MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (the "Memorandum") is entered into as of
this 1st day of November, 1996, by and between Gold Coin Incorporated, a
Delaware corporation, d/b/a Lady Luck Gold Coin Gambling Hall & Saloon ("Lady
Luck"), and BWCC, Inc. a Delaware corporation, d/b/a Bullwhackers Central City
("Bullwhackers").
WHEREAS the parties hereto are desirous of combining and making capital
improvements to their respective gaming establishments which currently operate
on adjacent real property in Central City, Colorado;
WHEREAS, Lady Luck is willing to provide the capital for such improvements
and has expertise in the design and construction of projects similar to the
improvements that the parties intend to make to their respective facilities;
WHEREAS, Bullwhackers is willing to provide the resources and expertise
necessary for the management of the joint operation of the subsequent to the
completion of such capital improvements, and
WHEREAS, the parties desire to enter into this Memorandum to set forth a
preliminary basis upon which this transaction may ultimately be consummated, and
to provide a basis upon which both parties can undertake a more complete due
diligence investigation of the matters described herein. Both parties
acknowledge that this Memorandum is not intended to be a complete description of
the transaction, and that the entire transaction is subject to the execution of
Definitive Agreements (as defined below);
NOW, THEREFORE, and in consideration of the above, the parties hereby
express their intent, subject to the conditions and contingencies hereof, to
enter into agreements consistent with the following terms:
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I. Capital Improvements.
A. The parties shall make the improvements necessary to combine the
existing Lady Luck operation with the existing Bullwhackers operation
by demolishing and removing all or part of the walls that currently
separate such operations. The parties shall also reconfigure and
renovate the interior of their existing operations so as to
accommodate their joint operation. The parties further anticipate that
improvements to Lady Luck's existing gaming equipment shall also be
made. For purposes of this Memorandum, the foregoing improvements
shall hereafter be referred to as the "Capital Improvements" and the
facility resulting from the combination of the existing Lady Luck
operation and the existing Bullwhacker operation shall hereafter be
referred to as the "Joint Facility".
B. Bullwhackers and Lady Luck shall allow the Joint Facility to use all
of their respective assets as of the date hereof, including, without
limitation, the following: (i) the real property, and all their
respective rights to lease real property, required for their
respective operations; (ii) the furniture, fixture and equipment and
any other tangible personal property, and all their respective rights
to lease tangible personal property, required for their respective
operations; and (iii) the permits, licenses, applications, plans and
other intangible assets related to their respective operations,
provided such intangible assets, including specifically, the gaming
and liquor licenses, can be transferred to the Joint Facility. If the
Executive Committee (as defined below) determines not to use any
specific property, whether real, personal or intangible, in connection
with the Joint Facility, the owner of such property shall be solely
responsible for removing, storing, destroying, selling or otherwise
disposing of such property. None of the respective companies debt of
lease obligations are being transferred to the Joint Facility. Should
either of the parties default on any of their respective debt or lease
obligations, the non-defaulting party shall have no obligation
whatsoever to cure or otherwise remedy such default. If the
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default relates to property, whether real, personal or intangible,
being used by the Joint Facility, or for which a third party has
secured rights, the non-defaulting party may immediately terminate its
participation in the Joint Facility and may take steps to replace the
removed walls and return to operating its independent facility. Each
party shall provide to the other sufficient evidence of any required
consents from or relating to any lender third-party mortgagee or
interest holder in any property to be used by the Joint Facility.
C. The parties shall design, construct and complete the Capital
Improvements in accordance with plans and specifications (the
"Plans and Specifications"). The Capital Improvements shall be
constructed in a diligent and efficient manner according to a
schedule (the "Capital Improvement Schedule"). The Capital
Improvements will be constructed substantially in accordance with
a budget (the "Capital Improvement Budget"). The Plans and
Specifications, Capital Improvement Schedule and Capital
Improvement Budget shall be prepared and approved in form and
substance satisfactory in all respects to Lady Luck and
Bullwhackers and their approval shall be a condition precedent to
entering into the Definitive Agreements. In no event shall the
Capital Improvement Budget exceed ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($1,500,000). The money for the Capital
Improvement Budget shall be placed in and disbursed in accordance
with an Escrow Agreement to be entered into by the parties as one
of the Definitive Agreements. All Capital Improvements shall be
performed pursuant to customary construction documents reasonably
approved by both parties, including a guaranteed maximum price
contract with the general contractor. Any change orders to the
Capital Improvement Budget shall be approved by the Executive
Committee (as defined below). In the absence of an approved
change order, Lady Luck shall be solely and exclusively
responsible for any cost overruns.
