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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________ to ____________.
Commission file number 0-28068
COLORADO GAMING & ENTERTAINMENT CO.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
DELAWARE 84-1242693
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S.Employer Identification No.)
12596 WEST BAYAUD AVE., SUITE 450, LAKEWOOD, COLORADO 80228
(Address of Principal Executive Offices) (Zip Code)
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(303) 716-5600
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock (Par Value $0.01 Per Share)
Title of Class
Indicate by check P whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes X No
--- ---
Indicate by check Pif there are no delinquent filers to disclose herein
pursuant to Item 405 of Regulation S-K, and there will not be any delinquent
filers to disclose, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check X mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
Number of shares of common stock outstanding at March 25, 1998: 5,236,091
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Colorado Gaming & Entertainment Co. ("CG&E" or the "Company"), formally
known as Hemmeter Enterprises, Inc. (referred to as the "Predecessor Company"
for the period prior to June 7, 1996), develops, owns and operates gaming and
related entertainment facilities. The Company owns and operates, through
wholly-owned subsidiaries, BWBH, Inc. ("BWBH" or "Bullwhackers Black Hawk")
and BWCC, Inc. ("BWCC" or "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 wholly-owned subsidiary, Silver Hawk
Casino, Inc., a third gaming facility, in Black Hawk (the "Silver Hawk
Casino") (Bullwhackers Black Hawk, Bullwhackers Central City and the Silver
Hawk Casino are referred to collectively as the "Colorado Casinos"). In
addition, through a wholly-owned subsidiary, Millsite 27 Inc. ("MS27"), the
Company owns a parking lot with a capacity of approximately 500 cars, which
is located directly between, and is used by, Bullwhackers Black Hawk and the
Silver Hawk Casino. References in this Annual Report on Form 10-K to CG&E or
the Company include its subsidiaries unless the context otherwise requires.
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 45 miles from Colorado Springs and 110 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.
Effective August 22, 1997, the Company entered into an Agreement and
Plan of Merger, as amended as of October 21, 1997 (the "Merger Agreement"),
with Ladbroke Racing Corporation, a Delaware corporation ("LRC"), and CG&E
Acquisition Corp., a Delaware corporation ("Acquisition Sub"), pursuant to
which the Acquisition Sub will be merged with and into the Company (the
"Merger"). Prior to the Merger and pursuant to the terms of the Merger
Agreement, LRC will assign all of its rights and obligations under the Merger
Agreement, including its interest in the Acquisition Sub, to Ladbroke Gaming
Corporation, a Delaware corporation ("Ladbroke"), a wholly-owned subsidiary
of Ladbroke Group plc, the ultimate parent of LRC. As a result of the
assignment and the Merger, the Company will become a wholly-owned subsidiary
of Ladbroke. Pursuant to the Merger Agreement, holders of the Company's
common stock, $0.01 par value (the "Common Stock"), will be entitled to
receive $6.25 in cash for each share of Common Stock held by them immediately
prior to the Merger. On December 12, 1997, stockholders of the Company
approved and adopted the Merger Agreement. The Merger remains subject to
approval by the Colorado Limited Gaming Control Commission (the "Gaming
Commission"). Although there can be no assurances, closing of the Merger is
anticipated to occur sometime in the third quarter of 1998. However,
pursuant to the terms of the Merger Agreement, if the Merger has not been
consummated on or before September, 30 1998, which date may be extended by
the mutual written consent of LRC and the Company, either party has the right
to terminate the Merger Agreement and abandon the Merger.
REORGANIZATION
As a result of the financial difficulties of a riverboat gaming project
undertaken in 1995 by Grand Palais Riverboat, Inc. ("GPRI"), a wholly-owned
subsidiary of the Predecessor Company, the Predecessor Company, BWBH, BWCC
and MS27 sought protection under Chapter 11 of the United States Bankruptcy
Code on November 7, 1995 (the " Reorganization"). The First Amended Joint
Plan of Reorganization of the Predecessor Company, BWBH, BWCC and MS27 was
confirmed on April 8, 1996 and became effective on June 7, 1996 (the
"Effective Date"). As a result, among other things, the Company
significantly reduced its consolidated debt, issued new shares of common
stock and sold GPRI.
COLORADO CASINOS AND RELATED AMENITIES
BULLWHACKERS BLACK HAWK. Bullwhackers Black Hawk opened on July 17, 1992
and is currently one of the
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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 a 36,000 square foot facility which
contains approximately 12,000 square feet of gaming space on four levels. The
casino currently has approximately 600 slot machines and fifteen table games.
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.
In June 1997, the Company completed construction of a day care facility
adjacent to Bullwhackers Black Hawk, operated by New Horizons Kids Quest III,
Inc.("Kids Quest"), at a cost of approximately $1.4 million. Kids Quest is
solely responsible for the day-to-day operations of the 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 at one of the town's
two main intersections, and is across from a parking facility. This 31,000
square foot facility contains approximately 8,750 square feet of gaming space
on two levels. Bullwhackers Central City currently has approximately 320 slot
machines, following a reduction of approximately 80 slot machines in the
fourth quarter of 1997, and four table games at the facility. The facility
has two bars, a 126-seat full service restaurant and office space.
Bullwhackers Central City also utilizes a Victorian theme in its interior
design.
The Company believes that proximity to convenient parking is extremely
important to the Central City casinos and the Colorado market in general.
However, except for the largest casino in Central City which recently
constructed an on-site parking garage, none of the casinos currently
operating in Central City offer on-site parking for more than approximately
50 cars immediately. There are several public parking lots in Central City
offering parking for a total of approximately 550 cars, including a 200-space
lot across from Bullwhackers Central City. As a result of the lack of
adequate convenient parking, many of the operators in Central City, including
the Company, increasingly rely on costly busing programs, which offer cash
back promotions and other incentives designed to enhance incremental patron
visitation and play, particularly during off-peak periods.
SILVER HAWK CASINO. The Silver Hawk Casino is an approximately 12,000
square foot four-story building constructed in 1993, that 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 on April 12, 1996.
The Company completed minor interior remodeling and reopened the facility on
June 26, 1996. Currently, the Silver hawk Casino has approximately 230 slot
machines and 3 table games. The facility has two bars, a full service
restaurant and office space.
PARKING LOT. The Company owns an approximately 3.25-acre parking lot
located between Bullwhackers Black Hawk and the Silver Hawk Casino. The
Company believes that proximity to convenient parking is extremely important
in Black Hawk. 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 its parking lot gives Bullwhackers Black Hawk
and the Silver Hawk Casino a competitive advantage over other casinos in
Black Hawk that offer fewer parking spaces or less convenient parking.
On May 23, 1997 the Company completed the process of expanding its
parking lot to accommodate a total of approximately 500 cars. The total
cost of the project was approximately $1.6 million. The Company also
constructed a new valet facility, which cost approximately $250,000, to
increase customer convenience and to enhance access to the Kids Quest child
care facility.
GROWTH STRATEGY
BRONCO BILLY'S ACQUISITION. On February 13, 1998, the Company purchased
the assets comprising the casino known as Bronco Billy's in Black Hawk from
Pioneer Associates Limited Liability Company for approximately $5.5 million.
In connection with the purchase, the Company entered into an amendment to the
Company's senior bank credit facility (the "Credit Facility") converting the
expired construction sub-facility into a new line to borrow up to $5 million
(the "Bronco Billy's Acquisition Line") to purchase and perform tenant
improvements on the former Bronco Billy's casino. The Company anticipates it
will incur an additional $2.0 million to equip and renovate the former Bronco
Billy's casino for reopening, which will be funded out of cash flow from
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operations or borrowings under the Credit Facility. Bronco Billy's is
located next to Bullwhackers Black Hawk. The Company intends to remove the
common wall separating the casinos in order for the former Bronco Billy's
casino to become a part of Bullwhackers Black Hawk. Subject to the approval
of the Gaming Commission and applicable state and local liquor agencies (the
"Liquor Agencies"), the combined casino will be operated as a single casino,
under one gaming license and one liquor license. The Company plans to open
the new facility in May 1998, which will add approximately 250 slot machines
and an additional restaurant facility to Bullwhackers Black Hawk, increasing
the existing slot capacity in Bullwhackers Black Hawk by over 40%. The
Company intends to identify the expanded area of Bullwhackers Black Hawk as
"The Bullpen Sports Casino" with an enhanced sports bar theme.
CANADA. In April 1997, The Company responded to a Request for Proposal
("RFP") issued by the government of Ontario, Canada, to develop and operate
multiple charity gaming clubs in the Province of Ontario. The clubs will
offer 150 video lottery terminals ("VLT") and 40 table games with a maximum
single bet of $100. In responding to the RFP, the Company and its partners
formed Diamond Gaming of Ontario Inc. ("Diamond Gaming"). Diamond Gaming's
shareholders are a newly formed subsidiary of the Company, which owns 45% of
Diamond Gaming, a subsidiary of Ogden Corporation (45% owner) and Diamond
Gaming Services Inc. (10% owner). On September 30, 1997, the Ontario Gaming
Control Commission announced that Diamond Gaming was the successful bidder to
develop and operate charitable gaming clubs in the cities of Kingston and
Belleville, Ontario. The development and opening of the Kingston and
Belleville facilities remain contingent upon a number of items, including
entering into an operating agreement with the Ontario Gaming Control
Commission, reaching an agreement with property owners and local
municipalities on specific sites, and obtaining zoning and other local
approvals, none of which can be assured. The proposed terms of the operating
agreement will be an eight-year term with one eight-year renewal option.
Diamond Gaming will receive operator's compensation equivalent to 10% of the
VLT revenue and 5% of the table revenue and all other revenue. Additionally,
Diamond Gaming will receive 10% of operating profits, as defined, excluding
profits from VLT operations. The Company currently estimates that the two
clubs in Kingston and Belleville will require an initial investment of
approximately $5.0 million in the aggregate. The Company's share of such
investment is approximately 47% of that amount, which it intends to fund from
cash flow from operations or borrowings under the revolving portion of the
Credit Facility. Pursuant to a Supplemental Indenture dated January 23,
1998, the Company has received the necessary consent of the holders of its
12% Senior Secured Pay-In-Kind Notes to allow it to make the required
investment. The Company will account for its 45% interest in Diamond Gaming
under the equity method of accounting. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
CONSULTING AGREEMENT. In 1996, the Company entered into a agreement with
a company in business of providing gaming consulting and management services
to Native American Indian tribes. The consulting agreement provided that the
companies will use their joint resources to pursue obtaining contractual
arrangements with various Native American tribes to provide consulting
services for new and existing Native American gaming projects. For the
twelve months ended December 31, 1997 and 1996, the Company expended $123,000
and $120,000, respectively, of fees and contributions, which has been
expensed in the accompanying consolidated statements of operations. On
November 25, 1997, the consulting agreement was terminated with respect to a
particular Native American gaming project for which the Company made the
above-referenced contributions, which termination relieves the Company from
any rights or obligations with respect to such project. The termination
provides that the Company shall be reimbursed a total of $185,000 of such
fees and contributions, contingent upon the opening of the tribal casino for
such project. The consulting agreement is still in effect with regard to
pursuing other Native American gaming projects.
OTHER. Although the Company intends to focus on its existing
operations, it continues to review and evaluate potential opportunities to
apply existing management expertise to additional gaming operations in
Colorado and in other jurisdictions such as those described above. 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. Additionally, the Company's lending
agreements significantly limit the amount of capital which may be expended
for certain new projects. See " -Colorado Gaming Regulations" and " -
Non-Gaming Regulation."
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COLORADO GAMING MARKET
GENERAL. Black Hawk and Central City are historic mining towns made
famous during the gold rush of 1859. 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. 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 the Denver metropolitan area. Approximately 2.1 million
people live in the Denver metropolitan area, approximately 2.4 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.
According to the Colorado Division of Gaming, there were 52 gaming
facilities operating in Colorado at the end of 1997, with a total of 12,977
slot machines and 224 table games. Of these, 19 facilities, 5,337 slot
machines and 106 table games were located in Black Hawk; 12 facilities, 3,196
slot machines and 58 table games were located in Central City; and 21
facilities, 4,444 slot machines and 60 table games were located in Cripple
Creek. Generally, Central City facilities have not been able to compete
effectively with facilities in Black Hawk, primarily because Black Hawk
casinos offer substantially more on-site parking and more convenient location
and access, which is a significant competitive advantage in the Colorado
market. For the year ended 1997, 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 $113.81
in Black Hawk, $68.12 in Central City and $63.38 in Cripple Creek. The
cumulative gaming win in Black Hawk as a market was $220 million in 1997 and
$204 million in 1996. While the Black Hawk market continues to grow, the
growth rate has slowed substantially from that of several years ago. The
cumulative gaming win in the Central City market was $82 million and $83
million in 1997 and 1996, respectively. Although these figures reveal only a
slight decrease in the cumulative gaming win in Central City, the recent
results of the Central City market reflect the strong growth of a the largest
competitor located off Main Street in Central City, due, among other
matters, to the addition of a new parking garage, while the results of the
Main Street operators, including Bullwhackers Central City, have seen
revenues steadily decline over the past few years.
MARKETING STRATEGY. The Company targets primarily 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) providing the newest
models of slot machine games; (iv) promoting customer awareness through
marketing of the Bullwhackers name and theme; (v) providing excellent
customer service with a motivated staff; (vi) utilizing strategic busing
programs; (vii) offering customer promotions; (viii) providing desirable food
products and refreshments; and (ix) providing incentives to higher-value
repeat customers.
In particular, the Company has used extensive marketing programs to
build customer awareness, including radio, print and direct mail. The
Company believes that Bullwhackers enjoys among the highest name recognition
of 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 slot club
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 fourteen times per day from Golden, a western
Denver suburb, to and from Black Hawk and Central City.
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 across the
Company's parking lot from Bullwhackers Black Hawk. However, the Company
believes that its primary competition for the Colorado Casinos are other
casinos operating in Black Hawk and Central City. More experienced,
nationally recognized casino operators from other
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areas of the country have entered, or have recently announced plans to enter,
the Colorado gaming market, including Harvey's, Casino America, Riviera
Holdings, Inc., Hyatt, Anchor Gaming 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 to increase in Black Hawk.
Various published reports detailing additional gaming projects have been
announced for the town of 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 from the Denver metropolitan area. In
contrast, Bullwhackers Black Hawk and the Silver Hawk Casino 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 has
begun construction on a third major intersection off State Highway 119
between the two current intersections. This additional intersection will,
when completed, 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, thereby potentially reducing traffic flow
and customer visits to Bullwhackers Black Hawk and the Silver Hawk Casino
and, to a greater extent, the overall Central City market.
Currently, there are two major projects under construction in Black
Hawk. The first is a joint venture between Black Hawk Gaming & Development
Co., the 50% owner and operator of the Gilpin Hotel Casino, and Jacobs
Entertainment, for a new 35,000 square foot casino, with 55 hotel rooms, 250
parking spaces and approximately 800 slot machines. It is currently
anticipated that this project will open sometime in the second quarter of
1998. The second project is the Isle of Capri Black Hawk, which is owned by
subsidiaries of Casino America, Inc. and Nevada Gold & Casinos, Inc. The
Isle of Capri project is expected to include a 55,000 square foot casino with
1,100 slot machines, 25 table games and 1,000 on-site parking spaces. It is
expected to open in late 1998 or early 1999. The new gaming capacity being
developed may dilute existing operators' win per unit and revenue, including
the Company's. Accordingly, such increase in capacity may have a material
adverse effect on the Company's results of operations. The new projects have
all been announced/commenced in Black Hawk, due to its more convenient
location as compared to Central City. As the town of Black Hawk continues to
expand, the Central City market contracts. The Company believes that these
new projects under construction will have severe negative impact on the town
of Central City as compared to Black Hawk.
In addition, a number of other casino projects have been announced and
are in various planning stages, including a venture by Riviera Holdings,
Inc. to construct what would be the largest facility in Black Hawk.
Additionally, Bullseye Gaming has announced plans for the Black Hawk Brewery,
which will offer 500 slot machines and 10 table games when open. Various
other projects have been announced, proposed, discussed or rumored for the
Black Hawk market, including large projects known as "Country World" and the
"St. Moritz - Hyatt". While it is difficult to assess the likelihood and the
timing of these proposed projects being completed, it is reasonably likely
that at least some of the proposed competitive projects may be completed and
open to the public by sometime during 1999 or 2000. In addition, as the town
of Black Hawk has expanded, both in terms of gaming device capacity and
market size, the Central City market has contracted. Therefore, should
several of the announced competitive projects open, the increased competition
may adversely affect the Company's operations in both Black Hawk and, to a
greater extent, in Central City, which may be forced to close with the new
competition, and, accordingly, may have a material adverse effect on the
Company's consolidated results of operations and financial position.
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 and the Central City market overall offers less convenient parking and
access than most of its competitors. The Silver Hawk Casino is smaller, has
a less advantageous location 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 23 casinos in Central City have ceased operations. In
addition, several operators, including the Company, have reduced staffing and
have closed temporarily or reduced their square footage and/or hours of
operations. The Company believes that the casinos that failed in Central
City did so primarily due to Central City's Main Street disadvantages
location as
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compared to Black Hawk. In Black Hawk, the Company believes the properties
that have failed have done so for a variety of reasons, including inferior
design, inconvenient parking, inadequate size, inexperienced management and
undercapitalization.
Several lobbying groups placed initiatives for additional Colorado
limited stakes gaming venues, including Denver, on the November 1996
statewide ballots. Although each of these initiatives were defeated by a wide
margin, similar initiatives, legislation or regulations could be introduced
in the future. The enactment of any initiatives, legislation, or regulations
legalizing gaming elsewhere in Colorado could, and if gaming closer to Denver
was legalized, would, have a material adverse effect on the Company's
consolidated results of operations and financial position.
During the 1996-1997 legislative session, the Colorado Legislature
passed a bill that would have authorized the installation of a minimum of 500
video lottery terminals ("VLT's") at six horse and dog tracks located
throughout Colorado. VLT's are games of chance, similar to slot machines.
The Governor of Colorado vetoed such bill. A similar bill is pending in the
current Legislative Session. If the bill passes and the Governor of Colorado
does not veto such bill, or if any such veto is overridden, the bill would
become law and would add a significant amount of gaming device capacity in
the Denver metropolitan area. Any such additional capacity may have a
material adverse impact on the Company's results of operations.
In addition to competing with other gaming facilities in Colorado, the
Company competes to a lesser degree, both for customers and in 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, bingo parlor operations, charitable gaming and
pari-mutuel wagering, among others, and competes for entertainment dollars
generally with other forms of entertainment.
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
The State of Colorado created the Colorado Division of Gaming ( the
"Division") 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 Merger must be approved by the Gaming Commission. In connection
with such approval, the Division is currently investigating the operations,
officers and directors of Ladbroke and its affiliates, including an extensive
investigation of Ladbroke Group plc and its directors. Although there can be
no assurances, the Company anticipates that approval of the Merger will occur
sometime in the third quarter of 1998. However, pursuant to the terms of the
Merger Agreement, if the Merger has not been consummated on or before
September, 30 1998, which date may be extended by the mutual written consent
of LRC and the Company, either party has the right to terminate the Merger
Agreement and abandon the Merger. Any failure or refusal of Ladbroke or such
related persons or entities to provide any information requested by the
Division, or any delays in providing such information, may detrimentally
impact the ability of Ladbroke to obtain, or materially delay the obtaining
of, the necessary approval of the Gaming Commission. There can be no
assurance that the Gaming Commission will approve the Merger.
The Director of the Division (i) may inspect, without notice, premises
where gaming is being conducted; (ii) may seize, impound or remove any gaming
device; (iii) may examine and copy all of a licensee's records; (iv) may
investigate the background and conduct of licensees and their employees; and
(v) 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
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Commission is empowered to issue five types of gaming and
gaming-related-licenses. The licenses are revocable and non-transferable.
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 Bullwhackers Black Hawk
and Central City expire on December 2, 1998 and the license for the Silver
Hawk Casino expires on June 24, 1998 and currently is in the process of being
renewed. In addition, prior to conducting gaming activities upon the former
Bronco Billy's as part of Bullwhackers Black Hawk's gaming license, as
discussed above, Bullwhackers Black Hawk must obtain approval for such
transaction by the Gaming Commission. There can be no assurance that the
Company will successfully renew its licenses in a timely manner or at all.
The failure or inability of the Company, BWBH, BWCC, Silver Hawk Casino, 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, and the
suitability of a licensee can be adversely affected by persons associated
with the licensee. 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.
All persons employed by the Company who are involved, directly or
indirectly, in gaming operations in Colorado also are required to obtain a
support gaming license prior to commencing employment. In addition, "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. All licenses are revocable, non-transferable and valid only for the
particular location initially authorized, except that support and key
employee licenses move with the approved individual and are not location
specific. Messrs. Szapor, Mayer, Rabin, Stephens, all officers of the
Company, and the Company's four independent directors, among others, all hold
key licenses in Colorado.
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 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 considered a publicly
traded company within the meaning of the Colorado Regulations. Any owner of
any interest in a Colorado licensee where such licensee is not publicly
traded, or of a 5% or more interest in a publicly traded licensee, is
precluded from owning more than 5% of the Company's stock.
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
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. Institutional investors 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;
provided, however, that such institutional investors must
7
<PAGE>
provide a certification within 45 days of acquiring such ownership of various
matters relative to their ownership, including that such ownership was
acquired for investment purposes only. The Gaming Commission maintains the
right to request information from any person, directly or indirectly
interested, regardless of their level of ownership, in or employed by a
licensee. An application for license or a finding of suitability may be
denied for any reason deemed reasonable by the Gaming Commission or the
Director of the Division (the "Director"). 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.
A person or entity may not sell, lease, purchase, convey, acquire or
pledge any 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 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 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" 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.
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, blackjack 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, the Gaming Commission 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 20%. These regulations and taxes adversely
affect the Colorado Casinos' ability to generate revenues and operating
profits. See "- Non-Gaming Regulation -Taxation."
8
<PAGE>
The Company believes that it is presently in material compliance with
all applicable gaming rules and regulations.
NATIONAL GAMBLING IMPACT AND POLICY COMMISSION. Federal legislation was
recently enacted that established a National Gambling Impact and Policy
Commission to study the economic impact of gambling on the United States, the
individual states and Native American tribes. Additional federal regulation
may occur due to the initiation hearings by the Commission. Any new federal
legislation could have a material adverse effect on the Company.
NON-GAMING REGULATION
LIQUOR REGULATION. The sale of alcoholic beverages is subject to
licensing, control and regulation by the Liquor Agencies. The current liquor
licenses for Bullwhackers Black Hawk and Bullwhackers Central City, which
were recently renewed, expire in January and February of 1999, respectively.
The Silver Hawk liquor license expires in June 1998 and is in the process of
being renewed. Currently, the Company is seeking approval from the Liquor
Agencies to expand the premises for Bullwhackers Black Hawk liquor license to
include the former Bronco Billy's casino recently acquired by the Company.
In addition, the Company's liquor licenses will be deemed to have been
transferred as a result of the Merger. This deemed transfer must be approved
by the Liquor Agencies. There can be no assurance that such approvals of the
Liquor Agencies will be obtained.
All liquor licenses are renewable, are revocable and are not
transferable. The Liquor Agencies have full 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.
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 imposes an annual device fee of $75 for each gaming device
installed in a casino. The Colorado 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.
These rates are subject to annual revision with a maximum rate of 40%. The
latest annual revision, which became effective October 1, 1996, is calculated
as a percentage of adjusted gross proceeds (casino net win). The gaming tax
rates for the previous three gaming years are set forth in the following
table:
<TABLE>
<CAPTION>
Annual Tax Rate Annual Tax Rate
Annual Gross Proceeds from 10/94 to 9/96 from 10/96 to 6/98
--------------------- ------------------ ------------------
<S> <C> <C>
First $2 million . . . . . . . 2% 2%
Next $2 million. . . . . . . . 8% 4%
Next $1 million. . . . . . . . 15% 14%
Next $5 million. . . . . . . . 18% 18%
Proceeds over $10 million. . . 18% 20%
</TABLE>
In 1997, the Gaming Commission changed the gaming tax year from October
1 through September 30 to July 1 through June 30. Accordingly, the new tax
rate for the gaming tax year 1998-99 will be set by the Gaming Commission in
June, effective as of July 1. While it is difficult to speculate on how the
Gaming Commission may adjust the tax rates, if at all, any material increase
in the tax rates could have a material adverse effect on the Company's
consolidated results of operations and financial position.
9
<PAGE>
EMPLOYEES
The Company employs approximately 575 persons, including cashiers,
dealers, food and beverage servers, facilities maintenance, accounting,
marketing and human resources personnel. No labor unions currently represent
any employees of the Company. A package of employee benefits is provided to
full-time employees. The Company believes that its employee relations are
satisfactory.
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, this
access road may be 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. As a result,
the Colorado Casinos' business tends to be seasonal, with the highest level
of activity occurring during the summer months.
The site of Bullwhackers Black Hawk is located in a 100-year flood
plain. To date, the Company has not experienced any flooding resulting in
damage to the casino. The Company believes it carries adequate flood
insurance on Bullwhackers Black Hawk. There can be no assurance that
Bullwhackers Black Hawk will not suffer flood damage in the future or that
any damage will be adequately covered by insurance.
PRIVATE SECURITIES LITIGATION REFORM ACT
Certain statements set forth above and elsewhere in this Annual Report
on Form 10-K which are not historical facts are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
such as statements relating to future competition, financing and refinancing
sources and availability, plans for future development or expansion
activities and capital expenditures. Such statements can be identified by
the use of forward-looking terminology such as "might," "may," "will,"
"would," "could," "except," "anticipate," "estimate," "likely," "believe, "or
"continue" or the negative thereof or other variations thereon or comparable
terminology. Such forward looking statements involve a number of risks and
uncertainties that may significantly affect the Company's liquidity and
results of operations in the future and, accordingly, actual results may
differ materially from those expressed in any forward-looking statements.
Such risks and uncertainties include, but are not limited to, those related
to leverage and debt service and financing and refinancing efforts,
competition, inclement weather, general economic conditions in the Denver
metropolitan area, changes in gaming laws, regulations or tax rates and risks
related to development and construction activities. See "Management 's
Discussion and Analysis of Financial Conditions and Results of
Operations-Statement on Forward-Looking Information."
ITEM 2. PROPERTIES
The Company owns, through wholly-owned subsidiaries, the Colorado
Casinos and the parking lot including, with the exception of Bullwhackers
Black Hawk, free title to the real property underlying the buildings. The
Company leases the real property underlying Bullwhackers Black Hawk pursuant
to a 23-year land lease expiring in 2014. The terms of the ground lease
require base minimum payments for the calendar year 1996 through 1999 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. In February 1998, the Company
entered into an amendment to this lease, commencing upon the opening of the
Company's Black Hawk expansion, requiring the Company to pay 80% of the above
additional rent (1.9% of adjusted gross revenues) on the joint premises of
Bullwhackers Black Hawk and the former Bronco Billy's Casino 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.
On February 11, 1998, the Company entered into three ground lease
agreements for the real property underlying the facility of the former Bronco
Billy's casino. The terms of the first lease requires a monthly $35,000
10
<PAGE>
base rent and additional rent equal to 40% of Net Win (as defined therein) of
the gaming operations conducted on the premises through September 2022, with
an option to extend the lease term to July 2024. The terms of the second
lease requires a $22,500 monthly lease payment through July 2024. This lease
contains a purchase option for $1.2 million expiring in March 2001. The
terms of the third lease requires a monthly rent between $12,500 to $16,500
per month, based on a range of Average Daily Proceeds from all gaming devices
on the premises, which monthly rent escalates throughout the term of the
lease, through July 2024.
In March 1997, the Company relocated its corporate offices from Denver
to Lakewood, Colorado pursuant to a new $10,000 a month lease, which expires
April 2002.
ITEM 3. LEGAL PROCEEDINGS
GENERAL. The Company is or may become a defendant in pending or
threatened legal proceedings in the ordinary course of business. The
Company's management believes that the ultimate resolution of all such
currently pending legal proceedings will not have a material adverse impact
on the Company's financial position or results of operations.
LADY LUCK. In October 1996, BWCC, Inc. signed a non-binding memorandum
of understanding ("MOU") with Gold Coin, Inc., a wholly-owned subsidiary of
Lady Luck Gaming Corporation, to explore the possibility of physically
combining Bullwhackers Central City with the adjacent casino operated as Lady
Luck Gold Coin Gambling Hall & Saloon and owned by Gold Coin, Inc. The
prospective transaction was subject to a number of contingencies, including
the execution and delivery of definitive agreements setting forth the final
agreed upon terms and conditions of the transaction. While the parties
continued to negotiate over unresolved issues contained in the drafts of the
definitive agreements, market conditions and other events affecting the
Central City market continued to change and decline significantly. Despite
continued efforts to satisfactorily resolve the open issues in light of the
foregoing, no final, definitive agreements were executed and delivered, and
the prospective transaction was never consummated.
In March 1998, Lady Luck Central City, Inc., formerly known as Gold
Coin, Inc., filed a complaint in the District Court for the County of
Jefferson, State of Colorado, Case No. 98 CV 672, captioned as LADY LUCK
CENTRAL CITY, INC. V. BWCC, INC., D/B/A BULLWHACKERS CENTRAL CITY, COLORADO
GAMING & ENTERTAINMENT, CO., AND LADBROKE GROUP PLC. The complaint alleges
causes of action against BWCC, Inc. based upon the foregoing events for
breach of contract, breach of fiduciary duty, and breach of duty of good
faith. The complaint also alleges causes of action against the Company and
Ladbroke Group PLC for tortious interference with contract and tortious
interference with prospective business opportunity. The Company and BWCC,
Inc. believe the complaint is without merit and intend to vigorously defend
themselves. As required by the Colorado Regulations, the Company has
notified the Division of this matter.
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 parking lot was constructed was identified as requiring
remediation in connection with the construction of the parking lot. That
remediation was completed in June 1994. When the Company expanded the
parking lot in June 1996, additional environmental remediation of hazardous
soil was required. Such additional remediation was completed, at the
direction and approval of the EPA and CDPHE, prior to December
11
<PAGE>
31, 1996.
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, including a Phase I on the former Bronco Billy's site. Based on
these examinations, the Company is not aware of any environmental problems
affecting the Colorado Casinos which would likely 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The following matters were approved by the Company's stockholders at the
Company's Special Meeting of Stockholders held December 12, 1997:
1. Approval and adoption of the Merger Agreement by and among LRC, the
Acquisition Sub and the Company:
<TABLE>
<S> <C> <C>
3,301,738 Shares Voted For 2,174 Shares Voted Against 0 Shares Abstained
</TABLE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to each individual who
is an executive officer of the Company:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Stephen J. Szapor, Jr. 38 Chief Executive Officer,
President and Director
Alan L. Mayer 36 Senior Vice President,
Chief Legal Officer and Secretary
Richard S. Rabin 51 Senior Vice President of Operations
Robert J. Stephens 30 Vice President of Finance and Treasurer
Jack Breslin 43 Vice President of Marketing
</TABLE>
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
12
<PAGE>
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.
On April 29, 1997, the Compensation Committee of the Board of Directors
extended Mr. Szapor's employment contract to June 7, 2000.
ALAN L. MAYER has served as Senior Vice President, Secretary and Chief
Legal Officer of the Company and its predecessors since September 1992 and
served as an interim director from the Effective Date through January 1997.
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 President of the Board of Directors of the Casino
Owners Association of Colorado.
RICHARD S. RABIN has served as Senior Vice President of Operations of
the Company since March 1996 and served as an interim director from the
Effective Date through October 1996. 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.
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 holds a key license from the Gaming
Commission and is a Certified Public Accountant.
