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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 4, 1996
Commission File Number: 33-57342
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1158484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2060 Broadway, Suite 400
Boulder, Colorado 80302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 444-0240
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Item 5. Other Events.
On November 12, 1996, Black Hawk Gaming & Development Company, Inc.
(the "Company") entered into or became a party to several agreements with
Diversified Opportunities Group Ltd. ("Diversified") and BH Entertainment Ltd.
("BH"), both affiliated with Jacobs Entertainment, Ltd. and certain other
persons either affiliated with Diversified, BH or the Company. The essential
terms of all agreements are set forth below.
1. Amended and Restated Purchase Agreement. This agreement,
between the Company and Diversified, provided, among other things, as follows:
(a) The Company issued to Diversified 190,476 shares of
its $.001 par value Common Stock at a price of $5.25
per share (an aggregate consideration of $1,000,000).
In addition, Diversified loaned the Company the sum
of $1,500,000 under the terms of a convertible note
due November 11, 1998 and bearing interest at LIBOR
plus 2%. An annual facility fee equal to one-quarter
of 1% of the amount of principal outstanding is also
payable by the Company.
(b) The foregoing note is convertible into shares of the
Company's Common Stock at the price of $5.25 per
share at any time upon the election of Diversified
(after shareholder approval described in (d) below is
obtained) or such note will automatically be
converted into shares at such time as (i) Diversified
has acquired or received all necessary and
appropriate regulatory, licensing and other approvals
from the Colorado Division of Gaming (the
"Division"), the Colorado Limited Gaming Control
Commission (the "Commission") and the state and local
liquor licensing authorities; and (ii) the Commission
approves the issuance to Black Hawk/Jacobs
Entertainment LLC (the "LLC") of a retail gaming
license.
(c) The note is secured by a first priority lien on the
Company's membership interest and share of capital
and profits in the LLC. The LLC was formed for the
purpose of continuing the development of a hotel and
casino in Black Hawk, Colorado on properties
contributed to the LLC by the Company and
Diversified.
(d) Subject to obtaining approval from the Company's
shareholders in accordance with its listing
requirements on the NASDAQ/NMS trading market, the
Company will issue and deliver to Diversified, and
Diversified shall acquire an additional convertible
note in the principal amount of $6,000,000, and the
first note described in (a) above shall be canceled.
The second note shall contain all of the terms and
conditions of the first note and shall be secured in
the same manner
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and is convertible into an aggregate of 1,142,857
shares of the Company's Common Stock.
(e) The second convertible note is convertible on the
same terms and conditions and under the same
circumstances as is set forth in (b) above, assuming
approval of shareholders for NASDAQ listing purposes.
Such shareholder approval is expected to be obtained
in early January 1997.
(f) If approval for NASDAQ listing purposes is not
obtained, the first note in the amount of $1,500,000
shall be deemed canceled and the shares acquired by
Diversified, as set forth in subsection (a) above,
shall be considered to have been redeemed and
Diversified will be deemed to have made a $2,500,000
capital contribution to the LLC and the parties'
interests in the LLC shall be adjusted from 75/25 in
favor of the Company to 50/50.
(g) The proceeds received and to be received by the
Company from the issuance of the shares and
convertible notes are to be used to fund the
Company's required capital contributions to the LLC.
(h) At such time as shareholder approval is obtained and
Diversified loans the additional $4,500,000 to the
Company, three officers and directors of the Company
(i.e., Messrs. Robert D. Greenlee, Frank B. Day and
Stephen R. Roark) are obligated to loan $750,000 to
the Company, essentially on the same terms and
conditions, including interest rates, maturity dates
and conversion features as are set forth in the
convertible notes issued and to be issued to
Diversified.
(i) The Company, Diversified and Messrs. Greenlee and Day
entered into a Shareholders' Agreement which provided
that Messrs. Greenlee and Day would vote their shares
for the purposes of expanding the Company's Board of
Directors from 7 to 9 members, providing for a
classified (staggered) Board of Directors, and
approving the conversion feature of the notes issued
or to be issued to Diversified. Further, at such
time as Diversified has acquired at least 820,000
shares of the Company's Common Stock, Messrs.
