in PRIGSA. Accordingly,
as of December 31, 1994, the Company charged-off the full value of its
investment to impairment of assets in the accompanying consolidated
statements of operations.
(6) INVESTMENT IN AND ADVANCES TO GRAND PALAIS RIVERBOAT, INC.
As discussed in Note 1, GPRI was formed in March 1993 to design,
develop, own and operate a riverboat casino in New Orleans, Louisiana.
In connection with the issuance of the Old Notes, HEI escrowed
$79.2 million of the proceeds of the Old Notes for GPRI's share of the
development costs of the proposed Riverboat Project (Note 3). In June
1994, GPRI and CCCD formed the RCJV to develop the proposed Riverboat
Project. The original budgeted cost for the Riverboat Project was
$196.3 million, exclusive of capitalized interest. Through
December 31, 1994, the Company had invested $64.2 million in GPRI
relating to the construction of the riverboat, licensing, Dock Board
costs and funds invested in RCJV for construction of the entertainment
and dock facility. In addition, in 1994 the Company recorded net
losses of $3.3 million from GPRI, related to pre-opening costs of GPRI
and RCJV, offset by interest income. Amounts relating to GPRI have
been consolidated with HEI and its other subsidiaries in the
accompanying December 31, 1994 consolidated financial statements.
In April 1995, the Riverboat Project budget was revised to
approximately $223.0 million. The increased costs primarily related
to additional construction and design fees on the RCJV entertainment
and dock facility, funds which were spent to accomplish an accelerated
opening, and increased pre-opening costs, including additional
bankroll requirements, insurance costs and outside services for
staffing and operating the riverboats. GPRI intended to fund its
share of these additional costs by deferral of payments, cash flows
from the project and additional equity contributions from HEI and from
CCCD. Upon commencement of operations, revenues derived during the
period of operations of the Riverboat Project were approximately one
third of projected revenues. Accordingly, during the period of
operations (March 29, 1995 to June 6, 1995), GPRI incurred significant
operating losses. As a result of the construction cost overruns and
the failure of the Riverboat Project to generate sufficient revenues
to cover operating costs, GPRI determined it could no longer continue
the operation of its riverboat casino.
As of December 31, 1995, HEI's investment in GPRI had increased to
$73.5 million, primarily related to additional funds contributed in
1995 to cover construction overruns and operating losses. For the
year ended December 31, 1995, GPRI reported a net loss of $71.7
million, including a $20.2 million write-down of GPRI assets to
estimated realizable value and a $44.9 million write-down of its
interest in RCJV and assumption of certain RCJV debts to be paid by
GPRI pursuant to the GPRI Plan in connection with the sale of GPRI to
Casino America, Inc. As a result of the losses of GPRI, including its
write-down of RCJV, the Company's investment in GPRI has been reduced
to zero. As discussed in Note 1, under the GPRI Plan, HEI will
receive no distribution on account of its current stock ownership
in GPRI, and HEI has also guaranteed $4.6 million of GPRI's debt.
(7) NOTES PAYABLE
Notes payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1995(1)
------------ ------------
<S> <C> <C>
Senior Secured Pay-In-Kind Notes
(net of unamortized discount of
$5.9 million in 1994) $ 151,982 $ 174,274
Credit facility with a bank 13,048 -
Notes payable to gaming equipment
vendors 3,793 2,623
Notes payable to RII - 2,122
Other - 4,600
--------- ---------
168,823 183,619
Less: current portion (14,610) -
--------- ---------
$ 154,213 $ 183,619
--------- ---------
(1) These amounts are included in "liabilities subject to compromise" in the accompanying
December 31, 1995 consolidated balance sheet.
(2) See Note 1 for further information.
</TABLE>
Debtor-in-Possession Financing
On December 8, 1995, the Court approved certain financing and security
agreements (the "DIP Facility") between the Debtor and an unaffiliated
lender (the "DIP Lender") designed to provide the Debtor with adequate
financing to operate its businesses during the bankruptcy period. The
aggregate DIP Facility was $7.9 million in the form of revolving
credit facilities to provide up to $2.5 million for working capital
purposes, $4.4 million for equipment refinancing and $1.0 million to
provide financing for the Debtor's possible acquisition of strategic
assets (Note 12).
Borrowings under the DIP Facility are secured by a first priority lien
and security interest in all of the Debtor's property and equipment,
except for certain "permitted liens" as defined in the DIP Facility
agreements. In addition, borrowings under the DIP Facility constitute
Allowed Superpriority Administrative Expense Claims and, therefore,
have priority over substantially all other administrative expense
claims of the bankruptcy proceedings. The DIP Facility will be repaid
with proceeds from the Exit Financing (see below).
Interest on borrowings under the DIP Facility accrue interest at prime
plus 2.75%. Loan fees and other expenses totaling $300,000 were paid
to the DIP Lender, which amounts are included in other assets in the
accompanying consolidated balance sheets and are being amortized over
the one-year term of the facility.
The term of the DIP Facility is one year subject to an accelerated
maturity on the effective date of confirmation of the proposed Plan.
The Debtor is subject to certain covenants which require, among other
things, that the Debtor maintain certain financial ratios, and that
restrict, among other things, the incurrence of additional debt, the
disposal of assets and capital expenditures. As of December 31, 1995,
and April 11, 1996, there were no outstanding borrowings under the DIP
Facility.
Exit Financing
It is a condition precedent to the effectiveness of the proposed Plan
that the Debtor will have closed on a facility from the DIP Lender to
provide up to a $12.5 million revolving credit facility to the
Reorganized Company to replace the existing DIP Facility. Borrowings
under the revolving credit facility will be used for working capital
purposes, refinancing of existing equipment secured debt and for
construction of a parking structure located near the Bullwhackers
Casino (see Note 12) and adjacent to the proposed Silver Hawk Casino
in Black Hawk, Colorado. Borrowings, including accrued interest at
prime plus 2.375%, would be payable monthly, subject to a maximum
five-year term, and would be secured by a first priority lien and
security interest in substantially all the assets of the Reorganized
Company.
Senior Secured Pay-In-Kind Notes
On December 21, 1993, the Company completed a private offering of
140,000 units consisting of $140 million aggregate principal amount of
the Old Notes with detachable warrants to acquire 1,750,000 shares, or
10%, of common stock of the Company. The warrants were valued by the
Company at $7 million, which amount was offset against the Old Notes
balance and was being amortized as interest costs over the seven-year
term of the Old Notes. The net proceeds from the offering, after
deducting the commissions and other offering expenses were
approximately $131 million. The net proceeds were used to repay
construction financing for the Bullwhackers Casinos and provide funds
for the Riverboat Project and for working capital purposes. The
offering expenses of approximately $9 million, were capitalized as
other assets, and were being amortized over the seven-year term of the
Old Notes using the effective interest rate method. As of
December 31, 1995, all remaining unamortized discount and offering
expenses related to the Old Notes were written-off as a reorganization
item in accordance with SOP 90-7.
Interest on the Old Notes accrued at 12% per annum and was payable
semiannually on June 15 and December 15, commencing June 15, 1994.
Through December 15, 1995, at the Company's option, interest on the
Old Notes was payable either in cash or through the issuance of
additional Old Notes. Thereafter, the Company was required to pay
interest on the Old Notes in cash. On June 15 and December 15, 1994,
the Company made interest payments on the Old Notes by issuing a total
of $17 million of additional Old Notes. On June 15, 1995, the Company
made interest payments on the Old Notes by issuing a total of
$9.4 million of additional Old Notes. No interest payment or issuance
of additional Old Notes was made on December 15, 1995, because of the
Debtor's bankruptcy filing.
The Old Notes were redeemable by the Company, in whole or in part, at
any time beginning December 15, 1996, at certain times and redemption
prices as specified in the Old Notes Indenture. Unless previously
reduced, the Company was required to redeem, at par plus accrued
interest, 20% of the then outstanding aggregate principal amount of
the Old Notes on each of December 15, 1998 and 1999, with the
remainder due in December 2000. To date, no Old Notes have been
redeemed.
The Old Notes were secured by substantially all the assets of the
Company, including the common stock of its subsidiaries, GPRI's joint
venture interest in the RCJV, guarantees of certain of HEI's
subsidiaries, and other personal property. The Company was also
subject to certain covenants which restricted, among other things, the
incurrence of additional debt, payment of dividends, ownership of new
subsidiaries, new business activities, proceeds from the sale of
assets and transactions with affiliates.