JACK BRESLIN has served as Vice President of Marketing since February
1997. Mr. Breslin served as President and Partner of CCI Advertising, Inc.
in New Jersey, which produced campaigns for Horseshoe Casinos and Sands Hotel
and Casino in Atlantic City, the Santa Fe Casino in Las Vegas, and Gold
River in Laughlin, Nevada and several other casinos and riverboats throughout
the country from 1991 to February 1997. Prior to that, Mr. Breslin served as
in-house Creative Director for Trump's Castle Casino Resort in New Jersey.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
MATTER
(a) MARKET INFORMATION. The Company's Common Stock has traded on the OTC
Bulletin Board system, under the symbol "CGME" since October 1996. From June
1996 to October 1996, the Common Stock traded in the "pink sheets" in the
over-the-counter market. No established public trading market for the
Company's Common Stock exists. There are only, limited sporadic and
infrequent trades of the Common Stock; consequently there are no reliable
quotations of trading prices. Based upon information supplied to Nasdaq
Trading and Market Services by the reporting brokers and information supplied
to the Company by certain market makers, Nasdaq Trading and Market Services
and such brokers reported the following range of high and low sales price for
each quarter since the Common Stock became registered under the Securities
Exchange Act of 1934 on the Effective Date:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1996 3.50 2.50
September 30, 1996 4.25 3.50
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
December 31, 1996 5.00 4.00
<CAPTION>
Quarter Ended High Low
------------- ---- ---
March 31, 1997 $5.25 $4.50
June 30, 1997 4.25 4.25
September 30, 1997 5.30 2.50
December 31, 1997 5.75 5.125
</TABLE>
The most recent trade of the Company's Common Stock was $5.75 per share
on March 10, 1998.
(b) HOLDERS. The approximate number of record holders of the Company's
Common Stock as of March 25, 1998 was approximately 13.
(c) DIVIDENDS. 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
governing its 12% Senior Secured Pay-In-Kind Notes due 2003 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.
14
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below is derived from
the Company's Consolidated Financial Statements. Due to the Reorganization,
comparisons of periods prior to and after June 6, 1997 may be of limited use
in determining operating or other financial trends in the Company's business.
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 Form 10-K.
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1993 1994(b) 1995(b)
------- -------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues . . . . . . . . . . . . . . $38,468 $ 45,474 $ 47,428
Operating Expenses:
Impairment of assets and
predevelopment expense . . . . . . . . - 10,804 11,347
Reorganization items . . . . . . . . . - - 17,910
Other operating expenses . . . . . . . 35,310 47,631 44,807
Income (loss) from operations. . . . . . 3,158 (12,961) (26,636)
Interest expense . . . . . . . . . . . . 6,987 18,822 18,664
Equity loss in unconsolidated
subsidiary . . . . . . . . . . . . . . - (2,324) (70,277)
------- -------- ---------
Net loss . . . . . . . . . . . . . . . . $(3,829) $(32,331) $(115,216)
------- -------- ---------
------- -------- ---------
Net loss per common share(a) . . . . . . N/A N/A N/A
------- -------- ---------
------- -------- ---------
Weighted average common
shares(a) . . . . . . . . . . . . . . N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Jan. 1,1996 June 7, 1996
through through Year Ended
June 6, 1996 December 31,1996 December 31, 1997
------------ ---------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues . . . . . . . . . . . . . . $19,982 $30,680 $ 52,132
Operating Expenses:
Reorganization items . . . . . . . . . 2,290 308 75
Other operating expenses . . . . . . . 17,130 26,402 44,421
Income from operations . . . . . . . . . 562 3,970 7,636
Interest expense . . . . . . . . . . . . 579 3,867 6,780
Extraordinary gain from
reorganization . . . . . . . . . . . . 164,358 -- --
------------ ---------------- -----------------
Net income . . . . . . . . . . . . . . . $164,407 $ 192 $ 212
------------ ---------------- -----------------
------------ ---------------- -----------------
Basic net income per common share(a) . . N/A $ 0.04 $ 0.04
------------ ---------------- -----------------
------------ ---------------- -----------------
Weighted average common
shares(a) . . . . . . . . . . . . . . N/A 5,138,888 5,194,280
------------ ---------------- -----------------
------------ ---------------- -----------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------
1993 1994(b) 1995(b) 1996 1997
-------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . $ 12,944 $ 7,977 $ 3,623 $ 5,758 $ 4,228
Total assets . . . . . . . . . . . . . . 143,622 141,093 37,680 67,048 64,679
Long-term debt (excluding current
portion) . . . . . . . . . . . . . . . . 139,595 155,675 - 55,391 53,553
Liabilities subject to compromise . . . . - - 186,460 -- --
Total stockholders' equity (deficit). . . (4,693) (36,824) (153,137) 4,869 5,248
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) The weighted average number of common shares outstanding and net income per
common share for the Predecessor Company (periods prior to June 6, 1996)
have not been presented because, due to the Reorganization and
implementation of fresh-start reporting, they are irrelevant.
(b) 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 (as determined by generally accepted accounting
principles) following the commencement of the GPRI Bankruptcy Case. On May
3, 1996, GPRI was sold to Casino America, Inc. as part of the
Reorganization. See Consolidated Financial Statements and Notes thereto.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included in this Annual Report on Form 10-K contain
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, enacted pursuant to the Private
Securities Litigation Reform Act of 1995. Such Section 21E provides certain
"safe harbor" protections for forward-looking statements in order to
encourage companies to provide prospective information about their
businesses. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, competition,
growth opportunities, source and uses of capital, future development or
expansion activities, underlying assumptions and other statements which are
other than statements of historical facts. Such statements may be identified
by the use of forward-looking terminology such as "might," "may," "would,"
"could," "expect," "anticipate," "estimate," "likely," "believe," or
"continue" or the negative thereof or other variations thereon or comparable
terminology. Such forward-looking statements involve a number of risks,
uncertainties and other factors that may significantly affect the Company's
liquidity and results of operations in the future and, accordingly, actual
results may differ materially from those expressed in any forward-looking
statements.
The forward-looking statements set forth in this Report on Form 10-K are
based upon various assumptions, many of which are based, in turn, upon
further assumptions, including, without limitation, management's examination
of historical operating trends, data contained in the Company's records and
other data available from third parties. Although the Company believes that
such assumptions were reasonable when made, because such assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond the Company's control,
there can be no assurance, and no representation or warranty is made, that
management's expectations, beliefs or projections will result, be achieved or
accomplished. In addition to the other factors and matters discussed
elsewhere herein, factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the
forward-looking statements include: (i) leverage and debt service, (ii)
financing and refinancing efforts, (iii) significant changes in competitive
factors affecting the Company, (iv) inclement weather, (v) changes in general
economic conditions in the Denver metropolitan area, (vi) changes in state
and local gaming laws, regulations or tax rates, (vii) risks related to
development and construction activities, (viii) changes in management or
control of the Company, (ix) significant changes from expectations in actual
capital expenditures and operating expenses and (x) occurrences affecting the
Company's ability to obtain funds from operations, to finance needed capital
expenditures and other investments.
OVERVIEW
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
periods prior to June 7, 1996), was incorporated in August 1993 to develop,
own and operate gaming and related entertainment facilities. Three
wholly-owned subsidiaries, BWBH, Inc., BWCC, Inc., and the Silver Hawk
Casino, Inc., own and operate limited stakes gaming facilities in Colorado
(collectively, the "Colorado Casinos"). The Company purchased the Silver Hawk
Casino in April 1996 for $2.7 million and commenced operations on June 26,
1996. Millsite 27, Inc., also a wholly-owned subsidiary, owns a parking lot,
for use by BWBH, Inc. and Silver Hawk Casino, Inc. A wholly-owned subsidiary
of the Predecessor Company, Grand Palais Riverboat, Inc. ("GPRI"), developed
and operated a riverboat gaming project in New Orleans, Louisiana (the
"Riverboat Project"). GPRI's riverboat gaming operations commenced on March
29, 1995 and ceased on June 6, 1995. Due to the failure of the Riverboat
Project, GPRI filed 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"). Subsequently, HEI and its subsidiaries
(BWBH, BWCC and Millsite 27), which collateralized the Predecessor Company's
senior secured debt filed for protection under Chapter 11 of the Federal
Bankruptcy Code in the Court (the "Reorganization"). Through the
reorganization process, the Predecessor Company sold GPRI to Casino America,
Inc., the proceeds of which went to partially satisfy GPRI creditors and HEI
senior secured creditors. Additionally, in the Reorganization, the Company
recapitalized by reducing its senior secured debt to $50 million and issuing
all new shares of common stock. All of these events and transactions were
completed on June 7, 1996 (the "Effective Date") and the Company
17
<PAGE>
and its three subsidiaries emerged from bankruptcy.
On the Effective Date, the Company adopted fresh-start accounting in
accordance with AICPA Statement of Position SOP 90-7 resulting in adjustment
of the Company's stockholders' 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
was converted to equity or otherwise discharged and significant adjustments
were made to reflect the resolution of certain liabilities.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1996.
The Company's net revenue increased 3%, to $52.1 million in 1997, from
$50.7 million in 1996. The increase in revenue is primarily attributable to
a full year of operations of the Silver Hawk Casino in 1997, which did not
commence operations until June 26, 1996, and generated an incremental $2.4
million in net revenue in 1997. Bullwhackers Black Hawk produced a 1%
increase in revenues in 1997. However, Bullwhackers Black Hawk's operating
results were negatively affected in 1997 by severe weather in the fourth
quarter and an abnormally low hold percentage on the Company's slot
machinesduring November and December 1997. In addition, construction
activities related to the Company's parking expansion and Kids Quest during
the first five months of 1997 negatively effected revenues during that
period. Additionally, the revenue growth at the Silver Hawk Casino and
Bullwhackers Black Hawk was partially offset by a 13% revenue decrease at
Bullwhackers Central City due to the overall decline of the Main Street
casinos in the Central City market. The Central City market, which was down
approximately 2% for the year, continues to struggle to compete with Black
Hawk, which offers better access, parking convenience and superior
properties. Additionally Bullwhackers Central City has not been able to
compete effectively with Central City's largest casino, which offers
substantially more amenities such as on-site parking and hotel rooms,
including the opening of a major parking expansion in June 1997.
Bullwhackers Central City revenue declines accelerated in the second half of
1997, subsequent to the opening of a competitor's expanded parking facilities.
Expenses directly related to casino operations, including casino labor
expense, gaming taxes and food and beverage expense, increased 5% to $26.6
million in 1997, as compared to $25.3 million in 1996. The increase is due
to a full year of operations of the Silver Hawk Casino in 1997 and an
increase in the gaming taxes on revenues over $10 million from 18% to 20%.
Marketing expense increased 8% to $6.9 million in 1997, as compared to
$6.4 million in 1996. This increase is primarily due to certain cash-back
promotions and busing programs in an effort to sustain business levels at
Bullwhackers Central City. Additionally, a full year of marketing and
promotions expenses for the Silver Hawk Casino accounted for an incremental
$200,000 of marketing expense in 1997.
Casino general and administrative expenses increased 2% to $2.9 million
in 1997, as compared to $2.8 million in 1996. The slight increase primarily
relates to a full year of additional administrative expenses for the Silver
Hawk Casino.
Corporate expense increased 7% to $3.0 million in 1997, as compared to
$2.8 million in 1996. The increase primarily relates to $750,000 of legal,
financial advisory and other fees incurred relating to the Merger. Absent
these one-time transaction costs, corporate expense would have decreased 218%
from the prior period.
Depreciation and amortization decreased 15% to $5.0 million in 1997 as
compared to $5.9 million in 1996. The decreased depreciation and
amortization charges are a direct result of a substantial amount of equipment
at Bullwhackers Black Hawk and Bullwhackers Central City becoming fully
depreciated in 1997, which accounted for $1.4 million of lower depreciation
charges in 1997. This decrease is somewhat offset by increased depreciation
and amortization charges of $500,000 due to the increased basis of the
Company's assets, from the adoption of "fresh-start" accounting on June 7,
1996 and depreciation and amortization charges related to a full year of
operations of the Silver Hawk Casino.
The Company incurred no pre-opening expense in 1997 as compared to
$362,000 in pre-opening expense in 1996 related to the opening of the Silver
Hawk Casino.
18
<PAGE>
Reorganization and other impairment charges totaled $75,000 in 1997, as
compared to $2.6 million in 1996. Reorganization expenses are costs directly
related to the Reorganization and consisted primarily of professional fees in
the 1997 and 1996 periods.
Interest expense increased 55% to $6.8 million in 1997, as compared to
$4.4 million in 1996. The increase in interest expense is primarily due to
the Company not recording any interest expense during the Reorganization
period (January 1 through June 6, 1996) on its debt obligations in default.
FOR THE YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1995.
The Company's net revenue increased 7%, to $50.7 million in 1996 from
$47.4 million in 1995. The increase in revenue is primarily attributable to
the addition of the Silver Hawk Casino. 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 $3.9 million in net
revenue from that date through year end. In addition, continued overall
growth in the Black Hawk market and completion of the Company's expanded
parking lot, which opened on June 7, 1996, contributed to the increase in the
Company's net revenue. Bullwhackers Black Hawk produced a 6% increase in
revenues in 1996, despite the fact that Bullwhackers Black Hawk's operations
were negatively affected by the construction activities relating to expansion
of the parking lot which began April 1 and ended June 7. The revenue gains
in Black Hawk were offset by significant revenue declines at Bullwhackers
Central City due to competition in an overall declining Central City market.
The Central City market, which was down approximately 6% for the year,
continues to struggle to compete with Black Hawk, which offers better access
and parking convenience. Bullwhackers Central City has not been able to
compete effectively with the largest operator in Central City, which offers
substantially more amenities such as on-site parking and hotel rooms.
Expenses directly related to casino operations, including casino labor
expense, gaming taxes and food and beverage expense increased 3% to $25.3
million in 1996, as compared to $24.5 million in 1995. The increase is due
to the addition of the Silver Hawk Casino operations and the increased
business levels at Bullwhackers Black Hawk. However, as a percentage of net
revenue, casino expenses decreased to 50% in 1996 from 52% in 1995. The
decrease is due to certain labor efficiencies and other cost saving programs
implemented in late 1995 and early 1996, particularly at Bullwhackers Central
City in an effort to sustain profitability in light of the revenue decreases.
The decrease is also due to the benefit of approximately $110,000 the
Company received from the revised gaming tax structure in the fourth quarter
of 1996.
Marketing expense increased 10% to $6.4 million in 1996, as compared to
$5.8 million in 1995. This increase is due to marketing efforts related to
the introduction of the Silver Hawk Casino to the market and the
implementation of additional customer busing programs and certain other
promotions in an effort to sustain business levels at Bullwhackers Central
City.
Casino general and administrative expenses decreased 13% to $2.8 million
in 1996, as compared to $3.2 million in 1995. The decrease primarily relates
to reductions in staffing at Bullwhackers Central City and decreased
insurance costs.
Corporate expense decreased 59% to $2.8 million in 1996, as compared to
$6.9 million in 1995. These reductions included the elimination of most
corporate positions and terminating the use and subsidy of a corporate
aircraft, all beginning in the second quarter of 1995. Offsetting a portion
of these corporate reductions for 1996 includes a charge for approximately
$720,000 relating to incentive compensation expense for senior management
based upon implementation of the Company's new Cash Bonus Plan and the Stock
Incentive Plan subsequent to the Reorganization. Of the $720,000 incurred,
approximately $270,000 was a result of a noncash charge related to stock
compensation.
Depreciation and amortization increased 23% to $5.9 million in 1996 as
compared to $4.8 million in 1995. The increased depreciation charges are
due to the increased book basis of the Company's assets from the adoption of
"fresh-start" reporting upon emerging from bankruptcy, primarily the excess
reorganization value recorded at Bullwhackers Black Hawk. The Company was
required to adjust the carrying value of its assets to fair value when
adopting fresh-start accounting. Also to a lesser extent, depreciation
charges increased due to the addition of the
19
<PAGE>
Silver Hawk Casino.
The Company incurred $362,000 in pre-opening expense in 1996 related to
the opening of the Silver Hawk Casino.
Reorganization and other impairment charges totaled $2.6 million in
1996, as compared to $28.9 million in 1995. Reorganization expenses are
costs directly related to the Predecessor Company's Reorganization and
consisted primarily of professional fees in the 1996 period. Impairments are
write-offs, primarily due to the write-off of affiliate receivables and
capitalized financing costs in the 1995 period.
Interest expense decreased 76% to $4.4 million in 1996, as compared to
$18.7 million in 1995. The decrease in interest expense is primarily due to
the reduction of debt pursuant to the Reorganization. Additionally, the
Company did not record any interest expense during the Reorganization period
November 1995 through June 6, 1996 on its debt obligations in default. On a
pro forma basis, based on the reorganized capital structure, interest for
1996 would have been approximately $7 million.
LIQUIDITY AND CAPITAL RESOURCES
On June 7, 1996, the Company entered into a $12.5 million revolving
senior bank 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 construction line of the Credit Facility were required to be made as of
September 30, 1997. Accordingly, the construction portion of the Credit
Facility expired unutilized on September 30, 1997. The Credit Facility was
amended in February 1998 to convert the construction line into a $5 million
acquisition line (the "Bronco Billy's Acquisition Line") to purchase and
perform tenant improvements on the former Bronco Billy's casino. Borrowings
under the Credit Facility accrue interest at prime plus 2.375% (10.875% as of
December 31, 1997). The facilities have varying terms ranging from three to
five years from when the funds are borrowed, but the entire facility matures
on June 2001, with two one-year extension options. As of December 31, 1997,
the Company had an outstanding balance of approximately $108,000 under the
equipment financing line.
The Company's outstanding 12% Senior Secured Pay-In-Kind Notes (the
"Notes") have an outstanding principal amount of $52.9 million as of December
31, 1997. Interest on the Notes accrues at a rate of 12% per annum and is
payable semi-annually in June and December. The Notes mature in June 2003.
The Company completed two major capital projects in the 1997 period to
enhance its Black Hawk properties. First, the Company completed an expansion
of its parking lot and valet facility to increase the parking capacity by
approximately 120 cars, bringing the total capacity to approximately 500
cars. Secondly, the Company completed construction of a day care facility
adjacent to Bullwhackers Black Hawk for use by New Horizons Kids Quest III,
Inc.("Kids Quest"). Kids Quest is solely responsible for the day-to-day
operations of the day care facility. These construction projects aggregated
approximately $3.25 million of capital expenditures, all of which was funded
with cash flow from operations. In total, the Company spent $4.6 million on
capital expenditures in 1997, with the remaining expenditures primarily
related to the purchase of new gaming equipment.
In April 1997, The Company responded to a Request for Proposal ("RFP")
issued by the government of Ontario, Canada, to develop and operate multiple
charity gaming clubs in the Province of Ontario. The clubs will offer 150
video lottery terminals ("VLT") and 40 table games with a maximum single bet
of $100. In responding to the RFP, the Company and its partners formed
Diamond Gaming of Ontario Inc. ("Diamond Gaming"). Diamond Gaming's
shareholders are a newly formed subsidiary of the Company, which owns 45% of
Diamond Gaming, a subsidiary of Ogden Corporation (45% owner) and Diamond
Gaming Services Inc. (10% owner). On September 30, 1997, the Ontario Gaming
Control Commission announced that Diamond Gaming was the successful bidder to
develop and operate charitable gaming clubs in the cities of Kingston and
Belleville, Ontario. The development and opening of the Kingston and
Belleville facilities remain contingent upon a number of items, including
entering into an operating agreement with the Ontario Gaming Control
Commission, reaching an agreement with property owners and local
municipalities on specific sites, and obtaining zoning and other local
approvals, none of which can be assured.
20
<PAGE>
The proposed terms of the operating agreement will be an eight-year term with
one eight-year renewal option. Diamond Gaming will receive operator's
compensation equivalent to 10% of the VLT revenue and 5% of the table revenue
and all other revenue. Additionally, Diamond Gaming will receive 10% of
operating profits, as defined, excluding profits from VLT operations. The
Company currently estimates that the two clubs in Kingston and Belleville
will require an initial investment of approximately $5.0 million in the
aggregate. The Company's share of such investment is approximately 47% of
that amount, which it intends to fund from cash flow from operations or
borrowings under the revolving portion of the Credit Facility. Pursuant to a
Supplemental Indenture dated January 23, 1998, the Company has received the
necessary consent of the holders of the Notes to allow it to make the
required investment. The Company will account for its 45% interest in
Diamond Gaming under the equity method of accounting.
On February 13, 1998, the Company purchased the assets comprising the
casino known as Bronco Billy's in Black Hawk from Pioneer Associates Limited
Liability Company for approximately $5.5 million. The Company financed the
purchase by borrowing $5.5 million under the Credit Facility. The Company
borrowed $5.0 million under the Bronco Billy's Acquisition Line and borrowed
the remaining $500,000 of the purchase price under the equipment line of the
Credit Facility. The Bronco Billy's Acquisition Line amortizes over 60
months, commencing on June 1, 1998 and is payable in full on June 6, 2001.
Additionally, the Company anticipates to incurring an additional $2.0 million
to equip and renovate the former Bronco Billy's casino for reopening, which
will be funded out of cash flow from operations or additional borrowings
under the Credit Facility.
Bronco Billy's is located next to Bullwhackers Black Hawk. The Company
intends to remove the common wall separating the casinos in order for the
former Bronco Billy's casino to become a part of Bullwhackers Black Hawk.
Subject to the approval of the Gaming Commission and the Liquor Agencies, the
combined casino will be operated as a single casino, under one gaming license
and one liquor license. The Company plans to open the new facility in May
1998, which will add approximately 250 slot machines (over 40% in additional
capacity) to Bullwhackers Black Hawk and an additional restaurant facility.
While the Company intends to operate the newly acquired Bronco Billy's
facility as part of Bullwhackers Black Hawk, the Company will theme the newly
acquired facility with an enhanced sports bar theme. Such theming will be
distinctively different from Bullwhackers Black Hawk's victorian theme, and
any theme currently offered in the Black Hawk and Central City markets.
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to
Year 2000 compliance will be material to its financial condition or results
of operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
The Company does not currently have any information concerning the Year 2000
compliance status of its suppliers. In the event that any of the Company's
significant suppliers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
NEGATIVE WORKING CAPITAL
As of December 31, 1997, the Company's current liabilities exceeded its
current assets, resulting in negative working capital. Since the Company
emerged from bankruptcy on June 7, 1996, the Company has used cash generated
from operations to pay down debt under the Credit Facility ahead of schedule
and to pay construction costs for its parking lot expansion and Kids Quest
construction from cash flows. Management believes this strategy maximizes
the return on its excess cash. Additionally, should the Company have
additional working capital needs, it is able to borrow up to $3.5 million
under the revolving portion of the Credit Facility.
The Company believes that the Credit Facility and its operating cash
flows will provide sufficient liquidity and capital resources to fund the
Company's current operations. However, there can be 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 financing
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 Company's senior bank lender under
21
<PAGE>
the Credit Facility and from Ladbroke and related entities pursuant to the
Merger Agreement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Financial Statements and Notes required by Item 8 are
attached at the end of this Annual Report on Form 10-K and are included
herein by this reference. An index to these Consolidated Financial
Statements and Notes is also included in Item 14(a) of this Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company, including
directors who are executive officers of the Company, is set forth under the
caption "Election of Directors" in, and is incorporated herein by reference
to the Company's proxy statement for its 1998 Annual Meeting of Stockholders.
Information relating to the executive officers of the Company is set forth
under the caption "Executive Officers of the Registrant" in Part I, Item 4A
of this report and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Company's proxy statement for its 1998 Annual Meeting of
Stockholders under the caption " Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Company's proxy statement for its 1998 Annual Meeting of
Stockholders under the caption "Security Ownership of Certain Beneficial
Owners and Management".
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Company's proxy statement for its 1998 Annual Meeting of
Stockholders under the caption "Executive Compensation".
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (a)(2) Financial Statements and Financial Statement Schedules
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . 24
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Operations. . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Stockholders' Equity. . . . . . . . . . . . . . . 27
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . 28
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 30
</TABLE>
All other schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedule or
because the information required is included in the Consolidated Financial
Statements and Notes thereto.
(a)(3) Exhibits
See Index to Exhibits on page 43 which is incorporated herein
by reference.
(b) Reports on Form 8-K
1. On December 17, 1997, the Company filed a Current Report on
Form 8-K. The date of report (date of the earliest event
reported) was December 11, 1997. The Company reported under
Item 5 that it reached agreement to purchase the assets
comprising the casino known as Bronco Billy's in Black Hawk
from Pioneer Associates Limited Liability Company.
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado Gaming & Entertainment Co.
We have audited the accompanying consolidated balance sheets of Colorado
Gaming & Entertainment Co. (formerly Hemmeter Enterprises, Inc.) and
subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997, the period from June 7, 1996
through December 31, 1996, the period from January 1, 1996 through June 6,
1996 and the year 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 consolidated financial position of Colorado Gaming
& Entertainment Co. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the year ended
December 31, 1997, the period from June 7, 1996 through December 31, 1996,
the period from January 1, 1996 through June 6, 1996 and the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Denver, Colorado
March 13, 1998. Arthur Andersen LLP
24
<PAGE>
COLORADO GAMING & ENTERTAINMENT CO.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 4,228 $ 5,758
Accounts receivable, net ......................................... 467 217
Inventories ...................................................... 114 106
Prepaid expenses ................................................. 619 406
----------------- -----------------
Total current assets ......................................... 5,428 6,487
----------------- -----------------
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net ................ 41,798 41,322
EXCESS REORGANIZATION VALUE, net (Note 2) .......................... 16,491 18,256
OTHER ASSETS, net of accumulated amortization of $501 and $370,
respectively ..................................................... 962 983
----------------- -----------------
$64,679 $67,048
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. $ 1,118 $ 804
Accrued expenses (Note 2) ........................................ 3,951 4,025
Current portion of credit facility ............................... 108 1,308
Current portion of other notes payable and capital leases ........ 701 651
----------------- -----------------
Total current liabilities .................................... 5,878 6,788
----------------- -----------------
NOTES PAYABLE, net of current portion:
Senior secured notes payable ..................................... 52,883 52,883
Credit facility .................................................. -- 1,136
Other notes payable and capital leases ........................... 670 1,372
----------------- -----------------
53,553 55,391
----------------- -----------------
Total liabilities ............................................ 59,431 62,179
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized,
5,236,091 and 5,138,888 shares issued and outstanding at
December 31, 1997 and 1996, respectively ....................... 52 51
Additional paid-in capital ....................................... 4,792 4,626
Retained earnings ................................................ 404 192
----------------- -----------------
Total stockholders' equity ................................... 5,248 4,869
----------------- -----------------
$64,679 $67,048
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
25
<PAGE>
COLORADO GAMING & ENTERTAINMENT CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
January 1,
Year Ended June 7, 1996 1996 Year Ended
December 31, through December through June December 31,
1997 (a) 31, 1996(a) 6, 1996 1995
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Casino ......................................... $50,049 $29,398 $ 19,126 $ 44,854
Food and beverage .............................. 3,270 1,998 1,288 3,737
Other .......................................... 274 117 32 286
------------ ---------------- ------------ ------------
Gross revenues ................................. 53,593 31,513 20,446 48,877
Less: promotional allowances ................. (1,461) (833) (464) (1,449)
------------ ---------------- ------------ ------------
Net revenues ................................... 52,132 30,680 19,982 47,428
------------ ---------------- ------------ ------------
OPERATING EXPENSES
Casino ......................................... 14,060 7,884 5,788 13,087
Gaming taxes and device fees ................... 9,146 4,564 3,614 8,277
Food and beverage .............................. 3,409 2,111 1,299 3,173
General and administrative:
Casino ....................................... 2,869 1,557 1,249 3,223
Corporate .................................... 3,021 1,926 902 6,872
Marketing ...................................... 6,891 4,001 2,349 5,806
Depreciation and amortization .................. 5,025 4,044 1,882 4,771
Pre-opening .................................... -- 315 47 --
Reorganization items (Note 1) .................. 75 308 2,290 17,910
Impairment of assets .......................... -- -- -- 10,945
------------ ---------------- ------------ ------------
Total operating expenses ....................... 44,496 26,710 19,420 74,064
------------ ---------------- ------------ ------------
INCOME (LOSS) FROM
OPERATIONS ....................................... 7,636 3,970 562 (26,636)
Interest expense ............................... (6,780) (3,867) (579) (18,664)
Interest income ................................ 98 89 66 361
Equity loss of unconsolidated subsidiary ....... -- -- -- (70,277)
------------ ---------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION .................................. 954 192 49 (115,216)
Provision for income taxes ..................... (742) -- -- --
------------ ---------------- ------------ ------------
Net income (loss) before extraordinary
gain ......................................... 212 192 49 (115,216)
Extraordinary gain from reorganization
items ........................................ -- -- 164,358 --
------------ ---------------- ------------ ------------
NET INCOME (LOSS) ................................ $ 212 $ 192 $164,407 $(115,216)
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
BASIC NET INCOME PER SHARE(b) .................... $ 0.04 $ 0.04 N/A N/A
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ............................. 5,194,280 5,138,888 N/A N/A
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
</TABLE>
(a) Due to the Reorganization and implementation of fresh-start reporting,
financial statements for the 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 accompanying notes are an integral part of these consolidated statements.
26
<PAGE>
COLORADO GAMING & ENTERTAINMENT CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common Stock
------------------
Additional Retained
Warrants Paid-in Earnings
Shares Amount Issued Capital (Deficit) Totals
---------- ------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 excluded in
1995 period ........................................... -- -- (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)
Cancellation of Predecessor Company common stock and
warrants and elimination of deficit ................... (11,786,235) (118) (7,000) 1,951 162,417 157,250
---------- ------ -------- ---------- --------- ---------
BALANCES, June 6, 1996 .................................. -- -- -- 4,113 -- 4,113
Issuance of new common stock ............................ 5,000,000 50 -- -- -- 50
Restricted stock grants to officers and directors ...... 138,888 1 -- 513 -- 514
Net income June 7 through December 31, 1996 ............. -- -- -- -- 192 192
---------- ------ -------- ---------- --------- ---------
BALANCES, December 31, 1996 ............................. 5,138,888 51 -- 4,626 192 4,869
---------- ------ -------- ---------- --------- ---------
Restricted stock grants to officers and directors ...... 97,203 1 -- 166 -- 167
Net Income .............................................. -- -- -- -- 212 212
---------- ------ -------- ---------- --------- ---------
BALANCES, December 31, 1997 ............................. 5,236,091 $ 52 $ -- $4,792 $ 404 $ 5,248
---------- ------ -------- ---------- --------- ---------
---------- ------ -------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE>
COLORADO GAMING & ENTERTAINMENT CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
January 1,
Year Ended June 7, 1996 1996 Year Ended
December 31, through December through June December 31,
1997 31, 1996(a) 6, 1996 1995
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 212 $ 192 $ 164,407 $(115,216)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................ 5,025 4,044 1,882 4,771
Loss on retirements of property and equipment ............ 82 150 244 127
Equity in loss of unconsolidated subsidiaries ............ -- -- -- 70,277
Noncash compensation ..................................... 167 514 -- 169
Deferred income taxes .................................... 742 -- -- --
Impairment of assets ..................................... -- -- -- 11,347
Noncash interest expense ................................. 101 3,443 495 17,895
Extraordinary gain from reorganization ................... -- -- (164,358) --
Change in working capital and other ...................... (334) (3,111) 822 1,374
Noncash reorganization items ............................. -- -- 1,825 15,317
------------ ---------------- ------------ ------------
Net cash provided by operating activities ................ 5,995 5,232 5,317 6,061
------------ ---------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, equipment and
leasehold improvements ................................. (4,608) (3,224) (3,885) (1,508)
Net restricted funds (placed in) disbursed from escrow ... 162 244 (507) 4,209
Investment in unconsolidated subsidiaries ................ (92) -- -- (9,270)
Advances to PRIGSA ....................................... -- -- -- (289)
Advances to affiliates, net .............................. -- -- -- (1,257)
------------ ---------------- ------------ ------------
Net cash used in investing activities .................... (4,538) (2,980) (4,392) (8,115)
------------ ---------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to affiliate ................. -- -- -- 2,000
Proceeds from debt financing ............................. 1,000 2,392 5,824 --
Payment of debt placement costs, net of
accrued liabilities .................................... -- (445) -- (315)
Repayments of debt financing ............................. (3,987) (5,509) (3,304) (1,651)
------------ ---------------- ------------ ------------
Net cash provided by (used in) financing activities ...... (2,987) (3,562) 2,520 34
------------ ---------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... (1,530) (1,310) 3,445 (2,020)
CASH AND CASH EQUIVALENTS, at beginning of period ...... 5,758 7,068 3,623 5,643
------------ ---------------- ------------ ------------
CASH AND CASH EQUIVALENTS, at end of period ............ $ 4,228 $ 5,758 $ 7,068 $ 3,623
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
</TABLE>
(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 accompanying notes are an integral part of these consolidated statements.