Greenlee and Day have agreed to vote their shares for
five of the nine persons nominated to the Board of
Directors and designated by Diversified. The
Shareholders' Agreement also contains certain
customary buy-sell arrangements between and among the
Company, Diversified and Messrs. Greenlee and Day.
The Shareholders' Agreement further provided that on
closing, two of the Company's present six member
Board of Directors would resign and, pursuant
thereto, Messrs. Lamm and Politano resigned. The
Company
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previously had one existing Board vacancy. The
Shareholders' Agreement then provided that the three
vacancies would be filled by nominees of Diversified
which were filled with the election of Jeffrey P.
Jacobs, Robert H. Hughes and Martin S. Winick to the
Board of Directors. In addition, Mr. Jeffrey P.
Jacobs was elected Chief Executive Officer of the
Company replacing Robert D. Greenlee and was elected
Co-Chairman of the Board of Directors to serve along
with Mr. Greenlee.
(j) Finally, the agreement provided that the parties
would enter into the Shareholders' Agreement, a
Registration Rights Agreement, a Master Joint Venture
Agreement, certain Subscription Agreements,
Employment Agreements and Option Agreements, all of
which are discussed below.
(k) For further details, reference is made to the
Restated and Amended Purchase Agreement, which is
attached hereto as Exhibit 1 and incorporated herein
by reference.
2. Operating Agreement Among the Company and BH and Diversified
Relating to the Formation and Operation of Black Hawk/Jacobs Entertainment,
LLC.
(a) This agreement was entered into for the purpose of
organizing a limited liability company under the laws
of the State of Colorado and to pursue the continued
development of a hotel and casino on certain
properties in Black Hawk, Colorado contributed to the
LLC by the parties. A description of the proposed
project has been included in reports filed by the
Company with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 and in
reports and other information provided to
shareholders.
(b) The agreement provides that the membership interests
are as follows:
The Company 75%
BH 24%
Diversified 1%
(c) The term of the LLC shall expire on December 31,
2036, or such other later date as may be fixed by
amendment to the agreement.
(d) The LLC is to be managed by BH subject to certain
limitations on transactions which are controlled by,
and must be approved in advance, by a Policy Board
consisting of five persons, three of whom have been
appointed by BH and two of whom who are appointed by
the Company. Upon conversion of the notes held by
Diversified and
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described above in the section "Amended and Restated
Purchase Agreement", the Policy Board will shift with
three members being appointed by the Company and two
members being appointed by BH.
(e) The agreement contemplates that the Company's total
capital contribution will be approximately
$15,000,000 and that the capital contribution of BH
will be approximately $5,000,000 reflecting the 75/25
membership interest ratio. It is further
contemplated that approximately $40,000,000 of third
party financing will be required to complete the
project, which amount will be personally guaranteed
by affiliates of BH, who will receive in
consideration therefor a fee of approximately 2% per
year for the amount subject to guarantee, payable by
the LLC. The financing arrangements contemplated by
the agreement are expected to be finalized in the
form of a loan agreement within the next 60 days.