D. Subject to Bullwhackers approval in its sole and absolute
discretion, Lady Luck shall
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be responsible for :(i) the design and construction of the
Capital Improvements; (ii) the selection, approval, hiring and
discharge of engineers, architects, contractors, subcontractors,
professionals and other required third parties; (iii) the
negotiation and execution of contracts, agreements, easements and
other such documents with third parties with respect to the
Capital Improvements; and (iv) the preparation of budgets and
cost estimates. Approval of all of the foregoing shall be
conditions precedent to entering into the Definitive Agreements.
E. Upon satisfaction or waiver of Contingencies (as defined below),
Lady Luck shall provide the capital required to make the Capital
Improvements in accordance with the Capital Improvement Budget
and the Escrow Agreement. In the event the parties mutually
determine it would be in the best interest of the Joint Facility
to remodel and convert Lady Luck's existing restaurant area to
some other use, the Bullwhackers shall provide fifty percent
(50%) of the capital requited for such improvements.
2. Management of the Joint Facility.
A. The general business and affairs of the Joint Facility shall be
managed by an Executive Committee (or similar body) (the
"Executive Committee") consisting of four members, two of which
shall be appointed by Lady Luck and two of which shall be
appointed by Bullwhackers. A unanimous vote of the Executive
Committee shall be required for all major decisions including,
without limitation, construction budgets, design decisions,
operating budgets and similar matters and for all the following
matters: (i) any decision by the Joint Facility to enter into a
new line of business; (ii) any decision to postpone, defer or
cancel any required distribution; (iii) any decision to increase
capital expenditures at the Joint Facility; (iv) any transaction
between the Joint Facility and Lady Luck, Bullwhackers or any of
their respective affiliates (other than the Management Agreement
(as defined below)); (v) any amendment to the Definitive
Agreements; (vi) any decision to enter any agreement
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or series of agreements for consideration in aggregate amount in
excess of $25,000 regarding the operation of the Joint Facility;
(vii) any decision by Bullwhackers under the Management Agreement
to sell any particular asset utilized in the operation of the
Joint Facility in excess of $25,000 (the individual owner of such
asset shall be allowed to keep the proceeds therefrom); (viii)
any decision to enter any employment agreement or other
arrangement which involves annual compensation in excess of
$50,000; and (ix) any decision to consolidate, merge or otherwise
transfer the assets of Lady Luck or Bullwhackers to a third
party. The Executive Committee shall appoint a Secretary who
shall ensure that all members of the Executive Committee receive
appropriate prior notice of the Committee's meetings and who
shall prepare minutes of each meeting to be approved by the
Executive Committee. With respect to each matter that comes
before the Executive Committee, each member shall have one vote.
B. The day-to-day operations of the Joint Facility shall be managed
by Bullwhackers pursuant to an agreement (the "Management
Agreement"), which shall provide for a base management fee equal
to ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000) annually
payable in monthly installments of TEN THOUSAND DOLLARS
($10,000). The Management Agreement shall be terminable upon: (i)
the bankruptcy or insolvency of Lady Luck or Bullwhackers, (ii)
the sale of all or substantially all of the assets of either Lady
Luck or Bullwhackers; or (iii) the material breach or failure of
Bullwhackers to satisfy certain reasonable performance standards
that are to be provided for in the Management Agreement. Upon a
termination of the Management Agreement, the parties may
immediately terminate their respective participation in the Joint
Facility and may take steps to replace the removed walls and
return to operating their independent facilities. Bullwhackers
shall not be required to achieve such performance standards in
the event of material adverse conditions, which conditions shall
be described in the Management Agreement, including construction
disruption.