28
<PAGE>
COLORADO GAMING & ENTERTAINMENT CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
January 1,
Years Ended June 7, 1996 1996 Years Ended
December 31, through December through June December 31,
1997 31, 1996(a) 6, 1996 1995
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest, net of amounts capitalized ............. $6,721 $ 1,020 $19 $ 579
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of senior secured notes payable and other
notes payable pursuant to the Reorganization ................. $ -- $52,300 $-- $ --
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
Issuance of notes payable and capital lease obligations for
purchases of property and equipment ........................... $ -- $ -- $-- $ 227
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
Issuance of notes payable for accrued interest
obligations .................................................. $ -- $ 2,883 $-- $9,416
------------ ---------------- ------------ ------------
------------ ---------------- ------------ ------------
</TABLE>
(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 accompanying notes are an integral part of these consolidated statements.
29
<PAGE>
COLORADO GAMING & ENTERTAINMENT CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION
ORGANIZATION
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
periods prior to June 7, 1996), was incorporated in August 1993 to develop,
own and operate gaming and related entertainment facilities. Three
wholly-owned subsidiaries, BWBH, Inc., BWCC, Inc., and Silver Hawk Casino,
Inc., own and operate limited stakes gaming facilities in Colorado
(collectively, the "Colorado Casinos"). The Company purchased the Silver Hawk
Casino in April 1996 for $2.7 million and commenced operations on June 26,
1996. Millsite 27, Inc., also a wholly-owned subsidiary, owns a parking lot,
with a capacity of approximately 500 cars, which is directly between , and is
used by BWBH, Inc. and Silver Hawk Casino, Inc. A wholly-owned subsidiary of
the Predecessor Company, Grand Palais Riverboat, Inc. ("GPRI"), developed and
operated a riverboat gaming project in New Orleans, Louisiana (the "Riverboat
Project"). GPRI's riverboat gaming operations commenced on March 29, 1995 and
ceased on June 6, 1995. Due to the failure of the Riverboat Project, GPRI
filed 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"). Subsequently, HEI and its subsidiaries which collateralized
the Predecessor Company's senior secured debt ( BWBH, BWCC and Millsite 27)
filed for protection under Chapter 11 of the Federal Bankruptcy Code in the
Court (the "Reorganization"). Through the reorganization process, the
Predecessor Company sold GPRI to Casino America, Inc., the proceeds of which
went to satisfy GPRI creditors and HEI senior secured creditors.
Additionally, in the reorganization, the Company recapitalized by reducing
its senior secured debt to $50 million and issuing its new shares to the
Predecessor Company's senior secured creditors. All of these events and
transactions were completed on June 7, 1996 (the "Effective Date") and the
Company and its three subsidiaries emerged from bankruptcy.
FRESH START REPORTING
In accordance with AICPA Statement of Position 90-7, "Financial
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 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 December 31, 1997
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. As a result
of adopting fresh-start reporting, the Reorganized Company's consolidated
financial statements are not comparable with those prepared before the
Effective Date, including the historical consolidated financial statements
included herein.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Reorganized
Company (period beginning June 7, 1996) and the Predecessor Company (periods
prior to June 7, 1996) include the accounts of CG&E and its wholly owned
subsidiaries. Intercompany balances and transactions have been eliminated.
Investments in 50% or less owned entities are accounted for using the equity
method.
30
<PAGE>
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, 1997 and 1996 is restricted cash totaling $525,000 and $511,000,
respectively, which represents the portion of cash that is required to be
maintained by the Colorado Casinos based on regulations promulgated by the
Colorado Limited Gaming Control Commission (the "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 due to the
short-term maturity of those investments.
CAPITALIZED INTEREST
Interest cost associated with major construction projects is
capitalized. When no debt is incurred specifically for a project, interest is
capitalized on amounts expended on the project using the weighted-average
cost of the Company's outstanding borrowings. Interest capitalized during
the year ended December 31, 1997 was $62,000.
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, while costs of normal repairs and maintenance are charged to
expense as incurred.
EXCESS REORGANIZATION VALUE
Excess reorganization value is amortized on a straight-line basis over
18.5 years. Accumulated amortization of excess reorganization value was $1.6
million and $577,000 at December 31, 1997 and 1996, respectively. The
Company continually evaluates current events and circumstances in order to
determine whether the recorded value has been impaired.
31
<PAGE>
ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
------ -------
<S> <C> <C>
Gaming taxes payable ................ $ 456 $ 521
Accrued payroll and
related expenses ................. 1,065 991
Accrued interest .................... 601 542
Accrued incentive compensation ...... -- 454
Accrued gaming liabilities .......... 672 624
Other accruals ...................... 1,192 893
------ -------
$3,986 $4,025
------ -------
------ -------
</TABLE>
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
amounts wagered by customers, less awards or winnings paid out to customers.
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 $501,000,
$508,000 and $605,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
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. The $362,000 reflected in the 1996 periods
relate to pre-opening costs for the Silver Hawk Casino which opened on June
26, 1996.
REORGANIZATION ITEMS
Reorganization items consist of expenses and other costs directly
related to the reorganization of the Company. Reorganization items included
in the consolidated statements of operations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended June 7,1996 January 1, 1996 Year Ended
December 31, through through December 31,
1997 December 31, 1996 June 6,1996 1995
------------ ----------------- --------------- ------------
<S> <C> <C> <C> <C>
Charge-off of debt discount and
placement costs ............................... $-- $ -- $ -- $10,717
Loss charged for guarantee of subsidiary debt ... -- -- -- 4,600
Professional fees ............................... 75 308 2,290 2,593
------------ ----------------- --------------- ------------
$75 $308 $2,290 $17,910
------------ ----------------- --------------- ------------
------------ ----------------- --------------- ------------
</TABLE>
32
<PAGE>
INCOME TAXES
The Company accounts for taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No.
109 requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards and of deferred tax liabilities
for taxable differences. Measurement of current and deferred tax liabilities
and assets is based on provisions of enacted tax law; the effects of future
changes in tax laws or rates are not anticipated. Deferred tax assets
primarily result from net operating loss carryforwards and impairment of
assets recognized in different periods for financial reporting and tax
purposes.
EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") effective December 15, 1997. This
pronouncement requires the presentation of the earnings per share ("EPS")
based on the weighted average number of common shares outstanding (referred
to as basic earnings per share) and earnings per share giving effect to all
dilutive potential common shares that were outstanding during the reporting
period (referred to as diluted earnings per share or earnings per share
assuming dilution). In addition, this pronouncement requires restatement of
earnings per share for all prior periods presented. As a result of the
Reorganization and the implementation of fresh-start accounting, the periods
prior to June 6, 1996 are not comparable to subsequent periods and
accordingly are not presented.
The following data show the amounts used in computing earnings per share
and the effect on income and the weighted average number of shares of
dilutive potential common stock (in thousands).
<TABLE>
<CAPTION>
Year Ended June 7,1996 January 1,1996 Year Ended
December 31, through through December 31,
1997 December 31, 1996 June 7, 1996 1995
------------ ----------------- --------------- ------------
<S> <C> <C> <C> <C>
Income available to common shareholders $ 212 $ 192 -- --
------------ -----------------
------------ -----------------
Weighted average number of common
shares used in basic EPS 5,194,280 5,138,888 N/A N/A
Effect of dilutive securities ( see Note 6):
Management stock incentive plan 118,350 97,203 N/A N/A
------------ ----------------- --------------- ------------
5,312,630 5,236,091 N/A N/A
------------ ----------------- --------------- ------------
------------ ----------------- --------------- ------------
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This
statement requires companies to classify items of other comprehensive income
by their nature in a financial statement and display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS 130 is effective for financial statements issued for fiscal
years beginning after December 15, 1997. Adoption of this standard will not
have a material impact on the Company's financial statements.
YEAR 2000
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to
Year 2000 compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
33
<PAGE>
The Company does not currently have any information concerning the Year 2000
compliance status of its suppliers. In the event that any of the Company's
significant suppliers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current year presentation. These reclassifications had no effect on the
Company's net income.
(3) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- ---------
<S> <C> <C>
Land and improvements ........ $ 13,997 $ 12,288
Building and improvements .... 7,010 5,359
Leasehold improvements ....... 20,778 20,935
Gaming equipment, furniture
and fixtures ............... 20,509 19,975
Construction-in-progress ..... 102 335
--------- ---------
62,396 58,892
Less: accumulated
depreciation ................ (20,598) (17,570)
--------- ---------
$ 41,798 $ 41,322
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization are computed using the straight-line method
over the following useful lives:
<TABLE>
<CAPTION>
Useful Lives
--------------
<S> <C>
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
</TABLE>
(4) NEW VENUE PROJECTS
For the years ended December 31, 1997, 1996 and 1995, the Company
expensed $140,000, $120,000 and $402,000, respectively, for predevelopment
costs related to various potential development opportunities in new gaming
venues throughout North America. The costs incurred represent design,
presentation, research, consulting, regulatory and other costs associated
with pursuing development opportunities in new gaming venues. Of the
$140,000 incurred in 1997, only $50,000 was a "restricted investment" as
defined by the Indenture for the Notes.
In April 1997, The Company responded to a Request for Proposal ("RFP")
issued by the government of Ontario, Canada, to develop and operate multiple
charity gaming clubs in the Province of Ontario. The clubs will offer 150
video lottery terminals ("VLT") and 40 table games with a maximum single bet
of $100. In responding to the RFP, the Company and its partners formed
Diamond Gaming of Ontario Inc. ("Diamond Gaming"). Diamond Gaming's
shareholders are a newly formed subsidiary of the Company, which owns 45% of
Diamond Gaming, a subsidiary of Ogden Corporation (45% owner) and Diamond
Gaming Services Inc. (10%
34
<PAGE>
owner). On September 30, 1997, the Ontario Gaming Control Commission
announced that Diamond Gaming was the successful bidder to develop and
operate charitable gaming clubs in the cities of Kingston and Belleville,
Ontario. The development and opening of the Kingston and Belleville
facilities remain contingent upon a number of items, including entering into
an operating agreement with the Ontario Gaming Control Commission, reaching
an agreement with property owners and local municipalities on specific sites,
and obtaining zoning and other local approvals, none of which can be assured.
The proposed terms of the operating agreement will be an eight-year term
with one eight-year renewal option. Diamond Gaming will receive operator's
compensation equivalent to 10% of the VLT revenue and 5% of the table revenue
and all other revenue. Additionally, Diamond Gaming will receive 10% of
operating profits, as defined, excluding profits from VLT operations. The
Company currently estimates that the two clubs in Kingston and Belleville
will require an initial investment of approximately $5.0 million in the
aggregate. The Company's share of such investment is approximately 47% of
that amount, which it intends to fund from cash flow from operations or
borrowings under the revolving portion of the Credit Facility. Pursuant to a
Supplemental Indenture dated January 23, 1998, the Company has received the
necessary consent of the holders of its Notes to allow it to make the
required investment. The Company will account for its 45% interest in
Diamond Gaming under the equity method of accounting. (5)
NOTES PAYABLE
Notes payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
------- -------
<S> <C> <C>
Senior Secured Pay-In-Kind Notes ..... $52,883 $52,883
Credit facility ...................... 108 2,444
Other ................................ 1,371 2,023
------- -------
54,362 57,350
Less: current portion 809 1,959
------- -------
$53,553 $55,391
------- -------
------- -------
</TABLE>
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
construction portion of the Credit Facility were required to be made as of
September 30, 1997. Accordingly, the construction portion of the Credit
Facility expired unutilized on September 30, 1997. Borrowings under the
Credit Facility accrue interest at prime plus 2.375% (10.875% as of December
31, 1997). The facilities have varying terms ranging from three to five
years from when the funds are borrowed, but the entire facility matures on
June 7, 2001, with two one-year extension options. As of December 31, 1997,
the Company had an outstanding balance of approximately $108,000. 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
carrying amount of the Credit Facility is a reasonable estimate of fair
value, as terms of the line reflect current rates
SENIOR SECURED PAY-IN-KIND NOTES
Pursuant to the Reorganization on June 6, 1996, senior creditors
received a new issue of Senior Secured Pay-In-Kind Notes ( the "Notes")
having an aggregate principal amount of $50 million, due 2003. Interest on
the Notes accrues at a rate of 12% per annum, and is payable semi-annually.
Through the first year the Notes were outstanding, at the option of the
Company, interest on the Notes was payable either in cash or through the
issuance of additional Notes. Thereafter, the Company is required to pay
interest on the Notes in cash. On December 1, 1996, the Company made an
interest payment on the Notes by issuing $2.9 million of additional Notes.
All future interest
35
<PAGE>
payments are due in cash. The Notes are secured by substantially all the
assets of the Company. In addition, the Notes Indenture includes certain
restrictive covenants. As of December 31, 1997, the fair values of the Notes
is approximately $57.1 million, which are based on quoted market prices
(108%). 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 in the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000 104%
2001 103%
2002 102%
2003 100%
</TABLE>
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 which commenced September 7, 1996. The second
note in the amount of $3 million is payable in 20 quarterly installments of
principal and interest (at 9% per annum). The $3 million note was reduced by
$2.3 million in funds received by CAI in respect of its claims filed in the
GPRI Bankruptcy. Accordingly, the outstanding balance on the $3 million note
is approximately $670,000 as of December 31, 1997. The outstanding balance
on the $1.6 million note is approximately $700,000 as of December 31, 1997.
The Company considers the estimated fair value of such notes to be the same
as its carrying value since the obligations were entered into as of the
Effective Date, and no significant interest rate fluctuations have occurred
since that date.
Aggregate annual maturities of long-term debt, are as follows:
<TABLE>
<S> <C>
1998 $ 809
1999 --
2000 306
2001 364
2002 --
Thereafter 52,883
-------
Total $54,362
-------
-------
</TABLE>
Subsequent to year end, the Company borrowed $5.5 million under the
Credit Facility to finance the acquisition of Bronco Billy's. Additional
repayments with respect to these borrowings are $1.0 million, $1,1 million,
$1.1 million and $2.3 million, payable in 1998, 1999, 2000 and 2001,
respectively.
(6) STOCKHOLDER'S EQUITY
Pursuant to the Reorganization, the Predecessor Company's preferred
stock, common stock and warrants were canceled on the Effective Date. The
Reorganization 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
Predecessor Company's senior secured creditors. 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
36
<PAGE>
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 three years following the
Effective Date based on the Company meeting certain performance criteria.
Once granted, the shares are fully vested. On June 7, 1997, the Company
granted 97,203 shares to management due to the performance criteria being
achieved. As of December 31, 1997, there are 319,464 shares available for
grant under the Stock Plan.
(7) INCOME TAXES
The Company recorded no income tax expense in the 1995 and 1996 periods
due to the Company's significant loss position, and the effect of the
Reorganization on the Company's tax position. For the year ended December
31, 1997 the Company recorded a $342,000 deferred tax provision. A
reconciliation of income tax expense to the statutory federal tax rate of 34%
is as follows:
<TABLE>
<S> <C>
Statutory Rate ........ 34.0%
Effects of:
State Taxes ........... 3.3%
Goodwill .............. 40.5%
-----
Effective Tax Rate .... 77.8%
-----
</TABLE>
The components of the deferred tax asset as of December 31, 1997 and
1996 are as follows.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CURRENT:
Accrued vacation, gaming liabilities
and incentive compensation $ 261 $ 458
NON-CURRENT:
Difference in asset basis 456 458
Recognition of legal settlement 503 740
Impairment of assets 1,208 3,860
Net operating loss carryforwards 4,689 2,343
------- -------
Gross deferred tax asset 7,117 7,859
Valuation allowance (7,117) (7,859)
------- -------
$ -- $ --
------- -------
------- -------
</TABLE>
The net deferred tax asset valuation allowance is equal to the full
amount of the gross deferred tax asset because the realization of such asset
is dependent upon future taxable income, which is uncertain. The Company
currently has NOL's totaling approximately $12.5 million, which expire
beginning in 2008. Pursuant to the Reorganization, the old shares of common
stock were canceled and newly authorized common stock was issued to the
Company's senior secured creditors, effecting an ownership change as defined
in section 382 of the Internal Revenue Code. The effect of this ownership
change limits the utilization of NOL's generated prior to the Effective Date
to approximately $520,000 annually. Utilization of NOL's generated
subsequently to the Effective Date, totaling approximately $6.3 million, is
unlimited.
(8) LEASES
OPERATING LEASES
37
<PAGE>
The Company leases real property, on which Bullwhackers Black Hawk was
constructed. The lease is for a period through 2014 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 three years ended December 31, 1997 was $1.1 million each
year. 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, or $5.9 million on that date.
Future annual base rental payments for the land lease as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31 (in thousands):
<S> <C>
1998 ........................... $ 600
1999 ........................... 600
2000 ........................... 660
2001 ........................... 660
2002 ........................... 660
Thereafter ..................... 8,690
---------
Total .......................... $ 11,870
---------
---------
</TABLE>
In March 1997, the Company relocated its corporate offices to Lakewood,
Colorado pursuant to a new $10,000 a month lease, which expires April 2002.
On February 11, 1998, the Company entered into three ground lease
agreements for the real property underlying the facility of the former Bronco
Billy's casino. The terms of the first lease requires a monthly $35,000 base
rent payment and additional rent equal to 40% of Net Win (as defined) of the
gaming operations conducted on the premises through September 2022, with an
option to extend the lease term to July 2024. The terms of the second lease
requires a $22,500 monthly lease payment through July 2024. This lease
contains a purchase option for $1.2 million expiring in March 2001. The
terms of the third lease requires a monthly rent between $12,500 to $16,500
per month, based on a range of Average Daily Proceeds (as defined) from all
gaming devices conducted on the premises, which monthly rent escalates
throughout the term of the lease, through July 2024.
(9) RELATED PARTY TRANSACTIONS
DUE FROM AFFILIATES
In 1997, the Company paid $250,000 to Unirock Management Company, a
merchant banking firm controlled by the Chairman of the Board of Directors
for the Company. Unirock Management Company provided financial advisory
services to the Company related to the Merger. The Company believes that
this transaction is on terms at least as favorable as would have been
obtained from non-related parties.
In 1994 and 1995, the Predecessor Company made approximately $4.8
million of advances to former officers and various affiliates which were
majority owned by the controlling stockholders and certain officers of the
Predecessor Company. No amounts were ever repaid under these advances. Due
to the deterioration of the financial condition of the affiliates and
certain officers to which the Predecessor Company had advanced funds, the
Predecessor Company determined it was unlikely that it would collect any of
the advances to affiliates and, accordingly, provided a reserve for the
entire $4.8 million amounts owed the Company as of December 31, 1995. These
write-offs are reflected as impairment of assets in the accompanying
consolidated statements of operations.
38
<PAGE>
(10) COMMITMENTS AND CONTINGENCIES
GAMING LICENSES
The Colorado Casinos are required to comply with laws and regulations
promulgated by the Colorado Gaming Commission in order to maintain continued
operations. Bullwhackers Black Hawk and Bullwhackers Central City operate
under separate current annual gaming licenses which expire in December 1998,
whereas the Silver Hawk Casino license expires in June 1998. Management
anticipates that such gaming licenses will be renewed.
GAMING TAXES AND FEES
The Colorado 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%. The latest annual revision,
which became effective October 1, 1996, is calculated as a percentage of
adjusted gross proceeds (casino net win). The gaming tax rates for the
previous three gaming years are set forth in the following table:
<TABLE>
<CAPTION>
Annual Tax Rate from Annual Tax Rate
Annual Gross Proceeds 10/94 to 9/96 from 10/96 to 6/98
--------------------- -------------------- ------------------
<S> <C> <C>
First $2 million ............... 2% 2%
Next $2 million ................ 8% 4%
Next $1 million ................ 15% 14%
Next $5 million ................ 18% 18%
Proceeds over $10 million ...... 18% 20%
</TABLE>
Additionally, the city and state levy device fees ranging from $75 to
$1,265 per device per annum. For the years ended December 31, 1997, 1996 and
1995 the Company recorded $9.1 million, $8.2 million and $8.3 million,
respectively, in total gaming taxes and device fees. In 1997, the Gaming
Commission changed the gaming tax year from October 1 through September 30 to
July 1 through June 30. Accordingly, the new tax rate for the gaming tax
year 1998-99 will be set by the Gaming Commission in June, effective as of
July 1, 1998. While it is difficult to speculate on how the Gaming
Commission may adjust the tax rates, if at all, any material increase in the
tax rates could have a material adverse effect on the Company's consolidated
results of operations and financial position.
EMPLOYMENT AGREEMENTS
In 1996, the Company entered into employment agreements with certain
executives of the Company. These employment agreements are each for initial
term of three years, and renew thereafter for successive one year terms
unless terminated by each of the respective parties. On April 29, 1997, the
Compensation Committee of the Board of Directors extended Mr. Szapor's
employment contract to June 7, 2000.
OTHER COMMITMENTS
Effective August 22, 1997, the Company entered into an Agreement and
Plan of Merger, as amended as of October 21, 1997 (the "Merger Agreement"),
with Ladbroke Racing Corporation, a Delaware corporation ("LRC"), and CG&E
Acquisition Corp., a Delaware corporation ("Acquisition Sub"), pursuant to
which the Acquisition Sub will be merged with and into the Company (the
"Merger"). Prior to the Merger and pursuant to the terms of the Merger
Agreement, LRC will assign all of its rights and obligations under the Merger
Agreement, including its interest in the Acquisition Sub, to Ladbroke Gaming
Corporation, a Delaware corporation ("Ladbroke"), a wholly-owned subsidiary
of Ladbroke Group PLC, the ultimate parent of LRC. As a result of the
assignment and the
39
<PAGE>
Merger, the Company will become a wholly-owned subsidiary of Ladbroke.
Pursuant to the Merger Agreement, holders of the Company's common stock,
$0.01 par value (the "Common Stock"), will be entitled to receive $6.25 in
cash for each share of Common Stock held by them immediately prior to the
Merger. On December 12, 1997, stockholders of the Company approved and
adopted the Merger Agreement. The Merger remains subject to approval by the
Colorado Limited Gaming Control Commission (the "Gaming Commission").
Although there can be no assurances, closing of the Merger is anticipated to
occur sometime in the third quarter of 1998. However, pursuant to the terms
of the Merger Agreement, if the Merger has not been consummated on or before
September, 30 1998, which date may be extended by the mutual written consent
of LRC and the Company, either party has the right to terminate the Merger
Agreement and abandon the Merger.
LEGAL PROCEEDINGS
In October 1996, BWCC, Inc. signed a non-binding memorandum of
understanding ("MOU") with Gold Coin, Inc., a wholly-owned subsidiary of Lady
Luck Gaming Corporation, to explore the possibility of physically combining
Bullwhackers Central City with the adjacent casino operated as Lady Luck Gold
Coin Gambling Hall & Saloon and owned by Gold Coin, Inc. The prospective
transaction was subject to a number of contingencies, including the execution
and delivery of definitive agreements setting forth the final agreed upon
terms and conditions of the transaction. While the parties continued to
negotiate over unresolved issues contained in the drafts of the definitive
agreements, market conditions and other events affecting the Central City
market continued to change and decline significantly. Despite continued
efforts to satisfactorily resolve the open issues in light of the foregoing,
no final, definitive agreements were executed and delivered, and the
prospective transaction was never consummated.
In March 1998, Lady Luck Central City, Inc., formerly known as Gold
Coin, Inc., filed a complaint in the District Court for the County of
Jefferson, State of Colorado, Case No. 98 CV 672, captioned as LADY LUCK
CENTRAL CITY, INC. V. BWCC, INC., D/B/A BULLWHACKERS CENTRAL CITY, COLORADO
GAMING & ENTERTAINMENT, CO., AND LADBROKE GROUP PLC. The complaint alleges
causes of action against BWCC, Inc. based upon the foregoing events for
breach of contract, breach of fiduciary duty, and breach of duty of good
faith. The complaint also alleges causes of action against the Company and
Ladbroke Group PLC for tortious interference with contract and tortious
interference with prospective business opportunity. The Company and BWCC,
Inc. believe the complaint is without merit and intend to vigorously defend
themselves. As required by the Colorado Regulations, the Company has
notified the Division of this matter.
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. The
Company's management believes that the ultimate resolution of currently
pending legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
(11) SUBSEQUENT EVENTS (UNAUDITED)
On February 13, 1998, the Company purchased the assets comprising the
casino known as Bronco Billy's in Black Hawk from Pioneer Associates Limited
Liability Company for approximately $5.5 million. In connection with the
purchase, the Company entered into an amendment to the Credit Facility
converting the expired $5 million construction line into a new line up to $5
million (the "Bronco Billy's Acquisition Line") to purchase and perform
tenant improvements on the former Bronco Billy's casino. The Company
borrowed $5.0 million of the purchase price under the Bronco Billy's
Acquisition Line and borrowed the remaining $500,000 of the purchase price
under the equipment portion of the Credit Facility. The Bronco Billy's
Acquisition Line amortizes over 60 months, commencing on June 1, 1998 and is
payable in full on June 6, 2001. Additionally, the Company anticipates to
incur an additional $2.0 million to equip and renovate the former Bronco
Billy's casino for reopening, which will be funded out of cash flow from
operations or additional borrowing from the Credit Facility.
Bronco Billy's is located next to Bullwhackers Black Hawk. The Company
intends to remove the common wall separating the casinos in order for the former
Bronco Billy's to become a part of Bullwhackers Black Hawk.
40
<PAGE>
Subject to the approval of the Gaming Commission and the Liquor Agencies, the
combined casino will be operated as a single casino, under one gaming license
and one liquor license. The Company plans to reopen the new facility in May
1998, which will add approximately 250 slot machines and an additional
restaurant facility to Bullwhackers Black Hawk. The Company intends the
expansion of Bullwhackers Black Hawk to be known as The Bullpen Sports Casino
with an enhanced sports-bar theme.
(12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly information excluding
any reorganization or other impairment changes related to the Reorganization
and disposition of assets.
<TABLE>
<CAPTION>
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues $ 12,973 $ 13,392 $ 14,090 $ 11,677
Operating Income 1,368 1,849 2,424 1,995
Net Income (Loss) (346) 74 366 118
<CAPTION>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues $ 11,023 $ 12,204 $ 14,625 $ 12,810
Operating Income 424 319 1,926 1,863
Net Income 328 163,868 232 171
</TABLE>
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COLORADO GAMING & ENTERTAINMENT CO.
By: /s/ Stephen J. Szapor, Jr.
----------------------------------
Stephen J. Szapor, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen J. Szapor, Jr. President and Chief March 25, 1998
- --------------------------- Executive Officer, Director
Stephen J. Szapor, Jr. (Principal Executive
Officer)
/s/ Robert J. Stephens Vice President of Finance March 25, 1998
- --------------------------- (Principal Financial and
Robert J. Stephens Accounting Officer)
/s/ Franklin S. Wimer Director, Chairman of March 25, 1998
- --------------------------- the Board
Franklin S. Wimer
/s/ Philip J. DiBerardino Director March 25, 1998
- ---------------------------
Philip J. DiBerardino
/s/ Steve Leonard Director March 25, 1998
- ---------------------------
Steve Leonard
/s/ Mark van Hartesvelt Director March 25, 1998
- ---------------------------
Mark van Hartesvelt
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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.).*
2.3 Agreement and Plan of Merger dated as of August 22, 1997 by and
among the Company, Ladbroke Racing Corporation ("Ladbroke") and
CG&E Acquisition Corp. (incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K filed August 27,
1997).
2.4 Stock Option Agreement dated as of August 22, 1997 by and between
the Company and Ladbroke (incorporated by reference to Exhibit
2.2 to the Company's Current Report on Form 8-K filed August 27,
1997).
2.5 First Amendment to Agreement and Plan of Merger dated as of
October 21, 1997, among the Company, Ladbroke and CG&E
Acquisition Corp.
2.6 Asset Purchase Agreement, dated December 10, 1997, by and between
CG&E and Pioneer Associates Limited Liability Company
("Pioneer").
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.*
4.5 First Supplemental Indenture date as of January 23, 1998 by and
between the Company and State Street Bank and Trust Company, as
successor in interest to Fleet National Bank, as Trustee.
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.*
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
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.*+
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
10.26 Colorado Gaming & Entertainment Co. Management 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.*+
10.32 Employment Agreement between the Company and Robert Stephens .+
10.33 Employment Agreement between the Company and Jack Breslin.+
10.34 Second Amendment to Loan and Security Agreement by and among the
BWBH, Inc., BWCC, Inc. and Silver Hawk Casino, Inc., and Foothill
Capital Corporation dated February 9, 1998.
10.35 Amendment to Lease Agreement, dated February 27, 1998 by and
among Jerry L. Brown and Harold Gene Reagin and HP Black Hawk,
L.P.
10.36 Lease Acknowledgment, Assumption and Modification Agreement,
dated February 11, 1998 by and among Pioneer, BWBH, Inc. and
Edward E. Smith and Shirley J. Smith.
10.37 Lease Acknowledgment, Assumption and Modification Agreement,
dated February 11, 1998 by and among Pioneer, BWBH, Inc. and KDL,
Inc. ("KDL").
10.38 Lease Acknowledgment, Assumption and Modification Agreement,
dated February 11, 1998 by and among Pioneer, BWBH, Inc., KDL and
Elizabeth Branecki.
10.39 First Amendment to Employment Agreement between the Company and
Stephen J. Szapor, Jr.+
21.1 List of Subsidiaries.*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended of Fleet National Bank, as Trustee under the
Indenture.*
27.1 Financial Data Schedule.
</TABLE>
* Incorporated by reference to the same exhibit number in the Company's
Registration Statement on Form 10, with the exception of exhibit 25.1 was
previously referenced as 99.1 (File No. 0 - 28068).
+ Indicates management contract or compensatory plan, contract or
arrangement.
45
<PAGE>
EXHIBIT 2.5
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This First Amendment, dated as of October 21, 1997 (this "Amendment"),
to that certain Agreement and Plan of Merger dated as of August 22, 1997 (the
"Merger Agreement") is entered into by and among Ladbroke Racing Corporation, a
Delaware corporation ("Parent"), CG&E Acquisition Corp., a Delaware corporation
("Purchaser"), and Colorado Gaming & Entertainment Co., a Delaware corporation
(the "Company"). Capitalized terms used herein without definition shall have
the meanings given to such terms in the Merger Agreement.
WHEREAS, Section 8.3 of the Merger Agreement provides that it may be
amended by the parties prior to the Effective Time pursuant to an instrument in
writing signed by the parties thereto;
WHEREAS, the parties have determined that it is in their best interest
to make certain amendments to the Merger Agreement and to provide for the
assignment by Parent of all of its rights and obligations under the Merger
Agreement.
In consideration of the promises, mutual covenants and agreements set
forth herein, the parties agree as follows:
AGREEMENT
1. AMENDMENTS. The Merger Agreement is hereby amended as follows:
1.1 Article III of the Merger Agreement is hereby amended to add
a new Section 3.21 to read as follows:
"SECTION 3.21 BANKRUPTCY PROCEEDINGS. Pursuant to an order
issued by the United States Bankruptcy Court for the Eastern District of
Louisiana, the First Amended Joint Plan of Reorganization of Hemmeter
Enterprises Inc., BWBH, Inc., BWCC, Inc. and Millsite 27, Inc. (the "Plan") has
become effective; the order confirming the Plan is in full force and effect and
is not subject to any stay, motion for stay, appeal or other challenge; and
there is no default under the Plan or any obligation created or continued by the
Plan."