(f) The agreement contains certain buy out provisions
stemming largely from an investigation, which is
being conducted with respect to certain activities at
the Gilpin Hotel Casino ("Casino") of which the
Company is the manager. The Casino has been made
aware that the Division is conducting an
investigation into certain check cashing and bad
check collection practices of the Casino or certain
of its personnel and agents since the date of its
opening. No proceedings have been initiated against
the Casino in any judicial or administrative forum as
of this date, although financial penalties and/or
license suspension or revocation could result if
material charges, such as extending credit by the
Casino, are established. The Casino would vigorously
contest any remedial actions brought by the Division,
but the outcome of the matter is not presently
determinable. The agreement, therefore, provides,
among other things, as follows:
(i) if any license, registration, application or
other form of required governmental filing
for the LLC project or otherwise is denied,
revoked, reserved or suspended for any
reason, including the participation of a
person unacceptable or unsuitable to the
Division or the Commission or any other
governmental authority, the Company, BH and
Diversified have agreed to take all measures
necessary to remedy or correct the
deficiency, including expelling any persons
associated with such company found
unacceptable or unsuitable by the Division,
the Commission or other governmental
authorities;
(ii) in the event that on or before January 1,
1998 the Commission has not approved the
retail gaming license for the LLC project
casino and on or before such date BH, in its
sole but
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reasonable discretion, has reason to believe
that the LLC casino will not receive such
approval and such failure to obtain such
approval is attributable to the Casino
investigation, BH will have the right and
option to acquire all of the Company's
interest in the LLC by canceling the notes
then outstanding in return for a 30% interest
(thereby reducing the Company's interest to
45% in the LLC) and purchasing the remaining
45% at an amount equal to 90% of the fair
market value of such interest determined by
appraisal. The purchase price shall be
payable pursuant to a note over a ten year
period bearing interest at a rate equal to 2%
in excess of the prime rate unless an earlier
payoff is required under Colorado gaming
laws.
(g) If BH has exercised the foregoing purchase right,
within two years after opening the LLC casino, the
Company has the right to reacquire: (i) its 30%
interest in the LLC for 1,142,857 shares of its
Common Stock (which would have been issued to
Diversified pursuant to conversion of the notes
described above), and (ii) its 45% interest in the
LLC for the same amount of cash which BH paid for the
Company's 45% interest in the LLC. The intent of the
repurchase provision is to put the parties in the
same position had the purchase and repurchase not
occurred.
(h) In addition to the right to purchase set forth above,
the agreement calls for automatic divestiture of a
member's interest in the LLC if certain events occur
with respect to that member of the LLC (the "Affected
Member"). The divestiture events are generally as
follows:
1. The Affected Member is charged with or
convicted of any criminal offense, if a
conviction of the offense in question would,
pursuant to the Colorado gaming laws
("Colorado Gaming Laws"), disqualify the
Affected member from obtaining a gaming
license. However, where a member is only
charged with a criminal offense and not
convicted, and where the Commission and the
Division upon request have agreed to defer
pursuing any action based upon such charges
against the Company's application for a
gaming license, or where any such actions of
the Division or Commission are subject to a
stay order, then the Affected Member's
interest shall not be subject to divestiture
under this subsection.
2. The Affected Member, or any entity that it
owns or controls, incurs a revocation of any
Colorado gaming or alcohol beverage license,
and it is determined through arbitration that
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such revocation has a material adverse affect
upon the issuance to the LLC of a gaming or
alcohol beverage license.
3. The Division issues a formal recommendation
against the issuance to the LLC of an
operator or retail gaming license, which
recommendation cites the participation of the
Affected Member as a material factor in the
decision.
4. The Commission denies the issuance to the LLC
of an operator or retail gaming license,
citing the participation of the Affected
Member as a factor in the decision, or the
Commission conditions the issuance of a
retail gaming license on the Company removing
the Affected Member in the LLC or its casino
operations.
5. The LLC's alcoholic beverage license
applications are denied by either the state
or local licensing authority, citing the
participation of the Affected Member as a
material factor in the decision.
6. The Affected Member is found to be an
"unsuitable person" within the meaning of the
Colorado Gaming Laws.
7. The Commission or the Division advise the LLC
in writing, or it is otherwise determined
through arbitration under the agreement, that
a decision on the LLC's gaming license
application is being delayed beyond the later
of (x) one year following the filing of the
LLC's application for a retail gaming license
or (y) January 1, 1998, and the LLC is
advised before or after said date that the
sole reason for such delay is the
participation of or concerns about the
Affected Member.