As discussed in Note 1, in June 1995, HEI received "Notices of
Defaults" from the trustee of the Old Notes, alleging that HEI was in
default under various provisions of the Indenture. As a result of the
defaults under the Indenture, the holders of the Old Notes are
entitled to all of the remedies contained in the Indenture, including
but not limited to acceleration of repayment of the Old Notes and
foreclosing on the security pledged by the Company to the trustee.
On November 7, 1995, the Debtor filed for Chapter 11 protection.
Accordingly, interest totaling approximately $3 million was not
accrued for the period November 7, 1995 to December 31, 1995.
Additionally, for the three months ended March 31, 1996, interest
totaling $5.2 million was not recorded due to the Chapter 11
proceedings. As of December 31, 1995, the total amount of the Old
Notes, plus accrued interest through November 7, 1995, is $174.3
million which amount is included in "liabilities subject to
compromise" in the accompanying consolidated balance sheets.
The Debtor negotiated with a committee comprised of certain of the
holders of the Old Notes to restructure the Old Notes. Pursuant to
the proposed Plan, the holders of the Old Notes, along with RII, (see
below) will receive, on a pro rata basis, New Senior Secured Notes
("New Notes") having an aggregate principal amount of $50 million and
5 million shares of common stock of the Reorganized Company (Note 8).
Interest will accrue at a rate of 12% per annum, and is payable semi-
annually. Through the first year, at the option of the Reorganized
Company, interest on the New Notes will be payable either in cash or
through the issuance of additional New Notes. Thereafter, the
Reorganized Company will be required to pay interest on the New Notes
in cash. The New Notes will be secured by substantially all the
assets of the Reorganized Company, including the common stock of the
subsidiaries. The New Notes will be redeemable after the fourth
anniversary at redemption prices to be set forth in the New Notes
Indenture subject to final maturity in 2003. In addition, the New
Notes Indenture will include certain restrictive covenants.
Other Borrowings
On May 15, 1995, HEI entered into a $4 million working capital credit
facility with RII. HEI borrowed $2 million under this facility, which
proceeds were then invested in GPRI. Borrowings accrued interest at
12% and were due on September 30, 1995. The Company granted a
security interest to RII in certain of the Company's assets including
a subordinated interest in GPRI's riverboat. HEI was unable to repay
the $2 million and thus is in default under the RII facility.
Interest totaling $35,000 was not accrued from the petition date,
November 7, 1995 to December 31, 1995. The $2 million, plus
accrued and unpaid interest through November 7, 1995 totaling
$2.1 million, is included in "liabilities subject to compromise" in
the accompanying consolidated balance sheet as of December 31, 1995.
Pursuant to the proposed Plan, RII will receive New Notes and shares
of common stock of the Reorganized Company as discussed above.
In 1994, GPRI obtained a credit facility from a Bank in the amount of
$15 million to fund a portion of the riverboat casino construction.
As of December 31, 1994, GPRI had borrowed $13.0 million under this
facility. Borrowings accrued interest at prime plus 1% and matured on
April 24, 1995 and accordingly, were reflected as a current note
payable in the accompanying December 31, 1994 consolidated balance
sheet. Effective January 1, 1995, as a result of the de-consolidation
of GPRI, borrowings under this credit facility are no longer recorded
in the consolidated balance sheets and are recorded in the separate
financial statements of GPRI. BWBH, Inc. and BWCC, Inc. are
guarantors under this credit facility and, accordingly, the Bank has
filed a claim in the bankruptcy proceedings of the Debtor. However,
the Bank's claims are expected to be satisfied in accordance with the
proposed GPRI Plan (Note 13).
During 1991 and 1992, RII made acquisition, development and
construction loans to the Company totaling $24.3 million ("RII Notes")
for the Bullwhackers Casinos. The original maturity date of the RII
Notes was October 31, 1996. The RII Notes were repaid with proceeds
from the Old Notes in December 1993. Prior to repayment, interest on
the RII Notes accrued at 14.5% and was payable quarterly. Upon
prepayment, RII received bonus interest totaling $700,000 in
accordance with the terms of the RII Notes. To obtain the financing,
the Company paid RII loan fees totaling $729,000. The unamortized
balance of these loan fees upon repayment, totaling $457,800, was
written off as interest expense in 1993.
In May 1992, the Company signed a note agreement with its construction
contractor for payment of outstanding construction costs related to
the Bullwhackers Casinos. The note, as modified in 1993, required
monthly interest payments at prime plus 2%, with maturity in December
1994. This note was repaid with proceeds from the Old Notes in
December 1993.
The Company financed a portion of the purchase price of the land on
which the Bullwhackers Casino in Central City, Colorado is located
with a purchase money note payable to the seller. The note required
monthly payments of principal and interest of $108,100 (at 10%)
through its October 1994 maturity date. This note was repaid with
proceeds from the Old Notes in December 1993.
The Company financed the acquisition of a portion of the Bullwhackers
Casinos' gaming equipment with notes payable to an equipment vendor
totaling $7.0 million. Such notes are secured by the gaming equipment
and the proceeds from the gaming equipment and are guaranteed by
certain of the HEI's stockholders. In April 1993, the terms of the
notes payable were modified. Beginning April 1993, the then
outstanding principal balance and accrued interest were combined and
began accruing interest at a fixed rate of 9.5%. Monthly principal
and interest payments of $151,000 were required through April 1997.
As of the petition date, November 7, 1995, the Company stopped
accruing interest, totaling $37,940, for the period from November 7,
1995 to December 31, 1995, and making any repayments on these notes.
Subsequent to yearend, the Company reached an agreement with the
lender to repay the $2.6 million outstanding balance on the notes for
approximately $2.0 million with proceeds from the DIP Facility
realizing a 20% discount for retiring the notes (Note 13).
(8) CAPITAL STRUCTURE
Capital Structure After Consummation of the Proposed Plan
The proposed Plan provides for the amendment and restatement of the
Company's certificate of incorporation and bylaws. The new charter
will authorize 20 million shares of $.01 par value common stock. The
holders of the Old Notes and RII (Note 1) will receive 5 million
shares of common stock, representing 100% of the outstanding shares of
common stock subject to being diluted to 90% by certain stock grants
to be issued to senior management employees and non-employee directors
of the Reorganized Company pursuant to a proposed Management Incentive
Program and under an employment agreement with the chief executive
officer of the Reorganized Company.
Capital Structure Prior to the Consummation of the Plan
Preferred Stock
Preferred stock of the Company consists of 2 million authorized
shares, of which none has been issued.
Common Stock
Common stock of the Company consists of 50 million authorized shares.
All common stock will be canceled under the Plan (Note 1). In 1993,
10,269,641 were issued pursuant to the restructuring (Note 1). In
addition, warrants to purchase a total of 7,130,359 shares of common
stock were issued in connection with the restructuring (2,399,373
shares), the issuance of the Old Notes (1,750,000 shares) (Note 7) and
the loan from an affiliate (2,980,986 shares) (Note 11). The warrants
are immediately exercisable at a price of $.01.
The warrants to acquire 2,399,373 shares of common stock of the
Company were issued to certain individuals having ownership rights in
the predecessors to the Company. These warrants were assigned a
nominal value because these individuals acquired such rights in
connection with the formation of the predecessor companies at either
nominal or no cost. A consultant to the Company in connection with
the Company's Riverboat Project received 1,605,739 of such warrants in
exchange for his right to receive ownership in the predecessor
companies. In 1994, 421,854 shares of common stock were converted
into warrants to acquire 421,854 shares of common stock as a result of
transfers to this consultant from an existing shareholder. In 1995,
certain warrants were converted into 1,849,781 shares of common stock.
The Company adopted an "Omnibus Stock and Incentive Plan" (the "Stock
Plan") in December 1993. A maximum of 1,000,000 shares were reserved
for issuance under the Stock Plan. The Stock Plan was to terminate
five years from the date of its adoption, unless sooner terminated by
the Board of Directors. In 1993 the Company granted a total of
130,000 restricted shares to officers of the Company and a
consultant. In 1994, 28,000 shares of Restricted Stock were
forfeited. In 1994 the Company granted 60,000 ISO's to a former
officer to purchase shares of common stock of the Company at an
exercise price of $4.00 per share. The options vest equally over
three years with the first vesting date on April 1, 1995. In 1995 the
Company granted 85,000 restricted shares and 85,000 options, at an
exercise price of $4.00 per share, to a current officer of the
Company. Both the options and restricted stock shares vest equally
over a three year period. All grants under the Stock Plan will be
forfeited as a result of the proposed Plan (Note 1). The Company
recognized compensation expense of $169,000 in 1995 related to the
vesting of the restricted shares. No additional compensation expense
was recognized after November 7, 1995.