1.2 Article V of the Merger Agreement is hereby amended to add a
new Section 5.5 to read as follows:
"SECTION 5.5 COOPERATION AND BEST EFFORTS. The Company shall
cooperate with Parent and Purchaser in seeking, and shall use its best efforts
to obtain, prior to the Effective Time (i) any consents required to be obtained
as a result of the Merger under that certain Lease Agreement by and between
12596 Limited Partnership, as landlord, and the Company, as tenant, relating to
the Company's offices at 12596 West Bayaud Avenue, Lakewood, Colorado; (ii) the
acceptance by the United States Environmental Protection Agency on behalf of the
United States of America of (A) title to the Gregory Incline discharge
conveyance system as contemplated by that certain Special Warranty Deed dated
December 23, 1993, between the Blake Family Limited Partnership ("Blake") and
the United States of America, which is recorded in Book 556 at Page 321 in the
Office of the County Recorder for the County of Gilpin, State of Colorado (the
"Gilpin County Recorder), and (B) the Easement dated December 23, 1993 between
Blake and the United States of America, which is recorded in Book 556 at Page
324 in the Office of the Gilpin County Recorder; and (iii) acceptance, without
reservation of rights, by the insurance carriers whose policies cover any
Company liability with respect to the litigation disclosed in Section 3.10(i) of
the Disclosure Schedule."
1.3 Article VII, Section 7.3 of the Merger Agreement is hereby
amended to add new subsections (g) and (h) to read as follows:
"(g) That certain Registration Rights Agreement, dated as of June
7, 1996, by and among the
<PAGE>
Company and the Initial Holders (as defined therein) shall have been
terminated or amended to the satisfaction of Parent so that, following the
Effective Time, the Surviving Corporation shall have no obligation to
register any securities or to maintain the effectiveness of any registration
statement thereunder or to keep current any prospectus prepared in connection
therewith.
(h) All consents which are, in the judgment of Parent, necessary
or appropriate to permit the consummation of the Merger without violating the
terms of, or causing a termination under, either (i) that certain Lease
Agreement by and among Jerry L. Brown and Harold Gene Reagin, as landlord, and
BWBH, Inc. (formerly H. P. Blackhawk, L.P.), as tenant, or (ii) that certain
Option to Purchase among the same parties and relating to the same real
property, shall have been obtained and shall be in full force and effect."
1.4 Article IX, Section 9.6 of the Merger Agreement is hereby
amended to read as follows:
"SECTION 9.6 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that (i) Parent may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement, including without limitation its ownership or
other rights with respect to Purchaser, to any direct or indirect wholly owned
subsidiary of Ladbroke Group plc ("Ladbroke Group"), and upon such assignment
all references in this Agreement to Parent shall be deemed to be references to
such assignee, and (ii) Purchaser may assign, in its sole discretion, any or all
of its rights, interests and obligations under this Agreement to Parent or to
any direct or indirect wholly owned subsidiary of Ladbroke Group, but no such
assignment shall relieve Purchaser of any of its obligations under this
Agreement. Parent shall give prompt written notice to the Company of any
assignment by Parent or Purchaser pursuant to this Section 9.6. Subject to the
preceding sentences, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by the parties hereto and their respective successors and
assigns."
1.5. Article IX, Section 9.1(a) of the Merger Agreement is
hereby amended to change the address to which notices shall be delivered to
Parent or Purchaser to read as follows:
"Ladbroke Racing Corporation
Plaza Two, Suite 500
3260 Blume Drive
Richmond, California 94806
Attention: John Long
Telecopier: (510) 243-9734"
1.6 Except as expressly provided in this Amendment, all terms
and conditions of the Merger Agreement remain in full force and effect, without
modification.
<PAGE>
2. MISCELLANEOUS
2.1 COMPLETE UNDERSTANDING; MODIFICATION. This Amendment and
the Merger Agreement constitutes the full and complete understanding and
agreement of the parties with respect to the subject matter thereof and
supersede all prior understandings and agreements.
2.2 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
2.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts, taken together, will constitute one and the same agreement and
shall become effective unless otherwise provided therein when one or more
counterparts have been signed by each party and delivered to the other parties.
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Amendment to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
LADBROKE RACING CORPORATION
By: /s/ JOHN LONG
----------------------------------------------
Name: John Long
Title: President and Chief Operating Officer
CG&E ACQUISITION CORP.
By: /s/ JOHN LONG
----------------------------------------------
Name: John Long
Title: President
COLORADO GAMING & ENTERTAINMENT CO.
By: /s/ STEPHEN J. SZAPOR, JR.
----------------------------------------------
Name: Stephen J. Szapor, Jr.
Title: President
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
COLORADO GAMING & ENTERTAINMENT CO., A DELAWARE CORPORATION
"PURCHASER"
AND
PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, A NEVADA
LIMITED LIABILITY COMPANY
"SELLER"
<PAGE>
TABLE OF CONTENTS
1. PURCHASE AND CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 SALE AND PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Equipment and Warranties . . . . . . . . . . . . . . . . 1
(b) Contracts. . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Books and Records. . . . . . . . . . . . . . . . . . . . 2
1.2 ASSIGNMENT OF LEASES . . . . . . . . . . . . . . . . . . . . . . 2
1.3 EXCLUDED ASSETS; NO ASSUMPTION OF LIABILITIES. . . . . . . . . . 3
(a) EXCLUDED ASSETS. . . . . . . . . . . . . . . . . . . . . 3
(b) NO ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . 4
(c) PURCHASER'S ASSUMPTION OF CERTAIN LIABILITIES. . . . . . 5
1.4 PURCHASE PRICE AND TERMS . . . . . . . . . . . . . . . . . . . . 6
(a) PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . 6
(b) Additional Assets. . . . . . . . . . . . . . . . . . . . 8
(c) CHIPS AND TOKEN REDEMPTION . . . . . . . . . . . . . . . 8
1.5 PURCHASE PRICE ALLOCATION. . . . . . . . . . . . . . . . . . . . 9
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 THE CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 ACTIONS AT THE CLOSING . . . . . . . . . . . . . . . . . . . . . 10
3. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . . . . . . 11
3.1 ORGANIZATION AND AUTHORITY . . . . . . . . . . . . . . . . . . . 12
3.2 EFFECT OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 12
3.3 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 12
3.4 TITLE TO AND CONDITION OF ASSETS . . . . . . . . . . . . . . . . 13
3.5 LEASES AND CONTRACTS . . . . . . . . . . . . . . . . . . . . . . 14
3.6 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7 DISCLOSURE OF LIABILITIES; NO MATERIAL ADVERSE CHANGE. . . . . . 14
3.8 LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.9 ENVIRONMENTAL AND SAFETY . . . . . . . . . . . . . . . . . . . . 15
3.10 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . 17
3.11 TAXES AND PARKING IMPACT FEES. . . . . . . . . . . . . . . . . . 18
3.12 BROKER OR FINDER . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
3.13 SCHEDULES AND EXHIBITS . . . . . . . . . . . . . . . . . . . . . 19
3.14 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . 19
4.1 ORGANIZATION AND AUTHORITY . . . . . . . . . . . . . . . . . . . 19
4.2 EFFECT OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 20
4.3 BROKER OR FINDER . . . . . . . . . . . . . . . . . . . . . . . . 20
5. COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 TAXES AND TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . 20
5.2 EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 21
5.4 SATISFACTION OF CONDITIONS . . . . . . . . . . . . . . . . . . . 22
6. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . 22
(b) CONDITIONS PRECEDENT TO CLOSING. . . . . . . . . . . . . 23
(c) TAX CLEARANCES . . . . . . . . . . . . . . . . . . . . . 24
(d) ABSENCE OF LITIGATION. . . . . . . . . . . . . . . . . . 24
(e) NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . 25
(f) TRUTH OF WARRANTIES. . . . . . . . . . . . . . . . . . . 25
7. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 INDEMNITY OF PURCHASER . . . . . . . . . . . . . . . . . . . . . 25
7.2 INDEMNITY OF SELLER. . . . . . . . . . . . . . . . . . . . . . . 26
7.3 NOTICE OF CLAIMS -- PARTICIPATION IN THIRD PARTY SUITS . . . . . 26
8. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 PURCHASER'S DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 27
8.2 SELLER'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 27
9. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 EXPENSES; TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 SCHEDULES AND EXHIBITS . . . . . . . . . . . . . . . . . . . . . 29
9.5 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 29
<PAGE>
9.6 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.7 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.8 AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 30
9.9 GOVERNING LAW; MEDIATION; ARBITRATION. . . . . . . . . . . . . . 30
9.10 SECTION HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 31
9.11 COOPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.12 ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . 32
9.13 PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . 32
9.14 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 32
9.15 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
LIST OF SCHEDULES
SCHEDULE 1.1(a) EQUIPMENT AND WARRANTIES
SCHEDULE 1.1(b) CONTRACTS
SCHEDULE 1.2 LEASES
SCHEDULE 1.3(a) EXCLUDED ASSETS
SCHEDULE 1.3(b) PURCHASER'S GAMING DEVICE DEBT
SCHEDULE 1.5 PURCHASE PRICE ALLOCATION
SCHEDULE 3.6 LITIGATION
<PAGE>
ASSET PURCHASE AGREEMENT
This is an Asset Purchase Agreement ("Agreement"), dated as of December
10, 1997 (the "Effective Date"), between COLORADO GAMING & ENTERTAINMENT CO., a
Delaware corporation ("Purchaser") and/or its successors and assigns, and
PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, a Nevada Limited Liability Company
("Seller").
RECITAL
Purchaser desires to purchase from Seller and Seller desires to sell to
Purchaser, on the terms and conditions of this Agreement, substantially all of
the operating assets used in the casino business of Seller (the "Business"),
located at 125-135 Gregory Street, Black Hawk, Colorado (the "Property").
AGREEMENT
For good and valuable consideration, the parties agree as follows:
1. PURCHASE AND CONSIDERATION.
1.1 SALE AND PURCHASE. Seller agrees to sell, transfer, assign and
deliver to Purchaser on the Closing Date (as hereinafter defined), and Purchaser
agrees to buy from Seller, the operating assets of any kind or nature
whatsoever, tangible and intangible, owned by Seller and used in connection with
the operation of the Business (collectively, the "Assets"), which include the
following:
(a) EQUIPMENT AND WARRANTIES. Those certain 266 gambling
devices and gaming equipment (collectively, "Purchaser's
<PAGE>
Gaming Devices"), and the machinery, computers, furniture, fixtures and
equipment, whether leased or owned by Seller, including Seller's rights under
all related warranties (collectively, the "Equipment"), all as more
particularly described on Schedule 1.1(a). Notwithstanding the foregoing,
the Equipment shall not include the Excluded Assets (as hereinafter defined)
described in Section 1.3;
(b) CONTRACTS. Those contracts listed on SCHEDULE 1.1(b) (the
"Contracts"). Seller will take such actions as are necessary to assign the
Contracts to Purchaser at the Closing (as hereinafter defined). Purchaser shall
not assume, and Seller shall retain all liabilities to, all other contracts
which relate to the Business other than the Contracts listed on Schedule 1.1(b);
and
(c) BOOKS AND RECORDS. Any of Seller's books and records,
including all customer, supplier, fixed asset lists and all other relevant
records and files relating to the Business as requested by Purchaser.
1.2 ASSIGNMENT OF LEASES. Seller shall assign and Purchaser shall
assume those certain leases for the Property, more particularly described in
SCHEDULE 1.2 (the "Leases"). With respect to the Leases which do not involve
real property, Seller shall receive credit for any security deposits relating to
such Leases, the amount of which shall be reflected on said Schedule. Purchaser
shall not assume, and Seller shall retain all
2
<PAGE>
liabilities to, all other leases which relate to the Business other than the
Leases listed on Schedule 1.2.
1.3 EXCLUDED ASSETS; NO ASSUMPTION OF LIABILITIES.
(a) EXCLUDED ASSETS. The Assets to be purchased and sold
hereunder shall not include the following assets of Seller existing on the
Closing Date (the "Excluded Assets"), which Excluded Assets are described in
SCHEDULE 1.3(a):
(i) Those certain 19 gaming devices ("19 Devices") as
described in SCHEDULE 1.3(a). Purchaser shall receive a credit against the
Purchase Price for the 19 Devices in an amount equal to $76,000;
(ii) Those certain 25 gaming devices ("25 Devices")
acquired by Seller subsequent to negotiations commencing on this Agreement.
Those 25 Devices are described in SCHEDULE 1.3(a). The 19 Devices and the
25 Devices are collectively referred to as "Seller's Gaming Devices";
(iii) The equipment, including all hardware and software
constituting the slot tracking system ("Slot Tracking System"), including copies
of the Slot Tracking System lists and the database associated therewith.
Purchaser shall receive a credit against the purchase price for Seller's
retention of the Slot Tracking System in an amount equal to $100,000.
Notwithstanding anything in this Agreement to the contrary, Seller shall deliver
a true and correct copy of the Slot Tracking System database printout to
Purchaser at the Closing;
3
<PAGE>
(iv) Those certain items of office furniture, computers,
office equipment and vehicles (collectively, the "Excluded Office Equipment") as
described in Schedule 1.3(a). Purchaser shall receive a credit against the
Purchase Price for Seller's retention of the Excluded Office Equipment in an
amount equal to $15,000;
(v) Seller's cash, gaming chips and tokens in gaming
devices, cages and change banks and any other location in the Property. Such
amounts are to be determined as of two o'clock a.m. on the Closing Date;
(vi) Seller's cash in any bank, brokerage or other
institution;
(vii) All of Seller's rights, title and interest in the
"Bronco Billy's" name and logos and associated proprietary rights thereto, and
all personal property containing the "Bronco Billy's" name and associated logos;
(viii) All of Seller's inventories of whatever kind,
including food, beverages, merchandise, cigarettes, office and maintenance
supplies; and
(ix) All of Seller's accounts receivable.
(b) NO ASSUMPTION OF LIABILITIES. Except as expressly provided
below, Purchaser shall not assume any liabilities, including trade or accounts
payable of Seller or of the Business, or any portion of the loan and/or purchase
money amounts payable to International Gaming & Technologies ("IGT") or any
other lenders or sellers of Seller's Gaming Devices which is
4
<PAGE>
attributable to and is secured by (i) Seller's Gaming Devices ("Seller's
Gaming Device Debt") and/or (ii) Purchaser's Gaming Devices ("Purchaser's
Gaming Device Debt"). A description of the principal balance of Purchaser's
Gaming Device Debt as of January 1, 1998 is set forth on SCHEDULE 1.3(b). The
parties agree that assuming all payments on Purchaser's Gaming Device Debt
are timely made between the Effective Date and December 31, 1997, the
aggregate principal balance thereon as of January 1, 1998, will be
$510,785.00. To the extent that the aggregate principal balance of
Purchaser's Gaming Device Debt on January 1, 1998 exceeds $510,785.00,
Purchaser shall receive a credit against the Purchase Price for such amount
at Closing.
(c) PURCHASER'S ASSUMPTION OF CERTAIN LIABILITIES. Purchaser will
assume the following liabilities subject to appropriate credits at Closing for
all proratable items or as otherwise provided:
(i) The Leases described in Schedule 1.2 subject to the
amendments hereinafter provided;
(ii) The progressive liability above the reset amount
as defined by Colorado Gaming Regulations for Purchaser's Gaming Devices and
Seller's Gaming Devices, for which Purchaser shall receive a credit at Closing;
and
5
<PAGE>
(iii) The liability of redeeming Seller's outstanding and
unredeemed slot script according to its current terms ("Slot Script"), to the
extent that the Colorado Limited Gaming Control Commission (the "Commission")
permits the assumption of such liability.
There is no other debt associated with the Business other than that debt
which is described in this Section 1.3(b) and to the extent that debt other than
that which is listed in Section 1.3(b) is discovered, Seller shall assume all
liabilities therefor and Purchaser shall not be responsible for the payment of
or assume any such liabilities.
1.4 PURCHASE PRICE AND TERMS.
(a) PURCHASE PRICE. The consideration for the sale, assignment
and transfer of the Assets shall be Five Million and No/100ths Dollars
($5,000,000.00) (the "Purchase Price"). The parties acknowledge and agree
that Purchaser will purchase Purchaser's Gaming Devices hereunder subject to
the Purchaser's Gaming Device Debt, but may renegotiate such debt with the
lender/lessor thereunder at Closing. The Purchase Price will be paid as
follows: One Hundred Thousand Dollars ($100,000) cash paid as earnest money
hereunder by Purchaser within five (5) business days of the Effective Date to
Clear Creek-Gilpin County Abstract & Title Corp. ("Title Company") to be held
by the Title Company in an interest-bearing account, with interest to be
credited to Purchaser upon the closing of the transactions contemplated
hereunder ("Earnest Money Deposit"), with the
6
<PAGE>
balance, subject to customary closing adjustments and the credits and
adjustments described herein ("Cash Payment"), to be paid in cash or readily
available funds at Closing. At the Closing, as hereinafter defined, in
addition to customary closing adjustments, for purposes of computing the
Purchase Price, and the Cash Payment, Purchaser shall receive the following
credits against the Purchase Price: (i) $76,000 attributable to the 19
Devices; (ii) $100,000 attributable to the Slot Tracking System (iii) $15,000
attributable to the Excluded Office Equipment; (iv) that amount equal to
75.0% of the then outstanding unredeemed value of the first $40,000 of Slot
Script which is redeemable for cash and 90% of all amounts of such Slot
Script in excess of $40,000; (v) the amount of the progressive liability
reflected as of the Closing Date in all of Purchaser's Gaming Devices and
Seller's Gaming Devices as described in Section 1.3(b)(ii); and (vi) any
amount over $510,785.00 (the aggregate principal balance of Purchaser's
Gaming Device Debt pursuant to Section 1.3(b)). The Cash Payment will be
increased by the amount of: (x) any prepaid expenses and device fees which
Seller paid prior to Closing and which are attributable to time periods after
Closing; (y) the security deposits on the Leases which do not involve real
property; and (z) if the Closing Date occurs after January 1, 1998, the
difference between the principal balance of Purchaser's Gaming Device Debt as
of January 1, 1998 and the principal balance of Purchaser's Gaming Device
Debt as of the Closing Date to the extent that such difference represents
monies paid by
7
<PAGE>
Seller to IGT to pay down the principal balance of Purchaser's Gaming Device
Debt after January 1, 1998. In no event shall Seller receive any credit for
any discount which Purchaser negotiates with IGT on the payoff of Purchaser's
Gaming Device Debt.
(b) ADDITIONAL ASSETS. The Purchase Price and the Cash Payment
set forth above will be increased by Seller's acquisition price of any gaming
devices or other equipment purchased by Seller subsequent to June 30, 1997
and prior to the Closing Date ("New Acquisitions") if Purchaser desires, in
its sole discretion, to purchase the New Acquisitions (or any portion
thereof) from Seller. If Purchaser does not desire to Purchase the New
Acquisitions, they shall become Excluded Assets.
(c) CHIPS AND TOKEN REDEMPTION. Purchaser agrees that it will,
for a period of 120 days from the Closing Date, or such period of time
prescribed by the Director of the Colorado Division of Gaming, pursuant to
the Colorado Gaming Regulations ("Redemption Period"), and to the extent of
funds then in the escrow account described below, redeem any of Seller's
gaming chips and tokens presented to it using proceeds from an escrow to be
established by Seller for such purpose. Purchaser will have no obligation to
redeem such chips or tokens from its own funds. Seller agrees within five
(5) days following Closing to calculate its outstanding chip and token float
(excluding gold and silver tokens and commemorative tokens), and to deposit
into an escrow account an amount equal to 75% of Seller's outstanding chip
and
8
<PAGE>
token float so computed. No more frequently than weekly, Purchaser may
submit the redeemed gaming chips and tokens for reimbursement from the escrow
account. It is agreed that two signatures will be required on the escrow
account, one party to be designated by Seller and one by Purchaser. After
the end of the Redemption Period, the balance in the escrow account, if any,
will be paid to Seller in full. Any further redemption of Seller's
outstanding chips and tokens after the Redemption Period will be at the
option and expense of Purchaser. Seller agrees to pay the cost of
publication of the redemption as required by the Colorado Gaming Regulations
and Purchaser agrees to cooperate with Seller in obtaining approval from the
Director of the Colorado Division of Gaming for the form of the publication
and the newspapers selected for publication. The cost of the destruction of
the chips and tokens will be the expense of Seller. During the Redemption
Period, to the extent customers seek to redeem chips and tokens in excess of
the amount deposited into the escrow account, Seller agrees to immediately
deposit additional funds into the escrow account sufficient to cover the
excess. In the event Seller fails to so deposit funds in the escrow as
required during the Redemption Period, Purchaser shall have the right to
immediately cease redeeming the chips and tokens.
1.5 PURCHASE PRICE ALLOCATION. The parties agree to allocate the
Purchase Price as provided in SCHEDULE 1.5 (the "Allocation"). Each of the
parties agrees to report this
9
<PAGE>
transaction for state and federal tax purposes in accordance with the
Allocation and agrees not to file any tax return or otherwise take a position
with federal or state tax authorities which is inconsistent with the
Allocation. The Allocation is intended to comply with Section 1060 of the
Internal Revenue Code and the regulations promulgated thereunder.
2. CLOSING.
2.1 THE CLOSING. Assuming that all conditions to closing have been
satisfied or waived by Purchaser in its sole discretion, the transactions
contemplated by this Agreement shall be consummated (the "Closing") at the
offices of Isaacson, Rosenbaum, Woods & Levy, P.C., at such time as the
parties mutually agree upon, no later than five (5) business days after
Purchaser delivers written notice to Seller that it has obtained all
Approvals (or Purchaser has waived any of such Approvals) as set forth in
Section 6(b), but in no event later than five (5) business days from the
expiration of the Inspection Period, unless the parties mutually agree to
extend such date (the "Closing Date"). The time of Closing on the Closing
Date shall be by mutual agreement of the parties.
2.2 ACTIONS AT THE CLOSING. At the Closing:
(a) Purchaser shall (i) pay to Seller by bank or cashier's check
or wire transfer the Cash Payment; (ii) cause IGT to execute releases in a
form satisfactory to Seller releasing Seller from any and all obligations
under Purchaser's Gaming Device Debt at no cost to Seller; and (iii) execute
and deliver a settlement statement showing the Purchase Price and setting
forth the credits set forth above and contemplated herein, and other
customary closing adjustments,
10
<PAGE>
including those adjustments for rent, taxes, utilities and other customarily
prorated items.
(b) Seller shall (i) execute and deliver to Purchaser in forms
satisfactory to Purchaser, all bills of sale, endorsements, assignments and
other instruments as Purchaser shall reasonably request to sell, assign,
transfer and deliver to Purchaser good title to all of the Assets and the
Leases, free and clear of all Encumbrances (as such term is defined in
Section 3.4) or Seller shall cause KDL, Inc., a Colorado corporation ("KDL"),
owner of certain of Purchaser's Gaming Devices, to execute and deliver all
documents necessary for Seller to transfer the Assets to Purchaser, free and
clear of all Encumbrances, including without limitation, releases of all
UCC-1 Financing Statement releases executed by IGT; (ii) deliver to Purchaser
the title policy contemplated by the Title Commitment and the original
Survey, if not previously delivered; (iii) deliver the Slot Tracking System
database printout in accordance with Section 1.3(a)(iii); (iv) execute and
deliver a certificate by Seller that the representations and warranties by
Seller herein are true and correct as of the Closing Date; and (v) execute
and deliver a settlement statement setting forth the credits set forth above
and contemplated herein, and all customary closing adjustments, including
those for rent, taxes, utilities and other customarily prorated items.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
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<PAGE>
Seller makes the following representations, warranties, and as
applicable, covenants, to Purchaser, which representations and warranties
shall survive the Closing and shall be deemed to be remade as of the Closing
Date:
3.1 ORGANIZATION AND AUTHORITY. Seller is a limited liability
company duly organized, validly existing and in good standing under the laws
of the State of Nevada. Seller has full legal right, power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery, and performance of this
Agreement and the transactions contemplated hereby have been duly authorized
by all necessary action on the part of Seller, including the approval of
Seller's members.
3.2 EFFECT OF AGREEMENT. The execution and delivery of this
Agreement by Seller does not, and the consummation of the transactions
contemplated hereby will not, conflict with or constitute a default under
Seller's Articles of Organization or its Operating Agreement, or its other
organizational documents, any law or regulation applicable to Seller, or any
agreement or instrument to which Seller is a party or by which Seller is
bound. No consent of any person not a party to this Agreement and no consent
of any governmental authority is required to be obtained on the part of
Seller to permit the consummation of the transactions contemplated by this
Agreement.
3.3 FINANCIAL STATEMENTS. Seller has delivered to Purchaser its
audited balance sheet and income statement as of
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<PAGE>
December 31, 1996 (the "Balance Sheet Date") and its unaudited balance sheet
and statement of income for the period ending June 30, 1997 (collectively,
the "Financial Statements"). At or before Closing, Seller shall deliver all
unaudited Financial Statements for the monthly periods ending prior to the
Closing Date. All such Financial Statements fairly present the financial
condition and results of operations of Seller as of the respective dates
thereof and for the periods therein referred to, all in accordance with
generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved.
3.4 TITLE TO AND CONDITION OF ASSETS. Seller has good title to all
of the Assets, except as set forth in SCHEDULE 1.3(b) as to those Purchaser's
Gaming Devices owned by KDL (which Seller shall cause KDL to transfer to
Seller as set forth in Section 2.2(b)) and except for the security interests
of the sellers and lenders in Purchaser's Gaming Devices to secure
Purchaser's Gaming Device Debt, all of the Assets are free and clear of all
encumbrances, liens, pledges and security interests whatsoever
("Encumbrances"). Seller has made and will continue to make through the
Closing Date, all principal and interest payments due under the Purchaser's
Gaming Device Debt and with respect to any of the other Encumbrances. All
Schedules and Exhibits attached hereto or to be attached hereto or to any
closing document are, or will be when created, correct and complete.
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The Assets include all assets and properties of every kind and
description, other than those Excluded Assets set forth in Schedule 1.3(a),
tangible or intangible, the use of which is necessary to enable Purchaser to
conduct the Business on the Premises as conducted prior to the date hereof
and all such property that is tangible is in good operating condition,
ordinary wear and tear excepted.
At the Closing, Seller will sell, assign, transfer and deliver to
Purchaser good title to all of the Assets, free and clear of any and all
Encumbrances. Seller agrees that it will remain responsible at its sole cost
and expense for timely and prompt payment of all of its accounts payable.
Seller will also take such actions as are necessary to extinguish and obtain
releases of the Encumbrances on the Assets.
3.5 LEASES AND CONTRACTS. Seller is not in default under any of the
Contracts or Leases.
3.6 LITIGATION. There is no action, suit, proceeding or
investigation by or before any court or governmental authority including
before the Commission, pending or threatened against or involving Seller or
any of the Assets, nor to the best of Seller's knowledge is there any
reasonable basis therefor, other than those currently pending before the
Commission, or other criminal and other regulatory agency proceedings and
investigations described in SCHEDULE 3.6.
3.7 DISCLOSURE OF LIABILITIES; NO MATERIAL ADVERSE CHANGE.
As of the Balance Sheet Date, the Financial Statements
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accurately disclosed or otherwise reflected all existing liabilities of
Seller and of the Business of any nature, whether accrued, absolute,
contingent or otherwise. Since the Balance Sheet Date, there has not been
any material adverse change in the amount of Seller's liabilities or the
financial condition of the Business.
3.8 LABOR MATTERS. Seller is not a party to any collective
bargaining agreement covering its employees. Seller is in compliance with
all federal, state and local laws applicable to Seller respecting employment
practices, gaming licenses, terms and conditions of employment and wages and
hours, and has not and is not engaged in any unfair labor practice. No
employment claim or grievance as to Seller or the Business exists (including
without limitation any claim or discrimination on the basis of race, age or
sex) except as disclosed in Schedule 3.6. Seller has given all appropriate
notices to the employees of the Business under the WARN Act, 29 U.S.C.
Section 2101 ET SEQ., as amended.
3.9 ENVIRONMENTAL AND SAFETY. To Seller's best knowledge, there are
no past or existing conditions or activities relating to the receiving,
processing, use, treatment, storage, accumulation, generation, spillage,
migration, disposal, transportation or handling, or the release, emission, or
discharge of any Hazardous Materials (as hereinafter defined) which may form
the basis of any claim, action, suit, proceeding or investigation against or
relating to Seller, the Business or
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any property occupied by Seller and the Business for violation of any
Environmental Law (as hereinafter defined). To Seller's best knowledge,
there has been no disposal, release or threatened release of Hazardous
Materials on, from or under the Property, or any other real property which
could affect the Property. For purposes of this Agreement, the terms
"disposal" and "release," shall have the definitions assigned thereto under
Environmental Laws. Seller, the Business and the Property have at all times
during Seller's period of ownership and operation of the Business, been in
compliance with all federal, state and local laws, statutes, ordinances,
codes, regulations and orders relating to the receiving, handling, use,
storage, accumulation, transportation, generation, spillage, migration,
discharge, release and disposal of any flammable, combustible, explosive,
infectious, corrosive, caustic, irritant, strong sensitizing, carcinogenic or
radioactive materials, hazardous wastes, toxic substances, contaminants,
pollutants or related materials, including without limitation, substances
defined as "hazardous substances," "hazardous materials," or "toxic
substances" in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as amended, 42 U.S.C. Section 9601 ET SEQ.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801,
ET SEQ.; the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. Section 6901 ET SEQ.; the Clean Water Act, as amended, 33 U.S.C.
Section 466, ET SEQ., including the
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Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 ET
SEQ.; the Safe Drinking Water Act, as amended, 14 U.S.C. Section 1401, ET
SEQ.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601,
ET SEQ., as amended; the Federal Insecticide, Fungicide and Rodenticide Act,
as amended, 7 U.S.C. Section 136 ET SEQ.; the Atomic Energy Act of 1954, as
amended, 42 U.S.C. Section 2011 ET SEQ.; the Clean Air Act, as amended, 42
U.S.C. Section 7401 ET SEQ.; the Solid Waste Disposal Act, as amended, 42
U.S.C. Section 49 U.S.C. Section 3251 ET SEQ.; the Emergency Planning and
Community-Right-to-Know Act, as amended, 42 U.S.C. Section 11001 ET SEQ.; the
Occupational Safety and Health Act, 29 U.S.C. Section 651 ET SEQ.; and in the
regulations adopted and publications promulgated pursuant to said laws
(collectively, "Environmental Laws"). Such materials and substances are
collectively referred to herein as "Hazardous Materials."
3.10 COMPLIANCE WITH LAW. Seller and the Business are in compliance
with all applicable laws and regulations applicable to the Business except
with regard to the pending regulatory and criminal matters set forth in
Schedule 3.6. Seller has all material licenses, permits, orders or approvals
from governmental authorities required for the conduct of the Business,
including all gaming and liquor licenses, and is not in violation of any such
licenses, permits, orders and approvals, which are in full force and effect,
and no suspension or cancellation thereof has been threatened except as set
forth in Schedule 3.6.
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3.11 TAXES AND PARKING IMPACT FEES. Seller has timely filed within
the required time periods for filing or extensions all returns, estimates and
reports ("Returns") which it is required to file relating to any and all
taxes or other governmental charges, obligations or fees, including but not
limited to any income, business, payroll, occupation, franchise, gaming,
sales, or use tax and any related interest or penalties ("Taxes")
attributable to the properties and assets of Seller and the operations of the
Business, and such Returns are true and correct in all respects. Seller has
paid all Taxes, if any, shown to be due and payable on said Returns and has
withheld with respect to employees all federal, state and local income taxes,
FICA, FUTA and any other Taxes required to be withheld. The reserves and/or
accruals for Taxes on the books and records of Seller are sufficient to
discharge the Taxes for all periods (or the portion of any period) ending on
or prior to the Closing Date. There have been no previous, nor, to the
knowledge of the Seller, are there any pending or threatened assessments,
asserted deficiencies or claims for additional Taxes, nor to the best of
Seller's knowledge is there any basis therefor. There are currently no
Encumbrances and immediately following the Closing there will be no
Encumbrances relating or attributable to Taxes on the Assets. Seller has
paid all parking impact fees in connection with the Business and the
Property. All amounts required to be withheld by Seller as of the Closing
Date for Taxes and all parking impact fees have been or will be withheld
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and paid when due to the appropriate agency or governmental authority.
3.12 BROKER OR FINDER. Seller has not retained any broker or finder
in connection with the transactions contemplated by this Agreement.
3.13 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached hereto are true, complete and accurate in all respects.
3.14 DISCLOSURE. There is no fact known by Seller not disclosed in
writing to Purchaser by Seller that materially and adversely affects, or so
far as may reasonably be foreseen by Seller will materially and adversely
affect, the Assets or the condition of the Business.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser makes the following representations and warranties to Seller:
4.1 ORGANIZATION AND AUTHORITY. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Purchaser has full legal right, power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. Subject to Purchaser's receipt of approval from its Board of
Directors, as hereafter provided, the execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Purchaser.