(i) The divestiture provisions operate similar to the buy
out provisions above in (f). In addition, the
repurchase provision operates in a fashion similar to
that provided above in (g) but is effective for a
period of two years from the event causing the
divestiture.
(j) For further details, reference is made to the
Operating Agreement, which is attached hereto as
Exhibit 2 and incorporated herein by reference.
3. Shareholders' Agreement.
(a) This Agreement was entered into by and among the
Company, Diversified and Robert D. Greenlee and Frank
B. Day, who are two of
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the seven person members of the Company's Board of
Directors. The Shareholders' Agreement provides that
Messrs. Greenlee and Day agree to vote all of their
shares for the matters set forth in Section 1(i)
above.
(b) The Shareholders' Agreement also contains
restrictions on transfer of shares and a right of
first refusal on behalf of the Company and the other
shareholders should any shareholder wish to sell his
shares.
(c) For further details, reference is made to a copy of
the Shareholders' Agreement attached hereto as
Exhibit 3 and incorporated herein by reference.
4. Registration Agreement.
(a) The Company, Diversified and Messrs. Robert D.
Greenlee and Frank B. Day, two directors of the
Company, entered into a Registration Rights Agreement
which provides that upon the request of holders of
15% or more of the Company's Common Stock that the
Company would undertake to file, at its expense, a
registration statement under the Securities Act of
1933. The Agreement also provides for a demand
registration right at the shareholders expense and
for various piggyback registration rights should the
Company elect to file a registration statement under
that Act for other purposes.
(b) For further details, reference is made to a copy of
the Registration Rights Agreement attached hereto as
Exhibit 4 and incorporated herein by reference.
5. Understanding As To Master Joint Venture Agreement.
(a) The Company and Diversified entered into this
understanding pursuant to which every gaming activity
now or in the future owned or controlled by
Diversified and/or its affiliates and assignees will
be offered to a joint venture, and the Company will
have the right to obtain an ownership interest of up
to 51% therein; provided however, that Diversified or
its affiliate's or assignee's present or future
interests in any gaming opportunity located at the
Nautica Entertainment Complex in Cleveland, Ohio or
the Colonial Downs Racetrack in Virginia or the
Boardwalk Casino, Inc. in Las Vegas are excepted from
the agreement.
(b) Likewise, every gaming opportunity, now or in the
future owned or controlled by the Company and/or its
affiliates and assignees, will be offered to a joint
venture in which Diversified will have the right to
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obtain an ownership interest of up to 49% therein;
provided however, that the Company or its affiliate's
or assignee's present or future interest in the
Gilpin Hotel Casino, or the Cross Border transaction
presently being pursued by Robert D. Greenlee, or the
Oklahoma City, Oklahoma project with the SAC and FOX
Indian Nation shall be excepted from the agreement.
(c) For further details, reference is made to a copy of
the Understanding As To Master Joint Venture
Agreement attached hereto as Exhibit 5 and
incorporated herein by reference.
6. Assignment, Pledge and Security Agreement.
(a) The Company entered into this agreement with
Diversified pursuant to which its entire interest in
the LLC was pledged on a nonrecourse basis to secure
the initial $1,500,000 convertible note issued to
Diversified and which is intended to secure the
$4,500,000 convertible note to be issued to
Diversified by the Company, assuming shareholder
approval for NASDAQ/NMS purposes is obtained as
discussed above.
(b) For further details, reference is made to a copy of
the Assignment, Pledge and Security Agreement
attached hereto as Exhibit 6 and incorporated herein
by reference.
7. Subscription Agreements.
(a) The Company entered into subscription agreements with
Messrs. Robert D. Greenlee, Frank B. Day and Stephen
R. Roark, who are directors of the Company. The
subscription agreements require Messrs. Greenlee, Day
and Roark to loan $300,000, $300,000 and $150,000,
respectively, to the Company after Diversified has
loaned the Company a total of $6,000,000 pursuant to
the notes described above. These loans to the
Company will be made on the same basis as the notes
issued to Diversified (i.e., such loans will be bear
interest at the same rate and will be convertible on
the same terms and conditions as Diversified's
notes). It is anticipated that funding for these
loans will be required of these individuals in early
1997.