Warrants Issued
Warrants issued includes $7 million of value assigned to the Old Notes
warrants (Note 7) and, in 1994, $1.3 million of value assigned to the
GPRI warrants (Note 11). The Company has warrants outstanding to
purchase 5,702,432 shares of common stock at a nominal exercise price.
Subject to obtaining any necessary gaming approvals, the warrants may
be exercisable any time after their issuance. Prior to the exercise
of the warrants, holders of warrants are not entitled to any of the
rights of a holder of the Company's common stock, including the right
to vote or to receive dividends. All warrants will be extinguished
and canceled under the proposed Plan (Note 1).
Non-Employee Director Stock Option Plan
The Company has also adopted the "Non-Employee Director Stock Option
Plan." Only non-employee directors are eligible to participate in the
Non-Employee Director Stock Option Plan. A total of 100,000 shares of
common stock are authorized and reserved for issuance under the Non-
Employee Director Stock Option Plan.
A total of 20,000 options have been granted and vested to five non-
employee directors at an exercise price of $4.00 per share. All
grants under the Non-Employee Director Stock Option Plan will be
extinguished and canceled under the Plan.
(9) INCOME TAXES
The Company has no provision for income taxes in 1994 or 1995 due to
the Company's significant loss position. Prior to December 21, 1993
or the formation of the Company, taxes were not provided on the
predecessor entities because all tax obligations of those entities
passed through to the owners of those entities.
The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), in December 1993.
SFAS 109 requires recognition of deferred tax assets and liabilities
based on enacted tax laws for any temporary differences between the
financial reporting and tax basis of assets, liabilities and
carryforwards. Deferred taxes are then reduced, if deemed necessary,
by a valuation allowance for the amount of any tax benefits which,
based on management's opinion, are not expected to be realized. The
net deferred tax asset as of December 31, 1994 and 1995 is comprised
of the following:
December 31
-----------------------
1994 1995
--------- ---------
(in thousands)
CURRENT:
Accrued vacation and
gaming liabilities $ 356 $ 184
NON-CURRENT:
Differences in asset basis 3,478 3,053
Start up costs/intangibles
capitalized for tax 1,967 -
Impairment of assets 3,164 5,832
Reorganization items - 4,287
Deferred interest for tax - 404
Book tax difference of RCJV - 8,646
Net operating loss carryforwards 7,899 41,148
-------- --------
Net deferred tax asset 16,864 63,554
Valuation allowance (16,864) (63,554)
-------- --------
$ - $ -
======== ========
The net deferred tax asset valuation allowance is equal to the full
amount of the net deferred tax asset because the realization of such
asset is dependent upon future taxable income, which is uncertain.
The Company currently has net operating loss carryforwards totaling
approximately $103 million, which expire beginning in 2008. These net
operating loss carryforwards do not include the separate company net
operating loss generated by GPRI in 1995.
Generally, the Company anticipates that the reorganization will allow
the Company to produce income from operations and potentially taxable
income and net income for financial reporting purposes. Since its
inception, the Company has generated significant net operating loss
carryforwards for tax purposes, which, in the absence of the Company's
bankruptcy, would have been available to offset any taxable income
earned in the future. As a result of the consummation of the proposed
Plan, the Company may undergo a substantial change in ownership and
incur significant forgiveness of indebtedness income. Additionally, a
significant portion of the tax assets includes tax losses of GPRI. If
GPRI is unable to reattribute those losses to HEI, then those assets
will be transferred to Casino America in connection with the sale of
GPRI stock to Casino America. If HEI is unable to attain such assets
the debt forgiveness income and the potential ownership change may
significantly limit or eliminate the Company's net operating loss
carryforwards and other tax benefits. Fresh start accounting requires
the Company to significantly increase the book basis of its assets,
the tax basis of those assets generally remain at their historical
basis. Therefore, given the potential limitation or elimination of
the Company's net operating loss carryforwards and the increased book
depreciation and amortization charges, the Company may have taxable
income in the future, and, therefore, may be required to pay income
taxes, even though it may record a loss for financial reporting
purposes.
(10) LEASES
Capital Leases
On March 1, 1993, the Company entered into a Master Lease Agreement
with Capital Associates International, Inc. ("CAI") for lease
financing totaling $2.2 million to provide working capital. Certain
of the Company's equipment was pledged as security for the borrowings.
The Debtor, and certain of HEI's stockholders also guaranteed
repayment of the borrowings. In 1995, the Master Lease Agreement was
amended to provide $2.8 million in additional lease financing to be
used for the Riverboat Project and to be repaid by GPRI. The
financing has been treated as a capital lease in the separate
financial statements of the Company and of GPRI.
As a result of the termination of Riverboat Project operations, GPRI
was unable to make its required payments under the lease.
Accordingly, CAI initiated a lawsuit against the Company (Note 12) to
recover all amounts owing under the Master Lease, as amended ("Lawsuit
#1"). The finance company initiated a second lawsuit against the
Company and certain of its officers alleging that the finance company
was misled into entering into the amendment to the Master Lease
Agreement ("Lawsuit #2"). In September 1995, a judgment was entered
against the Company in Lawsuit #1 for $4.6 million, which judgment has
been appealed by the Company. This amount is reflected as a liability
subject to compromise in the accompanying consolidated balance sheets.
In February 1996, the parties to the two lawsuits entered into a
settlement agreement which seeks to resolve the disputes. Pursuant to
the settlement agreement, both lawsuits will be dismissed and the
Reorganized Company will issue two notes payable to CAI. The first
note will be in the amount of $1.6 million, payable in 10 quarterly
installments of principal and interest (at 9% per annum) and will be
unsecured. The second note will be in the amount of $3.0 million,
payable in 20 quarterly installments of principal and interest (at 9%
per annum) and will be unsecured. Payments on each note will begin 90
days after the effective date of confirmation of the proposed Plan.
The settlement agreement further provides that if the finance company
receives any distributions (as defined) from its claims in the GPRI
bankruptcy, or if Casino America, Inc. agrees to assume any or all of
the finance company liability, then such amounts will serve to reduce
the amounts payable under the $3.0 million note first, then the
$1.6 million note (Note 13). The terms of the settlement agreement
must be approved by the Court.
The Company also has capital lease obligations related to gaming
devices and certain other equipment totaling $1.6 million. The
interest rate for the various leases range from 12% to 15%. As a
result of the bankruptcy proceedings, all capital lease obligations
have been reclassified as "liabilities subject to compromise" in the
accompanying consolidated balance sheets. Subsequent to yearend, an
agreement was reached with such lessors to retire the remaining lease
obligation for approximately $1.2 million.
Operating Leases
The Company leases real property, on which the Bullwhackers Casino in
Black Hawk, Colorado, was constructed. The lease is for a period
through 2015 and requires an annual base rent as specified below,
payable quarterly.
The land lease also requires monthly payments of additional rent equal
to 1.9% of gross revenues, as defined. Total base rent plus additional
rent pursuant to the lease agreement for the years ended December 31,
1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996
was $986,000, $1.1 million, $1.1 million, $291,000 and $302,000,
respectively. In addition to the specified rental payments, the
Company is also responsible for any and all costs associated with the
leased property, including but not limited to taxes and assessments,
utilities, insurance, maintenance and repairs. The Company has an
option to purchase the leased land, beginning November 1, 2001, for an
amount equal to nine times the annual base minimum rent payment then
in effect.
Future annual base rental payments for the land lease as of December
31, 1995 are as follows:
Year ending December 31 (in thousands)--
1996 $ 600
1997 600
1998 600
1999 600
2000 600
Thereafter 10,070
-------
Total $ 13,070
=======
Beginning in September 1994, the Company entered into an approximate
seven year lease for office space. The lease agreement requires
monthly payments of approximately $23,300.
As a result of the bankruptcy proceedings, the Debtor may reject
certain leases under the provisions of the Bankruptcy Code. The
Reorganized Company anticipates ratifying the Black Hawk land lease.
However, the Debtor has renegotiated the terms of its office space.
Under the revised lease terms, which were approved by the Court, the
Reorganized Company will surrender its $200,000 security deposit to
the landlord and pay monthly rent of $7,500 through October 1997, at
which time the lease will terminate.
(11) OTHER RELATED PARTY TRANSACTIONS
Due from Affiliates
The Company has outstanding advances to the following affiliates
(in thousands):
December 31,
------------------------
1994 1995
----------- -----------
Canadian Pavilion
Limited Partnership $1,323 $1,573
Outlaws Casino, Ltd. 876 1,072
RCJV 763 43
RCH Investments, NV 250 259
Hemmeter Partners 344 335
Grand Palais Casino, Inc. 557 587
Officers 585 867
Other 62 35
----- -----
$4,760 $4,771
===== =====
Canadian Pavilion Limited Partnership ("CPLP"), Outlaws Casino, Ltd.