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4.2 EFFECT OF AGREEMENT. The execution and delivery of this
Agreement by Purchaser does not, and the consummation of the transactions
contemplated hereby will not, conflict with or violate or constitute a
default under Purchaser's Articles of Incorporation or Bylaws, any law or
regulation applicable to Purchaser, or any agreement or instrument to which
Purchaser is a party or by which Purchaser is bound.
4.3 BROKER OR FINDER. Purchaser has not retained any broker or
finder in connection with the transactions contemplated by this Agreement.
5. COVENANTS OF SELLER.
Seller covenants and agrees as follows:
5.1 TAXES AND TAX RETURNS. Seller shall be responsible for and pay
when due all Taxes relating to or attributable to all periods ending on or
before the Closing Date. Seller shall be responsible for the timely filing
of all Returns required by law to be filed relating or attributable to all
periods ending on or before the Closing Date, and such Returns shall be true
and correct in all respects.
5.2 EMPLOYEES. Concurrent with and conditioned upon the Closing,
Seller shall terminate each of its employees as of the opening of business on
the Closing Date, and shall be solely responsible for any and all costs
associated with the employment and termination of such employees. Such costs
shall include without limitation, wages, bonuses, commissions, severance pay,
vacation pay, sick leave benefits, health, disability, life and
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other insurance, severance and any awards, judgments or penalties which might
be awarded to Seller's employees. Seller has made no representations to its
employees regarding continued employment or new employment with Purchaser.
Purchaser, however, will accept and review applications from such employees
for employment positions with Purchaser, and hire (or not) such applicants as
Purchaser deems appropriate in its sole discretion. Seller shall also be
responsible for giving all notices to employees of the Business under the
WARN Act.
5.3 CONDUCT OF BUSINESS. Until the Closing, Seller will (i) use its
best efforts to conduct the Business in a reasonable and prudent manner in
accordance with sound business practices, (ii) use its best efforts to
preserve its existing business organization and relations with employees,
suppliers, customers and others with whom it has business relationships,
(iii) use its best efforts to preserve, ensure and protect the properties of
the Business, (iv) not refinance or encumber any of the Assets, (v) pay when
due all amounts owing with respect to the Assets, including all amounts owing
under the Purchaser's Gaming Device Debt, (vi) perform and pay all amounts
owing under the Leases and the Contracts, and (vii) conduct the Business in
the ordinary course and in compliance with all applicable laws and
regulations. Seller will not, without the prior written consent of
Purchaser, make commitments to lease or purchase any equipment over
$5,000.00.
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5.4 SATISFACTION OF CONDITIONS. Seller shall in good faith proceed
to take or cause to be taken all actions within its power necessary to
satisfy all conditions to its obligations to close and consummate the
transactions contemplated by this Agreement.
6. CONDITIONS TO CLOSING.
Purchaser's obligation to consummate the transactions contemplated by
this Agreement is conditioned upon satisfaction of the following conditions,
which Purchaser shall reasonably determine in good faith have or have not
been satisfied, on or before the Closing Date. If, for any reason any of the
conditions are not so satisfied, then upon notice from Purchaser to Seller
and the Title Company, the Title Company will return the Earnest Money
Deposit, and both parties shall thereafter be relieved of any and all further
rights, duties, liability or obligations hereunder:
(a) DUE DILIGENCE. Purchaser shall have forty-five (45) days
from the Effective Date to complete to its satisfaction its due diligence
investigation of the Business, including conducting such tests, studies and
other investigations, receive approval of its Board of Directors and review
the Title Documents (as hereinafter defined), and such other matters as
Purchaser deems necessary in its sole discretion (the "Inspection Period").
In connection therewith, Seller shall furnish to Purchaser a current
commitment for a leasehold title insurance policy issued by Title Company,
together with copies of the exceptions to title within ten (10) days of the
Effective Date and a current
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ALTA/ASCM survey of the Property, within fifteen (15) days of the Effective
Date (collectively, "Title Documents"). Purchaser shall have the right to
inspect the Title Documents and shall give Seller written notice of
unmerchantability of title and any other unsatisfactory items revealed during
Purchaser's due diligence (whether or not the same relate to any title
matters), on or before the expiration of the Inspection Period ("Purchaser's
Notice"). If Seller does not cure (or address to Purchaser's satisfaction)
those items specified in Purchaser's Notice within five (5) calendar days of
Seller's receipt of Purchaser's Notice and Purchaser does not give written
notice to Seller of its intent to waive any matter so objected to within ten
(10) calendar days of the expiration of the Inspection Period, this Agreement
shall terminate and the Title Company shall return the Earnest Money Deposit
and all interest earned thereon to Purchaser.
(b) CONDITIONS PRECEDENT TO CLOSING. Prior to Closing,
Purchaser shall have obtained all approvals, consents and permits, and
entered into such third party agreements as Purchaser deems necessary in its
sole and absolute discretion (collectively, the "Approvals"), including, but
not limited to: (i) those permits and approvals as required by the
Commission, Historical Architectural Review Committee of the City of Black
Hawk, Gilpin County, the Colorado Department of Revenue, and all other state
and local regulatory authorities to expand Purchaser's existing casino to
physically connect with and
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include the Business and the Property and its operation of the Business and
to amend and/or expand its liquor license and gaming license and all other
required permits and licenses in connection therewith; (ii) those approvals
from, and third-party agreements with, the lessors under the Leases of real
property in such form and as to such matters as Purchaser in its sole
discretion determines is necessary, (iii) those approvals from, and
third-party agreement with, the lessors of Purchaser's existing casino
adjacent to the Property to authorize Purchaser to physically connect
Purchaser's existing casino with the Property so that the two operations are
conducted as one; (iv) those consents from and agreements with IGT and all
other lenders' agreements to permit the transfer of Purchaser's Gaming
Devices to it and to restructure or refinance the Purchaser's Gaming Device
Debt; and (v) those approvals required to be obtained from Purchaser's
bondholders and senior lenders to authorize the transaction contemplated by
this Agreement and to provide such financing as Purchaser may require.
(c) TAX CLEARANCES. Seller shall have received all
appropriate tax clearances so that Purchaser can be assured it will not be
involuntarily assuming any liabilities for Taxes of Seller.
(d) ABSENCE OF LITIGATION. No litigation or administrative
or similar proceeding shall have been brought or threatened to prevent,
impede or contest the contemplated transaction.
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(e) NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the Business, condition, or prospects of the
Business since the execution of this Agreement, including but not limited to
any defaults by Seller under the Leases or under the Purchaser's Gaming
Device Debt.
(f) TRUTH OF WARRANTIES. The representations and warranties
made by Seller in this Agreement shall be true when given and as of the
Closing.
7. INDEMNITY.
7.1 INDEMNITY OF PURCHASER. Seller shall indemnify, hold harmless
and defend Purchaser from and against any and all losses, costs, expenses,
liabilities, claims, demands and judgments of every nature (including
reasonable attorneys' fees and costs) (collectively, "Claims") arising out of
or in connection with: (i) all claims, losses, costs, expenses, agreements,
liabilities and obligations of Seller or of the Business arising from the
operation of the Business prior to the Closing Date, whether or not disclosed
in this Agreement or on the exhibits or schedules hereto; (ii) the breach by
Seller of any warranty or representation made by Seller pursuant to this
Agreement; (iii) any pending criminal or regulatory agency investigation,
charges or proceedings involving the Seller, the Business or the Premises;
(iv) any failure of Seller to comply with the WARN Act; (v) all claims by
employees of Seller or the Business arising in connection with their
employment in the Business or by Seller; (vi) failure to pay and satisfy in
full
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all Seller's accounts payable as and when they become due; or (vii) the
non-performance, partial or total, of any covenant made by Seller pursuant to
this Agreement.
7.2 INDEMNITY OF SELLER. Purchaser shall indemnify and hold Seller
harmless from and against any and all Claims arising out of or in connection
with: (i) the breach by Purchaser of any warranty or representation made by
Purchaser pursuant to this Agreement; or (ii) the non-performance, partial or
total, of any covenant made by Purchaser pursuant to this Agreement.
7.3 NOTICE OF CLAIMS -- PARTICIPATION IN THIRD PARTY SUITS. Any
party making a claim for indemnity under this Section 7 ("Indemnitee")
against the other party ("Indemnitor") shall give notice of such claim in
writing, which notice shall state in general terms the facts upon which
Indemnitee makes such claim for indemnification together with reasonable
documentation of such claim. In the event of any claim or demand asserted
against Indemnitee by a third party upon which Indemnitee may claim
indemnification under this Section 7, Indemnitee shall give Indemnitor
written notice within 15 days after receipt thereof indicating whether
Indemnitee intends to conduct the defense of such claim or demand.
Indemnitor shall have the right, at such Indemnitor's own expense, to
participate in such defense, by written notice given to Indemnitee within 15
days from the date of Indemnitee's notice of such claim. If Indemnitee
conducts the defense and Indemnitor does not participate in such defense,
Indemnitee shall have the right to fully control and to settle
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the proceeding. If Indemnitor elects to participate in such defense,
Indemnitee shall nonetheless control the proceeding, but shall not settle the
same without the consent of Indemnitor, which consent shall not be
unreasonably withheld. If Indemnitee elects not to conduct the defense,
Indemnitor shall conduct such defense and Indemnitor shall not settle the
same without the consent of Indemnitee, which consent shall not be
unreasonably withheld.
8. DEFAULT.
8.1 PURCHASER'S DEFAULT. In the event of Purchaser's default, the
Earnest Money Deposit shall be forfeited by Purchaser and retained on behalf
of Seller and both parties shall thereafter be released from all obligations
hereunder. It is agreed that the Earnest Money Deposit is liquidated damages
since actual damages would be difficult if not impossible to ascertain and
the Earnest Money Deposit is Seller's sole and exclusive remedy for
Purchaser's default hereunder.
8.2 SELLER'S DEFAULT. If Seller is in default, Purchaser may elect
to treat this contract as cancelled, in which case all payments and things of
value received hereunder shall be returned and Purchaser may receive such
damages as may be proper or Purchaser may elect to treat this Agreement as
being in full force and effect and Purchaser shall have the right to specific
performance or damages, or both.
9. MISCELLANEOUS PROVISIONS.
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9.1 CONFIDENTIALITY. The parties acknowledge and agree that as to
the Business there exists proprietary and confidential information, including
but not limited to information concerning employees; supplier lists; customer
lists; information concerning the particular needs, requirements and desires
of customers; product information; market and industry information; pricing
and cost information; trade secrets; financial information including
projections, forecasts and budgets; and other confidential knowledge and
proprietary information, which derives economic value, actual or potential,
from not being generally known to the public (the "Confidential
Information"). Seller agrees to treat such Confidential Information as
confidential and proprietary, whether before or after the Closing, and to not
use or disclose the Confidential Information to any firm or entity
whatsoever. In the event that the transactions contemplated by this
Agreement are not consummated, Purchaser agrees to similarly treat the
Confidential Information and to not use or disclose the Confidential
Information to any person or entity except Purchaser's duly authorized
representatives for any purpose or reason whatsoever.
9.2 ASSIGNMENT. Purchaser shall have the right to assign this
Agreement to an affiliate of Purchaser.
9.3 EXPENSES; TAXES. Each party shall bear its own expenses,
including attorneys', accountants', brokers' and finders' fees incident to
the preparation, negotiation, execution and delivery of this Agreement and
the performance of the
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transactions contemplated hereby. Purchaser shall pay the sales or use taxes
which are due as a result of the transactions contemplated hereby.
9.4 SCHEDULES AND EXHIBITS. All references in this Agreement to
schedules and exhibits refer to those schedules and exhibits which are
attached hereto, all of which are made a part hereof and incorporated herein
by reference.
9.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.6 NOTICES. All notices which are required or may be given pursuant
to the terms of this Agreement shall be in writing and shall be delivered
personally or by registered or certified mail, postage prepaid, or sent by
overnight delivery service as follows:
IF TO PURCHASER: COLORADO GAMING & ENTERTAINMENT CO.
12596 W. BAYAUD AVENUE, SUITE 450
LAKEWOOD, COLORADO 80228
ATTENTION: ALAN L. MAYER, ESQ.
WITH A COPY TO: SANDY G. NYHOLM, ESQ.
ISAACSON, ROSENBAUM, WOODS & LEVY, P.C.
633 17TH STREET, SUITE 2200
DENVER, COLORADO 80202
IF TO SELLER: PIONEER ASSOCIATES LIMITED
LIABILITY COMPANY
125 GREGORY
P.O. BOX 484
BLACK HAWK, COLORADO 80422
ATTENTION:MR. DAVID DOUGLASS
WITH A COPY TO: ROBERT FRENCH, ESQ.
FRENCH, WEST, BROWN & HUNTLEY
P.O. BOX 588
BRECKENRIDGE, COLORADO
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AND TO: TAD GOODENBOUR
GRANT THORTON LLC
90 S. CASCADE # 1200
COLORADO SPRINGS, COLORADO 80903
Any of the addressees set forth above may be changed from time to time by
written notice from the party requesting the change. Such notices and other
communications shall for all purposes of this Agreement be treated as being
effective immediately if delivered personally, or three (3) days after
mailing by certified or registered mail, return receipt requested, first
class postage prepaid, or one (1) day after deposit for delivery by an
overnight delivery service.
9.7 PUBLICITY. No public announcement of the transactions
contemplated hereby prior to the Closing Date or the terms hereof shall be
made by any party to this Agreement at any time without the prior written
consent of the other parties, such consent not to be unreasonably withheld or
delayed unless any announcement or notification shall be required by law in
the opinion of counsel to the Purchaser or counsel to the Seller.
9.8 AMENDMENTS AND WAIVERS. Any amendment or waiver of any provision
of this Agreement shall not be effective unless in writing and signed by the
party against whom enforcement of such amendment or waiver is sought. No
failure or delay by either party in exercising any right, power or remedy
with respect to any of the provisions of this Agreement shall operate as a
waiver of such provisions with respect to such occurrences.
9.9 GOVERNING LAW; MEDIATION; ARBITRATION. This Agreement shall be
governed by and construed in accordance with Colorado
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law as applied to contracts entirely entered into, executed and performed
within said state. In the event of any controversy or claim between the
parties arising out of this Agreement and the parties being unable to resolve
the dispute after good faith discussion and negotiation between themselves
(with or without the assistance of counsel as they deem appropriate), the
parties agree to submit such controversy or claim to an independent mediator
to mediate such controversy or claim and structure a mutually satisfactory
resolution of the same. In the event that the parties are unable to
structure such a mutually satisfactory resolution through mediation, the
parties agree to submit the matter to final and binding arbitration by the
American Arbitration Association under the Commercial Arbitration Rules. The
arbitrator shall be appointed in accordance with the Commercial Arbitration
Rules. Such arbitration shall be the sole remedy available to the parties in
the event of such controversy or claim. The arbitration shall be held in
Denver, Colorado. The results of the arbitration shall be final and binding
on the parties. The prevailing party in the arbitration shall be entitled to
receive from the other party all fees, costs and expenses of counsel in such
arbitration and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
9.10 SECTION HEADINGS. Section headings are for the convenience of
the parties and shall not be used in the
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interpretation or construction of any provision of this Agreement.
9.11 COOPERATION. The parties agree that at any time and from time to
time after the execution of this Agreement, whether before or after the
Closing, they will, upon the request of any of the other, execute and deliver
such further documents and do such further acts and things as are reasonably
requested in order to effect fully the purposes of this Agreement.
9.12 ATTORNEYS' FEES. In the event of any dispute between the parties
arising from or relating to this Agreement, the prevailing party in such
dispute shall be entitled to recover its reasonable attorneys' fees and
costs, in addition to all other recovery and relief.
9.13 PARTIAL INVALIDITY. If any provision of this Agreement is held by
a court or other tribunal to be prohibited, invalid, void or unenforceable, such
provision shall be ineffective only to the extent of such prohibition and shall
not affect the validity of the remaining provisions hereof.
9.14 ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or written, between the parties hereto with respect
to the subject matter hereof, including without limitation the Letter of
Intent, and contains all of the covenants and agreements between the parties
with respect to such subject matter.
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9.15 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute a single instrument. This Agreement may be executed with
telecopied signatures, which will have the same legal effect as original
signatures.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below to be effective as of the date first above written.
SELLER:
Date: 12-10-97 PIONEER ASSOCIATES LIMITED
----------------------------- LIABILITY COMPANY, a Nevada
Limited Liability Company
By: /s/ David Douglas
---------------------------
Title: President
------------------------
PURCHASER:
Date: COLORADO GAMING &
----------------------------- ENTERTAINMENT CO., a Delaware
corporation
By: /s/ Stephen J. Szapor, Jr.
---------------------------
Title: President
------------------------
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EXHIBIT 4.5
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") dated as of
January 23, 1998 by and between COLORADO GAMING & ENTERTAINMENT CO., a
Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST
COMPANY, as successor in interest to Fleet National Bank, as Trustee (the
"Trustee").
WITNESSETH:
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture dated as of June 7, 1996 (the "Indenture") providing
for the issuance of the Company's 12% Senior Secured Pay-In-Kind Notes due
2003 (the "Notes"); and
WHEREAS, Section 802 of the Indenture authorizes the Company and the
Trustee, with the written consent of the Holders of a majority in principal
amount of the Outstanding Notes, to, among other things, amend or waive
certain provisions of the Indenture by supplemental indenture; and
WHEREAS, all acts and proceedings required by law, by the Indenture and
by the Certificate of Incorporation of the Company to constitute this
Supplemental Indenture a valid and binding agreement for the uses and
purposes herein set forth, in accordance with its terms, have been done and
taken, and the execution and delivery of this Supplemental Indenture have
been in all respects duly authorized by the Company; and
WHEREAS, the Company has obtained the unrevoked consent of the Holders
of not less than a majority in aggregate principal amount of the Outstanding
Notes as of October 7, 1997, to the adoption of the Waivers and Amendments
provided for in Sections 1, 2, and 3 herein; and
WHEREAS, the foregoing recitals are made as representations or
statements of fact by the Company and not by the Trustee;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company covenants and agrees with the Trustee, for the equal and
proportionate benefit of all present and future Holders of Notes, as follows:
SECTION 1. AMENDMENT TO DEFINITION OF "BANK FACILITY" IN SECTION 105.
The definition of the term "Bank Facility" defined in Section 105 of the
Indenture is hereby amended and restated in its entirety as follows:
"BANK FACILITY" means any revolving credit or term loan facility, any
facility providing purchase money financing for the acquisition of
equipment and any
<PAGE>
facility providing for the creation of Capitalized Lease Obligations
entered into between the Company and/or any Company Subsidiary and
Ladbroke Racing Corporation or an Affiliate thereof, one or more financial
institutions, institutional lenders, financial companies, equipment
lessors or equipment manufacturers or vendors providing financing for
working capital or other corporate purposes on a secured or unsecured
basis, whether now existing or hereafter created and whether replacing or
refinancing any Bank Facility.
SECTION 2. PARTIAL WAIVER OF SECTION 913. Notwithstanding anything
contained in Section 913 of the Indenture to the contrary, the Company is
hereby expressly permitted to invest up to $3,500,000 in Colorado Charity
Gaming Inc. (hereinafter "Diamond Sub"), a wholly owned subsidiary of the
Company, and Diamond Sub is hereby expressly permitted to invest up to
$3,500,000 in Diamond Gaming of Ontario Inc. (hereinafter "Diamond Gaming"),
an Ontario corporation, and all such contrary provisions of Section 913 are
hereby waived to the extent necessary to permit the foregoing investments.
SECTION 3. PARTIAL WAIVER OF SECTION 919. The provisions of Section
919 of the Indenture are hereby waived to the extent necessary to permit the
Company and Diamond Sub to own, indirectly and directly, respectively less
than 100% of the outstanding capital stock of Diamond Gaming.
SECTION 4. For all other purposes of this Supplemental Indenture,
except as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same
meanings as corresponding terms and expressions used in the Indenture, and
(ii) the words "herein," "hereof" and "hereby" and other words of similar
import used in this Supplemental Indenture refer to the amendment of the
Indenture as a whole and not to any particular Section hereof.
SECTION 5. The Trustee accepts the waivers and amendment effected by
this Supplemental Indenture and agrees to execute the trust created by the
Indenture as hereby amended, but only upon the terms and conditions set forth
in the Indenture, including the terms and provisions defining and limiting
the liabilities and responsibilities of the Trustee, which terms and
provisions shall in like manner define and limit its liabilities and
responsibilities in the performance of the trust created by the Indenture as
hereby amended, and, without limiting the generality of the foregoing, the
Trustee has no responsibility for the correctness of the recitals of fact
herein contained which shall be taken as the statements of the Company, and
makes no representations as to the validity or sufficiency of this
Supplemental Indenture and shall incur no liability or responsibility in
respect of the validity thereof.
SECTION 6. Except as expressly amended, the Indenture and the Notes
issued thereunder are in all respects ratified and confirmed and all the
terms, conditions and provisions thereof shall remain in full force and
effect.
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SECTION 7. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Notes heretofore or hereafter
authenticated and delivered shall be bound hereby.
SECTION 8. This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original, and all such counterparts shall together constitute one and the
same instrument.
SECTION 9. This Supplemental Indenture shall be construed in accordance
with and governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
COLORADO GAMING & ENTERTAINMENT CO.
By: /s/ Stephen J. Szapor, Jr.
--------------------------------------------
Name: Stephen J. Szapor, Jr.
Title: President and Chief Executive Officer
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: /s/ Steve Cimilori
--------------------------------------------
Name: Steve Cimilori
---------------------------------------
Title: Vice President
--------------------------------------
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
March 24, 1997, by and between Robert J. Stephens (the "Executive") and Colorado
Gaming & Entertainment Co., a Delaware corporation (the "Company").
R E C I T A L S:
A. The Company desires to retain the services of the Executive as its
Vice President of Finance, and the Executive is willing to serve in such
capacity on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, the Company and the Executive do hereby agree as
follows:
1. EMPLOYMENT AND DUTIES. On the terms and subject to the conditions set
forth in this Agreement, the Company agrees to employ the Executive during the
Employment Period (as hereinafter defined) as its Vice President of Finance to
perform such duties and responsibilities as are customarily assigned to such
position and such other duties and responsibilities not inconsistent therewith
as may be assigned to the Executive from time to time by the President of the
Company.
2. PERFORMANCE.
(a) GENERAL. The Executive accepts the employment described in
SECTION 1 of this Agreement and agrees to devote substantially all of his
working time and efforts to the faithful and diligent performance of the
services described therein; provided, however, that the Executive may
participate in charitable activities and may, subject to SECTION 15 hereof,
participate in holding investments and in businesses owned by members of the
Executive's family, provided that such participation does not have an adverse
impact on the Executive's performance of his duties for the Company.
(b) CONDUCT. The Executive agrees that he will conduct his
activities, and will cause any activities conducted on his behalf, to be
conducted in a lawful manner and specifically will not engage in the following
transactions:
(i) make payment or offers of payment, directly or indirectly,
to any domestic or foreign government official or employee in order to
obtain business, retain business or direct business to others, or for the
purpose of inducing such government official or employee to fail to perform
or to perform improperly his official functions;
(ii) receive, pay or offer anything of value, directly or
indirectly, from or to any private party in the form of a commercial bribe,
influence payment or kickback for any such purpose; or
(iii) use, directly or indirectly, any funds or other assets
of the Company for any unlawful purpose, including, without limitation,
political contributions in violation of applicable law.
3. TERM. The term of employment under this Agreement shall commence on
March 24, 1997 (the "Commencement Date") and shall remain in effect for a period
ending on June 7, 1999, (such date and the last day of any extended term of
employment pursuant to this SECTION 3 being referred to as the "Termination
Date"), unless sooner terminated hereunder (the "Employment Period"). The
Employment Period shall be automatically renewed on the then current Termination
Date for successive one (1) year periods unless terminated by either the
Executive or the Company by giving written notice of termination ninety (90)
days in advance of the then current Termination Date.
<PAGE>
4. COMPENSATION.
(a) BASE SALARY. As base salary hereunder ("Base Salary"), the
Company agrees to pay, during the Employment Period, a salary at an initial rate
of Eighty Thousand Dollars ($80,000) per annum, payable in the manner and
frequency in which the Company's payroll is customarily paid. The Company and
the Executive agree that the Base Salary shall be subject to review at least
annually, but may not be reduced without the Executive's prior written consent.
(b) MANAGEMENT INCENTIVE PLANS. The Executive shall be a participant
in the Company's previously adopted (i) Cash Bonus Plan, to such degree and at
such level as approved by the Compensation Committee of the Board of Directors
in their sole discretion, and (ii) the Management Incentive and Non-Employee
Director Stock Plan at a level such that the Executive will be entitled to an
award of 6.67% of the shares of stock of the Company subject to award under such
plan.
(c) VACATION AND SICK LEAVE. The Executive shall be entitled to
vacation and sick leave in accordance with the Company's policies for senior
executive employees.
(d) DISABILITY. If at any time during the Employment Period the
Executive is substantially unable to perform his duties hereunder by reason of
illness, accident or other disability (as confirmed by competent medical
evidence) ("Temporary Disability"), the Executive shall continue to be treated
as an employee hereunder for all purposes and be entitled to receive periodic
payments of Base Salary to which he would otherwise be entitled pursuant to
SECTION 4(a) of this Agreement for at least the lesser of the balance of the
Employment Period or the period of such Temporary Disability. If such
disability is expected to last for a period of more than six (6) months (as
confirmed by competent medical evidence) ("Permanent Disability"), the Executive
shall continue to be treated as an employee hereunder for all purposes and be
entitled to receive periodic payments of Base Salary to which he would otherwise
be entitled pursuant to SECTION 4(a) of this Agreement for at least the lesser
of the remaining balance of the Employment Period or six (6) months. Any
payments under any long term disability plan maintained by the Company shall be
an offset against any payments to the Executive hereunder.
(e) DEATH. In the event of the death of the Executive during the
Employment Period, his designated successors shall be entitled to receive, as a
survivor's benefit, the periodic payments of Base Salary that would otherwise be
payable to the Executive pursuant to SECTION 4(a) of this Agreement by reason of
his employment for the lesser of the balance of the Employment Period or six (6)
weeks. In the event of the Executive's death, the Company will use its best
efforts to advance up to three (3) months Base Salary to the Executive's
beneficiaries of any life insurance provided pursuant to SECTION 4(f) hereof,
provided that such advances are to be repaid by such beneficiaries upon
receiving such insurance proceeds.
(f) OTHER BENEFITS.
(i) GENERAL. Except as otherwise specifically provided herein,
during the Employment Period, the Employee shall be eligible for all non-wage
benefits the Company provides generally for its senior executives, including
retirement, medical, life insurance and long term disability benefits. The
Company reserves the right to alter, amend or terminate its standard benefit
programs for senior executives and to alter or amend coverages thereunder.
(ii) LEGAL COUNSEL. During the term of the Agreement, the
Company agrees to pay for the reasonable costs of the Executive's legal counsel
in circumstances where legal representation for the Executive is necessary or
appropriate with regard to actions taken by the Executive in his capacity as an
officer of the Company.
5. BUSINESS EXPENSES--REIMBURSEMENT. The Company shall reimburse the
Executive for the reasonable, ordinary and necessary business expenses incurred
by him in connection with the performance of his duties hereunder, including,
but not limited to, ordinary and necessary travel expenses and entertainment
expenses and car phone expenses. In addition, the Company shall reimburse the
Executive the full cost of obtaining and
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continuing any licenses which must be obtained or continued by the Executive
due to his employment by the Company. The Executive shall provide the Company
with an accounting of his expenses, which accounting shall clearly reflect
which expenses are reimbursable by the Company. The Executive shall provide
the Company with such other supporting documentation and other substantiation
of reimbursable expenses as will conform to Internal Revenue Service or other
requirements. All such reimbursements shall be payable by the Company to the
Executive within a reasonable time after receipt by the Company of appropriate
documentation therefor; provided, however, the Company shall have no
obligation to reimburse any expense for which appropriate and customary
back-up documentation is not provided within sixty (60) days following
accrual of the obligation in question.
6. TERMINATION.
(a) TERMINATION FOR JUST CAUSE. The Company shall have the option to
terminate the employment of the Executive hereunder, effective upon the
effective date set forth in written notice of such termination to the Executive,
for Just Cause. For purposes of this Agreement, the term "Just Cause" shall
mean the occurrence of any one or more of the following events: (i) the material
breach by the Executive of his covenants under this Agreement, and the failure
by the Executive to promptly cure the breach or failure of performance upon
written notice thereof from the Company; (ii) the Executive's willful refusal to
perform, or his substantial neglect of, the duties assigned to the Executive
pursuant to SECTION 1 hereof, and the failure by the Executive to promptly cure
the breach or failure of performance upon written notice thereof from the
Company; (iii) the commission by the Executive of theft or embezzlement of
Company property or other acts of dishonesty relating to his employment; (iv)
the commission by the Executive of a crime resulting in injury to the business,
property or reputation of the Company or any affiliate of the Company or
commission of other significant activities harmful to the business or reputation
of the Company or any affiliate of the Company; (v) any significant violation of
any statutory or common law duty of loyalty to the Company; (vi) failure of the
Executive to comply with any provision of the gaming or liquor laws of Colorado
or any other jurisdiction in which the Company or any affiliate conducts
operations or is applying for a gaming or liquor license or failure of the
Executive to comply with any rule or regulation of any administrative body
having jurisdiction, which may materially and negatively affect the gaming or
liquor license of the Executive or the Company or any affiliate of the Company;
or (vii) the failure of the Executive to obtain or retain any permit, license or
approval required by any governmental authority and such failure is not the
result of any negligence or omission by the Company. A termination of
employment of the Executive for Just Cause shall be effectuated by giving the
Executive written notice of the termination setting forth in reasonable detail
the specific conduct of the Executive that constitutes Just Cause and the
specific provision(s) of this Agreement on which the Company relies, and shall
be given within ninety (90) days of the date on which the Company first acquires
knowledge of occurrence of the conduct giving rise to the Just Cause. Upon
termination of the Executive for Just Cause, the Company shall pay the Executive
the unpaid portion of Base Salary attributable to periods up to and including
the effective date of such termination and any other amounts to which the
Executive may be entitled under any benefit plan maintained by the Company or as
otherwise may be provided by law, and the Executive shall not be entitled to any
severance benefits pursuant to SECTION 10 hereof and all obligations of the
Company hereunder shall cease.
(b) TERMINATION UPON DEATH. This Agreement shall automatically
terminate upon the death of the Executive and, other than as may be provided in
SECTION 4 hereof or under any benefit plan maintained by the Company or as
otherwise may be provided by law, the Company shall have no obligation to make,
and the Executive's estate or successors shall have no right to receive, any
further compensation or payments of any kind.
(c) TERMINATION UPON DISABILITY. The Company may terminate this
Agreement upon the Permanent Disability of the Executive at the end of the
period for which the Executive is entitled to receive Base Salary pursuant to
SECTION 4(d) hereof. Thereafter, the Company shall be obligated to pay only the
amounts set forth in SECTION 4 of this Agreement or as to which the Executive
may be entitled under any benefit plan maintained by the Company or as may
otherwise be provided by law.
(d) TERMINATION WITHOUT JUST CAUSE. The Company shall have the
option to terminate the Employment Period at any time by thirty (30) days prior
written notice to the Executive. If none of the circumstances allowing
termination pursuant to SECTION 6(a), (b) AND (c) exist on the date such notice
is given, such
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termination shall be deemed to have been a termination without Just Cause and
the Executive shall be entitled to the unpaid portion of his Base Salary
attributable to periods up to and including the effective date of such
termination, to any other amounts to which the Executive may be entitled
under any benefit plan maintained by the Company or as otherwise may be
provided by law, and the Executive shall be entitled to receive the severance
benefits described in SECTION 10 hereof.