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C. The Management Agreement shall require Bullwhackers to prepare a
budget for submission to the Executive Committee at least ninety
(90) days prior to the start of each fiscal year, which fiscal
year shall commence on the Commencement Date (as defined below)
and each anniversary thereof. The Joint Facility shall be managed
in accordance with such budget as approved by the Executive
Committee. The Management Agreement will provide, with certain
limitations to be more fully described therein, that Bullwhackers
shall indemnify Lady Luck for all liabilities and obligations
arising out of services provided by Bullwhackers. In the event
the EBITDA (as defined below) generated by operations at the
Joint Facility exceeds TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
($2,7000,000) during any fiscal year during the term of the
Management Agreement, then Bullwhackers shall receive an
additional fee equal to FORTY FIVE THOUSAND DOLLARS ($45,000).
D. The parties will need to meet and confer and agree upon the
entity which employs the employees of the Joint Facility.
Bullwhackers shall be able to select in its sole discretion the
employees which it determines are necessary to operate the Joint
Facility, so long as the expenses associated with such employees
are consistent with the budget approved by the Executive
Committee.
3. Distributions.
A. Distributions of the EBITDA generated by the operations of the
Joint Facility shall be made from time to time upon approval of
the Executive committee, provided, however, in no event shall
such distributions be made less than on a quarterly basis. All
such distributions will be made in accordance with the following
priorities:
1. First, to Lady Luck, in an amount equal to the initial THREE
HUNDRED FIFTY THOUSAND DOLLARS ($350,000) of EBITDA (the
"Lady Luck
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Preference") generated by the operation of the Joint
Facility, provided that the Capital Improvement Budget was
$1,5000,000. If less than the full $1,5000,000 was actually
used for the Capital Improvement Budget, the Lady Luck
Preference shall be reduced to 25% of the actual amount used
for the Capital Improvement Budget;
2. Second, after the payment of the Lady Luck Preference, the
next ONE MILLION DOLLARS ($1,000,000) of EBITDA (the
"Bullwhackers Preference") generated by the operation of the
Joint Facility shall be distributed to Bullwhackers;
3. Third, after the payment of the Lady Luck Preference and the
Bullwhackers Preference, the next FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) of EBITDA generated by the operation
of the Joint Facility shall be distributed twenty-five
percent (25%) to Lady Luck and seventy-five (75%) to
Bullwhackers (the "Secondary Preference");
4. Finally, after the payment of the Lady Luck Preference, the
Bullwhackers Preference and the Secondary Preference, the
remaining EBITDA generated by operations at the Joint
Facility shall be distributed in equal amounts to Lady Luck
and Bullwhackers (the "Final Preference").
5. EBITDA shall be completely defined in the Management
Agreement; however, for the purposes of this Paragraph,
"EBITDA" shall mean, for any year, the net income (or loss)
for such year (after deducting all Management Fees,
including the $45,000 bonus if applicable, and excluding
interest income, extraordinary gains and losses, gains and
losses on the sale of assets, gains or losses arising out of
litigation awards or judgments, gains or losses arising out
of insurance proceeds and other nonrecurring or unusual
gains and
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losses) adjusted to add thereto (to the extent deducted from
net revenues in determining net income) interest expense,
income tax expense, and depreciation and amortization
expense (it being understood that preopening expenses shall
not be added thereto), all as determined in accordance with
generally accepted accounting principles, of Lady Luck and
Bullwhackers.
B. The Lady Luck Preference, Bullwhackers Preference Secondary
Preference and Final Preference are payable in quarterly
distributions for the period from the Commencement Date to the
first anniversary of the Commencement Date, at which point the
order of preferences, and the payments on account of each
preference, begin anew for each subsequent year in which the
Joint Facility has operations. The quarterly distributions may be
made based on reasonable estimates that will be reconciled at the
end of each year of operations of the Joint Facility. The Lady
luck Preference, Bullwhackers Preference and the Secondary
Preference were agreed to based on the assumption that the Joint
Facility would generate TWO MILLION SEVEN HUNDRED THOUSAND
DOLLARS ($2,700,000) of EBITDA per annum. In the event the
parties, based on their due diligence investigation, determine
that such assumption is not reasonable, then the amounts of the
aforementioned preferences may be adjusted upon the mutual
agreement of both parties.
C. Proper and complete books of account and other records of the
business of the Joint Facility shall be kept by or under the
supervision of Bullwhackers at the principal offices of
Bullwhackers and shall be open to inspection by Lady Luck or its
representatives at any time during business hours.