("Outlaws"), RCH Investments, NV ("RCH") and Hemmeter Partners are
majority owned by certain of the current controlling shareholders and
officers of HEI. The advances to CPLP, Outlaws, RCH, and Hemmeter
Partners accrue interest at 14% with interest payable quarterly, and
are due on demand. Grand Palais Casino, Inc. ("GPCI") is a wholly
owned subsidiary of Grand Palais Enterprises, Inc. ("GPEI"), of which
certain stockholders are also current stockholders of HEI. This
advance accrues interest at 14% and is due on demand. In July 1994,
Kevin G. DeSanctis, then Executive Vice President and Chief Operations
Officer received a $225,000 advance in accordance with the terms of
his employment agreement of which none has been repaid. In September
1994, Christopher B. Hemmeter, the President and Chief Executive
Officer was advanced funds totaling $275,000, accruing interest at
prime plus 2%, and due on demand. In January 1995, an additional
$373,000 was advanced to Mr. Hemmeter on an interest free basis, of
which $110,000 has been repaid. As of December 31, 1995, the
outstanding advances to Mr. Hemmeter totaled $641,000. All advances
to affiliates were made on an unsecured basis.
In 1994, the Company established a reserve of $1 million for certain
affiliate receivables that management believed may not be collectible.
Because of the continued deterioration in 1995 of the financial
condition of the affiliates and certain officers to which the Company
has advanced funds, the Company has determined that it is unlikely
that it will collect any of the advances to affiliates and,
accordingly, has provided an additional reserve of $3.9 million for
the remainder of the amounts owed the Company. These amounts are
reflected as impairment of assets in the accompanying consolidated
statements of operations. The Company continues to pursue collection
of the advances to affiliates.
Consulting Agreement
GPRI was party to a consulting agreement whereby the consultant was
entitled to receive an initial consultation fee and a supplemental $3
million fee in exchange for the consultant's assistance in obtaining
necessary licensing and other regulatory approvals with respect to the
Riverboat Project. In addition, the consultant was paid an initial
consultation fee of $2.8 million for his services with respect to the
Riverboat Project and GPCI project. Of this amount, 10% or $280,000,
was allocated to the Company based on relative estimates of the
potential value of the Riverboat Project and GPCI project. This
amount is included in other assets in the accompanying consolidated
balance sheet as of December 31, 1994. As a result of the
deconsolidation of GPRI, these amounts are now reflected in the
separate financial statements of GPRI. This consultant has initiated
a lawsuit against the Company as described further in Note 12.
Transactions with GPCI
In 1992 and 1993, GPCI completed private offerings of senior secured
exchangeable notes. Certain of HEI's majority stockholders are also
stockholders and warrant holders, including Christopher B. Hemmeter
and Daniel Robinowitz of GPCI's parent company, GPEI. In September
1993, $7.5 million of the net proceeds of GPCI's private offering were
loaned to GPRI. The loan was evidenced by a demand note payable to
GPCI and accrued interest at 12%. The loan was repaid with proceeds
from the Old Notes (Note 7). As additional consideration, the GPCI
noteholders were to be issued warrants to purchase one share of GPRI's
common stock per warrant for $.01 (the "GPRI Warrants"). In
connection with the formation of the Company, the GPCI noteholders
were issued warrants to purchase 2,980,986 shares of common stock of
the Company. These warrants were valued at $1.3 million, which amount
was offset against the $7.5 million demand note and amortized as
interest costs. The $1.3 million of interest costs were then
capitalized as part of construction in-progress (Note 4) in the
accompanying consolidated balance sheet as of December 31, 1994. As a
result of deconsolidation of GPRI in 1995, these amounts are now
reflected in the separate financial statements of GPRI.
During 1993, GPCI had advanced other funds to GPRI. The advances
totaled $2.2 million, accrued interest at 12% and were unsecured.
Proceeds from the Old Notes were used to repay $1.7 million of the
advances in 1993. The remaining $490,000 was repaid in the first
quarter of 1994. The Company advanced GPCI an additional $556,500 and
$30,000 in 1994 and 1995, respectively, which is included in due to
affiliates in the accompanying consolidated balance sheets. As of
December 31, 1995, all outstanding amounts have been reserved as
uncollectable due to the bankruptcy filing of Harrah's Jazz Company,
of which GPCI is a one-third equity partner.
Other
Hemmeter Partners, an affiliate of Christopher B. Hemmeter, leased an
aircraft that Mr. Hemmeter used for business and personal purposes.
In exchange for Mr. Hemmeter making the aircraft available to the
Company for business purposes, the Company agreed to pay Mr.
Hemmeter's affiliate approximately $100,000 per month and to pay the
salary and benefits of the aircraft pilot and co-pilot, which totaled
approximately $125,000 per year. Direct payments to Hemmeter Partners
totaled $1.5 million and $420,000 for 1994 and 1995, respectively.
Payments made by the Company with respect to the aircraft represent
the Company's pro rata share of the costs and expenses associated with
the aircraft and are adjusted based on actual use of the aircraft.
The Company ceased using the aircraft and terminated this arrangement
as of May 1995.
The Company paid $1.5 million, $1.3 million and $624,000 to the law
firm of Shefsky Froelich & Devine Ltd. for legal services rendered to
the Company in 1993, 1994 and 1995, respectively. Cezar M. Froelich,
a director owns 1.4% of the Company on a fully diluted basis, is a
member of that firm. Shefsky Froelich & Devine Ltd. provided legal
services to the Company until February 9, 1996. Any further payments
to Shefsky Froelich & Devine Ltd., are subject to Bankruptcy Court
approval.
Christopher B. Hemmeter received no compensation for acting as Chief
Executive Officer in 1993. The value of these services provided by Mr.
Hemmeter was not material.
(12) COMMITMENTS AND CONTINGENCIES
Gaming Licenses
The Bullwhackers Casinos are required to comply with laws and
regulations promulgated by the Colorado Gaming Commission in order to
maintain continued operations. The Bullwhackers Casinos operate under
separate current annual gaming licenses which expire in December 1996.
Management anticipates that such gaming licenses will be renewed.
Gaming Taxes and Fees
The Bullwhackers Casinos operate as licensed gaming establishments
pursuant to the Colorado Limited Gaming Act and, accordingly, are
required to make monthly gaming tax payments to the State of Colorado
which are subject to annual revisions with a maximum rate of 40%.
Such tax is calculated as a percentage of adjusted gross proceeds
(casino net win).
Gross Proceeds Tax Rate
------------------------- ----------
First $2 million 2%
Next $2 million 8%
Next $1 million 15%
Proceeds over $5 million 18%
Additionally, the city and state levy device fees ranging from $75 to
$1,265 per annum. For the years ended December 31, 1993, 1994 and
1995, the Company recorded $7.7 million, $8.2 million and
$8.3 million, respectively, in total gaming taxes and device fees.
Black Hawk Parking Facility
The Company acquired a land parcel on which it constructed a 260 stall
surface parking facility. As part of the land development, the
Company agreed to conduct environmental remediation of the land parcel
pursuant to an Administrative Order on Consent with the Environmental
Protection Agency ("EPA") and the State of Colorado Department of
Health. The Company expended approximately $1.8 million for this
remediation work in 1994. The cost of the remediation was anticipated
and provided for from the net proceeds of the Old Notes and has been
capitalized as part of the land acquisition as incurred because the
work was necessary to prepare the property for its intended use.
Possible additional remediation costs are estimated at approximately
$1 million. However, the Company believes, based on consultations
with various governmental agencies and correspondence with the EPA,
that the likelihood of the EPA or other regulatory agencies requiring
this further remediation is remote.
The City of Black Hawk assesses each casino which provides off-site
parking to its patrons, a $4 per day per stall parking fee, which is
included in casino expense. The Company anticipates that upon
commencement of operations of the proposed Silver Hawk Casino (see
below), the parking fee will terminate.
Legal Proceedings
In September 1995, Daniel P. Robinowitz, a pre-effective date
stockholder of the Company (Note 11), filed a stockholders derivative
action against the directors of the Company in the United States
District Court for the Eastern District of Louisiana (the "Robinowitz
Derivative Action"). The complaint alleges in general that the
Company, through its board of directors, mismanaged the affairs of the
Company. Because the Company filed bankruptcy prior to any responsive
pleadings being filed, no activity has occurred in this case. The
Company appointed its chief executive officer to serve as a special
litigation committee for the board of directors of the Company and he
retained independent counsel in October 1995 to investigate the
allegations raised by the complaint.