7. TERMINATION BY EXECUTIVE.
(a) TERMINATION FOR GOOD REASON. The Executive shall have the option
to terminate his employment with the Company, effective upon the effective date
set forth in written notice of such termination to the Company, for "Good
Reason". For purposes of this Agreement, Good Reason shall mean the occurrence
of any one or more of the following events: (i) the assignment to the
Executive of any duties inconsistent in any material respect with the duties
described in SECTION 1 hereof, or any other action by the Company that results
in an intentional diminution of the Executive's position, authority, duties or
responsibilities, and (ii) any material breach of this Agreement by the Company
that either is not taken in good faith or is not remedied by the Company
promptly after receipt of notice thereof from the Executive. A Termination of
employment by the Executive for Good Reason shall be effectuated by giving the
Company written notice of the termination, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies, and shall
be given within sixty (60) days of the event giving rise to the Good Reason. A
termination of employment by the Executive for Good Reason shall be effective on
the fifth business day following the date when such notice is given, unless the
notice sets forth an alternate date (which date shall in no event be later than
thirty (30) days after the notice is given). Upon termination by the Executive
for Good Reason, the Executive shall be entitled to the unpaid portion of Base
Salary attributable to periods up to and including the effective date of such
termination, to any other amounts to which the Executive may be entitled under
any benefit plan maintained by the Company or as otherwise may be provided by
law, and the Executive shall be entitled to receive the severance benefits
described in SECTION 10 hereof.
(b) TERMINATION WITHOUT GOOD REASON. The Executive shall have the
option to terminate his employment with the Company at any time after the first
anniversary of this Agreement, upon thirty (30) days prior written notice to the
Company. If none of the circumstances constituting Good Reason exists on the
date such notice is given, the Executive shall be entitled to the unpaid portion
of his Base Salary attributable to periods up to and including the effective
date of such termination and any other amounts to which the Executive may be
entitled under any benefit plan maintained by the Company or as otherwise may be
provided by law, and the Executive shall not be entitled to any severance
benefits pursuant to SECTION 10 hereof.
8. SURRENDER OF PROPERTIES. Upon termination of the Executive's
employment with the Company, regardless of the cause therefor, the Executive
shall promptly surrender to the Company all property provided him by the Company
for use in relation to his employment, and, in addition, the employee shall
surrender to the Company any and all sales materials, lists of customers and
prospective customers, price lists, files, records, models, or other materials
and information of or pertaining to the Company or its customers or prospective
customers or the products, business and operations of the Company.
9. CONTINUATION OF INSURANCE. If, following notice of termination given
by the Company pursuant to SECTION 6(d) of this Agreement, the Executive is
unable to arrange alternate employment before the stated effective date of such
termination, the Company shall, at the Company's expense, continue the
Executive's medical, disability and life insurance coverage for a period
extending one hundred and twenty (120) days following the effective date of
termination or until the Executive secures alternate employment, whichever date
occurs first, and such period shall be credited against any period for which the
Company is otherwise obligated to make such benefits available to the Executive
under Section 480-B of the Internal Revenue Code of 1986, as amended, or any
similar provision of law.
10. SEVERANCE PAY. Notwithstanding any other provision of this
Agreement, if the Employment Period is terminated by the Company or any
successor of the Company pursuant to SECTION 6(d) hereof, or by the Executive
pursuant to SECTION 7(a) hereof, the Company shall pay the Executive a
severance
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benefit equal to the Executive's Base Salary for the remaining Employment
Period at the annual rate in effect immediately prior to such termination.
Any payment required pursuant to this SECTION 10 shall be made within thirty
(30) days following the termination date.
11. INDEMNIFICATION. The Executive shall indemnify the Company and hold
it harmless from and against any and all loss, damage and expense (including
reasonable attorneys' fees and disbursements) arising out of any claim or threat
of claim against the Executive or the Company resulting from or in any way
related to the Executive's relationship with any previous employer, including
any claim of breach of contract, interference with contract or breach or
impairment of a real or claimed legally protected right of such previous
employer.
12. CONFIDENTIALITY OF INFORMATION; DUTY OF NON-DISCLOSURE. The
Executive acknowledges and agrees that his employment by the Company under this
Agreement necessarily involves his understanding of, and access to, certain
trade secrets and confidential information pertaining to the business of the
Company. Accordingly, the Executive agrees that except as may be required in
the reasonable performance of his duties hereunder, he will not, directly or
indirectly, without the express prior written consent of the Company, disclose
to or use for the benefit of any person, corporation or other entity, or for
himself, any and all files, trade secrets or other confidential information
concerning the internal affairs of the Company, including, but not limited to,
information pertaining to its clients, services, products, earnings, finances,
operations, methods or other activities; provided, however, that the foregoing
shall not apply to information which is of public record or is generally known,
disclosed or available to the general public or the industry generally or was
known by the Executive prior to his employment under this Agreement. Further,
the Executive agrees that he shall not, directly or indirectly, remove or
retain, without the express prior written consent of the Company, and upon
termination of this Agreement for any reason shall return to the Company, any
figures, calculations, letters, papers, records, computer disks, computer
print-outs, lists, documents, instruments, drawings, designs, programs,
brochures, sales literature, or any copies thereof, or any information or
instruments derived therefrom, or any other similar information of any type
or description, however such information might be obtained or recorded,
arising out of or in any way relating to the business of the Company or
obtained as a result of his employment by the Company. The Executive
acknowledges that all of the foregoing are proprietary information, and are
the exclusive property of the Company. The covenants contained in this
SECTION 12 shall survive the termination of this Agreement.
13. ENFORCEMENT.
(a) Upon presentation of a claim or claims (collectively, "Claims")
arising out of or relating to this Agreement, or the breach hereof, by an
aggrieved party, the other party shall have thirty (30) days in which to make
such inquiries of the aggrieved party and conduct such investigations as it
believes reasonably necessary to determine the validity of the Claims. At the
end of such period of investigation, the complained of party shall either pay
the amount of the Claims or the arbitration proceeding described immediately
below shall be invoked.
(b) In the event that the Claims are not settled by the procedure set
forth immediately above, the Claims shall be submitted to arbitration conducted
in accordance with the Commercial Arbitration Rules ("Rules") of the American
Arbitration Association ("AAA") except as amplified or otherwise varied hereby.
(c) The parties shall submit the dispute to the Denver regional
office of the AAA and the situs of the arbitration shall be Denver County,
Colorado.
(d) The arbitration shall be conducted by a single arbitrator. The
parties shall appoint the single arbitrator to arbitrate the dispute within ten
(10) business days of the submission of the dispute. In the absence of
agreement as to the identity of the single arbitrator to arbitrate the dispute
within such time, the AAA is authorized to appoint an arbitrator in accordance
with the Rules, except that the arbitrator shall have as his principal place of
business the Denver metropolitan area.
(e) The single arbitrator selected by the AAA shall be an attorney or
accountant licensed to practice by the State of Colorado.
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(f) Notwithstanding anything in the Rules to the contrary, the
arbitration award shall be made in accordance with the following procedure:
Each party shall, at the commencement of the arbitration hearing, submit an
initial statement of the amount each party proposes be selected by the
arbitrator as the arbitration award ("Settlement Amount"). During the course of
the arbitration, each party may vary its proposed Settlement Amount. At the end
of the arbitration hearing, each party shall submit to the arbitrator its final
Settlement Amount ("Final Settlement Amount"), and the arbitrator shall be
required to select either one or the other Final Settlement Amounts as the
arbitration award without discretion to select any other amount as the award.
The arbitration award shall be paid within ten (10) business days after the
award has been made, together with interest from the date of award at the rate
of eight percent (8%). Judgment upon the award may be entered in any federal or
state court having jurisdiction over the parties.
14. COSTS OF ENFORCEMENT. In the event of any suit or proceeding seeking
to enforce the terms, covenants or conditions of this Agreement, the prevailing
party shall, in addition to all other remedies and relief that may be available
under this Agreement or applicable law, recover his or its reasonable attorneys'
fees and costs as shall be determined and awarded by the arbitrator or court, as
the case may be.
15. COMPETING INTEREST. During the Employment Period, the Executive shall
not, without the prior written consent of the Company, engage in any other
business activity that competes with or is of a nature similar to that of the
Company for gain, profit or other pecuniary advantage or engage in or in any
manner be connected or concerned, directly or indirectly, whether as an officer,
director, stockholder, partner, owner, executive, consultant, creditor or
otherwise, with the operation, management or conduct of any business that
competes with or is of a nature similar to that of the Company; provided,
however, that this SECTION 15 shall not prohibit the Executive from owning up to
one percent (1%) of the publicly traded shares of any entity.
16. NONCOMPETE CLAUSE. If the Employment Period is terminated by the
Company for Just Cause pursuant to SECTION 6(a) hereof, or voluntarily by the
Executive pursuant to SECTION 7(b) hereof, the Executive will be prohibited from
accepting employment with, and shall not in any manner be connected or
concerned, whether directly or indirectly, whether as an officer, director,
stockholder, partner, owner, executive, consultant, creditor or otherwise, with
the operation, management or conduct of any business having gaming operations in
any state or other jurisdiction in which the Company has gaming operations
immediately prior to the date of the Executive's termination of employment, for
a period beginning on the date of the Executive's termination of employment and
ending on the then current Termination Date.
17. GENERAL PROVISIONS.
(a) GOODWILL. The Company has invested substantial time and money in
the development of its products, services, territories, advertising and
marketing thereof, soliciting clients and creating goodwill. By accepting
employment with the Company, the Executive acknowledges that the customers are
the customers of the Company, and that any goodwill created by the Executive
belongs to and shall inure to the benefit of the Company.
(b) NOTICES. Any notice required or permitted hereunder shall be
made in writing (i) either by actual delivery of the notice into the hands of
the party thereunder entitled, or (ii) by the mailing of the notice in the
United States mail, certified or registered mail, return receipt requested, all
postage prepaid and addressed to the party to whom the notice is to be given at
the party's respective address set forth below, or such other address as the
parties may from time to time designate by written notice as herein provided.
As addressed to the Company:
Colorado Gaming & Entertainment Co.
12596 West Bayaud Avenue, Suite 450
Lakewood, Colorado 80228
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With a copy to:
Leboeuf, Lamb, Greene & MacRae L.L.P.
633 Seventeenth Street, Suite 2800
Denver, Colorado 80202
Attention: Thomas J. Moore
As addressed to the Executive:
Robert J. Stephens
1312 So. Gaylord
Denver, Colorado 80210
The notice shall be deemed to be received in case (i) on the date of its actual
receipt by the party entitled thereto, and in case (ii) on the third (3rd)
business day following the date of its mailing.
(c) AMENDMENT AND WAIVER. No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing and
signed by an officer of the Company duly authorized by the Board of Directors or
upon the Executive unless made in writing and signed by him. The waiver by the
Company of the breach of any provision of this Agreement by the Executive shall
not operate or be construed as a waiver of any subsequent breach by him.
(d) ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties with respect to the Executive's duties and
compensation as an executive of the Company, and there are no representations,
warranties, agreements or commitments between the parties hereto with respect to
his employment except as set forth herein.
(e) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the State
of Colorado.
(f) SEVERABILITY. If any provision of this Agreement shall, for any
reason, be held unenforceable, such provision shall be severed from this
Agreement unless, as a result of such severance, the Agreement fails to reflect
the basic intent of the parties. If the Agreement continues to reflect the
basic intent of the parties, then the invalidity of such specific provision
shall not affect the enforceability of any other provision herein, and the
remaining provisions shall remain in full force and effect.
(g) ASSIGNMENT. The Executive may not under any circumstances
delegate any of his rights and obligations hereunder without first obtaining the
express prior written consent of the Company. This Agreement and all of the
Company's rights and obligations hereunder may be assigned or transferred by it,
in whole or in part, to be binding upon and inure to the benefit of any
subsidiary or successor of the Company, but any such transfer or assignment
shall not relieve the Company of its obligations under this Agreement to the
extent that an assignee does not fulfill such obligations.
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IN WITNESS WHEREOF, this Agreement is entered into on the day and year
first above written.
COMPANY:
COLORADO GAMING & ENTERTAINMENT CO.
By: /s/ Stephen J. Szapor, Jr.
-----------------------------------
Its: President
-----------------------------------
EXECUTIVE:
/s/ ROBERT J. STEPHENS
-----------------------------------
ROBERT J. STEPHENS
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
March 24, 1997, by and between Jack Breslin (the "Executive") and Colorado
Gaming & Entertainment Co., a Delaware corporation (the "Company").
R E C I T A L S:
A. The Company desires to retain the services of the Executive as its
Vice President of Marketing, and the Executive is willing to serve in such
capacity on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, the Company and the Executive do hereby agree as
follows:
1. EMPLOYMENT AND DUTIES. On the terms and subject to the conditions set
forth in this Agreement, the Company agrees to employ the Executive during the
Employment Period (as hereinafter defined) as its Vice President of Marketing to
perform such duties and responsibilities as are customarily assigned to such
position and such other duties and responsibilities not inconsistent therewith
as may be assigned to the Executive from time to time by the President of the
Company.
2. PERFORMANCE.
(a) GENERAL. The Executive accepts the employment described in
SECTION 1 of this Agreement and agrees to devote substantially all of his
working time and efforts to the faithful and diligent performance of the
services described therein; provided, however, that the Executive may
participate in charitable activities and may, subject to SECTION 15 hereof,
participate in holding investments and in businesses owned by members of the
Executive's family, provided that such participation does not have an adverse
impact on the Executive's performance of his duties for the Company.
(b) CONDUCT. The Executive agrees that he will conduct his
activities, and will cause any activities conducted on his behalf, to be
conducted in a lawful manner and specifically will not engage in the following
transactions:
(i) make payment or offers of payment, directly or indirectly,
to any domestic or foreign government official or employee in order to
obtain business, retain business or direct business to others, or for the
purpose of inducing such government official or employee to fail to perform
or to perform improperly his official functions;
(ii) receive, pay or offer anything of value, directly or
indirectly, from or to any private party in the form of a commercial bribe,
influence payment or kickback for any such purpose; or
(iii) use, directly or indirectly, any funds or other assets
of the Company for any unlawful purpose, including, without limitation,
political contributions in violation of applicable law.
3. TERM. The term of employment under this Agreement shall commence on
March 24, 1997 (the "Commencement Date") and shall remain in effect for a period
expiring on June 7, 1999 (such date and the last day of any extended term of
employment pursuant to this SECTION 3 being referred to as the "Termination
Date"), unless sooner terminated hereunder (the "Employment Period"). The
Employment Period shall be automatically renewed on the then current Termination
Date for successive one (1) year periods unless terminated by either the
Executive or the Company by giving written notice of termination ninety (90)
days in advance of the then current Termination Date.
4. COMPENSATION.
(a) BASE SALARY. As base salary hereunder ("Base Salary"), the
Company agrees to pay, during the Employment Period, a salary at an initial rate
of Ninety Thousand Dollars ($90,000) per annum, payable in the
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manner and frequency in which the Company's payroll is customarily paid. The
Company and the Executive agree that the Base Salary shall be subject to
review at least annually, but may not be reduced without the Executive's
prior written consent.
(b) MANAGEMENT INCENTIVE PLANS. The Executive shall be a participant
in the Company's previously adopted (i) Cash Bonus Plan, to such degree and at
such level as approved by the Compensation Committee of the Board of Directors
in their sole discretion, except, for purposes of the Company's fiscal year
1997, the Executive shall be guaranteed a minimum cash bonus of $10,000, and
(ii) the Management Incentive and Non-Employee Director Stock Plan at a level
such that the Executive will be entitled to an award of 3.6% of the shares of
stock of the Company subject to award under such plan such that one-third of
such award, subject to the provisions of such plan, will vest on June 7, 1997,
one-third will vest on June 7, 1998 and the remaining one-third will vest June
7, 1999.
(c) VACATION AND SICK LEAVE. The Executive shall be entitled to
vacation and sick leave in accordance with the Company's policies for senior
executive employees.
(d) DISABILITY. If at any time during the Employment Period the
Executive is substantially unable to perform his duties hereunder by reason of
illness, accident or other disability (as confirmed by competent medical
evidence) ("Temporary Disability"), the Executive shall continue to be treated
as an employee hereunder for all purposes and be entitled to receive periodic
payments of Base Salary to which he would otherwise be entitled pursuant to
SECTION 4(a) of this Agreement for at least the lesser of the balance of the
Employment Period or the period of such Temporary Disability. If such
disability is expected to last for a period of more than six (6) months (as
confirmed by competent medical evidence) ("Permanent Disability"), the Executive
shall continue to be treated as an employee hereunder for all purposes and be
entitled to receive periodic payments of Base Salary to which he would otherwise
be entitled pursuant to SECTION 4(a) of this Agreement for at least the lesser
of the remaining balance of the Employment Period or six (6) months. Any
payments under any long term disability plan maintained by the Company shall be
an offset against any payments to the Executive hereunder.
(e) DEATH. In the event of the death of the Executive during the
Employment Period, his designated successors shall be entitled to receive, as a
survivor's benefit, the periodic payments of Base Salary that would otherwise be
payable to the Executive pursuant to SECTION 4(a) of this Agreement by reason of
his employment for the lesser of the balance of the Employment Period or six (6)
weeks. In the event of the Executive's death, the Company will use its best
efforts to advance up to three (3) months Base Salary to the Executive's
beneficiaries of any life insurance provided pursuant to SECTION 4(f) hereof,
provided that such advances are to be repaid by such beneficiaries upon
receiving such insurance proceeds.
(f) OTHER BENEFITS.
(i) GENERAL. Except as otherwise specifically provided herein,
during the Employment Period, the Employee shall be eligible for all non-wage
benefits the Company provides generally for its senior executives, including
retirement, medical, life insurance and long term disability benefits. The
Company reserves the right to alter, amend or terminate its standard benefit
programs for senior executives and to alter or amend coverages thereunder.
(ii) LEGAL COUNSEL. During the term of the Agreement, the
Company agrees to pay for the reasonable costs of the Executive's legal counsel
in circumstances where legal representation for the Executive is necessary or
appropriate with regard to actions taken by the Executive in his capacity as an
officer of the Company.
5. BUSINESS EXPENSES--REIMBURSEMENT. The Company shall reimburse the
Executive for the reasonable, ordinary and necessary business expenses incurred
by him in connection with the performance of his duties hereunder, including,
but not limited to, ordinary and necessary travel expenses and entertainment
expenses and car phone expenses. The Company shall also reimburse the Executive
the full cost of obtaining and continuing any licenses which must be obtained or
continued by the Executive due to his employment by the Company. The Executive
shall provide the Company with an accounting of his expenses, which accounting
shall clearly reflect which expenses are reimbursable by the Company. The
Executive shall provide the Company with such other supporting documentation and
other substantiation of reimbursable expenses as will conform to Internal
Revenue Service or other requirements. All such
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reimbursements shall be payable by the Company to the Executive within a
reasonable time after receipt by the Company of appropriate documentation
therefor; provided, however, the Company shall have no obligation to
reimburse any expense for which appropriate and customary back-up
documentation is not provided within sixty (60) days following accrual of the
obligation in question.
6. TERMINATION.
(a) TERMINATION FOR JUST CAUSE. The Company shall have the option to
terminate the employment of the Executive hereunder, effective upon the
effective date set forth in written notice of such termination to the Executive,
for Just Cause. For purposes of this Agreement, the term "Just Cause" shall
mean the occurrence of any one or more of the following events: (i) the material
breach by the Executive of his covenants under this Agreement, and the failure
by the Executive to promptly cure the breach or failure of performance upon
written notice thereof from the Company; (ii) the Executive's willful refusal to
perform, or his substantial neglect of, the duties assigned to the Executive
pursuant to SECTION 1 hereof, and the failure by the Executive to promptly cure
the breach or failure of performance upon written notice thereof from the
Company; (iii) the commission by the Executive of theft or embezzlement of
Company property or other acts of dishonesty relating to his employment; (iv)
the commission by the Executive of a crime resulting in injury to the business,
property or reputation of the Company or any affiliate of the Company or
commission of other significant activities harmful to the business or reputation
of the Company or any affiliate of the Company; (v) any significant violation of
any statutory or common law duty of loyalty to the Company; (vi) failure of the
Executive to comply with any provision of the gaming or liquor laws of Colorado
or any other jurisdiction in which the Company or any affiliate conducts
operations or is applying for a gaming or liquor license or failure of the
Executive to comply with any rule or regulation of any administrative body
having jurisdiction, which may materially and negatively affect the gaming or
liquor license of the Executive or the Company or any affiliate of the Company;
or (vii) the failure of the Executive to obtain or retain any permit, license or
approval required by any governmental authority and such failure is not the
result of any negligence or omission by the Company. A termination of
employment of the Executive for Just Cause shall be effectuated by giving the
Executive written notice of the termination setting forth in reasonable detail
the specific conduct of the Executive that constitutes Just Cause and the
specific provision(s) of this Agreement on which the Company relies, and shall
be given within ninety (90) days of the date on which the Company first acquires
knowledge of occurrence of the conduct giving rise to the Just Cause. Upon
termination of the Executive for Just Cause, the Company shall pay the Executive
the unpaid portion of Base Salary attributable to periods up to and including
the effective date of such termination and any other amounts to which the
Executive may be entitled under any benefit plan maintained by the Company or as
otherwise may be provided by law, and the Executive shall not be entitled to any
severance benefits pursuant to SECTION 10 hereof and all obligations of the
Company hereunder shall cease.
(b) TERMINATION UPON DEATH. This Agreement shall automatically
terminate upon the death of the Executive and, other than as may be provided in
SECTION 4 hereof or under any benefit plan maintained by the Company or as
otherwise may be provided by law, the Company shall have no obligation to make,
and the Executive's estate or successors shall have no right to receive, any
further compensation or payments of any kind.
(c) TERMINATION UPON DISABILITY. The Company may terminate this
Agreement upon the Permanent Disability of the Executive at the end of the
period for which the Executive is entitled to receive Base Salary pursuant to
SECTION 4(d) hereof. Thereafter, the Company shall be obligated to pay only the
amounts set forth in SECTION 4 of this Agreement or as to which the Executive
may be entitled under any benefit plan maintained by the Company or as may
otherwise be provided by law.
(d) TERMINATION WITHOUT JUST CAUSE. The Company shall have the
option to terminate the Employment Period at any time by thirty (30) days prior
written notice to the Executive. If none of the circumstances allowing
termination pursuant to SECTION 6(a), (b) AND (c) exist on the date such notice
is given, such termination shall be deemed to have been a termination without
Just Cause and the Executive shall be entitled to the unpaid portion of his Base
Salary attributable to periods up to and including the effective date of such
termination, to any other amounts to which the Executive may be entitled under
any benefit plan maintained by the Company or as otherwise may be provided by
law, and the Executive shall be entitled to receive the severance benefits
described in SECTION 10 hereof.
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7. TERMINATION BY EXECUTIVE.
(a) TERMINATION FOR GOOD REASON. The Executive shall have the option
to terminate his employment with the Company, effective upon the effective date
set forth in written notice of such termination to the Company, for "Good
Reason". For purposes of this Agreement, Good Reason shall mean the occurrence
of any one or more of the following events: (i) the assignment to the
Executive of any duties inconsistent in any material respect with the duties
described in SECTION 1 hereof, or any other action by the Company that results
in an intentional diminution of the Executive's position, authority, duties or
responsibilities, and (ii) any material breach of this Agreement by the Company
that either is not taken in good faith or is not remedied by the Company
promptly after receipt of notice thereof from the Executive. A Termination of
employment by the Executive for Good Reason shall be effectuated by giving the
Company written notice of the termination, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies, and shall
be given within sixty (60) days of the event giving rise to the Good Reason. A
termination of employment by the Executive for Good Reason shall be effective on
the fifth business day following the date when such notice is given, unless the
notice sets forth an alternate date (which date shall in no event be later than
thirty (30) days after the notice is given). Upon termination by the Executive
for Good Reason, the Executive shall be entitled to the unpaid portion of Base
Salary attributable to periods up to and including the effective date of such
termination, to any other amounts to which the Executive may be entitled under
any benefit plan maintained by the Company or as otherwise may be provided by
law, and the Executive shall be entitled to receive the severance benefits
described in SECTION 10 hereof.
(b) TERMINATION WITHOUT GOOD REASON. The Executive shall have the
option to terminate his employment with the Company at any time after the first
anniversary of this Agreement, upon thirty (30) days prior written notice to the
Company. If none of the circumstances constituting Good Reason exists on the
date such notice is given, the Executive shall be entitled to the unpaid portion
of his Base Salary attributable to periods up to and including the effective
date of such termination and any other amounts to which the Executive may be
entitled under any benefit plan maintained by the Company or as otherwise may be
provided by law, and the Executive shall not be entitled to any severance
benefits pursuant to SECTION 10 hereof.
8. SURRENDER OF PROPERTIES. Upon termination of the Executive's
employment with the Company, regardless of the cause therefor, the Executive
shall promptly surrender to the Company all property provided him by the Company
for use in relation to his employment, and, in addition, the employee shall
surrender to the Company any and all sales materials, lists of customers and
prospective customers, price lists, files, records, models, or other materials
and information of or pertaining to the Company or its customers or prospective
customers or the products, business and operations of the Company.
9. CONTINUATION OF INSURANCE. If, following notice of termination given
by the Company pursuant to SECTION 6(d) of this Agreement, the Executive is
unable to arrange alternate employment before the stated effective date of such
termination, the Company shall, at the Company's expense, continue the
Executive's medical, disability and life insurance coverage for a period
extending one hundred and twenty (120) days following the effective date of
termination or until the Executive secures alternate employment, whichever date
occurs first, and such period shall be credited against any period for which the
Company is otherwise obligated to make such benefits available to the Executive
under Section 480-B of the Internal Revenue Code of 1986, as amended, or any
similar provision of law.
10. SEVERANCE PAY. Notwithstanding any other provision of this
Agreement, if the Employment Period is terminated by the Company or any
successor of the Company pursuant to SECTION 6(d) hereof, or by the Executive
pursuant to SECTION 7(a) hereof, the Company shall pay the Executive a severance
benefit equal to the Executive's Base Salary for the remaining Employment Period
at the annual rate in effect immediately prior to such termination. Any payment
required pursuant to this SECTION 10 shall be made within thirty (30) days
following the termination date.
11. INDEMNIFICATION. The Executive shall indemnify the Company and hold
it harmless from and against any and all loss, damage and expense (including
reasonable attorneys' fees and disbursements) arising out of any claim or threat
of claim against the Executive or the Company resulting from or in any way
related to the Executive's relationship
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with any previous employer, including any claim of breach of contract,
interference with contract or breach or impairment of a real or claimed
legally protected right of such previous employer.
12. CONFIDENTIALITY OF INFORMATION; DUTY OF NON-DISCLOSURE. The
Executive acknowledges and agrees that his employment by the Company under this
Agreement necessarily involves his understanding of, and access to, certain
trade secrets and confidential information pertaining to the business of the
Company. Accordingly, the Executive agrees that except as may be required in
the reasonable performance of his duties hereunder, he will not, directly or
indirectly, without the express prior written consent of the Company, disclose
to or use for the benefit of any person, corporation or other entity, or for
himself, any and all files, trade secrets or other confidential information
concerning the internal affairs of the Company, including, but not limited to,
information pertaining to its clients, services, products, earnings, finances,
operations, methods or other activities; provided, however, that the foregoing
shall not apply to information which is of public record or is generally known,
disclosed or available to the general public or the industry generally or was
known by the Executive prior to his employment under this Agreement. Further,
the Executive agrees that he shall not, directly or indirectly, remove or
retain, without the express prior written consent of the Company, and upon
termination of this Agreement for any reason shall return to the Company, any
figures, calculations, letters, papers, records, computer disks, computer
print-outs, lists, documents, instruments, drawings, designs, programs,
brochures, sales literature, or any copies thereof, or any information or
instruments derived therefrom, or any other similar information of any type
or description, however such information might be obtained or recorded,
arising out of or in any way relating to the business of the Company or
obtained as a result of his employment by the Company. The Executive
acknowledges that all of the foregoing are proprietary information, and are
the exclusive property of the Company. The covenants contained in this
SECTION 12 shall survive the termination of this Agreement.
13. ENFORCEMENT.
(a) Upon presentation of a claim or claims (collectively, "Claims")
arising out of or relating to this Agreement, or the breach hereof, by an
aggrieved party, the other party shall have thirty (30) days in which to make
such inquiries of the aggrieved party and conduct such investigations as it
believes reasonably necessary to determine the validity of the Claims. At the
end of such period of investigation, the complained of party shall either pay
the amount of the Claims or the arbitration proceeding described immediately
below shall be invoked.
(b) In the event that the Claims are not settled by the procedure set
forth immediately above, the Claims shall be submitted to arbitration conducted
in accordance with the Commercial Arbitration Rules ("Rules") of the American
Arbitration Association ("AAA") except as amplified or otherwise varied hereby.
(c) The parties shall submit the dispute to the Denver regional
office of the AAA and the situs of the arbitration shall be Denver County,
Colorado.
(d) The arbitration shall be conducted by a single arbitrator. The
parties shall appoint the single arbitrator to arbitrate the dispute within ten
(10) business days of the submission of the dispute. In the absence of
agreement as to the identity of the single arbitrator to arbitrate the dispute
within such time, the AAA is authorized to appoint an arbitrator in accordance
with the Rules, except that the arbitrator shall have as his principal place of
business the Denver metropolitan area.
(e) The single arbitrator selected by the AAA shall be an attorney or
accountant licensed to practice by the State of Colorado.
(f) Notwithstanding anything in the Rules to the contrary, the
arbitration award shall be made in accordance with the following procedure:
Each party shall, at the commencement of the arbitration hearing, submit an
initial statement of the amount each party proposes be selected by the
arbitrator as the arbitration award ("Settlement Amount"). During the course of
the arbitration, each party may vary its proposed Settlement Amount. At the end
of the arbitration hearing, each party shall submit to the arbitrator its final
Settlement Amount ("Final Settlement Amount"), and the arbitrator shall be
required to select either one or the other Final Settlement Amounts as the
arbitration award without discretion to select any other amount as the award.
The arbitration award shall be paid within ten (10) business days after
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the award has been made, together with interest from the date of award at the
rate of eight percent (8%). Judgment upon the award may be entered in any
federal or state court having jurisdiction over the parties.
14. COSTS OF ENFORCEMENT. In the event of any suit or proceeding seeking
to enforce the terms, covenants or conditions of this Agreement, the prevailing
party shall, in addition to all other remedies and relief that may be available
under this Agreement or applicable law, recover his or its reasonable attorneys'
fees and costs as shall be determined and awarded by the arbitrator or court, as
the case may be.
15. COMPETING INTEREST. During the Employment Period, the Executive shall
not, without the prior written consent of the Company, engage in any other
business activity that competes with or is of a nature similar to that of the
Company for gain, profit or other pecuniary advantage or engage in or in any
manner be connected or concerned, directly or indirectly, whether as an officer,
director, stockholder, partner, owner, executive, consultant, creditor or
otherwise, with the operation, management or conduct of any business that
competes with or is of a nature similar to that of the Company; provided,
however, that this SECTION 15 shall not prohibit the Executive from owning up to
one percent (1%) of the publicly traded shares of any entity.
16. NONCOMPETE CLAUSE. If the Employment Period is terminated by the
Company for Just Cause pursuant to SECTION 6(a) hereof, or voluntarily by the
Executive pursuant to SECTION 7(b) hereof, the Executive will be prohibited from
accepting employment with, and shall not in any manner be connected or
concerned, whether directly or indirectly, whether as an officer, director,
stockholder, partner, owner, executive, consultant, creditor or otherwise, with
the operation, management or conduct of any business having gaming operations in
any state or other jurisdiction in which the Company has gaming operations
immediately prior to the date of the Executive's termination of employment, for
a period beginning on the date of the Executive's termination of employment and
ending on the then current Termination Date.
17. GENERAL PROVISIONS.
(a) GOODWILL. The Company has invested substantial time and money in
the development of its products, services, territories, advertising and
marketing thereof, soliciting clients and creating goodwill. By accepting
employment with the Company, the Executive acknowledges that the customers are
the customers of the Company, and that any goodwill created by the Executive
belongs to and shall inure to the benefit of the Company.
(b) NOTICES. Any notice required or permitted hereunder shall be
made in writing (i) either by actual delivery of the notice into the hands of
the party thereunder entitled, or (ii) by the mailing of the notice in the
United States mail, certified or registered mail, return receipt requested, all
postage prepaid and addressed to the party to whom the notice is to be given at
the party's respective address set forth below, or such other address as the
parties may from time to time designate by written notice as herein provided.