(b) Reference is made to copies of the Subscription
Agreements between the Company and Messrs. Greenlee,
Day and Roark attached hereto as Exhibits 7, 8 and 9
and incorporated herein by reference.
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8. Employment Agreements.
(a) The Company entered into employment agreements with
Jeffrey P. Jacobs, its Chief Executive Officer and
Co-Chairman, Stephen R. Roark, President of the
Company, and Stanley Politano, Vice President of the
Company.
(b) Each employment agreement is for a term of three
years and provides for a base compensation for
Messrs. Jacobs, Roark and Politano of $150,000
$125,000 and $87,000, respectively. Bonuses may be
payable in the discretion of the Board of Directors.
(c) With respect to Mr. Jacobs' employment agreement and
in addition to the base salary of $150,000 provided
therein, when Mr. Jacobs or his affiliates acquire
820,000 or more shares of the Common Stock of the
Company, he shall be entitled to a bonus in the
amount of 2.5% of the Company's pre-tax net income in
excess of $2,880,000 in each fiscal year determined
in accordance with generally accepted accounting
principles and determined for each calendar year
(including the year of requisite share ownership) on
or before March 31 of the succeeding year.
(d) For further details, reference is made to copies of
the Employment Agreements attached hereto as Exhibits
10, 11 and 12 and incorporated herein by reference.
9. Option Agreements.
(a) At closing of the various agreements described above,
the Company issued stock options under its 1996
Incentive Stock Option Plan to certain of its
officers, directors and other persons associated with
the Company's business, including officers, directors
and consultants to Diversified, BH and their
affiliates. Options were granted to purchase 300,000
underlying shares of the Company's Common Stock at
prices having a weighted average of approximately
$5.71 per share. One third of the options vest upon
conversion of the notes held by Diversified (as
described above) and 1/3 and 1/3 vest, respectively,
on the second and third anniversaries of such
conversion. As part of the agreement, 317,500
options which had been previously granted by the
Company to its officers and directors, with exercise
prices ranging from $6.75 per share to $11.00 per
share were reduced to $5.62 per share (or $6.17 per
share for certain holders).
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements: None.
(b) Exhibits: The following are filed herewith:
Exhibit No. Description
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96-10-1 Amended and Restated Purchase Agreement with
Convertible Note attached.
96-10-2 Operating Agreement of BH/Jacobs Entertainment, LLC.
96-10-3 Shareholders' Agreement.
96-10-4 Registration Rights Agreement.
96-10-5 Understanding as to Master Joint Venture Agreement
96-10-6 Assignment, Pledge and Security Agreement.
96-10-7 Subscription Agreement--Greenlee
96-10-8 Subscription Agreement--Day
96-10-9 Subscription Agreement--Roark
96-10-10 Employment Agreement--Jacobs
96-10-11 Employment Agreement--Roark
96-10-12 Employment Agreement--Politano
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK HAWK GAMING &
DEVELOPMENT COMPANY, INC.
Registrant
Date: December 4, 1996 By: /s/ Stephen R. Roark
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Stephen R. Roark, President
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EXHIBIT INDEX
Exhibit No. Description Page
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96-10-1 Amended and Restated Purchase Agreement with
Convertible Note attached.
96-10-2 Operating Agreement of BH/Jacobs Entertainment, LLC.
96-10-3 Shareholders' Agreement.
96-10-4 Registration Rights Agreement.
96-10-5 Understanding as to Master Joint Venture Agreement
96-10-6 Assignment, Pledge and Security Agreement.
96-10-7 Subscription Agreement--Greenlee
96-10-8 Subscription Agreement--Day
96-10-9 Subscription Agreement--Roark
96-10-10 Employment Agreement--Jacobs
96-10-11 Employment Agreement--Roark
96-10-12 Employment Agreement--Politano