Pursuant to the proposed Plan, certain claims by the Company against
third parties, including the Robinowitz Derivative Action, are
assigned to the Litigation Trust. All legal proceedings pending
against the Company or its Colorado subsidiaries prior to the
effective date of the proposed Plan will be settled pursuant to the
proposed Plan. As a result, there will be no litigation pending
against the Reorganized Company or its Colorado subsidiaries on the
effective date of the proposed Plan. The determination by the
Litigation Trust whether or not to pursue any causes of action
assigned to it will have no material impact on the Reorganized Company
or the Colorado subsidiaries.
The proposed Plan provides that the Company's obligation to indemnify
certain of its officers against any claims asserted against them as a
result of their service as employees of the Company, both before and
after the commencement of the Debtor's bankruptcy cases, will not be
affected by the Debtor's bankruptcy cases and that the Company will
assume any obligations of GPRI to indemnify the two officers discussed
above against claims arising as a result of their service with GPRI.
The proposed Plan also provides that the officers will be released
from any liability in respect of causes of action assigned to the
Litigation Trust.
The proposed Plan also provides that the Company's obligations to
indemnify its other officers and employees, other than Christopher B.
Hemmeter and Mark M. Hemmeter (collectively, the "Hemmeters"), against
claims against them as a result of their service with the Company
after the commencement of the Debtor's bankruptcy cases will not be
affected by the Debtor's bankruptcy cases and that the Company will
assume any similar indemnity obligations of GPRI.
The proposed Plan also requires the Company to indemnify its pre-
effective date directors other than the Hemmeters (the "Independent
Directors") against any claim asserted against them as a result of
their service as directors of the Company if the final report of the
Independent Litigation Counsel indicates that there is no basis for
pursuing any of the potential claims against them reviewed by the
Independent Litigation Counsel. The Company's maximum indemnity
obligation for all of the Independent Directors is capped at $500,000
in the aggregate. Although the Company has no direct indemnity
obligations with respect to claims against the Hemmeters, if a claim
is asserted against both the Independent Directors and the Hemmeters,
the Hemmeters will be entitled to be represented by the counsel
representing the Independent Directors at the expense of the Company
to the extent that the claims are based on the Hemmeters' actions as
directors of the Company.
The Company's management believes that the ultimate resolution of all
legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
(13) EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (unaudited)
GPRI Plan
On May 3, 1996, the Company closed on the sale of its stock ownership
in GPRI to Casino America, thus signifying the effectiveness of GPRI's
Plan. The aggregate consideration paid by Casino America totaled
approximately $59 million. All proceeds from the sale will be
distributed to the creditors of GPRI, including the holders of the
Company's Old Notes, pursuant to the GPRI Plan. Part of the
consideration given by Casino America was the assumption of $2.5
million of the CAI $3 million note. Accordingly, the Company is only
obligated for the remaining $500,000. Additionally, the effectiveness
of the GPRI Plan released the Company and all of its remaining
subsidiaries from any obligations to GPRI, RCOV, and their creditors.
Silver Hawk Acquisition
On March 27, 1996, Silver Hawk Casino, Inc. ("Silver Hawk") was
incorporated in Delaware as a wholly owned subsidiary of Hemmeter
Enterprises, Inc., for purposes of acquiring and operating a limited
stakes casino in Black Hawk, Colorado. On April 12, 1996, Silver Hawk
closed on the purchase of a non-operated casino located adjacent to
the Company's Black Hawk parking facility. The purchase price was
approximately $2.7 million, of which $900,000 was paid in cash
borrowed under the DIP Facility and the remaining $1.8 million by the
issuance of a promissory note from the seller. The promissory note
requires monthly principal and interest payments at a rate of 9.5% per
annum, based on a twenty-year amortization period, with a balloon
payment after seven years. The note is secured by a first deed of
trust on the purchased property. Additionally, the Company intends to
invest up to an estimated $2.0 million to equip and prepare the Silver
Hawk for opening. The Company expects to commence gaming operations
in July 1996.
Equipment Refinancing
On April 12, 1996, the Company refinanced equipment with an
outstanding debt balance of approximately $2.6 million for
approximately $2.0 million. The Company realized a $516,000
extraordinary gain for the early retirement of the existing debt. The
debt was refinanced with proceeds from the DIP Facility.
Colorado Gaming & Entertainment Co.
Consolidated Balance Sheets
(In thousands)
Reorganized Predecessor
Company (a) Company
June 30, 1996 December 31, 1995
(unaudited)
ASSETS
Cash $ 5,369 $ 3,623
Inventories 94 85
Accounts receivable 260 226
Prepaid expenses 598 638
__________ ___________
Total current assets 6,321 4,572
Property, equipment and leasehold
improvements, net 43,488 32,127
Restricted funds in escrow (Note 3) 509 -
Excess reorganization value, net (Note 1) 18,676 -
Other assets, net 776 981
__________ ___________
Total assets $ 69,770 $ 37,680
__________ ___________
LIABILITIES AND EQUITY
Current portion of notes payable 1,347 -
Accounts payable (Note 2) 5,671 404
Accrued expenses 3,532 3,953
__________ ___________
Total current liabilities 10,550 4,357
__________ ___________
Senior secured notes payable (Note 4) 50,000 -
Other notes payable (Note 4) 5,272 -
Liabilities subject to compromise - 186,460
__________ ___________
Total non-current liabilities 55,272 186,460
__________ ___________
Total liabilities 65,822 190,817
__________ ___________
Common stock, $.01 par value, 20 million
and 50 million authorized, respectively,
5,138,888 and 11,786,235 issued and
outstanding (Note 5) 51 118
Warrants issued - 7,000
Additional paid in capital 14,653 2,162
Accumulated deficit (10,756) (162,417)
__________ ___________
Total Stockholders equity (deficit) 3,948 (153,137)
__________ ___________
Total liabilities and stockholders $ 69,770 $ 37,680
equity (deficit)
__________ ___________
(a) Due to the Reorganization and implementation of fresh start reporting,
financial statements for the new Reorganized Company (period starting June 7,
1996) are not comparable to those of the Predecessor Company. See Notes to the
Financial Statements for additional information.
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
Colorado Gaming & Entertainment Co.
Consolidated Statement of Operations
(In thousands)
Unaudited
___________________________________
June 7, April 1, Three January Six
1996 1996 Months 1, 1996 Months
Through Through Ended Through Ended
June 30, June 6, June 30, June 6, June 30,
1996 (a) 1996 1995 1996 1995
Revenue:
Casino $ 3,100 $ 8,577 $ 11,197 $ 19,126 $ 22,383
Food and beverage 215 568 916 1,288 1,804
Other 7 13 89 32 155
__________ ________ _______ ________ _________
Gross revenue 3,322 9,158 12,202 20,446 24,342
Less: Promotional
allowances (77) (199) (352) (464) (675)
__________ ________ _______ ________ _________
Net revenue 3,245 8,959 11,850 19,982 23,667
Operating Expenses:
Casino 591 2,376 3,247 5,544 6,518
Gaming taxes 760 1,612 2,341 3,614 4,562
Food and beverage 200 565 781 1,299 1,551
General and
administrative:
Casino 194 523 989 1,249 1,802
Corporate 147 387 1,567 902 4,200
Marketing 435 1,190 1,450 2,349 2,759
Depreciation and
amortization 396 787 1,218 1,882 2,351
Pre-opening 341 47 - 47 -
Reorganization Items - 1,222 500 2,290 500
Impairment of assets
and other expenses - - 3,634 - 5,077
__________ ________ _______ ________ _________
Total operating
expense 3,064 8,709 15,727 19,176 29,320
Income (loss) from
operations 181 250 (3,877) 806 (5,653)
Interest expense (403) (460) (5,517) (579) (9,976)
Interest income 11 43 76 66 289
Loss on disposition of
assets - (112) (73) (244) (73)
Equity in loss of GPRI - - (7,810) - (12,187)
__________ ________ _______ ________ _________
Income (loss) before
income tax expense and
extraordinary items (211) (279) (17,201) 49 (27,600)
Income tax expense
(Note 6) - - - - -
__________ ________ _______ ________ _________
Net Income (loss)
before extraordinary
gain (211) (279) (17,201) 49 (27,600)
Extraordinary gain
from reorganization
items - 164,358 - 164,358 -
__________ ________ _______ ________ _________
Net income (loss) $(211) $164,079 $(17,201) $164,407 $27,600
__________ ________ _______ ________ _________
Net loss per common $(0.04) N/A N/A N/A N/A
__________ ________ _______ ________ _________
(a) Due to the Reorganization and implementation of fresh start reporting,
financial statements for the new Reorganized Company (period starting June 7,
1996) are not comparable to those of the Predecessor Company. See Notes to the
Financial Statements for additional information.