As addressed to the Company:
Colorado Gaming & Entertainment Co.
12596 West Bayaud Avenue, Suite 450
Lakewood, Colorado 80228
With a copy to:
Leboeuf, Lamb, Greene & MacRae L.L.P.
633 Seventeenth Street, Suite 2800
Denver, Colorado 80202
Attention: Thomas J. Moore
As addressed to the Executive:
Jack Breslin
10373 Rowlock Way
Parker, CO 80134
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The notice shall be deemed to be received in case (i) on the date of its actual
receipt by the party entitled thereto, and in case (ii) on the third (3rd)
business day following the date of its mailing.
(c) AMENDMENT AND WAIVER. No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing and
signed by an officer of the Company duly authorized by the Board of Directors or
upon the Executive unless made in writing and signed by him. The waiver by the
Company of the breach of any provision of this Agreement by the Executive shall
not operate or be construed as a waiver of any subsequent breach by him.
(d) ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties with respect to the Executive's duties and
compensation as an executive of the Company, and there are no representations,
warranties, agreements or commitments between the parties hereto with respect to
his employment except as set forth herein.
(e) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the State
of Colorado.
(f) SEVERABILITY. If any provision of this Agreement shall, for any
reason, be held unenforceable, such provision shall be severed from this
Agreement unless, as a result of such severance, the Agreement fails to reflect
the basic intent of the parties. If the Agreement continues to reflect the
basic intent of the parties, then the invalidity of such specific provision
shall not affect the enforceability of any other provision herein, and the
remaining provisions shall remain in full force and effect.
(g) ASSIGNMENT. The Executive may not under any circumstances
delegate any of his rights and obligations hereunder without first obtaining the
express prior written consent of the Company. This Agreement and all of the
Company's rights and obligations hereunder may be assigned or transferred by it,
in whole or in part, to be binding upon and inure to the benefit of any
subsidiary or successor of the Company, but any such transfer or assignment
shall not relieve the Company of its obligations under this Agreement to the
extent that an assignee does not fulfill such obligations.
IN WITNESS WHEREOF, this Agreement is entered into on the day and year
first above written.
COMPANY:
COLORADO GAMING & ENTERTAINMENT CO.
By: /s/ STEPHEN J. SZAPOR, JR.
------------------------------------
Its: President
-----------------------------------
EXECUTIVE:
/s/ JACK BRESLIN
---------------------------------------
JACK BRESLIN
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EXHIBIT 10.34
SECOND AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is made and entered into this 9th day of February, 1998,
by and between BWBH, Inc., a Delaware corporation, BWCC, INC., a Delaware
corporation, MILLSITE 27, INC., a Delaware corporation, SILVER HAWK CASINO,
INC., a Delaware corporation, each with its chief executive office located at
12596 West Bayaud Avenue, Suite 450, Lakewood, Colorado 80228 (individually and
collectively, jointly and severally, "Borrower" or "Borrowers") and FOOTHILL
CAPITAL CORPORATION, a California corporatio, with a place of business located
at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333
("Foothill"), and is made with reference to the following facts:
W I T N E S S E T H:
WHEREAS, on or about November 1, 1995, Foothill and the above referenced
Borrowers entered into that certain Loan and Security Agreement which provided
for borrowings from time to time and pledges of various security interests to
secure the repayments of such borrowings, all on the terms and conditions set
forth therein, which such Loan and Security Agreement was amended by that
certain Amendment Number One dated December 4, 1995, that certain Amendment
Number Two dated January 24, 1996, and that certain Amendment Number Three dated
April 11, 1996; and
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WHEREAS, pursuant to Amendment Number Three, the Loan and Security
Agreement was amended, with court approval, to permit the borrowings to be made
by each Borrower, as a debtor-in-possession; and
WHEREAS, pursuant to court order, Plans of Reorganization were confirmed,
and those Borrowers which were subject to bankruptcy proceedings became re-
vested debtors; and
WHEREAS, on or about June 6 and 7, 1996, Foothill and Borrowers entered
into that certain Amended and Restated Loan and Security Agreement which
provided for borrowings from time to time and pledges of various security
interests to secure the repayments of such borrowings, all on the terms and
conditions set forth therein; and
WHEREAS, on or about September 9, 1996, Borrowers and Foothill entered into
that certain letter agreement with respect to the Amended and Restated Loan and
Security Agreement (which such Amended and Restated Loan and Security Agreement,
as amended by the terms of the letter agreement, is hereinafter referred to as
the Loan Agreement"); and
WHEREAS, Borrowers and Foothill desire to amend the Loan Agreement on the
terms and conditions, more specifically set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. The definition of Black Hawk Lease in Section 1.1 shall be
amended by deleting the period at the end thereof, and adding the following:
", and (ii) Lease ("Branecki Lease") dated July 10, 1991 by
and between Elizabeth Branecki ("Branecki") and KDL by which
Branecki leased to KDL the premises located at 135 Gregory
Street, Black Hawk, Colorado, as modified by that certain
Agreement dated March 16, 1994, whereby KDL assigned all of
its interest in and to the Branecki Lease to Pioneer; and
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(iii) Lease dated March 15, 1994 by and between KDL and
Pioneer by which KDL leased to Pioneer the premises located
at 131 Gregory Street, Black Hawk, Colorado; and
(iv) Lease ("Smith Lease") dated March 17, 1992 by and
between Edward E. Smith and Shirley J. Smith (collectively,
"Smith") and Wild Card Casino, Inc., a Colorado corporation
("Wild Card") by which Smith leased to Wild Card the
premises located at 125 Gregory Street, Black Hawk,
Colorado. The Smith Lease was assigned by Wild Card to
Pioneer Group, Ltd, a Nevada Corporation ("Pioneer Group")
by assignment dated March 24, 1992, and further assigned by
Pioneer Group to Pioneer by an assignment dated June 9,
1992. The Smith Lease was amended by: (x) that certain
Agreement and Amendment to Lease dated June 19, 1992, (y)
that certain Second Agreement and Amendment to Lease dated
May 17, 1993 and (z) that certain Third Agreement and
Amendment to Lease dated May 1, 1994; and
(v) Agreement dated January 1, 1995 ("Secarus Agreement') by
and between Secarus, Inc. and Pioneer, as amended, covering
certain security and surveillance equipment. The security
deposit paid to Secarus, Inc. under the Secarus Agreement
was $16,752.00.
2. There shall be added a new definition to Section 1.1, as follows:
"MILLSITE CONSTRUCTION RESERVE means, as of the date of any
determination, an amount equal to amounts claimed to be
owing by mechanics or materialmen, which can, through the
operation of law or the passage of time, serve as a prior
security interest in any of the Collateral."
3. There shall be added a new definition to Section 1.1, as follows:
"PIONEER ASSET PURCHASE means the acquisition by BWBH, INC.
of the "Assets" (as defined in the Pioneer Asset Purchase
Agreement) of Pioneer Associated Limited Liability Company,
a Nevada limited liability company ("Pioneer"), pursuant to
the Pioneer Asset Purchase Agreement, which such assets
concern the business operations commonly known as "Bronco
Billy's."
4. There shall be added a new definition to Section 1.1 as follows:
"PIONEER ASSET PURCHASE AGREEMENT means that certain Asset
Purchase Agreement dated as of December 10, 1997 originally
entered into between Colorado Gaming & Entertainment Co., a
Delaware corporation and Pioneer Associated Limited
Liability Company, the rights and liabilities of Colorado
Gaming &
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Entertainment Co. of which were transferred to BWBH, whereby
Borrower acquires the Assets, as defined therein."
5. Section 2.1(a) is amended by adding the phrase "and the Millsite
Construction Reserve" at the end thereof.
6. Section 2.1(c) is deleted in its entirety and the following
substituted in its place and stead:
"(c) Pioneer Asset Purchase Facility. An advance to
Borrowers in an amount not to exceed Five Million Dollars
($5,000,000), to enable Borrower to consummate its
obligations under the Pioneer Asset Purchase Agreement, to
construct tenant improvements on the site which is the
subject of the Pioneer Asset Purchase Agreement, and for no
other purpose."
7. Section 2.3(c) is deleted in its entirety and the following
substituted in its place and stead:
"(c) The principal balance of the amount advanced under the
Pioneer Asset Purchase Facility shall be repaid by
Borrowers in equal monthly installments, amortized over a
sixty (60) month term, commencing on the first day of the
third full month after the advance is made and continuing on
the first day of each month thereafter, until the sums so
advanced are paid in full, or this Agreement is terminated
pursuant to the terms hereof."
8. There shall be added a new Section 6.20 as follows:
"6.20 REGULATORY APPROVALS. Within ninety (90) days of the
first advance made pursuant to Section 2.1(c), Borrower
shall obtain final gaming regulatory approvals for its
expansion of the facilities which are the subject of the
Black Hawk Lease."
9. Capitalized terms not otherwise defined herein shall have the
meaning set forth in the Loan Agreement.
10. Except as expressly modified herein, the Loan Agreement remains
in full force and effect and is reaffirmed by the parties hereto.
4
<PAGE>
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ J. P. VANDENBERGH
-----------------------------------
Title: VICE PRESIDENT
BWBH, Inc.,
a Delaware corporation
By /s/ ALAN L. MAYER
-----------------------------------
Title: VICE PRESIDENT AND SECRETARY
BWCC, Inc.,
a Delaware corporation
By /s/ ALAN L. MAYER
-----------------------------------
Title: VICE PRESIDENT AND SECRETARY
MILLSITE 27, INC.,
a Delaware corporation
By /s/ ALAN L. MAYER
-----------------------------------
Title: VICE PRESIDENT AND SECRETARY
SILVER HAWK CASINO, INC.,
a Delaware corporation
By /s/ ALAN L. MAYER
-----------------------------------
Title: VICE PRESIDENT AND SECRETARY
5
<PAGE>
EXHIBIT 10.35
AMENDMENT TO LEASE
This Amendment to Lease (the "Amendment") is made and entered into as of
the 27th day of February, 1998 by and between Harold Gene Reagin and Jerry L.
Brown (collectively the "Landlord") and BWBH, Inc. (the "Tenant").
RECITALS
1. Landlord has entered into a Lease Agreement (the "Lease") wherein it
is the Landlord and H.P. Black Hawk, L.P. is the Tenant, such Lease being
dated the 25th day of October, 1991, relating to the real Property situated
in the County of Gilpin, State of Colorado, more particularly described as
Lots 5, 6, 7, 8, 9, and 10, Block 29, City of Black Hawk, County of Gilpin,
State of Colorado (the "Premises").
2. The Tenant's interest in the Lease has been assigned to BWBH, Inc.
3. The Premises are being occupied by Tenant for the purpose of
operating the Bullwhackers Casino ("Bullwhackers") in Black Hawk, Colorado.
4. The Tenant is acquiring the assets of and leasehold interest in
Bronco Billy's Casino ("Bronco Billy's") which is situated next to the
Premises. Upon the acquisition of Bronco Billy's, Tenant intends to
undertake certain renovations of Bronco Billy's premises prior to commencing
operation on the Joint Premises (as hereinafter defined).
5. Tenant plans to operate Bronco Billy's and Bullwhackers as one
casino under the Bullwhackers name, which will be located on the Premises and
the Bronco Billy's premises (collectively, the "Joint Premises").
6. The improvements on the Premises will need to be altered to provide
for a connection to Bronco Billy's, which may include the removal of part of
a wall and the construction of such additional connecting structures for the
operation of the Joint Premises.
7. Landlord has consented to the contemplated alteration and
construction, provided the Lease is amended as hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter contained, and for other good and sufficient consideration, the
Landlord and Tenant agree to restate and amend the Lease as hereinafter
provided.
1. RESTATEMENT OF BASE RENT PROVISIONS. The Base Rent provisions of
Lease are hereby restated, and shall not be amended or changed as a result of
the operation of the Joint Premises by Tenant.
2. ADDITIONAL RENT. Effective as of the Commencement Date, as herein
defined, the Additional Rent provision of the Lease shall be amended as
follows:
<PAGE>
4.3.1 GROSS REVENUES DEFINED. The term "Gross Revenues" as
used herein shall mean eighty (80%) percent of the balance of Adjusted Gross
Proceeds from Gaming conducted at the Joint Premises, as those terms are
defined in C.R.S. Section 12-47.1-103, plus eight (80%) percent of all
receipts of every kind and nature other than receipts from Gaming, whether
wholly or partly in cash or for credit, from any and all sales made at, in
from and upon the Joint Premises after deducting eight (80%) percent of the
following (i) any Colorado gaming taxes, (iii) state and local sales taxes;
and (iii) any tax or fee on gaming devices. The Gross Revenues shall include
eighty (80%) percent of the gross receipts of every kind and nature, other
than Gaming, from the sale of wares, goods, merchandise, services, and any
and all other sales or rentals made in, upon or from the Joint Premises,
whether for cash or credit, in every department operating in the Joint
Premises, whether operated by Tenant, or by a sub-tenant or sub-tenants, or
by a concessionaire or concessionaires. "Gross Revenues" shall not include
revenues derived from bulk sales or other sale or disposition of the business
of Tenant or Tenant's interest under this Lease, the sale or other
disposition of capital items or equipment used in the operation of Tenant's
business, proceeds of insurance, proceeds of financing or refinancing, or
sublease rentals (as distinguished form gross receipts of a subtenant, which
shall be included). It is further understood that goods or services
constituting "comps" as they are known in the gaming industry (goods and
services that are provided free as an inducement) shall not constitute gross
receipts and that receipts for goods or services sold at a discount shall be
included only to the extent of the discounted selling price actually
received.
"Commencement Date" shall mean the date when the Joint Premises are
open for business to the public and operating as one entity.
3. RESTATEMENT OF LEASE. Except for the amendments herein contained,
the Lease is hereby restated and affirmed as it is written, except for the
inclusion of "Joint Premises" in the stead of "Demised Premises", where
applicable.
IN WITNESS WHEREOF, the undersigned parties have hereby executed this
Amendment as of the date and year first above written.
LANDLORD
/s/ Jerry L. Brown
-------------------------------------
Jerry L. Brown
/s/ Harold Gene Reagin
-------------------------------------
Harold Gene Reagin
TENANT
BWBH, INC.
By: /s/ Alan L. Mayer
---------------------------------
Title: Vice President
------------------------------
-2-
<PAGE>
LEASE ACKNOWLEDGMENT, ASSUMPTION AND FOURTH LEASE AMENDMENT
AGREEMENT
THIS LEASE ACKNOWLEDGMENT, ASSUMPTION AND FOURTH LEASE AMENDMENT
AGREEMENT ("Agreement"), dated as of February 11, 1998 (the "Effective Date"),
is entered into by and among PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, a
Nevada limited liability company ("Pioneer"), BWBH, INC., a Delaware
corporation ("BWBH"), and EDWARD E. SMITH AND SHIRLEY J. SMITH (collectively,
"Lessor").
R E C I T A L S:
Lessor and Wild Card Casino, Inc., a Colorado corporation
("Wild Card") entered into a Lease dated March 17, 1992 (the "Original
Lease") by which Lessor leased to Wild Card the premises located at 125
Gregory Street, Black Hawk, Colorado, more particularly described as Lots
3 and 4, Block 29, in the City of Black Hawk, County of Gilpin, Colorado,
together with all improvements thereon and appurtenances thereto (the
"Premises"). Capitalized words not otherwise defined herein have the
meaning set forth in the Lease.
A. On or about March 24, 1992, Wild Card, for good and valuable
consideration, assigned all of its interest in the Lease to Pioneer
Group, Inc., a Nevada corporation ("Pioneer Group").
B. On or about June 9, 1992, Pioneer Group, for good and valuable
consideration, assigned all of its interest in the Lease to Pioneer.
C. By (i) that certain Agreement and Amendment to Lease dated
June 19, 1992 ("First Lease Amendment"), (ii) that certain Second
Agreement and Amendment to Lease dated May 17, 1993 ("Second Lease
Amendment") and (iii) that certain Third Agreement and Amendment to
Lease dated May 1, 1994 ("Third Lease Amendment"), Lessor and Pioneer
modified the Lease in certain respects. The Original Lease, First Lease
Amendment, Second Lease Amendment and Third Lease Amendment shall
hereinafter collectively be referred to as the Lease.
D. Pioneer desires to sell, and BWBH desires to purchase, certain
of Pioneer's assets which it owns and operates on the Premises (the
"Asset Sale and Purchase") as set forth in that certain Asset Purchase
Agreement by and between Pioneer and Colorado Gaming & Entertainment
Co., a Delaware corporation ("CGE") dated December 10,
<PAGE>
1997 ("Asset Purchase Agreement"), as such Asset Purchase Agreement has
been assigned by CGE to BWBH.
E. In connection with the Asset Sale and Purchase, Pioneer
desires to assign to BWBH Pioneer's rights as lessee under the Lease and
BWBH desires to assume Pioneer's obligations under the Lease.
F. Pioneer and BWBH desire to obtain Lessor's consent to the
assignment of the Lease and Lessor has agreed to permit and consent to
the assignment, subject to the terms and conditions of this Agreement.
G. BWBH and Lessor also desire to modify the Lease in certain
respects, to be effective upon BWBH's and Pioneer's closing of the Asset
Sale and Purchase, as set forth herein.
NOW THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. ASSIGNMENT. Upon the closing of the Asset Sale and Purchase, as
evidenced by the execution and delivery of an assignment and assumption
agreement attached hereto as EXHIBIT A ("Assignment and Assumption Agreement"),
Pioneer will assign and transfer to BWBH all of Pioneer's right, title and
interest as tenant in and to the Lease, for the duration of the term of the
Lease, as such term may be extended, which Assignment and Assumption Agreement
will be dated as of and effective upon the date that Pioneer and BWBH close
the Asset Sale and Purchase ("Closing Date").
2. ASSUMPTION. Upon the closing of the Asset Sale and Purchase, BWBH
will, in the Assignment and Assumption Agreement, accept the terms of this
Agreement and assume and be bound by all obligations of Pioneer as tenant,
including the payment of all rent and other sums and performance of all
covenants of Pioneer as tenant pursuant to the Lease, as modified herein. In
addition, BWBH shall assume Pioneer's obligations under and be bound by the
terms and conditions of the Agreement dated May 1, 1994 between KDL, Inc.,
Lessor and Pioneer ("Wall Agreement").
3. CONSENT. Subject to the terms and conditions of this Agreement,
Lessor hereby consents to the assignment of the Lease by Pioneer to BWBH,
which consent shall be effective upon the Closing Date. All of the parties
agree that BWBH and Pioneer may record the Assignment and Assumption Agreement
and Lessor's consent thereto in the real property records of the Clerk and
Recorder of Gilpin County, Colorado.
2
<PAGE>
4. RELIANCE ON THIS AGREEMENT. BWBH will consummate the transactions
set forth in the Asset Purchase Agreement in reliance upon Lessor's and
Pioneer's representations, agreements and covenants contained herein, and but
for such representations, agreements and covenants of Pioneer and Lessor as
contained herein, BWBH will not consummate the transactions set forth in the
Asset Purchase Agreement with Pioneer; provided, however, that Lessor is not
responsible for the representations, agreements and covenants of Pioneer.
5. VALID AGREEMENT. The Lease is a valid agreement between Lessor and
Pioneer. The copy of the Lease attached hereto as EXHIBIT B is a true and
correct reproduction of the Lease and constitutes the entire agreement between
Lessor and Pioneer, except as modified herein.
6. NO DEFAULTS. For purposes of this Agreement only, there are no
uncured defaults by Lessor, Wild Card, Pioneer Group or Pioneer under the
Lease. Wild Card, Pioneer Group and Pioneer have paid all rent due to Lessor
under the Lease through the Effective Date. To Lessor's and Pioneer's
knowledge, there are no conditions or events, either with the giving of notice
or lapse of time, or both, which would be treated or constitute defaults of
Lessor, Wild Card, Pioneer Group or Pioneer with respect to any of their
obligations under the Lease. Lessor agrees to notify BWBH of any default
under the Lease subsequent to the date hereof of which Lessor becomes aware.
7. TERM. The current term of the Lease will expire on September 17,
2022 (the "Term").
8. RENT. Notwithstanding any provisions in the Lease to the contrary,
upon the closing of the Asset Sale and Purchase and commencing upon the
Closing Date, BWBH shall pay to Lessor (i) $35,000.00 per month as fixed
monthly rent ($10,000 more per month than the amount Pioneer currently pays
under the Lease), to be increased by the Denver/Boulder Consumer Price Index
for all urban consumers and all items or other similar consumer price index in
the event that such Denver/Boulder Consumer Price Index is unavailable (the
"CPI"), as provided in, and calculated in accordance with, Section 9 of the
Second Lease Amendment, including without limitation, the calculation of such
CPI increase on an annual basis, with the increases not to exceed 2% per year
and the CPI increase to commence May 17, 1998; and (ii) the same Percentage
Rent as provided for in the Lease, which is that amount equal to 40% of the
Net Win (as defined in the Lease) of the gaming operations conducted on the
Premises. Lessor acknowledges and agrees that the amount of gaming taxes
described in Section 3(c)(iii) of the Lease which are used to calculate the
Net Win amount shall equal the revenues from the gaming devices on the
Premises multiplied by the gaming tax rate which BWBH is obligated
3
<PAGE>
to pay on the revenues from the gaming devices on the Premises plus the
revenues from the gaming devices on the premises which will be connected to
the Premises, and which Premises are depicted in Exhibit C, and which premises
are also depicted in Exhibit C attached hereto and incorporated herein by this
reference.
9. SECURITY DEPOSIT. Upon the closing of the Asset Sale and Purchase,
BWBH shall pay $150,000 as a security deposit under the Lease (the "Security
Deposit") to Clear Creek-Gilpin County Abstract & Title Co. ("Escrow Agent")
to be held in an interest-bearing account by Escrow Agent. Upon each
anniversary of the Closing Date for the five (5) successive years subsequent
to the Closing Date, Escrow Agent shall return to BWBH 20% of the Security
Deposit, or $30,000, plus all interest earned thereon. The security deposit
shall secure BWBH's full and faithful performance under the Lease, including
but not limited to, the payment of all rents owed to Lessor. Lessor shall
give notice to BWBH of any default under or breach of the Lease. If BWBH has
not cured any such default or breach within thirty (30) days from the date of
notice, Lessor shall be entitled to payment of any amounts held by the Escrow
Agent in an amount equal to any rent due and owing under the Lease, or if such
default or breach is other than the nonpayment of rent, the damages reasonably
claimed by Lessor to be caused by the default or breach by BWBH. This remedy
shall be in addition to any and all other rights and remedies that Lessor may
have under the Lease and applicable law, and withdrawal of any such security
deposit by Lessor shall not prejudice any other such rights and remedies of
Lessor.
10. GAMING LICENSURE. If the Colorado Limited Gaming Control Commission
("Commission") deems it necessary, because of the Percentage Rent paid to
Lessor under the Lease and hereunder, for Lessor to obtain gaming licensure,
Lessor acknowledges and agrees that such gaming licensure shall be its
responsibility and obligation, and Lessor will indemnify and hold BWBH
harmless from and against and all claims, damages, liabilities and losses
arising from Lessor's failure to obtain gaming licensure upon the Commission's
directive or their obligation under Commission rules or regulations to obtain
same. In the event that the Commission determines that licensure of the
Lessor is necessary, and such determination prevents the payment of Percentage
Rent to Lessor, BWBH shall pay any Percentage Rents otherwise due under the
Lease into an interest-bearing escrow account pending receipt of such license
or other determination that such license is not necessary, or pending other
arrangements satisfactory to the Commission, provided that, in any event, such
Percentage Rents are the sole responsibility of Lessor.
11. NO LIABILITY FOR LEASE BONUS AND OTHER AMOUNTS. Upon the closing of
the Asset Sale and Purchase, the parties acknowledge and agree that BWBH shall
not be liable for (i) payment of any portion
4
<PAGE>
of the Lease Bonus described in Section 3 of the Original Lease and Section
1(b) of the First Lease Amendment; (ii) any payments due under that certain
promissory note evidencing the Lease Bonus debt as described in Section
1(b)(2) of the First Lease Amendment; (iii) any of the amounts set forth in
Section 1 of the First Lease Amendment; (iv) any of the Obligation amounts set
forth in Section 1 of the Second Lease Amendment; and (v) the additional
consideration amounts set forth in Section 10 of the Second Lease Amendment.
12. NO LIABILITY FOR PERFORMANCE OF LEASE AS TO OBLIGATION. Pioneer's
Obligation to Lessor for past due rent set forth in Section 1 of the Second
Lease Amendment shall remain the sole responsibility and obligation of
Pioneer, and BWBH's performance or nonperformance under the Lease shall not
operate to extinguish the Obligation or cause BWBH to become liable for the
Obligation.
13. GAMING DEVICES SECURITY INTEREST. Upon the closing of the Asset Sale
and Purchase, the terms and provisions of Section 13 of the Second Amendment
shall be deleted in their entirety.
14. EMPLOYMENT. Upon the closing of the Asset Sale and Purchase, the terms
and provisions of Section 32 of the Original Lease and Section 4 of the Second
Lease Amendment shall be deleted in their entirety.
15. ABATEMENT OF PERCENTAGE RENT DURING CONSTRUCTION PERIOD. Lessor
understands and agrees that commencing on the Closing Date, BWBH shall cease
operations of its casino business on the Premises for an approximate 90 day
period following the Closing Date ("Construction Period") in order to
undertake construction, remodeling and renovation work in the Premises,
subject to the terms and conditions of the Lease, including, but not limited
to Paragraph 9 of the Original Lease. The parties understand and agree that
Lessor has previously approved BWBH's construction plans for the Premises, in
the form attached hereto as EXHIBIT D. Notwithstanding Section 8 of this
Agreement, BWBH shall not be required to pay any Percentage Rent during the
Construction Period. The parties understand and agree that BWBH's obligation
to pay Percentage Rent shall commence upon BWBH's opening of its casino
business on the Premises. Notwithstanding the foregoing, if BWBH has not
commenced gaming operations within one hundred twenty (120) days following the
Closing Date, BWBH shall pay Lessor the amount of Four Hundred Dollars
($400.00) per day as liquidated damages, the actual amount of damages to
Lessor from such delay being difficult to ascertain. BWBH shall continue to
pay all monthly fixed rent amounts owing to Lessor during the Construction
Period. BWBH shall indemnify and hold Lessor harmless from any and all
damages, liabilities, losses and claims, including reasonable attorneys' fees,
arising out of any physical damage to the Premises
5
<PAGE>
caused by BWBH's construction, remodeling and renovation work on the Premises.
BWBH agrees that at the end of the Lease Term, as such Term may be extended,
BWBH shall rebuild the wall which connects the Premises to the adjoining
premises and shall return the Premises to its present condition as a
freestanding building. BWBH shall execute a memorandum regarding its
obligations to rebuild such wall and the wall that is subject of the Agreement
between KDL, Inc., Lessor and Pioneer dated May 1, 1994 in a form acceptable
to the City of Black Hawk. In order to secure BWBH's obligations to rebuild
the walls separating the Premises from adjoining properties, BWBH shall pay
Lessor, beginning January 1 of the second to last year of the Term, five
percent (5%) of the base rent payable during the last two (2) years of the
Term, which amounts shall be held by Lessor in escrow, without interest, and
shall be returned to BWBH upon returning such walls to their original
condition as near as is reasonably possible. In the event that BWBH fails to
so rebuild such walls, such amounts held in escrow shall be the sole property
of Lessor. This remedy shall be in addition to, and shall not prejudice, any
other right or remedy Lessor may have regarding such walls.
16. CONSENT OF LESSOR TO STRUCTURAL IMPROVEMENTS. The parties agree to
amend Paragraph 9(b) of the Original Lease to require that any improvements or
alterations to the structure of the Premises shall require the prior written
approval of Lessor regardless of the cost of such improvements or alterations.
17. OPTION TO EXTEND LEASE TERM. Lessor agrees that following the
Closing Date, and prior to the expiration of the Term of the Lease, provided
that BWBH is not then in default, BWBH shall have the option to extend the
Term for an additional period beginning on September 17, 2022 and ending on
July 31, 2024, with BWBH paying the same fixed monthly rent and Percentage
Rent as BWBH paid Lessor during the Term, as set forth in Section 8 herein.
BWBH shall exercise its option to extend the Term by giving Lessor written
notice not less than 180 days prior to the expiration of the Term.
18. BWBH'S LENDERS' SECURITY INTERESTS. Lessor understands and agrees
that, upon the closing of the Asset Sale and Purchase, BWBH shall subject
BWBH's leasehold interest in the Premises to two deeds of trust which shall be
subject to the Lease and this Agreement. The two deeds of trust secure BWBH's
indebtedness to BWBH's senior secured lenders which have rights to security
interests to after-acquired property, including leasehold interests, of BWBH,
in accordance with the loan agreements between BWBH and the senior secured
lenders and will in no event encumber Lessor's interest in the Real Property.
19. ASSIGNMENT. BWBH may not assign any of its obligations under the
Lease and this Agreement without the prior written
6
<PAGE>
consent of Lessor, which consent shall not be unreasonably withheld.
20. FURTHER ASSURANCES. On the Closing Date, Lessor and Pioneer agree
to recertify that the representations contained in this Agreement are true and
correct as of the Closing Date and that the covenants and agreements contained
in this Agreement are in full force and effect through the Closing Date.
Also, on the Closing Date, Lessor agrees to execute a consent to the
assignment of the Lease by Pioneer to BWBH in a form acceptable to Lessor.
21. NOTICES. Upon the closing of the Asset Sale and Purchase, the address
for notice to Lessee under Section 27 of the Original Lease shall be amended as
follows:
BWBH, Inc.
c/o Alan L. Mayer, Esq.
12596 W. Bayaud Ave.
Suite 450
Lakewood, Colorado 80228
22. COUNTERPARTS. This Agreement may be executed in several
counterparts each of which shall be an original and all of which, when taken
together, shall constitute one instrument notwithstanding that all parties
have not executed the same counterpart. The parties agree that signatures
transmitted by facsimile shall be binding as if they were original signatures.
23. ENTIRE AGREEMENT. The Original Lease, First Amendment, Second
Amendment, Third Amendment, Wall Agreement and this Agreement constitute the
entire agreement between the parties. This Agreement supersedes all written
or oral representations and/or negotiations made by and between the parties
leading up to this Agreement. Except as the Lease is expressly amended by
this Agreement, the Lease shall continue in full force and effect.
24. AMENDMENT. This Agreement may be amended only in writing signed by
the parties to the Agreement affected thereby.
25. ATTORNEYS' FEES AND COSTS. The prevailing party in any action
including but not limited to, any judicial action, mediation and/or
arbitration, brought to interpret or enforce this Agreement and the Lease
shall be entitled to an award of that party's attorneys' fees and costs
against the other party or parties.
26. JURISDICTION, VENUE AND GOVERNING LAW. Jurisdiction and venue of
any action brought to interpret or enforce this Agreement shall be solely in
the state courts of Gilpin County, State of Colorado. This Agreement shall be
governed by the laws of the State of Colorado.
7
<PAGE>
27. NO WAIVER. No waiver by Lessor of any breach or default by Wild
Card, Pioneer Group or Pioneer of any obligations, agreements or covenants
under the Lease shall be a waiver of any subsequent breach or of any
obligation, agreement or covenant, nor shall any forbearance by Lessor in
seeking a remedy for any breach or default by Wild Card, Pioneer Group or
Pioneer be a waiver of Lessor of any rights or remedies with respect to such
or any subsequent breach or default, except as expressly provided in any
written amendment to the Lease.
28. BINDING EFFECT. This Agreement is binding on the parties and their
successors and permitted assigns.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on the
dates below, to be effective as of the Effective Date.
Pioneer:
PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, a
Nevada limited liability company, By Pioneer
Group, LLC, Manager
By: /s/ M. Chaput
----------------------------------
Title: Agent
-------------------------------
Date: 2-10-98
--------------------------------
State of Colorado )
) ss.
County of Gilpin )
The foregoing instrument was acknowledged before me this 10th day of
February, 1998, by M. Chaput of Pioneer Associates Limited Liability Company,
a Nevada limited liability company.