4. Buy/Sell Provision.
A. Lady Luck shall provide Bullwhackers a put option to sell it
assets, which option shall be exercised, if at all upon 120 days
prior written notice, at any time after the
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Joint Facility commences gaming operations (the "Commencement
Date"). The Exercise Price (as defined below) of such option
shall be discounted: twenty-five percent (25%) if exercised
within 180 days of the Commencement Date; twenty percent (20%) if
exercised more than 180 but less than 360 days from the
Commencement Date; and ten percent (10%) if exercised more than
360 but less than 540 days from the Commencement Date.
B. For purposes of this Sections of "Exercise Price" shall be an
amount equal to the greater of either (i) the book value of
Bullwhackers assets, or (ii) an amount equal to the sum of (Y)
five (5) times Bullwhackers' EBITDA for the portion of trailing
twelve-months in which the Joint Facility was not operational,
plus (Z) two and one- half (2.5) times the Joint Facility's
EBITDA for the portion of the trailing twelve- months in which
the Joint Facility was operational. The Exercise Price shall be
payable twenty-five percent (25%) in cash at closing with the
balance to be payable by Lady Luck in a manner to be agreed upon
and described in one of the Definitive Agreements, including,
potentially, through the payment to Bullwhackers of securities
issued by Lady Luck's parent corporation. In the event
Bullwhackers does not receive adequate assurances as to the
payment of Exercise Price, Bullwhackers may elect to immediately
terminate its participation in the Joint Facility and take steps
to replace the removed walls and return to operating its
independent facility.
C. Lady Luck shall have the option to purchase the assets of
Bullwhackers and Bullwhackers shall have the option to purchase
the assets of Lady Luck, which option shall be exercised, if at
all, upon 120 days written notice, at any time after the
Commencement Date. The consideration paid by the party exercising
such option shall be calculated in accordance with Paragraph 5(B)
hereof, and will in either the event of the exercise of the put
option to sell or option to purchase, be subject to the
applicable consent of third-party lenders, mortgagees and
interest holders.
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5. The Contingencies.
Notwithstanding anything to the contrary contained herein, Lady Luck
and Bullwhackers acknowledge and agree that the parties' obligations
imposed pursuant to the terms and conditions set forth in this
Memorandum are expressly subject to the satisfaction or waiver of the
following contingencies (collectively the "Contingencies"):
A. All required governmental approvals authorizing the construction
and operation of the Joint Facility from any and all applicable
governmental agencies being issued to Lady Luck and Bullwhackers
and remaining in full force and effect in form and substance
satisfactory to the parties. Specifically, the operation of the
Joint Facility (including, specifically, the establishment of the
Executive Committee and the Management Agreement) shall be
subject to the approval of the Colorado Limited Gaming control
Commission and the applicable body responsible for the issuance
of a liquor license. The parties will need to determine which
entity holds the applicable licenses and what will be done with
the current licenses held by each party. Lady Luck acknowledges
that there is a three license limitation in Colorado for both
gaming and liquor licenses and the transaction will have to be
structured to ensure that at no time will Bullwhackers or its
affiliates be in violation of such regulatory restriction.
B. The Management Agreement and any other definitive agreement
required by the transaction contemplated hereby, including,
without limitation, the Escrow Agreement, the Plans and
Specifications, the Capital Improvements Budget, the Capital
Improvement Schedule, construction documents, etc. (collectively,
the "Definitive Agreements") being entered by and between Lady
Luck and Bullwhackers.
C. The timely completion of the plans and specifications for the
Capital Improvements
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and the Capital Improvement Budget.
D. The Parties obtaining any required consent or amendment to any
existing obligations to third parties required to consummate the
transactions contemplated hereby in form and substance
satisfactory to the parties, and the obtaining of final
authorization from the board of directors of each company.
6. Miscellaneous
A. The terms and conditions of this Memorandum can neither be
substantially modified nor limited except by mutual written
agreement between Lady Luck and Bullwhackers.
B. THIS MEMORANDUM IS TO BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE LAWS OF THE STATE OF COLORADO.
C. Bullwhackers is not the agent or representative of Lady Luck, and
Lady Luck is not the agent or representative of Bullwhackers.
Nothing herein or the acts of the parties hereto shall be
construed to create a partnership or joint venture between Lady
Luck and Bullwhackers.
D. This Memorandum may be executed in any manner and in any number
of counterparts with the same effect as if the parties hereto
have signed the same document. All such counterparts shall
constitute one instrument.