(b) The weighted average number of common shares outstanding and net income per
common share for the Predecessor Company have not been presented because, due
to the Reorganization and implementation of fresh start reporting, they are not
comparable to subsequent periods.
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
Colorado Gaming & Entertainment Co.
Consolidated Cash Flows
(in thousands)
Unaudited
June 7, January Six
1996 1,1996 Months
Through Through Ended
June 30, June 6, June 30,
1996 (a) 1996 1995
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income (Loss) $ (211) $164,407 $(27,600)
Adjustment to
reconcile net income
(loss) to
net cash provided
by operating
activities:
Depreciation and amortization 396 1,882 2,351
Noncash compensation expense - - 128
Equity in loss of GPRI - - 12,187
Non cash interest expense 398 495 10,669
Extraordinary gain
from reorganization - (164,358) -
Loss on disposition of assets - 244 73
Non cash reorganization items - 1,825 500
Change in working
capital and other 1,611 822 3,141
______ ________ _______
Net cash provided
by operating activities 2,194 5,317 1,449
______ ________ _______
CASH FLOWS FROM
INVESTING ACTIVITIES:
Expenditures for
capital improvements (2,090) (3,885) (1,631)
Net change in
restricted funds (2) (507) 4,208
Contributions to GPRI - - (7,642)
Advances to affiliates - - (510)
______ ________ _______
Net cash used in
investing activities (2,092) (4,392) (5,575)
______ ________ _______
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from other
notes payable 0 5,824 2,000
Repayments of other
notes payable and
capital leases (1,801) (3,304) (1,331)
______ ________ _______
Cash (used in) provided
by financing activities (1,801) 2,520 669
______ ________ _______
INCREASE/DECREASE IN CASH (1,699) 3,445 (3,457)
CASH, at beginning of period 7,068 3,623 5,643
______ ________ _______
CASH, at end of period $5,369 $7,068 $2,186
______ ________ _______
(a) Due to the Reorganization and implementation of fresh start reporting,
financial statements for the new Reorganized Company (period starting June 7,
1996) are not comparable to those of the Predecessor Company. See Notes to the
Financial Statements for additional information.
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
COLORADO GAMING & ENTERTAINMENT CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) ORGANIZATION AND BASIS OF PRESENTATION
Colorado Gaming & Entertainment Co. ("CG&E") and its subsidiaries
(collectively referred to as the "Company"), formerly known as Hemmeter
Enterprises, Inc. (referred to as the "Predecessor Company" or "HEI" for the
period prior to June 7, 1996), was incorporated in August 1993 to develop, own
and operate gaming and related entertainment facilities. On July 26, 1995,
certain creditors filed an involuntary petition under Chapter 11 of the Federal
Bankruptcy Code against the Predecessor Company's wholly-owned subsidiary,
Grand Palais Riverboat, Inc. ("GPRI"). On July 28, 1995, GPRI converted its
petition to a voluntary petition under Chapter 11 of the Federal Bankruptcy
Code in the United States Bankruptcy Court for the Eastern District of
Louisiana (the "Court"). On November 7, 1995, the Predecessor Company,
including three of its subsidiaries, also filed for Chapter 11 bankruptcy (the
bankruptcy proceedings referred to as the "Reorganization"). On May 3, 1996,
as part of the Company's overall restructuring, the Predecessor Company's stock
interest in GPRI was sold to Casino America, Inc. pursuant to the Plan of
Reorganization and confirmed in the GPRI bankruptcy case. Consideration,
consisting of cash, stock and notes totaling approximately $59 million, was
allocated among the GPRI creditors, which included the Predecessor Company's
senior secured creditors. Accordingly, the Predecessor Company received no
consideration from the sale of GPRI. Concurrently with this stock sale, all
claims against the Predecessor Company related to GPRI were released. This
transaction had no financial statement impact on the Predecessor Company in the
1996 period, as the investment in GPRI was reduced to zero in the 1995 period.
On June 7, 1996 (the "Effective Date"), CG&E and its three subsidiaries
emerged from bankruptcy. In general, the Reorganization provided for
resolution of all claims against the Predecessor Company and amounts pending as
of November 7, 1995, the Chapter 11 filing date, as well as resolution of
certain legal disputes, in exchange for the issuance of new indebtedness and
new common stock (see Notes 5 and 6). Upon the Effective Date, the name of HEI
was changed to Colorado Gaming & Entertainment Co.
Three wholly-owned subsidiaries, BWBH, Inc., BWCC, Inc., and Silver Hawk
Casino, Inc. (collectively referred to as the "Colorado Casinos") own and
operate limited stakes gaming facilities in Colorado, individually known as
Bullwhackers Black Hawk, Bullwhackers Central City, and the Silver Hawk Saloon
& Casino, respectively. Millsite 27, Inc., also a wholly-owned subsidiary of
CG&E, owns a surface parking facility, used by BWBH, Inc. and Silver Hawk
Casino, Inc.
Fresh Start Reporting
In accordance with AICPA Statement of Position 90-7, "Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company
was required to adopt "fresh-start" accounting, on the Effective Date. The
impact of the adoption of fresh-start reporting is reflected in the June 30,
1996 consolidated balance sheets. In adopting fresh-start reporting, the
Company, with the assistance of its financial advisors and third-party
appraisals, estimated its reorganization value, which represents the fair value
of the entities under reorganization, before considering liabilities. The
estimated value for these entities totaled approximately $65 million. The
reorganization value of the Company was determined by consideration of several
factors, including the discounted residual value of the Company's cash flows
and comparable sales. Any excess of the reorganization value over the fair
market value of the net assets is reported as excess reorganization value and
will be amortized over an 18.5-year period.
The adjustments to reflect the consummation of the Reorganization
(including the gain on extinguishment of debt and other pre-petition
liabilities) and the adjustment to record assets and liabilities at their fair
values have been reflected in the unaudited consolidated financial statements.
Accordingly, a vertical black line is shown in the consolidated financial
statements to separate post-Reorganization operations from those prior to June
7, 1996, which have not been prepared on a comparable basis.
The accompanying unaudited consolidated financial statements and related
notes of the Company post-Reorganization (period beginning June 7, 1996) and
the Predecessor Company pre-Reorganization (periods prior to June 7, 1996) have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting. In the opinion of management, all adjustments
considered necessary for fair presentation of financial position, results of
operations and cash flows have been included. These unaudited consolidated
financial statements should be read in conjunction with the financial
statements and notes for the year ended December 31, 1995, included in the
Company's Registration Statement on Form 10/A.
(2) ACCOUNTS PAYABLE
Accounts payable consists of the following (in thousands) :
June 30, 1996 December 31, 1995
(unaudited)
Trade accounts payable $ 2,746 $ 404
Reorganization payable 2,925 -
________ ______
$ 5,671 $ 404
________ ______
A substantial portion of the trade accounts payable relates to the
excavation costs for the surface parking facility, equipment and other pre-
opening expenses for the Silver Hawk Saloon & Casino. Reorganization payables
relates to amounts due to professionals engaged by the Company during the
Reorganization proceedings. All such payments to the professionals require
approval of the Court.
(3) RESTRICTED FUNDS IN ESCROW
Pursuant to various agreements with the City of Black Hawk, Environmental
Protection Agency ("EPA"), and the excavation contractor, the Company was
required to deposit funds in certain escrow accounts to guarantee payment of
environmental remediation and other excavation costs related to the Company's
surface parking lot improvements. As of June 30, 1996 the escrowed funds
totaled $509,000. Subsequent to the end of the quarter a majority of these
funds were released from the escrow accounts by the trustee, pursuant to the
escrow agreements.
(4) DEBT/NOTES PAYABLE
Senior Secured Notes
On the Effective Date of the Company's Reorganization, the Company's
outstanding senior secured notes totaling $174 million (the "Old Notes"), and
other notes payable to Resort Income Investors, Inc. ("RII") totaling $2
million, were canceled and $50 million in 12% Senior Secured Pay-In-Kind Notes
due 2003 (the "New Notes") were issued on a pro rata basis to the holders of
the Old Notes and RII. Interest on the New Notes will accrue at a rate of 12%
per annum, and is payable semi-annually. CG&E may, at its option, pay interest
on the New Notes interest payment dates of December 1, 1996, and June 1, 1997,
through the issuance of additional notes on terms identical to the New Notes.