Witness my hand and official seal.
My commission expires Sept. 1, 2000.
/s/ R.H.S. French
------------------------------
Notary Public
8
<PAGE>
BWBH:
BWBH, INC., a Delaware corporation
By: /s/ Alan L. Mayer
----------------------------------
Title: Vice President and Secretary
-------------------------------
Date: February 11, 1998
--------------------------------
State of Colorado )
) ss.
County of Denver )
The foregoing instrument was acknowledged before me this 11th day of
February, 1998, by Alan L. Mayer as V.P. and Secretary of BWBH, INC., a
Delaware corporation.
Witness my hand and official seal.
My commission expires Sept. 1, 2000.
/s/ R.H.S. French
------------------------------
Notary Public
Lessor:
/s/ Edward E. Smith
-------------------------------------
Edward E. Smith
Date: February 11, 1998
--------------------------------
State of Colorado )
) ss.
County of __________)
The foregoing instrument was acknowledged before me this ___________ day of
____________________, 1998, by Edward E. Smith.
Witness my hand and official seal.
My commission expires ______________________________________.
------------------------------
Notary Public
9
<PAGE>
/s/ Shirley J. Smith
-------------------------------------
Shirley J. Smith
Date: February 11, 1998
--------------------------------
State of Colorado )
) ss.
County of ___________)
The foregoing instrument was acknowledged before me this ___________ day of
____________________, 1998, by Shirley J. Smith.
Witness my hand and official seal.
My commission expires ______________________________________.
------------------------------
Notary Public
10
<PAGE>
LEASE ACKNOWLEDGMENT, ASSUMPTION AND MODIFICATION AGREEMENT
THIS LEASE ACKNOWLEDGMENT, ASSUMPTION AND MODIFICATION AGREEMENT
("Agreement"), dated as of February 11, 1998 (the "Effective Date"), is
entered into by and among PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, a
Nevada limited liability company ("Pioneer"), BWBH, INC., a Delaware
corporation ("BWBH"), and KDL, INC., a Colorado corporation (the "Lessor").
R E C I T A L S:
A. Lessor and Pioneer, which inadvertently acquired its leasehold
interest as Pioneer Associates Ltd., entered into a Lease dated March
15, 1994 (the "Lease") by which Lessor leased to Pioneer the premises
located at 131 Gregory Street, Black Hawk, Colorado, more particularly
described as the East 1/2 of Lot 2, Block 29, in the City of Black Hawk,
County of Gilpin, Colorado, together with all improvements thereon and
appurtenances thereto (the "Premises"). Capitalized words not otherwise
defined herein have the meaning set forth in the Lease.
B. Pioneer desires to sell, and BWBH desires to purchase, certain
of Pioneer's assets which it owns and operates on the Premises (the
"Asset Sale and Purchase") as set forth in that certain Asset Purchase
Agreement (the "Asset Purchase Agreement").
C. In connection with the Asset Sale and Purchase, Pioneer
desires to assign to BWBH Pioneer's rights as lessee under the Lease and
BWBH desires to assume Pioneer's obligations under the Lease.
D. Pioneer and BWBH desire to obtain Lessor's consent to the
assignment of the Lease and Lessor has agreed to permit and consent to
the assignment.
E. BWBH and Lessor also desire to modify the Lease in certain
respects, to be effective upon BWBH's and Pioneer's closing of the Asset
Sale and Purchase, as set forth herein.
NOW THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. ASSIGNMENT. Upon the closing of the Asset Sale and Purchase, and as
evidenced by the execution and delivery of an assignment and assumption
agreement ("Assignment and Assumption Agreement"), Pioneer will assign and
transfer to BWBH all of Pioneer's right, title and interest as tenant in and
to the Lease, for the duration of the term of the Lease, as such term is
extended, which Assignment and Assumption Agreement will be dated
<PAGE>
as of and effective upon the date that Pioneer and BWBH close the Asset Sale and
Purchase ("Closing Date").
2. ASSUMPTION. Upon the closing of the Asset Sale and Purchase, BWBH
will, in the Assignment and Assumption Agreement, accept the terms of this
Agreement and assume and be bound by all obligations of Pioneer as tenant,
including the payment of all rent and other sums and performance of all
covenants of Pioneer as tenant pursuant to the Lease, as modified herein.
3. CONSENT. Lessor hereby consents to the assignment of the Lease by
Pioneer to BWBH which consent shall be effective upon the Closing Date. All
of the parties agree that BWBH and Pioneer may record the Assignment and
Assumption Agreement and Lessor's consent thereto in the real property
records of the Clerk and Recorder of Gilpin County, Colorado.
4. RELIANCE ON THIS AGREEMENT. BWBH will consummate the transactions set
forth in the Asset Purchase Agreement in reliance upon Lessor's and Pioneer's
representations, agreements and covenants contained herein, and but for such
representations, agreements and covenants of Pioneer and Lessor as contained
herein, BWBH will not consummate the transactions set forth in the Asset
Purchase Agreement with Pioneer.
5. VALID AGREEMENT. The Lease is a valid agreement between Lessor and
Pioneer. The copy of the Lease attached hereto as EXHIBIT A is a true and
correct reproduction of the Lease and constitutes the entire agreement between
Lessor and Pioneer, except as modified herein.
6. NO DEFAULTS. There have been no defaults by Lessor or Pioneer under
the Lease. Pioneer has paid all rent due to Lessor under the Lease through
the Effective Date. To the Lessor's and Pioneer's knowledge, there are no
conditions or events, either with the giving of notice or lapse of time, or
both, which would be treated or constitute defaults of Lessor or Pioneer with
respect to any of their obligations under the Lease. Lessor agrees to notify
BWBH of any default subsequent to the date hereof of which Lessor becomes aware.
7. TERM. Lessor hereby agrees to modify the Lease to provide that the
term of the Lease shall be extended to July 31, 2024 ("Term").
8. RENT. Upon the closing of the Asset Sale and Purchase and commencing
upon the Closing Date, the rent payments owing under Section 3 of the Lease
shall be modified so that BWBH will pay Lessor the sum of $22,500.00 per month
as rent for the Term of the Lease. The parties acknowledge and agree that
BWBH shall not be
2
<PAGE>
obligated to make any monthly override payments to Lessor as described in the
Lease.
9. GAMING LICENSURE. If the Colorado Limited Gaming Control
Commission (the "Commission") deems it necessary, because of the override
rent paid under the Lease and hereunder, for Lessor to obtain gaming
licensure, Lessor acknowledges and agrees that such gaming licensure shall be
Lessor's responsibility and obligation, and Lessor will indemnify and hold
BWBH harmless from and against all claims, damages, liabilities and losses
arising from Lessor's failure to obtain a gaming licensure upon the
Commission's directive or its obligation under Commission rules and
regulations to obtain same.
10. LEASE BONUS PAID. The parties acknowledge and agree that the Lease
Bonus described in Section 3(a) of the Lease has been paid by Pioneer and
upon the closing of the Asset Sale and Purchase, BWBH shall not be obligated
to pay the Lease Bonus.
11. CONSTRUCTION PERIOD. Lessor understands and agrees that commencing
on the Closing Date, BWBH shall cease operations of its casino business on
the Premises for an approximate 90 day period following the Closing Date
("Construction Period") in order to undertake construction, remodeling and
renovation work in the Premises. The parties understand and agree that Lessor
has previously approved BWBH's construction plans for the Premises, in the
form attached hereto as EXHIBIT B. Notwithstanding Section 8 of this Agreement,
BWBH shall pay $15,000 per month as Rent under the Lease during the
Construction Period. In consideration of Lessor's waiving payment of the
amount of the Rent during the Construction Period, BWBH shall pay Lessor
$7,500.00 upon the Closing Date. IN addition, the parties acknowledge and
agree that upon the earlier to occur of (i) 90 days from the Closing Date or
(ii) BWBH's opening of its casino operations on the Premises, BWBH shall
commence making the rent payments to Lessor which are set forth in Section 8.
12. PAYMENT IN FULL OF NOTE AND INDEBTEDNESS. Both Lessor and Pioneer
represent and warrant that the Note described in Section 3(b) and the debts
described in Sections 3(c), 3(d), 33 and as set forth in Exhibits A1, A2 and C
(other than the IGT debt described in Section 33 and set forth in Exhibit C) of
the Lease have been paid in full. In connection therewith, all parties
therefore agree that the third paragraph of Section 3(e) is no longer
applicable and shall be deleted in its entirety. In the event that any of the
indebtedness described in Sections 3(b), 3(c), 3(d), 33 and as set forth in
Exhibits A1, A2 and C (other than the IGT debt described in Section 33 and
set forth in Exhibit C) of the Lease have not been paid in full, Lessor and
Pioneer agree that upon the closing of the Asset Sale and Purchase, BWBH will
not assume any of such indebtedness and shall not be liable
3
<PAGE>
for such indebtedness to any lender or creditor thereunder upon and following
the Closing Date.
13. IGT DEBT. With respect to the IGT debt set forth in Section 33 and
Exhibit C of the Lease, the parties acknowledge and agree that upon the closing
of the Asset Sale and Purchase, BWBH shall acquire from IGT the gaming devices
which are subject of such debt and negotiate new loans on such devices with IGT
and pay off the existing IGT debt set forth in Section 33 and Exhibit C of the
Lease, and Lessor shall be released from all liability under the existing IGT
debt.
14. OPTION TO PURCHASE. The option to purchase the real property owned by
Lessor ("Real Property") set forth in Section 3(g) of the Lease shall remain in
full force and effect, notwithstanding the assignment of the Lease hereunder,
until March 16, 2001. Lessor agrees that on the Closing Date Pioneer may
assign such option to purchase to BWBH either in the Assignment and
Assumption Agreement or by a separate document in recordable form which
Lessor will sign. Lessor represents and warrants that because all of the
debts have been in paid in full as set forth in Section 13 of this Agreement,
should BWBH exercise the right to purchase the real property owned by Lessor
in accordance with Section 3(g) of the Lease, the purchase price for such
real property shall be $1,200,000 (the "Option Purchase Price"). The option
to purchase the Real Property shall be exercisable by BWBH upon thirty (30)
days' written notice to Lessor and upon such terms and conditions (other than
as set forth herein and in the Lease, including without limitation, the
Purchase Price) as the parties mutually agree in writing, by using the
Colorado Real Estate Commission approved form of Commercial Contract to Buy
and Sell Real Estate (the "Option Purchase Contract"). On the closing date
agreed upon in the Option Purchase Contract, (i) Lessor will convey the Real
Property to BWBH free and clear of all liens and encumbrances; (ii) BWBH
shall pay Lessor in cash, the Option Purchase Price, subject to customary
closing adjustments; and (iii) Lessor will deliver to BWBH an owner's policy
of title insurance which insures fee title to the Real Property in BWBH, free
and clear of all liens and encumbrances.
15. RIGHT OF FIRST REFUSAL. BWBH shall have a right of first refusal
in the event of a sale or transfer of the Real Property by Lessor as provided
in Section 24 of the Lease. Upon Lessor's receipt of an offer to purchase or
otherwise acquire the Real Property (the "Offer"), Lessor shall send such
Offer containing the purchaser's terms and purchase price (the "Offer
Purchase Price") to BWBH. BWBH shall have thirty (30) days' following its
receipt of the Offer to determine whether to purchase the Real Property upon
the terms of such Offer (the "Refusal Period"). If BWBH decides to purchase
the Premises upon the terms contained in the Offer, it shall notify Lessor in
writing prior to the end of the Refusal
4
<PAGE>
Period. The parties agree that in the event that BWBH purchases the Real
Property pursuant to such Offer, the parties will enter into a written
contract upon such terms as the parties mutually agree (other than those
terms set forth in the Offer) using the Colorado Real Estate Commission
approved form of Commercial Contract to Buy and Sell Real Estate (the
"Refusal Purchase Contract"). On the closing date agreed upon in the Refusal
Purchase Contract, (i) Lessor will convey the Real Property to BWBH free and
clear of all liens and encumbrances; (ii) BWBH shall pay Lessor in cash, the
Offer Purchase Price, subject to customary closing adjustments; and (iii)
Lessor will deliver to BWBH an owner's policy of title insurance which
insures fee title to the Real Property in BWBH, free and clear of all liens
and encumbrances. If BWBH does not notify Lessor in writing of BWBH's intent
to purchase the Real Property prior to the expiration of the Refusal Period,
Lessor shall be free to sell or transfer the Real Property to the person
named in the Offer, provided that no such sale or transfer shall be effective
if such sale or transfer would adversely affect BWBH's gaming license or
BWBH's ability to conduct gaming on the Premises.
16. Upon the closing of the Asset Sale and Purchase, BWBH shall not be
liable for any of the amounts due to Lessor under Section 22(d) of the Lease.
17. JEFFERSON NOTE. Section 41 of the Lease is hereby deleted in its
entirety as the Jefferson Note referenced in Section 41 has been paid in full.
18. BWBH'S LENDERS' SECURITY INTERESTS. Lessor understands and agrees
that, upon the closing of the Asset Sale and Purchase, BWBH shall subject
BWBH's leasehold interest in the Premises to two deeds of trust which shall
be subject to the Lease. The two deeds of trust secure BWBH's indebtedness to
BWBH's senior secured lenders which have rights to security interests to
after-acquired property, including leasehold interests, of BWBH, in
accordance with the loan agreements between BWBH and the senior secured
lenders and will in no event encumber Lessor's interest in the Real Property.
BWBH shall furnish Lessor with the notice required under Section 17 of the
Lease.
19. FURTHER ASSURANCES. On the Closing Date, Lessor and Pioneer agree
to recertify that the representations contained in this Agreement are true
and correct as of the Closing Date and that the covenants and agreements
contained in this Agreement are in full force and effect through the Closing
Date. Also, on the Closing Date, Lessor agrees to execute a consent to the
assignment of the Lease by Pioneer to BWBH.
20. NOTICES. Upon the closing of the Asset Sale and Purchase, the
notice to Lessee under the Lease in Section 28 of the Lease shall be revised
as follows:
5
<PAGE>
BWBH, Inc.
c/o Alan L. Mayer, Esq.
12596 W. Bayaud Ave.
Suite 450
Lakewood, Colorado 80228
21. COUNTERPARTS. This Agreement may be executed in several counterparts
each of which shall be an original and all of which, when taken together, shall
constitute one instrument notwithstanding that all parties have not executed the
same counterpart. The parties agree that signatures transmitted by facsimile
shall be binding as if they were original signatures.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
effective as of the date set forth in the first page of this Agreement.
Pioneer:
PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, a
Nevada limited liability company
By: /s/ M. Chaput
---------------------------------------------
Title: Agent
------------------------------------------
BWBH:
BWBH, INC., a Delaware corporation
By: /s/ Alan L. Mayer
---------------------------------------------
Title: VP and Secretary
------------------------------------------
LESSOR:
KDL, INC., a Colorado corporation
By: /s/ Kenneth Dalton
---------------------------------------------
Title: President
------------------------------------------
6
<PAGE>
LEASE ACKNOWLEDGMENT, ASSUMPTION AND MODIFICATION AGREEMENT
THIS LEASE ACKNOWLEDGMENT, ASSUMPTION AND MODIFICATION AGREEMENT
("Second Lease Modification"), dated as of February 11, 1998 (the Effective
Date), is entered into by and among PIONEER ASSOCIATES LIMITED LIABILITY
COMPANY, a Nevada limited liability company ("Pioneer"), BWBH, INC., a
Delaware corporation ("BWBH"), KDL, INC., a Colorado corporation ("KDL")
and ELIZABETH BRANECKI (the "Lessor").
R E C I T A L S:
A. Lessor and KDL entered into a Lease dated July 10, 1991 (the
"Original Lease") by which Lessor leased to KDL the premises as more
particularly described in Section One of the Original Lease (the
"Premises").
B. By that certain Agreement dated March 16, 1994 ("First Lease
Modification"), by and among KDL, Lessor and Pioneer, which
inadvertently acquired its leasehold interest as Pioneer Associates
Ltd., KDL assigned all of its right, title and interest in the Original
Lease to Pioneer, Lessor consented to such assignment of the Lease and
the Lease was modified in certain respects. Pursuant to the First Lease
Modification, KDL remains primarily liable on the Original Lease through
July 31, 2001. The Original Lease and the First Lease Modification, as
modified by this Second Lease Modification, shall hereinafter
collectively be referred to as the Lease. Capitalized words not
otherwise defined herein have the meaning set forth in the Lease.
C. Pioneer desires to sell, and BWBH desires to purchase, certain
of Pioneer's assets which it owns and operates on the Premises (the
"Asset Sale and Purchase") as set forth in that certain Asset Purchase
Agreement.
D. In connection with the Asset Sale and Purchase, Pioneer
desires to assign to BWBH Pioneer's rights as lessee under the Lease and
BWBH desires to assume Pioneer's obligations under the Lease.
E. Pioneer and BWBH desire to obtain Lessor's consent to the
assignment of the Lease and Lessor has agreed to permit and consent to
the assignment.
F. BWBH and Lessor also desire to modify the Lease in certain
respects, to be effective upon BWBH's and Pioneer's closing of the Asset
Sale and Purchase, as set forth herein.
NOW THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
<PAGE>
1. ASSIGNMENT. Upon the closing of the Asset Sale and Purchase, as
evidenced by the execution and delivery of an assignment and assumption
agreement ("Assignment and Assumption Agreement"), Pioneer will assign and
transfer to BWBH all of Pioneer's right, title and interest as tenant in and
to the Lease, for the duration of the term of the Lease, as such term is
extended, which Assignment and Assumption Agreement will be dated as of and
effective upon the Effective Date.
2. ASSUMPTION. Upon the closing of the Asset Sale and Purchase, BWBH
will, in the Assignment and Assumption Agreement, accept the terms of this
Second Lease Modification, and assume and be bound by all obligations of
Pioneer (and KDL as applicable) as tenant, including the payment of all rent
and other sums and performance of all covenants of Pioneer and/or KDL as
tenant pursuant to the Lease, as modified herein.
3. CONSENT TO ASSIGNMENT OF LEASE. Lessor hereby consents in writing
to the assignment of the Lease by Pioneer to BWBH, which consent shall be
effective upon the Effective Date. All of the parties agree that BWBH and
Pioneer may record the Assignment and Assumption Agreement and Lessor's
consent thereto in the real property records of the Clerk and Recorder of
Gilpin County, Colorado.
4. AMENDMENT OF DESCRIPTION OF THE PREMISES. Lessor acknowledges
that Pioneer will file an action to quiet the title to the Premises and the
adjoining premises because of certain gaps in the chain of title to a portion
of the Premises (the "Quiet Title Action"). Notwithstanding the foregoing,
Lessor hereby agrees that the description of the Premises set forth in
Section One of the Original Lease is hereby amended to provide that Lessor
hereby leases to BWBH all of Lessor's (i) right, title and interest in and to
the West 17.5 Feet, approximately, of Lot 2, Block 29, and (ii) all of her
right, title and interest in Lot 2, Block 29, which she may hereinafter
acquire, as to which Lessor makes no warranty of title with their
appurtenances, all situated in the Town of Black Hawk, County of Gilpin,
State of Colorado.
5. RELIANCE ON THIS AGREEMENT. BWBH will consummate the transactions
set forth in the Asset Purchase Agreement in reliance upon Lessor's and
Pioneer's representations, agreements and covenants contained herein, and but
for such representations, agreements and covenants of Pioneer and Lessor as
contained herein, BWBH will not consummate the transactions set forth in the
Asset Purchase Agreement with Pioneer.
6. VALID AGREEMENT. The Lease is a valid agreement among Lessor, KDL
and Pioneer. The copies of the Original Lease and First Lease Modification
attached hereto as EXHIBIT A are true and correct reproductions of the
Original Lease and First Lease
2
<PAGE>
Modification and constitute the entire agreement among Lessor, KDL and
Pioneer, except as modified herein.
7. NO DEFAULTS. There have been no defaults by Lessor, KDL or
Pioneer under the Lease. KDL and Pioneer have paid all rent due to Lessor
under the Lease through the Effective Date. To the Lessor's, KDL's, and
Pioneer's knowledge, there are, as of the Effective Date, no conditions or
events, either with the giving of notice or lapse of time, or both, which
would be treated or constitute defaults of Lessor, KDL or Pioneer with
respect to any of their obligations under the Lease. Lessor agrees to notify
BWBH of any defaults under the Lease subsequent to the date hereof of which
Lessor becomes aware.
8. TERM. The current term of the Original Lease will expire on July
31, 2001 (the "Term"). Under the First Lease Modification, Lessor granted
Pioneer two (2) renewal periods of five (5) years each, beginning on August
1, 2001 and ending July 31, 2011.
9. EXTENSION OF LEASE TERM. Lessor KDL, Pioneer and BWBH agree that
upon the Effective Date, the Term of the Lease shall be extended through July
31, 2024.
10. RENT. Pursuant to Section 3 of the Original Lease, Pioneer paid
Lessor base rent of $5,000.00 per month plus monthly override payments of 4%
of the "gaming gross" (as such term is defined in the Original Lease) so long
as the gaming gross from both Premises and the premises located at 131
Gregory Street was in excess of $55,000.00 per month (the "Override
Payments"). Lessor and BWBH hereby agree to amend Section 3 of the Original
Lease so that (i) BWBH shall not be required to make any Override Payments to
Lessor; and (ii) BWBH shall pay Lessor base rent only, in accordance with the
following rent schedule:
a. If the Average Daily Proceeds ("ADP") from all of the slot
machines, poker tables and black jack tables (the "Gaming Devices"), which
ADP consists of the average daily amount of all monies wagered less all
monies paid back to wagerers from all of the Gaming Devices, the average of
which is calculated on a calendar monthly basis, located in (i) the Premises
and (ii) the premises located at 125-131 Gregory Street (collectively, the
"Bronco Billy's Premises") is $70.00 or less per Gaming Device, BWBH shall
pay Lessor, monthly on the 1st day of each month, base rent, as set forth in
this subsection a, and additional base rent as set forth in subsections b
thru e in the following amounts:
$12,500.00 commencing upon the earlier to occur of (i) 90
days from the Effective Date or (ii) the date upon which
BWBH opens its casino business on the Premises, through
July 31, 2001;
3
<PAGE>
$13,000.00 commencing August 1, 2001 through July 31, 2006;
$13,550.00 commencing August 1, 2006 through July 31, 2011;
$14,518.00 commencing August 1, 2011 through July 31, 2019;
and
$15,220.00 commencing August 1, 2019 through July 31, 2024.
b. If the ADP from the Gaming Devices on the Bronco Billy's Premises
is $70.01 to $80.00 per Gaming Device, BWBH shall pay Lessor monthly rent under
the Lease in the following amounts:
$13,500.00 commencing upon the earlier to occur of (i) 90
days from the Effective Date or (ii) the date upon which
BWBH opens its casino business on the Premises through
July 31, 2001;
$14,000.00 commencing August 1, 2001 through July 31, 2006;
$14,550.00 commencing August 1, 2006 through July 31, 2011;
$15,518.00 commencing August 1, 2011 through July 31, 2019;
and
$16,220.00 commencing August 1, 2019 through July 31, 2024.
c. If the ADP from the Gaming Devices on the Bronco Billy's Premises
is $80.01 to $90.00 per Gaming Device, BWBH shall pay Lessor monthly rent under
the Lease in the following amounts:
$14,500.00 commencing upon the earlier to occur of (i) 90
days from the Effective Date or (ii) the date upon which
BWBH opens its casino business on the Premises through
July 31, 2001;
$15,000.00 commencing August 1, 2001 through July 31, 2006;
$15,550.00 commencing August 1, 2006 through July 31, 2011;
4
<PAGE>
$16,518.00 commencing August 1, 2011 through July 31, 2019;
and
$17,220.00 commencing August 1, 2019 through July 31, 2024.
d. If the ADP from the Gaming Devices on the Bronco Billy's Premises
is $90.01 to $100.00 per Gaming Device, BWBH shall pay Lessor monthly rent under
the Lease in the following amounts:
$15,500.00 commencing upon the earlier to occur of (i) 90
days from the Effective Date or (ii) the date upon which
BWBH opens its casino business on the Premises through
July 31, 2001;
$16,000.00 commencing August 1, 2001 through July 31, 2006;
$16,550.00 commencing August 1, 2006 through July 31, 2011;
$17,518.00 commencing August 1, 2011 through July 31, 2019;
and
$18,220.00 commencing August 1, 2019 through July 31, 2024.
e. If the ADP from all gaming devices on the Bronco Billy's Premises
is $100.01 or more per gaming device, BWBH shall pay Lessor monthly rent under
the Lease in the following amounts:
$16,500.00 commencing upon the earlier to occur of (i) 90
days from the Effective Date or (ii) the date upon which
BWBH opens its casino business on the Premises through
July 31, 2001;
$17,000.00 commencing August 1, 2001 through July 31, 2006;
$17,550.00 commencing August 1, 2006 through July 31, 2011;
$18,518.00 commencing August 1, 2011 through July 31, 2019;
and
$19,220.00 commencing August 1, 2019 through July 31, 2024.
5
<PAGE>
BWBH and Lessor agree that if BWBH owes Lessor additional base rent
pursuant to subsections b through e above for any month, BWBH's payment of
the additional base rent shall be due on or before the 1st day of the second
month thereafter. BWBH also agrees to supply Lessor with records of the
gaming proceeds and ADP calculations with each rent payment, and upon
request, BWBH shall also supply Lessor with copies of any records or
information that BWBH supplies to the Commission in connection with the ADP.
11. GAMING LICENSURE. If the Colorado Limited Gaming Control
Commission ("Commission") deems it necessary for Lessor to obtain gaming
licensure, Lessor acknowledges and agrees that such gaming licensure shall be
her responsibility and obligation. In the event that the Commission
determines that licensure of the Lessor is necessary, and such determination
prevents the payment of all or any portion of the rent by BWBH to Lessor
under the Lease, BWBH shall pay any such rent amounts otherwise due under the
Lease into an interest-bearing escrow account with an escrow agent reasonably
satisfactory to Lessor and BWBH. Upon the receipt of such license or other
determination that such license is not necessary, or pending other
arrangements satisfactory to the Commission. BWBH shall have the escrow
agent disburse all amounts and interest thereon in the escrow account to
Lessor.
12. TAXES. BWBH acknowledges and agrees that its obligation to pay
all taxes assessed and imposed against the Premises as set forth in Section
Eight of the Original Lease shall include payment of all taxes hereinafter
assessed against the Premises by any special improvement district, business
district or metropolitan district.
13. LEASE BONUS PAID. The parties acknowledge and agree that the lease
bonus described in Section 6 of the First Lease Modification has been paid by
Pioneer and KDL and upon the closing of the Asset Sale and Purchase, BWBH
shall not be obligated to pay such lease bonus. The parties further
acknowledge and agree that Pioneer shall pay $55,000.00 to Lessor on the
Effective Date as consideration for Lessor's entering into this Second Lease
Modification, and that but if such $55,000.00 is not paid by Pioneer to
Lessor on the Effective Date, Lessor will not execute and deliver this Second
Lease Modification. The parties further agree that such $55,000 paid by
Pioneer to Lessor shall be Pioneer's sole responsibility and BWBH shall have
no liability to Lessor or Pioneer for payment of any portion thereof.
14. PARKING IMPACT FEES PAID. Pioneer represents and warrants that it
has paid all impact parking fees owing to the City of Black Hawk for the
Premises and the premises located at 131 Gregory Street, Black Hawk, Colorado,
as described in Section 7 of the Lease Modification, and commencing on the
Effective Date, BWBH shall not be obligated to pay such impact parking fees.
6
<PAGE>
15. CONSTRUCTION PERIOD. Lessor understands and agrees that commencing
on the Effective Date, BWBH shall cease operations of its casino business on
the Premises for an approximate 90 day period following the Effective Date
("Construction Period") in order to undertake construction, remodeling and
renovation work in the Premises. The parties understand and agree that Lessor
has previously approved BWBH's construction plans for the Premises, in the
form attached hereto as EXHIBIT B. In consideration of Lessor's waiving
payment of the rental amounts set forth in Section 10 during the Construction
Period, BWBH shall pay Lessor (i) a one-time payment of $10,000 upon the
Effective Date and (ii) monthly rent in the amount of $5,000.00 during the
Construction Period, commencing upon the Effective Date. In addition, the
parties acknowledge and agree that upon the earlier to occur of (i) 90 days
from the Effective Date or (ii) BWBH's opening of its casino operations on
the Premises, BWBH shall commence making the rent payments to Lessor which
are set forth in Section 10. Notwithstanding the foregoing, the parties
agree that Pioneer's obligation pay rent to Lessor under the Lease shall
include for all periods up to the Effective date.
16. BWBH'S LENDERS' SECURITY INTERESTS. Lessor understands and agrees
that, upon the closing of the Asset Sale and Purchase, BWBH shall subject
BWBH's leasehold interest in the Premises to two deeds of trust which shall
be subject to the Lease. The two deeds of trust secure BWBH's indebtedness to
BWBH's senior secured lenders which have rights to security interests to
after-acquired property, including leasehold interests, of BWBH, in accordance
with the loan agreements between BWBH and the senior secured lenders and will
in no event encumber Lessor's interest in the real Property.
17. NOTICES. Upon the closing of the Asset Sale and Purchase, the
notice to Lessee under the Lease in Section 7 of the Lease shall be revised
as follows:
BWBH, Inc.
c/o Alan L. Mayer, Esq.
12596 W. Bayaud Ave.
Suite 450
Lakewood, Colorado 80228
18. COUNTERPARTS. This Second Lease Modification may be executed in
several counterparts each of which shall be an original and all of which,
when taken together, shall constitute one instrument notwithstanding that all
parties have not executed the same counterpart. The parties agree that
signatures transmitted by facsimile shall be binding as if they were original
signatures.
IN WITNESS WHEREOF, this Second Lease Modification has been executed by
the parties effective as of the Effective Date.
7
<PAGE>
Pioneer:
PIONEER ASSOCIATES LIMITED LIABILITY COMPANY, a
Nevada limited liability company
By: /s/ M. Chaput
---------------------------------------------
Title: Agent
------------------------------------------
BWBH:
BWBH, INC., a Delaware corporation
By: /s/ Alan L. Mayer
---------------------------------------------
Title: Vice President and Secretary
------------------------------------------
KDL:
KDL, INC., a Colorado corporation
By: /s/ Kenneth Dalton
---------------------------------------------
Title: President
------------------------------------------
Lessor:
/s/ Elizabeth Branecki
------------------------------------------------
Elizabeth Branecki
8
<PAGE>
Exhibit 10.39
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is made this 27th day of
May, 1997 by and between Stephen J. Szapor, Jr. (the "Executive") and
Colorado Gaming & Entertainment Co. (the "Company").
Pursuant to an Employment Agreement dated June 7, 1996 (the "Employment
Agreement"), the Company agreed to employ the Executive as its President and
Chief Executive Officer for a period of three years.
The Company and the Executive have agreed to extend the term of the
Employment Agreement for an additional year and to modify the Employment
Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual promises
herein contained, the parties hereto agree as follows:
1. Section 3 of the Employment Agreement is hereby amended by amending
the date "June 7, 1999" where it appears therein to read "June 6, 2000".
2. Effective June 7, 1997, the Base Salary as defined in Section 4(a)
of the Employment Agreement shall be increased to $312,000.
3. Section 4(b) of the Employment Agreement is hereby amended by
adding a new subsection (4) at the end thereof to read in its entirety as
follows:
"(4) AUTOMOBILE. The Company shall provide the Executive with
the full time use of an automobile during the term of this
Agreement at the expense of the Company, it being understood that
the Executive shall be responsible for any taxes imposed on the
Executive as a result of his personal use of the automobile. The
automobile shall be selected jointly by the Executive and the
Company and shall be of a kind in keeping with the Executive's
stature as the President and Chief Executive Officer of a public
company."
4. Except as specifically amended hereby, the Employment Agreement
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date first above written.
COLORADO GAMING &
ENTERTAINMENT CO.
By: /s/ Alan L. Mayer
-----------------------------------
Its: Vice President and Secretary
-------------------------------
/s/ Stephen J. Szapor, Jr.
---------------------------------------
Stephen J. Szapor, Jr.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,228
<SECURITIES> 0
<RECEIVABLES> 467
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0
0
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