E. In the event of any controversy, claim or dispute between the
parties hereto or arising out of or related to this Memorandum or
the breach thereof, the prevailing party shall be entitled to
recover reasonable attorneys' fees, court costs and expenses
incurred
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related thereto, in addition to any other remedy in law or in
equity.
F. In connection with the transactions contemplated by this
Memorandum, Lady Luck will be furnishing to Bullwhackers and
Bullwhackers will be furnishing to Lady Luck certain information
which is either non-public, confidential or proprietary in
nature. Each party agrees that all such information furnished or
otherwise obtained directly or indirectly, by it its directors,
officers, partners, employees, agents or representative,
including, without limitation, attorneys accountants, partners
experts and consultants (collectively "Representatives") and all
reports, analysis, compilations, data, studies or other documents
prepared by either party or its Representatives containing or
based, in whole or in part, on any such furnished information
(collectively, the "Information") will be kept strictly
confidential by each party and its Representatives and will not,
without the prior written consent of the party providing the
Information, be disclosed to any other individual, corporation,
partnership, joint venture, trust or association in any manner
whatsoever, in whole or in part.
The Information will not be used by Lady Luck, Bullwhackers or
their Representatives, directly or indirectly, for any purpose
other than evaluating this transaction. Each party also agrees
that it will not deliver any of the Information to any
Representative that has not been informed of, and agrees to abide
by, the terms of this paragraph. Each party agrees that it will
obtain the prior approval of the other party regarding any press
releases, public statements or other public communications
regarding this transaction prior to it dissemination; provided
that if either party is advised by counsel that it is legally
obligated to issue a press release, such party may issue a press
release after notice to and consultation with the other party.
Each party agrees that a breach of this paragraph would
irreparably injure the other party and such other party shall be
entitled to equitable relief, including injunctive relief, in the
event of such a breach provided that such remedy shall not be
deemed to be the
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exclusive remedy for a breach and shall be in addition to all
other remedies available at law or equity.
G. Whether or not the transactions contemplated hereby are
consummated, each party will pay its own costs and expenses,
including fees and disbursements of its counsel and accountants.
H. Upon execution of this Memorandum, the parties and their
respective affiliates agree to refrain from carrying on a
business, either directly or by employment, by consulting or
otherwise, which competes with or which is similar to the gaming,
hotel and resort business operation and development of the Joint
Facility and which is within the geographical perimeter of
Central City, Colorado. Notwithstanding the foregoing, nothing
herein is intended to affect in any manner affiliated companies
of Bullwhackers from operating existing and future gaming
operations in Black Hawk or Cripple Creek, Colorado. This
provision shall not prohibit any party or principal of a party
from holding stock in a publicly-held corporation amounting to
less than five (5%) of the outstanding shares. The parties are
not restricted from competing with the joint facility outside the
geographical area described above and is under no duty or
obligation to offer any similar business opportunity to the other
party outside of such area.
I. Lady Luck and Bullwhackers shall be allowed to proceed with due
diligence regarding the Capital Improvements, the Capital
Improvements Budget, the Definitive Agreements, and the Joint
Facility for a period of 60 days from the date hereof (the "Due
Diligence Period"), which period may be shortened or lengthened
upon the mutual consent of both parties. After the expiration of
the Due Diligence Period, and provided the parties do not
consummate the transaction described herein, this Memorandum and
all obligation hereunder (except as provided in Paragraph 6F),
shall terminate and be of no further force of effect.
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J. Except as provided in Paragraph 6F, which is intended to create
enforceable agreements amount the parties hereto, this Memorandum
is only a statement of intent and does not constitute a binding
agreement amount the parties, nor shall it be deemed to be an
agreement to agree. The proposal set forth in this Memorandum is
subject to the Contingencies, and, among other things, due
diligence, the approval of the Boards of Directors of Lady Luck
and Bullwhackers and the execution of the Definitive Agreements
in form and substance satisfactory in al respects to Lady Luck
and Bullwhackers and their respective counsel.
IN WITNESS WHEREOF, The parties have executed this Memorandum as of the day
and year first above written.
BWCC, INC.
Stephen J. Szapor, Jr.
BY: /s/ Stephen J. Szapor, Jr.
Title: President
GOLD COIN INCORPORATED
Andrew H. Tompkins
BY: /s/ Andrew H. Tompkins
Title: President
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