The New Notes are secured by substantially all the assets of the Company,
including the common stock of the operating subsidiaries.
Credit Facility
On June 7, 1996, the Company entered into a $12.5 million revolving credit
facility (the "Credit Facility") with Foothill Capital Corporation. The Credit
Facility is segregated into several different facilities, including a $5
million construction line, a $5 million equipment financing line and up to a
$3.5 million working capital line. No more than $12.5 million of borrowings
may be outstanding at any time. Borrowings under the Credit Facility are
subject to a 1% financing fee and accrue interest at prime plus 2.375%. The
loans have varying terms ranging from three to five years from when the funds
are borrowed. As of June 30, 1996, the Company had drawn approximately $3
million on the equipment portion of the Credit Facility and approximately $1.3
million under the working capital line. Borrowings are secured by a first
priority lien and security interest in substantially all of the real and
personal property owned or leased by the Company. The Credit Facility replaced
a Debtor-in-Possession facility, also provided by Foothill Capital Corporation.
Other Notes
Pursuant to the Reorganization, the Company issued two unsecured
promissory notes to Capital Associates International, Inc. ("CAI") in the
respective principal amounts of $1.6 million and $3 million, both accruing
interest at the rate of 9% per annum. The $1.6 million note is due in 10 equal
quarterly installments commencing September 7, 1996. The $3 million note has
been reduced by amounts received by CAI in respect of its claims filed in the
chapter 11 bankruptcy case filed by GPRI. Accordingly, the outstanding balance
on the $3 million note is in the range of between $500,000-$700,000 depending
on the ultimate resolution of the exact amount received by CAI from GPRI
distributions to be credited against the note. Accordingly the Company has
reflected $700,000 of the second note as an obligation in the accompanying
consolidated balance sheet, although this amount might be reduced as discussed
above.
(5) EQUITY
Pursuant to the Reorganization, the Predecessor Company's common stock and
warrants were canceled on the Effective Date. The Reorganization also provided
for the amendment and restatement of the Company's certificate of incorporation
and bylaws. The new charter authorized 20 million shares of $.01 par value
common stock. Upon the Effective Date, 5 million shares of common stock of
CG&E were issued on a pro rata basis to the holders of Old Notes and RII. In
addition, the Company's President and Chief Executive Officer was issued
138,888 shares of common stock on the Effective Date. Also on the Effective
Date, 416,667 shares were reserved to be issued to executive management
pursuant to the Management Stock Incentive Plan (the "Stock Plan"). The Stock
Plan provides for shares to be issued to certain management individuals
annually, for the next three years based on the Company meeting certain
performance criteria. Once granted, the shares are fully vested. The first
grant is expected to be on June 7, 1997.
(6) TAXES
Prior to the current period, the Company has never produced taxable
income. For the six months ended June 30, 1996, the Company reported net
income of approximately $164 million. However, of this amount $164.5 million
related to an extraordinary gain from Reorganization items such as forgiveness
of indebtedness and the write-up of the Company's depreciable assets related to
the adoption of fresh-start reporting. Accordingly, no provision for income
taxes was recorded in the current period. The Company's effective income tax
expense for the six months ended June 30, 1996 is as follows (in thousands):
Statutory tax rate applied to $ 65,715
pre-tax income
Extraordinary gain from recording
excess reorganization value (7,470)
Change in valuation allowance (58,245)
_________
Actual income tax expense $ -
_________
Excess reorganization value is an intangible asset recorded due to the
adoption of fresh-start reporting, which has no benefit for tax purposes.
Deferred tax assets and liabilities are comprised of the following:
June 30 December 31
1996 1995
(Unaudited)
Current:
Accrued vacation & gaming liabilities $ 184 $ 184
Non-Current:
Depreciable basis of fixed assets (461) 3,053
Cancellation of indebtedness (55,035) -
Impairment of assets 2,565 5,832
Reorganization items - 4,287
Deferred interest - 404
Capital loss on RCJV 8,646 8,646
Net operating loss carryforwards 49,410 41,148
________ ________
Net Deferred tax assets 5,309 63,554
Valuation allowance (5,309) (63,554)
________ ________
$ - $ -
________ ________
The net deferred tax asset valuation allowance is equal to the full amount
of the net deferred tax asset because the realization of such asset is
dependent upon future taxable income, which is uncertain. The Company
currently has net operating loss carryforwards totaling approximately $124
million, which expire beginning in 2008. Substantially all NOL's will be used
in 1997 upon the recognition of cancellation of indebtedness income (discussed
below). The Reorganization provided for the issuance of new common stock to
satisfy the Company's indebtedness and resulted in an "ownership change" under
section 382 of the Internal Revenue Code (the "Code"). As a result,
utilization of any remaining net operating loss carryforwards ("NOL's") and
certain other tax assets will be limited going forward. These NOL's include
the separate company net operating loss generated by GPRI in 1995, which the
Company may "reattribute" to the parent pursuant to applicable sections of the
Code.
Significant tax liabilities were recorded in the current period due to the
Company's Reorganization. The Company's fixed assets were written-up due to
the adoption of fresh start accounting, which has no benefit for tax purposes.
Secondly, the Company realized approximately $137.6 million in cancellation of
indebtedness income on the Effective Date. Pursuant to the applicable sections
of the Code, this gain may be excluded from taxable income. This excluded
income will result in a reduction of the parent company's tax attributes,
elimination of its NOL's and significantly reduces the tax basis of its assets.
Only NOL's and other tax assets at the subsidiary level will survive this
cancellation of indebtedness event, which are reflected as net deferred tax
assets in the above table at June 30, 1996.
(7) SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
of the Colorado Casinos for the three and six month periods ended June 30, 1996
and 1995 excluding any reorganization and impairment charges are shown as
follows (in thousands):
Three months ended Six months ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
Casino revenues $ 12,204 $ 11,850 $ 23,227 $ 23,667
Casino expenses 8,446 8,808 16,235 17,192
________ ________ ________ ________
Casino operating profit 3,758 3,042 6,992 6,475
Pre-opening (Silver Hawk) 388 - 388 -
Corporate expenses 534 1,567 1,048 4,203
________ ________ ________ ________
EBITDA $ 2,836 $ 1,475 $ 5,556 $ 2,272
________ ________ ________ ________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OF ANY UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THIS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Market Price of Common Stock and Dividend
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Unaudited Pro Forma Condensed Consolidated
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 21
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Certain Relationships and Related Transactions . . . . . . . . . . . . . . 41
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Principal and Selling Securityholders . . . . . . . . . . . . . . . . . . . 48
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . 51
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 51
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-1
5,138,888 SHARES
OF
COMMON STOCK
$55,883,298 PRINCIPAL AMOUNT
OF
12% SENIOR SECURED PAY-IN-KIND NOTES
COLORADO GAMING &
ENTERTAINMENT CO.
_________________
PROSPECTUS
_________________
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets for the costs and expenses payable by the
Company in connection with the sale of the Notes and Common Stock being
registered. All items are estimated except the SEC Registration Fee.
SEC Registration Fee $24,356
Printing 1,000
Legal Fees and Expenses 50,000
Qualification under State
Securities Laws (including legal fees) 6,000
Accounting Fees and Expenses 7,500
Transfer Agent Fees 4,000
Miscellaneous 5,144
_______
Total $95,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including
attorneys' fees) incurred by any officer or director in defending such action,
provided that the director or officer undertakes to repay such amount if it
shall be ultimately determined that he is not entitled to be indemnified by the
corporation.
A Delaware corporation may indemnify officers and directors in an action
by or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
actually and reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of any other rights to which an officer
or director may be entitled under any corporation's by-law, agreement, vote or
otherwise.
Article IX of the Company's Certificate of Incorporation provides that
the Company shall indemnify its officers, directors, agents and other persons
to the fullest extent permitted by the DGCL. Article IX of the Company's
Certificate of Incorporation provides that a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for breaches of fiduciary duty as a director, except for liability (i) for any
breach of the officer's or director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derived any
improper personal benefit.
Pursuant to the Plan of Reorganization, Messrs. Szapor and Mayer and
certain other pre-Effective Date directors and officers of the Company are
entitled to certain additional indemnification rights. See "Legal
Proceedings."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 7, 1996, the Effective Date, all of the Company's then-
outstanding capital stock was cancelled and the Company issued, $50,000,000 in
principal amount of its 12% Senior Secured Pay-In-Kind Notes due 2003 and
5,000,000 shares of Common stock pursuant to the Plan of Reorganization
pursuant to an exemption from registration under the United States Bankruptcy
Code. In addition, on such date, the Company issued 138,888 shares of Common
Stock to Stephen J. Szapor, Jr., the Company's President and Chief Financial
Officer, pursuant to Mr. Szapor's Employment Agreement, pursuant to Section
4(2) of the Securities Act.
On December 15, 1993, the Company sold $140,000,000 in principal amount
of its Old Notes in a private placement pursuant to Regulation D under the
Securities Act. The Company believes that all of the purchasers of such notes
were "accredited investors" within the meaning of Regulation D and that the
Notes were not offered to prospective purchasers who were not accredited
investors. Salomon Brothers Inc served as placement agent for the sale of the
Old Notes. Each note purchaser also received 12 warrants to purchase 1.041667
shares of common stock of the Company (subject to certain anti-dilution
provisions) for each $1,000 of principal amount of Old Notes purchased. The
aggregate offering price of the Old Notes and the warrants was $140,000,000, of
which $4,900,000 was paid to Salomon Brothers Inc as a placement fee.
On June 15 and December 15, 1994, and June 15, 1995, the Company issued
additional Old Notes pursuant to Section 4(2) of the Securities Act in the
respective principal amounts of $8,117,000, $8,884,000 and $9,420,000 to the
then holders of the Old Notes in payment of the interest then due and payable
on the outstanding Old Notes.
On December 17, 1993, the Company issued 10,269,641 shares of its common
stock and 5,380,359 warrants to purchase shares of common stock for an exercise
price of $.01 per share to the owners of certain precedessors of the Company
and its Colorado Subsidiaries in exchange for the assets of these precedessors.
A total of 1,427,927 of the warrants have been exercised since December 17,
1993 for an aggregate consideration to the Company of $14,279.27. These shares
were issued pursuant to Section 4(2) of the Securities Act.
Pursuant to the Company's Omnibus Stock and Incentive Plan, the Company
granted employees the right to receive 130,000 shares of its common stock
provided that the restrictions to which such grants were subject were
satisfied. A total of 33,667 of these shares were issued to employees in 1995.
Each of the five non-employee directors of the Company were each awarded 1,000
shares of common stock of the Company in December 1993. The shares issued to
employees and directors were issued pursuant to Section 4(2) of the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Index to Exhibits
(b) Financial Statement Schedules
Not Applicable
ITEM 17. UNDERTAKINGS
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information as set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, the registrants have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, enforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the
registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
and the State of Colorado on September 27, 1996.
COLORADO GAMING & ENTERTAINMENT CO.
By: /s/ Stephen J. Szapor, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Stephen J.
Szapor, Jr., his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for him and in his name, place and stead to
sign in his name and behalf, in any and all capacities, and to file with the
Securities and Exchange Commission, any and all amendments, including post-
effective amendments, to this registration statement, with all exhibits thereto
and other documents in connection therewith, granting unto said attorney-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 as to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-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 Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Stephen J. Szapor, Jr. President and Chief September 27, 1996
Stephen J. Szapor, Jr. Executive Officer
(Principal Executive
Officer)
/s/ Robert Stephens Vice President of September 27, 1996
Robert Stephens Finance (Principal
Financial and
Accounting Officer)
/s/ Franklin S. Wimer Director September 27, 1996
Franklin S. Wimer
/s/ Alan L. Mayer Director September 27, 1996
Alan L. Mayer
/s/ Richard J. Rabin Director September 27, 1996
Richard J. Rabin
INDEX TO EXHIBITS
Exhibit No. Description
__________ ___________
2.1 Disclosure Statement for First Amended Joint Plan of
Reorganization of the Company, BWBH, Inc., BWCC, Inc. and
Millsite 27, Inc.*
2.2 First Amended Joint Plan of Reorganization of the Company, BWBH,
Inc., BWCC, Inc. and Millsite 27, Inc. (included in
exhibit 2.1.).*
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated By laws of the Company.*
4.1 Indenture between the Company and Fleet National Bank, as
Trustee.*
4.2 Specimen Certificate of Common Stock.*
4.3 Form of Note.*
4.4 Registration Rights Agreement.*
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae regarding validity of
securities (including consent).**
10.1 Loan and Security Agreement, dated as of November 1, 1995 by and
between BWBH, Inc., BWCC, Inc. and Millsite 27, Inc. and
Foothill Capital Corporation.*
10.2 Amendment Number One to Loan and Security Agreement, dated as of
December 4, 1995.*
10.3 Amendment Number Two to Loan and Security Agreement, dated as of
January 24, 1996.*
10.4 Letter Agreement, dated as of December 18, 1995, from BWBH,
Inc., BWCC, Inc. and Millsite 27, Inc. to Foothill Credit
Corporation.*
10.5 Security Agreement, dated as of November 1, 1995, between the
Company and Foothill Credit Corporation.*
10.6 Trademark Security Agreement, dated as of November 1, 1995,
between the Company and Foothill Credit Corporation.*
10.7 Continuing Guaranty, dated as of November 1, 1995 by the Company
and Foothill Credit Corporation.*
10.8 Amended and Restated Loan and Security Agreement, dated as of
June 4, 1996 between Foothill Capital Corporation, BWBH, Inc.,
BWCC, Inc., Millsite 27, Inc. and Silver Hawk Casino, Inc.*
10.9 Lease Agreement, dated October 25, 1991 by and among Jerry L.
Brown and Harold Gene Reagin and HP Black Hawk, L.P.*
10.10 Option to Purchase dated October 28, 1991 by and among Jerry L.
Brown and Harold Gene Reagin and HP Black Hawk, L.P.*
10.11 Sublease Agreement by and between Marsh & McLennan, Incorporated
and the Company.*
10.12 Amendment to Sublease Agreement, dated as of January 18, 1996 by
and between Marsh & McLennan, Incorporated and the Company.*
10.13 Guaranty, dated as of January 18, 1996, by BWBH, Inc., BWCC,
Inc. and Millsite 27, Inc.*
10.14 Agreement for Sale of Real Estate, dated October 20, 1995, by
and between Millsite 20 Limited Liability Company, Iron City
Limited Liability Company and the Company.*
10.15 First Amendment to Agreement for Sale of Real Estate, dated
December 21, 1995 by and between Millsite 20 Limited Liability
Company, Iron City Limited Liability Company and the Company.*
10.16 Letter dated February 28, 1996 from the United States
Environmental Protection Agency.*
10.17 Subdivision Agreement dated February 28, 1996 by and among the
City of Black Hawk, the Black Hawk/Central City Sanitation
District, Millsite 27, Inc. and Millsite 20 Limited Liability
Company.*
10.18 State of Colorado, Department of Revenue, Limited Gaming License
issued to Bullwhackers Black Hawk Casino.*
10.19 State of Colorado, Department of Revenue, Alcoholic Beverage
License issued to BWBH, Inc.*
10.20 City of Black Hawk, Retail Liquor License with Extended Hours
issued to BWBH, Inc.*
10.21 State of Colorado, Department of Revenue, Limited Gaming License
issued to Bullwhackers Central City Casino.*
10.22 State of Colorado, Department of Revenue, Alcoholic Beverage
License issued to BWCC, Inc.*
10.23 City of Central City, Retail Liquor License issued to BWCC,
Inc.*
10.24 City of Central City, Extended Hours License issued to BWCC,
Inc.*
10.25 Colorado Gaming & Entertainment Co. Management Stock Incentive
Plan.*
10.26 Colorado Gaming & Entertainment Co. Cash Bonus Plan.*
10.27 Form of Consulting Agreement between the Company and Christopher
B. Hemmeter.*
10.28 Form of Consulting Agreement between the Company and Mark M.
Hemmeter.*
10.29 Employment Agreement between the Company and Stephen J. Szapor,
Jr.*
10.30 Employment Agreement between the Company and Alan L. Mayer.*
10.31 Employment Agreement between the Company and Richard Rabin.*
21.1 List of Subsidiaries.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in
Exhibit 5.1).**
24.1 Power of Attorney granted by individuals signing the
Registration Statement, included on signature page of
Registration Statement.
99.1 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended of Fleet National Bank, as Trustee under the
Indenture.*
_____________________
* Incorporated by reference to the same exhibit number in the Company's
Registration Statement on Form 10 (File No. 0 - 28068).
** To be filed by amendment.
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use
of our reports (and to all references to our Firm), included in or made
a part of this registration statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Denver, Colorado
September 27, 1996
